How the Anechoic Effect May Be Generated - The Chairman of a Hospital Board Buys a Newspaper

We have often noted that stories about problems with the leadership and governance of health care tend to be anechoic. That is, they tend to get less notice and generate less discussion than their content would seem to warrant. We have postulated that this has to do with fear of offending the rich and powerful who now lead and govern health care organizations, and the benefits, which may be produced by conflicts of interest, of maintaining good relationships with the rich powerful.

Did a Newspaper Delay a Story Unfavorable to its Prospective Buyer?

A story that has been emerging in bits and pieces over the last two months shows the sort of complex machinations that may generate the anechoic effect.

In February, 2012, a New York Times story raised questions about how a bid to purchase a big city newspaper by a group of well-connected and wealthy buyers would affect news coverage.  The big city newspaper was the Philadelphia Inquirer.  The group bidding to buy it was:

made up of the area’s most powerful Democrats.

Edward G. Rendell, the former Philadelphia mayor and Pennsylvania governor leads the group, which includes George E. Norcross III, a Democratic powerbroker in South New Jersey;...

The Times suggested that the Inquirer's coverage was being influenced by the proposed buyers before they had completed the sale:

Last week, Gregory J. Osberg, chief executive and publisher of the Philadelphia Media Network, which publishes The Inquirer, The Daily News and Philly.com, summoned the news organization’s three most senior editors to his office.

Over three hours, he told them he would be overseeing all articles related to the newspapers’ impending sale. If any articles ran without his approval, the editors would be fired, according to several editors and reporters briefed on the meeting who did not want to be identified criticizing the company’s leadership.

In a telephone interview Wednesday morning, Mr. Osberg said the meeting did not happen. But Larry Platt, editor of The Daily News and one of the editors in attendance, said that it did. Late Wednesday, Mr. Osberg acknowledged that the meeting had taken place but denied interfering in the editorial decisions, saying he only wished to be notified of further coverage. Mr. Platt declined to comment on specifics, but said, 'We fought for what we believed in,' referring to editorial independence, 'and we didn’t get all that we wanted.'

A Story About Who Benefits from How a Hospital is Lead

This is directly relevant to the anechoic effect in health care. Per the Times,

An investigation about conflicts of interest among board members of the Cooper University Hospital in nearby Camden, N.J., remains unpublished after months. Mr. Norcross serves as the hospital’s chairman.

In an e-mail Mr. Norcross, who has called The Inquirer and The Daily News in the last week to discuss other coverage, said the reporter’s research 'contained significant factual errors and incomplete data about the hospital and health care industry.'

The allegedly suppressed story finally came out in late March. In its published form it implied that Mr Norcross had an outsized influence on hospital operations, the hospital had business relationships with people who donated to political causes and organizations favored by Norcross, the hospital seemed to disproportionately benefit from government money and actions, and the hospital's board was afflicted by numerous conflicts of interest.

Norcross' Influence on Hospital Management

Per the Inquirer,

With Cooper suffering from record deficits, Norcross, then a top executive at Commerce Bank, helped bring the hospital back from the brink in 1999 when he arranged for the bank to lend it $8 million.

Since then, Norcross has put his imprint all over Cooper, from its lavish marketing, to its competitive fight to lure doctors, to its recent $450 million construction boom, to the political figures who work at Cooper and serve on its board.

Just as he was one of the first pols to spend heavily on television ads for lowly county races, Norcross was among the first to sell a hospital on TV, deploying Kelly Ripa as Cooper's pitchwoman. As it happens, she's the daughter of Joseph Ripa, the Democratic Camden County Clerk.

The milestones have been coming faster. The medical school, a must-have for any hospital with big ambitions, is finally gearing up. This year, work began on a $100 million cancer center.

The concern is that Mr Norcross was influencing operations in ways that happened to benefit his interests. Note that this contrasts with a number of cases we have discussed in which health care organizations' boards often seen too deferential to the organizations' hired leaders.


Hospital's Relationships with Political Donors

The Inquirer reported these instances,

With its heavy capital spending and big operating budget, Cooper has become an economic powerhouse. It throws off millions in fees and contracts.

Consider Cooper's heavy borrowing to pay for all that expansion. In the last decade, Cooper's bond sales have generated $5.1 million in fees to a variety of law firms, title companies, and financial advisers. On top of that, the hospital has handed out big-ticket contracts for other legal work, such as malpractice defense, its public disclosures show.

Many of those who received work via Cooper are major political donors, giving across the state to both parties. But they have been especially generous in Camden County, Norcross' home base.

During the last decade, firms involved with Cooper have given more than $1.5 million to Camden County Democrats.

As an example, lawyers at Cozen O'Connor, a Philadelphia firm that worked on four Cooper bond issues, have given Camden Democrats $115,060 since 2002. That represented more than 70 percent of its local political contributions in New Jersey. A Cozen spokeswoman said all donations reflected candidates' merits.

In interviews, Norcross conceded he had input into who was selected to work on hospital bond issues, managed by state and local authorities.

'Have I made recommendations of quality firms?' he said. 'Absolutely.'

