Vencor's Rise:- Vencor became one of the largest and most successful of the nursing home chains. Depending on how you look Vencor is both a newcomer to the nursing home industry and at the same time one of the oldest of the nursing home chains. It illustrates the dynamics of the health care marketplace particularly well. It rapid growth and commercial success was built on fraud and the exploitation of vulnerable people who were unable to fend for themselves.
Vencor was a Cinderella success story. It enjoyed great prestige in the marketplace. It was supremely confident and had grandiose ideas. Its senior staff were royally rewarded. It developed plans for grand palatial headquarters in Louisville, Kentucky. This was never completed.
And Fall:- Vencor was the first nursing home chain to collapse in spectacular fashion when legislation removed the opportunities for fraud and when the public exposed the failure of the corporate chains to provide the services for which they had been paid.
The legacy:- Vencor acquired
Hillhaven, once owned by Tenet/NME in 1995. We can trace the legacy
of Tenet/NME's disturbing culture and beliefs through Hillhaven to
Vencor where they once again flourished and prospered. The outcomes
were similar. No one had learned from the experiences of the late
1980's and early 1990's. It is clear from the debate in the USA, in
Australia and in the debating chambers of World Trade that no one is
interested in learning from the experiences of the late 1990's
either. They are blinded by belief.
The early years: - Three entrepreneurs, Lunsford, Barr and Smith founded Vencor in 1985. Bruce Lunsford, a former Kentucky commerce secretary and the driving force became chairman. He guided the company to success and then collapse. The information available suggests to me that he share's many of the sociopathic qualities displayed by other health care entrepreneurs.
Vencor identified a niche market and built a very successful 60-hospital empire by provided long-term care for patients who needed a respirator.
In 1994 Columbia merged with HCA to form the ferocious and greedy giant Columbia/HCA. Driven by Richard Scott's integrated Macmedicine vision it set out to dominate, control, grow and provide a complete range of services. It provided its own respiratory therapy and threatened Vencor. In a marketplace where it was grow or die Vencor had nowhere to expand. It set out to build its own empire on the same model by moving into aged care. It purchased Hillhaven, which was four times its own size in 1995. It continued to grow by taking over other groups. Like Columbia/HCA it attempted to move into managed care and so become both purchaser and provider of health care - a recipe for printing money.
Hillhaven and its cultural baggage:- Hillhaven was one of the oldest and most established nursing home chains. It was once owned by the notorious National Medical Enterprises- NME (now the scandal ridden Tenet Healthcare). It was spun off as a separate company under the same directors and then spawned the founders of Sun Healthcare and Horizon. NME's business culture can be seen in each of these groups. Hillhaven's own conduct is reflected in a review of the care it provided. This was published in the USA some years ago under the title "Hillhaven, Unsafe Haven".
Given its size it is debatable whether Vencor acquired Hillhaven or whether in cultural terms Vencor was absorbed into the larger Hillhaven under the more reputable Vencor name. Certainly it would have been heavily exposed to the same NME "corporation before care" culture which has characterised all the giant health and aged care chains. This is reflected in the similarity of its subsequent conduct to that of NME.
Cultural Diffusion:- All those who come in contact with corporate thinking risk absorbing some of the culture. Government and other oversight agencies are in continual contact with corporate staff and are repeatedly confronted by their explanations and assertions. "Businessthink" has an internal logic that is difficult to challenge. It is not surprising then that surveillance did not work. In one instance a state authority agreed that Vencor's decision to discharge unwell Medicaid patients because Medicaid paid poorly was a legitimate business decision. They declined to act. Complainants had to go to court to secure an injunction to stop this.
Wall Street Pressures:- Investors want the value of their their shares to grow. This is why they buy them. Wall Street analysts therefore demanded growth. Without growth share prices fall and corporations are taken over by others. To survive health and aged care chains had to grow.
