IHS got its start in 1984 when its founder and chief executive, Dr. Robert N. Elkins, a psychiatrist, pioneered the concept of "subacute care" centers. These nursing homes with added services, designed to appeal to cost-conscious insurers, allowed patients to get a higher level of care than at a traditional nursing home but at a lower cost than hospitals.
From $195 million in annual revenue in 1992, Integrated, with aggressive acquisitions, grew to $3 billion in annual revenue by 1997, with operations in 47 states. 180 IHS nursing homes would be taken over by Trans Healthcare Inc. The Baltimore Sun December 4, 2002
Integrated Health Services (IHS) was one of the strongest advocates of post-acute care, of diversification and of integration. It followed Columbia/HCA's MacMedicine model by seeking to buy up and provide a complete range of services. It marketed "One Stop" care. It argued most strongly for post acute care and exerted more political influence than any other nursing home chain.
Guided by its chairman Dr. Robert Elkins, a psychiatrist it pursued its model of care with a single mindedness that ignored facts and reason when they did not fit with the model. More than any other nursing home chain IHS illustrates the inapplicability of the business model of care. The provision of health care based on understandings embodied in the words growth, profit, bigger is better, diversification, and integration has failed with unfortunate consequences for everyone involved except the perpetrators of this nonsensical model. Richard Scrushy (HealthSouth's chairman) was on IHS' board as were a number of other Scrushy associates.
The failure of this model of care is hardly surprising as it represents the application of highly theoretical and untested abstractions developed in a totally different environment to a situation where the necessary conditions for their operation do not exist.
Most of these principles had already been applied to psychiatry, chemical dependency, and rehabilitation during the 1980's and early 1990's. The bubble burst in 1991/92 amidst public outrage and record fraud settlements. Columbia/HCA applied similar principles to health care in the early 1990's. There was a public outcry about Columbia/HCA's conduct during 1996 and the bubble finally burst in March 1997 when the FBI swept through its hospitals.
Despite this the nursing home chains did not
blink as they applied the same principles to aged care. The market
worshiped them for doing so.
The acquisition spree that fueled the rapid growth also meant the company built up about $3 billion in debt. 180 IHS nursing homes would be taken over by Trans Healthcare Inc. The Baltimore Sun December 4, 2002
Dr. Robert Elkins founded IHS in 1986. It went public in 1991 just as the psychiatric scandal broke. IHS and its market supporters ignored the exposure of the adverse consequences of the same marketplace philosophy in psychiatry, substance abuse, and rehabilitation. IHS grew very rapidly to become a Fortune 500 company like other darlings of the marketplace.
It embraced post-acute care and integration more enthusiastically than its competitors. It was soon among the five largest of the chains with 44,302 beds in its nursing homes across the nation. It derived an increasing proportion of its income from Medicare.
The accolades seem to have gone to its head. During the latter part of 1996 and 1997 government were planning alterations to the Medicare system on which IHS strong income stream depended. Despite this IHS went on a wild and indiscriminate buying spree, raising vast loans to fund this. Together with HealthSouth it purchased Horizon Healthcare and shared its facilities.
Some of the companies it purchased were already losing money and others had collapsed amidst convictions for fraud. In the marketplace world these failures were seen as opportunities. These opportunities were all dependent on a continuation of the Medicare funding system which paid for each item of service provided - the ability to go on charging what this egotistical company felt it was entitled to.
Despite their experiences with the rise and fall of companies like Tenet/NME and Columbia/HCA lenders were caught up in the euphoria surrounding the business solution for health and aged care, as well as the credibility generated by IHS early success in applying these same principles. They lent indiscriminately.
In 1997 the government legislated to make
post acute Medicare services more of a capitation system. It was no
longer possible to work the Medicare gravy train in the same way.
In 1998, Medicare cut its reimbursements, and over the next year and a half, five of the seven largest nursing home chains - IHS among them -filed for bankruptcy reorganization.180 IHS nursing homes would be taken over by Trans Healthcare Inc. The Baltimore Sun December 4, 2002
The Slippery Slope:- By mid 1998 profits were falling and by the end of 1998 there were massive losses. During 1999 IHS tried frantically to reorganise. It struggled to sell off some of its unwisely purchased assets. By this time other companies were experiencing the same problems and there were few buyers. When sales were made they were at a fraction of their original purchase price.
Like Sun and Vencor, IHS fired thousands of staff, mostly therapists who no longer generated a profit. It brought in new members to its board but it did not get rid of Richard Scrushy, the chairman of HealthSouth and one of those who adopted the growth philosophy as aggressively as Elkins and who rewarded himself even better.
Substandard Care:- Spurred by revelations from angry citizens government investigations had by now confirmed extensive problems in care in corporate nursing homes. As IHS financial health declined state and federal regulators stepped up surveillance of the health care it provided.
Like the other companies in financial difficulties, IHS was harried by state and federal officials, who had previously turned a blind eye to their transgressions. They imposed fines, excluded substandard homes from Medicare payments and attempted to close nursing homes.
