In 2008 two former employees in separate cases filed whistle-blower lawsuits alleging that Life Care Centers of America was providing excessive therapies to Medicare patients to increase reimbursements.
Glenda Martin, a registered nurse and former staff development coordinator at the company's Morristown location, and Tammie Taylor, a former occupational therapist at the company's Lauderhill, Fla., site, are listed as the whistleblowers in the case.
Both lawsuits have been consolidated and had remained sealed with closed hearings until the Chattanooga Times Free Press requested the files and hearings be opened in September. U.S. District Judge Harry S. "Sandy" Mattice agreed to open the case in November.
Life Care has more than 200 facilities in 28 states with 38,000 employees and $2.69 billion in annual revenue, according to a 2011 Forbes.com report.
From 2006 until 2011 the company received $4.2 billion in Medicare reimbursements, according to court documents.
Source: Federal court documents
Federal prosecutors allege that a widespread Medicare fraud scheme at Life Care Centers of America began at the highest levels of the corporate hierarchy and that employees who complained about possibly illegal practices were "ignored," "chastised," "punished" or fired.
Recently unsealed court records in an ongoing whistle-blower lawsuit against the Cleveland, Tenn.-based company reveal claims that the company founder and sole shareholder, Forrest Preston, forbade his own compliance department from conducting unannounced inspections at facilities.
Prosecutors claim that former Chief Operating Officer Cathy Murray circumvented the department's responses to employee complaints while she "aggressively drove the company's push for increased Medicare revenue."
"As [Murray] frequently told her employees, 'their job was to make money for Forrest Preston,'" according to court documents.
Murray could not be reached for comment Friday.
If found guilty on the fraud charges, Life Care could face fines in the hundreds of millions of dollars. Each fraudulent report carries a $5,000 to $11,000 fine, and prosecutors have asked the judge to triple the damages.
Company representatives have declined to comment on the allegations and referred questions to a Nov. 30 letter issued after the lawsuit became public.
"Contrary to the government's allegations, Life Care's therapy programs improve patients' conditions and their quality of life," the statement reads. "This belief is supported by medical literature, studies, and Life Care's first-hand experience in observing the progress of patients who receive high-intensity therapy."
Life Care is the nation's largest private nursing home company with more than 200 facilities in 28 states. From 2006 to 2011 Life Care received $4.2 billion in Medicare reimbursements.
Joe Carcello, director of research for the University of Tennessee's Corporate Governance Center, said management practices for private health care companies are similar to other for-profits but differ in some important ways.
Carcello likened increasing revenues for many businesses to someone shopping at the mall. A salesperson at a clothing store may sell a customer more clothes than he or she needs, but there's no ethical obligation on the staff -- the customers are responsible for their purchasing decisions.
Not so with Medicare.
"The payer for this is not the patient; the payer for this is the federal government," Carcello said. "In health care there are ethical obligations established by medical ethics embedded in state law and medical licensing codes that require medical care to be performed in the best interest of the patient."
In 2005, Preston, Murray and Michael Reams, senior vice president of Rehabilitation Services, formed the "Rehabilitation Opportunity Committee" to increase Medicare revenues through higher therapy treatment levels and more days spent in their facilities, according to court documents.
Medicare reimburses therapies for patients in the first 100 days of care at five levels. Ultra High is the highest level and can pay a provider as much as $564. The lowest rate of therapy pays $231.
Prosecutors allege that companywide fraud began as early as 2006 and persisted until at least 2011. By 2008 Life Care was billing 68 percent of its Medicare therapies at the Ultra High level, nearly twice the national average of 35 percent, according to court documents.
"Life Care set both these targets based solely on financial considerations and not on the individualized medical needs of its Medicare beneficiaries," prosecutors allege.
Reams directed regional managers to increase therapy rates and length of stay among the 29 regions he directed across the country, prosecutors say. Those directors oversaw therapy managers at individual facilities.
At each facility a therapy team, with workers trained in physical, occupational and speech therapy, provided the care for patients.
Facilities that did not have the rates corporate headquarters wanted were labeled "focus facilities" and began receiving quarterly visits from Reams' staff, monthly visits from divisional rehabilitation directors and weekly visits from regional rehabilitation directors.
Prosecutors say the regional rehabilitation directors told therapists to assign patients to the Ultra High level of therapy "regardless of diagnosis, physical ability or current health status."
The directors set the number of therapy minutes "sometimes over the express objections and recommendations of therapists. And directors pushed therapists to approach patients seven to eight times a day to meet the number of assigned minutes."
"Life Care employees viewed the program as an artificial means of extending a patient's length of stay," according to court documents.
Those who complained on the company's hotline sometimes faced retaliation.
"Although Life Care received numerous complaints from both inside and outside the company that its corporate pressure to meet Ultra High targets was undermining the clinical judgment of its therapists at the expense of nursing home patients, Life Care largely ignored those complaints or else chastised or punished those who complained," prosecutors allege.
Prosecutors claim that of those who gave their names in hotline complaints, 57 percent were fired within three weeks of making the complaint.
Carcello said going after employees who complained ran counter to the goals of the hotline and "speaks volumes about the mindset of senior management" of a company.
"Investigations frequently focused more on rooting out the complainant than investigating or addressing the problem identified in the complaint," prosecutors allege.
Rather than the compliance department investigating complaints, "the very Life Care employees responsible" for therapy targets and pressure, including Reams, conducted the investigations.
Carcello said, if true, not allowing compliance staff to conduct investigations is "extremely poor practice." He said that and not allowing unannounced inspections were "massive red flags."
"If you're told you can't look at something, often it means that you can't look at it because there's something to hide," Carcello said.
Other division heads frustrated and interfered with compliance department investigations, impeded access to data and pressured the department to close complaint cases, prosecutors say.
There are advantages and disadvantages to running a private company, Carcello said. With a private company such as Life Care decisions can be made more quickly, often more efficiently and outside of public scrutiny, especially media attention.
But public companies provide an advantage with a system of checks and balances. The board is usually made up of outsiders, and independent audit or compliance departments that report to the board are not as easily subject to pressures from other departments, he said.
"The process is designed to mitigate that risk because the people on the boards, audit committees, independent directors have a lot to lose if there's a fraud," he said.
Some employees left the company rather than continue to work under the corporate pressure of increased therapies with questionable medical necessity, court documents show.
In May 2007 the rehabilitation manager of the Life Care center in Estero, Fla., quit her job and filed an email detailing her reasons for leaving.
"The therapists know what the patients can tolerate," she wrote. "Anyone who looks solely on the sheets and minutes has no idea why minutes are being missed.
"A patient could be sick or dying. Let me give an example of Mrs. S who we were made to put into a [therapy] category even after therapists who treated her told me she could not tolerate that level. She expired last Friday ... in front of the building while being taken to the doctor. I wonder if we had anything to do with hastening that process along," she wrote.
The entire Estero staff signed a letter sent to Reams that supported the director:
"Recently the financial goals of Life Care appear to have overshadowed the importance of complying with Life Care's own policy," the staff wrote.
A rehabilitation contractor at the company's Yuma, Ariz., facility terminated its contract because the contractor "believed that Life Care was asking therapists to provide unnecessary rehabilitation therapy designed primarily to increase Life Care revenue rather than meet patient needs," according to court documents.