Hospital Charges at
Santa Clara Valley Medical Center

Jed Margolin


I sent a preview copy of this article to the Santa Clara County Board of Supervisors.

   1.  I asked them to tell me if they found any factual errors in it.

   2.  I told them I would be willing to post their response to the article if they wished to make one.

   3.  I offered to delay posting the article if the County acted on the article.

The County's official response was to tell me that they would not provide a response.
 

Jed Margolin
San Jose, CA
May 23, 2005


Summary

Santa Clara County Medical Center (SCVMC) is owned and operated by the County of Santa Clara in California. Like most, if not all, hospitals, SCVMC has a Chargemaster which contains the list price for each procedure they perform and for each drug they dispense. Insurance companies receive a substantial discount off the Chargemaster rates, typically 60%. Medicare and Medi-Cal (which is California's name for the Federally supported Medicaid program) pay even less than private insurance companies. People without insurance (the Uninsured) are expected to pay the full charges. Some hospitals will routinely give Uninsured people a discount, but SCVMC is not one of them.

1.   The County's outside auditors, the Harvey M. Rose Accountancy Corporation, recommended that SCVMC charge all its patients the same.

SCVMC's response to the County Board of Supervisors was that if they did that, their Medicare and Medi-Cal payments would be reduced. This is not true according an opinion by the Office of the Inspector General of the Department of Health and Human Services and by the Secretary of HHS.
 

2.  County Ordnance A18-5 requires that SCVMC base its rates on its operating costs.

Harvey Rose discovered that SCVMC had not conducted a comprehensive rate review even though there have been three rate increases implemented by SCVMC since July 1998.  Over an 18-month period, SCVMC doubled inpatient room rates and increased ancillary service rates by approximately 80 percent.

SCVMC failed to respond to this finding by Harvey Rose and, indeed, failed to even mention it in its report to the Board of Supervisors.
 

3.   Aside from the County violating its own charter, since SCVMC is operated by a Government entity, charging some people more than others for the same service is a violation of the Equal Protection clause of the 14th Amendment to the U.S. Constitution. The amount by which people who are County residents are overcharged in order to make up for shortfalls in other programs represents an illegal tax.
 

4.  SCVMC is a member of the California Healthcare Association, which sponsors a Political Action Committee (CHPAC). SCVMC is a government entity and is prohibited by California Government Code Section 8661 from engaging in political activity.
 

5.   Tenet Healthcare has recently agreed to settle a class action lawsuit brought against it for overcharging uninsured or underinsured patients.

The settlement terms include:

a.  Uninsured patients who receive treatment at Tenet Hospitals will be offered discounted pricing for the services provided at rates comparable to the hospital's current managed care rate.

b.  Tenet will reimburse any Uninsured Settlement Class Member who paid out-of-pocket over a certain percentage of the hospital's Gross Charge rate for treatment received during the Class Period. The Class Period goes back to 1999.
 

SCVMC would be an easy target for the attorneys who took Tenet to the cleaners.
 

Introduction

Santa Clara County Medical Center (SCVMC) is owned and operated by the County of Santa Clara in California.

As a result of medical services I received at SCVMC, and because I did not have medical insurance, it became necessary for me to investigate SCVMC. The County eventually agreed to give me a discount similar to the discounts they routinely give to insurance companies. I paid them and my accounts were settled.

However, the information I discovered indicates that, as a result of its policies and practices, SCVMC has exposed the County to significant financial liabilities. As a resident of the County I am naturally concerned. There is also the issue of Social Justice which, unfortunately, does not seem to concern many people these days so let's just go with the financial aspect.

SCVMC, like most, if not all hospitals, has a Chargemaster which contains the list price for each procedure they perform and for each drug they dispense. Insurance companies receive a substantial discount off the Chargemaster rates, typically 60%. See my article Proposal for Fair Treatment for People Without Health Insurance at www.jmargolin.com/todo/medins.htm for how this works [Ref 1].

Medicare and Medi-Cal (which is California's name for the Federally supported Medicaid program) pay even less than private insurance companies.

People without insurance (the Uninsured) are expected to pay the full charges. Some hospitals will routinely give Uninsured people a discount, but SCVMC is not one of them.

Note that at SCVMC, as with most hospitals, the vast majority of patients have private insurance, Medicare, or Medicaid. The Uninsured are a minority.

SCVMC has a program for the Uninsured, called the Ability to Pay Determination (APD) program, which is for people who cannot pay their medical bills. Programs such as these commonly use the phrase low-Income, but it includes a patient's assets. If you have worked all you life and managed to save a few dollars and then find yourself without any real income, you are SOL. Considering the high market value of houses in Santa Clara County, if you own a home here and have equity in it then you have assets, so you are SOL, too.

However, since many people do qualify for the APD program, that leaves the Uninsured who do not qualify as an even smaller minority.

Note that the Uninsured receive the same medical care and services as people who have private insurance, Medicare, or Medi-Cal. At least we are supposed to. There has been some concern that we receive less medical care and services because the hospital knows it might not get paid. However, we certainly do not get better care and services. Let's be generous and assume the Uninsured receive the same medical care and services as those with private insurance, Medicare, or Medi-Cal.

