For the third time in three years, Prime Healthcare Services in California and its founder/CEO, physician Prem Reddy, have settled a False Claims Act case, and this time around it’s a combination of familiar allegations—paying a physician abundantly in exchange for referrals—and less familiar allegations: the submission of false claims for implantable medical devices and services performed by a physician whose Medicare privileges had been revoked.
Prime, Reddy and California interventional cardiologist Siva Arunasalam agreed to pay $37.5 million in a settlement with the Department of Justice (DOJ) and the California Department of Justice, DOJ said July 19.[1]
The case was set in motion by three whistleblowers. One lawsuit was filed by Martin Mansukhani, former Prime regional chief financial officer, and the other by Marsha Arnold and Joseph Hill, former employees in the billing office of a Prime hospital in Redding, California. DOJ declined to intervene in the whistleblower lawsuits but is a party to the settlement,[2] said attorney Edward Arens, with Phillips & Cohen, which represented Mansukhani. Other parties to the settlement include Prime Healthcare Foundation Inc., Prime Healthcare Management Inc., Desert Valley Hospital Inc. (DVH), High Desert Heart Vascular Institute, A&A Surgery Center (A&A), and High Desert Heart Institute Medical Corporation (HDHI).
In 2018, Prime and Reddy agreed to pay $65 million to settle allegations that 14 of its California hospitals submitted false claims to Medicare by admitting inpatients who should have been treated in outpatient settings or observation and billing for more expensive diagnoses than patients had.[3] A year later, Prime and Reddy agreed to pay $1.25 million to resolve diagnosis upcoding allegations involving two Pennsylvania hospitals. And now there’s a false claims settlement based on alleged violations of the Anti-Kickback Statute (AKS) and other allegations. According to the settlement, DOJ alleged the price that Prime paid Arunasalam (referred to as Dr. Siva) for his practice and surgery center took into account the volume or value of his referrals to Prime-owned DVH and was above fair market value in violation of the AKS. After the acquisition, Dr. Siva’s compensation from Oct. 30, 2015, through March 31, 2020, allegedly took into account his referrals to DVH and resulted in the submission of false claims to federal health care programs.
Arens said it “was pretty remarkable” that a deal that allegedly violated the Stark Law and AKS was “personally negotiated by the CEO of Prime.” He said it left the chief financial officer with few options in terms of trying to report the alleged violations internally.
CIAs ‘Can’t Measure All Results’
Prime was already under a five-year corporate integrity agreement (CIA) with the HHS Office of Inspector General (OIG) in connection with its 2018 settlement when it resolved the allegations. Because of the new settlement, Prime and Reddy entered into a five-year CIA, which “shall supersede and replace the 2018 CIA.”[4] Prime said in a statement the CIA has been modified to include monitoring of physician arrangements.
The fact that there were additional false claims allegations and another settlement while Prime was under a CIA “highlights there are two different ways of thinking about compliance,” said former federal prosecutor Brian Feldman, an attorney with Harter Secrest & Emery LLP in Rochester, New York. “One is broad: How committed is the entity to compliance? That is not enforceable by a CIA. The second is results: How many problems can be identified? When it comes to the results of a compliance program, the field of regulations and rules is so vast in the health care space, that you can’t have a CIA structured to capture all the potential errors and schemes,” Feldman said. “A CIA won’t change the culture of compliance at institutions, and the CIA can’t feasibly measure all compliance results. What the CIAs do is fight the last battle. That speaks to how difficult it is to get your arms around all the compliance issues. There are so many different ways things can go wrong. It’s not feasible a CIA can be insurance against everything.”
There were no admissions of liability in the settlement. Riva’s attorney didn’t respond to RMC’s request for comment.
Complaint: Prime Bought ASC and Shut It Down
According to the complaint filed by Mansukhani,[5] Reddy established DVH in 1994 and opened its heart center in 2012. Not far away was Dr. Siva’s ambulatory surgery center, A&A, and his practice, HDHI. “Dr. Siva had privileges at DVH and performed some of his procedures there, but when possible, he kept his patients within HDHI and/or A&A. Given his proximity to DVH and the nature of his practice, Dr. Siva was a major competitor to the hospital and to Dr. Reddy, especially after the opening of DVH’s Heart Center,” the complaint alleged.
Without consulting the whistleblower or CEO of DVH, Reddy bought the assets of HDHI and A&A and entered into an employment agreement with Dr. Siva in October 2015, according to the complaint. Reddy’s shell corporation, High Desert Heart Vascular Institute (HDHVI) was the vehicle for the deal. HDHVI agreed to pay Dr. Siva or one of his affiliates $10 million in several installments over a decade for the acquisition and Dr. Siva $1.2 million a year in an employment agreement. He was also eligible for a productivity bonus of 20% of the net profit from his practice.
After the deal was done, Reddy shut down A&A, which competed with DVH for cardiac procedures, and “from then on, Dr. Siva brought patients to DVH for testing and procedures that he had performed previously at his surgery center,” the complaint alleged. The money Dr. Siva was paid by HDHVI allegedly “reflected the value of his patient referrals, not the value of the practice that HDHVI had acquired.”
Less than two months after HDHVI bought A&A, the whistleblower determined that its assets were $1.3 million and its liabilities were $2.2 million, the complaint alleged.
Dr. Siva’s annual salary allegedly was above fair market value. Median compensation for cardiologists was $483,653 in 2015 and $733,541 in 2017, as reported by the American Medical Group Association, the complaint stated.
Keep Other Payers in Mind During Audits
Excessive physician compensation wasn’t the only allegation. According to the settlement, DOJ alleged that Prime submitted false claims for implanted medical devices to California Medicaid, the Federal Employees Health Benefits Program (FEHBP) and the Federal Employees’ Compensation Act (FECA), which is administered by the Department of Labor’s Office of Workers’ Compensation.
That allegation is a reminder to include all government health care programs in compliance audits, Feldman said. “Falsely billing FECA is like falsely billing any other federal program, but when compliance personnel are looking to do government audits, typically they look at Medicare and Medicaid and sometimes expand to TRICARE,” he said. They may neglect claims submitted to FEHBP, FECA and other less obvious government health care programs, which could come back to haunt hospitals in audits and false claims lawsuits, Feldman noted.
DOJ also alleged that Medicare and Medicaid paid HDHVI and the Dr. Siva defendants for services provided by another physician, George Ponce, whose billing privileges had been revoked. Ponce used Dr. Siva’s billing numbers to bill Medicare from Feb. 1, 2015, through Nov. 29, 2017, and Medicaid from June 30, 2015, through July 6, 2017.
In a statement, Prime said “the settled matters related to an isolated, single physician practice in Southern California between 2015-2017 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. As soon as these matters were identified, Prime conducted an exhaustive internal review, fully cooperated with the DOJ and negotiated a mutually acceptable resolution.”
“This settlement creates resolution and allows Prime to focus on its mission of saving hospitals to save lives,” said Joel Richlin, general counsel for Prime Healthcare, in the statement. “Our mission is to save hospitals and ensure compassionate, quality care is available in every community, which is now more important than ever before. As a physician-led health system nationally recognized for clinical excellence, Prime Healthcare always honors the integrity and independence of the physician-patient relationship.”
Contact Feldman at bfeldman@hselaw.com and Arens at earens@phillipsandcohen.com.