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. 

Who Cares if The Patients Die? - Apparently Not Some Hospice Marketers

An article in USA Today suggests that marketers for hospices are pushing even more aggressive measures to recruit patients, regardless of the consequences.

Marketing Hospice to Prevent Re-Admission

Per USA Today,

Hospice marketers, exploring possibilities for new revenue to help continue the industry's remarkable growth, are looking to exploit a provision in the 2010 health care law by persuading hospitals to send Medicare patients into end-of-life hospice care instead of readmitting them to the hospital.

Such a move, the hospice marketers say, will enable hospitals to avoid paying the Medicare penalties required by the new law when hospitals discharge patients and then have to readmit them within 30 days: Instead of readmitting the patients, hospitals should send them to hospice care, which also is covered by Medicare, according to a USA TODAY analysis of marketing materials.

Patients with severe heart problems and pneumonia tend to decline quickly and often move in and out of hospitals, said hospice marketing specialist Rich Chesney, who proposed the idea.

It might be better, Chesney said, if a hospital CEO hired people to talk to family members about hospice, instead of a doctor, who is more focused on not losing a patient. Chesney made his proposal recently at a conference sponsored by the National Hospice and Palliative Care Organization, an industry trade group. [Chesney is apparently the President of Healthcare Market Resources, whose slogan is "growing bottom lines with information." - Ed]

'If (hospices) make that part of their business and their revenue stream, that's sound business,' said Stan Massey, chief marketing officer for Transcend Hospice Marketing in Holland, Ohio. Massey recently wrote a blog recommending hospice marketers talk to hospital CEOs instead of the doctors who usually decide who is eligible for hospice care. Those conversations, he wrote, 'must be framed heavily in terms of financial benefit.'

Ignoring the Hospice Mission

Lost in the marketers' thinking seems to be any notion of the hospice mission. Hospices are supposed to provide compassionate palliative care to patients at the end of life who do not want any further aggressive intervention. Good hospice care is likely to make the last days of such patients more tolerable.

However, generally hospices intentionally do not provide any care beyond palliation, such as, for example, antibiotics for acute infections, transfusions in the case of acute blood loss, or surgery for acute trauma. Should a patient who is not at the end of life be erroneously admitted to hospice, and then suffer some new acute problem, that patient is at risk of bad outcomes, including death because of denial of the sort of care available in acute care settings. Thus, admitting patients to hospice who are not at the end of life or have not given truly informed consent for hospice care may lead to patients dying prematurely, or suffering suffering preventable complications of treatable diseases and injuries.

Aggressive marketing of hospice, particularly pushing hospice for patients just because they seem likely to be re-admitted to a hospital, especially by having marketers try to go around patients' own physicians, risks admitting patients to hospice who should not be in hospice. Thus such aggressive hospice marketing may lead to needless, and wrongful deaths of, injuries to, and morbidity for patients who should have received more aggressive treatment.

The USA Today article did note:

Health care analysts and ethicists, however, say such proposals are contrary to the intent of the health care law, which is to provide better care, not to put more patients into hospice care for which they are not ready.

The proposals warp the 'whole idea behind hospice,' said Josh Perry, a business and ethics professor at Indiana University.

In addition,

Good hospices have been working with hospital CEOs for years, said Carolyn Cassin, president of the National Hospice Work Group, a coalition of the 25 largest not-for-profit hospice organizations. But the goal, she said, was to make sure patients received the care they needed. She said she was surprised to hear it characterized as a marketing approach to cut costs.

While hospice care costs less than hospital care, at $151 a day for Medicare patients, it's meant for people who are going to die. In hospice care, patients agree not to seek care to improve their health, such as more surgeries, hospitalizations or chemotherapy. After a doctor certifies that he expects a person to die within six months, Medicare covers hospice care.

Experts say they fear patients will be sent to hospice before their time and miss the proper care that could restore their health. Penalties, Perry said, are a 'good thing' to hold hospitals accountable. 'This isn't about extending hospice.'

Summary

We have previously discussed, most recently here, allegations that specific for-profit hospice corporations were admitting patients who were not at the end of life just to make more money. The current USA Today article suggests that the phenomenon of hospices enrolling inappropriate patients just to enhance revenue could be more widespread than previously appreciated. The more often hospices enroll patients who are not at the end of life, and/or have not given true informed consent for hospice care, the more patients are likely to suffer needless and wrongful morbidity and injuries, and the more patients are likely to needlessly, and wrongfully die prematurely.

It seems to me that unexpected morbidity of, injuries to, or premature death of hospice patients who were not obviously already at the end of life could lead to civil litigation, and even criminal investigation.

Furthermore, the realization that hospices, once considered the most humane of health care institutions, are more frequently run for profit, and may put profit ahead of their mission should provoke re-examination of our haste to encourage more and more patient care to be given by for-profit organizations in an era of "greed is good."

If we really want better health care, we will have to change policies, practices, and laws so that leaders of health care organizations are motivated more by the desire to help patients than by the desire to become rich.

The Pittsburgh Experiment - I - Caught in the Crossfire

In our increasingly dysfunctional health care system, patients, health care professionals and the public are often caught in the crossfire between big health care organizations.  Such organizations are often led by people who do not seem to put the interests of patients and the public, and the values of professionals first.  (Note that we have been writing about this since at least 2003, when the concept appeared in my article: Poses RM. A cautionary tale: the dysfunction of the American health care system. Eur J Int Med 2003; 14: 123-130. Link here.)

Last week, Anna Wilde Matthews and John W Miller wrote in the Wall Street Journal about an amazing example of such a crossfire that pitted the two dominant health care organizations in Western Pennsylvania against each other.  The case turns out to touch on many of the most dysfunctional aspects of US health care.  So rather than try to cram it into an overly long blog post, I plan to periodically discuss it over the next few weeks, starting now with an overview of the grappling titans.

The Basic Conflict

Per the Wall Street Journal article,

In Pittsburgh, the acrimonious battle between Highmark, the region's most powerful health insurer, and UPMC, the dominant health-care provider, is drawing national attention as a test case on the impact of consolidation in the health-care industry.

At the heart of the dispute is Highmark's effort to acquire a financially troubled local hospital group, West Penn Allegheny Health System, as the centerpiece of what it says will be a lower-cost and more efficient health-care operation. UPMC, which has its own insurance arm as well as 19 area hospitals and 3,240 doctors, says it doesn't want to bolster a company it now considers a direct rival. It has vowed not to sign a new contract to treat patients covered by Highmark, which would mean those patients generally would pay high out-of-network rates to use UPMC hospitals and doctors.

As we will see, the dispute is between a dominant hospital system that is trying to muscle into the insurance business, and a dominant insurer that is trying to muscle into the hospital business. If either were to succeed, it would become the dominant health care organization in the Pittsburgh area.

