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EXHIBIT 10.44
XXXXXX X. XXXXXXX, III (CSBN 59775)
United States Attorney
XXXXX XXXXXXX (NYSBN )
Chief, Criminal Division
XXXXXX X. XXXXX (CSBN 86037)
Special Assistant U.S. Attorney
Attorneys for Plaintiff
UNITED STATES OF AMERICA
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
UNITED STATES OF AMERICA, ) NO. CR.
)
Plaintiff, ) PLEA AGREEMENT
)
v. )
)
XXXXXXX ENTERPRISES-CALIFORNIA, INC. )
)
Defendant. )
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Defendant XXXXXXX ENTERPRISES--CALIFORNIA, INC. ("XXXXXXX-CALIFORNIA"), a
California corporation, by and through its counsel of record, as ratified by its
Board of Directors, enters into this Plea Agreement with the United States
Department of Justice, by the United States Attorney's Office for the Northern
District of California (the "United States"), pursuant to Rule 11(e)(1)(C) of
the Federal Rules of Criminal Procedure. This Agreement binds only the United
States, as defined herein, not any state or local prosecuting authorities.
DEFENDANT'S PLEA
1. XXXXXXX-CALIFORNIA agrees to waive indictment and plead guilty to an
information charging it with one count of wire fraud, in violation of 18
U.S.C. Section 1343, and ten counts of making false statements to Medicare, in
violation of 18 U.S.C. Section 1001.
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THE NATURE OF THE OFFENSES
2. XXXXXXX-CALIFORNIA understands that at any trial the government would be
required to prove the following elements of the offenses to which it is pleading
guilty:
A. Wire Fraud-Count One
B. a. BEVERLY-CALIFORNIA devised and intended to devise a scheme to defraud
the United States and to obtain money from the Medicare program by means of
false and fraudulent pretenses and representations.
C. b. It was a part of the scheme that XXXXXXX-CALIFORNIA would and did
defraud the United States of its right to have the Medicare program administered
honestly and free from deceit and fraud and to have the federal funds therein
disbursed in accordance with the laws of the United States.
D. c. It was a further part of the scheme that XXXXXXX-CALIFORNIA would and
did submit Medicare cost reports to its fiscal intermediary for the Medicare
program that contained false and fictitious statements relating to nursing
service costs.
E. d. For the purpose of executing the scheme and artifice to defraud and to
obtain money by means of false and fraudulent pretenses and representations,
XXXXXXX-CALIFORNIA did transmit and cause to be transmitted by means of wire
communication in interstate commerce, cost reports for nursing homes, which
contained false and fictitious statements relating to nursing service costs.
F. False Statements to Government-Counts Two through Eleven
G. a. BEVERLY-CALIFORNIA knowingly created and used documents, namely,
Medicare cost reports, knowing that those reports contained materially false,
fictitious, and fraudulent statements and entries relating to nursing service
costs.
H. b. On or about May 27, 1997, XXXXXXX-CALIFORNIA submitted ten such cost
reports to its fiscal intermediary for the purpose of obtaining payment of those
costs by Medicare.
I. c. BEVERLY-CALIFORNIA's claim for payment from Medicare was a matter within
the jurisdiction of the executive branch of the Government of the United States.
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J. THE MAXIMUM STATUTORY PENALTIES
K. 3. XXXXXXX-CALIFORNIA understands that the maximum statutory penalties for
each count to which it is pleading guilty are:
B. Wire Fraud
a. Five years' probation;
b. Fine of the greater of $500,000 or twice the pecuniary gain from
the offense;
c. Mandatory special assessment of $400 per count, which is to be
paid at the time of sentencing;
d. Restitution as ordered by the Court.
B. False Statements to Government
a. Five years' probation;
b. Fine of the greater of $500,000 or twice the pecuniary gain from
the offense;
c. Mandatory special assessment of $400 per count, which is to be
paid at the time of sentencing;
d. Restitution as ordered by the Court.
FACTUAL BASIS
4. XXXXXXX-CALIFORNIA is guilty of the offenses to which it will plead
guilty, including all of the elements as set forth in Paragraph 2 above.
XXXXXXX-CALIFORNIA agrees that the following facts are true:
a. BEVERLY-CALIFORNIA is a wholly-owned subsidiary of Xxxxxxx Health
and Rehabilitation Services, Inc., which is itself a subsidiary of Xxxxxxx
Enterprises, Inc., a Delaware corporation headquartered in Ft. Xxxxx, Arkansas
("Xxxxxxx Enterprises"). Xxxxxxx Enterprises is the largest nursing home chain
in the United States and through various subsidiaries owns and operates homes in
32 states. XXXXXXX-CALIFORNIA is one such subsidiary.
b. Nursing homes provide a variety of nursing, therapeutic and
custodial services, typically to patients who because of their physical
conditions are unable to remain at their homes or in acute care hospitals.
