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Christina Jewett and Stephen K. Doig, California Watch: Prime Healthcare’s treatment of rare ailments stands out

Prime Healthcare’s treatment of rare ailments stands out
by Christina Jewett and Stephen K. Doig, October 13, 2011

This story was edited by Denise Zapata, Mark Katches and Robert Salladay. It was copy edited by Nikki Frick. San Diego Union-Tribune staff writer Janet Lavelle contributed to this report.


photo: Anneke Doty, a medical coder for 10 years, quit her job at Alvarado Hospital over concerns about Prime Healthcare Services’ billing approaches.

Prime Healthcare Services bills Medicare for a variety of unusual ailments – among them a brain disease and a condition causing eyes to bleed – that can generate lucrative payments to the chain.

A California Watch analysis of newly released data shows that the chain’s Medicare billing for these disorders is far more aggressive than at other California hospitals. Prime also led the state in billing for a rare nerve disorder, documenting the majority of cases last year.

Nine former Prime doctors and back-office medical coders said in interviews or court testimony that the company’s owner, Dr. Prem Reddy, urged staff to log common medical conditions as more serious ailments – opening the door to higher Medicare payments that flow to one of the state’s largest hospital chains. 

Often, the extra payment “wasn’t earned and wasn’t deserved,” said Chuck Phelps, a top coding official who resigned in 2007 over concerns about the chain’s billing practices.

Prime officials have denied wrongdoing. They said they are “not going to dispute the numbers” and would not respond to allegations from former employees, whom the company labeled as disgruntled.

“Doctors diagnose, not administrators,” said company spokesman Edward Barrera.

State and federal officials have begun paying attention to the 14-hospital chain amid a growing national outcry about soaring medical costs and billing fraud investigations into the taxpayer-funded Medicare program.

California Watch previously reported that the chain had higher rates of treating severe malnutrition and the blood disorder septicemia among Medicare patients compared with other hospitals across the state. The new data indicates that the chain has been billing for three ailments that Reddy singled out in a December 2010 meeting at Alvarado Hospital Medical Center in San Diego.

“I had never heard of anything so blatantly wrong,” said Anneke Doty, who teaches medical coding and has been in the field for 10 years. Doty attended the meeting at Alvarado. She is one of several former Prime coding staff who has quit over disagreements about the company’s billing approaches.

California Watch examined elderly Medicare patient billing data submitted by the state’s hospitals for 2010, focusing on the three medical conditions that Reddy highlighted during the San Diego meeting. The analysis found:

  • Prime recorded malignant hypertension cases – a rapid onset of high blood pressure that can cause the eyes to bleed – at 11 times the statewide average. Hospitals can earn about $3,000 more when reporting the condition.
  • Prime owns six of the seven hospitals in California that reported the highestrates of encephalopathy, a brain injury characterized by swelling, an inability to concentrate and drowsiness. A hospital could earn $7,000 more for treating the condition as a complication of pneumonia.
  • Even though Prime treated 3.6 percent of the state’s Medicare patients, it reported handling 77 percent of the cases of autonomic nerve disorder among that same patient population. Treating the disorder – a potentially deadly condition related to Parkinson’s disease, diabetes and alcoholism – can earn $5,000 more for a hospital if coded the right way.

It’s unclear from the state data how much money Prime hospitals specifically may have earned billing for each ailment.

California Watch found similar patterns for each of these conditions in 2009 data, two years after an updated Medicare payment system took effect. Those rule changes put more emphasis on medical complications that can entitle hospitals to extra funding. But the changes also open the door to potential fraud, according to Anthony LoSasso, a former consultant to Medicare whoteaches health policy at the University of Illinois at Chicago.

“Rogue operators are always going to abuse any system, especially when abuse of this sort is so potentially lucrative,” LoSasso said.

Prime’s business strategy has proven effective for the chain. The Ontario-based company has specialized in turning around struggling hospitals and earned $97 million in profit in 2010, according to state records.

