Wednesday, January 28, 2009

At One Academic Medical Center: "Profitability" Trumps "Doing the Right Thing"

A post on the Health Care Blog opened a window into the thinking of top leaders of health care organizations. The post was written by Gary S Kaplan MD, the CEO of Virginia Mason Medical Center, a well reputed US academic medical center. It seemed generally well-intentioned, and was focused on the creation of an organization of US health care CEOs "dedicated to transforming health care and creating a more sustainable health system."

But my interest today is not this organization or its future plans.

Dr Kaplan's post included,

We, unfortunately, in the current payment system, reduce our profitability by doing the right thing. Despite my very supportive board of directors, they will not allow me to lead our organization into bankruptcy by doing the right thing. We need to change our payment system if we truly want to ensure universal coverage, improve quality and reduce cost.

I completely agree with Dr Kaplan about the need to change how we pay doctors and hospitals. But note his second sentence.

It implies that the leadership of Virginia Mason sees "profitability" as a goal of the organization that supersedes "doing the right thing." Furthermore, Dr Kaplan implies that his medical center's board of directors has prevented him from "doing the right thing," in order to avoid "bankruptcy."

Perhaps this was just a horribly written paragraph. But it does seem to say that at Virginia Mason Medical Center, the leadership thinks it is less important to uphold the organization's mission, that is, to do "the right thing," and more important to promote "profitability."

However, Virginia Mason Medical Center is a not-for-profit organization. (See this link.) A not-for-profit organization should not have "profitability," by definition.

Furthermore, the leadership of a not-for-profit organization is supposed to uphold the organization's mission, and to put this mission ahead of other concerns. This is called the duty of obedience, and is a fundamental duty of leaders of not-for-profit organizations (see this link). Failure to uphold the mission threatens the fundamental integrity of the organization.

Naturally, to fulfill the mission, the leadership of a not-for-profit should not let the organization go bankrupt. It should be concerned about raising and having sufficient funds to make an honest attempt to fulfill the mission. But bringing in money should be secondary to the mission, and "profitability" should not be a goal.

By the way, the current stated mission of Virginia Mason Medical Center is:

Our vision is to be the Quality Leader - Our aspiration is not to be the biggest, but to be the best. We will differentiate ourselves on the basis of quality.

Our mission is to improve the health and well being of the patients we serve - Healing illness is our first priority and is what gives our people the energy for our vision. We are also committed to providing a broad range of services that improve one's sense of well-being and which prevent illness.

We have previously discussed how a leader of another not-for-profit academic medical center revealed that his major criterion for evaluating faculty members was how much money they brought in, not how well they fulfilled their academic and clinical responsibilities. His goal was to make sure enough faculty were "taxpayers," people who brought in more money than they consumed (not that enough faculty were good clinicians, teachers, or researchers.) Again, it seemed that his organization put making money ahead of fulfilling its mission, ignoring their duty of obedience.

Now apparently another leader of a not-for-profit academic medical center has let slip that the leadership of his organization is thinking the same way, but on a more macro level.

By the way, I doubt that the thinking disclosed by these two leaders is anomalous. What is anomalous is that they made it public. Many academic medical institutions could be lead by people who put profits ahead of mission, thus shirking the duty of obedience, and hollowing out the integrity of their institutions.

Academic medical institutions, like most health care institutions, are now lead by business people who grew up in what now appears to have been the second gilded age. The global economic meltdown has made it clear that we just lived through an era in which business leadership was too often marked by arrogance, greed and corruption. Business leaders took ridiculous risks, deceptively marketed products, and manipulated financial instruments to generate short-term profits, and thus to generate fabulous payments to those same leaders. And we have seen how these practices nearly destroyed the global financial system and have lead the world to the brink of a new great depression.

At least the global financial meltdown has discredited the notion that markets not subject to any external regulation or policing will somehow police themselves. So maybe it is time to add a little regulation and policing to health care. One place to start would be the duties of the leaders of not-for-profit health care organizations.

These include
  • the duty of obedience: they need to put their organizations' missions ahead of other concerns.
  • the duty of loyalty: they need to give their organizations their undivided allegiance when making decisions.
  • the duty of care: they need to exercise reasonable care when making decisions.

But as long as the leaders of not-for-profit health care organizations continue to put profitability ahead of mission, things will continue to get worse.


Steve Lucas said...

In looking at organizations that have lost their way we need look no further than the AMA. Noting in this piece:

Physicians need one voice to fight for payment reform

AMA Leader Commentary. By Joseph M. Heyman, MD, Posted Jan. 26, 2009.

