Ex-hospital CFO bust illustrates need to beef up conflict of interest policies

A former CFO of a world-renowned hospital was arrested and charged with raking in $1.4 million in kickbacks, according to a release from the U.S. attorney’s office in Manhattan.

10-year scheme: John R. Reynolds served as CFO of the Hospital for Special Surgery in New York City before being promoted to CEO. He is accused of running a decade-long scheme in which he extorted or solicited kickbacks from hospital vendors, a hospital employee, and a United Kingdom-based healthcare organization. He is also accused of lying to the hospital’s board of directors about his conflicts of interest and to government investigators about his role in the alleged shady doings. If convicted, Reynolds faces up to 25 years in prison.

The hospital is not charged with any wrongdoing and is cooperating fully with the investigation. Deborah M. Sale, a hospital spokeswoman, told the New York Times that the allegations were troubling and said that “they obviously represent the acts of an individual who was intent on circumventing our compliance programs, our ethical standards.”

This case is disturbing not only because of what happened, but because it happened for so long and despite a conflict of interest disclosure policy and compliance program that we are sure the hospital had in place. Unfortunately, the bottom line is that this kind of fraud is difficult to catch for several reasons. First of all, people lie. And especially if it’s an executive, he or she will know how to game the system. Also, vendors that are subject to the misconduct may not blow the whistle for fear of losing the business.   

What to do: A conflict of interest policy isn’t worth the paper it’s printed on unless you put in place mechanisms to deter or ferret out offenders. You certainly need an independent compliance officer and an audit committee that is proactive in preventing noncompliance. You should also have an anonymous compliance hotline. Tips from insiders can catch a lot of this trouble. 

In terms of the vendor side of the equation, a regular review of the supply-chain process should be made. You can put in place procedures to examine how vendors are selected, scrutinize contracts, analyze buying patterns, and conduct sporadic “value analyses” where you determine whether goods selected for purchase make sense from a financial and quality standpoint as opposed to being selected out of personal preference of the staff.

In addition to catching a scheme that’s already under way, the mere presence of these procedures may make someone think twice before starting to perpetrate a fraud.

Learn more: A pre-conference workshop, Advanced Stark Law Case Studies, will be conducted as part of the AICPA Healthcare Industry Conference, November 15-16, at the Bellagio in Las Vegas. This four-hour workshop will be held on November 14 and will review federal Stark Law case studies. Starting the next day, you can attend the main conference to get comprehensive and up-to-the-minute coverage of the latest developments in healthcare issues. In addition to four focused learning tracks, there will be sessions designated as “CFO Focus” to give finance leaders the skills needed to address the unique challenges related to the revenue cycle, compliance, the use of technology, and healthcare reform. Special bonus: You can save an additional $100 off the conference registration with coupon code BVRCARE12 at checkout.

Oklahoma uses new angle to KO Obama’s ACA

Efforts to block President Obama’s Affordable Care Act (ACA) continue with the state of Oklahoma filing a revised complaint challenging the ACA’s individual mandate provision and new IRS regulations designed to implement the law.

Oklahoma was one of 26 states that sought to have the ACA declared unconstitutional. The state’s attorney general, Scott Pruitt, seems to be the first to file in federal court. After the Supreme Court decided over the summer to uphold the majority of the ACA, the court asked Pruitt, who had filed a lawsuit in January 2011 in federal court against the ACA's individual mandate, to either drop the case or change his argument.

New angle: The revised suit uses the argument, set forth recently in a paper by the Cato Institute, that "an IRS rule that is critical to the functioning of the insurance exchanges conflicts with statutory language in the health care law, and therefore should be struck down." The distinction in the revised lawsuit is that it challenges the implementation of the employer mandate, not the legality of the mandate itself.

Several other states will jump on this new bandwagon and are planning to amend or file new lawsuits. In the meantime, critics say to combat the ACA, states could refuse to set up their own exchanges and could refuse to cooperate in a federally run exchange. The new lawsuits, if successful, would also gum up the works.

