Ontario-based Prime Healthcare Services Inc. and its chief executive have agreed to pay $65 million to settle federal allegations of Medicare overbilling at 14 California Hospitals, including two in Los Angeles County, the U.S. Attorney’s Office announced Aug. 3.

Prime Healthcare Services, Prime Healthcare Foundation Inc., Prime Healthcare Management Inc., and Dr. Prem Reddy, its founder and chief executive, knowingly submitted false claims to Medicare by admitting patients who could have been treated as outpatients for far less money, prosecutors said.

Under the settlement agreement, Prime will pay $61.75 million and Reddy will pay $3.25 million.

“Patients and taxpayers who finance health care programs such as Medicare deserve to know that doctors are making decisions solely based on medical need – and not based on a corporate desire to increase billings,” said Tracy Wilkison, first assistant U.S. Attorney at the Central District, in Los Angeles, in a statement.

Prime Healthcare Services and the not-for-profit Prime Healthcare Foundation run one of the largest hospital systems in the nation, with 45 acute-care hospitals in 14 states. The foundation owns two hospitals in Los Angeles County: Sherman Oaks Hospital and Encino Hospital Medical Center, in the San Fernando Valley.

The federal lawsuit alleged Prime conducted a scheme to increase inpatient admissions of Medicare patients who entered emergency rooms of its 14 California hospitals from 2006 through 2013, in cases that weren’t medically necessary.

It also alleged that Prime falsified patient diagnoses to include more serious conditions in order to increase Medicare reimbursement, a fraudulent practice known as “up-coding.”

The settlement resolves a whistleblower lawsuit filed by Karin Berntsen, the former director of performance improvement at Alvarado Hospital Medical Center in San Diego. She will receive $17.2 million as part of the settlement.

Health business reporter Dana Bartholomew can be reached at dbartholomew@labusinessjournal.com. Follow him on Twitter @_DanaBart.