healthy4u

London Ambulance Service: Would You Like Some Death And Mayhem With Your American Healthcare IT?

It seems American companies are good at producing really noisome commercial healthcare IT and foisting it on other countries, such as outlined at "<a href="http://www.ischool.drexel.edu/faculty/ssilverstein/cases/?loc=cases&sloc=granger_speaks_out">Is clinical IT mayhem good for [the IT] business? UK CfH leader Richard Granger speaks out</a>" and at "<a href="http://hcrenewal.blogspot.com/2010/08/cerners-blitzkrieg-on-london-wheres-raf.html">Cerner's Blitzkrieg on London: Where's the RAF?</a>". Yet another example: Software for the London Ambulance Service (LAS). From <a href="http://en.wikipedia.org/wiki/London_Ambulance_Service">Wikipedia</a>: <blockquote> The London Ambulance Service NHS Trust (LAS) is the largest "free at the point of contact" emergency ambulance service in the world. It responds to medical emergencies in Greater London, England, with its ambulances and other response vehicles and over 5,000 staff at its disposal. </blockquote> Thanks to the U.S., the inhabitants of London are now the unconsenting subjects of an American IT beta-testing experiment that could cost them their lives. From E-Health Insider.com: <a href="http://www.ehi.co.uk/news/acute-care/7480/las-plans-for-it-go-live-and-failure"></a><blockquote><a style="font-weight: bold;" href="http://www.ehi.co.uk/news/acute-care/7480/las-plans-for-it-go-live-and-failure">LAS plans for IT go-live and failure</a> E-Health Insider.com <div style=" padding-bottom: 10px;font-size:0.9em;"> 25 January 2012 Shanna Crispin </div> <div style="float: right; margin-top: 3px; margin-left: 15px; margin-bottom: 10px;"> </div> London Ambulance Service NHS Trust may terminate its contract with American supplier Northrop Grumman if a second attempt to go-live with a new dispatch system fails. The trust initially attempted to launch the CommandPoint computer aided dispatch system in early June last year. However, the technical switch-over to the new system had disastrous effects; with the system failing, staff having to use pen and paper, and then finally aborting the go-live by reverting to the old CTAK dispatch system.</blockquote> Health IT can kill you ever before you ever reach the hospital... <blockquote>An investigation into the incident has found the response to calls was delayed by more than three hours in some cases. One patient has lodged a legal claim for the delay he experienced, and the service has received four additional complaints. A patient died in one of the calls affected. However, a separate investigation concluded that it could not be determined whether they would have survived if the response had been faster.</blockquote> In other words, the patient very well might have survived without long delays for the ambulance to arrive. <a target="_blank" href="http://www.londonambulance.nhs.uk/about_us/how_we_are_run/trust_board/board_papers_-__2012.aspx"></a><blockquote><a target="_blank" href="http://www.londonambulance.nhs.uk/about_us/how_we_are_run/trust_board/board_papers_-__2012.aspx">Board papers drawn up for a board meeting next week </a>say an investigation into the 8 June go-live attempt concluded that critical configuration issues were not identified during the testing phase. It also found there were no operational procedures in place in the event of a critical system failure and that the product failed to deliver the system, technical and operational functionality expected. </blockquote> At least in this case an absolution for the software itself was not made. One wonder if the vendor was "held harmless" contractually for this somber outcome. <blockquote>The trust has since been working to further test the system, and is planning to go-live again on 28 March. However, the trust’s director of information management and technology, Peter Suter, said if that go-live failed then “the contract with Northrop Grumman would need to be reconsidered.”</blockquote> That will make two chances to get it right. In life-critical IT, I would only have given one. A defective first-responder system is, on first principles, a public health menace. There is nothing to argue here, nothing to discuss on that point. I note that disrupting the first-responder system in London would be the envy of terrorists, especially at the time of the <a href="http://en.wikipedia.org/wiki/2012_Summer_Olympics">London 2012 Olympic Games</a>. However, who needs them when you have U.S. IT personnel who create a system as described? <blockquote>The trust completed testing the software prior to Christmas, when it began training staff. Leading up the March go-live, the software will be subjected to four separate live runs, with the system staying live for progressively longer periods of time. If the system fails to go live in March, the trust will abandon any further attempts to go-live before the Olympics in July.</blockquote> That's still very tight timing to discover all the bugs in an IT system, in preparation for expected increased need during the Olympics... <blockquote>Instead, it will keep operating the current CTAK system. However, the trust decided to procure a new system in 2007 because CTAK was deemed ‘unstable’ and in need of replacement. An analysis of the CTAK system has now determined it is stable enough to handle the increased pressure during the Olympics, which is estimated to be an increase of 5.6% to 8.9% on top of the usual volume for this time of year.</blockquote> One wonders if the "new system" was not needed at all, but was instead sold as vaporware by impressively attired, good-haired, shiny-toothed, fast-talking salespeople to hapless decision-makers with all sorts of promises of cybernetic and financial miracles. (I've been in that game before from both sides - as a potential customer, and as part of a health IT sales team.) One also wonders if, should the system be dismantled due to a second failure, the British taxpayers who paid for it will get their tax dollars refunded. -- SS

London Ambulance Service: Would You Like Some Death And Mayhem With Your American Healthcare IT?

