On the surface, there's nothing remarkable about Prime Healthcare Service's hospital acquisition binge. Prime, which seems to focus on picking up insolvent facilities, has been an aggressive buyer that blows past union opposition to close deals again and again.
But when it comes to this buyer, there's more than meets the eye. Prime doesn't just rescue dying hospitals, it turns them into cash machines using tactics some in the industry object to strenuously.
When Prime acquires a hospital, it often cancels all of the health insurance contracts the hospital has in place. (For example, when it acquired Passaic, NJ-based St. Mary's Hospital this spring, one of the first things it did was cancel contracts with two major insurers—before the deal had even closed.) Then, when insured patients come in the door, Prime can collect much higher out-of-network fees from insurance—as well as more cash from patients.
And that's not the only problem with Prime, which has acquired many foes as it builds up its network. There's number of reasons why the California Office of the Attorney General has blocked two of four potential sales of hospitals involving the chain.
The for-profit hospital chain, which was established in 2001 by Prem Reddy, MD, FACC, FCCP, operates 29 acute-care hospitals serving California, Pennsylvania, Nevada, Kansas, Rhode Island and Texas (and now, after an acquisition from CHS, Alabama).
Over the last several years, Prime has faced several controversies over its billing practices and care standards. These include:
- An investigation by HHS and the DOJ over whether a reported surge in septecemia and a rare form of malnutrition called kwashiokor at Prime hospitals represents a serious health problem or multimillion dollar Medicare fraud. Prime, which until last year denied being the subject of federal probes, now admits they are underway, but told investigative site California Watch that its billings are legal and proper.
- Medicare and Medi-Cal have investigated $2.8 million in operating costs related to luxury items, including payments for the lease on a Beverly Hills home, depreciation on a Bentley and bills for operating a private helicopter. Prime denied any wrongdoing, but CEO Lex Reddy, the founder's brother, left not too long after.
- Complaints that Prime hospitals hold on to and admit patients, despite their being stable, refusing to send them to a hospital that takes their insurance and charging jacked-up out of network rates. Kaiser Permanente has sued Prime over such behavior, which it considers to be "trapping" patients. A few years after, Prime sued Kaiser back, alleging that several Kaiser units had worked with the Service Employees International in furtherance of an antitrust conspiracy focused on raising wages. The case got booted from court last year.
- Accusations that Prime moves high number of patients from its emergency room to hospital beds, largely patients on Medicare, in an effort to collect more from those patients. In 2012, Prime reimbursement management director Ajith Kumar told the Los Angeles Times that many patients were going from the ED to inpatient units because the company had an emphasis on emergency department admissions, and that "sicker patients are being admitted."
Under the radar
While Prime has been accused of many types of misdoing, it appears that few of the accusations have "stuck." And despite the fact that some of these allegations are quite serious, they seem to have slipped under the radar at this point, drawing little healthcare industry attention of late.
Of course, it's possible that Prime either didn't engage in the actions it was accused of or has somehow cleaned up its act. But given the extent of its alleged misbehavior, and the numbers of people willing to testify that abuses took place, it's better safe than sorry. If Prime approaches your hospital, you'd better know what could happen.