Indian-American CEO, company settle to pay $65 million for alleged healthcare over-billing in California

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Prime Healthcare Services, Inc.; Prime Healthcare Foundation, Inc.; Prime Healthcare Management, Inc.; and Prime’s Indian-American Founder and CEO, Dr. Prem Reddy, have agreed to pay the government $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”), a press release from the U.S. Attorney for the Central District of California, said.

Under the settlement agreement, Reddy will pay $3.25 million and Prime will pay $61.75 million, the Aug. 3 press release said. Headquartered in Ontario, California, 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.

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.

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 the 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.

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.

Prime also entered into a Corporate Integrity Agreement with the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) 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.

This settlement resolves a False Claims Act (FCA) lawsuit filed in federal court in Los Angeles by whistleblower Karin Berntsen, the former director of performance improvement at Alvarado Hospital Medical Center in San Diego. Berntsen will receive $17,225,000 as her portion of the settlement amount.