How Large Health Care Organizations Set the "Rules of the Game" to Dominate Health Care

The notion that health care is increasingly "dominated by large, bureaucratic organizations which do not honor ... [its] core values"(1) just made it into a main-stream, large circulation US medical journal.  A brand new commentary in the American Journal of Medicine(2) by Supri and Malone declared:

To explain why we have the most expensive health care system in the world and yet one of the lowest performing, we need to take a perspective that focuses on the US institution of medicine as a whole. We expose the hidden rules by which this institution operates and discuss how its powerful organizations shape, control and perpetuate this ailing system.

The article then described the main types of large, powerful health care organizations:

The US institution of medicine is not a single, comprehensive and cohesive system of health care. Instead, it is comprised of a myriad of large and powerful organizations, including insurance companies, Health Maintenance Organizations (HMOs), corporate for-profit hospital chains, and pharmaceutical companies. This institutional structure is large and vast, and has over the years become ever more labyrinthine.

Note that there are even more kinds of large and powerful health care organizations, including non-profit hospitals and hospital systems, employers acting as payers for health care, government agencies, device and biotechnology companies, health care information technology companies, public relations firms, medical education and communication companies, contract research organizations, professional societies, patient advocacy groups, accrediting bodies, health care charities, etc, etc, etc.  But the point is that the large organizations, not the patients, the physicians, nor the public dominate.

Supri and Malone suggested that each kind of organization sets the "rules of the game," that is, the priorities important to the organization, which are very different from the core values that many of us believe ought to guide health care:

Not only is the institutional structure large, it is dynamic, and actively creates, shapes, and maintains the institution of medicine. It does this through what we call setting the “rules of the game”; that is, by imposing the terms by which the system operates.

For example,

Insurance companies have set the rule 'restrict choice and coverage.' They enact this through their elaborate system of copayments and deductibles, exclusion clauses and loopholes, each designed to deter patients from claiming the health care they need, and to override physicians' medical judgment.

Similarly, it cited the rules for managed care, "manage care," that is, "restrict utilization of health care" regardless of patients' needs; the pharmaceutical industry, "charges as much as we want, because insurance will pay;" and "corporate hospital chains ... test as much as we want, because insurance will pay." Thus it made the point that US health care now is driven by the priorities of large organizations whose interests at best may disregard and at worst may conflict with providing the best possible care for individual patients.

Further, the resulting complexity is to the benefit of the large organizations:

As each organization has created its own 'rules of the game,' the institution of medicine has grown into a complex entity that few really understand. This very complexity actually works to the advantage of the organizations that comprise the system, creating an operating environment that allows them to siphon off billions of dollars. It is one of the main reasons why the cost of health care has spiraled out of control.

This is very important, and suggests that the system will just become more bureaucratic, complex and opaque until it finally collapses.

Finally, it raised the point that the organizations collude to promote their priorities at the expense of patients' and the public's health:

Although each organization sets their 'own rules of the game,' they are also strongly and deeply interlinked, and cooperate and collaborate to protect the system of health care that they have devised, so that it remains intact and continues to serve their own interests.

Although  Supri and Malone did not differentiate the leadership of large organizations from the organizations themselves, we have pointed out that the top leaders of various kinds of organizations seem to think alike, becoming a sort of de facto executives' guild, with a "superclass" of oligarchs at its pinnacle.  The guild may be enabled by these leaders' often huge compensation and other benefits and corporate arrangements that keep them shielded from the vicissitudes of daily life that patients, health care professionals, and lower level organizational employees must face.  Furthermore, the leadership of these organizations is often interlinked, for example, by leaders of one organization serving on boards of directors or trustees of others.

It is so nice for us at Health Care Renewal to have some company. It is a very important blow to the anechoic effect for these sorts of views to appear in a mainstream medical journal.

When I interviewed a motley group of physicians and health care professionals in the early part of the 21st century, many expressed concerns about how medicine had been taken over by large organizations which did not honor its values. The article published in 2003(1) in Europe which tried to summarize their concerns probably could not have been published at that time in the US, but its publication remote from its main topic only made it more anechoic. It may be that an article published in a respected American journal will generate some more echoes. Here is hoping that Health Care Renewal can help create some such echoes. 

Obviously, those who lead large organizations in health care will not be happy about that, so it is possible this article's appearance in a main-stream journal may incite some pushback, perhaps generated by the public relations machines of the large health care organizations (see this post about how Wendell Potter's excellent Deadly Spin documented how large organizations use propaganda and disinformation to undermine viewpoints that threaten their domination.)

In conclusion, I strongly support Supri and Malone's final sentiments:

The sum of the 'rules of the game' devised by these organizations has resulted in a fragmented, haphazard and broken system of health care. Reform is long overdue, and demands root and branch transformation of the 'rules of the game' governing the US institution of medicine. This requires us to understand these rules, who is setting them, and how these rules are being used to exploit the system of medicine. Only then can we begin to heal our ailing health care system.

Well said!

But now almost 8 years since the publication of "A Cautionary Tale," we still have a long way to go.

References


1.  Poses RM. A cautionary tale: the dysfunction of American health care.  Eur J Inte Med 2003; 14: 123-130.  Link here.
2.  Supri S, Malone K. On the critical list: the US institution of medicine. Am J Med 2011; 124: 192-193.  Link here. 

