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The Marketplace . . . . Political Influence . . . . Care. . . .Elkins
The many extracts on this page are from copyright material. They are reproduced here for educational purposes and to stimulate public debate about the provision of health care. I consider this to be "fair use" in the common interest. They should not be reproduced for commercial purposes.

Integrated Health Services and Fraud

Disclaimer:- The material is selective and not all inclusive. The extracts do not necessarily reflect the perspective of the original. Corporate denials and explanations have not been included. No claim is made that all of the matters referred to are true. The intention is to give the flavour of the material and an idea of the extent of the allegations. Can there be so much smoke without a large fire? This is a matter of public welfare and the interests of the pubic must be placed before those of the corporations.  


In the wild frenzy of the market, the excitement of financial success, and the accolade from market analysts, the values and norms of society were marginalised. They felt that they could do no wrong. Highly dysfunctional practices both in patient care and in financial dealings became the normal way of doing business. Success became the measure for legitimacy and senior staff who supported profitable practices became all powerful.

IHS has disclosed that it is being investigated by the government for fraud. Government have joined a whistle blower action which they do only if they are persuaded by the evidence. At this stage we do not have the volume of hard evidence which is available about Tenet/NME, Columbia/HCA, Vencor, Sun Healthcare, and Beverly. The allegations are similar.

This page examines some of the material relating to fraud as it abuts on the actions of IHS.

COMMENT:- IHS has bought a company guilty of defrauding Medicare. Usually convictions like this are followed by insurers who show that they have been defrauded by the same practices.

Modern Healthcare May 18, 1998 Page 28 News

So far Integrated Health Services has been lucky. The Owings Mills, Md.-based post-acute-care company said it hasn't been contacted about any civil actions related to RoTech Medical Corp. IHS acquired the Orlando, Fla.-based home respiratory services provider last year, just a few months after RoTech reached a $612,500 fraud settlement with the government.

Comment:- Like Sun and Vencor , IHS suddenly sacks thousands. Either people were receiving care which they did not need when it was profitable or people are not getting the care they need now because it is no longer profitable. The patient's have not changed but there has been a dramatic change in the care they are being given. In both cases this is fraud at the expense of trusting people who do not realise that they are being exploited. There are several references to this and they are included on the page dealing with care.

Integrated Health Services Announces Fourth Quarter Expectations
PR Newswire February 11, 1999

The company has eliminated 1,000 positions and expects further reductions. More detailed information will be available at the time of the company's formal release of year-end results, in March 1999.

Justice Dept. Probing IHS Unit
The Washington Post September 2, 1999, Thursday, Final Edition

Integrated Health Services Inc. said yesterday that the Department of Justice is investigating activities of a medical testing subsidiary in Florida.

The Owings Mills, Md. -based company said in a statement that it was "cooperating fully" with the investigation, which it said involves a subsidiary that provides tests of a patient's swallowing function.

Company officials were not immediately available for further details or comment. Trading of company shares was briefly halted on the New York Stock Exchange after the statement's release.
After trading was resumed, shares closed yesterday at $ 2.81 1/4, down 25 cents.

COMMENT:- When the system is awash with corporate fraud it is not surprising that the companies themselves sometimes become victims.

Chicago Tribune September 24, 1999 Friday, CHICAGO

The former owner of a suburban hospice, which prosecutors say was falsely billed as a not-for-profit operation, agreed on Thursday to pay about $22 million to settle civil lawsuits alleging fraud and also pleaded guilty to a criminal tax-evasion charge.

As a result, Joseph Ari Kirschenbaum, who became a multimillionaire in less than three years at the helm of Samaritan Care Inc., faces a 3-year prison sentence, authorities said.
Most of the money--$16.5 million--will go to the federal government to cover losses by Medicare and Medicaid through the alleged fraud scheme. Another $5 million would go to Integrated Health Services, a Maryland-based manager of nursing homes that allegedly overpaid Kirschenbaum for Samaritan Care in 1994 based on false profit claims.

