"Overshadowed by the Large Amount of Money in Play" - Sale of Hahnemann Residency Program as a Financial Asset Approved by Bankruptcy Judge

Introduction: the Bankruptcy of Hahnemann, the Selling of the Residency Program, Including Residents, as an Asset

As we discussed here, the storied Hahnemann University Medical Center was recently declared bankrupt by the private equity firm that bought it.  Staff were left jobless. Patients, including many who were vulnerable or chronically ill, were set adrift. Nearly 600 medical house-staff were set adrift.

The end of the medical center was a long time coming.  It had barely survived the previous bankruptcy of Allegheney Health Education and Research Foundation (AHERF), a nominally non-profit vertically integrated health system led by a charismatic, but ultimately criminal CEO (look here).  Hahnemann then became part of Tenet, a for-profit hospital system with a not always savory reputation (look here for a summary).  Tenet complained of Hahnemann's chronic deficits, although whether these losses were due to creative accounting is unknown.  Tenet eventually sold the hospital to a private equity group, Paladin Healthcare, and made it part of their American Academic Health System LLC. It took Paladin less than two years to decide that the hospital's continued losses were unsustainable and declare it bankrupt.  The rapidity of the hospital's collapse raised the suspicion among some that Paladin had never intended to continue operating the hospital, but bought it only so it could sell off its valuable underlying real estate assets (look here).

The Sale of the Residency Program as an Asset Approved by a Bankruptcy Judge

The fate of the hospital's physician trainees was then left up to a bankruptcy court.  The Paladin Healthcare plan was to auction off the residency program, apparently including its US government funding and its residents, as a financial asset (look here).  On September 5, the Philadelphia Inquirer  reported the results of that plan,

U.S. Bankruptcy Judge Kevin Gross on Thursday approved the sale of Hahnemann University Hospital’s medical residency programs to Thomas Jefferson University Hospitals Inc. for $55 million, a decision criticized as setting a dangerous legal precedent.

The decision was protested by the US government:

The federal regulator, the Centers for Medicare and Medicaid Services (CMS), considers the sale illegal and warned that the bankruptcy judge’s decision could result in residency slots at distressed hospitals being considered as valuable assets available for sale. Arguably, private equity owners could seize on the ruling as a way to increase the return on their investments.

Also,

U.S. Department of Justice Attorney Marc S. Sacks, who represented CMS, asked for a longer-term stay of the ruling, suggesting that Gross’ ruling could inspire struggling rural hospitals to sell resident slots to wealthier areas. 'This could open the door to that nationwide,' Sacks said. 'This is a serious, significant issue with nationwide implications.'

While some of the Hahnemann residents had protested that in some sense, they too were being sold as assets(look here), yet the Inquirer article stressed that was likely not the primary concern of the decision maker in this case

Gross, as a bankruptcy judge primarily concerned with making sure there is as much money as possible available to pay creditors, overruled Sacks, as he did repeatedly while going over details in the order Gross will issue allowing the sale to happen. Gross called the increase in the price for the residency program from an initial $7.5 million bid to $55 million 'a stunning success' for Hahnemann.

It was all about the money

In response to the judge's decision,

'We’re very disappointed to see Jefferson and an unelected bankruptcy judge finish what Joel Freedman started and shutter an important safety-net hospital,' said a spokesperson for the Pennsylvania Association of Staff Nurses and Allied Professionals, which represented 800 Hahnemann nurses. 'We hope the federal government will appeal to prevent this from establishing a truly dangerous precedent.'

The judge's decision may well be appealed by CMS.  Nevertheless, it seems that the Hahnemann residency program for years was tossed on the waves of a commercialized, financialized health care system, caught up in the financial manipulations of an empire-building CEO, sold to a commercial hospital chain, then to a private equity group, and finally sold again by the decisions of a bankruptcy judge whose biggest concern was the price.  Once again,

'It seems that the provision of quality patient care and quality of physician education is being over-shadowed by the large amount of money in play,' said Katharine Van Tassel, a visiting professor of law at Case Western Reserve University in Cleveland.

Summary: How Doctors Came Under the Rule of Money

We have frequently warned of the dangers of an increasingly commercialized health care system.  We noted how Dr Arnold Relman warned in 2007 of the threats arising from "the growing commercialization of the US health care system."(1) This has been abetted by physicians who accept "the view that medical practice is also in essence a business." Thus, "the vast amount of money in the US medical care system and the manifold opportunities for physicians to earn high incomes have made it almost impossible for many to function as true fiduciaries for patients."

Now "the large amount of money in play" seemingly has suceeded in turning one group of trainee physicians and their faculty into financial assets to be manipulated, like some sort of modern-day serfs.  Yet even in the face of such an outrage, the silence was deafening.  Where were the adults in the chambers of medicine?

Particularly quiet were leaders of some of the august organizations that are supposed to uphold the values of medicine and medical education.

A few did make statements sympathizing with the residents and offering them personal help, e.g., here by the AMA, and here by the ABIM.  Apparently, the American Association of Medical Colleges (AAMC) did dispatch "Lauren Macksound, a lawyer" to "advocate on behalf of the residents" in court  (per Bloomberg, July 22, 2019).


However, I could  find no evidence of any statement by such leaders deploring the larger situation, criticizing any of the responsible parties, or more importantly suggesting changes in law, regulation, policies or practices to address underlying causes.  In particular, I found no such statments by leaders of the American Medical Association (AMA), or the American Association of Medical Colleges (AAMC), or, representing my specialty, internal medicine, by leaders of the American Board of Medicine (ABIM), the American Board of Medical Specialties (ABMS), or the American College of Medicine (ACP), or the American College of Cardiology (ACC).

Then again, when AHERF went bankrupt, no major professional society or other group ostensibly devoted to patient welfare, health care education, or physicians' professional values made much of a fuss, much less pushed for new laws, regulations, policies or practices to prevent another such bankruptcy.

There may be many explanations for this silence.  One has to do with the march of neoliberalism, (or market fundamentalism) especially its dogma that:

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

It appears that professional societies have been cowed by neoliberal economists and lawyers who launched campaigns starting in the 1970s to restore the power of huge corporations.  They seemed to take offense at the notion that professional notions of ethics could stand in the way of corporate economic power. So neoliberal economist (and architect of the Viet Nam War body count as a measure of battlefield success) Alain Enthoven advocating breaking up physicians "guilds" to decrease their ostensible economic power, and hand power over to business managers (look here).

