Nursing Home King Michael Morton Expanding His Empire

Fort Smith nursing home magnate Michael Morton said he tells people he’s in business to provide quality care for the elderly.

Even though Michael Morton has been hit by shrapnel from former Faulkner County Circuit Judge Michael Maggio’s bribery scandal, the Fort Smith nursing home magnate is pushing forward with plans to expand his empire.

Morton expects to start construction on his first assisted-living center this year in Hot Springs, and in January he launched a pharmacy business to serve the nursing home industry.

In November, he bought three nursing homes in central Arkansas in transactions totaling $11.4 million, bringing his total currently operating to 27. And he has two new 120-bed homes under construction, one in Little Rock that’s expected to open in August or September and a Clarksville location that will replace his nursing home in Johnson County in August.

Morton, who will turn 65 in July, has been in the nursing home industry for more than 40 years and has no intention of slowing down.

“I don’t know what I would do if I retired,” he said recently in his spacious office in Fort Smith. “It’s not something that I look at as … even an option for me.”

It wasn’t long ago that Morton, who owns about 15 percent of all nursing homes in Arkansas, was revered inside his industry and respected outside of it.

The nursing homes he operated in the fiscal year that ended in June 2013 generated $148.65 million in revenue and $14.3 million in profit, according to the most recent figures available from the Arkansas Department of Human Services. (Four of his nursing homes were among the 10 most profitable facilities in the state that year.)

He has donated more than $1.3 million over the past 16 years to various political campaigns and has given hundreds of thousands of dollars to schools.

(See Michael Morton Has Been Giving to Schools for Years)

In 2000, the Arkansas Health Care Association, which is the association for nursing homes in the state, named Morton the second recipient of its George O. Jernigan Award for Excellence.

“Michael always advocates for the good of the entire profession, even when it may not be beneficial to him,” Rachel Davis, executive director of the Arkansas Health Care Association, said in an email statement to Arkansas Business.

But his image has been tarnished by a seemingly never-ending series of news reports about his political donations to Maggio through political action committees set up by former Arkansas Sen. Gilbert Baker. In the summer of 2013, Morton, through his entities, donated a total of $24,000 to Maggio’s campaign for a seat on the Arkansas Court of Appeals at the same time Maggio was presiding over a case involving Morton’s nursing home in Greenbrier (Faulkner County).

Within days of Morton giving the campaign money, Maggio reduced a jury’s $5.2 million judgment against the nursing home to $1 million.

After the suspiciously timed contributions — and some other unsavory behavior by Maggio — were publicly revealed in 2014, Maggio withdrew from the Court of Appeals race. On Jan. 9 of this year, he waived indictment and pleaded guilty to the federal charge of accepting a bribe in exchange for reducing the verdict.

Maggio admitted that he was “improperly influenced” to lower the judgment. He faces up to 10 years in federal prison, but his plea agreement suggests a guideline sentence of 30-37 months. A sentencing date hasn’t been set.

As of last week, no one else has been charged with a crime. The plaintiffs whose verdict was slashed have a civil lawsuit pending against Morton and Maggio. Baker, a Republican who represented Conway until he was term limited, also was named as a defendant for allegedly soliciting the contributions.

Morton recently agreed to talk to Arkansas Business about his nursing home business, but said he couldn’t comment about Maggio. Morton, however, told the Arkansas Ethics Commission last May that he was not trying to buy a favorable ruling with his political contributions.

(Also see: Nursing Home Magnate Michael Morton Considered a Top Political Donor)

Getting Started

Growing up just across the Arkansas River from Fort Smith, Morton wasn’t sure what he wanted to do. Morton’s father taught vocational agriculture to high school students for 33 years in Muldrow, Oklahoma, and his mother was a housewife.

Michael Morton completed a degree in accounting with a minor in political science and economics at Northeastern State University in Tahlequah, Oklahoma, in January 1972, after just three and a half years.

“At the time, accountants were doing pretty well,” he said.

But he had his eye on going to law school — until he read an article that said there were more attorneys per capita in Oklahoma than any other state. “So I thought, I’m trying to be doing something that everybody is doing,” Morton said.

About that time, a nursing home group with seven locations in Oklahoma was looking for an accountant. Although he had never worked as an accountant, Morton said he got the job because he had a college degree.

The job hooked him on the nursing home industry, mainly because he got to travel around Oklahoma to check on the group’s various nursing homes.

