State Comptoller investigation uncovers fraud, waste and abuse at “New Jersey’s worst nursing home”

A straw owner, substandard care, and millions funneled to private companies controlled by the nursing home’s administrators. The victims? New Jersey’s most vulnerable citizens.

A bedroom reeking of urine. Black flies buzzing around a lunch tray. A broken toilet filled with debris. These are just some of the conditions residents of a New Jersey nursing home experienced while the operators of the facility pocketed millions of dollars, officials say.

An investigation made public Thursday by the New Jersey Office of the State Comptroller found mismanagement, fraud, and abuse of public funds at South Jersey Extended Care, a for-profit nursing home in Cumberland County.

The operators of the nursing home allegedly funneled millions of dollars in Medicaid funds out of the Bridgeton facility and into their personal businesses and charities for personal gain. Meanwhile, vulnerable residents at the nursing home endured horrible conditions in an understaffed, underresourced, often unsanitary facility that has been consistently rated the worst nursing home in the state.

“This was a massive scam, perpetrated for years,” said Acting State Comptroller Kevin Walsh. “These individuals were able to amass a fortune by pretending to be independent parties. In reality, they operated as one unit, providing terrible care to the sick, the elderly, and the poor, so they could make big profits.”

The Office of the State Comptroller, with the approval of the New Jersey attorney general, is suspending South Jersey Extended Care from New Jersey Medicaid. Funding is also being cut off at a second nursing home in Burlington County under the same ownership, Sterling Manor Nursing Center in Maple Shade, as well as several related businesses that provided services to both facilities.

At a press conference Thursday, Walsh said his office is coordinating with the New Jersey Department of Health and the Department of Human Services to ensure residents at the two facilities are cared for properly. The Medicaid suspension goes into effect in 60 days. “We have also shared what we found in our investigation with others in government so they too can respond,” Walsh said.

Attorney General Matthew Platkin said the notices of suspension to South Jersey Extended Care, Sterling Manor Nursing Center, and 11 other related businesses will allow the state to take necessary steps to address the problems, protect the nursing home residents, and get them the care they need.

Substandard care

The federal Centers for Medicare & Medicaid Services rates nursing homes across the country using a five-star quality system. A facility’s rating is calculated based on health inspections, quality measures and staffing. In almost every rating period over the past decade, South Jersey Extended Care has received an overall rating of one star.

South Jersey Extended Care is certified to provide 167 nursing home beds. The residents of the facility skew younger, with many under 60, and many have been diagnosed with mental illnesses.

New Jersey Department of Health surveys and inspections of South Jersey Extended Care paint a grim picture of a perpetually understaffed, dirty facility where residents were regularly mistreated or neglected. The nursing home operators allegedly violated numerous state and federal requirements involving patient care, recordkeeping, staffing and the upkeep of the physical property. In the last three inspection cycles, South Jersey Extended Care had more than double the state average in health inspection deficiencies.

The facility regularly lacked adequate staffing and failed to consistently provide qualified staff, including a licensed director of nursing and a licensed social worker, both of which are required by law to operate a nursing home. Medical records lacked basic information required by law. Staff shortages meant residents sometimes received medications hours later than required.

For these and other deficiencies, South Jersey Extended Care was the lowest-rated nursing home in the state year after year.

Officials at the Office of the State Comptroller began looking into the poorest-rated nursing homes in the state a few years ago. They discovered that a group of facilities were consistently receiving one-star ratings and never improving, despite receiving millions of dollars in Medicaid funding. They wanted to find out why, so they decided to take a closer look, starting with South Jersey Extended Care.

“We followed the money. We looked at bank records and financial records for a five-year period to see where the money went and who benefited,” Walsh said.

A bad history, a straw owner and self-dealing

In the mid-1990s, Massachusetts and Connecticut barred Michael Konig from owning nursing homes after several Konig-owned or -operated facilities were found to have severe deficiencies, including alleged sexual and physical abuse of residents, according to newspaper reports. Around the same time, Konig transferred ownership of his New Jersey nursing homes, including South Jersey Extended Care, in an apparent attempt to avoid scrutiny in New Jersey.

On paper, South Jersey Extended Care is owned by Mordechay “Mark” Weisz. Investigators for the Office of the State Comptroller’s Medicaid Fraud Division found that, in reality, Weisz was a straw owner who yielded all control to his cousin, Michael Konig, and Konig’s brother-in-law, Steven Krausman. During the period under review, April 2018 to March 2023, Konig and Krausman controlled South Jersey Extended Care’s finances, operations and administration, signing checks, making decisions and enriching themselves with public funds.

