A Pandemic of Silence: Hospital Managers Intimidate and Punish Coronavirus Whistle-Blowers

Under cover of a pandemic, managers and executives of hospitals, hospital systems, and other organizations that provide direct patient care are trying to silence health care professionals who point out leadership's failings.  We have seen a distressing parade of whistle-blowers intimidated and punished.

On March 25, an article in Medscape stated the basic problem.Per an anonymous orthopedic surgeon:

'It’s very clear; no one is allowed to speak for the institution or of the institution,' he said in an interview. 'We get a daily warning about being very prudent about posts on personal accounts. They’ve talked about this with respect to various issues: case numbers, case severity, testing availability, [and] PPEs.'

This clearly is not rare.

The silencing of physicians by hospitals about PPE shortages and other COVID-19 issues has become widespread, said Nisha Mehta, MD, a physician advocate and community leader who writes about PPE on social media. Physicians are being warned not to speak or post publicly about their COVID-19 experiences, including PPE shortages, case specifics, and the percentage of full hospital beds, Dr. Mehta said in an interview. In some cases, physicians who have posted have been forced to take down the posts or have faced retribution for speaking out, she said.

'There’s definitely a big fear among physicians, particularly employed physicians, in terms of what the consequences may be for telling their stories,' Dr. Mehta said. 'I find that counterproductive. I understand not inducing panic, but these are real stories that are important for people to understand so they do stay home and increase the systemic pressure to get sufficient PPE, so that we can preserve our health care workforce for a problem that is going to get worse before it gets better.'

Here is our round-up of specific cases, in the order that they came to light

Three Cases, Two Anonymous of the Silencing of Health Care Professionals who Blew the Whistle about Coronavirus Safety Issues

The Medscape article included:

an Indiana hospitalist who took to social media to ask for masks for hospitals in his area says he was immediately reprimanded by his management after the posts came to light.

Another frontline physician who works at a large New York hospital, said staff have been cautioned not to talk with the media and to be careful what they post on social media regarding COVID-19. The general rule is that only information approved by administrators can be shared

The Medscape article also detailed this case:

 [a] nurse, Lauri Mazurkiewicz, sent an email to staffers at Northwestern Memorial Hospital stating the surgical masks provided by the hospital were less effective against airborne particles than were N95 masks, according to a lawsuit filed March 23 in Cook County Circuit Court. Ms. Mazurkiewicz was terminated the next day in retaliation for her email, the lawsuit alleges.

In the short time since that article was published, more specific, and egregious examples have appeared

Emergency Physician Employed by TeamHealth, Owned by Private Equity Firm Blackstone, Fired at the Behest of PeaceHealth for "Inciting Public Fear"

Perhaps the best documented case is that of Dr Ming Lin.  As reported by the Seattle Times on March 29, 2020,

Dr. Ming Lin worked at PeaceHealth St. Joseph Medical Center for 17 years until he was removed on Friday by TeamHealth, a national staffing firm under contract to provide the hospital’s emergency department personnel. Lin became a national avatar for frustrated health care professionals during the COVID-19 outbreak by speaking up in the press and on social media with pleas for more medical supplies and stronger standards to protect health care workers combating the virus.

On March 16, Lin posted a letter on Facebook he’d sent to PeaceHealth St. Joseph’s chief medical officer, outlining how the hospital was mismanaging patient COVID-19 testing and exposing health care personnel and patients to unnecessary risks. He decried the hospital’s internal bureaucracy that prevented some doctors from ordering coronavirus tests, including a 'ludicrous' requirement that a flu test be completed before providing patients coronavirus screenings. Lin also criticized the hospital’s lack of a triage tent outside the emergency room to screen and test patients, to limit exposure of other patients and staff to potential infection.

'PeaceHealth is so far behind when it comes to protecting patients and the community, but even worse when it comes to protecting the staff,' Lin’s letter said.

The hospital's immediate response was to ask Dr Lin to "retract" or "recant" what he said.  When he refused, first

TeamHealth said Lin technically was not fired and remains employed by the company, but will no longer work at PeaceHealth St. Joseph Medical Center. A PeaceHealth St. Joseph spokesman on Friday confirmed Lin’s termination but declined to comment further because Lin was not directly employed by the hospital.

Note that:

TeamHealth was acquired by the Blackstone Group, a private equity firm, in 2016 for $6 billion. Since then, the company came under fire for a pattern of suing uninsured and low-income patients who were unable to pay their medical bills, but discontinued the practice after it gained public attention in the news.

An April 6, 2020 article in the Seattle Times disclosed the hospital's rationale for firing Dr Lin

Richard DeCarlo, chief operating officer of PeaceHealth, which operates Bellingham’s St. Joseph Medical Center, likened Lin’s public warnings about workplace coronavirus concerns to 'yelling fire in a crowded theater.'

that is,

allegedly inciting public fear by criticizing the hospital’s emergency precautions.

thus begging the question of what it was the public might fear.  Perhaps he was afraid they would fear going to his hospital, thus suppressing its revenues?

Note further that Mr DeCarlo, according to his official PeaceHealth biography, has no apparent experience of expertise in medicine, health care, or public health. The CEO apparently is a registered dietitian with no recent experience in medicine, health care, or public health.


NYU Langone Health Threatens to Fire Physicians who Talk to Press Without Authorization

The Wall Street Journal  reported on March 31, 2020 that after the head of the Department of Emergency Medicine at NYU Langone sent a message to physicians implying that they should consider withholding ventilators from some critically ill patients, the physicians

also got got a reminder not to speak to news reporters without permission from NYU Langone's Office of Communications and Marketing.

Kathy Lewis, executive vice president for communications and marketing, said in an email that NYU Langone's longstanding policy required faculty, residents and staff to forward all media inquiries to her.

'Anyone who does not adhere to this policy, or who speaks or disseminates information to the media without explicit permission of the Office of Communication and Marketing, will be subject to disciplinary action, including termination,' Ms Lewis wrote.

A blog post from the Foundation for Individual Rights in Education (FIRE) decried this threat to health care professionals' free speech about pandemic preparedness stated:

free speech and academic freedom do not become less important during a crisis, and that it’s critical that faculty members — many of them serving on the front lines of the pandemic — be able to share information with the broader public.

