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?  

The Terribly Difficult Things Health Care CEOs Must Do to Make the Big Bucks: Back-to-Back Meetings, Complicated Schedules, Fatiguing Driving?!

On Health Care Renewal, we have been decrying American health care dysfunction since 2004 (look here).  For years, the US consistently has had the most expensive health care system of any developed country.  For that exhorbitant price, it provides at best medicocre access to and quality of care.

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.  So what do health care CEOs have to do to make so much money?

The Hardest Part of CEOs' Days

A recent post in Beckers Hospital Review discussing what "the brightest executives in the healthcare industry" think are the hardest parts of their days.  Here is the summary, edited for brevity:

1. Andrew Agwunobi, MD, CEO UConn Health (Farmington, Conn.): 'when we lose, or are facing the possible loss of good talent.'

2. Wael Barsoum, MD, CEO of Cleveland Clinic Florida (Weston): 'if I hear about an issue that came up with a patient where they felt like we could've done better. It is hard to read letters that said we didn't do something up to their expectations.... these reports and issues are very rare' 

3. David Dill, CEO of LifePoint Health (Brentwood, Tenn.): 'shaking the nagging feeling that I didn't get everything done that I need to, mainly because I didn't mark 10 things off a list like I used to'

4. Suresh Gunasekaran, CEO of University of Iowa Hospitals & Clinics (Iowa City): 'We hold ourselves to a very high standard ...  sometimes, very rarely, we don't hit that standard.... I take a lot of personal responsibility for those failures

5. Tom Jackiewicz, CEO of Keck Medicine (Los Angeles): 'Since it takes awhile to get on my calendar, I need to ensure I am managing my own emotions to maintain my focus so everyone gets the attention they deserve'

6. Dr. Divya Joshi, CEO of OSF HealthCare's Children's Service Line (Peoria, Ill.): 'when an initiative gets stuck and is unable to move forward because there are so many people involved or options to pursue....  Beyond that, I would say when I don't have the answer to something.'

7. Ketul Patel, CEO of CHI Franciscan (Tacoma, Wash.): 'days full of meetings that are back-to-back'

8. Chris Van Gorder, CEO of Scripps Health (San Diego): 'there are bad things that happen occasionally. That burden falls on me.... when something happens to a patient that shouldn't have happened or if one of my employees is attacked by a patient, those days are difficult'

9. Prathibha Varkey, CEO of Yale New Haven (Conn.): Health's Northeast Medical Group. 'driving between the different practices,... driving can be physically exhausting'

10. Kevin Vermeer, CEO of UnityPoint Health (West Des Moines, Iowa) 'when I must make tough decisions that impact people's lives'

11.Andrea Walsh, CEO of HealthP artners (Bloomington, Minn.). 'juggling priorities on my calendar'

12. Jeff Welch, CEO of Florida Medical Center and Tenet's Miami-Dade Group (Fort Lauderdale, Fla.): 'making sure that everything our organization does is for the betterment of the patient and the community'

13. Albert Wright, PharmD, CEO of WVU Hospitals and WVU Health System (Morgantown, W.Va.): 'it's just keeping everybody rowing in the same direction. The other challenge is that we've been on this huge growth boom ... .Trying to keep up with the growth has been a challenge because you want to help others and save some of these challenged hospitals, but you have to grow at a pace that is safe and people can keep up with'

Things are tough all over.  As a physician, I am unimpressed.  I do realize that some of the lists above included vague references to "bad things that happen," "issues that come up," not hitting a "standard," making "tough decisions," etc.  However, without further detail, I wonder if these refer to anything  comparable to the urgent  issues and decisions that doctors and nurses can face on any given day?

Many of the issues cited with more specificity seem trivial, to be charitable.  So the hardest part of being a CEO could be not completing your daily to-do list; attending back-to-back meetings; trying to focus on people with whom you meet; driving around a lot; or juggling calendar priorities?

These are not exactly the sort of hardship postings that seem to demand lavish compensation.



The Money They Make

Yet we have noted that CEOs do get lavish compensation.  The CEOs above who complained of the most trivial hardships, who have to wrestle with busy schedules, multiple meetings, and heavy traffic etc are often paid ... millions.  Consider the following examples, which are  based on the most recent compensation data I could find:

David Dill, whose worst day would be one in which he did not check off his to-do list, is in line for a $25 million dollar plus golden parachute (look here).  According to Salary.com, his total compensation in 2017 was $5,372,271. It may be higher now.

Tom Jackiewicz, whose worst day would be one in which he had to manage his emotions to focus on people with whom he was meeting, had a total compensation of $2,322,895 reported on the USC 2019 form 990.

Prathibha Varkey, whose worst day involved a lot of driving, made $187,024 reportable compensation from Yale New Haven Health Services Corporation, $748,096 reportable compensation from related organizations, and $226,128 other compensation, totaling $1,161,248 according to the Yale Health Service Corporation form 990 from 2019 via ProPublica.

Andrea Walsh, whose worst day was one in which she had to juggle priorities on her calendar, made $1,085,956 as Executive Vice President for Marketing in 2017, the last year for which full 990 data is available from HealthPartners via ProPublica.  Her current compensation is likely more.

The things you have to do to bring in those big bucks.

