Lawmakers probe Prime Healthcare Services’ billing practices


Controversial medical and billing practices by hospital chain Prime Healthcare Services came under scrutiny at a hearing before California lawmakers one day after the company’s chief executive abruptly resigned.

State Sen. Ed Hernandez (D-West Covina), chairman of the Senate health committee, said he called the hearing Friday in Los Angeles after hearing criticism that Prime Healthcare was overbilling for medical care and refusing to transfer stabilized patients to hospitals in their insurance network to drive up revenue.

“I have no problem with hospitals and medical providers making a profit, but not at the expense of taxpayers or consumers,” Hernandez said.


Michael Sarrao, vice president and general counsel at Prime Healthcare, defended the company’s practices and complained that unions negotiating with the Ontario-based company were trying to build political pressure against it.

“We are being unfairly singled out,” Sarrao said outside the hearing. “We are confident our billing is appropriate. This hearing is clearly about politics.”

Prime Healthcare owns 14 hospitals in California, Texas and Pennsylvania as well as a related nonprofit foundation that owns three more California hospitals. SEIU-United Healthcare Workers West, which represents workers at three Prime Healthcare hospitals, is in contract negotiations with the company.

Adam Weisberg, SEIU’s research coordinator, spoke at the hearing about Prime’s excessive medical charges billed to employers and government-run health programs. The hearing also touched on upcoming changes to the reimbursement system for Medi-Cal, the state Medicaid system for the poor and disabled, and how the state is preparing for an influx of millions of newly insured patients from the federal healthcare overhaul in 2014.

On Thursday, the company announced that Lex Reddy, 51, the president and CEO for the last 11 years, had stepped down. Prem Reddy, the company’s chairman and Lex’s brother-in-law, took over as interim CEO, and the company promoted another executive, Luis Leon, to chief operating officer.

Edward Barrera, a spokesman for Prime, said Lex Reddy left for unspecified “personal reasons” and that “he leaves behind a great legacy at Prime.” Reddy helped lead the company from its inception in 2001 and worked on a series of acquisitions of distressed hospitals across California.


In recent years, Prime Healthcare has come under scrutiny for possibly submitting fraudulent bills to Medicare and Medi-Cal. Last year, the state Department of Public Health looked into allegations of “upcoding” patient bills by Prime and referred the issue to officials at Medicare and Medi-Cal for further review.

Prime said that it’s not aware of any federal or state inquiries and that it’s confident the company has complied with all laws and regulations.

Much of the discussion Friday centered on whether Prime Healthcare has run afoul of state rules that require hospitals to transfer out-of-network patients to their preferred medical provider once they have stabilized.

Jonathan Gluck, senior executive and counsel at Heritage Provider Network, cited a 2010 study prepared by his Northridge-based physician group showing that Prime Healthcare hospitalizes its out-of-network emergency room patients at a far higher rate than other hospitals statewide. Gluck said 64% of those patients were admitted for up to two days at Prime hospitals compared with 36% at other out-of-network hospitals.

“If a hospital wants to game the system, they can tell their doctors to write ‘not stable for transfer,’ “Gluck said at the hearing.

Sandy Taylor-Davey told lawmakers a similar story about her family’s difficulty getting doctors at Prime-owned West Anaheim Medical Center to transfer her 70-year-old grandmother, Dorothy Taylor, to an in-network hospital after seeking emergency treatment for an infection. “We felt trapped by that hospital,” Taylor-Davey said.


Sarrao told lawmakers he disagreed with those characterizations, suggesting that Prime is putting profits ahead of patient care. “I think our admission rates are on par with other hospitals,” he told lawmakers. Sarrao said hospital medical records “would tell a different story” in the case of Dorothy Taylor, but he declined to comment further citing patient confidentiality.

Assemblyman Bill Monning (D-Carmel), chairman of the Assembly Health Committee, pressed Sarrao about whether Prime Healthcare had a policy to refuse to accept calls from patients’ regular physicians to avoid transfers.

Sarrao said he was not aware of a company policy on that matter and said decisions on whether an emergency room patient is stable and safe to be transferred are left to the independent treating physician at Prime Healthcare facilities.

After the hearing, Hernandez said he isn’t sure whether the state needs further rules or new legislation to address the problem beyond current state law. “This hearing shed a lot of light on the problem and I’m still examining the issue,” Hernandez said.