Settlement Agreement - Office of Inspector General of the US Department of Health and Human Services and Beverly Enterprises Inc.
AGREEMENT BETWEEN THE
OFFICE OF INSPECTOR GENERAL
OF THE
U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES
AND
BEVERLY ENTERPRISES, INC.
REGARDING THE OPERATIONS OF
BEVERLY ENTERPRISES-CALIFORNIA, INC.
PRIOR TO ITS EXCLUSION PURSUANT TO 42 U.S.C. SECTION 1320a-7(a)(1)
1. This Agreement is entered into between the Office of Inspector General
("OIG") of the United States Department of Health and Human Services ("HHS") and
Beverly Enterprises, Inc. ("Beverly") (collectively, the "parties"). This Agreement
addresses the arrangement between the parties regarding the operations of certain
Beverly nursing facilities and of Beverly Enterprises-California, Inc. ("Beverly-California"),
after its conviction and prior to its exclusion, as further described below.
2. Beverly-California will enter a plea of guilty and be convicted in
the Northern District of California of one count of wire fraud (18 U.S.C. Section
1343) and 10 counts of false statements (18 U.S.C. Section 1001) (the entry of the
Judgment in this matter is hereinafter referred to as the "Conviction"). Beverly,
Beverly-California, and the OIG agree that as a result of the Conviction, Beverly-California
will be subject to mandatory exclusion from participation in all Federal health
care programs pursuant to 42 U.S.C. Section 1320a-7(a)(1).
3. At the time of the Conviction, Beverly-California will be comprised
of the 10 nursing facilities listed on Exhibit A (the "Facilities").
4. In order to ensure that the mandatory exclusion of Beverly-California
will not result in disruption or harm to the residents of the Facilities, Beverly
agrees that the Facilities shall be divested from Beverly-California to unrelated
parties in a manner consistent with this Agreement and the OIG agrees to withhold
notice of exclusion in a manner consistent with this Agreement.
5. Beverly agrees that to the extent the interests of Beverly-California
in any Facilities are not divested to unrelated parties, Beverly must ensure that
the only interest in such Facilities held by Beverly-related entities after the
time of Conviction will be the interest in the Facilities held by Beverly-California.
6. Beverly shall operate the Facilities in a manner consistent with this
Agreement. Beverly shall not attempt to transfer the Facilities to any related entity,
subsidiary, or affiliate of Beverly other than Beverly-California. Beverly shall
not: close the Facilities
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prior to any exclusion, convert the Facilities to "private pay," or transfer residents
eligible for coverage by Federal health care programs from the Facilities unless
such residents request transfers.
7. Within 120 days after the Conviction, Beverly (or Beverly-California)
shall be Under Contract (as defined in paragraph 17) with unrelated third parties
to divest itself, absolutely and in good faith, of any interest in the Facilities,
including such additional ancillary assets it owned within the Facilities as are
necessary to assure the operability and marketability of the Facilities. Beverly
also shall make all arrangements within its control that are necessary to assure
the operability and marketability of the Facilities until such time as Beverly-California
divests itself of all interest in the Facilities as required under this Agreement.
8. Until Beverly and Beverly-California have completely divested themselves
of ownership of all of the Facilities and new owners are operating all of the Facilities,
Beverly shall: (a) ensure that employees provide the legally required quality of
care to the Facilities' residents and meet all of the requirements applicable to
nursing facilities participating in Medicare and other Federal health care programs,
e.g., 42 C.F.R. Part 483; and (b) take such actions as are necessary to maintain
the present marketability, viability, and competitiveness of all of the Facilities,
and to prevent the destruction, removal, wasting, deterioration, or impairment of
any of the Facilities or the assets and businesses ancillary to the Facilities (except
for ordinary wear and tear). If a temporary manager appointed pursuant to paragraph
12 is managing a Facility, Beverly is responsible to meet the requirements of this
paragraph only to the extent that Beverly has control over the Facility and its
employees. Nothing in this Agreement shall limit the ability of the Health Care
Financing Administration to take whatever enforcement actions it deems necessary
against Beverly facilities should it determine that quality of care has deteriorated
in a manner that causes a facility not to be in substantial compliance with Federal
certification requirements at 42 C.F.R. Part 483. Nothing in this Agreement shall
limit Beverly's rights in any such enforcement proceedings.
