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1 A Historical Precedent
A Historical Precedent
Felix Elizalde's experience in Redding, as unpleasant as it evidently was for him and for his wife, Margaret, did not necessarily have wider implications. It could easily have been a simple case of medical error or just a difference in clinical judgment between two cardiologists. Medical errors occur with much greater frequency than most people are aware or would like to think, even at the best academic medical centers, and variations in clinical judgment are only natural. Cardiology in particular has many gray areas, and good clinicians frequently differ about the most appropriate treatment. The California State Medical Board, like most of its counterparts around the country, requires a pattern of questionable practice to investigate a physician, not just a single complaint, which makes sense. Doctors should not be held to a standard of perfection nor should they be expected to make identical cookbook diagnoses. Malpractice, of course, was not out of the question in Elizalde's case, but neither was it a certainty. And the possibility of fraud had not entered anyone's mind. In retrospect Elizalde had no definitive reason to be suspicious of Redding Medical Center, its owner, National Medical Enterprises, Dr. Realyvasquez, or, to be completely fair, even Dr. Moon.
Yet at the same time there was something potentially relevant to the situation that Elizalde knew nothing about -- a lengthy episode involving National Medical Enterprises that was deeply troubling. In the late 1980s and early 1990s a number of NME-owned psychiatric hospitals had engaged in a cold-blooded scheme that was ongoing at the time of Elizalde's Redding experience and destined to end in criminal convictions. Had Elizalde known about these activities he might have been even more skeptical about his own treatment.
About fifteen months before Moon diagnosed Felix Elizalde with triple-vessel coronary artery disease, late in the afternoon of April 12, 1991, a repainted police car pulled up to Sid and Marianne Harrell's modest ranch house in Live Oak, Texas, a middle-class suburb of San Antonio. The light blue Dodge had a flashing red light on top and the words Sector One painted on the trunk. There was a prisoner cage in the back seat. Marianne and her fourteen-year-old grandson Jeramy watched two bulky, uniformed men get out. One of them told her curtly, "We're Sector One, Mobile Crisis Unit, and we're here to pick up the boy." Marianne thought they meant Jeramy's twelve-year-old brother, Jason, who was undergoing an evaluation at Colonial Hills, a psychiatric hospital in San Antonio owned by a company called Psychiatric Institutes of America. She said, "He isn't here. What did he do?" But one of the men, who introduced himself as "Lieutenant" Joe Saenz, said, "That boy," pointing at Jeramy. She asked again what he'd done, but they wouldn't tell her.
Marianne, Jeramy, Saenz and the other man, whose name was Ulysses Jones, went inside where Sid Harrell, a retired army staff sergeant, was sitting at the kitchen table. Saenz and Jones told the Harrells they were operating under orders from a Dr. Bowlan at Colonial Hills and that if Jeramy didn't go with them they would get a warrant under which he could be held for twenty-eight days. They also indicated that if this happened he would have a police record.
Marianne was both frightened and angry. She called Colonial Hills and was told that the officers were authorized to bring Jeramy to the hospital. When she asked the reason, she was told for substance abuse, truancy, and because he was a victim of child abuse. Sid then called the local police to try to establish whether Saenz and Jones had the authority to take Jeramy. By the time a police officer showed up Jeramy was handcuffed and in the cage in the back of the Sector One car. The officer reviewed the papers the men showed her, which did not include a warrant authorizing Jeramy's detention. Nevertheless, she told the Harrells that Saenz and Jones were licensed security officers and could indeed get a warrant to hold Jeramy for twenty-eight days. If the Harrells let their grandson go with the security officers, she said, they could probably have him released within twenty-four hours. At this point the distraught grandparents gave up and let the two uniformed men take Jeramy away.
Dr. Mark Bowlan's "diagnosis" of drug abuse and the allegation that Jeramy was an abused child had been based solely on Bowlan's interview with Jeramy's twelve-year-old brother Jason. Bowlan, a psychiatrist who at the time had a temporary, limited medical license, which he would lose that summer for falsifying letters of recommendation, waited four days before seeing Jeramy, even though he had asserted that the boy was so dangerous that he had to be brought in by a pair of professional bounty hunters and admitted to Colonial Hills on an emergency basis. After six days, during which time his grandparents, who were his legal guardians, were not allowed to see him, Jeramy was released on a writ of habeas corpus obtained by state senator Frank Tejada. The senator went to the hospital himself and threatened to kick the door down if they didn't let the fourteen-year-old go. A bill for $11,000 followed. Jeramy's younger brother Jason was kept in the hospital for two weeks. His bill was $15,000. Both bills were paid by CHAMPUS (Civilian Health and Medical Program of the Uniformed Services), the U.S. government's health insurance program for members of the military.
