Salus Rehabilitation and LaVie: When the RUG Budget Came Before the Resident

In the Salus and LaVie fraud case, the Eleventh Circuit restored an $85,137,095 Medicare verdict for upcoding and therapy ramping, before tripling damages and adding penalties. The Medicaid care-plan claims failed. The Medicare evidence ran through the resident’s chart: the facilities billed for therapy and nursing services beyond what the medical records supported.

A registered nurse who worked as an interim MDS coordinator brought the False Claims Act qui tam case. She prepared assessments at Marshall Health and Rehabilitation Center and Governor’s Creek Health and Rehabilitation Center. The United States and Florida declined to join, and she continued the case. The Eleventh Circuit’s June 25, 2020 opinion restored the Medicare result because the evidence connected inflated assessments and management pressure to higher payments.

The Companies Behind the Facility Names

Salus Rehabilitation provided rehabilitation therapy at Marshall and did business as LaVie Rehab. Sea Crest Health Care Management did business as LaVie Management Services of Florida. CMC II succeeded Sea Crest, and the opinion discussed the management businesses together as LaVie Management.

The facility defendants were 207 Marshall Drive Operations, doing business as Marshall Health and Rehabilitation Center, and 803 Oak Street Operations, doing business as Governor’s Creek Health and Rehabilitation Center. LaVie Management served a network of 53 skilled nursing facilities across Florida.

That division of work matters in a nursing home therapy billing fraud case. The facility, the therapy provider and the company directing reimbursement can each control a different part of the assessment and billing process. Here, the management company’s role became central because the evidence traced the pressure to increase payment back to its budgets, meetings and instructions.

How the Assessment Set Medicare’s Payment

The case concerned the former Resource Utilization Group payment system, usually called RUG. Under that system, Medicare used a facility’s Minimum Data Set assessment to help determine its daily payment. The assessment described the resident’s condition and services, and the resulting RUG classification affected how much the facility received.

The assessment was clinical work with a financial consequence. A registered nurse coordinated or conducted it and certified completion. Staff members who completed portions certified their accuracy. Nursing observations, therapy records and the resident’s need for assistance fed the classification. In the rehabilitation codes at issue, one letter reflected therapy minutes and another reflected nursing assistance. More intensive classifications brought higher daily rates.

Medicare used the services reported during an assessment period to set payment going forward, until the next assessment. That gave the company two ways to increase the bill: report more care than the chart supported, or manipulate the care delivered during the period that set the rate.

The Centers for Medicare & Medicaid Services replaced RUG with the Patient Driven Payment Model on October 1, 2019. The newer model uses resident characteristics instead of therapy volume to classify payment. The MDS still supplies payment inputs, so the accuracy of the assessment still matters.

Upcoding Both Therapy and Nursing

Upcoding raised the reported level of therapy or nursing services above what the contemporaneous medical records supported. The nurse expert who audited 300 Medicare claims across the management network for the whistleblower found therapy minutes on bills exceeding those recorded in patient files. She also found claims reporting more nursing assistance than the files supported, including extensive nursing services absent from the medical record.

The court’s account followed both parts of the RUG code back to the care recorded at the time.

The defendants argued that the codes were accurate and that supporting entries were missing because of clerical mistakes. The appeals court held that the jury could reject that explanation. The difference changed Medicare’s payment.

Ramping Therapy Around the Assessment

Ramping concentrated treatment around the assessment window to inflate the payment level. The assessment looked back over seven days ending on the assessment reference date. Medicare allowed grace days for setting that date, and the whistleblower testified that staff used them on every assessment while residents went without therapy afterward. The nurse expert described a resident whose therapy reached the Ultra High threshold during each payment-setting week, then routinely fell below that level between assessments.

The timing was the mechanism. Residents received less therapy between assessments while Medicare kept paying the rate set by the treatment spike. Taxpayers paid for the inflated classification. The court found sufficient evidence that the defendants artificially increased services during assessment windows beyond what residents medically needed, causing Medicare to pay more than it owed.

Management Set the Target Before Staff Assessed the Resident

LaVie’s management evidence showed how a corporate revenue target could become a Medicare claim. The whistleblower testified that staff faced RUG budgets set by the company without clinical knowledge of the patients. In daily meetings, the rehabilitation director reported the previous day’s therapy minutes and faced criticism over the numbers. The goal was 720 minutes by the MDS assessment date, enough for the Ultra High therapy classification.

