A federal judge denied a motion by Prime Healthcare Services to dismiss a whistle-blower lawsuit alleging the hospital chain fraudulently billed Medicare.
U.S. Magistrate Judge Patrick Walsh ordered that the lawsuit, which the U.S. Justice Department joined in May, contains “sufficient facts” to sue Prime under the False Claims Act.
The suit claims that in order to drive up revenue, Prime founder and CEO Dr. Prem Reddy and 14 Prime hospitals in California pushed doctors to admit Medicare beneficiaries as inpatients when they should have been outpatients placed on “observation” status. The government estimates that more than 35,000 patients were improperly admitted to Prime hospitals.
Prime requested the suit be dismissed on the grounds that its physicians admit patients based on their opinion and scientific judgement. Prime also argues the suit wrongly concludes that because some Medicare patients were released shortly after admission they were admitted unnecessarily.
Judge Walsh disagreed, saying Prime's physicians could have been forced to admit Medicare patients based on policies at hospitals. In addition, the court denied requests by the American Hospital Association and the California Hospital Association to submit briefs.
"The court's ruling on the motion to dismiss is not unexpected as dismissals are rare at the pleading stage," said Elizabeth Nickels, Prime's vice president of marketing, nothing that the judge had said the government's case and burden appeared difficult to prove.
"Prime Healthcare will continue this case to defend the right of patients to receive the quality care they deserve and is confident that the evidence will show that thousands of independent physicians provided the care they deemed necessary for their patients," she said.
The lawsuit alleges that Prime set policies that required 20% to 30% of Medicare patients to be admitted to the hospital. Physicians who failed to meet those quotas allegedly were criticized. Another tactic was to often schedule emergency department doctors whose patients had high rates of admissions, according to the Justice Department.
Ontario, Calif.-based Prime Healthcare Services operates 44 hospitals in 14 states. Prime has been in the business of picking up troubled hospitals since it was founded in 2001. But the government said in an analysis that Medicare claims for beneficiaries on “observation” status tanked after Prime acquired a hospital.
Investors in the hospital chain are worried about what the suit could mean for them. The Service Employees International Union has urged the New Jersey attorney general to force the sale of five Prime hospitals in the state in order to protect their assets if the lawsuit affects Prime's Medicare participation.
The trial is set for February 2018.