By Fisher, JD, CHC, CCEP

Skilled Nursing Facility False Claims Act Settlement Signals Continued Scrutiny of Therapy Billing

Client Alert | Health Care Enforcement and Compliance

Skilled nursing facility operators should continue to pay close attention to how rehabilitation therapy services are ordered, documented, monitored, and billed. The 2017 Life Care Centers of America Inc. settlement remains a useful reminder that therapy programs can create False Claims Act risk when treatment levels appear to be driven by reimbursement goals rather than resident-specific clinical need. That lesson has only been reinforced by later settlements involving therapy billing, reimbursement-driven treatment levels, extended stays, and allegedly unsupported documentation. In the Life Care matter, the company and its owner agreed to pay $145 million to resolve allegations that skilled nursing facilities submitted false claims to Medicare and TRICARE for rehabilitation therapy services that were not reasonable, necessary, or skilled; DOJ described the resolution as the largest settlement with a skilled nursing facility chain in the Department’s history.

Overview

The settlement highlights the government’s continued focus on whether therapy services billed by skilled nursing facilities are driven by individualized clinical need rather than reimbursement targets. According to the government’s allegations, Life Care used corporate-wide policies and practices to place beneficiaries in the highest Medicare reimbursement category regardless of their actual therapy needs, resulting in allegedly unreasonable and unnecessary therapy for many residents.

Background of the Allegations

The government alleged that, from January 1, 2006 through February 28, 2013, Life Care engaged in a systematic effort to increase Medicare and TRICARE billings for rehabilitation therapy services. At the time, Medicare reimbursement for skilled nursing facilities was tied in part to the level of skilled therapy and nursing needs of qualifying residents. The highest therapy reimbursement level—commonly referred to as “Ultra High”—required at least 720 minutes of skilled therapy per week from at least two therapy disciplines, with one discipline provided five days per week.

According to the government, Life Care allegedly emphasized reaching and maintaining the Ultra High reimbursement level even when that level of therapy was not supported by resident-specific clinical needs. The government further alleged that Life Care sought to keep residents receiving therapy longer than medically necessary in order to continue billing for rehabilitation services.

Settlement Terms

The $145 million settlement, announced by DOJ in October 2016 and finalized in 2017, resolved allegations under the False Claims Act relating to therapy services billed to Medicare and TRICARE. The resolution did not constitute an admission of liability by Life Care. In addition to the monetary payment, Life Care and its owner entered into a Corporate Integrity Agreement with the U.S. Department of Health and Human Services Office of Inspector General, which imposed compliance obligations designed to address the alleged conduct and reduce future risk.

Comparable Therapy Billing Settlements

Although the Life Care matter arose from conduct that predated the settlement, the issues it highlighted remain instructive. Since 2017, DOJ and HHS-OIG have continued to pursue False Claims Act matters alleging that skilled nursing facilities or therapy contractors billed federal health care programs for rehabilitation services that were not medically necessary, not skilled, inflated to higher reimbursement categories, or extended beyond the point of clinical need.

For example, in January 2016, RehabCare Group Inc., RehabCare Group East Inc., and their parent, Kindred Healthcare Inc., agreed to pay $125 million to resolve allegations that they knowingly caused skilled nursing facilities to submit false Medicare claims for rehabilitation therapy services that were not reasonable, necessary, skilled, or were not provided. DOJ alleged that RehabCare used policies and practices such as unrealistic financial goals, scheduling designed to reach the highest reimbursement levels regardless of patients’ clinical needs, and other practices that allegedly inflated claims submitted by its skilled nursing facility customers.

Later in 2017, Genesis Healthcare Inc. agreed to pay approximately $53.6 million to resolve multiple False Claims Act lawsuits and investigations, including allegations involving medically unnecessary rehabilitation therapy. Among other allegations, DOJ asserted that certain Genesis-acquired entities provided therapy to patients longer than medically needed, billed for more therapy time than patients actually received, and assigned patients to higher Resource Utilization Group levels than were supported by their clinical needs.

