HealthSouth Settles Fraud Case Over Medicare Billings With Department of Justice for $325 Million
Alabama-based HealthSouth, the nation's largest operator of rehabilitation hospitals, has agreed to pay $325 million to settle federal charges related to Medicare fraud, the Department of Justice said Thursday, the Atlanta Journal-Constitution reports. HealthSouth has been facing an investigation by the federal government for an alleged $2.7 billion in accounting fraud committed between 1996 and 2002. The settlement was made in a lawsuit filed under the False Claims Act by patient James Devage in federal court in Texas in 1998. The lawsuit alleged that HealthSouth falsely billed Medicare for individual therapy when group therapy was the treatment actually administered (Bond, Atlanta Journal-Constitution, 12/31/04). According to DOJ, HealthSouth "systematically" submitted Medicare claims without proper plans for patient care from physicians. After reviewing Medicare claims at 60 outpatient facilities, the government cited problems at centers in Arizona, California, Colorado and Illinois (Arnold/Hallam, Bloomberg/Philadelphia Inquirer, 12/31/04). DOJ joined the Devage case and made its involvement public in May 2002. The department also joined similar cases filed in Texas and New Mexico. A federal judge halted all the lawsuits after U .S. prosecutors filed criminal charges; the Devage case was set for trial in January (Atlanta Journal-Constitution, 12/31/04).
Settlement
The $325 million settlement includes an initial payment of $75 million, with the remainder paid quarterly over three years (AP/Wall Street Journal, 12/31/04). Of the $325 million, $169 will settle allegations that HealthSouth submitted improper reimbursement claims to the government for outpatient physical therapy services. In addition, $89 million will resolve claims that the company sought improper reimbursement from Medicare for "lavish entertainment" and travel costs for administrators at an annual meeting in Florida, according to DOJ. Plaintiffs in the case will receive a combined $4.2 million in payments under the federal whistle-blower law, with Devage receiving an additional $8.2 million. The remainder of the payments will go to the federal government (Atlanta Journal-Constitution, 12/31/04). Officials for HealthSouth said provisions for the settlement payments have been included in the company's long-term financial projections (AP/Wall Street Journal, 12/31/04). According to James Moorman, president of Taxpayers Against Fraud, the settlement is the seventh-largest in history over allegations of false claims by the federal government (Atlanta Journal-Constitution, 12/31/04).
Reaction
"The resolution of this matter is an important step toward moving forward and resolving the issues inherited by our new management team," HealthSouth President and CEO Jay Grinney said (AP/Wall Street Journal, 12/31/04). Jacob Frenkel, a partner at Shulman, Rogers, Gandal, Pordy & Ecker, said, "For a company in the rehab businesses, this is a big step toward recovery." He added, "It may be a sign that DOJ is recognizing HealthSouth's cooperation and steering away from criminal prosecution of the corporation" (Atlanta Journal-Constitution, 12/31/04).