Trumping En Masse Through the Revolving Door - the Trump Advisory and Transition Teams

We have frequently posted on the revolving door as a type of severe conflict of interest, if not corruption, affecting health care.  Our posts have covered various cases of people going from influential positions in or related to health care and some anti-health corporations, and government positions that make health care policy or regulate health care. 

Donald J Trump, the president elect, has pledged to "drain the swamp," that is, to generally reduce crony capitalism, conflicts of interest, the revolving door, and government corruption (e.g., look here.)  However, it appears that his campaign advisory/ transition team has been full of people who had just traversed the revolving door.  Examples I have found so far follow, in alphabetical order.

Rich Bagger

Back in July, 2016, per BioCentury Extra

EVP of Consumer Affairs and Market Access Rich Bagger has taken a leave of absence from Celgene Corp to work on the transition team for presidential candidate Donald Trump....

Mr Bagger recently left the transition team, apparently as part of the purge of Chris Christie associates.  Celgene is a pharmaceutical company that was one of the leaders in pushing the envelope in drug pricing (upward that is, e.g., see this post). 


Stephen Feinberg

the co-founder of Cerberus Capital Management LP ... was relieved by Mr. Trump’s victory, a person familiar with the matter said. Mr. Feinberg came on board as an economic adviser [per the Wall Street Journal, November 10, 2016]

As we have discussed here, Cerberus Capital Management bought the former Caritas Christi Health system in Massachusetts, which it renamed Steward Health Care, and subsequently managed, or some would say mismanaged so that Cerberus could extract as much money as possible from Steward.

Mike Ferguson

Reported by Stat News, November 15, 2016,

Not long after Trump’s victory, the law firm where he works, BakerHostetler, circulated an email touting former Representative Mike Ferguson’s 'genuine connection' to Trump, Vice President-elect Mike Pence, and others on the transition team.

The message noted the firm’s 'in-depth relationships' with 'many people who are positioned for senior roles in the incoming administration' at the Department of Health and Human Services, Food and Drug Administration, and the Centers for Medicare and Medicaid Services.

Ferguson, a Republican who represented New Jersey for eight years, 'is in close contact with members of the Trump transition team during this critical time,' said the note. The law firm lobbies for Celgene (see above), Advaxis, and the Children’s Hospital Association — and is ready for more customers. 

 Newt Gingrich

Former House Speaker Gingrich early on was chosen as a Trump insider. Not so well known are his previous health care activities, including financial ties to big health care corporations. As we posted in 2011, Mr Gingrich set up a for-profit consulting group, the Center for Health Transformation, which

brought in dues of as much as $200,000 per year from insurers and other health-care firms, offering some of them 'access to Newt Gingrich' and 'direct Newt interaction,' according to promotional materials. [per the Washington Post]

As we noted then,  The Center for Health Transformation was largely funded by big health care corporations. The Post first noted,

The biggest funders, ... [included] firms such as AstraZeneca, Blue Cross Blue Shield and Novo Nordisk,...

Also,

The center has listed scores of firms and industry groups as members over the years, amounting to a Who’s Who of the medical field, from GE Healthcare to the American Hospital Association to Wellpoint, [now Anthem] the nation’s largest health insurer.

Other clients were listed in a Bloomberg article,

Among the member companies were drugmaker Johnson & Johnson (JNJ) and health insurer Blue Cross and Blue Shield Association....

Also,

Pfizer Inc. (PFE), the world’s largest drugmaker, had consulting contracts with Gingrich, according to two people familiar with the arrangements. Pfizer spokesman Ray Kerins didn’t respond to requests for comment.

The Pharmaceutical Research and Manufacturers of America, the industry’s trade group, was also a client. His firm 'was retained by the PhRMA general counsel’s office at one time to provide advice on a positioning project,' the group said.

In addition, clients included important firms in the health care information technology (IT) sector, including GE, IBM, Microsoft, Allscripts, and Siemens.


We also then wrote about several cases in which Mr Gingrich apparently intervened on behalf of his clients to promote their business interests in the guise of promoting his views on health policy solutions.  In some cases, the views he promoted did not fit with what is generally regarded as his political philosophy, suggesting that the interests of his paying clients overrode his political views.[again, see this post]

Note that we have discussed the managerial, ethical and sometimes criminal misadventures of many of the companies listed above (see the links above for specific firms).  

Rudolph Giuliani

Mr Giuliani, like Mr Gingrich, early on became a close Trump adviser. Per the New York Times, November 15, 2016, Mr Giuliani's consulting firm's clients included Purdue Pharma,

Under contract with Purdue Pharma, the maker of the often-abused painkiller OxyContin, Mr. Giuliani used his clout with the Justice Department to press the federal authorities to offer a less onerous punishment to the company after allegations that security problems at its warehouses might have contributed to black market sales.

We have discussed, and others have discussed more extensively, the saga of Purdue Pharma, which aggressively and deceptively marketed the narcotic OxyContin, doubtless contributing to the deadly epidemic of prescription opioid abuse.


J Steven Hart

Hart, an attorney and accountant who perennially appears on lists of top D.C. lobbyists, is chairman of the law and lobbying firm Williams & Jensen [per the National Law Journal, November 10, 2016]

Hart joined Williams & Jensen in 1984 and became chairman in 1999. At the firm, he has lobbied for many Fortune 500 companies. In 2016 alone, according to filings from the U.S. Senate Lobbying Disclosure Act database, Hart’s clients have included General Electric Co., Coca-Cola Co., Pfizer Inc. and Visa Inc.

More clients of his firm include giant health insurance/ managed care company Anthem, and PhRMA, the association of pharmaceutical manufacturers, per Politico, November 11, 2016


Cindy Hayden

Trump's Homeland Security team ... is being led by Cindy Hayden, a director at the US tobacco giant Altria [per the Business Insider, November 11, 2016]

Given the well known health risks of smoking, Altria could just as well be called an anti-health care company.  As a member of its board of directors, Ms Hayden has a fiduciary responsibility to increase the company's revenue. 

Howard Lorber

Back in August, per the Washington Post, Mr Trump announced a list of core economic advisers that included Mr Lorber, "chief executive of the Vector Group." Per the company website, the Vector Group Ltd is a holding company that holds primarily tobacco companies:

Through our subsidiaries, Liggett Group LLC and Vector Tobacco Inc., we manufacture and market high quality cigarette products to adult smokers in the United States. Vector Group also owns New Valley LLC.

Vector Group’s tobacco subsidiaries have a proud history of charting an independent course in the tobacco industry, dating from Liggett’s founding in 1873.

Also,

We have also developed our e-cigarette brand, Zoom, which we believe is a superior disposable e-cigarette product.

As noted above, tobacco companies could easily be called anti-health care companies.  The more use of tobacco, the more the public health risk.  Yet Mr Lorber's job is to increase the company's revenue, and hence, presumably the use of tobacco. 


Betsy McCaughey

As reported by NPR in August, Mr Trump added a group of women to his economic advisory team. They included,

New York Lt. Gov. Betsy McCaughey, who wrote several influential but highly controversial articles criticizing Hillary Clinton's health care proposals in the 1990s, is also on the list. More recently, she has written books taking on the Affordable Care Act.

As we noted in a post in 2009, in an op-ed column for Bloomberg News that got wide attention, Betsy McCaughey, who is described as, "former lieutenant governor of New York and is an adjunct senior fellow at the Hudson Institute," attacked as "dangerous" provisions in the new Affordable Care Act (ACA, "Obamacare") which supported comparative effectiveness research.  However, not noted in Betsy McCaughey's op-ed article was that she ... [was] on the board of directors of Cantel Medical, a device company, and formerly on the board of Genta, a biotechnology company.

Furthermore, per an August article in the Huffington Post,

Betsy McCaughey built a career out of saying bombastic, completely false things about health care reform. She is reviled by actual health care policy analysts from the left, right and center for spreading frightening, but demonstrably false, misinformation while adopting the tone and posture of a serious expert.

In 1994, she claimed that Hillary Clinton’s health care reform plan would bar people from purchasing care outside the new Clinton system, which would cruelly ration treatments to curb costs. It wasn’t true. The magazine that published the article would later disavow it.

Here’s what she said about Obamacare in 2009:

'One of the most shocking things I found in this bill, and there were many, is on page 425, where the Congress would make it mandatory ― absolutely require ― that every five years, people in Medicare have a required counseling session that will tell them how to end their life sooner ... all to do what’s in society’s best interest or your family’s best interest and cut your life short. These are such sacred issues of life and death. Government should have nothing to do with this.'

Pretty scary! And totally untrue. Completely, 100 percent false. Zero correspondence with reality. But McCaughey’s nonsense took off. She made the same claim in op-eds for The Wall Street Journal and the New York Post. When Sarah Palin picked up the idea, the mandatory meetings morphed into “Obama’s death panel.” Conservative media and Republican politicians went wild.

