Health insurers reject millions of claims for treatment every year in America. Corporate insiders, recordings, and internal emails expose the system and its harm.
by Cheryl Clark for ProPublica
Health insurers reject millions of claims for treatment every year in America. Corporate insiders, recordings and internal emails expose the system and its harm.
Have you ever had a health care claim denied by your insurer? Ever tried to appeal it? Did you wind up confused, frustrated, exhausted, defeated?
I’ve been a health care reporter for more than 40 years. And when I tried to figure out how to appeal insurance denials, I wound up the same way. And I didn’t even try to file an actual appeal.
ProPublica came to me earlier this year with what might have seemed like a simple proposition. They wanted me to create an interactive appeals guide that would help readers navigate their insurers’ maze. (A team of reporters at ProPublica and The Capitol Forum has been investigating all the ways that insurers deny payments for health care. If you’ve got a story to share, let them know here.)
Over the next several weeks, I spoke with more than 50 insurance experts, patients, lawyers, physicians and consumer advocates. Nearly everyone said the same thing: Great idea. But almost impossible to do. The insurance industry and its regulators have made it so complicated to file an appeal that only a tiny percentage of patients ever do. For example, less than two-tenths of 1% of patients in Obamacare plans bothered to appeal claims denied in 2021.
The central problem: There are many kinds of insurance in the U.S., and they have different processes for appealing a denial. And no lawmakers or regulators in state and federal governments have forced all insurers to follow one simple standard.
I tried to create a spreadsheet that would guide readers through the appeals process for all the different types of insurance and circumstances. When a patient needs care urgently, for instance, an appeal follows a different track. But with each day of reporting, with each expert interviewed, it got more and more confusing. There was a point when I thought I was drowning in exceptions and caveats. Some nights were filled with a sense that I was trapped in an impossible labyrinth, with signs pointing to pathways that just kept getting me further lost.
Here are some of the issues that make it so confusing:
First, people have to know exactly what kind of insurance they have. You may think that UnitedHealthcare is your insurer because that’s the name on your insurance card, but that card doesn’t tell you what kind of plan you have. Your real insurer may be your employer. Some 65% of workers who get their coverage through their employers are in what’s known as “self-funded plans,” according to KFF (formerly Kaiser Family Foundation). That means the employer pays for medical costs, though it may hire an insurance company like UnitedHealthcare to administer claims.
The other main type of insurance that companies provide for their workers is known as a “fully insured plan.” The employer hires an insurer to take all the risk and pay the claims. With that kind of plan, the name on your card really is your insurer. Why does this difference matter? Because the route you follow to challenge an insurance denial can differ based on whether it’s a fully insured plan or a self-funded one.
But all too often people don’t know what kind of plan they have and aren’t really sure how to find out. I’m told that some employers’ human resources departments don’t know either — although they should.
“It is a little scary, because people honestly don’t really know what they have,” said Karen Pollitz, a senior fellow at KFF who specializes in health insurance research. “I’m just going to warn you that if you set up the decision tree with an A: yes, B: no, or C: not sure, you’ll find a lot of people clicking not sure.”
Government insurance is its own tangle. I am a Medicare beneficiary with a supplemental plan and a Part D plan for drug coverage. The appeals process for drug denials is different from the one for the rest of my health care. And that’s different from the process that people with Medicare Advantage plans have to follow.
A spokesperson for the Centers for Medicare & Medicaid Services, the federal agency that oversees Medicare, wrote in an email that the agency “has been actively engaged in identifying ways to simplify and streamline the appeals process and has worked with stakeholders and focus groups to identify ways to better communicate information related to the appeals process with the beneficiaries we serve.”
And we can’t forget about Medicaid and the Children’s Health Insurance Programs, which together covered 94 million enrollees as of April, more than a quarter of the U.S. population. The federal government sets minimum standards that each state Medicaid program has to follow, but states can make things more complicated by requiring different appeal pathways for different types of health care. So the process can be different depending on the type of care that was denied, and that can vary state to state.
And don’t even get me started on how baffling it can be if you’re one of the 12.5 million people covered by both Medicare and Medicaid. As far as which appeals path you have to take, Abbi Coursolle, a senior attorney with the National Health Law Program, explains: “It’s Medicare for some things and Medicaid for others.”
I sought help from Jack Dailey, a San Diego attorney and coordinator for the California Health Consumer Alliance, which works with legal-aid programs across the state. On a Zoom call, he looked at an Excel spreadsheet I’d put together for Medi-Cal, California’s Medicaid program, based on what I had already learned. Then he shook his head. A few days later, he came back with a new guide, having pulled an all-nighter correcting what I had put together and adding tons of caveats.
It was seven single-spaced pages long. It detailed five layers of the Medi-Cal appeals process, with some cases winding up in state Superior Court. There were so many abbreviations and acronyms that I needed to create a glossary. (Who knew that DMC-ODS stands for Drug Medi-Cal Organized Delivery System?) And this was for just one state!
Dr. Christianne Heck, a neurologist specializing in epilepsy with Keck Medicine of the University of Southern California, said her health system has a team of professionals dedicated to appealing denials and making prior-authorization requests — where you have to call the insurer and get approval for a procedure beforehand.
“It’s a huge problem,” Heck said. “It usually takes multiple attempts. We have to play this horrible, horrible game, and the patients are in the middle.”
It’s especially complicated in oncology, said Dr. Barbara McAneny, a former president of the American Medical Association who runs a 6,000-patient oncology practice in Albuquerque, New Mexico.
“My practice is built on the theory that all the patients should have to do is show up and we should manage everything else … because people who are sick just cannot deal with insurance companies. This is not possible,” she said.
McAneny told me she spends $350,000 a year on a designated team of denial fighters whose sole job is to request prior authorization for cancer care — an average 67 requests per day — and then appeal the denials.
For starters, she said bluntly, “we know everything is going to get denied.” It’s almost a given, she said, that the insurer will lose the first batch of records. “We often have to send records two or three times before they finally admit they actually received them. … They play all of these kinds of delaying games.”
McAneny thinks that for insurance companies, it’s really all about the money.
Her theory is that insurance companies save money by delaying spending as long as possible, especially if the patient or the doctor gives up on the appeal, or the patient’s condition rapidly declines in the absence of treatment.
For an insurance company, she said, “you know, death is cheaper than chemotherapy.”
I asked James Swann, a spokesperson for AHIP, the trade group formerly known as America’s Health Insurance Plans, what his organization thought of comments like that. He declined to address that directly, nor did he answer my question about why the industry has made appealing denials so complex. In a written statement Swann said that doctors and insurers “need to work together to deliver evidence-based care and avoid treatments that are inappropriate, unnecessary, and more costly. Most often, a claim that is not immediately approved just requires the provider to submit additional information to appropriately document the request, such as the diagnosis or other details. If a claim is not approved after correct and complete information is submitted, there are several levels of appeal available to the patient and their provider.”
Swann outlined some of the appeals steps available, including a review by a doctor who wasn’t involved in denying the claim initially, the chance to submit additional clinical rationale and a review by an entity that’s independent of the insurer. He also noted that Medicare Advantage and Part D programs have multiple levels of appeals before winding up in court, including a step that requires a review by an outside, independent organization.
Domna Antoniadis is a health care attorney in New York who co-runs the Access to Care nonprofit, which educates patients and providers on their health insurance rights. She spent hours helping me navigate various appeal systems.
She offered up one important tip for people who use commercial insurance: Get the full plan document for your policy and read it. It’ll be around 100 pages and will tell you what medical services are covered and detail all the steps needed to appeal a denial. Don’t rely on the four-page summary, she said. It probably won’t help.
Likewise, Medicare, Medicare Advantage and Medicaid denial letters should explain the steps to appeal the decision.
When you can, enlist the help of your medical provider. Sometimes an insurer says no to a claim because a doctor’s office submitted it under the wrong code, and that can be fixed quickly.
Antoniadis acknowledged the challenges but believes that consumers have a lot more power than they realize. They can push back to advocate for themselves.
“The appeals process is not always handled properly by the plans, which is why consumers need to report and complain to their relevant government regulators when they believe they’ve been unfairly denied,” she said. “That’s integral to changing the system.”
It was a multibillion-dollar strike, so stealthy and precise that the only visible sign was a notice that suddenly vanished from a government website.
In August 2017, a federal agency with sweeping powers over the healthcare industry posted a notice informing insurance companies that they weren't allowed to charge physicians a fee when the companies paid the doctors for their work. Six months later, that statement disappeared without explanation.
The vanishing notice was the result of a behind-the-scenes campaign by the insurance industry and its middlemen that has largely escaped public notice — but that has had massive financial consequences that have rippled through the healthcare universe. The insurers' invisible victory has tightened the financial vise on doctors and hospitals, nurtured a thriving industry of middlemen and allowed health insurers to do something no other industry does: Take one last cut even as it pays its bills.
Insurers now routinely require doctors to kick back as much as 5% if they want to be paid electronically. Even when physicians ask to be paid by check, doctors say, insurers often resume the electronic payments — and the fees — against their wishes. Despite protests from doctors and hospitals, the insurers and their middlemen refuse to back down.
There are plenty of reasons doctors are furious with the insurance industry. Insurers have slashed their reimbursement rates, cost them patients by excluding them from their provider networks, and forced them to spend extra time seeking pre-authorizations for ever more procedures and battling denials of coverage.
Paying fees to get paid is the final blow for some. "All these additional fees are the reason why you see small practices folding up on a regular basis, or at least contributing to it," said Dr. Terence Gray, an anesthesiologist in Scarborough, Maine. Some medical clinics told ProPublica they are seeking ways to raise their rates in response to the fees, which would pass the costs on to patients.
"It's ridiculous," said Karen Jackson, who until her retirement in March was a veteran senior official at the Centers for Medicare & Medicaid Services, the federal agency that posted, then unposted, the fee notice. Doctors, she said, shouldn't have to pay fees to get paid.
But that's precisely what's happening. Almost 60% of medical practices said they were compelled to pay fees for electronic payment at least some of the time, according to a 2021 survey. And the frequency has increased since then, according to medical clinics. With more than $2 trillion in medical claims being paid electronically each year, these fees likely add up to billions of dollars annually.
Huge sums that could be spent on care are instead being siphoned off to insurers and middlemen. The fees can cost larger medical practices $1 million a year, according to an April poll by the Medical Group Management Association, which represents private medical practices. The figure sometimes runs even higher, according to a 2020 complaint to CMS from a senior executive of AdventHealth, which has 53 hospitals in nine states: "I have to pay $1.8M in expenses that I could use on PPE for our employees, or setting up testing sites, or providing charity care, or covering other community benefits." Most clinics are smaller, and they estimated annual losses of $100,000 or less. Even that figure is more than enough to cover the salary of a registered nurse.
The shift from paper to electronic processing, which began in the early 2000s and accelerated after the Affordable Care Act went into effect, was intended to increase efficiency and save money. The story of how a cost-saving initiative ended up benefiting private insurers reveals a lot about what ails the U.S. medical system and why Americans pay more for healthcare than people in other developed countries. In this case, it took less than a decade for a new industry of middlemen, owned by private equity funds and giant conglomerates like UnitedHealth Group, to cash in.
How these players managed to create this lucrative niche has never previously been reported. And the story is coming to light in part because one doctor, initially incensed by the fees, and then baffled by CMS' unexplained zigzags, decided to try to figure out what was going on. Dr. Alex Shteynshlyuger, a urologist who runs his own clinic in New York City, made it his mission to take on both the insurers and the federal bureaucracy. He began filing voluminous public records requests with CMS.
What he discovered in internal emails and government documents, which he shared with ProPublica, was a picture sharply at odds with the image of CMS as a hugely powerful force in healthcare. The records showed, again and again, federal officials deferring not only to a single company, but to a single executive.
Over the past five years, CMS adopted that company's positions on fees. Shteynshlyuger discovered that, when it comes to the issue he cares about, the most powerful decision-maker wasn't a CMS official. It was the chief lobbyist for a middleman company called Zelis. And that man just happened to be a former CMS staffer who had authored a key federal rule on electronic payments.
For Shteynshlyuger, the intersection of medicine and money has a particular resonance. He was born in the Soviet Union, in what is now Ukraine, and his brother nearly died of pneumonia as an infant because doctors refused to administer an antibiotic. The doctors wanted his family to pay a "bribe," according to Shteynshlyuger. His grandmother ended up finding a different doctor to pay off and his brother got the medicine. Shtenynshlyuger's parents emigrated to the U.S. in 1991, when he was an adolescent, and they settled in Brooklyn's Brighton Beach area.
Today, Shteynshlyuger sees the fees for electronic payment through a similar lens. He's a gadfly, but one with a wry, sometimes humorous disposition and an intellectual bent. He studied biology and economics in college and is capable of both rage at perceived unfairness and dispassionate observations about health policy. The unjust fees, as he sees them, threaten his medical practice, which he designed to serve middle-class patients. He prices his services at a discount. "Low cost is what keeps me in the business," he said.
As a result, administrative combat has become a big part of his life. Unmarried, Shteynshlyuger, 45, stays up into the wee hours, writing lengthy memos to regulators. One recent missive spanned 155 pages, including appendices.
This New Year's, he joined his family for a week off at his parents' condo near Miami. Shteynshlyuger arrived with a desktop computer, which he set up in one of the bedrooms alongside two monitors that he keeps at the condo. While his nieces and brother enjoyed the beach, Shteynshlyuger sat indoors, drafting a 38-page memo to aid in one of two lawsuits he has filed in an effort to pry documents out of CMS.
Shteynshlyuger's accent, with its distinctive Brooklyn-Russian mix, is unmistakable in calls with customer service representatives at insurance companies and payment processors. (He recorded many of the calls and shared them with ProPublica.) The calls follow a similar pattern: Posing questions in the manner of a genial but persistent litigator, Shteynshlyuger asks why he's being charged a fee.
Ultimately, he's informed that there's no way to have an electronic funds transfer, or EFT, sent straight to his bank account without paying a fee. When the calls get escalated, representatives sometimes offer to shave a tiny amount off the fees — charging, say, 2.1% rather than 2.5%, a proposal made on one recent call with Zelis — but rarely is he offered a free transfer.
A spokesperson for Zelis, the payment-processing company that Shteynshlyuger has tangled with most often, said the company refers requests for free electronic payments to the insurers, but recordings and transcripts of recent calls show that did not happen when Shteynshlyuger called.
Shteynshlyuger and other doctors say payment processors routinely sign them up for high-fee payment methods without their consent. A brochure for one payment company, Change Healthcare, boasted of automatically enrolling 100,000 doctors and hospitals in a plan to receive virtual credit cards and sharing some $8 million a year in revenues with the large insurer it was working for. (Virtual credit cards are a form of electronic payment in which a payer sends a string of numbers that are typed into a credit card reader to generate a one-time payment. Fees for VCCs run as high as 5% versus a typical 2.5% for other kinds of electronic payments.)
Payment processors often boost insurers' revenues by sharing the fees from virtual credit cards. One processor, VPay, says in its marketing materials that insurers can "make money on every virtual card transaction." In response to questions from ProPublica, UnitedHealth, which owns Change and VPay, asserted that its services help medical clinics streamline recordkeeping, reduce administrative burdens and accelerate payments.
Zelis and other payment processors say they offer value in return for their fees: Doctors can sign up to receive reimbursements from hundreds of insurers through a single payment processor, and they can also get services that help match up electronic payments and receipts. Zelis asserted in a statement that its services remove "many of the obstacles that keep providers from efficiently initiating, receiving, and benefitting from electronic payments." Zelis and other companies insist that it's easy to opt out of their services, but Shteynshlyuger and other doctors say otherwise.
When Shtyenshlyuger embarked on his mission of fighting the fees in 2017, his first step was research. He quickly came across an article from the American Medical Association that said the law was on his side.
Shteynshlyuger then approached the companies. He emailed senior executives of Zelis and VPay, asserting that the fees violated CMS rules. The companies denied breaking any rules and wouldn't budge on the fees.
So Shteynshlyuger started filing complaints with CMS. The responses he received struck him as curious. CMS itself usually didn't offer an opinion. Instead, it forwarded letters from a Zelis executive named Matthew Albright, who answered Shteynshlyuger's complaints on at least five occasions. (The agency said this passive approach is part of its "informal" complaint resolution process.)
When Shteynshlyuger pressed a CMS official to articulate the agency's position after it passed along Albright's answer, the official wrote that the agency receives the "identical legal response" from Zelis to all such complaints. She added: "They believe that, according to their interpretation of the regulation, they are compliant."
Shteynshlyuger was flummoxed. Who was Matthew Albright? A quick Google search revealed that Albright had once worked for CMS. That only piqued Shteynshlyuger's interest. Had Albright been involved in the removal of the CMS notice prohibiting fees?
To Albright, the 2010 passage of the Affordable Care Act was a historic event of a magnitude akin to the moon landing. Then a policymaker with Washington state's healthcare Authority, Albright was awed by the importance of the looming rewrite of U.S. healthcare rules. He felt he had to be part of it. "This is the Apollo 11 for regulators," he recalled thinking, in an interview with ProPublica. "I've got to get to D.C. and write regulations."
Now 55, Albright had unusual training for his new role. Instead of following the typical path through law school, he had studied sacred texts, first at the Pontifical University of St. Thomas Aquinas in Rome and later at Harvard University, where he earned a master's degree in divinity. Those studies, Albright said, fostered what he called a "scholastic fascination with words and how they're used to tell people what to do," whether those words are in the Ten Commandments or the Code of Federal Regulations.
Articulate and cheerful, today Albright can still sound more like a divinity professor than a lobbyist when he describes his current job as studying laws and rules. "Hermeneutics," he said, "it's just like Bible study, right? Breaking it down into its understandable parts. And then, frankly, turning around and teaching it or turning around and explaining it in the vernacular, if you will. So I think that most of my job is looking at regulations and reading them and then explaining them to internal and external audiences."
At CMS, Albright drafted a rule, published in 2012, that laid out standards for paying doctors via electronic funds transfers. The Affordable Care Act required all insurers to offer EFTs and encouraged doctors to accept them, and electronic payments quickly became the go-to method for handling medical claims. A CMS analysis predicted that eliminating the labor of manually processing paper checks and receipts would lead to savings of $3 billion to $4.5 billion over 10 years.
Albright became the agency's point man on the issue. He looked every bit the government bureaucrat in a gray shirt and dark suit as he extolled the virtues of "administrative simplification" in earnest-but-stiff video segments that emulated a talk show. (Albright also created a personal YouTube channel when he taught a philosophy course. It had bite-sized explanations of, among other things, Kantian ethics — "do not use people" — and Ayn Rand's philosophy — "selfishness is good.")