A Personal Fight Amongst Two CEOs

However, the fight soon seemed to be more among the CEOs of the two organizations. Per the WSJ,

In Pittsburgh, the battle has become unusually bitter, spearheaded by the two companies' chief executives, UPMC's Jeffrey A. Romoff, 66, and Highmark's Kenneth Melani, 58. Mr. Romoff, who has built UPMC into a $9 billion juggernaut and put its initials on the tallest skyscraper in the city, calls Highmark a 'monopoly.' Dr. Melani uses the same term in warnings about UPMC's power and referred to Mr. Romoff in a local newspaper as 'trying to rape the commercial marketplace to build his empire.'  (A spokesman for Mr. Romoff said the comment 'lacked both substance and dignity.')

An article from December, 2011 in the Pittsburgh Tribune-Review had illustrated other aspects of the bitterness about and between the CEOs.

UPMC CEO Jeffrey Romoff's satiric, fake Twitter profile lists his favorite games as Monopoly and Risk.

In recent tweets, the anonymous author wrote under his name, 'New York State, here we come!' and said he wants to take Highmark CEO Dr. Kenneth Melani 'outside to settle things -- but it would be unfair competition if (we) could BOTH use our fists.'

The month-old Fake Jeffrey Romoff persona, whose author declined to be interviewed but said it's 'no laughing matter,' depicts the head of Western Pennsylvania's dominant health care system as a greedy tyrant with an angry avatar. It counts fewer than 40 followers, but its existence points to a public relations failure for UPMC in its fight with Highmark Inc., media experts say.

'Nobody feels sorry for Romoff,' said Andrea Fitting, president of Downtown marketing firm Fitting Group. 'If you ask anyone on the street, they'll say Romoff is a monster. There's no person who's trustworthy and sympathetic who they've enlisted as a spokesman.'

Romoff could not be reached for comment.

UPMC spokesman Paul Wood said he is not concerned about the profile's effect on the hospital network's image.

'Not something that has virtually no followers,' he said.

There's no fake Twitter handle lampooning Melani, but experts say the state's largest insurer is not doing a great job of managing its public image either.

As found in the WSJ article,

'There's no white hat here,' says Don White, a Republican who chairs the state Senate committee overseeing insurance. 'They're both concerned about their self-preservation and domination.'

Neither CEO seems satisfied that his organization has become dominant in its field, and both seem to resent the success of the other organization in another field. Let us briefly review the backgrounds of both systems.

UPMC as Dominant Hospital System

The WSJ article started to probe the complexity of the situation:

The struggle in Pittsburgh has roots that go back decades. UPMC, led since 1992 by Bronx native Mr. Romoff, has grown on his watch to $9 billion in annual revenue from $797 million when he took over. Today, UPMC has around 58% inpatient market share in Allegheny County and a brand buoyed by its identification with nationally known research and treatment centers like Hillman Cancer Center, where Ms. Wyckoff is being treated. The nonprofit system, with around $406 million in operating income in its most recent fiscal year ended June 30, is also Pennsylvania's biggest private employer.

UPMC's initials dominate the Pittsburgh skyline from the top of the U.S. Steel Tower, the city's tallest building. The nonprofit leases a private jet that is used to fly executives and doctors to its facilities in Ireland and Italy. Mr. Romoff has become one of the city's most prominent business leaders. Poking fun at a local nickname for his boss, a staffer once presented Mr. Romoff with a Darth Vader action figure. In 2009, UPMC published a glossy history of its own expansion titled 'Beyond the Bounds.'

Highmark as Dominant Insurer

On the other hand,

As UPMC grew, its main hospital rival, West Penn Allegheny, withered. The five-hospital group emerged from the ashes of a Pennsylvania hospital system that filed for bankruptcy in 1998 after piling on too much debt and acquiring money-losing assets. It struggled for years.

By 2011, West Penn Allegheny was in the red, with heavy debt and pension obligations. To cut costs, it shut down much of its Western Pennsylvania Hospital. At one point, filmmakers took over its empty intensive-care unit to film a scene for a coming Tom Cruise movie.

In June, Highmark's Dr. Melani unveiled his plan to acquire West Penn Allegheny for a combination of loans and grants valued at as much as $475 million. Like UPMC, nonprofit Highmark was a dominant presence in its market, formed from the merger of a Blue Cross and a Blue Shield plan in 1996. By 2011, it had market share of around 60% in Allegheny County, with annual revenue of $14.8 billion, and it was sitting on reserves of about $4.1 billion.

Still, it was a bold and risky stroke for Dr. Melani, a blunt-spoken internal-medicine physician who himself trained at West Penn.

Marketing Rather than Substance

The two sides launched a marketing and public relations battle which did not seem to have much to do with quality of, access to, and cost of health care. As the WSJ article noted,

The spat quickly got nasty. Highmark highlighted UPMC's rate request in ads, and hired a Washington lobbying firm to pull together a coalition of churches, patient groups and others that would press for a deal. UPMC's own ad campaign urged patients to 'Keep your doctor. Check your plan.' Highmark sued, arguing the ads were misleading. UPMC bought Google ads that called up its site when a user searched for 'Highmark.'

The Pittsburgh Tribune-Review article included,

Public relations experts agree that Highmark faces a daunting challenge: People might see UPMC -- and by extension, Romoff -- as a bully, but they don't want to lose access to the system's 19 hospitals and 3,000 doctors in Western Pennsylvania.

UPMC's 'Keep Your Doc' ad campaign, produced by South Side agency GatesmanMarmion+Dave, is successful because it furthers the organization's business objectives, said Dale Leibach, an associate with Prism Public Affairs in Washington. This year, for the first time, UPMC gave four national insurers full access to its facilities and doctors, an arrangement previously granted only to Highmark.

'I would give points to UPMC for consistency and transparency, in promising more competition and then delivering on that promise by giving people in Pittsburgh and in the region many more options in terms of insurance providers,' said Leibach, who reviewed news accounts about the dispute.

David Kosick Sr., senior associate at KMA Public Relations in Canonsburg, takes the opposite stance, saying Highmark receives greater sympathy from a public that views UPMC as an insensitive corporate titan. Mullen Advertising in the Strip District produces Highmark's 'Accepted. Everywhere' ad campaign for TV, radio, publications, billboards and the Internet.

'Highmark's winning the PR battle,' Kosick said, citing threats by state lawmakers to intervene and public criticism directed at UPMC, including Allegheny County Council's refusal last month to issue $335 million in bonds for UPMC because of public opposition.

Wood said the health system recognizes its reputation 'may have taken a bit of a short-term hit locally,' but 'UPMC is focused on the longer term.'

'We've used our PR and marketing to fundamentally change the health care market in Western Pennsylvania,' Wood said.

Gene Grabowski, senior vice president of Washington-based public relations firm Levick Strategic Communications, said that strategy could backfire.

Also,

In addition to online social media, the public relations campaigns have ramped up on television and in other advertising.

UPMC placed its TV ads on major networks and cable and estimates they will reach the average Pittsburgh viewer four times a week, Wood said. He declined to say how much UPMC is spending on the ad campaign or what it budgets for advertising, but he said the budget has not changed since last year.

