Money Madness

Sid Harrell, a retired Army medical technician in Live Oak, Texas, was chewing a pork chop in front of the television one evening last April when he looked out the front window and saw a pair of beefy private-security agents confronting his wife and his 14-year-old grandson, Jeremy. The men announced that the child would have to come with them. Mrs. Harrell asked why, but they weren't sure themselves. "You'll have to call Colonial Hills," one of them explained.

Colonial Hills is a private psychiatric hospital in San Antonio, one of 73 such facilities operated by a chain called Psychiatric Institutes of America (PIA). The Harrells had recently sent Jeremy's troubled 12-year-old brother to Colonial Hills for treatment (the Harrells are the boys' legal guardians). Jeremy himself was well adjusted and getting good grades in school. But Mrs. Harrell has testified that when she called Colonial Hills to clear up the apparent confusion, a counselor told her the hospital was seizing Jeremy under the state's involuntary-commitment law to evaluate and treat him for drug abuse. Mrs. Harrell became hysterical, but Jeremy assured her he would be fine, and Mr. Harrell reluctantly let the agents take him away.

The doctor who had ordered Jeremy detained had never met him; investigators determined he was acting solely on the basis of the younger boy's remarks. Yet, according to the Harrells, the hospital held Jeremy for five days, and released him only after a state senator secured a court order. The doctor has since resigned and been stripped of his Texas medical license. But the incident set off a scandal that is still widening.

Last summer, after the Texas media and ABC's "Prime Time Live" reported the Harrells' bizarre tale, scores of people came forward to describe similar incidents at PIA hospitals in Texas, Florida, Alabama and New Jersey. State or federal authorities are now investigating the company in all four states. Patients accuse PIA hospitals of kidnapping them or luring them with promotional claims, then providing unnecessary treatments or simply holding them to tap their insurance benefits. Authorities are also investigating charges that PIA hospitals have paid bounties to teachers, probation officers and psychiatrists who refer people for treatment.

Officials of PIA and its California-based parent company, National Medical Enterprises (NME), deny any pattern of wrongdoing. "With 50,000 employees, we don't have 50,000 plaster saints out there," says Richard Eamer, NME's chairman and chief executive. "We're going to have some bad psychiatrists and some bad administrators." But Eamer maintains that any abuses are aberrations. There is nothing wrong with competing aggressively for patients, he says. Private hospitals survive by "going out and trying to show that they can best take care of the patient."

But most experts say the mental-health business is not nearly that simple. PIA's alleged abuses may not be the norm, says Dr. Alan A. Stone, a professor of law and medicine at Harvard and former president of the American Psychiatric Association, but they're part of a larger problem. The welfare of patients is being eclipsed by marketplace incentives and pressures, he says. "It is the major issue in psychiatric care today. Psychiatric standards are on a slippery slope as hospitals try to survive."

The seeds of this predicament were sown in the early 1980s, when health-insurance policies started offering generous psychiatric benefits, and various states stopped regulating the construction of new hospitals. "People were smart enough to see that there was a big pot of money out there, and they went after it," says Kent Boynton, a Dallas health-care consultant. The number of private, for-profit psychiatric hospitals shot from 220 in 1984 to 444 in 1988. The new hospitals made fabulous profits, and they undoubtedly did much good by offering sound treatment in comfortable settings.

But the market changed as employers felt the sting of rising health-care costs. By the late 1980s, insurance plans were limiting psychiatric-hospital stays to weeks rather than months. And as stays got shorter, the new facilities found they required more patients to fill the same number of beds. "What you're seeing is a desperate effort by private psychiatric hospitals that once made a lot of money merely to survive," says Harvard's Stone. "Hospitals are trying to make money. Employers are trying to save money. In that tug of war, all sorts of extremes have happened."

Involuntary-commitment laws allow psychiatric hospitals to detain people who pose a danger to themselves or others. But in Texas and Florida, people have charged that they or their family members were locked up in PIA hospitals on the basis of hearsay. Kyle Williams, a 41-year-old San Antonio carpenter, has testified that he had just arrived at work one morning last spring when two men with badges showed up asking for him. He guessed, incorrectly, that they were there to deliver a divorce petition from his estranged wife. The men took him to Colonial Hills, he says, where staff members locked him in a ward for several days, gave him tranquilizers (which he refused to take) and pressured him to sign voluntary-commitment papers. Williams was freed after his lawyer got a court order. His insurance company paid roughly half of the hospital's $4,800 bill but is now demanding a refund. Williams is preparing a lawsuit against the hospital.

George Pallay of Boca Raton, Fla., and his three children have filed suit against another PIA facility, Fair Oaks Hospital at Boca-Delray. Pallay's ex-wife committed the children during a 1987 custody battle, when they were 3,8 and 9, claiming he had sexually abused them. The suit claims that despite Pallay's protests, the hospital held the kids for five weeks, racking up a bill of more than $70,000. According to the suit, the hospital returned the children to the parents' joint custody just 24 hours before Pallay's insurance benefits would have ceased. The judge hearing Pallay's divorce case has deemed the wife's charges groundless, but lawyers for Fair Oaks argue in court papers that the hospital "reasonably believed" he was an abuser.

