Prime Healthcare, its CEO Dr. Prem Reddy and a cardiologist will pay $37.5 million to settle allegations that the company paid kickbacks to the cardiologist when it purchased a rival medical practice in exchange for patient referrals to the company’s Desert Valley Hospital in Victorville.
The settlement follows two whistleblower lawsuits, one which also claimed that Prime submitted fraudulent invoices to government healthcare programs with inflated prices for medical implants so the company could receive more money for reimbursement.
The law firm Phillips & Cohen — which represented one of the whistleblowers, former Prime employee Martin Mansukhani — said the settlement appeared to be the largest “brought against a hospital over kickbacks allegedly paid to a single physician.”
“Doctors are permitted to sell their practices to hospitals and other competitors, but the payment must be for fair market value,” Edward Arens, an attorney with Phillips & Cohen, said in a statement. “Throwing inflated sums of money at doctors for their medical practices and salaries as a hidden way to get patient referrals isn’t allowed.”
Per the settlement agreement reached with both the U.S. and California Departments of Justice, Prime was released of any liability “and no finding of fault,” the health care company said.
Prime has denied the various allegations.
“This settlement creates resolution and allows Prime to focus on its mission of saving hospitals to save lives,” said Joel Richlin, the company’s general counsel. “Our mission is to save hospitals and ensure compassionate, quality care is available in every community, which is now more important than ever before.”
Former CFO alleges rates scheme
Mansukhani — who worked for Prime as a regional chief financial officer from 2012 until his termination in 2017 — filed his lawsuit against the company in 2018.
Mansukhani’s main contention was that in the fall of 2015, Reddy “struck a deal” with Dr. Siva Arunasalam, a heart doctor who ran a practice, High Desert Heart Institute, on Hesperia Road.
“In exchange for ownership of Dr. Siva’s practice and surgery center (which was quickly closed, thus funneling patients to [Desert Valley Hospital]), Dr. Reddy agreed to pay Dr. Siva $10 million — at least three times the fair market value of the practices — and to employ him at a steeply inflated salary,” the complaint read.
In 2012, Desert Valley Hospital had opened what the company says is a “State-of-the-Art Heart Center.” According to Mansukhani, Arunsalam’s practice had become a “major competitor” for the hospital, and labs for a certain heart procedure there “were not being used to full capacity for most of 2015.”
Under an agreement, Arunasalam was also to be paid $1.2 million per year — when other DVH cardiologists were making less than half that amount — in exchange for his patient referrals, Mansukhani’s lawyers argued.
According to the former CFO, Arunasalam told him in a text that the purpose of the agreement was to bill patients for medical procedures at higher rates.
The alleged text from the doctor said: “the idea for Prem to buy was all the procedures done at (High Desert Heart Institute) [would] be billed under [the] hospital billing code. Because of higher reimbursement. Stress test at office setting is 900 vs 1800 at the hospital.”
A stress test is used to see how a person’s heart works during physical activity, according to the Mayo Clinic.
The lawsuit alleged that Prime, Reddy and Arunasalam violated state and federal laws that “help ensure government healthcare programs are not cheated through inflated claims for service,” law firm Phillips & Cohen wrote in a statement.
Mansukhani, and whistleblowers in another lawsuit, also claimed Prime had submitted false invoices for devices such as pacemakers and joint replacements.
In the alleged scheme, lawyers argued that there was a small team of employees at the company’s Ontario-based headquarters “dedicated to falsifying invoices and purchase orders to make it appear that Prime spent more on implants than it in fact did.”
In a statement, the private healthcare company said the allegations referred to “an isolated, single physician practice … and billing of forty-five implantable device claims.”
“The allegations did not involve patient care, but instead related to the valuation of a physician practice and the appropriate documentation for a limited number of implant claims totaling approximately $200,000,” Prime officials said. “As soon as these matters were identified, Prime conducted an exhaustive internal review, fully cooperated with the DOJ and negotiated a mutually acceptable resolution.”
Not the first time Prime has agreed to settle
The U.S. Department of Justice said Monday that per the $37.5-million settlement, Prime will pay roughly $33.7 million; Reddy will pay $1,775,000; and Arunasalam will pay $2 million — with the proceeds going to both the United States and California.
Since he filed one of the lawsuits, Mansukhani is entitled under false claims laws to 28{556dae1e865ad4cb1aff81550537a4c07ba73ce20e0d02df2b728475a26ac49a} of the federal recovery and 44{556dae1e865ad4cb1aff81550537a4c07ba73ce20e0d02df2b728475a26ac49a} of the state’s recovery, Phillips & Cohen said.
As one of the settlement’s conditions, Reddy and Prime also entered into a 5-year Corporate Integrity Agreement with the federal government.
“The CIA requires, among other things, 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,” according to the DOJ.
The settlement isn’t the first time Prime paid money to resolve allegations of illicit practices.
In 2018, the company agreed to pay $65 million to settle a whistleblower lawsuit that alleged the hospital system routinely extended stays of patients and exaggerated diagnoses to collect on Medicare billings, the Daily Press reported.
After the agreement was reached, Prime officials at the time emphasized that “there was no finding of improper conduct or wrongdoing of any kind.”
In that settlement, Prime entered into a similar oversight agreement with the government requiring it to retain an independent review organization that would review the accuracy of the company’s claims furnished to Medicare beneficiaries.
Daily Press reporter Martin Estacio may be reached at 760-955-5358 or [email protected]. Follow him on Twitter @DP_mestacio.