Just What Baxter Didn't Need: A Payola Probe

Lately, Baxter International Inc. can't dodge the bad news. On Sept. 6, the company revealed that Caremark Inc., its $800 million home health care unit, is being investigated for allegedly paying kickbacks to doctors. The Inspector General's Office of the U. S. Health & Human Services Dept. began its probe in August after complaints from Caremark rivals and physicians offended by the practice, government sources say.

The company has been paying physicians who refer privately insured patients since the early 1980s. It extended the payments to doctors who treat medicare patients about 18 months ago, say former executives, after losing market share to competitors such as Atlanta-based T2 Medical Inc.

Paying doctors for referrals is specifically prohibited by the 1977 Medicare-Medicaid Antikickback Statute. Caremark maintains that it paid doctors from $12 to $150 a week not for referrals but as fees for monitoring patients receiving treatment at home. The key issue is whether physicians actually did the paperwork and supervision the company claims they did.Caremark Chief Executive Charles H. Blanchard says the company knew that its payments fell into a gray area that it believes has not been addressed by HHS. But he adds that Caremark stands by its decision because the law remains so fuzzy. Even so, it will quit paying physicians and hospitals who refer medicare and medicaid patients to its facilities starting Oct. 1.

STANDARD PRACTICE. Observers say that offering financial incentives to doctors and hospitals is standard practice in the $2.5 billion home health care industry. But Parker H. Petit, chief financial officer for rival Home Nutrition Services, says the probe could spook doctors who've agreed to such deals: "In the future, if doctors want to do transactions like this, they'll be very, very cautious."

Even if Caremark is barred from participating in medicare, it won't feel much of a pinch. The company, with a 35% market share, was a top performer in the first half of 1991, when operating earnings rose more than 20%. Medicare patients contributed roughly 20% of revenues in 1990, but just 2% of profits. However, if the Inspector General refers the case to the Justice Dept. for further action, Baxter's image could need some nursing.