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Arkansas charges former nursing home chain owner with Medicaid and tax fraud

Arkansas is also working with other state attorneys general considering civil action against Joseph Schwartz, says a person familiar with the discussions.
Joseph Schwartz speaking to lawyers during a sworn deposition in June 2017; Ashton Place Rehabilitation and Care Center in Memphis, Tenn.
Joseph Schwartz oversaw the care of more than 7,000 older Americans through his company, Skyline Healthcare, which, at its peak, owned or ran more than 100 facilities in 11 states. Then the nursing home chain collapsed.Ace Reporters; Google Maps

The former owner of a national nursing home chain that collapsed amid widespread allegations of neglect and financial mismanagement detailed in a previous NBC News investigation has been charged by the Arkansas attorney general with eight counts of Medicaid fraud and two tax fraud counts.

The man, Joseph Schwartz, who lives in Brooklyn, New York, is expected to turn himself in to Arkansas authorities in early January, said his Arkansas attorney, Bill James.

All 10 of the counts are felonies.

Arkansas is working with a group of other state attorneys general who are also considering possible civil action against Schwartz, said a person familiar with their discussions.

At one time, Schwartz oversaw the care of more than 7,000 older Americans through his company, Skyline Healthcare, which at its peak owned or ran more than 100 facilities in 11 states. With a handful of staff members, Schwartz managed them from a tiny office over a New Jersey pizzeria.

Image: Joseph Schwartz speaking to lawyers during a sworn deposition in June 2017 for a neglect case he settled.  He told the lawyers, "All our facilities are very, very, very , very compliant with all clients.  They all have every program that's necessar
Joseph Schwartz speaking to lawyers during a sworn deposition in June 2017 in a neglect case he settled. He told the lawyers: "All our facilities are very, very, very, very compliant with all clients. They all have every program that's necessary for patient care."Ace Reporters

From 2017 to 2019, the chain crumbled, and more than a dozen Skyline-operated nursing homes shut their doors, throwing residents, vendors, employees and state regulators into chaos, according to court filings, state officials and former employees.

Arkansas Attorney General Leslie Rutledge alleges that as it declined, the company did not just fail to pay bills but that it also committed fraud.

"These charges come after a 44-month-long investigation into Skyline's wrongdoings, and I will not sit idly by while anyone defrauds the State and Federal government out of millions of dollars to line their own pockets," Rutledge said. "It's important for Arkansans to know if they suspect Medicaid fraud, they should immediately contact my office."

The charges allege that Schwartz made false statements in Skyline's monthly Medicaid cost reports to the state, causing the state to overpay the companies controlled by Schwartz by more than $3 million, a person close to the investigation said.

The tax charges are related to allegations that Schwartz did not pay the state funds that were withheld from his employees' paychecks and also did not pay state income taxes.

Schwartz received tens of millions of dollars in gross income from his Arkansas facilities in 2018 and 2019 but failed to file an Arkansas tax return as required by law, Rutledge said.

Image: Joseph Schwartz listed a tiny office above this New Jersey pizzeria in Wood Ridge, NJ as the location where he ran over 100 nursing homes nationwide.
Joseph Schwartz listed a tiny office above this pizzeria in Wood Ridge, N.J., as the location where he ran over 100 nursing homes nationwide.NBC News

James said Schwartz will aggressively fight the charges and plans to plead not guilty. "I have not heard or seen anything to believe these allegations are true," James said.

Schwartz went from owning no nursing homes to owning more than 100 in a short span. In a sworn deposition in September, newly obtained by NBC News, Schwartz said that before he owned them, he had no work experience involving nursing homes other than selling them liability insurance. The deposition was taken by lawyers representing a plaintiff alleging a wrongful death.

Maggots and gangrene

The company left a wake of documented cases of extreme neglect. In Arkansas, maggots were found in a resident's catheter, according to documents when the state attorney general issued fines.

In 2017, Skyline had taken over Ashton Place, a nursing home in Memphis, Tennessee. Less than two months later, a resident whose leg had recently been amputated was taken from the nursing home, where he was found lying in feces, to a hospital, where nurses discovered maggots and gangrene in his leg, according to the police report obtained by NBC affiliate WMC.