Albright's work at CMS, by his description, became a "turning point" for healthcare payments. The shift to electronic funds transfers facilitated the growth of an industry of payment processors. It also made Albright's skill set very valuable. In 2014, he was recruited to the industry he previously regulated. Two years later, he landed at Zelis. The company had just been created via a merger of four businesses owned by Parthenon Capital, a private equity firm. Zelis is now co-owned by private equity giant Bain Capital and headed by a former Bain partner. (Parthenon declined to comment; Bain referred a request for comment to Zelis.)
Zelis, which once described itself as having a "regulatory-based business model," touted Albright's government resume when it hired him as vice president of legislative affairs. Albright said at the time he would "advocate for rational regulatory approaches."
Rational regulatory approaches, from Zelis' perspective, included the right to charge doctors for electronic payments. That was a crucial revenue stream for the company, but it could dry up if CMS enforced a rule prohibiting such fees. Who better than Albright, the man who had drafted rules on electronic payments, to help the company navigate the situation?
When Shteynshlyuger began to receive documents from CMS in response to his Freedom of Information Act requests, he was first struck by how deferential CMS officials seemed to be to Albright. In July 2019, for example, as Shteynshlyuger continued to complain about Zelis, a CMS official named Gladys Wheeler contacted Albright. "You may be familiar with Dr. Alex Shteynshlyuger," Wheeler wrote. "To assist with resolution of the complaints, I have a few questions. Can I send the questions to you, or can you redirect me?" She added, "Just let me know the best approach. Thanks, and take care, Gladys." (Wheeler did not respond to requests for comment.)
The tone of the conversations between Albright and CMS could be downright chummy. "Should we respond to it as per usual?" Albright asked in another July 2019 email about a new complaint filed by a doctor in Washington state. "Send the Zelis response for documentation purposes," Wheeler responded in between banter that she and Albright exchanged about Chicago's winter weather (bad) and architecture (great).
Shteynshlyuger was growing more frustrated. He didn't understand why CMS had yanked the notice about the prohibition on fees from its website. If his months of effort couldn't extract clear answers, how could other doctors with less inclination for bureaucratic battle figure out what to do?
What Shteynshlyuger didn't know was that, less than two years earlier, a lobbying campaign had begun behind the scenes at CMS. The documents that he eventually obtained would provide a rare, nearly day-by-day glimpse into how one lobbyist — Albright — managed to bend the agency to his will with an artful combination of cajoling, argument and legal threats.
On Aug. 11, 2017, CMS' website had posted the notice that EFT fees were prohibited. Such notices, presented in the form of answers to frequently asked questions, are meant to explain the agency's complex rules in plain language. CMS based the notice on a rule from 2000 that banned fees in excess of normal telecommunication costs (such as, say, the tiny fractions of a penny to cover the cost of an email) that a doctor would incur if they were receiving the bill "directly" from an insurer.
The notice triggered an immediate protest from Zelis, according to emails and an internal CMS memo. Albright had "multiple conversations" with CMS staff and demanded that the agency revise the notice.
The nub of Albright's argument was that CMS' 2000 rule prohibited insurers from charging excessive fees for "direct" transactions. But, he argued, the rule was meant to apply to insurers dealing with doctors. Albright represented payment processors who work for insurers; those weren't direct transactions between insurers and doctors. Thus, he argued, the fee prohibition couldn't apply to EFT payments.
CMS, which took months or longer to respond to Shteynshlyuger, quickly complied with Albright's request and removed the fee notice on Aug. 14, 2017, only three days after it was posted.
CMS published an updated notice in late September 2017. But the agency stood firm on the key point: The new document stated that insurers and payment processors "should not charge providers communications fees" for EFTs.
Shortly after the revised notice went up, Albright emailed the director of the CMS division that issued it. "Hope the kids have settled into the school year okay," he began. He then asked for "our day in court to educate" the agency. He suggested that Zelis was preparing to escalate its complaints but offered to "work through this without causing too much noise."
Two days before Thanksgiving, Albright confronted Christine Gerhardt, then deputy director of the CMS division that issued the fee notice. In a phone call, Albright demanded that CMS revise the document again, according to Gerhardt's summary of the call. Gerhardt refused. Albright began debating her on the legal differences between the explainer and the regulation that it summarized.
The following week, Albright pressed harder, asking Gerhardt whether the prohibition on fees was enforceable. He told Gerhardt that if she did not answer, that itself would be an answer. It would, Albright said, "give me a sense of what steps need to be taken next" to challenge the agency's notice. Gerhardt, who is now retired, said she assured him that the agency wasn't implementing a new rule; only clarifying existing rules. Albright was pushing hard, but at that point, Gerhardt hadn't bent.
Then, in January 2018, Zelis brought in the lawyers. A firm called Nixon Peabody wrote to CMS, demanding that the agency "withdraw or correct the offending language" in its notice. Nixon Peabody argued that the fee prohibition wasn't a restatement of existing rules but that it amounted to a new rule that should have been issued via the formal rulemaking process. Nixon Peabody threatened to sue if CMS didn't comply with Zelis' demand. (Nixon Peabody did not reply to a request for comment.)
The legal threat set off a scramble within CMS. "Let's just take it down," Gerhardt wrote in a Feb. 9, 2018, email to colleagues. Her division not only removed the notice saying that fees were prohibited but also went so far as to institute a moratorium on any new notices. CMS was essentially depriving all medical providers of guidance on these issues because one company had complained.
The response puzzled even some within CMS. "What was the basis for withdrawal if the request was from a single entity and potentially harms providers?" Jackson, then CMS deputy chief of operations, wrote in an email.
Albright, his goal accomplished, sought to soothe Gerhardt and two of her colleagues. "I know I butted heads with all three of you," he wrote a few weeks later. Albright offered to meet to explain why Zelis is not "one of the bad guys in this area." (Zelis did not address detailed questions about Albright's interactions with CMS.)
In March 2018, after Zelis complained and CMS removed a notice saying that payments to doctors couldn't carry fees, Albright emailed three key agency staffers to patch things up. Credit:Email exchange provided by Alex Shteynshlyuger
CMS told ProPublica in a statement that it reversed its position because it concluded that it had no legal authority to "flat-out prohibit fees." The agency declined to comment on Shteynshlyuger's complaints, but said it takes seriously any allegations of noncompliance with its rules. As for Zelis' lobbying, CMS said it "receives feedback from a wide range of stakeholders on an ongoing basis. The information received helps the agency understand where guidance and clarification of existing policy may be needed."
The American Medical Association and over 90 other physician groups have urged the Biden administration to reinstate guidance protecting doctors' right to receive EFTs without fees. For its part, the massive Veterans Health Administration system has been refusing to pay the fees, which it has described as illegal in letters to Zelis and insurers.
So far the protests have had no visible effect. In fact, when CMS finally issued a new explainer that addressed fees in July 2022, more than four years after erasing the previous one, the agency made explicit what had previously been implicit: EFT fees are allowed.
Shteynshlyuger is continuing his lonely campaign. Two months after CMS stated that fees are OK, a Zelis customer service representative contacted him. Shteynshlyuger had just submitted his 80th complaint to CMS. Emails show the rep offered to help him get signed up for no-fee EFTs — but the offer only applied to payments from one of the more than 700 insurers and other payers that Zelis represents. Shteynshlyuger demurred, saying he did not want the issue resolved without CMS' intervention because then other doctors could not get the same assistance. As often as not, Shteynshlyuger and other doctors are left with little recourse; many insist on being paid by paper check rather than allowing Zelis to take a cut.
In mid-December, Shteynshlyuger finally got the long-awaited replies to eight other complaints he had filed over the years. CMS dismissed all eight because Shteynshlyuger didn't file them against insurers but instead against companies like Zelis, which CMS referred to as "business associates" of the insurers. CMS said it now believes its oversight extends only to insurers, not to their business associates. The phrasing may have been bureaucratic, but the news was dramatic: CMS had fully surrendered, giving up on regulating payment processors entirely.
Shteynshlyuger hasn't filed a new document request yet to uncover whether Zelis or perhaps another company influenced that decision. He has his suspicions.
Cezary Podkul is a reporter for ProPublica who writes about finance.
Medical boards, a health department and even federal investigators have scrutinized Dr. James McGuckin's vascular clinics. Today he still practices, despite a decade-long string of sanctions, fines and lawsuits.
This article was published on Wednesday, August 9, 2023 in ProPublica.
Cheryl Lee Carr clutched her phone, willing it to ring. The last time she'd answered it, a hospital surgeon told her he didn't know if he could save her mother's leg, let alone her life. But he would try to stop the hemorrhaging from her major leg artery, punctured by a doctor at a nearby clinic.
Carr had spent that morning in February 2020 at the Lehigh Valley Vascular Institute in Bethlehem, Pennsylvania, waiting as her 82-year-old mother underwent what was supposed to be a simple procedure to clear plaque from her arteries. More than four hours in, Carr knew something was wrong. She pushed past the front desk to find her dazed mother in a recovery room, two clinic employees holding a bloody compress over a leg that had turned deep purple.
"Where's the doctor?" Carr recalled yelling. "Call 911 right now!"
Now, as Carr braced for news about her mother's fate, her thoughts turned to the clinic's doctor who, she recalled, was nowhere to be seen as his patient bled. Carr pulled up a search engine and typed in his name: James McGuckin.
A deluge of results poured in.
What the hell? she seethed as she scrolled. Why is he still practicing?
For more than a decade, the Pennsylvania doctor and his national empire of vascular clinics had been scrutinized by agencies at every level — state medical boards, the Food and Drug Administration, the Department of Justice — for conducting experimental or unnecessary procedures on patients, putting their lives and limbs at risk.
He'd been disciplined by medical boards in over a dozen states, lost privileges in multiple hospitals and settled federal allegations of fraud, admitting that his company had performed procedures without any documented need. Pennsylvania had tried to shut his clinics down. Just a few months ago, federal attorneys announced a case against him, claiming he put "profits over the health and safety of his patients" when performing invasive artery procedures, regardless of symptoms or need.
And yet, after all of that, McGuckin is still seeing patients today, still adding to the nearly $50 million he has earned in the past decade in federal insurance reimbursements.
Medical boards are supposed to ensure doctors are not endangering their patients. State health inspectors are supposed to make sure facilities are meeting minimum standards of care. And the federal government is supposed to make sure that doctors are not swindling the nation's largest insurance program, Medicare, by exploiting vulnerable elderly patients.
But the ability of McGuckin to continue practicing, despite scrutiny from each of these regulators, highlights troubling gaps in the public safety net, ProPublica found. Those charged with identifying and stopping problem physicians are often slow-moving, blind to holes in their oversight and frequently unable — and at times unwilling — to stop doctors from practicing, even in cases of egregious harm or brazen fraud. Punishments are often nominal or easy to avoid, especially for well-resourced doctors like McGuckin.
One area that has become perilous for patients is vascular medicine. ProPublica recently uncovered a pattern of excessive and unnecessary vascular treatments in outpatient facilities. Medicare reimburses generously for these invasive treatments, which include using stents and balloons to widen arteries, and spiraling blades or lasers to clear plaque from blocked vessels, in a procedure called an atherectomy. Though they can be done safely outside of hospitals, they carry risks of complications that include clots, bleeding, limb loss and even death.
Over the past decade, federal investigators have accused more than a dozen physicians or companies in the vascular space of performing unnecessary procedures or making false claims. Some have continued to treat patients and profit from government insurance even after settling misconduct claims, only to be accused of committing similar behavior a few years — and millions of dollars — later.
At 61, with eyes that matched his bluish scrubs, McGuckin earned the trust of his patients, many of whom came to him for help with leg pain or circulation problems; several told ProPublica he appeared knowledgeable, caring and charming. One of the perks of going to see him was a limousine service that ferried them to and from appointments, they said.
Several of his patients faced complications after invasive vascular procedures — two lost their legs and several nearly lost their lives, according to interviews and medical and legal records. "The things that have happened to me have been a disaster," Maria Rohena, 69, said in Spanish as she wept. Her leg was amputated five days after a procedure in McGuckin's clinic in July 2021, according to medical records.
McGuckin's attorney David Heim described him as a "very good, skilled surgeon who has helped thousands of patients," many of them at higher risk. "Any effort to portray Dr. McGuckin as some ‘greedy' or ‘bad' doctor would be completely false and defamatory," he said. Heim did not respond to ProPublica's questions about specific patients, citing privacy. McGuckin's attorneys said that he has never been found personally liable for fraud and that the government's most recent allegations are "provably wrong."
Carr could not anticipate, as she waited for the call that winter day, just how bleak it would get. "My mother would never have gone under the knife with that guy if I had known anything about him," she said.
'A Question of Accountability'
From an early point in his career, McGuckin wanted to be calling the shots.
After completing his medical degree in 1987 from Philadelphia's Hahnemann University School of Medicine, now Drexel University College of Medicine, he earned his board certification in radiology, eventually publishing articles in academic journals and participating in several professional societies, including the American Board of Radiology, the Society of Interventional Radiology and the Pennsylvania Medical Society.
While working in hospitals, he felt he was just "a small cog" in the system, he said in an interview. So, in 2002, a few years after completing his medical training in Philadelphia, he opened his first private practice office.
Before long, he would open a chain of facilities, Vascular Access Centers, that would reach a dozen states under his leadership, and thousands of patients.
"Here, the physician gets to be the pitcher or quarterback," he said in the interview, of running an office. "We call the plays, set the schedule, drive the tempo. … There is never a question of accountability or the primacy of the customer."
But there were soon questions of accountability and appropriate care.
Around 2010, McGuckin started offering a controversial procedure: an invasive, experimental treatment for multiple sclerosis, which involved deploying balloons and stents in veins across the body to improve blood flow. The treatment, which lacked substantial evidence that it improved patient symptoms, was rejected by the medical establishment, and the use of devices for the treatment was unapproved by the FDA. Only about 30 doctors performed it, often charging thousands of dollars to do so.
McGuckin became a leading evangelist for the treatment, conducting hundreds of the risky procedures on patients, including a South Carolina woman who, in May 2012, nearly died after a stent dislodged and traveled to her heart. The Milwaukee Journal Sentinel, which wrote about the case, reported that the patient sued McGuckin in 2015 and the case was confidentially resolved two years later.
In July 2012, FDA inspectors showed up at one of his facilities and cited him for multiple violations, which are spelled out in an April 2013 letter. They included enrolling patients in unapproved clinical research; failing to screen for abnormal kidney function, which could have subjected patients to renal failure; and not reporting serious adverse events.
Despite evidence that such treatments put patients in grave danger, none of the medical boards in the more than a dozen states in which he was licensed to practice took action for more than a year. Some boards took four years.
State medical boards serve as the first line of defense against unscrupulous physicians. Typically composed of doctors and laypeople working part time, boards regulate who can practice medicine and investigate complaints of poor care.
But they are not set up for aggressive or speedy detective work. Take the board in McGuckin's home state of Pennsylvania, which oversaw more than 75,000 health care workers as of 2021; it had a budget of roughly $1.2 million to investigate misconduct that year, or about $290 per case opened.
For this reason, boards don't typically seek out investigations; they wait for patients, staff or other doctors to formally complain. They are slow to act and notoriously lax with their sanctions, aware that bold actions may provoke a costly and time-consuming appeals process.
Washington was the first state to sanction McGuckin, in November 2015, after a lengthy investigation that began four years earlier. It charged him with "unprofessional conduct" for performing more than 200 procedures, fined him $17,500, made him return the money patients paid out of pocket and ordered him to stop the treatments.
It also required him to pass an ethics course by writing an essay, which evaluators found unacceptable, saying McGuckin didn't "demonstrate a capacity to think ethically about why he is being held to account." McGuckin filed a second draft, which was also unsatisfactory. He only passed the course with help from a one-on-one tutor.
The Washington Medical Quality Assurance Commission, which oversees doctors in the state, also made him sign a consent decree, admitting that the invasive procedures were inappropriate. Years later, during a lengthy bankruptcy lawsuit involving his chain, he would testify that he signed it because he felt he had to but didn't feel he was guilty of the misconduct.
"It is clear to the Court that McGuckin is willing to sign documents, like the Consent Decree, even if he does not believe that his statements are true," U.S. Bankruptcy Judge Ashely M. Chan, in Philadelphia, would say in 2020. "The Court finds that McGuckin is not truthful and cannot be relied upon for anything that he says."
By 2017, 15 other state medical boards had followed Washington in citing McGuckin for the MS treatments. Most of the sanctions, however, constituted minimal fines, often less than what McGuckin could bill for a single two-hour vascular procedure.
Pennsylvania, for instance, charged him $10,000 in 2016. That year, he took in almost $4 million in federal reimbursements alone.
In a letter shared with ProPublica, McGuckin's attorney George Bochetto said the doctor "was not disciplined because he performed a so-called ‘unproven and risky procedure,' but rather was ensnared in a complicated administrative bureaucracy."
While he lost hospital privileges across four facilities in Pennsylvania and New Jersey, no medical board limited his ability to practice.
'Bang 'Em All'
All the while, federal agents were investigating McGuckin for an entirely different set of allegations.
While states regulate medical facilities and doctors, the Department of Justice attempts to protect the nation's largest insurance systems, like Medicare, from fraud. Its investigations are often instigated by whistleblowers, whose inside testimony is crucial to uncovering details of wrongdoing.
Dr. Michael Levine, a seasoned nephrologist with an expertise in hemodialysis vascular access, started working for McGuckin in 2009 at multiple New Jersey clinics that were part of Vascular Access Centers.
"At first, there was no red flag," Levine told ProPublica. The clinics mostly treated patients with renal disease whose vessels occasionally needed treatment related to their dialysis lines. But Levine said he quickly learned that patients were being put into treatment loops where they were regularly booked for unneeded tests and procedures. "They were having the patients come back every three months, which to me is corruption," he said.
While the procedures were relatively low risk, each time a doctor puts a foreign device in a patient's body, it carries a chance of complication. Levine said he was therefore shocked when McGuckin pushed him to do more procedures without a clear clinical need.
McGuckin ordered each dialysis patient to be "squirted with dye," Levine said in court records, implying that all patients should be subjected to an X-ray test to fish for blood clots or narrowed vessels to treat, regardless of whether their primary doctor ordered it.
McGuckin also allegedly told Levine to treat patients' vessels with inflatable balloons and implant stents without a medical need. "Bang 'em all," McGuckin allegedly told him, according to legal filings.
