Original Story: latimes.com
California's health insurance exchange is vowing to fix enrollment delays and dropped coverage for about 30,000 consumers before the next sign-up period this fall.
Covered California said it failed to promptly send insurance applications for 20,000 people to health plans recently, causing delays and confusion over their coverage.
Another group of up to 10,000 people have had their insurance coverage canceled prematurely because they were deemed eligible for Medi-Cal based on a check of their income, officials said.
The exchange said the private insurance should remain in place until coverage kicks in under Medi-Cal, the state's Medicaid program for lower-income residents.
"There have been some cases of individuals where the wires got crossed and people were removed from Covered California before Medi-Cal was live," said Peter Lee, executive director of Covered California. "It's been a limited number of cases, but it's still a concern."
At the same time, Covered California has been contacting nearly 100,000 households that risked losing coverage if they didn't provide proof of citizenship or legal residency.
Covered California said it has cleared half of that list and about 50,000 households must still provide verification. Their coverage under the Affordable Care Act will be canceled Oct. 31 if they fail to provide the proper documentation.
That verification effort, in particular, has taken a toll on the state's customer service, according to the exchange.
Less than 1% of callers reached the exchange within 30 seconds last month; the state's goal is an 80% response rate in half a minute.
Sixty-four percent of people abandoned their call entirely.
Lee attributed the poor performance to shifting call-center workers to citizenship and residency issues.
"We have taken a lot of people off the phone in the past month," Lee said. "Unfortunately, we haven't been answering the phone as quickly as we would like."
Robert Ross, a Covered California board member, asked at last week's board meeting whether there was a plan to reduce wait times before calls ramp up when open enrollment begins Nov. 15.
Also, about 1.2 million enrollees will be looking to renew their coverage or shop for a new policy prior to January.
Lee said the exchange is close to hiring an outside vendor to supply extra call-center support during peak times.
He also noted that upgrades to the state website should decrease the number of consumer questions and calls.
For instance, applicants will be able to pay their initial premium online at sign-up rather than wait for their insurer to bill them. That two-step process confused many consumers who were unsure about the status of their coverage, and it triggered a high volume of calls.
27 October 2014
CHRIS CHRISTIE STUCK HER IN 'PRISON.' SO EBOLA NURSE SAYS SHE'LL SUE
Original Story: forbes.com
Kaci Hickox treated Ebola patients in West Africa. She’s a hero.
Since she got home to America, she’s been treated like a criminal.
Hickox is a nurse who specializes in infectious disease, and the first American to be isolated under New Jersey’s new 21-day quarantine on Ebola aid workers. She worked for Doctors Without Borders — the aid group fighting West Africa’s Ebola epidemic — before flying home on Friday and being rushed into a surprise isolation that she’s described as scary, disorganized, and even cruel.
Let’s be clear: Hickox’s not sick with Ebola right now, and even if she was, she wouldn’t be at a stage of the disease where she’d be able to accidentally infect anyone else. To be on the safe side, she’d planned to spend the next few weeks in isolation at her home in Maine.
Stuck in a tent at a Newark hospital for three weeks instead, Hickox doesn’t have a flushable toilet. She can’t see her friends or family. She initially wasn’t even allowed to talk to a lawyer, although she’s hired one to try and get her out of quarantine.
The planned argument: That quarantining Ebola aid workers who aren’t actually sick is a civil-rights violation.
New Jersey Gov. Chris Christie, who imposed the quarantine — and who Hickox plans to sue — isn’t backing down. In a press conference on Saturday, Christie said he was “sorry” if Hickox was inconvenienced, “but inconvenience that could occur from having folks that are symptomatic and ill out amongst the public is a much, much greater concern of mine.”
“When I left this morning she still had a fever and she was being tested for other illnesses after the Ebola test came back negative,” Christie added, “I hope she recovers quickly.”
Hickox, to put it mildly, thinks Christie doesn’t know what he’s talking about.
“I am not, as he said ‘obviously ill.’” Hickox told CNN. Two separate tests have cleared her of Ebola.
“I am completely healthy and with no symptoms,” she added. “And if he knew anything about Ebola he would know that asymptomatic people are not infectious.”
Several leading public health experts have suggested that Christie’s decision to confine Hickox is an attempt to score political points, given the public’s fear of Ebola. There’s no evidence that a mandatory quarantine will help fight the disease’s spread, and the CDC hasn’t called for one.
Hundreds of other American aid workers have encountered Ebola patients in Africa and were not quarantined upon their return to the United States. There are no current plans to quarantine the thousands of U.S. military personnel headed to West Africa to fight Ebola, either.
Hickox says she hasn’t been told how long she’ll be forced to stay at the hospital. “To put me in prison,” she told CNN, “is just inhumane.”
The emerging backlash over quarantining health workers has gotten politicians to back down, a bit. New York Gov. Andrew Cuomo — who initially stressed that New York City’s first case of Ebola wasn’t cause for panic, before reversing and claiming it was a major concern — on Sunday relaxed the quarantine to say that aid workers in New York could go back to their homes.
Christie made a similar announcement, suggesting that New Jersey residents could be quarantined in the homes too. But according to Christie’s statement, “non-residents would be transported to their homes if feasible and, if not, quarantined in New Jersey.”
Hickox is from Maine.
Public health groups and volunteers have stressed that states’ decision to confine Ebola aid workers under mandatory quarantines will hurt the global fight against Ebola, because it will convince some workers not to go in the first place. It also could be a source of stress for health workers as they return to America, emotionally spent and seeking comfort of their own.
As Vox’s Sarah Kliff poignantly noted, Hickox spent her last night at an Ebola treatment center in Sierra Leone, trying to save a 10-year-old girl from dying.
“I had spent a month watching children die, alone,” Hickox told the Dallas Morning News. “I had witnessed human tragedy unfold before my eyes. I had tried to help when much of the world has looked on and done nothing.”
Now back in America, Kacie Hickox spent last night confined to a tent.
Chris Christie spent last night at home in his mansion.
Kaci Hickox treated Ebola patients in West Africa. She’s a hero.
Since she got home to America, she’s been treated like a criminal.
Hickox is a nurse who specializes in infectious disease, and the first American to be isolated under New Jersey’s new 21-day quarantine on Ebola aid workers. She worked for Doctors Without Borders — the aid group fighting West Africa’s Ebola epidemic — before flying home on Friday and being rushed into a surprise isolation that she’s described as scary, disorganized, and even cruel.
Let’s be clear: Hickox’s not sick with Ebola right now, and even if she was, she wouldn’t be at a stage of the disease where she’d be able to accidentally infect anyone else. To be on the safe side, she’d planned to spend the next few weeks in isolation at her home in Maine.
Stuck in a tent at a Newark hospital for three weeks instead, Hickox doesn’t have a flushable toilet. She can’t see her friends or family. She initially wasn’t even allowed to talk to a lawyer, although she’s hired one to try and get her out of quarantine.
The planned argument: That quarantining Ebola aid workers who aren’t actually sick is a civil-rights violation.
New Jersey Gov. Chris Christie, who imposed the quarantine — and who Hickox plans to sue — isn’t backing down. In a press conference on Saturday, Christie said he was “sorry” if Hickox was inconvenienced, “but inconvenience that could occur from having folks that are symptomatic and ill out amongst the public is a much, much greater concern of mine.”
“When I left this morning she still had a fever and she was being tested for other illnesses after the Ebola test came back negative,” Christie added, “I hope she recovers quickly.”
Hickox, to put it mildly, thinks Christie doesn’t know what he’s talking about.
“I am not, as he said ‘obviously ill.’” Hickox told CNN. Two separate tests have cleared her of Ebola.
“I am completely healthy and with no symptoms,” she added. “And if he knew anything about Ebola he would know that asymptomatic people are not infectious.”
Several leading public health experts have suggested that Christie’s decision to confine Hickox is an attempt to score political points, given the public’s fear of Ebola. There’s no evidence that a mandatory quarantine will help fight the disease’s spread, and the CDC hasn’t called for one.
Hundreds of other American aid workers have encountered Ebola patients in Africa and were not quarantined upon their return to the United States. There are no current plans to quarantine the thousands of U.S. military personnel headed to West Africa to fight Ebola, either.
Hickox says she hasn’t been told how long she’ll be forced to stay at the hospital. “To put me in prison,” she told CNN, “is just inhumane.”
The emerging backlash over quarantining health workers has gotten politicians to back down, a bit. New York Gov. Andrew Cuomo — who initially stressed that New York City’s first case of Ebola wasn’t cause for panic, before reversing and claiming it was a major concern — on Sunday relaxed the quarantine to say that aid workers in New York could go back to their homes.
Christie made a similar announcement, suggesting that New Jersey residents could be quarantined in the homes too. But according to Christie’s statement, “non-residents would be transported to their homes if feasible and, if not, quarantined in New Jersey.”
Hickox is from Maine.
Public health groups and volunteers have stressed that states’ decision to confine Ebola aid workers under mandatory quarantines will hurt the global fight against Ebola, because it will convince some workers not to go in the first place. It also could be a source of stress for health workers as they return to America, emotionally spent and seeking comfort of their own.
As Vox’s Sarah Kliff poignantly noted, Hickox spent her last night at an Ebola treatment center in Sierra Leone, trying to save a 10-year-old girl from dying.
“I had spent a month watching children die, alone,” Hickox told the Dallas Morning News. “I had witnessed human tragedy unfold before my eyes. I had tried to help when much of the world has looked on and done nothing.”
Now back in America, Kacie Hickox spent last night confined to a tent.
Chris Christie spent last night at home in his mansion.
24 October 2014
01 October 2014
FIRST EBOLA CASE DIAGNOSED IN THE US
Original Story: bbc.com
The first case of the deadly Ebola virus diagnosed on US soil has been confirmed in Dallas, Texas.
Officials at Texas Health Presbyterian Hospital say the unidentified patient is being kept in isolation.
The man is thought to have contracted the virus in Liberia before travelling to the US nearly two weeks ago.
More than 3,000 people have already died of Ebola in West Africa and a small number of US aid workers have recovered after being flown to the US.
The US Centers for Disease Control and Prevention (CDC) says the Ebola virus seems to have been contained in Nigeria and Senegal, with no new cases reported there for almost a month.
Monitoring
"An individual travelling from Liberia has been diagnosed with Ebola in the United States," CDC Director Thomas Frieden told reporters on Tuesday.
According to Dr Frieden, the unnamed patient left Liberia on 19 September and arrived in the US the next day to visit relatives, without displaying any symptoms of the virus.
Symptoms of the virus became apparent on 24 September, and on 28 September he was admitted to a Texas hospital and put in isolation.
The disease, which is not contagious until symptoms appear, is spread via close contact with bodily fluids.
Aid workers who caught Ebola in West Africa have come back to the US for treatment but this is the first case of a patient developing the virus on US soil, says the BBC's Alastair Leithead in Los Angeles.
A hospital official told reporters on Tuesday the facility already had procedures in place to deal with any such cases.
Preliminary information indicates that the unnamed patient, who was described as critically ill, was not involved in treating Ebola-infected patients while in Liberia.
Health officials are working to identify all people who came into contact with the unnamed patient while he was infectious, including family and a "couple" community members.
Those people will then be monitored for 21 days to see if an Ebola-related fever develops.
But they will not be monitoring passengers on the man's flight, where Dr Frieden said there was "zero risk of transmission" as the man had been checked for fever before boarding.
'We will stop it'
According to Dr Frieden, it is possible a family member who came in direct contact with the patient may develop Ebola in the coming weeks.
But "the bottom line here is I have no doubt that we will control this importation, this case of Ebola, so it does not spread widely in this country," he added. "We will stop it here."
The World Health Organization (WHO) says more than 3,000 people have died of the virus so far, mostly in Liberia.
Earlier on Tuesday, the head of a new UN body set up to fight the disease urged more action within the next 60 days.
Anthony Banbury told reporters in Ghana that 70% of infected people needed to be receiving treatment and 70% of burials should be done safely within two months.
It is the world's most deadly outbreak of the virus.
