Fatal Fraud? - More Settlements by Commercial Hospices of Allegations They Enrolled Non-Terminal Patients

Introduction - Commercialized Hospices

We have occasionally written about the rise of the commercialized hospice industry, and concerns that commercialized hospices may not be providing the compassionate care they promise.  As we have discussed before, the hospice movement began with small, non-profit, community based organizations meant to provide compassionate palliative care to the terminally ill.  However, in the US, the hospice movement has been co-opted by commercial hospices, often run by large corporations, which may put profit ahead of compassion.

In the Washington Post series "Aging in America," Peter Whoriskey explored problems affecting the contemporary "industrialized" model of hospice.  He noted in August, 2014,

The hospice industry in the United States is booming and for good reason, many experts say. Hospice care can offer terminally ill patients a far better way to live out their dying days, and many vouch for its value.

In the US, hospice care is funded by Medicare, and the funding at times may seem generous. As more hospices are taken over by for-profit corporations, that money may be irresistible. Whoriskey noted,

But the boom has been accompanied by what appears to be a surge in hospices enrolling patients who aren’t close to death, and at least in some cases, this practice can expose the patients to the more powerful pain-killers that are routinely used by hospice providers.

Whoriskey presented a case in which a non-terminally ill patient was admitted to hospice, and died possibly due to aggressive use of narcotics.

Clinard 'Bud' Coffey, 77, a retired corrections officer, did the crossword in The Charlotte Observer after breakfast every morning, pursued his hobby of drawing cartoons, talked seven or eight times a day to his son Jeff and, just two weeks before his death, told a pal that he still felt 'like a teenager.'

He did, however, have some chronic back pain, and in late March he was enrolled in hospice care 'essentially for pain management,' his doctor said. Over a two week period, he received rising doses of morphine and other powerful drugs, grew sleepy and disoriented, and stopped breathing, dying peacefully at home, according to his family and medical records they provided.

While hospices tend to use very aggressive pain management strategies, they also by design do not attempt to cure patients who develop new acute problems. So if a non-terminally ill patient enters hospice, such a new acute problem could be fatal. For example, we discussed a case in which a person admitted to a commercial hospice for "debility" but apparently not defined terminal illness, died from untreated sepsis. It is possible that timely use of antibiotics could have contained her initial infection, or possibly even cured her sepsis.

Yet evidence continues to accumulate that modern industrialized hospices, especially those owned and run by large for-profit corporations, may enroll patients who are not terminally ill to increase revenue. The regulatory response to such behavior continues to be spotty, and seems focused on enrollment of non-terminal patients as a form of fraud, not as a danger to patients.

So far in 2015 two commercial hospice chains settled charges that they enrolled patients who were not terminally ill.

Good Shepherd Hospice

Early in 2015, there was very abbreviated news coverage of the settlement made by Good Shepherd Hospice. A Department of Justice press release noted,

Today, Good Shepherd Hospice Inc., Good Shepherd Hospice of Mid America Inc., Good Shepherd Hospice, Wichita, L.L.C., Good Shepherd Hospice, Springfield, L.L.C., and Good Shepherd Hospice – Dallas L.L.C. (collectively Good Shepherd) agreed to pay $4 million to resolve allegations that Good Shepherd submitted false claims for hospice patients who were not terminally ill. Good Shepherd is a for-profit hospice headquartered in Oklahoma City which provides hospice services in Oklahoma, Missouri, Kansas and Texas.

The press release specifically stated,

The government alleged that Good Shepherd knowingly submitted or caused the submission of false claims for hospice care for patients who were not terminally ill. Specifically, the United States contended that Good Shepherd engaged in certain business practices that contributed to claims being submitted for patients who did not have a terminal prognosis of six months or less, by pressuring staff to meet admissions and census targets and paying bonuses to staff, including hospice marketers, admissions nurses and executive directors, based on the number of patients enrolled. The United States further alleged that Good Shepherd hired medical directors based on their ability to refer patients, focusing particularly on medical directors with ties to nursing homes, which were seen as an easy source of patient referrals. The United States also alleged that Good Shepherd failed to properly train staff on the hospice eligibility criteria.

However, it suggested that the behavior was fraudulent, not dangerous,

'Health care fraud puts profits above patients, and steals from taxpayers,' said U.S. Attorney Tammy Dickinson of the Western District of Missouri. 'In this case, company whistleblowers alleged that patients received unnecessary hospice care while Good Shepherd engaged in illicit business practices to enrich itself at the public’s expense.'

Note that as is usual in cases of health care fraud, Good Shepherd Hospice did not admit wrongdoing, and no individual who authorized, directed or implemented the alleged bad behavior suffered any negative consequences. The minimal media coverage of this case did not discuss the possibility of any risks to patients. (For example, look here.)

