No Skin in the Game - A Private Health System for the Very Rich

We have noted occasional hints that the very rich may have a separate health care system which may shield them from the vicissitudes of our dysfunctional health care system. A broader hint came in an interview in the Wall Street Journal.

The Company

 The subject of the interview was Leslie Michelson, the CEO of Private Health Management.  The activities of the company were defined somewhat vaguely,

an ultra high-end company that borrows from concierge medicine, managed care, applied-sciences research and information technology while fitting into no neat category. The best analogue might be the investment and tax specialists that the affluent employ to run their finances; Mr. Michelson does the same for their health care. 'Like private wealth management, just far more important,' he quips in his modern Beverly Hills offices, all green glass and steel, white walls, white floors.

The Clientele

The company manages health care for a select clientele:

Private Health caters to 'high net worth individuals' and to businesses that retain its services for their executives as a benefit. Mr. Michelson says he serves between 12,000 and 15,000 clients, 'principally in private equity, hedge funds, professional and financial services firms.'

Note that the clientele seem to come mainly from the ranks of top executives of financial firms, probably some of the richest of the rich in the US.

Rapid Response Team for Acute Illness

Private Health Management's most distinctive service is the rapid response team it can "parachute in" to provide care for an acute illness,

whenever one of its patients has a medical emergency or complex condition, say, a traumatic brain injury or newly diagnosed cancer. A personal-care team parachutes in, led by a clinician employed by the company, and compiles a brief on the patient. They centralize and digitize the patient's medical records, usually dog-eared paper piles that can run to thousands of pages. Research scientists immerse themselves in the latest findings and treatment regimens for the particular condition involved.

Tests are double-checked—biopsy tissues are sent to an outside pathologist, MRIs to another radiologist. For an era of targeted therapies, Private Health runs a full battery of molecular diagnostics 'to sequence the entire three billion base pairs of somebody's DNA in a couple of hours,' Mr. Michelson marvels.

The goal is to ensure an accurate diagnosis and lay out all the treatment options. Private Health functions as a kind of running, independent second opinion.

Physician Network

In addition, Private Health Management provides access to a network of ostensibly the very best physicians,

Mr. Michelson built a series of proprietary algorithms to distinguish 'the few who are the very best' from 'the many who are very good,' based on 'the factors that predict excellence.' For example, the premier caregivers for metastatic cancer are usually academic researchers on the cutting edge, not general oncologists. The best orthopedic surgeons perform many procedures as they master the clinical learning curve, ideally for a single injury.

His referral database includes 2,200 specialists across 160 medical fields, 'reified into far finer groupings of disease than is standard practice.' He says that 'the world becomes so much clearer when you are able to identify the physician with the deepest and narrowest expertise in exactly what you need.'

Mr. Michelson says doctors like to belong to his informal network because they're 'interested in excellence and what we stand for.'

However, next,

 He adds, with more than a little euphemism, 'In a world in which 98% of the conversations are about cost containment, it's a joy for them to have somebody who's focused on enhancing quality only.' No doubt true, though it probably doesn't hurt that providers also like to have a relationship with his client base, the sort of people who become university patrons or donate a hospital wing.

This raises the question of whether doctors in his network may exhibit some greed along with their putative excellence.

Questions Begged About How it Works

The article actually devoted more space to Mr Michelson rationalizing his business as part of his overall interest in reforming health care than to discussion of how it works and what its implications are.  The short description of the processes above actually raised more questions about how the Private Health System works than it answered.  Some examples are: how could an optimal rapid response team be quickly mobilized given that the nature of acute illnesses may not be immediately apparent?  How would such a team interact within a hospital setting, or does the company have its own parallel hospital system?  What about the rest of medicine and health care outside of acute and intensive care, particularly primary care and management of chronic disease?  How does the referral data base function, and how would a classification that seems focused on the "narrowest expertise" cope with patients with multiple common illnesses or patients with undefined or undiagnosed problems?  These begged questions suggest there may actually be much more to the Private Health Management system than was discussed in the article.

Perhaps instead the care provided by Private Health Management might not actually result in better outcomes for its patients.  Consider some other questions: given how hard it is to assess physician performance and measure quality of care, how can Private Health Management be assured that its physicians are really the best of the best?  Given the apparent financial incentives for participating in the system, would the doctors who most appreciate these incentives be likely to provide the best care?  Would the apparent bias of the system toward high technology and super specialized care, would the system over-treat most of its patients? 


