Comptroller Justin Wilson, left, attends a meeting of the State Funding Board in Nashville, Tenn., in Friday, Dec. 9, 2011. (AP Photo/Erik Schelzig)

NASHVILLE — State auditors say a Cleveland, Tennessee-based nursing home chain "improperly" submitted $1 million in unallowable home office expenses, a list that included marketing charges as well as alcohol, "parties" and overseas trips on company cost reports used to calculate Medicaid reimbursement rates.

As a result, Tennessee Comptroller Justin Wilson said, Health Services Management Group LLC will have a new reimbursement rate calculated for the company's Tennessee facilities. Previously submitted claims will be reprocessed based on the new rate.

Division of State Audit accountants said they identified a total of $1.06 million in nonallowable expenses by the company in 2016 and 2017. The list included late fees, unsupported expenses, employee personal expenses, duplicate expenses, unpaid expenses and expenses not related to Tennessee facilities. Other unallowable expenses included a traffic ticket and a retirement vacation package.

"Nursing facilities and their parent companies have a responsibility to ensure all reported expenses are adequately supported," Wilson stated in a news release. "Expenses should also be related to patient care and comply with all applicable rules and regulations."

The audit is part of the state's ongoing program of examining nursing facilities that participate in the Tennessee Medicaid Nursing Facility Program. Auditors examine facilities' assertions they are in compliance with applicable state and federal regulations covering services provided to Medicaid-eligible recipients.

According to the Division of State Audit examination, Thomas D. Johnson Revocable Trust U/A owns 99.99% of Health Services Management Group LLC, while Judith L. Johnson Revocable Trust U/A owns .01% of Health Services Management Group LLC.

The company operates 15 nursing facilities in four states, including 11 in Tennessee, as well as two home health services, and provides home-office services for them, according to the audit.

During the audit period, Health Services Management Group LLC reported total operating expenses of $4,751,771, of which $3,870,834 was reported as Medicaid allowable costs for the fiscal year ended Dec. 31, 2016.

For the fiscal year ended Dec. 31, 2017, it reported operating expenses of $5,402,454, of which $4,502,122 was reported as Medicaid allowable costs.

As a result of the audit, officials said, allowable routine costs "will be adjusted for these nonallowable expenses." The effect of the adjustments to the specific rates of the 11 facilities in Tennessee will be determined at a near-term date, retroactive to dates of service on and after July 1, 2017.

The audit states Health Services Management Group LLC "should include only allowable expenses on the home office cost report. All reported expenses should be adequately supported, related to patient care, and in compliance with applicable rules and regulations."

In response to the audit, management said it "concurs with the finding."

Contact Andy Sher at or 615-255-0550. Follow him on Twitter @AndySher1.