HealthSouth settles federal fraud case

HealthSouth Corp. has agreed to pay the government $325 million to settle charges that it defrauded Medicare and other federal health programs.

The settlement, announced Dec. 30, 2004, resolved multiple claims alleging that HealthSouth improperly billed the government for outpatient physical therapy services, unallowable hospital and home office costs and outlier payments, among other things. The Birmingham, Ala.-based outpatient services giant, which has been racked by legal woes for the last few years in the wake of a major accounting scandal, said the settlement with the U.S. Dept. of Justice marked significant progress in its efforts to solve long-term problems.

Assistant Attorney General Peter Keisler said in a written statement that HealthSouth's fraud was driven by longstanding business practices in its outpatient physical therapy business and improprieties in its inpatient rehabilitation business.

As part of the settlement, to be paid over the next three years, HealthSouth also signed a corporate integrity agreement requiring it to engage in several compliance efforts over the next five years.

The Justice Dept. said the bulk of the settlement -- $169 million -- was earmarked to resolve claims concerning HealthSouth's reimbursement for outpatient physical therapy services. Another $89 million was for claims regarding unallowable items on hospital and home office cost reports and for claims about individual inpatient discharges, including outlier payments. The rest of the settlement award was for allegations involving other cost reports and billing for skilled labor.

The settlement resolves several lawsuits as well as administrative appeals with the Centers for Medicare & Medicaid Services. It also closes an investigation into the company's prior Medicare cost reporting that was launched in April 2003.

However, the company still faces a civil fraud complaint by the Securities and Exchange Commission, a lawsuit from shareholders and a criminal investigation for the accounting scandal. HealthSouth founder Richard M. Scrushy's trial began Jan. 5.