But he insists that firms are selected solely on ability and that political donations were irrelevant.

"These people have been making major, sizable donations to the Democratic Party in this region long before any bond issue," he said.

Lawyers offer varying explanations for their giving.

Attorney Steven Weinstein, formerly with the Philadelphia firm of Blank Rome, has given steadily to South Jersey Democrats over the years, public records show. His giving hit a peak, in 2004 when he gave $30,000 to the Camden County Democratic Committee.

The following year, Blank Rome was named one of four law firms to work on a $135 million Cooper bond issue, representing the investment firm Goldman Sachs.

In the six years since, Weinstein's donations to Camden County Democrats came only to $2,850.

Weinstein said his donations had no connection to Blank Rome.

But David Lebor, another former Blank Rome partner who joined Weinstein in making Camden County donations in 2004, said the firm would sometimes request that lawyers make specific contributions. Lebor said he didn't know the firm's motives for making requests. 'I don't ask those questions,' he said.

The implication is that Mr Norcross was using his control over the hospital to fulfill his political agenda.

Favorable Relationships with Government

The Inquirer documented instances which seemed to show that the hospital seemed to be treated disproportionately well by government, for example,

Late last year, the Delaware River Port Authority, its once-vast development kitty finally running dry, approved its last round of project spending. Among the lucky few recipients: Cooper University Hospital. It got $6 million for the cancer center.

No other hospital in New Jersey or Pennsylvania has ever received DRPA assistance, the authority says.

The DRPA money was one of many ways in which Cooper has benefited from government action during the Norcross era. This year, Cooper received $52 million in state funding, more than any hospital in South Jersey - and in the top five for all 72 New Jersey hospitals.

And U.S. Rep. Rob Andrews (D., Camden) has set aside $640,000 in federal earmarks for Cooper over the last decade, the most of any hospital in his district. Another Camden hospital, Our Lady of Lourdes, received nothing.

The Board's Conflicts of Interest

The Inquirer article noted,

[Cooper Health System CEO John P] Sheridan's old law firm, Riker Danzig Scherer Hyland & Perretti L.L.P., has been a paid lobbyist for Cooper for at least a decade. More recently, the hospital put another firm on its roster.

It didn't look far to make the hire.

In 2010, Cooper added Republican lobbyist Jeff Michaels to the team. In another lobbying venture, he is the partner of [George] Norcross' brother Philip.

The hospital has paid the firm solely operated by Michaels $180,000 over the last two years.

Beyond that,

As Cooper has spent its millions, hospital insiders have frequently been on the receiving end.

From 2008 to 2010 Cooper paid more than $40 million to companies tied to the hospital's board of trustees, according to public-disclosure documents the hospital filed with the IRS.

The payments included:

$1.6 million to Norcross' Marlton insurance brokerage, Conner Strong and Buckelew.

$1.8 million to the Parker McKay law firm, where Philip Norcross is the firm's chief executive.

$4.6 million to the former Commerce Bank and its successor, TD Bank. Norcross and a former Cooper board member were top executives at Commerce.

$277,000 to Riker Danzig, where Sheridan was once a law partner.

But of the millions in payments, the largest share - $33 million - went to a joint venture between international construction giant Turner Construction and HSC Construction and Builders in Exton.

Former board member Edward Viner's son, Jim, serves as president of HSC.

Most of the money was passed through to subcontractors and the joint venture was paid $2.8 million in fees, Cooper said.

In 2008 and 2009, the last years for which regional data were available, Cooper initially reported more of what the IRS calls 'Interested Persons' transactions than any hospital in the Philadelphia area.

This again suggests that the hospital may be run such that board members' financial interests are put ahead of other concerns.

Summary

According to BoardSource, the duties of boards of trustees of non-profit organizations include:

- Duty of Care

The duty of care describes the level of competence that is expected of a board member, and is commonly expressed as the duty of "care that an ordinarily prudent person would exercise in a like position and under similar circumstances." This means that a board member owes the duty to exercise reasonable care when he or she makes a decision as a steward of the organization.

-Duty of Loyalty

The duty of loyalty is a standard of faithfulness; a board member must give undivided allegiance when making decisions affecting the organization. This means that a board member can never use information obtained as a member for personal gain, but must act in the best interests of the organization.

-Duty of Obedience

The duty of obedience requires board members to be faithful to the organization's mission. They are not permitted to act in a way that is inconsistent with the central goals of the organization. A basis for this rule lies in the public's trust that the organization will manage donated funds to fulfill the organization's mission.

The delayed Inquirer story suggests that instead, those who are supposed to steward large health care organizations may be putting their own interests, political or financial, ahead of the mission, potentially violating their duties of loyalty and obedience. This story corroborates questions we have been raising about who now are the stewards of health care organizations, and to what ends.

However, this particular story appears to have been delayed, and perhaps diluted, because of the power wielded by the sorts of people who now are supposed to be stewards of health care organizations. This shows how powerful insiders not only are distorting health care to fit their own agendas, but that they may be smothering the discussion of this vitally important issue.

We will not be able to truly reform health care until we can freely discuss what has gone wrong with it.