A doctor's health care company cancels insurance contracts and becomes rich

Dr. Prem Reddy's company Prime Healthcare Services is a classic example of 'denial management' for profit.

Daniel Costello of the Los Angeles Times:

The buying spree is making his company one of the largest hospital owners in the state, placing it in a position to challenge industry leaders including Kaiser Permanente and Catholic Healthcare West.

"There's a lot of sacrifice in a doctor's life," Reddy said, over the whir of the chopper's blades. "But there are many rewards."

What is more extraordinary is how Reddy is building his empire. Modern healthcare is largely based on the model in which insurers seek to control costs by paying fixed amounts to doctors and hospitals. Reddy is tearing that down.

When Reddy's company, Prime Healthcare Services Inc., takes over a hospital, it typically cancels insurance contracts, allowing the hospital to collect steeply higher reimbursements. It has suspended services — such as chemotherapy treatments, mental health care and birthing centers — that patients need but aren't lucrative.

Critics say Reddy-owned hospitals routinely turn away uninsured patients, an allegation the company denies.

On four occasions since 2002, inspectors have found that Prime Healthcare facilities failed to meet minimum federal safety standards, placing their Medicare funding at risk.

We need to introduce him to Michael Moore...

(Updating the updates: Both the following comments came from the same IP. As Steve Bates says in comments, it looks like a 'sweep' targeting all blogs that pick up this story.)

Update: I had this reply in comments:

I was surprised to read the article "Hospital group rejects system and cashes in" in the July 8, 2007 LA Times and find that there was no mention in the article of Chino Valley Medical Center being in bankruptcy and on the verge of closing before Prime Healthcare Services (PHS) came to its rescue in the US Bankruptcy Court and has subsequently turned it around to be a premier community hospital with upgraded facilities and equipment. Contrary to the statements in the article, Prime Healthcare Services did not cancel managed care contracts at Chino Valley Medical Center but instead those were rejected through the Court by the United States Bankruptcy Judge. It was the poor reimbursement provided by these contracts which caused Chino Valley Medical Center to be in bankruptcy in the first place. Prime Healthcare Services’ demonstrated commitment to keep the emergency departments at its hospitals open with the least amount of closure (saturation/bypass hours) is commendable given the present changes in the patient dynamics of increased uninsured patients, porous borders and increasing number of illegal immigrants in the border states like California. PHS’ commitment to supporting these free community clinics that serve the poor and uninsured is commendable.

Respectfully,

James M. Lally, DO, MMM
President & Chief Medical Officer
Chino Valley Medical Center

Update: And this comment as well:

Mark R. Bell, M.D., F.A.C.E.P. said...

I found this Sunday's cover story on Prime Healthcare Services, “Hospital Group Rejects system and Cashes In,” to be inaccurate, and does not tell the whole story. As an emergency physician working in three emergency departments under Prime Healthcare, I can assure you and the readers that no uninsured patients are turned away. In fact the opposite is true. There is an increase in the number of ED visits and hospital admissions for the uninsured. This is because the emergency department under Prime Healthcare is a significant aspect of their business model, and they work tirelessly to provide us with the staffing and equipment we need in order to see more patients than other local hospitals. The result is that we have become the fastest and busiest departments in our marketplace. Wait times, lab and x-ray turn around times, and door to doctor times, are outstanding. Patients of all payor classes (including the uninsured) come to Prime hospital ED's for their emergency needs because they know they will get the fastest care.

While it is true that some programs have closed at sites that are managed under Prime, such as pediatrics and obstetrics, it has only been when those services were minimally utilized, or already in existence at another Prime Hospital in the area. For example, Prime closed its OB services at Chino Valley Medical Center, but referred all OB patients up to its Montclair hospital 3 miles away. Consolidating was a creative way for the organization to cut costs and still provide access to care in the community.

Much of what Dr. Reddy is doing may be perceived as controversial, but in the end, he is keeping hospitals open that would have otherwise closed had he not taken over operations. He has single handedly saved the jobs of thousands of employees, nurses, and others in Southern California. Where others before him have lost millions in the healthcare industry, he has made millions, and in turn infused vital capital for equipment at each center. He has made it easier for those of us who practice hospital-based medicine to care for patients 24 hours a day. This has a direct and positive impact on patient care.

The California healthcare system is dying a slow death. 60 hospitals have closed in the last 10 years in our state largely because the costs to provide care exceed reimbursement. At the same time companies like Blue Cross have posted record earnings on Wall Street into the billions of dollars. Canceling contracts with health plans such as Blue Cross is not as devilish as may be implied in the cover story. Hospitals do it all the time. What Dr. Reddy is doing is ingenious. First, he forces health plans to renegotiate contract rates at levels that allow hospitals to stay open and earn profit. He has successfully renegotiated several contracts simply by canceling them and “starting over.” Secondly, he is taking dollars away from Wall Street and the private sector, and placing them back into California’s broken system. Dr. Reddy calls himself a maverick, and he’s right. He thinks outside the box. We need new ways of thinking through California’s health crisis in order to remove ourselves from the shattered system BEFORE it collapses.

While I do not agree with everything that Prime Healthcare does operationally, I am encouraged by their results. I feel the same way about Dr. Reddy that I do about Chief Bratton and his success in decreasing crime in Los Angeles, and Governor Schwarzenegger and his success at balancing the budget. All three men are new age thinkers with track records, working in extremely difficult settings. Each man knows great victories and great failures (as Daniel Costello pointed out in the case of Dr. Reddy). What is certain, like them or hate them, they are in the arena fighting for causes that have an effect on Californians, and will certainly not go down in history as having timid souls. I can respect that.

For another viewpoint entirely, another commenter:
Anonymous said...

Reddy is successful because he has henchmen like Mark Bell to do his bidding. Mark Bell is the director for "EMA" a group of ER doctor own by Mark Bell and Irv Edwards. These group of doctors will do anything Reddy says or else they will loose the contracts at his hospitals. Reddy's specific instructions are to admit all insured patients for expensive work ups and up code the diagnosis to fleece medicare and insurers more than full price. Poeple who protest this fraud are fired or buried in lawsuits which usually settles. Reddy is a smart business man, because these doctors are the real ones commiting the frauds, but
Reddy is insulated and protected. He could say, "I've never told them that." Mark Bell sold out his patients and dignity to make a lot of money for Reddy.