Ebola virus disease (EVD)
The first case of the deadly Ebola virus diagnosed on US soil has been confirmed in Dallas, Texas.
Officials at Texas Health Presbyterian Hospital say the unidentified patient is being kept in isolation.
The man is thought to have contracted the virus in Liberia before travelling to the US nearly two weeks ago.
More than 3,000 people have already died of Ebola in West Africa and a small number of US aid workers have recovered after being flown to the US.
The US Centers for Disease Control and Prevention (CDC) says the Ebola virus seems to have been contained in Nigeria and Senegal, with no new cases reported there for almost a month.
Monitoring
"An individual travelling from Liberia has been diagnosed with Ebola in the United States," CDC Director Thomas Frieden told reporters on Tuesday.
According to Dr Frieden, the unnamed patient left Liberia on 19 September and arrived in the US the next day to visit relatives, without displaying any symptoms of the virus.
Symptoms of the virus became apparent on 24 September, and on 28 September he was admitted to a Texas hospital and put in isolation.
The disease, which is not contagious until symptoms appear, is spread via close contact with bodily fluids.
Aid workers who caught Ebola in West Africa have come back to the US for treatment but this is the first case of a patient developing the virus on US soil, says the BBC's Alastair Leithead in Los Angeles.
A hospital official told reporters on Tuesday the facility already had procedures in place to deal with any such cases.
Preliminary information indicates that the unnamed patient, who was described as critically ill, was not involved in treating Ebola-infected patients while in Liberia.
Health officials are working to identify all people who came into contact with the unnamed patient while he was infectious, including family and a "couple" community members.
Those people will then be monitored for 21 days to see if an Ebola-related fever develops.
But they will not be monitoring passengers on the man's flight, where Dr Frieden said there was "zero risk of transmission" as the man had been checked for fever before boarding.
'We will stop it'
According to Dr Frieden, it is possible a family member who came in direct contact with the patient may develop Ebola in the coming weeks.
But "the bottom line here is I have no doubt that we will control this importation, this case of Ebola, so it does not spread widely in this country," he added. "We will stop it here."
The World Health Organization (WHO) says more than 3,000 people have died of the virus so far, mostly in Liberia.
Earlier on Tuesday, the head of a new UN body set up to fight the disease urged more action within the next 60 days.
Anthony Banbury told reporters in Ghana that 70% of infected people needed to be receiving treatment and 70% of burials should be done safely within two months.
It is the world's most deadly outbreak of the virus.
Ebola virus disease (EVD)
- Symptoms include high fever, bleeding and central nervous system damage
- Spread by body fluids, such as blood and saliva
- Fatality rate can reach 90% - but current outbreak has mortality rate of about 70%
- Incubation period is two to 21 days
- There is no proven vaccine or cure
- Supportive care such as rehydrating patients who have diarrhoea and vomiting can help recovery
- Fruit bats, a delicacy for some West Africans, are considered to be virus's natural host
05 September 2014
MEDICARE STAR RATINGS ALLOW NURSING HOMES TO GAME THE SYSTEM
Original Story, NYTimes.com
CARMICHAEL, Calif. — The lobby of Rosewood Post-Acute Rehab, a nursing home in this Sacramento suburb, bears all the touches of a luxury hotel, including high ceilings, leather club chairs and paintings of bucolic landscapes. A Milwaukee Nursing Home Lawyer is familiar with these types of facilities.
What really sets Rosewood apart, however, is its five-star rating from Medicare, which has been assigning hotel-style ratings to nearly every nursing home in the country for the last five years. Rosewood’s five-star status — the best possible — places it in rarefied company: Only one-fifth of more than 15,000 nursing homes nationwide hold such a distinction.
But an examination of the rating system by The New York Times has found that Rosewood and many other top-ranked nursing homes have been given a seal of approval that is based on incomplete information and that can seriously mislead consumers, investors and others about conditions at the homes. A Nashville Nursing Home Litigation Attorney has experience representing clients in nursing home negligence cases.
The Medicare ratings, which have become the gold standard across the industry, are based in large part on self-reported data by the nursing homes that the government does not verify. Only one of the three criteria used to determine the star ratings — the results of annual health inspections — relies on assessments from independent reviewers. The other measures — staff levels and quality statistics — are reported by the nursing homes and accepted by Medicare, with limited exceptions, at face value.
The ratings also do not take into account entire sets of potentially negative information, including fines and other enforcement actions by state, rather than federal, authorities, as well as complaints filed by consumers with state agencies. Last year, the State of California, for example, fined Rosewood $100,000 — the highest penalty possible — for causing the 2006 death of a woman who was given an overdose of a powerful blood thinner.
From 2009 to 2013, California fielded 102 consumer complaints and reports of problems at Rosewood, according to a state website. California Advocates for Nursing Home Reform, which also tracks complaints, put the number even higher, at 164, which it says is twice the state average. Nursing home officials are appealing the state fine and point out that only a small fraction of the complaints at Rosewood, which has about 110 beds, have ever been substantiated. While that may be true, the sheer number could be a sign of trouble, industry experts say.
In interviews conducted during a recent visit, a half dozen current and former residents, including some who had lived in other homes, said they did not believe that the home merited a five-star rating. “If I fell down, they’d pick me up, but that’s about it,” said Michael McFadden, 76, who has lived at Rosewood for several years.
John L. Sorensen, the chief executive of North American Health Care, the chain that operates Rosewood, said the quality of the home was excellent. “I would put my parent there,” he said.
Rosewood struggles with many of the same challenges faced by other nursing homes around the country, offering a window into the rating system’s flaws, The Times found. Many residents live three to a room, and there is often a scarcity of basic supplies like washcloths, as well as a shortage of quality staff, according to interviews with current and former patients, their families and statements from former employees.
Lawsuits From Families
Rosewood has also been the subject of about a dozen lawsuits in recent years from patients and their families claiming substandard care.
“It looks nice when you walk in,” said Bonnie Nathan, who said she placed her mother in Rosewood in 2010 mainly because of its five-star rating. She is now suing the home because she claims that workers there failed to treat her mother, Janet Zagon, for a respiratory condition that led to her death. “But I really didn’t have a sense of where patients were going to be cared for,” Ms. Nathan said.
Mr. Sorensen said that his nursing home was not at fault and that even excellent homes occasionally make mistakes.
“While we have had a few problems, they’re pretty minor compared to the overall accomplishments and tremendous customer satisfaction that’s being provided,” he said. The many lawsuits against Rosewood could be attributed to a “very litigious marketplace” in the Sacramento area, he said, and not to poor quality at the nursing home.
Receiving a high star rating has never been more important to nursing homes. When nurses and doctors discharge patients from hospitals, they often use the ratings in referral decisions, and insurers consider them when setting up preferred networks. The ratings are also often a first stop for investors and lenders, who consult them to decide whether a nursing home company is a safe bet.
“This whole program has walked into parts of our industry that we never expected,” said Steven Littlehale, executive vice president and chief clinical officer at PointRight, one of a handful of consulting firms that advise nursing homes on how to improve their ratings.
Widespread acceptance of the ratings is leading to their use beyond the elder-care industry. Beginning this year, Medicare plans to introduce similar five-star ratings for hospitals, dialysis centers and home-health-care agencies.
Federal officials say that while the rating system can be improved — and that they are working to make it better — it gives nursing homes incentives to get better.
“We have seen improvements,” said Dr. Patrick Conway, the chief medical officer at the Centers for Medicare and Medicaid Services. As evidence, he pointed to a decrease in the use of physical restraints by nursing homes and in the number of homes reporting bedsores among patients at a high risk of developing them.
But some nursing homes are not truly improving. Instead, they have learned how to game the rating system, according to interviews with current and former nursing home employees, lawyers and patient advocacy groups.
Nationally, the proportion of homes with above-average ratings has risen steadily. In 2009, when the program began, 37 percent of them received four- or five-star ratings. By 2013, nearly half did.
The Times analysis shows that even nursing homes with a history of poor care rate highly in the areas that rely on self-reported data. Of more than 50 nursing homes on a federal watch list for quality, nearly two-thirds hold four- or five-star ratings for their staff levels and quality statistics. The same homes do not fare as well on the sole criterion that is based on an independent review. More than 95 percent of the homes on the watch list received one or two stars for the health inspection, which is conducted by state workers.
“These are among the very worst facilities, and yet they are self-reporting data that gives them very high staffing and very high quality measures,” said Toby S. Edelman, a senior policy lawyer with the Center for Medicare Advocacy, a nonprofit organization that helps patients. “It seems implausible.”
‘False Sense of Security’
The seed of Medicare’s five-star rating system was planted in 2007, when during a congressional hearing, Senator Ron Wyden, Democrat of Oregon, asked why it was easier to shop for washing machines than it was to select a nursing home. Medicare officials set up the rating system in 2009, a move that was applauded by consumer groups, who hoped that more transparency would lead to greater accountability.
The nursing home industry, which lobbied against the ratings, later largely embraced them. An industry trade group, the American Health Care Association, offers members a free service that helps companies track their star rating; it says the rising scores are evidence that quality is improving.
Some advocates say the rating system is the best resource available. “I think it’s imperfect, but it’s by far the most valuable tool for people,” said Richard J. Mollot, executive director of the Long Term Care Community Coalition.
Other patients’ groups consider the ratings so inflated that they no longer support their use and have found them helpful only in weeding out the worst-performing homes.
“They’ve given a false sense of security to the public,” Carole Herman, president of the Foundation Aiding the Elderly, a Sacramento patients’ rights group, said.
One of the simplest ways to inflate a score, according to interviews with academics and groups that monitor the process, is through the staffing measure. Nursing homes get an extra star on their overall rating if they score a four- or five-star rating on staff levels.
In 2009, only 39 percent of nursing homes had a four- or five-star rating for staff levels. By 2013, 52 percent did.
The staff rating is based on a form that a home completes once a year, at the time of the annual inspection. Homes often know when an inspection will occur, and many of them have learned to add workers in the period leading up to it.
The inspection period is so crucial that in 2010, an administrator at a home on Long Island described it as “our Super Bowl” and explained that staff levels would drop once the inspection was completed. “The staffing hours will be a little high for this week but will drop the following week,” David Fielding, the administrator of the home, the Medford Multicare Center for Living, wrote in an email, which was excerpted in a lawsuit filed this year against the home by the New York State attorney general.
Since 2008, more than a dozen employees at the Medford home have been convicted on charges of patient neglect and falsification of records. In June, nine more were indicted on a range of charges related to the death of a 72-year-old woman, Aurelia Rios. Medford nonetheless holds a three-star, or average, rating from Medicare and a four-star rating for its health inspection, and state health workers reported no deficiencies during the home’s most recent health inspection last August.
A provision of the Affordable Care Act of 2010 requires Medicare to use payroll data to verify the accuracy of staff levels, but the agency has not begun to follow the requirement. The agency said it was still working on the verification system and hoped to have it running soon.
The other major part of the ratings that is not checked by Medicare, the so-called quality measures, is also susceptible to manipulation. The score in this area is based on data collected by the home about every patient, such as whether bedridden or wheelchair patients are developing bedsores and how many residents experience serious falls.
Nursing homes receive an extra star on their overall rating if they get five stars in this area. The number of nursing homes with five stars in quality measures has increased significantly since the beginning of the program, to 29 percent in 2013 from 11 percent in 2009.
“They need to spot-audit those, but they haven’t done it,” said Charlene Harrington, a professor emeritus at the University of California, San Francisco, School of Nursing, who is an expert on nursing home staffing.
Federal officials acknowledged that the quality measures rating needed improvement and said they were testing an auditing program that they hoped to expand nationally. The agency also plans to consider additional metrics, such as the number of residents being given antipsychotic drugs.
Dr. David Gifford, senior vice president of quality and regulatory affairs at the American Health Care Association, the nursing home trade group, says the ratings have had a positive effect on the industry. “I think it’s helped move us all along in the right direction,” he said, adding that any suggestion that facilities were manipulating their ratings was far-fetched. “I have not seen any evidence of that or heard any evidence of it,” he said.
