The Medical School as Hereditary Plutocracy - Retiring Board Chair Sanford Weill of Cornell Weill Medical School Names His Own Daughter as New Chair

As I have written before, sometimes you just could not have made this stuff up.

The Retiring Board Chairman Appoints His Own Daughter to Succeed Him

The most even handed reporting on this story was in Inside Higher Ed,

Leadership of the board that oversees Cornell University’s medical college is passing from father to daughter, an unusual transition of power for a higher education board.

Weill Cornell Medical College’s Board of Overseers has been chaired for the past two decades by its namesake and major donor, Sandy Weill, the former CEO of Citigroup.

His daughter, Jessica Bibliowicz, is now set to take over Weill's role. She is the founder and former CEO of a major insurance brokerage, and has also been on the board for a decade.

Let me just dissect this a bit.  Weill Cornell Medical College is a large, prestigious medical school located in New York City, and part of Cornell University.  The chair of its Board of Overseers for the last two decades as been one Sanford I Weill.  Mr Weill is a famous finance executive, formerly CEO of Citigroup from 1998 - 2003, remained chairman of the board of Citigroup through 2006, and is now chairman emeritus (look here). 

According to a Cornell press release, the new chairperson, ms Jessica Bibliowicz, is a

Cornell University graduate in 1981 and after working 18 years in financial services, Ms. Bibliowicz became CEO of National Financial Partners in 1999, a financial services firm that specializes in benefits and wealth management. The company went public in 2003 and was sold to Madison Dearborn in 2013.

 Currently,

Ms. Bibliowicz is a senior advisor at Bridge Growth Partners and serves on the board of directors of Sotheby's(NYSE: BID); Realogy (NYSE: RLGY); and the Asia Pacific Fund (NYSE: APB). She is a board director/trustee of Prudential Insurance Funds....

The Inside Higher Ed article noted that

In a statement, Cornell said, Weill Cornell Medical College engaged in a comprehensive process to select its chair of the Board of Overseers by canvassing multiple members of the board in full consultation with senior leadership. The search was headed by a group of senior trustee overseers with extensive knowledge of the institution and Weill Cornell firmly believes it has selected the best choice as chair.'

The New York Times reporting of the succession, oddly in the Dealbook blog, which is focused on finance and Wall Street, not medicine, made it seem, however, that Mr Weill handpicked his daughter to succeed him,

he increasingly felt that the time was nearing to appoint a successor.

'I felt like it was a good time for younger blood,' he said.

Ultimately, he decided upon his daughter,

The Cornell press release lauded Mr Weill, the retiring chair as providing "bold and visionary leadership," having "enduring dedication," exemplifying "benevolence and unwavering resolve to ensure a healthier future," etc, etc.  It called him a "self-made man who exemplifies the philosophy of leading by example."  It quoted the current dean of the medical school, Dr Laurie Glimcher, (whose apparent conflict of interest as a board member of Bristol-Myers-Squibb we discussed here and here) calling his accomplishments "breathtaking."  It quoted the university president, David Skorton, calling him again a "visionary."

In the Dealbook article, Dr Glimcher further praised the chairperson designate, Ms Bibliowicz, as "a person of enormous energy and passion," who will "bring her energy, her connections and her passion for medicine and medical research and education to the role."


The Inside Higher Ed article noted some vague questions about the position of chair of the board of trustees of an important medical school being passed from father to daughter,

'On the other side of the coin, within-family succession planning adds complexity to the issue -- it just raises certain questions,' [former vice president for programs and research at the Association of Governing Boards of Universities and Colleges Peter] Eckel said.

However, Mr Eckel did not really list these questions.

Later, the article referred to "nepotistic arrangements," presumably in part referring to this father - daughter transition, but then found someone to defend them. 

The Real Questions

Weill Cornell Medical College is part of a non-profit organization.  Nonprofit organizations have no owners. Non-profit organizations are formed to support particular missions, under the stewardship of boards of trustees (or directors or overseers).  These boards have three basic duties [italics added]

 Duty of care: Board members are expected to actively participate in organizational planning and decision-making and to make sound and informed judgments.
Duty of loyalty: When acting on behalf of the organization, board members must put the interests of the nonprofit before any personal or professional concerns and avoid potential conflicts of interest.
Duty of obedience: Board members must ensure that the organization complies with all applicable federal, state, and local laws and regulations, and that it remains committed to its established mission.

Thus, the transfer of the position of chair of the board from parent to offspring, apparently directly under the control of the parent, is questionable on its face, suggesting that family interests came before the "interests of the nonprofit."  Such transfers may commonly occur on the boards of privately family held for-profit companies, but are basically unheard of for medical schools or other large academic medical nonprofit organizations, where they certainly could appear nepotistic.

That concern is amplified when neither parent or child have any appreciable background or training in the work of the nonprofit.  Neither Mr Weill nor Ms Bibliowicz seem to have any training or background in health care, biomedical research, or specifically medicine.  Yet Weill Cornell Medical School's basic mission is to train students to be physicians.  So how well either or their personal judgments about the policy and operations of a medical school are "informed" is not exactly clear.  

Further concerns are raised by the background of the father in this father daughter transaction, the part of the background that was entirely ignored by the rather fawning public discussion of the transaction in the Cornell press release, and also the NY Times Dealbook article.

In fact, Mr Weill's leadership in the past was of Citigroup during the lead up to the global financial collapse of 2008.  Citigroup, the poster child for the too big to fail bank, nearly went bankrupt, and required a huge government bailout.  Its near collapse, again apparently only prevented by government action, is widely considered to have been a major cause of the finance disaster starting in 2008.  As we noted in a 2009 blog post about Weill Cornell,   The Sellout, by Charles Gasparino, featured vivid portraits of the bad leadership that lead to the collapse, including specifically Mr Weill,

But in reality, Will never really ran anything. He was a visionary, to be sure, but one whose vision was so myopically focused on building the empire had lusted for for so long and on its share price that he ignored just about everything else. (p. 144)

Furthermore, this was Mr Weill's listing in the "key people" section of the book,

Former CEO and chairman of Citigroup, Weill created the idea of the one-stop-shopping mega-financial conglomerate, engineering a series of mergers ... and in the process created the world's largest financial company.  Famously obsessed with his firm's stock price, Weill announced his resignation in 2003 after investigators discovered he'd pressured a stock analyst, Jack Grubman, to raise his rating on AT&T, where Weill was on the board, in return for ensuring that Grubman's children got into an exclusive preschool.

Furthermore, in the Time magazine series on the "25 People to Blame for the Financial Crisis," Mr Weill is listed as  "blameworthy" because,

Who decided banks had to be all things to all customers? Weill did. Starting with a low-end lender in Baltimore, he cobbled together the first great financial supermarket, Citigroup. Along the way, Weill's acquisitions (Smith Barney, Travelers, etc.) and persistent lobbying shattered Glass-Steagall, the law that limited the investing risks banks could take. Rivals followed Citi. The swollen banks are now one of the country's major economic problems. Every major financial firm seems too big to fail, leading the government to spend hundreds of billions of dollars to keep them afloat. The biggest problem bank is Weill's Citigroup. The government has already spent $45 billion trying to fix it. 

In a post on the Baseline Scenario blog, Simon Johnson, author of another authoritative book on the financial crisis, 13 Bankers, wrote this about Citigroup leadership,

Citigroup is a very large bank that has amassed a huge amount of political power. Its current and former executives consistently push laws and regulations in the direction of allowing Citi and other megabanks to take on more risk, particularly in the form of complex highly leveraged bets. Taking these risks allows the executives and traders to get a lot of upside compensation in the form of bonuses when things go well – while the downside losses, when they materialize, become the taxpayer’s problem.

Citigroup is also, collectively, stupid on a grand scale. The supposedly smart people at the helm of Citi in the mid-2000s ran them hard around – and to the edge of bankruptcy. A series of unprecedented massive government bailouts was required in 2000-09 – and still the collateral damage to the economy has proved enormous. Give enough clever people the wrong incentives and they will destroy anything.

