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How A Big Nursing Home Company Got $20 Million From A Loan Program For Small Businesses

Exterior of Bloomington Rehabilitation and Health Care Center
Ryan Denham
Petersen Health Care's facilities include Bloomington Rehabilitation and Health Care Center and other nursing homes in El Paso, Farmer City, East Peoria, Peoria Heights, and all around the state.

The owner of a Bloomington nursing home where 11 people died after contracting COVID-19 has accepted $20 million in loans through the Paycheck Protection Program—about 200 times the average amount for a program designed to help much smaller businesses.

Peoria-based Petersen Health Care is one of the largest nursing home operators in the U.S. Its facilities include Bloomington Rehabilitation and Health Care Center and other nursing homes in El Paso, Farmer City, East Peoria, Peoria Heights, and all around the state.

Petersen and affiliated companies were approved for between $23.4 million and $57.5 million through 53 separate PPP loans in April and May, according to data released by the U.S. Small Business Administration (SBA). Ultimately, Petersen accepted only $20 million in PPP loans—the maximum allowed under the SBA’s limit for so-called “corporate groups.”

Petersen said the coronavirus has put added financial stress on downstate and rural nursing homes, including added staffing cost and supply costs. It also blamed the state’s low Medicaid reimbursement rates for creating a “crisis” even before COVID-19 hit.

WGLT asked Petersen, founded in 1974, whether it considers itself a small business.

“Petersen Health Care is comprised of many small businesses,” the company said in a statement, “all independently attempting to succeed in small communities all over Illinois in the toughest environment for nursing home operators in the entire nation.”

Indeed, Petersen was approved initially for 53 separate PPP loans for 53 separate companies, mostly limited liability corporations (LLCs) that operate under different names. Charleston HCO LLC, for example, goes by the name Charleston Rehabilitation and Health Care Center, where 88 people have contracted COVID-19 and 16 people have died.

This corporate structure is not uncommon. A lot of large companies are set up as a series of LLCs, with a separate LLC for each piece of real estate as well as for the operating company, said Tim Trombley, an assistant professor in the College of Business at Illinois State University.

Paycheck Protection Program loans were designed to provide a direct incentive for small businesses to keep their workers on the payroll. The SBA will forgive loans if all employee retention criteria are met and the funds are used for eligible expenses.

Petersen is an outlier among central Illinois companies included among the 4.9 million PPP loans, for which data was released by the SBA this month. The average loan amount for businesses in Bloomington-Normal and the Peoria area was $86,000. The national average was $100,000. Petersen and its related companies received $20 million.

With few exceptions, U.S. companies were eligible for a PPP loan if they had 500 or fewer employees, or if they operated in a certain industry and met the applicable SBA employee-based size standards for that industry. In the Tri-County area, for example, full-service restaurants were among the top recipients. Around 164 restaurants were approved for loans, retaining on average 22 jobs each with average loans between $76,000 and $119,000. (The SBA only released loan ranges—not precise amounts—for the largest recipients.)

Petersen and related companies, by contrast, were initially approved for those 53 loans totaling between $23.4 million and $57.5 million through its lender, Community State Bank. Those loans promised to help retain 6,794 jobs, including at nursing homes around the state.

Ultimately, Petersen accepted only $20 million (the maximum amount allowed under corporate group rules) in PPP loans, said Greg Wilson, senior vice president of operations.

How small is small?

Petersen said it, as an “affiliated group,” qualified for the PPP under the SBA’s alternative size standard.

A business meets that standard if it its “maximum tangible net worth” is $15 million or less, and its average net income over the last two years was under $5 million. Petersen executive Jeff White said they met those criteria.

That’s despite being one of the Midwest’s largest long-term care providers. The company posted operating revenue of $310.5 million as of 2016, according to Provider magazine’s list of the Top 50 largest nursing facility companies in the U.S. It had 102 facilities at that time.

In most cases, a borrower is considered together with its affiliates for purposes of determining eligibility for the PPP, according to the SBA. Entities may be considered affiliates based on factors including stock ownership, overlapping management, and identity of interest.

