On a remote stretch of U.S. 181, about fifty miles southeast of San Antonio, looms one of the biggest homes in Texas, the four-story, 29,000-square-foot, 34-room edifice on the estate known as Veladi Ranch. A marvel of architectural excess, the antebellum-style mansion is ringed by 28 towering Corinthian columns, three gigantic fountains, and 12,000 square feet of finished verandas. Inside are ten bedrooms, eleven bathrooms, nine fireplaces, a disco, a ballet room, imported gold and crystal chandeliers, tile imported from Italy, and plumbing fixtures from Germany. The home sits on a 240-acre, fully irrigated property, complete with stables, kennels, a 110,000-gallon solar-heated pool with poolside cabanas, a lighted clay tennis court, and even a dormitory for the staff.
This past July, nearly four hundred people went to Veladi Ranch for a highly publicized winner-take-all auction. The original owner, Arturo G. Torres, a Cuban refugee who came to Texas in the sixties and made his fortune opening Pizza Hut and Taco Bell franchises, had decided to sell the property after moving to San Antonio. The auction lasted thirty minutes, and when the gavel came down, the winner, with a bid of $3.63 million, turned out to be a large, jovial-looking 51-year-old man wearing a baseball cap, a blue T-shirt, and white shorts. Newspaper reporters, who had come to chronicle the event, had assumed the high bidder would be a legendary oilman or cattle rancher, but they had no idea who the new owner was. The man told them that his name was Woody Kern, he lived on a 44-acre horse ranch near the North Texas town of Pilot Point, and he owned an Arena Football League team in Tampa and a minor league baseball team in Asheville, North Carolina.
What the man did not mention was that he was known in court documents and government records as Peter Carlson Kern and that he had made his fortune in the decidedly unmythic business of operating nursing homes. Kern is the sole owner of Texas Health Enterprises (THE), the largest nursing home chain in the state—its annual gross revenue has been estimated by a THE corporate representative in excess of $200 million—and also the most controversial. According to reports of government regulators, life inside many of Kern’s 112 nursing homes is far different from life at Veladi Ranch. At the company-owned Anson Place in Abilene, for instance, a frail 97-year-old woman was found lying helplessly in her bed while fire ants crawled over her body, biting her on the face, chest, legs, and arms—an attack that a hospital report said contributed to her death. At a THE home in Fort Worth, a woman with Alzheimer’s disease wandered out of the home. She was struck and killed by a car on a nearby highway. When investigators for the state’s Department of Human Services (DHS) arrived to inspect the company’s largest nursing home, Carousel Manor, then known as Sweetbriar, a 265-bed facility in Brenham, they looked at the charts of sixteen residents and discovered that fourteen of them had developed multiple pressure sores (informally known as bedsores) since coming to the facility. If left untreated, these sores can turn deadly, burrowing toward the bone and causing infection. But the DHS investigators found that not only were the residents receiving little treatment for their sores but they were also not being adequately bathed or fed. Dried feces was spread over the buttocks of several residents. One woman was seen leaning against a bed’s rails, trying to eat with her fingers, her bed padding soaked with urine. One man, left unattended, was seen trying in vain to cut his meat patty with a spoon.
For millions of Texans, few decisions are more traumatic than the choice to place an elderly parent in a nursing home. Life in a nursing home is difficult even in the best of circumstances. Many of the residents are mentally disoriented, in constant pain, or physically incapable of taking care of themselves. The typical Texas nursing home resident is a widow over the age of eighty, and says Dolores Alford, a Dallas geriatric nurse who has a Ph.D in nursing and who consults with nursing homes around the state, “As older people live longer, their needs become far more complex. Today a good nursing home has to be more like a geriatric hospital than just a residential center staffed by a nurse and a few aides. But what’s so terrifying is that there are still homes out there that look good but end up neglecting or even abusing their patients.”