Physicians are supposedly rigorously trained, and tasked with upholding important ethical principles.   So did it make sense to entrust the stewardship of a premier American medical school to the man who engineered the expansion of Citigroup that turned out to be "stupid on a grand scale," in order to "get a lot of upside compensation," while leaving the "downside losses" to become "the taxpayer's problem," so that the "collateral damage to the economy has proved enormous?"   Does it make sense to allow him to choose his own daughter, who has no more medical experience than he did (which was zero), to steward the school in the future?

I wonder what Cornell medical students, or physician alumni would say, if they felt safe enough to answer the question?

As we wrote in 2009,  boards of trustees of not-for-profit health care institutions have a primary duty to uphold the institutions' missions.  Thus, one would think such boards would be selected according to their dedication to their missions.  But perhaps, in the grubby real world, there may be more important criteria, possibly such as the size of their donations to the institution.  Furthermore, those likely to donate the most  may be more likely to be richest (and perhaps most in need to making themselves appear philanthropic and public-spirited) than the most fervent upholders of patient care, teaching and research.

Maybe giving stewardship of our once proud health care institutuions to people most likely to defend their missions, rather than most likely to donate a lot of money, would result in somewhat poorer institutions which do a better job of patient care, teaching and research.

You heard it here first.  
 

1:08 PM

Merging Finance and Health Care Leadership - Robert Rubin Proteges Running DHHS, Spouse of Hedge Fund Magnate Running the FDA

Hidden between the lines of some not very prominent news stories were reminders of how close health care and financial leadership have become in these times of continuing economic unrest after the global financial collapse/ great recession.

After the events of 2008, it became more apparent that the dysfunction in academics and health care  paralleled that seen in finance.  One reason may have been the overlapping leadership of finance and health care.  For example, in 2008 we first posted about how Robert Rubin, who was then a Fellow of the Harvard Corporation, the top group responsible for the governance of that great academic and medical institution, bore responsibility for the global financial collapse/ great recession.  Mr Rubin as Treasury Secretary was a proponent of financial deregulation in the Clinton administration.  Later, he became a top leader of Citigroup, whose near collapse helped usher in the crisis of 2008 (look at our 2008 post here and our 2010 post here.  Rubin just stepped down from his Harvard position this year,)  Since 2008 we found many other links among the leadership of Wall Street and of academic medicine and of big health care corporations.  These links, if anything, seem to be getting stronger. 

From the Department of Health and Human Services to Citigroup and then back to the Department of HHS

A tiny, four sentence Reuters story noted an apparently routine appointment to upper management at the US Department of Health and Human Services.  The first three sentences were:

U.S. Health Secretary Sylvia Burwell named Citigroup Inc executive Kevin Thurm as senior counselor of the U.S. Department of Health and Human Services (HHS), which is implementing the controversial U.S. Affordable Care Act.

Thurm has served in a number of roles at Citi since joining the bank in 2001, including senior adviser for compliance and regulatory affairs and deputy general counsel.

Before joining Citi, Thurm, a former Rhodes scholar, was the deputy secretary of the U.S. Department of Health and Human Services.

Why is that significant?  First, the near bankruptcy of the huge, badly led Citigroup was widely acknowledged to be a cause of the global financial collapse.  A 2011 New Yorker article on the role of the revolving door between Washington and Wall Street ("Revolver," by Gabriel Sherman) summarized the plight of Citigroup and the role of Robert Rubin in it,

Citigroup was the most high-profile of Wall Street’s basket cases, the definitionally too-big-to-fail institution. With massive exposure to the housing crash and abysmal risk management, the firm cratered, surviving as a virtual ward of the state after the government injected billions and took a 36 percent ownership position. Along with AIG and Fannie and Freddie, Citi came to be seen as a pariah institution, felled by management dysfunction and heedless greed in pursuit of profits. Complicating matters for Citi, the wounded bank found itself tangled in the populist vortex that swirled in the crash’s wake. On the left, there were calls that Citi should be outright nationalized, stripped down, and sold off for parts. Pandit was called before irate congressional-committee members to answer for Citi’s sins, an ignominious inquisition captured on live television. In January 2009, under pressure, Citi canceled an order for a new $50 million corporate jet.

There was plenty of blame to go around at Citi. Chuck Prince, a lawyer by training who succeeded Citi’s outsize former CEO Sandy Weill, had little grasp of the complex mortgage securities Citi’s traders were gambling on. As late as the summer of 2007, when the housing market was in free fall, Prince infamously told the Financial Times that 'as long as the music is playing, you’ve got to get up and dance.'

Bob Rubin himself pushed the bank to take on more risk in order to increase its profitability, a move that Citi’s dismal risk management was ill-equipped to handle. Pandit, whom Rubin had helped to recruit in 2007 just as the economy began to unravel, was tasked with cleaning up the mess when he became CEO in December of that year, and his early tenure had a deer-in-headlights character. Eventually, he realized that the asset class Citi lacked most was human capital, of the blue-chip variety.  

The article also summarized Rubin's role in the fervor of deregulation in service of market triumphalism that lead to the financial collapse,

In tapping Rubin to run Treasury, Clinton was sanctioning a revolution in the Democratic Party, one that fundamentally redefined the party’s relationship with Wall Street. Rubin, along with Alan Greenspan and Larry Summers, believed in an enlightened capitalism, which would spread prosperity widely. This enchantment with the beneficence of markets became the dominant view in Democratic Washington, hard to argue with when the economy was booming, as it was in the second half of the nineties. Rubin recognized that derivatives posed a risk but effectively blocked efforts to regulate them and pushed for the repeal of the Glass-Steagall Act, the Depression-era legislation that prevented commercial banks from merging with investment and insurance firms (the new law essentially legalized the $70 billion merger in 1998 of Citicorp and Travelers Group that created Citigroup).

Circling back to recent events, Once he got to Citigroup, Rubin assembled a team, partially from his old associates in the Clinton administration,

He also recruited several former Clinton aides to Citi, including former Health and Human Services deputy secretary Kevin Thurm....

So Kevin Thurm became something of a Robert Rubin protege at Citigroup. In fact, he rose to an important leadership position at the same time Citigroup was getting ready to become a "basket case," in part apparently because of the advice of Robert Rubin.  According to a 2013 version of Mr Thurm's official Citigroup bio,

Kevin L. Thurm is Senior Advisor for Compliance and Regulatory Affairs at Citigroup.

Previously, Thurm served as the Chief Compliance Officer of Citi. In that role, Thurm led Global Compliance which protects Citi by helping the Firm comply with applicable laws, regulations, and other standards of conduct, and is responsible for identifying, evaluating, mitigating and reporting on compliance and reputational risks and driving a strong culture of compliance and control. Since joining Citi in 2001, Thurm has also served as Deputy General Counsel of Citi, where he led the Corporate Legal group, overseeing a number of Company-wide Legal functions and providing support on day to day matters, including issues involving the Board, senior executives, and regulators; Chief  Administrative Officer of Consumer Banking North America, where he helped lead the business group and was responsible for a variety of functions including Community Relations, Compliance, Legal and Public Affairs; Director for Administration in the Corporate Center; Chief of Staff to the President and Chief Operating Officer of Citigroup; and as the Director of Consumer Planning in the Global  Consumer Group.

To recap, Mr Kevin Thurm was a top compliance executive of Citigroup while the company was imploding, and being a protege of Robert Rubin, an architect of the financial deregulation that led to the global financial collapse, and a leader of Citigroup responsible for the risky behavior of that company that led to its near collapse, which was another precipitant of the global financial collapse or great recession.  It is not obvious that these are great qualifications to be Senior Counselor at DHHS.

Moreover, Mr Thurm's responsibilities at DHHS would not be limited to compliance or financial leadership.  According to the official DHHS press release announcing his appointment,

As a Senior Counselor, Thurm will work closely with the Department’s senior staff on a wide range of cross-cutting strategic initiatives, key policy challenges, and engagement with external partners.

Yet, there is nothing in Mr Thurm's public record to indicate that he has any actual experience in health care, medicine, public health, or biologic science.  So it is not obvious why he should be entrusted with leading "cross-cutting strategic initiatives, [and] key policy challenges."

