Death and Profits
In the coming weeks, as the push for health-care reform collides with efforts to reduce the national deficit, one federal program is virtually guaranteed to get caught in the crunch: Medicare. Lawmakers in Washington are targeting that sprawling program A primarily for those over the age of 65 A for spending cuts. Some reduction in Medicare's budget seems inevitable, and lobbyists for businesses that depend on Medicare are working hard to protect their financial interests.
Among those health-care providers with the best chance of escaping unscathed is something called hospice: organizations that tend to the needs of the terminally ill in their last days and that emphasize home care over hospitalization. (See sidebar.) If the nation's little-known but rapidly expanding hospice industry does manage to dodge the budget-cutters' axe, it's likely that some of the credit will go to the Reverend Hugh A. Westbrook, an unassuming Methodist minister who lives in North Miami Beach.
Westbrook and hospice are nearly synonymous in the U.S. Not only was Westbrook a pioneer in the growth and development of hospices, today he runs the largest hospice operation in the nation. VITAS Healthcare Corporation (until recently known as Hospice Care Inc.) holds another distinction: contrary to the tradition of hospices being nonprofit organizations staffed by selfless volunteers, VITAS is an extraordinarily successful for-profit business.
Dying people have made Hugh Westbrook a very wealthy man. In the fifteen years he's been involved with the hospice movement -- originally as an idealistic champion of nonprofit altruism -- Westbrook has gone from humble son of a railroad worker with a modest North Dade ministry to multimillionaire businessman who no longer leads a congregation and no longer preaches, at least not in a church. At age 48 he owns a secluded, lushly landscaped home on North Miami Beach. He cruises on one of his several boats. He vacations at his getaway home in the North Carolina mountains. His personal business horizons have expanded to include an interest in at least eight Florida corporations. And he owns the controlling stake in VITAS, which by his own estimate could be worth as much as $50 million.
Though he refuses to discuss his salary or net worth, Westbrook acknowledges, "I've made a good living out of this. The company I created is worth a lot of money, and so on paper I created a lot of wealth. That was sort of not the intended result of what I set out to do. It is something that sort of happened along the way."
Former company officials, however, say there is nothing haphazard about the manner in which Westbrook has benefited. For example, an independent audit conducted in 1991 revealed that Westbrook had leased his 56-foot sport-fishing yacht to his own company for business and entertainment purposes. Over a two-year period, he received more than $360,000 for its use. He maintained a similar arrangement with his vacation home in North Carolina. And in a complex sale a couple of years ago, he and a partner netted four million dollars by selling one of his companies to another he controlled.
At a time when health-care providers nationwide are on the defensive, Hugh Westbrook's future looks bright. Which is not so surprising in light of the fact that he helped craft the state and federal laws that regulate the hospice industry. Those laws, enormously favorable to Westbrook's business interests, were passed at a time when Republican administrations held sway in Washington and Florida. Today Democrats are in charge, which has only enhanced Westbrook's stature in the corridors of power and stands to shield him and his industry from major reform or heavy cutbacks in Medicare revenue. For Westbrook himself is a Democrat. A very important Democrat.
Though he has received virtually no publicity in Miami for his business or political activities, over the years Westbrook, his family, friends, and companies, have contributed hundreds of thousands of dollars to the election campaigns of Democrats in Florida and around the nation. He has given jobs to politicians and their relatives. He served as finance chairman for Nebraska Sen. Bob Kerrey's ill-fated but well-funded presidential bid last year. Today he holds the influential position of finance chairman of the Democratic Senatorial Campaign Committee and will be responsible for raising up to $24 million for upcoming U.S. Senate races. His personal ties to powerful Democrats run directly to the White House.
As Reverend Westbrook and his long-time business partners -- Esther Colliflower and Don Gaetz -- have built an empire and amassed a fortune, they have also attracted their share of critics, state and federal regulatory authorities among them. Westbrook and his associates have never been accused of violating any laws governing the hospice industry, and the quality of care they provide to patients has never been seriously questioned. But an expose three years ago in the Chicago Tribune reported allegations of wrongdoing and sparked an investigation by the Office of the Inspector General for the U.S. Department of Health and Human Services. The results of that investigation, which examined the business practices of Westbrook's hospice operations in the Chicago area, raised serious questions of propriety, but federal prosecutors declined to pursue the matter.
The principal criticisms leveled at Westbrook are generally framed in philosophical terms and arise from the fact that his hospices, unlike nearly all others, are profit-making ventures. Typical is that offered by Bernice Wilson, executive director of the Ohio Hospice Organization: "The notion of making money off of terminally ill people is what almost reflexively is tough for a lot of the public, and it is particularly tough with people in the hospice movement."
"Hospice is very much a mission, a calling," says Larry Beresford, author of The Hospice Handbook. "The patients that are cared for are dying, and this is a very special time in their life, so what we do has a very powerful, emotional connection to the patients. And doing this for profit just sort of rubs people the wrong way."
"It is difficult to serve two masters," adds Audrey Gordon, a chaplain and hospice expert who helped form several nonprofit hospices in Chicago and who is also a professor at the University of Illinois School of Public Health. "If one of your masters is your investors, you can't properly serve your other master: your patient. The top three concerns, at all times, have to be the patient and their family, the patient and their family, the patient and their family. And if you are for-profit, those can't be your top three concerns."
Westbrook brushes off such reproaches. "I hope this company gets much larger than it is," he says emphatically, "because I hope there is a time in which anybody who is terminally ill will have access to a hospice program that is as good as ours. It is one of the greatest social-reform movements that has happened in the last ten years A very quietly, very low key. We make a difference in the way people die."
