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California Hospital Chain Eyed for Possibly Bilking Medicare for Millions

December 19, 2011 at 12:00 AM EDT
Americans spends more than $500 billion every year on Medicare, and as the cost of health care rises, many are examining how that money is spent. NewsHour's partner The Center for Investigative Reporting conducted a year-long probe into one prominent hospital chain's bills to Medicare. California Watch's Lance Williams reports.
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JEFFREY BROWN: And speaking of Medicare, America spends more than $500 billion every year on Medicare for elderly patients. Now, as the cost of health care rises, many are examining exactly how that money is spent.

Our partners at the Center for Investigative Reporting have conducted a yearlong probe into one prominent hospital chain’s Medicare costs. In an online report released Sunday, the center’s California Watch project examined whether the chain is attracting the toughest medical cases, or is exaggerating conditions in order to increase revenues.

Our version of that story is reported by Lance Williams of California Watch.

LANCE WILLIAMS, California Watch: California-based Prime Healthcare Services buys financially troubled hospitals and turns them around. So when Prime purchased Alvarado Hospital in San Diego last year, Anneke Doty knew there would be changes, especially after a meeting with the new owner, Dr. Prem Reddy.

ANNEKE DOTY, former Alvarado Hospital employee: It was very much there’s a new sheriff in town.

LANCE WILLIAMS: Doty’s job is a medical coder was to prepare summaries of patient illnesses for Medicare reimbursement. She says Reddy told doctors how to diagnose patients he had never seen.

ANNEKE DOTY: There were several diagnoses that he was suggesting, highly recommending. They were told that they should look for those opportunities whenever possible.

LANCE WILLIAMS: It turns out many diseases share similar symptoms, but more severe diseases are reimbursed by Medicare at higher rates.

ANNEKE DOTY: He encouraged the physicians to stop documenting syncope, which is fainting or dizzy spell, and instead use the term autonomic nerve dysfunction, which reimburses at a higher rate.

LANCE WILLIAMS: Medicare pays about $7,000 to treat a patient who has fainted, even if there are other medical complications. But a patient with a nerve disorder and a major complication can net the hospital $12,500.

ANNEKE DOTY: He made the comment that autonomic nerve dysfunction is such a vague description that no one could ever question the use of that code in the medical record.

LANCE WILLIAMS: Doty says what ran through her mind was:

ANNEKE DOTY: This is crazy. How can I get out of here?

LANCE WILLIAMS: Doty’s co-worker Danika Fedeli was at the same meeting.

DANIKA FEDELI, former Alvarado Hospital employee: With Dr. Reddy, it really just felt like he was coaching the doctors to say what he wanted them to say. And you’re not allowed to do that.

LANCE WILLIAMS: Prime insists their billings are accurate and legal, but they refused an on-camera interview.

In a yearlong investigation of millions of patient records, California Watch uncovered a pattern of suspicious diagnoses. State Medicare data for 2010 shows that, out of 468 cases of autonomic nerve disorder, 360 were reported by Prime hospitals, 90 times more often than the average California hospital.

DR. GEOFFREY SHEEAN, U.C. San Diego: Very surprising. And it rather does suggest that they’re applying a very liberal definition or very liberal criteria to what they consider an autonomic nervous system disorder.

LANCE WILLIAMS: Dr. Geoffrey Sheean is a leading nerve disorder specialist at the University of California, San Diego.

DR. GEOFFREY SHEEAN: I have only seen two cases in the last 13 years where it would be appropriate to label a problem of a patient as an autonomic nervous system disorder, extremely rare.

LANCE WILLIAMS: And it wasn’t just a single disease. California Watch found that Prime hospitals reported unusually high rates of a long list of extremely serious medical conditions, from malignant hypertension to severe malnutrition.

We found one of the strangest examples in rural Shasta County, where Prime has reported a seeming outbreak of a rare disease called kwashiorkor, typically seen in children during famines.

Our investigation led us to this Shasta County resident.

DARLENE COURTOIS, resident of Shasta County, Calif.: I’ve never heard the word kwashiorkor before. I never heard a doctor, nurse or any other medical personnel tell me that I had kwashiorkor.

