healthy4u: out-sourcing

UnitedHealth's Latest Blunders Include Lax Fraud Detection, Recalled EHRs - So Why is its CEO Worth $13.9 Million, or is it $34.7 Million?

We managed to go four months since our last post about UnitedHealth, but sure enough, the company that keeps on giving... examples of poor management to contrast with ridiculous management pay... has done so again. There were two obvious examples of poor management that recently appeared in the media. Lax Fraud Dection The background, as noted in a Kaiser Health News <a href="http://www.kaiserhealthnews.org/Stories/2013/September/15/medicaid-managed-care.aspx">article</a> published in September, is that it is now fashionable for American states to outsource some or most of their Medicaid health insurance programs to managed care organizations, often for-profit, as is UnitedHealth.  These programs are meant to provide insurance to the poor and disabled.  Yet once they have outsourced Medicaid, the states may be reluctant to cancel contracts, even if the outsourcing is not working: <blockquote class="tr_bq"> In Florida, a national managed care company’s former top executives were convicted in a scheme to rip off Medicaid. In Illinois, a state official concluded two Medicaid plans were providing 'abysmal' care. In Ohio, a nonprofit paid millions to settle civil fraud allegations that it failed to screen special needs children and faked data. Despite these problems, state health agencies in these - and other states - continued to contract with the plans to provide services to patients on Medicaid, the federal-state program for the poor and disabled. Health care experts say that’s because states are reluctant to drop Medicaid plans out of fear of leaving patients in a bind. 'You probably won’t find many examples of states flat out pulling the plug. That’s sort of the nuclear option,' said James Verdier, a senior fellow at Mathematica Policy Research, a nonpartisan think tank. </blockquote>Never mind that leaving such programs as is means taking money meant to finance care for the poor and using it to finance fraud, and reward managed care organizations for failing to find fraud. One of the examples, but not a new one, used in the Kaiser Health News article, involved UnitedHealth: <blockquote class="tr_bq">Linda Edwards Gockel, spokeswoman for the Texas Health and Human Services Commission, said that in 2009, officials were concerned about a pilot program in the Dallas-Fort Worth area run by Evercare, a subsidiary of <a href="http://www.unitedhealthgroup.com/" target="_blank">UnitedHealth Group</a>. The program, which coordinated care and long-term services for elderly and disabled people, had been fined more than $600,000 for not providing proper access to care and failing to coordinate services. Gockel said Texas decided to cancel the contract 15 months early, but continued to do business with Evercare because the problems in Dallas-Fort Worth weren’t affecting services it was providing elsewhere.</blockquote> Then in July, NJ.com <a href="http://www.nj.com/politics/index.ssf/2013/07/nj_comptrollers_report_finds_hmos_fraud_detection_efforts_lax_in_medicaid.html">reported</a> an investigation by the state of New Jersey into UnitedHealth's ability, or lack thereof, to detect fraud in the Medicaid managed care program it runs for the state. <blockquote class="tr_bq"> An HMO that earned $1.7 billion from 2009 to 2010 by providing Medicaid coverage to 350,000 low-income and disabled New Jerseyans didn't try very hard to detect fraudulent billing — identifying only $1.6 million, or one-tenth of one percent in improper payouts, according to a report the Office of the State Comptroller released today.</blockquote> UnitedHealth did not even come close to fulfilling its obligations to provide sufficient resources to fight fraud: <blockquote class="tr_bq">The HMOs in the Medicaid program are required to dedicate one investigator for every 60,000 Medicaid clients. At that ratio, United's special investigations unit should have been comprised of about six employees whose sole focus is to detect fraud and abuse by medical providers and patients. Instead, United reported it had dedicated the equivalent of two investigators during the two-year study period based on the amount of hours devoted to the unit. Upon scrutiny, the comptroller found United 'overstated' its staffing levels; the unit had one investigator, the report said. </blockquote> Note that this abject failure appeared to violate the contract UnitedHealth had with the state, <blockquote class="tr_bq">UnitedHealthcare Community Plan of New Jersey failed to hire enough investigators and train them properly, in violation of the managed care company's contract with the state, according to the report. </blockquote> Presumably, if fraud led to excess program expenses, it would be New Jersey, not UnitedHealth who ultimately had to pay them.  