Wellcare Settles Again, but Wait, There is More...

We posted several times, most recently in 2009 (here and here), about misbehavior by the health insurance company/ managed care organization Wellcare.  That year, the company settled criminal charges that it defrauded the Florida state Medicaid program by paying a fine and accepting a deferred prosecution agreement.  Previously, the state of Connecticut had canceled its arrangement with Wellcare to run a Medicaid program in that state after the company refused to provide the state with requested data.  Then the company signed a consent order with the Florida Elections Commission in which it admitted making "questionable" political contributions.

Then this year, it was announced that the company would settle additional civil charges, as per the St. Petersburg (FL) Times,

Tampa-based WellCare Health Plans Inc. has agreed to pay $137.5 million to the U.S. Department of Justice and other federal agencies to settle civil lawsuits accusing the company of overcharging for its Medicaid and Medicare programs.

Also,

Under the tentative deal, which must be approved in court, WellCare would have three years to make payments to the Justice Department's civil division, the U.S. Attorney's Office for the Middle District of Florida and the U.S. Attorney's Office for Connecticut.

WellCare said the payments will include the approximately $23 million owed to the Florida Agency for Health Care Administration for overpayments received by the company in 2005.

The civil settlement is separate from a deal struck last year on the criminal front. In that case, WellCare agreed to pay $80 million to settle a charge of conspiracy to defraud the Florida Medicaid program and the Florida Healthy Kids Corp.

It also previously agreed to a $10 million civil penalty settling an informal inquiry by the Securities and Exchange Commission that regulatory filings reflected more than $40 million in profits that WellCare failed to return to the Florida agencies from 2003 to 2007.

WellCare, which is Florida's largest Medicaid plan operator, has acknowledged that it overcharged Florida and Illinois health programs by about $46.5 million.

But wait, there is more. No sooner than this settlement been announced than it was challenged. While considering the settlement, the judge involved unsealed a set of complaints by whistle-blowers about Wellcare. First, as reported by the Miami Herald,

The complaint, filed by former WellCare financial analyst Sean J. Hellein, portrays a company so ethically challenged that it rewarded employees who dumped hundreds of sick newborns and terminally ill patients from the membership rolls, thereby pumping up profits by millions of dollars.

It describes a company that embraced fraudulent accounting as a business model, eventually stealing between $400 million and $600 million from Medicare and Medicaid programs in several states, perhaps most of it from Florida.

See these specifics:

Hellein, who wore a wire for more than a year to gather evidence for federal agents, says in the complaint that:

- WellCare moved money between accounts to make it appear that patients' treatment cost much more than it actually did. In some cases, the company made payments years in advance to jack up the apparent cost of care to fool states into increasing Medicaid premiums. It worked, he said.

- When states made overpayment errors, WellCare didn't pay the money back, as its contract requires. Florida Medicaid made a series of overpayment blunders that fattened WellCare's bottom line by many millions; those who made the errors included both state officials and contractors.

- Sometimes hospitals and physician groups helped WellCare hide its true spending from Medicaid programs by accepting payments through one account for expenses incurred by another. Sometimes they allowed WellCare to pay for future years' expenses to make it appear spending for the current year was higher than it actually was.

Hellein named two hospital systems - one in Illinois and one in Florida - that he said participated in the sham arrangement, but he said it was common.

WellCare pushed expenses into certain programs - behavioral health programs in Florida and Illinois and the Healthy Kids program in Florida, a program for uninsured children of families with modest incomes - because they required repayment if the cost of treatment fell below a certain threshold.

Florida public officials were repeatedly duped by WellCare. The director of the Florida Medicaid program from 2004 to 2007, while much of the alleged fraud was going on, was Tom Arnold. He currently is Secretary of the Agency for Health Care Administration.

Another agency that fell for WellCare's line was the Office of Insurance Regulation, where an actuary found nothing wrong with a WellCare subsidiary in the Cayman Islands acting as the company's reinsurer.

The reinsurance arrangement enabled WellCare to bank $5 for each insured while making it appear that the cost was just 11 cents, the complaint says.

After Wall Street analysts raised questions about the legality of the reinsurance arrangement in 2007, some thought it might be reviewed by Chief Financial Officer Alex Sink. But nothing ever came of it.

