The many extracts on these pages are from copyright material. They are owned by the reference given or its owner. They are reproduced here for educational purposes and to stimulate public debate about the provision of health and aged care. I consider this to be "fair use" in the common interest. They should not be reproduced for commercial purposes.

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The intention is to show the general thrust of corporate practices as well as the nature and extent of any allegations made. Material contained here represents my views based on my study of the operation of the health care marketplace and the material available to me. It should not be assumed to represent the views of any other individual or organization.

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Failures in Medical Care
(Patient Fraud)

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Content of this page
This page addresses the conflicts which arise from the pressures to structure the service for profit even when this is not in the interests of care. It considers whether, and if so then to what extent, care might have been compromised.




This page examines the other side of Medicare fraud. It addresses the conflicts which arise from the pressures to structure the service for profit even when this is not in the interests of care.

The costs of care are large and profit can be markedly boosted by reducing staff and quality. In aged care many companies have already paid large settlements for breaching their Medicare agreement to provide care - or for not providing the care they promised to their "customer" patients. This is patient fraud rather than Medicare fraud.

There are a number of individual complaints about care in HealthSouth facilities but we do not have the range of reports about failures in patient care that we encountered in aged care nursing homes. The situation is more akin to general hospitals where the range of services is broad and the factors diverse. In addition to this rehabilitation therapies are not at high risk for complications or death. The patients are generally much healthier. Large numbers are outpatients or minor day care surgeries. Reports of failures in care will not be common.

The question then is not whether the care is dangerous and complication prone but whether it is as beneficial as it should be. One can draw inferences from the allegations about Medicare fraud. If they have substance as seems likely then it is clear that care has not been all that it should be. In addition there are references to generally poor care in government statements and in the press.

There are a number of aspects we need to examine.

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I do not have a lot of information about corporate marketing to the public. There is some information about marketing in schools. Scrushy and HealthSouth ran extensive school education and other programs using actors and other public figures. I have been contacted by a parent who was angry that his/her child's gullibility had been exploited in a blatant marketing and branding exercise. This had been used as a means of distributing marketing material to parents. Others including National Medical Enterprises (now Tenet Healthcare) and HCA before its merger with Columbia exploited the opportunities which schools and anxious parents presented for marketing and misinformation.

Mr Scrushy was also given licence to explore his quirkier hobbies. That included funding and promoting a girl band, 3rd Faze, which toured on HealthSouth's "Go For It!" roadshow to promote a healthy lifestyle to children.
HealthSouth CEO still big hit in Alabama Financial Times 21 Mar 2003

There is information to indicate an aggressive branding strategy and that HealthSouth exploited and fanned the growing health and fitness ethos of the population. It used the search for fitness to draw people in.

Scrushy's genius lay in the area of marketing and promotion: 20 years ago, rehabilitation programs were relegated to the dark corners of hospitals. At HealthSouth, the act of rehabilitation was glorified.
From emperor to outcast USA Today May 29, 2003

By then, HealthSouth had already built itself into the nation's first 50-state health care chain, taking extraordinary steps to refine itself into a strong brand name that would feel immediately familiar to patients everywhere.
HealthSouth's Scuttled Spinoff Draws New Scrutiny - April 7, 2003

Scrushy, 50, built a business that changed the industry of physical therapy. He took the idea of strengthening and stretching injured limbs and joints from cramped hospital wards and mom-and-pop companies and packaged it for middle America.
Even the most unathletic injured factory worker might show up for a therapy session and see football stars Bo Jackson or Dan Marino laboring beside them. Scrushy signed many of the star athletes the company treated to personal appearance contracts to promote the company.

"It was smart marketing," said Linda Jones, editor of the trade magazine Advance for Physical Therapists. "You get people when they are young and healthy and they are more likely to come back to you when they are older and injured."
- - - - all the while persuading patients, doctors, insurance companies and employers that physical therapy gets people back to work and play faster.