Summary and Implications

Nonetheless, the article provides more evidence that the US has a secretive parallel health care system for the very rich.  The most important implication is that such a system could protect the very rich from the access problems and bureaucratic annoyances that plague ordinary patients in larger dysfunctional health care system.  By thus having "no skin in the game," those among the very rich who are not themselves directly involved with health care would have little reason to care or want to do anything about the problems besetting the larger health care system.  Since the very rich have become increasingly politically powerful, the absence of such interest or motivation for change among them would make true health care reform much more difficult. 

If there is a parallel health care system for the very rich, its real effects on health and health care are unknown.  As best as I can tell, the very concept is almost entirely anechoic except for our very limited discussions on Health Care Renewal.  The subject cries out for investigative reporting, and consideration by health care policy, research, and ethics experts. 

Health Care for the Very Rich is Different from That for You and Me - the Case of the CEO's Six-Figure Hip Replacement

Another glimpse of health care for the very rich comes by way of a BNet post by Jim Edwards about the beleaguered CEO of Forest Laboratories.

The background is that:

The CEO is fighting to retain his place atop the company against both investor Carl Icahn, who wants his own directors on Forest’s board, and the Department of Health & Human Services, which wants to exclude Solomon from the drug business as a punishment for the company settling a $313 million investigation by the Department of Justice over its illegal marketing of Levothroid and other drugs.

We had posted about the government threat to disbar him from government business after his company here.

Edwards noted that despite these setbacks, Solomon's total compensation actually increased:

Forest Labs (FRX) reported that CEO Howard Solomon earned $8.9 million in fiscal 2011, 7 percent more than last year,...

This is par for the course for executive compensation in health care. We have discussed numerous instances in which such pay defies gravity, rising even when serious questions have been raised about the performance of the executives and the organizations they lead. We most recently belabored this issue here.

However, Edwards also wrote

The company also spent $316,638 on medical expenses for the 83-year-old CEO, up from $56,571 in 2010. The company’s proxy disclosure did not say what was wrong with Solomon. UPDATE: A spokesperson for the company said:

Mr. Solomon is in excellent health and has no ongoing medical conditions that would impair his ability to continue functioning as the Company’s CEO. A good portion of last year’s expense was related to hip replacement following a fall when he was playing tennis – which he has now reluctantly discontinued.

Later, he summarized the amounts the company paid for Mr Solomon's medical care in previous years:

Here’s how Solomon’s medical bills have increased over the last few years.

2011: $316,638
2010: $56,571
2009: $28,000
2008: $25,000

Mr Solomon is 83 years old, and therefore qualified years ago for Medicare, the US single payer health insurance system for the elderly and disabled. Medicare serves as the primary health insurance for many elderly people, and it covers hip replacements for quite a few of them. A publication by Zimmer, one of the larger manufacturers of prosthetic hips, noted that Medicare payment rates in 2009 for hip replacement were up to about $25,000 for hospitals, and up to about $1500 for surgical fees.

Yet Forest Laboratories increased its payments to Mr Solomon for health care by about $250,000 due to his hip replacement. This amount is obviously an order of magnitude bigger than the usual Medicare payments for hip replacements, and presumably was paid in addition to the amounts Medicare paid for this surgery.

Nothing in Mr Edwards' post, or in the proxy statement from which the numbers came explains the use to which the $250,000 was put. The size of the amount does suggest that Mr Solomon received some sort of health care much more expensive than that available to the general public.

We have previously noted a few instances (e.g. here)  suggesting that the amounts large corporations pay for their top executives' health care are far larger than even the high prices charged by commercial health insurers.  Information from litigation suggested that one retired corporate CEO was entitled to payments for all sorts of amenities, such as first-class transportation, services of personal aides and trainers, cosmetic procedures, etc in conjunction with his health care (see post here).  The case of the Forest Laboratories CEO provides more evidence that top corporate leaders receive health care in what amounts to a system separate from and in a tier above what even supposedly well-insured "regular people" can access. 

The existence of this separate health care system for very rich corporate executives may provide yet another explanation of why real health care reform is so difficult.  We have frequently suggested that those who have become rich from the current health care system are likely to strongly resist any changes to that system that might threaten their continued accumulation of wealth.  These peoples' riches provide them with the resources to fight such changes, e.g., through stealth policy advocacy (see posts here and here).  Furthermore, these peoples' access to a separate health care system for the very rich makes it extremely unlikely that they or their families will ever experience the problems that drive many common folk to despair about our current health care dysfunction.

Perhaps some intrepid investigative reporter will write a Pulitzer prize-worthy story about the parallel health care system for the very rich.  Perhaps some honest health services researcher will study how the existence of such a system affects policy-makers.

At the least, we deserve health care policy informed by how the health care affects real people, and not made solely by those who are sheltered from he vicissitudes of the real, and currently dysfunctional health care system.