As for the queasiness many people feel at the thought of profiting from those who are dying, Westbrook is confidently self-assured. "I make no apology about it at all," he says. "I did not get into this for a profit motive. Our company is not run with a profit motive. The company has a mission, and we make enough money to pay our bills and to keep the investors interested. And that's the way it ought to be."
Westbrook weathered the federal investigation and dismisses the criticism from his nonprofit colleagues. And while doing so, he has prospered. Last year, for example, his hospices in Miami, Fort Lauderdale, Dallas, Houston, Fort Worth, Chicago, and Cincinnati served nearly 15,000 patients and generated revenues estimated at $130 million. Those figures are far higher than any other hospice corporation in the nation, 96 percent of which are nonprofit. One out of every ten terminally ill patients in a hospice today is being cared for by Westbrook's company, which is scheduled to open a Philadelphia branch in the next few weeks. More expansion can be expected, though Westbrook will not discuss his plans in detail.
Indeed the hospice industry as a whole has reason to be optimistic about the future, even in the highly charged atmosphere of the national health-care debate. According to figures provided by the Congressional Budget Office, total expenditures for hospice care have risen from two milliondollars in 1984 to a projected $920 million by 1994. In Florida, which has the highest percentage of elderly people of any state in the nation, Westbrook's share of that lucrative market is assured. His friends in the state legislature granted him a monopoly in Dade and Broward counties. Hugh Westbrook and Hugh Westbrook alone is permitted by law to operate profit-making hospices in South Florida.
Fisher Island may seem like a ritzy place to start what at the time was exclusively a nonprofit movement, but in 1977 it was merely an island where the University of Miami had a few teaching facilities and not a whole lot more. Reverend Westbrook and Esther Colliflower, an educator, were there to attend a mental health conference. The two had been teaching a class on issues related to death and dying at Miami Dade Community College and thought the conference would be a good place to float their idea for a hospice program.
"Esther and I put a sign up on a tree," Westbrook recalls. "It said that if you were interested in starting a program to actually take care of terminally ill people, then meet here at 2:00 p.m."
Of the 200 people who were attending the conference, only about 30 joined the minister and the nurse at the appointed hour. "We all sat down under that tree," Westbrook continues, "and Esther and I told them, 'Look, we're probably not great teachers, we're certainly not great researchers and writers, but we think we can put together a program here that will actually take care of dying people.'"
That group of 30 shrunk to a core group of six, who met every week for six months. "We really didn't even know what a hospice was back then," the minister says, "but by 1978 we were taking care of patients. Out of the original group, Esther and I ended up being the people who stuck with it."
In 1978 Westbrook and Colliflower, a nurse who had raised eight children before embarking on a career in teaching, formed South Florida's first formal hospice program A Hospice of Miami. "We had no money," Westbrook remembers. "There was no reimbursement from Medicare, and all of the home-health people tried immediately to put us out of business. They went to the state and complained that we were taking care of patients without a license and doing home care without a license. And they were right. We were. We didn't know any
better, we were all volunteers."
The next year, 1979, Westbrook trooped up to Tallahassee to fashion a special license for hospices. Luckily a friend of his had just been elected to the legislature: Carrie Meek. The former state representative (now a member of Congress) had taught at Miami Dade Community College at the same time as Westbrook and Colliflower. "We used to do leadership seminars together for students," Westbrook notes. "So I went to Carrie and said we needed a licensing law that defines hospice separate from everyone else. I sat down with a yellow legal pad and outlined the law, what it was we wanted. We were trying to do something different for dying patients and give them an alternative."
Among the provisions of the proposed law: all hospices had to be nonprofit and they had to provide care regardless of whether a person had the ability to pay. "We did those things to stop the Medicare-mill type operations and to keep the for-profit home-health industry from jumping into hospice and taking it over," he says without mentioning the irony of his current position as a for-profit giant. "You have to realize that hospices are generally small community organizations. They couldn't stand some big corporation coming in with competing interests. Putting those requirements in, we've kept a lot of people out."
Meek used Westbrook's notes to draft a bill, but by then it was too late to have any new measures introduced for that 1979 session. Meek and Westbrook appealed to State Senator Jack Gordon for help, knowing the Dade Democrat was a powerful politician. "Jack talked the Speaker of the House into waiving the rules to allow Carrie to introduce the bill," Westbrook explains, "and Jack agreed to sponsor the bill in the Senate." With his bill now introduced, Westbrook had to get it passed. "For the first time in my life I went up and started lobbying."
Almost immediately he picked up another important ally, the wife of then-Governor Bob Graham. "I ran into her at a hearing," Westbrook recalls. "Bob had been a state senator from my area. My church was in North Miami Beach. I talked to her about hospice, and she thought it was great and she got behind it." Eventually so did everyone else. "The idea of taking care of dying people the way we do is pretty difficult to be against," he says. The hospice bill passed both the House and the Senate -- unanimously - on the last day of the legislative session.
The Florida law that Gordon and Meek sponsored was the first in the nation legally recognizing hospices and establishing procedures for them to become licensed. But it was really nothing more than a piece of paper. "We had sort of outsmarted ourselves," Westbrook muses. "What we found out was that the license and a quarter would get you a part of a cup of coffee."
That same year, 1979, the Carter administration decided to experiment with the hospice concept as a way to bring down the cost of health care. Twenty-six hospice programs around the nation would be selected as test cases and would be allowed to seek reimbursement for their services through Medicare. Westbrook cites one study that claims 40 percent of the money spent on health care during a person's life is expended during the final twelve months. Doctors, Westbrook says, simply got into the habit of placing terminally ill patients in a hospital bed A where the costs are exorbitant A even when there wasn't any hope for recovery. By caring for a patient in his home, through a hospice program, the patient could spend his final days or weeks in a more comfortable and less expensive environment.