For Comparison, The Hardest Parts of Physicians' Days
 
So let's see... in my clinical career as an academic general internist, I faced 100 hour work weeks as an intern.  From internship through my career as a hospital-based educator, I had to cope with numerous life-threatening medical emergencies, numerous acute situations in which bad decisions could lead to patients unnecessarily dying or ending up disabled or chronically ill.  I had to tell patients they had incurable illnesses, and console the family those who were dying.  Furthermore, many other doctors have had more difficult lives.  Think about what trauma surgeons do every day, just for one example.

I am sure my colleagues in nursing could come up with their own harrowing lists.


On a personal level, there were many times I would have given anything for a day when the worst problem I had to encounter was a full schedule, boring meetings, or being stuck in traffic.


So tell me again why hospital CEOs make the big bucks, often much bigger than those made by health care professionals in the same institution?

Summary

Inflated executive compensation in health care is rarely challenged, but when it is, the responses are formulaic.  Justifications are usually made by public relations flacks who are accountable to these executives, or the executives' cronies on their boards of trustees.  As I wrote in 2015,  and in May, 2016,  It seems nearly every attempt made to defend the outsize compensation given hospital and health system executives involves the same arguments, thus suggesting they were authored as public relations talking points. Additional examples appear here, here here, here, here, and here, here and here. 

The talking points are:
- We have to pay competitive rates
- We have to pay enough to retain at least competent executives, given how hard it is to be an executive
- Our executives are not merely competitive, but brilliant (and have to be to do such a difficult job).

Yet the examples above suggest that the work of a top health care manager hardly is as difficult as that of a health care professional.  And as we have discussed, these talking points are otherwise easily debunked.  But that certainly has not stopped executive compensation from rising year after year. 

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.

Exalted pay of hospital managers occurred after managers largely supplanted health care professionals as leaders of health care organizations.  This is part of a societal wave of "managerialism."  Most organizations are now run by generic managers, rather than people familiar with the particulars of the organizations' work. 

That CEOs would view the minor travails of bureaucratic life as so significant suggests how deep they are within their managerialist bubbles, and how little they understand and relate to what their organizations actually are supposed to do, provide health care on the ground to real patients. 

Rather than putting patient care first, paying generic managers enough to make them rich now seems to be the leading goal of hospitals. I postulate that managerialism is a major reason the US health care system costs much more than that of any other developed country, while providing mediocre access and health care quality.

Improving the situation might first require changing regulation of executive compensation practices in hospitals, improving its oversight, and making hospital boards of trustees more accountable.  But that would be just a few small steps in the right direction

True health care reform might require something more revolutionary, the reversal of the managers' coup d'etat, returning leadership of health care to health care professionals who actually care about patients and put their and the public's health first, ahead of their personal gain.  Of course, that might not be possible without a societal revolution to separate managers from the levers of power in government, industry, and non-profit organizations. Remember the most salient example of managerialism now for most people in the US is a an executive with a Wharton business degree as the President of the United States.

Another Echo of the Fall of the House of AHERF: Hahnemann University Hospital to Close Its Doors, Stranding Patients, Leaving Trainees without an Educational Site, and Leaving Staff and Health Care Professionals Unemployed

Those who cannot remember the past are condemned to repeat it. [George Santayana]

The impending closure of a big teaching hospital in Philadelphia did not get much national attention, but should have.

The Closing of Hahnemann University Hospital

On June 26, 2019, the Philadelphia Inquirer reported:

Hahnemann University Hospital will close in early September, with the wind-down of services at the 496-bed facility starting immediately, hospital officials said Wednesday.

Officials representing American Academic Health System LLC, which bought Hahnemann and St. Christopher’s Hospital for Children early last year for $170 million, said the closing 'on or about Sept. 6' would be orderly.

The closure would likely have big impacts on health care and medical education in Philadelphia, and on health care professionals and other hospital workers.  The article quoted the president of the Pennsylvania Association of Satff Nurses and Allied Professionals:

Hahnemann is a safety-net hospital that for decades has provided care to an under-served community,

Oddly enough, I could not find much more in the media about projected impacts on patients.  A July 2 Philadelphia Inquirer article stated

Hahnemann University Hospital’s pending closure and immediate move to turn away critically ill emergency patients threatens a safety net that has served close to 150 emergency room patients a day — many of them poor minorities who rely on the hospital for even primary care.

Close to half of the people admitted to Hahnemann were on Medicaid and two-thirds are black or Latino, according to an Inquirer analysis of state inpatient billing data.

Also,

Hahnemann had 17,000 inpatient stays and 53,000 emergency room visits in 2017, making it the eighth-busiest E.R. in the city, according to state Department of Health statistics.

The plight of the hospital's current house staff got a bit more attention.  An Inquirer article on July 3, stated,

The impending closure of Hahnemann University Hospital is forcing about 570 residents who work at the Center City institution to find a new place to continue their training.

Also,

Hahnemann’s closure is causing 'the largest orphaning of medical residents in the history of the United States,' Drexel University said in a Philadelphia Court of Common Pleas lawsuit against Hahnemann and its corporate parents. Drexel handles the educational side of Hahnemann’s residency programs.

And then there were the other employees of the hospital to think about.  An NBC10 Philadelphia article on June 26 included,

The closure would leave around 800 union nurses, said the union, which represents around 8,500 nurses across the state.

