A discussion with a couple of people who went to the same high school I did brought up a few dark topics from that era. One of them mentioned a place called “Charter.” I asked him if he meant Charter Hospital and/or Charter Behavioral Health.
He said yes. He didn’t know much else about it. It turns out the company still exists, though not under the same name and not under the same line of business. The Charter name and business model disappeared in 2000, even though the company who owned it still survives today.
My introduction to Charter Hospital
When I was a teenager in the 1990s, from time to time one of my friends would disappear. Usually they were phone phreakers or software pirates. When they resurfaced, they’d say, “I was at Charter.” It seemed like everyone assumed everyone else knew what that meant.
About all I knew was that Charter was a dark and mysterious thing that nobody wanted to talk about. And sometime around the end of the decade, you never heard anything about it anymore. It just faded off into that part of our lives, and that was it.
When I found out what it was, I understood. Charter was a mental health facility. One of the most effective things a bully ever did to me in junior high was to spread a rumor that I had been seeing a psychiatrist since first or second grade. No matter what anyone says, there was a stigma about mental health in the 1980s and 1990s. Maybe there’s less of one today, but there’s still one today.
Why did so many kids I knew end up at Charter in the 1990s? Mental hospitals were a booming business in the 1980s and 1990s. A lot of kids ended up there, period, so it makes sense, I guess, that a lot of kids I knew would as well. But Charter was under tremendous pressure to deliver financial results. School administrators sending kids they didn’t know what to do with to Charter for a few days may have been a tempting possibility. It was an abuse of the health insurance system, but it allowed school administrators to outsource a problem, and it helped Charter meet its numbers.
Charter Medical Corporation / Charter Behavioral Health
Charter was founded in 1969 as Charter Medical Corporation, a for-profit chain of psychiatric hospitals. It boomed in the 1980s, along with the rest of the industry. Between 1984 and 1988, the number of psychiatric hospitals in the United States doubled. Charter seems to have peaked sometime around 1989, when some of its help wanted ads boasted of more than 100 hospitals and $1.5 billion in revenue, up from 81 facilities in similar ads published in 1986. I don’t have figures for 1989, but in 1998, a slightly slimmed-down Charter operated 91 hospitals in 32 states and admitted 120,000 patients a year, about 35,000 of them adolescents.
In 1988, Charter went through a $1.6 billion leveraged buyout, another hallmark of the 1980s, that took it private. The timing proved less than ideal, as the growth that happened prior to 1988 didn’t continue and Charter had a hard time servicing its debt. Put another way, Charter bought itself, and at the worst possible time.
Medicare started cracking down on fraudulent billing in the early 1990s, and by 1991, Charter was defaulting on payments. In 1992 it filed for bankruptcy. It was able to emerge successfully, and it remained the country’s largest chain of psychiatric hospitals.
Charter Medical Corporation changed its name in 1995 to Magellan Health and spun off the Charter Hospital chain, turning it into a joint venture with an REIT named Crescent Operating Inc. By 1999, Magellan had divested itself of all but a 10 percent stake in Charter, which was then called Charter Behavioral Health. In 1997, Crescent invested $400 million in Charter, but the conditions saddled Charter with an additional $125 million in debt and increasing rents. The company couldn’t afford the increased financial burden.
The 60 Minutes series
In March 1999, the CBS News program 60 Minutes ran an investigation on Charter. The story and its resulting followups provided an unflattering portrayal to say the least. Among other things, they found treatment that cost upwards of $1,000 per day being run by entry-level technicians making $8.35 an hour with no onboarding or training. 60 Minutes also found instances of Charter of hospitalizing patients with insurance for days at a time, during which they might spend less than an hour with a psychiatrist.
Charter disputed 60 Minutes’ reporting, but investigated and started closing hospitals based on its findings, including the facility that was the focus of the report. Federal investigations of its practices soon followed.
And 60 Minutes wasn’t the only source of trouble for Charter. Tristan Sovern died in 1998 when being restrained at Charter Hospital in Greensboro, NC. His mother created a not-for-profit group, Tristan’s Quest, researching safe treatment of mentally ill children and adolescents. Tristan’s Quest still exists today.
The end of the line for Charter Hospital
Charter Behavioral Health’s decline was rapid. It filed for Chapter 11 bankruptcy in February 2000 and closed 33 hospitals. By late May, it had sold or closed all of its remaining hospitals, ending a 31-year run.
Additionally, it settled numerous multi-million dollar lawsuits for filing false claims for psychiatric treatment. Many of its former facilities still exist under other ownership. But Charter’s empire of 100 hospitals is only a memory today.
”Charter was never a great company,” the New York Times quoted Cindy Musikantow, a former employee, in a February 2000 article. ”But it disintegrated to the degree that decisions were being made without regard for patients.”
”It was like the Kremlin,” said Dr. Hashim Hafez, a former Charter medical director, in the same article. “Everyone knew it was falling apart. But when it fell apart, it fell apart so quickly because there was no foundation.”
Magellan Health, the company who spun off Charter in the 1990s, survives today as a managed health provider. It no longer operates hospitals.