Los Angeles Hospital Agrees To Pay $42 Million to Settle Allegations Arising From Improper Financial Arrangements with Physicians

          LOS ANGELES – The owners of Pacific Alliance Medical Center, an acute care hospital located in the Chinatown District of Los Angeles, have agreed to pay $42 million to settle allegations that they were involved in improper financial relationships with referring physicians, the Justice Department announced today.

          PAMC, Ltd. and Pacific Alliance Medical Center Inc., the owners of the hospital, agreed to pay the settlement to resolve a lawsuit that alleged they had violated the False Claims Act by submitting false claims to the Medicare and MediCal programs.

          The settlement, which was finalized this week, calls for PAMC Ltd. and Pacific Alliance Medical Center Inc. to pay $31.9 million to the United States and $10 million to the State of California.

          The settlement resolves allegations brought in a “whistleblower” lawsuit that the defendants submitted or caused to be submitted false claims to Medicare and MediCal for services rendered to patients who had been referred by physicians with whom the defendants had improper financial relationships.

          These improper relationships took the form of (1) arrangements under which the defendants allegedly paid above-market rates to rent office space in physicians’ offices, and (2) marketing arrangements that allegedly provided undue benefit to physicians’ practices.

          The lawsuit alleged that these relationships violated the Anti-Kickback Statute and the Stark Law, both of which restrict the financial relationships that hospitals may have with doctors who refer patients to them.

          “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,” said Acting United States Attorney Sandra R. Brown. “Patients deserve to know their doctors are making health care decisions based solely on medical need and not for any potential financial benefit.”

          The whistleblower lawsuit was filed by Paul Chan, who was employed as a manager by one of the defendants, under the qui tam provisions of the False Claims Act. Under the False Claims Act, private citizens can bring suit on behalf of the United States and share in any recovery. The United States may intervene in the lawsuit, or, as in this case, the whistleblower may pursue the action. Mr. Chan will receive over $9.2 million as his share of the federal recovery.

          “This is another example of how the False Claims Act whistleblower provisions can help protect the public fisc,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division. “This recovery should help to deter other health care providers from entering into improper financial relationships with physicians that can taint the physicians’ medical judgment, to the detriment of patients and taxpayers.”

          “This settlement is a warning to health care companies that think they can boost their profits by entering into improper financial arrangements with referring physicians,” said Special Agent in Charge Christian J. Schrank of the Department of Health and Human Services, Office of Inspector General (HHS-OIG). “Working with our law enforcement partners, we will continue to crack down on such deals, which work to undermine impartial medical judgement, drive up health care costs, and corrode the public’s trust in the health care system.”

          The case, United States ex rel. Chan v. PAMC, Ltd., et al., CV13-4273 (C.D. Cal.), was monitored by the United States Attorney’s Office, the Civil Division’s Commercial Litigation Branch, and HHS-OIG.

          The defendants have until July 7 to make the settlement payments.

          The claims settled by this agreement are allegations only, and the defendants did not admit liability in settling the action.