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Controversy Surrounds Buyer of St. Vincent + MetroWest Hospitals

Tuesday, August 13, 2013


With its tumultuous past and purchase of Saint Vincent Hospital, Tenet Healthcare returns to Central Mass.

A familiar and legally challenged for-profit hospital chain has returned to Central Massachusetts. The 49-hospital Tenet Healthcare has agreed to repurchase Saint Vincent Hospital in Worcester and MetroWest Medical Center, with campuses in Framingham and Natick, plus the 26 other hospitals owned by another for-profit, Vanguard Health Systems, in a deal valued at $4.3 billion.

A decade-long legal cloud continues to cast a dark shadow over Tenet. One longtime expert on the local and national health-care market is Alan Sager of Boston University School of Public Health. Allowing Tenet to run hospitals on a for-profit basis, he maintains, is like letting the proverbial fox guard the chicken coop.

“U.S. health care has enormous problems,” Sager tells GoLocalWorcester. “[They include] lost access, appropriateness of care, wrong caregivers in the wrong places, too many hospitals or doctors–or too few, at some. Some people hoped that a functioning free market would remedy some of these problems.”

This would be the case, Sager says, if all of the requirements of a truly free and functioning marketplace existed in the health-care sector. But, he adds, America’s health-care system meets none of those requirements.

In the end, according to Sager, for-profits chains such as Tenet and their shareholders will continue to use “legal financial machinations” in order to prosper, with this market dysfunction driven by an “oversupply of money looking for high-return, safe investments.” In the meantime, many–if not most–consumers will remain quite confounded by America’s health-care system, and continue paying a steep price.

It takes on to know one

Tenet owned both Central Mass. hospitals once before, selling them to Vanguard in 2004. At the time, Tenet faced federal charges of Medicaid fraud. It wasn’t the first time that would happen, and it wouldn’t be the last. In the past decade, Tenet has shelled out more than $1 billion to settle a laundry list of legal charges.

In 2002, Tenet agreed to pay $55 million to settle civil fraud charges. The company then saw its stock plunge more than 50 percent amid reports of a federal probe of its aggressive Medicare billing practices. That same probe resulted in the 2011 settlement in which the hospital chain agreed to pay nearly $43 millon to settle the 2004 charges. Tenet stated brazenly that it was “proud” to do so.

Also in 2002, Tenet faced an uproar over a report by the California Nurses Association that the company was taking an average markup of more than 700 percent on drugs it provided to its hospital patients. And the Service Employees International Union called for a probe of the quality of the Tenet's workers-compensation care.

Four years later, in 2006, Tenet agreed to pay more than $900 million to the federal government to settle charges of illegal Medicare-billing practices. That same year, Tenet also agreed to a $21-million civil settlement with federal prosecutors in California, to resolve long-running criminal charges of kickbacks to doctors.

The very next year, 2007, the federal Securities and Exchange Commission filed civil-fraud charges against Tenet, its former CFO and co-president, its former COO and co-president, its former general counsel and chief compliance officer, and its former chief accounting officer. They were accused of failing to disclose to federal investors that Tenet's strong earnings growth from 1999 to 2002 was driven largely by its exploitation of a loophole in the Medicare-reimbursement system.

Tenet finally revealed its scheme to the investing public and admitted that its strategy was not sustainable. As a result, the market value of its stock plunged by more than $11 billion. To settle the charges, Tenet agreed to pay a civil penalty of $10 million. Without admitting or denying the allegations, Tenet also agreed to be “permanently enjoined from violating the antifraud, reporting, and recordkeeping provisions of the federal securities law.”

The $9.6-billion Tenet–either No. 1 or No. 2 in 11 of the 24 U.S. hospital markets–may have violated that vow to stop breaking the law, according to recent news reports. This May, five Tenet hospitals in Georgia and South Carolina were reported to be under federal investigation for potential kickbacks involving a company that operates prenatal clinics serving Hispanic women.

Ironically, Tenet once accused another for-profit hospital chain of ripping off Medicare, as Forbes reported in a 2011 article, Healthcare Bombshell: Tenet Lawsuit Alleges Community Healthcare Cheats Medicare. As a century-old insult goes, “It takes one to know one.”

Should go the way of the dinosaurs

A decade ago, Tenet, Vanguard and other for-profit chains were looking to make a bottom-line killing on non-profit hospitals they'd acquired and made for-profit. Many qualified observers, including BU’s Sager as well as the non-profit Corporate Research Project, issued dire warnings.

In a scathing 2003 report, Corporate Code Blue? The Crisis of the For-Profit Hospital Industry,” CRP concluded, “Amid the dubious track record of the hospital industry–along with that of the pharmaceutical and private medical insurance industries–it is remarkable that most public officials and mainstream policy analysts continue to support for-profit healthcare,” CRP found. “Back when [for-profit] Columbia/HCA [now, HCA] was getting started, it belittled non-profit and public hospitals as inefficient institutions that should go the way of the dinosaurs. With any luck, it will be the corrupt for-profit hospital industry that becomes obsolete."

