A Medical Device Daily

Regency Nursing and Rehabilitation Centers (RN&RC; Victoria, Texas) nursing home chain will pay the U.S. $4 million to settle allegations that Regency submitted false claims to Medicare and the Texas Medicaid program, the Justice Department and the U.S. Attorney's Office for the Southern District of Texas said last week.

The False Claims Act settlement resolves allegations that Regency submitted claims for reimbursement to Medicare and Medicaid for rehabilitation and skilled nursing services that were not reimbursable because the nursing home residents were not qualified for the services, the services were not medically necessary, or they were not supported by adequate documentation.

In other legalities:

Three HealthEast Care System (St. Paul, Minnesota) hospitals have agreed to pay the fedral government $2.28 million to settle allegations that the healthcare facilities submitted false claims to Medicare, the Justice Department reported last week.

The settlement resolves allegations that the hospitals overcharged Medicare from 2002 to 2007 by thousands of dollars each time they performed kyphoplasty, a minimally-invasive procedure used to treat certain spinal fractures that often are due to osteoporosis. The procedure can be performed safely as an outpatient surgery, but the government contends that the HealthEast hospitals performed the procedure on an inpatient basis in order to increase their Medicare billings.

The settlement with HealthEast follows the government's May 2008 settlement with Medtronic (Minneapolis), corporate successor to Kyphon (Sunnyvale, California), developer of the kyphoplasty procedure. Medtronic Spine paid $75 million to settle allegations that the company defrauded Medicare by counseling hospital providers to perform kyphoplasty procedures as an inpatient procedure even though the minimally-invasive procedure should have been done in many cases as an outpatient procedure.

• HealthSouth (Birmingham, Alabama) reported that the U.S. District Court for the Eastern District of Michigan granted the company's motion to set aside a consent judgment in the amount of $376 million between Horizon/CMS Healthcare, a former subsidiary of HealthSouth, and General Medicine PC The court agreed with HealthSouth that the consent judgment was a product of fraud on the court.

In granting HealthSouth's motion, the court stated that General Medicine's failure to disclose material facts to the court "caused a distortion of the judicial process . . . the primary purpose of which was to ambush" HealthSouth. Since 2004, General Medicine has been litigating against HealthSouth in an attempt to force the company to pay the amount of the consent judgment.

The consent judgment was the result of a suit brought in the U.S. District Court for the Eastern District of Michigan in 1996 by General Medicine against Horizon, prior to HealthSouth's acquisition of Horizon. HealthSouth was not a party to that suit.

HealthSouth learned of the consent judgment only after selling Horizon when General Medicine sued HealthSouth in Alabama seeking recovery of the $376 million consent judgment and claiming allegedly fraudulent transfers involving assets of Horizon. The company said it intends to "vigorously defend" any remaining claims against it and "aggressively pursue our counterclaims in the Alabama case."

• QLT (Vancouver, British Columbia) reported that on May 21 that the U.S. District Court for Eastern Massachusetts issued an oral ruling on QLT's motion to dismiss all the claims filed by the General Hospital Corp. (Boston), doing business as Massachusetts General Hospital (MGH), in its lawsuit against QLT. In the oral decision, the court dismissed all of the claims filed by MGH except that made under Massachusetts General Law chapter 93A, a consumer protection law which makes "unfair or deceptive acts or practices in the conduct of any trade or commerce" unlawful.

QLT's motion to dismiss was filed with the court on March 17, with the court expected to enter its ruling in the near future.

In the oral decision, the court also dismissed MGH's motion to remand the case back to the Superior Court of the Commonwealth of Massachusetts, where MGH had originally filed its complaint.

The court decision means that MGH can continue its lawsuit against QLT in the District Court only on the claim made under Massachusetts General Law chapter 93A. Under the direction of the District Court, QLT and MGH will now begin to schedule discovery on this claim.

MGH filed its lawsuit against QLT on Feb. 12 in the Massachusetts State Court. In its complaint, MGH asserted claims for breach of contract, breach of the implied covenant of good faith and fair dealing, violation of Massachusetts Chapter 93A Sections 2 and 11, unjust enrichment, and for a declaratory judgment.