Life Care Centers of America Inc. (Life Care) and its owner, Forrest L. Preston, have agreed to pay $145 million to resolve a government lawsuit alleging that Life Care violated the False Claims Act by knowingly causing skilled nursing facilities (SNFs) to submit false claims to Medicare and TRICARE for rehabilitation therapy services that were not reasonable, necessary or skilled, the Department of Justice announced today. Life Care, based in Cleveland, Tennessee, owns and operates more than 220 skilled nursing facilities across the country.

“This resolution is the largest settlement with a skilled nursing facility chain in the department’s history,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “It is critically important that we protect the integrity of government health care programs by ensuring that services are provided based on clinical rather than financial considerations.”

This settlement resolves allegations that between Jan. 1, 2006 and Feb. 28, 2013, Life Care submitted false claims for rehabilitation therapy by engaging in a systematic effort to increase its Medicare and TRICARE billings. Medicare reimburses skilled nursing facilities at a daily rate that reflects the skilled therapy and nursing needs of their qualifying patients. The greater the skilled therapy and nursing needs of the patient, the higher the level of Medicare reimbursement. The highest level of Medicare reimbursement for skilled nursing facilities is for “Ultra High” patients who require a minimum of 720 minutes of skilled therapy from two therapy disciplines (e.g., physical, occupational, speech), one of which has to be provided five days a week.

The United States alleged in its complaint that Life Care instituted corporate-wide policies and practices designed to place as many beneficiaries in the Ultra High reimbursement level irrespective of the clinical needs of the patients, resulting in the provision of unreasonable and unnecessary therapy to many beneficiaries. Life Care also sought to keep patients longer than was necessary in order to continue billing for rehabilitation therapy, even after the treating therapists felt that therapy should be discontinued. Life Care carefully tracked the minutes of therapy provided to each patient and number of days in therapy to ensure that as many patients as possible were at the highest level of reimbursement for the longest possible period. The settlement also resolves allegations brought in a separate lawsuit by the United States that Forrest L. Preston, as the sole shareholder of Life Care, was unjustly enriched by Life Care’s fraudulent scheme.

“Billing federal healthcare programs for medically unnecessary rehabilitation services not only undermines the viability of those programs, it exploits our most vulnerable citizens,” said U.S. Attorney Nancy Stallard Harr for the Eastern District of Tennessee. “We are committed to working with our federal partners to protect both.”

“The resolution announced today demonstrates the commitment of the U.S. Attorney’s Office to aggressively pursue providers who utilize fraudulent practices to knowingly put their own financial self-interest over a duty to patients,” said U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida. “It is imperative that providers make healthcare decisions based upon a patient’s need for services rather than a self-serving desire to maximize financial profit. Our office will continue to investigate fraud allegations, in order to ensure that providers do not compromise the integrity of our public health care programs.”

As part of this settlement, Life Care has also entered into a five-year chain-wide Corporate Integrity Agreement with the Department of Health and Human Services Office of Inspector General (HHS-OIG) that requires an independent review organization to annually assess the medical necessity and appropriateness of therapy services billed to Medicare.

“Therapy provided in skilled nursing facilities must be medically reasonable and necessary, and we will continue to vigorously investigate companies that subject their residents to needless and unreasonable therapy,” said HHS Inspector General Daniel R. Levinson. “The corporate integrity agreement with Life Care is designed to ensure that it only provides therapy based on the individual needs of each resident.”

The settlement, which was based on the company’s ability to pay, resolves allegations originally brought in lawsuits filed under the qui tam, or whistleblower, provisions of the False Claims Act by Tammie Taylor and Glenda Martin, former Life Care employees. The act permits private parties to sue on behalf of the government for false claims for government funds and to receive a share of any recovery. The government may intervene and file its own complaint in such a lawsuit, as it has done in this case. The whistleblower reward in this case will be $29 million.

The settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services. The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation. One of the most powerful tools in this effort is the False Claims Act. Since January 2009, the Justice Department has recovered a total of more than $31.6 billion through False Claims Act cases, with more than $19.2 billion of that amount recovered in cases involving fraud against federal health care programs.

This matter was handled by the Civil Division’s Commercial Litigation Branch, the U.S. Attorneys’ Offices for the Eastern District of Tennessee and the Southern District of Florida, and the HHS-OIG, with assistance from the U.S. Attorneys’ Offices for the District of Colorado, the Middle District of Florida, the Northern District of Georgia, the District of Massachusetts and the District of South Carolina and NCI/AdvanceMed, a Medicare Zone Program Integrity Contractor.

The two qui tam cases are docketed as United States ex rel. Taylor v. Life Care Centers of America, Inc., No. 1:12-cv-64 (E.D. Tenn) and United States ex rel. Martin v. Life Care Centers of America, Inc., No. 1:08-cv-251 (E.D. Tenn). The case against Forrest L. Preston is captioned United States v. Preston, No. 1:16-cv-113 (E.D. Tenn). The claims resolved by the settlement are allegations only; there has been no determination of liability.