Kindred Healthcare Agrees to $125 Million Settlement for Alleged False Claims Act Violation

The concept of a nursing facility should, in theory, inspire altruism and a commitment to caring for some of our nation’s most vulnerable people. Instead, it all too often inspires fraud. In fact, the Medicare Payment Advisory Commission recently reported that for the past 14 years, the reimbursements that Skilled Nursing Facilities (SNFs) have received have been at least 10% higher than the actual cost of care in those facilities. In other words, SNFs have been collecting much more than they’ve earned on a regular basis.

Patients are usually placed in SNFs as they transition from hospitals to home care. For up to 20 days, Medicare fully covers qualifying patients’ daily care by registered nurses, physical and occupational therapists and speech language pathologists. Between days 21-100 in the SNF, Medicare covers partial insurance costs.

RehabCare Group Inc., a subsidiary of Kindred Healthcare, is the largest rehabilitation therapy provider in the United States. RehabCare and its sister company RehabCare Group East contract these services to SNFs around the country. On Tuesday, January 12th, Kindred/RehabCare agreed to pay a $125 million settlement in response to a government lawsuit alleging a large-scale Medicare false claims act violation.

Fraud allegations

The government lawsuit filed against Kindred/RehabCare alleged that the contract therapy provider had knowingly provoked SNFs to submit various types of false claims to Medicare over an extended period of time. The false claim allegations included instances where unskilled services may have been provided against government regulations for SNFs. Unlike standard nursing homes, SNFs are directly affiliated with Medicare, and therefore have a detailed contract with the federal government. The services provided within them have to adhere to guidelines regarding the registration and licensing of healthcare professionals.

The lawsuit also alleged that SNFs involved in contracts with RehabCare had falsified entire services. For example, the SNFs may have submitted claims that therapy was administered to patients who were in fact asleep or nonresponsive at the time of the reported service. The bulk of the allegations centered on instances where SNFs, under the instruction of RehabCare, sought the maximum possible Medicare reimbursement by manipulating therapy arrangements regardless of patients’ clinical needs and making services appear more complex than they truly were.

The False Claims Act

The federal government created the False Claims Act to enable observers of Medicare fraud to report this injustice and to help reclaim taxpayer dollars. These whistleblowers can receive financial rewards for their reports after the government collects the defrauded amount or settlement from the organization in question.

When a False Claims Act violation is discovered, the government may recover up to three times the amount of the false claims submitted, in addition to a $5,500 to $11,000 penalty per false claim. In these types of cases, each individual falsified invoice is considered a separate claim. Whistleblowers who filed the qui tam lawsuit on behalf of the government are then eligible to collect 15% to 30% of that amount.

Kindred/RehabCare and SNF settlements

Kindred/RehabCare did not admit to committing any of the allegations, but settled the lawsuit for $125 million. The qui tam plaintiffs, physical therapist Janet Halpin and occupational therapist Shawn Fahey, will receive almost $24 million in reward for the critical information they provided to the government.

Settlements were also reached with four SNFs for alleged complicity in False Claims Act violations. Over $8 million in total will be collected from these SNFs and their various facilities. Although no wrongdoing was admitted, the government considers these settlements a success for the Health Care Fraud Prevention and Enforcement Action Team (HEAT), which seeks to prevent and effectively address Medicare and Medicaid fraud.