Despite legislation enacted over the past decade to improve the 1,161 nursing homes in Texas, including a tougher new state law just last year, government and industry officials agree that about 10 percent of the nursing homes in Texas consistently remain at substandard levels; one government consultant says 40 percent of Texas’ homes are of marginal quality, periodically failing to pass health and safety inspections conducted by the DHS. The number of citizens’ complaints about nursing homes is skyrocketing. Between March and August of this year, 6,718 complaints were lodged with the DHS, an increase of 63 percent over the previous six months. Of the some 94,500 elderly Texans residing in nursing homes, more than 6,300—about 1 in 15—live in homes owned by Texas Health Enterprises. DHS officials acknowledge that many of the company’s homes do meet government standards, but during 1997 and the first six months of 1998, 60 of THE’s 112 homes failed to meet licensing requirements when inspected. Since July 1995, the company has been hit with more than $3.7 million in DHS fines for violations. Since 1993, the state attorney general’s office has also filed 22 lawsuits against THE for, according to court documents, “acts or omissions that threaten the health and safety of residents.”
Nursing homes are not easy to operate. Nearly three quarters of Texas’ nursing home patients have an income low enough to qualify for Medicaid reimbursements, which are hardly generous. As a result, the homes can only afford to hire minimum-wage workers. The question about THE is whether Kern and his executives attempt to milk extra profits out of those nursing homes by forcing them to operate on threadbare budgets and skimp on proper patient care. “I don’t think Woody sees his patients in his nursing homes as anything more than profit-making commodities,” says Brandon Boehme, a Fort Worth attorney who successfully sued THE over the death of Ruth Simmons, an eighty-year-old resident at Kern Manor, located in Pilot Point. According to court testimony in the case, Simmons was underfed to the point of starvation. Her right leg turned black from gangrene, which went unnoticed by the nursing home’s staff. Her own son discovered the gangrene when he pulled off one of his mother’s socks, which smelled of urine. “This home was the crown jewel of the THE chain, the home that Woody named for himself,” says Boehme. “Yet it was so understaffed and so undersupplied that a sweet little old lady needlessly went to her death.”
Kern insists he has done nothing wrong. In a short telephone interview he told me that at least fifty of his nursing homes had received practically no deficiency reports over the past five years and that only a few of his homes had made “serious” mistakes. “The other ninety-seven percent of the time, everything is all right,” he said. “Most of these DHS investigations are for minor things that I don’t find alarming. We’ve gotten deficiency reports for having wallpaper hanging off a wall.”
In fact, Kern is so adamant about the quality of his homes that his team of lawyers has unleashed a barrage of administrative appeals and litigation to fight almost every fine or lawsuit levied against him by state regulators. A review of state records shows that Kern has paid only $43,704 of those $3.7 million in DHS fines. He agreed to pay $300,000 to settle 9 of the 22 lawsuits that were filed against him by the attorney general’s office; two other lawsuits filed by the attorney general went to arbitration this past summer and resulted in fines of $60,000, which the company has not yet paid. “Woody has got to be laughing up his sleeve at us,” says one attorney for the DHS. “Considering all the money he’s making, what he ends up paying the state is, for him, just pocket change.”
AT THE CORPORATE OFFICES OF TEXAS Health Enterprises, located in a converted Kroger’s grocery store in Denton, the barrel-chested Woody Kern hardly looks like a corporate villain. He is a well-liked boss, known for giving out holiday turkeys, remembering the names of his employees’ children, giving generous loans to friends who are down on their luck, and donating medical supplies for Russian orphans. Even the attorneys who attack him in court admit that they are surprised by his easygoing manner. He shows up for depositions wearing golf shirts, jeans, and a large gold Tampa Bay Storm Arena Football League championship ring on his finger. He never gets angry at the attorneys’ sharp questions, and during breaks, he loves talking about sports. He is such a lover of baseball—he was a high school teammate of the late New York Yankees catcher Thurman Munson—that he has owned minor league baseball teams in Washington, California, New Jersey, and New York. The team that he now owns, the Asheville Tourists, a class-A affiliate of the Colorado Rockies, is regarded as one of the best-run minor league franchises in the country. Before purchasing the Storm in 1994 for about $850,000, he owned the Fort Worth Cavalry, another Arena Football League team, which lost $500,000 to $750,000 in a single year despite such unusual scenes as dancers promoting a topless club by mingling in the stands with fans. “If you talk to people close to Woody,” says his beautiful young wife, Sheri, whom he married in 1996, “you’ll realize just how far he’ll go out of his way to help others. He has a good heart.”
