Should Health Care be a "'Commodity, Subordinate to the Laws of the Market?" - a Powerful Rebuttal

In the US, it has become the accepted wisdom that health care is now an industry, not a calling or a profession, and the health care it produces is a commodity, not a human service. 

The Conventional Wisdom

For example, earlier in 2012 we quoted Dr Ralph de la Torre, the CEO of Steward Healthcare (formerly the Caritas Christi health system, a Catholic health care system whose take-over by Cerberus Capital Management, a private equity firm, was arranged in part by Dr de la Torre [see posts here]):

In deference to those who love the individual hospital, you have to look back at America and the trends in industries that have gone from being art to science, to being commodities. Health care is becoming a commodity. The car industry started off as an art, people hand-shaping the bodies, hand-building the engines. As it became a commodity and was all about making cars accessible to everybody, it became more about standardization. It's not different from the banking industry and other industries as they've matured. Health care is finally maturing as an industry, and part of that maturation process is consolidation. It's getting economies of scale and in many ways making it a commodity

More recently, Human Events, which describes itself as "the nation’s first conservative weekly," featured a description of a new book by one Edmund L Valentine, "CEO of the Stamford, Conn.-based MMC International, a health care consulting firm, which emphasizes its expertise in the pharmaceutical and device manufacturing fields.  In it, Mr Valentine stated that one should:

treat health insurance as a commodity, where companies only compete based on their reputation and price.

but presumably companies should not compete based on the effects of their products on the health of those who buy them.

Furthermore, he supported

the further industrialization of healthcare, ...


'Industrialization created our great economy,' he said. 'Allow the market and competition can fix the inefficiencies in the system.'

This ignored the arguments going back to the work of Kenneth Arrow that health care cannot be an ideal market (see this post), and all the data suggesting that in the last 20-30 years, when the market fundamentalists became so influential in US health care, costs have risen continuously and quickly without commensurate gains in access or quality.    These are just the latest of many examples of the business people who now run health care justifying approaching it as just another business.

A Strong Rebuttal of the Argument that Health Care is an Industry that Produces a Commodity  

For quite a while, Dr Arnold Relman has lead a relatively lonely quest to restore medicine as a profession and health care as a calling  (see posts here, here and here).  He noted that at one time, the notion that "the practice of medicine should not be commercialized, nor treated as a commodity in trade.'" was considered very mainstream.  (The quote came from the mid- twentieth century AMA code of ethics.)  We have done what little we can to support him.  However, the opposition to the new normal of health care as an industry that produces a commodity has paled compared to the conventional wisdom favored by rich executives and supported by billions of dollars of marketing, public relations, and lobbying budgets.    

However, this week strong support for health care as professions, as a calling, and hospitals as serving a mission just appeared in a big way in a major address to a health care meeting in Europe.  First, in the context  

during the current economic crisis "that is cutting resources for safeguarding health,"...   Hospitals and other facilities 'must rethink their particular role in order to avoid having health become a simple 'commodity,' subordinate to the laws of the market, and, therefore, a good reserved to a few, rather than a universal good to be guaranteed and defended,'  

  
Furthermore,

'Only when the wellbeing of the person, in its most fragile and defenseless condition and in search of meaning in the unfathomable mystery of pain, is very clearly at the center of medical and assisted care' can the hospital be seen as a place where healing isn't a job, but a mission,

  The speaker thus directly challenged the current notion that health care is a commodity, and those who work in health care have jobs, not callings or missions. 

While the speaker was in fact a retired distinguished professor from a European university, but before any market fundamentalists start thinking he could be pilloried as some radical European academic, note the following.

The conference was the XXVI International Conference of the Pontifical Council for Health Care Workers, and the speaker quoted above was Pope Benedict XVI. 

Thus there is some very distinguished, albeit not numerous support for the ideas that held sway before market fundamentalism took over much of health care, the ideas that medicine is a profession and a calling, and hospitals should be mission oriented organizations, and that health care professionals and institutions should put patients' health and welfare first, very far ahead of short-term revenue and the accumulation of wealth by health care organizational leaders. 

Hype, Spin and Health Care: the Case of an Apparently Failed Hospital Purchase by Steward Health Care

Health care is drowning in a sea of hype and spin.  We have frequently posted about deceptive marketing used to sell drugs, devices, and health care services.  We have also posted about deceptive public relations and lobbying used to sell policy positions and strategies favorable to health care organizations, and usually most favorable to their leaders.

Nevertheless, there rarely is much public skepticism about or criticism of such marketing and public relations messages when they appear.  Rather, often the media and other public voices, including those of politicians with power over the relevant public policy issues, seem to accept the messages at face value.

The Case of Steward Health Care and Landmark Medical Center

The Buy-Out Falls Apart

Therefore, it is instructive to look at examples of how such messages in retrospect appear to be fallacious, to use a polite term.  A local example that just popped into view was documented in two short news items by Felice Freyer in our own Providence Journal.  (Web access to a longer version story that appeared in the print version of the journal is here.)  The first item included,

The deal to sell Landmark Medical Center to Steward Health Care System may be falling apart. In a court filing this week, Jonathan N. Savage, the special master in charge of the hospital, made reference to the possibility that Steward would withdraw. The Boston hospital group faces a Sept. 30 deadline to complete the sale.

The Message Promoted by Steward Health Care 

We have blogged about the rapid expansion of Steward Health Care, despite the name, a for-profit company owned by private equity/ leveraged buyout firm Cerberus Capital Management. Steward has hyped its supposedly world class "new health care" model in its advertising (look here). In promoting its bid for Landmark, Steward's well-paid CEO (look here), displayed his vision for promoting the medical center through "economies of scale," "right-siting," and emphasizing ties with the community: "it's not a community hospital system. It's really a health care system," as reported by Felice Freyer in April, 2012 (Freyer F. Landmark Medical Center. A Leap into the unknown. Providence Journal, April 22, 2012.)

 In a dispute over payment rates with Rhode Island Blue Cross Blue Shield, Steward ran full-page newspaper advertisements claiming that insurance companies leaders issued an order to "terminate Landmark Medical Center," because they did not care if "residents would lose their only hospital, ... employees ... would lose their jobs, or the elderly ... would have to travel for care." (Look here.) That implied, of course, that Steward, which did not mention that it is a for-profit corporation owned by a private equity firm in the ads, cared deeply about the health care of residents of Woonsocket.

Some Skepticism, but More Acceptance

The article by Felice Freyer above did feature journalistic skepticism and include interviews with some local physicians who questioned whether Steward could possibly fulfill all its promises to simultaneously increase the quality of care and reduce costs.

However, the article showed that there was lots of positivity about Steward's track record in neighboring Massachusetts. Predictably, the President of Steward owned Quincy Medical Center boasted, "Not one person has been laid off. We have not reduced any service lines. Our focus is on enhancing." However, some people who were apparently independent of Steward also had favorable views.  A Massachusetts consumer advocate said "as far as we know, it's going fine." A Brandeis University Professor said, "it's impressive how successful they've been."

The Politicians' Buy In

Elsewhere, there were plenty of statements of support for Steward by local politicians.  The Mayor of Woonsocket supported Landmark (and implicitly Steward) it its dispute with RI BCBS, as reported by the Providence Journal, saying that the proposed buyout by Steward "is far too critical for our city, and I must take every step possible to ensure that the interests of the city and those who rely upon Landmark (Medical Center) for healthcare are being protected [by taking Steward's side in the dispute.]" Also, as reported by the Woonsocket Call, RI Congressman David Cicilline said, "I look forward to working with Landmark's new administration [that is, Steward] to ensure that it continues to deliver affordable, quality health care and well-paying jobs for hardworking Rhode Islanders." To fulfill Steward's wishes, The Rhode Island state legislature rushed to make its laws about for-profit conversion of non-profit hospitals more lenient (see the Providence Business News).

The Attorney General Later Says it was All About the "Bottom Line"

However, now Steward has apparently pulled out of the deal with nary a public mention of the reason why, much less demonstration of its concern for the poor people of Woonsocket. As reported in a second small item in the Providence Journal,

Steward Health Care System, which is apparently backing out of its deal to buy Landmark Medical Center, 'has left the hospital, its patients and its employees in a worse position,'

Attorney General Peter F. Kilmartin said in a statement today. 'It has become very clear that Steward's only interest was the bottom line, not, as the Company claimed, the patients, the employees or the Woonsocket community,' Kilmartin said.

Summary

This is just one local kerfuffle about a small hospital system. However, looking at it in granular detail says a lot about how big health care organizations, like the one that here attempted to buy the local hospital system, push misleading messages to secure their private interests. These misleading messages often promote these organizations' commitments to the traditional health care mission, often in the modern argot of quality, access, and affordability), when their leaders may really care more about short term revenue. This case also shows how at least some local policy makers may be drawn in by such messages, and how the few skeptics get lost in the shuffle.

An important feature of the modern, commercialized, laissez faire health care system in the US is the role of opinion manipulation through modern, sophisticated marketing and public relations in promoting the short-term financial interests of health care organizations and their leaders at the expense of patient's and the public's health. This role seems rarely to be discussed, particularly in health care research and policy circles. It may be that some members of the public, health care professionals, and health policy makers are naturally skeptical of marketing and public relations hype, spin, and deception. However, we have seen too many examples of health care leaders promoted as "visionaries" who are anything but.

