Death and Profits

Page 5 of 12

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.

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Jim DeFede
Contact: Jim DeFede