Prime Healthcare: The Practice-Acquisition Kickback Settlement

The Prime Healthcare practice acquisition kickback settlement totaled $37.5 million and covered allegations that the healthcare system overpaid for a cardiologist’s practice and surgery center to buy patient referrals. The government alleged that Prime wanted the physician’s patients at Desert Valley Hospital, and that his employment pay also depended on the volume and value of his referrals. In that account, the purchase price and the paycheck served the same purpose.

What the Settlement Covered

The Justice Department’s July 19, 2021 announcement described three different ways money allegedly moved improperly: paying for referrals through a practice acquisition and employment agreement, billing under another physician’s number, and submitting inflated implant invoices. Prime’s founder and chief executive and the cardiologist also settled individually. Taxpayers bore the cost of the allegedly false claims.

The acquisition allegation concerns what the buyer paid the referring physician. The physician-number allegation concerns whose work reached the payer under whose billing privileges. The implant allegation concerns the cost represented by an invoice. Each points to a different set of decisions, and a different place an employee might see them.

Why the Practice Was Worth More to the Hospital

A hospital buying a physician practice can gain the business that follows the patient: imaging, laboratory work and surgery. That is central to why hospitals buy physician practices. The practice’s own earnings tell only part of the buyer’s financial story.

Medicare pays a facility fee as well as a professional fee for care in a hospital outpatient department, compared with a single professional fee in a physician’s office.

In its 2020 account of outpatient payment differences, a federal appeals court described hospitals buying freestanding practices and converting them into hospital departments with little change to the facility or its patients. Those departments had received up to twice the Medicare reimbursement for the same outpatient service.

The premises could look much the same while the bill changed.

At Prime, the government alleged that the purchase price, largely negotiated by the founder, exceeded fair market value and was commercially unreasonable. The government alleged that Prime paid the excess to obtain referrals to Desert Valley Hospital. The physician’s employment agreement allegedly tied pay to those referrals as well.

How Much Did Prime Healthcare Pay?

Prime paid $33,725,000. Its founder and chief executive paid $1,775,000, and the cardiologist agreed to pay $2 million. The company carried most of the cost, but the resolution also reached the people on both sides of the practice deal.

The agreement allocated $35,463,057 to the United States and $2,036,943 to California. The state share sits alongside the federal recovery because the allegations included claims to Medi-Cal.

Prime and its founder also entered a five-year corporate integrity agreement. The Inspector General’s description of these agreements lists compliance leadership, written policies, staff training and outside review among their standard obligations.

A hospital-management survey in Medicare Billing Risk Perceptions of Hospitals Operating Under Corporate Integrity Agreements, published in the Journal of Forensic & Investigative Accounting in 2009, found that managers at hospitals under these agreements rated Medicare billing-fraud risks more highly than managers at hospitals with voluntary compliance programs. For an insider, management’s response to billing concerns matters alongside the written policy.

The Billing Number and the Implant Invoice

Whose Physician Number Reached Medicare?

High Desert Heart Vascular Institute and the cardiologist allegedly billed Medicare and Medi-Cal using the cardiologist’s number for services another physician performed. The government said this continued for approximately two years between 2015 and 2017, even though they knew the treating physician’s billing privileges had been revoked.

This allegation turns on the provider behind the claim. The clinical record identifies who treated the patient. The billing record identifies the physician whose number was used. In the government’s account, the substitution let the practice keep billing for a physician whose privileges had been taken away.

What Did the Hardware Invoice Represent?

Certain Prime hospitals allegedly supported false health care claims with inflated invoices for implantable medical hardware. The payers were Medi-Cal, the Federal Employees Health Benefits Program and the U.S. Department of Labor’s Office of Workers’ Compensation Programs.

The invoice allegation puts the purchasing and billing records beside each other. What the hospital bought, the cost the invoice represented and the amount presented to the payer are the connection an insider would recognize. Here the alleged false information sat in the paperwork supporting the hardware claim.

An Executive and Billing Employees Brought the Cases

A former Prime executive brought one qui tam case, and two former billing-office employees at Shasta Regional Medical Center brought the other. Shasta Regional is a Prime hospital in Redding, California. The United States declined to take over either case but continued investigating the allegations and helped negotiate the settlement.

The former executive’s announced award was about $9.9 million, his share of the federal government’s recovery. The cases came from management and billing employees, whose jobs put them close to different parts of the hospital’s financial conduct. A compensation decision and a claim submission can expose the same institution from very different desks.

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

Prime’s Admission and Upcoding Settlement Was a Different Case

The Prime Healthcare admission and upcoding settlement announced on August 3, 2018 totaled $65 million. It concerned allegations that 14 California hospitals submitted Medicare claims for patients who needed less costly outpatient care and billed diagnoses more serious than the patients actually had.

Those were allegations about inpatient admission decisions and diagnosis upcoding.

The Paper Trail Runs Through the Deal

For an acquisition insider, the connection begins with the purchase and employment terms: how much the physician would receive and what the hospital expected in return. Finance staff can see the compensation model, the valuation inputs and the assumptions about downstream referrals. Those are the business decisions behind the government’s allegation that the price bought a flow of patients.

For a billing employee, the connection may sit in the provider number or the invoice supporting the claim. The Prime cases show why management knowledge and billing knowledge both matter. One job sees why the hospital approved a payment. Another sees what the hospital asked a government program to pay.

A Valuation Depends on the Numbers Fed Into It

Community Health Network settled a separate physician-compensation case for $345 million in 2023. The government alleged that it recruited physicians to capture their referrals, gave a valuation firm false compensation figures and ignored that firm’s warnings about excessive pay. The parallel is the value assigned to the physician’s business and the information used to justify it.

The government’s amended complaint made the alleged connection between physician pay and hospital revenue explicit: the network made the part of incentive pay tied to a service line’s financial results depend, among other conditions, on the physician’s referrals bringing the hospital its targeted revenue.

That allegation gives the finance employee something concrete to recognize: the hospital’s referral-revenue target inside the physician’s compensation formula. In Prime’s case, the government likewise alleged that the physician’s employment pay depended on the volume and value of referrals. The acquisition price was only one place to look.

Your Hospital Acquisition Kickback Case

A purchase agreement records a price, but you may know the referral promises behind it. Talk with our whistleblower experts about what drove that price. We help you build your strongest hospital kickback whistleblower case, bring in whistleblower lawyers who know hospital acquisitions, and stay beside you throughout.