Justice: Hospitals Recruit Homeless for Medical Fraud, Insurer Overcharges $320 Million

ORANGE COUNTY, CA — Two Southern California medical and health plan providers agreed to pay a record sum of money to settle allegations of wrongdoing, the Department of Justice announced Thursday.

Los Angeles-based Pacific Health Corporation, which owns Newport Specialty Hospital and Anaheim General Hospital, agreed to a $16.5 million fine to settle allegations that its hospitals hired people to recruit the homeless from Skid Row for unnecessary medical procedures that could be charged to the government under Medicare and Medi-Cal.

Also on Thursday, SCAN Health Plan, which is based in Long Beach and provides health plans to patients from all over the region, agreed to pay a record $320 million to the state and federal governments to resolve allegations that it received overpayments from Medi-Cal. According to the Department of Justice, SCAN inflated costs and took advantage of calculating errors that enabled the company to charge Medi-Cal higher rates than the medical services warranted, racking up about $320 million in overcharges. The settlement is the largest recovery ever obtained from a single Medi-Cal provider, according to the justice department.

“This massive settlement demonstrates the commitment of the United States Justice Department to eradicate fraud, waste, and abuse in this nation’s public health care programs,” said United States Attorney André Birotte Jr. “We want the entire health care industry to know that we will use every tool at our disposal to ensure that the taxpayers are getting what they pay for when they finance public health programs.”

Skid Row Kickback Scheme

The two Orange County hospitals were part of the criminal probe in which investigators believe the corporation paid more than $2.3 million in kickbacks to marketers to recruit patients who were admitted to the hospitals for in-patient care, whether they needed it or not. The scheme bilked the government out of $16 million in improper payments to the hospitals, allege investigators.

The Pacific Health Corporation and its subsidiaries also face criminal prosecution for the homeless patient kickback scheme, according to the Department of Justice. But if the company abides by the deferred prosecution agreement announced Thursday, the charges will be dismissed in six years.

“Hospitals colluding with marketers to fatten profits through illegal referrals for costly and sometimes needless medical services are pocketing millions of taxpayer dollars,” said Glenn R. Ferry, Special Agent in Charge for the Los Angeles Region of the Office of Inspector General of the U.S. Department of Health and Human Services. “Our agents are monitoring such schemes, and those entering into similar sham contracts should expect investigation and prosecution.”