In addition,

The nurses are among about 2,500 employees that PAHS says are employed at the medical center.

A major teaching hospital will close, abandoning many poor and vulnerable patients, orphaning 570 house-staff and leaving about 800 nurses and about 1700 other staff unemployed, and the national media take no notice?  The numbness is striking.


Reactions to the Bankruptcy of Hahnemann

Also, in my humble opinion, the reactions to the impending bankruptcy were somewhat muted even in the local media.

The media did feature some complacent reactions from local health care experts with ties to other competing hospital systems or to  for-profit hospital management who seemed confident that everything would work out.  For example, from the June 26 Inquirer article:

But with more hospital beds per capita than many urban areas, Philadelphia is better equipped to handle the impact of a closure than many places, said Stuart H. Fine, an associate professor in Temple University’s College of Public Health.

'Philadelphia is fortunate to have enough hospital beds for the city’s needs, even if Hahnemann closes,' he said. 'I’m not minimizing the impact of this closure on those patients who live right by Hahnemann, rely upon it for their care, and will have difficulty traveling to other locations.'

The article, though, failed to mention that Mr Fine, per his bio on the Temple website, is a former hospital manager with a health administration, but not a public health or medical background, viz:

After having served as a health system CEO for more than 30 years, Dr. Stuart H. Fine joined the faculty of Temple University in 2014 as Associate Professor & Director of Programs in Healthcare Management for the Fox School of Business.

A few public relations people from other local hospitals seemed pleased about getting some of Hahnemann's business, but I could find no opinions from actual public health experts.

On the other hand, there was outrage from unionized employees (look here for an account of a small public protest by union members.)

The Governor of Pennsylvania and the Mayor of Philadelphia, both Democrats, issued a statement saying

We continue to stand in solidarity with the workers, patients and community. For months, the commonwealth and city have been working aggressively to protect patient care at Hahnemann and find solutions to maintain current medical services at the hospital,

However, they did not propose very strong action

While it is clear that the hospital’s current operation is no longer financially viable, we are both committed to working with potential investors to find support for the restructuring of Hahnemann and for protecting St. Christopher’s Hospital for Children

Note that they did not seem to question the notion that any continuation of Hahnemann would have to be as a for-profit corporate entity funded by "investors."

The American Association of Medical Colleges put an informational article on its website, featuring an interview with Janis Orlowski, MD, AAMC chief health care officer. However, the article only discussed the nuts and bolts of how Hahnemann housestaff might go about trying to find new positions.  There was no hint of outrage, and nothing about anything the AAMC might do beyond that.

The only discussion about the bankruptcy beyond the Philadelphia area that I could find came from presidential candidate Sen Bernie Sanders (D-VT), who was quoted in Politco a few days after the bankruptcy announcement:

'The business model of America’s current health care system is not about healing people or providing access to medical care — it is about making as much money as possible for insurance companies, drug companies and wealthy investors,' the Democratic presidential candidate said.

'The situation in Philadelphia illustrates the entire problem: In a city with one of the highest poverty rates in the country, a major hospital serving low-income communities is on the verge of laying off 2,500 people, abandoning 500 medical residents, and closing its operations thanks to an investment firm looking to make as much money as possible in a corporate fire sale.'

The Vermont senator added that he stood in solidarity with the nurses and others who are fighting to keep the hospital 'from being destroyed by Joel Freedman and his investment firm' and reiterated his call for 'Medicare for All.'

Per the Inquirer, again, Sen Sanders is also planning a rally for July 15, and plans "to call for Philadelphia, state and federal officials to find a way to keep Hahnemann open."

A major teaching hospital will close, abandoning many poor and vulnerable patients, orphaning 570 house-staff and leaving about 800 nurses and about 1700 other staff unemployed, and there is no national outrage, particularly from health care professionals?  The learned helplessness is striking.


Finally, lacking in what reporting there has been, however, is much explanation for why a big teaching hospital is coming to such a sudden, and ignominous end, particularly, since in a sense it has all been done before.  One gets the impression of deep seated ennui.


A Very Late Echo of the Fall of the House of AHERF

There might be a reason for that.  It has all been done before.

The June 26, Inquirer article did mention, somewhat as an aside:

Hahnemann, which traces its roots to a homeopathic medical college opened in 1848, has been through a tumultuous era dating to at least 1993, when Allegheny Health, Education, and Research Foundation acquired it as part of rapid expansion that led in 1998 to what was then the nation’s largest nonprofit health-care bankruptcy.

Tenet Healthcare Corp. bought Hahnemann and eight other Allegheny hospitals in the Philadelphia region but quickly scaled back, hanging on to just Hahnemann and St. Christopher’s, which were frequently the subject of sales negotiations that failed until Freedman decided to leap across the country from his Southern California base.

The Freedman to which this refers is one Joel Freedman, president and founder of American Academic Health Systems LLC, the last for-profit firm to own the hospital.

So Hahnemann and one other hospital were already the only survivors of the eight hospitals Tenet bought in 1998?  I could find a 2017 article that stated that all other hospitals it owned in Philadelphai were either sold or closed by then.  One hospital it sold, the Graduate Hospital, was converted into a long term care facility (look here). The fate of the other six hospitals seems anechoic. 