To raise the loans to fund expansion they had to generate a large income stream. The pressures were extreme and inevitably those people able to lock away their consciences and their qualms prospered. It is clear that in Vencor fraud was condoned and encouraged. Dishonesty in the corporate interest was legitimate. Humane concerns about the welfare of citizens were subjugated to the demand for profit. Patterns of thought were developed to make this not only legitimate but desirable. The heritage of NME's culture was fostered and developed.
The pressures for profit led to fraudulent
practices long before Vencor entered aged care. It is unlikely that
the full extent and nature of the fraud will ever become public, as
the perpetrators will not come to trial. Witnesses will not give
evidence under oath and internal documents will not become public.
These matters are being settled by agreements. In return for payments
to government, the chains are permitted to continue operating under
the umbrella of fuzzy joint do good statements issued by both the
prosecutors and the corporate chains - sometimes jointly. The only
information we have is the information from whistle blower charge
sheets and the out of court statements of witnesses reported in the
press. These give an indication.
The allegations of fraud extend back to 1992 - long before Hillhaven.
The allegations recorded in press reports include
Ethical members of the medical profession are
a constant threat to corporate healthcare ambitions. Almost all of
the companies charged with fraud are accused of paying sweeteners of
one sort or another to doctors. Vencor also did so.
Many of the fraudulent practices such as altering diagnoses, inappropriate admissions, and overservicing impact and distort the care which patients receive. The experience with Tenet/NME where more information was available is revealing.
Nursing Services:- To reduce costs Vencor adopted an aggressive industrial marketplace employment strategy. It set out to include all nurses and nurse aids in blanket contracts. It squeezed and downsized nursing services, reduced salaries and generally antagonised staff. Nurses could no longer give patients the care that they were entitled to receive. The obsession with profit and lack of interest in care would have been palpable
The status and sense of accomplishment in providing care was destroyed. Motivation vanished and disillusioned staff found employment in more remunerative and less arduous burger bars. Events at the Mount Carmel nursing home illustrate this particularly well. Understaffing, neglect and substandard care is a feature of corporate homes across the USA, but particularly in Florida. Vencor was very much a part of this.
Selecting Patients who Paid well:- To boost profits Vencor targeted those elderly people who paid best. Self-paying, self-insured and Medicare patients all paid well and were sought after. Medicaid patients paid poorly under a capitation fee system. There were no opportunities to overservice by providing extra therapies. Vencor therefore discouraged and discriminated against Medicaid patients in its admission practices.
Most patients paying their own fees ran out of money after about 1 year. Self insurance and Medicare cover expired much sooner. If these patients still needed nursing home care they reverted to Medicaid payments. Like other nursing home chains Vencor encouraged staff to progressively discharge these patients when they were covered by Medicaid regardless of their needs. Whistleblowers allege that patients were deliberately misled and misinformed of their rights in order to accomplish this. Vencor paid bonuses to staff who successfully discharged Medicaid patients.
When profits started to fall in 1998 Vencor formally adopted a business strategy of discharging patients when they became dependent on Medicaid. Instructions were sent out to the homes. Sick and frail Medicaid patients were dumped back to their homes and relatives en masse in Florida, Georgia, Washington, Indiana and probably other states. A number of dishonest explanations were used to explain this to patients and their relatives.
These fraudulent and patient care practices are either identical to or very similar to the practices adopted by NME (now Tenet Healthcare) in the late 1980's and early 1990's.
Whistle blowing: - There are always outsiders in every culture - people who see things differently - people who have a nagging social conscience - people who are prepared to confront what is happening. They are seldom part of the group. These are the people who blow the whistle. Whistle blowing is an extremely dangerous and unrewarding exercise. Whistleblowers lack credibility. Both company and regulators ignore them. They are labeled as odd ball , unbalanced, crusaders etc. If they persist their integrity will be attacked, their careers destroyed and when all else fails they are taken to court on some pretext.