"We applied and we were selected," Westbrook says, still somewhat amazed. "We were surprised because at the time we didn't know anyone in Washington. This gave us the financial base to take this idea that Esther and I had, and instead of taking care of one patient at a time, which is what we were doing, we actually were able to get up to five patients at a time."
Their program in South Florida began to expand. They branched into Broward and called their new operation Hospice Inc., which of course was nonprofit in keeping with the Florida law. They went from serving one patient at a time to five, then to dozens.
Westbrook was confident the Medicare experiment would prove that hospices were cost effective. But there was no guarantee Congress would accept the results and permanently expand Medicare coverage to hospice programs. Before the test results were announced, he began organizing nationally to lobby Congress. "We found that there was a hospice group, or somebody trying to put together a hospice, in every single congressional district in the country," Westbrook says. "We pulled those people together and we started to lobby."
Helping Westbrook was Don Gaetz. The two men were opposites in many regards. Westbrook was an ordained Methodist minister whose clerical assignments had introduced him to cancer wards and inner-city poverty. He had taught and read scripture at York Memorial United Methodist Church on North Miami Beach. He was a Democrat. Gaetz was a Republican who had worked several years as an aide to two United States senators before becoming vice president of a chain of hospitals in Florida.
Hospice was virtually the only common ground they shared. Gaetz had tried to form programs in Wisconsin and in Jacksonville, Florida, and soon after meeting Westbrook and Colliflower, he quit his job to work with the two Miami hospice pioneers.
Building on what he had already accomplished in the Florida legislature, Westbrook, along with Gaetz, began piecing together a bill that would provide Medicare reimbursement for hospices. Florida's legendary congressman Claude Pepper was an obvious and early supporter. "But the real person who got behind us was a congressman from California named Leon Panetta," Westbrook says.
By 1982 a Medicare funding bill that reflected Westbrook's ideas was in both the House and the Senate. Then the Congressional Budget Office reported that the recently completed experiment showed that hospices would likely save $110 million in federal tax dollars over three years. "When that report came out, everyone jumped onboard," says Westbrook. "Two-thirds of the Senate and two-thirds of the House signed on as co-sponsors of the bill." It passed in August 1982 and has been amended and expanded several times since. "That bill allowed hospices to become a reality," Westbrook continues. "It was the only expansion of the Medicare program during the Reagan administration."
Westbrook's ascent to a position of influence within the Democratic Party is understandable in light of these early days of the hospice movement. He was the young, affable minister, the humanitarian who sought only to find some way to help the terminally ill. And many of the politicians he befriended were still in the infancy of their careers. Today, for example, Graham is a United States Senator, Meek is the first black member of Congress from Florida since Reconstruction, and Leon Panetta has moved from California congressman and Westbrook supporter to the powerful position of budget director for the Clinton White House. So it's no surprise that not long ago Westbrook served on a panel with Hillary Clinton, and more recently received a personal briefing on the administration's health-care proposals at the Old Executive Office Building.
The fact that Westbrook is now wealthy has simply added clout to his connections. In the last few years, he has steered hundreds of thousands of dollars to federal congressional and presidential campaigns. In 1992, for instance, Westbrook and his key executives, family members, and various corporations contributed at least $470,000 to federal candidates, according to election records. Using this informal political action committee, Westbrook directed nearly $50,000 to his old friend Carrie Meek. Sen. Bob Graham received more than $18,000.
After shepherding the Florida licensing law and then the Medicare funding law through the political maze, Westbrook in 1982 created the Miami-based Hospice Foundation, a nonprofit organization that would help raise money to support his two nonprofit hospices in Dade and Broward. But Westbrook nurtured a dream that was bigger than South Florida. He wanted to build a national chain of nonprofit hospices, and that would require more money than his newly formed foundation could collect.
Initially, Westbrook and Don Gaetz say, they solicited grants and sponsorship from large foundations. They even tried to borrow money from local banks. But no one was willing to lend to a nonprofit company. So in January 1984, the two men, along with Esther Colliflower, formed Hospice Care Inc. (HCI), a for-profit company hoping to attract investors to open a chain of hospices. (Outside Florida, of course, where profit-making hospices were still prohibited.) "We backed into the idea of establishing a for-profit organization because of necessity," Gaetz says.
Not everyone in the traditionally nonprofit hospice movement was understanding, however. In 1982, when the Medicare laws were being expanded to include hospices, Gaetz served on the board of directors of the National Hospice Organization A the trade association representing about 80 percent of all hospices in the U.S. He had gone on to become the group's president and chairman. But in 1984, when Westbrook, Colliflower, and Gaetz formed HCI, a battle erupted on the board. "People felt betrayed," recalls Claire Tehan, who runs a nonprofit hospice in Southern California and who was a member of National Hospice Organization's board in the mid-1980s. "Here Don and Hugh had been saying we need the Medicare benefit in the name of taking care of dying patients, and then in the next breath they created a for-profit company. There were a lot of people upset with how quickly they moved to become a for-profit. They are very sharp businessmen and politicians. I've learned a lot from them, I really have, although I wouldn't want to follow in their footsteps." Gaetz soon resigned from the board and devoted his energies to promoting HCI.
But even with the company's for-profit status, investors proved elusive. Westbrook and Gaetz say they turned down a number of offers from people who were willing to provide the money, but only on condition they not squander resources on charity care for those not covered by Medicare or Medicaid (the medical program for those living in poverty).
