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U.S. Labor Department probes county oversight of Carolinas HealthCare System

An investigator from the U.S. Department of Labor interviewed current and former county commissioners this week about whether the county exercises any oversight of Carolinas HealthCare System.

The question is a key component of a 2-year-old federal investigation into whether the multibillion-dollar hospital system must comply with a federal benefits law that regulates private companies.

Carolinas HealthCare contends it is a government entity not covered by the law.

The result of the Labor Department’s probe could have broad implications, a source said, possibly affecting the hospital system’s federal tax-exempt status.

In an email to county officials this week, Mecklenburg Commissioner Bill James outlined the issues raised by an investigator with the Labor Department’s Employee Benefits Security Administration, including:

• How much supervision, if any, the county has over the hospital authority.

• How authority board members are chosen.

• Whether the authority provides management and audit reports to the county.

• What property tax exemptions and other subsidies Carolinas HealthCare receives as a government entity.

• Why the hospital system has a political action committee.

• Why it pays top executives so much more than government salaries.

Both James and Jennifer Roberts, former Mecklenburg board chair, said the investigator never divulged the purpose behind her questions.

“She asked … about the county’s roles and responsibilities, the hospital’s roles and responsibilities, and how do those intersect,” said Roberts, who declined to be more specific for fear of jeopardizing the investigation.

Sources said the investigator also talked with attorney Dan Bishop, a former commissioner, who represented the county after the board voted to stop paying CHS to care for psychiatric and low-income patients. Bishop declined to comment.

Exempt from federal law?

The Observer reported in March 2011 that the Labor Department was investigating a possible conflict of interest between Carolinas HealthCare and a company it owns called MedCost, which provides benefits to an estimated 30,000 CHS employees.

The federal Employee Retirement Income Security Act prohibits employers from using companies they own to provide health benefits – unless the employers show they are putting the interests of employees first. The law does not apply to government employers and, because of that exemption, CHS has said the law does not apply to the hospital system.

Carolinas HealthCare System is a public, tax-exempt hospital authority created by a 1943 state law.

Some Mecklenburg officials have complained that the hospital chain doesn’t operate like a government entity and should be more accountable. By law, the chairman of the board of county commissioners must approve all board members, but can appoint only people nominated by the board itself.

CHS co-owns MedCost with Wake Forest Baptist Health in Winston-Salem.

Employees at the Baptist hospital filed a lawsuit in 2009, alleging that the hospital did not look out for their best interests when it chose MedCost to provide medical benefits. MedCost is supposed to negotiate with hospitals and doctors offices for discounts on treatment, but the lawsuit alleged that the hospital chose MedCost so it could charge higher prices.

Wake Forest Baptist settled the suit, admitting no wrongdoing, but agreeing to lower medical costs for employees. Unlike Carolinas HealthCare System, Wake Forest Baptist is a private hospital.

CHS has said its MedCost health plan offers good benefits at a competitive price.

Contesting the case

The Labor Department investigates thousands of alleged violations of ERISA every year.

If an employer refuses to comply voluntarily, the agency sometimes files a lawsuit.

The Observer obtained a government letter responding to a citizen’s request for information about the current investigation. In the letter, a federal solicitor suggests that investigators believe Carolinas HealthCare is not a governmental entity. The September 2012 letter indicates that the hospital system is contesting the finding.

A Labor Department representative declined to comment.

Kevin McCarthy, a hospital spokesman, said Carolinas HealthCare System also would have no comment.

Fred Kelly-Clasen contributed.

Leland: 704-358-5074
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