Paula Stannard

According to Stat News, November 15, 2016, Ms Stannard served

in the last Republican administration as deputy general counsel to the Department of Health and Human Services.

She was responsible for food and drug issues and other matters, including federal health insurance and public health preparedness. On the Trump transition, she will be working under Bremberg.

However, her firm

has earned more than $4.4 million lobbying so far this year for health care companies and trade groups including Novartis AG, Verax Biomedical, the American Hospital Association, St. Jude Children’s Research Hospital, and Aetna — plus an untold amount doing legal and regulatory work, which does not have to be reported. 

Re her position in the transition team, Stat News quoted Dr Michael Carome, who runs the Health Research Group for Public Citizen,

I think this reflects the fact that Trump’s pledge to drain the swamp is not going to take place. Individuals who have close ties to regulated industries such as pharmaceuticals is worrisome, because such individuals are likely to pursue an agenda that is very industry friendly and not consumer and patient friendly.... 

Tommy Thompson

Also according to Stat News, November 15, 2016, Mr Thompson, a former Secretary of Health and Human Services under President George W Bush, served

as a founding member of the Bush Alumni Coalition Supporting Trump, which launched in late September. (Very late.)

Thompson, who ran the group, served as governor of Wisconsin from 1987 to 2001. He was also a partner at Akin Gump Strauss Hauer & Feld, which lobbies for the American Medical Association, PharmAthene, and the Alliance for a Stronger FDA, among other health care concerns.

Thompson’s participation could also be good news for the health care companies whose boards he serves on: Centene, United Therapeutics, and TherapeuticsMD. He is a former director of Cytori Therapeutics.

Note again that we have previously discussed managerial, ethical, and sometimes criminal misadventures of some of the companies with which Mr Hart, Ms McCaughey, Ms Stannard, and Mr Thompson were affiliated (see the links to the companies noted in the discussions above.)

Summary

Donald Trump's candidacy seemingly was welcomed by many people who really thought he would be an economic reformer.  They thought he would address the plight of poor, working and middle class people, who saw their incomes stagnant or falling, had trouble finding decently paying jobs, may have lost their jobs and/or their housing, saw their communities hollowed out, and generally felt the system was rigged against them. Even some health care professionals saw Mr Trump as a reformer of a rigged health system. For example, in July, 2016, Stat News published an editorial by Dr Charles D Rosen:

As a physician, I believe that Trump is absolutely right about allowing cheaper pharmaceutical drugs manufactured abroad to be sold in the United States. He is right that the pharmaceutical companies essentially sell their products to the federal government via Medicare and Medicaid without competitive bidding. In other areas of the budget, such as defense, federal laws require competitive bidding. It is outrageous this doesn’t occur with drugs and devices, especially since the health care budget is right behind defense in terms of expense.

Trump is right when he says that drug companies control the landscape. He appears to be willing to call it as it is and not worry about repercussions from the powerful drug interests, and has moved in the right direction in saying he would let Medicare negotiate with pharmaceutical companies if he becomes president.

However, by November 15, 2016, as reported by the Los Angeles Times,

the president-elect appears to have downgraded plans to act aggressively to control rising drug prices, handing the pharmaceutical industry an early victory and providing another illustration of the influence of lobbyists on the new Trump administration, despite Trump’s promise to 'drain the swamp' of special interests in Washington.

Trump, who once made the cost of pharmaceuticals a central part of his campaign healthcare pitch and included the issue on his campaign website, hasn’t mentioned the subject since the election, even though the issue is consistently cited as the top healthcare problem Americans want to see fixed.

And Trump’s transition healthcare agenda makes no mention of drug prices, though it lists six other healthcare priorities, including restricting abortion, speeding federal approval of new drugs and restructuring Medicare and Medicaid.

So like Dr Phil used to say, how is it working for you now, Dr Rosen?

Mr Trump seemed to promise economic reform, and to "drain the swamp" or Washington crony capitalism, insider dealing, conflicts of interest, and corruption.  But at least in the health care sphere, many of his cronies on his advisory and transition teams seem to be rotators through the revolving door, having gone from being corporate insiders to being political advisers.  

And as we noted previously, the revolving door is a species of conflict of interest. Worse, some experts have suggested that the revolving door is in fact corruption.  As we noted here, the experts from the distinguished European anti-corruption group U4 wrote,

The literature makes clear that the revolving door process is a source of valuable political connections for private firms. But it generates corruption risks and has strong distortionary effects on the economy, especially when this power is concentrated within a few firms.

The case of the Trump transition once again suggests how the revolving door may enable certain of those with private vested interests to have excess influence, way beyond that of ordinary citizens, on how the government works, and that the country is still increasingly being run by a cozy group of insiders with ties to both government and industry.

So, as we have said before.... The continuing egregiousness of the revolving door in health care shows how health care leadership can play mutually beneficial games, regardless of the their effects on patients' and the public's health.  Once again, true health care reform would cut the ties between government and corporate leaders and their cronies that have lead to government of, for and by corporate executives rather than the people at large.

But did we really think the self-proclaimed billionaire and former star of The Apprentice was going to be a reformer?  After all, its theme song was "For the Love of Money"

Whose Hospitals Are They, Anyway? - Steward to Sell Off, but Continue Operating All Its Hospitals

This looks like the latest trend in the financialization of and diffusion of accountability for health care organizations.  The case involves good ol' Steward Health Care, which was the subject of quite a few Health Care Renewal posts back in the day.

Background - Caritas Christi Bought by Cerberus Capital Management, Became Steward Health Care

[Cerberus, the three headed dog, per William Blake]

Steward is what used to be Caritas Christi Health Care System, formerly a Catholic, non-profit health care system in Massachusetts.  In 2010, Caritas Christi was purchased by Cerberus Capital Management, a private equity, aka leveraged buyout firm, which was known for its not very successful run managing Chrysler (look here) and GMAC (look here).  Cerberus also had enlarging holdings in the gun industry, later expanded into the Freedom Group, and in military contracting, specifically including DynCorp which hired armed "security forces" and was involved in multiple scandals in Iraq, all of which might strike some health care professionals as inappropriate (look here and here).

Steward Health Care, as run by Cerberus, was one of the earlier leaders in hiring corporate physicians, whom it pressured to avoid "leakage" of patients to other hospitals and doctors, even if some might question whether the care provided elsewhere might be better for those patients (look here).  The multimillion dollar a year CEO of Steward suggested the health care had become a commodity, objectionable to those who thought that health care should be a mission-based calling (look here).

After Steward consolidated, operational misadventures began.  In 2013, it closed the pediatric unit at Morton Hospital (look here).  In 2014, it closed Quincy Hospital, despite promises that it would expand health care services, and specifically not close that hospital so quickly (look here).  Starting in 2014, Steward stonewalled state requests to disclose financial data as required by state regulations after the private equity takeover (look here).  In 2016, Steward continued to withhold financial data (look here), and closed the short-lived family medicine residency program at Carney Hospital,  amidst complaints by the residents about poor organization, and inadequate numbers of faculty (look here).

Steward to Sell All its Hospitals, but Keep Running Them

This week, the Boston Globe reported a stunning example of financial engineering:

Steward Health Care System said Monday that it lined up $1.25 billion from a real estate investment firm that will help the Boston-based company finance a national expansion, pay off debt, and return money to the private equity firm that bought it almost six years ago.

Steward said Medical Properties Trust Inc. would buy all of its hospital properties for $1.2 billion and pay $50 million for a 5 percent equity stake in the company. Steward will lease the properties from MPT, based in Birmingham, Ala.

Note that nearly all the "financing" was obtained by selling all the hospital properties, which somehow sound like the core assets of a hospital system.

Of course, current Steward management thought it was a great idea:

Steward’s chief executive, Dr. Ralph de la Torre, said the MPT investment will give Steward a second source of capital funding and allow it to grow its model of community-based care in other states. 'This validates the model,' he said in an interview.

Presumably he was talking about a financial model, maybe the model used by private equity firms (see below).  It did not appear that this model had anything to do with providing health care to patients.

On the other hand, perhaps Dr de la Torre was enthused because he stood a chance of personally profiting from this deal, which

is also designed to allow top Steward leaders to have a 'substantially larger stake' in the company.

The implication is that Dr de la Torre would end up with some piece of Steward, Cerberus, and/or MPT.

Furthermore, the deal apparently would let Cerberus Capital Management recover all the money it initially put into its buyout of Caritas Christi:

The entire initial investment to Cerberus will be paid back, but the amount is proprietary, de la Torre said. The deal will also pay down all of the company’s $400 million in debt, he said.

This would apparently now render the initial take-over of Caritas Christi financially risk-free for Cerberus Capital Managment, but perhaps not risk-free for patients and health care professionals (who essentially were not mentioned in the article.)  