Westbrook, though, had a vision of the way things were going to be. No matter what difficulties he was experiencing in attracting profit-minded investors, he would eventually succeed in marketing hospices across the country. And he wouldn't let his nonprofit obligations in Miami stand in the way. So he made a pivotal decision. It was a straightforward proposition: either Hospice Inc. A the nonprofit corporation he created A would begin paying his new for-profit company a management fee, or he and Esther Colliflower would resign from the corporation's board of directors. (While Florida law prevented profit-making businesses from owning hospices, it did allow them to manage hospices for a fee.) It was also a defining moment in Hugh Westbrook's life, when his calling to bring hospice to the people turned from a simple mission of mercy to a far more complicated and calculating fusion of piety and profit.
Today Westbrook unabashedly contends that it was a "great business decision" for the nonprofit Hospice Inc. At the least it certainly wasn't a very difficult decision. After all, Westbrook and Colliflower had formed the nonprofit organization. Westbrook was chairman of its board of directors; his wife, Carole Shields, was also a voting board member. And the remaining directors had been invited by Westbrook to sit on the board with him. "It was us," he acknowledges when pressed to clarify the decision-making process. "I guess we could have quit and they could have tried to hire other people, but we started the whole enterprise." With the two founders threatening to walk away, the full board agreed to pay Westbrook and Colliflower's for-profit company, HCI, $140,000 in management fees.
Westbrook's search for investment capital finally led him to a California group willing to put up $3.5 million to open for-profit hospices in Dallas, Atlanta, and New Orleans. The hospice program in Dallas was opened in 1984, but soon thereafter the investors grew skittish and wanted to pull out. Plans for Atlanta and New Orleans were scrapped.
By the end of the year Westbrook received a memo from his chief financial officer informing him the company was technically bankrupt and that he should shut it down, take whatever cash was still available, and divide it among the executives as part of a lucrative severance package. "That was his last act," Westbrook recalls. "I fired him."
Slowly the company rebounded. Don Gaetz attributes that revival, and a large measure of HCI's eventual success, to a special law he and Westbrook ushered through Congress in 1986. Before that time, hospices had been required to seek reimbursement from the federal government only after they had provided services to Medicare and Medicaid patients. Many cash-starved hospices went out of business while waiting to be paid, which could take three months or more. To avoid suffering the same fate at HCI, Gaetz says, he and Westbrook lobbied for advance payment based on the projected number of patients a hospice would serve. "We were able to get Congress to add this in 1986," Gaetz says proudly. "I can't overestimate the importance of this." After the measure was signed into law, HCI, well versed in its intricacies, was the first hospice in the nation to take advantage of it. "We were able to get a leg up on some of the other hospice programs," Gaetz adds. Today hundreds of hospices use the advance-payment system.
By the end of the 1980s, with advantageous federal legislation propelling them, Westbrook and his partners had opened additional hospice programs in Houston, Fort Worth, Chicago, and Boston. "There were a lot of people who started hospices back when we did who aren't around any more," Westbrook boasts. "It wasn't that they didn't have a good idea, they had a great idea just as we did. But they were the kind of people who couldn't organize a two-car funeral." In a more restrained moment, Westbrook elaborates: "One of the fortunate things, frankly, for the movement is that the first for-profit, national, rapidly growing, professionalized chain of hospices wasn't a bunch of guys who went out and raised a bunch of money trying to figure out a way to start a business so they could become wealthy. Instead it was movement people who very successfully took an idea and made it work very well."
As Westbrook's company grew, so did the management fees he charged his own South Florida nonprofit, Hospice Inc. Within five years the annual rates soared from $140,000 to $2.3 million in 1989 and $2.6 million in 1990. Westbrook defends the increases and argues that for a number of years he lost money providing more services than the management fees covered. (Only later would an independent appraiser, hired by Westbrook himself, determine that he had overcharged the nonprofit by more than a million dollars.)
Despite growing business from the nonprofit, Westbrook says he was frustrated. He was in the business of owning hospices, not managing them for a fee. The solution, he decided, was to transform his nonprofit South Florida program into a profit-making business, like his other hospice operations around the country. But how? Florida law -- the very one he had so earnestly forged years earlier -- banned for-profit hospices throughout the state. Reverend Westbrook found the answer: You ask a neighbor for help.
State Rep. Mike Abrams and Hugh Westbrook have been friends for twelve years. "He lives just two minutes from me," Abrams eagerly offers. "It's stating the obvious to say that he is a successful businessman, but to me he has just been a very committed friend. And from my vantage point, we share the same political and social values and we both believe that the best way to impact those is through the system. First and foremost, though, we're friends.
"I'm a Hugh Westbrook fan and I'm a big Carole Shields fan, his wife," Abrams continues. "I helped to get her on the Dade Public Health Trust [which oversees Jackson Memorial Hospital] and introduced her to people. I think she's been an incredible asset."
According to the House Journal, the official record of proceedings in the Florida Legislature, a 35-word amendment was added to 1989's House Bill 950, which concerned rural health care: "Notwithstanding statute 400.601(2), any hospice operating in corporate form exclusively as a hospice, incorporated on or before July 1, 1978, may be transferred to a for-profit or not-for-profit entity, and may transfer the license to that entity." Mike Abrams offered the amendment, which was accepted, passed during a special session, and signed into law by Gov. Bob Martinez.
