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Regulation in the USA

This page examines the failure of regulation in the USA and gives a number of examples.

Repeated Failure

The experience with regulatory and oversight procedures, accreditation, criminal investigation, screening and prosecution in the USA shows that they have failed over and over again.

The large fraud settlements are still small when contrasted with the size of profits and the ability to avoid detection. They are only the cost of a few hospitals when the offending companies owns hundreds. No large company has gone bankrupt because of a fraud settlement. The company would not settle if this were likely.

A Different Law for the Corporations:- A different set of penalties are applied to large corporate providers. Small providers guilty of committing fraud are barred from receiving medicare payments. They go under. No large company has had its entitlements to medicare funding terminated. In the USA most fraud actions against large corporations, when contrasted with smaller groups, are prosecuted through civil courts so do not yield a criminal conviction.


Fraud:- Any company convicted of a criminal offence should by US law be deprived of its medicare entitlements. Tenet/NME is an excellent example of how prosecutors connived in circumventing the legal requirement that medicare funding be withdrawn. Three of Tenet/NME's four subsections had indulged in the practices for which it was prosecuted. When I spoke to an investigator in Texas I indicated my suspicions that similar practices had occurred in its international general hospitals which were a subsidiary of its US general hospital section. This was its fourth section. It was likely that similar practices were used in this division in the USA. She indicated that their resources were so limited and the problem so large that they were deliberately not investigating this division at all.

Negotiating a Way Out:- The criminal plea by Tenet/NME's and US $379 million settlement followed protracted negotiations. During this time the company sold its rehabilitation section and amalgamated its psychiatry and substance abuse wholly owned subsidiaries. It pleaded guilty in the name of this new subsidiary which it agreed to sell. All the hospitals in the amalgamated groups were listed in the guilty plea, but not the rehabilitation hospitals. A loophole was then found which preserved medicare funding on the basis that only one subsidiary was guilty and this was to be sold. That there were three at the time of the offences was ignored. None of the directors were prosecuted. None went to prison.

The Market's Response to Fraud and Poor Care:- The financial fallout from publicity is transitory. Instead of being ostracised for being proven guilty of fraud, Tent/NME was immediately welcomed back into the corporate fold. The manner in which it had successfully negotiated this settlement and survived was admired and praised. Its practices were thought to be financially sound as it had a good track record for profit prior to the fraud exposure.

Instead of being taken over by a more reputable group it capitalised on this support by immediately expanding rapidly. Banks gave large loans and it bought American Medical International, doubling its size. It moved up in the megastakes and became second only to the newly merged Columbia/HCA in size. Soon after it bought OrNda the third largest hospital corporation. It settled the fraud action taken against OrNda for among other things paying kickbacks to doctors.

It competed strongly with Columbia/HCA in the Pacman consumption of the not for profit hospital sector. This was a company which had just paid over $1 billion in fraud settlements, had been shown to be dishonest, had indulged in very unethical practices and had misused vast numbers of trusting children. This is a dramatic illustration of the failure of the market to regulate the conduct of its members. Market theorists such as Grahan Samuel want this system to replace professionalism. Professionalism may have failed but never like this!

Aged Care

Aged care is another example of regulatory failure. (see article here) There has been extensive fraud and misuse of patients in for profit nursing homes. Government have been slow to prosecute these people and regulators have been particularly kind. This leniency is attributed to close relationships with politicians. When the companies were in trouble government came to their rescue and imposed extremely lenient terms in fraud settlements.

Reluctance to Regulate to Protect Citizens

Tardy Legislation:- The US Government has over a period of years consistently failed to legislate in the health care interests of citizens. It has only done so when there has been a sustained public outcry about abuses. It has been late and ineffectual in its actions. Pacman legislation for example was only introduced after a sustained campaign by consumer associations, by the public and by the not for profit groups which formed an association to publicise what was happening.

Patient's Rights Legislation:- Patients rights legislation has been a thorny issue fought bitterly. There has been an enormous public ground swell of anger about managed care. This became too great for politicians to resist and both parties accepted that the public had to be protected.

The market strongly opposed the legislation. Vast sums were spent on lobbying and a scare campaign was run promising a cost blow out. The Republicans who get the most funding from health care corporations fought a bitter rearguard action to limit the extent of the legislation they would vote for. They refused to pass legislation to allow citizens to obtain legal redress when they suffered because HMO's wrongly denied care.

