Tales of greater transparency in healthcare finance

A few weeks ago a press release moved across my desk that was distinctly different from the thousands of others I have scrutinized in the 18 years I have spent writing about the healthcare industry.

The release came from Prime Healthcare Services, a rapidly growing for-profit hospital chain in California that specializes in buying smaller and often financially distressed facilities. It then turns them around by canceling contracts with insurers and admitting a large number of patients through its emergency room, among other methods.

The three-page release accused the Services Employees International Union-United Healthcare Workers and a former California state senator of extortion. It also said a highly regarded non-profit investigative journalism outfit repeatedly alleged factual distortions created by the labor union.

It turns out that the SEIU, using data it compiled, had accused the chain of submitting claims to Medicare for treating a large number of elderly patients of kwashiorkor, a severe form of malnutrition usually confined to children in Africa. California Watch later validated the claims through its own investigation, which it published a couple of weeks after Prime's release. Prime is already under investigation by the U.S. Department of Justice and the U.S. Department of Health and Human Services for allegedly treating very high rates of patients with septicemia--which also began with SEIU numbers-crunching.

The press release, according to a variety of people I spoke with, was an attempt to cut off another investigation before it occurred. It was an unconventional way of doing so, but Prime is an unconventional hospital operator. Its acquisition strategy has done some good for community hospitals: Centinela Hospital Medical Center has been spruced up and made safer since Prime acquired it in late 2007. It also donated nearly $1 million to another hospital it failed to acquire at auction late last year.

Prime's managers are no doubt aware of another fact: the buffet of indictments, firings and provider investigations moving across the wires in the healthcare industry every day. In the past two weeks alone, events include:

• The Medicare Fraud Strike Force, a joint effort between the Department of Health and Human Services and the FBI, charging 111 individuals with bilking the Medicare program out of $225 million;
• Roosevelt Hairston, Jr., general counsel and executive vice president at Children's Hospital of Philadelphia, being fired after the hospital administration discovered financial irregularities; and
• Catholic Healthcare West paying $9.1 million to settle charges it received overpayments from the Medicare program.

These news item make it abundantly clear that healthcare finance has reached levels of transparency only reflected on just a decade ago. The list is so long that some of the biggest cases over the past 15 years--such as Tenet and HCA's battles over Medicare--seem like relics of the distant past. Indeed, Florida's voters elected Rick Scott governor last November, no doubt having forgotten why he stepped down from Columbia/HCA in the late 1990s.

Nevertheless, the prevailing atmosphere has clarified that the healthcare industry's finances are being scrutinized in ways they never were in the past. Attention must be paid to the smallest irregularities, lest an unpleasant surprise--and decision--confront a chief financial officer or board member.

Most hospital operators aren't going to fight this battle in the media. But the fact that everyone seems to be far more on their toes is inescapable. – Ron