Johnson and Johnson's "Landmark" Opioid Settlement, or Just Another Chapter in the Story of Corporate Management's Impunity?

Introduction: our Chronic Narcotics Problem

Narcotic addiction has plagued human societies for hundreds of years.

[Print, 1880, opium den, London]


So as I have written before, after seeing too many dire results of narcotic addiction during my training and early career, I was dismayed how narcotics were pushed as the treatment of choice for chronic pain in the 1990s, with the predictable result that the US was once again engulfed in an epidemic of narcotic abuse.  In the last few years, the narcotics (now called "opioids") epidemic has frequently been in the headlines.  A few days ago, a judge decided that one large pharmaceutical/ biotechnology/ device company bears some blame for the problem

The Johnson and Johnson "Landmark" Settlement

On August 26, 2019, the New York Times reported a "landmark," per the headline, settlement:

A judge in Oklahoma on Monday ruled that Johnson & Johnson had intentionally played down the dangers and oversold the benefits of opioids, and ordered it to pay the state $572 million in the first trial of a drug manufacturer for the destruction wrought by prescription painkillers.

The judge wrote

that Johnson & Johnson had promulgated 'false, misleading, and dangerous marketing campaigns' that had 'caused exponentially increasing rates of addiction, overdose deaths' and babies born exposed to opioids.

It seems like a big story, big enough for another NYT article to fret over how the settlement might damage Johnson and Johnson's sterling reputation.  

For Johnson & Johnson, which has said it plans to appeal, the decision represents another blow to its reputation as the trusted brand of parents, doctors and nurses.

Wall Street Journal editorialists fretted even more,

the ruling could have far larger, and more dangerous, consequences by opening a vast new arena for product-liability suits.

And warned the opioid epidemic will not

be eased by bankrupting America's pharmaceutical companies

Maybe threats to this upstanding company inspired US President Trump, while running the most conflicted and corrupt administration ever (look here), to promote another fine Johnson and Johnson product.  On August 23, 2019, the Atlantic reported,

President Donald Trump said on Wednesday that the government will purchase 'a lot of the drug esketamine, a derivative of ketamine.

Though ketamine is known as a recreational hallucinogen, Trump asserted that a new nasal-spray derivative would be of great benefit to veterans with depression. As he left the White House for a veterans’ conference in Kentucky, he told reporters that he had instructed the Department of Veterans Affairs to make a large purchase—overriding a recent decision by the doctors who manage the hospitals’ formulary of which drugs are to be prescribed.

'There’s a product that’s made right now that just came out by Johnson & Johnson which has a tremendously positive—pretty short-term, but nevertheless positive—effect,' Trump said. But that statement is contrary to the evidence. A review by the Food and Drug Administration of what limited studies have been done with esketamine found mixed results, leaving many scientists unsure if the drug is indeed effective and safe. Just last week, the agency published a report that said the drug was not reliably better than placebo.

Should the Wall Street Journal (and perhaps President Trump) really be so worried? Was this settlement really so dire?

The March of Legal Settlements Continues

In fact, this particular settlement did not seem very harsh.  Per the first NYT article,

The amount fell far short of the $17 billion judgment that Oklahoma had sought to pay for addiction treatment, drug courts and other services it said it would need over the next 20 years to repair the damage done by the opioid epidemic.

The amount of the settlement would be unlikely in and of itself to give corporate leadership pause, given that the company's revenues exceeded $81 billion last year (look here).

While the judge found that Johnson and Johnson caused a "public nuisance," this seems unlikely to inspire much shame in corporate leaders, who took no overt responsibility for the narcotic epidemic:

In a statement about the Oklahoma case, Michael Ullmann, the general counsel and executive vice president of Johnson & Johnson, referring to the company’s pharmaceutical subsidiary, said that 'Janssen did not cause the opioid crisis in Oklahoma, and neither the facts nor the law support this outcome.'

'We recognize the opioid crisis is a tremendously complex public health issue,' he said, 'and we have deep sympathy for everyone affected.'

And like many other legal settlements which we have discussed in the past, this one caused no one at Johnson and Johnson who approved, directed, or implemented the deceptive marketing and other bad behavior to suffer any negative consequences. 

Ignoring Another Corporation's Dismal Record

Furthermore, the settlement, like most others we have discussed, ignored Johnson and Johnson's extensive track record of misbehavior.

The second NYT article did allow that the company has withstood

a series of damaging setbacks to its brand, including a spate of lawsuits over whether its talcum powder led to ovarian cancer, and high-profile cases over other potentially flawed products, like pelvic mesh and the anti-stroke drug Xarelto, which has caused excessive bleeding.

'Johnson & Johnson is a corporation under duress on a number of fronts,' said Stephen Hahn-Griffiths, an executive at Reputation Institute, which tracks public perception of companies through regular surveys.

