A Kaiser Permanente $60-million-per-year advertising campaign has recruited nearly one half million new members through widespread fraud, charges a lawsuit filed by the Los Angeles-based Foundation for Taxpayer and Consumer Rights in March. The suit seeks monetary and injunctive relief, including an order removing the Kaiser ads from television and ordering the HMO to conduct a "corrective advertising campaign."

The complaint alleges that the HMO advertises that only doctors, not administrators, make decisions at the HMO and that only medical need and independent medical judgment, not financial concerns, determine a patient's care at the company.

Among Kaiser's key advertising claims: "We don't have insurance administrators telling your physicians how to treat you. And there are no financial pressures to prevent your physician from giving you the medical care you need." And: "No one but you and your doctor decides what's right for you."

The lawsuit alleges that contrary to its advertising claims, Kaiser has implemented systematic policies and practices based upon monetary and profitability concerns that interfere with the unfettered medical judgment of Kaiser doctors. These policies include:

• Applying arbitrary business quotas for doctors to reduce the number of patients that can be hospitalized regardless of medical need, and tying physicians' pay to their performance in meeting the quotas;

• Shifting medical procedures from physicians to less trained medical staff; and

• Wide-spread use of policies, suggested by the consulting firm Milliman & Robertson, which "standardize" discharge times and other procedures in order to attain Kaiser's fiscal goals.

Jamie Court, advocacy director for the Foundation's Consumers for Quality Care project, says that "when an HMO recruits one half million members through outrageous claims that do not comport with its practices, the company must be held accountable."

The company calls the allegations "patently false."

"The whole premise upon which the lawsuit is based is a lie," says Dr. Sharon Levine, associate executive director of Permanente Medical Group for Northern California.

Vitamin Fixing

A Swiss vitamin manufacturer and five U.S. executives pled guilty in March and agreed to cooperate in the government's ongoing investigation of illegal collusive practices in the international vitamin industry.

Federal officials charged the company, Lonza AG, with participating in a conspiracy to fix prices and allocate the volume of sales of vitamin B3 (niacin and niacinamide). Lonza will pay a fine of $10.5 million for its role in the conspiracy.

The five executives were charged with participating in a conspiracy to fix prices and allocate customers and the sales of vitamin B4. Vitamins B3 and B4 are used to enrich both animal and human nutritional products and are marketed worldwide.

The prosecutions represent the first public break in an ongoing investigation of the vitamin industry.

"The cooperation of these defendants, in combination with information being provided by others who are cooperating, will substantially advance our investigation of international cartels in the vitamin industry worldwide," says Gary Spratling, the attorney in charge of criminal antitrust enforcement at the Justice Department.

In Dallas, one count informations were filed against five executives with the Chinook Group and Basic and International Products. The five executives were charged with conspiring to suppress and eliminate competition in the vitamin B4 (choline chloride) market.

Bad Bet on Medicare Fraud

Lotto tickets, liquor for a Christmas party and a handbag from Saks Fifth avenue are among the items for which Horizon West Inc., a California nursing home chain, allegedly billed Medicare. In February, the company agreed to pay the U.S. government $4 million to settle claims that it bilked Medicare by submitting fraudulent cost reports.

Federal officials alleged that Horizon West submitted billings to Medicare for the cost of the liquor bar at the company's annual Christmas party, the purchases of shoes, boots and a handbag at Saks Fifth Avenue by an officer of the company, fees to prepare personal income taxes and purchases of gifts, cigarettes and lotto tickets.

In addition to the $4 million civil penalty, the company agreed to implement a corporate integrity program to insure future compliance with Medicare billing rules.

Horizon West, headquartered in Rocklin, California, owns and operates nursing homes in California and Utah.

In Sacramento, U.S. Attorney Paul Seave says that the company submitted certified cost reports to Medicare for services and supplies it allegedly provided to Medicare patients from July 1990 through June 1995.

A subsequent audit by government investigators revealed that Horizon West had inappropriately classified items in a way that enabled the company to obtain greater payments than it was entitled to, and that it billed for clearly unallowable items.

"Ensuring the integrity of cost reports submitted to the Medicare program is absolutely essential for any health care provider," says Seave. "The time to review questionable claims is before they are submitted to the government."

-- Russell Mokhiber