In The News

Los Angeles Hospital Agrees to Pay $42 Million to Settle Alleged False Claims Act Violations

Healthcare providers entering into improper relationships with physicians is a common theme in the government’s ongoing crackdown on Medicare and Medicaid fraud and abuse. This was demonstrated again last week when the Justice Department announced that two healthcare providers – PAMC Ltd., and Pacific Alliance Medical Center, Inc. – had agreed to pay $42 million in order to settle allegations that they violated the False Claims Act by engaging in improper financial relationships with referring physicians. The two entities own and operate Pacific Alliance Medical Center. Of the agreed upon settlement amount, $31.9 million will be paid to the government while the remaining $10 million will be paid to the State of California.


The settlement resolves allegations that were brought forward by a whistleblower who alleged that the defendants had submitted false claims to Medicare and MediCal Programs for services rendered to patients with whom they had improper relationships. Specifically, the whistleblower lawsuits alleged that the defendants paid above-market rates to rent office space within the physicians’ practices. Moreover, the lawsuit alleged that these marketing arrangements unduly benefited the physicians and their practices. These actions are alleged to have violated not only the False Claims Act but the Anti-Kickback Statute (42 U.S.C. § 1320a-7b.) and the Stark Law (42 U.S. Code § 1395nn). Both laws restrict the knowing and willful payment of “remunerations” to induce or reward patient referrals.


“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 U.S. Attorney Sandra R. Brown 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.”

“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 whistleblower in this case was Paul Chan who worked for one of the defendants as a manager. Mr. Chan filed his case under the qui tam provisions of the False Claims Act. Under these provisions, individuals are able to sue on behalf of the United States and share in any subsequent recovery. Mr. Chan is expected to receive approximately $9.2 million.