Prime Healthcare Settles False Claims Suit for $65 Million in U.S.

Prime Healthcare and its founder-CEO Prem Reddy agreed to pay $61.75 million and $3.25 million, respectively, to resolve a case concerning submission of false claims for payment to Medicare.


Prime Healthcare, one of the largest hospital chains in the United States, and its founder-CEO Prem Reddy, agreed to jointly pay $65 million to settle a case that accused the firm of submitting false claims for payment to Medicare.

Reddy agreed to pay $3.25 million while Prime Healthcare would pay $61.75 million to resolve the lawsuit that was filed by a whistleblower former employee in 2011.

The sum would be paid “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”), the U.S. Justice Department said in a statement earlier this month.

“This settlement reflects our ongoing commitment to ensure that health care providers appropriately bill Medicare,” Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division said. “Charging the government for higher cost inpatient services that patients do not need, and for higher-paying diagnoses than the patients have, wastes the country’s valuable health care resources.”

Prime took inpatient admissions of even those people for whom outpatient facility would have been sufficient from the year 2006-2013, the Justice Department statement said. The deliberate corporate-driven schemes were meant to increase inpatient admissions of Medicare beneficiaries who originally presented to the Emergency Departments at 14 Prime hospitals in California, it added.

The treatment of these patients could have been completed for a comparatively lower cost but the organization chose to conduct follow-up tests which were not required. 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.

“Patients and taxpayers who finance health care programs such as Medicare deserve to know that doctors are making decisions solely based on medical need – and not based on a corporate desire to increase billings,” First Assistant United States Attorney Tracy Wilkison for the Central District of California said.

According to the department, the company also entered Corporate Integrity Agreement with the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG), which requires 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.

Based 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. Along with Prime Healthcare services, the following 10 hospital defendants owned by Prime Healthcare Services were 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 hospitals came under the settlement agreement as well — Sherman Oaks Hospital, Montclair Hospital Medical Center, Huntington Beach Hospital and Encino Hospital Medical Center.

Reddy established the group in 1992 and was named among the “Top 100 Physician Leaders To Know” in 2015 by a survey done by Becker’s Hospital Review.

The lawsuit was filed under the False Claims Act (FCA) by Karin Berntsen, the former Director of Performance Improvement at Alvarado Hospital Medical Center in San Diego. Under the whistleblower provisions of the FCA, private citizens are permitted to bring lawsuits on behalf of the United States and obtain a portion of the government’s recovery, which will allow Bernsten to acquire $17,225,000 as her portion of the settlement amount.

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