On the other hand, Mr Thurm might be simpatico with the new Secretary of DHHS, Ms Sylvia Burwell.  According to a Washington Post article at the time of the hearings about her nomination,

despite her Washington experience, ... is not well known in health-policy circles, and, during her confirmation hearings, she gave little concrete sense of the direction in which she will take the complex department she will inherit.

This seems to be a polite way to see she also has no actual experience in health care, medicine, public health, or biologic science.   Her official biography lists no such experience.  However, she was also a Robert Rubin associate, and perhaps protege, during the Clinton administration,

During the Clinton administration, Burwell held several economic roles — as staff director of the White House National Economic Council, as chief of staff under then-Treasury Secretary Robert Rubin,...

To summarize so far, the new Secretary of the Department of Health and Human Services, and now her new Senior Counselor, were both closely associated with Robert Rubin, who seems to bear major responsibility for the global financial collapse, and the new Senior Counselor worked with Rubin at Citigroup, whose near bankruptcy helped accelerate that collapse.  On the other hand, neither of these leaders has any experience in health care, public health, medicine, or biological science. 

Hedge Funds, Tax Avoidance, and the US Food and Drug Administration

This story is even less obvious.  A July, 2014, report in Bloomberg recounted plans for a Senate hearing on tax avoidance by huge, lucrative hedge funds.  The basics were,

A Renaissance Technologies LLC hedge fund’s investors probably avoided more than $6 billion in U.S. income taxes over 14 years through transactions with Barclays Plc and Deutsche Bank AG, a Senate committee said.

The hedge fund used contracts with the banks to establish the 'fiction' that it wasn’t the owner of thousands of stocks traded each day, said Senator Carl Levin, a Michigan Democrat and chairman of the Permanent Subcommittee on Investigations. The maneuver sought to transform profits from rapid trading into long-term capital gains taxed at a lower rate, he said.

An accompanying Bloomberg/ Businessweek story described testimony at a Senate hearing by the Renaissance co-Chief Executive Officer Peter F Brown,

Renaissance was founded by the mathematician James H. Simons, whose fortune is now estimated by Bloomberg Billionaires Index at about $15.5 billion.

Brown became co-CEO with Robert L. Mercer in 2010 after Simons retired and became non-executive chairman. Before joining the firm in 1993, he was a language-recognition specialist at International Business Machines Corp.

Mr Brown testified that the company was not so much trying to avoid taxes by the complex strategy but simply to make even more money.    But, per the New York Times, Senator Levin

focused on the lucrative nature of the transactions, most of which took place using Renaissance employees’ money. Between 1999 and 2010, the fund used basket options to produce profits of more than $30 billion, Mr. Levin said. Barclays and Deutsche Bank together made more than $1 billion in revenue.

Mr Brown's firm seems, unlike Citigroup, to have a record of financial success, and no one is accusing Mr Brown or his firm of being responsible for the global financial collapse.  However, Mr Brown is certainly a very rich Wall Street insider.  Also, as we noted in 2009, his firm clearly has had major involvement in health care investments.   And the current hearings emphasize concerns that his firm has been executing questionable tax avoidance strategies.

Mr Brown has one other very major tie to health care.  As  noted in 2009 on Health Care Renewal, but apparently only parenthetically by one recent news article, (again from Bloomberg, written before the Senate hearing),

Brown lives in Washington with his wife, Margaret Hamburg, the commissioner of the U.S. Food and Drug Administration. She was appointed by President Barack Obama in 2009.

In 2009, we noted that as a condition of Dr Hamburg's leadership of the US FDA, her husband, Mr Brown, would have to divest his shares of four Renaissance funds.  However, it is obvious that he remained at and became the co-CEO of Renaissance since. 

While the current leader of the FDA clearly has medical and health care experience, she is also steeped in the culture of finance and Wall Street.

Summary

Thus we have two recent stories of how top health care leadership positions in the US government are held by people with strong ties to the world of finance, but not always with any direct health care or public health experience.  Why was the wife of a hedge fund magnate the best person to run the FDA?  Why was a person not known in "health policy [or health care] circles" the best person to run the Department of Health and Human Services?  Why was a Robert Rubin protege from Citigroup the best person to be a Senior Counselor at DHHS?  Presumably there were many plausible candidates for these government positions.  Why was it not possible to find people to fill them who were not tied to Wall Street?  Why was it not possible to find people with profound understanding of and sympathy for the values of health care and public health to fill all of them?   

The leadership of health care and finance continue to merge.  This seems to be one broad explanation for why both fields continue to be notably dysfunctional.  While Wall Street has spread around plenty of money to influence public opinion and political leaders, many still remember how its foolish and greedy leadership nearly caused another great depression.  It is likely that the influence of Wall Street culture on the leadership of health care organizations, be they governmental, academic, other non-profit, or commercial, has fostered the continuing financialization of health care, with its focus on "shareholder value," that is, putting short-term revenue ahead of patients' and the public's health.

I strongly believe health care would be better served by leadership that puts patients' and the public's health first.  Occasionally people with such values may come from a finance or economics background.  However, in an era where many people continue to believe "greed is good," we at least ought to confirm that health care leaders really are about health care first, and money a distant second.

ADDENDUM (20 August, 2014) - This was re-posted on the Naked Capitalism blog.

8:27 AM

What's the Finance Function's ROI?

"Ads proliferate across St. Louis as hospitals push services, name-recognition" is the headline above this interesting article from the St. Louis Post-Dispatch's website.  Featuring all sides of the debate, the article includes this from Samuel Steinberg, decribed as a Florida-based hospital finance consultant who "...remains skeptical about the benefit of advertising."

“It’s very difficult to be able to demonstrate that these things are worth the investment,” he said. “Hospitals and health systems that put a lot of money into advertising say it is beneficial. But when you ask them to prove it, there’s a real shortage of good research that verifies that it’s worth it.”

Yes, hospital marketers are frequently remiss in not building more value-driven metrics into their work.  Too many of these marketers (those with limited job prospects) devolve from saying that measuring marketing is difficult to concluding it's a waste of time to try.  And in my experience, far too few say "We're going to do MORE of what we CAN measure and LESS (or NONE) of what we CAN'T," even at the cost of annoying a CEO's favorite physician or two.

Yet as uncomfortable as it may be for the Finance side of the house to hear, they and marketing have a lot in common, as BOTH functions sometimes do things based more on faith than on solid evidence of results.

Don't believe me?  I'll bet you have CPA after your name.  But I digress...

Take the internal audit function for example, people and processes designed to keep the organization compliant and fraud-free.  But how do you measure "frauds avoided" - misadventures that would've happened but didn't thanks to the IA boffins' work?  Tough to do.  At some point one must believe - there's that pesky 'faith' thing again - that organizations WITH a strong IA function are more successful than those without (a point with which I happen to agree by the way.) 

There's an entire superstructure of intuition and supposition built around that idea, just as with the idea that a healthy and well-communicated brand is an important organizational asset (even though not everything about it can be measured.)  But intuition and supposition are not facts, and saying that without IA we'd have more Enrons and Worldcoms is wishing and hoping, not evidence.

So bring data to the argument when you can.  But next time you hear Mr. Steinberg echoed by YOUR finance team, ask them for the cost justification on what THEY do.  And watch 'faith' suddenly rise up the priority list.

1:07 PM

"Why Do We Always Need to Blame Somebody?" - An Investment Banker Pushes Back Against Health Care Leadership Accountability

One of the many dramatic stories generated by the destructive Hurricane Sandy illustrated, oddly enough, the influence of big finance on American academic medicine.

Vivid video showed patients being carried down darkened stairways after flooding and a power failure at Langone Medical Center in New York (for example, see this CNN story.)  Amazingly, all the patients survived, thanks to heroic work by health care professionals and first responders.  CNN noted, "Some 1,000 staff members -- doctors, nurses, residents and medical students -- along with firefighters and police officers evacuated the patients."

The medical center suffered significant damage beyond that caused by the blackout.  A New York Times story about the problems was entitled, "A Flooded Mess that was a Medical Gem."  It noted the hospital's basement flooding destroyed major equipment like MRI machines, a linear accelerator and a gamma knife.  An animal research facility was destroyed and most of the animals died.  A renovated lecture hall and the library were ruined.

