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.

Busted: Roger Williams Medical Center, Its CEO, Two Former Executives Indicted

Things just got much worse for Roger Williams Medical Center here in Rhode Island, its current (but suspended Chief Executive Officer [CEO] Robert A Urciuoli, and two of its former executives.

The Providence Journal reported:

Roger Williams Medical Center yesterday became the first nonprofit institution in Rhode Island ever to face federal corruption charges when a grand jury issued a 38-count indictment against the hospital, its president Robert A. Urciuoli and two others.The indictment, charging conspiracy and mail fraud, alleges that Roger Williams and its representatives stole the "honest services" of a Rhode Island senator, John A. Celona, by putting him on the payroll to do their bidding at the State House.
Also charged were Peter J. Sangermano Jr., the former president of The Village at Elmhurst assisted-living center; and Frances P. Driscoll, a former Roger Williams vice president.
The indictment alleges that Roger Williams Medical Center and the others hired Celona as a consultant to The Village at Elmhurst, which is partially owned by the hospital, but that Celona's real work was using his public office to influence legislation and perform favors.
The hospital, Urciuoli and Sangermano were each charged with 37 counts -- 1 of conspiracy and 36 of honest services mail fraud. Driscoll was charged with two counts -- one of conspiracy and one of honest services mail fraud.

The indictement charged "that the defendants conspired to hire Celona as a consultant in 1998, and that the senator was paid more than $260,000 over the next six years 'to cause him to use his influence, power and authority as a state senator to benefit the political and financial interests' of Roger Williams." Furthermore, " As part of the alleged conspiracy, the indictment says, the hospital disguised the true nature of Celona's work and deceived the state Ethics Commission when it sought an advisory opinion regarding the senator."

"The indictment chronicles a litany of actions that Celona allegedly performed at the direction of Urciuoli, Sangermano or Driscoll, from seeking to influence legislation to using his political muscle and powers of persuasion." These included:

• " At Urciuoli's direction, the indictment charges, Celona pressured Blue Cross and UnitedHealthcare to increase their insurance reimbursements to Roger Williams. "
• "The indictment alleges that when Roger Williams was seeking a merger with a for-profit corporation, Urciuoli and Driscoll informed Celona that they opposed a Senate bill prohibiting hospital officials from serving on the board of a converted hospital."
• "The indictment also accuses Urciuoli and Driscoll of telling Celona to oppose a 1999 bill creating a Rhode Island Cancer Council, to coordinate research and treatment, because it could hurt hospital finances and because they expected it would be led by a former Roger Williams doctor for whom they 'felt animosity.' Driscoll subsequently directed Celona to threaten an unidentified state representative, the indictment says, 'and advise her that she would suffer negative political ramifications if she supported the Cancer Council.'"
• " Urciuoli and Driscoll were also accused of directing Celona to attempt to influence municipalities to increase ambulance runs to Roger Williams. "
• "Driscoll was charged with directing Celona to amend legislation to reimburse Roger Williams for a bone-marrow donation program."
• "She was also accused of directing Celona to work to kill a bill to require nonprofit corporations in Providence to make payments in lieu of taxes."
• "In 2000, the indictment says, Driscoll directed Celona to oppose a proposed merger between Lifespan and Care New England, 'because the merger could have an adverse financial impact' on Roger Williams."
• "In 1998, Driscoll and Sangermano allegedly directed Celona to work against a bill prohibiting health facilities, including The Village at Elmhurst, from offering care for Alzheimer's disease. "
• "Sangermano was also accused of asking Celona to work behind the scenes to extend a moratorium on new nursing-home beds in Rhode Island, to help The Village at Elmhurst's finances."

CEO Urciuoli was unavailable for comment. "When the indictment came down yesterday, he was with his family in Florida. Last summer, his wife bought a house on a golf course, the Country Club at Mirasol, in Palm Beach Gardens, for $939,000, according to Florida land records."
The indictment of an entire not-for-profit hospital may be another first in the annals of health care mismanagement. In an accompanying article in the Providence Journal, Rick Wade, Senior Vice President of the American Hospital Association is quoted, "I have no inkling of how you would indict and try an entire institution." Furthermore, "It could be that indicting the hospital is sending a message to every hospital, that it's just not one person acting -- there is institutional responsibility for these kinds of things," he said. "For boards of trustees everywhere, it's a reminder of how serious the responsibility of hospital trusteeship is."
The hospital's Board issued a statement that they were "shocked and deeply disturbed," furthermore,

This decision has threatened a respected 128-year-old institution that employs more than 1,400 people and provides millions of dollars of free care annually to Rhode Islanders who can't afford to pay for care. Hundreds of nurses, doctors and other dedicated caregivers devote themselves to caring for patients on a daily basis at Roger Williams. Their livelihood is now at risk

True enough, but the question is: who was ultimately responsible for the threat, the grand jury who indicted the hospital, or the leaders of the hospital who allegedly took the actions that lead to the indictment?