Summary - What Happens When Private Equity Owns Hospitals

We have previously described the private equity playbook here, and here.  The main points were:

-  Private equity is just the new name for leveraged buyout firms (the type of firm described the book, and later movie Barbarians at the Gate.)

-  Therefore, when they buy out firms (e.g., the primary care practices discussed above), they use borrowed money.

-  But they leverage in two senses.  Once firms are bought, the private equity owners makes the firms take out further loans, and the money from them may go back to the owners, usually in the form of a special dividend, to pay down the debt originally incurred by the private equity owners.  This leaves the bought out firms heavily in debt, but frees the private equity firm from its original debt.  If the firm is eventually sold, the new buyers take over the debt.  In a worst case scenario, however, the bought out firm goes bankrupt, the private equity's firm stock in it becomes worthless, but the private equity firm need not be responsible for its financial obligations.

-  If the private equity firm desires more money while it still owns the acquired firm, it may sell parts of it off.

-  To make the finances of the acquired firm look more attractive to the next buyer, the private equity firms often undertakes short term cost cutting measures that may involve layoffs, increased workload on remaining workers, etc.

Other dark aspects of private equity are discussed on the Naked Capitalism blog here.


So Steward Health Systems, which bought out by Cerberus Capital Management, has now largely followed this playbook.  Cerberus initially infused hundreds of millions into Steward, ne Caritas.  Steward then closed facilities and programs, and otherwise cut costs.  Now Steward is going to sell off its biggest assets, the actual hospital facilities that one might think are at the core of hospital systems.  Doing so apparently would allow Cerberus to at least break even on the deal, while still remaining in control.


But now Steward Health is split.  It is still owned by Cerberus.  Its major facilities would be owned by Medical Properties Trust Inc.  Apparently, Steward would have no assets other than its employees.  Of course some employees, that is, top  management, would be more equal than others, since they are likely being paid millions in compensation, and would have the opportunity to enlarge their stakes in "the company," although whether that company is Steward, Cerberus, or even MPT is not clear.


Thus, a hospital system which ostensibly exists to take care of acutely and chronically ill patients, often in their hours of need and vulnerability, would now be split among multiple corporate entities.  Who woud actually be in charge of upholding the mission?  Who would be accountable when things go wrong?  Those questions are not clear.

But it does seem likely that top executives of Steward, Cerberus Capital Management, and perhaps Medical Properties Inc stand to personally gain from this bold bit of financialization.  Whether patients may benefit, or health care professionals work and ability to care for patients might be facilitated by all this is not clear, and was not addressed in the current article.

As we have said again and again,...

Physicians need to realize that to fulfill their oaths to put patients first, they have to reduce the influence of rich and powerful organizations with other agendas, like health care corporations, and especially corporations owned by private equity.  The metastasis of private equity into the corporate practice of medicine and into hospitals and hospital systems should make us all rethink the notion that direct health care should ever be provided, or that medicine ought to be practiced by for-profit corporations. I submit that we will not be able to have good quality, accessible health care at an affordable price until we restore physicians as independent, ethical health care professionals, and until we restore small, independent, community responsible, non-profit hospitals as the locus for inpatient care.

ADDENDUM (1 October, 2016) - This post was republished, with a very insightful introduction by Yves Smith, on the Naked Capitalism blog. 

BLOGSCAN - When Private Equity Owns Hospitals

On his Not Running a Hospital blog, Paul Levy discussed reasons for concern when private equity firms purchase and operate hospitals.  He used the example of Steward Health Care, now a for-profit hospital system (which also employs physicians to provide direct patient care), which in turn is owned by Cerberus Capital Management.   The issue is pertinent due to recent discussion in the media about Cerberus' newly stated intention to sell the large firearms and ammunition business it assembled, Freedom Group.  This intention was only stated after the tragic multiple murders of children and teachers by gunfire from a weapon manufactured by Freedom Group at a Connecticut elementary school.  We have previously posted about questions raised when private equity buys hospitals and employs physicians, specifically about Cerberus and Steward Health Care, and have questioned whether a private equity group is a suitable owner and operator of hospitals and physicians' practices when said private equity group also owns a large firearms and ammunition business, and, for that matter, a military contracting company which has been accused or providing "mercenaries" (look here and here).    

Hype, Spin and Health Care: the Case of an Apparently Failed Hospital Purchase by Steward Health Care

Health care is drowning in a sea of hype and spin.  We have frequently posted about deceptive marketing used to sell drugs, devices, and health care services.  We have also posted about deceptive public relations and lobbying used to sell policy positions and strategies favorable to health care organizations, and usually most favorable to their leaders.

Nevertheless, there rarely is much public skepticism about or criticism of such marketing and public relations messages when they appear.  Rather, often the media and other public voices, including those of politicians with power over the relevant public policy issues, seem to accept the messages at face value.

The Case of Steward Health Care and Landmark Medical Center

The Buy-Out Falls Apart

Therefore, it is instructive to look at examples of how such messages in retrospect appear to be fallacious, to use a polite term.  A local example that just popped into view was documented in two short news items by Felice Freyer in our own Providence Journal.  (Web access to a longer version story that appeared in the print version of the journal is here.)  The first item included,

The deal to sell Landmark Medical Center to Steward Health Care System may be falling apart. In a court filing this week, Jonathan N. Savage, the special master in charge of the hospital, made reference to the possibility that Steward would withdraw. The Boston hospital group faces a Sept. 30 deadline to complete the sale.

The Message Promoted by Steward Health Care 

We have blogged about the rapid expansion of Steward Health Care, despite the name, a for-profit company owned by private equity/ leveraged buyout firm Cerberus Capital Management. Steward has hyped its supposedly world class "new health care" model in its advertising (look here). In promoting its bid for Landmark, Steward's well-paid CEO (look here), displayed his vision for promoting the medical center through "economies of scale," "right-siting," and emphasizing ties with the community: "it's not a community hospital system. It's really a health care system," as reported by Felice Freyer in April, 2012 (Freyer F. Landmark Medical Center. A Leap into the unknown. Providence Journal, April 22, 2012.)

 In a dispute over payment rates with Rhode Island Blue Cross Blue Shield, Steward ran full-page newspaper advertisements claiming that insurance companies leaders issued an order to "terminate Landmark Medical Center," because they did not care if "residents would lose their only hospital, ... employees ... would lose their jobs, or the elderly ... would have to travel for care." (Look here.) That implied, of course, that Steward, which did not mention that it is a for-profit corporation owned by a private equity firm in the ads, cared deeply about the health care of residents of Woonsocket.

Some Skepticism, but More Acceptance

The article by Felice Freyer above did feature journalistic skepticism and include interviews with some local physicians who questioned whether Steward could possibly fulfill all its promises to simultaneously increase the quality of care and reduce costs.

However, the article showed that there was lots of positivity about Steward's track record in neighboring Massachusetts. Predictably, the President of Steward owned Quincy Medical Center boasted, "Not one person has been laid off. We have not reduced any service lines. Our focus is on enhancing." However, some people who were apparently independent of Steward also had favorable views.  A Massachusetts consumer advocate said "as far as we know, it's going fine." A Brandeis University Professor said, "it's impressive how successful they've been."

The Politicians' Buy In

Elsewhere, there were plenty of statements of support for Steward by local politicians.  The Mayor of Woonsocket supported Landmark (and implicitly Steward) it its dispute with RI BCBS, as reported by the Providence Journal, saying that the proposed buyout by Steward "is far too critical for our city, and I must take every step possible to ensure that the interests of the city and those who rely upon Landmark (Medical Center) for healthcare are being protected [by taking Steward's side in the dispute.]" Also, as reported by the Woonsocket Call, RI Congressman David Cicilline said, "I look forward to working with Landmark's new administration [that is, Steward] to ensure that it continues to deliver affordable, quality health care and well-paying jobs for hardworking Rhode Islanders." To fulfill Steward's wishes, The Rhode Island state legislature rushed to make its laws about for-profit conversion of non-profit hospitals more lenient (see the Providence Business News).

The Attorney General Later Says it was All About the "Bottom Line"

However, now Steward has apparently pulled out of the deal with nary a public mention of the reason why, much less demonstration of its concern for the poor people of Woonsocket. As reported in a second small item in the Providence Journal,

Steward Health Care System, which is apparently backing out of its deal to buy Landmark Medical Center, 'has left the hospital, its patients and its employees in a worse position,'

Attorney General Peter F. Kilmartin said in a statement today. 'It has become very clear that Steward's only interest was the bottom line, not, as the Company claimed, the patients, the employees or the Woonsocket community,' Kilmartin said.

