Hospitals: The cost of admission

The following script is from "The Cost of Admission" which aired on Dec. 2, 2012 and was rebroadcast on June 9, 2013. Steve Kroft is the correspondent. Sam Hornblower, Michael Rey and Oriana Zill, producers.

If you want to know why health care costs so much in this country, consider this, it's estimated that $210 billion a year -- about 10 percent of all health expenditures -- goes towards unnecessary tests and treatments and a big chunk of that comes right out of the pockets of American taxpayers.

Last December, we reported on the admission and billing practices of Health Management Associates. It's the fourth largest for-profit hospital chain in the country with revenues of $5.8 billion last year, and nearly half of that came from Medicare and Medicaid programs. We talked to more than 100 current and former employees and we heard a similar story over and over: that HMA relentlessly pressured its doctors to admit more and more patients -- regardless of medical need -- in order to increase revenues.

Health Management Associates owns 71 hospitals in 15 states. It's thrived buying small, struggling hospitals in non-urban areas, turning them into profit centers by filling empty beds. Generally speaking, the more patients a hospital admits, the more money it can make, a business strategy that HMA has aggressively pursued.

Steve Kroft: Did you feel the hospital was putting pressure on doctors to admit people?

Nancy Alford: Yes.

Steve Kroft: For what reason?

Nancy Alford: Money.

Steve Kroft: You're sure of that?

Nancy Alford: Uh-huh (affirm).

Until she was fired, Nancy Alford was director of case management at the HMA hospital in Mesquite, Texas, where she oversaw the auditing of patient records and signed off on the accuracy of bills sent to Medicare and Medicaid. She'd never met former HMA doctors Jeff Hamby, Cliff Cloonan, and Scott Rankin until we brought them together in New York to discuss their experiences at HMA.

Scott Rankin: What's really remarkable is we're from very different areas of the country. Yet, the pressures placed upon the emergency physicians and the mechanism in place to enforce those procedures and policies, exactly the same.

Cliff Cloonan is a retired colonel who spent 21 years as an Army doctor before joining the Carlisle Regional Medical Center in Pennsylvania as the assistant emergency room director. Dr. Scott Rankin worked in the same department. Both say they were told by HMA and its ER staffing contractor, EmCare, that if they didn't start admitting more patients to the hospital, they would lose their jobs.

Cliff Cloonan: My department chief said, we will admit 20 percent of our patients or somebody's going to get fired.

Steve Kroft: What's wrong with admitting 20 percent?

Scott Rankin: In a relatively rural, limited resource community hospital your admission rate out of the emergency department, somewhere in the neighborhood of 10 percent.

Steve Kroft: And they wanted 20?

Scott Rankin: Correct. They wanted 20.

Cliff Cloonan: There's no way that you can do that and not have it be fraudulent because you're not admitting on the basis of medical requirements, you're basing it on strictly an arbitrary number that has been pulled out.

Steve Kroft: All sorts of businesses set quotas. What's wrong with this?

Scott Rankin: We're not building widgets. We're taking care of patients who are ill and come in to the emergency department.

Jeff Hamby was an emergency room doctor at HMA's Summit Medical Center in northwest Arkansas. He says he was fired for not meeting admission targets and is suing HMA for wrongful termination. HMA maintains no one has ever been fired over admission numbers. Hamby called the targets "coercion to commit fraud."

Jeff Hamby: Initially it was 15 percent. They kept trying to up it.

Steve Kroft: They didn't care how you got there? They just wanted you--

Steve Kroft: They're saying, "You will admit these people whether they're sick or not, whether they need to be hospitalized?"

Scott Rankin: Correct--

Cliff Cloonan: They never phrase it that way. They did say admit 20 percent. The reality of that is that there's only one way that that can happen. And that is if it is arbitrary. That is, if you do admit patients that don't need to be admitted.

Scott Rankin: For patients who were 65 and over, the benchmark was 50 percent.

Steve Kroft: Those would be Medicare patients?

Scott Rankin: Correct.

Steve Kroft: You're saying it's not a good idea to admit half the patients over 65?

Cliff Cloonan: If you are put into the hospital for reasons other than a good, justifiable medical reason, it puts you at significant risk for hospital-acquired infections and what we would refer to as medical misadventures.

These stories are echoed in many of the thousands of documents we examined, including emails like this one from a hospital executive in Durant, Okla., pressuring her staff during emergency room shifts.

[Graphic: "Only 14 admits so far!!!!!!! Act accordingly...."]

