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Federal prosecutors allege that a widespread Medicare fraud scheme at Life Care Centers of America began at the highest levels of the corporate hierarchy and that employees who complained about possibly illegal practices were "ignored," "chastised," "punished" or fired.

Recently unsealed court records in an ongoing whistle-blower lawsuit against the Cleveland, Tenn.-based company reveal claims that the company founder and sole shareholder, Forrest Preston, forbade his own compliance department from conducting unannounced inspections at facilities.

Prosecutors claim that former Chief Operating Officer Cathy Murray circumvented the department's responses to employee complaints while she "aggressively drove the company's push for increased Medicare revenue."

"As [Murray] frequently told her employees, 'their job was to make money for Forrest Preston,'" according to court documents.

Murray could not be reached for comment Friday.

If found guilty on the fraud charges, Life Care could face fines in the hundreds of millions of dollars. Each fraudulent report carries a $5,000 to $11,000 fine, and prosecutors have asked the judge to triple the damages.

Company representatives have declined to comment on the allegations and referred questions to a Nov. 30 letter issued after the lawsuit became public.

"Contrary to the government's allegations, Life Care's therapy programs improve patients' conditions and their quality of life," the statement reads. "This belief is supported by medical literature, studies, and Life Care's first-hand experience in observing the progress of patients who receive high-intensity therapy."

Life Care is the nation's largest private nursing home company with more than 200 facilities in 28 states. From 2006 to 2011 Life Care received $4.2 billion in Medicare reimbursements.

Joe Carcello, director of research for the University of Tennessee's Corporate Governance Center, said management practices for private health care companies are similar to other for-profits but differ in some important ways.

Carcello likened increasing revenues for many businesses to someone shopping at the mall. A salesperson at a clothing store may sell a customer more clothes than he or she needs, but there's no ethical obligation on the staff -- the customers are responsible for their purchasing decisions.

Not so with Medicare.

"The payer for this is not the patient; the payer for this is the federal government," Carcello said. "In health care there are ethical obligations established by medical ethics embedded in state law and medical licensing codes that require medical care to be performed in the best interest of the patient."

The beginning

In 2005, Preston, Murray and Michael Reams, senior vice president of Rehabilitation Services, formed the "Rehabilitation Opportunity Committee" to increase Medicare revenues through higher therapy treatment levels and more days spent in their facilities, according to court documents.

Medicare reimburses therapies for patients in the first 100 days of care at five levels. Ultra High is the highest level and can pay a provider as much as $564. The lowest rate of therapy pays $231.

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