'It is precisely in times of crisis that it is most important that lines of communication to the public be open,' said Robert Shibley, FIRE’s executive director. 'These faculty members are there because they’re the experts. Inhibiting their ability to communicate important information about COVID-19 presents enormous risks.'

Consider also the source of the threat.  Note that according to her official bio,

Kathy Lewis, executive vice president for communications and marketing, is responsible for the advancement of NYU Langone Health’s unique brand identity as one of the nation’s premier centers for excellence in clinical care, biomedical research, and medical education.

Furthermore, Ms Lewis' qualifications to threaten physicians with termination appear to be limited to:

a BA from Montclair State University and an MA from Seton Hall University.

So the implication is that even in the midst of a deadly pandemic, the managers running NYU Langone think upholding the organization's brand identity comes before transparency and honest communication.

Note that this is not the first time Langone has put its brand identity ahead of transparency about disaster preparedness.  Back in 2012, after the medical center suffered a blackout and other problems due to super-storm Sandy, its board chairman, Mr Kenneth Langone, whose name the medical center carries, vociferously tried to avoid institutional accountability for poor disaster planning (look here.)  Mr Langone, a founder of Home Depot, who as described here had previously boasted

I am a fat cat, I'm not ashamed

is a big booster of President Trump (look here).

Other New York Hospitals Warn Health Care Professionals Not to Talk to Journalists

On April 1, 2020, Politico reported

As hospitals across New York City are filling up with patients gasping for air, health care executives are slapping gag orders on their workers to control the narrative amid the coronavirus pandemic.

Specific instances were:

Northwell Health recently sent medical professionals an email informing them all interviews with news media must first be cleared through the public relations department, a hospital employee told POLITICO.

Also,

Mount Sinai distributed its own set of guidelines discouraging speaking to the press and dictating social media policies as more health care professionals stepped forward to report problems in their hospitals. The guidance coincided with images shared on social media of employees wearing trash bags over their regular gear — an alarming picture from inside one of New York City’s premier and deep-pocketed health systems that has shaped public opinion of the shortage of personal protective equipment.

The email did not contain any reference to the ongoing pandemic or disciplinary action that could be taken, though some employees said the threat is present.

'I am very afraid I would be fired for [sharing the guidance with a reporter], which just makes me think they are more afraid of their image than actually having the patients cared for,' said one employee, who requested anonymity for fear of retaliation. 'I am a valuable asset, yet the fact that I am speaking up for my patients, colleagues and myself would have me terminated is not okay. It is an injustice that they overrule us with fear.'

A more recent New York Times article, from April 9, 2020, added:

'Do not respond or speak to any reporters, as well as current or former employees, regarding a pending news story,' wrote David A. Feinberg, the chief marketing and communications officer at the Mount Sinai Health System, in an email to all faculty and students on March 26.

In response,

health care workers on a coronavirus task force at Mount Sinai said they are demanding 'zero tolerance of employer retaliation or threats against those who are speaking up,' in a letter distributed among staffers and obtained by POLITICO.

Finally,

Eleven medical professionals across various health systems in New York City told POLITICO they signed nondisclosure agreements, had contracts that stipulated they not speak with the press without consent from their employer or feared losing their jobs if they spoke out publicly.

Mississippi Physicians Fired After Speaking Out

Health care professionals outside of states with the highest current coronavirus prevalence are not necessarily protected from punishment if they speak out.  On April 5, 2020, Mississippi Today reported:

An Oxford doctor is one of at least two Mississippi physicians claiming they were terminated for speaking out about their employers’ safety measures during the coronavirus pandemic.

Dr. Samantha Houston says she lost her job of four years at Baptist Memorial Hospital-North in late March for 'disruptive' behavior. In the weeks prior, Houston, a hospitalist, used Facebook to organize a local donation drive for masks and baby monitors so that hospital staff could cut down on face-to-face interactions with patients.

Houston, 34, also says she sent several emails to colleagues raising concerns about the availability of personal protective equipment, or PPE, for some workers.

'Every idea I had was just shut down and dismissed, and I just got very frustrated,' Houston told Mississippi Today. 'I just feel like they were not advocating for our safety, and that was what was so frustrating for me. And it really wasn’t even my safety. I felt safe enough because I had an N95 mask and I was able to get in there, but I felt like the nurses were not as safe.'

Also

Dr. Jennifer Bryan, who chairs the Mississippi State Medical Association board of trustees, told Mississippi Today that she knows of at least one other doctor in the state who was also fired for advocating for stronger safety measures.

A Los Angeles and Another New York Health Professional Punished

An article in the New York Times, April 9, 2020 included:

'They’re very protective of their reputation in the community,' said Jhonna Porter, a nurse who was suspended from West Hills Hospital in Los Angeles after raising safety concerns in a private Facebook group and publicly on her own page, including appeals for equipment. 'If anything seems like it might make them look bad, they’re going to stomp on it quick.'

And,

A doctor at Lincoln Medical and Mental Health Center in the Bronx, Deena Elkafrawi, was reprimanded after the British publication Metro quoted her as saying, 'I am scared that going to work could kill me,' according to the Committee of Interns and Residents, a national association that represented her.

Reactions to Silencing Health Care Professionals

Physicians Societies

Two physicians' societies have condemned hospital managers threatening or punishing health care professionals who spoke out about problems with hospitals' responses to the coronavirus pandemic. Per an April 4, 2020 Medscape article,

'Physicians have a professional and ethical responsibility and need to be able to speak out on these types of issues,' Robert McLean, MD, president of the American College of Physicians, told Medscape Medical News

The ACP is one of several professional organizations that have come out against attempts to silence physicians in recent days. Earlier this week, the ACP released a statement supporting physicians who shared concerns about their workplace conditions and lack of adequate PPE, while also rebuking attempts by hospital systems to silence clinician complaints or activism.

'We as a college felt the need to speak out about that and indicate that this is completely wrong,' said McLean. 'Physicians who are speaking out to make people aware of issues of public health and of public health concern should not be at risk of having their employment terminated or otherwise disciplined.'