What Went Wrong?

However, soon after the debate began about why the hospital flooded and power failed.  A Bloomberg story stated,  

New York University Langone Medical Center, the 705-bed hospital in lower Manhattan that assured city officials it was ready for Hurricane Sandy, stood dark and empty a day after the storm rolled through.

That story raised questions whether hospital leadership gave adequate priority to infrastructure like generators, or put too much emphasis on spending likely to produce more rapid rewards.

Blame is being placed on the building’s outdated backup power system, which has raised concern that aging infrastructure at U.S. hospitals has created a risk for similar outages that jeopardize patient care.


'Hospitals are careful to get the latest and greatest medical equipment, but then they don’t spend on the infrastructure,' Michael Orlowicz, a principal at consulting company Lawrence Associates LLC, said....

A story on ProPublica (available on Salon) noted,

Experts say such failures are troubling but not entirely surprising. Dr. Arthur Kellermann founded the emergency department at Emory University and headed it from 1999 to 2007. Now, he’s Paul O’Neill-Alcoa Chair in Policy Analysis at RAND Corporation think tank.


The other night, as the NYU evacuation was unfolding, he tweeted, 'Hospital preparedness and well-functioning backup systems are a costly distraction from daily business, until they are needed. Like now.'


In an email interview with ProPublica, Kellermann elaborated: 'I have no doubt when the hospital assured the Mayor that their backup systems were ready, they believed they were. They were wrong. What I find most remarkable about this story is that [more than seven] years after Hurricane Katrina, major hospitals still have critical backup systems like generators in basements that are prone to flooding.'

Similarly, a Reuters story included another quote from Dr Kellermann,

'I've been asking hospitals to look at their own survivability' after a natural or manmade disaster, 'and I just can't get it on their radar screens,' said Dr. Art Kellerman,...

 
It added,

For hospital administrators trying to keep their institutions in the black, disaster-resistant infrastructure is expensive and lacks the sex appeal of robotic surgery suites and proton-beam cancer therapy to attract patients.

'People don't pick hospitals based on which one has the best generator,' Kellerman said. 

The notion that hospital leaders may put short-term revenue ahead of long-term infrastructure development, even when such development might be critical for patient safety, should not surprise Health Care Renewal readers.  Hospitals are often lead or influenced by those who believe maximizing short-term revenue should be the main goal of all management, an over-generalization of the idea promoted in business schools for a generation that business leaders should maximize "shareholder value," which has come to be defined as short-term stock price (see this post).

  Who Defended the Disaster Planning

 In response to this or anticipated criticism, leaders of Langone Medical Center deployed.  Not unexpectedly, one was Richard Cohen, the vice president for facilities, as reported by ProPublica, via the Huffington Post,  

After Hurricane Irene, officials at NYU Langone Medical Center spent several million dollars protecting its backup power system from flooding, according to Richard Cohen, vice president of facilities operations.

The hospital removed a fuel tank and a set of emergency generators at street level and chose to depend on what Cohen termed an 'extremely modern, extremely reliable' system of rooftop generators.

The hospital also built a new, flood-resistant house for pumps that draw fuel from the hospital's sealed underground tank and feed it to the generators that make electricity when New York City's power fails.

One vulnerability remained, and it proved to be the system's Achilles Heel. A portion of the hospital's power distribution circuits, which direct the generated electricity out into various areas of the hospital, were located in the hospital's basement.

'It's like what happens when you have a flood in your basement and the electrical panel is in your basement,' Cohen said.

Oops.  Why a crucial component of the system meant to protect the back up power system from threats including flooding was placed in an area at risk from flooding was not clear.   Only one story I could find (in the NY Times) included a response by the Dean of the Medical School and CEO of the Medical Center Dr Robert I Grossman.

At this point, Dr. Grossman said, he could only theorize as to why the generators had shut down. All but one generator is on a high floor, but the fuel tanks are in the basement. The flood, he said, was registered by the liquid sensors on the tanks, which then did what they were supposed to do in the event, for instance, of an oil leak. They shut down the fuel to the generators.

Oops again.  Why an effort to flood proof the hospital included an undeground fuel tank which could not be operated if water got near it was also not clear. 

The most voluble defender of the hospital's management proved to be one Mr Kenneth Langone.  As noted in a blog post in the Wall Street Journal, Mr Langone is the medical center's "board chair and benefactor."  In fact, as the NY Times reported in 2008,

Kenneth G Langone, a billionaire financier and founder of Home Depot, is giving another $100 million donation to New York University Medical Center, matching the one he made anonymously in 1999. 

In return, the university plans to name the medical center the N.Y.U. Langone Medical Center,....

The WSJ blog post asserted,

Langone said the hospital 'frequently' tested its generators and they had passed the tests, and the hospital was prepared for a 12-foot storm surge. 'We anticipated 12-foot surges, which we knew we could handle. We got 14-foot surges,' he said.


Some of the hospital generators were in the basement, which flooded. Langone acknowledged that the generators were 'not in the right location,' but that was an artifact of aging facilities undergoing an extensive upgrade. 'They’ve been there for years,' he said of the generators in the basement. As part of a $3.2 billion modernization, NYU Langone was planning on buying new generators and locating them in better locations than the basement, Langone said.

Oops one more time.  Mr Langone seemed to only offer inertia as an excuse for why some generators remained in the basement after an effort to flood proof the back up electrical system.
Langone was quoted in the CNN story mentioned above,

Kenneth Langone, the chairman of the hospital's board of trustees who also happened to be a patient there until he was discharged Tuesday morning, said that regulations require the generators to be tested regularly and that they've worked every time.


Langone said the hospital is in the midst of an 'enormous' building campaign. The generators are going to be replaced in a renovation, he said.

In a Bloomberg story, Langone was quoted again,

'We believed the machines would work, and we believed everything we were told about the scope and size of the storm,' Langone said.

 In that story, he tried to deflect attention from tha apparent infrastructure failure, and presumably the responsibility of the organization's leadership for it, to the efforts of health professionals,

'The backup generators failed, it’s that simple, but the story here is the magnificence of the effort of all of our people and what they did,' Langone, 77, said yesterday....

He also defended the relatively silent Dean and medical center CEO,

'What this dean has done is nothing short of spectacular, in every respect,' Langone said of Grossman. 'So last night God decides to give us a test and our machines failed.'

The story ended with yet another of his attempts to deflect attention to management's responsibility,

'Machines fail, airplanes take off in great shape and they have malfunctions,' Langone said. 'Why do we always need to blame somebody for something that could just have happened? Why not write a story about what people did because things happened? Let’s be a little positive once in a while.'

And in the WNYC News Blog, Langone appeared yet again with this apologia, 

He said hospital pumps failed, because they were overwhelmed by an event that was 'unprecedented' and 'an act of god.'


'The generators are on the seventh floor, and the fuel supply is in cement vaults in the basement, where they're supposed to be according to code,' Langone said. 'Moisture sensors shut down the pumps, but they did what they're supposed to do.'

Summary

Certainly the survival of all the former patients at Langone Medical Center due to brave efforts by health care professionals and first responders ought to be celebrated.  From the discussion so far, it is not clear whether the infrastructure failures were unavoidable due to the scope of a huge natural disaster, or whether the failures were the results of poor planning and insufficient attention to and investment in infrastructure.  Celebration of personal and professional dedication, however, ought not to distract from determining what lessons could be learned about making health care infrastructure safer in cases of natural disaster. 

It also ought not to distract from concerns about management accountability.  In this day and age, it is not surprising that no executive at Langone Medical Center would accept any responsibility for an effort to protect its electrical back-up power from flooding that included an underground fuel tank which would be shut down if any water affected it.  However, these executives are rewarded handsomely supposedly for their "spectacular" leadership.  (Dean Grossman received $1,744,780 in the 2010-2011 period according to the NYU Hospitals Center 2010 form 990.  That document listed four other executives who made over $1 million.)  One would think they would at least try to substantively address how their patients got put into such a precarious situation.