Good Shepherd Hospice is part of a for-profit corporation. I could find nothing about its ownership, who its leaders are, or its financial status.  So who particularly benefited from the alleged behavior was not clear.

Guardian Hospice and AccentCare, Owned by Oak Hill Capital Partners

In early October, 2015, a brief news item in the Atlanta Journal Constitution described the settlement by Guardian Hospice.

A Georgia hospice company has agreed to pay $3 million to resolve allegations it billed taxpayers for patients who were not terminally ill,...

In particular,

Guardian Hospice set aggressive targets to recruit and enroll patients it knew were not in the last months of their lives so it could collect Medicare payments, the federal government alleged.

The article noted the settlement arose from a whistle-blower law suit, and that the whistle-blowers

alleged they routinely saw non-terminal patients being treated but were told it was necessary to keep the hospice’s 'census' up,...

The AJC article did quote their attorney as saying,

the practice was 'doubly cruel' because when unqualified patients are put on hospice, they are forced to forego regular medical care that could help cure their illness.

But it provided no further detail. The official news release only quoted an agent of the Department of Health and Human Services (DHHS) Inspector-General's office:

Hospice care is only medically appropriate – and reimbursed by Medicare – for terminally ill patients who are in the last months of their lives

Again, there were no admissions of culpabality, and no actions taken against any individuals.

The $3 million penalty seems paltry, given that we do know something about the owners of Guardian Hospice and the depth of their pockets.  One brief news article about a June, 2015, settlement made by Guardian Hospice for underpaying its nurses, did mention that Guardian Hospice is owned by AccentCare.  A little more digging found this press release from 2010 made by Oak Hill Capital Partners, a large private equity firm.

Oak Hill Capital Partners announced today that following the closing of their acquisition of AccentCare, Inc. ('AccentCare'), a premier provider of home healthcare services, including nursing and attendant care services, they intend to combine it with Guardian Home Care Holdings, Inc. ('Guardian'), a leading homecare and hospice service provider in the Tennessee, Georgia and Texas markets. The terms of the transaction were not disclosed.

The combination of AccentCare and Guardian creates one of the largest operators in the industry, with an expanded geographical footprint and highly diversified service offerings. The new company will operate over 130 branches across 10 states, serving more than 30,000 patients.

Since private equity firms have minimal reporting requirements, we do not know who owns Oak Hill Capital Partners, and hence who owns AccentCare and Guardian Hospice. We do know from the Oak Hill Capital Partners web-site that their portfolio is prodigious.

Summary and Discussion

There are more cases being reported in which hospices, particularly those owned and run by for-profit corporations, have enrolled patients who were not terminally ill.  These enrollments may be motivated by the desire for more money, but they put patients at risk.  Hospice patients may receive large doses of psychoactive drugs and narcotics, which may lead to adverse effects up to and including death.  Hospice patients may not, however, receive treatments for new acute problems, even if those problems are potentially curable.  Therefore, hospice patients may die from untreated infections that otherwise might respond to antibiotics.  Aggressive pain medication and withholding treatment of infections make sense as part of palliative care for terminally ill patients, e.g., those with terminal cancer.  But they make no sense for patients with longer life expectancy.

Nonetheless, such abuses by hospices get little press coverage, seemingly are ignored by health care regulators and law enforcement, and are almost completely anechoic in the health care, medical and health policy literature.

If a measure of society is how it cares for the most vulnerable patients, the US laissez faire approach to for-profit hospices suggests a society in decline.

To repeat what I wrote the last time for-profit hospices were (barely) in the news for enrolling the wrong patients,...

 In my humble opinion, we should return control of direct patient care, especially of the most vulnerable patients, to health care professionals and if necessary small non-profit community organizations.  We ought to give strong consideration to banning corporate hospices, and banning all forms of the corporate practice of medicine and corporate health care "delivery."

Given how many insiders make so much money from the current version of laissez faire capitalism in health care, however, I would expect strong resistance should such apparently "radical," but actually conservative proposals actually get any mainstream attention.    

5:40 PM

More Barbarians at the Gates: Private Equity Puts Primary Care in Play

There are still some idealistic physicians who enter primary care practice as a calling.

The usual informal definition of primary care is care which is continuous, coordinated, comprehensive and compassionate.  The official definition used by the American Academy of Family Physicians (AAFP) is:

Primary care is that care provided by physicians specifically trained for and skilled in comprehensive first contact and continuing care for persons with any undiagnosed sign, symptom, or health concern (the 'undifferentiated' patient) not limited by problem origin (biological, behavioral, or social), organ system, or diagnosis.

Primary care includes health promotion, disease prevention, health maintenance, counseling, patient education, diagnosis and treatment of acute and chronic illnesses in a variety of health care settings (e.g., office, inpatient, critical care, long-term care, home care, day care, etc.). Primary care is performed and managed by a personal physician often collaborating with other health professionals, and utilizing consultation or referral as appropriate.Primary care provides patient advocacy in the health care system to accomplish cost-effective care by coordination of health care services. Primary care promotes effective communication with patients and encourages the role of the patient as a partner in health care.

