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Company seeking to buy KC-area Catholic hospitals inspires condemnation, admiration

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3 minute read

Update: Prime Healthcare Services now faces a lawsuit from employees laid off from two other Kansas City-area the company owns.

Co-authored by Dan Margolies, health editor at KCUR, Kansas City Public Media.

Prime Healthcare Services, the for-profit California health care company that has agreed to acquire two nonprofit Kansas City area hospitals, is no stranger to controversy.

Among other things, it has faced fierce opposition from the nation’s largest health care labor organization, the Service Employees International Union (SEIU), and has been accused of billing fraud.

“They don’t really bring any value to a community,” said Chris Salm, director of research for SEIU-United Healthcare Workers West in California, which represents some Prime workers. “They simply prey on vulnerable communities.”

Ascension, a Catholic health system based in St. Louis, announced on Monday that its affiliate in Kansas City, Mo., Carondelet Health, has agreed to sell St. Joseph Medical Center in south Kansas City and St. Mary’s Medical Center in Blue Springs to Prime.

Terms of the deal were not disclosed, and Prime spokesman Edward Barrera on Tuesday declined to comment on the transaction or on questions that have arisen about its operations.

Turnaround company

Prime is known for acquiring struggling hospitals and attempting to turn them around.

Salm urged Missouri officials to closely scrutinize the transaction. A media relations representatives for Attorney General Chris Koster did not respond to a request for information on the extent of the attorney general’s authority to oversee the transaction.

Salm noted that New Jersey authorities have recommended that several safeguards be included in the sale of a Catholic hospital in Passaic, N.J., to Prime.

Media reports have said those stipulations include a provision that could lead to the revocation of the sale within the next five years and a requirement that Prime file quarterly reports about an ongoing federal investigation into the company’s Medicare billing practices in California.

That investigation came shortly after California Watch, an investigative reporting website, raised questions about the high rates of kwashiorkor, a rare form of malnutrition, in Prime’s billings. The diagnosis pays at far higher rates than other forms of malnutrition.

Prime told California Watch that it was being targeted by the government because of false allegations made by the SEIU.

Whistleblower suit

In October 2011, a whistleblower suit against the company also alleged billing fraud.

Karin Berntsen, a registered nurse who was the director of performance improvement at Alvarado Medical Center, a San Diego hospital acquired by Prime Healthcare in late 2010, alleged that Prime had defrauded the federal government of at least $50 million.

Berntsen claimed the company had billed for unnecessary inpatient short stays that should have been classified as outpatient cases.

Calling the company’s behavior “particularly egregious,” she alleged that Prime had instructed physicians and hospital staff “to choose inpatient admissions over outpatient/observation status in almost every instance,” in violation of Medicare guidelines.

Prime, which insists its billings are proper, has signaled its intention to seek dismissal of the action.

The federal government, which can intervene in whistleblower suits, has indicated it does not intend to intervene for now, according to documents in the case.

Sisters of Charity lawsuit

Prime has shown a willingness to play hardball, if another lawsuit is any indication. In July 2013, the company was sued in federal court in Kansas City, Kan., by Sisters of Charity of Leavenworth Health System, which in January 2013 sold Providence Medical Center in Kansas City, Kan., and Saint John Hospital in Leavenworth, Kan., to Prime.

The lawsuit alleged that Prime withheld payments that were supposedly due the Sisters of Charity as part of the transition of the hospitals’ operations to Prime.

According to the suit, Prime’s CEO, Prem Reddy, “threatened to shut down” the hospitals if the Sisters of Charity did not bow to the company’s demand for unspecified intellectual property belonging to the Sisters of Charity.

Prime has denied the allegations, and a federal judge recently remanded the case to state court in Leavenworth County.

In California, Salm said Prime has a history of cutting staff and eliminating money-losing operations such as behavioral health when it acquires a hospital.

Prime began operating Providence and Saint John in April of 2013, according to Kathleen Conwell, a spokewoman for the two hospitals.

Since that time, she said in an e-mail, the total number of employees at Providence has risen by almost 10 percent to 1,076. St. John’s employment is down by five to 244.

Conwell also said that Prime is on track to invest about $12 million in the two hospitals by the end of this year for building upgrades and new equipment.

The news release announcing the deal for St. Joseph and St. Mary’s included a comment from Diane Steele, who was a member of the board of Providence and St. John when Prime acquired them.

“Prime Healthcare has a deep concern for people – for the physicians and staff who provide care, and for those they serve,” she said. “We’re very pleased that Prime has continued to honor our spiritual heritage demonstrated in care of patients, especially the poor, at both hospitals.”

Charlie Shields, the new president and CEO of Truman Medical Centers, a safety net hospital, said he was unwilling to assume that Prime’s problems in California and elsewhere would translate into similar problems locally.

But he did say he expects Truman to see an increase in the number of patients who can’t pay their bills if Prime succeeds in acquiring St. Joseph and St. Mary’s. He said it was in the nature of for-profit hospitals to maximize returns for investors.

He also said Truman would closely monitor the transfer of assets involved in selling nonprofit institutions to a for-profit company. In the past, such transactions have resulted in the creation of charitable foundations whose mission is to serve the uninsured and the under-insured.

Major Funding for Health coverage on KCPT provided by Assurant Employee Benefits and the Health Care Foundation of Greater Kansas City.


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