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A labor union is accusing America’s biggest hospital chain of Medicare fraud—and stoking a debate over for-profit medicine and soaring health care costs

February 2, 2022, 1:00 PM UTC

As another crippling COVID wave sweeps the country, one of the nation’s largest unions has taken aim at America’s largest hospital operator, HCA Healthcare, for practices that “maximize profits at the expense of patient care, working conditions, and responsible corporate behavior”—including “apparent Medicare fraud,” the union says. The basis for that last, most explosive claim: HCA’s unusually high emergency room admission rates.

The allegations, leveled in a 45-page investigative report published Monday by Service Employees International Union (SEIU), are based on the organization’s analysis of Medicare data and lawsuits filed by whistleblowers and health professionals against HCA. That analysis found the company has had an average emergency department admission rate that exceeded the national average by more than 5% between 2014 and 2019 (the most recent data available). In some states, including Texas and California, HCA’s average ER admission rate is 10% higher than the state average. Inpatient admissions receive higher Medicare reimbursement rates, and so the pattern raises concerns, says SEIU, that those higher admission volumes are driven by “corporate efforts to boost their profits” and “without respect to medical need.” 

In a statement to Fortune, HCA rejected SEIU’s conclusions.

SEIU’s accusations come at a time when American households continue to struggle with the world’s highest medical costs—with bills for unexpected hospital stays among the biggest pain points—and when unnecessary hospitalizations present a particular health danger. They also echo past allegations of wrongdoing by hospitals.

Similar trends were observed at for-profit hospital operators Community Health Systems (CHS) and Health Management Associates (HMA) before drawing scrutiny and government investigations during the past decade. A 2012 investigation by 60 Minutes revealed that HMA (since acquired by CHS) gave its physicians admission targets to hit, for example. Both companies settled false claims charges with the government over those allegations of improper Medicare billing; neither company admitted wrongdoing. (HCA also has a history of settlements with the Department of Justice over alleged fraud.)

While a 5%-higher-than-average admission rate may seem trivial, SEIU contends it enabled HCA to bring in “over $1 billion in excess Medicare payments” in five years. Given HCA’s presence in 20 states, and the consistency of the trend—state by state, the SEIU found HCA’s average admission rate exceeded the state average in all but one—the report’s authors argue the patterns can’t be coincidental.

Says Joseph Lyons, SEIU’s research coordinator on its HCA investigation: “They’re far too big a system; they have too many hospitals; they are spread over too many geographies…You can’t always be seeing the sickest patients.”

As an employer of 235,000, with more than 180 hospitals across the country and a market capitalization of $75 billion, HCA is one of the giants in American health care. The company reported a record $58.8 billion in revenue in 2021, a year in which the company navigated three COVID surges, up from $51.5 billion in 2020. The company earned roughly $7 billion in profits for 2021, almost double its $3.8 billion in profits in 2020, and recently got its board’s backing for an $8 billion share-buyback program.

In response to the report and SEIU’s allegations, HCA offered the following statement: “Throughout the pandemic, the SEIU continually has chosen to attack hospitals that are focused on providing the best care to their patients during an unprecedented and challenging time.” The statement continued, “Our hospitals are staffed by physicians, clinicians, and nurses who work tirelessly to ensure our patients receive medically necessary care in the appropriate clinical setting.” 

A long-running dispute

HCA was first confronted privately with a preliminary version of SEIU’s analysis in October 2020 in the form of a letter from the CtW Investment Group (now SOC Investment Group) which works with union-sponsored pension funds with more than $250 billion in combined assets. In response to CtW in March 2021, the company said it had thoroughly reviewed the allegations and “found nothing to suggest that ER or medical-staff physicians admit patients to our hospitals based upon anything other than their independent medical judgment.” It added that Medicare auditors, as well as its own internal ones, review inpatient admissions and in the course of that work, had found nothing improper. 

There is an acrimonious history between HCA and SEIU, the largest health care union in the country, which counts among its 2 million members some 23,000 HCA health care workers across six states. SEIU’s allegations come at a moment of heightened tension in which pandemic-related stress and burnout have contributed to health system–straining labor shortages. (Not to mention fast-rising labor costs for hospitals, as they’ve been forced to seek out more expensive contract reinforcements.) SEIU, which in its report calls for action by elected leaders, shareholders, and regulators, is open about its agenda:  SEIU president Mary Kay Henry told Fortune: “They’re making billions, and the health care workers who’ve been fighting on the front lines every day are still underpaid and undervalued.” 

SEIU’s report also lands at a moment when, owing to the proliferation of private equity and investor-backed companies in health care, there is increasing interest and research into what role ownership type (for-profit, nonprofit, etc.) plays in U.S. health care, says Lovisa Gustafsson, vice president of the Commonwealth Fund’s Controlling Health Care Costs program. A study published in JAMA last week, for example, found “a strong relationship between investor ownership of a health system and overuse” of health services. There, HCA ranked in category 4, on an overuse index of 1 to 5, where 5 indicates the most overuse.

Independent experts contacted by Fortune about SEIU’s analysis cautioned against drawing conclusions from limited data, while also acknowledging that U.S. health care’s underlying incentive structure—built around fee-for-service payment—drives such practices across the entire system.

At the core of such allegations, there’s an important question, says Gustafsson: “Doctors are supposed to be independent,” and to base clinical decisions on their best judgment of the information, she notes. “There becomes a question: Does the manager or administration have an outsize role in the terms of the way you practice medicine?”