Particularly important in the attack on professional self-regulation was an effort to turn anti-trust law on its head.  Writing in ProMarket, Sandeep Vaheesen explained

As conservative attacks on the New Deal gained traction starting in the mid-1970s, antitrust was an early target. Corporate executives resented how antitrust law and New Deal regulations in general restricted their freedom of action. For the corporate class seeking to overthrow these public rules, Robert Bork, a law professor at Yale, would be a savior. He had been concocting the theories by which corporations would overthrow the antitrust fetters of the postwar period.

Bork offered a radical reinterpretation of antitrust law. Inventing a legislative history out of whole cloth, he argued that Congress enacted the Sherman Act only to protect 'consumer welfare' and not to control the broader economic and political power of corporations. Further, based on hypotheses with little or no empirical support, he asserted that mergers and trade restraints allowed businesses to lower costs and improve services and thereby benefit consumers.

Bork did believe in one antitrust prohibition. He argued that collusion among rivals should be aggressively prosecuted. His conception of collusion swept broadly and did not differentiate, for example, between pharmaceutical companies conspiring to raise prices on prescription drugs and public defenders banding together to obtain a living wage.

In the 1970s and 1980s, corporate attorneys, citing and quoting Bork on behalf of their clients, found increasingly receptive audiences in the federal courts and agencies. The Supreme Court, starting in the Nixon years, and the Department of Justice and Federal Trade Commission, beginning with Reagan, were eager to read the theories of Bork into case law and policy. (In 1982, Reagan appointed Bork as a court of appeals judge and gave him the opportunity to directly rewrite antitrust doctrine.)

So, after a 1975 Supreme Court decision that held that learned professions (like medicine) were engaged in "trade or commerce," and hence were subject to anti-trust law, the American Medical Association abandoned its prohibition on commercial practice of medicine (look here).  Then, as discussed in Slate in 2009,

after Ronald Reagan became president, there was a paradigm shift. Where once government had sought to police the health care sector mainly to protect patients, now it sought to police it mainly to protect a competitive health care marketplace. A thriving health care bazaar, it was assumed, would serve patients’ interests.

And central to making the markets "competitive" was preventing professional organizations from upholding any standards of ethics, or principles meant to put patients ahead of market concerns.  

So now professional organizations and other non-profits supposedly devoted to patient care and medical education seem afraid to make any criticism of neoliberal or market fundamentalist dogma, those who espouse it, or the commercial firms that it enabled to run health care.

To prevent the next bankruptcy, and the next group of physicians to be sold off as assets, health care professionals will have to muster the courage to speak up against our gilded age masters.  Further, we will need to join other voices to renew the legacy of the trust busters, and disrupt the new gilded age before we all become serfs. 

 References

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

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

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

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

[Hahnemann Hospital in 1925]

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

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

The Plight of the Residents

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

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

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

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

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

He described some of the worries the residents are facing.

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

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

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

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

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

The Solution: Sell the Residency?

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

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

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

Also,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Was an Asset Sale the Plan All Along?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Graduate Medical Education Adrift in a Sea of Commercialized Health Care

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

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

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

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

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

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

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

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

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

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

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

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


References

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

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

Latest Legal Settlements Suggest Hazards of Making Pharmaceutical Regulation More Lenient, as is Apparently Favored by New FDA Leader

The new US Food and Drug Administration (FDA) commissioner Dr Scott Gottlieb is promoting making the agency's mechanisms to approve new drugs more lenient, according to the Cardiobrief blog.  Blogger Larry Husten wrote:

Gottlieb’s entire career has centered on loosening regulatory restrictions to enable industry to thrive. At the core of his philosophy is the view that with fewer restrictions the force of unbridled capitalism will unleash a torrent of industry innovation. In this view negative consequences, should they occur, will be quickly addressed by an efficient marketplace.

Should we trust pharmaceutical companies to innovate in such a light-touch regulatory climate?  On Health Care Renewal we have noted ethical violations by most of the major pharmaceutical companies, often involving deception in marketing, manipulation and suppression of clinical research, and distortions of dissemination of medical information, such as articles ghost-written by authors paid by industry.  We have documented numerous legal settlements of cases arising out of such misbehavior.

It is no surprise that more legal settlements have marched into view during the last few months to add weight to concerns about making regulation of the pharmaceutical industry more lax.  To summarize them, in chronological order...

Celgene Settled Allegations it Deceptively Marketed Thalidomid and Revlimid for $280 Million

Per the New York Times, July 25, 2017:

The pharmaceutical company Celgene has agreed to pay $280 million to settle claims that it marketed the cancer drugs Thalomid and Revlimid for unapproved uses, the company said on Tuesday.

Under the terms of the settlement, which resulted from a lawsuit filed by a whistle-blower — a former sales representative at Celgene — the company will pay $259.3 million to the United States and $20.7 million to 28 states and the District of Columbia.

In particular, years before the company got approval to market its drug Thalidomid (generic name: thalidomide, the same drug that caused severe birth defects when marketed in Europe in the 1950s)

sales of Thalomid quickly took off, in part because — as [whistle blower] Ms. Brown claimed in her complaint — Celgene 'flooded the country' with sales representatives who were under heavy pressure to pitch the drug to oncologists for a variety of cancers. The F.D.A. sent Celgene two warning letters, in 1998 and 2000, claiming the company had been marketing the drug to treat cancer. In 2000, one Wall Street analyst estimated that 90 percent of Thalomid’s sales were to treat cancer, according to Ms. Brown’s complaint.

However, the drug was not approved for use in cancer until 2006. Also,

in 2005, the company received approval to sell Revlimid for a rare cancer, and Ms. Brown’s complaint claims that the company — as it had with Thalomid — marketed it to treat a broader range of cancers. It also pressured doctors to switch Thalomid patients to Revlimid, which is more expensive.

Ms. Brown’s complaint also claimed that Celgene’s inappropriate marketing of Thalomid exposed patients to heightened risks that included potentially fatal blood clots and other side effects. Those risks were added to the drug’s warning label only after it received the approval for cancer treatment, Mr. Guttman said.

Thus the company's actions may well have harmed patients.

We previously discussed, most recently in 2010, the immense price Celgene charged for Thalidomid, despite the fact that this compound, developed about 60 years ago, is available for pennies in many countries.  

