Prime Healthcare photo

Monica Lam/The Center for Investigative Reporting

A controversial California-based hospital chain might be receiving five-star health care ratings because it exaggerates how ill its patients really are, two state lawmakers say.

In a toughly worded letter, the lawmakers, who head the Legislature’s health policy committees, said Ontario-based Prime Healthcare Services doesn’t deserve the glowing evaluation it has received in recent years from the authoritative Truven Health Analytics service.

Prime has acknowledged that the U.S. Justice Department is investigating the 23-hospital chain’s Medicare billings, state Sen. Ed Hernandez and Assemblyman Richard Pan wrote in their Aug. 29 letter to the rating service.

They also noted that in June, Prime paid $275,000 to settle allegations that it had breached federal patient privacy laws.

A series of stories by The Center for Investigative Reporting’s California Watch project detailed how Prime in recent years billed Medicare for treating what the lawmakers called “implausibly high rates” of unusual medical conditions.

Despite all that, Truven has rated Prime as one of the top 15 health systems in the United States three times in the past five years. This year, eight of Prime’s 23 hospitals made Truven’s list of the top 100 hospitals in the country – more than any other California chain.

The rating service’s praise for Prime “is so at odds with the company’s reputation and record in California as to strain Truven’s own credibility,” wrote Hernandez, of West Covina, who is chairman of the Senate Health Committee, and Pan, of Sacramento, chairman of the Assembly Health Committee. Both are Democrats.

They urged Truven to recompute Prime’s ratings, lest they reflect poorly on the rating service itself.

In a Sept. 17 response to the legislators, Michael Boswood, CEO of Michigan-based Truven, defended Prime’s ratings, saying they were based on a “comprehensive, stringent and time-tested” analysis. Asked for comment, a Prime spokesman wrote in an email that Truven’s ratings are based on Medicare data collected by the government.

The correspondence highlights what the lawmakers contend are flaws underlying Truven’s ratings, which the company says are relied upon by consumers and health care professionals.

Prime is a fast-growing company that operates hospitals in five states. According to a CIR analysis, Prime hospitals have reported that many Medicare patients were afflicted with unusual medical conditions, including acute heart failure, septicemia and kwashiorkor, a form of malnutrition usually found in children during famines in Africa. Billing for those conditions qualified Prime for bonus payments from Medicare worth millions of dollars, federal records show.

In testimony before a 2012 legislative committee hearing, some former Prime employees contended that Dr. Prem Reddy, the chain’s founder, had urged his staff to pad or “upcode” Medicare billings with exaggerated diagnoses to collect bonus payments.

Prime says its billings are accurate. It claims that the upcoding allegations were orchestrated by the Service Employees International Union to leverage the settlement of a Southern California labor dispute. In an email, Prime spokesman Fred Ortega accused CIR of being a “surrogate” for the union.

But in January, in an application to buy a Rhode Island hospital, Prime disclosed that the U.S. Justice Department was investigating its Medicare billings. The company said it expected to be exonerated.

The California lawmakers complained in their letter that Truven ignored the issue of questionable billings in rating Prime as a top-tier institution where patients have higher survival rates, better long-term outcomes and fewer medical complications.

Truven doesn’t appear to screen the Medicare data on which the ratings are based to ensure it is accurate, the lawmakers wrote. As a result, a hospital that “systematically exaggerates patient diagnoses” would get unjustifiably higher ratings, they claimed.

For example, the lawmakers note that according to Truven’s metrics, hospitals that cure patients with severe illnesses get higher ratings. They also get a ratings boost if patients have shorter-than-average hospital stays and no complications afterward.

But, as the lawmakers write, “if patients are not as sick as reported to Medicare,” Truven would incorrectly conclude that they were making quick, successful recoveries from severe ailments.

That appears to be what is going on with Prime, Hernandez said in an email.

“Unfortunately, it appears that Prime Healthcare is being recognized and rewarded for, in essence, treating manufactured conditions,” he wrote.

In his response, Truven CEO Boswood said he was aware of the allegations about Prime, but it would be premature to rescind the chain’s high ratings.

Only a government investigation can prove fraudulent billing practices, he said. In the absence of “an admission of guilt, sanctions and conviction of wrongdoing,” Prime’s ratings will stand, he wrote.

In their letter, the lawmakers also complained that Truven should have downgraded Prime for a breach of patient privacy laws at Prime’s Shasta Regional Medical Center in Redding in 2011. Truven didn’t respond to that issue in its letter.

In an effort to rebut a CIR story about Prime’s kwashiorkor billings, a hospital executive emailed a patient’s medical records to hundreds of people without permission, state investigators found. Prime was fined $95,000 for violating state law. In June, Prime paid $275,000 to settle a federal probe into the same incident. The company denies wrongdoing.

Shasta Regional is among the Prime hospitals that made Truven’s top 100 list in 2013.

This story was edited by Amy Pyle and copy edited by Nikki Frick and Christine Lee.

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Lance Williams is a former senior reporter for Reveal, focusing on money and politics. He has twice won journalism’s George Polk Award – for medical reporting while at The Center for Investigative Reporting, and for coverage of the BALCO sports steroid scandal while at the San Francisco Chronicle. With partner Mark Fainaru-Wada, Williams wrote the national bestseller “Game of Shadows: Barry Bonds, BALCO, and the Steroids Scandal that Rocked Professional Sports.” In 2006, the reporting duo was held in contempt of court and threatened with 18 months in federal prison for refusing to testify about their confidential sources on the BALCO investigation. The subpoenas were later withdrawn. Williams’ reporting also has been honored with the White House Correspondents’ Association’s Edgar A. Poe Award; the Gerald Loeb Award for financial reporting; and the Scripps Howard Foundation’s Award for Distinguished Service to the First Amendment. He graduated from Brown University and UC Berkeley. He also worked at the San Francisco Examiner, the Oakland Tribune and the Daily Review in Hayward, California.