Published in Health Care

Battle Creek rehab hospital settles Medicare false claims case

BY Sunday, April 03, 2016 03:13pm

BATTLE CREEK — The former Southwest Regional Rehabilitation Center Inc. has settled claims that it improperly billed Medicare for care that was later ruled to be medically unnecessary.

The Battle Creek inpatient rehab hospital, which closed in December 2014, agreed last month to pay $125,000 to reimburse the federal government for four Medicare patients who received care there between 2012 and 2014.

The amount includes legal expenses and the cost to investigate the allegations, which were made by a medical director who worked at Southwest Regional for just 90 days and never had privileges to see patients.

The legal case came after the federal Centers for Medicare and Medicaid Services conducted an administrative medical review that questioned the necessity of the treatment that “a number of patients” received, said Assistant U.S. Attorney Adam Townshend.

The U.S. Department of Justice decided to intervene in the case based on the findings that some patients were referred and admitted to Southwest Regional with a diagnosis of “generalized debility” or general weakness, he said.

“What we found were a number of those diagnoses that just were not appropriate,” Townshend said. “The patients that we took issue with, in our opinion and in our expert’s opinion, did not have ‘generalized debility’ and therefore they were not appropriate to be admitted for intensive rehab.”

Those patients “could not have developed that condition in such a short period of time after being admitted to a hospital, or they simply didn’t have it,” he said. Instead, they had another condition such as anemia that caused their symptoms.

The settlement involved the four “most egregious” cases, Townshend said.


In settling the case, the rehab hospital admitted no wrongdoing or liability, Townshend said, adding that there did not appear to have been any willful wrongdoing on the part of the organization. The settlement also dismissed from the case any action against Mary Free Bed Rehabilitation Hospital in Grand Rapids, which operated the Battle Creek facility under a management contract during much of the period in question.

“There was nothing intentional. It was a mistake of some sort,” said James Hettinger, the board chairman of Southwest Regional. “Maybe another way to comment on it is one doctor’s praise is another doctor’s poison. You can pull these cases out and have two or three doctors look at them and they’ll all come up with different opinions.”

The case, in fact, illustrates how Medicare regularly questions acute-care rehab hospitals about how they handled a specific patient, typically well after the fact. 

Oftentimes, the matter comes down to differing opinions on the appropriate setting for the patient’s treatment, said Kevin Arnold, vice president of network development at Mary Free Bed Rehabilitation Hospital.

The federal agency for Medicare and Medicaid increasingly has been questioning inpatient rehab admissions, particularly for the kind of orthopedic cases involved in the Southwest Regional settlement, said Arnold, who was CEO at the Battle Creek facility from June 2012 to December 2014 under the management contract. 

“What it really comes down to is they found a few files where Southwest really believes those patients benefitted from care and (that they) were appropriate patients to bring in, and the government said, ‘Well, we can debate that with you,’” he said. “Rather than take on all the expense of trying the case and going that far, it was much more beneficial for us to say, ‘We’ll pay a small settlement and walk away from it.’”

While private insurers have a pre-admission process to assure a patient is approved for a rehab admission, Medicare does not, said Mary Free Bed CEO Kent Riddle. That leaves rehab hospitals in the position of having to defend admission decisions well after treating someone.

“This is a common, everyday thing that we deal with,” Riddle said. “They tell us what the standards are and then we interpret those standards and try to bring in patients that we think can benefit from our care — and those that we think Medicare will allow us to treat. Then they come back later and question, ‘We think maybe they could have been treated in a lesser environment’ like a nursing home or some other environment — and sometimes long after (the fact).”


The U.S. Attorney’s Office for the Western District of Michigan initially looked at 12 cases, then another six, and “in none of those cases did they find any willful wrongdoing,” Riddle said. “It really came down to ‘should you have brought these cases in or not.’”

Some of the patient cases occurred prior to Mary Free Bed’s involvement with Southwest Regional.

The case was handled as a civil matter, Townshend said. He described the violations of the False Claims Act as a “reckless disregard” that fell well short of “outright intent” or criminal actions. The federal government did not seek a fine.

Reckless disregard is a situation where “maybe you should have known better, you should have taken a harder look at these patients when they came in the door, but you didn’t and you admitted them and you billed Medicare,” Townshend said.

“That’s more of the type of case that we’re talking about,” he said. “Was there an intent to defraud? I don’t think I’d go quite as far as to say that, but certainly I think they should have known better.” 

The allegations came as Southwest Regional was losing patient volumes and posting losses following a change in Medicare reimbursement and referral policies five years earlier. The changes left the rehab hospital unable to treat certain patient groups such as people who had single-knee replacement surgery.

Facing insolvency, the hospital closed in December 2014.

Southwest Regional recorded a net loss of $2.28 million for 2014 on revenues of $7.53 million and $9.82 million in expenses, according to an annual financial report that tax-exempt organizations are required to file with the IRS. In the prior year, the hospital lost $646,655 on $11.09 million in revenues and $11.73 million in expenses.


Since it closed, the 43,298-square-foot, two-story facility that sits within an 8.54-acre site featuring a pond has been for sale for $6.8 million. The 2014 financial report lists tax-exempt bond liabilities of $6.71 million.

A potential sale to a Pennsylvania operator of rehab centers, Post Acute Medical LLC, fell through in December. In February, the City of Battle Creek signed a 120-day purchase option for the property for potential use as a police headquarters.

Any proceeds from a sale could go to pay the court settlement, Hettinger said. The organization agreed to the settlement to avoid the higher cost of litigation.

“Battling this in court would have taken more money than we didn’t already have,” Hettinger said.

The U.S. Attorney’s Office intends to file judgment liens on the property and assets to collect the settlement, although creditors would come first to receive payment, Townshend said.

While “it doesn’t make a whole lot of sense” in some instances to pursue a case where a defendant lacks the ability to pay, Southwest Regional “was important enough of a case to get the consent judgment,” Townshend said.

“Even though a defendant might not be able to pay, when we have concerns like this, we are going to pursue them,” he said. “We might not get anything, ultimately, but this sort of demonstrates that we do take this stuff seriously.” 

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