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The many extracts on these pages are from copyright material. They are owned by the reference given or its owner. They are reproduced here for educational purposes and to stimulate public debate about the provision of health and aged care. I consider this to be "fair use" in the common interest. They should not be reproduced for commercial purposes. The material is selective and I have not included denials and explanations which were routine. I am not claiming that all of the allegations are true. The intention is to show the general thrust of corporate practices as well as the nature and extent of any allegations made.

The Health Care Marketplace in the USA

(Page 2) Over the past few decades, American health care has radically changed. A system that was largely not- for profit has become a field where the profit motive and market forces affect every decision. Publicly held corporations answerable to stockholders decide which doctor you may see, how much medication you can take, whether you can be evaluated by a specialist, whether you qualify for a test, how long you stay in a hospital, how many therapy sessions - physical or psychiatric - you may attend. Patients wait months for appointments that once could be made in days. Their medical condition is evaluated by clerks with no medical training. Patients who are so sick that they meet the strict criteria for hospitalisation are discharged before they are well, despite the protests of their doctors.
(Page 4) Much of the turmoil is a direct result of a national policy to run health care like a business, a misguided notion promoted by Washington over the last two decades that the free market and for-profit health care would restrain costs and bring high-quality care to all. On both counts, the experiment has failed miserably. In the meantime tens of billions of dollars - money that could have gone into patient care - has been drained from consumers and corporate subscribers and transferred to investors, executives, and others who have a stake in perpetuating this myth.
Critical Condition: How Health Care in America Became Big Business & Bad Medicine by Barlett & Steele p 2 (Doubleday Nov 2004). This book is highly recommended.

What is "utilization manipulation?" Simply stated, it occurs any time a decision about a patient's medical care, the medical services the patient utilizes, is made not on the basis of what she or he needs to get well, but instead, in order to maximize provider revenues and/or minimize costs. Typical ways that utilization is manipulated include unnecessary hospital admissions; questionable surgical procedures; deciding length of stay and transfers in and out of various hospital units so as to maximize reimbursement; excessive laboratory, radiology or other diagnostic tests; and redundant or unnecessary specialist referrals.
Tenet Hospitals and Workers Compensation in California: Utilization Manipulation: Testimony presented to the Senate Industrial Relations Committee January 15, 2003 Tom Moore, Jr., Consultant on Health Policy and Programs Service Employees International Union


  4. EARLY HISTORY (Joseph Califano)
  5. THE SCANDAL IN SPECIALTY HOSPITAL CARE (National Medical Enterprises)
  6. OPERATION LABSCAM (SmithKline, Corning, National Laboratories and others)
  7. THE PACMEN (Columbia/HCA and Tenet Healthcare)
  9. AGED CARE AND SUBACUTE CARE (Large numbers of corporate chains)
  10. MANAGED CARE (Aetna, Kaiser and others)
  11. REPEAT OFFENDERS (Tenet Healthcare - Cardiac and other unnecessary procedures) (Major update July 2007)
  12. ACCOUNTING FRAUD - THE BIGGEST OF THEM ALL (HealthSouth) (Major update October 2007)


November 2002
CNBC Experts say that between 3 and 10 percent of all health care transactions are fraudulent, an amount unheard of in other industries
What's surprising, though, is that charges of health-care fraud surprise anyone these days. More than any American business, health care is one where fraud is rampant, simple and, by most accounts, about to get a lot more common.

"It's a system that is inherently vulnerable, and people who commit crime are smart enough to realize that and find virtually any angle that they can exploit," says Bill Mahon of the National Health Care Fraud Association.

And exploit they have. The fraud settlements of the past decade aren't your mom-and-pop shops. They're industry giants.
Bruce Vladeck, former Medicare administrator, says fraud is the price the United States pays for choosing a deregulated, decentralized system.
- - - - Vladeck- - - "But they're parts of the same phenomenon: that is, it's not the responsibility of society to oversee this system. Everyone's on their own. And that's what you get."

Even harder, critics say, is prosecuting those who do commit health-care fraud. Some cases, including like the Columbia/HCA case, have dragged on for longer than World War II -- the government drowning in documents, the penalties hopelessly weak.

"It's the antithesis of what you want to do in law enforcement," says Eichenwald at the Times. "You don't want to create the impression that if you create enough crime, if its thousands and thousands of documents, well, the government can't handle it."
Health-care industry rife with fraud ::Government swamped by $1.5 trillion in paperwork MSNBCNews Nov 12, 2002

The market:- The USA has led the world in establishing a competitive health care marketplace. Big share market listed corporations have come to dominate health care. They have altered the manner in which care is provided and changed the culture of a caring community based health service to that of the lowest denominator in the marketplace. Companies prepared to misuse patients and defraud the system have prospered at the expense of those which have not done so.

The driving forces behind the healthcare marketplace are the large financial institutions, the bankers, the brokers, and the analysts. They have made vast profits by manipulating the system for their own benefit. Not only do they advise shareholders, lend money and arrange share floats but they attend board meetings to advise CEOs on business strategies and no doubt sell their services as solutions.

Click Here for more information about the financial institutions.

The USA is the only mature health care marketplace in the world and illustrates how the competitive pressures for profits become so strong that only those who are prepared to exploit the vulnerability of the funding system and compromise their duty of care survive. The social and cultural dynamics accomodate to the pressures in the marketplace and the imperative to survive. I am not aware of a single US company which has come to dominate its sector by providing ethical, high quality care and whose compliance with the regulations surrounding the funding system has not been challenged.

Dr Linda Peeno has worked at the heart of the system in managed care and then gone on to academic study. Her theoretical understandings are grounded in the coal face. Her analysis of managed care in a presentation to the Canadian Romanow Commission in 2002 is as applicable to the other sectors of the for profit marketplace. I cannot recommend it highly enough. Her 1996 presentation to a US congressional committee is more specifically about managed care but reveals a profound understanding of how the system thinks and consequently acts. I have quoted from Peeno on a number of pages as her assessments complement mine but this is not a substitute for reading the originals. Both can be accessed at


Donald Barlett and James Steele are two Pulitzer Prize winning New York Times Journalists. Their book "Critical Condition: How Health Care in America Became Big Business & Bad Medicine" was published in November 2004. It is a penetrating analysis of the way in which a competitive corporate marketplace, advised by health care market experts working for the large financial institutions has destroyed the health system in the USA. The authors expose the human costs of what has happened using graphic examples. This is essential reading for anyone interested in modern healthcare. Every advocate for marketplace medicine should be required to publicly confront it. I have included several quotes on a page describing the role of the financial institutions in health care.

Professor Arnold S Relman MD has been a vocal and very credible critic of the marketisation of health care since the early 1980s. In 2007 he published his book "A Second Opinion : Rescuing Anerica's Heath Care : A Plan for Universal Coverage Serving Patients Over Profit". On these web pages I have argued that the marketisation of health as a commodity is morally and ethically bakrupt and that it is socially and culturally unsustainable. In his book Relman argues that it is unsustainable economically and that like it or not the US will sooner or later be forced to change.

FRAUD AND CARE - (to contents)

"According to the National Leadership Coalition for Health Care Reform, it is estimated that the nation will spend approximately $1,274 Billion dollars on health care spending during 1996. According to the National Health Care Anti-Fraud Association, it is estimated that the nation's health care system loses between 5 to 10 percent of what American's spend on health care to fraud, waste, or abuse. That amounts to an estimated loss of $127 Billion dollars lost in 1996.
Statement on Health Care Fraud United States Attorney's Office Western District of Texas 25/9/1996

Fraud:- Until the Worldcom and Enron frauds, health care fraud was second only to violence as the most disturbing criminal activity in the USA. The most recent, US $4 billion HealthSouth fraud is not far behind these leaders. Health care fraud is estimated to cost tax payers US $100 billion each year. It is a major focus of FBI activity. Almost all of the most financially successful health care giants have been investigated and/or entered into fraud settlements with governments or insurers. Vast corporate empires have been built by exploiting the trust of unsuspecting citizens and the vulnerability of the medicare system.

Care of patients:- When it has been profitable to do so patients have been denied care, misused to generate profits, abused and neglected. Corporations have misinformed and deceived. They have targeted those sectors of society where citizens are least able to look after themselves and then exploited their vulnerability. Psychiatric care, children, chemical dependency and the aged have all been targets of corporate greed.

Understanding what is happening:- I have written a number of pages

CLICK HERE - to access these web pages


Health care may be the only business that thrives on dishonesty. But the public doesn't seem to mind. And that's dangerous.
"In most instances it's not the doctor," said Vladick
(former Medicare administrator). "It's the institution taking the information from the doctor and playing with it in ways to boost revenue."
All of this has left the U.S. with a system that regulators admit is destined to live with wrongdoing.
- - - - said Eichenwald
(investigative reporter at The New York Times). "The only way you'll ever stop it -- ha, stop it, that'll never happen -- to limit it, is through deterrence."