You might wonder why a taxpayer-supported hospital like SCVMC would charge some people more than others (by a factor of 2 to 3) since many of the Uninsured are taxpayers, too. At the very least, it might violate the 14th Amendment to the U.S. Constitution which guarantees Equal Protection of the Laws.

I wondered, too, so I started asking questions.


The Lien Committee

When I first asked for a discount off the Hospital's Chargemaster rates I was told that my request would be sent to the Lien Committee. That sounded ominous. Does the Lien Committee have the power to simply place a lien on my house? It took me several months to get the answer.

I asked the following questions:

Does the Lien Committee have the authority to place a lien on my property?

If they do:

    1. Please cite the statutory authority for this power.
    2. How many times have they exercised this authority in the past 5 years?

If they do not, why are they called the Lien Committee?


This was the final answer:

Mr. Margolin,

In response to your email inquiry to Mr. McInerny regarding the Hospital Lien Committee, the committee does not place liens on property, nor does it request that liens be filed against property.  The Hospital Lien Committee reviews and considers the cases, on a one-on-one basis and will either accept, counter, or deny the compromise requests based on the hardship of each individual case.  Once the committee has made its decision, the cases are returned to the Department of Revenue for follow-up of the medical charges, based on the committee's determination.  The Department of Revenue takes the appropriate actions for collecting the medical charges, which could include filing a lien.  In order for the Department of Revenue to file a lien, it must secure authority for civil action by filing a suit and obtaining a judgment.  The Department of Revenue filed 1,371 liens in 2004.

The Hospital Lien Committee was created by the Board of Supervisors in 1985 with the initial purpose to review and consider the compromise of hospital medical liens related to 3rd party litigation (per Government Code 23400.1, the County has first lien rights to the money recovered from 3rd party litigation.)  In ensuing years, the Board expanded the authority of the committee to include the adjustment and compromise of charges not related to 3rd party litigation.  The name "Hospital Lien Committee" has not changed, as Mike explained, and has remained as a short-hand description of the committee that itself has evolved over time to broader function.

The Hospital Lien Committee meets on the 2nd Thursday of every month.  Over the last 4 years the Hospital Lien Committee has reviewed 464 cases.  Of these, 180 cases were accepted, 275 cases were denied and 9 cases were countered.


In other words, No, they cannot slap a lien on your house without going through the same process that everyone else has to go through, which is to sue you in court, win, be awarded a judgment, and have you refuse to pay. Then they can file to have a lien placed on your house.

Being sued means you have the opportunity to defend yourself, as opposed to simply being crushed by soulless bureaucrats.

The Lien in Lien Committee is there because they assume the reason you ended up at the County Hospital is that someone did something to put you there, and that if you sued them and won, the County had first dibs (a lien) on the settlement.

When the Lien Committee's mission was expanded to include going after anyone who owed the Hospital money, they kept the word Lien in their name in order to strike fear in the hearts of people who would assume the Lien Committee was going to take their house.

I also found out that:

The Lien Committee has three members: one from the Department of Revenue, one from the County Counsel's Office, and one from the hospital.

Their meetings are not open to the public.

They do not publish minutes from their meetings.


In other words, they make their decisions in secret and they are hardly an objective group.


Department of Revenue

The Department of Revenue has been mentioned several times.

They are part of the County Finance Agency.

According to their web site (http://www.sccgov.org/site/0,4760,sid%253D11542,00.html) [Ref 2]

The Department of Revenue provides agencies and departments within the County with professional collection services using collection enforcement techniques comparable to those used in the private sector.  Services provided include billing and collection, explanation of client charges, negotiating payment arrangements, delinquent noticing, collection pursuit through client follow-up, small claims action and lawsuits, accounting and distribution of revenue collected to appropriate funds and entities.
Although the Department of Revenue acts as a Collection Agency for the Hospital, they are not governed by the laws that govern commercial Collection Agencies. The DOR does not give you the opportunity to dispute the charges. The DOR does not show even the smallest amount of professionalism. They simply have the County Counsel's Office send a demand letter threatening dire consequences if you do not pay immediately. The County Counsel's Office also likes to time its demand letters to coincide with major holidays, presumably for its demoralizing effect.

It is important to distinguish the Department of Revenue from the Tax Collector's Office. They are very different. If you don't pay your property taxes, the Tax Collector has the authority to seize your property and sell it at auction to satisfy the tax bill.


The Smoking Gun

I started asking about the Lien Committee sometime around August 2004 and did not receive any answers until February 2005.

I wondered if:

1.  Maybe, nobody actually knew the answer, not even the members of the Lien Committee themselves. (not likely).

2.  Maybe, they were just being mean. (possible)

3.  Or, maybe they didn't want me to know that the Lien Committee had no teeth.


I wondered what else they didn't want me to know so I kept digging.