It seems American companies are good at producing really noisome commercial healthcare IT and foisting it on other countries, such as outlin...

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"Conspiracy Theory" Proven - Taking UCSF Private

Students and faculty at the University of California have come up with a vivid, and prescient example of how the hired executives and bureaucrats have taken over higher and health care education.  "Run in the Interests of the Administration" Two weeks ago, the Orange County Register <a href="http://www.ocregister.com/news/faculty-334335-tuition-system.html">reported</a>: <blockquote>Over the past few months, the University of California has raised undergraduate tuition by 18 percent, awarded raises of as much as 23 percent to a dozen high-ranking administrators and announced a possible 81 percent tuition increase over the next three years. Students haven't taken the news well. At campus rallies across the state, thousands of students and their faculty supporters have decried the actions, staging raucous rallies and 'Occupy'-style sit-ins that in some cases have ended in clashes with law enforcement. They've also descended en masse on UC regents' meetings, disrupting proceedings and even forcing officials to retreat to a private room. Behind the angry chanting and acts of civil disobedience is a growing sense that the 10-campus UC system is no longer a public institution accessible to the middle class, but rather a sprawling bureaucracy of hospitals and auxiliary research institutions buffeted by an ever-expanding roster of administrators. The problem, as the student activists see it, is that none of these functions translates directly into expanded course offerings or improved student-to-faculty ratios, even as their tuition dollars help sustain the system. 'The university is now being run in the interest of the administration,' said UC Irvine student activist Anne Kelly, a Ph.D. candidate in earth system science. 'They're promoting their own internal growth, asking us to sacrifice with higher tuition – but administrators have had raises.'</blockquote> In higher education, as well as in health care education and in health care in general, the pattern is the same: rising costs without any obvious increase in quality or quantity of services. As in health care, however, the pain never seems to extend to administrators/ managers/ bureaucrats/ executives. Worse, as their numbers grow, these insiders seem to run organizations more for their own benefit, and less for the mission. One Manager Per Faculty Member Furthermore, UC faculty have data: <blockquote>The students' growing frustration is fueled by UC employment data that show that almost three-fourths of UC's 152,500 employees last year were designated 'non-academic personnel,' according to an annual UC employment report. In the report, UC characterizes the growth in its non-academic staff as the inevitable byproduct of 'an increasingly complex university system that 'requires greater professionalization of its staff, who must meet higher technical and competency standards.' Non-academic personnel includes everyone from custodians and food-service workers to accountants and plant operators. [The question begged is whether it was the managers and executives that caused this complexity - Ed.] UC Davis horticulture researcher Richard Evans, who has independently analyzed UC personnel data, offered a different take on the data, publishing a tongue-in-cheek piece for UC faculty in 2010 entitled 'Soon every faculty member will have a personal senior manager: Is this a good way to spend money?' 'Data available from the UC Office of the President shows that there were 2.5 faculty members for each senior manager in the UC system in 1993,' Evans wrote in his piece. 'Now there are as many senior managers as faculty. Just think: Each professor could have his or her personal senior manager.' In his analysis, Evans compared the number of UC employees classified as either 'senior management' or 'managers and senior professionals' with the number of tenure-track UC faculty members. As of spring 2011, UC employed 8,144 senior managers, managers and senior professionals, and 8,521 tenure-track faculty members, according to the latest available UC data.</blockquote> This pattern is similar to that seen in some data we discussed a long time ago about the ever rising numbers of administrators/ managers/ bureaucrats/ executives in health care.  In 1988, Alain Enthoven advocated in <a href="http://www.amazon.com/gp/product/0444703594/102-6581115-0444916?n=283155">Theory and Practice of Managed Competition in Health Care Finance</a>, a book published in the Netherlands, that to decrease health care costs it would be necessary to break up the "physicians' guild" and replace leadership by clinicians with leadership by managers (see 2006 post <a href="http://hcrenewal.blogspot.com/2006/03/consequences-of-breaking-physicians.html">here</a>). Thus from 1983 to 2000, the number of managers working in the US health care system grew 726%, while the number of physicians grew 39%, so the manager/physician ratio went from roughly one to six to one to one (see 2005 post <a href="http://hcrenewal.blogspot.com/2005/04/growing-proliferation-of-managers.html">here</a>). Health care went from being controlled by clinicians to controlled by a growing volume of managers.  Most of these managers were generic, in that they had little if any knowledge of, experience in, or sympathy to the values of health care. These generic managers have used the same techniques advocated for the management of supermarkets or automobile manufacturers to manage health care organizations, despite all the obvious differences in context, goals, values, and people involved. A "Conspiracy Theory" About the Privatization of the University At the University of California, the Register reported that there is a "conspiracy theory" about the next step to increase the domination of the managers: <blockquote>The salaries and size of UC's administrative staff, in particular, have fueled conspiracy theories among students and faculty that the system has deliberately sought to 'privatize' itself – in other words, to compete with private universities on all fronts, from the scope of its non-instructional programs to executive compensation to the amount of tuition that students pay. Three years ago, the head of a UC faculty group advanced the privatization theory in a multi-part series called 'They Pledged Your Tuition.'</blockquote> Of course, the administrators denied, sort of, anything so far-fetched: <blockquote>For its part, UC denies all such allegations, saying that while the university has arguably become privatized, outside influences beyond its control are entirely to blame. "It is not something we advocate, not something we want,' Klein said. But, 'he added, 'times have changed; the economic model has changed.'</blockquote> Not Just a "Conspiracy Theory" - UCSF Chancellor Advocates Privatization It only took two weeks, however, for the notion of administrators taking the university private to go from "conspiracy theory" to official plan. Yesterday, the San Francisco Chronicle <a href="http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2012/01/19/MNF11MR2KE.DTL">reported</a>, <blockquote>UCSF Chancellor Susan Desmond-Hellmann told the regents, delicately, that she wants out. Under her proposal, UCSF's medical school, hospital, clinics and research facilities would remain a public university connected to UC, the chancellor assured the regents. But the tendrils connecting the two entities should be thinner than they are today. Desmond-Hellmann said she envisions a relationship like those of UC Hastings College of the Law, Lawrence Livermore National Laboratory and Lawrence Berkeley National Laboratory, which contract with UC for health and pension services. While ultimately accountable to the regents, they are autonomous with their own boards of directors. Referring to 'alternative governance models' and 'examining UCSF's financial relationship with UC,' the chancellor and campus executives talked of their ambition to become the world's leading innovator in the health field - a goal better achieved, they hinted, without the rest of the university weighing it down.</blockquote> To <a href="http://hcrenewal.blogspot.com/">Health Care Renewal</a> readers, that UCSF would be proposed as the first part of the University of California to privatize should not come as a shock. After all, Chancellor Desmond Hellmann came not from academia, but from the world of for-profit biotechnology. She was a former president for drug development for Genentech. Two and one half years ago I <a href="http://hcrenewal.blogspot.com/2009/05/bio-tech-u.html">suggested</a> that "hiring a lavishly compensated top executive from a biotech firm known for its high drug prices to run a public health sciences university does considerably blur the line between academic medicine and the health care industry." Furthermore, three months ago I <a href="http://hcrenewal.blogspot.com/2011/10/logical-fallacies-to-support-putting.html">noted</a> that Dr Desmond Hellmann seemed be advocating that the university's focus turn to product development, so that it would start to emulate a contract research organization. Now it appears that Dr Desmond Hellmann wants to traverse the line between government and the private sector, so that the organization could "make a ton of money," and "focus on spinning innovations into business deals," according to the San Francisco Chronicle. What any of this has to do with the university's fundamental mission to discover and disseminate knowledge, and with this health care university's mission to take the best possible care of its patients is not clear. Summary Turning UCSF into a private, quasi contract research organization might conceivably yield some good research and drug development. Why a formerly academic organization would be better at this than a purpose-built CRO is hardly proven. Whether UCSF recast as a CRO would yield better research, leading to better patient outcomes than would have resulted if it continued as a state government sponsored health care university is also hardly proven. Turning UCSF into a quasi CRO, however, would likely be very much in the self-interest of its administrators/ managers/ bureaucrats/ executives who would be freed from any constraints on their incomes, and the disclosure of same that were previously obligated by the messy representative democracy to which they formerly had to answer. On the other hand, it is hard to conceive of how such a privatization would be good for students or patients. In fact, it is not the least bit clear why a medical, nursing, or other health professional student would want to study within what would basically be a contract research organization. It is also unclear whether patients seeking care from such an organization could trust it to put their interests, rather than the organization's revenue and the self-interest of its administrators/ managers/ bureaucrats/ executives first. We are now a good 30+ years into our ill-fated American experiment about the effects of turning medicine commercial and making health care a commodity. So far, it has yielded the highest costs in the world, but declining access, mediocre quality, and demoralized professionals. Turning one of our once proud and  prestigious state government sponsored academic medical institutions into a private contract research organization would be a powerful symbol of our final national health care decline. Let us hope that the students and faculty whose "conspiracy theory" about privatization proved true will now mount a more effective protest before UCSF falls into the muck.