According to the ACP's ethics policy, physicians who are able should speak out about public health issues for their safety and the safety of their patients, he said. 'The benefit to patients is that problems are identified and not swept under the rug.'

On Wednesday, the American Medical Association (AMA) also put out a short statement in support of physicians' right to advocate for their patients in the current climate:

'In recent weeks, as physicians have battled the COVID-19 pandemic, the question of when and how to express concern about conditions and safety has become a flashpoint for physicians and their hospital employers.'

The hospital managers trade association responded by minimizing the problem.

When contacted by Medscape Medical News to comment on these reports, the American Hospital Association (AHA) referred to a letter sent by AHA President and CEO Richard Pollack on March 27 to the consumer advocacy group Public Citizen, in response to a complaint filed by the group on behalf of themselves and 54 other organizations.

'Outside of the anecdotal reports you shared, the AHA has not heard any reports of hospitals or health systems restricting the free speech of physicians, nurses, or others regarding the conditions related to COVID-19,' the letter reads.

I wonder if the AHA is now aware of all the cases listed above?

Frontline Health Care Professionals

An April 9, 2020, article in StatNews discussed widespread anger among health care professionals over responses to coronavirus from health care leaders, including local and national government leaders, but also hospital leadership.  In particular,

Among the physicians, there’s a growing fear that they’ll face repercussions if they speak out.

Specifically,

'The thought of being fired right now, when my patients need me the most, is even more terrifying than the idea of potentially getting ill from Covid-19,' the Los Angeles primary care physician said.

Whistleblower International Network

The Whistleblower International Network (WIN) wrote a protest letter saying the coronavirus pandemic has led to "the largest attack on whistleblower in the world."

Coronavirus whistleblowers have been exposing inadequate health system capacity and delivery, public procurement problems, violations of health and safety and labor law, inequitable and ill-prepared global supply chains, unfair competition practices and market abuses, and large-scale violations of personal privacy rights. Employers and public authorities have responded to many of the doctors, scientists, and other frontline workers who told the truth by firing them. In countries like the US, UK, and Italy, such termination of employment is illegal whistleblower retaliation, but that hasn’t stopped employers. Other countries such as China, India, and Poland, employees don’t have any whistleblower rights on paper at all. In either scenario, employer retaliation chills others from engaging in public interest speech, which serves the overall mission of preventing the truth from getting to the community. The act of keeping the truth from the public during a pandemic is gross negligence, which is the deliberate and reckless disregard for the safety and reasonable treatment of others. Every time a whistleblower is retaliated against, the public’s rights are being trampled on too. Indeed, we are all victims in the wake of the largest attack on whistleblowers in the world.

The letter concluded:

Suppressing the truth is a clear and present danger to public health and safety that could turn the pandemic into a modern Black Plague. Employers and governments are silencing their early warning systems, but the effect is trans-national. The outrage must be as well.

Why Are Hospital Managers So Quick to Silence Health Care Professionals?

Thus threats against physicians and other health care professionals who blow the whistle about patient care and safety issues, and dangers to health care professionals in the era of the coronavirus pandemic are likely to continue. 

In medicine and health care, there is a long and sorry history of management trying to silence whistle-blowers who might put the leadership in a bad light.  As noted in the March 25 Medscape article,

John Mandrola, MD, a Louisville, Ky.–based cardiologist who has written about the recent muzzling of frontline physicians with respect to the coronavirus, said he is not surprised that some hospitals are preventing physicians from sharing their experience

'Before C19, in many hospital systems, there was a culture of fear amongst employed clinicians,' he said. 'Employed clinicians see other employed physicians being terminated for speaking frankly about problems. It takes scant few of these cases to create a culture of silence.'

We have been posting about problems with management and governance in health care for a long time.  Some of these problems seem to be grossly manifest in cases in which whistleblowers were threatened or punished to inspire silence, and may explain why the practice continues even in a time of pandemic.

Managerialism

In some cases above, the executives threatening to silence health care professionals were themselves not health care professionals, and seemed to have no direct medical, health care, or public health care experience. In two cases, executives in charge of  communications or marketing intimidated professionals to secure their silence. This implicates managerialism as a source of the problem.

Per an article from the June, 2015 issue of the Medical Journal of Australia (look here):
- businesses of all types are now largely run by generic managers, trained in management but not necessarily knowledgeable about the details of the particular firm's business
- this change was motivated by neoliberalism (also known as economism or market fundamentalism)
- managerialism now affects all kinds of organizations, including health care, educational and scientific organizations
- managerialism makes short-term revenue the first priority of all organizations
- managerialism undermines the health care mission and the values of health care professionals

Such generic managers, who have sworn no oaths to put patient care ahead of all other concerns, may have few qualms about silencing whistle-blowers to protect their organizations' and their own reputations. 

Putting Revenue Ahead of Patients' and Health Care Professionals' Safety

In several cases, hospital management seemed more concerned about loss of patients and revenue resulting from degradation of their hospitals' brand identity or reputation than about patients' and professionals' safety.

As noted above, managers of hospitals are increasingly from business, not health care backgrounds.  Whatever their background, they seem more likely to be influenced by currently fashionable management dogma.  A dominant dogma in management is that pursuit of shareholder value comes before all else.  Even though many, but not all hospitals are still ostensibly non-profit, many hospital managers have likely been influenced by this dogma.  As we posted here, quoting Lazonick:

in 1983, two financial economists, Eugene Fama of the University of Chicago and Michael Jensen of the University of Rochester, co-authored two articles in the Journal of Law and Economics which extolled corporate honchos who focused on 'maximizing shareholder value' — by which they meant using corporate resources to boost stock prices, however short the time-frame. In 1985 Jensen landed a higher profile pulpit at Harvard Business School. Soon, shareholder-value ideology became the mantra of thousands of MBA students who were unleashed in the corporate world.

Lazonick added:

When the shareholder-value mantra becomes the main focus, executives concentrate on avoiding taxes for the sake of higher profits, and they don’t think twice about permanently axing workers. They increase distributions of corporate cash to shareholders in the forms of dividends and, even more prominently, stock buybacks. When a corporation becomes financialized, the top executives no longer concern themselves with investing in the productive capabilities of employees, the foundation for rising living standards for all. They become focused instead on generating financial profits

So many hospital managers may have no qualms about punishing whistle-blowers to protect their organizations' revenues.