Private Equity Firms are Buying Out Primary Care Practices

However, an article this week in Modern Healthcare described how primary care in the US is getting a rude surprise.  Apparently, primary care practices are now "in play," (using the terminology for the classic 1987 movie Wall Street, in which Gordon Gekko declared that greed is good).



The argument was that there is

a small but growing number of investments that private-equity firms are making in primary-care physician practices that are ahead of the curve in offering new care delivery and payment models. Investors see an opportunity in being early participants in value-based care, even as the business case is still unclear given mixed results in Medicare's payment and delivery reform demonstrations so far.

But the niche is well-suited for private-equity firms, which feed on uncertainty, said Todd Spaanstra, a partner at Crowe Horwath, an accounting and consulting firm. 

This is not about quality of care, it is about the idea that business people think that "value-based care" and "risk-based contracting" are the current rages, and so there is money to be made investing in entities that seem to fit in with these fashions.

said Slava Girzhel, managing director at KeyBanc Capital Markets. 'There's a lot of discussion about private-equity investing in risk-based models, and I do think we'll see more of that.'

Continuous, coordinated, comprehensive and compassionate care may suffer when the time horizons are not that long, and the owners of the practice are ultimately looking to sell it. 

The long-term opportunity for private-equity firms is the ability to sell these managed-care-savvy medical groups to insurers or health systems, which may pay a premium for the care-coordination expertise and data analytics these practices offer.

Also,

The typical private-equity investment timetable is short—about five years. At that point, the firm would probably look to sell the practice, ideally to an insurance company or a health system, said Dan Hosler, a principal at private-equity firm Sterling Partners.

Furthermore, why private equity may be interested in primary care now, continuing interest will depend on the numbers, not on the benefits to patients

'This is an area where there are winners and losers,' said Dr. Andrei Gonzales, director for value-based reimbursement initiatives at McKesson Health Solutions. 'It's everyone trying to get a slice of the pie that's getting smaller.'

What Happens When the Barbarians are at the Gate

Conspicuously absent from this article was discussion of aspects of the private equity modus operandi which are even more at odds with primary care values than the short time horizon noted above.  We previously warned about the perils of private equity employing physicians (look here.)  The main points were:

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

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

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

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

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

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

Summary

Primary care physicians thinking about selling their practices to private equity ought to think at least twice before doing so, assuming the physicians are serious about upholding the values of primary care.  Private equity firms are in it for the money, and in the relatively short term.  Private equity firms are unlikely to care about the mission of primary distinct from the ability of primary care practices to make the firms richer.  Therefore, practices owned by private equity may well not provide the best possible care for their patients.  In any case, the physicians working for such practices may be answering to owners who are very explicitly only in it for the money.  They will have become corporate physicians, possibly in the most pessimistic sense of the term.

In general, Dr Arnold Relman reminded us that physicians used to shun the commercial practice of medicine (look here).  Physicians and other health professionals who sign on as full-time employees of large corporate entities have to realize that they are now beholden to managers and executives who may be hostile to their professional values, and who are subject to perverse incentives that support such hostility, including the potential for huge executive compensation.  It is not clear why physicians seem to be willing to sign contracts that underline their new subservience to their corporate overlords, and likely trap them within confidentiality clauses that make blowing the whistle likely to lead to extreme unpleasantness.

Things are likely to be even worse for corporate physicians who are employed by firms owned by private equity. Because of the way private equity operates, primary care practices owned by such firms are liable to be very unstable.  At best, they are liable to be sold to totally new owners in a relatively short time frame, and those owners are likely to be those who will pay the highest price, not necessarily those who will provide the best stewardship for the practices.

Furthermore, primary care practices owned by private equity are likely to end up heavily indebted and subject to strict cost cutting measures that may decrease care quality, decrease access, increase patients' out of pocket costs, and demoralize providers.  Practices acquired by private equity may be broken up and sold as separate pieces.  Should the debt be too high, and the cost cutting not be sufficient, such practices could end up bankrupt and possible completely defunct. 

Do not say I did not warn you.

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

ADDENDUM (28 April, 2015) - This post was re-published on the Naked Capitalism blog.  

7:24 AM

Private Equity, Obfuscatory Advertising, and Making Health Care a Commodity: Lessons from Cerberus Capital Management

The use of advertising by Steward Health Care, currently a regional hospital system here in New England, continues to provide lessons about how public relations and marketing may be used to shape the health care policy debate.  Stand by because the story is convoluted.

Steward Promotes "New Health Care," Whatever That May Be

This week, Commonwealth reported on Steward's latest high profile advertising campaign in the Boston area,

Steward Health Care is using the Olympics to hone its image. The Boston-based chain of 10 community hospitals, many of which were on the verge of going under when Steward acquired them, is running a series of ads on WHDH-TV (Channel 7) during Olympics coverage that cast the company as a delivery system for a new type of world-class health care.