Modern Healthcare September 27, 1999

Integrated Health Services will receive $5 million of a $22 million civil and criminal Medicare fraud settlement reached with the former operator of a Chicago-based hospice company. Owings Mills, Md.-based IHS acquired Samaritan Care for $14 million in 1994 but sued the operator in 1995, charging that fraudulent Medicare billings had exaggerated the company's revenues. The settlement resolves the IHS suit and criminal and civil charges the federal government brought against Samaritan in 1997.

Loan Market Week September 27, 1999

Lehman Brothers last week sold $ 5 million of Integrated Health Services' term loan "C" in the mid-70s, several weeks after news of a Department of Justice investigation into one of the company's Florida units hit the market.
Traders said the investigation surrounds questions about the administration of the company's barium-swallow-studies unit and whether or not that unit overbilled the government under the Medicare prospective payment system.

COMMENT:- The corporate approach to whistle blowers who draw their attention to fraud or who report it is well illustrated by the following report. It describes IHS conduct. Whistle blowers are perceived as disloyal to the corporation and fired. Other corporations see them as trouble makers and will not employ them. Sadly the courts do not provide protection. They can however take a Qui Tam action and gain compensation this way.

PA Super. Ct. Rejects Whistleblower's Wrongful Termination Suit
White-Collar Crime Reporter October 1999

The public policy exception to the at-will employment doctrine affords no protection to employees who uncover and report past suspected Medicare fraud, the Pennsylvania Superior Court has ruled in its decision upholding the dismissal of a whistleblower's wrongful termination suit. Spierling v. First American Home Health Services Inc. and Integrated Health Services, No. 1441 (PA Super. Ct., Sept. 1, 1999).

Leslie Spierling, a former nurse- administrator of First American Home Health Services Inc., filed the suit against the company when she was fired three days after reporting evidence of Medicare fraud that she found in "old and discarded" files.
Federal investigators told First American employees to report any instances of suspected Medicare fraud to the government's "800" number hotline. In this context, Spierling reviewed "old and discarded" files from the office she managed and found files that evidenced past Medicare fraud. She reported the findings to her supervisor, who in turn reported it to the "800" number and to the vice president of the company. Three days later, the vice president fired her, allegedly warning her to keep quiet about the facts surrounding her dismissal.
The defendants filed preliminary objections in the form of a demurrer, seeking a dismissal of the wrongful termination action on the basis that Pennsylvania does not have a "Whistleblowers Law" for private sector employees nor a public policy exception for at-will employees. The lower court granted the objections and dismissed Spierling's complaint. Spierling appealed, - - - - - -
The court denied the appeal, agreeing that her conduct did not fall within the "few, narrow public policy exceptions" to the doctrine. - - - - , we can afford her no relief on public policy considerations and are constrained to affirm the trial court order...," the court held.

Judge Berle M. Schiller vigorously dissented, calling the case "egregious." The reporting of suspected Medicare fraud falls squarely within the public policy exception, he said. "I find it unconscionable on the eve of the twenty-first century, that a well-regarded employee who has been told to report Medicare fraud can be summarily discharged for doing so simply because she is an 'at-will' employee.

Vencor walloped for $1.3 billion; Government enters fraud and overpayment claims in bankruptcy case; more cases to come
Modern Healthcare March 20, 2000, Monday

Government claims of fraud and overpayment are likely to surface in at least three other nursing home bankruptcy cases.

Sun Healthcare Group, Mariner Post-Acute Network and Integrated Health Services have all said they are subjects of active government investigations.

COMMENT:- Note that RoTech (below) is now owned by IHS and this is a new fraud investigation.

Agents raid RoTech Medical
THE ORLANDO SENTINEL August 17, 2000 Thursday, METRO

Agents for the FBI and the Florida attorney general's Medicaid anti-fraud unit raided the Orlando headquarters of RoTech Medical Corp. on Wednesday. Pam Sulerno, an FBI agent in Tampa, would say only that the raid was part of an ongoing investigation of the maker of home medical supplies. A spokesman for Owings Mills, Md.-based Integrated Health Services Inc., which purchased RoTech in 1997, would not comment. In 1997, RoTech agreed to pay $612,500 to settle a lawsuit filed by the federal government over certain Medicaid reimbursements. RoTech was also named in a 1998 lawsuit accusing several medical suppliers of paying doctors for patient referrals.

