Over $20 Million in Combined Qui Tam Settlements from Home Health Buyer and Seller

In August 2023, the Department of Justice (“DOJ”) announced that Watermark Retirement Communities, LLC (“Watermark”), based in Tucson, Arizona, has agreed to pay $4.25 million to resolve allegations of causing False Claims and Anti-Kickback Statute (“AKS”) violations. The alleged kickbacks were solicited and received by Watermark when nationwide home health agency (“HHA”) BAYADA Home Health Care, Inc. and BAYADA Health, LLC (collectively, “BAYADA”) purchased two home health companies, collectively, Watermark at Home (“WAH”), from Watermark in 2014 in order to facilitate referrals from Watermark communities. This latest settlement follows the related 2021 settlement between the DOJ and BAYADA for $17 million for violating False Claims and AKS through the direct submission of Medicare claims resulting from the same HHA transactions.

According to the 2023 Settlement Agreement, Watermark is a senior living community operator that provides assisted living, independent living, memory care, and skilled nursing services in 22 states. BAYADA also operates nationwide, offering home health services, including nursing, rehabilitative, therapeutic, hospice, and assistive care. In mid-2017, a former employee of BAYADA, David Freedman, filed a qui tam action under the False Claims Act. Mr. Freedman filed updated complaints in 2018 and 2021.

In the Second Amended Complaint, Mr. Freedman alleged that BAYADA bought specific home health company assets from Watermark for an amount way beyond the value of the assets acquired. Per the Complaint, the agencies purchased were money-losing entities with no other value to BAYADA other than preferred provider agreements and referrals to benefit BAYADA’s existing locations. The assets were purchased for $1.9 million, which the complaint alleges were “untethered to any legitimate valuation methodology for the acquired assets (other than referrals)”. Mr. Freedman also took issue with no one at BAYADA doing any meaningful financial analysis to justify the purchase price, despite such analysis being a part of other deals and company policy.

The United States contended that Watermark caused the submission of false claims for Medicare payments for services provided to patients by BAYADA that were referred by Watermark. The settlement agreement states,

The United States further contends that these claims were false because in early 2014, in violation of the Anti-Kickback Statute, Watermark knowingly and willfully solicited the Bayada Companies to purchase WAH in order to induce referrals of Medicare beneficiaries living in Watermark residential communities to home health agencies operated by the Bayada Companies.

Valuation Takeaway

These settlements underscore the scrutiny of the home health industry, as well as the substantial risk to both buyers and sellers, i.e., those who may be perceived as either offering or receiving kickbacks. It also reinforces the importance of obtaining independent third-party valuation services and using industry-accepted valuation methodologies to ensure that financial arrangements include terms that are fair market value, commercially reasonable, and entirely free from any expectation of referrals.

BFMV specializes in the valuation of healthcare businesses, assets, and services. Contact us for third-party opinions or questions regarding fair market value financial transactions.

Complaint: United States ex rel. Freedman v. Bayada Home Health Care, Inc., Civ. No. 17-6267 (D.N.J.)