Aultman’s secrecy sways jury decision: Confidentiality about broker bonuses raises questions, leads panel to rule in favor of Mercy for damages [The Akron Beacon Journal, Ohio]

Jun. 13--The secret nature of Aultman Health Foundation's extra payments to select insurance brokers convinced a Stark County jury the practice was corrupt.

A majority of the jurors decided last week that Aultman should pay Mercy Medical Center more than $6.1 million in damages for engaging in a "pattern of corrupt activity" by influencing brokers with money.

What remains to be seen is whether the verdict in Stark County Common Pleas Court will have an impact on the industry.

"As far as I know, every single insurance company pays every broker an 'override,' an extra payment, for bringing in volume," said J.B. Silvers, director of research at Case Western Reserve University's Health Systems Management Center in Cleveland and a former health insurance executive.

"It's a very clear incentive to push my product as opposed to other people's products."

And many times, he said, clients don't realize exactly all the payments their brokers receive.

"The partner they rely on for objective information simply isn't objective," he said. "They may be helpful, but they're not objective."

But a spokesman for brokers statewide insists that independent agents act in the best interest of clients, regardless of bonuses.

Dave Petno, a health insurance broker from Hudson and media co-chairman for the Ohio Association of Health Underwriters, said he is influenced by the price and quality of the plan his clients are getting, not the incentive programs.

"I honestly don't pay attention to the other incentives or things that come and go," he said. "If I'm doing what's right for that employer, I'll be compensated for it. It always comes down to the price and the quality of the products that are being offered to the

employer."

Mercy's case centered on bonuses Aultman gave to select brokers to switch clients from other plans to Aultman's AultCare.

The brokers could earn as much as $200 per new person enrolled in AultCare, in addition to regular commissions.

Businesses rely on brokers to help them shop around and select the best health coverage for employees and their families.

Mercy alleged that those extra payments were part of a scheme to get more employer groups to switch to AultCare, which led to more patients going to Aultman Hospital.

Aultman Hospital is AultCare's only in-network hospital in Canton. Under most health insurance plans, patients must go to in-network facilities to pay the lowest charges.

Jurors' decision

The jurors were persuaded by evidence that the nine participating brokers were forbidden from telling anyone -- even their clients -- about the bonuses, said Lisa Hughes, 45, of Lawrence Township, who was the juryforeperson.

"I think the program is a quite brilliant program," said Hughes, who is a medical technologist at an Akron hospital. "But it just raised some questions because of the confidentiality between the brokers and foundation. It was so secret that it raised questions."

Aultman President and Chief Executive Edward Roth said the confidentiality requirement was dropped in 2004. For the last three years, AultCare also has been telling clients during the bidding process the amount of potential broker commission and whether the broker is eligible for a bonus, Roth said. When the deal closes, clients are informed of the exact bonus amount.

The change was made before Mercy filed its lawsuit, he said.

"We made the decision to become transparent with the client with regard to the broker commission and bonuses," Roth said.

"When the customer is making the decision, they know what AultCare is providing for broker commission."

Another juror, Morgan Choffin, 25, of Hartville, said she also was convinced the payments influenced brokers after hearing testimony from a participant who never sold AultCare plans until the program started.

"I didn't realize brokers made so much," she said.

The jury's award was considerably less than the $110 million in past and future damages that Mercy had been seeking.

The jurors believed that $110 million was too high and instead devised their own formula for damages, which compared the growth in patient net revenues between Aultman and Mercy.

Attorneys for Aultman called the jury's findings a victory, noting the panel sided with Aultman in five of the six claims by Mercy.

What happens next?

Aultman plans to appeal the lone decision in Mercy's favor, Aultman associate counsel Robert Mullen said.

Another judge threw out the same claim in a similar case in Tuscawaras County, he said.

In the meantime, it's business-as-usual for Stark County's largest private employer.

"We have the same business programs in effect," Mullen said. "They're proper, legal and in the best interest of the community."

Mercy plans to seek attorney fees from Aultman, as well as a court order requiring Aultman to end the incentive program, Mercy lawyer Lee Plakas said.

Plakas said the ruling should make other businesses think twice before embracing a similar strategy.

"I think it will have a great deal of impact," Plakas said. "I think the ramifications are far-reaching for this entire community and for the entire health-care community in Northeast Ohio."

There are no requirements for insurance companies to report broker compensation with the Ohio Department of Insurance, spokesman Robert Denhard said. The commissions are considered a matter of the contractual relationship between the insurance company and broker.

The department has been asked by a Tuscarawas County Common Pleas Court judge to review Aultman's broker payment program. The request came as the result of another lawsuit filed by Hometown Health Plan, a rival health insurer now owned by the Health Plan of the Upper Ohio Valley.

The fact that AultCare's payments to brokers were funded by its nonprofit parent, Aultman Health Foundation, was different, CWRU's Silvers said.

However, he said, bonus programs in the industry probably won't change without new regulations or pressure from clients for more transparency.

Aultman's model of making secret payments to nine select brokers is unusual, Petno said.

But in general, he said, incentive programs and bonuses "would not affect you if you're an ethical broker."

"Overall, the commission structures among the insurance companies are basically comparable," Petno said. "So the ethical broker doesn't think about it."

Cheryl Powell can be reached at 330-996-3902 or [email protected].

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