The ads, Fitting said, target 'what people are really worried about.'

Highmark stepped up its campaign in response to UPMC's, Weinstein said. He would not say how much Highmark pays Mullen Advertising or what it budgets for advertising.

'UPMC launched an aggressive, multifaceted misinformation campaign targeted at employers and consumers who subscribe to Highmark's health plans,' Weinstein said.

Caught in the Crossfire

Meanwhile, of course, patients and doctors are trying to avoid being stomped by the wrestling titans. The Wall Street Journal article opened with this theme,

Trish Wyckoff is struggling with stage-four breast cancer, but now the 53-year-old Pittsburgh resident has another worry: a possible divorce between the hospital system that is treating her, the University of Pittsburgh Medical Center, and Highmark Inc., the health insurer that pays for her care. If the two companies can't agree, she fears she won't be able to keep seeing the doctors who she believes are keeping her alive.


'We are absolutely stuck in the middle,' she says. This is a really scary time.'

Here is another anecdote,

With local newspapers chronicling each tit-for-tat, Pittsburgh residents like Dan Glasser say they have been acutely aware of the battle. Mr. Glasser, a 46-year-old lawyer, says he is alarmed and annoyed at the potential split between his insurer and UPMC. If forced to choose a side, he says, he would switch health plans to ensure access to UPMC. He has been seeing the same doctor there since he graduated from law school. 'That's almost my whole adult life,' he says.

Doctors are equally unhappy.

For his part, Kenneth Gold, Mr. Glasser's primary care physician, says he has been telling worried patients that 'all of us are pawns in this fight,' which he hopes gets resolved. If Highmark and UPMC do break up, 'it is going to be mass chaos,' he says.

Even employers are unhappy,

Employers, for their part, say they feel trapped in the middle, worried about health-care costs and also under pressure from employees to lock in access to UPMC. Cheryl Melinchak, director of benefits at Pittsburgh-based Westinghouse Electric Co., says the firm is likely to offer a new health plan this fall, in addition to Highmark and a high-deductible Aetna version, to ensure workers can use UPMC.

The standoff is 'frustrating,' she says. 'We need competition on both sides,' insurers and health providers.

Summary

So here we have the brave new world of the US health care system, a system that some people in other countries seem to think is worthy of emulation. Increasing concentration of power has lead to health care dominated by ever larger organizations lead by ever more egocentric executives. Organizations that are dominant in one area seek to dominate other areas. Caught in the crossfire are patients, doctors, employers, and the public. While more money goes to advertising, public relations, and lawyers, nothing about the fight seems to be about improving care or making it more accessible.

Further considering how this particular fight came to be will reveal various interlocking facets of health care dysfunction. If we can start to address them, we may be able to accomplish real health care reform.  Clearly we need health care organizations to concentrate on health care, not on increasing their power and domination.  We need them using most of their resources for health care, not on marketing, public relations, legal services, administrative support, and executive compensation. 

Stay tuned to Health Care Renewal as we continue this series.

Despite Recalls, Legal Settlements and Guilty Pleas - A $143.5 Million (or Perhaps $197 Million) Golden Parachute for the Former Drug Representative Who Is Now CEO of Johnson and Johnson

After 30 separate product recalls since 2009, and multiple legal settlements and guilty pleas, we noted that the former pharmaceutical representative who is now the CEO of Johnson and Johnson will be retiring. 

The $143.5 Million (or Perhaps $197 Million) Golden Parachute

The Wall Street Journal just reported his retirement will come with an immense golden parachute:

Johnson & Johnson Chairman and Chief Executive William Weldon stands to collect pension benefits and deferred compensation currently valued at $143.5 million after his retirement, according to new details released by the health-care conglomerate.

The details were:

Mr. Weldon, who will be succeeded as CEO by Vice Chairman Alex Gorsky, stands to collect benefits from two main sources. The present value of his accumulated pension benefits is $48.4 million, portions of which are paid out as a monthly annuity for life, according to Wednesday's filing with the Securities and Exchange Commission.

His pension's value places Mr. Weldon well into the top 10% of CEOs of Standard & Poor's 500 companies, said Paul Hodgson, chief communications officer and senior research associate at GMI Ratings, which tracks corporate-governance information.

Mr. Weldon also has amassed $95.1 million in nonqualified deferred-compensation plans. This represents parts of his salary and bonus that had been deferred in prior years, as well as company contributions to savings plans. Portions of Mr. Weldon's deferred compensation have been recorded each year as part of his total annual pay.

Of the $95.1 million, more than $70 million represents Mr. Weldon's accumulated balance from a legacy cash-incentive plan that J&J has discontinued and replaced with a new executive-compensation plan. This sum would be paid to Mr. Weldon at retirement, J&J said. All deferred compensation is subject to taxes.

Actually, an argument that the $143.5 million figure is an major under-estimate appeared in the Shearlings Got Plowed blog:

The MSM reports calculate only the cash values for soon to be Ex-CEO Weldon, not the present value of his stock options, at today's NYSE closing price for J&J of $65.08. So, that -- plus the vesting of his February 2012 JNJ RSUs and Stock Option awards [see page 45 of the link (but such amounts are ommitted from the year end 2011 proxy, on which the WSJ relied)] -- add about $53.47 million to the Weldon walkaway haul.

Thus, Mr Weldon's golden parachute may be as big as $197 million.

The Board's Justification for the Riches

Of course, the Johnson and Johnson board justified the latest additions to Mr Weldon's wealth, as reported by the WSJ:

In a regulatory filing Wednesday, the board said Mr. Weldon 'successfully managed our company through a challenging economic environment in 2011,' with solid financial results and advances in J&J's pharmaceutical pipeline.

The board added that while J&J made progress in addressing manufacturing-quality issues in 2011, 'continued focus is needed to address critical product supply and quality issues that impact our responsibility of being able to deliver products to patients and customers who need them.'

Johnson and Johnson's Recent Record

The board's upbeat assessment sharply contrasts with Johnson and Johnson's actual recent record.

As we discussed recently, Johnson and Johnson seems to have lost the ability to manufacture high quality products. It has had to make 30 separate product recalls since 2009. The latest was Liquid Infant Tylenol. (The current WSJ Health Blog list of recalls can be found here.)  This seems to be more than a "rough patch," which is how the WSJ article described the manufacturing problems.

