"Cogs in the Corporate Machine" - More on the Plight of Corporate Physicians

We discussed last week some of the perils of the latest trend towards the corporatization of medicine, practicing physicians becoming employees of hospital systems, including for-profit corporate systems.  A recent article in Medscape Business of Medicine included a striking anecdote about the life of a corporate physician.

Controlling Referrals by Contractual Provision
It started with the revelation that some employed physicians may sign contracts that obligate them to refer patients within the corporate system, even if that is not in their best interests:

Victoria Rentel, a family physician in Columbus, Ohio, joined a hospital-owned group several years ago. At first, nearly everything went fine. There were a few glitches: she'd occasionally order tests or consults at competing facilities, either for patient convenience or because of health plan coverage. When the hospital's administrators found out, they told her it was a violation of her contract; but that didn't stop her because she knew the hospital never enforced this provision.

A Non-Compete Clause, Even for a Laid-Off Physician

It also included the observation that corporate physicians may be abruptly laid off. Worse, being laid off means having to leave town, because apparently even laid-off physicians are still obligated by non-compete clauses in their contracts:

Then, out of the blue, she was informed that the hospital was going to close her practice within 45 days. She knew this wasn't her fault; the recession had hit the hospital hard, and it was laying off nearly half of the primary care doctors in her group. Still, it was a hard pill to swallow.

Making matters worse, her contract's noncompete clause prohibited her from going to work for any of the other healthcare systems in town. To avoid legal sanctions, she joined the student health service at Ohio State University.

Signing Contracts Without Understanding Them
The article's introduction emphasized the problem of physicians signing onerous contracts, perhaps without fully understanding them or without getting adequate legal advice:

Many other physicians -- especially those who, like Rentel, were previously in private practice -- complain about their jobs. In some cases, it's because physicians rushed into the arms of a hospital without looking carefully at their contracts or asking the right questions during their job interviews.

Cogs in the Corporate Machine

The introduction ended ominously:

Ultimately, the loss of control over their own professional lives is what irks employed doctors the most if they used to be in private practice. But some doctors also get the sinking feeling that they've become cogs in the corporate machine.

'The reality is that when you work for a hospital system, you're a service line,' says Rentel. 'And because primary care reimbursement is relatively low, you're a service line that feeds more lucrative service lines.'

Oddly enough, after that striking beginning, the article peters off into a discussion of some "gripes of employed physicians," which either soft-pedaled or failed to include the issues listed above.

The specific issues, and the general response of physicians to their role as corporate wage slaves deserve further consideration.

Signing Bad Contracts

First, the notion that physicians frequently sign contracts, particularly such important contracts as their own employment agreements, without reading them, without clearly understanding them, and without obtaining competent legal counsel is very disturbing.   A physician who signs a contract without reading it, understanding it, and getting competent legal advice about it is at best naive to the point of foolishness. 

My late father, an attorney, done told me to "never sign a contract you haven't read and understood."  Contracts are - surprise - enforceable legal documents that may involve surrendering important rights.  One should never sign a contract without being satisfied that its benefits outweigh its harms.

It could be that physicians who so blithely sign contracts are exhibiting learned helplessness.  Maybe they feel somehow pressured to apparently voluntarily agree to doing something that ultimately will harm them.  I am not sure that simply declaring on a blog that we will have to unlearn our helplessness if we are ever to save medicine and health care will do much to solve what may be a fairly deep problem.  But we must do so.

In addition, contracts are valid if entered into voluntarily.  It may be that some physicians truly sign contracts under duress.  Those contracts may not be valid, and could be challenged if they were so signed (again, if physicians are willing to unlearn their helplessness enough to get the counsel of a competent attorney.)

Stopping "Leakage" Possibly Unethically, Maybe Illegally?

The physician in the example above apparently had a contract provision which was violated simply by referring patients to competing facilities.  This appears to be an extreme way for a hospital to deal with the problem of "leakage," that is, the financial problem to the hospital caused when patients are referred outside the system.  Note that we discussed (here and here) the example of a for-profit hospital system with a large number of physician employees pushed to choke off "leakage" of patient referrals outside the system.

Although leakage may pose financial problems for hospitals, fighting leakage may lead to ethical problems.  Physicians are supposed to decide how to manage patients, and specifically to decide where to refer patients in the patients' interests, not just to keep money flowing to the health care system. "Leakage reduction" may possibly threaten physicians' first commandment, to make decisions to maximize benefits and minimize harms to individual patients, before all other considerations.

Worse, in the example cited in the Medscape paper, the leakage reduction was apparently implemented not by just trying to persuade doctors to keep patients within the system, but by a contract provision that somehow forbade referrals out of the system.  That may have not only been unethical, but it could have been illegal.  

The "Stark Law" (Title 42, Chapter 7, Subchapter XVIII, Part E, Section 1395 of the US Code) generally prohibits basing referral decisions on payments.  Full-time employed physicians are exempt from some of its provisions, but only if the physicians' "amount of remuneration under employment" "is not determined in a manner that takes into account (directly or indirectly) the volume or value of any referrals by the referring physician."  Therefore, were the contract referred to above to have forbidden outside referrals on pain of termination or reduction in remuneration, it could potentially violate this law. 

There have been rumors that physicians have been pushed to sign contracts that could so violate the Stark Law, but the published example above makes this a real possibility.

Physicians ought not to sign contracts that seem to limit referrals under penalty of pay reduction or termination, which may be both unethical and illegal.  Any physician presented with or who has signed such a contract ought to consult a competent attorney.

If hospitals and hospital systems are trying to force physicians to make referrals based on the hospitals' financial advantage instead of in the best interests of patients, that is reprehensible.  If these organizations are trying to do so via contractual provisions, this deserves investigation, including investigation by the relevant law enforcement agencies. 

Don't Be a Corporate Cog

This article underscores my previously expressed fears about how making physicians into corporate employees may remove the last barriers preventing patients from becoming corporate financial cannon fodder.  Physicians' most central professional value is to put patients' interests first.  Practicing physicians who practice as corporate employees are at risk of being pressured, or even threatened under the cover of contract enforcement to put their corporate employers' revenues ahead of patients' interests. 

Physicians should not let their patients, and their own values be so threatened.  Physicians who have inadvertently, foolishly, or under duress signed contracts that could threaten their professionalism and their patients' welfare need to do the right thing and challenge these contracts, or else there will soon be nothing left of the medical profession, and no one left to ethically care for patients. 

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The Rise of the Corporate Physician - the End of the (Health Care) World As We Know It?

In discussing how concentration and abuse of power threatens health care professionals' values and professionalism, we have discussed how ostensibly academic institutions value faculty more for their earning power than their academic abilities.  We have discussed how financial relationships between physicians and drug, biotechnology, device and other companies risk abuse of entrusted power.  But up to now, I have been comforted by the hope that physicians in small independent practices who do not have such conflicts of interest are trying to uphold their professional values, even as they were buffeted by the perverse incentives imposed by managed care organizations/ health insurance companies and government insurance (e.g., US Medicare whose payments are controlled by the RUC).

However, a recent article in SmartMoney suggests that the end of the independent physician is nigh:

Remember the solo family doctor? In places like Springfield, it has become increasingly likely that she's collecting a paycheck from a large regional hospital�and practicing medicine according to the hospital's strict playbook. The experience in Springfield is just a needle prick compared with what's going on nationwide. At least one in six doctors�more than 150,000 nationwide�now works as an employee of a hospital system. And with about half of recent medical school graduates deciding to work for hospitals and many established doctors looking to unload their practices amid the tough economic climate, what was a trickle of change has turned into a torrent. Jim Pizzo, a Chicago-area hospital consultant, says the blistering pace of these mergers is leading some colleagues to joke that there are two types of physicians today: 'Those employed by hospitals and those about to be.'

So we are seeing physicians who practiced solo or in physician-lead, physician-run group practices becoming employees of large health care organizations. And here on Health Care Renewal, we know how most large health care organizations are run.

This appears to be an unintended consequence of our recent US health care "reform" law:

But hospital executives also believe that buying doctors' practices could yield a big payday, thanks to a different provision in the health care law. The law will encourage doctors and hospitals to share some payments when treating each patient; as collaborative teams, they could earn bonuses for holding down costs and meeting quality markers. 'The real question for everyone is how that pie�that money�is going to get split up,' Goertz says; hospitals think they'll have the upper hand if they employ the doctors that they're sharing their banana cr�me with. And that's touched off a flurry of mergers everywhere�from Seattle to Roanoke, Va.

The name of these supposedly collaborative organizations, which are turning out to simply be hospital systems which have purchased physicians' practices and now employ physicians, is "accountable care organizations," which now appears ironic at least.

The article detailed some of the adverse effects to be expected when accountable care organizations become hospital systems with employed physicians providing patient care.