Key financial benchmarks revealed at MGMA conference

You can’t manage what you don’t measure. That’s why benchmarking is important. It shows how your operational performance stacks up against organizations similar to yours and allows you to gain greater control over your business.

New data: Successful medical practices focus on cost management and patient satisfaction, according to a new survey unveiled at the recent annual conference of the Medical Group Management Association (MGMA) in San Antonio.

“Better-performing” multispecialty medical practices excelled in four performance management categories: profitability and cost management; productivity, capacity and staffing; accounts receivable (AR) and collections; and patient satisfaction. Survey respondents deemed “better performers” have:

• Higher total medical revenue per full-time-equivalent (FTE) physician (a median of $814,944) compared with their peers (a median of $666,634);

• Lower total operating cost as a percentage of total medical revenue at a median of 54%, compared with 64% at other practices;

• Faster AR collections than their peers, evidenced by a smaller percentage of total AR in the 120+ days category. In contrast, organizations not deemed better performers reported up to 18% of their AR in the 120+ day category; and

• Higher levels of patient satisfaction because they poll patients and use the results to educate physicians and staff about such things as appointment availability, overall experience and quality of care.

Watch out: While benchmarking is critical in managing operations, be careful when using it to set operating goals. Make sure you are not using benchmarks of peer organizations that are not performing as well as they should, especially given the rapid changes going on in the market. You need to set aggressive targets designed to produce strong financial results in a new tough environment of changing payment models and shifting consumer demand.

Also, use internal benchmarking to understand why things are changing in your business and to identify problems. If you can understand why, for example, metrics for readmissions are up, it may indicate that a particular disease is the culprit. Then, you can target that disease to improve the metric. True, you may not always be able to do anything about the problem, but at least you know what’s going on.

The MGMA Performance and Practices of Successful Medical Groups: 2012 Report Based on 2011 Data was produced using data from 348 better-performing groups that responded to the MGMA 2012 Cost Survey, as well as a supplemental questionnaire that assessed practices and procedures.

Medicare Advantage plans rise, payments to fall

One of the biggest challenges in healthcare finance is the changing landscape of payment models that will affect the revenue cycle. The government has launched “demonstration projects” for different payment models, and providers are scrambling to understand them and their potential impact. One hot issue is Medicare Advantage (MA), which contains a variety of options for private Medicare plans for seniors.

Usage up: The number of MA plans being offered is expected to increase by 7% over the next year, from 2,430 currently to 2,600 in 2013, according to a report from Avalere Health.

More than 100 MA plans will be available in California, Texas, Pennsylvania, New York and Florida, according to the report, while less populous states in New England, the South and the West will see up to 60 different plans. MA benefits will likely also hold steady into next year, with monthly premiums increasing by only $1.47, or 5%. MA plans project that enrollment will increase by 11%, totaling approximately 15 million MA enrollees in 2013.

Payments down: In separate research, a new issue brief from the Commonwealth Fund concludes that once the MA policies are in place, overall MA plan payments nationwide will drop from 114% to 102% of what spending would have been for the same enrollees if they had been enrolled in traditional Medicare.

These reports come at a time when there is an ongoing debate over the projected long-term growth or decline of the MA system and its enrollment. The Affordable Care Act included significant payment cuts for MA plans by more closely aligning payment to local fee-for-service spending levels, with the cuts phased in over two to six years, depending on the locale. However, the Obama administration has moderated these payment cuts with quality bonus payments for high-performing plans.

America's Health Insurance Plans (AHIP), in a recent Fact Check document, takes issue with the efforts of the administration to promote the use of the plans. AHIP reviews various findings that demonstrate that MA plans are important to many beneficiaries who cannot afford the high out-of-pocket costs they would incur under the Medicare FFS program. “These vulnerable beneficiaries will pay a heavy price if the ACA’s Medicare Advantage funding cuts are fully implemented,” says AHIP.

Bottom line: Amid all of this debate, for now there appears to be a stable market for MA plans that will continue through 2013. As a result, providers and health plans are reacting accordingly.