healthy4u: Cerberus

BLOGSCAN - When Private Equity Owns Hospitals

On his Not Running a Hospital blog, Paul Levy <a href="http://www.runningahospital.blogspot.co.il/2013/01/beyond-guns-and-gurneys.html">discussed</a> reasons for concern when private equity firms purchase and operate hospitals.  He used the example of<a href="http://hcrenewal.blogspot.com/search/label/Steward%20Health%20Care"> Steward Health Care,</a> now a for-profit hospital system (which also employs physicians to provide direct patient care), which in turn is owned by <a href="http://hcrenewal.blogspot.com/search/label/Cerberus">Cerberus Capital Management</a>.   The issue is pertinent due to recent discussion in the media about Cerberus' newly stated intention to sell the large firearms and ammunition business it assembled, Freedom Group.  This intention was only stated after the tragic multiple murders of children and teachers by gunfire from a weapon manufactured by Freedom Group at a Connecticut elementary school.  We have previously posted about questions raised when private equity buys hospitals and employs physicians, specifically about <a href="http://hcrenewal.blogspot.com/search/label/Cerberus">Cerberus</a> and <a href="http://hcrenewal.blogspot.com/search/label/Steward%20Health%20Care">Steward Health Care</a>, and have questioned whether a private equity group is a suitable owner and operator of hospitals and physicians' practices when said private equity group also owns a large firearms and ammunition business, and, for that matter, a military contracting company which has been accused or providing "mercenaries" (look <a href="http://hcrenewal.blogspot.com/2012/08/private-equity-obfuscatory-advertising.html">here</a> and <a href="http://hcrenewal.blogspot.com/2011/05/continuing-parade-of-legal-settlements.html">here</a>).

BLOGSCAN - When Private Equity Owns Hospitals

On his Not Running a Hospital blog, Paul Levy discussed reasons for concern when private equity firms purchase and operate hospitals. He u...

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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 <a href="http://hcrenewal.blogspot.com/search/label/deception">deceptive</a> <a href="http://hcrenewal.blogspot.com/search/label/marketing">marketing</a> used to sell drugs, devices, and health care services.  We have also posted about deceptive <a href="http://hcrenewal.blogspot.com/search/label/public%20relations">public relations</a> and<a href="http://hcrenewal.blogspot.com/search/label/stealth%20lobbying"> lobbying</a> 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 <a href="http://digital.olivesoftware.com/Olive/ODE/ProJo/LandingPage/LandingPage.aspx?href=VFBKLzIwMTIvMDkvMjc.&pageno=MQ..&entity=QXIwMDEwMA..&view=ZW50aXR5">here</a>.)  The <a href="http://news.providencejournal.com/business/2012/09/deal-to-sell-woonsocket-hospital-to-steward-may-be-falling-apart.html">first item</a> included, <blockquote>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. </blockquote>The Message Promoted by Steward Health Care  We have <a href="http://hcrenewal.blogspot.com/search/label/Steward%20Health%20Care">blogged</a> about the rapid expansion of Steward Health Care, despite the name, a for-profit company owned by private equity/ leveraged buyout firm <a href="http://hcrenewal.blogspot.com/search/label/Cerberus">Cerberus Capital Management</a>. Steward has hyped its supposedly world class "new health care" model in its advertising (look <a href="http://hcrenewal.blogspot.com/2012/08/private-equity-obfuscatory-advertising.html">here</a>). In promoting its bid for Landmark, Steward's well-paid CEO (look <a href="http://hcrenewal.blogspot.com/2012/07/steward-health-care-vs-rhode-island.html">here</a>), 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 <a href="http://hcrenewal.blogspot.com/2012/07/steward-health-care-vs-rhode-island.html">here</a>.) 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 <a href="http://news.providencejournal.com/breaking-news/2012/07/woonsocket-mayo-5.html">reported</a> 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 <a href="http://www.woonsocketcall.com/node/5343">reported</a> 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 <a href="http://www.pbn.com/Legislation-to-speed-Stewards-Landmark-bid-introduced,64973">Providence Business News</a>). 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 <a href="http://news.providencejournal.com/breaking-news/2012/09/ag-steward-leaves-landmark-in-a-worse-positionready.html">item</a> in the Providence Journal, <blockquote>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,' </blockquote><blockquote>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. </blockquote>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 <a href="http://hcrenewal.blogspot.com/2012/05/ceo-as-false-messiah.html">examples</a> 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.

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 h...

