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A California hospital chain under investigation for allegations of overbilling the Medicare system has inaccurately diagnosed patients with a blood infection known as septicemia – a complex and deadly condition that hospitals are paid a premium to treat, a state investigation has found.

California Department of Public Health inspectors examined records at four hospitals owned by Prime Healthcare Services and found that 22 of 120 patients diagnosed with septicemia showed few symptoms of the disease.

At one San Bernardino County hospital, a patient was diagnosed with septicemia even though records showed “no sign of infection,” inspectors found. At a Los Angeles County hospital, inspectors said seven patients diagnosed with septicemia showed signs of having urinary tract infections, a far less serious condition.

Medicare pays bonuses of several thousand dollars per case for treating elderly patients with septicemia, federal records show. Prime Healthcare’s chairman, Dr. Prem Reddy, testified in a 2005 trial that his hospitals were reimbursed about $9,000 for treating a septicemia case – $6,000 more than a urinary tract infection.

Prime has disputed the state findings and insists that its coding and diagnoses were appropriate.

The state health department probe is the latest to focus on issues involving Medicare billings at Prime, a fast-growing hospital chain based in Southern California.

As California Watch has reported, the U.S. Department of Health and Human Services is investigating Prime to determine whether it overbilled the government for treating septicemia among the elderly.

The probe began last year in response to a computer study of medical records by the Service Employees International Union. The study said Prime hospitals reported septicemia rates among Medicare patients that were more than triple the national average.

Two members of Congress said they feared Prime had overbilled Medicare by $18 million. The California attorney general’s office has also said it is investigating Prime.

The union represents many Prime workers, and the company criticized the study as biased and flawed – part of an effort to “extort concessions” on labor contracts, a spokesman claimed.

In February, California Watch analyzed Prime’s Medicare billing records for 2009 and found that the hospital chain had reported high rates of malnutrition, another condition eligible for enhanced reimbursement from Medicare.

Two Prime hospitals also reported extremely high rates of a rare nutritional disorder called kwashiorkor among elderly patients. Kwashiorkor is widely associated with impoverished children in the Third World, experts say.

State focused on two years of patient data

The Department of Public Health’s probe of septicemia at Prime began in February, after the California Watch story appeared, and focused on patient records from 2008 and 2009. The department’s reviews tend to point out problems and ask facilities to fix them. Only in rare cases do they culminate in actions against a facility license.

State Sen. Edward Hernandez, D-West Covina, chairman of the Senate Health Committee, wrote a letter in April to the Department of Public Health saying that working with the hospital to fix problems may be “inappropriate,” given the “the possibility of systemic fraud.”

“I urge the department to reach out to other state and federal agencies as well,” Hernandez wrote. “No single regulator has both the technical capacity and the legal authority to address a situation of this magnitude.”

In a separate statement to California Watch, Hernandez said: “I am prepared to work with all relevant state agencies to ensure this company is thoroughly investigated and no new licenses are granted to them while those investigations continue. The more I find out about this case, the more questions I have.”

Hernandez also has called for another investigation of Prime in connection with the kwashiorkor and malnutrition rates first noted by California Watch.

Prime has strongly disputed the health department findings, saying the staff that reviewed patient medical records and submitted bills for treatment of sepsis acted appropriately.

The company says it would never engage in “upcoding,” a term for exaggerating a patient’s diagnosis to increase reimbursement from Medicare or insurance companies. The chain has said it has an early intervention and treatment program for sepsis. And Prime said it uses a more modern and comprehensive set of indicators for septicemia than the state used in its surveys.

The signs of sepsis include a somewhat high or low temperature, an abnormal white blood cell count, or a high pulse or respiration rate, according to state inspection reports.

Prime argues in a report sent to the Department of Public Health that it looks for more indicators of the condition, such as an altered mental state or elevated creatine, an acid that supplies energy to the muscles.