When Levine refused to go along with this practice, he said he was fired. Shortly after, in 2012, he filed a whistleblower lawsuit, which spurred a federal investigation.
"It's not an issue of competency," he told ProPublica. "It's the issue of using his skills for his own self benefit and seeing his patients not as human beings, but as sources of income."
David Stebbins, who was the administrator director of the centers from 2006 through 2018, said he also witnessed McGuckin's drive to increase profits with unnecessary procedures. "McGuckin exerted pressure on all of the MDs working for him to increase procedural ‘acuity,'" he told ProPublica in an email. After more than a decade of working for McGuckin, when Stebbins questioned whether the clinics were possibly violating state regulations, he said he, too, was let go.
"McGuckin is an arrogant Charlatan who expects his senior staff to do whatever they're told, or they may find themselves looking for work," said Stebbins, who filed a separate whistleblower complaint in 2020, which is ongoing. "Under incredible pressure, they comply." Attorneys for McGuckin did not respond to Stebbins' allegations.
Despite allegations that patients might be at risk of unnecessary, invasive procedures, it still took six years for the Justice Department to settle the claims initiated by Levine.
In October 2018, Vascular Access Centers signed a settlement with the federal government, agreeing to a $3.8 million fine. As part of the agreement, the company had to admit that it regularly scheduled, performed and billed for procedures without any evidence of need.
But as is the case with many federal settlements involving doctors, they are rarely held personally liable, or they can just pay steep fines to get out of trouble.
While McGuckin signed the company's agreement with the federal government, as the company's general partner and manager of each of its clinics, he was not held personally responsible for its misconduct. No physicians were specifically called out in the federal settlement; McGuckin's attorney said the government chose not to pursue a case against him because there was no evidence implicating his physician services.
At his clinics across Pennsylvania that were not affiliated with the embattled chain, McGuckin could still continue to treat patients unchecked.
Other doctors have gotten a similar deal.
Take Dr. Feng Qin, a vascular surgeon in New York.
In 2015, he settled allegations of fraud, admitting that he had routinely performed unnecessary procedures on end-stage renal disease patients. He paid a $150,000 fine but was able to continue practicing.
Even after the settlement, Qin performed unnecessary procedures, according to federal legal filings. "The monitoring by the feds, I know how to play Medicare's asses now," he told his billing assistant in 2015, according to a later whistleblower complaint.
Three years later, the Justice Department indicted and arrested Qin for fraud, after which he agreed to another settlement, paying $800,000. Lawyers for Qin, who left the country after the settlement, did not respond to ProPublica's emailed questions.
Though Qin was temporarily excluded from federal health care programs, other doctors have continued to receive government payments even after multiple settlements.
Consider Dr. Mubashar Choudry, a cardiologist in Maryland. He was never found guilty of patient harm, but his medical practices have twice been scrutinized by the Justice Department for alleged misconduct.
In 2014, his medical group agreed to pay about $1.9 million to settle allegations that it was involved in an overbilling scheme. Then in 2020, Choudry and his practices settled allegations of kickbacks with the federal government, paying $750,000. In both cases, neither Choudry nor the companies were required to admit liability.
Kirk Ogrosky, Choudry's attorney, said such arrangements are typical, and his client settled to "avoid the cost and uncertainty of litigation." His attorney emphasized that Choudry's settlement was not about the quality of patient care.
Choudry has not been limited from practicing or accessing federal payment programs. In 2021, the most recent year of public Medicare data, Choudry earned $1.5 million in federal reimbursements.
The settlement against McGuckin's clinics also didn't prevent him from continuing to bill Medicare.
Between 2019 and 2021, the most recent years of federal payment data available, McGuckin made more than $17 million.
Putting 'Profits Over the Health and Safety of His Patients'
While medical boards oversee doctors, state health departments regulate medical facilities, which can include clinics like McGuckin's. Their investigations, too, are largely driven by complaints and rarely result in major consequences.
So it was remarkable that, in 2019, Pennsylvania's Health Department decided to take on McGuckin after officials read about his company's federal settlement in The Philadelphia Inquirer.
At the time, he owned four clinics in the state that weren't affiliated with the chain.
The department reviewed their license applications and found that the clinics had "failed to fully, completely, and accurately" disclose pertinent details about the federal scrutiny involving McGuckin and his other company. In January 2019, the department issued rare orders for four of his private clinics, revoking their licenses and cutting off their ability to operate.
McGuckin appealed the orders and his lawyer argued that a shutdown would expose his clinics' patients to "irreparable harm" without their care. His lawyer also noted that the department had based the order on the assessment that McGuckin was "not a responsible person," instead of relying on claims of patient harm or complaints. His lawyer also said that because McGuckin was not held personally liable in the settlement, he had been exonerated from its "salacious" allegations.
Garrison Gladfelter, who oversees surgical centers for the state, told McGuckin's attorney in letters that, pending the appeal, McGuckin's facilities could continue to operate on one condition: that he not personally perform procedures or provide training to the medical staff.
In response, McGuckin sued Gladfelter as well as the state's health secretary, Dr. Rachel Levine, alleging that his clinics' licenses were unlawfully revoked and their attempt to ban him from working at his own practices infringed on his "constitutional right to practice medicine."
The lawsuit continued for eight months, and in October 2019, it was dismissed with an acknowledgment that the issues between McGuckin and the state had "been settled."
The details of this settlement were kept secret. There's no public evidence of why McGuckin's facilities were allowed to continue to operate, with him performing procedures. The Health Department told ProPublica that, after the confidential settlement, it increased oversight at two of McGuckin's facilities.
But against the tide of litigation, the Health Department largely backed off, and like the state medical boards and the Justice Department before it, it allowed McGuckin to continue to practice.
And so he did, for almost four years.
All the while, federal authorities had more information indicating his patients were at risk.
Two months after the federal settlement, in December 2018, yet another whistleblower filed a complaint: Dr. Aaron Shiloh, who was employed by McGuckin in his private practice in Pennsylvania. In a letter, McGuckin's attorney Bochetto called him "disgruntled." Shiloh's attorney pushed back, requesting further details, but McGuckin's attorneys did not respond to ProPublica's request for more information.
His claims would lead attorneys from the Justice Department to conclude that from 2016 through 2019, McGuckin performed more than 500 medically unnecessary or insufficiently documented procedures, which allowed him to earn at least $6.5 million in Medicare reimbursement. They also found that McGuckin performed several invasive procedures on many patients, regardless of their symptoms, putting "profits over the health and safety of his patients."
The procedures are intended for patients with peripheral artery disease, a condition that afflicts 6.5 million Americans over the age of 40. According to the federal government, McGuckin not only performed procedures on patients with only "moderate" leg pain, against the widely accepted standards of care, he also performed procedures on patients who were disabled and and unlikely candidates for such interventions.
He performed procedures for leg pain in a patient who was paralyzed on one side of her body and did not walk at all, according to the complaint. On another patient, the government said, he conducted "unnecessary below-the-knee procedures in the small portion of what remained of a patient's already amputated leg." One patient told the federal government, according to legal filings, that he felt like McGuckin "was just experimenting on him."
Earl Toler of Long Pond, Pennsylvania, told ProPublica he also felt part of an experiment. He sought treatment at 74 after experiencing weakness in his leg when walking. Over about a year, Toler underwent 10 vascular procedures, according to later legal filings. His condition progressively worsened until his left leg grew swollen and mottled and one of his toes turned dark blue.
To save his life, in November 2018, doctors at a local hospital needed to amputate his leg above the knee. During a malpractice lawsuit against McGuckin and other doctors at his clinic, medical experts who testified on Toler's behalf claimed the doctors had deviated from the accepted standards of care, particularly in not referring Toler to a vascular surgeon for more advanced treatment, which they alleged eventually led to his limb loss. In legal filings, McGuckin denied the allegations. The lawsuit went to trial last year, and the jury sided with McGuckin and his doctors, clearing them of any wrongdoing.
Despite the verdict, Toler, an excavation contractor by trade who can largely no longer work after his amputation, still holds them responsible for his condition. And when he read over the allegations of the current Justice Department lawsuit, he was floored. "It's a pattern," he said. "I knew I wasn't the only one."
Two and half years after Toler's amputation, Rohena, a churchgoing grandmother from the Allentown area, blacked out and had a heart attack in McGuckin's recovery room, according to medical records. The clinic called an ambulance to take her to the nearest hospital, where medical staff found a main artery had been nicked, causing extensive blood loss. Rohena was treated for five days before her leg was amputated.
A lawsuit has been initiated, according to her attorney Frank Mangiaracina. "Maria is stuck living in a nursing home, and she doesn't have her leg or life anymore," he said.
According to clinic medical records, Rohena had undergone four treatments with McGuckin in two months.
A ProPublica analysis of federal payment data from 2017 through 2021 found that McGuckin ranks among the 5% of doctors who perform the most atherectomy procedures like the one Carr's mother, Toler and Rohena underwent before facing complications.
Recent research has shown that a substantial number of doctors who treat peripheral arterial disease are quickly resorting to device interventions in the earliest stages against best practices. Doctors have used scare tactics to convince patients to get these painful and risky procedures; McGuckin, for instance, allegedly told patients the interventions were necessary to "save their leg" or "stop the chop." But patients in early stages of vascular disease have less than a 2% risk of amputation after five years, researchers have found. That risk could surge up to 5% or even 10% with aggressive interventions.
McGuckin's attorneys argued the federal allegations are "baseless" and "irreparably tarnish" his reputation. "McGuckin did not violate any medical standards of care in treating his patients," his attorneys wrote in legal filings. "The Government's medical necessity claims amount to nothing more than a ‘scientific disagreement.'"
Justice Department investigations into whistleblower claims are kept secret until prosecutors are ready to file a lawsuit. They did so in May 2023. Despite McGuckin's arguments that it should be dismissed, it is ongoing.
According to the Health Department, McGuckin has closed or relinquished ownership of his clinics across Pennsylvania in the past few years. When ProPublica called the Lehigh Valley Vascular Institute in July to inquire whether he was still practicing, the receptionist said he was taking appointments.
'Penniless and Paralyzed'
A few weeks ago, Carr pored over the details of the new federal case. It brought her to tears.
Though that phone call back in 2020 brought good news — the hospital surgeon managed to save her mother's life and leg — the aftershocks took a lasting toll.
While recovering at the hospital, her mother, Elaine Micelli, struggled to use her left arm, and one side of her face drooped. Carr suspected her mother had developed a neurological issue. "She asked me to go down the hall and get her a box of tissues from her closet — she thought she was at home," she said.
An assessment at the hospital revealed she had suffered strokes, medical records show, likely due to the low blood pressure, which she had when she was admitted.
Before her visit to McGuckin, the 82-year-old still mowed her 2 1/2 acre lawn in the summer and cleared snow with her blower in the winter. She volunteered for the crime watch at the local fire department and, every week, called bingo numbers at the senior center.
Now, she lives in a nursing home and requires 24-hour care. She no longer walks, requires assistance to eat and wears diapers. She cannot speak fluidly or remember key moments of her past. "He destroyed my mom's life," Carr said of McGuckin. "She's penniless and paralyzed … just waiting to die."
Shortly after her mother's injury, Carr said she filed a formal complaint about McGuckin with both the state's Medicare office and its medical board.
Three years on, she said, she has not received a response.
Federal regulators have announced enhanced oversight of new hospices in Arizona, California, Nevada, and Texas, targeting providers highlighted by a ProPublica investigation.
by Ava Kofman
Last week, regulators rolled out enhanced oversight for new hospices in Arizona, California, Nevada and Texas. The Centers for Medicare and Medicaid Services, which pays for most of American hospice care, announced that this change was spurred by “numerous reports of hospice fraud, waste, and abuse” and “serious concerns about market oversaturation.”
In November, ProPublica and The New Yorker highlighted that the four states were overrun with for-profit hospices, many of them sharing the same addresses and owners. Some of these hospices obtained licenses only to sell them to other entrepreneurs. Others appeared to be billing Medicare for “phantom” — that is, nonexistent — patients. Some did both. The government’s own data revealed a pattern of rapid hospice growth in the four states, far outstripping the demand for services.
During the new oversight period, which can last up to a year, Medicare and its contractors will now scrutinize the claims submitted by new hospices in these states before they pay them. This process — often known as “medical review” or “pre-pay review” — will make it more difficult for a hospice to bill the government for inappropriate patients or medically unnecessary services. Theresa Forster, vice president for end-of-life care policy at the National Association for Home Care & Hospice, praised this action, which all four industry trade groups had recommended. “This gives new hospices an opportunity to start off on the right foot and identify any problem areas from the start,” she said.
The change is part of a larger effort by CMS this year to address fraud, waste and abuse in its hospice program. In January, CMS overhauled its inspections of hospices, with the changes going into effect immediately. In March, the agency released a proposed rule that would require further analysis of the number of patients leaving hospice alive, the diagnoses provided on hospice claims and Medicare hospice spending. And in April, the agency made hospice ownership data public for the first time. The data will allow patients and families to better discern whether their hospice is for-profit or not-for-profit — a distinction that, as researchers have shown, can significantly affect the quality of care. “It’s plain and simple: families deserve transparency when making decisions about hospice and home health care for their loved ones,” Department of Health and Human Services Secretary Xavier Becerra said in a statement. “Shining a light on ownership data is good for families, good for researchers, and good for enforcement agencies.”
These reforms were prompted not just by the ProPublica-New Yorker story but by the continued pressure from lobbyists and lawmakers in its wake. This spring, during hearings held by the Senate Finance and House Ways and Means committees, members cited the investigation as they questioned Becerra on the agency’s next steps for tackling hospice profiteering. In one exchange, Becerra testified that his inspectors had “conducted some unannounced site visits of the hospices identified by that article” and that an audit of suspicious providers was underway. Legislators have sent a series of public letters to HHS, requesting urgent briefings and actions on hospice fraud, including two this summer. The most recent letter, released last week and signed by 26 representatives from both parties, applauded CMS’ commitment to addressing hospice abuse while also requesting further reforms, including targeted moratoriums in high-growth areas and standards to rein in deceptive marketing practices.
“This is an area that escapes partisan gridlock,” Rep. Earl Blumenauer, D-Ore., one of the letter’s signatories and coordinators, told me. “No one sympathizes with people who are cheating this system, particularly when you are involving some of America’s most vulnerable populations.”
Palliative care physicians have also been pushing for stricter guidelines. In April, the Journal of Palliative Medicine published a statement of “Core Roles and Responsibilities” signed by 325 doctors in the field. The group was motivated to issue the statement, it wrote, “out of concern for physician colleagues who may be asked to participate in hospice programs that are staffed, structured, and operated in ways that put patients and families at risk of poor care, and concomitantly expose physicians to violations of clinical and ethical standards.” Among other improvements, it called for hospices to strengthen their staffing, training and frequency of visits.
Ira Byock, the lead author and the former president of the American Academy of Hospice and Palliative Medicine, said that the condition of hospice care in the United States represented a “true public health crisis.”
This year has also seen a spate of further reporting, commentary and research on the profit motive in hospice, including a detailed report on private equity’s role in hospice care from the Center for Economic and Policy Research. Eileen Appelbaum, the center’s co-director and one of the co-authors of the report, “Preying on the Dying,” said that she has long been concerned about how investors can harm vulnerable patients and families. “Problems of asymmetric information — most patients and their caregivers have no prior experience with hospice care — further increase the difficulty of overseeing private hospice agencies,” the report notes.
Ben Marcantonio, the interim CEO at the National Hospice and Palliative Care Organization, the industry’s largest trade group, said that “in my experience, whether hospices are gaming the system is not a direct reflection of tax status. What we need is the right stewardship of taxpayer dollars, so the right delivery of care is provided at the right time with the right amount of resources.”
Blumenauer told me that he and other legislators were committed to checking in with CMS and trade groups like NAHC and NHPCO about ongoing, collaborative efforts to reform the hospice program. “Your article struck a chord on a series of levels,” he said. “We are going to continue pounding away on this issue.”
Insurers' denial rates — a critical measure of how reliably they pay for customers' care — remain mostly secret to the public. Federal and state regulators have done little to change that.
Yet, how often insurance companies say no is a closely held secret. There's nowhere that a consumer or an employer can go to look up all insurers' denial rates — let alone whether a particular company is likely to decline to pay for procedures or drugs that its plans appear to cover.
The lack of transparency is especially galling because state and federal regulators have the power to fix it, but haven't.
The findings revealed how little consumers know about the way their claims are reviewed — and denied — by the insurers they pay to cover their medical costs.
When ProPublica set out to find information on insurers' denial rates, we hit a confounding series of roadblocks.
In 2010, federal regulators were granted expansive authority through the Affordable Care Act to require that insurers provide information on their denials. This data could have meant a sea change in transparency for consumers. But more than a decade later, the federal government has collected only a fraction of what it's entitled to. And what information it has released, experts say, is so crude, inconsistent and confusing that it's essentially meaningless.
The national group for state insurance commissioners gathers a more detailed, reliable trove of information. Yet, even though commissioners' primary duty is to protect consumers, they withhold nearly all of these details from the public. ProPublica requested the data from every state's insurance department, but none provided it.
Two states collect their own information on denials and make it public, but their data covers only a tiny subset of health plans serving a small number of people.
The minuscule amount of details available about denials robs consumers of a vital tool for comparing health plans.
"This is life and death for people: If your insurance won't cover the care you need, you could die," said Karen Pollitz, a senior fellow at KFF (formerly known as the Kaiser Family Foundation) who has written repeatedly about the issue. "It's all knowable. It's known to the insurers, but it is not known to us."
The main trade groups for health insurance companies, AHIP (formerly known as America's Health Insurance Plans) and the Blue Cross Blue Shield Association, say the industry supports transparency and complies with government disclosure requirements. Yet the groups have often argued against expanding this reporting, saying the burdens it would impose on insurance companies would outweigh the benefits for consumers.
"Denial rates are not directly comparable from one health plan to another and could lead consumers to make inaccurate conclusions on the robustness of the health plan," Kelly Parsons, director of media relations for the Blue Cross Blue Shield Association, said in an email.
The trade groups stress that a substantial majority of patient claims are approved and that there can be good reasons — including errors and incomplete information from doctors — for some to be denied.
"More abstract data about percentages of claims that are approved or denied have no context and are not a reliable indicator of quality — it doesn't address why a claim was or was not approved, what happened after the claim was not approved the first time, or how a patient or their doctor can help ensure a claim will be approved," AHIP spokesperson Kristine Grow said in a written response to questions from ProPublica. "Americans deserve information and data that has relevance to their own personal health and circumstances."
