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

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

[Hahnemann Hospital in 1925]

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

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

The Plight of the Residents

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

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

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

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

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

He described some of the worries the residents are facing.

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

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

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

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

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

The Solution: Sell the Residency?

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

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

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

Also,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Was an Asset Sale the Plan All Along?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Graduate Medical Education Adrift in a Sea of Commercialized Health Care

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

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

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

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

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

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

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

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

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

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

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

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


References

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

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

"Like Watching a Slow Train Crash": AHERF to Hahnemann & Drexel, Part Deux

The Hahnemann Tragedy: Not All That Anechoic, But How Relevant Anyway?

There are so many health policy narratives right now entering new phases: CMS's head slamming the very idea of a public option; prescription drug costs; the opiate crisis now including both the Sacklers and J&D--all repeatedly subjects of this blog. So my dander's up over all these things more than something maybe unique to one town. Personally I'm finding it hard to stop and cone down on something that's for now mainly affected the U.S. Delaware River Valley. Philadelphia in particular.

Which is just the point that Dr. Poses, HCR's intrepid editor, recently made here around the closure of Hahnemann. (Its counterpart, Medical College of Pennsylvania Hospital, was closed by 2004.) Why has this major loss of a local health asset been so anechoic, a term I coined decades ago? Or has it actually been anechoic beyond the DelVal? Dr. Poses has urged me to blog on the Allegheny and Hahnemann debacles and their sequellae. It now occurs to me I can offer a useful extension, if not corrective, to his Part One on the events leading to the present demise of what's often been Philly's hospital and training venue of last resort, Hahnemann University Hospital.

Herewith, Part Deux. I lived through the whole sordid mess as a clinician and educator. I did so before, during, and after the late, unlamented, Allegheny University of the Health Sciences (a branch of Pittsburgh's AHERF) and its most important recent partner, Drexel University College of Medicine (DUCOM). Tellingly, we should call them frenemies, never true and trusted partners despite protestations to the contrary.

(To get ahead of the story only a bit: by the late 1990s, Drexel had inherited the bulk of academic and out-patient assets from Abdelhak's "AHERF East" expansion. Much less has been written or understood about Drexel's role in this narrative.)

So here's a perspective that will, I think, offer at least a little something new for everyone who trudges through it. It runs long.

Back, then, for a moment, to the "anechoic effect." Interestingly, the demise of Allegheny and now that of Hahnemann haven't lacked for echoes. Much has been written--indeed, the literature's so rich I'll only cite the most important milestones here--about it, and attention was fitfully paid nationally. The documentary trail is rich locally. But not only there. Look in peer reviewed widely read world wide including one exhaustive monograph out of a major university press. Or put ["tenet healthcare" hahnemann philadelphia] into a search engine, omitting the square brackets.

In what follows I yield to the impulse to pepper official accounts with my own and colleagues' observations, up to and including some insalubrious details. For some of these there is really nothing to cite. Thus, since I'm peppering, feel free to take my account with a grain of salt. Remind, me, however, to come back to the question: if the story was really not anechoic--let's say at worst hypoechoic--why do folks still not pay attention? Is there something unique about the Philadelphia setting, or are there lessons-learned that can be applied to other's settings?

After all, it wasn't exclusively (to coin a phrase) just The Philadelphia Story. From the outset, it was a statewide story, soon becoming a national story with the 1998 bankruptcy and consequent incursion of Tenet Healthcare, a for-profit out of Texas and California. Also it was always a money story, where "follow the money" goes back way beyond Bob Woodward and Carl Bernstein. Money stories are almost always generalizable. And yet ... I'm still not sure about this one.

All the basic facts of history below are easily checked, when provided for readability sans citation or link, via any good search engine.

Early Days.

Start at two ends of the same state of Pennsylvania, truly a "swing state" in so many ways, long before it joined Wisconsin in tipping the nation into chaos in 2016. By the early 1990s two things were clear. Pittsburgh had the state's most aggressive yet in another sense most defensive health care institution in what became the Allegheny Health, Education and Research Foundation, AHERF. It arose out of both the feared domination of Pitt and the ambition of a group of physicians and administrators led by a pre-AHERF hospital cafeteria director, post-AHERF jailed petroleum pirate, the late Sherif Abdelhak.

Abdelhak was not the only buccaneer involved in the story, though, either before, during, or after the 1998 bankruptcy. The crimes--or, rather, let's be careful, "departures from accepted norms"--of Abdelhak and his immediate Pittsburgh cronies were the worst. To keep his newly-cobbled-together statewide medical school afloat by the mid-90s, he'd already started quietly raiding any number of foundations, gifts, pensions and endowments that had supported worthy activities. (I participated in a class action suit around one of those.) Such activities continued uninterrupted for a while, with only faint rumbles heard early on at the institution Abdelhak had merged into the oddly-styled "MCP♦Hahnemann College of Medicine," and then its immediate progeny AUHS: Allegheny University of the Health Sciences.

AUHS's President Sherif Abdelhak gave the plenary lecture to the Association of American Medical Colleges (AAMC), the Cooper Lecture, in 1996, joining pre-bankruptcy luminaries such as Paul Beeson and Uwe Reinhardt beforehand and (post-bankruptcy) Clayton Christensen or Rita Charon in this prestigious venue. Everyone in 1996 was keen to hear, without cynicism, how he was pulling off his entrepreneurial hat trick. Cynicism came considerably later.

It was never clear to me whether it was AUHS or more broadly AHERF that suddenly and traumatically landed on the auction block in 1998. Long before their merger, both of the predecessor medical schools, Medical College of Pennsylvania and Hahnemann, each with its own wholly-owned non-profit teaching hospital, had been pressured financially and mismanaged. No one was all that surprised that they acceded to merger, even though no one was all that happy about the strange bedfellows that resulted. By the mid-1990s, Philadelphians already knew the city was over-medicalized both clinically and educationally.

The two most salient characteristics of this shotgun marriage were its "T" and "W" on a SWOT quad chart. Do the math: its main strength, such as it was and still the case in Philly real estate circles, was location. The medical schools and hospitals were rather dilapidated then and now. But at least Hahnemann offered a prime location just north of what was to become the Convention Center district. So the "S" was not so amazing despite a few additional clinical assets over the years (assessed at length here and here).

(Ironically, in the books just cited, institutional biographies were commissioned for joint sesquicentennials and both were published hard on the heels of bankruptcy. They reward reading. And yet, from such a reading you'll perhaps come away with the impression: "say what?!? you combined two med schools reeling from such radically different traditions and thought culture clash wouldn't impact the result?)

And there, along with failure to invest, lay a critical weakness. Culture matters. The medical cultures clashed with each other, with the new parent university, and with the business cultures of Tenet and its successor.

In retrospect and probably in prospect, the opportunities for the new medical school and the hospital--what remained Hahnemann University Hospital because subsequent hospital owners wanted to differentiate it from Drexel's academic receivership--were few and far between. That's because the threat, and this is crucial, was something that may in fact be unique to Philadelphia.

Because of its history--and this is a decidedly mixed blessing with certain blandishments that persist pleasantly to this day--Philadelphia was always an over-medicalized place since the onset of its gradual but inexorable post-19th century and -industrial decline. For generations, depending on how you count, it had either five or six medical schools, each with its own elaborate teaching hospital plant, not to mention myriad other smaller hospitals. Encroaching further were suburban hospitals in the 20th century and outpatient surgical centers in the 21st. Each poached lucrative business away not just from Hahnemann but from all the university hospitals. Something had to give, an event now playing out at the bottom of the health-care and -education food chain.

