Shuttered California hospital sues insurer to cover $42M whistle-blower settlement

Los Angeles-based Pacific Alliance Medical Center, which closed in November 2017, filed a lawsuit against the National Union Fire Insurance Co. of Pittsburgh July 10, claiming the insurer denied coverage to the hospital during an active U.S. Department of Justice investigation into the facility, violating the insurer's own policies.

Here are five things to know about the case:

1. Whistle-blower Paul Chan filed a lawsuit against the hospital under the qui tam provision of the False Claims Act in June 2013, claiming the hospital violated federal and state false claims laws by entering into illegal referral agreements with community clinics, according to Law360.

2. The DOJ issued a subpoena for the hospital in June 2015, according to the July 10 lawsuit, obtained by Becker's Hospital Review. The investigation lasted roughly two years, and in January 2017, the DOJ said it would not file charges against PAMC. In June 2017, PAMC entered into a $42 million agreement to settle the case, of which $31.9 million would be paid to the federal government and $10 million to the state of California.

3. According to the July 10 lawsuit, PAMC Ltd., the legal entity of the hospital, which still exists, did not learn of the whistle-blower lawsuit until March 2016. The hospital claimed that because of the DOJ subpoena, it "remained bound to follow the DOJ directive requiring it to avoid any 'premature disclosure' … of the DOJ investigation into matters the qui tam complaint also covered."

4. In April 2017 — after the DOJ said it would not file charges against PAMC — the hospital provided notice of the DOJ's subpoena and the whistle-blower lawsuit to the insurer, which acknowledged the submission claim later that same month. In May 2017, National Union denied the hospital coverage of the subpoena and whistle-blower lawsuit, claiming the subpoena and the lawsuit were not "timely reported to National Union under [its] policy," and were therefore not eligible for reimbursement, according to the lawsuit.

5. The July 10 lawsuit opposes the insurer's contention that the DOJ subpoena did not constitute a "claim," and argues the hospital was legally forbidden from disclosing the legal proceedings to the insurer, but provided National Union with timely notice once the gag order was lifted. The lawsuit accuses National Union of breach of contract, breach of the implied covenant of good faith and fair dealing and declaratory relief. PAMC also asked the court to have the insurer reimburse the hospital for the $42 million settlement.

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