The ACP Leadership Stands Up to Health Care Dysfunction: A Good Beginning, but the Problems May be Even Bigger than They Realize

Introduction: Health Care Dysfunction Has Been With Us for a Long Time

The American College of Physicians (ACP) is the largest physician specialty society in the US.  So it was news when outgoing ACP  President Dr Robert M McLean's article, "Battling the Hydra of the Medical-Industrial Complex" in the ACP Internist, decried "the dysfunction that has become our [health care] system's status quo" and noted "how our health care delivery system is so dysfunctional and fragmented."

[Gustave Moreau, Hercules and the Lernaean Hydra, Art Institute of Chicago]

Better late than never. We have been decrying health care dysfunction since 2003, and on this blog since 2004.

To better understand health care dysfunction, I interviewed doctors and health professionals, and published the results in Poses RM.   A cautionary tale: the dysfunction of American health care.  Eur J Int Med 2003; 14(2): 123-130. (link here).  In that article, I postulated that US physicians were demoralized because their core values were under threat, and identified five concerns:

1. domination of large organizations which do not honor these core values
2. conflicts between competing interests and demands
3.  perverse incentives
4. ill-informed, incompetent, self-interested, conflicted or even corrupt leadership
5.  attacks on the scientific basis of medicine, including manipulation and suppression of clinical research studies

After that my colleagues and I have tried to raise awareness of these and related issues, now mainly through the Health Care Renewal blog.  We also set up FIRM - the Foundation for Integrity and Responsibility in Medicine,  a US non-profit organization, to try to provide some financial support for the blog.

Now the ACP seems to have embraced some of our concerns.

Putting Financial Concerns and Management Dogma Ahead of Patients

Dr McClean started by asserting that:

Smart minds have taken business models to the extreme in health care-related corporations. Decisions on resource allocation or new initiatives are driven by the critical concept of return on investment (ROI).

Also

budget items that we know are clinically necessary for better patient care don't get resourced and as other initiatives of dubious clinical value move forward, all due to the omnipotent ROI calculation.

Furthermore,

Corporations of many types (insurance, pharmaceuticals, pharmacy benefit managers, and medical devices, to name just a few) are making millions and billions in profits that are pulled out of the health care system instead of being used to provide better care to our patients.

These are clearly major issues.  Let me take this opportunity to enlarge upon Dr McClean's essay, based on our experience writing for Health Care Renewal.

Dr McLean briefly noted the problem of "business models" driving health care leaders' decision making. This has been called managerialism. As discussed in an article from the June, 2015 issue of the Medical Journal of Australia (which we noted here)
- businesses of all types are now largely run by generic managers, trained in management but not necessarily knowledgeable about the details of the particular firm's business, and in a health care context, not necessarily having any experience or background in biomedical science, medicine, health care, or public health
- this change was motivated by neoliberalism (also known as economism or market fundamentalism)
- managerialism now affects all kinds of organizations, including health care, educational and scientific organizations
- managerialism makes short-term revenue the first priority of all organizations
- managerialism in health care undermines the health care mission and the values of health care professionals


Managerialism is not limited to the list of organizations mentioned by Dr McLean.  

Managerialists are often greatly influenced by currently fashionable management dogma.  A dominant dogma in management is that pursuit of shareholder value comes before all else, and thus that the pursuit of short-term revenue comes before all else. Managerialists running nominally non-profit organizations, like non-profit hospitals, still often put short-term revenue ahead of all other concerns.  As we posted here in 2012, quoting Lazonick:

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

Lazonick added:

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

Thus the influence of business thinking on health care (and public health) leadership is even greater than what Dr McLean discussed.

Furthermore, Dr McLean issued the following apologia:

We cannot blame health care system executives solely for this ROI focus; they are merely playing by the existing rules of the game, dysfunctional as those rules are

In  my humble opinion, they do not deserve the only blame.  However, hospital system executives are part of the larger community of executives who run pharmaceutical/ biotechnology/ device companies, health insurance companies, organizations that provide direct patient care, consulting firms, medical societies, health care charities, etc, etc, etc  Most of them have been trained in these "rules of the game." 

These executives often reap considerable personal benefits from these rules.  For example, hospital system executives, even those of non-profit hospital systems, have become rich in the currently dysfunctional health care system. Our latest example of hospital executive compensation that seems wildly disproportionate to the value of their work appeared here in 2019.

We have long contended that a major reason for health care dysfunction is perverse incentives, including those that allow top health care leaders to become rich by putting money ahead of patient care.  We have presented case after case supporting this point.

The plutocratic compensation given leaders of non-profit hospitals is usually justified by the need to competitively pay exceptionally brilliant leaders who must do extremely difficult jobs.  Yet even leaders whose records seem to be the opposite of brilliance, or whose work does not seem very hard, often end up handsomely rewarded.

Other aspects of top health care managers' pay provide perverse incentives.  While ostensibly tied to hospitals' economic performance, their compensation  is rarely tied to clinical performance, health care outcomes, health care quality, or patients' safety.  Furthermore, how managers are paid seems wildly out of step with how other organizational employees, especially health care professionals, are paid.

I can understand the leadership of the ACP may feel very uncomfortable challenging the executives of hospitals in which most of the ACP membership's patients receive care.  Nonetheless, we need to reconsider the downsides of a health care system in which paying generic managers enough to make them rich now seems to be the leading goal of hospitals.

Private Equity as an Egregious Example

Dr McClean noted the

entry of private equity and venture capital firms into the health care space and the expansion of pharmacy chains into retail health clinics.... whose leadership] see ripe potential to disrupt the dysfunctional status quo quasi-marketplace, increasingly treat patients like consumers, develop systems of improved efficiency, at least on the surface, and in the process destroy or undermine the patient-physician relationship.

We have been writing about the nefarious role private equity has been playing in health care since 2010.  Private equity firms have been buying up for-profit hospital systems and other firms that employ physicians to provide direct patient care, like physician staffing firms.  They also may own medical education institutions, including offshore medical schools that  train physicians for the US (and Canada), and even for-profit medical schools in the US (look here).