WellCare conducted a study to figure out which Medicaid recipients were profitable and which were not so that it could engage in "cherry-picking," a term for enrolling only the profitable members. The study found that disenrolling a baby born with health problems saved the company an average of $20,000; each terminally ill patient saved $11,500.

Those who were persuaded to resign from WellCare went into the general Medicaid or Medicare fee-for-service programs.

WellCare also restructured its benefit package to discourage the least-profitable Medicaid recipients from enrolling and encouraging those who were more profitable to sign up.

Low-income mothers and children yielded a net of only about 10 percent, while the physically and mentally disabled paid for by Medicare yielded a net of 30 percent, the complaint says.

The complaint names about 20 employees of WellCare who knew about the fraudulent activities. Only one, Gregory West, has been charged. He pleaded guilty in December 2007 but sentencing has been postponed several times.

No charges have been brought against three former executives of the company named in the complaint as orchestrating the fraud: President, CEO and Chairman Todd Farha, CFO Paul Behrens and General Counsel Thaddeus Bereday.

They all resigned in January of 2008, three months after the FBI and other law-enforcement agents raided the Tampa campus of WellCare and carted off computers and files.

The the St. Petersburg Times reported about two more complaints that were unsealed:

Clark J. Bolton, a former supervisor of special investigations at WellCare, said the insurer encouraged overbilling and refused to audit claims for fraud in order to curry favor with doctors and hospitals and build market share. The result was millions in excessive and illegal expenses passed through to federal Medicare and state Medicaid programs, Bolton said.

Eugene Gonzalez, a referral coordinator for seven years, claimed WellCare met government customer service standards only because it had employees create backdated documents and make bogus calls to the company's phone lines. Failure to meet these standards would have resulted in the loss of billions of dollars worth of Medicare and Medicaid contracts.

As we have before, we see a striking contrast between the scope of the allegations and the response by the government agencies that are supposed to regulate insurers, insure that public money is spent wisely, and investigate and seek punishment for illegal activities. As the latter St. Petersburg Times article noted,

U.S. Rep. Kathy Castor criticized the proposed settlement as wholly inadequate in a letter this week to Attorney General Eric Holder. 'Where is the penalty and punishment for such egregious actions?' she wrote. 'It appears that companies such as these simply build such payments into the 'cost of doing business.' We cannot allow this to continue.'

This notion should be familiar to readers of Health Care Renewal. The Wellcare case fits right into the parade of legal settlements we have discussed. As we have said again and again, the usual sorts of legal settlements we have described do not seem to be an effective way to deter future unethical behavior by health care organizations. Even large fines can be regarded just as a cost of doing business. Furthermore, the fine's impact may be diffused over the whole company, and ultimately comes out of the pockets of stockholders, employees, and customers alike. It provides no negative incentives for those who authorized, directed, or implemented the behavior in question. My refrain has been: we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

Also note that the case of Wellcare remains relatively anechoic. Despite the severity of allegations, and the national scope of the company, the case has only been mentioned in news stories, mainly in Florida where the company has its headquarters, and in a few health care trade publications. It, like many of the cases we discuss on Health Care Renewal, has not been mentioned in the medical/ health care research/ health care policy literature.

If we cannot even speak about the sort of very bad management that afflicted Wellcare as a cause of many of the ills of our health care system, how do we really expect to constructively reform that system?

Board Member Blows Whistle on Health Insurance Company's Accounting

We previously posted about some of the travails of for-profit health insurance company/ managed care organization Wellcare.  In August, 2009, we posted about Wellcare's "admission" that it had made numerous questionable campaign contributions.  In May, 2009 we posted about WellCare's submission to a deferred prosecution agreemeent based on charges that it defrauded state programs by inflating its expenses. In 2007, we posted about how the state of Connecticut stopped WellCare from running a plan for poor children after the company refused to reveal what it was paying physicians, and why it was failing to pay for particular services. So WellCare has been cited for three different kinds of unethical behavior in 2007-09.

Here's a story about Wellcare with a new twist in the Wall Street Journal:

A prominent director at WellCare Health Plans Inc. resigned Wednesday and raised questions about accounting practices at the Medicare and Medicaid company.

Regina Herzlinger, the head of the board's audit committee and a professor of business administration at Harvard Business School, said internal audits found WellCare overbilled the Illinois Medicaid program by $1 million in 2009 and potentially overcharged states for almost $500,000 worth of maternity care. Additionally, the Tampa, Fla., company ran afoul of Georgia's requirements that it account for each patient visit for which it paid providers, resulting in a $610,000 fine, she said.