"Conspiracy Theory" Proven - Taking UCSF Private

Students and faculty at the University of California have come up with a vivid, and prescient example of how the hired executives and bureau...

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Hospital IT Department Attitudes on Clinicians

A quasi-satirical but actually quite serious post: As exemplified by my posts at my 12-year-old HIT difficulties site <a href="http://www.ischool.drexel.edu/faculty/ssilverstein/cases/">at this link</a>, and much feedback from clinicians, informaticists, and others, the picture below speaks for itself about the apparent attitudes of health IT vendor and hospital IT departments towards clinicians. (And, by implication, towards patients - you - and patient safety): <div style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhBD3OdNVKfSsaVqW9CkRirE26GDd06ANwXoz2nTaoS2jb_As6nepM9SR1z6im9xreGRt91Vh2gYFrUrqHklJ1Mpz2TIWM69mM2SIKmyq4ebbGZIZjZmf85IabF6n6srbk6yL0TUMvR0DBW/s1600/outhouse.jpg"><img alt="" border="0" id="BLOGGER_PHOTO_ID_5699847522730845202" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhBD3OdNVKfSsaVqW9CkRirE26GDd06ANwXoz2nTaoS2jb_As6nepM9SR1z6im9xreGRt91Vh2gYFrUrqHklJ1Mpz2TIWM69mM2SIKmyq4ebbGZIZjZmf85IabF6n6srbk6yL0TUMvR0DBW/s320/outhouse.jpg" style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 257px; height: 393px;" /></a></div><div style="text-align: center;">(Click to enlarge) </div> Enough said. -- SS

Hospital IT Department Attitudes on Clinicians

A quasi-satirical but actually quite serious post: As exemplified by my posts at my 12-year-old HIT difficulties site at this link , and muc...

