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In their own words: Prime's tense relations with insurers

Prime Healthcare Services has had an adversarial relationship with many insurers.

Prime founder and board Chairman Dr. Prem Reddy says insurers do not pay hospitals nearly enough to cover their costs and has, in many cases, declined to enter contracts with insurers at the chain's hospitals.

Freed of contracts, Prime has been able to seek higher payments from insurers.

For their part, insurers have spoken out against Prime’s business model. Kaiser Permanente, which covers 6.8 million Californians, and others have contended that Prime improperly keeps insured patients in its hospitals instead of returning them to facilities in their insurance network.

Jan. 25, 2007, hearing regarding sale of Paradise Valley Hospital to Prime Healthcare Services, National City, Calif.; Nick Louizos, then legislative advocate for California Association of Health Plans:

We represent 40 public and private health plans with enrollees totaling over 21 million Californians. …

Prime has consistently employed the strategy ostensibly to provide financial (increases) to troubled hospitals. The strategy raises serious public policy concerns and will have negative consequences for the regional health care delivery system. Prime's strategy upon the purchase of hospitals is mainly twofold: The first thing that they do is (cancel) managed care contracts, and then secondly, they admit more patients through the emergency rooms, and the mechanism by which they do that is they have instituted policies that prevent the transfer of patients with health care coverage to facilities within their planned network.

Just to go over those, the first tentative Prime strategy is to terminate the contract. The consequence of this is health care becomes less affordable, including those serviced (by coverage) such as Medi-Cal and Healthy Families. To underscore the affordability point, an analysis of OSHPD (Office of Statewide Health Planning and Development) data shows there have been dramatic increases in Prime's charge master for specific services, as well as overall hospital charges in hospitals that it currently runs. The data also shows large increases in Prime's overall hospital charges when compared to peer-group hospitals, and I can provide some information on that. Canceling contracts leads our enrollees subjected to inflated charges by Prime hospitals. 

The inflated charges take on greater significance when you combine that with the second portion of the financial strategy, which is to effectively prevent the transfer of emergency room patients with health care coverage to inter-network hospitals even after the patients have been stabilized.

This is how Prime can leverage higher payments from health plans and consumers. The prevention of patient transfer is inconsistent with existing state law, which governs the method by which patients with health plan coverage are to be submitted or transferred to facilities within their planned network after they have been stabilized. The hospital also has been obligated to contact health plans in emergency situations, so they're supposed to (have) a dialogue between the facilities and the health insurance companies or the health plans.

However, in dealing with Prime's other hospitals, our members tell us they frequently find out about patient transfers only after they've received a claim or when the patient is being discharged. It also appears that Prime has put forth policies which effectively instruct medical staff to obstruct these type of transfers.

August/September 2005 testimony of board chairman Prem Reddy, Prime Healthcare Services, San Bernardino County Superior Court:

A. And the other situation we had was the patients were – you know, some of the patients would come that belong to other health plans, and they would – they would not give us permission to do the best we can as examining doctor. They want this report, that report faxed to them. And – and there's one – one doctor that hasn't seen the patient probably never in the past, will never see the patient again in future, would be calling themselves medical director out in Fontana telling us what to do. And I wanted to put a stop to that. There are many things, I could go on. I don't know whether that interests anybody here.

Q. I'd like for you to describe to us what was going on in that time period between Desert Valley Hospital and Kaiser.

A. Which still goes on. Kaiser, as you know, it's a big health plan. They have almost 40,000 patients in the High Desert. Unfortunately, they do not have a hospital in the High Desert. Their hospital is – I think Fontana is the closest, and there's one in Riverside.

So the problem the hospitals here encounter, especially the emergency department, is that a lot of Kaiser patients can't go down below when they're in an emergency, they come to the emergency rooms in one of the hospitals, including Desert Valley Hospital. We'll see an average of about 10 patients a day. But at the same time, Kaiser expects us to call them each time a patient shows up in our emergency room. And they say, you know, from there, the medical director at Kaiser, there's a service, I don't know what the name is, dictates what needs to be done every step of the way. And he would say, "Do this blood test and fax the report to me," or, "Do an EKG, and send the EKG to me." And then we send the EKG, and then the doctor will call back and say, "Wait four hours and repeat the blood test, and fax the test to me."