In addition, the WSJ article failed to mention that Johnson and Johnson also has an amazing recent record of ethical lapses and guilty pleas, including:
- Convictions in two different states in 2010 for misleading marketing of Risperdal
- A guilty plea for misbranding Topamax in 2010
- Guilty pleas to bribery in Europe in 2011 by J+J's DePuy subsidiary
- A guilty plea for marketing Risperdal for unapproved uses in 2011 (see this link for all of the above)
- Accusations that the company, which makes smoking cessation products, participated along with tobacco companies in efforts to lobby state legislators (see post here)
- A guilty plea to misbranding Natrecor by J+J subsidiary Scios (see post here)
- More recently, in 2012, testimony in a trial of allegations of unethical marketing of the drug Risperdal (risperidone) by the Janssen subsidiary revealed a systemic, deceptive stealth marketing campaign that fostered suppression of research whose results were unfavorable to the company, ghostwriting, the use of key opinion leaders as marketers in the guise of academics and professionals, and intimidation of whistleblowers. After these revelations, the company abruptly settled the case (see post here).
-  Most recently, there are reports that the company is in negotiation with the US Department of Justice to settle other lawsuits about the marketing of Risperdal, perhaps for as much as $1.8 billion (see this BusinessWeek story.)

Meanwhile, an article from the Wharton Business School suggested that the problems at Johnson and Johnson stemmed directly from former drug representative Weldon's management approach, which put short term revenues, "making the numbers," ahead of everything else, apparently including good manufacturing practices, or ethical business practices:

[University of Michigan Ross School of Business Professor Erik] Gordon argues that CEO Weldon's relentless focus on the bottom line -- the company's website touts its record of 27 consecutive years of adjusted earnings increases and 49 consecutive years of dividend increases -- is the reason for the current woes. 'Bill Weldon sets the priorities and the culture for the company,' says Gordon. And the problems, from overly aggressive marketing to underinvestment in safety and quality systems, reflect 'people trying to get their bonuses, hit their numbers and keep their job.'

No doubt the global economic collapse in 2008 put renewed pressure on managers at multinationals like Johnson & Johnson. John Kimberly -- a Wharton management professor and executive director of the Wharton/INSEAD Alliance who has worked with J&J executives in Europe since the late 1990s -- says he detected a shift among those managers starting in 2008. 'I got the sense that there were some things happening at corporate, and that messages were being sent about the need to deliver profitability,' Kimberly notes. 'It seemed as though the people I was working with were feeling pressure from above to pay closer attention to the bottom line. It was a palpable, tangible change.'

Wharton's Donaldson gives J&J management credit for the aggressive steps the company is now taking to overhaul its manufacturing processes and plants. But he also notes that the balance between profits and patients is a tricky one. Managers at J&J, he says, 'are juggling a lot of balls. In the credo, they say they put patients first and stockholders further down the line. But there is a red ball that every manager knows about, [which is] profit -- and they don't let that red ball drop.' Figuring out how to serve patients well and still deliver for Wall Street is not easy. 'J&J believes they can do both those things,' Donaldson says. 'But if the weight of one side of that formula gets too heavy, the entire structure collapses.'

Summary

The ongoing news from the once proud Johnson and Johnson, whose credo famously states:

We believe our first responsibility is to doctors, nurses and patients, to mothers and fathers, and all others who use our products and services. In meeting their needs, everything we do must be of high quality.

suggests that instead, the company's first responsibility is now to the hired managers, to obey their dictates no matter how they undermine the credo, and most importantly, to pay them so much as to make them some of the most wealthy people in the world. Johnson and Johnson has become exemplary, not of putting patients or health care professionals first, but of how hired managers took over health care, and turned it to their own advantage.

So should we trust Johnson and Johnson to do better, now that another former pharmaceutical representative will be its new CEO?

The case of Johnson and Johnson indicates why we need a huge change in how health care organizations are lead.

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

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

Courses and Conferences on Health Care Ethics, Corruption, Marketing

Two courses and two conferences of interest to Health Care Renewal readers are coming soon.

Short Course: Why Do Physicians Not Make Rational, Evidence Based Decisions?


A full-day course at the 14th Biennial European Meeting of the Society for Medical Decision Making on Sunday, 10 June, 2012 in Oslo, Norway. Taught by bloggers Dr Roy Poses and Dr Wally Smith, the course will address both the effects of cognitive psychological limitations and of external influences by vested interests leading to less than optimal decisions.

A full description of the course is here.
 
Online Course: Corruption in the Health Sector

A 30 hour online course given by the U4 Anti-Corruption Resource Center, offered in collaboration with the Boston University School of Public Health.  The course is "on causes and consequences of corruption in the health sector; vulnerabilities in drug supply systems, informal payments, and strategies to minimise the problems." 

A full description is here. 

Conference: Deception, Incentives and Behavior

A two-day conference given by the Rady School of Management, University of California - San Diego, on 20-21 April, 2012 in San Diego, California, USA.  This will be a multidisciplinary meeting to facilitate "research of deception and related unethical behavior in the fields of economics and psychology/judgment and decision making (JDM)."

The conference web-site is here. 

Conference: Third Annual PharmedOut Conference on How Patient Harms May Result from Industry Promotion

A two-day conference given by PharmedOut at Georgetown University in Washington, DC on
14-15 June, 2012.  The conference will focus on the how industry promotion may lead to under-use, over-use, or mis-use of drugs and devices.

The conference web-site is here.

Semi-Retirement of a Salesman - Weldon to Retire as Johnson and Johnson CEO

The extremely well compensated CEO and Chairman of Johnson and Johnson, the huge and recently hugely troubled US based pharmaceutical and device company, is going to retire, at least as CEO.  Reporting on this event may shed a little more light on the sorts of leadership problems that now commonly afflict health care organizations.

The Credo

Johnson and Johnson was once one of the US' most respected companies.  Its credo, written in 1943 by Robert Wood Johnson, bravely begins:

We believe our first responsibility is to doctors, nurses and patients, to mothers and fathers, and all others who use our products and services. In meeting their needs, everything we do must be of high quality.

Dishonoring the Credo

Yet in the last few years the company has not honored this credo.

It seems to have lost the ability to manufacture high quality products. It has had to make 30 separate product recalls since 2009. The latest was Liquid Infant Tylenol. (The current WSJ Health Blog list of recalls can be found here.)

Johnson and Johnson also has an amazing recent record of ethical lapses and guilty pleas, including:
- Convictions in two different states in 2010 for misleading marketing of Risperdal
- A guilty plea for misbranding Topamax in 2010
- Guilty pleas to bribery in Europe in 2011 by J+J's DePuy subsidiary
- A guilty plea for marketing Risperdal for unapproved uses in 2011 (see this link for all of the above)
- Accusations that the company, which makes smoking cessation products, participated along with tobacco companies in efforts to lobby state legislators (see post here)
- A guilty plea to misbranding Natrecor by J+J subsidiary Scios (see post here)
-  Most recently, in 2012, testimony in a trial of allegations of unethical marketing of the drug Respirdal (risperidone) by the Janssen subsidiary revealed a systemic, deceptive stealth marketing campaign that fostered suppression of research whose results were unfavorable to the company, ghostwriting, the use of key opinion leaders as marketers in the guise of academics and professionals, and intimidation of whistleblowers.  After these revelations, the company abruptly settled the case (see post here).

