Maxicare Sues AMI Over ‘Referral Fee’ Issue
Maxicare Health Plans said Thursday that it has sued American Medical International, one of the nation’s largest hospital management companies, charging that the Beverly Hills firm paid illegal kickbacks to one of Maxicare’s medical groups for sending patients to AMI hospitals.
The suit, filed Monday in Los Angeles Superior Court, accuses AMI of disguising the “referral fees” it paid to Hawthorne Community Medical Group by inflating the prices it charged Maxicare. The suit alleges that $1.2 million in fees were paid from September, 1985, to April, 1986.
The suit is the latest round in a longstanding fight with Hawthorne, which reached its hottest point in February when Maxicare canceled its 15-year contract with the medical group after Hawthorne won an $11.7-million arbitration decision against Maxicare. The dispute is yet another headache for Maxicare, which lost $60.9 million in 1987.
‘Utterly Without Merit’
Maxicare, the nation’s largest for-profit health maintenance organization, charges its members a prepaid fee that covers nearly all of the patient’s health-care needs. In general, Maxicare contracts with doctors, hospitals and others to provide services for its members. In some parts of the country, Maxicare owns clinics that treat its members.
An AMI spokesman said the company received a copy of the suit Wednesday afternoon, “but a preliminary review shows it to be utterly without merit.” AMI said it will “vigorously contest” the suit.
Hawthorne Community Medical Group Chief Executive Rafael A. Amaro said that when the medical group reached an agreement with AMI under which Hawthorne would be paid for a “utilization review” of hospital services, “we didn’t think we were doing anything improper.”
AMI, which was considering starting its own HMO, agreed to provide funding to Hawthorne so the group could expand its facilities to support AMI’s contemplated HMO business, according to documents obtained from Hawthorne. Hawthorne contends that Maxicare first suggested sending patients to AMI hospitals because of high rates charged at Northridge Hospital.
According to the lawsuit, Maxicare had been sending San Fernando Valley patients who needed hospitalization to Northridge Hospital. But Hawthorne, a group of about 120 doctors at 10 offices and clinics, “induced” Maxicare to switch to three AMI hospitals in September, 1985.
In exchange, “AMI paid to HCMG approximately $150,000 per month as a kickback for HCMG having induced Maxicare to change hospitals and for HCMG’s sending patients to AMI hospitals,” the suit states. The suit also contends that Hawthorne gave AMI confidential information to help AMI negotiate more favorable compensation from Maxicare.
Maxicare is seeking “compensatory damages of $2.2 million, treble damages and the recovery of all funds paid to AMI by Maxicare as a result of this fraudulent transaction,” Maxicare said.
Hawthorne was not named in the suit because a three-member arbitration panel, as part of its settlement of various disputes between Hawthorne and Maxicare, ruled last month that the contract between Hawthorne and AMI was “unlawful” and was “nothing more than a referral fee arrangement for the assignment of (Maxicare) members to AMI hospitals.” The arrangement “resulted in the unjust enrichment of HCMG,” the panel ruled.
However, that same panel also found that Maxicare had underpaid Hawthorne for services to members of the health-care plan between 1981 and 1985. The panel awarded Hawthorne nearly $14 million in damages, but that amount was reduced to about $11.7 million because of other, smaller awards to Maxicare. Maxicare said it plans to appeal the decision.
A few days after the arbitration, Maxicare canceled its contract with Hawthorne. Hawthorne said the cancellation was in retaliation for its arbitration victory, while Maxicare said it had been planning for some time to end the contract for a variety of reasons, including the arrangement with AMI.