Q. So –

A. The problem there is it taxes the emergency rooms. And the doctor that is really looking at the patient loses control of what to do with the patient. So it poses not only logistical problems, it poses quality of care problems.

Q. Did the management team at Desert Valley Hospital make a decision to make any decision in regard to these Kaiser problems?

A. Yes, ma'am, we did.

Q. What decision was made?

A. We made a decision that if the patient presented to the emergency room, whether Kaiser or any other insurance, first treat the patient. And the person that is treating the patient is the captain of the ship, and he would do, or she would do, whatever the most appropriate. And if the patient's condition is stable, there will be either discharge or transfer. If the patient's condition (is) unstable, they will go ahead and admit the patient under hospitalist, Desert Valley Hospital – hospitals and Kaiser will be notified of that admission within 48 hours of admission.

Q. So the change was if the Kaiser patient needs to be admitted, admit the patient and just contact Kaiser within 48 hours?

A. That's correct.

August/September 2005, testimony of Dr. Panch Jeyakumar, former medical director of Desert Valley Hospital, San Bernardino County Superior Court:

Q. In late 2002 and early 2003, did Dr. Reddy have any conflicts with any health plans that you can remember?

A. He had his main conflicts – actually, his upset was with Blue Cross and Kaiser. With regard to Blue Cross, he was angry because they canceled his contract. With Kaiser, his anger was that he was under the impression that the Kaiser reimbursement was based on a fee-for-service basis, whereas later they found out that Kaiser actually paid through a third party on a contractual basis. … So he felt kind of cheated, but that was an established contract before.

Q. Did he tell you that he felt cheated?

A. Yes.

Q. He was angry with Kaiser over reimbursement?

A. Yes.

Q. What did he tell you that he wanted done about that?

A. He said, “We’re going to admit the Kaiser patients and bill them. And also Blue Cross.”

A. Because the Blue Cross contract was canceled, (Dr. Reddy) said that whenever Blue Cross patients were admitted, he wanted a lot of testing done. And on Kaiser patients who to come to the emergency room, he said he would admit as many as possible.

August/September 2005 testimony of Lex Reddy, CEO of Desert Valley Hospital and Prem Reddy’s brother in law, San Bernardino County Superior Court:

The second issue involved – there was a little bit of abuse of the emergency room by folks like Kaiser, where the patients had to be held in the emergency room for hours and hours before they could get a bed down the hill for transfer of the patient. In other words, the patient is just sitting in the bed for hours till they find a bed or till Kaiser could send an ambulance up here for us to send the patient down the hill. So it was my instruction to the ER that they needed to have a disposition on the patient. I gave them three options.

In their own words

Transcripts from court and public hearing testimony:

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If the patient is treated and can go home, send the patient home. If the patient needs a higher level of care, make sure the patient gets transferred over to an institution where we can not provide the service but needs a higher level of care.

And the third issue was, I said that if the patient needs to be admitted, admit the patient. You cannot hold a patient for hours in the emergency room – I'm talking about in the emergency room – and clear up the bed for other patients to have access to the ER. And that's one of the major areas which I identified.

October 2006 Orange County Board of Supervisors hearing regarding Prime Healthcare Services, Jim Agronic, then chief operations officer, Greater Newport Physicians, a managed care physician group:

… Number 1, the business tactic of coming in to a hospital and canceling all your health plain contracts so they can extensively full-bill charges to whoever is paying the bill appears to be financially motivated. 

There at least two adverse effects of this. First, this approach contributes directly to increasing health care costs for the residents of Orange County and negatively impacts both the employers and the individual patients. Second, as those of us who are responsible for paying the bills, I can tell you that none of us intend to pay full-bill charges, and so in short order, you will have hundreds and hundreds of lawsuits over what constitutes reasonable charges against Prime Healthcare with all the physician groups in Orange County, so (that's) millions of dollars that would be going to treat health care of the Orange County residents that are going to be tied up in legal fees for years. 

