Encompass Health agrees to pay $48M in false claims case

Gavel with scales of justice in background
Encompass Health settled with the Department of Justice over allegations that some admissions to its IRFs were not medically necessary. (William_Potter/iStock/Getty Images Plus)

Encompass Health Corp. agreed to pay $48 million to resolve allegations that some of its facilities provided inaccurate information to Medicare to maintain their status as an inpatient rehabilitation facility (IRF) and to earn a higher rate of reimbursement.

The Birmingham, Alabama-based inpatient rehab giant also settled allegations that some admissions to its IRFs were not medically necessary.

“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,” said U.S. Attorney Maria Chapa Lopez in a statement. “In doing so, we confirm our commitment to civil health care fraud enforcement as a key component of the mission of our office.”

According to the DOJ, Medicare and Medicaid use information about patients’ diagnoses to determine whether a facility is properly classified as an IRF as well as the level of reimbursement the facility is awarded for specific patients.

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The DOJ alleges that beginning in 2007, some Encompass IRFs falsely diagnosed patients with what they referred to as “disuse myopathy” when there was no clinical evidence for this diagnosis. They also allege that Encompass IRFs admitted patients who were not eligible for admission because they were too sick or disabled to participate in or benefit from intensive inpatient therapy.

The settlements resolve allegations raised in three separate lawsuits filed by whistleblowers who formerly worked at Encompass facilities in Florida, Texas and Virginia. The whistleblowers will receive a collective share of $12.4 million from the settlement.

The settlement was the result of a coordinated effort by the Civil Division of the Department of Justice, the United States Attorney’s Office for the Middle District of Florida, and the U.S. Department of Health and Human Services Office of Inspector General.      

Encompass Health Corp., which was formerly HealthSouth Corp., is one of the largest providers of post-acute healthcare service in the U.S. with a network of inpatient rehabilitation hospitals, home health agencies, and hospice agencies located across 36 states and Puerto Rico and more than 40,000 employees. It is a publicly traded company. It closed the day slightly higher on Friday after the news was released, closing at $63.36 from an opening price of $61.93.

"This settlement resolves a dispute about coding," Jeff Layne, a partner at Reed Smith and counsel to Encompass Health, said in a statement. "Our client can now devote its full time and resources to its core business—caring for patients—without the distraction and expense of litigating multiple unfounded lawsuits."

Crowell & Moring joined the defense team representing Encompass through the resolution of the matter with DOJ.