While visible, the advertisements are notably vague. One features

a Steward employee who says she believes 'world class health care is here.' Another of the initial ads features individual doctors and technicians pledging to be stewards of 'the new health care,' which is the tagline for all of the Steward ads.

What the 'new health care' means is never fully explained in the ads

One local health care expert

Paul Levy, the former CEO of Beth Israel Deaconness Medical Center, said he thinks the ads are part of a campaign by [Steward Health Care owner] Cerberus [Capital Management] to make Steward more attractive to would-be buyers. 'This has very little to do with anything other than establishing the image and the brand of the Steward hospitals so when the day comes when Cerberus sells the company it will be better received in the public markets,' Levy said.

The article had noted that

Cerberus Capital Management, a New York private equity firm, owns Steward,...

So it is possible that no one at Steward really has any idea what sort of "new health care" the organization is promoting

Steward's CEO Promotes Health Care as a Commodity

However, there is reason to think that the top leadership of Steward, and probably of Cerberus Capital Management, the private equity group that owns it, actually does have a clear idea what new health care they are promoting.

Almost simultaneous with the Commonwealth article and the Olympic advertising campaign an interview appeared with Steward's CEO in Fortune. CEO Dr Ralph de la Torre first pitched medicine as science,

A lot of us physicians went into medicine because we loved the art aspect of it. There wasn't a lot of real hard-core science when many of today's doctors went into medicine. It was your intuition, your abilities, the gestalt of what was going on. But something happened in medicine along the way. It started becoming a real science, and a lot of studies have come out that guide what we do and how we do it. We as a society need to understand that science has to guide our practice of medicine. Not everyone with a headache needs a CAT scan; not everybody with a sprained ankle needs an MRI.

This sounds like it could be an affirmation of evidence-based medicine, the approach that attempts to base medicine on systematic search for and critical review of the best clinical research, among other things. However, De la Torre takes it a big step further, citing:

In deference to those who love the individual hospital, you have to look back at America and the trends in industries that have gone from being art to science, to being commodities. Health care is becoming a commodity. The car industry started off as an art, people hand-shaping the bodies, hand-building the engines. As it became a commodity and was all about making cars accessible to everybody, it became more about standardization. It's not different from the banking industry and other industries as they've matured. Health care is finally maturing as an industry, and part of that maturation process is consolidation. It's getting economies of scale and in many ways making it a commodity.

Apparently Dr De la Torre does not see a distinction any longer between health care, or to use an old-fashioned word, medicine, traditionally considered an art or practice of caring for individual patients, and making automobiles on an assembly line. Dr De la Torre may be deeply misinterpreting evidence-based medicine, which is about evidence from clinical research, but also much more. Consider how the Cochrane Collaboration discusses it:

Evidence-based health care

Evidence-based health care is the conscientious use of current best evidence in making decisions about the care of individual patients or the delivery of health services. Current best evidence is up-to-date information from relevant, valid research about the effects of different forms of health care, the potential for harm from exposure to particular agents, the accuracy of diagnostic tests, and the predictive power of prognostic factors [1].

Evidence-based clinical practice is an approach to decision-making in which the clinician uses the best evidence available, in consultation with the patient, to decide upon the option which suits that patient best [2].

Evidence-based medicine is the conscientious, explicit and judicious use of current best evidence in making decisions about the care of individual patients. The practice of evidence-based medicine means integrating individual clinical expertise with the best available external clinical evidence from systematic research [3].

[1] Cochrane AL. Effectiveness and Efficiency : Random Reflections on Health Services. London: Nuffield Provincial Hospitals Trust, 1972. Reprinted in 1989 in association with the BMJ. Reprinted in 1999 for Nuffield Trust by the Royal Society of Medicine Press, London, ISBN 1-85315-394-X.[2] Gray JAM. 1997. Evidence-based healthcare: how to make health policy and management decisions. London: Churchill Livingstone.
[3] Sackett DL, Rosenberg WMC, Gray JAM, Haynes RB, Richardson WS. 1996. Evidence based medicine: what it is and what it isn't. BMJ 312: 71–2 [3] [Full text]

Note the emphasis on making decisions for individuals based on what is best for each, and the integration of evidence from clinical research with clinical expertise. This is far from commoditization.

Nonetheless, Dr De la Torre seems to envision "new health care" like a 1930s automobile assembly line, with the physicians and other health professionals cast as assembly line workers, and the patients cast as automobiles.

Our next example may provide some explanations for this point of view.

