SACRAMENTO, CALIFORNIA – A whistleblower lawsuit, brought by Phillips & Cohen, and a government investigation has led to an agreement by Adventist Health to pay the federal government and the state of California a total of $14.1 million to settle allegations that an Adventist hospital in Los Angeles illegally paid physician practice groups for patient referrals by inflating other payments the hospital made to the group.

The “qui tam” (whistleblower) lawsuit was filed in 2008 in federal district court in Sacramento, California, by two doctors who are represented by Phillips & Cohen LLP and Hirst Law Group P.C. The government investigated the allegations and then joined the case along with the state of California in April.

“Doctors must make treatment decisions based on the best interests of their patients rather than on personal financial interests, which is why hospitals can’t pay doctors for patient referrals,” said Claire M. Sylvia, a whistleblower lawyer with Phillips & Cohen in San Francisco. “The government found out about what Adventist was doing only because two doctors challenged the system by filing a whistleblower lawsuit.”

Adventist Health will pay over $11.5 million to the federal government and $2.6 million to California to settle the allegations involving White Memorial Medical Center, an Adventist hospital, and its relationship with Family Care Specialists and White Memorial Medical Group, two southern California physician groups.

The whistleblowers alleged that Adventist Health violated the Stark Law and the Anti-Kickback Statute. The Stark Law states that hospitals may not seek reimbursement for claims based on referrals from physicians with whom they have a financial relationship. The Anti-Kickback Statute prohibits payment in exchange for referring, recommending or arranging for the purchase of any item or service paid for under a federal health care program such as Medicare or Medicaid.

The complaint also alleged violations of the California Business and Professions Code and the California Welfare and Institutions Code, which prohibit compensation for patient referrals. Violations of these federal and state laws result in the submission of false claims for payment to Medicare and California’s Medi-Cal program, which violates the federal False Claims Act and the California False Claims Act.

The settlement resolves the whistleblowers’ allegations that White Memorial violated the law in two ways:

  • By paying Family Care Specialists more than fair market value for teaching services for the family practice residence program at the hospital.
  • By charging White Memorial Medical Group less than fair market value for assets an Adventist foundation transferred to the physician practice group.

Michael A. Hirst, of Hirst Law Group in Davis, California, said that the case sends an important message to doctors, hospitals and other health care providers.

“The influence of money on treatment can destroy confidence in our health care system,” Hirst said. “Patients have the right to their doctors’ best judgment without worrying that the judgment has been tainted by financial gain. The government has demonstrated that it will aggressively pursue kickback and Stark violation cases when provided with credible information from whistleblowers.”

The whistleblower team said the settlement reflects the diligent efforts of Catherine Swann, assistant U.S. attorney for the Eastern District of California, and her investigative team, led by David Poulson.

The federal False Claims Act and the California False Claims Act enable private citizens to sue entities that are defrauding the federal and state governments and receive a reward if funds are recovered as a result. The whistleblowers in this case plan to use their rewards to form a non-profit organization dedicated to improving the healthcare of the many underserved groups in southern California among other charitable causes.

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