The Minnesota Department of Health (MDH) has moved to take over three troubled care homes in Minneapolis over safety concerns and allegations that they were siphoning resident funds to pay for expenses.

Bywood East Health Care, Birchwood Care Home and Grand Avenue Rest Home had a pattern of failing to pay vendors for basic items, including food, telephone service, waste disposal and supplemental staffing, and had transferred thousands of dollars from resident trust accounts, according to a petition for receivership filed by the state in Ramsey County District Court on Oct. 27.

Health officials are also concerned that the care homes, which together house about 160 residents, mostly seniors, would soon have difficulties retaining staff, jeopardizing resident care and safety.

The Health Department declined a request for an interview and instead issued a statement in response to questions about the receivership petition.

"As alleged in the filings, [the department] has taken this step due to evidence gathered through investigation that raised serious concerns about the financial conditions at the facilities," it said.

"Specifically, the petition alleged the Bywood, Birchwood and Grand Avenue facilities have had a pattern of failing to meet ongoing financial obligations, such as failing to pay for supplemental staffing, internet and telephone, food, waste disposal, and other health care products and services."

Stephen Kaminski, president of Mission Directed Health Care, Inc., which owns the three homes, said Wednesday that the Health Department's action is unwarranted and largely based on false statements by his employees.

He said the facilities fell behind on some bills because the chief financial officer was undergoing treatment for cancer and could not be reached. Now those bills have been paid, and the care homes are "in very good shape financially," he said.

"We have a lot of cash flow," Kaminski said, adding that the three owners of the care homes have a combined net worth "in excess of eight figures."

He said some resident funds were mistakenly transferred to a separate operating account, but the money has been returned to the resident trust accounts.

"It was a mistake, but the money is there and the residents were not harmed in any way," Kaminski said. "Anytime they needed money, they had it. The money was not misappropriated."

He said he is scheduled to meet Nov. 18 with Health Department officials and will present his case that the facilities are on sound financial footing.

But the Health Department said the facilities, which the state licenses as boarding care homes, were deeply in arrears to vendors as of October.

Bywood East Health, the largest of the homes with 79 residents, had more than $417,000 in overdue vendor accounts, according to court documents. Bywood's crumbling finances made it difficult to staff the facility, the state's petition said. Its director of nursing told regulators that Bywood used five staffing agencies this year; all but one refused to send in additional staff due to nonpayment, the state petition said.

Health Department investigators said Bywood had violated state and federal law by failing to ensure proper oversight of its finances. Health inspectors said a review of facility's financial statements found that the resident trust accounts were severely depleted. Nearly $33,000 should have been in these accounts as of Sept. 30. Instead, they showed a balance of $1,673, according to the state's receivership petition.

Health officials found similar problems at Birchwood Care. Its financial officer told Health Department staff that if all the residents requested to withdraw their money from the resident trust account, Birchwood would not be able to fulfill the requests.

Health Department staff calculated that about $53,000 should have been in the resident fund bank account as of Sept. 30; instead, the balance was $3,430, the state petition said.

At the Grand Avenue Rest Home, the facility's director of nursing told the Health Department that resident funds were being held in a safe instead of an interest-bearing bank account, the state's petition said.

The financial problems have harmed residents' quality of life, state officials found. Birchwood residents could not go on shopping trips using the facility's van because the insurance and registration had lapsed. As a result, they had to shop online for their personal needs, the state found.

In addition, Birchwood's telephone service was turned off for 24 hours, and the outage affected the facility's alarm system, according to the state petition.

The purpose of a receivership is to provide for the transfer of the boarding care homes' residents to other facilities and to make other provisions for their care, the Health Department said. If the court orders a receivership, the department and a temporary management team will take over operations.

By law, the receivership cannot last longer than 18 months. A hearing on the case has been scheduled for Dec. 19.

Boarding care homes are similar to nursing homes, but they usually care for people facing diseaseor mental health problems or the elderly who require special services.

"There are also reasons to believe that these facilities have been unable to obtain basic health care equipment, such as wheelchairs for residents, and have been unable to maintain basic services," the state's petition said.

"If the staff at the facilities are unable to provide medical equipment and basic services for the residents, there will be an immediate and serious threat to the residents' health and safety."

Over the past year, the Health Department has pursued two receiverships of health facilities. In October 2021, it took over the Twin City Gardens nursing home, with 31 residents, because of numerous care violations and delinquent accounts.