By Lance Williams and Christina Jewett
Los Angeles Times
October 12, 2010

A Southern California hospital chain known for aggressive billing practices and cost-cutting is being investigated by state and federal authorities for an unusually high rate of life-threatening infections among its older patients.

The U.S. Department of Health and Human Services and the state Department of Justice are looking into whether a reported surge in septicemia infections at hospitals operated by Prime Healthcare Services reflects a serious health problem or multimillion-dollar Medicare fraud, officials at both agencies said.

Septicemia, or blood poisoning, arises most often in hospitals with poor procedures for infection control.  Severe cases can be difficult and costly to treat, and are often deadly. Medicare pays hospitals several thousand dollars more to treat septicemia than less severe hospital-acquired infections — prompting some hospitals to file what officials say are false claims.

Health and Human Services Department spokesman Don White said the federal probe of Prime Healthcare was requested in July by Democratic U.S. Reps. Henry A. Waxman (D-Beverly Hills) and Pete Stark (D-Fremont).

In a letter to the inspector general, the lawmakers said they acted after reviewing a computer analysis of Medicare billings by the Service Employees International Union, which has repeatedly clashed with Prime over pay and staffing issues.

Prime may have overbilled Medicare by $18 million for septicemia claims in 2008, the lawmakers wrote, citing the union's analysis.

Tipped off by a different source, the state attorney general's office began a criminal investigation into similar allegations about a year ago, said Mark Geiger, director of the Bureau of Medi-Cal Fraud & Elder Abuse. He declined to identify the source, and investigators haven't determined whether violations occurred, he said.

In e-mails and interviews, Prime Healthcare officials denied wrongdoing. Ajith Kumar, Prime's reimbursement management director, said the septicemia allegations are "part of an effort by the SEIU to extort concessions from Prime Healthcare in contract negotiations" now underway at Centinela Hospital Medical Center in Inglewood.

Kumar said the relatively high rates of septicemia reflect the company's emphasis on "early detection and treatment" of the illness. Also, "sicker patients are being admitted" at Prime as a result of the company's emphasis on emergency room admissions, Kumar wrote in an e-mail.

Prime has turned around money-losing hospitals by raising fees and slashing payroll and services, according to a 2007 Times investigation. The San Bernardino County company, led by founder and chairman Dr. Prem Reddy, operates 12 hospitals in Southern California and one in Shasta County.

Reddy has repeatedly canceled insurance contracts with managed care companies. Freed from pre-negotiated discounts, Reddy's hospitals can then collect higher reimbursements for treating insured patients.

Suspicions of fraudulent billing for septicemia at Prime hospitals have been fueled by SEIU, which represents about 150,000 hospital and healthcare workers in California. It distributed its computer analysis of national Medicare billing data to state and federal officials earlier this year. Medicare serves elderly and disabled people.

According to the analysis, Prime's septicemia rate among Medicare patients during fiscal 2008 was extremely high. Six Prime hospitals ranked in the 99th percentile of U.S. hospitals and five others in the 95th percentile.

Overall, according to the analysis, the septicemia rate in Prime hospitals was nearly 16% — triple the national average among Medicare patients. Four Prime hospitals — Montclair Hospital Medical Center, West Anaheim Medical Center, Sherman Oaks Hospital and Desert Valley Hospital in Victorville — reported septicemia rates of more than 20%.

But the union analysts noted that the death rate for septicemia patients at Prime hospitals was 38% below the national average. That, the analysts contended, suggested "upcoding," or inflation of the diagnosis to draw higher reimbursement.

In his e-mail, Kumar said the lower mortality rate reflects "early and aggressive treatment and better patient outcomes."

Separately, Medi-Cal auditors are conducting an inquiry into Prime Healthcare in which auditors have flagged $2.8 million in questionable expenses, including lease payments on a Beverly Hills home, depreciation on a Bentley sedan and use of a private helicopter. The charges represent potential "fraud, waste or abuse," according to officials from Medi-Cal, the state health program for the poor.

Prime disputes many of the findings and says it may appeal. Chief Executive Officer Lex Reddy, Prem Reddy's brother, said the helicopter was needed so executives could avoid being stuck in traffic. Another company official said the Beverly Hills home was to accommodate company executives who live in San Bernardino County but work in Los Angeles.