STATEMENT OF HADLEY D. HALL, EXECUTIVE DIRECTOR, SAN FRANCISCO HOME HEALTH SERVICES

Mr. HALL. I look forward to answering your questions, and will try to present sufficient detail.

I am Hadley Dale Hall, exeuctive director of San Francisco Home Health Service, a United Way agency established 18 years ago.

The issue of profit taking raises several serious questions. First, is the question of the source of the margin of profit, in profit-taking organizations.

The first example is referred to as the Peter Gottheiner case. His reputation is very well known.

According to his résumé, he was the founder, administrator, and president of the California Coordinator Health Care Services, Inc., which had a medicare provider number-that is, the company was a home health agency. He was also licensed under medicaid, title XIX.

OVERPAYMENTS OF $364,192

Mr. Gottheiner states he dissolved his corporation and voluntarily withdrew from the medicare program-this was in March 1971. However, there were overpayments, through audit exceptions, in the amount of $364,192, for the cost-reporting period ending December 31, 1969.

No cost reports were submitted for 1970 and 1971, although interim medicare payments by Blue Cross, in the amount of $481,309, were made to California Coordinated Health Care Services, Inc., the company Mr. Gottheiner founded and administered.

I understand that Mr. Gottheiner and/or the corporation protested the audit exceptions, but neither he nor the corporation filed an appeal of the exceptions.

No legal action, to my knowledge, has been taken.

Mr. Gottheiner also has direct and/or indirect controlling interests in three other corporations, which are now doing business with Federal funds.

According to the résumé, he is sole owner, sole stockholder, and president of Health Help, Inc., which was awarded a contract for homemaker services in February 1971, just 6 weeks before he voluntarily dissolved California Coordinator Health Care Services, Inc. The corporation, which Mr. Gottheiner was founder of, had unresolved audit exceptions totaling over $846,271.

These were funds from title XVIII of the Social Security Act. I do not know if there were audit exceptions related to title XIX.

He then obtained a contract under title XX, and to my knowledge, these other companies are operating in California and other States, including Utah, Illinois, and Minnesota. The track record does not seem to be very much different.

You heard about the State audit report this morning, so I will not bore you with the details of political contributions and of personal income taxes; but I would like to add, in addition to his reported 12 percent profit, he received a salary far in excess of community standards.

He had over $45,000 in personal reimbursement expenses, excluding 1 month, because the records could not be found.

Mr. HALAMANDARIS. Could you repeat that?

Mr. HALL. $45,450.97 in personal expenses, not counting the month of March 1974, because there were no records. When the auditors did the audit, they could not find the records.

In addition to those expenses, the salary reported here previously was quoted as $75,000. I do not know what the salary is, but I assume the State auditors can tell you. In addition to all that, there were credit card charges, without receipts to back up some of them, or indications of what those credit card charges were for.

In the newspaper articles submitted for review, Mr. Gottheiner reported that the reason for the high expense in terms of personal reimbursement-presumably the $45,000-plus figure was because the company did not have charge cards. The report clearly shows that charge cards were used, without adequate receipts and notations.

After this history-after the reports cited-one might assume that some unit in HEW would have done something in the way of monitoring the contract.

I was disappointed to hear that there is nothing that they are planning. These are some of the records, and they have been submitted to the Department over and over and over again.

They are submitted to both committees of the joint hearing, and perhaps you can follow up on this.

The second case, also in San Francisco, involves a different company with other owners. This company was started in June 1972 as a provider of homemaker services under what is now title XX.

HIGH ANNUAL SALARIES

Available information, and my experience, is that less than $5,000 was needed for complete capitalization, including labor costs of this enterprise. Yet, annual salaries were publicly reported to be over $78,000 for the owners in 1973-not counting what might be characterized as questionable corporate expenditures for entertainment, travel, public relations, and so forth.

This characterization is based on the owner's statement, publicly and in other places, that they delivered services exclusively to the Government.

The owners of this corporation included one partner who was a professional person continuing a full-time practice and another partner who was a full-time student. Other family members are and have been on the payroll.

A 50-percent interest in this same company was recently sold for a reported $32,500. Its only significant asset was the Governmentfunded contract. There is the potential for abuse, especially without standards; implementation and verification of those standards; and criteria and mechanisms for control of contractors whether they are public, tax exempt, or for profit.

Mr. HALAMANDARIS. Excuse me; let me interrupt at this point. The second company that you mentioned has been sold; is that what I understand?

Mr. HALL. That is correct.

Mr. HALAMANDARIS. And they have new owners.

