Skip to main content
Press Release

Tennessee-Based Therapy Providers to Pay $2.7 Million to
Resolve False Claims Act Allegations

For Immediate Release
Office of Public Affairs
Government Alleges Companies Billed for Medically Unnecessary Therapy

The Justice Department announced today that Chattanooga, Tenn., based nursing home manager Grace Healthcare LLC and its affiliate Grace Ancillary Services LLC (collectively, Grace) have agreed to pay $2.7 million, plus interest, to resolve allegations that they violated the False Claims Act by knowingly submitting or causing the submission to the Medicare and TennCare/Medicaid programs of false claims for medically unreasonable and unnecessary rehabilitation therapy. Grace Ancillary Services LLC provided the therapy in some of the skilled nursing facilities Grace Healthcare LLC owns and/or manages in Tennessee and elsewhere.


The settlement resolves claims that in ten nursing home facilities in which Grace provided physical, occupational, and speech therapy for periods ranging from 2007 through June of 2011, Grace pressured therapists to increase the amount of therapy provided to patients in order to meet targets for Medicare revenue that were set without regard to patients’ individual therapy needs and could only be achieved by billing for a large amount of therapy per patient. As part of the settlement, Grace has agreed to enter into a Corporate Integrity Agreement with the Inspector General of the Department of Health and Human Services that provides for procedures and reviews to be put in place to avoid and promptly detect conduct similar to that which gave rise to the settlement.


“In today’s economic climate, it is more important than ever for the United States to make sure that Medicare and Medicaid funds are spent appropriately,” said Stuart F. Delery, Principal Deputy Assistant Attorney General for the Civil Division of the Department of Justice. “The Department of Justice will not tolerate those who abuse government health care programs by providing services based on their own financial considerations, rather than the needs of their patients.”


“The continued viability of our federal healthcare benefit programs depends, in large part, on the honesty and integrity of the program participants,” said U.S. Attorney for the Eastern District of Tennessee Bill Killian. “Health care providers must make decisions regarding the level of services to be provided based solely on individual patient need rather than a desire to increase the bottom line. As this settlement demonstrates, when aggressive business practices cross the line into waste and abuse, we are committed to working with our federal and state partners to protect public funds.”


“Medicare does not pay for medically unnecessary rehabilitation services,” said Derrick L. Jackson, Special Agent in Charge at the U.S. Department of Health and Human Services, Office of Inspector General in Atlanta.  “The Inspector General is committed to identifying improper billing to Medicare and Medicaid and returning those dollars to the taxpayers.


This resolution is part of the government’s emphasis on combating health care fraud and another step for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced by Attorney General Eric Holder and Kathleen Sebelius, Secretary of the Department of Health and Human Services in May 2009. The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation. One of the most powerful tools in that effort is the False Claims Act, which the Justice Department has used to recover $10.2 billion since January 2009 in cases involving fraud against federal health care programs. The Justice Department’s total recoveries in False Claims Act cases since January 2009 are over $14 billion.


The allegations settled today arose from a lawsuit filed by a former Grace employee under the qui tam, or whistleblower provisions, of the False Claims Act. Under the False Claims Act, private citizens can bring suit on behalf of the United States and share in any recovery. The whistleblower in this case will receive $405,000. The case is United States of America and State of Tennessee ex rel. Ottinger v. Grace Healthcare, LLC, Grace Ancillary Services, LLC, and John Does 1-5, No. 3:10-cv-83 (E.D. Tenn.).


The case was handled by the Department of Justice’s Civil Division, the U.S. Attorney’s Office for the Eastern District of Tennessee, the Office of the Inspector General of the U.S. Department of Health and Human Services, the Tennessee Attorney General’s Office, and the Tennessee Bureau of Investigation’s Medicaid Fraud Control Unit. This action was supported by the Elder Justice and Nursing Home Initiative, which coordinates the Department’s activities combating elder abuse, neglect and financial exploitation, especially as they impact beneficiaries of Medicare, Medicaid and other federal health care programs.The claims settled by this agreement are allegations only; there has been no determination of liability.

Updated September 15, 2014

Press Release Number: 13-290