And this email from an ER director at an HMA hospital in South Carolina to a new emergency room doctor.

[Graphic: "Every time a 65 year old or older comes in, I am already thinking, do they have some condition I can admit them for?"]

[Graphic: "We are under constant scutiny[sic]]."

[Graphic: "I will be blunt... I have been told to replace you if your numbers do not improve."]

Steve Kroft: In your dealings with HMA, did you ever get any sense that this was commercially driven?

Jeff Hamby: Of course. I can't imagine any other explanation to admit a percentage.

Nancy Alford: The administrators said that daily, frequently. "We don't make any money if we do this. We make more money if we do that."

Steve Kroft: Admit more patients?

Nancy Alford: Admit more patients, keep them longer. Money was the chief motivator.

Steve Kroft: You're all saying this was codified, institutionalized at HMA?

Scott Rankin: Absolutely, this was a well thought out plan. It even relates to how they had control over us as emergency physicians.

That control, they say, was exerted with corporate wide computer software called Pro-MED which was installed in every emergency room. HMA says it was designed and approved by medical experts to improve the quality of patient care. But doctors, nurses, emergency room directors and hospital administrators told us that HMA customized the program to automatically order an extensive battery of tests -- many of them unnecessary -- as soon as a patient walked into the emergency room.

Jeff Hamby: The minute the chief complaint and their age was placed into that computer, that system ordered a battery of tests that was already predetermined.

Scott Rankin: This was prior to being seen by the treating physician. And we would look at the chart and say, "Why was all this ordered?"

The computer program also generated printed reports like this one evaluating each doctor's performance and productivity. On this document the doctors who hit corporate admissions goals received praise from company managers. Those who didn't knew it.

Cliff Cloonan: The primary purpose of the scorecard was to track how you were doing in terms of revenue generation based on number of tests ordered and number of patients admitted to the hospital.

Scott Rankin: It has nothing to do with patient safety and patient care. It has everything to do with generating revenues.

They say that when a doctor decided send to an emergency room patient home, the computer would often intervene, prompting the doctor to reconsider.

Jeff Hamby: The minute I hit "Home", it says, "Qual Check." And then it comes up with a warning, "This patient meets criteria for admission. Do you want to override?"

Steve Kroft: What was the reaction from the administrators if you overrode the computer?

Jeff Hamby: It was like being called to the principal's office.

Cliff Cloonan: Mind you, this is coming from a non-physician, somebody who never went to medical school, never did a residency. Frankly, has never seen or treated a patient, is telling a physician how they should be taking care of a patient and making decisions related to a patient. And my blood pressure's going up just saying this.

In August, a former executive vice president of the hospital chain - John Vollmer - testified under oath in a deposition, that HMA's aggressive admission policies came directly from the top: CEO Gary Newsome.

[John Vollmer: Mr. Newsome's thought was that an average of 16 percent was accomplishable at all hospitals or more and we should seek to do that and make that happen.]

Vollmer, who was also fired by HMA, became angry when the company lawyers challenged him.

[John Vollmer: I did my duty by informing HMA that what they are doing is wrong. You can't require them all to have 16 percent admission rates and beat up doctors and administrators and all these folks over it when you are doing it to increase your revenue for the facility.

HMA attorney: I'm going to move to strike what you just said.]

We wanted to talk with Gary Newsome, Health Management Associate's CEO, but instead we were given HMA executive vice president Alan Levine, who joined the company just two years ago. Levine says the allegations are coming from disgruntled employees. And if they were true, he said, it would be reflected in the admissions data. He says admission rates haven't changed in four years and are near or below industry averages.

Steve Kroft: The allegations has to do with you taking people who shouldn't be admitted to the hospital and putting them in the hospital.

Alan Levine: Those allegations are absolutely wrong.

Steve Kroft: HMA doesn't set quotas for hospital admissions?

Alan Levine: No.

Steve Kroft: HMA never told emergency rooms that they needed to admit a certain percentage of people that came in?

Alan Levine: We tell them collaboratively that our goal is to make sure the patient gets in the right setting. It-- we don't want a patient going home that should be admitted. We don't want a patient admitted that shouldn't be admitted.

Steve Kroft: I've got some documents here from Durant, Oklahoma. ...

We showed Levine this physician performance review from the HMA hospital in Durant, Okla., which had been given to us by a doctor there. It prominently shows an admission goal of 20 percent.