However, the lassitude greeting the demise of the last remaining hospitals was foreshadowed by the story of Tenet's precursor in the Philadelphia "market," the Allegheny Health, Education and Research Foundation (AHERF) whose demise has been much discussed on our humble blog as a harbinger of the dysfunction that would afflict US health care.

As we noted in 2008 (and discussed most recently in 2013 here), although the AHERF bankruptcy appears to be the largest failure of a not-for-profit health care corporation in US history, its story has produced remarkably few echoes for doctors, other health care professionals, health care researchers, and health policy makers. I often use the fall of AHERF as major example in talks, at least the few talks I am allowed to give on such unpleasant subjects. Rarely have more than a few people in the audience heard of AHERF prior to my discussion of it. I only could locate one article in a medical or health care journal that discussed the case in detail, albeit incompletely since it was written before Abdelhak's guilty plea [Burns LR, Cacciamani J, Clement J, Aquino W. The fall of the house of AHERF: the Allegheny bankruptcy. Health Aff (Millwood) 2000; 19: 7-41.] I doubt the case is used for teaching in most medical or public health schools. The lack of discussion of such a significant case is a prime example of the anechoic effect.

Some of the important points of this case will sound familiar  (see also this narrative, starting on page 5):

• AHERF, one of the largest health care systems of its day, was built by the poster-boy for health care imperial CEOs, Sherif Abdelhak.
• Abdelhak, who started as food services purchasing manager at Allegeheny General Hospital, was repeatedly hailed as a "visionary" (in the March, 1997, ACP Observer) a "genius," and the like. His plans to create a huge integrated health care system were part of the wave of the future. Abdelhak was even invited to give the prestigious John D Cooper lecture at the annual meeting of the American Association of Medical Colleges (AAMC), which was published in Academic Medicine [Abdelhak SS. How one academic health center is successfully facing the future. Acad Med 1996; 71: 329-336.] He proclaimed that "we will need to create new forms of organization that are more flexible, more adaptive, and more agile than ever before." And he announced that "my aim as chief executive has been to unleash the creativity and productive potential of every individual and to provide an environment that encourages teamwork"
• While Abdelhak was making these grandiose promises, he paid himself and his associates very well. For example, he received $1.2 million in the mid-1990s, more than three times the average then for a hospital system CEO. He lived in a hospital supplied mansion worth almost $900,000 in 1989. Five of AHERF's top executives were in the top 10 best paid hospital executives in Philadelphia.
• Although Abdelhak talked of teamwork, he warned the combined faculty of the new Allegheny University of the Health Sciences (AUHS): "Don’t cross me or you will live to regret it."
• As AHERF was hemorrhaging money, Abdelhak continued to pay himself and his cronies lavishly.
• After the AHERF bankruptcy, which was at the time the second largest bankruptcy recorded in the US, Abdelhak was charged with numerous felonies involving receiving charitable assets. In a plea bargain, he pleaded no contest to misusing charitable funds, a misdemeanor, and was sentenced to more than 11 months in county prison.

Note that at its peak, AHERF had 14 hospital in its network.  After its bankrupcy, it transferred 8 hospitals, including Hahnemann and the Medical College of Pennsylvania teaching hospital to Tenet.  In 2003 Tenet closed MCP (look here).  Tenet is a for-profit hospital system with its own history of bad behavior (look here).  So out of a 14 hospital network ultimately only one, not Hahnemann apparently will survive.

However, few people, even in Philadelphia seem to remember that history, and therefore seem to have drawn lessons from it.  However, had they, perhaps they would have concluded, as we asserted in 2013,

The story of AHERF is not merely that of an unlucky bankruptcy. It shows what can go wrong when health care is taken over by generic managers who adapt the latest management fads, and health care decision making is ruled by marketing, public relations and propaganda instead of evidence and logic, and allows power to be concentrated in organizations run by imperial CEOs.  We did not get a chance to learn this history, so we seem bound to repeat it.

And as we asserted in 2011, 

Saving health care will take clear thinking and hard work by a lot of people. The "visionaries," if we let them, are likely to depart with a huge cache of money, leaving us and health care worse off. If it is just "not done" to talk about cases such as that of AHERF, and other examples of "recent unpleasantness," how will be learn not to fall for the propaganda?

Of course, it is those who benefit from the propaganda who do not want us catching on to their game.

If physicians, health professionals, health care researchers, and health policy makers do not learn the lessons of the fall of AHERF, and now the fall of one of its two surviving hospital components, they will be doomed to see its endless repetitions, throughout the land.

With apologies to the Bare Naked Ladies - "it's all been done before"

A $1.7 Million/ Year CEO of a Safety Net Hospital - Alleged to Have Hired a Dangerous Surgeon, Paid Unethical Bonuses, and Associated with Organized Crime

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, most recently including a collection of generously compensated top executives of non-profit hospital systems whose pay seemed disproportionate to their personal achievement, and unrelated to their hospitals' clinical outcomes or quality of care.

Such cases, with their recitations of monetary amounts and repeated public relations talking points, can be rather dry.  So this week we present another case which is a bit more colorful.


The Reliably High Pay of the CEO of Bronx-Lebanon Hospital

The CEO of the Bronx-Lebanon Hospital in New York City has long been criticized for receiving millions from a hospital which mainly serves the poor.