The USA has a system to counter this - Qui Tam law suits. Whistle blowers can collect data and then quietly lodge a lawsuit on behalf of government. They resign when they are ready and establish themselves somewhere else before launching their suit. The government examines the Qui Tam charges and the evidence and may elect to investigate further and join the action. If the action succeeds the whistle blower is rewarded with a healthy percentage of the recovered monies.
The US government depends on whistle blowers to expose fraud. Surveillance is ineffective. Of the US $1.5 billion fraud recovered by the US department of Justice in the 1999 - 2000 year, US $1.2 billion came from whistle blower actions. Vencor is no exception. A record 11 whistle blower suits had been lodged against the company. The government joined them all in a US $1.3 billion claim against Vencor - the largest ever.
Citizens: - Patients, their relatives and nurses are the people who speak out about poor care. They too are relatively powerless. They do have resource to the courts and the stories they tell are alarmingly newsworthy. Angry citizens have formed groups to encourage individuals to prosecute the corporations through the courts. They deliberately target the worst offenders. Their evidence has been compelling and the courts have imposed massive penalties. They have been particularly successful in Florida where Vencor is one of the targets. These groups also press politicians to change the law.
When Vencor dumped Medicaid patients in Florida the relatives of one resident obtained a court injunction, the press picked up the matter and there was an immediate public backlash. The company was surprised and caught off guard. It did not think that it had done anything wrong. It did not recognise that it had some responsibility for those whom it had undertaken to care for. To Vencor this was no more than a business decision which they were perfectly entitled to make. They were paid to provide a service. When the patients were unable to come up with the money which Vencor expected then out they went. What happened to them was of no concern of the company. As Columbia/HCA had claimed in 1996 corporations were businesses and were about making money for shareholders. They were not charitable institutions.
Because of these practices Vencor was fined
US $270,000 in Florida and US $500,000 in Georgia. It rapidly
reversed its policies. Barr, one of its founders carried the blame
In 1997 the government responded to the defrauding of Medicare by replacing the vulnerable item of service funding with a capitation system of payment. It was no longer possible to generate a large income by misusing this fund. The government had become concerned with nursing home fraud after a senate hearing into aged care in 1994. After they had dealt with Columbia/HCA they turned their attention to aged care. It was no longer possible to defraud the system in the same way.
Profits fell rapidly during 1998. Vencor responded by splitting itself into two in December 1998. Ventas became a REIT, which owned all the capital assets, including the hospitals and homes. Vencor leased these from Ventas. Vencor continued as the operating company. The shareholders were the same. By this strategy the capital assets were protected from Vencor's impending bankruptcy. Vencor now claims that this decision was a mistake, but if this step had not been taken its creditors would have claimed Vencor's capital assets.
As the company slid rapidly towards
bankruptcy Lunsford resigned followed soon after by co-founder Smith.
They were free to enjoy the large bonuses, which they had received.
Vencor entered Chapter 11 bankruptcy in September 1999.
It is clear that action by authorities was largely consequent on whistle blowing by employees, patients and their relatives. They seldom took action unless stimulated. On one occasion at least authorities actively identified with Vencor's point of view.
While the US has joined the whistle blower suits and publicly claimed US $1.3 billion it clearly has no intention of actually asking Vencor for this or of imprisoning those primarily responsible. Only four junior staff in a radiology subsidiary have been imprisoned. To reclaim US $1.3 billion would push the company into full bankruptcy and force the sudden closure of its nursing homes. Several US states have written to government warning of the risks this poses to the residents and of their inability to cope.
The justice department has indicated that it
is concerned about the impact of financial pressures on care and that
it will not compromise care further by imposing fines which will put
further pressure on the company. The company is negotiating a
settlement agreement, which is likely to be markedly reduced. It will
be paid over an extended period so as not to inconvenience the
company. This will allow it to restructure and trade out of
Vencor was the first of the bankrupt chains to trade out of bankruptcy in April 2001. In 1998 soon after profits started falling the company split into a REIT, Ventas and an operator of nursing homes, Vencor. As a result its assets were protected. When Vencor went into bankruptcy it had few assets to sell. Debtors best chance of recovering funds was to forgive debts, take control of Vencor and allow it to operate. Many shareholders believe that the splitting of the company in 1998 was illegally done and that Vencor shareholders were defrauded as a result. At least two shareholder fraud actions have been commenced.