However, that barely scratched the surface of Johnson and Johnson's record.  In a 2018 post we discussed accusations that Johnson and Johnson tried to cover up the adverse effects of its baby powder.  However, we also discussed a settlement the company made of allegations it gave kickbacks to patients to facilitate its over-pricing of Tracleer, a drug for pulmonary artery hyptertension.  These were just the latest in a long string of misadventures by the company, as we have been documenting over years.  (Our collected posts on Johnson & Johnson are here.  An updated version of their legal record from 2010 to 2016 is at the end of this post.)

Perusing the list suggests that this giant company is a poster child for bad behavior by health care organizations.  It has faced a multitude of allegations leading to settlements, and sometimes findings of guilt.  The charges included many instances of deceptive and unethical marketing, some that promoted drugs or devices for use in situations in which they may have had harms outweighing their benefit, some that involved concealing knowledge of their risks, and some of selling adulterated drugs or defective products. 


What is striking is that the company and its management have not faced more consequences for this sorry track record.

Although the company has paid multiple fines and made numerous monetary settlements over the years, none have been big enough to affect its immense revenues.  Furthermore, ultimately the monies used to pay them came from all Johnson & Johnson employees in the form of smaller paychecks; customers, patients and the public at large in the form of higher prices; and only to some extent by investors in the form of slightly lower profits.  Meanwhile, it appears that the company's top managers made an immense amount of money, possibly in part as rewards for the revenues produced by the misadeventures.

Former Johnson & Johnson CEO William Weldon, upon his retirement in 2014, was to receive a retirement package estimated to be worth from $143 to $197 million (look here).  In 2010, his total compensation was $29 million (look here).   According to the 2012 Johnson and Johnson proxy statement, his 2011 total compensation was greater than $26 million. As far as I can tell, Mr Weldon never suffered any negative consequences for his company's sorry record, and retired a very rich man. (look here).

Current CEO Alex Gorsky received  $25 million total compensation in 2014 (look here).  More recently, the New York Times reported his 2017 total pay was $22.8 million, making him the seventh highest paid health care executive that year. 

While management made so much money, very rarely has anyone who was involved in authorizing, directing, or implementing bad behavior had to suffer any negative consequences, therefore appearing to enjoy impunity.

So what was to deter management from embarking on further misadventures, as long as the results might be enlarging their personal wealth? 

And why should we expect that this settlement will lead to any meaningful solution to the ongoing narcotics (opioid) epidemic?

Summary: Meaningless Settlements and the Impunity of Top Management

Nothing changes.  We have seen many legal settlements by health care organizations of charges of  fraud, bribery, and kickbacks.  Often such behaviors appeared to risk patient harms.  However, the companies involved usually paid tiny fines that relative to their revenues.  Rarely did they have to admit responsibility, and almost never did a settlement cause company managers and leaders to  suffer any negative consequences for enabling, authorizing, directing or implementing the bad behavior.

Thus it seems that US health care is rigged to benefit top insiders and their cronies, and is part of a larger rigged system.  We have previously discussed how market fundamentalism (or neoliberalism) led to deregulation, which enabled deception, fraud, bribery, and intimidation to become standard business practices, concentrating corporate power while top managers got rich. Other employees, patients, customers, vendors and suppliers, and the public at large lost out.   In health care, these changes led to an increasingly costly system which produced increasingly bad results. 

We have called for true health care reform to derig the system. Unfortunately, despite our hopes, perceptions of a rigged system may not always inspire honest reform. Instead, they can facilitate the rise of demagogues and would be dictators.  Donald Trump cried out that only he could fix our problems and drain our swamps, but the waters are now rising (look here) while he has enjoyed his own impunity (look here).  

The "landmark" settlement by Johnson and Johnson should remind us of the reforms we have not achieved.  However, to have a chance of truly reforming health care, we need to accomplish wholesale government reform. We need to excise the deception, crime and corruption at the heart of our government and restore government by the people, of the people, and for the people. 

Appendix - A Look at Some of Johnson and Johnson's Legal Record 2010-2016

Derived from our previous blog posts - 

 2010
- Convictions in two different states for misleading marketing of Risperdal
- A guilty plea for misbranding Topamax

2011
- Guilty pleas to bribery in Europe by DePuy subsidiary
- A guilty plea for marketing Risperdal for unapproved uses  (see this link for all of the above)
- A guilty plea to misbranding Natrecor by subsidiary Scios (see post here)

2012 
  - Testimony in a trial of allegations of unethical marketing of the drug Risperdal (risperidone) by the Janssen subsidiary revealed a systemic, deceptive stealth marketing campaign that fostered suppression of research whose results were unfavorable to the company, ghostwriting, the use of key opinion leaders as marketers in the guise of academics and professionals, and intimidation of whistleblowers. After these revelations, the company abruptly settled the case (see post here).
-  fined $1.1 billion by a judge in Arkansas for deceiving patients and physicians again about Risperdal (look here).
-  announced it would pay $181 million to resolve claims of deceptive advertising again about Risperdal (see this post).

