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HealthSouth the US hospital operator, on Thursday settled allegations that it defrauded federal health insurance programmes by agreeing to pay $325m.

HealthSouth the US hospital operator, on Thursday settled allegations that it defrauded federal health insurance programmes by agreeing to pay $325m.

The US Department of Justice said the case covered allegations that HealthSouth had improperly or unlawfully billed Medicare and other federal programmes for a range of patient services dating back to 1991.

But the justice department said the settlement with its civil division also resolved allegations that HealthSouth had wrongly charged Medicare for the cost of sending the company’s administrators to Disney World.

HealthSouth was rocked last year by allegations of widespread accounting fraud.

In November 2003 Richard Scrushy, former chairman and chief executive of HealthSouth, was charged with 85 counts of fraud by the justice department, including allegations that he and others devised a scheme that had inflated the company’s earnings by $2.7bn sine 1999.

The Securities and Exchange Commission alleged in March 2003 that HealthSouth, at Mr Scrushy’s instruction, began to boost its earnings artificially in 1986.

Peter Keisler, head of the justice department’s civil divison, said HealthSouth’s Medicare fraud involved longstanding practices in its outpatient physical therapy business and improprieties at its inpatient rehabilitation services.

“When a company defrauds our nation’s health care programmes, it steals from the American taxpayers,” he added.

HealthSouth will pay $169m to resolve allegations that it submitted reimbursement claims to Medicare for physical therapy services that lacked proper documentation or were prepared by unlicensed people.

It will pay a further $89m to resolve allegations that the company submitted claims for reimbursement to Medicare for a range of unallowable costs.

The justice department said the costs included “lavish entertainment and certain travel costs for HealthSouth’s annual administrators meeting at Disney World, and certain board of director fees”

The remainder of the settlement payment will resolve allegations about further unallowable costs and unlawful billing of Medicare for skilled nursing care that was presented as ancillary services.

HealthSouth said the settlement involved an immediate payment of $75m, with the balance paid in quarterly instalments over three years.

Jay Grinney, HealthSouth’s chief executive, said the company could afford the settlement “without compromising the resources necessary to manage our facilities in a quality manner”, and hailed it as an important step forward.

“HealthSouth’s new management team is dedicated to developing a corporate culture characterised by integrity, quality and compliance – supporting our employees in their ongoing efforts to provide high quality care to patients across the country,” he said.

Under the settlement, HealthSouth has entered into a corporate integrity agreement with the US Department of Health.

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