oversight

Management Alert: HUD Did Not Provide Acceptable Oversight of the Physical Condition of Residential Care Facilities

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-01-05.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                       U.S. DEPARTMENT OF
                                       HOUSING AND URBAN DEVELOPMENT
                                                OFFICE OF INSPECTOR GENERAL




                                                      January 5, 2018
                                                                                                     MEMORANDUM NO:
                                                                                                          2018-CF-0801



Memorandum
TO:                 Roger Lukoff
                    Deputy Assistant Secretary, Office of Healthcare Programs, HP

                    Donald LaVoy
                    Deputy Assistant Secretary, Departmental Real Estate Assessment Center, PX

                    //signed//
FROM:               Christeen Thomas
                    Director, Joint Civil Fraud Division, GAW

SUBJECT:            Management Alert: HUD Did Not Provide Acceptable Oversight of the Physical
                    Condition of Residential Care Facilities


                                                   INTRODUCTION

The purpose of this memorandum is to alert you to observations made during onsite visits to
residential care facilities (RCF) with Section 232 U.S. Department of Housing and Urban
Development (HUD)-insured mortgages. This review is part of an ongoing effort of the Office
of Inspector General (OIG). We reviewed concerns from a complainant within HUD regarding
the physical condition of HUD-insured RCFs. At least 10 RCFs had received a score below 31
out of a possible 100 on their most recent Real Estate Assessment Center (REAC) inspection
performed between June 2016 and March 2017. The low REAC inspection scores suggested that
the physical condition of the facilities was unsatisfactory. This management alert is the second
in a series of memorandums and reports to be issued highlighting the findings of OIG reviews of
the Section 232 program. The Office of Evaluation issued report 2017-OE-0111, The Office of
Residential Care Facilities’ Use of Real Estate Assessment Scores, on September 15, 2017. We
are communicating these observations to you because of the importance of the physical condition
of housing for the elderly and those needing assistance. 1

1
    See appendix B for a list of acronyms.
                                                       Joint Civil Fraud Division
                                       400 State Avenue, Suite 501, Kansas City, KS 66101
                                  Visit the Office of Inspector General website at www.hudoig.gov.
                                            SUMMARY

We found that HUD failed to provide oversight of the physical condition of the RCFs in its
portfolio to ensure sustainable properties for the life of the HUD-insured mortgage. We
consistently saw the same types of deficiencies recurring throughout the facilities we visited.
These deficiencies included significant roof problems that caused leaks and water damage, poor
quality of repairs, and facilities that were neglected and generally run down. The report issued
by the Office of Evaluation found that RCFs were not being inspected in a timely manner. Our
work substantiated the Office of Evaluation’s observation that there were a significant number of
days between REAC physical inspections. The REAC inspections we reviewed with scores
below 31 were performed an average of almost 3 years after the prior inspection. These
deficiencies are indications of a lack of physical condition monitoring by HUD and a lack of
concern for the structural quality of the collateral by the owners and operators. In addition, the
REAC scores did not accurately reflect the overall physical condition of the facilities.

                                METHODOLOGY AND SCOPE

We selected a sample of RCFs to assess their physical condition. We initially selected 10 RCFs
provided by REAC that had received an initial score below 31 on their most recent REAC
inspection performed between June 2016 and March 2017. Before our inspection, the mortgage
on one of the properties had been paid off, and the property was no longer HUD insured.
Therefore, this property was dropped from our sample.

We selected an additional three RCFs that had received REAC inspection scores between 31 and
59 on their most recent inspection. Before that inspection, it had been at least 4 years since
REAC had performed an inspection. Finally, we selected three skilled nursing facilities (SNF)
that received REAC inspection scores of 60 or above, were no longer required to be inspected by
REAC, and had not been inspected by REAC for at least 5 years.

The following chart lists the facilities we visited.