Maybe so, but his three-decade career in the nursing home business has been a controversial one. Raised in Ohio, Kern spent his summers working in one of the eight nursing homes owned by his father. He attended Case Western Reserve University in Cleveland, majoring in biochemistry and minoring in psychology, and in 1970 he entered the family business. His first brush with notoriety came in the late seventies when the family’s nursing home company and the head auditor of the Ohio Department of Public Welfare were charged with scheming to obtain fraudulent Medicaid payments. Although Kern’s signature was on the fraudulent cost reports, he declared in court that he was innocent and that it was his father who had bribed the state auditor. Kern received immunity from prosecution in exchange for his testimony against the state auditor, who was then convicted of bribery and forgery. Kern’s father pleaded guilty to bribery and served a short prison term.
Once in charge, Kern began to expand the company, purchasing homes in other states and then coming to Texas in 1983 because, as he once said in a deposition, “the Sunbelt was attracting a lot of elderly people.” In the mid-eighties he sold off his homes in the East, keeping a few homes in Michigan and Oklahoma, and focused his operations on Texas, accumulating more than one hundred homes by the early nineties. Most of the homes he purchased were in rural areas, where there was little competition, and most of their residents were eligible for Medicaid. THE homes were well promoted; they were described in company brochures as “A better place to live” or “Home away from home.”
By 1991 Kern had become the target of government investigators. According to one report, four of his thirteen homes in Michigan were banned from accepting new patients. In Oklahoma, where he had five homes, the state’s commissioner of health attempted to turn down Kern’s request to operate two additional homes because, she wrote, “the overall picture of this proponent’s operation…is that it maintains a practice that the bare minimum will be done to keep the facilities licensed and certified.” It was also in 1991 that Texans heard about THE for the first time. DHS investigators who went to the Westgate Care Center, a THE nursing home in Amarillo, found a hellhole. One female resident was completely nude, tied to a wheelchair placed next to two male residents in a small dining room. Catheters were inserted so poorly into some patients that urine leaked down their legs. After Westgate was put on notice by the DHS, the problems only got worse. One of the residents was brought to a hospital with infected bedsores on his buttocks that were nearly six inches long, nearly three inches wide, and nearly 4 inches deep. He died, as did another resident, who wandered off from a supposedly secure Alzheimer’s wing of the home and disappeared. Several days later, his badly decomposed body was found in a field about a mile from the home.
The attorney general’s office was brought into the investigation, which charged THE and several of its employees with the felony of injury to an elderly individual in connection with the two deaths. Kern himself was indicted for “misapplication of fiduciary property” for allegedly not refunding money belonging to patients and their families. But the case never went to trial. Claiming that the attorney general’s office had no legal right to act as a prosecutor in such a case, Kern’s legal team, made up of prominent Amarillo attorneys, persuaded Judge Patrick Pirtle to issue a ruling in favor of THE, which was subsequently reversed by an appeals court. But today, Judge Pirtle still hasn’t ruled on several motions dating back to 1995 that would allow the case to come to trial. Kern says he has already spent $3 million to $5 million in legal fees on the case and that he is willing to spend whatever it takes to keep fighting the charges.