We first discussed the perils of private equity takeovers of hospitals here in 2010, and of physicians providing direct patient care as employees of corporations owned by private equity here in 2011.   The private equity business model seems particularly unsuitable for organizations which provide patient care, as we discussed in some detail in 2012.

For a quick modern summary of why it is bad to have private equity involved in direct patient care, see Merrill Goozner writing in Modern Healthcare, September 5, 2019,

The private equity business model in healthcare parallels other industries: Use highly leveraged private capital to roll up a number of small firms into one entity, with the private equity firm providing collective management. In addition to hefty fees for arranging the transaction (generally 1% to 2% of the purchase price), the private equity firm typically demands a 20% return on its investment after paying interest on the debt.

After three to seven years, assuming all goes well in achieving the promised efficiencies, the private equity firm and its junior partners (who are the specialty physicians in this latest wave of takeovers) earn a windfall by taking the company public or flipping it to another set of private equity investors. If things don’t work out as planned, the firm cuts its losses and declares bankruptcy (most of its capital will have been recouped through the 20% annual returns).

The management company has two paths to achieve its financial targets. It can either reduce costs sharply or look for ways to increase revenue.

A private equity firm running a hospital is likely to be even more focused on putting short-term revenue ahead of all else, including patient's and the public's health, and ahead of health care professionals' safety and welfare.

The Role of Corporate Propaganda and Disinformation

Dr McClean noted:

The disinformation media blitz has already begun. Organizations with altruistic-sounding names such as Partnership for America's Health Care Future, a coalition representing insurers, pharmaceutical companies, and hospitals, assert that we should 'build on what's working in our health care system.' Do you remember the success of the Health Insurance Association of America at turning public opinion against the Clinton health plan back in 1994, using its year-long advertising campaign of 'Harry and Louise' commercials in which a couple expresses dismay at their dwindling insurance options and rising costs? We should expect a new generation of that type of commercial in the near future. 

Again, this is a severe, long-standing issue that involves are more than just health care insurance companies and related issues.

We had previously noted that promotion of health policies that allowed overheated selling of overpriced and over-hyped health care products and services included various deceptive public relations practices, including orchestrated stealth health policy advocacy campaigns.  Third party strategies used patient advocacy organizations and medical societies that had institutional conflicts of interest due to their funding from companies selling health care products and services, or to the influence of conflicted leaders and board members.  Some deceptive public relations campaigns were extreme enough to be characterized as propaganda or disinformation.

As of 2019 we noted the participation of foreign powers, some potentially hostile, in the dissemination of health care related disinformation.  Even more disturbing, we began to see the dissemination of health care related disinformation by the executive branch of the US government under the Trump administration (look here).   In particular, disinformation is distorting the conversation about and maybe the response to coronavirus (look here). 

Thus countering the negative, and now often dangerous effects of propaganda and disinformation in health care and public health will require taking on far more bad actors than just health care insurance companies.

Conclusion: Issues Not Discussed

We have been cataloging aspects of US (and sometimes global) health care dysfunction for a long time.  There are many more issues than those about which Dr Cleary wrote.  In late 2019 I provided an updated summary of them. Reprinting it here would double the length of this post, so let me simply summarize the list of topics

Threats to the Integrity of the Clinical Evidence Base

Deceptive Marketing

Distortion of Health Care Regulation and Policy Making


Bad Leadership and Governance

Abandonment of Health Care as a Calling
 
Perverse Incentives Put Money Ahead of Patients, Education and Research

Cult of Leadership

Managerialism

Impunity Enabling Corrupt Leadership

Taboos

We strongly welcome the active participation of the ACP in the fight against health care dysfunction. Unfortunately, it may turn out to be a much more difficult and complex task than many would expect.

Now that health care dysfunction is in the headlines, we hope health care and public health professionals, patients, and all citizens will have a much more vigorous response to it.  US health care dysfunction was always part of the broader political economy, which is now troubled in new and dangerous ways.  We do not have much time to act.

If not now, when?

If not us, who?  

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.

Marketing Bad Health Care Decisions as a New Form of Stealth Health Policy Advocacy

A remarkable set of video advertisements appeared a few weeks ago that seem designed to frighten people into making bad health care decisions.

The "Bad Uncle Sam" Advertisements

As described by Businessweek,

In the first ad, dubbed 'The Exam,' a young woman who has signed up for Obamacare arrives at a medical facility and changes out of her clothes and into a flimsy hospital gown. Following the instructions of a doctor, she reclines on a hospital bed and spreads her legs into a pair of stirrups. The doctor leaves the room. Then, suddenly a mascot wearing a plastic Uncle Sam mask and sporting an unwavering grin—Creepy Uncle Sam!—pops up between her legs. As she screams, the ad pans out. 'Don’t let government play doctor,' reads the kicker.

The final message, for some reason not described by Businessweek, was

Opt out of ObamaCare

Similarly,

A second spot, entitled 'The Glove,' follows a similar narrative arc. A young man sits in an examination room and tells a doctor that he’s signed up for Obamacare. 'I saw the ads and figured, why not?' he says. 'Okay,' says the doctor. 'Take your pants off.' The man drops his trousers, reclines on the hospital bed, and brings his knees to his chest. The doctor leaves the room. Behind the young man, Creepy Uncle Sam pops up, raises his hand into the air, snaps on a latex medical glove, and wiggles his fingers menacingly.

Once again, the final message is

Opt out of ObamaCare

The Ostensible Message of the Advertisements

Again per Businessweek, the ads were sponsored by " Generation Opportunity, a Virginia-based conservative organization funded in part by Charles and David Koch,..."  According to an article on the Atlantic website, Generation Opportunity means to be

urging Millennials not to sign up for insurance on the health care exchanges created by the Affordable Care Act. It claims that paying the individual mandate's tax penalty and buying insurance that doesn't meet government coverage rules is a 'better deal' for young people.