Other patients allege that PIA hospitals have legally but unethically used church and school counseling programs to drum up business. Last year 14-year-old Georgette Hinson of Palm Beach County signed up for a counseling program at Lake Worth High School; her grades were slipping and she couldn't stop thinking about her grandfather's 1988 death. Hinson shared her feelings with a participating counselor from PIA's nearby Lake Hospital, and she says the counselor suggested that she and her mother visit the facility. When they arrived the next day, says Georgette's mother, Patricia, the counselor declared the child suicidal and recommended hospitalizing her for 10 to 14 days. Once in the hospital, Georgette says she spent three days trying fruitlessly to convince her keepers that she had no intention of killing herself. She got out after nine days, with the help of a lawyer, but her family's insurance plan paid more than $12,000 for the visit.

Disgruntled patients aren't the only ones leveling charges against PIA. Dr. Duard Bok, a psychiatrist and former executive at the Psychiatric Institute of Ft. Worth, recently sued the hospital, claiming he was fired in August because he spoke out against "ineffective, illegal and dangerous practices." Hospital officials denied the allegations and asked a state judge to force Bok to undergo a mental examination. They say he suffers from "a bipolar personality disorder which impairs his judgment." The judge refused.

NME officials are annoyed to see their critics getting so much attention. "We've been roasted with this seemingly unending string of patient complaints," says NME spokesman David Olson. "Patients can say anything. And because of the nature of the confidentiality rules, we can't respond." But company officials are responding to broad questions about their hospitals' practices.

Politicians and the public were appalled to learn that PIA's Texas hospitals were paying private-security agents to detain patients against their will. In most states, only police officers can hold people for involuntary commitment. Texas had no such restriction until September, when the legislature enacted one in response to the PIA controversy. Eamer stresses that PIA has never used private agents in other states. And he says it dropped the practice in Texas after the legislature banned it.

Eamer and Olson also deny that the PIA facilities have tailored patients' diagnoses to fit their insurance policies or dumped them when their coverage ran out. "It's not a logical conclusion from the evidence," says Olson. "Thirteen percent of our patient days are free days, days we don't get paid for." The reason, according to Eamer, is that "rather than milking the insurance, if the patient's not done on his program when his policy has run out, we try and keep them around until his program is done."

Yet as part of a Texas investigation, state attorney general Dan Morales has secured a temporary court order barring payments to PIA hospitals from the state Crime Victims' Compensation Fund. Crime victims can receive up to $25,000 through the program, and many use it to pay for psychiatric help. One of many complaints under investigation is that patients were hospitalized just long enough to run up $25,000 bills and then discharged, regardless of their condition.

PIA isn't the only hospital chain whose recruitment practices are drawing fire. Until recently, scores of private U.S. hospitals were tapping the liberal insurance benefits of Canadian substance abusers by bringing them to the United States for treatment. To help those in need avoid long local waits, Ontario's provincial health program reimbursed 75 percent of the cost of U.S. treatment. Stateside specialty hospitals not only set up recruiting centers, according to Canadian health officials, but paid local " patient brokers" to infiltrate Alcoholics Anonymous groups in search of likely customers. When a U.S. hospital got a referral, it would pay the broker a commission of $1,500 to $3,000, fly the patient south for a month of counseling and send the health program a bill for $25,000 to $30,000.

The system was perfectly legal, derailed the gravy train by limiting future payments to $200 a day and settling outstanding claims at 50 cents to the dollar. Some 150 U.S. hospitals were in on the recruiting bonanza, and two dozen of them now face less-than-full payment on balances of more than $5 million. "We recognized we were being taken advantage of," says Dr. Robert MacMillan, director of the Ontario Ministry of Health's insurance division. It was an expensive lesson. Despite the cutoff, U.S. substance-abuse programs will cost Ontario an estimated $100 million this fiscal year, up from just $400,000 in 1980.

How widespread are the abuses now cropping up in the United States? No one really knows. The inquiries are just getting started. "But if half of what is said to be going on really is going on," says Jack Norris of Florida's consumer litigation division, "the problem is serious." It is serious not only for any patient who is duped, detained or dumped, but for all of society. Unnecessary hospitalization affects everyone, in the form of higher healthcare costs. And frivolous admissions cast a shadow over legitimate ones, giving people who need psychiatric care a good excuse to resist it. "Mental institutions" have an ugly history. The new private facilities promised to make psychiatric care less daunting. The kinds of abuses now coming to light can only make it more so.

Private psychiatric hospitals became big business when insurance benefits soared in the 1980s. Types of Psychiatric Hospitals:

              Price for Profit         State and Country

1984                140                      277         

1988                337                      285  





Treating Canadian substance abusers provided a windfall.

Fees Charged to Province of Ontario by U.S. Treatment Centers (IN MILLIONS OF U.S.DOLLARS $8 mil.)

 1980      1988      1990  

$.4 mil.  $8 mil.  $40 mil.