The Making of a Monopoly — ProPublica

Chapter 4

“It Was All About Being the Solely Hospital”

Moore didn’t keep lengthy in Albany. He knew the battle to beat the competitors from Palmyra would at all times be ugly. Nearer to the top of his profession than the start, he didn’t have the power for it. However he knew somebody who did, his 34-year-old protégé, Joel Wernick. The 2 males had met when Wernick was a star proper guard on his highschool soccer workforce in Fort Smith, Arkansas, and labored as a groundskeeper on the hospital that Moore ran. Wernick was brash and aggressive, Moore advised me, and he inspired him to go to enterprise college and pursue a job like his.

Wernick took Moore’s recommendation and have become a part of a rising variety of hospital directors who’d been skilled in enterprise, not drugs. “They had been the type of males — and the overwhelming majority of them had been males — who would stroll right into a room with a pregnant lady and instantly know the way a lot her care was going to value, quite than the type of one that may stroll into that very same room and know instantly what care that lady would wish for a protected supply,” stated Richard Ray, a former Phoebe vp. “They’re each vital, however they’ve completely different priorities.”

In 1988, Moore beneficial Wernick to the Hospital Authority of Albany-Dougherty County, whose 9 members authorized Phoebe’s spending and operations. From the second Wernick arrived in Albany, his No. 1 precedence was to do away with Palmyra. He had a strong ally within the chair of the authority, William Harry Willson, who would maintain the place for 31 years. A Harvard Enterprise Faculty graduate, Willson had transformed his household’s pecan farm right into a profitable mail-order enterprise, helped discovered a neighborhood financial institution and have become the town’s main philanthropist.

Albany’s economic system had shifted from agriculture to business. In 1968, Firestone had opened a manufacturing unit that employed some 1,600 staff. Procter & Gamble had constructed a paper merchandise plant in 1973. Inside the metropolis’s white institution, outdated and new cash had been vying for affect. Willson and Phoebe represented the outdated, Palmyra the brand new. To listen to Phoebe’s supporters clarify it, Palmyra was pushed by racism and greed. Not solely did it present scant care to the poor, however it had no obligations to take a position any of the cash it was making off of Albany into Albany. In the meantime, as a public hospital, Phoebe was legally obligated to serve the poor, and within the years when the hospital ran a deficit, the county’s taxpayers had been on the hook to make up the distinction.

Willson moved to make Phoebe a enterprise, too. Amongst his first directions to Wernick was to achieve out to Palmyra’s mother or father firm and provide to purchase it out. When the Hospital Company of America turned him down, they determined that the one approach Phoebe may compete was to broaden, and the one approach it may broaden was to vary its governance.

The 2 persuaded Dougherty County to relinquish oversight of Phoebe and switch it to a personal administration firm that will additionally finance its operations. Underneath the brand new construction, the county would retain possession of the particular constructing however lease it to the brand new entity for $1 a yr.

That lease nonetheless stands because the county’s solely leverage over how the hospital is run. County officers can revoke it with out warning, though the circumstances of the lease go away loads to Phoebe’s discretion. It broadly requires that Phoebe present high quality care to the neighborhood at an inexpensive value — with out defining what which means — that it spend 3% of its income on free and backed look after the poor and that it uphold Phoebe’s founding promise to deal with all individuals, irrespective of their capacity to pay.

With that transfer, Phoebe Putney Memorial Hospital turned the centerpiece of the Phoebe Putney Well being System. Managed by Wernick, the well being system was now free to pursue enterprise ventures within the wealthier suburbs outdoors the county limits with the identical tax-free standing as earlier than however with out the identical burden of public scrutiny.

Underneath Wernick and Willson’s management, the hospital authority authorized a whole bunch of thousands and thousands of {dollars} in bonds for the development of latest clinics, workplace towers and medical wings, together with some that weren’t in Dougherty County. Quite than staging hallway tirades to get docs to refer their paying sufferers to Phoebe, Wernick purchased their practices. He lobbied to stop Palmyra from acquiring a state license to ship infants by utilizing Georgia’s strict certificate-of-need provisions, which put limits on the sorts of well being care companies that may be supplied in anyone market.

