Chapter 4
“It Was All About Being the Solely Hospital”
Moore didn’t keep lengthy in Albany. He knew the combat to beat the competitors from Palmyra would all the time be ugly. Nearer to the top of his profession than the start, he didn’t have the power for it. However he knew somebody who did, his 34-year-old protégé, Joel Wernick. The 2 males had met when Wernick was a star proper guard on his highschool soccer staff in Fort Smith, Arkansas, and labored as a groundskeeper on the hospital that Moore ran. Wernick was brash and aggressive, Moore instructed me, and he inspired him to go to enterprise faculty and pursue a job like his.
Wernick took Moore’s recommendation and have become a part of a rising variety of hospital directors who’d been educated in enterprise, not drugs. “They had been the sort of males — and the overwhelming majority of them had been males — who would stroll right into a room with a pregnant lady and instantly know the way a lot her care was going to value, slightly than the sort of one who may stroll into that very same room and know instantly what care that lady would want for a secure supply,” mentioned Richard Ray, a former Phoebe vice chairman. “They’re each necessary, however they’ve completely different priorities.”
In 1988, Moore advisable Wernick to the Hospital Authority of Albany-Dougherty County, whose 9 members authorized Phoebe’s spending and operations. From the second Wernick arrived in Albany, his No. 1 precedence was to do away with Palmyra. He had a robust ally within the chair of the authority, William Harry Willson, who would maintain the place for 31 years. A Harvard Enterprise Faculty graduate, Willson had transformed his household’s pecan farm right into a profitable mail-order enterprise, helped discovered a neighborhood financial institution and have become town’s main philanthropist.
Albany’s economic system had shifted from agriculture to trade. In 1968, Firestone had opened a manufacturing unit that employed some 1,600 employees. Procter & Gamble had constructed a paper merchandise plant in 1973. Throughout the metropolis’s white institution, previous and new cash had been vying for affect. Willson and Phoebe represented the previous, Palmyra the brand new. To listen to Phoebe’s supporters clarify it, Palmyra was pushed by racism and greed. Not solely did it present scant care to the poor, however it had no obligations to take a position any of the cash it was making off of Albany into Albany. In the meantime, as a public hospital, Phoebe was legally obligated to serve the poor, and within the years when the hospital ran a deficit, the county’s taxpayers had been on the hook to make up the distinction.
Willson moved to make Phoebe a enterprise, too. Amongst his first directions to Wernick was to achieve out to Palmyra’s mother or father firm and provide to purchase it out. When the Hospital Company of America turned him down, they determined that the one method Phoebe may compete was to increase, and the one method it may increase was to vary its governance.
The 2 persuaded Dougherty County to relinquish oversight of Phoebe and switch it to a personal administration firm that will additionally finance its operations. Underneath the brand new construction, the county would retain possession of the particular constructing however lease it to the brand new entity for $1 a yr.
That lease nonetheless stands because the county’s solely leverage over how the hospital is run. County officers can revoke it with out warning, though the circumstances of the lease go away so much to Phoebe’s discretion. It broadly requires that Phoebe present high quality care to the group at an affordable value — with out defining what which means — that it spend 3% of its income on free and sponsored take care of the poor and that it uphold Phoebe’s founding promise to deal with all folks, irrespective of their capability to pay.
With that transfer, Phoebe Putney Memorial Hospital grew to become the centerpiece of the Phoebe Putney Well being System. Managed by Wernick, the well being system was now free to pursue enterprise ventures within the wealthier suburbs outdoors the county limits with the identical tax-free standing as earlier than however with out the identical burden of public scrutiny.
Underneath Wernick and Willson’s management, the hospital authority authorized lots of of hundreds of thousands of {dollars} in bonds for the development of latest clinics, workplace towers and medical wings, together with some that weren’t in Dougherty County. Somewhat than staging hallway tirades to get docs to refer their paying sufferers to Phoebe, Wernick purchased their practices. He lobbied to stop Palmyra from acquiring a state license to ship infants through the use of Georgia’s strict certificate-of-need provisions, which put limits on the sorts of well being care providers that may be supplied in anyone market.
