healthy4u: generic managers

To Die in Texas - Dr Mahmood's Apparently Fatal Stealth Hospital System Collapses Nearly Anechoically

I would bet that most people in the US still think our health care system is highly regulated.  Some may thus conclude that the system is basically safe, because, for example, drugs have to be proven safe and effective to be approved by the government, and hospitals must be licensed and run by competent people who are thoroughly vetted.  Of course, some people still think that the US has, or had until recently, the best health care system in the world (look <a href="http://www.nbcnews.com/health/health-care/best-health-care-system-really-john-boehner-f2D11598594">here</a>). Furthermore, the view that less regulation is always better is no quite popular in the US and elsewhere.  For example, after the chemical spill threatened water supplies in the capitol of West Virginia, the Dallas News <a href="http://www.dallasnews.com/news/west-explosion/headlines/20131221-despite-crises-from-salmonella-outbreak-to-west-blast-rick-perry-s-pushed-freer-rein-for-business.ece">reviewed</a> Texas Governor Rick Perry's consistent attacks on government regulation.    <blockquote class="tr_bq">'American business in general, and American agriculture specifically, have had enough of bureaucracy at both the federal and state levels, but especially bureaucracy out of Washington,' Perry said at a congressional hearing. 'The men and women who feed and clothe this nation are suffocating under the weight of mounting federal regulations.' That was back in 1993, when Perry was Texas’ agriculture commissioner. Now Texas’ longest-serving governor, Perry has remained steadfast in his opposition to government regulations. </blockquote> Some who take such a neoliberal stance may say the health care system is over-regulated, and thus is inefficient and not innovative, leading to our high costs and poor access. However, an amazing case out of Governor Perry's Texas that was made public last year, and I regret I just heard about recently, suggests how little health care may be regulated, and how unregulated health care, whether or not it is efficient, may be deadly. As <a href="http://www.dallasnews.com/investigations/patient-safety/headlines/20130713-patients-died-amid-federal-state-regulatory-inaction.ece">reported</a> in the Dallas News, July, 2013, in the last few years there seems to have been an epidemic of quality problems in a number of seemingly unrelated small rural Texas hospitals.  The report focused first on one hospital, Renaissance Hospital Terrell After for-profit hospital corporation Renaissance Healthcare declared bankruptcy in 2008 (look <a href="http://www.bizjournals.com/houston/stories/2008/09/08/story6.html">here</a>), it sold its hospital in Terrell, Texas to RH Terrell Management LLC owned by one Dr Tariq Mahmood.  Almost immediately, however, there was trouble.  First Edwina Henry, the quality director, spied a doctor making questionable entries in patients' charts: <blockquote class="tr_bq">from her office, she had a clear view of doctors’ foot traffic through the medical records department. When she saw [Dr Tariq] Mahmood jotting in patient charts, she knew he wasn’t seeing patients. Mahmood himself had not been credentialed to treat patients — a process in which management vets backgrounds and competencies of doctors. Part of Henry’s job was tracking such evaluations. She also knew it was a breach of privacy laws to review patients’ medical records. 'I immediately questioned some of the clerks and [insurance billing] coders,' she said. They were deeply concerned, saying he was altering the patients’ records to help boost reimbursements for insurance claims, Henry said.</blockquote> When Ms Henry complained, things did not go well, <blockquote class="tr_bq">Henry made her confidential call to the bankruptcy court in early November 2008, alleging potential fraud and threats to patient care that were eluding government notice [Ed - note that the hospital was going through bankruptcy proceedings and had just been acquired by a new owner]. The court forwarded her complaint to the U.S. Justice Department, the Texas attorney general’s office and the state health department, officials confirmed. Later that month, the state health department sent an inspector to the hospital. However, the visit was brief, Henry said, and the inspector didn’t interview her or seek her help in obtaining records. Williams, the health department spokeswoman, told The News her agency’s records show the inspector was unable to substantiate violations at the time. Henry was terminated from Renaissance as part of a 'restructuring'.... </blockquote>Then the hospital was cited for turning patients away from the emergency department, <blockquote class="tr_bq">At Renaissance, two women in labor, one bleeding, were refused treatment. The inspection reports don’t reveal whether the women suffered complications because of the delays. A Renaissance employee told one of the women that if she 'could stand there and have a conversation with them then (she) wasn’t about to have a baby,' reports say.</blockquote> Then there were problems with infection control, <blockquote class="tr_bq">At Renaissance, no supervision over infection control could be found. For three months in the summer of 2010, no one was in charge of tracking infectious diseases or preventing their spread.</blockquote> The next year, the problem was blood transfusions <blockquote class="tr_bq">Inspectors returned to Renaissance in September 2011 to investigate a botched blood transfusion procedure. They found that a registered nurse had not supervised the patient’s care. In another case, an inspector witnessed an unsupervised vocational nurse administering blood to a patient, despite no evidence that she was competent to do so — another violation.</blockquote> In 2012, <blockquote class="tr_bq">During the summer, the Texas secretary of state had revoked Renaissance’s business charter for failure to pay franchise taxes. That office didn’t share the information with the health department; it isn’t required to do so. In September, state health regulators notified Renaissance that they were proposing a $35,050 fine for 13 violations, including the nursing supervision failures, dating as far back as 2010. Williams, the health department spokeswoman, could not explain why the fine process took nearly two years since the first violation. </blockquote> Finally, in 2013, patients started to die, <blockquote class="tr_bq">In January of this year, when state inspectors returned to Renaissance, they found nursing supervision failures yet again. This time, the failures had led to three deaths: All ER patients. All with severe breathing difficulties. All receiving little to no intervention as their conditions worsened.</blockquote> In particular, <blockquote class="tr_bq">[Eve] McCallum sought her own care after complaining of shortness of breath during a family dinner. McCallum had chronic obstructive pulmonary disease. When she was admitted, nurses were ordered to monitor her vital signs and oxygen levels. Her breathing soon improved, said her niece, Lou Ann Sims. 'We were fully expecting to pick her up the next morning,' Sims said. Instead, they watched helplessly as her condition deteriorated. On Christmas Day, a physician explained to McCallum’s family that she had to be transferred to the intensive care unit. Later, Sims witnessed a scene she can’t let go of: Her aunt lay connected to a ventilator while a nurse stood smoking a cigarette just outside the door. The nurse had propped open the door with an IV pole. The family immediately sought to have McCallum transferred to another hospital. But hospital officials told them 'this would be a lateral move and was not allowed,' according to a transcript of an interview the family later conducted with state officials. McCallum died two days later. Inspectors wrote that a licensed vocational nurse had been left in charge of her treatment, without a registered nurse’s oversight. There was no evidence an RN had assessed her condition on admission or was watching over her in the ICU. They could find no doctor orders to place her on oxygen, no order for medications administered to her, 'nor evidence of communication with the M.D.' Suspecting more than just care breakdowns at Renaissance, McCallum’s family reported her death to the Texas attorney general’s fraud-control unit.</blockquote> So partially in response to this egregious case, <blockquote class="tr_bq">By February, the state health department had moved to revoke Renaissance’s operating license, and CMS had ordered its federal funding terminated — only the ninth time nationally in the last three years CMS had taken such a step.</blockquote> Even those steps could not shut down the hospital, but city officials took that last step due to the failure to pay taxes. Other Hospitals Dallas News reporter Miles Moffeit found several other cases of severe problems at small hospitals owned by Dr Mahmood, with at least one patient death apparently resulting, . Shelby Regional Medical Center This hospital was owned by Tenet Healthcare, but was sold to another of Dr Mahmood's companies, Shelby Medical Holdings, in 2007 (look <a href="http://www.beckershospitalreview.com/hospital-management-administration/shelby-regional-medical-center-in-texas-closes-its-doors.html">here</a>).  In 2009, this hospital was also cited for providing insufficient treatment in the emergency department. In 2012, things were really falling apart, <blockquote class="tr_bq">In October 2012, inspectors were at Shelby chronicling dirty, clogged air-conditioners and failures to prevent ceiling plaster 'from falling into the patient food service line and contaminating food.' Those problems put patients’ safety in 'immediate jeopardy,' they wrote. As inspectors roamed Shelby’s halls in December, the power suddenly went out in four buildings, though not in the main hospital facility itself. The electric bill hadn’t been paid. They found other debts stacking up, too — as much as $190,442 owed to as many as 79 service providers. Signs of neglect were everywhere. Only three of 20 patient rooms inspected were 'fully functional for patient care,' they wrote. They found holes in walls, dirty and tattered curtains, and patients complaining of heat pouring from the faulty A/C system.</blockquote> Finally, in 2013, another patient died, <blockquote class="tr_bq">On Wednesday, CMS cut off federal funding to ... Shelby Regional Medical Center in Center in East Texas after regulators said a patient rushed there by ambulance never received treatment from a doctor. The ER physician wouldn’t leave his 'sleep room,' the inspection report said, resulting in the patient’s death. Regulators also cited the hospital for failing to vet backgrounds of doctors and nurses. </blockquote>Apparently soon thereafter Dr Mahmood shut the hospital down due to "legal issues that ... [he] is facing," <a href="http://lightandchampion.com/article/003856-mahmood-closes-shelby-regional-medical-center-staff-volunteers-time-until-doors-shut">per</a> the Shelby Light and Champion. Lake Whitney Medical Center Dr Mahmood apparently purchased this hospital from a struggling local hospital authority in 2007.   In 2009, it was cited for inadequate care in the emergency department, <blockquote class="tr_bq">At Lake Whitney, a nurse acknowledged to inspectors that she had shredded records of a patient who was denied care following a fall, according to a report. The 'patient wasn’t going to pay anyway,' the nurse was quoted as saying in the document.</blockquote> In 2010, there was evidence of major infrastructure problems, <blockquote class="tr_bq">At Lake Whitney, patients were served food on rusty 'over-the-bed tables that were a source of possible infections for open wounds.' Bulging ceiling tiles exposed pipes. Pavement outside a main hospital door was 'cracked and unlevel,' putting patients at risk of injury. </blockquote>As Dr Mahmood's legal troubles mounted, the hospital was sold to Frontier Hospitals Inc (look <a href="http://watchdogblog.dallasnews.com/2013/08/florida-company-takes-over-lake-whitney-medical-center-effectively-dissolving-embattled-owners-troubled-chain.html/">here</a>). Cozby-Germany Hospital  I have been unable to discover when Dr Mahmood purchased this hospital.  In 2010, it became apparent that the hospital was not properly licensed, <blockquote class="tr_bq">'The administrator reported the new owner had not notified (CMS) … and has not applied for hospital licensure with the state licensing agency,' a report said. [The owner] ... also was found to have appointed his own employees to the hospital’s governing board of directors, instead of independent outsiders.</blockquote> And there were more severe problems with credentialing, <blockquote class="tr_bq">At Cozby-Germany hospital, hospital inspectors discovered that the chief of staff and another doctor had expired medical licenses. There were no 'functional' nurse and doctor credentialing processes, and clinical policies had not been updated since 2008, they said. The hospital pledged reforms.</blockquote> But in May 2011, records show, Cozby hired one of Texas’ most notorious doctors, Rolando Arafiles. <blockquote class="tr_bq">At the time, Arafiles had been placed on probation by the medical board for allegations of harming nine patients, overbilling and improper coding at a Winkler, Texas, facility, according the board. He also was disciplined for intimidating the Winkler nurses who blew the whistle on his practices. In November, Arafiles would be convicted of two felonies linked to the retaliation and would surrender his license.