Hahnemann was situated in a location, journalists now observe, with one of the least favorable payer bases of any central Philadelphia hospitals. Only the now-defunct Philadelphia General Hospital over in West Philly, still there as recently as the 1970s along with the Civic Center where Strom Thurmond held forth in 1948, was poorer. (PGH and the Civic Center are now wiped from the face of Google Maps, supplanted by grand edifices built by ever-expanding Penn-affiliated organizations.)

When the bankruptcy hit AHERF, having stripped the former organizations' academic assets, was ill-equipped to attract investment or do much other than give up the ghost. It had essentially been a health care Ponzi Scheme. Below I connect the dots with larger national trends described in a key article published over the name of Penn's university president. But before I do that let me describe some of the highlights, or lowlights, of the early years after AHERF went into receivership.

Brokering a Deal

In 2019 Philadelphia will now "de-medicalize" some more, through the long-overdue shift of the medical school and clinical training facilities to a new east-central Pennsylvania location. But unlike the present circumstance, in the late 1990s it was deemed unacceptable for all those hospital employees and all those jobs and all those patients to lose their places in the Philly firmament.

The politicians swung into action, casting about for some cure for the institutional patient.

Those figures--let's simply name Ed Rendell and Arlen Specter for starters--saved the patient by dismembering it. They'd always go on to say there was no choice, and it's probably true. The inpatient facilities went to an out-of-state, for-profit organization as I already mentioned.  Clinical training and health undergraduate programs (medical and many others) went to Drexel. The serial name changes I described above continued. The jewel in the rather rusty crown, the med school, soon became Drexel University College of Medicine under Constantine Papadakis, the late Greek-born engineer and the university's then-President, .

What followed was a striking litany of unforced errors. Had both Tenet and Drexel not made so many mistakes, it's possible the endgame just might have gone a different way. We'll obviously never know with any certainty.

The Next Chapter: Greek Tragedy

What happened next is at least as important as anything AHERF miscreants did in sealing the fate of both institutions. It was not just Tenet against Drexel. It was also Drexel against Drexel.

It's hard to know which of these sets of conflicts was most consequential in weakening the edifice after the bankruptcy. In either case it's important to understand that there not two but three boards, three administrator-coteries, and three financial silos. Drexel quickly erected a "firewall" between its health schools and its traditional West Philadelphia campus, with disastrous results.

Start with Tenet against Drexel. It's fairly easy to dispose of this conflict, since as Poses points out, ruthless business thinking immediate took hold for Hahnemann University Hospital. Make concessions and collaborate with clinical research planning? Not a chance. Tenet rushed to hive off its information technology out of reach of Drexel, installing an incompatible EHR. Some Tenet lawyer may come after me and berate me for ignoring "how much we at Tenet did for Drexel," but I can assure you and her that on balance, most decisions were made to streamline, not to say strip bare, Hahnemann activities such that Drexel research languished at the Hahnemann campus. Ironically it was only hold-overs from certain AHERF-era grants such as the tobacco settlements and the Robert Wood Johnson Foundation that helped tide medical school departments over, at least for a while.

We come, then, to "Drexel versus Drexel." In some ways these conflicts were even more pernicious. The firewall between the two sides of the river promoted such a trend. After all, mimicking the sins of the Tenet fathers, the two Drexel "silos" themselves rushed to hive off their own IT groups one from the other. (This has since been reversed, a healthy dose of too-little-too-late.) Not without some justification, the Drexel "original" board was paranoid that Drexel Med would bring down its new foster-parent institution.

And foster child is what Drexel Med, and for a while its corollary health schools, became. Papadakis, the engineer-entrepreneur, had already made his main focus the dilapidated West Philly campus. So he emphasized physical development over everything else, neglecting even his own West Philadelphia faculty almost as much as that of the medical school. With one or two notable exceptions he hired poor administrators. One of them, an early medical school dean, mimicked Abdelhak by embarking on a relationship with a medical student. (Abdelhak's now-physician wife later divorced him. It seems uninteresting what happened to the medical dean and the weather girl-turned-med-student who went on to become his wife.) Ironically, the best administrators at Drexel Med were those already present when Drexel took over. But not many stayed on to help.

Hence, Drexel versus Drexel. Drexel Main Campus mimicked AHERF in many ways in looting the medical school, taxing it heavily. Perhaps the worst example of this, a truly damaging sort of virtual taxation, was Papadakis running roughshod over the internal processes of the struggling DUCOM. At one critical juncture, he required an estimable new dean, who'd followed the fine gentleman described above, to eliminate all searches for replacement department chairs, as their predecessors headed for the exits. He froze all the acting chairs in place, resulting in a further weakening of the administrative infrastructure. This should have been a quitting issue for many--but most had already booked because of Abdelhak and his earlier regime. And indeed soon thereafter that new dean, Richard Homan, who'd just had every single one of his chair searches shot out from under him, did leave for a much better deanship elsewhere.

The remaining departmental structures were, and even now remain, riddled with inadequacies and opportunities for outright fraud. Last time I checked, about six months to a year ago, heads were still rolling as a result. Over on the Main Campus there is a new president who, while an improvement over Papadakis, focuses on new buildings, which, of course, attract new money.

Echoes Are Heard

In 2004, at the end of a decade at the University of Pennsylvania during which she had her own battles with the health-school leaderships, its scientist-president Judith Rodin published an influential piece in AAMC's widely-read flagship publication, Academic Medicine. Giving credit where due, it was "contributed to" and likely co-authored or first-drafted by philosopher administrator Stephen Steinberg, to whom Rodin gave brief thanks in a footnote. Without once mentioning Allegheny it was a far-seeing autopsy of much that was going wrong in American medicine, typified--I know this from talking to Steinberg--by Allegheny, down to that moment when Rodin left Penn to head up the Rockefeller Foundation. It's worth re-reviewing now, fifteen years later.

Rodin and Steinberg noted how they'd seen the "terrifying perils of the vertically integrated academic health system, ... the University of Pennsylvania's newly created integrated health system [and] how dramatic shifts in federal policies and market forces threatened to take down our health system—and the rest of the university with it." She adverted to how, just

... as Penn led the way in the creation of the nation's first vertically integrated health system in 1993, so, too, were we among the first to feel the full effects of dramatically increased insurance claim denials and delays, and reduced Medicare payments, both overall and for medical education, that followed in the wake of the Balanced Budget Act of 1997. At the same time, we were providing $100-million per year in unreimbursed or underreimbursed indigent hospital care. As a result, the University of Pennsylvania Health System lost $350 million from 1997 to 2000, created $800 million in debt, and its bond rating was downgraded by Moody's Investors Services from Aa3 to A1, while the outlook for the university's higher AA rating was changed from “stable” to “negative.”

So the times were tough all up and down the food chain.

Rodin and Steinberg went on to prescribe Penn's "cure," not as novel as she implied but still emerging from an abyss hence now able to prescribe a "sow's-ear-to-silk-purse" transformation.