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    Name of facility       Location of            REAC inspection           REAC score          Days between
                           facility               date                                          REAC
                                                                                                inspections
    REAC inspection score below 31
    Bala Nursing       Philadelphia, PA           March 9-11, 2017          2c                  1,928 days
    Center                                                                                      (5.3 years)
    Spearly Care       Denver, CO                 February 28, 2017         12c                 1,594 days
    Center                                                                                      (4.4 years)
    Glen Park          Glendale, CA               June 29, 2016             22c                 371 days
    Boynton                                                                                     (1 year)
    Bria of River Oaks Burnham, IL                June 30-July 1,           26b                 149 days
                                                  2016                                          (.4 year)
    New Rochelle       New Rochelle,              November 1, 2016          27c                 511 days
    Manor              NY                                                                       (1.4 years)
    Amberwoods of      Farmington, CT   March 8-9, 2017                     15c                 995 days
    Farmington                                                              (rescored 29c 2)    (2.7 years)
    Park Ridge Care    Park Ridge, IL   February 15, 2017                   29c                 2,318 days
    Center                                                                                      (6.4 years)
    Cherry Springs     Hendersonville,  December 13, 2016                   15c                 273 days
    Village            NC                                                   (rescored 43c)      (.75 year)
    Indian River       Granville, NY    June 24, 2016                       21c                 None 3
    Rehabilitation and                                                      (rescored 52c)
    Nursing Center
    REAC inspection score between 31 and 59
    Homestead          Penn Yan, NY     September 22, 2016                  31c                 1,562 days
    Nursing Home                                                                                (4.3 years)
    Westfield Health   Westfield, NY    April 4, 2017                       38c                 2,260 days
    Care Center                                                                                 (6.2 years)
    Miller’s Merry     Plymouth, IN     May 16, 2017                        38c                 2,268 days
    Manor Plymouth                                                                              (6.2 years)
    REAC inspection score 60 or above
    Miller’s Merry     Logansport, IN   July 5, 2012                        60c                 729 days
    Manor Logansport                                                                            (2 years)
    Somers Manor       Somers, NY       April 11, 2012                      62c                 289 days
    Nursing Home                                                                                (.79 year)
    Amsterdam N.H.     New York, NY     April 23, 2012                      62c                 381 days
    Corp                                                                                        (1 year)

HUD REAC inspectors accompanied us on our visits to the 15 RCFs. For the 12 facilities with
scores below 60, the REAC inspector used the most recent REAC inspection to determine
whether deficiencies had been repaired or the conditions noted in the inspection still existed. For

2
  According to HUD Handbook 4232.1, REV-1, chapter 3, section III, paragraph 3.7.2.A.3, the RCFs can appeal the
REAC score. For these RCFs, after the appeal process, the scores were revised.
3
  This was the first REAC inspection at the property, and it occurred 5 years after endorsement of the Federal
Housing Administration-insured loan.


                                                       3
the three SNFs that received REAC scores of 60 or above and were no longer being inspected,
the REAC inspector performed a full inspection of the facilities and issued a score for purposes
of our review.

We included pictures from our onsite inspections in appendix A to emphasize the significance of
what we observed. The images supplement the descriptions in the following sections.

                                         BACKGROUND

The National Housing Act of 1959 authorizes HUD to offer mortgage insurance for RCFs.
HUD’s Office of Residential Care Facilities (ORCF) manages the performance and monitors the
physical condition of insured RCFs. REAC performs physical condition inspections of these
facilities so ORCF can ensure that the facilities are in safe, decent, and sanitary condition and in
good repair.

Four categories of RCFs exist within ORCF’s portfolio:

   •   Nursing homes are licensed or regulated by a State (or its political subdivision) and
       provide accommodations for people who are not acutely ill but are in need of skilled
       nursing care. ORCF uses SNF, a Medicare term, to describe nursing homes in its
       portfolio.
   •   Assisted living facilities are licensed or regulated by a State (or its political subdivision)
       and provide accommodations, including continuous protective oversight, for people at
       least 62 years of age who are unable to perform at least three activities of daily living.
   •   Intermediate care facilities are licensed or regulated by a State (or its political
       subdivision) and provide accommodations for people who require continuous care but do
       not need continuous medical care.
   •   Board and care homes are regulated in accordance with the Social Security Act and a
       State’s eligibility requirements and provide room, board, and continuous protective
       oversight.

The Office of Public and Indian Housing’s REAC administers HUD’s physical condition
inspection program. The purpose of the physical inspection process is to provide HUD with the
ability to assess whether such properties are in a safe, decent, and sanitary condition and in good
repair. The facility starts an inspection with a score of 100, and each deficiency reduces the
score. In general, deficiencies that present a greater threat to residents’ health and safety reduce
a facility’s score by a more than those with a lower potential threat. The score determines the
timeline for a facility’s next REAC inspection according to a 3-, 2-, or 1-year schedule. If a
property scores at least 90 on its inspection, the property’s next routine inspection should be in 3
years. If a property scores from 80 to 89, the property’s next routine inspection should be in 2
years. If a property scores less than 80, the property’s next inspection should be in 1 year. In
addition to the number, the score may include an asterisk or a letter “a,” “b,” or “c.” The asterisk
indicates that the inspector observed health and safety deficiencies with respect to smoke
detectors. The letters indicate whether the inspector observed health and safety deficiencies. An
“a” indicates that the inspector observed no health and safety deficiencies, a “b” indicates that



                                                 4
the inspector observed non-life-threatening health and safety deficiencies, and a “c” indicates
that the inspector observed exigent life-threatening health and safety deficiencies.

