(CBS News) Each year, Americans spend hundreds of billions of dollars on unnecessary medical tests and treatments. It's one reason why health care costs are so high.
In recent months, "CBS This Morning" has been looking into the rehab practices of Life Care Centers of America. It is the third largest nursing home chain in the country, with more than 30,000 beds in 28 states.
Half-a-dozen former employees tell "CTM" that the company is giving patients rehab they don't need, and billing the government for money they're not entitled to.
"The mission statement that they have is no longer true, which is to serve their residents in a Christian based atmosphere," says Helen Toomey, a former assistant manager and speech therapist at the company's Plymouth, Mass., facility.
Among other services, Life Care provides speech and physical therapy. But Toomey, who worked at multiple Life Care locations between 1998 and 2012, says by the time she left, 40 percent of the work she was being told to administer was not reasonable or necessary. "They felt that no one was watching them and so every patient that came through the building they could charge the highest rate of reimbursement, regardless of their diagnosis or need."
Toomey says it got so bad that she resigned. But on her way out, she took some patient notes with her. She says they show how Life Care would not let patients leave, so the company could continue to bill Medicare. On Dec. 30, 2011, for example, they indicate that Toomey tried to discharge four patients. All four of those requests were denied. She provided a copy of the notes to "CTM."
The day after Toomey resigned, she got a phone call. It was a Life Care supervisor. She let it go to voicemail, and saved the message: "I was calling to see if you might have by mistake taken the communication book, the spiral book. They had it in the office at noon time and thought you may have just grabbed it by mistake when you were leaving."
Toomey says the supervisor knew exactly what was in the notebook. And now the FBI does, too. She has spoken with federal agents. And the Justice Department is currently suing Life Care centers nationwide, for Medicare fraud.
According to court documents, investigators found that from 2006 to 2011, Medicare paid Life Care $4.2 billion. In 2008, it "...billed nearly 68 percent of its Medicare rehabilitation days at the [highest] level," almost double the "nationwide...average of 35 percent."
The documents also reveal stories of patients, like a "92 year old...dying of metastatic cancer...Two days before [his] death, he was spitting out blood. Life Care therapists, however, still recorded 48 minutes of physical therapy, 47 minutes of Occupational therapy, and 30 minutes of speech therapy that very day."
At another facility, Life Care Center of Estero in Florida, the entire rehab staff signed a letter to their boss. It reads in part, "we have been encouraged to maximize reimbursement even when clinically inappropriate..."
And the Justice Department wrote as evidence in the case that all of this comes from the top. "Cathy Murray, Life Care's former Chief Operating Officer...frequently told her employees, their job was to make money for Forrest Preston, the founder, sole shareholder, and Chairman of the Board of Life Care."
The company would not make Preston available for an interview, but sent a statement: "Life Care strongly disagrees with the allegations and will vigorously defend its therapy programs...[Our own analysis] indicates that Life Care's practices have resulted in significant savings to the Medicare program...This lawsuit's allegations second guess, after-the-fact, the trained medical professionals who prescribed the level of care provided to Medicare beneficiaries."
This isn't just about one company, though. The latest report from the inspector general found industry-wide, a quarter of all Medicare payments to nursing homes are made in error, costing taxpayers $1.5 billion a year. The problem is Medicare rarely checks if the care is necessary.
Jodi Nudelman, regional inspector general at the U.S. Department of Health and Human Services, has been sounding the alarm on this for years. She says it is a growing and serious problem, and Medicare has yet to take significant action. "All of us are paying the cost," she told "CTM." "Until you create incentives to bill for the right care, and not for the most care, the problem will continue."
For its part, Medicare says fraud is unacceptable and that it's constantly ramping up efforts to stop it. As for the Life Care case, the Justice Department is currently sorting through hundreds of patient records to estimate the total that taxpayers are owed.
Watch Jeff Glor's full report in the video above.