The limited government data available suggests that, overall, insurers deny between 10% and 20% of the claims they receive. Aggregate numbers, however, shed no light on how denial rates may vary from plan to plan or across types of medical services.
Some advocates say insurers have a good reason to dodge transparency. Refusing payment for medical care and drugs has become a staple of their business model, in part because they know customers appeal less than 1% of denials, said Wendell Potter, who oversaw Cigna's communications team for more than a decade before leaving the industry in 2008 to become a consumer advocate.
"That's money left on the table that the insurers keep," he said.
At least one insurer disputes this. Potter's former employer, Cigna, said in an email that his "unsubstantiated opinions" don't reflect the company's business model. In a separate written statement, Cigna said it passes on the money it saves "by lowering the cost of healthcare services and reducing wasteful spending" to the employers who hire it to administer their plans or insure their workers.
The few morsels insurers have served up on denials stand in stark contrast to the avalanche of information they've divulged in recent years on other fronts, often in response to government mandates. Starting last year, for example, insurers began disclosing the prices they've negotiated to pay medical providers for most services.
Experts say it'll take similar mandates to make insurers cough up information on denials, in part because they fear plans with low denial rates would be a magnet for people who are already ailing.
"Health plans would never do that voluntarily, would give you what their claim denial rates are, because they don't want to attract sicker people," said Mila Kofman, who leads the District of Columbia's Affordable Care Act exchange and previously served as Maine's superintendent of insurance.
About 85% of people with insurance who responded to a recent KFF survey said they want regulators to compel insurers to disclose how often they deny claims. Pollitz, who co-authored a report on the survey, is a cancer survivor who vividly recalls her own experiences with insurance denials.
"Sometimes it would just make me cry when insurance would deny a claim," she said. "It was like, ‘I can't deal with this now, I'm throwing up, I just can't deal with this.'"
Karen Pollitz, a senior fellow at KFF, has written repeatedly about the lack of data on how often insurance companies deny claims. Credit: Alyssa Schukar, special to ProPublica
She should have been able to learn how her plan handled claims for cancer treatment compared with other insurers, she said.
"There could be much more accountability."
In September 2009, amid a roiling national debate over healthcare, the California Nurses Association made a startling announcement: Three of the state's six largest health insurers had each denied 30% or more of the claims submitted to them in the first half of the year.
California insurers instantly said the figures were misleading, inflated by claims submitted in error or for patients ineligible for coverage.
But beyond the unexpectedly high numbers, the real surprise was that the nurses association was able to figure out the plans' denial rates at all, by using information researchers found on the California Department of Managed healthcare's website.
At the time, no other state or federal regulatory agency was collecting or publishing details about how often private insurers denied claims, a 2009 report by the Center for American Progress found.
The Affordable Care Act, passed the following year, was a game changer when it came to policing insurers and pushing them to be more transparent.
The law took aim at insurers' practice of excluding people with preexisting conditions, the most flagrant type of denial, and required companies offering plans on the marketplaces created under the law to disclose their prices and detail their benefits.
A less-noticed section of the law demanded transparency from a much broader group of insurers about how many claims they turned down, and it put the Department of Health and Human Services in charge of making this information public. The disclosure requirements applied not only to health plans sold on the new marketplaces but also to the employer plans that cover most Americans.
The law's proponents in the Obama administration said they envisioned a flow of accurate, timely information that would empower consumers and help regulators spot problematic insurers or practices.
That's not what happened.
The federal government didn't start publishing data until 2017 and thus far has only demanded numbers for plans on the federal marketplace known as Healthcare.gov. About 12 million people get coverage from such plans — less than 10% of those with private insurance. Federal regulators say they eventually intend to compel health plans outside the Obamacare exchanges to release details about denials, but so far have made no move to do so.
But there are red flags that suggest insurers may not be reporting their figures consistently. Companies' denial rates vary more than would be expected, ranging from as low as 2% to as high as almost 50%. Plans' denial rates often fluctuate dramatically from year to year. A gold-level plan from Oscar Insurance Company of Florida rejected 66% of payment requests in 2020, then turned down just 7% in 2021. That insurer's parent company, Oscar Health, was co-founded by Joshua Kushner, the younger brother of former President Donald Trump's son-in-law Jared Kushner.
An Oscar Health spokesperson said in an email that the 2020 results weren't a fair reflection of the company's business "for a variety of reasons," but wouldn't say why. "We closely monitor our overall denial rates and they have remained comfortably below 20% over the last few years, including the 2020-2021 time period," the spokesperson wrote.
Experts say they can't tell if insurers with higher denial rates are counting differently or are genuinely more likely to leave customers without care or stuck with big bills.
"It's not standardized, it's not audited, it's not really meaningful," Peter Lee, the founding executive director of California's state marketplace, said of the federal government's information. Data, he added, "should be actionable. This is not by any means right now."
Officials at the Centers for Medicare & Medicaid Services, which collects the denial numbers for the federal government, say they're doing more to validate them and improve their quality. It's notable, though, that the agency doesn't use this data to scrutinize or take action against outliers.
"They're not using it for anything," Pollitz said.
Pollitz has co-authored four reports that call out the data's shortcomings. An upshot of all of them: Much of what consumers would most want to know is missing.
The federal government provides numbers on insurers' denials of claims for services from what the industry calls "in-network" medical providers, those who have contracts with the insurer. But it doesn't include claims for care outside those networks. Patients often shoulder more costs for out-of-network services, ramping up the import of these denials.
In recent years, doctors and patients have complained bitterly that insurers are requiring them to get approval in advance for an increasing array of services, causing delays and, in some instances, harm. The government, however, hasn't compelled insurers to reveal how many requests for prior authorization they get or what percent they deny.
These and other specifics — particularly about which procedures and treatments insurers reject most — would be necessary to turn the government's data into a viable tool to help consumers choose health plans, said Eric Ellsworth, the director of health data strategy at Consumers' Checkbook, which designs such tools.
A spokesperson for CMS said that, starting in plan year 2024, the agency will require insurers offering federal marketplace plans to submit a few more numbers, including on out-of-network claims, but there's no timeline yet for much of what advocates say is necessary.
Another effort, launched by a different set of federal regulators, illustrates the resistance that government officials encounter when they consider demanding more.
The U.S. Department of Labor regulates upwards of 2 million health plans, including many in which employers pay directly for workers' healthcare coverage rather than buying it from insurance companies. Roughly two-thirds of American workers with insurance depend on such plans, according to KFF.
In July 2016, an arm of the Labor Department proposed rules requiring these plans to reveal a laundry list of never-before-disclosed information, including how many claims they turned down.
In addition, the agency said it was considering whether to demand the dollar amount of what the denied care cost, as well as a breakdown of the reasons why plans turned down claims or denied behavioral health services.
The disclosures were necessary to "remedy the current failure to collect data about a large sector of the health plan market," as well as to satisfy mandates in the Affordable Care Act and provide critical information for agency oversight, a Labor Department factsheet said.
Trade groups for employers, including retailers and the construction industry, immediately pushed back.
The U.S. Chamber of Commerce said complying with the proposal would take an amount of work not justified by "the limited gains in transparency and enforcement ability." The powerful business group made it sound like having to make the disclosures could spark insurance Armageddon: Employers might cut back benefits or "eliminate health and welfare benefits altogether."
Trade groups for health insurance companies, which often act as administrators for employers that pay directly for workers' healthcare, joined with business groups to blast the proposal. The Blue Cross Blue Shield Association called the mandated disclosures "burdensome and expensive." AHIP questioned whether the Labor Department had the legal authority to collect the data and urged the agency to withdraw the idea "in its entirety."
The proposal also drew opposition from another, less expected quarter: unions. Under some collective bargaining agreements, unions co-sponsor members' health plans and would have been on the hook for the new reporting requirements, too. The AFL-CIO argued the requirements created a higher standard of disclosure for plans overseen by the Labor Department. To be fair and avoid confusion, the group said, the Labor Department should put its rules on ice until federal health regulators adopted equivalent ones for plans this proposal didn't cover.
That left the transparency push without political champions on the left or the right, former Assistant Secretary of Labor Phyllis Borzi, who ran the part of the agency that tried to compel more disclosure, said in a recent interview.
"When you're up against a united front from the industry, the business community and labor, it's really hard to make a difference," she said.
By the time the Labor Department stopped accepting feedback, Donald Trump had been elected president.
One trade association for large employers pointed out that the Affordable Care Act, which partly drove the new rules, was "a law that the incoming Administration and the incoming leadership of the 115th Congress have vowed to repeal, delay, dismantle, and otherwise not enforce."
The law managed to survive the Trump administration, but the Labor Department's transparency push didn't. The agency withdrew its proposal in September 2019.
A Labor Department spokesperson said the Biden administration has no immediate plan to revive it.
Ultimately, it's the National Association of Insurance Commissioners, a group for the top elected or appointed state insurance regulators, that has assembled the most robust details about insurance denials.
The association's data encompasses more plans than the federal information, is more consistent and captures more specifics, including numbers of out-of-network denials, information about prior authorizations and denial rates for pharmacy claims. All states except New York and North Dakota participate.
Yet, consumers get almost no access. The commissioners' association only publishes national aggregate statistics, keeping the rest of its cache secret.
When ProPublica requested the detailed data from each state's insurance department, none would hand it over. More than 30 states said insurers had submitted the information under the authority commissioners are granted to examine insurers' conduct. And under their states' codes, they said, examination materials must be kept confidential.
The commissioners association said state insurance regulators use the information to compare companies, flag outliers and track trends.
Birny Birnbaum, a longtime insurance watchdog who serves on the group's panel of consumer representatives, said the association's approach reflects how state insurance regulators have been captured by the insurance industry's demands for secrecy.
"Many seem to view their roles as protectors of industry information, as opposed to enforcers of public information laws," Birnbaum said in an email.
Connecticut and Vermont compile their own figures and make them publicly accessible. Connecticut began reporting information on denials first, adding these numbers to its annual insurer report card in 2011.
Vermont demands more details, requiring insurers that cover more than 2,000 Vermonters to publicly release prior authorization and prescription drug information that is similar to what the state insurance commissioners collect. Perhaps most usefully, insurers have to separate claims denied because of administrative problems — many of which will be resubmitted and paid — from denials that have "member impact." These involve services rejected on medical grounds or because they are contractually excluded.
Mike Fisher, Vermont's state healthcare advocate, said there's little indication consumers or employers are using the state's information, but he still thinks the prospect of public scrutiny may have affected insurers' practices. The most recent data shows Vermont plans had denial rates between 7.7% and 10.26%, considerably lower than the average for plans on Healthcare.gov.
"I suspect that's not a coincidence," Fisher said. "Shining a light on things helps."
Despite persistent complaints from insurers that Vermont's requirements are time-consuming and expensive, no insurers have left the state over it. "Certainly not," said Sebastian Arduengo, who oversees the reporting for the Vermont Department of Financial Regulation.
In California, once considered the most transparent state, the Department of Managed healthcare in 2011 stopped requiring insurance carriers to specify how many claims they rejected.
A department spokesperson said in an email that the agency follows the requirements in state law, and the law doesn't require health plans to disclose denials.
Despite the struggles of the last 15 years, Pollitz hasn't given up hope that one day there will be enough public information to rank insurers by their denial rates and compare how reliably they provide different services, from behavioral health to emergency care.
"There's a name and shame function that is possible here," she said. "It holds some real potential for getting plans to clean up their acts."
Robin Fields is a reporter with ProPublica. She joined ProPublica as a reporter in 2008, became a senior editor in 2010 and served as managing editor from 2013 to 2022 prior to returning to the reporter role.
One executive bought shares in a corporate partner just before a sale, and an investor traded options right before a company's revenues took off, netting millions.
This article was published on Thursday, June 22, 2023 in ProPublica.
The case was a bold step for the Securities and Exchange Commission.
In 2021, the agency accused Matthew Panuwat of insider trading. Five years earlier, he had learned that his own company, a biopharma operation called Medivation, was about to get acquired. But instead of buying shares in his employer, he bought options in a competitor whose stock could be expected to rise on the news. The agency says he made $107,000 in illicit profits.
For the first and so far only time, the SEC filed a case that accuses an executive of using secret information from his own company to trade in the stock of a rival. "Biopharmaceutical industry insiders frequently have access to material nonpublic information" that impacts both their company and "other companies in the industry," Gurbir Grewal, the commission's director of enforcement, warned in announcing the case. "The SEC is committed to detecting and pursuing illegal trading in all forms."
One of the cornerstones of the agency's case against Panuwat is that Medivation had a policy that explicitly barred employees from buying or selling competitors' stock based on company information not available to ordinary investors
It wasn't just Panuwat who risked violating Medivation's policy, a trove of confidential IRS data obtained in recent years by ProPublica shows.
It was also his then-boss, CEO David Hung.
The records show Hung traded frequently in the stock and options of pharmaceutical companies, betting tens of millions of dollars on the rise or fall of shares of dozens of such firms, some of which were direct competitors with his company. Several of his trades came just before news about a rival that he could have learned about in his position as CEO. In one case, he traded ahead of news he personally announced.
The size of Hung's trades dwarfs those that got his subordinate, who has denied any wrongdoing, in the crosshairs of the SEC.
Hung's spokesperson acknowledged the CEO has learned nonpublic information about competitors, but denied that information ever informed any of his dozens of trades.
Earlier this year, ProPublica revealed that some executives with access to nonpublic industry information had made remarkably well-timed transactions in the securities of their direct competitors and partner companies. Securities law experts said many of the trades, which in some instances rapidly delivered millions of dollars in profit, warranted examination by regulators. The transactions ranged across sectors: from energy to toys, paper products to mortgage servicers.
But one industry stood out for both its frequency and variety of questionable trades: biotech and other relatively small healthcare enterprises such as medical device makers and drug companies. Dozens of wealthy executives and well-connected investors reported superbly timed stock trades in such companies, including in businesses they competed with or had personal ties to.
ProPublica has analyzed millions of transactions documented in the tax records of the wealthiest taxpayers, including many of the nation's top business leaders. A high proportion of these trades involved plain vanilla investments, with long-term holdings of blue chip stocks and the like. But a minority of the transactions displayed what experts say are hallmarks of potentially suspicious trading.
Finding well-timed trades was only a starting point for ProPublica's analysis. We then scrutinized transactions that occurred just before market-moving news, particularly those that represented a departure from an investor's previous investing pattern, because they either had hardly if ever traded a particular company's stock, were trading an unusually high dollar amount or were making use of risky options for the first time. We examined whether those people had any possible nonpublic means of obtaining information about the companies whose stock rose or fell at an opportune moment. We provided anonymized descriptions of these trades to academics, former prosecutors and former SEC officials, and focused on those they said should have garnered the attention of regulators.
Among the notable examples:
The chairman of a biotech company bought shares in a corporate partner just as the partner was reaching the final stages of secret negotiations to be purchased.
The chairman of a bone health company made aggressive bets on a medical technology firm run by an adviser to his board just before its sales took off, netting him $29 million in a series of options trades.
A wealthy investor with ties to a niche area of cancer research personally traded, for the first time ever, in a company in that sector just before it was taken over. He bought high-risk options that earned him a quick $1 million in profit.
An information edge can be lucrative in any industry, but especially so in the healthcare sector. Many of its companies are built around only one or a handful of products, making their shares particularly volatile and ripe for profit by investors with inside knowledge. Biotechs and other up-and-comers face clear make-or-break moments: Clinical trials, signals from regulators or takeover rumors can cause wild swings in share prices.
Since beginning to report on our massive trove of IRS records in 2021, ProPublica has analyzed the data and used it as the basis for a series of articles, The Secret IRS Files, that reveal the many ways in which the tax code favors the rich and how the ultrawealthy exploit those advantages.
The IRS data also included millions of records of wealthy taxpayers' stock and options trades, provided by the brokerages that handled the trades. While the SEC routinely reviews stock trading data from brokers and exchanges, the agency does not have access to IRS data, which in many ways is more comprehensive. (A spokesperson for the SEC declined to comment for this article.)
The securities experts said there is no fixed definition of what makes a trade suspicious and worthy of further investigation. A propitious trade for a relatively small amount, for example, might still warrant scrutiny if the investor has a tie to the company. One excellently timed trade is less noteworthy if the investor frequently trades in that security. A trade with a modest return could still be problematic if it came before news the investor knew about in advance or set in motion. And even if a trader's investment strategy in a stock wasn't ultimately successful, a single lucrative trade could still be deemed illegal.
The experts interviewed by ProPublica about the trading patterns examined in this story said that while each should trigger closer scrutiny from regulators, the question of whether they would lead to any action would depend on a host of additional factors. They noted that stock trades are generally deemed to violate insider trading laws only when multiple elements are met. The trader must have had information, not yet publicly known, that would affect the company's share price. And the trader, or the person who provided the tip, must have had a duty not to disclose the information or use it for personal benefit.
ProPublica's records give no indication as to why investors made particular trades or what information they possessed. The wealthy investors named in this story either denied their trades were improper or did not comment.
The personal trading policy for Medivation, the multibillion-dollar company Hung ran, was particularly explicit. It warned its employees to be careful trading the shares of competitors because Medivation's employees possess nonpublic information that can affect those companies' stock prices as well. "For anyone to use such information to gain personal benefit," the policy stated, "is illegal."
But ProPublica's data show Hung, who has led a number of biopharma companies and has been described in the press as a master dealmaker, risked violating the company's policy by trading in the securities of competitors. During the decade-plus in which Hung led Medivation, most of his proceeds from securities transactions in companies other than his own involved the pharma sector.
With timely trading, he sometimes scored gains of hundreds of thousands of dollars or managed to avoid a calamitous loss. (The records show that he sometimes lost money as well.)
Securities experts with whom we described his trading patterns and high-ranking role (but not his name) said the investments appeared to show a top executive capitalizing on information not available to the average investor.
In July and August 2011, Hung's tax records show, he sold more than a million dollars' worth of stock in a company called Dendreon. Dendreon was then producing a promising prostate cancer therapy that Hung's firm was competing against, working to get their own drug to market. The day after Hung sold the last of his two roughly half-million-dollar tranches of Dendreon stock in August, the company's share price fell 67% because of poor sales and a lack of initial enthusiasm from doctors about its prostate cancer drug.
Industry experts said that when a pharmaceutical is in late-stage development, as Medivation's drug was at the time, the company will normally have its representatives examine the competitive landscape, including surveying doctors' offices about rival drugs. And business-side employees of companies, even competitors, frequently mingle and trade gossip at conferences.
