Tuesday, November 11, 2014

Promises, Promises - Dendreon Bankrupt, Steward Healthcare Closes Quincy Hospital

Physicians and other health professionals are trained to attempt to make realistic, unbiased predictions, most frequently of the prognoses of individual patients.  Thus physicians may not question apparently authoritative predictions, claims, and promises made in the health care context.  They may not question, for example, predictions about the efficacy and safety of drugs and devices, even by people working for drug and device companies; predictions of the benefits of health care services, even by people working for the hospitals that provide them; and predictions of the benefits of health policies, even by politicians or organizations that stand to benefit if they are adapted.  Yet such predictions may influence health care policies and decisions.

However, in the business culture, confidence is often conflated with competence.  Generic managers, trained in business schools, and steeped in business culture, now run most health care organizations.  Managers are responsible for most of the sorts of predictions listed above, perhaps mediated through their marketing and public relations staffs.

Thus it should come as no surprise that a lot of the predictions, claims, and promises we now hear in health care eventually come to naught, but long after they have already influenced decisions and policy. 

Dendreon Bankruptcy

In 2007, we first wrote about biotechnology company Dendreon, and its single product, a vaccine meant to treat prostate cancer with the trade name Provenge ( generic name, sipuleucel-T).  Provenge has aroused unusual passions.  When the US Food and Drug Administration delayed its approval after a single small trial showed equivocal results, much hoopla produced by Dendreon partisans occurred.  Investors and patient advocates protested, at times picketing the FDA.  Someone threatened physicians who were publicly skeptical of the vaccine.  It did appear that Dendreon funded a patient advocacy group which was one of the vaccine's vocal supporters.

In 2009, Matthew Herper, writing in Forbes, reported that the company had released preliminary data from a new trial before the results were presented at any conference or published, apparently after breaking the treatment blinding, causing one biostatistics expert to say, "I'm shocked."  At that point, company CEO Mitch Gold

has been using the [controversial, unpublished] data to talk up Provenge. 'We’re clearly within shooting range,' Gold told analysts at a JP Morgan investor conference in January. 'Sometimes I use a football analogy where we are on the 10-yard line and we are in the red zone, and we need to punch it in the end zone right now.'

A TheStreet.com article noted that

Dendreon threw a celebratory cocktail party Tuesday night at a Chicago hotel just off the Miracle Mile. CEO Mitch Gold was beaming as he slapped backs, shook hands and hugged employees, investors and supporters.

In 2010, the FDA approved the vaccine based on the eventually published study that showed that Provenge prolonged survival for an average of about four months.  The company then priced a course of therapy at $93,000, starting one of the early big controversies about extremely expensive new drugs with apparently small benefits  (see this Washington Post article) .  

According to a 2011 article by Jim Edwards for CBS, through 2010 and into 2011, CEO Gold and Chief Operating Officer Hans Bishop continued to make optimistic forecasts about sales of Provenge.  But during the same time period, Gold and other insiders sold $87 million in stock.  Then in 2011, the company announced that its revenue projections had been far too optimistic.

Things continued downhill from there.  Dendreon settled for $40 million an investor class action lawsuit that asserted corporate executives made "false or misleading statements about the company," according to one very brief story in the Seattle Times.  

Then, on November 10, 2014, per the Seattle Times, the company announced it would file for bankruptcy,

Dendreon said it has filed for bankruptcy protection as part of a plan to restructure $620 million in debt, a move likely to effectively wipe out the value of its common stock.

The biotechnology company, once Seattle’s largest, filed a voluntary Chapter 11 bankruptcy petition Monday in Delaware.

"Within shooting range" - no more.  Yet from 2007 to 2011, the company CEO (and COO), aided by corporate marketers and public relations, created a huge brouhaha over the company's one product, making management insiders rich meanwhile.  The high price the company charged for the vaccine may have driven up the stock price early, facilitating the amassing of wealth by top management insiders.  While this pricing decision may have helped other health care corporations pursue gigantic revenues from new products, it may have ultimately damped demand and lead to bankruptcy.  How much money the managers who created the hoopla will keep remains to be seen.  Why skepticism about the executives fabulous predictions was not initially higher is unclear. 

ADDENDUM (20 November, 2014) - Added paragraph re 2013 investor class action settlement.