Nursing homes are compensated for providing these services in a variety of ways,
including cash, private insurance, and public insurance, such as the Medicare
Program.
c. Nursing homes employ Registered Nurses, Licensed Vocational
Nurses, and Certified Nurses Aides, among other personnel, in providing services
to patients. Salaries paid to these nurses represent the single most expensive
cost of operating a nursing home.
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THE MEDICARE PROGRAM
d. The Social Security Act (Title 42, United States Code, Section
1395, et seq.), which established the Medicare Program, provides that
participating nursing home operators can be reimbursed certain costs. Medicare
is not designed, however, to pay for the long-term care of nursing home
patients. Rather, it is intended for Medicare-eligible patients who need
follow-up skilled nursing care following a hospital stay. The benefits last for
a maximum of 100 days. If a nursing home patient requires nursing care for more
than 100 days and is unable to pay, reimbursement generally is made by Medicaid,
a joint federal-state insurance program. The reimbursement rates paid by
Medicaid are significantly less than those paid by Medicare.
e. Many nursing homes care for Medicare, Medicaid and other
patients. A facility seeking reimbursement from the Medicare program must
demonstrate that the system it employs for recording and accumulating the number
of hours of nursing services is capable of audit and equitably allocates the
nursing service costs between the Medicare part and non-Medicare parts of the
facility.
f. There are two generally accepted methods for allocating nursing
service costs between the Medicare and non-Medicare parts of a facility. One is
the "actual time basis," under which the actual number of hours of nursing
service provided for each part of the facility is the basis for allocation of
nursing service costs. The other is the "average cost per diem basis," under
which total nursing service costs for the entire facility are divided by the
total patient days for the entire facility to arrive at an average nursing
service cost per diem. This average nursing service cost per diem is then
multiplied by the number of patient days in the Medicare part of the facility to
determine the nursing service costs that may be allocated to the Medicare
program.
COST REPORTING
g. Medicare funds generally are distributed to nursing homes through
"fiscal intermediaries"; that is, private insurance companies that have a
contract with the government to administer a Medicare program. At all times
pertinent, the "fiscal intermediary" for XXXXXXX-CALIFORNIA was Aetna Insurance
Company (Aetna) or Blue Cross of California (Blue Cross).
h. Nursing homes participating in the Medicare program generally are
required to submit annual
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Medicare cost reports describing costs relating to health care services rendered
to Medicare beneficiaries. In the meantime, in order to maintain its operations
during the year, the nursing home bills the Medicare program through the fiscal
intermediary. The fiscal intermediary processes the bills and makes interim
payments to the nursing home that are calculated to approximate costs. At the
end of the nursing home's accounting year, the interim payments received by the
nursing home are compared to the costs reported in the annual cost report. If
the nursing home has incurred costs greater than the total of the interim
payments, then it receives the difference from the fiscal intermediary. If the
nursing home has incurred costs less than the total of the interim payments,
then the nursing home is required to pay the difference to the fiscal
intermediary.
SCHEME TO DEFRAUD
i. Beginning in approximately 1992 and continuing through 1998, the
defendant XXXXXXX-CALIFORNIA participated in a scheme to defraud the Medicare
program and to obtain money by means of false and fraudulent representations,
that is, by filing annual Medicare cost reports that contained fabricated
nursing services costs. Specifically, XXXXXXX-CALIFORNIA calculated its Medicare
nursing costs based not on actual time or average per diem Medicare nursing
costs, but according to prescribed ratios or other calculations designed to
enable XXXXXXX-CALIFORNIA to approach or surpass targeted revenue levels and
budgeted profit.
j. In order to conceal the fraudulent nature of its Medicare cost
reports, and to create "back-up" documentation for the fabricated costs,
XXXXXXX-CALIFORNIA manufactured and altered documents to make it appear that
nurses were devoting significantly more time to Medicare patients than they
actually were. Among the fabricated documents were phony nursing "sign-in
sheets" that purported to record hours worked by particular nurses on particular
dates and times.
k. For the purpose of executing the scheme and artifice to defraud
and to obtain money by means of false and fraudulent pretenses and
representations, on or about May 27, 1997, defendant XXXXXXX-CALIFORNIA did
transmit and cause to be transmitted by means of wire communication in
interstate commerce Medicare cost reports containing fabricated and inflated
costs for direct nursing services provided at XXXXXXX-CALIFORNIA nursing homes.
l. On or about May 27, 1997, XXXXXXX-CALIFORNIA submitted ten cost
reports for the
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purpose of obtaining payment of those costs by Medicare, knowing that those
cost reports contained materially false statements and entries, a matter within
the jurisdiction of the executive branch of the Government of the United States.
