The Minnesota Department of Health has reached a deal that will give it greater oversight over the operator of three Minneapolis care homes that had fallen into financial disarray and was accused of siphoning residents' funds.

The department dropped its effort to transfer the three homes to a new operator, which the homes' owner described as a vindication of his repeated assertions that their finances were under control.

A January state audit found that Mission Directed Health Care Inc., which owns homes that care for about 160 people with mental illnesses and other health problems, was failing to pay vendors for essential services such as food, internet and medical supplies. The company collectively owed hundreds of thousands of dollars to vendors, and had made unauthorized withdrawals from resident trust accounts, according to the audit report by the Department of Human Services.

The financial problems were so pervasive that, last October, the Department of Health took the extraordinary step of asking a Ramsey County District Court judge to appoint a receiver — citing the company's history of failing to pay for essential services. In recent weeks, some staff had resigned and said they wanted state regulators to take over the homes before resident care was harmed.

Now, under a legal agreement with the company, the Department of Health will have expanded powers to monitor the Wayzata-based company and its finances for the next 10 months.

Mission Directed has agreed to provide the Department of Health with a detailed monthly report on its finances, including lists of amounts owed to vendors as well as statements for resident trust accounts, through Dec. 15. The company has also committed to maintaining enough staffing to meet residents' needs, and will provide state health regulators with monthly staffing reports. Mission Directed has also agreed to be subjected to an independent audit that will be completed by the end of June 2024.

Under terms of the agreement, the Department of Health has agreed to withdraw its petition to appoint a receiver — a move that the agency says it reserves for "extraordinary situations" to preserve public health and protect residents' health and safety.

The Department of Health declined an interview request to discuss the settlement and how it would address Mission Directed's financial troubles. In a written statement, the department said it provided the agency with "additional directed oversight tools to ensure safe, essential care for residents."

Stephen Kaminski, owner and chief executive of Mission Directed Health Care, called the agreement with the Health Department a "great victory for the system," and a sign that residents were never in harm's way.

"At the end of the day, the state looked at us hard and they said, 'Hey, you know what, we're going to withdraw the receivership [petition] because it clearly wasn't needed,'" Kaminski said in an interview Friday. "'There are no care-related issues. And just make sure you keep doing what you're doing and send us the financial statements.'"

Kaminski has maintained that the Department of Health's investigation originated from false statements by employees, and that his finances were never in distress. He said the company was not behind on its payments to vendors; and that past-due accounts arose only because of a lapse in the company's internal accounting process. He said that, in some cases, vendors were not paid on a timely basis because his employees had failed to deliver invoices to the company's payables department.

"We fixed those processes and so, from my perspective, this is done," Kaminski said.

The three homes — Bywood East Health Care, Birchwood Care Home and Grand Avenue Rest Home — are licensed as boarding care homes, which resemble nursing homes but typically have less skilled nursing care and other medical services. Many of the residents of the three homes have serious psychiatric disorders and have previously been homeless. Some are estranged from their families and would have nowhere to go if the facilities closed, according to employees.

The agreement was met with a mixed reaction by some staff at the boarding care homes, who had grown worried since last fall that Mission Directed's financial problems were spiraling out of control and would eventually harm resident care.

"It's still unclear if the problems are fixed," said Dr. Robert Sonntag, the longtime medical director at Grand Avenue Rest Home, a 20-bed facility for women in south Minneapolis. "If [Kaminski] follows the terms of the agreement, then that's progress, but it doesn't solve the fear that many people are working under."

In a survey last year, the Department of Health said Bywood East Health Care — the largest of the three boarding care homes — had failed to properly safeguard residents' personal funds. 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, according to the Department of Health.

In response, Kaminski said some resident funds were mistakenly transferred to a separate operating account, but the money has been returned to the resident trust accounts. He said the company now has a plan in place to ensure that it doesn't happen again. "That was taken care of immediately," he said.