Attorney General Bonta and U.S. Department of Justice Announce $37.5 Million Settlement Against Prime Healthcare Services

OAKLAND – California Attorney General Rob Bonta announced today that one of the largest hospital systems in the nation and two of its doctors will pay $37.5 million to resolve violations of the False Claims Act and the California False Claims Act. The settlement is a joint resolution with the U.S. Department of Justice and the California Department of Justice.

The United States and California entered into a settlement agreement with the Prime Healthcare Services system (Prime), Prime’s Founder and Chief Executive Officer Dr. Prem Reddy, and California interventional cardiologist Dr. Siva Arunasalam. Prime includes Prime Healthcare Services Inc., based in Ontario, California, Prime Healthcare Foundation Inc., Prime Healthcare Management Inc., High Desert Heart Vascular Institute (HDHVI), and Desert Valley Hospital Inc. Under the settlement agreement, Dr. Arunasalam will pay $2 million, Dr. Reddy paid $1,775,000, and Prime paid $33,725,000. The United States will receive $35,241,454 of the settlement proceeds, and California will receive $2,258,546. Prime and Dr. Reddy paid $65 million to settle previous allegations of false claims and overbilling in 2018.

“In our cities and neighborhoods, hospitals are where we go for healing and care, which means they must be worthy of the trust placed in them by the people they serve," said Attorney General Bonta. “Today’s settlement should send a message that schemes like those alleged here, which put profits before people and seek to defraud our Medi-Cal program, will not be taken lightly.”

“Offering illegal financial incentives to physicians in return for patient referrals undermines the integrity of our health care system by denying patients the independent and objective judgment of their health care professionals,” said Acting Assistant Attorney General Brian M. Boynton of the Department of Justice Civil Division. “Today’s settlement demonstrates the department’s commitment to protect federal health care programs against such violations, as well as other efforts to defraud these important programs.”

“Doctors have a sworn duty to do no harm and to put their patients’ interests first,” said Acting U.S. Attorney Tracy L. Wilkison for the Central District of California. “Kickbacks designed to increase the number of patient referrals corrupt the doctor-patient relationship and needlessly waste this nation’s health care resources.”

The settlement is a result of two whistleblower cases filed in 2018 in the U.S. District Court for the Central District of California. The settlement resolves allegations that:

• Prime paid kickbacks when it intentionally overpaid to purchase Dr. Arunasalam’s physician practice and surgery center because the company wanted Dr. Arunasalam to refer patients to its Desert Valley Hospital in Victorville, California. Prime also knowingly overcompensated the doctor for the same purpose when HDHVI entered into an employment agreement with him;

• HDHVI and Dr. Arunasalam used Dr. Arunasalam’s billing number to bill Medicare and Medi-Cal for services that were provided by Dr. George Ponce, even though they knew Dr. Ponce’s Medicare and Medi-Cal billing privileges had been revoked; and

• Prime hospitals billed Medi-Cal, the Federal Employees Health Benefits Program, and the U.S. Department of Labor’s Office of Workers’ Compensation Programs for false claims based on inflated invoices for implantable medical hardware.

Prime and Dr. Reddy have also entered into a five-year Corporate Integrity Agreement (CIA) with the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG). Included in the terms of the CIA are a mandate that Prime maintain a compliance program and hire an Independent Review Organization to review arrangements entered into by or on behalf of its subsidiaries and affiliates.

The settlement was negotiated by the California Department of Justice’s Division of Medi-Cal Fraud and Elder Abuse (DMFEA), the U.S. Department of Justice’s Civil Division, the United States Attorney’s Office for the Central District of California, and the U.S. Department of Health and Human Services Office of Inspector General. Through the DMFEA, DOJ works to protect Californians by investigating and prosecuting those who perpetuate fraud on the Medi-Cal program. DMFEA also investigates and prosecutes those responsible for abuse, neglect, and fraud committed against elderly and dependent adults in the state. DMFEA regularly works with whistleblowers, the California Department of Health Care Services, and state and federal law enforcement agencies to investigate and prosecute Medi-Cal provider fraud and elder abuse, and fraud by entities other than Medi-Cal providers when their actions result in fraudulent claims.

The DMFEA receives 75% of its funding from the U.S. Department of Health and Human Services under a grant award totaling $41,264,032 for federal fiscal year 2020-2021. The remaining 25%, totaling $13,754,675 for fiscal year 2020-2021, is funded by the State of California. The federal fiscal year is defined as October 1, 2020, through September 30, 2021.