Broken Promises: Latest HCA Settlement Suggests Skepticism about the Next Big Thing in Health Care

A long time ago in the US, most people got care from physicians who were self-employed, or part of physician partnerships.  If they had to be hospitalized, it was at hospitals that were community or academic non-profit organizations.   If they had health insurance, it was likely from a non-profit Blue Cross Blue Shield affiliate.  However, with the rise of market fundamentalism, we have heard the promises of increased efficiency and innovation from for-profit health care.  So hospitals, insurance companies, and now increasingly physicians' practices have been bought up by for profit corporations.<br /><br />Many politicians and policy-makers seemed to believe the promises, and often joined the cheering sections for the latest and greatest for-profit conversions.  Should they have done so?  Let us look at a case that recently hit the news again and think about it..<br /><br /><b>Background - HCA Acquired Health Midwest</b><br /><br />Way back in 2002, large for-profit hospital chain HCA, formerly Columbia/HCA, acquired a sizable non-profit hospital system, Health Midwest.  As the Los Angeles Times then <a href="http://articles.latimes.com/2002/oct/17/business/fi-tenet17">reported</a>,<br /><br /><br /><blockquote class="tr_bq"><div class="area" id="area-article-first-block"><div class="mod-latarticlesarticletext mod-articletext" id="mod-a-body-first-para">In a setback for Tenet Healthcare Corp., rival hospital giant HCA Inc. said Wednesday that it has agreed to buy Health Midwest, a 14-hospital chain based in Kansas City, Mo., for $1.13 billion.<br /><br />Santa Barbara-based Tenet and HCA were the two finalists in a rare opportunity to acquire, in one swoop, a dominant hospital system in a growing urban market. The 20-member board of Health Midwest, a nonprofit company that has been struggling financially, said it voted unanimously to go with HCA.</div></div></blockquote><br />The biggest factor in the decision by the Health Midwest board to accept the HCA offer was apparently the almighty dollar.<br /><br /><blockquote class="tr_bq"> '<i>HCA's bid was much higher</i>,' [Tenet spokesperson Harry] Anderson said, noting that he could not disclose Tenet's offer because of a confidentiality agreement. </blockquote><br />But in addition to cash, HCA made some promises that sounded attractive to the board.<br /><br /><blockquote class="tr_bq"> In addition to the cash price,<i> HCA said it would spend $450 million for capital improvements over the next five years.</i></blockquote><br />That promise came from the top of HCA, as <a href="http://nashvillepost.com/news/2003/4/1/hca_closes_health_midwest_deal_finally">reported</a> by the Nashville post,<br /><br /><blockquote class="tr_bq"> HCA Chief Executive Jack Bovender said: 'This has been a comprehensive, thorough process with a lot of community participation. We are ready to get to work to <i>improve these hospitals through significant capital infusion</i> and by making long term operational improvements.'</blockquote><br /> Furthermore, as the Los Angeles Times also <a href="http://articles.latimes.com/2002/oct/17/business/fi-tenet17">reported</a><br /><br /><blockquote class="tr_bq">Health Midwest spokesman Chris Whitley said <i>price was not the only factor in the decision</i>.<br /><br />'As important to the board was to find a party that would offer <i>a strong commitment to maintain and honor the various religious, cultural and charitable traditions,</i>' he said.</blockquote>There were objections by people who did not have decision making authority, but they apparently did not carry much weight<br /><br /><blockquote class="tr_bq">Labor and community activists in Kansas City have opposed a takeover of a nonprofit health system by an investor-owned corporation, raising concerns that such a conversion would lead to cuts, hurting employees and consumers.</blockquote><br />In retrospect, why Health Midwest was so trusting of HCA at the time was unclear.  HCA, after all, did not have a track record then that should have inspired trust.  The HCA acquisition of Health Midwest was approved only a few years after what was then Columbia/ HCA settled allegations of extensive Medicare fraud.  the $1.7 billion the company paid made it the largest Medicare fraud case settled up to that time (and was larger than the amount it later spent on this acquisition.    See <a href="http://hcrenewal.blogspot.com/2010/05/how-did-ceo-who-presided-over-company.html">this post</a> for some details and sources.)  This certainly could have raised a "red flag" before the deal was concluded.  But it did not. <br /><br />This deal was typical of many deals in which for-profit corporations, some backed by <a href="http://hcrenewal.blogspot.com/search/label/private%20equity">private equity firms</a>, took over sometimes struggling non-profit hospitals, while promising great things for their communities.  For example, see our posts about the take-over of a health care system called <a href="http://hcrenewal.blogspot.com/search/label/Caritas%20Christi">Caritas Christi</a>, by <a href="http://hcrenewal.blogspot.com/search/label/Cerberus">Cerberus Capital Management</a>.  Caritas Christi was given the reassuring name of <a href="http://hcrenewal.blogspot.com/search/label/Steward%20Health%20Care">Steward Health Care</a>, and then proceeded to take over, or try to take over additional hospitals. (Click the links for this long story.)   <br /><br /><b>Broken Promises - the New HCA Settlement </b><br /><br />A new legal settlement by HCA suggests that such takeovers of non-profit hospitals by for-profit corporations ought to be regarded with much greater skepticism.  This time, <a href="http://www.nytimes.com/2013/01/25/business/hca-must-pay-kansas-city-foundation-162-million.html">per the New York Times</a>, <br /><br /><blockquote class="tr_bq"><i>HCA, the nation’s largest profit-making hospital chain, was ordered on Thursday to pay $162 million after a judge in Missouri ruled that it had failed to abide by an agreement to make improvements to dilapidated hospitals</i> that it bought in the Kansas City area several years ago. </blockquote><br />Thus the new HCA settlement suggested that those fine promises made by HCA executives and their cheer leaders when HCA was seeking to take over Health Midwest were broken.