Nursing home fraud schemes: Forensic accounting lessons from litigation

ABSTRACT

The potentially high payoffs from nursing home fraud continues to be a temptation for those associated with nursing homes. In Blythe and Goodpasture [2], some of the more egregious examples of Medicare fraud were in the nursing home environment. Accordingly, the objectives of this study are to: (1) analyze forty of the most significant appellate cases of nursing home fraud that were decided by the eleven circuits of the United States Court of Appeals during the past forty years; (2) determine the crimes for which nursing home fraudsters are most often prosecuted; (3) identify which types of persons and organizations most commonly engage in nursing home fraud; (4) ascertain the most prevalent types of nursing home fraud schemes; (5) determine the sentences ordinarily meted out to those convicted of nursing home fraud; and (6) consider some important accounting and auditing issues pertaining to nursing home fraud.

KEYWORDS:

• Nursing homes
• fraud schemes
• forensic accounting
• litigation
• Medicare fraud

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Another statute that may be applicable is the Racketeer Influenced and Corrupt Organizations Act (‘RICO’), 18 U.S.C. ss 1961-1968. In one case, a nursing home was sued under RICO for systemically defrauding the nursing home residents with a classic bait and switch scheme. The nursing home mailed contracts and bills to residents, actions which allegedly amounted to mail fraud. However, plaintiff was unable to prove a pattern of racketeering activity. Corley v. Rosewood Care Center, Inc., 388 F.3rd 990 (7th Cir. 2004).

2 United States v. Houser, 754 F.3rd 1335 (11th Cir. 2014).

3 United States v. Kirschenbaum, 156 F.3rd 784 (7th Cir. 1998).

4 United States v. Bolden, 325 F.3rd 471 (4th Cir. 2003).

5 United States v. Kallen-Zury, No. 13–14144 (11th Cir. 2015).

6 United States v. Peterson, 488 F.2nd 645 (5th Cir. 1974); and United States v. Peterson, 508 F.2nd 45 (5th Cir. 1975). See also United States v. Aquavella, 615 F.2nd 12 (2nd Cir. 1980), in which two physicians owned the Glen Oaks Nursing Home and were convicted of billing for excess Medicare payments for nursing home services in the amount of $250,000.

7 United States v. Edgewood Health Care Center, Inc., 608 F.2nd 13 (1st Cir. 1979).

8 20 C.F.R. s 405.427(b)(3).

9 Fairfax Hospital Ass’n. v. Califano, 585 F.2nd 602 (4th Cir. 1978).

10 United States v. White, 492 F.3rd 380 (6th Cir. 2007).

11 31 U.S.C. S 3729(a)(1)(A).

12 United States ex rel. Bogina v. Medline Industries. Inc., 809 F.3d 365 (7th Cir. 2016). See also United States v. Job, No. 09–50054 (5th Cir. 2010), in which defendants Georgio Job and Dr. James Anthony were convicted of conspiracy to violate, and for violating, the Medicare Anti-Kickback Statute. A network of nursing home workers were paid to identify patients entitled to Medicare benefits that could use a wheelchair. For almost all of the patients identified, Dr. Anthony would prescribe the necessity to buy a power wheelchair and Job would sell the wheelchair to the patient and bill Medicare for it. For another nursing home kickback case, this one involving Medicaid payments, see United States v. J. Health Care Center, Inc., 819 F.2nd 1139 (4th Cir. 1987).

13 18 U.S.C. S 666.