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The Very Latest Health IT "Glitch" - British MP Says No to Cerner

It's just a glitch: <a href="http://www.ehi.co.uk/news/acute-care/7471/bacon-calls-for-halt-on-millennium"></a> <blockquote><a href="http://www.ehi.co.uk/news/acute-care/7471/bacon-calls-for-halt-on-millennium">Bacon calls for halt on Millennium</a> e-Health Insider.com 19 January 2012 Conservative MP Richard Bacon has called for a halt to all Cerner Millennium deployments following appointment problems and delays at the latest trusts to go-live with the system - North Bristol and Oxford. Bacon, who has followed the progress of the National Programme for IT in the NHS [NPfIT - ed.] for many years, said the two hospitals had been “brought to their knees” by the implementation of the new electronic patient record system. “These deployments need to be stopped until we are sure that they can be managed safely,” he said; adding that the system should be "switched off" if it was not working for patients. North Bristol NHS Trust and Oxford University Hospitals NHS Trust said they are working through some deployment issues, but denied that patient safety has been compromised. [There's that 'safety has not been compromised by major IT system disruptions' line again - see <a href="http://hcrenewal.blogspot.com/2012/01/another-our-crappy-computers-screwed-up.html" style="font-style: italic; font-weight: bold;">here</a> - ed.] However, Oxford University Hospitals told eHealth Insider that it has had to bring in extra staff to help it overcome some “temporary problems while the new system beds in.” Bacon said local news reports indicated that the trust was having serious difficulties booking patients in for treatment. The Oxford Mail has reported that problems were so bad before Christmas that the trust had to suspend its parking charges as clinics over-ran by hours. ... Bacon, who was instrumental in triggering last year’s National Audit Office and Commons’ public accounts committee inquiries into the programme, said the NHS should never have been locked into buying software that was “unreliable” and “unreasonably expensive." “Effective, affordable and robust IT systems are vital to the future of the NHS, but it is clear that the fiasco that is the national programme cannot deliver them,” he said this morning. He called for “a halt” to new Cerner Millennium deployments, including that at Imperial College Healthcare NHS Trust, which is being undertaken by BT as the local service provider for London, and that at Royal Berkshire NHS Foundation Trust, which went outside the national programme more than two years ago. [More typical hospital executive-style excuses and spin control follow]</blockquote> Readers, I won't bore you with the rest of the excuses, pleadings for special accommodation, etc. You've heard them all already on this blog. However you can read them at the link above if you so desire. -- SS

The Very Latest Health IT "Glitch" - British MP Says No to Cerner

It's just a glitch: Bacon calls for halt on Millennium e-Health Insider.com 19 January 2012 Conservative MP Richard Bacon has called for...

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Harvard Psychiatry Fails Again

HARVARD PSYCHIATRY FAILS AGAIN About a year ago I remarked upon the ethical tone deafness that characterizes Harvard psychiatry. It is bad enough that Harvard-MGH is the home of Joseph Biederman, MD, with whom Senator Grassley had so much fun a while back. Biederman is still <a href="http://www.margaretsoltan.com/?p=34605">in the news</a>. It is also the home of Andrew Nierenberg, MD, who was rash enough to take on <a href="http://www.nybooks.com/articles/archives/2011/jun/23/epidemic-mental-illness-why/?pagination=false">Marcia Angell</a> in the New York Review over her well founded criticisms of the hyping and misuse of psychiatric drugs. In <a href="http://www.nybooks.com/articles/archives/2011/aug/18/illusions-psychiatry-exchange/">response</a>, Dr. Angell handed Dr. Nierenberg his head. Biederman and Nierenberg are not the only ones. When I <a href="http://hcrenewal.blogspot.com/2010/12/impeachment-its-about-institution-not.html">called</a> one of the senior Harvard professors, Carl Salzman, MD, to task for signing up a pair of compromised key opinion leaders as speakers in his annual Psychopharmacology Master Class last spring, I hoped the ensuing negative publicity would persuade him to go in a different direction next time. No such luck! Today I saw the <a href="http://cme.hms.harvard.edu/index.asp?SECTION=CLASSES&ID=03224280&SO=N">flyer</a> for the 2012 Harvard Psychopharmacology Master Class. The list of speakers is virtually unchanged from a year ago. There is Charles Nemeroff. There is Alan Schatzberg. Both were outed by Senator Grassley’s investigation in 2008, and both were subjected to major administrative sanctions, by Emory University and by Stanford University. Other people now occupy the departmental leadership chairs they held in 2008. There also is a group of other <a href="http://cme.hms.harvard.edu/index.asp?SECTION=CLASSES&ID=03224280&SO=N">key opinion leaders</a> who appear content to endure the taint of sharing the podium with the compromised Nemeroff and the compromised Schatzberg. What are they thinking? For that matter, what is the course director Carl Salzman thinking? A year back he said Nemeroff and Schatzberg would give great talks and that he would ensure they were objective and impartial. That’s not the point. The point is that they brought dishonor on our field, and for Harvard Medical School to give them this platform amounts to compartmentalizing information in service of their public rehabilitation. To repeat what I said a year ago, Adolph Hitler also gave a lot of speeches that received rave reviews, and compartmentalized information was widespread in the nation of Germany between 1928 and 1945. The best one can say about the upcoming course is that Biederman and Nierenberg are not on the program. The Augean stables of psychiatry, at Harvard and nationwide, will not be flushed clean by the Carl Salzmans of our field, quibbling over legal technicalities while failing to see the ethical elephant in the living room. For how long will the grownups at Harvard Medical School allow this farce to continue?