Increased Costs with Decreased Care

Ruth Taylor, a 44-year-old woman in Bozeman, Mont., started seeing Robert Hathaway as her doctor during college, and she stuck with him through everything from routine blood tests to a kidney transplant. Taylor, a professional nurse with warm blue eyes, describes Hathaway as a 'classic small-town doctor' who knew all his patients by name and socialized with them at local basketball games; he was accessible and thorough�even catching a health problem of hers that other doctors had missed. But after Hathaway sold his practice to the local hospital, Taylor says, things began to sour. She was more likely to be assigned to see the physician assistant rather than Hathaway himself. And when she went in for a comprehensive physical (also run by the assistant) in late 2008, she was charged $360, more than double what she'd paid for a workup in previous years.

Imposition of Dysfunctional Health Care Information Technology

On this blog, Dr Scot Silverstein frequently posts about how poorly designed and implemented commercial health care information technology may have harms that outweigh any benefits, and how these systems are rarely objectively evaluated. Employed physicians are likely to be required by their new executive overlords to use commercial health care IT that benefits the managers and their strategies, but may not benefit patient care:

Last spring Hospital Sisters tried to shift all of its Springfield medical offices to electronic medical records simultaneously. But there wasn't enough tech support to deal with all the problems physicians ran into on day one, and wait times spiked at the system's walk-in locations. Nenaber, a soft-spoken 64-year-old with wire-rim glasses, sounds acquiescent about the situation. 'We're getting the hang of these things,' he says slowly, sitting at his desk overlooking a gas station and a strip-mall parking lot. But his practice is still waiting for its electronic payoff

Increasing Prices by Providing Care in the Hospital

Now that the acquisition spree is in full swing, some experts worry that price increases could become the dominant narrative for patients. When hospitals run medical practices, federal law allows them to add substantial 'facility fees' to patients' bills to cover overhead expenses. The new bosses also often rip equipment like X-ray machines and MRIs out of the physician's office, preferring to have patients get those tests from radiologists at the hospital. That, too, can cost patients. A consumer with a high-deductible Aetna plan, for instance, would pay up to $1,400 for an MRI of her back at the University Medical Center at Princeton, N.J., according to data that the insurer makes available to its members. The same scan would cost about a third as much at nearby Radiology Affiliates of New Jersey, a nonhospital facility. Based on a review of insurance databases and state regulatory records, that's a fairly typical price gap

Increasing Prices by Market Domination

Price increases also have the potential to bleed outward�affecting not only the patients of the absorbed doctor, but also the cost of health care citywide. That's because when hospitals sit down at the bargaining table with insurers, they're almost always able to negotiate higher payment rates for their big groups of doctors than a lone physician with little bargaining power

Despite the usual spin provided by the would-be monopolists:

Fast-growing hospital systems, including Hospital Sisters and Bozeman Deaconess, say that their growth will eventually make care more efficient and bring costs back down, since they'll be able to cut back on unnecessary care and duplicate tests

I am sure that the 19th century robber barons made the same pitch about increasing efficiency. Of course, the efficiency mainly benefits the insider managers.

By the way, of course, the hospital systems own public relations machines and lobbyists are now busy attacking any restrictions on such concentrations of power, while the hospital managers figure out how to game the system to increase their market domination before the regulators notice:

As more patients face such disruptions, regulators are taking notice. In October, the Federal Trade Commission and the Department of Health and Human Services met with doctors, insurers and other health officials to discuss the referral and pricing problems that could arise from 'accountable-care organizations'� those new groups of hospitals and doctors that will share financial incentives. The Federal Trade Commission will offer guidelines on what's permissible by midyear. But hospitals are already lobbying for accountable-care groups to be exempt from antitrust and antifraud rules, even as they scoop up more and more medical practices. Under current regulations, officials in Washington must green-light all mergers involving companies valued at more than $63 million. But by buying up tiny medical practices one at a time, critics say, hospitals stay below the threshold and avoid getting much attention. And by the time regulators settle on more-formal legal guidelines, those mergers may be hard to undo, says Cory Capps, a Washington economist specializing in health care antitrust issues.

Excess and Unnecessary Utilization via "Leakage Control"

With big hospital systems now owning physician practices, and practicing physicians directly answering to executives, the push will be on to maximize use of the most lucrative services. Once the hospital systems have made employees out of the physicians, it is easy to pressure their own employed physicians to refer patients to the hospital units that can bill most lucratively:

By their own admission, most hospitals are eager to keep patient referrals under the same corporate umbrella, to save on costs and share medical records but also to boost revenue. The hospitals say they wouldn't force an internist, for example, to refer a patient with heart problems to their own cardiologists, but critics say there's certainly financial pressure. Under a little-noticed regulation that took effect in 2007, hospitals are allowed to pay doctors less if they don't do enough internal referrals.

Doctors in Bozeman and Springfield who granted interviews said they didn't feel pressure to be 'team players' with referrals. But some of those who've left large health systems tell a different story, including Mark Callenberger, an orthopedist in Merritt Island, Fla. Callenberger says that the hospital group where he used to work urged him to direct more patients to the MRI machine owned by the hospital. The doctor preferred a more advanced machine at a private practice that he says offered clearer pictures. But after he ignored the recommendations, Callenberger says, the hospital told his office manager to schedule patients at the hospital's MRI anyway, leaving him to perform surgery using 'crummy images.' (The hospital declined to comment on Callenberger's case but says its doctors can use whatever facilities they choose.) Patients may never know about these power struggles, because doctors aren't required to disclose how they choose specialists. And while patients who ask can always see a specialist outside the network, in practice few are likely to challenge their doctors' judgment, says Bruce A. Johnson, a Denver health care lawyer. 'Face it, when we're really sick,' says Johnson, 'if the doctor tells us to jump off a roof, we'll probably consider doing it.'

Note that we discussed (here and here) the example of a for-profit hospital system with a large number of physician employees pushed to choke off "leakage" of patient referrals outside the system.

Summary

The overarching problem is that employed physicians now must answer to managers and executives who may put financial goals, and their own enrichment, ahead of physicians' values, and specifically will choose increased revenue over providing the best possible care to individual patients:

. Executives here are also hoping to push the needle further�standardizing everything from how long patients wait on hold to the ease of parking at the doctor's office (valets, luxury-restaurant style, are one solution under consideration).

Still, Mikell acknowledges, 'doctors don't want follow-the-directions, cookbook medicine.' And for many physicians, the idea of following new rules triggers a much larger unease at giving up their independence�a feeling of loss, both for the businesses they built and for their patients. Back in Bozeman, Blair Erb, the sole cardiologist in town, is a picture of resignation as he prepares to sign a contract with Deaconess. 'I feel defeated,' Erb says, looking around at the office furniture he and his wife, Liz, chose from a catalog years ago. The weathered ranchers and bundled-up women that come through his door mostly express disbelief when they hear that this frank-talking Tennessee native will sell his practice. His staffers say they're not looking forward to the questions the hospital's medical records system will soon prompt them to ask patients. (Do you wear a bike helmet regularly? Do you have a smoke detector?) 'We'll try to retain as much professional independence as possible,' Erb says, gazing at the hospital building, whose bulk he can see through his window. 'But the fact of the matter is, we'll have a new master.'

So I for one do not welcome our new executive overlords.

We have posted about numerous examples of health care organizational leaders who put their own enrichment ahead of the mission. Now even ostensibly non-profit hospital systems are increasingly competing against for-profit systems. We have seen, as noted above, an example of a for-profit system that seems to betting everything on a business strategy to reduce "leakage" of patient referrals.  We can expect that non-profit hospital systems will have to act more like for-profit systems, and the perverse financial incentives given the managers of all hospital systems will lead to pressure on physicians to forgo their responsibilities to provide the best care to individual patients in favor of actions that will bring in the most money in the shortest time.

We seem to be witnessing the rise of the corporate physician, the rise of a physician who must first answer to managers who never committed to putting patient care first, who may have no sympathy for physicians' core values, who may receive huge incentives to maximize short-term revenue no matter what. Such a rise of corporate physicians would be unprecedented in the US, and I believe in any developed country.

The rise of the corporate physician would require patients to put their trust in corporations, rather than individual doctors, in the era of the global financial collapse, in the new gilded age.

We may be seeing the end of health care world as we know it. The upcoming brave new world of health care may be worse that we can imagine.

What is to be done? - I rarely have ventured into specific policy suggestions, but I think that the consequences of the well-intended "accountable care organization" blunder may be so severe that I must so venture now. We must derail the movement towards "accountable care organizations." Any movement to make organizations more accountable cannot do so by making most professionals into employees answering to the sorts of ill-informed, incompetent, self-interested, conflicted or even corrupt leaders that we have been writing about for more than six years on Health Care Renewal.  We need to make it impossible for for-profit companies to employ physicians to take care of patients.  Maybe we need to think about making it impossible for for-profit companies to provide patient care at all, and for for-profit companies to sell health insurance.  Meanwhile, we need to ensure the accountability, integrity, transparency, and honesty of leaders of health care organizations.