What Needs to Be Done?

In the short run, we must do all we can to protect health care professional whistleblowers, as suggested by the Whistleblower International Network above.

In the long run, hopefully assuming there is one, we further need to address the systemic features of our dysfunctional health care system that enabled the rise of leaders who are happy to silence health care professionals to preserve their organizations' reputations and revenue, no matter what.  We need leaders who put patient's and the public's health ahead of all else, and who understand and uphold health care professionals' values.  We need hospitals, hospital systems, and other organizations that provide direct patient care that are not responsible for producing profits for their owners or shareholders.

More Doubts About Private Equity Taking Over Not-for-Profit Hospital Systems

Last week, we posted about how buy-outs of not-for-profit hospital systems by private equity firms seemed to be a new fashion in health care.  Since then, new doubts have been raised about whether this is a good idea.

Detroit Medical Center, Vanguard Health, and the Blackstone Group

Letters to the Detroit Free Press raised concerns,

As a nonprofit corporation, DMC's mission is to provide quality health care to the community. Management is accountable to Detroit area citizens and health care consumers, not to profit-motivated investors.

As a private, for-profit corporation, its mission will be to provide profit for its shareholders. Management will be accountable to shareholders and will be rewarded in relation to the rate of return on their investments.

Also, the Free Press reported that a coalition of local not-for-profit organizations challenged the legality of the proposed sale,

The sale of the Detroit Medical Center to a for-profit Nashville company violates state law and raises issues about whether poor patients who depend on the DMC will be assured of care for years to come, three nonprofit Michigan organizations said today.

Marjorie Mitchell, executive director of Michigan Universal Health Care Network, said the organizations e-mailed today a three-page list of concerns about the sale to Michigan Attorney General Mike Cox.

Mitchell testified briefly today at the Detroit City Council about the issue and distributed the letter. The two other nonprofit organizations signing the letter were Metropolitan Organizing Strategy Enabling Strength, or Moses, an organization of community and religious leaders active on health issues, and Michigan Legal Services, a Detroit legal aid organization. The three groups called themselves the Coalition to Protect Detroit Health Care.

Citing a provision in state law, the letter said Michigan law is clear that nonprofit companies should not 'permit assets … to be used, conveyed or distributed for non-charitable purposes.'

'The mission of a for-profit is to serve the stockholders,' the letter to Cox said. The letter said it is the opinion of the three groups that the purchase by Vanguard of the DMC 'violates Michigan’s nonprofit corporation statute.'

The three organizations asked Cox to hold public meetings to answer questions about the impact of the proposed sale on the health of Detroiters, particularly uninsured people.

The groups also have questions about how the DMC’s $140-million charitable assets will be used as well as concerns that use of state Renaissance Zone money would benefit a for-profit company.

Caritas Christi Health Care and Cerberus Capital Management

Boston Globe news articles noted that Cerberus failed recently not only in its management of Chrysler, but of GMAC (now also bailed out by the US government), its management is secretive even for the opaque world of private equity, and it has no experience running "large medical systems." 
 
A letter by Dr Arnold Relman, distinguished former editor of the New England Journal of Medicine, warned,

Cerberus promises to keep the present hospital management, add much money beyond the purchase price toward the operation and improvement of the hospitals, maintain charity support, and not sell the system — for three years. After that, who knows? Cerberus follows its own interests, and it will take money out of the community, not contribute to it.

As a close observer of the for-profit hospital industry ever since its beginnings, I predict that Cerberus will sell to another business sooner or later, and the initial promises will be forgotten. That’s what happened at Framingham’s MetroWest Hospital.

Control over the kinds of medical services provided by the hospital would be lost. Unprofitable services such as pediatrics, obstetrics, and outpatient psychiatry would disappear. Business-owned hospitals will resist major reforms to control medical costs or reorganize a community’s medical services in the public interest.

Caritas Christi ran an advertisement in local papers that referred to Cerberus as its new "financial sponsor," suggesting that the company was going to give a still not-for-profit health care system a grant, quite different from what was really proposed, which was that Cerberus would become the owner of a formerly not for-profit health care system, thus rendering it into a privately held, for-profit system.  One wonders why the public relations people thought they needed to spin the deal thus.

Finally, the Boston Globe profiled current Caritas Christi CEO Dr Ralph de la Torre, who apparently negotiated a deal that would leave him "as chief executive of Caritas, while also putting him in charge of acquiring other hospitals for Cerberus." But the article raised questions about what sort of leader he would be. It characterized him as transformed "from doctor to dealmaker," who now "stands to win a much bigger payout." Worse, it suggested that winning, as evidenced by making more money than anyone else, rather than access to quality patient care, is his prime motivation.

He used to say, ‘It’s not about the money, but that’s one way people keep score.’

In addition, Dr De la Torre has now so transformed into a CEO that "he let his medical license lapse."

Summary

Let me note some people think that the notion that how much money one makes should be considered a "score," and that he who dies with the most money wins, was one of the central reasons for the global financial collapse. For example, Nancy Rapoport suggested some New Year's resolutions for corporate boards (in 2008!), including:

I will remind myself and my colleagues that the level of CEO compensation is not an indicator of the company’s performance and that the arms race towards excessively high executive compensation is not a winnable race. At the point when money becomes just a way of keeping score, compensation is probably too high.

Earlier in 2007, Michael Kinsley wrote presciently in Time about,

a development in the larger economy. For most people, the point of money is that you can buy things with it. But at the top, where people already can buy whatever they want, the purpose of money is keeping score: making sure that you don't slip down in the Forbes 400 list.

So, putting someone who believes that he must always make more money in order to keep "winning" in charge of a large health care system does not seem to be a recipe for better patient care or more access, but rather for ever-increasing executive compensation while making money becomes the overwhelming priority for the organization, completely eclipsing such quaint concepts as quality of care, reasonable costs, or adequate access.

Recent history has not shown that for-profit hospitals deliver cheaper, better, or more accessible care than not-for-profit institutions. While their presence has influenced not-for-profit hospitals to behave more like for-profit institutions, costs have risen inexorably while quality and access decline.  