</blockquote> In 2013, two local doctors purchased the hospital. The Vanishing Owner What made this series of cases all the more amazing is that it was really one interlinked case.  All these hospitals, plus a few more, had the same owner.  Yet no one, especially  no one in state or federal government knew that until 2013 when the facts were uncovered by Mr Moffeit. <blockquote class="tr_bq">[Dr Tariq] Mahmood, a Pakistan-trained doctor, obtained his Texas medical license in 1978. Since 2008, he has practiced medicine only at his Central Texas Hospital in Cameron, south of Waco, records with the Texas Medical Board show. Older documentation is not available. Over the last two decades, he has purchased at least six hospital companies and two home-health care agencies, according to filings with the Texas secretary of state. He also has invested his money outside health care, acquiring the historic Hotel Lawrence in downtown Dallas, property records show. In addition to Renaissance, Shelby and Central Texas Hospital, Mahmood owns the Lake Whitney Medical Center in Whitney and Cozby-Germany Hospital in Grand Saline. He sold Community General Hospital in Dilley around the time of his arrest in April. The hospitals have no common corporate identity and little or no website presence, making it difficult for anyone to know they are owned by Mahmood or are part of a chain.</blockquote> However, much bout Dr Mahmood was mysterious, and the deliberate cultivation of mystery might have slowed the response to this case. <blockquote class="tr_bq">Mahmood is rarely seen in the communities where his hospitals are located, say business associates and city officials. Sometimes they catch a glimpse of him passing by in a chauffeur-driven car. 'He’s almost impossible to track down' to discuss business matters, said Tom Elliott, a director for a nonprofit company that owns the hospital building in Grand Saline. 'He lets his people do the talking.' Mahmood is a mystery to many of his own employees. He works almost entirely behind the scenes, they say, focusing largely on the business side of his operations. He often is traveling or spending time at his 10,000-square-foot gated estate in Cedar Hill, they say. 'We see him maybe once a year,' said one of his hospital physicians. 'The employees say he doesn’t like confrontation. I say he just doesn’t like to communicate. He seems to live in a different world.'</blockquote> Aftermath  At some point, the shadowy Dr Mahmood may have to answer for all this, at least to some extent, <blockquote class="tr_bq">In April, federal authorities charged the 62-year-old Cedar Hill resident with defrauding Medicare and Medicaid programs through $1.1 million in false billings. Mahmood is accused of directing employees at his Central Texas Hospital in Cameron to alter underlying information in insurance claims from his other hospitals. 'In many cases,' the indictment alleges, these were 'for patients he had never seen.' Mahmood pleaded not guilty, and his attorney said he denies all charges. He has declined repeated interview requests from The Dallas Morning News. </blockquote> Note, however, that these are charges of financial fraud.  They do not obviously have to do with poor quality care, risks to patients' safety, or the deaths of at least three patients as discussed above. This case was so bad that even the current Governor of Texas, Rick Perry, a politician known for taking a small government, minimal regulation stance, at least said he was going to take some action, as <a href="http://www.dallasnews.com/investigations/patient-safety/headlines/20130719-perry-orders-investigation-into-oversight-of-troubled-rural-hospital-chain.ece">reported</a> again in the Dallas News, <blockquote class="tr_bq">The governor’s office has ordered a 'deep and comprehensive look' at health care facilities owned by Dr. Tariq Mahmood, whose chain of rural Texas hospitals avoided serious regulatory action despite years of endangering patients. The inspector general for the state Health and Human Services Commission and one of the agencies it oversees, the state health department, will conduct separate investigations, officials said Friday.</blockquote> And in February, 2014, the Dallas News <a href="http://www.dallasnews.com/investigations/20140206-texas-hospitals-chief-faces-fraud-charges-over-use-of-stimulus-grants.ece">reported</a> that the chief financial officer of the Dr Mahmood's stealth hospital chain was also in hot water, <blockquote class="tr_bq">The top administrator of a chain of hospitals that collapsed under the ownership of a North Texas physician faces charges that he defrauded the federal government of nearly $800,000 in stimulus funds. Joe White of Cameron rose from maintenance man to head administrator and chief financial officer over hospitals once owned by Dr. Tariq Mahmood. Now he joins Mahmood in facing the possibility of prison time. Like Mahmood, who pleaded not guilty, White is accused of identify theft and bilking the federal government of health care dollars. White has yet to enter a plea.</blockquote> Note that the CFO and apparently COO was not even a professional generic manager.  He was a former maintenance man  and operator of a Radio Shack store..  Dr Mahmood has not yet come to trial.  Many questions about the case remain unanswered:  -  Did Mahmood the only person besides his CFO cum maintenance man in charge of all this, or did he have other backers,  cronies, associates? -  What happened to the rigorous state investigation promised by Rick Perry? -  Given that what went on harmed patients, and hence was not just financial manipulation, are there any civil lawsuits pending?  Are there any other criminal investigations?\ Furthermore, despite its egregious nature, this case was amazingly <a href="http://hcrenewal.blogspot.com/search/label/anechoic%20effect">anechoic</a>  The only national recognition I could find was i<a href="http://runningahospital.blogspot.com/2013/07/hospital-slumlord.html">n Paul Levy's Not Running a Hospital blog.</a>  Seven months later, I could find nothing in the national media, nothing in medical and health care literature.  Despite the amazingly poor quality of care in evidence, despite the fact that patients died, I could find no cries of outrage from those who proclaim to support quality health care or patient safety.  Summary Dr Mahmood and his chief operating and financial officer collectively displayed leadership that was ill-informed (the COO/ CFO was a former maintenance man), incompetent (see the egregious health quality problems listed above), self-interested (note the size of Dr Mahmood's mansion versus how little was obviously spent on his hospitals), opaque and dishonest (note how Dr Mahmood's ownership of the hospitals was obscured), and allegedly criminal.  This leadership persisted over at least eight years until it culminated in cases of apparently needless patient deaths.   The amazing case of the stealth for-profit hospital system run by Dr Mahmood, and how its combined problems failed for so long to get systemic regulatory notice hardly suggest that our health care system is heavily regulated, or that current regulation can be relied upon to reassure patients that all is well and that the system is safe. In fact, in the case of Dr Mahmood, government regulators did not seem to even want to know too much about hospital ownership, <blockquote class="tr_bq">Top health regulators weren’t even aware Mahmood owned several hospitals until The News sought information about them earlier this year. Regulatory agencies aren’t set up to track problem hospital owners or hold them accountable. Nor do they look for patterns of care breakdowns inside hospital chains. 'We just don’t have that authority,' said David Wright, deputy regional administrator for CMS. The federal agency oversees the state health department’s inspections of federally funded hospitals. 'We can only address problems in stand-alone facilities.'</blockquote> Furthermore, it appears that modern regulators have decided to become hospital managers' and owners' best friends, <blockquote class="tr_bq">The process allows hospitals to avoid sanctions if they cooperate. Hospitals submit “corrective action plans” to remedy failures. It can take months for state regulators to bring penalties such as fines against a facility. In the case of Renaissance, it took years. 'We want to do what’s in the best interest of the patients, and our regulatory philosophy is to get hospitals into compliance,' said Carrie Williams, spokeswoman for the Texas Department of State Health Services. 'We’re not in the business of shutting down hospitals. We will give them some leeway and work with them.'</blockquote> Of course, this minimalist, light touch regulatory methodology may have made some sense in an earlier era when nearly all hospitals were small community not-for-profit organizations, non-profit academic institutions, or were run by local governments.  It seems quaint, and hopelessly out of date in an era when most hospitals are part of <a href="http://hcrenewal.blogspot.com/search/label/hospital%20systems">ever larger systems,</a> now often owned for-profit corporations, and when hospital system CEOs who are professional, and thus <a href="http://hcrenewal.blogspot.com/search/label/generic%20managers">generic managers</a>, not health care professionals, in an era of <a href="http://hcrenewal.blogspot.com/search/label/financialization">financialization</a> and "maximizing shareholder value," that is, making short-term revenue the most important outcome. Instead, the current minimalist regulatory system seems insufficient to prevent patients from dying of poor care allowed by poor leadership of health care organizations.  Much of the content of this blog has been about bad health care leadership, i.e., leadership that is <a href="http://hcrenewal.blogspot.com/search/label/ill-informed%20management">ill-informed</a>, incompetent, unsympathetic or <a href="http://hcrenewal.blogspot.com/search/label/mission-hostile%20management">hostile to health care professionals' values</a>, self-interested, <a href="http://hcrenewal.blogspot.com/search/label/conflicts%20of%20interest">conflicted</a>, dishonest, or even <a href="http://hcrenewal.blogspot.com/search/label/health%20care%20corruption">corrupt</a>.  In my humble opinion, health care regulation ought to be sufficient to promote competent, caring, unconflicted, honest leadership that is accountable for putting patients' interests ahead of self-interest.  Regulation needs to be more intense, and much smarter, geared to the reality of a health care system that is now largely for-profit in an era when management dogma puts revenue ahead of all other concerns. Maybe the deaths of some patients in Dr Mahmood's Texas hospital will finally let the air out of the mindlessly anti-regulatory bubble, and start some discussion of intelligent regulation to improve patient safety. However, that cannot happen if this case remains anechoic.  I regret it took me so long to find it, but now I have done my part to start some echoes.  But where are the media, where are the journal editors, and where are those who so loudly proclaim their interest in patient safety and health care quality? In particular, there are several prominent organizations that claim to promote health care quality and patient safety.  These organizations make these claims- <a href="http://www.jointcommission.org/topics/patient_safety.aspx">Joint Commission</a> <blockquote class="tr_bq"> For more than 60 years, The Joint Commission has been a champion of patient safety by helping health care organizations to improve the quality and safety of the care they provide. </blockquote> <a href="http://www.leapfroggroup.org/about_leapfrog">Leapfrog Group</a> <blockquote class="tr_bq"> The Leapfrog Group is a voluntary program aimed at mobilizing employer purchasing power to alert America’s health industry that big leaps in health care safety, quality and customer value will be recognized and rewarded.</blockquote> <a href="http://www.qualityforum.org/who_we_are.aspx">National Quality Forum</a> <blockquote class="tr_bq"> Transforming our healthcare system to be safe, equitable, and of the highest value will take time and the work of many, but the potential rewards are great. The National Quality Forum (NQF) is a nonprofit, nonpartisan, public service organization committed to this transformation. </blockquote> <a href="http://www.rwjf.org/en/about-rwjf/our-mission.html">Robert Wood Johnson Foundation</a> <blockquote class="tr_bq">Our efforts focus on improving both the health of everyone in America and their health care—how it's delivered, how it's paid for, and how well it does for patients and their families. </blockquote> These  organizations should the ones to start the conversation about improving rather than forever shrinking regulation.   I have not heard anything from them about the deadly hospitals of Dr Mahmood.  Are they listening now?  Will we ever hear from them?  Time will tell....   Note: the entire Dallas News series on the Mahmood hospitals can be found <a href="http://res.dallasnews.com/interactives/collapseofcare/">here</a>.