As many have noticed, that is not the implication of the visuals.  As an opinion piece in the National Journal put it,

 the message is that the government is trying to forcibly rape women with a blunt metal instrument.

Furthermore, the final written message of both advertisements is not a nuanced one about where one should seek to go to buy health insurance.  It is simply "opt out of ObamaCare."

A Nonsensical Premise

Also, the premise of the advertisements is nonsense, to put it politely.

ObamaCare does require health insurance to pay for various kinds of preventive care without requiring patients to pay deductibles.  It does not make physicians and nurses provide these services.  Whether a patient gets, for example, a pelvic exam, is up to that patient and her doctor or nurse practitioner, not the government.  Of course, the legislation does not remotely suggest creepy government agents should perform pelvic or rectal exams. 

Thus, the entire point of these advertisements seems to be to generate irrational fears that will drive young people away from health insurance now available through ObamaCare.

Stealth Health Policy Advocacy by Means of Marketing Bad Personal Health Care Decisions

In the US, the Affordable Care Act, aka ObamaCare, still arouses a lot of controversy.  There are many people who have been critical of various aspects of the law.  (In fact, we criticized it for not addressing most of the issues about which we write on this blog.)  Furthermore, there is at least a large minority who want to repeal the law.  So there has been an ongoing barrage of persuasive messages meant to support or criticize various aspects of the law, and to support or discredit the entire law.

However, the "Bad Uncle Sam" advertisements are different.  They do not urge people to vote for any particular person or initiative.  They do not urge people to express their own policy views.  They do not ask for contributions to political or advocacy organizations.

Instead, they urge people to make particular health care decisions.  Despite the more nuanced messages espoused by Generation Opportunity when interviewed, their advertisements try to irrationally scare people away from purchasing health insurance made available by ObamaCare.

They are aimed at young adults, who are less likely to have spare funds to pay for expensive health insurance, less likely to get sick or injured, and more likely to feel relatively invincible.  However, were an uninsured person, even a young one, to suffer a significant illness or injury, the resulting costs in our dysfunctional and extremely expensive health care system could drive them bankrupt.  This is all the more likely since the uninsured are likely to be charged "rack rates" for health care, while insurance companies negotiate discounts for their subscribers.  Furthermore, uninsured people may put off needed tests and treatments due to financial concerns, yet doing so may lead to worse health care results, or even death.

An article in the St Louis Post succinctly listed the costs associated with some unlucky outcomes for uninsured young people, for example, 

Suppose you twist your knee playing soccer. Without coverage, fixing it will be at least $20,000 to repair the ACL ligament, according to an estimate from Costhelper.com.

Can’t pay it? Buy some crutches. They run about $30. You’ll also take on the risk of tissue damage and early arthritis.

Personal finance columnist Jim Gallagher concluded,

 although the vast majority of young adults stay healthy, serious trouble is not rare. Those without insurance are playing the odds. If they win, they’ve saved the insurance premiums. If they lose, they’re ruined.

Generation Opportunity may claim to be

 a free-thinking, liberty-loving, national organization of young people promoting the best of Being American: opportunity, creativity and freedom. 

However, what it appears to be doing is urging bad health care choices  based on a false premise to serve an ideological agenda.

Thus, its advertisements are a unique and uniquely bad mixture of marketing (of bad decisions) and stealth health policy advocacy.  If they want to publicly oppose ObamaCare, that is their right.  Fooling people into making bad decisions in the hopes that this will financially burden ObamaCare is completely unethical and amounts to disinformation, in my humble opinion.  The leadership and funders of Generation Opportunity ought to be ashamed of themselves.

The US has many major health care problems.  They deserve discussion and debate.  Disinformation that tries to confuse people into making bad personal health care decisions is likely to make our health care dysfunction even worse.  

The Market Made Us Do It: Increasing Low Level Employees' Health Plan Deductible While Paying Executives Millions

A small news item from the Seattle public radio station, KUOW, provides our latest example of the contrasts between how hired executives and "regular" employees are treated even at non-profit health care organizations, and between these organizations' actions and their stated missions. 


Hospital Employees Strike Against Reductions in their Health Insurance


The report was about a small job action going on at a single hospital.  Ironically, the strike is over the employees' own health insurance. 

Along with housekeepers, nursing assistants and other staff, surgical technologist Bob Wilson is a member of the Service Employees International Union local 1199NW.

'You see all the guys on TV that hand the doctor the scalpel? That’s me,' he said from the picket line on Friday. 'We’re out here because we think we deserve affordable health care.'

The union and Providence St. Peter have been in contract negotiations since last summer. SEIU represents about one fourth of the hospital's employees.

In January, employees' health insurance changed. The union says the higher deductibles and out of pocket expenses hurt for a union whose median member makes $31,000 a year.

I’m forgoing care,' Wilson said. 'I’m not going and seeing a doctor unless I absolutely have to. A lot of people here at Providence are doing the same thing: They’re trying to save their money.'

An piece on the Huffington Post further described the strikers' concerns about the new health plans' deductible amounts:

The employees' new $3,000 annual deductible for families is 10 percent of the average worker's pay and a sharp boost from the $750 yearly deductible in their previous health plan.

Millions for Hired Managers 


The first contrast is between the strikers' relatively low pay and modest insurance coverage with the compensation given to the hospital system's top managers.  Per KUOW,

Providence St. Peter is part of Providence Health & Services. The Catholic organization runs hospitals in five western states. Its headquarters is in Renton.

Furthermore,

The union says Providence can afford to do better given what it pays its CEO, John Koster.

The union just learned of Koster’s 2011 pay on Thursday after reading Providence’s latest filing with the IRS. Providence reported Koster’s compensation as $6.4 million, up from $3.1 million in 2010.

Also,

Providence’s IRS filing reveals that 19 employees of the Catholic ministry earned at least $1 million in 2011. Eight of those employees earned at least $2 million. The top five executives earned more than $3 million each.