Nonetheless, and also despite the amount of money that Celgene was making selling its drugs for unapproved uses (e.g., Revlimid's sales last year were nearly $7 billion), the US Department of Justice declined to get involved in this case.  Also, like most legal settlements involving big health care organizations, the company did not admit any wrongdoing, and no person who enabled, approved, or directed the misbehavior suffered any negative consequences.

Insys Settled Allegations of  Promotion of Narcotics for Unapproved Uses for $4.5 Million to Illinois

Per the Chicago Tribune, August 18, 2017:

An Arizona drug company has agreed to pay Illinois $4.45 million to settle allegations that it deceptively marketed and sold a prescription opioid drug for uses not approved by the U.S. Food and Drug Administration.

Insys' actions may well have contributed to the current opioid epidemic.

The company heavily marketed the drug to Illinois doctors with records of prescribing high volumes of opioids regardless of whether those doctors were prescribing opioids to treat cancer pain, the state alleged.

In particular,

According to Madigan's office, the top prescriber of Subsys in Illinois was Dr. Paul Madison, who wrote about 58 percent of all prescriptions for the drug in the state despite treating few, if any, cancer patients. Madison, an anesthesiologist and former owner of the Watertower Surgicenter on North Michigan Avenue in Chicago, was indicted in 2012 by the U.S. attorney's office in Chicago for billing insurers for procedures he didn't perform, and his medical license was suspended in November, according to Madigan's office.

We previously discussed Insys' stealth public relations campaign against medical marijuana here.

However, as in the previous case, the US DOJ was not involved, the company did not admit wrongdoing, and no individual involved in the misbehavior paid any penalty.

Novo Nordisk Settled Allegations it Minimized Risks of Victoza for Nearly $58.7 Million

Per Reuters, September 5, 2017:

Novo Nordisk will pay nearly $58.7 million to resolve claims the drugmaker’s sales staff downplayed the importance of U.S. Food and Drug Administration-mandated warnings about the cancer risks of its diabetes medication Victoza.

The U.S. Justice Department said Tuesday’s settlement would resolve claims Novo Nordisk supplied its sales representatives with information to give to doctors that created the false or misleading impression that warnings were wrong or unimportant.

In particular,

The lawsuit said that program required Novo Nordisk to provide doctors information about the potential risk of a rare form of cancer associated with the drug, which gained FDA approval in 2010.

Victoza’s FDA-approved labeling also contained a boxed warning related to that form of thyroid cancer, the lawsuit said.

Novo Nordisk’s sales force employed messages and tactics that created a false or misleading impression with doctors regarding the cancer risks, leading some physicians to be unaware of them, the lawsuit said.

Thus, again this company's actions appeared to pose a risk to patients.

This company also has a track record of ethical misadventures.  In 2011, we discussed several previous settlements by Novo Nordisk.  Nonetheless, the US DOJ decided not to be involved in this litigation, which, as in the other cases above, did not result in admission of wrongdoing, nor any penalities for individual involved in the misbehavior.

Novelion Subsidiary Aegerion Pleaded Guilty, Fined $40 Million for Misbranding Juxtapid by Minimizing its Adverse Effects

Per Reuters, September 22, 2017:

Aegerion Pharmaceuticals Inc will plead guilty to two misdemeanors and pay $40.1 million to resolve investigations into its marketing and sales of an expensive cholesterol drug, U.S. authorities said on Friday.

The settlements will resolve long-running investigations into Aegerion, a subsidiary of Canada’s Novelion Therapeutics Inc, by the U.S. Justice Department and the U.S. Securities and Exchange Commission related to its drug Juxtapid.

In particular,

Prosecutors said after the U.S. Food and Drug Administration in 2012 approved Juxtapid for treating a rare genetic condition that causes high cholesterol, Aegerion promoted it for patients who had not been diagnosed with the condition.

Juxtapid, which cost $250,000 to $300,000 annually per patient, featured a black box warning on its label that it could cause serious liver and stomach problems, prosecutors said.

Sales representatives also were trained to tell doctors and patients that Juxtapid would 'take patients out of harm’s way' and prevent 'impending' heart attacks and strokes, despite the lack of data supporting those claims, prosecutors alleged.

Numerous patients discontinued using Juxtapid after suffering conditions including liver toxicity and gastrointestinal distress, prosecutors said.

Thus, once more, the company's actions appeared to result in patient harm.

The company also signed a deferred prosecution agreement.  By pleading guilty, it admitted the misbehavior in this case.  However, again no individual involved in the misbehavior faced any penalties, despite the severe nature of the adverse effects the company deceptively minimized.

AmeriSourceBergen Settled For $260 Million Allegations of Illegally Selling Repackaged, Perhaps Adulterated Drugs so as to Avoid FDA Regulation

Per Modern Healthcare, September 27, 2017:

AmerisourceBergen Specialty Group, a wholly-owned subsidiary of the major wholesale drug distributor AmerisourceBergen Corp., pled guilty to illegally distributing misbranded drugs and agreed to pay $260 million to resolve criminal liability for skirting regulatory oversight.

Between 2001 and 2014, according to court records unsealed Wednesday, the group's now-defunct subsidiary Medical Initiatives prepared millions of syringes that had been filled with cancer drugs and shipped them to providers in all 50 states.

Medical Initiatives removed the drugs from their original glass vials and repackaged them into plastic syringes in an unclean and unsterile environment, allowing the company to sell excess drug product in the vials known as 'overfill,' according to court records. It combined the contents of multiple vials in a process known as 'pooling,' despite many of the vials carrying a 'single-use' designation.

In order to avoid the Food and Drug Administration's regulatory oversight, AmerisourceBergen Specialty Group did not register Medical Initiatives as a repackager or manufacturer with the agency, records show. Instead, the group portrayed Medical Initiatives as a state-regulated pharmacy, exploiting an exemption to the FDA registration requirement that is reserved for legitimate pharmacies, not for manufacturers or repackagers, authorities said.

Given the problems with sterility, again the company's actions possibly could have harmed patients.

However, yet again, this settlement did again involve a guilty plea, but again no individual involved in the repackaging and adulteration suffered any negative consequences.

Discussion

All the cases discussed above were of behavior that could have harmed patients.  Many of the companies involved had records of previous ethical misadventures.  While a few cases resulted in corporate guilty pleas (to misdemeanors), none resulted in monetary penalties that would have much impact on the companies' finances, and none resulted in any negative consequences for people who enabled, authorized, directed or implemented the bad behavior.