Secondly, contrary to the standard of practice in this industry for the past 20 years, Prime Healthcare refuses to transfer patients from their hospital to another hospital based upon the physician request. I’ve not heard of any hospital doing that before, and we have already experienced that problem. We’ve actually had our nurses call, ask to have a patient or a physicians call, asked to have a patient transferred, the nurses there said we are directed not to transfer the patients. They hide behind a facade rather of quality for the reason for this policy, but we suspect that financial motivation plays a role here also.

June 15, 2007, hearing regarding possible sale of Anaheim Memorial Hospital to Prime, Anaheim; Assemblyman Jose Solorio, D-Santa Ana:

For all of its current hospitals, Prime Healthcare typically cancels managed care contracts and then bills the insurance companies an exorbitant amount. They then bill the patient for the remainder.

The residents in this part of Orange County, central Orange County, do not have the financial ability to pay these huge bills. I do not want my constituents being stuck with unfair high hospital bills that they cannot pay.

And it's interesting in that when they don't pay their bills, that's what they consider charity care, which is why those dollar amounts are so high.

Charity care reflects its high charges, often three times as much as other hospitals, because Prime Healthcare bills full charges when it cancels managed care contracts.

Another issue that concerns me is that this hospital is breaking the law, and for some reason, the state doesn't seem to always care. As a state legislator, this concerns me. For example, a coalition of concerned citizens recently submitted specific incidences to the Department of Health Services in which Dr. Reddy broke the law, but they gave him his license anyway.

For example, it is against California law to admit patients through the emergency room without first notifying the health plans. Dr. Reddy does this every day in every one of his hospitals. In fact, this is how he gets most of his admissions. This should be of concern to the Department of Health Services and the state.

August/September 2005 testimony of Tina Buchanan, former chief nursing officer, Desert Valley Hospital, San Bernardino County Superior Court, Victorville:

A. Dr. Reddy told all of us in management and then went out to the staff and started talking to them about how he did not – he no longer wanted them to notify the primary care physician for any patients who belong to Kaiser or who belong to out-of-network HMOs because those patients, when they were admitted to our hospital and taken care of by his hospitalist who worked for the medical group, they then became a fee-for-service patient, and he would get reimbursed for all the care that those physicians provided to that patient.

Q. Were you present when he said this?

A. Several times.

Q. Did you ever hear from any staff member that Dr. Reddy ordered staff not to call the primary care physician and to document on the chart that the phone call, in fact, had been made?

A. Yes.

Q. Who told you about that?

A. Phyllis Armstrong told me that he had directed her case managers to document authorizations for admissions of patients that never truly occurred.

Q. By documenting something on the medical chart that had not occurred, is that a falsification of the medical record?

A. Yes.

Q. What did Dr. Reddy tell you he wanted done with regard to the notification of Kaiser?

A. He didn't want the Kaiser physicians notified because he wanted physicians in his hospital taking care of those patients, so he could bill Kaiser and get paid as fee for service. He didn't want the patients transferred out from his hospital. That was the bottom line.

Prime Healthcare Services and Chino Valley Medical Center lawsuit against Kaiser Foundation Health Plan, filed January 2008:

Defendants operate a program known as the Emergency Provider Response Program (EPRP), which is staffed by physicians employed and/or contracted by SCPMG (Southern California Permanente Medical Group).

EPRP was purportedly developed to track care provided to Kaiser Members at non-Kaiser facilities and to provide emergency department physicians at non-Kaiser facilities with access to the medical records of Kaiser Members. The physicians who staff EPRP do not act as Primary Care Physicians for Kaiser Members and are not involved in the care of Kaiser Members either before or after they seek to transfer Kaiser Members from a non-contracted hospital to Kaiser facilities.