To Die in Texas - Dr Mahmood's Apparently Fatal Stealth Hospital System Collapses Nearly Anechoically

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18 Feb 2014

Putting Finance Executives in Charge of Health Care? - What Could Possibly Go Wrong?

A US News and World Report <a href="http://health.usnews.com/health-news/hospital-of-tomorrow/articles/2014/01/28/wanted-hospital-ceos-without-health-care-experience">article</a> affirms what we have <a href="http://hcrenewal.blogspot.com/2013/12/health-care-experience-hospital-ceos.html">previously written</a>, that those charged with the stewardship of US hospitals are even more inclined now to hire top managers with little or no health care experience or credentials.  Putting Finance Managers in Charge They particularly seem to favor executives drawn from the world of finance. Just to make it really clear, the exposition started with the article title, <blockquote class="tr_bq">Wanted: Hospital CEOs Without Health Care Experience </blockquote> The article drew on some of the figures about executive hiring which we <a href="http://hcrenewal.blogspot.com/2013/12/health-care-experience-hospital-ceos.html">discussed</a> in December, 2013, <blockquote class="tr_bq">It’s expected that two-thirds of hospital CEOs hired this year will have little to no health care experience, according to Black Book Rankings, which last year conducted a poll of 1,404 human resource officers and board members of health care organizations</blockquote> However, the new article profiled some examples, <blockquote class="tr_bq">.When Carlos Migoya was hired in May 2011 to run Jackson Health System, Miami-Dade County’s safety net hospital system, he had no health care experience. A career banker, Migoya took over.....</blockquote> Also, <blockquote class="tr_bq">Mike Keating, CEO of Christ Hospital in Cincinnati, previously was an investment banker.;Robert Meyer, president and CEO of Phoenix Children's Hospital, came from the consulting world;... </blockquote> The article stressed that hospital boards think a background in finance is particularly valuable. <blockquote class="tr_bq">Hospital board and HR directors are looking for non-industry productivity, business development and financial management experts with heavy technological expertise. </blockquote> Also, <blockquote class="tr_bq">[executive vice president and managing principle at Cejka Executive Search. Paul]  Esselman  notes that boards increasingly 'are looking at leaders from managed care, the payer side or from finance or banking.'</blockquote> Why Hospital Boards Favor Finance Executives <blockquote class="tr_bq">banking, like health care, is heavily regulated and that two decades ago banking went through significant consolidation, which hospitals today face.</blockquote> So, <blockquote class="tr_bq">[ managing partner of Black Book Rankings Doug] Brown says leaders that come from productivity-focused fields and sectors that have endured consolidation are particularly suited for running hospitals today. Those in financial services may prove useful in today’s climate, as 'there are a lot of troubled hospitals,' he says.</blockquote> As we <a href="http://hcrenewal.blogspot.com/2013/12/health-care-experience-hospital-ceos.html">noted before</a>, the article suggested that those who hire hospital executives think their most important challenges s included  - <blockquote class="tr_bq">'Communication is now more important than ever,; says Paul Esselman</blockquote> <blockquote class="tr_bq">the opportunities come in delivering its service or business lines to ever-expanding distribution channels.</blockquote> <blockquote class="tr_bq">says [former investment banker Mike] Keating. 'The key in health care is how you go about executing and executing well.'</blockquote> <blockquote class="tr_bq">[former banker Carlos] Migoya put in place operational reforms, including bringing in 'a lot of people with for-profit experience' to maintain expense controls, monitor operations, collect payments more quickly and pay its own bills sooner to gain prompt-payment discounts. Then, 'we realigned procurement,' he says, adding 'we motivate our procurement department with incentives,' which 'dramatically improved' Jackson Health’s process, time and costs. Meanwhile, the system outsourced pharmaceutical management, saving $15 million a year.... </blockquote> Note that these examples are all about management process and financial outcomes, NOT about clinical processes, quality of care, or patient outcomes.  (The only mention of anything close to clinical management was a plan to outsource same.) Left unsaid is that the boards charged with the stewardship of hospitals are now mainly composed of business executives, often heavily weighted with those in finance.  Summary - What Could Go Wrong? Of course, former bankers, and others from the world of <a href="http://hcrenewal.blogspot.com/search/label/finance">finance </a>may not really know much about clinical work, quality of care, or patient outcomes.  They may not have been picked because they care about such issues, nor socialized with the "patient first" mantra which health professionals are supposed to support.  Worse, it seems that those who choose hospital executives may not be thinking about the recent history of finance.  True, it shares with health care the presence of regulation and increasing consolidation.  However, as we all started to realize in 2008, the leaders of finance helped bring on the worst financial crisis since the great depression.  More than five years since the beginning of this new great recession, US median income is dropping adjusted for inflation, while income inequality has tremendously increased.  Finance executives have been prime proponents of <a href="http://hcrenewal.blogspot.com/search/label/financialization">financialization</a>, the theory that increasing shareholder value, which really seems to translate into increasing organizational short term income and increasing executive compensation are more important than any other outcomes.  Thus seems to correspond to the discussion above about financial and management objectives sans any notion of what is good for patients. Even more disturbing is all the anecdotal evidence that business management, particularly in finance, has been gripped by overarching greed.  Pope Francis called it the "idolatry of money."  (look <a href="http://www.washingtonpost.com/business/economy/pope-francis-denounces-trickle-down-economic-theories-in-critique-of-inequality/2013/11/26/e17ffe4e-56b6-11e3-8304-caf30787c0a9_story.html">here</a>). In his graphic <a href="http://www.nytimes.com/2014/01/19/opinion/sunday/for-the-love-of-money.html">memoir</a> of his days as a successful Wall Street trader, Sam Polk called it wealth addiction, .  <blockquote class="tr_bq">I noticed the vitriol that traders directed at the government for limiting bonuses after the crash. I heard the fury in their voices at the mention of higher taxes. These traders despised anything or anyone that threatened their bonuses. Ever see what a drug addict is like when he’s used up his junk? He’ll do anything — walk 20 miles in the snow, rob a grandma — to get a fix. Wall Street was like that. In the months before bonuses were handed out, the trading floor started to feel like a neighborhood in 'The Wire' when the heroin runs out.</blockquote> He was not the first to describe wealth addiction: <blockquote class="tr_bq"> Wealth addiction was described by the late sociologist and playwright Philip Slater in a 1980 book, but addiction researchers have paid the concept little attention. Like alcoholics driving drunk, wealth addiction imperils everyone. Wealth addicts are, more than anybody, specifically responsible for the ever widening rift that is tearing apart our once great country. Wealth addicts are responsible for the vast and toxic disparity between the rich and the poor and the annihilation of the middle class. Only a wealth addict would feel justified in receiving $14 million in compensation — including an $8.5 million bonus — as the McDonald’s C.E.O., Don Thompson, did in 2012, while his company then published a brochure for its work force on how to survive on their low wages. Only a wealth addict would earn hundreds of millions as a hedge-fund manager, and then lobby to maintain a tax loophole that gave him a lower tax rate than his secretary.</blockquote> Physicians swear oaths to put patient care ahead of all else.  While we may be far from perfect in our adherence to these oaths, I would like to think that when health care organizations were lead by health professionals, many tried to put patient care first  Yet professional managers, not health care professionals now lead health care. .In 1988, Alain Enthoven advocated in <a href="http://www.amazon.com/gp/product/0444703594/102-6581115-0444916?n=283155">Theory and Practice of Managed Competition in Health Care Finance</a>, a book published in the Netherlands, that to decrease health care costs it would be necessary to break up the "physicians' guild" and replace leadership by clinicians with leadership by managers (see 2006 post <a href="http://hcrenewal.blogspot.com/2006/03/consequences-of-breaking-physicians.html">here</a>). Thus from 1983 to 2000, the number of managers working in the US health care system grew 726%, while the number of physicians grew 39%, so the manager/physician ratio went from roughly one to six to one to one (see 2005 post <a href="http://hcrenewal.blogspot.com/2005/04/growing-proliferation-of-managers.html">here</a>). As we noted <a href="http://hcrenewal.blogspot.com/2013/09/a-plague-of-bureaucrats-now-10-per.html">here</a>, the growth continued, so there are now 10 managers for every US physician. The managers who first took over health care may have had some health care background.  Now it seems that health care managers are decreasingly likely to have any health care background, and increasingly likely to be from the world of finance.  Can anyone seriously believe that finance managers taught to put short-term revenue first, and who may often be wealth addicts who practice the idolatry of money in charge of health care is going to improve anything other than those same managers' wealth? As I have said before,  true health care reform would put in place leadership that understands the health care context, upholds health care professionals' values, and puts patients' and the public's health ahead of extraneous, particularly short-term financial concerns. We need health care governance that holds health care leaders accountable, and ensures their transparency, integrity and honesty. But this sort of reform would challenge the interests of managers who are getting very rich off the current system.  So I am afraid the US may end up going far down this final common pathway before enough people manifest enough strength to make real changes.

Putting Finance Executives in Charge of Health Care? - What Could Possibly Go Wrong?

A US News and World Report article affirms what we have previously written, that those charged with the stewardship of US hospitals are even more inclined now to hire top managers with little or no he…

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30 Jan 2014

Health Care Experience? - Hospital CEOs Don't Need No Stinkin' Health Care Experience

