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$30 Million Medicare Fraud Case Settled


Another suit involving Medicare fraud on behalf of long-term care facilities was recently settled. The case included sixty nursing homes receiving kickbacks. Four businesses were named as the defendants and all of them agreed to settle and pay the federal government $30 million.

The Legal Matter
The civil lawsuit was first filed in Minnesota. Assistant U.S. Attorney Chad Blumenfield in the state of Minnesota stated that RehabCare Group Inc. and RehabCare Group East Inc. have settled for $25 million. Health Systems Inc. of Sikeston, Missouri and Rehab Systems of Dexter, Mo., according to a recent article in the Sikeston Standard Democrat, have settled for $5 million. The article added that the case was moved to U.S. District Court in St. Louis, Mo.

Rehab Systems, Health Systems, and the sixty other nursing homes have a major owner named James Lincoln of Sikeston, Mo., according to court documents. Furthermore, Lincoln, along with his wife, are also named as president and secretary and board members of the four nursing homes. These findings are based upon court documents that were filed with the Missouri Secretary of State’s office.

Before it was purchased by Kindred Healthcare Inc. of Louisville, KY in 2011, RehabCare had been located in Clayton, Mo.

“The case was settled — not because of any liability, but to avoid any further cost of litigation. If we went to trial, we were confident we could have won the case,” explained St. Louis-based attorney Scott Hinkle who represents Health Systems.

Susan Moss, who spoke as a representative of Kindred Healthcare, explained to the St. Louis Post Dispatch, “As part of this agreement, RehabCare denies all liability, but is pleased to have reached a compromise that allows all parties to put this issue behind them. In Kindred’s previous SEC (Securities Exchange Commission) filings, this matter had been disclosed and the company had set aside appropriate reserves.”

The lawsuit alleges that Rehab Systems of Missouri provided rehab services until 2006 in an almost exclusive manner to nearly all of the nursing homes owned by James Lincoln. Furthermore, Rehab Systems of Missouri was not only owned by James Lincoln, but by his son, Jimmy Lincoln, as well as Tom Hudspeth, who was the company’s chief operating officer.

In early 2006, Rehab Systems and RehabCare created a five-year subcontract partnership that allowed RehabCare to offer therapy at the nursing homes. In so doing, RehabCare committed to paying Rehab System a single payment of roughly $600,000 as well as a small percentage of around 10 percent of the profits from the services provided.

“After the agreement was entered into, Rehab Systems essentially ceased operations except for collecting its profit under the terms of the agreement. That profit, according to the government, has exceeded $10 million,” U.S. District Judge Audrey Fleissig explained in a memorandum and order which denied Rehab Care’s motion for a summary judgment.

The defendants, however, insist that their business interactions complied with federal regulations and that the subcontracting agreement was valid.