In June of 1995, state-employed nurses swept into Tammerlane Health Care Center in Sterling, Ill., to conduct what was believed to be an annual review of the nursing home’s files on its mentally ill patients.
But that was not the only purpose of the visit.
Unbeknownst to the owners, the state quietly reclassified
dozens of patient files with new diagnoses.
Without physical exams, a woman’s severe schizophrenia suddenly was overshadowed by her diabetes; a man’s bipolar disorder was eclipsed by heart disease.
The reassessment–recorded in separately held state files–has earned the Department of Public Aid budget about $500,000 in extra Medicaid dollars, Public Aid financial records show.
In similar maneuvers, the state has modified at least 1,000 psychiatric patient files at 20 other nursing homes, collecting an extra $30 million from Medicaid since 1995, according to Public Aid records.
The Health Care Financing Administration, which oversees the federal Medicaid program, is investigating the state’s actions, terming the alterations to medical files as unusually “sudden and widespread.” The state says it is cooperating with the probe.
The reclassifications mark the latest chapter of a tug of war that the State of Illinois and has waged with the federal government over financial responsibility for the mentally ill, a battle for control of hundreds of millions of tax dollars.
Illinois has consistently found ways to capitalize on the placement of the mentally ill in nursing homes, benefiting not only state coffers but nursing home owners. One of the most influential nursing home owners in Illinois, Leon Shlofrock, started what became a multimillion-dollar business by opening facilities designed for mentally ill patients sent to him by the state. Shlofrock, who said he was among the first to recognize the financial potential of housing psychiatric patients, said nursing homes were the best option for an abused population that nobody else wanted.
In the past 30 years, Public Aid records show, the state has attempted to exploit Medicaid regulations so it can obtain the maximum amount of federal subsidies for the care of psychiatric patients. It dumped thousands of mentally ill patients into nursing homes in order to collect Medicaid, which paid half the cost. But when the federal government recognized the state strategy in 1981, it cut off Medicaid to such facilities, arguing that the state had quietly transformed homes for the aged into psychiatric institutions, which are deemed a state responsibility.
A nursing home is considered a mental institution if more than 50 percent of its beds are filled with psychiatric patients. The state was ordered by the federal government to fully fund 34 such homes, including Tammerlane.
In order to avoid paying for even more homes, former state patients have been dispersed to hundreds of facilities where less than half of beds are filled with psychiatric patients, Public Health records show. Each filled bed can be worth up to $100 a day for nursing home owners.
For the state to reduce the number of nursing homes classified as mental institutions, it had to reduce the number of psychiatric patients. In 1995, by juggling medical diagnoses like those of the psychiatric patients at Tammerlane, the state found a way to make the mentally ill virtually disappear–at least for funding purposes.
More Top Picks Whole House Fans
If a mentally ill patient also had a serious physical disease, then that person was eligible for Medicaid, state officials reasoned. The state’s logic led it to reclassify patients in 20 additional homes, allowing it to place the homes back on Medicaid. The move saved the state at least $13.3 million annually, Public Aid records show. But federal officials say the state’s logic appears to be flawed.
The state reported to Medicaid officials that Tammerlane, for example, was no longer a mental institution, Public Aid records show.
The owner of the home doesn’t see it that way.
“Anyone who spent five minutes at Tammerlane today could clearly see that every patient here suffers from mental illness,” Tammerlane owner Robert Hedges said. “Sure, some of the patients have physical problems too. But the fact is they would be able to care for themselves if it wasn’t for their mental illness.”
To qualify for admission to a nursing home, patients must suffer a debilitating condition, either physical or mental, according to state regulations. At Tammerlane, all but two of the 68 patients originally were diagnosed with primary psychiatric illnesses, which were established by state-hired medical agencies to screen applications, Hedges said.
Even the two patients with severe physical disabilities also suffer mental illnesses, he said, noting that his patient population has not significantly changed over the years.
Public Aid officials defended the modifications of patient diagnoses but acknowledged that their employees often relied on existing files, not medical examinations. Many of the new physical conditions became apparent or were manifested, in many cases, years after patients were admitted for psychiatric disorders, officials said.
George Hovanec, chief of Public Aid’s Medicaid division, said the reclassifications were prompted by a nearly $1 billion deficit in the state’s Medicaid program. But other Public Aid officials deny that saving money was a factor.
“I’d almost say it was a happy coincidence,” said George Anne Daly, director of Public Aid’s Bureau of Long Term Care.
Hedges is no stranger to state bureaucracy. A former state nursing-home inspection supervisor in the Department of Public Health, Hedges quit his job in 1985 to become an owner. In 1989, he bought Tammerlane, one of three homes he owns with a partner, also a former Public Health supervisor.
Even a casual survey of Tammerlane, a one-story facility about 100 miles west of Chicago, reveals patients, ages 20 to 80, who are typically active and ambulatory. In the mornings, most patients go outside and sit on white benches, enjoying the sun or a smoke. Others watch television or go to jobs as part of a program to integrate patients with the community.
Chicago native Donna Elder, 53, has been a Tammerlane patient for 12 years, relying on pills to steady her mind from her bipolar manic depression.
