Some nursing homes have been taking advantage of vulnerable residents to milk government coffers, and the federal government promises an aggressive response.

On June 15, the U.S. Department of Justice  filed a False Claims Act complaint against an Ohio-based nursing home operator, alleging that three nursing homes run by the company “provided grossly substandard services” that didn’t meet basic standards of care. The False Claims Act prohibits companies from fraudulently making claims for payment of  government funds — in this case, Medicare and Medicaid reimbursement. Taking such funds for “non-existent or grossly substandard” services is a violation.

The allegations include an array of disturbing conditions: a dirty, pest-infested building; giving unnecessary medications, including powerful antipsychotic drugs; not protecting residents’ possessions; verbal mocking and abuse; “a glaring absence of activities or stimulation”; and not providing necessary psychiatric care. One resident with a history of self-harm didn’t get the essential help and was hospitalized after a suicide attempt; when he returned to the facility, the staff didn’t help and ignored warning signs. He committed suicide within weeks.

“Despite getting regular reports detailing the grossly substandard care … the Defendants were primarily focused on their finances and not on improving care quality at the nursing homes,” the DOJ court filing alleges.

Executives pushed facility managers to bring in more residents while also cutting costs, and despite a large reserve fund, the company offered low salaries, making it difficult to attract workers.

The DOJ’s use of the False Claims Act to pursue these nursing homes is yet another illustration of why the False Claims Act is the government’s most powerful tool for fighting fraud against government programs.  Although the government initiated this case itself, the False Claims Act also includes a qui tam provision that allows whistleblowers with knowledge of a fraud to file a lawsuit in the name of the government. 

The misconduct alleged in this case track a troubling link between private equity investment in health care organizations and a decline in the quality of care.

President Joe Biden went so far as to call out such firms in his March State of the Union speech.

“As Wall Street firms take over more nursing homes, quality in those homes has gone down and costs have gone up,” Biden said. “That ends on my watch.”

Biden said that Medicare will raise its standards for nursing homes, inducing better care. But that’s just one prong of the response. In addition, the Federal Trade Commission and DOJ, already zealously enforcing antitrust concerns, will scrutinize private equity firms that make multiple acquisitions within the same industry — particularly if those investments relate to health care. 

The sector certainly has drawn attention. In 2021, health care private equity hit a record for deal volume and disclosed value, with a $34 billion and a $17 billion acquisition headlining the list of transactions, according to a recent report by consultancy Bain & Co. The number of deals jumped by more than a third to 515, while the disclosed value of those collective deals more than doubled to $151 billion.

The DOJ is acting on Biden’s message about health care. 

“Simply put, no industry is more important to our well-being and livelihoods,” Andrew Forman, deputy assistant attorney general for the Antitrust Division, said in a June 3 speech at an American Bar Association conference. “That is precisely why we must aggressively enforce the antitrust laws in the health care industry. Vigorous competition in health care means lower costs for drugs and procedures, increased quality of care, additional lifesaving innovations, and more good-paying jobs. Accordingly, protecting competition in health care is among the highest priorities of the Antitrust Division.”

While acknowledging that private equity plays a vital role in the U.S. economy, Forman said that such firms’ motivations differentiate them from other market participants. For example, private equity investors tend to focus on short-term profits and extreme cost cutting, leaving patients to pay the price. 

Forman said healthcare workers have pointed to industry consolidation as the cause of a decline in research, staffing shortfalls and lower-quality care. Thus, he said that the DOJ will scrutinize deals and look more favorably on other market participants than on private equity firms as buyers in the health care industry.

If you have information about health care-related fraud or neglect, we are here to help. For advice on handling suspected fraud, contact Keller Grover for a free and confidential consultation.