Hospital chain to pay $65M to settle Medicare fraud claims

The nation’s fifth-largest hospital chain has agreed to pay the federal government $65 million to settle a long-running whistleblower lawsuit accusing its founder of pressuring staff to admit patients who did not need inpatient care.

Federal prosecutors on Friday announced the settlement with Prime Healthcare Services, company founder and CEO Prem Reddy and 14 hospitals operated by Prime Healthcare in California said lead whistleblower counsel Marlan Wilbanks, of Atlanta whistleblower boutique Wilbanks & Gouinlock.

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Prosecutors in the Central District of California in Los Angeles intervened in the lawsuit in 2016. Prime Healthcare Services owns more than 40 hospitals across the nation, including recently acquired Southern Regional Medical Center in Clayton County, Georgia.

The agreement requires that Reddy personally pay $3.25 million of the $65 million settlement, Wilbanks said.

The suit—filed by a nurse supervisor at a San Diego hospital Prime Healthcare acquired in 2010—alleged that Reddy instituted a corporate practice of pressuring the chain’s emergency room physicians and hospital administrators to artificially boost inpatient admissions by ordering medically unnecessary admissions of patients who should have been placed under observation, treated as outpatients or discharged.

Medicare has a higher reimbursement rate for the same services if they’re delivered to admitted patients as opposed to patients held under observation and then discharged from a hospital emergency room, Wilbanks said. Prime’s corporate policy would bill Medicare for the maximum hospital stay permitted even though admitted patients were generally discharged soon after admission, he said.

Reddy is also a founder and board chairman of California’s newest medical school, the California University of Science and Medicine in San Bernardino, which opened July 23.

Reddy, his company, its California hospitals and his foundation are represented by Los Angeles firm Nelson Hardiman and Atlanta King & Spalding partners Michael Paulhus and Sara Kay Wheeler.

In a news release issued Friday, Prime Healthcare said the agreement included no finding that the company engaged in improper conduct or wrongdoing. The issue “dealt with the technical classification of the category under which patients were admitted and billed,” the statement said. The statement added that “Physicians, not hospitals, direct the level of care needed for their patients and that care was provided.”

The company said it signed a corporate integrity agreement with the U.S. Department of Health and Human Services as part of the settlement.

Wilbanks’ client, whistleblower plaintiff Karin Berntsen, was a registered nurse and nurse supervisor at a San Diego hospital when it was purchased by Prime Healthcare in 2010, Wilbanks said. Los Angeles firms Larson O’Brien, Theodora Oringher, Brown White & Osborn, and LTL Attorneys, and Tampa, Florida, firm James Hoyer Newcomer & Smiljanich also participated as whistleblower counsel in the case, which was first filed under seal in 2011.

According to Wilbanks, changes Reddy instituted to fraudulently bolster Medicare reimbursements included removing observation as an emergency room treatment option, Wilbanks said. Reddy also imposed admission quotas for Medicare patients, sent corporate executives to question ER physicians who discharged patients rather than admit them, and dictated that any insured patient who stayed in the ER more than two hours should be admitted.

At the same time, uninsured patients who did not qualify for Medicare were kept in the ER for hours and then discharged, Wilbanks said.

At one point, Bernsten wore a wire, supplying prosecutors with evidence to back up her allegations, Wilbanks said.

Wilbanks said that Bernsten will receive $17,225,000 as part of the settlement under the federal False Claims Act.

“It is significant that the government is looking for individual culpability at this time,” Wilbanks said. “These schemes … do not happen without the involvement of powerful individuals who control corporate conduct. … It is rare in my experience to see the government require financial contribution from a corporate executive like Dr. Reddy.”