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California Hospital, Its CEO, and A Physician Pay $37.5 Million to Resolve False Claims Act Kickback Claims

On July 19, 2021, the United States Department of Justice and the California Department of Justice announced that they reached a $37.5 million settlement with a California hospital company, Prime Healthcare Services, its CEO, and a physician to resolve a variety of allegations, including that the hospital company paid kickbacks to the physician to get referrals from him . Specifically, the government alleged that:

  • Prime paid in excess of fair market value to acquire the physician’s practice to induce him to refer procedures to a Prime hospital.
  • Prime then paid compensation to the physician based on the volume and/or value of the referrals the physician made to the hospital.
  • Prime and the physician, Dr. Siva Arunasalam, allowed another physician to bill under Dr. Arunasalam’s provider numbers even though they knew that Medicare and Medi-Cal had revoked the other physician’s billing privileges.
  • Prime hospitals falsified invoices for implantable medical devices, making its purchase costs seem higher than they actually were, and then used the falsified invoices to obtain reimbursement from certain Federal health care programs, including Medi-Cal and the Federal Employees Health Benefits Program, that paid for devices on a “pass-through” basis.

The case, which originated from a whistleblower’s qui tam complaint, shows that kickbacks to get referrals from even a single physician can generate substantial liability. The whistleblower will receive a relator share of over $10 million from the United States and the state of California.