Prime Healthcare Settles Kickback Claims

Prime Healthcare, its founder, and a cardiologist employed there will pay $37.5 million to settle claims of kickbacks and fraudulent medical billing, the Department of Justice said.

The California-based health system and Prem Reddy, MD, its founder and CEO, allegedly made a deal with interventional cardiologist Siva Arunasalam, MD, to buy his private practice and surgical center — for three times the fair market value — in exchange for patient referrals. The settlement agreement also stated that Prime paid Arunasalam a hefty salary based on the volume of patients he brought in.

Officials were made aware of these allegations in a whistleblower lawsuit filed in 2018 by Martin Mansukhani, former regional chief financial officer for Prime Healthcare, who will receive more than 25% of the federal government’s recovery and almost half of the state’s recovery.

“This arrangement was a handshake designed to bring procedures to the hospital, and done in a fairly abrasive way,” said Edward Arens, JD, one of the attorneys representing Mansukhani, in an interview with MedPage Today. “The impact of this alleged fraud on the government was very serious, and I think the settlement of the case reflects the seriousness of the conduct.”

This appears to be the largest settlement in a case brought against a hospital for kickbacks paid to a single physician, Arens said.

Prime Healthcare will pay nearly $34 million to settle these allegations, Arunasalam will pay $2 million, and Reddy will pay $1.8 million.

In a statement shared with MedPage Today, a spokesperson for Prime Healthcare acknowledged that the system reached a settlement with the Department of Justice on allegations related to the valuation of a physician practice and documentation of implantable device billing claims, noting that the settlement provides “a complete release of any liability and no finding of fault.”

The spokesperson added that Prime will amend its Corporate Integrity Agreement to include testing on physician compensation as part of the deal with the HHS Office of Inspector General.

“This settlement creates resolution and allows Prime to focus on its mission of saving hospitals to save lives,” said Joel Richlin, vice-president and general counsel for Prime Healthcare, in the statement.

Neither Arunasalam nor his lawyer responded to requests for comment from MedPage Today.

Mansukhani served as a regional financial executive at Prime Healthcare from 2012 to 2017. He was “abruptly” terminated from his position in August 2017, which he believes was a consequence for speaking up about the health system’s conduct, according to his complaint.

The whistleblower alleged that Reddy made a deal to purchase both Arunasalam’s private practice and surgical facility in October 2015. This purchase was a way to eliminate the competition for Desert Valley Hospital — Prime’s flagship facility.

A shell corporation owned by Reddy’s wife, known as the High Desert Heart Vascular Institute, purchased both Arunasalam’s practice and the surgical center for $10 million, to be paid in installments over the next 10 years. In addition to buying his practice, Prime also employed Arunasalam at an annual salary of $1.2 million. Other cardiologists at Desert Valley Hospital performing similar work were paid less than half of that, the complaint stated.

Right after Prime Healthcare acquired Arunasalam’s businesses, the surgical center was shut down. Over the next few months, Arunasalam increased the volume of patients he treated at Desert Valley Hospital, tripling the number of catheterization procedures he performed there from October to December 2015.

“The objective of the transaction between Prime and Dr. Siva [Arunasalam] was for Prime to pay Dr. Siva $10 million in return for a stream of patient referrals to DVH [Desert Valley Hospital],” the complaint said.

Mansukhani claimed that the intention was evident in both Reddy’s and Arunasalam’s communications with him and the errors in the asset purchase agreement, “which served to mask the unlawful referral scheme and was ignored by the parties as soon as the ink was dry.”

Legal documents also alleged that the defendants submitted false medical claims. Arunasalam allegedly used his own billing number to charge Medicare and Medi-Cal for services provided by George Ponce, MD, whose billing privileges had been revoked. Additionally, Prime Healthcare executives allegedly falsely inflated reimbursements for implantable medical devices; these claims did not involve Arunasalam.

A second lawsuit — also part of the settlement — was filed after Mansukhani’s, alleging falsified billing claims for implantable medical devices.

Arens said that this settlement signifies the government’s interest in pursuing these cases.

“I think it sends a strong message that the government is watching the deals that physicians make with hospitals, and that it is serious about compliance with the Anti-Kickback Statute and Stark Law,” he told MedPage Today.