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Attorney general denies sale to controversial hospital chain

Ana Venegas/The Orange County RegisterDr. Prem Reddy, Prime Healthcare Services' owner and board chairman 

In a widely watched decision, the state attorney general's office today denied the sale of Victor Valley Community Hospital to Prime Healthcare Services' nonprofit foundation, saying the sale would not be "in the public interest."

Prime's nonprofit foundation blasted the decision as "unexpected" and "inexplicable." Prime accused the attorney general of siding with a labor union that "has been running a blatantly false smear campaign of vilification against hospitals operated by Prime Healthcare."

Prime, which owns 14 hospitals, has come under increasing fire for its business practices and is under investigation for possibly exaggerating the severity of patient illnesses for profit. Kaiser Permanente, which has 6.8 million California members, has also accused the company of "trapping" its patients and then sending inflated bills for their care.

California Watch has documented the chain’s record of buying hospitals and then admitting rising numbers of Medicare patients for further treatment in their hospitals, sometimes over the objections of patients' families.

The chain also has reported outsized rates of medical conditions that Medicare pays a premium to treat, such as septicemia and serious malnutrition. California Watch reports on the rates have been followed by state investigations.

In the statement issued today, Prime warned that the decision "could have an immediate and dire impact on the needs of an already-underserved High Desert community."

Bill Thomas, a Riverside attorney representing an acquisition firm formed by Hemet doctor Kali Chaudhuri, said he is poised to submit a backup offer for the hospital. The attorney general initially approved the sale to that group, but it did not close the sale in time for a June deadline, making way for Prime's bid.

Prime also singled out the Service Employees International Union as swaying the decision. SEIU's United Healthcare Workers West researchers initially presented data showing some of the nation's highest rates of septicemia at Prime hospitals. The group hailed the attorney general's decision, calling it "a victory for caregivers, patients and consumers who depend on quality healthcare.”

In a brief letter [PDF] about the decision released today, the attorney general’s office noted that the sale would “likely create a significant effect on the availability or accessibility of health care services to the affected community.”

Parties objecting to the sale before a bankruptcy judge noted that Prime tends to cancel contracts with health insurers and charge higher prices for services.

If the sale went through and Prime canceled contracts, many area patients would rely on the single hospital not owned by Prime in the isolated desert plateau. The bankruptcy judge ultimately approved the sale several weeks ago. As a matter of course, the attorney general also reviews sales of nonprofit hospitals.

The attorney general’s office convened a hearing Aug. 17 to hear comments on the proposed sale of the bankrupt Victor Valley, which is near another Prime hospital in the High Desert region of the state.

Prime Healthcare vice president and general counsel Michael Sarrao argued that the sale to the nonprofit Prime foundation should be approved, saying the firm would increase efficiency and provide more charity care. Sarrao also said Prime would maintain labor and delivery services and contract for five years with a program meant to fund care for low-income patients.

Dr. Victor Sabo, chief of staff at Prime’s Desert Valley Hospital, warned about others’ testimony at the hearing: “Allegations being made by those who only wish to create doubt and mistrust are false and shouldn’t be believed.”

A range of objections also were raised during the hearing.

Pat Aguirre, a phlebotomist at Encino Hospital Medical Center in Los Angeles County, testified that she worked at the hospital for 13 years. She said dozens of surgeons left after Prime took over the hospital in mid-2008, and the 150-bed hospital patient counts sunk to roughly 50 at times.

“I’ve heard many people here today say, 'I don’t want to see this hospital close,' ” Aguirre said at the hearing. “But yet for many people who (have) different insurances, our hospital is closed to them, and that will happen here.”

Dr. Eric Hansen, who said he practiced medicine in the area for nine years, testified that he canceled his privileges to see patients at Prime’s High Desert hospital, Desert Valley. He explained that his patients were admitted to the hospital and were told that he was notified.

However, Hansen said he never learned of their hospital stays until patients asked why he didn’t come see them. He said he was left “out of the loop” by the hospital and noted that patients were given unnecessary tests.

For those patients, he said, “there’s essentially no limit on what can be billed for services.”

Hansen’s comments echoed a lawsuit by Kaiser that the chain's hospitals “trap” its patients and misrepresent to patients that Kaiser doctors are aware of the situation. Prime has denied the allegations, and the matter is pending in Los Angeles County Superior Court.

The family of a deceased Desert Valley Hospital patient also testified about the hospital’s delay in transferring Victoria Kulyas, 45, to a hospital equipped to treat her acute case of leukemia in February.

Victoria’s mother, Ardis Kulyas, testified the hospital charged her insurer $144,000 for part of the stay* soon after her daughter’s death later that month. “I’m asking that you please stop the sale, prevent others from suffering the loss of a child.”

In a story last month, California Watch reported that a foundation controlled by Prime owner and board chairman Dr. Prem Reddy may have avoided paying hundreds of thousands of dollars in federal taxes through a questionable gift to another charity.

Public records show that in 2009, a $1 million charitable donation made by the Dr. Prem Reddy Family Foundation wound up in the coffers of the Prime Healthcare Services Foundation, the Reddy-controlled nonprofit that tried to purchase Victor Valley.

Experts who reviewed the transactions for California Watch said Reddy’s foundations appeared to have avoided hundreds of thousands of dollars in federal taxes that should have been paid on the transfer of the funds. Prime contended that all transactions were “in full compliance with all applicable laws.”

The attorney general’s office also denied Prime’s effort to buy Anaheim Memorial Medical Center in 2007. The hearing over that matter also featured the testimony of critics, including a lawmaker who accused Prime of patient admission practices that were “breaking the law.”

California Watch staff writer Lance Williams contributed to this report.

*This article was updated to reflect that Victoria Kulyas' insurer received the bill for her care.

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