Harvard Psychiatry Fails Again

HARVARD PSYCHIATRY FAILS AGAIN About a year ago I remarked upon the ethical tone deafness that characterizes Harvard psychiatry. It is bad e...

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EHR Lowers Costs By 33% ... Oh ... Wait A Minute ... We Retract That Statement

There's this: <blockquote> <a href="http://www.beckershospitalreview.com/healthcare-information-technology/blue-cross-blue-shield-of-ri-pilot-lowered-monthly-costs-by-up-to-33-through-ehrs.html">Blue Cross Blue Shield of RI Pilot Lowered Monthly Costs By Up to 33% Through EHRs</a> December 13, 2011 Becker's Hospital Review.com Sabrina Rodak Health plan members that received care from physician practices using electronic health records had an average of 17-33 percent lower monthly healthcare costs compared to members receiving care at non-EHR physician practices, according to a news release by Blue Cross & Blue Shield of Rhode Island. BCBSRI conducted a three-year pilot program that partially funded 79 primary care physicians to purchase and use EHRs. </blockquote> Then, there's this: <a href="http://www.fierceemr.com/story/blue-cross-backtracks-claim-ehrs-lower-care-costs/2011-12-22"></a><blockquote><a href="http://www.fierceemr.com/story/blue-cross-backtracks-claim-ehrs-lower-care-costs/2011-12-22">Blue Cross backtracks on claim that EHRs lower care costs</a> December 22, 2011 FierceEMR.com Dan Bowman A week after reporting that use of electronic health records <a href="http://www.beckershospitalreview.com/healthcare-information-technology/blue-cross-blue-shield-of-ri-pilot-lowered-monthly-costs-by-up-to-33-through-ehrs.html" target="_blank">lowered the cost of care for its customers</a> between 17 and 33 percent, Blue Cross Blue Shield of Rhode Island has backtracked on those claims. In an email sent to FierceEMR, BCBS/RI says that while the program significantly improved healthcare quality, its cost data had not been risk adjusted and did not include costs related to infrastructure spending. "At this time we are unable to accurately ascertain the cost implications of the pilot and are retracting the news release," the email reads. BCBSRI updated its announcement, which can be found <a href="http://www.fiercehealthit.com/press-releases/blue-cross-blue-shield-rhode-island-electronic-health-record-program" target="_blank">here</a>. </blockquote> I note the following: <ul><li>Healthcare organizations, HIT pundits and vendors seem happy to promote EHR's as saving a great deal of money. I do not believe they ever will. (I have company, such as at <a href="http://hcrenewal.blogspot.com/2009/06/wharton-on-healthcare-it-can-i-go-home.html">Wharton</a>.)</li></ul><ul><li>One can only wonder what led to the retraction of a press release based on a curbstone data analysis, as cited above. Internal dissent, perhaps?</li></ul><ul><li>Healthcare IT, as in this pilot study, can improve healthcare quality metrics (outcomes is another matter as yet undecided as illustrated by <a href="http://hcrenewal.blogspot.com/2011/02/updated-reading-list-on-health-it.html">this reading list</a>) - but only if done well, a remarkably complex undertaking. That undertaking starts at conception and design, to production, to implementation, to customization, to maintenance of software and hardware during the system lifecycle. See <a href="http://www.nlm.nih.gov/pubs/reports/comptech_prepub.pdf">this report</a> by the U.S. National Research Council.</li></ul><ul><li>When healthcare IT is done poorly, it will neither reduce costs, nor improve outcomes, and will increase risk to patients.</li></ul><ul><li>The current <a href="http://www.ischool.drexel.edu/faculty/ssilverstein/cases/?loc=cases&sloc=ecosystem">ecosystem of commercial health IT</a> and its lack of true regulatory framework for these experimental devices can be counted upon to "do health IT poorly." </li></ul>-- SS

EHR Lowers Costs By 33% ... Oh ... Wait A Minute ... We Retract That Statement

There's this: Blue Cross Blue Shield of RI Pilot Lowered Monthly Costs By Up to 33% Through EHRs December 13, 2011 Becker's Hospital...