I want to emphasize three key points:

The American Medical Association absolutely supports this important investment in primary care. Payments to primary care physicians must increase.

The American Medical Association absolutely opposes applying budget-neutrality rules that confine offsets to the physician payment pool. Congress should not rob Dr. Peter, the surgeon, to pay Dr. Paul, the primary care physician.

The American Medical Association absolutely is committed to working with Congress and the administration to find alternate pathways to offset the required increases in primary care payments.

Moving through this and the rest of the very politically correct, and lobbyist like language, we find the final thought is about "more." Simply put; more money for the medical elite, while the theory is this will trickle down to the front line physicians and surgeons.

While hiding behind the very physicians it is suppose to represent, the claim that all increases in physician income should not be budget neutral sets the stage for a wholesale increase in medical spending in the US. A system that consumes twice the amount of GDP as other countries with nothing to show for it in better outcomes.

The influence the AMA exerts over the US medical system is out of proportion to its size. While its membership represents a minority of American doctors it sets reimbursement for all doctors through a secretive process it controls.

The medical community has become so rife with conflicts and self-interest that the consumer/patient and front line physician can no longer trust those very organizations charged with supporting their interest.

Steve Lucas

shadowfax said...

Meh. One out-of-context quote here, rather distorted. I just don't see this as being mission-hostile.

For one thing, as the nuns at my catholic institution used to say, "No margin = No mission." That's pretty much the truth, and a realistic CEO has to work within those confines. Furthermore, you kind of missed the point, I thought, in that his comment was itself within a call to *reform* the payment system. To paraphrase Dr Kaplan, "The current system perversely punishes institutions for high quality; taken to its extreme, this would put us out of business. Therefore, the payment system must be changed to reward quality and efficiency."

I've got no brief for VMMC; I just think this article is unfair.

Roy M. Poses MD said...

I have heard "no margin, no mission" quoted frequently. But at best, that seems to mean roughly: if you don't have enough money, you can't accomplish your mission. That's certainly true.

But enough money and profitability are not equivalent. Profitability implies making more than the amount required to fulfill the mission. And profitability is usually figured out after the generous payments to the top executives have been made.

I did say I agreed with the need for reimbursement reform. That reform should do many things, but not make not-for-profits more profitable.

Jimmy Dean said...

I really have a hard time, Dr. Poses, believing that you think the use of the term "profitability" in this case means that the non-profit hospital is actually pocketing extra cash. I think you are smarter than that. No non-profit can operate simply by breaking even over the long haul -- or, I should say, no non-profit can continue meeting the demands of its customers (patients) without bringing in more money than it spends. It's called reinvesting into the operation; growing; expanding. You can't do that without being "profitable."

Kudos to Dr. Kaplan for being honest and having the guts to call it as it is.

Anonymous said...

You're playing with semantics - profits are within for-profit corporations, the same excess revenue in a non-profit is surplus...and "no money, no mission" is certainly true.

Unlike for-profit corporations, non-profits CANNOT pay out their surplus to their board, staff or anyone else - surplus must go back into the organization and for a medical facility that would be in the form of new equipment, educational opportunities to their staff, taking on more patients who need their services, etc. But it's a fallacy to think that someone from within the non-profit sector, using lay language like the word "profit" is saying such for personal gain, dividend payouts or disbursements - they can't do it under the law that regulates non-profits.

Roy M. Poses MD said...

It's interesting that we have attracted two commentators, both anonymous, who insist that Dr Kaplan did not mean profitability when he wrote "profitability."

I believe I did acknowledge in my original post the possiblity that he somehow wrote something completely erroneous. I will have to check if he has amended his original post.

But he is hardly unsophisticated, and was writing for a sophisticated audience in one of the more sophisticated health policy blogs. So it's hard for me to believe that he had to use the word "profitability" to mean "sufficient funding to advance the mission," or "operating surplus to be reinvested to help grow the organization," because the audience could not understand such concepts.

By the way, health care not-for-profits have not been heavily regulated in the last 20+ years in the US. They certainly can and often have paid quite handsome salaries to top executives, often enough to make them rich, which would certainly be considered some sort of "personal gain."

Again, I have often seen "no margin [or money], no mission" quoted as if it is a law of physics. It is just some peoples' opinion, not natural law. Given that, however, it seems to mean that a not-for-profit organization's ability to fulfill its mission depends on its funding. I don't see that it means generating large and increasing operating surpluses is necessary to fufill the mission.