At that point, we faced the same fundamental choices as many of our peers: risk serious financial and educational damage to the rest of the university by continuing to absorb the Health System's deficits; eliminate the threat to the university's financial health by spinning off, selling, or otherwise separating the Health System from the university; or strategically plan and manage our way out of the financial crisis, and do so in a way that would make us less vulnerable to future potential perturbations.... [We] had to consider two separate—but ultimately related—questions. First, why were we in the business of integrated academic medicine, and why on earth would we want to stay in it, given the—by then obvious—risks? Second, if we were going to stay in it, how would we make it work, for our patients, for our faculty, and for our students, and—both academically and financially—for the university as an institution? Ironically, the answer to both questions was more and better integration—just the strategy that got us into so much trouble—but applied very differently this time. Applied more horizontally, and less vertically.

In other words, "we zig when they zag." But of course, Drexel, like other local schools (notably Jefferson, still today expanding with the absorption of Philadelphia University) was trying its damndest to do the same thing. At least Drexel was claiming to try to integrate, undertaking steps including adding schools of law and business and reintegrating information technology. So it boils down I think to "how rich were you when you started," and "how many unforced errors"? Winners get to write the history. Those at the bottom of the food chain, if they drop off, don't get to. No surprises here. Drexel (and others) were trying to integrate "horizontally." But with a lot less money, a lot less reputation, and no real cushion.

Next, in 2011, an eminent sociologist-historian, the late Judith Swazey, published a lengthy history of the Allegheny-Hahnemann disaster. In Merger Games, Swazey, per one reviewer

vividly document[ed] fundamental patterns inherent in practically all corporate reorganizations and mergers, and dissects why they succeed or fail. Because of these highly important and ever so timely lessons, the information in this book should ... reach the widest possible audience and to that end it should be made into a movie. It has all the ingredients of a terrific box office success. [Editorial note: not!!!] And at the same time it should be made into a Harvard Business School case study because these lessons ... need to be understood by tomorrow's organizational leaders.

In another way, of course, Swazey's reception, or lack thereof, may prove Poses's point. People don't pay much attention. Why?  Perhaps just simple hubris. They avert their eyes if there's the least rationale to do so, a plight now afflicting our entire country. It may have been just too easy, too glib to think of Philadelphia as overmedicalized, someone needing to drop off the rotten bottom of the food chain, bad managers making it worse--God knows they did!--and free-standing schools of health having little ballast during times of economic stress. In any case another reviewer, one who lived through it as I did, long before Hahnemann died went onto the Amazon website and described the experience in terms of "watching a slow train crash."

Impact on Patients

Well, not just the patients. Consider faculty members, many of whom have devoted decades to teaching subjects like anatomy or admitting to Hahnemann and accumulating significant coteries of devoted patients. Those patients aren't going to follow some fine physicians, or the ones who elect to migrate, out to Berks County, Pennsylvania.

Just yesterday I spoke to someone knowledgeable about the impact on the area's preeminent medical school, Penn, in terms of eye patients. This individual described to me a tripling of the numbers of patients appearing at the walk-in clinic, in almost overnight fashion. Imagine having to deal suddenly with three times the number of emergency walk-ins, triage them, get them to appropriate consultants. In time the impact will likely be diffused and absorbed, just as happened two generations ago with the  1977 closure of Philadelphia General Hospital. Nothing entirely new here. And yet, to say "move on, folks, nothing to see here," as some might be tempted to do, would be a shame.

Conclusion

In this account I've added some textural detail to the knock-on effects of the Allegheny bankruptcy. It's rich with irony. So many questions about what I have included actually remain unanswered. To what extent were Drexel administrators complicit with those from Tenet in insuring the slow steady decline of the involved institutions.

One thing is certain. Only in the past year and a half to two years, give or take, have some of the errors been addressed. For example, a clever strategy was only recently put into effect to undo the effects of Drexel's freeze on the hiring of department chairs based on real searches for quality. A number of chairs, some well meaning but most less than fully adequate, have finally been pushed out. Just in time for Drexel Med to move to another part of Pennsylvania, and for the heirs of its hospitals to give up the ghost entirely.

The Mysteries Surrounding Rhodes Pharmaceuticals, the Sackler Family's Second Opioid Company

 Mysteries still abound in the not so wonderful world of health care dysfunction, so, quick, the game's afoot...

Today's mysteries involve beneficial ownership.  Beneficial ownership questions are important to anti-corruption campaigners.  Beneficial ownership simply refers to "anyone who enjoys the benefits of ownership of a security or property, without being on the record as being the owner." (per Wikipedia). Concealing who really owns a company enables concealing sources of funds (as in money laundering), market power (when the owner also owns competitors), and sources of political influence, and enables those benefiting from the actions of the company to escape responsibility for their consequences.

A few months ago, a big question about the beneficial ownership of a local (to me) company suggested important local and national health care implications, and yet the case has remained anechoic.  The case has some mysterious aspects.

The  Mystery of the Ownership of Rhodes Technologies and Hence Rhodes Pharmaceuticals Solved

In September, the UK based Financial Times reported,

The billionaire Sackler family, which has been blamed for fuelling the US opioid addiction epidemic, owns a second drugmaker that churns out millions of addictive painkiller pills every year, the Financial Times can reveal.

The Sacklers are best known as the owners of Purdue Pharma, the privately held drugmaker that makes the now infamous opioid painkiller OxyContin, which has been described as 'heroin in a pill'.

However, an FT analysis of company registration documents has established that the family also owns Rhodes Pharma, a little-known Rhode Island-based drugmaker that is among the largest producers of off-patent generic opioids in the US.

Furthermore,

Rhodes Pharmaceuticals was set up in 2007, four months after Purdue pleaded guilty to federal criminal charges that it had mis-marketed OxyContin over the previous decade.

The little-known company now makes several opioid-based products containing highly-addictive drugs such as oxycodone, morphine and hydrocodone, according to a US Food and Drug Administration database. Many of its drugs are made in factories owned by Purdue.

The Mystery of the Mysteriousness of the Rhodes Companies and Facility

The FT report was noted by our local on-line news site, GoLocalProv, which tried to find out more about the company. It reported,

And tucked away in Coventry, Rhode Island, along a country road, is Rhodes Technology — surrounded by massive security. The company’s website has been under -reconstruction for the past few years -- all an effort to keep a low profile.

A 2005 version of the Rhodes Technologies’ website GoLocal uncovered said, 'We have very broad capabilities in developing sophisticated chemicals and offer confidential production of high purity APIs and finished dosage forms of innovative pharmaceuticals, as well as marketing and sales services. A multi-million dollar investment in a new cGMP facility completed in 2002 added controlled substances to our manufacturing capabilities. Rhodes is a diversified, dependable firm well positioned for partnerships.'

The marketing arm of the Rhodes Technologies is Rhodes Pharmaceuticals and it self-describes itself as 'a privately held company headquartered in picturesque Rhode Island....developing and distributing quality pharmaceutical products since 2008.'

Emails and requests for an interview were not responded to by Rhodes Pharmaceuticals.

GoLocalProv article included a blurry picture of a large factory building apparently copied from an old website.  I could find no pictures or descriptions of the Rhodes facility on the web other than the picture below from Google Satellite:

The satellite picture does suggest that the Rhodes facility is apparently massive.  However, I could find nothing, at least via web searching, to otherwise describe it.  Despite its size, I could find no coverage of the company, the facility, the buidling of the facility (which likely was quite a project), or anything else relevant in local media, or on the web.

