More Hospitals Settle, But Not for Much

In late February, there have been several notable legal settlements made by more or less prominent hospitals, discussed in rough order of size.

United Regional Health Care System

Per the Cypress Times,

The Department of Justice announced today that it has reached a settlement with United Regional Health Care System of Wichita Falls, Texas, that prohibits it from entering into contracts that improperly inhibit commercial health insurers from contracting with United Regional’s competitors. The department said that United Regional unlawfully used these contracts to maintain its monopoly for hospital services in violation of Section 2 of the Sherman Act, causing consumers to pay higher prices for health care services.

Note that this appears to be the first settlement involving the Sherman Anti-Trust Act that included a hospital system, or any health care organization which we have discussed. As the Times article mentioned,

This is the first case brought by the department since 1999 that challenges a monopolist with engaging in traditional anticompetitive unilateral conduct.

Here is more detail about the alleged offenses:

According to the complaint, United Regional is by far the largest hospital in Wichita Falls. Its share of general acute-care inpatient hospital services is approximately 90 percent, and its share of outpatient surgical services is more than 65 percent. It is the region’s only provider of certain essential services such as cardiac surgery, obstetrics and high-level trauma care. In Wichita Falls, United Regional’s average per-day rate for inpatient hospital services sold to commercial health insurers is about 70 percent higher than its closest competitor for the services that are offered by both hospitals.

The department said that in order to maintain its monopoly in the provision of inpatient hospital and outpatient surgical services, United Regional systematically required most commercial health insurers to enter into contracts that effectively prohibited them from contracting with United Regional’s competitors. United Regional’s contracts required these insurers to pay significantly higher prices if they contracted with a nearby competing facility. Since United Regional is a must-have hospital for any insurer that wants to sell health insurance in the Wichita Falls area, and because the penalty for contracting with United Regional’s rivals was so significant, almost all insurers offering health insurance in Wichita Falls entered into exclusionary contracts with United Regional. As a result, competing hospitals and facilities could not obtain contracts with most insurers and were less able to compete, helping United Regional maintain its monopoly in the relevant markets and raising health-care costs to the detriment of consumers.

As far as I could tell, however, for this apparently severe offense there will be no actual penalty. The settlement only appears to provide for a promised change in future behavior by the hospital:

The proposed settlement, which if accepted by the court would be in effect for seven years, restores lost competition by prohibiting United Regional from using agreements with commercial health insurers that improperly inhibit insurers from contracting with United Regional’s competitors. In particular, United Regional is prohibited from conditioning the prices or discounts that it offers to commercial health insurers based on whether those insurers contract with other health-care providers and from inhibiting insurers from entering into agreements with United Regional’s rivals. United Regional is also prohibited from taking any retaliatory actions against an insurer that enters into an agreement with a rival provider.

So if a hospital engages in actions that restrain competition and results in a de facto monopoly, all the hospital leaders must fear is that at some point it may have to change its monopolistic behavior, according to this settlement.

Catholic Healthcare West

Per the San Jose Business Journal,

Catholic Healthcare West, parent company to local Mercy hospitals, has agreed to pay $9.1 million to settle allegations that seven of its hospitals submitted false Medicare claims, U.S. Attorney Benjamin Wagner announced late Friday.

Here is more detail about the alleged offenses:

The hospitals include Community Hospital of San Bernardino, St. Bernadine Medical Center in San Bernardino and St. Elizabeth Community Hospital in Red Bluff.

The settlement also included allegations that O’Conner Hospital in San Jose, Seton Medical Center in Daly City and St. Joseph’s Hospital and Medical Center in Phoenix submitted inflated costs for their home health agencies and were overpaid. The agreement also resolves allegations that St. Joseph’s overstated how much was owed in disproportionate share funding for indigent patients.

CHW no longer owns O’Conner Hospital or Seton Medical Center.

The settlement resolves allegations that St. John’s Regional Medical Center in Oxnard was overpaid for treating a high percentage of patients with end-stage kidney disease for several years, including two when it was not eligible.

Note that while the amount of the payment assessed appears substantial, it will be made a very long time after the alleged bad behavior occurred:

All of the problems occurred in the 1990s. Federal investigators began looking into the matter in 2001, but it took years to compile evidence and reach a settlement. All of the hospitals had set aside money in a reserve account should they have to pay funds back to the government.

