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Senator wants more oversight of health care industry
By Tom Scheck
Minnesota Public Radio
October 30, 2001

The chairman of the state Senate Finance Committee is calling on state agencies to get tougher with the state's health care providers. The committee held a hearing Tuesday on Attorney General Mike Hatch's audit of Allina Health Systems. Senate Finance Chairman Doug Johnson says legislators need to meet with Gov. Ventura's staff to come up with a better way to monitor how HMOs spend their money. Meanwhile, officials at both Allina and Medica say they will lay off workers as a result of Hatch's investigation.

Attorney General Mike Hatch testifies before a state Senate committee Tuesday on oversight of Minnesota's health care providers, along with one of his assistants.
(MPR Photo/Tom Scheck)

Sen. Doug Johnson, DFL-Tower, says routine audits by the departments of Health and Commerce should have found that Allina executives spent millions on administrative costs and executive perks. Instead, those findings came out of a special audit by Attorney General Mike Hatch. Johnson says a bipartisan group of legislators, along with members of Hatch's office, should meet with the departments of Health and Commerce to make appropriate changes.

"It shouldn't have taken the attorney general to have to bring a lawsuit. It shouldn't have taken on my part to threaten hearings in the last legislative session for Allina to open up its books to the attorney general," Johnson said. "This should have been done by Health and Commerce in the past. They dropped the ball, but we're going to move forward. We're going to work with them to get them up to speed and not allow this Allina-type situation to happen in the future."

Hatch and representatives for both the Health and Commerce Departments agreed to Johnson's request.

Hatch released his audit of Allina Health Systems in early September. Standing beside the eight-binder report he's released on the company, Hatch pointed to charts that highlighted the company's use of consultants, polls and travel. He alleges Allina executives spent millions on travel and consulting unrelated to health care. He says the company also wasted millions on administrative costs.

Hatch announced in September that he will not pursue legal action against Allina. But he told the committee he was still looking into what he called a "costly, overpaid" $80 million contract between Medica and United HealthCare of Minnetonka. Medica is the HMO subsidiary that Allina has spun off into its own company.

Hatch says Medica is overpaying United HealthCare for its billing and underwriting service. He says Medica could get a more competitive offer for those services.

"I'm not here to attack United HealthCare. If somebody was willing to give me a fat contract, I'd go and take it. I'm pointing out that there's something going on at Medica that was kind of unusual - telling people you cannot go and compete on this. Even though they're being told - by what turns out to be the consultants for United HealthCare - that you're getting ripped off. All I'm saying is I want this renegotiated," Hatch said.

John Morrison, the chairman of the board for Allina's hospitals and clinics and interim CEO, says the company will reduce its corporate overhead by $30 million this year.
(MPR Photo/Tom Scheck)

Hatch also told the Finance Committee the Internal Revenue Service has taken an interest in his audit. The IRS will determine if Allina or its executives broke any federal laws.

As Hatch released his investigation in portions over the summer, several Allina executives resigned, Allina spun off Medica and the boards of directors at both companies were replaced. The new board chairmen at Medica and Allina told the committee they were making making major changes. John Morrison, the chairman of the board for Allina's hospitals and clinics and interim CEO, says the company will reduce its corporate overhead by $30 million this year.

"We'll be reducing the executive salaries for 2002 by a little under $4 million, which will represent 10 percent to maybe 15 percent layoffs in our corporate structure. That's the parent structure, not in patient care or hospitals and clinics," Morrison said.

Medica board chairman Ted Deikel says his company has cut $14 million this year. He says the company cut consulting contracts, instituted a hiring freeze and eliminated what he called the "low-hanging fruit," such as unnecessary travel.

He says Medica will eliminate another $16 million in administrative expenses through corporate layoffs.

"The fact is, administrative expenses were not being managed carefully. Premiums were going up, health care costs were going up, and management let administrative spending rise with these costs - even though membership at Medica has been virtually flat for five years," Deikel said. "It's totally unacceptable, there no justification. It was simply sloppy management."

Deikel said he wasn't prepared to announce how many people will lose their jobs, or where they work in the company. Hatch says he'll also conduct audits at two other HMOs, HealthPartners and Blue Cross Blue Shield.

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