If we do not reverse the current trends, anyone who wants good health care may have to look for it somewhere other than in the US.

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Send Mercenaries, Guns, and Money? - Cerberus Tries to Buy Jackson Health

The latest twist in the tale of one of the US great safety-net public hospitals raises some interesting questions.  As reported by John Dorschner in the Miami Herald, Jackson Health System has had some bad times:

the system, ... has served for a century as Miami-Dade County�s safety net healthcare system for the poor and uninsured. But money and management woes in recent years have pushed the system to the brink of failure time and again. Last week, its executives said it would run out of cash in July unless drastic measures are taken.

The Bid for Jackson Health

The latest drastic measure proposed was a take-over by a for-profit corporation, one that we have heard of before:

A Massachusetts hospital chain led by a Cuban American heart surgeon with family ties to Miami has sent Jackson Health System a non-binding 'expression of interest' letter, offering to take over the financially troubled public hospitals, invest $600 million in capital and assume $500 million in debt.

The $1.1 billion offer from Ralph de la Torre of Steward Health Care System was delivered Tuesday morning to members of the capital committee of the Public Health Trust, Jackson�s governing body.

Questions Appear Immediately

The proposed deal immediately raised questions and concerns. The very nature of the deal was unclear:

Trust member Ernesto de la Fe said he wasn�t sure if the company was proposing a straight-out sale, while other board members said they thought the offer envisioned 'a public-private' partnership.

Also, in a follow-up story by the same reporter, there were questions about the rapid time-table,

Jackson is in such difficult financial conditions � its executives warn it may run out of cash in July � that many leaders are willing to consider a sale, but they wondered whether the 90-day timetable set by Steward Health Care System is realistic and what the deal might mean for the 500,000 uninsured persons in Miami-Dade County.

There were questions about the company which proposed to buy Jackson:

'We need to know a lot more about this company,' said Sal Barbera, an adjunct professor at Florida International University and a former hospital executive.

Steward has existed only since November, when Cerberus Capital Management finalized a $895 million deal to turn six Catholic hospitals into a for-profit entity. Steward has since bought two other small hospitals. Altogether, the Steward system has 1,565 licensed beds. Jackson has 2,100. De la Torre has been a hospital executive for less than three years.

That�s 'a very short track record,' said Mark Rogers, a Trust member and former chief executive of the Duke University Hospital.

Would the Mission be Upheld?

The issue of whether a private, for-profit company would respect the mission of a safety-net hospital came up quickly,

Alan Sager, a health policy professor at Boston University, said some Steward facilities are money losers in poor neighborhoods. 'Some of us had a lot of questions' about the Cerberus take-over and how the investment company could squeeze returns for investment out of hospitals that were struggling as nonprofits.

'We asked repeatedly. We never received answers,' Sager said.

He said his fear is that patient care will be reduced to make profits. 'I think there should be concerns about preserving essential patient care in Dade County' if Steward took over Jackson, he added.

'If the object is merely to cut costs to make money � then that is not the right approach for Jackson,' said Rogers, the former Duke executive. 'Clearly some costs have to come out, but we have to invest in new programs to maintain the quality of medical care that Jackson has always provided.'

One day later, John Dorschner again writing for the Miami Herald raised more questions about why a large private equity company would want to buy a money-losing public hospital system? First he noted,

While the human face on the $1.1 billion bid to buy Jackson Health System is a Cuban-American heart surgeon with strong family ties to Miami, a vast and powerful entity looms in the background: Cerberus Capital Management.

The company, named for the mythological three-headed dog that guards the gates of Hades, is one of the biggest private investment firms in the United States, and it is the owner of Steward Health Care, the Boston hospital group that this week said it is interested in buying Miami-Dade�s public hospitals

So,

The question that perplexes some Trust members is why such a big-time investment firm would be interested in a healthcare system with three public hospitals that lost $244 million in fiscal 2009, is expected to lose $105 million in fiscal 2010 and is projected to run out of cash in July unless drastic measures are taken.

The concern, again, was whether Cerberus would uphold the current mission of the hospital system:

Trust Treasurer Marcos Lapciuc said Thursday that Cerberus is 'in the driver�s seat' on this deal, not Steward. 'They are going to expect some return on their investment. This is not going to be charitable donation,' he said.

Of course, the central mission of the current Jackson Health System would seem to be charitable.

To build the health of the community by providing a single, high standard of quality care for the residents of Miami-Dade County

The implication of "single, high standard" is that applies to all residents, regardless of financial status or ability to pay.

More Questions

The CEO's Short Term Focus

There is good reason to question whether Steward Health Care, formerly Caritas Christi, and now owned by Cerberus Capital Management would uphold that mission. As we noted recently, the Steward Health Care CEO seems to have a very short-term focus, suggested by the track record of the Cerberus CEO, who quickly left an organization he had aggressively promoted, suddenly switched from the Republican party to become a big contributor to the Democratic party, abandoned his medical license after developing a good reputation as a cardiovascular surgeon, and famously was quoted, "burn the boats on the beach, baby." Would he support the long-term commitment needed to make both the Massachusetts based and now the proposed Florida based hospitals, most of which are safety net hospitals, succeed?

"Leakage Reduction" - a Threat to Physicians' Professionalism?

As we also noted recently, the main tenet of his business plan seemed to be to reduce "leakage," to make sure patients who start within the system are referred within the system and do not "leak" elsewhere. The problem with this is that physicians are supposed to decide how to manage patients, and specifically to decide where to refer patients in the patients' interests, not just to keep money flowing to the health care system. "Leakage reduction" may possibly threaten physicians' first commandment, to make decisions to maximize benefits and minimize harms to individual patients, before all other considerations. Also, as we noted earlier, since Steward Health Care purchased not only some Massachusetts hospitals, but a big network of physician practices, there could be a risk that the physicians who are now employed by a private equity group would be pushed to make referral decisions for financial reasons, rather than in the best interests of the patients.

Note that a recent (posted 9 February, 2011) advertisement for a Senior Medical Director (physician leader) of the Caritas Christi Network Services, the physician group owned by Steward Health Care LLC, said the Director's first goal would be:

This position will have a leadership role in all aspects of the CCNS system, including responsibility and accountability for:
- Lead/Mentor/Support IPA based Medical Directors (at both the IPA and Pod level) to achieve Medical Management goals and objectives in Quality, Leakage, Utilization, and Risk performance

Keeping Company with Gun and Ammunition Manufacturers and "Mercenaries"

There are also questions about whether the corporate culture of Cerberus Capital Management would be compatible with the management of safety-net hospitals. Cerberus has some current investments in firms whose operations seem oddly askew from providing medical care to patients regardless of their ability to pay.

First, Cerberus owns the biggest manufacturer of firearms and ammunition in the US. As reported by BusinessWeek last year,

Cerberus had more than DPMS [Firearms] in its sights. From April 2006 to January 2008 it bought three other firearms companies: Bushmaster, Remington, and Marlin. And it kept adding to its collection. Cerberus now controls 13 brands in a holding company it created, Madison (N.C.)-based Freedom Group. With sales of $848.7 million in 2009, Freedom Group is the largest gun and ammo maker in the U.S. That means Stephen A. Feinberg, Cerberus' founder and managing member, is the country's top civilian gun magnate.

In addition,

Luth, the rifle maker, says that when he arrived at Cerberus' Park Avenue offices to negotiate a deal in 2007, he discovered that Feinberg and several of his partners 'are real gun guys.'

Also, as reported by the New York Times, Cerberus recently bought one of the biggest "private military contractors,"

DynCorp International, the private military contractor, said on Monday it has agreed to sell itself to Cerberus Capital Management for $1.5 billion, as the private equity industry continues to return to its core business of deal-making.

Cerberus will pay $17.55 a share for DynCorp, a 49 percent premium to Friday�s closing price of $11.75. DynCorp now has 28 days under a 'go-shop' provision within the deal agreement to find a higher and better offer.

While DynCorp has continued to win new contracts from the federal government, it has also been the subject of controversy over the years for its assignments in Iraq.

That controversy was amplified in an article in The Nation by Jeremy Scahill, entitled "The Mercenary Owners, They Are a Changin' (Sort of)

Blackwater and DynCorp, the two leading mercenary firms servicing the US wars in Iraq and Afghanistan have both undertaken steps toward significant structural changes over the past month. In the case of DynCorp, the ownership of the whole business seems to be changing hands, while Blackwater is dumping its private air force.