Summary

This is just one local kerfuffle about a small hospital system. However, looking at it in granular detail says a lot about how big health care organizations, like the one that here attempted to buy the local hospital system, push misleading messages to secure their private interests. These misleading messages often promote these organizations' commitments to the traditional health care mission, often in the modern argot of quality, access, and affordability), when their leaders may really care more about short term revenue. This case also shows how at least some local policy makers may be drawn in by such messages, and how the few skeptics get lost in the shuffle.

An important feature of the modern, commercialized, laissez faire health care system in the US is the role of opinion manipulation through modern, sophisticated marketing and public relations in promoting the short-term financial interests of health care organizations and their leaders at the expense of patient's and the public's health. This role seems rarely to be discussed, particularly in health care research and policy circles. It may be that some members of the public, health care professionals, and health policy makers are naturally skeptical of marketing and public relations hype, spin, and deception. However, we have seen too many examples of health care leaders promoted as "visionaries" who are anything but.

Health care professionals, patients, policy makers, and the public at large ought to be extremely skeptical of the self-serving messages packaged by marketing and public relations. Academics ought to be dissecting these messages more often. Skeptics need to make their voices heard.

Meanwhile, look out for the next "visionary," or the next "new health care" promotion. They may not turn out to be what is advertised.

Private Equity, Obfuscatory Advertising, and Making Health Care a Commodity: Lessons from Cerberus Capital Management

The use of advertising by Steward Health Care, currently a regional hospital system here in New England, continues to provide lessons about how public relations and marketing may be used to shape the health care policy debate.  Stand by because the story is convoluted.

Steward Promotes "New Health Care," Whatever That May Be

This week, Commonwealth reported on Steward's latest high profile advertising campaign in the Boston area,

Steward Health Care is using the Olympics to hone its image. The Boston-based chain of 10 community hospitals, many of which were on the verge of going under when Steward acquired them, is running a series of ads on WHDH-TV (Channel 7) during Olympics coverage that cast the company as a delivery system for a new type of world-class health care.

While visible, the advertisements are notably vague. One features

a Steward employee who says she believes 'world class health care is here.' Another of the initial ads features individual doctors and technicians pledging to be stewards of 'the new health care,' which is the tagline for all of the Steward ads.

What the 'new health care' means is never fully explained in the ads

One local health care expert

Paul Levy, the former CEO of Beth Israel Deaconness Medical Center, said he thinks the ads are part of a campaign by [Steward Health Care owner] Cerberus [Capital Management] to make Steward more attractive to would-be buyers. 'This has very little to do with anything other than establishing the image and the brand of the Steward hospitals so when the day comes when Cerberus sells the company it will be better received in the public markets,' Levy said.

The article had noted that

Cerberus Capital Management, a New York private equity firm, owns Steward,...

So it is possible that no one at Steward really has any idea what sort of "new health care" the organization is promoting

Steward's CEO Promotes Health Care as a Commodity

However, there is reason to think that the top leadership of Steward, and probably of Cerberus Capital Management, the private equity group that owns it, actually does have a clear idea what new health care they are promoting.

Almost simultaneous with the Commonwealth article and the Olympic advertising campaign an interview appeared with Steward's CEO in Fortune. CEO Dr Ralph de la Torre first pitched medicine as science,

A lot of us physicians went into medicine because we loved the art aspect of it. There wasn't a lot of real hard-core science when many of today's doctors went into medicine. It was your intuition, your abilities, the gestalt of what was going on. But something happened in medicine along the way. It started becoming a real science, and a lot of studies have come out that guide what we do and how we do it. We as a society need to understand that science has to guide our practice of medicine. Not everyone with a headache needs a CAT scan; not everybody with a sprained ankle needs an MRI.

This sounds like it could be an affirmation of evidence-based medicine, the approach that attempts to base medicine on systematic search for and critical review of the best clinical research, among other things. However, De la Torre takes it a big step further, citing:

In deference to those who love the individual hospital, you have to look back at America and the trends in industries that have gone from being art to science, to being commodities. Health care is becoming a commodity. The car industry started off as an art, people hand-shaping the bodies, hand-building the engines. As it became a commodity and was all about making cars accessible to everybody, it became more about standardization. It's not different from the banking industry and other industries as they've matured. Health care is finally maturing as an industry, and part of that maturation process is consolidation. It's getting economies of scale and in many ways making it a commodity.

Apparently Dr De la Torre does not see a distinction any longer between health care, or to use an old-fashioned word, medicine, traditionally considered an art or practice of caring for individual patients, and making automobiles on an assembly line. Dr De la Torre may be deeply misinterpreting evidence-based medicine, which is about evidence from clinical research, but also much more. Consider how the Cochrane Collaboration discusses it:

Evidence-based health care

Evidence-based health care is the conscientious use of current best evidence in making decisions about the care of individual patients or the delivery of health services. Current best evidence is up-to-date information from relevant, valid research about the effects of different forms of health care, the potential for harm from exposure to particular agents, the accuracy of diagnostic tests, and the predictive power of prognostic factors [1].

Evidence-based clinical practice is an approach to decision-making in which the clinician uses the best evidence available, in consultation with the patient, to decide upon the option which suits that patient best [2].

Evidence-based medicine is the conscientious, explicit and judicious use of current best evidence in making decisions about the care of individual patients. The practice of evidence-based medicine means integrating individual clinical expertise with the best available external clinical evidence from systematic research [3].

[1] Cochrane AL. Effectiveness and Efficiency : Random Reflections on Health Services. London: Nuffield Provincial Hospitals Trust, 1972. Reprinted in 1989 in association with the BMJ. Reprinted in 1999 for Nuffield Trust by the Royal Society of Medicine Press, London, ISBN 1-85315-394-X.[2] Gray JAM. 1997. Evidence-based healthcare: how to make health policy and management decisions. London: Churchill Livingstone.
[3] Sackett DL, Rosenberg WMC, Gray JAM, Haynes RB, Richardson WS. 1996. Evidence based medicine: what it is and what it isn't. BMJ 312: 71–2 [3] [Full text]

Note the emphasis on making decisions for individuals based on what is best for each, and the integration of evidence from clinical research with clinical expertise. This is far from commoditization.

Nonetheless, Dr De la Torre seems to envision "new health care" like a 1930s automobile assembly line, with the physicians and other health professionals cast as assembly line workers, and the patients cast as automobiles.

Our next example may provide some explanations for this point of view.

Steward's Advertising Raises Questions of Whose Hands Should be on Health Care

As we discussed earlier, Steward Health Care has been working on acquiring a struggling local Rhode Island hospital system, and in doing so is in a dispute with the statewide non-profit Blue Cross health insurance company. Steward had been putting daily full-page advertisements in the local paper. A recent version (27 July, 2012), had this text:

RHODE ISLAND TO BLUE CROSS:
GET YOUR HANDS OFF OUR HOSPITALS

With 80% of the market under its control, Blue Cross & Blue Shield of Rhode Island thinks it can decide which hospitals survive or fail. The people of Rhode Island beg to differ.

For the past decade, they've watched Blue Cross starve Landmark Medical Center of its funding. And this year, when Blue Cross issued an ultimatum to terminate the hospital, Rhode Islanders heard enough.

In a poll conducted this week by John Marttila, a nationally recognized leader on public attitudes concerning health care, 76% of respondents said that Blue Cross shouldn't be allowed to use their monopoly to dictate the fate of Rhode Island hospitals. They also felt, by a 2-1 margin, that if Landmark did indeed close, Blue Cross would be to blame.

However, soon after, investigative reporting by the Providence Journal's Ms Felice Freyer revealed that maybe the poll should have been interpreted differently. Not unexpectedly, Ms Freyer revealed the poll to have been "commissioned by Steward." Its basic results were really:

Just over half the respondents knew that Landmark was being sold to Steward, and of those, 58 percent did not have an opinion, 29 percent supported the sale, and 13 percent opposed it. However, among those who knew about the sale and also live in northern Rhode Island, the approval rating was higher –– 37 percent support the sale, with 15 percent disapproving and 48 percent having no opinion.

The pollster than provided prompting, perhaps in an attempt to get results more favorable to its client:

One of the questions starts with this statement: 'Blue Cross Blue Shield provides health insurance to 80 percent of Rhode Island. By refusing to negotiate on reimbursement rates, Blue Cross can essentially determine if hospitals in the state stay open or if hospitals close.' Based on that statement, 76 percent of respondents agreed that 'Blue Cross should not be allowed to use its monopoly to dictate which hospitals stay open and which close their doors.'

Unfortunately, it appears that the prompting statement was perhaps not fully accurate:

In 2011, Blue Cross covered 66 percent of Rhode Islanders with private health insurance, not 80 percent, according to a report by the Office of the Health Insurance Commissioner.

Blue Cross denies that it has refused to negotiate.

'We have negotiated in good faith and have offered a fair contract to Landmark Hospital that is consistent with our reimbursement arrangements for other independent hospitals,' Blue Cross said in a statement. 'Unfortunately, Steward has been unwilling to enter into a contract under those conditions.'