It looks like the complete takeover of health care by generic managers is nigh.  Who Are Now Candidates to be Hospital CEOs? On PRWeb is a <a href="http://www.prweb.com/releases/2013/12/prweb11421983.htm">summary</a> of data about what sort of CEO candidates hospitals' boards of trustees are seeking: <blockquote class="tr_bq">A Black Book Rankings poll of 1,404 healthcare provider organizations’ human resources officers and board members revealed the developing trend affecting the way headhunters will seek candidates. Black Book estimates that two-thirds of CEOs hired in 2014 will have little to no healthcare sector experience, in favor of non-industry productivity, business development and financial management experts with heavy technological expertise. </blockquote> From where are the new CEOs coming? <blockquote class="tr_bq"> Among survey respondents, the most intriguing new hospital CEO candidates are emerging from the Venture Capital, Private Equity industry (idealized by 42% of survey participants), Finance and Accounting (40%), Banking (32%), Technology (22%), Marketing and Sales (19%), Not-for-Profits ( 14%), and Pharma/Biotech (12%).</blockquote> Note that the CEO candidates did not seem particularly intimidated by running a hospital without any relevant experience, knowledge, or possibly values. <blockquote class="tr_bq"> 94% of new CEOs without extensive hospital backgrounds indicate they do not believe healthcare expertise is required for replacing other senior leadership team members after a management overhaul.</blockquote> Why Are Health Care Naive CEOs Increasingly Common? What is causing the attractiveness of candidates without background in, knowledge of, to particular agreement with the values of health care? <blockquote class="tr_bq">'An outside hire will not have developed hospital management skills from within or understand an organization's unwritten rules at first, but that’s not a bad thing either as more hospitals face fresh ideas to avoid bankruptcy, expedite smoother consolidations, conquer payment reform, and productivity issues,' said Doug Brown, Managing Partner of Black Book™.</blockquote> In addition, <blockquote class="tr_bq">A new CEO’s first decisions are often distruptive to a hospital’s staff, particularly the incumbent management team. 'An outsider's perspective on hospital operations will be controversial but often credited in several facility turnarounds for bolstering organizational financial stability, and ultimately profitability,' noted Brown.</blockquote> It is not just Mr Brown's opinion, <blockquote class="tr_bq">89% of board members hiring outsiders agree that broad business operational expertise and singular vision pays off with fresh perspectives on efficiencies, value, cost savings, and the goodwill to the community.</blockquote> What particular circumstances might prompt hospital boards to look for health care naive CEO candidates? <blockquote class="tr_bq"> 'Hospitals facing stalled growth or new competitive challenges need fresh thinking. Hiring internal candidates with the same norms and values as your current team will not meet the long term strategic growth needs of the hospital organization. Relevant outside thinking makes a valuable contribution, enhancing business vitality, longevity and sustainability. Staying contemporary, revitalizing your brand, enhancing products and expanding into new markets all begin with the next person you interview and add to your senior leadership team,' added Brown.</blockquote> By the way, similar surveys suggest the same trend affecting other parts of health care, <blockquote class="tr_bq">Payers, chains, ancillaries, ACOs, support firms, vendors, medical product manufacturers and pharmaceutical firms are tapping other business’ top talent, a major shift from the 'healthcare industry experience only' mindset for executive placement that has prevailed since the 1970’s, according to corresponding Black Book 2013 surveys.</blockquote> Discussion  In 1988, Alain Enthoven advocated in <a href="http://www.amazon.com/gp/product/0444703594/102-6581115-0444916?n=283155">Theory and Practice of Managed Competition in Health Care Finance</a>, a book published in the Netherlands, that to decrease health care costs it would be necessary to break up the "physicians' guild" and replace leadership by clinicians with leadership by managers (see 2006 post <a href="http://hcrenewal.blogspot.com/2006/03/consequences-of-breaking-physicians.html">here</a>). Thus from 1983 to 2000, the number of managers working in the US health care system grew 726%, while the number of physicians grew 39%, so the manager/physician ratio went from roughly one to six to one to one (see 2005 post <a href="http://hcrenewal.blogspot.com/2005/04/growing-proliferation-of-managers.html">here</a>). As we noted <a href="http://hcrenewal.blogspot.com/2013/09/a-plague-of-bureaucrats-now-10-per.html">here</a>, the growth continued, so there are now 10 managers for every US physician. Health care went from being controlled by clinicians to controlled by a growing volume of managers.  Most of these managers were <a href="http://hcrenewal.blogspot.com/search/label/generic%20managers">generic</a>, in that they had little if any knowledge of, experience in, or sympathy to the values of health care. These generic managers have used the same techniques advocated for the management of supermarkets or automobile manufacturers to manage health care organizations, despite all the obvious differences in context, goals, values, and people involved.  They also have been trained in theory of <a href="http://hcrenewal.blogspot.com/2012/04/health-care-dysfunction-explained-by.html">maximizing shareholder value</a> (even though non-profit health care organizations have no shareholders), which actually means maximizing short-term revenue (<a href="http://hcrenewal.blogspot.com/search/label/financialization">financialization</a>), and then using that revenue as an excuse to <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">plutocratic pay packages for management</a>. The survey results above say the takeover is nearly complete.  The majority of top hospital management recruits are now generic.  It appears that the majority of top management recruits  in health insurance, medical device, pharmaceutical, and other health care corporations are also now generic  The reasons for their recruitment suggest that those exerting stewardship over hospitals are completely abandoning interest in improving health care, patients' outcomes, clinical practice, or anything related.  Instead, look at the wording (highlighted in color thus above) reflecting their concerns. This is all about <blockquote class="tr_bq"> productivity issues long term strategic growth business vitality revitalizing your brand efficiencies  cost saving profitablity</blockquote> Nobody is talking about quality of care, improving practice, patients' outcomes, public health, or about honesty, integrity, and particularly not about putting patients first. Instead, it is now going to be all about the money.  So of course the US has the most expensive health care (non) system in the world, and that system manages to at best be mediocre by nearly every measure of health outcomes.  I say once again that true health care reform would put in place leadership that understands the health care context, upholds health care professionals' values, and puts patients' and the public's health ahead of extraneous, particularly short-term financial concerns. We need health care governance that holds health care leaders accountable, and ensures their transparency, integrity and honesty. But this sort of reform would challenge the interests of the generic managers who are getting very rich off the current system.  So I am afraid the US may end up going far down this final common pathway before enough people manifest enough strength to make real changes.

Health Care Experience? - Hospital CEOs Don't Need No Stinkin' Health Care Experience

It looks like the complete takeover of health care by generic managers is nigh. Who Are Now Candidates to be Hospital CEOs? On PRWeb is a summary of data about what sort of CEO candidates hospitals' b…

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20 Dec 2013

What Sorts of People are "Most Influential in Healthcare?"

Modern Healthcare just put out their list of the <a href="http://www.modernhealthcare.com/article/20130824/INFO/130829987/100-most-influential-people-in-healthcare-2013-text-list">"100 Most Influential People in Healthcare"</a> for 2013.  A look at what sorts of people are on this list says a lot about who runs US health care, and raises questions about who should. Some Health Care Professionals, Lots of Hired Managers I did some quick descriptive categorizations. (Counts were double checked but I am not guaranteeing accuracy.  Categorizations were sometimes difficult for highly diversified organizations.) First, less than one third of list members are physicians (31% by my count).  I did not see any other health professionals on it (although I confess I did not look up the biographies of all 100). Of these physicians, most are now functioning as hired managers, usually at the CEO level, of big health organizations.  I found only a few who could be characterized as somewhat academic: Dr Atul Gawande, professor at Harvard Medical School, Dr Eric Topol, chief academic officer at Scripps Health, Dr Harvey Fineberg, President, Institute of Medicine, Dr Brent James, chief quality officer and executive director, Institute for Health Care Delivery Research, Intermountain Healthcare,  and probably Dr Jeffrey Drazen, editor-in-chief of the New England Journal of Medicine.  My counts of hired managers on the list included CEOs of For-Profit Health Insurers - 5% CEO of For-Profit Hospital Systems - 8% CEOs of Non-Profit Hospital Systems - 21% CEOs of Other For-Profit Care Delivery Corporations - 7% CEOs of Drug/ Device/ Medical Supply Corporations - 2% CEOs of Health Care Information Technology Corporations - 1% CEOs of Non-Profit Trade Associations - 14% CEOs and other Leaders of Professional or Medical Association - 5% CEOs of Health Care Charities - 4% CEOs of Other Non-Profit Organizations - 15% Elected Government Leaders - 6% Leaders of Government Agencies, Departments - 10% Union Leaders - 2% People Whose Organizations Have Issues The list included quite a few people who lead organizations which have had issues of the sort we discuss on Health Care Renewal.  For example, the list included the following among its top 10 most influential, in order of listed influence - 4.  Stephen Hemsley, CEO of <a href="http://hcrenewal.blogspot.com/search/label/UnitedHealth">UnitedHealth Group</a> - We have discussed concerns about his executive compensation and how it does not fit his organization's stated mission, or his organization's long list of ethical misadventures (most recently summarized <a href="http://hcrenewal.blogspot.com/2013/05/unitedhealth-ceo-continues-to-prosper_3.html">here</a>) 6. Mark Bertolini, CEO, Aetna - We most recently discussed how Aetna's leaders' pontifications on health policy seem mainly based on self-interest (<a href="http://hcrenewal.blogspot.com/2012/07/fool-us-once-shame-on-you-fool-us-twice.html">here</a>)  We also <a href="http://hcrenewal.blogspot.com/search/label/Aetna">discussed</a> various other management, ethical and legal issues. 7.  Richard Bracken, CEO, HCA - A long time ago, HCA was one of the first big health care corporations to have to make a billion dollar plus settlement for fraud, among other issues (look <a href="http://hcrenewal.blogspot.com/2010/05/how-did-ceo-who-presided-over-company.html">here</a>).  The company has had legal, ethical, and management issues <a href="http://hcrenewal.blogspot.com/search/label/HCA">since</a>. 8.  Joseph Swedish, CEO, WellPoint - He is new as CEO, but under previous leadership, the company amassed a record of misadventures while making its leadership very rich (summarized <a href="http://hcrenewal.blogspot.com/2013/04/wellpoints-former-manager-queen-got-206.html">here</a>, and look <a href="http://hcrenewal.blogspot.com/search/label/WellPoint">here</a> for details.) The list also included many other people whose organizations have been frequent fliers on Health Care Renewal.  For example, the CEOs of <a href="http://hcrenewal.blogspot.com/search/label/EPIC">Epic Systems</a> (ranked 13),  <a href="http://hcrenewal.blogspot.com/search/label/Tenet">Tenet Healthcare</a> (18), <a href="http://hcrenewal.blogspot.com/search/label/CIGNA">Cigna</a> (20), <a href="http://hcrenewal.blogspot.com/search/label/McKesson">McKesson Corp</a> (24), <a href="http://hcrenewal.blogspot.com/search/label/Sutter%20Health">Sutter Health</a> (42), <a href="http://hcrenewal.blogspot.com/search/label/Johnson%20and%20Johnson">Johnson & Johnson</a> (46), <a href="http://hcrenewal.blogspot.com/search/label/PhRMA">Pharmaceutical Research and Manufacturers of America (PhRMA)</a> (48), <a href="http://hcrenewal.blogspot.com/search/label/HealthSouth">HealthSouth</a> (59),  <a href="http://hcrenewal.blogspot.com/search/label/UPMC">UPMC</a> (69), and  <a href="http://hcrenewal.blogspot.com/search/label/Steward%20Health%20Care">Steward Health Care System</a> (86). There are many other people on the list who lead organizations that have gotten unfavorable notice on this blog, and a few whose own extreme <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">executive compensation</a> garnered comment.  As my science professors used to say, I leave their identification as an exercise for those interested. Who Is Not on the List It is interesting who is not on the list.  There are no physicians in private practice.   I would argue there are no physicians who are "pure" academics at the moment.  There are no other health care research, health policy research, or public health academics. I saw only one person on the list (Senator Charles Grassley - R, Iowa) who has been identified with the sorts of real health care reforms we discuss here.  (Senator Grassely has investigated many instances of alleged conflicts of interest and fraud, and sponsored the Sunshine Bill to disclose better physicians' conflicts of interest.)  I do not see anyone else who in my humble opinion is identified as a dissident within the current environment.  Many of the media accounts we have noted include people identified as experts who decried such issues as excessive <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">executive compensation</a>, <a href="http://hcrenewal.blogspot.com/search/label/mission-hostile%20management">mission-hostile management</a>, <a href="http://hcrenewal.blogspot.com/search/label/conflicts%20of%20interest">conflicts of interest</a>, ethical issues leading to <a href="http://hcrenewal.blogspot.com/search/label/legal%20settlements">legal settlements</a>, or <a href="http://hcrenewal.blogspot.com/search/label/crime">crime</a> and <a href="http://hcrenewal.blogspot.com/search/label/health%20care%20corruption">corruption</a> in health care.  None of them save Senator Grassley  are on this list.  Summary The Modern Healthcare list of 100 most influential people in health care demonstrates the enormous influence of hired managers in modern health care.  The vast majority of list members were hired managers.  While the list did include some physicians, most of them were currently working as hired managers. It also demonstrates the influence of the for-profit, industrial part of health care.  It included 5 for-profit insurance CEOs, 8 for-profit hospital corporation CEOs, 7 for-profit health care delivery corporation CEOs, 2 for-profit drug/device company CEOs, and 1 for-profit health care IT CEO, a total of 23.  It also included CEOs of multiple trade associations, some of which represent the for-profit side of health care (e.g., PhRMA, America's Health Insurance Plans).  While it included leadership of many <a href="http://hcrenewal.blogspot.com/search/label/non-profit%20organizations">non-profit organizations</a> as well, some of these organizations have clear financial links to the for-profit industrial side.  These ties may include significant financial support from industry, significant holdings of health care corporate stock, or managers or board members with their own relationships to industry.  (For example,  see <a href="http://hcrenewal.blogspot.com/2011/04/third-rail-that-no-one-wishes-to.html">this discussion </a>of conflicts of interest affecting the Gates Foundation, whose co-chair is 76 on the Modern Healthcare list.)  Many of the large, non-profit hospital systems, 21 of whose CEOs are on the list, have major<a href="http://hcrenewal.blogspot.com/search/label/institutional%20conflicts%20of%20interest"> institutional conflicts of interest</a>, and have many people with individual <a href="http://hcrenewal.blogspot.com/search/label/conflicts%20of%20interest">conflicts of interest</a> among their leadership and on their <a href="http://hcrenewal.blogspot.com/search/label/boards%20of%20trustees">boards of trustees</a>. As opposed to the influence of the for-profit industrial part of health care, the influence of government seems muted.  The list included only 6 politicians and 10 government managers.  Some of the politicians are notable proponents of smaller government, e.g. Senator Grassley, and specifically of a smaller role of government in health care, e.g., Governor Bobby Jindal, R, Louisiana.    Nor do unions have much influence.  Only two union leaders were on the list.  There was little counterweight provided to industrial influence from academia, and an almost complete absence of those who might question the current US status quo of dominance of health care by commercial interests.  So here is the latest evidence that US health care is dominated by commercial interests (in an era of <a href="http://hcrenewal.blogspot.com/search/label/regulatory%20capture">regulatory capture</a>, <a href="http://hcrenewal.blogspot.com/search/label/revolving%20doors">revolving doors</a>, and <a href="http://hcrenewal.blogspot.com/search/label/financialization">financialization</a>) and professional, if often generic managers.  This suggests why our health care system seems more about revenue (and thus is very expensive), and less about improving patients' and the public's health.  True health care reform would require increasing the influence of people who have different priorities than the currently most influential.

