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Making a Community Health Agency into the Leaders' Private Sand-Box

As we <a href="http://hcrenewal.blogspot.com/2010/06/more-hospitals-hiring-ceos-children.html">predicted</a>, it seems that the US Internal Revenue Service's (IRS) increased reporting requirements for not-for-profit organizations are leading to more examples of the coziness now prevalent among the top leaders of such organizations.  The latest entry in this new parade comes from a <a href="http://www.bradenton.com/2010/08/23/2520884/rural-health-execs-pay-tops-in.html">story</a> in the Bradenton (Florida) Herald about a not-for-profit community health agency whose mission is to provide health care to the poor and disenfranchised: <blockquote>Providing medical services to the indigent and uninsured in Manatee and Sarasota counties has financially benefitted some of Manatee County Rural Health Services Inc.’s officers, board members and their families, records show. The nonprofit agency has paid nearly $2 million in recent years to businesses owned by board members, officers, employees or their relatives, according to tax documents obtained by the Bradenton Herald. And its chief executive officer, Walter “Mickey” Presha Sr., has long been the highest-paid CEO of any such agency in Florida: His salary last year was $433,000 — $140,000 more than that of his closest counterpart, records show.</blockquote> The article listed multiple examples self-dealing by the top leaders of Rural Health Services. <blockquote>According to tax returns filed since 2004, Rural Health has paid: - $558,121 to John Lewis, a board member, for optometry services. - $536,591 to The Pinnacle Group of West Coast Florida Inc. for construction, maintenance and repair work. One of its principals is Trina Presha-Rosier, Presha’s daughter. - $344,766 to The Lawn Authority of Manatee County Inc. for lawn care maintenance at the agency’s facilities. Wardell Jackson, the agency’s vice president of support services, is a principal in the business. - $387,673 to A to Z Complete Property Management Inc. for janitorial cleaning and maintenance services. It is owned by Chris Mullinex, the agency’s facilities director. - $96,000 to R & L Healthcare Advisors, whose principals include Marc Lazarus, a board member, for consulting services. - $44,242 to More Power Properties and Investments LLC, co-owned by board Chairman J. Garry Lowe, for storage of agency files and equipment and the purchase of a modular building.</blockquote> Leaders of rural health offered mostly the usual explanations: >>As long as we say it is not a conflict, it is not a conflict<< <blockquote>According to a conflict of interest statement that board members are required to sign, Rural Health prohibits them, management and their families from having any 'beneficial interest or substantial obligation to' any entity engaged in business with the agency. But some have been able to bypass that prohibition because of this loophole: 'Unless it has been determined by the board, on the basis of full disclosure of facts, that such interest does not give rise to a conflict of interest.'</blockquote> >>We, our relatives, and our firms are the best possible source of the services<< <blockquote>Jackson, Mullinex and Presha-Rosier’s businesses won competitive bids, which are reviewed by a board committee and approved by the full board, Lazarus said. Presha said he is not involved in reviewing bids for construction projects that his daughter might seek. The agency chose to do business with the three board members’ companies because of special circumstances, agency officials said. Lewis is one of Manatee Rural Health’s founders and has overseen its optometry services since the beginning. Lowe offered the storage space for less than what commercial storage facilities charged, then sold one of the storage buildings to Manatee Rural Health for a reduced price. And Lazarus has 36 years’ experience in the health care field, including as an executive at Sarasota Memorial Hospital. They were hired because they provide needed services at a lower cost, thus allowing the agency to spend more money on patient care, officials said.</blockquote> >>Trust us, because we are wonderful people<< <blockquote>'It’s always disclosed to the board, so we always have the opportunity to not do it,' said Juanine Lowery, a board member since 1984. 'It hasn’t been a problem. It’s always been competitive.'</blockquote> And a slightly more coherent version of that: <blockquote>'Everything’s checked out and vetted,' Lazarus said. 'The arrangements are as good as or better than what we could get on the open market.'</blockquote> The explanation for the CEO's out-sized salary should come as no surprise. He got that high salary because >>I am a wonderful CEO and I deserve it<< <blockquote>Rural Health board members also defend Presha’s $433,000 salary, which makes him the highest-paid chief executive officer of any federally qualified community health center in Florida. His job performance, managerial skills and the organization’s complexity and size are all reasons he makes the top salary, board members say.</blockquote> Of course, the CEO himself thinks he is a wonderful CEO and deserves it: <blockquote>'I know what I do,' said Presha, who said he took a pay cut to take the Manatee Rural Health job in 1984 and has turned down job offers with higher salaries since then. 'If I could do it for free, I would do it for free. But I earn my keep.'</blockquote> So here we have another case of the cozy leadership of a not-for-profit health care organization, who all think they are doing just a wonderful job, who never seem to question their own actions, and who all believe all their buddies are also doing just a wonderful job. So naturally, since they are all such wonderful people doing a wonderful job, we should not begrudge them a few dollars here and there. Of course, if they were the leaders of a privately held company that made widgets, it would be their own money that they are spending, and maybe no on else should care. Even if the amounts involved seem relatively small relative to some of the cases that appear on Health Care Renewal, we should care particularly about how the leaders of Manatee County Rural Health Care Services throw around money (to each other), because of the nature of the organization's mission, as <a href="http://www.mcrhs.org/presidents_message.php">described</a> by CEO Presha himself: <blockquote>MCRHS has served the poor and underserved in our communities with the mentality of a 'provider of choice.' Our group is not only compassionate, but also innovative,....</blockquote> It is truly unseemly for a not-for-profit community health care organization dedicated to serving "the poor and undeserved" lead by people so complacent about their own entitlement. So to repeat what I have written before, in my humble opinion, this sort of coziness, this sort of fuzziness at the boundaries of institutional duties and personal interests, may be a fundamental reason that our current health care system has become so solicitous of the interests and prerogatives of its leaders, and so cold to the needs of patients and the values of professionals. The need for more transparent, accountable leadership of health care who explicitly are subject to clear ethical rules was never more apparent. Stay tuned as more and more cases like this appear....