So if a hospital submits false claims to the US government, hospital leaders need not fear paying anything back for more than 10 years, according to this settlement.

By the way, this was not the first such settlement that Catholic Healthcare West has had to make:

In 1998, a whistleblower at Woodland Healthcare disclosed instances of alleged fraud by two medical groups affiliated with local Mercy hospitals, Woodland Clinic Medical Group and Medical Clinic of Sacramento.

Following an extensive investigation, former U.S. Attorney John Vincent announced a $10.25 million settlement in May 2001. The allegations included false claims to inflate reimbursement from Medicare, Medi-Cal and military health insurance programs.

Massachusetts General Hospital (Partners Healthcare)

Per the Boston Globe,

Massachusetts General Hospital has agreed to pay the federal government $1 million to settle potential violations of patient privacy laws, which occurred when an employee commuting to work lost patient records on the T’s Red Line two years ago.

Here is more detail about the alleged offenses:

Health information for 192 patients in Mass General’s Infectious Disease Associates outpatient practice was lost in the incident, including that of patients with HIV/AIDS. The documents included a patient schedule containing names and patient medical record numbers, as well as billing forms containing the name, birth date, medical record number, health insurer and policy number, diagnosis, and name of providers for 66 of those patients.

Note that Massachusetts General Hospital is not independent, but part of Partners Healthcare, which reported net patient service revenue of $1.5 billion in the most recent quarter, again per the Boston Globe. So this settlement amounted to about 0.00167% of the system's patient revenue.

So if a hospital engages in actions that violate the trust patients have that their information will be kept confidential, all hospital leaders have to fear is that their institution will eventually have to pay something much less than round-up error of their revenue, according to this settlement.

Summary

Again, the volume of participants in the ongoing march of legal settlements is a reminder of how pervasive bad behavior is in the US health care system. Remember that these settlements are in some sense the tip of the iceberg. They only indicate behavior that inspired legal action which was in turn was publicized. It is likely that for each behavior that eventually leads to a settlement, there are many behaviors that go unreported, or that cause no reaction.

It is interesting that sorts of bad behavior that formerly caused no official reaction are now leading to settlements. As noted above, there had been no recent legal actions against concentration of power in health care up to the United Regional Health Care System settlement.

However, like many of the settlements we have previously noted, the latest crop seem to have little deterrent power. The United Regional Health Care System settlement seemingly involved no monetary penalties whatsoever, only a promise of not to do it again. The Catholic Healthcare West settlement's monetary penalties were so delayed, occurring over 10 years after the actions in question, their deterrent power is highly questionable. The Massachusetts General Hospital (really the Partners Healthcare) monetary penalty was infinitesimal compared to the size of the institution's budget.

Furthermore, as in nearly every other case we have reported, no person who authorized, directed or implemented the actions in question had to pay any penalty, or suffer any negative consequence, or was even identified.

So while there seems to be some increased interest in addressing some kinds of bad behavior, like monopolistic practices, that heretofore generated no official reactions, regulatory authorities still seem loathe to even slap the wrists of the people whose aggregated actions are making our health care so expensive, so inaccessible, and probably of such mediocre quality.

Thus, in recent years, health care leaders, like leaders of financial service companies, seem to have impunity,  Up to now, they have been able to preside over all sorts of bad behaviors that help support their exorbitant remuneration without fearing any personal penalties.  As Charles Ferguson, the director of Inside Job, said when accepting his Academy Award last night, per MarketWatch,

Forgive me, I must start by pointing out that three years after a horrific financial crisis caused by fraud, not a single financial executive has gone to jail — and that’s wrong

After a slow-motion health care train wreck over the last 30 years, hardly any health care executives have even had to pay a fine, much less go to jail.

So I repeat, and repeat, and repeat: we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

Reading Between the Lines: "Scrappy" WellPoint as an Illustration of Contemporary Health Care's Flaws

Giant US for-profit insurance company/ managed care organization WellPoint has provided numerous examples of problems with the current way health care organizations are lead.  Here we discussed charges that recent rate increases by its Anthem subsidiary may have violated previous agreements not to directly fund from premiums the golden parachutes of executives who left after the merger of Anthem and WellPoint; that WellPoint used magical accounting to make administrative costs appear to be from patient care; and that WellPoint investigated patients who developed cancer to find minor errors in their policy applications, and  used these as excuses for post-hoc cancellations (rescissions) of their policies.  And here we discussed a long list of WellPoint's previous ethical issues.