DENVER ROCKY MOUNTAIN NEWS October 22, 2000, Sunday

One-third of Colorado's nursing home residents are living in facilities run by bankrupt companies.
Three companies, which run 49 of Colorado's 58 bankrupt homes, are being investigated for defrauding Medicare of hundreds of millions of dollars. They are Vencor, Sun Healthcare, Mariner Post -Acute Network and Integrated Health Services (IHS).

U.S. joining care-chain fraud case; Whistle-blower initiated suit alleging violations by IHS; Medicare abuses cited; Sparks company's Dallas facility was source of complaint
The Baltimore Sun December 13, 2000 Wednesday

The Justice Department confirmed yesterday that it is joining a whistle-blower lawsuit charging Medicare fraud against Integrated Health Services, the Sparks-based nursing home chain now in bankruptcy reorganization.

The original suit was filed last year by a social worker at an IHS facility in Dallas, alleging that the facility admitted patients who did not need its level of care and billed Medicare for services that were never delivered.
Bonny Harbinger, the lawyer for the whistle-blower, said she believed that the fraudulent claims could run into the "tens of millions of dollars."
She also said investigators had not yet determined how many other IHS facilities might be involved besides the one in Dallas where the whistle-blower, Carolyne Gray, worked in 1998. IHS has more than 350 facilities nationwide.
Harbinger said Gray had "tried every way she knew" to report the fraud before turning to Harbinger's firm, Phillips & Cohen - described on its Web site as "the nation's only law firm that is dedicated solely to representing whistle-blowers" suing under the federal False Claims Act.

According to Gray's complaint, the Dallas facility inflated patient problems to justify admission to the institution, which is designed to provide a level of service more intensive than a nursing home but less than a hospital. For example:

One patient, according to records, "was admitted because of a fractured hip, a stroke and a motor vehicle accident that caused chest trauma. According to the family, the patient was in the accident 20 years previously and had the stroke two years ago."

"An elderly woman was admitted for pulmonary complications. During her hospitalization, she never had a pulmonary consult and would leave for daily outings with her husband."

"Therapists from different specialties would work together on a patient, then each would charge for a full hour of skilled therapy, regardless of the actual time spent or the type of service provided the patient."

Gov't Joins Suit Against Hospitals Owned by Integrated Health Services
Nursing Home Legal Insider January 2001

The U.S. Department of Justice has intervened in a False Claims Act lawsuit against Integrated Health Services Inc. filed by a former employee of one of its long-term acute care hospitals in Texas.

The employee alleges that IHS knowingly admitted and kept patients who did not require the medically intensive care provided by such hospitals.

United States ex rel. Gray v. IHS Hospital at Dallas et al., No. 3-99CV0807-P, notice of intervention filed (N.D. Tex., Dec. 7, 2000). "The company hospitalized people who did not need long-term acute care," said Bonny Harbinger of Phillips & Cohen in Washington, D.C. "With shopping malls and dinners at restaurants, the Dallas facility for some patients was more of a hotel than a hospital." The lawsuit was filed under seal in April 1999 by Carolyn Gray.

In May 1998, Gray worked as a medical social worker at IHS Hospital at Dallas but quit after a few months because of the alleged Medicare fraud going on at the facility. As part of her job, Gray reviewed medical charts and found they did not justify patients' continued hospitalization at the facility.

Gray contends that IHS Hospital at Dallas and other IHS-owned long-term acute care hospitals "systematically and fraudulently billed Medicare for medical services that did not meet the level-of-care or medical necessity criteria for admission or continued care" at these specialized hospitals.
Gray also asserts that IHS Hospital at Dallas routinely overbilled Medicare for therapy sessions and billed for therapy provided by unqualified or unlicensed staff.

Patient Advocates Sue Firms Over Care Quality ::: Troubled Times in Nursing Homes
Albuquerque Journal August 3, 1999, Tuesday

* Suit alleges records falsified to collect Medicare and Medicaid payments

SACRAMENTO, Calif. -- Advocates have sued Albuquerque-based Sun Healthcare Group and others in federal court here, claiming the nursing-home companies collected government payments for substandard care.