In 2009, the New York Post published an article entitled "Sickening Bonuses" about how

hospital presidents and CEOs ... collect fat bonuses and 'incentive payments,' even as health-care systems cry poverty,...

In particular it noted that presumably pre the 2008 global financial crisis:

A $1.2 million bonus went to Miguel Fuentes Jr., CEO of the 958-bed Bronx-Lebanon Hospital. His $4.8 million package included $878,024 in salary and an $858,000 pre-retirement payout. He’s also set to get $1.8 million in retirement cash next year.

In 2013, after the great recession, the New York World reported on a measure proposed by New York Governor Andrew Cuomo to cap salaries at hospitals that receive significant amounts of money from Medicaid.  It stated:

The hospitals that will be targeted by Cuomo’s salary cap sit in poorer neighborhoods and serve large volumes of patients who depend on Medicaid. They include Bronx-Lebanon Hospital Center,...

At that time it was known that Mr Fuentes still was making a lot of money, although less than before:

Bronx-Lebanon Hospital Center ... President and CEO Miguel Fuentes made more than $1.7 million in 2011, according to tax records....

In 2014, Modern Healthcare published an article that questioned whether hospital CEO pay was justified by their or their hospitals' performance.  In particular, it quoted a JAMA Internal Medicine article that:

found no association between CEO pay and very important benchmarks, including a hospital's 'margins, liquidity, capitalization, occupancy rates, mortality rates, readmission rates, or measures of community benefit.'

Researchers found wide variation in what trustees chose to pay the CEOs of their not-for-profit hospitals.

It also noted

One community hospital is a perennial on the list [of those with highly paid executives]. Bronx-Lebanon Hospital Center's Miguel Fuentes Jr. has spent decades at his institution, and arguably needs no retention pay. His $1.8 million package includes about $200,000 in a supplemental retirement plan payment.

So what does a CEO have to do to earn millions at a safety-net hospital? Hospital boards and public relations officials often justify high CEO with standard talking points: their CEOs are brilliant, and such brilliant people must be paid well to be recruited and retained (look here).  However, I found no published record of any attempt to probe justifications for this particular CEO's pay.  Mr Fuentes does seem to have won an award from the local YMCA for "outstanding leadership" (look here).   In a 2015 news release about an affiliation between the Mount Sinai Health System and Bronx-Lebanon, the hospital was described as

a remarkable institution that has shown leadership through its commitment to delivering high quality care to patients and the communities in the Bronx

But I could not find anything in public about the particulars of this outstanding leadership.

Allegations of Organized Crime Ties

On the other hand, in June, 2017, the New York Post published two articles suggesting that Mr Fuentes' leadership might be a bit more dubious than advertised above.

The first article, published June 4, 2017, included allegations of shady dealings between the hospital and organized crime:

The mob turned taxpayer-backed Bronx-Lebanon Hospital expansion into its own piggy bank.

Construction expenses at the hospital’s new nine-story outpatient center ballooned by some $5 million — with cash allegedly ending up in the pockets of the Lucchese crime family and hospital executives, The Post has learned.

Lucchese underboss Steven 'Wonder Boy' Crea Sr. and associate Joseph Venice were charged with wire and mail fraud in connection with the project at 'a major New York City hospital,' according to a federal indictment unsealed last week in a major mob takedown. But the document didn’t identify the hospital or reveal the scheme’s dirty details.

No Bronx-Lebanon executives were named in the indictment, but the federal probe, which began four years ago, is ongoing, and focused on hospital honchos whose palms may have been greased.

Crea, 69, had close ties to Sparrow Construction, the Bronx firm in charge of building the $42 million annex at Bronx-Lebanon. He was a regular visitor to the firm’s offices while the center was under construction, a source told The Post.

Crea worked for Sparrow before he was busted in a 2000 state racketeering case. At that time, he was considered the acting boss of the Luccheses.

Work began on the outpatient center in 2009 and was supposed to take 19 months. But the Health and Wellness Center wasn’t finished until 2014 and was plagued with cost overruns.

Sparrow was the general contractor and billed the hospital $26 million for only $21 million worth of work, sources told The Post.

The heating and ventilation system cost $2.3 million to install. Yet 'the hospital still paid somebody $5 million' for it, the source said.

The alleged scheme was carried out through falsified invoices and change orders, the source said.

'The hospital didn’t question one change order,' the source said.

The bulk of the project was paid for through the sale of $36 million in state Dormitory Authority bonds. The hospital is paying back the Dormitory Authority over 25 years.

At the end of the article we found that Mr Fuentes' compensation has remained large, and stable.

Longtime CEO Miguel Fuentes’ total compensation came to $1.7 million in 2015, according to its latest tax filings.

But it added that he has had a lifestyle to match:

Fuentes lives a luxury lifestyle with a condominium on the Upper East Side and a Southampton retreat with a pool.

Allegations of Unethical Conduct to Enhance Revenue

A second article published June 24, 2017, raised further questions about Mr Fuentes' management.  First, it questioned his direct appointment of a chief of orthopedic surgery.

Hospital CEO Miguel Fuentes hired [Dr Ira] Kirschenbaum as a division chief without consulting Dr. John Cosgrove, who was then chief of surgery and would have overseen him, Cosgrove told The Post.

Cosgrove said he did not have a chance to vet Kirschenbaum.