It is surprising that the silence from management was supplanted by the opinions of a very wealthy board chairman who paid hundreds of millions for some of the improvements to the hospital that were destroyed by the storm, but improvements that may not have included fully flood proofing the hospital's back up electrical system.  Why he may well be disappointed about the loss of what he spent so much to build, it is not clear why his opinions about technical aspects of disaster preparation should replace responses from those who were responsible for disaster preparedness.  After all, Mr Langone, while very wealthy, has no evident expertise in engineering, science, or anything pertaining to protecting infrastructure from natural disasters.  (Mr Langone's biography showed his background seems to be only in investment banking and finance.)  One wonders whether Mr Langone's prominence in the discussion suggests how influential the views of investment bankers, versus those of health care professionals, engineers and scientists, have become in the operation of health care systems.

Again, it appears that the culture of finance has intruded progressively into the cultures of health care and academics during an era in which finance has been increasingly irresponsible, as shown by the global financial collapse and our current economic woes.  Instead, true health care reform would develop leadership and governance that upholds health care professionals' values rather than worshiping short term revenue.

2:03 PM

Most Hospital M&A Transactions Are Financially Unsuccessful

From Healthcarefinancenews.com:  "Most hospital M&A transactions are financially unsuccessful, study says."

"According to a recent study, a majority of hospital and health system merger and acquisition transactions have not been financially successful.

"Booz & Company, a global management consulting firm, analyzed a sample of 220 hospitals with pre- and post-transaction performance data over a 10-year period (between 1998 and 2008) and found that less than half (41 percent) of all acquired hospitals outperformed their market.

[...]

"Sanjay suggested that it’s important for hospitals to merge with other hospitals that have like-minded views about the future and culture, as well as shared views around their positioning in the market.

"So, for example, a merger between an academic medical center and a small, community hospital in an underserved area may not be ideal."

12:36 PM

More Reasons to Doubt How CEOs are Chosen and Paid

Health Care Renewal is about problems with the leadership and governance of health care organizations.  Since the global financial collapse/ great recession began in 2008, it became evident that the problems we saw affecting health care leadership were similar to problems affecting other large organizations, notably financial firms.  Recently, I spotted a series of articles that raise more questions about how business leaders, and by extension, leaders of health care organizations are chosen and paid.

Doubts about Generic Managers

We have often questioned the wisdom of having health care organizations lead by people with little if any direct health care experience, little knowledge of health care on the ground, and little commitment to health care's core values.  We have called such leaders generic managers.

A New York Times article by Gretchen Morgenson from September, 2012, cited new academic work that questioned the abilities of generic managers.  The source article was Elson CM, Ferrere CK.  Executive superstars, peer groups, and overcompensation - cause, effect and solution.  Ms Morgenson summarized,

Mr. Elson and Mr. Ferrere conclude, contrary to the prevailing line, that chief executives can’t readily transfer their skills from one company to another.

Furthermore, Ms Morgenson interviewed Mr Elson, who said,

But we found that C.E.O. skills are very firm-specific. C.E.O.’s don’t move very often, but when they do, they’re flops.

Also,

But there is little evidence, according to Mr. Elson and Mr. Ferrere, that a hot market exists for interchangeable chief executives. First, they note numerous academic studies indicating that C.E.O.’s selected from within a company perform better than outsiders, especially in the creation of long-term shareholder value.

'There is no conclusive empirical evidence that outside succession leads to more favorable corporate performance, or even that good performance at one company can accurately predict success at another,' the authors conclude. 'In short, executive skills cannot pass the most basic test of generality: transferability.'

To be sure, this flies in the face of the widely held view that skilled managers have become generalists and are therefore far more interchangeable than in previous years. Proponents of this thesis argue that top managers today can accumulate a broad knowledge of economics, finance and management science, giving them the ability to manage any type of company effectively. Technological advancements also give chief executives access to untold amounts of data about a particular company that in previous times would have taken years to amass and synthesize, this view holds.

But the data on actual C.E.O. moves raises questions about just how portable C.E.O. skills really are. The Delaware paper cites several studies indicating that relatively few chief executives land new top jobs elsewhere. One study, a 2011 analysis of roughly 1,800 C.E.O. successions from 1993 to 2005, found that less than 2 percent had been public-company chief executives before their new jobs.

This data and these observations seem to broadly apply to business executives, but there is no reason to think they do not apply to executives of health care corporations.  Furthermore, given that on its face, health care is less like making automobiles than, say, the restaurant business is, there is no reason to think doubts this raises about the abilities of generic managers should not be even bigger in health care, and should apply not just to for-profit, but to not for profit corporations.  Yet the trend in health care seems to increasingly favor generic managers of not just for-profit health care corporations, but also hospitals and hospital systems, non-profit health insurers and managed care organizations, health care charities, disease advocacy groups, and even medical associations, medical schools, and their parent universities.  

Doubts about Executive Compensation

Peer-Group Benchmarking

We have often posted about amazingly generous compensation given to top leaders of health care organizations.  Health care corporate CEOs can make tens of millions of dollars, occasionally even more.  While CEOs of not for profit health care organizations make less, they still now can makes millions of dollars.  Ms Morgenson called the usual justification for these huge amounts of compensation the "pay-'em-or-lose-'em" myth.

Corporations are forever defending big executive paydays. If we don’t pay up, the argument goes, our sharpest minds will jump to our rivals.

This notion, or myth, depends on the argument that generic managers are the best managers, which appears to be largely unsubstantiated, as we noted above.

 In other words, the argument that C.E.O.’s will leave if they aren’t compensated well, perhaps even lavishly, is bogus. Using the peer-group benchmark only pushes pay up and up. 

Furthermore,

Importantly, the study disputes the notion that executive pay today is a result of an efficient bidding process for finding and retaining a scarce and valuable commodity: managerial talent. 'In essence, this process creates a model of a competitive market for executives where it otherwise does not exist,' the authors wrote. 'Through the operation of a market, it is argued, wages are bid up to an executive’s outside opportunities.'

Instead, as noted above, since the skills needed to run one sort of company or organization may not readily transfer to other companies and organizations, even seemingly similar ones, such a market does not exist. 
 
 Incentives Based on Short-Term Financial Results

We have also previously discussed (look here) how contemporary economic dogma suggest that the only measure of success of a for-profit corporation is "shareholder value," which has come to mean the stock price over the short term.  There is reason to think that this focus on short-term economic performance has also become the major measure of success of health care organizations.  Another word for this phenomenon is "financialization."  

An op-ed in the UK Independent questions this focus because of its economic effects.  Anthony Hilton wrote about the views of Andrew Smithers,

His starting point was that the economy was floundering because of inadequate demand. Personal spending is flat for obvious reasons but the real culprit is the companies who are hoarding cash and refusing to invest.

Others have noticed the cash hoarding but explain it away by saying we live in uncertain times and companies will start investing again once they become more confident about the economic outlook. Smithers disagrees fundamentally with this. He says companies are not investing because executives are bonused to deliver short-term profits. Costly spending on investment projects is therefore anathema to them. Investment may deliver long-term prosperity but by that time they will have left the company. It also depresses short-term profits while they are still there.

We have in the last two decades, under the mantra of shareholder value and aligning the interests of management with shareholders, created a new breed of management incentivised to believe that what is good for them is good for the business. They dislike investment because it reduces their bonuses .

They don't invest surplus cash. They hoard it or they use it to buy back their own company's shares.

When the majority of the managements in publicly quoted companies start behaving this way, as they now do, we have a serious problem. They are sitting on cash which is the equivalent of six per cent of GDP. This deadweight of unused resources prevents lift-off and threatens to leave the economy forever trapped in the mire.

Smithers says this behaviour by management is a structural change — meaning it is something which won't go away. It makes this down- turn different from all that have gone before.

There is no reason to think that health care corporations are not hoarding money in the sense described above.  If so, they may be failing to invest in drugs or devices that would have helped patients in the future.

Because of the limited reporting required of large health care non-profit organizations in the US, it may be very hard to tell if they are similarly hoarding money, but if they are, the effects again might be to fail to provide patients long-term benefits they might otherwise have enjoyed.

