Rotech pays $9.95M to settle whistleblower case alleging Medicare, Medicaid fraud

PLANO, TEXAS, April 12, 2018 – Rotech Healthcare has agreed to pay a total of $9.95 million dollars to the federal government and certain states to settle a whistleblower lawsuit that alleged the homecare medical equipment company defrauded government healthcare programs through a fraudulent billing scheme.

The alleged billing fraud involved oxygen equipment and oxygen supplies provided for homecare use by Medicare and Medicaid patients. Out of the total settlement amount, $9.68 million is attributable to claims on Medicare and $273,000 is attributable to claims on the Medicaid programs in approximately 20 states.

Phillips & Cohen LLP, together with O’Connell & Soifer LLP, filed the qui tam complaint under seal on behalf of their client in 2014 in federal district court in Plano, Texas. The court lifted the seal today after a settlement was reached.

“This was a case where a company tried to grab as much money as it could from Medicare and Medicaid regardless of patients’ needs,” said Molly Knobler, a whistleblower attorney at Phillips & Cohen LLP who represented the whistleblower. “Without our client, the government would have been unaware that millions of dollars were being siphoned off of Medicare and Medicaid.”

Medicare Part B and Medicaid cover the cost of renting certain portable and stationary oxygen equipment as well as the oxygen that is used with that equipment. Starting in 2009, the government placed a 36-month cap on equipment rental payments. After that period, for the remainder of the useful life of the equipment (generally an additional two years), suppliers may bill for medically necessary oxygen contents, but not for the equipment.

According to the whistleblower lawsuit and the settlement agreement, Rotech programmed its software in 2009 to automatically bill Medicare and Medicaid monthly for portable oxygen for all of its patients after the 36-month billing cap, including those who did not need or use portable oxygen.

“Rotech’s programmers programed the software pursuant to the specifications approved by Rotech’s management,” says the settlement agreement.

In addition, the whistleblower complaint says, the healthcare programs were billed for oxygen equipment that was never delivered. Durable medical equipment suppliers are required to maintain proof of delivery for the equipment and supplies, and Rotech acknowledged in the settlement agreement that it failed to verify that equipment was delivered.

The whistleblower, a former Rotech employee, reported her concerns to the federal government about the company’s billing system before she filed a qui tam lawsuit alleging violations of the False Claims Act.

After the government began an investigation into the matter, Rotech’s chief compliance officer ordered the company in 2012 to turn off its automatic billing system. The company then sent out letters and refunds to contractors responsible for administering the Medicare program, claiming the billing system was “inadvertently programmed with a flaw.” The letters also claimed the company discovered the flaw by “examining adjustment reports and consultation with the Corporate Compliance Department.”

“Our client was deeply troubled by how government healthcare programs were being cheated,” said Claire M. Sylvia, a whistleblower attorney and partner at Phillips & Cohen. “Because of her concerns, she decided to speak up and pursue her case despite the stress it caused her.”

Patrick J. O’Connell, who formerly was chief of the Texas Attorney General’s Civil Medicaid Fraud Section, thanked the government team for its work on the case, particularly Assistant US Attorney James G. Gillingham of the Eastern District of Texas.

This is at least the third time that Rotech has paid millions to the federal government to settle billing fraud allegations. In 2002, Rotech Medical Corp. paid $17 million to settle allegations of billing fraud involving respiratory equipment. Six years later, Rotech paid $2 million to settle a whistleblower lawsuit alleging the company suppressed disclosure of billing issues in three states.

The False Claims Act allows private citizens to sue companies that are defrauding the government and recover funds on the government’s behalf. If the government joins the case, the whistleblower is entitled to 15 percent to 25 percent of the amount recovered.

Department of Justice press release: Rotech Agrees to Pay $9.68 Million to Settle False Claims Act Liability Related to Improper Billing for Portable Oxygen

Case citation: US et al. ex rel. Hale v. Rotech Healthcare, Inc., 4:14-cv-545 (E.D. Tx.)


Phillips & Cohen is the most successful law firm representing whistleblowers, with recoveries from our cases totaling over $12.3 billion. We have been recognized for our work by numerous national awards. Our attorneys and cases have been in The New York TimesThe Wall Street Journal, the Financial Times and other news media. Three of our cases were featured in the CBS series, “Whistleblower.” Phillips & Cohen’s roster includes former federal prosecutors, the first head of the SEC Office of the Whistleblower, a former deputy administrator of the Centers for Medicare and Medicaid Services, the author of a leading treatise on the False Claims Act and attorneys with decades of experience representing whistleblowers.

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