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Hospital group rejects system and cashes in

A Southland doctor's company prospers by canceling insurance contracts and, some say, shortchanging patients.

July 08, 2007|Daniel Costello | Times Staff Writer

As he piloted his new, $1.4-million helicopter from his Apple Valley home to Orange County one recent morning, Dr. Prem Reddy enjoyed a cloudless view of his growing empire.

Today, the five-seat Eurocopter EC120 whisks him to Anaheim, where he recently agreed to buy two hospitals. On other days, he sweeps over endless miles of gridlock to his facilities in Sherman Oaks, Huntington Beach and San Diego.

The 58-year-old cardiologist has scooped up six of his eight hospitals in the last two years and could take over as many as six more in the coming months.

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.

Records show that in one two-hour period during 2003, three uninsured patients left the emergency room at Desert Valley Hospital in Victorville after waiting up to four hours without being treated. Two of them were under 2 years old, including a 16-month-old girl who arrived with burns on her left hand.

The same year, Reddy discharged an uninsured patient he was personally treating who was in kidney failure, suggesting that the patient go to a nearby county facility where he could sign up for free care. The patient waited until the following day to visit another emergency room, records show.

State regulators found that the medical staff failed to make sure that discharging the patient "would not create a medical hazard."

In an interview, Reddy said the problems found by regulators in recent years were "insignificant" for a hospital chain of its size and that state data show Prime Healthcare hospitals have increased charity care to the uninsured. He said the company had taken corrective measures.

Reddy confirmed that he discharged the kidney patient, but said he did so after another doctor verified that the patient was stable. He added that the patient could apply for state Medi-Cal insurance at the county hospital more quickly.

More than a dozen current and former medical staffers and administrators interviewed by The Times said they were concerned that the company's business practices were putting patients in jeopardy. Many declined to talk on the record for fear of losing their job or being sued.

Experts say Prime Healthcare's unusual business model reduces patient access to services, significantly raises costs and, as the company grows, could destabilize California's healthcare system.

"Once you really take a look at what he's doing, it's hard to say the community benefits under his system," said Stan Otake, an Orange County healthcare consultant and former chief executive of Bellflower Medical Center.

Some describe Reddy as a bully who often clashes with his own medical staff. Two former associates, including a doctor, obtained restraining orders against him in 1999 for allegedly attacking the doctor and harassing an employee at the same facility. Reddy denied the allegations.

"I am a healer, a challenger; I am a maverick," he said in a series of interviews with The Times. "There isn't anybody like Prem Reddy that can face so many challenges in the medical field."

Reddy said his company's approach allowed it to be more efficient than its rivals, and he remained unapologetic to those who said the company was too focused on the bottom line. Patients, he said, may simply deserve only the amount of care they can afford.

"Why is it in healthcare we expect to have the same?" he asked. "It's an entitlement mentality. Why aren't the same people asking why everybody shouldn't be eating the same foods, or have the same clothes or same homes? Those are as essential services as healthcare."

High desert extravagance

Prem Reddy was the eldest of four children from a farming family in Nellore, India. He said his family didn't have electricity until he was 17.

Reddy's father, a village elder, encouraged him to become a doctor. He attended Sri Venkateswara University, where he met his wife, Venkamma.

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