Cerberus Capital Management, one of the largest private equity firms in the US announced April 12 it was buying DynCorp, the massive, publicly traded company, which is akin to the Wal-Mart of the private security industry, for $1 billion in cash. Cerberus counts among its big wigs former vice president Dan Quayle, who often represents the company internationally. DynCorp has had its share of scandals over the years, including whistle blower allegations that personnel have engaged in organized sex-slave trading with girls as young as 12 and allegations its personnel have assaulted journalists. It has been rebuked by the State Department for its 'aggressive behavior' in interactions with European diplomats, NATO forces and journalists in Afghanistan. A 2007 US government audit of DynCorp's work in Iraq found that the State Department 'does not know specifically what it received for most of the $1.2 billion in expenditures under its DynCorp contract for the Iraqi Police Training Program.' More recently, the company was in the news facing allegations its training of the Afghan National Police was shoddy, including allegations its trainees didn't know how to adjust the sights on their AK-47s. If the Cerberus deal goes through, it will mean that the publicly-traded DynCorp will go private, meaning that it will be infinitely more difficult to get information on the company.

Cerberus seems to have had a dream of owning its own mercenary business for at least a few years. In April 2008, the company was reportedly looking to buy Blackwater. The deal apparently fell through because of concerns over Blackwater's reputation.

Summary

So we have come a long way from 1980, when the US American Medical Association gave up the rule that the practice of medicine should not be "commercialized, nor treated as a commodity in trade."  (See posts here and here.)   Now we have private equity firms buying or trying to buy formerly non-profit safety net hospital systems to be included in portfolios that can include gun and ammunition manufacturers and private armies.  Now we have physician networks owned by private equity firms focused on choking off "leakage."  Such ownership may initially inject lots of money into the system, and may eventually profit the new private owners, but what will we give up in this brave new world of commercial safety-net hospitals and for-profit physician practices?

As we said before,.... Deals that turn not-for-profit hospital systems into privately held for-profit systems ought to be scrutinized with extreme skepticism. Furthermore, once such deals are made, the results ought to be watched extremely closely to make sure they do not put private gain ahead of individuals' and the public's health. For-profit hospitals have generally not lived up to the promises they made to provide quality, accessible health care at a cheaper price.  It is yet to be seen whether private equity running for-profit hospital systems (and physicians networks) will do any better.

Coda

The title requires apologies to Warren Zevon, who famously performed "Send Lawyers, Guns and Money."

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The New Steward Health Care: Will Superbowl Ads and "Leakage Reduction" Keep the Ship Afloat, or Will a "Greater Fool" Be Left Trying to Bail it Out?

Some recent publications raise interesting questions about the leadership of a regional health care organization which now seems to have intentions of going national. 

A Superbowl Ad for Steward Health Care

The millions watching the Superbowl, maybe the biggest single US sports event, expect to be dazzled by the new, extremely expensive advertisements to be aired during the television coverage of the event.  The Boston Globe reported that the glitzy offerings by Volkswagen and Budweiser will have an odd companion, at least in the Boston area:

The local television audience for Super Bowl XLV on Sunday will get the usual array of high-impact commercials, from the suds of Budweiser to the sedans of Kia Motors. But amid all the elaborate productions, one quieter spot might stand out � an ad for Steward Health Care System, the Boston company formed to oversee the six Caritas Christi hospitals.

During the 30-second commercial, Massachusetts residents talk about the importance of quality health care, as the camera roams through Brighton and Dorchester � the homes of St. Elizabeth�s Medical Center and Carney Hospital.

There was no such marketing campaign for the hospitals before November, when they were bought by New York private equity firm Cerberus Capital Management. The ad will be broadcast only on WFXT-TV (Channel 25), not nationally.

Officials at Steward said they were looking to introduce the health care service company to customers who may have never heard of Steward. The campaign also further demonstrates a different marketing approach for the regional hospital network as it transitions to a for-profit health care player.

Why would a hospital system advertise during the Superbowl?

Brian Carty, chief executive marketing officer at Steward, said that�s the aim: make a debut during the Super Bowl to reach a large swath of local consumers.

'You can only launch a brand once, and we wanted to launch it in the biggest way we could,' said Carty.

It certainly is curious, particularly when the brand is only new in the most superficial sense. As noted above, Steward Health Care System is the new name given the former Caritas Christi, a regional Massachusetts health care system that was formerly non-profit and run by the Catholic Church, but was recently bought out by Cerberus Capital Management, a private equity company.

We discussed concerns about whether a private equity group would put its short-term financial gain ahead of the patient care mission if given the chance to run a hospital system in a series of posts in spring, 2010.

A CEO with a Short-Term Focus

Things get curiouser and curiouser. The Boston Globe also just published a lengthy report on former Caritas Christi, now Steward Health Care CEO Ralph De La Torre, which emphasized, perhaps unintentionally, his chronic focus on short-term gain.

[Friend and mentor Dr David] Torchiana has been fielding questions from lots of colleagues wondering what de la Torre might to next. 'My view of Ralph,' he tells them, 'is that he's aggressive and unpredictable.'

Forced Out His BIDMC Chief
Dr de la Torre trained as a cardiovascular thoracic surgeon who apparently was a very highly regarded surgeon. But then, the article described how Dr de la Torre forced out his clinical and academic leader at the Beth Israel Deaconess Medical Center:

He stayed at Boston Medical for only a year, jumping to Beth Israel Deaconess Medical Center for a better opportunity. Dr. Frank Sellke, Beth Israel�s relatively young interim chief of cardiothoracic surgery, saw great things in him.

But then,

After a couple of years, Sellke, who officially became chief in 2001, started hearing chatter that de la Torre was gunning for his job. He didn�t take it seriously. Traditionally, to be a chief at a Harvard-affiliated hospital like Beth Israel, you needed heavy research and teaching credentials, which de la Torre did not have. 'When I heard Ralph was trying to undo me, I thought it was joke,' Sellke says. 'It turns out the joke was on me.'

In 2004, de la Torre greatly expanded his reach when hospital officials named him chief of cardiac surgery, a section within the division of cardiothoracic surgery. Two years later, he gained freer reign over cardiac care after the hospital removed Sellke as chief of the division. Sellke � who stresses that he is happy now as a chief at Brown Medical School and remains one of the country�s best-funded cardiac researchers � says that although he respects de la Torre�s talents, he lost respect for him as a person. 'He has a take-no-prisoners approach. If he interrupts or destroys someone else�s career, that doesn�t bother him in the least.'

Developed CardioVascular Institute, then Left
After this little coup d'etat, Dr de la Torre hatched a plan to integrate cardiovascular care at the BIDMC, but then flew the coop after it did not work out as planned:

Instead, he hatched a plan to revolutionize cardiac care at Beth Israel. Traditionally, cardiac surgeons, vascular surgeons, and cardiologists operated in their own silos, even though they were all treating related cardiovascular diseases. De la Torre proposed the CardioVascular Institute, or CVI, as a way to break down those silos and centralize care by creating a 'hospital within a hospital.'

But,

The CVI officially opened in 2007, with de la Torre as president and CEO. He continued his work as a surgeon, maintaining the salary of more than $1.3 million that he had earned the previous year.

Pomposelli says de la Torre�s enormous talent, intellect, and drive helped the CVI succeed in many ways, notably in removing waste from hospital operations and in building strong networks of affiliated physicians. De la Torre wined and dined community cardiologists around the region, persuading them to become affiliates and refer patients to Beth Israel for care.

But Pomposelli concedes that the CVI fell short in other ways. The silos were harder to break down than they thought, especially since �we didn�t pay enough attention to academics and research.� Also the �enhanced revenues� to physicians turned out to be far less than promised, leading to resentment. Pomposelli, who remains the chief of vascular surgery at Beth Israel, stresses that the CVI still exists, but in a much less ambitious form. 'Ralph�s a builder. He loves the deal, loves creating new things,' Pomposelli says. 'I don�t think he loves managing things as much. Running the CVI turned out to be tedious and difficult.'

And de la Torre was out the door before this idea turned out to be less than what he touted:

In 2008, just a year after seeing his brainchild become a reality, de la Torre told Pomposelli he would be leaving to run the ailing Caritas hospital network.

Left Republican Party, Became Democrat

After assuming control of Caritas, Dr de la Torre seemed to abandon his previous political affilisations.

As recently as 2007, he was a registered Republican.

De la Torre (pronounced DEL-a-TOR-ree) says that, like many children of Cuban immigrants, he has long identified with the conservative Republican outlook on foreign policy, though he is a social liberal. Sometime after he moved to Newton, he switched his registration to independent. Regardless, he stresses that he was not politically active until recently, when he became motivated to fund Democratic candidates because of that party�s commitment to overhauling health care.

Then, the instant Democrat contributed substantially to the campaign of Massachusetts Attorney General Martha Coakley, who had to approve the take-over by Cerberus of Caritas:

she was the guest of honor at a ... fund-raiser held at the de la Torre home the previous fall when she was running for US Senate.