Moreover, for-profit hospitals run by private equity (as opposed to publicly traded corporations) would likely to be even more opaque than they were when they were not-for-profit. Increasing opacity of health care would likely worsen, not improve our current problems.

Deals that turn not-for-profit hospital systems into privately held for-profit systems ought to be scrutinized ith extreme skepticism. The questions raised above about the currently proposed deals ought to be addressed, In addition, I would suggest that all such deals should be conditioned on a requirement that the taken-over hospitals, and their parent private equity companies have to disclose at least as much as both public for-profit health care corporations and not-for-profit health care organizations are required to disclose, e.g., their ownership, the make-up of their boards of directors, the compensation, in detail, of their most highly paid officers, employees, and board members, all conflicts of interest affecting their leaders, etc. By the way, maybe such disclosure should be required of all health care organizations above some reasonable minimum size. If private equity companies are unwilling to make such disclosures, maybe they should not be allowed to run health care organizations.

Now Private Equity Jumps into the Health Care Fray: Will Cerberus Do Better with Caritas Christi than It Did with Chrysler?

And now for an early report on what may be the latest fashion in the ongoing commercialization of US health care in the US.  In the last few weeks we spotted three stories that appear to be closely related.  (And thanks to one of our ever vigilant scouts for finding the first of these.)

Psychiatric Solutions and Bain Capital

The first story was in BusinessWeek in early March:

Psychiatric Solutions Inc., the operator of psychiatric facilities in 32 states, said it has been approached by a potential buyer.

A special board committee will consider possible responses and Goldman, Sachs & Co. has been hired as a financial adviser, the Franklin, Tennessee-based company said today in a statement.

Earlier today, the Wall Street Journal reported the company was in buyout talks with Bain Capital LLC.

Boston-based Bain manages about $65 billion in assets under management, according to the firm’s Web site.

The significance of this story was not initially clear. The proposed deal had not been consummated. Although there may be something jarring about a private equity firm running psychiatric clinics, the clinics were already run by a for-profit corporation.

Detroit Medical Center, Vanguard Health, and the Blackstone Group

About a week later, the Detroit News published a story about another deal,

The Detroit Medical Center is expected to announce today it will be acquired by a private Nashville-based health system that is to invest $850 million in improvements, The Detroit News has learned.

The nonprofit DMC, with nine general and specialty hospitals in Metro Detroit, will be acquired by Vanguard Health Systems, which has 15 hospitals in four states, several sources said. No money is changing hands in the transaction, but Vanguard will assume $300 million in DMC pension obligations and $200 million in bond debt obligations, a source said.

The article further noted,

Vanguard is majority-owned by The Blackstone Group, one of the nation's largest private equity firms, which gives it access to capital for improvements.

This did seem to be a done deal, and one that inspired all sorts of optimism. For example, Tom Walsh, a columnist wrote in the Detroit Free Press,

Just as the bankruptcies of General Motors and Chrysler marked the end of an unsustainable business model for Detroit's auto industry, Friday's deal to sell the Detroit Medical Center to a big for-profit hospital system is a game-changer for the funding and delivery of health care in metro Detroit.

Walsh felt,

three DMC leaders made a bold move -- before it was too late -- to secure access to the money needed to invest in critical technology and top talent.

because,

'We were being choked to death by the nonprofit business model,' Duggan, the DMC CEO, said Friday.

Walsh enthused,

Vanguard's proposed purchase of DMC for $417 million and a promised investment of $850 million more gives DMC a legitimate shot at survival and growth without anywhere near the pain and suffering that the GM and Chrysler retrenchment brought to the region.

It's hard to overstate what a godsend this deal could be for a wobbly city and state where the public sector is in no shape to help a major employer like DMC, if the banks and Wall Street are unwilling to provide capital.

Similarly, Detroit News' editors opined that Vanguard Health

owned by the investment group Blackstone ... promises to plow $850 million into the DMC facilities over 10 years. The cash will modernize all of the hospitals and provide for a major expansion of Children's Hospital.

The upgrades should enable DMC to compete with the best-appointed hospitals in Metro Detroit, and set a new competitive bar for health care in the region.

The most significant news for Detroit is that Vanguard will maintain the DMC's commitment to treat all patients, whether or not they have private insurance.

Caritas Christi Health Care and Cerberus Capital Management

But third time is the charm. Today, the Boston Globe reported,

Caritas Christi Health Care, the state’s second-largest hospital group, is set to disclose today that it has agreed to be acquired by New York private equity firm Cerberus Capital Management in an $830 million deal that hospital officials say will allow the chain to shed debt and make major improvements.

Under the agreement, Cerberus’s first investment in hospitals, Caritas Christi’s management in Boston will continue running the Catholic community hospitals. In addition, Cerberus has pledged to keep the system’s 12,000 employees and won’t sell the hospitals or take them public for at least three years.

The firm said it hopes to expand its hospital holdings nationally and in Massachusetts, potentially making Caritas a more formidable competitor with large Boston hospitals for many routine procedures.

All six Caritas hospitals, including the flagship St. Elizabeth’s Medical Center in Brighton, will remain open and follow the Catholic Church’s ethical and religious directives, among them a ban on abortions. But they would convert from nonprofit to for-profit businesses and begin paying taxes to state and local governments.

This deal is so new that it has not yet generated the sort of breathless enthuisiasm fostered by the Detroit Medical Center/ Vanguard Health/ Blackstone Group deal. But the Fall River (MA) Herald-News did note,

Officials with the Caritas Christi Health Care system and St. Anne's Hospital say an agreement to sell the system to Cerberus Capital Management will have a significant impact on improving services locally.

The agreement with Cerberus, announced Thursday, will not only ensure the system maintains religious and ethical directives, but also infuse the system with millions of dollars in capital to make infrastructure improvements in the system's facilities.

At St. Anne's that will mean vastly expanding the facility's emergency room, and allow for construction of planned operating and recovery rooms. The change will also allow St. Anne's to convert the recently acquired former St. Anne's School into a medical office complex.

'There will be more construction and expansion of the facility than any time in the history of the hospital,' Caritas Christi Chief Operating Officer Robert Guyon said.