Disconnect Between Leadership Performance and Rewards

Nonetheless, until very recently, the top leadership of the company continued to collect outrageous compensation, and to be regarded as a font of health care wisdom, even by the current US administration.

In 2010, the company gave CEO and Chairman William Weldon over $29 million in compensation, saying he "met expectations," (see this post).

In 2011, just days after the company pleaded guilty in the Risperdal marketing case (above), CEO and Chairman Weldon was invited to the White House to discuss health care (see this post.)

Just after his resignation was announced a few days ago, the Wall Street Journal reported that Weldon would get an increased bonus for 2011 ($3.1 million, up from $1.98 million in 2010), and an increased base salary ($1.97 million up from $1.92 million.)  His total compensation for 2011 was not yet revealed. 

Swapping One Salesman for Another

A single New York Times article suggested one reason why Weldon's reign was ultimately so unsuccessful, and perhaps why his successor may not do better.

Alex Gorsky, the newly named chief executive of Johnson & Johnson, shares a crucial biographical detail with William C. Weldon, the man he is succeeding. Both got their starts as pharmaceutical sales representatives, a notoriously grueling job that — because it demands stamina, charisma and a near devotion to making the sale — has become a crucible for future drug company executives in recent years.

Indeed, Mr Weldon's official biography indicates he "served in several sales, marketing and international management positions." The official biography of CEO-to-be, Alex Gorsky, stated he "began his Johnson & Johnson career as a sales representative with Janssen Pharmaceutica in 1988. Over the next 15 years, he advanced through positions of increasing responsibility in sales, marketing, and management." Previously, he earned "a Bachelor of Science degree from the U.S. Military Academy at West Point, N.Y., and spent six years in the U.S. Army, finishing his military career with the rank of Captain. Alex earned a Master of Business Administration degree from The Wharton School of the University of Pennsylvania in 1996."

Apparently neither current nor nominated CEO had any direct experience in patient care, nor in biomedical or clinical science, nor in chemistry, engineering or manufacturing. So both are generic managers, that is, health care leaders without any direct experience in health care, or in the science and technology underlying it.

"Making the Numbers" Versus the Credo

Moreover, they are both a particular type of generic manager, salespeople. As the Times reported:

Mr. Gorsky, who is 51, fits the mold of someone who once 'carried the bag' — industry slang for working as a sales representative. He is known as a polished speaker and an intense yet likable manager who is a quick study when it comes to learning new topics.

However, while sales people may be personable, they often have goals that have nothing to do with responsibilities "to doctors, nurses and patients, to mothers and fathers,...." As the Times article also noted,

But the ethos of the sales representative may not be what Johnson & Johnson needs right now, said Erik Gordon, who teaches business at the University of Michigan. 'That culture was very much the Weldon culture writ large — we will make our numbers for the analysts, period,' he said. 'And if that means we have to cut costs on things that affect quality, then by God, we’re going to make those numbers.'

So while Johnson and Johnson for years prided itself as a company that put the needs of patients and health professionals first, it hired leaders from the culture of sales where the impetus is to "make the numbers," to fulfill short term revenue goals, no matter what. This illustrates how generic management given perverse incentives in an era that honors greed and puts short-term economic goals ahead of all others had hollowed out health care.

We wish Mr Gorsky well, but worry that if he too focuses just on making the numbers, the result will be only mischief.

The Moral of the Story

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


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

Perhaps Hospitals Don't Care Much That EHRs Can Be Dangerous, Because EHRs Lets them Attract 'Good Paying Customers' And Exclude the Old and Poor

This comes as no surprise to me. I believe it may help explain hospital's cavalier attitudes towards the risks of today's commercial health IT.

It's all about money.

We already knew that (for example, see my Feb. 2011 post "Does EHR-Incited Upcoding (Also Known as 'Fraud') Need Investigation by CMS, And Could it Explain HIT Irrational Exuberance?"), but the following news adds to the pecuniary motivations:

Kaiser Health News

Critics say hospitals cherry pick best-paying patients
By Phil Galewitz
KHN Staff Writer

Feb 05, 2012

When the oversized postcard arrived last August from Provena St. Joseph Medical Center promoting a lung cancer screening for current or former smokers over 55, Steven Boyd wondered how the hospital had found him.

Boyd, 59, of Joliet, Ill., had smoked for decades, as had his wife, Karol.

Provena didn't send the mailing to everyone who lived near the hospital, just those who had a stronger likelihood of having smoked based on their age, income, insurance status and other demographic criteria.

The nonprofit center is one of a growing number of hospitals using their patients' health and financial records to help pitch their most lucrative services, such as cancer, heart and orthopedic care. As part of these direct mail campaigns, they are also buying detailed information about local residents compiled by consumer marketing firms — everything from age, income and marital status to shopping habits and whether they have children or pets at home.

Hospitals say they are promoting needed services, such as cancer screenings and cholesterol tests, but they often use the data to target patients with private health insurance, which typically pay higher rates than government coverage. At an industry conference last year, Provena Health marketing executive Lisa Lagger said such efforts had helped attract higher-paying patients, including those covered by "profitable Blue Cross and less Medicare."

Not to mention helping exclude those covered by Medicaid, or the uninsured.

Strategy Draws Fire

While the strategies are increasing revenues, they are drawing fire from patient advocates and privacy groups, who criticize the hospitals for using private medical records to pursue profits.

I don't recall anywhere on the releases at area hospitals saying they would be using their own clinical data for marketing purposes (which likely involve third party contractors). It might be in the fine print, however. I also don't recall any place to sign and give informed consent to the use of experimental medical devices such as the EHR's used to collect the marketing data, either, but that's addressed elsewhere on this blog such as here.

Doug Heller, executive director of Consumer Watchdog, a California-based consumer advocacy group, says he is bothered by efforts to "cherry pick" the best-paying patients.

"When marketing is picking and choosing based on people's financial status, it is inherently discriminating against patients who have every right and need for medical information," Heller says. "This is another example of how our health system has gone off the rails."

I would go beyond "off the rails." How about, straight to perverse? EHR data is used to attract paying customers and then expose them to risk of being maimed due to the disruptive nature of the HIT itself.

Deven McGraw, director of the health privacy project at the Center for Democracy and Technology in Washington, says federal law allows hospitals to use confidential medical records to inform patients about things that may help them.

"If it's technically legal, we can do it, and who gives a damn about the ethics?" is what is being expressed here.

"You want health providers to communicate to patients about health options that may be beneficial to their health," McGraw says. "But sometimes this is about generating business for a new piece of equipment that the hospital just bought."

Using such information for marketing "creeps closer to the line," between what is legal and what is not, she says.

And helping recoup the costs of that hundred-million dollar EHR setup, too.

... Tess Niehaus, vice president of marketing at St. Anthony’s Medical Center in St. Louis, says the approach has been quite successful and makes no apologies for going after the most lucrative business.

"We are here to serve everybody but we market for good paying patients because it preserves our ability to serve everyone," she says. [And the ability to proffer generous executive salaries and raises - ed.]