The membership of the Medical Center's Board has changed since the 13-3 vote to keep Urciuoli on despite evidence of his financial improprieties, since Urciuoli hired Celona, and since the events allleged in the indictment. If the new Board wants to protect this 128-year old institution, it clearly needs to clean up the Medical Center's administrative act.

As each new case of mismanagement of health care organizations makes headlines, awareness that such organizations' leadership is all too often ill-informed, inept, conflicted, and even corrupt should grow.

That awareness should motivate making such leadership more representative, transparent, accountable, and ethical.

Rhode Island Blue Cross Settles Class-Action Lawsuit

Our own Rhode Island Blue Cross just settled a class-action lawsuit, according to the Providence Journal. The plaintiffs had claimed that Blue Cross collected inflated inflated co-payments for drugs by charging patients a percentage of the list price, while the company actually was only charged a discounted price. The example given in the article was someone "might, for example, get $100 in perscriptions ... and end up paying $20, based on a 20-percent copayment, while Blue Cross would secure discounts and pay just $40 for that medication." Although Blue Cross did not admit wrongdoing, the settlement would prevent it from basing co-payments on inflated list prices in the future.
Blue Cross was not exactly forthcoming in this matter. The plaintiff's lawyer described its defense of this lawsuit up to the time it was settled as "trench warfare."
This is, of course, yet another example of a insurance company/ managed care organization "bilking subscribers," to use the article's words. More importantly, it also appears to be an example of how mismanaged health care organizations end up hurting the patients they are supposed to serve. At the time Blue Cross was inflating patients' copayments, it was lead by a CEO who turned out to have an equally inflated salary, received an interest free loan from Blue Cross to help finance a lavish new house, and be getting free treatments from a local acupuncturist who hoped to get the company to start paying for his services (see our post here). In addition, Blue Cross is currently being investigated after a state legislative leader revealed they he accepted money from the company to promote its legislative agenda (see our post here).

A Former Rhode Island Legislator Pleads Guilty to Selling His Office to Local Health Care Organizations

Back to a big, and increasingly messy local story... former RI state senator John A. Celona has agreed to plead guilty to federal charges, according to the Providence Journal. Federal prosecutors stated that Celona and "other persons" created a "scheme ... to defraud the State of Rhode Island and its citizens of their intangible right to his honest services and to have those services performed free from deceit, favoritism, bias, conflict of interest and self-enrichment." Celona was previously indicted on similar charges in a state court action. The charges to which Celona has now admitted include:

1. Accepting over $260,000 from Roger Williams Medical Center, (at the recommendation of its Chief Executive Officer (CEO), Robert A. Urciuoli, according to the newspaper,) channeled through its subsidiary assisted living center, to: influence cities to increase their ambulance transports to the hospital; oppose legislation that would have required the hospital to make payments in lieu of taxes; back legislation to extend a moratorium on construction of new nursing facilities; influence other law-makers to oppose formation of a Cancer Council that would have been lead by former Roger Williams Medical Center medical staff members who had feuded with Urciuoli; pressure a company to pay its debt to the hospital; and pressure another to make a favorable contract with the hospital.
2. Accepting $45,000, and free travel to a golf tournament from CVS to: oppose pharmacy choice legislation; favor legislation that would permit electronic prescription of brand-name drugs; and opposing legislation to allow drug re-importation from Canada.
3. Accepting over $13,000 from Rhode Island Blue Cross to: support a bill allowing insurance companies to design affordable benefit plans; support a bill changing health insurance plan parameters for small business; and oppose a bill requiring health insurers to cover prosthetic devices and modifying limits on their investments.

According to the news article, investigations of the roles of Roger Williams Medical Center, CVS, and Rhode Island Blue Cross in this are on-going.
This single case illustrates that mismanagement is not limited to particular types of health care organizations, and that problems at one organization may easily get tangled up with problems in others.
It also illustrates the wide-ranging effects of mismanagement and corruption.