Deterrence that hasn't yet cured an industry with a terminal illness.
Health-care industry rife with fraud ::Government swamped by $1.5 trillion in paperwork MSNBCNews Nov 12, 2002

Regulations, accreditation, oversight, policing, prosecution and massive penalties have failed to prevent the problems of fraud and the misuse of patients from getting worse. The penalties simply get larger and have to be reduced to keep companies in business to sustain the system and protect patients. The department of justice boasts of success but this is almost entirely due to whistle blowers - ordinary citizens in the community who are publicly spirited enough to risk retribution when they act in the interests of others. The FBI is overwhelmed by the volume and complexity of investigating all this and simply cannot cope. It only succeeds by allowing criminals to plea bargain trading token sentences for betraying their colleagues in crime (see HealthSouth). Investigation of health care fraud is complex and time consuming. Authorities are overwhelmed.

This is hardly surprising when you consider that the system itself imposes strong pressure towards criminal activity, the rewards are massive, and the apparently large penalties small by comparison. Those who don't adopt antisocial practices go under. The remarkable thing to the outsider is that no one in the USA even suggests changing the system. Other countries, Australia in particular are rushing to become part of the same system driving health care with corporate market forces and abolishing the cooperative professional relationships which secure standards.

We should expect thiings to get progressively worse and the consequences more confronting. This is what has happened to ideologies like fascism, communism and apartheid during the 20th century. Ideological principles were distorted and applied ever more rigorously. Those who spoke out about these systems had no impact. In the USA National Medical Enterprises (NME) pleaded guilty to kidnapping patients and its successor Tenet Healthcare paid a massive settlement for carrying out cardiac bypass surgery on patients who did not need surgery, many with normal hearts. Some died as a consequence. What's next?

Australia is even experiencing its own PACMAN activity. In spite of the US experience aggressive corporations are acquiring not for profit community and religious hospitals which are unable or unwilling to compete in this sort of marketplace. Governments continue to negotiate trade agreements at the WTO and with the USA. These will allow these same US companies and their competitive practices into our countries.

EARLY HISTORY - (to contents)

Corporate health care commenced after the introduction of Medicare in the USA in the early 1960's. Health Corporation of America (HCA), National Medical Enterprises (NME) - now renamed Tenet Healthcare, and Humana were all founded at this time.

Fraud and DRG's:- I first heard stories of medical fraud in the USA in about 1965. The FBI was aware of extensive health care fraud during the corporate growth period of the 1970's. It did not have the resources to investigate. Instead the system of medicare payment was revised to stop it. In the early 1980's a new system of payment using Diagnostic Related Groups (DRG's) was introduced into general hospitals. This made the medicare system less susceptible to fraud. Corporate America responded by moving into other areas of healthcare where the DRG system did not operate, the specialty areas. These areas included psychiatry, chemical dependence and rehabilitation. Aged care also offered many opportunities. It expanded rapidly during the 1980's. Laboratory services were particularly fraud prone. These were prosecuted and funding loopholes were plugged. The focus of aggressive fraud prone groups then switched back to acute care and to rehabilitation.

Ignoring established principles to impose ideology : Joseph Califano:- All the large US corporations had agreed to pay health insurance for employees during negotiations with unions. As health care became more market-like health care costs rocketed increasing the costs of US manufactured goods until they were no longer internationally competitive. The big corporations acted to put a brake on rising costs. Instead of identifying the market as the problem they blamed the doctors and claimed that health was not sufficiently market like. One of the major advocates of this view and supporter of DRGs and managed care was Joseph Califano. He had been Secretary of Health, Education, and Welfare 1977-79 and an architect of Medicare and Medicaid in the USA during the Reagan era. His book "America's Health Care Revolution :: Who lives? Who dies? Who pays?" was published in 1986 and it sets out the market principles which have shaped health care since that time. Califano believed that costs could be controlled by controlling doctors incomes and using this to force them to provide the sort of care the market wanted.

On a separate web page I have described the background to this, examined the basis for Califano's theories contrasting them with more traditional health care ethics and values. I challenge the assumptions on which they were based. Quotes from his book are contrasted with what has happened over the last 18 years. The reasons why his solutions failed and why they made the situation worse and continue to do so are examined.

CLICK HERE -- to go to the Califano web page


With an Analysis of National Medical Enterprises which became Tenet Healthcare

Economic Theory:- In the 1980s the USA had adopted a belief system which saw the market as self regulatory. Regulation was considered to be counterproductive. Restrictions on free trade were removed. Regulations requiring a "certificate of need" before a hospital could be built were repealed. The economic establishment believed that the marketplace would address any problems, maintain standards and keep costs down.

Building a market:- Large numbers of specialty hospitals were built by corporations eager to generate profits. They embarked on aggressive marketing campaigns to fill their beds. They set out to generate anxiety in the community. They successfully created a large false market of anxious customers for their "medical products". Bounty hunters paid for each head on a bed were sent into the community to fan this anxiety and "beat the bushes" to bring people into hospital to fill the beds. Everyone was paid for bringing patients.

Controlling doctors and making money:- In general hospitals control of the medical profession and corporate intrusion into care had been limited by the power of the major medical and surgical professional colleges.

In the specialty areas the professional associations were less powerful and less cohesive. By marketing and bounty hunting corporations were able to gain control over the referral of patients and so over the income of doctors. They use this to bend the medical profession to the corporate profit mission.

Corporations in effect bought the use of the doctor's MD degrees. They took over the admission and care of patients. Doctors had little choice but to put their signatures to admission and treatment programs designed by the corporations. Those who were not "team players" starved.

Vast numbers of citizens were persuaded to admit themselves to hospital. Here they were misused and sometimes abused for the duration of their insurance. Treatment was geared to maximise profit and defraud medicare or the patient's insurer. Citizens, many of them children who did not need hospital admission were kept in hospital for many months. Here they were subjected to vast quantities of treatnment which was of no benefit to them.

Extent of the practices:- For practical purposes all of the corporations operating in this area participated in these practices to a lesser or greater degree. National Medical Enterprises (NME), later renamed Tenet Healthcare was the prime offender. Health Corporation of America, Charter Healthcare and several others followed their lead. NME had set up sophisticated central training programs for their staff. Other groups poached these staff importing the corporate "intake culture" and money making business practices. Vast fortunes were made.

Government prosecutes:- NME was prosecuted for fraud in New Jersey in May 1991 and paid a US $500 million settlement. At the time this was the largest ever. It was soon eclipsed by a US $10 million settlement in Texas, then a criminal conviction and a US $389 million settlement with the US government in 1994. NME paid somewhere in the region of US $1 billion to settle a vast number of fraud related actions including US $135 million in damages to the children it had misused and often mistreated.

The other corporations involved were also prosecuted and they reached settlement agreements paying large sums.

Documentary support:- Because of the court actions there is a vast amount of information available about NME including witness statements and internal documents. A description and analysis of the thinking, the business practices and the "intake culture" used by NME to accomplish its financial objectives and secure the cooperation of doctors is described in a paper I presented at a meeting in May 1996.  Several pages on this site describe NME's behaviour.

NME entered Australia in December 1991. The Australain government reluctantly stepped in to restrict its operations in 1994 and it was forced to sell up and leave. It did so in December 1995. What happened provides an insight into the way Australian political and market systems can work together against the interest of the community. Soon after Tenet/NME sold its entire international operation.

Tenet Healthcare:- Following its convictions NME was forced to sell off its specialist hospitals and enter into a number of integrity and ethics agreements. It was constrained by court injunctions and by a compliance program. It immediately changed its name to Tenet Healthcare claiming a new integrity and a commitment to ethical behaviour. It adopted a softer and kinder image. Many believed them. It borrowed money and sold its international operations. It started a takeover spree of acute hospitals and was soon number two in the USA.

The second coming:- Five years later the restrictions were lifted. Tenet immediately reverted to character and developed an aggressive business policy and practices remarkably similar to those in the first scandal. In 2002 only three years after this it was again embroiled in a massive and unsavoury scandal involving its general hospitals. It has been accused of massive profiteering by manipulating the various government and managed care funding systems in order to avoid the restrictions of DRG payments. It is accused of compromising care by understaffing and deskilling staffing practices in order to cut costs and boost profits. Some of its doctors are accused of carrying out large numbers of unnecessary cardiac procedures and operations - procedures which carry a significant risk. It paid US $54 million to settle government penaties at one hospital which it is forced to sell. Others are being investigated. Hundreds of patients are looking for damages. Its share price has been decimated and its critics variously predict that it will cost the company from US $1 billion to US $6 billion.