"Good paying patients?" Does that imply there are bad paying patients? (Might those "bad paying patients" be predominantly the elderly and/or minorities?)

While the practice is legal, most people would be shocked to know their records may be shared with nonmedical personnel and outside firms to help hospitals attract business, says Pam Dixon, executive director of the World Privacy Forum, an advocacy group based in California. "I am really bothered by the overabundance of information that is flowing that is unnecessary and risky," she says.

As I've written before, don't worry, your most sensitive data's safe in the hands of the extremely skilled health IT professionals at most hospitals.

While hospitals may profit from offering cholesterol tests and mammograms, the big payoff is in what those screenings may lead to – additional tests and procedures, including surgery.

"It's all about downstream revenue," says Patrick Kane, senior vice president of marketing at Cape Cod Healthcare in Massachusetts who used such approaches at Wellmont Health System in Kingsport, Tenn. "The old adage in business is that it’s easier to sell an existing customer new services, rather than find a new customer."

So much for medical professionalism and conservatism. At least Mr. Kane admits it's all about money.

... Provena's Lagger says the approach boosted the system's bottom line so it could serve people regardless of insurance status. "This is a means to an end," she says.

The ends don't always justify the means, but that may be a hard concept for some in today's amoral culture to understand.

... Much of the expertise for such campaigns is provided by three consulting firms -- CPM Marketing of Madison, Wis., Medseek of Birmingham Ala. and New York-based Thomson Reuters. They typically charge hospitals $100,000 a year or more.

CPM, which merged in November with Denver, Colo.-based HealthGrades, a health ratings firm, added 100 new hospitals last year to give it a total of 400. Medseek works with more than 250 hospitals and Thomson Reuters, with 150.

Remember Darrin Stevens on Bewitched? "Larry, I've got a great idea for a new campaign! Let's troll for patients using their private data! Never mind that I have donkey ears today... that darn mother in law of mine, Endora!"

The targeting worked in the case of Boyd, who called the number on the back and scheduled the CT scan a few days later. The $169 test showed his lungs were clear, but found potential blockages in coronary arteries that his Provena-affiliated doctor is monitoring.

"In hindsight, I’m glad I had the test," he says.

No mention of patients who had unnecessary testing and interventions that led to bad outcomes ... or patients injured by the very EHR systems that make such marketing possible.

-- SS

Hospital Executives - What Will They Think of Next?

Health care organizations are now most often run by people with management, not clinical backgrounds.  It seems like business schools have taught managers to sign on to whatever the latest management fashions are.  So what are the latest fashions in hospital management?  Here are a few hot items.

Retreading Pharmaceutical Representatives

My jaundiced reading of the business news suggests that most executives think that marketing is the most important part of their organizations, and that clever marketing can sell any product or service. For example, the pharmaceutical industry spends about twice as much on marketing as it does on research and development (despite pharma executives' protestations that they run research driven businesses) (see this post). So it should be no surprise that now hospitals are using "hospital representatives" to market referrals to their institutions to doctors.

From last week's USA Today:

n northwest Indiana, Carrie Sota visits five or six doctors' offices every workday as part of her new sales job.

But Sota isn't selling the physicians on a prescription drug or a medical device. She's promoting her hospital — the University of Chicago Medical Center.

Sota, 30, is one of four employees the academic medical center has hired in recent months to make 'sales calls' on physicians in the hope that they will send more patients to the hospital. 'We are trying to build meaningful relationships,' said Sota, who was previously a saleswoman for a small medical device company.

The University of Chicago Medical Center is one of a growing number of hospitals nationwide hiring former drug and device sales reps to visit doctors' offices to persuade them to use their services over competing facilities.

Rather than handing out samples of prescription drugs, the sales reps call on doctors armed with the latest information on how their facility is reducing hospital-acquired infections and improving patient-satisfaction scores.

In visits that can last five to 20 minutes, reps try to win doctors' loyalty by helping them get better times on operating room schedules or easier patient referrals to hospital-based specialists. The sales reps can also carry messages back to the hospital, such as a doctor's request for a new medical device to be available in surgery.

The article suggested a few problems with this approach. First, the point of the marketing is not to improve the match between patients' needs and the services the hospital provides. Rather, it is to generate referrals that have the potential to provide the maximum revenue:

While hospitals have always tried to woo doctors to refer patients to them, the institutions are growing more direct in their efforts. The hospitals mine data to see which doctors have the most profitable, well-insured patients, and then they assign those doctors to a sales rep.

So in particular,

Many of the physician liaisons focus on specialists, who bring in patients for services with the highest profit margins, including orthopedics, cardiac care and cancer care, [Duke University Health System physician liaison manager Christine] Perry said.

Second, the hospital reps have incentives based on revenue, not on value to the patient:

About two-thirds of Tenet's liaisons are former drug and device sales reps, and they can make tens of thousands of dollars in bonuses if doctors increase their referrals to the hospitals.

Third, across the system, the revenues generated may be much less than the costs incurred, since most of the marketing will only succeed in moving patients from one hospital to another:

Paul Ginsburg, president of the non-partisan Center for Studying Health System Change, said, 'When you look at the health system, this is a waste of resources. It's a zero-sum game.'

He added: 'The net results of changing physician-referral patterns is that one hospital gains at a cost of others, and all the hospitals burn resources to pay (sales)people who take up the doctor's time.'

Of course, the reps could succeed in persuading doctors to refer patients to specific hospitals for services the doctors originally did not think the patients needed. That would be good were the patients to need those services, but bad if they were not.
Fourth, we have discussed (for example, here and here) how pharmaceutical representatives use sophisticated psychological and emotional manipulation, despite claims that all they do is provide unbiased information and educational, to influence physicians to prescribe drugs. Again, this may result in patients getting drugs whose benefits do not outweigh their harms. It is possible that hospital representatives will do something similar:

'These people are really good and really assertive and very sophisticated,' said Stephen Newman, Tenet's chief operating officer.

Unbundling Payments

The airlines decided a while ago that they could make more money by charging passengers for each checked bag, and even for those little meals on plastic trays. It looks like hospital executives have discovered a new way to unbundle.

As reported last month by the St Louis Post-Dispatch, hospitals have begun charging often hefty "facility fees" for patients seen as outpatients in hospital clinics or hospital owned practices, even for very minor procedures or just office visits, and even for Medicare patients. (Private physicians who see patients in their own offices cannot charge such fees to Medicare patients, and most private insurance companies will not cover such fees.):

A few weeks after Allison Zaromb took her 4-year-old son Meir to see a dermatologist in an outpatient office at the SSM Cardinal Glennon Children's Medical Center campus, she received separate bills from the doctor and the hospital.

The cost for a 3-minute procedure to treat Meir's warts totaled $538, which included a $220 bill for physician services - and a separate bill for a $318 hospital 'facility fee.'

