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Aetna awarded $37.4 million in lawsuit against Bay Area Surgical Management

Jury found group had defrauded Aetna, interfered in contractual relations, paid doctors to refer patients to their facilities, court documents show.

Beth Jones Sanborn, Managing Editor

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Health insurance giant Aetna has declared victory in a years-old lawsuit against Bay Area Surgical Management, after a civil jury slapped the California medical group with a $37.4 million dollar judgement, Aetna said.

The verdict, which was handed down late last week, followed an almost-month long trial. The document showed that jurors ruled Bay Area and several of its ancillary facilities had committed fraud, interfered with contractual relations between Aetna and its members and it's in network providers, as well as providing financial incentives to physicians for referring their patients to out-of-network Bay Area facilities for care. The jury further found that the defendants had been "unjustly enriched" by those practices, court documents showed.

The suit involved Bay Area and its ancillary facilities and their principals: Bay Area Surgical Group in Santa Clara, Forest Surgery Center in San Jose, Knowles Surgery Center in Los Gatos, Los Altos Surgery Center in Los Altos, National Ambulatory Surgery Center in Los Gatos, SOAR Surgery Center in Burlingame as well as its co-founders Julia Hashemieh and Jarad Zolfaghari, and consultant Bobby Sarnevesht.

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Aetna said they originally filed suit against Bay Area in 2012 after a whistleblower came forward, told the company about the returns to investors. They said they had also noticed a pattern of physician referrals to the out-of-network facilities and started digging for answers as to why. They alleged in their suit that Aetna-affiliated doctors, with financial or ownership stakes in at least of Bay Area's facilities, violated state law and committed fraud when they were paid to unlawfully direct patients to out-of-network Bay Area facilities for care. Aetna further alleged that patients had been enticed to receive care at Bay Area facilities by the waving of coinsurance payments and other financial obligations, while the company simultaneously submitted "artificially inflated claims" for services.

Aetna said in one instance, a Bay Area ancillary facility paid an Aetna participating doctor an annual bonus check for $980,000. They cited other examples as well. They said Los Altos Surgery Center received payments from Aetna for procedures on Aetna members which were, on average, 1,030 percent higher than Aetna paid its in-network providers in the same geographic area for those same procedures. They also accused members of the Bay Area management team, who are not physicians, of "cherry-picking" patients after reviewing patient files and directing the Aetna participating providers with equity interests in Bay Area to schedule those patients for surgeries at BASM facilities.

In the original filing, Aetna pointed out examples of Bay Area's grossly inflated charges for services that cost thousands less at other in-network facilities: $73,526 for a kidney stone fragmentation when an average in-network charge would have been approximately be $7,612; $37,572 for a knee arthroscopy/ligament repair when an average in-network charge would have been approximately $10,500; and $15,276 for bunion surgery when an average in-network charge would approximately be $7,943.

[Also: AMA, other physician groups, call upon Florida attorney general to reject Aetna-Humana merger]

"This case was about honesty, transparency and fairness in health care billing practices." said Ed Neugebauer, Aetna's chief litigator. "After hearing and seeing the evidence presented, the jury correctly decided that Bay Area's egregious and fraudulent billing schemes needed to be stopped."

The surgical centers are still in operation. According to Bay Area's defense attorney Michael Amir, the company denies any wrongdoing and plans to appeal the verdict. He said Aetna members have the option to go out of network if they choose, and while BASM may have billed for their own sticker price for surgeries, Aetna simply failed to do their own due diligence and  negotiate a lower price for the surgical services rendered. He said the jury was likely confused by the details of the case, and that Bay Area's actions do not constitute fraud.

As far as kickbacks, Amir said there is nothing illegal about a surgeon having an ownership stake in his or her surgery center as long as the surgeon discloses that interest to the patient in some way. He says such disclosures were made. He also said according to California business statutes doctors can be paid for referrals to their own surgical practice as long as those payments are proportional to the physician's ownership interest.

"In this case, the payments doctors received for referrals were never anything other than based on the proportion of their ownership interest. There was no evidence of anything other than that," said Amir. 

Twitter: @BethJSanborn