Brius will be the subject of a California state audit looking into the company’s business dealings with other firms owned by Brius CEO Shlomo Rechnitz and his family members.
By a vote of 12-0, the state’s Joint Legislative Audit Committee approved the audit Wednesday at the request of State Sen. Mike McGuire and Assemblymember Jim Wood.
Both legislators represent Humboldt County, where Brius controls every nursing home. Last year, the lawmakers successfully fought Brius from closing three of its five homes in the county without giving into the firm’s demand for higher reimbursements for Medi-Cal patients.
“Through that process we learned a lot about Brius, its ownership structure and business operating procedures,” Wood said in a prepared statement. “(That) compelled us to better understand the impact and appropriateness of what are called related-party transactions.”
Brius, which controls one of every 14 nursing homes beds in California, received over $507 million in Medicare and Medi-Cal funds in 2015 – more than 80 percent of its total annual revenue. An analysis of state data by the National Union of Healthcare Workers found that during the same year, Brius paid over $67 million to 65 companies controlled by Rechnitz or his relatives.
Meanwhile, over the past year, the California Department of Public Health has blocked Brius from taking over five nursing homes citing its poor patient care track record and fined one Brius home in Humboldt County $160,000 for violations stemming from failing to properly staff the facility.
“We commend State Sen. McGuire and Assemblymember Wood for requesting this audit,” NUHW President Sal Rosselli said. “With thousands of the California’s frailest seniors living in Brius homes, the state has an obligation to determine whether the company is spending taxpayer money as it was intended – to care for its residents.”
The California state auditor will examine data Brius reported to the Department of Public Health, Department of Health Care Services and Office of Statewide Health Planning and Development. The audit will also review current protocols for capturing transactions between companies with the same owner as well as the appropriateness of the transactions in order to ensure that services provided are fairly priced.
Several reports have already questioned whether Brius homes may be overpaying for rent and other services from Rechnitz-owned firms. For example, the North Coast Journal reported the following in 2016:
The disclosures include a section dubbed “related party transactions,” which describes financial interactions between parent companies and subsidiaries. Think of it as a kind of conflict of interest statement. In 2015, Eureka Rehabilitation and Wellness Center paid $42,000 to Boardwalk Financial Services, LLC for “administrative services.” The company employs Rechnitz as a consultant. It also paid $864,894 to lease the property. Who owns the property? Rechnitz. Eureka Rehabilitation and Wellness Center also paid $110,204 for medical supplies to TwinMed Medical Supplies and Services, owned by Shlomo Rechnitz and his twin brother, Steve. And it paid $47,663 to SR Capital, LLC, which lists Rechnitz as its managing member. Altogether, in the 2014-2015 fiscal year, as Rockport/Brius was playing a financial game of chicken with Partnership Healthcare and refusing to take in vulnerable seniors and people with disabilities, it managed to shunt more than $4.6 million back into companies affiliated with Shlomo Rechnitz.
While, on paper, the company may have lost money, Rechnitz still managed to profit. The amount he took in for lease payments alone in 2015 on the five properties — more than $3.5 million — was easily enough to cancel out Brius’ “unsustainable” combined loss of almost $1.5 million from the company’s Humboldt County holdings that year.
“As good stewards of state resources we must understand how Brius Healthcare and affiliated companies receive and invest Medi-Cal dollars,” McGuire said in a prepared statement.
Wood added, “This audit will investigate the inner workings and interrelated business relationships that exist in this industry and determine whether changes need to be made to protect the use of public funds for this vulnerable population.”
NUHW represents workers at two Brius homes in Marin County. Maria Martinez, who has worked as a nursing assistant for 27 years at the Brius-owned San Rafael Healthcare and Wellness Center, told Audit Committee members Wednesday in Sacramento that Brius “cut staffing levels, basic supplies and resources” when it took over the San Rafael home in 2012. “The quality of care for our residents has gone way down,” she said urging them to approve the audit. “We are understaffed almost every single day.”
Following this week’s approval of the audit request, the California State Auditor will now assign a team of auditors to carry out the investigation. The audit results will be published in 2018.