A few months later, in October 2011, Hung again bought shares of Dendreon, but quickly made a U-turn days after, selling those shares off for about $150,000, essentially the same price he had bought them for. A week later, Hung announced that his company had learned that trials had gone so well for its own prostate cancer therapy that the drug was going to start being offered even to participants who had been given a placebo. "These results are both an important step toward making this life-extending potential treatment available to the prostate cancer community and a significant milestone for our company," Hung said in a press release at the time.
Just as Hung announced his company's promising results, Dendreon released lackluster quarterly earnings. Its stock fell 37%.
David Nierengarten, an analyst who covered both companies at the time, told ProPublica the earnings report caused most of the fall, but part of it could also be attributed to Medivation's clinical trial results, which posed a threat to Dendreon's market share. Hung's spokesperson said that Hung did not know the outcome of his company's clinical trials when he sold Dendreon's shares.
Hung sold Dendreon shares on almost two dozen occasions over six years, with most of the trades for less than $150,000. Hung's spokesperson denied he had any relevant nonpublic information when he made his Dendreon trades.
In one instance, tax records show Hung traded a competitor's stock ahead of news he himself disclosed that experts said would likely qualify as material.
On Aug. 24, 2015, Hung announced that Medivation was acquiring a cancer-fighting medication from a company called BioMarin. The drug was one of a handful of cutting-edge new drugs that Hung hailed as an "exciting class of oncology therapeutics."
What Hung didn't say was that on the same day his company finalized the acquisition — but three days before the public announcement — he made a purchase in his personal stock trading account. He bought about $8 million in shares of Clovis Oncology, a company that was separately developing a drug in the same treatment category, known as "PARP inhibitors."
After the acquisition, the pharmaceutical trade press noted that there was growing interest in this class of drugs. Hung's deal marked the first big acquisition of a PARP inhibitor.
"Obviously all the PARPs are going to pop," said Nierengarten, the analyst who covered Hung's company. Clovis is a small company reliant on a small number of drugs, "so it's really going to pop," he said.
And it did. In the week after the Medivation agreement was announced, Hung's stock purchase paid off: The price of Clovis shares increased by about 11%, a rise experts attributed partly to Hung's drug acquisition.
By the time Hung sold the shares the next month, he netted $1.25 million in profit.
Hung's spokesperson defended the trades, saying Hung did not believe Medivation's acquisition of BioMarin's drug would affect the share price of a company that made a drug in the same class.He also said most of the stock's rise came in the days after the news of the acquisition, not the day of, which he said indicated Hung's profit was attributable to other factors.
The Clovis shares that Hung bought represented the final step in what records show was a series of complex transactions involving what are known as stock options — arrangements to buy or sell a security at some future date. In April 2015, Hung started selling Clovis "put options." That meant he was entering into a contract that gave another investor the right to sell Clovis shares to him in the near future at a specified price. It was essentially a bet by Hung that Clovis shares would remain at roughly the same price or rise (a sophisticated and unusual transaction for a typical retail investor).
In April and May, Hung sold a small number of his contracts. In June and July, he began selling more frequently and in larger quantities: 17 times as many contracts as he had sold in the previous two months. According to his spokesperson, this was around the time Hung was approached to buy BioMarin's drug.
The expiration dates for the options were staggered. A large group of his contracts expired on the same day he finalized the drug acquisition.
At that moment, Hung had two choices, both seemingly unpleasant. According to his spokesperson, he likely could have paid cash to end the contracts, which would have resulted in an immediate loss since the options were for a higher stock price than Clovis was trading at on that day. The contracts also allowed him to buy the specified number of shares, a seemingly bad deal since he would pay anywhere from $75 to $85 per share for stock that was trading at less than $73.
But on that day, Hung knew something the market didn't: that his company was about to announce it was buying Biomarin's drug.
Hung bought about $8 million worth of Clovis shares. After his company's announcement, Hung was in the black in a matter of days, even after he bought at the inflated price. The option trades had worked out beautifully. He sold the shares the next month, turning that $1.25 million profit.
Hung's spokesperson pointed out that, taking into account all of the Clovis options he sold that year, Hung actually lost about $100,000. The time horizon for some of the contracts was much longer, with expiration dates into the following year. Hung, he said, held on to some of his contracts and ultimately lost money when the price of Clovis shares declined significantly a few months later. The spokesperson also said that someone trying to capitalize on nonpublic information could do so more efficiently by buying shares in a company rather than through a complicated series of options trades.
ProPublica described Hung's options dealing in Clovis, without revealing his identity, to Dan Taylor, a professor at the Wharton School and a leading insider-trading expert. "The trades in question seem at best highly unethical and at worst they may be illegal," Taylor said. "I would caution any and all executives from engaging in the behavior described here. There's significant legal jeopardy if that behavior was brought to the attention of regulators."
Harry Sloan did not make his name in the healthcare industry. He came to prominence in Hollywood.
But in 2017 Sloan made a sizable bet on Juno Therapeutics, a Seattle-based biopharma company focused on cancer treatments.
Sloan had never personally invested in Juno before. There's also no sign in his tax records, which span the years 1999 to 2019, that he purchased options to invest in other companies.
But on Dec. 14 and 15, 2017, he did both for the first time in ProPublica's tax data. He bought more than a quarter-million dollars of Juno call options, a contract giving him the right to buy the stock at a specific price. The options were "out of the money," meaning the price was well over what the stock was trading at at the time. The bet would pay off only if Juno stock jumped significantly.
Options, especially out-of-the-money options like the ones Sloan bought, are risky but can carry huge rewards. You can win big if the stock price rises above the purchase price set by the contract. If Amazon stock sells for $125 a share, an option to buy a share at $130 is worthless at the expiration date unless the market price jumps above $130. If Amazon stays at $125, you've spent money for nothing. But if it soars to $175 a share, you stand to make a lot from a small investment.
Sloan's timing proved prescient. The public didn't know it yet, but December 2017 was a hugely significant moment in Juno's history. The company had been privately negotiating to sell itself to Celgene, a leader in the field of cancer treatments. On the same days that Sloan bought his options, Celgene significantly raised its offer and Juno agreed to be taken over.
When The Wall Street Journal broke the news of the imminent acquisition a month later, Juno's share price skyrocketed from $46 a share to $69, its largest one-day increase ever, and Sloan quickly cashed in. He sold much of his first tranche of options for $677,000. In two decades of records, it was the largest sale he'd made in a security of a company where he hadn't been an insider.
In all, he claimed more than $1.1 million in profit from his Juno trades, a 450% return on the cost of his options.
Of the 251 trading days in 2017, there were only a dozen other days where Sloan could have purchased options and seen the stock's price increase as much as it ultimately did over the short period he held the bulk of his position.
Through a spokesperson, Sloan, who has been a prominent fundraiser for presidential candidates on both sides of the aisle, declined to answer questions from ProPublica, instead providing a brief statement: "Any insinuation of unethical or improper activity here is false, and contrary to the reputation Mr. Sloan has developed over the course of his lifetime."
ProPublica provided an anonymized description of Sloan's trades to a former SEC commissioner, two former SEC attorneys and two leading insider trading academics. All five said this sort of fact pattern could draw scrutiny from regulators because of how well-timed the trades were, and how anomalous compared to Sloan's trades before and after.
"If you see out-of-the-money call options, no prior history of trading in that name, excellent timing and a large profit, generally yes, I would expect that to draw attention from regulators," former SEC Commissioner Allison Herren Lee said.
A remarkably timed trade may be even more suspicious, she said, if a trader had some sort of personal tie to the niche industry the company is in.
Though much of his career was in Hollywood — Sloan had been an entertainment lawyer and eventually became CEO of Metro-Goldwyn-Mayer — he is not without his connections to biotech and the subsector Juno was in. Sloan knew Arie Belldegrun, one of the leaders in the field of "CAR T-cell" therapy, a novel cancer treatment in which human cells are modified to attack cancer cells. It is the same niche that Juno specialized in. Sloan and Belldegrun were both active in art philanthropy, backing the same Los Angeles art museum at least as far back as 2013; Belldegrun's wife co-hosted a VIP screening in 2011 for a movie produced by Sloan's wife. And Sloan donated $3.2 million to Belldegrun's lab at UCLA in 2017.
Belldegrun was previously CEO of Kite Pharma, a Juno competitor, before selling his company just months before Juno was acquired. Around the time that Sloan was investing in Juno call options, Belldegrun was starting a new CAR-T company. (Four years later, in 2021, Sloan helped take public a biological engineering firm called Ginkgo Bioworks. One of his partners in that venture was Belldegrun.)
There is no evidence that Sloan and Belldegrun ever discussed Juno. Belldegrun did not respond to repeated requests for comment.
Robert Stiller made his fortune off smoking paraphernalia and coffee. He helped launch E-Z Wider, rolling papers used for joints and cigarettes, before founding Green Mountain Coffee Roasters, the multibillion-dollar company that helped popularize K-Cup coffee pods. That role propelled him to business celebrity, as Forbes declared him "entrepreneur of the year" in 2001.
After Stiller left Green Mountain, he served as chairman of the board of AgNovos, a bone health startup. There, the board Stiller led hired a special adviser: Stephen MacMillan, an experienced medical technologies executive. By the end of 2013, MacMillan was named CEO of Hologic, another medical technology company, but he stayed on at AgNovos as a special adviser to Stiller.
Within a few months, Stiller began investing in Hologic for the first time — and aggressively.
On 33 days between March 2014 and January 2015, he bought a total of $9.8 million in call options in MacMillan's company. Each was a win, netting him a combined $29 million in profit, almost a 300% return. Stiller's tax records show no indication that he purchased options in companies other than Hologic and Green Mountain from 1999 to 2019.
The rise in Hologic's share price was driven largely by revenue growth from its innovative line of mammogram devices, which are more effective than standard breast scans because they provide a three-dimensional view that helps reveal smaller tumors before they've grown. The company began reporting particularly strong growth from that product line in late April 2014, after Stiller's first purchases. The excitement around the product grew from there, as the line continued to beat Wall Street's revenue expectations and more studies affirmed its effectiveness. The company would have noticed orders picking up months before revenue numbers were announced, according to an industry expert who asked not to be named to avoid antagonizing industry contacts.
Stiller began buying call options in early March.
Reached by phone, Stiller said he invested in Hologic because he had confidence in MacMillan, but said MacMillan never shared detailed information about the company's inner workings with him. "I would ask him, ‘How are things going?' and he'd say, ‘Good,'" Stiller said. (MacMillan did not respond to requests for comment.)
Stiller said he thought he had purchased options in other companies during that period as well, but couldn't name examples. He said he might have also bought shares of Hologic in addition to options, though he didn't know when.
He acknowledged that buying call options in a company run by someone he knew, before it announced good news, "might not look good" and said that in retrospect he might have refrained. "I always have acted under the highest ethical shit, and I understand insider trading, and I would never do it, and I would never ask anybody else to do it," Stiller said. "It's just not in my DNA."
Even by Stiller's account of his discussions with MacMillan, his trades risked running afoul of the law. ProPublica described Stiller's trades, without identifying him, to Chip Loewenson, a longtime white-collar defense attorney who has handled insider trading cases.
"What you described sounds like it could be insider trading," Loewenson said. "Even if you take his word for it, that all he asked is how it's going, and he says it's going well, that could be material nonpublic information." As Loewenson described it, a one-word answer about how a company is faring could be polite chitchat — or it could carry meaning. "Is that something a reasonable investor would want to know? If you think you're getting an honest answer, yes."
In 2018, Jim Mullen, a veteran biopharma executive who previously was CEO of biotech powerhouse Biogen and chairman of the Biotechnology Innovation Organization, became chairman of the board of Editas Medicine, a firm based in Cambridge, Massachusetts, that uses gene editing techniques to treat rare diseases. (Mullen stepped down earlier this month after his term ended.) The publicly traded company collaborates with Celgene to use its technology to develop cancer therapies.
Mullen's tax records show he had unsuccessfully traded in and out of Celgene before in relatively small amounts, but on Dec. 18, 2018, he made his biggest purchase ever of the company's shares: $73,000 worth, almost as much as all his other past purchases combined.
His timing was excellent.
Celgene was at the time in secret negotiations to be acquired by pharma giant Bristol Myers Squibb. The day before Mullen bought the shares, Celgene had expanded the circle of people who knew about the takeover talks. According to subsequent SEC filings, Celgene informed an unidentified pharma company about the potential acquisition in hopes of soliciting a higher competing bid. The action also raised the risk that the secret talks might leak. (The company that was approached, which would have had to be orders of magnitude bigger than Editas to consider buying Celgene, declined to make a competing offer.)
The next day — the same day Mullen bought shares in Celgene — Celgene's executive committee decided to move forward with Bristol Myers.
Two weeks after Mullen's purchase, the deal was announced, sending Celgene's shares soaring, and ultimately earning Mullen $46,000 in profit and a return of more than 60%.
Mullen and Editas did not respond to requests for comment.
Lab-developed tests have become increasingly popular, all while escaping the bulk of federal scrutiny over marketing and accuracy. Now, the FDA is starting to impose regulations on these tests.
This article was published on Wednesday, June 14, 2023 in ProPublica.
After decades of intense debate and stalled legislation, the Food and Drug Administration has taken a critical step in overseeing a vast category of lab tests that reach patients without any federal agency checking to ensure they work the way their makers claim.
Among the tests that are not reviewed by the FDA: popular prenatal genetic screenings that ProPublica recently reported on, as well as certain cancer screenings and tests for rare diseases.
On Wednesday, a notice of the proposed rule was posted. This is the first concrete evidence that the FDA is preparing to apply its regulatory powers to these lab tests.
"A modern oversight framework that is specifically tailored to assuring tests work is critical to position ourselves for the future — whether it is preparing for the next pandemic or realizing the full potential of diagnostic innovation," an FDA press officer said in a statement to ProPublica.
Peter Lurie, president and executive director of the Center for Science in the Public Interest, applauded the move. "It's exciting to see the agency taking concrete steps to address this long-standing hole in the public health safety net," he said.
The agency's hands-off approach to lab-developed tests — which are designed, manufactured and used by a single lab — traced back to a time when they were deployed at a small scale. The idea was to spare hospital labs, for example, from the time, money and hassle of getting approval in Washington whenever they needed to create a simple test for their own patients.
Nowadays, so-called LDTs are an enormous part of the health care system, including a number of high-stakes tests made by commercial companies. Because they aren't registered with the federal government, nobody knows how many exist. A 2021 study by Pew Charitable Trusts estimates that 12,000 labs are likely to use such tests, many of which process thousands of patient samples each day. Currently, the Centers for Medicare and Medicaid Services reviews lab operations, but it doesn't check whether the tests themselves are clinically valid.
While these tests "play an important role in our health care system," said the FDA press officer, the agency "is very concerned about problematic LDTs currently used in the U.S. that might not provide patients with accurate and reliable results."
ProPublica's investigation of prenatal genetic screenings detailed how the FDA doesn't review the tests before they reach patients, nor does it verify marketing claims made by companies that sell them. False positives, false negatives and uncertain results about genetic anomalies have sometimes led to devastating consequences for families, the investigation found. Companies aren't required to publicly report instances of when the test gets it wrong, and no federal agency is able to recall faulty tests. (We also made a guide to prenatal screening tests for expectant parents.)
The next step for the FDA is to publish a draft of the proposed rule, which seems likely to happen in August. It will go through a public comment period, and then the agency will develop a final rule. Both the proposed and final rules need to be cleared by the Department of Health and Human Services and the Office of Management and Budget. Experts said this process could go relatively quickly, or it could take a year or more, pushing up against a 2024 election that might change priorities in Washington.
Over the years, a large coalition of labs, professional associations and academic medical centers have argued that FDA oversight over the lab tests would be overly burdensome and inflexible — so much so that it would stunt critical innovations and limit patient access to quality health care. Opponents also express concern about the FDA's capacity to oversee the tests.
Mary Steele Williams, executive director of the Association for Molecular Pathology, said in a statement to ProPublica that AMP is updating its proposal for an alternative approach to lab testing reform, one that doesn't rely on the FDA. Instead, it recommends modernizing existing regulations through CMS, "which we believe to be the most effective and streamlined approach."
Williams also said that AMP intends to continue working with other institutions to "raise our shared concerns with FDA regulation" over lab-developed tests. It remains committed, she said, "to working with Congress and other stakeholders to establish a more efficient regulatory framework that ensures high-quality patient care while continuing to foster the rapid innovation and promise of new diagnostic technologies."
An earlier effort by the FDA to rein in LDTs came in 2014, when the agency issued draft guidance. But after facing nearly two years of stiff opposition, the agency pulled it. One of the strongest critics was the American Clinical Laboratory Association, a national trade group. It challenged the FDA's authority over the tests by filing a citizen petition and making clear its intent to sue if necessary.
In a statement on Wednesday to ProPublica, an ACLA spokesperson said the association has long taken the position that any regulation of LDTs must be done through legislation. It should be a framework "that recognizes the essential role of clinical laboratories in advancing public health, preserving and fostering innovation and maintaining access to critical testing services," the spokesperson said, adding: "We stand ready to provide expertise and technical assistance to Congress."
There have been several efforts to reform lab testing through Congress over the years, and the FDA has signaled that it welcomes legislative action that would create a modern framework specifically tailored to clinical testing.
In 2022, a bipartisan bill known as the VALID Act seemed to have its best shot at passing, having gathered momentum after the scandal over fraudulent Theranos blood tests and the coronavirus pandemic. But, facing pushback, it was dropped from a must-pass bill at the end of the year. While ACLA's spokesperson said the association worked with the bill's sponsors to help shape it, in the end, ACLA didn't endorse it. The act was reintroduced in the House in March.
If the FDA enacts a new rule, supporters anticipate legal challenges, said Cara Tenenbaum, a former policy adviser for the agency whose consultancy signed onto a recent letter urging it to assert oversight.
But over the past decade, the FDA tried every alternative to address what it sees as a public health problem, she said.
"All they have left is their existing device authority," Tenenbaum said. "They've been backed into a corner, if you ask me."
The FDA pushing ahead with a proposed rule, even while legislation is on the table, makes sense because "the clock is ticking on the administration," said Lurie, a former top FDA official who worked on lab testing reform.
At the same time, he said, "the problem is long-standing and, frankly, in fact, growing. More and more products come to market every day, and very few of them get regulated."
Anna Clark is a Detroit-based reporter for ProPublica, covering stories in Michigan and the Midwest. She is the author of "The Poisoned City: Flint's Water and the American Urban Tragedy."
