Nursing home owner sues Alameda Hospital for takeover delay

Nursing home owner sues Alameda Hospital for takeover delay

Michele Ellson

The owners of a nursing home now being run by Alameda Hospital is suing the City of Alameda Health Care District and the hospital, claiming managers there breached their contract to lease the home by not taking over on the date planned.

In an April 9 lawsuit filed in Alameda County Superior Court, Waters Edge, Inc. is seeking $315,250 in damages, plus interest and court costs. A case management conference is scheduled for August 22.

Neither Waters Edge’s attorney nor a hospital representative returned calls seeking comment and further information regarding the suit.

Waters Edge, Inc. claims that the hospital’s managers agreed to take over the 120-bed Waters Edge nursing home on Blanding Avenue on April 1, 2012, but told the home’s owners a few days before the scheduled handoff that they wanted more time. The suit claims hospital managers failed to obtain a license that would allow them to charge more per patient than a private operator “due to an error on its part” and that they didn’t want to take over the facility until they had it in hand.

The suit claims that hospital managers had obtained the license they needed to operate the facility, signed contracts with employees and vendors, took over the electric and gas bills and even held a goodbye party for the nursing home’s owner in anticipation of an April 1 takeover, but that the hospital sought a delay due to fears that the home wouldn’t be as profitable without the “distinct part” license it sought, which allows hospitals to charge higher rates for Medi-Cal patients than a private, standalone facility can charge. The suit also says the hospital would need to shutter its existing skilled nursing facility if the deal didn’t go through.

The company agreed to run the home until August 1, 2012, the suit says, because its owners didn’t want to terminate the deal and the deal had proceeded so far that even if they did, they weren't in a position to.

The suit claims the hospital’s managers agreed to pay Waters Edge, Inc. costs and profits lost as a result of the delay, but that the hospital hasn’t fully paid what it owes and has since repudiated the agreement. It accuses hospital managers of falsely claiming they planned to pay in order to keep Waters Edge, Inc. on to manage the facility until the hospital was ready to take over.

Neither the 20-year lease for the home nor the transition agreement included with the suit list an April 1, 2012 closing date, though hospital managers had said publicly they hoped to take over the nursing home by then and later attributed delays to an inability to obtain their “distinct part” license. The transition agreement calls for Alameda Hospital to cover rent and payroll expenses and a management fee while the license was being processed, but doesn't appear to address lost profits.

The suit says Waters Edge, Inc. lost profits due to the “chaos” created by the delay. It says “numerous” patients moved in anticipation of the April 1 handover and that other third parties refused to place patients in the home in the months that followed.

“Some of the Defendant Alameda Hospital’s own employees referred patients, or transferred patients, to other facilities during this chaotic transition period. Numerous physicians began referring patients elsewhere,” the suit says.

The company filed an administrative claim with the hospital on September 27, 2012, but it was denied two weeks later, on October 10, the suit says.

Hospital managers sought to take over the nursing home in 2011, inking a lease deal on November 15 of that year. The nursing home deal was part of a multi-pronged strategy for boosting the hospital’s sagging finances that included opening an orthopedic surgery practice and a wound care center.

Hospital managers said at the time the deal was being considered that Alameda Hospital could earn more money running the facility than a private operator because the government would pay a hospital more to care for patients with Medi-Cal, while Waters Edge’s managers were seeking to create new forms of care. Prior to the handover, about two-thirds of the home’s income came from Medi-Cal, according to a website that tracks nursing homes.

The home was expected to contribute $1.5 million to the hospital’s bottom line during its first year under the hospital’s control; Waters Edge has contributed an estimated $2 million over the first six months the hospital operated it, an unaudited financial report for February shows.

The case number is RG13674753.

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