N.J. nursing home owners sued for pocketing millions in Medicaid money

The New Jersey Office of the State Comptroller filed a lawsuit Monday against the ownership group of two troubled South Jersey nursing homes, seeking to recover millions in what it said were “misspent and concealed Medicaid Funds.”

The action came after the watchdog agency found what it called “a troubling pattern of mismanagement, self-dealing, and profiteering” at Deptford Center for Rehabilitation and Healthcare and Hammonton Center, which share ownership.

The lawsuit in Superior Court in Mercer County named New York owners Daryl Hagler and his next-door neighbor and friend, Kenneth Rozenberg. The two have ties to 46 nursing homes in four states. The lawsuit also named other members of their families and associates.

“The defendants engaged in violation of laws, rules and the Medicaid contract and manipulated financial and compliance reporting, to evade government oversight of their illegal conduct,” the comptroller said in its court filing. “Family members and other beneficial owners were deliberately embedded throughout this structure as owners, officers, and principals of related entities, allowing defendants to maintain effective control, while obscuring true ownership and accountability.”

Acting State Comptroller Kevin Walsh said in a statement that, “Medicaid funds must be used to care for residents, not to enrich owners and their families and associates.”

Attorneys for Hagler and Rozenberg did not immediately respond to a request for comment.

In a scathing report issued in December, the comptroller had charged that the two used deceptive financial arrangements with related-party interests they owned to inflate rent payments from the nursing homes to their property companies.

The comptroller had said they also intentionally understaffed both facilities, and “diverted to themselves tens of millions of dollars in Medicaid funding intended to be used to care for vulnerable residents.” The report said they “furthered their scheme by hiding these actions through false state and federal filings that failed to disclose the extent and profitability of their scams.”

According to the comptroller’s report, more than 3,400 emergency calls were placed to Hammonton and Deptford police about the nursing homes from 2019 to 2024. Investigators for the state agency also referred to the plight one resident who was left sitting in their own urine and feces for hours.

Call bells were routinely disregarded. Pleas for assistance from nurses and staff were ignored, the report said. Two residents were allegedly sexually assaulted. One Deptford resident who should have been on a pureed diet was served solid food anyway and died of asphyxiation, the report also stated.

Another resident, an amputee using a wheelchair, was discharged to a motel that immediately returned him because it couldn’t accommodate a wheelchair. The next day, he was discharged again and deposited in front of a social services office before it opened, investigators said.

But in the midst of the mounting issues, the comptroller said the operators of the two nursing homes were pocketing millions of dollars.

“The diversion of financial resources away from the operations of the skilled nursing facilities resulted in chronic understaffing, including extended periods without required direct care staff or registered nurse coverage,” the lawsuit charged.

An investigation earlier this year by NJ Advance Media and its sister newsrooms across the country found that the use of side businesses with related or even overlapping owners has become widespread. While legal, it often blurs where the money went, advocates say. In some cases, critics say, operators have siphoned funds intended for resident care to their personal and business interests.

Read: Inside the ‘multibillion-dollar game’ to funnel cash from nursing homes to sister companies

The nursing homes’ attorneys, following the comptroller’s report in November, argued that Hammonton Center and Deptford Center both maintained “strong, above-average quality measure ratings” by the Centers for Medicare and Medicaid Services and played a vital role in serving their local communities.

“The comptroller’s report overlooks this reality and significantly misstates both the facts and the law,” the lawyers said.

Walsh, in the wake of that report, said his office would look to recover $123.9 million in Medicaid funding in addition to penalties. Monday’s court action seemed to be aimed at making good on that promise.

In the complaint, the comptroller alleged a multi-year scheme to exploit the nursing homes for unlawful profit.

The office sought restitution and disgorgement of Medicaid overpayments, civil penalties for false statements and false claims, and staffing violations, and damages.

Separately, the comptroller said it also issued a final notice to South Jersey Extended Care in Bridgeton, which is currently under a court-appointed receivership. The notice informed the operators of that long-term care facility that Medicaid funding will cease on March 13, with no further extensions.

South Jersey Extended Care was kicked out of the Medicaid program in 2024 over allegations of abysmal care. A court-appointed receiver had been named in April to oversee day-to-day operations and finances of the facility on the state’s behalf.

In November, meanwhile, the comptroller denied the application of a new ownership group to take over South Jersey Extended Care, citing “an unacceptably high risk of fraud, waste, and abuse” and finding the group lacked the “the requisite responsibility, accountability, and candor” to expand their presence in the New Jersey Medicaid program.

Laurie Facciarossa Brewer, New Jersey’s Long-Term Care Ombudsman, said the potential for fraud in the nursing home industry can be massive and urged that the incoming administration name a new comptroller to continue the work of Walsh.

“With massive Medicaid cuts coming, the state cannot afford to allow millions to be siphoned away from resident care in nursing homes,” she said.