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Baptist Hospital and the State of North Carolina: Employee, Citizen, or Self?

ABSTRACT Do you know what choices you would make if faced with an ethical dilemma? This fact-based case includes situations and issues a real citizen considered when faced with the knowledge that his employer may have been overbilling the state of North Carolina for health care. Professionals, especially those in accounting and finance positions, are likely to face serious dilemmas in the course of their careers. These situations may require them to choose between honoring a confidentiality clause in an employment contract and acting according to ethical and professional values. This case provides real facts gathered from a real case, in which an individual faced this particular challenge. By working through the case, you should develop an appreciation of the pressures and personal ethical challenges you are likely to face in the workplace. By engaging in discussion and role-play, you will be more likely to recognize these issues when they occur, and will have already developed critical thinking skills to help you develop a plan of action. BACKGROUND The State Health Plan (SHP) of North Carolina provides health care benefits for 667,000 state employees including teachers, university faculty, and retired lawmakers. The state selfinsures, meaning that it pays providers for the actual health care costs, but contracts with Blue Cross Blue Shield of North Carolina (BCBSNC) to process the claims for a fee, which at the time of this case, was calculated as a percentage of the cost. In July 2003, the SHP signed a five year contract with Wake Forest University Baptist Medical Center (Baptist Hospital), located in Winston Salem, NC, to provide negotiated discounts on medical services. The contract allowed the state to pay a discounted amount, such that any increases in the billing above the rate of

inflation would be nullified by the discount. However, there was no provision in the contract that required the hospital to notify the state when the increase was greater than inflation. Because the SHP did not monitor the rate increases, over the course of the contract, Baptist Hospital was able to charge and collect between $770,000 and $1,340,000 more than they would have had the SHP requested the discount (Woods 2011). BCBSNC had contracts with both the SHP and with Baptist Hospital. Their contract with the hospital required the hospital to notify them of rate increases, however it forbid BCBSNC from disclosing any information, including rate increases, to the SHP. BCBSNCs contract with the SHP did not require them to monitor the contracts for increases in excess of inflation. (See Figure 1 for a diagram depicting these relationships). In 2007, toward the end of the contract, a Baptist Hospital employee brought the overcharges to the attention of the CFO and was told to let sleeping dogs lie. After his employment was terminated by the hospital, he signed a confidentiality agreement and was a paid $10,000. The employee then notified the state about the charges, which led to investigations by the SHP, Attorney General, and State Auditor. All found that since the contract did not require the hospital to notify the state about available discounts, the hospital did not have a legal obligation to honor the discounts. Furthermore, the contract had expired before the investigations began. The hospital eventually sued the employee (whistleblower) for breach of contract (violating a confidentiality clause), although the suit was later dropped. Aftermath In April 2011, NC State legislators voted to make changes to the SHP to deal with a projected $515 million shortfall (Robertson 2011). These changes included, for the first time, charging a premium to employees for the highest levels of health insurance, and raising premiums and deductibles for all plan participants. A competitive bid process was put in place
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for SHP contracts, and cost- plus contracts, like the one with BCBSNC, were outlawed and replaced with flat fee plans. The reason given was that cost-plus contracts provided an incentive for BCBSNC to approve higher charges.

Bill plus fee (3)

State Health Plan (SHP)

BlueCross Blue Shield (BCBSNC) Process Claims Retain Fee


Bill for service (2) Payment for service: minus fee (5)

Payment of bill (4)

Patients

Service (1)

Baptist Hospital

FIGURE 1 Relationship among Parties

The SHP and BCBSNC contract provides that BCBSNC will process claims and payments for a fee. The BCBSNC and Baptist Hospital contract specifies amounts that Baptist Hospital can bill for services for patients covered under plans administered by BCBSNC (including SHP participants).