Steward's Advertising Raises Questions of Whose Hands Should be on Health Care

As we discussed earlier, Steward Health Care has been working on acquiring a struggling local Rhode Island hospital system, and in doing so is in a dispute with the statewide non-profit Blue Cross health insurance company. Steward had been putting daily full-page advertisements in the local paper. A recent version (27 July, 2012), had this text:

RHODE ISLAND TO BLUE CROSS:
GET YOUR HANDS OFF OUR HOSPITALS

With 80% of the market under its control, Blue Cross & Blue Shield of Rhode Island thinks it can decide which hospitals survive or fail. The people of Rhode Island beg to differ.

For the past decade, they've watched Blue Cross starve Landmark Medical Center of its funding. And this year, when Blue Cross issued an ultimatum to terminate the hospital, Rhode Islanders heard enough.

In a poll conducted this week by John Marttila, a nationally recognized leader on public attitudes concerning health care, 76% of respondents said that Blue Cross shouldn't be allowed to use their monopoly to dictate the fate of Rhode Island hospitals. They also felt, by a 2-1 margin, that if Landmark did indeed close, Blue Cross would be to blame.

However, soon after, investigative reporting by the Providence Journal's Ms Felice Freyer revealed that maybe the poll should have been interpreted differently. Not unexpectedly, Ms Freyer revealed the poll to have been "commissioned by Steward." Its basic results were really:

Just over half the respondents knew that Landmark was being sold to Steward, and of those, 58 percent did not have an opinion, 29 percent supported the sale, and 13 percent opposed it. However, among those who knew about the sale and also live in northern Rhode Island, the approval rating was higher –– 37 percent support the sale, with 15 percent disapproving and 48 percent having no opinion.

The pollster than provided prompting, perhaps in an attempt to get results more favorable to its client:

One of the questions starts with this statement: 'Blue Cross Blue Shield provides health insurance to 80 percent of Rhode Island. By refusing to negotiate on reimbursement rates, Blue Cross can essentially determine if hospitals in the state stay open or if hospitals close.' Based on that statement, 76 percent of respondents agreed that 'Blue Cross should not be allowed to use its monopoly to dictate which hospitals stay open and which close their doors.'

Unfortunately, it appears that the prompting statement was perhaps not fully accurate:

In 2011, Blue Cross covered 66 percent of Rhode Islanders with private health insurance, not 80 percent, according to a report by the Office of the Health Insurance Commissioner.

Blue Cross denies that it has refused to negotiate.

'We have negotiated in good faith and have offered a fair contract to Landmark Hospital that is consistent with our reimbursement arrangements for other independent hospitals,' Blue Cross said in a statement. 'Unfortunately, Steward has been unwilling to enter into a contract under those conditions.'

While they touted probably methodologically biased survey results, Steward's local advertising campaign's headline might prompt some people to think about whose hands should really be on their health care. The advertising tries to limit this question to Blue Cross' influence. However, one might also ask whose hands control Steward Health Care?

Whose Hands are on Steward Health Care?

As the Commonwealth article above pointed out, Steward Health Care is a wholly owned subsidiary of Cerberus Capital Management, a New York based private equity firm.

Cerberus' top leadership includes
- CEO Steven A Feinberg, who, as we noted previously, was listed as number 21 on a list of the 25 most powerful businessmen in 2007 by Fortune, at that time running through Cerberus 50 companies with total revenues of $120 billion.  On Wikipedia, his net worth was estimated as $2 billion in 2008.
- Chairman John W Snow, who, as we noted previously, resigned as Treasury Secretary in the administration of President George W Bush "in 2006 only because it was revealed that he had not paid any taxes on $24 million in income from CSX, which had forgiven Snow's repayment of a gigantic loan that the company had made to him," according to Chareles Ferguson in Predator Nation.
- Chairman, Cereberus Global Investments J Danforth Quayle, the controversial former US Vice President during the George H W Bush administration.

Furthermore, Cerberus Capital Management, which wholly owns Steward Health Care, owns several other businesses.  As we noted here, these include, DynCorp (see their web-site), which has been called one of the "leading mercenary firms," by an article in the Nation.  As reported by Bloomberg, DynCorp, and hence indirectly about Cerberus, and Steward Health Care, in 2011 settled accusations that it overbilled the US government for construction work in Iraq.   Furthermore, as we noted here, Cerberus also owns the biggest manufacturer of firearms and ammunition in the US. As reported by BusinessWeek in 2010, Cerberus owns 13 brands of fire-arms and munitions under the umbrella Freedom Group.

So while Cerberus Capital Management would like us to believe that Rhode Island residents question the hands of Blue Cross Blue Shield of Rhode Island on a struggling local hospital system, it seems to be trying to avoid questions about whose hands would be on the hospital system were Cerberus Capital Management's subsidiary Steward Health Care to acquire it. 

