Prime Healthcare, its founder and doctor pay $37.5M to settle whistleblower case alleging kickbacks, Stark violations and fraud

LOS ANGELES, July 19, 2021 /PRNewswire/ -- Prime Healthcare, its founder and CEO, Dr. Prem Reddy, and a California cardiologist have agreed to pay a total of $37.5 million to the federal government and the state of California to settle a whistleblower lawsuit filed by Phillips & Cohen LLP that alleged the hospital chain paid kickbacks to the cardiologist, buying his practice and surgical center for far more than they were worth.

Phillips & Cohen partnered with Cotchett Pitre & McCarthy (CPM) to litigate the case. 

This appears to be the largest settlement of a case alleging kickbacks paid by a hospital chain to a single physician. Prime operates one of the biggest hospital systems in the nation.

It is significant that the governments' funds were recovered through litigation pursued by the whistleblower and his attorneys as allowed by the federal False Claims Act and the California False Claims Act. The government investigated the case but did not take it over, or "intervene," by the deadline the court had set.

According to the complaint, Prime and its affiliates:

• Bought Dr. Siva Arunasalam's cardiology business, High Desert Heart Institute (HDHI), and his surgery center in Victorville, California, in 2015 for an amount that was at least three times their total fair market value.
• Paid Dr. Arunasalam a "steeply inflated" salary in exchange for referring patients to Prime Healthcare's Desert Valley Hospital in Victorville and shutting down his independent practice and surgery center.
• Submitted falsified invoices to government healthcare plans to claim higher prices for implantable medical devices such as pacemakers than Prime Healthcare had actually paid. Higher prices meant higher reimbursement for Prime Healthcare.

"Doctors are permitted to sell their practices to hospitals and other competitors, but the payment must be for fair market value," said Edward H. Arens, a whistleblower attorney and partner at Phillips & Cohen in its San Francisco office. "Throwing inflated sums of money at doctors for their medical practices and salaries as a hidden way to get patient referrals isn't allowed."

The complaint alleges that both Dr. Reddy and Dr. Arunasalam "knew and intended that [Dr. Arunasalam] would receive an outsized salary and above-market payment for his practices in exchange for referring his patients to [Desert Valley Hospital] where they would receive the same services at higher prices."

"Fraud drives up healthcare costs for all of us," said Justin T. Berger, a partner at CPM. "Whistleblowers are a powerful check on corporate greed and runaway healthcare spending. This settlement exemplifies the power and importance of whistleblowers in our civil justice system."

The whistleblower lawsuit alleges Prime, Dr. Reddy and Dr. Arunasalam violated the Stark Law, the Anti-Kickback Statute, the US False Claims Act and the California False Claims Act. Dr. Reddy is the board chairman and president of Prime as well as its founder and chief executive officer.

Out of the total settlement, Prime will pay $33,725,000, Dr. Reddy will pay $1,775,000 and Dr. Arunasalam will pay $2 million over an extended time.

The whistleblower, Martin Mansukhani, was a regional chief financial officer for Prime from 2012 to 2017. Phillips & Cohen filed a qui tam lawsuit on his behalf in 2018 in federal district court in Riverside, California.

"Our client expressed concerns to upper management about the asset purchase arrangement and the employment agreement, but he was ignored and then sidelined," said Arens.

To carry out its alleged scheme involving reimbursement for implantable devices, Prime centralized its billing and collections using a small team of employees.

"We allege that one office became a 'falsification factory' that systematically altered invoices and purchase orders to make it appear that Prime Healthcare spent more on implants than it really did," said Molly Knobler, a whistleblower attorney at Phillips & Cohen.

Mansukhani said he was glad that his concerns were recognized and that the case has been resolved.

"This outcome wouldn't have been possible without the skilled and experienced whistleblower lawyers I had on my side and a strong whistleblower law," Mansukhani said.

Arens and Berger commended the government attorneys and investigators who investigated the case and participated in the settlement. They include Senior Trial Counsel Marie Bonkowski and Assistant United States Attorneys Abraham Meltzer and Jack Ross from the US Department of Justice and Supervising Deputy Attorney General Nicholas Paul from the California Department of Justice.

When whistleblowers pursue qui tam cases on their own, they are entitled under the false claims laws to 25% to 30% of the federal recovery and 25% to 50% of California's. Mansukhani will receive 28% and 44%, respectively, of the recoveries.

SOURCE Phillips & Cohen LLP

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