A pioneering company:- NME, founded in the 1960's was one of the first corporate market listed companies. The company driven by its founder Richard Eamer was an active leader in

At the time this was all very controversial and opposed by doctors and sectors of the community. NME executives, particularly John Bedrosian argued their position in public debates so defending and entrenching it. Financial success affirmed their validity and consolidated the belief system. A version of this culture and belief system was steadily adopted by the majority of health and aged care chains. These belief systems are a core component of the company's culture. It is not surprising then that NME and Tenet have been involved in both the first and the two most unsettling scandals, nor that the marketplace is riddled with fraud and the misuse of patients for profit.

A great insight:- Because of the disturbing nature of its conduct and the many court actions there has been intense publicity and large numbers of available documents illuminate what happened. These provide a far deeper and revealing insight into the way the corporate marketplace operates and the way participants think than any of the other frauds including Columbia/HCA and HealthSouth. Tenet/NME gives greater insight into why the market is so dysfunctional and why these things happen than any other company. The documents reveal that Tenet/NME staff at all levels including many doctors identified with bizarre market patterns of thinking which made these practices seem to be legitimate and desirable. Staff boasted of their practices. They were quite open about it and analysts too identified with and praised these practices and the profits they generated. It is now easy to identify the same patterns in other companies where there is less information.

CLICK HERE -- to go to the National Medical Enterprises (NME) and Tenet Healthcare web pages (Updated with many new pages in 2007)

OPERATION LABSCAM - (to contents)

Fraud:- Fraud in the provision of laboratory services had been a festering sore in the US system for many years. It took a number of forms but the most disturbing was the payment of kickbacks to doctors for requesting laboratory tests.

After successfully prosecuting fraud in specialty hospitals government was more determined to prosecute health care fraud. The FBI was cashed up and well staffed. The FBI operation labscam secured US $800 million in fraud settlements with government within a few years. In a pattern which started with Tenet/NME insurance companies and shareholders took to the courts seeking repayment and damages for fraud and for misinforming shareholders. The total sum paid is not known. The prime offenders were LabCorp of America, SmithKline Beecham, and a number of Corning owned laboratories.

SmithKline Beecham operates in Australia. Corning spun off its laboratory subsidiaries as Quest Diagnostics which purchased SmithKline's laboratories in 1999 and now operates in Australia.

CLICK HERE --- for more information about laboratory fraud, operation labscam and the companies involved.

THE PACMEN - (to contents)

Columbia/HCA and Tenet Healthcare

Columbia/HCA:- Columbia Healthcare was founded by an aggressive Richard Scott. It grew from two hospitals to a vast empire of over 350 in less than 10 years. It bought or merged with other corporations. It merged with Health Corporation of America (HCA) in 1994 to form Columbia/HCA. This was the largest hospital group in the world.

Columbia/HCA rapidly became notorious for its aggressive and dysfunctional business practices. It sought to undermine and destroy its competitors.

Tenet/NME:- National Medical Enterprises (NME) was forced to sell all of its specialty hospitals under the terms of its fraud settlement in 1994. It also sold all of its international hospitals.

The market and the business community was impressed with its legal skills in negotiating a settlement which did not put it out of business. They remembered its past history of making money and its reputation for exploiting the potential of the health care marketplace.

NME immediately received strong support and massive loans from the banks. It renamed itself Tenet Healthcare and bought American Medical International making it the second largest hospital group in the USA. Soon after it bought OrNda Healthcare the third largest.

The PACMAN:- Columbia/HCA adopted an aggressive policy of entering a local market, undercutting and compromising the local not for profit charity hospitals and then buying them or entering into joint ventures. By forming a joint venture they came to run the hospitals while maintaining the image of a caring community service. Valuable community assets fell into corporate hands at bargain basement prices and services to the community which were not profitable disappeared. Staffing was cut to increase profits and the available evidence indicates that standards of care were compromised.

Tenet/NME appeared to less aggressive in its approach but was not far behind in adding church and charitable ventures to its corporate empire. Charitable services disappeared at such an alarming rate that this was called PACMAN activity. Columbia/HCA was called the PACMAN. PACMAN is a well known computer game.

Fighting back:- Not for profit groups banded together to protect themselves. There was a public outcry led by Consumer Associations, particularly in California. PACMAN legislation to limit and control the loss of community assets was passed in state after state and also federally. Attorney generals now had the power to vet purchases and to impose conditions. The public was able to have input into the process.

Tenet Healthcare:- Tenet now presented a kinder and more community oriented face and used this to capitalise on Columbia/HCA's discomfort. It steadily acquired hospitals which gave it market dominance in targeted areas giving undertakings to provide care and to serve the community. Once the restraining criminal agreements were lifted Tenet's ruthless face emerged again. It used its control over markets to rapidly screw up prices, and gouge citizens and the funding system. It was accused of buying hospitals which served local communities well and then closing them simply to eliminate competition. Communities became angry at its failure to honour its undertakings to the community.

HCA comes back:- In the mean time Columbia/HCA was involved in a massive fraud scandal. In 1997 it dumped Richard Scott its aggressive CEO and chairman, and dropped the Columbia from its name. It now marketed a kinder and more community focussed face, contrasting with the newly arrogant and aggressive Tenet healthcare. Not for profit hospitals unable to compete in this corporate marketplace favoured it again.

An independent assessment indicates that while Pacman activity has benefits for the corporations, there are few if any for the communities.

The nonprofit's research (Center for Studying Health System Change) found that hospital mergers appear to have limited benefit to the communities affected.

"Efficiency gains have been limited; little clinical integration appears to be occurring, while the implementation process exacts a cost on the institutions involved," according to the research.

In some cases, consolidation resulted in bed closures, reduction of services and the elimination of duplication in services. In others, the research found, mergers have led to further expansion of services.

"You're likely to see some integration of administrative side, including leadership, technical and other office support functions. But generally, it's much more difficult to integrate clinically," Cassil said.
Who really benefits if Tenet buys Coastal Carolina Medical Center? The Island Packet Online June 22, 2007

CLICK HERE --- to access the pages about Columbia/HCA

CLICK HERE --- for more information specifically about Columbia/HCA's PACMAN activity

CLICK HERE --- for more information specifically about Tenet Healthcare's PACMAN activity


(to contents)

OrNda Healthcare:- The FBI continued to prosecute fraud across the USA in an operation called Restore Trust. A number of groups indulging in fraudulent practices were identified. OrNda at the time the third largest hospital owner in the USA paid US $12 million for paying kickbacks to doctors.

OrNda was purchased by Tenet/NME in 1997 for US $1.8 billion. I wrote to OrNda's chairman suggesting that Tenet was not meeting the terms of its agreement with the Justice department by not addressing my complaint to its ethics committee. The only response was to bring the shareholders meeting which approved the sale forward! Dr Pearce who subsequently became a vocal critic of Tenet and Jeffrey Barbakow's policies was a member of OrNda's board.

Columbia/HCA (now renamed HCA):- The giant Columbia/HCA was the next to fall. Robert Kuttner published a damning criticism of Columbia/HCA's business practices in the New England J. of Medicine in June 1996. The "60 Minutes" US television program went to air with a damning attack on the company in October 1996. A number of whistle blowers had lodged Qui Tam actions against HCA as early as 1993 on behalf of the government alleging fraud. The government had taken an interest in these and started investigating joining these actions. The New York Times had tracked the company's billing practices and done a computer analysis. It notified authorities of its findings.

In March 1997 the FBI raided a number of Columbia/HCA hospitals and then in July 1997 federal agents swept through Columbia/HCA hospitals and offices across the USA seizing vast quantities of documents. A massive fraud investigation was initiated. The full extent of the practices being investigated is not yet known. The matters extend well beyond financial fraud and include relationships with doctors and issues involving patient care. At the end of 1998 Columbia/HCA publicly stated that it had set aside US $1 billion to settle the matter with the government.

The extent of the fraud is revealing as the court action involves four of the largest chains in the USA and each it is alleged was separately engaged in fraud. Healthtrust and HCA merged with Columbia in 1994. Quorum the fourth group involved was once owned by HCA. A 5th group Olsten home care agencies was involved with Columbia/HCA. During this period the FBI received complaints about many other groups and whistle blowers lodged Qui Tam actions. The FBI did not have the resources to deal with these at the time as the 10 year Columbia/HCA investigation overloaded them with paper and took all their resources.

In December 2000 Columbia/HCA paid US $850 million in criminal (US$745 million)and civil (US $95 million) guilty pleas as the first stage in the settlement of the fraud actions against it. The settlement was welcomed by shareholders as the company was once again making large profits. At the same time the government joined a whistleblowers suit against KPMG, the accounting form which helped Columbia/HCA to defraud government. The Quorum Health Group, the nation's largest hospital management company, which was also involved in the fraudulent schemes paid $95.5 million in October 2000. Columbia has now dropped the infamous Columbia from its name and calls itself HCA. In 2003 it paid an additional US $800 million bringing the total fraud settlement to US $1.7 billion but by now the market considered it completely rehabilitated and this had no impact on its rising share prices.

