MotherJones MJ93: Double-dipping doctors

T2 Medical approached doctors with a simple offer; refer your patients to us and we’ll give you a big piece of the action. Now T2 is the eighteenth fastest-growing U.S. company.


A few months before she died of breast cancer, Julia Lippman fired her oncologist. She had no problem with the quality of his care–to this day her family believes Dr. Stanley Winokur of Atlanta is “brilliant.” But the dying woman and her family had become convinced that Winokur’s medical recommendations were influenced by greed.

The cancer had infiltrated Lippman’s abdomen, and she could no longer eat solid food. She needed in-home intravenous feeding, so the family arranged for a visiting nurse to provide infusions.

Winokur was not pleased. He wrote a “Dear Julia” letter, explaining that he could not be responsible for her care unless she used a home infusion company named Georgia Home Therapeutics or a certain local hospital. But when Lippman tried to switch to GHT, her insurance carrier refused to pay their higher rates.

Struggling to cope with Julia’s downward spiral, the Lippmans were suddenly hit with the need to find a new doctor. Her son, Scott, remembers his anger: “My mom’s dying, and she’s got a few months to live, and [Winokur] is in-sisting that she use a certain company or he won’t be responsible for her well-being!”

Scott’s sister Judy seconds his thoughts. “It made me feel like, ‘Who the hell is he to tell us where to get health care?'” she says. “Something just didn’t smell right. Why would a doctor drop a terminal patient?”

In his letter, Winokur claimed that his reasons for insisting on GHT were medical, not financial. Because he could be sued for recommending a caregiver who proved inadequate, he wanted to limit the Lippmans’ choices to companies he was personally familiar with. He admitted that he had helped found GHT several years earlier, but assured the Lippmans that he had since sold his interest. That was true, but there was more that Winokur was not telling.

The Lippmans had stumbled onto a little-known but lucrative side business of thousands of physicians around the country. By trading on their patients’ trust, doctors like Winokur use what’s known as “self-referral” to enhance their annual incomes–they send their patients to companies in which they have a financial interest, companies which may be more expensive or less qualified to perform the services needed. This practice is one rarely discussed reason for the soaring health-care costs plaguing the country.

Stanley Winokur became a founding partner of GHT with the help of T2 (pronounced “tee-squared”) Medical Inc., a nationwide company founded by Thomas Haire and Tommy Carter in 1984.

When Medicare officials started hurrying patients out of hospitals in an effort to cut costs, Haire and Carter sensed an opportunity for profit in the homecare industry. Since sick people generally do what physicians tell them, the two reasoned, who better to promote a homecare company than doctors with a financial stake in their referrals? So Haire and Carter traveled the South like itinerant preachers, enlisting doctors like Winokur (who was suffering through a costly divorce at the time).

Much about T2 is not known. The company closely guards the names of its doctor-partners, the size of its local companies, and the prices it charges. But from documents filed with the Securities and Exchange Commission, an ultra-private T2 phone message accessible only by code, and information provided by doctors familiar with the company, the following portrait of T2’s operations has emerged.

The company recruits ten to fifteen doctors in a given area to become partners in a new venture providing IV therapy or some similar service. Each doctor buys one hundred dollars of T2 stock and puts up a fifteen thousand dollar promissory note, which T2 uses as capital for the venture. After acquiring a $250,000 to $300,000 line of credit, T2 rents an office, hires clerks and nurses, and waits for the doctors to refer patients to the new firm.

In return for their investment, the doctor-partners share the company profits, typically netting about thirty thousand dollars a year each. After a few years, T2 buys out the doctors with T2 stock worth about five times the company’s earnings. The doctors are required to hold onto their stock for at least two years.

Winokur received at least $300,000 in T2 stock for his investment in GHT. While it’s true that he was no longer directly involved with GHT when he pressured the Lippmans to use the company, the value of that stock was still dependent on T2’s success, so there was a strong financial incentive for him to continue sending patients to GHT.

Occasionally, a doctor investing in T2 has second thoughts. Dr. Alan Taranto of Atlanta invested five thousand dollars in Georgia Home Nursing, then asked for his money back because he was uneasy about profiting from his own referrals. Taranto says that T2 representatives asked why he wasn’t sending patients to GHN. “They weren’t happy with me,” he says. T2 eventually gave back his money and crossed him off its list.

In the last decade, self-referral has spread widely, as tens of thousands of doctors have invested in side ventures such as walk-in surgical centers, million-dollar scanners, and physical therapy centers. The U.S. Department of Health and Human Services estimates that one in four medical testing laboratories is owned or partly owned by doctors who refer their patients to the facility. According to a study conducted in Florida, doctor-owned labs charge an average of 40 percent more than other labs.

T2 has been a pioneer in turning self-referrals into corporate gold. In 1992 T2 pulled in just under $300 million in revenues and was ranked by Fortune magazine as the eighteenth fastest-growing company in the nation. Since its launch the company has opened forty-six IntraCare outpatient clinics like GHT, twenty-three Women’s Homecare facilities, and six firms that use lithotripsy to disintegrate kidney stones. Every day, T2-affiliated concerns treat 3,500 patients in ninety-four U.S. cities.

