A record-breaking $175 million criminal fraud settlement reached last week between Beverly Enterprises and the federal government raised eyebrows in the provider community because of its size and the fact that it will force the company to sell part of its operations.
Under the settlement, Beverly's California subsidiary will plead guilty in U.S. District Court in San Francisco to one count of wire fraud and 10 counts of making false statements to the federal government. Beverly is accused of falsely billing Medicare by inflating nursing costs at 10 of its homes. The agreement includes a $5 million criminal fine and a $170 million civil settlement, the largest settlement ever paid by a nursing home company.
The settlement also requires Fort Smith, Ark.-based Beverly to sell the 10 homes that engaged in the false-billing practice or face Medicare exclusion for those homes. Five facilities in California, two homes in Kansas, and one each in Georgia, South Carolina and Washington will go on the block.
The idea of forced divestiture is rare but not new, said Stuart Gerson, a Washington-based healthcare lawyer. A 1994 settlement with National Medical Enterprises-a precursor company to Tenet Healthcare Corp.-"ended up as a forced divestment at the macro level" of the psychiatric hospital chain, he said. In Beverly's case, he said, "the government is saying, you have infected units, and the people who are running them may no longer run them."
The divestiture agreement gives HHS' inspector general's office veto power over potential buyers. The government may force the sale of any of Beverly's remaining 550 facilities if suitable buyers aren't found within four months for any of the 10 homes identified in the false-billing scheme .
Healthcare lawyers said they expect forced divestiture will become an increasingly common strategy in fraud cases.
"For nursing homes, this is a shot across the bow," signaling more stringent government penalties for fraud, said Gabe Imperato, a healthcare lawyer in Fort Lauderdale, Fla. Providers increasingly face civil actions for neglect and abuse, he said.
Recent criminal healthcare fraud settlements, such as the one reached in July 1999 with Melville, N.Y.-based Olsten Corp., have barred certain subsidiaries from participating in Medicare. But in Olsten's case, its excluded subsidiary had long ceased doing any substantial business.
HHS Inspector General June Gibbs Brown said the strategy was designed to punish the company, not patients.
"(We will) closely monitor (the divestiture) to assure that the residents are protected and that qualified operators are found to purchase the facilities," she said.