Paksn: Medical Director Payments Followed the Referrals

In the Paksn fraud case, Paksn Inc., its owner and six skilled nursing facilities agreed to a $45,645,327 consent judgment to resolve allegations that medical director kickbacks for patient referrals led to false claims to Medicare. The government alleged that expected admissions determined which physicians got hired, how much they received and whether payments continued. For someone working with physician contracts, payments or admissions, that is the connection at the center of this case: a doctor’s compensation following the patients the doctor sends.

The Department of Justice announced the resolution on November 15, 2023. Beyond the consent judgment, the defendants agreed to make scheduled payments to the United States of at least $385,000 over the next five years, a schedule negotiated based on their lack of ability to pay. A former Paksn vice president of operations and chief operating officer brought the whistleblower case in 2015. The government joined some of the allegations.

The Facilities Behind the Paksn Case

The consent judgment covered Paksn, its owner and the operating companies behind six California skilled nursing facilities. Their public-facing names matter to employees who may know the facility better than the corporation on its contracts.

Kayal Inc. operated Bay Point Healthcare Center. Nadhi Inc. operated Gateway Care & Rehabilitation Center. Oakrheem Inc. operated Hayward Convalescent Hospital.

Bayview Care Inc. operated Hilltop Care and Rehabilitation Center. Aakash Inc. operated Park Central Care & Rehabilitation Center. Nasaky Inc. operated Yuba Skilled Nursing Center.

The original case also named Thekkek Health Services Inc., operating Martinez Convalescent Hospital. Connecting the operating name to the company matters when we examine who signed a physician agreement, who authorized the payments and which facility admitted the referred residents.

Medical Director Payments Tied to Patient Admissions

The government alleged that Paksn’s medical-director arrangements used expected referrals to recruit and pay physicians from 2009 through 2021. When referrals disappointed, payments ended.

The contract called it medical-director work. The government alleged Paksn was paying for patients.

Ending payments when referrals fell short makes that account especially concrete. It gives an insider a decision to recognize: management responding to a doctor’s admission numbers by changing the financial relationship. The question we examine with that insider is what management was buying, and how its own decisions show it.

Residents have an interest in care decisions based on their needs. Taxpayers have an interest in the government paying for that care without financing a bargain to steer the patients. The alleged kickback sits where those interests meet, before the facility submits its bill.

The Physician’s Work and the Referral Business

A medical-director agreement describes the duties a physician is paid to perform. Clinical records help explain the care a physician provided. The contract and payment records help explain what the facility paid the physician to do. Referral and admission records show the business moving in the other direction.

The California Research Bureau made a useful point about looking beyond the bill in its 1997 report, Fraud and Abuse in the Health Care Market of California:

The report separately describes a party steering business to another for a fee. That broader view helps explain the Paksn allegations: the physician arrangement and the admission decision belong in the same account as the resulting claim. The alleged bargain began before billing staff entered anything.

What Evidence Is Needed to Prove Fraud?

We work with insiders to connect medical-director agreements, services performed, payments, referrals, admissions and claims. In a referral-payment case, that comparison helps us understand what the facility paid for and how the arrangement reached government-funded health care.

The agreement identifies the duties the physician was supposed to perform. Records of the work show what happened under it. Payment records show what the physician received and when, while referral and admission records show whether the facility’s business followed the same pattern. The resulting claims connect those admissions to the money the government was asked to pay.

In a case like Paksn’s, the decisions surrounding compensation deserve particular attention. An accounts-payable employee may see a payment stop. Admissions staff may see the referral numbers behind that decision. An operations employee may understand why management expected a particular volume in the first place. Each view can help explain a relationship that looks different when only the contract is read.

The whistleblower here had worked in operations and as chief operating officer. The decisions behind a claim can reach well beyond the person who submits it.

Other Medical Director Cases Show the Same Bargain

Alta Vista Healthcare & Wellness Centre and Rockport Healthcare Services faced a separate California case over alleged physician referral payments. The government alleged that, from 2009 through 2019, extravagant gifts and monthly medical-director stipends of $2,500 to $4,000 induced referrals. Their resolution also included review of physician relationships.

That comparison makes the form of the benefit worth examining. A monthly stipend and a gift can serve the same alleged purpose when they buy the doctor’s referral business. The description in the expense account is only part of the story.

Hebrew Homes Health Network illustrates the service side of the comparison. The government alleged that its arrangements paid several physicians per facility for purported medical-director duties largely not performed. Its 2015 settlement concerned allegations that those positions paid for referrals rather than legitimate services.

For an insider concerned that a nursing home medical director is paid without documented services, that case identifies a concrete comparison: the duties in the agreement and the work actually performed. Paksn adds the compensation decision itself, with the government alleging that expected referrals determined the relationship and disappointing referrals ended payment.

Review of Physician Relationships

The resolution also included a five-year integrity agreement requiring independent review of physician relationships. That obligation returned oversight to the arrangements at the center of the alleged scheme: the facilities’ financial relationships with doctors.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know Why the Payments Changed

If you know a physician’s payments rose or stopped because of patient referrals, talk with our whistleblower experts about the arrangement. We build your case around the decisions you saw, bring in healthcare fraud whistleblower lawyers who understand nursing-home referral payments, and stay with you through the pursuit of a recovery.