Trends in nursing home litigation

Daily Record and the Kansas City Daily News-Press, Aug 3, 2005 by John DeMoor

(This article originally ran in Missouri Lawyers Weekly, St. Louis, MO, another Dolan Media publication.)

When St. Louis defense attorney Stephen Strum finished his closing argument on behalf of a nursing home client earlier this year in Hannibal, Mo., he and his uninsured client were prepared and almost eager to hand over the keys to the facility's front door.

The jury returned a $400,000 verdict, with $240,000 of it for punitive damages involving aggravating circumstances. The plaintiff had demanded well over $1 million.

Strum, who has filed post-trial motions in the case, believes he can at least get the punitive damages thrown out. But if we aren't successful, we'll just hand over the keys, he said. It's really a sad situation, but the sole reason for it is because of patient care litigation.

Strum, an attorney with the St. Louis firm of Sandberg, Phoenix & von Gontard, is one of many defense attorneys with nursing home clients that have converted each of their facilities into an independent limited liability corporation while at the same time have opted not to carry long-term-care liability insurance.

This tactic is just one of the latest trends that some of Missouri's top nursing home plaintiff and defense attorneys continue to see played out across the state. Other trends attorneys cited include plaintiffs joining hospitals more regularly in the lawsuit; an increase in lawsuits related to resident-on-resident assaults and sexual assaults; and forcing perspective residents to sign binding- arbitration agreements. This week's story is part one of a two part series on the latest trends.

Handing over the Keys

Setting up nursing homes as their own limited liability corporation, not carrying liability insurance, refusing big settlements and trying each case to the bitter end is part of a growing local and national trend the nursing home industry is using to protect itself from resident related lawsuits.

Defendants are quick to use the tactic to intimidate plaintiffs, concedes Kansas City defense attorney Roger Slead of the law firm Horn, Aylward & Bandy. I have heard it threatened more and more: 'If you think this is a $5 million case, here's the key to the facility because it's not even worth $5 million as an ongoing business concern. Here, you can have the keys to the facility and we're going to walk away,' Slead said.

The tactic reflects how difficult the times are for long-term health care providers, whether local mom and pop operations or national chains. It's a trend and evidence of the growing frustration of those involved in the industry where, on the one hand, there is a public outcry, 'Let's get this fixed before my parents or I get there,' but, on the other hand, all these substantial resources are being drained from the one thing at issue and that is resident care.

Strum is reluctant to describe this trend as a defense strategy but rather as a harsh reality of where the nursing home industry has been forced to go.

Faced with sizable increases in insurance premiums, low profit margins from caring for mostly Medicaid patients, the average nursing home in Missouri and elsewhere can no longer afford its premiums. The homes getting sued for the most part are the ones that 90 percent or more of their reimbursements are Medicaid reimbursements, Strum said. Their profit margins are about four percent.

One of Strum's clients saw their long-term care liability insurance premium jump from $50,000 to $500,000 a year. That client could not pay the increase and has opted not to carry insurance for the last four years.

Even if nursing homes could afford increased premiums, insurance companies find them too risky and are shying away from writing long- term-care insurance. The few who have been writing it are just trying to get their nursing home cases cleared off the books, Strum said.

Private-pay nursing homes tend to have a lower frequency of lawsuits because they can arguably provide a higher quality of care based on charging residents $6,000-$8,000 a month. These more exclusive facilities can tap the resident's own long-term care insurance or their family members to pay the costs of hiring more staff that are better paid and trained.

So when you run a nursing home, you have to have it fully staffed to provide 24-hour care, and when over 90 percent of your 60-120 bed facility is based upon a Medicaid payment of $100 a day, it doesn't leave a lot of room, not just for profit, but for long-term care insurance as well, Strum said.

Plaintiff attorney Derek Potts of the Potts Law Firm in Kansas City said that incorporating into an LLC and not carrying insurance is merely a strategy for nursing homes to shield themselves from liability.

He sees the dangling-keys tactic often used early in a case to discourage attorneys from proceeding with costly litigation. They come out early and say, 'We're just going to be honest with you. There is no insurance, no money and you should probably abandon your case, or we can pay you a nominal amount to go away,' Potts said. And it does work. I know a lot of attorneys who are daunted by that and don't want to risk their time and expense going forward.