Summary

So, to recapitulate this winding story....   A regional hospital system has been pushing its "new health care" idea.  However, its former surgeon CEO promotes new health care as commoditized health care, assembly line health care, in which doctors become assembly line workers and patients become widgets.  This seems bizarre until one realizes that the CEO actually works for a huge private equity firm whose goal is to make a lot of money in the short-term.  Standardized, commoditized health care is likely to be cheaper to provide than individualized health care.  Private equity firms thrive by cutting their subsidiaries' costs, and then selling them quickly, sometimes before the long-term consequences of these cuts become apparent.  (Look here.)

So there are two lessons.

To repeat the lesson from our earlier post, everybody, doctors, other health care professionals, health policy makers, patients, and the public ought to be extremely skeptical of the marketing and public relations efforts of big health care organizations.  Based on the examples above, they ought to be particularly skeptical of organizations that are overtly for profit, and/or have a clear focus on short-term revenue generation.  As a society we need to think about how to best counter these biased, incomplete, sometimes grossly deceptive efforts to manipulate public psychology and opinions through our rights to free speech and a free press.

To add a lesson, everybody, doctors, other health professionals, health policy makers, patients and the public ought to be extremely wary of the ongoing corporatization of medicine and health care.  Corporate leaders who often get large incentives for maximizing short term revenue are likely to be enthused about turning our health care into a commodity.  Doctors and health care professionals should not want to be assembly line workers, and patients surely should not want to be widgets. 

9:36 AM

Private Equity vs Patient Care - a Bainful Example

A long investigative report in Salon summarized allegations about the quality of care in various treatment centers owned by Aspen Education, and its parent company, CRC Health Group, in turn wholly owned by a private equity firm, Bain Capital.  The article provides examples of what can go wrong when health care organizations are taken over by remote leadership focused overwhelmingly on short-term revenue.   

A Death from a Treatable Disease
The report opened with the investigation of a 14 year old resident at Youth Care, in Salt Lake City, and Aspen Education treatment center.  Brendan Blum "died of a twisted-bowel infaction," according to the local medical examiner, which allegedly went untreated because "two poorly paid monitors on duty," were slow to seek approval to call for emergency services, and "were too low on the totem pole to call 911 themselves."

The article cited "previously unreported allegations of abuse and neglect in at least 10 CRC residential drug and teen care facilities across the country."  It charged, "such incidents have largely escaped notice because the programs are, thanks to lax state regulations, largely unaccountable." 

Allegations of Toxic Corporate Culture

The article noted numerous other reports of unexplained and allegedly wrongful deaths, and other allegations of mistreatment of patients.

Furthermore, the article noted allegations "that such incidents reflect, in part, a broader corporate culture at Aspen's owner, CRC Health Group, a leading national chain of treatment centers.  Lawsuits and critics have claimed that CRC prizes profits, and the avoidance of outside scrutiny, over the health and safety of its clients." 

We have frequently discussed how the corporate culture of the finance industry, the industry that brought us the global financial collapse/ great recession, has influenced health care, and how this culture may be related to extensive problems with the leadership of health care, including lack of understanding of or even outright hostility to the health care mission, the prioritization of self-interest over the mission, conflicts of interest, and even outright criminal behavior, such as fraud, and kick-backs (bribery).  One way that finance may influence health care is the presence of finance leaders on the boards of trustees of non-profit health care institutions (see recent examples here and here). 

A more direct way the culture of finance can influence health care is for private equity firms (that is, re-branded leveraged buyout firms, look here) to purchase organizations that actually take care of patients.  The Salon article noted:

CRC’s corporate culture, in turn, reflects the attitudes and financial imperatives of Bain Capital, the private equity firm founded by Mitt Romney. (The Romney campaign also did not reply to written questions.) Bain is known for its relentless obsession with maximizing shareholder value and revenues. Indeed, this has become a talking point of late on the Romney campaign trail; he bragged to Fox in late May that '80 percent of them [Bain investments] grew their revenues.' CRC, a fast-growing company then in the lucrative field of drug treatment, was perhaps a natural fit when Bain acquired it for $720 million in 2006. In conversations with staff and patients who spent time at CRC facilities since the takeover, there are suggestions that the Bain approach has had its effects. 'If you look at their daily profit numbers compared to what they charge,' Dana Blum [the mother of the boy who died in the incident discussed above] said of CRC’s Aspen division in 2009, 'it’s obscene.' That point, ironically enough, was underscored by the glowing reports in the trade press about its profitability.

The article discussed how Bain Capital's acquisition of CRC Health Group further tilted the balance towards short-term revenue and away from quality care:

When Bain purchased CRC, it looked like an investment masterstroke. The company, founded in the mid-’90s with a single California treatment facility, the Camp Recovery Center, had quickly grown into the largest chain of for-profit drug and alcohol treatment services in the country, with $230 million in annual revenue. Under Bain’s guidance, its revenue has nearly doubled, to more than $450 million. CRC now serves 30,000 clients daily — mostly opiate addicts — at 140 facilities across 25 states. In the first five years after its acquisition, Bain had already extracted nearly $20 million in management-related fees from the chain, although Bain investors haven’t cashed in yet through dividends or an IPO. Bain’s purchase, a leveraged buyout, also saddled CRC with massive debt of well over $600 million.