2013
-  settled case by shareholders alleging that management made misleading statements and withheld material information about manufacturing problems (see this post)
-  Janssen subsidiary pleaded guilty to a charge of misbranding Risperdal, and settled for a total of $2.2 billion allegations that it promoted the drug for elderly demented patients and adolescents without an indication, and despite evidence of its harms (see this post).
 -  DePuy subsidiary agreed to settle with multiple plaintiffs for $2.5 billion allegations that it sold defective mental-on-metal artificial hip, and hid evidence of its harms .
-  Janssen subsidiary was found by two juries to have concealed harms of its drug Topamax (see this post for this and above case).
-  Ethicon subsidiary's Advanced Surgical Products and two of its executives agreed to settle charges by US FDA that is sold mislabeled products used to sterilize equipment such as endoscopes (see this post).
- fined by European Commission for anticompetitive practices, that is, collusion with Novartis to delay marketing generic version of Fentanyl (see this post).

2014 
- DePuy subsidiary settled Oregan state charges that it marketed the ASR XL metal-on-metal hip joint prosthesis without disclosing its high failure rate (see this post).

2015
-  found by jury to have concealed harms of Risperdal.
-  Ethicon subsidiary found by jury to have concealed harms of its vaginal mesh device.
-  McNeil subsidiary pleaded guilty to marketing adulterated Tylenol. (see this post for three items above.)

2016
- subsidiary Aclarent settled allegations that it sold its Stratus device for unapproved uses.  Two former executives of that subsidiary also were found guilty of distributing misbranded and adulterated devices (see this post) 
 

August, 2019, Update: How to Challenge Health Care Corruption Under a Corrupt Regime?

After a lull, a new report on conflicts of interest and corruption permeating the Trump administration has appeared, prompting us to again consider how one can challenge health care corruption under a corrupt regime.


Background: Health Care Corruption

As we wrote in August, 2017, Transparency International (TI) defines corruption as

Abuse of entrusted power for private gain

In 2006, TI published a report on health care corruption, which asserted that corruption is widespread throughout the world, serious, and causes severe harm to patients and society.

the scale of corruption is vast in both rich and poor countries.

Also,

Corruption might mean the difference between life and death for those in need of urgent care. It is invariably the poor in society who are affected most by corruption because they often cannot afford bribes or private health care. But corruption in the richest parts of the world also has its costs.

The report got little attention.  Health care corruption has been nearly a taboo topic in the US, anechoic, presumably because its discussion would offend the people it makes rich and powerful. As suggested by the recent Transparency International report on corruption in the pharmaceutical industry,

However, strong control over key processes combined with huge resources and big profits to be made make the pharmaceutical industry particularly vulnerable to corruption. Pharmaceutical companies have the opportunity to use their influence and resources to exploit weak governance structures and divert policy and institutions away from public health objectives and towards their own profit maximising interests.

Presumably the leaders of other kinds of corrupt organizations can do the same. 

When health care corruption is discussed in English speaking developed countries, it is almost always in terms of a problem that affects some other places, mainly  presumably benighted less developed countries.  At best, the corruption in developed countries that gets discussed is at low levels.  In the US, frequent examples are the "pill mills"  and various cheating of government and private insurance programs by practitioners and patients.  Lately these have gotten even more attention as they are decried as a cause of the narcotics (opioids) crisis (e.g., look here).  In contrast, historically the US government has been less inclined to address the activities of the leaders of the pharmaceutical companies who have pushed legal narcotics (e.g., see this post). 

However, Health Care Renewal has stressed "grand corruption," or the corruption of health care leaders.  We have noted the continuing impunity of top health care corporate managers.  Health care corporations have allegedly used kickbacks and fraud to enhance their revenue, but at best such corporations have been able to make legal settlements that result in fines that small relative to their  multi-billion revenues without admitting guilt.  Almost never are top corporate managers subject to any negative consequences.

We have been posting about this for years at Health Care Renewal, while seeing little progress on this issue.

Health Care Corruption in the Context of a Corrupt Government

Instead, things now only seem to be getting worse, given the increasing evidence that the Trump administration is corrupt at the highest levels.   In January, 2018, we first raised the question about how health care corruption could be pursued under a corrupt regime.  We noted sources that summarized Trump's. the Trump family's, and the Trump administration's corruption..  These included a website, entitled "Tracking Trump's Conflicts of Interest" published by the Sunlight Foundation, and two articles published in the Washington Monthly in January, 2018. "Commander-in-Thief," categorized Mr Trump's conflicted and corrupt behavior.  A Year in Trump Corruption," was a catalog of the most salient cases in these categories in 2017.