WAIVER OF RIGHTS
5. XXXXXXX-CALIFORNIA understands and agrees that by pleading guilty
it is giving up the following rights which it would have if the case went to
trial:
a. the rights to plead not guilty, to be presumed innocent, and
to require the government to prove all of the elements of the crimes beyond a
reasonable doubt;
b. the right to a speedy and public jury trial with the
assistance of an attorney;
c. the right to a unanimous jury verdict;
d. the right to confront and cross-examine government
witnesses;
e. the right to present evidence and/or witnesses on its own
behalf, and to compulsory process;
f. the right not to present evidence or have adverse inferences
drawn if it did not do so;
g. the rights to pursue any affirmative defenses, Fourth or
Fifth Amendment claims, or any other claims presented or that could be presented
in any pretrial or post-trial motion;
h. the rights to both appeal and collaterally attack, the
guilty plea, the judgment of guilt, orders of the Court, and any part of the
sentence imposed by the Court;
i. the right to be indicted by a grand jury for the felony
charge to which it is pleading guilty; and
j. the right to challenge venue in the Northern District of
California.
SENTENCING PROCEDURES AND FACTORS
6. If acceptable to the Court, the parties agree that sentence should be
imposed on the date of the plea and without a presentence investigation and
report, in accordance with Rule 32(b)(1)(A) of the Federal Rules of Criminal
Procedure.
7. XXXXXXX-CALIFORNIA understands that, notwithstanding Paragraph 6 and
Paragraph 9 below, its sentencing is governed by the United States Sentencing
Guidelines.
8. The parties agree to the following Sentencing Guideline calculations
(pursuant to the November 1, 1998
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revision of the Sentencing Guidelines):
a. Pursuant to U.S.S.G. Sections 8C2.1 and 8C2.4(a)(2), and
U.S.S.G. Section 2F1.1, the base offense level is 21.
b. Pursuant to U.S.S.G. Sections 8C2.1 and 8C2.4(a)(2), and
U.S.S.G. Section 2F1.1, since the offense involved more than minimal planning,
the adjusted offense level is 23.
c. Pursuant to U.S.S.G. Section 8C2.5(a), and (b)(3), the
culpability score is 8.
d. Pursuant to U.S.S.G. Section 8C2.5(g)(3), the final culpability
score is 7.
e. Pursuant to U.S.S.G. Section 8C2.6, the minimum multiplier is
1.40 and the maximum multiplier is 2.80.
f. Pursuant to U.S.S.G. Section 8C2.7, the Guidelines fine range
falls between a minimum of $2,240,000 and a maximum of $4,480,000.
9. Pursuant to Rule 11(e)(1)(C) of the Federal Rules of Criminal
Procedure, the parties agree that an appropriate disposition of this case is
that XXXXXXX-CALIFORNIA receive the following sentence:
a. BEVERLY-CALIFORNIA will not be placed on probation.
b. BEVERLY-CALIFORNIA will pay a criminal fine of $5,000,000.
XXXXXXX-CALIFORNIA recognizes that this amount represents an upward departure
from the applicable guidelines range. XXXXXXX-CALIFORNIA consents to the upward
departure.
c. BEVERLY-CALIFORNIA will pay a special assessment of $4400.
d. BEVERLY-CALIFORNIA will not be required to pay restitution as
part of its criminal sentence.
10. XXXXXXX-CALIFORNIA understands that both the United States and
XXXXXXX-CALIFORNIA retain the right to withdraw from the Agreement, and this
Agreement will be null and void, if the Court rejects the Agreement and refuses
to be bound by the sentence agreed to in Paragraph 9. In addition, the United
States retains the right to withdraw from this Agreement if Xxxxxxx Enterprises
fails to execute the agreements set forth in paragraphs 12 and 13 within 30 days
of the date this agreement is executed.
11. The amount listed in Paragraph 9(b) shall be paid to the Financial
Litigation Unit, United States
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Attorney's Office, Northern District of California, by FEDWIRE. Payment shall be
made on or before the next business day following the date of sentence.
