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Stones & Bones / health care / volume 12 number 7, July 2010 DOSE OF REALITY When I asked why the state so frequently changed the third-party administrator for the AlaskaCare health plans, the ones that cover state employees and retirees, I got an answer from Rachael Petro, Deputy Commissioner of the Department of Administration under whose purview the self-insured plans fall. It’s not all that frequent, she explained, but Alaska statutes require the department to re-bid the contract for the third party administrator at least every five years. In May 2009, for-profit Wells Fargo Insurance Services won the bid and thereby replaced nonprofit Premera Blue Cross as third-party administrator. More recently, Wells Fargo announced that, effective April 1, 2010, it has entered into a preferred provider agreement with for-profit Alaska Regional Hospital, replacing the one AlaskaCare previously had with nonprofit Providence Hospital in the Anchorage area. That announcement led to my previous column “Something Fishy in Anchorage: A provider preferred by whom?” that questioned the numbers and some of the statements in the Wells Fargo announcement.(1) I (and others) then found it interesting to learn that the same Deputy Commissioner Petro tried to get the article retracted when it first appeared. That action of course led me to look into the situation a bit more, and one avenue of investigation was suggested to me by Horace Heffner of Palmer. He too was skeptical about the statements in the Wells Fargo document, and also wondered if something was odd about the Wells Fargo choice of Alaska Regional over Providence as preferred provider. Following up on Heffner’s suggestion, I find that the new relationship between Alaska Regional Hospital and Wells Fargo is not one between complete strangers. No, these organizations go way back together, and part of the reason is that Alaska Regional is not just a little stand-alone local hospital. I hadn’t quite cottoned on to that fact because the Alaska Regional Hospital’s website gives no hint that the hospital is part of a giant for-profit chain. Some websites list the ownership of Alaska Regional as “Proprietary.” Search a bit more and the secrecy falls away: Alaska Regional is owned by Columbia/HCA, Inc., the nation’s biggest hospital operator—it is just a tiny piece of a mighty machine that has a history of churning out high profits for its owners. Columbia/HCA operates 162 hospitals and 106 surgery centers in 20 states and the United Kingdom, making it the world’s largest for-profit operator of health care services.(2) Alaska Regional Hospital’s parent company has an interesting and somewhat checkered past. Originally named Hospital Corporation of America, and later HCA, the company was founded in 1967 by, among others, the family of the well-known doctor and ex-senator Bill Frist (remember his intervention in the Terri Schiavo case). HCA underwent tremendous growth in the 1970s and 1980s. In 1989 its management team led by Chairman Thomas J. Frist acquired the company with a “management buyout” for $5.3 billion. In 1995, HCA merged with Columbia Hospital Corporation to form Columbia/HCA. (Alaska Regional Hospital is in some places identified as Columbia Alaska Regional Hospital.) In December 2000, Columbia/HCA pled guilty to Medicare and Medicaid fraud and ended up paying over $1.7 billion in criminal and civil fines—making this the largest fraud settlement in United States history at that time. Prior to this event, from 1983 until 1994, the chairman of HCA’s Audit Committee was Carl E. Reichardt, who also happened to be the Chairman and CEO of Wells Fargo & Company. In 1994 Reichardt became an HCA director, and after the merger in 1995 served as director of Columbia/HCA until 2003. During this era Wells Fargo was providing substantial financial backing to HCA. It has continued to do so since. Among the allegations that led to Columbia/HCA’s guilty plea and payment of fines were that Wells Fargo CEO Carl E. Reichardt and four other directors of Columbia/HCA were fully aware that senior management had “devised schemes to improperly increase revenue and profits, and perpetuate a management philosophy that provided strong incentives for employees to commit fraud.” Reichardt and the other four also were charged with knowing about HCA’s improper acquisition practices, which involved offering personal benefits and perquisites to hospital executives during HCA’s negotiations for the purchase of their hospitals.(3 ) A more recent entanglement between Wells Fargo and Alaska Regional’s parent company involves a plan announced in May 2010 by the owners of the now privately held organization to again take the company public with an initial public offering (IPO), with Wells Fargo acting as one of the several underwriters of the IPO. By doing so, according to an article in the New York Times,(4) the current owners will get back $11.6 billion from an initial investment of $6.3 billion made three years ago. That equates to an annual return of about 20 percent, which the Times notes is not bad for three of the worst years in the country’s financial history. Wells Fargo expects to make money from the deal as well. As an underwriter, it agrees to buy a certain amount of stock offered in the IPO. It will then expect tosell the stock to investors while taking a cut of the sales as profit. Underwriting costs in the United States apparently are in the vicinity of 6 to 7 percent.(5) Columbia/HCA as well as Wells Fargo and the other underwriters expect the for-profit hospital industry to experience rising revenues because of our recent health care reform that promises to increase the numbers of paying patients. Certainly Columbia/HCA’s Alaska Regional Hospital will see that increase and more, now that the Alaska Department of Administration—with the help of Wells Fargo—has picked the chain hospital as the preferred provider for AlaskaCare in the Anchorage area. Has the long-term relationship between Alaska Regional’s owner Columbia/HCA and Wells Fargo had any influence on the choice of Columbia/HCA Alaska Regional Hospital over Providence Anchorage Hospital? Not easy to tell, but there is opportunity here for the Department of Administration to provide the public with more information that could help answer that question. We already know that Alaska Regional’s billing charges are higher than Providence’s, but we also need to know the exact percentage discounts offered by Alaska Regional and Providence during the negotiations with Wells Fargo that led to the choice of preferred provider in the Anchorage area. More than two weeks ago, I asked Deputy Commissioner Petro for that information, but, so far, she has not responded. 1. The column was published in print in the June 2010 issue of The Ester Republic and on line by the Republic and Tundra Telegraph on May 25, 2010. 2. See “HCA files IPO worth up to $4.6 billion,” by Debra Beaulieu, FierceHealthCare, May 7, 2010. On line at www.fiercehealthcare.com/story/hca-files-ipo-worth-4-6-billion/2010-05-07; also www.uow.edu.au/~bmartin/dissent/documents/health/columb_2003.html. 3. See US Court of Appeals for the Sixth Circuit Docket Nos. Nos. 99-6370, 99-6387, on line at http://ftp.resource.org/courts.gov/c/F3/239/239.F3d.808.99-6387.99-6370.html. 4. See “Maybe Buyouts Aren’t So Bad,” by Robert Cyran, Rob Cox and Anthony Currie, The New York Times, May 9, 2010. On line at www.nytimes.com/2010/05/10/business/10views.html?dbk. 5. See http://e-news-daily.com/costs-of-ipo-different-markets-case/. Neil Davis is a retired geophysicist and author of several fiction and nonfiction books. His most recent book is Mired in the Health Care Morass. More on health care issues can be found at his blog, http://healthcaremorass.blogspot.com. Neil can be contacted at neildavs@mosquitonet.com. | ||
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