healthy4u: Rhode Island Blue Cross

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

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The media today contains a host of stories about health care mismanagement at all sorts of organizations. Not for Profit RI Blue Cross Fights to Keep Paying Directors The <a href="http://www.projo.com/news/content/projo_20041215_blue15.eb905.html">Providence Journal reported </a>that not-for-profit RI Blue Cross is fighting in court to continue providing health insurance to its own board members, including the chair, also the head of the RI AFL-CIO, despite a new law that forbids compensation to board members without state approval. RI Blue Cross , which has about 70% of the health insurance market in little Rhode Island, fired its CEO this year after news reports of his huge salary, receipt of a $600,000 no-interest loan which he did not pay back, and, receipt of free acupuncture treatments from a practitioner who wanted to influence Blue Cross reimbursement policies. Meanwhile, Blue Cross was paying health care professionals poorly (often less than Medicare), while hiking premiums at double-digit rates. "Where's the Outrage Over King/Drew?" King/Drew Medical Center in Los Angeles, run by Los Angeles County, was <a href="http://www.latimes.com/news/local/kingdrew/la-me-kdday1dec05,0,5281026.story">documented by the Los Angeles Times </a>to have a history of medical errors and systemic quality problems, accompanied by high costs, and chronic personnel difficulties, (most strikingly 120 workers' compensation claims involving injuries incurred by falling out of chairs.) Today, <a href="http://www.latimes.com/news/opinion/la-oe-morrison15dec15,0,3878267.column?coll=la-home-utilities">op-ed columnist Pat Morrison wondered </a>at the silence of the politicians responsible for its oversight. Perhaps, they were afraid to criticize "the most symbolic and substantive institution in the black community", (per Asseymblyman Mervy Dymally). Morrison concluded that to politicians, "saving the hospital and its jobs matter more than saving the patients whose lives depend on it." British Foundation Hospital Trust Loses its Chair The chair of one of the new foundation hospital trusts in the UK was fired by the external Monitor organization after it incurred more than an 11 million pound deficit since April, <a href="http:///www.guardian.co.uk/uk_news/story/0,3604,1373818,00.html">reported the Guardian</a>. The trust's board and the Monitor organization have been exchanging charges about who is to blame. The Monitor accused the trust's board of covering up the deficit, after initially projecting a large surplus. Medicaid Money Went for Care of Dead People Several state Medicaid organizations were accused of mistaken payments. In Colorado, millions went to pay for care of people who were already dead, <a href="http://rockymountainnews.com/drmn/legislature/article/0,1299,DRMN_37_3400136,00.html">per the Rocky Mountain News</a>. In Washington (state), 1.4 million pills, including the narcotics Vicodin and Percocet, went missing, <a href="http://seattlepi.nwsource.com/local/aplocal_story.asp?category=6420&slug=WA%20Unaudited%20Medicaid">per the Seattle Post-Intelligencer</a>. Flawed Defibrillator Evaded FDA Scrutiny <a href="http://www.nytimes.com/2004/12/15/business/15device.html?hp&amp;ex=1103173200&en=1acb9230d6a94d4e&ei=5094&partner=homepage">The New York Times reported </a>how defective defibrillators escaped FDA oversight. The former CEO of Access Cardiosystems, locked in a legal battle with the company, notified the FDA late in 2003 of potentially defective products. An initial inspection did not find major problems, but when the company received more reports of problems last summer, the FDA responded failed to send inspectors back. A recall was finally ordered in November, and the company closed its doors, leaving customers, including emergency services units, scrambling to replace their now useless defibrillators.

Mismanagement Are Us

The media today contains a host of stories about health care mismanagement at all sorts of organizations.Not for Profit RI Blue Cross Fights to Keep Paying DirectorsThe Providence Journal reported tha…

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