Again, it appears that money meant of pay for health care for the poor and disabled was diverted to fraudsters, and to revenue for UnitedHealth (partly because the latter did not see fit to spend enough money up front to detect the fraud.)  Of course, such management by UnitedHealth helped to increase its already fat revenue stream. Faulty Electronic Health Records In September, Bloomberg <a href="http://www.bloomberg.com/news/2013-09-10/unitedhealth-recalls-digital-health-record-software.html">reported</a> that UnitedHealth had to recall electronic health record software because of faults that likely increased the risk of bad patient outcomes, <blockquote class="tr_bq">UnitedHealth Group Inc has recalled software used in hospital emergency departments in more than 20 states because of an error that caused doctor’s notes about patient prescriptions to drop out of their files. Certain versions of the software made by the largest U.S. health insurer had a bug that didn’t print information related to the medication and failed to add data to patients’ charts,according to a document filed with the U.S.Food and Drug Administration and <a href="http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfRes/res.cfm?ID=119832" rel="external" title="Open Web Site">posted</a> July 29. The technology is used in 35 facilities in states including California<a href="http://topics.bloomberg.com/california/"></a>, New Jersey, and Florida<a href="http://topics.bloomberg.com/florida/"></a>, the document shows. The recall began June 21. There were no reports of patient harm and each facility was notified and received a digital fix, said Kyle Christensen, a spokesman for the UnitedHealth division that makes the <a href="http://www.picis.com/solutions/emergency-department/ed-pulsecheck.aspx" rel="external" title="Open Web Site">Picis ED PulseCheck</a> software that was recalled. The incident shows how software errors can create dangers for patients at a time when digital health records are being implemented as a cornerstone of President  Barack Obams's modernization of the nation’s health-care system. </blockquote> The "bug" could potentially harm patients, <blockquote class="tr_bq"> Doctor’s notes are critical for some medications, as they contain directions about diet and use. Failure to include the instructions could lead to serious injury or death, [University of Pennsylvania adjunct professor of sociology and medicine Ross] Koppel said.</blockquote> It turns out that the Picis software has had other problems that could have increased the risk of harm to patients, <blockquote class="tr_bq">An online database maintained by the FDA shows that Picis Inc., a Wakefield, Massachusetts-based company that UnitedHealth acquired in 2010 for an undisclosed price, has reported six recalls involving electronic health record software since 2009. One <a href="http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfRes/res.cfm?id=104224" rel="external" title="Open Web Site">incident</a> in 2011 involved anesthesia-management software sold nationwide that in one instance displayed a patient’s medical information in another patient’s file. <a href="http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfRes/res.cfm?id=86830" rel="external" title="Open Web Site">Another</a>involved software sold worldwide where on an unspecified number of occasions, the program failed to display the discontinued status on medication orders. Others included glitches that caused a <a href="http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfRes/res.cfm?id=103528" rel="external" title="Open Web Site">failure</a> to display appropriate allergy interaction warnings, the <a href="http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfRes/res.cfm?id=89514" rel="external" title="Open Web Site">freezing</a> of administrative controls, and other issues.</blockquote> Note that it is the same Picis software that our blogger, InformaticsMD, has alleged lead to the death of his mother, <blockquote class="tr_bq"> Alleged flaws in electronic health records have led to lawsuits. Scot Silverstein, a doctor and health-care informatics professor at  Drexel University, sued Abington Memorial Hospital in Pennsylvania in 2011 over the death that year of his 84-year-old mother. He blamed her death on a flaw in her electronic health record that he claims caused a critical heart medication to vanish from her file. One of the systems involved was made by Picis, according to his lawsuit. Picis is not being sued.