A Five-Star Pursuit
Few have pursued top ratings with more zeal than North American Health Care, which operates Rosewood and 34 other nursing homes scattered across California and three other Western states. Each of the chain’s nursing homes has a five-star rating, and the company maintains a team of more than 30 nurses who conduct mock inspections to ensure the homes perform well. In recent years, the chain has awarded $50,000 bonuses to nursing home administrators who achieve or maintain a five-star rating.
“It’s everything to us,” Mr. Sorensen, the chief executive of North American, said. “If you create a product that people can trust and admire, the profits that you hope for — they follow as a result of excellence.”
Despite the chain’s exemplary performance in the Medicare ratings, Rosewood is not the only one of its homes to have had problems that are not reflected in the score. State inspectors concluded that staff at another home, Chatsworth Park Health Care Center in Los Angeles, neglected in 2010 and 2011 to properly care for a man with Parkinson’s disease who developed malnutrition and extensive bedsores, which typically occur because of substandard care, and later died.
At another of the chain’s nursing homes, the Grand Terrace Care Center near San Bernardino, Calif., the staff failed in 2010 to properly care for a woman with diabetes and other conditions. The coroner ruled that her death was due in part to a urinary tract infection and bedsores that had become so bad, they had developed gangrene and were infested with maggots, according to a state report about the case.
In 2010, when both episodes took place, Chatsworth carried an overall rating of three stars, and Grand Terrace was rated four stars. Both now hold five-star ratings.
Mr. Sorensen said his staff disputed the facts in these cases, and he maintained that the residents received good care.
Neither case shows up on the Medicare website. Until recently, California often refused to cite nursing homes for federal-level violations, the only type that counts toward a star rating. State workers are responsible for enforcing both state and federal laws governing nursing homes. A spokesman for the California Department of Public Health said the state was now doing so.
Dr. Conway, of the Centers for Medicare and Medicaid Services, said his agency worked hard to make sure states were enforcing federal law but acknowledged that there had been problems. “We are aware of some issues with states,” he said, adding that the federal website warned consumers that state actions were not listed there. Still, he said, “the goal would be not to have that gap.”
North American is also under investigation by the office of the inspector general for the federal Health and Human Services Department. Mr. Sorensen declined to say what the investigation entailed, and a spokesman for the inspector general’s office would not comment. It is not publicly known whether the investigation relates to care.
Ed Dudensing, a Sacramento lawyer who has represented several clients against the chain’s homes, including Rosewood, said he had deposed more than 30 current and former employees of North American Health Care in recent years. Based on those interviews, he said, “I strongly disagree with the suggestion that its nursing homes are five-star quality.”
Mr. Sorensen said the lawsuits against Rosewood were without merit. “We’re in this business because we want to do the right thing for our patients,” he said. “That is our agenda.”
In 2012, nearly all of North American Health Care’s nursing homes held four- or five-star ratings for staff levels, an outcome that Mr. Sorensen attributed to the company’s investment in quality workers.
Nevertheless, an analysis by The Times of 2012 staffing data reported by North American’s nursing homes in California shows that the company consistently reported higher levels of staffing to Medicare than it reported to Medi-Cal, California’s health care program for the poor, which audits the data.
The chain’s 29 homes in California reported staff levels to the federal government that were on average 23 percent higher than what they reported to the state in 2012, the most recent year for which state data were available. Statewide, California nursing homes reported levels to Medicare that were 15 percent higher than what they reported to Medi-Cal.
Mr. Sorensen said the state and federal staff data could not be compared because some employees, like the director of nursing and other supervisory positions, were not counted by the state but were counted at the federal level. He said the disparity could also be a result of different reporting periods and month-to-month variations in staff and patient levels.
A spokesman for the California Office of Statewide Health Planning and Development said that supervisory positions like the director of nursing were included in state staff data and that the main reason for the disparity was probably that the federal data accounted only for the two weeks preceding the annual survey, while the state data reflected the whole year.
Ms. Harrington, who sits on the technical advisory board for Medicare’s rating system and has served as an expert witness on behalf of plaintiffs suing nursing homes, said the disparity showed that the chain’s homes were probably adding people before the annual inspection. “They’re inflating their staffing,” she said.
Even as North American’s nursing homes were reporting high levels of staffing to Medicare, executives were focusing on keeping labor costs low, according to interviews with former employees and records made available in connection with lawsuits.
In 2011, for example, the nursing home administrator at Rosewood eliminated six full-time jobs and cut back on staff hours just days after the annual inspection was completed, according to emails the chain provided to plaintiff lawyers in a pending lawsuit against Rosewood. Ms. Harrington described such cuts as “substantial.” The home received a four-star rating in staffing that year.
Kyle Dahl, Rosewood’s administrator at the time, said in an interview that the staff reductions had been made to prepare for expected cuts to Medicare and Medi-Cal. But he acknowledged that consultant nurses were often brought in before the annual inspection to prepare the home. Their presence also had the effect of keeping staff levels higher than usual. Mr. Dahl likened the annual inspection to a visit from one’s mother-in-law. “You might throw an extra vacuum over the carpet to make sure everything looks good,” he said. “People could potentially staff up during that time period.”
For some families, however, all that effort did not translate to high-quality care, and they said they wished they had better options. Elizabeth Chandler and her husband, Ken, placed his mother in Rosewood in 2011 to recover from a broken femur. Ms. Chandler said she had been impressed that Rosewood had a top rating, “like a hotel.”
Mr. Chandler’s mother died after experiencing serious falls at the home, and the family is suing Rosewood. Ms. Chandler said she felt misled by the rating system.
“You don’t know where to look to get accurate information,” she said. “I can go and find a preschool for my child better than I can find a skilled nursing facility for my loved one.”
CARMICHAEL, Calif. — The lobby of Rosewood Post-Acute Rehab, a nursing home in this Sacramento suburb, bears all the touches of a luxury hotel, including high ceilings, leather club chairs and paintings of bucolic landscapes. A Milwaukee Nursing Home Lawyer is familiar with these types of facilities.
What really sets Rosewood apart, however, is its five-star rating from Medicare, which has been assigning hotel-style ratings to nearly every nursing home in the country for the last five years. Rosewood’s five-star status — the best possible — places it in rarefied company: Only one-fifth of more than 15,000 nursing homes nationwide hold such a distinction.
But an examination of the rating system by The New York Times has found that Rosewood and many other top-ranked nursing homes have been given a seal of approval that is based on incomplete information and that can seriously mislead consumers, investors and others about conditions at the homes. A Nashville Nursing Home Litigation Attorney has experience representing clients in nursing home negligence cases.
The Medicare ratings, which have become the gold standard across the industry, are based in large part on self-reported data by the nursing homes that the government does not verify. Only one of the three criteria used to determine the star ratings — the results of annual health inspections — relies on assessments from independent reviewers. The other measures — staff levels and quality statistics — are reported by the nursing homes and accepted by Medicare, with limited exceptions, at face value.
The ratings also do not take into account entire sets of potentially negative information, including fines and other enforcement actions by state, rather than federal, authorities, as well as complaints filed by consumers with state agencies. Last year, the State of California, for example, fined Rosewood $100,000 — the highest penalty possible — for causing the 2006 death of a woman who was given an overdose of a powerful blood thinner.
From 2009 to 2013, California fielded 102 consumer complaints and reports of problems at Rosewood, according to a state website. California Advocates for Nursing Home Reform, which also tracks complaints, put the number even higher, at 164, which it says is twice the state average. Nursing home officials are appealing the state fine and point out that only a small fraction of the complaints at Rosewood, which has about 110 beds, have ever been substantiated. While that may be true, the sheer number could be a sign of trouble, industry experts say.
In interviews conducted during a recent visit, a half dozen current and former residents, including some who had lived in other homes, said they did not believe that the home merited a five-star rating. “If I fell down, they’d pick me up, but that’s about it,” said Michael McFadden, 76, who has lived at Rosewood for several years.
John L. Sorensen, the chief executive of North American Health Care, the chain that operates Rosewood, said the quality of the home was excellent. “I would put my parent there,” he said.
Rosewood struggles with many of the same challenges faced by other nursing homes around the country, offering a window into the rating system’s flaws, The Times found. Many residents live three to a room, and there is often a scarcity of basic supplies like washcloths, as well as a shortage of quality staff, according to interviews with current and former patients, their families and statements from former employees.
Lawsuits From Families
Rosewood has also been the subject of about a dozen lawsuits in recent years from patients and their families claiming substandard care.
“It looks nice when you walk in,” said Bonnie Nathan, who said she placed her mother in Rosewood in 2010 mainly because of its five-star rating. She is now suing the home because she claims that workers there failed to treat her mother, Janet Zagon, for a respiratory condition that led to her death. “But I really didn’t have a sense of where patients were going to be cared for,” Ms. Nathan said.
Mr. Sorensen said that his nursing home was not at fault and that even excellent homes occasionally make mistakes.
“While we have had a few problems, they’re pretty minor compared to the overall accomplishments and tremendous customer satisfaction that’s being provided,” he said. The many lawsuits against Rosewood could be attributed to a “very litigious marketplace” in the Sacramento area, he said, and not to poor quality at the nursing home.
Receiving a high star rating has never been more important to nursing homes. When nurses and doctors discharge patients from hospitals, they often use the ratings in referral decisions, and insurers consider them when setting up preferred networks. The ratings are also often a first stop for investors and lenders, who consult them to decide whether a nursing home company is a safe bet.
“This whole program has walked into parts of our industry that we never expected,” said Steven Littlehale, executive vice president and chief clinical officer at PointRight, one of a handful of consulting firms that advise nursing homes on how to improve their ratings.
Widespread acceptance of the ratings is leading to their use beyond the elder-care industry. Beginning this year, Medicare plans to introduce similar five-star ratings for hospitals, dialysis centers and home-health-care agencies.
Federal officials say that while the rating system can be improved — and that they are working to make it better — it gives nursing homes incentives to get better.
“We have seen improvements,” said Dr. Patrick Conway, the chief medical officer at the Centers for Medicare and Medicaid Services. As evidence, he pointed to a decrease in the use of physical restraints by nursing homes and in the number of homes reporting bedsores among patients at a high risk of developing them.
But some nursing homes are not truly improving. Instead, they have learned how to game the rating system, according to interviews with current and former nursing home employees, lawyers and patient advocacy groups.
Nationally, the proportion of homes with above-average ratings has risen steadily. In 2009, when the program began, 37 percent of them received four- or five-star ratings. By 2013, nearly half did.
The Times analysis shows that even nursing homes with a history of poor care rate highly in the areas that rely on self-reported data. Of more than 50 nursing homes on a federal watch list for quality, nearly two-thirds hold four- or five-star ratings for their staff levels and quality statistics. The same homes do not fare as well on the sole criterion that is based on an independent review. More than 95 percent of the homes on the watch list received one or two stars for the health inspection, which is conducted by state workers.
“These are among the very worst facilities, and yet they are self-reporting data that gives them very high staffing and very high quality measures,” said Toby S. Edelman, a senior policy lawyer with the Center for Medicare Advocacy, a nonprofit organization that helps patients. “It seems implausible.”
‘False Sense of Security’
The seed of Medicare’s five-star rating system was planted in 2007, when during a congressional hearing, Senator Ron Wyden, Democrat of Oregon, asked why it was easier to shop for washing machines than it was to select a nursing home. Medicare officials set up the rating system in 2009, a move that was applauded by consumer groups, who hoped that more transparency would lead to greater accountability.
The nursing home industry, which lobbied against the ratings, later largely embraced them. An industry trade group, the American Health Care Association, offers members a free service that helps companies track their star rating; it says the rising scores are evidence that quality is improving.
Some advocates say the rating system is the best resource available. “I think it’s imperfect, but it’s by far the most valuable tool for people,” said Richard J. Mollot, executive director of the Long Term Care Community Coalition.
Other patients’ groups consider the ratings so inflated that they no longer support their use and have found them helpful only in weeding out the worst-performing homes.
“They’ve given a false sense of security to the public,” Carole Herman, president of the Foundation Aiding the Elderly, a Sacramento patients’ rights group, said.