While they touted probably methodologically biased survey results, Steward's local advertising campaign's headline might prompt some people to think about whose hands should really be on their health care. The advertising tries to limit this question to Blue Cross' influence. However, one might also ask whose hands control Steward Health Care?

Whose Hands are on Steward Health Care?

As the Commonwealth article above pointed out, Steward Health Care is a wholly owned subsidiary of Cerberus Capital Management, a New York based private equity firm.

Cerberus' top leadership includes
- CEO Steven A Feinberg, who, as we noted previously, was listed as number 21 on a list of the 25 most powerful businessmen in 2007 by Fortune, at that time running through Cerberus 50 companies with total revenues of $120 billion.  On Wikipedia, his net worth was estimated as $2 billion in 2008.
- Chairman John W Snow, who, as we noted previously, resigned as Treasury Secretary in the administration of President George W Bush "in 2006 only because it was revealed that he had not paid any taxes on $24 million in income from CSX, which had forgiven Snow's repayment of a gigantic loan that the company had made to him," according to Chareles Ferguson in Predator Nation.
- Chairman, Cereberus Global Investments J Danforth Quayle, the controversial former US Vice President during the George H W Bush administration.

Furthermore, Cerberus Capital Management, which wholly owns Steward Health Care, owns several other businesses.  As we noted here, these include, DynCorp (see their web-site), which has been called one of the "leading mercenary firms," by an article in the Nation.  As reported by Bloomberg, DynCorp, and hence indirectly about Cerberus, and Steward Health Care, in 2011 settled accusations that it overbilled the US government for construction work in Iraq.   Furthermore, as we noted here, Cerberus also owns the biggest manufacturer of firearms and ammunition in the US. As reported by BusinessWeek in 2010, Cerberus owns 13 brands of fire-arms and munitions under the umbrella Freedom Group.

So while Cerberus Capital Management would like us to believe that Rhode Island residents question the hands of Blue Cross Blue Shield of Rhode Island on a struggling local hospital system, it seems to be trying to avoid questions about whose hands would be on the hospital system were Cerberus Capital Management's subsidiary Steward Health Care to acquire it. 

Summary

So, to recapitulate this winding story....   A regional hospital system has been pushing its "new health care" idea.  However, its former surgeon CEO promotes new health care as commoditized health care, assembly line health care, in which doctors become assembly line workers and patients become widgets.  This seems bizarre until one realizes that the CEO actually works for a huge private equity firm whose goal is to make a lot of money in the short-term.  Standardized, commoditized health care is likely to be cheaper to provide than individualized health care.  Private equity firms thrive by cutting their subsidiaries' costs, and then selling them quickly, sometimes before the long-term consequences of these cuts become apparent.  (Look here.)

So there are two lessons.

To repeat the lesson from our earlier post, everybody, doctors, other health care professionals, health policy makers, patients, and the public ought to be extremely skeptical of the marketing and public relations efforts of big health care organizations.  Based on the examples above, they ought to be particularly skeptical of organizations that are overtly for profit, and/or have a clear focus on short-term revenue generation.  As a society we need to think about how to best counter these biased, incomplete, sometimes grossly deceptive efforts to manipulate public psychology and opinions through our rights to free speech and a free press.

To add a lesson, everybody, doctors, other health professionals, health policy makers, patients and the public ought to be extremely wary of the ongoing corporatization of medicine and health care.  Corporate leaders who often get large incentives for maximizing short term revenue are likely to be enthused about turning our health care into a commodity.  Doctors and health care professionals should not want to be assembly line workers, and patients surely should not want to be widgets. 

Steward Health Care vs Rhode Island Blue Cross Blue Shield: How Public Relations Twists the Narrative

Negotiations between a local RI hospital system and the largest RI health insurer have now become very public. An advertising campaign by the larger hospital system that is set to absorb our local one provides lessons on how important health care policy issues are publicly discussed.

Simplified Background

Landmark Medical Center is a small health care system in northern Rhode Island.  It has been in financial difficulty, and hence management negotiated a buyout  [see comment of 19 July, 2012 below] while in receivership a buyout was negotiated.  It is now in the process of being acquired by Steward Health Care, a regional hospital system based in Massachusetts (summarized here and here).  Meanwhile, Landmark has been in negotiations with Rhode Island Blue Cross Blue Shield, the largest RI health insurance company.  The negotiations have not been going well, so RI BCBS notified its policy-holders that it is possible Landmark will not be in its network in the future.  This difficult negotiation prompted Steward Health Care to make the discussion more public.

The Steward Health Care Advertisements

Steward Health Care has run a series of full-page advertisements in the Providence Journal.  One advertisement that has run at least three times, by my count, includes the following text:

WHAT KIND OF CHARITABLE ORGANIZATION SPENDS $120 MILLION ON ITS HEADQUARTERS
BUT DENIES SERVICES TO ITS POOREST COMMUNITIES?

Blue Cross & Blue Shield of Rhode Island is designated as a "charitable organization." But they certainly don't spend like one. They invested a small fortune on their opulent corporate offices in Providence. They dish out million each year in executive salaries. And for all that exorbitant spending, they pay absolutely nothing in Rhode Island state taxes.

Then, in May of this year, they refused to give Landmark Medical Center in Woonsocket a long-term contract without Steward Health Care participating. Steward, trying to be helpful, proposed base rates that were 5% below the state median, quality metrics used by the federal government, and a commitment to payment reform. But suddenly, the coffers had run dry. Blue Cross refused to even discuss the proposal.

Instead, they issued their response: Terminate Landmark Medical Center.

Never mind the residents who would lose their only hospital, the employees who would lose their jobs, or the elderly who would have to travel for care. Blue Cross was only interested in protecting the one group they serve most effectively, themselves.

This pretty plainly was a David vs Goliath narrative, with poor, small Landmark Medical Center and Steward Health Care, whose only goals were to serve local residents, as David, and huge, wealthy Blue Cross Blue Shield of RI, whose only goal is allegedly to serve its executives' interest, as Goliath.

Given that we have frequently discussed how self-interested, over-compensated executives may fail to uphold, or may even undermine their health care organizations' missions, this seemed like a narrative primed for further discussion on Health Care Renewal. In addition, Blue Cross Blue Shield of Rhode Island was beset by a scandal before we began Health Care Renewal (look here), involving allegations of excess compensation given to and conflicts of interest affecting its CEO.

Blue Cross Blue Shield of RI: Executive Compensation, Budget and Taxes

In fact, the most recent figures made public by RI BCBS on executive compensation showed that CEO Peter Andruszkiewicz was offered total compensation of $600,000 a year when he started in 2011 (look here.)  Also, as suggested by the advertisement above, there has been considerable local controversy about the size, scale, and price of the new RI BCBS headquarters (e.g., here).   Apparently, however, Blue Cross Blue Shield of Rhode Island does pay state taxes (per this report).

On the other hand, keep in mind that RI BCBS is one of the few health insurance companies to provide community (age-adjusted only) rated individual health insurance even for people with pre-existing conditions, (look here) at the behest of state law, to be sure. So perhaps RI BCBS is not quite the ogre oppressing the poor that the advertisement implies it to be.

But wait, there is more. This all started as a contract negotiation between a health insurer and a local hospital system which is about to be acquired by a regional hospital system. If Steward Health Care saw fit to bring up the executive compensation practices, budget, and taxes of Blue Cross Blue Shield of Rhode Island as relevant to the dispute, might Steward Health Care's executive compensation practices, budget, and taxes also be relevant?

Steward Health Care and Cerberus Capital Management: Executive Compensation, Budget, and Taxes

The problem is that we know very little about Steward Health Care's executive compensation practices, budget, and taxes. While the advertisement above (and Steward's own web address, steward.org) imply that Steward is only about providing health care to the poor and needy, and perhaps that Steward, like Rhode Island BCBS, is non-profit, neither is quite true.

In fact, Steward Health Care is the new name for what was once Caritas Christi Health Care, formerly a Catholic non-profit health system that was acquired in 2010 by Cerberus Capital Management, a private equity firm (look here).

Private equity firms are notably secretive. Neither Cerberus, nor its new health care acquisition, has seen fit to publish any details about executive compensation practices, budgets, or taxes.

We do have a few clues, however.

Executive Compensation
Caritas Christi at the time it was acquired by Cerberus was lead by CEO Ralph de la Torre.  His compensation in 2009 prior to the acquisition was $2.2 million a year.  He is still leading Steward Health Care. It is reasonable to expect that his compensation is not less than it was before, and probably more (look here).  It is reasonable to guess that Dr de la Torre's total compensation is currently several times larger than that of the BCBS of RI CEO. 