Law Suits:- Citizens across the country were angered by corporate misconduct and the neglect of their relatives. They took to the courts in their hundreds. The harrowing evidence, grim photographs and disturbing video sequences taken by relatives and critics caused the courts to award massive punitive damages. They were intended as a deterrent.
Chains including IHS were faced by claims for massive damages for neglecting patients. The costs of insuring their nursing homes against malpractice suits increased dramatically. Insurers refused to cover substandard homes. Proper insurance cover was a prerequisite for Medicare funding.
Prosecution for Fraud:- During the preceding years multiple whistle blowers in the corporate system had supplied evidence not only of mistreatment but also of extensive Medicare fraud. They had lodged Qui Tam actions. The justice department was joining Qui Tam whistleblower suits and energetically chasing Medicare fraud in post acute care. In 1999 they recovered a record US $ 840 million from health care fraud.
Fraud investigators are now seeking repayment of monies defrauded from Medicare with triple damages. IHS is subject to a number of whistle blower suits and the government has already joined at least one.
Mother Earth:- The world of corporate business abstractions had once again come into contact with the real world of suffering humanity, human emotions, anger, revulsion, decency, law and order, culture and norms - the constraints imposed by functioning communities. Once again US citizens are counting the human costs.
All embracing ideas about the market and society, about the applicability of market principles to health and aged care were now confronted with the world we live in. These abstractions were shown, for at least the third time in 10 years to be just that - trails of tenuously interwoven vapour in the minds of their protagonists.
While the abstractions were not real their consequences were very real for vast numbers of citizens who became their victims. There is no sign that the business community or the political establishment in the USA and Australia is in the least influenced by what has happened. One wonders what it will take to make any impact.
Sliding Down and Down - a Hard
Landing:- IHS was unable to pay the interest on its loans and
defaulted. Its shares plunged from a high of US $40 to only a few
cents. It was delisted from the stock exchange and in October 1999 it
joined Sun Healthcare and Vencor in Chapter 11 bankruptcy.
Along the way, Elkins also became known for pocketing lavish bonuses -$3.25 million in 1997 - flying in an executive jet (leased by IHS from a company owned by Elkins), and gazing at millions of dollars' worth of company-purchased Italian Renaissance and baroque art. 180 IHS nursing homes would be taken over by Trans Healthcare Inc. The Baltimore Sun December 4, 2002
My interest is in the way a system like this operates and the sort of people who identify with such illogical ideas. What sort of people support so much nonsense in the face of repeated failures in the recent past? What sort of people will continue to implement practices based on these ideas as the house of cards crumbles and citizens cry out at the consequences? What sort of society embraces ideas that have already failed so miserably? What are the social and human forces that account for this? What theories can we develop to help us understand them?
IHS founder Dr. Elkins was the driving force behind IHS conduct. He emerges as a dark and malign shadow behind the company. It is difficult to get to the man himself. One can only do so by examining his actions and the behaviour of IHS. He is notorious for his financial dealings with politicians and for the massive donations made to political campaigns. He was clearly admired by his board and by the business community.
Elkins was awarded massive compensation in salary, bonuses and perks. Even when his business policies were in tatters and the company bankrupt the IHS board tried to hang on to him offering him inducements. When creditors forced his resignation the IHS board attempted to give him a US $50 million termination package. One wonders at a man who can foster such loyalty.
I have devoted a separate web page to Dr.
Robert Elkins, the former chief executive officer and founder of Integrated Health Systems (which runs a large number of nursing homes whose stock value dropped by 78% between 1997 and
1999) made over $14m in salary and stock bonuses annually27 and received a package worth $55m when he left the company. Regulating nursing homes : Residential nursing facilities in the United States Charlene Harrington BMJ VOLUME 323 1 SEPTEMBER 2001
IHS was the company where there was no possibility of trading out of bankruptcy. During the three years in chapter 11 it spun of Rotech as a separate company. It then sold itself to Abe Briarwood Corp, owners of Trans Health, effectively merging themselves into that company. The banks recovered 6-8% of their money and shareholders got nothing. Elkins meanwhile got a US $55 million farewell package, approved by the bankruptcy court!
In analysing IHS and Vencor's conduct I have adopted a different strategy. I have taken extracts from published material and allowed them to tell the story. I have simply written a short introduction and a few comments to give perspective and explain the context of some extracts.
The extracts on these pages are from copyright material. They are reproduced here for educational purposes and to stimulate public debate about the provision of health care. I consider this to be "fair use" and in the public interest. They should not be reproduced for commercial purposes.
Disclaimer: - The material in these pages is selective and not all-inclusive. The extracts do not necessarily reflect the full perspective of the original. Corporate denials and explanations have not been included. No claim is made that all of the matters referred to are true. The intention is to give the flavour of the material and an idea of the extent of the allegations.
Because of the volume I have divided them into rough subject areas in separate web pages. There seem to be a number of worlds, the world of the marketplace and the corporate staff, the world of the nursing homes, the nurses and patients, the hidden world of fraud, and the world of politics and political influence.
These web pages reflect these different
worlds. Which worlds are real and which worlds truly represent
society and its aspirations?