One of the simplest ways to inflate a score, according to interviews with academics and groups that monitor the process, is through the staffing measure. Nursing homes get an extra star on their overall rating if they score a four- or five-star rating on staff levels.
In 2009, only 39 percent of nursing homes had a four- or five-star rating for staff levels. By 2013, 52 percent did.
The staff rating is based on a form that a home completes once a year, at the time of the annual inspection. Homes often know when an inspection will occur, and many of them have learned to add workers in the period leading up to it.
The inspection period is so crucial that in 2010, an administrator at a home on Long Island described it as “our Super Bowl” and explained that staff levels would drop once the inspection was completed. “The staffing hours will be a little high for this week but will drop the following week,” David Fielding, the administrator of the home, the Medford Multicare Center for Living, wrote in an email, which was excerpted in a lawsuit filed this year against the home by the New York State attorney general.
Since 2008, more than a dozen employees at the Medford home have been convicted on charges of patient neglect and falsification of records. In June, nine more were indicted on a range of charges related to the death of a 72-year-old woman, Aurelia Rios. Medford nonetheless holds a three-star, or average, rating from Medicare and a four-star rating for its health inspection, and state health workers reported no deficiencies during the home’s most recent health inspection last August.
A provision of the Affordable Care Act of 2010 requires Medicare to use payroll data to verify the accuracy of staff levels, but the agency has not begun to follow the requirement. The agency said it was still working on the verification system and hoped to have it running soon.
The other major part of the ratings that is not checked by Medicare, the so-called quality measures, is also susceptible to manipulation. The score in this area is based on data collected by the home about every patient, such as whether bedridden or wheelchair patients are developing bedsores and how many residents experience serious falls.
Nursing homes receive an extra star on their overall rating if they get five stars in this area. The number of nursing homes with five stars in quality measures has increased significantly since the beginning of the program, to 29 percent in 2013 from 11 percent in 2009.
“They need to spot-audit those, but they haven’t done it,” said Charlene Harrington, a professor emeritus at the University of California, San Francisco, School of Nursing, who is an expert on nursing home staffing.
Federal officials acknowledged that the quality measures rating needed improvement and said they were testing an auditing program that they hoped to expand nationally. The agency also plans to consider additional metrics, such as the number of residents being given antipsychotic drugs.
Dr. David Gifford, senior vice president of quality and regulatory affairs at the American Health Care Association, the nursing home trade group, says the ratings have had a positive effect on the industry. “I think it’s helped move us all along in the right direction,” he said, adding that any suggestion that facilities were manipulating their ratings was far-fetched. “I have not seen any evidence of that or heard any evidence of it,” he said.
A Five-Star Pursuit
Few have pursued top ratings with more zeal than North American Health Care, which operates Rosewood and 34 other nursing homes scattered across California and three other Western states. Each of the chain’s nursing homes has a five-star rating, and the company maintains a team of more than 30 nurses who conduct mock inspections to ensure the homes perform well. In recent years, the chain has awarded $50,000 bonuses to nursing home administrators who achieve or maintain a five-star rating.
“It’s everything to us,” Mr. Sorensen, the chief executive of North American, said. “If you create a product that people can trust and admire, the profits that you hope for — they follow as a result of excellence.”
Despite the chain’s exemplary performance in the Medicare ratings, Rosewood is not the only one of its homes to have had problems that are not reflected in the score. State inspectors concluded that staff at another home, Chatsworth Park Health Care Center in Los Angeles, neglected in 2010 and 2011 to properly care for a man with Parkinson’s disease who developed malnutrition and extensive bedsores, which typically occur because of substandard care, and later died.
At another of the chain’s nursing homes, the Grand Terrace Care Center near San Bernardino, Calif., the staff failed in 2010 to properly care for a woman with diabetes and other conditions. The coroner ruled that her death was due in part to a urinary tract infection and bedsores that had become so bad, they had developed gangrene and were infested with maggots, according to a state report about the case.
In 2010, when both episodes took place, Chatsworth carried an overall rating of three stars, and Grand Terrace was rated four stars. Both now hold five-star ratings.
Mr. Sorensen said his staff disputed the facts in these cases, and he maintained that the residents received good care.
Neither case shows up on the Medicare website. Until recently, California often refused to cite nursing homes for federal-level violations, the only type that counts toward a star rating. State workers are responsible for enforcing both state and federal laws governing nursing homes. A spokesman for the California Department of Public Health said the state was now doing so.
Dr. Conway, of the Centers for Medicare and Medicaid Services, said his agency worked hard to make sure states were enforcing federal law but acknowledged that there had been problems. “We are aware of some issues with states,” he said, adding that the federal website warned consumers that state actions were not listed there. Still, he said, “the goal would be not to have that gap.”
North American is also under investigation by the office of the inspector general for the federal Health and Human Services Department. Mr. Sorensen declined to say what the investigation entailed, and a spokesman for the inspector general’s office would not comment. It is not publicly known whether the investigation relates to care.
Ed Dudensing, a Sacramento lawyer who has represented several clients against the chain’s homes, including Rosewood, said he had deposed more than 30 current and former employees of North American Health Care in recent years. Based on those interviews, he said, “I strongly disagree with the suggestion that its nursing homes are five-star quality.”
Mr. Sorensen said the lawsuits against Rosewood were without merit. “We’re in this business because we want to do the right thing for our patients,” he said. “That is our agenda.”
In 2012, nearly all of North American Health Care’s nursing homes held four- or five-star ratings for staff levels, an outcome that Mr. Sorensen attributed to the company’s investment in quality workers.
Nevertheless, an analysis by The Times of 2012 staffing data reported by North American’s nursing homes in California shows that the company consistently reported higher levels of staffing to Medicare than it reported to Medi-Cal, California’s health care program for the poor, which audits the data.
The chain’s 29 homes in California reported staff levels to the federal government that were on average 23 percent higher than what they reported to the state in 2012, the most recent year for which state data were available. Statewide, California nursing homes reported levels to Medicare that were 15 percent higher than what they reported to Medi-Cal.
Mr. Sorensen said the state and federal staff data could not be compared because some employees, like the director of nursing and other supervisory positions, were not counted by the state but were counted at the federal level. He said the disparity could also be a result of different reporting periods and month-to-month variations in staff and patient levels.
A spokesman for the California Office of Statewide Health Planning and Development said that supervisory positions like the director of nursing were included in state staff data and that the main reason for the disparity was probably that the federal data accounted only for the two weeks preceding the annual survey, while the state data reflected the whole year.
Ms. Harrington, who sits on the technical advisory board for Medicare’s rating system and has served as an expert witness on behalf of plaintiffs suing nursing homes, said the disparity showed that the chain’s homes were probably adding people before the annual inspection. “They’re inflating their staffing,” she said.
Even as North American’s nursing homes were reporting high levels of staffing to Medicare, executives were focusing on keeping labor costs low, according to interviews with former employees and records made available in connection with lawsuits.
In 2011, for example, the nursing home administrator at Rosewood eliminated six full-time jobs and cut back on staff hours just days after the annual inspection was completed, according to emails the chain provided to plaintiff lawyers in a pending lawsuit against Rosewood. Ms. Harrington described such cuts as “substantial.” The home received a four-star rating in staffing that year.
Kyle Dahl, Rosewood’s administrator at the time, said in an interview that the staff reductions had been made to prepare for expected cuts to Medicare and Medi-Cal. But he acknowledged that consultant nurses were often brought in before the annual inspection to prepare the home. Their presence also had the effect of keeping staff levels higher than usual. Mr. Dahl likened the annual inspection to a visit from one’s mother-in-law. “You might throw an extra vacuum over the carpet to make sure everything looks good,” he said. “People could potentially staff up during that time period.”
For some families, however, all that effort did not translate to high-quality care, and they said they wished they had better options. Elizabeth Chandler and her husband, Ken, placed his mother in Rosewood in 2011 to recover from a broken femur. Ms. Chandler said she had been impressed that Rosewood had a top rating, “like a hotel.”
Mr. Chandler’s mother died after experiencing serious falls at the home, and the family is suing Rosewood. Ms. Chandler said she felt misled by the rating system.
“You don’t know where to look to get accurate information,” she said. “I can go and find a preschool for my child better than I can find a skilled nursing facility for my loved one.”
23 July 2014
INVESTIGATORS OBTAIN OBAMACARE COVERAGE, SUBSIDIES USING FAKE IDENTITIES
Story first appeared: FoxNews.com
Undercover government investigators were able to obtain thousands of dollars in taxpayer subsidies under ObamaCare using fake identities, according to findings being presented to Congress on Wednesday.
The probe by the Government Accountability Office has raised fresh concerns about the ability of the sprawling health care program to prevent or intercept costly fraud schemes. In the case of the GAO investigation, 11 out of 12 applications submitted using "fictitious identities" were accepted, resulting in subsidized health coverage.
"For each of our 11 approved applications, we paid the required premiums to put policies into force, and are continuing to pay the premiums. For the 11 applications that were approved for coverage, we obtained the advance premium tax credit in all cases," the report said.
According to the GAO, the total amount for these credits was $2,500 monthly, adding up to $30,000 a year.
GAO officials were to testify about the findings before a House Ways and Means subcommittee Wednesday.
"We are seeing a trend with ObamaCare information systems: under every rock, there is incompetence, waste, and the potential for fraud," Rep. Dave Camp, R-Mich., chairman of the committee, said in a statement. "This law is already hitting Americans where it hurts the most - their pocketbooks. Now, this administration is forcing the American taxpayer to foot the bill for ObamaCare's waste and fraud."
Sen. Orrin Hatch, R-Utah, added: "Ironically, the GAO has found ObamaCare is working really well -- for those who don't exist."
The inquiries were carried out in several different states.
The administration pointed out that six of the GAO's fake online applications were blocked by eligibility checks built into computer systems at HealthCare.gov. Still, the GAO says its undercover agents found a way around that by phoning the call centers and were able to enroll anyway.
In six other applications, GAO investigators also tried to sign up fake applicants with in-person representatives. But in five of those cases, GAO was "unable to obtain in-person assistance" for various reasons, including one representative saying they could not help because HealthCare.gov was down.
"We are examining this report carefully and will work with GAO to identify additional strategies to strengthen our verification processes," administration spokesman Aaron Albright said. At least on paper, fraudsters risk prosecution and heavy fines.
The GAO said its investigators concocted fake identities using invalid Social Security numbers and falsely claiming citizenship or legal residence. In other cases, they made up income figures that would disqualify them from getting subsidies.
Among the findings:
--Contractors processing applications for the government told the GAO their role was not to ferret out potential fraud.
--Five of six bogus phone applications went through successfully. The one exception involved an applicant who refused to provide a Social Security number.
--Six online applications were snagged by an identity checking system. But investigators just dialed a call center and all six were approved. That seemed to be an open pathway to coverage.
Undercover government investigators were able to obtain thousands of dollars in taxpayer subsidies under ObamaCare using fake identities, according to findings being presented to Congress on Wednesday.
The probe by the Government Accountability Office has raised fresh concerns about the ability of the sprawling health care program to prevent or intercept costly fraud schemes. In the case of the GAO investigation, 11 out of 12 applications submitted using "fictitious identities" were accepted, resulting in subsidized health coverage.
"For each of our 11 approved applications, we paid the required premiums to put policies into force, and are continuing to pay the premiums. For the 11 applications that were approved for coverage, we obtained the advance premium tax credit in all cases," the report said.
According to the GAO, the total amount for these credits was $2,500 monthly, adding up to $30,000 a year.
GAO officials were to testify about the findings before a House Ways and Means subcommittee Wednesday.
"We are seeing a trend with ObamaCare information systems: under every rock, there is incompetence, waste, and the potential for fraud," Rep. Dave Camp, R-Mich., chairman of the committee, said in a statement. "This law is already hitting Americans where it hurts the most - their pocketbooks. Now, this administration is forcing the American taxpayer to foot the bill for ObamaCare's waste and fraud."
Sen. Orrin Hatch, R-Utah, added: "Ironically, the GAO has found ObamaCare is working really well -- for those who don't exist."
The inquiries were carried out in several different states.
