Intervening in a lawsuit by a Minnesota whistleblower, the U.S. Justice Department has sued a large health care company based in Kentucky, alleging that it paid more than $10 million in kickbacks for access to Medicare and Medicaid patients living in a chain of nursing homes.

In a civil complaint filed in Minneapolis, the U.S. attorney said RehabCare Group Inc. began making illicit payments in 2006 as part of a deal with Missouri businessmen who owned 62 nursing homes in their state and an in-house company that provided health services to the residents. The deal was premised on RehabCare's plan to take control of the services and expand billings under Medicare and Medicaid, the complaint said.

"The suggestion was straightforward: Facilities that contracted with RehabCare could expect [it to] provide more therapy to the facilities' beneficiaries, and as a result, the facilities would make more money,'' said the complaint filed by Assistant U.S. Attorney Chad Blumenfield.

The recipient of the alleged kickbacks, Rehab Systems of Missouri LLC (RSM), received an initial $600,000 payment and a cut of more than 10 percent of RehabCare's ongoing billings, which have exceeded $70 million since 2006, the suit said.

The litigation is based on a federal anti-kickback law that makes it illegal to pay others for referrals of Medicare patients. Patients are supposed to receive services based on their medical needs, not as a result of financial inducements paid to their health care providers. The lawsuit seeks fines and financial recoveries.

The suit was filed in Minnesota largely because the initial whistleblower was Cambridge-based Health Dimensions Rehabilitation Inc., a provider of physical, occupational and speech therapy. Mark Essling, the company's chief executive officer, declined to comment and the complaint sheds no light on how his company got involved. Under federal law, Essling's company would share in any funds recovered by the government.

'Prison sentence'

RehabCare was a publicly traded company until June of this year, when it was acquired by Louisville-based Kindred Healthcare Inc. for $900 million in cash and stock. RehabCare's business includes contracts to provide patient therapy at more than 1,250 locations nationwide, including about 50 nursing homes in Minnesota.

Company officials at RehabCare, Kindred and RSM did not return phone calls seeking comment.

RSM had contemplated an outright sale to RehabCare in 2003 for $7 million, with the deal contingent on RehabCare entering into a five-year contract with each of the 62 Missouri nursing homes managed by a company controlled by one of RSM's owners, James Lincoln. But the proposal fell apart after negotiators expressed concern that the deal would violate the anti-kickback law, the complaint said.

One RehabCare negotiator wrote an e-mail that expressed his desire to close the deal, "but not at the risk of a possible lengthy prison sentence,'' the complaint said.

Talks between the two sides were rekindled in 2005. In the final transaction, RehabCare replaced RSM as the actual therapy provider and RSM was paid a split of the revenues despite doing none of the work, the complaint said.