Woonsocket hospital owner facing government fraud suit

Woonsocket hospital owner facing government fraud suit

AG: Prime must keep promises in change of Landmark to nonprofit

WOONSOCKET – When the state Attorney General’s Office approved the sale of Landmark Medical Center to California-based hospital chain Prime Health Services in 2013, certain conditions were placed on the sale.

They included reporting and investment requirements, as well as the caveat that Prime tell Rhode Island’s top law office about the outcome of an ongoing fraud investigation by the Department of Justice.

Now, it seems, the DOJ is in the midst a federal suit against the 43-hospital, 14-state health care chain.

And concerns have been raised that an application to turn the Woonsocket facility back into a non-profit could jeopardize regulators’ ability to further monitor Landmark, and its patient care in northern Rhode Island.

Attorney General Peter Kilmartin filed a petition in Superior Court last week asking that those conditions, part of the 2013 regulatory bargain, be enforced, even if the facility’s application for a Change in Effective Control is approved by the Department of Health.

“If the proposed transaction is approved by DOH, the commitments previously made by Prime and Prime-Landmark could be in jeopardy,” the petition states.

Prime’s announced plan is to donate Landmark’s assets to Prime Health Foundation Inc., a move that would effectively convert it back to a nonprofit, as it was prior to the purchase.

At stake are obligations laid out as part of state regulators’ review of the acquisition, which was subject to heavy scrutiny in compliance with Rhode Island law. Specifically, Kilmartin has asked that the court enforce Asset Purchase Agreement and Hospital Conversion Act decisions, which have terms not set to expire until December of 2018.

Those terms include required investments in the city facility, and obligations for reporting to the Attorney General’s office.

Meanwhile, Prime CEO Prem Reddy is facing a federal False Claims Act lawsuit over billing practices that U.S. Department of Justice officials say amounts to fraud.

The DOJ alleges in the suit that Prime’s hospitals used a number of strategies to turn a profit, including giving patients medically unnecessary treatments, and charging Medicare for unnecessary admissions by keeping them for inpatient stays, rather than sending them home. The litigation was first filed by a whistle-blower nurse from one of Prime’s Califronia hospitals who said that Reddy pressured emergency room doctors to admit patients as a way to obtain higher reimbursement rates. The DOJ signed on following an investigation last June.

“Prime’s policies and procedures led to the submission of false or fraudulent claims for inpatient medical services,” the department stated.

Conditions placed by Rhode Island on the hospital sale in 2013 suggest state regulators were concerned about the claims, but at the time, DOJ was merely looking into the issue. Prime’s agreement with the attorney general required the company to inform local officials about the “final resolution” of the investigation, and that regulators obtain information about any additional actions against Prime by government entities.

Asked this week if the hospital chain had reported the federal suit, AG spokesperson Amy Kempe stated that the information would be in Prime’s 2016 compliance report, which has not yet been completed. The deal required that the Attorney General conduct annual reviews of the hospital’s compliance with terms over the five year period.

According to the court-approved terms of the 2013 hospital sale, in the five years that followed, Prime would need to invest $30 million to improve Landmark; no less than $4.5 million for physician recruitment; and no less than $15 million for equipment replacement.

The only compliance report completed so far shows that in 2014, 10 percent of the required $30 million for capital expenditures had been invested, although 20 percent of the time had passed. Recruitment expenses totaled around $903,000 when the report was submitted, and equipment replacement included $2.2 million in completed projects, and another $2.4 million on items that were not yet up and running.

But then hospital President and CEO Richard Charest assured regulators that he expected the company to have no trouble meeting the investment goals. The report ultimately found that Prime had complied with conditions to date, and stated that hospital officials were generally cooperative.

Charest retired last month and will be replaced as CEO by Michael Souza, president of the Hospital Association of Rhode Island. (See page 4.)

Terms in Prime’s current agreement also dictate that assets transferred as part of the agreement would be utilized for the benefit of Landmark only, and not used for projects or programs outside of Rhode Island without the consent of the Attorney General. As part of the sale, Prime also agreed to continue as an acute care hospital for the term of five years with an open and accessible emergency room and an independent medical staff.

But Kilmartin notes in the petition that regulatory approval is not required for the proposed change transferring Landmark to Prime’s foundation, and that terms of the initial agreement may not be enforceable.

“If the proposed transaction occurs, satisfying this provision of the act will require the cooperation of the foundation,” the document states. “The Attorney General, and this court, should not allow Prime to curtail the promises made in its initial acquisition of Landmark.”