Hospital System Prime Healthcare Agrees to Pay $37.5 Million to Settle Whistleblower's False Claims Act Allegations

Prime Healthcare Services, Inc. (Prime), one of the largest hospital systems in the United States, Prime’s founder and CEO, and a California Cardiologist (collectively Defendants) have agreed to pay $37.5 million in a joint resolution between two private whistleblowers and federal and California authorities to resolve claims that the Defendants violated the False Claims Act and the California False Claims Act.

The settled claims alleged that Prime paid illegal kickbacks when it overpaid to purchase California Cardiologist Dr. Siva Arunasalam’s private practice and surgical center because Prime wanted Dr. Arunasalam to refer patients to a Prime owned hospital.  Essentially, the acquisition was devised to eliminate competition, and after closing on the transaction, Prime CEO Dr. Prim Reddy immediately shut down Dr. Arunasalam’s surgical center but kept open his previously private practice where he was paid a $1.2 million salary as an employee of Prime.  The allegations estimate these payments were approximately three times above fair market value and directly based on the volume and value of Dr. Siva’s referrals to Prime medical practices.

The settlement also resolved allegations that Dr. Arunasalam used Dr. Arunasalam’s billing number (known as an NPI number) to bill Medicare and Medi-Cal for services that were provided by Dr. George Ponce, even though they knew Dr. Ponce’s Medicare and Medi-Cal billing privileges had been revoked, and that billing Dr. Ponce’s services under Dr. Arunasalam’s billing number was improper.

Finally, the settlement agreement also resolved claims that certain Prime hospitals billed Medi-Cal, the Federal Employees Health Benefits Program and the U.S. Department of Labor’s Office of Workers’ Compensation Programs for false claims based on inflated invoices for implantable medical hardware. Dr. Arunasalam was not implicated in this conduct.

This fraud was brought to the attention of authorities by two separate whistleblowers who filed complaints under the qui tam provisions of the False Claims Act, against Prime Healthcare Services. The first whistleblower claim was brought by an former Prime executive who worked in financial services and alleged the submission of fraudulent claims in connection with the kickback-design of the sale, among other claims of wrongdoing.  Another whistleblower action alleging False Claims Act violations was filed in 2019 by two other whistleblowers who were formerly employed in the billing department of a Prime Hospital in Redding, California.

While the United States did not elect to formally intervene on behalf of the claims filed by either party, it provided investigative services and assisted in negotiating the settlement achieved by the parties. Under the terms of the settlement agreement, announced in July 2021, Dr. Arunasalam, Dr. Reddy (Prime’s CEO), and Prime will pay $2 million, $1.775  million, and $33.725 million, respectively.  The United States will receive $35,463,057, California will receive $2,036,943, and the first-filed whistleblower will receive $9,929,656 as a reward for providing the Government with this information.

The first-filed whistleblower was represented by Justin Berger of Cotchett Pitre & McCarthy LLP, and Edward H. Arens of Phillips & Cohen LLP.  Frohsin Barger & Walthall would like to thank and congratulate these firms and their brave client for coming forward and returning these funds to the taxpayer.

For more information on reporting instances of healthcare fraud, anti-kickback violations or questions about improper referral arrangements, please contact Frohsin Barger & Walthall.

For more information on this settlement, please see the Department of Justice press release, here.