</blockquote> Linda Millevoi, a spokeswoman for Abington Memorial, declined to comment. The latest InformaticsMD posts on this case are <a href="http://hcrenewal.blogspot.com/2013/09/a-new-and-quite-perverse-hospital-ploy.html">here</a> and <a href="http://hcrenewal.blogspot.com/2013/08/a-good-way-to-cynernetically-harm-or.html">here</a>. Summary These cases are just the latest in a long list of blunders and ethical missteps made by UnitedHealth and its top management.  The most significant examples of the latter about which we have posted appear in the appendix at the end.  The latest examples likely diverted money that should have supported health care for the poor, and and may have put patients' health and lives at risk. Yet UnitedHealth is now the largest US health insurance company, and it has succeeded in making its current and former CEO fabulously wealthy.  According to filings with the US Security and Exchange Commission (SEC), its current CEO, Stephen J Hemsley, got $13.9 million in 2012, up from $13.4 million in 2011, as we posted <a href="http://hcrenewal.blogspot.com/2013/05/unitedhealth-ceo-continues-to-prosper_3.html">here</a>.  However, an <a href="http://apps.startribune.com/top_100_exec_comp/topCeoView.php">analysis</a> by the Minneapolis Star-Tribune that took into account stock gains and shares vesting suggested he got $34,721,122 in 2012, admittedly down from a breathtaking $48,075,614 in 2011.  The previous UnitedHealth once was worth over a billion dollars due to back dated stock options, some of which he had to give back, but despite all the resulting legal actions, was still the ninth best paid CEO in the US for the first decade of the 21st century (look <a href="http://hcrenewal.blogspot.com/2010/08/despite-scandal-former-unitedhealth-ceo.html">here</a>). So UnitedHealth continues to provide us with examples of how top leaders of health care organizations can become tremendously rich, despite, or perhaps because of repeated mismanagement and apparently unethical management on their watches.  Only when we make health care leaders truly accountable for their organizations, and especially for their organizations' ethics and effects on patients' and the public's health will be begin to challenge health care dysfunction. (Note to readers recently joining us from countries other than the US - UnitedHealth is a multi-national that claims to operate in 33 countries (look <a href="http://careers.unitedhealthgroup.com/why-work-here/our-locations.aspx">here</a>).  For example, its UK web-site is <a href="http://www.unitedhealthuk.co.uk/">here</a>.  So beware the export of bad management for enhanced prices.)    Appendix - UnitedHealth's Ethical Lapses  - as <a href="http://www.courant.com/business/hc-natbizdigbrf0530.art2may30,0,109447.story">reported</a> by the Hartford Courant, "UnitedHealth Group Inc., the largest U.S. health insurer, will refund $50 million to small businesses that New York state officials said were overcharged in 2006." - UnitedHalth promised its investors it would continue to raise premiums, even if that priced increasing numbers of people out of its policies (see post <a href="http://hcrenewal.blogspot.com/2008/05/commercial-managed-care-organizations.html">here</a>); - UnitedHealth's acquisition of Pacificare in California allegedly lead to a "meltdown" of its claims paying mechanisms (see post <a href="http://hcrenewal.blogspot.com/2008/01/bungled-not-brilliant-results-of.html">here</a>); - UnitedHealth's acquisition of Sierra Health Services allegedly gave it a monopoly in Utah, while the company allegedly was transferring much of its revenue out of the state of Rhode Island, rather than using it to pay claims (see post <a href="http://hcrenewal.blogspot.com/2007/03/unitedhealth-declares-health-care.html">here</a>) - UnitedHealth frequently violated Nebraska insurance laws (see post <a href="http://hcrenewal.blogspot.com/2007/01/on-performance-on-one-supposedly.html">here</a>); - UnitedHealth settled charges that its Ingenix subsidiaries manipulation of data lead to underpaying patients who received out-of-network care (see post <a href="http://hcrenewal.blogspot.com/2009/01/unitedhealth-and-ingenix-settles.html">here</a>). - UnitedHealth was accused of hiding the fact that the physicians it is now employing through its Optum subsidiary in fact work for a for-profit company, not directly for their patients (see post <a href="http://hcrenewal.blogspot.com/2011/07/here-comes-your-new-doctor-brought-to.html">here</a>).