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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 <a href="http://www.commonwealthmagazine.org/News-and-Features/Online-exclusives/2012/Summer/010-Steward-ads-promote-its-new-health-care.aspx">reported</a> on Steward's latest high profile advertising campaign in the Boston area, <blockquote>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.</blockquote> While visible, the advertisements are notably vague. One features <blockquote>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</blockquote> One local health care expert <blockquote>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.</blockquote> The article had noted that <blockquote>Cerberus Capital Management, a New York private equity firm, owns Steward,...</blockquote> 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 <a href="http://management.fortune.cnn.com/2012/08/02/steward-health-de-la-torre">interview</a> appeared with Steward's CEO in Fortune. CEO Dr Ralph de la Torre first pitched medicine as science, <blockquote>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.</blockquote> 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: <blockquote>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.</blockquote> 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 <a href="http://www.cochrane.org/about-us/evidence-based-health-care/">discusses it</a>: <blockquote>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, <a href="http://www.rsmpress.co.uk/bkcochra.htm">ISBN 1-85315-394-X.</a>[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] [<a href="http://www.bmj.com/cgi/content/full/312/7023/71">Full text</a>]</blockquote> 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 <a href="http://hcrenewal.blogspot.com/2012/07/steward-health-care-vs-rhode-island.html">discussed earlier</a>, 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: <blockquote>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. <div class="separator" style="clear: both; text-align: center;"></div>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.</blockquote> <div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEik-dnE6y2ihGLxzXIj8PiyX2dNd6bOnzodaTIVxmP8RXQHBDCe4P3W9mJpZQpDYYimKwXpzK2z3ldDZIVz8FHREcjMsOrOr9Sg0FFhoCt7WAQGIzWw37tJoK4aHvZwcXoT8EhbU_2_4A5h/s1600/StewardBCBSAdvertisement2%2528072712%2529.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" eda="true" height="233" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEik-dnE6y2ihGLxzXIj8PiyX2dNd6bOnzodaTIVxmP8RXQHBDCe4P3W9mJpZQpDYYimKwXpzK2z3ldDZIVz8FHREcjMsOrOr9Sg0FFhoCt7WAQGIzWw37tJoK4aHvZwcXoT8EhbU_2_4A5h/s320/StewardBCBSAdvertisement2%2528072712%2529.gif" width="320" /></a></div>However, soon after, investigative <a href="http://digital.olivesoftware.com/Olive/ODE/ProJo/LandingPage/LandingPage.aspx?href=VFBKLzIwMTIvMDcvMjc.&pageno=MTE.&entity=QXIwMTEwMQ..&view=ZW50aXR5">reporting</a> 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: <blockquote>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. </blockquote> The pollster than provided prompting, perhaps in an attempt to get results more favorable to its client: <blockquote>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.' </blockquote> Unfortunately, it appears that the prompting statement was perhaps not fully accurate: <blockquote>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.' </blockquote> 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' <a href="http://www.cerberuscapital.com/team/senior_executive_leadership">top leadership </a>includes - CEO Steven A Feinberg, who, as we <a href="http://hcrenewal.blogspot.com/2012/07/steward-health-care-vs-rhode-island.html">noted</a> previously, was listed as number 21 on a list of the 25 most powerful businessmen in 2007 <a href="http://money.cnn.com/galleries/2007/fortune/0711/gallery.power_25.fortune/21.html">by Fortune</a>, at that time running through Cerberus 50 companies with total revenues of $120 billion.  <a href="http://en.wikipedia.org/wiki/Steve_Feinberg">On Wikipedia</a>, his net worth was estimated as $2 billion in 2008. - Chairman John W Snow, who, as we <a href="http://hcrenewal.blogspot.com/2012/07/steward-health-care-vs-rhode-island.html">noted</a> 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 <a href="http://www.randomhouse.com/book/213722/predator-nation-by-charles-h-ferguson">Predator Nation</a>. - 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 <a href="http://hcrenewal.blogspot.com/2011/05/continuing-parade-of-legal-settlements.html">here</a>, these include, DynCorp (see <a href="http://www.dyn-intl.com/history.aspx">their web-site</a>), which has been called one of the "leading mercenary firms," by <a href="http://www.thenation.com/blog/mercenary-owners-they-are-changin-sort">an article</a> in the Nation.  As reported <a href="http://www.bloomberg.com/news/2011-04-22/dyncorp-to-pay-7-7-million-for-inflated-claims-on-iraq-work-u-s-says.html">by Bloomberg</a>, 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 <a href="http://hcrenewal.blogspot.com/2011/02/send-mercenaries-guns-and-money.html">here</a>, Cerberus also owns the biggest manufacturer of firearms and ammunition in the US. As <a href="http://www.businessweek.com/magazine/content/10_33/b4191041673261.htm">reported</a> 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 <a href="http://hcrenewal.blogspot.com/2012/01/barbarians-at-gate-making-private.html">here</a>.) So there are two lessons. To repeat the lesson from our <a href="http://hcrenewal.blogspot.com/2012/07/steward-health-care-vs-rhode-island.html">earlier post</a>, 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.

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 ...

