RehabCare Rehab Systems of Missouri: The Referral Arrangement Behind the 2014 Settlement

The RehabCare Rehab Systems of Missouri fraud case ended in a $30 million settlement over allegations that RehabCare paid kickbacks to obtain nursing-home therapy contracts. The alleged bargain put money in the hands of a company whose majority owner also controlled the homes supplying the business. For someone who knows how a therapy contract was won, this case turns on a familiar question: what did the contractor actually buy with its payments?

The Justice Department’s January 17, 2014 announcement described payments from RehabCare to Rehab Systems of Missouri for access to the homes’ therapy business. A competing therapy provider brought the qui tam case, and the government joined it. The alleged exchange put a price on access to nursing-home residents, with taxpayers funding their care through Medicare and Medicaid. A provider competing on the quality of its therapy would be competing against payments to the business controlling access.

RehabCare and Kindred’s separate 2016 therapy-billing settlement concerned allegations of inflated therapy and services not delivered. This earlier case concerned how RehabCare obtained the business in the first place.

How the Nursing-Home Referral Arrangement Worked

RehabCare allegedly paid Rehab Systems of Missouri to obtain its therapy contracts. The Justice Department placed the covered conduct between March 1, 2006 and December 31, 2011.

The companies occupied different places in the business. RehabCare supplied therapy to skilled nursing facilities around the country. Rehab Systems already provided contract therapy to the residents of the homes at issue. Health Systems managed the homes. According to the court’s account of the ownership structure, the same majority owner controlled Rehab Systems, Health Systems and the Missouri nursing facilities.

That made the relationship valuable to a contractor seeking a customer base. The therapy company receiving the payments shared an owner with the management company and the homes where the work would occur. The government’s allegation was that RehabCare paid for that access.

In skilled nursing, the company delivering a service and the facility responsible for paying the vendor can be different businesses. Therapy contractors, management companies and facility operators have different jobs and receive different payments. Here, Health Systems received a percentage of the homes’ gross revenue for management, while Rehab Systems’ compensation came through the therapy arrangement. Keeping those relationships separate shows who could direct the business and who benefited when it moved.

The Earlier Deal That Stopped

RehabCare had considered buying Rehab Systems before it became the company’s subcontractor. The court described a July 2003 proposal to acquire the business for $7 million, conditional on replacing its one-year therapy contracts with five-year contracts that the homes could end only for cause.

The difference was commercially substantial. A home could ordinarily end the shorter contract without giving a reason. Under the proposed terms, RehabCare would acquire a much firmer claim on the future therapy business along with the company. The value lay partly in how long the homes would remain customers.

The court described September 2003 emails in which the parties expressed concern that the proposed changes might violate the Anti-Kickback Statute because RehabCare could be seen as purchasing a protected stream of revenue. RehabCare did not complete the acquisition.

The homes changed their Rehab Systems contracts the following year, extending them and restricting termination.

A Subcontract and a Promise About the Therapists

The February 2006 arrangement assigned the therapy work to RehabCare and supervision and administration to Rehab Systems. The five-year subcontract also provided for continuing payments to Rehab Systems. A separate recruitment and non-solicitation agreement prevented Rehab Systems from soliciting its former therapists for five years.

For the continuing payments, the court described 10% and 15% of therapy profit. The Justice Department’s later announcement described a retained percentage of revenue from each referral. The contract terms and payment calculations are what let an insider explain what the company actually received.

The defendants said RehabCare was paying for an assembled workforce, protection against losing those therapists, and supervision and administrative services.

The government challenged what Rehab Systems actually contributed. It pointed out that the company had no W-2 employees after the subcontract and alleged that it supplied nothing of value beyond directing therapy business to RehabCare. It also relied on emails that, in its view, showed Rehab Systems would not agree to the transaction without both the upfront and continuing payments.

The disagreement reaches the work behind the contract. Who performed the promised supervision? Who handled administration? What did RehabCare receive for the continuing percentage? Those are questions the people responsible for staffing, operations and payments can help answer.

What the Court Decided About the Payments

The court left the purpose of the payments for a jury to decide. The disputed questions were whether the payments bought referrals and whether the companies knew the arrangement was wrongful.

The court said emails and testimony suggested RehabCare agreed to pay far more than the workforce protection and promised services were worth. It also pointed back to the earlier negotiations as evidence that the companies understood the kickback concern. They had raised that concern in writing, then entered the later deal anyway.

For this case, the court said a payment could violate the Anti-Kickback Statute when one purpose was to induce referrals, even if it also paid for services. The government’s case challenged the work behind the contract’s descriptions and alleged that the payments purchased access to patients whose care Medicare and Medicaid funded.

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. In this case, the Justice Department announced that the competing therapy provider would receive $5.7 million as its share of the recovery.

The settlement also required the companies to restructure their business arrangement. The whistleblower’s industry position matters: a business competing for therapy contracts brought the case over how another provider obtained those contracts.

What Evidence Is Needed to Prove Fraud?

For a referral-payment case, the useful evidence connects the contract, the money, the services actually performed and the resulting Medicare or Medicaid claims. We examine those connections with the person who knows the business, including what the companies said the payments bought and who controlled the decisions.

When Access to Residents Has a Price

The alleged RehabCare arrangement shows how a contractor’s opportunity to treat residents can become the thing another business sells. The payment dispute began with control over therapy contracts and reached the government through the claims for care that followed.

The California Research Bureau’s 1997 report, Fraud and Abuse in the Health Care Market of California, distinguishes paying another party to steer business from referring a patient to a facility the referring party partly owns. The RehabCare allegations brought payment and ownership together: the company receiving the money shared a majority owner with the homes supplying the business.

A later case shows how the same alleged purchase of therapy business can take a different form. In its 2018 settlement with Reliant Rehabilitation, the Justice Department alleged that Reliant supplied nurse practitioners to nursing facilities free or below fair market value to obtain therapy business. The benefit reaching the home was clinical labor.

That comparison widens what an insider can recognize. In RehabCare’s case, the disputed value sat in upfront and continuing payments. In Reliant’s, the government alleged that discounted services helped secure the customer relationship. In each, the question was what the provider offered in exchange for access to the facility’s business. Residents supplied the need for care, public programs financed it, and the alleged deal put a price on who would get to provide it.

You Know What the Payments Bought

If you know how a therapy contractor won the nursing-home business, speak to one of our whistleblower experts about the deal behind the contract. We build the case with you around the payments, the promised work and the claims that followed, and bring in healthcare fraud whistleblower lawyers who understand referral arrangements. You bring the knowledge of the business, and we stay beside you through the pursuit of the case.