Health care professionals, patients, policy makers, and the public at large ought to be extremely skeptical of the self-serving messages packaged by marketing and public relations. Academics ought to be dissecting these messages more often. Skeptics need to make their voices heard.

Meanwhile, look out for the next "visionary," or the next "new health care" promotion. They may not turn out to be what is advertised.

Private Equity, Obfuscatory Advertising, and Making Health Care a Commodity: Lessons from Cerberus Capital Management

The use of advertising by Steward Health Care, currently a regional hospital system here in New England, continues to provide lessons about how public relations and marketing may be used to shape the health care policy debate.  Stand by because the story is convoluted.

Steward Promotes "New Health Care," Whatever That May Be

This week, Commonwealth reported on Steward's latest high profile advertising campaign in the Boston area,

Steward Health Care is using the Olympics to hone its image. The Boston-based chain of 10 community hospitals, many of which were on the verge of going under when Steward acquired them, is running a series of ads on WHDH-TV (Channel 7) during Olympics coverage that cast the company as a delivery system for a new type of world-class health care.

While visible, the advertisements are notably vague. One features

a Steward employee who says she believes 'world class health care is here.' Another of the initial ads features individual doctors and technicians pledging to be stewards of 'the new health care,' which is the tagline for all of the Steward ads.

What the 'new health care' means is never fully explained in the ads

One local health care expert

Paul Levy, the former CEO of Beth Israel Deaconness Medical Center, said he thinks the ads are part of a campaign by [Steward Health Care owner] Cerberus [Capital Management] to make Steward more attractive to would-be buyers. 'This has very little to do with anything other than establishing the image and the brand of the Steward hospitals so when the day comes when Cerberus sells the company it will be better received in the public markets,' Levy said.

The article had noted that

Cerberus Capital Management, a New York private equity firm, owns Steward,...

So it is possible that no one at Steward really has any idea what sort of "new health care" the organization is promoting

Steward's CEO Promotes Health Care as a Commodity

However, there is reason to think that the top leadership of Steward, and probably of Cerberus Capital Management, the private equity group that owns it, actually does have a clear idea what new health care they are promoting.

Almost simultaneous with the Commonwealth article and the Olympic advertising campaign an interview appeared with Steward's CEO in Fortune. CEO Dr Ralph de la Torre first pitched medicine as science,

A lot of us physicians went into medicine because we loved the art aspect of it. There wasn't a lot of real hard-core science when many of today's doctors went into medicine. It was your intuition, your abilities, the gestalt of what was going on. But something happened in medicine along the way. It started becoming a real science, and a lot of studies have come out that guide what we do and how we do it. We as a society need to understand that science has to guide our practice of medicine. Not everyone with a headache needs a CAT scan; not everybody with a sprained ankle needs an MRI.

This sounds like it could be an affirmation of evidence-based medicine, the approach that attempts to base medicine on systematic search for and critical review of the best clinical research, among other things. However, De la Torre takes it a big step further, citing:

In deference to those who love the individual hospital, you have to look back at America and the trends in industries that have gone from being art to science, to being commodities. Health care is becoming a commodity. The car industry started off as an art, people hand-shaping the bodies, hand-building the engines. As it became a commodity and was all about making cars accessible to everybody, it became more about standardization. It's not different from the banking industry and other industries as they've matured. Health care is finally maturing as an industry, and part of that maturation process is consolidation. It's getting economies of scale and in many ways making it a commodity.

Apparently Dr De la Torre does not see a distinction any longer between health care, or to use an old-fashioned word, medicine, traditionally considered an art or practice of caring for individual patients, and making automobiles on an assembly line. Dr De la Torre may be deeply misinterpreting evidence-based medicine, which is about evidence from clinical research, but also much more. Consider how the Cochrane Collaboration discusses it:

Evidence-based health care

Evidence-based health care is the conscientious use of current best evidence in making decisions about the care of individual patients or the delivery of health services. Current best evidence is up-to-date information from relevant, valid research about the effects of different forms of health care, the potential for harm from exposure to particular agents, the accuracy of diagnostic tests, and the predictive power of prognostic factors [1].

Evidence-based clinical practice is an approach to decision-making in which the clinician uses the best evidence available, in consultation with the patient, to decide upon the option which suits that patient best [2].

Evidence-based medicine is the conscientious, explicit and judicious use of current best evidence in making decisions about the care of individual patients. The practice of evidence-based medicine means integrating individual clinical expertise with the best available external clinical evidence from systematic research [3].

[1] Cochrane AL. Effectiveness and Efficiency : Random Reflections on Health Services. London: Nuffield Provincial Hospitals Trust, 1972. Reprinted in 1989 in association with the BMJ. Reprinted in 1999 for Nuffield Trust by the Royal Society of Medicine Press, London, ISBN 1-85315-394-X.[2] Gray JAM. 1997. Evidence-based healthcare: how to make health policy and management decisions. London: Churchill Livingstone.
[3] Sackett DL, Rosenberg WMC, Gray JAM, Haynes RB, Richardson WS. 1996. Evidence based medicine: what it is and what it isn't. BMJ 312: 71–2 [3] [Full text]

Note the emphasis on making decisions for individuals based on what is best for each, and the integration of evidence from clinical research with clinical expertise. This is far from commoditization.

Nonetheless, Dr De la Torre seems to envision "new health care" like a 1930s automobile assembly line, with the physicians and other health professionals cast as assembly line workers, and the patients cast as automobiles.

Our next example may provide some explanations for this point of view.

Steward's Advertising Raises Questions of Whose Hands Should be on Health Care

As we discussed earlier, Steward Health Care has been working on acquiring a struggling local Rhode Island hospital system, and in doing so is in a dispute with the statewide non-profit Blue Cross health insurance company. Steward had been putting daily full-page advertisements in the local paper. A recent version (27 July, 2012), had this text:

RHODE ISLAND TO BLUE CROSS:
GET YOUR HANDS OFF OUR HOSPITALS

With 80% of the market under its control, Blue Cross & Blue Shield of Rhode Island thinks it can decide which hospitals survive or fail. The people of Rhode Island beg to differ.

For the past decade, they've watched Blue Cross starve Landmark Medical Center of its funding. And this year, when Blue Cross issued an ultimatum to terminate the hospital, Rhode Islanders heard enough.

In a poll conducted this week by John Marttila, a nationally recognized leader on public attitudes concerning health care, 76% of respondents said that Blue Cross shouldn't be allowed to use their monopoly to dictate the fate of Rhode Island hospitals. They also felt, by a 2-1 margin, that if Landmark did indeed close, Blue Cross would be to blame.

However, soon after, investigative reporting by the Providence Journal's Ms Felice Freyer revealed that maybe the poll should have been interpreted differently. Not unexpectedly, Ms Freyer revealed the poll to have been "commissioned by Steward." Its basic results were really:

Just over half the respondents knew that Landmark was being sold to Steward, and of those, 58 percent did not have an opinion, 29 percent supported the sale, and 13 percent opposed it. However, among those who knew about the sale and also live in northern Rhode Island, the approval rating was higher –– 37 percent support the sale, with 15 percent disapproving and 48 percent having no opinion.

The pollster than provided prompting, perhaps in an attempt to get results more favorable to its client:

One of the questions starts with this statement: 'Blue Cross Blue Shield provides health insurance to 80 percent of Rhode Island. By refusing to negotiate on reimbursement rates, Blue Cross can essentially determine if hospitals in the state stay open or if hospitals close.' Based on that statement, 76 percent of respondents agreed that 'Blue Cross should not be allowed to use its monopoly to dictate which hospitals stay open and which close their doors.'

Unfortunately, it appears that the prompting statement was perhaps not fully accurate:

In 2011, Blue Cross covered 66 percent of Rhode Islanders with private health insurance, not 80 percent, according to a report by the Office of the Health Insurance Commissioner.

Blue Cross denies that it has refused to negotiate.

'We have negotiated in good faith and have offered a fair contract to Landmark Hospital that is consistent with our reimbursement arrangements for other independent hospitals,' Blue Cross said in a statement. 'Unfortunately, Steward has been unwilling to enter into a contract under those conditions.'

While they touted probably methodologically biased survey results, Steward's local advertising campaign's headline might prompt some people to think about whose hands should really be on their health care. The advertising tries to limit this question to Blue Cross' influence. However, one might also ask whose hands control Steward Health Care?

Whose Hands are on Steward Health Care?

As the Commonwealth article above pointed out, Steward Health Care is a wholly owned subsidiary of Cerberus Capital Management, a New York based private equity firm.

Cerberus' top leadership includes
- CEO Steven A Feinberg, who, as we noted previously, was listed as number 21 on a list of the 25 most powerful businessmen in 2007 by Fortune, at that time running through Cerberus 50 companies with total revenues of $120 billion.  On Wikipedia, his net worth was estimated as $2 billion in 2008.
- Chairman John W Snow, who, as we noted previously, resigned as Treasury Secretary in the administration of President George W Bush "in 2006 only because it was revealed that he had not paid any taxes on $24 million in income from CSX, which had forgiven Snow's repayment of a gigantic loan that the company had made to him," according to Chareles Ferguson in Predator Nation.
- Chairman, Cereberus Global Investments J Danforth Quayle, the controversial former US Vice President during the George H W Bush administration.