The reasons to keep the ownership of this company mysterious are not hard to fathom.  But the reasons for the company itself to maintain such a "low profile," and for its facilities to be so well hidden, and to have such "massive security" (not otherwise described by GoLocalProv), are ongoing mysteries.

The Mystery of the Sackler Family's Opioid Market Power Partly Solved


It appears that the Sackler's previously secret ownership of Rhodes enabled them to conceal their market power. Per the FT,

Purdue Pharma has always insisted that its drug OxyContin cannot be considered a prime culprit in the crisis because it accounts for only 1.7 per cent of overall opioid prescriptions in the US.

However, Rhodes and Purdue combined accounted for 14.4m opioid prescriptions in 2016, according to figures seen by the FT, giving them a total share of 6 per cent of the US opioid market.

That puts the combined Rhodes-Purdue in seventh place among opioid makers by market share, behind Teva, the generic drugmaking giant, and well ahead of other pharma groups that have been named in lawsuits, such as Johnson & Johnson and Endo.

'This further debunks the Sackler family’s whole claim that they are not responsible for the crisis,' said Andrew Kolodny, a professor at Brandeis University who is one of the foremost experts on the US addiction epidemic.

He added: 'They have always said, ‘Why is everyone picking on us, we’re only 2 per cent of prescriptions?' A spokesperson for the family declined to comment.

A second GoLocalProv article also revealed that

The billionaire family whose company is being sued by states and cities across the country for their role in creating the opioid crisis is now launching a new recently patented antidote for the drug known as ‘heroine in a pill.’

Both oxycodone and the new drug will be produced side-by-side at the Rhodes Technologies plant -- an affiliate company of Purdue Pharma -- in Coventry, Rhode Island.

To corroborate that,

The U.S. Patent and Trademakr [sic] Office information shows the Rhodes Technologies’ plant in Coventry, RI is assigned the patent for the new drug. Rhodes Technologies is the subsidiary of Purdue Pharma owned by the Sackler family.

Calls and emails to Rhodes Technologies and its affiliated marketing company Rhodes Pharma have not been responded to.

Note that the "new drug" that is considered an "antidote" to oxycodone is simply a minor modification of an old drug, buprenorphine, already used to treat opioid addiction.  Per Stat News,

The patent concerns a new formulation of buprenorphine, one of the medications shown to help people with opioid addiction. It is already approved by the Food and Drug Administration in tablet and film form, but the patent describes a wafer that could dissolve even faster than existing forms when put under the tongue.

The patent says that the faster the treatment dissolves, the less risk there is for diversion.

So now we know more about the power of the Sackler family in the opioid market.

The Mystery of Accountability for Deceptive Marketing of Opioids Partly Solved

Purdue Pharma has a long and sorry history of deceptive marketing of its narcotics, and has been accused of being a major driver of the ongoing opioid (narcotic) epidemic.  The case has recently been very well covered in the media.  (Our latest discussion is here, our discussion of Purdue Pharma's first legal troubles, which were fairly anechoic at the time, is here, and all our Purdue Pharma related posts are here.)

It appears that the Sackler's concealed ownership of Rhodes Technologies/ Pharma also put them in a position to generate more financial conflicts of interest among physicians which could be used to enable more deceptive marketing.  A search of the ProPublica "Dollars for Docs" data base revealed that Rhodes paid $1.43M to physicians from August, 2013, to December, 2016.  They paid the most, $121K, to a single physician in Saint Charles, MO.

Admittedly, their contribution to physicians' conflicts of interest was modest compared to that of the Sackler's better known Purdue Pharma, $27.9M over the same time period, but it should not be overlooked.

So we now know a bit more about the extent Sackler family owned opioid manufacturers enlisted physicians to market their products, at times deceptively. 

The Mystery of the Sackler Family's Political Influence

This is admittedly speculation, but it is possible that Rhodes Technologies/ Pharma was also used as a vehicle for political influence to affect policy making relevant to the Sackler's interests.  Purdue Pharma certainly has a track record of such influence.

For example, we noted here that Purdue Pharma donated money to the Washington Legal Foundation in support of its efforts to weaken enforcement of laws that could have penalized the company's misbehavior.   In particular, the Washington Legal Foundation challenged the responsible corporate officer doctrine that allowed legal action against corporate executives for company wrong-doing that occurred on their watches.  Perhaps corporate leaders were worried that its executives could again face penalties, given the Purdue Pharma executives had previously pled guilty to misbranding Oxycontin (look here).  Purdue Pharma had also worked with the Washington Legal Foundation to push against guidelines from the Centers for Disease Control that would have potentially reduced opioid prescribing.

Furthermore, we noted here that Rudolf Giuliani, now President Donald Trump's lawyer, and previously and probably currently highly influential in the Trump regime, formerly represented Purdue Pharma and had helped mitigate the company's punishment for past mischief, an interesting example of the revolving door from the pharmaceutical industry to government.

So I think it is reasonable to say that whether Sackler-owned Rhodes Technologies/ Pharma was also used as a tool to conceal political influence remains a mystery.

Summary

So we now know that the Sackler Family, owner of Purdue Pharma, also owns a generic pharmaceutical company that manufacturers an important portion of the narcotics sold in the US.  Thus the share of the opioid market held by the Sackler family is likely four times larger than was previously apparent .  The Sackler's generic drug company is now known to have paid physicians a small but important amount to assist in its marketing of opioids.  It is also possible that the generic company also has been used to increase the family's influence over politics and policy that increased opioid sales and hence its responsibility for the opioid epidemic.  Thus, it is likely that the Sackler family's responsibility for the ongoing opioid epidemic is larger than was previously appreciated.

Why the Sackler's may have concealed their ownership of the company seems obvious.  Why the company and its physical plant were so secretive is not so clear.  

It is unknown whether the family owns similar companies that have not been discovered.  It is unknown whether big pharmaceutical and other big health care corporations similarly have concealed beneficial ownership of other companies that could be used to conceal all manners of mischief.

Anti-corruption campaigner have pushed to reveal the beneficial ownership of all corporate entities.  (Look here for the relevant report from Transparency International.) They have made little headway, so far.  The case of the mysteries surrounding Rhodes Technologies/ Pharma should be another impetus to support this campaign. 

True health care reform requires all sorts of transparency, now particularly including transparency about corporate beneficial ownership.  

Haunted by US Healthcare Inc - $27.9 Million/Year Aetna CEO Threatened Obamacare Pullback in Apparent Retaliation for Government Anti-Trust Litigation

We do not write about health insurance and managed care as much as we used to.  Dysfunction in this area now gets much media attention.  US Physicians frequently complain that bureaucratic impediments imposed on them by health insurance and the government  are major causes of health care dysfunction. 

However, managed care was at the sharp edge of the movement to change the focus of health care from individual patients cared for by individual professionals and at local hospitals, to an (unregulated) business dominated by huge corporate entities.  The wedge with that sharp edge has now driven very deep.  So it may be instructive to look at what is going on now.

The Proposed Aetna-Humana Merger

In 2015, the big news in the US health insurance sphere were big mergers.  One example was the proposed merger between Aetna and Humana.  An Aetna press release trumpeted that the

Combined Entity ... [would] Drive Consumer-Focused, High-Value Health Care

That it would have the

Ability to Lead Effort to Transform Health Care Delivery to a More Consumer-Focused Marketplace

And that it will

Improve Affordability, Quality and Convenience for Consumers

What could possibly go wrong?