These, just the latest in the march of legal settlements by large health care organizations, again demonstrate how often and how seriously pharmaceutical companies (and other organizations) may misbehave, and how the leaders of these organizations exhibit continued impunity, never having any legal accountability for their organizations' actions.  These settlements again demonstrate the relatively light touch US regulators, including the FDA and DOJ, have exhibited when dealing with these organizations.

So what could happen if that touch is lightened still more, particularly by the ongoing initiatives of the current US FDA leader?  I submit the results will be higher drug prices, more use of minimally effective and/or seriously risky drugs, and larger compensation for top managers of pharmaceutical companies.  Will the public actually also get access to "life saving" drugs?  Perhaps, but most of the offerings of drug companies in the last years have had minimal efficacy, and rarely have been proven to extend life.

Why is Dr Gottlieb pursuing these initiatives?  Is he a true believer in market fundamentalism, perhaps untrammeled by lack of evidence supporting it?

Maybe he as he become intoxicated by all the money he previously made from the pharmaceutical industry.  Prior to his approval by the Senate, his extensive financial dealings with the pharmaceutical industry were detailed by the New York Times, and Stat News, among others.  The NYT article said:

The nominee, Dr. Scott Gottlieb, has spent the bulk of his career working in the drug and health care industry, which experts say raises the potential for myriad conflicts of interest. If confirmed to head the F.D.A., he would wield considerable power over companies and investment firms that have paid him millions of dollars over the years. From 2013 to 2015, for example, Dr. Gottlieb received more than $150,000 to advise Vertex Pharmaceuticals, a company whose two approved drugs are seen as breakthrough treatments for cystic fibrosis but carry list prices of more than $250,000 a year. He’s the acting chief executive of Cell Biotherapy, an early-stage cancer biotech firm that he helped found. He has served for years as a consultant to pharmaceutical giants like GlaxoSmithKline and Bristol-Myers Squibb and is paid by other companies for his expertise.

So Dr Gottlieb's move to the FDA was yet another example of the revolving door pheonomenon.

The Stat article concluded,

It also reflects the normalization of conflicts of interest in medicine, which has been debated in the pages of the New England Journal of Medicine and in the Lown Institute blog.

Gottlieb has criticized government efforts to shed light on conflicts of interest, such as the Physician Sunshine Act, as 'federal tinkering' leading to “the demise of American medicine.” We believe his confirmation will lead to the demise of some FDA rules that are already barely keeping a lid on useless or dangerous medical products.

That may not be so far in the future, if Husten's concerns mentioned at the top of this post are true. And when conflicts of interest start having such real world effects, they cease to be merely conflicts of interest, but become corruption.

We have long been railing against conflicts of interest and corruption.  Until recently we noted only some conflicts of interest affecting US government leaders, most often in the form of the revolving door.  Most of the conflicts we discussed involved health care professionals and leaders of health care organizations.

So we used to write things like this (in July, 2016):

True health care reform would first make transparent the web of institutional and individual conflicts of interest that seems to tie together nearly all big health care organizations, and open discussion of how to make health care organizations better serve health care rather than the narrow financial interest of their top leaders.

Or this (in June, 2016):

True health care reform would first expose these conflicts, then reduce or better yet, eliminate them, and make health care more about helping patients and less about making money by marketing commercial products.

However, since the last presidential campaign, more and more conflicts of interest and apparent examples of corruption involving President Trump, his family, and his ongoing business interests have appeared, so that at this time the Trump regime seems to be riddled with conflicts of interest and corruption (for example, see these lists compiled by the Sunlight Foundation and Newsweek).  Conflicts of interest and corruption involving the highest levels of US government have even more potential to damage patients' and the public's health than those involving, say, physicians or hospital CEOs.

 So we now must say that true health care reform in the US first requires vast reduction in the conflicts of interest and corruption of the leaders of US government.  

The Mysterious Demise of World Health Networks - Fugitive Kazakhs, the Trump Organization, Dodgy Visa Applications, Oh My

A common justification for a market fundamentalist approach to health care is the promise of innovation.  Providing market-based incentives will inspire generations of entrepreneurs who will bring out new and wondrous health care products and services, or so the story goes.  So we are now daily bombarded with media coverage of the latest innovations by such entrepreneurs.  But after the initial hype these entrepreneurs and their innovations often seem to fade away.

I stumbled on a recent media story that suggests the outer limits of what may go wrong with such innovations.  Let me try to tell the story chronologically.

World Health Networks and the Airport Promotion of Healthy Behaviors

In 2013, Masslive reported on the newest innovation, kiosks providing health evaluations:

Holiday travelers passing through Boston's Logan International Airport can now get an impromptu health report while waiting for their flights.

Four new health stations that include detailed walking paths through the airport and a machine that measures blood pressure, body mass index and weight, were installed Wednesday in three terminals.

The intervention was the product of collaboration between various commercial health care corporations.

For-profit hospital system Steward Health Care is sponsoring the stations for one year as part of a new health and wellness initiative at the airport.

Nic Denyer, executive vice president of machine manufacturer World Health Networks says next year, people may be able to test for diabetes and glaucoma in the future.

A press release from nLIVEnHealth included promises of "potential life-saving services" from the CEO of World Health Networks:

'The core objective of our partnership is to tackle heart disease through easy access, early detection, education and empowerment of individuals,' says Lon von Hurwitz, President & CEO of World Health Networks. 'We provide this service free of charge to both airports and passengers through associated sponsorships. Airports will therefore be able to offer their customers potential life-saving services.'

Furthermore, Mr von Hurwitz said,

Individuals can begin to take more control of their own personal health and wellness, and airports/airlines can also benefit their employees with this service on site. The sponsorship of the health stations allows prominent companies engaged in the healthcare industry to impart information about meaningful health products and services to a vast user base. It is expected that over 1 billion air passengers will have access to the health stations when fully deployed in the next two years. This audience also provides the enormous and dynamic opportunity for mobile applications and the portability of personal health records that will be subscriber supported.

The press release noted the involvement on nLIVEnHealthalong with Airport Marketing Income (AMI) too:

With successful installations already at JFK’s Jet Blue Terminal, Houston George Bush Intercontinental and Mineta San Jose International, WHN has teamed up with nLIVEn & Airport Marketing Income (AMI) to provide a unique advertising platform for one of Massachusetts’s leading Health Care providers, Steward Health Care System at Boston Logan International.

