On January 21, 2026, the U.S. Department of Justice announced a False Claims Act complaint filed against Priority Hospital Group LLC, a Louisiana-based hospital management company, three long-term acute care hospitals (LTACHs) under its management, and a physician. The complaint alleges that the defendants held patients longer than medically necessary to inflate Medicare reimbursement and that one hospital entered into improper financial arrangements with a referring physician in violation of the Anti-Kickback Statute and the Stark Law.
This enforcement action underscores the federal government’s focus on Medicare reimbursement practices and compliance risks within LTACHs. Although the lawsuit involves Louisiana-based facilities, the legal theories and enforcement priorities apply nationwide and should prompt New Jersey LTACHs to examine their compliance and discharge practices.
The Government’s Allegations
The government’s complaint centers on two primary theories of liability.
First, the complaint alleges that Priority Hospital Group and the defendant LTACHs deliberately delayed discharging patients and manipulated timing of discharges to maximize Medicare reimbursement rather than basing discharge decisions on clinical need.
Second, the complaint alleges that one of the defendant hospitals entered into medical directorship agreements with a physician that provided additional remuneration intended to induce patient referrals, in violation of the Anti-Kickback Statute and the Stark Law.
The Anti-Kickback Statute prohibits offering, paying, soliciting, or receiving remuneration in exchange for referrals of items or services covered by Medicare and other federally funded programs. The Stark Law forbids a hospital from billing Medicare for certain services referred by physicians that have a financial relationship with the hospital.
The lawsuit was originally filed under the qui tam or whistleblower provisions of the False Claims Act by a former employee of one of the LTACHs. The government has intervened and taken over the action, signaling its view that the case has significant merit. If the defendants are found liable, the United States may recover three times the amount of its losses plus applicable civil penalties.
The case highlights two areas that federal investigators frequently examine in LTACH enforcement actions: discharge timing patterns and financial relationships with referring physicians.
Understanding the LTACH Reimbursement Structure and Length-of-Stay Risks
To fully appreciate the compliance risks highlighted by this case, it is important to understand how Medicare reimburses long-term acute care hospitals and why length-of-stay policies are a focal point for enforcement scrutiny.
LTACHs are designed to treat patients with complex medical conditions who require extended hospital-level care, typically for an average length of stay of more than 25 days. Under the Medicare Prospective Payment System, LTACHs receive a predetermined payment based on the patient’s diagnosis-related group (DRG), but payments are adjusted downward for patients discharged before certain thresholds are met.
As the government alleges in this case, this reimbursement structure can create financial incentives to keep patients hospitalized until payment thresholds are reached, even if the patient’s clinical condition would support an earlier discharge or transfer to a lower level of care. For this reason, LTACH reimbursement structures have historically drawn scrutiny from federal enforcement agencies.
Federal regulators have sophisticated data analytics capabilities to identify outliers in length-of-stay patterns. Facilities whose average length-of-stay consistently clusters just above Medicare payment thresholds, or whose discharge timing appears correlated with financial rather than clinical milestones, may be flagged for audit or investigation.
Accordingly, internal length-of-stay policies should be carefully designed to ensure that clinical criteria, not reimbursement optimization, govern discharge decisions.
Practical Guidance for New Jersey Long Term Acute Care Hospitals
In light of this enforcement action, New Jersey LTACH operators should consider taking the following steps to evaluate and strengthen their compliance programs:
Strengthen Internal Compliance Programs. The involvement of a whistleblower in the Priority Hospital Group case illustrates the risk posed by employees who observe potential compliance failures. Robust compliance training, accessible reporting mechanisms, and non-retaliation policies can reduce the likelihood of qui tam actions and demonstrate your commitment to lawful operations.
Review Discharge Practices and Documentation. Ensure that your facility’s discharge decisions are driven by documented clinical criteria and not by financial considerations. Length-of-stay patterns that deviate from clinical norms may attract government scrutiny. Train clinical staff on the importance of documenting the medical necessity for continued hospitalization at every stage of a patient’s stay.
Establish Written Length-of-Stay Policies Grounded in Clinical Criteria. LTACHs should develop and maintain written policies that establish objective, clinically based criteria for continued hospitalization, transfer, and discharge. These policies should emphasize that length-of-stay decisions must be made by clinical personnel based on the patient’s medical condition and care needs, not by administrative or financial staff based on reimbursement considerations. Facilities should also implement procedures requiring regular, documented reassessments of patient status and timely discharge or transfer when a patient no longer requires LTACH-level care. Implement routine audits comparing your facility’s length-of-stay data against clinical benchmarks and industry norms.
Audit Physician Compensation Arrangements. All financial relationships with referring physicians, including medical directorships, call coverage agreements, and consulting arrangements, should be reviewed to confirm that they are structured at fair market value for bona fide services actually rendered. Compensation should be set in advance and should not vary based on the volume or value of referrals. Documentation supporting the business purpose, fair market value, and services rendered under each arrangement should be maintained.
Evaluate Referral Patterns. Monitor referral sources and be alert to any arrangements that may implicate the Anti-Kickback Statute or Stark Law. Arrangements that funnel a disproportionate share of referrals from a particular physician or practice, or that include compensation that could be viewed as a referral incentive, should be flagged for legal review.
Consider Voluntary Self-Disclosure. If a facility identifies potential False Claims Act liability, it should consult with experienced legal counsel regarding whether voluntary self-disclosure to the appropriate government agency may be appropriate.
Conclusion
The Department of Justice’s False Claims Act case against Priority Hospital Group serves as a reminder that long-term acute care hospitals remain a focus of federal healthcare fraud enforcement. Allegations involving length-of-stay manipulation and improper physician referral arrangements carry substantial legal and financial risk.
New Jersey LTACHs should use this enforcement action as an opportunity to review their discharge policies, audit their physician relationships, and reinforce a strong culture of compliance.
Frier Levitt attorneys regularly advise healthcare providers on LTACH reimbursement compliance, structuring of compliant physician arrangements, internal investigations, and government enforcement matters under the False Claims Act, Anti-Kickback Statute, and Stark Law.
Please contact our team to discuss how we can help evaluate your compliance program and mitigate regulatory risk.