Furthermore, Cerberus Capital Management, which wholly owns Steward Health Care, owns several other businesses.  As we noted here, these include, DynCorp (see their web-site), which has been called one of the "leading mercenary firms," by an article in the Nation.  As reported by Bloomberg, DynCorp, and hence indirectly about Cerberus, and Steward Health Care, in 2011 settled accusations that it overbilled the US government for construction work in Iraq.   Furthermore, as we noted here, Cerberus also owns the biggest manufacturer of firearms and ammunition in the US. As reported by BusinessWeek in 2010, Cerberus owns 13 brands of fire-arms and munitions under the umbrella Freedom Group.

So while Cerberus Capital Management would like us to believe that Rhode Island residents question the hands of Blue Cross Blue Shield of Rhode Island on a struggling local hospital system, it seems to be trying to avoid questions about whose hands would be on the hospital system were Cerberus Capital Management's subsidiary Steward Health Care to acquire it. 

Summary

So, to recapitulate this winding story....   A regional hospital system has been pushing its "new health care" idea.  However, its former surgeon CEO promotes new health care as commoditized health care, assembly line health care, in which doctors become assembly line workers and patients become widgets.  This seems bizarre until one realizes that the CEO actually works for a huge private equity firm whose goal is to make a lot of money in the short-term.  Standardized, commoditized health care is likely to be cheaper to provide than individualized health care.  Private equity firms thrive by cutting their subsidiaries' costs, and then selling them quickly, sometimes before the long-term consequences of these cuts become apparent.  (Look here.)

So there are two lessons.

To repeat the lesson from our earlier post, everybody, doctors, other health care professionals, health policy makers, patients, and the public ought to be extremely skeptical of the marketing and public relations efforts of big health care organizations.  Based on the examples above, they ought to be particularly skeptical of organizations that are overtly for profit, and/or have a clear focus on short-term revenue generation.  As a society we need to think about how to best counter these biased, incomplete, sometimes grossly deceptive efforts to manipulate public psychology and opinions through our rights to free speech and a free press.

To add a lesson, everybody, doctors, other health professionals, health policy makers, patients and the public ought to be extremely wary of the ongoing corporatization of medicine and health care.  Corporate leaders who often get large incentives for maximizing short term revenue are likely to be enthused about turning our health care into a commodity.  Doctors and health care professionals should not want to be assembly line workers, and patients surely should not want to be widgets. 

Steward Health Care vs Rhode Island Blue Cross Blue Shield: How Public Relations Twists the Narrative

Negotiations between a local RI hospital system and the largest RI health insurer have now become very public. An advertising campaign by the larger hospital system that is set to absorb our local one provides lessons on how important health care policy issues are publicly discussed.

Simplified Background

Landmark Medical Center is a small health care system in northern Rhode Island.  It has been in financial difficulty, and hence management negotiated a buyout  [see comment of 19 July, 2012 below] while in receivership a buyout was negotiated.  It is now in the process of being acquired by Steward Health Care, a regional hospital system based in Massachusetts (summarized here and here).  Meanwhile, Landmark has been in negotiations with Rhode Island Blue Cross Blue Shield, the largest RI health insurance company.  The negotiations have not been going well, so RI BCBS notified its policy-holders that it is possible Landmark will not be in its network in the future.  This difficult negotiation prompted Steward Health Care to make the discussion more public.

The Steward Health Care Advertisements

Steward Health Care has run a series of full-page advertisements in the Providence Journal.  One advertisement that has run at least three times, by my count, includes the following text:

WHAT KIND OF CHARITABLE ORGANIZATION SPENDS $120 MILLION ON ITS HEADQUARTERS
BUT DENIES SERVICES TO ITS POOREST COMMUNITIES?

Blue Cross & Blue Shield of Rhode Island is designated as a "charitable organization." But they certainly don't spend like one. They invested a small fortune on their opulent corporate offices in Providence. They dish out million each year in executive salaries. And for all that exorbitant spending, they pay absolutely nothing in Rhode Island state taxes.

Then, in May of this year, they refused to give Landmark Medical Center in Woonsocket a long-term contract without Steward Health Care participating. Steward, trying to be helpful, proposed base rates that were 5% below the state median, quality metrics used by the federal government, and a commitment to payment reform. But suddenly, the coffers had run dry. Blue Cross refused to even discuss the proposal.

Instead, they issued their response: Terminate Landmark Medical Center.

Never mind the residents who would lose their only hospital, the employees who would lose their jobs, or the elderly who would have to travel for care. Blue Cross was only interested in protecting the one group they serve most effectively, themselves.

This pretty plainly was a David vs Goliath narrative, with poor, small Landmark Medical Center and Steward Health Care, whose only goals were to serve local residents, as David, and huge, wealthy Blue Cross Blue Shield of RI, whose only goal is allegedly to serve its executives' interest, as Goliath.

Given that we have frequently discussed how self-interested, over-compensated executives may fail to uphold, or may even undermine their health care organizations' missions, this seemed like a narrative primed for further discussion on Health Care Renewal. In addition, Blue Cross Blue Shield of Rhode Island was beset by a scandal before we began Health Care Renewal (look here), involving allegations of excess compensation given to and conflicts of interest affecting its CEO.

Blue Cross Blue Shield of RI: Executive Compensation, Budget and Taxes

In fact, the most recent figures made public by RI BCBS on executive compensation showed that CEO Peter Andruszkiewicz was offered total compensation of $600,000 a year when he started in 2011 (look here.)  Also, as suggested by the advertisement above, there has been considerable local controversy about the size, scale, and price of the new RI BCBS headquarters (e.g., here).   Apparently, however, Blue Cross Blue Shield of Rhode Island does pay state taxes (per this report).

On the other hand, keep in mind that RI BCBS is one of the few health insurance companies to provide community (age-adjusted only) rated individual health insurance even for people with pre-existing conditions, (look here) at the behest of state law, to be sure. So perhaps RI BCBS is not quite the ogre oppressing the poor that the advertisement implies it to be.

But wait, there is more. This all started as a contract negotiation between a health insurer and a local hospital system which is about to be acquired by a regional hospital system. If Steward Health Care saw fit to bring up the executive compensation practices, budget, and taxes of Blue Cross Blue Shield of Rhode Island as relevant to the dispute, might Steward Health Care's executive compensation practices, budget, and taxes also be relevant?

Steward Health Care and Cerberus Capital Management: Executive Compensation, Budget, and Taxes

The problem is that we know very little about Steward Health Care's executive compensation practices, budget, and taxes. While the advertisement above (and Steward's own web address, steward.org) imply that Steward is only about providing health care to the poor and needy, and perhaps that Steward, like Rhode Island BCBS, is non-profit, neither is quite true.

In fact, Steward Health Care is the new name for what was once Caritas Christi Health Care, formerly a Catholic non-profit health system that was acquired in 2010 by Cerberus Capital Management, a private equity firm (look here).

Private equity firms are notably secretive. Neither Cerberus, nor its new health care acquisition, has seen fit to publish any details about executive compensation practices, budgets, or taxes.

We do have a few clues, however.

Executive Compensation
Caritas Christi at the time it was acquired by Cerberus was lead by CEO Ralph de la Torre.  His compensation in 2009 prior to the acquisition was $2.2 million a year.  He is still leading Steward Health Care. It is reasonable to expect that his compensation is not less than it was before, and probably more (look here).  It is reasonable to guess that Dr de la Torre's total compensation is currently several times larger than that of the BCBS of RI CEO. 

The leadership of Cerberus Capital Management includes, according to its web-site, John W Snow, chairman and senior managing director.  Mr Snow, former Secretary of the US Treasury, was listed in 2009 on the Virginia 100 web-site as having a net worth of approximately $90 million, although not with much confidence in the precision of the figure.  He is also a director of the Marathon Petroleum Corporation, from which he received $300,000 in compensation in 2011, according to the company's proxy statement, and of Amerigroup, from which he received at least $170,000 in equities, and additional amounts in fees and deferred compensation in 2011, per that company's proxy statement.  Stephen A Feinberg, founder, CEO, and senior managing director, described as a "recluse" in the New York Times, was listed as number 21 on a list of the 25 most powerful businessmen in 2007 by Fortune, at that time running through Cerberus 50 companies with total revenues of $120 billion.  On Wikipedia, his net worth was estimated as $2 billion in 2008.  These figures suggest that leaders of Cerberus Capital Management can make very large amounts of money, orders of magnitude larger than the compensation of the BCBS of RI CEO.

Budget
There is little public information on the budget of Cerberus Capital Management, but note again the estimate above that in 2007, it controlled 50 companies with $120 billion in revenues.  There is also little public information about the budget of its subsidiary, Steward Health Care.  Estimates from a recent article in Commonwealth suggested that Cerberus invested $251.5 million in Steward, but that Steward's 2011 budget had a net loss of $57 million.  According to the Woonsocket Call, an apparently short-term balance sheet from March 31, 2012 showed that Steward Health Care had assets of $1.1279 billion, liabilities of $1.0259 billion, and stockholder equity of $102 million.

