HEALTHSOUTH TO PAY UNITED STATES $325 MILLION
TO RESOLVE MEDICARE FRAUD ALLEGATIONS

WASHINGTON, D.C. - HealthSouth Corporation, the nation's largest provider of rehabilitative medicine services, has agreed to pay the United States $325 million to settle allegations that the company defrauded Medicare and other federal healthcare programs, the Department of Justice announced today.

“Health care fraud impacts every American citizen. When a company defrauds our nation's health care programs, it steals from the American taxpayers,” said Assistant Attorney General Peter Keisler, head of the Justice Department’s Civil Division. “HealthSouth's fraud on Medicare was driven both by longstanding business practices in its outpatient physical therapy business and improprieties in its inpatient rehabilitation business.”

The allegations involving the outpatient therapy services were the subject of a federal lawsuit in San Antonio, Texas. “Today’s settlement should send a strong message that the government will be persistent in pursuing those who engage in fraud and making sure that they pay a high price for their misdeeds,” stated United States Attorney Johnny Sutton in San Antonio, Texas.

Under today's agreement, HealthSouth will pay $325 million to resolve a range of allegations involving outpatient physical therapy services and inpatient rehabilitation admissions.

• $169 million to resolve allegations that HealthSouth submitted claims for reimbursement for outpatient physical therapy services to Medicare, the Department of Defense TRICARE program, or the Department of Labor Federal Employees' Compensation Act program that lacked a properly certified plan of care, that were rendered by persons other than licensed physical therapists, or that were billed as one-on-one services when one-on-one services were not provided.
• $89 million to resolve claims that HealthSouth submitted to Medicare for reimbursement on its hospital cost reports and home office cost statements a range of unallowable costs, and that HealthSouth submitted to Medicare improper claims for individual inpatient discharges. The unallowable costs included lavish entertainment and certain travel costs for HealthSouth's annual administrators' meeting at Disney World, and certain board of director fees, public information expenses, tax penalty expenses, and "favorable lease" claims related to rehabilitation facilities acquired from National Medical Enterprises and NovaCare. The improper claims for individual patient discharges involved false claims for Medicare outlier payments - intended to pay only for extraordinarily costly patients - for 11 inpatient facilities acquired by HealthSouth and claims for Doctor's Hospital Arthritis Unit admissions that were medically unnecessary.
• $65 million to resolve claims that HealthSouth submitted to Medicare for reimbursement on its hospital cost reports and home office cost statements for a range of unallowable costs.
• $1 million to resolve allegations that several skilled nursing facilities owned by HealthSouth from November 1997 through January 1998 unlawfully billed to Medicare the costs of skilled labor for infusion therapy services as "ancillary services" to avoid routine limits on Medicare payments for skilled labor at skilled-nursing facilities.
• $736,410 to resolve allegations that HealthSouth and its subsidiary, HealthSouth Bakersfield Rehabilitation Hospital sought reimbursement for various categories of unallowable costs on 1991 and 1992 Bakersfield Rehabilitation Hospital cost reports.

Some of the civil issues resolved as part of today's settlement resolve allegations in lawsuits filed by relators, commonly known as "whistleblowers," under the False Claims Act. This law allows a relator who qualifies under the statute to receive a share of the settlement proceeds recovered in that lawsuit. Today's settlement resolves claims brought by relators in United States ex rel. James Devage v. HealthSouth Corporation, et al., (W.D. Tex.); United States ex rel. Manning v. HealthSouth Corporation, (W.D. Tex.); and United States ex rel. Brupbacher & Associates and Michael C. Freeman v. National Institutional Pharmacy Services, Inc., (D. N.Mex.). As the relator's award, James Devage will receive $8,139,498, DeWayne Manning will receive $4,069,749, and Brupbacher Associates and Micahel Freeman will share $150,000.

As part of today's agreement, HealthSouth entered into a Corporate Integrity Agreement (CIA) with the United States Department of Health and Human Services, Office of Inspector General, requiring the company to engage in significant compliance efforts over the next five years. Among other provisions, the CIA requires HealthSouth to engage independent review organizations to review the accuracy of the company's claims for inpatient and outpatient rehabilitation therapy furnished to Medicare beneficiaries.

Under a separate administrative agreement also executed today, HealthSouth and the Centers for Medicare & Medicaid Services agreed to a withdrawal of all pending administrative appeals and related federal court cases, and the administrative closure of all Medicare cost reports through December 31, 2003.

The investigation and resolution of these matters was achieved by the Department of Justice, Civil Division, Commercial Litigation Branch; the United States Attorneys' Offices for the Northern District of Alabama, the Western District of Texas, the Central District of California, the District of New Mexico and the Southern District of New York; the Department of Health and Human Services, Office of Inspector General and Office of Counsel to the Inspector General; the Department of Health and Human Services, Office of General Counsel (CMS Division); and the outstanding investigative efforts of the Department of Health and Human Services, Office of Inspector General, Atlanta Region (Birmingham Office).

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