Some state Republicans complained that Coakley should not have been signing off on a deal being advanced by a major campaign donor, although they could produce no evidence that her office�s review was anything but thorough and deliberative.

And he hosted a better noticed fundraiser that that included a visit by President Obama,

Just before 5 p.m. on a Saturday in mid-October, a Cadillac limousine climbed the curvy driveway outside the Newton home belonging to Dr. Ralph de la Torre and his wife, Wing. Inside, the 75 guests were anxiously awaiting the main attraction while staying busy wondering how long the de la Torres� adorable 2-year-old twin sons would be able to keep their neckties attached and their dress shoes on. Swell parties like this are not uncommon in the West Newton Hill neighborhood, which is dotted with multimillion-dollar houses like the de la Torres� place. Still, this gathering stood out for two reasons. First, just about every person attending had paid $15,000 a pop to be there. Second, the guest of honor was none other than President Obama.

Abandoned Surgery and His Medical License

More strikingly Dr de la Torre also effectively abandoned the profession which had earlier brought him so much recognition:

After a decade of training to become a cardiac surgeon and endless effort to become one of the best in the business, de la Torre decided to walk away from surgery. He�d been in practice for only about nine years.

De la Torre says it�s impossible to be a great heart surgeon working only part time. He even took the drastic step of letting his medical license expire, his way of refusing to look back. 'Burn the boats on the beach, baby!' he says.

Saving Caritas: "Leakage Reduction"
So what set of boats would he burn to promote Steward Health Care? When he took over Caritas, he was able to improve its finances, but only up to a point,

The hospitals in the chain � flagship St. Elizabeth�s in Brighton, the Carney in Dorchester, Holy Family in Methuen, Good Samaritan in Brockton, St. Anne�s in Fall River, and Norwood Hospital � were all hurting. Worse, the system was weighed down by debt and underfunded pensions. De la Torre moved quickly to cut costs, improve efficiency, and negotiate increased reimbursement rates paid to Caritas hospitals by Blue Cross and other insurers. His actions helped turn around Caritas�s finances, going from a $20 million loss in 2008 to a $30 million operating income in 2009. But the debt, pension liabilities, and lack of access to capital combined to become an albatross on the chain. As of March 2009, Caritas had only 40 days� cash on hand, according to Mark Rich, the CFO, who took to keeping extra-large bottles of Tums on his desk.

His solution was the private equity take-over:

In classic de la Torre style, the deal promised something for each of the stakeholders. The archdiocese, which administered the Caritas pension fund, would see support for the fund to the tune of $295 million as well as a continued commitment that the hospitals would follow Catholic doctrine and not perform abortions or sterilizations. The SEIU would get job preservation and a stronger beachhead in Boston from which to try to expand its organizing efforts into the city�s big-name hospitals. The communities would see their local hospitals stay alive, even getting spruced up rather than stripped for parts. And Cerberus would get a dynamic leader who could offer them both a laboratory for testing the post-health care-overhaul national market and a sort of cloak of righteousness, given the hospitals� history of working with the poor.

But how would Cerberus make money on its investment? The explanation in the article raises more questions than it answers:

As he sees it, through investment in information technology and bricks-and-mortar hospitals, he will be able to offer a highly integrated 'accountable care organization' that gives patients quality care, close to home, thereby keeping costs down. The key is insisting that patients get all but the most complex care from their community hospital, rather than seeking treatment for pneumonia or a broken arm at a big shop like Mass. General.

Left unsaid, though, is who could effectively "insist" that patients get all their care within the system?

The notion that such insistence is the key also appeared in other reports on the Cerberus take-over of Caritas. For example, on October 14, 2010, the Boston Globe reported on Dr de la Torre's responses to the Massachusetts Public Health Council in a hearing on whether the take-over should be approved:

De la Torre said his aim was to stop the 'leakage' of patients from communities served by Caritas hospitals to academic medical centers in Boston.

'The business plan, the strategy, or whatever you want to call it, is all about keeping care locally,' he said. 'If we improve the facilities, improve the infrastructure, make it so that our very own patients want to stay in our hospitals, that�s the business plan.'

The same notion appeared in a post in local television station WPRI's news blog about the possible take-over by Steward of another local hospital

Private equity investors did not buy Caritas and turn it into a for-profit medical complex for the purpose of standing still. Caritas executives say they want to improve business by reducing 'leakage' � patients leaving its suburban medical settings to be treated in Boston teaching hospitals.

In fact, a little Google searching revealed that Caritas Christi Network Services had been pushing "leakage reduction" in its own newsletter in the Fall, 2009 issue:

Our job now is to focus performance on two critical success factors:
reducing leakage and improving quality.

So,

Leakage Reduction: Keep the Care in Caritas

Network-wide Referral Management

Our first initiative to help reduce leakage is to implement a network wide referral management
program.

Furthermore,

Region Specific Leakage Action Plans

Each of the Hospital and IPA presidents will collaborate to develop region specific action plans to reduce leakage. Together they will develop goals, identify reporting needs, and establish processes to achieve leakage targets. The participation and support of each physician IPA member will be important to the success of this initiative.

You and Your Patient

Your support in keeping the care you provide within the Caritas system and in participating in the care management initiatives is critical to the system�s success.

Note that Caritas Christi Network Services is apparently the subsidiary of Caritas Christi, now Steward Health Care, that employs physicians:

Caritas Christi Network Services (CCNS) is the second largest physician network in Massachusetts. Established in 2001, CCNS is responsible for the implementation and successful execution of managed care contracts, providing physicians with medical management services (referral and care management), quality improvement programs, data analysis, information systems and financial expertise.

But here is where it gets really tricky. It is one thing to aim to improve hospital services and accessibility in the hopes of attracting more patients. It is another thing to push physicians to refer patients to specific facilities for economic reasons, because physicians are supposed to make decisions for individual patients, including decisions about where to refer, based on the particular patient's needs and preferences.

So there are major questions about both the effectiveness and the ethics of "leakage reduction" based on applying leverage to physicians.

Summary: Will Someone End Up the "Greater Fool?"
Meanwhile, Paul Levy, the soon to be former CEO of BIDMC, who has not been afraid to say what he thinks on his blog, now called Not Running a Hospital, suggested that Cerberus, and by implication, Dr de la Torre, are not in this for the long haul. He first introduced the "greater fool" theory of business management,

It seems that there is no end to the number of people with cash who will be intoxicated by a good story line, even when there is little substance to back it up. All of these stories depend on the capital markets to bolster the price of investments, counting on the 'greater fool' theory: There is always someone who will take on a bad investment at just the wrong time, providing a good return to those who are lucky enough to escape before the crash.

Then he raised the concern:

Those seeking to regulate the behavior and financial decisions of for-profit hospitals will find that their post hoc authority will likely be insufficient to protect the public interest from a depletion of plant and equipment and from a plan that is mainly meant to burnish the pre-tax and pre-depreciation short-term earnings of the firm so that it is ready for the initial public offering or resale to another private equity firm.

So the question is whether Superbowl advertisements and "leakage reduction" management can really make the new Steward Health Care a lasting success? And if not, will Cerberus Capital Management hang around just long enough to buff the system up for the next buyer?

And if that happens, Levy noted:

Who gets hurt if these deals go bust when the next generation of owners takes over and discovers that creating the margin to generate the expected return is very hard in the hospital world? Well, that very last set of investors, the 'greater fools.' But, as we have seen in the examples above, the hurt goes much further. Hospitals, though, are in a special category. Investors may come and go, but the community depends on its local hospital to provide high quality service. It is the residents of the community who are left holding the bag if the hospital corporation reaches the conclusion that ownership is not financially viable.

As we said before,.... Deals that turn not-for-profit hospital systems into privately held for-profit systems ought to be scrutinized with extreme skepticism. Furthermore, once such deals are made, the results ought to be watched extremely closely to make sure they do not put private gain ahead of individuals' and the public's health. For-profit hospitals have generally not lived up to the promises they made to provide quality, accessible health care at a cheaper price.  It is yet to be seen whether private equity running for-profit hospital systems (and physicians networks) will do any better.

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Why is Johnson and Johnson "Spinning Out of Control?"

Last week, a New York Times article by Natasha Singer and Reed Abelson cataloged some of the problems afflicting the giant health care corporation Johnson and Johnson. 

Little red flags jut out from the shelves at a CVS drugstore in suburban Boston, alerting shoppers to shortages of nearly a dozen Johnson & Johnson products. Among them are Motrin, Rolaids, children�s Tylenol liquid and adult Tylenol, Mylanta, Pepcid AC and even some Neutrogena skin care products.