The leadership of Cerberus Capital Management includes, according to its web-site, John W Snow, chairman and senior managing director.  Mr Snow, former Secretary of the US Treasury, was listed in 2009 on the Virginia 100 web-site as having a net worth of approximately $90 million, although not with much confidence in the precision of the figure.  He is also a director of the Marathon Petroleum Corporation, from which he received $300,000 in compensation in 2011, according to the company's proxy statement, and of Amerigroup, from which he received at least $170,000 in equities, and additional amounts in fees and deferred compensation in 2011, per that company's proxy statement.  Stephen A Feinberg, founder, CEO, and senior managing director, described as a "recluse" in the New York Times, was listed as number 21 on a list of the 25 most powerful businessmen in 2007 by Fortune, at that time running through Cerberus 50 companies with total revenues of $120 billion.  On Wikipedia, his net worth was estimated as $2 billion in 2008.  These figures suggest that leaders of Cerberus Capital Management can make very large amounts of money, orders of magnitude larger than the compensation of the BCBS of RI CEO.

Budget
There is little public information on the budget of Cerberus Capital Management, but note again the estimate above that in 2007, it controlled 50 companies with $120 billion in revenues.  There is also little public information about the budget of its subsidiary, Steward Health Care.  Estimates from a recent article in Commonwealth suggested that Cerberus invested $251.5 million in Steward, but that Steward's 2011 budget had a net loss of $57 million.  According to the Woonsocket Call, an apparently short-term balance sheet from March 31, 2012 showed that Steward Health Care had assets of $1.1279 billion, liabilities of $1.0259 billion, and stockholder equity of $102 million.

Taxes
There seems to be no significant public information on taxes paid by Steward Health Care or Cerberus Capital Management.  According to Chareles Ferguson in Predator Nation, Cerberus chairman John W Snow resigned as Treasury Secretary "in 2006 only because it was revealed that he had not paid any taxes on $24 million in income from CSX, which had forgiven Snow's repayment of a gigantic loan that the company had made to him."

So while RI BCBS can be faulted for paying relatively high executive compensation, using its funds to build a rather lavish headquarters building, but not for failing to pay RI taxes, at least all these have been issues for public discussion. Furthermore, Cerberus Capital Management, and Steward Health Care which is its creature, while explicitly bringing these issues into the public debate about the Landmark negotiation with Blue Cross Blue Shield of RI, have not seen fit to reveal their own executive compensation, budget, or taxes. There is reason to think that their executive compensation and management budgets could be far more bloated that those of RI BCBS. We have no idea whether they have paid what might be considered their fair share of taxes, but note that their current chairman has had issues in the past with his personal tax payments.

Summary

The vigorous advertising/ public relations campaign by Landmark Medical Center, Steward Health Care, and ultimately Cerberus Capital Management to get a more successful outcome of the negotiation between Landmark and RI BCBS seems to be an example of the tactics used in support of the public relations by large, for-profit health care organizations. In the absence of any transparency about the executive compensation, budget, and tax payments by Cerberus Capital Management and its subsidiary, Steward Health Care, lavish public advertising faulting the executive compensation, budget, and tax payments of its counter-party suggests a rather crude attempt to twist the narrative so as to divert public attention from relevant issues.

If this was not the intention, perhaps Cerberus and Steward will make their executive compensation, budgets, and tax returns fully transparent?  We wait with bated breath.

In the absence of such transparency, skepticism about their public discourse remains warranted.

There is more and more public discussion of health policy from the local to the global levels. Much of this discussion, like much political discussion in general, seems dominated by expensive public relations efforts on behalf of the richer health care organizations. Physicians, other health care professionals, health policy researchers and leaders, and the public at large should be alert to the possibility that these communications will use psychological manipulation to divert its narratives in directions favored by these large health care organizations. Anyone listening or viewing communications coming out of such public relations efforts ought to consciously think about the relevant facts and issues they ignore, and why they may have been consciously omitted.

How the Anechoic Effect Is Institutionalized - A Hospital Policy Against Unsupervised Discussion with the Media

In a single sentence, a short, obscure article in the Worcester (MA) Business Journal on life at a community hospital after a for-profit corporate take-over:

Several Nashoba employees, who didn't want their names used because it's against hospital policy to talk to the media without authorization, said they're happy with the new insurance plan.

We have often discussed the anechoic effect, how cases involving or discussions of the topics we address on Health Care Renewal, the concentration and abuse of power in health care, fail to produce any responses, or echoes.  It was almost an aside, but the sentence above provides evidence of the existence of apparently blanket hospital policies against unsupervised discussion with the media. Here is an example of the institutionalization of the anechoic effect.

This example raises three immediate questions. How prevalent is this? How long has it been going on? What is it meant to hide?

Prevalence

This article is only about a single hospital. However, the context of the article is the take-over of Nashoba Hospital by Steward Health Care. Steward Health Care is a for-profit health care corporation that grew out of the take-over of the formerly not-for-profit Caritas Christi health system by the private equity firm Cerberus Capital Management. Steward Health Care now comprises  eight hospitals, and also owns physician practices (apparently including over 2000 doctors based on a quick search using its "doctor finder" function.) Thus it is likely that the policy at Nashoba Hospital that prevents unsupervised discussion with the media also applies at seven other hospitals, and perhaps to the practices of over 2000 doctors. Thus it is very likely that this hospital gag policy is not unique, and may be widespread. However, recursively, the existence of such gag policies will make it hard to determine their own prevalence.

Note that we have posted a few times about confidentiality clauses mainly within physicians' contracts here.

Duration

This policy is likely relatively new, since the take-over of Caritas Christi by Cerberus occurred in 2010. My guess is that the rise of such policies may parallel the resurgence of for-profit hospitals and hospital systems, and perhaps the new involvement of private equity firms in such organizations.

In my humble experience, gag policies and confidentiality clauses at least within non-profit teaching hospitals were virtually unheard of from the time I began medical school (1974) to when I left my last full-time academic medical position (2005).

Note that we recently found out (because of investigative journalism about presidential candidate Mitt Romney's previous involvement with private equity firm Bain Capital) that such firms are generally rebranded leveraged buy-out firms. They have become known for their secretiveness. Therefore, maybe it should not be surprising that they have imposed such secretiveness on hospitals and health care professionals.

Rationale 

The big question is why should hospital employees not be allowed to talk to the media without management supervision? I can only speculate.

In this case, perhaps such secretiveness is just the habit of the private equity executives who now run the hospital system. Even if this is the reason, they ought to reconsider. Hospitals and health care professionals due have a solemn obligation to keep confidential their patients' medical information. However, otherwise health care organizations and health care professionals ought to be as transparent as possible.

Maintaining such a level of secrecy could lead to some suspicions, for example, that the generic managers of the organization distrust the professionals they hire who actually provide patient care; worse, that the managers fear discussion that might question their actions or abilities; worse, that the managers want to silence whistle-blowers; or even worse, that the managers have something unethical or illegal to hide. That is all speculation, of course.

On the other hand, we have discussed again and again how the anechoic effect has stifled discussion of what is wrong with health care, and hence prevented meaningful health care reform. Gagging hospital employees is an obvious extension and institutionalization of the anechoic effect. It should not be done, because we need honest discussion of what is really wrong with health care so we can come up with some real solutions.

The Continuing Parade of Legal Settlements by Health Care Organizations: Cardinal, Cerberus, Dartmouth-Hitchcock, Masonicare

Here is our latest round-up of the more colorful legal settlements made by some US health care organizations.

Cardinal Health

Cardinal Health is a pharmaceutical services company. Per the Kansas City Star:

A pharmaceutical distributor has settled a federal anti-kickback lawsuit by agreeing, in part, to pay $760,000 to former Kansas City Chiefs player Dan Saleaumua and a consultant.

That money is part of an $8 million settlement that Cardinal Health Inc. of Ohio agreed to pay the U.S. government to settle the lawsuit.

The lawsuit alleged that Cardinal offered Saleaumua and consultant Kevin Rinne an illegal $440,000 kickback so it could supply prescription drugs to seven Kansas City area Medicine Shoppe pharmacies that Saleaumua owned at the time.

Cerberus Capital Management/ Dyncorp/ Steward Health Care

This will require some explanation. Cerberus Capital Management now owns Steward Health Care, mostly composed of what was formerly known as Caritas Christi hospital system of Massachusetts, and a large group of physician practices now known as Caritas Christi Network Services (see posts here and here). Cerberus Capital Management now also owns DynCorp (see their web-site), which has been called one of the "leading mercenary firms," by an article in the Nation.

As reported by Bloomberg about DynCorp, and hence indirectly about Cerberus, and Steward Health Care:

DynCorp International Inc., the largest U.S. contractor in Afghanistan, agreed to pay $7.7 million to resolve allegations it submitted inflated claims for construction work in Iraq, the U.S. said.

