HCR ManorCare gets respite from dropped Medicare fraud lawsuit

CHICAGO (Reuters) - The U.S. Justice Department withdrew a Medicare fraud lawsuit against HCR ManorCare, removing a cloud over one the largest U.S. nursing home chains as it nears a deadline to settle a legal dispute with its landlord.

The motion by the government on Friday to dismiss the case followed questioning by Magistrate Judge Theresa Buchanan in Alexandria, Virginia, over the credibility of its expert witness. The motion was still awaiting U.S. District Judge Claude Hilton’s signature on Monday.

The Justice Department’s whistleblower lawsuit, which accused HCR ManorCare of receiving millions of dollars in Medicare reimbursements for unnecessary therapy, had been hanging over the company since 2015.

The lawsuit had complicated talks with ManorCare’s landlord, Quality Care Properties Inc. The real estate investment trust had sued the nursing home chain in August over more than $300 million in past-due rent.

ManorCare has until Dec. 1 to respond to that lawsuit, which asks a court to replace its management with an independent receiver who would take over operations.

ManorCare is still working toward that deadline, spokeswoman Julie Beckert said on Monday. Quality Care and the Justice Department did not immediately comment.

In its 2016 annual report, Quality Care had warned investors that an adverse judgment in the government’s whistleblower lawsuit against ManorCare or a big settlement obligation could hurt its ability to collect rent.

While the withdrawal of the Justice Department’s lawsuit brings some relief, Quality Care had also said ManorCare’s decline in operating performance and ability to cover its fixed costs could also affect rent collection.

Nursing home operators are suffering from lower government reimbursements, higher costs, lower occupancy and increased federal scrutiny over billing, making it difficult for some to cover rent and other payments.

Defaults have led to friction with landlords, including healthcare REITs that invested heavily in the skilled nursing sector a decade ago and are obligated to pay dividend payments to their investors.

Genesis Healthcare Inc, for example, is negotiating new rental deals with landlords Welltower Inc and Sabra Health Care REIT Inc after reaching a $53 million fraud settlement with the Justice Department last year. It posted a $615 million loss in the third quarter.

The Justice Department last week announced settlements of $6.9 million with four nursing homes in the San Diego area over kickback and fraud allegations and $1.25 million with one in Lumberton, Mississippi, over alleged false claims for substandard care.

Reporting by Tracy Rucinski; Editing by Lisa Von Ahn