Sovereign Health tells workers they won’t be paid; closes California drug rehab facilities

One of the bigger addiction treatment providers in Southern California, Sovereign Health, is closing its doors amid financial difficulties and an ongoing investigation following allegations of insurance fraud.

In a July 5 letter to employees Sovereign Chief Executive Tonmoy Sharma wrote, “While we attempted to secure funding to keep the business operating, we’ve been unsuccessful… At this point given the lack of resources to make payroll over the extended period, I cannot in good conscience, ask you to continue working for no pay.”

Sharma could not be reached for comment and no one answered the door at his home in San Clemente. In addition to Sovereign’s headquarters in San Clemente, the company has operations in Culver City, Palm Desert, El Cajon, among others.

Sovereign Health, which operated centers for recovering drug addicts and the mentally ill, is among many in the addiction industry accused of abusing insurance rules while churning addicts through rehab programs with little regard for their long-term sobriety. A 2017 investigation by Southern California News Group described Sovereign as one of many players in a region described by industry insiders as Rehab Riviera for its high concentration of addiction treatment operators.

Sovereign’s closure comes after a long battle with regulators and creditors.

In June, 2017, FBI agents along with federal and state officials served search warrants at Sovereign’s headquarters and other locations. Though officials haven’t said why they are investigating the company, the raids came following civil lawsuits involving Sovereign and Health Net over allegations that the health company overcharged the insurance carrier.

Records related to the Health Net lawsuit indicated Sovereign charged patients as much as $3,410 per day for residential mental health treatment; $2,640 per day for partial mental health treatment; $1,980 per day for intensive outpatient mental health; and $1,200 per urine analysis. In at least one case, Sovereign billed more than $100,000 for one month’s worth of urine tests for one patient.

Last month, five former Sovereign employees filed a federal lawsuit against Sharma and other executives, alleging the misappropriation of monthly premium payments as part of the company’s self-funded insurance plan.

“Sovereign and certain of its executives have stolen plaintiff’s wage and benefits and left them vulnerable to substantial financial liability for their medical providers, which the plan was required to pay and/or reimburse for covered plans,” the lawsuit says.

Sharma and the other defendants have failed to pay at least $1.1 million in covered medical claims under Sovereign’s self-funded plan, the suit alleges.

Given the ongoing turmoil, some recent employees said they weren’t surprised by the closure.

“People were stuck in their own fantasy world and wanted it to work,” said Kyla Davidson, 23, of Huntington Beach, who said she hadn’t been paid for a month when she quit her job last month as a rehabilitation house manager.

“A lot of people were very hopeful with Sharma. He got bad advice from his team. There was no cap on spending and payroll was put on the back burner.”

Sovereign advertising indicated that Sharma started the company in 2003.

Before that, Sharma was a psychiatrist in the United Kingdom, though his license was revoked for conduct deemed dishonest, unprofessional and misleading, according to documents from the General Medical Council of the UK, which licenses physicians there.

Sharma, when he worked in the UK, was found to have launched research studies on patients without the required approval of an ethics panel and to have submitted “incorrect and potentially misleading information to a number of ethics committees,” according to documents from the GMC’s proceedings against him.

He also employed titles that he did not possess – “Ph.D.” and “professor” among them – and “fell significantly short of the standards to be expected of a medical practitioner undertaking medical research on human subjects,” the documents say.

Though Sharma contested the allegations, his licensed was “erased” in 2008.

Sovereign officials previously have attributed some of the company’s financial difficulties to the legal battle with Health Net.

In 2016, Sovereign and its affiliates sued Health Net, alleging the insurer failed to pay $55 million for medical services rendered. In its complaint, Sovereign claimed Health Net “engaged in a disgraceful scheme to enrich themselves by backtracking on their insurance promises to recovering addicts and the mentally ill.”

But in a countersuit filed in 2017, Health Net argued that Sovereign’s companies engaged in massive fraud that harms consumers and threatens the ongoing viability of health insurers. Sovereign’s scheme, according to Health Net, involved fraudulently obtaining insurance policies for people, then submitting thousands of false and fraudulent claims. 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, the insurer said.

Sovereign has denied Health Net’s allegations.