By December 1991 a DHS official was openly telling the press that Texas Health Enterprises was disproportionately prominent among nursing home violators. The company-owned Bay Brook Villa in Texas City had a stunning 169 DHS deficiency reports between October 1, 1991, and July 12, 1996, some of them related to patients’ going untreated for bedsores. A DHS inspection of THE’s Quaker Villa home in Lubbock found roaches crawling on the bedside tables and inside one resident’s breathing machine. A patient at a THE home in Grand Prairie, who was not properly hydrated by the staff after a barium “swallow test,” spent sixteen days complaining of pain yet did not receive treatment. He died by choking on his own vomit after the barium hardened in his intestine. A male nurse’s aide at a THE home in Midland was caught after he had committed repeated deviant sexual assaults on a 65-year-old female resident. Although officials at the nursing home initially told investigators they knew nothing about the man’s past, the DHS later learned that before joining the Midland nursing home, the aide had been fired from another THE nursing home, in neighboring Odessa, for abusing another elderly, wheelchair-bound woman.
Some THE employees who tried to improve things say that their efforts were not welcomed by higher-ups. One former THE nurse, Barbara Ann O’Neal, testified that when she called the corporate offices to complain about the growing number of bedsores on patients at Kern Manor in Pilot Point that were not being treated, her phone call was not returned, and she was soon fired—without being given a reason. Debbie Nichols, an assistant director of nursing at a THE home in Wichita Falls, received a $400,000 settlement after suing THE, claiming that she had been fired for trying to report a sexual attack on a female resident by a male resident.
What has infuriated Kern’s critics is his refusal to hold himself accountable for any problems related to his nursing homes. During depositions, he has regularly stated that he knew little about particular cases of neglect or abuse at his homes. He has said that he rarely reviewed DHS deficiency reports on his homes. Once, when he was asked about the woman in Fort Worth who was allowed to wander away from his home and then was struck and killed by a car—an accident that a DHS report said was the result of “the inattention” of the nursing home staff—Kern bluntly said, “It’s an unfortunate accident, but I don’t feel responsible for it.”
“Unfortunately, this is a human business,” Kern told me, “and when you deal with up to ten thousand patients at one time, as we have in our homes, there will be some mistakes, some human fallibility.…But I can’t control what happens in every nursing home from Denton, Texas. I can’t control day-to-day care. It’s the people in those particular nursing centers who are providing the day-to-day care.”
Kern’s critics at the DHS, however, said that the problems were in large part because of the restrictive budgets that the corporate offices imposed on those homes—a practice they say continues today. Because THE is so centrally controlled, says one nursing home industry executive, “the administrators at each home don’t have the ability to deal with even small issues without getting approval from headquarters.” Two nurses who worked in the early nineties at Kern Manor in Pilot Point said in sworn statements that Kern Manor’s administrators deliberately kept the home so understaffed and undersupplied that it sometimes had no linens for the beds and no catheters for the patients. “Whenever everything is short like that,” Kimberly Jay George, one of the nurses, said in her statement, “[THE’s on-site nursing home administrators] end up with more money, because if they keep things within their budget, they get a bonus.”
Kern was also rewarding himself with a salary of more than $500,000 a year by 1996. And Kern was making money with a management company he had founded to oversee Texas Health Enterprises’ homes. The company, HEA Management, which he wholly owned, then charged THE a fee for its work, which totaled as much as $11 million per year—all of which Kern controlled. “It was reprehensible what Woody Kern was doing,” says James Doyle, a Houston attorney who sued THE over a resident’s death at a home in Conroe, allegedly as a result of improper feeding. “Here was this home in Conroe, always in desperate need of more money. The bedspreads had holes in them, the linens were threadbare, and the residents’ gowns were so old that they were transparent. Yet, in the year that my resident was there, when the home began to make a profit, it was pulled out by Kern and his executives and called a ‘management fee.’”