Chain vice president and general counsel Michael Sarrao wrote in an e-mail that the state reports are not “the final accounting of this matter” and described them as “erroneous, misleading and possibly defamatory.”

Striking a more conciliatory note, Prime also submitted “plans of correction” to the state, saying it will begin routine medical record reviews, dealing with problems by “counseling” coding staff or assigning physicians to peer review.

According to records, the state health department has said it will pass its findings to auditors and investigators at Medi-Cal, the health insurance program for the needy that is conducting yet another review of Prime Healthcare.

State finds problems at three hospitals

The health department review noted the highest number of problems at San Dimas Community Hospital, a hospital in the San Gabriel Valley area of Los Angeles County. Inspectors determined that seven patients with urinary infections and one with a bone infection were documented as having sepsis.

Overall, the inspectors found that in 17 out of 29 cases – 59 percent – patients were reported as having septicemia even though they didn’t have bacteria in their blood or at least two other symptoms of the illness, according to inspection reports.

In its response to the health department, Prime said the inspectors were wrong and demanded that the state rescind its findings.

The department declined to specify how it would respond other than to say it will work with Prime “to ensure the deficiencies identified in these facilities are resolved.”

At Chino Valley Medical Center in San Bernardino County, inspectors found three problematic septicemia cases, including a 71-year-old patient who was given the primary diagnosis of “unspecified septicemia,” even though she had “no sign of infection” and was not given an antibiotic.

In its response to the state, Prime said the patient exhibited signs of sepsis not noted by the inspectors, such as rapid breathing, high blood sugar and low blood pressure and was, indeed, given antibiotics.

According to the National Institutes of Health, people with severe sepsis need lifesaving measures in a hospital intensive care unit and require immediate intravenous antibiotics.

At West Anaheim Medical Center in Orange County, inspectors challenged two cases, including a sepsis diagnosis for a 90-year-old patient who was thought to have a blood clot and was admitted for observation related to a possible heart attack.

Prime countered that the patient met several criteria for sepsis, including a fast pulse rate, rapid breathing, low blood pressure and bacteria in her urine.

No problems were noted at the fourth hospital that was reviewed, Desert Valley Hospital in San Bernardino County.

When hospitals identify and treat sepsis, it is important to their bottom line that medical coders document it correctly, Prime’s chairman, Reddy, testified in 2005.

Reddy was on the witness stand after suing former nurse managers at Desert Valley Hospital, contending that they started a staff rebellion that undercut his hospital business. The nurses sued him back, arguing that they were fired for speaking out against Reddy’s campaign to turn around hospital finances.

The jury awarded the nurses $880,000, but the case resulted in a mistrial due to jury misconduct.

Reddy testified that he encouraged coding staff to talk to doctors about the possibility of assigning a more serious diagnosis to a patient, if warranted.

“Absolutely. That’s one way to come out of the red and keep things going,” Reddy said.

A former Desert Valley Hospital staff member, though, testified in a 2009 deposition that Reddy held “very intimidating, very hostile” meetings in 2001 where he told medical coders to document that patients with urinary tract infections actually had sepsis.

“He said that ‘patients with urosepsis are septic,’ ” said Sandy Barber, who also testified during the 2005 trial and referred to notes from a 2001 meeting. “ ‘They have sepsis. That’s what it is. People with UTIs are septic. They’re in the hospital because they are septic.’ ”

Excerpts of the deposition were filed in an ongoing billing dispute between Prime and Kaiser Permanente in Los Angeles Superior Court.

According to the National Institutes of Health, urinary tract infections are the second most common infection in the body, accounting for 8.3 million doctor visits each year. The infections typically clear after one or two days of treatment with antibiotics.

A urinary infection can trigger a case of sepsis. About 750,000 people a year are diagnosed with the condition, according to the National Institutes of Health. Sepsis tends to involve widespread inflammation, leaky blood vessels, blood clots and organ damage. Up to half of the patients who contract sepsis die from the condition, research shows.

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