Blackhawk Lifecare Center: The Therapy Costs That Reached Two Programs

In the Blackhawk Lifecare Center fraud case, the facility agreed to pay $500,000 to resolve allegations of unjustified Medicare therapy claims and inflated Medicaid cost reports. The government’s account followed the same therapy from residents’ clinical needs into the facility’s accounting. For an insider, the connection between those records is the heart of the case.

Blackhawk was a skilled nursing facility in Lake View, Iowa, using an outside therapy services provider. The Justice Department announced the agreement on June 24, 2014, after an investigation led by the Department of Health and Human Services. The government alleged that the facility submitted or caused improper therapy claims.

Medicare Therapy Claims and Medicaid Cost Reports

The government alleged that Blackhawk billed Medicare for therapy that residents’ conditions did not justify between January 2007 and December 2009. It further alleged that including the costs of those services in Medicaid cost reports inflated the reports.

The Medicare allegation concerned whether the resident needed the therapy billed. The Medicaid allegation concerned the therapy expense carried into the facility’s cost reporting. Taxpayers fund both programs. The alleged problem reached beyond the treatment billed to Medicare into the costs Blackhawk reported to Medicaid.

An Outside Therapist, a Facility Claim

Contract therapy separates the business supplying the treatment from the facility billing for it. Under Medicare’s skilled nursing consolidated billing system, therapy is generally part of the facility’s bill. For a covered Part A stay, the payment bundles nursing, therapy and other services. Medicare pays the facility, and the facility’s contract determines what it pays an outside supplier.

That arrangement makes the therapy contract part of the payment story. The treatment notes explain what happened with the resident. The contractor’s invoice explains what it charged the facility. The facility’s claim explains what it asked Medicare to pay. These records describe different parts of the same healthcare service, created by people with different responsibilities.

Why Therapy Minutes Mattered

Historical Medicare payment categories gave therapy volume a direct financial role. During Blackhawk’s alleged conduct period, the RUG-III system used weekly therapy bands in classifying residents for payment. The Ultra High band required at least 720 minutes, with additional requirements about therapy disciplines and treatment days. The resident’s assessment connected the treatment account to the payment category.

That created a financial reason to watch the threshold closely. A treatment schedule could be driven by the payment category a facility wanted to reach, rather than the care a resident needed. In a separate case, Life Care Centers of America settled allegations that corporate efforts to maximize Ultra High classifications and prolong stays continued after treating therapists believed therapy should end. The government alleged that tracking minutes and length of stay served revenue targets rather than individual need.

That chain-wide therapy case illustrates pressure on clinical decisions. Blackhawk’s resolution instead joins the clinical justification for an outside provider’s therapy to the facility’s Medicaid accounting. Both matter to an insider who has seen a financial target overtake a treatment judgment.

The broader payment incentive also appears in the Health and Human Services inspector general’s September 2015 report, The Medicare Payment System for Skilled Nursing Facilities Needs to Be Reevaluated. It estimated $1.1 billion in additional Medicare payments associated with movement toward higher therapy categories in fiscal years 2012 and 2013. That finding concerns payment growth across the industry, beyond Blackhawk’s earlier conduct period.

What Changed Under the Patient Driven Payment Model?

The Patient Driven Payment Model replaced Medicare’s therapy-minute classification system for covered Part A stays on October 1, 2019. Under the payment model adopted by Medicare, patient characteristics drive classification and therapy remains inside the bundled payment.

The Minimum Data Set assessment feeds the payment code on the facility’s claim. Diagnoses, function and other clinical characteristics therefore matter to payment. A current therapy concern needs to be understood alongside those assessment inputs and the care the resident needed. The old minute thresholds explain the incentive in historical therapy cases; today’s payment model puts different information at the center of the bill.

How Therapy Costs Reach Medicaid

Medicaid cost reports help determine what a nursing facility receives for care. MACPAC’s December 2019 review of nursing facility payment describes state systems that reimburse allowable costs subject to limits, and systems that use cost reports to set a prospective price. The method determines how a reported expense affects payment.

A state’s daily rate may combine direct-care expenses, other operating expenses and capital costs. Patient needs and limits on allowable costs can affect the rate. The cost report is therefore more than an account of what a facility spent: it supplies information used to price publicly funded health care.

Blackhawk’s alleged connection was specific: costs for the therapy at issue went into Medicaid cost reports, and the government alleged that those reports were inflated as a result. Looking only at the Medicare claim would leave that accounting trail unexplained.

What Evidence Is Needed to Prove Fraud?

For allegations like Blackhawk’s, the useful evidence connects the resident’s condition, the therapy provided, the Medicare claim and the therapy costs reported to Medicaid. We examine those connections with the insider who knows how the records were created and who controlled the decisions behind them.

A therapist may recognize a mismatch between the resident’s needs and the treatment account. A person preparing a cost report may know how that treatment expense entered the facility’s accounts. We bring those perspectives together to assess the potential whistleblower case, with the payment rules for those services in view.

Another Iowa Resolution Over Medicaid Cost Reports

Signature Care Centers and seven Iowa facilities reached a separate $415,044 resolution announced on August 13, 2015, concerning allegedly inaccurate Medicaid cost reports for fiscal years 2008 and 2010. That gives Blackhawk’s repayment a nearby comparison: another Iowa resolution focused on the financial report itself.

Blackhawk’s case joined that accounting issue to the clinical justification for therapy. The connection is what makes knowledge from the treatment floor and the finance office useful together.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know Where the Therapy Costs Went

If you saw therapy billed beyond residents’ needs or those expenses carried into Medicaid cost reports, speak with our whistleblower experts about the therapy and cost reports you know. We build your strongest skilled nursing whistleblower case with you across the clinical and financial records, bring in skilled nursing fraud whistleblower lawyers who understand therapy billing and cost reports, and stay beside you throughout the case.