Old-Fashioned Lenox Hill Doctors Battle Money-Minded Colleagues

Last winter, letters containing allegations peppered with Shakespearean phrases against several Lenox Hill Hospital doctors and administrators were mailed out to politicians, Federal agents and The Observer . The letters, mailed by a group of hospital employees that identifies itself as “the rainbow coalition,” consisted of attacks against several doctors at the hospital who have embraced the new medical economy and made themselves successful both as physicians and businessmen. Copied to F.B.I. agents and Mayor Rudolph Giuliani, as well as to City Parks Commissioner Henry Stern and President Bill Clinton, the letters contained some far-fetched-sounding claims of conspiracy.

But they exposed growing tensions within the hospital that have been plaguing Lenox Hill for some time.

On one side are some academic physicians with new business considerations: These include Dr. Valavanur (Manny) Subramanian and Dr. Jeffrey W. Moses, his partner in a practice called Advanced Heart Physicians & Surgeons Network, and Dr. Angelo J. Acquista, as well as other Lenox Hill doctors who have thrived in part by their participation in for-profit endeavors.

On the other side are the Lenox Hill doctors who, both on and off the record, are deeply uncomfortable with incentivized medicine and its promise of equity. They may be old-fashioned, or-as some within Lenox Hill have suggested-they may be jealous that they’re being left out of the action. But no matter who’s right, the issue between them is patients: how they’re referred, who treats them and who bills for them.

Possibly as a result of this longstanding struggle, as well as of open turmoil among various doctors within Lenox Hill, relationships surrounding the hospital and several doctors’ practices are now part of what law enforcement sources described as a joint probe by the Federal Bureau of Investigation, the Internal Revenue Service and the U.S. Department of Health and Human Services, as The Observer reported on March 18.

Health and Human Services is focusing on Lenox Hill Hospital and whether it properly billed Medicaid and Medicare, the Government health insurance programs. Federal agents are also examining whether two corporations run by Lenox Hill doctors, Madison Medical Associates (which Dr. Acquista co-founded) and a defunct company called S.A.M. (an acronym derived from the names of Drs. Subramanian, Acquista and Moses), generated duplicative or erroneous bills that may have defrauded Medicare.

Other inquiries include whether S.A.M. violated a Federal law that prohibits doctors from referring patients to practices in which they have a financial stake, and whether financial incentives, including equity in a physician practice management company called Advanced Health Corporation, were improperly offered to outer-borough physicians in exchange for patient referrals.

Lenox Hill spokesman Karen Zipern had no comment about the Health and Human Services probe of the hospital, saying only that the U.S. Attorney’s Office had informed Lenox Hill that it “is not the target of the investigation.” (A subject of an investigation may become a formal target when the Government believes it has sufficient evidence that the subject may be guilty of a crime.)

Jonathan Rosenberg, counsel for Advanced Health, also said the company was not the “target” of the Federal investigation. Alan Metrick, a spokesman for Madison Medical, said, “There has been no request by any government agency for records or documents, or any other action that would lead us to believe that we are under investigation.”

But since last June, the U.S. Attorney has served Lenox Hill with two subpoenas requesting documents. The hospital has cooperated with the requests. And last January, the hospital formed a committee to review physician complaints.

Lenox Hill’s chief operating officer, Terence O’Brien, said that the hospital had done nothing to violate any laws. He also said that the complaints of disgruntled physicians may have sparked the investigation. The intrigues playing in the hallways of Lenox Hill are not lost on Federal agents. One law enforcement source compared the atmosphere there to “a sixth-grade” rumor mill.

Spokesmen and attorneys for Drs. Subramanian, Acquista and Moses, and for Advanced Health, Advanced Heart and Madison Medical, denied any wrongdoing and asserted that they were not being investigated. Melissa Krantz, a spokesman for Dr. Acquista, said that he has always “scrupulously complied with all applicable laws.”

David Warmflash, an attorney representing Dr. Subramanian, said that his client “has always maintained his medical practice pursuant to the highest professional, legal and ethical standards” and is not “a target” of any investigation. Likewise, Dr. Moses “believes he has scrupulously followed a program of employing professionals to ensure that his practice is in strict accordance with all applicable laws,” said his spokesman, Gerald McKelvey.

In mid-1995, a handful of doctors from Lenox Hill, along with two executives from Advanced Health, met for dinner in a Bay Shore, L.I., restaurant with several doctors from a Long Island cardiology group practice. The dinner, intended to hammer out a financially beneficial deal, reflects some of the conflict that has been running through Lenox Hill.