Not Your Average Joe's Health Plan

A Denver Post article offered a brief glimpse into the health benefits of corporate leaders, on the unusual occasion of a former CEO now in legal fight for the health benefits in the style to which he had become accustomed:

Poor Joe. He's not getting the health-care benefits he was promised.

His former employer merged with another company, and then another, and then another. And, you know how it goes after a slew of mergers. Suddenly the new, conglomerated monster just doesn't care about retirees any more.

Joe isn't going to sit back and take it like an average Joe. He's suing his former employer in U.S. District Court in Manhattan for breach of contract, breach of faith, breach of fiduciary duty and even promissory estoppel.

The Joe in question was really:

Lord & Taylor's CEO.

Joseph E. Brooks of Greenwich, Conn., lorded over a fourfold increase in sales at Lord & Taylor, expanding to 46 from 19 locations.

His career and Lord and Taylor's course after that were checkered, perhaps contributing to the current dispute:

But that was a long time ago. And Macy's Inc., the current parent company, is resisting some of his medical claims.

Brooks didn't get a deal like this from Filene's, where he served as president before joining Lord & Taylor. Or Ann Taylor, where he went on to generate shareholder lawsuits and shopper hate mail after demanding lower prices from suppliers and higher prices from customers, destroying both quality and value at the same time.

Brooks also made his son president of Ann Taylor, sparking cries of nepotism. And then his son got snagged trying to slip by U.S. Customs without paying duties on pricey watches and was forced to resign. The senior Brooks subsequently resigned as well. A 1992 Newsday article called him 'as egotistical and extravagant as he was brilliant.'

What Health Care Benefits Do CEOs Get?

What had Brooks been promised as CEO of Lord and Taylor?

In 1983, Lord & Taylor's corporate parent told Brooks it sought to provide 'great comfort to executives knowing that their medical costs are fully reimbursed by the Corporation.' The company told Joe it was a lifetime guarantee.

CEOs should never, ever, have to worry about health care.

Here are some details about his benefits:

And for nearly 27 years, substantially all medical costs have been fully covered, even premiums.

We're not just talking doctors' visits, hospitals, medications and tests. We're talking all travel and ancillary expenses associated with care, too.

We're talking first-class transportation, accommodations and meals while being treated at the Mayo Clinic and the Duke Diet and Fitness Center. We're talking expenses for a companion or personal aide, too.

We're also talking 'cosmetic services (surgery, medications, injections, creams and the like)' dental care, gym memberships, personal trainers, vitamins, massages — all paid by Joe's former employer for the rest of Joe's life.

Oh, and if any of these benefits have tax consequences, we're talking gross-up payments to cover that, too.

Why should we be concerned about the extravagant health plans given to top corporate executives? 

The Implications

We noted in 2009 that the Goldman Sachs 2009 proxy statement indicated that top executives of that now controversial company received health plans worth about $40,000 each. 

My concern then were not how much the costs of the plans contribute to top corporate leaders' compensation packages. Such packages are generally already so outrageously huge that providing $40,000 rather than $13,000 worth of health insurance is a trivial increase. My concern was not that plan recipients' demands for health care will collectively increase health care costs, because they likely include only a tiny portion of the population.


My main concern, instead, was how much these plans further insulate already cocooned top executives from the vicissitudes of daily life, particularly related to coping with our current dysfunctional health care system. What benefits executive health care plans provided were not clear from the 2009 story about Goldman Sachs.  However, this year's case of Joe Brooks does suggest that the plans paid for every expense that could be conceivably health related. 

As I worried then, it now does appear that such plans could completely insulate executives from having to deal with the managed care/ health insurance bureaucracy which frustrates patients seeking particular services, but not necessarily the most expensive, or least beneficial services. Furthermore, such plans may completely insulate executives from the various other vicissitudes of managing our currently dysfunctional health care system.  (By the way, that is why it seemed amazing that the CEO of Pfizer had to put up with some of the common vicissitudes when he went to a hospital for an elective procedure, an experience he publicly talked about with an almost charming naivete, given that he runs such a powerful health care organization which has been so influential in shaping our US "health care reform," see post here.)

Such executives isolated from the real world of health care might thus not have gut level appreciation of how dysfunctional the health care system has become for even insured patients. Since top executives often are disproportionately influential members of the "superclass," their disconnection from the realities of dysfunctional health care is likely to translate into little real support by the powers that be for meaningful health care reform. There support may be further retarded by the influence of their fellow superclass members whose personal fortunes depend on the status quo in health care.

Real improvement of health care may depend on finding leaders who have better understanding of the plight of real people.
 