Prime’s business strategy criticized

When a hospital improperly assigns a reimbursement code to medical conditions to boost Medicare funding, it’s called “upcoding.” And it’s illegal. Federal prosecutors reached a $46 million settlement over the practice with Tenet Healthcare Corp. in 2006.

Prime has maintained that it has never upcoded. In past interviews, company officials say they take an aggressive approach toward treating and diagnosing certain conditions.

Dr. Larry Emdur, chief medical officer at Alvarado, said the firm is embracing better documentation of patient illnesses and expects the Prime approach to spread.

“I know all doctors will be doing what we do in a couple of years,” Emdur said.

Brian Cragin/California Watch

Barrera said Prime complies with all state and federal guidelines and relies on hospital chief executives and its vice president of clinical operations to oversee compliance.

“We are an award-winning health care company with hospitals that consistently rank highest in the nation for quality care,” Barrera said. Thomson Reuters, which ranks hospitals, has named several Prime facilities among the 100 best in the nation.

In a statement, the California Medical Association, which represents about 35,000 doctors, said hospitals should not pressure doctors about patient diagnoses.

“Such decisions should be left up to the physicians that have gone through extensive medical training, not to administrators or hospital personnel,” the statement said.

Criticism of Prime’s business strategy emerged publicly during a 2005 trial.

Reddy had sued two former nurse managers over labor issues. The nurses countersued that Reddy fired them because they had questioned his business practices.

During the trial, Reddy testified that it is legitimate to change a billing code if the medical record indicates a doctor failed to describe a serious condition and, with prompting, documents the condition. Such direction is “one way to come out of the red and be able to keep things going,” Reddy testified.

“I try to understand what a doctor might have missed or might have misunderstood,” Reddy testified. “Therefore, I look at it critically and analyze.”

But former Prime billing administrators said Reddy’s methods crossed the line.

Sandy Barber, a former coding supervisor at Desert Valley Hospital in Victorville, testified in the 2005 trial that Reddy slammed his fists on the table during meetings in which she felt “ambushed.” She said Reddy wanted coders to urge doctors to document worsening of chronic conditions as organ failures, which paid more.

She and her staff resisted, explaining coding guidelines that conflicted with his instructions. Reddy replied, “Desert Valley is his hospital … and he didn’t like bureaucracy … and if I did not like his reasoning, I was welcome to go elsewhere,” Barber testified. Barber, who was not one of the staffers who sued Reddy, lost her job at Prime during a round of cutbacks.

Two other former Prime managers also testified during the trial about potentially illegal billing practices. The jury awarded the nurses $880,000, but the case was declared a mistrial. The parties later reached a confidential settlement.

Practices ongoing for nearly a decade

It is not possible to pinpoint how much additional revenue Prime earned when documenting the unusual conditions, because each patient may have numerous diagnoses. But it is clear that conditions reported in outsized rates at Prime hospitals can bring in an additional $3,000 to $7,000, compared with similar but less serious conditions, an analysis of medical codes shows.

To tell this story, California Watch reviewed hundreds of pages of court records in five lawsuits and spoke with numerous former Prime employees, who say the coding practices have been going on for nearly a decade.

Patricia Howell, director of revenue management at Desert Valley Hospital from 2001 to 2005, said in an interview that Reddy wanted to know which doctors refused to document septicemia, a lucrative condition that Prime has reported at a much higher rate than other hospitals.

Howell said Reddy stated that doctors who wouldn’t diagnose the condition would face consequences. “He was blatant about it,” she said.

Howell, who worked in the medical field for 40 years, was a Tenet employee when the Department of Justice came in and locked up medical records during its fraud probe. She then went to work for Prime.

“Under Reddy, it was 10 times worse, 100 times worse,” said Howell, who said she was dismissed during a family medical leave. Howell, who is retired, said she contacted California Watch because she has nothing to lose and said she “immeasurably” regrets advising Reddy on business strategies that he took too far.