There are signs the 53 companies that were initially approved for loans are indeed related. They all share the same business address (830 W. Trailcreek Drive in Peoria). The LLCs share the same manager (Mark Petersen). Mark Petersen is listed as the owner of the nursing homes on Medicare.gov’s Nursing Home Compare website. Petersen itself described many of them as “related nursing homes” or “related business entities” in a 2016 state report.

Ultimately, the onus is on the borrower to determine which entities, if any, are its affiliates, according to the SBA. Lenders can rely on the borrower’s word. Community State Bank CEO Luke G. Hawkins declined to comment, citing privacy issues. He directed questions to the SBA, which generally does not comment on specific businesses.

But a SBA spokeswoman said there are checks and balances later in the process.

“The lender’s approval does not reflect a determination by SBA that the borrower is eligible for a PPP loan or entitled to loan forgiveness. All PPP loans are subject to SBA review and all loans over $2 million will automatically be reviewed,” the SBA told WGLT.

LeadingAge, the association of nonprofit providers of aging services (including nursing homes), says it wants more clarity on what the review process for those larger loans will entail, “so borrowers can prepare accordingly.”

If the PPP loan eligibility rules sound confusing, that’s because they are.

“The rules were very difficult to follow and opaque initially, when the program was being rolled out. That was on the borrower side and the lender side,” said Constantine Yannelis, assistant professor of finance at the University of Chicago Booth School of Business. “A lot of small-business owners were confused about whether they were eligible, or eligible for (loan) forgiveness, or how to take a PPP loan.”

Helping the industry

Those in the nursing home industry say the PPP was a key source of support to cover staffing costs that facilities might not otherwise have been able to afford. For those receiving over $150,000 in PPP loans, over 110,000 jobs were retained across the U.S.

“The COVID-19 pandemic has highlighted the critical role of nursing homes as care provider to vulnerable populations — and the pandemic’s tidal wave of expenses have our members awash in financial challenges. Funding and support for nursing homes – and all aging services providers – is vital to ensure the health and safety of older adults,” said Katie Smith Sloan, president and CEO of LeadingAge. “The Paycheck Protection Program is an important part of that support. As Congress considers its next relief package, what our lawmakers do will determine the life and death of our nation's most vulnerable older adults. We need a major investment in real solutions now.”

Brian Lee disputes that characterization. He is the executive director for Families For Better Care, a watchdog group for nursing home care.

Lee said nursing home companies stay in the business because those facilities are “cash cows.” The industry intentionally downplays its financial health and was in “great shape” going into the pandemic, with solid revenues and mergers-and-acquisitions activity, he said.

Lee acknowledged that Illinois’ Medicaid payment rate is lousy.

“Yeah, there may be a little bit of hit on them through this (pandemic), because of the residents who’ve expired because of this. Maybe not as many folks moving in. Those shortfalls have been more than adequately filled by these additional injections (of government) funds,” Lee said.

Lee said he was not surprised that Petersen received so much in PPP loans.

“They know how to maximize their profitability. They’re experts at that,” he said.

U.S. Rep. Darin LaHood, who represents parts of Peoria and Bloomington-Normal, has praised the PPP, calling it “probably the most impactful thing” that Congress did to help 18th Congressional District businesses survive the first months of the pandemic.

Congress is now debating a fifth round of economic relief. LaHood said he wants to see a “modified form of PPP for distressed business” in that next round, as there are banquet facilities, limousine companies, and hotels that are still hurting—with no end in sight.

“The biggest thing will be making sure that we are not letting in companies or businesses that don’t need the money,” LaHood said.

WGLT asked LaHood’s office about Petersen’s situation.

“Congress worked quickly in a bipartisan way with the federal government to disperse money through the Small Business Administration’s Paycheck Protection Program to save the jobs of hard working Americans, including over two million jobs in Illinois,” LaHood’s office said in a statement. “In April, Treasury Secretary Mnuchin said that the Small Business Administration would audit and review all loans that were over $2 million.”

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Ryan Denham is the digital content director for WGLT.