Lavish kickback scandal costs California health system $32M
A whistleblower complaint revealed an extensive patient referral kickback scheme, involving California-based Community Health System (CHS) and an affiliated technology consultancy firm, Physician Network Advantage (PNA). The two organizations have agreed to pay nearly $32 million to settle allegations of violating the False Claims Act, the U.S. Department of Justice announced last week.
The suit, filed by Michael Terpening, a realtor and former controller at PNA, detailed a pattern of lavish gifts and all-expenses-paid perks provided to physicians and executives in exchange for sending patients to CHS-owned facilities. Further, referring parties were given incentives in the form of luxurious vacations if they agreed to use Epic’s EHR, as it’s widely used by CHS facilities and the exclusive brand of choice for PNA.
According to the lawsuit, PNA used funds provided by Community Medical Centers (CMC)—which operates hospitals and clinics under CHS—to provide "perks," as a means to entice patient referrals. In their coverage, the Fresno Bee details many of the de facto bribes, which include:
- A $63,000 trip to Paris for then-CEO Craig Castro and his family.
- Private jet travel and luxury trips to Napa Valley, Las Vegas, Beverly Hills and Spain.
- Expensive gifts, including $53,000 in wine purchases for fundraising events.
- A $1 million private cigar and wine lounge, “HQ2,” with VIP access for Epic enrollment.
- Christmas gifts, strip club outings and campaign contributions labeled as "business expenses."
In total, court documents detail at least 17 specific incidents, along with 35 unnamed providers who received the so-called “grants” as rewards for referrals or for adopting Epic.
The lawsuit also accuses PNA of hiring relatives of top executives and physicians, often without clear job responsibilities. In many cases, the named individuals allegedly performed little to no meaningful work, and their salaries were effectively part of the conspiracy.
No admission of guilt
CHS and PNA did not admit wrongdoing but agreed to the $31.5 million settlement to resolve the claims. In a statement to the Fresno Bee, CHS emphasized its cooperation with federal investigators, and said steps have been taken to improve oversight and compliance.
According to the DOJ, those steps include a five-year Corporate Integrity Agreement that requires, among other conditions, “the implementation of a risk assessment and internal review process designed to identify and address evolving compliance risks,” and an annual independent review of referral sources.
The Corporate Integrity Agreement also requires an independent review organization to annually assess the policies and systems to track arrangements with some referral sources.
For a lot more on this story, it's recommended you read the Fresno Bee’s coverage.
Chad is an award-winning writer and editor with over 15 years of experience working in media. He has a decade-long professional background in healthcare, working as a writer and in public relations.