Taxes
There seems to be no significant public information on taxes paid by Steward Health Care or Cerberus Capital Management.  According to Chareles Ferguson in Predator Nation, Cerberus chairman John W Snow resigned as Treasury Secretary "in 2006 only because it was revealed that he had not paid any taxes on $24 million in income from CSX, which had forgiven Snow's repayment of a gigantic loan that the company had made to him."

So while RI BCBS can be faulted for paying relatively high executive compensation, using its funds to build a rather lavish headquarters building, but not for failing to pay RI taxes, at least all these have been issues for public discussion. Furthermore, Cerberus Capital Management, and Steward Health Care which is its creature, while explicitly bringing these issues into the public debate about the Landmark negotiation with Blue Cross Blue Shield of RI, have not seen fit to reveal their own executive compensation, budget, or taxes. There is reason to think that their executive compensation and management budgets could be far more bloated that those of RI BCBS. We have no idea whether they have paid what might be considered their fair share of taxes, but note that their current chairman has had issues in the past with his personal tax payments.

Summary

The vigorous advertising/ public relations campaign by Landmark Medical Center, Steward Health Care, and ultimately Cerberus Capital Management to get a more successful outcome of the negotiation between Landmark and RI BCBS seems to be an example of the tactics used in support of the public relations by large, for-profit health care organizations. In the absence of any transparency about the executive compensation, budget, and tax payments by Cerberus Capital Management and its subsidiary, Steward Health Care, lavish public advertising faulting the executive compensation, budget, and tax payments of its counter-party suggests a rather crude attempt to twist the narrative so as to divert public attention from relevant issues.

If this was not the intention, perhaps Cerberus and Steward will make their executive compensation, budgets, and tax returns fully transparent?  We wait with bated breath.

In the absence of such transparency, skepticism about their public discourse remains warranted.

There is more and more public discussion of health policy from the local to the global levels. Much of this discussion, like much political discussion in general, seems dominated by expensive public relations efforts on behalf of the richer health care organizations. Physicians, other health care professionals, health policy researchers and leaders, and the public at large should be alert to the possibility that these communications will use psychological manipulation to divert its narratives in directions favored by these large health care organizations. Anyone listening or viewing communications coming out of such public relations efforts ought to consciously think about the relevant facts and issues they ignore, and why they may have been consciously omitted.

How the Anechoic Effect Is Institutionalized - A Hospital Policy Against Unsupervised Discussion with the Media

In a single sentence, a short, obscure article in the Worcester (MA) Business Journal on life at a community hospital after a for-profit corporate take-over:

Several Nashoba employees, who didn't want their names used because it's against hospital policy to talk to the media without authorization, said they're happy with the new insurance plan.

We have often discussed the anechoic effect, how cases involving or discussions of the topics we address on Health Care Renewal, the concentration and abuse of power in health care, fail to produce any responses, or echoes.  It was almost an aside, but the sentence above provides evidence of the existence of apparently blanket hospital policies against unsupervised discussion with the media. Here is an example of the institutionalization of the anechoic effect.

This example raises three immediate questions. How prevalent is this? How long has it been going on? What is it meant to hide?

Prevalence

This article is only about a single hospital. However, the context of the article is the take-over of Nashoba Hospital by Steward Health Care. Steward Health Care is a for-profit health care corporation that grew out of the take-over of the formerly not-for-profit Caritas Christi health system by the private equity firm Cerberus Capital Management. Steward Health Care now comprises  eight hospitals, and also owns physician practices (apparently including over 2000 doctors based on a quick search using its "doctor finder" function.) Thus it is likely that the policy at Nashoba Hospital that prevents unsupervised discussion with the media also applies at seven other hospitals, and perhaps to the practices of over 2000 doctors. Thus it is very likely that this hospital gag policy is not unique, and may be widespread. However, recursively, the existence of such gag policies will make it hard to determine their own prevalence.

Note that we have posted a few times about confidentiality clauses mainly within physicians' contracts here.

Duration

This policy is likely relatively new, since the take-over of Caritas Christi by Cerberus occurred in 2010. My guess is that the rise of such policies may parallel the resurgence of for-profit hospitals and hospital systems, and perhaps the new involvement of private equity firms in such organizations.

In my humble experience, gag policies and confidentiality clauses at least within non-profit teaching hospitals were virtually unheard of from the time I began medical school (1974) to when I left my last full-time academic medical position (2005).

Note that we recently found out (because of investigative journalism about presidential candidate Mitt Romney's previous involvement with private equity firm Bain Capital) that such firms are generally rebranded leveraged buy-out firms. They have become known for their secretiveness. Therefore, maybe it should not be surprising that they have imposed such secretiveness on hospitals and health care professionals.

Rationale 

The big question is why should hospital employees not be allowed to talk to the media without management supervision? I can only speculate.

In this case, perhaps such secretiveness is just the habit of the private equity executives who now run the hospital system. Even if this is the reason, they ought to reconsider. Hospitals and health care professionals due have a solemn obligation to keep confidential their patients' medical information. However, otherwise health care organizations and health care professionals ought to be as transparent as possible.

Maintaining such a level of secrecy could lead to some suspicions, for example, that the generic managers of the organization distrust the professionals they hire who actually provide patient care; worse, that the managers fear discussion that might question their actions or abilities; worse, that the managers want to silence whistle-blowers; or even worse, that the managers have something unethical or illegal to hide. That is all speculation, of course.

On the other hand, we have discussed again and again how the anechoic effect has stifled discussion of what is wrong with health care, and hence prevented meaningful health care reform. Gagging hospital employees is an obvious extension and institutionalization of the anechoic effect. It should not be done, because we need honest discussion of what is really wrong with health care so we can come up with some real solutions.

CEOs First to Benefit from For-Profit Takeovers of Non-Profit Hospitals

Last year, we noted concerns about the againy fashionable practice of for-profit corporations taking over previously not-for-profit hospitals and hospital systems. Two examples we cited were the planned acquisitions of Detroit Medical Center (DMC) by Vanguard Health, which was owned by the Blackstone Group, and of Caritas Christi Health Care by Cerberus Capital Management.

At the time, we noted, "for-profit leaders tend to expect even larger compensation than not for-profit CEOs. Their decisions tend to be driven by their short-term compensation, rather than the good of the organization." So we asked, "will making a not-for-profit health care organization into a for-profit corporation really lead to more efficiency and lower costs?" In a later post, we worried about "ever-increasing executive compensation while making money becomes the overwhelming priority for the organization, completely eclipsing such quaint concepts as quality of care, reasonable costs, or adequate access."

About one and one-half years later, we have some follow-up from the media about the results of these deals, especially as they pertain to executive compensation.

Detroit Medical Center, Vanguard Health Systems, Blackstone Group

Our post last year quoted then Mike Duggan, then CEO of DMC, that "We were being choked to death by the nonprofit business model."

This month, the Detroit Free Press reported,

Detroit Medical Center CEO Mike Duggan's total compensation this year from Vanguard Health Systems, the private health care company that bought the DMC, is $2.41 million in pay, bonuses and several years of stock options, up from the $1.98 million in 2009 when DMC was a nonprofit, according to public documents.

About $1.3 million of Duggan's total compensation is in stock options that he would start receiving next year through 2019, the documents show.

Note also that,

The package also calls for Duggan to get $1 million if he's fired or $5 million if Vanguard sells the DMC to another company -- fairly common conditions in contracts, experts said.

Duggan's new compensation package puts him in the top tier of local health care executives.

It seems like Mr Duggan is no longer being "choked to death."

Cursory review of the media reveals that since the acquisition, DMC has some major construction projects planned. However, I saw nothing yet about whether the acquisition has decreased costs, increased access, or improved the quality of care.

I should note that Mr Duggan appears just a bit uncomfortable with his generous compensation in this era of anger about the power of the one percent:

Duggan said he agreed with Occupy Wall Street protesters who point to the growing gap between the poor and rich: "I do believe people should be able to work hard and earn a lot of money. (But) the gap between the top and the bottom is not fair in this country," he said. "I don't have the ability to fix the world, but my wife and I are making a gesture that's appropriate for us. If people say we get paid a lot of money, I think they are right. I'm trying to do something to share some of the benefit."

The gesture mentioned above would be

he and his wife plan to create a foundation next year to hold the stock earnings, after taxes, for scholarships for children of DMC employees.

Whether it is carried out, of course, remains to be seen.

Caritas Christi Health Care, Steward Health Care, Cerberus Capital Management

The initial story about the proposed take-over in the Boston Globe noted that one rationale was how:

Caritas has long struggled financially, but since coming to the chain two years ago, [CEO Dr Ralph] de la Torre has worked to strengthen its financial position by aggressively cutting costs and boosting revenue from medical care. It posted operating income of $30.5 million for the fiscal year ending last Sept. 30 compared with a $20.5 million loss the prior year.

The aim would be:

to provide quality community-based care at a reasonable cost.

Some specific goals of the proposed take-over would be

Under the agreement, Cerberus will invest $430 million to $450 million immediately to pay off Caritas debt, finance renovation projects, and provide working capital, while also assuming its pension liability.

To pursue all this,

While de la Torre and other senior executives will retain their current salaries and benefits, they would be eligible for additional compensation from Cerberus based on the financial performance of the hospitals, Caritas officials said. They said the details of those financial incentives have yet to be worked out.