At Prime’s Huntington Beach Hospital, Reddy gave a two-hour speech to doctors gathered at a nearby steakhouse shortly after acquiring the Orange County hospital in 2006. As physicians sipped red wine, Reddy told them that chain executives would be reviewing their notes on medical records, recalled Dr. Nancy Way, a Newport Beach surgeon.

If executives didn’t like the diagnoses they saw, according to Way, Reddy said doctors would be presented with medical coding sheets to sign. If executives and physicians didn’t agree, Way recalled Reddy saying, there would be “closed-door meetings.”

“If you don’t participate, you don’t get along with them, they try to find a way to get rid of you,” said Way, who said she stopped seeing patients at the hospital because she disagreed with the new policies.

Another physician who attended the meeting, Dr. William Klein, said in a deposition that Reddy “indicated that things would be coded differently and you would need basically the support of the medical staff and how they documented things.”

In April 2007, Prime’s former corporate medical coding director Phelps sent a resignation letter to colleagues, urging them to continue to do the “right thing” when administrators ask them to change coding.

“I have worked with you all long enough to know that you will not be swayed into adding or re-sequencing diagnoses simply because it increases reimbursement,” Phelps wrote in his five-paragraph letter, obtained by California Watch. “Your dedication to ethical coding is encouraging.”

Phelps said top administrators at Prime went over medical charts to recommend changes that would heighten profits.

He said some doctors refused to add diagnoses. But chain executives pressured doctors to log the conditions, according to Phelps. The billing changes “misconstrued what was going on with the patient,” Phelps said.

Erlinda Aquino, a former nurse at Prime’s Montclair Hospital Medical Center in San Bernardino County,complained in late 2007 to the hospital chief executive that the medical center was committing “Medicare fraud by upcoding the diagnosis on some patients.”

Aquino was fired hours after she submitted the written complaint, according to legal documents. She filed a wrongful termination lawsuit that resulted in a confidential settlement.

Medical coders troubled by meeting

Four days before Christmas last year, Reddy visited his newest acquisition, Alvarado Hospital in San Diego, to meet with doctors, nurses and medical coders. Prime had purchased Alvarado just weeks earlier.

Doty and medical coder Danika Fedeli said Reddy’s tone was stern.

The chain owner described medical conditions that he encouraged doctors to document, according to the two coders. Reddy assured physicians that his advice was legal and could shore up hospital finances.

Doty said she resigned after working about three months for Prime, troubled by pressure from a Prime executive to justify her coding. Fedeli, who had been a coder for four years, lost her job when Prime cut her position.


Monica Lam/California WatchDanika Fedeli was a medical coder at Alvarado Hospital when Prime bought the facility in 2010.

Joseph Ingrande, Doty and Fedeli’s supervisor, said the meeting spurred him to leave. He sent a resignation letter just a few days afterward to hospital executives: “To stay and be part of these practices would give the appearance I approve and validate these procedures,” he wrote. “I cannot with good (conscience) be part of these activities which could potentially put me in legal jeopardy with (Medicare).”

Doty and Fedeli both said they’ve been to hospital-run sessions where doctors are urged to describe ailments clearly and completely. But both were dismayed when they say Reddy encouraged doctors to describe entirely different medical conditions in the place of others.

Both coders said Reddy talked specifically about how to handle patients who had fainted. He told the group that these patients could just as well be described as having a rare condition called autonomic nerve disorder, according to Doty and Fedeli.

While patients with the nerve disorder may faint, according to medical research, they also may have a wide range of other symptoms from trouble swallowing to difficulty going to the bathroom.

“He made the comment that autonomic nerve disorder is such a vague, general description … that no one could ever question (it),” Doty recalled. “I was thinking, ‘This is crazy, how can I get out of here?’ ”

Medicare data shows that other California hospitals see one patient with the rare nerve disorder for every 100 elderly fainting patients. Yet at Prime hospitals, physicians document one nerve disorder patient for every pair of elderly fainting patients, records show.