Kern heatedly denies that he ever took money out of the homes at the expense of patients, and he says the budgets at his homes have always been “above average” compared with those of other nursing homes. Furthermore, Kern adds, neither THE nor HEA Management has been profitable since the early nineties; he says that he has not made a cent in salary from either company since 1995. The money he has used to buy his homes and sports teams, he says, has come from the proceeds of the 1987 sale of his nursing homes in Ohio and other eastern states, which netted him $20 million. He says he has taken more than $10 million of the proceeds from that sale and loaned it to THE to keep the nursing homes in business. The real story, Kern declares, is that he has been unfairly singled out by state regulators, “who sometimes do not look at all the facts,” and by greedy plaintiffs’ lawyers who have filed lawsuits against him “and try to make me look like I have a contrived plan to see how many people in Texas we can end up hurting.” Kern told me, “Listen, I’ve devoted thirty years of my life to caring for elderly people. We’ve taken over so many homes that were already in terrible condition, and we spent a lot of money fixing those buildings and doing what we could to make them better. My troops are out there every day trying to help. Yet, whenever we stub our toes, the state investigators treat us like criminals.”
The truth, however, is that far from treating nursing home owners like criminals, DHS officials give nursing home operators several chances to comply with state standards before punishing them. A consultant hired to look into DHS’s Long-Term Care division found that between January 1994 and June 1997, DHS field investigators made more than three hundred recommendations either to revoke or to refuse to renew the licenses of various nursing home owners. But after the appeals process was finished, only one license was actually denied to an owner. Last year the DHS did go to court to have twelve trustees (outside administrators hired by the state) temporarily installed in nursing homes that were deemed by investigators to be a threat to the health and safety of their residents. But after the trustees improved the conditions, the owners were given back their homes and afforded another chance to run them. The DHS rarely imposes maximum fines; though state law allows fines of up to $10,000 a day for each health and safety violation at a home, a 1997 audit found that the agency’s policy has been not to exceed $3,000. And a home that does get penalized by the DHS for violations is often given a certain number of days (at least 23) to correct its problems; if it makes corrections to an investigator’s satisfaction, then the penalty is rescinded. (The DHS is also allowed to impose penalties for violations of federal standards, but this path leads to a classic bureaucratic snarl: The federal agency in charge of collecting those penalties has a far greater case backlog than the DHS does.)
If the DHS does not rescind its penalty, then the home can appeal the decision to a DHS administrative law judge and, if it loses there, keep appealing in civil court. “What kind of punishment is that?” asks David Bragg, an Austin attorney who specializes in nursing home law. “Can you imagine us catching a bank robber and then saying, ‘Hey, we’ll forgive you if you put the money back within twenty-three days’? We should know by now that if you don’t impose serious sanctions on bad owners—and fight to make those sanctions stick—then the owners will never change.”
Jim Lehrman, a social worker and an administrator who took over the DHS Long-Term Care division a year ago, says he is determined to hold Texas Health Enterprises more accountable, and he has initiated action to wrest the licenses of nine THE homes that have had a significant history of violations over the past five years. But Kern’s lawyers have begun the appeals process, arguing that those homes are no longer violating standards. One attorney for the DHS says that Kern could keep those cases tied up for five more years—in part because the agency’s understaffed and already overworked legal and enforcement departments have so many other cases ahead of it. Many of the biggest fines against THE—for instance, $196,000 at Quaker Villa in Lubbock for a series of health and safety violations in 1996 and 1997—are now officially listed by the DHS as “pending.” Meanwhile, the attorney general’s civil suits have had minimal impact. After eight years of litigation against the company, not one case has been set for trial. The cases that went to arbitration resulted in measly fines. A lawsuit filed against Brenham’s Carousel Manor for its abuses in the mid-nineties went to an arbitrator who decided that THE should pay only $20,000. “You can understand how weary people get of having to fight Woody,” says a DHS official who asked to remain anonymous. “Remember, it’s still a bureaucracy here. It’s much easier not to take strong action against a THE facility than to take action, because once you take action, you have to go through so much hassle. It takes a lot less time to settle with THE than to fight them for years in court.”
CONSIDERING THAT THE NUMBER of U.S. citizens older than 65 is expected to double by the year 2005—which will mean twice as many nursing homes will be needed—the state has to figure out a way to better regulate the nursing home owners who operate substandard facilities. Other nursing home owners who have gotten hit with violations are responding like Texas Health Enterprises. Between March 1 and September 9 of this year, DHS investigators levied 135 fines, totaling $2.2 million, against 98 nursing homes. Jim Lehrman of DHS’s Long-term Care division says that at least 90 percent of those fines are being appealed.
