North American Health Care: The Therapy Settlement Reached the Boardroom

In the North American Health Care fraud case, the company and two executives agreed to pay $30 million to resolve allegations of billing Medicare and TRICARE for medically unnecessary rehabilitation therapy. The government alleged that the reimbursement executive created the scheme and the chairman reinforced it. For someone who saw pressure to keep residents in therapy, the case follows that pressure from the treatment floor to the people directing the business.

North American Health Care was a private, for-profit company headquartered in Orange County, California, with service agreements to operate 35 skilled nursing facilities, most of them in California. Those facilities provided inpatient physical, occupational and speech therapy. The Department of Justice announced the settlement on September 19, 2016.

The Therapy Scheme and the Executives’ Payments

The government alleged that North American Health Care caused facilities to bill for rehabilitation residents did not need, including keeping residents in the facilities longer than necessary. The alleged scheme charged Medicare and TRICARE for the extra treatment while keeping residents in beds longer than they needed to.

The allegations covered the facilities from January 21, 2005 through October 31, 2009. At Apple Valley Convalescent, Petaluma Care and Rehab, and Linda Mar Care Center, the government alleged that the conduct continued from November 1, 2009 through December 3, 2011.

The company’s share of the settlement was $28.5 million. The chairman agreed to pay $1 million, and the senior vice president of reimbursement analysis agreed to pay $500,000. The Justice Department tied those separate payments to separate alleged roles: the reimbursement officer created the improper billing scheme, while the chairman reinforced it at the facilities.

That is what makes this healthcare fraud settlement more revealing than a corporate payment alone. The government described decisions above the level of the therapist treating the resident or the employee entering a claim. The alleged scheme ran through reimbursement management and the boardroom.

North American Health Care also entered a five-year corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services. It applied to all facilities the company managed and required an independent review organization to review therapy services billed to Medicare each year.

Why Therapy Minutes Became a Financial Target

North American Health Care’s alleged conduct fell in the historical Resource Utilization Group payment era, when therapy volume helped determine Medicare reimbursement. A direction to increase treatment minutes could therefore affect both the resident’s day and the facility’s payment category.

The Centers for Medicare & Medicaid Services described the incentive in its 2018 skilled nursing payment rule. Under RUG-IV, rehabilitation classification depended primarily on the amount of therapy the facility chose to provide. The agency reported that assessments matched to claims showing 720 to 739 therapy minutes, just above the Ultra High threshold, rose from 5% in fiscal 2005 to 33% in fiscal 2013. The agency viewed the growing concentration just above payment thresholds as a strong indication that financial considerations were driving service levels.

A resident’s needs determine the treatment clinicians recommend. A reimbursement threshold gives management a different number to aim for. In an unnecessary-therapy case, the important comparison is between those clinical recommendations and the treatment the facility delivered and billed.

The Medicare payment model later changed. The Centers for Medicare & Medicaid Services implemented the Patient Driven Payment Model on October 1, 2019, replacing therapy-minute classification with classification based on patient characteristics and clinical needs. For a present-day concern, the assessment’s diagnoses, function and other clinical inputs matter to the payment analysis.

A similar alleged conflict appeared in Guardian Elder Care’s 2020 settlement. The government alleged revenue-driven therapy, including therapy for residents with dementia or receiving hospice care. That parallel brings the issue back to the person in the bed: the business’s treatment goal and the resident’s clinical needs can pull in different directions.

A Separate Lawsuit Described Life Inside the Facilities

A former North American Health Care nursing home administrator brought a separate whistleblower case involving therapy, assessment coding and physician referrals. He had worked at Ramona Nursing and Rehabilitation Center and Orchard Park Care Center. His complaint described company training, meetings and internal documents, as well as what he said he saw inside the facilities.

The administrator alleged that management pressured him and his staff at Ramona to maximize therapy minutes and days regardless of residents’ rehabilitation potential. He described residents lined up in wheelchairs around the therapy gym with electrodes attached for extended periods. He also alleged that residents received treatment on a stationary bicycle that kept moving when they stopped pedaling. Residents slept with their feet strapped to the moving pedals, according to the complaint.

The complaint connected payment to assessment coding as well. It alleged that staff learned to record a two-person assist for transfers, toileting and walking whenever a second person was in the room and touched the resident, even if that person added no assistance. The alleged instruction made the resident appear to need more help, raising the reimbursement classification. What a nurse or aide actually saw during that transfer could tell a different story from the assessment.

A Gift Measured in Patient Referrals

The same complaint alleged that physician payments bought access to Medicare patients. It described instructions to pay well-connected rehabilitation doctors in exchange for hospital referrals and to replace medical board members who were not referring patients.

One alleged conversation made the expected exchange unusually plain. The administrator said he overheard a facility administrator ask a regional corporate representative to approve a bottle of wine a doctor wanted. According to the complaint, the representative responded:

The complaint alleged that approval depended on whether the doctor would bring value back to the facility. The question was how much business the gift would bring.

The 2018 Journal of Forensic & Investigative Accounting teaching paper Pressure to Commit Fraud in the Workplace: Two Teaching Cases Addressing Fraud and Whistleblower Protection reports survey findings that respondents would justify illegal payments under pressure to meet financial targets. The paper also reports that tips from employees, vendors and customers were the most common way fraud was detected.

The parties resolved the administrator’s separate lawsuit in January 2018.

What Evidence Is Needed to Prove Fraud?

For an unnecessary-therapy case, the evidence connects the resident’s actual care, the assessment, the claim and the people directing the billing. Our whistleblower experts work with you to connect what you saw on the treatment floor with the reimbursement decisions above it and build your case with nursing home fraud whistleblower lawyers.

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. We work with you on how your knowledge of therapy, assessment coding or referral payments could support a nursing home fraud case.

You Saw What Drove the Therapy

If you saw management push treatment beyond residents’ needs or physician payments tied to admissions, talk with our whistleblower experts about what happened inside your facility. We build the case with you and bring in nursing home fraud whistleblower lawyers who understand therapy billing and referral arrangements. We stay beside you through the process, turning your knowledge of clinical care and corporate decisions into your strongest whistleblower case.