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Chain buying Bayfront Medical Center under scrutiny, but riding high

Bayfront Medical Center’s board of trustees has voted to move forward with selling Health Management Associates an 80 percent controlling interest in the hospital.

MELISSA LYTTLE | Times (2011)

Bayfront Medical Center’s board of trustees has voted to move forward with selling Health Management Associates an 80 percent controlling interest in the hospital.

ST. PETERSBURG — What with an ongoing federal investigation, high-profile lawsuits and a 60 Minutes report alleging improprieties in its emergency room practices, the hospital chain that wants to buy Bayfront Medical Center has seen its share of unwanted attention recently.

But Health Management Associates on Wednesday reassured many on Wall Street by announcing a "definitive agreement" with Bayfront to acquire an 80 percent controlling interest in the 480-bed St. Petersburg hospital. HMA's stock price hit a 52-week high after the announcement.

The terms haven't yet been disclosed, but analysts speculated that the price will be between $160 million and $230 million.

The deal is pending approval by the St. Petersburg City Council, as the hospital sits on city-owned land. While some members have been concerned about what they don't know about the Naples-based company, most appear prepared to approve a 50-year lease sealing the sale of a beloved not-for-profit hospital to a for-profit chain.

"We want to make certain that there's nothing else out there like the 60 Minutes" report, said council member Leslie Curran. She said she wasn't sure how she will vote when the issue comes up in a few weeks. But she acknowledged that given its financial struggles Bayfront may have no choice but to merge with a deep-pocketed partner.

"If they want to remain a community hospital they have to do something," she said.

Council members say they are reassured that Bayfront board members rigorously vetted their partner.

Senior vice president Alan Levine, who heads the company's 22 hospitals in Florida, said that HMA has never faced major sanctions by federal health regulators, as other chains have.

"We have an infrastructure in place to make sure we do things the right way," he said.

But a veteran analyst says HMA's admissions patterns suggest possible Medicare overcharges. She also notes that federal investigators have subpoenaed records related to the company's emergency room management and physician referrals.

Meanwhile, some elected officials in St. Petersburg are complaining that Bayfront and HMA haven't been open about the inquiries.

"It looks like we're being spoon fed," council member Wengay Newton said.

• • •

Soon after Bayfront announced its partnership with HMA last fall, 60 Minutes aired a report featuring doctors who formerly worked in HMA emergency rooms — none in Florida — who said they were pressured to admit patients to bolster profits.

Former director of compliance Paul Meyer said he was fired for reporting "systemic billing fraud" at four facilities, including Physicians Regional Healthcare System in Collier County. He is suing the company in Florida. He says HMA, with hospitals in 15 states, "improperly" admitted patients rather than treating them through less expensive outpatient observation.

Physicians Regional was also the subject of a whistleblower case brought by the hospital's former CEO, who accused HMA of providing kickbacks to physicians in exchange for referrals. The federal government declined to get involved. HMA executives highlight it as an example of attention-grabbing allegations that didn't hold up.

As part of their vetting, representatives from Bayfront visited Physician's Regional, as well as HMA facilities in Tennessee. They found "no red flags," said Steven Dupre, a St. Petersburg lawyer who is vice chair of the Bayfront board. Bayfront's attorneys also reviewed the pending litigation, finding "nothing out of the ordinary, and most important, nothing systemic to the overall system," Dupre said.

But attorneys in a class action lawsuit filed last year by the Norfolk County (Va.) Retirement System say HMA has been misleading investors by propping up profits dishonestly.

"HMA's entire business model was unsustainable," the lawsuit states, "because it relied on HMA continually acquiring additional facilities with low-to-normal out-patient observation rates and then improperly increasing the in-patient admission rates and improperly collecting Medicare reimbursements in order to artificially inflate revenues and overstate net income."

HMA's Levine stressed that allegations are only that. "The federal government has not accused us of anything," he said.

He noted that in the Tampa Bay region, All Children's Hospital is the subject of a whistleblower suit alleging that it overpaid physicians. Not-for-profit BayCare Health System recently agreed to pay the federal government more than $10 million to settle allegations of overbilling Medicare.

• • •

Sheryl Skolnick analyzes HMA's stock for Connecticut-based CRT Capital Group. She doesn't buy the company's claims that the lawsuits and investigations are just the gripes of former employees. "Just because somebody is an ex-employee and they're angry doesn't necessarily mean they are wrong," she said.

Skolnick analyzed Medicare data obtained from a private data vendor, comparing the company's admissions patterns to peer hospitals in local markets. Between 2006 and 2010, the majority of HMA hospitals had high short-stay admissions rates — and low observation rates — compared with local competitors. That suggests HMA hospitals admitted more patients for expensive stays, while monitoring fewer in a lower cost setting.

"It may be perfectly legitimate, but it's exactly that combination of things you don't want to see if you don't want to be investigated for fraud," she said.

Skolnick currently has a "sell" rating on HMA stock, the only such recommendation, according to the company's website. HMA officials say they believe her data and analysis are flawed. In recent weeks, other analysts have been about evenly divided between recommendations to buy or hold HMA shares.

• • •

St. Petersburg City Council member Charlie Gerdes criticized Bayfront and HMA leaders for not alerting officials that 60 Minutes was investigating HMA. But he defers to the hospital's local leadership on the unanswered questions.

"For the part that I just can't know about, wondering if the whistleblower suit will ever come to anything, I am trusting those folks who have looked under the covers at HMA," he said. "I'm relying on my knowledge of two or three (board members) personally — their intelligence, their integrity, their diligence — to have sense whether anything smells or not."

Bayfront's 13-member board of trustees voted unanimously to move forward with giving the company an 80 percent controlling interest in the hospital.

"I'm a natural born skeptic," said Dupre, the board's vice chair. "But I have come away really feeling that this is going to be a win-win-win for Bayfront, for the community and for Health Management."

Key promises are being secured in writing, he said, although the documents aren't public. Mayor Bill Foster, a consistent supporter of the deal, has said privatizing the hospital will enrich the city's tax rolls. Hospital leaders say they have guarantees that HMA won't change Bayfront's charity care policy, and it will invest at least $100 million in capital improvements over five years.

HMA has committed to making Bayfront a referral hub for a network of six smaller HMA hospitals from Port Charlotte to Brooksville. This includes the company's three current hospitals in the region — Pasco Regional in Dade City and the Brooksville and Spring Hill regional hospitals.

Bayfront will have equal representation on a board running the hospital. "If a worst case arises, we've got protections," Dupre said.

So if, for example, a settlement with the federal government puts HMA out of business?

"We're going to get the hospital back," Dupre said.

Times researcher Natalie Watson contributed to this report. Letitia Stein can be reached at lstein@tampabay.com.

.FAST FACTS

Hospital board

Here are the members of Bayfront Medical Center's board of trustees: Bernadette "Bernie" Young, chair, professional development consultant; Steven Dupre, vice chair, lawyer; Sue Brody, Bayfront president and CEO; Dr. Larry Davis, pathology; Dr. Juan Escobales, primary care; Dr. Trina Espinola, ear, nose and throat; James Gillespie, lawyer; Jeff Hearn, financial adviser; H. William Heller, university dean; Jay Miller, developer; Katie Pemble, banker; Dr. Vibhuti Singh, cardiology; Monte Trammer, retired publisher

Chain buying Bayfront Medical Center under scrutiny, but riding high 02/06/13 [Last modified: Thursday, February 7, 2013 12:06am]
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