An Ontario-based healthcare company and its chief executive agreed to pay the United States $65 million to settle allegations that 14 Prime Healthcare hospitals throughout the state knowingly submitted false claims to Medicare, it was announced Friday.

In agreeing to the settlement, Prime Healthcare Services and Chief Executive Officer Dr. Prem Reddy resolve allegations that the hospitals knowingly submitted false claims to Medicare by admitting patients who required only less costly, outpatient care and by billing for more expensive patient diagnoses than the patients had — a practice known as “up-coding,” according to the U.S. Attorney’s Office.

Under the settlement agreement, Reddy will pay $3.25 million and Prime will pay $61.75 million. Headquartered in Ontario, Prime Healthcare Services and the not-for-profit Prime Healthcare Foundation constitute one of the largest hospital systems in the nation, with 45 acute-care hospitals located in 14 states.

“This settlement reflects our ongoing commitment to ensure that health care providers appropriately bill Medicare,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s civil division. “Charging the government for higher cost inpatient services that patients do not need, and for higher-paying diagnoses than the patients have, wastes the country’s valuable health care resources.”

Prime also entered into a Corporate Integrity Agreement with the U.S. Department of Health and Human Services, requiring the company to engage in significant compliance efforts over the next five years. Under the agreement, Prime is required to retain an independent review organization to review the accuracy of the company’s claims for services furnished to Medicare beneficiaries.

The following 10 hospital defendants owned by Prime Healthcare Services are parties to the settlement agreement: Alvarado Hospital Medical Center, Garden Grove Medical Center, La Palma Intercommunity Hospital, Desert Valley Hospital, Chino Valley Medical Center, Paradise Valley Hospital, San Dimas Community Hospital, Shasta Regional Medical Center, West Anaheim Medical Center and Centinela Hospital Medical Center.

Four other hospital defendants owned by Prime Healthcare Foundation are also parties to the settlement agreement: Sherman Oaks Hospital, Montclair Hospital Medical Center, Huntington Beach Hospital and Encino Hospital Medical Center. Prime Healthcare Management, a subsidiary of Prime Healthcare Services, provides management, consulting and support services to hospitals owned and operated by Prime.

“Patients and taxpayers who finance health care programs such as Medicare deserve to know that doctors are making decisions solely based on medical need — and not based on a corporate desire to increase billings,” said First Assistant U.S. Attorney Tracy Wilkison. “The Justice Department is committed to preserving the integrity of public health programs and preventing improper billing practices.”

The agreement resolves a lawsuit filed in federal court in Los Angeles by Karin Berntsen, the former director of performance improvement at Alvarado Hospital Medical Center in San Diego. Under “whistleblower” provisions of the False Claims Act, private citizens are permitted to bring lawsuits on behalf of the United States and obtain a portion of the government’s recovery.

The FCA also permits the government to intervene and take over the lawsuit, as it did in this case as to some of Berntsen’s allegations. Berntsen will receive $17,225,000 as her portion of the settlement amount, according to the U.S. Attorney’s Office.

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