Brought under the federal False Claims Act, the lawsuit claims the nursing-home operators failed to provide the level of care required by Medicare and Medicaid, then falsified records to show otherwise.

The falsified records were then used to obtain reimbursement from the government health-care programs, the lawsuit says.

Sun said in its response to the lawsuit that the litigation makes "sweeping, unspecific allegations" that are "deeply harmful." The company has said it will vigorously defend itself.

In addition to Sun, defendants include Integrated Health Services of Owings Mills, Md., and Crestwood Hospitals.

The lawsuit deals with the care at Crestwood nursing homes in California over several years.

Integrated Health Services managed Crestwood homes for about two years ending in 1996, according to the lawsuit. Sun took over management of some of the homes in 1996 and acquired about a dozen Crestwood homes in 1997, the lawsuit says.
The lawsuit was filed in January 1997 by advocates for nursing-home residents. The advocates are suing on behalf of themselves as well as the U.S. government in what is known as"qui tam," or whistle-blower, litigation.
The lawsuit alleges the defendants had a practice of not employing enough staff to maintain the quality of care required to participate in Medicare and Medicaid.

As a result, the lawsuit says, some nursing-home residents suffered dehydration, malnutrition, mental and social isolation, urinary infections, bedsores and other problems.

"Defendants' conduct was the result of corporate-imposed budget constraints to maximize their profits and to allow their CEO to receive large compensations," the lawsuit says.

As part of the lawsuit, three former employees at Crestwood homes have filed affidavits that records were falsified. One ex-worker said she and other nurses falsified patient charts to cover up that medications weren't given as ordered by physicians.

The lawsuit says the defendants filed false claims to obtain more than $50 million a year in reimbursements from Medicare and Medicaid.

U.S. District Judge Lawrence Karlton in October rejected requests by Sun and the others to dismiss the lawsuit. When a lawyer for Crestwood sought a clarification, the judge said, according to a transcript of the hearing:

"Please, let's get on with the lawsuit. I understand you're desperate to make sure nobody sees the facts."
The number of qui-tam cases nationwide has exploded in recent years, from 33 in 1987 to 417 in 1998, according to statistics from the Department of Justice.

Statistics show health-care providers are targets of the majority of cases.

CASE: In re Integrated Health Servs.
Chapter 11 Update April 2001

SouthTrust Bank is entitled to receive rental payments under an assignment of leases executed in conjunction with a mortgage issued to subsidiaries of Chapter 11 debtor Integrated Health Services Inc., a federal bankruptcy judge has held. The debtors were ordered to make payments to the bank even though the automatic stay remained in place. Six subsidiaries of Integrated Health Services Inc. took out loans totaling $53 million from SouthTrust Bank N.A. in 1998.

Agreements were true leases
BCD News and Comment April 11, 2001

COMMENT:- IHS borrowed money to buy homes but when it went into Chapter 11 bankruptcy it stopped paying rent. It was not entitled to do so.

In re Integrated Health Services Inc., et al.;
(Bankr. D. Del. 3/13/01), 154.
Mary F. Walrath, Bankruptcy Judge.
Chapter 11

The debtor failed to satisfy its substantial burden of proof to show that the agreements in question were not true leases.

The bank loaned money to six of the debtor's subsidiaries, each of which used the money to purchase a separate nursing home. The loan agreements provided that the subsidiaries would lease the properties to an "acquisition" entity that had the requisite licenses to operate the facilities. To secure the loan, the subsidiaries granted the bank a mortgage on each facility and an assignment of the rents and leases.
HOLDING. The bankruptcy court held that the bank was not entitled to relief from the stay because its collateral was not declining in value. However, the acquisition entity was obligated to pay to the bank all postpetition rent pursuant to Section 365(d)(3).

Comment August 2003:- The reports on IHS bankruptcy arrangements and its transfer to Trans Health in 2003 make no mention of settling its fraud allegations or anyone going to prison. There was no money left for anyone so presumably it just lapsed.

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This page created Jan 2001,updated Aug 2001 and checked Aug. 2003 by Michael Wynne