Skilled nursing facility operator settles false claims case involving allegations that the company failed to report and return overpayments

On June 29, 2021, the Department of Justice (DOJ) announced a settlement with California skilled nursing facility operator Plum Healthcare Group LLC and facility Azalea Holdings LLC dba McKinley Park Care Center (Plum) to resolve allegations that Plum violated the False Claims Act. The settlement resolves Plum’s liability in a qui tam lawsuit filed by a whistleblower who had previously served as Area Rehabilitation Manager for Plum. In the amended complaint, the whistleblower alleged that a Plum employee had knowingly created billing records for services not actually provided by inflating the number of minutes of therapy services patients received in order to bill Medicare and Medicaid at the higher “rehab ultra rate” of payment. The whistleblower alleged that she discovered the fraudulent billing practice and reported her concerns to her superiors and requested a chart audit to determine the extent of the fraudulent billings.

According to the settlement agreement, “[a]fter being informed of the scope of the [overpayments, Plum] failed to conduct an adequate investigation.” The settlement agreement further states that Plum “conducted an audit of medical records covering a limited period, which did not encompass the full period during which the employee had created the false billing records” and then “submitted a refund to Medicaid based on less than the full period of misconduct, and without disclosing that the [overpayments] resulted from the conduct described above.” Plum agreed to pay $451,439 to resolve the allegations and settle the lawsuit, of which the whistleblower will receive $90,287.80 as her share of the settlement.

Section 6402(a) of the Affordable Care Act (ACA) established section 1128J(d) of the Social Security Act (Act), which requires a person who has received an overpayment to report and return the overpayment to the secretary, the state, an intermediary, a carrier or a contractor as appropriate at the correct address, and to notify the Secretary, state, intermediary, carrier or contractor to whom the overpayment was returned in writing of the reason for the overpayment. Section 1128J(d)(2) of the Act requires, in most cases, that the overpayment be reported and returned no later than 60 days after the overpayment is identified. For purposes of Medicare Part A and Part B, what it means to have “identified” an overpayment is defined in the Final Rule CMS published in early 2016. Any overpayment retained by a person after the deadline for reporting and returning an overpayment is an “obligation” that can form the basis for false claims liability under the reverse false claims provision of the federal False Claims Act.   

While the settlement amount in this case is not particularly high, the case is significant in that it is based on the 60 day overpayment refund rule in the ACA. Plum’s failure to report and return the full overpayment amount to the Medicare program within 60 days of identifying the overpayment and its failure to notify the Medicare Administrative Contractor of the reason for the overpayment created the basis for the whistleblower’s and government’s false claims case against Plum.