A union-linked investment group is demanding answers from HCA Healthcare after an analysis uncovered an alleged decade-long pattern of excessive emergency department admissions that may have netted well over $1 billion.
CtW Investment Group cited an SEIU analysis that found the investor-owned hospital chain admits far more Medicare patients who visit its emergency departments than the national average. The union estimates the practice may have netted HCA excess Medicare payments of $1.1 billion over the past five years and $1.6 billion since 2009.
CtW said it is going public with the findings after HCA didn't respond to its October 2020 letter imploring the company to hire outside experts to investigate the issue, undertake a board-level review to ensure managers don't benefit financially from such practices and report back to shareholders no later than Nov. 30, 2020. CtW works with union-sponsored pension funds with more than $250 billion in assets under management that it says are "substantial" HCA shareholders.
Richard Clayton, CtW's research director, said the firm has yet to hear back from HCA, which is based in Nashville.
"That's not very reassuring," he said. "We don't know if that's because they don't believe they've got a problem and don't think it's serious enough to even respond to. That seems implausible to us. We don't know if they're taking steps to address this that didn't involve engaging with us for some reason."
In a statement to Modern Healthcare, HCA, which runs more than 180 hospitals, said it reviewed and considered CtW's letter and remains confident in its compliance with regulatory requirements. The company said it left messages for CtW but did not hear back.
"Our hospitals are staffed by physicians, clinicians and nurses who work tirelessly to ensure our patients receive medically necessary care in the appropriate clinical setting," HCA said. "We are confident that our operational processes and procedures are working well and that we are meeting the healthcare needs of our patients and communities."
After reviewing CtW's letter, which includes a description of SEIU's methodology, Michael Shaheen, a partner at Crowell & Moring who formerly worked in the DOJ's civil fraud division, said it seems like something HCA should investigate. It's not uncommon to see allegations like this from concerned shareholders or competitors, but this one details what could result in "very significant damages" if litigated, he said.
"If borne out, I think this would be a significant case for DOJ and/or for private insurers who sought private actions against HCA," Shaheen said. "The risk here is legitimate."
By going public, CtW hopes HCA will take actions to address the problem or reassure the firm there isn't a problem to fix, Clayton said. If HCA still doesn't respond, Clayton said CtW will recommend shareholders vote against the re-election of incumbent board members at its next annual meeting in a few months.
SEIU is hardly an unbiased source of information when it comes to HCA. The union has rallied loudly against HCA's handling of the pandemic, accusing the company of failing to provide adequate personal protective equipment and other safety precautions during the COVID-19 pandemic. A chapter in California even sued HCA over the issue in August.
SEIU brought its findings to CtW in late summer or early fall, Clayton said. He said the data speak for itself, and added that CtW also sent warning letters to Community Health Systems and Health Management Associates based on similar SEIU analyses prior to the federal government's false claims investigations into those companies. CHS paid the U.S. Department of Justice $98 million to settle False Claims Act allegations in 2014, and more than $260 million four years later to settle similar claims regarding Health Management Associates, which it acquired in 2014.
As HMA battled lawsuits in 2014, The New York Times reported that federal regulators had multiple investigations into similar questionable admissions practices at other health systems, including HCA.
In this case, SEIU relied on publicly available inpatient and outpatient Medicare claims to calculate both a national emergency department admission rate plus expected admission rates for each of HCA's hospitals in each federal fiscal year. The calculations accounted for patient age, patient sex, principal diagnoses and whether the hospitals were in urban or rural areas. Hospitals' total number of potentially excess emergency department admissions were calculated by subtracting the "expected" admissions total from the actual number of inpatient emergency department admissions reported for the hospital.
The analysis found that HCA's Medicare emergency department admission rate was only 3 percentage points above the national average in 2011 and double that by 2016. It also found that as of 2018, nearly half of HCA's hospitals had Medicare emergency department admission rates above the 80th percentile nationally, compared with closer to one-third between 2008 and 2011.
SEIU's analysis also found that at least 70% of HCA's outlier hospitals—those above the 80th percentile with respect to emergency department admissions—were located in Texas and Florida, where HCA has its largest concentration of hospitals.
Douglas Grimm, healthcare practice leader with Arent Fox, said he doesn't understand why CtW would go public with its letter rather than continue to work toward an internal dialogue with HCA. A former hospital CEO himself, Grimm said he has no doubt HCA has looked into the issues CtW raised, but said the Nov. 30 deadline was "extraordinarily aggressive."
Similarly, Shaheen said it's "somewhat baffling" that CtW would publicize its letter as opposed to keeping it in-house. Certainly shareholders would want to keep such an issue under wraps, he said.
Now that the SEIU's findings are out in the open, they may trigger red flags at the DOJ, Shaheen said.
"DOJ will be interested," he said.
CtW, founded in 2006, holds directors accountable for "irresponsible and unethical corporate behavior" through working with affiliate unions like SEIU, Teamsters and others. It has levied similar demands at the boards of other major companies. In February, it urged a General Electric board member to overhaul the board's compensation committee and permanently separate the CEO and chairman roles after "years of poor board oversight." It also in December called for replacing the two McDonald's Corp. board members who oversaw what CtW viewed as an improper handling of the former CEO's termination, including excessive severance.
The federal government and state of California declined to intervene in a similar lawsuit against HCA brought by a former employee in 2017. In that case, which was dismissed in 2019, the emergency room nurse claimed the San Jose was billing services as inpatient even though patients were still in the emergency department because the hospital lacked staff and capacity.
More acutely-ill patients and stronger commercial reimbursement meant 2020 was even more profitable for HCA than 2019, despite the devastating global pandemic. The company reported net income of $3.8 billion last year, compared with $3.5 billion in 2019. A significant chunk of that profit—$1.4 billion—came in the final quarter of the year, when U.S. COVID cases were higher than ever.