Ms. Herzlinger said those problems, which the company corrected last year and this year after an internal auditor discovered them, are evidence of weak accounting practices. Ms. Herzlinger said she had hoped to provide oversight, as chairwoman of the audit committee, but that the board didn't renominate her for re-election at this year's annual meeting of shareholders. Ms. Herzlinger alleges that the board forced her out for asking questions about accounting problems and corporate-governance practices.

Wellcare offered the response one might expect:

WellCare said good corporate-governance practices require it to bring in new board members periodically to provide a fresh perspective. The company said the accounting errors Ms. Herzlinger identified were relatively small and the company's own internal controls identified them, indicating that its processes are working well. The company said the board chose not to renominate Ms. Herzlinger.

'At any company, you are always going to have these kinds of immaterial amounts pop up,' said Thomas Tran, WellCare's chief financial officer, who added that it is important to 'address them and document them and learn from them to change your processes.'

That might have been more convincing were Wellcare not to have the track-record discussed above.

Every now and then we have discussed cases of whistle-blowers from within health care organizations, but I cannot remember another instance in which the whistle-blower was on the board of directors.  In our post of August, 2009, we noted Prof Herzlinger's position on the Wellcare board, and urged her, as a main stream health policy expert, "to acknowledge that health care leadership may be unaccountable, opaque, dishonest, and sometimes flagrantly corrupt."  We also urged her to "pay a bit more attention to the mischief being committed by those who answer to her."  From this new story, it looked like she did just that, and hopefully made a contribution to more transparent and honest governance of health care organizations.  Good for her!

It is time for the often well-paid and not over-worked members of the board of directors of health care corporations to take some responsibility for the actions of the corporations over which they are supposed to exercise stewardship.

WellCare "Did Not Contest" that its Political Contributions Violated State Law

From a report in the St Petersburg (Florida) Times:

WellCare Health Plans on Wednesday admitted to making 129 'questionable' contributions to Florida politicians over four years ending in 2007. In a consent order with the Florida Elections Commission, the Tampa-based managed-care company agreed to pay a $120,000 fine and did not contest the commission's finding of probable cause that the contributions violated state law.

The Associated Press reported in February that WellCare, its subsidiaries and executives spent $2.4 million in political contributions in the 2004 and 2006 elections. More than 95 percent went to Republicans, who pushed a plan to send more state and federal Medicaid spending through private companies like WellCare.

In May, 2009 we posted about WellCare's submission to a deferred prosecution agreemeent based on charges that it defrauded state programs by inflating its expenses. In 2007, we posted about how the state of Connecticut stopped WellCare from running a plan for poor children after the company refused to reveal what it was paying physicians, and why it was failing to pay for particular services. So WellCare has paid three penalties for three different kinds of unethical behavior in the last two years.

WellCare is one of numerous health care organizations which seem to be serial violators of reasonable ethical norms. Usually, however, the penalties paid for these behaviors are trivial, given the financial capacities of the offending organizations. Furthermore, rarely are the individuals who made the decisions that caused the behaviors identified, much less subjected to negative consequences.

Given our continued permissiveness towards all sorts of deception, dishonesty, cheating, and even outright fraud, bribery, and corruption, is it any wonder that the unethical behavior continues? Such behavior doubtless directly drives up costs. Furthermore, leaders focused on their personal power and enrichment may not lead well, and demoralize employees and professionals who want to do the right thing, leading to further cost increases, access decrements, and threats to health care quality. I submit that to truly reform health care, and have a chance at improving cost, quality, and access, we cannot continue to shrug off these sorts of ethical violations.

A postscript - as we have noted before, one member of the WellCare board of directors is Regina Herzlinger, a well known and prolific health policy expert, and holds the Nancy R. McPherson Professor of Business Administration Chair of the Harvard Business School. As far as I know, Prof Herzlinger is one of the many health policy experts who avoids discussing the sorts of problems with the accountability, integrity, and transparency of health care leadership which is grist for the mill here at Health Care Renewal. Perhaps, Prof Herzlinger, like many other main stream health policy experts, should learn to acknowledge that health care leadership may be unaccountable, opaque, dishonest, and sometimes flagrantly corrupt. Furthermore, Prof Herzlinger, like many other well-paid board members of health care organization, should pay a bit more attention to the mischief being committed by those who answer to her.