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"Barbarians at the Gate" - Making Private Equity Less Private, and Understanding Its Effects on Health Care

One good byproduct of the tumultuous everlasting 2012 campaign for the US presidency has been to shed light on a number of political and economic issues that had previously been ignored, especially those relating to the global financial crisis or great recession.  In turn, many of these issues may be relevant to our understanding of our ongoing health care dysfunction.  The latest issue to achieve prominence was the nature of private equity firms.  Current presidential contender Mitt Romney used to work for Bain Capital, a private equity group.  As we discussed <a href="http://hcrenewal.blogspot.com/2012/01/us-presidential-candidates-financial.html">here</a>, Bain Capital owned a variety of companies, including some important health care corporations.  More importantly, attacks on Mr Romney's record at Bain by other candidates have lead to a broader discussion of the nature of private equity.  This discussion is very relevant to health care, since private equity firms have taken over a number of important health care corporations, and more recently, have begun to take over formerly non-profit health care organizations. Therefore, we will summarize what has become known about private equity, and then consider its implications for health care. Understanding Private Equity as Re-Branded Leveraged Buy-Out Firms - Private Equity Firms are Just Re-Branded Leveraged Buyout Firms The first good statement to this effect I found was by Merrill Goozner in the Fiscal Times(1): <blockquote>Private equity is actually a misnomer, since the modus operandi of those investors is no different than the leveraged buyout firms that pioneered junk-bond financing in the 1980s. </blockquote> As reported by the Los Angeles Times(2): <blockquote>'Being known as a leveraged-buyout-deal shop wasn't the most attractive label out there,' said Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Dartmouth's Tuck School of Business. 'Private equity has a much nicer ring to it.'</blockquote> In fact, according to Forbes columnist Robert Lenzer,(3) the famed investor Warren Buffet called this re-branding <blockquote>'Orwellian': Buffett wrote that 'private equity' is a 'name that turns facts upside-down: A purchase of a business by these firms almost invariably results in dramatic reductions in the equity portion of the acquiree’s capital structure compared to that previously existing.'</blockquote> I must admit I always thought private equity firms simply collected large amounts of capital from investors, then used the pooled capital to buy out troubled firms. I assumed that because these investors therefore had a large personal stake in these firms, they would want to increase at least their financial value. I also thought that leveraged buy-out firms ceased to exist after all the bad press they got in the 1980s. It turns out I was wrong on all counts. Probably, a lot of other peoples' beliefs about private equity were similarly wrong. Once the equation of private equity and leveraged buyout firms is made, understanding what they do and its implications are easier. - Leveraging the Buy-Out The modus operandi of leveraged buyout firms is to make their purchases of troubled corporations mainly with borrowed money. As Merrill Goozner put it(1), <blockquote>Private equity firms generally finance anywhere from 60 to 90 percent of their purchases with borrowed cash. </blockquote> Note that, <blockquote>Interest payments on those debts are treated just like any other expense, and are therefore deductible from earnings.</blockquote> - Then Leveraging the Acquired Company If this leveraging were the only leveraging done in a leveraged buy-out, the implications might not be that big, except for the acquiring firm. After all, when the leveraged buy-out firm borrows the money, it then becomes obligated to pay it back. However, then comes the tricks. One important trick was described in the following example by economist Dean Baker on the Beat the Press blog(4), <blockquote>To take a simple example, suppose a public company (let's call it Gingrich Inc.), has $1 billion a year in profits. If Gingrich Inc. paid taxes at the full 35 percent rate (fat chance), it would have $650 million [thanks Robert] a year to either keep as retained earnings or to pay out as dividends to its shareholders. Now suppose that a PE company (we'll call it Romney Capital) steps in. The current price to earnings ratio in the stock market is around 14, so Gingrich Inc. would have a pre-takeover market value of approximately $9.2 billion (14*$650 million). Romney Capital then arranges for Gingrich Inc. to borrow $6 billion which it pays out as a dividend to itself. This means that the Romney Capital has just gotten back almost two-thirds of its investment.</blockquote> A somewhat less vivid description of the process appeared in a post by Robert K Lifton on the Huffington Post(5): <blockquote>Most often, in order to increase the return on capital invested by the fund, the fund will borrow a significant portion of the purchase price of the business. And sometimes, if it can, the fund will take back as a distribution immediately upon closing the purchase of the business, a portion of its investment in the purchase price, reducing its own investment and enhancing its return on the investment left in the business. This distribution may come from the company's existing cashable assets or from money that the company is caused to borrow.