On Friday October 10, 2014, the Department of Justice (DOJ) and the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) jointly announced a $38 million settlement with a skilled nursing facility (SNF), Extendicare Health Services Inc. (Extendicare) and its subsidiary Progressive Step Corporation (ProStep). Extendicare owns and operates 146 SNFs in eleven states. Prostep offers Extendicare residents occupational, physical and speech rehabilitation services.

The settlement stemmed from allegations in two qui tam cases: United States ex rel. Lovvorn v. EHSI, et. al. C.A. 10-1580 (E.D. Pa); and United States ex rel. Gallick et al., v. EHSI et al., C.A. 2:13cv-092 (S.D. Ohio). The allegations were that Extendicare (1) “billed Medicare and Medicaid for materially substandard nursing services that were so deficient that they were effectively worthless”; and (2) “billed Medicare for medically unreasonable and unnecessary rehabilitation therapy services.”

Regarding the worthless services allegations, Extendicare allegedly billed both Medicare and Medicaid for “substandard skilled nursing services and failed to provide care to its residents that met federal and state standards of care and regulatory requirements” from 2007 through 2013 at 33 of its SNFs. The Government contended, among other allegations, that Extendicare did not (1) have a “sufficient number of skilled nurses to adequately care for its skilled nursing residents; (2) provide adequate catheter care to some of the residents; and (3) follow the appropriate protocols to prevent pressure ulcers or falls.” Based on these allegations, the federal government’s position is clear: it will not stand for worthless services, and SNFs that bill federal programs for worthless, substandard services will pay the price. According to Attorney General Stuart F. Delery, “[i]t is critically important that [the government] confront[s] nursing home operators who put their own economic gain ahead of the needs of their residents. Operators who bill Medicare and Medicaid while failing to provide essential services or bill for services so grossly substandard as to be effectively worthless will be pursued for false claims.”

Note however, two months ago in United States ex rel. Vanessa Absher, et al. v. Momence Meadows Nursing Center, Inc. and Jacob Graff, Case No. 13-1886 (Aug. 20, 2014), the Seventh Circuit made it clear that “a ‘diminished value’ of services theory does not satisfy this standard,” because “[s]ervices that are ‘worth less’ are not ‘worthless.’” Based on the Seventh Circuit’s position, it appears that both the government and relators share an evidentiary burden to demonstrate that a SNF’s services are indeed worthless and not just worth less, that is, merely inadequate or of “diminished value.”

Under to the Extendicare settlement, the federal government will receive $32.3 million and the state Medicaid programs will receive $5.7 million. Additionally, there were two relators, one in each qui tam case. The relator in the worthless services qui tam action will receive $250,000, while the relator for the rehabilitation therapy services (upcoding) case will receive over $1.8 million. In addition to these settlement amounts, Extendicare must enter into a five-year corporate integrity agreement (CIA) with HHS-OIG.

More information is available at the DOJ website about the CIA and qui tam allegations related to the rehabilitation services. 

Comment: On the one hand, this settlement demonstrates the DOJ’s and HHS-OIG’s recent focus on cracking down on worthless services provided by SNFs, in addition to their continued focus on combatting reimbursement for medically unreasonable and unnecessary services in nursing homes. Specifically, Inspector General Daniel Levinson explains that the “government will aggressively pursue allegations of abuse and grossly deficient care.” On the other hand, just two months prior to this settlement, the Seventh Circuit proclaimed that there is a significant evidentiary burden in such worthless services cases for both relators and the government.