Two Postscripts
 
Note: the Goldman Sachs 2010 proxy indicates that the executive health plans given to the five most highly paid executives cost up to $56,927.  
 
Also note that despite the effect that executive health plans may have on the thinking of those with the most power to influence health care policy, the plans have been of little interest to health care services and policy researchers.  I have not been able to find a single article in these literatures on the subject.  This appears to be yet another version of the anechoic effect, that certain inconvenient truths (to borrow from former US Vice President Al Gore) are not subjects of polite discussion of health care, lest the results excessively disturb the powers that be.

Leapfrog Over What?

In the US, large employers have become more vocal about the need to control the cost of their employees' health care, for which they pay, and improve its quality. Leading the charge on this one has been the Leapfrog Group, which announces itself as "an initiative driven by organizations that buy health care who are working to initiate breakthrough improvements in the safety, quality and affordability of healthcare for Americans." The Group proclaims that "today, doctors and hospitals are paid without regard to the quality or affordability of the care they provide. This practice discourages efforts to deliver better and more efficient care. Leapfrog and our members are working to create real incentives to improve care through new payment practices. We also encourage consumers to choose high quality health care providers."

In a 2005 article in Health Affairs written by Robert S Galvin (director of corporate health care at General Electric), and Suzanne Delbanco (CEO of the Leapfrog Group), the authors proclaimed, "large employers can play a unique role in theU.S. health care system, using private-sector purchasing approaches to procure health benefits for their employees. Most employers believe that the appropriate use of market forces, such as public disclosure of physician and hospital performance measures, incentives to create price- and quality-sensitive consumers, and rewards for better care, is the optimal way to control costs and improve quality." So, " in 2000 a small group of large employers formed the Leapfrog Group to address these shortcomings in the market. They developed purchasing principles to deliver a new message to health plans and providers about the imperative of swift action to "leapfrog" over the current state of poor value."

The Leapfrog Group describes its members thus "Leapfrog has over 170 members who are made up of Fortune 500 companies and other large private and public organizations that provide health benefits for their employees, retirees and dependents. Together they spend nearly $67 billion each year on health care for 36 million Americans in all 50 states." Perusual of the Leapfrog Group's membership list does include some prominent, large corporations that employ many people, for example, Citigroup Inc, and Qwest Communications International Inc.

(It also includes many health care related companies, including pharmaceutical companies like AstraZeneca, Eli Lilly, GlaxoSmithKline, Merck and Co, and Schering-Plough, and managed care companies, like Aetna Inc, Cigna, HCA, Humana, and UnitedHealthGroup, just to name a few, which may have particular interests in quality and affordability issues beyond those entailed by their status as large employers who pay for their employees' health insurance. But that is for another day.)

Thus a recent article in the Wall Street Journal (available here from the Pittsburgh Post-Gazette) adds some irony for this Friday. The article is about how "former top executives at many corporations are receiving partial or full lifetime medical coverage on top of pensions valued at millions of dollars." Furthermore, "companies often provide their top executives with more generous health-care plans than other full-time employees get and then continue to provide the richer benefits through retirement." Most of these benefits are not clearly disclosed by the companies' public filings. Two relevant examples:

• "Citigroup Inc. promised to pay the premiums and out-of-pocket expenses for both health and dental care for Chairman Sanford I. Weill and his wife now, and it will continue to provide those benefits for the rest of the Weills' lives, the company's proxy statement says. Citigroup will also continue to pay for any taxes Mr. Weill owes on the imputed income arising from these benefits. A company spokeswoman says the benefit dates back to a 1980s contract and isn't available to other executives."
• "Regular employees who lose their jobs can apply for continued health-care coverage under Cobra, the federally mandated requirement that employers of a certain size allow departed employees to remain in the company health plan for some 18 months. However, the coverage, which can cost more than $1,000 a month, can be too expensive for laid-off workers." However, "Qwest Communications International Inc., pay[s] 100 percent of executives' Cobra costs, according to filings. A Qwest spokesman confirms those details but declines to comment."

Not to be too heavy-handed, but as mentioned above, Citigroup Inc, and Qwest Communications International Inc are both members in good standing of the Leapfrog Group. It looks like some large employers' concerns about controlling the costs of health care do not apply to their top employees. Top executives of such corporations may be well insulated from the sorts of concerns about health care that affect their employees. Yet it is the top executives, not the employees, who are represented in such organizations as the Leapfrog Group. Any changes that the Leapfrog Group manages to make in the provision of health care to their employees are not likely going to affect these top executives. So what is it, again, that the Leapfrog Group wants to leap over?
But as F Scott Fitzgerald said, "the very rich are different from you and me."