Up to now, mergers that created ever bigger drug/ device/ biotechnology companies, hospital systems, and health insurance companies got little US government opposition.  After all, the fashion among health care managers and health policy experts as been to extoll all the efficiences and advantages large organizations could provide, usually absent much evidence in support of this contention. (See, for example, the press release above, and see what we have written about concentration of power.)

The Government Wakes Up to the Anti-Trust Issue

But this time, the government eventually indicated it might push back.  In July, 2016, as reported by the NY Times,

United States Attorney General Loretta E. Lynch announced that the government had filed lawsuits to block the deals, between Aetna and Humana and Anthem and Cigna.

The proposed mergers, she said, 'would leave much of the multitrillion-dollar health insurance industry in the hands of three mammoth insurance companies.'

'If these mergers were to take place, the competition among insurers that has pushed them to provide lower premiums, higher-quality care and better benefits would be eliminated,' she said.

The companies responded by vowing, in varying degrees, to fight the government’s challenge. Aetna, which had hoped to gain an advantage by being the first to reach a deal, aggressively defended its proposed merger, which it contended was different from the larger Anthem-Cigna deal that followed.

'I like my chances in front of a judge,' Mark T. Bertolini, chief executive of Aetna, said in an interview.

 Parenthetically, I wonder what evidence she had that previous competition had led to "lower premiums, higher-quality care and better benefits" up to now, but I digress.

Aetna Suddenly Abandons ACA Exchanges

Soon after that, Aetna announced it was pulling out of the "markets" created by Obamacare, aka the Affordable Care Act (ACA), e.g., per CNBC.

Aetna is sharply cutting its participation in Obamacare exchanges for 2017.

The health insurer said it will offer individual Affordable Care Act exchange plans in just four states, down from 15 this year, in an effort to reduce its losses.

'As a strong supporter of public exchanges as a means to meet the needs of the uninsured, we regret having to make this decision,; Chairman and CEO Marc Bertolini said in a statement.

This despite the fact that

as recently as April, Aetna's Bertolini had expressed strong support for the exchanges, telling analysts that it would have cost the company more than a $1 billion to acquire the million new customers it had signed up on Obamacare exchanges.

Cut to Michael Hiltzik writing for the Los Angeles Times. As he noted,

Aetna’s announcement this week that it was pulling out of most of the states where it was serving the Obamacare individual exchanges was a head-scratcher; after all, just three months earlier, Chief Executive Mark Bertolini was calling its participation in the market 'a good investment,' despite near-term losses.

Bertolini also had tried to tamp down speculation that its withdrawal was anything like a payback for the government’s move to block its $37-billion merger with Humana. That was 'a separate conversation' from its evaluation of the exchange business, he said during an Aug. 2 conference call with Wall Street analysts.

However,

Now evidence has emerged that Aetna was lying. The smoking gun is a July 5 letter from Bertolini to Ryan Kantor of the Justice Department, unearthed by Jonathan Cohn and Jeffrey Young of the Huffington Post via a Freedom of Information Act request. In the letter, sent before the DOJ formally announced it would sue to block the Humana deal, Bertolini explicitly ties the two issues together.

'Our analysis to date makes clear that if the deal were challenged and/or blocked we would need to take immediate actions to mitigate public exchange and ACA small group losses,' Bertolini wrote. 'Specifically, if the DOJ sues to enjoin the transaction, we will immediately take action to reduce our 2017 exchange footprint. We currently plan, as part of our strategy following the acquisition, to expand from 15 states in 2016 to 20 states in 2017. However, if we are in the midst of litigation over the Humana transaction, given the risks described above, we will not be able to expand to the five additional states.'

So to review, Aetna and Humana, already large for-profit managed care organizations/ health care insurance companies announced a merger, proclaiming it was all about better, higher value care for patients .  The government begged to differ.  Aetna suddenly announced its retreat from government backed insurance markets.  Its CEO denied that move was retaliation, but was allegedly "lying."

Why am I not surprised by Aetna's apparent untrustworthiness?

The History of US Healthcare Inc

As we just discussed, many large health care organizations are the products of mergers, acquisitions, and other kinds of financial engineering.  This makes their corporate history and culture much harder to comprehend.

In particular, let us not forget that the current Aetna is a product of the merger of US Healthcare Inc and Aetna in 1996.  Many readers may not remember much about this merger, and it may have occurred before others' time.

Promises of Wonders to Come

In short, US Healthcare Inc was one of the earliest for-proft managed care companies.  A 1996 Philadelphia Inquirer story described its origin.  It was started by Leonard Abramson, based on work done in the early 1970s. 

By the early 1970s, Abramson had shifted gears and gone to work for R.H. Medical Inc., a small but innovative hospital-management company then headquartered in Cheltenham.

Abramson held the title of vice president for corporate development. But even colleagues didn't know what that meant. `Nobody knew him,' one former R.H. Medical executive says. 'He was running some project nobody knew anything about.'

The project Abramson was running turned out to be a prototype of the health maintenance organization a prototype of the health maintenance organization: a new form of health plan that turned a la carte medicine on its head by paying doctors and hospitals set, all-inclusive fees for their services, instead of paying each and every time they treated a patient.

The idea was to change the incentives from doing more to doing only what was appropriate and kept the patient healthy, Abramson once said. In short, it was a lower-cost alternative to the inflationary fee-for-service medicine then in vogue.

Managed care has been promising lower costs for patients and society, better access, and higher quality for a long time.  Yet, there was never any good evidence that it ever really was "a low-cost alternative" for patients, and while it helped enable the decline of fee-for-service medicine, its alternative was not obviously less "inflationary."

Making the Insiders Rich


On the other hand,  US Healthcare Inc was good at extracting a large amount of money from the health care system to benefit its founder and CEO, and his family tremendously wealthy. Again per the Inquirer in 1996,

Abramson's 1993 salary of $3.52 million, based on a 40-hour week, worked out to $1,692.30 an hour. That's not including his $6.3 million in stock options.  [That would be total compensation of at least $9.82 million in 1993.]

A 1995 proxy listed Abramson's 1994 base salary at $1.8 million, plus a bonus of $1.6 million.

Forbes magazine estimated his 1994 worth at $780 million, making him No. 110 among the 400 richest people in America. He was ranked that year as the Philadelphia area's highest paid CEO of a publicly traded company.

In addition,

He's made sure his children haven't had to struggle. A proxy report showed U.S. Healthcare paid daughter Nancy Wolfson $239,999 in salary and bonuses in 1993, and her husband, Richard, who directs the pharmacy and dental operations, $270,000. Another daughter, Marcy A. Shoemaker, made $280,000.

Company shares also are held in trust for Abramson's grandchildren.

Angry Doctors and Allegations of Worse Care

While the company provided monetary advantages to its insiders, but not clearly to patients or society, I remember US Healthcare Inc from my days as a fellow and then junior faculty member in the Philadelphia area as rather a nasty player.  At the time of the 1996 merger, a Philadelphia Inquirer story about the CEO of US Healthcare Inc stated

U.S. Healthcare is considered one of the nation's toughest HMOs....