I came across a report and followed the trail. At the end of the trail is what looks remarkably like a smoking gun.

Instead of detailing the long circuitous trail I will just present the results.


The County's outside auditors, the Harvey M. Rose Accountancy Corporation, recommended that SCVMC charge all its patients the same.


According to County Ordnance 603:

Section 603. The Board of Supervisors shall cause a post-audit of the financial transactions and records of all offices and departments of the county to be made at least annually by a certified public accountant. As soon as possible at the end of each fiscal year a final audit and report shall be completed and submitted to the Board of Supervisors. Copies shall be placed on file in the office of the Board of Supervisors and be available for public inspection.


One such audit appears to be for 2003, performed by the Harvey M. Rose Accountancy Corporation (www.harveyrose.com) [Ref 3], referred to by the County as HRAC. One section specifically discussed SCVMC. One of their four specific recommendations was that SCVMC:

15.3.   Obtain Board of Supervisors approval for a discount for County unsponsored patients that will enable these patients to pay no more than the full cost of the services provided.


Unsponsored is the County's term for people who do not have private insurance, Medicare, or Medi-Cal.

Full Cost means the Hospital's full, actual cost, not the Chargemaster price, and this is where things get interesting. From the HRAC report on page 15-2:

Rate Setting

The current process to establish rates for services provided by SCVMC is fragmented.
While the Finance Division has general control over the rate setting process, there is no
overall policy in place to review rates to ensure that rates are appropriately being
developed.  Further, there are no procedures in place to ensure that fees are established
using appropriate cost accounting procedures.  Additionally, no means has been
established to ensure that such rates as the inpatient room rate are based upon
operating costs as required by Santa Clara County Ordinance, Section A18-5.

Our inquiries have found that SCVMC has not conducted a comprehensive rate review
even though there have been three rate increases implemented by SCVMC since July
1998.  Over this 18-month period, SCVMC has doubled inpatient room rates and
increased ancillary service rates by approximately 80 percent.  The motivation for these
three rate increases was the maximization of reimbursements from a state program,
SB1255.  In each case, the amount of the rate increase that was implemented was an
amount that was required to ensure that the usual and customary inpatient charges
exceeded a target amount.  Additionally, information attached to all three transmittal
letters to the Board of Supervisors related to the room rate increases indicated that
SCVHHS Finance Department staff had determined that the rate increases bring
SCVMC inpatient rates to the community average.  We did not audit or review these
rate surveys.


The emphasis on Our inquiries have found that SCVMC has not conducted a comprehensive rate review even though there have been three rate increases implemented by SCVMC since July 1998  is mine.
 


County Ordnance A18-5 requires that SCVMC base its rates on its operating costs.

Here is County Ordnance A18-5:

Sec. A18-5. Fixing rates.

Inpatient hospital room rate charges shall be established by resolution of the Board of Supervisors upon recommendations by the Executive Director of SCVHHS to the County Executive. The recommendations shall be based upon operating costs of SCVMC. The Executive Director shall establish rates for other SCVHHS services in accordance with statutory requirements, Board of Supervisors' policy, and costs and/or rates charged by community hospitals. The Executive Director may enter into agreements with purchasers of health care for patient services in accordance with policies established by resolution of the Board of Supervisors.

(Ord. No. NS-300.597, § 2, 5-13-97)

The Santa Clara County Code is available at [Ref 4].

And here is how the Hospital addressed the issue, in document HHS03 012704 prepared by Noreen Sagers, Assistant to Chief Financial Officer and submitted by Kim Roberts, Chief Financial Officer, Santa Clara Valley Health & Hospital System, to the Board of Supervisors, BOS Agenda Date: January 27, 2004, Agenda Item No. 6, dated January 27, 2004, and available at: http://www.sccgov.org/scc/assets/docs/570727KeyboardTransmittal-0042701.PDF  [Ref 5]

From the top of Page 4:

HRAC Recommendation

One of the recommendations in the HRAC audit was that unsponsored patients automatically be given discounts sufficient to reduce VMC charges to the cost of the care received. The rationale presented was that unsponsored patients pay full charges for services and thus receive unequal treatment since Medi-Cal, Medicare and insurance companies pay only a negotiated portion of charges, and patients qualified for the APD program receive charge discounts based on their ability to pay.


VMC (which is what SCVMC generally refers to itself as) was strongly against this change, and the Board of Supervisors accepted VMC's recommendation.

Auditors do not generally make recommendations based on their sense of social justice. They make recommendations based on Generally Accepted Accounting Principles (GAAP) as well as several other considerations, such as pertinent Federal, State, and Local laws, codes, and regulations. They sometimes make recommendations in order to help their clients avoid potential financial liability. In view of recent developments to be discussed later, this recommendation was remarkably prescient.

The report continues:

As stated in the response to the audit, VMC agrees that the vagaries of health care payment practices do not always result in equity for all patients. However, the automatic discount program proposed by HRAC would result in a reduction in payments from other payors such as Medicare and Medi-Cal, as well as a reduction in the disproportionate share hospital (UCC) payments that VMC receives.

