Palm Drive Health Care District rejects claims of insurance fraud at Sebastopol hospital

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The Palm Drive Health Care District has rejected allegations that it has conspired to defraud Anthem Blue in a scheme the insurance giant says resulted in more than $13.5 million in improper payments to Sonoma West Medical Center in Sebastopol.

In a Feb. 9 letter to both the district and medical center, Anthem threatened legal action and demanded the money be repaid. The letter states the medical center contracted with Florida-based Durall Capital Holdings and its testing laboratory, Reliance Laboratory Testing, to fabricate or misrepresent claims for toxicology testing services that were improperly billed to the insurance company.

But during a closed session meeting Friday, the district voted unanimously to reject the claim, arguing that its toxicology testing program is legal and proper.

Dennis Colthurst, president of the district board, refuted Anthem’s claim that the medical center had billed for tests that were not actually conducted. He said the medical center has all the documentation necessary to prove its $13 million in billing was proper.

The Medical Center partnered with Durall and its testing facilities last summer as a way of generating much needed revenue to keep the cash-strapped hospital afloat. In exchange for more than $2 million, the hospital agreed to conduct toxicology testing for Durall, using part of the money to buy equipment.

Anthem’s legal counsel pointed out that the medical center, as a hospital, “receives substantially higher amounts for urine drug testing, often 10 times or more, relative to the lesser amount” Anthem would pay clinical laboratories like Reliance.

Colthurst and John Peleuses say there is nothing improper about billing as a hospital. On Monday, Colthurst said federal regulations allow and encourage small, rural hospitals to develop such laboratory services as a way of shoring up revenue.

Colthurst said Anthem has been notified about the district’s rejection of fraud claims.

Anthem could not be reached Monday for comment.

You can reach Staff Writer Martin Espinoza at 707-521-5213 or On Twitter @renofish.

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