Illinois Public Aid officials are paying a Massachusetts company $2,000 for each Medicaid family signed up to an Internet service designed to monitor the condition of sick children and to educate parents, even though three-quarters of the families don’t own a computer.
The no-bid deal makes Illinois the first state to dip into overburdened Medicaid funds to pay for the fledgling Baby CareLink program, which was touted here by a key Republican Party official and lobbyist.
Illinois Public Aid officials have earmarked $400,000 for Baby CareLink at Cook County Hospital and Mt. Sinai Medical Center, Chicago hospitals that record the state’s highest number of Medicaid births. If the pilot program is expanded statewide, Clinician Support Technology of Framingham, Mass., a for-profit company, could earn as much as $12 million a year.
Baby CareLink is aimed at parents of premature infants who need weeks of hospitalization in intensive care. Parents can access information about their child’s condition and read dozens of educational articles on how to provide better care at home. They also can view photos of their child.
“We hook these parents when their baby is on death’s door–the moment of truth, maternal instinct,” said Dennis Farrell, executive vice president of the company. “And we get them using Baby CareLink, and it answers their informational and emotional questions.”
He acknowledged that most parents don’t have home access to the Internet but said parents without computers can use those at the hospital installed by his company or computers owned by friends or relatives.
With the state slashing basic Medicaid services for doctors and nursing homes, not every state official is embracing the CareLink program.
“If the goal is to provide lower-income parents with greater access to their infant children in hospitals, then it would be far less expensive to pay for cab fare every day than to throw this money into a relative luxury, such as viewing your children over the Internet,” said state Rep. Jeff Schoenberg (D-Evanston), chairman of a House appropriations committee.
Farrell argues that the program “will save the state more money than they are spending.” He and other company executives frequently point to a clinical trial of the online program conducted at Beth Israel Deaconess Medical Center in Boston. The study, which only involved families who had computers, concluded that hospitals can more quickly discharge infants to parents who are trained to use simple medical devices and taught basic care techniques, such as controlling infections.
However, a chief author of the study, Dr. Charles Safran, also is chief executive officer of the company and the largest shareholder, according to company reports. Two other authors of the report also are tied to the company, yet state officials chose to do little, if any, independent research on their own.
Farrell defended the study, which he said was peer reviewed. He said financial ties were disclosed before publication in the trade journal Pediatrics in December 2000.
Hospitals in other states typically pay their own costs for CareLink. Most facilities nationwide receive the program at drastically reduced costs, as low as $7,500 a year. A few hospitals receive the program for free.
Company officials said Illinois was the first state where the program was more realistically priced after a period of promotional offers at other facilities outside the state.
An internal company business plan obtained by the Tribune indicates that direct costs for the firm are $500 for every $2,000 payment–representing a 300 percent profit margin. Direct costs are identified as commissions, royalties and other costs.
Farrell said the profit margin doesn’t represent the company’s payroll or research-and-development costs.
The company projects that there are 71,000 Medicaid births each year in Illinois and 450,000 Medicaid births nationally.
“My plan is to get every one of the 450,000 babies in the United States,” Farrell said. “That’s what I’m out for. My board of directors laughs at me every time I say it, but I bet I can do it.”
A key friendship
Baby CareLink’s entree into Illinois was aided by Farrell’s friendship with a key lobbyist and access to top Public Aid officials.
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In early 2000, the three-year-old company was on the verge of a financial crisis, said Farrell, who oversees marketing and sales for Clinician Support Technology.
Farrell had just wrapped up unproductive plans to market Baby CareLink to white-collar workers when he latched onto the idea to target his product to the poor. He called longtime friend, former business associate and Illinois political powerbroker Robert Kjellander.
“I had nowhere else to go,” Farrell said.
Farrell got to know Kjellander when Farrell was an IBM executive based in Springfield in the 1980s. Impressed by Kjellander’s access to state government, Farrell hired him as an IBM consultant.
After hearing about Clinician Support Technology’s situation, Farrell said, Kjellander agreed to call Jackie Garner, director of the state Department of Public Aid, and set up a sales meeting, which was held in March 2000.
Kjellander has been a longtime inside player in Republican Party politics. He is chairman of the Republican rules committee and the state’s national GOP representative. His firm, Springfield Consulting Group, has represented Gtech Corp., which has a state lottery contract, and big corporate clients, such as IBM.
He was former Gov. James R. Thompson’s patronage chief until 1981 and managed Thompson’s 1982 campaign.
Kjellander, who has become a registered lobbyist for Clinician Support Technology, confirmed that he asked Public Aid officials to give Farrell “the opportunity to make a presentation.”
At the meeting in Public Aid offices, there was some skepticism about whether length of stay could be shortened by an educational program, and there was concern about the cost, Farrell said.
But he said Garner was receptive. He said Garner told him that she had given birth to a premature baby about 15 years ago and was sympathetic to the fears and needs of new parents.
“I knew I had Garner,” Farrell said. “She understood this thing.”
A Public Aid spokeswoman confirmed Kjellander’s call and details of the meeting.
In November last year, Public Aid set aside an initial $400,000 under the justification that it was just a drop in the bucket to the state’s annual Medicaid expenditures of $7 billion. At least $200 million is spent each year on the care of premature babies, said Public Aid spokeswoman Ellen Feldhausen.
