By Mathew Keller RN JD
MNA Regulatory and Policy Specialist
“In Minnesota, like the rest of the country, our health care system is in crisis. Healthcare premiums have increased at double-digit levels year-after-year. Employers are being squeezed by these costs, and healthcare has become prohibitively expensive for many self-employed, retired, and uninsured citizens. In this climate, nonprofit healthcare organizations owe a heightened duty to show proper stewardship.”
This was testimony offered to the U.S. Senate Finance committee not this week, not this year, not even this decade—but on April 5, 2005, by then-Minnesota Attorney General Mike Hatch. It was spurred in part by a comprehensive audit performed by the Attorney General’s office on Allina Health and its subsidiary insurance company, Medica.
What the audit found was astonishing. $89,000 Board of Director vacations in 5-star hotels, more than 30 trips to the Hawaiian Islands, golf lessons, and $14,000 dinners. One notable wine tour of Napa Valley, complete with private limousines and hot air balloon rides, aimed to teach executives to run a healthcare system with a “moral center.” The Attorney General’s office found the organization to be “rife with conflicts of interest.”
While the 2001 audit was 16 years ago, Allina’s fiscal responsibility as a non-profit company has not aged well. Since then, CEO compensation has more than doubled, from $900,000 then to more than $2 million today. Just this summer the healthcare system spent $149 million (and counting) after instigating the longest nurses strike in Minnesota history—in an apparent effort to save $10 million a year. It has $160 million parked in the Caribbean Islands of Antigua, Barbuda, Aruba, and the Bahamas, according to its 2014 financial disclosures. It spent $16 million to settle federal charges of fraud in 2009, $2.56 million for overbilling in 2015, and is currently embroiled in a dispute with Medicare over another $8 million.
Such practices are not new at Allina. The 2001 audit found that “hospitals and clinics charge substantially more to uninsured patients than they charge to HMOs, insurance companies, or the government for the exact same treatment.” Usually, third party payors and the government use their market power to extract steep discounts from the retail, or “sticker” price, of hospital and clinic bills. As hospitals and clinics seek to generate more revenue, however, they raise their retail price for services, prompting insurers to demand even steeper discounts the next time both sides negotiate.
This has resulted in absurd healthcare charges. A recent analysis of billing data by the Minnesota Nurses Association found that Allina has an average charge-to-cost ratio of 281 percent—meaning that for every $100 of its costs, Allina hospitals charge an average of $281, well above the statewide average for all Minnesota hospitals. It’s also notable that Allina owns its own for-profit debt collection firm, Accounts Receivable Services LLC, giving it further incentive to charge more to healthcare consumers.
In a system where the insurer protects consumers from egregious overbilling, what happens when the insurer is also the overbilling healthcare provider and the debt collector?
This inherent conflict of interest and its attendant risk to consumers is one reason the Attorney General’s office negotiated a break up of Medica and Allina in 2001. As the market turns back to an overwhelming desire to create “efficiencies,” however, such “Kaiserfication”—where the healthcare provider is also the insurer—is back in the news, as Allina seeks to re-enter the health insurance market.
This time, rather than creating a non-profit insurer, Allina will combine forces with Aetna, a for-profit giant with a checkered history of its own, to create a new for-profit company.
Allina’s new insurance company will have a duty to maximize the profit it makes on the sickness of Minnesotans, including those who receive care from Allina, which we can assume will be most, if not all, of those insured by the new company.
When you consider the fact that both Allina and Aetna have problematic histories, like Allina’s egregious overbilling and collection practices and the conflict of interest when an insurer is also the healthcare provider and the debt collector, there is good reason for the public to be concerned about this new partnership.