UnitedHealth's Latest Blunders Include Lax Fraud Detection, Recalled EHRs - So Why is its CEO Worth $13.9 Million, or is it $34.7 Million?

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17 Sep 2013

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

Will Hired Executives Let "Healing Prevail Over Profit?" - Questions from Public and Catholic Non-Profit Health Systems

Hospital - noun, 1.  a charitable institution for the needy, aged, infirm or young  2.  an institution where the sick or injured are given medical or surgical care, <a href="http://www.merriam-webster.com/dictionary/hospital">Merriam-Webster</a>              - noun.  1.  an institution providing medical and surgical treatment and nursing care for sick or injured people, <a href="http://oxforddictionaries.com/definition/hospital?region=us">Oxford Dictionary</a> Two recent NY Times articles raise concerns that changes in leadership may cause hospitals to stray from their original purpose.  Cook County Health and Hospitals System The first NY Times <a href="http://www.nytimes.com/2011/08/19/us/19cnchealth.html">article</a> discussed leadership of Cook County Health and Hospitals System (in the Chicago, IL area). This is a public health system whose mission was traditionally "to serve Cook County's neediest patients." The management of the system, however, is now increasingly in the hands of paid consultants. For example, until recently, its COO (chief operating officer) was: <blockquote>Mr. [Tony] Tedeschi, [who] like other of the system’s recent top managers, works for the Sibery Group, which has had contracts with the system to provide temporary executive talent.</blockquote> Furthermore, his successor was <blockquote>Ms. [Carol] Schneider, whose contract runs through December, works for the Washington Group Ltd., a consulting company that provides administrative help to the system. </blockquote> Furthermore, <blockquote>PricewaterhouseCoopers has a three-year, $50 million contract calling for it to save the system $300 million or bring in the equivalent in new revenue.</blockquote> Not to mention, <blockquote>consultants from the Sibery Group, which is based in Oak Brook, [were appointed] to top management posts within County Health. For example, a Sibery employee, Robert Hamilton, was until recently chief operating officer of Provident Hospital. Another, David Sibery, was until recently head of support services for the health system. </blockquote> Turning leadership over to executives hired by outside, commercial firms has lead to concern. <blockquote>The role consultants play at County Health is the object of strong criticism from doctors, nurses and other staff members who say they fear that consultants driven by the bottom line are at odds with the system’s obligation to serve Cook County’s neediest patients. Hundreds of front-line staff members have been laid off in the last two years. </blockquote>One particular concern was the lay-offs directed by yet another group of consultants. <blockquote>The county decided to close Oak Forest based in part on the advice of Navigant Consulting, which in a 2009 report found that Cook County’s hospitals were overstaffed compared to those of other health systems. Navigant’s assessment also formed the basis for the layoff of 1,350 people systemwide in the last two years. Doctors, nurses and union leaders argued that Navigant’s calculations were flawed. </blockquote> Most troubling are allegations that outsourced leadership by commercial consultants is stifling health care professionals' input into the system, including perhaps whistle-blowing about threats to its core mission: <blockquote>A doctor at a county clinic who would not let his name be used because he feared losing his job said consultants were 'coming at it like our county system is a system that could make money.' The purpose of the system 'is to take care of people regardless of their ability to pay,' the doctor said. 