'Looking for Tylenol pain relief products?' asks one of the signs. The notices at CVS serve as a stark reproof to Johnson & Johnson, whose brands have for more than a century been synonymous with quality. Some of its products are in short supply at drugstores and supermarkets because the McNeil Consumer Healthcare unit of J.& J. last year recalled about 288 million items, including about 136 million bottles of liquid Tylenol, Motrin, Zyrtec and Benadryl for infants and children.

Johnson & Johnson has had to recall such a variety of products because of quality-control problems across product lines, in multiple factories and in several units last year. Some of its consumer products, for instance, may have contained bits of metal. Others came in bottles with a moldy smell. And some products have gone missing from stores with hardly an explanation. All of this has put the company and its manufacturing under the intense scrutiny of lawmakers and officials at the Food and Drug Administration.

'It looks like a plane spinning out of control,' says David Vinjamuri, a former J.& J. marketing employee who now trains brand managers at his company, ThirdWay Brand Trainers.

The article noted how the current widespread manufacturing problems at J+J seem to contradict the company's famous credo.

dating from 1943, saying that the company owed its first responsibility to the mothers and fathers, doctors, nurses and patients who use its products.

The article noted that the company's problems

have not been limited to its over-the-counter products, which could suggest that the company may suffer from even broader problems. Last year, its DePuy medical device unit recalled two kinds of hip implants, affecting tens of thousands of patients worldwide. Its vision care unit recalled millions of soft contact lenses sold abroad.

In fact, the company also has had major ethics problems. We noted here, for example, that last October J&J and Ortho-McNeil Janssen, a Johnson and Johnson subsidiary,were found by a jury to have defrauded the Lousiana Medicaid system by minimizing safety problems with the atypical anti-psychotic drug Respirdal, with a penalty of over $250 million.

Moreover, the NY Times summary is already out of date. The Los Angeles Times just reported yesterday even more recalls.

Why does the company seem to be in a tail-spin? Ms Singer and Mr Abelson listed several possible causes:

The reasons for McNeil�s woes remain unclear. Some critics, including former employees, say Johnson & Johnson has lost sight of its credo, while others suggest that the company decentralized its oversight of manufacturing and quality control in error.

Others say it was simply a matter of cost-cutting. The December lawsuit, for example, cited two unnamed former employees who contended that the company failed to address the manufacturing problems at McNeil because it was trying to save money.

Other former employees who are not involved in the lawsuit say that J.& J. seemed to hesitate in recent years to invest in new manufacturing equipment.

'It takes a lot of money to buy equipment and maintain quality,' says Patrick Bols, who left Johnson & Johnson�s pharmaceutical division in the late 1990s and owns stock in the company.

Why, however, would the company lose sight of its sacred credo? Why would it excessively cut costs in a way that would diminish its ability to carry out its most basic function, to produce pure and unadulterated drugs?

I submit that one clue can be found in a recent news article in Nature Biotechnology about the march of drug and biotechnology companies forced into legal settlements. [Ratner M. Crossing the line. Nature Biotech 2010; 12: 1232-1235. Link here.]

People are rewarded for improving a firm's financial performance - right up the chain to the CEO, [former US Department of Justice and current Vogel, Slade & Goldstein attorney Ms Shelley] Slade says. 'Their concerns are pleasing Wall Street and shareholders, and bonuses are driven by financial performance. There's a real conflict between what the compliance folks want them to do and what's in their immediate financial self-interest. Sometimes the compliance people don't get the full story from the people in operations.

So what we have here is another argument for the importance of perverse incentives as drivers of health care dysfunction. It is likely that all the management of nearly all health care organizations are driven, not by mythic credos or high-minded mission statements, but by the impetus for short-term revenues driven by desire to earn big bonuses and keep their total compensation in six- through eight-figures. These sorts of incentives will predictably lead to excess cost-cutting, unethical behavior, and outright crime.

So, to repeat like a broken record (if anyone remembers what that means, a broken vinyl audio recording skipping due to surface scratches) - if we really want health care reform, if we really want to lower costs, improve access, and improve quality, we need to abolish the perverse incentives that drive managers of health care organizations.  Somehow we need to make the leadership of health care organizations accountable for fulfilling their credos, mission statements, and really their basic responsibilities.  The patients' interests need to come first.  Drug companies must make pure, unadulterated drugs, and promote them honestly and ethically, and their leaders must first be accountable for doing so.

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The Curious Case of Pfizer's Asbestos Claims

Here is a very strange and long-running story that raises some questions about how health care organizations are lead, but seems to have bee covered only in the business press.

Pfizer Goes Into the Asbestos Business (in 1968), Faced Hundreds of Thousands of Lawsuits (in the 1980s), Promised to Settle (in 2004)

Here is the background, per a 2004 report by the Associated Press, per Fox News:

Pfizer Inc. (PFE) Friday said it has agreed to pay $430 million to settle all lawsuits against it alleging injury from insulation products made by a subsidiary.

Pfizer and its Quigley Co. subsidiary were named, along with several other defendants, in 171,611 lawsuits claiming personal injury caused by exposure to asbestos, silica or mixed dust.


Pfizer acquired Quigley Co. in 1968. It sold some products containing asbestos until the early 1970s.

Pfizer will establish a trust for the payment of pending claims as well as any future claims. It will contribute $405 million to the trust over 40 years through a note, and about $100 million in insurance. Pfizer will also forgive a $30 million loan to Quigley.

Since 1982, Quigley's main business has been to manage the asbestos lawsuits.

As part of the settlement, Quigley will file for Chapter 11 bankruptcy. Its reorganization plan must be approved by the bankruptcy court and confirmed by a vote of 75 percent of the claimants.

That seems like the end of a long story, but it was not.

Bankruptcy Proceedings Go On Through 2009, No Claims Paid

By 2009, nothing had really been settled. Apparently, the bankruptcy of Pfizer's subsidiary, which was set up as if Quigley was an independent corporation, had not resulted in any resolution to the multiple lawsuits and the large claims. As reported in December, 2009, by Bloomberg:

At issue in the trial is whether Quigley, a former maker of asbestos-containing products, can confirm a plan of reorganization, ending more than five years in bankruptcy. The trial pits the U.S. government and asbestos victims against Pfizer, the world�s biggest drugmaker, with claims that its $450 million contribution under a settlement isn�t enough to satisfy its liabilities.

At the trial, the lawyer for the asbestos victims claimed that Pfizer was using the bankruptcy of its subsidiary to avoid liability:

Edward Weisfelner, a lawyer for an ad hoc group of so- called asbestos victims that represents 30,000 individuals, told Bernstein today that the plan can�t be confirmed because the purpose of the bankruptcy law being used to channel asbestos claims is to 'scrub' a viable company of liabilities.

Under bankruptcy law, courts shouldn�t approve Chapter 11 reorganizations where the primary purpose is to shield a third party, such as Pfizer, Weisfelner said.

'Courts are instructed to avoid the possibility that parties use bankruptcy to protect a third party that�s not submitting itself to the jurisdiction of the court, and that�s exactly what�s going on in this case,' Weisfelner said.

The US government also objected to what Pfizer was doing:

Opposition to the plan also comes from the U.S. Trustee, an arm of the Justice Department that monitors bankruptcies, which has said was improperly orchestrated to shield the drugmaker from liability.

t the time, Pfizer (through its Quigley subsidiary) also was attempting to keep the whole thing quiet, but not successfully:

The U.S. Trustee has fought to keep the trial open to the public, and said in court documents that some of Quigley�s requests to keep information confidential failed to meet legal standards for protecting 'commercial' information.

Of course, at that time, the opinions of the plaintiffs' lawyer and the US Trustee were just that, opinions.

By 2010, Judge Found that Pfizer "Manipulated" the Bankruptcy

But by September, 2010, according to Bloomberg then:

Pfizer Inc.�s Quigley unit, a former asbestos maker, was denied permission to exit bankruptcy by a judge who found the world�s largest drug company manipulated the bankruptcy process to benefit itself.

U.S. Bankruptcy Judge Stuart M. Bernstein in New York today rejected Quigley�s fourth reorganization plan and said parties should discuss dismissal of the case. He said the plan was filed in 'bad faith' by Pfizer and cited testimony that asbestos claims directed at Quigley could total $4.45 billion over the next 42 years.

No Progress by the End of 2010

Apparently despite the judge's opinion, the case still remained tied up in court. By December, 2010, no progress had been made. According to Bloomberg then:

Pfizer Inc., the world�s largest drug company, should have the bankruptcy of its Quigley unit which has protected it from asbestos-related health problems since 2004 dismissed, lawyers for the U.S. Trustee said.

While the bankruptcy has been pending, creditors with alleged asbestos-related health problems have been unable to sue New York-based Pfizer, and many have died, wrote lawyers for the U.S. Trustee, an arm of the Justice Department that oversees bankruptcy. A hearing to decide the U.S. Trustee�s request is set for Jan. 13, according to court papers filed Dec. 23.