State and federal reimbursement to hospitals is limited to the lesser of charges, costs or their established payment rates. The Medi-Cal program has a second requirement that the total of all payments for inpatient services (including DSH payments) be less than the hospital's usual and customary charges (UCC) for the services. There is also a state and federal payment requirement that hospital charge all patients the same amount for the services that they receive (UCC).

If a certain category of patients were to automatically receive a discount on the services that they receive, the view of the state and federal governments is that those discounted rates then become the hospital's UCC and thus establish a new, lower limit for their payments to the hospital.  Similarly, the discounted UCC would reduce the amount of DSH revenue that VMC would be able to receive. It is thus not possible to adopt the HRAC proposal of offering automatic discounts to Unsponsored patients without jeopardizing VMC's Medicare, Medi-Cal and DSH payments.


That's a real kick in the pants, that the Federal Government requires hospitals to price-gouge me or they will get their Medicare and Medi-Cal payments reduced.

Only it's not true.

The Office of the Inspector General (OIG) of the Department of Health and Human Services (HHS) issued an Official Opinion on February 2, 2004 on the matter, titled: HOSPITAL DISCOUNTS OFFERED TO PATIENTS WHO CANNOT AFFORD TO PAY THEIR HOSPITAL BILLS
(http://oig.hhs.gov/fraud/docs/alertsandbulletins/2004/FA021904hospitaldiscounts.pdf) [Ref 6]

Although the emphasis is on people who are uninsured or underinsured and cannot pay their bills, it clearly applies to everyone.

On page 2, he says:

The OIG has never excluded or attempted to exclude any provider or supplier for offering discounts to uninsured or underinsured patients. However, to provide additional assurance to the industry, the OIG recently proposed regulations that would define key terms in the statute. (3)  Among other things, the proposed regulations would make clear that free or substantially reduced charges to uninsured persons would not affect the calculation of a provider's or supplier's “usual” charges as used in the exclusion provision. The OIG is currently reviewing the public comments to the proposed regulations. Until such time as a final regulation is promulgated or the OIG indicates its intention not to promulgate a final rule, it will continue to be the OIG's enforcement policy that, when calculating their “usual charges” for purposes of section 1128(b)(6)(A), individuals and entities do not need to consider free or substantially reduced charges to (i) uninsured patients or (ii) underinsured patients who are self-paying patients for the items or services furnished.


To underscore this, Tommy Thompson (Secretary of Health and Human Services at the time) released this letter on February 19, 2004 [Ref 7]:

FOR IMMEDIATE RELEASE                                        Contact: HHS Press Office
Thursday, February 19, 1004                                         (202) 690-6343

Text of Letter From Tommy G. Thompson
Secretary of Health and Human Services
To Richard J. Davidson, President, American Hospital Association

Richard J. Davidson
President
American Hospital Association
Liberty Place, Suite 700
325 Seventh Street, NW
Washington, DC 20004-2802
 

Your letter suggests that HHS regulations require hospitals to bill all patients using the same schedule of charges and suggests that as a result, the uninsured are forced to pay "full price" for their care. That suggestion is not correct and certainly does not accurately reflect my policy. The advice you have been given regarding this issue is not consistent with my understanding of Medicare's billing rules. To be sure that there will be no further confusion on this matter, at my direction, the Centers for Medicare & Medicaid Services and the Office of Inspector General have prepared summaries of our policy that hospitals can use to assist the uninsured and underinsured. This guidance shows that hospitals can provide discounts to uninsured and underinsured patients who cannot afford their hospital bills and to Medicare beneficiaries who cannot afford their Medicare cost-sharing obligations. Nothing in the Medicare program rules or regulations prohibit such discounts. In addition, the Office of Inspector General informs me that hospitals have the ability to offer discounts to uninsured and underinsured individuals and cost-sharing waivers to financially needy Medicare beneficiaries.
 

http://www.cms.hhs.gov/FAQ_Uninsured.pdf
 

Again, while the emphasis is on people who are uninsured or underinsured and cannot pay their bills, it clearly applies to everyone:
Your letter suggests that HHS regulations require hospitals to bill all patients using the same schedule of charges and suggests that as a result, the uninsured are forced to pay "full price" for their care. That suggestion is not correct and certainly does not accurately reflect my policy.


And from the link given in Secretary Thompson's letter (http://www.cms.hhs.gov/FAQ_Uninsured.pdf) [Ref 8] we learn in Question and Answer #5:

Q5:    How is the above any different than a hospital giving a discount to Blue Cross
or any other insurer?

A5:    For apportionment purposes, discounting charges to uninsured or underinsured
patients is no different than giving an allowance to Blue Cross or other commercial
insurers for non-Medicare patients. The Provider Reimbursement Manual directs a
provider to report its full uniform charges for courtesy, charity, and third-party payer
allowances. The Medicare program sees no complications where a provider offers
discounts or allowances to uninsured or underinsured patients versus allowing discounts
or allowances to third-party payers.
 