Only three hospices in the State of Florida were incorporated before the July 1, 1978, cut-off date: Westbrook's Hospice Inc., which was formed on June 13, 1978; and one program each in Orange and Pinellas counties. There was never any doubt, though, regarding the intended beneficiary of the measure. "We asked for it for us," Westbrook readily acknowledges, "so that we could merge our local hospices here into our national company. And our national company was for-profit."
The legislation was introduced quietly and without fanfare. In fact, the directors of the hospices in Orange and Pinellas counties were not aware the law was being changed. "We were surprised by it," says Mary Labyak, executive director of the hospice in Pinellas County, which remains nonprofit. "It makes me a little concerned about the future of hospice. I think it made a lot of us wonder where hospice was going."
"In Orlando we didn't even realize it had been done until after the law had been passed," adds Brenda Horn, executive director of Orange County's nonprofit hospice program. "We were not consulted about it at all." But if she had been consulted, she would have opposed the change. "I agree with the hospice licensing law the way it was originally written A that hospices in the State of Florida should be run as nonprofits," Horn argues. "It's a philosophical difference. I think it's important that the dollars that are received by hospice programs -- and the majority of them are tax dollars from Medicare and Medicaid -- that those dollars be put back into those programs in those local communities rather than be given to private investors and shareholders."
If Westbrook believes that having one for-profit hospice in the state is a good idea, why not just open up the law to allow any nonprofit hospice to become for-profit? Or for that matter, allow outside for-profit companies to come in and compete? "If it ain't broke, don't fix it," he responds.
"The Florida hospice licensing law has worked very well. There have not been abuses. There have not been rip-off artists getting into it."
The legislation Representative Abrams introduced for his friend also happens to work very well as a barrier to potential competitors in the spectacularly lucrative South Florida market. Today Westbrook enjoys a legal monopoly that guarantees his company will be the only for-profit hospice operating in Dade and Broward counties. Says Abrams today: "If that's what we did and there are others that would care to change it, then okay A there is nothing wrong with leveling the playing field. But nobody has come to me to change that. We could certainly look at it if someone was interested."
Having accomplished his goal, Westbrook made his move on Hospice Inc., the South Florida nonprofit he founded. He told the board of directors (from which he had recently resigned) that his company was no longer interested in managing the hospice programs in Dade and Broward. "We made it clear to the nonprofit people here that the future really wasn't going to be with us," he recalls. "We were interested in building [new for-profit hospices]. Management was not the business we were in."
He made an offer to the board members: sell him the nonprofit company or look for another firm to run the business. In June 1990, the board consented and sold the Dade and Broward hospice programs. Price: $4.5 million.
But it was not Westbrook's for-profit company, HCI, that purchased the hospices. It was Westbrook and Esther Colliflower personally. Westbrook explains that he and Colliflower did not control a majority of HCI's privately held stock at the time. As a result the nonprofit's board members A the people Westbrook had invited to serve on that board A didn't want to entrust the hospices to HCI. "So we bought it," Westbrook says flatly. "The two of us."
About a year and a half later Westbrook regained control of his for-profit business after buying out several investors. He and Colliflower then decided to sell the former nonprofit hospices to their own company, HCI. An independent appraiser was brought in to determine how much Westbrook and Colliflower should pay themselves. The value was set at ten million dollars.
But the appraiser also determined that in 1989 and 1990, HCI had overcharged the nonprofit more than a million dollars in management fees. Faced with this report, Westbrook and Colliflower voluntarily agreed to refund $1.5 million to the old nonprofit company. (The nonprofit's board donated all the money to the Dade Community Foundation.)
With that settled, Westbrook and Colliflower then sold the Dade and Broward hospice programs to HCI for ten million dollars. Even with the refund as compensation for overcharging, the two nonprofit founders earned four million dollars in personal profit from a company they owned for just eighteen months.
As Westbrook and Colliflower were dramatically rearranging the hospice landscape in South Florida, a number of employment opportunities sprang up for individuals outside the HCI circle. The Hospice Foundation -- the nonprofit fundraising group created by Westbrook and Colliflower in 1982 -- was also being rearranged. Broader, more ambitious goals were outlined, and new leadership was needed.
In 1990 the foundation's board of directors (Westbrook was serving as chairman) hired two people to achieve those goals. The first was Westbrook's long-time friend and ally, then-State Senator Jack Gordon, as the foundation's new chairman and president; the second was David Abrams, brother of State Rep. Mike Abrams, to be the foundation's executive director.
Gordon, who retired from the senate last year, accepted the position with the Hospice Foundation while still a member of the committee that oversaw all legislative issues relating to health care. He explains Westbrook's job offer this way: "When you have a part-time, citizen legislature, every one of us has to work some place. And it's part of the understanding that you are going to run into situations where your knowledge of a certain subject is going to be helpful in finding employment." Lucrative employment. Gordon's foundation salary was set at $100,000 per year, a figure he says is not out of line considering the work he performs: delivering lectures and leading seminars for hospice industry groups, initiating new programs, and setting overall policy for the foundation, which last year raised $1.5 million in donations and grants. (By contrast, Ruth Shack, president of the Dade Community Foundation, earns a salary of $87,000. The Community Foundation administers assets of nearly $30 million and does not employ any other executive administrator. Board members are not compensated.)
David Abrams's compensation as executive director is more modest: $58,000. (Before Gordon and Abrams were hired, the foundation was run by Westbrook's wife, Carole Shields, who was not paid a salary.) A former savings and loan executive, Abrams says he learned of the job opening through his brother, the state representative. Mike Abrams acknowledges he talked to Westbrook about hiring David, but that he didn't ask Westbrook for any special favors. "If I went to Hugh Westbrook and said, 'Give my brother a job,' he would take my head off," Abrams laughs. "On the other hand, if I heard about it from Hugh and it seemed like a good fit for David, clearly I would have said, 'Hey, why don't you talk to David?' When you've got friends and brothers, there is little you wouldn't do. But I'm sure in the final analysis, Hugh made a business decision, because that's just the way he is. I'd like to think my brother is competent and he won it on the merits. But it would be silly to think I didn't facilitate the introduction."
