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Legal Speak

Beware of Contractors

Published March 31, 2011 10:45 AM by Tony DeWitt

From Tennessee comes a cautionary tale for nursing home operators about the perils of contracting with parties who provide services reimbursed by the federal government.

Outsourcing and downsizing are sometimes good ways of dealing with not having enough professionals on staff to provide services, but contracts with these providers should be structured in such a way as to insulate the nursing home facility from claims filed by the government or whistleblowers under the False Claims Act.

Lorne Allan Semrau of Jackson Tennessee was indicted in June 2007 for filing false claims with Medicare and Medicaid in Tennessee and Mississippi.  Semrau contracted with nursing homes to provide all the medical and mental health services necessary for Medicare and Medicaid patients.  He then contracted with psychiatric professionals to provide these services in the nursing homes, and agreed to bill those services for the physicians.

Unbeknownst to either the psychiatrists or the nursing homes, Semrau then implemented a scheme of systematic overbilling where he billed Medicare and Medicaid for services that were never performed by his subcontractors.  Over the course of his contracts he defrauded Medicare to the tune of more than $245,000.

In this case the federal government went after the person who was criminally responsible, but Medicare can sometimes recover these funds from other parties where they have knowledge that the services are not provided.  For this reason every contract with a person who provides services to residents should include:

  • A statement that the contractor is aware of and agrees to comply with the federal and state antikickback statutes.
  • A representation that the facility has verified that the contract is not in violation of any federal or state anti-kickback statutes.
  • An "indemnify and hold harmless" clause that requires the contractor to indemnify the facility for any sums it must pay because of any act or omission on the part of the contractor while performing or billing for services.
  • A requirement that the contractor have professional liability insurance that covers claims for medical or professional negligence.
  • A provision that permits the facility to examine the billing submitted to any federal payor for any given month on 10 days notice to the contractor, and a penalty provision if the billing is not provided that cancels the contract.
  • A statement that if the facility detects any billing abnormalities it will report these jointly to the contractor and to the fiscal intermediary that was billed.

While these provisions will not completely insulate the facility from liability to the federal government, they will go a long way to demonstrating the facility's good faith in complying with federal law.

posted by Tony DeWitt
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About this Blog

    A.L. "Tony" DeWitt, RRT, CRT, JD, FAARC
    Occupation: Attorney
    Setting: Jefferson City, Mo.
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