Former Minnesota Hospital Association General Counsel Offered $150,000 in Hush Money

David Feinwachs was general counsel for the Minnesota Hospital Association.

Until 2010 when he was fired.

His firing ended a 30 year career with the hospital association.

He was fired because he began asking questions about why the four HMOs in Minnesota were making so much money off the state’s Medicaid program.

When he was fired, he was offered $150,000 to remain silent.


He refused the money.

And David Feinwachs is now speaking out.

“Early in 2010, the board of the hospital association established as one of their priorities trying to achieve some measure of transparency and accountability in the state’s Medicaid program,” Feinwachs told Corporate Crime Reporter in an interview last week. “Hospitals in Minnesota were being reimbursed at about 27 percent below their costs. And no one could seem to understand why it appeared that such an enormous amount of money, billions of dollars a year, were being poured into these programs, but providers were being paid so little and so poorly.”

“I was tasked with looking at this and seeing what I could find out and seeing if there were legislative solutions,” Feinwachs said.

Four HMOs in Minnesota — Blue Cross and Blue Shield of Minnesota, Medica, Health Partners, and UCare — dominate the health insurance market.

“I found out that the HMO vendors to these Medicaid programs made five times more money managing public healthcare programs for the state than they did selling commercial insurance products to healthy working people,” Feinwachs said. “They reported their profitability by line of business. And those figures struck me as astounding – in fact, nearly impossible. That’s one thing I found out.”

“I also found out while all the health care providers – all of them – lost on every kind of public health care program and of course lost on them in the aggregate, the HMOs or the health plans, profited in the aggregate.”

Feinwachs believes fraud is involved.

“Right before I was fired in August 2010, I was asked to participate in a conference call with a person who worked for our Department of Human Services,” Feinwachs says. “The hospital association had hired a consultant. And the recommendation of the consultant was that within the Medicaid structure, there are things called intergovernmental transfers – ITTs – certified public expenditures – CPEs. And these are tactics where you can put up money to increase federal matching dollars.”

“They involve things like imposing a provider tax and then the federal government matches the amount that is taxed. Or paying public hospitals a higher rate, which the federal government matches and then the higher rate is infused back into the whole system. These are unsavory tactics. But they are legal tactics. The government is aware of them. The government doesn’t love them. But they occur every day.”

“The consultant recommended that Minnesota should do this because — you are not doing any of this and you are missing an opportunity. A conference call was scheduled to discuss the reluctance. I listened in on the conference call but my presence was not disclosed to the person who worked at the Department of Human Services. Had it been, she never would have said anything.”

“During the course of the conference call, she explained the reluctance to do these things by saying that Minnesota was already engaged in a strategy whereby we were working with the insurers for state only funded programs that didn’t receive federal matching money, we were playing with the books, making their reserve requirements and other necessities zero and then maxing them out on the federal side to increase federal funding, blending the rate and then giving it back to the insurers.”

“When I heard this, after the call, I immediately reported it to my superior, the president of the hospital association, and told him what had been said. And I told him, in my estimation, that this was not only inappropriate, but it was in fact, illegal.”

“It was criminal. It was Medicaid fraud. He looked at me as if I had come recently from another planet. He didn’t know what to make of it.”

“After that, I became strident in my insistence on the issue. That was in August 2010. And on October 20, 2010, I was placed on administrative leave. And two weeks later, my employment was terminated.”

Did Feinwachs report the conference call information to federal prosecutors?

“No,” he said. “At the time, I told the president of the Minnesota Hospital Association.”

“I was fired for gross insubordination. I was then offered money in exchange for signing an agreement saying that I would never speak of these issues again.”

How much money?

“The first offer was something like $30,000. I didn’t do anything. I just packed up my office and left.”

It was in writing?

“It was a written agreement. It was a severance agreement. It said I would do nothing that interfered with anything the hospital association deemed important. I would not speak against the hospital association. I would not speak out on issues they deemed important to them. I wouldn’t bring any lawsuits. The usual kind of things that would have given them unparalleled control over my activities. And, of course, I didn’t even respond.”

“Three weeks later, after I had cleaned out my office and left, I was contacted by the gentleman who fired me. And the offer was increased to about $150,000.”

