Woes Pile Up on Ex-Nursing Home Tycoon

Woes Pile Up on Ex-Nursing Home Tycoon
Joseph Schwartz (inset) operated out of offices above retail space on Marlboro Road in Wood-Ridge, New Jersey. (© 2022 Google Maps)

In December, a former Arkansas nursing home operator was charged with eight counts of Medicaid fraud and two counts of failing to pay taxes. Then things went really wrong for Joseph Schwartz.

Less than a month later, Schwartz, 62, of Suffern, New York, was slapped with a $10 million judgment in U.S. District Court in Little Rock stemming from the death of a 52-year-old woman at one of his nursing homes in 2018.

He also was indicted in federal court in New Jersey on 22 criminal counts that include benefit plan fraud and failing to pay $29.5 million in payroll and unemployment taxes.

It was a quick fall for Schwartz, a former insurance agency owner who began operating nursing homes in 2005. The company ran more than 100 facilities in 11 states and operated above a pizza parlor in Wood-Ridge, New Jersey.

In Arkansas, Schwartz’s Skyline Health Care LLC was in charge of 21 nursing homes with locations in Batesville, West Memphis, Little Rock and Fort Smith, among others.

In December, the Arkansas Attorney General’s Office said in a news release that Schwartz submitted false statements in cost reports and other documentation to the state’s Medicaid program. His former company, Skyline Health, allegedly exaggerated its costs by $6.3 million and was overpaid by $3.6 million. Schwartz is also charged with failing to pay more than $2 million withheld from his Arkansas employees’ paychecks to the state from July 2017 to July 2018, the news release said.

Schwartz also received tens of millions of dollars in gross income from his Arkansas facilities in 2018 and 2019 but failed to file an Arkansas tax return, resulting in a charge of failure to pay or file a tax return, the news release said.

One of Schwartz’s criminal defense attorneys, Bill James Jr. of Little Rock, told Arkansas Business last week that he doesn’t have the discovery information yet in the Arkansas Medicaid fraud case. “At this point we deny any wrongdoing,” James said.

James isn’t representing Schwartz in other litigation or in New Jersey federal court.

In the federal case, Schwartz is represented by attorney Robert Fedor of Westlake, Ohio, who didn’t return a call for comment.

In May 2018, Skyline announced it was leaving the nursing home business weeks after the Arkansas Department of Human Services filed lawsuits to put Skyline’s Spring Place Health & Rehab in Hazen and Dierks Health & Rehab into receivership after concerns surfaced over the company’s finances and its ability to provide food to residents. Regulators have also taken over Skyline facilities in South Dakota, Kansas, Nebraska and Pennsylvania.

In a deposition taken in August in a wrongful death lawsuit filed in Pulaski County Circuit Court, Schwartz said the collapse of his company was “because of banking problems” and not because he failed to pay vendors or provided poor care to residents.

“Banks did not want to support us to continue in operation,” said Schwartz, who didn’t offer more details. Schwartz also insisted that Skyline Healthcare delivered high-quality care. He said he made sure of it by “constantly talking with the people who are involved. They should give the best care.”

But he answered most questions with “I don’t recall” or “I don’t remember.”

Arkansas Business reviewed several lawsuits against Schwartz and Skyline that provide some insight into the nursing home chain, which at its peak had 114 locations and employed about 15,000 people.

Starting Out

After graduating from Beth Medrash Govoha, a yeshiva in Lakewood, New Jersey, in the mid-1980s, Schwartz started an insurance brokerage business.

It’s unclear what prompted Schwartz to enter the nursing home industry. He had no background in patient care and his only experience with nursing homes was selling insurance to them.

Established in 2005, Skyline said in marketing material that it “has a proud record of dramatically improving the quality of long term, sub-acute, rehabilitation and adult medical daycare services under our management. Our specialty is acquiring struggling facilities (one or two-star) and transforming them into world-class institutions.”

The Skyline pamphlet was attached as an exhibit in a federal lawsuit against the company.

