DOJ complaint levels new allegations against Prime Healthcare

Closeup of DOJ building

Less than a month after joining a whistleblower lawsuit against Prime Healthcare, the Justice Department has filed a revealing complaint that alleges the organization’s management was intimately involved in driving up admission rates among Medicare beneficiaries, regardless of medical necessity.

Under the direction of President and CEO Prem Reddy, M.D., Prime Healthcare—including 14 hospitals under the system’s ownership—deliberately targeted Medicare beneficiaries for hospital admissions “without regard to medical need,” the DOJ claims. Reddy allegedly urged physicians to factor in each patient’s insurance coverage when deciding whether to admit, and took steps to eliminate observation status for patients with Medicare coverage—even going so far as to remove "observation status" from admission forms.

The California-based system is also accused of instructing hospitals to set arbitrary inpatient admission quotas at 20-30 percent, and the DOJ says Reddy personally reprimanded emergency department physicians who fell below those quotas or missed opportunities to admit Medicare beneficiaries, even for minor health issues like colds, back pain, ear infections and urinary tract infections. Furthermore, Prime management altered industry guidelines for hospital admissions to reflect a more lenient standard, and passed them off to employees as unchanged, the complaint says.

Pressure to boost admissions often trickled down to middle management. In one email cited by the complaint, the ED director at Encino Hospital urged physicians to improve admission rates from 15 percent: “While my review of the daily ED logs indicate that we’re clearly doing the right things for our patients, please understand that this is going to stand out to our administration,” he wrote. “Please keep in mind the Prime mindset. Push admissions as necessary and have a low threshold for admission for any insured patient (even Medi-Cal).”

Although the DOJ did not include a specific dollar amount, the complaint stated the hospitals within the system “received millions of dollars in inflated reimbursements for medically unnecessary inpatient admissions.”

The FBI began investigating Prime Healthcare in 2011, shortly after a former risk manager at Prime-operated Alvarado Hospital in San Diego filed a whistleblower lawsuit against the organization. Prime president and CEO Lex Reddy—Prem Reddy’s brother-in-law—abruptly resigned in 2012.

For more:
- read the DOJ’s complaint

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