McKesson, MediNet and Beverly: The Alleged Bargain Behind the Medicare Bills

In the McKesson, MediNet and Beverly CERES DME false claims case, the government alleged in 2008 that Medicare profits bought nursing-facility referrals. CERES Strategies Medical Services allegedly billed Medicare while MediNet supplied the equipment and managed the operation. If you know the supply contracts, the patient-service work or the billing, you may see who benefits when the supplier on the claim is different from the company doing the work.

The Department of Justice’s account of the alleged arrangement described durable medical equipment, including enteral feeding devices and oxygen supplies. McKesson allegedly offered Beverly a way to retain Medicare income in exchange for sending its facilities’ equipment business to McKesson.

The Alleged CERES Supplier Arrangement

CERES Strategies Medical Services was affiliated with Beverly. The government said MediNet, McKesson’s subsidiary, set up and managed that supplier, allowing it to bill Medicare and retain millions of dollars for supplies and services actually furnished by MediNet.

According to the Justice Department, CERES Strategies Medical Services had little capital, few employees, almost no durable medical equipment and performed none of the equipment-related patient services at Beverly’s facilities. A supplier with almost no equipment and no patient services was collecting Medicare money for someone else’s work, according to the allegation.

The company billing Medicare sat on Beverly’s side of the arrangement. MediNet allegedly ran the operation. That split is something an employee handling equipment or patient services would recognize: the name submitting a claim and the business directing the work tell different parts of the story.

Why the Referral Business Mattered

The alleged exchange gave each side something it wanted: Beverly kept profits from the Medicare payments, and McKesson obtained referrals for Beverly’s facilities’ durable medical equipment needs. Medicare financed the bargain. On the government’s account, money meant to pay for equipment and services became the inducement to send the next order to McKesson.

This is the commercial question behind supplier swapping allegations: what benefit did the facility receive, and what business did the supplier get in return? Here, the government’s account identified the benefit as retained Medicare profits. The facility’s purchasing decisions were the other side of the exchange.

The California Research Bureau’s report Fraud and Abuse in the Health Care Market of California describes paid steering as a form of health care fraud:

In nursing-home kickback cases, the purchasing relationship can explain what a payment was buying. The CERES allegation puts that point into a supplier’s everyday business: the facility controlled where its equipment orders went, and the proposed profit gave it a reason to keep sending them to the same supplier.

Why the Medicare Payment Route Matters

For services included in a covered Part A nursing-facility stay, Medicare pays the facility, and the facility’s contract determines what it pays an outside supplier. That gives the purchasing office a direct stake in the cost of equipment and supplies used by residents.

The Medicare bundled-payment rules put room, board, nursing, therapy, drugs, laboratory services and supplies into the facility payment unless an exclusion applies. An outside business can deliver a service while the nursing facility remains responsible for paying it. Delivery, billing and payment are separate parts of the same transaction.

For an equipment insider, the commercial difference is concrete. A supplier paid by the facility looks to its customer contract for payment. In the government’s CERES account, the company connected to Beverly instead billed Medicare and retained income from work MediNet performed. The alleged referral bargain joined that income to Beverly’s purchasing decisions.

That is why we examine the payment route alongside the work. We connect what the resident received, which company supplied it and which company kept the proceeds. Those different views of the transaction help us understand the benefit offered to the facility and the equipment business promised in return.

What the Government Announced in 2008

On October 6, 2008, the Justice Department announced that the United States had joined the case against the companies. A private citizen had brought the False Claims Act qui tam case in the Northern District of Mississippi.

Harborside’s Separate DME Settlement

Harborside Healthcare and HHC Nutrition Services agreed to pay $1.375 million in a separate settlement announced on October 8, 2009. They also agreed to forgo $498,000 in unbilled durable medical equipment claims.

That case concerned allegations that kickbacks and assistance from McKesson and MediNet, through a sham equipment provider, induced Harborside’s supply purchases. It puts the facility’s buying decision alongside the supplier’s role in the arrangement. The company receiving the alleged benefit faced its own case over the business it sent back.

What Evidence Is Needed to Prove Fraud?

For an alleged equipment-referral exchange, useful evidence connects the services, the Medicare claims and the referral bargain. We examine who supplied the equipment, who managed the operation, who performed the patient services, who billed and where the resulting money went.

Nursing-home businesses can distribute work and receipts across operating, management and service companies. The operating company receives care payments while management and service companies receive fees. We untangle those relationships with the insider, comparing the company identified as the supplier with the people and equipment performing its work.

An equipment employee may know the deliveries and service work. A purchasing employee may know why the facilities sent business to a particular supplier. A billing employee may see which company submitted the claim. We work with the insider to connect those views to the financial arrangement they describe.

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.

You Know How the Supplier Relationship Worked

If you saw a facility’s equipment referrals tied to profits in another company, speak to one of our whistleblower experts about the bargain behind the bills. We work beside you to build your strongest Medicare equipment whistleblower case, bringing in healthcare fraud whistleblower lawyers who understand equipment billing and referral arrangements.