<br /><br /><blockquote class="tr_bq"><div itemprop="articleBody">The trouble in the Kansas City area began a year after HCA acquired a dozen hospitals from Health Midwest in 2003 for $1.125 billion. As part of the deal, <i>HCA agreed to make $300 million in capital improvements in the first two years and an additional $150 million in the following three. The hospital chain also agreed to maintain the levels of care that had been provided to low-income individuals and families in the area for 10 years. </i></div><div itemprop="articleBody"><br /></div><div itemprop="articleBody">But when the members of the Health Care Foundation of Greater Kansas City, a nonprofit created from the proceeds of the sale of the hospital, received their first report from HCA in 2004 they discovered the hospital was already way behind. </div><div itemprop="articleBody"><br /></div><div itemprop="articleBody">Of the $300 million it was supposed to spend in the first two years, its own documents showed it had spent only about $50 million, according to Mark G. Flaherty, one of the founding members of the foundation and its general counsel. </div><div itemprop="articleBody"><br /></div>HCA’s reports to the foundation also indicated that the level of charitable care it provided at the system’s large inner-city hospital had fallen while charitable care provided at the more affluent suburban hospital had risen sharply, Mr. Flaherty said. </blockquote><blockquote class="tr_bq"><div itemprop="articleBody">'That was a big red flag to us,' he said.</div><div itemprop="articleBody"><br /></div><div itemprop="articleBody">After repeatedly asking HCA executives for explanations but receiving none, the foundation sued HCA in 2009. The case went to trial for several weeks in 2011. </div></blockquote><br /> Note that there were alleged violations of two key provisions of the original deal, improvements to existing hospitals and guarantees of charitable care.  So here is at least one case, involving the largest US for-profit hospital corporation, showing violation of the sorts of promises that those promoting for-profit take-overs tout as showing at least the goodwill of the new corporate owners.<br /><br /><b>Should the HCA Track Record Have Led to Questions About Trustworthiness? </b><br /><br />It is unclear how often anyone has bothered to check whether similar promises made in other deals were fulfilled.  It appears that such inquiries might actually involve a lot of bother.  Note that in this case it took almost six years for the community foundation to obtain enough information to conclude that HCA had not met its obligations and file a lawsuit, and another almost four years to get the case resolved.<br /><br />The New York Times hinted that there was at least one other inquiry about a contemporaneous HCA deal.  While "a judge ruled in HCA's favor, deciding that Portsmouth Regional Hospital [in New Hampshire] would remain part of HCA after community leaders tried to regain control," the court proceedings did produce<br /><br /><blockquote class="tr_bq"> testimony in a 2011 trial, [in which] a former hospital official claimed he had <i>difficulties getting HCA to pay for what he and others described as critical equipment and facility upgrades</i>. </blockquote><br />Meanwhile, there have been other recent events that should raise further questions about the trustworthiness of HCA going forward.  Last year extensive reporting suggested that HCA hospitals put short-term revenue ahead of patients' welfare through overuse of lucrative cardiac procedures and and undertreatment of poor patients in emergency departments and debilitated patients with bed sores (see <a href="http://hcrenewal.blogspot.com/2012/08/paging-doctor-ebdita-how-private-equity.html">this post</a>).   Also last year HCA settled allegations it provided kickbacks to physicians at some of its hospitals to refer patients to its hospitals (see <a href="http://hcrenewal.blogspot.com/2012/09/just-latest-legal-settlement-for-hca.html">this post</a>).      <br /><br />Moreover, the record over the long term raises a big question as to why the good people of Missouri, the "show me" state, trusted HCA sufficiently for hospital acquisition deal to go forward in 2003.  As we wrote above, HCA was only a few years out of making the biggest settlement for federal health care fraud known at that time. <br /><br /><b>Summary </b><br /><br /> In 2010, we <a href="http://hcrenewal.blogspot.com/2010/04/more-doubts-about-private-equity-taking.html">suggested</a> that the take-over of non-profit hospitals by for-profit firms owned by private equity ought to be viewed with extreme skepticism.  In 2010, in<a href="http://wendellpotter.com/deadlyspin/"> <i>Deadly Spin</i></a>, former CIGNA public relations chief Wendell Potter showed how the conversions of non-profit Blue Cross Blue Shield health insurance plans to for-profit corporations were justified by the need to gather more capital to provide services comparable to new for-profit competitors, but were really motivated by the greed of executives who "would earn bigger pay packages for managing larger businesses, and if they could convert them to for-profit companies, they stood to earn even more." <br /><br />I submit that if anyone were able to look carefully at the results of the various deals that allowed for-profit corporations to take over hospitals, other organizations that directly take care of patients, health insurance companies, and now even physicians' practices, they would likely find that a lot of fine sounding promises made were broken and assurances made were false.   <br /><br /><br />From now on, I can only hope that health care professionals, policy-makers, politicians, but mainly the public at large will be appropriately skeptical of the fluffy promises made by those who stand to personally gain from the latest big thing in health care.  In particular, we all should be acutely skeptical the next time someone promises lower costs, better care, innovation, etc, etc by converting a community non-profit hospital to a subsidiary of a big for profit corporation.  

Broken Promises: Latest HCA Settlement Suggests Skepticism about the Next Big Thing in Health Care

A long time ago in the US, most people got care from physicians who were self-employed, or part of physician partnerships.  If they had to b...

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