Making a Community Health Agency into the Leaders' Private Sand-Box

As we predicted, it seems that the US Internal Revenue Service's (IRS) increased reporting requirements for not-for-profit organizations are leading to more examples of the coziness now prevalent amon…

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23 Aug 2010

Are computers in medicine narcotic? "Why did the National Programme for IT fail?"

I noted an article <a href="http://www.smarthealthcare.com/patient-npfit-fail-consultants-it-staff-18aug10">Why did the National Programme for IT fail?</a> by an "ex-IT person" at the site Smart Healthcare.com in a series entitled "Patient from Hell." Aside from the intoxicant qualities of crisp bank notes, I am beginning to suspect that computers exert a narcotic effect, like Kool Aid laced with morphine or alcohol, on many in the population. Many people who should know better of the challenges, dangers and myths surrounding these tools are drawn in to comparisons and analogies that I would charitably call magical thinking and puerile - and absurdist and stupid when not so charitable. <style title="owaParaStyle">P { MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px } BODY { SCROLLBAR-HIGHLIGHT-COLOR: #cecfce; SCROLLBAR-ARROW-COLOR: #3f52b8; SCROLLBAR-TRACK-COLOR: #fffbff; SCROLLBAR-DARKSHADOW-COLOR: #fafafa; SCROLLBAR-BASE-COLOR: #f7f7f7 } </style>This article shows the muddled thinking behind the health IT mania. My observation: when you see the word "revolutionary" in the same paragraph as health IT you're dealing with hysterics. The "patient from hell" asks: <blockquote>Why is the road to electronic healthcare so much more rocky than computerising other bits of the economy? Other professions, including bankers, accountants and lawyers, have made the jump, some 30 years after the advent of personal computers. Even musicians, poets, journalists, artists, philosophers and MPs have got up to speed. </blockquote> "Even?" Yes, and you can train a dog to fetch a stick, therefore you can train a potato to dance. Why is the road to HIT more rocky than the road to computer poetry or art? Perhaps because the endeavors of clinicians are not like those of a musician or poet or lawyer or banker, but just a bit more informationally, operationally, cognitively, scientifically, and socially complex? <blockquote style="font-style: italic;">I was amazed at the time by the irresponsibility, primarily of the consultants [i.e., physicians - ed.], who were effectively opting out of the planning process. They showed no interest in playing a part in designing a new way of working – for themselves, for nurses and all others involved in the revolutionary changes which digitalisation would bring to their working practices.</blockquote> In fact, they were showing responsibility - to patients - in not being so eager to "change to new ways of working" according to the diktats of computer geeks, government and other bureaucrats and myriad non-clinicians running around like drunks, hysterically screaming "revolution!" <blockquote style="font-style: italic;"> I fear that communication between clinician and IT has now got so contaminated that crazy solutions will come out of the deliberations of the coalition government on the future of IT in the health service. All I ask is that clinicians and IT people talk to each other. Is that so hard?</blockquote> If you have the right tools on your kitchen table, shouldn't it be easy to generate nuclear fission at home? Due to factors such as the asymmetry in responsibilities, obligations and liabilities between the two fields, of differences in knowledge and expertise, and in mindset and qualifications to attain privileges to intervene in people's lives (who qualifies IT personnel to be involved in clinical affairs?), yes, idealistic "let's all play nice in the sandbox together" dreams are "so hard." Unfortunately, these types of comparisons and sentiments are extremely common in the Healthcare-IT-industrial complex. The reality is: The NPfIT failed because its purveyors and promoters hadn't a clue about the complexities and <a href="http://en.wikipedia.org/wiki/Wicked_problem">wicked problems</a> involved in such an endeavor, problems known and described in the Medical Informatics and Social Informatics literature, among others, for decades. It also failed because of collective ignorance of these domains among its leaders, and among those who chose the leaders. For instance, as I wrote <a href="http://hcrenewal.blogspot.com/2009/12/uk-mp.html">here</a>: <blockquote>The Department of Health has announced the two long-awaited senior management appointments for the National Programme for IT ... The Department announced in February that it was recruiting the two positions as part of a revised governance structure for handling informatics in the Department of Health. Christine Connelly will be the first Chief Information Officer for Health and will focus on developing and delivering the Department's overall information strategy and integrating leadership across the NHS and associated bodies including NHS Connecting for Health and the NHS Information Centre for Health and Social Care.Christine Connelly was previously Chief Information Officer at Cadbury Schweppes with direct control of all IT operations and projects. She also spent over 20 years at BP where her roles included Chief of Staff for Gas, Power and Renewables, and Head of IT for both the upstream and downstream business. Martin Bellamy will be the Director of Programme and System Delivery. He will lead NHS Connecting for Health and focus on enhancing partnerships with and within the NHS. Martin Bellamy has worked for the Department for Work and Pensions since 2003. His main role has been as CIO of the Pension Service.</blockquote> Excuse me. Cadbury Schweppes (candy and drink?) The Pension Service? As national leaders for healthcare IT? Instead of sobriety, attitudes about health IT seem to universally be "sure, the experts think you shouldn’t ride a bicycle into the eye of a hurricane, but we have our own theories." (See <a href="http://hcrenewal.blogspot.com/2008/12/open-letter-to-president-barack-obama.html">here</a> and <a href="http://hcrenewal.blogspot.com/2008/05/htrea-parallel-world-of-hit.html">here</a>.) The domain of health IT needs a very stiff period of detox and rock-solid sobriety before it can achieve the (non-revolutionary) benefits of which it is capable. -- SS

Are computers in medicine narcotic? "Why did the National Programme for IT fail?"