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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 <strike>management negotiated a buyout </strike> [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 <a href="http://www.beckershospitalreview.com/hospital-transactions-and-valuation/steward-healthcare-merger-with-landmark-medical-center-approved.html">here</a> and <a href="http://www.woonsocketcall.com/node/5343">here</a>).  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: <blockquote>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. <div class="separator" style="clear: both; text-align: center;"></div><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;">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.</div></blockquote><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;"> </div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjyHp68yOTeSo9IIvou_JmYYFrTb-bgCI-OulDd830tpAP65qS9JTCvwPMRFIUNU3VfhcYIGtYR23inXiUu83rDqNUKueVS__zFIiDG_Pz8C5KFENyIbpCI2rKlL27eI69w7Vtj2-EmKBSj/s1600/StewardBCBSAdvertisement%25280712%2529.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" hda="true" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjyHp68yOTeSo9IIvou_JmYYFrTb-bgCI-OulDd830tpAP65qS9JTCvwPMRFIUNU3VfhcYIGtYR23inXiUu83rDqNUKueVS__zFIiDG_Pz8C5KFENyIbpCI2rKlL27eI69w7Vtj2-EmKBSj/s320/StewardBCBSAdvertisement%25280712%2529.gif" width="320" /></a></div><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;"> </div><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;"> </div><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;">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.</div><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;"> </div><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;">Given that we have frequently discussed how self-interested, <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">over-compensated</a> executives may fail to uphold, or may even <a href="http://hcrenewal.blogspot.com/search/label/mission-hostile%20management">undermine their health care organizations' missions</a>, 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 <a href="http://hcrenewal.blogspot.com/2004/12/mismanagement-are-us.html">here</a>), involving allegations of excess compensation given to and conflicts of interest affecting its CEO.</div> 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 <a href="http://blogs.wpri.com/2011/04/26/new-blue-cross-ri-ceo-will-earn-600000-a-year/">here</a>.)  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., <a href="http://evantrowbridge.com/2010/07/21/bill-lynch-condemns-blue-cross-blue-shield-for-layoffs/">here</a>).   Apparently, however, Blue Cross Blue Shield of Rhode Island does pay state taxes (per <a href="http://www.publicbroadcasting.net/wrni/news.newsmain/article/0/0/1801809/Healthcare/RI.Blue.Cross.Blue.Shield.seeks.rate.increase">this report</a>). 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 <a href="https://www.bcbsri.com/shop-for-plan/plan-medical/individuals?order=title&sort=asc">here</a>) 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 <a href="http://steward.org/news/Caritas-Christi/Acquisition-of-Caritas-Christi-Now-Complete">here</a>). 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 <a href="http://hcrenewal.blogspot.com/2011/11/ceos-first-to-benefit-from-for-profit.html">here</a>).  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<a href="http://www.cerberuscapital.com/team/senior_executive_leadership"> its web-site</a>, John W Snow, chairman and senior managing director.  Mr Snow, former Secretary of the US Treasury, was listed in 2009 on the <a href="http://www.virginiabusiness.com/index.php/news/article/the-virginia-100/">Virginia 100 web-site</a> 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 <a href="http://www.marathonpetroleum.com/content/documents/investor_center/annual_reports/2011ProxyStatement.pdf">proxy statement</a>, 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 <a href="http://services.corporate-ir.net/SEC/Document.Service?id=P3VybD1odHRwOi8vaXIuaW50Lndlc3RsYXdidXNpbmVzcy5jb20vZG9jdW1lbnQvdjEvMDAwMTE5MzEyNS0xMi0xODY2MDEvZG9jL0FNRVJJR1JPVVBDb3Jwb3JhdGlvbl9ERUYxNEFfMjAxMjA0MjcucGRmJnR5cGU9MiZmbj1BTUVSSUdST1VQQ29ycG9yYXRpb25fREVGMTRBXzIwMTIwNDI3LnBkZg==">proxy statement</a>.  Stephen A Feinberg, founder, CEO, and senior managing director, <a href="http://dealbook.nytimes.com/2008/04/15/cerberus-recluse-lifts-the-veil-a-little/">described</a> as a "recluse" in the New York Times, was listed as number 21 on a list of the 25 most powerful businessmen in 2007 <a href="http://money.cnn.com/galleries/2007/fortune/0711/gallery.power_25.fortune/21.html">by Fortune</a>, at that time running through Cerberus 50 companies with total revenues of $120 billion.  <a href="http://en.wikipedia.org/wiki/Steve_Feinberg">On Wikipedia</a>, 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 <a href="http://www.commonwealthmagazine.org/News-and-Features/Features/2012/Summer/001-Cerberuss-health-care-play.aspx">article</a> in Commonwealth suggested that Cerberus invested $251.5 million in Steward, but that Steward's 2011 budget had a net loss of $57 million.  <a href="http://www.woonsocketcall.com/node/5343">According to the Woonsocket Call</a>, 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 <a href="http://www.randomhouse.com/book/213722/predator-nation-by-charles-h-ferguson">Predator Nation</a>, 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.

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 th...

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

In a single sentence, a short, obscure <a href="http://www.wbjournal.com/news50656.html">article </a>in the Worcester (MA) Business Journal on life at a community hospital after a for-profit corporate take-over: <blockquote>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.</blockquote> We have often discussed the <a href="http://hcrenewal.blogspot.com/search/label/anechoic%20effect">anechoic effect</a>, how cases involving or discussions of the topics we address on <a href="http://hcrenewal.blogspot.com/">Health Care Renewal</a>, 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. <a href="http://hcrenewal.blogspot.com/search/label/Steward%20Health%20Care">Steward Health Care</a> is a for-profit health care corporation that grew out of the take-over of the formerly not-for-profit <a href="http://hcrenewal.blogspot.com/search/label/Caritas%20Christi">Caritas Christi</a> health system by the private equity firm <a href="http://hcrenewal.blogspot.com/search/label/Cerberus">Cerberus Capital Management</a>. Steward Health Care now comprises <a href="http://www.steward.org/our-hospitals.html"> eight hospitals</a>, and also owns physician practices (apparently including over 2000 doctors based on a quick search using its <a href="http://www.stewardhealth.org/doctorfinder/search_form">"doctor finder" function</a>.) 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 <a href="http://hcrenewal.blogspot.com/search/label/confidentiality%20clause">here</a>. 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 <a href="http://hcrenewal.blogspot.com/search/label/private%20equity">private equity firms</a> 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<a href="http://hcrenewal.blogspot.com/2012/01/barbarians-at-gate-making-private.html"> recently found out</a> (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.

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 cor...

