$23M verdict stings Seattle-based assisted-living giant Emeritus
Lawsuit says that the bottom line was more important than adequate care to the fast-growing giant in assisted-living facilities.
Seattle Times deputy business editor
Emeritus by the numbers
Communities: 483, in 45 states
Employees: 30,200, including 20,500 full time; 569 at Seattle headquarters
Resident capacity: 50,088. Includes 29,646 assisted living; 6,928 memory care; 4,611 independent living
Payment: Average monthly revenue per resident is $4,127.
Revenues: Up 6.5 percent in 2012 to $1.57 billion
Source: Company’s SEC filings
A Sacramento jury has awarded $23 million in punitive damages against Seattle-based Emeritus in the death of an 81-year-old woman, finding management at the nation’s largest operator of assisted-living residences responsible for elder abuse and neglect.
The lawsuit by the family of Joan Boice, who had advanced dementia, claimed Emeritus accepted her although she was physically too debilitated for the care the facility provides. Then, according to the suit, she was “left ... at the mercy of a few unqualified, untrained, and overburdened caregivers, with predictable, and tragic, results.”
The verdict is larger than all but one of the punitive damage awards in California last year — precisely $22,963,943.81.
Jurors tacked on Boice’s age in pennies, said the family’s attorney, Lesley Ann Clement, because “they didn’t want Emeritus to forget her.”
During three months in the memory-care unit of Emeritus at Emerald Hills in Auburn, Calif., Boice developed several deep, necrotic pressure wounds. She died in February 2009, 10 weeks after being moved to a skilled nursing facility for hospice care.
“We adamantly disagree with the verdict,” Budgie Amparo, Emeritus executive vice president of quality service, said in an interview. He called it “not a true representation of how we took care of Mrs. Boice.”
Emeritus, which plans to appeal the March 8 verdict, is the biggest provider of a type of senior housing that promises its elderly clientele some assistance in daily life without the intensive personal care of a nursing home. The average age of Emeritus residents is 84.
They paid an average $4,127 a month last year, producing company revenues of nearly $1.6 billion from more than 50,000 units mostly devoted to assisted living.
The Sacramento verdict is not the first time Emeritus has been sanctioned by courts or regulators over issues of understaffing or inadequate care. Among others:
• Florida canceled the license of an Emeritus complex in Orlando in 2010 after finding three residents with late-stage pressure wounds who under state law should have been moved to skilled nursing facilities.
• A Texas appeals court in 2011 upheld a $134,000 damage award to the executive director of an El Paso Emeritus facility, who was forced out after complaining that personnel cuts the company ordered didn’t leave her “an adequate number of staff members ... to provide for the needs of the residents.”
The Boice case cited similar complaints.
For instance, the Emerald Hills resident-care director in October 2007, a nurse named Mary Kasuba, wrote a five-page letter to 10 top Emeritus executives and board members to say she faced “a huge shortage of staff.”
“There has not been enough staff to cover any part of the day-to-day staffing needs to give the residents their quality of care that Emerald Hills advertises. ... Not enough in the kitchen, housekeeping, resident assistants, (or) med techs,” she wrote, Clement’s trial brief said. Kasuba predicted that, “If the state came in (there) would be big trouble.”
She never heard back from the executives, and resigned before Boice moved in, according to the suit.
“Numerous red flags put Emeritus executives on notice of serious problems” at Emerald Hills and other company locations in California, Clement argued.
Care appropriate,Emeritus claims
Emeritus painted a completely opposite picture of its care, according to filings in the case.
The company said it provided appropriate care and kept Boice at Emerald Hills as long as the rules allowed because her husband, Myron, was in the facility’s assisted-living wing. It said other family members visited constantly and voiced no complaints about her treatment at the time.
And it faulted skilled nurses from Kaiser Home Health, brought in to help care for Boice, for not seeing the pressure wounds sooner.
Emeritus executive Amparo said in an interview that nothing in the claims about Emerald Hills’ management practices “could have changed the outcome of her overall medical condition.”
