healthy4u: private equity

The Continuing Mystery of the Fugitive Founder and Missing Money - What it Says About the Opacity of Offshore Medical Schools

The next chapter in the bizarre tale of the fugitive founder of an off-shore (from the US and Canada) Caribbean medical school, and his now convicted spouse, do not solve any mysteries, but raise larger concerns about the accountability, or lack thereof, of leaders of important health care organizations. Introduction: the Fugitive Founder and Convicted Spouse As we <a href="http://hcrenewal.blogspot.com/2013/10/the-mystery-of-fugitive-founder-and.html">posted</a> in October, 2013, drawing an amazing for us number of comments, the couple who founded two Caribbean medical schools which catered almost entirely to US and Canadian students ran into significant legal trouble.  Founder David Leon Fredrick and his wife, Dr Patricia Lynn Hough were indicted for tax evasion for failing to report income from the two medical schools they allegedly owned, and later sold. The schools were Saba University School of Medicine, on Saba, and the Medical University of the Americas, on Nevis.  The initial legal proceedings revealed that while Saba University School of Medicine was apparently first set up by a non-profit foundation (or NGO) run by the couple, somehow it became for-profit owned by Mr Fredrick and Dr Hough, and Saba and the Medical University of the Americas were subsequently sold to a private equity group, Equinox Capital. Before jury selection started, Mr Fredrick disappeared.  Dr Hough was eventually convicted of defrauding the US Internal Revenue Service, and income tax evasion, after trial testimony to the effect that the couple concealed money in a Swiss bank, got $36 million from the sale of the schools, and bought an airplane, two houses, and a condominium. Left mysterious at that time were Mr Fredrick's whereabouts, where the money that the couple derived from the sale of the medical schools went, and how a school that began as a non-profit organization became a for-profit corporation owned by the couple.  The case should have lead to some concerns about the leadership and governance of the off-shore medical schools that now train increasing numbers of would be US and Canadian physicians. However, after Dr Hough was convicted, there was little public discussion of these issues, at least until Dr Hough's recent sentencing.  (There were some interesting comments made on our blog post, many from anonymous erswhile defenders of Saba University and/or Mr Fredrick and Dr Hough.  While they expressed some interesting opinions, in my humble opinion they did not add any substantive facts to the discussion.) Latest Developments in the Case In the past few weeks the case got a little more public notice in terms of reporting of the legal proceedings leading to the sentencing of Dr Hough   They brought to light some additional contentions by the prosecution, which deserve some attention because after all, they won their case. The Amount of Money the Couple Made As <a href="http://www.heraldtribune.com/article/20140509/ARTICLE/140509637">reported</a> by the Sarasota (FL) Herald-Tribune,  Dr Hough was sentenced to two years in federal prison, three years of supervised release, and to repay $15 million to the IRS.  In addition, <blockquote class="tr_bq"> Prosecutors say Hough and Fredrick sold the schools and associated real estate in April 2007 for more than $35 million. An IRS agent testified last Thursday that Hough also made more than $12 million in income from the two schools from 2003 until 2007.</blockquote> How much Mr Fredrick made was not discussed since it was not relevant to Dr Hough's sentencing.  The Effort that Went into the Plot According to <a href="http://www.businessweek.com/news/2014-05-09/caribbean-medical-school-founder-hough-gets-2-years-in-tax-case">Bloomberg</a>, <blockquote class="tr_bq">'Hough’s crimes were neither impulsive nor isolated but required sophisticated transactions, coordination with foreign bankers, annual lies to the federal government, and by her own admissions, trips to Switzerland,' prosecutors wrote in a sentencing memo on April 14. 'Hough made calculated decisions to cheat, over and over again.'</blockquote> Also, <blockquote class="tr_bq">Prosecutors accused the couple of crafting their scheme with UBS AG (UBSN) banker Dieter Luetolf and Swiss financial adviser Beda Singenberger, both unindicted co-conspirators. Singenberger, who was separately charged with helping 60 U.S. clients hide $184 million in offshore accounts, hasn’t responded in federal court in New York.</blockquote> In more detail, <blockquote class="tr_bq">Prosecutors said the couple used an array of accounts in the names of businesses to hide their money and employed 'e-mails, telephone calls and in-person meetings to instruct Swiss bankers and asset managers to make investments and transfer funds from their undeclared accounts at UBS.' </blockquote> The Mysteries Remain Where Did the Money Go? As noted above, the sale of the two medical schools netted Mr Fredrick and Dr Hough about $35 million.  Where that went is still unclear. How Did Mr Fredrick and Dr Hough Become Owners of a Previously Non-Profit Medical School? As noted above and in our previous post, Saba University School of Medicine began as a non-profit managed by Mr Fredrick and Dr Hough.  Somewhere along the way, the couple assumed ownership of the school.  There seems to be no record and no discussion of how this happened.  In the US, a conversion of a substantial non-profit, like a medical school, to a for-profit, ordinarily would require some regulatory approval and public discussion.  Furthermore, in most cases, non-profit conversions to for-profit would require some sort of protection of the assets of the former non-profit, often leading to a spin-off of a new non-profit foundation.   None of this apparently happened in this case (which admittedly did not occur in the US.)  How did Mr Fredrick and Dr Hough just take over a non-profit, sell it, and keep all the money involved? Where is Mr Fredrick and Why did He Flee? We need Sherlock Holmes for this.  What Does This Case Say About the Leadership and Governance of Offshore Medical Schools? So the latest details revealed suggest a fairly intricate plot by the American couple who founded two Caribbean medical schools.  The plot allegedly netted them millions, and now resulted in one of the couple remaining a fugitive, and the other convicted of federal crimes. The biggest issue raised by this case, in my humble opinion, is not about financial crimes, tax-evasion, or the hiding of assets in Swiss banks.  It is about the leadership and governance of offshore Caribbean medical schools, and by extension, of academic medicine and health care.  In 2010, Eckhert documented that the number of offshore medical schools, "for-profit institutions whose purpose is to train U.S. and Canadian students who intend to return home to practice," but not to train physicians to practice in the countries in which these schools are located, was rapidly growing.(1)  By 2010, there were 33 such schools, 20 of which were new since 2000. These offshore medical schools are not accredited in the US or Canada, and such accreditation is currently not required for individual graduates of such schools to be admitted to US house-staff programs or for US licensure.  So perhaps it is not surprising that little is known about these schools. How they choose students, the qualifications, or even names of their faculty, their curriculum, how they supervise clinical training (which is mostly done by affiliated North American hospitals), and what happens to their graduates are boscure.  Eckhert attempted to describe what is known, but noted "variability exists in the availability of information on faculty; where data exists, it is noted that most of the permanent on-site basic science faculty are internationally trained, many have no documented medical education experience in the United States, and it is not uncommon for them to be OMS [offshore medical school] alumni." Even less is known about who leads these schools, who if anyone is responsible for their stewardship, and even who owns them.  The current case suggests that Saba University School of Medicine was run by couple who mysteriously assumed ownership of the school after leading it as a non-profit organization, then sold it to private equity for millions in a transaction that eventually left one a convicted criminal and the other a fugitive.  Yet none of this came to light until the federal government launched an investigation not of offshore medical schools, but of offshore money laundering and happened to catch the couple in the investigational web. No regulatory process, no watchdog organization in the US or Canada, or on Saba apparently found this out until it was revealed in an investigation by the US federal government that had nothing specifically to do with health care or offshore medical schools.  This suggests that offshore medical schools now can be lead and run by anyone, qualified or not, honest or criminal, without any oversight or accountability.   For example, even today little is known about the leadership of Saba University School of Medicine.  The school currently <a href="http://www.saba.edu/faculty/administration">provides</a> only minimal biographical information on its administration.  Its President is listed as Joseph Chu MD MPH, who appears to have the same educational credentials (MD from Georgetown, MPH from University as Washington) as one <a href="http://depts.washington.edu/epidem/fac/facBio.shtml?Chu_Joseph">Joseph Chu</a> who is apparently a Clinical Associate Professor of Epidemiology at the University of Washington.   Dr Chu's specialty and previous experience are not apparent.  Whether the Dr Chu at University of Washington is the same as the President of Saba is unclear.  If they are the same, how Dr Chu holds down these two jobs is not clear. For comparison, most US schools provide extensive information about their leadership.  Just as an example, see the <a href="http://www.uwmedicine.org/about/administration/paul-ramsey">introductory page</a> on the Dean of the University Washington medical school. Even less is known about the stewardship or governance of Saba University School of Medicine.  Many US medical schools have their own boards of trustees who are supposed to provide stewardship. For example, the UW board is <a href="http://www.uwmedicine.org/about/board">here</a>.  Their membership is generally known.  Furthermore, most US medical schools report to university leadership, again whose identity is known, and are subject to governance by a university board of trustees.  We have certainly criticized the leadership and governance of US academic medicine.  At least, however, it is possible to find out the names of the people responsible.  However, while Saba University School of Medicine is still apparently owned by Equinox Capital according to the latter's <a href="http://www.equinox-capital.com/index.php/select-transactions">website</a>, to whom Dr Chu reports at Equinox Capital is unclear.  Whether Saba has a board of trustees, or any such similar stewardship mechanism, is unclear.  So who is ultimately accountable for Saba is unclear.  Probably just as unclear is who leads, who stewards, and who is accountable for the leadership of most other offshore medical schools. While Eckhert wrote in 2010 that the increasing presence of offshore medical graduates in the US "obligates U.S. medicine to take a closer look at these educational programs," no such scrutiny has occurred since then.  While offshore medical schools account for the training of an increasing proportion of US (and presumably Canadian) physicians, we know next to nothing about their leadership and governance.  This seems to be just another part of the decreasing accountability of the leadership of US health care, and the increasing opacity of the governance and stewardship of US health care organizations.  True US health care reform would make leadership transparent and accountable.          Reference  1.  Eckhert NL.  Private schools of the Caribbean: outsourcing medical education.  Acad Med 1010; 85: 622-630.  Link <a href="http://www.ncbi.nlm.nih.gov/pubmed/20354377">here</a>.