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The Continuing Parade of Legal Settlements by Health Care Organizations: Cardinal, Cerberus, Dartmouth-Hitchcock, Masonicare

Here is our latest round-up of the more colorful legal settlements made by some US health care organizations. Cardinal Health Cardinal Health is a pharmaceutical services company. <a href="http://www.kansascity.com/2011/04/21/2817951/former-chiefs-player-reaps-reward.html">Per</a> the Kansas City Star: <blockquote>A pharmaceutical distributor has settled a federal anti-kickback lawsuit by agreeing, in part, to pay $760,000 to former Kansas City Chiefs player Dan Saleaumua and a consultant. That money is part of an $8 million settlement that Cardinal Health Inc. of Ohio agreed to pay the U.S. government to settle the lawsuit. The lawsuit alleged that Cardinal offered Saleaumua and consultant Kevin Rinne an illegal $440,000 kickback so it could supply prescription drugs to seven Kansas City area Medicine Shoppe pharmacies that Saleaumua owned at the time.</blockquote> Cerberus Capital Management/ Dyncorp/ Steward Health Care This will require some explanation. Cerberus Capital Management now owns Steward Health Care, mostly composed of what was formerly known as Caritas Christi hospital system of Massachusetts, and a large group of physician practices now known as Caritas Christi Network Services (see posts <a href="http://hcrenewal.blogspot.com/2011/02/new-steward-health-care-will-superbowl.html">here</a> and <a href="http://hcrenewal.blogspot.com/2011/02/send-mercenaries-guns-and-money.html">here</a>). Cerberus Capital Management now also owns DynCorp (see <a href="http://www.dyn-intl.com/history.aspx">their web-site</a>), which has been called one of the "leading mercenary firms," by <a href="http://www.thenation.com/blog/mercenary-owners-they-are-changin-sort">an article </a>in the Nation. As <a href="http://www.bloomberg.com/news/2011-04-22/dyncorp-to-pay-7-7-million-for-inflated-claims-on-iraq-work-u-s-says.html">reported</a> by Bloomberg about DynCorp, and hence indirectly about Cerberus, and Steward Health Care: <blockquote>DynCorp International Inc., the largest U.S. contractor in Afghanistan, agreed to pay $7.7 million to resolve allegations it submitted inflated claims for construction work in Iraq, the U.S. said. The Justice Department said yesterday that DynCorp and its subcontractor, The Sandi Group, will settle a whistleblower case filed in federal court in Washington. The Sandi Group, accused of submitting false claims on a police-training contract in Iraq, will pay more than $1 million. 'The hard work of stabilizing Iraq is challenging enough without contractors and subcontractors inflating the cost of rebuilding by making false claims at taxpayers’ expense' Assistant Attorney General Tony West, who oversees the department’s civil division, said in an e-mailed statement. DynCorp inflated the costs of building camps at various locations in Iraq, the U.S. said. </blockquote> Dartmouth-Hitchcock Medical Center Dartmouth-Hitchcock Medical Center is a prestigious medical center. <a href="http://www.unionleader.com/article.aspx?headline=Dartmouth-Hitchcock+pays+%242.2m+in+whistle-blower+suit&articleId=9574df3c-da6c-41a0-9a1f-55ba55002aee">Per</a> the New Hampshire Union-Leader: <blockquote>Dartmouth-Hitchcock Medical Center has settled a case of alleged billing fraud to various federal health programs, such as Medicare, Medicaid and Veterans Affairs. DHMC, which denied any liability in the matter, agreed to pay $2,227,075. The federal government recovers $1.5 million, Vermont $80,396, and New Hampshire $61,541, the U.S. Attorney for the District of Vermont announced Tuesday. The investigation began in 2007 following a complaint filed by Dr. Thomas J. Prendergast, who was a physician in the DHMC pulmonary department in Lebanon. The complaint alleged the hospital improperly billed federal health care programs for services performed by resident staff without sufficient supervision by physicians. Regulations allow physicians to bill for certain services by resident staff, but only if the services are performed in the presence of a physician. The investigation, conducted with the hospital's cooperation, found alleged improper billing in the anesthesiology department, pain clinic and radiology, according to the government. The billings at issue were from 2001 to 2007.</blockquote> Masonicare <a href="http://www.masonicare.org/">Masonicare</a> is a not-for-profit "senior services provider." <a href="http://http//www.myrecordjournal.com/wallingford/article_2fce0e70-7036-11e0-8479-001cc4c002e0.html">Per</a> the Meriden (CT) Record-Journal: <blockquote>A settlement agreement was reached today where Masonicare Health Center will pay the government almost $450,000 to resolve allegations the facility violated the False Claims Act, according to an announcement from U.S. States Attorney David B. Fein. Fein explained the allegations against the senior-focused inpatient and outpatient health care facility involved improper billing to Medicare and Medicaid for injections of leuprolide acetate, or Lupron. The medication is used to treat prostate cancer in men and endometriosis and fibroids in women. The billing code for the female-related dosage has a higher reimbursement rate than the code for male-related doses, according to the statement. The government alleges that Masonicare regularly billed for the female-related code for male patients who were being treated for prostate cancer, so they received a substantially higher reimbursement than it should have received, according to the statement. Further, the government alleges that in 2009, the company realized it had improperly coded the Lupron injections services but never self-disclosed its improper bulling to the government or made any attempt to pay the money back to the Medicare and Medicaid programs, Fein said.</blockquote> Summary So in the last 10 days or so, we have seen legal settlements of charges of kickbacks by a pharmaceutical services provider, submitting inflated claims to the federal government made by a subsidiary of a private equity group which also owns a large hospital system and group of physicians' practices, billing fraud by an academic medical center, and false claims by a senior health care services provider.  I begin to think that if we keep this blog going long enough, the <a href="http://hcrenewal.blogspot.com/search/label/legal%20settlements">parade of legal settlements</a> will include the majority of US health care organizations.  Again, such legal settlements serve as markers of the scope of bad behavior by a wide variety of health care organizations, including some of the largest and/or most prestigious, but also including many organizations that work regionally or at the community level.  Bad behavior indicated by<a href="http://hcrenewal.blogspot.com/search/label/legal%20settlements"> these settlements</a> seems so prevalent that it must be an important reason for the chronic problems that afflict US health care, rising costs, diminishing access, and stagnant quality.  However, it still seems to be politically incorrect to discuss such mismanagement, malfeasance and/or corruption as important causes of US health care problems.  Although sometime in the past there may have been a general societal understanding that health care organizations ought to be held to the highest standards, and ought to be lead by people with the best character and of the best reputation, now one seldom hears an expression of shame when such organizations settle claims alleging fraud, over-billing, etc, etc, etc. Like nearly all such cases we have previously reported, none of these cases seemed to involve any negative consequences for any persons who authorized, directed, or implemented the questionable acts.  While the fines involved may seem large to ordinary folk, they are not big enough to markedly affect the organizations involved.  So the <a href="http://hcrenewal.blogspot.com/search/label/legal%20settlements">parade of legal settlements</a> has had little deterrent effect.  Once again, I say: we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable.