LANCE WILLIAMS: When Darlene Courtois went to the emergency room at Shasta Regional Medical Center in early 2010, she was seeking treatment for complications from diabetes.

DARLENE COURTOIS: My kidneys weren’t functioning well, and I was retaining fluid, and it was causing fluid to build up around my heart, and it was making it harder for me to breathe.

LANCE WILLIAMS: With Courtois’ permission, we obtained her hospital records and, through the Freedom of Information Act, her Medicare bill, where we found this number, 260, the code for kwashiorkor.

DARLENE COURTOIS: I have no idea how that could have happened. I mean, it’s obvious just looking at me that I don’t qualify for that.

LANCE WILLIAMS: But Vicki Presley Smith says personnel were under intense pressure to document certain ailments. She worked as a coder at Prime’s Desert Valley Hospital and says just one word on a patient’s medical record can make an enormous difference.

VICKI PRESLEY SMITH, former Desert Valley Hospital employee: The word protein malnutrition — so, that is the word that they wanted the doctor to basically put in their progress notes.

LANCE WILLIAMS: Moderate malnutrition is assigned the code 263. But use the term protein malnutrition, and the industry standard billing software points to the code 260, or kwashiorkor.

And do doctors realize that this is happening? Probably not, says Smith.

VICKI PRESLEY SMITH: Kwashiorkor is never brought to their attention. The word protein malnutrition is brought to their attention, so they just write down that terminology.

LANCE WILLIAMS: State records show that reports of kwashiorkor at the Shasta County hospital began soaring after Prime bought the hospital in 2008.

PIETRO INGRANDE, Medical Coding Company owner: We’re talking about millions of dollars.

LANCE WILLIAMS: Pietro Ingrande owns a medical coding company. He canceled his contract with Prime over professional differences.

PIETRO INGRANDE: There are 14 hospitals in Prime Healthcare. If this level of inappropriate documentation is going on, that could be as much as $100 million, if it were true.

LANCE WILLIAMS: Still, it’s hard to determine how Courtois got caught in this trend. She says she’s overweight, and one E.R. doctor called her well-nourished.

DARLENE COURTOIS: I mean, I couldn’t believe it. It just doesn’t seem possible that they could use some kind of a code for a disease I don’t even have or — and obviously don’t have.

JAMIE BENNETT, former U.S. attorney: It’s a huge problem. There is a substantial amount of waste in the Medicare program. And a lot of it comes from fraud.

LANCE WILLIAMS: Former federal prosecutor Jamie Bennett investigated a case against a Baltimore hospital accused of falsely diagnosing kwashiorkor. She says a change in Medicare reimbursement rules is being exploited by some hospitals.

JAMIE BENNETT: What we quickly found is that they responded to it by significantly increasing the use of diagnoses that, by coincidence, would really increase the reimbursement to the hospitals, and not in a way that was legitimate.

LANCE WILLIAMS: With recent cases of alleged Medicare fraud in Tennessee, Maryland and Texas, Bennett estimates nearly 20 percent of Medicare costs are due to fraud.

JAMIE BENNETT: We’re talking about billions and billions of dollars of fraud that isn’t uncovered.

LANCE WILLIAMS: Back in California, two insurers, Kaiser Permanente and Heritage, have filed lawsuits accusing Prime of exaggerating patient conditions and fraudulent billing practices. Prime has denied the allegations.

In a detailed written statement, Prime’s spokesman wrote, “Codes are not the actual definitions of the diseases, and they are not error-proof.” He wrote that Prime follows Medicare’s guidelines, although they’re imprecise. A Medicare spokeswoman declined to comment.

But Anneke Doty said it was time to quit the company earlier this year.

ANNEKE DOTY: I was thinking about was whether or not some governmental agency would be walking through the door and handcuffing us all and subpoenaing records and carrying them out in boxes.

LANCE WILLIAMS: Three California Congressmen have asked Medicare to investigate suspected fraud in Prime’s billings. And the FBI has recently begun interviewing former Prime employees.

GWEN IFILL: A few weeks ago, Prime Healthcare Services added a 15th hospital to its network, purchasing an interest in Harlingen Medical Center in Texas. It also plans to acquire hospitals in New Jersey and Hawaii.

For more on this story, find a link to the Center for Investigative Reporting’s website on our site.