“The only thing wrong with me is mental illness,” she said, smiling while enjoying the warmth of a sunny day this summer on the front yard of the home. She is her own legal guardian and agreed to talk with the Tribune, as did a dozen other patients.
“We’re just a political football,” Hedges said. “It’s just a way for the state to save money.”
An industry magnate
The symbiotic relationship between nursing home owners and the state blossomed in 1964 when the state, under public pressure, began emptying its psychiatric institutions, and businessmen like Leon Shlofrock were waiting to fill the void.
“It’s like falling off a log,” said Shlofrock, who, at the time, was making the transition from a union leader for furriers to nursing home owner. “If you knew at all what you were doing, you had to be successful. It’s almost impossible not to make money–unless you’re a total and complete idiot.”
Shlofrock bought and leased old buildings, usually former hotels, and filled them with mentally ill patients. State inspectors dubbed the nursing facilities as “sheets and eats,” because little more than a bed and food were offered.
Throughout the 1970s and early ’80s, the state escalated deinstitutionalization efforts, transferring costly psychiatric wards to nursing homes, which qualified for Medicaid reimbursement.
Among the biggest winners in the cat-and-mouse game over financial responsibility for the mentally ill is Shlofrock and other owners, such as Morris Esformes, though it seems to matter little to them which branch of government controls the purse strings.
Today, Shlofrock sits atop a complex financial empire whose control reaches into dozens of nursing homes, held tight by an inner circle of millionaire partners, friends, family and dozens of current or former Public Health and Public Aid employees.
He has whispered in the ears of five governors and countless lawmakers.
At age 78, tied to a dialysis machine three days a week, the straight-talking multimillionaire still gushes at his influence.
“I sure as hell enjoy hobnobbing with the powers that be,” he said. “Come on, I’m only human. It’s nice when you walk into a room and the governor says, `How are you, Leon?’ “
Secretary of state records show that he has doled out hundreds of thousands of dollars to state lawmakers. His nursing-home trade organization, the Illinois Council for Long Term Care, doubles as a political action committee. The executive director of the council is Pete Peters, a former state legislator.
Campaign finance records show that in March 1996 the council brokered a $60,000 contribution to Gov. Jim Edgar, given in the names of the 13 nursing homes, including three owned by Shlofrock, packed with the highest numbers of mentally ill patients statewide.
“You have to have access,” Shlofrock said. “It’s as simple as that.”
Shlofrock acknowledges that since the mid-’60s, he has successfully crafted state regulations that favor him, such as limiting the training requirements of nurses aides. He also successfully lobbied Public Aid officials to pay an extra $10 a day for every mentally ill patient in a nursing home. The added bed fee, pushed by Shlofrock and approved by the Department of Public Aid, has generated at least $100,000 a day for the nursing home industry.
While a handful of other nursing home owners have built profitable businesses with facilities that accept the mentally ill, few can match Shlofrock’s success, nursing home financial records show. Last year, he was paid a $543,500 salary derived from his work at seven nursing homes. His son, John Shlofrock, earned a $546,597 salary from the same homes, federal records show.
Nursing home revenues, including salaries, are largely derived from state and federal subsidies that reimburse daily care and treatment costs.
Compensation also was filtered through Shlofrock’s subsidiary companies.
For example: the Shlofrock-owned Central Plaza nursing home, 321 N. Central Ave., had gross revenue of $7.5 million last year, according to federal nursing home finance records. All 260 beds are occupied by mentally ill patients.
More Top Picks Why Glossy White Paper Makes Reading Harder
Listed as an expense–but really income for Shlofrock–was $750,152 paid to his management company, Betcare II.
Through the accounts of B&D Hotel Corp., the corporate umbrella for Central Plaza, the legal firm of State Sen. Howard Carroll (D-Chicago), was paid $18,666. Court of Claims Judge Norma Jann is listed as a 13 percent owner of the home; her husband, Irwin Jann, listed as a board member, was paid $18,000.
Chicago Ald. Edward Burke, once a Shlofrock partner through B&D Hotel Corp., dropped his association in 1994 after political opponents questioned his relationship to Shlofrock.
A state inspection last year–based on federal regulatory guidelines–cited the Central Plaza home for 38 health and safety violations–more than four times higher than the national average of deficiencies found per home, according to federal human services records.
Despite the infractions, the home was not fined–a pattern found throughout most of Shlofrock’s homes. State records show all deficiencies were corrected.
In its role as regulator, the state has done little to punish the industry. Even though hundreds of thousands of dollars in fines were levied against nursing homes last year, the state quietly excused 75 percent of the penalties, Department of Public Health records show.
The state stresses compliance with regulations rather than collecting fines, Public Health spokesman Tony Sanders said.
Acknowledging his homes are old, Shlofrock said he has poured millions of dollars into renovations. Federal nursing-home financial records show he has spent more than $5 million on building improvements since 1989.
Despite the upgrades, Shlofrock said he doesn’t own a home that would be good enough for his last years. Even the best homes are depressing, he acknowledges.
And despite his position as a spokesman for the industry, he said he does not intend to ever be a nursing home patient.
“When that time comes,” he said, “nobody will have to take care of me, if you know what I mean.”