The Continuing Mystery of the Fugitive Founder and Missing Money - What it Says About the Opacity of Offshore Medical Schools

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13 May 2014

"Emotion, not Information" - the Lucrative Deceptive Marketing of Hospice, and its Potentially Fatal Consequences

One of the real recent advances in health care, in my humble opinion, was the organization of compassionate, palliative care for people at the end of life.  During my training and early career I saw too many patients with terminal illness getting aggressive, sometimes very painful treatments which at best only offered hope of briefly prolonging their lives.  Some patients chose such treatments with full knowledge of the implications, at times with the hope that they might survive until some significant event, for example, the birth of a grandchild.  Many patients, however, seemed to be suffering with no purpose. The hospice and palliative care movement, however, offered true comfort to those with little hope of prolonged survival.  Good hospice care eased the final days of patients with advanced disease for whom no definitive treatments could be found. Hospice seemed like a great alternative for such patients, but its reasonable use depended on physicians' abilities to identify patients who really were at the end of life, and for whom aggressive treatment would be futile.  The Achilles Heel of the hospice movement remained health care professionals' inability to reliably identify such patients.  The big problem is that putting a patient who actually potentially could survive for a long time in hospice will doom that patient were he or she to develop an acute illness for which treatment is available, like a bacterial pneumonia that might respond to antibiotics, because in hospice antibiotics are not given for acute infections. So the development of hospice had a downside which could be fatal for some patients.  I think most physicians hoped, however, that we could minimize the number of such patients by trying hard to make accurate predictions, and that in the future, better technology would lead to better predictions. The Rise of Corporate Hospices Back in the 1980s, however, I did not anticipate that hospices might become parts of for-profit corporations, and that such corporations might be able to make more money by admitting more patients, even patients who really were not at the end of life.   Starting in 2011, however, we started to find cases in which that appeared to be what was going on (look <a href="http://hcrenewal.blogspot.com/2011/07/prepare-them-to-die-for-profit-hospices.html">here</a>, then <a href="http://hcrenewal.blogspot.com/2012/03/gentivas-odyssey-healthcare-settles.html">here</a>, <a href="http://hcrenewal.blogspot.com/2012/05/who-cares-if-patients-die-apparently.html">here</a>, and <a href="http://hcrenewal.blogspot.com/2012/09/more-hospices-pretending-patients-are.html">here</a>). In 2013, more cases appeared, listed in chronologic order - Hospice of Arizona LC and American Hospice Management LLC - Per a <a href="http://www.justice.gov/opa/pr/2013/March/13-civ-326.html">news release</a> from the Department of Justice, these entities settled litigation that alleged, among other things, that they "submitted or caused the submission of false Medicare claims between Sept. 1, 2002, and Dec. 31, 2010, for Hospice of Arizona patients who did not need end of life care...."  Hospice Care of Kansas, and parent company Voyager HospiceCare - Per a Topeka (Kansas) Capital-Journal <a href="http://cjonline.com/news/state/2012-06-21/kansas-hospice-firm-pays-61-m-settlement">article</a>, these entities settled to resolve allegations that they "submitted inappropriate claims between January 2004 and December 2008 for patients without a terminal prognosis of six months or less." Hernando-Pasco Hospice - <a href="http://www.tampabay.com/news/health/hernando-pasco-hospice-agrees-to-pay-1-million-to-settle-false-billing/2132592">Per the Tampa Bay Times</a>, " Hernando-Pasco Hospice has agreed to pay $1 million to settle allegations that it billed the Medicare and Medicaid programs for patients who did not need end-of-life care, the U.S. Attorney's Office for the Middle District of Florida announced Monday.  The not-for-profit Hernando-Pasco Hospice, which goes by HPH Hospice, is accused of admitting ineligible patients in order to meet targets imposed by its management team, federal authorities said in a statement." These were all small settlements, that is, less than $15 million, reported in relatively small media outlets. This week the issue was in the media spotlight courtesy the Washington Post, in <a href="http://www.washingtonpost.com/business/economy/medicare-rules-create-a-booming-business-in-hospice-care-for-people-who-arent-dying/2013/12/26/4ff75bbe-68c9-11e3-ae56-22de072140a2_story.html">an article</a> which provided yet more data and vivid examples suggesting that for-profit hospices were putting money ahead of vulnerable patients' well-being.    The Post added to the background we provided above, <blockquote class="tr_bq">Medicare began paying for hospice care in 1983, following a resurgence of interest in end-of-life care, sparked in part by the publication of '<a data-xslt="_http" href="http://www.amazon.com/gp/product/0684839385?ie=UTF8&camp=1789&creativeASIN=0684839385&linkCode=xm2&tag=thewaspos09-20">On Death and Dying</a>' by Elisabeth Kubler-Ross. 'We can give families more help with home care and visiting nurses, giving the families and the patients the spiritual, emotional, and financial help in order to facilitate the final care at home,' Kubler-Ross testified to the Senate Special Committee on Aging in 1972.</blockquote> After this well-intentioned beginning, there was a rapid increase in the use of hospice, and hence its costs, <blockquote class="tr_bq">The benefit was quickly embraced by Americans and continues to grow, with Medicare paying for hospice care for more than 1.2 million people annually. In 2000, Medicare spent $2.9 billion on the hospice benefit. By 2012, that figure has risen fivefold, to $15.1 billion. But as more Americans have taken up hospice care, a profound change has been underway: Big businesses have moved in.</blockquote> In parallel, the nature of hospices changed, going from being predominantly local non-profit organizations to predominantly corporate, <blockquote class="tr_bq">When Medicare paid its first hospice benefit, the vast majority of hospice-care providers were nonprofit groups. Over the past decade, however, the for-profits have come to dominate the industry. In 2000, 70 percent of hospices were run by nonprofit organizations or government agencies. Today, nearly 60 percent are for-profit companies, and they may account for an even larger share of patients.</blockquote> They really were for-profit, <blockquote class="tr_bq">The profit margins as measured by MedPAC, the Medicare watchdog, climbed to 8.7 percent in 2011. The per-patient operating profit has risen from $353 in 2002 to $1,975 in 2012, according to the analysis of California data.</blockquote> Big money lured aggressive players, in particular, private equity, <blockquote class="tr_bq"> The returns have attracted some prominent financial firms, whose analysts have run the numbers and decided to invest. Among the private investment companies that have put down bets on hospices in recent years are Kohlberg Kravis Roberts & Co., KRG Capital Partners and Summit Partners.</blockquote> As we have discussed <a href="http://hcrenewal.blogspot.com/2012/07/private-equity-vs-patient-care-bainful.html">elsewhere</a>, the private equity model involves not long term management, but trying to make big money in the short term, either by directly extracting it from the companies taken over, of by rapidly selling them, if necessary, piece by piece.  Financial Incentives to Enroll the Wrong Patients Keep in mind that the revenue fueling the uber capitalists involved in for-profit hospices came predominantly from the US government, and depended on the rules set by the government to pay for hospice, <blockquote class="tr_bq">The vast majority of those profits flow from the U.S. government and Medicare, which makes an estimated 85 to 90 percent of all payments to hospices.</blockquote> The payments provide more profit from patients with the longest stay in hospice, <blockquote class="tr_bq">The reason that longer stays are more profitable is that hospice companies typically spend more on patients at the beginning of their care and then again at the end of their lives. When a patient is first enrolled, the hospice often must diagnose the patient’s illness, set up home equipment and get them stabilized. Then, during the last week of life, a hospice typically must pay for more frequent home visits by the nurse, aides and others. As a result, patients who live a longer time — and for whom there is a long, stable period in the middle — generate more profits.</blockquote> There is evidence that for-profit hospice management has reacted to these incentives to enroll patients who would live a long time, despite the fact noted above that hospice was intended for patients who were at the end of life, and were obviously thus expected not to live for a long time, <blockquote class="tr_bq">Indeed, it has been an open secret in the industry that, because of the method of payment, the way to run a hospice profitably is to enroll patients who stay for a long time. The <a data-xslt="_http" href="http://www.wikinvest.com/stock/VistaCare_%28VSTA%29/Filing/10-K/2007/F3366157">annual report in 2004 for one large hospice provider, VistaCare</a>, noted that its fortunes depended on its ability to manage costs and 'maintain a patient base with a sufficiently long length of stay.' The company also warned that 'cost pressures resulting from shorter patient lengths of stay . . . could negatively impact our profitability.' 'It is common knowledge in the industry that a longer length of stay is going to be more lucrative,' said Rachel Mason, who worked in marketing at Delta Hospice in California, where one of the company’s branches had one of the highest discharge rates of living patients in the state last year — 63 percent. 'If they come in very sick and die right away, it’s difficult to run a business that way.'</blockquote> So, in the aggregate, stays have gone up, costs have increased, partially because there are more hospice ''urvivors," that is, patients who actually were admitted to hospice not at the end of life, survived much more than the six months which was supposed to have been their expected lifespan, and thus ended up graduating from hospice, a service meant originally for the terminally ill, <blockquote class="tr_bq">over the past decade, the number of 'hospice survivors' in the United States has risen dramatically, in part because hospice companies earn more by recruiting patients who aren’t actually dying, a Washington Post investigation has found. Healthier patients are more profitable because they require fewer visits and stay enrolled longer. The proportion of patients who were discharged alive from hospice care rose about 50 percent between 2002 and 2012, according to a Post analysis of more than 1 million hospice patients’ records over 11 years in California, a state that makes public detailed descriptions and that, by virtue of its size, offers a portrait of the industry. The average length of a stay in hospice care also jumped substantially over that time, in California and nationally, according to the analysis. Profit per patient quintupled, to $1,975, California records show.