Government Settles with Several Entities, Individuals

Last week, Vanguard Healthcare and related entities reached a settlement with the Department of Justice (DOJ) for the stated amount of more than $18 million to settle allegations related to billing worthless services to Medicare and Medicaid programs from 2010 to 2015. The settlement also includes a resolution of claims against two individuals—Vanguard’s majority owner and CEO and its and former director of operations—consistent with the DOJ’s ongoing policy of focusing on individual liability (as discussed here). The CEO and director of operations will pay $212,500 and $37,500, respectively, of the total settlement sum. In its press release, the DOJ called this the “largest worthless services resolution in Tennessee history.”

The United States and the state of Tennessee sued the nursing home chain in September 2016, after the Vanguard entities had filed Chapter 11 bankruptcy proceedings. In the complaint and in claims filed in the bankruptcy cases, the government alleged damages in excess of $56 million. The primary allegations were that Vanguard and its subsidiaries billed Medicare and TennCare for “non-existent, grossly substandard, and/or worthless nursing home services[.]” The alleged inadequate care included staffing and supply shortages, a lack of infection control, failure to administer medications as prescribed, failure to care for wounds as ordered, lack of adequate pain management, and overuse of psychotropic medications and physical restraints, among other quality of care allegations. The government also alleged that Vanguard submitted Pre-Admission Evaluations and Preadmission Screening and Resident Reviews (certifications that TennCare uses to determine a patient’s Medicaid eligibility and required level of care) with forged physician or nurse signatures.

Early in the case, the federal court determined that the government’s claims were not subject to the automatic stay imposed by Section 362 of the Bankruptcy Code and that the federal court, rather than the bankruptcy court, was the appropriate forum to resolve the government’s claims. Thereafter, the parties engaged in protracted litigation and settlement discussions, with the final settlement being reached earlier this year.

The False Claims Act (FCA) creates liability not only for entities that submit false claims for payment to federal programs but also for those that cause others to submit false claims. Thus, the government sought to hold the Vanguard parent corporation and the individual director of operations liable for their “interrelated conduct in the operation of the Defendant Facilities,” in addition to the subsidiary nursing home entities that actually submitted claims for payment to Medicare and TennCare.

How Much Will the Government Actually Recover?

While the government’s press release asserts that the settlement may be the largest worthless services resolution in the state’s history, the government will not recover the bulk of the agreed settlement amount. The largest components of the settlement ($13.5 million) are unsecured claims against two separate subsidiaries of Vanguard Healthcare, both of which ceased operations and sold their assets during the bankruptcy proceedings. The only asset of each of these subsidiaries is a small amount of sales proceeds remaining after payment of the amounts due to the secured mortgage holder. As a result, there will be a very small return to the government and other unsecured creditors on their claims against these entities. The reorganized Vanguard entities agreed to pay $5.1 million over a four-year period, with the bulk of the settlement being a lump sum payment due on January 1, 2023, in the amount of $2.55 million. For these reasons, the United States stated in its press release that it “anticipates that the total government recovery in this case will ultimately exceed $6 million.”

In addition to a monetary settlement, the reorganized entities and Vanguard’s CEO have entered into a chain-wide quality of care Corporate Integrity Agreement (CIA). Department of Health and Human Services, Office of the Inspector General may enter into these types of CIAs when an FCA settlement resolves allegations that impact the quality of patient care. This agreement with the Vanguard entities will remain in effect for five years and requires Vanguard to hire a quality of care monitor and meet other heightened compliance standards. A copy of Vanguard’s quality of care CIA can be found here.