Note further that the organization's filing acknowledged that some of its most highly compensated employees received "first-class or charter travel," "tax indemnification and gross-up payment[s]," discretionary spending account[s]," "housing allowance[s] or residence[s] for personal use," and "payments for business use of personal residence." 


Serving the "Poor and Vulnerable?"

The second contrast is between the hospital system's stated mission and how it treats different kinds of employees.  The Providence Health & Services web-site states:

Providence Health & Services is a not-for-profit Catholic health care ministry committed to providing for the needs of the communities it serves – especially for those who are poor and vulnerable. Providence Health & Services continues a tradition of caring that the Sisters of Providence began more than 155 years ago.

It does not seem unreasonable to claim that low level employees making about $31,000 a year given a health plan with a $3,000 deductible are likely to become poor and vulnerable were they to be unlucky enough to sustain any major illness or injury.

The Market Made Us Do It

However, instead of considering its mission, Providence Health & Services spokespeople invoked the market as justification for its less than generous health plan versus its exceedingly generous pay of top managers.  

In an email to KUOW, "Providence officials" described its contract offer and health plan as "competitive with other health care providers."

Regarding its compensation practices,

 In an email, Providence spokeswoman Colleen Wadden said Providence sets its compensation the same way, whether it’s for housekeepers or executives: Base salaries are set at the middle of the market.

Note that we have discussed the "market made me do it" justification for huge executive compensation from health care organizations as a talking point that is used again and again by public relations operatives and board members (e.g., look here).  Its use in this case, though, is particularly unfortunate. 

Summary

In this example, we have a huge health system (with over $3.6 billion in revenue in 2011) whose mission is to be a "Catholic health care ministry" that serves the "poor and vulnerable" also claiming that the almighty market means it must pay its executives more than one hundred times what it pays its lowliest employees, compensate them with first class travel, tax gross-ups, and so forth.  Moreover, presumably this dictatorial market also makes sure this ministry cannot provide its lowliest employees with health insurance that seems sufficient to prevent them from becoming poor and vulnerable should a severe illness strike.  

Maybe Providence Health & Services executives and public relations people should read what one prominent Catholic theologian wrote (here, and see this post) about the market in health care:

Hospitals and other facilities 'must rethink their particular role in order to avoid having health become a simple 'commodity,' subordinate to the laws of the market, and, therefore, a good reserved to a few, rather than a universal good to be guaranteed and defended,' 

That theologian was the current Pope Emeritus, Benedict XVI. 

So this is a new, vivid example of how leaders of big health care organizations may preach about the mission while acting to put their own self-interest way ahead of that mission.

 As we have said until blue in the face,...

Health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.

If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.

Another Revolving Door Variant: From Academia with Millions in Medtronic Royalties, to the White House, to the Health Care Service Corp

The revolving door spins, and where it will stop, nobody knows...

In October, 2010, we noted questions about how Dr Stephen Ondra got to be a Senior Policy Adviser for the US Department of Veterans Affairs. A veteran who was a neurosurgery professor at Northwestern University, Dr Ondra had received millions of dollars in royalties from device manufacturer Medtronic, whose CEO supported his appointment to the government position  (see this post).  As soon as he was appointed, he publicly opposed a nominee for US Surgeon General who had been critical of the medical device industry, and its financial ties to doctors.

After going to Washington, Dr Ondra apparently also served in the Executive Office of the President, in the White House, but returned to Northwestern University in 2012.  However, he did not stay there for long.

This month, a post on Forbes indicated he is moving on again, and back to the corporate side of health care.

the nation’s fourth-largest health insurance company is naming a key former health advisor to President Obama as its top doctor.

Dr. Stephen Ondra, will become senior vice president and chief medical officer at Health Care Service Corp., the Chicago-based parent company of Blue Cross plans in Illinois, Texas, Oklahoma and New Mexico. The plan has more than 13 million health plan members and is looking to grow even more, announcing last year a proposed partnership with the Blue Cross plan in Montana.

Health Care Service Corp is a mutual insurance company, that is, a company owned by its policy-holders rather than stock holders.  However, that does apparently not make it any more ascetic than a typical for-profit insurance company, at least in terms of generosity towards its top hired executives.  As Crain's Chicago Business reported in 2012,

New federal regulations intended to force health insurers to spend less on administration didn't keep the parent of Blue Cross & Blue Shield of Illinois from paying CEO Patricia Hemingway Hall more than $12.9 million in 2011, a 61 percent raise.

The Health Care Service Corp. chief executive's total compensation last year dwarfed the $8 million she received in 2010, according to a filing with the Illinois Department of Insurance. The 2011 increase was fueled by an $11.8 million bonus, which was 69 percent above her 2010 bonus of $7 million.

Ms. Hall wasn't alone in getting a big raise at Health Care Service, whose insurance business booked net income of more than $1 billion in 2011, for the second straight year.

The 10 highest-paid executives at the Chicago-based mutual company — which operates Blue Cross plans in Illinois and three other states — earned a collective $41.7 million, 65 percent more than the $25.3 million they were paid in 2010.

 If Dr Ondra's new position puts him among the latter group of executives, he too stands to make millions a year. 

So to recap Dr Ondra's career so far, in 2010 he was a medical school professor who had earned millions in royalties from Medtronic.  He then went to top leadership positions in the US Veterans Department and Executive Office of the President.  He returned briefly to Northwestern University, only to leave again for a top executive position in for-profit insurance company Health Care Service Corp, where he is likely to make millions more.

Thus Dr Ondra is our latest interesting example of the "revolving door" phenomenon in health care.  He started as an erstwhile academic physician but with a very major financial relationship with a medical device company.  He then went through the door the first time into the US government, and then a second time from the government to a for-profit insurance company, with just a brief stop-over in academia.

By the way, it appears that all of this is quite legal.  It does again raise questions about whether health care leaders in government with previous relationships with industry might still feel undue sympathy to the interests of industry, as might government leaders who can expect future jobs in industry.

