Whistleblower Accuses Chemed Unit of Medicare HMO Conspiracy

A former Vitas Healthcare Corp. manager has accused the hospice chain of defrauding the federal government by conspiring with health insurers to enroll Medicare patients who weren’t dying.

Vitas, a unit of Cincinnati-based Chemed Corp. (CHE), is the largest U.S. provider of hospice care, which has attracted government scrutiny as its Medicare-covered patients have doubled to 1.1 million over the last decade.

Chemed fell 15 percent, the most since April 2008, to $49.10 at 10:37 a.m. in New York.

The allegations came in a lawsuit unsealed last week in U.S. District Court in Dallas. Vitas spokeswoman Kal Mistry said the company “cannot comment on pending litigation.”

In the same court, the Department of Justice is seeking internal Vitas documents in an investigation focused on alleged abuses of federal health-insurance programs. The government has told the court it suspects Vitas of “an extensive scheme” to defraud Medicare and Medicaid of “hundreds of millions of dollars” by falsifying records and hospice certifications.

Vitas has “consistently been in compliance with Medicare and Medicaid rules,” Mistry said.

The newly unsealed suit was filed by Michael Rehfeldt, a former branch manager for Vitas in San Antonio, who is seeking damages for the government as a whistleblower under the U.S. False Claims Act, which entitles him to part of any recoveries. Such claims are also called qui tam suits.

“False certifications, fraudulent billing and cost shifting to the United States constitute a widespread, systematic practice endemic to Vitas,” Rehfeldt’s suit alleges.

Investigation Continuing

The Justice Department said in a court filing that it is “not intervening at this time” in the whistleblower suit, although “its investigation of the allegations will continue.” The Texas Attorney General’s office filed an identical notice.

Vitas has been Chemed’s main engine of growth, accounting for 74 percent of the company’s $341.4 million of revenue in the third quarter, when it reported net income of $21.9 million. Chemed also operates the Roto-Rooter drain-cleaning and plumbing chain.

Rehfeldt, who left Vitas in 2009, also named as defendants WellMed Medical Management Group and Care Level Management LLC, health-maintenance organizations acquired in March by Minnetonka, Minnesota-based UnitedHealth Group Inc. (UNH)

Vitas conspired with the two HMOs to admit their unprofitable patients into hospice, though they weren’t facing imminent death and thus weren’t eligible for hospice under Medicare rules, the lawsuit says. It says the arrangement allegedly benefitted Vitas by providing hospice patients, while allowing “the HMO defendants to dump non-profitable patients onto hospice, regardless of their qualifications.”

‘Strong Message’

WellMed and Care Level spokesmen denied Rehfeldt’s allegations. The HMOs said the Justice Department and the Texas Attorney General’s office have told the companies that they are not joining in the case against WellMed or Inspiris, the UnitedHealth unit that owns Care Level.

“We believe their decisions are correct and send a strong message regarding the merits of this suit,” said David Canniff, chief financial officer of Inspiris.

Rehfeldt told his bosses about the misconduct and they ignored him, according to the lawsuit, which says top Vitas executives knew about the illegal arrangement.

A former Vitas executive in Texas, Keith Becker, teamed up with Justo Cisneros, a former Vitas medical director who also worked for the HMOs, “both large referral sources for Vitas,” according to the whistleblower complaint. Cisneros referred, enrolled and recertified patients at Vitas who weren’t terminally ill, the suit says.

‘Paradigm Shift’

To be eligible for hospice, Medicare requires patients must have six months or less to live, certified by two doctors. Yet a patient can stay on hospice indefinitely, as long as a hospice doctor recertifies their terminal diagnosis every 60 days.

“Cisneros signed, wholesale, hundreds or perhaps thousands of certifications without examining patients or even reviewing their charts,” Rehfeldt claims in the suit.

Both Becker and Cisneros now work for Inspiris, which owns a hospice in San Antonio. Becker did not return phone messages.

Cisneros denied conspiring to enroll ineligible patients at Vitas. The company’s San Antonio operation got caught in a government “paradigm shift,” he said in a telephone interview.

After encouraging hospices to enroll more patients with diagnoses such as dementia and “general debility,” Medicare cracked down on the long stays that resulted from admitting them, according to Cisneros.

“These patients were sick,” he said. “Yes, they were on longer, but they were needy.”

‘Rules Changed’

In 2008, 22 percent of Vitas’s 560 patients in San Antonio were on hospice for at least 500 days, according to Rehfeldt’s suit. The average length of stay for all Medicare hospice patients in 2008 was 83 days.

After a Medicare audit of the Vitas San Antonio office in 2007, the company discharged 295 live patients in 2007 and 2008, compared to a total of 64 live discharges in 2005 and 2006, the suit alleges.

“They changed the rules in the middle of the game,” Cisneros said. “There was a lot of confusion.”

To contact the reporter responsible for this story: Peter Waldman in San Francisco at pwaldman@bloomberg.net

To contact the editor responsible for this story: Gary Putka at gputka@bloomberg.net

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