Prime Healthcare Primed to Pay $65M in FCA Settlement

Prime Healthcare Services and its CEO recently agreed to pay $65 million to settle a whistleblower suit alleging that 14 Prime hospitals in California violated the False Claims Act (FCA) by “upcoding” the care of Medicare patients. See Press Release, U.S. Dep’t of Justice, Prime Healthcare Services and CEO to Pay $65 Million to Settle False Claims Act Allegations (Aug. 3, 2018),; see also United States ex rel. Berntsen v. Prime Healthcare Servs., No. 11-CV-8214 PJW (C.D. Cal. Nov. 20, 2014). Upcoding is a fraudulent practice that occurs when healthcare providers submit codes for more serious (and more expensive) diagnoses or procedures than what the provider actually diagnosed or performed.


Prime Healthcare Services was founded by Dr. Prem Reddy in 2001. In 2004, Prime began to acquire hospitals in financial distress. Prime now operates 45 hospitals across 14 states through various subsidiaries, making it one of the largest hospital chains in the United States.

In October 2011, Karin Berntsen, former director of performance improvement at Prime-owned Alvarado Hospital Medical Center in San Diego, filed a qui tam suit under seal, alleging that Prime Healthcare overcharged Medicare over $50 million for patient stays by deliberately falsifying admissions information. In the original complaint, Berntsen alleged that subsequent to Prime’s purchase of Alvarado Hospital in November 2010, Prime and Dr. Reddy removed the choice of observation status from hospital forms, told doctors what to write to justify medically unnecessary admissions, and established quotas for patient admissions. Berntsen also alleged that Prime retaliated against any doctors who refused to comply with its scheme.

At the time that the suit was filed, Berntsen estimated that Alvarado Hospital had fraudulently billed Medicare over $4 million. Berntsen reasoned that it was likely that 14 other Prime-owned hospitals in California were also falsely billing Medicare in the same manner as Alvarado. Since some of those hospitals had been within the Prime system for at least 6 years, Berntsen estimated that Prime’s fraudulent billings in total exceeded $50 million.

Berntsen’s suit was unsealed in January 2014. In May 2016, the federal government intervened in the suit. Based on its investigation, the government alleged that between 2006 and 2013, Prime engaged in a scheme to increase inpatient admissions for Medicare beneficiaries who used the emergency rooms at their California hospitals, admitting them for treatment when their medical needs more appropriately required less costly outpatient care or observation. Additionally, the government found that between 2006 and 2014, Prime upcoded diagnoses using falsified information, such as purported medical complications, that further fraudulently increased Medicare reimbursement.


On August 3, 2018, the Department of Justice issued a press release announcing that Prime Healthcare Services and its CEO, Dr. Prem Reddy, signed a $65 million settlement agreement. Under this settlement agreement, Prime will pay $61,750,000 and Dr. Reddy will pay $3,250,000. Since her contribution to the case was significant, Berntsen will get a $17,225,000 cut of the settlement. The deal also includes a five-year corporate integrity agreement with the U.S. Department of Health and Human Services, which requires an independent reviewer to look over the accuracy of Prime’s future claims to Medicare. Prime did not admit to liability as part of the deal.


When healthcare providers upcode medical bills for Medicare (and Medicaid) patients, they defraud all taxpayers. This settlement signifies that the federal government is serious in its efforts to prevent upcoding and ensure that healthcare providers bill appropriately.

If you have any questions regarding this case or suspect fraudulent activity and need assistance, contact the experienced attorneys at Parker, LLP Attorneys at Law today.