Zaromb, a periodontist who lives in University City, is now suing SSM Health Care Corp. and Cardinal Glennon Children's Medical Center in a proposed class action lawsuit on behalf of other patients

More generally,

With the proliferation of hospital-owned outpatient centers and hospital-owned physician practices, hospital 'facility fees' have become increasingly common. Such hospital facility fees often involve greater dollar amounts than the fees charged by physicians.

Technically, it all appears to be legal:

Under federal regulations, health systems are permitted to charge a hospital facility fee for an outpatient service if it's done in a clinic that is 'hospital-based' - meaning that the clinic is owned and operated as part of a hospital or health system, regardless of whether the clinic is physically located on the hospital grounds.

This technique does seem to be a way to increase revenue. But one person's revenue is another person's cost, so it also seems to be a great way to further increase the already high cost of US health care. It is not obvious, however, that these increased costs will lead to increased quality of care or value for the patient:

'From a consumer's perspective, when you go see your doctor, you go see your doctor - whether it's in an office inside a larger hospital complex or right across the street,' [Zaromb's lawyer John] Phillips said. 'The doctor's practice remains the same. ... They're making the doctor's office a ‘hospital-based' clinic for one reason: to make money by charging a facility fee, not to improve consumer service.'

Negotiating the Costs of Medical Devices

One of the favorite topics on Health Care Renewal, at least before we found even more outrageous subjects, was the stratospheric cost of medical devices. For example, look at posts from 2005 here, here, here, and here. So last month we found out that hospital executives have come up with a revolutionary idea to combat the high cost of devices. They will actually try to see what prices the device companies charge other hospitals, and then negotiate the prices down, as Reuters reported as big news in late November:

Implantable devices make up a sizable chunk of typical hospital budgets, and administrators are devising new ways to limit that cost as they brace for cuts to government reimbursement and treat more patients who can't pay for care.

That means methodically working through each category of device, from heart valve replacements and stents to spinal products, to see where they can negotiate lower prices. It also means creating databases of shared information on pricing between hospitals.

Imagine that! Of course, the notion that buyers ought to bargain with sellers to get the best price goes back a few years. However, only in 2011 did it apparently occur to hospital executives that they ought to negotiate the prices of one their most expensive purchases. This suggests that there has been something profoundly wrong with the basic assumptions underlying the commonly accepted wisdom that making the health care system more of a market will lead to more financially efficient care. 

Summary

In 1988, Alain Enthoven advocated in Theory and Practice of Managed Competition in Health Care Finance, a book published in the Netherlands, that to decrease health care costs it would be necessary to break up the "physicians' guild" and replace leadership by clinicians with leadership by managers (see 2006 post here). Thus from 1983 to 2000, the number of managers working in the US health care system grew 726%, while the number of physicians grew 39%, so the manager/physician ratio went from roughly one to six to one to one (see 2005 post here). Health care went from being controlled by clinicians to controlled by a growing volume of managers.  Most of these managers were generic, in that they had little if any knowledge of, experience in, or sympathy to the values of health care. These generic managers have used the same techniques advocated for the management of supermarkets or automobile manufacturers to manage health care organizations, despite all the obvious differences in context, goals, values, and people involved.

So these generic managers have brought us such "innovations" as the "hospital (marketing) representative," and the "facility fee" for outpatient visits, but only thought to negotiate device prices in 2011. But that is why we pay them the big bucks.

How many more arguments do we need that health care organizations ought to be lead by people who understand the health care context, share its core values, and are accountable for how these organizations affect patients' and the public's health?

UCB Settles, Pleads Guilty

Tromp, tromp, tromp.... the legal settlements keep marching along.  This latest story was reported by Reuters and Bloomberg.  The basics were, per Reuters:

The American unit of Belgian pharmaceutical company UCB SA (UCB.BR) pleaded guilty on Thursday and will pay $34.4 million to settle criminal and civil charges that it illegally promoted a drug for migraines.

The company pleaded guilty to one count of promoting the epilepsy treatment drug, Keppra, in the United States in 2004 for migraine treatment without the necessary approval from the Food and Drug Administration, the U.S. Department of Justice said.

One atypical element here is that the company actually pleaded guilty to a crime.

Another slightly off-key note came from the description of the activities constituting the illegal marketing, per Reuters:

The company was accused of promoting Keppra with posters that claimed it was safe and effective for migraines and cited studies that it also claimed were independent -- but in fact were sponsored by UCB, according to the Justice Department.

In those posters, UCB failed to disclose that its own trials had failed to demonstrate the drug was effective for migraines or that it had backed the studies, the agency said.

Furthermore, per Bloomberg,

UCB’s marketing included sponsorship of doctor-paid 'studies,' posters, publications and oral presentations about the supposed benefits of using Keppra to treat migraines. Prosecutors said UCB failed to disclose that a 2000 study showed that Keppra was not effective in preventing migraine.

So the company did not deny accusations of deceptive marketing, and the suppression of a clinical study that failed to conform to marketing objectives.

But most of the rest followed the usual routine.

The settlement involved some sort of promises of better corporate behavior in the future, per Reuters:

As part of the settlement, the company agreed to implement procedures and reviews to avoid and detect any future similar conduct. As a result, UCB will not face probation, according to the plea agreement filed in court.

The penalty for the company was a fine that appeared to be big:

UCB will pay about $8.6 million in criminal fines and forfeiture and another $25.8 million to settle parallel civil allegations involving false claims submitted to U.S. federal healthcare programs, according to the plea agreement.

However, it was a pittance compared to the revenues generate by the product whose marketing was illegal, per Bloomberg:

Keppra, with 942 million euros ($1.37 billion) in sales last year, is the company’s top-selling drug, according to data compiled by Bloomberg.

The spokesperson for the government basically said, "that ought to teach them," again per Bloomberg,

'UCB put its pursuit of profits ahead of its obligations to patients,' Ronald C. Machen Jr., U.S. attorney for the District of Columbia, said in an e-mailed statement. 'Today’s guilty plea and UCB’s $34 million payout should remind drug companies that try to cleverly design off-label marketing schemes that we will not allow them to compromise patient safety.'

However, the company's leaders did not seem the least bit fazed, or contrite for that matter, per Reuters,

'We are pleased to have resolved this matter and look forward to continuing to work with the many organizations with whom we partner to advance our mission of transforming the lives of people living with severe diseases,' said Greg Duncan, UCB's president for North American Operations.

The contrast between the crime his company admitted, involving deceptive marketing and the suppression and a study that failed to fit marketing objectives, and the high minded mission seemed to cause Mr Duncan no cognitive dissonance. Or perhaps "transforming the lives of people" was meant more ironically?

Left unsaid in the brief news reports was whether any individual who authorized, directed, or implemented the bad behavior, including, in this case, the deceptive marketing and suppression of clinical research, would pay any sort of penalty. It seems safe to assume that no one will go to jail, pay a fine, lose a job, or even be demoted.  Why the US Department of Justice thought that a small fine and no individual penalties would change corporate behavior, when the profits to be made are so large, in the absence of even a little bit of contrition by corporate leaders, was not exactly clear.

