News in brief - Jan. 31, 2005

Health Net underpaid Calif. physicians - McKesson settles fraud suit - Former WebMD execs plead guilty - MedQuist revamps billing practices - R.I. Blues repays members - HCA offers discounts to uninsured - Study: Busy year for health M&A - IVillage acquires Healthology

Health Net underpaid Calif. physicians

Health Net is planning to reimburse physicians a total of between $6 million and $7 million as a result of a recalculation of a faulty payment scheme that was in effect between January and October 2004, the California Dept. of Managed Health Care announced.

The plan also has agreed to pay a $250,000 fine and to pay patients to compensate them for money they may have been charged by doctors as a result of insufficient Health Net reimbursements during that period. The payments stem from reimbursements made to emergency department physicians and other hospital-based doctors who were not under contract with Health Net's network.

The Dept. of Managed Health Care concluded after an investigation that the Woodland Hills, Calif.-based insurer paid incorrect amounts on about 65,000 physician claims during the first 10 months of 2004.

"These doctors must be paid promptly and fairly in order for Californians to get the right care at the right time," said Cindy Ehnes, the agency's director, in a news release.

The agency said Health Net had violated rules that went into effect last year banning "payment practices that would result in systematic underpayments to doctors and health care providers," including those to out-of-network physicians. The fine assessed against the plan "is intended to deter future violations of [California] payment rules by Health Net and all other California HMOs," Ehnes said.

Health Net was fined $500,000 by New York officials in 2004 and agreed to refund $5 million to subscribers in that state after it was alleged that the company had used an outdated payment schedule to figure out-of-network medical reimbursements between July 1999 and December 2002.

McKesson settles fraud suit

McKesson Corp. on Jan. 12 agreed to pay $960 million to settle a class-action lawsuit arising from accounting fraud at HBO & Co., a health care software company it acquired in 1999.

The fraud, which came to light after McKesson acquired HBOC in January 1999, erased about $9 billion off McKesson's market capitalization, forced it to restate financial results and sparked several shareholder lawsuits.

Four former HBOC executives have pleaded guilty to certain charges involving accounting improprieties, and charges are pending against other former executives of HBOC and McKesson.

McKesson said it also was increasing its reserves by an additional $240 million for potential exposure from other lawsuits that are not covered by the $960 million settlement.

Former WebMD execs plead guilty

WebMD announced that three former executives on Jan. 7 pleaded guilty in a South Carolina federal court to accepting kickbacks and accounting fraud.

Robert W. Davids, Kevin M. Kennedy and Glen S. Moss each pleaded guilty to one count of mail fraud -- and Kennedy to a count of tax evasion -- for acts committed while they were employed by Medical Manager Health Systems, now known as WebMD Practice Services and a subsidiary of WebMD. The three men resigned or were fired between 2002 and 2003, said WebMD, which acquired Medical Manager in 2000.

According to the U.S. Attorney's Office in South Carolina, the three men and other yet-unnamed individuals engaged in schemes that among other things artificially inflated WebMD's revenue and earnings between 1997 and 2002.

WebMD is cooperating with the ongoing federal investigation and said that so far it had not uncovered any information that would require it to restate previous financial results.

MedQuist revamps billing practices

MedQuist announced Jan. 10 that it was ending certain billing practices that caused it to overcharge hospitals and physician groups for medical transcription services. The Mt. Laurel, N.J., company said it no longer would use certain ratios and formulas instead of actual line counts to determine billing.

MedQuist is under investigation by the Securities and Exchange Commission and faces lawsuits from shareholders and customers. The company, which was delisted from NASDAQ in June 2004, trades on the Pink Sheets, a private exchange in New York.

R.I. Blues repays members

BlueCross BlueShield of Rhode Island agreed in January to pay members and former members $17.5 million to settle accusations that the state's biggest health plan failed to pass discounts along to patients for medication and medical treatment.

Under the agreement, some 115,000 BlueCross subscribers will get cash payments ranging from $10 to $2,500, the Providence-based company said. The average payout will be $95. As part of the settlement, the company does not have to admit wrongdoing.

The settlement stems from class-action lawsuits filed in state and federal court in 1996, and which asked for $75 million in connection with BlueCross claims dating back six years.

In a statement, the Blues plan said the discrepancies between its contract provisions and what was actually paid to members "involve claims processing practices that were commonplace in the industry during the 1990s" but that those practices had ceased. UnitedHealth Group's New England subsidiary settled a similar suit for $4.4 million three years ago.

HCA offers discounts to uninsured

HCA, the nation's largest for-profit hospital chain, has begun offering discounts to patients who are uninsured but don't qualify for Medicaid or charity care.

The discounts, similar to those offered to many managed care patients, took effect Jan. 1. HCA said it adopted the new policy after receiving legal guidance from the Centers for Medicare & Medicaid Services assuring it that the move wouldn't jeopardize its hospitals' Medicare payments.

Rival hospital operator Tenet Healthcare Corp. adopted a similar policy nearly two years ago as part of a settlement of price-gouging claims.

Study: Busy year for health M&A

There were 867 mergers and acquisitions in the health care industry in 2004 worth about $191 billion, easily making last year the busiest, at least financially, since 2000, according to Irving Levin Associates, a health care research firm based in New Canaan, Conn.

While the deal volume last year was down from the 928 recorded in 2003, its dollar value more than doubled the $93.8 billion recorded in 2003. In 2002, there were 948 deals worth $97.9 billion, the report said.

The fourth quarter of 2004 saw 211 total deals, led by pharmaceutical companies with 39 mergers and acquisitions and medical device companies with 32. The total number of deals, valued at more than $50 billion, was a 138% increase over the $21.3 billion value of health care mergers and acquisitions during the third quarter of 2004, according to the report.

IVillage acquires Healthology

IVillage in January acquired privately-held Healthology, a New York-based provider of physician-generated health video and online medical information. The transaction was for $17.2 million. The acquisition will broaden its online video and information offerings, iVillage said.