</blockquote> Thus, it appears that while the leveraged buy-out (or private equity) firm borrowed money to finance the purchase of a company, it can almost immediately get out of its obligation to pay off that loan, by making the acquired company its own loan, and using proceeds from that to end the LBO firm's debt. The leverage, and the obligation to pay back a debt has almost magically been transferred from the LBO or private equity firm to the acquired company. That has big implications, as Lifton wrote(5): <blockquote>This additional leverage also creates additional risk; if things don't go right the business will not be able to pay the carrying costs of the debt, the lender will take over the business and the fund will lose its investment. Sometimes, that results in the acquired company placed in bankruptcy proceedings either to liquidate its assets to pay off the debt or to restructure, a process Bain also experienced. </blockquote> - Selling Assets to Further Reduce the Private Equity Firm's Debt LBO firms have another trick up their collective sleeves. As Dean Baker continued his example(4), <blockquote>Now suppose that the Romney Capital arranges to sell off some of Gingrich Inc.'s assets, such as real estate or a highly profitable subsidiary, and then uses the proceeds to make a payment to the Romney Capital rather than leaving the money under the control of Gingrich Inc. Such sales may allow Romney Capital to recoup the rest of its investment and possibly more.</blockquote> Of course, the result is <blockquote>Gingrich Inc. is then left as a highly indebted company with few assets. In this story, Romney Capital may have earned a substantial profit on a limited investment (it recouped most of its money almost immediately when it loaded Gingrich Inc. with debt), without doing anything to improve the operation of Gingrich Inc. If Gingrich Inc. manages to stay in business and generate profits, then this will increase the return. Romney Capital may be able to resell the company and treat the whole sale price as profit. On the other hand, if Gingrich Inc. goes bankrupt, this will primarily be a problem for creditors, since Romney Capital has already gotten its investment back. In effect, Romney Capital might have secured large gains entirely by financial engineering, while creating no value whatsoever.</blockquote> Let me underscore that. The LBO model (now also the private equity model) enables the acquiring LBO firm to avoid any losses, by shifting all the risk and obligations to the acquired firms. This puts these firms at considerable jeopardy. - Tactics to Prepare Acquired Firms for Sale Of course, LBO/ private equity firms want to do more than not lose money. To make real money, they must be able to sell off the firms they acquire. To do so, they must make these firms, or their components, seem attractive, at least in the short term. To do this, they employ a standard set of tactics out of the generic management playbook. So, per the LA Times(2), <blockquote>layoffs are part of the playbook that elite investment firms use to squeeze cash out of struggling companies. </blockquote> Also, per Lifton(5), <blockquote>To increase the profits of the acquired company, the fund may reduce the number of employees, reduce pay levels or curtail work time.</blockquote> In addition, per Josh Barro writing for the Forbe blog(6), other tactics can include <blockquote>downsizing, increased automation, offshoring, and the like. </blockquote> - The Private Equity/ Leveraged Buy-Out Version of the Anechoic Effect It is striking that while Mitt Romney worked at Bain Capital in the last century, and private equity has been around, if not growing, since then, the current presidential campaign seems to be the first occasion which prompted any real public discussion about the nature of private equity, and its significance for the larger political economy. Thus private equity/ LBO seem to have been anechoic for a very long time (like much about how our current health care system operates seems to be <a href="http://hcrenewal.blogspot.com/search/label/anechoic%20effect">anechoic</a>.) This version of the anechoic effect seems to have been deliberately created by the private equity/ LBO firms. A Washington Post commentary(7) quoted Mitt Romney, <blockquote>You know I think it's fine to talk about those things in quiet rooms,...</blockquote> As a New York Times story(8) put it, these firms are lead by <blockquote>a group of Wall Street executives who prefer to operate out of the spotlight</blockquote> A story in Politico(9) called private equity/ leveraged buy-out firms <blockquote>one of the most secretive redoubts of the American economy</blockquote> The article went on to suggest that these firms may well have something to hide: <blockquote>Josh Kosman, author of 'The Buyout of America: How Private Equity Is Destroying Jobs and Killing the American Economy.' [said] 'Most private equity firms are because once you look behind the numbers, there is much they don’t want you to see.'</blockquote> Furthermore, <blockquote>Private equity companies often tend to have confidentiality agreements with their investors (Bain would not comment on what agreements it has). Several equity experts interviewed for this story thought any disclosures from Bain were likely to spook its investors. The private equity business model is based on taking companies out of the public markets, where reporting requirements are strict and investors punishing, making changes that will hopefully make them more profitable and then selling them or taking them public through an IPO. The part that happens behind the curtain is not always pretty, and private equity firms have learned over the years that it’s hard to tell a complicated story in the media. The goal of private equity is to keep things private. 'It’s had very little consciousness in the political realm until Romney came along because these guys are smart enough not to try to become Treasury secretaries,' said Bill Cohan, a former Wall Street banker-turned-investigative journalist who wrote 'Money and Power: How Goldman Sachs Came To Rule The World.'</blockquote> In addition, Dean Baker suggested that the confidentiality is used to hide how private equity/ leveraged buy-out firms remove capital from acquired companies(4), <blockquote>The sort of asset stripping described here, which harms creditors by taking away potential collateral for their loans, violates the law. However it is extremely difficult to prevent, especially with private equity companies that have to make few public disclosures.