Health insurance behemoth Anthem Blue Cross is accusing Sonoma West Medical Center and Palm Drive Health Care District of participating in a business fraud scheme that has resulted in more than $13.5 million in improper payments to the medical center.

In a Feb. 9 letter to both the district and medical center, Anthem threatened legal action and demanded the money be repaid. District and hospital officials say they’ve done nothing wrong and are preparing a response to the insurance giant.

The Anthem letter states that the medical center “appears to have conspired with several third parties to fabricate or misrepresent claims for toxicology testing services that were improperly billed to Anthem.”

Anthem alleges the fraudulent billing began after Sonoma West Medical Center partnered with Florida-based Durall Capital Holdings and its testing laboratory, Reliance Laboratory Testing.

The partnership with Durall was forged last year as a way to help the financially strapped hospital. In exchange for more than $2 million in much-needed funds, the hospital agreed to conduct toxicology testing for Durall, using part of the money to buy equipment.

John Peleuses, the medical center’s CEO, said the arrangement has been extremely helpful for the hospital, which has actually started showing a profit since September.

The insurance company says that according to the medical center’s own public records, health care providers from around the country send their patients’ specimens to Reliance’s Florida facility, which then distributes specimens to various labs for screening, including the one at Sonoma West Medical Center.

“Reliance Labs keeps a portion of the specimen and conducts testing on it, while purportedly passing on a portion of the sample to Sonoma West for additional testing,” Anthem’s letter states.

“Sonoma West bills Anthem for some or all of this testing — representing that it had performed the services when, in fact, it had not,” the letter states.

Peleuses rejected the claim that no testing is being done at the Sebastopol hospital.

“We dispute the assertions in the letter and a response to Anthem is being prepared to address their concerns,” Peleuses said.

Anthem said a review of claims submitted by the medical center were for drug testing on urine samples where the patients “had no connection whatsoever with Sonoma West. That is, the patients were not treated at Sonoma West, nor were they treated by a physician connected with Sonoma West who ordered laboratory services to be performed at Sonoma West.”

Anthem’s letter, written by the insurance company’s associate general counsel Steven Cohen, 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.

“Indeed, it is that reimbursement delta that appears to be the only value that Sonoma West brings to its partners in the scheme,” Cohen wrote.

But Peleuses said there was nothing improper about billing at the higher rate, particularly in the case of rural hospitals which need higher reimbursement rates to stay competitive. Peleuses also said it was common for toxicology testing to be done by laboratories that do not take samples from patients.

Suzanne Meraz, a spokeswoman for Anthem, said the company would not comment beyond what it stated in its four-page letter to the hospital and health care district.

Anthem gave the district and hospital until Friday to respond to several demands. The insurance company is asking they detail the specifics of their toxicology testing arrangement; provide justification for submitting bills for tests done on patients with no connection to the local hospital; convey all contracts between the medical center and Durall Capital, Reliance Labs and other entities; list all laboratory equipment at the medical center, including serial numbers; and turn over all records identifying the source of all urine samples billed to Anthem by Sonoma West.

Alanna Brogan, executive director of the Palm Drive Health Care District, said a response would be submitted by Friday.

“There are a number of inaccuracies in the letter and we will be responding to Anthem Blue Cross,” she said.

The district has scheduled a closed session Friday at 10 a.m. to discuss the matter.

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