"They were able to show that physical therapy works," Jones said. "HealthSouth brought the words `physical therapy' into national prominence, before the general public, as never before."
Rocket-like Ascent Tumbles Back With Crushed Investors The Birmingham News April 13, 2003

The emphasis on marketing persists and the new reformed HealthSouth, in 2007, has a full time director of marketing at some of its hospitals (eg Health South Hospital of Terre Haute in Indiana, a hospital which is soon to be closed down).

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Business Practices in care

"HealthSouth is really a good corporate citizen," Alexander said. "HealthSouth has never been involved in any of the national health-care scandals.
MONEY & MEDICINE State probes purchase of hospital share; The Providence Journal-Bulletin March 6, 1999

Additionally, the congressmen
(House Energy and Commerce Committee) write that "it appears that HealthSouth may have submitted hundreds of thousands of claims for reimbursement to Medicare and Medicaid based on improper billing of certain rehabilitative therapy claims." The missive cites in particular contentions that the company: billed for services not rendered, billed for therapy provided by supportive personnel as if it had been furnished by licensed therapists, failed to include physicians' plans of care when appropriate and billed improperly for group therapy.
Rehab Giant Faces Congressional Probe Medical Newswire April 28, 2003

Most of the allegations about Medicare fraud in HealthSouth facilities are likely to have adverse consequences for care. These are described in more detail elsewhere. In the absence of clinical data one can only look at the practices and see how they have affected care in other corporations, then speculate on what the implications would be in the HealthSouth context and with HealthSouth's culture.

The range of accusations about fraud and inappropriate corporate dealings in HealthSouth is not encouraging.

Plus a cult-like fear of the CEO by employees who say they routinely jiggered the books on command from higher-ups. And who, in fear of a verbal beating from Scrushy, also pinched the company's pennies ÷ often at the expense of patient care ÷ while the CEO accumulated a trove of creature comforts.
Profits and hospitals don't mix Toronto Star Apr. 26, 2003

A patient who claimed that he suffered serious complications after he was treated by an untrained therapist claimed that all of the staff in the rehabilitation facility where he was treated wore identical uniforms. As a consequence he had no idea whether the therapist who treated him was properly qualified or not. His trust that he was being treated by competent persons was misplaced.

There is a substantial body of allegations which indicates that HealthSouth used unqualified staff to give therapy which should have been given by trained therapists. Those masquerading as therapists included "students, interns, athletic trainers and other unlicensed aids". This could only have resulted in substandard care.

Billing issues and questions about the company's quality of care have dogged HealthSouth for years. The Justice Department lawsuit says that a Medicare-authorized investigation by Alabama Blue Cross in 1998 found that HealthSouth improperly billed Medicare for therapy by students, interns, athletic trainers and other unlicensed aides.
"HealthSouth, as the largest provider of outpatient physical therapy services in the United States, has been or should have been aware that it was improper to bill for unskilled services," the Justice Department suit said.
Mr. Darling, the patient who is suing HealthSouth, said that practice caught him by surprise. "I was under the assumption that everybody in the building was licensed. "It turns out that the man who put the weights on my leg is called a technician. They were all wearing identical polo shirts with HealthSouth logos and the same ID badges."
Growing Concerns on the Health of HealthSouth New York Times September 19, 2002

Added Aug 2007
Darling got a prescription for physical therapy. The doctor recommended a "gentle but progressive stretching exercise program."

- - - - - -  After a few visits, a physical therapy assistant turned him over to a technician, Tyler Isenberg, in April 1996.
Darling thought it was too much weight. He reminded Isenberg he had back surgery about 11 weeks earlier. He asked if they could lower the weight limit.
By that time, the licensed physical therapy assistant who had been working with Darling rushed over, he said. She saw the weights and said, "That's way too much," according to Darling.
Nine years later, Darling says he has been forced to apply for disability and take methadone pills three times a day for his pain. He says his dreams of becoming a television news anchor have been dashed. He says he spends most days lying in a reclining bed with small motors massaging his back.
But Darling's lawyers believe his injury fits into a larger pattern of fraud and negligence at the Alabama company. They say HealthSouth's business plan at the time encouraged clinics to use unlicensed employees to perform physical therapy.

