Hospital Pays $42 Million to Resolve False Claims Act Allegations Despite Government Non-Intervention

Los Angeles-based acute care hospital, Pacific Alliance Medical Center (PAMC), has agreed to pay $42 million to resolve whistleblower allegations that it violated the False Claims Act (“FCA”) by submitting, or causing to be submitted, false claims to Medicare and MediCal for services rendered to patients who had been referred by physicians with whom PAMC had improper financial relationships. The relator, a former employee who had worked for PAMC for only 10 weeks, alleged that PAMC paid kickbacks to the referring physicians in the form of subleases under which PAMC allegedly paid above-market rates to rent office space in physicians’ offices and marketing arrangements that allegedly provided undue benefit to physicians’ practices. These arrangements violated the federal Anti-Kickback Statute and the Stark Law, both of which restrict the financial relationships that hospitals may have with doctors who refer patients to them.

Importantly, the PAMC settlement was reached despite the government’s decision not to intervene in the litigation and thus serves as an example of the growing trend of cases in which relators are pursuing FCA allegations and obtaining significant recoveries without government involvement. The case also underscores the importance of having experienced healthcare counsel review all contracts and other financial arrangements, including leases and subleases, between physicians and referral sources to ensure compliance with statutory or regulatory safe harbors.