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 a 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.

Septicemia rates

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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, including one in Redding, also reported extremely high rates of a rare nutritional disorder, known as kwashiorkor, among elderly patients. Kwashiorkor is widely associated with impoverished children in the Third World, experts say.

Report sparks probe

The Department of Public Health's probe of septicemia at Prime began last fall, after the California Watch story appeared, and focused on patient records from 2008 and 2009. The department 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. Ed Hernandez, D-West Covina (Los Angeles County), 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 an investigation of Prime in connection with the kwashiorkor and malnutrition rates first noted by California Watch.

Findings disputed

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. Prime added that it uses a more comprehensive set of indicators for septicemia than the state used in its surveys.

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.

In a report Prime sent to the Department of Public Health, the chain said it looks for more indicators of the condition, such as rapid breathing, an altered mental status 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 and deal 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 another review of Prime Healthcare.

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 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."

'No sign of infection'

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, in fact, 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.