And retold

a joke making the rounds in Philadelphia-area doctors' lounges:

[US Healthcare CEO Leonard] Abramson dies and goes to heaven, where he compliments God on what a great place he has. 'Don't get too comfortable,' God advises. 'You're only approved for a three-day stay.'

The Philadelphia Inquirer separately described Mr Abramson thus:

to his detractors in the health-care industry, Abramson is anything but charitable. They view him as a ruthless, bottom-line-oriented executive who has made himself and his Blue Bell company fabulously wealthy while ratcheting down payments to hospitals and skimping on patient care.

For years, some of the most prestigious hospitals in Philadelphia refused to sign contracts with U.S. Healthcare. Those that did often complained bitterly about the hard-line negotiating style of Abramson and his colleagues, which resulted in lower reimbursement rates for the hospitals.

The story concluded,

 Abramson continues to receive heavy criticism from some in the health-care industry. These critics say his HMOs have stressed profits and shareholder value over quality patient care.

So US Healthcare Inc was one of the first important US for-profit managed care organization.  It promised lower costs for patients and society, and better health care.  While there is no evidence these promises were fulfilled, it made its top insiders very wealthy, while alienating health care professionals, many who thought it led to worse health care for their patients.

This pattern repeated when Aetna merged with US Healthcare.

The Aetna - US Healthcare Merger

 Promises of Wonders to Come

When the merger between Aetna and US Healthcare Inc was proposed, according to the Philadelphia Inquirer in 1996,

The deal would put the new company in a position 'to redefine the way in which medical care is delivered in the country,' said Aetna chairman Ronald E. Compton, who would serve as the combined firm's chief executive. 'U.S. Healthcare was the best possible partner for Aetna. . . . This is, no kidding, a once-in-a-lifetime opportunity to create a model for exceptional' health care.

Yet in retrospect there is no evidence that the merger produced "exceptional health care," at least not exceptional in terms of being exceptionally good for patients.

Making the Insiders Rich

But like the old US Healthcare Inc, Aetna did succeed in making its CEOs very wealthy.  In 2012, we noted that the first new CEO of the combined entity, Dr John Rowe, was to get an initial salary of $1 million and bonuses of $1 to $3 million to start in 2000.  And by 2010, as we posted here, according to its 2010 proxy statement, Aetna CEO Ronald A Williams' total compensation in 2009 was a mere $18,058,162. Other top executives made proportionate amounts, from more than $1 million to more than $12 million.

In 2015, as noted by the Hartford Courant,

Aetna Chairman and CEO Mark Bertolini received $27.9 million in compensation last year, according to a filing Friday with the Securities and Exchange Commission.

About $24.8 million of the package was due to gains in value on restricted stock that vested in 2015 and on stock options he was awarded 10 years ago and exercised in 2015.

The total was up from $15 million in 2014.

His compensation also included $1,034,483 in salary, $1.84 million in cash bonus, and $271,908 in perks, mostly from the cost of his using the corporate aircraft for personal use.

Angry Doctors and Allegations of Worse Care


Also, once Aetna and US Healthcare Inc merged, Aetna acquired a bad reputation among physicians.  As we wrote in 2012, by 1998, an American Medical News article documented the "rocky relations" between Aetna and physicians. By early 2000, Aetna CEO Richard Huber was known as "the managed care executive physicians love to hate," per the American Medical News. His departure was characterized by then American Medical News Street Smarts columnist Dr Scott Gottlieb, as partly due to how

Huber talked out of one side of his mouth about his company's obsessive quest for 'quality' health care -- while out of the other he was screaming at doctors, hospitals and drug firms about controlling costs. Yet Aetna's medical costs were still creeping up. As Richard Huber learned, you can't talk the talk if you don't walk the walk.

So once again, after US Healthcare merged with Aetna, the combined, larger company did not deliver on promises of lower-cost, higher-quality care, while it made its insiders very wealth, angered health care professionals, and allegedly led to poor health care.


Conclusion

So the story of US Healthcare Inc, and its merger with Aetna showed a repeating pattern: unfulfilled promises of wonders to come, angry health professionals complaining of bad health care, while the corporate insiders become rich.  So do we really think that the proposed Aetna Humana merger would "Drive Consumer-Focused, High-Value Health Care?"  If so, could I sell you a bridge from Brooklyn to Manhattan?

This case shows how we have turned health insurance over to large for-profit corporations, in an era of laissez faire capitalism and light touch regulation, and in an era in which managerialism enables the leadership of health care organizations by business trained people with little understanding of or sympathy for the health care calling, but who can get rich by pursuing short-term revenue, and can deploy armies of marketers and public relations specialists to obfuscate what is going on.

Why on earth should we expect by continuing in the same direction we will now actually produce lower-cost, higher-quality care?

One big problem is that many people in the US now think of commercialized health care as the norm, and cannot conceive of any alternatives.  Even our recent attempt at health care reform, the Affordable Care act, depended on the continued dominance of health insurance by for-profit corporations.

True health care reform would consider alternatives.  At least we could start with much tougher regulation of commercial health care.  For example, in his article noted above, Michael Hiltzik suggested

We’ve mentioned before that the government isn’t entirely powerless to goad big insurers like Aetna into greater participation in the ACA exchanges. Among other things, the companies make money hand over fist by serving Medicaid expansions in many states and in Medicare managed-care plans. Why not tie their access to those lucrative markets to sticking with the exchanges until they’re finally stabilized?

Bertolini implicitly tied Aetna’s participation in Obamacare to a green light from the government on the Humana merger. But two can play that game.

That would not go over well with neoliberals who believe all corporate regulation is bad.

Furthermore, mabye we should reconsider whether most, or any health insurance should be provided by for-profit corporations. The "government option" is no longer a taboo topic in conversations about "Obamacare." There are other options. Other countries rely on tightly regulated, accountable non-profit organizations to provide health insurance. Such organizations may not enrich insiders as well as big for-profit health insurance companies, but maybe for once we should think of putting patients' and the public's health ahead of these insiders' enrichment.

Not Going to Take it Anymore - Doctors in the Pacific Northwest Unionize, Begin Collective Bargaining with Hospital Systems

We have posted about the plight of the corporate physician.  In the US, home of the most commercialized health care system among developed countries, physicians increasingly practice as employees of large organizations, usually hospitals and hospital systems, sometimes for-profit.  The leaders of such systems meanwhile are now often generic managers, people trained as managers without specific training or experience in medicine or health care, and "managerialists" who apply generic management theory and dogma to medicine and health care just as it might be applied to building widgets or selling soap.

We have also frequently posted about what we have called generic management, the manager's coup d'etat, and mission-hostile management.  Managerialism wraps these concepts up into a single package.  The idea is that all organizations, including health care organizations, ought to be run people with generic management training and background, not necessarily by people with specific backgrounds or training in the organizations' areas of operation.  Thus, for example, hospitals ought to be run by MBAs, not doctors, nurses, or public health experts.  Furthermore, all organizations ought to be run according to the same basic principles of business management.  These principles in turn ought to be based on current neoliberal dogma, with the prime directive that short-term revenue is the primary goal.

Now there are a few signs that the physicians are getting fed up with having to answer to generic management and managerialism.

