[Congressional Record (Bound Edition), Volume 145 (1999), Part 16]
[Extensions of Remarks]
[Pages 23645-23646]
[From the U.S. Government Publishing Office, www.gpo.gov]



             PREMIUM SUPPORT: DO WHAT I SAY, NOT WHAT I DO

                                 ______
                                 

                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                      Thursday, September 30, 1999

  Mr. STARK. Mr. Speaker, in March, the Bipartisan Commission on the 
Future of Medicare voted 10 to 7 on a plan known as Premium Support. 
The law establishing the Commission required that for a formal report 
to be issued, 11 votes were needed.
  One of the 10 votes for Premium Support was by Samuel Howard of 
Nashville, Tennessee.
  Premium Support is a proposal to use higher premiums in traditional 
Medicare to push beneficiaries into private, managed care HMO-type 
plans. It is based on the theory that the private sector is more 
efficient and can do a better job--save money and offer extra 
benefits--than the traditional Medicare program.
  Mr. Howard was one of the leading proponents of the idea that the 
business sector is always better than the government sector, and that 
government is inept and stupid. His comments in the Commission's public 
meetings never varied from that theme.
  I submit for the Record an article from The Tennessean of September 
4, 1999:

                State Blames Xantus Chief for Insolvency

                           (By Keith Snider)

       Xantus Corp. Chairman Samuel H. Howard used TennCare money 
     to finance other business deals, misled state regulators and 
     presided over a health plan that routinely lost claims, a 
     report filed yesterday alleges.
       State receivers who have been running insolvent Xantus 
     HealthPlan of Tennessee blamed Howard for much of its demise, 
     saying his business decisions left the TennCare plan 
     disorganized and vulnerable.
       Xantus disregarded a state law that requires health 
     maintenance organizations to maintain a minimum net worth, 
     the report says, and used cash from the health plan to pay 
     debts and expand its parent firm, Xantus Corp., into 
     Mississippi and Arkansas.
       ``Xantus HealthPlan of Tennessee was not managed in a 
     compliant, operationally sound, or financially sound manner 
     for several years,'' leaving it unable to meet its 
     obligations, the report concludes.
       Howard released a short statement challenging the report 
     and saying he hasn't had time to read it in detail.
       ``I could not disagree more with its findings and 
     conclusions,'' said Howard, former chairman of the Nashville 
     Area Chamber of Commerce and one of the city's most prominent 
     African-American businessmen. ``I am deeply disappointed that 
     our voluntary entry into rehabilitation has resulted in a 
     report of this nature.''
       The Tennessee Bureau of Investigation said it is continuing 
     a probe of possible wrongdoing at Xantus, but spokesman Mark 
     Gwyn would not say whether the report will affect the 
     investigation.
       Officials in the attorney general's office and in the state 
     Department of Commerce and Insurance couldn't be reached late 
     yesterday for comment.
       David Manning, a former state official who co-wrote the 
     report with Manny Martins, would not say whether the 
     receivers have shared information with the TBI. ``Obviously, 
     we're making public filings and they're available for anybody 
     who has an interest,'' he said.
       Xantus, the state's third-largest TennCare plan with 
     160,000 members, has been in the hands of receivers since 
     March 31.
       On Thursday, Manning and Martins asked a Davidson County 
     Chancery Court judge to approve a rehabilitation plan that 
     would replace the health plan's management and begin paying 
     creditors with $30 million in state funds.
       The new report, supported by a thick stack of documents, 
     describes a business that gradually was run into the ground.
       Among other things, Howard used money from Xantus 
     HealthPlan in 1994 to repay a $1 million start-up loan and 
     used at least $2.8 million in 1996 to open a health plan in 
     Mississippi, the report says.
       Howard explained the 1994 transaction as a ``management 
     fee'' paid by Xantus HealthPlan to Xantus Corp., but the 
     report says no management agreement existed at the time and 
     would have required state approval.
       Xantus Corp. overcharged the health plan by millions of 
     dollars in management fees to replace money it had originally 
     invested in Xantus HealthPlan, the report says. That left the 
     health plan relying only on TennCare payments to keep its net 
     worth above state minimums.
       After the state warned Xantus in April 1998 that it was 
     undercapitalized, Howard approved a $10 million transfer from 
     the health plan to the parent company to pay the $9 million 
     balance of a Nations-bank loan, the report says.
       And in September 1998, Xantus diverted an additional 
     $350,000 from the health plan to its Mississippi business 
     despite reporting a negative net worth of $3.4 million in the 
     same quarter, the report says.
       Xantus misreported its net worth for that year, the report 
     says, and financial reports for that year show ``a pattern of 
     questionable financial `recovery' at the end of the first 
     three calendar quarters'' and that the health plan 
     ``recurrently `rallied' at the end of each quarter.''
       Howard misled Commerce and Insurance officials on 
     management fees, the source of loans, intercompany transfers, 
     his salary, and about how he intended to finance the 
     acquisition of Health Net's TennCare business two years ago, 
     the report alleges.
       Xantus didn't properly investigate loss-plagued Health Net 
     before buying it, the report says, and limped along with 
     inexperienced managers and a clams processing system that 
     paid claims to the wrong provider, paid the wrong amount, 
     lost claims and denied claims that had been preauthorized.
       The receivers said earlier this week that their estimate of 
     how much Xantus owes doctors and hospitals has grown from $50 
     million-$60 million to $80 million because the processing 
     system hasn't been sorted out.
       Manning characterized the findings as ``a factual report 
     that reaches reasonable conclusions.''
       State Sen. Thelma Harper, who called a June news conference 
     along with other prominent African-American leaders to 
     express concern about the investigation of Xantus, couldn't 
     be reached for comment.
       Howard, who has blamed flaws in the $4.3 billion TennCare 
     program for Xantus' problems, said yesterday he's learned 
     ``that the gap between the business world and government is 
     deep and wide.''
       But the report says Howard's contention that Xantus had an 
     unfair share of very sick

[[Page 23646]]

     enrollees was contradicted by a state review and by data from 
     Xantus itself.
       It concedes the state didn't allow Xantus to close its 
     rolls to new members and also rejected a plan in August 1998 
     that would have cut management expenses from 17% to 11%.
       The state should shoulder some of the blame, said Craig 
     Becker, Tennessee Hospital Association president, who 
     represents hospitals that have unpaid Xantus claims.
       ``The ultimate responsibility belongs to the state,'' he 
     said. ``It was their lack of oversight that allowed it to 
     happen.''

     

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