Little Known About the Intervention's Effects

So here was an intervention apparently meant to empower people to a healthier life style in a way that could "tackle heart disease" and even be "life-saving."  What was not to like?  Of course, none of these messages suggested the existence of any evidence that the intervention could change behaviors, and that the behaviors could reduce the prevalence or severity of heart disease, much less improve life expectancy.

Further was the goal here really to improve health outcomes, or to advertise?

I was unable to find anything resenbling systematic evidence about health outcomes, but did find a January, 2014 blog post offering a somewhat jaundiced review from a marketing expert who traveled through Logan Airport.

If you travel through Boston Logan Airport, you know that Dunkin Donuts ads and banners are quite prevalent. If you’ve been through there lately, you may also be aware that Steward Healthcare has launched a Health & Wellness Sponsorship Program. The last couple of times that I flew in through the JetBlue Terminal I came into contact with the campaign. The first thing I noticed were Steward Healthcare announcements over the public address system. It struck me that the oxymoron presented by Steward’s health & wellness campaign and the Dunkin Donuts marketing speaks to the challenges we have as a society when it comes to healthy living. Of course, the other thing that struck me is that Steward’s campaign feels a lot more like a branding initiative rather than a true health and wellness program. As a frequent business traveler, the last thing I need is for a health system to tell me that I need to do more walking in airports – and from my observations, that is the primary thrust of the marketing campaign.

So apparently fast food powerhouse Dunkin Donuts was also in on this action, causing the blogger some cognitive dissonance, given the caloric content of their offerings.

(Dunkin Donuts shop in Peru)


As a somewhat frequent flier, I also agree that urging someone running through the airport to walk more seems a bit over the top.


So to summarize the story this far, a bunch of corporate entities, World Health Networks, nLIVEnHealth, and Airport Marketing Income teamed up to create a supposed health intervention that appeared more like an advertising campaign for its sponsors, for-profit hospital chain Steward Healthcare, and apparently fast food giant Dunkin Donuts.  World Health Networks boasted of the potential to reduce heart disease and even save lives, without providing any evidence to support these claims.  

After that in 2014, all was silent.  What happened to World Health Networks? I saw no further media coverage of this new innovation, much less publication of clinical evidence of its effects, until....

World Health Networks, Trump Organization Associates Felix Sater and Daniel Ridloff, Kazakh Fugitives, and Visas - Oh My

On July 21, 2017, McClatchy published a long investigative piece that provided a disconcerting followup.   It opened thus:

Two former associates of Donald Trump helped a family of wealthy Kazakh fugitives make extensive investments in the United States, some aimed at helping family members obtain legal residency here, a McClatchy investigation shows.

Felix Sater, an ex-con and one-time senior adviser in the Trump Organization, helped the Trump family scout deals in Russia. He led an effort that began in 2012 to assist the stepchildren of Viktor Khrapunov, who that year had been placed on an international detention request list by the global police agency Interpol.

Khrapunov is the former Kazakh energy minister and ex-mayor of Almaty, that nation’s most populous city. He fled to Switzerland a decade ago, after Kazakhstan’s leaders accused him and his wife of stealing government funds. They are now accused in civil lawsuits of laundering money through luxury properties, including Trump-branded condos in the Soho neighborhood New York.

McClatchy’s probe reveals that with the help of Sater and his then-business associate Daniel Ridloff, also formerly affiliated with the Trump Organization, the Khrapunov family invested millions in a short-lived company that sought to place biometrics machines in airports across the country.

The real aim of Khrapunov’s investment was obtaining US residency for at least one member of the family; the company submitted, with the help of the onetime Trump associates, at least three requests to obtain visas for foreign workers.

The McClatchy investigation reveals a deeper relationship than previously known between the former Trump Organization figures and the fugitive Khrapunovs — underscoring how little is known about many of those involved with the Trump Organization.

There is no evidence that Trump himself participated in the courting of the Khrapunovs, but the affair sheds light on the often murky activities of the associates with whom he did deals at home and abroad.

Oops.  The "short-lived company" that allegedly served as a vehicle for the sketchy Kazakhs to obtain visas was none other than World Health Networks, viz:

On the surface, a multimillion dollar investment by the Khrapunovs in a New York-based health technology company would appear to make little sense.

World Health Networks was formed from the ashes of a failed firm that had created health monitoring kiosks placed in pharmacies. The new company aimed to put similar devices in airports across the world, but first it needed capital.

Enter Sater. He was representing the Khrapunovs, who were looking for US investments, and was introduced to executives of World Health Networks through an intermediary who attended the same synagogue on Long Island, according to a person with intimate knowledge of the deal.

Company executives made a pitch to the Khrapunovs in April 2012, according to documents reviewed by McClatchy, and court documents show that the money started flowing into the New York firm soon after.

World Health Network’s business model evolved over the course of its short existence, from an early plan to attract sponsorships from health insurance companies to a later plan to sell advertising space on the machines.

'It was definitely a real company,' said Ken Williams, who helped develop the firm and sat on its board.

Sater installed Ridloff as the company’s chief operating officer, according to former employees who demanded anonymity because of several ongoing lawsuits.

McClatchy explained how World Health Networks could have been used to obtain visas for the Khrapunovs....

This much is known: Ridloff submitted three visa applications for highly skilled workers on the company’s behalf between March 2013 and March 2014, all seeking to hire foreign budget analysts.

Stopped on the street as he left his Manhattan office, Ridloff confirmed to McClatchy that the investment by the Khrapunovs – ultimately $6 million, according to court records -- was aimed at securing Kudryashova, Viktor’s stepdaughter, legal residence in the United States.

The company partnered with the Swiss-based World Heart Federation and managed to place its machines in several airports, including Detroit, San Jose and Sacramento, Calif. But former employees confirmed its revenue couldn’t keep pace with expenses.

The company spent liberally on international travel and a bloated payroll, they said, and it folded soon after funding from the Khrapunovs dried up in late 2014.

It’s unclear the visas were ever issued, or whether the Khrapunovs obtained legal U.S. residence through any other means. The State Department and Homeland Security did not immediately provide documents requested under the Freedom of Information Act about World Health Networks’ visa applications.

Elvira Kudryashova listed a Newport Beach, Calif., address on a 2016 incorporation document for an upscale toy store she owned called Anthill shopNplay. The property in Newport Beach was sold later the same year.