It certainly does look like a trend now. In fact, today a Wall Street Journal blogger suggested that this trend may be an immediate, although perhaps unintended result of the health care (insurance) reform legislation that just passed in the US Congress:

Cerberus is planning to turn the Caritas Christi Health Care chain into a for-profit corporation in what it is likely the first sizable M&A bet on the newly minted Obama health-care overhaul law. [seemingly ignoring the Detroit Medical Center/ Vanguard Health/ Blackstone deal - ed]

Hospitals that serve the poor and previously uninsured are expected to benefit from Obama’s plan, which is expected to extend insurance to 32 million previously uninsured Americans. That means such hospitals are likely to have more patients who can actually pay their bills. It is hard not to see how that new cash-flow stream wouldn’t have private equity licking its chops.

That's funny, I did not think that a major reason to pass the bill was to benefit private equity.  Also, somehow the image of private equity honchos licking their chops over cash flow does not seem to fit with the breathless pronouncements above about improving quality, serving poor patients, etc.


Will Private Equity and Health Care be Good for Each Other?
In fact, it is not clear that these sorts of deals in the long run will be good for private equity, hospitals and health care providers, or patients. Barely mentioned in the coverage of the Caritas Christi / Cerberus deal was that at least one major past Cerberus deal, ironically located mainly in Detroit, home of the Detroit Medical Center/ Vanguard Health/ Blackstone deal, started with similar enthusiasm, but ended in disaster.

As the New York Times reported in 2009, Cerberus' buy-out of Chrysler was once also heralded with breathless enthusiasm.

'I thought, wow, this really signals a real change in the landscape here,' recalls a person who attended a Cerberus session who asked to remain anonymous because of agreements he signed. 'I guess it gave me hope. The auto companies needed an enormous amount of capital, and where else was it going to come from?

John W. Snow, a former Treasury secretary in the Bush administration and Cerberus’s chairman, also heralded Cerberus as Chrysler’s savior, likening the firm’s investment to the government rescue of Chrysler in 1979.

'Over 25 years ago, when Chrysler faced bankruptcy, it turned to the United States government for assistance,' Mr. Snow said at a National Press Club meeting in 2007. 'Today, Chrysler again faces new financial challenges. But it is private investment stepping in to inject much-needed support.'

However, the end results never did live up to the hype:

For [Cerberus Capital Management CEO] Steve Feinberg, the onetime owner of Chrysler, the past year has been a crawl toward defeat. He lost billions of dollars. He lost prestige. He lost his privacy. And he ended up a ward and supplicant of the federal government.

Mr. Feinberg took over Chrysler almost exactly two years ago, promising to revive the company. Chrysler filed for bankruptcy protection at the end of April.

One problem in retrospect seems to be the hubris of the private equity leaders:

Mr. Feinberg’s education at the hands of Chrysler, the government and economic reality is emblematic of the limits private equity players have encountered as they’ve sought to reap outsize returns while also contending that they had the smarts and managerial prowess to repair companies of any size.

Even after the beautiful plan turned to ashes, it is still not clear that these leaders realized their limits:

But, even now, Mr. Feinberg, a man who can play a decent game of chess while blindfolded, is hard-pressed to pinpoint many mistakes. Sitting in his office on Park Avenue, far away from the detritus that surrounds Detroit, he grows pensive when asked what he has learned from his audacious — and failed — effort to privatize and resurrect the legendary and deeply troubled auto giant. 'I don’t know what we could have done differently,' he says, crossing his arms on his chest. 'From the day we bought it, we worked hard to improve it.'

One wonders if Mr Feinberg has learned more about his previous failure as he now grasps Massachusetts' second biggest hospital system.

Summary
The Chrysler debacle, however, suggests there should be concerns about private equity firms buying out hospitals and other health care providers, for example:

- Will making a not-for-profit health care organization into a for-profit corporation really lead to more efficiency and lower costs? For-profit leaders tend to expect even larger compensation that not for-profit CEOs. Their decisions tend to driven by their short-term compensation, rather than the good of the organization.  For-profit corporations are supposed to generate profits for investors which may reduce re-investment in the corporation. 

The thirst for more executive compensation may be a driving factor in the deal, as hinted in the Boston Globe coverage of the Caritas Christi/ Cerberus deal:

While [current Caritas Christi CEO Ralph] de la Torre and other senior executives will retain their current salaries and benefits, they would be eligible for additional compensation from Cerberus based on the financial performance of the hospitals, Caritas officials said. They said the details of those financial incentives have yet to be worked out.

- Can private equity cost-cutting techniques and other turn-around techniques really work in the health care environment? The Chrysler/ Cerberus case reveals how private equity leaders may get out of their depth in complex business contexts. Health care is even more complex than the automobile industry.

- Finally, and more important, are for-profit hospitals and health care providers run by private equity really likely to be better at fulfilling their health care missions than they were when they were not-for-profit? I doubt there is any evidence that previous conversions of not-for-profit health care organizations to for-profit status improved health care, much less while simultaneously lowering costs and improving access. (Remember that many big health care insurance companies were once not-for-profit Blue Cross plans. Does Angela Braly's WellPoint provide better care to more people at lower cost?

But then again, when a Catholic charity teams up with an organization named for the three-headed dog that guards the entrance to Hades, maybe they will need to put ski lifts in there too.

To Whom Did the "Scorpions in a Bottle" Owe Their Allegiance?

In 2000, an important meeting took place between two men.

The first was a member of the board of directors of Merck Inc, the global pharmaceutical company, and of the board of Charles River Laboratories, which helps "our global partners accelerate drug discovery and development by providing them with tailored research models and preclinical, clinical, support services." The second was a member of the board of IMH Health, which advertises that it provides "global information, analytics and consulting" to support "the life cycle of medicines," from "the earliest stages of research and development through product launch, product maturation and patent expiration," and on the board of BankBoston Corporation, a national and international bank holding company. What might they have talked about?

It does not seem unreasonable to guess that they talked about pharmaceutical development. But that was not their topic.

