Nursing home operator accused of diverting $1.8 million in COVID-19 stimulus payments

The owners of a shuttered Sioux City nursing home, accused of deliberately defrauding creditors, are alleging that the home’s management company diverted $1.8 million in COVID-19 stimulus payments away from the facility.

The allegations are made in court filings by Indian Hills Health Care, the Iowa company that owns Touchstone Healthcare Community. Touchstone, a Sioux City nursing home, closed last summer and is now mired in bankruptcy.

Last March, a Minnesota company called Health Dimensions Consulting, or HDC, sued Indian Hills. The lawsuit alleges that in early 2019, HDC was hired by the Iowa company to manage the nursing home in return for either $33,000 per month or 5.5% of the gross revenues, whichever was greater.

In May 2021, Indian Hills allegedly began falling behind in its payments to HDC. In August of that year, HDC says, it stopped providing services at Touchstone and is today owed more than $129,000 in unpaid fees.

In response to that lawsuit, Touchstone’s owners have filed a counterclaim against HDC in federal court, alleging the Minnesota company “arranged for advances of funds” from Medicare or Medicaid that totaled $500,000” and transferred “away from Indian Hills” roughly $1.8 million in COVID-19 stimulus payments that had been awarded to the care facility.

The counterclaim doesn’t allege what HDC did with the stimulus payments or the Medicare/Medicaid advances.

HDC has denied Indian Hills’ allegations.

The lawsuit was proceeding in federal court until late November, when a judge issued a stay in the proceedings due to Indian Hills having filed for bankruptcy. As a result, HDC’s claims and Indian Hills’ counterclaims have yet to be resolved.

As part of the bankruptcy proceedings, Indian Hills has claimed $145,397 in assets and $8.1 million in liabilities.

Those liabilities include $3 million owed to the U.S. Department of Housing and Urban Development and more than $447,000 owed to the U.S. Department of Health and Human Services and the federal Centers for Medicare and Medicaid Services.

Last spring, Touchstone was the target of a barrage of lawsuits filed by vendors claiming the nursing home wasn’t paying its bills and owed more than half a million dollars to creditors.

State regulators didn’t intervene until July 2022, after Touchstone informed the Iowa Department of Inspections and Appeals that it was unable to make the payroll that was due that day. At that point, DIA stepped in and asked an Iowa judge to immediately issue an order appointing a receiver to handle the nursing home’s operations.

The judge issued the order, citing an “imminent danger to the residents” of the home. The 125-bed home was shut down soon after, with the residents relocated to other care facilities.

At roughly the same time, a Pennsylvania company called Health Services Group, or HSG, sued Indian Hills, claiming the owners of Touchstone had racked up more than $860,000 in debt while falsely telling creditors it had sold the business to a New York company called Queens Sweet Jane that was responsible for paying the bills.

HSG claimed that in reality, Indian Hills remained Touchstone’s actual owner and continued adding to the nursing home’s debt load. HSG alleged it was owed $483,000 by the care facility’s owners.

HSG also claimed that Indian Hills didn’t merely go broke, but instead deliberately defrauded HSG and other vendors. “Indian Hills’ intent to defraud its creditors is evidenced by the depth and breadth of its defaults,” HSG alleged. Lawyers for Indian Hills have denied those allegations.

Between January 2019 and the home’s closure last summer, the 125-bed Touchstone was cited for at least 116 regulatory violations and subjected to $195,000 in federal fines.

For four years, it was on the federal government’s list of Special-Focus Facilities – a list of some of the nation’s worst-performing nursing homes — before dropping off the list in early 2022. It was then reinstated to the list, but by then it had already closed its doors.

Court records indicate Indian Hills Health Care was organized and incorporated by Sioux City developer James C. Johnson in 2019. According to Medicare records, the limited liability company is in turn owned by a revocable trust formed by Fred Davenport Jr.

Davenport is now dead, and a Sioux City man, Larry L. Book, is the company’s sole trustee. Court records show the beneficiaries of that trust are the members of Fred Davenport Jr.’s family.