In July, 2018, we addressed the Trump regime's corruption again  By then, more summaries of Trump et al corruption had appeared.   In April, 2018, New York Magazine published "501 Days in Swampland," a time-line of  starting just after the 2016 presidential election. In June, 2018, ProPublica reviewed questionable spending amounting to $16.1 million since the beginning of Trump's candidacy for president at Trump properties by the US government, and by Trump's campaign, and by state and local governments. Meanwhile, Public Citizen released a report on money spent at Trump's hospitality properties.


In October, 2018, we summarized the content of the Tracking Corruption and Conflicts of Interest in the Trump Administration from the Global Anti-Corruption Blog. The blog organized corrupt activities within the Trump administration into the following categories:

1. U.S. Government Payments to the Trump Organization

2. Use of the Power of the Presidency to Promote Trump Brands

3. U.S. Government Regulatory and Policy Decisions that Benefit Business Interests of the Trump Family and Senior Advisors

4. Private and Foreign Interests Seeking to Influence the Trump Administration Through Dealings with Trump Businesses

The voluminous 26 page report showed  that many examples of corruption by Trump et al were not one-offs, but were long-term activities.  For example, every time President Trump travels to on of the properties he owns through the Trump Organization, like the Mar-a-Lago resort in Florida, the US government is obligated to pay the Trump Organization, hence Trump himself for expenses like the Secret Service renting golf carts.  Each such payment seems to violate the "domestic emolument clause" of the US Constitution, which prohibits state or US government payments to a President for anything other than his salary.  Also, every payment made by a foreign government to the Trump Organization, such as for hotel accomodations or events at Trump Organization properties, appears to violate the "foreign emoluments clause" of  the US Constitution, which prohibits payments by a foreign government to the US President.

In April, 2019, we noted more new and updated sources on Trump administration corruption, including Bloomberg's interactive guide, and updated versions of the Global Anti-Corruption Blog's tracker (see above), and the Sunlight Foundation's "Tracking Trump's Conflicts of Interest" project.

Updates on the Corruption of the Trump Administration

The Trump regime continues to spin off a chaotic barrage of news and distractions, making it hard to concentrate on any one topic.  Unfortunately, discussion of conflicts of interest and corruption has been muted as news media, the pundit class, and everyone else has scrambled to keep up.  Nevertheless, there have been a few recent developments.

Updates of the Sunlight Foundation's "Tracking Trump's Conflicts of Interest"

 The Sunlight Foundation's "Tracking Trump's Conflicts of Interest" project is frequently updated, most recently in August, 2019.  Posts have appeared generally weekly, with the most recent examples focusing on: White House adviser KellyAnne Conway's alleged violations of the Hatch Act, and the properties owned by Trump's son-in-law Jared Kushner's real estate company (look here); an ongoing lawsuit against the Trump Organization (look here); and the continuing battle to obtain financial disclosures from Trump and the Trump Organization (l.ook here)


New Source: the New CREW Report

CREW is the Citizens for Responsibility and Ethics in Washington, a non-profit watchdog organization formed after the 2016 election.  We noted their blog in the April, 2019 update.  Now CREW has published a report on Trump's and colleagues' conflicts of interest, headlined: Trump's 2,000 Conflicts of Interest (and Counting).

The document was organized into these chapters:

- Visits to Trump properties by Trump, White House officials, members of Congress, foreign officials, and corporate executives

-  Political events and spending at Trump properties

- Blurring the line between the White House and the Trump Organization

- International travel and businesses

The report also included an updated summary of over 2300 of Trump's, Trump's family's, and Trump's business' conflicts of interests and apparent corrupt activities, showing the huge scope of the problem:

The president has visited his properties 362 times at taxpayer expense during his administration, sometimes visiting more than one of them in a single day. In 2019 alone, he has visited his properties 81 times, helping to further establish them as centers of political power. The number of days where President Trump has spent time at a Trump-branded property account for almost a third of the days he’s been president.

One-hundred eleven officials from 65 foreign governments, including 57 foreign countries, have made 137 visits to a Trump property, raising the question of how much foreign money has been spent at Trump’s properties.

Additionally, CREW has recorded 630 visits to Trump properties from at least 250 Trump administration officials. This includes high-level White House staff, members of Trump’s cabinet, and individual agency employees. So far this year, CREW has recorded 198 visits by White House officials. Ivanka Trump—who has an ownership interest in the Trump hotel in D.C.—and her husband Jared Kushner, both senior White House advisors, are the most frequent executive branch officials to visit Trump properties, other than the president himself. Jared has made 28 known visits, while Ivanka has made 23.

Members of Congress have flocked to President Trump’s properties, despite their constitutional oversight responsibility to provide a check on the executive branch as it relates to President Trump’s conflicts of interest. Throughout his two and a half years as president, 90 members of Congress have made 188 visits to a Trump property.

Forty-seven state officials, including 20 Republican governors, have made 64 visits to Trump properties, sometimes resulting in state taxpayer funds being spent there.