The owner must carefully review the physical inspection report, particularly those items
classified as exigent life-threatening health and safety deficiencies. The owner is also
responsible for conducting its own survey of the total project based on the REAC’s physical
inspection findings. The owner must mitigate all exigent life-threatening health and safety items
immediately, and the owner must file a written report with the applicable HUD official within 3
business days of the date of the inspection, which is the date the owner was provided with the
exigent life-threatening health and safety notice. The report filed by the owner must provide a
certification and reasonable evidence that the exigent life-threatening health and safety items
have been resolved.

In 2012, HUD allowed SNFs to be exempt from REAC physical inspections. Under 24 CFR
(Code of Federal Regulations) 200.855, ORCF no longer requires REAC to routinely perform
physical inspections on SNFs as long as the most recent inspection score was 60 or above. This
change was made because HUD determined that it was burdensome for the facilities to have
multiple agencies perform inspections on the same property. One example is the Centers for
Medicare & Medicaid Services (CMS), which is part of the U.S. Department of Health and
Human Services. CMS created the Five-Star Quality Rating System to help consumers, their
families, and caregivers compare nursing homes more easily and to help identify a facility for
loved ones. HUD relies on CMS inspections for HUD-insured SNFs and no longer has REAC
inspectors perform physical inspections. However, a REAC memorandum issued after the rule’s
implementation in 2012 indicated that REAC did not support the rule change. REAC said the
rule change reduced the uniformity and the level of objectivity in REAC’s inspection process.
REAC also said CMS standards focus more on patient issues, whereas REAC standards focus
entirely on physical condition. Another concern of HUD’s relying solely on CMS inspections is
that CMS inspects only the residential buildings, whereas REAC inspections cover all buildings
located on the property that is insured by HUD.

                                    RESULTS OF REVIEW

The following are the results of our onsite physical inspections. The results are broken down
into the three categories: (1) RCFs that received REAC inspection scores below 31 in their most
recent inspection; (2) RCFs that received REAC inspection scores between 31 and 59 in their
most recent inspection and it had been at least 3 years since the previous inspection; and (3)
SNFs that received REAC inspection scores of 60 or above, are no longer required to be
inspected by REAC, and had not been inspected by REAC for at least 5 years.

REAC Inspection Scores Below 31

The RCFs we visited in this category continued to have violations that were identified in the
prior REAC inspections. In addition, the REAC inspectors identified many violations not
previously identified. The physical condition of the facilities ranged from very poor to decent.
One facility was in such disrepair that we reached out to the State licensing agency to express
our concerns over the health and safety of the residents. Under a separate letter to HUD, we



                                                 5
questioned whether the facility met the requirements for a board and care home to receive
insurance under the Section 232 program. However, other facilities showed that efforts were
being made to repair and maintain them.

At five of the nine facilities, the REAC inspectors noted that many exigent health and safety
violations identified during their prior inspections had not been corrected. Examples of these
deficiencies included openings in electrical panels and missing breakers or fuses. Owners of
these five facilities certified that the exigent health and safety deficiencies had been corrected.
The inspectors also noted remaining health and safety violations, including paint on sprinkler
heads, unusable bathtub or shower, damaged toilet, no hot water, broken or missing glass,
erosion, and leaks causing mold.

At seven of the nine facilities, roof deficiencies existed at the time of our inspections. These
deficiencies included damaged roofing membranes and damaged parts of the drainage system.
Roof deficiencies are particularly important because they can be costly and can cause other
deficiencies if they are not repaired correctly and in a timely manner. Also important to note is
that even though roof deficiencies are potentially devastating to the physical condition as well as
the properties’ finances, the REAC inspectors were not required to access the roof when a
permanent means of access was not available. In general, if a ladder was required to access the
roof, the roof might not be inspected, and potentially significant deficiencies might not be
identified and repaired.

