LAFAYETTE, La. (CN) - Three-term Senator John Breaux and 12-term congressman-turned-pharmaceutical lobbyist Billy Tauzin are among the directors in a shareholder derivative lawsuit seeking damages from a hospital chain that was fined $65 million for Medicare fraud.
Lead plaintiff Lee Ann Plummer claims the LHC Group defrauded Medicare, got caught and paid Uncle Sam a $65 million settlement, then went right on defrauding Medicare.
Breaux and Tauzin are among the 12 director and executive defendants in the federal lawsuit.
LHC, based in Lafayette, is one of the largest home health providers in the nation.
Plummer claims that LHC, with knowledge and approval of each individual defendant, illegally overbooked patients for unneeded therapy to squeeze more money from Medicare.
"Despite this claim of providing individualized treatments based on patient needs,
a recent investigation by the United States Senate Finance Committee ... revealed that the Company, with the knowledge and approval of the Individual Defendants (defined herein), was improperly and illegally providing patient therapy sessions regardless of medical necessity in order to maximize reimbursement from Medicare," the lawsuit says. (Parentheses in complaint.)
Plummer claims that "just days" after LHC agreed to the $65 million settlement for bilking Medicare from 2006 to 2008, the Senate Finance Committee issued a report "disclosing that the improper and illegal manipulation of the number of therapy visits provided to patients had continued even after the period covered by the settlement."
And, Plummer claims for the class, since at least 2008, the individual defendants have knowingly caused LHC to disseminate false and misleading statements to stockholders and the investing public.
"Specifically, the Individual Defendant boasted of LHC Group's 'strong' and 'outstanding' revenues and profits, all the while knowing that these numbers were based on the company's improper and illegal manipulation of the Medicare reimbursement system," the complaint states.
Plummer claims the defendants knowingly filed inaccurate and inconsistent financial statements and other documents with the SEC.
"Furthermore, despite their actual knowledge of the Company's illegal conduct in connection with the improper Medicare reimbursement practices, the Individual Defendants made no effort to correct the problems or prevent their recurrence; thus, they abdicated their fiduciary duty of good faith and loyalty," the complaint states.
Defendant Keith Myers, co-founder and former CEO, and defendant director John Indest sold a total of 195,000 shares of company stock for gross proceeds of more than $6.8 million "based on their knowledge of material nonpublic information concerning the Company's manipulation of therapy visits," the lawsuit states.
Tauzin was elected to Congress as a conservative Democrat in 1980 and switched to Republican in 1995. In 2003, two months before resigning as chairman of the committee that oversees the drug industry, he had a substantial role in shepherding through Congress the Medicare Prescription Drug Bill, which prohibits the federal government from bargaining with drug companies for reduced prices on bulk purchases for prescription drugs. He was criticized, a bit, at the time for pushing a bill essentially written by pharmaceutical companies.
Tauzin left Congress to take a job for the Pharmaceutical Research and Manufacturers of America, a powerful trade group of pharmaceutical companies. He retired from the association in June 2010 after earning $11.6 million for the year, making him the highest-paid health law lobbyist.
Tauzin has been "Lead Director" of LHC since 2005, and sits on its compensation, nominating and corporate governance committees, according to the complaint.
Breaux, a Democrat who served three terms in the U.S. Senate after seven terms as a congressman, has been a member of the LHC board since 2007.
The class seeks damages for breach of fiduciary duty from all defendants, and for inside trading and unjust enrichment from Myers and Indest.
They are represented by Eric J. O'Bell of Metairie.
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