“As a lawyer, as you might imagine, I have been involved in more of my share of employee termination situations. I have never terminated someone for cause or for gross insubordination and offered them a penny. Nor have I ever instructed any client to ever do that. It seems stupid, unnecessary and problematic.”

“After receiving the second offer, I never responded. And so, I did two things. I sued the Council of Health Plans. I lost the lawsuit, but I gained access to thousands of pages of emails and interesting depositions. And I also returned to our state capitol, without employment and constituency. And I began to lobby my issue, acting on behalf of the truth.”

“Legislators were asking — why do I continue to come to the capitol? And various people gave responses like — it’s a public building, maybe he doesn’t have anything else to do. He’s out of work.”

“In early 2011, the smallest of the four HMOs — UCare — told the state of Minnesota that they were refunding to the state $30 million. This was described as a donation, because the state was in a budget crisis. When this happened, UCare wrote a letter to certain select legislators on the appropriate oversight committees that deal with HMOs, the Medicaid program and healthcare issues. And in that letter they explained that they were giving back the money because the Medicaid rate that they had been paid had been inflated to compensate them for losses they had incurred in state only funded programs which were not eligible for federal matching dollars. This, together with the statement on the conference call, virtually cemented the notion that this was fraudulent.”

If we had a unified, single payer health system, would that go a long way to addressing the situation?

“That would prevent the situation,” Feinwachs said. “That would be the cure for this disease.”

“Government operated systems are frequently bureaucratic and inefficient. Everybody understands that there is a built in inefficiency and difficulty in things the government runs. But given a choice between inefficient and bureaucratic versus corrupt, I will take bureaucratic and inefficient any day of the week.”

Feinwach’s lawsuit against the HMOs was dismissed.

Why was it dismissed?

“The gentleman who fired me gave a sworn deposition saying that he suffered no external pressure to fire me,” Feinwachs said. “He said he made the decision solely and without influence from anyone else. It was entirely his decision. And he said that he fired me because he instructed me specifically to stop investigating or looking into these issues, what I believed to be this fraud. And because I refused to listen to him, he fired me.”

What leverage do the HMOs have over the hospitals?

“Quite simply, money,” Feinwachs said. “Hospitals are completely dependant on these HMOs for their cash flows. Also, under the Affordable Care Act, they were all doing the dance to partner with these HMOs to form Accountable Care Organizations (ACOs), which are like HMOs on steroids. The HMOs would acquire and merge with large hospital systems to form these new conglomerates.”

Did Feinwachs have this position in favor of single payer while you were general counsel at the Minnesota Hospital Association?

“Not for the first couple of decades,” Feinwachs said. “I came to this view over time watching what was going on and seeing how secretive everything was. And then I began to realize that this is in effect a money machine. I came to that realization slowly. The public doesn’t have a chance. The average person won’t be granted access to inside information nor the luxury of enough time to evaluate it.”

“In this country, if you favor single payer health care, or Medicare for All, you are a socialist, a communist, or some variation of pinko rat bastard that should not be taken seriously. This is America. We have a free market. Okay, if we have a free market, why do I live in a state where I am forced to buy insurance from four companies that I despise? How does that fit into anybody’s world view of a free market?”

Obamacare was written by the insurance industry to protect itself against single payer, correct?

“You bet it was,” Feinwachs said. “The single biggest mistake that the Obama administration made was involving insurance companies. When the President was elected, he had a mandate from the people to reform health care and to provide healthcare for all. He fumbled it.”

“The Affordable Care Act will be remembered as one of the great pieces of legislation of the last 100 years. But he let these insurers back into the game. He let them run it. That is akin to letting the mafia operate the banking system. It isn’t going to end well.”

Do you know of any other general counsel of any state hospital association who agrees with you?

“No. And if I did, I’m sure none of them would utter it aloud. There is an old Greek proverb — he who speaks the truth best keep one foot in the stirrup.”

“If you are within the system, you play the game. At some point, every once in a while, somebody decides — enough is enough. If nothing else, I’d like to be remembered as the guy who didn’t take the money and spoke out.”

[For the complete q/a transcript of the Interview with David Feinwachs, 28 Corporate Crime Reporter 41(8), October 27, 2014, print edition only.]

Copyright © Corporate Crime Reporter
In Print 48 Weeks A Year

Built on Notes Blog Core
Powered by WordPress