To further support the OIG's opinion and the Secretary's statement, consider Title 42 Part 447 of the Code of Federal Regulations: http://a257.g.akamaitech.net/7/257/2422/12feb20041500/edocket.access.gpo.gov/cfr_2004/octqtr/42cfr447.271.htm) [Ref 9]
TITLE 42--PUBLIC HEALTH

CHAPTER IV--CENTERS FOR MEDICARE & MEDICAID SERVICES, DEPARTMENT OF HEALTH AND HUMAN SERVICES (CONTINUED)

PART 447_PAYMENTS FOR SERVICES--Table of Contents

Subpart C_Payment for Inpatient Hospital and Long-Term Care Facility Services

Sec. 447.271  Upper limits based on customary charges.

(a) Except as provided in paragraph (b) of this section, the agency may not pay a provider more for inpatient hospital services under Medicaid than the provider's customary charges to the general public for the services.

(b) The agency may pay a public provider that provides services free or at a nominal charge at the same rate that would be used if the provider's charges were equal to or greater than its costs.
 

The issue needs to be discussed, “What exactly are Charges, especially, Customary Charges?”

If a company has a List Price for all its products and gives a discount to 50% of its customers, then are its Customary Charges the List Price of the product or the amount it agrees is full payment for the product from those 50% of its customers?

If a company has a List Price for all its products and gives a discount to 90% of its customers, then are its Customary Charges the List Price of the product or the amount it agrees is full payment for the product from those 90% of its customers?

If a company has a List Price for all its products and gives a discount to 99.9% of its customers, then are its Customary Charges the List Price of the product or the amount it agrees is full payment for the product from those 99.9% of its customers?

And what is the General Public?  If you shop at Walmart you are probably a member of the General Public. What if you shop at Costco, which sells only to members of its club (which is easy to join)? Are you still a member of the General Public?

In the normal course of business it probably doesn't matter. It's just semantics anyway.

But suppose the company is a hospital that receives a payment from the Government based on its customary charges?

People without insurance are undoubtedly the General Public. What if you have insurance? Have you stopped being a member of the General Public?

At what point does semantics become fraud?

Is it when 50% of the customers pay the list price? 10%? 0.1%?

Let's look at some numbers. The hospitals consider their financial contracts with insurance companies secret, so I don't have that information, but I do know the Chargemaster price and the Medicare reimbursement price for several procedures. One example should be sufficient, since it is a Big Ticket item.

The Procedure Code and SCVMC's Chargemaster price comes from SCVMC. The Medicare reimbursement comes from the web site of the National Heritage Insurance Company, which is one of the contractors used by Medicare to conduct its business.

They are at: www.medicarenhic.com/cpt_agree.shtml

Procedure Code     Description          SCVMC (Full Price)         MEDICARE
       99284          ER LEVEL V                  $1,100.00                      $118.54

If the hospital gives an insurance company a 60% discount, then the insurance company would pay $440.00 .

The hospital is clearly in no danger of losing Medicare money by giving its Uninsured customers the discount it gives to insurance companies.

Aside from the County violating its own charter, SCVMC is operated by a Government entity and charging some people more than others for the same service is a violation of the Equal Protection clause of the 14th Amendment to the U.S. Constitution. The amount by which people who are County residents are overcharged in order to make up for shortfalls in other programs represents an illegal tax.

One candidate for such a program with a possible shortfall is the Valley Health Plan.  Valley Health Plan (VHP) is one of the medical plans available to County employees and retirees. (If you work for the County for eight years, you can retire and get free medical care from VHP for the remainder of your life.)

According to www.clerkrecorder.org/channel/0,4770,chid%253D17072,00.html

Valley Health Plan (VHP) is a health maintenance organization (HMO) that is owned and operated by the County of Santa Clara.

Valley Health Plan is currently offered to:

· County of Santa Clara employees

· Council On Aging employees

· In-Home Supportive Services workers

· Valley Transportation Authority (eligible employees)

· Children & Families First Commission employees

Valley Health Plan has a comprehensive benefit package with no copays for pharmacy or primary and specialty care visits. VHP allows members to choose their own Primary Care Physician from a list of VHP Network Providers.

VHP physicians are located throughout the Santa Clara County. Santa Clara Valley Medical Center, a state-of-art hospital facility with outstanding physicians and specialty services, serves as the hospital for VHP members.

For information about Valley Health Plan benefits and services, please call VHP Member Services at 408.885.4760 or 888.421.8444.


From the VHP web site (www.santaclaracounty.org/vhp/links.htm) we learn that they are a staff model HMO:

Valley Health Plan (VHP) is a staff model Health Maintenance Organization that is owned and operated by the County of Santa Clara. It is currently not offered to the public. VHP has insured members since 1985.