Jeramy Harrell's experience of being forcibly taken from his home and being incarcerated in a mental hospital was not unique in the annals of the Psychiatric Institutes of America, a subsidiary of National Medical Enterprises. And, as bad as the Harrell case was, it was far from the most egregious in the company's history. Nor would it be the last. Something seemed to be awry in the corporate DNA.
At least as far back as 1984, some Texas psychiatrists knew what was going on at the Psychiatric Institutes of America hospitals, and some were benefiting from it handsomely. Dr. Charles S. Arnold, a San Antonio psychiatrist, tape-recorded a conversation on June 12 of that year with the administrator of Colonial Hills, the hospital to which Harrell would be taken. Arnold said he recorded the conversation "because of what I had already learned about the hospital." The administrator told him that if he went along with the program, the hospital would make him rich, as it had done for other psychiatrists who had cooperated. The administrator then cited a Houston physician as an example: "They called [name deleted] and said 'Look, you want to be rich? You let us set up this program the way we want to set it up. All you do is be the admitting psychiatrist and we'll make you rich.' We made him rich."
The administrator who contacted Dr. Arnold was executing a key part of the company's business plan -- to identify and admit patients with good insurance coverage. Harvey Friedman, the psychiatric unit's vice president for program services, said that Ron Bernstein, the chief operating officer, had issued a directive to "Fill the beds at any cost. Hire sleazeballs. These are his words. Anything it takes. That was his philosophy." A year after NME's approach to Arnold, Norm Zober, president and CEO of its Specialty Hospital Group, which included the psychiatric facilities, scribbled the following hand-written note at a planning meeting: "Kinds of doctors we are looking for? Guys that will admit." At a similar meeting thirteen months later, Zober wrote that the "incentive" contracts that were being discussed were "Deals to sew up M.D.'s."
The doctors were the linchpins of this scheme. And because what they were being asked to do -- accept bribes for referrals among other things -- was illegal, NME cooked up ways to disguise these bribes. The company relied on the doctors to do what was expected of them and in return rewarded them with titles that required no work and paid handsomely. At the psychiatric hospitals, cooperating doctors were usually given contracts as chiefs of treatment units. Peter Alexis, who was regional vice president of Psychiatric Institutes of America for Texas, explained that the doctors were paid salaries ostensibly for providing services expected of someone holding the title they had been given. Alexis also said the size of a doctor's salary was directly linked to the number of his referrals.
Mark Bowlan, the psychiatrist who admitted Jeramy Harrell and eventually pled guilty to charges of making false claims, theft of public money, and forgery, said he received $250,000 from NME his first year under contract, $400,000 in his second year, and was offered $750,000 for a third year. He later told the Houston Chronicle that "Doctors became addicted to the money, whether in terms of lifestyle, financial obligations or recreation." Dr. Arturo Torres of Laurelwood Hospital charged $125 for each patient visit. He averaged twenty-four patients in the hospital and billed for five visits a week per patient, from which he grossed $780,000 in one year. The visits, when they occurred at all, were cursory. Hi, how are you feeling today? Fine, that's good. Bye.
Each hospital's business was driven by extremely ambitious bottom-line requirements that effectively ruled out acceptable patient care. Marketing was everything. James Hutchison, an executive at Baywood Hospital, told an investigative committee of the Texas Senate and the Select Committee on Children, Youth and Families of the U.S. House of Representatives that "every employee, from groundskeeper to program director, from office secretary to nurse, was obliged to conduct weekly marketing calls." Russell Durrett, controller of Psychiatric Institutes of America's Twin Lakes Hospital in Denton, Texas, from November 1988 to July 1989 told the House Select Committee in 1992 that at the Twin Lakes program those with the rank of director and above were given a weekly quota of contacts -- his was five -- and received prizes for referrals. He testified that, "We had an insurance remaining report that we completed on a weekly basis [and] the patient was discharged on that particular day when their insurance benefits ran out."
Jose Carranza, a physician at Laurelwood, said that 80 percent of the patients arrived at the hospital without a referring doctor in response to advertising and hotlines. According to Texas Attorney General Dan Morales, one hotline received $155,000 a month from NME for "operating expenses." Other paid referral sources were school counselors, social workers, and probation officers. The psychiatrists and psychologists with the best referral records were rewarded by being assigned patients for whom they could bill insurers $100 to $150 a day. The doctors would then pay back the administrators by making sure the patients stayed in the hospital until the last penny of their insurance was exhausted.
