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In January 2016, two whistleblowers got a $24 million payday for their
role in getting $125 million back for RUG fraud by Kindred/RehabCare Group.
Among other things, the company was accused of inflating the number of
minutes of treatment that went into the RUG rate. The inflation meant
that Medicare overpaid the skilled nursing facilities (SNFs) that were
treating the patients.

So what is RUG fraud? And how can a whistleblower stop it? Today I’m
using my legal blog to help SNF whistleblowers understand more about how
the process works.

What is RUG Fraud?

To simply the billing process under Part A, Medicare does not pay a SNF
an individually-calculated amount for each and every inpatient. Instead,
Medicare has SNFs group their patients into categories, called Resource
Utilization Groups (“RUGs”), which are based on how much care
the patient is likely to need. Medicare pays a set, daily rate for each
patient who is classified into a particular RUG category.

The more the minutes of treatment that a patient receives, the higher the
RUG rate that Medicare pays. For example, in 2012, a SNF would have been
paid $656.06 daily for giving a patient 719 minutes of treatment during
an assessment period (at the RV X level for rehab with extensive services).
By adding just one minute of treatment, the SNF can boost its reimbursement
to $737.08 per day for treating the same patient for the same period of
time. Some SNFs have been tempted to abuse the system by adding minutes
of therapy, not because the patient needs them, but because the SNF can
get paid more.

How did the two whistleblowers earn $24 million?

The two whistleblowers, both former RehabCare employees, filed suit under
the False Claims Act. By filing under the Act, they helped the Government
get back $125 million from RehabCare/Kindred. The Government also settled
up with several SNFs that had hired RehabCare to do their therapy. Under
the FCA, the whistleblowers were entitled to receive between 15 and 30%
of all that the Government got back.

How do I become a whistleblower?

In order to be entitled to part of what the Government recovers, you have
to have non-public information that can help the Government recover from
someone defrauding it, and you have to file a lawsuit under the False
Claims Act. Anybody with knowledge about the fraud can file. Often the
people who file are employees who know about the fraud. For example, in
the case of the two RehabCare whistleblowers, both had worked at the company.
One was a physical therapist and former rehabilitation manager and the
other was an occupational therapist.

More About RUG Categories

Two RUG categories apply to patients who need therapy: “Rehab Plus
Extensive” and “Rehab”. (The word “extensive”
refers to whether the patient needs labor-intensive services such as a
ventilator, suctioning, or a tracheostomy.)

Each of those two major categories is subdivided into five subcategories,
based primarily on the number of minutes of therapy provided to the patient.
When a therapist fills out the MDS, one of the things she does is assess
how many minutes of treatment she believes the patient will need, for
purposes of classifying the patient at a reimbursement rate somewhere
between “Low” and “Ultra High”. The category depends
on the number of minutes of treatment, and also on how many different
types of therapy (speech, occupational or physical) the patient will need.