His death two days later prompted a state investigation, which revealed that the man's dressing had not been changed for two days. Staff members told investigators that problems arose in part when Skyline told nurses to abandon electronic medical records and go back to paper record-keeping.

A month after the death, the Centers for Medicare and Medicaid Services, the federal agency that oversees the nursing home industry, terminated Medicare certification for the facility and another Skyline property in Tennessee. It terminated a third in the state in 2018.

During the investigation, the company's medical director told inspectors, "I have no support, no direction."

In the deposition from September, which was in relation to a wrongful death suit filed last year in Arkansas on behalf of a resident named Lois Rack, Schwartz insisted that Skyline delivered high-caliber long-term care. An attorney for the plaintiffs, Blake Fromang, asked him, "Did you monitor the quality of care your facilities were providing?" He responded, "I did not monitor but I did make [staff] aware that that is what I want."

Fromang also asked, "Did you have a system in place to make sure [residents] were getting quality care?" Schwartz responded, "I'm sure." Fromang followed up, "Do you remember what it was?" Schwartz answered, "No."

Former employees alleged in an ongoing lawsuit that they discovered that the company had stopped paying health care premiums, leaving them to discover that they were uninsured, and they sued Skyline. Schwartz denied the allegations in court.

The Massachusetts attorney general cited Schwartz for failing to pay hundreds of employees their wages.

Ashton Place
Ashton Place Rehabilitation and Care Center in Memphis, Tenn.Google Maps

In another sworn deposition in the Arkansas wrongful death case, newly obtained by NBC News, Skyline's chief financial officer told an attorney that he would not put his own mother in a Skyline nursing home.

In several lawsuits against Schwartz, including the Rack case, lawyers for the plaintiffs asserted that Schwartz and his wife, Rosie, took cash out of the nursing homes as the company was collapsing, leaving little or no money to pay for pharmaceuticals, food and liability insurance. Schwartz's lawyers denied the allegations.

Schwartz controlled the nursing homes through an intricate web of more than 100 shell companies, according to state business records and federal nursing home ownership documents.

According to state officials, the ultimate collapse of the company led to the introduction and passage of legislation and regulations in at least three states, Ohio, Kansas and Arkansas, to require increased vetting of new nursing home owners before they obtain licenses.

The Andover morgue

Despite the well-documented implosion of Skyline, Schwartz continues to own at least four nursing homes, according to federal ownership records. Schwartz also confirmed in the sworn August deposition that even after he sold the facilities he owned in Arkansas, he had a profit-sharing agreement that allowed him to continue to earn money from them. A month later, when he was asked about the profit-sharing arrangement, Schwartz said he is using the profits to pay off debts, not for his personal gain.

Schwartz's son Louis Schwartz, a former vice president of Skyline, also continues to own nursing homes, such as the facility in Andover, New Jersey, once known as Andover Subacute II, which has been renamed Woodland Behavioral and Nursing Center.

Nineteen months ago, 17 bodies were discovered stuffed into a tiny morgue at Andover Subacute II during the early stages of the Covid pandemic, police said.

The facility is now part of a state attorney general's investigation into "facilities with high numbers of Covid-related deaths and below-average track records for health inspections, staffing, and quality of care."

Kyle Wilson, a police officer in Andover Township, toured the facility a few days before residents began dying in large numbers.

Wilson wrote in a memo to his sheriff that there was no Covid testing at the facility and that the staff had not segregated the patients suspected of having Covid-19. He wrote: "It is my opinion that the acquisition of [personal protective equipment] alone will not resolve the rate of spread at this facility. ... [S]taff are undoubtedly contaminated throughout their shift. While the staff are tangibly scared, a culture of safety is not present in this facility. They have not been educated. They do not even know what they do not know."

Following national coverage and payment of a $221,000 fine for an "immediate jeopardy" violation, as well as a pause in accepting new residents, the owners of Andover Subacute changed the name to Woodland Behavioral and began accepting new residents.