CASE STUDY 1: ACCOUNTABILITY - WHEN MISSION AND MONEY COLLIDE: WHAT IS THE ESSENCE OF A NONPROFIT?

As the longtime President/CEO of Hyland, a privately held world-renowned luxury hotel brand, Myron Morse thought he had seen it all; deceitful contractors that claimed shoddy materials were top-shelf products, renegade third-world officials that halted construction unless bribed, trusted partners caught up in substance abuse. Yet, in all his years, he had never faced a situation like the one he was facing now as chairman of the board of Memorial Hospital.

Memorial was a venerable institution having served the community for more than 80 years and known widely for its outstanding research and patient care, in particular, its work in cardiovascular diseases, neurology, emergency medicine, geriatrics, and palliative medicine. With an annual operating budget that was approaching

$1.3 billion, Memorial was the largest hospital in the county and preeminent in the state. Myron had served on the board for 8 years and had been honored to be selected as chairman last year (he had previously served as vice-chair along with three other board members and had been a member of the executive committee for 5 years).

The hospital was led by Dr. Dirk Figuerllo, a towering figure at close to 7 feet tall with a booming voice that added to his commanding presence. Figueroa often referred to as Dr. Dirk, was a Belgium native who had done pioneering work in palliative medicine and hospice care in his native country before coming to the United States. He was internationally recognized as one of the foremost experts in the field and worked tirelessly to raise awareness of palliative medicine through advocacy with institutions such as the World Health Organization and the American Medical Association. He was an eloquent speaker on the subject who was often quoted as having said, Honoring life by providing physical, psychological, and spiritual support to the dying and their loved ones are one of the most important acts of a civilized society. Supporting patients and their families this way, rather than with expensive, extraordinary, and often intrusive medical care during the patients dying days, is both loving and responsible.

Dirk had been recruited to the CEO position 10 years earlier to cement Memorials reputation as a preeminent provider of palliative care. Under his leadership, Memorial enhanced its Palliative Care Center (PCC) and, in response to unabated worldwide demand, developed an active consulting and training program that provided technical assistance and support to other institutions and health care professionals that sought to replicate the model. He was not only a dedicated physician, he was also respected for his managerial talent and fund-raising skills. Under his leadership, Memorial had increased the size of its endowment from $200 million to nearly $500 million. In fact, Dirks leadership inspired Myron to pledge $100 million to the hospital during Memorials most recent endowment campaign. It was the largest single gift ever received by the institution.

Last week, Dirk asked Myron to meet with him privately to discuss an urgent matter pertaining to the PCC. Myron, I dont know any other way to relate this news to you, so Im just going to be straightforward: Memorial is under investigation by the Office of the Inspector General for falsely billing Medicare for hospice claims. Known for his expert poker skills and for his ability to be calm under pressure, Myron didnt show his surprise. OK, Dirk, he said. Why dont you start at the beginning and explain exactly whats going on and how we got into this mess.

With no show of remorse, Dirk began the explanation. Medicare guidelines allow providers to receive payment for providing hospice patients up to 6 months of care. The amount Medicare pays out per patient depends upon the level of care provided and varies according to the services provided. For example, Medicare pays approximately $150 per day for routine care (a category in which very few of our patients fall) and up to Libby,

approximately $900 per day for 24 hour support. Our own records indicate that approximately 13.8% of our patients during the past 5 years stayed at PCC or received PCC in-home services for more than 180 days, which is a violation of those terms. An audit of our records by the Centers for Medicare & Medicaid Services

uncovered that discrepancy, which has led the government to demand repayment of what they consider to be overcharges, as well as to levy a hefty fine on Memorial. The total charges come to $142 million, which exceeds the $120 million annual operating budget of the PCC. Given our reputation in the field, Im not sure they would have thought to audit us; however, we were exposed by a part-time internal audit manager who blew the whistle because she felt we were cheating the government.

I understand, said Myron. That is, I understand the Medicare rules as youve explained them to me, but how in the world did this happen? You said, our own records indicate that nearly 14% of our patients received

services longer than was permitted. Were you personally aware that we were violating the law all this time? How could that be Dirk?

Dirk sighed impatiently, and he became irritated. Myron, the fact of the matter is that palliative care is a calling, a calling to provide care with dignity to the dying and to support their families during that process. Death doesnt have a stopwatch. We cant judge with scientific accuracy the exact date when someone with cancer, heart disease, or Alzheimers is going to die. Yes, I knew this was occurring with a relatively small portion of our patient population, but I also knew that it was immoral to remove critically important services from these people. We are a nonprofit hospital Myron. It is our duty and our mission to serve people in need. It just so happens that many of these longer term patients were also low income, and that is a palliative care population you dont see at for-profit hospitals because frankly, they are not profitable to serve. We are doing Gods work here. You cant

put a price on that.