WellCare Settles, Accepts Deferred Prosecution Agreement

'Tis the season for deferred prosecution agreements for health care organizations. As reported by the Wall Street Journal:

WellCare Health Plans Inc. agreed to pay $80 million to settle a Florida Medicaid fraud investigation that has embroiled the company since the fall of 2007, previously prompting a management shake-up and restatement of more than three years of the company's earnings.

The settlement resolves federal and state criminal probes into allegations that WellCare defrauded Florida benefits programs for low-income adults and children of about $40 million by improperly inflating what it spent on care.

WellCare, based in Tampa, Fla., administers medical benefits for about 2.5 million enrollees in government-sponsored plans in several states.

Under a deferred prosecution agreement, the U.S. Attorney's Office for the Middle District of Florida in Tampa filed a fraud conspiracy charge against the company but said it wouldn't prosecute the case if WellCare meets all of the deal's terms.

U.S. Attorney A. Brian Albritton said in a news conference Tuesday that his office could have pursued a conviction but that it likely would have put the insurer out of business, hurting customers, innocent employees and shareholders. In penalizing the company, 'we have, at the same time, tried to avoid crushing it,' he said.

Under the terms, WellCare must forfeit $40 million and pay another $40 million in restitution to Florida's Medicaid and 'Healthy Kids' plans. WellCare also has agreed 'to accept and acknowledge full responsibility for the conduct that led to the government's investigations,' according to the deferred prosecution agreement. The company declined to elaborate.

In addition, the company also must retain an independent monitor to review its business operations, cooperate with the government's ongoing investigations and implement new procedures within 60 days to prevent future abuse or faulty reports to state health care programs.

This was not the first bit of trouble WellCare got itself into. We posted here about how the state of Connecticut stopped WellCare from running a plan for poor children after the company refused to reveal what it was paying physicians, and why it was failing to pay for particular services.

So, as we have found from blogging on Health Care Renewal for a while, organizations that are found to be committing one sort of mischief often are also found to be committing another sort.

We also see some other familiar patterns. While human beings authorized or committed the acts that got the organization in trouble, rarely do these people seem to suffer any negative consequences. At most, the organization may pay a seemingly large fine. This, however, may come out of dividends or the stock price, dispersing the cost to stock-holders, or out of salaries across the board. Thus, those who got the organization into trouble are unlikely to feel pain from it. Perhaps because of reverence for all organizations related to health care, and fear that the bankruptcy of any health care organization, even a health care insurance company, will leave patients in the lurch, prosecutors do not seem inclined to actually prosecute such organizations. The net effect, though, seems to be that dishonest executives of health care organizations can continue to act with impunity.

Until bad leadership of health care organizations leads to negative consequences for those practicing it, health care leadership can be expected to continuously degrade.

By the way, one member of the WellCare board of directors is Regina Herzlinger, a well known and prolific health policy expert, and holds the Nancy R. McPherson Professor of Business Administration Chair of the Harvard Business School. As far as I know, Prof Herzlinger is one of the many health policy experts who avoids discussing the sorts of problems with the accountability, integrity, and transparency of health care leadership which is grist for the mill here at Health Care Renewal. Yet under the stewardship of such an august expert, WellCare had to "accept and acknowledge full responsibility for ... conduct" that included fraud. Perhaps, Prof Herzlinger, like many other main stream health policy experts, should learn to acknowledge that health care leadership may be unaccountable, opaque, dishonest, and sometimes flagrantly corrupt. Furthermore, Prof Herzlinger, like many other well-paid board members of health care organization, should pay a bit more attention to the mischief being committed by those who answer to her.

Fines, Re-Statements, and More Fines - Just Another Week in the Managed Care Business

Several related stories about commercial managed care organizations/ health insurers surfaced recently.

First, as reported by Lisa Girion in the Los Angeles Times,

Anthem Blue Cross and Blue Shield -- two of the state's biggest health plans -- agreed Thursday to pay a total of $13 million in fines and to offer new health coverage to more than 2,200 Californians the companies dropped after they became ill.

Neither company admitted to any wrongdoing in agreeing to pay the stiffest penalties yet in efforts by state authorities to curb what they view as an abusive practice of investigating and canceling policies after policyholders run up big medical bills.
Blue Cross, a unit of Indianapolis-based WellPoint Inc., will pay a $10-million fine to the state Department of Managed Health Care, and it will offer new coverage to 1,770 former members it canceled since 2004 -- no questions asked.