Investigators examined tens of thousands of documents, including financial and medical records, and conducted sworn interviews with Weisz, Konig, Krausman and others. During the five-year investigative period, investigators found that South Jersey Extended Care took in $35.6 million in Medicaid funds but paid $38.9 million to businesses owned and controlled by Krausman and Konig. The pair served as both seller and buyer, vendor and customer, allowing them to charge grossly inflated prices and pocket the profits.

To avoid self-dealing and fraud, state and federal laws require nursing homes to disclose transactions with vendors that are related parties—entities with common ownership or control—and cap related-party costs at actual cost or fair market value, whichever is lower. By installing Weisz as the straw owner and failing to report the vendors as related parties, Krausman and Konig avoided scrutiny and maximized their profits, officials said.

Investigators for the Office of the State Comptroller found that Konig, Krausman and Weisz drained South Jersey Extended Care of cash, driving the nursing home to the brink of insolvency. In 2018, South Jersey Extended Care had $1.5 million in assets. By 2022, the facility reported just $171,913 in assets. The nursing home’s liabilities also ballooned from $10.4 million in 2018 to $14.8 million in 2022. Weisz allegedly extracted at least $1.3 million from the nursing home for himself at a time when the facility was paying out more than it was taking in, despite admitting to investigators that he had “absolutely no” involvement in running the business.

During the five years under review, investigators found Krausman, Konig and their related businesses managed, operated or provided services to 10 New Jersey nursing homes. A review of available tax returns for four of the six related entities that Krausman and Konig controlled showed Krausman and Konig made $45.5 million in profits from the 10 nursing homes.

The Office of the State Comptroller’s investigation found that Krausman’s and Konig’s businesses routinely overcharged and under-delivered. In just a two-year review period, Konig’s Broadway Health Care Management was paid more than $10 million to provide nursing and other services to South Jersey Extended Care, yet the Office of the State Comptroller found South Jersey Extended Care was perpetually understaffed. It lacked sufficient qualified staff every day of the 75 days the Office of the State Comptroller reviewed.

Critical positions were filled with unqualified people. A director of social work was not a licensed social worker. A director of nursing was not a registered nurse, and her license as an LPN had been suspended after she failed to respond to questions regarding her arrest on charges of forging prescriptions.

South Jersey Extended Care medical records were still in paper form and in disarray, missing crucial documents, including residents’ care plans, medication administration records and documentation of whether residents received assistance with activities of daily living, such as eating, walking or going to the bathroom.

Nine other New Jersey nursing homes similarly contracted with Krausman- and Konig-owned or -controlled entities and were charged inflated prices. The Konig-controlled entity Geriscript Supplies was contracted to provide medical supplies to all 10 nursing homes. Records show the company spent $6 million on consulting and management fees to another Konig business during the review period. Another $800,000 went to a religious charity controlled by Konig. Just $3.6 million was spent on supplies.

In total, Krausman- and Konig-owned and -controlled businesses received $253 million in revenue from South Jersey Extended Care and the nine other nursing homes—76 percent of the total Medicaid funds these nursing homes received during the five-year period. The Office of the State Comptroller did not analyze the financial condition of the nine other facilities but found a similar pattern at work: chronically low-quality ratings, apparent conflicts of interest and large disparities between expenditures for goods and services and the actual costs. Weisz was also listed as the owner of three of the 10 facilities: South Jersey Extended Care, Sterling Manor Nursing Center in Maple Shade, and Oceana Rehab and Nursing Center. All consistently received one-star ratings.

Investigation ongoing

The Office of the State Comptroller’s investigation is ongoing. The comptroller may seek recovery of overpayments, civil monetary penalties and administrative sanctions.

Officials said the care of residents at any impacted facilities will be paramount and that the Office of the State Comptroller will coordinate with the Department of Health, the Department of Human Services and the Office of the Long-Term Care Ombudsman to ensure residents’ needs are met.

The Office of the State Comptroller has made several recommendations to the New Jersey Department of Health, the Department of Human Services and the New Jersey Legislature on needed policy changes and reforms.

“Our report lays bare in great detail how unscrupulous nursing home operators are able to exploit weaknesses in the system and fleece the Medicaid program,” Walsh said. “We owe it to nursing home residents and taxpayers to take this moment seriously, to learn from this investigation and to ensure this can’t happen again.”