That allowed their licensed therapists to perform more expensive tasks, bringing in more money at clinics. Darling, his lawyers say, was a casualty of corporate greed.
HealthSouth denies the charge.

Attorney Cohen wants up to $20-million for medical bills, lost wages, pain and suffering. And he wants $100-million in punitive damages, to punish HealthSouth.
Is jury pool of 104 big enough? Nope : Lawyers in a $120-million malpractice case can't agree on enough jurors, but they can agree on a mistrial. St Petersburg Times (Tampa Bay) July 15, 2005

The failure to follow physician plans of care is alleged by a congressional committee. This raises the likelihood of a situation like that in National Medical Enterprises (NME now Tenet Healthcare) in the late 1980's and early 1990's. Treatment programs and diagnoses were tailored to maximise therapies and profits rather than serve the needs of patients. In the belief that they were being helped vast numbers of trusting NME patients submitted gullibly to a maximum amount of unneeded and worthless therapy simply to benefit the corporation and the ambitions of its executives. The patients and their insurers were defrauded. In situations like this corporations typically have lucrative financial dealings with the doctors in order to induce them to go along with these practices.

HealthSouth, the nation's largest rehabilitation company with four out of 10 U.S. providers, quickly showed why it's known for its profitability and creating low-cost, standardized care across the country.
California Physical Therapy Independents Thrive with New Services The Sacramento (Calif.) Bee March 23, 1998

Finally the provision of group therapy rather than individual therapy and then charging for individual care raises the possibility that patients who required individualised care were shunted into groups in order to keep costs down. If this was conducted by lower paid untrained staff as is suggested then this would decrease costs further. Both would impact on care.

This allegation also suggests a factory approach where patients are processed through programs rather than receiving the individualised care they need. The French multinational. Generale de Sante Internationale (GSI) adopted this money making factory approach in some of its United Kingdom hospitals. It was suggested that some died as a result. To maximise services at minimal cost NME adopted a similar profitable "programmatic" system of care in its psychiatric and substance abuse hospitals.

Last month, HealthSouth said it would cut up to 2% of its work force, or about 1,000 of its roughly 51,000 employees, to reduce costs. The company has said that the job cuts are in response to a change in Medicare policies.
HealthSouth Expects Profit To Miss Wall Street Forecast DOW JONES NEWSWIRES - Dec 16, 2002

The company's response to the Medicare restrictions on charging for group therapy is particularly revealing. Having to give patients individual therapy to meet their needs instead of group therapy should have required more therapists not less. On the other hand group therapy would not be nearly as profitable as it had been. The logical corporate response is to put less money into activities which are less profitable and fire staff so giving less treatment. Clinical requirements are a much lesser consideration.

Added Aug 2007

In another case it is difficult to assess what the basis for allegations of failure in care are.

The subdural hemorrhage surgery was completed, and 21 days later West was transferred to HealthSouth Rehabilitation Hospital for therapy and rehabilitation, the suit states.

 While there, HealthSouth failed to provide for West's needs, and failed to provide sufficient staff, services, supplies and appropriate diagnosis and treatment, the suit continues.
Wrongful Death Suit Filed Against Hospital The Morning News/ Sep 16, 2003

HealthSouth and one of its doctor's refusal to operate on a patient with AIDS is surprising. Young surgeons with families to support may well arrange for a colleague to take over care but simply to refuse treatment is unacceptable. There are well established protocols for operating on AIDS patients.

In a pending lawsuit filed October 2004, a Wisconsin man alleged that a Milwaukee orthopedic surgeon refused to perform a spinal fusion after learning the man had HIV. - - - - - - - - that HealthSouth Provo Surgical Center canceled his scheduled surgery because "no scrub techs would do the surgery and it was the policy of (the surgery center) not to accept HIV-positive patients."
Utah surgery center sued for alleged HIV discrimination Modern Healthcare September 6, 2005

That practices which were potentially harmful to patients occurred can no longer be disputed. In a whistleblower initiated case HealthSouth paid US $325 million to settle claims that it defrauded Medicare by these means.