</blockquote> Yet, while Medicare administrators have been warned about these perverse incentives, they have done nothing to fix them, <blockquote class="tr_bq">For five years, Medicare’s watchdog group has been recommending that the payments to hospice companies be revised to eliminate the financial incentive for improper care, but Medicare has not yet done so. To ensure that patients are appropriately selected for hospice care, Medicare relies on strict medical documentation requirements, a spokesman said. </blockquote> Perhaps Medicare administrators are listening harder to for-profit hospice executives than to their own advisory committee, <blockquote class="tr_bq"> The hospice industry is opposed to fundamental changes to the payment system. Jonathan Keyserling, senior vice president of health policy at the <a data-xslt="_http" href="http://www.nhpco.org/">National Hospice and Palliative Care Organization</a>, an industry group, said that the current payment system is sound and that tampering with it could have unintended consequences. </blockquote> Furthermore, <blockquote class="tr_bq">because of the large sums of money at stake, <a data-xslt="_http" href="http://www.medpac.gov/documents/Jun13_EntireReport.pdf" target="_blank">MedPAC in June added a sense of urgency</a> to its recommendation. 'Given the magnitude of hospice spending devoted to long-stay patients, who are more profitable under the current payment system than other patients, it is important that an initial step toward payment reform be taken as soon as possible,' MedPAC wrote.</blockquote> Yet Medicare administrators still seemed to feel no sense of urgency, and are not eager to address the specifics of the MedPac recommendations, <blockquote class="tr_bq">A spokesman for Medicare said the agency is considering hospice payment reform but that no such changes will happen in fiscal 2014. 'While the Medicare hospice benefit provides a choice for beneficiaries to seek the care that best meets their care needs and desires, Medicare has and will continue to take actions to safeguard this benefit from inappropriate use,' said <a data-xslt="_http" href="http://www.cms.gov/About-CMS/Leadership/jonathanblum2.html">Jonathan Blum</a>, principal deputy administrator of the Centers for Medicare and Medicaid Services, said in a statement. </blockquote> So to recap so far, the hospice movement devolved from one involving non-profit organizations providing care to the terminally ill to ever larger corporations providing care to the less ill, paid largely by the US government under rules from a simpler era.  However, since hospice provides only palliative care, this transition meant that some patients who were not terminally ill may have died from illness that would have been treated in an environment other than hospice. Vivid Anecdotes of the Deceptive Marketing of Hospice The Washington Post article summarized allegations from multiple legal actions that provided a disturbing tapestry of deceptive marketing deployed to recruit patients unsuitable to hospice care, <blockquote class="tr_bq">While the lawsuits against the for-profit hospices vary in the details, as a whole they depict an industry in which companies compete for new patients and provide services to patients who are not eligible for them. Hospice 'outreach specialists' and 'community education representatives' seek out patients in a variety of ways: They solicit doctors and hospitals who might regularly deal with the terminally ill; they make connections at nursing homes, assisted-living developments and Meals on Wheels groups. They show up at the 'health fairs' held at senior centers with, for example, machines that test blood pressure. For families struggling to take care of a loved one, they offer the promise of extra help. At AseraCare, officials gave advice to their recruiters on how to close a deal with families who are 'not ready yet' for hospice, according to a company presentation for Alabama employees. It instructed recruiters to 'focus families' by stressing the urgency of a decision, and saying things like, 'We only have 10 minutes left.' 'Effective communication is the transfer of emotion, not information,' the presentation said. At Odyssey Healthcare, one of the nation’s largest hospice companies, representatives earned bonuses if they met their goals for new patients, according to that complaint. The case led to a $25 million settlement with the company. At <a data-xslt="_http" href="http://www.vitas.com/Aboutus/Newsroom/ParentCompany.aspx">Vitas</a>, a division of Chemed, a company that also owns the Roto-Rooter plumbing service, the corporate culture encouraged staff members to admit as many patients as possible, regardless of whether they were eligible for hospice care, according to the lawsuit. The lawsuit said the company paid bonuses based on the number of patients enrolled. One former manager said that the company philosophy was 'sign everybody up' and that medical staffers felt pressured to admit patients regardless of whether they were appropriate. And at Angels of Hope hospice in LaGrange, Ga., audio recordings cited in the complaint described how some salespeople found patients: by cruising neighborhoods, looking for elderly people with disabilities.</blockquote> The article coned down on specific litigation about AnseraCare, <blockquote class="tr_bq">One of the primary lawsuits against AseraCare was initiated by Dawn Richardson, a clinical manager at the company, and Marsha Brown, the former executive director at the company’s Monroeville, Mobile and Foley, Ala., outlets. There was steady pressure for AseraCare managers to find more patients, the lawsuit said. An executive who did not meet a quota was penalized, according to the lawsuit, and the company offered a massage chair for the person who brought in the most hospice patients. 'In order to make our admission goal for the month, we are down to the wire, and need today to be a huge admit day for every region,' a regional vice president wrote in an e-mail, according to the lawsuit. 'Mobilize your teams, get them into the game this morning . . . when we call on them, they always respond with referrals and a push to convert those referrals into admits ASAP.' 'We had a director who would be like, ‘Get a patient, get a patient, get a patient,’ ' Michael Bonham, a Lutheran minister who worked as a chaplain at the company in Alabama, said in an interview. He is not a party to any of the lawsuits. These demands for patients were sometimes met with people who were sickly but not dying, according to the federal lawsuit, which outlines five examples. One patient was supposed to have had end-stage heart disease and thus would have had trouble breathing and walking, according to the lawsuit. He left the nursing home for his granddaughter’s graduation and for Christmas, had a good time and ate a lot, according to notes from hospice workers cited in the lawsuit. Another, diagnosed with end-stage 'debility,' was not losing weight as is typically the case, according to the legal filing, and instead went out for a trip to Wendy’s and another to go birdwatching.</blockquote> Hospice firms' public relations departments provided the usual high minded statements that did not address specific allegations about the marketing of hospice, for example, <blockquote class="tr_bq">'AseraCare provides an important and valuable service to patients and their families facing difficult end-of-life decisions,' the company said in a statement. 'Our policies and programs comply with the Congressional intent of the hospice benefit to reduce the stress and anxiety of the end of life of a loved one,' the company said. 'Doctors for each patient in question determined that the patient needed hospice care, and expressed their clinical judgment by signing the required physician certifications. Other independent and well-qualified physicians reviewed the charts of these patients, and overwhelmingly agreed with the original conclusions that these patients were entitled to receive the hospice benefit.' The company declined to identify the doctors who certified the patients in Alabama.</blockquote>That seems about as relevant as the <a href="http://www.goldenliving.com/about-us.aspx">mission and values statements of Golden Living,</a> AseraCare's parent corporation, <blockquote class="tr_bq"><h3>Our Mission</h3>To share our passion for improving quality of life through innovative healthcare — one person, one family and one community at a time. <h3>Our Values</h3>Make integrity and accountability your pledge. Share our passion for excellence. Be uncompromising in delivering quality care.</blockquote> Summary <blockquote class="tr_bq">Yet somehow our society must make it right and possible for old people not to fear the young or be deserted by them, for the test of a civilization is in the way that it cares for its helpless members. </blockquote> Pearl S Buck, My Several Worlds, 1954, p 377 (see <a href="http://en.wikiquote.org/wiki/Civilization">Wikiquote</a>) I also was once taught that the true test of a doctor is his or her care of the sickest and most vulnerable patients.  By this token,  how the hospice movement in the US evolved into corporate health care delivery which generates tremendous revenues from the most vulnerable patients, and in some cases may condemn ill but not terminal patients to death from treatable disease marks how badly US health care has failed. The story combines many of the themes we have sounded before - <a href="http://hcrenewal.blogspot.com/search/label/perverse%20incentives">Perverse Incentives</a> - a reimbursement scheme that made sense when hospices were local community non-profit organizations now provides incentives for commercial hospices to enroll patients who are not terminally ill, putting them at risk of inadequate care should they develop a new serious but treatable problem. Money Before Mission - For-profit hospices which market themselves as equivalent to their community non-profit forerunners, are run, as is suggested above, to maximize revenue no matter the effect on mission. Presumably this is justified by the fallacy of <a href="http://hcrenewal.blogspot.com/2012/04/health-care-dysfunction-explained-by.html">maximizing shareholder value</a>, which really means maximizing apparent short-term revenue in order to maximize executive compensation, no matter what the collateral damage. <a href="http://hcrenewal.blogspot.com/search/label/impunity">Impunity</a> - Although hospice enrollment of unsuitable patients not only may defraud the government, but may put such patients at risk of their lives, the only regulatory or law enforcement actions against big corporate hospices so far involve corporate fines that are small in comparison with revenues, but not penalties imposed on any individuals who authorized, directed or implemented such patient enrollment, even when patients wrongly enrolled have died from lack of treatment of potentially treatable problems. <a href="http://hcrenewal.blogspot.com/search/label/corporatism">Corporatism</a> - Government agencies which could seriously challenge corporate hospices' actions have been curiously inert, perhaps because agency leaders feel more sympathetic to their fellow managers within corporate hospices than to the citizens whose interests they are supposed to protect. Because of their potentially severe adverse effects on our most vulnerable patients, reform of hospices should be at the forefront of true health care reform.  At the least, we need vastly tougher regulation of corporate hospices, removal of perverse incentives for them from the government payment system, and vigorous law enforcement when their leaders induce them to misbehave.  Leaders of corporate hospices need to be held accountable for their actions, and must be pushed towards putting their patients' health ahead of all other considerations, including the leaders' personal enrichment. Furthermore, the story of corporate hospices shows that while turning direct health care over to poorly regulated for-profit corporations may have been increased efficiency, been "disruptive" and lead to innovations, the efficiency, disruption and innovation have mainly lined the pockets of corporate insiders, and not improved patients' or the public's health.  We ought to give strong consideration to banning corporate hospices, and banning all forms of the <a href="http://hcrenewal.blogspot.com/search/label/corporate%20physician">corporate practice of medicine </a>and corporate health care "delivery." Given how many insiders make so much money from the current version of laissez faire capitalism in health care, however, I would expect strong resistance should such apparently "radical," but actually conservative proposals actually get any mainstream attention.

