For several years, the actual work was performed by a group owned by the same parent company as PHS, which has held a contract since 1995 to provide dental, hospital, laboratory, and other health-care services in the jails.
The Tennessee-based company maintains that it had permission from prison employees to handle the pharmacy subcontracting in this manner.
"PHS would not have proceeded with the subcontract arrangement if we had known that we needed additional approvals," the company said in a statement. "As soon as the company learned it was noncompliant, it immediately changed subcontractors."
Kurland acknowledged that two prison employees were aware of the arrangement - one is no longer working there, and one is receiving training - and said PHS cooperated fully in the investigation and made immediate corrections.
Kurland would not identify the prison employees or their titles. But, she said, the company repeatedly submitted to the city what she called "false documents," including provider agreements and various monthly reports.
"While a city employee may have known of this, that does not excuse the prime contractor for sending false documents to the city," she said. "There were executive-level people within the company who signed those documents."
The case has been forwarded to the U.S. Attorney's Office. Kurland, a former federal prosecutor, said laws, including mail- and wire-fraud statutes, may have been broken.
For years, the city's statutes that were meant to promote the sharing of public contracts with minority businesses were viewed as toothless, and the use of pass-through front companies was thought to be common.
The requirements cover the hiring of business entities owned by minorities, women, and the disabled.
The settlement with PHS, announced Wednesday, was the third such enforcement action taken since May 2011, when the city barred a company that failed to hire minority contractors for work at the airport.
In January, the city moved against three companies involved in a weatherization project that pretended to buy equipment from a minority supplier.
Mayor Nutter called the PHS settlement "a significant moment that sends a very, very strong message to everyone who does business with the city."
"If you engage in inappropriate or illegal activities," Nutter said, "we will find you and root you out."
The female-owned company that allegedly served as a pass-through, Indiana-based first-aid-supplier JHK Inc., received $410,000 from PHS from 2007 to 2011 - about 1 percent of the value of the contract during those years.
The investigation began in September when a jail employee noticed that JHK's certification to provide first-aid supplies to the city had expired and that the company had never been certified to provide pharmaceutical supplies.
The city has moved to remove JHK from the Office of Economic Opportunity's registry of minority, women, and disabled-people businesses. JHK, which does business as American Safety & First Aid, does not have any other city contracts.
JHK owner Jamie Kovacs Burks did not respond to a message left Wednesday.
PHS, now known as Corizon Health, has made $196 million since 1995 from the contracts it has held with the jails.
The last contract expired June 30, but was extended six months while the city put out a request for proposals for a new vendor. Corizon was not debarred in the settlement and could bid on the contract.
Kurland said it would be the prison system's decision whether to contract with the company again. Corizon is now in compliance after hiring a female-led firm from Baltimore to do actual work.
"In these types of cases," she said, "the victim is the legitimate minority company that did not get the contract."
Contact Troy Graham
at 215-854-2730 or firstname.lastname@example.org, or follow on Twitter @troyjgraham.