It is the US states which have now passed such legislation and the judiciary which have somehow circumvented the road block to compensation.. Massive class actions have been commenced against HMO's. It is citizens and their lawyers who have been forced to address the situation. Government has failed.

Professions have been at the forefront in promoting legislation to protect citizens (eg smoking), and to control deviant members. While they may not have performed well I am not aware of their opposing steps to protect citizens. While laws control errant behaviour it has never been necessary to legislate to protect patients from the practices of the whole profession!

Kickback Laws:- The Stark I legislation prohibited the severely dysfunctional payment of kickbacks to doctors, a racket which compromised care in the 1960's. At the time I was working in a London teaching hospital. Doctors returning from a spell of training in the USA horrified us with accounts of the problems.

The Stark legislation has been a problem for corporations and for HMO's who seek to exert financial pressures on doctors in order to achieve their economic objectives. The success of managed care depends on using incentives (read kickbacks) to induce doctors to practice differently. Corporations have lobbied strongly. Politicians have supported them. There have been a series of modified Stark laws to the extent that the situation is now totally confused. Managed care's practices seem to be both legal and illegal. Arrangements which were previously illegal are now widely used and many of the problems in the USA can be attributed to this "legal" system of kickbacks, incentives, and disincentives.

Bribing Politicians:- The way in which the system works is well illustrated by Integrated Health Services (IHS). Its founder is renowned for the large sums which go to politicians and his friendly relationships with them. In Florida a senior politician and chairman of important health committees is charged with tax evasion. In the evidence it is revealed that he received large sums of money from IHS to encourage him to make a favourable decision on their behalf. This was legal. He was charged with tax evasion and not with receiving bribes.

And in California:- California is another state where citizens are very concerned about the close relationships between politician's actions and the large amounts of money they receive, particularly from health care organisations. There have been a number of television programs documenting this and challenging politicians.

In California, if a sufficient number of citizens sign a petition then the issue must be put to the voters as a specific issue. The problem of understaffing in corporate nursing homes has created a public outcry in California. A proposal for regulating the ratio of nurses to patients in nursing homes was put to the vote and passed by citizens despite corporate efforts to torpedo this. The state government complied with the community's directive and passed this into law. The new law was sent to the governor to sign. The governor simply refused to sign this into law. He is alleged to have a close relationship with nursing homes, particularly with Horizon/CMS which has paid a large fraud settlement and has had a lot of adverse publicity.

In Australia the problem of understaffing in aged care has emerged very dramatically. It will be interesting to see if the corporate lobby succeeds in frustrating the strong pressures emerging for similar legislation here.

Tenet/NME in New Jersey:- If I explored my files I would find many more examples. In New Jersey in the late 1980's for example Tenet/NME strongly supported the governor and he favoured them. All staff were required to make donations to the governor's political funds. The psychiatrist whistle blower who supplied this information and much more died alone on his boat at night, a week before he was due to give evidence to the senate inquiry into the abuse of children - an incidental death from a heart attack. He was one of the few people who had been in on early developments and might have implicated Tenet/NME's board directly in what happened.

Tenet/NME has been fortunate it its deaths. Our Australian Dr Victor Chang was unfortunately gunned down in Sydney in an extortion attempt during the negotiations with FIRB for Tenet/NME's entry to Australia. He was the only person in Australia who had worked in the international hospital with those hospital administrators coming into Australia. He would have known of the sort of contracts offered to doctors in that hospital, contracts which finally forced Tenet/NME out of Australia in 1995. He may also have been able to confirm other matters of which I had only hearsay knowledge.

Tenet/NME were also fortunate in securing the services of a judge at risk of improper influence in Australia in 1993. There is of course no hard evidence to suggest that any of this was anything more than coincidence. Only one US administrator was as far as I am aware ever imprisoned for threatening a whistle blower that he would be killed if he persisted. The threats made by an NME administrator to the doctor who had the heart attack in New Jersey were not death threats.

CLICK HERE -- for more about the failure of regulation and oversight

CLICK HERE -- to examine the failure of regulations in Australia.

CLICK HERE -- for some explanations why regulation and oversight fails

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This page created April 2000 by Michael Wynne