Government lawyers - - - said that from 1996 to 2002, HealthSouth systematically submitted Medicare claims without proper physician-care plans. For a decade, HealthSouth also improperly billed for services that weren't provided or were done by physical-therapy aides, athletic trainers or student trainees, not licensed physical therapists, the suit said.
Tenacity exposes company fraud Pittsburg Tribune Review (Bloomberg) January 27, 2005

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Providing Services for profit
rather than the needs of the community

We are focused on implementing the five strategic lines of business represented by our outpatient and inpatient services in the top 300 markets in America. By selling or closing those assets that do not fit our strategic plan, are not in our target markets, or do not meet our standards, we believe that we will strengthen our financial position, allowing us to focus even more attention on continuing to improve performance in our core businesses and target markets."
HEALTHSOUTH Announces $1 Billion Stock Repurchase Program And One-Time Charge In Fourth Quarter PR Newswire February 8, 1999, Monday

As is well illustrated by Sun Healthcare and Columbia/HCA, corporations direct the thrust of their activities towards the sort of care which generates profits, often at the expense of benefits to the community and to their patients. These consequences are always denied and other explanations offered.

Sun Healthcare built its empire on therapies provided as part of its focus on profitable "post-acute care" talking of the "demand" for services. When funding was changed to reduce profits from therapies the demand miraculously vanished and Sun fired large numbers of therapists.

Home care in which services were provided to keep people in their homes rather than institutions suffered a similar fate when funding was reduced. HealthSouth was among those who responded by simply shutting down the service. Most of the patients from the 1,200 Home Health Agencies that closed in response to reduced funding, were not able to care for themselves at home. They would have been thrust on to busy relatives or admitted to nursing homes where they would have been more profitable. This was all because the companies involved could not generate the profits needed to fuel their growth. If they had not closed the agencies they would not have remained competitive.

The shuttering of about 30 agencies in at least six states was announced in conjunction with the company's third-quarter earnings report.

Including nonrecurring expenses such as those incurred from the home-care agency closings, the company's net income dropped 93% to $5.7 million,- - - - -
The 30 home health agencies will accept no new patients as of Nov. 1, and existing patients will be transferred to other providers. "Patient care will not be compromised," said Executive Vice President Anthony Tanner.
Chairman and Chief Executive Officer Richard Scrushy said the agencies, - - - - - - would be cut because home health "was not an area that we have any interest in."

- - - - - - - The National Association for Home Care estimates that more than 1,200 home health agencies have closed this year, - - - - The
(Medicare payment) system, which took effect in October 1997, reduced reimbursement by an average 14%.

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The structure of Medical services

"Over the past few years, we have assembled the finest group of facilities in the healthcare services industry as we have pursued our integrated service mode strategy," said Scrushy.
HEALTHSOUTH Announces $1 Billion Stock Repurchase Program And One-Time Charge In Fourth Quarter PR Newswire February 8, 1999, Monday

But should the surgery center-deal go through, Powell said,Cincinnati could be in line for one of HealthSouth's "integrated service plazas."

The plazas, which can occupy up to 60,000 square feet of leased space, house diagnostic, surgery, outpatient rehabilitation and occupational medicine services, as well as physician offices, all under one roof.
The $4 million center will be part-owned by about two dozen area doctors. It will have four operating rooms that can be used for a variety of surgical procedures.

DEAL CLOSE FOR STALLED OUTPATIENT SURGERY CENTER ::: Deaconess talking to HealthSouth Corp. Business Courier: October 2, 1998

When corporate speakers talk of the "finest group of facilities" they are usually talking about the amount of money generated not the care provided. They routinely use the term as if it applies to patient care rather than profit.

The integration of medical services for the benefit of patients is not only acceptable but beneficial and essential.

The integration of medical services for profit is none of these things. In practice integration of services and so called diversification carried out by large market listed corporations has been largely for the benefit of the company - to increase profits.

Under its integrated service model, Scrushy explains, the company aims to provide a patient's diagnostic services and then perform any related services, such as orthopedic surgery and follow-up rehab.

