Home Health Business Quarterly: Justice Department joins suit against HealthSouth

In late May, the Civil Division of the U.S. Department of Justice (DOJ) served HealthSouth Corp., of Birmingham, AL, with a complaint, intervening in a pending civil suit in Texas. The suit was filed by a HealthSouth patient under the False Claims Act, which essentially allows individuals to sue on behalf of the government.

The DOJ complaint maintains that the company, which provides outpatient surgery, imaging, and rehabilitation services, submitted false reimbursement claims to Medicare and other federal health care programs and benefit plans for physical therapy services provided at its outpatient rehabilitation centers.

According to the complaint, beginning in April 1992, HealthSouth "systematically" used aides and other support staff who were unqualified personnel to treat Medicare patients but billed the agency at rates for licensed therapists or assistants. The DOJ also claims that HealthSouth sought reimbursement for patients treated without properly certified care plans.

This is a "nuisance suit," HealthSouth says, which claims it has done nothing wrong and will vigorously defend itself. A spokesperson told The Wall Street Journal that using "extender" aides is a common, necessary practice to provide concurrent therapy, and that the aides are watched closely by licensed therapists.

"[HealthSouth’s] practices are consistent with accepted clinical standards and practices in physical therapy and with existing Medicare regulations," the company said in an 8-K filing with the Securities and Exchange Commission in June. It pointed out that the DOJ has withdrawn other notices of intervention in similar cases filed under the False Claims Act. For example, in early May, it withdrew an identical suit filed against HealthSouth in Alabama in January 2002.

The May 2002 complaint doesn’t specify damages, but analysts say the suit probably will not pose a serious financial concern for the company. "Given the uncertain timing and impact of the allegations," Standard & Poor’s ratings and outlook on the company, for instance, have not been affected, the company said.

Last year, HealthSouth settled another claim with the DOJ related to a False Claims Act suit filed by a former billing clerk at the company. The suit alleged HealthSouth overcharged Medicare and TRICARE for equipment and supplies bought from a company owned by relatives of HealthSouth’s CEO. In May 2001, the company agreed to pay about $8 million to settle the allegations and entered a corporate integrity agreement with the government.

HealthSouth has more than 2,000 facilities globally and is the largest provider of ambulatory surgery, diagnostic imaging, and rehabilitative services in the United States. According to the company, about 1% of annual revenue comes from Medicare reimbursement. The HealthSouth network includes rehabilitation hospitals and acute-care medical centers, as well as outpatient surgery, rehabilitation, occupational health, and diagnostic imaging centers.