State inspectors checked records at four hospitals owned by Prime Healthcare Services and found that 22 of 120 patients diagnosed with septicemia showed few symptoms of it, California Watch reported Sunday.
At a Los Angeles County hospital, seven people diagnosed actually showed signs of much less serious urinary tract infections.
Prime Healthcare Chairman Prem Reddy testified in a 2005 trial that his hospitals were reimbursed about $9,000 per septicemia case, in contrast to $3,000 for urinary infections.
Prime disputes the state findings and says its diagnoses were appropriate.
The rapidly growing Prime chain already has been reported to be under federal investigation for suspected septicemia overbilling.
The probe was sparked by study of medical records by the Service Employees International Union that found Prime hospitals reported septicemia at more than triple the national average.
Prime charges the SEIU study is part of a campaign to "extort" labor gains for its workers.