James Eason, MD, who earned acclaim by operating on Steve Jobs, led the transplant center named in his honor at Methodist University Hospital in Memphis. An internal analysis by Eason's own team details the preventable deaths under his watch.
This article was published on Wednesday, June 14, 2023 in ProPublica.
On a brisk morning in the winter of 2019, at a standing-room-only reception, a procession of speakers lavished praise on the surgeon who more than tripled the size of the liver transplant program at Methodist University Hospital in Memphis. The lifesaving doctor was receiving an honor often reserved for the dead: Methodist's leaders announced that the hospital's new state-of-the-art transplant center would be named for Dr. James Eason.
Eason seemed to have reached the summit of what was then a 25-year career. A decade earlier, he had performed one of the highest-profile liver surgeries in recent history: the transplant that extended the life of Apple co-founder Steve Jobs by more than two years. That operation earned Eason the gratitude of Jobs' widow, who later donated a total of $40 million to the transplant center he helmed and the medical school where he worked as a professor. At age 58, Eason had become one of the country's highest-paid transplant surgeons, earning $1.7 million a year, more than anyone at Methodist but the head of its nearly 13,000-employee, six-hospital health system.
But for all the lives the liver transplant program saved, the hospital's leadership had growing concerns about the number of patients dying on Eason's watch. During the five years before the renaming ceremony, those deaths had sparked investigations from the federal contractor that oversees transplant centers. They also prompted multiple health insurers to remove the liver program from their preferred networks, according to internal documents.
In 2018, following the most recent investigation, Methodist hired a consulting firm to audit the program. The audit, conducted by peers from other transplant centers, found that numerous errors had contributed to patient deaths — and that to reduce the rate of failed liver transplants, Methodist likely would have to perform fewer transplants overall. But according to the audit, that would be difficult. Staffers felt "powerless to make change due to the resistance of leadership," who gave the employees the impression that "volume is king," the audit said.
In December 2018, Methodist University Hospital President Roland Cruickshank wrote a letter to the federal contractor acknowledging the transplant program's worrisome number of deaths. "The decline in our outcomes is of the utmost concern," he wrote, "and is not taken lightly." Weeks later, Cruickshank sat in the front row of the renaming ceremony and stepped up to unfurl a banner with the words "James D. Eason Transplant Institute."
ProPublica and MLK50: Justice Through Journalism obtained an extraordinary cache of internal records that reveal Methodist leaders failed to comprehensively fix problems with the liver program before the renaming ceremony. The records include the independent audit, detailed internal reviews of patient deaths and the hospital's correspondence with the federal contractor, a nonprofit called the United Network for Organ Sharing, or UNOS.
One of the documents was an internal analysis drafted at Eason's behest. In part of the analysis, one of his most senior colleagues determined that between late 2014 and mid 2018, 25 deaths — more than half of the program's 48 total fatalities — were preventable.
The analysis found that some liver recipients had died after their transplant as a result of "process/protocol issues." It also found that a portion of patients "should not have been listed" for transplant due to preexisting medical conditions.
Along with the documents, interviews with families of nearly two dozen liver transplant recipients who died over the past decade show that, in some cases, Methodist staffers didn't tell them about the extent of the problems that contributed to their loved ones' deaths.
Terry Green, a retired Army noncommissioned officer who donated a portion of his liver to his identical twin brother, did not know that Eason's team had, according to medical records and internal documents, failed to conduct enough testing to rule out the risks of cardiac and pulmonary complications before Eason himself performed the transplant. His brother died from cardiac arrest in the operating room.
Stacy Roberts was unaware that, following her father's transplant, Eason's team had identified major problems with the donated liver it had placed inside him, issues it may have been able to identify with further screening, internal records show. Methodist had accepted the liver from another hospital, which had failed to spot that the organ bore the early signs of cirrhosis. Days later, after her father experienced serious complications, Methodist providers conducted their own biopsy, discovering the full extent of the damage to the organ. Her father died about a month after the surgery. Hospital records show that transplant program leaders later required surgeons to more rigorously review liver donations before accepting those organs for patients.
For years, Tiffany Garrigus was haunted by the memory of watching her 59-year-old father die just several hours after his transplant. Unbeknownst to Garrigus, a nurse had reported concerns about internal bleeding to the surgical fellow on shift and noted that the doctor failed to quickly alert the attending surgeon. The miscommunication delayed potentially lifesaving care. The independent auditors later determined that Methodist's own review of Steve Garrigus' death was a "missed opportunity" to prevent similar issues in the future.
"They screwed up," Garrigus said after she learned about records that outlined Methodist's treatment of her father. "No one was held accountable and nothing changed."
Garrigus and five other families who spoke with ProPublica and MLK50 signed documents waiving their rights to privacy so Eason and Methodist could answer questions about their loved ones' deaths. Eason and Methodist declined to address those questions. The hospital and Eason also did not answer specific questions about the dozens of deaths detailed in the investigations, the findings in the audit of the transplant program or the correspondence between the hospital and UNOS.
Spokespeople for Eason and the hospital asserted that ProPublica and MLK50 singled out patients with negative outcomes. Methodist spokesperson Tabrina Davis also said in a statement that the news organizations had "settled on a clear narrative, one which we believe is a misleading and inaccurate portrayal of the institute." The statement went on to say that "the transplant institute is on a continuous journey of improvement, focused on providing the highest quality care for each patient."
Eason turned down multiple requests to be interviewed for this story but responded to questions in writing at various points. In one statement, he said that he and his team at Methodist "tried to give every patient the opportunity for transplant." He also said in that statement that while there were "2-3 unexpected deaths per year" between 2011 and 2018, "we also saved more than 100 lives each year, all of whom would have died without liver transplantation." Eason's lawyer, Elizabeth Sacksteder, said in a separate letter that "performing more transplants rather than fewer" and using "the best available organs rather than waiting for the perfect organ" are pivotal parts of Eason's approach to running a liver transplant program.
For more than a decade, Methodist liver recipients had a greater-than-expected chance that their liver would not be functioning one year after transplant, a metric used by UNOS to assess transplant centers' performance. Eason said in his statement that UNOS had overrelied on that metric without taking into account that programs like Methodist have accepted more high-risk patients who would otherwise die imminently. He added that Methodist has excelled at minimizing the extent to which patients die on the waitlist, a metric that is now part of how UNOS evaluates transplant programs.
"I would never choose to let a single high-risk patient die instead of giving that individual a good chance of living," Eason said in another statement.
Eason, however, is no longer making those choices at Methodist. This past August — after years of investigations and years of Methodist leaders celebrating Eason's accomplishments — hospital employees were unexpectedly pulled into a conference room at the transplant center. Standing at the front of the room, along with other top executives, was the head of the health system. He shared a brief message that caught employees off guard: Eason was no longer with the James D. Eason Transplant Institute.
Methodist's Liver Transplant Outcomes Drew Scrutiny From Investigators
The United Network for Organ Sharing launched two investigations over the past decade after Methodist University Hospital's liver transplant program performed worse than expected.
Transplant centers report data about their performance to UNOS, which examines whether the performance of transplant programs was worse than expected. To do so, UNOS analyzes the extent to which transplanted livers still functioned one year after a surgery.
Each percentage is based on outcomes over the prior 30-month period. For still-functioning transplants performed in the last six months of the study period, the chance of a liver continuing to function one year after the surgery is modeled after the outcomes of previous transplants in the study period.
The blue line shows the percentage of Methodist patients expected to have a functioning transplanted liver at one year, based on characteristics of the liver transplant program's prior recipients and donors. The yellow and gray lines show the chance of a patient having a functioning transplanted liver at one year, modeled after real-world outcomes.
Before his arrival at Methodist, Eason led another transplant center that was investigated for its poor performance during his tenure.
In the winter of 1998, Eason left his post as head of a San Antonio military hospital's transplant center to begin a new job. He now oversaw liver and kidney transplants at the Ochsner Foundation Hospital just outside New Orleans. Eason's team increased the number of liver transplants Ochsner performed from 23 in 1998 to 76 in 2001. But the rapid growth was followed by higher rates of deaths within a year of transplant, according to data from the Scientific Registry of Transplant Recipients.
One of Eason's colleagues, Dr. Ari Cohen, subsequently wrote in a presentation to a group of transplant experts that the rate of adult patients living for one year after their liver transplants at Ochsner became "significantly worse than expected" between July 2002 and December 2004.
In 2005, a UNOS committee began investigating the reasons behind poor outcomes at Ochsner, according to an article written by Ochsner doctors that was later published in the health system's academic journal. The article described the liver transplant program's culture prior to 2005 in a way that was similar to what Methodist's audit would turn up years later: A "feeling of fear" had left employees "unable to freely express their views" about the program's problems.
In response to the UNOS investigation, Ochsner put together a team that determined the transplant center's leadership was one of the biggest problems contributing to the liver program's poor patient outcomes.
UNOS spokesperson Anne Paschke said that the organization does not comment on specific investigations. Cohen, along with other Ochsner doctors who contributed to the article, did not respond to emails or phone calls. An Ochsner spokesperson declined to respond to ProPublica and MLK50's questions or make anyone available for an interview. Eason declined to comment on the UNOS investigation or his former colleagues' reflections on the program under his leadership. In his statement, he said that he came to Ochsner after the program had been "closed due to loss of leadership" and that the program "went from saving zero lives to saving more than 80 lives each year."
Before the UNOS committee completed its investigation, Eason accepted an offer that would allow him to return to his home state of Tennessee — and provide an opportunity to take another small liver transplant program and grow it even more dramatically.
In the five years following Eason's departure, his former colleagues addressed the problems, according to the journal article. They turned Ochsner's liver program into one of the top performers in the South, according to healthcare ratings organizations.
When Methodist announced Eason's hiring in 2006, Dr. Hosein Shokouh-Amiri was deeply concerned. The veteran Methodist surgeon said he had heard about the rapid expansion of Ochsner's transplant program and was worried that a similar approach might lead to higher rates of failed liver transplants for Methodist patients.
Amiri was afraid that Eason would override clinical decisions that Amiri or his colleagues had determined were in the best interest of patients. And so he decided to leave the transplant program shortly after Eason arrived. Before Amiri's final day at Methodist, Eason wanted to know if he would reconsider. Sitting in Eason's office, Amiri asked if Eason would ever require a surgeon to accept a donated liver that the surgeon would rather decline because of poor quality. Amiri recalled that Eason wouldn't answer at first. Amiri said that when he pressed for an answer, Eason told him that he would do so if he felt it was necessary.
As Amiri saw it, Eason's track record of boosting volume would "bypass the moral and ethical standard we had promised" to Methodist patients.
"He wanted my approval," Amiri said. "I resigned."
Eason did not respond to questions about Amiri's recollections and concerns. Eason's spokesperson, Stefan Friedman, wrote in an email that Amiri left Methodist "to go to a program that performed only 11 transplants last year with higher deaths on the waitlist and lower one-year survival rates." Amiri said that his liver transplant program had lower survival rates "because we took sicker patients." Federal health data confirms that Amiri's program accepted a higher percentage of patients at high risk of death from liver disease than Methodist.
During his early years in Memphis, Eason led the dramatic growth of Methodist's liver transplant program. The year before he started, in 2005, Amiri and his colleagues had performed 34 liver transplants. Over the next three years, Eason's team more than tripled the hospital's annual number of liver transplants, replacing 117 organs in 2008. Methodist leaders celebrated this growth as a historic achievement — one that allowed the liver transplant program to serve more patients in a majority Black city that had a higher poverty rate than the national average. Eason's lawyer said in a letter that the population of the Memphis region "disproportionately suffers from co-morbidities associated with poverty" that "heighten the inherent risks of liver transplant surgery."
By performing 126 transplants in 2009, Methodist became one of America's 10 largest liver transplant programs. As hospitals across the country expanded their transplant centers, they stood to profit from treating more patients suffering organ failure. According to a 2009 study published in Medical Care Research and Review, the average cost of a U.S. liver transplant and the subsequent days spent recovering in the hospital was about $163,000. Around that time, The Wall Street Journal reported that some hospitals charged nearly three times as much for the surgery. Friedman said in a statement that Eason did not receive additional compensation for performing more transplants, "nor was any aspect of his compensation based on such a metric." Methodist did not respond to questions about the program's finances.
The growth of Methodist's program was fueled in part by a special agreement with federal health officials that allowed the program to obtain livers across the entire state of Tennessee and parts of Arkansas and Mississippi. As the program grew, it began attracting more patients from beyond the greater Memphis area. A central Ohio minister received a liver transplant at Methodist in 2009 after being rejected by three other programs. He lived for another 12 years. A mechanic from San Juan, Puerto Rico, who experienced liver failure received a transplant at Methodist in 2010; in an interview translated by his wife, Carlos Acevedo Martinez told ProPublica and MLK50 that he had no complications and was grateful "Methodist gave him life again."
Near the end of his third year at Methodist, Eason was in touch with his friend George Riley, a Memphis native whose parents had been doctors at Methodist. Riley, a California lawyer, wanted to know if Eason might help his client. Steve Jobs faced a long wait to get a new liver in his home state of California. His wife, Laurene Powell Jobs, had learned that people could be simultaneously added to waitlists in multiple states. Since Jobs had a plane, he could fly to whichever transplant center was willing to accept him. Tennessee, it turned out, had a shorter waitlist.
One day in March 2009, before dawn, Eason waited for Jobs' plane at the Memphis airport. "I went to meet him and escorted him to the hospital," Eason later told WMC-TV. One of Jobs' biographers, Walter Isaacson, wrote that Eason closely oversaw Jobs' care after the transplant, assigned nurses solely to his recovery and "would even stop at the convenience store to get the energy drinks Jobs liked." Jobs later recovered in a 5,784-square-foot mansion in Memphis that Riley purchased through a shell company, according to The Commercial Appeal.
Weeks after Jobs returned home that spring, news broke of his surgery. Media outlets including CNN and TheNew York Times published articles that explored whether Eason gave preferential treatment to the billionaire. The surgeon pushed back: Jobs was the sickest, most deserving patient on the day that liver became available, he said. Starting that summer, Eason lived on and off in the mansion — a perk he didn't publicly disclose at the time. Two years later, in 2011, he bought the house from the shell company for $850,000, the same price the company paid for it in 2009. (Home sale prices in the greater Memphis area had fallen in the interim.) Eason did not respond to questions about living in or buying the home.
Around the time of Jobs' transplant, Methodist's liver recipients had a better estimated chance of their organs functioning at least one year after a transplant than the national average. But in the years after Jobs' surgery, Eason's liver transplant program began to struggle. The rate of failed liver transplants increased between July 2010 and December 2012. As a result, the UNOS committee that had scrutinized Ochsner's performance under Eason opened an investigation in early 2014. The committee's work is confidential, but ProPublica and MLK50 obtained records that described the investigation. (UNOS declined to confirm when the investigation ended.)
The UNOS committee, which is composed of several dozen transplant experts who volunteer to review their peers' programs, can recommend the discipline of transplant centers for their poor performance. But the committee rarely punished programs. In fact, the committee was so toothless that in 2018 the then-CEO of UNOS likened the committee's investigations to "putting your kids' artwork up at home."
"You value it because of how it was created rather than whether it's well done," the UNOS leader wrote of the investigative committee. "Only in this case, we persuade ourselves that it's well done anyway."
Though Eason now defends the program he led, he acknowledged in an April 2014 letter to the UNOS committee that Methodist's outcomes "were not as expected." He pledged to address the committee's concerns.
According to internal documents from June 2014, Methodist was anticipating potential financial fallout from those poor outcomes. A Centers for Medicare & Medicaid Services official had informed Methodist that its liver transplant program was out of compliance with federal standards because it had "significantly lower than expected" outcomes and did not have an adequate policy for evaluating the reasons behind its failed liver transplants. The official warned that CMS would terminate the liver program's participation in Medicare, which covered the costs for nearly a third of the liver transplants performed at Methodist, if it failed to correct those problems.
In its written plan outlining how it would fix the problems, Methodist told CMS that one way it would improve outcomes was through Eason encouraging a "higher scrutiny of patients" whose risks of complications outweighed the potential benefits of surgery. Methodist ultimately avoided termination from Medicare.
But records obtained by ProPublica and MLK50 show that Methodist kept accepting patients whose poor health increased the risk of complications after a transplant. Eason's team soon approved for transplant a 356-pound woman with a BMI of 66 and a woman who struggled so much with drinking alcohol that she only stopped after getting sick from liver failure. The team also signed off on a patient for transplant in spite of the fact that she was septic the day before the surgery. All three died within a year after their transplants.
Dr. Satheesh Nair, one of Eason's most senior colleagues, later determined in an analysis of patient deaths that Methodist should not have placed these patients on the transplant waitlist. Nair did not respond to questions. Eason did not comment on the findings of the analysis, but said that he asked for it to be done as part of his transplant program's efforts to improve its quality of care.
Davis, the Methodist spokesperson, also declined to comment on Nair's findings. She said in a statement that Methodist has turned away liver transplant candidates because they "do not meet the criteria to indicate they would have successful outcomes" after a transplant.
By the time Jerry Green arrived at Methodist in 2016, the 46-year-old minister from West Memphis, Arkansas, was experiencing symptoms of liver failure, including fatigue and jaundice. As Green underwent a battery of tests, the evaluation revealed potential signs of pulmonary hypertension, according to hospital records. That condition can increase the risk of death from a transplant.
Medical experts have written in journal articles that when a transplant candidate has signs of pulmonary hypertension, additional testing, including what's known as a right heart catheterization, should be done to more precisely determine the risk of complications during or after a transplant. If the risk is too great, liver transplant programs can either reject the patient or postpone the surgery until the patient receives care to improve their health. But "no further assessments were made," according to an internal analysis of Green's treatment that the liver transplant program later conducted.
Methodist doctors calculated that Green had a strong chance of surviving for three months without a transplant. But that also meant he was unlikely to get a liver from a deceased donor because he would be low on the waitlist. According to hospital records obtained by ProPublica and MLK50, Eason encouraged Green to get a transplant immediately the only way he could: by finding a living donor. Green was reluctant. But when he gave in, he asked his twin brother, Terry. He agreed.
In the summer of 2016, as the Green family packed inside Methodist to support the twins, a surgeon sliced open Terry's abdomen. It was one of the first living liver donor transplants ever performed at Methodist. Once they started Jerry's surgery, his pulmonary arterial pressure rose so much that surgeons considered halting the transplant. Methodist providers gave Jerry medication that lowered his pressure. According to an operative report from a surgical fellow, Eason "had extensive discussion with his family, where they strongly hoped to undergo the surgery with any possible measures." (Jerry's wife, Jacqueline Green, said that she was notified about the concerns over his pressure but did not have an in-depth discussion with Eason about the risks of proceeding with the surgery.) Eventually, surgeons began replacing his liver with a segment of Terry's.