Mr. HALL. Two partners sold their interest to the other two part

ners.

Mr. HALAMANDARIS. And the new owners are apparently not connected with any of the sort of abuses attributed to the previous owners, or is it too early to make a judgment?

Mr. HALL. The new owners owned 50 percent of the prior partnership.

Mr. HALAMANDARIS. What I am leading up to is if you can give us the names of these individuals-the companies involved-we would like to follow up.

Mr. HALL. It is included. You will have no difficulty in determining from the exhibits incorporated in the book provided.* The name of the company is Homemaking Sojourners.

There is another area I would like to cover, and that is the business of cost. In San Francisco, the above firm and the Upjohn Co., have argued that profit-taking companies are less expensive than community agencies.

These profit-taking companies were not less expensive. I brought a chart ** which can be included in your record. You can use it in any way you would like. What it shows is what the hourly rate was.

Proprietaries were indeed less expensive than the community agencies by the unit. What it also shows is that the community agency was less expensive in total, and that the proprietary agencies did not have a complement of professional staff to work with the patient, or provide the kind of supervision that is needed. There is evidence in other testimony as well as other places that indicates the reason. Total hours were less in the community agencies because of the professional component being available to the patient and the coordination of services by the professional person.

I would like to point out that the president of Homemakers Upjohn stated in his letter:

It would have been no disgrace to report that, it costs not-for-profit home health agencies more to deliver 1 hour of service than it does for a for-profit home health agency to deliver the same service under the same circumstances

***

MISLEADING CLAIMS

The facts presented above, and other exhibits, give dramatic evidence that the Upjohn Co.'s claim is misleading.

In the first place, Mr. Wilsmann indicated his 200 agencies were ready, willing, and capable of stepping in to fill the breach the second there was the chance.

He said he was ready to step in to fill that breach with his 200 agencies considering his staff, and that only 20 some units are certified under medicare. There is no prohibition against Upjohn or other proprietary organizations having home health agencies certified under medicare. It is the medicaid issue. My question is, why are not the 200 involved in medicare now?

*Retained in subcommittee files.

** See p. 133.

In California, there are some 30 units of Upjohn, and to my knowledge only 2 are certified for medicare or medicaid, yet there have been no licensing restrictions for the Upjohn Co. stopping participation in those programs. This has been possible since 1965. My question would be, why have they not been participating?

The second misleading thing is this business of talking with Jim. I, too, talked with Jim-James S. Dwight, Jr.-and copies of our correspondence are enclosed with the exhibits.

Mr. Dwight told me there was a policy in HEW not to share drafted regulations with anybody, because if they are going to do it with one, they would have to do it with others. I was also told this very same thing by Mr. James Burr and by Dr. Ted Cooper, both of HEW.

Mr. WEINER. Has it been your understanding of this morning's testimony that one of the companies has shared their drafting? Mr. HALAMANDARIS. This is the very point.

Mr. HALL. That is correct.

Mr. WEINER. That they showed it to them?
Mr. HALL. That is correct.

Now, in late July, or early August, I was informed, and there was waved in front of me a copy of a letter from Secretary Weinberger to the Speaker of the House of Representatives, indicating that the proposed regulation changes allowing for the proprietaries was going to be submitted for publication in the Federal Register.

At that time, there was never a mention of some 500 or 700 agencies that might need to be, or might want to be, included in medicaid, that are nonprofit.

CONCERN FOR NONPROFIT GROUPS

I would submit, there may not have been a constructive conspiracy to include only the proprietary interests, but it seems to me that the inclusion of the nonprofit smaller agencies, or the single service agencies did not get consideration until very late in the game. I was really-my heart was really warmed by the belief, or the statement attributed to Mr. James S. Dwight, Jr., that he was concerned about those nonprofit groups out there.

I would encourage the subcommittees to go back and look at the experience of the Upjohn Co.'s handling of assembly bill No. 696 in California, introduced as a spot bill very late in the session, asking the California legislature to license the title homemaker, so that the Upjohn Co., as I read it, would be able to advertise, as they do on television-I saw one ad last night, one in New York the night before-that they have State licensed and certified personnel. I think that would be misleading.

Now, as to the 24-hour care business, Upjohn has some 30 franchises listed on their list of providers in California.

I happen to have called seven of those from San Francisco last week on Saturday.

I got four answering services, and let the phone ring 15 times on the other three.

The only agency in San Francisco open that day was a community agency, open 365 days a year. It is not open 24 hours a day, but should be; when the funds and resources are available it will be.