Rather, the sole purpose of the EPRP physicians is to effectuate transfers of Kaiser Members to Kaiser facilities for financial reasons. … The real goal of EPRP is to decrease the cost of medical care provided to Kaiser Members and to transfer Kaiser Members to Kaiser facilities regardless of whether the transfer is appropriate and in the best interest and safety of the patient and the patient’s medical condition so that defendants can earn more profits and physicians can earn larger bonuses.

For example, plaintiff is aware of instances where EPRP physicians directed and caused the transfer of Kaiser Members from non-contracted hospitals to Kaiser's facilities in order to save costs even though the services required by the Kaiser Members were not readily available at Kaiser's facilities and Kaiser Members suffered serious adverse consequences and even died during the transport and/or while at Kaiser's facilities due to the lack of readily available services.

Unfortunately for Kaiser Members and health care providers who provide Emergency Medical Services to Kaiser Members, defendants have embarked on a course of conduct which places defendants' financial interests over the well-being of Kaiser Members and puts the safety of Kaiser Members at risk. Defendants' actions deprive health care providers of the opportunity to be paid for Emergency Medical Services for which defendants have received premium dollars, and deprive Kaiser Members from having access to emergency care.

Furthermore, defendants' actions are interfering with the efficient operations of emergency departments throughout Southern California.

… Defendants have marketed and continue to market products to employers and individuals who reside in the Inland Empire while at the same time failing to disclose that: (1) Kaiser demands that non-contracted hospitals such as CVMC (Chino Valley Medical Center) & MHMC (Montclair Hospital Medical Center) contact EPRP before a Kaiser Member's emergency medical condition has been stabilized and that EPRP physicians will attempt to coerce the treating physician into making a determination that the Kaiser Member is stable and should be transferred to a Kaiser facility so that Kaiser can save money; (2) in those cases where a patient has been deemed stable for transfer, Kaiser will not effectuate transfers within a reasonable amount of time and instead Kaiser Members will be forced to wait for hours in busy and crowded emergency departments before a transfer is effectuated; and (3) Kaiser will routinely and repeatedly fail to pay claims for emergency medical services provided at the hospital.

… Defendants restrict the ability of non-contracted providers to access medical records for Kaiser Members prior to stabilization of the member's emergency medical condition unless and until the non-contracted provider is willing to engage with EPRP about the stability of the member for transfer and transferring the member to a Kaiser facility. In other words, any call to EPRP to access medical records is met by demands that Kaiser Members be transferred even though in many instances the patient’s emergency condition has not been stabilized.

(Kaiser's) demand that patients who arrive at the Hospitals' Emergency Departments with an emergency medical condition be transferred to Kaiser facilities even though the treating physician has determined that the patient's emergency medical condition is not stabilized and it is the treating physician, not a physician on the telephone, who is charged with the duty of making such a determination under federal and state law. Indeed, defendants attempt to rely on evaluations performed by either case managers or a contracted physician who claims to have access to the patient's medical records, but who has never actually seen the patient before or during the visit at issue to make such a determination and demand the transfer of patients.

To make matters worse, neither defendants nor EPRP offer to indemnify the Hospitals from any malpractice liability if the patient suffers an adverse result during the transfer. The threat of malpractice liability is real as the Hospitals are aware of cases where non-contracted hospitals such as the Hospitals have been sued related to the inappropriate transfer of Kaiser Members.

Kaiser cross-complaint against Prime Healthcare Services, filed June 2010, Los Angeles County Superior Court:

l. Prime Healthcare Services, Inc. ("Prime") and its hospitals are disrupting the practice of medicine and corrupting the proper operation of the health care system. Prime corrupts the health care system by trapping patients in its hospitals and providing unnecessary services, and then falsifying and inflating its bills in order to maximize Prime's profits and the profits of its owners.

If Prime's illegal and fraudulent practices are permitted to continue unchecked, the costs for basic health care will continue their upward spiral at an unprecedented rate, people will continue to suffer unnecessary hospitalizations, and the quality and continuity of care will continue to decline.