"Emotion, not Information" - the Lucrative Deceptive Marketing of Hospice, and its Potentially Fatal Consequences

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02 Jan 2014

The Mystery of the Fugitive Founder (and Longterm President of an Offshore Medical School for US Students)

We recently <a href="http://hcrenewal.blogspot.com/2013/09/quality-vs-costs-of-us-corporate-owned.html">wrote</a> about for-profit medical schools located offshore from the US, but catering to American students, not students from the countries in which they operate.  Now some new media reports raise further questions, if not mysteries about another set of such schools.   Two Bloomberg articles on a trial underway focused on the alleged use of offshore accounts to avoid US taxes.  These accounts were connected to the former long-term President and founder of two offshore medical schools, and his spouse, a dean at one of the schools.   The <a href="http://www.bloomberg.com/news/2013-10-08/caribbean-medical-school-founder-faces-trial-over-swiss-accounts.html">first Bloomberg article</a> opened thus: <blockquote class="tr_bq">Patricia Hough, according to her lawyers, is an altruistic psychiatrist who helped her husband build two Caribbean medical schools. To prosecutors, she is a tax cheat who used offshore accounts to avoid paying taxes on millions of dollars from the schools’ sale. Jury selection began today in federal court in Fort Myers, Florida, where Hough, 67, is accused of using accounts at UBS AG, the largest Swiss bank, and elsewhere to hide assets and income from the Internal Revenue Service, including almost $34 million she and her husband made when the schools were sold in 2007. </blockquote> The Bloomberg article asserted, <blockquote class="tr_bq"> At the heart of the case is whether she misused accounts associated with the Saba University School of Medicine Foundation. </blockquote> The main question to me is not whether Dr Hough is guilty or innocent, which I cannot tell.  There are more intriguing  mysteries raised by this case. How Did Non-Profit Medical Schools Become For-Profit?   According to Bloomberg, <blockquote class="tr_bq">  Hough’s lawyers say she helped [her husband, David] Fredrick build Saba University School of Medicine, on the island of Saba in the  Netherland Antilles, and the Medical University of the Americas, or MUA, on Nevis in the West Indies.</blockquote> To do so, <blockquote class="tr_bq"> Through the Saba foundation, which they first funded in 1988, according to a government trial brief filed Oct. 3, the couple opened the Saba University School of Medicine in 1993. Fredrick served as president and a foundation director. Hough was associate dean for clinical medicine. </blockquote> Also, <blockquote class="tr_bq">In 1999, Fredrick and Hough began the Medical University of the Americas, a for-profit school on Nevis in the West Indies, according to the government filing. </blockquote>There seems to be no question that the schools were started by a foundation based in the Netherland Antilles.  A <a href="http://www.mbc.ca.gov/applicant/site_visits_saba.pdf%E2%80%8E">report of a site visit</a> of the Saba University School of Medicine by the Division of Licensing of the Medical Board of California in 2004 summarized this history, <blockquote class="tr_bq">In 1986, the government of the Netherlands Antilles proposed to a group of American educators that a medical school be established on the small island of Saba, N.A.  It was to be relatively small, of high quality and established for the dual ppurpose of benefiting the economy of the island (of only 1500 population) and attracting N.A. citizens to medical careers in the N.A. A committee of Dutch citizens from Curacao, the seat of the N.A. government, approved the preliminary plans and the school was founded as a non-profit foundation under Dutch law....</blockquote> The Saba University <a href="http://www.saba.edu/saba/index.php/about-saba/about-saba-university/accreditations">website</a> still states that the school is accredited in the Netherlands, <blockquote class="tr_bq">Saba University School of Medicine’s Doctor of Medicine (M.D.) program is accredited by the <a href="http://nvao.net/" target="_blank">NVAO</a> (in Dutch: Nederlands-Vlaamse Accreditatieorganisatie). The NVAO is the Accreditation Organization of the Netherlands and Flanders. This organization was established by international treaty and ensures the quality of higher education in the Netherlands and Flanders.</blockquote> So apparently Saba University was started as a non-profit organization meant to focus on medical education for the Netherlands Antilles, and thus accredited there.  But then, somehow,  according to Bloomberg. <blockquote class="tr_bq">Equinox Capital, a private-equity firm based in Greenwich, <a href="http://topics.bloomberg.com/connecticut/">Connecticut</a>, bought the Saba school and MUA for $36 million in 2007. The transaction included $34 million for land held in the name of Fredrick’s daughter from an earlier marriage, according to prosecutors. Hough and Fredrick didn’t tell the IRS about most of the proceeds of the sale and transferred money among various undeclared accounts to buy the plane and real estate, make gifts to family members and pay personal expenses, prosecutors said.</blockquote> There also seems to be no question that Equinox Capital did buy the schools.  The <a href="http://mandasoft.com/1/13007/equinox_capital_inc_acquired_saba_university_school_of_medicine">summary of a 2007 press release</a> from the company stated, <blockquote class="tr_bq"> Equinox Capital III, L.P. announced that it has completed the recapitalization of Saba University School of Medicine B.V. ('Saba'). Founded in 1986, Saba is a leading for-profit university that awards four-year graduate degrees in Doctors of Medicine (M.D.). </blockquote> A <a href="http://www.prairie-capital.com/mobile/funds/r3.html">statement from Prairie Capital,</a> which is now an investor in the schools, noted that now <blockquote class="tr_bq"> R3 Education is a Massachusetts-based holding company that controls The Saba University School of Medicine ('Saba'), The Medical University of the Americas ('MUA') and St. Matthew University ("SMU").</blockquote> After, <blockquote class="tr_bq"> Prairie Capital partnered with Equinox Capital to acquire the three universities. </blockquote> It is enough to cause some dizziness.  Let me recap.  Mr Fredrick and Dr Hough somehow founded two medical schools apparently under the auspices of a foundation, the Saba University School of Medicine Foundation, which the couple ran.  The goal of the foundation was to attract Netherland Antilles citizens to medical careers in the NA.   However, the Saba University school became an off-shore facility for US medical students.  The two schools were later acquired by Prairie Capital and Equinox Capital, and they are now run as for-profit operations by R3 Education. So somehow Saba University transitioned from being a non-profit meant to serve the medical education needs of the Netherlands Antilles to a for-profit owned by US private equity firms (and apparently now focused on serving Americans.) How did that happen?  What was the rationale for the change?  Did any Dutch authorities consider the implications for their country?  Did any American organizations concerned with the quality of education and credentials of US physicians consider the implications? Where Did the Money Go? According to Bloomberg, US prosecutors made some striking allegations, <blockquote class="tr_bq"> Both the foundation and MUA failed to tell the IRS about accounts held at UBS, Liechtenstein Landesbank and other banks, the U.S. charges. Singenberger and Luetolf helped the foundation and MUA move money through British Virgin Islands or Hong Kong entities they controlled called Top Fast Finance Ltd., Ample Dynamic Trading Ltd., New Vanguard Holdings Ltd. and Apex Consultants Ltd., according to prosecutors. 'Hough and Fredrick were the beneficial owners of and had signatory authority over all over these accounts and owned and controlled each of them,' prosecutors said in their brief. </blockquote> The prosecution also alleged that Mr Fredrick and Dr Hough spent the money they allegedly got from selling the two medical schools rather lavishly.  Per the <a href="http://www.bloomberg.com/news/2013-10-08/caribbean-med-school-founder-didn-t-cheat-irs-jury-told.html">second Bloomberg article</a>, <blockquote class="tr_bq">[Prosceutor] Kessler said Hough and her husband used the proceeds of the school sales to buy a $1.6 million airplane, a $1.1 million house in Asheville, North Carolina, a $590,000 house in Greenville, North Carolina, and an $800,000 condominium in Sarasota, Florida. She said they also gave money to relatives. </blockquote> The prosecutors charged that the money the private equity firms paid went to Mr Fredrick and Dr Hough.  But while Mr Fredrick was President of Saba University, and apparently ran the foundation that was supposed to support it, he did not own either.  So why would the money go to him, and his wife?  If the money did not go to them, where did it go? As the trial continued, as documented in a <a href="http://www.businessweek.com/news/2013-10-08/caribbean-med-school-founder-didn-t-cheat-irs-jurors-told">second Bloomberg article</a>, Dr Hough's lawyer denied that she got the money, <blockquote class="tr_bq">Dan Saunders, an attorney for Hough, said his client never believed the money held at UBS AG (UBSN), the largest Swiss bank, and in other offshore banks belonged to her. Rather, he said, she thought it belonged to the foundation that ran the schools. 'It wasn’t her money, and she never believed it was,' Saunders said in his opening statement. </blockquote> If that is true, however, why is money that supposedly belongs to a foundation sitting quietly in a Swiss bank? Dr Hough's lawyer said, <blockquote class="tr_bq"> Saunders said the accounts did serve a business purpose: to protect the assets of their nonprofit foundation from people attempting a hostile takeover.</blockquote> Hostile takeovers of publicly held corporations do occur, of course.  However, how could a hostile takeover of a foundation occur, and who would possibly want or be able to do so? So thus far, no one has offered a rationale explanation for how the schools were sold, why they were sold, and where the money resulting from the sale went. Where in the World is Mr Fredrick? So far, while the defendant is Dr Hough, the role of her husband, Mr Fredrick, apparently the President of Saba University from its founding at least until 2007, seems key.  Yet little of the coverage focused on Mr Fredrick.  The reason for that suggests the next mystery, per  the first Bloomberg article, <blockquote class="tr_bq">Fredrick vanished after the indictment, leaving Hough to face trial alone. U.S. District Judge John Steele, who is overseeing the trial, has declared Fredrick a fugitive.</blockquote> So why did Mr Fredrick flea, and of course, where did he go? Obviously, the fact that Mr Fredrick, who was the President of Saba University for many years, chose not to defend himself against charges that he hid the money he somehow obtained from the sale of that and another medical school, but rather fled, suggests that he may not have had a very good defense against those charges.  What does that say about the leadership of these medical schools?  Summary So the coverage of this intriguing trial, when added to some other publicly available information, suggests a wealth of mysteries about the founding, current nature, and leadership of two Caribbean medical schools which currently are run as for-profit firms and owned by US private equity firms, and whose student bodies come almost exclusively from the US. So the really big mysteries are those about the implications for the medical education these schools provide, the students they attract, the physicians who graduate from their programs, the US patients of such physicians, and the US government which largely provides the loans which paid for these students' education (look <a href="http://www.bloomberg.com/news/2013-09-10/devry-lures-medical-school-rejects-as-taxpayers-fund-debt.html">here</a>). Despite the extraordinary nature of this case (again, involving the longterm president of an offshore medical school that sought to educate a substantial number of US physicians, and who is now a fugitive from justice), the only interest in it so far seems to be its implications for US prosecutions of hidden offshore accounts. This case illustrates why we must reexamine our fascination for "market based" approaches to health care, when almost nothing about any part of health care resembles, or could resemble a free market (see <a href="http://hcrenewal.blogspot.com/2010/08/how-fallacy-of-perfect-health-care.html">this post</a>).  We need to make health care more transparent, and shine more sunshine on the nooks and crannies, like off-shore but US corporate owned medical schools.  We need to facilitate health care leadership and governance that puts patients' and the public's health first, way ahead of the personal enrichment of the participants.   ADDENDUM (29 October, 2013) - Dr Hough was convicted of defrauding the IRS and income tax evasion, see the <a href="http://www.bloomberg.com/news/2013-10-24/caribbean-medical-school-founder-guilty-at-florida-tax-trial-1-.html">Bloomberg article</a>.  So far I see no response, certainly no apology or disavowal, by the current managers and owners of the medical school.

The Mystery of the Fugitive Founder (and Longterm President of an Offshore Medical School for US Students)

We recently wrote about for-profit medical schools located offshore from the US, but catering to American students, not students from the countries in which they operate. Now some new media reports r…

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16 Oct 2013

The Door Revolves Again: the Former White House Health Reform Czar Goes to Private Equity Firm Looking for Investments Created by Health Reform