President Trump has used the presidency to provide free publicity for his properties, which he still profits from as president. Over the course of his presidency, Trump has tweeted about or mentioned one of his properties on 159 occasions, and White House officials have followed suit: Members of Trump’s White House have mentioned a Trump property 65 times, sometimes in the course of their official duties.

Political groups have hosted 63 events at Trump properties since President Trump took office, selling wealthy donors access to the administration while also enriching the president. Seventeen of these have been for Trump-linked groups, and another six have been hosted by groups linked to Vice President Mike Pence. Trump Victory, the joint fundraising arm of Trump’s 2020 election committee and the RNC, has hosted six events at Trump properties just this year, four of which were attended by the President himself. In all, the RNC and other Republican Party groups have had 28 events at Trump properties.

Twenty Trump administration officials have attended 38 political events at a Trump property, giving wealthy donors who fund spending at the president’s businesses access to top officials to discuss their pet issues while they enrich President Trump personally.

Political groups have spent $5.9 million at Trump properties since President Trump took office. So far this year, political groups have spent $1.1 million at Trump properties. In more than a decade prior to his run for president, Trump’s businesses never received more than $100,000 from political groups in a single year.

The Trump Hotel in Washington, D.C. is the top beneficiary of this political spending. In just over two and a half years, the hotel has raked in $2.4 million in traceable political spending.

Foreign governments and foreign government-linked organizations have hosted 12 events at Trump properties since the president took office. These events have been attended by at least 19 administration officials.

Thus it appears that the Trump administration functions as a giant marketing operation for Trump and the Trump Organization.  Furthermore, elected officials, almost entirely from the Republican party, and appointed administration officials have had significant roles in enriching Trump and the Trump Organization.  This appears to be corruption at a breath-taking level unheard of in US history.

This amazing record should also be considered in light of Trump and family's record of legal and ethical issues prior to the presidency.  Despite accusations of ties to organized crime, kickback, fraud, violations of gaming regulations, violations of rules governing non-profit organizations, violations of rules about money laundering, perjury, Trump and his family members often escaped investigation and always escaped any negative consequences, thus demonstrating impunity (look here). 

Summary

We now have had continuous reporting for years of massive conflicts of interest and extensive corruption permeating the executive branch of the US government.  Nonetheless, this topic has been virtually buried under the flood of chaotic news that emanates from the Trump administration every day.

To underscore what we wrote in October

So the driver of US health care corruption may now be the executive branch of government and its relationship with the Trump family and cronies, trumping even the influence of health care corporate corruption.

That corruption appears to be ongoing, worsening, and remains largely anechoic. 

In November, 2017, we noted a report by Transparency International of an international survey of corruption perceptions showing substantial minorities of US respondents thought that US corruption was increasing, and was a particular affliction of the executive and legislative branches of the national government, other government officials, and top business executives.  There was virtually no coverage of these results in the US media, just as there was virtually no coverage of a 2013 survey that showed 43% of US respondents believed that US health care was corrupt.

Similarly, despite, or perhaps because of their tremendous scale, the reports about Trump related corruption listed above have generated little discussion.  Despite the extensive and ever-increasing list of apparently corrupt acts by the Trump and cronies, grand corruption at the top of US government, with its potential to corrupt not just health care, but the entire country and society, still seems like a taboo topic.  The US news media continues to tip-toe around the topic of corruption, in health care, of top health care leaders, and in government, including the top of the US executive branch.  As long as such discussion seems taboo, how can we ever address, much less reduce the scourge of corruption?  The first step against health care corruption is to be able to say or write the words, health care corruption.

So we welcome any additional attention to health care corruption, or the larger corruption within the US government that is making health care corruption even harder to address.

But even if we can take that step, when the fish is rotting from the head, it makes little sense to try to clean up minor problems halfway towards the tail. Why would a corrupt regime led by a president who is actively benefiting from corruption act to reduce corruption? The only way we can now address health care corruption is to excise the corruption at the heart of our government.

It is now over 30 months since Trump was inaugurated, and there has been no real progress.  The fish is still rotting, and so is health care.  What will it take to make something happen?

A Sale of One Residency Program - the Commercialization of Health Care and now Residents Treated Like "Assets"

We recently posted (here and here) about the decline and impending closure of a once major urban safety-net teaching hospital, the Hahnemann University Medical Center.  This was the final common pathway of a downhill progression for an over 170 year old institution.

[Hahnemann Hospital in 1925]

Since the 1990s, it had been a non-profit university academic medical center, which was then merged into a non-profit health care system (Allegheny Health Education and Research Foundation, or AHERF), which was mismanaged into a bankruptcy of historic proportions (look here).  After that, the hospital wound up part of the  for-profit Tenet chain.  Two years ago, after reportedly losing millions of dollars a year for its corporate owner, it was sold to a private equity group, Paladin Healthcare, and made part of their American Academic Health System LLC.   Now, the new owner decided it was losing too much money, and declared bankruptcy.