The article suggested  that Dr Kirschenbaum was hired to push "moneymaking surgeries such as hip and knee replacements."  

However,

The hospital lavished six-figure bonuses to its chief of orthopedics, Dr. Ira Kirschenbaum, despite brass being told of four deaths after he arrived in 2008 and about others patients who suffered serious complications, according to sources.

Kirschenbaum received a $314,210 bonus in 2014 and a $180,940 bonus in 2015, according to Bronx-Lebanon’s tax filings. The extra pay came on top of his $851,000 salary.

Seven hospital employees, who identified themselves as doctors, nurses and technicians, sent The Post a copy of a letter they said they presented to a state medical disciplinary panel to complain about patients more recently injured under Kirschenbaum’s care — including one who allegedly lost a leg.

The letter was sent anonymously, and the state Health Department would not comment on any complaints to the Office of Professional Medical Conduct.

Furthermore, Dr Cosgrove, who appears to have become a whistleblower, alleged dodgy payments to hospital employed physicians at the behest of Mr Fuentes, apparently to increase patient volume.

Cosgrove also said he saw another troubling practice at the hospital: bonus payments of up to $60 paid to doctors for each visit made to the institution’s clinics — in order to tout that it treated 1 million patients annually. The hospital realized that number in 2012, according to the MD.

'Seeing a patient in the clinic is your obligation as a hospital physician and that should not be incentivized,' Cosgrove said. 'Mr. Fuentes said at many meetings he wanted to hit a million-visit mark at their 55-or-so outpatient clinics.'

Doctors were already paid salaries by Bronx-Lebanon, and the clinic bounties came from the Medicaid reimbursements, according to Cosgrove.

Such an incentive system was ripe for abuse because it could entice doctors to schedule additional, and possibly unnecessary, visits, he said.

'It’s really counter to what we as doctors stand for,' said Cosgrove, who left the hospital in 2013 and is now chief of surgery at Eastern Long Island Hospital.

Finally,the article reiterated Mr Fuentes' total compensation of $1.7 million in 2017, but added that

He has a car and a driver — and a source described a $20,000 glass-and-tile shower for his office bathroom. The shower was removed because of concerns over how such an amenity might appear, the source said.

Yet,

Fred Miller, a hospital lawyer, said Bronx-Lebanon doctors were not paid clinic bonuses, only salaries, and that compensation was 'consistent with Medicare/Medicaid principles.'

Miller acknowledged that a shower had been installed, but called it 'modest' and disputed its cost.

Summary

So the CEO of Bronx-Lebanon Hospital has been paid more than a million a year since at least 2008 (and much more than that in 2008 before the great recession), without any apparent public explanation for this pay, and particularly without any apparent attempts to  justify it based on quality of care or clinical outcomes.  Yet recently there have been allegations that the CEO was directly involved with efforts to increase revenue regardless of ethical or patient safety concerns.  Worse, there have also been allegations that organized crime has been allowed to create a "piggy bank" out of the hospital, perhaps in ways also benefiting top executives, although none of this has been proven in a court of law.

Nonetheless, it seems that high executive pay in health care, particularly at non-profit institutions serving the poor, should be justified by more than lack of proof that the executives broke the law. In fact, how could anyone justify paying the CEO of a non-profit hospital that primarily serves the poor using government money unless that person had a sterling record of accomplishment promoting the quality of clinical care at his or her institution, accompanied by integrity and accountability?

Instead, we get questions of mob influence and $20,000 showers.

So here we go again....

We will not make any progress reducing current health care dysfunction if we cannot have an honest conversation about what causes it and who profits from it.  True health care reform requires publicizing who benefits most from the current dysfunction, and how and why.  But it is painfully obvious that the people who have gotten so rich from the current status quo will use every tool at their disposal, paying for them with the money they have extracted from patients and taxpayers, to defend their position.  It will take grit, persistence, and courage to persevere in the cause of better health for patients and the public. 

Follow the Money: Non-Profit Hospital CEOs Quietly Collect Their Millions While US Health Care Reform Battle Rages

In Washington, DC the health care policy wars continue, with a few Republican senators working behind closed doors on a bill to "repeal and replace" Obamacare, aka the Affordable Care Act, and Democrats decrying their secrecy.  Just as during the era in which Obamacare was enacted, there is constant discusison of how US health care costs continually rise, driving up insurance premiums, and how access to health insurance is continually in peril.

However, while the current Republican process to write new legislation seems strikingly opaque, in neither era has there been a frank discussion of why US health care costs are so amazingly high, and disproportionate to our mediocre health care outcomes. In particular, there has hardly been any discussion of just who benefits from the rising costs, and how their growing wealth may impede any real cost-cutting measures.

Extreme Compensation for Top Managers of Non-Profit Hospitals

An obvious example is the gravity defying pay given to top health care managers, particularly the top managers of non-profit hospital systems.

Such systems provide much of the hospital care to Americans, and most have declared their missions to be providing the best possible care to all patients, or words to that effect.  Many explicitly include care of the poor, unfortunate and vulnerable as a major part of their missions.  As non-profit organizations, their devotion of mission provides some rationale to their freedom from responsibility for federal taxes.

As we last discussed in detail in May, 2016, we have suggested that the ability of top managers to command ever increasing pay uncorrelated with their organizations' contributions to patients' or the public's health, and often despite major organizational shortcomings indicates fundamental structural problems with US health, and provides perverse incentives for these managers to defend the current system, no matter how bad its dysfunction.