Last month, a Boston Globe article provided a little more clarity about these compensation arrangements:

Ralph de la Torre, former chief executive of Boston-based Caritas Christi Health Care, drew a total pay package of $2.2 million from the Catholic hospital system in 2009, making him the best-compensated hospital executive in Boston that year, according to documents filed with the state attorney general’s office.

The package, which included base salary, a performance bonus, and incentive compensation linked to improving finances at the hospital chain, marked an increase from the $1.2 million de la Torre earned from Caritas in 2008.

Note that after the take-over, the Caritas Christi system was renamed as Steward Health Care.

So prior to the actual take-over by Cerberus, but presumably while initial negotiations about it were going on, Dr de la Torre had already become the best paid hospital CEO in Boston.

Becker's Hospital Review noted that De la Torre's 2010 total compensation was exactly $2,270,076. The Caritas Christi 2010 IRS form 990 also listed 19 executives who received more than $400,000. Of these, 11 received more than $600,000. Meanwhile, according to this form, the system's losses were accelerating, going from -$6,583,625 in 2008 to -$23,858,733 in 2009.

So, it seems that Dr De la Torre became significantly richer in anticipation of the proposed (and now accomplished) take-over of Caritas Christi by Cerberus Capital Management, even though his hospital system's hemorrhaging of money was increasing at that time.

Again, I was not able to find any clear evidence whether the take-over had decreased costs, increased access, or improved quality of care. I did find one report suggesting that some Steward Health nurses did not think that it had stabilized their pensions as promised. According to the Boston Business Journal,

Nurses and other health care workers from several of the hospitals owned by the for-profit Steward Health Care, plan to protest outside the company's Boston headquarters today at 1:30. They include nurses from St. Elizabeth’s Medical Center, Brighton, Norwood Hospital, Good Samaritan Hospital in Brockton, Morton Hospital in Taunton, Quincy Medical Center Carney Hospital in Dorchester, Holy Family Hospital in Methuen and Merrimack Valley Hospital in Haverhill.

Nurses argue that Steward, owned by New York private equity firm Cerberus Capital Management, has not honored agreements to the workers, including a commitment to create a defined-benefit pension plan. They also say that Steward has threatened to eliminate essential services in retaliation for the nurses demand for the pension plan.

Summary

Two acquisitions by private equity firms of non-profit hospital systems have resulted in increased compensation for the systems' CEOs, and perhaps other top executives.  These increases predated any recognizable improvements in quality or access, or decreases in health care costs.

Acquisitions of non-profit hospitals and hospital systems by for-profit entities, including private equity firms, is one of the newly fashionable ways our health care leaders have promised to improve care, increase access and control costs. The evidence about whether this tactic accomplishes these aims is not yet in. However, it appears that this tactic may be another, and a rapid way for top health care executives to increase their personal incomes.

Health care professionals, patients, and the public at large ought to be increasingly skeptical of the latest fashions in health care management, especially those that have potential to further enrich managers.

As we recently noted, more people in the US and other countries are frustrated that their attempts to work hard and follow the rules of the economic system yield less rewards. Meanwhile, it appears that well-connected insiders are increasingly gaming the system for their personal profit. We have noted how health care executives' compensation seems independent of their talent, skill, or innovation, much less their ability to uphold the values and fulfill the mission of their organizations. Their compensation often seems to rise inexorably, regardless even of the financial status of their organizations.

Now it appears that inflating compensation in anticipation of or due to a merger or acquisition is another mechanism by which insider executives gain, while others in health care lose.

Once more with feeling .... true health care reform requires competent, ethical leadership that upholds health care's core values within a governance structure of accountability, integrity, transparency, and honesty. Tackling the deep problems in health care will require tackling the deeper problems in the global political economy which helped to generate them.

Here Comes Your New Doctor, Brought to You By UnitedHealth

A long time ago, practicing physicians were mainly self-employed solo practitioners. As health care became more bureaucratic, physicians formed group practices as partnerships, which sometimes employed additional junior or part-time physicians. Some physicians worked for non-profit practice foundations, often affiliated with academic medical institutions, sometimes with non-profit physician-run health insurers, like some Kaiser plans. However, traditionally, almost no practicing physicians were employed by for-profit corporations. In fact, until about 30 years ago, it was considered unethical for physicians' practices to be "commercialized, or treated like a commodity in trade." (See posts here and here.)

That is all changing, and apparently quickly.

We recently discussed how a private equity company, Cerberus Capital Management, bought out a formerly non-profit hospital system, Caritas Christi, and its associated physicians' practices. Thus, what were formerly Caritas Christi physicians ended up employed by for-profit Steward Health Care, owned entirely by Cerberus (see this post).

For-Profit Health Insurance Companies Hiring Physicians to Take Care of Their Patients

Not it is commercial health insurance companies rushing to hire physicians, as reported by the Washington Post and Kaiser Health News:

United health services wing is quietly gaining control of doctors who treat patients covered by United plans — buying medical groups and launching physician management companies, for example.

It’s the latest sign that the barrier between companies that provide health coverage and those that provide care is crumbling.

Other large insurers, including Humana and WellPoint, have announced deals involving doctors in recent months, part of a strategy to curb rising health costs that could cut into profits and to weather changes to their business arising from the federal health law. But United is the biggest insurer by revenue, making the trend much more significant.

As they are supposed to do, the reporter clearly included both sides of the story, including how UnitedHealth justified its new business strategy:

Employers and other customers 'are saying, I want more value for the dollars I spend in health care,' said Dawn Owens, chief executive officer of OptumHealth, United’s health services subsidiary. But, 'there’s also a realization that the delivery system isn’t ready for that kind of change. That’s where we come in.'

The tools needed to control costs and improve care are things insurers have 'invested in over the years,' she said. 'The provider community doesn’t have those tools.'

The article even got a UnitedHealth board member to provide a somewhat confusing defense of the new practice:

Gail Wilensky, a United board member and health official in President George H.W. Bush’s administration, said the insurer doesn’t seek to control every doctor who sees patients enrolled in its health plans. Typically, insurers contract with doctors to care for their policyholders. She also cautioned the strategy is in the early stages and has not yet proven its success.

'It’s just trying many different ways to see what appeals to the American public and what adds value,' she said. 'Whether it will actually mark the trend of the future, I don’t know.'

"Incentivizing" Doctors to Do Less

At least the WaPo/ Kaiser Health News story cautiously tip-toed up to the obvious potential downside of commercial health insurers employing doctors to see patients, the issue of whose interests such employed physicians might put first:

Many patients insured by these companies are going to see much tighter management of their care.

'Health-care costs are still going to rise,' said Wayne DeVeydt, chief financial officer of WellPoint, which entered the business of running clinics in June with the announcement that it would acquire CareMore, a health plan operator based near Los Angeles that owns 26 clinics. 'But the only way to stem those costs in the long term is to manage care on the front end.'

That means enlisting doctors. Their orders drive most health-care spending, including the wasteful share: treating heart patients with expensive stents when cheaper drugs might work, or overusing high-tech imaging devices, for example. By managing doctors directly, insurers believe they can reshape the practice of medicine — and protect their profits.

For instance, Cigna, another large insurer, saves 9 percent on patients treated by doctors in a Phoenix medical group it controls, said Stephanie Gorman, president of Cigna Arizona. Cigna has expanded the group over the past 18 months in response to the health law, and it now serves patients at 32 locations.

'The doctors, at the end of the day, control the patients, and currently they’re financially incentivized to do more tests, more procedures,' said Chris Rigg, a Wall Street analyst for Susquehanna Financial Group. 'But, if they’re employed by a managed care company, they’re financially incentivized' to do less.

That thought unnerves consumer advocate Anthony Wright of Health Access in Sacramento, who worries that profit pressure could affect care. But Wright also said there may be upsides to more tightly managed care: 'No patient wants to get more procedures than they actually need.'

How Doing Less Can Harm Patients

Let us look at that from a different angle. Commercial insurance companies increase revenue when they decrease their "medical losses," that is, the money they pay for policy-holders' care. Physicians employed by such companies, but who take care of patients who may be those companies' policy-holders, could be "'incentivized' to do less." That is more than "unnerving."

It is widely accepted that many patients get tests and treatments whose benefits do not outweigh their harms, and the costs of such interventions increase the costs of health care while doing patients no good, and perhaps harm. If we could eliminate those unneeded tests and treatments, we could decrease costs and improve patients' outcomes.

Yet another important driver of health care costs are tests and treatments whose benefits outweigh their costs, but which are priced much higher than could be justified by their benefit/harm ratio. It could also be that many tests and treatment are priced fairly.

So "incentivizing" physicians to do less across the board could very well harm patients by depriving them of interventions whose benefits outweigh their harms. It appears that for-profit insurers who hire physicians are likely to place their physician employees in a situation in which incentives to do less may conflict with the physicians' duties to do what is best for each patient.

That is more than unnerving.