The Ultimately Self-Destructive Outcome

Meanwhile, writing in the New York Times, Chrystia Freeland, the author of Plutocrats: the Rise of the New Global Super-Rich and the Fall of Everyone Else, explained why picking the wrong leaders  and paying them too much may be bad for everyone.  We have noted that an increasing fraction of the wealthiest one percent of the US are current and former corporate executives.  Ms Freeland wrote how domination by an increasingly wealthy and powerful elite usually dooms the countries they dominate.

what separates successful states from failed ones is whether their governing institutions are inclusive or extractive. Extractive states are controlled by ruling elites whose objective is to extract as much wealth as they can from the rest of society.

So

it is the danger America faces today, as the 1 percent pulls away from everyone else and pursues an economic, political and social agenda that will increase that gap even further — ultimately destroying the open system that made America rich and allowed its 1 percent to thrive in the first place.  

Furthermore,

It is no accident that in America today the gap between the very rich and everyone else is wider than at any time since the Gilded Age. Now, as then, the titans are seeking an even greater political voice to match their economic power. Now, as then, the inevitable danger is that they will confuse their own self-interest with the common good. The irony of the political rise of the plutocrats is that, like Venice’s oligarchs, they threaten the system that created them.

So it is not merely that overcompensating generic executives has likely been one of the major reasons our health care is so expensive, inaccessible, and mediocre.  The larger problem of overpaying under skilled executives threatens to destroy our whole society.  How cheerful

Summary

The way forward seems clear.  It is just blocked by the interests of the rich and powerful elite which our current foolish policies have created.

In a health care context, leaders of organizations should only be those with clear knowledge of, experience in, and commitment to the values of health care.  Their compensation should be reasonable, and based on their ability to uphold these values first, with financial goals clearly second, and short-term financial goals probably not at all.  Pay should not be bench-marked to compensation of leaders of other organizations, especially not of vastly different kinds of organizations.

Whether there is any chance of such changes happening while corporate boards of directors, and non-profit boards of trustees are dominated by executives of other organizations is doubtful.  Thus we also need to change the governance of for-profit health care corporations to clearly reflect the long-term interests of the stockholders, who will only prosper if in the long run their companies provide products and services that help patients at a fair price and with minimal risks.   Thus we further need to need to change the governance of health care non-profits to reflect the needs of patients, their communities and other key constituencies.  That should keep us all busy for a while. 
 

6:08 PM

Parallels Between the Anechoic Effect in Finance and in Health Care: Predator Nation by Charles Ferguson

What has gone wrong with health care now seems to be the same as what has gone wrong with finance, and society at large.  This was not always obvious to those of us toiling in medicine, probably because we were so focused on medicine that we paid too little attention to the larger world around us.  The people I interviewed in preparation for writing A Cautionary Tale, [Poses MD. A cautionary tale: the dysfunction of American health care.  Eur J Int Med 2003; 14: 123-130.  Link here.] identified broad issues that helped characterize American health care dysfunction.  Neither they nor I, however, initially thought that these problems were tied to the broader society.  In fact, I often wondered back then why health care, and it seemed particularly academic medicine, was so uniquely cursed.

Now it seems obvious in retrospect that health care, finance, politics, and society are circling the same drain.  Now there has been enough time since the beginning of the great recession/ global financial collapse for some people to describe the larger problems.

The Anechoic Effect

We have frequently discussed what we called the "anechoic effect" in health care.  In short, this meant that discussing the big problems in health care, particularly those involving leadership and governance, was simply not done, particularly by the academics who could have addressed the problem.  Lots of examples of the anechoic effect are here.  We have postulated that this has to do with fear of offending the rich and powerful who now lead and govern health care organizations, and the benefits, which may be produced by conflicts of interest, of maintaining good relationships with these rich and powerful.

Charles Ferguson in Predator Nation on the Anechoic Effect

Meanwhile, the anechoic effect was a big reason that finance became such a big mess.  Charles Ferguson, as we have previously discussed, has been one of the most insightful commentators on the great recession/ global financial collapse, starting with his Academy Award winning documentary Inside Job.



This year he published Predator Nation (Ferguson C. Predator Nation: Corporate Criminals, Political Corruption, and the Hijacking of America. New York: Crown Business, 2012.) a more complete account of our financial disaster.  It has a section on what we on Health Care Renewal would call the anechoic effect, and how it is driven by perverse incentives (pp 81-82) :

You see a horrific train wreck in the making, with all your coworkers contributing to it. But they are all making a fortune, and their manager - who is your boss too - is making even more money by keeping it going. Quite obviously, they're going to keep doing it whether you participate or not; so even if you refuse to participate, the firm will be dead anyway. You can try to stop it by going over your boss's head to the CEO; but your boss won't like that at all, and he and the entire department will tell the CEO whatever they need to tell him in order to keep it going. And if - speaking purely hypothetically - your CEO is an oblivious, selfish, obnoxious egomaniac nearing retirement age, heavily focused on his golf game and art collection, with a few hundred million in cash already stashed away, scheduled to rake in another $50 million this year, whose contract guarantees him another $100 million if he loses his job - well, then he probably won't be very sympathetic to you either. You could try going to the board of directors, but even if you could reach them, it will turn out that they are old pals of the CEO, often stunningly clueless, picked largely so that they won't rock the boat.

So if you try to stop the party, you'll probably get marginalized or fired, as happened to a number of serious, ethical people who tried to warn their management and curtail unethical and illegal conduct in Merrill Lynch, Lehman, Citigroup, AIG and elsewhere. So you'd gain nothing by acting ethically - quite the contrary, you'd ostracize yourself and lose your chance to build (or rather, transfer to yourself) some real personal wealth - possibly once-in-a-lifetime opportunity.

Summary: the Application to Health Care, and What Must be Done to Change Things

So consider how much of this might apply to a) serious, ethical employees of large health care corporations, and b) health care professionals who are employees of large health care non-profits, and/or have major financial relationships (conflicts of interest) with large health care corporations. 

Regarding the latter, think of the health care professionals who worked at the Allegheny Health Education and Research Foundation (AHEF) back in the 1990s, and who were told by their multi-millionaire CEO,  "Don’t cross me or you will live to regret it."  How inclined would they have been to blow the whistle on his supposedly "visionary" leadership?  On Health Care Renewal, we have posted lots of relevant newer examples of bad behavior by wealthy leaders of drug, device, biotechnology, health care information technology, and health insurance companies.  We have also posted lots of relevant newer examples of bad behavior within hospital systems and academic medical centers.  Yet most of these generated little resistance from within the organizations at the time they were occurring, and those who did try to blow the whistle often did not fare very well. 

The biggest issue is clearly that if you are in a system which may hugely award clueless, or bad behavior (i.e., that has perverse incentives), then those who might protest will be effectively silenced by those who are profiting from the status quo.

Combating this would require serious outside regulation to discourage perverse incentives and conflicts of interest, serious law enforcement to prosecute any resulting fraud, bribery, etc, and serious protection of whistleblowers, just for a start. All are currently lacking in finance, and in health care. But if we do not put such measures in place, the downward spirals in health care and finance will just continue.

Do not expect to see much discussion of these issues in health care or finance in the current political debate, unless those currently outside of the debate break the anechoic effect and inject them into the debate.

9:07 AM

Paging Doctor EBDITA - How Private Equity May Push Hospitals to Put Revenue Ahead of Patient Care

Issues raised by the increasing influence of private equity firms in the direct care of patients were illuminated by a series of articles about the for-profit hospital chain HCA.

Quality Problems

The articles highlighted a series of concerns about quality problems affecting the chain's patients. 

Cardiac Overtreatment

First, a New York Times article described problems in the care of cardiac patients. 

HCA, the largest for-profit hospital chain in the United States with 163 facilities, had uncovered evidence as far back as 2002 and as recently as late 2010 showing that some cardiologists at several of its hospitals in Florida were unable to justify many of the procedures they were performing. Those hospitals included the Cedars Medical Center in Miami, which the company no longer owns, and the Regional Medical Center Bayonet Point. In some cases, the doctors made misleading statements in medical records that made it appear the procedures were necessary, according to internal reports.