The administration pointed out that six of the GAO's fake online applications were blocked by eligibility checks built into computer systems at HealthCare.gov. Still, the GAO says its undercover agents found a way around that by phoning the call centers and were able to enroll anyway.
In six other applications, GAO investigators also tried to sign up fake applicants with in-person representatives. But in five of those cases, GAO was "unable to obtain in-person assistance" for various reasons, including one representative saying they could not help because HealthCare.gov was down.
"We are examining this report carefully and will work with GAO to identify additional strategies to strengthen our verification processes," administration spokesman Aaron Albright said. At least on paper, fraudsters risk prosecution and heavy fines.
The GAO said its investigators concocted fake identities using invalid Social Security numbers and falsely claiming citizenship or legal residence. In other cases, they made up income figures that would disqualify them from getting subsidies.
Among the findings:
--Contractors processing applications for the government told the GAO their role was not to ferret out potential fraud.
--Five of six bogus phone applications went through successfully. The one exception involved an applicant who refused to provide a Social Security number.
--Six online applications were snagged by an identity checking system. But investigators just dialed a call center and all six were approved. That seemed to be an open pathway to coverage.
10 July 2014
RACE IS ON TO PROFIT FROM RISE OF URGENT CARE
Original Story: NYTimes.com
NORWALK, Conn. — Start in Room 4, just beyond the reception area: A man is having blood drained from a bruised finger. Over in Room 1, a woman is being treated for eye trouble. Next door, in Room 2, a boy is having his throat swabbed.
For more than eight hours a day, seven days a week, 52 weeks a year, an assortment of ailments is on display at the tidy medical clinic on Main Avenue here. But all of the patients have one thing in common: No one is being treated at a traditional doctor’s office or emergency room.
Instead, they have turned to one of the fastest-growing segments of American health care: urgent care, a common category of walk-in clinics with uncommon interest from Wall Street. Once derided as “Doc in a Box” medicine, urgent care has mushroomed into an estimated $14.5 billion business, as investors try to profit from the shifting landscape in health care.
The office here is part of PhysicianOne Urgent Care. Bankrolled by two private investment companies, PhysicianOne has grown into an eight-clinic operation, the largest of its kind in Connecticut, with plans for even greater expansion.
But what is happening here is also playing out across the nation, as private equity investment firms, sensing opportunity, invest billions in urgent care and related businesses. Since 2008, these investors have sunk $2.3 billion into urgent care clinics. Commercial insurance companies, regional health systems and local hospitals are also looking to buy urgent care practices or form business relationships with them.
The business model is simple: Treat many patients as quickly as possible. Urgent care is a low-margin, high-volume proposition. At PhysicianOne here, most people are in and out in about 30 minutes. The national average charge runs about $155 per patient visit. Do 30 or 35 exams a day, and the money starts to add up.
Urgent care clinics also have a crucial business advantage over traditional hospital emergency rooms in that they can cherry-pick patients. Most of these centers do not accept Medicaid and turn away the uninsured unless they pay upfront. Hospital E.R.s, by contrast, are legally obligated to treat everyone.
But as urgent care centers expand their reach, regulators in some states are scrutinizing their activities. While some states require the clinics to be licensed, most do not. It is unclear whether such urgent care centers offer better or worse care than other providers. But some family physicians — who stand to lose business to the newcomers — wonder if patients are trading quality for convenience.
“The relationship I have with my patients and the comprehensiveness of care I provide to them is important,” said Dr. Robert L. Wergin, a family physician in Milford, Neb., and the president-elect of the American Academy of Family Physicians. “While there is a role for these centers, if I were sick I’d rather see my regular doctor, and I hope my patients feel that way.”
Already, the race is on to build large chains with powerful, national brands — a McDonald’s or a Gap of health care. Wall Street money is driving the growth, but so are other forces. Millions of newly insured Americans are seeking care. Others are frustrated by long waits at E.R.s, or by having to conform to regular doctor’s hours.
Many experts say a cultural shift is also underway.
“We expect to do our banking 24 hours a day, seven days a week, and to shop 24/7,” said Dr. Ateev Mehrotra, an associate professor in the Department of Health Care Policy at Harvard Medical School and an adjunct policy analyst at the RAND Corporation. “So now we want our health care to be 24/7.”
While convenience is one factor, so is cost. The average charge to treat acute bronchitis at an urgent care center in 2012 was $122, compared with $814 at an emergency room, according to data on the website of CareFirst Blue Cross Blue Shield, which operates in Maryland, Northern Virginia and the District of Columbia. The price of treating a middle-ear infection was $100 versus nearly $500 in an E.R. Such cost differences matter not only to commercial insurers, but also to consumers with high-deductible health plans.
Still, just how quickly urgent care is proliferating is difficult to measure. The Urgent Care Association of America, which represents more than 2,600 clinics, estimates there are more than 9,000 clinics in the United States. But Thomas Charland, who runs Merchant Medicine, a research and consulting firm in Minnesota, puts the number at 5,000 to 6,000.
One reason for the discrepancy, Mr. Charland explained, is that the industry is dominated by physician-owned practices with one or two facilities that nobody tracks. But a bigger issue, he said, is that the industry lacks clear criteria about what exactly urgent care means.
“Just because a physician’s office extended its hours doesn’t make it urgent care,” Mr. Charland said. “To me, urgent care means you can do X-rays, that you can do sutures, maybe you’re open one weekend day, plus one or two evenings.”
Regulators in some states are struggling with that question and others as well. In Illinois, for instance, the authorities restrict the use of the word urgent, so clinics there are called “immediate care” facilities. Other states have weighed proposals on whether urgent care facilities should be required to accept Medicaid or uninsured patients.
Despite concerns of possible increased regulations, companies are lining up to buy urgent care groups.
The insurance giant Humana paid nearly $800 million in 2010 to buy Concentra, the nation’s largest group of urgent care centers, with about 300 currently. Two years later, Dignity Health, a San Francisco-based health system, acquired U.S. HealthWorks, a group that today has 176 centers.
Even hospitals are embracing the trend. Florida Hospital in Orlando, for example, has opened 24 Centra Care urgent care clinics.
“We have a number of urgent care centers that have opened up around where I practice, and almost every day, we have patients transferred to us from one of them,” said Dr. Robert E. O’Connor, the chairman of emergency medicine at the University of Virginia in Charlottesville and vice president of the American College of Emergency Physicians.
But some of the most aggressive buyers have been private equity firms, according to data from a research firm, PitchBook.
In 2010, General Atlantic, a private equity firm, and Sequoia Capital, a giant in venture capital, acquired a stake in MedExpress Urgent Care, which operated 47 clinics in four states. Today, MedExpress has 130 clinics in 10 states.
Last fall, when Dr. R. Robert Rohatsch and his partners decided they needed additional capital to expand their practice, Urgent Care of Connecticut, they received bids from about a dozen private equity firms. Dr. Rohatsch and his partners chose PineBridge Investments and Pulse Equity Partners, which specializes in health and wellness investments.
“We’ve focused on how health care is going to be delivered to consumers in the new world order and how do consumers want their health care to be delivered,” said Douglas W. Lehrman, the founder and chief executive of Pulse Equity.
For now, at least, many patients seem satisfied. At a PhysicianOne clinic, Roberta Giordano got an X-ray recently after she dropped a kitchen knife on her foot, severing a tendon. Peter Andino arrived at the Norwalk clinic on a recent Thursday evening after smashing his finger in a car door. The doctor quickly punctured his nail to relieve the pressure and wrapped up the finger. Mr. Andino was in and out in 45 minutes.
“Dealing with the E.R. is a hassle,” Mr. Andino said. “This place is clean, it’s quick, and it’s about five minutes away from my house. What more could you want?”
NORWALK, Conn. — Start in Room 4, just beyond the reception area: A man is having blood drained from a bruised finger. Over in Room 1, a woman is being treated for eye trouble. Next door, in Room 2, a boy is having his throat swabbed.
For more than eight hours a day, seven days a week, 52 weeks a year, an assortment of ailments is on display at the tidy medical clinic on Main Avenue here. But all of the patients have one thing in common: No one is being treated at a traditional doctor’s office or emergency room.
Instead, they have turned to one of the fastest-growing segments of American health care: urgent care, a common category of walk-in clinics with uncommon interest from Wall Street. Once derided as “Doc in a Box” medicine, urgent care has mushroomed into an estimated $14.5 billion business, as investors try to profit from the shifting landscape in health care.
The office here is part of PhysicianOne Urgent Care. Bankrolled by two private investment companies, PhysicianOne has grown into an eight-clinic operation, the largest of its kind in Connecticut, with plans for even greater expansion.
But what is happening here is also playing out across the nation, as private equity investment firms, sensing opportunity, invest billions in urgent care and related businesses. Since 2008, these investors have sunk $2.3 billion into urgent care clinics. Commercial insurance companies, regional health systems and local hospitals are also looking to buy urgent care practices or form business relationships with them.
The business model is simple: Treat many patients as quickly as possible. Urgent care is a low-margin, high-volume proposition. At PhysicianOne here, most people are in and out in about 30 minutes. The national average charge runs about $155 per patient visit. Do 30 or 35 exams a day, and the money starts to add up.
Urgent care clinics also have a crucial business advantage over traditional hospital emergency rooms in that they can cherry-pick patients. Most of these centers do not accept Medicaid and turn away the uninsured unless they pay upfront. Hospital E.R.s, by contrast, are legally obligated to treat everyone.
But as urgent care centers expand their reach, regulators in some states are scrutinizing their activities. While some states require the clinics to be licensed, most do not. It is unclear whether such urgent care centers offer better or worse care than other providers. But some family physicians — who stand to lose business to the newcomers — wonder if patients are trading quality for convenience.
“The relationship I have with my patients and the comprehensiveness of care I provide to them is important,” said Dr. Robert L. Wergin, a family physician in Milford, Neb., and the president-elect of the American Academy of Family Physicians. “While there is a role for these centers, if I were sick I’d rather see my regular doctor, and I hope my patients feel that way.”
Already, the race is on to build large chains with powerful, national brands — a McDonald’s or a Gap of health care. Wall Street money is driving the growth, but so are other forces. Millions of newly insured Americans are seeking care. Others are frustrated by long waits at E.R.s, or by having to conform to regular doctor’s hours.
Many experts say a cultural shift is also underway.
“We expect to do our banking 24 hours a day, seven days a week, and to shop 24/7,” said Dr. Ateev Mehrotra, an associate professor in the Department of Health Care Policy at Harvard Medical School and an adjunct policy analyst at the RAND Corporation. “So now we want our health care to be 24/7.”
While convenience is one factor, so is cost. The average charge to treat acute bronchitis at an urgent care center in 2012 was $122, compared with $814 at an emergency room, according to data on the website of CareFirst Blue Cross Blue Shield, which operates in Maryland, Northern Virginia and the District of Columbia. The price of treating a middle-ear infection was $100 versus nearly $500 in an E.R. Such cost differences matter not only to commercial insurers, but also to consumers with high-deductible health plans.
Still, just how quickly urgent care is proliferating is difficult to measure. The Urgent Care Association of America, which represents more than 2,600 clinics, estimates there are more than 9,000 clinics in the United States. But Thomas Charland, who runs Merchant Medicine, a research and consulting firm in Minnesota, puts the number at 5,000 to 6,000.
One reason for the discrepancy, Mr. Charland explained, is that the industry is dominated by physician-owned practices with one or two facilities that nobody tracks. But a bigger issue, he said, is that the industry lacks clear criteria about what exactly urgent care means.
“Just because a physician’s office extended its hours doesn’t make it urgent care,” Mr. Charland said. “To me, urgent care means you can do X-rays, that you can do sutures, maybe you’re open one weekend day, plus one or two evenings.”
Regulators in some states are struggling with that question and others as well. In Illinois, for instance, the authorities restrict the use of the word urgent, so clinics there are called “immediate care” facilities. Other states have weighed proposals on whether urgent care facilities should be required to accept Medicaid or uninsured patients.
Despite concerns of possible increased regulations, companies are lining up to buy urgent care groups.
