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Nursing home CEO wants $100M payout amid bankruptcy threat

By
Josh Kosman
Published June 2, 2017
Updated May 11, 2018, 3:17 p.m. ET

The landlord of America’s second-biggest nursing home chain is haggling with the company’s top executive over a lavish compensation package, even as the chain teeters on the edge of bankruptcy, sources told The Post.

Paul Ormond, CEO of HCR ManorCare, is demanding $100 million in deferred compensation that private equity giant Carlyle Group promised to pay him as part of a $6.3 billion buyout of the company in 2007, according to sources close to the situation.

But Ormond is proving to be the hang-up as Carlyle and HCR’s landlord, publicly traded Quality Care Properties, scramble to cut an out-of-court restructuring deal, one source said.

Ormond is insisting on immediate payment under the 10-year-old compensation agreement, structured to help him avoid taxes, despite the fact that the nursing home chain is not only in dire financial straits, but also is being investigated by the Department of Justice for performing unnecessary services, sources said.

Quality Care Properties “says it cannot pay that kind of money to Ormond now in the face of a DOJ investigation,” and QCP can throw HCR into default, the source said.

Ormond would likely receive at least $60 million in a bankruptcy, the source said.

The DOJ in 2015 filed a complaint against HCR alleging that HCR routinely submitted false claims to Medicare for rehabilitation therapy services that were not “medically reasonable and necessary”.

The DOJ alleges HCR exerted pressure on nursing home therapists to “exploit” elderly patients for profits, according to the complaint.

The claims against HCR are allegations, and there has been no determination of liability. The case is still in active litigation, a DOJ spokesman told The Post.

Despite the legal mess, Ormond wants to be paid fully in exchange for agreeing to a restructuring, or he is willing to take his chances in a bankruptcy that could end up shuttering many of HCR’s nursing homes, according to one source.

Since 1991, Ormond has run the provider that owns about 500 skilled nursing and rehab centers, and manages 34,000 beds in states including Florida and Pennsylvania. In recent weeks, HCR defaulted on its loans, sources said.

Meanwhile, HCR creditors owed $380 million, including Leon Black’s Apollo Global Management, are threatening to begin court actions to seize HCR assets in “business days or weeks, not months,” a source said.

Carlyle co-CEO David Rubenstein hosts a show on Bloomberg Television, and constantly speaks about the virtues of private equity. Driving a nursing home chain into bankruptcy would be embarrassing, sources said.

When buying HCR in 2007, Carlyle assured skeptical state regulators that a leveraged buyout of a nursing home would not put HCR at risk.

But three years later in 2010, HCR sold its real estate for $6.1 billion to what became QCP, arranging a sale-leaseback transaction. Carlyle likely made a guaranteed profit on HCR thanks to the real estate sale, sources said.

HCR then started paying $550 million in annual rent to QCP, and HCR within a few years could not afford the payments.

QCP gradually reduced the rent to its current $35 million, the source said.

Ormond did not return calls. Quality Care and Apollo declined to comment.