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Major California Hospital Chain To Pay $68 Million For Alleged Fraudulent Medicaid Claims That May Have Been Unlawful Gifts

SANTA BARBARA, CA. - The Santa Barbara San Luis Obispo Regional Health Authority, also known as CenCal Health, is a health system that works with California's Medicaid program, known as Medi-Cal, in Santa Barbara County and San Luis Obispo County. They have reached an agreement with Cottage Health System, Sansum Clinic, and Community Health Centers of the Central Coast to pay a combined amount of $68 million. 

This settlement resolves allegations that they violated the False Claims Act and the California False Claims Act by submitting false claims to Medi-Cal in relation to Medicaid Adult Expansion under the Patient Protection and Affordable Care Act (ACA).

According to California Attorney General Rob Bonta, Medi-Cal is a program that offers free or affordable healthcare services to millions of Californians and their families. He says when a healthcare provider or agency engages in fraudulent activities, it can undermine public trust and prioritize their financial interests over the well-being of patients who rely on them for honest and high-quality care and services. 

He expressed gratitude towards the Justice Department for their extensive efforts during the investigation and said that the California Department of Justice and law enforcement partners aim to ensure accountability for individuals involved in defrauding the Medi-Cal program, while also safeguarding the interests of those who benefit from it.


As a result of the ACA, Medi-Cal expanded its coverage in January 2014 to include the "Adult Expansion" population. This population reportedly consists of adults aged 19 to 64 who do not have dependent children and have annual incomes up to 133% of the federal poverty level. The expansion coverage was funded by the federal government for the first three years of the program. 

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Under contracts with California's Department of Health Care Services (DHCS), CenCal is obligated to spend a minimum of 85% of the funds it receives for the Adult Expansion population on "allowed medical expenses." If CenCal fails to meet this requirement, it is required to reimburse the state for the difference between 85% and its actual expenditure. California, in return, had to reimburse the federal government with that amount.

U.S. Attorney Martin Estrada for the Central District of California stated that the historic settlements reflect ongoing efforts to address fraud related to Medicaid Adult Expansion. he says health care systems and providers are aware that the False Claims Act can be used as a tool to ensure that taxpayer-funded health care programs are used for patient care rather than for personal financial gain. 

The four settlements involve allegations that CenCal, Cottage, Sansum, and CHC were involved in submitting or causing the submission of false claims to Medi-Cal for "Enhanced Services" that were supposedly given to Adult Expansion Medi-Cal members. 

Cottage is alleged to have done this between Jan. 1, 2014 and June 30, 2016, while Sansum and CHC are alleged to have done this between Jan. 1, 2015 and June 30, 2016. Other healthcare providers are also alleged to have done this between Jan. 1, 2014 and June 30, 2016. 

The United States and California allegedly stated that the payments were not considered "allowed medical expenses" as defined in the contract between DHCS and CenCal. They also claimed that the predetermined amounts did not accurately represent the fair market value of any Enhanced Services provided, and that some of the Enhanced Services were duplicates of services already required. The United States and California have raised concerns that the payments may be considered as unlawful gifts of public funds, potentially violating the California Constitution.

As part of the settlements, CenCal has agreed to pay $49.5 million, Cottage will pay $9 million, Sansum will pay $4.5 million, and CHC will pay $3.15 million to the United States. Furthermore, it has been announced that California is set to receive payments amounting to $1.85 million.

According to Principal Deputy Assistant Attorney General Brian M. Boynton, who leads the Civil Division of the Justice Department, it is important that Medicaid expansion funds are utilized for their designated objective of offering healthcare services to individuals with low incomes. He says when health care systems and providers misuse Medicaid funds, there will be consequences.

According to Special Agent in Charge Timothy B. DeFrancesca of the Department of Health and Human Services Office of Inspector General (HHS-OIG), federal health care programs serve as a significant means for millions of Americans to access medical care. HHS-OIG aims to maintain the appropriate use of federal health care funds and safeguard them against instances of fraud, waste, and abuse.

The civil settlements involve the resolution of claims brought under the qui tam or whistleblower provisions of the False Claims Act by Julio Bordas, who served as CenCal's former medical director. According to the Act, it is possible for a private party to initiate legal proceedings on behalf of the United States and potentially receive a share of any monetary compensation obtained. The qui tam case is titled 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. Mr. Bordas is expected to receive an estimated amount of $12.56 million as his portion of the federal recovery.

The United States has resolved allegations against Dignity Health and its subsidiaries, Twin Cities Community Hospital and Sierra Vista Regional Medical Center, which are part of Tenet Healthcare Corporation. These allegations are related to payments received from CenCal under the Adult Expansion program. 

The partial resolution achieved in this case was the outcome of collaboration between various entities, including the Justice Department's Civil Division, Commercial Litigation Branch, Fraud Section, the U.S. Attorney's Office for the Central District of California, and the California Department of Justice. Assistance was also provided by HHS-OIG and DHCS.

The investigation of this matter highlights the government's focus on addressing healthcare fraud. The False Claims Act is considered to be a powerful tool in this effort. Reports regarding potential fraud, waste, abuse, and mismanagement can be submitted to the HHS at 800-HHS-TIPS (800-447-8477).

The case was handled by trial attorneys Mary Beth Hickcox-Howard and Tiffany L. Ho from the Civil Division's Commercial Litigation Branch, Fraud Section, along with Assistant U.S. Attorney Jack D. Ross for the Central District of California.

The Department of Justice says the settlements address allegations made, but no determination of liability has been made.

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