The insurance giant Humana paid nearly $800 million in 2010 to buy Concentra, the nation’s largest group of urgent care centers, with about 300 currently. Two years later, Dignity Health, a San Francisco-based health system, acquired U.S. HealthWorks, a group that today has 176 centers.
Even hospitals are embracing the trend. Florida Hospital in Orlando, for example, has opened 24 Centra Care urgent care clinics.
“We have a number of urgent care centers that have opened up around where I practice, and almost every day, we have patients transferred to us from one of them,” said Dr. Robert E. O’Connor, the chairman of emergency medicine at the University of Virginia in Charlottesville and vice president of the American College of Emergency Physicians.
But some of the most aggressive buyers have been private equity firms, according to data from a research firm, PitchBook.
In 2010, General Atlantic, a private equity firm, and Sequoia Capital, a giant in venture capital, acquired a stake in MedExpress Urgent Care, which operated 47 clinics in four states. Today, MedExpress has 130 clinics in 10 states.
Last fall, when Dr. R. Robert Rohatsch and his partners decided they needed additional capital to expand their practice, Urgent Care of Connecticut, they received bids from about a dozen private equity firms. Dr. Rohatsch and his partners chose PineBridge Investments and Pulse Equity Partners, which specializes in health and wellness investments.
“We’ve focused on how health care is going to be delivered to consumers in the new world order and how do consumers want their health care to be delivered,” said Douglas W. Lehrman, the founder and chief executive of Pulse Equity.
For now, at least, many patients seem satisfied. At a PhysicianOne clinic, Roberta Giordano got an X-ray recently after she dropped a kitchen knife on her foot, severing a tendon. Peter Andino arrived at the Norwalk clinic on a recent Thursday evening after smashing his finger in a car door. The doctor quickly punctured his nail to relieve the pressure and wrapped up the finger. Mr. Andino was in and out in 45 minutes.
“Dealing with the E.R. is a hassle,” Mr. Andino said. “This place is clean, it’s quick, and it’s about five minutes away from my house. What more could you want?”
13 June 2014
BID FOR ALLERGAN PUTS VALEANT'S RESEARCH AND DEVELOPMENT CUTS UNDER SCRUTINY
Original Story: WSJ.com
Shortly after Valeant Pharmaceuticals International Inc. bought Medicis Pharmaceutical Corp. two years ago, the new owner gathered staffers of the skin-products maker and started handing out envelopes. If you got a black envelope, it meant you were fired.
Most of the research-and-development staff at Medicis headquarters in Scottsdale, Ariz., got the black envelopes, according to people familiar with the matter. Soon, most of the roughly 30 research projects under way were also dropped, according to the people and physicians who conducted trials for Medicis.
Such cuts are a cornerstone of the hard-nosed strategy pursued by Valeant: buy up companies, shed most of their research operations and make money selling their products. It is "a business model that gets rid of the value-destroying part of pharmaceutical companies and keeps all the pieces that are value sustaining," said CEO Michael Pearson in an interview.
Mr. Pearson's method of buying products instead of investing in creating them is under examination as Valeant sets its sights on its biggest deal yet, a proposed $53 billion takeover of Botox maker Allergan Inc. with activist investor William Ackman.
Allergan's board rejected the offer Tuesday. CEO David Pyott said in an interview the bid undervalues the company and that Valeant's strategy of "financial engineering" doesn't sustain long-term growth.
Supporters say Mr. Pearson's approach should be a blueprint for the pharmaceutical industry's future: grow through serial deal-making, including tax "inversion" purchases of foreign companies to take advantage of lower tax rates. Cut costs aggressively. And, above all, stop spending so much money on risky research.
It has helped Mr. Pearson build Valeant into one of the fastest-growing pharmaceutical companies. Since the former drug-industry consultant took the company's helm in early 2008, Valeant's annual sales have risen sixfold, to $5.8 billion last year. During the span, its stock has jumped 848%.
Mr. Pearson is the "best CEO I've ever worked with," said former board member Mason Morfit, president of ValueAct Capital Management LP, which as of May held a 5.7% stake in Valeant. He praised Mr. Pearson's ability to be hands on as he "dives down into the minutiae" on deals, operations and financial decisions.
Yet last year Valeant reported a net loss of $866.1 million, which it said was due to restructuring charges from acquisitions like its purchase of Bausch & Lomb, for which it paid about $8.7 billion. Its debt, at $17.4 billion, was nearly three times annual sales
Some Wall Street analysts, credit-rating firms and industry officials question whether Valeant can sustain its heady growth without finding new products through research. Many pharmaceutical companies are making deals to acquire new medicines. But their deals usually bring along scientists, research programs and potential drugs farther out in the pipeline that, while an expensive investment, present long-term opportunities for the development of new products and markets.
Valeant, in contrast, targets cash-generating products, providing a quick boost to revenue, and cuts assets requiring more investment. Some analysts say the bigger the company gets, the harder it will be to strike deals with enough heft to fuel growth.
"It's why they want to buy something like Allergan, because after the dust settles it looks like you're growing," said David Maris, an analyst at BMO Capital Markets.
Valeant said sales of its ongoing product line are growing, and that sales and profit growth will come through acquisitions, good management of the existing portfolio and new product launches.
The debate is at the core of a larger argument that has convulsed the pharmaceutical industry for the past decade, as company labs struggle to find new drugs to replace aging blockbusters: How much spending on drug research is really worth it?
A string of costly drug discovery failures prompted some industry consultants and investors to argue against investment in R&D, especially in the earlier, riskier stages of drug research.
"You may as well just throw that money away," said Richard Evans, an analyst at Sector & Sovereign Research LLC who used to head business policy at Roche Holding AG's pharmaceuticals business. For every dollar pharmaceutical companies invest in R&D, they typically get back only 93 cents, according to Mr. Evans.
Mr. Pearson said pharmaceutical companies have been too fixated on how much they spend on R&D, rather than what they actually bring to market. He said Valeant aims to deliver 10 to 20 products each year but doesn't believe it has to discover all of them itself. Valeant spent 3% of revenue on R&D last year, compared with the industrywide median figure of 15%, according to analysts.
Other drug companies like Endo International PLC, now run by a former Pearson lieutenant, are emulating aspects of the Valeant approach by taking out costs and making deals to bulk up in areas of focus, including its own tax inversion deal that allowed it to move to Ireland.
Most big companies have refused to go so far. Although they have closed labs, big companies still spend billions of dollars on their own research, while also doing more deals to fill up their pipelines with drugs discovered at smaller companies and labs.
"Valeant will eventually run out of things to buy and once it does, it faces the problem of how does it keep on the trajectory," said Jeremy Levin, the former chief executive of Teva Pharmaceutical Industries Ltd. "A company without R&D short-term and mid-term can be viable, but long-term is not."
But Mr. Pearson said it is rival pharmaceutical companies that should worry about their viability. "The facts would suggest spending like pharmaceutical companies spend on R&D is not sustainable," Mr. Pearson said.
Valeant said its approach offers investors higher returns with a much lower level of risk than the traditional model used by pharmaceuticals.
Mr. Ackman, whose Pershing Square Capital Management LP fund is partnering with Valeant on the Allergan bid, has said he was wary of the risk of investing in companies with uncertain R&D prospects but was impressed with Valeant's ability to grow without R&D spending. He said Valeant's net loss last year was related to steep sales drop-offs tied to the expiration of several top patents, which he said masked organic growth in the majority of the company.
Valeant said it would find $2.7 billion in cost savings after combining with Allergan, which last year spent $1 billion on research and development, or about 17% of revenue. Valeant said instead it would spend more than $300 million a year focused on late-stage research programs and finding new uses for existing products.
The approach to research spending conflicts with Allergan's strategy. From the $7 billion that Allergan invested in R&D between 1992 and 2013, the company gained $50 billion in sales between 2007 and 2013, Mr. Pyott, the CEO, said. R&D turned Botox from a niche treatment for uncontrollably fluttering eyelids into a product with nine approved uses in the U.S., he said. Global sales for Botox were $2 billion last year. Allergan shares fell $1.06 Tuesday to $163.09.
When Valeant first approached Medicis about a deal in 2011, Medicis executives were concerned about Valeant's reputation for aggressive cost-cutting, people familiar with the matter said. But after an all-cash offer providing a 39% premium on Medicis shares, Valeant announced a $2.6 billion deal in September 2012.
Before the deal closed, Valeant reviewed Medicis's research pipeline, according to people familiar with the discussions. Medicis officials recommended Valeant finish about half its roughly 30 projects because they were so promising.
But Valeant officials made clear they weren't interested in anything that wasn't on the cusp of near-certain approval, the people said.
Mr. Pearson said Valeant invests in projects in the early stages of development so long as they warrant it, such as a toe nail-infection treatment approved Monday. Tage Ramakrishna, Valeant's chief medical officer, said many of Medicis's projects weren't commercially viable, and Medicis itself wasn't doing any work on 10 of its compounds. Valeant said it continued research on nine Medicis projects.
One research program Medicis argued strongly pressing forward on was a new use for its wrinkle treatment, Perlane, according to people familiar with the matter. The product was already approved to soften lines below the nose and around the mouth, and some physicians had also used Perlane to plump the cheeks. Medicis wanted to expand with official FDA approval for this use.
Speed was key, because competitor Allergan was already researching a similar product. But physicians involved in a trial of Perlane for the new use said Valeant let the study fall off the radar, failing to tell doctors of its plans, publish results or publicly pursue FDA approval—standard industry practice for laying the foundations of a new market for a product. As a result, doctors started turning to Allergan's filler, called Voluma, once it was approved last fall.
"We aren't as promotive as others in our industry," said Laurie Little, a Valeant spokeswoman. "We keep R&D pretty close to the vest."
Valeant said it finished the trial, after investing $5 million, about a year after buying Medicis, and said the results supported the new use for Perlane. On April 30, the company asked the FDA for approval, which Valeant expects will come late this year.
At the end of May, Valeant said it was selling Perlane and some other products to Nestle SA for $1.4 billion, to pave the way for the potential acquisition of Allergan and its competing products.
Valeant's share of the $490 million antiwrinkle filler market in the U.S. had fallen to 30.3% by April from 43% during the quarter the company bought Medicis, according to market research by Guidepoint Global reviewed by The Wall Street Journal. Perlane's share of the market dropped to 9%, down from 14.4%.
Meanwhile, Allergan's market share rose to 46.2% from 33.8%, according to the Guidepoint data. Voluma notched a 13.8% share in April, in just its third quarter on sale.
Mr. Pearson disputed the scope of the Guidepoint data, and said Valeant's own figures show sales of injectables including the fillers grew 20% over the prior year. Valeant doesn't break out sales for particular products.
Fredric Brandt, a cosmetic dermatologist with practices in Miami and New York City who had helped lead the Perlane testing, said he had been one of Medicis's biggest users of facial fillers before Valeant took over, but has since become a large customer of Allergan because of its product's approval for use in the cheeks.
Still, Valeant has supporters in the medical community. Joel Schlessinger, a dermatologist in Omaha, Neb., said Valeant may have trimmed in some areas, but the company has found other ways to appeal to patients and physicians, such as by rejiggering a patient loyalty program.
Mr. Pearson emphasizes cultivating relationships with customers and maximizing sales from existing products. It is part of a strategy honed while leading McKinsey & Co.'s global pharmaceutical practice before joining Valeant.
At Valeant, he sold off pieces that weren't performing well and focused on building up in fast-growing markets like eye health and skin care that it could dominate. He slashed spending on R&D from 11% of revenue the year before he came on board to last year's 3%.
Deal-making is at the heart of Mr. Pearson's strategy. Valeant said it has done more than 100 transactions including joint ventures for more than $19 billion. Successful acquisitions have expanded Valeant's products—and sales—without the company needing to wait long to see if research would yield new treatments.
In its much-copied tax-inversion strategy, Mr. Pearson used Valeant's 2010 deal with a Canadian company called Biovail Corp. to relocate from the U.S. to Quebec and lower Valeant's tax rate to less than 5%.
