Settlement Reached in Psychiatric Care Suit

Aetna Life Insurance Co. has reached a confidential settlement with one of the main defendants in a massive lawsuit accusing psychiatric care providers of orchestrating a sprawling billing fraud scam in Orange and Los Angeles counties.

The two-year dispute between Aetna and the Pasadena-based Paracelsus Healthcare Corp., has been settled “on terms that are satisfactory to Aetna,” the insurance company’s lead attorney, Marvin Wexler of New York, said Thursday.

“You can say the same for Paracelsus,” said Robert Fabrikant, attorney for the corporation in Los Angeles.

Neither lawyer would discuss the terms.

The suit alleged that Paracelsus, five of its hospitals and several other defendants systematically lured unsuspecting patients from throughout the country with false promises and improper perks. Then, the suit alleged, patients were given bogus diagnoses and stuck in mental hospitals until their benefits ran dry.

Aetna alleged that it and other insurers lost millions of dollars in a plot to “put heads into beds.” The alleged fraud included bills for everything from hot-tub baptisms to outings at Disneyland and Knott’s Berry Farm, the suit stated.

Last December, defendants in the lawsuit called Aetna’s action an opportunistic legal maneuver to recover dollars spent on legitimate programs.

By that time, federal authorities had subpoenaed records in the case as part of a grand jury probe, according to a source familiar with the investigation. A spokesman for the U.S. attorney’s office in Santa Ana declined to comment Thursday on whether a probe is ongoing.

The Paracelsus facilities named in the lawsuit included Orange County Community Hospital campuses in Orange and Buena Park; Hollywood Community Hospital at Van Nuys; the recently closed Bellwood Health Center in Bellflower, and two hospitals in Nevada and Florida. Aetna’s legal action continues against two Orange County firms that ran programs at Paracelsus hospitals: New Life Treatment Centers--a psychiatric program geared toward charismatic Christians--and the Assessment Center, a program specializing in treatment of mentally ill substance abusers.

Aetna claims these firms operated call centers where “high-pressure telemarketers,” often without mental health credentials, “converted” callers into patients requiring emergency admission, whether or not it was medically appropriate.

The defendants’ attorneys said last year that there was no pressure on patients, and Aetna agreed to pay the claims.

Any doubts about their validity ought to have been raised at the time of billing, the lawyers argued.