Note further that

On paper, Donald Trump’s business relationship with Sater ended almost a decade ago. But earlier this year, Sater re-entered Trump’s orbit when he and Michael D. Cohen, one of Trump’s personal lawyers, were involved with a Ukraine-Russia peace proposal that was presented to Michael Flynn, then Trump’s national security advisor.

Also,

This as Bloomberg reported Thursday that Trump Soho in New York, where the Khrapunovs invested, were among several Trump businesses being looked at by former FBI Director Robert Mueller in his probe of possible collusion between Russia and the Trump campaign in 2016.

Also,

Several key people in Trump’s orbit did business with the Kazakh clan, including the law firm of Trump campaign surrogate Rudy Giuliani and the Bayrock Group, which developed Trump-branded projects in New York, Florida and Arizona and was founded by Tevik Arif, a politically-connected former Soviet official from Kazakhstan.

Lincoln Mitchell, a political consultant who specializes in Russia and its neighboring countries, said virtually any investment from Kazakhstan warrants scrutiny.

'It would be hard to imagine getting Kazakh investment that wasn't close to the ruling family,' Mitchell said in a telephone interview from the former Soviet republic of Georgia.

Nursultan Nazarbayev has ruled resources-rich Kazakhstan since 1989, placing his children and their spouses in top government posts. Some of his family assets have been frozen in Switzerland, and a U.S. Justice Department settlement in 2015 spotlighted how bribes paid to senior Kazakh officials ended up in offshore accounts belonging to the Kazakh government.

Finally,

Both Sater and Ridloff had worked for Bayrock before joining the Trump Organization, Sater being one of its managing partners. Later, the two men facilitated the purchase in 2013 of three condos in the Trump SoHo for $3.1 million by companies tied to the Khrapunov children, Ilyas Khrapunov and Elvira Kudryashova. In 2012 and 2013 alone, Sater and Ridloff worked with the Khrapunovs on more than $40 million in real estate and investment deals. All came after Kazakhstan added Viktor to the Interpol wanted list in February 2012. Later, the former Trump associates and their Kazakh investors appeared to have a falling out, becoming mired in acrimonious lawsuits that ended in secret sealed settlements. Yet their business relationship appears to have continued after the settlements, and they continue to maintain a friendship via social media. Viktor Khrapunov’s wife, Leila, would be added to the Interpol wanted list later in 2012, and stepson Ilyas was added in May 2014.

The Khrapunovs – who declined to answer detailed questions from McClatchy — maintain that they are the victims of political persecution by the despotic Nazarbayev, who once offered Viktor the post of prime minister before their falling out.

Please note that based on the McClatchy article, whether the Khrapunovs were criminals or innocents fleeing from a despotic regime is not known. Or could the dispute between the regime and the Khrapunovs represent a falling out amongst cronies? Nor is it known whether top leaders of the Trump Organization, or Mr Trump himself, knew all the ramifications of what was going on.

Nonetheless, there at least appears to be a good argument that the World Health Networks' funding from the Khrapunovs depended on its potential ability to obtain visas for them and their family. Probably other aspects of its operations, including any ability to innovate in the health care sphere, were at best side effects of the main goal, and at worse window dressing.  When the company's main reason for being evaporated, so did it, and so did any chances for health care innovation, much less tangible health benefits to anyone.

But sic semper to most media hyped commercial health care innovations?  World Health Networks absorbed a lot of money, perhaps produced some visas useful to people with good or bad or indeterminate motives, produced no meaningful improvments in public health, and quietly died.  What was the use of it all?

Summary and Discussion

As we have previously discussed, based on the doctrines of neoliberalism or market fundamentalism, the US health care system is increasingly dominated by for-profit corporations.  The practice of medicine is increasingly corporate.  Hospitals and hospital systems are increasingly owned by for-profit corporations.  Health insurance is increasingly provided by for-profit companies.  Drug, device and biotechnology companies have been almost entirely commercial for a long time.  And touted as  sources of innovations, there are entrepreneurial start-ups everywhere offering new products and services.  All of this has been happening in a climate of deregulation, laissez faire, and laissez les bon temps roulez.

It may be that all this has produced a lot of innovation, but very little of it has proved to be capable of meaningful improvement in patient or public health outcomes.

Admittedly, the story above may be an extreme example.  However it does suggest that in a laissez faire envirnoment, an awful lot of churn is generated by fast buck schemes, some of which may not be entirely honest, or legal.  Furthermore, the tides of money rolling through the system may be attracting people much more interested in short-term returns than health care outcomes.  So we spend more and more, perhaps producing innovations, but without much obvious improvement in patients' or the people's health.

True health care reform might involve decreasing commercial involvement in selected aspects of health care, increasing transparency about the business operations of all health care organizations, and insisting that health innovations not be widely adapted without good clinical evidence that their benefits outweigh their harms.

For our musical interlude, The Cars, "Let the Good Times Roll," live




 

Whose Costs? Who Benefits? - A Close Reading of a Hospital System CEO's Prescription for Controlling Health Care Costs

The attempt to "repeal and replace" the Affordable Care Act has suddenly made health care dysfunction a hot topic in the US.  

For example, today, in my local paper, the Providence Journal, Dr Timothy J Bainbeau, the CEO of the Lifespan Health System,  the biggest regional health system weighed in on the problem of high and increasing health care costs.  A close reading of his commentary suggests how the leadership of big US health care organizations needs to think about whether their actions have become more of the problem than a source of solutions.

The CEO's Diagnosis and Prescription

 Dr Babineau began unremarkably with:

American health care is expensive. Too expensive. On this, there is little debate. In 2001 the median U.S. household spent 6.4 percent of its income on health care; by 2016, the same household spent 15.6 percent of its income on health care. That bigger share of the pie leaves less for other essential purchases, such as food, education and housing.

What was his diagnosis?  He stated that most costs are incurred in the care of severe acute or chronic illnesses.  So his prescription was:

A critical (but often overlooked) point is the fact that as much as 40 percent of spending during chronic and complex episodes is avoidable if providers and systems adhere to established standards of care. Reining in runaway health-care spending must involve better management of high cost episodes of chronic and complex care.

So,

Rather than debate the actual percentage that is 'wasteful spending' (now commonly referenced at around 30 percent) we would be better served by continuing the hard work of identifying and eliminating areas within our own systems where needless variations in care add cost without improving outcomes.