Well obviously the federal government has put a substantial price on that, Dirk, and its one that we are going to have to figure out how to pay, responded Myron. I suggest we call an emergency meeting of the executive committee to discuss how we should respond to this situation.

Three days later, the executive committee met in closed session in a hospital conference room. Attending the meeting were Jerry Goldstein, vice president of Memorial and a prominent trial lawyer; Greg Anderson, vice president of Memorial and CEO of Anderson Construction; Dr. Kenneth Gold, vice president and neurosurgeon; Harris Baum, treasurer, and private wealth manager; and Dr. Ellen Foster, secretary and retired psychiatrist.

After hearing Dirks explanation that was accompanied by detailed PCC financial statements, patient census reports, and findings from the Medicare investigation, Ken spoke.

I cannot believe you had the audacity to make this kind of decision, to provide what was essentially illegal care

or perhaps better statedcare that was billed illegally to Medicare, to nearly 14% of the PCC patients without discussing this with the board. You said, Dirk, that this was a relatively small percentage of the PCC patient population; however, small is a relative term. The penalty we are facing isnt small at all. Youre jeopardizing the reputation of the hospital and our financial viability as an institution, which is just unconscionable. I know you think that Memorial is all about PCC and spreading the word about its good works, but its not. Were more than that. As the physician representative on this board, I like to think that we provide a lot of excellent care in other areas as well. Im terrified that the person who leaked this information to Medicare will go to the press. Why not? Its only a matter of time.

I have to agree with much of what Ken has said, said Ellen, although her tone was considerably calmer. We hired you, Dirk, because you are an expert in this area. That expertise doesnt give you license to knowingly flout the law and damage the financial standing and good name of this hospital. If you had come to the board with a proposal to subsidize the care of these people who needed to be with us for longer than the guidelines allow, that would be one thing. But to do this without our knowledge. I just dont know what you were thinking. Libby,

Harris spoke next. Gentleman, this is not the time to excoriate Dirk for his behavior. It is incumbent upon this committee to devise a plan for how we will address this situation. As I see it, there are several options before us. First, perhaps we can negotiate the amount of the penalty Medicare has levied from $50 million down to $15 or

$20 million along with a long-term payment plan for the remaining charges? Jerry, my guess is that you have access to or knowledge of colleagues who may be able to assist with those endeavors. That said, even if we are

successful in doing so, it will not provide an answer as to where we will get access to the funding needed to

reimburse the $92 million in wrongly billed charges. We have been very fortunate with our fund-raising; however, those monies are locked into endowment accounts that cannot be used for this purpose. It is unlikely that our most generous supporters will be eager to dig us out of a hole. Donors want to see momentum, not regression. Therefore, although a special fund-raising campaign may appear to be a second option (one that is tethered to the first option), on the surface, it does not seem realistic. Third, and perhaps this is our best option, we can investigate selling off the PCC unit to a for-profit hospice provider that will assume the debt. Whatever we decide, we must decide quickly as, like Ken, I have to believe that the whistle blower will be sharing this

information with the press in short order.

Harris, youre reading my mind, said Greg. Tom Windwood is a good friend of mine. We play golf together at Brayburn twice a week in the summer. Hed chomp at the bit at the chance to buy our palliative care unit. It would be a coup for Peaceful Promise and a relatively painless way to get us out of this mess.

That will defeat the whole purpose of what we are trying to do at this hospital! cried Dirk. Everyone who is in the palliative care business knows that for-profit hospices are adept at not enrolling patients that require more expensive and extensive types of care. Two separate studiesone published in Health Affairs and the other by the American Medical Associationdocument this widespread practice. The federal government is wrongnot us! We need to take a public stand to fight this injustice, not cow to it!

Gentlemen, please settle down, said Myron. It is the duty of this executive committee to examine our options and to make a recommendation to the board about how we should proceed. Given the urgent nature of the situation, we must do so quickly and with utmost care to consider the consequences of our actions.

Case Questions

1. As a board member, what information would you need to make this decision? Which staff members, if any, should be involved in this decision?

2. What are the consequences to Memorial of selling the PCC unit to Tom Windwood, who heads a for-profit operation? Would you recommend the board vote to move in this direction?

3. What kind of public announcement, if any, should the board make to the press about the investigation? What should be the timing of that announcement?

4. Who within the organization should be held accountable for what occurred?

5. What kind of interaction should the board has with its donors concerning this information?

6. How should information about this inquiry be shared with the PCC staff?

7. How does this case relate to Bryces characterizations of a nonprofit mission as described in the introduction to this chapter?

8. How might a situation like this be avoided in the future?