DOJ continued to apply similar theories after 2017. In 2021, SavaSeniorCare LLC and related entities agreed to pay $11.2 million, plus potential additional amounts, to resolve allegations that Sava caused skilled nursing facilities to bill Medicare for rehabilitation therapy services that were not reasonable, necessary, or skilled. The government alleged that Sava used corporate-wide policies, aggressive reimbursement targets, and pressure on staff to increase Medicare billings without regard to patients’ actual clinical needs, and that it delayed discharge of patients who were medically ready to leave the facilities.

Taken together, the post-2017 settlements underscore that Life Care was not merely a historical outlier. The same enforcement themes—pressure to meet high reimbursement categories, therapy-minute targets, extended stays, unsupported clinical documentation, and tension between corporate financial goals and individualized patient need—continue to appear in therapy-billing enforcement matters. The pattern also demonstrates that both skilled nursing facility operators and outside therapy providers can face exposure when their conduct causes claims to be submitted to Medicare, Medicaid, TRICARE, or other federal health care programs.

Why This Matters for Skilled Nursing Facilities

The settlement serves as a reminder that enforcement agencies may view reimbursement-driven therapy targets, productivity expectations, or utilization benchmarks as evidence of potential False Claims Act risk when those practices are not clearly tied to individualized clinical decision-making. Skilled nursing facility operators should ensure that therapy levels, length of stay, discharge timing, and documentation practices are based on resident-specific needs and supported by the clinical record.

Practical Compliance Takeaways

• Prioritize clinical judgment. Therapy intensity and duration should be determined by treating clinicians based on each resident’s condition, goals, progress, and documented needs.
• Document the clinical “why.” Records should do more than capture therapy minutes. They should explain why the services were reasonable, necessary, skilled, and tied to the resident’s condition, goals, progress, and care plan.
• Separate reimbursement tracking from clinical decision-making. Facilities may monitor utilization and reimbursement trends, but communications should avoid suggesting that clinicians should target reimbursement categories, therapy-minute thresholds, or length-of-stay goals unrelated to clinical need.
• Review reimbursement-driven metrics. Facilities should evaluate whether internal targets, dashboards, productivity expectations, or management communications could be interpreted as encouraging higher reimbursement categories without regard to medical necessity.
• Audit high-risk patterns. Periodic audits should focus on residents receiving high therapy levels, extended therapy stays, abrupt changes near billing thresholds, therapy continued despite limited progress, and documentation that appears formulaic or inconsistent with the resident’s condition.
• Audit therapy documentation. Reviews should confirm that therapy minutes, disciplines, care plans, progress notes, and discharge decisions align with the resident’s clinical status and the services actually provided.
• Strengthen oversight of length-of-stay and discharge decisions. Operators should ensure that continued therapy is supported by documented clinical need, measurable progress, or appropriate maintenance goals and is not extended solely to preserve reimbursement.
• Review therapy contractor oversight. If therapy services are outsourced, facility operators should monitor contractor practices, productivity expectations, documentation quality, billing inputs, and escalation processes.
• Train operational leaders and clinicians. Compliance training should reach facility leadership, regional managers, billing staff, therapy contractors, and treating clinicians, and should emphasize the distinction between legitimate utilization management and impermissible pressure to maximize reimbursement.
• Create escalation paths for concerns. Staff should know how to report pressure to increase therapy minutes, delay discharge, or document services in a way that does not match clinical reality.
• Tie audits to corrective action. When reviews identify questionable therapy patterns, facilities should document follow-up, education, refunds when appropriate, and policy or process changes designed to prevent recurrence.

Looking Ahead

Although reimbursement models and regulatory requirements have evolved since the conduct alleged in the Life Care matter, the core enforcement lesson remains current. The post-2017 cases show that DOJ and HHS-OIG continue to scrutinize whether therapy services are medically necessary, appropriately documented, and free from corporate pressure that prioritizes reimbursement over resident care. Skilled nursing facility operators should revisit their therapy compliance programs, audit protocols, management communications, and discharge practices to confirm that clinical decision-making remains the foundation for billing federal health care programs.