THE CASE The October 28, 2011 headline, N.C. Baptist Hospital dismisses lawsuit against whistle blower (Winston-Salem Journal 2011b) marked the end of Joseph Vincolis campaign to do what he felt was the right thing. It all began back in July 2006, when Vincoli was hired as Managed Care Director for Baptist Hospital. Soon after beginning work, sometime in the spring of 2007, he discovered that his employer may have been overcharging the SHP for health care. Based on his review of billings, he noted that Baptist Hospital increased the charges for medical services at a rate higher than the inflation rate. The SHP paid the bills and did not request the discount to which they were entitled. It appeared that the SHP was not monitoring the contract and was unaware that the rate increase exceeded the inflation rate. As an employee of the hospital, Vincoli first took his concerns to both the hospitals general counsel, McLain Wallace, and to the CFO, Gina Ramsey. According to Vincoli, they advised him to let sleeping dogs lie and not to report his findings to the state. In addition, Baptist Hospital said that they informed BCBSNC about the increases, as required by their contract. BCBSNC benefitted from the higher charges, as their contract with the SHP paid them a percentage of each charge. In October 2007, Baptist Hospital fired Vincoli, who then became a self-employed consultant providing managed care and ERISA consulting services to area benefits consulting firms and law firms, a position he held until 2009. The facts are unclear about the reason for his termination; however, Vincoli sued Baptist Hospital and reached a confidential settlement with them in May 2008. As part of the settlement, Baptist Hospital denied any liability in terminating Vincoli and paid him $10,000. In return, Vincoli signed a confidentiality agreement promising 1) not to speak in a disparaging manner concerning the Hospital to any outside party and 2) not to
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disclose any proprietary or damaging information without the hospitals prior written consent, except as required by court order, statute, law, or regulation (GCJSCD 2011). In January 2009 Vincoli contacted state officials and emailed state lawmakers to report the past overpayments. He took these actions even though the contract related to the overpayments expired July 2008 and despite his agreement to maintain confidentiality about the hospitals inside information. Based on Vincolis allegation, in March 2009, the SHP conducted an audit of its contracts with Baptist and other hospitals, and made a high-profile request for $4.43 million in refunds from 30 hospitals. The SHP requested $638,485 from Baptist, which it later reduced to $388,895 based on a three-year statute of limitations. Although the SHP subsequently collected $837,000 from other hospitals, Baptist Hospital denied that it breached the contract, and in August 2009 offered the state $20,000 to avoid unfavorable publicity and the expense of litigation. In November 2009, before the SHP accepted the offer from Baptist Hospital, Vincoli submitted an online complaint to the NC Department of Justice alleging that the hospital was committing fraud against taxpayers. The ensuing investigation was closed when the Attorney Generals Office informed the investigator that the issue was one of contract interpretation and not fraud. A year later, the State Auditor notified Baptist Hospital that it was reopening the SHP contract issue. Baptist Hospital alleged that Vincolis sharing of disparaging and/or confidential information with the State Auditors office precipitated the audit. Either Baptist Hospital rescinded the $20,000 offer or the SHP refused to accept it, in light of the ensuing audit. Shortly thereafter, on January 25, 2011, Baptist Hospital sued Vincoli, alleging breach of the May 2008 confidentiality settlement. The suit alleged that Vincolis unjustified, vindictive, malicious and
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gratuitous actions have caused NCBH1 to suffer embarrassment, negative false publicity, loss of good will with the State of North Carolina and the communities that NCBH serves, and financial loss including but not limited to legal fees (Winston-Salem Journal 2011a). In September 2011, Beth A. Woods, the State Auditor, issued a report summarizing her investigation (Appendix A). The report confirms that the contract did not specifically require Baptist Hospital to notify SHP of outpatient fee increases. SHP did not have a plan for monitoring fee increases and it did not receive, seek, or obtain annual outpatient fee information from Baptist Hospital. Many of the contract terms were not clearly defined, resulting in at least 96 possible combinations of calculations for the overpayment. SHP estimated the overpayment at $638,485; however, Ms. Wood estimates it to be $1.34 million. Ms. Woods opines that a major element in estimating the over payment is the appropriate discount rate. Given the lack of clarity in contract terms, it is not likely that SHP and Baptist Hospital would agree on the overpayment amount, even if the contract allowed for a rate adjustment after the contract terminated. Ms. Woods estimates that the range between the lowest and highest overpayment is $1.8 million.