The Continuing Parade of Legal Settlements by Health Care Organizations: Cardinal, Cerberus, Dartmouth-Hitchcock, Masonicare

Here is our latest round-up of the more colorful legal settlements made by some US health care organizations. Cardinal Health Cardinal Healt...

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Those Big Doors Keep Revolving

A few months ago, we <a href="http://hcrenewal.blogspot.com/2010/12/former-nih-director-spins-trhough.html">discussed</a> 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 <a href="http://www.bostonherald.com/business/healthcare/view.bg?articleid=1321146&format=text">reported</a> by the Boston Herald: <blockquote>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.</blockquote> Furthermore, <blockquote>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.</blockquote> Note that we have previously <a href="http://hcrenewal.blogspot.com/2011/02/send-mercenaries-guns-and-money.html">discussed</a> 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 <a href="http://www.bostonherald.com/jobfind/news/healthcare/view/2011_0302charlie_baker_a_health-care_catalyst_for_cambridge_vc_firm/srvc=home&position=also">came from</a> the Boston Herald: <blockquote>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.</blockquote> In addition, <blockquote>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.</blockquote> 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.

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 comm...

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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 <a href="http://www.miamiherald.com/2011/02/22/2079083/boston-firm-offers-600-million.html">reported</a> by John Dorschner in the Miami Herald, Jackson Health System has had some bad times: <blockquote>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.</blockquote>The Bid for Jackson Health The latest drastic measure proposed was a take-over by a for-profit corporation, one that <a href="http://hcrenewal.blogspot.com/search/label/Cerberus">we have heard of before:</a> <blockquote>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.</blockquote> Questions Appear Immediately The proposed deal immediately raised questions and concerns. The very nature of the deal was unclear: <blockquote>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.</blockquote> Also, in a <a href="http://www.miamiherald.com/2011/02/23/2082142/questions-raised-about-bid-to.html">follow-up story </a>by the same reporter, there were questions about the rapid time-table, <blockquote>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.</blockquote>There were questions about the company which proposed to buy Jackson: <blockquote>'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.</blockquote>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, <blockquote>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.'</blockquote> One day later, John Dorschner again writing for the Miami Herald <a href="http://www.miamiherald.com/2011/02/24/2084167/one-of-the-biggest-private-investment.html">raised more questions </a>about why a large private equity company would want to buy a money-losing public hospital system? First he noted, <blockquote>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</blockquote> So, <blockquote>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.</blockquote> The concern, again, was whether Cerberus would uphold the current mission of the hospital system: <blockquote>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.</blockquote> Of course, the <a href="http://www.jhsmiami.org/body.cfm?id=143">central mission </a>of the current Jackson Health System would seem to be charitable. <blockquote>To build the health of the community by providing a single, high standard of quality care for the residents of Miami-Dade County</blockquote> 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 <a href="http://hcrenewal.blogspot.com/2011/02/new-steward-health-care-will-superbowl.html">noted recently</a>, 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 <a href="http://hcrenewal.blogspot.com/2011/02/new-steward-health-care-will-superbowl.html">noted recently</a>, 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 <a href="http://www.healthecareers.com/physicians-surgeons-md-do/job/senior-medical-director/1171863">recent (posted 9 February, 2011) advertisement </a>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: <blockquote>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</blockquote>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 <a href="http://www.businessweek.com/magazine/content/10_33/b4191041673261.htm">reported</a> by BusinessWeek last year, <blockquote>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. </blockquote> In addition, <blockquote>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.' </blockquote> Also, as <a href="http://dealbook.nytimes.com/2010/04/12/cerberus-to-buy-dyncorp-for-1-5-billion/">reported</a> by the New York Times, Cerberus recently bought one of the biggest "private military contractors," <blockquote>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.</blockquote> That controversy was amplified in <a href="http://www.thenation.com/blog/mercenary-owners-they-are-changin-sort">an article </a>in The Nation by Jeremy Scahill, entitled "The Mercenary Owners, They Are a Changin' (Sort of) <blockquote>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.</blockquote>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 <a href="http://hcrenewal.blogspot.com/2007/12/relman-in-jama-on-threats-to-physicians.html">here </a>and <a href="http://hcrenewal.blogspot.com/2009/06/why-did-us-physicians-give-up-their.html">here</a>.)   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 <a href="http://www.youtube.com/watch?v=S5puAN1PGQw">performed</a> "Send Lawyers, Guns and Money." <iframe title="YouTube video player" width="425" height="349" src="http://www.youtube.com/embed/S5puAN1PGQw?rel=0" frameborder="0" allowfullscreen></iframe>

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 Dor...