Public Aid officials acknowledge that they did not review scientific studies before approval, nor did they consult with other hospitals already using the program. There are no hard guidelines when considering new taxpayer-funded programs, state officials say.
Program finds support
Some pediatric doctors at Cook County and other Chicago hospitals privately question why the state is paying $2,000 per baby for computer access to information that most parents can so cheaply and easily obtain elsewhere–for instance, in books or hospital pamphlets.
They also point out that time spent on the computer in the hospital is time that could be spent with the baby.
But hospital officials and parents like Jacqueline Richard are enthusiastic about the program.
Richard’s daughter, Bryanna, was born Feb. 8, 3 1/2 months premature and weighing 1 pound, 11 ounces. She is expected to go home in May.
Richard visits Cook County Hospital daily from her West Side home to see her daughter, who now weighs 2 pounds, 3 ounces. Richard doesn’t own a computer, but she was drawn to the colorful, handmade signs posted throughout the 2nd-floor pediatric intensive-care unit offering a free computer service to put parents in touch with their babies.
Like 75 percent of the parents signed up for the program, Richard accesses the service from one of two computer workstations set up by Clinician Support Technology. She can see a photo of her baby, which is updated twice a week, and view files with titles such as: “Getting to Know Your Baby.” She can leave e-mail messages for nurses or doctors, use a medical dictionary to look up terms, and view a daily graph of her baby’s weight.
“I think the program has helped me a lot,” Richard said. “I like reading the files. I print them off and take them home with me.”
Toisha Jamison, patient coordinator for the program at Cook County, said the service provides a modern tool to entice parents to learn fundamental caregiver skills, such as how to hold a baby, or breastfeeding techniques.
County Hospital, which is responsible for signing up parents, has registered about 30 families since launching CareLink on Feb. 14. The hospital hopes to pull in dozens more, said Martha Gottlieb, coordinator of maternal and infant services.
Although most parents don’t own computers, most know someone who has access to the Internet, or they can easily travel to a library that provides free access, Gottlieb said.
At Mt. Sinai Hospital, Vice President Linda Miller enthusiastically endorses the program. Hospital officials believe Baby CareLink will reduce the lengths of hospital stays and could prevent unnecessary readmission, said Miller.
Hospitals, which generally receive a fixed fee from Medicaid for each baby in intensive care, can save money if babies are discharged more quickly. A day of care for a premature baby runs $2,000 or more, so if the program can help reduce admission by one day, the hospital will benefit, officials said.
Mt. Sinai, at California and Ogden Avenues, has registered about 69 Medicaid families since offering Baby CareLink in November.
Miller said patients and nurses praise the program. About three-quarters of the families do not own computers but access the program from the hospital.
Officials from both hospitals say they are the recipients of a no-lose proposal brokered by Public Aid.
Late last year, Gov. George Ryan sliced tens of millions of dollars in Medicaid funding for hospitals in reaction to a loss of state and federal revenues partly attributed to the Sept. 11 terrorist attacks. He has proposed cutting hundreds of millions of dollars in health care costs for the poor in his budget for the fiscal year that begins July 1.
Under the proposed budget, Mt. Sinai, for example, would lose $5 million a year in Medicaid funds, from $30 million.
But Public Aid officials told the hospital that they would reinstate $200,000 of the funds in the current year, but only to pay for Baby CareLink. Cook County received the same deal, according to state and hospital officials.
But recent Clinician Support Technology marketing strategy raises the question as to the cost of the Public Aid program.
Unlike Cook County and Mt. Sinai Hospitals, where $400,000 will be spent on a limited number of families, five other Chicago-area hospitals are using private insurance money to offer the program at $25,000 a year.
Beginning this spring, those hospitals will offer the program to an unlimited number of parents who are eligible, regardless of income.
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Shopping for investors
While company officials tout the public health benefits of their product to state officials, to potential investors they stress “extremely high returns” from Baby CareLink.
The company’s business plan hints at 300 percent profit margins and plans to issue public stock offerings.
“I just had an investor last week, a very wealthy doctor, who wants to put in $2 million, and he looked at [the business plan] and you could see the guy was salivating until I pointed out to him that it’s not just those direct costs,” said Farrell, who cited payroll and research expenses.
The business plan projects the company will have a net cash flow of about $1 million after all expenses, including salaries, office overhead and research costs. The company estimates cash flow will increase to $50 million by 2006.
Peter Fox, former state director of the Illinois Department of Commerce, said he invested $50,000 with CST and received a position on the board of directors. He said he recently left the board because he didn’t have enough time to attend meetings, though he remains an investor.
Farrell said he recruited Fox to the board because of Fox’s strong ties to Illinois government officials. In 1984, Fox founded Fox Development Corp., a real estate development firm, and he has numerous financial holdings statewide.
The company has about 60 investors nationally, including a Chicago attorney and about six Illinois associates, he said.
Illinois’ willingness to launch a pilot program with Medicaid funds is being used as a key selling point to persuade other states, such as Texas and California, to follow suit, he said.
Farrell said he has sold his Maryland home and lives out of his suitcase, hotel to hotel, as he works to place Baby CareLink inside hospitals.
“This is the most important thing I’ve ever done with my life,” he said.