Consumer Federation of California

The federal government is investigating the operations of the nation’s largest assisted living company, Emeritus Senior Living, according to a company official.

Karen Lucas, a spokeswoman for the company, described the investigation as a routine civil probe, and said Emeritus was “cooperating fully” with the federal authorities.

A person with direct knowledge of the investigation portrayed it as two-pronged effort involving both the Justice Department and the inspector general for the U.S. Department of Health and Human Services. Since January of 2013, investigators have been exploring allegations of improper Medicaid billing, as well as other aspects of the company’s business dealings, the person said.

News of the investigation, reported here for the first time, comes as the company prepares to merge with another major assisted living chain, Brookdale Senior Living, in a $2.8 billion deal. The planned merger was announced last week.

“As a matter of policy, we will not comment on a pending investigation beyond confirming its existence, because cooperation includes not publicly airing information that might compromise or influence the government’s review,” Lucas said.

The Health and Human Services department oversees the Medicare and Medicaid insurance programs and its inspectors often focus on billing issues, including efforts to bilk the programs through fraudulent requests for reimbursement.

Emily Langlie, a spokeswoman for the Justice Department, would not discuss the probe. The Health and Human Services department also would not comment.

A Brookdale spokeswoman declined to say if the federal investigation was discussed by the two companies in the negotiations leading to the announced merger.

“We are limited in what we can say due to the transaction,” said the spokeswoman, Julie Davis.

In the past, Emeritus has encountered problems with its Medicaid billing practices in Texas, where it paid $1.86 million to settle fraud charges in 2007. The state Attorney General’s office alleged that Emeritus improperly billed for services provided at 11 of its facilities in the state and “routinely submitted false claims to the Texas Medicaid program.” Under the terms of the settlement the company denied any wrongdoing.

Emeritus, a Seattle-based chain that has grown enormously in recent years, was the subject of a ProPublica/PBS “Frontline” series in 2013 that focused on the company’s business practices, its entanglements with regulators in numerous states and its lengthy record of safety lapses. Over the past two decades, Emeritus has evolved from a small regional player into a publicly traded outfit with approximately 500 facilities spread across the country and nearly $2 billion in annual revenue. Its facilities provide housing, meals and day-to-day help to the elderly and disabled.

Emeritus’s rapid growth mirrors that of the assisted living industry as a whole, which now cares for some 750,000 people, increasing numbers of them afflicted with serious health problems, including advanced dementia.

The person with direct knowledge of the investigation said employees had received instructions from a company lawyer about how to deal with the probe.

“First off, you should not feel compelled to provide answers, documents, or information to any government investigator or agent,” the attorney  wrote in an email sent last February.  “You may politely decline to answer,” the lawyer said, or refer the agents to the company’s legal department.

The lawyer did instruct the employee to be truthful if they decided to answer the questions of investigators.

Brian Lee, a consumer advocate with Families for Better Care, a Florida nonprofit group focused on assisted living and nursing homes, said the federal investigation of Emeritus struck him as unusual. Typically, he said, it is state authorities who tackle problems in the industry.

The probe, Lee said, could prove to be “an opportunity to pull back the veil on the problems in assisted living, whether financial or related to care.”

Medicaid money accounts for a relatively small portion of Emeritus’s business, which is driven chiefly by private paying customers looking for alternatives to formal nursing homes. Still, Medicaid billings total millions for the company each year – in 2012 Emeritus derived 13.9 percent of its total revenue from  Medicaid and Medicare, including funds flowing into a subsidiary nursing firm, according to a filing with the Securities and Exchange Commission.

Lucas, the company spokeswoman, portrayed the company’s participation in the Medicaid program as a public service, saying Emeritus is one the few companies that “offer assisted living services to low-income seniors” because of the program’s low reimbursement rates.

The Emeritus-Brookdale merger, which is slated to close later this year, will create a mega-operator far larger than any other chain in the assisted living industry. Headquartered in the Nashville suburbs, the combined company will function under the Brookdale brand name and will be run by Brookdale chief executive Andy Smith. Emeritus chief executive Granger Cobb is expected to take a seat on the board and serve as a consultant.

On a conference call announcing the deal, Smith downplayed concerns raised by the ProPublica/”Frontline” series about the treatment of seniors in Emeritus facilities and said he was confident that Emeritus executives were focused on providing “high quality services to all of their residents.” Smith said the series had caused a “temporary setback” for Emeritus financially, but that he was confident the company was “getting back to their expected level of growth.”