What Sorts of People are "Most Influential in Healthcare?"

Modern Healthcare just put out their list of the "100 Most Influential People in Healthcare" for 2013. A look at what sorts of people are on this list says a lot about who runs US health care, and ra…

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27 Aug 2013

Guest Post: A Physician Rebels Against Micromanagement by "'Leadership-Trained' Management Extenders"

Health Care Renewal presents a guest post by <a href="http://imh.utmb.edu/about-us/faculty/howard-brody">Dr Howard Brody,</a> John P McGovern Centennial Chair of Family Medicine, Director of the Institute for Medical Humanities at University of Texas - Medical Branch at Galveston, and blogger at <a href="http://brodyhooked.blogspot.com/">Hooked: Ethics, Medicine and Pharma</a>.   <div class="MsoNormal">I recently heard from a physician whom I knew well in an earlier stage of her training—I’ll call her Pauline. She completed her training at one of the top children’s hospitals in the US, and served in several capacities in academic medical centers before her most recent job with a physician-owned for-profit practice. She called me to express her frustrations and to ask if the right course for her was to quit doing clinical medicine.</div><div class="MsoNormal"> </div><div class="MsoNormal">Pauline had become skilled in her earlier jobs in providing primary care for children with severe chronic conditions. Her reputation was such that when she was settled in her current post, pediatric subspecialists started to refer their difficult cases to her for follow-up. This patient mix did not suit her current employer for two reasons. First, these children were hard to take care of and even though they could have their visits “up-coded” to reflect their complexity, the practice much preferred to see healthy children with colds and earaches that could be moved through quickly and who did not demand much staff time and attention. Second, most of these children with special needs were on state insurance, which did not pay as well (even after up-coding) as the private insurance the practice coveted.</div><div class="MsoNormal"> </div><div class="MsoNormal">Pauline found herself constantly struggling with her co-workers and superiors in order to deliver all of her patients—not just the special-needs kids—the quality of care she had been trained to demand. As far as the practice was concerned, it was Pauline, and the medically complex kids she was attracting into the practice, who were the problem.</div><div class="MsoNormal"> </div><div class="MsoNormal">One recent incident had especially concerned Pauline. She had set up a visit to see a new medically complex patient and had blocked off 40 minutes, the amount of time she felt she needed to do a good job. The child had a complex genetic disorder, cerebral palsy, and heart, lung, and kidney problems.  Both the cardiologist and the nephrologist had called asking her to take this patient.  She agreed.  After she had scheduled the visit, a manager called her and told her that she was being allowed only 15 minutes to see that patient. After some fruitless discussion with him, Pauline finally said, “Okay, I guess that means that you’ll be seeing the patient instead of me, right?” The shocked voice at the other end of the phone line replied, “What do you mean? I don’t know how to take care of patients.” “That’s exactly my point,” Pauline put in. </div><div class="MsoNormal"> </div><div class="MsoNormal">Pauline explained that this manager assigned to her office is not even a college graduate. Physicians cannot access the schedule electronically and have no control over scheduling. These functions are controlled by the office manager and (amazingly) by some of the medical assistants who have received some “leadership” training. These medical assistants are even allowed to evaluate the clinical competency and skills of the physicians.</div><div class="MsoNormal"> </div><div class="MsoNormal">Now, at this stage, I can imagine a response from a management-trained person. Pauline is obviously one of those starry-eyed idealist physicians who believe that money grows on trees and that costs should never be a factor in caring for patients. Somebody who actually knows what it means to make a payroll and keep the lights on has to step in and rein in these physicians. There has to be somebody in the system someplace with a head for business, who can recognize the stark realities of what today’s practice demands from all parties. Physicians should get off their high horses and stop imagining that they can give orders to everyone else.</div><div class="MsoNormal"> </div><div class="MsoNormal">So let me add a further nugget about Pauline’s background. In one of her previous jobs, she was made the manager of a pediatric outpatient center within a county hospital caring for a largely indigent population. This center had been running in the red for a good while. Pauline took over and within 28 months she’d streamlined the place and had them running well in the black, while still administering a quality of care that Pauline and her colleagues could be proud of. In short, Pauline could probably tell the managers of her current practice a thing or two about how to optimize patient scheduling without compromising care or cost —if they’d listen.</div><div class="MsoNormal"> </div><div class="MsoNormal">Pauline probably has a nearly-unique skill set in her community and has put in a lot of years of training and experience to get there. Due to the present state of American medicine, and those who want to run it as if it were an industrial operation to make a profit, Pauline is thinking about leaving clinical practice altogether despite her relatively young age – and she has several colleagues, who trained in the same way that she did, who are considering this option.</div><div class="MsoNormal"> </div><div class="MsoNormal">Fortunately, Pauline has at least for now postponed any final decision about leaving clinical medicine entirely. Here’s what she last told me:</div><div class="MsoNormal"> </div> <blockquote class="tr_bq"><div class="yiv528586260msonormal" style="background: white; margin-bottom: 12.0pt;">I am leaving the organization - I cannot remain in an organization where profit comes ahead of quality - and as a former medical director who had financial accountability/responsibilities, I know it does not HAVE to be a choice.  I do not know what my next steps will be from here.  For me, working with integrity, compassion and a desire for excellence is not negotiable.</div><div class="yiv528586260msonormal" style="background: white; margin-bottom: 12.0pt;">Physicians MUST become better advocates for our profession.  For too long, we have been asleep at the wheel while insurance companies and corporations shaped the environment in which we practice.  We cannot allow this to continue.  We are professionals, not vocationally educated medical automatons  who need every moment of work day micromanaged by 'leadership-trained' management extenders who have no idea what it means to take responsibility for patients.  </div></blockquote> <div class="MsoNormal">Dr Howard Brody</div>

Guest Post: A Physician Rebels Against Micromanagement by "'Leadership-Trained' Management Extenders"

Health Care Renewal presents a guest post by Dr Howard Brody, John P McGovern Centennial Chair of Family Medicine, Director of the Institute for Medical Humanities at University of Texas - Medical Bra…

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09 May 2013

Tales of the Wayfaring Generic Manager - from Ritz Carlton Hotels to Henry Ford West Bloomfield Hospital to Cancer Treatment Centers of America