I noted an article Why did the National Programme for IT fail? by an "ex-IT person" at the site Smart Healthcare.com in a series entitled "Patient from Hell."Aside from the intoxicant qualities of cr…

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22 Aug 2010

Where There's Smoke? ... A University President Who Simultaneously Lead a Failed Financial Company and a Tobacco Company Which Apologized for International Bribery

A long time ago, in 2006, we first blogged about a "<a href="http://hcrenewal.blogspot.com/2006/03/new-species-of-conflict-of-interest-in.html">new species of conflict of interest</a>" which we thought might prove to be even more important than those afflicting health care that were then starting to be discussed.  This involved health care organizational leaders who were simultaneously members of the boards of directors of for-profit health care corporations.  We posited these conflicts would be particularly important because being on the board of directors entails not just a financial incentive.  It ostensibly requires board members to "demonstrate unyielding loyalty to the company's shareholders" [Per Monks RAG, Minow N. <a href="http://www.amazon.com/Corporate-Governance-Robert-G-Monks/dp/1405116986">Corporate Governance</a>, 3rd edition. Malden, MA: Blackwell Publishing, 2004. P.200.]   Thus, for example, the conflict posed by the president of a university, to whom a medical school and academic medical center report, who also is the director of a pharmaceutical company, would be extreme. Since then, we<a href="http://hcrenewal.blogspot.com/2010/02/university-president-but-no-longer.html"> noted</a> yet another variant on this theme, university presidents who were supposedly the top leaders of failed financial firms, and then who did various dances to try to avoid accountability for these firms' fates.  That theme recently made it to the big time, a <a href="http://www.nytimes.com/2010/08/01/business/01prez.html">front page article</a> on the Sunday Business section of the New York Times. The most extreme version was the case of that of Eugene Trani, the former President of Virginia Commonwealth University ( full disclosure: I spent 7 years on the faculty of its medical school, and am still an adjunct faculty member).  Trani turned out to be on the board of a tobacco company, and soon after this was revealed, retired from the presidency (see most recent blog post <a href="http://hcrenewal.blogspot.com/2008/08/after-controversy-over-tobacco-money.html">here</a>). Now a Washington Post blogger has yet another <a href="http://voices.washingtonpost.com/local-opinions/2010/08/why_are_college_heads_doing_on.html">twist</a> on this case: <blockquote>Eugene P. Trani left the presidency of Virginia Commonwealth University in 2009 after improving the school and expanding its presence in downtown Richmond. But Trani was also a director of LandAmerica Financial Group, a Richmond-area title insurer that went belly-up in 2008, taking with it millions in investors' money. Today, Trani is on the board of Richmond-based Universal Corporation, a global tobacco marketer. Universal's subsidiaries have just agreed to pay $8.98 million in a tobacco bribery scandal that stretches from Brazil to Thailand to Africa. The firm has issued a public apology. Trani received $159,032 in total compensation for his board service.</blockquote> So Trani was not only on the board of directors of a tobacco company, he was on the board of directors of a tobacco company that was forced to settle charges of international bribery and issue apologies for same, and just to ice the cake, was on the board of a failed financial company whose failure affected residents of the locality which his university served. As the saying goes, "the fish rots from the head down."  How can academic leaders expect integrity from their faculty when they willingly take on such grotesque conflicts?  Leaders who thus try to serve two, or many masters are likely to run health care organizations that do not serve their primary constituents, patients who expect good care, learners who expect honest, competent teaching, and the public who expects important, unbiased research, well.  If we really want to reform health care, we need leaders who put the mission, not their own pocketbooks, prestige, and cronies, first.

Where There's Smoke? ... A University President Who Simultaneously Lead a Failed Financial Company and a Tobacco Company Which Apologized for International Bribery

A long time ago, in 2006, we first blogged about a "new species of conflict of interest" which we thought might prove to be even more important than those afflicting health care that were then startin…

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20 Aug 2010

How Oligopolists Rationalize Their Market Domination: the Examples of Sutter Health and the Carilion Clinic

