Nursing Home Kickback Case Settles for $5 Million

As nursing home resident advocates often point out, there is an inherent conflict between proper operation of these facilities and financial incentives for owners. Running the long-term care home to maximize quality for residents requires ensuring full staffing, adequate equipment, full supply shelves, high quality food, safe upkeep of the structure, and more. Yet, all of those demands cost money. This means that private operators may be tempted to skimp, increasing their own revenues while sacrificing patient care.

At other times, perverse financial incentives may affect outside agreements that nursing home operators make with fellow, ancillary caregivers. For example, the Chicago Tribune reported last week on a settlement in a local kickback case between nursing home operators and a large pharmaceutical company. It is another example of how lining the pockets of owners was prioritized over the best interests of the nursing home residents.

Omnicare Settlement
At the center of this particular suit is a business transaction that occurred in 2004. At that time, pharmaceutical giant Omnicare bought a smaller pharmaceutical company in Chicago called Total Pharmacy. The owners of Total Pharmacy also owned and operated several nursing homes in the area.

According to allegations, Omnicare paid about $32 million to acquire the smaller company. This was apparently far more than Total Pharmacy was actually worth. Allegedly, Omnicare was willing to inflate the price of Total Pharmacy with the understanding that Omnicare would secure pharmaceutical contracts with over two dozen nursing homes operated by the sellers. In other words, Omnicare assumed its overpayment would be returned (and then some) by providing pharmaceuticals to nursing home residents.

The obvious problem is that those pharmaceutical contracts are ultimately paid for primarily by Medicare and Medicaid. In other words, this arrangement was nothing more than an unlawful payment to the nursing home operators to pad their own pocketbooks to make contract choices.

As with most cases of this nature, the issue first came to light when a former employee of Total Pharmacy came forward with information about the dirty deal. When the whistleblower shone light on the matter two lawsuits were filed against both Total Pharmacy and Omnicare. Earlier this summer the suit against Omnicare was settled for more than $17.2 million. This week a similar settlement was reached with Total Pharmacy in the amount of $5 million.

These settlement are coming at the last moment, as a trial was scheduled to begin in mere days.

The attorney for the whistleblower noted recently how “”People who are in a position to refer Medicaid patients to health care providers should make those referrals with only one goal in mind: the best interests of the patient. Those who seek to turn the Medicaid program into a pay-to-play scheme will pay the price, as all the defendants did in this case.”

Whistleblower laws allow those who come forward and successfully lead a case which results in payment to Medicare or Medicaid to receive a percentage of the funds recovered. In this case, the whistleblower is likely to receive about $4.8 million from the Omnicare settlement, $1.25 million from the Total Pharmacy settlement, and some attorneys fees which were also included as part of the settlement.

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