Prime issues a misleading defense of its actions in hospital merger deal

Prime issues a misleading defense of its actions in hospital merger deal
Prime Healthcare CEO Dr. Prem Reddy at a January hearing on its proposal to buy the Daughters of Charity healthcare system. (Robert Gauthier / Los Angeles Times)

Prime Healthcare, the exceptionally aggressive hospital chain that recently backed out of a deal to buy six California medical facilities, is unhappy with my coverage of the affair.

In a letter published Sunday by The Times, the Ontario, Ca.-based chain says my recent column about the deal "misrepresents Prime Healthcare's intentions in the failed Daughters of Charity deal, painting a misleading portrait of the company's history."


Much of what Prime says here is misleading--and the real story may be in what it doesn't say.

Some background: On March 10, Prime withdrew from the $843-million deal to buy the six struggling institutions owned by the Catholic Daughters of Charity, complaining that conditions imposed by state Atty. Gen. Kamala D. Harris "forced" it to rescind its offer. Harris had mandated that Prime continue services provided by the institutions, which include St. Francis and St. Vincent medical centers in Southern California, for up to 10 years.

My column suggested that Prime's actions showed it may never have intended to live up to its promises on maintaining hospital services. I quoted directly from its merger agreement to show that some of its promises were shot through with loopholes.

What does Prime say to that? In his letter to The Times, Prime President Mike Sarian tries to contradict my column by asserting that "Prime Healthcare has never closed a hospital, nor has it ever shut down clinical operations at any of its 34 facilities nationwide." This is a classic bit of straw-man misdirection, since nowhere does the column say that Prime has ever closed a hospital or "shut down clinical operations."

Sarian's claim about clinical operations, however, deserves a closer look. It's carefully worded, as we can tell by revisiting the saga of the Grossman Burn Center, which had been a glittering jewel of Sherman Oaks Hospital for nearly four decades when Prime took over that hospital in 2006. Less than four years later, the burn center was on its way out, despite Prime's commitment to keep it open for at least five years.

In a 2009 letter to state officials, Prime portrayed this development as a voluntary decision by the center's co-directors, Drs. Richard and Peter Grossman, to move the clinic to West Hills Hospital and Medical Center. Prime said it had had "every intention" of fulfilling its pledge to keep the center in operations, citing its "commitment of financial resources to the Burn Center including monies spent to remodel the Burn Center in the past two (2) years."

Here's what Prime didn't say. As my colleague Tiffany Hsu reported at the time, the center's move was prompted by the Grossmans' "frustration" with the new management at Sherman Oaks. When it took over, Prime canceled insurance contracts held by the hospital; this was its business model, and allowed it to collect higher reimbursements from companies covering its patients.

In the words of Hsu's article: Burn Center founder A. Richard Grossman "said that staffing at the burn center dwindled down to a skeleton crew after the acquisition. Without insurance, many burn patients couldn't afford treatment, he said."

What about Prime's assertion about the financial resources it provided to the burn center, including a remodeling? Here's Grossman: "We got some paint jobs, and that's about it."

If you read between the lines, you just might conclude that Prime didn't order the Grossman Burn Center shut, but rather starved the center until it had no choice but to leave if it was to operate adequately. So Prime can still claim it "never shut down" a clinical operation.

What lends this saga a touch of cynicism is that right up until the point the Grossmans decamped, Prime cited the burn center as an example of its proud commitment to delivering top-flight healthcare. In an interview with a local newspaper soon after acquiring Shasta Regional Medical Center in Redding, Prime founder Prem Reddy said:

"We own and operate Sherman Oaks Hospital, which is the home of Grossman Burn Center, which treats patients from all across the world. We treated patients from Iraq and Afghanistan. There were these young kids (who) were burned because of war-related injuries....You might have heard the stories on 60 Minutes and CNN."

Atty. Gen. Harris chose to look beneath Prime's boasts about the quality of its services and examined the reality of canceled insurance contracts and fewer services. She removed the loopholes from the merger agreement and demanded that Prime live up to its commitments in deed as well as word. And Prime bailed. What's "misleading" about that?

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