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Press Release

Prime Healthcare Services and Two Doctors Agree to Pay $37.5 Million to Settle Allegations of Kickbacks, Billing for a Suspended Doctor, and False Claims for Implantable Medical Hardware

For Immediate Release
Office of Public Affairs

One of the largest hospital systems in the nation and two of its doctors will pay $37.5 million to resolve violations of the False Claims Act and the California False Claims Act. The settlement is a joint resolution with the U.S. Department of Justice and the California Department of Justice.

The United States and California entered into a settlement agreement with the Prime Healthcare Services system (Prime), Prime’s Founder and Chief Executive Officer Dr. Prem Reddy, and California interventional cardiologist Dr. Siva Arunasalam to resolve alleged violations of the False Claims Act and the California False Claims Act based on kickbacks paid by Prime to Dr. Arunasalam for patient referrals. Prime includes Prime Healthcare Services Inc., based in Ontario, California; Prime Healthcare Foundation Inc.; Prime Healthcare Management Inc.; High Desert Heart Vascular Institute (HDHVI); and Desert Valley Hospital Inc. Under the settlement agreement, Dr. Arunasalam will pay $2,000,000; Dr. Reddy paid $1,775,000; and Prime paid $33,725,000. The United States will receive $35,463,057 of the settlement proceeds, and California will receive $2,036,943. Prime and Dr. Reddy paid $65 million to settle previous unrelated allegations of false claims and overbilling in 2018.

“Offering illegal financial incentives to physicians in return for patient referrals undermines the integrity of our health care system by denying patients the independent and objective judgment of their health care professionals,” said Acting Assistant Attorney General Brian M. Boynton of the Justice Department’s Civil Division. “Today’s settlement demonstrates the department’s commitment to protect federal health care programs against such violations, as well as other efforts to defraud these important programs.”

“Doctors have a sworn duty to do no harm and to put their patients’ interests first,” said Acting U.S. Attorney Tracy L. Wilkison for the Central District of California. “Kickbacks designed to increase the number of patient referrals corrupt the doctor-patient relationship and needlessly waste this nation’s health care resources.”

“In our cities and neighborhoods, hospitals are where we go for healing and care, which means they have to be a place that the people they serve can trust,” said California Attorney General Rob Bonta. “Today’s settlement should send a message that schemes like those alleged here, that put profits before people and seek to defraud our Medi-Cal program, will not be taken lightly.”

The settlement resolves allegations that:

  • Prime paid kickbacks when it overpaid to purchase Dr. Arunasalam’s physician practice and surgery center because the company wanted Dr. Arunasalam to refer patients to its Desert Valley Hospital in Victorville, California. The purchase price, which was substantially negotiated by Dr. Reddy, exceeded fair market value and was not commercially reasonable. Prime also knowingly overcompensated the doctor when HDHVI entered into an employment agreement with him that was based on the volume and value of his patient referrals to Desert Valley Hospital;
  • For approximately two years between 2015 and 2017, HDHVI and Dr. Arunasalam used Dr. Arunasalam’s billing 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; and
  • 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.

The Anti-Kickback Statute prohibits offering, paying, soliciting or receiving remuneration to induce referrals of items or services covered by a federal health care program, such as Medicare, Medicaid or TRICARE. Claims submitted in violation of the Anti-Kickback Statute may give rise to liability under the False Claims Act.

In connection with the settlement, Prime and Dr. Reddy entered into a five-year Corporate Integrity Agreement (CIA) with the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG). The CIA requires, among other things, that Prime maintain a compliance program and hire an Independent Review Organization to review arrangements entered into by or on behalf of its subsidiaries and affiliates.

“Federal healthcare funds are integral to the provision of necessary medical services to beneficiaries across the country,” said Special Agent in Charge Timothy B. DeFrancesca of the Office of Inspector General for the U.S. Department of Health and Human Services. “Therefore, we will address any actions, including those alleged in this case, that could compromise the system on which many patients rely. We will continue working with federal and state prosecutors to guard taxpayer funds that support these vital programs.”

The civil settlement includes the resolution of claims brought under the qui tam or whistleblower provisions of the False Claims Act in two lawsuits filed in federal court in Los Angeles. One suit was filed by Martin Mansukhani, a former Prime executive. The second suit was filed by Marsha Arnold and Joseph Hill, who were formerly employed in the billing office at Shasta Regional Medical Center, a Prime hospital in Redding, California. Under the qui tam provisions of the False Claims Act, a private party can file an action on behalf of the United States and receive a portion of any recovery. Although the United States did not intervene in these cases, it continued to investigate the whistleblowers’ allegations and helped to negotiate the settlement announced today. Mr. Mansukhani will receive $9,929,656 as his share of the federal government’s recovery. The cases are United States and the State of California ex rel. Martin Mansukhani v. Prime Healthcare Services, Inc., et al., 5:18-cv-00371-RGK (C.D. Cal.); and United States and the State of California ex rel. Marsha Arnold and Joseph Hill v. Prime Healthcare Services, Inc., et al., 5:18-cv-02124-FLA (C.D. Cal.).

The resolutions obtained in these matters were the result of a coordinated effort between the Civil Division’s Commercial Litigation Branch, Fraud Section; the U.S. Attorney’s Office for the Central District of California; the California Attorney General’s Office’s Division of Medi-Cal Fraud and Elder Abuse; and HHS-OIG. 

The investigation and resolution of this matter illustrate the government’s emphasis on combating health care fraud. One of the most powerful tools in this effort is the False Claims Act. Tips and complaints from all sources about potential fraud, waste, abuse and mismanagement can be reported to the Department of Health and Human Services at 800-HHS-TIPS (800-447-8477).

The cases were handled for the United States by Senior Trial Counsel Marie V. Bonkowski of the Civil Division and Assistant U.S. Attorneys Jack D. Ross and Abraham C. Meltzer of the Central District of California.   

The claims resolved by the settlement are allegations only, and there has been no determination of liability.

Updated July 19, 2021

False Claims Act
Press Release Number: 21-669