NCBH is Baptist Hospital

Epilogue SHP officials confirmed that at least one employee had already reported the issue that Vincoli reported in January 2009 as early as 2006/2007. SHPs Executive Director told the employee not to pursue the matter. Per SHP accounts, the same employee then alerted the NC Attorney General who decided not to pursue the matter. Based on the audit report, the SHP did not pursue Baptist Hospital for the overcharges, nor did they collect the $20,000 offer. On October 18, 2011, Baptist Hospital dropped its suit against Joseph Vincoli without prejudice, meaning that it can re-file against him later. Each party paid their own costs and attorney fees. While Vincoli remained silent, his attorney, Phil Michael stated, This is an appropriate disposition. Mr. Vincoli had acted honorably (Winston-Salem Journal 2011c). REQUIREMENTS Questions 1. Vincoli signed the confidentiality agreement and took the $10,000 in May 2008, after he knew about the alleged overpayments and before he reported them to SHP, lawmakers, and the NC Department of Justice. a. Why do you think took a payment and then reported anyway? b. Did Vincoli act ethically in blowing the whistle? c. Imagine that you are Vincoli make a pro/con list for: i. Signing the May 2008 agreement and taking the money ii. Reporting the overpayments to the state 2. Some people portray whistleblowers as angry ex-employees trying to exact revenge while others hail whistleblowers as heroes performing heroic acts what facts support these opposite portrayals?
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3. Navigate to http://www.sec.gov/about/offices/owb/owb-faq.shtml. This SEC site includes answers to FAQ about the Dodd-Frank Whistleblower Program which took effect July 21, 2010. a. In your own words, explain the purpose of the SEC Whistleblower Program. b. How does this legislation protect employees from employer retaliation? c. Is an employee protected if he or she reports wrongdoing to a regulatory body other than the SEC? (Hint, follow the link to the OSHA website). d. Is Baptist Hospital as an employer covered under either Dodd-Frank or SOX? Why or why not? 4. Based on the legal definition of fraud (see criteria below), was Baptist Hospital guilty of fraud? a. False statement b. Material fact c. Intent to deceive d. Justifiable reliance e. Damages 5. List the stakeholders and discuss the harm and benefit each incurred/received. 6. The state could rescind the hospitals state-level status as a non-profit corporation (which could possibly lead to issues with its federal non-profit status) and/or refuse to contract with the hospital in the future. What stakeholders would these actions affect and what could the possible effects be? 7. What level of responsibility does the SHP carry for the overpayments and why? 8. What actions should/could the SHP take to prevent, detect, and correct overpayments in the future? 9. Most large employers must comply with ERISA (Appendix B), a law that regulates selffunded health plans; however, ERISA does not cover government plans. ERISA holds fiduciaries to the highest standard and requires that they make decisions with a single eye toward plan members best interests. It appears that SHPs failure to pursue the matter directly cost taxpayers millions of dollars and affected State employees out of pocket costs as well. If SHP had been subject to ERISA (see Appendix B), do you think plan administrators would have been guilty of non-compliance? Why or why not?

REFERENCES Browner, J. T. 2010. Are you ready for the North Carolina False Claims Act? North Carolina Bar Association Education Law Section Online Newsletter (November). Available at: http://educationlaw.ncbar.org/media/9242976/ednov10.pdf. General Court of Justice Superior Court Division, Forsyth County (GCJSCD). 2011. Complaint 11CvS 548. January 25. Robertson, G. D. 2011. NC State Worker Health Plan changes get final OK. Associated Press (April 5). Winston-Salem Journal. 2011a. Baptist Hospital sues fired worker and whistle-blower. (September 12). Winston-Salem Journal. 2011b. N.C. Baptist Hospital dismissed lawsuit against whistle blower. (October 28). Winston-Salem Journal. 2011c. Editorial: Baptist Hospital right to drop lawsuit against whistleblower. (November 3). Woods, B. A. 2011. State of North Carolina Performance Audit, North Carolina State Health Plan for Teachers and State Employees, Baptist Hospital Overpayments. (September).