The final closure of Hahnemann left patients, often indigent or vulnerable, with no ready source of health care, and thousands of health care professionals and staff without their jobs.  New coverage of these events revealed in particular the plight of the hospital's nearly 600 house staff.

The Plight of the Residents

On July 10, 2019, a Medscape article summarized the state of play:

The 570 residents who started their programs just more than a week ago at Hahnemann University Hospital in Philadelphia, Pennsylvania, are scrambling to find new positions in light of the announced closing of the hospital.

Third year medical resident Thomas Sibert MD described their situation. He had:

just started his third year as an internal medicine resident at Hahnemann. Now, instead of focusing on finding a fellowship, he must simultaneously find another residency as well.

'The people we are counting on for recommendations are themselves also looking for jobs,' he told Medscape Medical News. 'The attendings have been endlessly supportive. They've been working for the fellows at the same time they're working for their residents interested in fellowships and looking for their own jobs.'

He described some of the worries the residents are facing.

Many have signed full-year leases for housing and some landlords have been unwilling to break them, he said. Because the areas near Philadelphia can only at this point — depending upon pending solutions — take a percentage of the displaced, others will need to move across the country and some states will require getting a new medical license with potentially months of background checks.
The consequences are especially severe for interns, Sibert said.

'They are going to enter their new hospitals with very little clinical exposure because the number of patients and the resources at Hahnemann have been so severely reduced,' he said.

A few days later, on July 15, a Philadelphia Inquirer article revealed another threat to some of the house staff:

Fifty-five Hahnemann University Hospital residents holding J-1 visas face the possibility of deportation if they cannot secure a position in an accredited program within 30 days of the hospital’s closure.

The visas enable foreign physicians to come to the U.S. for training at accredited medical schools.

The Solution: Sell the Residency?

The current and final owners of Hahnemann had a solution, of sorts.  The Philadelphia Business Journal reported their plan as of July 10, 2019, was to sell the residency program.

Hahnemann University Hospital and Tower Health said Wednesday they have entered into a letter of intent to transfer the majority of the residency and fellowship programs at Hahnemann/Drexel University to Tower Health.

Under the letter of intent, Tower Health will assume the responsibility for the continued training of the more than 550 residents and fellows in these programs — while giving those physicians-in-training the right to be placed in one of Tower Health’s six hospitals.

Also,

Tower Health said it will seek to hire the faculty who are currently training the residents and fellows to ensure continuity of the Hahnemann and Drexel training programs.

The July 15, Inquirer article noted that it really was a sale, not a "transfer,"

Tower Health has offered $7.5 million to buy Hahnemann’s 500-plus residency and fellowship slots, as well as the hospital’s Medicare ID number, which dictates the number of medical residents for which the hospital can receive federal funding.

However, that article also suggested that this plan might need some work. To begin, Tower Health had no structure to take on the complexity of the Hahnemann program:

But Tower has only eight accredited programs — significantly fewer than the 35 programs currently operating at Hahnemann, according to a court filing in the Hahnemann bankruptcy case. That’s a problem for many residents, but especially for those with J-1 visas.

'We are very concerned about them,' said Jaime Sanders, an anesthesiologist at Hahnemann. Under the terms of their visa, they cannot have any 'gaps' in their program, which will end when the hospital closes. Closure is slated for September.

Another question was would Tower have the faculty to teach and supervise the residents? On July 18, 2019, an Inquirer article noted that a lot of the Drexel University faculty who were involved in the Hahnemann residency program were slated to lose their jobs:

About 40 percent of Drexel University physicians and clinical staff will lose their jobs as a result of the planned closure of Hahnemann University Hospital, Drexel president John Fry announced in an email to the university staff Thursday morning.

Tower Health was supposed to take on some of them, but the details were unclear.

Fry said that Tower Health Medical Group will become the college’s new partner and will be able to offer approximately 60 percent of the 800 clinical faculty and staff within the program employment in their current jobs. Tower also expects to be able to offer about half of the remaining 40 percent comparable positions at similar pay at Tower locations in Reading, Chestnut Hill, and the Philadelphia suburbs, said Jill Tillman, CEO and associate dean of Drexel University Physicians.

The 800 clinical faculty and staff include 245 physicians who received severance notices on Thursday, though many of them will be offered employment through Tower, Tillman said. Tower has offered to keep all primary care physicians, she said, minimizing disruption to patients.

And again, where exactly would these faculty fit in at Tower Health?

that six-hospital system does not have all the accredited training programs it would need to accommodate Hahnemann’s 500-plus residents. The plan is also subject to approval by U.S. Bankruptcy Court, which has scheduled a hearing for Friday.

Drexel plans to eliminate certain health-care service lines as a result of the closure, Fry said.

