Government dropping fraud suit against nursing chain

Just one week after Justice Department lawyers argued that a national nursing-care provider had bilked Medicare out of millions of dollars in unnecessary services, government lawyers are now moving to drop their lawsuit entirely.

Toledo, Ohio-based HCR ManorCare, which operates more than 270 skilled nursing facilities across the country, was accused of abusing the Medicare rules to overbill the government, sometimes by putting frail and dying patients through arduous rehabilitation programs unnecessarily.

The lawsuit has been working its way through the courts since 2009. It was first filed by a whistleblower who worked for ManorCare; in 2015 the Justice Department stepped in and took over as lead plaintiff in the civil case.

Last month, the government's case took a severe blow when a federal magistrate ruled that the government's key witness could not testify. The judge, Teresa Carroll Buchanan, said the witness lied in a deposition and that government lawyers failed to turn over important documents to ManorCare's lawyers in a timely manner.

Buchanan called the government's case a "house of cards."

"I'm appalled, and I'm embarrassed. I'm ashamed that the Justice Department would rely on this kind of nonsense ... to get involved in a case and cost these defendants millions of dollars in legal fees," Buchanan said at an Oct. 27 hearing.

Nevertheless, government lawyers filed a brief on Nov. 2 seeking to salvage their case. In the brief, government lawyers said ManorCare had a corporate strategy "to game the Medicare system, by pressuring and manipulating its employees into providing thousands of hours of unnecessary and useless therapy, so that ManorCare could reap millions of dollars in improper reimbursements."

On Thursday, though, a hearing in the case was canceled after the government indicated it plans to drop the case. In court papers, the government says ManorCare will not ask the government to pay any of the company's legal fees. Buchanan had indicated she would consider sanctions against the government that could require paying Manor Care millions of dollars in legal fees if Manor Care requested it.

Federal law gives the government wide latitude to drop the case, even though it was initially brought by a private citizen. Jeffrey Downey, an attorney for the whistleblower, filed papers indicating his opposition to the government's plans. In a phone interview Thursday, he said the government's decision to walk away from the case reflects an underlying policy shift at the Justice Department in terms of how aggressively it pursues fraud cases.

"It's not because they didn't have a good case" that the government is giving up, he said.

He said while the evidence is strong, the government botched its preparation by relying so heavily on the single expert who was tossed from the case without having other experts qualified to testify.

The company issued a statement on Thursday saying it had been vindicated.

"We were confident that the lawsuit was unjust, and we resolved to vigorously defend ourselves in court," CEO Steve Cavanaugh said in the statement.

In court papers, the government cited statistics showing that ManorCare's billing practices reflected efforts to maximize dollars rather than serve patients. For example, when Medicare rules allowed separate billing for each patient in a group therapy session, 15 percent of company billings involved group therapy. That percentage dropped to well below 1 percent when Medicare tightened that policy.

ManorCare lawyers argued that the company did its best to comply with complicated Medicare rules. And they said the government had not identified a single therapist who would testify at trial that the company billed fraudulently.