Steward Healthcare Closes Quincy Hospital

Starting in 2010, we wrote about the takeover of the Massachusetts non-profit Catholic hospital system Caritas Christi by private equity firm Cerberus Capital Management (named for the mythological three-headed dog that guards the gates of the underworld, look here.)  Despite some controversy, and the apparent contrast between Catholicism and the three-headed dog guarding the gates of hell, the takeover was approved, yielding the now privately held, for-profit Steward Healthcare.

Over the time period, proponents of the sale gave some big assurances.  In 2010, the Boston Globe reported,

Brett Ingersoll, co-head of private equity at Cerberus, called the Caritas acquisition 'a big win for the hard-working communities of Greater Boston.'’ Ingersoll said the new owners 'plan to create jobs, expand local tax bases, and provide world-class health care facilities.'

Similarly, from a Boston Herald article,

'Cerberus is pleased to be making a long-term investment that will help ensure the viability and future success of the Caritas Christi health care system,' said W. Brett Ingersoll, co-director of private equity at Cerberus in a statement.  'Caritas is the region's largest community hospital network, and our investment will give physicians, nurses, and other health professionals the additional tools they need to deliver world-class care to patients in the communities they serve.'

Later in October, Dr Ralph De La Torre, Caritas Christi CEO, a former cardiovascular surgeon who apparently no longer held an active medical license (look here), intoned per the Globe,

'The business plan, the strategy, or whatever you want to call it, is all about keeping care locally,' he said. 'If we improve the facilities, improve the infrastructure, make it so that our very own patients want to stay in our hospitals, that’s the business plan.'

Furthermore, at the same meeting,

The new holding company 'will continue to promote the public interest after this transaction,' Lisa Gray, Cerberus general counsel executive and a Steward board member, told the council.

A few days later, again per the Globe, Caritas Christi spokesman Chris Murphy said,

Once finalized, the sale will ensure the future of our system, the jobs of our employees, and the pensions of our retirees.

The takeover was eventually completed, and the new Steward Healthcare commenced acquisitions of other hospitals.  CEO De La Torre had become the most highly paid hospital system CEO in the Boston area, and was widely anticipated to be on the way to even higher compensation under Steward (look here). 

In 2011, Steward set its sights on Quincy Medical Center.  Once again, promises were made, per the Boston Herald,

In a statement today, interim CEO John Kastanis said the hospital's announcement is 'the culmination of an exhaustive process to find a capital partner who is committed to our mission, our employees and physicians, and the communities we serve.'

'We have found the partner in Steward,' Katsanis said.  'Steward is a community-based hospital system with tremendous resources that will enable us to grow and continue to provide world-class health care for generations to come.'

The Massachusetts Attorney General approved the sale of Quincy Medical Center to Steward, but with some conditions, as a September 8, 2011, Boston Globe article noted,

[Attorney General Martha]  Coakley imposed multiple conditions on the deal that are meant to safeguard patients and employees of the financially struggling hospitals. They included a guarantee that Boston-based Steward will not sell either one for at least five years, that it will keep making capital improvements after five years,...

Also, Steward

agreed to a 10-year “no close’’ period for both hospitals, though the deals included clauses that would allow Steward to close the hospitals under certain conditions in the last three years if financial targets aren’t met.

It all sounded so good.  However, on November 6, 2014, slightly more than three years after the sale of Quincy Medical Center was approved with the conditions above, per the Globe,

Steward Health Care System said Thursday that it would close Quincy Medical Center and displace nearly 700 workers after the long-struggling hospital finally succumbed to the intense competition for patients south of Boston.

 The shutdown, scheduled to be completed by the end the year, marks the biggest hospital closing in the state in at least a decade and the first failure for Steward, the for-profit company that promised to reinvent community health care when it entered the Massachusetts market four years ago.

So what happened to "world class health care for generations to come," or being "committed to our employees?"  The commitment lasted a little over three years, the employees will need to find new jobs, and the patients will need to go elsewhere for health care, whether world class or not.  At least Attorney General Coakley is looking into options given that Steward Health Care seemed to have violated that 2011 agreement, per the Herald,

The Attorney General’s Office is investigating whether Steward Health Care System violated the terms of a 2011 agreement when it announced yesterday that Quincy Medical Center will shut down operations by the end of the year, a spokesman said.

'We have just been notified about this decision and are currently reviewing it in the context of Steward’s legal obligations,' said Brad Puffer, a spokesman for Attorney General Martha Coakley.
When Steward bought the 196-bed Quincy hospital in a bankruptcy auction in 2011, it signed an agreement with Coakley that included a 10-year 'No Close Period' requiring that it 'maintain an acute care hospital in Quincy providing at least the same scope of services as Quincy Medical Center currently provides.'