Round and round it goes, and when it will stop, nobody knows. Background: The Former Health Care Reform Czar's Past Career It appears that Ms Nancy DeParle, formerly a White House Deputy Chief of Staff, and before then, from 2009 - 2011, the Director of the White House Office of Health Care Reform, has gone through the revolving door again. We raised concerns about Ms DeParle's strong ties to the commercial side of health care at the time she was put in charge of getting health care reform legislation passed (look <a href="http://hcrenewal.blogspot.com/2009/03/meet-new-boss-same-as-old-boss-health.html">here</a>.)  Specifically, her background for shepherding this legislation included being on the boards of directors of three large health care corporations, Boston Scientific, a medical device company, Cerner, a vendor of health care information technology, and Medco, and pharmacy benefits company.   She had previously been on the boards of DaVita, a commercial kidney dialysis care delivery company, and Triad Hospitals, a for-profit hospital system.  At the time, I wondered whether this set of relationships with multiple  health care corporations would lead to "health care reform" that was more about the interests of big health care corporations and their top executives than about us, the people. As it turned out, there is a case to be made that a lot of the health care reform legislation that eventually passed was in the interests of big corporations.  It enabled for-profit <a href="http://hcrenewal.blogspot.com/search/label/health%20insurance">health care insurance</a> companies to continue to dominate the insurance market, and created no "public option" that could have competed with them.  It fostered the development of "accountable care organizations," (ACOs), and thus fostered a wave of <a href="http://hcrenewal.blogspot.com/search/label/concentration%20of%20power">consolidation </a>in the hospital market favoring ever larger hospital systems, including for-profit ones, and the rise of the <a href="http://hcrenewal.blogspot.com/search/label/corporate%20physician">corporate physician</a>.  It pushed the use of commercial health care information technology without requiring these devices' effects on patients to be rigorously assessed, and with no obvious concerns about the <a href="http://hcrenewal.blogspot.com/search/label/healthcare%20IT%20dangers">risks</a> posed by these systems.  It did nothing to stop concentration of power in health care, nothing to support small private practices, small non-profit hospitals, or non-profit health insurance.  While it required more disclosure of <a href="http://hcrenewal.blogspot.com/search/label/conflicts%20of%20interest">conflicts of interest</a> affecting physicians, it did nothing to reduce them, or to combat <a href="http://hcrenewal.blogspot.com/search/label/deception">deception</a> in health care <a href="http://hcrenewal.blogspot.com/search/label/marketing">marketing</a> and <a href="http://hcrenewal.blogspot.com/search/label/public%20relations">public relations</a>, or to reduce <a href="http://hcrenewal.blogspot.com/search/label/manipulating%20clinical%20research">manipulation</a> or <a href="http://hcrenewal.blogspot.com/search/label/suppression%20of%20medical%20research">suppression</a> of clinical research to serve commercial vested interests, or even to combat blatant <a href="http://hcrenewal.blogspot.com/search/label/health%20care%20corruption">health care corruption</a>. A Brief Stop at a Think Tank At any event, Ms DeParle left the government early this year.  She did not immediately go back to the commercial world, however.  Instead, as <a href="http://thehill.com/blogs/blog-briefing-room/news/276789-obama-policy-deputy-nancy-ann-deparle-to-exit-for-brookings-post">reported</a> by The Hill, she went to a think tank. <blockquote class="tr_bq"><div class="p1">Nancy-Ann DeParle, a White House deputy chief of staff and the president's point person on his signature health care law, is leaving the West Wing to join the Brookings Institution. </div><div class="p1"> </div><div class="p2">Brookings president Strobe Talbott announced in a post on Twitter that the longtime Obama staffer would work as a guest scholar for the think tank.</div></blockquote><div class="p2"> </div><div class="p2">Through the Revolving Door to Private Equity </div> That position did not last long, however.  A few days ago, a Wall Street Journal blog <a href="http://blogs.wsj.com/privateequity/2013/08/07/obamas-health-czar-joins-consonance-capital/">announced</a> she was moving again, <blockquote class="tr_bq">As health care-focused private equity firms navigate the nuances of the Affordable Care Act, one such shop, Consonance Capital, has decided to go straight to the source, hiring Nancy-Ann DeParle, the former director of the White House Office of Health Reform.</blockquote> So now she will be with private equity, and in particular, with a private equity firm specializing in, of course, health care: <blockquote class="tr_bq">Consonance has been out targeting between $350 million and $450 million for its debut fund. The fundraising effort appears to have gained traction in recent months. LBO Wire reported in February that the firm had raised $30.3 million for Consonance Private Equity PV LP.  According to a person familiar with the fundraising, the vehicle has gathered as much as $200 million so far from investors including Ohio Public Employees Retirement System, Travelers Insurance and LGT Group. The fund is earmarked for buyouts and recapitalizations of health-care providers, payors, pharmaceutical and specialty distributors and device manufacturers with between $20 million and $150 million in annual revenue.</blockquote> Finally, it seems Ms DeParle will be suited to this new employment opportunity since she knows so much about how the new supposed health care reform will create investment opportunities, <blockquote class="tr_bq"> Ms. DeParle said the changing regulatory environment will give rise to a host of new investment opportunities. 'There’s a lot that’s changing in health care,' said Ms. DeParle. 'There will be millions of new customers for hospitals and health care providers, much stronger demand for health care services....'</blockquote> Summary So to recapitulate, Ms DeParle came from roles as a steward of multiple large health care corporations to lead the health care reform efforts of the executive branch.  In that capacity, she helped to create and enact legislation that she would later say created many "new investment opportunities."  Now, as the legislation is going into operation, she has spun over to private equity to take advantage of these opportunities. This seems to be a great example of why the revolving door is bad for government, health care, and the American public.  People in responsible government positions, in which they are supposed to represent all the people, may be constantly thinking about impressing those who might employ them in the private sector when they leave government service.  What better way to impress these potential employers than to take actions which may later improve these companies'  commercial prospects, whatever effect they may have on us, the people? I am no political scientist, but in my humble opinion, there should be multi year cooling off periods before someone who worked in the commercial world can get a job in a government agency whose work has direct effect on his or her previous employer or industry sector, and before someone who worked in a government agency whose work had direct effect on a particular economic sector can accept a job for a company in that sector.  Now that would be a real reform.

The Door Revolves Again: the Former White House Health Reform Czar Goes to Private Equity Firm Looking for Investments Created by Health Reform

Round and round it goes, and when it will stop, nobody knows.Background: The Former Health Care Reform Czar's Past Career It appears that Ms Nancy DeParle, formerly a White House Deputy Chief of Staff…

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14 Aug 2013

Deadly Over-Doses and Private Equity - the Case of Bain Capital's Methadone Clinics