12. Xxxxxxx Enterprises will execute a civil settlement agreement with the
United States relating to this and additional conduct. Under the terms of that
agreement, Xxxxxxx Enterprises will pay the United States the amount of
$170,000,000.
13. Xxxxxxx Enterprises will enter a corporate compliance agreement with
the Department of Health and Human Services, Office of Inspector General.
14. XXXXXXX-CALIFORNIA understands and agrees that, should it withdraw its
plea in accordance with Paragraph 10, it may thereafter be prosecuted for any
criminal violation of which the government has knowledge, notwithstanding the
expiration of any applicable statute of limitations following the signing of
this agreement. XXXXXXX-CALIFORNIA agrees that it will not raise the expiration
of any statute of limitations as a defense to any such prosecution.
15. XXXXXXX-CALIFORNIA understands that this agreement does not bind the
Internal Revenue Service ("IRS"). Further, XXXXXXX-CALIFORNIA understands that
the United States takes no position as to the proper tax treatment of any of the
payments made by XXXXXXX-CALIFORNIA pursuant to this Plea Agreement, or payments
by Xxxxxxx Enterprises pursuant to the Civil Settlement Agreement.
THE UNITED STATES' COMMITMENT
16. In exchange for XXXXXXX-CALIFORNIA's guilty plea and its performance
of its other obligations under this Agreement as set forth above, as well as
Xxxxxxx Enterprises' execution of the Civil Settlement Agreement and the
Corporate Compliance Agreement, the United States agrees to do the following:
a. It will not file any other criminal charges against
XXXXXXX-CALIFORNIA, its parent corporation, or any affiliated
corporations, including Xxxxxxx Enterprises, for offenses
relating to the allocation of direct nursing service costs in
Medicare cost reports filed for the years 1992 to 1998; and,
b. It will agree, pursuant to Rule 11(e)(1)(C), to the sentence set
forth in Paragraph 9 above.
MODIFICATION OF PLEA AGREEMENT
17. This Agreement sets forth all the terms of the plea agreement between
XXXXXXX-CALIFORNIA and
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the United States. XXXXXXX-CALIFORNIA understands that no modifications of or
additions to this Agreement shall be valid unless they are in writing and signed
by the United States, XXXXXXX-CALIFORNIA's attorney, and a duly authorized
representative of XXXXXXX-CALIFORNIA.
STATEMENT BY XXXXXXX-CALIFORNIA -- KNOWING AND VOLUNTARY PLEA This
Agreement has been authorized, following consultation with counsel, by the
XXXXXXX-CALIFORNIA Board of Directors, by corporate resolution dated October
___, 1999. A certified copy of the corporate resolution is attached as Exhibit A
to this agreement and incorporated herein. Except as set forth in this plea
agreement, XXXXXXX-CALIFORNIA has received no promises or inducements to enter
its guilty plea, nor has anyone threatened XXXXXXX-CALIFORNIA or any other
person to cause it to enter its guilty plea.
Dated: October ___, 1999
Xxxxx Xxxxx
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On behalf of XXXXXXX-CALIFORNIA
DEFENSE COUNSEL AFFIRMATION -- KNOWING AND VOLUNTARY PLEA
We have discussed with and fully explained to XXXXXXX-CALIFORNIA: the facts
and circumstances of the case; all rights with respect to the offense charged in
the Information; possible defenses to the offense charged in the Information;
all rights with respect to the Sentencing Guidelines; and all of the
consequences of entering into this plea agreement and entering guilty pleas. We
have reviewed the entire plea agreement with our client, through its authorized
representatives. In our judgment, XXXXXXX-CALIFORNIA, through its authorized
representatives, understands the terms and conditions of the plea agreement, and
we believe XXXXXXX-CALIFORNIA's decision to sign the agreement is knowing and
voluntary. XXXXXXX-CALIFORNIA's execution of and entry into the plea agreement
is done with our consent.
DATED: October ___, 1999
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Xxxx X. Xxxxx
PROSKAUER ROSE, LLP
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DATED: October ___, 1999
Xxxxxxx X. Xxxx
Xxxxxx Xxxxxxx Xxxxxxx, III
KING & SPALDING
Counsel for Defendant
XXXXXXX-CALIFORNIA
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UNITED STATES' SIGNATURE
DATED: October ___, 0000 XXXXXX X. XXXXXXX, XXX
Xxxxxx Xxxxxx Attorney
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XXXXXX X. XXXXX
Special Assistant U.S. Attorney