Recently, Reed Abelson penned a discussion of WellPoint's leadership in the New York Times, entitled "A Scrappy Insurer Wrestles With Reform."  Reading between the lines suggests some fundamental flaws in our current model of leadership for health care organizations.

The Halo Effect

Over long years of service in the last century, many health care organizations built up sterling reputations. Blue Cross and Blue Shield health insurance plans, which were all originally not-for-profit, regionally (state-wide) based organizations, became known for paying for care rather generously and with little fuss. (However, in retrospect, this may have certainly contributed to rising health care costs.)  However, their reputation was clearly for good service leading to generous care.

However, in the last 20 years, many of these plans converted to for-profit corporations, and/or were bought out by for-profit corporations. WellPoint is now a for-profit corporation that operates many subsidiaries that still do business as "Blue Cross" and "Blue Shield."

Over the last decade, WellPoint has become one of the nation’s largest insurers by buying up the Blue Cross plans that dominate the individual and small group markets in their states.

So,

[WellPoint CEO] Ms. [Angela] Braly argues that WellPoint is well positioned because of its size and the strong appeal of the Blue Cross name. 'We have a lot of historical strengths,' she said in an interview

However, it is likely that the "strong appeal" of many of these Blue Cross plans is based on a halo effect. Many individuals and small businesses may still think that the plans are relatively local, not-for-profit organizations. If not, they may still believe the plans are run as mission-driven organizations, not subsidiaries of a massive for-profit corporation.

Thus many health care organizations may so profit by an outdated "halo effect." People may not realize that leadership of these organizations is no longer a calling, but a way to become very rich.  The strong appeal of the Blue Cross name may, in fact, be misleading.  Such confusing, if not deceptive marketing has become a hallmark of our era of commercialized health care.

Market Domination and Health Care Costs

Prior to almost every merger, one hears an argument that larger organizations and corporations are more efficient, and hence will charge lower prices and lead to lower costs. Mr Abelson wrote,

WellPoint now has about 34 million customers, putting it ahead of the UnitedHealth Group in membership, and $60 billion in revenue, second behind UnitedHealth. While UnitedHealth and the other national companies tend to focus on providing services to large employers with workers in multiple locations, WellPoint’s focus has been on the local markets. Its strong presence allows it to demand the lowest prices from doctors and hospitals, while still offering customers a broad network of providers from which to choose.

I doubt there is any good data to show that such market power has resulted in lower premiums or lower health care costs.

In fact, Mr Abelson also wrote,

Because of its dependence on the higher profit margins of its traditional business, WellPoint has also not been as adventurous in trying new approaches,....

If WellPoint really meant to use its market dominance to force down its costs, it appears that the main beneficiary of this has been the company's profit margin, not its policy-holders.

Furthermore,

Starting in 2014, WellPoint and its competitors will have to offer coverage to anyone who wants it, including people with potentially expensive pre-existing conditions, rather than carefully selecting the people they are willing to cover. As soon as next year, insurers will also have to spend at least 80 cents of every dollar they collect in premiums on providing health care to individual customers.

So WellPoint used its market power to "carefully select" the people it insured so as to avoid anyone who might get sick, thus making a mockery of the concept of health insurance. Furthermore, the implication is that WellPoint spent more than 20% of premiums on management and administration (including the breathtaking compensation of its top leaders), and less than 80% on actually paying for health care.

As Mr Abelson noted, (as we did here), just how personally remunerative WellPoint's market power has been for its top leader:

Ms. Braly, ... received $13.1 million last year in compensation....

In fact, as we should have learned in this country more than 100 years ago, market domination leads to higher profits for the dominant company, higher compensation for its employees, and higher prices. However, in health care, for some reason people still believe that concentration of power leads to efficiency.

Health Care Leaders Who Know Little About Health Care

Ms Braly appears to have no direct experience, training, or expertise in health care, medicine, public health, or biologic science.

Ms. Braly, 48, a native of the Dallas area who received a law degree from Southern Methodist University, worked as a lawyer before she became general counsel to a small Blue Cross insurer in Missouri. She eventually ran that company, which is now part of WellPoint. Before being picked for WellPoint’s top job in June 2007, Ms. Braly worked as both a corporate executive and the company’s general counsel.

