Recent compliance enforcement actions provide good learning opportunity for practices.

By Paul J. Welk, PT, JD
June 2016

The last few months of 2015 and early 2016 were not an ideal time for the coverage of physical therapy compliance issues in the media. During an approximately four-month period, a number of enforcement examples were widely publicized, and the Department of Health and Human Services Office of the Inspector General (OIG) issued a report that detailed concerning tendencies in physical therapy billing in skilled nursing facilities (SNFs). This article will briefly summarize the OIG report and three key enforcement examples during this time period. The purpose of these summaries is not to set forth a detailed description of the alleged mistakes of others, but rather to provide an opportunity for readers to consider actions to be taken in their practices to avoid similar regulatory scrutiny.

In a September 2015 report entitled “The Medicare Payment System for Skilled Nursing Facilities Needs to be Reevaluated,” the OIG “found that Medicare payments for therapy greatly exceeded SNFs’ costs for therapy. [The OIG] also found that under the current payment system, SNFs increasingly billed for the highest level of therapy even though key beneficiary characteristics remained largely the same. Increases in SNF billing—particularly for the highest level of therapy—resulted in $1.1 billion in Medicare payments in (fiscal years) 2012 and 2013.” Based on these findings, the OIG recommended that the Centers for Medicare & Medicaid Services (CMS): (1) evaluate the extent to which Medicare payment rates for therapy should be reduced; (2) change the method for paying for therapy; (3) adjust Medicare payments to eliminate increases that are unrelated to beneficiary characteristics; and (4) strengthen overall oversight of SNF billing.1

Within a few months of the publication of the OIG’s report, two enforcement actions related to therapy services in SNFs received significant media attention. First, on December 18, 2015, the US Attorney’s Office, Eastern District of Louisiana, announced a $10.3 million settlement against a splint supplier and its founder to resolve allegations that they violated the False Claims Act by improperly billing Medicare for splints provided to patients in skilled nursing facilities.2 The allegations centered on misrepresentations that patients were in their homes or other places that were not skilled nursing facilities in an effort to circumvent applicable bundled payment rules. This particular case initiated with a whistleblower, a former sales executive, who is set to receive at least $1.89 million of the recovery amount in connection with the settlement.

On January 12, 2016, the US Department of Justice (DOJ) announced a $125 million settlement to resolve a lawsuit alleging that a contract therapy provider violated the False Claims Act by knowingly causing skilled nursing facilities to submit false claims to Medicare for rehabilitation therapy services that were not reasonable, necessary, and skilled, or that never occurred.3 The government alleged that the contract provider’s policies and procedures, including setting unrealistic financial goals and scheduling therapy to achieve the highest reimbursement levels, resulted in unreasonable, unnecessary services and artificially and improperly inflated bills. The government further alleged that the contract therapy provider’s initiatives presumably placed patients in the highest therapy reimbursement level, rather than considering the specific patient evaluation to determine the level of care; boosted the amount of therapy reported during reference periods; scheduled and reported therapy services despite the treating therapist’s recommendation for discharge; and reported estimated or rounded minutes instead of actual minutes for therapy provided. In addition to announcing the DOJ’s settlement with the contract rehab provider, on the same day the DOJ also announced settlements with four SNFs for their role in submitting false claims to Medicare based on the services provided by the contract provider. This settlement related to facilities in Massachusetts, New York, Pennsylvania, Texas, and Maryland. Of particular interest to members of the private practice community, this settlement stresses the compliance obligations placed on contract therapy providers, as illustrated by a comment in the DOJ’s press release which noted that “[all] providers, whether contractors or direct billers of taxpayer-funded federal healthcare programs will be held accountable when their actions cause false claims for unnecessary services.” It is also important to note that this settlement resulted in a payment of nearly $24 million to the whistleblowers, a physical therapist and occupational therapist who formerly worked for the contract therapy provider.4

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Finally, on December 23, 2015, the US Attorney’s Office, District of Delaware, announced a $710,000 settlement to resolve allegations of health care fraud under the False Claims Act by a three-clinic outpatient physical therapy practice.5 The settlement alleges that the private practice submitted claims to Medicare for physical therapy services performed by physical therapists and physical therapy assistants without the adequate supervision of a Medicare-enrolled physical therapist. In connection with the settlement, the practice and its parent company entered into a corporate integrity agreement6 with the Department of Health and Human Services Office of Inspector General.