After Gordon and Abrams were hired, Westbrook and the foundation's other board members stepped down. "We asked the entire board to resign," Abrams says, "because Jack Gordon wanted an independent board. We don't have any relations with them [Westbrook's company] any more."
Abrams, however, remains uncertain about the nature of the foundation's earlier connections to the for-profit HCI and the nonprofit Hospice Inc. Records, he says, were not well maintained. "I have never understood the corporate relationships," he admits. "I had them explained to me during my orientation and I couldn't grasp it. I found it too complicated."
But Abrams is aware of one specific connection between the Hospice Foundation and the for-profit HCI. Until this past fall, the foundation maintained a reserve of money for a program called "special needs grants." HCI patients would often develop emergency financial needs (for example, rent payments or money for food) that would not be covered by Medicare or Medicaid. Under the program developed with the foundation, HCI would write emergency checks to cover the patient's immediate needs. HCI offices nationwide would then be reimbursed by the foundation through the special-needs grants. In the last three years, HCI was reimbursed a total of $250,000 from this fund.
Westbrook contends the program was dropped because HCI decided to cover the emergency costs and free the foundation to direct its money elsewhere. But David Abrams has his own recollections. "It was discontinued because we were never really sure of the legal status of it," he says. "We had concerns. [HCI] had concerns. They were concerned that that kind of a program could be construed A now let me get the phrase right A as a charitable supplement to a for-profit company. There was a lot of concern about that."
Some people find it difficult to understand how a company like HCI can be so profitable, especially when the bulk of its income derives from Medicare and Medicaid claims designed to barely cover the costs of proper health care for the terminally ill.
The financial success of HCI (now known as VITAS) can best be described with one word: volume. "That's the only way you can make a profit in hospice," laments Bernice Wilson, executive director of the Ohio Hospice Organization, who watched Westbrook's company expand into Cincinnati earlier this year. "You have to have a very large 'census' [of patients]. It's sort of the McDonald's philosophy applied to dying. You're not going to make very much profit on each item, so you have to sell a lot of items."
To accomplish this, Westbrook employs a large staff of marketing representatives and admission counselors charged with persuading doctors, nursing homes, and hospitals to refer their terminally ill patients to Westbrook's company. Emphasis is placed on increasing the overall number of patients -- "raising census," in the parlance of hospice administrators.
"Everything was based on census," says one former HCI executive who asked not to be identified. "This is a for-profit company. Salaries are based on your success with census. Commissions, bonuses, pay for performance was all based on census. It was the organization's goal to be the largest hospice in the country and to dominate the [geographic] area that you are in."
Until recently a special bonus program rewarded admission counselors for the number of patients they recruited. With 300 patients a counselor received a bronze medal and a $1000 bonus. For 500 patients the counselor was given a silver medal and a $2000 bonus. At 750 patients the admission counselor was awarded the company's gold medal and a $4000 bonus. And after recruiting 1000 patients into the program, the counselor would earn what was called the Founder's Medal and a bonus of $10,000.
"I invented that," says HCI founding partner Don Gaetz, referring to the bonus system. "I'm a great believer in pay for performance."
Adds Esther Colliflower: "Recognition is part of any employee service. You can look at it and say, 'Well, yeah, right A you want to get a thousand patients in here.' Suppose you were to say, 'There were a thousand patients who otherwise wouldn't be provided good comprehensive hospice services.' And you know, we think that's great."
Hospice officials nationally say this emphasis on numbers is risky, as counselors may try to recruit patients for whom hospice care is not appropriate. "It blows my mind that they would pay a $10,000 bonus on the 1000th patient!" exclaims Audrey Gordon, the Chicago hospice expert. "I don't know of any other hospice in the country that does that."
The specific medals-and-money system created by Gaetz has been abandoned, but company officials acknowledge that bonus incentives are still in place. "Our bonuses and commissions are determined by the numbers. We have quotas to fill," confirms Anita Knowles, who worked for Westbrook's company as a Dade County admission counselor until this past week, when she was fired for reasons unrelated to quotas. Knowles says she was required to enroll at least nineteen new patients every week, which she did, though she says the pressure to produce was stressful. "We aren't really 'admission counselors,' we're considered salespeople," she asserts. "That's what we do A sales, just like any other business." Those who can't meet the quota, Knowles says, are terminated. "I don't think people should be fired because they didn't bring in enough dying people for them to make money on," she complains. "But this is a very, very aggressive company, and what they care about is money. It's business. And to many, the patients become numbers, not people."
Such emphasis on numbers became a public embarrassment in 1990 at Westbrook's Chicago hospice operations. "If you didn't produce, you didn't have your job for more than six months," recalls Debi Dunlap, a former HCI patient-care administrator in Chicago. "They went through administrators, general managers, and sales managers all the time. There was no retention in that company. They would rather replace than develop the people that they had. That's what the company has always been about -- the pump and the grind. If you don't produce, you're out. That was nationwide.
"It's the same with any for-profit company. It's just that when you grow the business on people who are dying, the community finds it very distasteful," Dunlap adds. "We used to go to the state hospice organization yearly convention, and people, when they ate their meals, would turn their backs to us and refuse to talk to us. It wasn't me, it wasn't personal. It was the company that I worked for."