Some reporting by Bloomberg provides more evidence about what happens when direct care of the most vulnerable patients is commercialized.  The vulnerable patients in this case were narcotic addicts. By way of introduction, one method of treating narcotic addiction is the use of methadone.  Methadone is a narcotic that may block the "high" produced by other narcotics and thus may lead to the abuse of these drugs.  Because methadone is long-acting and can be given orally in liquid form, methadone clinics traditionally provided patients one dose a day which they swallowed on the spot.  The methadone would presumably block their craving for other narcotics for that day, and the method of administration would prevent diversion of the drug.  Methadone clinics became more prevalent starting in the 1960s, and like most "health care provider organizations," as we now call them, were then largely non-profit. On a personal note, in the 1980s, I was the internal medicine physician for a non-profit hospital based methadone clinic designed for patients who had become addicted to prescription narcotics.  It was a challenging task, but the challenges seemed manageable.  That was then. Nowadays, methadone clinics are more likely to be for-profit.  In this brave new world of for-profit "health care delivery," there may be problems unlike those seen "back in the day."   For example, Bloomberg just <a href="http://www.businessweek.com/news/2013-03-07/dead-man-spurs-methadone-probe-at-bain-s-crc-clinic-in-baltimore">reported </a>on a case with a distinctly colorful title <blockquote>Dead Man Spurs Methadone Probe at Bain’s CRC Clinic in Baltimore  <div class="">Maryland state regulators are investigating an addiction-treatment clinic owned by Bain Capital Partners LLC after the methadone-related death of a Baltimore man. </div><div class=""> </div>The probe is focused on the Pine Heights Treatment Center in Baltimore, one of dozens of clinics operated by Bain’s CRC Health Corp., the largest methadone-treatment provider in the U.S. It was triggered by a complaint from the public, said Dori Henry, a spokeswoman for the state Alcohol and Drug Abuse Administration. She declined to comment on the investigation’s details. The complaint alleges that Warren Lumpkin, 34, a forklift operator, died on Jan. 4 after ingesting methadone that was given to him by a CRC patient, according to a copy obtained by Bloomberg News. An autopsy found that 'methadone intoxication' contributed to his death, records show. Lumpkin’s ex-wife, Sabrina M. Lumpkin, who filed the complaint, said in it that he wasn’t a patient at the CRC clinic. He had a friend who was, and that friend gave half a dose of methadone from the clinic to Lumpkin, according to the complaint. </blockquote> Note that "back in the day," such an event would have been nearly impossible.  As noted above, patients were given a cup of liquid containing their daily methadone dose, and drank it under observation.   Practically, they could not "cheek" or otherwise divert the drug.  Of course, that approach required personnel to observe each patient each day.  Paying those personnel made the operation more expensive.  "Back in the day," though, non-profit hospitals and clinics were willing to provide the service in the interest of making sure the patients, and only the patients got the prescribed treatment. Things may be different when methadone clinics are run for a profit.  A Bloomberg investigative<a href="http://www.bloomberg.com/news/2013-02-08/drug-users-turn-death-dealers-as-methadone-from-bain-hits-street.html"> report</a> published in February looked into the operations of the company that owned the clinic in Maryland.  That too had a provocative title and started with a similarly disconcerting case. <blockquote class="tr_bq">Drug Users Turn Death Dealers as Methadone From Bain Hits Street   After Jennifer Vanlieu turned to methadone treatment to beat an addiction to heroin and pain pills, she morphed from drug user to convicted drug dealer.   Vanlieu said she got a carryout methadone dose at a clinic operated by CRC Health Corp. in Richmond, Indiana, in March, 2010, and then gave about 15 milligrams to her friend Carissa Plemons. Plemons died hours later, after ingesting a lethal mix of methadone and other drugs, according to police reports. Take-home methadone -- doses patients carry out instead of taking at clinics -- enabled the abuse, said Vanlieu, 26, who was sentenced to six years in prison for dealing the drug to Plemons. While she didn’t sell it to her friend, she said in an interview that other clinic patients often resold their take- homes. CRC is owned by Boston-based Bain Capital Partners LLC and is the largest U.S. provider of methadone treatment. 'Some would sell it in the parking lot,' she said. </blockquote> As in the first case, unlike the process "back in the day," now patients, who are almost all presumably narcotic addicts, may be given multiple doses of liquid methadone to take home.  They are no longer required to take a daily dose of methadone under observation.  As the case above illustrates, it is all too easy to divert take home doses of methadone.  While methadone can be used to block the effects of other narcotics, it can also be abused.  Obviously, as in the cases above, abused methadone can cause a lethal overdose.  Wide Use of Take-Home Methadone The Bloomberg report found multiple instances in which CRC Health clinics handed out multiple take-home methadone doses apparently without proper consideration of the risk or supervision of the patients. <blockquote class="tr_bq"> In states where CRC has had its highest patient counts -- Indiana, West Virginia, California and Oregon -- available data and interviews show the company tries to provide take-home packages, which range from one dose to as many as 30, more often than other clinics. </blockquote> In addition,  <blockquote class="tr_bq">The Richmond, Indiana, clinic gave take-home methadone to a patient who flunked a drug test, a January 2012 audit found. The company’s Williamson, West Virginia, clinic didn’t immediately revoke take-homes from a patient who had two positive drug tests in 2010, records show. In 2011, inspectors found no evidence that a physician at CRC’s clinic in Renton, Washington, used 'good clinical, judgment' in giving patients carryout doses. A CRC center in Chattanooga, Tennessee, failed to supervise take-home doses properly in a case 'clearly indicative of drug diversion,' state authorities found in June 2011. The company’s clinics in Claymont, Delaware, and Coatesville, Pennsylvania, were faulted in May 2012 and October 2010, respectively, for giving carry-outs to patients who missed required counseling, records show. As for the spot-checks Herschman described -- they hardly ever happened at CRC’s clinic in Goldsboro, North Carolina, said Liaudaitis, the former counselor. </blockquote>Furthermore, <blockquote class="tr_bq">In Indiana, CRC’s five clinics served 69 percent of methadone patients in 2011, while distributing 96 percent of the take-homes tracked by state records. Patients of CRC’s dozen California clinics received carryout packages of as many as 30 doses at a rate twice that of all others. In Virginia, 74 percent of patients at CRC’s three clinics got at least one take-home dose a week in August 2012, while 47 percent of patients at all other clinics did, state records show.  </blockquote> The Business Model Behind Take-Home Methadone So why would a methadone clinic hand multiple doses of an abusable narcotic to narcotic abusers?  The Bloomberg article went on to document some possible reasons which ultimately have to do with the business model of for-profit methadone clinics. First of all, providing multiple doses of methadone requires less time from clinic personnel, which is handy when the clinics may be under-staffed by over-worked poorly paid personnel.   <blockquote class="tr_bq">'That was the culture -- keep the census up,' said Mike Liaudaitis, who worked as a counselor at CRC’s clinic in Goldsboro, North Carolina, from mid-2009 until early 2011. He recalls being swamped with a 64-person caseload that exceeded the state’s limit of 50. </blockquote> Also, <blockquote class="tr_bq">'Clearly the company is saving money if they’re distributing multiple take-home doses at one time,' said West Virginia Delegate Don Perdue, a Democrat who has pursued stricter oversight of for-profit clinics. 'They don’t have to have as many staff handing out the merchandise.'</blockquote> In particular, <blockquote class="tr_bq">the Goldsboro clinic -- like others described by regulators and former CRC employees in Indiana and West Virginia -- was frequently understaffed, Liaudaitis said. Since Jan. 1, 2009, CRC’s clinics haven’t met staffing standards more than 50 times, regulatory records from 15 states show. Clinics were cited 80 times for failing to document that they gave patients enough counseling. In response, the company agreed to hire more, recruit more aggressively and increase supervision. Competition for qualified workers is intense, CRC said in its 2011 annual report. CRC didn’t pay well enough to attract or keep experienced counselors, said Malaysia Williams, who worked at its clinic in Huntington, West Virginia, from June 2009 through March 2010. 'Nobody stayed there,' she said. 'It paid poorly.' Williams got $13 an hour, she said -- about the same amount other former counselors reported. That’s roughly $27,000 a year. </blockquote> There is evidence that under-staffing, under-payment of personnel, and the wide use of take-home methadone lead to big increases in short-term revenue for CRC Health, the for-profit corporation running the clinics. <blockquote class="tr_bq"> Until recently, there was little difference between the operations of for-profit and non-profit methadone clinics, said Thomas D’Aunno, a professor of health policy and management at Columbia University who has tracked the treatment centers for years. That changed in 2011 survey data, which showed 'significant differences,' he said: For-profit clinics had fewer staffers than public clinics. As Williams struggled to catch up in Huntington, the clinic pushed its revenue up almost 8 percent to $5 million in 2010 -- while expenses increased less than 1 percent to $2.6 million, according to state regulatory documents. </blockquote>Private Equity's Take Over of Methadone Clinics The potential for big revenues has drawn private equity into the world of methadone maintenance for the treatment of narcotic addiction. <blockquote class="tr_bq"> Nurtured by government spending, methadone clinics spread nationwide in the 1960s and ’70s until strapped state and local governments began decreasing their outlays. By 2010, for-profit providers controlled 52.8 percent of the 1,200 U.S. clinics. Over the past seven years, private equity firms have invested more than $2.2 billion in substance-abuse treatment and behavioral health companies in 62 deals, according to PitchBook Data Inc., a Seattle-based research firm. Addiction-treatment companies are 'some of the most sought-after -- and valuable -- acquisition candidates in health care,' partly because of profit margins that can top 20 percent, according to the Braff Group, a Pittsburgh-based mergers and acquisitions advisory firm.</blockquote>  As it turns out, CRC Health was acquired by one of the more notable private equity firms. <blockquote class="tr_bq">Bain Capital, the private equity firm co-founded by former Republican presidential candidate Mitt Romney, paid $723 million for CRC in 2006, corporate filings show. Romney, who left Bain in 1999, had no input in its investments or management of companies after that, he has said. Still, Romney reported last year that he owned more than $1 million worth of a Bain fund that holds most of CRC’s shares. He reported receiving between $100,000 and $1 million in dividends, interest and capital gains from that holding, as well as income from two other Bain funds with interests in CRC, according to the financial disclosure he filed with the U.S. Office of Government Ethics in June. Bain executives declined to comment, said Alex Stanton, a spokesman. Representatives for Romney didn’t respond to requests for comment.  CRC has reported paying Bain about $15.4 million in management fees along with $7.2 million in fees related to the merger since 2006. The company’s revenue more than doubled to $446 million in 2011 from $209 million in 2005. Methadone clinics generated more than a quarter of the 2011 revenue, $123 million. </blockquote> Note that last year, when Mr Romney was running for the US Presidency, and hence his ties to Bain Capital were particularly newsworthy, several investigative reports about care at Bain owned health care provider organizations were published.  We <a href="http://hcrenewal.blogspot.com/2012/07/private-equity-vs-patient-care-bainful.html">posted</a> about issues at another CRC Health operation, Aspen, which operates in -patient treatment centers for psychiatric patients.  Investigative reporting about that part of CRC Health also suggested that the company was putting short-term revenue ahead of patient welfare.  We also <a href="http://hcrenewal.blogspot.com/2012/08/paging-doctor-ebdita-how-private-equity.html">posted</a> about issues at HCA, a for-profit hospital chain partially owned by Bain, which again suggested revenue came before patients.  In one sense, this should be no surprise, since the business model for private equity is all about extracting the most money in the shortest time for acquired corporations.  (Look <a href="http://hcrenewal.blogspot.com/search/label/private%20equity">here</a> for more details.) Summary We now have more evidence that patients "cared for" directly by for-profit corporations, especially those owned by private equity firms, do not do well.  Meanwhile, the top executives of these firms do exceedingly well. We have <a href="http://hcrenewal.blogspot.com/2012/04/health-care-dysfunction-explained-by.html">noted</a> how health care organizations have increasingly been "financialized," lead by executives who put short-term revenue generation ahead of all other goals, including good patient care. Furthermore, hospitals are increasingly likely to be formally for-profit, and hence likely to be lead by such executives. Worse, hospitals are increasingly likely to be owned by <a href="http://hcrenewal.blogspot.com/search/label/private%20equity">private equity</a> firms, further increasing the emphasis on short-term money making. Even worse, physicians are now more frequently <a href="http://hcrenewal.blogspot.com/search/label/corporate%20physician">employed by such organizations</a>, which may pressure them to do what it takes to increase revenue, no matter what the effect on patients' and the public's health. The probably effects on the quality of care, access, and costs are obvious. In my humble opinion, before the health care bubble bursts, we need to challenge the notion that direct health care should ever be provided, or that medicine ought to be practiced by for-profit corporations. Before market fundamentalism became so prominent, many states prohibited the corporate practice of medicine, and the American Medical Association <a href="http://hcrenewal.blogspot.com/2007/12/relman-in-jama-on-threats-to-physicians.html">forbade the commercialization of medicine.</a>  It is time to heed that wisdom. I submit that we will not be able to have good quality, accessible health care at an affordable price until we restore physicians as independent, ethical health care professionals, and until we restore small, independent, community responsible, non-profit hospitals as the locus for inpatient care.  True health care reform will require an end to market fundamentalism in health care.

Deadly Over-Doses and Private Equity - the Case of Bain Capital's Methadone Clinics

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07 Mar 2013

BLOGSCAN - When Private Equity Owns Hospitals

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

BLOGSCAN - When Private Equity Owns Hospitals

On his Not Running a Hospital blog, Paul Levy discussed reasons for concern when private equity firms purchase and operate hospitals. He used the example of Steward Health Care, now a for-profit hosp…

