Embattled Sovereign Health closing and consolidating centers

Feb. 05--In the wake of reduced reimbursements from insurers and an FBI raid last June, Sovereign Health is closing and consolidating several treatment centers.

The San Clemente-based mental health and addiction treatment provider is closing its facility in El Paso; moving its women's facility in Chandler, Arizona, to a new and larger facility in Beaumont in Riverside County; and closing part of its treatment facility in Culver City, officials said.

The Beaumont facility is expected to open by mid-year. The Culver City center will continue to offer detox services, officials said.

"These changes were made in order to streamline our portfolio and improve our financial performance by focusing on our top-performing facilities: San Clemente, Palm Desert and Fort Myers, Fla.," said a statement from spokesman Haroon Ahmad.

The company's financial problems can be tracked, at least in part, to an ongoing legal dispute with an insurance company in which both sides accuse the other of wrongdoing.

"As has been widely reported, health insurance corporation Health Net has reneged on its legal obligation to reimburse Sovereign Health $55 million for services that our facilities provided to its insured customers," Ahmad said. "We expect to recover all, or a great portion, of these past-due claims in a pending legal action. Once the legal matters are resolved, we will explore options including potentially opening new facilities or expanding services at our existing treatment centers."

Raids

In June, dozens of law enforcement agents stormed Sovereign's offices and related centers waving guns, seizing computers, scaring workers and confusing already-fragile patients, CEO Tonmoy Sharma has said.

Sharma said he believes the raids were punishment for suing Health Net over the disputed $55 million. Health Net "engaged in a disgraceful scheme to enrich themselves by backtracking on their insurance promises to recovering addicts and the mentally ill," Sovereign's complaint said, adding that Health Net's "misconduct is part of a sad pattern of prioritizing dollars over decency."

Health Net, in a counter-suit filed a year ago, said Sharma and his companies were engaged in massive fraud. Within the span of a single year, Sovereign's companies went from billing Health Net less than $50,000 a month to more than $13 million a month, Health Net said.

"This scheme, which involves fraudulently obtaining insurance policies and the submission of thousands of false and fraudulent claims, also raises the costs of healthcare coverage to consumers, who ultimately will have to pay higher insurance premiums," Health Net's suit said.

When the FBI executed multiple sealed search warrants at several Sovereign Health locations in June, Sharma derided the raids as "a Mickey Mouse exercise executed by flack-jacketed, jack-booted thugs."

A spokesman for the U.S. Department of Justice shot back that law enforcement executed a search warrant approved by a federal judge as part of an ongoing criminal investigation.

The FBI was hunting for evidence of health care fraud, wire fraud, conspiracy, "laundering of monetary instruments" and illegal payments for patient referrals, according to paperwork filed in federal court by Sovereign in September.

Sovereign demanded that the FBI unseal the secret affidavit offering the justification for the raids. That has not happened.

The FBI was seeking documents related to obtaining insurance coverage for patients, a foundation or scholarship program, as well as bank and brokerage account statements, canceled checks, billing manuals and other financial records, the documents show.

Some operators have been criticized for using charitable foundations to buy insurance for patients, or to pay premiums, copays or deductibles, then billing insurers millions.

The paperwork filed by Sovereign also indicates that a criminal grand jury was gathering evidence that might be used against it. The FBI investigation is ongoing.

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