Valeant's growth-through-acquisition strategy has paid off for Mr. Pearson personally. This year, he is scheduled to receive a base salary of $2 million, according to the company's most recent proxy statement. At the end of March, Mr. Pearson owned 10.6 million Valeant shares and options worth more than $1.3 billion, according to Mark Reilly of human-resources consulting firm Verisight Inc.
Some Valeant takeover targets have resisted. In 2011, specialty pharmaceutical company Cephalon Inc. rejected a $5.7 billion offer from Valeant, eventually agreeing to be bought by Teva for $6.8 billion. Later that year, eye-care firm ISTA Pharmaceuticals Inc. rebuffed Valeant's hostile bid.
"There was no doubt that anything we were working on in R&D that wasn't near term would be shut down," recalled Vicente Anido, ISTA's CEO at the time.
On ISTA, "We didn't talk synergies or job cuts, we thought it would be a crown jewel for us to get our foot in the door on ophthalmology," said Valeant spokeswoman Ms. Little.
ISTA later agreed to be purchased by Bausch & Lomb—which Valeant took over last year.
Shortly after Valeant Pharmaceuticals International Inc. bought Medicis Pharmaceutical Corp. two years ago, the new owner gathered staffers of the skin-products maker and started handing out envelopes. If you got a black envelope, it meant you were fired.
Most of the research-and-development staff at Medicis headquarters in Scottsdale, Ariz., got the black envelopes, according to people familiar with the matter. Soon, most of the roughly 30 research projects under way were also dropped, according to the people and physicians who conducted trials for Medicis.
Such cuts are a cornerstone of the hard-nosed strategy pursued by Valeant: buy up companies, shed most of their research operations and make money selling their products. It is "a business model that gets rid of the value-destroying part of pharmaceutical companies and keeps all the pieces that are value sustaining," said CEO Michael Pearson in an interview.
Mr. Pearson's method of buying products instead of investing in creating them is under examination as Valeant sets its sights on its biggest deal yet, a proposed $53 billion takeover of Botox maker Allergan Inc. with activist investor William Ackman.
Allergan's board rejected the offer Tuesday. CEO David Pyott said in an interview the bid undervalues the company and that Valeant's strategy of "financial engineering" doesn't sustain long-term growth.
Supporters say Mr. Pearson's approach should be a blueprint for the pharmaceutical industry's future: grow through serial deal-making, including tax "inversion" purchases of foreign companies to take advantage of lower tax rates. Cut costs aggressively. And, above all, stop spending so much money on risky research.
It has helped Mr. Pearson build Valeant into one of the fastest-growing pharmaceutical companies. Since the former drug-industry consultant took the company's helm in early 2008, Valeant's annual sales have risen sixfold, to $5.8 billion last year. During the span, its stock has jumped 848%.
Mr. Pearson is the "best CEO I've ever worked with," said former board member Mason Morfit, president of ValueAct Capital Management LP, which as of May held a 5.7% stake in Valeant. He praised Mr. Pearson's ability to be hands on as he "dives down into the minutiae" on deals, operations and financial decisions.
Yet last year Valeant reported a net loss of $866.1 million, which it said was due to restructuring charges from acquisitions like its purchase of Bausch & Lomb, for which it paid about $8.7 billion. Its debt, at $17.4 billion, was nearly three times annual sales
Some Wall Street analysts, credit-rating firms and industry officials question whether Valeant can sustain its heady growth without finding new products through research. Many pharmaceutical companies are making deals to acquire new medicines. But their deals usually bring along scientists, research programs and potential drugs farther out in the pipeline that, while an expensive investment, present long-term opportunities for the development of new products and markets.
Valeant, in contrast, targets cash-generating products, providing a quick boost to revenue, and cuts assets requiring more investment. Some analysts say the bigger the company gets, the harder it will be to strike deals with enough heft to fuel growth.
"It's why they want to buy something like Allergan, because after the dust settles it looks like you're growing," said David Maris, an analyst at BMO Capital Markets.
Valeant said sales of its ongoing product line are growing, and that sales and profit growth will come through acquisitions, good management of the existing portfolio and new product launches.
The debate is at the core of a larger argument that has convulsed the pharmaceutical industry for the past decade, as company labs struggle to find new drugs to replace aging blockbusters: How much spending on drug research is really worth it?
A string of costly drug discovery failures prompted some industry consultants and investors to argue against investment in R&D, especially in the earlier, riskier stages of drug research.
"You may as well just throw that money away," said Richard Evans, an analyst at Sector & Sovereign Research LLC who used to head business policy at Roche Holding AG's pharmaceuticals business. For every dollar pharmaceutical companies invest in R&D, they typically get back only 93 cents, according to Mr. Evans.
Mr. Pearson said pharmaceutical companies have been too fixated on how much they spend on R&D, rather than what they actually bring to market. He said Valeant aims to deliver 10 to 20 products each year but doesn't believe it has to discover all of them itself. Valeant spent 3% of revenue on R&D last year, compared with the industrywide median figure of 15%, according to analysts.
Other drug companies like Endo International PLC, now run by a former Pearson lieutenant, are emulating aspects of the Valeant approach by taking out costs and making deals to bulk up in areas of focus, including its own tax inversion deal that allowed it to move to Ireland.
Most big companies have refused to go so far. Although they have closed labs, big companies still spend billions of dollars on their own research, while also doing more deals to fill up their pipelines with drugs discovered at smaller companies and labs.
"Valeant will eventually run out of things to buy and once it does, it faces the problem of how does it keep on the trajectory," said Jeremy Levin, the former chief executive of Teva Pharmaceutical Industries Ltd. "A company without R&D short-term and mid-term can be viable, but long-term is not."
But Mr. Pearson said it is rival pharmaceutical companies that should worry about their viability. "The facts would suggest spending like pharmaceutical companies spend on R&D is not sustainable," Mr. Pearson said.
Valeant said its approach offers investors higher returns with a much lower level of risk than the traditional model used by pharmaceuticals.
Mr. Ackman, whose Pershing Square Capital Management LP fund is partnering with Valeant on the Allergan bid, has said he was wary of the risk of investing in companies with uncertain R&D prospects but was impressed with Valeant's ability to grow without R&D spending. He said Valeant's net loss last year was related to steep sales drop-offs tied to the expiration of several top patents, which he said masked organic growth in the majority of the company.
Valeant said it would find $2.7 billion in cost savings after combining with Allergan, which last year spent $1 billion on research and development, or about 17% of revenue. Valeant said instead it would spend more than $300 million a year focused on late-stage research programs and finding new uses for existing products.
The approach to research spending conflicts with Allergan's strategy. From the $7 billion that Allergan invested in R&D between 1992 and 2013, the company gained $50 billion in sales between 2007 and 2013, Mr. Pyott, the CEO, said. R&D turned Botox from a niche treatment for uncontrollably fluttering eyelids into a product with nine approved uses in the U.S., he said. Global sales for Botox were $2 billion last year. Allergan shares fell $1.06 Tuesday to $163.09.
When Valeant first approached Medicis about a deal in 2011, Medicis executives were concerned about Valeant's reputation for aggressive cost-cutting, people familiar with the matter said. But after an all-cash offer providing a 39% premium on Medicis shares, Valeant announced a $2.6 billion deal in September 2012.
Before the deal closed, Valeant reviewed Medicis's research pipeline, according to people familiar with the discussions. Medicis officials recommended Valeant finish about half its roughly 30 projects because they were so promising.
But Valeant officials made clear they weren't interested in anything that wasn't on the cusp of near-certain approval, the people said.
Mr. Pearson said Valeant invests in projects in the early stages of development so long as they warrant it, such as a toe nail-infection treatment approved Monday. Tage Ramakrishna, Valeant's chief medical officer, said many of Medicis's projects weren't commercially viable, and Medicis itself wasn't doing any work on 10 of its compounds. Valeant said it continued research on nine Medicis projects.
One research program Medicis argued strongly pressing forward on was a new use for its wrinkle treatment, Perlane, according to people familiar with the matter. The product was already approved to soften lines below the nose and around the mouth, and some physicians had also used Perlane to plump the cheeks. Medicis wanted to expand with official FDA approval for this use.
Speed was key, because competitor Allergan was already researching a similar product. But physicians involved in a trial of Perlane for the new use said Valeant let the study fall off the radar, failing to tell doctors of its plans, publish results or publicly pursue FDA approval—standard industry practice for laying the foundations of a new market for a product. As a result, doctors started turning to Allergan's filler, called Voluma, once it was approved last fall.
"We aren't as promotive as others in our industry," said Laurie Little, a Valeant spokeswoman. "We keep R&D pretty close to the vest."
Valeant said it finished the trial, after investing $5 million, about a year after buying Medicis, and said the results supported the new use for Perlane. On April 30, the company asked the FDA for approval, which Valeant expects will come late this year.
At the end of May, Valeant said it was selling Perlane and some other products to Nestle SA for $1.4 billion, to pave the way for the potential acquisition of Allergan and its competing products.
Valeant's share of the $490 million antiwrinkle filler market in the U.S. had fallen to 30.3% by April from 43% during the quarter the company bought Medicis, according to market research by Guidepoint Global reviewed by The Wall Street Journal. Perlane's share of the market dropped to 9%, down from 14.4%.
Meanwhile, Allergan's market share rose to 46.2% from 33.8%, according to the Guidepoint data. Voluma notched a 13.8% share in April, in just its third quarter on sale.
Mr. Pearson disputed the scope of the Guidepoint data, and said Valeant's own figures show sales of injectables including the fillers grew 20% over the prior year. Valeant doesn't break out sales for particular products.
Fredric Brandt, a cosmetic dermatologist with practices in Miami and New York City who had helped lead the Perlane testing, said he had been one of Medicis's biggest users of facial fillers before Valeant took over, but has since become a large customer of Allergan because of its product's approval for use in the cheeks.
Still, Valeant has supporters in the medical community. Joel Schlessinger, a dermatologist in Omaha, Neb., said Valeant may have trimmed in some areas, but the company has found other ways to appeal to patients and physicians, such as by rejiggering a patient loyalty program.
Mr. Pearson emphasizes cultivating relationships with customers and maximizing sales from existing products. It is part of a strategy honed while leading McKinsey & Co.'s global pharmaceutical practice before joining Valeant.
At Valeant, he sold off pieces that weren't performing well and focused on building up in fast-growing markets like eye health and skin care that it could dominate. He slashed spending on R&D from 11% of revenue the year before he came on board to last year's 3%.
Deal-making is at the heart of Mr. Pearson's strategy. Valeant said it has done more than 100 transactions including joint ventures for more than $19 billion. Successful acquisitions have expanded Valeant's products—and sales—without the company needing to wait long to see if research would yield new treatments.
In its much-copied tax-inversion strategy, Mr. Pearson used Valeant's 2010 deal with a Canadian company called Biovail Corp. to relocate from the U.S. to Quebec and lower Valeant's tax rate to less than 5%.
Valeant's growth-through-acquisition strategy has paid off for Mr. Pearson personally. This year, he is scheduled to receive a base salary of $2 million, according to the company's most recent proxy statement. At the end of March, Mr. Pearson owned 10.6 million Valeant shares and options worth more than $1.3 billion, according to Mark Reilly of human-resources consulting firm Verisight Inc.
Some Valeant takeover targets have resisted. In 2011, specialty pharmaceutical company Cephalon Inc. rejected a $5.7 billion offer from Valeant, eventually agreeing to be bought by Teva for $6.8 billion. Later that year, eye-care firm ISTA Pharmaceuticals Inc. rebuffed Valeant's hostile bid.
"There was no doubt that anything we were working on in R&D that wasn't near term would be shut down," recalled Vicente Anido, ISTA's CEO at the time.
On ISTA, "We didn't talk synergies or job cuts, we thought it would be a crown jewel for us to get our foot in the door on ophthalmology," said Valeant spokeswoman Ms. Little.
ISTA later agreed to be purchased by Bausch & Lomb—which Valeant took over last year.
HENRY FORD HEALTH SYSTEM SUFFERED SMALL OPERATIONS LOSS LAST YEAR
Original Story: FreeP.com
The Henry Ford Health System had a $12-million operating loss last year amid the cancellation of its planned merger with Beaumont Health System, the installation of a pricey medical records system and decisions by more patients to cut back on hospital and doctor visits due to higher insurance deductibles and copays.