</blockquote> Thus secrecy/ confidentiality/ deception should be regarded as one of the main tactics used by private equity/ leveraged buy-out firms. Implications for Health Care Mitt Romney's candidacy has generated a surprising amount of discussion about the effects of private equity/ leveraged buy-out firms on the political economy. Many are worried that despite his claims, such firms cause more job loss than job creation. In the Huffington Post(10), Robert Creamer wrote that private equity/ LBOs have contributed to the sense that ordinary people who play by the rules suffer while well-connected insiders prosper: <blockquote>It just doesn't make sense to them that a relatively tiny number of people -- who don't build a product or create a service -- can make massive amounts of money, while ordinary people who work hard and play by the rules see their incomes flat-line. Their view is simple. They create cars, or food, or houses or computers -- or they provide police protection, or care for sick people, or teach our kids. Why should they be asked to sacrifice when guys who basically gamble for a living -- as Wall Street speculators -- make incomprehensibly large sums of money?</blockquote> There seems to be a good argument that the tactics used by private equity/ leveraged buy-out firms might be bad for the general political economy. Moreover, these firms often take over health care corporations, drug and device companies, health care information technology companies, health insurance companies, for-profit hospital chains, etc. There is reason to think that their standard tactics used on such targets are likely to be particularly bad for health care. Many health care corporations depend on a long-term view to be successes. To develop new products, drug, device, and health care IT companies must pursue research and development projects that take years. All health care companies depend on highly trained, specialized workers and professionals. To sustain these sorts of employees requires a long-term attention to their development. So private equity/ leveraged buy-out firms' short-term focus, transfer of debt and risk to the acquired companies, and emphasis on short-term generic management cutting costs techniques including lay-offs, outsourcing, etc clash with the sophisticated long-term focus these companies require. These health care organizations often require the complex interplay of many components. Private equity/ leveraged buy-out firms' efforts to sequester and sell particular assets may disturb this complex system. Health care quality, and successful research and development require transparency. Extreme emphasis on secrecy by private equity/ leveraged buy-out firms threatens such transparency. Even more pointed concerns may arise when private equity/ leveraged buy-out firms endeavor to take over non-profit health care organizations. We plan to discuss these in a subsequent post. The NY Times(g) noted that in the 1980s, leveraged buy-out firms <blockquote>were branded as 'barbarians at the gate' - the title of a book [by Burrough and Helyar, link <a href="http://www.amazon.com/Barbarians-Gate-Fall-RJR-Nabisco/dp/0060536357">here</a>] about the takeover of RJR Nabisco by Kohlberg Kravis Roberts.</blockquote> Now 30 years later we are finally having a conversation about the role of these firms in the greater political economy. We in health care should be having a parallel discusion about their role in our sphere. I submit that their role was not likely productive. Since health care should not merely be looked upon as a means to make money, but as a public good, we ought to be talking about how to restrain private equity/ leveraged buy-out firms from doing it more damage. References 1. Goozner M. Private equity's edge: buy now, deduct taxes later.  Fiscal Times, Jan 9, 2012.  Link <a href="http://www.thefiscaltimes.com/Articles/2012/01/09/Private-Equitys-Edge-Buy-Now-Deduct-Taxes-Later.aspx">here</a>. 2, Hamilton W. Private equity industry: a bad rep, but is it deserved. Los Angeles Times, Jan 12, 2012. Link <a href="http://articles.latimes.com/2012/jan/12/business/la-fi-private-equity-20120112">here</a>. 3. Lenzer R. Why Warren Buffet disdains the private equity crowd. Forbes, Jan 14, 2012. Link <a href="http://www.forbes.com/sites/robertlenzner/2012/01/14/why-warren-buffett-loathes-the-private-equity-crowd">here</a>. 4. Baker D. NPR does fluff piece for private equity. Beat the Press, Jan 13, 2012. Link <a href="http://www.cepr.net/index.php/blogs/beat-the-press/npr-does-fluff-piece-for-private-equity">here</a>. 5. Lifton RK. Mitt Romney and Bain Capital: understanding the reality. Huffington Post, Jan 13, 2012. Link <a href="http://www.huffingtonpost.com/robert-k-lifton/mitt-romney-bain-capital_b_1205157.html">here</a>. 6. Barro J. The discussion we should be having about Bain. Forbes, Jan 12, 2012. Link <a href="http://www.forbes.com/sites/joshbarro/2012/01/12/the-discussion-we-should-be-having-about-bain">here</a>. 7, Robinson E. Reexamining the myth of no-fault capitalism. Washington Post, Jan 16, 2012. Link <a href="http://www.washingtonpost.com/opinions/reexamining-the-myth-of-no-fault-capitalism/2012/01/16/gIQAvKO13P_story.html">here</a>. 8. Lattman P, Lowrey A. As Romney advances, private equity becomes part of the debate. New York Times, Jan 10, 2012. Link <a href="http://www.nytimes.com/2012/01/11/business/as-romney-campaign-advances-private-equity-becomes-part-of-the-debate.html">here</a>. 9. Hagey K. Mitt Romney's Bain Capital days: a black box. Politico, Jan 11, 2012. Link <a href="http://www.politico.com/news/stories/0112/71344.html">here</a>. 10 Creamer R. Why the Bain Capital controversy is so damaging to GOP chances this fall. Huffington Post, Jan 16, 2012. Link <a href="http://www.huffingtonpost.com/robert-creamer/why-the-bain-capital-cont_b_1208678.html">here</a>.

"Barbarians at the Gate" - Making Private Equity Less Private, and Understanding Its Effects on Health Care

One good byproduct of the tumultuous everlasting 2012 campaign for the US presidency has been to shed light on a number of political and eco...

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