Firm's hospital-buying strategy is questioned

Peter J. Adamo, regional chief of Prime Healthcare Services Inc., outside Roxborough Memorial Hospital.
Peter J. Adamo, regional chief of Prime Healthcare Services Inc., outside Roxborough Memorial Hospital. (CLEM MURRAY / Staff)
Posted: November 18, 2012

From its roots in California, hospital owner Prime Healthcare Services Inc. is expanding across the country by acquiring financially troubled hospitals, including Roxborough Memorial and Lower Bucks in the Philadelphia region.

At hospitals on the verge of closing, the for-profit company is generally welcome - even as disputes with a large union and a major competitor in Southern California dog the firm's reputation.

In Roxborough, where the community hospital has changed hands three times since 2003, Prime and its regional chief executive, Peter J. Adamo, have made a positive impression, Bernard Guet, executive director of the Roxborough Development Corp., said Thursday.

"They are not doing only what is good for them. They are part of the community," Guet said, citing Adamo's flexibility on a sign proposal by Prime that residents didn't like.

But Prime's ventures beyond California, where the company was founded in 2001 by entrepreneurial cardiologist Prem Reddy, to Texas and Pennsylvania puzzle Philadelphia health-care expert Alan Zuckerman.

"They are buying hospitals that are in great distress, with no apparent economies other than what you could get from a corporate back office. It's in opposition to what everyone else is doing," said Zuckerman, president of Health Strategies & Solutions Inc. in Philadelphia.

Adamo acknowledged that experts might look askance at Prime's purchases over the last year of six hospitals in Nevada, Pennsylvania, and Texas.

"Coming to the East Coast was a big risk," Adamo said. "Dr. Reddy, like a lot of people who do things that are outside of the ordinary, took a bold move [and decided] to export the model as a challenge to the company."

Adamo said Prime had a three-point checklist when it takes over an institution: ensure that it pays no more than necessary for anything needed to operate, improve documentation of patient care to boost revenue and quality of care, and beef up billing and collections.

The second point - documentation of patient care - is crucial because the quality of that process determines how hospitals get paid by government and commercial insurers.

Those practices also underlie allegations by the Service Employees International Union in California that Prime has defrauded Medicare by billing for unusually high rates of blood infections and off-the-chart rates of kwashiorkor, a rare form of protein malnutrition.

Prime has denied any impropriety, arguing in an antitrust lawsuit that the union was bent on driving the company out of business because Prime has refused to cede to labor demands in California.

"If we were doing anything wrong, why would the government and commercial insurers continue to pay us?" Adamo said.

Adamo said Prime, which owns 20 hospitals and had $1.26 billion in revenue last year, generally finds there's little emphasis on how cases are documented and managed in hospitals it buys.

Insurers are "persnickety about how you say what you say in a medical record. If you don't say it the right way, they find ways not to pay you," Adamo said. "But if you say it the right way, you at least have a shot at them paying you and not denying you."

Prime managers teach doctors to be as thorough as possible in their charts: "No vague diagnoses. No vague treatment plans. Everything's got to be specific," Adamo said.

Asked for an example of a vague diagnosis, Adamo named syncope, which is temporary dizziness or loss of consciousness.

Prime pushes its doctors to get to the root of the dizziness, Adamo said, "because Medicare and many other payers who follow the Medicare guidelines say, 'Until you can tell me what's really wrong with that person to justify an inpatient acute-care admission, we're not going to pay you.' "

Roxborough fits the pattern Adamo described.

Under the previous owner, "we never had any coaching on coding and documentation," said Andrea A. Pedano, medical director at Roxborough Memorial for case management, utilization, coding, and documentation.

When insurers challenged bills, "we had no legs to stand on. There was no proper documentation," Pedano said.

Pedano said she and other doctors in the Roxborough community received document packages from the service workers union "in an attempt to tell us what kind of a horrible operator Prime was." But after researching Prime, she said, she concluded the scandals were the result of union propaganda.

Sound clinical documentation and coding is of paramount importance for hospitals. Speaking about hospital documentation and coding without reference to Prime's practices, John D. Cacciamani, chief executive of Chestnut Hill Hospital, said: "You certainly don't want to leave money on the table due to poor documentation."

"The natural inclination is not to code enough because it's less work," Cacciamani said.

The problem is that the patient might have nine ailments that should be in the medical record. "The doctors don't always take the time to write all those diagnoses down, but if they don't write it down, it didn't happen," he said.

And that means the hospital doesn't get paid what it deserves, with serious financial repercussions.

"Going from mediocre to very good can result in a 5 percent jump in cash receipts in a year," said Zuckerman, the Philadelphia hospital consultant.

Still, he doubted that even an improvement of that magnitude could turn around a place like Roxborough.

"I just don't understand if this is a bottom-fishing play," Zuckerman said, referring to the strategy of buying a company for an extremely low price and then selling it for something more, "or they're smarter than everybody else. Only time will tell."

Contact Harold Brubaker at 215-854-4651 or

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