On June 29, 2023, the U.S. Department of Justice (“DOJ”) announced that Santa Barbara San Luis Obispo Regional Health Authority, d/b/a CenCal Health (“CenCal”), a county-organized health system, and three non-profit medical providers – Cottage Health System (“Cottage”), Sansum Clinic (“Sansum”), and Community Health Centers of the Central Coast (“CHC”) – agreed to pay $68 million to resolve allegations they violated the federal False Claims Act (“FCA”) and the California False Claims Act. The defendants were accused of submitting fraudulent claims to Medicare and California’s Medicaid program (“Medi-Cal”).
According to the press release, the defendants allegedly engaged in “upcoding,” a practice involving the submission of false billing codes to receive higher reimbursements for services rendered. Specifically, the government explained that Medi-Cal was expanded to cover an uninsured population (adults between the ages of 19 and 64 without dependent children with annual incomes up to 133% of the federal poverty level), commonly known as the “Adult Expansion.” According to the government, the defendants at various times submitted claims to Medi-Cal for Enhanced Services purportedly provided to Adult Expansion Medi-Cal members. California and the U.S. government’s position is that the payments for the Enhanced Services were (1) not allowed nor permissible under the contract between California’s Department of Health Care Services and CenCal, (2) duplicated services already required, and/or (3) did not reflect the fair market value of any Enhanced Services provided.
The press release notes that Cottage’s actions allegedly occurred between January 1, 2014, and June 30, 2016, while Sansum and CHC’s alleged actions occurred between January 1, 2015, and June 30, 2016. The press release also notes that “other” providers committed similar alleged improper actions between January 1, 2014, and June 30, 2016, but does not identify the other providers. To put an end to the allegations and possibly to avoid a long expensive legal battle, the defendants agreed to pay a combined settlement amount of $68 million. CenCal will pay $49.5 million, Cottage will pay $9 million, CHC will pay $3.15 million, and Sansum will pay $4.5 million to the federal government. The defendants will also pay California $1.85 million.
The settlements resolve claims brought under the qui tam or whistleblower provisions of the False Claims Act. The qui tam provisions provide financial incentives and a procedural structure to whistleblowers, also called relators, to bring false claims act cases on behalf of the government. The financial incentive to be a whistleblower is significant, as whistleblowers have the right to 15% to 30% of the money the government recovers, based on several factors. In these matters, the whistleblower is CenCal’s former Medical Director, and he will receive about $12.56 million as his share.
The qui tam case is captioned United States and State of California ex rel. Bordas v. CenCal Health, Cottage Health System, Sansum Santa Barbara Clinic, Inc., Community Health Center of the Central Coast, et al. The settlement agreement is available here.
These settlements provide another example of the DOJ’s willingness and ability to use the FCA as a tool to sue any company (or government entity) in any industry that does business with the federal government. Any entity doing business with the federal government – in any industry – must follow contractual and legal obligations to avoid running afoul of fraud, waste, and abuse laws like the FCA.
The attorneys at Chilivis Grubman represent both companies and individuals in connection with government investigations, both criminal and civil, and in False Claims Act litigation. If you have questions related to such matters, please contact us today.