The Justice Department said yesterday that DynCorp and its subcontractor, The Sandi Group, will settle a whistleblower case filed in federal court in Washington. The Sandi Group, accused of submitting false claims on a police-training contract in Iraq, will pay more than $1 million.

'The hard work of stabilizing Iraq is challenging enough without contractors and subcontractors inflating the cost of rebuilding by making false claims at taxpayers’ expense' Assistant Attorney General Tony West, who oversees the department’s civil division, said in an e-mailed statement.

DynCorp inflated the costs of building camps at various locations in Iraq, the U.S. said.

Dartmouth-Hitchcock Medical Center

Dartmouth-Hitchcock Medical Center is a prestigious medical center. Per the New Hampshire Union-Leader:

Dartmouth-Hitchcock Medical Center has settled a case of alleged billing fraud to various federal health programs, such as Medicare, Medicaid and Veterans Affairs.

DHMC, which denied any liability in the matter, agreed to pay $2,227,075. The federal government recovers $1.5 million, Vermont $80,396, and New Hampshire $61,541, the U.S. Attorney for the District of Vermont announced Tuesday.

The investigation began in 2007 following a complaint filed by Dr. Thomas J. Prendergast, who was a physician in the DHMC pulmonary department in Lebanon. The complaint alleged the hospital improperly billed federal health care programs for services performed by resident staff without sufficient supervision by physicians. Regulations allow physicians to bill for certain services by resident staff, but only if the services are performed in the presence of a physician.

The investigation, conducted with the hospital's cooperation, found alleged improper billing in the anesthesiology department, pain clinic and radiology, according to the government. The billings at issue were from 2001 to 2007.

Masonicare

Masonicare is a not-for-profit "senior services provider." Per the Meriden (CT) Record-Journal:

A settlement agreement was reached today where Masonicare Health Center will pay the government almost $450,000 to resolve allegations the facility violated the False Claims Act, according to an announcement from U.S. States Attorney David B. Fein.

Fein explained the allegations against the senior-focused inpatient and outpatient health care facility involved improper billing to Medicare and Medicaid for injections of leuprolide acetate, or Lupron. The medication is used to treat prostate cancer in men and endometriosis and fibroids in women. The billing code for the female-related dosage has a higher reimbursement rate than the code for male-related doses, according to the statement.


The government alleges that Masonicare regularly billed for the female-related code for male patients who were being treated for prostate cancer, so they received a substantially higher reimbursement than it should have received, according to the statement.

Further, the government alleges that in 2009, the company realized it had improperly coded the Lupron injections services but never self-disclosed its improper bulling to the government or made any attempt to pay the money back to the Medicare and Medicaid programs, Fein said.

Summary

So in the last 10 days or so, we have seen legal settlements of charges of kickbacks by a pharmaceutical services provider, submitting inflated claims to the federal government made by a subsidiary of a private equity group which also owns a large hospital system and group of physicians' practices, billing fraud by an academic medical center, and false claims by a senior health care services provider. 

I begin to think that if we keep this blog going long enough, the parade of legal settlements will include the majority of US health care organizations.  Again, such legal settlements serve as markers of the scope of bad behavior by a wide variety of health care organizations, including some of the largest and/or most prestigious, but also including many organizations that work regionally or at the community level.  Bad behavior indicated by these settlements seems so prevalent that it must be an important reason for the chronic problems that afflict US health care, rising costs, diminishing access, and stagnant quality.  However, it still seems to be politically incorrect to discuss such mismanagement, malfeasance and/or corruption as important causes of US health care problems. 

Although sometime in the past there may have been a general societal understanding that health care organizations ought to be held to the highest standards, and ought to be lead by people with the best character and of the best reputation, now one seldom hears an expression of shame when such organizations settle claims alleging fraud, over-billing, etc, etc, etc.

Like nearly all such cases we have previously reported, none of these cases seemed to involve any negative consequences for any persons who authorized, directed, or implemented the questionable acts.  While the fines involved may seem large to ordinary folk, they are not big enough to markedly affect the organizations involved.  So the parade of legal settlements has had little deterrent effect. 

Once again, I say: we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable.

Those Big Doors Keep Revolving

A few months ago, we discussed the revolving door that seems to connect US government leadership positions and leadership positions of commercial health care firms. There are other such revolving doors, like two recently discovered just north of here.

State Government to For-Profit Hospitals

As reported by the Boston Herald:

David Morales, a longtime trusted adviser to [Massachusetts] Gov. Deval Patrick, became the latest official to leave the administration as he stepped down from a top health-care post for a private sector gig.

Morales resigned abruptly yesterday to take a position with Steward Health Care System.

Furthermore,

Morales worked as a top adviser during the governor’s first term before taking a $128,000-a-year post in 2009 as commissioner of the Division of Health Care Finance and Policy. His resignation was effective yesterday.

Note that we have previously discussed the Steward Health Care System, the new name given to the Caritas Christi system after it was bought out by private equity firm Cerberus Capital Management. Steward's aggressive plan to stamp out "leakage" raised concerns that the new movement to make practicing physicians employees could push them to do what is best for the company's bottom line rather than for patients.

We previously suggested that deals that turn previously non-profit health systems and physicians' practices into for-profit corporations deserve considerable scrutiny. After Caritas became Steward, state government officials promised close oversight. Now Steward has acquired a new executive who has friends in state government.

Non-Profit Health Insurance/ Managed Care by Way of a Political Campaign to Health Care Venture Capital

This story also came from the Boston Herald:

Four months after his failed Massachusetts gubernatorial bid, Charlie Baker has landed a private-sector job at a Cambridge venture capital firm.

The former Harvard Pilgrim Health Care CEO is now an 'executive in residence' for General Catalyst Partners. He’ll focus on working with small and midsize health-care services companies for the VC firm, which has $1.7 billion under management across five funds.

In addition,

Health-related companies already in General Catalyst’s portfolio include iWalk, a Cambridge developer of orthotic and prosthetic devices, and North Carolina-based TearScience, which specializes in diagnostic and treatment devices for evaporative dry eye in addition to several still in stealth mode.

Note that managed care was originally touted as a way to control health care costs, and that the commercial health care insurance companies/ managed care organizations claim to be doing all they can to control costs. Such a focus on cost control would imply that they ought to be able to vigorously negotiate at arms' length with health care providers and drug and device companies.  Now some device companies have acquired a new venture capital overseer who has friends in insurance and managed care.

Summary

Not only are there revolving doors connecting the national government and large commercial health firms, but also connecting state government and regional hospital systems, and non-profit health care insurers/ managed care organizations and device companies.

This is just some more evidence that people in the leadership of large health care organizations have more in common with each other, even if their organizations are supposed to be competing or negotiating at arms length, than they have with patients, clients, customers and the public at large. 

The various revolving doors appear not to align the interests of leaders of health care organizations with their organizations' stated missions, or with promoting the health of patients.  To truly reform health care, we need to expose these doors to more sunlight, and then think about retarding their spin or even locking them in place.

Send Mercenaries, Guns, and Money? - Cerberus Tries to Buy Jackson Health

The latest twist in the tale of one of the US great safety-net public hospitals raises some interesting questions.  As reported by John Dorschner in the Miami Herald, Jackson Health System has had some bad times:

the system, ... has served for a century as Miami-Dade County’s safety net healthcare system for the poor and uninsured. But money and management woes in recent years have pushed the system to the brink of failure time and again. Last week, its executives said it would run out of cash in July unless drastic measures are taken.

The Bid for Jackson Health

The latest drastic measure proposed was a take-over by a for-profit corporation, one that we have heard of before:

A Massachusetts hospital chain led by a Cuban American heart surgeon with family ties to Miami has sent Jackson Health System a non-binding 'expression of interest' letter, offering to take over the financially troubled public hospitals, invest $600 million in capital and assume $500 million in debt.

The $1.1 billion offer from Ralph de la Torre of Steward Health Care System was delivered Tuesday morning to members of the capital committee of the Public Health Trust, Jackson’s governing body.

Questions Appear Immediately

The proposed deal immediately raised questions and concerns. The very nature of the deal was unclear:

Trust member Ernesto de la Fe said he wasn’t sure if the company was proposing a straight-out sale, while other board members said they thought the offer envisioned 'a public-private' partnership.

Also, in a follow-up story by the same reporter, there were questions about the rapid time-table,

Jackson is in such difficult financial conditions – its executives warn it may run out of cash in July – that many leaders are willing to consider a sale, but they wondered whether the 90-day timetable set by Steward Health Care System is realistic and what the deal might mean for the 500,000 uninsured persons in Miami-Dade County.

There were questions about the company which proposed to buy Jackson:

'We need to know a lot more about this company,' said Sal Barbera, an adjunct professor at Florida International University and a former hospital executive.

