Prime Healthcare drops bid for N.J. Christ Hospital

February 12, 2012 - California Watch

Prime Healthcare Services pulled its bid to buy a New Jersey hospital last week, saying it was deferring to the wishes of local elected officials who wanted to see the hospital remain a locally operated nonprofit.

The proposed deal met strong resistance from a health workers union and a community group that aired concerns over Prime’s business model.

Prime leaders and Christ Hospital attorneys also faced tough questions from health regulators and the New Jersey attorney general’s office, including queries about billing practices based on findings of a yearlong investigation by California Watch. The nonprofit investigative news operation has identified a pattern at Prime Healthcare of billing Medicare for treatment of rare conditions among its elderly patients – conditions that enable the chain to reap lucrative bonus payments.

“They were getting hit from all sides,” said Jeanne Otersen, public policy director for Health Professionals and Allied Employees, a union that represents 400 nurses at Christ Hospital.

Prime spokesman Edward Barrera said in an e-mail that the chain already had shared a great deal of information with state health regulators and “was in the process of finalizing its responses.”

“The queries played no role in Prime Healthcare’s decision to withdraw,” according to Barrera.

In a statement, Prime Healthcare chief executive Lex Reddy, who is chain founder Prem Reddy’s brother-in-law, said Prime had hoped to “play a key role in stabilizing the financial future of healthcare in Hudson County by acquiring Christ Hospital and investing tens of millions of dollars to upgrade its services, provide much-needed charity care and keep jobs in Jersey City.”

“It is unfortunate things did not work out the way we had hoped,” he said.

Christ Hospital chief executive Peter Kelly also said in a statement that he regrets that a partnership with Prime will not move forward. The hospital received another offer from a local hospital group.

Prime Healthcare leaders said they spent months in New Jersey, investing in an effort to keep the hospital financially solvent.

Prime was opposed by a coalition of business and neighborhood associations. Paul Bellan-Boyer, a leader of the group, said community members banded together and concluded that the $15.7 million offer by Prime, with a promise to invest $35 million in upgrades, didn’t “withstand any reasonable scrutiny.” Another group offered $104 million for the hospital in January.

Otersen, of the nurses union, said Christ Hospital nurses had read California Watch reports about Prime Healthcare billing and patient admission practices with concern and brought them to the attention of state authorities. “It was hard, real research,” she said. “It was so important.”

The New Jersey Department of Health and Senior Services, which plays a role in granting hospital licenses, inquired about high rates of acute heart failure at one Prime hospital. California Watch reported that Chino Valley Medical Center billed Medicare for six times more cases of the condition than other state hospitals.

The New Jersey attorney general’s office also sent inquiries to the Christ Hospital counsel as part of its hospital-vetting process, asking why hospital trustees didn’t conduct independent investigations into reports about “high incidence of certain rare diseases” or “over billing.”

California Watch has reported that Prime hospitals billed for outsized rates of some medical conditions that also draw enhanced Medicare payments. Those ailments include kwashiorkor, a form of malnutrition usually associated with starving children, and autonomic nerve disorder, a condition seen in Prime hospitals nearly 90 times more often than the statewide average.

Three California members of Congress have asked the U.S. Department of Health and Human Services' inspector general to investigate Prime’s billing practices. FBI agents have interviewed a former Prime hospital patient and contacted two former Prime employees as part of a federal inquiry into billing methods at the hospital chain.

Prime has maintained that its billings are appropriate and that it relies on physicians to diagnose patients. It also called California Watch’s analysis of acute heart failure cases “faulty, unfair and biased.”

Prime's Barrera noted that Thomson Reuters, a business data firm, recently ranked Prime Healthcare one of the top 15 health systems in the nation, compared with 321 other organizations. The report examined hospital outcomes for three medical conditions: pneumonia, heart attacks and acute heart failure.

The Thomson Reuters report, based in part on Medicare billing data, concluded that Prime hospitals had the nation’s lowest 30-day mortality rate for acute heart failure patients, at 9 percent. That means that compared with the number of patients diagnosed with the condition, the number who died within 30 days was exceptionally low.

In November, Dr. Steven Shayani, president of the New York Heart Research Foundation, told California Watch that he was skeptical about the high rate of acute heart failure among Medicare patients at Chino Valley Medical Center.

The San Bernardino County hospital reported that 35.2 percent of its Medicare patients had acute heart failure, a breakdown in the body’s ability to circulate blood. That’s far higher than 4.8 percent, the rate at California hospitals not owned by Prime, according to an analysis of billing data from 2008 to 2010.

In an interview, Shayani said that while acute heart failure is prevalent among the elderly, there was “no way of explaining” the hospital’s high rate. He also noted that an inflated acute heart failure rate could boost a hospital’s quality ratings.

“If you put heart failure as the diagnosis and the patient survives, that’s how you would statistically lower your mortality rate,” he said. “And so your ratings are better.”

The Thomson Reuters awards also reflect hospital performance in achieving low complication rates, high patient safety ratings and optimal patient lengths of stay.

Prime has been involved in other unsuccessful attempts to buy hospitals in recent years. In September, California Attorney General Kamala Harris denied a bid by the chain's nonprofit arm to buy Victor Valley Community Hospital over concerns about patient access to care.

During an August hearing over the proposed Victor Valley sale, John Petty, who spoke on behalf of another would-be buyer, submitted several California Watch articles to the attorney general’s office.

“We all have, you know, dogs in this fight,” he said. But independent investigative journalists “have … developed a series of articles that, I think, are fairly irrefutable,” he said.

It was the second hospital sale that a California attorney general denied. Gov. Jerry Brown, the state’s previous attorney general, also blocked the chain’s bid to purchase an Orange County hospital after a contentious public hearing in 2007.

Prime signaled its interest in buying two bankrupt hospitals in Hawaii but backed out of the deal in December. The chain bought a share of a Texas hospital in December.