APPENDIX A State Auditors Report (Summary only) Complete report available at: http://www.ncauditor.net/EPSWeb/Reports/performance/per-2011-7266.pdf Purpose This audit report evaluates the circumstances surrounding the overpayment2 of outpatient medical claims provided by Wake Forest University Baptist Hospital (Baptist Hospital) and makes recommendations so the North Carolina State Health Plan for Teachers and State Employee (State Health Plan or Plan) management can take appropriate corrective action. Results The State Health Plan did not increase the outpatient discount rate as allowed in the contract because it did not have a contract monitoring plan and did not seek or obtain annual outpatient fee increase information from Baptist Hospital. Because there was no contract monitoring, the Plan did not know outpatient fees increased, therefore it could not determine if an increase in the negotiated discount rate was allowed per the contracts inflation adjustment provision. The State Health Plan was unsuccessful in recovering the approximately $638,600 it later estimated was overpaid after March 1, 2006, because Baptist Hospital denied its attempts to recover the overpayment. Baptist Hospital claimed it complied with the terms of the contract and further stated that only in circumstances of noncompliance on its part can the Plan seek an adjustment to the rate after expiration of the contract. The Plan did not attempt to increase the

Overpayment is the term used to describe the amount paid in excess of what would have been paid if the Plan had exercised its right to receive additional discounts from Baptist Hospital.

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outpatient discount rate until after the contract concluded. The contract did not specifically require Baptist Hospital to notify the Plan of outpatient fee increases, a deviation from the terms the Plan commonly used to contract with other North Carolina hospitals. Many of the contract terms were not clearly defined, resulting in at least 96 possible combinations for calculating the over paid amount. Using the same method the Plan used for calculating the overpayment, the Plan paid approximately $770,000 more to Baptist Hospital for outpatient services during the contract (July 1, 2003 to June 30, 2008) than it would have if the discount rate was adjusted for inflation. Using the combination of variables most closely aligned with the cost containment intent of the contracts inflation adjustment provision, the estimated overpayment to Baptist Hospital for outpatient services is approximately $1.34 million, or 75% higher than the Plans calculation method. Agencys Response The Agencys response is included in the appendix of the complete report.

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APPENDIX B ERISA Notes The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans. ERISA requires plans to provide participants with plan information including important information about plan features and funding; provides fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a grievance and appeals process for participants to get benefits from their plans; and gives participants the right to sue for benefits and breaches of fiduciary duty. In general, ERISA does not cover group health plans established or maintained by governmental entities, churches for their employees, or plans which are maintained solely to comply with applicable workers compensation, unemployment, or disability laws. ERISA also does not cover plans maintained outside the United States primarily for the benefit of nonresident aliens or unfunded excess benefit plans. The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses. (emphasis added). Fiduciaries must act prudently and must diversify the plan's investments in order to minimize the risk of large losses. In addition, they must follow the terms of plan documents to the extent that the plan terms are consistent with ERISA. They also must avoid conflicts of interest. In other words, they may not engage in transactions on behalf of the plan that benefit parties related to the plan, such as other fiduciaries, services providers, or the plan sponsor.
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Fiduciaries who do not follow these principles of conduct may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of plan assets. Courts may take whatever action is appropriate against fiduciaries who breach their duties under ERISA including their removal.

http://www.dol.gov/dol/topic/health-plans/erisa.htm Accessed 12/7/2011

APPENDIX C Excerpts from the Code of Conduct What is a Code of Conduct? A Code of Conduct is a description of values and actions that are important to a culture or organization. It describes what is expected from people who live or work in that culture.

This Code of Conductis a practical guide to handling important issues and deterring wrongdoing for all representatives of North Carolina Baptist Hospital and Subsidiaries (NCHB), including board members, employees, and volunteers. Built on the foundation of our Mission, Vision, Values, and Policies, it promotes:

Compassionate and excellent care for our patients and their families Respectful, collegial, and compassionate relationships with our co-workers Honest and ethical conduct, including adherence to the Policy of Ethical Behavior Compliance with applicable governmental laws, rules and regulations Prompt internal reporting of compliance issues

Management and staff at NCBH are individually and collectively responsible for compliance with laws, regulations, and sound business practices that govern our services. Education and policies contribute to assuring that we provide and bill for our services accurately and in
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compliance with all guidelines. However, we must act on our knowledge and the Code of Conduct was created to help us understand what actions support compliance.