'If they want to get out of that commitment, that’s fine, but they’re going to leave people in the dust.' </blockquote> In addition, <blockquote>A nonunion supervisor, who would speak only on the condition that her name not be used for fear of retaliation, said the constant presence of consultants — and a lack of clear results — was undermining staff morale. 'I’ve never seen employee morale as low as it is now, at all levels,' the supervisor said. A survey of employees conducted by management in January found that fewer than a third of health system employees think senior managers are 'trustworthy' or have 'a sincere interest in the well-being of employees.' The survey also found that more than half of employees do not think they can voice their opinion without fear of retaliation. Dr. Richard David, co-director of neonatal intensive care at Stroger Hospital, said doctors were frustrated that Pricewaterhouse consultants had not sought their advice and seemingly ignored opinions offered by medical staff members. Dr. David said cuts most likely recommended by consultants were interfering with patient care in his unit. He cited calls from other doctors that go unanswered because staff reductions have left only one desk clerk, who also covers another unit. </blockquote>So it appears that through the miracle of out-sourcing, nominally public hospitals can now be lead by hired executives from commercial firms, whose corporate culture may be more about laissez faire capitalism than serving the poor.  SSM Health Care The <a href="http://www.nytimes.com/2011/08/21/us/21nuns.html">second</a> NY Times article was about the exit of nuns as leaders of Catholic hospitals and health systems.  In summary, <blockquote>In 1968, nuns or priests served as chief executives of 770 of the country’s 796 Catholic hospitals, according to the Catholic Health Association. Today, they preside over 8 of 636 hospitals. ... only 8 of 59 Catholic health care systems are directed by religious executives. </blockquote> The focus of the article was on the retirement of Sister Mary Jean Ryan as CEO of SSM Health Care, (SSM honors Sisters of St. Mary, a predecessor of the Franciscan Sisters of Mary, the Sister's order). Sister Mary Jean Ryan was not a typical hospital system CEO: <blockquote>her legacy ... extends to preaching about the dignity of patients, paying blue-collar workers above scale, making her hospitals smoke-free, banning the use of foam cups and plastic water bottles, and insisting on gender-neutral and nonviolent language. There are no 'bullet points' in SSM presentations, and photographs are 'enlarged,' never 'blown up.' Even Sister Mary Jean can struggle to define precisely what the nuns brought to their hospitals. 'There is this thing called presence, she said, explaining that she was trained to see Jesus in the face of every patient....</blockquote> Also, her leadership: <blockquote>meant turning away business arrangements with doctors who decline to accept Medicaid. It has meant discounting treatment for the poor and offering charity care to the uninsured, just as the order’s founders did. The St. Louis nuns’ earliest ledgers denoted patients unable to pay as 'Our dear Lord’s.' </blockquote> But Sister Mary Jean has left, and this, and the general loss of religious leadership of Catholic hospitals and health systems: <blockquote>has stirred angst in many Catholic hospitals about whether the values imparted by the nuns, concerning the treatment of both patients and employees, can withstand bottom-line forces without their day-to-day vigilance. Although their influence is often described as intangible, the nuns kept their hospitals focused on serving the needy and brought a spiritual reassurance that healing would prevail over profit, authorities on Catholic health care say. </blockquote> Money is likely to become much more important at SSM: <blockquote>Mr. William P Thompson, Sister Mary Jean’s handpicked successor, said he planned to hold fast to her commitment to patients, the environment and nonviolence. But he also acknowledged that he would be 'trying to drive more efficiencies in the system.' </blockquote> One cannot help but wonder if these "efficiencies" will resemble those deployed by the outsourced consultant leadership of Cook County.  