The legal guidelines are supposed to stop large chains from squeezing out smaller hospitals, however in observe they usually stifle the competitors. Wernick refused to barter charges with managers of factories who complained that the prices to insure their employees in Albany had been increased than in different cities. When Blue Cross, Georgia’s largest well being insurer, moved to incorporate Palmyra in its well being care plans, Wernick threatened to withdraw from the community if it went forward with the deal. It didn’t.
In 10 years, Wernick dramatically reshaped Phoebe from a small group hospital in a small metropolis to a behemoth hospital system unfold throughout the state. In 1998, a decade after Wernick arrived, The Wall Road Journal reported that the hospital’s revenue margins had been double the nationwide trade common. Alongside the best way, although, he had made enemies. In 2003, Phoebe’s chief of surgical procedure and a neighborhood well being care accountant began sending a sequence of nameless faxes to companies, accusing Phoebe and Wernick of an array of extreme and predatory habits. The faxes, referred to as Phoebe Factoids, had been drawn from public data and leaks. Numerous the allegations they made had been true — that Phoebe paid its executives excessive six-figure salaries; that it handled the members of its board of administrators to all-expenses-paid journeys to Europe and the Caribbean; and that it employed aggressive measures to gather medical money owed from the poor. However the info was couched in a lot spin and crude innuendo that it wasn’t straightforward to inform what was correct and what wasn’t.
For months, the Factoids held Albany in thrall. Wernick used his connections within the district lawyer’s workplace — led by a Putney descendant — and a former FBI agent to assist him examine who was behind them. As soon as he knew who the authors had been, Phoebe sued one in all them for defamation. They introduced their very own fits in opposition to Wernick and Phoebe, accusing them of retaliation. All sides denied the allegations.
Finally the faxes stopped, and the lawsuits had been dismissed or dropped, however not earlier than attracting consideration from state and nationwide media, which, in flip, acquired the eye of Iowa Republican Sen. Charles E. Grassley. The chair of the Senate Finance Committee, he was launching an investigation into whether or not nonprofit hospitals like Phoebe had been giving sufficient again to their communities to justify what they had been receiving in tax breaks.
The committee launched its findings in 2006, and so they had been devastating. Among the many 10 hospitals that answered the senator’s questions, eight of them submitted details about the quantity of free and discounted care they supply to the poor. In accordance with the committee, Phoebe’s phrases had been the least beneficiant. It provided free providers solely to folks whose earnings was below 125% of the poverty line and discounted care to these beneath 200%. Underneath these phrases, a single mom with two dependent kids who earned greater than $21,000 a yr wouldn’t qualify totally free care. The opposite seven hospitals lined sufferers whose earnings was at the very least one and a half instances that a lot.
Much more damning was how aggressively Phoebe pursued sufferers with medical debt. The hospital instructed the committee that it had filed lawsuits in opposition to greater than 1,000 folks in the course of the earlier 5 years and that just about 40% of these fits concerned individuals who owed lower than $500.
Many years later, once I spoke with Dean Zerbe, who led the Grassley investigation, he acquired labored up once more about Phoebe’s debt assortment practices. “They weren’t doing that as a result of they genuinely anticipated to gather $500,” he mentioned. “When hospitals go after folks like that, it’s as a result of they don’t need them to come back again.”
Three former executives at Phoebe instructed me that the Grassley report rattled Wernick, as a result of he couldn’t disparage the findings as a “terrorist conspiracy” the best way he had achieved with the Factoids. It wasn’t the one public relations hit. The Albany Herald printed an accounting of the properties the hospital was buying within the downtown historic district, elevating questions in regards to the drain on the county’s property tax base. In 2006, The Related Press reported that Phoebe had used its relationship with the county authorities, which has the facility of eminent area, to drive a 93-year-old retired home employee named Julia Lemon out of her house. The hospital wished to raze the home in order that it may increase a day care heart for its workers. A jury dominated in Lemon’s favor.
That very same yr, the Albany Herald obtained a deposition through which the hospital’s chief monetary officer revealed that Wernick’s compensation got here with a protracted record of perks, together with a rustic membership membership, six-figure bonuses, an car of his selection each three years and a termination settlement guaranteeing that if he was fired for trigger, he’d obtain three years pay until he was convicted of a felony. This was on prime of a $650,000 wage.