According to company executives and independent analysts, hands-on oversight of subsidiary companies is a hallmark of both Bain and CRC. Romney’s campaign literature boasts about Bain taking exactly this sort of direct role in helping to turn around failing companies. 'Over the life of an investment, they have a strong management team willing to participate,' Sheryl Skolnick, an analyst with CRT Capital, a leading institutional brokerage firm, says of Bain.

The CRC acquisition immediately made Bain owner of the largest collection of addiction treatment facilities in the nation. Unlike some Bain Capital acquisitions, which led to massive layoffs, the company’s approach with CRC was to boost revenues by gobbling up other treatment centers, raising fees, and expanding its client base through slick, aggressive marketing, while keeping staffing and other costs relatively low. But that rapid pace of acquisition couldn’t be sustained in the mostly small-scale drug treatment industry alone. So Bain Capital and CRC set their sights on an entirely new treatment arena: the multibillion-dollar 'troubled teen' industry, a burgeoning field of mostly locally owned residential schools and wilderness programs then serving, nationwide, about 100,000 kids facing addiction or emotional or behavioral problems.

One of CRC’s first acquisitions under Bain ownership was the Aspen Education Group. Founded in 1998 with about six schools, Aspen Education had expanded to 30 troubled-teen and weight-loss programs by 2006, including Youth Care of Utah. With Bain’s backing, CRC purchased Aspen for nearly $300 million in the fall of 2006.

Less than a year later, Brendan Blum was dead.

At the time of the CRC acquisition, Aspen already had a history of abuse allegations, including at least three lawsuits, and two known patient deaths, one by suicide. Featured on 'Dr. Phil,' it grew out of schools inspired by the 'tough-love' behavior-modification approach of the discredited Synanon program, which was eventually exposed as a cult. By 2006, Aspen was facing a wrongful death lawsuit, later settled, over an incident in 2004 in which a 14-year-old boy, Matthew Meyer, perished from heat stroke just eight days into his stay at its Lone Star Expeditions wilderness camp in Texas.

This just underscores concerns we raised here about how ownership by private equity could undermine the ability of health care organizations to fulfill their missions. At the time we worried that private equity's short time horizon would clash with health care's long-term focus, how standardized cost-cutting approaches, including emphasis on individual employees' "productivity," could undermine patient care, and how private equity's obsession with secrecy is the antithesis of the transparency required to make health care accountable.

The Increasing Influence of Private Equity

Ironically, the reason that the problems at CRC have gotten such public attention is that the former leader of the private equity firm that controls it is now running for the US presidency. His candidacy emphasizes just how influential the culture of private equity has come.

The purchase of CRC came seven years after [former Massachusets Governor and now Republican presidential hopeful Mitt] Romney publicly announced his retirement as CEO of Bain Capital, where he had been in charge since its founding in 1984. But at the time of his departure, Romney worked out an arrangement to continue to share in Bain’s profits as a limited partner in the firm. Today, he is still an investor in 48 Bain accounts. Though he has refused to disclose their underlying assets, some information about them can be gleaned. For example, he has reported at least $300,000 to $1.2 million, if not more, in fluctuating annual earnings from Bain Capital VIII, the convoluted $3.5 billion array of related funds that owns both name-brand companies such as Dunkin’ Donuts and the lesser-known CRC Health Group. Most of these funds were made more attractive to privileged investors by being registered in the Cayman Islands tax haven. And Romney’s connections to CRC run even deeper: Of the three Bain managing partners who sit on CRC’s board, two, John Connaughton and Steven Barnes (with his wife), gave a total of half a million dollars to Restore Our Future, the super PAC supporting Romney. They also each donated the $2,500 maximum directly to his campaign.

Furthermore, it provides a warning about much more influential it might become, particularly in regard to health care:

Romney has been outspoken about his belief that for-profit health care companies can flourish only without onerous regulations. 'I had the occasion of actually acquiring and trying to build health care businesses,' he said during a primary debate last year. 'I know something about it, and I believe markets work. And what’s wrong with our health care system in America is that government is playing too heavy a role.'

The allegations against one of those health care businesses suggest another viewpoint.

I have frequently repeated a contention that true health care reform would emphasize leadership of health care organizations that understand and uphold the values of health care, starting with prioritizing the needs of patients and the public's health over all other concerns. Instead, there is a danger that health care leaders will be ever more removed from patients and the public, and their health needs, while they become ever more concerned with making as much money as possible in the short-run, and after that, the Devil take the hindmost.

11:53 AM

Was a Private Equity Takeover of Bausch and Lomb Meant to Conceal Its Legal Settlements of Cases of Eye Infections?