At six of the nine facilities, the quality of repairs was poor. REAC had found the practice of
minimal inferior repairs to be a growing trend and issued Inspector Notice 2016-03 to require
repairs to meet industry standards. Repairing items in a manner that meets industry standards
means that the component, as repaired, performs as it was intended. Additionally, to meet the
industry standard requirement, the repair must be finished in a manner that is reasonably
compatible with the design and quality of the original and adjoining decorative materials.
Examples observed during our inspections included a hole in a bathroom door that was repaired
with a drywall patch, holes in the walls that had been repaired but not painted, and substandard
materials used to repair electrical equipment.

As identified in the report issued by the Office of Evaluation, there were a significant number of
days between REAC physical inspections. We found that the REAC inspections with scores
below 31 were performed an average of almost 3 years after the prior inspection and the prior
inspection scores were under 60. The longest time span between inspections was more than 6
years.

REAC Inspection Scores Between 31 and 59

The RCFs we visited in this category had violations identified in the prior REAC inspections.
The physical condition of these facilities ranged from poor to well maintained. At two of the
three facilities, REAC inspectors noted many health and safety violations identified during their
prior REAC inspections that had not been corrected.




                                                  6
All three of the facilities had roof deficiencies. These deficiencies included water stains and
water damage noted on ceiling tiles and walls, missing or damaged gutters, and damaged roof
membranes. As discussed earlier, the REAC inspectors were not required to access the roof
when a permanent means of access was not available. At one of the properties, the inspector did
not have access available to the roof, and the representative for this property indicated that there
were ongoing issues with the roof.

There was a significant amount of time between REAC physical inspections for these RCFs.
The three RCFs had not had a REAC inspection in more than 4 years when the scores were under
60 on the prior inspections.

REAC Inspection Scores of 60 or Above

The REAC inspection scores based upon the full inspections performed during our onsite visits
were below 60 for all three of these properties as documented in the table below. HUD did not
require REAC to inspect the physical condition of these properties because they had received
scores of at least 60 on their last inspection. It had been more than 5 years since the last REAC
inspection.

    Name of facility      REAC                 REAC             OIG-REAC               Unofficial REAC
                          inspection date      score            inspection             inspection score 4
                                                                date(s)
    Miller’s Merry        July 5, 2012         60c              August 10, 2017        43c
    Manor Logansport
    Somers Manor          April 11, 2012       62c              August 8-9, 2017       21c
    Nursing Home
    Amsterdam N.H.        April 23, 2012       62c              July 26-28, 2017       35c
    Corp

REAC inspectors noted health and safety issues even though the three SNFs were well
maintained. Examples of health and safety deficiencies included exposed wires, infestation,
unlockable windows, missing and broken exit signs, broken or missing handrails on stairs,
missing components or painted sprinkler heads, and plumbing leaks. A representative at one of
the facilities told us that the facility’s preparation for inspections focused on what CMS was
concerned with, such as items associated with the medical care of the residents, and not
necessarily on HUD’s interest, which is the physical condition of the property.

The REAC inspectors also noted roof deficiencies at these three facilities. These deficiencies
included damaged and clogged drains, missing or damaged components from the downspout and
gutters, ponding on the roof, and damaged roof membranes. In addition, the REAC inspectors
noted repairs that had been made at all three facilities, but the repairs did not meet industry
standards. The repairs were for damaged walls, peeling paint, and missing breakers.

4
 The reinspections were for informational purposes. The REAC inspectors performed full REAC inspections with
new scores because REAC was no longer required to inspect SNFs. These inspections were nonbinding and not
subject to the appeals process.


                                                      7
The SNFs in this category had received their last physical inspection more than 5 years ago.
These SNFs fall under the new guidelines, which allow SNFs in HUD’s portfolio to be exempt
from REAC inspections. These SNFs received scores of at least 60 on the REAC inspections
performed in 2012; however, it is important to note that that the physical condition of the
facilities was declining. Even though the physical condition of these facilities was declining,
because the SNF met the exemption score of at least 60, HUD no longer required physical
inspections by REAC.

General Observation About REAC Inspection Scores

The REAC inspection scores were not a good indicator of the overall physical condition of the
facilities. After several inspections, we determined that we could not assess the overall physical
condition of the property based on the REAC inspection score and that the scores could not be
used to compare the physical condition of properties. For example, New Rochelle Manor, which
received a 27c REAC score, was in worse physical condition than Bala Nursing Center, which
received a 2c. Additionally, even though Westfield Health Care Center and Miller’s Merry
Manor Plymouth both received 38c on their REAC scores, in our opinion, the physical condition
of Homestead was significantly worse.