Integrated and diversified services provide the opportunity to pass the parcel around the integrated services and so maximise the profits from each profit vehicle (ie patient). They provide an opportunity for manipulating funds and hiding fraud. They often provide a geographical unit in which corporate arguments and rationalisations are promoted as self evident. They provide a forum shielded from the wider community in which a corporate culture can be developed, and sold particularly to the medical profession.

Employees can be controlled and monitored. Finally they provide a venue within which lucrative financial arrangements and partnerships with physicians can be developed with a semblance of legality. Physician compliance is essential for many of the fraudulent practices. They allow the corporation to secure most if not all of a physician's referrals.

HealthSouth followed a strategy of establishing integrated centres integrating doctors offices, diagnostic services, outpatient surgery and rehabilitation.

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Pressures for profit

Many companies put strong pressures on staff to provide care more profitably even though this may impact adversely on care. There are accounts which suggest this happened in HealthSouth.

The owners (Physical therapists) hoped the sale to Caremark would lead to more managed care contracts. Like most deals, the owners stayed on to manage the operation.

Caremark was "pretty hands off. They let us do what we needed to do to make it work," he said. That changed a year later after health-care giant HealthSouth acquired Caremark Orthopedics.

HealthSouth, the nation's largest rehabilitation company with four out of 10 U.S. providers, quickly showed why it's known for its profitability and creating low-cost, standardized care across the country.

"We had very little control," McCoy said. "We had to do a lot of cutting of staff. We were held responsible for the profit and loss per site. HealthSouth's goal was to make an unbelievable amount of money." Therapists, he said, were seeing more patients and spending less time with them.
California Physical Therapy Independents Thrive with New Services The Sacramento (Calif.) Bee March 23, 1998

Oak Leaf bought out HealthSouth 16 months ago and has converted itself into a surgery hospital, Immerman says. He says the physicians ended relations with HealthSouth because it was too bureaucratic. They had built the ASC (Ambulatory Surgery Center) to get away from hospital policies that slowed down operations, he says, but discovered HealthSouth had its own red tape.

"We would want to do something that was different from the entire organization, like pay staff more than the HealthSouth corporate rate, and they weren't really able to deal with it," Immerman says. When the OR manager quit in frustration, the physicians decided to buy out HealthSouth, he says.

HealthSouth's control over its ASCs is reportedly a common complaint among physician partners, but Pappas, for one, says it should be expected.

"What group of doctors would necessarily want to have a corporate partner?" he says. "Doctors sell to a corporate entity like HealthSouth because it's a good return on the original investment."
Scott Becker, an attorney at Ross & Hardies in Chicago who has been getting frantic calls from physicians partnering with HealthSouth, says the ASCs' role as the company's golden goose puts them in a precarious position.
Each evening, Becker says, every HealthSouth ASC sends its earnings for the day to a corporate account in Birmingham, and all ASC payments, including staff salaries, are paid by headquarters.
'Now healthcare has its Enron' : HealthSouth's physician partners face some difficult choices as investigators continue to expose the company's finances Modern Physician May 1, 2003

These reports suggest that the partnerships may in fact be golden handcuffs binding physicians to the company's profit mission and their programs of care. Companies keep a tight grip on the profits and costs but seldom on the care

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Arrangements with Physicians

Financial arrangements with physicians is a black hole in the USA.

This question of legality begs the question of morality and ethics. In practice most of these arrangements are dysfunctional or potentially harmful. They have been at the root of most of the fraud and mistreatment provided in corporate facilities in the USA.

The exact arrangements which HealthSouth has made with the medical and other professions is not clear but it is clear that they are extensive and lucrative. The company's success depends on the doctor's referrals and their use of HealthSouth facilities.

There are joint ownerships perhaps similar to those used by Columbia/HCA. Columbia/HCA were forced to abandon them after the 1997 fraud investigation as they were considered to be kickbacks to which the company pleaded guilty. HealthSouth claims that its arrangements in its outpatient surgical centres are legal, as did Columbia/HCA prior to the 1997 raids on its hospitals.

