Hospitals probed on free-care billing

Attorney General Thomas Reilly's office is investigating excessive billing by hospitals to the state's $800 million free-care pool, a fund used to pay hospitals for treating uninsured patients.

The probe overlaps with a state audit that documented unusually high charges, including prescription drug prices routinely inflated by as much as 300 percent and radiology exams billed at many times the normal rate.

Reilly's office would not discuss the scope of its investigation yesterday other than to say it touches on issues contained in state Inspector General Gregory W. Sullivan's audit of the pool.

A Reilly spokeswoman, Beth Stone, said that her office was reviewing allegations of improper billing to determine ''whether healthcare funds are being used properly and efficiently." Sullivan's audit report, publicly released in November, detailed a number of high billings submitted by an undisclosed number of hospitals to the pool, but it did not allege any illegal activity. It did provide a detailed look at how some hospitals boosted charges for uninsured patients to maximize reimbursements from the free-care pool. The hospitals with the largest population of free-care patients are Boston Medical Center and Cambridge Health Alliance, which includes Cambridge Hospital, Somerville Hospital, and Whidden Memorial Hospital in Everett.

The result of the billings, in combination with weak oversight by Governor Mitt Romney's administration, was excessive payments of ''tens of millions of dollars a year" to an undetermined number of hospitals, according to the report.

Executives at the hospitals told state auditors that they boosted charges to make up for shortfalls in Medicaid reimbursements, the audit report said. But in interviews yesterday, officials from Cambridge Health Alliance and Boston Medical Center said they did not believe their charges were excessive, unless, in the case of Cambridge Health Alliance, the overbilling was inadvertent.

Reilly's office did not name any specific hospital as a target of its investigation. Sullivan's audit report detailed a number of specific overcharges, but did not name specific hospitals. But a source who was briefed on details of the audit's findings identified which hospitals were responsible for some of the practices.

The auditors found that Cambridge Health Alliance charged the state about 300 percent more for pharmaceuticals than other hospitals charged the pool, or about $30 million in questionable charges during a 30-month-period from 2002 to 2005.

Cambridge Health Alliance, the auditors found, also overbilled for 5,000 prescriptions for $5.3 million in billings over that period that would have amounted to $285,000 at another hospital. Hospital officials told auditors that those overbillings were unintentional and blamed ''data entry and software errors."

In one example of those errors, the report said, the hospital charged the pool $6,469 for 100 tablets of the anticholesterol drug Lipitor, for which it should have charged $224. In total, overcharges for Lipitor amounted to $1 million.

Although variation in what insurance companies and Medicaid pay hospitals is common, the disparities in the free-care pool billings were well outside normal parameters, the auditors said.

For instance, Boston Medical Center dramatically marked up charges for CT scans: $2,677 for a specific type of scan compared to $272 to $436 that Medicare or a private HMO would pay.

The audit also found that lab tests that were supposed to be billed in the aggregate for a patient were ''unbundled" by an unnamed hospital and billed individually, resulting in excessive charges.

Hospitals also were lax in their responsibility to verify that patients' incomes and lack of insurance qualified them for free care, the audit said. It identified one patient whose bills were paid for by the pool, but who had an income of $118,000, had sold a home for $400,000 and had a Porsche 911 registered in his name. Another patient had an income of $350,000 and a third had an income of $198,000.

Officials from Cambridge Health Alliance and Boston Medical Center would not discuss whether any of their practices were the ones detailed in the report. But they did respond generally to the findings.

Boston Medical Center vice president Thomas Traylor said there was no deliberate effort to overcharge the free-care pool. ''There was nothing that came up with BMC where that would be accurate," he said. Boston Medical Center officials could not be reached last night to comment on the involvement of Reilly's office.

Cambridge Health Alliance senior vice president/chief financial officer Gordon H. Boudrow Jr. said the state agency that manages the pool, the Division of Healthcare Finance and Policy, has not conducted an audit of the pool for two years. But if it had, he said, any errors would have been detected, and the hospital would have repaid them.

Boudrow said he had received a request for patient records and bills from Reilly's office last spring, but that he was not aware of any link to the inspector general review, which he said began in the summer.

How to reform the state's free-care pool is among the major issues facing Senate and House negotiators who have been trying to develop a compromise on proposed legislation to expand health coverage to between half a million and 700,000 Massachusetts residents who lack insurance. About 450,000 individual patients receive care from the pool annually.

The pool is filled every year through a $160 million tax on the state's hospitals, a matching $160 million levy on insurance companies and large employers with self-insurance plans, and supplemental federal Medicaid money.

Although 67 hospitals and 185 community health centers provided care in 2004 that was compensated by the pool, Cambridge Health Alliance and Boston Medical Center are the largest billers because they treat the largest number of patients without insurance -- about 25 percent at each hospital. Fourteen smaller hospitals also treat a significant number of free-care pool patients.

A major weakness in the system, according to Sullivan, is that Romney's administration has not effectively scrutinized claims and billings. It does not have a system similar to Medicaid and private insurance companies to examine the legitimacy of individual claims and billings, he said.

''The fact that we don't have such a system is preposterous," Sullivan said.

''The pool is a mystery wrapped in an enigma wrapped in a conundrum," he said. ''It's an economic and statistical black hole."

Timothy Murphy, Romney's secretary of health and human services, said the division responsible for running the pool has scrutinized bills. But he said the pool was not intended to work like an insurance company with an intense focus on adjudicating claims.

As part of its healthcare reform plan, the Romney administration has proposed eliminating the pool, which it says would no longer be needed because individuals would be required to have insurance. In the last year, the administration has required hospitals to screen free-care patients for Medicaid eligibility and then enroll them in MassHealth. It has managed to slow the rate of spending growth in the pool, from a 29 percent increase in 2004 to 3.7 percent in 2005.

''It has become a bit of a backwater insurance program, and it was never designed to do that," Murphy said.

Christopher Rowland can be reached at crowland@globe.com.