HCR ManorCare: The Therapy Case the Government Dropped

The HCR ManorCare therapy dismissal fraud case ended in 2017 when the government voluntarily dropped it after alleging that financial targets drove unnecessary treatment and delayed discharges. The accusation reached into decisions a therapist or rehabilitation manager would recognize: how much treatment a resident received, why it continued, and who decided the resident could go home. The government alleged that ManorCare made those decisions serve the Medicare payment target instead of the patient’s needs.

The Department of Justice announced its complaint on April 21, 2015. Whistleblowers brought three cases alleging false rehabilitation claims to Medicare and Tricare, and the government joined them. At the time, HCR ManorCare operated approximately 281 skilled nursing facilities in 30 states, and the announcement identified The Carlyle Group as its owner.

Therapy Goals Set Before the Patient’s Needs

The government alleged that HCR ManorCare set billing goals in advance, without regard to residents’ actual clinical needs. Administrators and rehabilitation therapists then faced pressure to deliver enough additional treatment to qualify for the highest Medicare payments.

In the government’s account, the revenue goal came first, and staff had to supply the treatment that would make the bill reach it. The alleged pressure put health care second: the company wanted a higher payment, and the patient received more therapy.

The same alleged pressure followed residents toward discharge. The Justice Department said ManorCare increased its Medicare payments by keeping people in its facilities after they were medically ready to leave. For a clinician, that is a concrete conflict between the recommendation in the chart and the decision to keep treating and billing.

These allegations arose under Medicare’s old Resource Utilization Group payment system, which used therapy volume in assigning payment categories. Reaching a higher category could increase reimbursement. A target for the category could set the schedule: how much therapy staff planned, how much they recorded, and whether treatment continued.

The alleged cost fell on residents and taxpayers together. Residents underwent treatment the government said they did not need, while Medicare and Tricare received claims for those services.

The Insider Accounts Behind the Government Complaint

The qui tam cases began with accounts from inside the facilities. The Fourth Circuit’s account of the earlier complaints identifies a former occupational therapist and a physical therapist assistant among the whistleblowers. Their accounts show what people working inside the therapy operation could see.

The former occupational therapist alleged that ManorCare classified residents as needing more physical therapy than necessary and instructed therapists to spend additional time with them to increase Medicare payments. She also alleged that some residents received physical or occupational therapy they did not need at all, and that ManorCare refused to discharge patients for whom physical therapy was no longer useful.

The physical therapist assistant alleged overbilling for therapy, billing for services never provided, and billing ordinary, unskilled activities as skilled treatment. His complaint also alleged unnecessary and sometimes harmful therapy, along with discharge delays beyond what was medically appropriate. He said he witnessed these practices while working in ManorCare nursing facilities.

Those accounts describe different things an insider can know. A clinician may know that a resident no longer benefits from treatment. Someone working alongside that clinician may know what actually happened during the time recorded as therapy. A manager may know who insisted that the schedule continue. The government’s complaint brought the alleged financial pressure and the resulting claims into the same case.

How Therapy Records Became Medicare Payment Inputs

Skilled nursing facility therapy billing connects the treatment room to a resident assessment and then to the facility’s claim. The Minimum Data Set is part of that assessment process. Therapists contribute clinical information, an assessment coordinator brings the information together, and the resulting payment classification reaches the bill.

An instruction to continue treatment can affect the clinical record, the assessment and the amount the facility seeks from Medicare. A therapist may see the decision at its source, before anyone in the billing office handles it.

The Medicare claims manual describes a bundled payment to the skilled nursing facility that includes therapy. When an outside therapy company provides the service, the facility’s contract determines how it pays that supplier. The people directing or recording treatment can therefore work for a different business from the one submitting the Medicare bill.

The payment model later changed. The Patient Driven Payment Model began on October 1, 2019. Under the payment reform adopted by Medicare, patient characteristics replaced therapy volume as the basis for therapy payment classification, with therapy remaining inside the bundle.

We examine the assessment and payment rules that applied when the care occurred, along with what the resident needed and what staff recorded.

What Evidence Is Needed to Prove Fraud?

For allegations like those in the HCR ManorCare case, we connect actual treatment and clinical need to assessment entries, Medicare claims and management decisions. Therapy logs, contemporaneous notes, discharge recommendations and billing records can show different parts of that connection.

We read treatment logs alongside clinical notes, the resident’s participation and discharge recommendations. Compared with the schedule and subsequent claims, those records can reveal the difference between a clinician’s recommendation and the care the company kept billing.

Assessment records supply another part of the comparison. We look at the inputs used for classification, the timing of assessments, changes to recorded treatment and the resulting claims. An insider who knows how the information moved from the therapy department into the assessment can explain a decision that a final billing code alone will not show.

We also examine who controlled the process. Financial targets, treatment instructions, staffing records and therapy contracts can connect the people setting expectations with those scheduling, documenting or billing the services. Contracts help explain who was responsible when a facility used a therapy contractor.

The 2018 Journal of Forensic & Investigative Accounting teaching paper Pressure to Commit Fraud in the Workplace: Two Teaching Cases Addressing Fraud and Whistleblower Protection examines employer pressure, the ability to bypass controls and how people justify their conduct.

We work with the healthcare insider who can connect those decisions. A therapist’s account of what a patient could tolerate, or a manager’s knowledge of how a target became a schedule, gives the documents their operational meaning.

Kindred/RehabCare Shows the Same Payment Pressure

Kindred/RehabCare agreed to pay $125 million in a separate therapy settlement announced on January 12, 2016. The government alleged that the therapy contractor’s financial goals caused skilled nursing facilities to submit inflated Medicare claims for unnecessary services or services that never occurred.

The overlap with the ManorCare allegations is the direction of the decision: a financial target first, then treatment arranged to reach it. The RehabCare complaint described additional practices in detail, including reporting evaluation time as therapy and reporting estimated or rounded minutes instead of actual treatment time.

An executive’s words in that complaint explain why the amount of treatment mattered to the business:

The government alleged that RehabCare pushed therapists toward the highest reimbursement category. The executive’s statement shows the other side of that incentive: once the target was reached, more treatment meant more labor cost. The alleged incentive was to hit the payment threshold precisely.

The RehabCare announcement also described settlements with nursing facilities that used the contractor and submitted the claims. That is why the relationship between the therapy supplier and the facility belongs in the evidence. The contractor’s treatment information can shape the bill the facility sends.

How Much Does Medicare Fraud Whistleblower Pay?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. In the separate RehabCare case, the Justice Department announced nearly $24 million for the whistleblowers, a physical therapist who had been a rehabilitation manager and an occupational therapist.

You Know Who Set the Therapy Target

If you saw treatment schedules or discharge decisions bent toward a Medicare billing goal, speak with our whistleblower experts about what happened inside the facility. We connect your clinical knowledge to the payment decisions, bring in nursing home fraud whistleblower lawyers who understand therapy billing, and stand beside you throughout the case.