State Senator Indicted for "Influence Peddling" to Health Care Organizations

A follow-up of a complex local story in the Providence Journal: John Celona, a former Rhode Island State Senator, was just indicted by a state grand jury for using his public office for private gain (or, as the headline said, "influence peddling.")
He was charged with having three financial relationships with one for-profit and two not-for-profit corporations "while he was in a position to influence legislation of interest to these companies."
Relevant to this blog is that all three organizations are in health care. They are the CVS pharmacy chain, Rhode Island Blue Cross and Blue Shield, a not-for-profit health insurance and managed care organization (and by far the dominant such organization in the state), and Roger Williams Medical Center, a not-for-profit university affiliated medical center. Two counts of the indictment "alleged that Celona violated the state's Code of Ethics by accepting employment with Roger Williams Medical Center and CVS ... which 'did impair his independence of judgment'...." One count alleged that he "uses his public office 'to obtain financial gain' for himself and a TV production company... from Blue Cross."
Kim Keough, a Blue Cross spokesperson, said "obviously, the indictment surrounding Mr. Celona's actions are not allegations against Blue Cross whatsoever." CVS' written statement simply stated that the company "will continue to cooperate with any and all inquiries into this matter." Roger Williams declined comment.
The investigation is not yet over, and some matters may well be referred to a federal grand jury.
H. Philip West Jr, Executive Director of Common Cause of Rhode Island, said "Hopefully, this indictment and the trial will demonstrate to the public some of the ways that some lobbying groups have sought to compromise public officials. Until now, CVS and others who paid Celona have come through unscathed."
A brief Providence Journal editorial added, "Mr. Celona's trial might illuminate how special-interest groups use legislators to promote their interest. Meanwhile, people wonder what will happen to those who 'hired' Messrs. Celona and Irons [another State Senator who resigned under fire for accepting "broker commissions from Blue Cross]."
Providence Journal columnist M. Charles Bakst opined, "What about CVS, Blue Cross, and the Roger Williams Medical Center? These are the entities with which Celona is charged with striking private financial deals. If something smelly happened, isn't it reasonable to think they were as much a part of it as this prominent Democrate who chaired a top Senate committee? The public will find it hard to take if Celona lands in the slammer, but the folks he served, or who allowed themselves to be exploited, skate."
As we have noted before, Blue Cross in Rhode Island was known for its rapid premium increases, stingy payments to doctors, and recent lack of interest in maintaining a dialogue with health care professionals. Last year, its CEO resigned after his huge financial compensation package was revealed by the Providence Journal. It is gratifying that the civil authorities are now starting to address dubious relationships between large health care organizations and politicians. But where are the watchdogs within health care who could address how concentration and abuse of power damages patients and health care professionals?

Mismanagement Are Us

The media today contains a host of stories about health care mismanagement at all sorts of organizations.

Not for Profit RI Blue Cross Fights to Keep Paying Directors

The Providence Journal reported that not-for-profit RI Blue Cross is fighting in court to continue providing health insurance to its own board members, including the chair, also the head of the RI AFL-CIO, despite a new law that forbids compensation to board members without state approval. RI Blue Cross , which has about 70% of the health insurance market in little Rhode Island, fired its CEO this year after news reports of his huge salary, receipt of a $600,000 no-interest loan which he did not pay back, and, receipt of free acupuncture treatments from a practitioner who wanted to influence Blue Cross reimbursement policies. Meanwhile, Blue Cross was paying health care professionals poorly (often less than Medicare), while hiking premiums at double-digit rates.

"Where's the Outrage Over King/Drew?"

King/Drew Medical Center in Los Angeles, run by Los Angeles County, was documented by the Los Angeles Times to have a history of medical errors and systemic quality problems, accompanied by high costs, and chronic personnel difficulties, (most strikingly 120 workers' compensation claims involving injuries incurred by falling out of chairs.) Today, op-ed columnist Pat Morrison wondered at the silence of the politicians responsible for its oversight. Perhaps, they were afraid to criticize "the most symbolic and substantive institution in the black community", (per Asseymblyman Mervy Dymally). Morrison concluded that to politicians, "saving the hospital and its jobs matter more than saving the patients whose lives depend on it."

British Foundation Hospital Trust Loses its Chair

The chair of one of the new foundation hospital trusts in the UK was fired by the external Monitor organization after it incurred more than an 11 million pound deficit since April, reported the Guardian. The trust's board and the Monitor organization have been exchanging charges about who is to blame. The Monitor accused the trust's board of covering up the deficit, after initially projecting a large surplus.

Medicaid Money Went for Care of Dead People

Several state Medicaid organizations were accused of mistaken payments. In Colorado, millions went to pay for care of people who were already dead, per the Rocky Mountain News. In Washington (state), 1.4 million pills, including the narcotics Vicodin and Percocet, went missing, per the Seattle Post-Intelligencer.

Flawed Defibrillator Evaded FDA Scrutiny

The New York Times reported how defective defibrillators escaped FDA oversight. The former CEO of Access Cardiosystems, locked in a legal battle with the company, notified the FDA late in 2003 of potentially defective products. An initial inspection did not find major problems, but when the company received more reports of problems last summer, the FDA responded failed to send inspectors back. A recall was finally ordered in November, and the company closed its doors, leaving customers, including emergency services units, scrambling to replace their now useless defibrillators.