Pressure to "grow the business" stems in part from the same federal legislation that allowed hospices to collect Medicare fees in advance, based on projected patient census. The down side to that otherwise favorable law is this: If a hospice brings in fewer patients than anticipated, it is required to refund the difference. HCI was facing that very problem in 1990.
On April 4, 1990, Neil Bennett, HCI's former corporate president based in Miami, sent a message to company officials in Florida, Texas, and Illinois. The confidential memo, a copy of which was obtained by New Times, was titled, "Cash Flow."
"As a company, we will be required to make a combined lump sum repayment to the Federal Government of $351,871," Bennett wrote. "While we will remain in a strong cash position through the third quarter of fiscal year 1990, it is imperative that each hospice materially increase their census to meet your budget projections for the fiscal year."
Bennett warned that the forecast for the fourth quarter of the year looked even worse. "To meet these financial projections and to continue to have the needed cash to pay our vendors and expand our hospices, we must show substantial net income in the second half of the fiscal year, 1990."
On May 30, 1990, administrator Debi Dunlap responded by writing a memo to her Chicago staff stressing the need for placing hospice patients in hospital beds in order to increase the company's revenues. (HCI receives nearly four times more Medicare money A $386 per day A for a hospitalized patient than for a patient who remains at home.) "The low census in both inpatient units [leased hospital wards] cannot continue to occur," Dunlap wrote, repeating the theme of Bennett's cash-flow call-to-arms. "Quite frankly, it is strangling us financially."
The memo stated that if supervisors did not fill all of the beds in their hospital units every Friday, they would be called in on the weekend to do so. Dunlap also reiterated a standing policy: All new patients should be encouraged to spend their first day in the hospital for "evaluation" purposes. Dunlap concluded her memo with this reminder: "As always your in-patient is valuable."
Both Dunlap and a general manager for the Chicago area, Mark Singer, say the latter policy came straight out of Miami. "We were being flown back and forth from Chicago to Miami to learn corporate culture, to learn how the company operated," recalls Singer, who no longer works for Westbrook's company. "They were the ones who told us to make sure the admission counselor on a new signup tried to place that patient into the hospital, at least for the first 24 hours, under the guise of educating them to the hospice program. The Miami and Fort Lauderdale managers at that time were the ones who told us that. I didn't just make that up. They told us what to do." (A company spokesman denies that any such policy ever existed.)
At some point during the summer of 1990, Dunlap's memo, and a similar one written earlier by HCI regional vice president Susan Koziol, were leaked to the Chicago Tribune. (Bennett's original memo, however, was never publicized.)
When company officials learned the Tribune may have obtained these internal memoranda and might be preparing an investigative story, they scrambled to develop a strategy for response. On August 9, 1990, two Miami executives met at HCI's Miami offices with representatives from the Coral Gables public relations firm of Bruce Rubin Associates.
Summary notes from that meeting, written by a Rubin employee and reviewed by New Times, state: "Client [HCI] informed firm [Bruce Rubin Associates] about a potential crisis situation at the Lombard office in Chicago. An internal memo written concerning the in-patient census was thought to be acquired by the Chicago Tribune. Firm offered to call the Tribune and determine if they're working on a story on HCI." Reflecting company officials' concern, the memo also suggested, "In preparation for a crisis situation, firm suggests that all upper level management employees' phone numbers should be distributed to firm and client. Those numbers should include home numbers, car phone numbers, etc."
HCI executives in Chicago were also preparing for the worst. An August 21 memo from regional vice president Susan Koziol to her superiors in Miami recapped her meeting with the company's local attorney. Koziol warned that, in the attorney's opinion, "The Chicago media at-large is uniformly unfair, dishonest, and in search of 'news' that will increase readership. It is difficult to fight the press when they think they have a story."
Koziol also addressed HCI's options in dealing with the former employee suspected of leaking the internal documents to the Tribune. "Tortus [sic] behavior has not been evidenced by the former employee which would cause interrupted business opportunities or discontinued business operations," Koziol wrote in describing the attorney's comments. "Therefore no legal action can be supported other than to legally harass the former employee, if the corporation should desire, understanding no damages could be secured."
By August 23, when it was clear the Tribune was preparing a potentially embarrassing story, HCI dispatched two of its key executives to Chicago with a different sort of mission: damage control.
Esther Colliflower and Don Gaetz arrived sometime after 8:00 p.m. and went directly to the Chicago HCI office, where the region's top officials were waiting. "It also happened to be my first wedding anniversary, so I'll never forget the date," says Mark Singer, who at the time was general manager for HCI's hospice in Lombard, a suburb of Chicago. "Don and Esther had just flown in, and from about eight or nine o'clock at night until nearly one in the morning we all met in the board room of the Lombard office."
Recalls Gaetz: "It was my instinctive reaction, as someone who had established us in the Illinois area, to go there myself and find out for myself what was going on and if necessary take whatever Draconian measures I needed to take in order to safeguard the integrity of the company and to make sure patients were being properly cared for."
Accompanying Colliflower and Gaetz were several other corporate executives from Miami. More would fly in the next day. Singer says the Miami team went through all the files in the Chicago office, searching for anything that might cause the company embarrassment. "The whole company was in a panic," recalls Singer. "They had an immense concern that a scandal like this could trigger a congressional hearing and an inspector general's investigation of the entire company, nationally. And they did not want that to happen."
The next day the Miami contingent met with the Tribune reporters to answer their questions and to try to convince the newspaper that some practices occurring in Chicago were in violation of the company's national policies, but that it was an isolated incident. To support this claim, the reporters were given a copy of a memo, dated June 4, 1990, in which Mark Singer denounced the contents of Debi Dunlap's May 30 memo and advised hospice workers not to force patients into hospital beds simply to increase revenues.