On Private Equity and Catholic Hospitals Furthermore, there is reason to think that Catholic, non-profit hospitals and health care systems may become even more like commercial firms. An <a href="http://www.healthleadersmedia.com/page-1/FIN-269977/Private-Equity-Interest-In-Nonprofit-Hospitals-Growing">article</a> in HealthLeaders Media about the increasing interest by private equity firms in non-profit hospitals and health care systems noted, <blockquote>[A] well-publicized deal was the buyout of Massachusetts-based Caritas Christi Health Care, which was a nonprofit, by Cerberus Capital Management. [see our posts <a href="http://hcrenewal.blogspot.com/search/label/Caritas%20Christi">here</a> and <a href="http://hcrenewal.blogspot.com/search/label/Steward%20Health%20Care">here</a>] The 2010 sale not only gave Caritas a cash infusion, but altered its tax status to for-profit. These acquisitions moved to center stage the use of private equity capital as a strategic opportunity for healthcare leaders. For instance, this past February, the nation's largest Catholic health system, Ascension Health, partnered with the Stamford, CT–based private equity firm Oak Hill Capital Partners, embarking on a joint venture to buy Catholic hospitals. Leo P. Brideau, FACHE, president and CEO of the St. Louis–based Ascension Health Care Network, says the joint venture allows the organization to provide an alternative funding source for the acquisition of Catholic healthcare entities.</blockquote> Then, <blockquote>Brideau says seeing other Catholic hospitals financially flounder—only to be sold to non-Catholic entities—aligns with the organization's mission to grow its network of Catholic hospitals. The vision to strengthen Catholic healthcare was another driver for Ascension's partnership with Oak Hill Capital. </blockquote> However, the article raises further concerns about whether private equity's interest in non-profit, particularly Catholic hospitals will help these institutions' missions.  The thinking of one private equity expert was: <blockquote>The core goal of a nonprofit hospital or health system is to provide patients with high-quality, cost-effective care, while earning a healthy margin; private equity firms have a different end goal. The general aim of a private equity firm is to achieve a large return on investment in the form of capital gains. How the private equity firm achieves those ends is where hospitals need to do their homework, [managing partner of Linden Capital Partners Brian] Miller says. </blockquote> Despite what private equity gurus may think, non-profit hospitals' missions never used to make a goal "earning a healthy margin" co-equal with that of taking good care of patients. It does not appear that achieving "a large return on investment" will be compatible with the traditional culture of Catholic hospitals in which "healing would prevail over profit." Nor does it appear compatible with the recent words of Pope Benedict XVI (as reported by the AP, <a href="http://articles.boston.com/2011-08-18/news/29901339_1_young-people-pope-benedict-xvi-ethics">via</a> the Boston Globe): <blockquote>'The economy doesn’t function with market self-regulation but needs an ethical reason to work for mankind,' he told reporters traveling aboard the papal plane. 'Man must be at the center of the economy, and the economy cannot be measured only by maximization of profit but rather according to the common good.' He said the current crisis shows that a moral dimension isn’t 'exterior' to economic problems but 'interior and fundamental.'</blockquote> Summary As hospitals and health systems are increasingly lead by people from the world of business, at a time when business culture increasingly believes "greed is good," the fundamental values of hospitals and health care professionals are more often ignored, if not directly threatened.  To repeat, health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.