Thomas Frist, from a family of republican politicians was chairman of HCA during the years when the fraudulent practices were introduced. When HCA joined with Richard Scott's Columbia, Scott became chairman and Frist deputy. When the fraud was exposed the brash Scott became the scapegoat and Frist the ethical hero who had disapproved of Scott's practices and now saved the company by dropping the name Columbia and "making it more like the gentle and ethical old HCA". The USA swallowed this. This is modern politics combined with corporate and media power. Frist is now a national health care father figure.

Columbia/HCA attempted to enter Australia in February 1997. Its was strongly resisted and when the FBI raided its hospitals in March 1997 it abandoned the attempt.

Between 2004 to 2007 the company was involved in the price gouging scandal. There were allegations of understaffing and poor care. There was a Redding hospital like scandal involving one of its hospitals where in excess of a hundred botched operations are alleged to have occurred. HCA management and the Frist family, including Senator Bill Frist were involved in a spate of allegations of insider trading in HCA shares. They were not prosecuted but the company reached a US $20 million settlement with its shareholders. HCA has now been the subject of a management led private equity buyout and is no longer listed on the share market.

CLICK HERE --- to access the pages about Columbia/HCA


Nursing home care provides one of the best examples of the failure of the corporate model of health care. Enormous success was associated with appalling standards of care and extensive fraud. The factors involved are simpler than in other sectors of the health care marketplace. Analysis is easier and the factors responsible for dysfunction in health care are more readily identified. The largest cost in aged care is nursing. The bulk of the care needed by patients is nursing care. Funding is capped and consequently the only way to make a profit is by cutting staff and this impacts directly on care. The complications and deaths which result from understaffing are readily measured. The strong inverse relationship between profit and care can therefore be clearly established.

In other sectors of health care the situation is much more complex and multifactorial. While there is little doubt that the same things have happened it is much more difficult to establish clearly. It is therefore well worth exploring aged care provided in nursing homes even if this is not your prime interest. The way the market operates in health care is particularly well illustrated.

Types of care:- Aged care has been a boom area for corporations. Aged care can be to provide help at home, or to provide care in nursing homes. Some corporations provide both. The care of the poor and of the elderly is paid for by Medicaid, a capitation system which pays poorly but covers the majority. It is difficult to make much profit. About 10-20% of nursing home residents are paid for by Medicaid which pays better but is short term and then reverts to Medicaid. A small number of privately paying patients pay best of all but personal resources are soon exhausted - usually after about a year. The market responded to this, not to need.

In about 1983 the DRG system of funding was introduced into hospitals but not nursing homes. It was unprofitable to keep patients in hospital. When they were transferred to a nursing home then Medicare would pay for any additional care they were given there. Several chains enjoyed Meteoric growth and built vast empires by exploiting the generosity of this health care loophole. Hospitals could transfer DRG cases to nursing homes early and still collect full DRG payment. The nursing home owners then charged Medicare per item of service for all the care they gave so that the system was paying twice.

Corporate groups set out to provide this Post-Acute, step down or subacute care in their nursing homes. As well as the frail aged nursing homes catered for patients transferred from hospital until they were fit enough to go home. The nursing homes also catered for those who have had accidents, stroke victims and patients needing long term ventilatory support. For a period after their admission to the nursing homes these patients were also covered by Medicare and the corporate focus was on the profitable treatments they could be given. The frail aged in the nursing homes were covered by Medicaid. They were least profitable and were often neglected.

Therapy:- Post-Acute patients were candidates for large amounts of "therapy" such as physiotherapy, occupational therapy and respiratory therapy. Until 1997 these therapies were reimbursed per item of service by Medicare. Large numbers of therapists were employed and vast quantities of "therapy" was given. Large profits could be generated. It was an invitation to defraud Medicare and most of the corporate chains seem to have done so. Vast empires were built on the proceeds from Medicare

Nursing care:- Nursing is the most important determinant of good nursing home care for the elderly. Nursing care did not attract a separate fee. Nurses were a cost which cut into profit. Not unexpectedly companies decided that there was "plenty of fat" in the system and set about reducing the costs of nursing. The total number of nursing staff were drastically cut. Better paid and qualified nursing staff were replaced with untrained nursing aids. These people received almost no training and were paid less than those serving burgers at McDonald's. Vast numbers from the dregs of society were employed and given excessive work loads. Many of them had criminal records often for violent crimes. They were to care for frail slow moving and thinking elderly prople who needed patience and kindness. It is not difficult to predict what happened.

The market:- By cutting staff and by providing plenty of therapy a large income stream could be developed. Corporate chains were founded and soon grew like mushrooms. Sun Healthcare for example expanded from about 8 facilities to well over 400 in less than 10 years. Takeovers and mergers were essential for survival and any group not expanding soon became a victim. Large loans were raised to support these activities and profits were maximised to service these loans.

Aged care and Tenet/NME:- In the 1980's National Medical Enterprises owned Hillhaven one of the largest chains with over 300 homes. It had the same directors. The founders of Horizon Healthcare and Sun Healthcare were trained in the Hillhaven/NME stable absorbing its culture. They broke away to found their own chains in the late 1980's. Hillhaven was spun off as a separate company some time before the fraud investigations of NME in 1991. An investigation into its practices was later published under the tittle "Hillhaven - Unsafe Haven". Hillhaven was purchased by the much smaller Vencor. The heritage of NME's thinking and its influence can be seen in what has happened across the nursing home industry.

The companies:- In this environment Beverly, Sun Healthcare, Horizon, Integrated Health Services (IHS), Vencor, Genesis, Mariner and HRC Manor Care flourished and thrived on the stock market all growing into massive chains.

Fraud and poor care in 1994:- Because of the explosion of fraud in aged care a senate inquiry was held in late 1994. This included home care and nursing home care. In the same year Consumer Reports, a consumer magazine published a study of the care provided using government surveillance data. This revealed that there were serious problems in nursing homes run by for profit market listed corporations. They performed poorly when compared with homes run by not for profit community and church groups.

Fraud investigations:- By 1995 a number of federal and state fraud investigations particularly into the provision of therapies had commenced. Some like that taken against Sun Healthcare dragged on and were never prosecuted. It is quite likely that this was because the federal agencies were buried under Columbia/HCA's paperwork and did not have the resources. Other investigations in US states such as that against Sun Healthcare in Connecticut and Horizon in California were prosecuted and settled.

Changing medicare payments:- In 1997 government adopted the same strategy it had adopted in general hospitals in the 1980's. It altered medicare funding so that therapies were no longer paid per item of service. The need for therapies miraculously disappeared and thousands of therapists were fired.

The neglect of the aged:- During 1998 and 1999 the world steadily fell apart for aged care corporations. Families angry at the neglect and abuse of their elderly relatives banded together and started to take action. Many thousands of death certificates were collected in California. These suggested that thousands of frail elderly had suffered needlessly and died prematurely due to the understaffing of homes by corporate groups. A federal government investigation confirmed these findings in California. State regulators were shown to have been ineffective.

Investigation after investigation across the states in the USA revealed appalling standards of care in corporate nursing homes. These were contrasted with not for profit homes where profit is a secondary consideration. The studies confirmed the failure of regulatory and oversight bodies to detect problems and to act effectively when they did. The press took up the issues and corporate failures were exposed to public scrutiny.

Litigation:- Angry relatives took to the courts in their thousands and the legal profession targeted the corporate groups. Judges and juries responded to the community's anger by awarding extensive damages. In some states insurers stopped insuring nursing homes against malpractice. Several bad nursing home corporations elected to sell their homes in Florida and Texas where the largest penalties were awarded.

More oversight:- State regulators spurred by the attack from citizens and from federal departments have increased staff and surveillance. Fines were imposed and actually collected.

Bankruptcy:- After these changes corporations were unable to generate the profit stream needed to service their loans. One by one, Vencor, Sun Healthcare, Integrated Health Services (IHS), Mariner, Genesis and several smaller companies entered Chapter 11 bankruptcy protection. Beverly the largest and longest established chain sustained large losses. Not for profit groups in contrast performed satisfactorily and maintaining a reasonable standard of care. They had not been driven by the market to expand beyond their means

More fraud:- Government renewed its fraud investigations. Beverly paid US $175 million to settle a federal fraud investigation. Government claimed Vencor owes it US $1.4 billion which it overcharged. Sun Healthcare was once again investigated for overcharging medicare. When these chains entered bankruptcy they were allowed to pay little more than token fines, to prevent them from going under.

Fears for the frail elderly:- In the face of bankruptcy already depleted staff levels were cut further and reports suggest that care may have been further compromised. The public, state agencies and federal regulators were worried about the consequences for the care of patients. The possibility that some of these companies might not be able to trade out of bankruptcy and the homes would simply close terrified authorities. The thought of hundreds of homes closing and of frail elderly being thrown on to the streets was a nightmare. Government no longer had the resources to pick up the pieces. Most of the companies traded out of bankruptcy but one was broken up and sold.