In 2006, we <a href="http://hcrenewal.blogspot.com/2006/03/putting-on-ritz.html">wondered</a> what a former hotel manager, Mr Gerard van Grinsven, admittedly known for putting the "wow" back in the Detroit Ritz-Carlton, would be doing as a hospital CEO.  This seemed at the time like a real "wow" example of how <a href="http://hcrenewal.blogspot.com/search/label/generic%20managers">generic managers </a>were taking over health care.  Mr Grinsven had extensive experience in the hospitality field, but no known background in health care.  Organic Local Produce, "Wellbeing Centers," Gourmet Dining, Wedding Receptions, and Corporate Functions Over the next few years, Mr van Grinsven's Henry Ford West Bloomfield hospital did make a name for itself.  In 2009, Becker's Hospital Review <a href="http://www.beckershospitalreview.com/news-analysis/ceo-gerard-van-grinsven-explains-how-henry-ford-west-bloomfield-hospital-reinvents-the-community-hospital.html">reported</a> on some of Mr Van Grinsven's innovations.  First, he lead an apparent change in the hospital's mission from acute care to recreating: <blockquote class="tr_bq">the hospital experience into one focused on promoting wellbeing and healthy living. The hospital has already begun to realize its mission statement, which reads 'to take health and healing beyond the boundaries of imagination.'</blockquote> The new hospital apparently was designed to look like a luxury hotel: <blockquote class="tr_bq">The hospital is located on 160 acres of woodlands and is designed to resemble a Northern Michigan lodge. The facility also features a retail 'main street' which looks like an actual main street in a Northern Michigan town and includes stores focused on sleep, pregnancy, organic food and healthy cooking as well as a pharmacy.</blockquote> Apparently it is now a favored site for weddings: <blockquote class="tr_bq">The hospital also holds free concerts for the community and has already received nine wedding inquiries. </blockquote> It had a "wellness center" <blockquote class="tr_bq">Henry Ford West Bloomfield also features a unique, integrated wellness center called Vita. Vita offers acupuncture, therapeutic message, yoga and relaxation classes, an aqua therapy suite, a spa and health coaches who provide lifestyle and exercise consultations. In addition to offering one-time services, the hospital offers memberships to community members to encourage frequent use of the center. </blockquote> What really stood out was its food service: <blockquote class="tr_bq">Henry Ford brought in top Michigan chef Matt Prentice to transform traditional hospital food service. The hospital features 24-hour room service for patients, all of which is served by the hospital's on-site gourmet, organic restaurant, Henry's. All food served in the hospital is organic, promotes sustainable agriculture and, in many cases, is procured from local farmers.</blockquote> A 2011 <a href="http://management.fortune.cnn.com/2011/03/02/what-hospitals-can-learn-from-the-ritz/">article</a> in Fortune noted that <blockquote class="tr_bq">the hospital is on track to generate millions of dollars a year hosting and catering functions for companies and community groups.</blockquote> It all sounds great, if it were describing a luxury hotel. The Fortune article ended with the gushing summation: <blockquote class="tr_bq">While it will be years before anyone can say whether this model works, there's no question that it captures a spirit of innovation that just might be a cure for what ails so many organizations. We are living today through the age of disruption. You can't do big things if you're content with just doing things a little better than everyone else or a little differently from how you've done them in the past. In an era of intense competition and non-stop reinvention, the only way to stand out from the crowd is to stand for something special. Originality has become the acid test of strategy.</blockquote> Neither it nor the Becker's rather uncritical discussions dealt with what any of this had to do with the fundamental mission of a hospital, to care for the sick, what it has to particularly do with quality of care, especially care of severely acutely or chronically ill patients, traditionally those whom hospitals were meant to serve.  Would a patient desperately sick from a myocardial infarction (heart attack), stroke, sepsis (bacterial blood stream infection) or the other major ills that bring people to hospitals really care that if he or she were to survive without major sequelae, organic, locally grown food would be served in the hospital's fancy restaurant?  Is there any evidence that provision of any of these fancy hotel amenities would affect important clinical outcomes for such patients?  Could the funds needed for all these fancy hotel services be better spent to improve patients' the the population's health? On to a More Ethically Challenged Environment We may never know.  But what we do know is that Mr van Grinsven, having brought "wellness" centers and organic, locally grown, gourmet food to an acute care hospital, is now moving on. Crain's Detroit Business just <a href="http://www.crainsdetroit.com/article/20130426/NEWS/130429902/henry-ford-west-bloomfield-hospitals-van-grinsven-resigns-as-ceo">reported</a>: <blockquote class="tr_bq">Henry Ford West Bloomfield Hospital President and CEO Gerard van Grinsven has resigned from the position effective June 1, according to an internal email sent Friday to employees from Henry Ford Health System President and COO Bob Riney. Van Grinsven is leaving the hospital to become the president and CEO of Chicago-based Cancer Treatment Centers of America, Riney said in the email. He will oversee the CTCA's five hospitals and medical centers in Illinois, Pennsylvania, Oklahoma, Arizona and Georgia. The CTCA is expected to announce van Grinsven's new position later today.</blockquote> Henry Ford Health System CEO Bob Riney saluted van Grinsven thus, <blockquote class="tr_bq">'Gerard's leadership talents and his tremendous global experience made the transformation of this innovation and distinctive vision a reality,' Riney told employees in the email.</blockquote> He did not apparently mention anything about the quality of care for acutely and chronically ill patients.  The <a href="http://www.prnewswire.com/news-releases/stephen-b-bonner-assumes-new-role-as-ctca-executive-chairman-gerard-van-grinsven-succeeds-as-president--ceo-204883721.html">press release</a> from CTCA proclaimed <blockquote class="tr_bq">'Gerard's arrival is an exciting and dramatic step in the evolution of our leadership that will herald new opportunities for all of our talented Stakeholders and the thousands of patients we serve,' said [executive chairman and former CEO Stephen B] Bonner. 'Our expertise in Patient Empowerment Medicine® and track record implementing change is unparalleled. Nothing we do today is the same as we did two years ago. Gerard is uniquely qualified to provide the leadership required to advance our commitment to patient-centered care in all we do,' concluded Bonner.</blockquote> Of course, there was nothing about how van Grinsven's expertise in wellness centers and organic produce would be useful to an organization supposedly devoted to cancer patients, whose care may involve risky treatment choices and who may become desperately ill. There was also nothing about how van Grinsven's background would help CTCA to avoid new ethical misadventures.  Earlier this year, we <a href="http://hcrenewal.blogspot.com/2013/03/the-dangers-of-big-corporate-health.html">posted</a> about issues involving CTCA making unsubstantiated survival claims; promoting "integrative" treatments that are unsupported by evidence; and manipulating survival statistics, in part by turning away patients with poor prognoses.  Of course, it is not clear that given van Grinsven's background he would even understand why such behavior is unethical.  Summary As a physician, it is hard not to laugh at all this, at least to keep from crying.  As we have noted frequently, health care has been taken over by generic hired managers.  At best, while well meaning, many of them seem clueless about the nature and context of health care, and health care professionals' values.  At worst, the <a href="http://hcrenewal.blogspot.com/search/label/managers%27%20coup%20d%27etat">manager's coup d'etat</a> has turned managers into manager-kings, queens and nobles, while driving up health care costs, and sacrificing the health of patients and the public.  The depth of this phenomenon is demonstrated by the absolute lack of skepticism about the worthiness of a former Ritz-Carlton executive to run either a community hospital or a system of cancer treatment centers. I say once again that true health care reform would put in place leadership that understands the health care context, upholds health care professionals' values, and puts patients' and the public's health ahead of extraneous, particularly short-term financial concerns. We need health care governance that holds health care leaders accountable, and ensures their transparency, integrity and honesty.

Tales of the Wayfaring Generic Manager - from Ritz Carlton Hotels to Henry Ford West Bloomfield Hospital to Cancer Treatment Centers of America

In 2006, we wondered what a former hotel manager, Mr Gerard van Grinsven, admittedly known for putting the "wow" back in the Detroit Ritz-Carlton, would be doing as a hospital CEO. This seemed at the…

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08 May 2013

BLOGSCAN - An Ex-Pharmaceutical Company CEO to Run the American College of Cardiology?

Marilyn Mann's blog <a href="http://marilynmann.wordpress.com/2013/04/28/should-a-former-drug-company-executive-be-ceo-of-the-american-college-of-cardiology/">discussed</a> the appointment of a former pharmaceutical company executive, most recently at Actelion, and previously at Hoffman La Roche, Abbott Canada, Nordic Labs and Marion Merrill Dow (now known as Aventis), as president of the American College of Cardiology.  Although Mr Jacobovitz, who boasts a bachelor's degree in biology but no obvious experience in direct health care or biomedical science, was <a href="http://www.cardiosource.org/News-Media/Publications/Cardiology-Magazine/2013/04/CEO-Announcement.aspx">touted </a>by the ACC as having "developed a strong patient- and customer-centered corporate strategy," Ms Mann provided documentation that his trajectory at Actelion seemed more money- than patient-centered.   During his watch, Actelion was cited for not reporting 3500 deaths of patients taking two of its drugs to the US Food an Drug Administration (FDA).  Actelion blocked availability of samples of one of its drugs to generic drug companies, an action that the US Federal Trade Commission (FTC) alleged violated anti-trust laws.  Actelion purchased a company that was working on a drug that could have become a competitor to Actelion's most remunerative product, and then shut down development, possibly preventing a drug that might help patients from reaching them.  Finally, Acetelion's marketing practices seem to be currently under investigation by a US Attorney.    One wonders why cardiologists would want such an individual representing them as leader of their premier organization?  (Dr Wes<a href="http://drwes.blogspot.com/2013/04/the-american-college-of-cardiology-gets.html"> wondered</a> as well.)

BLOGSCAN - An Ex-Pharmaceutical Company CEO to Run the American College of Cardiology?

Marilyn Mann's blog discussed the appointment of a former pharmaceutical company executive, most recently at Actelion, and previously at Hoffman La Roche, Abbott Canada, Nordic Labs and Marion Merrill…