Once Terry woke up, Eason stopped by to check on his abdomen. The surgeon then shared the worst news of Terry's life. Jerry's heart had suddenly stopped. The staff tried to revive him in the operating room but could not pull him back from the brink of death. "His heart wasn't strong enough," Terry remembers Eason saying. "What we learned here will help others in the future."
After the funeral, Jacqueline met with Eason to learn more about what went wrong. As Jacqueline asked questions about Jerry's death, Eason said that the liver transplant was successful. "It was just his heart" that failed, she recalled Eason saying.
The following year, Methodist enacted several new policies designed to more rigorously test patients' cardiac and pulmonary risks ahead of a liver transplant. In the program's internal analysis, Nair later determined that Green's death was preventable. Jacqueline said Eason never told her about that finding.
Not long after Jerry Green's death, Eason and nearly two dozen colleagues gathered for a confidential meeting. A familiar problem that had dogged the program was now resurfacing.
Four years earlier, in December 2012, CMS had announced it would cut off a crucial part of Methodist's organ supply from central and east Tennessee. Some transplant experts praised the decision because they felt Methodist had unfairly benefited from an old policy that provided access to more high-quality organs from a large geographic area. To avoid shrinking what had become the nation's fourth-largest liver program, Methodist accepted more livers that posed a higher risk of complications for their recipients. Eason's transplant quality director later wrote in a document responding to the UNOS committee's investigation that the strategy was justified as the country faced a chronic organ shortage. As the quality director explained, the additional risk was in "balance against the risk of candidate death on the waitlist."
At the confidential meeting, Eason and his staff focused on a case that exemplified the perils of such risk-taking. That July, Methodist had received a liver offer from a North Carolina hospital. The liver had belonged to a 34-year-old military veteran who had struggled for years with use of hard drugs and alcohol. The way that he died required that his liver be removed after his heartbeat stopped, known as a donation after circulatory death or DCD. Such donations involve an organ that has been deprived of sufficient oxygen between the time of death and the organ's removal. As a result, these donations can elevate the risks of complications for a recipient. That year, about 6% of U.S. liver transplants involved DCD organs, according to data from the Scientific Registry of Transplant Recipients. The data also showed Eason's team accepted DCD livers at a percentage nearly triple the national average.
The night that Methodist received the liver offer, one of Eason's surgeons described the donor's history to Eugene Willard, a 61-year-old grandfather who served as the mayor of his small town of Amagon, Arkansas. Willard wanted to reject the offer, according to his daughter, Stacy Roberts. Two weeks earlier, another Methodist doctor had determined Willard would be a "suitable candidate for liver transplantation providing he loses weight," records show. That doctor had encouraged Willard to slim down to lower his risk of complications whenever the transplant did happen. But with the offer on the table that night, the surgeon urged Willard to accept the liver, his daughter recalled. "If you don't do it, you're going to die," she remembered the surgeon saying. Willard followed the surgeon's advice and agreed to accept the organ.
After Willard's new liver showed signs of poor function, Methodist providers ordered another biopsy to better understand his complications. This time, they saw that the donated liver had so much scarring that the early stages of cirrhosis were present. He died about a month after the surgery.
At the confidential meeting, the team concluded that the North Carolina hospital's biopsy of the donated liver "may have been inadequate." Eason's team responded by approving a policy change that required surgeons to more rigorously examine biopsies before accepting livers. Nair's analysis later determined that Willard's death was preventable, citing "donor selection" issues.
Data from the Scientific Registry of Transplant Recipients shows that Methodist continued to accept DCD livers in 2017 and 2018 at rates higher than twice the national average. Eason's transplant quality director later explained in the response to UNOS that Methodist's surgeons accepted more high-risk livers because they had "access to fewer local organs than the national rate," leaving the program little other choice for saving patient lives. The quality director defended the practice as one that "represents our effort to provide care to an underresourced patient population."
"Most have no other opportunity or hope of transplantation," the quality director wrote.
Over the course of 2018, Methodist's transplant center leaders were confronting a new round of scrutiny. After a period of improved patient outcomes following the UNOS committee's investigation four years earlier, the liver transplant program's failure rate had again worsened. As a result, the UNOS committee opened another investigation.
Methodist responded with a step intended to help its struggling program. It hired the transplant consulting firm Guidry & East to conduct an audit of its liver transplant program's operations.
Five transplant experts — including doctors affiliated with medical schools at the University of California, San Francisco and Cornell University — traveled to Memphis in October 2018 for the two-day audit. They toured the center's halls, interviewed employees and reviewed liver transplant records. The experts wrote a 35-page report, a final draft of which was obtained by ProPublica and MLK50, that identified a list of problems that they said contributed to patient deaths.
The audit stated that Eason's program appeared to "maximize the number of transplants by disregarding flags" as to whether patients were suitable candidates for surgery and, according to one Methodist doctor, was "currently accepting less than ideal donor organs for transplantation." It also determined that the program had failed to thoroughly review the causes of patient deaths in order to prevent repeat mistakes with future patients, a problem previously identified during federal inspections.
To better protect patients, Eason would need to improve its policies in a way that would limit surgeons from operating on patients unlikely to survive long after transplant, in addition to limiting the number of high-risk organs the program accepted, the experts' audit determined.
The experts also flagged problems with the hospital's oversight of its liver transplant program. The audit noted the stark "disconnect" between Eason's team and hospital leadership. "There is a lack of transparency in what is reported," the experts determined.
After the audit, Methodist University Hospital President Cruickshank pledged in a letter to the UNOS committee that senior hospital leadership would "work closely" with Eason's team to adopt Guidry & East's recommendations. Those changes, Cruickshank said, would "once again allow us to meet the UNOS requirements and our own expectations of exceptional outcomes." (Cruickshank, who has since left Methodist, did not respond to multiple requests for comment.)
In February 2019, less than two months after Cruickshank's letter, Eason stood at the renaming ceremony before his supporters, including Laurene Powell Jobs, an internationally known philanthropist who has donated to a wide variety of causes. (Powell Jobs' social impact organization Emerson Collective contributes to numerous media organizations, including ProPublica and MLK50, and owns a majority stake in The Atlantic. Through a spokesperson, Powell Jobs declined to comment about her support of Eason and Methodist.) In the halls of Methodist's new $275 million nine-story tower, a portion of which would be home to the transplant center that had received her donation, Eason and Powell Jobs posed for a photo before a wood-paneled wall lettered with the surgeon's name on it.
Later that month, Methodist received a letter from the chair of the UNOS committee overseeing the investigation, whose members had met to review the Guidry & East audit. The letter stated that "recent outcomes do not seem to be improving."
In April 2019, as Methodist was about to welcome patients to its new transplant center, Eason wrote in a letter to the UNOS committee that the liver transplant program was headed in the right direction. To address the committee's concerns, Eason presented a detailed plan that outlined how Methodist was overhauling policies within its liver transplant program. He attached newly written guidelines that directed the program to be more stringent in accepting high-risk patients and livers. He also noted that transplant leaders were routinely holding conferences where staffers more thoroughly reviewed cases with bad outcomes, openly discussed medical mistakes and identified ways to prevent repeat errors.
"We believe our team has made tremendous progress in improving the outcomes of our Liver Transplant Program," Eason wrote.
Davis, the Methodist spokesperson, said in a statement that Methodist "considered every recommendation" from Guidry & East and enacted some of those policies "right away." Neither Eason nor Nair responded to questions about the Guidry & East report.
After the new transplant center facility opened that spring, the liver program's numbers did, in fact, begin to turn around. The program's rates of failed liver transplants continually improved in 2019 and 2020. But they did not improve enough to clear the threshold that the UNOS committee typically required to close an investigation.
In 2021, UNOS rewrote the rules for investigating transplant programs. Ian Jamieson, then the chair of the investigative committee, said that judging programs on post-transplant outcomes alone had created a "disincentive to transplantation." To remove that barrier, UNOS leaders decided, a program would have to have far worse rates of failed liver transplants before UNOS would automatically step in to investigate.
UNOS touted the policy as "a more holistic approach" to evaluating transplant programs, since the committee would now also consider the extent to which patients were dying on the waitlist. The changes were not universally praised: Critics worried that the policy would lead to fewer transplant programs being held accountable.
Around the time the new UNOS policy began to take effect last year, the committee ended its investigations into numerous transplant programs, including the liver transplant program at Methodist.
Eason and a spokesperson for Methodist said that the investigation was closed because the program's outcomes had improved. (UNOS declined to comment on the reason.) Eason said in his statement to ProPublica and MLK50 that UNOS' new policy was recognition that UNOS had been relying on a transplant metric that was "outdated and invalid." He sees that decision as part of a broader shift in which federal transplant policy is falling more in line with his philosophy to offer transplants to as many people as possible.
With outcomes improving and policy shifting, Eason seemed poised to keep leading his team at the center that bore his name. But one morning this past August, Methodist transplant center employees were unexpectedly summoned into a meeting down the hall from where the renaming ceremony had taken place. For the prior week, Eason hadn't made his usual rounds through the halls of the transplant center. His staff even had to postpone a living donor transplant because of his absence.
Once the seats were filled, Michael Ugwueke, the president and CEO of Methodist's six-hospital health system, asked for everyone's attention. He informed them that Eason was no longer with the transplant center. When staffers asked what happened, Methodist executives said they couldn't provide any details. As part of the decision, the transplant center suspended conducting liver transplants for living donors.
Methodist and Eason declined to answer questions about his departure. Methodist has scrubbed many mentions of Eason from its website. In the six months following Eason's departure, he remained employed as the director of the Transplant Research Institute at the University of Tennessee Health Science Center, the medical school affiliated with Methodist. In late February, he retired from his tenured position, according to emails obtained through an open records request. UTHSC spokesperson Peggy Reisser declined to comment on the retirement.
So far, no hospital has publicly announced that Eason will lead its transplant center. Medical board records show that he has obtained licenses in Ohio and Pennsylvania. When ProPublica and MLK50 asked about Eason's departure and search for a new job, his lawyer, Sacksteder, responded in a letter on March 15 that he is a "highly respected" liver transplant surgeon whose name still graces the transplant center he had helmed.
Just a few weeks later, Methodist employees noticed something had changed at the hospital. Workers had removed several signs throughout the facility. The words "James D. Eason Transplant Institute" are no longer affixed to the front of the building.
A new sign simply reads: "Methodist Transplant Institute."
The legislation, spurred by a news investigation, allows workers to be barred from healthcare jobs for obstructing investigations into staff misconduct.
This story was published on Tuesday, June 13, 2023 in ProPublica.
Illinois Gov. J.B. Pritzker signed a bill into law on Friday that strengthens the range of penalties that a state watchdog can mete out for healthcare employees who conspire to hide abuse or interfere with investigations by the state police or internal oversight bodies.
The legislation was introduced following an investigative series by Capitol News Illinois, Lee Enterprises Midwest and ProPublica into rampant abuses and cover-ups at Choate Mental Health and Developmental Center, a state-run institution in southern Illinois that houses people with intellectual and developmental disabilities and mental illnesses. The new law applies to employees at state-run institutions and at privately operated community agencies for people with developmental disabilities and mental illnesses that operate under the oversight of the Illinois Department of Human Services and its Office of the Inspector General.
The news organizations detailed how employees had lied to investigators, leaked sensitive investigative details, retaliated against people who reported abuse and sought to indoctrinate new workers into the cover-up culture. Employees who engaged in such actions made it difficult to pursue cases of patient abuse, yet they rarely faced serious consequences. IDHS Inspector General Peter Neumer suggested the change in law last year.
The new law allows the OIG to report workers who engage in such misconduct to Illinois' existing healthcare Worker Registry, which would bar them from working in any healthcare setting in the state.
The registry identifies any healthcare worker who has been barred from working with vulnerable populations in any long-term care setting, such as state-operated developmental centers or group homes. Under prior law, workers could be barred because they had been found to have engaged in financial exploitation; neglect that is considered "egregious"; or physical or sexual abuse. The new law adds "material obstruction" of an investigation to the list of findings that can be reported to the registry, which is maintained by the Illinois Department of Public Health.
Pritzker signed the bill on the same day the IDHS inspector general released a 34-page report that recommended a "top to bottom analysis" of all processes related to the reporting of abuse and neglect at Choate "because at the present time there appear to be fundamental problems with all aspects of that system."
The OIG report referenced the beating of a patient with a developmental disability by Choate staff in December 2014 that was covered by the news outlets. Four mental health technicians were charged with felonies in connection to the beating. Three of them pleaded guilty to failing to comply with abuse reporting laws for state employees, and one — Mark Allen, a mental health technician who had been originally charged with felony aggravated battery — pleaded guilty to felony obstruction of justice.
The report noted that at least eight people colluded to obstruct the state police and OIG investigation. Few staff members were forthcoming with details, even though they later told investigators it was the worst case of abuse they had ever seen.
"This was a textbook example of a code of silence, in which staff seek to protect each other from the consequences of their misconduct by remaining silent about what they witnessed or lying to protect their fellow employees," the new OIG report stated. While Allen was ultimately reported to the registry after the inspector general found him responsible for the abuse, the other three were not. Even though they were criminally convicted of failing to report what they'd witnessed, and the inspector general found that they had engaged in the cover-up, prior law did not include obstruction as a reportable offense.
The new law is a "necessary reform that will provide additional protection for residents and hold accountable any bad actors who violate the trust of a resident or patient," Alex Gough, a spokesperson for Pritzker, said in a statement.
"Governor Pritzker continues to take the longstanding problems at Choate very seriously, and he remains committed to providing a healthy, safe living environment for every single person residing in the state's care."
On Monday, Neumer said in a statement that he was pleased that the governor and legislators supported the measure, which passed both chambers unanimously, because it "serves as a strong deterrent to those who would engage in ‘code of silence'-type conduct, where employees lie or omit key facts to investigators in an effort to protect themselves and/or their fellow employees."
"When employees fully and completely cooperate with OIG's investigations, that also enhances OIG's ability to fact-find, which serves as an additional deterrent to misconduct," he said.
IDHS Secretary Grace Hou noted in a letter to Neumer, which was included in the inspector general's report, that she also had backed the legislative change. That is one of several steps her department has taken to address conditions at Choate and in the agency's 12 other developmental centers and psychiatric hospitals, the letter said.
In a statement, Marisa Kollias, a spokesperson for IDHS, said that a "system-wide transformation" of the agency's facilities is already underway.
In March, Pritzker and Hou announced that more than 120 residents of Choate — about half of the facility's population — would have to move out for their safety. The residents and their guardians were given up to three years to find an alternative placement, such as in a community group home or another state-run facility.
In addition to the relocation of some of Choate's residents, the department has also hired a chief resident safety officer and is implementing other safety enhancements.
Kollias noted that Hou asked the inspector general to conduct the review of Choate last September, the same month the news organizations published their first in a series of reports about Choate.
"IDHS leadership continues to be deeply concerned by the events investigated and reported on by the OIG," Kollias said. "The report underscores the importance of actions that IDHS has taken since the beginning of the administration, including substantially expanding training, hiring new staff and installing security cameras."
The inspector general has repeatedly called for the installation of security cameras at Choate and in other IDHS facilities, but the department had previously said that doing so was complicated by federal regulations. The department said late last week that the Centers for Medicare and Medicaid Services, which partially funds its institutional care, has provided new guidance that will allow for the installation of cameras in indoor, common area locations. The department, the statement said, "will be installing those expeditiously."
CMS data suggests that from 2017 to 2021 90 physicians billed for more than a third of all procedures and government payments, totaling nearly $1 billion.
This article was published on Wednesday, May 24, 2023 in ProPublica.
By Annie Waldman
In the suburbs of Maryland, Dr. Jeffery Dormu's presence is hard to miss. He's a regular on the local TV station, which has featured him and his practice five times over the past five years. And he smiles down from an electronic billboard outside a three-story vascular center he calls The Watcher. "It has a biblical reference, which is to watch over the community," he said at its 2018 opening. In response to the country's "tragedy of cardiovascular disease," the center trademarked the phrase "vascular devastation," a slogan frequently invoked in its marketing, along with a claim to have "saved over 34,000 lives and limbs."
Dormu and his group, the Minimally Invasive Vascular Center, have been a magnet for people with leg pain who worry they have peripheral artery disease, a condition that afflicts more than 6.5 million Americans and happens when fatty deposits narrow the arteries and block blood from flowing to the legs.
But Dormu's portrayal of his practice as a heroic refuge hid a distressing statistic: The vascular surgeon was performing an invasive leg treatment more often than almost any other doctor in the country, even when his patients didn't need it and even as evidence of harm mounted.
One man had to have his leg amputated after Dormu administered multiple invasive treatments for mild pain, according to legal filings. A 62-year-old grandmother bled out and died shortly after Dormu cut into her, according to another lawsuit.
Dormu's go-to procedure, the atherectomy, involved shaving blockages with blade-topped catheters. Best practices recommend that doctors hold off on invasive procedures like these, which can lead to complications including limb loss, on patients in the earliest stages of disease; doctors should first see how the patients do with exercise and medication. Dormu defaulted to atherectomies almost immediately, patient legal and medical records show.
Four years ago, leading researchers warned the Centers for Medicare and Medicaid Services that some doctors were potentially abusing interventions. The researchers implored the government insurer to scrutinize its own data to identify overuse, noting that some of the doctors could present an "immediate threat to public safety."
There is no public evidence that CMS meaningfully responded.
But a ProPublica analysis of CMS data suggests that if the agency had reviewed its own figures, it would have discovered that Dormu was part of a small pool of physicians performing a disproportionate number of treatments. From 2017 to 2021, the analysis shows, the top 5% of doctors conducting atherectomies — about 90 physicians overall — accounted for more than a third of all procedures and government payments, totaling nearly a billion dollars.
Near the top of the list sits Dormu, logging more atherectomies — and making more money from them — than almost every other doctor in America.
CMS paid Dormu more than $30 million in the past decade for vascular procedures he performed on hundreds of patients.
Dormu declined to be interviewed and did not respond to emailed questions.
But a chorus of experts told ProPublica that the federal government's decision to provide unconditional payments for vascular procedures — and then not pay attention to what happened — is a prime example of what's wrong with the American healthcare system.
"The government is really to blame for setting these tremendously high reimbursement values without looking into whether these procedures are helping people or are just worthless procedures or, in fact, are hurting people," said Dr. Dipankar Mukherjee, a vascular surgeon and chief of vascular surgery at Inova Fairfax Hospital in Virginia.