The legal guidelines are supposed to forestall large chains from squeezing out smaller hospitals, however in apply they usually stifle the competitors. Wernick refused to barter charges with managers of factories who complained that the prices to insure their staff in Albany had been larger than in different cities. When Blue Cross, Georgia’s largest well being insurer, moved to incorporate Palmyra in its well being care plans, Wernick threatened to withdraw from the community if it went forward with the deal. It didn’t.

In 10 years, Wernick dramatically reshaped Phoebe from a small neighborhood hospital in a small metropolis to a behemoth hospital system unfold throughout the state. In 1998, a decade after Wernick arrived, The Wall Road Journal reported that the hospital’s revenue margins had been double the nationwide business common. Alongside the best way, although, he had made enemies. In 2003, Phoebe’s chief of surgical procedure and a neighborhood well being care accountant began sending a sequence of nameless faxes to companies, accusing Phoebe and Wernick of an array of extreme and predatory conduct. The faxes, known as Phoebe Factoids, had been drawn from public data and leaks. Plenty of the allegations they made had been true — that Phoebe paid its executives excessive six-figure salaries; that it handled the members of its board of administrators to all-expenses-paid journeys to Europe and the Caribbean; and that it employed aggressive measures to gather medical money owed from the poor. However the data was couched in a lot spin and crude innuendo that it wasn’t straightforward to inform what was correct and what wasn’t.

For months, the Factoids held Albany in thrall. Wernick used his connections within the district legal professional’s workplace — led by a Putney descendant — and a former FBI agent to assist him examine who was behind them. As soon as he knew who the authors had been, Phoebe sued one among them for defamation. They introduced their very own fits in opposition to Wernick and Phoebe, accusing them of retaliation. All sides denied the allegations.

Ultimately the faxes stopped, and the lawsuits had been dismissed or dropped, however not earlier than attracting consideration from state and nationwide media, which, in flip, obtained the eye of Iowa Republican Sen. Charles E. Grassley. The chair of the Senate Finance Committee, he was launching an investigation into whether or not nonprofit hospitals like Phoebe had been giving sufficient again to their communities to justify what they had been receiving in tax breaks.

The committee launched its findings in 2006, and so they had been devastating. Among the many 10 hospitals that answered the senator’s questions, eight of them submitted details about the quantity of free and discounted care they supply to the poor. In keeping with the committee, Phoebe’s phrases had been the least beneficiant. It provided free companies solely to individuals whose revenue was beneath 125% of the poverty line and discounted care to these beneath 200%. Underneath these phrases, a single mom with two dependent kids who earned greater than $21,000 a yr wouldn’t qualify free of charge care. The opposite seven hospitals coated sufferers whose revenue was no less than one and a half instances that a lot.

Much more damning was how aggressively Phoebe pursued sufferers with medical debt. The hospital advised the committee that it had filed lawsuits in opposition to greater than 1,000 individuals through the earlier 5 years and that just about 40% of these fits concerned individuals who owed lower than $500.

A long time later, once I spoke with Dean Zerbe, who led the Grassley investigation, he obtained labored up once more about Phoebe’s debt assortment practices. “They weren’t doing that as a result of they genuinely anticipated to gather $500,” he stated. “When hospitals go after individuals like that, it’s as a result of they don’t need them to come back again.”

Three former executives at Phoebe advised me that the Grassley report rattled Wernick, as a result of he couldn’t disparage the findings as a “terrorist conspiracy” the best way he had carried out with the Factoids. It wasn’t the one public relations hit. The Albany Herald printed an accounting of the properties the hospital was buying within the downtown historic district, elevating questions concerning the drain on the county’s property tax base. In 2006, The Related Press reported that Phoebe had used its relationship with the county authorities, which has the ability of eminent area, to power a 93-year-old retired home employee named Julia Lemon out of her residence. The hospital needed to raze the home in order that it may broaden a day care middle for its workers. A jury dominated in Lemon’s favor.

That very same yr, the Albany Herald obtained a deposition wherein the hospital’s chief monetary officer revealed that Wernick’s compensation got here with a protracted listing of perks, together with a rustic membership membership, six-figure bonuses, an car of his alternative each three years and a termination settlement guaranteeing that if he was fired for trigger, he’d obtain three years pay except he was convicted of a felony. This was on prime of a $650,000 wage.

