Making Hospitals Cry Uncle

Has insurer J. Patrick Rooney found an unorthodox way to turn up the heat?

Conservative millionaire J. Patrick Rooney is on a mission from the Almighty: Bring down crushing and "ungodly" health-care costs. For more than a decade, he has worked to replace traditional insurance with tax-free health savings accounts (HSAS), which people can use to pay for their own medical care. "I'm doing the right thing, and I think the Lord will be pleased about it," he says.

Using his fortune to open doors in Washington, Rooney has relentlessly preached his gospel. Last year, Congress saw the light: GOP lawmakers inserted a $6.4 billion tax break for HSAs into a Medicare prescription-drug bill. And a recent survey by Mercer Human Resource Consulting says 75% of employers are likely to offer the accounts by 2006.

A courtly 76-year-old, Rooney has never hidden the fact that he stood to profit from his crusade. After pioneering HSA sales with his old company, Golden Rule Insurance, he sold out to UnitedHealth Group Inc. (UNH ) for $893 million just before Congress passed the tax break. He promptly founded Medical Savings Insurance Co. to sell more HSAs.


But Rooney isn't relying on just the power of his ideas and political connections to make his company profitable. The Indianapolis-based insurance entrepreneur also is backing a nonprofit group that uses hardball tactics to get hospitals to cut prices. The nonprofit, called Consejo de Latinos Unidos, campaigns on behalf of uninsured Hispanics.

Last year, Consejo pressured the nations' No. 2 hospital system, Tenet Healthcare Corp. (THC ), to cut rates for uninsured patients and revamp its collection practices. At the same time, Rooney's Medical Savings won about $2 million in debt forgiveness from Tenet.

Now, Consejo's leader, Republican strategist K.B. Forbes, has turned his attention to Florida. Hospitals being pilloried there say Rooney's company owes them millions in unpaid bills, too. And Rooney has suggested that a new Consejo target -- HCA Inc. (HCA ), America's largest hospital operator -- could take a lesson from Tenet and shake its bad press by cutting a deal to forgive Medical Savings' debts.

Rooney, who pledged seed money to Consejo and hired a Washington public relations firm to draw attention to its cause, says he doesn't control Forbes. "K.B. has to paddle his own canoe," Rooney says. Besides, says Rooney, his drive to cut health-care costs, especially hospital fees, is about more than money: It's a moral crusade. As such, he makes no apologies for unorthodox methods.


That includes backing Forbes, a onetime Medical Savings employee. "Forbes presents himself as an advocate of the consumer," says Linda S. Quick, president of South Florida Hospital & Healthcare Assn. But Consejo "seems to be initiated and financed by Rooney and others selling individual insurance."

With his folksy demeanor, Rooney comes across as an endearing do-gooder. He is also one of the most powerful voices on the Right. Since he pioneered HSAs in 1990, Rooney, his family, and employees have poured more than $5 million into Republican causes.

Rooney's new model of health coverage, which has won support from President George W. Bush, replaces traditional insurance with tax-free health savings accounts and high-deductible policies. The argument: If patients must pay out-of-pocket for, say, the first $1,000 in bills, they will seek more cost-effective care. That, Rooney maintains, will unleash market forces to hold down costs. Big insurers, including Aetna Inc. (AET ) and many regional Blue Cross Blue Shield Assn. plans, began rolling out HSAs this year.

For hospitals, the plans pose a threat: bad debts. Patients accustomed to first-dollar coverage find they must pay before insurance kicks in, and many don't. In April, HCA blamed a rising tide of unpaid bills for its soft first quarter.

It's not just patients who aren't paying. Medical Savings routinely marks down its policyholders' hospital bills by as much as 80%. "Yes indeed, we're making unilateral decisions," Rooney says. "But by God, we have to hold the hospitals down to a reasonable price." Medical Savings tells providers to accept its checks as full payment -- or collect from patients.

But as Forbes has demonstrated, hospitals pursuing low-income patients are vulnerable to attack. Last year, Consejo stoked press coverage of poor patients being hunted down by bill collectors. "Nobody wants these cases where someone was sick and the big, bad hospital is suing them," says Richard Morrison, a vice-president at Orlando's Adventist Health System, which says Medical Savings owes it some $1 million.

Consejo zeroed in on Tenet in 2001 after Forbes uncovered examples of bare-knuckle collection practices -- such as a lien on a Louisiana patient's beat-up mobile home. His timing was perfect. Tenet was trying to acquire hospitals in four cities and had drawn fire from the feds over its Medicare billing. At critical junctures, Forbes would trot out patients to portray Tenet as intent on gouging the poor. Tenet lost three of the acquisition deals.

Behind the scenes, Tenet was in talks with Medical Savings over its unpaid bills. In January, 2003, Tenet caved. It forgave nearly all of Medical Savings' debt and lowered prices for the uninsured. In return, Consejo dropped 10 lawsuits. The deals with Consejo and Rooney were "contemporaneous and simultaneous," a Tenet executive says.

Like Tenet, HCA has sought a truce. In mid-2003, Chairman and CEO Jack O. Bovender Jr. set up a meeting with Rooney to explain HCA's discount policy in hopes that Rooney would persuade Forbes to back off. But prior to the meeting, Rooney forwarded a memo to Bovender from Medical Savings President Randy Suttles that drew parallels between HCA's situation and Tenet's. In the memo, which HCA made available to BusinessWeek, Suttles notes that Tenet had shaken some of its bad press after making a deal with Medical Savings. "HCA is in similar circumstances," Suttles wrote. A livid Bovender canceled the meeting.

When asked about the e-mail to Bovender, Rooney says: "The one thing hospitals can't afford is a loss of public trust." And he isn't afraid to get in their faces. "If we go to the hospital and beg, they'll say: 'We'll give you 20% off,"' says Rooney. "Well phooey -- that's still an outrageous price. And we're not going to pay it." Indeed. More than 20 Florida hospital groups -- including HCA -- are suing Medical Savings for some $7 million in overdue payments.

HCA and other Florida hospitals figure they have better odds of bucking Forbes and Rooney than Tenet did: They're not under serious regulatory scrutiny, and they're moving to help the uninsured. Rooney paints a different picture, saying hospitals are lining up to deal: "Tenet is not the only one." Both he and Forbes -- independently, of course -- predict victory.

Corrections and Clarifications "Making hospitals cry uncle" (People, June 7) incorrectly reported the date that Medical Savings Insurance Co. was founded. The company began operations in 1997. J. Patrick Rooney, chairman and CEO of Medical Savings, says he did not hold any stock in another company, Golden Rule Insurance Co., when Golden Rule was sold in 2003. The story also should have noted that Medical Savings has brought a federal antitrust lawsuit against several Florida hospitals alleging price fixing. In its disputes with hospitals, Medical Savings contends that the hospitals overcharge its policyholders. Medical Savings says it has a policy of defending policyholders from hospitals' attempts to collect unpaid charges. The "debt forgiveness" that the story reported Medical Savings received from Tenet Healthcare Corp. referred to those contested charges and was not meant to imply that Medical Savings had borrowed money from Tenet.

By Lorraine Woellert in Washington

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