The Tribune published the first of three stories on August 26. Reporters Jean Latz Griffin and Sharman Stein wrote that in addition to the effort to fill up the company's leased hospital beds, HCI admission counselors attempted to sift through nursing home records in search of patients eligible for recruitment. The newspaper also discovered that HCI was operating one of its three Chicago hospice programs without a license. Regarding Debi Dunlap's leaked memo, the Tribune reporters referred to Singer's later memo denouncing the practice but noted that none of the employees they interviewed remembered ever seeing the Singer memo of June 4.
"There is a reason why none of those employees saw that memo," says Singer today. "It wasn't written until August 23, when I was ordered to write it and back-date it into the files." Singer says his misgivings about creating the memo were overridden by concern for his job. His wife had recently given birth to their first child and had quit her job to stay home with the baby. He couldn't risk being fired, he says.
Company spokesman Ron Fried strongly denies Singer's allegation and describes it as "ludicrous."
Singer says after performing this and other tasks for company officials, he was fired along with the woman who wrote the May 30 memo, Debi Dunlap. Regional vice president Susan Koziol quietly resigned two months later. "The way the company decided to squash this was to offer up people as sacrificial lambs," says Singer, who today is working as a Chicago hospital administrator.
"We did not do anything that was illegal," Dunlap asserts. "We did not rip off Medicare, we did not commit Medicare fraud. They were investigated after they fired us and we had done nothing wrong. They ran scared, that's why they got rid of us. They should have stood up and said, 'We didn't do anything wrong. This was just a marketing memo.' The philosophy of that company has always been to grow the business and to keep your in-patient beds full."
Esther Colliflower reacts indignantly to such statements. "Increasing appropriate census is an important part of the company, and be sure you always remember appropriate as being part of that phrase," she insists, adding that a series of checks and balances is also an important part of the company. The patient's private physician, as well as the patient and his or her family, must agree that hospice care is needed. In addition, the doctors and nurses employed by the company -- who never have been part of a bonus system -- must approve patients before they are officially admitted.
As for the memo from corporate president Neil Bennett, spokesman Ron Fried says Bennett did not order employees to do anything improper.
The Office of the Inspector General for the U.S. Department of Health and Human Services, along with the Illinois Department of Public Health, investigated the allegations published in the Chicago Tribune. In September 1990, HCI issued a press release declaring that "none of the charges printed by the Tribune were substantiated by the investigation" and that the company had been vindicated.
HCI's self-congratulatory pronouncement was premature A by six full months. The investigations referred to in the press release were only preliminary. The actual inspector general's investigation was not completed until April 11, 1991, and its findings did not vindicate HCI but rather raised serious questions. "Investigation revealed that [HCI] employees felt undue pressure was put on them by management to hospitalize patients," the report states. "Employees in other regions indicate that the pressure to enroll patients and increase the census is not limited to" the Chicago area.
The report also included the results of an audit of HCI billing practices for eleven patients who were in the company's hospital units. The review determined that HCI had been overpaid by Medicare more than $54,000 for those eleven patients alone.
"This information was presented to the U.S. Attorney's Office," the report notes. "That office recommended that since the allegations which had surfaced in the [Chicago HCI] hospice could be nationwide in scope, audits could be undertaken in other regions to determine whether there was a pattern of abuse nationwide by this provider." If the inspector general's office in Washington decided to proceed with a national audit of HCI, the U.S. Attorney's Office would again consider whether there was "prosecutive merit to open a criminal case on this entity."
In the wake of the investigation, the federal office that administers Medicare did review HCI claims more closely. But despite the suggestion made by the U.S. Attorney's Office in Chicago, no comprehensive investigation of HCI was undertaken, according to a spokeswoman for the Inspector General's Office in Washington, D.C.
Noticeably absent from Chicago during those turbulent days was Hugh Westbrook. In fact, his name never appeared in any of the original Chicago Tribune stories. Today he echoes Esther Colliflower and Don Gaetz in claiming that the problem was an isolated event, not representative of his company's policies. "What we are providing to people is expert, compassionate care," Westbrook says. "Well, not every manager knows how to run an organization and manage that kind of compassionate, care-giving staff. There is always a danger when you start an organization and see it become larger that the people who end up running it are not as in touch with the original vision as they need to be. I don't think the issue is that you become numbers-driven; the real issue is that you choose the wrong people sometimes."
Following the Chicago episode, Mark Singer, Debi Dunlap, and Susan Koziol were not the only ones to depart HCI. Company president Neil Bennett left as well. In his place, Westbrook hired Earl "Duke" Collier, a former deputy administrator for the Health Care Finance Administration during the Carter Administration.
More changes followed. Last year Hospice Care Inc. changed its name to VITAS Healthcare Corporation. (According to Westbrook, the change was prompted not by any effort to distance the company from the unflattering publicity in Chicago, but by the desire for a distinctive name; the word "hospice" was being used by many organizations.)
A new president and a new name aren't the only noteworthy developments in the growing HCI/VITAS family. Perhaps the clearest sign that the Rev. Hugh A. Westbrook's mission has become smart business is the involvement of a new investor. Chemed, a Cincinnati-based corporation that also owns the drain-clearing Roto-Rooter company, has dropped $27 million into Westbrook's coffers. In return, Chemed has the right to buy up to 25 percent of the company at a future date. Says Chemed executive vice president Tim O'Toole: "We think it is a very sound business opportunity. We believe it is a very unique company.
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