The Code of Conduct cannot address every ethical issue that might happen and employees are encouraged to clarify questions through their supervisors, Human Resources, or the Compliance Office. Employees are asked to take issues or concerns that might affect our compliance with laws, regulations, or appropriate business practices to their supervisors for clarification or resolution. If this is not an acceptable alternative, other appropriate support services may be contacted (e.g. Human Resources, Risk Management, etc.). If these avenues for resolution are not successful, the Compliance Office may be contacted directly 336-713-4949, through the WFBMC Hotline (877-880-7888), or by e-mail to ncbhcompliance@wakehealth.edu.http://www.wakehealth.edu/NCBH-Compliance/Code-ofConduct.htm accessed 12/19/11

Key Values and Standards of Behavior Key Values The NCBH Five Key Values are the characteristics which will move us towards our future state and help us achieve our Vision. In the spring of 2004, both NCBH and WFUHS, with support from the Board, made the decision to add Collegiality to our Key Values. The following defines what the Values mean to us:

Excellence means being committed to consistently provide superior education, patient care and research.

Compassion means being aware of and responsive to the physical, emotional, spiritual, and intellectual needs of others.

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Innovation means discovering and developing new ideas for enhancing quality, efficiency and effectiveness.

Integrity means demonstrating fairness, honesty, sincerity and a commitment to our Mission, Vision and Values.

Collegiality means promoting an environment that fosters mutual respect and teamwork while rewarding collaboration.

Standards of Behavior Standards of Behavior are specific actions that support each of the Key Values. They guide our ethical behavior at all times and are woven through the Code of Conduct. Excellence Compassion Innovation Integrity

I will be honest and reliable in everything I do. I will set a good example. I will be sensitive to cultural and language difference. I will speak positively about The Medical Center and my co-workers.

Collegiality (The components of Excellence, Compassion, Innovation, and Collegiality are available on the web site.) http://www.wakehealth.edu/NCBH-Compliance/Key-Values.htm accessed 12/19/11 Interacting Ethically and Responsibly The organizational culture of NCBH & Subsidiaries is created through our actions and attitudes guided by our key values: Excellence; Compassion; Innovation; Integrity; and Collegiality. Part of our culture is a dedication to behaving ethically and responsibly and to complying with applicable laws, regulations, and policies.

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Each one of us has a vital role in making sure that NCBH & Subsidiaries are in compliance with all laws, regulations, and policies that affect how we do business and deliver health care services. The degree to which we achieve compliance for NCBH & Subsidiaries is the total of each of our individual actions added together. Therefore, we commit to doing the right thing for the right reason even when no one is watching and to encouraging others to do the same. (The additional twelve elements are available on the web site.)

We discuss legal and ethical concerns with the appropriate party and report any suspected violations according to the NCBH & Subsidiaries Code of Conduct.

http://www.wakehealth.edu/NCBH-Compliance/Interacting-Ethically.htm accessed 12/19/11 No Retaliation Against Employees Who Report Ethical or Compliance Concerns in Good Faith NCBH & Subsidiaries value employees and want them to feel comfortable expressing concerns regarding ethics and business practices. It is against the Policy of Ethical Behavior to retaliate against any employee who, in good faith, notifies members of management, Human Resources, administrative support functions, the Compliance Office, and/or the WFBMC Hotline of a perceived, actual, or potential compliance concern or question for clarification.

We strive to create an environment where employees feel comfortable expressing their concerns about compliance issues.

We evaluate and resolve compliance concerns and/or questions in a timely manner. We provide, upon request, strict confidentiality to the extent allowed by law for employees who contact the Compliance Office or WFBMC Hotline.

We encourage employees to immediately report any suspicion or question of harassment or retaliation in response to raising a compliance concern.
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We do not tolerate personnel who harass or retaliate against employees who seek advice, raise a concern, or report non-compliance with laws, regulations, or hospital policies.

We expect employees to use the Compliance reporting system as a way to communicate legitimate compliance concerns or questions about a compliance issue.

http://www.wakehealth.edu/NCBH-Compliance/No-Retaliation.htm accessed 12/19/11

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