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Liability for Overpayments - Affiliated Companies

Oftentimes, our clients own multiple healthcare businesses in one or more areas, such as home health, hospice, or adult day care facilities. The question then arises: When one business is assessed an overpayment by Medicare (the assessed business), are the other affiliated businesses and the owners liable for the overpayment?

In general, if a business has been incorporated as a separate legal entity such as a corporation, limited liability company, or limited partnership, courts will respect such legal separation and existence. As a result, affiliated businesses and business owners are not liable for overpayments, or subject to a recoupment for the actions of the assessed business.

However, there are certain actions which can put affiliated businesses and owners at risk of liability. For instance, in cases where there has been a finding of fraud, courts have been able to circumvent the legal separation of companies and their owners to hold them liable. In addition, if the assessed business, affiliated businesses, and owners begin transferring patients or assets between themselves in an attempt to avoid paying an overpayment or debt to the government, the court can impose personal liability on owners and affiliated businesses. United States v. Normandy House Nursing Home, Inc., 428 F.Supp. 421 (D.Mass.1977); 31 U.S.C. 3731(a)(1). Finally, if the business owners have ignored corporate formalities and comingled the operations and finances of the assessed business with the affiliated businesses, courts may find cause to hold owners and affiliated companies liable. U.S. v. Pisani, 646 F.2d 83 (3rd Cir. 1981), U.S. v. Bridle Path Enterprises, Inc., 2001 U.S. Dis. LEXIS 20434, Healthcare Technology Services, Inc. v. Shalala, No. Civ. A. 99-4467 (E.D. Penn. Apr. 25, 2000).

In order to protect affiliated companies and owners from overpayments and recoupments, corporate formalities should always be observed and followed. In addition, the operations and finances of affiliated businesses should always be kept separate to avoid forfeiting corporate protections.

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