An Anaheim ambulance firm at the forefront of a political push to offer private paramedics in Orange County has paid $3 million to settle federal allegations of $30 million in fraudulent billing of taxpayer-funded health programs, according to court records.

Lynch Ambulance provided kickbacks for services, manipulated rates to gouge federal healthcare programs and routinely made medically unnecessary patient transports, according to a whistle-blower lawsuit filed in 2007 in U.S. District Court in Santa Ana and unsealed last week.

Lynch Ambulance officials denied any impropriety in the settlement for medically unnecessary transports. The lawsuit could have produced $90 million in total penalties had it gone to trial.

The litigation disclosure has critics calling for high-level investigations after the county Health Care Agency last summer selected Lynch Ambulance as sole firm to perform interfacility transports with paramedics.

Seen as the first step in a broader effort by the conservative establishment to privatize emergency medical services, the program has been beset with controversy, including the death of a 75-year-old woman Lynch Ambulance was to transport from a skilled nursing facility during a pilot phase last spring.

Last year, Lynch Ambulance also had to pay $2 million to settle a lawsuit in Superior Court in Santa Ana alleging longtime labor violations for cheating 330 employees out of break times and wages.

Company officials denied impropriety in that case too, but the court determined the employees legally had prevailed, so their attorney fees were covered in the settlement with the firm.

Lynch Ambulance’s interfacility program is the only private paramedic service in the county. Paramedic services for 911 emergencies are provided by public agencies, like the Orange County Fire Authority.

Joe Kerr, a spokesman for the Orange County Professional Firefighters Association, said the county Board of Supervisors and possibly the grand jury should review the Lynch Ambulance interfacility transfer program and its selection, which union officials have repeatedly said is misguided and dangerous.

“Lynch is bad for emergency services for Orange County, and it is bad for the taxpayers, especially given this new federal case,” said Joe Kerr, a spokesman for the Orange County Professional Firefighters Association.

Supervisors Shawn Nelson and John Moorlach, both supporters of privatizing paramedic services, were unavailable for comment on the case.

Meanwhile, the Healthcare Agency’s emergency services division issued a statement announcing that the agency began “a formal investigation” of state and county procedures after being notified Nov. 12 of the coming settlement in the whistle-blower case.

The whistle-blower lawsuit that led to the settlement was filed by two former Lynch Ambulance officials, who alleged the firm engaged in wholesale billing fraud of the Medicare, Medi-Cal and CHAMPUS-Tricare programs.

The officials were Jamie Weatherly, now working for an ambulance firm in Tempe, Ariz., and Dawn Lucero, now in Texas. Both worked in billing for Lynch Ambulance and  resigned in 2006.

The U.S. Department of Justice took over the suit after a review of its merits.

In a Nov. 19 statement, the firm’s chief executive, Walter J. Lynch, blamed any billing irregularities on a new computer system, rapid company growth and the retirement of the firm’s founder, Walter M. Lynch Jr.

“Any mistakes” were “technical errors” and unintentional, the statement asserted. “The best business decision was to conclude the matter now and repay the government prior to the commencement [of trial],” Lynch wrote.

Referring to the billing irregularities, Glenn R. Ferry, special agent in charge of the federal Office of the Inspector General in Santa Ana for such health-care programs, said: “Taxpayers shouldn’t be on the hook for these expensive and medically unnecessary ambulance trips. Count on federal law enforcement to aggressively investigate and prosecute such actions.”

Under the settlement, Lynch Ambulance agreed to enter into “a corporate integrity agreement” with the federal government for future monitoring and disclosures.

A Washington, D.C., taxpayer advocacy group lauded the settlement, but officials noted such agreements are often too little and too late, compounded by a lack of federal investigative resources assigned to health care fraud.

“If you are trying to change corporate behavior in real time, the penalty has to be higher than the benefit, like any other kind of animal training,” said Patrick Burns, co-director of the Taxpayers Against Fraud Education Fund. “The problem is the pain is not higher than the benefit.”

Noting that such settlements often are based on what funds a firm may have available, Burns said accused firms rack up millions of dollars from fraud, distribute the profits and then poor-mouth federal authorities when caught.

“Justice delayed is justice denied,” he said, noting such white-collar crime rarely results in criminal prosecutions. “Running an ambulance company like a taxi service is not a mistake, it is simple theft, and it needs to be treated like that.”

In the 103-page complaint, plaintiffs Weatherly and Lucero alleged Lynch Ambulance was a family owned and operated firm where senior members oversaw daily fraudulent practices designed to meet target amounts.

The lawsuit alleges that Lynch Ambulance was the largest transport company in the county serving skilled-nursing facilities, with fraudulent business practices that brought in about $6.5 million a year from 2001 to 2006.

Medicare beneficiaries who required regular radiological or kidney procedures [such as dialysis] were called “frequent flyers” and were carted in ambulances to appointments, thereby increasing bills, the lawsuit asserts. Lynch Ambulance’s practices for such patients were “tantamount to a taxi service,” according to the suit.

In sophisticated kickback arrangements, Lynch Ambulance entered into “illegal discount arrangements” with facilities for transports “in consideration” for receiving referrals of other Medicare and Medi-Cal patients, the lawsuit claims.

Institutions getting these low rates included major general hospitals across the county, including Saddleback Memorial in Laguna Hills, Hoag Memorial in Newport Beach and Chapman General in Orange. Officials at those hospitals could not be reached for comment.

In other alleged kickback arrangements, the lawsuit described how illegal “favors” were provided to nurses and others who referred government-funded patients.

In 2002 for instance, at least 700 wine baskets, 160 sets of movie tickets and 80 restaurant gift cards were given to referring personnel, the lawsuit alleges. Other favors included VCRs, discounted training classes and free ambulance rides.

The federal government requires firms providing Medicare services to have “compliance officers” to ensure federal regulations are followed.

At Lynch Ambulance, the lawsuit states, the concept of a compliance officer was a treated as a joke.

At one point, according to the lawsuit, whistle-blower Weatherly observed an administrator engaged in what was called “creative billing” when physician signatures ordering a service were “forged” by cutting and pasting between medical records.

Weatherly then served as compliance officer. When he uncovered the practice, the lawsuit alleges, the administrator “brazenly joked, ‘The compliance officer caught us now; we are busted.’ ”

Taxpayer watchdog Burns noted the Lynch Ambulance case shows the failings of the federal government’s compliance officer system, which relies too much on vulnerable company employees.

During compliance officer training sessions he conducts, Burns said, “When they drive home at night, I tell them to think: Am I a compliance officer or a compliant officer?

“The problem you have if the fraud is at the core of the business, as it appears to be at Lynch Ambulance as with many other health-care services, is what is the compliance officer to do? Go to the boss, and say: 80 percent of what we do here is bunco? That will be their last day of work.”

Indeed, the Lynch Ambulance statement notes the firm erred by hiring nonfamily members for key administrative jobs.

Rex Dalton is a San Diego-based journalist who has worked for the San Diego Union-Tribune and the journal Nature. You can reach him directly at

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