“You had to drive right on the edge of Bartlesville, Oklahoma, where that great big … Phillips 66 at the time was, and you could see those great big buildings,” he said. “And I just got thinking, I’m so happy I’m out here getting to drive … instead of sitting in a cubicle somewhere. … So I decided that I made the right decision.”

Building an Empire

While working for the Oklahoma group, Morton decided he could do the same thing his employers were doing.

A friend, Doug Stites, offered to put up half the cost if Morton could find a nursing home to buy. Morton found a nursing home in Booneville and bought it in September 1976. He still owns the business, but it has a new building and is now called Oak Manor Nursing & Rehabilitation Center.

In 1980, he started expanding after noticing that there was no nursing home in Perry County. He built one and still owns it. After that, he bought two more homes in Hope.

“I have logically and methodically grown at a rate of one per year,” he said. “Now I have sold some and bought some — there has been a lot of that. But a lot of these I’ve had since I bought them.”

Morton said he likes to operate nursing homes that are near each other. “You’re able to get in the market and kind of dominate it by making your homes best,” he said. “And so people come to my nursing homes.”

He said that before he buys a nursing home, he considers the patient census. If a nursing home is only half full after several years of operation, it might be poorly managed or there might be an oversupply of nursing home beds in the area.

Morton said he also considers the condition of the home. “If the roof is falling and wall caving in and you have nobody in it, I’m thinking I’m going to give you less money if I buy it,” he said. “But I’m also thinking that if it’s a location that I think is good, … it’s kind of a unique situation.”

As Morton was growing his nursing homes in the 1990s, he also was becoming a leader in the industry. He served a two-year term as president of the Arkansas Health Care Association, the statewide association of nursing homes, and was becoming a major donor to political campaigns.

“I feel like that sometimes you can at least get your foot in the door where you can at least express an argument or your side of a particular issue,” Morton told the Arkansas Democrat-Gazette for a 1997 article. “It’s the way that the political process is set up. I just don’t think they base their decision on how much money people give them. … Have you ever heard of a politician being bought for $2,400?”

At the time, Morton said he was a Democrat but donated to both Democrats and Republican candidates.

But major changes were coming for Morton in the late 1990s.

Morton’s business partner died in a car accident in 1998 at the age of 55. Morton bought Stites’ share of their business from his estate. At the time Stites & Morton Inc. operated 14 nursing homes; Morton declined to say how much he paid Stites’ estate.

About the same time, the nursing home industry was being shaken up by a change in government payment methodology and by a law firm from Tampa, Florida.

Payment Shift

For years, Morton wouldn’t accept patients insured by Medicare, the federal program for people 65 and over, because it paid only 80 percent of the cost of care. And Medicaid, the joint federal-state program that covers the poor, wasn’t much better, he said. “Back then, everything was a flat rate,” Morton said.

Then, in the late 1990s, Medicare changed the way it reimbursed for nursing home care. Higher rates were instituted for sicker patients and those needing more intensive therapy. Nowadays, he said, Medicare patients are the key to running a profitable nursing home.

“If you run a 120-bed nursing home” and can have 30-60 Medicare patients, “you’re going to do good,” he said.

Shortly thereafter, in 2001, Arkansas adopted a new Medicaid formula for reimbursing nursing homes for the care provided to indigent patients. Thanks to a bed tax that is used to draw down matching federal funds, the daily rate paid to care for Medicaid patients has increased from less than $70 a day in 2000 to an average of about $170 a day in 2014.

Even with the improved payments, it’s not easy making a profit in the industry, Morton said. (In most years, according to DHS data tracked by Arkansas Business, about two-thirds of nursing homes in the state report a profit, although the financial results can vary widely from home to home and year to year.)

“To me, if you don’t know what you’re doing, you’ll be in trouble quick,” he said.

He said he is profitable because he doesn’t carry much debt.

And Morton said much of the money he has made from his nursing homes is reinvested in the business. “I don’t know when it became my strategy, but it is,” Morton said. “I saw what other [nursing home owners] had done as they got older. They didn’t do anything. They just kept making money … and the home got worse and worse.”

“That’s the first thing I tell everybody that we’re in this business for, is to provide quality care for the elderly,” Morton said.

And if there isn’t good care, hospitals, doctors and family members aren’t going to be referred to the center, he said.

Morton’s nursing homes do some advertising, but most of the residents are there because of word of mouth, he said.