Competitor Blue Shield, a not-for-profit health plan based in San Francisco, will pay $3 million and offer new policies to 450 people whose coverage was rescinded over the last four years.

The insurers also agreed to establish a process for former members to recover medical expenses they paid out of pocket after they were dropped as well as other damages, such as homes or businesses that were lost because unpaid medical debts ruined the former members' creditworthiness.

These fines are apparently not the end of this story.

The settlement came the same day that a congressional committee held a hearing on the cancellation practices of the nation's health insurers and the day after Los Angeles City Atty. Rocky Delgadillo contended in a lawsuit that Blue Shield routinely flouted the law by conducting secret and unfair investigations into members' health histories to find a pretext for dropping them. Delgadillo filed similar suits against Blue Cross and Health Net this year.

'These settlement agreements add up to a raw deal for California consumers courtesy of the DMHC,' Delgadillo said. 'They will not make the victims of this insidious practice whole, they will not require that the companies disclose their wrongdoing, and, in my opinion, they will not adequately punish the companies for their shameful conduct.'

The settlements close the department's investigation into rescissions. But they do not directly affect Delgadillo's lawsuit, which seeks sweeping remedies and penalties in excess of $1 billion.

Nor do they end a raft of suits filed by individuals seeking financial compensation from the health plans that dropped them.

Also pending are investigations by state Insurance Commissioner Steve Poizner into the rescission practices of health plans' preferred-provider-type coverage that involve thousands more canceled policies.

Next, courtesy of the St. Petersburg (Florida) Times,

Acknowledging 'certain control deficiencies' among its former senior managers, WellCare Health Plans Inc. of Tampa is revising its financial statements from 2004 through mid 2007 to reflect accounting errors over refunds owed to Medicaid plans in Florida and Illinois.

The changes announced late Monday mean WellCare overstated its net income a total of $28-million in that time span. The company has not filed audited financial statements since mid 2007.

WellCare, which was raided by the FBI in late October, said a special internal committee found that the managed-care company had made 'accounting errors' in its compliance with requirements for Florida Medicaid and Healthy Kids programs, as well as its contract with Illinois Medicaid.

In WellCare's filing with the Securities and Exchange Commission, the company also said it found 'material weaknesses' in internal control over financial reporting.

'Specifically, we have determined that former senior management set an inappropriate tone in connection with the company's efforts to comply with the regulatory requirements' of Florida's contracts, the filing said. Two months after the federal investigation became public, WellCare ousted its top three executives: Todd Farha, chairman, chief executive and president, as well as Paul Behrens, chief financial officer, and Thaddeus Bereday, general counsel.

The company has since appointed new leadership and formed a regulatory compliance committee consisting of only independent directors. WellCare also has separated the posts of general counsel and chief compliance officer. The duties of chief financial and chief accounting officer also have been segregated.

Finally, per USA Today,

A health insurer that sells mainly to the self-employed agreed Monday to pay $20 million — one of the largest fines of its type — to settle violations found by regulators in a 36-state investigation.

The investigation, prompted by numerous complaints, found that insurer HealthMarkets failed to properly train its sales agents, who didn't always fully disclose the limits of its health policies to consumers and sometimes did not pay for medical services promptly.

HealthMarkets, owned by three private-equity firms including the Blackstone Group, has about 612,000 policyholders in 44 states through its subsidiaries: Mega Life and Health Insurance, Mid-West National Life Insurance and Chesapeake Life Insurance.

The company sells an array of plans, many of which pay only limited amounts toward medical care.

"The severity of their actions certainly warranted that level of penalty. They hurt a lot of people," says Washington Insurance Commissioner Mike Kreidler, whose state and Alaska led the investigation.

Since 2002, HealthMarkets has been fined by at least seven states and faced lawsuits from dozens of policyholders. In 2006, Massachusetts required the firm to reassess denials of policyholders' medical bills dating to January 2002. Maine earlier this year fined the company $1 million and ordered it to return $5.6 million to policyholders.

So goes another typical week in the wonderful world of the managed care business. Please note we most recently posted about WellPoint and its recissions here. We wrote about the beginning of the WellCare investigation here.