Will Hired Executives Let "Healing Prevail Over Profit?" - Questions from Public and Catholic Non-Profit Health Systems

Hospital - noun, 1. a charitable institution for the needy, aged, infirm or young 2. an institution where the sick or injured are given medical or surgical care, Merriam-Webster - noun.…

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26 Aug 2011

More About What We Don't Know About the Contaminated Heparin from China

We last blogged about the case of Baxter International's adulterated heparin <a href="http://hcrenewal.blogspot.com/2010/07/prosecuting-doctors-for-importing-iuds.html">here</a>.  (For a more detailed summary of the case, look <a href="http://hcrenewal.blogspot.com/2010/05/more-questions-no-answers-about-case-of.html">here</a>.) In summary, Baxter International imported the "active pharmaceutical ingredient" (API) of heparin, that is, in plainer language, the drug itself, from China. That API was then sold, with some minor processing, as a Baxter International product with a Baxter International label. The drug came from a sketchy supply chain that Baxter did not directly supervise, apparently originating in small "workshops" operating under primitive and unsanitary conditions without any meaningful inspection or supervision by the company, the Chinese government, or the FDA. The heparin proved to have been adulterated with over-sulfated chondroitin sulfate (OSCS), and many patients who received got seriously ill or died. While there have been investigations of how the adulteration adversely affected patients, to date, there have been no publicly reported investigations of how the OSCS got into the heparin, and who should have been responsible for overseeing the purity and safety of the product. Despite the facts that clearly patients died from receiving this adulterated drug, no individual has yet suffered any negative consequence for what amounted to poisoning of patients with a brand-name but adulterated pharmaceutical product. Now, <a href="http://online.wsj.com/article/SB10001424052748703954804575381540372921432.html">an article</a> in the Wall Street Journal by Alicia Mundy tells us more about what we don't know, <blockquote>The Chinese government didn't pursue an investigation into contaminated heparin sent to the U.S. in 2007 and 2008, despite repeated requests from the U.S. for help, according to a congressional probe. Two House Republicans said Food and Drug Administration officials recently told them that the agency has been "severely hampered" by the lack of cooperation from China in finding those responsible.</blockquote> Furthermore, <blockquote>'It is shocking to find out two years after Chinese-made heparin was killing Americans, the Chinese government still has done no investigating to find out why,' said Mr. Barton, the top Republican on the House Energy and Commerce Committee. He called on ... [FDA Commissioner Margaret] Hamburg to air the issue with Chinese officials.</blockquote> Chinese officials denied there is a problem, <blockquote>Yan Jiangying, spokeswoman for China's State Food and Drug Administration, said the congressmen's accusations are 'not true.' Ms. Yan said her agency 'did a very thorough investigation, including very detailed inspection and testing, and surveys of enterprises as well. We signed an agreement with the FDA on drug safety in the end of 2007, and strengthened the monitoring of heparin.' </blockquote> Note that their investigation, such as it was, did not appear to identify any misconduct or wrong-doing by anyone. So now we know more about what we do not know about the deadly adulterated heparin from China. But remember this is a case about heparin sold in the USA by Baxter International, an American company as an American product, resulting in the death of Americans.  Also, remember that the American company obtained the heparin from another American company, Scientific Protein Laboratories LLC, which in turn obtained it from a factory in China operated by Changzhou SPL, which in turn was owned by Scientific Protein Laboratories and by Changzhou Techpool Pharmaceutical Co.  Since Baxter International sold the heparin under its own label, should not its leaders be responsible for the safety and purity of the product?  Since Scientific Protein Laboratories LLC furnished the active pharmaceutical agreement to Baxter, and obtained it from a factory it partially owned in China, should not its leaders also be responsible for the safety and purity of the product? It would be important to find out ultimately where in China the adulterated heparin entered the supply chain, but the current uncertainty about the initial origin of the contamination does not absolve those in the US who sold the active pharmaceutical ingredient, and then sold that ingredient in bottles with a US company label of responsibility for the safety and purity of the drug. Why have we heard nothing more from Baxter International's and Scientific Protein Laboratories' leaders about the deadly heparin which they had sold?  Why have we heard nothing more about any investigation of these US based participants in this case?  Both US companies doubtless saved money by buying the heparin from the cheapest Chinese sources they could find, by not directly inspecting and supervising its production, and by at best ignoring the lack of regulation of producers of active pharmaceutical ingredients in China.  They and their leaders benefited from this out-sourced, off-shore production.  (Note that Baxter CEO Robert L Parkinson Jr received total compensation of $14,361,305 according to the company's <a href="http://www.baxter.com/downloads/investors/reports_and_financials/2010_baxter_proxy.pdf">proxy statement</a>, and six named officers all received more than $2,200,000.) Why aren't they being held accountable for its bad results? As we have said until being blue in the face, as long as the leaders of health care organizations are not held accountable for the results of their decisions on health care quality, cost, and access (even in such extreme quality violations as those resulting in multiple patient deaths), we can expect continuing decisions that sacrifice quality, increase costs, and worsen access, but that are in the self-interest of the people making them. To really reform health care, we must hold health care organizations and their leaders accountable (and not blame all the problems on doctors, other health care professionals, patients, and society at large). Hat tip to Ed Silverman <a href="http://www.pharmalot.com/2010/07/china-stymies-fda-probe-into-contaminated-heparin/">on the PharmaLot blog</a>.

More About What We Don't Know About the Contaminated Heparin from China

We last blogged about the case of Baxter International's adulterated heparin here. (For a more detailed summary of the case, look here.)In summary, Baxter International imported the "active pharmaceu…

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23 Jul 2010

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