9. As soon as possible and prior to entering actively into divestiture
negotiations, Beverly shall provide the OIG with written notice of the identity
of potential future operators of the Facilities. Beverly agrees that Beverly-California
shall only become Under Contract to divest its interest in the Facilities to third-party
operators who have been approved by the OIG. The OIG agrees that it will not unreasonably
withhold consent to the divestiture of Beverly's (or Beverly-California's) interest
in any of the Facilities (or to the transfer of Facilities' provider agreements)
to qualified third-party nursing home operators. Once Beverly has provided the identity
of potential future operators of a Facility, the time periods applicable to that
Facility shall be tolled until the OIG provides Beverly with written notice of:
(a) approval of at least one such potential future operator; or (b) disapproval
of the proposed future operators and the grounds for such disapproval. The OIG agrees
to provide written assurance to any approved potential
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future operator that, upon divestiture, a Facility will be permitted to operate
free from any encumbrances or limitations imposed by this Agreement or the Conviction
of Beverly-California.
10. Within 120 days after the Conviction, Beverly may notify the OIG in
writing of its inability to find a third party willing or able to enter into a contract
to divest Beverly-California of its interest in any Facility and request substitution
for such a Facility or appointment of a Trustee. Such a notice shall include a description
of Beverly's efforts to identify such a third party for the Facility. After receiving
such notification and considering Beverly's report, the OIG, in its sole discretion,
may replace the Facility identified by Beverly with any appropriate nursing facility
owned by Beverly or any of its subsidiaries chosen by the OIG (such a facility shall
be referred to as an "Alternate Facility") or appoint a Trustee. In addition, if
any Facility is not Under Contract within 120 days after the Conviction, the OIG,
in its sole discretion, may substitute an Alternate Facility for such a Facility.
If the OIG exercises the authority described in this paragraph to substitute a Facility,
Beverly shall immediately take all necessary steps to divest the Alternate Facility
in a manner consistent with this Agreement. Ownership of the substituted original
Facility shall not be transferred from Beverly-California until the Alternate Facility
has been divested in a manner consistent with this Agreement to a purchaser not
affiliated with Beverly. Upon divestiture of an Alternate Facility, the substituted
original Facility may be transferred to any Beverly entity or third party and may
continue to operate free from any encumbrances or limitations imposed by this Agreement
or the Conviction of Beverly-California.
11. In the event that, pursuant to paragraph 10, the OIG notifies Beverly
that it must substitute an Alternate Facility for a Facility, that Alternate Facility
will then be treated as one of the original Facilities for the purposes of this
Agreement. Thus, the obligations of Beverly under this Agreement related to Facilities
shall apply to any Alternate Facility for which the OIG has given notice to Beverly
to transfer ownership, e.g., Beverly shall be obligated to divest the Alternate
Facility as if it had been a Facility listed on Exhibit A at the time of the Conviction.
However, with respect to an Alternate Facility, the time limits set forth in this
Agreement shall be extended by 60 days plus the number of days (if any) that elapsed
between Beverly's submission of the notice described in paragraph 10 and the OIG's
acceptance of substitution of that Alternate Facility in response to that notice.
If Beverly is not Under Contract to divest itself of all interest in the Alternate
Facility within the amended time period (the original deadline plus 60 days plus
the number of days that elapsed between Beverly's submission of the notice described
in paragraph 10 and the OIG's substitution of that Alternate Facility in response
to that notice), the OIG shall have the authority to use the remedies set forth
in this Agreement with respect to that Alternate Facility.