Vencor was given a new name, Kindred Healthcare when it emerged from bankruptcy. In a remarkable explanation this company accused of fraud and of neglecting vulnerable patients claimed the name Kindred Healthcare was selected to reflect the Company's values - quality, compassion and integrity. This could only be credible in the marketplace!
As part of the process government accepted a US $219 million payment to settle the various whistle blower, fraud, patient care and other charges. In the subsequent rhetoric there was no mention of the US $1.3 billion previously claimed. Kindred also entered into an "Integrity Agreement" relating to patient care. Despite this the company's facilities are still being cited for substandard care and it is still in violent conflict with the nurses over conditions of employment.
These new developments have been added to the
Kindred Healthcare seemed to do well after it emerged from bankruptcy but then was dragged down by the large number of lawsuits it was facing in Florida and Texas where there were no caps on damages. When its sold these operations its profits and share price rose.
The reasons for this increased revenue are not difficult to find. It is once again in conflict with the nurses because it is cutting nursing services and disrupting established groups in facilities. Its facilities are still being cited for poor care and it is facing law suits by patients, the attorney general in Kentucky, and a patient advocacy group in California. All relate to quality of care.
Share holders are still pursuing Lunsford and his staff claiming that they knew of Vencor's impending financial collapse and sold shares before announcing the problems.
Lunsford put himself forward for election as governor of Kentucky but his effort was torpedoed by his past record at Vencor.
These new developments have been added to the
In analysing Vencor's conduct in some detail I have adopted a different strategy. I have some 500 articles referring to Vencor's conduct. I present these pages as a list of references covering different facets of the company's activities. The story emerges by scanning the headlines. I have included extracts and example paragraphs from many of the articles. The story grows through the words and eyes of those in the USA.
The many extracts on these pages are from copyright material. They are reproduced here for educational purposes and to stimulate public debate about the provision of health care. I consider this to be "fair use" and in the public interest. They should not be reproduced for commercial purposes.
The web pages on this site are filled to overflowing with my words which inevitably render them suspect. It is difficult to give the flavour of what happened in overviews and in analysis.
I am therefore allowing the words of the whistleblowers, the patients, the nurses, the lawyers, the company executives, the regulators and of course the newspaper reporters who did so much to unravel what was happening to tell the story. I have restricted myself to brief comments.
Vencor was at the centre of events and was the first of the giant nursing home chains to tumble. It is representative of industry wide financial mismanagement, understaffing, patient neglect and fraud. Its conduct is revealing of both corporate and political behaviour. I could equally have presented Integrated Health Systems, Beverly, Sun Healthcare or Mariner in this way and drawn the same or similar lessons.
The revelations of corporate behaviour and financial mismanagement have fueled an intense debate and a series of investigations by federal and state governments as well as the press. I have included a small selection from many articles that reflect the intense debate, which surround these events.
Disclaimer: - The material is selective and not all-inclusive. The extracts do not necessarily reflect the full perspective of the original. Corporate denials and explanations have not been included. No claim is made that all of the matters referred to are true. The intention is to give the flavour of the material and an idea of the extent of the allegations.
Because of the volume I have divided them into rough subject areas in separate web pages. There seem to be three worlds, the world of the marketplace and the corporate staff, the world of the nursing homes, the nurses and patients, and then the hidden world of fraud.
Although they are part of the same world,
they are kept apart. Patterns of behaviour are developed to
accomplish this, and to handle the situations when they come to
confront one another. These web pages reflect these different worlds.
People were living in them at the same time and the events are
This page created Jan 2001,
updated Mar 2001, Aug 2001 and Aug. 2003 by Michael Wynne