Government to the rescue:- Nursing home advocates wanted the offending companies to go under. They wanted the homes to be taken over and run by the community. Government was reluctant to abandon its idealised view of the market. Instead of forcing these groups to suffer the consequences of their financial imprudence and their neglect of citizens they came to the rescue.

The medicare funding system was readjusted to give corporations more money. They were not forced to repay the money they obtained fraudullently from the tax payer. Instead government allowed them to pay what they could afford so as not to force them into complete bankruptcy. Worse still politicians supported by the strong corporate lobby introduced legislation which would prevent citizens from taking action to penalise nursing homes which do not care for their parents. Advocacy groups believe that these court actions have been the only thing which has resulted in any improvement in care. This issue has been bitterly disputed particularly in Florida. Legislation has been passed which limits the damages awarded.

Sun Healthcare entered Australia in 1997, but failed to meet probity requirements for a contract to build and run a hospital in Victoria. Its plans to enter aged care did not materialise. It entered bankruptcy in the USA and Australia, then sold its Australian holdings.

Update August 2003 The aged care pages were written in 2001 but most were updated in August 2003. With the exception of Integrated Health Services the chains have all traded out of bankruptcy. Some are still struggling but others are doing well. It is clear that care in corporate homes has not improved and recent data suggests that there is a direct relationship between the profit taken by corporate homes and the number of failures in care. This seems to confirm the obvious fact that profits come not from efficiency but by siphoning money from care. A number of excellent general reviews have been written since these pages were first written in 2001. A separate page examining and including extracts from these reviews has been added.

Update October 2007 A major development in the nursing home sector in the 21st century has been the purchase of nursing home chains by giant private equity operators who, remove them from the share market then bring in their managers and set out to turn the companies around. They now own several of the largest chains. This has been very profitable for the private equity groups but the consequences for care are predictable. The private equity groups have outwitted regulators and citizens who try to control failures in care by using the courts to impose punitive damages. They have set up a complex of paper companies so that it is almost impossible to find which company is responsible for care. When regulators and citizens get there the responsible company has no financial resources and n money can be retrieved.

A September 2007 analysis by the New York Times found that the quality of care had deteriorated in nursing homes acquired by private equity. The newspaper described the strategies usd by these companies to ensure that failures in care did not impact on the bottom line -- some market!

Aged care pages. There are a total of 64 pages in the section covering nursing home care in the USA. There is a general review of the whole corporate for profit nursing home marketplace and an overview of each of the companies studied. These pages link in turn to pages which explore each facet of the corporation's conduct in much more detail with quotes from references. The depth and selection of articles which the reader will want to examine will depend on their interests. The best way to find what you want is to open the Map at the aged care section where all the pages are listed and a one line description of their content is provided.

CLICK HERE -- for more information and the story of the individual aged care chains.

CLICK HERE -- for an in depth analysis of the operation of the aged care marketplace. Aged care provides as good if not a better insight into the way the market operates as Tenet/NME. The different factors operating can be more clearly defined. The processes at work and the consequences are more precisely documented.

CLICK HERE - to examine the review material published over the 2 years (June 2001 to August 2003). You should be familiar with the previous material.

MANAGED CARE - (to contents)

Understanding managed care:- Managed care is a form of marketplace medicine which seeks to use market principles and commercial contracts to reduce the cost of health care. Health Maintenance Organisations HMOs) started as just that in the 1940s. They were highly motivated not for profit organisations founded to help the lower income groups with insurance and preventive medicine. All this changed dramatically in the 1970s with Nixon's assistance when the market entered the area and turned it into a business making money for shareholders by reducing costs. To survive not for profit groups had to adapt and follow. The theory was that opposing market forces would cancel themselves out reducing cost and somehow increasing quality. What happened was that everyone else was squeezed and exploited in the vice.

In the USA denial of care, and the underfunding of services in order to generate corporate profits has created bitter controversy and a public outcry. The Australian government in seeking to impose market principles and reduce costs has sought to introduce medicine under contract - the managed care version of corporate medicine. The medical profession are aware of what has happened in the USA and are bitterly opposed.

Managed care has consequently become a catch phrase - a call to arms against denial of care and against contracts. It is presented as an evil all on its own. It is of course simply another inappropriate application of market principles and another area of corporate misbehavior. It takes a variety of different forms but the principles on which it is based are the same market principles and managed care corporations are subject to the same commercial pressures.

Controlling doctors:- Califano in 1984 argued that by gaining control of doctors incomes they could be induced to do what the corporate community wanted - reduce services and so costs. In the 1970's and early 1980's corporations could not do so. They failed to bend the members of major professional colleges to the corporate purpose. With managed care they have succeeded.

In the beginning:- In the USA employers paid for the health care insurance of their employees. The rapidly rising health care costs in the 1980's seriously compromised the competitiveness of US products in the international market. The rapid growth of managed care was a response to this and an attempt to control cost. Managed care reverses the pressures in the market. By giving the insurers control over care it became more profitable to deny care, to limit the utilisation of health services and to provide less than adequate care.

Contracting with doctors:- Under managed care Health Maintenance Organisations (HMOs) contract with doctors and hospitals to provide care to their patients. To survive doctors must contract with HMO's and be on their list of approved practitioners. They can be delisted at any time. At one time doctors were delisted if they gave patients any information about care which was not provided by their HMO. Government was forced to legislate to stop this.

Dictating medical care:- Various financial strategies were devised to penalise the doctor for referring patients to specialists and for ordering investigations. Doctors had to obtain permission from the HMO to carry out investigations, refer to specialists, admit patients to hospital or carry out treatment. Permission was often denied. One doctor acting for an HMO was rewarded for denying care to a patient who died as a result. She resigned and gave evidence to a senate hearing instead.

HMO's have specified the time patients can spend in hospital. Systems of care like "drive through mastectomies" (i.e. day care) were imposed. Government was forced to legislate to protect patients and allow them time in hospital to recover.

Contracts and other providers:- Competitive contracts offered to providers ensured that the company which was prepared to under-bid secured the contract. It was then in a position where the only way that it could make a profit was by underfunding services. To survive it had to make a profit. It was in the same position as the doctors.

Rising resentment:- There has been a growing wave of anger starting with the health care professions, spreading to consumer associations and then to the whole community as citizens have increasingly fallen foul of the managed care system. This anger has been mirrored in the press and on the internet. There are many reports of unsavoury business practices which are deceptive or which compromise care There are literally thousands of horror stories. Television soapies have taken up the theme. HMO's are represented as the villains. .

ERISA legislation:- Managed care has been protected by the ERISA laws which deny patients the right to sue the HMO's if they suffer as a consequence of denial of care. Judges have been scathing about this and have urged that the legislation be repealed. When loopholes have been found the juries have shown their anger by imposing massive penalties. One widow was awarded US $120 million against Aetna Healthcare by the jury and on appeal the judges refused to reduce the sum.

A Bill of Patient's rights:- The public are demanding patient's rights legislation to protect them from managed care organisations. Such legislation has already been passed in some states and both Republican and Democratic parties have been forced to support it. There was a protracted fight about its content. It is a frightening indictment of corporate medicine and of managed care in particular that it has become necessary to pass laws to protect citizens from those who are supposed to be caring for them when they are frail or vulnerable.

The right to sue:- The public demanded the fundamental democratic right to seek redress when they had been wronged by HMO's. HMO's and the corporate employers who pay them to care for employees exerted extreme political pressures to prevent this. Vast sums were spent in political donations, in lobbying and in running media campaigns. These campaigns claimed that increased litigation will force up costs. The Republicans who receive most money from corporate groups resisted pressure from the Democrats to rescind ERISA. The matter is still unraveling in a patchwork manner. Generally citizens have been given the right to independent arbitration but only in some states can they get around ERISA and sue for damages. The costs awarded in arbitration are limited and unlikely to seriously cripple any HMO and so deter them. The savage punitive damages awarded by angry juries would have ensured reform. While the HMOs have given ground it looks as if they have generally won this battle.

Law suits:- A number of states took court action against the HMO demanding financial penalties and corporate undertakings. Only some have been settled. The same lawyers who acted against the tobacco giants took up the case against managed care. A series of class actions were commenced and this alarmed the share market. Unfortunately for the patients the judge in charge refused to recognise the class so that millions of people if they want redress must do so through the courts individually provided they can get around ERISA. This is not an option for most.

Doctors across the USA commenced lawsuits against all of the large HMOs in many states. The judge accepted this as a class so they were amalgamated. Aetna and one other HMO have at the time of writing settled the action giving a large number of concessions and undertakings. The effect of this it is claimed is to make life tolerable for the doctors and give them the power to protect their patients. It brings the doctors back into the corporate team but it remains to be seen if patients will be protected.

