HealthSouth has agreed to pay the U.S. government $325 million to settle numerous allegations that the company defrauded Medicare and other government health programs, the Justice...

Share story

WASHINGTON — HealthSouth has agreed to pay the U.S. government $325 million to settle numerous allegations that the company defrauded Medicare and other government health programs, the Justice Department announced yesterday.

“HealthSouth’s fraud on Medicare was driven both by long-standing business practices in its outpatient physical-therapy business and improprieties in its inpatient rehabilitation business,” said Assistant Attorney General Peter Keisler, head of the Justice Department’s civil division.

HealthSouth, based in Birmingham, Ala., is the nation’s largest provider of medical rehabilitation services and has been struggling to emerge from a criminal investigation into an alleged accounting fraud that inflated company earnings by some $2.6 billion. Seventeen people have been charged in that investigation, including the former chief executive officer, Richard Scrushy, whose trial is scheduled to begin next week.

Most Read Stories

Unlimited Digital Access. $1 for 4 weeks.

The settlement announced yesterday grew out of a lawsuit filed in San Antonio by several whistle-blowers under the federal False Claims Act. One of the whistle-blowers will receive $8.1 million of the settlement, with others receiving lesser amounts.

“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,” said U.S. Attorney Johnny Sutton of San Antonio.

In a statement, HealthSouth said it would pay $75 million initially and the rest quarterly over the next three years. The settlement has been taken into account in the company’s financial projections for the future, said Jay Grinney, president and chief executive officer.

“The resolution of this matter is an important step toward moving forward and resolving issues inherited by our new management team,” Grinney said. “HealthSouth’s new management team is dedicated to developing a corporate culture characterized by integrity, quality and compliance.”

Under the agreement, HealthSouth will pay:

• $169 million for improper reimbursement claims for outpatient physical-therapy services provided under Medicare, Defense Department or Labor Department programs.

• $89 million for unallowed costs HealthSouth included on its Medicare hospital cost reports and home-office cost statements. These include “lavish entertainment” and travel costs for an annual meeting at Walt Disney World in Florida, directors’ fees, tax-penalty expenses and false claims for payments reserved for “extraordinarily costly patients.”

• $65 million for other unallowable costs submitted to Medicare.

• $1.7 million for improper skilled-nursing costs billed to Medicare and unallowed costs submitted by a subsidiary in Bakersfield, Calif.