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Prime Healthcare to manage hospital over Harris' objection

Steve Rhodes/FlickrKamala Harris

When Attorney General Kamala Harris’ office denied the sale of Victor Valley Community Hospital to Prime Healthcare Services’ nonprofit arm in September, it seemed like a closed case.

However, the hospital’s board continued talks with Prime, declined to negotiate with another potential buyer, and yesterday succeeded in securing a deal in bankruptcy court to allow Prime, through a consulting agreement, to take over day-to-day management of the hospital.

The move capped a day of courtroom drama that started with the attorney general’s office seeking an order [PDF] in San Bernardino County Superior Court to stop the consulting agreement from going forward. A judge did not grant a restraining order but scheduled a more in-depth hearing on the matter for Nov. 23, according to Lynda Gledhill, spokeswoman for the attorney general.

Gledhill said it’s the first example of a buyer entering into a consulting agreement to operate a hospital after the state had rejected the purchase.

Prime said it is pleased the state court denied the attorney general's requested restraining order because "she did not show a probability of success on the merits." The firm, through an outside spokesman, also said it was pleased with the bankruptcy ruling "so that Victor Valley can remain open and serve the healthcare needs of the community."

Prime Healthcare, which owns 13 Southern California hospitals and one in Shasta County, is also seeking to buy a New Jersey hospital.

California Watch has written about the chain’s tendency to boost Medicare patient admissions after taking over hospitals it acquired since 2005. Prime hospitals also report high rates of rare ailments among Medicare patients that entitle facilities to enhanced payments. The Kaiser health plan has accused Prime of “trapping” its patients and “upcoding” or overstating their medical conditions for profit. Prime has denied the allegations.

Victor Valley initially was slated to be sold to Victor Valley Hospital Acquisition last year, but the group associated with Hemet physician Kali Chaudhuri failed to close the deal this summer. That opened up negotiations with Prime, the backup bidder.

The 101-bed hospital is one of three hospitals in the geographically isolated High Desert region of San Bernardino County.

The attorney general held an August hearing over the sale to Prime, which included impassioned testimony in favor of and against the deal.

A little more than a month later, the attorney general’s office denied the sale [PDF], saying it was not in the public interest and “will likely create a significant effect on the availability or accessibility of healthcare services in the affected community.”

The Victor Valley hospital board, however, proposed a different arrangement soon after in bankruptcy court, records show.

On Oct. 17, the hospital board attorneys filed an emergency motion seeking the court’s approval for a credit and security agreement and consulting services agreement.

Two days later, the attorney general’s office sent a letter to the board saying that both agreements needed the office’s approval to go forward. Attorneys for the hospital board wrote back, disagreeing.

On Friday, Harris’ office filed a request for a restraining order [PDF] and injunction to stop the deal. In court records, the attorney general argued that the deal would cause the hospital to incur $6 million in additional administrative costs, “manipulating the market value of the hospital.”

The attorney general also argued that by failing to get her office’s consent, the hospital board “thwarted and circumvented the Attorney General’s authority.”

Samuel Maizel, a Los Angeles attorney for the Victor Valley hospital, said the arrangement approved in bankruptcy court means that Prime will work for the nonprofit hospital’s board and chief executive to turn around the facility.

“If we had not prevailed in both hearings today, there was a very good likelihood that we would have had to start shutting down the hospital,” Maizel said.

Under the consulting agreement, records show, Prime’s for-profit arm will take the lead at Victor Valley Community Hospital in physician relations, revenue management, contracting, auditing and preparation of financial statements.

Nearly a year ago, Prime acquired Alvarado Hospital in San Diego, despite calls by lawmakers to withhold licenses to the chain pending investigations of high rates of septicemia. State authorities ultimately filed and then dismissed deficiency findings about record-keeping related to septicemia patients, but passed on the findings to state auditors and federal investigators.

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