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The New Steward Health Care: Will Superbowl Ads and "Leakage Reduction" Keep the Ship Afloat, or Will a "Greater Fool" Be Left Trying to Bail it Out?

Some recent publications raise interesting questions about the leadership of a regional health care organization which now seems to have intentions of going national.  A Superbowl Ad for Steward Health Care The millions watching the Superbowl, maybe the biggest single US sports event, expect to be dazzled by the new, extremely expensive advertisements to be aired during the television coverage of the event.  The Boston Globe <a href="http://www.boston.com/business/healthcare/articles/2011/02/04/caritas_owner_to_introduce_itself_in_local_super_bowl_ad">reported</a> that the glitzy offerings by Volkswagen and Budweiser will have an odd companion, at least in the Boston area: <blockquote>The local television audience for Super Bowl XLV on Sunday will get the usual array of high-impact commercials, from the suds of Budweiser to the sedans of Kia Motors. But amid all the elaborate productions, one quieter spot might stand out — an ad for Steward Health Care System, the Boston company formed to oversee the six Caritas Christi hospitals. During the 30-second commercial, Massachusetts residents talk about the importance of quality health care, as the camera roams through Brighton and Dorchester — the homes of St. Elizabeth’s Medical Center and Carney Hospital. There was no such marketing campaign for the hospitals before November, when they were bought by New York private equity firm Cerberus Capital Management. The ad will be broadcast only on WFXT-TV (Channel 25), not nationally. Officials at Steward said they were looking to introduce the health care service company to customers who may have never heard of Steward. The campaign also further demonstrates a different marketing approach for the regional hospital network as it transitions to a for-profit health care player.</blockquote> Why would a hospital system advertise during the Superbowl? <blockquote>Brian Carty, chief executive marketing officer at Steward, said that’s the aim: make a debut during the Super Bowl to reach a large swath of local consumers. 'You can only launch a brand once, and we wanted to launch it in the biggest way we could,' said Carty.</blockquote> It certainly is curious, particularly when the brand is only new in the most superficial sense. As noted above, Steward Health Care System is the new name given the former Caritas Christi, a regional Massachusetts health care system that was formerly non-profit and run by the Catholic Church, but was recently bought out by Cerberus Capital Management, a private equity company. We discussed concerns about whether a private equity group would put its short-term financial gain ahead of the patient care mission if given the chance to run a hospital system in a <a href="http://hcrenewal.blogspot.com/search/label/Caritas%20Christi">series of posts </a>in spring, 2010. A CEO with a Short-Term Focus Things get curiouser and curiouser. The Boston Globe also just published a lengthy <a href="http://www.boston.com/lifestyle/health/articles/2011/02/06/how_caritas_christi_ceo_ralph_de_la_torres_wall_street_gamble_will_rock_main_street_health_care">report</a> on former Caritas Christi, now Steward Health Care CEO Ralph De La Torre, which emphasized, perhaps unintentionally, his chronic focus on short-term gain. <blockquote>[Friend and mentor Dr David] Torchiana has been fielding questions from lots of colleagues wondering what de la Torre might to next. 'My view of Ralph,' he tells them, 'is that he's aggressive and unpredictable.'</blockquote> Forced Out His BIDMC Chief Dr de la Torre trained as a cardiovascular thoracic surgeon who apparently was a very highly regarded surgeon. But then, the article described how Dr de la Torre forced out his clinical and academic leader at the Beth Israel Deaconess Medical Center: <blockquote>He stayed at Boston Medical for only a year, jumping to Beth Israel Deaconess Medical Center for a better opportunity. Dr. Frank Sellke, Beth Israel’s relatively young interim chief of cardiothoracic surgery, saw great things in him. </blockquote> But then, <blockquote>After a couple of years, Sellke, who officially became chief in 2001, started hearing chatter that de la Torre was gunning for his job. He didn’t take it seriously. Traditionally, to be a chief at a Harvard-affiliated hospital like Beth Israel, you needed heavy research and teaching credentials, which de la Torre did not have. 'When I heard Ralph was trying to undo me, I thought it was joke,' Sellke says. 'It turns out the joke was on me.' In 2004, de la Torre greatly expanded his reach when hospital officials named him chief of cardiac surgery, a section within the division of cardiothoracic surgery. Two years later, he gained freer reign over cardiac care after the hospital removed Sellke as chief of the division. Sellke – who stresses that he is happy now as a chief at Brown Medical School and remains one of the country’s best-funded cardiac researchers – says that although he respects de la Torre’s talents, he lost respect for him as a person. 'He has a take-no-prisoners approach. If he interrupts or destroys someone else’s career, that doesn’t bother him in the least.'</blockquote>Developed CardioVascular Institute, then Left After this little coup d'etat, Dr de la Torre hatched a plan to integrate cardiovascular care at the BIDMC, but then flew the coop after it did not work out as planned: <blockquote>Instead, he hatched a plan to revolutionize cardiac care at Beth Israel. Traditionally, cardiac surgeons, vascular surgeons, and cardiologists operated in their own silos, even though they were all treating related cardiovascular diseases. De la Torre proposed the CardioVascular Institute, or CVI, as a way to break down those silos and centralize care by creating a 'hospital within a hospital.'</blockquote> But, <blockquote>The CVI officially opened in 2007, with de la Torre as president and CEO. He continued his work as a surgeon, maintaining the salary of more than $1.3 million that he had earned the previous year. Pomposelli says de la Torre’s enormous talent, intellect, and drive helped the CVI succeed in many ways, notably in removing waste from hospital operations and in building strong networks of affiliated physicians. De la Torre wined and dined community cardiologists around the region, persuading them to become affiliates and refer patients to Beth Israel for care. But Pomposelli concedes that the CVI fell short in other ways. The silos were harder to break down than they thought, especially since “we didn’t pay enough attention to academics and research.” Also the “enhanced revenues” to physicians turned out to be far less than promised, leading to resentment. Pomposelli, who remains the chief of vascular surgery at Beth Israel, stresses that the CVI still exists, but in a much less ambitious form. 