In particular, we have written a series of posts about the lack of logical justification for huge executive  compensation by non-profit hospitals and hospital systems.  When journalists inquire why the pay of a particular leader is so high, the leader, his or her public relations spokespeople, or hospital trustees can be relied on to cite the same now hackneyed talking points.

As I wrote in 2015,  and in May, 2016,

It seems nearly every attempt made to defend the outsize compensation given hospital and health system executives involves the same arguments, thus suggesting they are talking points, possibly crafted as a public relations ploy. We first listed the talking points here, and then provided additional examples of their use. here, here here, here, here, and here, here and here. 

They are:
- We have to pay competitive rates
- We have to pay enough to retain at least competent executives, given how hard it is to be an executive
- Our executives are not merely competitive, but brilliant (and have to be to do such a difficult job).

Yet as we discussed recently, these talking points are easily debunked.  Additionally, rarely do those who mouth the talking points in support of a particular leader provide any evidence to support their applicability to that leader.

But since May, 2016, we have steadily accumulated more stories about million-dollar plus pay for CEOs and other top managers of non-profit hospitals and hospital systems.  The reports may be shorter than they used to be, as journalism comes under economic and other attack, and as more journalistic resources go to cover the current president.  Here are some examples, in chronologic order per the date of the published article, rather telegraphically.

Examples of High Executive Pay

Boston, Massachusetts area, August, 2016 (Per the Boston Business Journal)

Brigham and Women's Hospital CEO Dr Elizabeth Nabel, total compensation $5.5 million in 2014, 20% higher than 2013.  Talking points =  brilliant: "committed to retaining a team of top professionals," per Edward Lawrence, Chair, Partners Board of Trustees

Tufts Medical CEO Dr Michael Wagner, $1.1 million, 82% increase.

UMass Memorial Medical Center CEO Dr Eric Dickson, $1.6 million, 74% increase, Patrick Muldoon, President UMass Memorial Center's biggest hospital, $1.2 million, 67% increase

West New York State, August, 2016 (Per the Buffalo News)

Catholic Health System CEO Joseph D McDonald, $1.4 million.

Roswell Park Cancer Institute CEO Candace S Johnson, $1 million

Kaleida Health CEO Jody L Lomeo, $1 million:

Talking points = brilliant "few executives have the required skill set and experience to fill these posts"

New Jersey, September, 2016 (Per NJ Advance Media)

Top 10 hospital CEOs received total compensation from $1.94 million to $4.7 million

New Orleans, Lousisiana, September, 2016 (Per the Times-Picayune)

Ochsner Health System former CEO and board chair Dr Patrick Quinlan, $3.3 million in 2014, current CEO and board member Warner Thomas, $1.49 million.  Talking points = competitive rates and brilliant: "we must compete nationally to recruit top talent"

Touro Infirmary CEO James Montgomery, $1.3 million

Children's Hospital Inc Chief Medical Officer Alan Robson, $1.26 million

General talking points = competitive rates: "you're looking to attract hospital executives from Californai or New York where they're paid a lot of money"

Gastonia, North Carolina, February, 2017 (Per the Gaston Gazette)

CaroMont CEO Doug Luckett, $1.03 million in 2015.  Talking points = retain and brilliant "paying what it takes to ensure they attract and retain top-level talent that can help provide premiums health care"

Dayton, Ohio, March, 2017 (Per the Dayton Daily News)

Kettering Health System CEO Fred Manchur, $1.65 million in 2015, former president Terri Day, $1.23 million, current president Roy Chew, $1.07 million

Premier Health former CEO James Pancoast, $1.42 milllion (excluding retirement payments) in 2015. Talking points = brilliant "you've got one person at the top who's trying to provide oversight, direction, and strategy.  At the same time, health care continues to grow in scope, complexity, regulation, and compliance."

York County, Pennsylvania, April, 2017 (Per the York Daily Record)

WellSpan Health president Kevin Mosser, $1.6 million in 2014.  Talking points = competitive rates Forrest Brisco, associate professor, Penn State Smeal College of Business, "nonprofit hospitals are competing with for-profit hospitals"; brilliant: "If you are at the top of a health care organization, you're going to have pay that's higher than many members of the organization. The the skill and knowledge to understand and interact with surgeons and physicians can command a high salary" [ed note: which often seems higher than those of some surgeons and physicians, though]; also brilliant: Robert Batory, senior vice-president and chief human resources officer, Wellspan, "Kevin has 24/7 responsibility for Wellspan."

Ephrata Community Hospital (WellSpan subsidiary) CEO  and WellSpan Medical Group (WellSpan subisidiary) CEO  "more than $1 million"

Winston-Salem, North Carolina, May, 2017 (Per the Winston-Salem Journal)

Novant Health Inc CEO Carl Armato, $1.31 million in 2015.  Talking points = retain and brilliant "high compensation levels are necessary to recruit and retain executive to run a 'very complex organization'"

Tri-Cities region, Tennessee and Virginia, June, 2017 (Per WJHL)

Wellmont Health System CEO Bart Hove, $1.4 million in 2015.  Talking points = competitive rates: Wellmont board of trustees chair Roger Leonard, "we have to compete on a national level and we're competing not just with other non-profits, but we're competing with other for-profits"

Mountain States Health Alliance CEO Alan Levine, $1.3 million in 2015. Talking points = competitive rates: HSHA board of trustees chair Barbara Allen, "make sure CEO pay is comparable to similarly sized facilities across the country with similar complexities"; retain and brilliant, "we want to attract the best talent ... and be able to retain him."