Moreover, this case, like previous cases we have discussed,  indicates how leadership in academic health care, corporate health care, and the government tend to blend together.  Leaders of one type of organization have more and more in common with leaders of the other types of organizations than they do with their lesser ranked colleagues, and certainly than with other health care constituencies.  So the more the revolving door revolves, the more we wonder about the corporatism of health care, about how health care seems to be increasingly run by an amorphous group of academic/ corporate/ government leaders whose loyalties may be more to each other than to academic and professional values, patients' and the public's health, and government of, by and for the people.

Where is the risk?

That’s the question Thomas Cox, an RN with insurance experience and expertise, says should be asked about any health care financing mechanism.

The whole idea of insurance is distributing risk widely so that it can be shared over a wide group of people and thus become manageable. That’s why people need insurance at all, and that’s also why schemes that put too much of the onus on individuals are a very bad idea – as has happened in recent years to a number of people,  the “insured” individual can incur costs that are more than he or she can bear.

In general, insurance is most solid when it’s over a larger group. Each major increase in group size distributes the risk further and makes the healthcare financing system stronger. Cox has an interesting paper on this which he presented at an American Statistical Association meeting.

In general, large insurers are an order-of-magnitude more sound than small ones, and nationwide insurance systems (such as Medicare) have a distinct actuarial edge over state-based insurance (think, for example, California earthquake). For this reason, it’s a shame that the Affordable Care Act (ACA) has state exchanges as its primary mechanism rather than one single federal exchange; risk dispersal is inferior.

Looking at the risk question, there’s a real problem with affordable care organizations (ACOs), which are one of the primary ways the ACA aims to keep down future costs. Essentially, ACOs are a form of capitation, and (Cox maintains and I think he’s right) capitation is essentially a mechanism to push risks down from the insurer or from Medicare to providers. Pushing risks to smaller groups is a terrible idea and will worsen the system. With ACOs having  smaller covered populations, they are far more subject to being the victim of events they can’t control, whether that’s having a large number of huge-cost, high-needs patients in a single year or having a large number of patients affected by an epidemic or natural disaster.

Providers are not trained or qualified to manage risk well, nor do they have the financial reserves to do so.  Cox calls this “professional caregiver insurance risk.”  Burdening providers with a task they are very ill-suited for is a truly bad idea. As Cox comments:

Pushing risks elsewhere removes the only real function we are paying insurance companies for.  If insurance companies are pushing down their risks elsewhere, we are paying them money for nothing of value. Insurance companies don’t provide healthcare – if they don’t manage risk either, what good are they? Of course, if they can sit there and siphon off profits without taking risks, it may not trouble profit-making insurers . . . but it should trouble the public [if they are] issuing policies, passing the insurance risks on to health care providers, and walking off with guaranteed profits year after year.

And (particularly for the ACO that has been “unlucky” and has incurred larger-than-expected costs), the financial risk can be a force for corruption, pushing organizations toward denying care and undertreatment.

Of course, with the enormous amount of unnecessary care and overtreatment in the US medical system today, some ACOs may indeed manage to give really good care for quite a while provided they are reasonably lucky. But this is a strategy with diminishing returns (as unneeded care dwindles in amount). At root, pushing down insurance risk to smaller entities is, Cox has persuaded me, a fundamentally flawed direction.

And I’ll never look at a health care financing proposal in future without asking myself: “Where is the risk?”

Fool Us Once, Shame on You, Fool Us Twice, Shame on Us - The Untrustworthy Pronouncements of Aetna's Former CEOs

A small tempest in the larger US health care reform teapot was produced a few weeks ago when Ron Williams, former CEO of Aetna, declared in a Wall Street Journal op-ed that he no longer supported the health insurance mandate.  The "mandate" for all US citizens to buy health insurance, actually a relatively small tax that would be imposed on people without health insurance, was the central point of contention in the lawsuit before the US Supreme Court challenging the Affordable Care Act (ACA). 

Immediate Past-CEO of Aetna Ron Williams' Abrupt Change of Mind on the Individual Mandate

Williams wrote,

Soon the U.S. Supreme Court will rule on the constitutionality of the Affordable Care Act. I am not a lawyer, or an expert on the Constitution. But as the chairman and CEO of a major health plan, I had a ringside seat to the entire health-care reform process. After much reflection, I have concluded that the federal individual mandate, which requires all Americans to purchase health insurance starting in 2014, will not be upheld.

On this, Williams was soon proven wrong. The Supreme Court upheld the law. However, the tempest was not due just to Williams' reversal of his former opinion, but the role he actually played in pushing his former opinion into the passage of the law, which was really far more than being a "ringside" spectator.

In an August 24, 2009 article, "Aetna's Ron Williams on Health Reform," Forbes' Dan Whelan noted,

Williams, 59, is taking a surprisingly visible role in arguing for change in the health care system. He has met with Obama a half-dozen times (he shrugs off the surname gaffe), has testified four times in front of Senate committees this year and participates in shindigs set up by the many trade groups for which he's a director.

Williams' position echoes that of the HMO industry generally: He's against a government-run plan but favors universal coverage and forcing insurers to take all comers.

As Wendell Potter, the former head of public relations for large health for-profit health insurance company Cigna, who is now a strong industry critic, put it on his blog,

Ron Williams who possibly more than anyone else had persuaded the President to reconsider his campaign pledge to enact reform without making people buy coverage from a private insurer. Candidate Obama’s reform platform differed from those of Hillary Clinton’s and John Edwards’ in only one significant way: both Clinton and Edwards embraced the mandate, which Williams was championing, first behind the scenes and then publicly, on behalf of the insurance industry. Candidate Obama said he didn’t believe it was right for people to be forced to buy something they couldn’t afford.

Williams was the industry’s most visible CEO on Capitol Hill during the debate on reform. He testified at numerous congressional hearings about how essential it was to move the millions of uninsured Americans into private health insurance plans and how an individual mandate was necessary to make that happen. He also never missed an opportunity to trash the idea of a 'public option' to compete with private insurance companies, which candidate Obama had said was essential 'to keep private insurers honest.'

