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Patients Last

Prime Healthcare Services — like the rest of the for-profit health industry — shows capitalism at its worst.

StudioTempura / Flickr

Late last month, Prime Healthcare Services filed an unusual complaint with a California federal court. The health care conglomerate, California’s most profitable and the owner of seventeen hospitals in the state, brought suit against the Service Employees International Union-United Healthcare Workers West, accusing it of racketeering violations under the RICO Act.

To date, the parties have traded multiple lawsuits, slugged out their differences in front of the National Labor Relations Board (NLRB), and made repeated attempts to legislate each other out of existence. And now Prime has accused the SEIU, which represents nursing staff, caregivers, and environmental services workers, of attempting to unionize Prime hospitals in an effort to extort money from the conglomerate.

The nature of Prime’s squabbles with labor are unique among health care organizations, just as Prime itself is sui generis, both for its approach to the business of healthcare and the singularly noxious reputation that approach has engendered. A hospital geared toward the production of profit, Prime has taken the ethos of capitalism to its logical conclusion.

Founded in 2001, Prime in short order upset the Californian health care market by managing its hospitals as foundries for wealth. Long the province of religious organizations, charities, and administrators who viewed their roles as straddling business and public service, hospitals have traditionally failed to notch impressive profits, even in America’s privatized health care market.

As of 2013, a full quarter of American hospitals lost money on their operations. Returns for those that did achieve profitability hovered around 5.5 percent. Prime tipped this model on its head by eschewing several assumptions that underpinned traditional hospital management.

After acquiring a hospital, Prime’s typical first move was to cancel its insurance contracts. These contracts allowed insurance companies to pay hospitals lump sums for the care they provided patients. Once canceled, they paved the way for Prime to collect enormous reimbursements.

Like a private equity firm stripping a newly acquired business, Prime removed anything that acted as a drag on profitability. It axed mental health facilities, birthing centers, and chemotherapy units, and it began providing preferential treatment to insured patients.

Inspectors found that uninsured patients faced far longer waiting times than insured patients in Prime Healthcare emergency rooms. In one widely reported incident, a Prime hospital discharged an uninsured patient suffering from kidney failure, suggesting that he continue his treatment in a free facility nearby.

Prime has repeatedly run afoul of regulators. Four times over, inspectors noted that Prime facilities failed to meet federal safety standards. A 2012 Department of Justice subpoena called on Prime to account for its billing practices, which seemed to charge Medicare for costly procedures at a suspiciously high rate.

In 2013, Prime paid $275,000 to resolve claims that it violated a patient’s privacy by mass-emailing her medical data to the hospital’s employees. A whistleblower lawsuit filed earlier this summer by a former Prime executive accused the company of having reaped millions by overbilling Medicare.

Reports have also charged Prime facilities with harboring record-breaking rates of septicemia and malnutrition. Prime argues that these accusations misconstrue the available data; its detractors maintain that the data betray Prime’s tendency to over-report ailments that demand costly remedies.

Viewed in précis, Prime Healthcare’s history suggests an organization determined to view the sick as a resource for exploitation, an attitude that has led, unsurprisingly, to a dramatic rift between Prime’s management and the workers that staff its hospitals.

Since SEIU began organizing at Prime Healthcare in 2010, relations between the company and the union have devolved into a guerilla war. The two have fought over access to Prime hospitals for the purpose of union recruitment, the collection of union dues after the expiration of collective-bargaining agreements, and Prime’s reputation in the media.

As outlined in Prime’s grievance against the union, SEIU has run a corporate campaign in an attempt to induce the company to accept unionization. Under this strategy, unions pressure companies from the inside and outside in an attempt to bypass NLRB elections, during which employers often intimidate workers. The majority of California’s hospital conglomerates have arrangements with their unions, making Prime an obstinate outlier.

Calculated to pressure Prime’s leadership into accepting an organizing agreement, SEIU’s campaign called for action on several fronts. The union sponsored studies of Prime’s questionable Medicare billings, which it then disseminated to the press. It targeted the real-estate investment trust that serves as the landlord for several of Prime’s hospitals, alleging the hospitals failed to meet California’s earthquake safety standards.

