For the second time in the last three months, Dr. Prem Reddy and his signature enterprise, Prime Healthcare Services, find themselves militating to overcome the interference of a substantial law enforcement authority in the effort to maintain and expand Prime Healthcare as one of the largest health care providers in the state of California.
In the most recent case, the FBI has reportedly interested itself in Prime Healthcare’s billing practices with regard to services rendered to elderly patients. The FBI investigation follows an unsuccessful effort by the California Attorney General’s Office to block Prime Healthcare’s arrangement with Victor Valley Community Hospital to take on a managerial and operational role at that struggling hospital.
According to three well-placed sources, the FBI is interviewing current and former Prime Healthcare employees with regard to billing practices at Prime Healthcare Services.
Prime Healthcare, which was founded by Reddy in 1985, is today the largest operator of medical facilities in Southern California and it owns 14 hospitals in California and one hospital in Texas.
In 2010, Victor Valley Community Hospital, which was staggering under more than $20 million in debt,  filed for Chapter 11 bankruptcy protection and the 101-bed hospital was put on the auction block. KPC Global Care outbid Prime Healthcare, tendering a $37 million offer in November 2010 that was $2 million above Reddy’s offer. But after KPC obtained the state attorney general’s approval for the takeover, it failed to finalize the acquisition and that deal fell apart. Subsequently, a federal bankruptcy court judge approved an agreement allowing the  non-profit arm of Reddy’s for-profit venture, known as Prime Healthcare Service Foundation, to purchase the hospital for $35 million.
On September 20, however, the state attorney general’s office intervened, blocking Reddy from absorbing Victor Valley Community into his portfolio. A major consideration was that Victor Valley Community was founded and set up as a non-profit institution.  The attorney general’s office had moved to ensure that the High Desert preserve at least one non-profit hospital in an area with a multiplicity of for-profit medical centers, including one already owned by Reddy, Desert Valley Hospital.
“We have concluded that this proposed sale is not in the public interest and will likely create a significant effect on the availability or accessibility of health care services to the affected community,” acting chief deputy attorney general Michael Troncoso said at that time.
Nevertheless, with Victor Valley Community teetering on the brink of financial collapse, Reddy on October 14, 2011 proffered capital in the form of loans and a consulting arrangement to prevent the hospital from having to close its doors. That assistance was codified in the form of what was called a “post-petition revolving credit and security agreement between Victor Valley community Hospital as borrower and Prime Healthcare Management, Inc. as lender.
The California Attorney General’s office redoubled its effort to prevent that agreement from being actuated and filed on October 28 for and on October 31 was tentatively denied a temporary restraining order to prevent the hospital from entering into a financing plan and consulting arrangement with Prime Healthcare. Last month,  Superior Court Judge Steve Malone again denied the state attorney general office’s  effort to block  the $6 million financing and consulting agreement.
Simultaneously, on a separate track, another effort involving investigative and prosecutorial agencies, in this case federal ones, was launched.
The Sentinel has learned that the FBI, at the direction of the U.S. Attorney’s Office, is looking into reports that Prime Healthcare facilities consistently billed Medicare for treating elderly patients with specific medical issues more than several other hospitals.
One unconfirmed report was that the complaint mirrored previous accusations leveled at Prime Healthcare with regard to Medi-Cal and Medicare billing irregularities that were investigated by the state. That probe was closed out with no action when investigators failed to turn up sufficient evidence to warrant a prosecution or further action. According to that report, the referral to the U.S. Attorney’s Office originated with the California Attorney General’s Office.
The FBI is the investigative arm of the U.S. Attorney’s Office and has a policy of neither confirming nor denying ongoing investigations.
Paralleling the FBI investigation were two reports published in October and this week by California Watch, which is put out by the Center For Investigative Reporting.
The latest report, published on December 13 and authored by Lance Williams, Stephen K. Doig and Christina Jewett, delineated information contained within patient admission records and other data that shows Prime Healthcare facilities have a pattern of billing for rare and serious medical conditions that typically generate bonus payments to hospitals. According to the article, the percentage of elderly admitted patients diagnosed at Chino Valley Medical Center – a Prime Healthcare facility – as suffering from acute heart failure stands at  33.7, which, the authors state, is “the highest in California and five times the state rate.”
In focusing on Prime  Healthcare’s Chino Valley Medical Center, the article asserts, “The hospital appears to have taken advantage of Medicare rule changes that authorized bonus payments for treating patients with major complications.”
A sidebar article authored by Jewett quotes two former Prime Healthcare billing office employees, Anneke Doty and Danika Fedeli, who both confirmed that the FBI is looking into the system’s billing practices. Doty and Fedeli told Jewett that at a December 2010 meeting at another Prime Healthcare facility, Alvarado Hospital Medical Center in San Diego, Reddy told attendees there that doctors and hospital officials should “document rare medical conditions that entitle hospitals to more taxpayer dollars than common maladies.”
Medicare payment formula remunerates doctors and medical facilities with more substantial payments for treating more serious conditions. .
Fraudulently inflating Medicare billings by misrepresenting the gravity of a patient’s medical condition, known as “upcoding” in the medical business, is prohibited under federal statute. Prime Healthcare maintains it does not engage in upcoding and that diagnosing patient conditions is carried out by medical doctors and is not a function of the billing department.