Valley Health Plan was mentioned in an article at Managed Care Magazine, entitled: Staff-Model HMOs: Don't Blink or You'll Miss Them! (www.managedcaremag.com/archives/9907/9907.staffmodel.html [Ref 10]

Here's the relevant part:

Is there no familiar-looking staff-model HMO left — one with employed physicians and an owned hospital? Yes, but it is an exception that proves the rule. Valley Health Plan has 170 staff physicians, an impressive hospital (the Santa Clara Valley Medical Center) and 6,000 commercial members. What's the catch? It's the county hospital, and the staff members are county employees. The county pays the expenses, then checks the income afterward. (Before others start drooling excessively at this enviable supply of capital, Medical Director Kent Imai, M.D., hastily points out that it comes at a big price — the downside of working in a very politicized environment.) The county was already funding medical services for about 120,000 patients a year when it turned its medical staff and medical center into an HMO, starting with service to its own county employees, to attract more income-producing patients to help defray the overhead of serving government-dependent patients.


Perhaps if you don't have insurance you are viewed as a potential income-producing patient.

I attempted to find out how the Valley Health Plan Operates and ran into a brick wall. (Or maybe it was stone.)

I called the VHP main number and spoke to a representative. After giving her my name I asked her the following questions:

1.   How does the Plan work?
2.   How are charges incurred by a VHP participant who receives treatment?
4.   How does VHP get paid?
5.   Are the charges discounted?
She had no idea what I was talking about. She wanted to know if I was a VHP participant and, since I am not, I said, “no.” While we were talking she looked me up on her computer and found the records of my treatment at SCVMC. It is clear that VHP is not only operated by SCVMC, they are an integral part of SCVMC.

We didn't get anywhere, so I called Laura Iglesia, Manager of Valley Health Plan Member Services. After identifying myself, I started asking her my questions. She asked me why I wanted to know this information, so I told her. After that she refused to discuss anything except my problem. When I politely tried to get the discussion back on track she hung up on me.

I contacted Mike McInerney, Chief of Staff for Supervisor McHugh. Mr. McInerney forwarded my questions to Ms. Kim Roberts, Chief Financial Officer of SCVMC.

Unfortunately, Ms. Roberts ignored my questions, and simply sent me the Santa Clara  Valley Health and Hospital System Valley Health Plan Statement of Revenues and Expenses for June 2004 and year-to-date for 7/1/03 – 6/30/04, which raised even more questions. [Ref 11]

In my email to Ms. Roberts dated April 26, 2005 I noted that my original questions were:

1.   If a VHP Plan Participant goes to VMC, what happens to the charges?

2.   How are the charges "paid"?

3.   Are the "charges" discounted like they are for private insurance companies?
And followed it with:


“To these questions, I must now add:

4.   The first item on the budget summary is "Gross Operating Revenues." What are the categories, sources, and amounts that make up Gross Operating Revenues?

5.   Under Deductions From Revenue are listed SB-855 and SB-1255. Fortunately, they are $0.00, but I thought these programs were for giving money to hospitals and not taking money from hospitals. Please explain.

6.   Under Operating Expenses there is a line for County Overhead.  What, precisely, are the components of County Overhead?

7.  Interest Income (Investments) lists $295,000. Even at a rate of only 3% it would mean a principal of almost $10M. What is that about?

8.   Covered Lives lists Commercial, Medi-Cal, IHSS/COA, Health Family, and Health Kids.

a.    What are the separate Revenue and Expenses for these categories?

b.   Does Commercial include County Employees?

c.   Assuming it does, what is the breakdown between current County Employees and retired County Employees?

9.   Ms. Roberts, since you are the Chief Financial Officer of Santa Clara Valley Health & Hospital System, when was the last time SCVHHS determined its actual cost for each Procedure Code?”
I did not receive a reply, and subsequent attempts to contact her were unsuccessful.

Therefore, I have to assume that the article Staff-Model HMOs: Don't Blink or You'll Miss Them!  [Ref 10] is correct and that there is a shortfall at VHP.

Note that as of June 30, 2004, Valley Health Plan had 58,822 participants, with 34,092 (approximately 58%) of them Medi-Cal participants.

Commercial Participants, which includes current County employees and retirees, accounted for only 7,026 (approximately 12%) of participants.

I have since learned that VHP practices Managed Health Care and that SCVMC accepts as full payment the negotiated premiums paid by, or on the behalf of, VHP participants, regardless of the actual costs required to treat the participants. Therefore, the balance sheet will always be balanced. The question is: who pays the shortfall if the costs of a participant's treatment exceed the participant's premium?

Since SCVMC's assertion that routinely giving the Uninsured a discount would reduce their Federal and State payments is incorrect, it might be a red herring to divert attention away from a VHP shortfall.

I note that the HHS OIG's opinion was issued a week after the SCVMC report to the Board of Supervisors. However, I see no record of any attempt by SCVMC to inform the BOS that a material assertion they had made to the BOS is now incorrect.

Perhaps SCVMC is unaware of the OIG's official opinion and when it is brought to their attention they will follow the Harvey Rose recommendation to charge everyone the same where a “charge” is defined a “charge (less discounts)” or “the amount it accepts as full payment.”


SCVMC is a member of the California Healthcare Association, which sponsors a Political Action Committee (CHPAC). SCVMC is a government entity and is prohibited by California Government Code Section 8661 from engaging in political activity.