'Ralph’s a builder. He loves the deal, loves creating new things,' Pomposelli says. 'I don’t think he loves managing things as much. Running the CVI turned out to be tedious and difficult.'</blockquote> And de la Torre was out the door before this idea turned out to be less than what he touted: <blockquote>In 2008, just a year after seeing his brainchild become a reality, de la Torre told Pomposelli he would be leaving to run the ailing Caritas hospital network.</blockquote>Left Republican Party, Became Democrat After assuming control of Caritas, Dr de la Torre seemed to abandon his previous political affilisations. <blockquote>As recently as 2007, he was a registered Republican. De la Torre (pronounced DEL-a-TOR-ree) says that, like many children of Cuban immigrants, he has long identified with the conservative Republican outlook on foreign policy, though he is a social liberal. Sometime after he moved to Newton, he switched his registration to independent. Regardless, he stresses that he was not politically active until recently, when he became motivated to fund Democratic candidates because of that party’s commitment to overhauling health care.</blockquote> Then, the instant Democrat contributed substantially to the campaign of Massachusetts Attorney General Martha Coakley, who had to approve the take-over by Cerberus of Caritas: <blockquote>she was the guest of honor at a ... fund-raiser held at the de la Torre home the previous fall when she was running for US Senate. Some state Republicans complained that Coakley should not have been signing off on a deal being advanced by a major campaign donor, although they could produce no evidence that her office’s review was anything but thorough and deliberative.</blockquote> And he hosted a better noticed fundraiser that that included a visit by President Obama, <blockquote>Just before 5 p.m. on a Saturday in mid-October, a Cadillac limousine climbed the curvy driveway outside the Newton home belonging to Dr. Ralph de la Torre and his wife, Wing. Inside, the 75 guests were anxiously awaiting the main attraction while staying busy wondering how long the de la Torres’ adorable 2-year-old twin sons would be able to keep their neckties attached and their dress shoes on. Swell parties like this are not uncommon in the West Newton Hill neighborhood, which is dotted with multimillion-dollar houses like the de la Torres’ place. Still, this gathering stood out for two reasons. First, just about every person attending had paid $15,000 a pop to be there. Second, the guest of honor was none other than President Obama.</blockquote>Abandoned Surgery and His Medical License More strikingly Dr de la Torre also effectively abandoned the profession which had earlier brought him so much recognition: <blockquote>After a decade of training to become a cardiac surgeon and endless effort to become one of the best in the business, de la Torre decided to walk away from surgery. He’d been in practice for only about nine years. De la Torre says it’s impossible to be a great heart surgeon working only part time. He even took the drastic step of letting his medical license expire, his way of refusing to look back. 'Burn the boats on the beach, baby!' he says.</blockquote>Saving Caritas: "Leakage Reduction" So what set of boats would he burn to promote Steward Health Care? When he took over Caritas, he was able to improve its finances, but only up to a point, <blockquote>The hospitals in the chain – flagship St. Elizabeth’s in Brighton, the Carney in Dorchester, Holy Family in Methuen, Good Samaritan in Brockton, St. Anne’s in Fall River, and Norwood Hospital – were all hurting. Worse, the system was weighed down by debt and underfunded pensions. De la Torre moved quickly to cut costs, improve efficiency, and negotiate increased reimbursement rates paid to Caritas hospitals by Blue Cross and other insurers. His actions helped turn around Caritas’s finances, going from a $20 million loss in 2008 to a $30 million operating income in 2009. But the debt, pension liabilities, and lack of access to capital combined to become an albatross on the chain. As of March 2009, Caritas had only 40 days’ cash on hand, according to Mark Rich, the CFO, who took to keeping extra-large bottles of Tums on his desk.</blockquote> His solution was the private equity take-over: <blockquote>In classic de la Torre style, the deal promised something for each of the stakeholders. The archdiocese, which administered the Caritas pension fund, would see support for the fund to the tune of $295 million as well as a continued commitment that the hospitals would follow Catholic doctrine and not perform abortions or sterilizations. The SEIU would get job preservation and a stronger beachhead in Boston from which to try to expand its organizing efforts into the city’s big-name hospitals. The communities would see their local hospitals stay alive, even getting spruced up rather than stripped for parts. And Cerberus would get a dynamic leader who could offer them both a laboratory for testing the post-health care-overhaul national market and a sort of cloak of righteousness, given the hospitals’ history of working with the poor. </blockquote> But how would Cerberus make money on its investment? The explanation in the article raises more questions than it answers: <blockquote>As he sees it, through investment in information technology and bricks-and-mortar hospitals, he will be able to offer a highly integrated 'accountable care organization' that gives patients quality care, close to home, thereby keeping costs down. The key is insisting that patients get all but the most complex care from their community hospital, rather than seeking treatment for pneumonia or a broken arm at a big shop like Mass. General.