During the 2012 presidential campaign, Mitt Romney like many of his GOP colleagues insisted that Americans without health insurance can always go to an emergency room. But for some with health coverage—especially Medicare—the ER is the "front door" to an unnecessary hospital admission. And as it turns out, while those filled beds and needless tests may do nothing for patient health, they are a boon to the bottom lines of America's burgeoning for-profit hospital chains.
That's the word from CBS' 60 Minutes, which on Sunday spotlighted that disturbing practice:
For more than a year, we have been looking into the admission and billing practices of Health Management Associates. It's the fourth largest for-profit hospital chain in the country with revenues of $5.8 billion last year, nearly half of that coming from Medicare and Medicaid programs. We talked to more than 100 current and former employees and we heard a similar story over and over: that HMA relentlessly pressured its doctors to admit more and more patients -- regardless of medical need -- in order to increase revenues.According to the former employees interviewed and documents obtained by CBS, HMA pressured ER physicians at newly acquired facilities push ER admissions to the hospital to 20 percent from past rates often half that frequent:
[Graphic: "Only 14 admits so far!!!!!!! Act accordingly...."]Among patients over age 65, Dr. Cliff Coonan reported, the admission target was 50 percent. That doesn't just tax hospital staff, but can put patients at risk. "If you are put into the hospital for reasons other than a good, justifiable medical reason," Coonan warned, "It puts you at significant risk for hospital-acquired infections and what we would refer to as medical misadventures."
And this email from an ER director at an HMA hospital in South Carolina to a new emergency room doctor.
[Graphic: "Every time a 65 year old or older comes in, I am already thinking, do they have some condition I can admit them for?"]
[Graphic: "We are under constant scutiny[sic]]."
[Graphic: "I will be blunt... I have been told to replace you if your numbers do not improve."]
For its part, HMA disputed the 60 Minutes report, providing its own data on the hospital chain's admission statistics and portraying those interviewed by CBS as "disgruntled former employees." Nevertheless, HMA shares by the close of business Tuesday dropped to 7.37 from 7.95 two days earlier (7.3 percent):
CRT Capital Group analyst Sheryl Skolnick cut her rating on HMA shares to "sell" from "fair value", citing the Medicare fraud allegations in the 60 Minutes report.Those government investigations were highlighted in a New York Times report Friday about the rapid acquisition of physician practices by hospitals and insurers around the country.
"We believe there is significantly greater risk of a deeper/wider (government) investigation and a substantially higher risk that HMA may have to pay bigger fines to settle it," Skolnick wrote in a note to clients.
(Continue reading below the fold.)
As the Times explained, HMA and its emergency room contractor EmCare aren't just facing civil suits from executives, physicians and nurses warning about the risks to patient safety from the firms' admissions policies:
Health Management Associates, a for-profit hospital chain; EmCare, a Dallas-based emergency room staffing company for hospitals; and other hospitals have disclosed that they are the subjects of federal investigations. Regulators are looking into whether the hospitals improperly pressured physicians to admit patients...As the New York Times detailed, the acquisition and consolidation of private physician practices is part of a trend towards unified patient care advocated by many health policy experts.
Health Management, which operates 70 hospitals, said United States attorneys' offices in seven states were investigating physician referrals, including financial arrangements and the "medical necessity of emergency room tests and patient admissions."
EmCare said in an e-mailed statement that it could not comment on continuing legal matters involving it or its clients, but that its "first concern is the well-being of the patient."
But for for-profit hospital chains and private equity firms, the physicians groups can help supply a pipeline of patient referrals and provide higher payments from programs like Medicare:
By one estimate, under its current reimbursement system, Medicare is paying in excess of a billion dollars a year more for the same services because hospitals, citing higher overall costs, can charge more when the doctors work for them. Laser eye surgery, for example, can cost $738 when performed by a hospital-employed doctor, compared with $389 when done by an unaffiliated doctor, according to national estimates by the independent Congressional panel that oversees Medicare. An echocardiogram can cost about twice as much in a hospital: $319, versus $143 in a doctor's office.Health Management Associates has denied any wrong-doing. But in an October presentation to the Deutsche Bank Leveraged Finance Conference, HMA executives were candid about the financial incentives that fuel the bottom line of their Fortune 500 firm. As Treasurer Joe Meek explained, "As most of you know, we focus on non-urban markets, primarily in the Southeast, the United States. This is an area where there is a higher amount of retirees, again 70 facilities in 15 states." And while net revenue grew in the recent quarter, Meek told the investor audience not to worry about the recent decline in EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization):
As you can see, net revenue has benefited substantially by the impact of acquisitions. Adjusted EBITDA and adjusted EBITDA margins while growing, EBITDA, the margin has declined somewhat because of the ramp-up involved with the acquisition of new hospitals. Typically we acquire not-for-profit hospitals that are marginally profitable. We've then use our skill and experience to increase those margins, getting them up to the Company average in three to four years. So this margin will increase over time absent additional acquisitions.Later in the same discussion, Senior Vice President of Finance Bob Farnham offered this nugget about his firm's emergency room operations:
For emergency room operations, if you don't know, I will tell you that -- this is true of any hospital -- about 60% of a hospital's admissions comes through the emergency room. So in all respects, the emergency room is really the front door to the hospital.And, apparently, the key to the bottom line.