In fact, the two men were Dr Samuel O Thier, who was then also the CEO of Partners Healthcare, and Mr William C Van Faasen, then CEO of Blue Cross and Blue Shield (BCBS) of Massachusetts. Their subject, as we discussed recently, was a secret increase in the reimbursement BCBS would give to Partners, far beyond the reimbursement given to other Boston teaching hospitals. Why BCBS was so willing to pay so much money to one hospital system is unclear. This revelation of this secret agreement showed how an important precept of the supposedly "market-based" US health care broke down. We had previously discussed that in a deregulated system, organizations like hospitals and health insurers/ managed care organizations were supposed to have negotiated vigorously for their interests. The former would try to maximize their reimbursement. The latter would try to minimize their costs. In the secret agreement between Thier and van Faasen, this did not happen.

I cannot explain why this secret agreement was made. I can point out some factors that may have been influential, but have not often been discussed.

The first factor is that the people leading health care organizations often have divided loyalties, and hence their actions on behalf of particular organizations may not be completely explained by their roles with these organizations, and consequent responsibilities and duties. For example, as noted above, the CEO of Partners also was a director of a pharmaceutical corporation, and a contract research/ drug development corporation. His responsibilities to advance the mission of Partners may have conflicted with his fiduciary duties to the stock-holders of Merck and Charles River Laboratories. Similarly, the CEO of Blue Cross Blue Shield was also a director of a drug development corporation and an international finance corporation. His responsibilities to advance the mission of Blue Cross Blue Shield may have conflicted with his fiduciary duties to the stock-holders of IMH Health and BankBoston Corporation.

The second factor may be revealed by considering the current leadership of the two organizations, leadership which has maintained the secret agreement (at least until it was made public).

The current Board of Trustees of Partners Healthcare, which has 16 members, includes:
- Jack Connors, the chair of the board, who is also the Chairman Emeritus of marketing communications company Hill, Holliday, Connors, Cosmopoulos Inc, whose clients include pharmaceutical and pharmacy benefits manager CVS / Caremark, and is also a member of the board of directors of Covidien, a medical device company.
- Anne M Finacane, who is chief marketing officer for Bank of America, an international financial corporation
- Steven S Fischman, who is President and Chief Operating Officer of New England Development, and real estate development and investment company.
- Edward P Lawrence, a member of the board of directors of Invesco, a global investment management corporation, and of AMVESCAP PLC, another global investment management corporation.
- Jay O Light, an "advisor/trustee to several corporate and institutional pools of capital," a member of the board of directors of Blackstone Group Management, the general partner of the Blackstone Group, a global investment and advisory firm, and a member of the board of directors of ESurg.com, an online source of health care supplies and information.
- Terrence Murray, who is on the board of directors of CVS/Caremark, and is former chair of FleetBoston Financial Corporation and its predecessor FleetBoston, into which BankBoston merged, and which subsequently merged into Bank of America.
- Gary A Spiess, former vice-president of FleetBoston Financial.
- Dorothy A Terrell, a venture partner of First Light Capital, a venture capital firm.
- David A Thomas, a member of the board of directors of Cambridge Trust Company.

The current Board of Directors of Blue Cross Blue Shield of Massachusetts, which has 18 members, includes:
- Mara Aspinall, senior advisor to Genzyme Corporation, a biotechnology firm, member of the board of directors of Predictive Biosciences, also a biotechnology company, and member of the board of trustees of the Dana-Farber Cancer Institute, a component of Partners Healthcare.
- Brian Barefoot, a former executive vice president and director of investment banking for PaineWebber Inc, an investment firm that was merged into UBS.
- Samuel Cabot III, a member of the board of directors of Fiduciary Trust Company, an investment management firm.
- Richard C Garrison, senior vice president and "catalyst" of Vertex Pharmaceuticals, a biotechnology company.
- Paul Guzzi, member of the Partners Healthcare corporation.
- Marian L Heard, is a member of the board of directors of CVS/ Caremark.
- Philip W Johnston is president and CEO of Johnston Associates, a consulting firm whose clients include Partners Healthcare, numerous medical device companies, including Covidien, and numerous other health care corporations.
- Cleve L Killingsworth, a member of the board of overseers of TIAA/CREF, an investment company.
- Karen Kruck, a senior managing director and head of strategy for State Street Global Advisors, an investment management company.

So another factor seems to be that the leadership of organizations which are supposed to negotiate at arms' length may have more in common with each other than with their organizations' constituencies. Note that these two boards have a lot in common. Both have disproportionate numbers of members who work or retired from one sector of the economy, financial services, and are or were top leaders within that sector. (Half, 8/16 of Partners board members are from this sector. 22%, 4/18 of the Blue Cross Blue Shield board are from this sector.) Keep in mind that of the employed US population, less than 6% work in this sector. This sector is also that which has brought us the global financial crisis.

There are also a variety of interlocks and overlaps among the two boards. These include:
- A major client of a firm run by a member of the BCBS board (Johnston) is Covidien, whose own board includes a member of the Partners board (Connors).
- Another major client of Johnston's firm is Partners itself.
- A member of the Partners board (Murray) and a member of the BCBS board (Heard) both sit on the CVS/ Caremark board.
- A major client of the former firm of a member of the Partners board (Connors) is CVS/ Caremark, a firm on whom a member of the BCBS board and a member of the Partners board sit.
- a member of the BCBS board (Aspinall) also sits on the board of a the Dana-Farber, a component of Partners.
- a member of the BCBS board (Guzzi) is also on the Partners corporation.

Finally, a number of the members of both boards have leadership roles in other health care corporations whose goals could conflict with Partners of BCBS respectively. Two members of the Partners board and three members of the BCBS board sit on the board of such health care corporations.

In summary, the current "market-based" approach to the organization of our health care system is based on the assumption that health care organizations will compete vigorously with each other, and different kinds of health care organizations will negotiate vigorously and at arms' length for their own interests.

However, it appears that the leaders of large health care organizations may have more in common with each other than with other members of their organizations' constituencies. For example, the leaders of a hospital system and of a health insurance/ managed care corporation may be more like each other than like their own employees, patients, trainees, etc. This may make it less likely that they will negotiate vigorously and at arms' length.

It also appears that conflicts of interest affecting these leaders may be widespread, and that conflicts can be of a variety of types.

