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Hatch releases audit of Allina
By Laura McCallum
Minnesota Public Radio
September 24, 2001

Minnesota Attorney General Mike Hatch has released his year-and-a-half-long investigation into the state's largest health-care organization, Allina Health System. At the same time, Allina announced it's agreed to pay $16 million to settle a federal investigation into improper billing. The two actions end the state and federal probes into Allina, and the company says it's trying to move forward with new management and policies preventing wasteful spending.
Left to right: Medica Board Chairman Ted Deikel; John Morrison, Allina Board Chairman and Attorney General Mike Hatch announce the findings of Hatch's audit of Allina. Listen to Hatch's comments.

See Hatch's audit report on the attorney general's Web site.

THE ATTORNEY GENERAL'S FINDINGS contained in seven fat binders detail what's been leaked to the press for months: Allina spent millions of dollars on executive perks and consultants. The final book says Allina's HMO, Medica, actually spent close to 19-percent of customer's premiums on administrative costs, not the 12 to 13 percent that Medica has reported to the state. "Allina, simply put, had no direction. In short: it needed leadership," Hatch said.

Hatch says new leadership is now in place. As a result of Hatch's investigation, Allina split its hospitals and clinics from the one-million member Medica, CEO Gordon Sprenger is retiring and Chief Operating Officer David Strand, who chairs the MPR Board of Trustees, has resigned. Both the Allina and Medica boards have been replaced and are now chaired by former business executives that Hatch helped select. Two board members serve on both the Allina and MPR boards.

Hatch says he doesn't intend to take any further action against Allina. "Nobody got away with anything," Hatch said. Look through these things! You'll see salaries, you'll see trips, things that I think are embarrassing to people, and I think public outrage and condemnation is about the strongest penalty you can have."

Hatch has not charged Allina with any crime, although an agreement between his office and the company says his office believes Allina has engaged in misconduct and may have violated the law.

Hatch's audit was prompted by a federal fraud inquiry into whether the company was improperly billing Medicare and Medicaid for nine years, an investigation that has also come to a close. The new Allina board chair, banker John Morrison, says the company will pay the federal government $16 million to settle the matter. "I think that there were substantial mistakes made. Wrongdoing is not for a corporate executive to determine, that's up to the authorities. But there were lots of mistakes and a lots of changes need to take place," Morrison said.

Some of those changes are spelled out in the agreement between Allina and the attorney general's office. It places strict limits on company spending, prohibiting the company from paying for country club and golf club dues, spa charges and spousal travel.

Medica Board Chair Ted Deikel, the former Fingerhut CEO, says Medica's administrative costs are higher than they should be, and are being reigned in. "What I will describe as low-hanging fruit has already been attacked, which is consultants and travel and entertainment and incentives and salaries; we're on that one like a wet blanket. The next issue, is really big dollars, which is technology," Deikel said.

Sen. Doug Johnson, DFL-Tower, says now that Hatch's audit is complete, he'll hold a hearing to look at whether health-care dollars are being managed wisely, and he questions whether the state's Commerce and Health departments have been doing their job in monitoring health-care organizations.
Deikel says Medica must also work to restore credibility with the public. That credibility may also be in doubt following an internal investigation released by Allina into whether the company tried to improperly influence a key state senator.

Attorney Doug Kelley's investigation found former Allina executives and lobbyists discussed whether to convince Sen. Doug Johnson, DFL-Tower, to cancel a legislative hearing on the audit, by promising to build a new facility in his district.

Johnson, who chairs the Senate Finance Committee, says he talked to Gary Cerkvenik, a long-time DFL consultant linked with top Allina executives, but Johnson says no deal was offered, and he wouldn't have accepted one. "Neither he, nor anyone else, ever suggested an exchange, and that's why I was so disappointed and upset to see that Kelly report, to see all the weird things that were going on within that company," Johnson said Monday.

Johnson says now that Hatch's audit is completed, he's rescheduled his hearing for October 30. He says he'll look at whether health-care dollars are being managed wisely, and he questions whether the state's Commerce and Health departments have been doing their job in monitoring health-care organizations.

Health Commissioner Jan Malcolm says her office is doing what the Legislature has asked it to do, by looking at the overall financial solvency of health-care organizations. Malcolm, a former top Allina official, says she's not sure her office should be in the business of micromanaging HMOs. "I would quote the governor a little bit here and say I think it is questionable whether we really want to get into the business of trying to legislate poor business judgment. It's been pointed out that there was no violation of law, just some questions about how good the judgment was that was being used, about the appropriateness of expenses," Malcolm said.

Malcolm says the administrative expenses detailed in Hatch's audit are just a small slice of the pie, and not the main reason for increasing health-care costs. But Malcolm says the audit will spark a needed debate on the future of health care in the state.