Encompass Health to Pay $48M to Settle False Claims Allegations

Federal prosecutors said the company allegedly submitted false diagnoses to maintain its status as a Medicare IRF and get a higher reimbursement.

Encompass Health Corp. will pay $48 million to settle whistleblower allegations that it submitted false claims to Medicare to maintain its status as an inpatient rehab facility in order to get more money, the Department of Justice said.

Federal prosecutors said that, beginning in 2007, Encompass IRFs falsely diagnosed patients with "disuse myopathy" when there was no clinical evidence to support the diagnosis.

In fact, prosecutors alleged, the false diagnosis was made to maintain Encompass's compliance with Medicare rules for classifying IRFs at a higher reimbursement.

Prosecutors also alleged that Encompass IRFs admitted patients who "were too sick or disabled to participate in or benefit from intensive inpatient therapy," DOJ said.

"This important civil settlement concludes a lengthy, comprehensive investigation that brought to light a nationwide scheme that the government contends was intended to defraud our fragile public health programs," U.S. Attorney for the Middle District of Florida Maria Chapa Lopez said in prepared remarks.  

Birmingham, Alabama-based Encompass, which changed its name from HealthSouth Corp. in 2018, is the nation's largest operator of inpatient rehabilitation facilities. The company operates 131 hospitals and other facilities in 37 states and Puerto Rico.

In a media release, HealthSouth noted that it admitted to no wrongdoing in the settlement, that "the seven-year investigation produced no evidence of falsity or fraudulent conduct," and that the company was not required to enter into a corporate integrity agreement.

"From the beginning, we believed the allegations under investigation were without merit. The evidence establishes that Encompass Health did nothing wrong," Encompass CEO and President Mark Tarr said.

"But to stop this interminable investigation and avoid further expense, we decided it is in the best interests of Encompass Health and its shareholders to settle with DOJ and end the related litigation," he said.

Tarr said DOJ's investigation focused on diagnoses made by contract physicians at Encompass hospitals. He said that the Centers for Medicare and Medicaid Services had found that Encompass IRF's codes were "appropriate," and that CMS had continued to pay Encompass's claims throughout the seven-year investigation.

The settlements resolve whistleblower allegations raised in three separate lawsuits filed former employees at Encompass IRFs in Florida, Texas, and Virginia. The three whistleblowers will share $12.4 million of the settlement.