'The harm in delaying the inevitable dismissal of this case is to the individuals who have filed asbestos claims against the Debtor and Pfizer,' lawyers for acting U.S. Trustee Tracy Hope Davis wrote in court papers. 'For some of those individuals, time may be of the essence.'

So Pfizer had stalled for so long that some of the plaintiffs had died off.

Summary

So let us summarize. For reasons that are unclear, Pfizer Inc, primarily a pharmaceutical company, bought out a company that made asbestos products in 1968. The health hazards of asbestos were soon recognized, and many people filed lawsuits against Pfizer's subsidiary, alleging they had been harmed. Pfizer promised to settle the matter in 2004, about 30 years since the exposures occurred. Yet by setting up a bankruptcy of its subsidiary as if it were an independent company, Pfizer stalled any resolution of the case for at least another six years, using what a Judge termed "manipulation." Now it is 2011, and the cases are still unresolved.

So for a company that claims it is

committed to applying science and our global resources to improve health and well-being at every stage of life.

and boasts

Pfizer Inc: Working Together for a Healthier World

This does not look good.

So question number one is should not the leaders of a company whose main business is ostensibly making people healthier be more sensitive to claims about the health effects of its products? Specifically, why did Pfizer's leaders not try to more speedily come up with a cleaner and more timely solution to this problem that would appear more sensitive to the health problems of the claimants?

It would be interesting if Pfizer's top leaders were to try to answer that question.

My policy observation is now familiar.  As we have said before, far too often the leaders of not-for-profit health care institutions seem more interested in padding their own bottom lines than upholding the institutions' missions. They often seem entirely unaware of their duty to put those missions ahead of their own self-interest. Like the financial services sector in the era of "greed is good," health care too often seems run by "insiders hijacking established institutions for their personal benefit." True health care reform would encourage leadership of health care who understand health care and care about its mission, rather than those who see a quick way to make a small fortune.

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The Lancet Emphasizes the Threats to the Academic Medical Mission

We just discussed an important article in the Lancet calling for major global reforms of health care education.(1)  An accompanying editorial(2) argued for the critical importance of upholding the mission of higher education, because that mission is critical to human civilization:

Louis Menand has investigated the current role of the modern university in his startlingly powerful book, The Marketplace of Ideas. Menand argues that: 'The pursuit, production, dissemination, application, and preservation of knowledge are the central activities of a civilisation.' More importantly still, 'the ability to create knowledge and put it to use is the adaptive characteristic of humans'. The goal of the university is 'to make more enlightened contributions to the common good'.

The editorial argued strongly for the revitalization of the university's mission:

'It is the academic's job in a free society to serve the public culture by asking questions the public doesn't want to ask, investigating subjects it cannot or will not investigate, and accommodating voices it fails or refuses to accommodate.'

The education of doctors, nurses, and public health workers must seek to: strengthen the overall intellectual culture of a society; define principles for public aspiration; give life to and enlarge the best and most proven ideas of the age; refine the grounds for the private exchanges that take place in our lives; facilitate the exercise of political power; and enable professionals to detect what is important and discard what is irrelevant, accommodate oneself with others, have common ground between colleagues across societies, ask good questions and find the means to answer them, and have the resources to adapt to national and global circumstances. Some readers might recognise that these words are adapted from John Henry Newman's On the Scope and Nature of University Education.

In England, Newman argued for the university as a centre of intellectual liberty, a vital force for progress in society. Menand writes about the university as a 'zone of autonomy'. The importance of tertiary education as a means to advance health, reason, democracy, and justice needs to be rediscovered.

But arguing so forcefully for upholding the academic mission makes sense only if that mission is under threat. The Lancet editorial only briefly alluded to why this might be:

What this Commission argues for is nothing less than a remoralisation of health professionals' education. For decades, health professionals have colluded with centres of power (governmental, commercial, institutional, even professional) to preserve their influence. The result? A contraction of ambition and a failure of moral leadership.

While the original article by Frenk et al suggested that health professionals' education has shortcomings, it did not argue that the academic mission is threatened.  Although the message of the accompanying editorial is that the mission needs a strong defense, it did not clearly explain the extent of the threat to it. 

However, this blog, Health Care Renewal, is largely concerned with threats to health care's core values, including threats to the mission of academic medicine, largely from concentration and abuse of power.  The largest set of threats come from the ascendancy of financial goals amidst the commercialization of health care (mentioned briefly both in Frenk et al and the editorial).  We have discussed the nature of the threats in detail.  For example,

• Abandonment of traditional prohibitions of the commercial practice of medicine - In the US, a Supreme Court decision was interpreted to mean that medical societies could no longer regulate the ethics of their members.  Until 1980, the US American Medical Association had  ruled that the practice of medicine should not be "commercialized, nor treated as a commodity in trade."  After then, it ceased trying to maintain this prohibition.  The result was increasing, now rampant commercialization.  See posts  here and here.
• Making money takes precedence over education -  A recent survey showing that more than half the faculty at multiple US medical schools felt they were valued more for how much money they brought in than their teaching or patient care abilities (here), confirming previous anecdotal reports (see here). 
• The medical school re-imagined as a biotechnology company -  In 2000, a Vice President of the American Association of Medical Colleges(3) wrote that research universities must respond to "societal demands that they become engines of economic development�."  Many universities now defend lax conflict of interest policies with similar arguments.  For more details, go here.
• Faculty become employees of industry - For numerous examples of this and other kinds of conflicts of interest, go here.  A survey by Campbell et al suggested that approximately two-thirds of medical academics get significant payments from industry.(4)
• Academics become "key opinion leaders" paid to market drugs and devices - Marketers regard "key opinion leaders" as salespeople who appear more credible because of their professional guise.  See anecdotal evidence here.  
• Control of clinical research given to commercial sponsors - A study by Mello et al showed how universities' grant administrators are willing to sign contracts giving commercial sponsors control over key aspects of human research studies.(5)  See post here. 
• Conflicts of interest allow manipulation and suppression of clinical research - Commercially sponsored research design, implementation, and dissemination are often manipulated to favor the sponsor's interests.  When such manipulation fails to produce favorable results, the results may simply be suppressed.
• Academics take credit for articles written by commercially paid ghost-writers - Such ghost-writing is often part of organized stealth marketing campaigns. 
• Whistle blowers are discouraged, or worse, and academic freedom is damaged.  Discussion of some examples of what may happen to whistle blowers is here.  The survey mentioned earlier (here) showed that about one-third of faculty fear they may be punished for speaking  out. 
• Leadership of academic medical centers by businesspeople - Ill-informed management may result from leaders who have no background or training in actual health care. 
• Leaders of teaching hospitals and universities become millionaires -  A recent example is here, and more may be found here.  Leaders of academic medical centers and the parent universities of medical schools often make more than $1 million a year in the US.  When such amounts are in play, executives may focus more on short-term measures that lead to even more pay than on upholding the mission. 
• Medical school leaders become stewards (as members of boards of directors) of for-profit health care corporations - A recent example is here, and a summary of how we discovered this phenomenon in 2006 is here.   The conflict of interest is severe because directors of for-profit corporations are supposed to have unyielding loyalty to the interests of the corporation and its stockholders, although they are frequently accused of acting mainly as cronies of the top hired executives (see here and here).
• Leaders of failed finance firms become stewards of academic medicine - We have found numerous examples, recently here, here, and here, of top executives and/or board members of the finance firms who helped bring on the global financial collapse also being trustees of medical schools, academic medical centers, or their parent universities.  Such "stewards" may bring to the academic environment the "greed is good" culture now pervasive in finance. 

So the threats are real and substantial.  However, their scope generally generally gets little attention.  Even when specific threats appear in the academic literature, their importance may be soft-pedaled, and their confluence with other threats ignored.  Of course, trying to discuss the full breadth and depth of these threats, as we endeavor to do on this blog, threatens in turn those who have personally profited from the current system.  Hence, we frequently cite the anechoic effect, the phenomenon that important threats to health care's core values are often just not discussed in polite company.

Therefore, we applauded the article by Frenk et al for concatenating some of the most important challenges to health care professionals' education, and we now applaud the Lancet editorial for emphasizing the threat to the academic medical mission.  We hope that these two articles, appearing in one of the most prestigious and well-read medical journals, will help to combat the anechoic effect.  Meanwhile, we will continue to blog about threats to core values in the hope that discussing them will lead to solutions.
References

1.  Frenk J, Chen L, Bhutta ZA, Cohen J, Crisp N, Evans T et al. Health professionals for a new century: transforming education to strengthen health systems in an interdependent world.  Lancet 2010; 376: 1923-1958.  Link here.
2.  Horton R. A new epoch for health professionals' education.  Lancet 2010; 376: 1875-7.  Link here.
3. Korn D. Conflicts of interest in biomedical research. JAMA 2000; 284: 2234-2237. Link here.
4. Campbell EG, Gruen RL, Mountford J et al. A national survey of physician�industry relationships. N Engl J Med 2007; 356:1742-1750. Llink here.
5. Mello MM, Clarridge BR, Studdert DM. Academic medical centers' standards for clinical-trial agreements with industry. N Engl J Med 2005; 352: 21.  Link here.