14 United States v. VanMeter, 278 F.3d 1156 (10th Cir. 2002).

15 State of Ohio v. Madeline Marie Nursing Homes, 694 F.2nd 449 (6th Cir.1982); State of Ohio v. Collins, 694 F.2nd 433 (6th Cir. 1982); In re Madeline Marie Nursing Homes, 694 F.2nd 528 (6th Cir. 1982). In another case, the government determined that a nursing home was not in substantial compliance with the Medicare program participation requirements, and that conditions in its facility constituted an immediate jeopardy to residents’ health and safety. After the nursing home filed for bankruptcy, the bankruptcy court assumed authority over Medicare and Medicaid provider agreements as part of the debtor’s estate, enjoined the government from terminating the provider agreements, determined that the debtor was qualified to participate in the provider agreements, required the government to maintain the stream of monetary benefit under the agreements, and reorganized the debtor’s estate. The government appealed the bankruptcy court’s order. The district court and the court of appeals decided that the bankruptcy court does not have jurisdiction over Medicare claims and overturned the bankruptcy court’s order. Florida Agency for Health Care Administration v. Bayou Shores SNF, LLC, 828 F.3rd 1297 (11th Cir. 2016). In still another case, the Park Crescent Nursing Home in New York City entered into a plea agreement after being indicted for submitting false Medicaid claims. Park Crescent agreed to pay $2.5 million to the State of New York and secured the debt by assigning its real property, including its large nursing home facility, to the State of New York. Whereupon, Park Crescent filed for bankruptcy. The bankruptcy court took jurisdiction over the secured real property and approved an arrangement which modified the rights of creditors holding debts secured by that real property. The other creditors disagreed with the bankruptcy court’s modification of their rights in the real property and filed an appeal of the bankruptcy court’s order. The district court and the court of appeals focused on the issue of whether the debtor nursing home is the ‘legal or equitable owner’ of that real property within the meaning of Chapter XII of the Bankruptcy Act, which permits a debtor owning such an interest to invoke the jurisdiction of the bankruptcy court for the purpose of arriving at a court-approved arrangement modifying the rights of creditors holding debts secured by the debtor’s interest. Both courts decided that the debtor does have such an interest and that the bankruptcy judge’s order which modified the creditors’ rights is enforceable. Chase Manhattan Mortgage and Realty Trust, 585 F.2nd 1171 (2nd Cir. 1978).

16 United States v. Pisani, 646 F.2nd 83 (3rd Cir. 1981).

17 Parkridge Hospital, Inc. v. Califano, 625 F. 2d 719 (6th Cir. 1980).

18 42 U.S.C. s 3951.

19 Balko d/b/a Senior Healthcare Associates v. Secretary, U.S. Department of Health and Human Services, No. 13–1568 (3rd Cir. 2014).

20 ‘Medicare Modernization Act,’ 42 U.S.C. ss 1395kk-1, 1395ddd.

21 Deerbrook Pavilion, L.L.C. v. Shalala, 235 F.3d 1100 (8th Cir. 2000).

22 Good Luck Nursing Home, Inc. v. Harris, Sec. of Health, Education and Welfare, 636 F.2nd 572 (D.C. Cir. 1980).

23 Zurich American Ins. Co. v. O’Hara Regional Center for Rehabilitation 529 F.3rd 916 (10th Cir. 2008).

24 United States v. Hughes House Nursing Home, Inc. 710 F.2nd 891 (1st Cir. 1983).

25 Lee and Denver Nursing Home, Inc. v. Mihalich, 847 F.2nd 66 (3rd Cir. 1988).

Additional information

Notes on contributors

Stephen Blythe

Dr. Stephen Blythe is Associate Professor of Accounting and Business Law at Tarleton State University in Stephenville, Texas. He holds a B.S. in Public Administration and a Ph.D. in Business Administration from the University of Arkansas, an M.B.A. from Arkansas State University, a J.D. in Law from Texas Southern University in Houston, an LL.M. in International Business Law from the University of Houston, an LL.M. in Computer Law from the University of Strathclyde (U.K.), and a Ph.D. in Computer Law from The University of Hong Kong (China). He is a licensed C.P.A. in Texas and a licensed Attorney at Law in Texas and Oklahoma.

James Earl Goodpasture

Dr. James E. Goodpasture is currently an Assistant Professor of Accounting at Tarleton State University. He holds a PhD in Accounting from Florida State University, a Masters of Public Accountancy from University of Texas at San Antonio, a Bachelor of Science in Nursing from the University of Texas School of Nursing at San Antonio. He also has a B.S in Biology from Stanford University. He has over twenty years of teaching and research experience.