"Worthless Services" And The False Claims Act

The U.S. Department of Justice (DOJ) sued the Ohio-based parent company of Cheltenham Nursing & Rehabilitation Center in Philadelphia for providing "nonexistent or grossly substandard services" to residents for years.  

In 2018, federal nursing home regulators fined Cheltenham Nursing & Rehabilitation Center for failures related to the suicide of an elderly patient in June 2018. The $824,213 fine was the second-largest fine levied against a nursing home that year. The nursing home and its parent company, the nonprofit American Health Foundation Inc. (AHF) have allegedly not paid the fine.

Now, the DOJ has sued Cheltenham for False Claims Act violations. The DOJ alleges that staff neglected residents; allowed them to live in a pest-infested building; gave them unnecessary antibiotic and anti-psychotic medications; failed to protect their belongings; subjected them to verbal abuse; and failed to provide required psychiatric care contributing to the 2018 suicide. 

According to the DOJ, AHF, which collects millions of dollars for managing Cheltenham, constantly pressured the nursing home to further cut nursing costs while increasing the number of residents. AHF, which bought Cheltenham in 1990 for $9,500,000, had built reserves of $16,500,000 by December 2017.

The DOJ claims, "AHF and AHF Management were typically more focused on Cheltenham's financial health than the actual health of Cheltenham's residents."

The lawsuit does not specify the amount the government is seeking. According to state financial reports, Cheltenham received more than $45 million from Medicaid and nine million dollars from Medicare from 2016 through 2018.

As evidence of negligence on the part of AHF managers in Ohio, the DOJ notes in its suit that Cheltenham paid $3,600,000 to AHF Management and AHF Home Office while experiencing a total net loss of $2,270,000. Federal tax returns show that AHF and other nonprofit affiliates paid $3,600,000 to executives and board members during that same time frame.

If the DOJ is successful, AHF may have to pay triple the amount it received from Medicaid and Medicare for "grossly substandard or nonexistent services" to the government, as well as $12,537 to $25,076 in fines for each violation. Harold Brubaker "Feds sued Cheltenham Nursing & Rehab for years of 'grossly substandard' care" www.inquirer.com (Jul. 07, 2022).

Commentary and Checklist

It is a violation of the False Claims Act for health care organizations to provide so-called “worthless services” to patients.

The worthless services doctrine is based on the concept that the government paid for services that lacked any medical value. As a result, the claims the provider sought reimbursement for are factually false because “the performance of the service is so deficient that for all practical purposes it is the equivalent of no performance at all.”

A health care organization may be accused of violating the FCA by providing worthless services if it “provides services that are grossly negligent with respect to a regulatory standard of care.” Robert Yates “The FCA’s Worthless Services Doctrine: A Possible COVID-19 Liability Mechanism” www.americanhealthlaw.org (Apr. 16, 2021).

Preventing negligence is the first step in preventing allegations that your facility is providing worthless services to patients.

Here are some tips to help prevent negligent care:

  • Conduct background checks on all new hires and never hire an employee with a history of negligence.
  • Do not entrust patient care to a single individual, but have multiple individuals check on the patient to confirm that he or she is receiving proper care.
  • Use the most up-to-date technology and equipment to meet the standard of care.
  • Make sure that all employees who care for patients have received sufficient training and know how to provide care properly, effectively, and safely.
  • Provide a third-party reporting mechanism whereby employees can report suspected negligence or failure to uphold the standard of care.
  • Quickly investigate and remedy any suspected failure to provide necessary care to a patient.
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