Finally, it appears that leaders of the finance sector may have a disproportionate overlap with the leadership of health care organizations. The current global economic collapse have lead many to characterize the culture of the financial sector as marked by arrogance, greed, and corruption. Having this culture disproportionately influence the leadership of health care organizations may be responsible for some aspects of the ongoing health care crisis.

This case, and many others reported on Health Care Renewal, suggests that we need leaders of health care organizations to be dedicated to the principles and mission of their organizations, and not to have divided loyalties and conflicts of interest.

Fines, Re-Statements, and More Fines - Just Another Week in the Managed Care Business

Several related stories about commercial managed care organizations/ health insurers surfaced recently.

First, as reported by Lisa Girion in the Los Angeles Times,

Anthem Blue Cross and Blue Shield -- two of the state's biggest health plans -- agreed Thursday to pay a total of $13 million in fines and to offer new health coverage to more than 2,200 Californians the companies dropped after they became ill.

Neither company admitted to any wrongdoing in agreeing to pay the stiffest penalties yet in efforts by state authorities to curb what they view as an abusive practice of investigating and canceling policies after policyholders run up big medical bills.
Blue Cross, a unit of Indianapolis-based WellPoint Inc., will pay a $10-million fine to the state Department of Managed Health Care, and it will offer new coverage to 1,770 former members it canceled since 2004 -- no questions asked.

Competitor Blue Shield, a not-for-profit health plan based in San Francisco, will pay $3 million and offer new policies to 450 people whose coverage was rescinded over the last four years.

The insurers also agreed to establish a process for former members to recover medical expenses they paid out of pocket after they were dropped as well as other damages, such as homes or businesses that were lost because unpaid medical debts ruined the former members' creditworthiness.

These fines are apparently not the end of this story.

The settlement came the same day that a congressional committee held a hearing on the cancellation practices of the nation's health insurers and the day after Los Angeles City Atty. Rocky Delgadillo contended in a lawsuit that Blue Shield routinely flouted the law by conducting secret and unfair investigations into members' health histories to find a pretext for dropping them. Delgadillo filed similar suits against Blue Cross and Health Net this year.

'These settlement agreements add up to a raw deal for California consumers courtesy of the DMHC,' Delgadillo said. 'They will not make the victims of this insidious practice whole, they will not require that the companies disclose their wrongdoing, and, in my opinion, they will not adequately punish the companies for their shameful conduct.'

The settlements close the department's investigation into rescissions. But they do not directly affect Delgadillo's lawsuit, which seeks sweeping remedies and penalties in excess of $1 billion.

Nor do they end a raft of suits filed by individuals seeking financial compensation from the health plans that dropped them.

Also pending are investigations by state Insurance Commissioner Steve Poizner into the rescission practices of health plans' preferred-provider-type coverage that involve thousands more canceled policies.

Next, courtesy of the St. Petersburg (Florida) Times,

Acknowledging 'certain control deficiencies' among its former senior managers, WellCare Health Plans Inc. of Tampa is revising its financial statements from 2004 through mid 2007 to reflect accounting errors over refunds owed to Medicaid plans in Florida and Illinois.

The changes announced late Monday mean WellCare overstated its net income a total of $28-million in that time span. The company has not filed audited financial statements since mid 2007.

WellCare, which was raided by the FBI in late October, said a special internal committee found that the managed-care company had made 'accounting errors' in its compliance with requirements for Florida Medicaid and Healthy Kids programs, as well as its contract with Illinois Medicaid.

In WellCare's filing with the Securities and Exchange Commission, the company also said it found 'material weaknesses' in internal control over financial reporting.

'Specifically, we have determined that former senior management set an inappropriate tone in connection with the company's efforts to comply with the regulatory requirements' of Florida's contracts, the filing said. Two months after the federal investigation became public, WellCare ousted its top three executives: Todd Farha, chairman, chief executive and president, as well as Paul Behrens, chief financial officer, and Thaddeus Bereday, general counsel.

The company has since appointed new leadership and formed a regulatory compliance committee consisting of only independent directors. WellCare also has separated the posts of general counsel and chief compliance officer. The duties of chief financial and chief accounting officer also have been segregated.

Finally, per USA Today,

A health insurer that sells mainly to the self-employed agreed Monday to pay $20 million — one of the largest fines of its type — to settle violations found by regulators in a 36-state investigation.

The investigation, prompted by numerous complaints, found that insurer HealthMarkets failed to properly train its sales agents, who didn't always fully disclose the limits of its health policies to consumers and sometimes did not pay for medical services promptly.

HealthMarkets, owned by three private-equity firms including the Blackstone Group, has about 612,000 policyholders in 44 states through its subsidiaries: Mega Life and Health Insurance, Mid-West National Life Insurance and Chesapeake Life Insurance.

The company sells an array of plans, many of which pay only limited amounts toward medical care.

"The severity of their actions certainly warranted that level of penalty. They hurt a lot of people," says Washington Insurance Commissioner Mike Kreidler, whose state and Alaska led the investigation.

Since 2002, HealthMarkets has been fined by at least seven states and faced lawsuits from dozens of policyholders. In 2006, Massachusetts required the firm to reassess denials of policyholders' medical bills dating to January 2002. Maine earlier this year fined the company $1 million and ordered it to return $5.6 million to policyholders.

So goes another typical week in the wonderful world of the managed care business. Please note we most recently posted about WellPoint and its recissions here. We wrote about the beginning of the WellCare investigation here.

In the 1980s' managed care was advanced as a rationale and humane way to control health care costs while improving quality and access. Since then, managed care organizations and health insurers, which have often become indistinguishable, have consolidated their power. But the result has not been lower costs, better quality or better access. As politics drive increased interest in health care reform, maybe we should think about how deficiencies in the leadership of health care organizations, particularly but certainly not exclusively managed care and health insurance, have undermined their mission. Leadership that encourages retroactive cancellations of policies after their holders get sick; that set an "inappropriate tone" in compliance with government regulations; and that let policies be misrepresented and claims go unpaid must take some blame for rising costs, stagnant quality, and decreasing access. To reform health care, we must reform health care leadership.