Capitol Hill was not the only place Williams was frequenting during the reform debate. In an August 2009 article in Forbes, Williams was quoted as saying that he already had met with the President six times. When I called the White House to confirm that, a top aide told me it was true Williams had been there many times, adding, 'We’ve found him to be one of the more reasonable ones.'

Williams' recent seeming disavowal of the individual mandate raises the question of why anyone, much less President Obama, trusted him in the first place. After all, he was CEO of Aetna.

2001 Aetna CEO John Rowe Blamed Everyone Else for Health Care Problems

In fact, perusal of my memory, and a few file folders suggested several previous cases in which Aetna CEOs issued pronouncements that should not have been trusted.

First I recalled a meeting in 2001 at Brown during which the then Aetna CEO was honored by giving the Paul Levinger Lecture on "Good Health: Can We Afford It?" (See original Brown news release here.) My memory is that of Dr Rowe blaming just about everybody other than the for-profit health care insurance companies for health care's ills. A Brown Daily Herald article (not currently on line, Baskin B. Health care getting harder to afford, Aetna chief tells Brown U. Brown Daily Herald, November 30, 2001) recounted him blaming "cost inflation," (presumably due to doctors and hospitals), and employers, for whom "quality doesn't matter." He only allowed that insurers were to blame for not giving "better service," but not either rising costs or poor quality. I also recall Dr Rowe being treated with great respect by the audience. After all, this was a prestigious lecture.

However, his talk seemed just the least bit self-serving. If the audience had been aware of his record at the time, maybe we would have been more skeptical.

Mount Sinai CEO Dr John Rowe Extolled Merger with New York University, Jumped to Become Aetna CEO as Merger Began to Fail

By 1993, Dr Rowe was CEO of Mount Sinai Medical Center, and was seemingly at the vanguard of the movement for health care CEOs to be paid a lot. The New York Times reported that the 1993 Chronicle of Philanthropy survey showed him to be the country's best paid non-profit CEO, bringing in total compensation of over $800,000 in 1993 dollars. By 1998, Dr Rowe's big project was pushing concentration of power in health care in the form of a proposed merger between New York University Medical Center and Mount Sinai. According to the New York Times, the plan would be for Dr Rowe to become CEO of the combined entity. At the time, he said,

The advantages of merging hospitals are so great, they far outweigh any hypothetical potential negative impact.

The bond issue needed to finance the merger, however, ran into trouble by early 2000.  Soon after that, Dr Rowe seemingly demonstrated his lack of faith in it by jumping to the leadership of Aetna. It turned out, according to the Hartford Courant, Aetna's offer was just to rich to turn down.

Rowe got a $2 million sign-on bonus to leave Mount Sinai NYU Health and become chief executive of Aetna's health business, the document says. He will also get a $1.4 million retention bonus on July 3, 2001.

Both bonuses are designed to replace money that Rowe forfeited by leaving the giant New York hospital system, Aetna spokeswoman Joyce Oberdorf said.

In addition, Rowe will get an annual salary of at least $1 million and an annual bonus of $1 million to $3 million, depending on how well goals are met, under a three-year employment agreement with two possible one-year extensions.

Rowe, who already received 25,000 shares of restricted Aetna stock and options on 500,000 shares, will get another 100,000 options. The new options will be granted when Aetna spins off its health business to shareholders, or on Jan. 1, 2001 -- whichever comes first. The exercise price will be about $72.73, or whatever price Aetna stock is trading at the time if it's higher than that.

By 2001, the New York Times referred to the merger as existing "in name only." That year, the campuses resumed separate administration. The merger was officially terminated in 2008. Its failure was documented in an Academic Medicine article. (Kastor JA. Failure of the merger of the Mount Sinai and New York University hospitals and medical schools: part 2. Acad Med 2010; 85: 1828-32. Link here.)

If the Brown audience had known that the merger Dr Rowe extolled with such confidence was already failing, but that he was able to leverage his role in its development to go from the country's best paid non-profit CEO to a multi-million dollar a year insurance CEO, maybe we would have felt less guilt about our responsibility for health care's high cost, low access and poor quality.

Aetna CEO Richard Huber's Failure to "Walk the Walk"

In fact, searching through the files showed an even earlier example of an Aetna CEO talking out of two sides of his mouth.

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.

Summary

So the unreliability of recent Aetna CEO Ron Williams' advocacy of the "patient mandate," was presaged by similarly untrustworthy pronouncement by two former Aetna CEOs. In each case, the remarks of the particular CEO seemed more designed to promote his immediate self-interest than to provide trustworthy opinion or policy advice.

By the way, this summary should not be viewed as particularly an indictment of Aetna. I am sure I could find equally untrustworthy but self-serving pronouncements from the leaders of many other health care organizations. (Recall the visionary pronouncements of the failed and ultimately jailed CEO of the now vanished Allegheny Health Education and Research Foundation, see post here.)

The recent Ron Williams reversal should serve, however, as a stark reminder that we, meaning physicians, other health care professionals, those who study health care and health policy, policy makers, and the public at large, should be very, very skeptical about any pronouncements about health policy by top executives of health care organizations. They as a group have shown themselves to be remarkably good at doing whatever it takes to buttress their immediate self-interest, including making apparently oracular but ultimately foolish policy pronouncements.

The real question is why these pronouncements continue to be treated with reverence, if not as "visionaries,"  by health care professionals, health care and policy researchers, the news media, health care and medical journals, policy makers, politicians, and the public at large? Why has hardly anyone, besides yours truly, gone back to check the accuracy of their previous pontifications before swooning over their latest ones? Why has hardly anyone examined the accuracy of their predecessors' opinions, given that most executives these days seem to be subject to the same incentives to make things look good in the short term, and never mind the consequences?

Health Care (Insurance) Reform Upheld, but Concentration and Abuse of Power Remain Largely Unaddressed

This may seem like sour grapes, but...  Numerous media reports say that the US Supreme Court has upheld the massive US health care "reform" law (look here for Reuters coverage today, and here, for the Los Angeles Times, for example).  In my humble opinion, the law will likely increase acess to commercial health care insurance, although will likely not reduce the expense of such insurance, or address the misbehavior of many large insurance companies (for example, see our series of posts on Aetna, UnitedHealth, WellPoint, and the insurance industry in general, etc, etc).