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04 Jan 2013

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

The use of advertising by Steward Health Care, currently a regional hospital system here in New England, continues to provide lessons about how public relations and marketing may be used to shape the health care policy debate.  Stand by because the story is convoluted. Steward Promotes "New Health Care," Whatever That May Be This week, Commonwealth <a href="http://www.commonwealthmagazine.org/News-and-Features/Online-exclusives/2012/Summer/010-Steward-ads-promote-its-new-health-care.aspx">reported</a> on Steward's latest high profile advertising campaign in the Boston area, <blockquote>Steward Health Care is using the Olympics to hone its image. The Boston-based chain of 10 community hospitals, many of which were on the verge of going under when Steward acquired them, is running a series of ads on WHDH-TV (Channel 7) during Olympics coverage that cast the company as a delivery system for a new type of world-class health care.</blockquote> While visible, the advertisements are notably vague. One features <blockquote>a Steward employee who says she believes 'world class health care is here.' Another of the initial ads features individual doctors and technicians pledging to be stewards of 'the new health care,' which is the tagline for all of the Steward ads. What the 'new health care' means is never fully explained in the ads</blockquote> One local health care expert <blockquote>Paul Levy, the former CEO of Beth Israel Deaconness Medical Center, said he thinks the ads are part of a campaign by [Steward Health Care owner] Cerberus [Capital Management] to make Steward more attractive to would-be buyers. 'This has very little to do with anything other than establishing the image and the brand of the Steward hospitals so when the day comes when Cerberus sells the company it will be better received in the public markets,' Levy said.</blockquote> The article had noted that <blockquote>Cerberus Capital Management, a New York private equity firm, owns Steward,...</blockquote> So it is possible that no one at Steward really has any idea what sort of "new health care" the organization is promoting Steward's CEO Promotes Health Care as a Commodity However, there is reason to think that the top leadership of Steward, and probably of Cerberus Capital Management, the private equity group that owns it, actually does have a clear idea what new health care they are promoting. Almost simultaneous with the Commonwealth article and the Olympic advertising campaign an <a href="http://management.fortune.cnn.com/2012/08/02/steward-health-de-la-torre">interview</a> appeared with Steward's CEO in Fortune. CEO Dr Ralph de la Torre first pitched medicine as science, <blockquote>A lot of us physicians went into medicine because we loved the art aspect of it. There wasn't a lot of real hard-core science when many of today's doctors went into medicine. It was your intuition, your abilities, the gestalt of what was going on. But something happened in medicine along the way. It started becoming a real science, and a lot of studies have come out that guide what we do and how we do it. We as a society need to understand that science has to guide our practice of medicine. Not everyone with a headache needs a CAT scan; not everybody with a sprained ankle needs an MRI.</blockquote> This sounds like it could be an affirmation of evidence-based medicine, the approach that attempts to base medicine on systematic search for and critical review of the best clinical research, among other things. However, De la Torre takes it a big step further, citing: <blockquote>In deference to those who love the individual hospital, you have to look back at America and the trends in industries that have gone from being art to science, to being commodities. Health care is becoming a commodity. The car industry started off as an art, people hand-shaping the bodies, hand-building the engines. As it became a commodity and was all about making cars accessible to everybody, it became more about standardization. It's not different from the banking industry and other industries as they've matured. Health care is finally maturing as an industry, and part of that maturation process is consolidation. It's getting economies of scale and in many ways making it a commodity.</blockquote> Apparently Dr De la Torre does not see a distinction any longer between health care, or to use an old-fashioned word, medicine, traditionally considered an art or practice of caring for individual patients, and making automobiles on an assembly line. Dr De la Torre may be deeply misinterpreting evidence-based medicine, which is about evidence from clinical research, but also much more. Consider how the Cochrane Collaboration <a href="http://www.cochrane.org/about-us/evidence-based-health-care/">discusses it</a>: <blockquote>Evidence-based health care Evidence-based health care is the conscientious use of current best evidence in making decisions about the care of individual patients or the delivery of health services. Current best evidence is up-to-date information from relevant, valid research about the effects of different forms of health care, the potential for harm from exposure to particular agents, the accuracy of diagnostic tests, and the predictive power of prognostic factors [1]. Evidence-based clinical practice is an approach to decision-making in which the clinician uses the best evidence available, in consultation with the patient, to decide upon the option which suits that patient best [2]. Evidence-based medicine is the conscientious, explicit and judicious use of current best evidence in making decisions about the care of individual patients. The practice of evidence-based medicine means integrating individual clinical expertise with the best available external clinical evidence from systematic research [3]. [1] Cochrane AL. Effectiveness and Efficiency : Random Reflections on Health Services. London: Nuffield Provincial Hospitals Trust, 1972. Reprinted in 1989 in association with the BMJ. Reprinted in 1999 for Nuffield Trust by the Royal Society of Medicine Press, London, <a href="http://www.rsmpress.co.uk/bkcochra.htm">ISBN 1-85315-394-X.</a>[2] Gray JAM. 1997. Evidence-based healthcare: how to make health policy and management decisions. London: Churchill Livingstone. [3] Sackett DL, Rosenberg WMC, Gray JAM, Haynes RB, Richardson WS. 1996. Evidence based medicine: what it is and what it isn't. BMJ 312: 71–2 [3] [<a href="http://www.bmj.com/cgi/content/full/312/7023/71">Full text</a>]</blockquote> Note the emphasis on making decisions for individuals based on what is best for each, and the integration of evidence from clinical research with clinical expertise. This is far from commoditization. Nonetheless, Dr De la Torre seems to envision "new health care" like a 1930s automobile assembly line, with the physicians and other health professionals cast as assembly line workers, and the patients cast as automobiles. Our next example may provide some explanations for this point of view. Steward's Advertising Raises Questions of Whose Hands Should be on Health Care As we <a href="http://hcrenewal.blogspot.com/2012/07/steward-health-care-vs-rhode-island.html">discussed earlier</a>, Steward Health Care has been working on acquiring a struggling local Rhode Island hospital system, and in doing so is in a dispute with the statewide non-profit Blue Cross health insurance company. Steward had been putting daily full-page advertisements in the local paper. A recent version (27 July, 2012), had this text: <blockquote>RHODE ISLAND TO BLUE CROSS: GET YOUR HANDS OFF OUR HOSPITALS With 80% of the market under its control, Blue Cross & Blue Shield of Rhode Island thinks it can decide which hospitals survive or fail. The people of Rhode Island beg to differ. For the past decade, they've watched Blue Cross starve Landmark Medical Center of its funding. And this year, when Blue Cross issued an ultimatum to terminate the hospital, Rhode Islanders heard enough. <div class="separator" style="clear: both; text-align: center;"></div>In a poll conducted this week by John Marttila, a nationally recognized leader on public attitudes concerning health care, 76% of respondents said that Blue Cross shouldn't be allowed to use their monopoly to dictate the fate of Rhode Island hospitals. They also felt, by a 2-1 margin, that if Landmark did indeed close, Blue Cross would be to blame.</blockquote> <div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEik-dnE6y2ihGLxzXIj8PiyX2dNd6bOnzodaTIVxmP8RXQHBDCe4P3W9mJpZQpDYYimKwXpzK2z3ldDZIVz8FHREcjMsOrOr9Sg0FFhoCt7WAQGIzWw37tJoK4aHvZwcXoT8EhbU_2_4A5h/s1600/StewardBCBSAdvertisement2%2528072712%2529.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" eda="true" height="233" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEik-dnE6y2ihGLxzXIj8PiyX2dNd6bOnzodaTIVxmP8RXQHBDCe4P3W9mJpZQpDYYimKwXpzK2z3ldDZIVz8FHREcjMsOrOr9Sg0FFhoCt7WAQGIzWw37tJoK4aHvZwcXoT8EhbU_2_4A5h/s320/StewardBCBSAdvertisement2%2528072712%2529.gif" width="320" /></a></div>However, soon after, investigative <a href="http://digital.olivesoftware.com/Olive/ODE/ProJo/LandingPage/LandingPage.aspx?href=VFBKLzIwMTIvMDcvMjc.&pageno=MTE.&entity=QXIwMTEwMQ..&view=ZW50aXR5">reporting</a> by the Providence Journal's Ms Felice Freyer revealed that maybe the poll should have been interpreted differently. Not unexpectedly, Ms Freyer revealed the poll to have been "commissioned by Steward." Its basic results were really: <blockquote>Just over half the respondents knew that Landmark was being sold to Steward, and of those, 58 percent did not have an opinion, 29 percent supported the sale, and 13 percent opposed it. However, among those who knew about the sale and also live in northern Rhode Island, the approval rating was higher –– 37 percent support the sale, with 15 percent disapproving and 48 percent having no opinion. </blockquote> The pollster than provided prompting, perhaps in an attempt to get results more favorable to its client: <blockquote>One of the questions starts with this statement: 'Blue Cross Blue Shield provides health insurance to 80 percent of Rhode Island. By refusing to negotiate on reimbursement rates, Blue Cross can essentially determine if hospitals in the state stay open or if hospitals close.' Based on that statement, 76 percent of respondents agreed that 'Blue Cross should not be allowed to use its monopoly to dictate which hospitals stay open and which close their doors.' </blockquote> Unfortunately, it appears that the prompting statement was perhaps not fully accurate: <blockquote>In 2011, Blue Cross covered 66 percent of Rhode Islanders with private health insurance, not 80 percent, according to a report by the Office of the Health Insurance Commissioner. Blue Cross denies that it has refused to negotiate. 'We have negotiated in good faith and have offered a fair contract to Landmark Hospital that is consistent with our reimbursement arrangements for other independent hospitals,' Blue Cross said in a statement. 'Unfortunately, Steward has been unwilling to enter into a contract under those conditions.' </blockquote> While they touted probably methodologically biased survey results, Steward's local advertising campaign's headline might prompt some people to think about whose hands should really be on their health care. The advertising tries to limit this question to Blue Cross' influence. However, one might also ask whose hands control Steward Health Care? Whose Hands are on Steward Health Care? As the Commonwealth article above pointed out, Steward Health Care is a wholly owned subsidiary of Cerberus Capital Management, a New York based private equity firm. Cerberus' <a href="http://www.cerberuscapital.com/team/senior_executive_leadership">top leadership </a>includes - CEO Steven A Feinberg, who, as we <a href="http://hcrenewal.blogspot.com/2012/07/steward-health-care-vs-rhode-island.html">noted</a> previously, was listed as number 21 on a list of the 25 most powerful businessmen in 2007 <a href="http://money.cnn.com/galleries/2007/fortune/0711/gallery.power_25.fortune/21.html">by Fortune</a>, at that time running through Cerberus 50 companies with total revenues of $120 billion.  <a href="http://en.wikipedia.org/wiki/Steve_Feinberg">On Wikipedia</a>, his net worth was estimated as $2 billion in 2008. - Chairman John W Snow, who, as we <a href="http://hcrenewal.blogspot.com/2012/07/steward-health-care-vs-rhode-island.html">noted</a> previously, resigned as Treasury Secretary in the administration of President George W Bush "in 2006 only because it was revealed that he had not paid any taxes on $24 million in income from CSX, which had forgiven Snow's repayment of a gigantic loan that the company had made to him," according to Chareles Ferguson in <a href="http://www.randomhouse.com/book/213722/predator-nation-by-charles-h-ferguson">Predator Nation</a>. - Chairman, Cereberus Global Investments J Danforth Quayle, the controversial former US Vice President during the George H W Bush administration. Furthermore, Cerberus Capital Management, which wholly owns Steward Health Care, owns several other businesses.  As we noted <a href="http://hcrenewal.blogspot.com/2011/05/continuing-parade-of-legal-settlements.html">here</a>, these include, DynCorp (see <a href="http://www.dyn-intl.com/history.aspx">their web-site</a>), which has been called one of the "leading mercenary firms," by <a href="http://www.thenation.com/blog/mercenary-owners-they-are-changin-sort">an article</a> in the Nation.  As reported <a href="http://www.bloomberg.com/news/2011-04-22/dyncorp-to-pay-7-7-million-for-inflated-claims-on-iraq-work-u-s-says.html">by Bloomberg</a>, DynCorp, and hence indirectly about Cerberus, and Steward Health Care, in 2011 settled accusations that it overbilled the US government for construction work in Iraq.   Furthermore, as we noted <a href="http://hcrenewal.blogspot.com/2011/02/send-mercenaries-guns-and-money.html">here</a>, Cerberus also owns the biggest manufacturer of firearms and ammunition in the US. As <a href="http://www.businessweek.com/magazine/content/10_33/b4191041673261.htm">reported</a> by BusinessWeek in 2010, Cerberus owns 13 brands of fire-arms and munitions under the umbrella Freedom Group. So while Cerberus Capital Management would like us to believe that Rhode Island residents question the hands of Blue Cross Blue Shield of Rhode Island on a struggling local hospital system, it seems to be trying to avoid questions about whose hands would be on the hospital system were Cerberus Capital Management's subsidiary Steward Health Care to acquire it.  Summary So, to recapitulate this winding story....   A regional hospital system has been pushing its "new health care" idea.  However, its former surgeon CEO promotes new health care as commoditized health care, assembly line health care, in which doctors become assembly line workers and patients become widgets.  This seems bizarre until one realizes that the CEO actually works for a huge private equity firm whose goal is to make a lot of money in the short-term.  Standardized, commoditized health care is likely to be cheaper to provide than individualized health care.  Private equity firms thrive by cutting their subsidiaries' costs, and then selling them quickly, sometimes before the long-term consequences of these cuts become apparent.  (Look <a href="http://hcrenewal.blogspot.com/2012/01/barbarians-at-gate-making-private.html">here</a>.) So there are two lessons. To repeat the lesson from our <a href="http://hcrenewal.blogspot.com/2012/07/steward-health-care-vs-rhode-island.html">earlier post</a>, everybody, doctors, other health care professionals, health policy makers, patients, and the public ought to be extremely skeptical of the marketing and public relations efforts of big health care organizations.  Based on the examples above, they ought to be particularly skeptical of organizations that are overtly for profit, and/or have a clear focus on short-term revenue generation.  As a society we need to think about how to best counter these biased, incomplete, sometimes grossly deceptive efforts to manipulate public psychology and opinions through our rights to free speech and a free press. To add a lesson, everybody, doctors, other health professionals, health policy makers, patients and the public ought to be extremely wary of the ongoing corporatization of medicine and health care.  Corporate leaders who often get large incentives for maximizing short term revenue are likely to be enthused about turning our health care into a commodity.  Doctors and health care professionals should not want to be assembly line workers, and patients surely should not want to be widgets.