Hiding Physicians' Commercial Employment

That this new sort of employment requires much more scrutiny very quickly is also suggested by how the commercial health insurance companies are trying to hide their new relationships with physicians. As reported in the article, UnitedHealth Group's subsidiary:

Optum and its Collaborative Care unit have acquired Memorial Healthcare IPA and AppleCare Medical Management in Orange County, Calif., as well as WellMed Medical Management, which runs clinics in Texas and Florida. Collaborative Care also launched Lifeprint in Phoenix.

In some cases, the company obscured its role. For instance, a Collaborative Care business, NextDoor Health, which is partnering with a local doctors group to open retail clinics at Wal-Mart stores in Texas and other states, describes itself on its Web site as 'a privately held LLC based in Minneapolis.' United is based just outside of Minneapolis.

The Mirror Image: "Leakage Reduction"

Note that the essential conflict caused by a doctor hired to take care of patients by a company that profits from decreasing care across the board is the mirror image of the conflict caused by a doctor hired by a for-profit hospital system. In the latter case, the doctor is hired by a company which profits from increasing those services which are particularly well reimbursed. So we noted previously that doctors hired by the for-profit Steward Health Care system were being pushed to reduce "leakage," that is, referral of patients outside of the system for well-reimbursed services. "Leakage reduction" could also harm patients, although in a more subtle way, perhaps. Doctors incentivized to refer more patients within the system for well-reimbursed services, which are now mostly invasive procedures and high-technology tests may get patients to undergo interventions which are unnecessary, and sometimes whose harms outweigh their benefits, thus leading to adverse effects without any benefits.

Summary

So in my humble opinion, the sudden rush of for-profit health care companies to hire doctors to take care of patients ought concern patients, health care professionals, and health care policy makers a lot. Physicians employed by for-profit corporations whose revenues are affected by their own decisions have serious conflicts of interest.

Just how bad these conflicts are may be difficult to determine, because there seems to be little public knowledge about how physicians are actually "incentivized" by these corporations. Note that the WaPo article never discussed the details of the incentives the insurance companies imposed on their employed physicians. Note also that our previous discussion of "leakage" reduction was not based on any public knowledge about how the employed physicians might have been influenced to reduce leakage.

Also, just how frequent these conflicts may be may also be difficult to determine, because it appears that employed physicians do not always reveal who their employers are.

What is To Be Done?

I strongly suggest that

Patients:
- Find out if their physicians are employed, and if so, by whom.
- Find out what incentives their physicians have, if employed, to recommend more or less care of certain types.
-  Find out whether other aspects of the physicians' employment arrangements, e.g., contractual confidentiality clauses, could affect his or her relationships with patients
- Avoid doctors employed by for-profit companies who have incentives to provide more or less care than what may be best for the patient

Physicians:
- Do not accept any employment offer or contract which has incentives to provide more or less care than is best for individual patients
- Who are already employed disclose to their patients such employment, and any incentives it may provide to provide more or less care

Policy-makers:
- Rapidly investigate the extent that for-profit companies whose revenues depend on physicians' decisions are hiring physicians to take care of patients, and the incentives and influences that these companies use to affect physicians' decisions
- Develop regulations that force disclosure of all such employment and relevant incentives and influences
- Consider whether such "commercial practice of medicine" ought to be once again banned.

Conflicts of Interest, Government Leaders, and Private Health Care Organizations

There seems to be a small surge of stories about conflicts of interest regarding health care affecting government leaders who can affect health care. 

The Institute of Medicine defined conflict of interest in medicine as "circumstances that create a risk that professional judgments or actions regarding a primary interest will be unduly influenced by a secondary interest."  So we will summarize these stories by first showing what each leader's secondary interests are, and then show how they may influence carrying out his leadership responsibilities.  (We used "his" because all examples are of male leaders.)

Florida: Governor Scott and Solantic

Rick Scott, the new Florida Governor, apparently still has strong ties to a for-profit chain of urgent care centers, as reported by the Palm Beach Post:

As Florida Gov. Rick Scott reorganizes health agencies, cuts spending and pushes for new free-market health policies, his ownership of Solantic, the urgent care chain, increasingly poses conflict of interest questions.

Solantic co-founder Karen Bowling says Scott has taken steps to distance himself from the chain. He stopped regular business calls with her after he was elected.

'I don't talk to him anymore. Not since November. Really not much since April,' Bowling said.

Scott left the privately held company's board of directors in January 2010, during his campaign.

But the most important step the governor must take to avoid a conflict of interest, some ethics experts say, is to divest his Solantic interests.

In January, Scott did transfer his Solantic stock - to his wife.

There were obvious questions raised whether this transfer mitigated the conflict of interest:

Scott's efforts to distance himself appear to be designed to meet the letter of Florida ethics laws, if not the spirit.

They may not succeed if challenged, warned legal and ethics expert Marc Rodwin, a law professor at Suffolk University who is the author of several books on health care and conflicts of interest.

'Placing his ownership in the name of his wife is not an effective way to control for conflicts of interest and not generally accepted because they are personally related,' Rodwin said.


Rodwin said Scott's blindness to Solantic's daily business decisions likewise does not relieve his conflict.


'His family still benefits from it,' he said.

There are a number of issues before Florida government about which there appears to be a risk that Governor Scott's actions could be unduly influenced by his family's ownership interest in Solantic:

From the moment he was elected, Scott has said government has no business providing primary care.


His budget proposal eliminated state support for the clinics. The county's health department director warns that may leave 30,000 adults without a medical home.

Scott's decisions as governor are likely to affect Solantic in other, perhaps more significant ways.

Scott's budget would curb growth in Medicaid spending, the state-federal safety net insurance program, by requiring most recipients to join private HMOs. Solantic accepts Medicaid HMO reimbursements, but not state Medicaid, so adding clients could broaden the clinics' customer base.

But the greatest benefit for Solantic could come from Scott and other Republican governors' lobbying efforts in Washington.

They want the Obama administration to give states waivers from the Affordable Care Act, and provide them with a massive block grant to expand health coverage in the way they deem best for their states. Money slated to go to business' health insurance tax credits and lower income consumers' insurance subsidies could pay for the grants - to the tune of billions.

Obama has said he's willing to give the states waivers on a speeded-up timetable. His administration Thursday published new rules on how states could get that waiver.

Scott's health policy adviser Michael Cannon, an economist with the Cato Institute in Washington, favors giving consumers health vouchers that they would use either as cash for direct-pay medical care or to buy insurance.

The possible effect on Solantic and similar clinics could be huge, said Rodwin, the legal ethics expert.

'You have a major owner-operator of a set of clinics on the state level, and a major policy figure on a state level, making major changes that affect whether that kind of business will thrive or not, what their competition will be, and really reforming the whole health sector,'  Rodwin said. That's in my view a very dangerous role.'

Note that this is not the first whiff of scandal regarding Rick Scott's leadership role in health care.  As the article noted, Scott:

resigned as CEO of Columbia/HCA amid a federal billing fraud investigation. Columbia/HCA ultimately agreed to the nation's largest Medicare fraud settlement, a $1.7 billion criminal and civil penalty.

Although the company had admitted to criminal wrongdoing, Scott himself was never charged, and he has denied knowledge of the illegal activities.

Scott left Columbia/HCA with more than $5 million in severance and $300 million worth of stock and options.

See our most recent detailed post on Mr Scott's history here.

Massachusetts: House Health Finance Committee Chair Walsh and Health Care Industry Lobbyists

The newly appointed chair of the Massachusetts House committee on health care finance has strong relationships to health care industry lobbyists, according to an editorial in the Boston Globe:

Speaker Robert DeLeo has chosen a health-finance committee chairman, Steven M. Walsh of Lynn, whose family is to lobbying what the Mannings are to NFL quarterbacking. Walsh’s father-in-law represents the state’s health insurers, while his uncle’s firm blocks and tackles for Steward Health Care, new owners of the Caritas chain of Catholic hospitals.

Again, there are a number of issues before the Massachusetts legislature about which there appears to be a risk that Representative Walsh's actions could be unduly influenced by his family's lobbying work:

Next to the budget, the thorniest issue the Legislature will deal with this year will be changes in health care financing. Lawmakers will consider bills that may completely change how health care providers are paid. That shift — from fee-for-service payments towards a system based more on per-capita reimbursements — will set off a free-for-all among insurers, doctors, and hospitals.

So,

Walsh’s admirable efforts ... [to improve legistlation regarding lobbying] don’t erase the conflict of interest he faces on health care issues. Walsh can try to separate family feelings and events from his official role, but the companies paying his uncle’s firm and his father-in-law are still expecting them to use every opportunity to make the strongest possible case for their clients. And it’s no exaggeration that these clients — the state’s insurers and its newest hospital chain — have hundreds of millions of dollars at risk in the new payment system Walsh will be vetting.

Perhaps if the stakes were lower or the relationships more distant, Walsh could chair the health-finance committee without risking public confidence. But as it is, he will be in a position of representing the taxpayers’ interests against those of his close relatives.

Note that we discussed Steward Health's possibly revolutionary role in commercializing physicians' practices here, and how a former Massachusetts government health care agency official exited via the revolving door to join Steward Health Care here.
New York: Governor Cuomo's Advisor and Major Hospital Systems

New York Governor Andrew Cuomo has a close advisor whom he just appointed to a "Medicaid redesign team" whose clients include large academic medical centers/ hospital systems, per the New York Times:

When Andrew M. Cuomo married Kerry Kennedy in 1990, Jeffrey A. Sachs served as an usher. When Mr. Cuomo’s daughter Michaela was born, he asked Mr. Sachs to be her godfather. When his marriage fell apart years later, Mr. Cuomo stayed in Mr. Sachs’s triplex near the United Nations.