The law, as we summarized here, does contain a few provisions relevant to the concerns we raise on Health Care Renewal.  These include measures to improve disclosure of certain kinds of conflicts of interest affecting individual physicians and health care academics, and improved funding for comparative effectiveness research.  We hoped that the law would lead to a more rational way to fix payments to physicians that might supplant the secretive, procedure-happy RUC, but so far that hope remains unfulfilled. 

However, as we wrote in 2010, the legislation will leave most of the other problems we discuss on Health Care Renewal untouched. We thus have one or two small steps for mankind in the US, but no reason for complacency.


The news is not bad.  We are probably on balance somewhat better off with some health care insurance reform than none.  However, we are still a long way from meaningfully addressing concentration and abuse of power in health care. There will be no rest for the weary bloggers of Health Care Renewal.

Huge Insurance Company WellPoint Settles Once Again, Providing a Window On the Ethical Questions Its Birth Presented

Another month, another question about the ethical conduct of for-profit insurance giant WellPoint. 

WellPoint Settles Allegations its Predecessor Anthem Cheated its Former Policy-Holders

This time the issue was how the company treated people insured by its now Anthem subsidiary a long time ago.  Here is the Reuters version:

Health insurer WellPoint Inc has agreed to pay $90 million to settle a class-action lawsuit against its Anthem unit over accusations the company did not fairly compensate former members when Anthem was converted from a mutual company into a stock company.

The Indianapolis Star noted:

WellPoint had fought the lawsuit for seven years in court.

The lawsuit alleged that WellPoint's Anthem subsidiary underpaid policyholders who opted to receive cash instead of stock when the Blue Cross-Blue Shield franchisee converted in 2001 into a stock company.

Of course, a WellPoint spokesman denied the company had done anything wrong, per Reuters,

Anthem spokeswoman Kristin Binns said in an e-mailed statement.

'We continue to believe that in all ways the company acted appropriately and in the best interests of its former members,...'

The Historic Context: the Conversion of Non-Profit Health Insurers into For-Profit Corporations

This may seem very dry and only of historical interest, but consider the historical context. Per Wendell Potter's Deadly Spin, after the Clinton administration's failed attempt at health reform, leaders of previously non-profit Blue Cross and Blue Shield insurance plans saw a new opportunity. In the mid-1990s,

the Blue Cross and Blue Shield Association took a little-noticed but monumental step. The trade group, a bastion of non-profit health insurers that included the founders of the modern health insurance system, modified its bylaws to permit members to convert into public-stock companies.

Potter opined about the executives' main motivation for conversion to for-profit status, and then consolidation of the resulting companies,

They would earn bigger pay packages for managing larger businesses, and if they could convert them to for-profit companies, they would earn even more.

So,

Fourteen Blue Cross plans, most of which dominated their state-wide markets, converted from nonprofits to for-profits, and by 2004 all fourteen wound up as wholly owned subsidiaries of WellPoint....

The Anthem Demutualization as a Step to WellPoint Executives' Enrichment

Anthem began as a non-profit insurance company, Blue Cross/Blue Shield of Indiana. Its hired managers first converted it into a mutual insurance company, a company that was owned by its policy-holders, and hence somewhat a non-profit in spirit. Then the executives started to acquire other formerly non-profit Blue Cross and Blue Shield plans. Then they converted the mutual insurance company into a pure for-profit. The for-profit Anthem eventually acquired WellPoint, taking that company's name. The resulting company then had become the biggest for-profit US health care insurer. In 2003, as the acquisition of WellPoint was pending, the Indianapolis Star reported:

The top executive at Anthem Inc. will receive a $42.5 million stock-and-cash award for guiding the company as it became the state's largest firm and now stands to become the nation's largest health benefits company.

Larry C. Glasscock will receive the merit-based performance award over the next three years on top of his salary, bonus and other compensation of $3.73 million last year. It's the most compensation Glasscock has received since he became the company's chief executive in 1999 and helped convert it to a publicly traded concern in 2001

Furthermore,

Award amounts of $16 million each went to Glasscock's two highest-ranking associates: executive vice presidents David R. Frick, an attorney and former Indianapolis deputy mayor, and Michael L. Smith, a former chief executive of moving company Mayflower Group.

In addition, the president of Anthem Midwest, Keith R. Faller, will get a stock-and-cash award of $11.9 million, while Anthem Southeast President Thomas G. Snead Jr. got $4.36 million.

The allegation that the company's hired managers failed to adequately reimburse policy-holders for the policy-owners' ownership interests in the mutual version of Anthem was the basis of the law-suit that was just settled. The Anthem demutualization was a key step in the formation of the WellPoint behemoth. Its creation was the rationale to make the executives listed above rich. The allegations made in the lawsuit just settled suggest that they earned these huge windfalls on the backs of the policy-holders who at one point thought it was their company, and formerly thought that their insurer was a benign non-profit organization.

A Continuing Record of Ethical Misadventures

Thus, the lawsuit just settled suggests that WellPoint was born in ethically questionable circumstances, and that its creation served more to enrich its hired executives, who may have started as hired leaders of mission-oriented non-profit organizations. So in retrospect maybe it is not so surprising that WellPoint's leadership has continued to generate a series of ethical questions.