2. Prime and its subsidiaries run according to the profit-based dictates of Prem Reddy, the (man) at the helm of the Prime organization. Prime's and cross-defendants' business model includes the following strategies:

(1) use the hospital emergency departments to capture as many insured patients as possible;

(2) turn away or quickly discharge uninsured or non-commercially insured patients, such as Medi-Cal patients;

(3) admit patients into the hospitals unnecessarily and prematurely in order to bill cross-complainants (hereinafter "Kaiser") for inpatient stays;

(4) refuse to communicate with Kaiser to obtain pertinent medical information or to coordinate care for its members;

(5) refuse to transfer Kaiser members to plan facilities so they can continue their care at the facilities and with the physicians of their chosen health plan with seamless access to their comprehensive medical histories;

(6) keep insured patients including Kaiser members in the hospital and work them up as long as and as much as possible – notwithstanding the risks and detrimental effects to the patients (of) these inappropriate hospitalizations and procedures;

(7) falsify bills by overstating or "upcoding" the patients' conditions; and

(8) billing for services and supplies that are unnecessary, falsely described, or not provided at all.

… The Prime business model turns the law and community medical standards on its head. Prime’s scheme twists the patient-oriented EMTALA (Emergency Medical Treatment and Active Labor Act) structure into a model by which Prime can capture patients unnecessarily to serve its hospital profits and as a result exploit Kaiser and its members. Prime makes every effort to trap Kaiser members in its hospitals as long as possible by failing to notify Kaiser that its member is being treated and refusing to communicate or cooperate with Kaiser if Kaiser learns that its member is in a Prime hospital, Prime and the Prime hospitals then falsely claim that Kaiser must pay the entire bill from the hospital when much of the service provided constitutes unauthorized post-stabilization care for which Kaiser is not liable.

49. Prime and Prem Reddy implement policies and practices to maximize revenue from any insured patients, including Kaiser patients, who enter through the emergency departments. While the process may vary somewhat at each Prime hospital, after Prime acquires a hospital, Prem Reddy and other Prime executives typically visit the hospital and verbally convey instructions to the staff and physicians designed to keep insured patients including Kaiser patients in the Prime hospitals for as long as possible. Typically, the instructions applicable to insured patients include some variation of the following:

(1) insured patients are not to be transferred to the patients' in-network hospitals on the basis that the patients' medical conditions are stable;

(2) physicians and staff are not to call insured patients' in-network hospitals or health plans, including Kaiser, to inform them that their members are in the Prime hospital or to request the patients' medical records;

(3) physicians and staff are either not to make a determination of stability, or not to document any such determination, or, if they do make a determination of stability, they are to conceal or delay any determination of stability; and, as indicated below, they are to utilize inapplicable standards for determining stability; physicians and staff are not to use the applicable federal and state law standards for stability but are directed to follow a more stringent standard for stability dictated by Prime, thereby minimizing the chance that any patient would be found stable, and concealing stability or falsely representing that a patient is unstable, when the patient is in fact stable for transfer under federal and state law, and community medical standards; insured patients are to be given a broad array of tests and procedures while in the Prime hospital, in many cases even when the tests or procedures are not medically warranted.

Prime hospitals then bill for these unwarranted tests, often at inflated rates, and in some cases Prime hospitals bill for tests that were never given at all; insured patients are to be admitted to the hospital whenever possible. Admitting the patient allows the hospital to bill for an inpatient stay which is typically more expensive than one for outpatient emergency services. Keeping the insured patients in the hospital also allows more opportunity to conduct additional tests and procedures, and to order consultations by various specialists, all with the ultimate goal of increasing the money received from the patient's health plan; if Kaiser calls about one of its members, the Prime physicians and staff are to delay calling Kaiser or returning Kaiser's calls as long as possible, are to refuse to provide clinical information to Kaiser, are to avoid arranging appropriate follow-up care with Kaiser, and are not to cooperate with Kaiser in transferring Kaiser members to a Kaiser facility.


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