Steward has existed only since November, when Cerberus Capital Management finalized a $895 million deal to turn six Catholic hospitals into a for-profit entity. Steward has since bought two other small hospitals. Altogether, the Steward system has 1,565 licensed beds. Jackson has 2,100. De la Torre has been a hospital executive for less than three years.

That’s 'a very short track record,' said Mark Rogers, a Trust member and former chief executive of the Duke University Hospital.

Would the Mission be Upheld?

The issue of whether a private, for-profit company would respect the mission of a safety-net hospital came up quickly,

Alan Sager, a health policy professor at Boston University, said some Steward facilities are money losers in poor neighborhoods. 'Some of us had a lot of questions' about the Cerberus take-over and how the investment company could squeeze returns for investment out of hospitals that were struggling as nonprofits.

'We asked repeatedly. We never received answers,' Sager said.

He said his fear is that patient care will be reduced to make profits. 'I think there should be concerns about preserving essential patient care in Dade County' if Steward took over Jackson, he added.

'If the object is merely to cut costs to make money … then that is not the right approach for Jackson,' said Rogers, the former Duke executive. 'Clearly some costs have to come out, but we have to invest in new programs to maintain the quality of medical care that Jackson has always provided.'

One day later, John Dorschner again writing for the Miami Herald raised more questions about why a large private equity company would want to buy a money-losing public hospital system? First he noted,

While the human face on the $1.1 billion bid to buy Jackson Health System is a Cuban-American heart surgeon with strong family ties to Miami, a vast and powerful entity looms in the background: Cerberus Capital Management.

The company, named for the mythological three-headed dog that guards the gates of Hades, is one of the biggest private investment firms in the United States, and it is the owner of Steward Health Care, the Boston hospital group that this week said it is interested in buying Miami-Dade’s public hospitals

So,

The question that perplexes some Trust members is why such a big-time investment firm would be interested in a healthcare system with three public hospitals that lost $244 million in fiscal 2009, is expected to lose $105 million in fiscal 2010 and is projected to run out of cash in July unless drastic measures are taken.

The concern, again, was whether Cerberus would uphold the current mission of the hospital system:

Trust Treasurer Marcos Lapciuc said Thursday that Cerberus is 'in the driver’s seat' on this deal, not Steward. 'They are going to expect some return on their investment. This is not going to be charitable donation,' he said.

Of course, the central mission of the current Jackson Health System would seem to be charitable.

To build the health of the community by providing a single, high standard of quality care for the residents of Miami-Dade County

The implication of "single, high standard" is that applies to all residents, regardless of financial status or ability to pay.

More Questions

The CEO's Short Term Focus

There is good reason to question whether Steward Health Care, formerly Caritas Christi, and now owned by Cerberus Capital Management would uphold that mission. As we noted recently, the Steward Health Care CEO seems to have a very short-term focus, suggested by the track record of the Cerberus CEO, who quickly left an organization he had aggressively promoted, suddenly switched from the Republican party to become a big contributor to the Democratic party, abandoned his medical license after developing a good reputation as a cardiovascular surgeon, and famously was quoted, "burn the boats on the beach, baby." Would he support the long-term commitment needed to make both the Massachusetts based and now the proposed Florida based hospitals, most of which are safety net hospitals, succeed?

"Leakage Reduction" - a Threat to Physicians' Professionalism?

As we also noted recently, the main tenet of his business plan seemed to be to reduce "leakage," to make sure patients who start within the system are referred within the system and do not "leak" elsewhere. The problem with this is that physicians are supposed to decide how to manage patients, and specifically to decide where to refer patients in the patients' interests, not just to keep money flowing to the health care system. "Leakage reduction" may possibly threaten physicians' first commandment, to make decisions to maximize benefits and minimize harms to individual patients, before all other considerations. Also, as we noted earlier, since Steward Health Care purchased not only some Massachusetts hospitals, but a big network of physician practices, there could be a risk that the physicians who are now employed by a private equity group would be pushed to make referral decisions for financial reasons, rather than in the best interests of the patients.

Note that a recent (posted 9 February, 2011) advertisement for a Senior Medical Director (physician leader) of the Caritas Christi Network Services, the physician group owned by Steward Health Care LLC, said the Director's first goal would be:

This position will have a leadership role in all aspects of the CCNS system, including responsibility and accountability for:
- Lead/Mentor/Support IPA based Medical Directors (at both the IPA and Pod level) to achieve Medical Management goals and objectives in Quality, Leakage, Utilization, and Risk performance

Keeping Company with Gun and Ammunition Manufacturers and "Mercenaries"

There are also questions about whether the corporate culture of Cerberus Capital Management would be compatible with the management of safety-net hospitals. Cerberus has some current investments in firms whose operations seem oddly askew from providing medical care to patients regardless of their ability to pay.

First, Cerberus owns the biggest manufacturer of firearms and ammunition in the US. As reported by BusinessWeek last year,

Cerberus had more than DPMS [Firearms] in its sights. From April 2006 to January 2008 it bought three other firearms companies: Bushmaster, Remington, and Marlin. And it kept adding to its collection. Cerberus now controls 13 brands in a holding company it created, Madison (N.C.)-based Freedom Group. With sales of $848.7 million in 2009, Freedom Group is the largest gun and ammo maker in the U.S. That means Stephen A. Feinberg, Cerberus' founder and managing member, is the country's top civilian gun magnate.

In addition,

Luth, the rifle maker, says that when he arrived at Cerberus' Park Avenue offices to negotiate a deal in 2007, he discovered that Feinberg and several of his partners 'are real gun guys.'

Also, as reported by the New York Times, Cerberus recently bought one of the biggest "private military contractors,"

DynCorp International, the private military contractor, said on Monday it has agreed to sell itself to Cerberus Capital Management for $1.5 billion, as the private equity industry continues to return to its core business of deal-making.

Cerberus will pay $17.55 a share for DynCorp, a 49 percent premium to Friday’s closing price of $11.75. DynCorp now has 28 days under a 'go-shop' provision within the deal agreement to find a higher and better offer.

While DynCorp has continued to win new contracts from the federal government, it has also been the subject of controversy over the years for its assignments in Iraq.

That controversy was amplified in an article in The Nation by Jeremy Scahill, entitled "The Mercenary Owners, They Are a Changin' (Sort of)

Blackwater and DynCorp, the two leading mercenary firms servicing the US wars in Iraq and Afghanistan have both undertaken steps toward significant structural changes over the past month. In the case of DynCorp, the ownership of the whole business seems to be changing hands, while Blackwater is dumping its private air force.

Cerberus Capital Management, one of the largest private equity firms in the US announced April 12 it was buying DynCorp, the massive, publicly traded company, which is akin to the Wal-Mart of the private security industry, for $1 billion in cash. Cerberus counts among its big wigs former vice president Dan Quayle, who often represents the company internationally. DynCorp has had its share of scandals over the years, including whistle blower allegations that personnel have engaged in organized sex-slave trading with girls as young as 12 and allegations its personnel have assaulted journalists. It has been rebuked by the State Department for its 'aggressive behavior' in interactions with European diplomats, NATO forces and journalists in Afghanistan. A 2007 US government audit of DynCorp's work in Iraq found that the State Department 'does not know specifically what it received for most of the $1.2 billion in expenditures under its DynCorp contract for the Iraqi Police Training Program.' More recently, the company was in the news facing allegations its training of the Afghan National Police was shoddy, including allegations its trainees didn't know how to adjust the sights on their AK-47s. If the Cerberus deal goes through, it will mean that the publicly-traded DynCorp will go private, meaning that it will be infinitely more difficult to get information on the company.

Cerberus seems to have had a dream of owning its own mercenary business for at least a few years. In April 2008, the company was reportedly looking to buy Blackwater. The deal apparently fell through because of concerns over Blackwater's reputation.

Summary

So we have come a long way from 1980, when the US American Medical Association gave up the rule that the practice of medicine should not be "commercialized, nor treated as a commodity in trade."  (See posts here and here.)   Now we have private equity firms buying or trying to buy formerly non-profit safety net hospital systems to be included in portfolios that can include gun and ammunition manufacturers and private armies.  Now we have physician networks owned by private equity firms focused on choking off "leakage."  Such ownership may initially inject lots of money into the system, and may eventually profit the new private owners, but what will we give up in this brave new world of commercial safety-net hospitals and for-profit physician practices?

As we said before,.... Deals that turn not-for-profit hospital systems into privately held for-profit systems ought to be scrutinized with extreme skepticism. Furthermore, once such deals are made, the results ought to be watched extremely closely to make sure they do not put private gain ahead of individuals' and the public's health. For-profit hospitals have generally not lived up to the promises they made to provide quality, accessible health care at a cheaper price.  It is yet to be seen whether private equity running for-profit hospital systems (and physicians networks) will do any better.

Coda

The title requires apologies to Warren Zevon, who famously performed "Send Lawyers, Guns and Money."