Legislators plan hearings on Allina spending disclosures

Charging that Allina Health System has broken its trust with Minnesotans, legislators said Thursday that they will hold hearings to question the company's executives about administrative costs, including perks ranging from golf trips to health spas.

"Minnesotans deserve a full investigation of what is going on. I think it's outrageous," Sen. Doug Johnson, DFL-Tower, said at a news conference.

Johnson joined other senators, doctors and health care advocates who questioned Allina's financial management a day after Attorney General Mike Hatch criticized millions of dollars of expenditures by the nonprofit company.

Meanwhile, Allina's board of directors scheduled a special meeting for today to discuss the controversy. The company responded to Hatch's findings with a five-page rebuttal, and Allina's chief executive officer, Gordon Sprenger, said he would comply with requests to testify before the Legislature.

"Hatch has raised questions about the integrity of a very large company in Minnesota," he said. "The faster we can have a public discussion about that and remove that characterization, the better."

Sprenger said Allina has been a good steward of resources.

The Allina CEO also said the company is keeping its overall administrative costs to 12 percent of its $3 billion in revenues.

Sprenger said he would appear before Johnson's committee to show that Allina has not betrayed the public's trust. Chief Operating Officer David Strand and consultant Karen Vigil, whose personal expense payments were questioned by Hatch, also said they would appear.

"Senator Johnson has taken at face value the laundry list of what the attorney general has come up with, a list of isolated expenditures," Sprenger said.

Johnson, who was joined by five other DFL senators, said he asked Sprenger and other Allina officials to appear before the Senate Finance Committee in the coming weeks. He said he also will ask Hatch to explain to the committee how he determined that nearly half of Allina's premiums are spent on administrative costs.

Hatch and his team of auditors said Allina, the state's largest health care system, hid administrative costs by listing them as patient treatment costs. Hatch questioned the nonprofit organization for spending nearly $20 million on consulting fees in a single year while premiums skyrocket and members are denied health care.

In a filing in Hennepin County District Court Wednesday, Hatch asked that Allina be forced to open its financial records for a complete review. He asked that a referee be appointed to oversee the production of documents.

At the State Capitol on Thursday, legislators, doctors and a physician-patient advocacy group expressed outrage at Hatch's findings that Allina spent millions in 1998 and 1999 on consulting contracts, executive bonuses, golf trips, pro basketball tickets, health spas, massages, spouse travel, expensive dinners and liquor.

During the same period, doctors saw their incomes cut and their authority to make medical decisions weakened, said Kip Sullivan, a board member of the Minnesota Physician-Patient Alliance.

"We think this is scandalous," he said.

Two doctors appeared on behalf of the alliance.

"We are degrading our medical technology while somebody is upgrading their golf game," said retired Dr. Robert Geist of St. Paul. He is the former medical chief of staff at Allina's United Hospital. Noting that some of the Allina executives are friends of his, he added: "It's unfortunate that [these] good people aren't good business people. They just don't know how to run a good shop -- it just blew me away. I think they must think it's like running IBM."

Sprenger said widespread resource shortages are responsible for what ails the health care system, not the spending habits of Allina executives.

"There's no question that health care organizations are squeezed with limited resources to meet an almost endless list of demands," he said.

"There is a shortage of dollars," he added. "The issue is to get appropriate reimbursement at the care site."

Sprenger said society needs to make choices about what level of care it wants from its health care system, and whether it wants to pay for that or give up some services.

"To say that a few administrative costs are somehow the cause of the resource shortage is a real stretch," he said.

When asked if some of the expenditures revealed by Hatch violated the spirit of what Minnesotans expect from a nonprofit health care system, he maintained that its spending was legally and ethically proper, and necessary to make the company competitive.

He said there is nothing wrong with spending money to recruit, retain and reward employees.

"Having a good work force to take care of your patients is the most important asset," Sprenger said.

He also maintained that spending on consultants was not out of line.

Lee Canning, an Allina board member, said Thursday that the board had not previously seen some of the expenditures revealed by Hatch. He said a special Allina board meeting will be held today so members can question executives. He said he is reserving judgment until he gets more information. The expenditures in question could be explained as normal business expenses, he said.

Allina also has scheduled meetings with its employees for today to brief them about the controversy.

Administrative costs

At least part of the difference between Allina's and Hatch's estimates of administrative costs comes down to a question of accounting.

Jim Korin, an outside auditor Hatch hired to conduct the review, said Allina counts such things as a hospital janitor's salary as a medical expense. Korin and Hatch, however, say it should be considered an administrative one. Korin said he used a strict definition of medical costs to arrive at his estimate. It included things such as the salaries of doctors and nurses, drugs, bedpans and syringes, he said.

Although Hatch's memorandum criticized Allina's accounting methods, Sprenger defended company policies and said they are based on rules dictated by the IRS and Medicare requirements.

"If he wants to change the system, the debate isn't with us, it is with the regulators," Sprenger said.

Administrative costs aside, Sen. Johnson said the spending on perks and millions in consulting fees is "outrageous, and Minnesotans deserve better than this." He accused Allina of denying people critical health care while its executives and top doctors enjoy perks far beyond the norm for a nonprofit.

"I have a constituent in my district who has Parkinson's disease who is not able to get massage therapy, and yet we see that Allina is [paying] for massages [for employees] -- something is wrong," he said.

Sen. Linda Berglin, DFL-Minneapolis, said questions about Allina's management only reinforce her belief that health maintenance organizations should remain nonprofit.

Supporting Allina

Some in the health care industry scoffed at Hatch's claim that Allina wastes health care money.

"The market drives this stuff," said Jon Heidorn, vice president of CFG Insurance Services, which helps employers design and buy health plans. "It's not going to allow someone to be that inefficient. The dollars that people spend on health care are absolutely too big."

Paul McEnroe can be contacted at pmcenroe@startribune.com .Glenn Howatt can be contacted at howatt@startribune.com .Josephine Marcotty can be contacted at marcotty@startribune.com .