California-based Prime Healthcare, CEO pay $65 million in settling whistleblower’s suit

by Ben Vernia | August 6th, 2018

On August 3, the Department of Justice announced that Prime Healthcare Services, a regional chain of hospitals in California, and its CEO will pay a total $65 million to resolve allegations, originally brought by a former employee, that the company submitted claims for services that were medically unnecessary or were “upcoded.” According to DOJ’s press release:

Prime Healthcare Services, Inc., Prime Healthcare Foundation, Inc., and Prime Healthcare Management, Inc. (collectively Prime), and Prime’s Founder and Chief Executive Officer, Dr. Prem Reddy, have agreed to pay the United States $65 million to settle allegations that 14 Prime hospitals in California 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”), the Justice Department announced today. Under the settlement agreement, Dr. Reddy will pay $3,250,000 and Prime will pay $61,750,000.

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Headquartered in Ontario, California, Prime Healthcare Services and 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. 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. The following 4 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.

The settlement resolves allegations that from 2006 through 2013, Prime engaged in a deliberate corporate-driven scheme to increase inpatient admissions of Medicare beneficiaries who originally presented to the Emergency Departments at 14 Prime hospitals in California.  The government claimed that the inpatient admission of these beneficiaries was not medically necessary because their symptoms and treatment needs should have been managed in a less costly outpatient or observation setting. Hospitals generally receive significantly higher payments from Medicare for inpatient admissions as opposed to outpatient treatment; therefore, the admission of beneficiaries who do not need inpatient care, as alleged here, can result in substantial financial harm to the Medicare program.  The settlement also resolves allegations that, from 2006 through 2014, Prime engaged in up-coding by falsifying information concerning patient diagnoses, including complications and comorbidities, in order to increase Medicare reimbursement.

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The company also agreed to accept a five-year Corporate Integrity Agreement with the Department of Health and Human Services’ Office of Inspector General.

DOJ announced that the whistleblower will receive $17,225,000 of the settlement (a 26.5% share).

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