More specifically, at one hospital, cardiac catheterizations seemed to occur to often: "about half the procedures ... were determined to have been done to patients without significant heart disease." Two patients at another hospital had severe adverse effects after cardiac procedures that seemed unnecessary in retrospect. There were "incidents at Bayonet Point where patients were treated for multiple lesions, or blockages, even when 'the second lesion (or third) did not appear to have significant disease....' [In] 'several cases'  ... patients were treated even though their arteries did not have significant blockages." Then,

HCA brought in an external company, CardioQual Associates of Franklin, Mich., in 2004 to examine medical records from Bayonet Point. In a confidential memo prepared in December 2004 and reviewed by The Times, CardioQual concluded that as many as 43 percent of 355 angioplasty cases, where doctors performed invasive procedures to open up a patient’s arteries, were outside reasonable and expected medical practice. Worse, the investigation revealed that some physicians had indicated in medical records that the patients had blockages of 80 to 90 percent when a later, more scientific analysis of a sampling of cases revealed the blockages had ranged from 33 to 53 percent.

Possible Undertreatment of Acute Illness

Then, a second NY Times article found that

HCA decided not to treat patients who came in with nonurgent conditions, like a cold or the flu or even a sprained wrist, unless those patients paid in advance. In a recent statement, HCA said that of the six million patients treated in its emergency rooms last year, 80,000, or about 1.3 percent, 'chose to seek alternative care options.'

Of course, the problem with this approach is that it is not always possible to tell how severe an acute illness is without a more complete evaluation than can be done in emergency department triage. There is anecdotal evidence that HCA turned away some patients who actually had serious illness:

Regulators in several states have taken HCA hospitals to task over screening out patients too aggressively, including situations where the screening missed serious conditions.

In early 2010, an uninsured patient who entered HCA’s TriStar Skyline Medical Center in Nashville, complaining of 'pain when breathing,' was sent away. An hour and a half later, at another hospital, the same patient was found to have pneumonia, according to the results of a Medicare investigation. Regulators cited Skyline for having 'failed to ensure that an appropriate medical screening examination was conducted.'

This year, the Office of Inspector General fined HCA’s Northside Hospital in St. Petersburg, Fla., $38,000 for sending home a feverish patient with an artificial heart valve. Two days later, the patient reappeared with the flu and severe respiratory problems. The following day, he died.

Undertreatment of Bed Sores

The second Times article also suggested that decreased nurse staffing at HCA hospitals lead to worse treatment of bed sores (decubitus ulcers):

Experts say there is often a direct correlation between bedsores and the quality of hospital staff levels. 'Staffing is critical,' said Courtney H. Lyder, the dean at the UCLA School of Nursing and an expert on wound care. 'When you see high levels of wounds, you usually see a high level of dysfunctional staff,' he said.

HCA owned eight of the 15 worst hospitals for bedsores among 545 profit-making hospitals nationwide, each with more than 1,000 patient discharges, tracked by the Sunlight Foundation using Medicare data from October 2008 to June 2010. HCA’s West Houston Medical Center and CJW Medical Center in Richmond, Va., landed near the top of the list.

HCA says it has increased its nursing staff at its hospitals each year over the last five years. But an examination of lawsuits shows bedsore problems have been persistent at several HCA facilities. In Portsmouth Regional Hospital in New Hampshire, a 60-year-old woman died in 2009 after her bedsores went untreated for three days and became infected, according to a wrongful-death lawsuit filed in the spring of 2011 in federal court against the hospital.

One HCA hospital

was cited twice by Florida regulators, in 2008 and 2010, for having inadequate numbers of nurses on its staff to oversee wound care for patients. During the 2010 examination, regulators noted that Memorial had less than the equivalent of two full-time nurses who specialized in wound care to treat the 132 patients who required aid.

'The system of treatment for wound care places patients at risk for additional medical complications,' the examiners said.

So, in summary, there is reason for concern about overtreatment of cardiac disease, and undertreatment of acute illness and bedsores at HCA hospitals. However, no hospital and no doctor is perfect. Everyone makes mistakes, and many decisions can be questioned in retrospect. Instead

Putting Money Ahead of Quality

Instead, the articles suggested they were part of a pattern in which concerns about short-term revenue trumped concerns about patient care.

Cardiac Procedures to Generate More Revenue

The article about cardiac care noted that one of the physicians who allegedly was doing too many cardiac procedures

was highlighted by the hospital in a 2009 business plan as being the most profitable doctor at the facility. 'Our leading EBDITA MD,' the plan described him. (Ebitda, or earnings before interest, taxes, depreciation and amortization, is a measure of corporate earnings.)

On the other hand, according to the Tampa Bay Times, some of the doctors whom HCA suspended for doing too many percutaneous cardiac revascularization procedures charged that the issue was that

far from concern over the cost of stents — Bayonet Point was upset that stents were replacing more expensive bypass surgeries.

The first NY Times article also suggested that HCA executives did their best to keep the issue quiet so as not to affect revenue. First,

HCA declined to provide evidence that it had alerted Medicare, state Medicaid or private insurers of its findings, or reimbursed them for any of the procedures that the company later deemed unnecessary, as required by law.

Also,

HCA also declined to show that it had ever notified patients, who might have been entitled to compensation from the hospital for any harm.

The Times uncovered internal HCA communications suggesting that obfuscation was deliberate:

In January 2005, David Williams, who was then the chief executive of Bayonet Point, wrote in an e-mail: 'Clearly, we have protected ourselves under the peer review umbrella and have released very little information.' The recipients of his message included Dan Miller, who then oversaw HCA’s hospitals in western Florida, and Charles R. Evans, a Nashville executive who was president of all of HCA’s hospitals on the eastern side of the country.

In his response, Mr. Evans thanked Mr. Williams for the update and asked for a 'summary as to the business impact.'

Furthermore, as the last sentence above indicated, review of internal emails suggested that executives were more worried about revenue than quality of care or patient outcomes:

A review of those communications reveals that rather than asking whether patients had been harmed or whether regulators needed to be contacted, hospital officials asked for information on how the physicians’ activities affected the hospitals’ bottom line.

Avoiding Caring for Poor Patients in the Emergency Department

On the other hand, the impetus for triaging away apparently less acutely ill patients from the Emergency Department was to avoid such patients who could not pay. The second NY Times article noted there was a way for supposedly less ill patient to get Emergency Department treatment,

Patients whose ailments were not deemed urgent were told to go somewhere else, like a free clinic, or that they could be treated if they paid the co-payment for their insurance or around $150 in cash.

In addition, there is reason to think that HCA management pushed health care professionals to put off increasing numbers of patients, regardless of their clinical problems,

Several former emergency department doctors at Lawnwood Regional Medical Center in Fort Pierce, Fla., said they frequently had felt compelled to override the screening system in order to treat patients.

Also,

'Physicians had a really, really hard time with it,' said Dr. J. Patrick Pearsall, who worked for an emergency physician group based in Houston that worked in HCA hospitals. When the doctors failed to meet the hospital’s goals for how many patients should be considered emergencies, 'they really started putting pressure on.'

One emergency room doctor who worked at an HCA Florida hospital said doctors had been told they had targets to hit. The doctors’ concerns about the screening policy were acknowledged in an e-mail reviewed by The Times that was sent to the doctors at the hospital in early 2008 by an outside company that worked in the emergency room.

The doctors were told HCA’s regional executives were 'quite intent on pursuing this program at least for the time being and fully expects us to comply. Their expectations are that approximately 15 percent of all patients are to be screened and of those screened no more than 35 percent overridden.'

Keep in mind that variations in patient populations over time and across geographic areas means that the proportions of more and less severely ill patients showing up at individual Emergency Departments will vary substantially. Pressuring health care professionals to turn away a minimum percentage of people will make it very likely that at some times severely acutely ill patients will not be seen.

So it appears that at HCA, patients sometimes were overtreated, and sometimes were undertreated, and that executives trying to increase revenue may have been more responsible for both than simple human error.

Finally, there is reason to think that the take-over of HCA by private equity (that is, leveraged buy-out) firms further increased the for-profit corporation's emphasis on short-term revenue leading to worsening quality of care.

Private Equity Pushed for Even More Short-Term Revenue

The second NY Times article first noted,

During the Great Recession, when many hospitals across the country were nearly brought to their knees by growing numbers of uninsured patients, one hospital system not only survived — it thrived.