In the 1980s' managed care was advanced as a rationale and humane way to control health care costs while improving quality and access. Since then, managed care organizations and health insurers, which have often become indistinguishable, have consolidated their power. But the result has not been lower costs, better quality or better access. As politics drive increased interest in health care reform, maybe we should think about how deficiencies in the leadership of health care organizations, particularly but certainly not exclusively managed care and health insurance, have undermined their mission. Leadership that encourages retroactive cancellations of policies after their holders get sick; that set an "inappropriate tone" in compliance with government regulations; and that let policies be misrepresented and claims go unpaid must take some blame for rising costs, stagnant quality, and decreasing access. To reform health care, we must reform health care leadership.

More Managed Care Management Mumbo Jumbo

A number of news items about managed care organizations/ health insurers published last week make for an interesting juxtaposition.

Innovative Physician Reimbursement?

First were articles about managed care proposals for innovative physician reimbursement. First, from the Boston Globe, an article about a proposal to resurrect capitation.

Massachusetts' dominant health insurer is proposing to overhaul the way it pays doctors and hospitals, in what company officials said is an attempt to slow runaway healthcare costs and improve the quality of care.

Blue Cross and Blue Shield of Massachusetts wants to stop paying doctors and hospitals for each patient visit or treatment, a common arrangement that most experts agree has led to unnecessary, inefficient, and fragmented care that is sometimes harmful to patients.

Instead, they want to pay doctors and hospitals a flat sum per patient each year, adjusted for age and sickness, plus a significant bonus if the providers improve care, Blue Cross officials said. In most cases, the payment would cover all services from primary care doctors, specialists, counselors, and hospitals - forcing them to work together closely.

Hmmm, that sounds like "capitation," paying physicians or hospitals fixed sums per patient covered. That idea died out in the 1990s. Its main drawback was that it effectively transferred risk from the insurer to the physician or hospital. The latter were at risk for bankrupting losses if their patient populations turned out to be unusually expensive. The risk was greatest, per the laws of probability and statistics, for the doctors and hospitals with the smallest patient populations. Thus the problem with capitation is that it provides a perverse incentive to avoid sick or complicated patients. This suggests it will not improve quality or access.

Would this new version of capitation address this problem? Not obviously. The quote above suggests some adjustment for "sickness," but how whether that would be adequate to avoid perverse incentives is unclear. Also,

The Blue Cross plan has some similarities to the 'capitation' payment system behind those problems, which was widely used in the 1990s but was vehemently rejected by many doctors and patients. Blue Cross says its plan includes safeguards to avoid the undertreatment, underpayment, and strict controls on patient choices that doomed capitation.

'We have no interest in returning to the heyday of managed care or denying care,' [executive vice president for healthcare services at Blue Cross Andrew] Dreyfus said. He said several mechanisms would prevent patients from being denied appropriate care, including public scrutiny of doctors' performance and Blue Cross's commitment to cut off any caregiver providing substandard service.

That isn't very reassuring. The problem is not only that doctors might deny patients adequate care, but that doctors may avoid having sick or complex patients on their panels.

The next brilliant idea was described by the Wall Street Journal.

Health plans are drawing scrutiny for offering financial incentives to entice doctors to prescribe cheaper generic medicines, including paying doctors $100 each time they switch a patient from a brand-name drug.

The incentive program that has drawn the most scrutiny is one initiated last year by Blue Care Network, a health-maintenance organization owned by Blue Cross Blue Shield of Michigan. Under the three-month program, called Blue Reward$, primary-care physicians were asked to consider switching patients from a brand-name drug and received $100 for each plan member who filled a generic cholesterol-lowering statin prescription. To assist doctors, the HMO mailed them a list of Blue Care Network patients who were taking Lipitor and Lescol, two brand-name statins.

This seems to come from the two wrongs make a right school of thought. We, and many others have criticized pharmaceutical, biotechnology, and device companies for gifts and payments to doctors that may influence their decision making in ways that do not necessarily help their patients. Now managed care organizations and health insurers are doing the same, this time to directly influence physicians to prescribe more generic drugs. Of course, there are many patients now taking expensive brand-name drugs who could do just as well taking generics. However, there are many other patients for whom the brand-name drugs may provide the best benefit/ harm ratio. Paying doctors to prescribe generics, regardless of whether his or her patients may experience benefit or harm from this decision, is also a perverse incentive likely to lead to bad decisions harmful for some patients.