Weekly calls carried the same pressure across facilities. According to the testimony summarized in the opinion, management criticized homes below their RUG budgets and praised those above them. A management presentation described its goal as “RUG enhancement” and urged “maximizing therapy minutes.”

The evidence also indicated that staff needed management approval to submit a claim at the lowest RUG code. The company was pushing higher classifications while putting an extra decision in the path of the lowest one. That approval rule connected the revenue target to the choices available to the people completing the bill.

The whistleblower’s first amended complaint alleged a personal financial incentive alongside the facility targets:

The alleged bonus rewarded the classification. For an MDS nurse, that puts the financial target directly beside a clinical assessment the nurse is expected to certify as accurate.

The 2018 Journal of Forensic & Investigative Accounting teaching paper Pressure to Commit Fraud in the Workplace: Two Teaching Cases Addressing Fraud and Whistleblower Protection asks readers to examine employer pressure alongside opportunities to bypass controls. Here, the alleged bonus rewarded higher scores while management controlled the route to a lower bill.

The appeals court found enough evidence for the jury to hold LaVie Management responsible for causing false Medicare claims. Its policies drove the claims, and the inflated bills were exactly what those policies would produce. The court also found that the evidence supported the jury’s conclusion that management acted knowingly. The case reached the company shaping the claim, beyond the employee who submitted it.

Kindred and RehabCare’s $125 million settlement with the Department of Justice addressed allegations of a similar payment-driven pattern: automatic placement in the highest category, inflated assessment-period therapy minutes and services reported but not delivered. That case reached the therapy supplier causing facilities to submit claims. Here, the evidence reached the management company directing reimbursement.

Why the Medicare Verdict Came Back

The Medicare verdict came back because the evidence connected the false classifications to higher reimbursements. The court explained that the facilities had represented more services, in quantity and intensity, than they actually provided. Medicare paid the higher rate those representations produced.

The jury originally found liability on 420 Medicare claims and 26 Medicaid claims and awarded $115,137,095 in damages. After tripling damages and adding penalties, the trial court entered an initial judgment of $347,864,285. It then set that judgment aside, finding the evidence insufficient.

The appeals court separated the programs. For Medicare, the therapy and nursing classifications directly affected the amount paid. The management testimony explained why the classifications rose, and the medical records supplied the comparison. The court directed the trial court to restore the Medicare verdict and apply the required damages multiplier and penalties.

The separate Medicaid care-plan claims failed. The Medicare verdict returned because the evidence showed how the inflated classifications raised the bill.

What Evidence Is Needed to Prove Fraud?

In this healthcare fraud case, the evidence connected the resident’s actual care, the payment classification, management’s instructions and the claim Medicare paid. Our work on proving nursing home fraud follows those connections across the people who controlled them.

The expert compared therapy logs and nursing notes with MDS assessments and billed RUG codes, including treatment during and between assessment windows. RUG budgets, meeting testimony and the lower-code approval policy connected the discrepancies to management’s instructions.

A therapist may know the treatment schedule, an MDS nurse the assessment inputs, and a reimbursement employee the budget and approval process. Those views complement each other. The nurse who brought this case worked inside the assessment process, where clinical observations became payment classifications. Her account of management’s instructions helped explain the discrepancies the claims review found.

The Judgments After the Medicare Verdict Was Restored

Sea Crest Health Care Management and CMC II shared responsibility for a $240,914,900 judgment in the district court’s February 2021 entries. The court also entered judgments of $484,000 against Salus Rehabilitation, $6,266,424 against 207 Marshall Drive Operations and $10,055,961 against 803 Oak Street Operations.

The health care management companies shared the largest obligation.

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

You Know Who Set the RUG Target

If you worked in nursing, therapy, billing or management and saw a payment target override the resident’s care record, speak with our whistleblower experts about who set that target. We work with you to connect the clinical evidence to the corporate decisions and build your strongest case with skilled nursing fraud whistleblower lawyers who understand assessment-driven billing. We stay beside you through the case, from explaining the discrepancy to pursuing the government’s recovery.