Advocates of laissez faire commercialized health care often trumpet the advantages of competitive markets as a rationale for deregulation.  While there are theoretic, and possibly empiric reasons to think that competitive markets are the optimal way to distribute goods and services, we recently <a href="http://hcrenewal.blogspot.com/2010/08/how-fallacy-of-perfect-health-care.html">discussed</a> aspects of health care that make it extremely hard for health care markets to be ideally competitive.  Meanwhile, two news articles gave some case-based evidence about how current health care markets are hardly competitive.   Sutter Health A Bloomberg <a href="http://www.bloomberg.com/news/2010-08-20/hospital-monopolies-ruin-mri-bill-as-sutter-gets-price-it-wants.html">article</a> focused on Sutter Health in northern and central California. Sutter Health commands a substantial part of a very large market: <blockquote>Sutter Health Co., the nonprofit that owns Sutter Davis, has market power that commands prices 40 to 70 percent higher than its rivals per typical procedure -- and pacts with insurers that keep those prices secret. Sutter can charge these prices because it has acquired more than a third of the market in the San Francisco-to-Sacramento region through more than 20 hospital takeovers in the last 30 years, according to executives of Aetna Inc., Health Net Inc. and Blue Shield of California, who asked not to be named because their agreements with Sutter ban disclosure of prices. </blockquote> Also, <blockquote>Operating as a nonprofit, it has $8.8 billion in revenues, 24 hospitals, 17 outpatient surgery clinics and a 3,500-doctor network, making it the largest health-care provider in an 11- county region -- from San Francisco Bay to the Sierra Nevada mountains -- where 10 million people live. Sutter has 35 percent of the revenue and 36 percent of beds that compete for patients in the region, according to a state hospital database, including 100 percent of beds the state tracks in Placer and Amador counties east of Sacramento.</blockquote> Sutter care seems to cost a lot more than care from other doctors and hospitals: <blockquote>After Mark Logsdon tore a ligament in his knee skiing at Lake Tahoe in March, he returned home to suburban Sacramento and had an MRI scan at Sutter Davis Hospital. Sutter’s price for the knee scan was $1,271, payable by Logsdon and his insurer. Exactly the same MRI at one of the local imaging centers owned by Radiological Associates of Sacramento would have cost $696 -- 45 percent less. </blockquote> A few other examples of Sutter's prices compared to others; <blockquote>'Instead of leveraging its system to be more cost- effective, we’ve seen Sutter leveraging its system for monopoly pricing,' said Peter V. Lee, who in June became director of health-care delivery system reform for the U.S. Department of Health and Human Services. Lee was interviewed while he worked at the Pacific Business Group on Health, a coalition that includes Chevron Corp., Walt Disney Co., General Electric Co., and Wells Fargo & Co. In San Francisco, Aetna pays Sutter’s California Pacific Medical Center in a range with a midpoint of $4,700 for an abdominal CT scan, compared to $3,200 at St. Francis Memorial Hospital, owned by Catholic Health Care West. For colonoscopies, Aetna’s midpoint price is $3,200 at Sutter’s flagship CPMC and $2,800 at St. Francis Memorial. In Palo Alto, Aetna pays Sutter $349 per visit for new patients to see Manju Deshpande, a family doctor in Sutter’s Palo Alto Medical Foundation clinic. Three miles away, Paul Ford’s Stanford Medical Group receives $222. If the patient needs an immunization, Aetna pays Palo Alto Medical $85, and Stanford Medical, $16. Deshpande removes wax from the ear for $175. Ford scoops it out for $104. Down the road in Silicon Valley, when obstetrician Sarah Azad, a solo practitioner, delivers a baby for a patient covered by Aetna, the insurer pays her $2,052. When Nicole Wilcox of Sutter’s Palo Alto Medical Foundation does the same job, Aetna pays Sutter $5,890. The doctors practice blocks apart in Mountain View, California. Performance isn’t an issue -- Azad has Aetna’s top rating for quality of care and trained Wilcox during residency. </blockquote> The Sutter CEO, of course, denies there is a problem: <blockquote>Sutter operates in a competitive market, Chief Executive Officer Patrick Fry, 53, said in an interview. 'I don’t see Sutter Health as having market power, given the choices that employers can make,' Fry said. 'The market has a lot of room to make a lot of decisions.' </blockquote>The people who most praise competitive markets often seem to be those who have done the most to reduce the competitiveness of these markets.  The CEO also trotted out another old saw, that his organization has grown not to charge more, but to be more efficient. <blockquote>While Sutter may have higher 'unit' prices than its competitors, Fry said, it is not the most costly for patients over the long run because its integration of hospitals and doctor groups allows it to provide more efficient care, cutting down on the number of procedures. 'Our mission isn’t to maximize profits,' Fry added. 'Our mission, to the extent we can, is to optimize services.' Insurers and patients have many alternatives to Sutter, according to Fry. </blockquote>That is a tune would-be monopolists have been singing at least since the days of the "robber barons" and their monopolies such as Standard Oil. Of course, he is likely to defend a system that makes so much money and pays him and his buddies in top management so much, (and, contrary to his statement above, seems to have maximized profits): <blockquote>Sutter, with 48,000 employees, was among the most profitable hospital groups in the U.S. in 2009, with income of $697 million, up more than three-fold from 2008 due to large investment gains, on revenue that grew 6 percent to $8.8 billion. Its 5.2 percent operating margin -- or operating income as a percentage of revenue -- was 73 percent higher than the median for all nonprofit hospital systems in 2009, according to Standard & Poor’s. As of Dec. 31, Sutter had a $2.63 billion investment portfolio. Sutter paid Fry $2.8 million in 2008, according to its latest Internal Revenue Service filing. His top 14 lieutenants made between $830,000 and $1.8 million each. </blockquote> The article on Sutter emphasized how the strategic use of secrecy has helped Sutter maintain its remunerative ways: <blockquote>Sutter doesn’t allow its prices to be disclosed on insurers’ websites because it believes the information is often misleading and doesn’t reflect the variables of each patient’s case, [Sutter spokesman William] Gleeson said. </blockquote> Of course, keeping prices secret just makes the market even less like an ideally competitive one: <blockquote>As Sutter’s confidentiality terms show, the actual prices that hospitals receive are often kept secret by insurers. Patients in need of hospital care, especially in emergencies, often can’t travel very far, restricting competition. And if they have health insurance, they have little incentive to price shop. </blockquote> Finally, the article reminds us that the latest fad from health policy and health management circles (which seem increasingly to overlap), "accountable care organizations," may just be a pretext for even more market consolidation: <blockquote>The federal Patient Protection and Affordable Care Act is looking for $500 billion in savings over the next decade to help pay for extending coverage to 32 million uninsured Americans. Yet it doesn’t address the problem of market concentration -- and may make it worse, said Robert Berenson, a physician and policy analyst at the Urban Institute in Washington D.C. The 'unchecked' clout of hospital and physician groups in California is a 'cautionary tale for national health reform,' Berenson said in a February article in the journal Health Affairs. He warned that incentives in the new legislation to improve treatment by promoting doctor-hospital alliances -- called 'accountable care organizations' -- could backfire by strengthening providers’ bargaining leverage. </blockquote>Carilion Clinic A Washington Post <a href="http://www.washingtonpost.com/wp-dyn/content/article/2010/08/15/AR2010081503201.html">article</a> discussed the example of Carilion Clinic in Virginia, whose increasing market power we had <a href="http://hcrenewal.blogspot.com/2008/08/merger-mania-redux-case-of-carilion.html">blogged about</a> in 2008: <blockquote>Railroads put this city on the map, but the king of the domain is now health care -- or rather, the Carilion Clinic. Carilion owns the two hospitals in town and six others in the region, employs 550 doctors and has set off a bitter local debate: Is its dominance a new model for health care or a blatant attempt to corner the market? </blockquote> The Carilion story emphasized again how the "accountable care organization" meme is being used to justify market consolidation, allowing health care oligopolies to appear politically correct: <blockquote>Carilion says it represents an ideal envisioned by the nation's new health-care law: a network that increases efficiency by bringing more doctors and hospitals onto one team, integrating care from the doctor's office to the operating room. The name for such networks, which the new law strongly promotes with pilot programs, is accountable care organizations, or ACOs -- providers joining together to be 'accountable' for the total care of patients, with incentives from insurers to keep people healthy and costs down. </blockquote> Note that this political correctness is also used to justify further consolidation of power by limiting outside referrals: <blockquote>Independent doctors say Carilion is urging its employees to refer patients only to providers within the Carilion network, cloaking its expansion in the lingo of health-care reform. </blockquote> Of course, the Carilion CEO also denies anything but the most altruistic intent, but he too is making a lot of money from the current system: <blockquote>[Edward] Murphy, Carilion's chief executive who earned $2.3 million in 2008, acknowledges that providers holding excessive leverage over insurers is cause for concern but argues that ACOs can be a corrective. </blockquote> Summary We <a href="http://hcrenewal.blogspot.com/2010/08/how-fallacy-of-perfect-health-care.html">noted</a> earlier this week that multiple kinds of uncertainty (e.g., about diagnosis, prognosis, and the effects of treatment), and information asymmetry make it theoretically difficult for the health care market to be truly competitive. Meanwhile, there is increasing evidence that the market is actually uncompetitive. Although there are many hospitals and health insurers across the US, in many areas there are very few insurers and very few hospitals or hospital systems from which to choose. We have <a href="http://hcrenewal.blogspot.com/2009/01/to-whom-did-scorpions-in-bottle-owe.html">previously blogged</a> about how market dominant hospital systems seem to be able to charge more than any others. In the 1960s, it became recognized that physicians' professionalism, hospitals' devotion to their missions, and sometimes even (gasp) government regulation might partially compensate for distortions in the health care market. However, as supposed free market advocates became more powerful, they pushed for the commercialization of medicine and hospitals, reducing professionalism and mission support, and the hollowing out government regulation. (However, why did the people who attacked medical societies' codes of ethics as monopolistic have no interest in attacking market domination by insurers or hospital systems?  Inquiring minds want to know.) As we said last time, true health care reform would help physicians and other health care professionals uphold their traditional values, including, as the AMA once stated, "the practice of medicine should not be commercialized, nor treated as a commodity in trade." True health care reform would put health care "delivery" back in the hands of mission-focused, not-for-profit organizations, which put patients' health, safety and welfare first. Meanwhile, these latest stories about market dominating hospital systems suggest some additional lessons. Secrecy is the would-be monopolist's best friend. However, it is hard to think of very many kinds of information that hospitals really ought to be able to keep as proprietary secrets. As usual, sunshine is the best disinfectant. There seems to be a strange and increasing alliance between politically- correct academic theorists and proponents of raw economic power. The theorists' notion of "accountable care organizations" seems to have become a great foil for would-be monopolists, yet the theorists have done nothing to show how their creation would really bring "power to the people." Meanwhile, maybe "ACO" should stand for "aggressive care oligopoly." Meanwhile, be extremely skeptical of the latest health care fad, especially when it is supported both by academics and CEOs.

