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Press Release

Pacific Health Corporation and Related Entities Agree to Pay $16.5 Million for Allegedly Engaging in an Illegal Kickback Scheme in Los Angeles

For Immediate Release
Office of Public Affairs
Affiliated Hospitals Paid Recruiters to Deliver Homeless Medicare/Medi-Cal Beneficiaries to the Facilities

WASHINGTON – The United States has entered into a settlement agreement with Pacific Health Corporation (PHC) and related entities in which they agreed to pay the government and the state of California $16.5 million for allegedly engaging in an illegal kickback scheme in Los Angeles, the Justice Department announced today.  The civil settlement resolves a U.S. and state investigation of three PHC-affiliated hospitals for engaging in a scheme in which the hospitals paid recruiters to deliver homeless Medicare or Medi-Cal beneficiaries (homeless beneficiaries) by ambulance from the “Skid Row” area in Los Angeles to the hospitals for treatment that often was medically unnecessary. 

The hospitals, Los Angeles Metropolitan Medical Center (LA Metro); Newport Specialty Hospital, formerly known as Tustin Hospital and Medical Center; and Anaheim General Hospital, then allegedly billed Medicare and Medi-Cal for these services, violating rules that permit payment only for necessary treatment. The governments contended that these services were induced by illegal remuneration in violation of the Anti-Kickback statute (AKS), and the resulting billings to Medicare and Medi-Cal violated the False Claims Act.

Also as part of the resolution of this matter, a subsidiary of PHC, Los Angeles Doctors Hospital Inc., has agreed to plead guilty to a federal conspiracy charge arising out of the illegal kickback scheme. In addition, the three hospitals, a fourth related hospital (Bellflower Medical Center), and their related entities have entered into a corporate integrity agreement with the Inspector General for the U.S. Department of Health and Human Services intended to deter future misconduct.  PHC’s parent corporation, Health Investment Corporation, also is a party to the civil settlement and the corporate integrity agreement.

This settlement arises out of the same investigation which in 2010 resulted in consent judgments against Intercare Health Systems Inc., formerly doing business as City of Angels Medical Center, and its former owners Robert Bourseau and Rudra Sabaratnam, for a similar illegal kickback scheme in Los Angeles.  Several individuals have pleaded guilty in connection with the scheme, including Mr. Bourseau and Dr. Sabaratnam, who were sentenced to three years and one month, and two years in prison, respectively, for their part in the scheme.

Prohibitions against illegal kickbacks are important to insure that financial motives do not undermine the integrity of the medical judgment of physicians and other health care workers.

“The integrity of government health care programs is threatened when hospitals pay kickbacks to induce unnecessary or unwanted medical care,” said Stuart Delery, the Acting Assistant Attorney General in charge of the Justice Department’s Civil Division. “Kickbacks subvert medical decision making and cause government programs to pay much more for services than would otherwise be warranted.”

The investigation was handled by the U.S. Attorney's Office for the Central District of California, the Office of Inspector General of the U.S. Department of Health and Human Services, the FBI, the IRS-Criminal Investigation, the Justice Department’s Civil Division, the Attorney General's Office of the State of California, 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.

This resolution is part of the government’s emphasis on combating health care fraud and another step for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced by Attorney General Eric Holder and Kathleen Sebelius, Secretary of the Department of Health and Human Services in May 2009. The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation. One of the most powerful tools in that effort is the False Claims Act, which the Justice Department has used to recover more than $9.2 billion since January 2009 in cases involving fraud against federal health care programs. The Justice Department’s total recoveries in False Claims Act cases since January 2009 are over $12.8 billion.

Updated September 15, 2014

Press Release Number: 12-1046