Her selection as C.E.O. surprised many analysts and investors. While some believed that she would bring a warmer touch to the company, others worried that she did not have enough years as a manager to navigate a highly regulated and often highly political environment.

In the last year, WellPoint became a favorite example of Congress and the administration for why health care overhaul was needed. Even people inside the industry say the company has been painfully slow to recognize consequences of some of its controversial actions, whether canceling a sick patient’s coverage or raising premiums on policies that lawmakers already call too expensive. And some say that Ms. Braly’s quickness to argue with WellPoint’s critics, revealing her training as a lawyer, is not always productive.

'WellPoint is the most incredibly tone-deaf insurance company in an industry full of deaf executives,' says Mr. Laszewski, the Virginia consultant. He criticizes Ms. Braly, who received $13.1 million last year in compensation, as being insensitive to the politics involved in running a health insurer, at both the state and federal levels. 'I don’t think she has the scar tissue and experience,' he says. 'I don’t think she has the marketplace instincts.'

Ms. Braly says her experience in government affairs makes her well suited for handling a complex regulatory environment.

Ms. Braly's background was cited as unusual for a health care CEO not because she has no obvious experience in direct health care, or its scientific or social scientific bases, but because she is a lawyer, not an MBA. It is interesting that we as a society have become so used to health care run by businesspeople that nothing in the article even obliquely suggested that Ms. Braly could benefit from some direct knowledge of or experience in caring for patients (or in biology, epidemiology, public health, etc), much less some sympathy for the values of health care professionals.

So I submit that this profile of the leadership of WellPoint provides another reason to reconsider why we have journeyed so far from an era when the AMA asserted, "the practice of medicine should not be commercialized, nor treated as a commodity in trade."  Current commercial health insurance (and the power that generally has been concentrated in large health care organizations) has certainly turned medicine into a commercialized venture, and treated the work of the individual health care professional as a commodity in trade.  Yet so far, what we have called health care reform in the US has just reinforced the power of large health care organizations. 

It also suggests that true health care reform ought to address the power now concentrated in large health care organizations, and ought to foster more honest and less profuse marketing by companies lead by people who have some knowledge of health care, and sympathy for its values.  We need to reinforce the neglected idea that health care ought to be a calling, not simply a way for some to become rich.

Investigations, Indictments and Guilty Pleas at Famous US Teaching Hospitals

Some of the US most prestigious academic medical centers have been receiving unusual scrutiny lately.

Mount Sinai Medical Center and New York - Presbyterian Hospital.

As reported first by the Wall Street Journal,

Federal prosecutors are investigating allegations that bid rigging and fraud at Mount Sinai Medical Center and New York-Presbyterian Hospital resulted in the hospitals awarding contracts worth tens of millions of dollars to outside contractors.

Purchasing officials at the hospitals, two of the city's largest and most prestigious, are alleged to have gotten more than a million dollars in payments from companies that were then given lucrative contracts to perform work such as re-insulating pipes and removing asbestos, according to documents filed in the Southern District of New York.

Nine contractors are involved in the case. So far, eight people and three companies supplying the hospitals have pleaded guilty to charges including bid-rigging, mail fraud and tax fraud. Three more people have been indicted on similar charges.

The Federal Bureau of Investigation and Internal Revenue Service have been investigating and the Justice Department's Antitrust Division is prosecuting the allegations in the case.

Some relevant specifics:

The most recent indictment, handed up by a federal grand jury April 6, involved the alleged awarding of more than $195,000 in maintenance and insulation contracts. Mario Perciavalle, associate director of plant services at Mount Sinai, is accused of taking at least $20,500 in cash from a Long Island City company in 2004 and 2005 in exchange for the company, unnamed in documents, winning the deals.

Prosecutors also are pursuing a case involving a former official at New York-Presbyterian, Salvatore Scotto-DiVetta, a supervisor at the hospital's Facilities Operations department. He pleaded guilty in March to rigging bids for re-insulation contracts, the Department of Justice said.

The next day, the Journal reported:

Two New York-Presbyterian Hospital officials and two contractors who did business with the prestigious hospital were indicted on fraud charges Tuesday in the latest cases stemming from a federal investigation into bid-rigging and fraud.

