Harborside HHC Nutrition: The Alleged Bargain Behind the Supply Orders

In the Harborside HHC Nutrition fraud case, Harborside Healthcare and HHC Nutrition Services agreed to pay $1.375 million to resolve allegations that kickbacks and a sham durable medical equipment supplier arrangement steered Harborside’s purchases to McKesson. Someone handling the contracts, equipment or Medicare billing may recognize the question behind the case: who performed the supplier’s work, who benefited financially and what business changed hands in return?

What Harborside and HHC Nutrition Agreed to Resolve

The Justice Department announced the Harborside settlement on October 8, 2009. It alleged that McKesson and MediNet supplied kickbacks and assistance through a sham durable medical equipment provider. In return, Harborside purchased equipment and supplies, including non-enteral supplies, from McKesson.

Harborside also agreed to give up $498,000 in durable medical equipment claims it had not yet billed to Medicare.

The Justice Department identified HHC Nutrition Services as the sham equipment operator in the alleged arrangement. The case was part of a wider investigation involving durable medical equipment suppliers and nursing home chains.

The government alleged violations of the Anti-Kickback Statute and the False Claims Act, connecting the purchasing arrangement to the Medicare business behind it.

A Supplier Name and a Supplier’s Work

The alleged supplier kickback arrangement made the facility’s purchasing decision valuable to the outside supplier. The government’s separate McKesson and MediNet allegations show how a nominal equipment company could deliver a financial benefit to a nursing home business while another company did the work.

In its announcement, the Justice Department said it had joined a whistleblower case involving McKesson, MediNet and Beverly nursing facilities, then known as Golden Horizons. The government alleged that MediNet set up and managed CERES Strategies Medical Services, a supplier affiliated with Beverly. McKesson allegedly promised substantial profits from making it appear to Medicare that Beverly was supplying the equipment.

According to the government’s complaint, the purported supplier had few employees, almost no durable medical equipment and performed none of the equipment-related patient services at Beverly facilities. Yet it allegedly billed Medicare and retained millions of dollars for services and supplies that MediNet actually provided. Beverly allegedly agreed in exchange to send its facilities’ equipment supply business to McKesson.

The alleged arrangement rewarded a supplier that barely operated as one. Medicare financed the profit, and the nursing facilities’ purchasing commitment supplied the return.

Why the Nursing Home’s Supplier Contract Matters

A nursing home’s supplier contract determines what it spends on services covered by its Medicare payment. Under Medicare’s Part A billing rules, the skilled nursing facility’s payment bundles room, board, nursing, therapy and supplies unless an exclusion applies. Medicare pays the facility, and the facility pays an outside supplier under their contract.

That puts people buying health care supplies close to the financial incentive. In the Harborside allegations, the supplier’s assistance and the facility’s purchases were parts of the same bargain. The purchasing decision helps explain the Medicare business behind it.

The California Research Bureau’s 1997 report, Fraud and Abuse in the Health Care Market of California, identifies steering business to another party for a fee as a form of bribery, distinct from fraud through false statements. In Harborside’s case, the inquiry follows the assistance the supplier offered and the purchases it allegedly secured, as well as the Medicare billing.

What Evidence Is Needed to Prove Fraud?

Evidence of an arrangement like the one alleged at Harborside connects the supplier’s benefit, the facility’s purchasing decision and the resulting government claims. We examine how the business records connect to the bill, including who negotiated the arrangement and who controlled the work.

The proof crosses contracts, operations and claims. We connect the assistance promised in the supplier agreement to the money paid and the business sent back in return.

In the Beverly allegations, the gap was between the company billing Medicare and the company doing the work. Staffing, equipment and patient-service records speak to that gap. An employee may know why a vendor was selected, while someone handling claims sees which company billed Medicare. We bring those accounts together around the decisions and payments that made the arrangement work.

The Bargain Can Also Be Hidden in a Write-Off

Kan-Di-Ki, doing business as Diagnostic Laboratories and Radiology, agreed to a $17.5 million settlement in September 2013 over allegations that below-cost nursing home rates bought Medicare Part B and Medi-Cal referrals. The laboratory and radiology services differed from Harborside’s equipment purchases, but the alleged exchange again joined a facility benefit to the supplier’s government-paid business.

The whistleblowers’ complaint described another place to find the benefit: a customer debt removed from the books.

That allegation makes an account adjustment part of the referral story. For an insider who approves credits or handles collections, the explanation for forgiving the bill can matter as much as the original price.

Dynasplint illustrates a different equipment-billing mechanism. The government’s 2015 settlement announcement described allegations that nursing home residents were represented as living at home or elsewhere to obtain separate splint reimbursement despite the facility’s bundled payment. That consolidated-billing allegation turns on the resident’s location and the claim. Harborside’s allegation turns on the supplier bargain that induced its purchases.

What Is the Reward for a Medicare Fraud Whistleblower?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Harborside’s case began with a private whistleblower’s qui tam suit, and the Justice Department announced a share of the recovery for the person who brought it.

You Know Why the Supplier Got the Business

If you know who performed the equipment services or what secured the nursing home’s supply orders, speak to one of our whistleblower experts about the arrangement. We work beside you to build your strongest case around the supplier’s benefit, the purchasing decisions and the Medicare claims. We bring in healthcare kickback whistleblower lawyers who understand nursing home purchasing and durable medical equipment billing, and stay with you throughout the case.