How Oligopolists Rationalize Their Market Domination: the Examples of Sutter Health and the Carilion Clinic

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20 Aug 2010

How the Fallacy of the "Perfect" Health Care Market Undermined Professionalism and Caused Health Care Dysfunction - in the New York Times

We began this blog way back in 2005 to discuss threats to physicians' values, especially from concentration and abuse of power.  Personal experience, and cases and anecdotes described by colleagues suggested that a dysfunctional health care system was making patients and physicians miserable.  Interviews with more physicians suggested pervasive threats to their values, many stemming from how leaders of health care organizations wielded their power.   Threats to Professional Values In a 2007 <a href="http://hcrenewal.blogspot.com/2007/12/relman-in-jama-on-threats-to-physicians.html">post</a>, based on an article in JAMA by Dr Arnold Relman, I asserted that the notion that threats to physicians' professional values are a major cause of health care dysfunction was becoming mainstream.  Furthermore, Dr Relman's review of the history of the problem suggested that the rising power of for-profit health care corporations, for whom making money came before the health and safety of patients, was a primary culprit.  Dr Relman has discussed the issue frequently (e.g., see <a href="http://hcrenewal.blogspot.com/2009/06/why-did-us-physicians-give-up-their.html">this post</a>).  However, despite occasional publication in some prestigious medical journals, his views seem to have gotten little traction.  Arrow's Analysis: Is Health Care a Perfectly Competitive Market? Amazingly, however, the issue has made it into the New York Times, in the form of two posts in the Economix blog by health economist Prof Uwe Reinhardt.  Prof Reinhardt <a href="http://economix.blogs.nytimes.com/2010/08/06/is-health-care-special/">started</a> by resurrecting the classic article by "Nobel laureate economist Kenneth Arrow," which argued that health care's special context means that the health care market cannot be truly competitive. First Prof Arrow reviewed the characteristics of a perfectly competitive market: <blockquote>To lay down a standard to which to compare the health care sector, Professor Arrow explained first on what basis economists consider a perfectly competitive market for some good or service as 'maximizing human welfare,' an outcome economists describe as 'efficient.' The crucial characteristics of a perfectly competitive market are (1) that all of the quality dimensions of the good or service traded in that market are accurately understood by buyer and seller; (2) that potential buyers have full transparency on the price they will have to pay per unit of that good or service; (3) that it is easy and relatively costless for potential sellers to enter and exit this market; (4) and that there are so many potential buyers and sellers that none individually can affect the market price of the thing being traded. If those and some other conditions are met, Professor Arrow explained, then for any given initial distribution of income and wealth that market will settle down at a unique equilibrium, that is, a state from which no potential buyer or seller would want to move. This equilibrium has important attributes. First, in what Professor Arrow calls the First Optimality Theorem of welfare economics, it can be shown that in this equilibrium the traded good or service is allocated among buyers in such a way that it would be impossible through any reallocation to make someone happier without making someone else less happy. It is an allocation that economists call Pareto efficient, in honor of the Italian industrialist, economist and philosopher Vilfredo Pareto (1848-1923), who first proposed this criterion. For any given initial distribution of income and wealth, economists declare the associated Pareto-efficient allocation of the thing being produced and traded to be 'welfare-maximizing' — hence the term 'welfare economics' for this type of analysis. Second, and very importantly, in what Arrow calls the Second Optimality Theorem, he explains that if on ethical grounds society wished to distribute a good or service (for example, education or health care or food or beach houses) among people in a particular way — like egalitarian principles — it need not have government directly involved in producing or distributing that good or service. </blockquote> In his <a href="http://economix.blogs.nytimes.com/2010/08/13/health-care-uncertainty-and-morality/">second blog post</a>, Prof Reinhardt summarized why health care cannot be such a competitive market. The problems are uncertainty and asymmetry of information: <blockquote>This uncertainty has several aspects. First, physicians may not agree on the medical condition causing the symptoms the patient presents. Second, even if physicians agree in their diagnoses, they often do not agree on the efficacy of alternative responses — for example, surgery or medical management for lower-back pain. Third, information on both the diagnosis of and the likely consequences of treatment are asymmetrically allocated between the sell-side (providers) and the buy-side (patients) of the health care market. The very reason that patients seek advice and treatment from physicians in the first place is that they expect physicians to have vastly superior knowledge about the proper diagnosis and efficacy of treatment. That makes the market for medical care deviate significantly from the benchmark of perfect competition, in which buyers and sellers would be equally well informed. Uncertainty and asymmetry of information about the quality of goods or services being traded is not, of course, unique to the medical care market. It is ubiquitous in modern economies that trade in highly complex goods and services. We find these characteristics, for example, in financial transactions, including all types of insurance; in automobile repairs, in plumbing and even in the purchase of some consumer electronics. Wherever asymmetry of information is present, there exists the potential for the better-informed market participants to exploit the ignorance of the less well informed. How society responds to this flaw in markets depends on the severity of its consequences. In the market for electronic products, for example, the consequences appear to be regarded as trivial. A customer may be seduced into purchasing an excessively complex and expensive product, but society takes no action on this front. In finance, on the other hand, the consequences of asymmetric information can be severe, as we have been reminded once again in the recent financial crisis. </blockquote>Professional Standards and Mission-Oriented Non-Profit Organizations to Remedy Market Imperfections Prof Arrow suggested that how health care worked when he wrote his article, in 1963, could be partially explained as attempting to remedy the problems created by uncertainty and asymmetry of information. <blockquote>Professor Arrow explained many of the nonmarket social institutions and regulations characteristic of medical care [at that time] that he had identified as 'attempts to overcome the lack of optimality resulting from asymmetry of information and the inability of competitive markets to allocate efficiently all of the risks inherent in health care.' Pointedly, he said, 'It is the general social consensus, clearly, that the laissez-faire solution for medicine is intolerable.'</blockquote> That was then and this is now. The Rise of "Greed is Good" The problem is, of course, that health care has changed a lot since 1963. In an <a href="http://www.theatlantic.com/politics/archive/2009/07/an-interview-with-kenneth-arrow-part-two/22279/">interview with the Atlantic from 2009</a>, Prof Arrow defended his basic analysis: <blockquote>I think the fundamental questions are the same. I also think there are more problems in the market today than when I wrote the paper. But I think the basic analysis hasn't changed.</blockquote> He also discussed how failure to heed it have lead to our current dysfunctional health care system: <blockquote>The market won't work -- it doesn't work well in the health context. But something else supplements the market, and the thing I put stress on in the paper are the elements that put a non-economic influence on the market: professional commitments to provide a service, to engage in services that aren't self-serving. Standards of caring decided by non-economic actors. And one problem we have now is an erosion of professional standards. In a way there is more emphasis on markets and self-aggrandizement in the context of healthcare, and that has led to some of the problems we have today. </blockquote> Furthermore, he commented on those who sold the idea, which today ought to be totally discredited, in my humble opinion, that health care could be a perfect market, and this market would make everything right: <blockquote>Sometimes I think it's because of the Chicago School. I think there has been a general drift around the country towards the idea that greed is good. Look at Wall Street. All of these industries involve a professional element in which information is flowing. You're supposed to be constrained to be honest about it. I don't really know why. But there is now more of an emphasis on popularization, which does improve efficiency but can also lead to an erosion of professional standards. There was this idea that professional standards were a mask for monopoly power--a Chicago theory, which I believe came from George Stigler. I don't know if they were that influential, but they seemed to be saying a lot of things that people were taking up in practice. I'm not totally sure why these professional standards changed, but it's more than medical reasons.</blockquote> So you do not need to take it from me, take it from a Nobel laureate economist.  It now seems clear in retrospect that a major characteristic of modern health care is how the "better-informed market participants ... exploit the ignorance of the less well informed." Summary: What is to be Done? We have been sold a real bill of goods that health care could function as an ideal market. That bill of goods has lead to the deprofessionalization and commercialization of physicians, the destruction of the basic values of health care professionals, and the rise of health care organizations that put making money ahead of patients' health, safety, and welfare. And in health care, the dominant slogan has become "greed is good." This is true of course, but only for the greedy. True health care reform would help physicians and other health care professionals uphold their traditional values, including, as the AMA once stated, "the practice of medicine should not be commercialized, nor treated as a commodity in trade." True health care reform would put health care "delivery" back in the hands of mission-focused, not-for-profit organizations, which put patients' health, safety and welfare first. These reforms, however, would certainly threaten the continuing wealth of a lot of people who have profited mightily from the current dysfunctional system. So do not expect them to be happy about even the discussion of them.

