The other shoe-a really big one- dropped for Vencor last week. The federal government entered claims in the long-term-care company's bankruptcy case totaling $1.3 billion for Medicare fraud and nonfraudulent overpayments.
When the long-term-care company filed for bankruptcy last September, it said it had $1.7 billion in assets. Because banks are first in the repayment queue, it's unclear how much of the unsecured claims the government will recover.
Regardless of the Vencor case, industry and government sources expect substantial government claims in other major nursing home bankruptcies (See chart, p. 12).
Of the government's claims in the Vencor case, $1 billion is based on allegations of Medicare fraud.
The U.S. Justice Department has joined at least 11 whistleblower lawsuits against the company. Originally filed under seal by former Vencor employees through the federal False Claims Act, those suits allege double-billing, overbilling, kickback payments and other fraudulent practices.
The government also claims it overpaid the Louisville, Ky.-based company $290 million in Medicare reimbursements since 1995. Last year Vencor agreed to repay $90 million to the government. The $74 million balance of that repayment is included in the government's overpayment claim.
Government claims of fraud and overpayment are likely to surface in at least three other nursing home bankruptcy cases.
Sun Healthcare Group, Mariner Post-Acute Network and Integrated Health Services have all said they are subjects of active government investigations.
In Sun's case, the government has joined one whistleblower lawsuit against the company and disclosed the existence of other lawsuits. Sun filed for bankruptcy protection in October.
Separately, Mariner has reported that its fiscal intermediary is re-examining cost reports for 1997 to 1999 after finding the government had overpaid the company by a total of $16.9 million in 1995 and 1996.
The government has until April to file its claims against Sun with the U.S. Bankruptcy Court in Wilmington, Del. It has until July for Mariner and IHS, both of which filed for bankruptcy protection earlier this year.
Despite the potential for large government claims, the government continues to be a major payer for Vencor, Sun, Mariner and IHS. Bankruptcy law generally bars creditors from reducing payments to bankrupt debtors to make up for alleged debts.
States where the companies do business are the other large payers. The majority of them have not made administrative claims against the companies in bankruptcy court, but instead have challenged the court's right to prevent them from recouping Medicaid overpayments.
Bankruptcy court Judge Mary Walrath has ruled against the states in the Sun case, setting a precedent for the other cases. The states have appealed the ruling while continuing to pay Medicaid bills. But they believe that the companies owe them thousands, if not millions, of dollars in overpayments, their attorney Caroline Brown said.
Vencor will most likely settle the federal government claims rather than pursue a lengthy legal battle, sources said. At a recent healthcare bankruptcy conference in Chicago, a lawyer for the company said the settlement could reach $800 million.
This week, the bankruptcy court will consider Vencor's motion to extend until May 16 its time to file a plan of reorganization.