12. If Beverly (or Beverly-California) is not Under Contract for divestiture
of the interest of Beverly-California in any one or more of the Facilities within
120 days after
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the Conviction, the OIG may appoint a temporary manager for that Facility. If
the OIG (or its authorized representative) appoints a temporary manager, the temporary
manager shall have full authority to manage the Facility in a commercially reasonable
manner for up to 120 days or until another facility is substituted for such Facility
pursuant to the provisions of this Agreement. If Beverly (or Beverly-California)
is not Under Contract for the divestiture of at least eight of the Facilities within
120 days after the Conviction, the OIG has the authority to appoint a Trustee who
shall be authorized to divest Beverly (or Beverly-California) of its interest in
the Facilities that remain undivested. If the OIG appoints a Trustee, the Trustee
will also have full authority to operate any Facilities not Under Contract on terms
determined by the OIG, but shall not otherwise be permitted to obligate Beverly
beyond 120 days, or, if the Facility becomes Under Contract within 120 days, beyond
the time of divestiture. The temporary manager and/or Trustee will report directly
to the OIG or OIG's designee (e.g., the appropriate state agency). Beverly shall
pay the reasonable costs associated with all temporary managers and/or Trustees
appointed pursuant to this Agreement.
13. Beverly and the OIG agree to the following provisions for the imposition
of penalties, in the OIG's sole discretion, in the event the Facilities (or Alternate
Facilities to the extent that they are substituted for Facilities) are not divested
in a manner consistent with this Agreement. For each day after the 120th day after
the Conviction that a Facility is not Under Contract, the OIG may impose penalties
on Beverly of up to $10,000 per day per facility for each such Facility (up to a
limit of 180 days of such penalties for any particular Facility). The 120-day time
frame of this paragraph shall be extended by 60 days with respect to any Facility
that was originally an Alternate Facility. Beverly agrees not to contest these penalties
in any state or federal court or administrative forum, except that Beverly may seek
review of a penalty under this Agreement as if the penalty were a Stipulated Penalty
described in section X.A.1 of the Corporate Integrity Agreement entered into between
Beverly and the OIG on or about the date of this Agreement. The only issues in such
a proceeding will be whether: (a) any Facility was not Under Contract after the
120th day after the Conviction (or 180th day after the Conviction with respect to
former Alternate Facilities); and (b) for how long after the 120th day after the
Conviction (or 180th day after the Conviction with respect to former Alternate Facilities)
such Facility was not Under Contract.
14. In exchange for the above agreements made by Beverly and Beverly-California
in this Agreement, the OIG agrees that it will not implement an exclusion of Beverly-California
based on the Conviction until after the earlier of: (1) the date on which Beverly-California
has fully divested itself of the Facilities; or (2) the 120th day after the Conviction
(except to the extent that the time frame applicable to a Facility has been extended
pursuant to paragraph 11), except that the OIG will not exclude Beverly-California
while a Facility is Under Contract. The OIG retains sole discretion to determine
the date of implementation of any exclusion after the conditions set forth in this
paragraph have been met.
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15. Upon written notice from the OIG (consistent with paragraph 14), Beverly-California
hereby agrees to be permanently excluded pursuant to 42 U.S.C. Section 1320a-7(a)(1)
from participation in Medicare, Medicaid, and all other Federal health care programs
as defined in 42 U.S.C. Section 1320a-7b(f). Such exclusion will have national effect
and will also apply to all other Federal procurement and non-procurement programs.
Beverly-California waives any further notice of the exclusion and agrees not to
contest the exclusion either administratively or in any state or federal court.
16. If the OIG determines that Beverly owes money due to any of the provisions
of this Agreement, e.g., paragraphs 12 or 13, the OIG shall make a written request
for payment to Beverly including the amount owed and instructions for paying. Beverly
agrees to promptly pay such amounts upon receiving such a request, except that if
Beverly exercises its review rights under paragraph 13 Beverly shall promptly pay
any amount owed if and when it is due under the process referenced in that paragraph.
If Beverly does not make payment as instructed by the OIG within 10 days of receiving
the request for payment (either under this paragraph or under the process referenced
in paragraph 13), the OIG may: (a) file an action for specific performance of this
Agreement; (b) offset the remaining unpaid balance, inclusive of interest (calculated
at 10% per annum, compounded daily, from the date the request for payment was received
by Beverly), from any amounts due and owing to Beverly by any department, agency,
or agent of the United States at the time of default; and/or (c) exercise any other
right granted by law, or under the terms of this Agreement, or recognizable at common
law or in equity. Except as provided for under the review process described in paragraph
13, Beverly agrees not to contest any offset imposed pursuant to this provision,
either administratively or in any state or federal court. In addition, Beverly will
pay the OIG all reasonable costs of collection and enforcement of this Agreement,
including attorney's fees and expenses.