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07 May 2013

More Reasons to Doubt How CEOs are Chosen and Paid

Health Care Renewal is about problems with the leadership and governance of health care organizations.  Since the global financial collapse/ great recession began in 2008, it became evident that the problems we saw affecting health care leadership were similar to problems affecting other large organizations, notably financial firms.  Recently, I spotted a series of articles that raise more questions about how business leaders, and by extension, leaders of health care organizations are chosen and paid. Doubts about Generic Managers We have often questioned the wisdom of having health care organizations lead by people with little if any direct health care experience, little knowledge of health care on the ground, and little commitment to health care's core values.  We have called such leaders <a href="http://hcrenewal.blogspot.com/search/label/generic%20managers">generic managers</a>. A New York Times <a href="http://www.nytimes.com/2012/09/23/business/ceos-and-the-pay-em-or-lose-em-myth-fair-game.html">article</a> by Gretchen Morgenson from September, 2012, cited new academic work that questioned the abilities of generic managers.  The <a href="http://irrcinstitute.org/pdf/Executive-Superstars-Peer-Benchmarking-Study.pdf">source article </a>was Elson CM, Ferrere CK.  Executive superstars, peer groups, and overcompensation - cause, effect and solution.  Ms Morgenson summarized, <blockquote class="tr_bq">Mr. Elson and Mr. Ferrere conclude, contrary to the prevailing line, that chief executives can’t readily transfer their skills from one company to another.</blockquote> Furthermore, Ms Morgenson interviewed Mr Elson, who said, <blockquote class="tr_bq">But we found that C.E.O. skills are very firm-specific. C.E.O.’s don’t move very often, but when they do, they’re flops.</blockquote>Also, <blockquote class="tr_bq"><div itemprop="articleBody">But there is little evidence, according to Mr. Elson and Mr. Ferrere, that a hot market exists for interchangeable chief executives. First, they note numerous academic studies indicating that C.E.O.’s selected from within a company perform better than outsiders, especially in the creation of long-term shareholder value. </div><div itemprop="articleBody"> </div><div itemprop="articleBody">'There is no conclusive empirical evidence that outside succession leads to more favorable corporate performance, or even that good performance at one company can accurately predict success at another,' the authors conclude. 'In short, executive skills cannot pass the most basic test of generality: transferability.' </div><div itemprop="articleBody"> </div><div itemprop="articleBody">To be sure, this flies in the face of the widely held view that skilled managers have become generalists and are therefore far more interchangeable than in previous years. Proponents of this thesis argue that top managers today can accumulate a broad knowledge of economics, finance and management science, giving them the ability to manage any type of company effectively. Technological advancements also give chief executives access to untold amounts of data about a particular company that in previous times would have taken years to amass and synthesize, this view holds. </div><div itemprop="articleBody"> </div><div itemprop="articleBody">But the data on actual C.E.O. moves raises questions about just how portable C.E.O. skills really are. The Delaware paper cites several studies indicating that relatively few chief executives land new top jobs elsewhere. One study, a 2011 analysis of roughly 1,800 C.E.O. successions from 1993 to 2005, found that less than 2 percent had been public-company chief executives before their new jobs. </div></blockquote>This data and these observations seem to broadly apply to business executives, but there is no reason to think they do not apply to executives of health care corporations.  Furthermore, given that on its face, health care is less like making automobiles than, say, the restaurant business is, there is no reason to think doubts this raises about the abilities of generic managers should not be even bigger in health care, and should apply not just to for-profit, but to not for profit corporations.  Yet the trend in health care seems to increasingly favor generic managers of not just for-profit health care corporations, but also hospitals and hospital systems, non-profit health insurers and managed care organizations, health care charities, disease advocacy groups, and even medical associations, medical schools, and their parent universities.   Doubts about Executive Compensation Peer-Group Benchmarking We have often posted about<a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation"> amazingly generous compensation</a> given to top leaders of health care organizations.  Health care corporate CEOs can make tens of millions of dollars, occasionally even more.  While CEOs of not for profit health care organizations make less, they still now can makes millions of dollars.  Ms Morgenson called the usual justification for these huge amounts of compensation the "pay-'em-or-lose-'em" myth. <blockquote class="tr_bq">Corporations are forever defending big executive paydays. If we don’t pay up, the argument goes, our sharpest minds will jump to our rivals. </blockquote>This notion, or myth, depends on the argument that generic managers are the best managers, which appears to be largely unsubstantiated, as we noted above. <blockquote class="tr_bq"> In other words, the argument that C.E.O.’s will leave if they aren’t compensated well, perhaps even lavishly, is bogus. Using the peer-group benchmark only pushes pay up and up. </blockquote> Furthermore, <blockquote class="tr_bq">Importantly, the study disputes the notion that executive pay today is a result of an efficient bidding process for finding and retaining a scarce and valuable commodity: managerial talent. 'In essence, this process creates a model of a competitive market for executives where it otherwise does not exist,' the authors wrote. 'Through the operation of a market, it is argued, wages are bid up to an executive’s outside opportunities.' </blockquote> Instead, as noted above, since the skills needed to run one sort of company or organization may not readily transfer to other companies and organizations, even seemingly similar ones, such a market does not exist.     Incentives Based on Short-Term Financial Results We have also previously discussed (look <a href="http://hcrenewal.blogspot.com/2012/04/health-care-dysfunction-explained-by.html">here</a>) how contemporary economic dogma suggest that the only measure of success of a for-profit corporation is "shareholder value," which has come to mean the stock price over the short term.  There is reason to think that this focus on short-term economic performance has also become the major measure of success of health care organizations.  Another word for this phenomenon is <a href="http://hcrenewal.blogspot.com/search/label/financialization">"financialization."  </a> An <a href="http://www.independent.co.uk/news/business/comment/anthony-hilton-how-bonuses-make-bosses-reluctant-to-invest-in-the-future-8163804.html">op-ed</a> in the UK Independent questions this focus because of its economic effects.  Anthony Hilton wrote about the views of Andrew Smithers, <blockquote class="tr_bq">His starting point was that the economy was floundering because of inadequate demand. Personal spending is flat for obvious reasons but the real culprit is the companies who are hoarding cash and refusing to invest. Others have noticed the cash hoarding but explain it away by saying we live in uncertain times and companies will start investing again once they become more confident about the economic outlook. Smithers disagrees fundamentally with this. He says companies are not investing because executives are bonused to deliver short-term profits. Costly spending on investment projects is therefore anathema to them. Investment may deliver long-term prosperity but by that time they will have left the company. It also depresses short-term profits while they are still there. We have in the last two decades, under the mantra of shareholder value and aligning the interests of management with shareholders, created a new breed of management incentivised to believe that what is good for them is good for the business. They dislike investment because it reduces their bonuses . They don't invest surplus cash. They hoard it or they use it to buy back their own company's shares. When the majority of the managements in publicly quoted companies start behaving this way, as they now do, we have a serious problem. They are sitting on cash which is the equivalent of six per cent of GDP. This deadweight of unused resources prevents lift-off and threatens to leave the economy forever trapped in the mire. Smithers says this behaviour by management is a structural change — meaning it is something which won't go away. It makes this down- turn different from all that have gone before.</blockquote>There is no reason to think that health care corporations are not hoarding money in the sense described above.  If so, they may be failing to invest in drugs or devices that would have helped patients in the future. Because of the limited reporting required of large health care non-profit organizations in the US, it may be very hard to tell if they are similarly hoarding money, but if they are, the effects again might be to fail to provide patients long-term benefits they might otherwise have enjoyed. The Ultimately Self-Destructive Outcome Meanwhile, <a href="http://www.nytimes.com/2012/10/14/opinion/sunday/the-self-destruction-of-the-1-percent.html">writing in</a> the New York Times, Chrystia Freeland, the author of Plutocrats: the Rise of the New Global Super-Rich and the Fall of Everyone Else, explained why picking the wrong leaders  and paying them too much may be bad for everyone.  We have noted that an increasing fraction of the wealthiest one percent of the US are current and former corporate executives.  Ms Freeland wrote how domination by an increasingly wealthy and powerful elite usually dooms the countries they dominate. <blockquote class="tr_bq">what separates successful states from failed ones is whether their governing institutions are inclusive or extractive. Extractive states are controlled by ruling elites whose objective is to extract as much wealth as they can from the rest of society.</blockquote>So <blockquote class="tr_bq">it is the danger America faces today, as the 1 percent pulls away from everyone else and pursues an economic, political and social agenda that will increase that gap even further — ultimately destroying the open system that made America rich and allowed its 1 percent to thrive in the first place.  </blockquote> Furthermore, <blockquote class="tr_bq">It is no accident that in America today the gap between the very rich and everyone else is wider than at any time since the Gilded Age. Now, as then, the titans are seeking an even greater political voice to match their economic power. Now, as then, the inevitable danger is that they will confuse their own self-interest with the common good. The irony of the political rise of the plutocrats is that, like Venice’s oligarchs, they threaten the system that created them.</blockquote>So it is not merely that overcompensating generic executives has likely been one of the major reasons our health care is so expensive, inaccessible, and mediocre.  The larger problem of overpaying under skilled executives threatens to destroy our whole society.  How cheerful Summary The way forward seems clear.  It is just blocked by the interests of the rich and powerful elite which our current foolish policies have created. In a health care context, leaders of organizations should only be those with clear knowledge of, experience in, and commitment to the values of health care.  Their compensation should be reasonable, and based on their ability to uphold these values first, with financial goals clearly second, and short-term financial goals probably not at all.  Pay should not be bench-marked to compensation of leaders of other organizations, especially not of vastly different kinds of organizations. Whether there is any chance of such changes happening while corporate boards of directors, and non-profit boards of trustees are dominated by executives of other organizations is doubtful.  Thus we also need to change the governance of for-profit health care corporations to clearly reflect the long-term interests of the stockholders, who will only prosper if in the long run their companies provide products and services that help patients at a fair price and with minimal risks.   Thus we further need to need to change the governance of health care non-profits to reflect the needs of patients, their communities and other key constituencies.  That should keep us all busy for a while.

More Reasons to Doubt How CEOs are Chosen and Paid

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15 Oct 2012

Health Care Dysfunction Explained by the Fallacy of "Maximizing Shareholder Value"