In mid-1991 Morales initiated an investigation of various abuses in the psychiatric hospital industry. By that time enough concern had been raised about NME's highly aggressive patient-recruitment strategies that the company hired the law firm of McDermott, Will & Emery to investigate its psychiatric hospitals. The firm delivered a 240-page report with three hundred appendices to NME, but it never saw the light of day. An NME executive told a Texas Senate committee that any wrongdoing was the work of one or two individuals who were no longer with the company and assured the House Select Committee that the investigation disclosed "no evidence of systemic practices that negatively affected the quality of patient care." The next day, NME's CEO, Richard Eamer, and its president, Leonard Cohen, sent the same message to shareholders. But four years later, after reading a summary of the McDermott report, Texas State District Judge Fred Edwards, in response to a motion by plaintiffs' lawyers to make it public, would rule that its findings "substantially differ" from NME's representations.
The precise consequences of NME's relentless, single-minded pursuit of profits are hard to calculate. How do you measure the human costs of deceiving parents into allowing their children to be imprisoned in mental institutions where at best they were warehoused and at worst they were subjected to alleged therapies that resembled torture more than treatment? What were the psychic costs for the young children and adolescents? How would they affect their ability to develop into stable confident adults? What did these experiences do to their capacity to trust their parents or critical institutions like the medical system? How much guilt did it instill in their parents? The answers to these questions are unquantifiable, but perhaps the best way to understand the human costs of this scandal is to hear what happened to Jeannie Warren, just one of the many young persons shanghaied into a Psychiatric Institutes facility.
A thirty-eight-year-old Fort Worth psychiatrist named Robert Hadley Gross was enamored of a now-discredited form of treatment at the time called "rage reduction" therapy. In theory it was intended to help children and adolescents who were unable to form normal emotional attachments with others. It was to be done only in the presence of and with the informed consent of a parent. It was supposed to involve four people holding the patient down while the therapist prodded or tickled him or her to produce anger, which it was hoped would be cathartic. Warren was Gross's patient at the Psychiatric Institute of Fort Worth. She told the Houston Chronicle that she was subjected to this "therapy" two dozen times for two to five hours at a time. She said she signed a consent form she wasn't given a chance to read. No parent was present. In preparation for one of her treatments she was taken to a snack room and held down on some gym mats by eight people. Here's how she described what followed to the Chronicle's Mark Smith:
My whole body was covered with people touching me and holding me down. [Gross and another staff member] would make a fist and stick out their knuckles and bore and grind into my ribs. I was crying, hyperventilating.... They had their hands over my nose and mouth so I couldn't breathe. They were attempting to muffle my screams. I stopped breathing twice. When I started breathing again they would slam me back down on the mat. When finished, I had burst blood vessels on my face and chest.
A nurse at the hospital confirmed that Warren had swelling and purplish-red welts on her side after one session. Years later Warren said, "I have dreams of my doctor standing over me screaming and coming after me. My nightmares won't go away." Willem Duard Bok, a psychiatrist at PI-Fort Worth testified to the House Select Committee that rage-reduction therapy was at best worthless and sometimes caused physical harm. Bok said rage-reduction therapy often caused severe pain and bruising: "in some of the female preadolescent and adolescent patients there was tissue injury in the form of severe bruising incurred in the nipple and breast areas." In 1996 a Tarrant County judge ruled that Warren had been the victim of assault and intentional infliction of emotional distress and ordered Gross to pay her $8.4 million.
On July 20, 1996, Gross was convicted of criminal contempt and was facing a possible six months in prison and a $5,000 fine on this count. Released on his own recognizance, he fled to England. On August 13, Gross was indicted on four counts of mail fraud and two counts of filing false insurance claims for services that were not provided. The fugitive psychiatrist was accused among other things of accepting kickbacks of $861,000 for patient admissions between 1988 and 1991. These were partly embedded in the $329,000 he was paid by NME during one two-year period. The rest were included in his billing of insurers at $150 per patient per day for the twenty to twenty-five patients a day on average he was assigned by hospital management. Using the smaller number of patients and five days a week, that works out to $780,000 a year. By the time Gross went into hiding he was facing twenty years in prison and more than $1 million in fines. He was finally returned to the United States where, in a plea bargain, he was sentenced to a year and a day in prison to be served concurrently with his six-month sentence for criminal contempt of court.
