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A break-up for Allina
By Bill Catlin, Minnesota Public Radio
July 20, 2001
First of two parts
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Under pressure from Minnesota Attorney General Mike Hatch, the state's largest health system will split into two independent organizations and make changes in top management. Allina Health System says its hospital and clinic division will separate from its Medica HMO. Hatch has been conducting an audit of the organization and has criticized Allina's spending and financial management. But Allina officials say the decision is not part of any deal, and that Hatch affected little more than the timing of the decision.

January 2001: A federal grand jury reportedly investigates charges that Allina Health System defrauded government programs during the 1990s

. March 22, 2001: Attorney General Mike Hatch files lawsuit accusing Allina of spending millions of dollars on golf trips, spas, image consultants and other items, and asks company to hand over thousands of financial documents. Key legislators call for hearings.

March 26, 2001: Allina retains a marketing and public relations firm to aid in "crisis management."

March 30, 2001: Allina agrees to cooperate with Hatch's ongoing review of Allina's expenses.

June 5, 2001: Hatch's office asks for all documents pertaining to outside consultants providing "crisis management."

June 28, 2001: Allina agrees to turn over some documents, but withholds others citing trade secrets and lawyer-client privileges.

July 11, 2001: Hatch files a motion claiming Allina misused lawyer-client privileges to withhold documents.

July 18, 2001: Hatch urges breakup of Allina Heath Systems.

July 20, 2001: Allina Health System announces restructuring of Allina to create a health plan organization and a health care delivery organization.

August 2, 2001: Allina replaces the board of directors of Medica, under pressure from Attorney General Mike Hatch. Listen the story.
HATCH HAS CRITICIZED Allina Health System for spending millions on items, including golfing trips, lobbying, and consultants. He has also reportedly urged Allina to separate its 19 hospitals and 48 clinics from its Medica HMO, which has 1 million members. Allina officials say they have decided to do just that.

CEO Gordon Sprenger says Hatch affected the timing, but the question came up as far back as 1998, and a split has been under active consideration since last fall. "This is the strategy that we really believe is in the best interest of the citizens of this state, but in terms of affecting the actual strategy that the board is deciding, this has been in the works for many many months," Sprenger said.

Hatch has reportedly alleged internal conflicts of interest, including that Allina used Medica premium dollars to prop up the finances of the hospital and clinic division and corporate office, resulting in higher premiums for Medica's members.

Allina officials say what Hatch saw as conflicts, they view as efforts to integrate the two systems. They say state and federal public policy in the early 1990s encouraged the integration of hospital and clinic services with the function of providing health insurance.

Allina was created from the merger of the Medica HMO and Healthspan hospital organization in 1993. Allina Chief Operating Officer David Strand, who is also chair of the Minnesota Public Radio Board of Trustees, says things have changed.

"The public policy support for this model has eroded over time from both the state level, the federal level and now the marketplace, and so all we think we're doing here is responding to those changed conditions," Strand said.

Strand was Sprenger's heir apparent, and while he says he supports the split, he still wants to run an integrated health organization. He will leave Allina after a transition period. Sprenger will retire after the transition.

Allina officials said integration wasn't working for them as well as expected. They say 25 to 30 percent of people enrolled in the Medica HMO use Allina hospitals and clinics, compared to 75 percent among most similar integrated health organizations.

"Our determination is that the marketplace just isn't there. They aren't willing to restrict where they go, or be told where to go," said Gordon Sprenger, who says consumers want choice.

It remains unclear what affect the Allina decision will have on his investigation or a separate federal grand jury investigation of alleged overbilling of government health programs, allegations Allina disputes. Allina CEO Gordon Sprenger says he doesn't know if the split addresses all Hatch's concerns, but Sprenger says he assumes it addresses some of them. Sprenger says Allina is in active discussion to bring the situation to closure. He says Allina's patients and HMO enrollees should not feel any effects from the split.

But Hatch is being non-committal, and he says he's not calling off the investigation. "There are a lot of issues we're talking to them about, but unfortunately, we're not talking about them publicly. What they do publicly is their business, that's not ours. We've raised a number of issues with the company and we will continue to discuss those," he said. Hatch says he expects to wrap up the investigation later this summer.

HealthPartners HMO President George Halvorson says he's surprised by his competitor's decision but, he says it will probably be good for consumers because it helps ensure broad access to Allina hospitals. "At this stage of the game, we have good contracts with the Allina hospitals and with the medical group. One of the concerns has been that over time, those contracts might deteriorate because of strategic decisions made by their health plan, and the possibility of that happening is now gone," Halvorson said.

Halvorson also affirms Allina's position that consumers insist on choice. He says integrated health networks like Allina can be an excellent way to deliver care, but it can be difficult to mesh the different parts.

Next: Assessing the impact of Allina's break-up