Prime has succeeded in turning around troubled hospitals by relentlessly focusing on delivering higher volumes of lucrative services in the most efficient manner possible. The hub of Paradise Valley, for instance, is its modern 19-room emergency department.
Like all of Prime's facilities, the hospital aims to admit patients within a two-hour timeframe or send them home within 90 minutes. Its staff closely tracks metrics such as how many people leave without being seen.
Its reputation for short waits has earned the hospital additional volume. “It actually changed the entire community,” said Dr. Paul Manos, an emergency physician at Paradise Valley, where waits once averaged 5½ hours. “It has sort of become a standard for San Diego County.”
Prime sees a competitive advantage in having patients come to its EDs instead of making the drive to another system's hospital, as it outlined in a 2011 lawsuit against Kaiser Permanente. Under the Patient Protection and Affordable Care Act, insurers must pay for basic emergency assessment and treatment services on the same basis in out-of-network hospitals as in network facilities.
Prime's lawsuit argued that Kaiser owes $100 million in unpaid medical claims and was conspiring with the SEIU to keep it out of the market. A judge dismissed the suit, but Prime is appealing.
In New Jersey, where Prime owns one hospital and is in negotiations to buy two more, insurers fear that the state's strong consumer protections tie their hands when they're hit with an inflated bill for out-of-network care. There has been a spike in for-profit hospital companies canceling insurance contracts to collect higher out-of-network fees.
“There's a concern that Prime will follow that path,” said Ward Sanders, president of the New Jersey Association of Health Plans. “There's a suspicion in the payer community that this is about billing. There's no leverage in this context. There's no limitation on what they can charge.”
But Prime counters that when a hospital is struggling, insurers have the upper hand. At one New Jersey hospital, commercial rates were 72% below Medicare, said Luis Leon, Prime's president of operations.
“In certain markets, payers can decide that a hospital is not essential,” said Joe Lupica, chairman of Newpoint Project Japan Advisors, a consulting firm. “(Reddy) gave some powerful economic resistance to the managed-care companies that they have not been used to and brought them back to the table.”
In addition to its ED strategy, Prime obsessively studies CMS billing and coding requirements and educates physicians about clinical documentation. For example, it encourages physicians to code for a specific type of heart failure, rather than the more general congestive heart failure.
“Many physicians understand quality, but they don't understand the cost,” Reddy said. “We have to give them the tools to understand those metrics. What it does is standardize the quality of care.”
Not everyone sees it that way. In 2011, a whistle-blower suit filed in Los Angeles alleged that Prime's emphasis on adding comorbidities to diagnostic codes was a way of extracting more money from Medicare—so-called upcoding. The Justice Department launched an investigation into the allegations as well as Prime's short-stay admissions practices. It opened another investigation into whether the unusually high rates of septicemia, or blood infections, and kwashiorkor, a form of severe malnutrition, among Prime's patients represented fraudulent billing practices.
But Prime insists its thoroughness on coding ultimately will be vindicated. The Justice Department declined to join the 2011 whistle-blower suit, which was unsealed last January. Suits without the department's backing are less likely to succeed.
Reddy rejects claims that Prime's physicians are encouraged to ignore the overall cost of care. He cited the example of implanting new knees or hips in young, active orthopedics patients compared to older patients in nursing homes. “At times, certain patients would not necessarily need the same prosthesis,” he said. “So someone, especially the doctor, has to be cognizant of the cost to Medicare.”
Sitting next to him at the conference table, his youngest daughter, Sunitha Reddy, vice president of hospital operations, interjects. “It's just providing information and making sure the doctor is aware,” she said.