Although these cases illustrate generally unwanted publicity for the physical therapy profession, the fact patterns and outcomes illumine a number of important issues for practices to consider on the compliance front. The compliance issues highlighted in these four documents include: (1) the fact that physical therapy services are clearly an area of concern for government regulators; (2) the importance of understanding payment rules and regulations, including those related to bundled payments, a payment methodology that will certainly become more prevalent on a going-forward basis; (3) the need to adequately address billing and compliance issues raised by employees and others in light of the potential financial benefits available to whistleblowers; (4) the need to adequately document the medical necessity of the services provided; (5) the fact that it is not only the billing provider that is subject to liability for compliance issues, but also the contracted service provider; (6) the importance of understanding conditions of payment; and (7) the importance that regulatory agencies place on a physical therapy provider having a compliance officer, compliance committee, written policies and procedures, adequate employee training programs, and other similar compliance best practices, as set forth in detail in the referenced Corporate Integrity Agreements. By considering these enforcement examples and identified issues, physical therapy private practices can better identify areas of compliance risk and take adequate steps to promote practice compliance. For those readers seeking further compliance guidance on these issues, in addition to the materials set forth in the footnotes, the Department of Health and Human Services, Office of Inspector General, publication entitled “OIG Compliance Program for Individual and Small Group Physician Practices”7 is an excellent resource.

Please note that this article is not intended to, and does not, serve as legal advice to the reader but is for general information purposes only.


1. The Medicare Payment System for Skilled Nursing Facilities Needs to be Reevaluated. The Department of Health and Human Services, Office of Inspector General (September 2015). Available at www.oig.hhs.gov/oei/reports/oei-02-13-00610.pdf. Accessed March 2, 2016.

2. Splint Supplier and Its President to Pay Over $10 Million to Resolve False Claims Act Allegations (December 18, 2015). Available at www.justice.gov/usao-edla/pr/splint-supplier-and-its-president-pay-over-10-million-resolve-false-claims-act. Accessed March 2, 2016.

3. The United States Department of Justice, Office of Public Affairs, Press Release (January 12, 2016). Available at https://www.justice.gov/opa/pr/nation-s-largest-nursing-home-therapy-provider-kindredrehabcare-pay-125-million-resolve-false. Accessed March 2, 2016.

4. Corporate Integrity Agreement between the Office of Inspector General of the Department of Health and Human Services and Rehab Care Group, Inc. and Kindred Health Care, Inc. (January 11, 2016). Available at http://oig.hhs.gov/fraud/cia/agreements/RehabCare_Group_Inc_and_Kindred_Healthcare_Inc_01112016.pdf. Accessed March 2, 2016.

5. Outpatient Physical Therapy Practice, Old Towne Physical Therapy, to pay $710,000 to Resolve False Claims Act Allegations, Press Release of the United States Attorney’s Office, District of Delaware (December 23, 2015). Available at https://www.justice.gov/usao-de/pr/outpatient-physical-therapy-practice-old-towne-physical-therapy-pay-710000-resolve-false. Accessed March 2, 2016.

6. Corporate Integrity Agreement between the Office of Inspector General of the Department of Health and Human Services and U.S. Physical Therapy, Inc. and Old Towne Physical Therapy Limited Partnership (December 21, 2015). Available at http://oig.hhs.gov/fraud/cia/agreements/Old_Towne_Physical_Therapy_Limited_Partnership_12212015.pdf. Accessed March 2, 2016.

7. OIG Compliance Program for Individual and Small Physician Practices (October 5, 2000). Available at http://oig.hhs.gov/authorities/docs/physician.pdf. Accessed March 2, 2016.


Paul J. Welk, PT, JD, is a Private Practice Section member and an attorney with Tucker Arensberg where he frequently advises physical therapy private practices in the areas of corporate and health care law. He can be reached at pwelk@tuckerlaw.com.

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