The $78 Million Verdict

While the nursing home industry was finally looking up financially, trouble was looming.

Morton describes the 1999 arrival in Arkansas of Florida law firm Wilkes & McHugh as a major blow to the nursing home industry.

The law firm unleashed a flurry of lawsuits alleging neglect and wrongful death by nursing homes using a strategy that it had perfected in its home state. The highlight, though, occurred in 2001, when the law firm’s Little Rock office won a $78 million verdict in the death of a 93-year-old woman in a Mena nursing home — not one of Morton’s.

The Arkansas Supreme Court later reduced the verdict to $26 million, but the damage to the industry had already been done.

Attorney Brian Reddick, who managed the Wilkes & McHugh office in Little Rock until 2009, told Arkansas Business last week that it was interesting that Morton would claim the Mena verdict “somehow curtailed his business plan or his profitable enterprise, which has done nothing but grow since that time,” he said. “One could argue that [Morton] certainly has benefitted from sales of nursing homes in the state, as he’s picked them up and made money off them.”

Still, Morton said he had a $30 million umbrella insurance policy at the time that cost him $40,000 annually. But after the ruling, the majority of insurance companies that offered commercial professional liability coverage for nursing homes fled the state.

To discourage the lawsuits, Morton said, he now carries only $200,000 in liability insurance on each of his nursing homes.

On the advice of his attorneys at Hardin Jesson & Terry PLC of Fort Smith, Morton has also adopted a divided corporate structure for each of his facilities. One company operates the nursing home while a leasing company, also controlled by Morton, owns the building. In addition, Morton’s Central Arkansas Nursing Centers Inc. contracts to provide administrative services to each nursing home in which Morton is a stockholder.

He also added within the last few years mandatory arbitration clauses to the admission papers, so if a dispute does arise it will be settled outside of the courtroom.

David Couch, a plaintiff’s attorney, told Arkansas Business recently that Morton’s legal strategy is working — “if the goal is not to be held accountable when you hurt someone.”

But Couch, who represented the Mena nursing home that lost the landmark case in 2001, also allowed that Morton “does a fairly good job of taking care of residents in his facilities, as do most chains in the state of Arkansas.”

Morton said mistakes are going to be made in any health care setting, including nursing homes. “And I’m not above mistakes that happen in my nursing homes,” Morton said.

But he said trial attorneys aren’t looking for any “reasonable recourse” but instead are out to put a nursing home into bankruptcy. “When that happens, that’s not going to help anybody,” he said.

Branching Out

These days, Morton said he’s in talks with hospitals about working together, a situation that signals a change in the way hospitals view nursing homes.

For years, he said, “hospitals looked at nursing homes as not in the health care field. Now they look at it as a rehab facility and they want their patients to go to a nursing home.”

Starting in 2012, Arkansas changed its Medicaid reimbursement policy to create a strong financial incentive for hospitals and other providers to keep a lid on health care costs. Morton said hospitals that send their patients to a nursing home for rehabilitation don’t want to see that patient readmitted to the hospitals for complications.

“That’s one of the things that we’re working on in the nursing home industry … is to cut down on readmissions,” he said.

Morton also said he has been encouraged by politicians, bankers and others to start offering assisted-living services.

He agreed. Morton said that later this year he will start construction on a 120-bed nursing home on the Belvedere Golf Club in Hot Springs and agreed to add an assisted-living center to it as a way to diversify his holdings.

He also started Premier Pharmacy Care LLC of Sherwood in January. It provides pharmaceutical services for his nursing homes and others in Arkansas.

Morton said his success in the nursing home industry over the years is tied to his employees.

“I’ve somehow been given a gift to assemble the right people, in the right place, at the right time,” Morton said. “It’s worked out well. I feel I have a great organization.”

Michael Morton’s Nursing Homes in Arkansas^*
Fiscal year ended June 30, 2013

*Other properties acquired by Michael Morton since June 30, 2013, include Hickory Heights Health & Rehab of Little Rock; Cabot Health & Rehab; Lakewood Health & Rehab of North Little Rock and Lonoke Health & Rehab Center. He also owns Greystone Nursing & Rehab and Johnson County Health & Rehab of Lamar, but financial information wasn’t available for fiscal 2013. He also owns three nursing homes in Oklahoma and two in Missouri.
**Weighted daily reimbursement rate for January-June 2014                        
#Under construction during the fiscal year

Source: Arkansas Department of Human Services