CMS kicked off the problem 15 years ago, when it tried to rein in the swelling hospital costs for vascular care. Over the past few decades, advances in technology allowed patients with serious circulation problems to avoid open surgery and instead undergo minimally invasive treatment with cutting-edge devices. As they flocked to hospitals for these procedures, patients with clogged leg arteries became even more expensive than patients with clogged heart arteries.
In 2008, recognizing that the procedures could be done safely and more efficiently outside hospitals, CMS officials turbocharged payments to doctors' offices that deployed balloons and stents to widen arteries. And in 2011, they began to reimburse those offices for atherectomies.
Before the change, an office provider inserting a stent could make about $1,700 from Medicare; deploying a balloon could bring in roughly $3,800. By 2011, the payments rose to about $6,400 and $4,800 respectively. But nothing compared to the payout for atherectomies conducted in offices: about $13,500 per procedure, as opposed to roughly $11,450 in a hospital.
Instead of saving money, the government started a boom.
Atherectomies increased by 60% from 2011 to 2014; Medicare's overall costs for peripheral vascular treatments climbed by nearly half a billion dollars, or 18%.
From 2013 to 2021, the most recent year of Medicare data, the number of atherectomies has doubled and payments to doctors have nearly tripled, totaling about $503 million in 2021.
"There's definitely places where atherectomy is very helpful," said Dr. Caitlin Hicks, an associate professor of surgery at Johns Hopkins University School of Medicine. "But it's definitely being used inappropriately, and that's when bad things happen."
Experts fear patients are being caught up in a new era of profit-driven procedure mills, in which doctors can deploy any number of devices in the time it takes to drill a tooth and then bill for the price of a new car.
The generous reimbursements have created a conflict of interest for doctors running their own practices, who are supposed to make unbiased medical decisions while also being responsible for a lease, overhead and staff. And unlike hospitals, which have panels and administrators who spot adverse events and questionable billing, these offices don't face such scrutiny.
CMS, experts say, should step up: It could reduce its reimbursements or even investigate doctors with outsized procedure patterns.
ProPublica reached out to CMS more than two weeks ago, listing the facts in this story, asking questions and requesting an interview. CMS did not make an official available to talk or provide any written answers.
"Vascular medicine now is the frontier of the Wild West," said Dr. Marty Makary, a professor of surgery and healthcare quality researcher at Johns Hopkins University School of Medicine. "People are flying blind walking into the clinics of these doctors with egregious practice patterns, and we know that their pattern is indefensible."
It was at the cusp of this lucrative new era in vascular medicine that Dormu, an ambitious young doctor from Washington, D.C., entered the scene.
After earning his medical degree at the New York Institute of Technology College of Osteopathic Medicine and completing an additional eight years of training in New York and New Jersey hospitals, including a residency in general surgery and two fellowships in cardiothoracic and vascular surgery, he received his license to practice medicine in Maryland in 2007. That year, he founded the Minimally Invasive Vascular Center.
"People in general are just afraid of surgery," he later told a local TV journalist. "They can get by with minimally invasive surgery, a needle puncture without having to be cut, without having to worry about an amputation. They walk in and within hours they walk out, and pretty much healed."
But according to public records and lawsuits, as his profile and his practice grew, so, too, did evidence of harm.
In March 2016, while he was performing an elective aorta repair at Providence Hospital, the patient began to hemorrhage, according to a District of Columbia Board of Medicine document on the incident. After trying to control the bleeding, Dormu transferred the patient to the intensive care unit for resuscitative efforts and then left the hospital for his private practice and other appointments.
He was gone for more than two hours, and in that time, hospital staff couldn't reach him. The hospital patient died in the recovery room from hemorrhage and organ failure, the report said. Six years later, the District of Columbia Board of Medicine would reprimand him for the incident alongside a $5,000 fine, finding that he abandoned a patient in need of further emergency care, "knowing the high risk of mortality and without adequate communication to other hospital staff."
The death of the patient did not interfere with his medical license or appear to slow his career.
Nine months later, a mechanic sought his care for mild leg pain. As the owner of his shop, Steve Rosenberg clocked long hours, six days a week, repairing anything with wheels or an engine. But as he reached his mid-50s, the long days of standing under vehicle lifts had begun to strain his legs.
His primary care doctor suggested that he see a vascular specialist and handed him a list of physicians to choose from. Dormu happened to have an office in the same plaza as Rosenberg's auto shop, between a jujitsu studio and a dentist's office.
He first visited Dormu's practice that December.
Instead of starting with more conservative treatment, Dormu deployed a trifecta of interventions on both of Rosenberg's legs within three months, widening his arteries with stents and balloons, and debulking his vessels with atherectomy devices, according to later legal filings.
Shortly after one of the procedures, Rosenberg's left foot grew numb and was cool to the touch. He went to the emergency room, where doctors discovered that one of his stents had clogged, hindering his vessel from carrying blood.
Dormu called him back to his office, where he repeated the procedures: shaving the blockages, ballooning the artery walls and installing another stent.
The next day, he repeated the procedures again, ballooning his vessels and installing yet another stent.
Dormu sent Rosenberg to Providence Hospital in Washington, D.C., for further treatment. Within a day, his left foot had grown cold, a sign that blood likely no longer flowed freely through his vessels.
According to the terms of a legal settlement in a malpractice suit against Dormu, Rosenberg cannot comment on his care. However, public documents filed in his case, including assessments from medical experts, illuminate the cascade of procedures and the outcome.
A vascular surgeon Dormu retained for his defense, Dr. Garry Ruben, said the interventions were warranted; he said Rosenberg had been prescribed an anti-platelet medication, which he did not consistently take. In legal filings, Dormu blamed Rosenberg's injuries on his preexisting medical conditions and circumstances outside his control.
However, after reviewing medical records and diagnostic studies, Dr. Christopher Abularrage, an expert retained by Rosenberg and a professor at Johns Hopkins who specializes in vascular and endovascular surgery, found several "breaches of the standard of care." Dormu had failed to prescribe conservative therapy and lifestyle modifications first, he found, and "persisted with unindicated, endovascular interventions in the face of persistently poor outcomes and diminishing returns."
In less than six months, Rosenberg had been transformed from a patient with mild leg pain to one with a high risk of limb loss, he concluded.
Rosenberg spent nearly a week at Providence Hospital, the life slowly draining from his leg, before he was transferred to Washington Hospital Center on April 8, 2017, according to records. By then, his left leg was gangrenous and had no pulse. All of the stents had become blocked.
Without better options, doctors amputated his leg.
Between 2013 and 2017, Dormu earned about $14.5 million from Medicare — more than 99% of other vascular surgeons across the country — for treating hundreds of patients a year, the vast majority of them in his clinics.
In 2018, he was able to afford an upgrade.
The Watcher was not like other surgical centers. In its entrance stood a juice bar that could serve organic cold-pressed drinks to patients. Crystal chandeliers adorned its hallways. Moist air was pumped through its vents. And more than a dozen original modern paintings lined its walls, making it feel like an art gallery. "We wanted it to give that shock and awe," Dormu said in a video interview from the facility's opening day.
His clinic provided a litany of medical services, including treatments for uterine fibroids, erectile dysfunction and varicose veins, as well as elective nonsurgical fat reduction.
The expansive facility boosted Dormu's earnings. From 2018 through 2021, he earned nearly $18 million in Medicare payments for all of his clinic's activities.
One procedure stood out from the rest: Nearly $12 million of that came from atherectomies, according to Medicare data.
He performed one on Alice Belton, a high school nursing teacher who sought help in 2018 for lower extremity pain, numbness and tingling. Her artery blood flow was normal; even Dormu noted that she didn't have severe leg pain, according to an ongoing lawsuit. And yet, he conducted multiple procedures over about a year, shaving plaque, ballooning her vessels, treating her veins and running invasive scans; the procedures were unnecessary, according to a medical expert retained in her case.
Belton says she has since developed permanent nerve damage in her leg, which has prevented her from working full time. In legal filings, Dormu denied the allegations and claimed that the alleged injuries were caused by preexisting conditions.
"The experience with Dr. Dormu has shaken my confidence in healthcare practitioners and more importantly in myself," she said. "I feel duped that this surgeon convinced me, a nurse, that my problems required such radical surgical interventions."
And then there was John Malinich, who had no leg pain but wanted to get his circulation checked in 2019 after he saw Dormu's billboard. At first, Malinich didn't question Dormu's treatments; the doctor's confident demeanor and lavish facility impressed him and put him at ease.
"After surgery on both of my legs, they wanted me to go back and do it over again," he said. "After that, I started getting suspicious."
He said he got a second opinion from another vascular surgeon who informed him that the prior procedures, which involved balloons, an atherectomy and a stent, had been unnecessary. To ensure his stent doesn't collapse or clog, doctors now have to annually monitor Malinich. He filed a lawsuit against Dormu, who has denied allegations of overtreatment. The case is ongoing.
"I trusted the guy," Malinich said. "But it was just to make money."
The next year, Heather Terry was looking forward to her mother's return home after a six-month stint rehabilitating in a nursing home. For years, Heather had helped take care of 62-year-old Linda Terry, who had debilitating epilepsy. After a fall down a flight of stairs and subsequent back surgery, Terry was left paraplegic and unable to walk.
Just before she was supposed to be discharged from the nursing home in August 2020, the staff told Heather Terry that her mother had leg pain and ulcers on her heels that needed treatment. According to her family, Linda Terry had no prior circulation issues. The procedure was simple, the staff said, and would be conducted in a clinic just down the road.
On Aug. 13, Terry was transferred to Dormu's center, where he started an atherectomy procedure, inserting the small tube capped with blades into her vessels to shave the plaque from her artery walls.
Less than 15 minutes into the treatment, her blood pressure began to drop.
With atherectomy, there's always a risk that the device may dissect the vessel, which would require immediate care.
Dormu aborted the procedure and brought Terry into the recovery area. She was drowsy and her blood pressure continued to waver, signs that she may have been bleeding internally, according to her family's attorney. Instead of being rushed to the emergency room, legal filings show, she was sent back to the nursing home, where she became unresponsive.
The nursing home called an ambulance, which ferried her to the emergency room at the University of Maryland Laurel Medical Center. Three hours later, she was pronounced dead, according to the lawsuit, a consequence of severe anemia due to internal blood loss.
For the aborted procedure, according to the family's attorney, Dr. Zev Gershon, Dormu charged her insurance about $20,000.
Heather Terry believes that if Dormu had treated her mother with appropriate care and transferred her directly to the hospital, she might have survived. "It went from ‘She's going to come home tomorrow' to ‘She's dead,'" said Terry, whose ongoing malpractice case against Dormu is set to go to trial this year.
In legal filings, Dormu denied any involvement in her mother's death. He said in a deposition that he did not see evidence of bleeding and that Linda Terry's anemia could have been due to a prior fall. He said he also gave a directive to send her to the hospital after the aborted procedure, despite EMS records obtained by the family's attorney showing that Terry was sent back to the nursing home.
"I trusted doctors," Heather Terry said, "but now I'm starting to think that maybe they shouldn't be as fully trusted."
By 2021, Dr. Kim Hodgson, a former president of the Society for Vascular Surgery, recognized that unfettered profiteering in his field was not just a threat to patients, it also stood to damage the credibility of his speciality. Notably, abuse in outpatient vascular facilities was the No. 1 complaint he had received from members. That August, the vascular surgeon stood before hundreds of doctors at the society's annual conference and made a plea.
"Somebody has to address what should never have been allowed to get to this level of threat to us and our patients in the first place," he said. "We can play whack-a-mole every time the bad actors surface until the cows come home, but that leaves a trail of harmed patients and wasted resources."
In dozens of slides, he laid out evidence exposing the magnitude of the crisis: the Medicare incentive, the explosive growth of procedures in clinics and the potential for inappropriate treatment. Most critically, he warned about the risk of patient harm. In recent years, researchers have found that patients in early stages of vascular diseasehad less than a 2% risk of amputation after five years. However, with aggressive interventions, that risk could surge up to 5% or even 10%.
"The problem is that these behaviors — unindicated early interventions and overuse of unproven technologies — still have costs and more often than not, those costs are borne by our patients," he said. "We can and should do better, otherwise we are also enablers."
The issue has magnified into a crisis that has splintered the specialities that conduct these procedures, which include interventional radiologists, cardiologists as well as vascular surgeons. Some physicians do not view overuse as an urgent problem and feel the recent academic attention unfairly stigmatizes private practice doctors.
"The majority of operators are doing the right thing," said Dr. Jeffrey Carr, an interventional cardiologist and the founding president of the Outpatient Endovascular and Interventional Society, which represents physicians working in outpatient settings. "We need to call out the bad actors, but to cast a narrative that puts us all in the same arena is wrong."
Other doctors recognize a need for considerable reforms.
CMS could reverse the change that kicked off the entire problem, some experts said, by reducing its outpatient reimbursement rates. "If you shut off the money, the whole thing will stop tomorrow," Mukherjee, the Virginia vascular surgeon, said.
But such cuts might hurt doctors practicing responsibly and could even nudge the least scrupulous ones into higher gear to make up the financial difference. "You could incentivize people to do more procedures, and some of them may be inappropriate," said Dr. Peter Lawrence, the former chief of vascular and endovascular surgery at the University of California, Los Angeles, who developed an outpatient center connected to the university.
More critical than payment cuts, Lawrence said, is greater oversight of office-based facilities. Many states don't require doctors in those settings to have special vascular training or hospital privileges in case of complications, he said. "You could be a psychiatrist and do these procedures," he said.
Many physicians also support improved data collection, particularly for newer technologies like atherectomy, to ensure that they're not only safe but result in improved outcomes.
"Many of the vascular procedures that are done are relatively safe or can be done with good short-term results, but the failures are long term — it's what happens in two to five years," Lawrence said. "Unless you have a reimbursement system, which not only pays you for the initial procedure, but whether or not it's durable, you can have procedures done in our society that have great short-term results but have poor long-term results."
CMS could require physicians to participate in patient registries, said Dr. William Schuyler Jones, an interventional cardiologist and associate professor of medicine at Duke University School of Medicine. "That type of required reporting would make our system better," he said, "and would ultimately put the onus on all of us to do more appropriate care."
For Dormu, patients were the ones to prompt accountability, airing their grievances to the Maryland Board of Physicians. Among them was a woman who sought his care for excessive leg itching and said he tried to pressure her into an invasive artery scan. When she sought a second opinion, the doctor concluded that her itching likely stemmed from a reaction to an insect bite.
The medical board examined the records of 11 of Dormu's patients. Two peer reviewers, board certified in vascular surgery, independently concluded that Dormu had performed "medically unnecessary and invasive vascular procedures" and failed to meet appropriate standards of care for 10 of the 11 patients, "exposing them to potential risks such as bleeding, infection, blood vessel injuries which could acutely or chronically worsen the patient's circulation, and limb loss."
One patient who sought Dormu's care to evaluate blockages in their legs could walk a mile before treatment, but after the procedures, they could not walk at all.
"There exists a substantial likelihood of risk of serious harm to the public health, safety, and welfare in Dr. Dormu's continued practice," the board's executive director, Christine Farrelly, concluded.
Last October, the board found him in violation of state medical law, citing his overuse of procedures and his failure to uphold standards of care. It fined him $10,000, suspended him and put him under a two-year probation, during which he must be supervised and enroll in an ethics course.
Maryland Department of Health spokesperson Chase Cook said the agency's Office of healthcare Quality, which is responsible for oversight of the state's surgical centers and licensed Dormu's current facility, was not aware of his sanctions nor the allegations of harm. The office "will follow-up in accordance with federal and state regulations," Cook said.
Despite lacking an active license to practice medicine in Maryland, Dormu is still listed on his clinic's website as the lead vascular surgeon, "currently available for office visits and in-patient consultations."
When ProPublica called Dormu's office to inquire whether he was still practicing, the receptionist said he was no longer seeing patients and that "Dr. Seibles" was providing all the same services. According to the Virginia Board of Medicine's directory, Dr. Ayana Jonelle Seibles spends 20% of her time practicing at Dormu's center in Maryland.
An emergency medicine physician who does not have specialty training in vascular surgery, Seibles appears to have a close relationship with Dormu; according to county property tax records, they have owned a home together since at least 2017. Seibles did not respond to ProPublica's questions that were sent by email.
In a lawsuit deposition last month, Dormu said that he stopped doing surgery this year as a "personal choice." When asked the name of his supervisor, he stated that he couldn't recall it. He also couldn't recall how many times he had been sued for malpractice, any of the details of the cases, nor the names of the attorneys representing him. He also couldn't specify how many atherectomies he had performed, only estimating that he had done more than 100.
According to Medicare data, over the past decade, he has done at least 3,400.
For most of his life, Rosenberg trusted doctors; his own father was one. But the mechanic has lost faith in medicine. Memories of his 2017 amputation have been largely buried by the trauma, but he recalls lying in his hospital bed after the operation, the remnants of his left leg wrapped in a cloud of white bandages. "Life isn't supposed to turn out like this," he said.
He was discharged to his three-story colonial home, where two steps led to the front door and 13 steps gave way to the second floor; he could only ascend them by crawling backward. Eventually, he sold the house and his family moved into a flat, ranch-style home.
He tried to maintain his auto shop, relying on his wife and teenage stepson to help out. But with his limited mobility, first in a wheelchair and later maneuvering with his prosthetic and a cane, he could not repair cars like he used to and was forced to sell his business and retire.
Before, he could get dressed and out the door in less than 30 minutes; it now takes more than an hour. He used to prepare meals for his family, but after, his stepson had to learn how to cook. In the months following the surgery, he often fell asleep by 7:30 p.m., tired from carrying his body around all day. Discomfort would awaken him by 4 a.m.
Half of his days are now spent navigating the complex web of amputee providers, arguing with insurance agents, attending physical therapy and meeting with specialists to keep his vascular system in check.
Above all, managing the pain has remained a lingering burden. Even though he lost most of his left leg, its memory has been indelibly burned into his brain, haunting him like a phantom. Sometimes the bottom of his missing foot itches or a jolt surges down his absent calf.
"And there's nothing anyone can do about it," he said, "because it's not there."
Do You Have Experience With Peripheral Artery Disease? Have You Had a Procedure on Your Leg? Tell Us About It.
Some doctors may be overusing a procedure to clear out clogged arteries in legs, potentially leading to amputations. We need your help connecting with patients, including those who may not know they have had an atherectomy.
Annie Waldman is a reporter at ProPublica covering healthcare.
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