[A-List] US health care: unhealthy accumulation

["Michael Keaney" <michael.keaney@xxxxxx>]

U.S. to Review Big Payments for Medicare
By REED ABELSON
New York Times, November 13 2002

Spurred by the example of unusually large Medicare payments to Tenet
Healthcare , the government is reviewing what it pays to other hospital
systems to see whether they have taken advantage of Medicare rules to
increase their reimbursements inappropriately, a federal health regulator
said yesterday.

Under Medicare, hospitals are typically paid a fixed amount for specific
diseases, but they also qualify for special reimbursement if the cost of a
case surpasses a certain amount. Last year, hospitals received about $5
billion in special payments, said Thomas Scully, the administrator for the
Centers for Medicare and Medicaid Services. "It's big dollars," he said,
"it's big issues."

Tenet, one of the nation's largest for-profit hospital chains, has come
under scrutiny for collecting an unusually large amount of these payments.
Federal regulators said last week that they planned a companywide audit to
make sure the payments were proper under Medicare rules.

While Tenet insists it has broken no rules, the company has acknowledged
that its aggressive pricing strategy in certain markets appears to have led
to large collections. While hospitals generally receive about 5 percent of
their Medicare reimbursements from these special payments, Tenet received
roughly 25 percent.

Tenet, which is based in Santa Barbara, Calif., expects to receive about
$750 million in special payments this year.

Because the formula Medicare uses takes into account hospital prices in
calculating these payments, Medicare reimbursements at a group of Tenet
hospitals have risen sharply in recent years. Medicare compares a hospital's
prices with its costs to help calculate these payments, and, in some cases,
uses statewide averages in lieu of specific data.

"The bottom line is that this took us by surprise," Mr. Scully said. He
added that the government expected to be able to make changes fairly quickly
to its formulas, including its use of statewide averages.

"We are now aware of it, and we are going to fix it," he said.

While the issue was first raised publicly on Oct. 28 by an analyst at UBS
Warburg in a research report on Tenet Healthcare, Medicare officials had
also recently heard concerns that hospitals were able to increase their
payments because of the way the formula worked, Mr. Scully said.

The insurer handling Tenet's Medicare claims also alerted regulators some
time in the middle of October about that company's high level of
reimbursements.

Although Mr. Scully said Medicare had not identified other hospital
organizations that received similarly high amounts, he said Medicare
officials were looking into whether other hospital groups may have also
taken advantage of the system in similar ways. Teaching hospitals generally
receive more because of the kind of cases they typically treat, and Medicare
will look at those hospitals as well as other large hospital chains, he
said.

Since Tenet told investors last Thursday that much of its recent growth was
a result of these special payments and that it planned to be less aggressive
in pricing, analysts and investors have been scrambling to try to assess the
company's prospects. Tenet's pricing also affects how much it is paid by
health plans. Shares of Tenet have been battered over the last two weeks and
closed at $14.98 yesterday, up 98 cents.

While not alone in raising hospital prices, Tenet appears to be among the
most aggressive, according to analysts and health plans. Last week, the
company said it planned to conduct an extensive review of its strategy.

While analysts have played down the issue as a factor in evaluating
hospitals, investors have shunned other hospital stocks in recent days. In
response to growing concern over these payments and their importance to the
health of hospitals, Universal Health Services , a hospital chain in King of
Prussia, Pa., said yesterday that it expected to receive $12 million in
special payments for Medicare in 2003.

"Given these facts, the company has limited exposure to potential changes"
by Medicare to the formula used to calculate the payments, the company said.