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

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03 Aug 2012

Private Equity vs Patient Care - a Bainful Example

A long <a href="http://www.salon.com/2012/07/18/dark_side_of_a_bain_success/singleton/">investigative report</a> in Salon summarized allegations about the quality of care in various treatment centers owned by Aspen Education, and its parent company, CRC Health Group, in turn wholly owned by a private equity firm, Bain Capital.  The article provides examples of what can go wrong when health care organizations are taken over by remote leadership focused overwhelmingly on short-term revenue.    A Death from a Treatable Disease The report opened with the investigation of a 14 year old resident at Youth Care, in Salt Lake City, and Aspen Education treatment center.  Brendan Blum "died of a twisted-bowel infaction," according to the local medical examiner, which allegedly went untreated because "two poorly paid monitors on duty," were slow to seek approval to call for emergency services, and "were too low on the totem pole to call 911 themselves." The article cited "previously unreported allegations of abuse and neglect in at least 10 CRC residential drug and teen care facilities across the country."  It charged, "such incidents have largely escaped notice because the programs are, thanks to lax state regulations, largely unaccountable."  Allegations of Toxic Corporate Culture The article noted numerous other reports of unexplained and allegedly wrongful deaths, and other allegations of mistreatment of patients. Furthermore, the article noted allegations "that such incidents reflect, in part, a broader corporate culture at Aspen's owner, CRC Health Group, a leading national chain of treatment centers.  Lawsuits and critics have claimed that CRC prizes profits, and the avoidance of outside scrutiny, over the health and safety of its clients."  We have frequently discussed how the corporate culture of the <a href="http://hcrenewal.blogspot.com/search/label/finance">finance industry</a>, the industry that brought us the global financial collapse/ great recession, has influenced health care, and how this culture may be related to extensive problems with the leadership of health care, including lack of understanding of or even outright <a href="http://hcrenewal.blogspot.com/search/label/mission-hostile%20management">hostility to the health care mission</a>, the prioritization of self-interest over the mission, <a href="http://hcrenewal.blogspot.com/search/label/conflicts%20of%20interest">conflicts of interest</a>, and even outright <a href="http://hcrenewal.blogspot.com/search/label/crime">criminal behavior</a>, such as <a href="http://hcrenewal.blogspot.com/search/label/fraud">fraud</a>, and <a href="http://hcrenewal.blogspot.com/search/label/kickbacks">kick-backs</a> (<a href="http://hcrenewal.blogspot.com/search/label/bribery">bribery</a>).  One way that finance may influence health care is the presence of finance leaders on the boards of trustees of non-profit health care institutions (see recent examples <a href="http://hcrenewal.blogspot.com/2012/06/dartmouths-governance-and-wall-street.html">here</a> and <a href="http://hcrenewal.blogspot.com/2012/01/new-york-presbyterian-hospital-trustee.html">here</a>).  A more direct way the culture of finance can influence health care is for <a href="http://hcrenewal.blogspot.com/search/label/private%20equity">private equity</a> firms (that is, re-branded leveraged buyout firms, look here) to purchase organizations that actually take care of patients.  The Salon article noted: <blockquote>CRC’s corporate culture, in turn, reflects the attitudes and financial imperatives of Bain Capital, the private equity firm founded by Mitt Romney. (The Romney campaign also did not reply to written questions.) Bain is known for its relentless obsession with maximizing shareholder value and revenues. Indeed, this has become a talking point of late on the Romney campaign trail; he bragged to Fox in late May that '80 percent of them [Bain investments] grew their revenues.' CRC, a fast-growing company then in the lucrative field of drug treatment, was perhaps a natural fit when Bain acquired it for $720 million in 2006. In conversations with staff and patients who spent time at CRC facilities since the takeover, there are suggestions that the Bain approach has had its effects. 'If you look at their daily profit numbers compared to what they charge,' Dana Blum [the mother of the boy who died in the incident discussed above] said of CRC’s Aspen division in 2009, 'it’s obscene.' That point, ironically enough, was underscored by the glowing reports in the trade press about its profitability.</blockquote> The article discussed how Bain Capital's acquisition of CRC Health Group further tilted the balance towards short-term revenue and away from quality care: <blockquote>When Bain purchased CRC, it looked like an investment masterstroke. The company, founded in the mid-’90s with a single California treatment facility, the Camp Recovery Center, had quickly grown into the largest chain of for-profit drug and alcohol treatment services in the country, with $230 million in annual revenue. Under Bain’s guidance, its revenue has nearly doubled, to more than $450 million. CRC now serves 30,000 clients daily — mostly opiate addicts — at 140 facilities across 25 states. In the first five years after its acquisition, Bain had already extracted nearly $20 million in management-related fees from the chain, although Bain investors haven’t cashed in yet through dividends or an IPO. Bain’s purchase, a leveraged buyout, also saddled CRC with massive debt of well over $600 million. According to company executives and independent analysts, hands-on oversight of subsidiary companies is a hallmark of both Bain and CRC. Romney’s campaign literature boasts about Bain taking exactly this sort of direct role in helping to turn around failing companies. 'Over the life of an investment, they have a strong management team willing to participate,' Sheryl Skolnick, an analyst with CRT Capital, a leading institutional brokerage firm, says of Bain. The CRC acquisition immediately made Bain owner of the largest collection of addiction treatment facilities in the nation. Unlike some Bain Capital acquisitions, which led to massive layoffs, the company’s approach with CRC was to boost revenues by gobbling up other treatment centers, raising fees, and expanding its client base through slick, aggressive marketing, while keeping staffing and other costs relatively low. But that rapid pace of acquisition couldn’t be sustained in the mostly small-scale drug treatment industry alone. So Bain Capital and CRC set their sights on an entirely new treatment arena: the multibillion-dollar 'troubled teen' industry, a burgeoning field of mostly locally owned residential schools and wilderness programs then serving, nationwide, about 100,000 kids facing addiction or emotional or behavioral problems. One of CRC’s first acquisitions under Bain ownership was the Aspen Education Group. Founded in 1998 with about six schools, Aspen Education had expanded to 30 troubled-teen and weight-loss programs by 2006, including Youth Care of Utah. With Bain’s backing, CRC purchased Aspen for nearly $300 million in the fall of 2006. Less than a year later, Brendan Blum was dead. At the time of the CRC acquisition, Aspen already had a history of abuse allegations, including at least three lawsuits, and two known patient deaths, one by suicide. Featured on 'Dr. Phil,' it grew out of schools inspired by the 'tough-love' behavior-modification approach of the discredited Synanon program, which was eventually exposed as a cult. By 2006, Aspen was facing a wrongful death lawsuit, later settled, over an incident in 2004 in which a 14-year-old boy, Matthew Meyer, perished from heat stroke just eight days into his stay at its Lone Star Expeditions wilderness camp in Texas. </blockquote> This just underscores concerns we raised <a href="http://hcrenewal.blogspot.com/2012/01/barbarians-at-gate-making-private.html">here</a> about how ownership by private equity could undermine the ability of health care organizations to fulfill their missions. At the time we worried that private equity's short time horizon would clash with health care's long-term focus, how standardized cost-cutting approaches, including emphasis on individual employees' "productivity," could undermine patient care, and how private equity's obsession with secrecy is the antithesis of the transparency required to make health care accountable. The Increasing Influence of Private Equity Ironically, the reason that the problems at CRC have gotten such public attention is that the former leader of the private equity firm that controls it is now running for the US presidency. His candidacy emphasizes just how influential the culture of private equity has come. <blockquote>The purchase of CRC came seven years after [former Massachusets Governor and now Republican presidential hopeful Mitt] Romney publicly announced his retirement as CEO of Bain Capital, where he had been in charge since its founding in 1984. But at the time of his departure, Romney worked out an arrangement to continue to share in Bain’s profits as a limited partner in the firm. Today, he is still an investor in 48 Bain accounts. Though he has refused to disclose their underlying assets, some information about them can be gleaned. For example, he has reported at least $300,000 to $1.2 million, if not more, in fluctuating annual earnings from Bain Capital VIII, the convoluted $3.5 billion array of related funds that owns both name-brand companies such as Dunkin’ Donuts and the lesser-known CRC Health Group. Most of these funds were made more attractive to privileged investors by being registered in the Cayman Islands tax haven. And Romney’s connections to CRC run even deeper: Of the three Bain managing partners who sit on CRC’s board, two, John Connaughton and Steven Barnes (with his wife), gave a total of half a million dollars to Restore Our Future, the super PAC supporting Romney. They also each donated the $2,500 maximum directly to his campaign.</blockquote> Furthermore, it provides a warning about much more influential it might become, particularly in regard to health care: <blockquote>Romney has been outspoken about his belief that for-profit health care companies can flourish only without onerous regulations. 'I had the occasion of actually acquiring and trying to build health care businesses,' he said during a primary debate last year. 'I know something about it, and I believe markets work. And what’s wrong with our health care system in America is that government is playing too heavy a role.'</blockquote> The allegations against one of those health care businesses suggest another viewpoint. I have frequently repeated a contention that true health care reform would emphasize leadership of health care organizations that understand and uphold the values of health care, starting with prioritizing the needs of patients and the public's health over all other concerns. Instead, there is a danger that health care leaders will be ever more removed from patients and the public, and their health needs, while they become ever more concerned with making as much money as possible in the short-run, and after that, the Devil take the hindmost.

Private Equity vs Patient Care - a Bainful Example

A long investigative report in Salon summarized allegations about the quality of care in various treatment centers owned by Aspen Education, and its parent company, CRC Health Group, in turn wholly ow…

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25 Jul 2012

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