</blockquote> Left unsaid, though, is who could effectively "insist" that patients get all their care within the system? The notion that such insistence is the key also appeared in other reports on the Cerberus take-over of Caritas. For example, on October 14, 2010, the Boston Globe <a href="http://www.boston.com/business/healthcare/articles/2010/10/14/with_new_licenses_caritas_will_ask_sjc_to_approve_sale">reported</a> on Dr de la Torre's responses to the Massachusetts Public Health Council in a hearing on whether the take-over should be approved: <blockquote>De la Torre said his aim was to stop the 'leakage' of patients from communities served by Caritas hospitals to academic medical centers in Boston. 'The business plan, the strategy, or whatever you want to call it, is all about keeping care locally,' he said. 'If we improve the facilities, improve the infrastructure, make it so that our very own patients want to stay in our hospitals, that’s the business plan.'</blockquote> The same notion appeared in a <a href="http://blogs.wpri.com/2010/11/16/would-caritas-christi-buy-tauntons-morton-hospital/">post</a> in local television station WPRI's news blog about the possible take-over by Steward of another local hospital <blockquote>Private equity investors did not buy Caritas and turn it into a for-profit medical complex for the purpose of standing still. Caritas executives say they want to improve business by reducing 'leakage' — patients leaving its suburban medical settings to be treated in Boston teaching hospitals.</blockquote> In fact, a little Google searching revealed that Caritas Christi Network Services had been pushing "leakage reduction" in its own <a href="http://www.caritaschristi.org/doc/Page.asp?PageID=DOC002360">newsletter</a> in the Fall, 2009 issue: <blockquote>Our job now is to focus performance on two critical success factors: reducing leakage and improving quality.</blockquote> So, <blockquote>Leakage Reduction: Keep the Care in Caritas Network-wide Referral Management Our first initiative to help reduce leakage is to implement a network wide referral management program.</blockquote> Furthermore, <blockquote>Region Specific Leakage Action Plans Each of the Hospital and IPA presidents will collaborate to develop region specific action plans to reduce leakage. Together they will develop goals, identify reporting needs, and establish processes to achieve leakage targets. The participation and support of each physician IPA member will be important to the success of this initiative. You and Your Patient Your support in keeping the care you provide within the Caritas system and in participating in the care management initiatives is critical to the system’s success.</blockquote> Note that <a href="http://www.caritaschristi.org/CCNS/Home_Page">Caritas Christi Network Services </a>is apparently the subsidiary of Caritas Christi, now Steward Health Care, that employs physicians: <blockquote>Caritas Christi Network Services (CCNS) is the second largest physician network in Massachusetts. Established in 2001, CCNS is responsible for the implementation and successful execution of managed care contracts, providing physicians with medical management services (referral and care management), quality improvement programs, data analysis, information systems and financial expertise. </blockquote> But here is where it gets really tricky. It is one thing to aim to improve hospital services and accessibility in the hopes of attracting more patients. It is another thing to push physicians to refer patients to specific facilities for economic reasons, because physicians are supposed to make decisions for individual patients, including decisions about where to refer, based on the particular patient's needs and preferences. So there are major questions about both the effectiveness and the ethics of "leakage reduction" based on applying leverage to physicians. Summary: Will Someone End Up the "Greater Fool?" Meanwhile, Paul Levy, the soon to be former CEO of BIDMC, who has not been afraid to say what he thinks on his blog, now called <a href="http://runningahospital.blogspot.com/">Not Running a Hospital</a>, <a href="http://runningahospital.blogspot.com/2011/02/is-greater-fool-theory-alive-in.html">suggested</a> that Cerberus, and by implication, Dr de la Torre, are not in this for the long haul. He first introduced the "greater fool" theory of business management, <blockquote>It seems that there is no end to the number of people with cash who will be intoxicated by a good story line, even when there is little substance to back it up. All of these stories depend on the capital markets to bolster the price of investments, counting on the 'greater fool' theory: There is always someone who will take on a bad investment at just the wrong time, providing a good return to those who are lucky enough to escape before the crash.</blockquote> Then he raised the concern: <blockquote>Those seeking to regulate the behavior and financial decisions of for-profit hospitals will find that their post hoc authority will likely be insufficient to protect the public interest from a depletion of plant and equipment and from a plan that is mainly meant to burnish the pre-tax and pre-depreciation short-term earnings of the firm so that it is ready for the initial public offering or resale to another private equity firm.</blockquote> So the question is whether Superbowl advertisements and "leakage reduction" management can really make the new Steward Health Care a lasting success? And if not, will Cerberus Capital Management hang around just long enough to buff the system up for the next buyer? And if that happens, Levy noted: <blockquote>Who gets hurt if these deals go bust when the next generation of owners takes over and discovers that creating the margin to generate the expected return is very hard in the hospital world? Well, that very last set of investors, the 'greater fools.' But, as we have seen in the examples above, the hurt goes much further. Hospitals, though, are in a special category. Investors may come and go, but the community depends on its local hospital to provide high quality service. It is the residents of the community who are left holding the bag if the hospital corporation reaches the conclusion that ownership is not financially viable.</blockquote> 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.

The New Steward Health Care: Will Superbowl Ads and "Leakage Reduction" Keep the Ship Afloat, or Will a "Greater Fool" Be Left Trying to Bail it Out?

Some recent publications raise interesting questions about the leadership of a regional health care organization which now seems to have int...

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