In a separate email to staff on Thursday, Drexel senior vice president for medical affairs Daniel V. Schidlow provided some details about which medical services Tower would seek to retain. Family medicine and internal medicine, including primary care, would continue in their current Drexel Medicine practice locations. Tower wants to meet with physicians and clinical staff in emergency medicine, surgery, cardiology, and other specialties 'about employment opportunities' within Tower’s system.

Tower’s Chestnut Hill Hospital — its only property in Philadelphia — does not have a maternity unit, but Schidlow said Drexel’s obstetricians and midwives may be offered jobs within the Tower system.

Many of the residents were totally unconvinced that this plan would work, or that it had their interests at heart.  A Bloomberg article on July 19, 2019, described their plea to the bankruptcy judge,

The bankruptcy sale of Hahnemann University Hospital’s education program is treating more than 570 doctors as financial assets and threatening their ability to complete the final stage of their specialized medical training, a group of hospital residents told a judge overseeing the case.

About 20 hospital residents, most wearing medical coats bearing the Drexel University College of Medicine logo, asked U.S. Bankruptcy Court Judge Kevin Gross to force the hospital’s owner Philadelphia Academic Health Systems LLC to guarantee the doctors have continued access to the federal Medicare money that pays their salaries.

'The residents of Hahnemann are not assets,' said Dr. Raluca McCallum, a resident who spoke from a prepared statement in court on behalf of her colleagues. McCallum said the residents have continued to provide the highest level of patient care possible 'for Philadelphia’s sickest, poorest and most downtrodden population.'

Nonetheless, the judge seemed willing to use a market approach to decide the house staff's fate:

Gross gave the company permission to set up a potential auction for the residency program with an initial bid of $7.5 million from Tower Health, a health care company that owns hospitals in the region. They are an owner of hospitals and related medical facilities in the area.

Today, the Inquirer just reported that Tower did not win the bidding war for the residents and their program.

Hahnemann University Hospital’s residency slots fetched a $55 million winning bid from team of six local health systems at Thursday’s bankruptcy auction, topping bids by Tower Health and a California company that wants to reopen the Center City hospital.

Christiana Care Health System, Cooper University Health Care, and Main Line Health joined Einstein Healthcare Network, Jefferson Health, and Temple University Health System in the winning bid

This begs the question of how one could run a residency program currently populated by house staff based in Philadelphia that is split among six large hospital systems spread from Delaware to New Jersey.  Organizing something like that would be a huge, perhaps unprecedented undertaking.

Would former Hahnemann residents now shuttled around to destinations including multiple hospitals in six systems and three states feel even more like assets, or widgets?  As the man says, we shall see.


Was an Asset Sale the Plan All Along?

Given that Hahnemann had been placed under the tender protections of a for-profit hospital corporation along time ago, after it ended the abusive relationship with the failed AHERF (look here),  maybe it should not have been a big surprise that the finale would be asset sales.

An opinion piece in Bloomberg contained observations by Prof Alan Sager of the Boston University School of Public Health, including:

Hahnemann has posted operational losses every year from 2004 to 2018, a 'remarkable' record, said Sager, who reviewed public documents kept by Pennsylvania on hospital finances.

Yet despite sustaining such apparent "losses" for 14 years, Tenet seemed to not be interested in trying to turn the hospital around.  An article in the Inquirer from July 20, 2019, featured an interview with the president of Drexel University, whose medical school was tied to Hahnemann.  It stated,

When John Fry became president of Drexel University in 2010, he inherited a medical school that was hobbled by its relationship with Hahnemann Hospital, where aspiring doctors got hands-on training.

Serving mostly poor Philadelphians, the historic facility was struggling financially. Important maintenance kept on being put off, he said, and there was only 'passive interest' from the hospital’s for-profit owner, Tenet Healthcare Corp.

'We wanted a first-rate place to educate our students and treat our patients,' Fry said in an interview Thursday, "and we never had that.”

Why would Tenet continue to own and operate a hospital that lost money for 14 straight years without making any apparent effort to improve the situation?  In my humble opinion, there is only one explanation that makes sense.  The losses were an illusion, product of an accounting trick.  Tenet was extracting money from the hospital, possibly in the guise of administration/ management expenses charged to Hahnemann, as if the hospital was a stand-alone entity, not a subsidiary of Tenet.  Those charges led to a sham analysis that showed chronic deficits.  When Tenet got tired of stripping assets, or the assets available for stripping were drying up, it was time to sell.

After Paladin Healthcare, a private equity firm bought the hospital, asset sales were clearly in the cards.  A CBS News article featuring an interview with a disillusioned Hahnemann nurse recited what we already know about how private equity works, in health care as well as elsewhere. It included a discussion by an expert on private equity who explained why these firms are now so interested in health care:

The expectation that health care will provide a sure return in volatile economic times, said Eileen Appelbaum, co-director of the Center for Economic and Policy Research and an expert on private equity.