Over an amicable meal, one of the executives, Steven Hochberg, made a pitch. For a management fee, his company, Advanced Health Corporation, then a start-up physician practice management company, proposed to oversee the billing and administration for the cardiologists’ thriving practice, South Bay Cardiovascular Associates. The cardiologists could eventually be eligible to receive stock in Advanced Health Corporation. And in time, two of the Lenox Hill doctors at dinner, Dr. Subramanian and Dr. Acquista, would acquire a financial stake in Advanced Health, and their medical practices would also become its major clients.

While the South Bay cardiologists ultimately did not join Advanced Health, the dinner is a snapshot of the kind of meeting that is more and more common in the new world of Doctors Inc.: businessmen and physicians joining forces and doing business in the new medical marketplace. What was discussed that night has also proved as controversial as the issues roiling certain factions at Lenox Hill.

One physician who attended the dinner told The Observer that during the discussion about joining Advanced Health, conversation turned to patient referrals-namely, how South Bay doctors could refer their patients needing specialized care, such as cardiac surgery or angioplasty, to Dr. Subramanian and Dr. Moses.

According to the physician, the message as he interpreted it from the Lenox Hill to the South Bay doctors was, “We want to be the place where you send your patients. What can we do to help you? What can we do to make it in your best interest?”

He said that Mr. Hochberg explained to the South Bay cardiologists that referrals to the Lenox Hill doctors would ultimately benefit them. (Referrals would augment the network’s revenues and therefore benefit Advanced Health shareholders.)

The physician claimed that Dr. Acquista told the cardiologists that should they want to acquire new space for their practice or even build a building on Long Island, Advanced Health would be able to arrange the necessary financing. The company, in its prospectus and public filings, describes equity for its doctor members in detail. Its promotional literature also mentions “the purchase and sale aspects of physician financing,” which includes financing for construction of doctors’ offices. Both are benefits that physician practice management companies sometimes offer.

The problem, this physician said, was that he believed the benefits of membership came with an implicit expectation that the doctors would refer patients to the Lenox Hill cardiac specialists. The physician also said he felt strongly that referrals should be made with only the medical benefit of the patient in mind.

Federal anti-kickback law generally prohibits financial inducements in exchange for referrals whenever Medicaid or Medicare, the Government health insurance programs, are billed. However, both Advanced Health and other physicians who attended the dinner stated emphatically that referrals were never discussed.

This elucidates a larger point in the changing health care economy in New York: that many doctors are queasy with their new roles as businessmen and with the barrage of financial and legal complexities facing them.

Mr. Rosenberg, the attorney for Advanced Health, said that the company “categorically denies that Steven Hochberg or any other Advanced Health employee ever said, suggested, or implied to any doctor, including any from [South Bay], that a doctor entering into a management services agreement with Advanced Health would be expected to refer, or would receive a financial benefit from referring, patients to Advanced Heart or to any other entity that has a contractual relationship with Advanced Health.” He added that no doctor “ever has been offered or received Advanced Health stock or other remuneration from Advanced Health in return for referring patients to any other entity that has a contractual relationship with Advanced Health.”

A doctor who attended the meeting and whom Ms. Krantz made available to The Observer , denied that the subject of referrals came up at all. “Nobody said anything like, ‘We’ll give you stock if you send [your patients] to Advanced Heart,'” he said. “Dr. Acquista knows all the parties, but the meeting was arranged by Advanced Health,” said Ms. Krantz, adding that referrals were not discussed that night.

“Of course it was discussed,” countered the physician who was made uncomfortable by the meeting. “Why did they think [Lenox Hill doctors] were going out there-to play poker?”

New York has been one of the country’s last holdouts against for-profit medicine; publicly traded hospitals are not even permitted to operate in the state. But health care as big business has crept in through physician management companies like Advanced Health.

This year, Phymatrix Corporation signed an agreement to manage services connected to the newly merged Beth Israel Medical Center-St. Luke’s Hospital-Roosevelt Hospital; another such company, Phycor Inc., has had discussions with the recently merged New York and Presbyterian hospitals.

While other Manhattan medical centers have merged and formed networks with outer-borough hospitals in their efforts to negotiate with health maintenance organizations for big blocks of patients, Lenox Hill has remained independent. Its administrators have encouraged physicians to form professional corporations that give them more control over patient care. Also, its doctors have formed multispecialty group practices in an effort to pool resources and reduce overhead costs.