How the Fallacy of the "Perfect" Health Care Market Undermined Professionalism and Caused Health Care Dysfunction - in the New York Times

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18 Aug 2010

"Proprietary Information," Confidentiality Motions, and the Anechoic Effect; the Case of the Contaminated Heparin

The case of the deadly contaminated heparin sold by Baxter International has received much less attention than seems warranted given its human costs (81 lives).  How the heparin was contaminated, and how the contaminated heparin ended up being sold as a US Food and Drug Administration approved American product are still unknown.  Our most recent post, <a href="http://hcrenewal.blogspot.com/2010/07/more-about-what-we-dont-know-about.html">here</a>, noted that an investigation into the contamination of the active pharmaceutical ingredient (API - actually the heparin itself) in China failed to produce any results, apparently because the Chinese government did not see fit to pursue it.  (Note that a brief summary of the whole case is at the end of this post.) Now a new <a href="http://online.wsj.com/article/SB10001424052748704868604575433960537183170.html">story</a> in the Wall Street Journal by Alicia Mundy explains even more about why we do not know more about the contaminated heparin: <blockquote>Baxter International Inc. faces a new challenge in federal court in its bid to block disclosure of documents about the 2008 contaminated-heparin crisis. Baxter and Scientific Protein Laboratories LLC are fighting a civil mass tort lawsuit alleging deaths and injuries from imported Chinese heparin in 2007 and 2008. A company that isn't party to that lawsuit says some of the information Baxter and SPL want to keep confidential is important to public health and drug safety, and could reveal information about the sources of toxic heparin in the Chinese supply chain. The two companies want to keep under seal portions of depositions taken in the case, including those related to Momenta Pharmaceuticals Inc., which helped the U.S. government investigate the contamination. Baxter and SPL say they will be hurt if forced to disclose proprietary information. They have denied that they were negligent in the deaths linked to the blood-thinning drug, widely used in cardiovascular and other conditions. </blockquote> So, <blockquote>On Aug. 3, federal Judge James Carr in Toledo, Ohio, ruled in favor of the confidentiality motion by Baxter and SPL.</blockquote> On the other hand, there are arguments, admittedly by parties with relevant financial interests, for making more information public: <blockquote>Last Friday, another company entered the fray, contending that the information in the depositions shouldn't be sealed. Amphastar Pharmaceuticals Inc. said public health could benefit if the depositions shed light on circumstances in China. Amphastar, which has been competing with Momenta for approval to make a newer and more expensive form of heparin, said the information is also important to a congressional investigation into the Food and Drug Administration's handling of the heparin crisis. Republican leaders of a House committee say the FDA failed to trace the contamination in the Chinese heparin supply chain. On July 23, the FDA granted approval to Momenta to make the special heparin called enoxaparin, while Amphastar's application remains on hold. Amphastar said in its court filing that the 'serious safety concerns' involving heparin are relevant to enoxaparin because heparin is the starting material of enoxaparin's active ingredient. Most U.S. heparin supplies come from China.</blockquote> Of course, the companies who want to keep as much about the case secret as they can are not talking about it: <blockquote>Lawyers for Baxter and SPL declined to comment on their efforts to restrict information related to Momenta. They referred inquiries to Baxter, whose spokeswoman declined to comment.</blockquote> So here is more about what we do not know about the deadly contaminated heparin from China. One reason that this case has remained so <a href="http://hcrenewal.blogspot.com/search/label/anechoic%20effect">anechoic</a> is that the companies that sold and processed the contaminated heparin, and are now defendants in lawsuits have used that situation as a rationale for keeping "proprietary" information secret.  There clearly may be reasons that Baxter International, the company that sold the heparin under their (formerly?) prestigious US label  wants to keep secret the details about what efforts it did or did not make to assure that the heparin it sold was pure and unadulterated. There clearly also may be reasons that Scientific Protein Laboratories LLC, the US based company that sold the heparin API to Baxter wants to keep secret the details about what efforts it did or did not make to assure that the heparin API was pure and unadulterated.  The ability of participants in lawsuits to keep "proprietary" information secret clearly adds to the <a href="http://hcrenewal.blogspot.com/search/label/anechoic%20effect">anechoic effect</a>.  Ironically, it may be that civil legal action, which is sometimes the only way to impose negative consequences on health care organizations that have misbehaved, may have the adverse effect of further hiding information about the events in question.  However, to promote the safety of individual patients and the health of public, and to prevent another deadly case of drug contamination, understanding details about what happened is absolutely vital. The private pecuniary interests of Baxter International and Scientific Protein Laboratories LLC seem to be directly opposite to those of patients, physicians, and the public at large in this case. It is therefore disquieting to learn that the companies' wishes to keep information they declare is "proprietary" seem to have trumped individual patient safety and public health concerns. (Note that these concerns go beyond the commercial concerns of Amphastar Pharmaceutical, although in this case the pecuniary interests of that company do not seem to be opposed to patient safety and the public health.) If we really want a health care system that improves the health of individuals and the public, we need it to put health and safety concerns ahead of the incomes of health care corporations.  That such a statement seems not a platitude, but revolutionary is a mark of how our health care system has been turned on its head. Case Summary In summary, Baxter International imported the "active pharmaceutical ingredient" (API) of heparin, that is, in plainer language, the drug itself, from China. That API was then sold, with some minor processing, as a Baxter International product with a Baxter International label. The drug came from a sketchy supply chain that Baxter did not directly supervise, apparently originating in small "workshops" operating under primitive and unsanitary conditions without any meaningful inspection or supervision by the company, the Chinese government, or the FDA. The heparin proved to have been adulterated with over-sulfated chondroitin sulfate (OSCS), and many patients who received got seriously ill or died. While there have been investigations of how the adulteration adversely affected patients, to date, there have been no publicly reported investigations of how the OSCS got into the heparin, and who should have been responsible for overseeing the purity and safety of the product. Despite the facts that clearly patients died from receiving this adulterated drug, no individual has yet suffered any negative consequence for what amounted to poisoning of patients with a brand-name but adulterated pharmaceutical product. (For a more detailed summary of the case, look <a href="http://hcrenewal.blogspot.com/2010/05/more-questions-no-answers-about-case-of.html">here</a>.)

