Minnesota Attorney General Mike Hatch finally let Allina Health System, Minneapolis, out of the woodshed last week, but Allina and its recently spun-off health plan, Medica, are grounded through the end of 2002.
Hatch has completed his nearly 18-month-long financial audit of Medica and Allina, which now includes only the division of 16 hospitals and 47 clinics of the formerly integrated system. A spokeswoman for Hatch said he will not pursue further civil remedies against the system, the plan or their executives.
The newly separate organizations also signed eight-page "memorandums of understanding" that restrict their actions, force them to adopt a host of new corporate policies and require public disclosure of administrative spending (See chart). The agreements run through Dec. 31, 2002.
The release of the audit's nine reports, totaling 179 pages, last week marked Hatch's most public rebuke of Allina, which was considered a trailblazer of integrated health systems when it formed in 1994 with the merger of a hospital system and health insurer under one corporate umbrella.
Allina and Medica announced their split in July, saying too few Medica enrollees were using Allina hospitals to make integration work (July 30, p. 4). Gordon Sprenger, Allina's chief executive officer, acknowledged at the time that Hatch's investigation accelerated the system's decision.
In the wake of the split, new governing boards were named for each organization, with heavy advice from Hatch. The two organizations operate independently except for some financial and information technology functions, which should be separated by year's end.
"There is new leadership in John Morrison (Allina's new chairman) and Ted Deikel (Medica's new chairman)," said Leslie Sandberg, Hatch's spokeswoman. "These gentlemen believe in putting patient care first and making sure that doctors, nurses and other staff can perform that mission."
Hatch's reports scolded Allina and Medica executives for what Hatch believes has been a pattern of excessive spending on corporate travel and entertainment, overpayments to and lax oversight of consultants, and conflicts of interest between the hospital and the health plan divisions.
Sprenger, 64, who had planned to step down in July but during the audit agreed to remain until the divisions split, was scheduled to retire Oct. 1, Allina said in a news release detailing its "significant actions" in response to Hatch's findings. Morrison, also 64 and a local banking executive, will serve as interim CEO while Allina conducts a nationwide search for Sprenger's replacement, a task Morrison hopes will be completed by year's end. Robert Spinner, 58, president of Allina's hospitals and clinics division, also will leave Oct. 1, the system said. Last month, David Strand, 44, Allina's chief operating officer and Sprenger's heir apparent, left the system.
Those changes seem to be just the start. "We're looking at restructuring everything management does," Morrison said in an interview. "If the parent company provides value-added services, then it is a worthwhile institution. If the parent company doesn't, then you have to restructure to put the money and the power in the hospitals, with the doctors, the nurses. We're not here to perpetuate the lifestyles of executives; we're here to perpetuate the delivery of good healthcare."
Deikel, 65, declined to be interviewed, but he said in a written statement, "I am committed to assuring full compliance with the (memorandum), as is Medica's entire executive team."
Meanwhile, Allina has offered to pay $16 million to settle a federal investigation into its Medicare and Medicaid billings from 1993 to 2001, although federal officials have not yet signed off on a settlement, Allina said. The billing probe, triggered by two whistleblower lawsuits that accuse the system primarily of double billing, became public in April. Through a spokeswoman, the U.S. attorney in Minneapolis, Thomas Heffelfinger, declined to comment.
Allina could face an investigation of its alleged attempts to influence a state senator who was calling for hearings into Allina's practices last spring. Allina allegedly looked into opening a claims-processing center in the senator's district as an enticement and issued a 57-page report to both the state and federal prosecutors' offices, according to news accounts. Neither Allina nor the attorney general would release the report to Modern Healthcare.
By Hatch's estimate, Medica spent $274.7 million, or 18.7% of its revenue, on administration in 2000, nearly twice as much as the 9.9% Medica reported to the Minnesota Department of Health. Hatch charged that Medica hid many administrative expenses, such as the cost of processing claims, under healthcare delivery accounts.
Employers and consumers in Minnesota shouldn't expect many practical effects to result from Hatch's investigation, said Allan Baumgarten, a consultant who publishes Minnesota Managed Care Review. The Minnesota market, he said, will remain dominated by three insurers-Medica, Blue Cross and Blue Shield of Minnesota and HealthPartners, which collectively cover 85% of Minnesotans, according to Hatch-and three hospital systems-Allina, Fairview Health Services and HealthEast. All are based in the Twin Cities area.