If all that wasn’t sufficient, in 2009, the battle between Wernick and the authors of the Factoids turned the topic of a feature-length documentary. The timing of all of the protection couldn’t have been worse. Crops in Albany had begun to close down, and 1000’s of individuals had been being thrown out of labor: Bob’s Candies (236 workers); Merck (273 workers); MacGregor Golf (200 workers); Flint River Textiles (230 workers); and, the largest hit, Cooper Tire, which had changed Firestone (1,268 workers). On their approach out of city, plant managers complained that one of many causes for the closures was the excessive value of well being care.

Sandra Morris was a human sources supervisor on the Procter & Gamble plant, which didn’t shut however whose workforce has shrunk through the years. “I used to be attempting to do every thing I may to decrease our prices,” she advised me. However, she added, “I used to be preventing a monstrosity of a hospital.”

The battle with Palmyra ended when Phoebe least anticipated it — when it seemed prefer it had misplaced. Palmyra utilized in 2008 for a license to ship infants. Phoebe spent thousands and thousands of {dollars}, together with $8.8 million to the agency of its lead legal professional, Robert Baudino, to problem the request. Palmyra took its case to court docket, charging Phoebe with a bunch of antitrust violations, and it gained. In April 2010, the eleventh U.S. Circuit Court docket of Appeals dominated in opposition to Phoebe and, in remanding the case, beneficial that the well being system could possibly be held accountable for damages amounting to 3 instances the worth of any provable hurt.

Those that labored with Wernick advised me that he noticed the ruling as a matter of life and dying. The damages Phoebe may need to pay would intestine its funds. Simply as troubling was that Palmyra’s capacity to start delivering infants would have dealt a major blow to Phoebe’s capacity to compete for sufferers. I’ve spoken to quite a few individuals about Wernick, and the one high quality that each his allies and detractors agree on is that his willpower to win was excessive. The place they disagree is about his motives. His supporters say that he operated on the assumption that what was good for Phoebe was good for Albany and that it was his dedication to doing proper by the neighborhood that compelled him to battle as onerous as he did. To his critics, he was solely concerned with constructing a well being care empire, whether or not that was what Albany wanted or not. Lynda Hammond, a former Phoebe vp, advised me that for Wernick “it was all about being the one hospital, not the higher hospital.”

Three months after the eleventh Circuit’s ruling, Wernick dispatched Baudino to Hospital Company of America’s headquarters to debate, once more, Phoebe’s curiosity in shopping for Palmyra. The one public data of how the deal was consummated come from the filings made by the Federal Commerce Fee, which mounted a authorized battle to undo it.

In keeping with these data, HCA seized on Phoebe’s vulnerability and requested for $195 million in money, which was greater than twice Palmyra’s internet income for the earlier 12 months and which the FTC stated “far exceeded” different current hospital offers. HCA demanded that the settlement be saved confidential till it was signed. Additionally, if the acquisition didn’t undergo, both due to antitrust challenges or opposition from the hospital authority, Phoebe must pay the chain a breakup price of some $52.5 million.

Wernick offered the phrases to the hospital authority per week earlier than Christmas. Baudino, Phoebe’s lawyer, was assigned to signify the authority. Because the FTC would later level out in a authorized grievance, this put him within the place of each pitching the merger and weighing its deserves. He beneficial that the authority approve the deal. Seven of its 9 members attended the assembly, and so they voted unanimously in favor.

Emotions among the many residents of Albany, who didn’t study concerning the buy till after it was signed, ranged from confusion to outrage. The Albany Herald quoted opponents to the deal saying that it was “mind-boggling” that the hospital authority would comply with a merger of this magnitude with out taking time to do an impartial evaluation of its potential impression on the price and high quality of care. They accused the members of the authority of conducting themselves as “brokers of the hospital” quite than representatives of the general public good.

Inside months, the FTC sued Phoebe, describing the hospital authority as a “rubber stamp” and the deal as a “merger to monopoly” that will “trigger customers and employers within the Albany area to pay dramatically larger charges for important well being care companies.” The company identified that many individuals within the metropolis had been “already struggling to maintain up with rising medical bills.” It added that the merger was additionally more likely to “scale back the standard and selection of companies out there.”

Through the years Phoebe had carried out many issues to lose the arrogance of the neighborhood it was presupposed to serve, however the buy of Palmyra — at an enormous value, revealed solely on the final minute, with out public enter or any evaluation of its repercussions — was a turning level for a lot of residents.