17. For the purposes of the Agreement, a Facility shall be considered
"Under Contract" if Beverly has entered into a definitive agreement to divest, to
an unrelated third party, its interest in the Facility and has provided to the appropriate
state agency a notice of its intent to transfer its interest in and the operation
of the Facility, with a copy of the divestiture agreement, if required. Notwithstanding
the previous sentence, the Facility cannot become Under Contract if: (a) Beverly
has failed to provide notice to the OIG required by paragraph 9 regarding the proposed
future operator(s); or (b) the OIG has notified Beverly of its disapproval of the
proposed future operator(s) consistent with paragraph 9. In the event a Facility
becomes Under Contract and the appropriate state agency subsequently disapproves
the proposed divestiture, the Facility will no longer be considered Under Contract
for the purposes of this Agreement. As explicitly set forth in other paragraphs,
the applicable time frames set forth in this Agreement shall be tolled with respect
to a Facility while that Facility is Under Contract. Such time periods shall further
be tolled during any time period that Beverly has an outstanding request for: (1)
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substitution of a Facility pursuant to paragraph 10; or (2) an extension of time
pursuant to paragraph 18. The tolling of the time periods applicable to one Facility
shall not affect the time periods applicable to the other Facilities.
18. If, prior to the 120th day after the Conviction, at least eight of
the Facilities are Under Contract, Beverly may request an extension of time to become
Under Contract with respect to the remaining Facilities. With any such request,
Beverly shall provide the OIG with a description of Beverly's efforts to become
Under Contract with respect to the Facility and a timetable for having the Facility
Under Contract and completing the divestiture of the Facility. After receiving such
request and reasonably considering Beverly's report, the OIG, in its sole discretion,
may deny the request or grant an extension that the OIG deems appropriate. Notwithstanding
any other provision in this Agreement, if OIG grants the timely written request
for extension, penalties for failure to meet time frames shall not begin to accrue
until one day after Beverly fails to meet the revised deadline set by OIG. Notwithstanding
any other provision in this Agreement, if OIG denies such a timely written request,
penalties shall not begin to accrue until two (2) business days after Beverly receives
OIG's written denial of such request.
19. This Agreement expires when Beverly-California receives notice of
exclusion from participation in the Federal health care programs.
20. This Agreement shall be binding on the successors, assigns, and transferees
of Beverly (except that the obligations of this Agreement shall not apply to facilities
that Beverly or a Beverly successor does not own or operate).
21. This Agreement shall become final and binding on the date the final
signature is obtained on the Agreement. This Agreement may be executed in counterparts,
each of which constitutes an original and all of which constitute one and the same
agreement.
22. Any modifications to this Agreement shall be made with the prior written
consent of the parties to this Agreement.
23. The undersigned Beverly signatories represent and warrant that they
are authorized to execute this Agreement and the undersigned OIG signatory represents
that he is signing this Agreement in his official capacity and that he is authorized
to execute this Agreement.
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ON BEHALF OF BEVERLY
----------------------------------------- ---------------------
DAVID BANKS DATE
Chief Executive Officer Beverly
Enterprises, Inc.
----------------------------------------- ---------------------
MARK BIROS, Esq. DATE
Proskauer Rose LLP 1233
20th Street, NW Suite 800 Washington, DC 20036-2396
ON BEHALF OF THE OFFICE OF INSPECTOR GENERAL
OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES
----------------------------------------- ---------------------
LEWIS MORRIS DATE
Assistant Inspector General
for Legal Affairs Office of Inspector General
U. S. Department of Health and Human Services
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Exhibit A
1. Beverly Manor, Escondido, California;
2. Beverly Manor, San Francisco, California;
3. College Oak Nursing and Rehabilitation Center, Sacramento, California;
4. Hy-Long Convalescent Center, Sunnyvale, California;
5. Torreno Gardens, Los Gatos, California;
6. Hearthstone Nursing Center, St. John, Kansas;
7. Countryside Estates, Iola, Kansas;
8. Hospitality of Macon, Macon, Georgia;
9. Beverly Health and Rehabilitation Center, Aiken, South Carolina;
10. Pinewood Terrace, Colville, Washington.