The Rise of the Worthless Services Theory in Federal False Claims Act (Whistleblower) Cases – A Look to the Future

The theory of “worthless services” has yet again been tried by whistleblowers in the federal False Claims Act context, this time resulting in a large settlement with the federal government.  We saw this argument made previously in Ashber v. Momence, which we discussed in a prior article here.  Now, Extendicare Health Services Inc., and its subsidiary Progressive Step Corporation (collectively “the Defendants”), have agreed to settle two federal False Claim Act (whistleblower or qui tam) actions for $38 million. 

The first qui tam action was filed by Tracy Lovvorn, an employee of the Defendants, in 2010 in the Eastern District of Pennsylvania (see United States ex rel. Lovvorn v. EHSI, et. al., C.A. 10-1580 (E.D.P.A.)).   She alleged that the Defendants violated the False Claims Act by “(1) ramping up the amount of rehabilitation therapy provided to Medicare Part A and Medicaid patients during payer ‘assessment periods’ to get payments for levels of service that were not warranted or provided; (2) ramping down the rehabilitation therapy provided outside the assessment periods, resulting in the denial of medically necessary services that were paid for by Medicare; (3) denying medically necessary services to patients covered by Medicare managed care plans; (4) upcoding the Rehabilitation Utilization Group (“RUG”) classifications for Medicaid patients; and (5) denying medically necessary services to Medicaid patients.” (See the complaint here).  The complaint further alleges that the scheduling of the services “misrepresents their frequency” resulting in Medicare being billed for services that are actually not provided as well as billing for ADL services that were not provided.  Id.  Lovvorn also provided emails and specifics regarding patients including emails that specifically captured the ramping up and down of rehabilitation services and the financial impact that would have on the company.  (Complaint p. 32).

Donald M. Gallick was the other relator (whistleblower) who filed a qui tam action in 2013 in the Southern District of Ohio against Extendicare (see U.S. ex rel. Gallick et al. v. EHSI et. al, C.A. 2:13-cv-092 (S.D. Ohio).    Gallick was the son of a patient of the Defendants.  The complaint in this case alleged that medical care was provided for patients that was neither reasonable nor necessary and that the Defendants billed for these unnecessary services.

In resolving these two qui tam actions, the U.S. Department of Justice, the U.S. Department of Health and Human Services, and Attorneys General in eight states entered into a settlement agreement with Extendicare and its subsidiaries. (Settlement Here).  The Settlement Agreement resolves allegations that Extendicare submitted false claims from 2007 to 2013 in thirty-three Extendicare nursing facilities due to payment for worthless services and payment for medically unnecessary and unreasonable rehabilitation therapy services. Id.  As part of the Settlement Agreement, Extendicare has also entered into a Corporate Integrity Agreement with HHS OIG.  The Corporate Integrity Agreement requires Extendicare to implement a compliance program.  (Extendicare Press Release).

The Department of Justice made clear in its press release for the settlement that similar cases will be pursued stating, “Operators who bill Medicare and Medicaid while failing to provide essential services or bill for services so grossly substandard as to be effectively worthless will be pursued for false claims.” (DOJ Press Release).  A such, it looks to be just the beginning of the USDOJ embracing whistleblower actions alleging worthless services.  It will be interesting to see if the cases proceed to trial and what standard is applied in assessing what constitutes worthless services.  We will continue to report on development as they occur.

For more information, please contact the author, Danielle Holley.  She can be reached at (518) 462 – 5601 or via email at dholley@oalaw.com.


Danielle Holley

About Danielle Holley

Danielle is an associate with our Health Law department. Danielle is involved in representing and advising a broad spectrum of health care and social service provider clients in civil litigation, transactional work, fraud and abuse, HIPAA, compliance and other regulatory and general business matters. Danielle has experience in, among other areas, state and federal regulatory compliance, fraud and abuse, general civil litigation, guardianship and administrative hearings. Danielle also has clinical ethics experience and advises clients on the ethical and legal requirements related to health care delivery.