Bank tells judge that Iowa nursing home residents are in a ‘precarious position’

A central Iowa bank has told a federal judge that the proposed new owner of an Iowa nursing home chain has left the elderly residents of those facilities in a “precarious position.”

Lincoln Savings Bank of Clive is asking the judge for the authority to subpoena records tied to the planned sale of Iowa’s QHC Facilities nursing home chain. The bank says it is “deeply troubled” by the actions of the chain’s proposed new owner, who now wants to buy QHC for $4.5 million – far less than the $12 million it agreed to pay at an auction just six months ago.

The buyer’s refusal to keep its end of the bargain has put the troubled nursing home chain in a difficult position, the bank says, with its cash reserves being depleted and no other prospective buyers on the horizon.

QHC Facilities, which owns eight nursing homes and two assisted living facilities in Iowa, has been cited for at least 184 regulatory violations in the past 21 months and owes $6 million to state and federal taxpayers.

The company filed for bankruptcy late last year amid efforts to find a buyer for all of the chain’s assets. In late February, Blue Diamond Equities, also known as Blue Care Homes, submitted a letter to QHC agreeing to purchase QHC for $11.6 million.

At that time, the principal owner of Blue Diamond was Shmuel Haikins. Howard Weiss, who has a financial stake in a group of California nursing homes, was acting as Blue Diamond’s financial backer. The two men allegedly provided QHC with documents showing they had the money in hand to complete such a sale.

Their offer triggered an auction, at which Cedar Health Group, an East Coast development company, bid $12.1 million — $100,000 more than Blue Diamond. That left Blue Diamond as the backup bidder in case the planned sale to Cedar Health went south, which is exactly what happened.

Court records show that shortly after the auction, an attorney for Cedar Health wrote to QHC’s representatives, explaining that Cedar Health was trying to determine whether any of the Iowa nursing homes were “in imminent danger of decertification” by Medicare due to quality-of-care issues. The attorney pointed out that two of the QHC homes had been designated Special Focus Facilities by the federal government, indicating a long, uncorrected pattern of serious violations.

Cedar Health then backed out of the sale, leaving Blue Diamond as the winning bidder. Blue Diamond, however, quickly reached the conclusion that $12 million was too much to pay for QHC, and it sought the court’s approval to enter into a new agreement that would enable it to buy QHC for just $4.5 million – with the chain’s three most troubled care facilities shut down and excluded from the deal.

That proposal immediately raised concerns at Lincoln Savings Bank, which had loaned QHC $2 million to keep the company afloat while the planned sale and the bankruptcy worked their way through the court system. Blue Diamond saw the three nursing homes it wanted closed as “too unprofitable,” the bank alleged in court filings.

Bank ‘deeply troubled’ by Blue Diamond

Although the court recently refused to agree to the proposed new terms of the sale, the bank now says it fully expects QHC to file a renewed motion to win the court’s approval of the revised deal.

In court papers filed earlier this week, the bank informed the court that it “is deeply troubled by the actions of the Blue Diamond parties,” particularly given the nature of QHC’s business: senior care. The bank says the court-approved bidding procedures for the sale of the chain clearly and unequivocally stated that QHC’s assets were to be sold on an “as is” basis, and that all due diligence by any prospective buyers was to be completed prior to the auction taking place.

The bank told the court this week it appears that Blue Diamond now wants a significant reduction in the sale price “for apparently no reason other than the fact that the Blue Diamond parties no longer like the deal that they are legally obligated to consummate.”

The bank says that in recent talks, Blue Diamond has refused to substantially increase the amount it will pay for QHC. The bank says Blue Diamond has put QHC in a “difficult position” since QHC doesn’t have enough money to simply forgo a sale and keep operating the nursing homes on its own. QHC, the bank points out, is “months past the auction and sale efforts, with no other purchasers in sight.”

Because of that, the failure to consummate a sale quickly will leave the residents of QHC’s care facilities in a “precarious position,” the bank has told the court. And because of QHC’s debt, the bank says, an investigation of Blue Diamond is “economically prohibitive” for QHC and so it falls to the bank to issue subpoenas and demand answers.

The bank acknowledges that while creditors do not have an unfettered right to conduct examinations of debtors under federal bankruptcy rules, it is within the court’s discretion to order such examinations.

QHC owes taxpayers $6 million

The bank is asking the court for the authority to subpoena Blue Diamond for documents and to take the depositions of its executives. The banks says those steps are “unfortunately necessary to attempt to understand” the true reasons for the newly brokered purchase agreement.

Separate from the planned sale, there still is the unresolved matter of millions that QHC owes to taxpayers.

Court records show the chain owes the federal government a total of $2,108,910 for unpaid fines related to quality-of-care regulatory violations and COVID-19 Accelerated and Advanced Payments it collected in the midst of the pandemic.

Settlement proposed on millions that Iowa nursing home chain owes taxpayers

In addition, state records show QHC owes the Iowa Department of Human Services $3,930,784 in unpaid fees. With more than 300 other creditors lined up and seeking payment from QHC, the company is now asking that its debt to the state be treated as a “lower priority.”

The eight skilled-nursing facilities owned by QHC are the Crestridge Care Center in Maquoketa; Crestview Acres in Marion; Sunnycrest Nursing Center in Dysart; QHC Fort Dodge Villa; QHC Humboldt North; QHC Humboldt South; QHC Mitchellville; and QHC Winterset North. The two assisted living centers are QHC Madison Square in Winterset and QHC Villa Cottages of Fort Dodge.

Collectively, those facilities have a maximum capacity of more than 700 residents, although the three facilities Blue Diamond has sought to exclude from the sale — QHC Humboldt South, QHC Mitchellville and Sunnycrest Nursing Center — have closed in recent weeks.

Editor’s note: An earlier version of this story incorrectly indicated the Lincoln Savings Bank is based in Nebraska. According to court records, it is based in Clive, Iowa.