Virginia Flagged $65 Million in Questionable Costs at One Nursing Home Chain, Then Took No Further Action. What Families Should Know

The Virginia Department of Medical Assistance Services (DMAS) is the state agency that runs Medicaid, the program that pays for most nursing home care in Virginia. Nursing homes file annual cost reports with DMAS, and those reports help set the rates the state pays. In 2024, contractors auditing those reports examined every home in one chain. According to reporting by CBS 6 (WTVR) in Richmond, the auditors disallowed about $65 million in costs reported across the chain's 37 facilities, meaning the state declined to treat that money as reimbursable or to use it in future rate setting.

The chain is known in federal records as Lifeworks Rehab and is tracked by DMAS as Innovative Healthcare Management, a group of 37 Virginia nursing facilities. The audits focused on related-party transactions, which are deals a nursing home makes with another company under the same ownership or control. Auditors flagged management fees paid above the amount Medicaid rules allow, consulting and insurance payments to related companies without the documentation the rules require, and interest on loans from owners. CBS 6 reported management fee removals that included about $896,000 at a facility called Glenburnie, about $753,000 at Westport, about $407,000 at Parham, and more than $600,000 at Colonial Heights Rehab.

The finding that drew the most attention was about equipment. CBS 6 reported that multiple facilities in the chain made large purchases from a New York supplier on the same dates, totaling close to $10 million, and that auditors described them as excessive bulk purchases that appeared to have been made solely to inflate costs during a rebasing year. A rebasing year is the year whose cost report sets Medicaid payment rates for the next cycle, so auditors warned that any artificial inflation of costs in that year could lead to inaccurate rate setting and overpayment. Those are the auditors' characterizations. The chain disputes them, and we set out its response below.

What makes this a story about oversight, and not only about money, is what happened next. CBS 6 reported that DMAS concluded the cost report discrepancies and the lack of supporting documentation it found did not indicate a need for further investigation. The agency said it could refer the findings to the Virginia Medicaid Fraud Control Unit, which investigates possible fraud against the program, but had not done so, citing the absence of adequate supporting documentation. On the specific question of whether the Colonial Heights costs were inflated, DMAS said it lacked the information needed to assess that.

The state also did not try to recover any money. The reason is a timing quirk. The 2024 cost reports were supposed to set Medicaid rates starting in 2027, but the General Assembly pushed that rate reset, known as rebasing, back to 2030. Because the 2024 reports were never actually used to set rates, DMAS said the disallowed costs had no effect on the Medicaid dollars these homes receive. The current rates still rest on 2021 cost reports, from the peak of the COVID-19 pandemic.

So the sequence is unusual. State contractors flagged tens of millions of dollars in costs they would not allow, including purchases they said looked designed to inflate the record, and the state neither recovered the money nor sent the findings to its fraud investigators. Independent experts quoted by CBS 6, including researcher Dr. Charlene Harrington and health care analyst Venson Wallin, disagreed with the agency's reasoning. Harrington told the station that the burden of keeping documentation falls on the company, not the auditors.

It is fair to ask why a dispute over Medicaid cost reports should matter to a family whose relative is lying in one of these beds. The answer is that in nursing home care, money and staffing are the same subject. Every dollar that leaves a home as rent or fees to a related company is a dollar not spent on nurses, aides, food, and supplies. When a chain reports costs the state will not even allow, the question underneath is whether residents were shortchanged on care while money moved to companies the owners also controlled.

That is the pattern our other reporting has traced at these same facilities. Our article on the $20 million Colonial Heights lawsuit describes a family's claim that owners drained a home through inflated rent while a resident developed an unstageable pressure ulcer and died, a claim the defendants call fabricated. Our article on Henrico Health and Rehabilitation Center examines how one of the nation's lowest-rated homes, in the same chain, still collected Medicaid quality bonuses. Those are specific, documented examples of the broader worry: money leaving the building while care is cut.

The oversight gap matters because it tells families what they can and cannot rely on. When the state finds questionable costs but declines to dig further, it does not clear the homes, and it does not establish that residents were harmed. What it does mean is that the public enforcement system is not going to answer the question for you. A family that suspects a loved one was neglected cannot wait for the state to act on the money findings. The record a private claim would rest on, the resident's own chart and the facility's inspection and financial history, is something families have to gather and protect themselves.

Virginia lawmakers do not agree on whether the state did enough. CBS 6 reported that two Republicans, Delegate Wren Williams of Galax and Senator Glen Sturtevant of Colonial Heights, sent letters to DMAS questioning its oversight, arguing that missing documentation is a reason for more scrutiny, not less. Sturtevant also questioned the related-party rent at Colonial Heights and the fact that current rates still rely on 2021 pandemic-era data. The facility has said its rent reflected fair market value.