In July 1993, with NME facing civil lawsuits by thirteen insurance companies and more than a hundred individual plaintiffs, two of the company's founders, Richard Eamer and Leonard Cohen, the vice chairman and president, resigned. Jeffrey Barbakow, a board member with little hospital experience who was an investment banker and film executive, took over as chairman. On August 26, 1993, six hundred federal agents led by the FBI raided NME/PIA hospitals in seventeen states, regional headquarters of NME, and the company's corporate headquarters in Santa Monica, California. The raid led to criminal and civil charges against the company and individual executives and physicians for battery; bribing doctors, school counselors, and others for patient referrals; coercing parents into committing their children; locking up patients until their insurance coverage was exhausted; providing unnecessary treatment, grossly inflating charges, and billing for treatment that was not provided. The allegations against the company, its hospitals, and the psychiatrists who worked in them were hard to believe at first. And many people wondered whether, if indeed such a thing could happen at all, it just involved greedy doctors acting on their own rather than an extensive conspiracy managed at the corporate level.
The answer came ten months after the FBI raid when Peter Alexis agreed to cooperate with the federal investigation. On June 29, 1994, National Medical Enterprises pled guilty to one criminal count of conspiracy and six criminal counts of paying kickbacks and bribes to induce doctors and other professionals to refer patients to their psychiatric hospitals. The company paid $379 million in fines, penalties, and civil damages. The $33 million criminal fine that was part of the agreement set a record at the time. Alexis, two hospital administrators, four psychiatrists apart from Gross, but including Bowlan, one psychiatrist's office manager, and one counselor were convicted criminally. The longest sentence -- eight years -- went to Bert Wayne Bolan, who ran a counseling service that channeled patients to NME hospitals. Mark Bowlan was sentenced to five months in prison and three years of supervised release.
No one in NME's top management was convicted of anything and neither were the dozens of others, including mid-level executives, hospital administrators, physicians, psychologists, therapists, and counselors, all of whom appeared to be deeply implicated. NME, however, was required to divest itself of all of its psychiatric hospitals and to enter into a corporate integrity agreement committing it to better patient care and compliance with federal healthcare regulations. The document was signed for NME by the associate general counsel, Christi Sulzbach. It was still in effect a decade later, by which time Sulzbach was general counsel and a senior vice president of Tenet Healthcare Corporation, the name NME took in 1995 in an attempt to shed its tainted reputation after the psychiatric hospitals debacle.
The federal fraud case was over, but for NME the problems were just beginning. By late 1994, a pack of ex-patients and personal-injury lawyers were on its tail led by Jim Moriarty, a motormouthed forty-eight-year-old former Marine door gunner in Vietnam. Moriarty's small but successful law firm occupies a large redbrick house on a quiet, tree-lined, mostly residential street in Houston's Museum District. Apart from the noncommercial appearance of the neighborhood, nothing about the setting seems out of the ordinary. But to cross the threshold is to know instantly that you're not in a typical law office and you are not about to meet white-shoe lawyers like the ones at Gibson, Dunn & Crutcher, the big Los Angeles firm that represents Tenet.
The office, just a bit weirdly, is a monument to hunting, flying, and taxidermy. The wood-paneled waiting room is furnished with a stuffed wild pig and a tiny desert deer, and a large zebra rug. There are books on hunting, fishing, and guns, and a great big coffee-table history of the Marine Corps. And a short trip down the hall to the restroom brings you face-to-face with a big-horn sheep. But the sheep's just a tease. The really unsettling presence sits placidly to your left, right next to the toilet, clutching a very big beer can. He is a massive, hairy, pot-bellied, glassy-eyed baboon. One flight up, in Moriarty's private quarters, the de;cor is even more eclectic and less likely than that in the waiting room. On the wide-board pine floor a saddle, boots, a lariat, and other western gear are carefully arranged. Elsewhere there are Indian rugs and canoe paddles and what at first glance might be mistaken for two car seats for giant children. In fact, one of these is from a Harrier, a vertical-takeoff Marine aircraft, and the other is from an A-4 Skyhawk fighter jet. Moriarty flies Skyhawks and helicopters at air shows.