This week, the Associated Press reported on yet another way health care corporations may keep information that reflects poorly on their products out of public view. The story involved fungal eye infections that particularly afflicted users of a specific contact lens cleaning solution:

More than 700 lens wearers in the United States and Asia say they were exposed to a potentially blinding infection known as Fusarium keratitis while using ReNu with MoistureLoc, a new-formula multipurpose solution for cleaning, storing and moistening soft contact lenses.

Sometimes, the damage was irreparable. Seven people in Florida, Maryland, New York, Oregon, Tennessee and West Virginia had to have an eye removed. At least 60 more Americans needed vision-saving corneal transplants.

The U.S. Centers for Disease Control and Prevention confirmed 180 cases in 35 states from June 2005 through September 2006, when the agency's dedicated surveillance stopped, according to Dr. Benjamin Park, a CDC epidemiologist. CDC continued to hear of sporadic, unconfirmed cases in the months after MoistureLoc was withdrawn, Park said.

'Surveillance usually captures the tip of the iceberg and sometimes it captures a larger tip than other times,' Park said in an interview.

Among out-of-court settlements reached in May was a potential bellwether case brought by Andrea Martin, a Broadway actress and comedienne whose eye was scarred. In Colorado, a corneal transplant ended a race-car driver's career. In Baltimore, a chimney-sweep business owner who lost an eye got hooked on painkillers.

Leading eye doctors and government scientists concluded that MoistureLoc, launched in 2004 with novel disinfectant and moisturizing ingredients, was the only lens solution that contributed to the outbreak. Yet the mechanics of how it caused the problem are still not fully clear.

AP alleged that Bausch and Lomb kept the cases out of public view by using a previously unknown (at least to me) strategy:

Contact lens maker Bausch & Lomb Inc. had an overriding reason for going private in 2007: It wanted to handle a devastating recall of its flagship lens cleaner, its chief executive said, 'without a lot of outside distraction.'

Over the past year, away from the glare of public scrutiny, the optical products company has quietly settled nearly 600 fungal-infection lawsuits — with dozens more individual claims yet to be resolved. The cost so far: Upward of $250 million.

With some fungal lawsuits still unresolved, the prospect of Bausch & Lomb's health care nightmare being aired in court has not entirely faded — which heartens some lawyers and doctors.

'The truth has been very carefully buried, and it appears to have been buried going back to the beginnings of the outbreak,' said Dr. Arthur Epstein, who was chairman of the American Optometric Association's contact lens and cornea section during the highly publicized crisis.

'All settlements were predicated on silence about the clinical findings and blame and so forth. My hope was that what actually happened would become part of public record in a courtroom. That way, we'd be able to learn from it and move on and make sure it never happened again.'

When Bausch & Lomb was acquired by private equity firm Warburg Pincus for $3.67 billion in October 2007, Chief Executive Ronald Zarrella said the deal would allow the company 'to pursue the growth path we were on ... without a lot of outside distraction.'Zarrella retired last year.

'hey can do all this out of the public eye — guys like me aren't sitting there scrutinizing the financial impact of every single settlement,'said analyst Jeff Johnson of Robert W. Baird & Co. in Milwaukee. 'you can completely focus on your brand and on doing what's right by the patient.'

So, if I understand this correctly, after Warburg Pincus took the company private, it was no longer required to file certain reports with the US Securities and Exchange Commission (SEC), including reports that would have had to acknowledge the multiple settlements the company made of cases alleging adverse effects of its contact lens solution. What is striking is the allegation by the AP that "taking the company" private was a strategy meant to conceal the settlements of these cases, (rather than a strategy implemented to fulfill other aims, which had the side effect of diminishing reporting of these cases' results.)

Again, I am hardly an expert, but relatively opaque private equity firms like Warburg Pincus seem to have become increasingly influential in the US economy, and to have an increasing role in health care. In 2007, we had posted how private equity firms running nursing homes, including Warburg Pincus, seemed to contribute to the opacity of their operations. More recently, we posted about how leaders of private equity, and of other kinds of firms in the finance arena, seem to also increasingly be leaders to which medical schools report.

One final note... A quick tour through the Warburg Pincus website reveals how involved the firm is in health care. The firm claimed that as a "direct equity investor in healthcare for more than 30 years, Warburg Pincus has invested more than $4 billion in approximately 120 healthcare companies." Furthermore, the firm seems quite intertwined with the leadership of academic medicine. It has a Life Sciences Advisory Board, of which three of four members are current leaders in academic medicine. The most prominent, Dr Michael Rosenblatt, Dean of the Tufts University School of Medicine, did not disclose this relationship in several versions of his biography published on the university web-site. (See the Tufts administration version here, and the Tufts Medical Center version here.)

Oh, what a tangled web we have weaved in health care, a web that continually frustrates transparency and makes it hard to figure out who was responsible for what when things go wrong.

8:29 AM