Facing Accusations in California, Hospital Company Looks to Texas

A California hospital company facing allegations it inflated disease diagnoses to bill Medicare for more expensive conditions — including a form of Third World malnutrition rarely found in the U.S. — is edging into Texas.

Despite more than a year of bad press and an apparent FBI inquiry, Prime Healthcare Services, which owns and operates more than a dozen hospitals, most of them in California, acquired ownership of South Texas’ 112-bed Harlingen Medical Center in December, then bought Pampa Regional Medical Center, a 115-bed hospital in the Panhandle, this month. Prime spokesman Edward Barrera said in a statement that the allegations — which he called a labor union’s fictitious smear campaign against the company — have prompted the company to “look outside the state for expansion.”

But health care watchdogs say that Texas should be wary and that Prime has a reputation for acquiring hospitals that are in financial distress and in communities where they’re unlikely to get intense scrutiny.

“They’re profiteering,” said Adam Weisberg, research coordinator with the Service Employees International Union - United Healthcare Workers West (SEIU-UHW), which is involved in a labor dispute with Prime over pay and staffing. “They look for opportunities where they can catch people in the emergency room and focus on obtaining as much reimbursement as possible from Medicare and from private payers.”

In an award-winning project last year, the investigative news site California Watch analyzed more than 50 million Medicare records and found thousands of cases in which Prime billed for highly unusual — and costly — conditions. In a recent two-year period, for example, a California hospital owned by Prime billed Medicare for more than 1,000 cases of kwashiorkor, a rare form of malnutrition most common among starving children in Africa. The rate was more than 70 times the statewide average, and spiked right after Prime acquired the hospital. Former medical coders for Prime hospitals told California Watch they were pressured to write up patients for the disease if they presented with routine malnutrition.

In 2008 and 2009, research by the SEIU-UHW revealed some of the nation’s highest rates of septicemia, a bloodstream infection, and prompted an investigation by the California Department of Public Health.

“With some of these conditions,” the SEIU-UHW's Weisberg said, “it’s clearly impossible that these were legitimate bills.”

The billing practices have reportedly drawn scrutiny from FBI investigators — at least two hospital coders confirmed being questioned by them — and from California authorities, as well as members of the state’s congressional delegation. Prime’s president and CEO resigned the day before a state legislative hearing on the company’s Medicare reimbursement, though company officials indicated the departure was unrelated. 

Prime says that any allegations of “upcoding” are pure fiction and that the SEIU-UHW is using its “political allies” in California’s Democratic majority to try to destroy the company’s reputation in the state. Barrera said Prime wouldn’t be surprised if there’s a federal or state investigation because of all the media attention, but he added that the company is certain it will be vindicated.

“The facts will demonstrate that Prime Healthcare hospitals are committed to following all applicable state and federal laws and regulations,” he said.

Barrera said a big motivator for the company’s move into the Texas market — and into hospitals in Harlingen and Pampa — is the prospect of operating in a “right to work state.”

“Prime Healthcare has decided that the current environment in California is not business-friendly,” he said.

State Rep. Eddie Lucio III, D-Harlingen, whose daughter was born at the Harlingen Medical Center under its previous ownership, said he hadn’t heard much about the new owner, but would pay closer attention now.

“Obviously when that type of information comes to light, it makes us want to take a closer look at what’s happening,” he said. “Sometimes organizations as a whole are good, but there are bad actors in place.”