In Brief

  • The owner of Passages Hospice is alleged to have set in motion a scheme to move patients into a more intense level of care that netted the company higher Medicare and Medicaid reimbursements.
  • Case demonstrates the government’s increasing focus on health care-related prosecutions and its reliance on willing whistleblowers.

Hospitals, nursing homes and other medical businesses take note: the fraud case against the owner of Illinois-based Passages Hospice illustrates the government’s increasing focus on health care-related prosecutions, particularly those arising from the work of the Medicare Fraud Strike Force (“Strike Force”) and information reported by company whistleblowers.

The Strike Force currently operates in only nine cities: Chicago, near Passages’ corporate headquarters, along with Baton Rouge, La.; Brooklyn, N.Y.; Dallas; Detroit; Houston; Los Angeles, Miami and Tampa. However, expansion to other “hot spot” cities may not be far off considering its growing caseload.

The Strike Force set record numbers last year with 137 cases filed, 345 individuals charged, 234 guilty pleas secured and 46 jury trial convictions. And, with an 8:1 return for every dollar spent fighting health care fraud, the Strike Force appears to be a sound government investment, which only increases the likelihood that more resources will be allocated to the fight against health care fraud.

In the Passages case, owner Seth Gillman was charged on January 27, 2014 with federal health care fraud based on alleged fraudulent elevation of hospice patients to improper levels of care. He allegedly caused ineligible Passages’ patients to be placed on general inpatient care (“GIP”) in order to increase funds received per patient from Medicare and Medicaid. To effectuate this scheme, the government alleges Gillman:

  • trained and caused to be trained Passages nurses to look for signs that would qualify a patient for GIP;
  • paid bonuses to Passages directors tied directly to the amount of GIP under their supervision; and
  • provided kickbacks to at least eight nursing homes in the amount of $250 per day for each patient on GIP.

To illustrate the benefit of such a scheme, consider, during fiscal year 2012, Medicare paid $671.84 per day for a GIP hospice patient versus only $151.23 for patients receiving routine care.

According to claims data received by the government, Passages was paid approximately $95 million by Medicare and $30 million by Medicaid based on the nearly 4,769 patient claims submitted from January 2006 through late 2011. Of this $95 million in Medicare payments, Passages received approximately $23 million for claimed GIP services over a three-year period.

The government also hired an independent expert to audit 13 files of Passages patients. Of those 13 files, 10 patients’ admissions exceeded six months, which is very unusual as typically hospice patients have a life expectancy of six months or less.

According to Section 1861 of the Social Security Act, hospice care is defined as the provision of specified items or services to a patient who is terminally ill. To be terminally ill, a patient must be certified by the medical director of the 
hospice provider and by the patient’s attending physician as having a terminal prognosis with a life expectancy of six months or less.

In 2009, on average, only 11.8 percent of hospice patients received more than six months of care. By contrast, Passages’ Medicare claims data revealed approximately 22 percent of Passages’ patients between 2006 and 2011 had more than six months of hospice care – nearly double the average.

Passages employees came forward with information relating to alleged fraudulent billing and marketing practices to both Medicare and law enforcement before being contacted by Strike Force agents.

This pattern of employees reporting wrongdoing prior to being approached by the government in connection with health care fraud investigations is becoming an increasingly common form of whistleblowing.

So what can employers do to be proactive? Employers would be wise to review internal compliance policies, ensure appropriate channels are available for employees to report any suspected wrongdoing internally, and encourage employees to report internally before going outside the company.