Overall, Prime reported seeing the nerve disorder 90 times more often than the statewide average. Three Prime hospitals reported that nerve disorder patients outnumbered fainting patients in 2010.

Prime also reported a rising number of cases in recent years, documenting about twice as many nerve disorder cases in 2010 as in 2009, an increase from 174 cases to 358.

Doty and Fedeli said Reddy also directed doctors and coders to document “accelerated hypertension” if they encountered patients with blood pressure above a certain level. Industry-standard software converts the term to malignant hypertension, a rare and dire condition, Fedeli said.

Malignant hypertension is a sudden and intense surge in blood pressure that is considered a medical emergency, according to the National Institutes of Health. Patients who have it may have blurred vision or bleeding from part of the eye.

At hospitals not owned by Prime, about 2.6 percent of California hypertension patients have the condition. That rate aligns with National Institutes of Health research showing that about 1 percent of hypertension patients have malignant hypertension.

Prime hospitals reported that 19 percent of their hypertension patients had the malignant form in 2010. At one of its facilities, Desert Valley Hospital, the rate was 38 percent, Medicare data show.

Doty and Fedeli also recalled that during the December meeting at Alvarado, Reddy reviewed stacks of medical records for patients he had not treated.

Doty said Reddy informed a doctor that he should have documented encephalopathy in the case of a patient who had an altered level of consciousness.

Hospitals in California owned by other operators reported in 2010 that about 3.6 percent of Medicare patients had encephalopathy, a term for a permanent brain injury that can have many causes. Prime hospitals, in contrast, reported encephalopathy in 18 percent of patients – five times the statewide rate.

Last year, Prime’s Encino Hospital Medical Center reported that 36 percent of its Medicare patients had the condition – 10 times the rate seen at other hospitals.

“In my opinion, the biggest problem was Dr. Reddy was coaching these doctors,” Fedeli said.

Monica Lam/California Watch
Dr. Geoffrey Sheean is a neurologist who teaches at UC San Diego’s medical school. He says he has diagnosed few patients with a nerve disorder reported in outsized rates by Prime hospitals.

Dr. Geoffrey Sheean, who specializes in neurologyand sees patients at UC San Diego Medical Center, said he has only diagnosed the rare nerve disorder among inpatients twice in 13 years.

He said that an inaccurate diagnosis could mislead future doctors who treat that patient – and can lead to unnecessary tests, additional costs and a delay of appropriate care.

“It does have real patient care consequences, and that’s the more disturbing part to me,” Sheean said.

Prime faces investigations

Kaiser Permanente, which has 6.8 million California members, has accused Prime of fraudulent billingpractices, including “illegal upcoding,” in a 2010 lawsuit pending in Los Angeles County Superior Court.

“The frequency and severity at which these hospitals submit upcoded (bills) once Prime acquires them can only be explained by a directed pattern and practice to deliberately overcharge by false billing,” Kaiser alleges in court documents.

Prime has denied the allegations in the Kaiser lawsuit.

Lawmakers have called for investigations into possible upcoding by Prime. The Service Employees International Union first made the allegations last year after analyzing the chain’s billing practices.

Dr. Ron Chapman, director of the state Department of Public Health, whose staff reviewed 120 septicemia cases at Prime hospitals, wrote that “the documentation in the medical records reviewed often failed to substantiate the diagnoses being utilized,” according to a letter to Sen. Ed Hernandez, D-West Covina, chairman of the Senate Health Committee.

Chapman’s office ultimately cleared Prime of shortcomings related to the completeness and accuracy of the company’s medical recordkeeping. The department, however, forwarded its findings to state auditors and the federal Department of Health and Human Services’ Office of Inspector General for further investigation of Prime’s billing practices.

The public health department also reviewed cases of malnutrition at Prime hospitals, including kwashiorkor, the condition most often associated with protein-deprived children in developing nations. That review found that some patients diagnosed with severe malnutrition were not given nutritional evaluations or treatments.

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