Other lawmakers defended the agency or pushed a different fix. Senator Barbara Favola, a Democrat from Arlington who chairs a health committee, defended the DMAS approach, according to CBS 6. Delegate Delores McQuinn, a Democrat from Henrico, sponsored 2026 legislation directing a state workgroup to study nursing home oversight, including ownership and financial structures such as related-party and real estate arrangements, with a report due November 1, 2026. McQuinn, who has cited the Henrico facility in the Special Focus Facility program, said it was shameful that the state had not done a better job. Delegate Rodney Willett, a Democrat from Henrico, sponsored the measure that delayed rebasing to 2030. He said it was unrelated to the audits and reflected concern about using distorted COVID-era cost data, a delay the nursing home industry had lobbied for.

One more detail is part of the public record. CBS 6 reported that the DMAS director, Steve Ford, was appointed by Governor Abigail Spanberger earlier in 2026 and had previously worked for the nursing home industry's trade association, and that the agency declined the station's interview requests on this subject. None of that is a finding of wrongdoing by anyone. It is the backdrop lawmakers are weighing as they decide whether Virginia's oversight of nursing home money needs to change. Our article on Virginia's new nursing home sanctions framework describes a parallel problem on the care side: the state has long had enforcement powers it rarely uses.

The chain rejects the suggestion that it did anything improper. Through spokesperson Mindie Barnett, the facilities told CBS 6 that all costs were to enhance care of residents and are believed to have been properly documented, and that the audit was part of an ongoing process between the facilities and the state regulator. The chain argued that auditors wrongly identified some related parties, and its legal counsel denied the related-party connections in its appeals. CBS 6 reported that Innovative appealed the adjustments for all 37 facilities, that those appeals entered a settlement process, and that no final outcome had been reached.

Those responses belong in any fair account, and they are not throwaway lines. Whether a management fee is excessive, whether a company is truly a related party, and whether a rent reflects market value are exactly the questions a formal proceeding decides after both sides put on evidence. A disallowed cost is an accounting finding that certain expenses did not meet Medicaid rules. It is not a finding of fraud, and no facility in the chain has been charged with one. We report the audit because its findings are specific and come from the state's own contractors, not because they are proof of harm to any resident.

It helps to keep three kinds of records straight. An inspection deficiency is a government finding that a home broke a care rule. A Medicaid audit adjustment, like the ones here, is a finding that certain costs were not allowable. A lawsuit is a family's allegation that a facility's conduct caused a specific injury, and it has to be proven. None of the three, by itself, proves that your relative was harmed. But they connect, because the inspection record, the staffing data, and the financial filings can become evidence of whether a home's problems were known, repeated, and driven by choices about money rather than one bad shift.

If your family member was a resident at any Lifeworks Rehab or Innovative Healthcare Management home in Virginia, including Colonial Heights Rehab (now operating as Magnolia Post Acute), Henrico Health and Rehabilitation Center, Westport, Glenburnie, or Parham, and suffered a pressure ulcer, a serious fall, unexplained weight loss, an untreated infection, dehydration, or any form of abuse, the chain's financial record does not by itself prove your case. It does mean the questions are worth asking, and that the records exist to answer them. Our article on nursing home abuse and the understaffing problem explains why injuries like these so often trace back to homes that run too few staff for too many residents.

Move quickly to preserve the paper and electronic trail. Federal law gives residents and their representatives the right to inspect and copy the medical record, so request the complete chart in writing: nursing notes, the care plan, the Minimum Data Set (MDS) assessments, medication administration records, wound care documentation, weight logs, and any incident, fall, or abuse reports. These are the documents that show whether a resident was turned, weighed, fed, and assessed as the standard of care requires.

Save your own materials too. Dated photographs of bruising, pressure ulcers, weight loss, or poor conditions are hard to dispute later. Write down the dates and times of your visits, what you saw, and the names of staff you spoke with. Keep texts and emails with the facility.

Pull the public record as well. The federal Care Compare system and independent databases such as ProPublica's Nursing Home Inspect publish inspection results, deficiencies, penalties, staffing data, and ownership for every certified nursing home. Our article on Virginia's worst nursing homes walks through how to read that data for a specific facility. You can also file a complaint with Virginia's survey agency, the Office of Licensure and Certification within the Virginia Department of Health, which investigates complaints and can generate citations that become part of the home's record.