Connecticut, June, 2017 (Per the Connecticut Post)

Yale New Haven Health System CEO Marna Borgstrom, $3.8 million in 2015.  Nine other employees paid over $1 million, including Bridgeport Hospital CEO William Jennings, $1.5 million, Greenwich Hospital CEO Norman Roth, $1.3 million.  Talking points = brilliant: Yale senior vice president of public affairs, "Yale New Haven Health is the largest and most complex health system in the state."

Also, a total of 39 people, including the above, received over $1 million in 2016.

General talking points = brilliant: "there are a limited number of executives experienced enough to guide a state-of-the-art hospital and growing healthcare system in an increasingly competitive and complex industry"; competitive rates: "pay and benefits for such executives need to be comparable to what they could receive at another leading national hospital system or another industry"  
  
Summary and Conclusions

The current inflamed discussion of "Obamacare" and Republican attempts to "repeal and replace" it focuses on the costs of care and how they affect individual patients.  Examples include concerns about health insurance premiums that are or could be unaffordable for the typical person; insurance that fails to cover many costs, and thus may leave patients at risk of bankruptcy due to severe illness; poor people unable to or who might become unable to obtain any insurance, and perhaps any health care.  Yet there is little discussion of what really drives high and ever increasing health care costs (while quality of health care remains mediocre).

That may be because those who are benefiting the most from the status quo want to prevent discussion of their role.  There are many such people, but top management of non-profit hospitals provide a ready example.  Their institutions' mission is to provide care to sick patients.  Many such hospitals specifically pledge to provide care to the poor, vulnerable, and disadvantaged.  Non-profit hospitals have no owners or stockholders to whom they owe revenue.

Yet these days the top executives of non-profit hospitals receive enough money to become rich.

See the examples above. 

The justification for such compensation is pretty thin.  Consider the talking points above.  Apparently hospitals are extremely concerned about paying top management enough to recruit and retain them.  Yet there is much less evident concern about paying a lot of money to recruit and retain the health care professionals who actually take care of patients to fulfil the hospitals' mission.  Hospital CEOs are frequently proclaimed to be brilliant, visionaries, or at least incredibly hard workers with very complex jobs.  I wonder if those who make such proclamations have any idea what it takes to be a good physician or a good nurse.  Yet such health care professionals' hard work, long training, devotion to duty, and ability to deal with trying situations and make hard decisions rarely inspire hospitals to shower them with money.

Furthermore, hospital CEO compensation is almost never justified in terms of their ability to uphold and advance the fundamental hospital mission, taking care of sick people.  The articles above do not contain any justifications of generous CEO compensation based on hospitals' clinical performance or health care outcomes.  At best, hospital executive pay seems to be justified by the hospitals' financial, not clinical performance.

So why do non-profit hospital CEOs get paid enough to become rich?  Apparently, because they can.

As we discussed here, there is a strong argument that huge executive compensation is more a function of executives' political influence within the organization than their brilliance or the likelihood they are likely to be fickle and jump ship for even bigger pay.  This influence is partially generated by their control over their institutions' marketers, public relations flacks, and lawyers.  It is partially generated by their control over the make up of the boards of trustees who are supposed to exert governance, especially when these boards are subject to conflicts of interest and  are stacked with hired managers of other organizations.

Furthermore, such pay may provide perverse incentives to grow hospital systems to achieve market domination, raise charges, and increase administrative bloat.  As an op-ed in US News and World Report put it about executive pay in general,

But the executive pay decisions made inside corporate boardrooms have an enormous impact in the outside world. Outrageous pay gives top executives an incentive to behave outrageously. To hit the pay jackpot, they'll do most anything. They'll outsource and downsize and make all sorts of reckless decisions that pump up the short-term corporate bottom line at the expense of long-term prosperity and stability.

So I get to recycle my conclusions from many previous posts....

We will not make any progress reducing current health care dysfunction if we cannot have an honest conversation about what causes it and who profits from it.  In a democracy, we depend on journalists and the news media to provide the information needed to inform such a discussion.  When the news media becomes an outlet for  propaganda in support of the status quo, the anechoic effect is magnified, honest discussion is inhibited, and out democracy is further damaged.

True health care reform requires publicizing who benefits most from the current dysfunction, and how and why.  But it is painfully obvious that the people who have gotten so rich from the current status quo will use every tool at their disposal, paying for them with the money they have extracted from patients and taxpayers, to defend their position.  It will take grit, persistence, and courage to persevere in the cause of better health for patients and the public. 


And for our musical interlude, the beginning of "For the Love of Money," sung by the O'Jays, used in the official intro of season 2 of guess what show?

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

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

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

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

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

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

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

Steward to Sell All its Hospitals, but Keep Running Them

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

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

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

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

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

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

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

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

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

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

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

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

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

Summary - What Happens When Private Equity Owns Hospitals

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

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

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

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

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

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

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


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


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


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

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

As we have said again and again,...

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

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