In fact, profits at the health care industry giant HCA, which controls 163 hospitals from New Hampshire to California, have soared, far outpacing those of most of its competitors.

The big winners have been three private equity firms — including Bain Capital, co-founded by Mitt Romney, the Republican presidential candidate — that bought HCA in late 2006.

HCA’s robust profit growth has raised the value of the firms’ holdings to nearly three and a half times their initial investment in the $33 billion deal.

The financial performance has been so impressive that HCA has become a model for the industry.

Note that the private equity firms extracted a considerable amount of cash from HCA at the time they turned it back into a publicly held for-profit corporation:

In 2010, buoyed by robust growth in profit, HCA was able to issue billions of dollars in debt that was used to pay funds overseen by the three buyout firms nearly $1 billion in dividends — each. In the spring of 2011, in one of the most closely watched public offerings since the financial crisis, HCA became a public company once again. Its three buyout owners each sold another $500 million worth of stock, allowing them to recoup all their initial investment.

By thus increasing the new public corporation's debt load, they further increased pressure on its executives to bolster short-term revenue.

However,

As HCA’s profits and influence grew, strains arose with doctors and nurses over whether the chain’s pursuit of profit may have, at times, come at the expense of patient care.

Summary:  Why No Hospital Should be For-Profit?

Among all developed countries, I believe only the US has such a high proportion of for-profit hospitals, and physicians employed by for-profit corporations to take care of patients.

However, in summary, this case shows there is evidence that
- The management of one for-profit hospital chain was pushed to focus even more on short-term revenue by a leveraged buy-out engineered by private equity firms
- This focus lead management to pressure health care professionals to increase revenue, even if that required over- or under-treating patients
- The resulting over- and under-treatment likely harmed patients.

As a Tampa Bay Times editorial put it,

the allegations suggest a disturbing pattern of endangering patients, and they again expose the weaknesses of a health care system driven by volume and profit rather than efficiencies and patient outcomes.

In a column in Forbes, Steve Denning warned,

The hospitals owned by private equity are making money in the short-term at the expense of Medicare and the economy. But when the private equity firms depart, as they plan to do, they leave the hospitals with a load of debt, dispirited doctors and nurses, and a bankrupt Medicare system, with serious questions as to whether overall care has been maintained, let alone improved.

The current bonanza for private equity from milking Medicare is a bubble that cannot be sustained.

We have noted how health care organizations have increasingly been "financialized," lead by executives who put short-term revenue generation ahead of all other goals, including good patient care. Furthermore, hospitals are increasingly likely to be formally for-profit, and hence likely to be lead by such executives. Worse, hospitals are increasingly likely to be owned by private equity firms, further increasing the emphasis on short-term money making. Even worse, physicians are now more frequently employed by such organizations, which may pressure them to do what it takes to increase revenue, no matter what the effect on patients' and the public's health.

The probably effects on the quality of care, access, and costs are obvious.

In my humble opinion, before the health care bubble bursts, we need to challenge the notion that direct health care should ever be provided, or that medicine ought to be practiced by for-profit corporations. Before market fundamentalism became so prominent, many stated prohibited the corporate practice of medicine, and the American Medical Association forbade the commercialization of medicine. It is time to heed that wisdom. 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.

As Todd Hixon wrote, surprisingly in Forbes,

I believe a big part of the answer lies in changing the idea that health care should be a path to riches. There are professions, like university teaching and research, where a big part of the motivation is helping people and gaining respect in the community. If we could shift the balance for health care providers in that direction, solving problems like the one manifest at HCA would be a lot more possible.

True health care reform will require an end to market fundamentalism in health care.

Note - See also comments by Paul Levy in the Not Running a Hospital Blog.

11:33 AM

NFP Hospitals Hit the Wall

Have nonprofit healthcare providers' improvement efforts hit a wall?  Standard & Poor's Rating Services seems to think so, in this story (via Reuters.)   From the story:

"Adding to pressures, inpatient volumes are dropping.

"With pending budget sequestration at the federal level, health reform implementation, and continuing pressure on state budgets, we believe the next several years will be difficult for most providers," said S&P. "Furthermore, we believe that the improvements of the past several years may be reaching their limit and thus will not be able to keep pace with longer-term revenue pressures, especially in light of weaker volumes."

"S&P says more rating downgrades are possible for not-for-profit healthcare systems over the next two years. It noted that the proportion of systems with positive or stable outlooks is shrinking, which "supports our opinion the multiyear trend of improved financial ratios is unlikely to continue."

Sooner or later providers, notoriously risk adverse, will be forced to admit that cautious incrementalism is little more than death by a thousand cuts - a slow death, but death nevertheless.

Many see salvation in mergers and/or acquisition.  Putting a bunch of soon-to-be-crummy balance sheets together doesn't make the collective any less crummy.  And, usually, the consultants, lawyers and integration costs eat up the first 5 years of savings from any so-called "synergies."

Many see salvation in shiny new buildings with private rooms and in-lobby waterfalls.  Few will find the new business volumes to justify more balance sheet leverage (see "crummy" - above.)

And many see salvation in massive IT investments- Big Data, EMRs, portals, etc.  I hope they're right.  I fear they're not, but it'll take five years to really know how soundly these systems were reviewed, acquired and implemented.  Sitting here it's easy to predict more failures than successes.

In the meantime, under either fee for service or risk-based reimbursement, a "low delivered cost" position looks better and better.  It's the only strategy offering a possibility of success regardless of scenario.  But here providers have been far too timid, scrabbling in the dirt for a few percentage points of margin improvement instead of challenging themselves to find 30%, 40%, even 50% savings on an episode of care.

They're not going to achieve that by cutting the marketing budget (again) or designing buildings offering more of the same.

No, it won't happen until providers finally do hit that wall.  Maybe then they'll realize that the only path to survival requires getting radical about lots of things -  including ditching that leadership box in which they find themselves.

(Photo credit: Magdalena Gmur, Creative Commons)

3:11 PM

Productive Employment

With desultory interest, I picked up a 1993 novel at the library, The Surgical Arena, by Peter Grant, M.D., “a former navy pilot who became a surgeon.” The following snippet, on page 18, says a lot in a nutshell:

“We’ve got one shot at getting into medical school and that means getting our grades into the top twenty.”

“Why don’t we all just quit and take some gut courses that will prepare us to be brokers,” said Beckwith, one of the veterans. “We can sit on our asses and make a lot of dough.”

“You have to be a crook to be successful in that field,” said Norman. “Besides, you’ll never get any satisfaction out of life unless you put something worthwhile back into it.  I didn’t fight in the infantry to come back and become a broker.”

1993 was the same year that a short-sighted Congress cancelled the Texas supercollider project.  It’s been correctly noted that had that not happened, the recent Higgs-Boson particle observation might have occurred here rather than in Switzerland.  A number of the now-unemployed physicists involved were hired by Wall Street firms.

Although basic banking DOES perform a socially useful function -- firms and individuals DO need capital -- it is very questionable what if anything “banking innovations” (CDOs, derivatives, very rapid short-term computerized trading, etc.) that have proliferated since 1993 have contributed to society.   As Roger Bootle wrote:

For m]uch of what goes on in financial markets . . . [t]he gains to one party reflect the losses to another, and the vast fees and charges racked up in the process end up being paid by Joe Public, since even if he is not directly involved in the deals, he is indirectly through the costs and charges that he pays for goods and services.

In 1995, the assets of the six largest bank holding companies was no more than 17% of GDP, but at the end of 2010, the assets of the six largest bank holding companies were valued at  just over 63 percent of GDP. This financialization of the economy has been at the expense of the rest of us. And finance is now the top area where graduates of Ivy League universities find jobs.

As Dale Carnegie points out, all people – even gangsters like Al Capone – think of themselves as “good guys”.  Lloyd Blankfein, Goldman Sachs’ CEO, is probably sincere when he says he is “doing God’s work”.  But many of us do not agree. Things work as well as they do only because many people are actually still working hard at useful jobs that do contribute to society.  My thanks go to those – and not to the so-called “wealth creators.”

4:47 AM