The indictment alleges that the hospital officials—Santo Saglimbeni of Armonk, N.Y., and Emilio Figueroa, whose hometown wasn't given—received payments and gifts in exchange for awarding contracts to certain companies.

And already the box score for this investigation increased:

As a result of the investigation, a total of five hospital employees, 10 people outside the hospitals and six companies have either pleaded guilty or face charges.

The comments by hospital officials had a familiar ring to anyone who has been following the hearings in Washington on the global financial collapse. From the first article:

A Mount Sinai spokesman said the hospital notified the Justice Department 'about the possibility of impropriety immediately after it was identified in an internal audit' and is cooperating with the investigation. The spokesman said the hospital dismissed the employee under investigation and instituted tougher contracting systems.

From the second:

New York-Presbyterian was an 'unknowing victim of these alleged crimes,' a hospital spokeswoman said. She also said that the staffers named in the indictment no longer work at the hospital, and it is cooperating with the investigation.

Partners Healthcare System

Just out today in the Boston Globe:

The US Department of Justice has opened a civil investigation into possible anticompetitive behavior by Partners HealthCare System Inc., the region’s most powerful hospital and physician network.

In a letter sent to Partners and the state’s three largest health insurers on April 19, investigators from the Justice Department’s antitrust division demanded documents relating to Partners’ 'contracting and other practices in health care markets in Eastern Massachusetts.'

The letter, obtained by the Globe, said the probe sought to determine whether the practices violated the Sherman Antitrust Act, which bars companies from using their market power to limit trade or artificially raise prices.

The background is:

Boston-based Partners has been under growing scrutiny because of its market power and ability to draw high prices from insurers. The company employs about 5,500 physicians and operates a half dozen smaller hospitals, in addition to their prestigious Harvard-affiliated Boston teaching hospitals, Mass. General and the Brigham.

Earlier this year, Attorney General Martha Coakley issued a report documenting that Massachusetts insurance companies pay some hospitals and doctors, including those in the Partners network, twice as much money as others for essentially the same patient care. The report pointed to the market clout of the best-paid providers as a main driver of the state’s spiraling health care costs.

A 2008 Globe Spotlight Team series focused on the Boston market found that hospitals such as Mass. General and the Brigham typically are paid 15 to 60 percent more for essentially the same work as other hospitals.

Soon after that series, Coakley launched her investigation into whether Partners and Blue Cross-Blue Shield, the state’s largest health insurer, may have illegally colluded to increase the price of health insurance statewide over the last decade, according to several legal and government sources.

And again, the official response had a familiarly evasive ring:

Partners spokesman Rich Copp yesterday noted that the hospital network already has supplied similar information to investigators from the state attorney general’s office, which launched its own review of Partners’ contracting practices last year. He noted in Partners’ defense that it vies with other providers in the area’s 'highly competitive' health care market.

'The Department of Justice has requested the same information that we have provided to the attorney general’s office,' said Copp. 'We will continue to cooperate with both government agencies during this ongoing analysis of health care in Massachusetts.'

Summary

So there it is.  Multiple indictments for and guilty pleas to charges of bid-rigging and fraud at two New York academic medical centers, and state collusion and federal anti-trust investigations of a Massachusetts hospital system.  The issues involve four of the most prestigious teaching hospitals in the US.

Of course, not all the indictments may result in convictions, and the investigations may not result in charges.  But this involves some institutions that at one time would have appeared beyond reproach.  The lack of clear denials from the inevitable official spokespeople, and attempts to deny responsibility for the actions of employees elsewhere identified as "officials" do not provide much reassurance.

Of course, readers of Health Care Renewal would have known that questions could be raised about leadership and governance of these once-revered institutions.  Questions could be raised about the incentives implied by the huge compensation given to the top hired executives at New York - Presbyterian, awarded by a board of trustees that includes some of the leaders of the more prominent failed finance corporations involved in the global financial collapse.  Questions could be raised about the dominant presence of finance leaders and possibly conflicted individuals on the Partners board, and apparent interlocks among Partners leadership and the leadership of the largest health insurer in Massachusetts, which was willing to pay that system so much.

Maybe, instead of lecturing the more lowly among us about our responsibilities to improve health care, the leaders of our previously most august health care institutions need to introspect more about their own responsibility to address the metastasis of "greed and incompetence" in health care from the financial sector.