A homeless man sits with his belongings near downtown Los Angeles.

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Pacific Health Corporation and three of its hospitals agree to the payment

Marketers recruited homeless from L.A.'s "Skid Row" for often unneeded treatment

Medicare and Medi-Cal picked up the tab

CNN  — 

A California-based hospital chain has agreed to pay $16.5 million to settle allegations that its hospitals were involved in a kickback scheme in which homeless people were taken to hospitals for sometimes unneeded treatment, and government programs were billed for the work, authorities said Thursday.

Los Angeles Doctor’s Hospital, Inc., agreed to plead guilty to conspiring to defraud Medicare and Medi-Cal through the payment of illegal kickbacks to “marketers” who recruited people to act as patients, the U.S. attorney for central California said in a news release.

LADH is a subsidiary of Pacific Health Corp., which has entered into a deferred prosecution agreement with federal authorities.

In the agreements filed Thursday in U.S. District Court, LADH and PCH admitted that from 2003 to 2008 they and the three PCH hospitals paid more than $2.3 million in kickbacks to “marketers” to recruit people to act as patients, the statement said. They were treated, even if they did not need treatment, the news release said.

Some of the recruits were found in “Skid Row” in downtown Los Angeles, it said.

“As a result of this illegal conduct, Medicare and Medi-Cal made nearly $16 million in improper payments to the PHC hospitals,” the statement added.

According to the plea agreement of one of those “marketers,” Estill Mitts, hired “stringers” to recruit homeless people to act as patients from 2004 until 2007 in exchange for promises of small payments. He has previously pleaded guilty to conspiring to recruit homeless people to receive unnecessary health services, the release said.

CNN was unable Thursday to reach Mitts, who is to be sentenced October 15 in federal court.

Though PHC was criminally charged Thursday, the charges will be dismissed in 2018 if the company follows through with its agreement, the statement said.

“To root out and deter those who seek to exploit publicly funded health care programs, we need to pursue all available remedies – civil, criminal, and administrative,” said U.S. Attorney Andre Birotte Jr., in the news release. “The guilty plea, civil settlement agreement, and corporate compliance agreement that we are announcing today reflect this approach and should remind unscrupulous health care providers of our determination to bring to justice those who exploit federal and state public health programs for their personal gain.”

In the civil settlement, PHC; its parent company, Health Investment Corp.; and three subsidiary hospitals agreed to pay the $16.5 million to settle claims that they were involved in the scheme and submitted false claims to Medicare and Medi-Cal, the statement said.

Parties to the civil settlement are: Los Angeles Metropolitan Medical Center, Newport Specialty Hospital (formerly known as Tustin Hospital and Medical Center) and Anaheim General Hospital.

“One of the key goals of our new management team has been to fairly resolve these legacy issues with the government,” Pacific Health said in a statement. “We are pleased that we will now be able to put these matters behind us and focus exclusively on our primary mission – providing excellent and compassionate care to the communities we serve. We believe that ultimately our hospitals will be stronger as a result of this agreement. PHC’s new leadership team reaffirms its unwavering commitment to ethical business practices and full compliance with the law.”

The first installment on the $16.5 million fine, of more than $1 million, was made Wednesday, said Assistant U.S. Attorney Wendy Weiss in a telephone interview. The settlement, which was reached in June, stipulates that the second installment is due September 1, she said.

“We are trying to hit these providers that do these kinds of things hard with appropriate civil and criminal remedies so that we send a message that we are continuing to go after providers that defraud our federal health care programs in this way,” said Weiss.

“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.

In a previous investigation, Intercare Health Systems Inc. (which had previously been called City of Angels Medical Center), and former owners Robert Bourseau and Dr. Rudra Sabaratnam, were the subjects of consent judgments related to a similar scheme.

Bourseau, Sabaratnam and others were sentenced to federal prison for their involvement.