- Los Angeles-based Pacific Alliance Medical Center recently agreed to pay $42 million in order to settle an ongoing healthcare fraud case involving improper financial relationships between the acute care hospital and referring physicians.
According to a Department of Justice (DoJ) announcement, PAMC Ltd and Pacific Alliance Medical Center Inc, which together run the acute care hospital, reportedly submitted false claims to Medicare and MediCal programs. The submitted claims improperly requested reimbursement for healthcare services rendered to patients referred by providers with whom the two companies had inappropriate financial relationships.
PAMC Ltd and Pacific Alliance Medical Center Inc allegedly established improper financial relationships by either paying above-market rates to rent office space in provider offices or developing marketing arrangements that may have generated undue benefit to provider practices.
Specifically, relationships behind the healthcare fraud case stemmed from hospital programs for senior citizen and pregnant women health improvement, Law360 reported in February 2017. The programs contained improper compensation agreements between the hospital and local clinics, stated Peter Chan, a former Pacific Alliance Medical Center manager in charge of marketing the programs and the whistleblower in this case.
The inappropriate compensation agreements included lease arrangements for space to hold classes and bingo nights as well as marketing arrangements that promoted the hospital, clinics, and programs.
The DoJ stated that the financial relationships between the defendants and their referring physicians violated the Anti-Kickback Statute and Stark Law. Both regulations limit the financial relationships that hospitals can form with providers who refer patients to their facility.
“Federal law prohibits improper financial relationships between hospitals that receive federal health care funds and medical professionals – this is to protect the doctor-patient relationship and to ensure the quality of care provided,” stated Sandra R. Brown, the Acting US Attorney for the Central District of California. “Patients deserve to know their doctors are making health care decisions based solely on medical need and not for any potential financial benefit.”
Pacific Alliance Medical Center attempted to challenge the healthcare fraud case earlier this year, claiming that the hospital’s general partner Pacific Alliance Medical Center Inc. was not liable under the False Claims Act.
The hospital argued that Chan’s whistleblower claims did not prove that Pacific Alliance Medical Center Inc. partook in activities that made them liable under the False Claims Act and its penalties, Law360 reported. Chan’s claim against PAMC Inc. for "joint and several liability" also does not stand because the liability is not an independent cause of the improper actions.
In addition, the acute care hospital contended that the financial relationships formed between the facility and its referring providers did not violate the Stark law.
“His lawsuit is somewhat unusual insofar as it involves allegations of illegal kickbacks for patient referrals and arises under the False Claims Act, but it bears none of the hallmarks of such cases,” stated the hospital told the news source. “Relator does not contend that the hospital performed unnecessary procedures, provided inadequate care, or engaged in billing improprieties, nor does he contend that the hospital attempted to conceal its supposed wrongdoing.”
The Stark Law only applies to financial relationships between provider organizations and referring providers, the hospital argued. But the financial relationships formed at Pacific Alliance Medical Center involved the hospital and clinics engaging with a third-party vendor to promote the programs in question. The hospital never paid the referring providers.
Despite previous challenges, the two companies under the Pacific Alliance Medical Center agreed to settle the healthcare fraud case in federal court earlier this week.
As part of the settlement agreement, Pacific Alliance Medical Center will pay $31.9 million to the federal government and $10 million to the state of California.