TRENTON, NJ — New Jersey's Office of the State Comptroller filed a lawsuit in January 2026 against the owners and operators of two Medicaid-funded nursing facilities, alleging they diverted approximately $124 million in public funds to private interests while residents endured substandard care, according to court documents filed in Mercer County Superior Court.
The legal action targets Daryl Hagler, Kenneth Rozenberg, and 31 associated individuals and entities connected to Hammonton Center for Rehabilitation and Healthcare and Deptford Center for Rehabilitation and Healthcare. The comptroller's office seeks restitution of Medicaid overpayments, civil penalties for false claims and staffing violations, and damages, as reported in the January 19, 2026 announcement.
Allegations of Financial Exploitation and Care Failures
According to the comptroller's investigation, the facilities operated as Special Focus Facilities—a federal designation for nursing homes with a history of serious quality problems—while maintaining staffing levels averaging less than half of what state law requires. The multi-year investigation documented what officials characterized as pervasive and longstanding violations of contractual obligations and quality standards.
State investigators found that the owners allegedly used related party transactions to redirect Medicaid reimbursement away from resident care and toward personal financial gain. The comptroller's December 2025 report described the scheme as involving the exploitation of publicly funded nursing homes for unlawful profit while residents experienced inadequate care.
The complaint filed in January 2026 includes three counts: breach of Medicaid provider participation contracts, violations of state medical assistance and health services statutes, and unjust enrichment. According to the legal filing, surveys and investigations documented systemic failures in care delivery at both facilities during the period under review.
Third Facility Faces Medicaid Suspension
In addition to the lawsuit, the comptroller's office announced the suspension of South Jersey Extended Care and its ownership from the Medicaid program, effective March 13, 2026. This action followed a December 2024 investigative report that found facility operators improperly transferred millions in Medicaid dollars to their own businesses and charitable organizations while operating what investigators described as an understaffed and under-resourced facility.
The South Jersey Extended Care investigation concluded that the diversion of public funds left the nursing home—which held the lowest quality rating in New Jersey—unable to provide adequate resources for resident care and safety.
CMS Inspection History
New Jersey's enforcement actions stem from a comprehensive 2022 evaluation of the state's lowest-performing long-term care facilities. The comptroller's February 2022 report examined 15 nursing homes with the poorest quality ratings and found they had provided substandard care for multiple years while collectively receiving an average of $103 million annually from Medicaid.
The report recommended a phased enforcement approach: facilities must demonstrate meaningful improvement or face exclusion from Medicaid reimbursement. State officials have systematically implemented these recommendations since 2022, using financial audits and quality monitoring to identify operators who fail to meet care standards despite receiving substantial public funding.
Federal regulations require nursing homes to maintain adequate staffing levels to ensure resident health and safety. Facilities that receive Medicaid and Medicare reimbursement must comply with federal participation requirements, including minimum standards for nursing care, infection control, and resident rights protections.
Ownership & Operations
The lawsuit targets a network of individuals and corporate entities under common control. According to the comptroller's findings, the ownership structure involved multiple related parties who allegedly coordinated financial transactions that benefited private interests at the expense of resident care quality.
State investigators documented that both Hammonton Center and Deptford Center maintained their low-quality ratings over extended periods while generating substantial Medicaid revenue. The facilities' designation as Special Focus Facilities indicated persistent and serious deficiencies that federal regulators had identified through the standard survey process.
The enforcement approach represents New Jersey's effort to hold nursing home ownership accountable for both financial compliance and care quality. The comptroller's office has pursued similar actions against other low-performing facilities since issuing its 2022 recommendations.
Pattern of State Enforcement
New Jersey's comptroller has taken multiple enforcement actions against nursing home operators since beginning its systematic review of low-rated facilities. Previous actions have included denying Medicaid participation to operators with records of poor care, suspending facilities from the program, and pursuing financial recoveries for misused public funds.
The state's methodology involves detailed financial audits combined with quality-of-care assessments to identify facilities where public reimbursement fails to translate into adequate resident services. Officials examine related party transactions, staffing patterns, and compliance with state and federal care standards.
According to the comptroller's reports, this enforcement strategy aims to remove operators who chronically provide inadequate care from the Medicaid program, protecting both residents and taxpayer resources. The approach prioritizes long-term systemic improvement over isolated incident responses.
Resources for Families
Families with loved ones in New Jersey nursing homes can contact the State Long-Term Care Ombudsman for assistance with care concerns or complaints. The National Long-Term Care Ombudsman Resource Center operates a hotline at 1-800-677-1116 to help families navigate quality issues and reporting options.
Residents and family members who observe potential neglect, abuse, or financial exploitation in nursing facilities should report concerns to state licensing authorities and local ombudsman offices. Additional information about nursing home quality ratings and inspection reports is available through Medicare's Care Compare website.
New Jersey residents can access the state's online complaint system for reporting nursing home violations or contact the Department of Health's complaint hotline for immediate concerns about resident safety or care quality.
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