As an example of regulatory obfuscation, The Wall Street Journal recently quoted this portion of Medicare regulations: “In the case of a plan for which there are average per capita monthly savings described in section 1395w–24 (b)(3)(C) or 1395w–24 (b)(4)(C) of this title, as the case may be, the amount specified in this subparagraph is the amount of the monthly rebate computed under section 1395w–24 (b)(1)(C)(i) of this title for that plan and year (as reduced by the amount of any credit provided under section 1395w–24 (b)(1)(C)(iv) [2] of this title).”
This reminded me that it’s finally time to tell the story of “How Medicare Killed Clarke Home Nursing Service.”
June Clarke, a registered nurse, was at Pearl Harbor on that fateful day in 1941. She was immediately drafted as a captain in the U.S. Army and performed valiantly at military hospitals in the months that followed. Later, she and her family moved back to California.
In 1962, Clarke started her one-person home health service, operating on a private-pay basis. This was the humble beginning of a company that grew to 500 employees as Clarke Home Nursing Service, Inc., one of the largest and most-admired home health care agencies. The company eventually expanded to serve Marin, Sonoma and Mendocino counties, plus Guam and Saipan, and it became a leader in high-quality home care and home health education for families.
One stimulus for the growth of Clarke, and other home health care agencies in general, was the 1965 passage of Medicare, which contained a home health care benefit. The logic of this benefit was simple: It should be less expensive to provide certain health services in-home rather than to force people to go to a hospital or skilled nursing facility for those services.
Medicare required home health providers to be licensed. Thus, Clarke Home Nursing Service became one of the first 20 home health agencies licensed in California. These first 20 agencies helped California write regulations for the industry.
Clarke grew at the same time that many new, small home health agencies sprang up. Some of these new “Mom and Pop” agencies may have been taking advantage of the existence of the Medicare coverage to start their own Medicare-funded businesses rather than work for someone else, perhaps at lower pay.
By the 1990s, there were more than 10,000 Medicare-certified home health agencies in the United States and U.S. territories. Clarke learned, indirectly, that Medicare administrators were concerned about the proliferation of such agencies and that Medicare intended to cut the number in half.
How would Medicare reduce the number of providers? The two primary reasons for decertification were poor quality care or fraudulent billing. Clarke was widely admired for wonderful quality of care, and it was scrupulously honest in billing. Thus, Clarke thought it was safe from Medicare downsizing. It was wrong.
Clarke had a main office in Novato and branch offices in Ukiah, Guam and Saipan, all of which were medically licensed. Clarke also had three computer workstation locations at which employees, after a day or two driving between various homes, could download computer information for billing purposes. The state of California licensing department knew about all of Clarke’s locations and never indicated it thought the computer hubs needed to be separately licensed as medical facilities.
But then, as part of one regular annual audit, the state demanded that the computer workstations be licensed. Clarke complied immediately, and the state said, “No problem.”
Two years later, as part of a different regular audit by Medicare, Clarke was told it was out of compliance for the year in which the state asked Clarke to license computer workstation sites as medical offices. Medicare demanded that Clarke return all money—more than $10 million—paid to the company for the year of supposed “non-compliance.”
The executives of Clarke Home Nursing Service, June Clarke and her son, Ken Clarke, reacted with disbelief. They initially thought Medicare’s demand was an error that would be straightened out with a simple appeal. Since real services were provided, with high quality of care and honest billing, Medicare couldn’t possibly demand all the money it paid Clarke for a year be paid back, right? And yet that was exactly Medicare’s demand. To enforce the demand, Medicare reduced reimbursements for the current year by half, even though there were no current-year compliance issues. Then Medicare stopped all payments.
June and Ken Clarke immediately realized they must close the company, which had been in operation more than 30 years, and they must lay off 500 employees, including nurses, physical therapists, occupational therapists, speech therapists, medical social workers, home health aides and administrators. The company had no financial ability to continue operations while receiving no money from Medicare and while fighting a legal battle over Medicare’s demand to return more than $10 million.
The Clarkes gathered all the employees and told them the excruciating news. The next day, Ken Clarke flew to Guam and Saipan to inform the employees there.
Quoting Ken Clarke: “Medicare couldn’t use poor care or fraudulent billing as a reason to close us, so they went through the back door, using a technicality to blow up 500 jobs. We went from smiling, happy and proud to out-of-business in 45 days. A great culture was obliterated.”
Loss of jobs wasn’t the only hardship for Clarke employees. The company also had a highly successful employee stock ownership plan that shared ownership of the company with employees. The plan’s assets plummeted in value from more than $2 million to zero in the same agonizing 45-day period.
Our government at work.