The share market:- The excessive aggression and massive unpopularity of the HMO's impacted on the share market and stock prices fell. Shareholders were disenchanted. Because of his aggressive and antisocial business practices shareholders forced the resignation of Aetna's chairman. Aetna was the most unpopular of the HMO's. Aetna's new chairman has done a mea culpa, settling as many actions as he could ad making compromises where he had to. Profits and share prices are rising again.

International Expansion:- Market development in the USA meant that there were decreasing opportunities for growth. Between 1997 and 1999 there was a rush to get into foreign markets and dominate them. I do not know how successful they were.

Australia:- US managed care corporations have not entered Australia. This has not stopped government and insurers from making every effort to introduce the system here using local insurers and even the banks. It has been adamantly resisted by doctors who have refused to enter contracts. Hospitals did so.

CLICK HERE --- for more information about managed care and the various US corporations providing it


Tenet Healthcare's Second Coming

Health Corporation of America (HCA) and Tenet Healthcare (then called National Medical Enterprises - NME) are repeat offenders. HCA was part of the psychiatric fraud problem in the early 1990's and paid a settlement in Texas. That this had little impact on its practices is revealed by the huge US $1.7 billion criminal fraud settlement finalised in 2002.

Tenet Healthcare (then NME) was the prime offender in the late 1980's and early 1990's. It pleaded guilty to criminal charges in 1994 and entered into an integrity agreement. By 1997 it had paid out in the region of US $1 billion in fraud settlements. Its response was to shuffle the faces, change its name, and mount a public relations campaign. Many senior staff clearly did not think that they had done anything wrong and felt they had been victimised. It is therefore not surprising that they have re-offended.

Press reports indicate that Medicare fraud started almost before the ink was dry on the integrity agreement. It all fall apart in October 2002. The company is accused of ruthless billing practices for the uninsured, and of massively overbilling Medicare and other funding sources. In addition Tenet and its doctors are accused of carrying out large numbers of unneeded cardiac procedures and cardiac surgery. These are high risk procedures and carry a significant risk of death. Hundreds of patients are suing. The extent of the fraud is not known but a doctor who is a major shareholder has been agitating to throw out the chairman and directors for years. He claimed the fraud would be in the region of US $6 billion but the company denied this and took out a defamation action against him. Just what happened and the extent of the problems is not yet clear. Jeffery Barbakow and several members of the board have been forced out.

It should not surprise us that companies re-offend. The pressures in the system are such that those who actually reform will go under. These groups have discovered how to make money and succeed. They are groups wholly committed to marketplace thinking and unconvinced by their convictions. They seek solutions within the market formula and these are not there. They simply try to be more careful next time.

Once again Tenet's actions are so disturbing that there is a great deal of information available and this gives a wonderful insight into this company and the market it represents.

Quick Late Update Feb 2004:- The scandal around Tenet continues to increase as the government spreads its investigations into unnecessary surgery, kickbacks, pricing strategies. Tenet's share prices continue to tumble and it is selling hospitals to stay solvent. More hospitals are involved. The company has paid US $54 million to settle the charges that its doctors at Redding hospital carried out unnecessary cardiac procedures and bypass operations. The hospital will lose Medicare billing rights if it is not sold immediately.

CLICK HERE --- to go to the Tenet Healthcare pages


HealthSouth Rehabilitation Giant

In March 2003 the largest ever health care fraud was exposed. It mimics Worldcom and Enron in its extent and ramifications. It bridges the divide between the wider Wall Street marketplace and the Health and Aged Care marketplace. We can readily see the emergence of similar patterns and similar problems in Australia.

For most of its 19 year old existence HealthSouth had seemed the model company. It grew more rapidly than most of the other growth companies and more effectively dominated its sectors. It became the uncontested master of Rehabilitation acquiring almost all of its corporate competitors. It bought up the majority of outpatient surgical centres in the USA. It operated in every state and its directors and investments extended into home care, nursing homes, post acute care, Physician Management, the pharmaceutical business and even Managed Care. It had established footholds in Europe, Canada and Australia. It even tried to buy the giant acute hospital group Columbia/HCA. It boasted that it was not tarnished by the fraud and patient care issues which characterised the marketplace. It was a marketplace darling and looked set to dominate the world. When I researched the company looking for problems in early 1998 I found nothing. Its exemplary behaviour disproved all the assertions I had made about the way the market operates. It did not make sense. I did not believe it could be true but there was nothing I could do.

During 1998 HealthSouth predicted that for the first time its profits would not meet expectations. There was a great deal of criticism but its charismatic founder Richard Scrushy brushed these aside and the company recovered. Despite this cracks began to appear with criticisms and allegations of Medicare fraud and suboptimal care. In 2002 insiders sold large numbers of shares before announcing a projected massive loss and plans to split the company. It seems that the Enron and Worldcom accounting scandals and new criminal legislation increasing penalties had alarmed the company and that these were both attempts to bury their own fraud.

The market and shareholders were not deceived by this and an investigation got under way. Senior officials rolled over and made tape recordings of their colleagues. It seemed that from soon after it went public in 1986 the company had been carefully doctoring its accounts declaring profits which were not there. Its whole empire was built on deceit, its ability to raise money from banks and the marketplace based on its grossly inflated income stream and the inflated reports of market analysts. During the last 5 years this falsely declared income amounted to US $2,5 billion.

Concerns about HealthSouth are not localised to its accounting practices. There are governance concerns about its controlling directors and the relationships between them, and with a group of related companies run by HealthSouth directors and doing business with HealthSouth. Of particular concern are its relationships with the wider business community, auditors and bankers. These groups vetted the companies accounts and also did lucrative business with HealthSouth. Whether any of them actively connived in the fraud or simply turned a convenient blind eye to what was happening is not yet clear. Certainly they benefited handsomely from business done with HealthSouth, business they would have lost if they had been picky.

It is also becoming clear that HealthSouth, which modeled itself on the discount store Walmart very probably indulged in extensive Medicare fraud. As a consequence care, provided in an assembly line fashion was not all it should have been. The government has joined Qui Tam actions and a congressional committee is investigating.

As a consequence of the massive fraud allegation, which no one seems to be disputing a spotlight has been turned on HealthSouth's founder, its directors, its business dealings and its relationships with the marketplace. There are vast numbers of conveniently overlooked red flags as to what was actually going on in HealthSouth. They not only provide another fascinating insight into the operation of the health care marketplace but illuminate its links and relationships with the wider marketplace. They show how this influences the care citizens receive. There is much to learn and I have devoted a number of pages to describing and analysing the material. HealthSouth is now almost a caricature in the way it fits the framework of interpretation I have used to analyse this marketplace.

Review, rewrite and expansion October 2007:- After the exposure in March 2003 the company was in a chaotic state. Its CEO and founder had gone as had most of its senior management were lining up to plead guilty and were then fired. The remaining board members were tarnished by their close links with Scrushy and in disarray. The company was spiralling towards bankruptcy and was delisted from the stock exchange.

During this time it behaved in a surprisingly realistic manner. Instead of going into denial it accepted what had happened and brought in reams of expensive managers and lawyers - people who specialised in failed companies. They handed over the management of the company to these experts. HealthSouth's response was coordinated and responsible. It retained the support of its creditors and as importantly of its doctors and so of its income steam. Under pressure from shareholders its entire discredited board was soon replaced. Bankruptcy was averted, debt restructured and 4 years later it is slowly recovering. It has relisted on the stock exchange.

In a surprise jury decision Richard Scrushy was acquitted of involvement in the fraud but soon after was convicted of bribing the governor of Alabama and sent to prison. The many staff who pleaded guilty and gave evidence implicating Scrushy were given very lenient sentences.

The company, its auditiors (Ernst & Young) and its banks (Citigroup and UBS) have been involved in a miriad lawsuits launched by regulators, shareholders and many others.

HealthSouth has reached a large Medicare fraud settlement and also a significant settlement with shareholders. In October 2007 it is still in dispute with multiple other parties.

In reading the story of its remarkable recovery it is easy to forget that this is a company that systematically, and over many years, indulged in a massive fraud at the expense of US citizens and of its own shareholders. A vast sum of money has been spent on lawyers and law suits with very little benefit. Those who committed this crime have either been wrongly acquitted or else been given remarkably lenient sentences. The by any standards disreputable company is still in business and responsible for the care of citizens. By any standards, large sums of money have been squandred and justice has not been done.

The HealthSouth pages have been updated and several new pages added. They give a fascinating insight not only into the fraud and into Scrushy the man, but into the US marketplace, the legal system, the jury process and the culture of the deep south in the USA

CLICK HERE -- to go to the HealthSouth pages


I have not previously addressed the problem of Physician Management companies. In the early and mid 1990's these were seen as the next big corporate cash cow. By controlling doctors practices companies hoped to control the way money was made from providing care.

