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Prime Healthcare expands, but not in California

Monica Lam/California Watch

In recent months, Southern California-based Prime Healthcare Services has bought financially troubled hospitals in Nevada, Texas and Pennsylvania.

But the rapidly expanding hospital chain hit a speed bump on its home turf in San Bernardino County, where a bankruptcy judge bypassed Prime's nonprofit foundation and steered the sale of 101-bed Victor Valley Community Hospital to a local investment group.

Judge Catherine Bauer’s decision, reached last week, was a setback in Prime’s long-running legal fight to acquire the bankrupt nonprofit hospital in Victorville, east of Los Angeles – and, perhaps, to continue its expansion in the Golden State.

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At one pivotal point last year, state Attorney General Kamala Harris refused to approve the sale of the Victor Valley hospital to Prime, declaring that wouldn’t be in the public interest.

Prime accused Harris of caving in to political pressure from the Service Employees International Union, which represents health care workers and has been locked in bitter contract struggles with Prime. Then, as lawyers dueled in court, Prime's foundation began operating the hospital under terms of a controversial consulting agreement.

Prime spokesman Edward Barrera said the chain's goal all along has been to keep Victor Valley Community Hospital open. "Toward this goal, the Foundation will continue to do what it can to save this hospital," he said in a statement.

Prime is an 18-hospital chain known for turning around financially troubled hospitals by cutting costs and boosting revenues.

A California Watch analysis of state records last year showed that the chain had reported high rates of several unusual medical conditions that entitle providers to enhanced payouts from the federal Medicare program. Three members of Congress have asked federal regulators to investigate the chain for a suspected form of Medicare fraud called upcoding, in which a provider files false claims via computerized billing codes. Prime says it is innocent of wrongdoing, saying the billings reflect its commitment to aggressive treatment of serious medical ailments.

In May, the state Department of Public Health issued five deficiencies against Prime’s Shasta Regional Medical Center in Redding for what were described as repeated breaches of patient confidentiality last year. The violations – showing a patient's medical records to a local newspaper editor – occurred as Prime sought to discredit a California Watch report about a reported outbreak of a Third World nutritional disorder called kwashiorkor at the hospital. Prime appealed, saying it was blameless.

The legal dispute in Victorville came after Victor Valley Community Hospital filed for bankruptcy in 2010, citing years of financial losses.

Prime, which also operates Desert Valley Hospital in Victorville, moved to buy the facility. But in September the attorney general, who by law reviews the sale of nonprofit hospitals, refused to approve the transaction, saying the sale might adversely affect health care in the region.

Critics had warned that if Prime bought the hospital, it would likely cancel contracts with health insurers and charge higher prices for services, driving up health care costs in the High Desert region.

Prime blamed the SEIU, complaining that the union’s “blatantly false smear campaign of vilification” had swayed the attorney general.

In the weeks that followed, Victor Valley Community Hospital’s trustees continued negotiations with Prime, and at one point persuaded the bankruptcy judge to approve an arrangement under which Prime's foundation took over day-to-day management of the hospital through a consulting agreement.

But recently, the trustees resumed talks with Riverside health care entrepreneur Kali Chaudhuri, who had sought to buy the hospital last year. The judge’s ruling last week cleared the way for the sale of the hospital to Chaudhuri's KPC Group for a reported $33.8 million. It will operate the hospital on a temporary basis pending transfer of the license – which again must be approved by Harris.

Dave Regan, president of SEIU–United Healthcare Workers West, praised Harris for her earlier decision, of "standing up for healthcare access and affordability in Victor Valley." Prime's "business model has a negative impact on workers, patients and communities," the union leader said in a statement.

In recent months Prime has had an easier time expanding out of state.

Last weekend, Prime announced that it had completed its purchase of 380-bed Saint Mary’s Regional Medical Center in Reno, Nev. The seller was Dignity Health, formerly known as Catholic Healthcare West. The hospital lost $43.5 million in 2011, officials said. The Reno Gazette-Journal reported that employees began receiving layoff notices last month as the sale neared completion.

Earlier this year, the chain bought local hospitals in Harlingen and Pampa, Texas, according to the Texas Tribune. Prime also bought a hospital in Roxborough, Pa., near Philadelphia.

But in February, Prime dropped a bid to buy Christ Hospital in Jersey City, N.J., in the face of opposition from a coalition of business and community groups.

At one point, the New Jersey attorney general’s office queried the hospital’s trustees about Prime, asking about the reports of “high incidence of certain rare diseases” at the chain, an apparent reference to California Watch’s stories. A Prime spokesman said the queries played no role in the company’s decision to back away from the purchase. 

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