A former employee was asked about the pamphlet in a deposition and agreed that Skyline acquired troubled facilities. “But they didn’t reform them,” said Brandon Augustyniak, who started working for Schwartz in 2008 and was given the title of CFO in 2015. He said his role as CFO was really a “glorified secretary,” and he left the company in 2017 or 2018 after Schwartz failed to pay him.

Nevertheless, when Schwartz began operating nursing homes, the company provided “great care,” Augustyniak said.

Skyline began expanding in 2016. In April of that year, Schwartz and his wife, Rosie, bought a group of skilled nursing facilities in Arkansas through shell companies, according to a lawsuit filed in 2020 against the Schwartzes by Robert E. Rack of Augusta, as special administrator for the estate of Lois M. Rack.

Joseph Schwartz liked to brag that “he was the largest operator in all of the country,” Augustyniak said in a deposition.

But at the time, quality-of-care and financial issues plagued Skyline, the Rack suit said. “And these issues only grew worse as time went on.”

Rack is represented by attorney James Wilkes II of Wilkes & McHugh of Tampa, Florida. Wilkes didn’t return a call from Arkansas Business.

Schwartz’s Management

Augustyniak said he was never concerned about the financial stability of the company. “Joe always seemed to have it under control,” Augustyniak said. “He always had a plan.”

Still, the nursing home operation was “extremely disorganized,” Augustyniak said. “It was a day-by-day kind of go with the flow. … There was no responsibilities for anyone.”

Augustyniak also said that Schwartz could be difficult to deal with.

“You would never get a straight answer out of Joe unless you sat him down and ... put something in front of him,” Augustyniak said. “Unless you’re invited into his office to talk to him, there is no just going in and … having a conversation with him.”

But one thing that employees were “crystal clear” on was that no decisions were ever made without Schwartz, he said. “He was heavily involved,” Augustyniak said. “Nothing went past him.”

Schwartz had the ultimate say over paying Skyline invoices. “Joe Schwartz controlled his own money,” Augustyniak said. “Nobody was ever able to do anything with his money without his say-so.”

$10 Million Judgment

Less than a year before Schwartz left the nursing home industry, Lois M. Rack of Augusta entered a Skyline nursing home in Little Rock, Hillview Post Acute & Rehabilitation Center.

She became a resident in November 2017 and should have spent three weeks at the facility before being released to go home. Instead, about nine weeks later, the 52-year-old was dead from sepsis and acute renal failure.

She had suffered multiple injuries at the nursing home, including not being timely turned and repositioned, and her wound dressings were not properly changed, resulting in gangrene infections in both legs, a judge found.

“Further, the care, or lack thereof, that Ms. Rack received at the Facility was incredibly egregious, horrendously neglectful, pitiful and sad,” U.S. Magistrate Judge Jerome Kearney wrote in his proposed findings and recommended disposition.

Kearney wrote that Hillview Post didn’t have the money to provide adequate care.

“Instead of providing care, Defendants Joseph Schwartz and his wife Rosie Schwartz siphoned funds necessary for the treatment of the residents into their own pockets through the vehicle of companies they created,” according to a filing by Kearney.

Kearney said the couple made millions of dollars by draining funds from Skyline nursing homes.

For example, Hillview paid nearly $500,000 to Rosie Schwartz’s company, 8701 Riley Avenue Holdings LLC, and Joseph Scwartz’s management company received $410,000 in a year, according to the filing. And Joseph Schwartz’s Skyline Management Group spent $225,000 on travel and entertainment in a year.

“Rack never stood a chance at the Facility because Defendants Joseph Schwartz and Rosie Schwartz never gave her a chance,” Judge Kearney wrote.

Joseph and Rosie Schwartz were sued by Rack’s family, but neither Schwartz filed an answer to the lawsuit, resulting in the default judgment.

After an October bench trial to determine damages, Kearney recommended that Rack’s estate receive $5 million in compensatory damages and $5 million in punitive damages.

U.S. District Judge Billy Roy Wilson agreed and entered the judgment on Jan. 14.

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