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Congressman calls on feds to examine Prime Healthcare's taxes

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San Diego Congressman Bob Filner is asking federal officials to investigate Prime Healthcare Services for "possible systemic fraud," citing California Watch reports about the firm's Medicare billing and patient admission practices.

Based on another California Watch story, Filner is also asking the Internal Revenue Service to investigate the hospital chain's "apparent tax evasion," based on a charitable gift from a Prime foundation.

Filner made his request in two letters: one to Health and Human Services Inspector General Daniel R. Levinson and another to Internal Revenue Service officials Sarah Hall Ingram, commissioner for tax-exempt entities, and Victor Song, chief of criminal investigations.

Filner, a Democrat whose San Diego County district includes Prime’s Paradise Valley Hospital, said he had “grave concerns” about the Ontario-based chain’s billing and patient admission practices.

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“I implore you to take all appropriate steps to investigate the concerns raised by California Watch and to hold Prime Healthcare and its leaders accountable,” Filner wrote to Levinson.

In the letter to the IRS, Filner called on the agency to launch an investigation based on a California Watch report about a charitable gift that may have allowed Prime Healthcare founder and board Chairman Dr. Prem Reddy to avoid hundreds of thousands of dollars in federal taxes.

Prime, responding through Beverly Hills attorney Anthony Michael Glassman, said Filner is "recycling already disproven allegations." Glassman also said the congressman, a candidate in San Diego's mayoral race, is "trying to lock in union support" from the Service Employees International Union, which has been critical of Prime.

Glassman said Prime is "providing high-quality patient care" to an underserved community. Also, he said a well-respected nonprofit attorney reviewed the foundation's contribution and determined that it was appropriate.

In an interview, Filner said his office worked with staff and physicians who were hoping to block Prime’s plan to buy Paradise Valley Hospital, in National City, in 2007. Filner recalled hearing concerns about Reddy’s track record of cutting medical services and driving traffic to emergency rooms to boost reimbursement. Physicians' concerns also were raised during a hearing held by the state attorney general, who approved the hospital sale.

“We heard from doctors at other hospitals that this is a guy who doesn’t care about services and patients,” Filner said. “He has one thing in mind: profit.”

Filner said the hospital sale went through over his objections, and well-respected doctors have since resigned from the hospital. The congressman said he has not yet heard back from the inspector general or IRS, but will be pressing for answers.

“There’s enough smoke; there’s got to be fire,” Filner said.

The Oct. 25 letter references several California Watch reports examining medical conditions reported at high rates at Prime hospitals, entitling facilities to increased payment:

  • An October 2010 article examined septicemia, a sometimes deadly bloodstream infection that is reported at three times the national rate at Prime hospitals. The findings, brought forward by Service Employees International Union health care workers research, set off an investigation in Levinson’s office.
  • A February report examined two Prime hospitals that reported outsized rates of kwashiorkor, a form of severe malnutrition associated with famine-stricken children. In 2009, Desert Valley Hospital in San Bernardino County reported the condition at 39 times the statewide rate, and Shasta Regional Medical Center in Redding reported it at 70 times the statewide average.
  • An October investigation included the accounts of former medical coders and doctors who parted ways with the chain over concerns about billing and diagnosis practices. Some left after a 2010 meeting in which Reddy encouraged doctors to document unusual conditions that are lucrative to treat. Prime hospitals reported high rates of those conditions.

Prime executives have responded to the reports about their rates of septicemia by saying they have aggressive diagnosis and treatment procedures. Prime also said malnutrition is widely underreported among seniors. Prime labeled as disgruntled the former medical coders who have spoken out. Prime officials also have said that doctors diagnose patient conditions, not administrators.

In a letter dated Friday, Glassman, representing Prime, described Filner's statements as "wild accusations" that fail to recognize that the state Department of Public Health found no shortcomings with chain coding related to septicemia or malnutrition cases.

The department said it did not have the expertise or jurisdiction to examine medical coding and sent its findings to state and federal agencies for possible investigation, noting that it did not rule out practices "that may constitute fraud."

Filner also referenced a California Watch report on the tendency of Medicare patient admission rates to rise after the chain buys a hospital. On average, 11 chain facilities bought since 2005 went from admitting about 45 percent of the Medicare seniors who entered the emergency room to about 63 percent, earning tens of millions in additional revenue. Two managed care firms, Kaiser Permanente and the Heritage Provider Network, have accused Prime of targeting their patients for hospital admissions motivated by profit, claims that Prime has denied.

Prime noted that some other hospitals in the state admit more Medicare patients than its facilities. A Prime attorney also criticized the California Watch analysis as using unexplained statistics to question the judgment of doctors.

In all, Filner cited five California Watch stories about Prime in his two letters, including an article that he said raised concerns about “apparent tax evasion.”

In a story in August, California Watch quoted public records showing that a $1 million charitable donation made by Reddy’s family foundation wound up in the coffers of another nonprofit Reddy controls, the Prime Healthcare Services Foundation.

Federal law requires private foundations to donate a minimum percentage of their assets to approved charities or face hefty taxes. The family foundation didn’t appear to have met that requirement in the 2009 transaction, the story quoted three tax experts as saying. The experts put the potential unpaid tax bill at $217,000.

In his Oct. 24 letter to IRS officials, Filner asked authorities to investigate the matter and both nonprofit organizations involved.

“I believe aggressive practices at Reddy’s hospitals strain the public’s faith in the integrity of Southern California hospitals,” Filner wrote. “We should not permit a corresponding breach of trust to damage (the) good name of reputable foundations and charities as well.”

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