                                         CONCLUSION

HUD failed to monitor the physical condition of RCFs in its portfolio to ensure sustainable
properties for the life of the HUD-insured mortgage. HUD did not verify that exigent health and
safety violations were mitigated and required repairs were made to the facilities. Additionally,
even though roof deficiencies are potentially devastating to the physical condition of properties,
the REAC inspectors were not required to access the roof when a permanent means of access
was not available. Further, HUD did not ensure that the routine inspection schedule was
followed and had allowed SNFs to be exempt from REAC physical inspections. We also found
that the REAC inspection scores did not accurately reflect the physical condition of the facilities
and could not be used to compare facilities.

                                    RECOMMENDATIONS

We recommend that the Director of HUD’s Office of Residential Care Facilities

      1A. Implement procedures to ensure that deficiencies identified during the REAC
          inspections have been corrected and meet industry standards.

      1B. Ensure that timely physical condition inspections of all Section 232 program
          facilities are performed. (This expands on the Office of Evaluation’s third
          recommendation in report number 2017-OE-0011.)

      1C. Reimplement the REAC physical condition inspections for the SNFs that were
          exempted from routine physical inspections by 24 CFR 200.855.




                                                 8
We recommend that the Deputy Assistant Secretary for the Real Estate Assessment Center

      1D. Develop and implement an inspection process for the Section 232 program that
          better reflects those properties’ physical conditions and how those properties differ
          from other properties REAC inspects (for example, multifamily properties).

      1E. Ensure that all areas of the properties are inspected, including the roofs and all
          buildings located on the property that is insured by HUD.




                                                9
Appendix A – Inspection Pictures
Health and safety items




                      Image 1: Unsecured electrical boxes - Bala Nursing Center




Images 2 and 3: Fencing leaning and sections damaged - Spearly Care Center




                                                     10
Health and safety items (cont.)




                    Images 4, 5, and 6: Mold spores and water-damaged refrigeration equipment - Spearly
                    Care Center




                                                    11
Health and safety items (cont.)




 Image 7: Paint on fire sprinkler head - Glen             Image 8: Missing fire sprinkler escutcheon -
 Park Boynton                                             Westfield Health Care Center




                      Image 9: Damaged fire sprinkler escutcheon - Cherry Springs Village




                                                    12
Roofing and water damage




Image 10: Damaged roofing membrane - Bala                Image 11: Water-stained ceiling tile and
Nursing Center                                           water-damaged wall - Bala Nursing Center




                    Image 12: Water-stained and bowed ceiling tile - Bala Nursing Center



                                                   13
Roofing and water damage (cont.)




 Image 13: Roof low and soft spots - Spearly           Image 14: Standing water - Homestead
 Care Center                                           Nursing Home




                     Image 15: Standing water - New Rochelle Manor



                                                  14
Roofing and water damage (cont.)




Images 16 and 17: Water leaking in residential unit and water damaged wall - New Rochelle Manor




                     Image 18: Roof damage - Amberwoods of Farmington




                                                    15
Non-industry-standard repairs




Image 19: Caulking - Spearly Care Center                  Image 20: Drywall repair - Bala Nursing Center




              Image 21: Materials not suitable for door magnet repair - Spearly Care Center


                                                     16
Non-industry-standard repairs (cont.)




              Image 22: Repair not compatible with design and quality of the original and
              joining decorative materials - Spearly Care Center




              Image 23: Circuit breaker knockout filler plate on left side - Bala Nursing Center

                                                      17
Non-industry-standard repairs (cont.)




 Image 24: Repair not compatible with design               Image 25: Repair not compatible with design
 and quality of the original and joining                   and quality of the original and joining
 decorative materials - New Rochelle                       decorative materials - Indian River
                                                           Rehabilitation and Nursing Center




                      Image 26: Materials not suitable for tile repair - New Rochelle Manor


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Appendix B – Acronyms

Acronym    Definition
CFR        Code of Federal Regulations
CMS        Centers for Medicare & Medicaid Services
HUD        U.S. Department of Housing and Urban Development
OIG        Office of Inspector General
ORCF       Office of Residential Care Facilities
RCF        residential care facility
REAC       Real Estate Assessment Center
SNF        skilled nursing facility




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