The model was fatally flawed. To make the extra money needed to pay the corporate costs and meet profit expectations they had to induce doctors to see far more patients in the same time as they were already doing. Not only was this impractical but it would have compromised care. Experience has shown that to do this sort of thing the service must be so profitable, and control over the income of the profession so tight that compliance can be very richly rewarded and those who object starved. Both Tenet/NME and Managed Care succeeded in this costly carrot and stick approach. Physician Management simply could not generate the funds to do so.

These companies paid vastly inflated prices for doctors practices in order to get market control. It was not possible to generate the income to justify this. Their success was assured by upbeat analyses, made by analysts whose banks made millions in business deals. This was one of the practices exposed in the Worldcom scandal. HealthSouth is under investigation for its links to these groups. These banks and advisers were fined US $1.4 billion and it is estimated that investors will secure another US $10 billion in compensation through civil actions. By the end of 1998 the bubble had burst. Physician Management was over. This did not stop Australian companies catching the virus and following exactly the same model just as the USA was abandoning it.

Two companies Phycor and Medpartners dominated the rush to buy up GP practices and to acquire smaller competitors. MedPartners was the larger. It was founded in 1993, became a huge market success and then fell in a heap during 1998, losing investors most of their money and then abandoning Physician Management.

MedPartners was one of the interlinked groups of companies which HealthSouth and its founder Richard Scrushy founded and operated. In writing about HealthSouth and its accounting fraud in 2003 I included a web page on MedPartners which addresses some of these issues.

CLICK HERE --- to go to the MedPartners page.


Over the last few years drug companies have seldom been far from the front pages. Their large profits and aggressive business first approach has earned them widespread condemnation. Issues of concern have included internet marketing, direct to public marketing, deceptive marketing, excess influence on prescribing physicians, influencing research and suppressing unwanted research, exerting undue influence on authors in medical journals, and even ghost writing research papers and opinion pieces. They are accused of funding research for profitable western diseases and underfunding research for 3rd world diseases like tuberculosis, malaria and AIDS that cause many more deaths. They are accused of unreasonably pressing patent rights and high prices in poor 3rd world countries devastated by diseases like AIDS. As a consequence many millions were denied drugs to help and even cure them. The companies eventually bent before an avalanche of negative publicity and gave some ground.

While claiming the high costs of research justify their pricing, much of their funding has been diverted from research to marketing. In Australia cost and efficacy are balanced by the PBS (Pharmaceutical Benefits Scheme), a body with credible scientific advisers. The PBS' success in balancing cost and benefit is widely admired across the world, even in the USA. Companies have tried to secure greater influence in this process and were successful in securing ministerial support in this, causing members of the committee to resign in protest at the changes made. Some members of the ministers department have since joined drug companies. US drug giants recently tried to undermine the PBS and loosen its provisions during bilateral trade negotiations with the USA. The Australian government claims that it has not bowed to pressure on this unpopular issue. The small print of the trade agreement has not yet become public.

Canada's more limited patent requirements have been a threat to drug profits. The companies solicited strong market and political support to have these wound back. Canada's lower drug prices under its universal Medicare system are admired by US citizens, many of whom slip across the border to stock up. The drug companies are among those which have run very negative campaigns against the Canadian system in regard to waiting lists, standards of care etc. They are threatened by moves in the USA to adopt a Canadian like single payer health system.

Drug companies are among those health care groups which have created front "community" organisations to press and market their point of view. These groups acquire a large nominal membership, often by subterfuge. Many citizens do not know that the group is claiming them as members. They do not realise what is being done in their names. Senior staff and most of the funding for a public campaign are supplied by the corporate backers. These well funded organisations are able to represent themselves as large grass roots movements supporting and arguing for the corporate position, a position their "members" would not support. Their extensive funding and access to corporate marketing services allows them to drown out genuine grass roots movements opposing company policies, and at the same time lobby politicians strongly on behalf of the public. These scams can be extremely difficult to detect but Corpwatch has publicised some of them on its web site at varying times. An increasing number of politically active US citizens seeking reform now refuse to belong to organisations, that claim to represent the public, if these oprganisations accept any corporate support at all. This is a particular problem in aged care where corporate chains often lend support to community groups in order to soften their image. It effectively ties the hands of the community organisation when its donor transgresses.

These matters are largely beyond the scope of this web site which concentrates on the social processes underlying corporate practices in health and aged care, and on the fraud and patient care consequences. I have included on this web site only one page and some links addressing these wider issues. It contains a large number of extracts which point to the nature and type of allegations made about the drug companies. I make no attempt to evaluate these as I have not studied them in depth.

Much less widely publicised are the many allegations and investigations of fraud, and the unsavoury market practices employed by pharmaceutical companies, particularly in the USA. I have not attempted to research the issues as I did with Citigroup and the financial markets. I have simply described and commented on material already in my possession, material sent to me by others because they knew of my interest in corporate health care fraud, or because of their own interest. The material is therefore no more than an indication of what has been alleged. I use this to show that the problems are industry wide. Those familiar with these web pages will have no difficulty in understanding what is happening in the pharmaceutical marketplace.

CLICK HERE to go to explore the less savoury side of the pharmaceutical approach to business, to look at the broad issues and to follow other links.

CLICK HERE to explore the question of corporate pharmaceutical fraud.

Gambro Healthcare, Fresenius, DaVita, Renal Care Group and Baxter

The artificial kidney business in the USA has been plagued by allegations and fraud settlements since the early 1990s. Studies have shown that for-profit services have a higher mortality than not-for-profit services. The sector has rapidly consolidated through mergers and takeovers leaving two giants a small number of new companies built around clinics the large providers were forced to sell to meet competition requirements.

Fresenius, a German company paid the largest settlement US $486 million in 2000 and is under investigation again in 2008 while still under an integrity agreement.

Gambro, a Swedish multinational paid US$54 2000 then re-offended while operating under an integrity agreement settling for another US $350 million and another integrity agreement. It was soon under investigation again but decided to sell its US clinics to DaVita. DaVita is the renamed"Total Renal Care", a company sold off by Tenet/NME in the 1990s. It has had financial problems and has been investigated for fraud but not prosecuted. Renal Care Group currently faces whistle blower initiated fraud actions. It has been acquired by Fresenius.

Fresenius, Gambro and Baxter, a US based multinational provide dialysis services in Australia.

Click Here to enter the dialysis web pages on this site.


A growth market:- Health care has been a growth market in most areas. The rapidly growing corporations have been the darlings of the share market. The more aggressive the company and the more unsavoury its profit generating practices the greater the support it received. The market has also been extremely forgiving of criminal conduct. National Medical Enterprises is an example.

Market support wanes:- The boom in technology shares moved money away from health care in the late 1990s. The altered medicare funding, falling profits, vast numbers of fraud prosecutions, spiralling litigation, and the massive public backlash in aged care and managed care have had a profound effect. Aged care shares which once traded at US $20-40 traded for 4-5 cents in 2000. The shares of the corporate hospital giants like Tenet/NME and Columbia/HCA fell dramatically. Managed care also took a battering and few companies were making any money in 2000. Some faced bankruptcy.

Recovery and then a shudder :- With the collapse of the technology bubble money moved back into health care which was seen to be more stable. In 1999 the Wall street financiers started looking for analysts and bankers who would resurect the health care marketplace and restore invester confidence.

Columbia/HCA's new image was widely accepted and promoted. It steadily recovered. Tenet's new policies were widely praised and it became the darling of the marketplace. The revelations about Tenet in October 2002 and the massive fraud at HealthSouth, coming so soon after the Enron and WorldCom revelations sent both companies shares plunging and a cold shudder went through the whole health share market.

The Roll of Wall Street - Citigroup :- On many of the pages I have written of the pressures generated in the marketplace and the health care companies' responses. The incubators of this ideology and the agents that mediate the market pressures are the giant financial institutions, particularly the investment bankers and analysts. Not only do they act as advisers and facilitators but they also act as evaluators. The pressure to please these analysts and meet their expectations is a major force towards fraud and the misuse of patients. This is well illustrated by HealthSouth but may well have been an undetected factor in earlier health care frauds.

The purchase of Mayne hospitals in Australia by Citigroup prompted me to examine Citigroup and the giant financiers that drive the market. I found a system not dissimilar to health care. Unsavoury conduct, fraud, and the misuse of trusting citizens is even more pervasive and more extensive than in health care.

This is Wall Street, the heart of the world's markets and it is rotten to the core. Citigroup's conduct gives a profound insight into the way markets operate and the corrupting influence which deviant financial institutions exert on the entire marketplace. Particularly revealing was the deception involved in the creation and ongoing support of the technology and DotCom bubbles. Analysts and bankers boosted company's with poor prospects way beyond their potential. The bankers profited royally from this, at the expense of investors who lost an estimated US $7 trillion in the fallout. Citigroup and others paid large fines and defrauded investors are pursuing them for billions of dollars in compensation.

