Gentiva to Pay $6.5 Million to Settle Stock Fraud Claims
Gentiva Health Services last week approved a $6.5 million settlement stemming from a class action lawsuit filed by investors who claimed to have been harmed by a securities fraud scheme.
In November 2010, a former named plaintiff in the case filed a securities fraud class action on behalf of investors who purchased publicly-traded securities of Atlanta-based home health provider Gentiva Health Services between July 31, 2008 and July 20, 2010.
The lawsuit alleged that Gentiva artificially inflated its stock price through a scheme that involved ordering unnecessary medical care for its clients and then billing Medicare for reimbursement for these expenses.
When these allegations were brought to light, one of the plaintiffs claimed the company’s stock “dropped precipitously,” causing harm among those who bought the stock at its higher price, according to court documents.
The class action was filed against Gentiva and three of its executives, including former Chief Executive Officer Ronald A. Malone (June 2002 to December 2008); H. Anthony Strange, who served as Gentiva’s CEO from January 2009 until the company’s merger with Kindred Healthcare, Inc. (NYSE: KND); and John R. Potapchuck, who served as the company’s chief financial officer and treasurer until May 2010.
The settlement would bring to a close the remaining claims in the action, after a federal judge dismissed the majority of allegations in June 2014. The claims were problematic in large part because they were too vague, the judge ruled.
The plaintiff’s complaint is largely based upon interviews with former Gentiva employees, including clinicians and managers—whose allegations appear in court documents as those of “confidential witnesses.”
These former employees, according to the plaintiff’s allegations, described how Gentiva executives applied pressure on company-employed clinicians and managers—through periodically scheduled and ad hoc meetings, emails and conference calls—to violate Medicare rules in order to increase payments.
At the forefront of alleged practices listed in the court documents were claims that Gentiva provided medically unnecessary visits to patients in order to hit certain Medicare thresholds required to receive bonus payments—”hitting the magic numbers,” as one former employee noted—as well as claims that the company manipulated OASIS forms to increase reimbursement.
One former employee named in the court filings was a nurse who worked at Gentiva’s Binghamton, N.Y. branch from January 2009 through August 2011. This person, whose identity was withheld, alleged that his/her supervisor, Gentiva’s Area Director of Clinical Operations, would ask him/her to improperly modify OASIS forms in a way that would result in medically unnecessary services being provided to patients in order to increase Medicare revenue.
Additionally, this witness also claimed the supervisor would press clinicians to push for enough visits to patients to hit the next-highest enhanced Medicare payment threshold, regardless of the patients’ needs or desires for such treatment.
Other purported illegal activity from various unnamed former employees referenced in the court documents alleged facing similar “threshold pressure” at Gentiva branch offices in Las Vegas, Albuquerque, N. M. and Binghamton, N.Y.
The settlement, which was reached after extensive litigation and prolonged negotiations, is subject to court approval. If approved, the settlement will resolve all claims in the action, with the $6.5 million in cash deposited into an interest-bearing escrow account to be distributed among all Class members who submit valid Proofs of Claim.
Written by Jason Oliva