The system in question is the St Barnabas Health Care System in New Jersey. According to the Times, the background is:
The problems began a decade ago, when hospital administrators around the country —facing cuts in reimbursements from managed care companies — turned to a handful of accounting firms that promised to help them maximize their financing from Medicare, the nation’s health insurance program for the elderly.
By exploiting loopholes in the complex formula that Medicare uses to reimburse providers for their most expensive cases, known as outliers, many hospitals’ federal aid doubled, quadrupled or increased 10 times.
As recently as the early 1990’s, St. Barnabas — which was named after a martyr who sold his possessions to help the poor, but is not run by the Roman Catholic Church — operated with a low-key business approach usually found at institutions that are licensed as nonprofit.
Faced with pressure from managed care insurance plans and the prospect of federal health care reform, the system’s chief executive, Ronald J. Del Mauro, voiced determination to firm up St. Barnabas’s financial stability. He preached a strict devotion to the bottom line and engineered a bold set of mergers and acquisitions.
The Times then described the allegations about how the hospital system inflated its Medicare billing.
In settling the government's charges, the St Barnabas system admitted no guilt. "Ellen Greene, a spokeswoman for St. Barnabas, described the situation as the result of a misinterpretation of Medicare’s complex rules." Although federal prosecutors originally contended that the system over-charged Medicare by "at least $630 million from 1995 to 2003," the settlement requires payments of only $265 million. The prosecutors did not demand more apparently because they feared "a harsher fine might run the St. Barnabas health system out of business."
According to depositions by a St. Barnabas consultant and two former employees, which were filed in the settlement, the drive for profits soon affected the Medicare billing, and hospital administrators found a way to capitalize on a loophole in the formula Medicare used to determine reimbursements in outlier cases.
One part of the equation was based on a hospital’s retail charges: the amount paid by the small percentage of patients who do not have insurance. By rapidly increasing retail charges for procedures often covered by Medicare, St. Barnabas got a steep increase in federal aid. As a result, its Medicare payments for outlier cases jumped to $287 million in 2002 from $85 million in 1998.
A consultant hired to work with St. Barnabas said in a sworn deposition that the hospital’s top executives held meetings to plan a “corporate directive” to increase federal aid by raising the prices charged to Medicare patients. The consultant, James T. Monahan, said that St. Barnabas had routinely added hidden charges to the room-and-board fees of Medicare patients and tried to conceal the windfall profits it was receiving from Medicare, in part by overstating its debt.
Mr. Monahan, who later filed a whistle-blower complaint under which he stands to gain millions of dollars from the legal settlement, declined to be interviewed for this article.
Legal actions in this case are apparently not over.
Two people who had been questioned by Justice Department investigators said they had been asked for documentation on how Mr. Del Mauro and two other top administrators at St. Barnabas are paid.
Mr. Del Mauro gets no compensation from St. Barnabas Hospital Center, according to its public filings, but he and two other senior administrators are paid officers of SBC Management, a profit-making company that does business with the hospital center. That sort of arrangement is common in the hospital industry.
In 1998, Mr. Del Mauro received $613,000 from SBC, according to documents on file with the I.R.S. His compensation was $4.7 million in 2003, the last year St. Barnabas received the huge Medicare overpayments. In 2004, it was $4.2 million.
On one hand, this case is a reminder that the excessively complicated Medicare reimbursement rules make disputes over payments more likely, and make it easier for hospitals (and physicians) to find loop-holes.
On the other hand, it is a reminder about how previously staid, low-key not-for-profit hospitals began to look and act more like "go go" for-profits, partially because they faced seemingly formidable competition from go go for-profit hospital chains. And as the character of not-for-profits changed, the actions of their leaders changed, possibly in response to their suddenly enlarging incentives, such as the six-fold plus increase from 1998 to 2004 in the St Barnabas' CEO's salary.
Yet the effect of such changes in corporate culture on health care costs seem to be overlooked. And although everyone seems to wonder why health care costs seem to continually rise, no one seems to want to discuss the somewhat understandable resistance of highly-paid people to any decreases in their standard of living?
