Provider Has a History of Legal Tangles : Health care: Paracelsus has been the accused and accuser in cases of false billing, poor care, conflict of interest and bribes.

Paracelsus Healthcare Corp. and workers in its Southern California hospitals have a history of run-ins with law enforcement authorities and health-care regulators.

The company, a key defendant in a current insurance fraud lawsuit by Aetna Life Insurance Co., pleaded guilty in 1986 to mail fraud related to Medicare billing and agreed to pay back nearly $4.5 million to federal authorities. It was the largest Medicare fraud settlement ever paid, according to Aetna, which cites the incident in its lawsuit.

Paracelsus--which operates 21 hospitals nationwide and 10 in Southern California--was accused in the Medicare case of submitting fraudulent claims unrelated to patient care, including expenses for acquiring new hospitals.

Two years after the Medicare fraud case, Paracelsus’ Hollywood Community Hospital was accused in a report by Los Angeles County health inspectors of starving elderly patients, performing surgery without valid consent and failing to investigate obvious medical problems. At the time, a hospital official pledged to work on correcting the problems immediately.

Then, in 1989, a former administrator of Paracelsus’ Monrovia Community Hospital pleaded guilty to accepting $6,000 in kickbacks from two doctors to continue managing the hospital’s emergency room. His attorney said he spent it on parties to improve employee morale.

Paracelsus attorney Robert Fabrikant said the company’s past has nothing to do with Aetna’s present lawsuit.

But Aetna contends that some allegedly criminal activities at the corporation’s hospitals are highly relevant to its own legal case.

In court documents, Aetna cites the case of Earl Bernard, a former administrator at Orange County Community Hospital, who is now awaiting trial on charges of stealing more than $1 million from Paracelsus and the hospital between 1989 and 1991.

Bernard was part of Paracelsus’ plot to defraud insurers, Aetna claims. He was the founder of the Assessment Center, a firm that provides programs for mentally ill substance abusers. According to the lawsuit, Bernard retained a financial interest in the center--also known as AACI Inc.-- while he was hospital administrator, creating a conflict of interest.

“Bernard had a direct financial incentive in having the hospital admit every patient who had been referred by the Assessment Center, regardless of whether the patient actually needed to be hospitalized,” Aetna charged in the suit.

The suit contends Bernard paid bribes to hospital employees involved in admission and discharge decisions and was just one of many players in an alleged fraud scheme involving three of Paracelsus’ Southern California hospitals.

But Fabrikant said the corporation was a victim of Bernard’s alleged wrongdoing and not a co-conspirator. In 1992, the company sued Bernard for allegedly concealing his interest in the Assessment Center and for pocketing money owed to the hospital. Bernard and his co-defendants agreed last year to settle the case for more than $400,000, according to court records.

“The company ferreted out the truth and, when learning about Bernard, took appropriate action, including filing a suit,” Fabrikant said. “The conduct at issue was unauthorized and was not representative of conduct on the part of company employees.”

Reached at a Perris clinic where he now works, Bernard declined to comment.

At another Paracelsus hospital, Aetna alleges in its lawsuit, a psychiatrist was involved in the company’s alleged “conspiracy” to defraud insurers.

Dr. Barry Smolev was not a Paracelsus employee, but he was on the medical staff and worked as a treating physician in a weight-loss program at the hospital called A Place for Us, which has been the subject of a federal grand jury investigation in Los Angeles since 1992.

Smolev, a former chief resident at UCLA Medical Center, was convicted this year of falsifying documents to bilk insurers of hundreds of thousands of dollars.

Both Aetna and Empire Blue Cross/Blue Shield, in separate lawsuits, accused the program of disguising weight-loss treatments--which are not eligible for reimbursement under their policies--as therapy for “major depression.” The program has reached confidential settlements with both insurers.

Smolev was the A Place for Us liaison at Van Nuys Community Hospital from January to October 1991, when he severed the relationship. He has been cooperating in the criminal investigation of A Place for Us.

Said Fabrikant: “We regret that Dr. Smolev engaged in conduct to which he has plead guilty [but] the company denies any culpability.”