Beverly Enterprises: Nursing Hours on Paper, Repayment Through Medicare

Beverly Enterprises agreed to a $170 million settlement in a Medicare nursing-labor cost-report fraud case. The government alleged that the nursing-home chain assigned Medicare the cost of hours that staff had not spent treating Medicare beneficiaries. For someone who knows the shifts worked, the unit assignments or the cost-report calculations, this case turns on a familiar distinction: where the nursing happened and where the company put the expense.

Beverly operated a chain of Medicare-provider nursing homes through subsidiaries and was based in Fort Smith, Arkansas. A whistleblower brought the qui tam case that led to the civil settlement agreement. The Department of Justice reported the settlement on February 24, 2000, describing allegations that Beverly defrauded Medicare by fabricating records to make it appear that nurses were devoting much more time to Medicare patients than they actually were.

What Was the Beverly Enterprises Fraud Case About?

The Beverly Enterprises fraud case concerned false nursing home cost reports for 1992 through 1998. The government and the whistleblower alleged that Beverly overstated costs attributable to Medicare-certified units by allocating labor hours to those units that had not actually been spent treating Medicare beneficiaries.

Payroll records can show that a nursing home paid for labor. The cost report tells Medicare how much of that labor belonged to the Medicare-certified unit. An expense can be real on the company’s books while the account of whose care it paid for is false. Beverly’s alleged overstatement was in that second account.

The distinction matters to employees who see only part of the process. A nurse may know where a shift was worked. A reimbursement employee may see only the hours assigned to a unit in the calculation. Putting those views together is how we examine whether the Medicare cost report describes the care the staff actually delivered.

The taxpayer paid for the hours attributed to Medicare residents. In the government’s account, Beverly made that allocation larger than the work justified. A nursing hour moved on a worksheet could become a cost charged to a public program without another hour of care reaching a Medicare resident.

Old Cost Reports Fed the New Medicare Rates

The move to prospective payment gave older cost reports a continuing financial role. For cost-reporting periods beginning on or after July 1, 1998, Medicare’s skilled nursing facility prospective payment system replaced the earlier reasonable-cost arrangement. The Bureau of Labor Statistics’ 1999 Monthly Labor Review article, Health services industry: still a job machine?, explains that the new system initially blended a facility-specific rate with a federal rate.

That historical transition appears directly in Beverly’s agreement. Medicare reserved the right to reopen the company’s 1995 cost reports and recalculate the facility-specific rates using the direct nursing-labor allocation issue. The agreement capped the payment effect of those adjustments at $37 million over the 1999 through 2001 reimbursement period. Old nursing allocations could therefore affect payments under the new system, too.

Any revised 1996 requests for payment above routine cost limits had to reduce the direct labor cost claimed for the certified unit by 13%. The agreement required denial of Beverly’s earlier requests.

Medicare Payments Became the Repayment Mechanism

The government asserted $460 million in civil claims over the labor allocations. Beverly settled for less, with most of the repayment coming out of its future Medicare payments. The program Beverly allegedly overcharged would collect by paying the company less for its ongoing business.

Under the agreement, Beverly was to pay $25 million within thirty days and the remaining $145 million by accepting reductions to its Medicare payments.

The reductions were to begin with the first Medicare payment on or after January 1, 2000 and continue over eight years. Beverly had to keep a single Medicare payment intermediary until the settlement was paid in full.

The Justice Department’s November 2, 2000 annual recovery announcement counted the full settlement as recovered, though most of it was scheduled to come from future Medicare payments. That announcement described false-billing allegations involving more than 400 nursing homes. Beverly also entered a corporate integrity agreement with the Department of Health and Human Services.

The Same Nursing-Hour Allegation at Other Chains

Other cost-report cases also centered on hours attributed to Medicare residents. In the Horizon West settlement announced in 2006, the government alleged that the companies inflated the nursing hours spent on Medicare patients when reporting their costs from 1991 through 1998. A former employee brought that case.

The National HealthCare settlement announced in 2000 addressed allegations that cost reports overstated staff hours devoted to Medicare residents and reported personnel as furnishing therapy they had not performed. That case began with a former facility administrator.

These cases make the labor-allocation question concrete. Who was paid, where they worked and what care they performed have to connect to the hours the operator attributed to Medicare. Someone familiar with daily staffing can see a discrepancy that is much harder to recognize in an annual cost report alone.

What Evidence Is Needed to Prove Fraud?

For an allegation like Beverly’s, the evidence connects actual nursing work to the cost reported to Medicare. We examine the route from payroll and time records through unit assignments and allocation calculations to the submitted cost report and the payment it supported.

We ask how an expense reached a Medicare cost center, what work supported the assignment and who approved it. The employee who understands that calculation and the employee who knows the care can explain different sides of the same discrepancy.

We work with that inside knowledge to test the connection between the labor records and the government’s payment. The point is to establish how the numbers reached Medicare and what the people responsible for them knew.

How Much Does a Medicare Fraud Whistleblower Case Pay?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Beverly’s agreement set the whistleblower’s share at 17% of the settlement recovery, paid as the government received payments or withheld money from Medicare payments to Beverly.

You Know Where the Nursing Hours Went

If the nursing hours reported to Medicare differ from the care your staff delivered, speak to our whistleblower experts about where the hours went. We work with you to build your strongest Medicare cost-report whistleblower case, bring in whistleblower lawyers who understand nursing-home reimbursement, and stand with you through the pursuit of a recovery.