Enlisting the help of California lawmakers, SEIU first assisted in blocking Prime’s purchase of a bankrupt California hospital, then managed to waylay the company’s planned acquisitions in Kansas and New York. Again working with sympathetic members of the California legislature, SEIU pushed legislation that would have obligated hospital owners to obtain new licenses for the operation of freshly acquired facilities. The hospital workers union also pushed a bill that would have limited the amount hospitals could charge for providing out-of-network emergency care.

Of Prime’s multiple labor infractions that the SEIU reported to the National Labor Relations Board (NLRB), two elicited official decisions. In January 2013, the NLRB ordered Prime to continue collecting union dues from its workers, and to provide unions with information during internal investigations. Prime refused.

Media coverage has been one of the most fiercely contested fronts in the Prime-SEIU battle. SEIU’s narrative paints Prime as an organization whose policies prove detrimental not only to its workers, but to the communities in which it operates.

Citing the poor quality of Prime’s care, and the company’s tendency to bill exorbitant amounts to Medicare, SEIU argues that Prime’s actions imperil everyone but its shareholders, and that legislators and the public should treat the company accordingly.

Prime’s response has been to treat SEIU, quite literally, as an organized crime ring.

Drawing ammunition from SEIU handbooks and PowerPoint presentations, transcriptions of interviews with union leaders and mainstream news reports, Prime describes in the seventy-page complaint a paranoid version of its own history, wherein the SEIU exists for the purpose of waging an “extortionate” campaign against its business.

As one reads Prime Healthcare’s litany of grievances against SEIU, it begins to seem that Prime, or at least whoever is in charge of crafting Prime’s litigation strategy, is unable to imagine that an organization could have any motivation other than the profit principle.

Time and again, the complaint uses descriptions of SEIU’s tactics as proof of the union’s greed. References to the SEIU’s “business model” abound. Union dues are described as “revenue.” Absent is any acknowledgement that SEIU could be concerned not just with the wellbeing of its members, but with the patients at Prime hospitals.

In the words of Prime’s complaint:

[Unionization] campaigns seek to create an environment where a union can achieve any number of objectives, only one of which may be organizing. Very often… the objective is to enrich the campaign participants by exercising control over a target or an industry so as to prevent market-based decision making.

Ah yes, market-based decision making — a habit that has rewarded Prime handsomely. In 2010, the company saw profits of $283 million, on revenues of $1.6 billion — a profit margin nearly unheard of in the health care industry.

If SEIU’s relationship with Prime has been acrimonious, the union has come under scrutiny for being too conciliatory with other companies. Last year, the California Nurses Association and the National Union of Healthcare Workers went so far as to launch a decertification drive for a 43,000-member SEIU local at a for-profit health care chain. (It failed.) Here, the two groups charged, SEIU was more concerned with maintaining its partnership with management than boosting standards for workers and patients.

In the case of Prime, however, there’s hardly a willing partner on the other side, even if SEIU wanted to cozy up to the company.

The seeds of both Prime’s prosperity and the controversy surrounding it can be found in the conglomerate’s founder and chairman, Dr Prem Reddy. A native of southeast India’s Nellore district, Reddy immigrated to the United States in the mid-1970s, intent on practicing as a cardiologist. His entrepreneurial zeal fit with the mood of his adopted homeland.

As he told the India Tribune in 2003:

I want to impress upon fellow immigrant citizens and especially minorities that the “American Dream” is still alive and achievable. . . This great nation of ours gives everyone the opportunity to accomplish his or her fullest potential and I am a clear testimony to this belief.

In the land of market imperative, Reddy has thrived. When profiled by the Los Angeles Times in 2007, he was already commuting via private helicopter between his hospitals, his Southern California mansion, and his second residence in Beverly Hills. An active Republican, he made signification contributions to Arnold Schwarzenegger’s gubernatorial campaigns.

Though Prime Healthcare has received reams of negative press coverage, the most striking aspect of the company’s narrative is the simple obviousness of what Reddy has done: He has established a health care company that runs according to free-market principles — principles that are particularly grotesque when applied to a sector that is supposed to value patient care over bottom lines.

The most frightening aspect of Prime’s success is that, if unchecked, it will likely spawn imitators. It has so depreciated industry standards that other hospitals may begin to ape its business model, or entrepreneurs may jump in and try their hand at health care profit-making.

And organized labor is about the only thing standing in its way.