Such concerns were raised in the WSJ article.

But the more aggressive approaches, such as cash rewards for each patient switched from a given list of drugs, are coming under fire for injecting financial incentives into what some patient advocates and legislators say should be a purely medical decision. Medical societies are also concerned that such rewards may put doctors in the ethically questionable position of taking a payment that patients know nothing about.
'I'm all for saving health-care dollars, but my concern is if there's a direct financial incentive for a physician to prescribe a certain generic drug, we cannot really trust that decision,' says Peter Koutoujian, house chairman of the Massachusetts legislature's Joint Committee on Public Health. He introduced a bill in the committee last month to ban drug-switching incentive payments to doctors.

It's interesting that both these innovations hinged on physicians' reimbursement, yet did not clearly address what seems to be the biggest distortion of such reimbursement, the imbalance favoring procedures over cognitive care, propagated by the Medicare reimbursement system influenced by the secretive RBRVS Update Committee (RUC). (See related posts here, here, and here.) Also, these innovations represent yet another example of managed care organizations/ health insurers avoiding addressing the prices of drugs and devices directly.

The Corporate Culture of Managed Care

Hints about why managed care organizations' and health insurers' leadership may favor perverse incentives and avoid confronting the more difficult problems comes from some more of last week's articles.

First, again in the Boston Globe, was an article about the leadership of the same Blue Cross and Blue Shield of Massachusetts that advocated a new version of capitation above.

Attorney General Martha Coakley is investigating the $16.4 million payment Blue Cross and Blue Shield of Massachusetts made to William C. Van Faasen, the insurer's former chairman and chief executive, who retired Jan. 1, according to a Blue Cross-Blue Shield director and others with direct knowledge of the probe.
more stories like this

Coakley is also examining the new management structure at Blue Cross-Blue Shield under which Cleve L. Killingsworth holds the positions of chairman and chief executive.

The size of the payment is considered extraordinary by some because as a nonprofit, Blue Cross-Blue Shield is expected to use surpluses to support its healthcare mission.
Commenting on public charities in general, Harry Pierre, a spokesman for the attorney general, said, 'A public charity must use all of its funds to advance the charitable purpose for which it was established.'

Van Faasen earned nearly $3 million in salary and bonus in 2006, according to a recent filing made with Coakley's office, which oversees the state's charities and nonprofits. That included $500,000 in base pay and $2.46 million in bonus based on results, according to the company's filing.

Some healthcare industry officials said they are troubled that Blue Cross-Blue Shield chose to let one person hold the titles of chief executive and chairman.

'This is a terrible design and it's just a bad idea,' said Nancy M. Kane, professor of management at the Harvard School of Public Health. 'It makes accountability of the organization to the community, represented by the board, a farce.'

Linda Crompton, chief executive of BoardSource, a Washington, D.C., organization that advises nonprofits on corporate governance, said the insurer's structure 'raises all kinds of issues about independence.'

'Having one person fill both positions is a very poor practice, and it's something we counsel against,' said Crompton.

A not-for-profit health care insurer which sees fit to make its executives rich, and set up a governance structure which renders accountability a "farce" is probably not going to be terribly hostile to perverse incentives for physicians.

In addition, last week featured several more stories about the corporate culture of managed care organizations/ health insurers.

From the AP, via the Indianapolis Star, was this story about the formerly "most admired executive" of WellPoint, a for-profit insurance company which runs multiple Blue Cross plans. Its California operation has under fire for allegations that it cancelled coverage of individuals after they developed expensive medical problems (see post here). The executive clearly seemed to have too much money to burn.

David Colby was one of corporate America's most admired executives before he was fired abruptly last spring for what was vaguely described at the time as misconduct of a "nonbusiness nature." Now details about his personal life are spilling out, and it's clear he was more than just Wall Street's darling.

Details in a motion filed Jan. 15 in Ventura (Calif.) Superior Court depict the former chief financial officer of health insurance giant WellPoint as a corporate Casanova -- a world-class, love-'em-and-leave-'em sort of guy who romanced dozens of women around the country simultaneously, made them extravagant promises and then went back on his word.

Colby helped put together the $16.4 billion deal that created Indianapolis-based WellPoint in 2004. He was named best CFO in managed care for four years in a row by Institutional Investor magazine.

