MPR: Allina shakes up board

Allina shakes up board
By Tom Scheck, Minnesota Public Radio
August 10, 2001

Allina Chief Executive Officer Gordon Sprenger, who now works solely for the hospitals and clinics, says the company will continue to work with Attorney General Mike Hatch as he completes his audit of the company and will entertain any of Hatch's suggestions.
(MPR Photo/Tom Scheck)

Allina Health System has named a new board of directors for its hospitals and clinics. The move means the group's 17 hospitals and 47 clinics are now legally separate from its HMO, Medica. The shakeup follows months of pressure from Attorney General Mike Hatch, who has alleged Allina executives misspent millions of dollars on excessive consulting fees, administrative expenses and perks. Hatch says he's winding up his audit of the big health group, and will make the report public by Labor Day.

THE NEW 21-MEMBER BOARD for Allina's hospitals and clinics will be comprised of 10 members of the old boar, five people who served on the boards at Allina's individual hospitals and six others. The announcement comes one week after Allina completely restructured the Medica board, which also resulted from negotiations with the attorney general's office. Although Allina executives said it was a business decision to split up the company, Attorney General Mike Hatch reportedly asked the company to make the move in July.

Hatch has been investigating Allina for months. He alleges the company spent 47 percent of its health care premiums on administrative expenses, which would be far higher than industry standards. He also says the $2.6 billion company wasted millions of dollars on consultants and lobbyists.

Allina Chief Executive Officer Gordon Sprenger, who now works solely for the hospitals and clinics, says the company will continue to work with Hatch as he completes his audit of the company and will entertain any of Hatch's suggestions. "Certainly within the last few weeks, we have been in constant dialogue with the attorney general regarding our plans, so he certainly is well aware of our plans and has been pleased that we have been interested in his concerns and have been moving ahead accordingly. So I believe that he too wants to move ahead as we do," Sprenger told a news conference.

Hatch says since the Medica and Allina boards have now been restructured, he'll complete his audit soon and submit it to the two boards. He says both boards should be given the opportunity to start from scratch and says he achieved his goal by reorganizing the boards. "They are responding in a constructive way looking forward, so I suspect that their response, and I offered this, that rather than having to waste a lot of time making corrections is to simply sit down with the office and work out a compliance agreement," Hatch said.

"It's unprecedented from the health plan's perspective, to be in a position that you can abide by all the law and still get into trouble with the attorney general. "

- Michael Scandrett
Minnesota Council of Health Plans

Hatch says he expects to make the audit public by Labor Day. Hatch said many of Allina's new board members would only serve if they were not held personally liable for damages from any lawsuits against Allina's actions in the past. Sprenger said the indemnity clause was standard business practice for anyone joining a new board and says there have been no allegations made against the company.

Officials for Allina say the company will name a few more physicians to the board in the coming months. Five doctors have already been named to the board. That pleases Ramsey Medical Society's Dr. Roger Moravec. He says the new board should show a commitment to patients and doctors. "Allina as a provider organization really needs to address the issues of the key provider group - the physicians - that are providing care with the patients. It's important to have issues that affect the doctor-patient relationship represented at the board level," according to Moravec.

The new Medica board named last week has no doctors, and Moravec says he and other physician groups will continue to lobby the attorney general and Medica's board to change that.

While some doctors and consumer advocates are cheering Allina's break up and Hatch's investigation, others say the attorney general is overstepping his authority. Under the state's charities act, Hatch has the power to investigate any non-profit in the state, and since HMOs that serve Minnesota customers are required to be non-profits, Hatch has broad powers over their operations.

The Minnesota Council of Health Plans' Michael Scandrett says Hatch is changing Minnesota's health care marketplace by himself. "It's unprecedented from the health plan's perspective, to be in a position that you can abide by all the law and still get into trouble with the attorney general. That is a very unusual situation, very unsettling and very difficult to prepare for," Scandrett said.

Attorney General Mike Hatch says he's pleased with the selection of new corporate board members for Allina and in the Medica health maintenance organization, which is being spun off from the company. Listen to his comments.
(MPR Photo/Michael Khoo)

But critics of the HMO industry say Hatch's investigation is holding the HMO industry accountable for the money it spends. Nevertheless, Kip Sullivan, who sits on the board of the Minnesota Physician Patient Alliance and is a vocal critic of the HMO industry, says Allina's break up into two companies won't do much to improve health care. "If this split up and a new Allina board has any effect at all, it's going to be on the price side. I don't have any reason at all to think that we'll see any change on the quality side," Sullivan said.

But some health care economists say Allina's break up could also have a negative economic effect. Bob Connor, a professor of hospital administration at the University of Minnesota, says hospitals and clinics throughout the country have had their credit ratings lowered in the past few years. "Minnesota has been successful in limiting that because the large organizations and the stability of the market are viewed as good things by the bond rating agencies and that could be one negative fallout if this causes a lot of disruption or fracturing," Connor said.

Allina's Sprenger says he isn't worried about the company's finances. He says state law requires Medica to have a specific cash reserve on hand and maintains that Allina has enough assets invested.

The bigger problem for Allina may be a continuing federal grand jury investigation into allegations it overcharged the federal Medicaid program by at least $19 million.

Editor's Note: David Strand, chief operating officer of Allina, is the chairman of the Board of Trustees of Minnesota Public Radio. Two other MPR board members also serve on the board of Allina, and one other MPR board member was recently appointed to the board of Medica, which is being spun off from Allina. MPR maintains an editorial firewall between its board and administration, on the one hand, and its news division, which makes independent editorial decisions, on the other.

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