SCVMC is a member of both the Hospital Council of Northern and Central California [Ref 12] and the California Healthcare Association [Ref 14] both of which are also corporate partners (www.calhealth.org/public/about/index.html).

These Partners proudly proclaim that they sponsor a Political Action Committee (CHPAC) [Ref 15]  From the CHPAC Web site (www.calhealth.org/public/chpac/index.html) :

What Is CHPAC?

In July 1979, the California Hospitals Political Action Committee(CHPAC) was formed to strengthen the CAHHS government relations program. On January 1, 1996, CHPAC changed its name to the California Healthcare Association Political Action Committee to align itself with its sponsor, the California Healthcare Association (CHA).

CHA's legislative advocacy program has three components:

·  Professional lobbyists.

·  An extensive statewide grassroots advocacy network of concerned individuals.

·  CHPAC, which provides campaign financing to officeholders and candidates who are concerned about and committed to better health care for all Californians. The program relies on effective communication and coordination between CHA, the Regional Associations (HCNCC, HASC and HASDIC) and hospital representatives.

An independent board of directors comprised of 17 members establishes  CHPAC's policies.  Jim Holmes, president/CEO, Redlands Community Hospital is the 2004 CHPAC chair; Ted Fox, chief executive officer, Saint Louise Regional Hospital, is the chair-elect; and J. Kendall Anderson, chief executive officer, John Muir/Mt. Diablo Health System, is the immediate past chair.

For 2004, the CHPAC board has established a statewide goal of $500,000.

Most of the members of CHA are for-profit hospitals. But SCVMC is a government entity and is prohibited by California Government Code Section 8661 from engaging in political activity:
8661.  No organization established under the authority of this
chapter shall participate in any form of political activity nor shall
it be employed directly or indirectly for political purposes.
By setting up a separate Board of Directors, CHA has attempted to circumvent these rules for its non-profit members. However, it is clear that CHPAC is a creature of CHA. After all, CHA is not shy in claiming credit for CHPAC's successes. [Ref 13] and [Ref 15]

CHA will, no doubt, vigorously assert that it has scrupulously followed the letter of the law in sponsoring its PAC.  However, since PACs are all about money, let's follow the money.

The Federal Election Commission requires that PACs file financial reports.  You can download CHPAC's filings at: http://herndon1.sdrdc.com/cgi-bin/fecimg/?C00237495 .

In their FEC Form 3X for 1/1/04 - 3/31/04 Line 21, their Total Operating Expenditures for the period were $746.76 .

Does that include the cost of office space?

In the letter notifying the Federal Election Commission of their change of address [posted at http://www.jmargolin.com/med/address.pdf], Sonya Knecht (CHPAC Administrator) gave the new address as: 1215 K Street Suite 800, Sacramento, CA 95814.  CHA is located at the same address (www.calhealth.org/contact.html). Does CHPAC pay rent to CHA or does CHA provide this benefit to them for free? And, by the way, who pays Ms. Knecht's salary? And does CHPAC pay CHA for its web pages?  (They use CHA's domain name.)

Putting the expenditures together in a table is very easy. On Schedule B (FEC Form 3X) Disbursements, starting on page 52:

      Name                                         Purpose           Amount         Transaction Code
Bank of America                        Merchant's Fee         $25.95              B3137
Bank of America                        Merchant's Fee         $25.00              B3138
Bank of America                        Merchant's Fee         $575.06            B3144

Page 53:

      Name                                        Purpose              Amount         Transaction Code
Political Action Committee of the
American Hospital Committee              C0010646         $34,550.00          B:26B5

Starting on Page 54 there are only payments to the California Healthcare Association, but the amounts and purposes are not listed.

What kind of financial disclosure is this?


Tenet Healthcare has recently agreed to settle a class action lawsuit brought against it for overcharging uninsured or underinsured patients.


The settlement terms include:

a.  Uninsured patients who receive treatment at Tenet Hospitals will be offered discounted pricing for the services provided at rates comparable to the hospital's current managed care rate.

b.  Tenet will reimburse any Uninsured Settlement Class Member who paid out-of-pocket over a certain percentage of the hospital's Gross Charge rate for treatment received during the Class Period. The Class Period goes back to 1999.
 

The complete agreement is at http://www.tenetclassaction.com/ [Ref 16]

Section 7 (Page 14 of the Settlement Agreement) contains the discounted pricing for Uninsured Patients.

Part B Section 1 (Page 15 of the Settlement Agreement) discusses restitution for Uninisured Patients who have paid Tenet.
 

SCVMC would be an easy target for the attorneys who took Tenet to the cleaners.


Recommendations

1.   Since the amounts charged to patients with private insurance, Medicare, or Medi-Cal are negotiated by these entities, that leaves the Uninsured with no one to negotiate for them. (In the case of Valley Health Plan the County apparently negotiates with itself.)

I propose that the Uninsured be charged according to a formula based on the amounts paid by the insurance companies.