After the company passed him over for CEO last February, it gave Colby thousands of stock options to stick around. But three months later, to Wall Street's surprise, he was out. All WellPoint has ever said is that he was ousted over a nonbusiness violation of the company code of conduct.

By all accounts, the 54-year-old Colby charmed attractive women by showering them with compliments and gifts.

DiCarlo and the other women suing him tell similar stories of aggressive courtship, big promises and broken hearts.

They say that Colby was carrying on with more than 30 women in the last half of 2007 alone....

Colby would supplement such declarations with gifts such as jewelry or trips, the women say.

Meanwhile, the Tampa Tribune reported,

In the wake of federal and state investigations into the company and a stock market free-fall, WellCare Health Plans chief executive Todd Farha and two other executives resigned Friday.

Farha, 39, announced his departure three months after federal agents stormed the company's Henderson Road headquarters Oct. 24. Agents removed documents and computer drives, but the U.S. attorney based in Tampa has not revealed the target of the investigation. The state attorney general's office also is investigating WellCare.

The New York Times added,

WellCare manages benefits for 160,000 elderly customers under Medicare plans and for 1.2 million low-income recipients of Medicaid benefits. The company, based in Tampa, Fla., is being investigated by federal and Florida authorities over possible overpayments, according to court records.

In October, 200 investigators conducted an all-day raid of the company’s headquarters. Several agents interrupted a quarterly board meeting and held directors there for hours of interviews, according to The St. Petersburg Times. They left the campus with a rented truck filled with seized documents.

Two days after the raid, Connecticut officials said they were reviewing whether WellCare hid the extent of its profit on a health insurance contract with the state Medicaid program. The Securities and Exchange Commission is also investigating.

The company has said it is conducting an internal inquiry and is defending itself against a lawsuit filed by a former employee who said WellCare defrauded the government.

Wellcare, by the way, was one of the companies which used to run the the state of Connecticut's Medicaid program, but was ousted from that role after it refused to tell the state about how it reimbursed physicians (see previous post).

To recapitulate, it seems that far too often, managed care organizations and health insurers, whether for-profit or not-for-profit, seem to be not very accountable to the people they insure, much less the physicians they purport to reimburse. Such lack of accountability may foster a corporate culture that puts enriching top managers ahead of providing accessible, quality health care at the most reasonable cost. Although these organizations' leadership may claim to innovate, it is unlikely that their innovation will do much good as long as the leaders remain representative of and accountable mainly to themselves. However, although we talk about it endlessly on Health Care Renewal, opaque, unrepresentative, unaccountable, and/or unethical governance remains off most peoples' and most policy-makers' radar as causing health care to be expensive, inaccessible, and mediocre.

ADDENDUM (28 January, 2008) - see also this comment on paying physicians to prescribe generic drugs on the Clinical Psychology and Psychiatry Blog.

Connecticut Medicaid HMOs Keep Their Physician Payments Secret

The Hartford Courant reported how Connecticut Medicaid HMOs have tried to keep what they pay doctors secret. The story started when a group of clinics in New Haven found their patients were having trouble getting appointments with cardiologists and gastroenterologists. They wondered if low rates of reimbursement of these services by the patients Medicaid HMOs were deterring doctors from seeing them. But when the clinic doctors asked the state's Department of Social Services (DSS), which administers the state Medicaid progam, what its HMO contractors paid for sub-specialty services, the Department refused. The clinics' attempt to force the state to reveal these rates using the state Freedom of Information Act is pending. The state attorney general said, "as a matter of policy, I disagree with the DSS position." The article noted that "lawyers for the HMOS - Community Health Network of Connecticut, Health Net of Connecticut, FirstChoice Health Plans of Connecticut and WellCare of Connecticut, decline to comment for this story, but referred a reporter to legal papers filed with the Freedom of Information Commission. In the papers, the HMOs claim that disclosing the amount they pay doctors would reveal commercial secrets."
There they go again. The biggest secrets in health care these days, it seems, are what some organizations charge or pay for specific services. (See our post here about how hospitals keep their "list prices" secret.)
This secrecy seems to contradict claims made by some of the HMOs, for example, that "our members are very important to us, (by Community Health Networks of Connecticut), or to "be responsible for the commitments we make and the results we deliver," by (WellCare, in its statement of values.)
Prices paid for physicians services hardly seem like trade secrets like Coca-Cola's secret syrup formula. So inquiring minds want to know what it is about these prices that the HMOs so strongly want to keep secret.