If all that wasn’t sufficient, in 2009, the battle between Wernick and the authors of the Factoids grew to become the topic of a feature-length documentary. The timing of all of the protection couldn’t have been worse. Crops in Albany had begun to close down, and hundreds of individuals had been being thrown out of labor: Bob’s Candies (236 workers); Merck (273 workers); MacGregor Golf (200 workers); Flint River Textiles (230 workers); and, the largest hit, Cooper Tire, which had changed Firestone (1,268 workers). On their method out of city, plant managers complained that one of many causes for the closures was the excessive value of well being care.
Sandra Morris was a human sources supervisor on the Procter & Gamble plant, which didn’t shut however whose workforce has shrunk through the years. “I used to be attempting to do the whole lot I may to decrease our prices,” she instructed me. However, she added, “I used to be preventing a monstrosity of a hospital.”
The battle with Palmyra ended when Phoebe least anticipated it — when it appeared prefer it had misplaced. Palmyra utilized in 2008 for a license to ship infants. Phoebe spent hundreds of thousands of {dollars}, together with $8.8 million to the agency of its lead lawyer, Robert Baudino, to problem the request. Palmyra took its case to court docket, charging Phoebe with a number of antitrust violations, and it received. In April 2010, the eleventh U.S. Circuit Court docket of Appeals dominated in opposition to Phoebe and, in remanding the case, advisable that the well being system may very well be held answerable for damages amounting to 3 instances the worth of any provable hurt.
Those that labored with Wernick instructed me that he noticed the ruling as a matter of life and loss of life. The damages Phoebe may need to pay would intestine its funds. Simply as troubling was that Palmyra’s capability to start delivering infants would have dealt a major blow to Phoebe’s capability to compete for sufferers. I’ve spoken to quite a few folks about Wernick, and the one high quality that each his allies and detractors agree on is that his willpower to win was excessive. The place they disagree is about his motives. His supporters say that he operated on the assumption that what was good for Phoebe was good for Albany and that it was his dedication to doing proper by the group that compelled him to combat as laborious as he did. To his critics, he was solely eager about constructing a well being care empire, whether or not that was what Albany wanted or not. Lynda Hammond, a former Phoebe vice chairman, instructed me that for Wernick “it was all about being the one hospital, not the higher hospital.”
Three months after the eleventh Circuit’s ruling, Wernick dispatched Baudino to Hospital Company of America’s headquarters to debate, once more, Phoebe’s curiosity in shopping for Palmyra. The one public data of how the deal was consummated come from the filings made by the Federal Commerce Fee, which mounted a authorized battle to undo it.
In accordance with these data, HCA seized on Phoebe’s vulnerability and requested for $195 million in money, which was greater than twice Palmyra’s web income for the earlier 12 months and which the FTC mentioned “far exceeded” different latest hospital offers. HCA demanded that the settlement be saved confidential till it was signed. Additionally, if the acquisition didn’t undergo, both due to antitrust challenges or opposition from the hospital authority, Phoebe must pay the chain a breakup price of some $52.5 million.
Wernick offered the phrases to the hospital authority per week earlier than Christmas. Baudino, Phoebe’s lawyer, was assigned to symbolize the authority. Because the FTC would later level out in a authorized criticism, this put him within the place of each pitching the merger and weighing its deserves. He advisable that the authority approve the deal. Seven of its 9 members attended the assembly, and so they voted unanimously in favor.
Emotions among the many residents of Albany, who didn’t study in regards to the buy till after it was signed, ranged from confusion to outrage. The Albany Herald quoted opponents to the deal saying that it was “mind-boggling” that the hospital authority would conform to a merger of this magnitude with out taking time to do an unbiased evaluation of its potential influence on the fee and high quality of care. They accused the members of the authority of conducting themselves as “brokers of the hospital” slightly than representatives of the general public good.
Inside months, the FTC sued Phoebe, describing the hospital authority as a “rubber stamp” and the deal as a “merger to monopoly” that will “trigger customers and employers within the Albany area to pay dramatically increased charges for very important well being care providers.” The company identified that many individuals within the metropolis had been “already struggling to maintain up with rising medical bills.” It added that the merger was additionally more likely to “cut back the standard and selection of providers obtainable.”
Over time Phoebe had achieved many issues to lose the arrogance of the group it was purported to serve, however the buy of Palmyra — at an enormous value, revealed solely on the final minute, with out public enter or any evaluation of its repercussions — was a turning level for a lot of residents.