Amparo, who spent two days on the witness stand during the six-week trial, said it was “very, very evident that there were a lot of prejudices that played in the courtroom” against Emeritus as a big company. “The jury reacted to that and we became the victim.”
The 20-year-old company operates 483 facilities, including 28 in Washington state. It has grown in big spurts through aggressive deal-making and heavy borrowing, and its debt burden — $2.1 billion at year-end — means constant pressure to control expenses. The company has reported an annual profit only once.
Despite that red ink, its shares have a total market value of $1.2 billion. Four days after the verdict, a major Emeritus investor completed a previously planned sale of 6.5 million shares for $175 million.
Partnerships run by Emeritus co-founder and Chairman Dan Baty simultaneously sold almost 1 million shares for about $26 million. Baty, who controls a 6.4 percent stake, retired as co-CEO in 2011 and has since invested in hospitals and senior living projects in Asia, among other things.
The current president and CEO is Granger Cobb, who led Summerville Senior Living before it combined with Emeritus in 2007 to push the company further up the ranks of the industry.
Thanks in part to Emeritus, founded in 1993, Seattle became a hotbed of assisted-living companies, with three of the nation’s 10 biggest operators now based here.
Emeritus is the largest, according to the Assisted Living Federation of America (AlFA), although Brookdale Senior Living of Tennessee has more elderly housing overall. Seattle-based Merrill Gardens and Leisure Care are also among the top 10.
Huge punitive damage awards are often reduced on appeal or settled for a smaller sum, said Curt Cutting, a partner at Horvitz & Levy in Encino, Calif., specializing in appellate cases. His firm’s database shows only one California verdict for punitive damages last year was larger than the Emeritus award.
The Sacramento jury also awarded Boice’s family $4.1 million in compensatory damages, which was reduced under California law to $500,000, and attorney’s fees.
Emeritus was hit with punitive damages almost as large in Texas in 2005, when a jury awarded $18 million for the wrongful death of Florine Ofczarzak.
An appeals court noted the company had misled the trial judge, violated court rules and refused to comply with a subpoena requesting documents in the case.
Growing market for memory-care units
Memory-care units, like the one where Boice lived, are a growing focus for Emeritus and its competitors.
Last week a study published in the New England Journal of Medicine said expenditures on dementia — primarily to provide housing and daily care rather than medical attention — were $109 billion in 2010 and would more than double by 2040.
Emeritus is converting some of its regular apartments to memory-care units, meaning they have better safeguards for dementia patients. “We get very positive return on those types of projects,” Chief Financial Officer Robert Bateman told analysts in a February conference call.
Bateman also noted that late-stage residents typically pay more because they need more services, so replacing them with new move-ins means less revenue.
Residents with dementia are a tricky but lucrative segment for assisted-living companies because, said Vicki Elting, the assistant State Long Term Care Ombudsman, “They are getting more income out of the same bed.”
Historically, “Assisted living used to be a very hands-off place to live — very few nurses around, the care was very light in that you weren’t really that ill.”
As companies move into dementia care, however, the demands change as patients “decline physically and mentally to the point where you wonder whether these people shouldn’t be in a nursing home,” she said.
In Washington, Emeritus does not have a disproportionate number of consumer complaints or deficiency citations from regulators, she said. “They’re pretty average.”
There is no national database of regulatory infractions at assisted-living facilities.
According to the company, its nationwide data shows the average number of citations by regulators has dropped from 9.16 per community in 2009 to 3.62 in 2012.
“If there are problems or issues that arise, what’s most important to us is how we respond to it, and how quickly and thoroughly we can remedy them,” said Karen Lucas, Emeritus vice president of product development and communications.
While the number of communities it runs has more than doubled since 2006, Emeritus also has cut loose some troublesome operations.
When regulators wanted to revoke Emeritus’s license in Orlando, Amparo said, “It was a good business decision to surrender that license” because as a three-story complex “it was a very difficult building to operationalize in terms of managing it.”
The El Paso facility, where Texas records show regulators issued three substantiated complaints in 2011, was sold by Emeritus at year’s end.
Under new ownership there were no such complaints the following year, according to state data.
Rami Grunbaum: 206-464-8541