The U.S. Department of Justice on Wednesday announced that it has filed a Medicare-fraud lawsuit against Prime Healthcare Services Inc. of Ontario, which owns two Valley hospitals — Encino Hospital Medical Center and Sherman Oaks Hospital.

The lawsuit alleges that the company’s Chief Executive Dr. Prem Reddy pressured Prime emergency department doctors and administrators to increase inpatient admission rates, regardless of medical necessity.

The Prime hospitals accused of engaging in this practice also allegedly submitted fraudulent claims to Medicare and other federal health care programs.

“Charging for medically unnecessary services, as alleged in this case, raises costs in government health programs and remorselessly passes that bill along to taxpayers,” Special Agent in Charge Christian Schrank of the U.S. Department of Health and Human Services Office of Inspector General, said in a statement. “Our investigation into the allegations in this case, along with our law enforcement partners, led to the government’s decision to intervene.”

In an email to the Business Journal, Prime said the federal government routinely audits health care providers, and thousands of Prime cases reviewed by regulators were deemed appropriate.

"Prime Healthcare Services is aware that the U.S. Department of Justice has filed a partial motion to intervene into the lawsuit filed in 2011 and believes it will be exonerated,” said Prime Healthcare’s General Counsel Troy Schell in the email. “We have great confidence in the decision-making and medical judgment of our physicians. The care physicians have deemed necessary is in the best interests of patients and their safety.”