Pacific Health Corporation and Three of Its Southland Hospitals Agree to Pay $16.5 Million in Cases Stemming from Illegal Kickback Scheme
Marketers were Paid to Recruit Homeless from L.A.’s Skid Row to Undergo Often Unnecessary Treatments That were Billed to Medicare and Medi-Cal

LOS ANGELES—A Los Angeles-based hospital chain has agreed to pay $16.5 million to resolve allegations that several of its subsidiary hospitals participated in an illegal kickback scheme in which so-called marketers were paid to recruit homeless persons from locations such as downtown Los Angeles’ “Skid Row” and bring them to Southland hospitals regardless of medical necessity, which allowed the hospitals to improperly submit bills to Medicare and Medi-Cal.

A global resolution of civil and criminal investigations conducted by the United States and the state of California was announced today when federal prosecutors filed a criminal case against Los Angeles Doctor’s Hospital Inc. (LADH), which has agreed to plead guilty to conspiring to defraud Medicare and Medi-Cal through the payment of illegal kickbacks to the marketers.

“To root out and deter those who seek to exploit publicly funded health care programs, we need to pursue all available remedies—civil, criminal, and administrative,” said United States Attorney André Birotte, Jr. “The guilty plea, civil settlement agreement, and corporate compliance agreement that we are announcing today—the result of efforts of civil and criminal attorneys in my office and officials at the Department of Health and Human Services—reflect this approach and should remind unscrupulous health care providers of our determination to bring to justice those who exploit federal and state public health programs for their personal gain.”

LADH is a subsidiary of Pacific Health Corporation (PHC), which has entered into a deferred prosecution agreement with the United States Justice Department. PHC is also being criminally charged today, but if the company abides by the deferred prosecution agreement, the charges will be dismissed in six years.

PHC; its parent company, Health Investment Corporation (HIC); and three subsidiary hospitals have also entered into a civil settlement agreement with the United States in which the companies agreed to pay $16.5 million to resolve allegations that they participated in the illegal kickback scheme and submitted false claims to Medicare and Medi-Cal. The three PHC hospitals whose conduct was the subject of the state and federal investigations and which are parties to the civil settlement are: Los Angeles Metropolitan Medical Center, Newport Specialty Hospital (formerly known as Tustin Hospital and Medical Center), and Anaheim General Hospital. The first payment related to this settlement was received yesterday.

In the plea agreement and deferred prosecution agreement filed this afternoon in United States District Court, LADH and PCH admitted that from 2003 to 2008, they, along with the three PCH hospitals, paid more than $2.3 million in kickbacks to marketers to recruit patients who were admitted to the hospitals for in-patient care, whether they needed it or not. As a result of this illegal conduct, Medicare and Medi-Cal made nearly $16 million in improper payments to the PHC hospitals.

Among the marketers paid by the PHC hospitals was Estill Mitts, who previously pleaded guilty in federal court to conspiring to recruit homeless people to receive unnecessary health services. According to Mitts’ plea agreement, from 2004 until October 2007, Mitts operated a facility on East Seventh Street in downtown Los Angeles commonly called the Assessment Center. Mitts hired so-called “stringers” to recruit homeless people to participate as patients in the scheme with promises of small payments. Mitts is scheduled to be sentenced by United States District Judge H. King on October 15.

In connection with the criminal plea agreement, the deferred prosecution agreement, and the civil settlement announced today, HIC, PHC, the three hospitals referenced above, and another PHC hospital—Bellflower Medical Center in Bellflower—have entered into a corporate integrity agreement with the Office of the Inspector General of the U.S. Department of Health and Human Services that imposes strict oversight on the four PHC hospitals.

“Hospitals colluding with marketers to fatten profits through illegal referrals for costly and sometimes needless medical services are pocketing millions of taxpayer dollars,” said Glenn R. Ferry, Special Agent in Charge for the Los Angeles Region of the Office of Inspector General of the U.S. Department of Health and Human Services. “Our agents are monitoring such schemes, and those entering into similar sham contracts should expect investigation and prosecution.”

Previously in this investigation, Intercare Health Systems Inc. (formerly doing business as City of Angels Medical Center) and former owners Robert Bourseau and Dr. Rudra Sabaratnam were the subjects of consent judgments in relation to a similar kickback scheme (see: http://www.justice.gov/opa/pr/2010/January/10-civ-082.html). Several individuals pleaded guilty in connection with the scheme—including Bourseau and Sabaratnam, who were sentenced to federal prison for their roles in the scheme.

The criminal plea, the deferred prosecution agreement, and the civil settlement announced today are the results of ongoing criminal and civil investigations being conducted by the Office of Inspector General of the U.S. Department of Health and Human Services; the Federal Bureau of Investigation; IRS-Criminal Investigation; the Justice Department’s Civil Division; the California Attorney General’s Office; the California Department of Justice’s Bureau of Medi-Cal Fraud and Elder Abuse; and the Health and Law Enforcement Team (HALT), a multi-agency task force operated by the Los Angeles County Health Department.

Anyone with information that could assist the ongoing investigation is encouraged to contact investigators with the U.S. Department of Health and Human Services by calling 1-800-HHS-TIPS or e-mailing HHSTips@oig.hhs.gov.