Total revenue for 2013 climbed $32 million to $4.52 billion. The hospital system's net income was a positive $500,000, as the sale of a dialysis unit in Toledo offset the operating loss.
Henry Ford CEO Nancy Schlichting said these latest financial results, released to the public this week, reflect challenges in the health care business that affected hospital systems across the country.
She said the Henry Ford system faced various new costs and Medicare reimbursement cuts in 2013 stemming from the Affordable Care Act, but had yet to feel the anticipated boost of having newly insured patients because coverage under the law didn't begin until this year. The Medicare cuts alone totaled $30 million.
"We're doing OK," Schlichting said. "Our balance sheet is stable. Our earnings are not what we'd like, but we anticipated them."
Bond rating agency Moody's Investors Service said last month that it had placed Henry Ford's credit rating under review for a possible downgrade because of an unexpected decline in the nonprofit health system's "already low operating cash flow."
The agency also pointed to the May 2013 cancellation of its planned merger with Beaumont as a cause for concern.
Yet in an interview this week, Schlichting recalled that Henry Ford was the one approached by Beaumont for a merger, and can easily go it alone.
"We never thought we were running to a merger to save us," she said.
Schlichting said Henry Ford is poised for a stronger 2014 because it is finally done installing the medical records system and anticipates new revenue from Michigan's recent expansion of Medicaid coverage to more low-income people.
Although Medicaid reimburses Henry Ford for only about 60% of the costs of a patient's hospital visit, that amount is better than getting nothing for a treatment that still would have been given if the patient lacked any health coverage.
The reported cost of Henry Ford's uncompensated care for underinsured and indigent people rose $18 million last year to $314 million. That figure includes charity care, bad debt and the unpaid cost of Medicaid and some Medicare procedures. Hospitals can sometimes net modest profits on Medicare procedures.
Schlichting said Henry Ford Hospital in Detroit experienced a significant decrease in patient admissions last year, and doctors throughout the system are getting fewer visits (yet more unpaid bills) from patients whose health insurance copays and deductibles have gone up.
What's more, Henry Ford surgeons are finding themselves much busier at the end of each year because by then patients are closer to fulfilling their annual deductible.
"Some people are choosing not even to go to their doctor for primary care visits because they can't afford the copays," she said.
One bright spot on Henry Ford's balance sheet was the cost of insuring its own 17,964 employees. The total cost of health care for those workers dropped 14% in the past three years, and Schlichting credits the organization's wellness initiatives, including a decision to stop hiring smokers and serve healthier food in its cafeterias.
"We got rid of the fryers," she said. "We don't have one fryer in this health system."
Henry Ford financial statistics
The Henry Ford Health System had a $12-million operating loss last year amid the cancellation of its planned merger with Beaumont Health System, the installation of a pricey medical records system and decisions by more patients to cut back on hospital and doctor visits due to higher insurance deductibles and copays.
Total revenue for 2013 climbed $32 million to $4.52 billion. The hospital system's net income was a positive $500,000, as the sale of a dialysis unit in Toledo offset the operating loss.
Henry Ford CEO Nancy Schlichting said these latest financial results, released to the public this week, reflect challenges in the health care business that affected hospital systems across the country.
She said the Henry Ford system faced various new costs and Medicare reimbursement cuts in 2013 stemming from the Affordable Care Act, but had yet to feel the anticipated boost of having newly insured patients because coverage under the law didn't begin until this year. The Medicare cuts alone totaled $30 million.
"We're doing OK," Schlichting said. "Our balance sheet is stable. Our earnings are not what we'd like, but we anticipated them."
Bond rating agency Moody's Investors Service said last month that it had placed Henry Ford's credit rating under review for a possible downgrade because of an unexpected decline in the nonprofit health system's "already low operating cash flow."
The agency also pointed to the May 2013 cancellation of its planned merger with Beaumont as a cause for concern.
Yet in an interview this week, Schlichting recalled that Henry Ford was the one approached by Beaumont for a merger, and can easily go it alone.
"We never thought we were running to a merger to save us," she said.
Schlichting said Henry Ford is poised for a stronger 2014 because it is finally done installing the medical records system and anticipates new revenue from Michigan's recent expansion of Medicaid coverage to more low-income people.
Although Medicaid reimburses Henry Ford for only about 60% of the costs of a patient's hospital visit, that amount is better than getting nothing for a treatment that still would have been given if the patient lacked any health coverage.
The reported cost of Henry Ford's uncompensated care for underinsured and indigent people rose $18 million last year to $314 million. That figure includes charity care, bad debt and the unpaid cost of Medicaid and some Medicare procedures. Hospitals can sometimes net modest profits on Medicare procedures.
Schlichting said Henry Ford Hospital in Detroit experienced a significant decrease in patient admissions last year, and doctors throughout the system are getting fewer visits (yet more unpaid bills) from patients whose health insurance copays and deductibles have gone up.
What's more, Henry Ford surgeons are finding themselves much busier at the end of each year because by then patients are closer to fulfilling their annual deductible.
"Some people are choosing not even to go to their doctor for primary care visits because they can't afford the copays," she said.
One bright spot on Henry Ford's balance sheet was the cost of insuring its own 17,964 employees. The total cost of health care for those workers dropped 14% in the past three years, and Schlichting credits the organization's wellness initiatives, including a decision to stop hiring smokers and serve healthier food in its cafeterias.
"We got rid of the fryers," she said. "We don't have one fryer in this health system."
Henry Ford financial statistics
- Had a $12-million operating loss last year
- Revenue grew $32 million to $4.52 billion
- Currently has 17,964 full time-equivalent employees
- Spent $356 million in recent years on new electronic medical records system
- 43% of its patients on Medicare
11 June 2014
AMBULANCE BILL TAKES SENIOR FOR YEARLONG RIDE
Original Story: Chicago Tribune
Just days after Bernita Klokner's family moved her from Florida back to the Midwest last May, the 97-year-old fell and broke her hip.
After the ensuing surgery, Klokner was moved from a hospital in Milwaukee to a nearby rehabilitation center.
The ambulance company charged her $585.70 for the ride, but neither she nor her family was particularly worried. They submitted the claim to WellCare, the health insurance company administering her Medicare plan.
They had no idea there would be any trouble until they got a denial letter in July.
The letter informed Klokner that WellCare would not pay for the ride because she had not submitted proof that the ambulance company had gotten prior authorization.
Klokner's daughter, Sharon Reich, of Grayslake, was stunned. Reich, a registered nurse, said she has filled out similar forms many times for her patients.
She promptly requested, and received, the proper paperwork from her mother's doctor and, in early September, filed an appeal.
Ten days later, WellCare wrote back saying it would not consider the appeal because Reich wasn't authorized to represent her mother.
In late September, Reich sent paperwork proving she legally represents her mother. WellCare again dismissed the appeal in November, stating it had not gotten Reich's documents.
Reich said she called WellCare in December, and a representative told her she had found Reich's paperwork. The representative said the insurance company would reconsider paying the $585.70.
Months passed and Reich heard nothing. When she called, she was promised a return call within days. No one called back, Reich said.
By May, Reich still hadn't heard whether WellCare would pay the ambulance bill, and she was beginning to worry all hope was lost. She tried calling the insurance company again, but phone lines were jammed, she said.
"I can't get through on the 800 number," she said. "I call and you get these prompts. I go through the prompts. You get a recording. The phone rings 53 times, and then it hangs up."
Undaunted, Reich began calling WellCare's corporate headquarters. She had two brief conversations, then was disconnected both times, she said.
"Every time I call, there's a different reason why they're not paying it," she said. "I don't know what to do."
Tired of fighting a seemingly unwinnable battle with WellCare, Reich emailed "What's Your Problem?" in mid-May.
She said the ambulance company has been patient, but it has been more than a year.
"It's expensive," she said of the $585.70. "In short, this claim should be paid."
The Problem Solver called WellCare and explained the situation.
On Wednesday, WellCare spokeswoman Crystal Warwell Walker emailed with good news.
Walker said that although emergency health services do not require prior authorization, WellCare does require such authorization for some nonemergency services, such as ambulance transportation.
"When a pre-authorization is not obtained before a service is delivered, a claim may be denied," Walker wrote.
Members can appeal by providing proof of authorization, she said. Also, representatives wishing to address a matter on behalf of a member must provide proper paperwork, Walker said.
"Any time the processes and associated deadlines are not followed, a claim cannot be approved per the protocols," Walker said.
But after examining Klokner's case, the insurance company decided to overturn its initial decision.
"WellCare understands that there can be cases where protocols are followed, but the outcomes are not in line with a provider's intent and the member's health care needs," Walker said. "In this specific case, the matter has been reviewed and WellCare will pay the claim due to the unique circumstances."
Reich was shocked. She said her mother, now 98, could never have fought WellCare on her own.
"I don't know if an older person who qualifies for Medicare like my mother can deal with these people," Reich said. "They would just give up."
Just days after Bernita Klokner's family moved her from Florida back to the Midwest last May, the 97-year-old fell and broke her hip.
After the ensuing surgery, Klokner was moved from a hospital in Milwaukee to a nearby rehabilitation center.
The ambulance company charged her $585.70 for the ride, but neither she nor her family was particularly worried. They submitted the claim to WellCare, the health insurance company administering her Medicare plan.
They had no idea there would be any trouble until they got a denial letter in July.
The letter informed Klokner that WellCare would not pay for the ride because she had not submitted proof that the ambulance company had gotten prior authorization.
Klokner's daughter, Sharon Reich, of Grayslake, was stunned. Reich, a registered nurse, said she has filled out similar forms many times for her patients.
She promptly requested, and received, the proper paperwork from her mother's doctor and, in early September, filed an appeal.
Ten days later, WellCare wrote back saying it would not consider the appeal because Reich wasn't authorized to represent her mother.
In late September, Reich sent paperwork proving she legally represents her mother. WellCare again dismissed the appeal in November, stating it had not gotten Reich's documents.
Reich said she called WellCare in December, and a representative told her she had found Reich's paperwork. The representative said the insurance company would reconsider paying the $585.70.
Months passed and Reich heard nothing. When she called, she was promised a return call within days. No one called back, Reich said.
By May, Reich still hadn't heard whether WellCare would pay the ambulance bill, and she was beginning to worry all hope was lost. She tried calling the insurance company again, but phone lines were jammed, she said.
"I can't get through on the 800 number," she said. "I call and you get these prompts. I go through the prompts. You get a recording. The phone rings 53 times, and then it hangs up."
Undaunted, Reich began calling WellCare's corporate headquarters. She had two brief conversations, then was disconnected both times, she said.
"Every time I call, there's a different reason why they're not paying it," she said. "I don't know what to do."
Tired of fighting a seemingly unwinnable battle with WellCare, Reich emailed "What's Your Problem?" in mid-May.
She said the ambulance company has been patient, but it has been more than a year.
"It's expensive," she said of the $585.70. "In short, this claim should be paid."
The Problem Solver called WellCare and explained the situation.
On Wednesday, WellCare spokeswoman Crystal Warwell Walker emailed with good news.
Walker said that although emergency health services do not require prior authorization, WellCare does require such authorization for some nonemergency services, such as ambulance transportation.
"When a pre-authorization is not obtained before a service is delivered, a claim may be denied," Walker wrote.
Members can appeal by providing proof of authorization, she said. Also, representatives wishing to address a matter on behalf of a member must provide proper paperwork, Walker said.
"Any time the processes and associated deadlines are not followed, a claim cannot be approved per the protocols," Walker said.
But after examining Klokner's case, the insurance company decided to overturn its initial decision.
"WellCare understands that there can be cases where protocols are followed, but the outcomes are not in line with a provider's intent and the member's health care needs," Walker said. "In this specific case, the matter has been reviewed and WellCare will pay the claim due to the unique circumstances."
Reich was shocked. She said her mother, now 98, could never have fought WellCare on her own.
"I don't know if an older person who qualifies for Medicare like my mother can deal with these people," Reich said. "They would just give up."
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