I have written a number of pages describing this market and the way in which Wall Street has corrupted the other markets by aiding and abetting fraud. I have tried to show its influence on and involvement in health care. I have used Citigroup, the largest and most dysfunctional as the vehicle. It gives a deeper understanding.

CLICK HERE to go to the Citigroup pages



One of the major developments in the marketplace as been the explosion in private equity buy outs and their increaing dominance of the marketplace. The USA had led the way. This marketplace phenomenon moves the decision makers and the managers even further from the coal face of health and aged care. Private Equity ramps up the pressures to put profit ahead of care. At the same time it removes the companies from the limited transparency and oversight of the share market and its regulators.

Giant Hospital corporations like HCA and many of the major nursing home chains like Beverly and Manor Care have been bought and taken private by private equity groups. The care citizens receive is now controlled by the faceless financiers that have invest in and now control them.

Nursing homes are most dependent on expensive hands on staffing. The type of care provided is more limited and the consequence of failures in care are more easily detected. It is to be expected that problems would show up here first and it has not taken long for this to happen. A recent study reported by the New York Times (see report on Aged Care Crisis Centre web page) has shown a deterioration in care and further disempowerment of citizens and regulators in dealing with this. Senior members of both Republican and Democratic parties are pressing for government review of the findings and action.

I have not yet examined or written about private equity in the USA but the issue is addressed on an Australian web page. I did make a submission (206 KB pdf file) to an Australian senate inquiry some time before the New York Times report. This addressed the issues and prediced problems. Eminent businessman John Bogle participated in an interesting television interview with Bill Moyer in which the private equity phenomenon and the findings in nursing homes were discussed.

HEALTHEON - (to contents)

Computer technology, data bases, networking and the Internet offer enormous potential for organising and providing health care. Because public systems are underfunded and the private sector fragmented by competition this potential has not been realised.

Some years ago large sums of money were invested by Bill Gates and Rupert Murdoch in Jim Clark's Internet venture Healtheon. This aimed to impose another corporate competitive layer to address the problems of the previous competitive layers. The intention was to solve the problems of the market health care system by turning health care into a "perfect market" using the Internet, presumably because it was not sufficiently market like (see Kuttner's comments). I felt that this additional competitive level would ramp down further on the already stretched and struggling system. Healtheon expected to take enough money from the already stretched system, mainly from Medicare. They planned to recoup their massive investment and make the large profits they had promised to shareholders. This money I felt would come off the top. Less would be passed down the layers of the system so that there would be even less for care. Healtheon was founded by one of the world's greatest entrepreneurs and he was in partnership with the wealthiest and most successful technology and media giants in the world. I feared the worst!

" --- we're seeing the ability to create more perfect markets, and there's no reason why that can't be applied to health care." Steve Curd, Healtheon's COO (1999-2000)

I examined press reports and company statements which I felt were little different to those made by Bedrosian, Scott and Turner. I therefore wrote a criticism taking its statements and examining what the consequences were when these ideas and policies were applied by others. As it turns out Healtheon has remained fairly low key and seems to have been content to make money by providing services to others rather than controlling them. I have not revisited Healtheon but it has not featured prominently in the material I see and may well have filled an important hiatus. There is already too much material on this web site and I have now removed these pages.


I had a need to bring together the impact of corporate practices and board room decisions on the care which people received. Profit priorities and the need to meet the demands of the sharemarket have consistently compromised the care received by patients. Care has been denied. Patients have been misused and abused. People unable to care for themselves have simply been neglected.

CLICK HERE -- for an overview of the way in which the pressures for profit have impacted on care in the various sectors of the US and Australian health care marketplaces.


The story of corporate health care in the USA is also the story of the repeated failure of accreditation, regulation, oversight, prosecution, and penalisation. They have simply not worked and there are several reasons why this is so. It is not that these processes are not desirable or good. It is simply that the pressures in the system are so strong that some way must be found around their intention. Subtle and not so subtle ways are found to allow them to bend.

It is ordinary citizens who have blown the whistle on the problems in corporate health care - not politicians, not government departments and definitely not the people who have been entrusted with the responsibility for monitoring, detecting and prosecuting problems. It is employees, patients and their relatives who have become aware of what has been happening. They have acted, often taking on the system single handed. It is groups in the community who have rallied and fought often bitter and sustained battles to force a reluctant system to confront what was happening and respond to it.

CLICK HERE -- for information about the failure of government oversight oversight.

CLICK HERE --- for information about regulation in the USA

CLICK HERE --- for more information about why regulation fails

CLICK HERE --- for more information about accreditation processes and their failure

CLICK HERE --- for information about dissenters, advocates, whistle blowers and their roles in health care

There is a large amount of information about failures in peer review, accreditation and other processes in the USA on the web sites of the Semmilweis Society and of the Alliance for Patient Safety. See the links in the sections below.


People in the USA like those in Australia have lost faith in the integrity of their politicians. An incestuous relationship between health care corporations and politicians is widely believed to lie at the root of the many problems. It is thought to explain why state and federal governments have failed to act effectively.

Attempts to influence politicians can be traced back through the activities of all of the health care groups. Massive political donations and massive lobbying occur. Health care groups now top the list of groups involved in these activities. Vast sums are spent on marketing to influence the perceptions of the public.

Politicians have strongly supported severely dysfunctional corporate groups. These same politicians have been shown to be recipients of campaign donations from the health care groups they were supporting or protecting.

It is only the weight of public opinion and the threat of the ballot box which have been effective.

CLICK HERE --- for more information about democratic ideals, the market, politics and health care.

CLICK HERE --- for more information about corporate marketing practices.


There are many stories of doctors who resisted corporate pressures or who tried to blow the whistle. Most are struggling to rebuild their lives and keep their head down after being destroyed by the system - often using the peer review process. One doctor still fighting (in 2003) put his story about an HCA hospital on to the web and this made interesting reading. He describes a drawn out battle between doctors and administrators in his hospital and the outcome for the doctors. This link is no longer there but his is one of the many examples where information is given on the Alliance for Patient Safety web site below.

The Semmelweis Society:- In the 1980's a hospital attempted to rid themselves of a surgeon Dr Vernon Waite by using the peer review process. Peer review processes exist in almost all hospitals so that doctors at a hospital can act to protect patients from an incompetent colleague by removing this doctors right to care for patients at the hospital. The difficulty in the USA in the 1980s was that it became a very one sided affair as there was very little right of appeal. Corporations soon found that they could use compliant doctors to rid the hospital of doctors who were objecting to corporate practices or threatening to blow the whistle. Some threatened senior doctors realised that they could rid themselves of younger and more competent competitors by stacking the peer review process.

Dr Waite was a victim but fought back, becoming one of the first to take the case to court. He secured a court order overruling the peer review committee, and obtaining damages. He found that large numbers of perfectly competent doctors were being unfairly treated by being subjected to corrupt peer review practices. He founded the Semmelweis society to help doctors in this position. He became an authority on the problem lecturing, writing articles and pressing for changes which would make peer review fair. Dr Waite had another battle with a hospital and corporate group in the late 1990s. They tried to silence him when he spoke out. He has now retired but the Semmilwies Society still carries on his work. Dr Waite was one of those who so kindly supplied me with valuable information in 1993 and again in 1997.

CLICK HERE to go to the Semmilweis Society's web site <>

(Added Jun 2007) Alliance for Patient Safety:- Dr. Mileikowsky's crossed the Tenet hospital where he worked when he gave evidence against doctors at the hospital and exposed the failure of the hospitals peer review process. He was forced out of the hospital and a legal battle ensued as he fought back. Dr Mileikowsky formed the Aliance for Patient Safety and has placed a vast amount of useful information about patient safety, failed peer review, failure by the accreditation body JCAHO, and examples of large numbers of cases where physicians have been misused.

CLICK HERE to go to the alliance web site <>


Amidst all their affluence, and the success of the US capitalist system lies the festering sore of a health system which pillages the nation's coffers, misuses its citizens and neglects the frail and vulnerable. Vast numbers do not get care because they are too poor. There is a massive outcry but effective solutions would challenge fundamental beliefs. There is therefore no unity of purpose.

CLICK HERE -- for access to pages and web sites which explore the opposition to corporate care and the patterns of thought used.


Click on the names to go to more details

Beverly Healthcare

Centennial Healthcare

Columbia/HCA (now renamed HCA)

Corning and Quest Diagnostics, Labcorp of America, and SmithKline Beecham.


Genesis Health Ventures

Guardian Healthcare

Integrated Health Services

Mariner Post-Acute Network

National Healthcare Corp. (NHC)

National Medical Enterprises and Tenet Healthcare

Sun Healthcare


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This page created April 2000 by Michael Wynne
Modified Mar 2001
Additional material added and some updating Sept. 2003, Feb. 2004, Jan 2005, June 2007, October 2007, Aug 2008