Since Mr. Cuomo’s election as governor last fall, Mr. Sachs, 58, has taken on a powerful role among his health care advisers as the administration confronts crucial decisions, including how to overhaul New York’s $53 billion Medicaid program.

But at the same time, Mr. Sachs, known to many in Albany as 'Andrew’s best friend,' is working as a paid consultant to some of the biggest players in the New York health care industry, including Mount Sinai Medical Center, NYU Langone Medical Center and the state’s largest association of nursing homes, all of which have financial interests at stake in the coming Medicaid changes.

Mr. Sachs, whose firm is named Sachs Consulting, has never registered as a lobbyist, which would require him to divulge his clients and fees to the state ethics commission.

Again, there are a number of issues before New York government about which there appears to be a risk that Governor Cuomo's actions could be unduly influenced by his friend, advisor, and committee member's consulting relationships with major hospital systems.

Mr. Sachs was also an early advocate of the “Wisconsin model” of Medicaid, under which the governor would set a target for spending reductions and then appoint a task force of industry stakeholders to apportion the cuts. The approach has political appeal for the governor, in that it entices would-be opponents of spending reductions to participate in the plan rather than protest it. But it also endows the unelected team members with immense power.

Mr. Sachs made recommendations to Mr. Cuomo and his aides about whom to appoint to the Medicaid team, which Mr. Cuomo formed through an executive order in January. During the transition, Mr. Sachs also helped assemble a four-person policy team to begin meeting with state agencies about the best approach to reducing Medicaid spending

Moreover, the Times article recounted cases in which Mr Sachs appeared to influence policy in ways that benefited his consulting clients. For example:

While he was helping Mr. Cuomo assemble his health care staff, Mr. Sachs’s name arose in an unusual personnel matter, one that held great interest for one of his clients, NYU Langone Medical Center.

For at least a year, NYU Langone had had strained relations with Dr. Harold S. Koplewicz, a well-known psychiatrist who founded the hospital’s child psychiatry center but left in 2009 to start a competing research and clinical center.

Relations worsened because Dr. Koplewicz, who also served as director of the Nathan S. Kline Institute for Psychiatric Research, a state-run psychiatric center in Rockland County that also has a research affiliation with NYU, refused to allow NYU to screen those he hired at the institute, among other issues.

During an October meeting between Mr. Sachs and Dr. Koplewicz, Mr. Sachs suggested the doctor resign from the Kline Institute, people briefed on the meeting said. Should he lobby too aggressively to keep his job, Mr. Sachs warned, Mr. Cuomo, then widely expected to win election, might choose to close down the institute.

In a later meeting in December, Michael F. Hogan, state commissioner of mental health, told Dr. Koplewicz that he had been warned by Mr. Sachs that his reappointment by Mr. Cuomo would be jeopardized if Dr. Koplewicz did not resign, according to the people briefed.

Afterward, Dr. Koplewicz wrote Dr. Hogan a letter detailing his accomplishments as director of the institute and complaining of the pressure being exerted by Mr. Sachs.

'As you explained — and I appreciate your candor — you have been pressured by NYU through Jeff Sachs to have me resign as a condition for your reappointment as commissioner of mental health,' Dr. Koplewicz wrote in the letter.

In a response sent the following day, Dr. Hogan did not dispute Dr. Koplewicz’s account but suggested that he had been insufficiently cooperative with NYU and the Office of Mental Health.

'Accordingly, your service as director, Psychiatric Research Institute, will end effective Jan. 13, 2011,' Dr. Hogan wrote.

Dr. Koplewicz and Dr. Hogan both declined to comment, though neither disputed the authenticity of the letters.

This case is particularly disquieting because of Governor Cuomo's former role as a tough state attorney general who targeted white collar crime.

Summary

US health care is hugely complex. The interests of its increasingly large commercial players can be strongly affected by the actions of government at local, state and national levels.

We have previously discussed the pervasiveness of conflicts of interest throughout health care. It should come as no surprise that there are important conflicts affecting government leaders who have power over health care issues.

Although there may actually be more laws and regulations about conflicts of interest affecting government leaders than about those affecting, say, leaders of academic medical institutions, the increasingly incestuous nature of health care leadership seems to add impetus to entwine the system in ever increasing strands of conflict.

So, I humbly suggest, as a variation on a theme I have sounded before, that governmental leaders who have power over health care should put the health of patients and the population first, and should not have relationships that risk this mission in service of private gain.  Furthermore, leaders of civilian health care organizations, especially of hospitals, hospital systems and physicians' groups whose mission is also to improve care of individuals and society, should not seek to entangle government leaders in conflicts meant to serve private financial interests. 

Those Big Doors Keep Revolving

A few months ago, we discussed the revolving door that seems to connect US government leadership positions and leadership positions of commercial health care firms. There are other such revolving doors, like two recently discovered just north of here.

State Government to For-Profit Hospitals

As reported by the Boston Herald:

David Morales, a longtime trusted adviser to [Massachusetts] Gov. Deval Patrick, became the latest official to leave the administration as he stepped down from a top health-care post for a private sector gig.

Morales resigned abruptly yesterday to take a position with Steward Health Care System.

Furthermore,

Morales worked as a top adviser during the governor’s first term before taking a $128,000-a-year post in 2009 as commissioner of the Division of Health Care Finance and Policy. His resignation was effective yesterday.

Note that we have previously discussed the Steward Health Care System, the new name given to the Caritas Christi system after it was bought out by private equity firm Cerberus Capital Management. Steward's aggressive plan to stamp out "leakage" raised concerns that the new movement to make practicing physicians employees could push them to do what is best for the company's bottom line rather than for patients.

We previously suggested that deals that turn previously non-profit health systems and physicians' practices into for-profit corporations deserve considerable scrutiny. After Caritas became Steward, state government officials promised close oversight. Now Steward has acquired a new executive who has friends in state government.

Non-Profit Health Insurance/ Managed Care by Way of a Political Campaign to Health Care Venture Capital

This story also came from the Boston Herald:

Four months after his failed Massachusetts gubernatorial bid, Charlie Baker has landed a private-sector job at a Cambridge venture capital firm.

The former Harvard Pilgrim Health Care CEO is now an 'executive in residence' for General Catalyst Partners. He’ll focus on working with small and midsize health-care services companies for the VC firm, which has $1.7 billion under management across five funds.

In addition,

Health-related companies already in General Catalyst’s portfolio include iWalk, a Cambridge developer of orthotic and prosthetic devices, and North Carolina-based TearScience, which specializes in diagnostic and treatment devices for evaporative dry eye in addition to several still in stealth mode.

Note that managed care was originally touted as a way to control health care costs, and that the commercial health care insurance companies/ managed care organizations claim to be doing all they can to control costs. Such a focus on cost control would imply that they ought to be able to vigorously negotiate at arms' length with health care providers and drug and device companies.  Now some device companies have acquired a new venture capital overseer who has friends in insurance and managed care.

Summary

Not only are there revolving doors connecting the national government and large commercial health firms, but also connecting state government and regional hospital systems, and non-profit health care insurers/ managed care organizations and device companies.

This is just some more evidence that people in the leadership of large health care organizations have more in common with each other, even if their organizations are supposed to be competing or negotiating at arms length, than they have with patients, clients, customers and the public at large. 

The various revolving doors appear not to align the interests of leaders of health care organizations with their organizations' stated missions, or with promoting the health of patients.  To truly reform health care, we need to expose these doors to more sunlight, and then think about retarding their spin or even locking them in place.

Send Mercenaries, Guns, and Money? - Cerberus Tries to Buy Jackson Health

The latest twist in the tale of one of the US great safety-net public hospitals raises some interesting questions.  As reported by John Dorschner in the Miami Herald, Jackson Health System has had some bad times:

the system, ... has served for a century as Miami-Dade County’s safety net healthcare system for the poor and uninsured. But money and management woes in recent years have pushed the system to the brink of failure time and again. Last week, its executives said it would run out of cash in July unless drastic measures are taken.

The Bid for Jackson Health

The latest drastic measure proposed was a take-over by a for-profit corporation, one that we have heard of before:

A Massachusetts hospital chain led by a Cuban American heart surgeon with family ties to Miami has sent Jackson Health System a non-binding 'expression of interest' letter, offering to take over the financially troubled public hospitals, invest $600 million in capital and assume $500 million in debt.

The $1.1 billion offer from Ralph de la Torre of Steward Health Care System was delivered Tuesday morning to members of the capital committee of the Public Health Trust, Jackson’s governing body.

Questions Appear Immediately

The proposed deal immediately raised questions and concerns. The very nature of the deal was unclear:

Trust member Ernesto de la Fe said he wasn’t sure if the company was proposing a straight-out sale, while other board members said they thought the offer envisioned 'a public-private' partnership.

Also, in a follow-up story by the same reporter, there were questions about the rapid time-table,

Jackson is in such difficult financial conditions – its executives warn it may run out of cash in July – that many leaders are willing to consider a sale, but they wondered whether the 90-day timetable set by Steward Health Care System is realistic and what the deal might mean for the 500,000 uninsured persons in Miami-Dade County.

