Defendants in Medicare fraud suit pay $30M
ST. LOUIS -- (SMNS) Four businesses listed as defendants in a Medicare fraud case, which involved an alleged kickback scheme for providing contract therapy at 60 Missouri nursing homes, have agreed to pay the federal government $30 million.
Assistant U.S. Attorney Chad Blumenfield in Minnesota, where the civil lawsuit was initially filed, said RehabCare Group Inc. and RehabCare Group East Inc. have paid $25 million and Rehab Systems of Missouri of Dexter, Mo., and Health Systems Inc. of Sikeston, Mo., have paid $5 million. The case was later transferred to U.S. District Court in St. Louis, Mo.
James Lincoln of Sikeston, Mo., was listed as the majority owner in Rehab Systems, Health Systems and the 60 nursing homes.
Lincoln and his wife, Judy, were listed as president and secretary and board members of the four nursing homes during the investigation, according to documents filed with the Missouri Secretary of State's office.
Filings in the past three years list Timothy Drake of Osage Beach, Mo., as president, Charlotte Stutts of Sikeston as secretary, and Mathias Dasal of Eldon, Mo., and Gary Crane of Lake Ozark, Mo., as directors.
The Lincolns are still listed as officers and directors of Health Systems as of a March 5, 2012, biennial report filing with the Missouri Secretary of State. The nursing homes were managed by Health Systems.
RehabCare was located in Clayton, Mo., until it was purchased by Kindred Healthcare Inc. of Louisville, Ky., in 2011.
"The case was settled -- not because of any liability, but to avoid any further cost of litigation," said attorney Scott Hinkle of St. Louis, who represented Health Systems. "If we went to trial, we were confident we could have won the case."
Speaking on behalf of Kindred Healthcare, Susan Moss told the St. Louis Post Dispatch: "As part of this agreement, RehabCare denies all liability, but is pleased to have reached a compromise that allows all parties to put this issue behind them. In Kindred's previous SEC (Securities Exchange Commission) filings, this matter had been disclosed and the company had set aside appropriate reserves."
According to the lawsuit, Rehab Systems of Missouri offered rehab services until 2006 exclusively or almost exclusively to nursing homes majority owned by James Lincoln.
Rehab Systems of Missouri was owned by James Lincoln, his son, Jimmy Lincoln, and Tom Hudspeth, the chief operating officer. Hudspeth also had an active management role in Health Systems.
Hudspeth was described as "the lead negotiator" on behalf of Rehab Systems of Missouri in the 2006 transaction with RehabCare, according to the lawsuit.
In February 2006, Rehab Systems and RehabCare entered into a five-year subcontract agreement that called for RehabCare to provide therapy serves at these nursing homes.
In exchange, RehabCare agreed to pay Rehab System a one-time payment of approximately $600,000, as well as a percentage (approximately 10 percent) of the profit from the therapy services that would be performed by RehabCare, according to court documents.
"After the agreement was entered into, Rehab Systems essentially ceased operations except for collecting its profit under the terms of the agreement. That profit, according to the government, has exceeded $10 million," U.S. District Judge Audrey Fleissig wrote in a memorandum and order denying Rehab Care's motion for a summary judgment.
The defendants contended the agreement between RehabCare and Rehab Systems provides for valid activities -- "paying a fee to secure and protect an in-place work force assembled by another or employing a subcontract arrangement that generates a profit for the primary contractor."
They also maintained that Lincoln "structured the transaction with RehabCare in a way that comported with federal guidelines and permitted him to centralize and distribute profits as he saw fit."
Health Dimensions Rehabilitation, which provides services in Minnesota, Wisconsin and North Dakota, contacted the government with its allegations of fraud on May 12, 2006, and then filed its lawsuit on July 11, 2007.
On Aug. 4, 2011, the government intervened and the complaint was unsealed. The government filed an amended complaint on Dec. 5, 2011, and the case was transferred to St. Louis on May 10, 2012.
A one-year investigation by Mark Essling, chief executive officer of Health Dimensions Rehabilitation, was credited with producing information that "exposed the defendants fraud."