Over the last two weeks, the <a href="http://nakedcapitalism.com/">Naked Capitalism blog</a> ran a multi-part series (1-4) on what has gone wrong with US public for-profit corporations.  Although not targeted specifically on health care, the series included several themes we have discussed on <a href="http://hcrenewal.blogspot.com/">Health Care Renewal</a>, and suggested some important new ones.  So let us review the most relevant topics. "Financialization," and the Exclusive Ostensible Focus on Shareholder Value In the first post,(1) William Lazonick explained how corporations gave up their devotion to societal values to ostensibly focus only on the interests of shareholders:  <blockquote>What went wrong? A fundamental transformation in the investment strategies of major U.S. corporations is a big part of the story. A generation or two ago, corporate leaders considered the interests of their companies to be aligned with those of the broader society. In 1953, at his congressional confirmation hearing to be Secretary of Defense, General Motors CEO Charles E. Wilson was asked whether he would be able to make a decision that conflicted with the interests of his company. His famous reply: 'For years I thought what was good for the country was good for General Motors and vice versa.'</blockquote> However, then(1) <blockquote>the U.S. business corporation has become in a (rather ugly) word 'financialized.' It means that executives began to base all their decisions on increasing corporate earnings for the sake of jacking up corporate stock prices. Other concerns — economic, social and political — took a backseat. From the 1980s, the talk in boardrooms and business schools changed. Instead of running corporations to create wealth for all, leaders should think only of 'maximizing shareholder value.' </blockquote> This was formalized in the the scholarly management literature,(1) <blockquote>But in 1983, two financial economists, Eugene Fama of the University of Chicago and Michael Jensen of the University of Rochester, co-authored two articles in the Journal of Law and Economics which extolled corporate honchos who focused on 'maximizing shareholder value' — by which they meant using corporate resources to boost stock prices, however short the time-frame. In 1985 Jensen landed a higher profile pulpit at Harvard Business School. Soon, shareholder-value ideology became the mantra of thousands of MBA students who were unleashed in the corporate world.</blockquote> Ignoring the Interests of Employees: Cost Cutting, Layoffs, Off-Shoring Maximizing shareholder value only really seems to mean maximizing shareholder value in the short run, often by short-term cost-cutting that will reduce the ability to improve existing or develop new products and services. Hence, now(1) <blockquote>When the shareholder-value mantra becomes the main focus, executives concentrate on avoiding taxes for the sake of higher profits, and they don’t think twice about permanently axing workers. They increase distributions of corporate cash to shareholders in the forms of dividends and, even more prominently, stock buybacks. When a corporation becomes financialized, the top executives no longer concern themselves with investing in the productive capabilities of employees, the foundation for rising living standards for all. They become focused instead on generating financial profits that can justify higher stock prices....</blockquote> Furthermore,(1) <blockquote>n the name of shareholder value, by the 1990s U.S. corporations seized on these changes in competition and technology to put an end to the norm of a career with one company, ridding themselves of more expensive older employees in the process. In the 2000s, American corporations found that low-wage nations like China and India possessed millions of qualified college graduates who were able and willing to do high-end work in place of U.S. workers. Offshoring put the nail in the coffin of employment security in corporate America.</blockquote> Thus, "maximizing shareholder value" was the rationale for a variety of short-term cost-cutting approaches that turned employees (excepting, of course, the hired executives and their favorites) not merely into the makers of widgets, but into widgets themselves. By extension, this attitude that all employees (again, with the exception of top management and their cronies) are interchangeable applied even to highly skilled professional, technical and scientific employees, e.g., research scientists in a pharmaceutical company. By further extension, as we have<a href="http://hcrenewal.blogspot.com/2006/03/consequences-of-breaking-physicians.html"> noted</a>, health care organizations, including non-profit institutions like hospitals, insurance companies, and academic medical institutions, have been taken over by hired managers who are decreasingly health care professionals. Such hired <a href="http://hcrenewal.blogspot.com/search/label/generic%20managers">generic managers</a> have carried the latest fashionable management ideas into health care with them. Thus, in my experience, even experienced academic physicians began hearing that they had no individual value, were interchangeable and could easily be replaced starting in the 1990s. For organizations that depend on highly trained, dedicated technical, scientific, and/or professional workers, devaluing and demoralizing such employees wold appear to be the height of foolishness. As Lazonick pointed out in a later post(3), treating workers as interchangeable can be the death knell for innovation: <blockquote>As is generally recognized by employers who declare that 'our most important assets are our human assets', the key to successful innovation is the extra time and effort, above and beyond the strict requirements of the job, that employees expend interacting with others to confront and solve problems in transforming technologies and accessing markets. Anyone who has spent time in a workplace knows the difference between workers who just punch the clock to collect their pay from day to day and workers who use their paid employment as a platform for the expenditure of creative and collective effort as part of a process of building their careers. As members of the firm, these forward-looking workers bear the risk that their extra expenditures of time and effort will not yield the gains to innovative enterprise from which they can be rewarded. If, however, the innovation process does generate profits, workers, as risk-bearers, have a claim to a share in the forms of promotions, higher earnings and benefits. Instead, shareholder-value ideology is often used as a rationale for laying off workers whose hard and creative work has contributed to the company’s success. That’s grossly unfair. </blockquote> A Fallacious Rationale: Only Stockholders at Risk However, the reasoning, such as it was, behind the "maximizing shareholder value" mantra contained a rationale for so devaluing and demoralizing even the most dedicated and well-trained employees. As Prof Lazonick explained,(1) <blockquote>Proponents of the Fama/Jenson view argue that for superior economic performance, corporate resources should be allocated to maximize returns to shareholders because they are the only economic actors who make investments without a guaranteed return. They say that shareholders are the only ones who bear risk in the corporate economy, and so they should also get the rewards.</blockquote> He then went on to easily explain why this was complete rubbish(1): <blockquote>But this argument could not be more false. In fact, lots of people bear risks of investing in the corporation without knowing if they will pay off for them. Governments in the U.S., funded by the body of taxpayers, are constantly making investments in physical infrastructures and human capabilities that provide benefits to businesses, but without a guaranteed return to taxpayers. An employer expects workers to give time and effort beyond that required by their current pay to make a better product and boost profits for the company in the future. Where’s the worker’s guaranteed return? In contrast, most public shareholders simply buy and sell shares of a corporation on the stock market, making no contribution whatsoever to investment in the company’s productive capabilities.</blockquote> By Extension, In Health Care, Ignoring the Interests of Patients and the Values of Health Care Professionals If one believes only stockholders are at risk and hence only stockholders deserve benefit from corporate activities, by extension this eliminates the interests of patients and the values of health care professionals from consideration by the leadership of health care corporations. Of course, in health care, the patients may be the ones most at risk from corporate activities. For example, think of a patient who pays a large amount out of pocket for a drug that fails to benefit him or her. Worse, patients are not only at financial risk, but are at physical risk. For example, think of a patient who suffers an unusual, but severe adverse reaction to a drug. In addition, in health care, health care professionals who do not work for a particular health care corporation may be at risk from its activities. For example, think of a physician who is fooled by a pharmaceutical company's <a href="http://hcrenewal.blogspot.com/search/label/manipulating%20clinical%20research">manipulation of clinical research</a> into believing a drug is effective and safe when it is actually useless and harmful. We have documented numerous instances of <a href="http://hcrenewal.blogspot.com/search/label/suppression%20of%20medical%20research">suppression of clinical research</a>, <a href="http://hcrenewal.blogspot.com/search/label/manipulating%20clinical%20research">manipulation of clinical research</a>, <a href="http://hcrenewal.blogspot.com/search/label/ghost%20writing">ghost writing</a>, deceptive <a href="http://hcrenewal.blogspot.com/search/label/stealth%20marketing">stealth marketing</a>, and other tactics used by pharmaceutical, biotechnology and device companies to deceive physicians about the effectiveness and safety of drugs and devices. Physicians who have been thus deceived are at risk of violating their fundamental responsibility to put individual patients' interests first. Subverting the Mission of Non-Profit Health Care Organizations As we mentioned earlier, there is ample evidence that non-profit organizations are now most often lead by hired managers who have brought the latest management with them, rather than health care professionals. It is therefore likely that the dominant notion of "maximizing shareholder value" has been operationalized even in non-profit organizations that do not have shareholders. Most likely it has been transformed into simply maximizing short-term revenue. We have certainly seen many instances of leaders of such health care organizations who seem mainly preoccupied with short-term financial goals. Bad as this is for a public for-profit corporation, it is potentially disastrous for a non-profit organization which is supposed to put upholding its mission ahead of financial concerns (see examples of such mission-hostile management <a href="http://hcrenewal.blogspot.com/search/label/mission-hostile%20management">here</a>). Interests of Shareholders or Interests of Executives? It is terribly ironic that in practice "maximizing shareholder value" turns out to mean maximizing executive compensation. In retrospect, this mantra looks entirely self-serving.  As Prof Lazonick noted in a second post, executive compensation has soared in recent years(2) <blockquote>When all the data from corporate proxy statements are in within the next month or so, they will show that 2011 was another banner year for top executive pay. Over the previous three years the average annual compensation of the top 500 executives named on corporate proxy statements was 'only' $17.8 million, compared with an annual average of $27.3 million for 2005 through 2007. Yet even in these recent 'down' years, the compensation of these named top executives was more than double in real terms their counterparts’ pay in the years 1992 through 1994. It might surprise you to learn that in the early 1990s, executive pay was already widely viewed as out of line with what average workers got paid. In 1991 Graef Crystal, a prominent executive pay consultant, published a best-selling book, In Search of Excess: The Overcompensation of American Executives, in which he calculated that over the course of the 1970s and ’80s, the real after-tax earnings of the average manufacturing worker had declined by about 13 percent. During the same period, that of the average CEO of a major US corporation had quadrupled! </blockquote> We have documented seemingly endless examples of <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">bloated executive compensation</a> in health care. In fact, as Prof Lazonick noted in his first post(1), by increasing stock prices short-term, executives of for-profit corporations can markedly boost their own compensation, <blockquote>When a corporation becomes financialized, the top executives no longer concern themselves with investing in the productive capabilities of employees, the foundation for rising living standards for all. They become focused instead on generating financial profits that can justify higher stock prices – in large part because, through their stock-based compensation, high stock prices translate into megabucks for these corporate executives themselves. </blockquote> The Conspiracy to Increase CEO Compensation As CEO compensation climbed, they and their supporters have invoked a market-based rationale, as Prof Lazonick described in his third post,(3): <blockquote>You often hear that stratospheric executive pay is the result of some inexorable law of supply and demand. If we don’t give top executives their multimillion dollar compensation, they won’t be willing to come to work and do their jobs. They are supposedly the bearers of 'scarce talent' that demands a high price in the market place. Even Robert Reich, Secretary of Labor in the Clinton administration and a critic of U.S. income inequality, has justified the explosion in executive pay, arguing that intense competition makes it much more difficult than it used to be to find the talent who can manage a large corporation (Supercapitalism, 2008, pp 105-114).</blockquote>We have provided many examples of similar talking points used to support fat compensation for health care leaders (e.g., <a href="http://hcrenewal.blogspot.com/2012/03/example-of-how-complex-takes-control.html">here</a>. <a href="http://hcrenewal.blogspot.com/2011/09/more-repeats-of-talking-points.html">here</a>, and <a href="http://hcrenewal.blogspot.com/2011/09/talking-points-sans-original-thought-to.html">here</a>). However, as we described here, the mechanism that executives have developed to set their own pay in line with the supposed market does nothing like that,(3) <blockquote>That is not what determines executive pay. Here is how it works: Top executives select other top executives to sit on “their” boards of directors. These directors hire compensation consultants to recommend an executive pay package, which consists of salary, bonus, incentive pay, retirement benefits, and all manner of other perks. The consultants look at what top executives at other major corporations are getting, and say that, well, this executive should get more or less the same. Since the directors are mostly these very same “other executives”, they have no interest in objecting – and if any of them were to do so, they would find that they are no longer being invited to sit on corporate boards. Meanwhile, given the preponderance of stock-based compensation (especially stock options) in executive pay, whenever there is speculative boom in the stock market, top executives of the companies with most rapidly rising stock prices make out like bandits. The higher compensation levels then create a 'new normal' for executive pay that, via the compensation consultants and compliant directors, ratchets up the pay of all the top dogs. And, when the stock market is less speculative, these corporate executives do massive stock buybacks to push stock prices up. What we have here is not 'market forces' at work but an exclusive club that promotes the interests of the 0.1%. All too often executives allocate corporate resources to benefit themselves rather than to invest in innovation and job creation.</blockquote>We have discussed similar mechanisms at work in health care, for example, <a href="http://hcrenewal.blogspot.com/2011/10/peer-benchmarking-lake-wobegone-effect.html">here</a>. In other words, <blockquote>almost unanimously, corporate executives proclaim that they run their companies for the sake of shareholders. In fact, their personal coffers pumped up with stock-based compensation, our business 'leaders' have increasingly run the corporations for themselves.</blockquote> Were contemporary management of health care be only based on maximizing shareholder value or short-term revenue, that would be bad enough. However, it appears that it is really based simply on maximizing executive compensation. Health care, and our society as a whole has been turned into something like a feudal state, in which hired managers have become the new aristocracy. The Rise of the Generic Manager The likelihood that "maximizing [supposed] shareholder value" would lead to bad ends is increased by the decreasing likelihood that the managers who set out in this direction would know anything about the specific context in which they were working or other goals they ought to attempt. As Prof Lazonick pointed out, even before the rise of the "maximizing shareholder value" mantra,(1) <blockquote>The beginnings of financialization date back to the 1960s when conglomerate titans built empires by gobbling up scores and even hundreds of companies. Business schools justified this concentration of corporate power by teaching that a good manager could manage any type of business — the bigger the better. </blockquote> This was the notion of the <a href="http://hcrenewal.blogspot.com/search/label/generic%20managers">generic manager</a>. In health care, generic managers who have little specific health care knowledge or experience, and little understanding of or sympathy for the values of health care professionals might be particularly ruthless about putting short-term financial goals ahead of everything else. Summary On Health Care Renewal, we have focused on problems with health care leadership and governance. We have discussed the rise of <a href="http://hcrenewal.blogspot.com/search/label/generic%20managers">generic managers</a>, a focus on short-term revenue sometimes leading to <a href="http://hcrenewal.blogspot.com/search/label/mission-hostile%20management">mission-hostile management,</a> the <a href="http://hcrenewal.blogspot.com/search/label/perverse%20incentives">perverse incentives</a> generated by<a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation"> executive compensation</a> that is unrelated to achievement of the health care mission's goals, lack of executive <a href="http://hcrenewal.blogspot.com/search/label/accountability">accountability</a>, and sometimes executives' complete <a href="http://hcrenewal.blogspot.com/search/label/impunity">impunity</a>. It now appears that health care's leadership and governance problems simply reflect larger problems in the society as a whole. Maybe it should be a relief that we in health care are not uniquely cursed. However, the immensity of the problems faced by our society as a whole will not make it easier to solve the problem of health care dysfunction. I do feel better that our focus has been correct. Furthermore, I feel more confident asserting once again that true health care reform would put in place leadership that understands the health care context, upholds health care professionals' values, and puts patients' and the public's health ahead of extraneous, particularly short-term financial concerns. We need health care governance that holds health care leaders accountable, and ensures their transparency, integrity and honesty. Maybe realizing that health care's problems are a part of society's problems will lead to more support for their solutions. References 1.  Lazonick W. How American corporations transformed from producers to predators.  Naked Capitalism, April 2, 2012.  Link <a href="http://www.nakedcapitalism.com/2012/04/how-american-corporations-transformed-from-producers-to-predators.html">here</a>. 2. Lazonick W. How high CEO pay hurts the 99 percent. Naked Capitalism, April 3, 2012. Link <a href="http://www.nakedcapitalism.com/2012/04/william-lazonick-how-high-ceo-pay-hurts-the-99-percent.html">here</a>. 3. Lazonick W. Three corporate myths that threaten the wealth of the nation. Naked Capitalism, April 6, 2012. Link <a href="http://www.nakedcapitalism.com/2012/04/three-corporate-myths-that-threaten-the-wealth-of-the-nation.html">here</a>. 4. Parramore L. Capitalism's dirty secret: corporations don't create jobs, they destroy them.  Naked Capitalism, April 5, 2012.  Link <a href="http://www.nakedcapitalism.com/2012/04/lynn-parramore-capitalisms-dirty-secret-corporations-dont-create-jobs-they-destroy-them.html">here</a>.

Health Care Dysfunction Explained by the Fallacy of "Maximizing Shareholder Value"

Over the last two weeks, the Naked Capitalism blog ran a multi-part series (1-4) on what has gone wrong with US public for-profit corporations. Although not targeted specifically on health care, the …

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11 Apr 2012

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