Pacific Alliance Medical Center: The Admission Targets Behind the Office Rent

The $42 million Pacific Alliance Medical Center rent settlement resolved allegations that the hospital rewarded referring physicians through office rent and marketing benefits. The whistleblower’s complaint put monthly admission targets behind those payments. A physician who sent fewer patients allegedly risked losing the arrangement. For someone who worked on the leases, marketing agreements or referral reports, that is the question at the center of this case: what was the hospital paying the physician to deliver?

What Was the Pacific Alliance Medical Center Rent Settlement?

Pacific Alliance Medical Center, an acute care hospital in Los Angeles, settled allegations of improper financial relationships with referring physicians. The whistleblower’s lawsuit alleged that the two companies that owned and operated the hospital submitted false claims to Medicare and Medi-Cal for services to patients those physicians referred, and that the relationships violated the Anti-Kickback Statute and the Stark Law. The Justice Department announced the resolution on June 28, 2017.

The settlement allocated $31.9 million to the federal government and $10 million to California. The Inspector General also lists a five-year corporate integrity agreement for PAMC.

The alleged payments for referrals sat inside ordinary business arrangements. Pacific Alliance allegedly overpaid to rent space in physicians’ own offices and provided marketing arrangements that unduly benefited their practices. The rent flowed from the hospital to the referring physician.

How Did Pacific Alliance Tie Rent to Admissions?

The whistleblower’s complaint alleged that Pacific Alliance set sublease payments according to monthly admission targets. It described $600 a month for two to three admissions and $1,400 a month for ten admissions. The alleged pricing started with the patients a physician could send.

The complaint also described a percentage approach: the hospital would cover 10% of a referring physician’s rent, overhead and supplies for five to ten admissions a month, with higher percentages for higher admission targets. Office expenses supplied the payment’s description. Admissions allegedly supplied its scale.

According to the complaint, the physician integration team discussed prospective doctors and clinics in terms of the referrals they could bring and the amount Pacific Alliance would pay. Existing arrangements faced the same test. When a doctor or clinic fell behind its monthly target, the team allegedly discussed reducing the payments or warning that the arrangement could end.

One passage makes that business-development thinking unusually clear. The whistleblower alleged that management gave him a monthly budget for proposed payment arrangements with a physician, telling him he had:

The complaint says the manager never made that compensation offer. Management allegedly put a doctor’s referrals on a monthly budget.

Physician Office Rent and Fair Market Value

Pacific Alliance allegedly paid physician office rent above fair market value for space inside referring physicians’ offices. The complaint added an operational detail that a rent comparison alone would miss: the payment could depend on whether the doctor delivered enough admissions.

That arrangement put alleged payments for referrals inside a property transaction. Someone involved in approving the rent may know what hospital business management expected the physician to send in return.

The economics reach beyond the office. A physician’s referrals can bring imaging, laboratory work and surgery into a hospital. That downstream business helps explain why hospitals put money into physician relationships. In Pacific Alliance’s case, the complaint described the connection directly, alleging that the hospital discussed what it would pay against the referrals a doctor promised. The lease and the admission target belonged to the same business conversation.

Marketing supplied another alleged route. The complaint claimed that the Shared Marketing Agreement program produced more than $100 million in Medi-Cal reimbursements for referrals and admissions from physicians with prohibited compensation arrangements. Taxpayers were funding health care, while the alleged bargains rewarded the physicians who sent the business.

The Contracts, the Targets and the Claims

Pacific Alliance’s alleged payment scale gives an insider a concrete connection to recognize: the agreement, the expected admissions, the payment and what happened when referrals fell short.

A paper in the Journal of Forensic and Investigative Accounting explains how healthcare fraud can hide in ordinary contracts. Its diagnosis is short:

For referral arrangements, the paper recommends comparing provider contracts with the services actually delivered, including whether rented space was used and whether consulting work produced deliverables.

Applied to the Pacific Alliance allegations, that means the office-space paperwork and marketing agreements tell only part of the story. The referral targets, the discussions about cutting payments and the claims for the resulting admissions explain what the arrangement was expected to accomplish. This is the connection at the heart of a hospital False Claims Act case: what the hospital sought payment for and what people inside knew about the arrangement behind it.

The Manager Who Pursued the Pacific Alliance Case

A manager employed by one of the defendant companies brought the qui tam case and pursued it without the government taking it over. The Justice Department’s settlement announcement said the manager would receive more than $9.2 million as his share of the federal recovery.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Here, the person who brought the case was a manager inside the business. The complaint’s account came from discussions about payments and admissions, the places where a business arrangement’s purpose can become visible.

Other Hospital Deals With Referrals Behind Them

Trinity Hospital’s rental payments to two referring physicians offer the closest comparison. The government alleged that those office-space arrangements exceeded fair market value, as its Trinity settlement announcement explains.

In the UPMC Hamot and Medicor case, the alleged vehicle was service agreements for work the hospital did not need, some of which never happened. Different contracts, the same question about what the hospital was buying.

Benefits can also pay a physician’s expenses. Catholic Medical Center allegedly provided free night and weekend call coverage for a referring cardiologist’s patients. The Fresno Community Health System settlement involved alleged physician lounge amenities, including wine, liquor, cigars and meals, offered to referring physicians.

Dunes Surgical Hospital allegedly funded athletic trainers whose work generated referrals to both a physician group and the hospital. The benefit reached the referring practice through somebody else’s payroll.

Investment arrangements can carry referral benefits too. OASIS Hospital allegedly made improper contributions through interest payments on convertible bonds issued to a referring physician group.

The Texas Heart Hospital qui tam case challenged an owner contact requirement that tied physician hospital ownership to minimum patient contacts. In Flower Mound Hospital’s settlement, the government alleged that share buybacks from older physicians led to hospital shares being allocated to other physicians according to referral volume or value. Rent, expense relief and ownership each give a hospital a way to attach a financial benefit to the business a physician brings.

What the Rent Was Buying

If you saw a physician’s rent or marketing support rise and fall with admissions, speak with our whistleblower experts about what drove those payments. We connect the business decisions you witnessed to the hospital claims they produced and bring in whistleblower lawyers who know physician financial arrangements. We stay with you through the case, focused on what the payments were really buying.