An example of such a formula is as follows:

For each Procedure Code make a list of all insurance companies who have negotiated a rate for that procedure.

From that list drop the companies who pay the top 10% and bottom 10% of payments.

From the remainder, take the medium rate (not the average).

Add 10% to the median rate.

That will be the maximum that the Uninsured will be charged for that procedure.


This is the best I can come up with without having access to SCVMC's contracts with its insurance companies, information that SCVMC holds as a closely guarded secret.

Note that this will reduce the strain on the County's APD program since the charges will be lower.

Also note that this formula is more favorable to the hospital than the Harvey Rose recommendation that the hospital charge only its Full Cost.  Even less favorable to the hospital would be a Tenet-type settlement in which they agreed to charge the Uninsured according its Managed Care Rates.
 

2.   Allow all County residents to join the Valley Health Plan.
 

3.   Change the name of the Lien Committee so that it does not leave the impression that it has the power to place a lien on anybody's house without going through due process and which recognizes that that its work is done in secret.

How about the “Collections Cabal?”
 

4.   Change the name of the Department of Revenue to reflect the fact that it acts as a Collection Agency for the County, is not required to follow the laws that commercial collection agencies are required to follow, and is not the Tax Collector's Office.

How about the “Collections Gang?”
 

Jed Margolin
San Jose, CA
May 9, 2005


References




[Ref 1]   Proposal for Fair Treatment for People Without Health Insurance, by Jed Margolin www.jmargolin.com/todo/medins.htm


[Ref 2]   Web site for the Santa Clara County Department of Revenue www.sccgov.org/site/0,4760,sid%253D11542,00.html


[Ref 3]   Section 15 of the audit done by the Harvey M. Rose Accountancy Corporation for Santa Clara County, year unknown, but appears to relatively recent, perhaps for 2003, since SCVMC's response is dated January 27, 2004.

Posted in two forms on my web site:
In original PDF format (1.2Mbytes): www.jmargolin.com/med/hrac15.pdf

Converted to MS Word format by OCR (101 Kbytes). Every effort has been made to make an accurate conversion (even the typo “6n” on page 15-8, third full paragraph has been preserved): www.jmargolin.com/med/hrac15.doc


[Ref 4]   Santa Clara County Code  www.sccgov.org/scc/assets/docs/scc_ordinance/TOC.HTM


[Ref 5]   Report HHS03 012704 from Robert Sillen, Executive Director of Santa Clara Valley Health & Hospital System to Santa Clara County Board of Supervisors, BOS Agenda Date: January 27, 2004, Agenda Item No. 6, dated January 27, 2004: www.sccgov.org/scc/assets/docs/570727KeyboardTransmittal-0042701.PDF


[Ref 6]   Official Opinion by the Office of the Inspector General (OIG) of the Department of Health and Human Services (HHS), issued on February 2, 2004, titled: HOSPITAL DISCOUNTS OFFERED TO PATIENTS WHO CANNOT AFFORD TO PAY THEIR HOSPITAL BILLS http://oig.hhs.gov/fraud/docs/alertsandbulletins/2004/FA021904hospitaldiscounts.pdf)


[Ref 7]   Press Release by HHS Press Office, dated February 19, 2004, Text of Letter from Tommy G. Thompson, Secretary of Health and Human Services, to Richard J. Davidson, President, American Hospital Association. www.hhs.gov/news/press/2004pres/20040219.html


[Ref 8]   Questions on Charges for the Uninsured, link given in Secretary Thompson's letter,
http://www.cms.hhs.gov/FAQ_Uninsured.pdf


[Ref 9]  Title 42, Part 447 of the Code of Federal Regulations
(http://a257.g.akamaitech.net/7/257/2422/12feb20041500/edocket.access.gpo.gov/cfr_2004/octqtr/42cfr447.271.htm)


[Ref 10]   Staff-Model HMOs: Don't Blink or You'll Miss Them!, Managed Care Magazine:
(www.managedcaremag.com/archives/9907/9907.staffmodel.html )


[Ref 11]    Santa Clara Valley Health and Hospital System Valley Health Plan Statement of Revenues and Expenses for June 2004 and year-to-date for 7/1/03 – 6/30/04: (www.jmargolin.com/med/vhp.pdf)


[Ref 12]   HCNCC Member List for Santa Clara County [from www.hcncc.com - click on Member Hospitals, and then on Santa Clara. The results are reproduced in: www.jmargolin.com/med/hcncc_members.html]


[Ref 13]  HCNCC 2003 Member Value Report Working Together For Success From www.hcncc.org/doc/2003%20HCNCC-CHA%20Value%20Statement%20-%20FINAL.pdf


[Ref 14]  CHA Membership From: www.calhealth.org/Download/institution%20mems_04.pdf


[Ref 15]  What is CHPAC?  From: CHPAC Web site at www.calhealth.org/public/chpac/index.html


[Ref 16]  Proposed settlement by Tenet Healthcacre in Class Action lawsuit.  www.tenetclassaction.com/