"Proprietary Information," Confidentiality Motions, and the Anechoic Effect; the Case of the Contaminated Heparin

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17 Aug 2010

St. Vincent's Goes Bankrupt, Executives Earn Millions

St. Vincent's Hospital in the Greenwich Village section of New York City was a landmark institution which filed for bankruptcy in April, 2010, and then closed its doors.  Background A New York Times <a href="http://www.nytimes.com/2010/02/03/nyregion/03vincents.html">article</a> written earlier this year described an institution "threatened with extinction" because it stuck to its mission of "compassionate care" in a health care environment that values "fancy equipment and celebrity doctors."  Thus, "officials blamed a high rate of poor and uninsured patients as well as cuts in Medicare and Medicaid and the hospital's inability to negotiate favorable contracts with health insurance companies...."  Painting Another Picture However, a <a href="http://www.nypost.com/p/news/local/manhattan/doctored_books_Vz0s07aQjbaZW2pix1N85M">story</a> this week in the grittier New York Post painted a different picture: <blockquote>St. Vincent's Hospital was looted by execs and consultants in the two years before it closed, then grossly exaggerated its debt, according to blockbuster papers set to be filed tomorrow in Manhattan Supreme Court. The filing, a petition that seeks to force the state Health Department to turn over documents on the closing, says the defunct medical center blew through millions in 'highly questionable' expenses, including $278,000 for a golf outing, while paying its top 10 executives a combined $10 million a year. It also shelled out $17 million for 'management consultants,' $3.8 million on 'professional fund-raising' and a staggering $104 million on unspecified costs it listed simply as 'other' on its federal tax returns, the petition says. But even with all that money going out, St. Vincent's wasn't nearly as cash strapped as it claimed, say the court papers, prepared by a law firm working for doctors and nurses formerly employed there and the hospital's West Village neighbors. Its crushing debt of about $1 billion, which the hospital blamed for having to close its doors in April, was bloated by hundreds of millions of dollars in loans dumped on St. Vincent's from other medical entities run by the Archdiocese of New York, starting in 2001, after the other institutions merged with the hospital, the papers say. 'The debt of the hospital was specifically exaggerated by numerous factors, including the transfer of debt from other Catholic medical centers and mismanagement by the board of directors,' the documents say. 'These transfers . . . remain undisclosed to the public.'</blockquote> Historical Parallels These accusations parallel themes that appeared towards the end of the February, 2010, NY Times piece. First, regarding the transfer of debt: <blockquote>To remain competitive, in 2000 St. Vincent’s merged with several other Catholic hospitals to form St. Vincent Catholic Medical Centers. Along with the flagship hospital in the Village, it ran seven other hospitals: Bayley Seton and St. Vincent’s on Staten Island; Mary Immaculate, St. John’s and St. Joseph’s in Queens; St. Mary’s in Brooklyn; and St. Vincent’s Westchester, in Harrison, N.Y. It was also affiliated with St. Vincent’s Midtown, formerly St. Clare’s, in Midtown Manhattan. The merger was conceived as a way to streamline management and give the hospitals pricing leverage, but it was troubled from the beginning. After closings and sales, the network was left with just one New York City hospital, the flagship; a psychiatric and substance abuse treatment hospital in Westchester; and several nursing homes and other outpatient facilities. Some of St. Vincent’s debt was inherited from the closed hospitals. </blockquote> Second, regarding mismanagement: <blockquote>In 2004, St. Vincent’s turned over management to Speltz & Weis, the first in a series of turnaround consultants. It paid the firms millions of dollars a year to run the hospital and hired their officials as hospital executives. The system filed for Chapter 11 bankruptcy protection in early July 2005, when it appeared, according to court papers filed by hospital creditors, that it would be unable to make its payroll. In a lawsuit filed in 2007, some of the hospital’s creditors painted a picture of a hospital system trapped between unscrupulous consultants and a passive or gullible board. The lawsuit accused David E. Speltz and Timothy C. Weis, the hospital system’s former chief executive and chief financial officer, of delaying the bankruptcy organization while they and their consulting firm collected millions of dollars in fees. The lawsuit accused them of hiring high-priced contractors and padding their fees, instead of using hospital employees to do work. And it says they leveraged their positions with the hospital to negotiate the sale of their consulting company to Huron Consulting Group, in Chicago, also a defendant in the case. </blockquote> The outcome of that earlier lawsuit was unclear.  It does suggest that St. Vincent's may have been chronically bled by greedy managers and consultants. Contrasting Financial Health and Executive Compensation Of course, as one of our unofficial legal consultants noted, anyone can file a lawsuit. However, perusal of the latest <a href="http://www.guidestar.org/FinDocuments/2008/134/077/2008-134077996-057ea950-9.pdf">990 form</a> filed with the Internal Revenue Service by St Vincent Catholic Medical Centers for calendar year 2008 did reveal a disquieting contrast. That form stated that the the hospital lost over $65 million in 2008, and over $34 million in 2007. However, in 2008, here were the compensation of its highest paid managers - Brian Fitzsimmons, Executive Director, $2,135,401 - Bernadette Kingman-Bez, Senvior Vice President, CCO (?), $1,520,841 - Paul Rosenfeld, Executive Director, CC, $1,196,458 - Henry Amoroso, CEO, $1,081,592 In addition, seven current and former executives at the Senior Vice President of Vice President level earned over $500,000 that year, and another 13 earned over $250,000. Summary So clearly, while the hospital was hemorrhaging money, and a little more than a year away from bankruptcy, this not-for-profit hospital whose mission emphasized serving the poor served a large corps of  executives very large amounts of money.  So we see again the pattern of top managers rewarding themselves disproportionately (here, grossly so) given the mission and financial status of their organizations.  The picture is of pay entirely independent of performance, and leaders who are ultimately only in it for the money. How many more examples like this do we need until there is resolve that real health care reform will make top health care leaders accountable for their performance, and provide them incentives that are fair and rational, rather than perverse? Post-Script Of course, if we regard the fall of institutions whose mission was to do good as inevitable in our Darwinian world, an explanation that earlier coverage of this story suggested, all we can do is to throw our hands up.  However, the inevitability argument is often made by those who are benefiting from the current way of doing things.  A more skeptical view of this case, and related health policy issues, may suggest a different approach.

St. Vincent's Goes Bankrupt, Executives Earn Millions

St. Vincent's Hospital in the Greenwich Village section of New York City was a landmark institution which filed for bankruptcy in April, 2010, and then closed its doors. BackgroundA New York Times ar…

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16 Aug 2010

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