In many ways, what has happened is a familiar story in Texas government: An understaffed, underfunded agency is being asked to protect public safety. Lehrman says that if the DHS doesn’t get the money to hire at least 21 new lawyers and legal assistants to add to its existing staff of 14, “then we’ll be in a jam, unable to keep up with all the appeals and delaying tactics now being used by nursing homes.” The DHS will be in a similar jam, he says, if it doesn’t get at least 150 additional investigators to keep the pressure on problem nursing homes. “Every nursing home administrator knows that if his home receives a bad DHS report, then all he has to do is spruce up the home and wait for the investigators’ follow-up visit,” says nursing home consultant Dolores Alford. “Then the administrator can relax and let everything at the home revert back to its old ways, because it’s very unlikely that the investigators will have time to come back for at least another six months to a year.”
One easy fix would be for the Legislature to create a financial incentive for nursing facilities to improve themselves by changing the way it allocates Medicaid payments to the homes. Texas ranks forty-fifth in the nation in the level of Medicaid reimbursement it pays, with its nursing facilities receiving an average of $71.34 a day in 1997, compared with the national average of $96.62. Instead of making a higher flat-rate payment to each home, as most owners would like the Legislature to do, the payment system should reward homes that hire more staffers and more qualified nurses to look after residents. Those homes would not only be given larger amounts of Medicaid money to pay for the extra staffing but also receive a state designation as a top-level nursing facility, giving citizens the opportunity to choose those homes over the ones that maintain only a minimum number of employees.
But even with a new Medicaid policy, there will still be companies that allow their homes to consistently fall below the state’s standards and jeopardize the health of residents. If the DHS really wants to get their attention, then it has to get tougher, and this means shutting down more bad homes on the spot and fighting the owners in court. But the owners know that this is not a policy that can be put to widespread use. Lehrman says that he is reluctant to close nursing homes except for the very worst ones, especially in small towns, because of the problems of relocating residents to other homes, which can be nearly one hundred miles away.
Meanwhile, Texas Health Enterprises continues to grow, despite Kern’s claims that the company is losing money. Last year it purchased another home in Wichita Falls, this one costing $2 million, with an additional $700,000 spent to get the building ready for occupancy. There was some speculation that Kern would be slowed by a couple of verdicts won by plaintiffs’ attorneys in civil trials against THE. Last year jurors awarded $10.7 million to the family members who sued the company over the death of Ruth Simmons, the woman who developed a gangrenous leg at Kern Manor in Pilot Point, and in May a jury hit THE with a $28.3 million judgment in the case involving the death of the 78-year-old man at the Conroe nursing home. But attorneys familiar with the cases predict that the huge judgments will never be paid. Lawyers for THE have been arguing before appeals courts that the company, as an official health provider as defined under state law, is no different from a hospital and thus is only required by state tort law to pay $1.3 million in actual damages per case. In the past two years the company has settled some lawsuits, reportedly costing Kern more than $5 million, but as one attorney says, “Lawyers are not going to run a man that wealthy out of business.” Kern, too, says he is not going to let his opponents drive him out of business. “I’m a little bit stubborn, and I will go to court to defend myself and fight for my rights,” he says. “You can be absolutely assured that my homes are in above-standard condition.”
And so the battle between the DHS and Woody Kern goes on. Earlier this year the DHS filed another deficiency report at Carousel Manor, Kern’s home in Brenham that has been the subject of numerous such reports since 1994. In their most recent visit DHS investigators discovered a woman in a wheelchair with blood on the right side of her dress. According to the DHS report, the staff at the facility had failed to dress a sutured wound. The investigators imposed a fine of $5,800 for substandard care.
Woody Kern has refused to pay. His lawyers are appealing.