Steve Kroft: It says there on the right hand side, goal, 20 percent. And it shows the lights. The reds show people who are not actually meeting their goal.

Alan Levine: Well, first of all, I've never seen this document, so I can't-- I mean, you-- the-- I can tell you right now, as a company-- well, there's a lot of things on this form, Steve. We look at testing guidelines. There's a lot of quality metrics on here, Steve. We measure all of this stuff--

Steve Kroft: Yeah, but there-- we have here one whole column, goal.

Alan Levine: That's not--

Steve Kroft: Goal.

Alan Levine: That's not-- that's not from our company, Steve. I don't know where that came from--

Steve Kroft: It's not from your company? It's-- I don't-- one of your hospitals.

Alan Levine: Steve, ...we don't have any kind of goals. I don't know what the percent admissions are at that hospital. Maybe they are actually 20 percent, but the .. the admissions goal at any hospital is driven only by what the normal trend is for that hospital.

Steve Kroft: We talked to a hundred people who say that there was pressure from the corporate level to admit people. Are they all lying?

Alan Levine: Steve, we have one goal. And-- and-- and I'm not gonna-- I'm not-- I'm not going to judge anybody else. Our goal is each and every patient that comes into the hospital is a unique and special circumstance.

We weren't the first to raise the subject of inappropriate admissions with corporate executives. Paul Meyer raised the allegations several years ago. At the time, he was director of compliance with HMA, charged with inspecting and auditing its hospitals to make sure they were following state and federal laws. Meyer is a former 30-year veteran of the FBI. His last assignment had been supervising Medicare fraud in Miami before he joined HMA.

Steve Kroft: HMA has said that their admission policies are designed to improve the quality of care for the patients. Do you believe that?

Paul Meyer: Based on my experience, I-- I can't believe it.

Steve Kroft: What do you think they're based on?

Paul Meyer: I think they're based on profit.

Meyer says he reached that conclusion in 2010 after hearing complaints from emergency room doctors, case workers and hospital administrators. They said they were being pressured to fill beds with people who did not need to be admitted to the hospital. Meyer says he audited four hospitals in Texas, Florida and Oklahoma and concluded that HMA had intentionally billed Medicare and Medicaid for hundreds of thousand of dollars in inappropriate hospital stays that did not meet government standards for admission or reimbursement.

Steve Kroft: Did you think it was Medicare fraud?

Paul Meyer: Yes. It was Medicare fraud. Simple as that.

Steve Kroft: Why was it Medicare fraud?

Paul Meyer: They're submitting bills to the government for the admission of patients. The patients didn't meet the appropriate prescribed criteria for admission and for the hospitals to bill Medicare for the admissions. It's a false billing, if you will.

Steve Kroft: If you'd been at the FBI and somebody came in and handed you all of this stuff, would you have pursued a criminal investigation?

Paul Meyer: Yes. No doubt about it.

Meyer says he told the same thing to corporate officials and wrote up his findings in three memos to top management.

Paul Meyer: I made sure that I spoke with the CEO face to face about this, that something is really, really wrong, and it's got to be addressed. I had indicated that if its not addressed by you all, then I'll have to handle getting it addressed by the government.

Steve Kroft: What was their response?

Paul Meyer: Had another job change.

Meyer says HMA's corporate attorneys heavily edited his reports and instructed him to destroy the original version of his memos, but he never did.

Paul Meyer: I felt it was evidence. These people are changing my write-up of what I found, softening it up, excising out things, labeling it as attorney/client privilege when it wasn't. And I felt certain they're trying to cover this up.

He was eventually fired and is now suing HMA for wrongful termination.

Steve Kroft: What are we supposed to make of these allegations that have been raised by Paul Meyer? He says this company's guilty of Medicare fraud.

Alan Levine: Well, we'll let-- we'll let the proper authorities be the judge of that. Okay, we feel that we are doing the right thing for our patients. It's not Mr. Meyer's place to decide guilt or innocence. We investigate anything that's reported. And if we find a problem we fix it.

HMA says it hired an outside law firm to investigate Meyer's allegations, and that there was no finding that would support an allegation of fraud, adding that any overpayments from Medicare and Medicaid were rectified. But Paul Meyer is the least of HMA's problems right now. The hospital chain is currently under investigation by the Justice Department and the Securities and Exchange Commission. HMA says it's cooperating with those investigations. Since our story first aired, HMA's hospital admissions have declined, along with its corporate profits and CEO Gary Newsome has announced that he is leaving the company.