Steward could close Quincy Medical in the last three-and-a-half years of that 10-year period if it could show the hospital 'experienced two consecutive fiscal years of negative operating margins' and provide the state’s Department of Public Health with 'at least 18 months prior written notice of its intent to close,' according to the agreement.

A Steward spokeswoman declined to comment when asked about the no-close clause last night.

 In any case, while there was plenty of skepticism about the acquisition of Caritas Christi by Cerberus Capital Management, and the ambitious expansion plans of the resulting Steward Healthcare, it was insufficient to slow down these aggressive plans.  I could speculate that had more skepticism come from physicians and health care policy experts, maybe things would have been different.  It is likely that Steward Healthcare/ Cerberus Capital Management insiders made plenty of money from the deals, although now that the hospital system is privately held, little about individual compensation has been disclosed.  The takeover of a once religious based, non-profit health care system by private equity, and the aggressive initial expansion of the new for-profit system, were in part enabled by extravagant promises and claims.  While this expansion is now clearly seen as not an unalloyed good, those making the claims likely have already personally profited from it. 


There have been lots of other expansive predictions in our era of commercialized health care that have come to naught.  In general, lots of physicians seemed convinced by predictions that:
- commercial managed care would improve access and quality, and cut costs
- large, vertically integrated hospital systems would improve access and quality, and cut costs
- commercial electronic health records would - guest what - improve access and quality, and cut costs.

How did those turn out?

There were lots of more specific and local predictions that proved equally inoperative.  Remember the former CEO of the Allegheny Health Education and Research Foundation (AHERF), one of the first really large vertically integrated health care systems, promising to create a more flexible, adoptable, and agile organization.  That organization was soon bankrupt, and he was soon in jail.  (Look here).

So now we have two new reminders that even apparently authoritative health care claims, predictions, and promises, particularly when made by executives or managers, when enabled through public relations or marketing, or appear likely to be self-serving, ought to be regarded with extreme skepticism, if not outright ridicule.  Many doctors now realize that they should not trust advertising of health care products and services.  Nor should they trust flowery pronouncements of business people about health care products, services, and policies when the predictors are in a position to benefit from short term actions adherent to these predictions.

True health care reform would restore leadership of health care that is knowledgeable about health care, committed to its values, and held accountable for patients' and the public's health.  Meanwhile, we ought to be extremely skeptical of claims, predictions, and promises made by health care organizations' management. 


Afraid said...

The Arnold Relman Book Second Opinion offers some good solutions. I'm sure you have read it Roy, what do you think of Relman's suggestions of non-profit physician run medical groups?

Steve Lucas said...

We mere mortals have no concept of how low many will go in order to generate income for an institution or practice:


This link highlights the drug testing of seniors and the associated cost, cost that are a part of the increasing public expenditure on medical care in this country. The drive to make more money has no bounds in what should be a simple issue.

Instead we watch a simple concept being perverted for financial gain.

Steve Lucas

Roy M. Poses MD said...


IMHO, I think direct patient care should not be commercialized, or treated as a commodity. So I think no physicians should provide direct patient care as employees of for-profit organizations. Ideally, physicians should work in solo practices or group practices which should be either purely physician owned, or non-profit corporations. The latter structure would be very useful for academic physicians.

Steve Lucas said...

A number of industries have moved away from their traditional position of making little or no profit for those not involved in the direct production of their service, into a profit at any cost institution.

During the 1990’s we saw the utilities use the leverage of their great cash flows to enter other business with often disastrous results. The managers in these utilities were use to a system with no expenses. Everything down to the pencils was a capital cost. Faced with expenses and no way to regain those cost through customer billing they soon failed.

Additionally they were use to a government agency setting their rates and product standards, not working in a market system. The market soon put their price increases to the test and they found that legal and ethical considerations put stress on their business model. Funny things happen when you do not have a captive customer base.

Medicine has gone through the same transition. What use to be a nice business has turned into a profit at any cost endeavor. Business manages and administrators look for any way to turn a guideline or best practice into additional income while doctors at all levels of medicine complain of not making enough money.

This over testing and over medication of the population is all wrapped up in:

This is all about you.

No, it is all about upcoding, up charging, and squeezing every nickel possible out of every patient.

Steve Lucas