In the vanguard of these trends at Lenox Hill are cardiac specialists Drs. Subramanian and Moses, who, with the help of Dr. Acquista, built a booming practice of international prestige from which Lenox Hill has benefited.

In 1986, the hospital was losing money and its cardiac surgery program was on probation for having high patient mortality. As a result, the 1987 arrival of Dr. Subramanian and his subsequent recruitment of Dr. Moses presented a much needed medical and financial opportunity for Lenox Hill.

The two specialists were lured from New York Hospital-Cornell Medical Center with an attractive offer: They would have exclusive contracts to direct Lenox Hill’s invasive cardiac care-notably, open-heart surgery and angioplasty-through the establishment of their own professional corporations, or P.C.’s.

Dr. Subramanian quickly established Lenox Hill Cardiothoracic Surgical P.C., and Dr. Moses established Lenox Hill Interventional Cardiology P.C. Hospital administrators also placed Dr. Moses in charge of the catheterization laboratory, which X-rays the blood vessels leading to the heart to determine whether a cardiac patient needs more specialized treatment. Only cardiologists given the nod by Dr. Moses are allowed to practice there.

Such exclusive contracts created ill will. One former Lenox Hill cardiologist who worked in the catheterization lab said that when Dr. Moses established his corporation, he and other cardiologists consulted an attorney. “It was an infringement on our private practice. I really felt this was an attempt to control the physicians,” he said. The physician left Lenox Hill shortly after Dr. Moses established his corporation.

The cardiac specialists and their practices thrived. Dr. Subramanian, 58, came to international attention for his innovations in minimally invasive open-heart surgery, pioneering a procedure that allowed him to operate on a patient’s heart while it was still beating. Physicians at the hospital said that Dr. Subramanian, who was raised in Cuddalore, India, has a rigorous work ethic. The joke around his office, they said, is that his tombstone will read “Dead, but not tired.”

When Dr. Moses, 49, arrived at Lenox Hill, he broke new ground in developing and using stents, meshlike devices that hold open blocked arteries and permit blood to flow more easily to the heart. He built Lenox Hill into a major center for angioplasties. In 1995, the most recent year for which figures were available, Advanced Heart performed 1,498 angioplasties. In comparison, 674 angioplasties were performed at New York Hospital-Cornell Medical Center, 516 at New York University Medical Center and 426 at Columbia-Presbyterian Medical Center, the other major Manhattan cardiac centers.

The specialists’ practices were valuable to the hospital, because cardiac patients receiving invasive care from them were typically treated at Lenox Hill. While the specialists billed for their professional services, the hospital billed for room and board, nursing and other staff services, medications, X-rays, lab work and tests.

Shortly after Drs. Subramanian and Moses arrived at Lenox Hill, Dr. Acquista, then an internist and pulmonologist rising up through the ranks, began to work with them. Dr. Subramanian gave Dr. Acquista the work of performing pulmonary consultations on the open-heart recovery unit.

Described by several colleagues and his attorney as a self-made man under attack by jealous physicians, Dr. Acquista, 44, the son of a seamstress, came to this country from Sicily, Italy, as a child unable to speak any English. He took a full-time position at the hospital after his residency there and began building a thriving Park Avenue practice. Since 1986, he has served as chairman of the quality-assurance committee for the hospital’s department of medicine; he has treated Leonard Bernstein and former governor Hugh Carey. Said John Mangiardi, Lenox Hill’s chief of neurosurgery, “There are very gifted businessmen in medicine, but not a lot. [Dr. Acquista] is one of those. He has a certain genius for it.”

Individually, Drs. Subramanian, Acquista and Moses had become successful. In 1991, the three joined forces: Even as Drs. Subramanian and Moses continued to provide specialty cardiac care through their professional corporations, with Dr. Acquista they founded another private corporation called S.A.M. Medical Associates P.C.

S.A.M., composed of internists and cardiologists, was an elegant idea: Patients undergoing surgery and angioplasty performed by Drs. Moses and Subramanian would need internists and cardiologists to oversee their recoveries. What better way to ensure their follow-up care than to entrust their patients to doctors they themselves had hired to work at S.A.M.? The group also enabled outlying cardiologists to refer their patients to S.A.M. internists at Lenox Hill who would oversee their specialty cardiac care.

Dr. Acquista quickly established himself as someone who could build the business. S.A.M. attracted referrals from Long Island, Brooklyn and Queens. “His role was first of all to go meet the doctors, let them know the service was available,” said Mark Schiffer, a cardiologist at Lenox Hill who credits Dr. Acquista with coming up with the idea for S.A.M. “He’s a good salesman. When he has a vision of what he wants to do, he’s a good communicator.”