I found two stories, perhaps somewhat related, about physicians unionizing to stand up to their new often managerialist overseers.  The most prominent was in the New York Times on January 9, 2016, provocatively titled "Doctors Unionize to Resist the Medical Machine."  It tells the story of how the hospitalists at PeaceHealth Sacred Heart Medical Center in Springfield, Oregon, formed a union de novo.  The second started with a brief article in the Seattle Times on December 27, 2015, about how housestaff at the University of Washington (UW) revived a housestaff association and turned it into a union.

Managerialism as the Stimulus at PeaceHealth

The long article about PeaceHealth showed that managerialist leadership of the hospital system was the chief stimulus for unionization. 

Managerialist Tactics: Outsourcing

The NYT article opened with

in the spring of 2014, when the administration announced it would seek bids to outsource its 36 hospitalists, the hospital doctors who supervise patients’ care, to a management company that would become their employer.

The outsourcing of hospitalists became relatively common in the last decade, driven by a combination of factors. There is the obvious hunger for efficiency gains. But there is also growing pressure on hospitals to measure quality and keep people healthy after they are discharged. This can be a complicated data collection and management challenge that many hospitals, especially smaller ones, are not set up for and that some outsourcing companies excel in.

Outsourcing is a now familiar entry in the managerialists' playbook.  It is seen more in manufacturing than in health care.  Although touted as improving economic "efficiency," it also may reduce the accountability of the managers of the organization that does the outsourcing.

Pursuit of Economic Efficiency

In this case,

Outsourced hospitalists tend to make as much or more money than those that hospitals employ directly, typically in excess of $200,000 a year. But the catch is that their compensation is often tied more directly to the number of patients they see in a day — which the hospitalists at Sacred Heart worried could be as many as 18 or 20, versus the 15 that they and many other hospitalists contend should be the maximum.

It was the idea that they could end up seeing more patients that prompted outrage among the hospitalists at Sacred Heart, which has two facilities in the area, with a total of nearly 450 beds. 'We’re doctors, we’re professionals,' Dr. [Rajeev] Alexander said. 'Giving me a bonus for seeing two more patients — I’m not sure I should be doing that. It’s not safe.' (A hospital representative said patient safety was 'inviolate.')

A constant theme of managerialism, and the neoliberalism that underlies it, is economic efficiency.  The usual narrative is that efficiency means providing better goods and services at lower costs. Instead, managerialism and neliberalism may mean decontenting goods and services so as to lower costs to the organizations providing them, but not necessarily providing more value to consumers.  In health care terms, managerialism and neliberalism may lead to less accessible, more mediocre health care that increase revenue to the organizations providing it, as implied by the physicians' comments above.  Making the US the most commercialized, managerialist run, and arguably neoliberal health care system among the developed countries has not led to lower costs, better access, or better health care quality.


The backstory for the outsourcing emphasizes that managerialism, and the resulting economic efficiency was indeed the goal of PeaceHealth...

In 2012, Sacred Heart’s parent, PeaceHealth, a nonprofit health care system, installed an executive named John Hill to adapt its Oregon hospitals to the latest trends in health care. Mr. Hill, in an effort to rein in the budget and improve the efficiency of a hospital that administrators said was lagging in key respects, including how long the typical patient stayed, eventually concluded that the hospitalists at Sacred Heart should be outsourced.

Centralization of Control

Furthermore,

The hospitalists also chafe at the way the administration has tried to centralize decisions they used to make for themselves. This might include hiring fellow doctors or the order in which they see patients on any day. They also complain of being loaded down with administrative tasks.

'We’re trained to be leaders, but they treat us like assembly line workers,' said Dr. Brittany Ellison, a hospitalist in the group. 'You need that time with the patient,...'

A major feature of managerialism is the concentration of power within (generic) management. To quote Komesaroff(1),

In the workplace, the authority of management is intensified, and behaviour that previously might have been regarded as bullying becomes accepted good practice. The autonomous discretion of the professional is undermined, and cuts in staff and increases in caseload occur without democratic consultation of staff.   Loyal long-term staff are dismissed and often humiliated, and rigorous monitoring of the performance of the remaining employees focuses on narrowly defined criteria relating to attainment of financial targets, efficiency and effectiveness.

We're Only In It for the Money

Also, the negotiations that started once the PeaceHealth physicians formed their union demonstrated a central tenet of managerialism

Even starker than the divide over these questions are the differences in worldview represented on opposite sides of the table. During a bargaining session last fall, the administration proposed increasing the number of shifts a year. Hospitalists now earn about $223,000 a year for 173 shifts and are paid extra for working more. The hospital offered $260,000 for a mandatory 182 shifts, and up to $20,000 in bonus pay for hitting certain medical performance targets. The hospitalists work seven days on and seven days off, so this would have effectively eliminated any time off for sick days or vacation.

When the doctors pointed this out, the administration responded that if they missed a few days, it would make sure they got extra days to hit the required number of shifts for full pay.

The hospitalists assured the administration negotiators that their concern had nothing to do with money — that none of this had ever been about money. They preferred to work less and make less to avoid burnout, which was bad for them and worse for patients. At which point the administration responded that money was always the issue, according to several people in the room. (The hospital declined to comment.)

Suddenly it dawned on the doctors why they had failed to break through, Dr. Alexander said. 'Imagine Mr. Burns,' the cartoonishly evil capitalist from 'The Simpsons,' 'sitting across the table,' he said. 'There’s no way we can say, 'This isn’t what we’re talking about. We’re not trying to get the bonus.''

Again, managerialism is based on neoliberalism, and neoliberal view is that the market rules.  The market is the arbiter of success, and money is the only outcome that matters.  As Komesaroff put it(1),

The particular system of beliefs and practices defining the roles and powers of managers in our present context is what is referred to as managerialism. This is defined by two basic tenets: (i) that all social organisations must conform to a single structure; and (ii) that the sole regulatory principle is the market.

Mission-Hostile Management

Never mind that the centrality of money seems entirely inconsistent with the stated mission of PeaceHealth,

We carry on the healing mission of Jesus Christ by promoting personal and community health, relieving pain and suffering, and treating each person in a loving and caring way.

Ostensibly, this is accompanied by core values, such as,

Stewardship We choose to serve the community and hold ourselves accountable to exercise ethical and responsible stewardship in the allocation and utilization of human, financial, and environmental resources. and,

Social Justice
We build and evaluate the structures of our organization and those of society to promote the just distribution of health care resources. 

We have frequently discussed how leadership of contemporary health care organizations often seem to act contrary to the organizations' stated mission, that is, mission-hostile management.

Value Extraction

Finally, while managerialism is ostensibly concerned with economic efficiency, whose efficiency matters.  When managers address physicians' efficiency, they seem to look at amount of work done divided by the cost to the hospital of paying physicians. However, they never seem to look at their own costs, the costs of management, as being a negative.

The PeaceHealth 2014 form 990, the latest available, states that the then CEO, Mr Alan Yordy (whose highest academic degree was an MBA, according to his LinkedIn page) had total compensation in 2013 of $1,366,742, and 11 other managers had total compensation greater than $250,000, with 9 having total compensation greater than $500,000. Those figures should be compared to the highest compensation offered the hospitalists, a maximum of $280,000 for 182 shifts a year, eliminating all vacation and sick leave. So if it is all about the money, the managers are making the most of it.

We have discussed ad nauseum the ridiculous compensation of the leaders of health care organization, even non-profit organizations.  Value extraction by top management has become a central feature of the US and global economy (look here).

