Avanti Hospitals Llc, and Its Owners Agree to Pay $8.1 Million to Settle Allegations of Making Illegal Payments in Exchange for Referrals

The Department of Justice announced that on Dec. 28, 2018 Los Angeles-based Avanti Hospitals LLC (Avanti) and six of its owners will pay the federal government $8.1 million to settle claims that they violated the False Claims Act by submitting, or causing Avanti’s subsidiary, Memorial Hospital of Gardena (Gardena Hospital), to submit false claims to the Medicare and Medicaid programs for medical services referred by a physician who received kickbacks and other improper payments from Gardena and other Avanti affiliates.

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“Financial arrangements that improperly compensate physicians for referrals encourage physicians to make decisions based on financial gain rather than patient needs,” said Assistant Attorney General Jody Hunt for the Department of Justice’s Civil Division. “The Department of Justice is committed to preventing illegal financial relationships that undermine the integrity of our public health programs.”

The government alleged that the payments from Avanti, Gardena Hospital and at least two other Avanti affiliates to a high-referring physician violated the Anti-Kickback Statute and the Physician Self-Referral Law, commonly known as the Stark Law. The Anti-Kickback Statute prohibits offering, paying, soliciting, or receiving remuneration to induce referrals of items or services covered by Medicare, Medicaid, and other federally funded programs. The Stark Law prohibits a hospital from billing Medicare for certain services referred by physicians with whom the hospital has an improper compensation arrangement. Both the Anti-Kickback Statute and the Stark Law are intended to ensure that a physician’s medical judgment is not distorted by improper financial incentives and is instead based only on the best interests of the patient.

The settlement announced resolved allegations that Avanti, Gardena Hospital and at least two other Avanti affiliates provided compensation to a physician they engaged as a medical director that (1) exceeded fair market value for his services, and (2) was an attempt to incentivize him to refer patients to Gardena Hospital.

“Illegal kickbacks paid to doctors for referrals burden our healthcare system, drive up insurance costs for everyone, and corrupt the doctor-patient relationship,” said United States Attorney Nick Hanna for the Central District of California. “Patients are not commodities who can be sold to the highest bidder, especially when the bills are ultimately being paid by American taxpayers.”

Avanti and Gardena Hospital have also entered into a corporate integrity agreement with the Department of Health and Human Services Office of Inspector General (HHS-OIG).

“Patients and taxpayers rightly should expect that referrals be based on sound medical judgement, not driven by thinly veiled bribes, as alleged here,” said Christian J. Schrank, Special Agent in Charge for the Office of Inspector General of the U.S. Department of Health and Human Services. “Our compliance agreement with Avanti and Gardena Hospital contains strong monitoring and reporting provisions to help ensure that people in government health programs will be protected.”

The settlement partially resolves allegations originally brought in a lawsuit filed under the qui tam, or whistleblower, provisions of the False Claims Act by Dr. Joshua Luke, the former C.E.O. of Gardena Hospital. The act permits private parties to sue on behalf of the government for false claims for government funds and to receive a share of any recovery. The government may intervene and file its own complaint in such a lawsuit. Dr. Luke will receive approximately $1.6 million from the federal government.

The government’s intervention in this matter illustrates its emphasis on combating health care fraud. One of the most powerful tools in this effort is the False Claims Act. Tips and complaints from all sources about potential fraud, waste, abuse, and mismanagement can be reported to the Department of Health and Human Services, at 800-HHS-TIPS (800-447-8477).

This matter was handled by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the Central District of California, and the Department of Health and Human Services Office of Inspector General.

The case is docketed as U.S. ex rel. Luke, State of California ex rel. Luke v. Gardena Hospital, L.P. DBA Memorial Hospital of Gardena, Avanti Hospitals, LLC, et al., CV 15-08732 FMO (C.D. Cal.) (PARTIALLY UNDER SEAL). The claims resolved by the settlement are allegations only; there has been no determination of liability.