To translate, most of health care spending is for severe acute or chronic illnesses.  For patients with these problems, we do too much, that is, by failing to "adhere to established standards of care."  Therefore, we must learn to do less, by "eliminating areas within our own systems where needless variations in care add cost without improving outcomes."  His entire focus is on ending needless utilization, presumably of specific diagnostic tests, therapies and programs.

As an aside, his assertions ignore some real controversies.  Dr Babineau implied that "variation" means needless or bad care.  This echoes the old "practice variation" research school, which showed that the rate of certain services, that is tests or treatments, varies in different geographic areas.  The problem is that this school has never clearly shown how much variation is due to variation in patients' characteristics, including illness severity and preferences, and is therefore "appropriate" in some sense.  It also fails to take into account how much variation is due to the inevitable uncertainty in diagnosis, and in predicting response to treatment.  Few diagnostic tests are perfect, so test results can rarely prove a disease is present or absent, but just can suggest how probable it might be.  Similarly, no treatment always cures, and most treatments have adverse effects.  So at best physicians can only predict the probability that a patient will improve, remain the same, or be harmed by a treatment.

Whose Costs?  Who Benefits? 

It is odd, though, that while Dr Babineau wrote an essay on reducing costs, he did not even mention how much anyone pays for any particular test, treatment, program, service, etc.  Nor did he mention whose costs most need reduction: patients', health care systems', insurance companies', governments', or "society's" costs?   That was probably due to his point of view, from the bubble of the hospital system C-suite, from which the viewof the outside world may be distorted.

Dr Babineau introduced his prescription for cost reduction with a defense of  American hospitals.

American hospitals and health care systems are among the best in the world.  Rather than decrying 'American health care is broken' and in need of rebuilding from scratch, a better strategy may be to look at what works well within our system and ask how we can build on those strengths while facing the escalating costs head on.

Hospital systems are in the health-care business, and we should not be reluctant to say so. No matter what wellness and prevention programs we collectively offer, inevitably a small subset of the population will still get very sick, and it is a core mission of health systems — working in close partnership with our primary and specialty providers — to take the very best and most efficient care of them when that happens.

But should hospitals be "in the health-care business?"     Most physicians of a certain age swore oaths on medical school graduation that we would put care of individual patients ahead of all other concerns, including making money. We surely have not fulfilled those oathes perfectly. Yet at one time health care and medicine could be seen as callings, just ways to make money.

In 2007, Dr Arnold Relman wrote(1) (and see this post):

The law also has played a major role in the decline of medical professionalism. The 1975 Supreme Court ruling that the professions were not protected from anti-trust law7 undermined the traditional restraint that medical professional societies had always placed on the commercial behavior of physicians, such as advertising and investing in the products they prescribe or facilities they recommend. Having lost some initial legal battles and fearing the financial costs of losing more, organized medicine now hesitates to require physicians to behave differently from business people. It asks only that physicians' business activities should be legal, disclosed to patients, and not inconsistent with patients' interests. Until forced by anti-trust concerns to change its ethical code in 1980, the American Medical Association had held that 'in the practice of medicine a physician should limit the source of his professional income to medical services actually rendered by him, or under his supervision, to his patients' and that 'the practice of medicine should not be commercialized, nor treated as a commodity in trade.' These sentiments reflecting the spirit of professionalism are now gone.

The Supreme Court challenge to attorneys' and physicians' professionalism was orchestrated by extreme market fundamentalists. Since 1978 when I obtained my MD from Brown, market fundamentalism (sometimes confusingly called "neoliberalism") has become dominant in the US. 


On the (now sadly dormant) Hooked: Ethics, Medicine and Pharma blog, Dr Howard Brody discussed the application of this reigning orthodoxy in economic.  Basically, supporters of market fundamentalism et al seem to assume that all markets are idealized free markets, and that free markets are like a super computer combining all human thought to provide wisdom in the form of price information.  Furthermore, since the market is based on supposedly rational choices made by free individuals, one cannot go back to question such choices. 

Hence Dr Babineau is hardly alone in regarding all of health care now as a business. But he and many others like to ignore the theoretic problems with market fundamentalism applied to health care, specifically the possibilities that 1) people's choice may not be free, may not be rational, and may not be based on coldly rational cognition and the best possible knowledge; and 2) one person's economic choice may limit another person's choices, or directly harm another person.   And never mind that Dr Babineau leads a non-profit organization, which states (per the most recent, 2015 Rhode Island Hospital IRS Form 990) that its mission is "delivering health with care."

Market fundamentalism suggests that hospitals and other health care organizations should be run like businesses to improve efficiency.  Thus Dr Babineau allowed "it is a core mission of health systems — working in close partnership with our primary and specialty providers — to take the very best and most efficient care of them when that happens."  Efficiency requires the reduction of costs, but whose? 

The worry is that Dr Babineau is really out to improve his own institution's efficiency, very possibly because he has incentives to do so.  There is considerable anecdotal evidence that hospital CEOs are rewarded for efficiency, but the effiicency of their own hospitals, not the health care system.   CEOs may get incentives when they increase hospital efficiency by cutting the institution's costs and/or increasing its revenue (look here for some examples.)  Sometimes these incentives are hugely disproportionate to any improvements in net financial position (look here for examples).  Sometimes CEO compensation goes up even when CEOs have cut the pay of or laid off lesser employees to cut costs (look here for examples).  Sometimes their pay goes up even when their actions correlate with worsening quality of care (look here for examples).

I cannot find any published rationale for Dr Babineau's compensation, but it is certainly substantial.  According to the most recently available IRS Form 990 (2015) for Rhode Island Hospital, Dr Babineau's total compensation (in 2014) was $2,405,868. 


So the concern is that the sort of efficiency Dr Babineau advocates may benefit his organization's and his own bottom line, but maybe not patients, or society.  And the promise he made that his own hospital system will improve efficiency may actually conflict with his promise to improve patient care.  

Summary

I submit that if we are really worried about why our health care system is sick, why we as individuals pay more and more for health care that is not improving, we should look beyond limiting practice variation or eliminating obviously useless, and hence perhaps uncommon services to improve "efficiency."  Instead, we should question whether health care can ever really function as a free market, and certainly whether hospitals, other health care "providers," and health insurers should be businesses that put their revenues ahead of patients' and the public's health. 

