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Prime Healthcare CEO abruptly steps down

Monica Lam/California Watch

The president and chief executive officer of Prime Healthcare Services resigned yesterday, leaving as FBI agents are questioning former employees about the firm's billing practices and state legislators prepare to question the company's attorney in a Los Angeles hearing tomorrow regarding hospital reimbursement.

Prime confirmed the resignation in a statement released today.

Lex Reddy, who is the brother-in-law of Prime's owner and board chairman, Dr. Prem Reddy, began working as a clerk for Prem Reddy’s medical group in 1995. During the last 11 years, Prem Reddy, a cardiologist, built the 16-hospital Prime chain with Lex Reddy at the helm.

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According to a company statement, Prem Reddy will take over as interim chief executive. “Lex Reddy has been an important part of our success, and he will be missed,” Prem Reddy said in a statement.

No reason was given for the departure.

A joint Senate and Assembly health committee hearing tomorrow is expected to feature testimony from Prime's general counsel and from critics of the firm’s patient admission practices. The Kaiser Health Plan and Heritage Provider Network, which have representatives scheduled to speak, have sued Prime, accusing the firm of "trapping" or "capturing" their patients and rendering unnecessary care for profit.

Prime filed the first lawsuits in a dispute with the insurers, saying both wrongfully withheld payments for patient care.

Sen. Ed Hernandez, D-West Covina, chairman of the Senate Health Committee, said, "There is obviously a lot coming at (Prime) right now."

"Prime Healthcare is a rapidly growing health system in California, and I'm hopeful that new leadership will be able to provide answers to some of the questions that have been circulating about this hospital chain," Hernandez said in a statement in response to today's news.

A yearlong investigation by California Watch has shown that Prime bills for outsized rates of rare and dire conditions that entitle hospitals to bonus Medicare payments. In recent months, FBI agents have begun interviewing former company billing clerks and patients. One patient also told agents that Prime disclosed her confidential health information to some members of the media without her permission, her daughter told California Watch.

Prime has said it is not aware of any investigations, but "is confident that even if there are, the facts will demonstrate that the company has complied with all statutes and regulations," chain spokesman Edward Barrera said in today's statement.

While Prem Reddy has served as spokesman for the firm during numerous public hearings over the years, Lex Reddy has stepped forward to represent the chain in recent months.

In August, Lex Reddy testified during a hearing convened by the state attorney general over the sale of Victor Valley Community Hospital in San Bernardino County.

Lex Reddy characterized his brother-in-law’s role during the hearing: “Dr. Reddy does not sit and be there at every single facility, doing the work. It’s my 9,000 employees that contribute to the success or failure of our institutions. And at the end of the day, the buck does stop with Dr. Reddy, because he takes the responsibility, making sure these facilities are kept open, deal with all the … trash that is thrown at us.“

The attorney general's office denied the sale of the Victor Valley hospital to Prime, saying it was not in the public interest.

In today's statement, Barrera said that under Lex Reddy's tenure, "the company has rapidly expanded, turning around financially distressed hospitals across California, and earned national recognition for high quality care, including being named among the top 15 health systems in the nation in 2012."

Prime also announced this week that it acquired Roxborough Memorial Hospital in Philadelphia, its 16th hospital. The firm owns 13 hospitals in Southern California, one in Shasta County and another in Texas.

The chain dropped a bid just weeks ago to acquire a New Jersey hospital. Critics of the acquisition in New Jersey had raised questions about the chain's billing methods cited in California Watch's series. 

Lex Reddy has highlighted the differences between his role and his brother-in-law’s before. He testified on Prem Reddy’s behalf during an employment dispute between Prime's owner and nurse managers at Desert Valley Hospital in Victorville in 2005.

Two nurse managers accused Prem Reddy of taking unethical steps to turn around the finances of the hospital, such as turning away uninsured patients in need of care. Former chief nursing officer Tina Buchanan testified that she went to Lex Reddy, asking him to talk to his brother-in-law.

“Lex was tearful during the meeting,” Buchanan testified. “He said, ‘Please, give me 30 days to make these problems go away. I’ll work with Dr. Reddy. I’ll talk to Dr. Reddy. I’ll make this go away. … We will make it better.’ ”

Lex Reddy, then the hospital’s chief executive, took the witness stand during the eight-week trial stemming from the nurse managers' complaints. He drew a distinction between his and Prem Reddy's methods, saying, "I try to work with the employees."

“The best way to say it is that sometimes, he’s a little bit abrupt, just gets to the point, doesn’t have time for discussing the details," Lex Reddy testified. "We have different management styles.”

During the trial, Prem Reddy testified that he took reasonable measures to bolster hospital finances and was misunderstood by the nurses.

The jury awarded more than $850,000 to the nurses, but the case was declared a mistrial as a result of juror misconduct. The case later was settled. The terms were not disclosed.

Today, the company also announced that it named a chief operating officer, Luis Leon, who has worked for Prime and its predecessor firms for 17 years. Leon started with the company as a physician assistant at Prime’s first facility, Desert Valley Hospital, and most recently was regional chief executive for San Diego.

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