Encompass Health to Pay $48M to Settle False Claims Allegations

Encompass Health Corporation (NYSE: EHC) — the largest operator of in-patient rehabilitation facilities (IRFs) in the country, with a network of hundreds of home health and hospice locations to boot — has agreed to pay $48 million to resolve false claims allegations.

The Birmingham, Alabama-based company had previously disclosed the matter in its public filings since 2013 and accrued a loss contingency in the amount of the final settlement in its financial statements as of Dec. 31, 2018. The U.S. Department of Justice (DOJ) officially announced the news on Friday.

“This settlement demonstrates our commitment to ensuring that those who participate in federal health care programs follow the rules,” Jody Hunt, assistant attorney general for DOJ’s Civil Division, said in a statement. “Medicare and Medicaid providers who seek to profit inappropriately at the expense of taxpayers will be held accountable.”

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Broadly, Medicare and Medicaid use information about patients’ diagnoses to determine whether a facility is properly classified as an IRF, and to determine the level of reimbursement the facility is awarded for specific patients, according to DOJ.

In particular, the government’s case against Encompass Health alleged that starting in 2007, some of the company’s IRF employees falsely diagnosed patients with what they referred to as “disuse myopathy” when there was no clinical evidence for the diagnosis. Additionally, DOJ maintains, Encompass IRFs allegedly admitted patients who were not eligible for admission to an IRF because they were too sick or disabled to participate in or benefit from intensive in-patient therapy.

The settlement resolves allegations raised in three lawsuits filed by a former contract physician, a former director of therapy operations and a former medical director, all of whom worked at separate facilities. The lawsuits were filed under the whistleblower provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery.

Collectively, whistleblowers in the Encompass Health case will $12.4 million of the settlement amount.

Encompass Health denied any wrongdoing in its settlement and will not be subject to a corporate integrity agreement, according to the company. Mark Tarr, president and CEO of Encompass Health, described the allegations as “without merit.” 

“The evidence establishes that Encompass Health did nothing wrong,” Tarr said in a statement. “But to stop this interminable investigation and avoid further expense, we decided it is in the best interests of Encompass Health and its shareholders to settle with DOJ and end the related litigation.”

The settlement does not involve Encompass Health’s expansive home health or hospice operations. Currently, the company’s footprint includes 221 home health locations and 59 hospice locations throughout 37 states and Puerto Rico.

News of Encompass Health’s settlement came just days after the company announced it had made a minority investment in predictive analytics firm Medalogix to boost its operational efficiencies ahead of the Patient-Driven Groupings Model (PDGM).

Encompass Health’s stock value has been largely unaffected by the settlement news, which isn’t all too surprising.

During a fourth-quarter 2018 earnings call in April, analysts told investors that they should see the settlement as a “cost of doing business” with Medicare — and not an indication of corporate malfeasance.

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