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"Unreasonably Dangerous" Heparin

It is time for an update on the case of the deadly contaminated heparin sold by Baxter International, which has received much less attention than seems warranted given its human costs (81 lives).  How the heparin was contaminated, and how the contaminated heparin ended up being sold as a US Food and Drug Administration approved American product are still unknown.  Despite the fact that the outcome of this case were so bad, it received disproportionately little attention when it was first made public, and now seems to have become nearly anechoic.

Case Summary 

Baxter International imported the "active pharmaceutical ingredient" (API) of heparin, that is, in plainer language, the drug itself, from China. That API was then sold, with some minor processing, as a Baxter International product with a Baxter International label. The drug came from a sketchy supply chain that Baxter did not directly supervise, apparently originating in small "workshops" operating under primitive and unsanitary conditions without any meaningful inspection or supervision by the company, the Chinese government, or the FDA. The heparin proved to have been adulterated with over-sulfated chondroitin sulfate (OSCS), and many patients who received got seriously ill or died. While there have been investigations of how the adulteration adversely affected patients, to date, there have been no publicly reported investigations of how the OSCS got into the heparin, and who should have been responsible for overseeing the purity and safety of the product. Despite the facts that clearly patients died from receiving this adulterated drug, no individual has yet suffered any negative consequence for what amounted to poisoning of patients with a brand-name but adulterated pharmaceutical product.  (For a more detailed summary of the case, look here, and for all our posts on this topic, look here.)

Civil Cases Plod Forward
If there is any ongoing official investigation of this case, it has not been made public.  Civil cases filed by patients allegedly injured by the heparin, or by relatives of patients who died allegedly from the heparin, seem to be proceeding at a glacial pace.  However, there is one development in one set of civil cases worthy of note.  As reported two weeks ago by Alicia Mundy in the Wall Street Journal:

A state court in Illinois has granted a partial summary judgment to two plaintiffs suing Baxter International Inc. over contaminated blood thinner, saying that some of the company's heparin was 'unreasonably dangerous.'

The suit involves tainted imported heparin ingredients from China that caused a public health crisis in 2008, and were linked to more than 80 deaths in the U.S. and many other serious allergic reactions.

Some 300 cases nationwide against Baxter and its main ingredient supplier, Wisconsin-based Scientific Protein Laboratories LLC, were consolidated in Chicago in Cook County Circuit Court.

Both companies have said that they weren't negligent and weren't responsible for the deadly reactions among patients.

The Illinois judge's ruling, dated Wednesday, involved a motion for partial summary judgment that named only Baxter. The motion was filed on behalf of two plaintiffs in the consolidated cases, one of whom died.

The ruling cites statements by Baxter's corporate quality vice president and the president of the company's medication delivery division that the heparin was defective.

Baxter argued in its defense that a jury should address the question of whether a product is 'unreasonably dangerous.' The company noted that the two Baxter executives who agreed in depositions that the heparin was defective aren't doctors or scientists. However, Judge Jennifer Duncan-Brice wrote that the issue before her wasn't whether heparin actually caused the death or injury to the plaintiffs, but just whether the product was, as a matter of fact, contaminated.

The most basic responsibility of a pharmaceutical company is to produce pure, unadulterated product.  As the current director of the US Food and Drug Administration wrote in this week's New England Journal of Medicine, the agency's "modern regulatory functions began with the passage of the 1906 Pure Food and Drugs Act, a law, more than a quarter of a century in the making, that prohibited interstate commerce in adulterated and misbranded food and drugs."  However, in the 21st century, drug companies are increasingly failing to produce unadulterated products, and the FDA is having increasing difficulty assuring patients that the drugs they take meet even the most basic safety standards. 

I submit that corporate cultures increasingly influenced by the arrogant, greedy, amoral leadership of the financial services industry that lead us to the brink of another depression are also leading us to the brink of a poisonous era in health care.  Corporate leaders intent on cutting costs, and paying themselves as much of the resulting proceeds as possible, may see quality and safety as just another cost cutting target.  Corporate leaders brought up in the culture of finance, but untrained and inexperienced in engineering, science, and medicine find it all too easy to ignore quality and safety and focus on the bottom line.  (It is ironic that in the quote above, Baxter International's attorneys made light of the judgments of the company's own executives because they are not physicians or scientists.)

Meanwhile, society seems to have been so mesmerized by the mantra that laissez faire capitalism will lead to miraculous "innovation" that we do not even attend to instances in which it lead instead to death.

As we have said until being blue in the face, as long as the leaders of health care organizations are not held accountable for the results of their decisions on health care quality, cost, and access (even in such extreme quality violations as those resulting in multiple patient deaths), we can expect continuing decisions that sacrifice quality, increase costs, and worsen access, but that are in the self-interest of the people making them.


To really reform health care, we must hold health care organizations and their leaders accountable (and not blame all the problems on doctors, other health care professionals, patients, and society at large).

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American Medical Schools Are "Only In It for the Money" Say Their Faculty

We recently discussed the plight of young medical faculty.  It appears that their plight is even worse than we imagined.

Last month, an abstract was presented at the Annual  Conference on Research in Medical Education at the Annual Meeting of the Association of American Medical Colleges, in a session entitled "Your Career is More than Your Specialty."  The citation would be: Pololi L, Ash A, Krupat E.  Faculty Values in the Culture of Academic Medicine: Findings of a National Faculty Survey.

The authors described a large survey, of over 5000 faculty at 26 US nationally representative medical schools, done as part of the National Initiative on Gender, Culture, and Leadership in Medicine (known as C - Change) project.  The overall response rate was good (53%).   Here are the striking results:

51% agreed that 'the administration is only interested in me for the revenue I generate'; 31%; that 'the culture of my institution discourages altruism'; 31%, that other people have taken credit for my work'; and 30% that 'I am reluctant to express my opinion for fear of negative consequences.' Half perceived that the institution does not value teaching and 27% that it does not reward clinical excellence; Over half disagreed with the statement that their own values are aligned with those of the institution. Also, 30% had seriously considered leaving academic medicine and 46% their own institution, both in the prior year.

These results show that US medical education is in moral crisis, and probably close to catastrophe.  These results should provoke shame and outrage, and cause widespread discussion. On the other hand, it is remarkable that they were allowed to see the light of day at all, given the persistent strength of the anechoic effect.  Pololi and colleagues obviously never got the message that one is never ever supposed to discuss such things in public.

Instead of being about discovery and dissemination of knowledge, the fundamental mission of education, a majority of large sample of faculty surveyed says American medical schools are about making money.  Instead of putting teaching first, half of the faculty said their institutions explicitly do not value teaching. Instead of supporting free speech, free enquiry, and academic, a significant minority of faculty say that are afraid to speak out.

It is no wonder that nearly half of the faculty are considering leaving.

On Health Care Renewal, we have discussed evidence, mostly anecdotal, about the rot within the foundations of medicine and health care.  (Note, posts on conflicts of interest, often affecting medical school faculty and leadership, are here; we have posted about how academic medicine has often allowed suppression and manipulation of research;  posts on excessive compensation of health care executives, including those of academic institutions, not based on upholding the academic mission are here.)  Now it appears that the rot is so severe that the whole edifice is about to fall down.

Our foolish transformation of the calling and profession of medicine into a business (see posts here and here)  at a time when businesses were taken over by the arrogance, greed, unscrupulousness, and amorality that lead to the global financial collapse will surely also lead to a global health care collapse if something is not done very soon.

We need a new effort much bigger than but at least as influential as the Flexner Report to re-imagine academic medicine again as valuing teaching, learning, research and patient care, while regarding its financing only as the means to reach those ends.

The Carnegie Foundation sponsored the original Flexner Report, and the Rockefeller Foundation then hired Dr Flexner to reform medical education (see Mitka M.  he Flexner Report at the century mark:  a wake-up call for reforming medical education .  JAMA 2010; 303(15):1465-1466. Link here.) Will anyone or any organization have the courage to sponsor a new, bigger, and likely much more contentious effort?

Meanwhile, the academic leaders who have personally profited from and colluded with the transformation of the system into one that is only in it for the money should resign. The few remaining leaders will need to draw upon all their honesty, integrity, knowledge, and determination to rebuild the system.

Finally, shame on all of us for letting us get to this place.

With apologies to the late Frank Zappa and the Mothers of Invention.

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