Patterns among for-profit hospitals

SEIU points to a couple of whistleblower complaints to support its claims. One of those, filed by a Florida-based hospitalist in 2017, involves an extremely detailed, 141-page complaint—unsealed in 2020—that alleges hospitals in HCA’s East Florida division had a system of internal tactics to increase inpatient admissions for revenues. Those tactics allegedly included tracking individual physicians’ admission stats and penalizing those who did not hit targets. The U.S. government did not move forward on the suit, and it was withdrawn by the whistleblower in 2020. 

Bryan Vroon, an attorney who represented the whistleblower, told Fortune recently, “We always believed and still believe the case has strong merit.” While the suit was withdrawn, he added, “We’re not giving up. We believe that this is a major issue for the Medicare program and Medicare patients that needs to be addressed.” 

David Howard, a health economist and professor at the Department of Health Policy and Management at Emory University who has studied policies to reduce the overuse of costly medical treatments, did some statistical consulting work on that case for the whistleblower’s attorney. When it was ended, he decided to do an independent study of the Florida hospital data, looking at whether patients treated in emergency departments of for-profit hospitals were more likely to be admitted to hospitals. 

“Decision-making in the emergency department is incredibly complex,” he says. “It’s one area of medicine that kind of resists standardization, because patients are coming in with such a wide range of diagnoses and background, and apart from a patient’s diagnosis, you have to consider: Are they living at home? Do they have regular source of care? All that stuff can influence whether they’re admitted as well.”

Medicare reimbursement around that decision-making has long been complicated and murky territory. Inpatient hospital stays account for a significant chunk of Medicare spending: Nearly $110 billion, or roughly one-fifth of the program’s expenditures, went to cover 8.7 million inpatient stays in 2019, according to the federal government. Accordingly, such stays are closely scrutinized by the government.

Hospitalized patients are either admitted, or they’re placed under observation. The distinction matters in Medicare billing—payment for an inpatient admission is much greater, as observation is considered an outpatient service. (Medicare beneficiaries can face a hefty bill in either case.) Traditionally, physicians decided whether to admit a patient based on medical severity, risk, and other factors, but Medicare’s criteria were “squishy,” and “there was a lot of heterogeneity hospital to hospital,” says Charles Locke, an assistant professor at Johns Hopkins University School of Medicine who has studied Centers for Medicare and Medicaid Services (CMS) hospital payment and audit policy.

In 2013, after identifying “millions of dollars in overpayments for inpatient claims with short lengths of stay,” CMS issued its “two midnight rule.” That refocused the doctor’s decision-making on whether to admit a patient to: “Do you think this patient is going to need to be in the hospital for more than two midnights?” (If no, with a few exceptions, CMS indicated it should be an outpatient claim.) Locke says that even so, there remains a lot of squishiness in the system. CMS tries to guard against abuse through its force of “recovery audit contractors,” though even that has proved problematic, Locke says. For a time, CMS-paid auditors were paid a percentage of what they recovered through audits: “Not surprisingly, they were very zealous in their efforts,” says Locke, who published a study on the program. Out of some 8,000 claims, auditors flagged “overpayment” in more than 30% of them; hospitals, meanwhile appealed more than 90% of the auditors’ findings. “This visit status—it’s mostly driven by huge amounts of money,” says Locke.

In Howard’s study, which is currently under peer review, he and coauthor, Guy David, from the University of Pennsylvania’s Department of Health Care Management, found Medicare patients at for-profit hospital emergency departments (EDs) were 20% more likely to be admitted to the hospital. (He found similar trends with non-Medicare patients). Thirty-three of HCA’s 45 Florida hospitals had admission rates above the expected level; across the company’s hospitals, ED patients were also about 23% more likely to be admitted than at other hospitals. (For Tenet, which has 10 Florida hospitals, patients were 42% more likely.) The study also found that admissions fell at for-profit operators, HMA and CHS, after they became aware they were under federal investigation for over-admitting. 

An HCA spokesperson pointed Fortune to a sentence that serves as a caveat in Howard’s paper: “We are unable to determine empirically whether admissions at for-profit hospitals were too high or whether admissions at other types of hospitals were too low.”

Howard says he was surprised to find such a difference between for-profit and nonprofit systems.  Howard was careful to control for factors that he thought may bias the results, like severity of illness, or the number of emergency room alternatives like urgent care centers in a geographic area. He says he found the result doubly surprising because for-profit hospitals tend to serve more affluent, commercially insured patients—not the sort of patients, he says, who, “holding medical conditions constant, would be more likely to be admitted.” 

He shares SEIU’s suspicion: “There’s just extensive, I guess I call it circumstantial evidence surrounding HCA as well as other for-profit companies that have gotten in trouble for admitting patients unnecessarily about how this is something hospital managers, administrators have fixated on. They do try to influence physician behavior on this dimension. The admission rates are matching what we know from these cases.”

The independent experts Fortune spoke with found Howard’s analysis, which shows a similar trend in HCA’s elevated admission rates (though the study is limited to Florida), more convincing than SEIU’s largely because of the more robust effort to control for potential external factors that could be at play. 

“I put more faith in that analysis,” says Bruce Landon, a professor of health care policy at Harvard Medical School who has studied variation in hospital admissions and who notes that the authors of both reports are both “really good economists.” From his own research and others’, Landon says, there is lots of evidence that admissions decisions vary widely by region, state, and other factors. (In one study, he found that at the same hospital for the same patients, the rate of admission can vary by as much as 30 percentage points from physician to physician.)

In the course of his background research, Howard came across SEIU’s Lyons. The two compared notes but worked independently. “I do think it is meaningful that despite using two different data sets and coming at the problem with different interests (Lyons: furthering the mission of SEIU; me: concerned about paying for the Medicare program), we reached the same conclusions,” Howard wrote to me in an email.

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