Owners accused of siphoning millions from Edina nursing home company

Lawsuits swirling around a bankrupt Edina nursing home company allege that the owners siphoned millions from the sinking operation while subsidiaries knowingly overcharged Medicare for treatment.

The court-appointed receiver that is unwinding Edina-based Welcov Healthcare settled the government's overbilling suit last week by agreeing that Welcov would repay $3.1 million for services that subsidiaries in Iowa and South Dakota billed to the government.

Now the receiver, Lighthouse Management Group, is seeking to recover at least $18 million from the two Welcov executives who owned the company, which operated 22 nursing homes and assisted living centers in Minnesota, South Dakota, Montana, Iowa, Nebraska and Wyoming.

Since 2015, Welcov has been cited for violations linked to the deaths of three residents at its Minnesota facilities. A former manager claimed in a separate lawsuit that many residents were denied basic services because staffing levels were intentionally kept low to pump up profits.

Welcov turned over management of all but two of its facilities to other companies after creditors forced the company into bankruptcy in January. Welcov CEO Paul Contris and company President Thomas Boerboom continue to operate two facilities in Wyoming through a new company called Vetras Healthcare, court records show.

In its lawsuit against Contris and Boerboom, Lighthouse alleges that Contris improperly took $11.6 million out of the company through distributions of its dwindling cash reserves between 2013 and 2018. Lighthouse alleges that Welcov was insolvent during that entire period.

Boerboom is accused of improperly diverting $6.3 million to himself during the same period.

In a recent court filing, Contris acknowledged receiving the money, but he said the payments were fair and "made in connection with good-faith, bona fide transactions." He also denied that Welcov was insolvent at the time the payments were made.

Contris did not respond to calls for comment. Boerboom has not yet filed an answer to the lawsuit.

"I could say a lot, but I would rather have my attorney respond to you," Boerboom said in a brief telephone interview on Friday. "It's complex. And it involves a lot of different organizations."

Minneapolis attorney Gregory Merz, who represents Contris and Boerboom, did not respond to requests for comment.

Lighthouse is trying to recover money for Welcov's creditors, who are owed a total of $26.7 million, court records show. The liquidation is being overseen by Lighthouse partner Patrick Finn, a certified fraud examiner who specializes in taking over operations of companies "where fraud or other illicit activity has occurred," according to his biography on the company's website.

Finn declined to comment.

Welcov's collapse was fairly quick. The company borrowed $56 million to fund expansion opportunities in 2015. At the time, Welcov operated more than 60 long-term, short-term and assisted living facilities in the U.S., including six in Minnesota. But Lighthouse said Welcov has been unable to pay its debts since 2013.

Minnesota regulators have repeatedly cited Welcov for dangerous safety lapses. In 2015, the Minnesota Department of Health cited Welcov's Evergreen Terrace in Grand Rapids when a resident fell while being helped into a wheelchair and later died.

In 2017, Welcov's Bethel Healthcare Community in St. Paul was cited when a ventilator-dependent resident was attending church and died. In that incident, the pastor was the only person who heard the ventilator's alarm go off because staff members left during services, records show. The pastor told investigators that the nurses instructed him to ignore any alarms.

In 2018, Bethel was cited for waiting 39 minutes before responding to an alarm on a resident's ventilator. The patient was dead by the time paramedics arrived. Regulators noted that Bethel decreased staffing levels on the floor about a week before the death. An employee told investigators that workers waited too long to respond to the alarm, noting that was "probably why the resident died."

In 2017, a former Welcov manager sued the company, claiming residents were suffering because the company was intentionally providing substandard care at its facilities in Montana. In one case, the manager claimed, a resident went a week before being treated for a broken arm. Welcov settled the lawsuit in 2018 without filing a legal response to the manager's allegations.

In the government's overbilling lawsuit, which was filed earlier this month in federal court, the Welcov subsidiaries were accused of knowingly overcharging the government for an "extreme amount" of therapy that did not qualify for Medicare reimbursement. The companies submitted claims for "patients who did not have a medical need for skilled care, and for therapy services that were not justified by patients' medical conditions," according to the government's lawsuit.

In court filings, the companies did not admit to wrongdoing but agreed to repay $3.1 million to avoid a lengthy court case. Lighthouse noted that the government could have sought treble damages and collected more than $8 million if it was successful in pursuing the case. Lighthouse also noted that about half of the invoices submitted by the Iowa and South Dakota subsidiaries for home health services were allegedly fraudulent.

In the Lighthouse lawsuit, Contris and Boerboom also are accused of improperly spending $250,000 of the company's money to buy life insurance policies in which the executives were the only beneficiaries.

In a court filing, Contris admitted using company funds to buy the policies, but he said the insurance was purchased on "advice received from legal and accounting professionals."

Jeffrey Meitrodt • 612-673-4132