The NYT article did not discuss whether the upset hospitalists knew about their bosses' compensation.  I suspect they did.  

Forming a Functioning Union at the University of Washington

The media coverage of the UW housestaff unionization was less detailed.  It does appear, though, that a stimulus was the pursuit of economic efficiency by UW management through squeezing the pay of housestaff, as described in the December article in the Seattle Times. In it the house staff said,

they account for about one-fifth of King County’s doctors and they want higher pay, new child-care benefits and free parking. Some UW residents and fellows earn so little that they qualify for welfare programs like Temporary Assistance for Needy Families and the Seattle City Light Utility Discount Program, according to the UWHA [University of Washington Housestaff Association.]

Another article in early January, 2016 in the Seattle Times added,

The association has proposed that residents and fellows earn at least the same salary as the UW’s lowest-paid physician assistants. Because the doctors in training work very long hours, they sometimes earn less than Seattle’s minimum hourly wage, the UWHA has said.

The council members, in their letter to Cauce, called the situation shocking. And based on information from the UWHA, they wrote that some residents and fellows qualify for welfare programs like Temporary Assistance for Needy Families (TANF).

The Seattle articles noted that the UW housestaff may earn from just over $53,000 to just under $70,000 a year.  Keep in mind, however, that under current rules, house staff may work up to 80 hours a week.  So $53,000 for someone working those hours translates into $13.25/ hour, under what many people now claim is the living wage.  That could be considered exploitation of  workers with doctoral degrees working in often highly stressful situations where lives may be on the line.  Whether there were issues other than money (and the respect it implies) involved at UW was not apparent based on the minimal press coverage.

So it appeared that the hospitalist physicians working for PeaceHealth, and most likely the housestaff of the University of Washington were pushed to unionize to counteract the managerialism of their hospital leaders.

The Results of Unionization So Far


In my humble opinion, similar stories to those at the PeaceHealth hospital about managers pushing physicians to increase productivity and efficiency, seemingly with little regard for the effect that might have on patient care and physicians' professionalism can be found at many hospitals and health systems.  Housestaff may be paid at little more than minimum wage rates at many training institutions.  However, employed physicians have rarely effectively resisted up to now. Perhaps one reason is that at many institutions, each employed physician has his or her own contract, and may feel little power to negotiate his or her working conditions independently.  Housestaff physicians obviously might feel they have even less leverage.  But at PeaceHealth Sacred Heart, the physicians had other ideas:

Amid the groaning, a relatively new member of the group named Dr. David Schwartz observed, 'They can’t fire all of us — there are unions.' This was a bit of a stretch: While there are hospitals around the country whose doctors are unionized, there did not appear to be a union anywhere composed of a single group of specialists. But Dr. Schwartz, a barrel-chested man with close-cropped hair and a bushy beard who would not look out of place at a graduate English seminar, thought unionizing might be worth a try.

At the time, it was only one of several options the doctors considered. They talked of forming an independent hospitalists group, of forming an alliance with an outsourcing firm of their choosing. But the alternatives gradually fell away for a variety of practical reasons, and the doctors were growing increasingly bitter.

Dr. Littell developed a riff, which the other hospitalists appropriated, about how the situation was like having your spouse of several decades announce he or she was going to play the field. 'You’ve been great, you’ve always been there,' he would joke. 'I just heard there could be better spouses out there.' The kicker: 'The good news is, you’re in the running, too!'

Amazingly, the unionization at PeaceHealth Sacred Heart was at least partially successful,

By March 2015, the PeaceHealth leadership, whatever its interest in efficiency gains, was apparently not pleased that one of its hospitals had a white-collar labor insurrection on its hands. The company announced that it would not outsource the hospitalists, a move it later said was always a possibility. Mr. Hill, who declined to comment, left in May.

The union did defeat the outsourcing tactic.  But otherwise results have not been so quick to appear, 

Noting that the negotiations with the hospital administration have dragged on for roughly a year, Dr. Schwartz said, 'It’s pretty obvious that they don’t want to get a contract done.' He says the administration worries that if it essentially rewards the hospitalists with a contract, it encourages other hospital workers to unionize too.

The housestaff at UW used a slightly different set of tactics, but still managed to form a real union.  Per the earlier Seattle Times article,

Established in 1964, the UWHA was mostly dormant during the 1980s and 1990s, according to the association’s website. It became active again starting in 1999. In 2013, members proposed making it a state-recognized collective-bargaining unit.

The UW petitioned the state Public Employment Relations Commissionto block the move, arguing that the residents and fellows were students paid stipends rather than employees paid salaries. But the commission sided with the residents and fellows, who last year voted to unionize.

The housestaff association has succeeded in negotiating. But as did the PeaceHealth doctors, they have not yet been able to secure their positions, per the later article.

University of Washington brass say they’re committed to providing the UW’s medical residents and fellows with decent compensation and benefits, but they insist the newly unionized doctors in training are asking too much in contract negotiations.

So,

Talks have been stalled for some time but are set to resume this month with a mediator assigned by the state Public Employment Relations Commission.

The two sides 'remain far apart in the area of compensation,' Joyner wrote in his letter.

Parenthetically, unexplored in any of the press coverage is whether the parallels between what is going on at PeaceHealth and the University of Washington have to do with explicit ties between the organizations. In 2013, per Beckers' Hospital Review, the news broke that the two institutions signed a letter of intent to create a "strategic alliance." In 2014, an article in the Seattle Times noted the ongoing concerns of housestaff and students at UW that the alliance could be diminishing their educational opportunities.

Summary

In one sense, it is amazing that physicians are now starting to unionize as a response to the managerialism of their leaders.  It was not all that long ago when the majority of physicians worked as solo practitioners or in small group practices, and fiercely defended their autonomy.  The last thing they would have thought about was unionization.  Since physicians were their own bosses, with whom could their unions have negotiated?  In addition, in the US, independent physicians and physician practices could not legally unionize.  Practices that discussed such issues as fees were liable to anti-trust prosecution.  And with what bosses could they have conceivably negotiated.

Yet now physicians are increasingly corporate employees, hence corporate physicians. At the moment, unionizing may be one of the few effective tactics health care professionals can use to halt the march of managerialism/ generic management and partially relieve the plight of the corporate physician (and health care professional.) However, in the long run, as long as people who care more about money than about patients' and the public's health run health care, even unions will not be able to make that much progress, and not without adverse effects.

It would take true health care reform to address the larger problems with health care and society that is now leading to physicians unionizing.  In  my humble opinion, hospitals, health care systems, and other "provider organizations" should seek better patient care, not growth.  Should they not voluntarily downsize (an almost comical idea in the current context), anti-trust enforcement, and probably new legislation would be needed to stop their pursuit of market dominance and return them to responsible community organizations.  The now much smaller hospitals, and provider organizations should not be run for profit, and the commercial practice of medicine should again be illegal.  Most physicians should go back to being private practitioners as individuals or within small groups.  Leaders of hospitals and provider organizations should be accountable for putting patients' and the public's health first, upholding professional values, and should not expect to get rich doing so.  But I dream on....

Musical Interlude

To lighten things up, if only a little, here is the YouTube video version of the full third album by the Mothers of Invention, led by the incomparable Frank Zappa, "We're Only In It for the Money."



ADDENDUM (21 January, 2016) - This post was republished on the Naked Capitalism blog.


Reference

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