'Health care is a major area of investment for private equity,' Appelbaum said. 'They look at health care the way they used to look at supermarkets. They said, 'People have to eat, so this is safe investment.' Now they are saying that about health care.'

However, the private equity playbook may spell doom for the health care organizations such firms acquire:

Private equity funds acquire companies that are struggling or distressed yet still have value. PE executives then direct management to make operational changes in order to boost a business' performance. The goal is to turn around the businesses and eventually sell them for a profit.

But private equity firms also tend to raise money by issuing debt from their target company, which critics say can make it tougher for a struggling company to make a recovery. In the worst cases, critics say, fragile businesses can be pushed into insolvency by their new debt burdens.

The reason Tenet bought Hahnemann after the AHERF bankruptcy, and the reason Paladin was willing to buy the hospital from Tenet may have been all about the value of the real estate involved, not the health care or medical education the hospital provided.

But in Hahnemann's case, economist Appelbaum said, it appears the hospital was bought for the value of its real estate, not for its mission to provide care to low-income Philadelphians. The hospital is located near a burgeoning arts district in central Philadelphia, as well as Temple University, which makes the land valuable to developers.

'It's the first time I know for a hospital being bought by a private equity company in what appears to be a pure real estate play,' she said.

Again, the article highlighted the steps that neither Tenet nor Paladin took that might have kept the financially ailing hospital - if indeed it was - afloat.

To make Hahnemann a financially viable hospital, its management could have taken several steps, such as buying hospitals in wealthier, suburban neighborhoods, which would have diversified its revenue. It could have also opened smaller, urgent care clinics, which are increasingly popular with patients, she said. "They did none of those things," she said. 'Surprise, surprise, the hospital tumbled more and more into the red, then 18 months later they went to bankruptcy.'

In any case, in the private equity model, once the decision was made to declare bankruptcy, the residency program became just another, and relatively inconsequential asset to be sold.  The residents, and faculty, like the patients, were just subjects of collateral damage.Why shouldn't they all be outraged?

Graduate Medical Education Adrift in a Sea of Commercialized Health Care

In 2007, Dr Arnold Relman wrote(1) that physicians' core values are threatened:

Endangered are the ethical foundations of medicine, including the commitment of physicians to put the needs of patients ahead of personal gain, to deal with patients honestly, competently, and compassionately, and to avoid conflicts of interest that could undermine public trust in the altruism of medicine.

These threats arose from "the growing commercialization of the US health care system." This has been abetted by physicians who accept "the view that medical practice is also in essence a business." Thus, "the vast amount of money in the US medical care system and the manifold opportunities for physicians to earn high incomes have made it almost impossible for many to function as true fiduciaries for patients."

Since 2007, nothing has stopped the march to an ever more commercially focused US health care (non-)system.  Meanwhile, the mission of taking the best care of each patient, and thus necessarily providing adequate education to health care professionals, fades into the rear view mirror.

Although the original argument for the commercialization of health care came from neoliberalism, (or market fundamentalism) especially in its dogma that:

harshly reinstated the regulatory role of the market in all aspects of economic activity and led directly to the generalisation of the standards and practices of management from the private to the public sectors. The radical cost cutting and privatisation of social services that followed the adoption of neoliberal principles became a public policy strategy rigorously embraced by governments around the world(2)

 Yet, as Prof Sager pointed out in the Bloomberg article,

'This is a symptom of the underlying anarchy that pervades U.S. healthcare,' Alan Sager, a professor of health law, policy and management at the Boston University School of Public Health, said referring to the plan to shut Hahnemann. 'Nobody is accountable for identifying the hospitals that are needed for the public. There is no free market and there is no government accountability.'

Neoliberalism may seem like a lot of economic mumbo jumbo, but ask the patients and staff of the former Hahnemann University Medical Center, and the house staff and faculty of its former residency program about its impact.

If only we could go back to a time when hospitals were non-profit community and/or academic institutions, when for-profit hospitals and the commercial practice of medicine was banned, when anti-trust laws were enforced to prevent ever growing corporations from enforcing ever growing power.  If only...

Such drastic changes, however, would all greatly threaten those who have become wealthy off the current system.  Think of the former CEO of AHERF, the current CEO of Tenet, the owner of Paladin Healthcare, and indirectly, all those plutocrats and oligarchs out there.

However, unless the public is willing to discomfit these plutocrats and oligarchs, what happened to Hahnemann and its residency program will likely soon seem like a trivial problem compared to what will come next. 


References

1. Relman AS. Medical professionalism in a commercialized health care market. JAMA 2007; 298: 2668-2670. [link here]

2.  Komesaroff PA, Kerridge IH, Isaacs D, Brooks PM.  The scourge of managerialism and the Royal Australasian College of Physicians.  Med J Aust 2015; 202: 519- 521.  Link here.