I am not a Catholic, but found the clearest voices on this issue to be those of the current and former Popes.  Pope Benedict XVI decried the transformation of medicine and health care into a business.  As we noted here, he wrote

during the current economic crisis 'that is cutting resources for safeguarding health,'... 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,'

Furthermore,

'Only when the wellbeing of the person, in its most fragile and defenseless condition and in search of meaning in the unfathomable mystery of pain, is very clearly at the center of medical and assisted care' can the hospital be seen as a place where healing isn't a job, but a mission,...

More recently, Pope Francis said,

Doctors, nurses and those who work in the field of health care must be defined by their ability to help their patients and be on guard against falling down the slippery slope of corruption that begins with special favors, tips and bribes, the pope told staff and patients of Rome's 'Bambino Gesu' children's hospital Dec. 15.

'The worst cancer in a hospital like this is corruption,' he said. 'In this world where there is so much business involved in health care, so many people are tricked by the sickness industry, 'Bambino Gesu' hospital must learn to say no. Yes, we all are sinners. Corrupt, never.'

Thus, I challenge health care executives to state their willingness to  put the care of patients ahead of their  organizations' revenue and own pay.  Will anyone step up?

Reference

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

Suppose the Pope Condemned Health Care Corruption - and Hardly Anyone Noticed?

Introduction - Health Care Corruption as a Taboo Topic

We have frequently discussed outright corruption in health care as one of the most important causes of health care dysfunction.  Transparency International (TI) defines corruption as

Abuse of entrusted power for private gain

In 2006, TI published a report on health care corruption, which asserted that corruption is widespread throughout the world, serious, and causes severe harm to patients and society.

the scale of corruption is vast in both rich and poor countries.

Also,

Corruption might mean the difference between life and death for those in need of urgent care. It is invariably the poor in society who are affected most by corruption because they often cannot afford bribes or private health care. But corruption in the richest parts of the world also has its costs.

The report did not get much attention.  Since then, health care corruption has been nearly a taboo topic in the US.  When health care corruption is discussed in English speaking developed countries, it is almost always in terms of a problem that affects benighted less developed countries.  On Health Care Renewal, we have repeatedly asserted that health care corruption is a big problem in all countries, including the US, but the topic remains anechoic.

Yet somehow, a substantial minority of US citizens, 43%, seemed to believe that corruption is an important problem in US health care, according to a TI survey published in 2013 (look here).  But that survey was largely ignored in the media and health care and medical scholarly literature in the developed world, and when it was discussed, it was again in terms of results in less developed countries.  Health Care Renewal was practically the only source of coverage in the US of the survey's results.

"Corruption is Cancer to Health Industry, Pope Tells Hospital Staffers"

Yesterday, this story appeared in the Catholic News Service. It opened with:

VATICAN CITY (CNS) -- Corrupt business practices that seek to profit from the sick and the dying are a cancer to hospitals entrusted with the care of the most vulnerable, especially children, Pope Francis said.

Doctors, nurses and those who work in the field of health care must be defined by their ability to help their patients and be on guard against falling down the slippery slope of corruption that begins with special favors, tips and bribes, the pope told staff and patients of Rome's 'Bambino Gesu' children's hospital Dec. 15.

'The worst cancer in a hospital like this is corruption,' he said. 'In this world where there is so much business involved in health care, so many people are tricked by the sickness industry, 'Bambino Gesu' hospital must learn to say no. Yes, we all are sinners. Corrupt, never.'

One might think that this condemnation of health care corruption by the leader of a huge Christian religious group would get considerable attention, but one would be wrong. The only other coverage of the Pope's message was an extremely brief (6 sentences) item by the AP (see here via Business Insider.)

Note that Pope Francis not only condemned corruption in the strongest terms, but he linked it the transformation of medicine and health care into a business, with the presumptive result in an era of the "shareholder value principle" that revenue has become more important than caring for patients.  He also implied that the road to corruption begins with conflicts of interests.

Note that Pope Francis' predecessor, Pope Benedict XVI, also decried the transformation of medicine and health care into a business.  As we noted here, he wrote

during the current economic crisis 'that is cutting resources for safeguarding health,'... 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,'

Furthermore,

'Only when the wellbeing of the person, in its most fragile and defenseless condition and in search of meaning in the unfathomable mystery of pain, is very clearly at the center of medical and assisted care' can the hospital be seen as a place where healing isn't a job, but a mission,...

Pope Benedict's call for health care to be restored to being a calling, not a business, remained anechoic too.   

Discussion

Recently, I became just a bit more optimistic that health care corruption would start getting the attention it deserved.  That may have been premature.  The world seems to becoming ever more friendly to market fundamentalism or neoliberalism.  The notions that every human activity, including medicine and health care, should be conducted as a business, and that in business, revenue come first is likely to be helped by the election of an ostensibly billionaire businessman to the presidency of the US.  That said president-elect once called Pope Francis "disgraceful" after the Pople questioned how Trump's proposal to "build a wall" to keep out supposedly deplorable Mexican immigrants squared with Christian beliefs (look here).

Yet as suggested by the recent Transparency International report on corruption in the pharmaceutical industry,  there is so much money to be made through pharmaceutical (and by implication, other health care corruption) that the corrupt have the money, power, and resources to protect their wealth accumulation by keeping it obscure.  In the TI Report itself,

However, strong control over key processes combined with huge resources and big profits to be made make the pharmaceutical industry particularly vulnerable to corruption. Pharmaceutical companies have the opportunity to use their influence and resources to exploit weak governance structures and divert policy and institutions away from public health objectives and towards their own profit maximising interests.

Keep in mind that the money made from corruption does not just go to innocent peoples' retirement funds that are invested in pharmaceutical stocks.  It predominantly goes to top corporate executives and managers, and their cronies who preside over the corrupt practices.


I might as well repeat myself once again.  As I wrote in 2015,

If we are not willing to even talk about health care corruption, how will we ever challenge it? 

So to repeat an ending to one of my previous posts on health care corruption....  if we really want to reform health care, in the little time we may have before our health care bubble bursts, we will need to take strong action against health care corruption.  Such action will really disturb the insiders within large health care organizations who have gotten rich from their organizations' misbehavior, and thus taking such action will require some courage.  Yet such action cannot begin until we acknowledge and freely discuss the problem.  The first step against health care corruption is to be able to say or write the words, health care corruption.