Prime Healthcare, a nationwide healthcare provider that operates 45 hospitals and employs over 40,000 people, has settled allegations that 14 of its California hospitals improperly billed Medicare for admitting patients who only required outpatient error, and billed Medicare for treating more severe diagnoses than patients actually had. The company will pay just under $62M to settle these claims, and Prime’s CEO, Prim Reddy, will personally pay over $3M.
According to the government’s complaint, which was filed last July after an investigation lasting nearly six years, Prime induced physicians at 14 of its California hospitals to admit ER patients into the hospital regardless of medical necessity. The practice allegedly lasted for over seven years.
Admission into the hospital generally triggers a higher reimbursement rate from insurers, including Medicare, than an outpatient procedure or an ER visit. For a service to be payable by Medicare, it must be “reasonable and necessary.” According to the government, admitting patients into the hospital who could have been treated in the ER violates that provision. On average, Prime’s services for inpatient treatment resulted in Medicare payments of 200%-300% higher than the payments would have been otherwise.
Prime leadership, including CEO Reddy, developed several ways of inducing physicians to admit patients, including:
- Imposing quotas for admissions onto ER physicians;
- Decreasing physicians’ ER hours if their admission rate was not high enough;
- Telling doctors to admit any insured patient in the ER within two hours, while leaving uninsured patients in the ER indefinitely;
- Altering nationally-used admission criteria making inpatient admissions more permissive; and
- Terminating staff members who opposed these practices.
In addition to boosting inpatient admissions, Prime also “upcoded” or exaggerated the severity of diagnoses that the hospital was treating. Under Medicare Part A, hospitals are paid based on Diagnosis Related Group (DRG) codes, which result in a lump sum payment to a hospital for treating a disease or group of diseases. DRGs are then adjusted by comorbidities. Generally, the more severe a DRG is and the more severe or plentiful comorbidities are, the higher the reimbursement from Medicare. Exaggerating the severity of the DRG or of comorbidities is a common type of fraud.
In addition to paying the settlement amount, Prime has also entered into a corporate integrity agreement with the US Department of Health and Human Services. The agreement requires Prime to hire an independent review organization to review the claims the company submits to Medicare. The agreement will apply for five years.
The fraud was first brought to light by a whistleblower, Karin Bernsten, who was a former employee of Prime’s, serving as the Director of Performance Improvement at one of the company’s hospitals. Ms. Bernsten will receive an award of over $17.2M.
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