Hospital group rejects system and cashes in - A Southland doctor's company prospers by canceling insurance contracts and, some say, shortchanging patients.

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."