With Obamacare starting to hit the for-profit hospital fan, it looks like this hopeful wish may come true. And we can thank sequestration and its evil twin, congressional gridlock.

The automatic federal spending cuts–a.k.a. sequestration–have sliced an additional 2 percent from Medicare reimbursement payments to hospitals this year. Beginning next year, many hospitals will also collect less money from Medicaid than they’d been promised when they signed on to the Affordable Care Act.

For-profit health systems whose patients are largely covered by private insurance may–or, depending on their cash reserves, may not–be able to absorb the losses. Already suffering, are rural and inner-city hospitals, which run on thin margins and treat large populations of patients on either Medicare or Medicaid, or without any insurance at all.

For Central Mass. urban, regional hospitals such as Saint Vincent and MetroWest Medical, though, the time is still ripe for good pickings by billion-dollar, bottom-line-driven chains such as Tenet.

The froth on the toxic waste dump

Following are edited highlights of an exclusive GoLocalWorcester interview with Boston University’s Alan Sager, who is both professor of health policy and management and director of the Health Reform Program.

What are requirements of a truly free and functioning marketplace?

You need lots of buyers and sellers, so the market makes the price. You need good knowledge of price and quality, for both providers and consumers. You need autonomous, independent providers…and consumers, who are all paying attention to price and quality…[And] you need easy [market] entry and exit.

How many of those factors are actually happening well in the American health-care market?

None–except for eyeglasses or contacts. With eye care, you know you have a problem–you keep missing exits on the highway–you’re spending your own money, and you can literally see whether it works. And if it doesn’t [work], the lenses are reground at no further cost to you, and no damage to your health. So it’s like buying a toaster oven.

If none of those factors apply to the rest of health care, why are we continuing this grand experiment in commodity, free-enterprise, free-marketplace health care, with these for-profit chains?

When you have [all of those factors in place], pursuing profit allows [18th century moral philosopher and political-economy pioneer] Adam Smith’s “invisible hand” to work. [That’s] the hand that converts private greed into the public good, because you’ve got [producer] efficiency and you’ve got [consumer] satisfaction.

We also don’t have good information about healthcare price and quality. And we also don’t have the key thing, which is that price tracks cost so when consumers buy at the lowest price, they’re rewarding efficient producers.

Way too many consumers, or patients, of health care still treat the doctor as God, whose word is gospel.

Right, and when they’re sick and worried, they’re not disposed to shop. Some people say they shop when they’re healthy, but [most of us] really don’t.…Because none of the…requirements for a functioning free market are–or can be–satisfied in health care, pursuing profit does not give us Adam Smith’s invisible hand. It gives us the froth on the toxic waste dump of bad behavior, occasional indictments for fraud…[and] billion-dollar-plus civil settlements [as in Tenet’s case]. …

…Tenet actually agreed, in a settlement with the SEC, to permanently stop violating the law. Does that mean that if they didn’t agree to that settlement, they could continue to violate the law?

Well, you wonder [laughs]. But half of the money in U.S, health care is wasted: clinical waste; the wrong care; care that people don’t need.

In a 2009 report titled Where Can $700 Billion in Waste Be Cut Annually from the U.S. Healthcare System? Thompson Reuters found that America was wasting about 30 percent of the $2 trillion a year it was spending on healthcare.

Typically, when you see the “30 percent,” they’re referring clinical waste…stemming from not knowing what to do, or misusing the evidence. There’s [also non-clinical waste such as] paperwork waste, which is much higher in the U.S. than anywhere else.

So when non-clinical waste is counted, America wastes about 50 cents of each dollar spent on health care?

[Yes,] about $1.5 trillion [a year]–about double [annual] defense spending. High prices, fraud and waste are the main areas of health-care waste.

That waste would pay down the national debt in only a few years, if we eliminated it.

In about eight years, yes. So unfortunately, adopting market strategies in health care and relying on for-profit [hospital chains such as Tenet] doesn’t work. And when you don’t have a functioning market and you don’t have competent government, you have anarchy. And that’s U.S. health care: chaos and anarchy.

People keep trying to revive the dream or the hope or the fantasy that for-profit care will give us better efficiencies and the satisfactions that the consumer wants and demands and that the markets promise. It is a hope that has disappointed anew every few years.

…Are we approaching a point where, because nature abhors a vacuum, adequate counter forces will set in against market forces in health care?

It’s hard to see [that happening]. …


Steven Jones-D'Agostino is chief pilot of Best Rate of Climb: Marketing, Public Relations, Social Media and Radio Production. Follow him on Twitter at @SteveRDAgostino.


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