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Prime Healthcare CEO to Pay Part of $65M False Claims Settlement Personally

By Steven Porter  
   August 03, 2018

The large hospital system was accused of 'up-coding' patient diagnoses to increase Medicare reimbursement in what the DOJ described as 'a deliberate corporate-driven scheme.'

One of the largest hospital systems in the country has agreed to a $65 million settlement to resolve allegations it systematically overcharged Medicare, the U.S. Department of Justice announced Friday afternoon.

Prime Healthcare Services, along with its consulting subsidiary, nonprofit arm, and top executive, agreed to the settlement after nearly seven years of litigation prompted by a whistleblower. Prime founder and CEO Prem Reddy, MD, FACC, FCCP, agreed to pay $3.25 million toward the settlement, according to the DOJ's announcement.

"We are very pleased with the ultimate resolution of this lawsuit," Prime Healthcare Deputy General Counsel Joel Richlin said in a statement that emphasized the fact that there was no admission of liability in the terms of the settlement.

"There was no finding of improper conduct or wrongdoing of any kind by Prime Healthcare," the organization's statement noted. "Prime Healthcare's exemplary record of clinical quality care was never in question. This matter dealt with the technical classification of the category under which patients were admitted and billed."

Karin Bernstein, a former director of performance improvement for Prime's Alvarado Hospital Medical Center in San Diego, filed the lawsuit in federal court under the False Claims Act. The government intervened in the case, but Bernstein will receive $17.2 million, more than a quarter of the settlement sum, the DOJ said.

  • The allegations: Prime was accused of knowingly "up-coding" Medicare claims, falsifying diagnosis information to increase reimbursement. The DOJ said the allegations included "a deliberate corporate-driven scheme" to boost inpatient admissions for Medicare beneficiaries who came to emergency departments in 14 of Prime's hospitals in California, even when an inpatient stay was medically unnecessary.
  • Integrity agreement: As part of the settlement, Prime also signed a five-year corporate integrity agreement with the Health and Human Services Office of Inspector General. That document, which places additional compliance duty's on Prime, had not been released publicly as of Friday afternoon.
  • Parties to the settlement: Prime Healthcare Services and its nonprofit counterpart, Prime Healthcare Foundation, based in Ontario, California, operate 45 acute-care hospitals across 14 states. The parties to this settlement agreement include the for-profit arm, the foundation, the consulting component Prime Healthcare Management, Reddy, and 14 hospital defendants (10 owned by Prime's for-profit arm and four hospital defendants owned by Prime's foundation).
  • Not the biggest: This high-dollar settlement is nowhere near the largest paid by a hospital operator. In 2016, for example, Tenet Healthcare Corp. agreed to pay $368 million to the federal government, Georgia, and South Carolina to settle False Claims Act allegations. The whistleblower's share in that case was more than $84.4 million.
  • Sending a message: "By reaching this settlement, the FBI and our partners are holding Prime Healthcare accountable for exaggerating patients' needs and inflating the severity of their symptoms while handsomely lining their pockets," said Paul D. Delacourt, assistant director in charge of the FBI's Los Angeles field office in a statement. "This case should send a clear message to others who intend to engage in similar schemes that rout the American healthcare system."
  • Questioning clinical judgment? Prime noted in its statement Friday that the American Hospital Association and California Hospital Association had filed briefs in Prime Healthcare's favor in 2016, arguing that the way these lawsuits pertaining to inpatient admissions are being carried out "inappropriately challenged the clinical decisions of physicians." Those briefs called for reforms, Prime said.

The HHS hotline accepts tips and complaints from anyone with concerns about possible fraud, waste, abuse, and mismanagement: 800-HHS-TIPS (800-447-8477).

The full statement released by Prime in response to the DOJ's announcement is below:

Prime Healthcare DOJ Press Release by HLMedit on Scribd

Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.


Prime's founder and CEO agreed to pay $3.25 million of the $65 million agreement.

The whistleblower in this case will receive $17.2 million for reporting the alleged wrongdoing.

Prime released a statement emphasizing its 'exemplary record of clinical quality care.'

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