There were questions about the company which proposed to buy Jackson:

'We need to know a lot more about this company,' said Sal Barbera, an adjunct professor at Florida International University and a former hospital executive.

Steward has existed only since November, when Cerberus Capital Management finalized a $895 million deal to turn six Catholic hospitals into a for-profit entity. Steward has since bought two other small hospitals. Altogether, the Steward system has 1,565 licensed beds. Jackson has 2,100. De la Torre has been a hospital executive for less than three years.

That’s 'a very short track record,' said Mark Rogers, a Trust member and former chief executive of the Duke University Hospital.

Would the Mission be Upheld?

The issue of whether a private, for-profit company would respect the mission of a safety-net hospital came up quickly,

Alan Sager, a health policy professor at Boston University, said some Steward facilities are money losers in poor neighborhoods. 'Some of us had a lot of questions' about the Cerberus take-over and how the investment company could squeeze returns for investment out of hospitals that were struggling as nonprofits.

'We asked repeatedly. We never received answers,' Sager said.

He said his fear is that patient care will be reduced to make profits. 'I think there should be concerns about preserving essential patient care in Dade County' if Steward took over Jackson, he added.

'If the object is merely to cut costs to make money … then that is not the right approach for Jackson,' said Rogers, the former Duke executive. 'Clearly some costs have to come out, but we have to invest in new programs to maintain the quality of medical care that Jackson has always provided.'

One day later, John Dorschner again writing for the Miami Herald raised more questions about why a large private equity company would want to buy a money-losing public hospital system? First he noted,

While the human face on the $1.1 billion bid to buy Jackson Health System is a Cuban-American heart surgeon with strong family ties to Miami, a vast and powerful entity looms in the background: Cerberus Capital Management.

The company, named for the mythological three-headed dog that guards the gates of Hades, is one of the biggest private investment firms in the United States, and it is the owner of Steward Health Care, the Boston hospital group that this week said it is interested in buying Miami-Dade’s public hospitals

So,

The question that perplexes some Trust members is why such a big-time investment firm would be interested in a healthcare system with three public hospitals that lost $244 million in fiscal 2009, is expected to lose $105 million in fiscal 2010 and is projected to run out of cash in July unless drastic measures are taken.

The concern, again, was whether Cerberus would uphold the current mission of the hospital system:

Trust Treasurer Marcos Lapciuc said Thursday that Cerberus is 'in the driver’s seat' on this deal, not Steward. 'They are going to expect some return on their investment. This is not going to be charitable donation,' he said.

Of course, the central mission of the current Jackson Health System would seem to be charitable.

To build the health of the community by providing a single, high standard of quality care for the residents of Miami-Dade County

The implication of "single, high standard" is that applies to all residents, regardless of financial status or ability to pay.

More Questions

The CEO's Short Term Focus

There is good reason to question whether Steward Health Care, formerly Caritas Christi, and now owned by Cerberus Capital Management would uphold that mission. As we noted recently, the Steward Health Care CEO seems to have a very short-term focus, suggested by the track record of the Cerberus CEO, who quickly left an organization he had aggressively promoted, suddenly switched from the Republican party to become a big contributor to the Democratic party, abandoned his medical license after developing a good reputation as a cardiovascular surgeon, and famously was quoted, "burn the boats on the beach, baby." Would he support the long-term commitment needed to make both the Massachusetts based and now the proposed Florida based hospitals, most of which are safety net hospitals, succeed?

"Leakage Reduction" - a Threat to Physicians' Professionalism?

As we also noted recently, the main tenet of his business plan seemed to be to reduce "leakage," to make sure patients who start within the system are referred within the system and do not "leak" elsewhere. The problem with this is that physicians are supposed to decide how to manage patients, and specifically to decide where to refer patients in the patients' interests, not just to keep money flowing to the health care system. "Leakage reduction" may possibly threaten physicians' first commandment, to make decisions to maximize benefits and minimize harms to individual patients, before all other considerations. Also, as we noted earlier, since Steward Health Care purchased not only some Massachusetts hospitals, but a big network of physician practices, there could be a risk that the physicians who are now employed by a private equity group would be pushed to make referral decisions for financial reasons, rather than in the best interests of the patients.

Note that a recent (posted 9 February, 2011) advertisement for a Senior Medical Director (physician leader) of the Caritas Christi Network Services, the physician group owned by Steward Health Care LLC, said the Director's first goal would be:

This position will have a leadership role in all aspects of the CCNS system, including responsibility and accountability for:
- Lead/Mentor/Support IPA based Medical Directors (at both the IPA and Pod level) to achieve Medical Management goals and objectives in Quality, Leakage, Utilization, and Risk performance

Keeping Company with Gun and Ammunition Manufacturers and "Mercenaries"

There are also questions about whether the corporate culture of Cerberus Capital Management would be compatible with the management of safety-net hospitals. Cerberus has some current investments in firms whose operations seem oddly askew from providing medical care to patients regardless of their ability to pay.

First, Cerberus owns the biggest manufacturer of firearms and ammunition in the US. As reported by BusinessWeek last year,

Cerberus had more than DPMS [Firearms] in its sights. From April 2006 to January 2008 it bought three other firearms companies: Bushmaster, Remington, and Marlin. And it kept adding to its collection. Cerberus now controls 13 brands in a holding company it created, Madison (N.C.)-based Freedom Group. With sales of $848.7 million in 2009, Freedom Group is the largest gun and ammo maker in the U.S. That means Stephen A. Feinberg, Cerberus' founder and managing member, is the country's top civilian gun magnate.

In addition,

Luth, the rifle maker, says that when he arrived at Cerberus' Park Avenue offices to negotiate a deal in 2007, he discovered that Feinberg and several of his partners 'are real gun guys.'

Also, as reported by the New York Times, Cerberus recently bought one of the biggest "private military contractors,"

DynCorp International, the private military contractor, said on Monday it has agreed to sell itself to Cerberus Capital Management for $1.5 billion, as the private equity industry continues to return to its core business of deal-making.

Cerberus will pay $17.55 a share for DynCorp, a 49 percent premium to Friday’s closing price of $11.75. DynCorp now has 28 days under a 'go-shop' provision within the deal agreement to find a higher and better offer.

While DynCorp has continued to win new contracts from the federal government, it has also been the subject of controversy over the years for its assignments in Iraq.

That controversy was amplified in an article in The Nation by Jeremy Scahill, entitled "The Mercenary Owners, They Are a Changin' (Sort of)

Blackwater and DynCorp, the two leading mercenary firms servicing the US wars in Iraq and Afghanistan have both undertaken steps toward significant structural changes over the past month. In the case of DynCorp, the ownership of the whole business seems to be changing hands, while Blackwater is dumping its private air force.

Cerberus Capital Management, one of the largest private equity firms in the US announced April 12 it was buying DynCorp, the massive, publicly traded company, which is akin to the Wal-Mart of the private security industry, for $1 billion in cash. Cerberus counts among its big wigs former vice president Dan Quayle, who often represents the company internationally. DynCorp has had its share of scandals over the years, including whistle blower allegations that personnel have engaged in organized sex-slave trading with girls as young as 12 and allegations its personnel have assaulted journalists. It has been rebuked by the State Department for its 'aggressive behavior' in interactions with European diplomats, NATO forces and journalists in Afghanistan. A 2007 US government audit of DynCorp's work in Iraq found that the State Department 'does not know specifically what it received for most of the $1.2 billion in expenditures under its DynCorp contract for the Iraqi Police Training Program.' More recently, the company was in the news facing allegations its training of the Afghan National Police was shoddy, including allegations its trainees didn't know how to adjust the sights on their AK-47s. If the Cerberus deal goes through, it will mean that the publicly-traded DynCorp will go private, meaning that it will be infinitely more difficult to get information on the company.

Cerberus seems to have had a dream of owning its own mercenary business for at least a few years. In April 2008, the company was reportedly looking to buy Blackwater. The deal apparently fell through because of concerns over Blackwater's reputation.

Summary

So we have come a long way from 1980, when the US American Medical Association gave up the rule that the practice of medicine should not be "commercialized, nor treated as a commodity in trade."  (See posts here and here.)   Now we have private equity firms buying or trying to buy formerly non-profit safety net hospital systems to be included in portfolios that can include gun and ammunition manufacturers and private armies.  Now we have physician networks owned by private equity firms focused on choking off "leakage."  Such ownership may initially inject lots of money into the system, and may eventually profit the new private owners, but what will we give up in this brave new world of commercial safety-net hospitals and for-profit physician practices?

As we said before,.... Deals that turn not-for-profit hospital systems into privately held for-profit systems ought to be scrutinized with extreme skepticism. Furthermore, once such deals are made, the results ought to be watched extremely closely to make sure they do not put private gain ahead of individuals' and the public's health. For-profit hospitals have generally not lived up to the promises they made to provide quality, accessible health care at a cheaper price.  It is yet to be seen whether private equity running for-profit hospital systems (and physicians networks) will do any better.

Coda

The title requires apologies to Warren Zevon, who famously performed "Send Lawyers, Guns and Money."