In less than a decade, Haire, forty-seven, and Carter, fifty, have become millionaires. Carter has retired to a new home near a Colorado ski resort, while Haire presides over T2 on a part-time basis from Atlanta, where he continues to act as chairman of the board.

But even as T2 has made its founders and their doctor-partners rich, the company’s practices have placed it in the center of a growing national controversy over self-referral.

Congressman Fortney “Pete” Stark, a Democrat from California, has introduced a bill that would ban self-referral outright. “Physician ownership/referral arrangements represent an exploding virus which ultimately will erode the trust patients have traditionally placed in their physicians,” Stark says. “The sad thing is that we are quickly getting to the point where each of us is going to have to wonder if we are getting referred for a health service because we need it or because it would fatten our physician’s dividend check.”

Meanwhile, the Inspector General of the Department of Health and Human Services has authorized a federal grand jury to investigate whether T2 violates Medicare’s anti-kickback laws, and the Federal Trade Commission is investigating whether doctor-partnerships limit competition by freezing out nonreferral-based operations.

In December, even the staid old American Medical Association got involved, ruling that self-referral is “unethical.” But T2 described the AMA ruling as a victory because it makes exceptions for doctors in medically needy areas and for those, like T2 doctors, who claim their businesses are merely “extensions” of their practices.

It’s no secret that America’s health-care costs are ballooning out of control. Last year they reached $838.5 billion, a thirtyfold increase since 1960. The national health bill accounted for an incredible 14 percent of the 1992 gross national product. But while drug companies, HMOs, and health insurance firms have come under public attack for their part in the mushrooming costs, the contribution of physician self-referrals has been largely overlooked.

T2 contends that it keeps costs down by providing hospital-level care for 30 percent less than hospitals. It’s hard to verify the comparison, however, because insurance companies are reluctant to share pricing information.

The evidence that does exist suggests that home health-care companies–even those that charge significantly less than hospitals– are still highly overpriced. A 1991 study by the New York State Department of Consumer Affairs found that home-infusion companies operating in that state sold drugs and supplies for between 157 percent and 1,066 percent more than retail drugstores.

On a telephone recording intended only for T2 doctors–who were given access through a secret code–company president and CEO Dr. Joseph Allegra (a cancer specialist who has made more than $20 million in the four years since he was appointed to T2’s board) provided some revealing information about T2’s markups for outpatient infusion therapy. According to Allegra, T2’s subsidiary IntraCare billed Medicare $278,000 during the last fiscal year. “My best guess,” he said, “is that it cost us from $50,000 to $100,000 to provide that care.”

If Allegra’s figures are accurate, T2 marked up prices anywhere from 178 to 456 percent.

Medicare eventually disallowed almost 90 percent of those billings, yet T2’s executives still maintain that doctor-ownership is “the very best way” to provide quality home infusion therapy at the lowest cost. They say it allows doctors to exercise maximum supervision over a patient’s care by turning the home (or an outpatient clinic) into “an extension of the doctor’s office”–which, the company maintains, is different from self-referral.

Concerned by legislative efforts to restrict doctor self-referrals, T2 has sent company representatives to lobby state legislators, Congress, and the AMA. So far the company has been successful: only New York, Florida, Illinois, and New Jersey have restrictions against self- referral, and none of those restrictions applies to T2’s specific activities.

The company has also formed a political action committee, T2PAC, to counter Congressional opposition to self-referral. Winokur and his partners contributed one thousand dollars each to this effort.

Winokur refused to be interviewed for this story, and although he agreed to receive written questions, he did not answer them despite repeated requests. He has recently gone into a new line of business with T2 cofounder Haire, starting a company called Radiation Care Inc., which is establishing doctor-partnerships to buy radiation therapy centers.

In addition to his roles as cancer expert and businessman, Winokur works as a TV commentator and (when his financial interests are at stake) an unregistered lobbyist. In March he spent hours gladhanding legislators in a tiny committee room in the Georgia statehouse. He was not alone. T2 had at least five lobbyists present; Radiation Care had two more.

Julia Lippman’s three children still think about their mother’s experience with Winokur. “My mom really loved Dr. Winokur,” Scott recalls. But nonetheless it was she who decided to fire him.

“She didn’t cave in and say that we had to use GHT,” says Judy. “She just said, ‘He doesn’t get to tell me that. He can recommend, but he doesn’t get to tell me that.'”

“My mother was the courageous one,” agrees Scott. “She was able to say, ‘Go to hell.'”

Julia Lippman was sixty-five when she died. For all her strength, Scott remembers that during her last days there was “kind of an abandoned feeling. She was just abandoned.”

Steven Sternberg is a reporter for the Atlanta Journal-Constitution. Julie Petersen of Mother Jones, contributed additional reporting to this story.