As for the man himself, Moriarty is not necessarily someone you would like to have on your tail. When he focuses on something -- it could be anything from a big, consolidated lawsuit to racing his hopped-up go-cart at 120 miles an hour -- it is with the tenacity of a junkyard dog. He is a short, compact Irishman with wavy gray hair and squinty, faded blue eyes. The day I met him he looked like an unusually well-groomed wrangler in jeans, a checked shirt, and crocodile cowboy boots. He looks you directly in the eye with the somewhat pugnacious gaze of someone who wants to intimidate, and he has a gift for summing things up: "Tenet's big plan is remarkably simple," he said, presciently substituting the present tense for the past and the company's new name for its old one. "Bribe the docs." He added, by way of characterizing the company's message to parents in the psychiatric-hospital cases, "Bring us your troubled children and we'll teach 'em not to suck eggs." A loose translation from the Texas vernacular: If your kid has a behavior problem, give him to us and we'll beat it out of him.
A couple of months after NME's federal guilty plea in June 1994 a lawyer in Houston named Tommy Fibich asked Moriarty for his help. Fibich had three clients interested in suing, but he knew he needed more to take on a big company with deep pockets and he wasn't sure how to sign them up. Moriarty had been following the case in the press as he did with mass-tort cases generally, but he hadn't thought about pursuing this one. Fibich's call changed his mind. His dormant instinct for the big case was reawakened. This, combined with a sense of outrage about the abuse he was convinced had been inflicted on vulnerable children, made this one a natural. Moreover, what he viewed as dereliction of duty by many parents in giving up their children to mental hospitals left a bitter taste in his mouth. He and his associate Kevin Leyendecker teamed up with Fibich and brought on board several other lawyers. These included Steve Hackerman, a tall, deceptively easygoing man who took charge of developing the evidence in the case, and Richard Frankel, who was looking for a change and had the medical malpractice expertise Moriarty's team was lacking.
The media-savvy Moriarty, whose approach to cases can be as exotic as his dress or de;cor, came up with a seductive weeklong radio and newspaper advertising campaign that played off of NME's misleading ads. They were directed at the parents who had been deceived into handing their children over to NME psychiatric hospitals. The newspaper ads featured a photograph of a Moriarty employee staring into the middle distance looking depressed. The headline said: "Therapy or Abuse?" The rest of the copy asked specific questions like "Were you put in four-point restraints?" or "Were you billed for therapy sessions you never attended?" In a relatively short time the ads brought in hundreds of clients.
The lawyers built their case around the obvious premises that psychiatrists, administrators, and others had lured their clients under false pretenses into various NME hospitals and kept them there for the sole purpose of capturing their insurance benefits, and that NME targeted minors. Four hundred and sixty-three of the plaintiffs were under the age of eighteen when the abuses occurred. The suit went well beyond the federal charges of kickbacks for referrals and billing fraud, alleging that patients were confined in psychiatric hospitals with no legitimate medical justification -- that is to say, imprisoned -- and that many of them were harmed mentally and physically.
On July 30, 1997, the eve of what would have been the actual start of a civil trial, a settlement was reached. Tenet and the doctor defendants agreed to pay $101 million to the plaintiffs represented by Moriarty and his team. Tenet had already settled the claims of more than a dozen insurance companies for $300 million. Together with the criminal fines, penalties, and civil damages paid to the federal government, and a subsequent $17 million settlement, the company had paid out more than three quarters of a billion dollars to settle the bulk of the claims arising from the NME psychiatric-hospital scandal.
Considering the widespread nature and the magnitude of the crimes and abuses committed by NME, very few people went to jail. At least part of the reason for this is the subjective nature of psychiatry. A considerable number of the victims had behavioral problems and there was little doubt that some -- possibly many -- of them might have benefited from appropriate therapy. Trying to get more criminal convictions against psychiatrists in these circumstances was a formidable -- although not necessarily insurmountable -- challenge for federal prosecutors. As a result they used their limited resources to go after NME for the money bilked from federal healthcare programs, letting executives like Eamer, Cohen, and Bernstein go scot-free.
Was this a wise strategy? With hindsight it looks like the fines in excess of three quarters of a billion dollars were seen by NME more as a cost of doing business than as a deterrent. By the time the criminal and civil cases had been completely resolved, the company had already moved on to greener pastures. As things turned out, though, not too far into the new millennium Tenet Healthcare, as the company would by then be known, would once again meet up with Moriarty et al. This time however there would be no high-level insider like Alexis to give away the game. Instead the company would find itself confronting an unusually determined and tough-minded FBI agent, some smart local lawyers, and a pair of unlikely outsiders who were not easily intimidated.
Copyright © 2007 by Stephen Klaidman