Brius Healthcare CEO Shlomo Rechnitz acknowledged publicly for the first time that he set up middleman leasing companies that boost his profits by charging inflated rents to his nursing homes.
Rechnitz, the largest nursing home operator in California, acknowledged the practice, which is at the center of an ongoing state audit, during an August 28, 2017 deposition in connection with a class action lawsuit targeting him.
During the nearly two-hour deposition, Rechnitz acknowledged that he and his wife set up a middleman landlord firm in Eureka, Calif. that made a “profit” by leasing skilled nursing facilities from their property owner and then subleasing them to his nursing homes at a higher price.
Rechnitz’s use of middlemen landlords was first uncovered in the report “Brius Healthcare’s Insider Transactions,” released in August by the National Union of Healthcare Workers. The report found that Rechnitz used this scheme at many homes, and that Brius homes in 2015 paid on average 36 percent higher rent than similar homes in the same county. The findings contributed to a vote by lawmakers earlier this year ordering the California State Auditor to review Brius’ business dealings with other companies controlled by Rechnitz.
Attorneys questioned Rechnitz in August about his rental arrangements and other business dealings in connection with the case “Foreman vs. Rechnitz.” The lawsuit, covering current and former residents at 55 Brius homes, alleges that the company deceived them about its patient-care track-record when they sought care at the Brius facilities.
In response to a question from the plaintiff’s attorney Stephen Garcia, Rechnitz, a self-proclaimed billionaire, said he had difficulty remembering details about his nursing home operations and organizational structure because his holdings are so vast.
“Again, Mr. Garcia, as I’m sure you know, I own ninety nursing homes; probably a good few hundred million dollars in real estate; an ambulance company; a durable medical company; a pharmacy; and oxygen company; a wound care company; a company that makes canisters for gas, and I’m probably forgetting a lot of them, so I really just do see everything from 40,000 feet…” (p. 15)
Of course, Rechnitz failed to mention his $8 million Gulfstream G-IV jet, which literally travels at 40,000 feet.
During the deposition, Garcia asked Rechnitz to review numerous documents, including Medi-Cal cost reports, leases, and subleases, which were posted on BriusWatch at the time of the release of NUHW’s report.
In acknowledging that he sets up middleman landlord companies to create profits for himself (p. 58), Rechnitz also affirmed that he signed certain lease documents, which imposed inflated rents on his nursing homes, on behalf of both parties to the deal.
Rechnitz also acknowledged that the administrator of one of his nursing homes informed him in 2015 that the facility was falsifying its reporting to state officials about the amount of nursing care provided to residents (p. 76). The full transcript of Rechnitz’ deposition is below.