Cardiac patients needing invasive care were generally sent from S.A.M. internists and cardiologists to the specialty P.C.’s of Drs. Subramanian and Moses. And after surgery or angioplasty, patients were often sent back to S.A.M. doctors for follow-up care. This flow of patients-which enabled the specialists to profit from the primary care that their cardiac patients received-disturbed some physicians in the hospital. Those doctors at Lenox Hill argued that S.A.M. gave the three physicians an unfair advantage over all aspects of cardiac patient care, shutting out cardiologists who were not employed by the group.

Law enforcement sources have told The Observer that they are examining whether S.A.M. may have violated the Federal Stark laws that restrict doctors from referring patients to certain types of practices in which they have a financial stake. A source with knowledge of Advanced Health’s management said that while executives at the company wanted to manage the practices of Drs. Subramanian and Moses, one senior person involved raised concerns about S.A.M.’s patient referrals and did not want the company to take on the group. A management agreement was drafted between S.A.M. and a subsidiary of Advanced Health, but it never went into effect.

However, Drs. Subramanian and Moses said they ended their relationship with S.A.M. before Jan. 1, 1995, which is when the Stark provision regulating self-referrals for inpatient and outpatient hospital services went into effect. S.A.M. employed regulatory counsel to ensure its compliance, said Ms. Krantz, and Drs. Acquista, Subramanian and Moses all denied that any violation occurred. A health care law expert retained by The Observer said that cardiology and cardiac surgery are not the type of services that fall within the scope of the Stark laws.

Mr. McKelvey said that Dr. Moses believes that there was no unfair advantage by S.A.M. at Lenox Hill, “or any other unlawful or unethical conduct engaged in by S.A.M.” while he was there. Mr. Warmflash and Mr. McKelvey said that Advanced Health was not concerned about S.A.M.’s pattern of referrals.

In 1995, the three doctors came into Advanced Health on the ground floor. They received a financial stake in the company and were among its first clients.

The way they did this was via a company called Majean Inc.-the title was an acronym for the three doctors’ first names-which they created on June 20, 1995. Majean’s shareholders were Drs. Subramanian and Moses, who each owned 304,105 shares. Dr. Acquista, who was also part of this venture, received the same amount in options, though it is unclear why he got options and not shares. Ms. Krantz declined to comment on why Dr. Acquista was compensated as part of the venture, a subsidiary of Majean, which was ostensibly set up to oversee the billing for Advanced Heart. The same day Advanced Heart was incorporated, Majean merged with Advanced Health. The doctors’ financial stake was rolled over into Advanced Health, giving them an incentive to help the company grow.

The three doctors’ corporations soon became the management company’s flagship clients. In August 1996, Dr. Acquista opened the doors of Madison Medical Associates, one of the largest private group practices in Manhattan, which he co-founded with Lenox Hill’s longtime chief of medicine, Michael Bruno. And on Oct. 2, 1996, Advanced Health went public on the strength of its management contracts with Advanced Heart and Madison Medical, both of which were created within four months of Advanced Health’s incorporation. When Advanced Health convened a meeting for financial analysts in January of this year, the gathering was held in the conference room of Madison Medical’s plush East 59th Street offices. Dr. Acquista made a presentation.

In the first half of 1996, Madison Medical and Advanced Heart jointly accounted for an estimated 72 percent of Advanced Health’s revenue, according to a prospectus for the company’s initial public offering. In 1997, the two doctors’ groups were responsible for approximately 33 percent of Advanced Health revenues or $9.8 million and $10.4 million respectively, as reported to the Securities and Exchange Commission. With the help of Madison Medical and Advanced Heart, Advanced Health has built a controversial medical empire that had revenues of $61 million last year and currently manages 1,700 doctors. Some doctors have questioned whether a for-profit company, through its management of some of the most powerful doctors at Lenox Hill-including four department or division directors-has in effect seized too much control of a nonprofit hospital.

Lenox Hill responded in a statement that “Advanced Health has absolutely no control over Lenox Hill Hospital.” In a March interview, Mr. O’Brien, the hospital’s chief operating officer, stressed that the hospital was continuing to fulfill its mission. “We dance to the drum of patient satisfaction,” he said. But he also acknowledged what no hospital these days can ignore. “The marketplace has changed, pretty much topsy-turvy.”