Dr. Prem Reddy has frequently been criticized over his tough management, cost-cutting and reduced medical services at Prime Healthcare Services Inc., his fast-growing Ontario-based hospital chain.
But this week the company owner and chief executive found himself at the center of a very different type of controversy — a sex scandal that quietly led to sweeping management changes at an Encino hospital and a $1-million wrongful-termination verdict.
A Los Angeles jury awarded the money Wednesday to the former chief nursing officer of Encino Hospital Medical Center after concluding that she was laid off in 2012 because she had complained about an affair between the hospital's chief medical officer and a female supervisor.
Prime Healthcare maintains nursing officer Vilma Dinham was let go because of poor performance and said it intends to appeal.
However, testimony during the Los Angeles County Superior Court trial in Van Nuys presents a less than flattering picture of operations at the hospital, which Prime acquired from Tenet Healthcare Corp. in 2008.
The controversy began in 2011, when Dinham complained that the hospital's director of respiratory services, Hershee Cajigal, had boasted to co-workers that she was having an affair with Dr. Muhammad Anwar, the chief medical officer. She told them she had the power to get them fired, according to the lawsuit Dinham filed in 2013.
Dinham said she complained to Anwar about Cajigal's comments but they did not stop. So she and other nurses took their concerns to the hospital's chief executive, Robert C. "Bob" Bills.
According to a transcript of Bills' testimony reviewed by The Times, Bills said that he cautioned Cajigal about the inappropriate comments and what he said was her unprofessional work attire, which included low-cut tops, short skirts and 6- to 8-inch heels.
"It was totally inappropriate," Bills said during the two-week jury trial.
Bills said Anwar scolded him for confronting Cajigal.
"He said, 'Why would you ever do that? You should have talked with me first,'" Bills said.
In a hospital, the chief executive and chief medical officer oversee different functions and typically are at parallel levels of management.
Bills said Anwar also repeatedly advised him to fire Dinham, which he refused to do.
"The exact quotes on a number of occasions were, 'If you don't get rid of her, they are going to get rid of you," Bills said.
The chief executive described Dinham as "without question ... the best chief nursing officer I've ever worked with in my career."
Bills said he made the decision to keep Dinham even though Anwar boasted about having a "very close" personal relationship with Reddy, the company's owner.
Anwar said "he and his girlfriend would go out with Dr. Reddy and I guess the best way to put it would be womanizing that would be going on," Bills recalled.
Anwar, in his testimony, denied making those statements.
Reddy, through a spokeswoman, also denied allegations he was close to Anwar.
"Dr. Reddy had a professional relationship with Dr. Anwar in his role as chief medical officer and physician and nothing more," said Elizabeth Nikels, a spokeswoman for Prime Healthcare. "Any implication otherwise is false."
Bills said he eventually notified Reddy and other Prime Healthcare executives of the situation, suggesting that both Anwar and Cajigal needed to be counseled about their conduct.
But instead of disciplining Cajigal, Bills said, Prime Healthcare promoted her to corporate director of respiratory services at all of its hospitals, a position she holds today at the company's corporate offices in Ontario.
"They didn't want to discipline her, so they moved her out of the way," said Marvin Krakow, Dinham's attorney.
Cajigal, 37, a resident of Woodland Hills, did not respond to requests for comment left at the Ontario office, her Twitter account and with a family member.
Anwar, 56, left his position as chief medical officer at the Encino hospital in June 2012, and now has privileges to practice pulmonary medicine at several hospitals, both inside and outside of Prime Healthcare's network. He did not respond to a request for comment from The Times.
Shortly after moving Cajigal to the corporate job, Prime Healthcare fired Bills in the summer of 2012. Bills, who did not sue Prime Healthcare, testified that he collected his full salary for about six months after leaving the job.
In September 2012, the company terminated Dinham during a round of layoffs.
"This was a case of out-and-out retaliation for reporting sexual harassment," Krakow said. "I think it's pretty outrageous."
The hospital's new chief executive is Bockhi Park. Its chief medical officer is Reddy's son-in-law, Dr. Sunny Bhatia.
Dinham, 72, who had worked at the hospital since 2007, earned about $175,000 in salary, bonuses and benefits annually. The jury, which reached its verdict in less than one full day of deliberations, based the award on Dinham's lost earnings and past emotional distress.
Nikels said the company's decisions to terminate Bills and Dinham were related to performance, nothing more.
"This case was not about sexual harassment, but rather about an ineffective, negligent and poorly performing CNO and a disgruntled CEO that was terminated for poor performance," she said in a statement.
"Since these two leaders have left their positions, Encino hospital has made significant improvement in service and quality.… Staff morale is improved and financial performance has improved," her statement added.
State records do not reflect an improvement in the hospital's bottom line. It lost $2.4 million in 2012, the year the employees were fired, then lost $3.1 million in 2013 and $4 million last year, according to filings with the California Office of Statewide Health Planning and Development.
However, Nikels said the hospital's operating revenues improved and the losses were related to an increase of management fees "that are not part of the hospital's operations." The hospital is expected to turn a profit this year, she said.
Prime Healthcare is one of the largest hospital companies in the country, with 38 hospitals in 11 states.
Earlier this year, the company withdrew its $843-million offer to buy the struggling Daughters of Charity hospital network, which includes two hospitals in Los Angeles County. The company made that decision after California Atty. Gen. Kamala Harris placed several strict conditions on the proposed purchase.
Harris said she would approve the sale only if Prime Healthcare would keep all of the hospitals open for 10 years and provide the same level of charity care to poor patients as Daughters of Charity had. The six hospitals include St. Vincent and St. Francis medical centers in Los Angeles County.
In September, Prime Healthcare sued Harris, alleging that she was not impartial in her review of the sale. The company accused her of siding with a politically influential labor union, the SEIU-United Healthcare Workers West, which opposed the sale.