Since we began Health Care Renewal, we have noted that the company:

• settled a RICO (racketeer influenced corrupt organization) law-suit in California over its alleged systematic attempts to withhold payments from physicians (see 2005 post here).
• subsidiary New York Empire Blue Cross and Blue Shield misplaced a computer disc containing confidential information on 75,000 policy-holders (see 2007 story here).
• California Anthem Blue Cross subsidiary cancelled individual insurance policies after their owners made large claims (a practices sometimes called rescission).  The company was ordered to pay a million dollar fine in early 2007 for this (see post here).  A state agency charged that some of these cancellations by another WellPoint subsidiary were improper (see post here).  WellPoint was alleged to have pushed physicians to look for patients' medical problems that would allow rescission (see post here).  It turned out that California never collected the 2007 fine noted above, allegedly because the state agency feared that WellPoint had become too powerful to take on (see post here). But in 2008, WellPoint agreed to pay more fines for its rescission practices (see post here).  In 2009, WellPoint executives were defiant about their continued intention to make rescission in hearings before the US congress (see post here).
• California Blue Cross subsidiary allegedly attempted to get physicians to sign contracts whose confidentiality provisions would have prevented them from consulting lawyers about the contracts (see 2007 post here).
• formerly acclaimed CFO was fired for unclear reasons, and then allegations from numerous women of what now might be called Tiger Woods-like activities surfaced (see post here).
• announced that its investment portfolio was hardly immune from the losses prevalent in late 2008 (see post here).
• was sanctioned by the US government in early 2009 for erroneously denying coverage to senior patients who subscribed to its Medicare drug plans (see 2009 post here).
• settled charges that it had used a questionable data-base (built by Ingenix, a subsidiary of ostensible WellPoint competitor UnitedHealth) to determine fees paid to physicians for out-of-network care (see 2009 post here). 
• violated state law more than 700 times over a three-year period by failing to pay medical claims on time and misrepresenting policy provisions to customers, according to the California health insurance commissioner (see 2010 post here).
• exposed confidential data from about 470,000 patients (see 2010 post here) and settled the resulting lawsuit in 2011 (see post here).
• fired a top executive who publicly apologized for the company's excessively high charges (see 2010 post here).
• California Anthem subsidiary was fined for systematically failing to make fair and timely payments to doctors and hospitals (see 2010 post here).
• management was accused of hiding the company's political contributions from the company's own stock-holders (see 2012 posts here and here).

Meanwhile, top hired managers have continued to draw bloated compensation from the company.  For example, as we noted here, current WellPoint CEO Angela Braly got $13.2 million compensation, and received an additional $6.9 million from newly vested restricted stock units in 2011, despite falling company earnings.

Summary: A Company Too Big to Manage Except to Enrich Its Executives

Thus, we have seen an amazing string of incidents suggesting that company leadership has consistently put short-term revenues, and the resulting exaggerated management compensation, before stock-holders' interests, and before patients' interests.  Yet this pattern, so plain above, has largely not been assembled from its component pieces in public other than on Health Care Renewal.  Lack of perception of this pattern may explain why this incredible compilation of ethical missteps has failed to generate any calls for massive revisions in how this company is lead and governed, or perhaps calls to dismantle such a large for-profit company as unmanageable except as a source of nearly unlimited dollars for the enrichment of its top insiders.

True health care reform would require the leaders of health care organizations to uphold the health care mission ahead of their own self-interest, and to be accountable to the organizations' owners, when they exist, and to patients and the public at large.

A Camel Through the Eye of a Needle - at Non-Profit Health Insurers

It is time to drag out that well-worn phrase,...  sometimes you just cannot make this stuff up. 

Recently, the New York Post reported about executive compensation at some non-profit health maintenance organizations/ health insurance companies in New York.  To wit,

FidelisCare

At one Catholic-run health insurer for the needy, charity starts in the executive suite.

Mark Lane, the CEO of the Fidelis Care/New York State Catholic Health Plan, receives a $1.1 million salary plus another $864,000 in retirement pension and other benefits, The Post has learned.


His total compensation comes to nearly $2 million.

Fidelis is a tax-exempt, not-for-profit HMO serving 750,000 patients throughout the city and state who mostly qualify for Medicaid, the public insurance program for the needy. That means nearly all of Fidelis’ revenues come from taxpayers.

Meanwhile Fidelis’ executive vice president and chief operating officer, the Rev. Patrick Frawley, an ordained Catholic priest, is paid $587,249.


Frawley received more than $900,000 in other retirement and deferred benefits — raising his total compensation to $1.54 million, according to IRS filings.

That’s a lot of pennies from heaven.

'It’s shocking to me,' said a source familiar with Catholic health charities.

Amazingly, the justification that was trotted out in this case was just of the "our CEO is brilliant" variety, but in this case, provided by a Bishop:

Fidelis defended the salaries of its top officers, who oversee a $3 billion operation.

Bishop Joseph Sullivan, a member of Fidelis’ board of trustees who formerly served as chairman, called the compensation 'generous but fair.'


He said the goal is for salaries to be at the '75th percentile' of rivals.


“Our ability to continue to grow is based on the quality of leadership. You get what you pay for. Lane and Father Frawley are worth every penny,” Sullivan said.

Fidelis also issued a statement explaining that Frawley, after serving in pastoral roles for 25 years, was granted release from his priestly assignment to pursue a career in health care.

So much for a vow of poverty, even at a non-profit providing health care mainly to the poor.

EmblemHealth

On the other hand, executives of secular, but still non-profit health insurers do even better,

Anthony Watson, CEO of EmblemHealth, gets a compensation package of $8.5 million — about half in salary and bonuses and the rest in retirement and deferred benefits, according to IRS filings.

Two other EmblemHealth executives also snagged multimillion-dollar compensation packages.

Summary

We have noted before how the "peer benchmarking process," setting executive (but not necessarily other) compensation based on a comparison with compensation at other, often highly selected organizations, coupled with the "Lake Wobegone Effect," the belief that one's own executives are always above average, will lead to inexorable rises in executive pay, regardless of performance, or whatever else is going on in the world. The Bishop's assertion that Fidelis' executive compensation should be at the seventy-fifth percentile, because of the "quality of leadership," not further described, is a perfect example of these phenomena.

It is striking to see these phenomena at a non-profit organization whose mission is:

to ensure that every resident, regardless of income, age, religion, gender, or ethnic background, has access to quality health care, provided with dignity and respect.

So, ad infinitum, I repeat.... health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.

If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.