Two Large Nursing Home Chains and Their Principals Pay $14 Million to Settle False Claims Act Case

BOSTON, MA—United States Attorney Carmen M. Ortiz and Tony West, Assistant Attorney General for the Justice Department’s Civil Division announced today that the government has reached a $14 million settlement with Mariner Health Care, Inc. (“Mariner”), and SavaSeniorCare Administrative Services, LLC (“Sava”), both nursing home chains operating out of Atlanta, Georgia, and with their principals, Leonard Grunstein, Murray Forman, and Rubin Schron. The settlement resolves the United States’ allegations that the defendants solicited and received kickback payments from Omnicare, Inc. (“Omnicare”), the nation’s largest pharmacy that specializes in dispensing drugs to nursing home patients.

In a Complaint filed in March 2009 and unsealed in November 2009, the United States alleged that Omnicare, Mariner, Sava, Grunstein, Forman, and Schron conspired to arrange for Omnicare to pay $50 million in exchange for agreements by Mariner and Sava to continue using Omnicare’s pharmacy services for 15 years. Grunstein, of Teaneck, New Jersey, is an attorney who, in 2004 was a partner in the New York office of Jenkens & Gilchrist Parker Chapin LLP and later became a partner in the New York office of Troutman Sanders LLP. Forman, of Lawrence, New York, is an investment banker. Schron, of Brooklyn, New York, is a real estate investor.

U.S. Attorney Carmen Ortiz said, “This case reflects the government’s continuing efforts to pursue those who scheme to hide illegal payments that can affect the way drugs and other services are delivered to nursing home residents, an especially vulnerable patient population.”

“Nursing home residents and their families are entitled to make health care decisions free from the distortions caused by illegal kickback schemes,” said Tony West, Assistant Attorney General for the Justice Department’s Civil Division.

The Complaint alleged that, in 2004, Grunstein and Forman proposed that Schron provide financial backing for the acquisition of Mariner, which at that time was one of Omnicare’s largest customers. According to the Complaint, Grunstein, and Forman attempted to arrange the Mariner acquisition so that Schron would have to contribute as little cash as possible. To achieve this end, the Complaint alleged, Grunstein and Forman pursued a plan to sell to Omnicare the right to continue providing pharmacy services to Mariner, even though Forman was warned that selling the right to provide pharmacy services would constitute an illegal kickback.

The Complaint alleged that Grunstein and Forman thereafter arranged for Omnicare to pay $50 million to purchase a small Mariner business unit that had only two employees and no tangible assets apart from accounts receivable valued at less than $3 million. According to the Complaint, Omnicare paid $40 million of this amount up front, prior to actually acquiring the Mariner business unit, and simultaneously obtained new 15-year pharmacy contracts from Mariner and from Sava, a new nursing home chain that Grunstein and Forman created from Mariner. The Complaint alleged that Grunstein and Forman illegally tied the new pharmacy contracts to Omnicare’s agreement to purchase the small Mariner business unit, and that the total $50 million purchase price for the business unit actually was a kickback by Omnicare to keep the future business of Mariner and Sava. The government’s Complaint further alleged that, in 2006, after the government issued subpoenas concerning the transaction, the individual defendants created backdated documents in a further attempt to hide the kickback.

Approximately $7.84 million of the settlement proceeds will go to the United States, while $6.16 million has been allocated to certain state Medicaid programs. In November 2009, the United States, numerous states, and Omnicare entered into a $98 million settlement agreement that, among other things, resolved Omnicare’s civil liability under the False Claims Act for allegedly paying kickbacks to keep the Mariner and Sava business.

“Nursing home residents and their families are entitled to have decisions about who provides care to them free of the distortions caused by illegal kickback schemes.” said Tony West, Assistant Attorney General for the Justice Department’s Civil Division.

As part of the settlement, Mariner has entered into a corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services (OIG-HHS). This agreement provides for Mariner to put in place procedures and reviews to avoid and promptly detect conduct similar to that which gave rise to this matter. At the same time, OIG-HHS has reserved its rights to seek exclusions of Sava, Grunstein, Forman, and/or Schron from participation in Medicare, Medicaid, and all other federal health care programs.

The settlement resolves a whistleblower action, United States ex rel. Resnick v. Omnicare, Inc., et al., No. 06-10149-RGS (D. Mass.), filed under the qui tam provisions of the False Claims Act.

The case was investigated by the Office of Inspector General of the Department of Health and Human Services and the Federal Bureau of Investigation. It was handled by Assistant United States Attorney’s Gregg Shapiro and Christine Wichers in Ortiz’s Civil Division and Laurie Oberembt in the Justice Department’s Civil Division. John O’Brien, Senior Counsel in the Office of Counsel to the Inspector General, negotiated the corporate integrity agreement with Mariner.