Early on after the fraud was exposed HealthSouth reassured the doctors that the company would continue to pay for their insurance and other matters relating to their partnerships. In the litigious USA insurance, particularly malpractice insurance is one of the major practice expenses and paying them would be an enormous carrot. HealthSouth was also concerned when its medical partners wanted to bring in their own auditors to examine the books of the partnerships.

Analysts see these relationships and partnerships as crucial for the company and are blind to the potential problems for care. Note below how the lucrative contracts have become golden handcuffs.

But plenty of other HealthSouth physician partners in the 203 HealthSouth ASCs (Ambulatory Surgery Center) are worried about the future of the company and how it could affect them, according to lawyers and consultants in the ASC field.

They report that dozens of these physicians have been calling, asking how they can protect themselves from a potential bankruptcy or a fraud investigation and how they can break ties with HealthSouth.
"There are a lot of physicians who would love to get out of their relationship with HealthSouth," says Carsten Beith, an ASC expert in Chicago with Cain Brothers, a healthcare investment banking firm. But Beith says the terms of HealthSouth's contracts with physicians don't make it easy for them to buy the company out.

'Now healthcare has its Enron' : HealthSouth's physician partners face some difficult choices as investigators continue to expose the company's finances Modern Physician May1, 2003

The health services giant told its physician partners in a two-page letter it was maintaining their insurance coverage, hiring a new auditor and building cash.
The letter was filed with the Securities and Exchange Commission and sent to 3,500 doctors nationwide who have invested in surgical centers with the Birmingham-based company, said Brimmer.
The company on April 18 accelerated first-quarter payments to the doctors, a move the letter said was "a sign of our commitment."
"From the letter, it is clear that the company is clearly running into problems with these groups and needs to pacify them," she said.

HealthSouth Seeks to Reassure Doctors Associated Press May 1, 2003

"We are glad to see that the company is trying to reassure their partners, particularly on questions of insurance and liquidity and maintaining good relations in these turbulent times," said Premila Peters, an analyst at KDP Investment Advisors.

Peters said keeping the doctors happy will be crucial to preserving the value of the company, since those referrals between HealthSouth's diagnostic imaging centers, the surgery centers and rehabilitation facilities bring in cash.

Also, physician partners have ownership stakes in the outpatient surgery centers.
The company said in its letter that some physicians have requested permission to appoint auditors for their own local facilities. Instead, HealthSouth is advising the doctors to wait until the company appoints its own auditor.
HealthSouth Cuts Jobs, to Hire New Auditor Reuters Apr 30, 2003

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Added Aug 2007

Not Providing Facilities for the Disabled

This was a rehabilitation company providing services to the disabled. Some of these disabled sued to force HealthSouth to provide the physical facilities they needed to access that service.

Americans with Disabilities Act Litigation
On April 19, 2001 a nationwide class action now captioned Michael Yelapi, et al.v. St. Petersburg Surgery Center, et al., Case No:8:01-CV-787-T-17EAJ, was filed in the United States District Court for the Middle District of Florida alleging violations of the Americans with Disabilities Act, 42 U.S.C. § 12181, et seq. (the "ADA") and the Rehabilitation Act of 1973, 92 U.S.C. § 792 et seq. (the "Rehabilitation Act") at our facilities. The complaint alleges violations of the ADA and Rehabilitation Act for the purported failure to remove barriers and provide accessibility to our facilities, including reception and admitting areas, signage, restrooms, phones, paths of access, elevators, treatment and changing rooms, parking, and door hardware. As a result of these alleged violations, the plaintiffs are seeking an injunction ordering that we make necessary modifications to achieve compliance with the ADA and the Rehabilitation Act, as well as attorneys' fees. We have entered into a settlement agreement with the plaintiffs that would require us to correct any deficiencies under the ADA and the Rehabilitation Act at all of our facilities. We are awaiting an order approving the settlement agreement from the court.
HealthSouth form 10-K filing with the SEC June 27, 2005

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Web Page History
This page created July 2003 by
Michael Wynne
Revised and Updated October 2007