So on and on the march goes. The parade of settlements, sometimes even involving guilty pleas of criminal convictions, now indicates how low the ethical standards of health care organizations have fallen. However, the lack of any consequences to individuals suggests that they have no incentive to rise.

Again, despite promises of tougher treatment of individuals involved in health care corporate misbehavior from the government (see posts here and here), the same old script plays out again and again.

So I get to say twice in two days,,,, pervasive bad behavior by large health care organizations has got to be a major cause of our ongoing health care dysfunction.


So, to really deter bad behavior, those who authorized, directed or implemented bad behavior must be held accountable. As long as they are not, expect the bad behavior to continue.

Two More Settlements, One More Corporate Integrity Agreement for Novo Nordisk

And the legal settlements for health care organizations keep right on marching along.  Here are the basics, per the Wall Street Journal, starting with the outline of the first settlement for Novo Nordisk:

Drug maker Novo Nordisk A/S's U.S. affiliate has agreed to pay more than $25 million to end investigations by U.S. authorities related to the marketing of NovoSeven and several diabetes drugs.

In one settlement, Novo Nordisk Inc., the U.S. affiliate, agreed to pay $25 million to end a probe and settle a civil lawsuit related to alleged improper marketing practices regarding Novo Seven, which is used to treat patients suffering from rare bleeding disorders. The complaint had alleged that Novo Nordisk promoted NovoSeven for unapproved uses.

Here is the outline of the second settlement:

Separately, the U.S. affiliate also agreed to pay $1.73 million in a settlement with the U.S. government to resolve allegations that its sales representatives accessed confidential patient information and submitted false Medicaid claims related to the marketing of diabetes drugs, including Novolin and Novolog.

Federal prosecutors in Brooklyn, N.Y., had alleged Novo Nordisk representatives made payments to pharmacists in exchange for recommendations for Novolin and Novolog products. As part of their activities, the pharmacists, or Novo Nordisk sales representatives, accessed confidential patient information, according to the settlement agreement.

Here is the usual pro forma denial by a company spokesperson that the company had done anything wrong:

'We are committed to running our business according to high legal and ethical standards and have been cooperating with the government since the investigation began,' said Jim Shehan, corporate vice president and U.S. general counsel for Novo Nordisk Inc. 'With this settlement, we avoid the distraction and costs of a lengthy legal battle, which would not have been in the best interest of the company or its stakeholders.'

Novo Nordisk denies any wrongdoing related to NovoSeven marketing....

Also,

Novo Nordisk didn't admit wrongdoing in the Novolin pact.

By the way, here is the brief mention of the corporate integrity agreement:

[Novo Nordisk] agreed to enter a five-year corporate integrity agreement with the U.S. Department of Health and Human Services in which it will add additional reporting and other procedures to its compliance program.

Why would a company that professes "high ethical and legal standards" not contest allegations that it engaged in improper marketing, paid health care professionals to recommend its products, and instigated breaches of patient confidentiality? 

Setting that aside, however, the coverage of this story in the Baltimore Sun  raises further questions.

First, how Novo Nordisk allegedly promoted Novo Seven, and the uses for which it was promoted are disturbing:

the government [did not] back down from its charge that the company engaged in unlawful marketing that helped persuade the Army to treat combat casualties with a largely experimental drug that was not approved for such use by the Food and Drug Administration.

Beginning in 2000, according to the government's claims, Novo Nordisk promoted the drug, also known as NovoSeven, to military doctors and entered into research agreements with Army hospitals. It provided funding for trials in which military officers participated, and gave 'donations and other gifts' to nonprofit foundations on behalf of military physicians. Those practices 'caused the military to use NovoSeven in its trauma patients,' the agreement states.

There was no evidence that Novo Seven decreased the morbidity and mortality of battlefield trauma, but there were reasons to believe the drug increased thrombosis risk:

Numerous clinical studies have since shown, however, that Factor VII is ineffective at controlling traumatic bleeding and can potentially cause blood clots that lead to heart attacks and strokes.

This was not just paying physicians and institutions to market an expensive, but innocuous drug.  It was paying US military physicians and institutions to market a drug that put injured soldiers at risk, but gave them no benefit.  Given the degree of deference public officials give to the brave soldiers that serve the country on the battlefield, one would think that putting them at risk, and putting the honor of their officers and military institutions at risk ought to be a big deal, maybe a big deal requiring more than even a $25 million fine.
On the other hand, although $25 million seems like a lot of money, it pales beside the amounts Novo Nordisk were making from Novo Seven:

Last year Novo Nordisk reported annual sales of NovoSeven of almost $1.6 billion — mainly for treatment of hemophilia. Company officials say roughly 15 percent of its sales are for unapproved uses, or as much as $250 million last year.

So while the settlement seems expensive compared to the cost of defending the suit in court, and it trades the distraction of a corporate integrity agreement for avoiding the "distraction" of further legal action, maybe a settlement equal to only one-tenth of the yearly sales of the relevant drug seemed a good deal for the company.

Since the company was already laboring under a deferred prosecution agreement in the US related to charges of illegal foreign kickbacks (see this post), maybe adding a corporate integrity agreement did not seem like all that much distraction.

On the other hand, the big question is: why was this deal a good one for the US government, or the people which it is supposed to protect? The amount involved only seems like a cost of doing business, and seems disproportionately small given that the allegations involved unlawful marketing that apparently threatened to corrupt US military doctors and hospitals, and were made against a company already under a deferred prosecution agreement for illegal kickbacks. Finally, since the impact of even the relatively small financial payment could be spread among all corporate employees and stockholders, and the deal involved no negative consequences for any individual who authorized, directed or implemented the bad behavior, why would it defer corporate insiders from authorizing or directing future bad behavior?  .

We have heard a series of threats from US government officials that they are about to crack down on big health care companies that misbehave, and, in particular, actually try to impose some negative consequences on the people in those companies that authorized, directed, or implemented bad behavior (see this post). However, we continue to see settlements like this, involving relatively small financial penalties imposed on rather large corporations, and corporate integrity agreements and/or deferred prosecution agreements that do not obviously seem to change how the companies operate.

Although a year ago we discussed threats by the US government to hold health care leaders accountable using the "Responsible Corporate Officer Doctrine," which has been available since 1943, so far there is no evidence that this concept has been made operational.

The continuing march of legal settlements now seems to have included most of the previously well reputed commercial health care firms in the US. The length of this march is an indication of how pervasive is bad behavior by such health care organizations, especially when the marchers were accused of behavior that appeared clinically, not just financially unethical.

I assert again that pervasive bad behavior by large health care organizations has got to be a major cause of our ongoing health care dysfunction.

So, to really deter bad behavior, those who authorized, directed or implemented bad behavior must be held accountable.    As long as they are not, expect the bad behavior to continue.