Dr. Prem Reddy
began commuting this month by helicopter from Victorville to Orange County, chopping up the local hospital establishment in the process.
The new owner of three community hospitals, Reddy vows to turn weak financial performers into models for patient care and profitability. The first step: canceling all HMO contracts, which Reddy says pay rates so discounted that they are driving hospitals out of business.
Reddy, an Indian-born cardiologist, made his fortune off HMOs in the Inland Empire, where he ran a successful medical practice. These days, he's fighting them for every dollar. And he's set his sights on Orange County, where many residents receive their health care through an HMO.
"I promoted HMOs for 20 years," said Reddy, 58. "Now, I'm on the other side. If I don't stand up to it, who else will?"
Reddy spent an undisclosed amount to add West Anaheim Medical Center , Huntington Beach Hospital and La Palma Intercommunity Hospital to his growing hospital portfolio. He has offered to buy Anaheim Memorial Medical Center for $50 million.
Supervisor Lou Correa said Wednesday that he plans to host a town-hall meeting Oct. 30 to discuss concerns he has heard about the purchases.
In 2001, when Reddy bought Desert Valley Hospital in Victorville, he devised the strategy that has brought admiration from some doctors and ire from others.
He canceled managed-care contracts. He began advertising to senior citizens, who are covered by Medicare, which pays a steady rate. He worked to keep the emergency room open at all times so as to not lose patients to other hospitals. He also stopped automatically transferring emergency patients to hospitals in their insurance network, a practice that has drawn fire – and lawsuits – from other hospitals and insurance companies.
"It's just a totally different model," said Stan Otake, an Orange health-care consultant and former hospital chief executive. "He's thumbing his nose at the managed-care plans and insurance companies."
Reddy says he needs about $2,000 per patient, per day to cover typical hospital costs. HMOs are willing to pay him anywhere from $800 to $1,500. But without contracts, the insurers must pay the full charges when their patients come to the emergency room or are admitted to the hospital.
"Since Reddy's hospitals don't have any contracts, he's able to get premium reimbursement rates for cases that come through the emergency department," Otake said. But that also means HMOs won't send patients to his hospitals for scheduled procedures. Also, once emergency patients are stabilized, their health plan will push to have them transferred to another hospital that holds a contract. Already, Reddy's ripple effect can be felt in Orange County.
Officials at Cypress-based PacifiCare said Reddy's method could result in higher premiums for patients. He terminated their contracts at the three Orange County hospitals, though PacifiCare officials said their rates were fair. "I think the tactics and what is happening here is threatening the (managed-care) model," spokeswoman Cheryl Randolph said. "We saw that happen in the Inland Empire, and we just don't think it's a good thing."
Dr. Jack Terner, owner of Prospect Medical Group , which treats about 85,000 HMO members in Orange County, said he will need to find other options.