How Large Health Care Organizations Set the "Rules of the Game" to Dominate Health Care

The notion that health care is increasingly "dominated by large, bureaucratic organizations which do not honor ... [its] core values"(1) just made it into a main-stream, large circulation US medical journal.  A brand new commentary in the American Journal of Medicine(2) by Supri and Malone declared:

To explain why we have the most expensive health care system in the world and yet one of the lowest performing, we need to take a perspective that focuses on the US institution of medicine as a whole. We expose the hidden rules by which this institution operates and discuss how its powerful organizations shape, control and perpetuate this ailing system.

The article then described the main types of large, powerful health care organizations:

The US institution of medicine is not a single, comprehensive and cohesive system of health care. Instead, it is comprised of a myriad of large and powerful organizations, including insurance companies, Health Maintenance Organizations (HMOs), corporate for-profit hospital chains, and pharmaceutical companies. This institutional structure is large and vast, and has over the years become ever more labyrinthine.

Note that there are even more kinds of large and powerful health care organizations, including non-profit hospitals and hospital systems, employers acting as payers for health care, government agencies, device and biotechnology companies, health care information technology companies, public relations firms, medical education and communication companies, contract research organizations, professional societies, patient advocacy groups, accrediting bodies, health care charities, etc, etc, etc.  But the point is that the large organizations, not the patients, the physicians, nor the public dominate.

Supri and Malone suggested that each kind of organization sets the "rules of the game," that is, the priorities important to the organization, which are very different from the core values that many of us believe ought to guide health care:

Not only is the institutional structure large, it is dynamic, and actively creates, shapes, and maintains the institution of medicine. It does this through what we call setting the “rules of the game”; that is, by imposing the terms by which the system operates.

For example,

Insurance companies have set the rule 'restrict choice and coverage.' They enact this through their elaborate system of copayments and deductibles, exclusion clauses and loopholes, each designed to deter patients from claiming the health care they need, and to override physicians' medical judgment.

Similarly, it cited the rules for managed care, "manage care," that is, "restrict utilization of health care" regardless of patients' needs; the pharmaceutical industry, "charges as much as we want, because insurance will pay;" and "corporate hospital chains ... test as much as we want, because insurance will pay." Thus it made the point that US health care now is driven by the priorities of large organizations whose interests at best may disregard and at worst may conflict with providing the best possible care for individual patients.

Further, the resulting complexity is to the benefit of the large organizations:

As each organization has created its own 'rules of the game,' the institution of medicine has grown into a complex entity that few really understand. This very complexity actually works to the advantage of the organizations that comprise the system, creating an operating environment that allows them to siphon off billions of dollars. It is one of the main reasons why the cost of health care has spiraled out of control.

This is very important, and suggests that the system will just become more bureaucratic, complex and opaque until it finally collapses.

Finally, it raised the point that the organizations collude to promote their priorities at the expense of patients' and the public's health:

Although each organization sets their 'own rules of the game,' they are also strongly and deeply interlinked, and cooperate and collaborate to protect the system of health care that they have devised, so that it remains intact and continues to serve their own interests.

Although  Supri and Malone did not differentiate the leadership of large organizations from the organizations themselves, we have pointed out that the top leaders of various kinds of organizations seem to think alike, becoming a sort of de facto executives' guild, with a "superclass" of oligarchs at its pinnacle.  The guild may be enabled by these leaders' often huge compensation and other benefits and corporate arrangements that keep them shielded from the vicissitudes of daily life that patients, health care professionals, and lower level organizational employees must face.  Furthermore, the leadership of these organizations is often interlinked, for example, by leaders of one organization serving on boards of directors or trustees of others.

It is so nice for us at Health Care Renewal to have some company. It is a very important blow to the anechoic effect for these sorts of views to appear in a mainstream medical journal.

When I interviewed a motley group of physicians and health care professionals in the early part of the 21st century, many expressed concerns about how medicine had been taken over by large organizations which did not honor its values. The article published in 2003(1) in Europe which tried to summarize their concerns probably could not have been published at that time in the US, but its publication remote from its main topic only made it more anechoic. It may be that an article published in a respected American journal will generate some more echoes. Here is hoping that Health Care Renewal can help create some such echoes. 

Obviously, those who lead large organizations in health care will not be happy about that, so it is possible this article's appearance in a main-stream journal may incite some pushback, perhaps generated by the public relations machines of the large health care organizations (see this post about how Wendell Potter's excellent Deadly Spin documented how large organizations use propaganda and disinformation to undermine viewpoints that threaten their domination.)

In conclusion, I strongly support Supri and Malone's final sentiments:

The sum of the 'rules of the game' devised by these organizations has resulted in a fragmented, haphazard and broken system of health care. Reform is long overdue, and demands root and branch transformation of the 'rules of the game' governing the US institution of medicine. This requires us to understand these rules, who is setting them, and how these rules are being used to exploit the system of medicine. Only then can we begin to heal our ailing health care system.

Well said!

But now almost 8 years since the publication of "A Cautionary Tale," we still have a long way to go.

References


1.  Poses RM. A cautionary tale: the dysfunction of American health care.  Eur J Inte Med 2003; 14: 123-130.  Link here.
2.  Supri S, Malone K. On the critical list: the US institution of medicine. Am J Med 2011; 124: 192-193.  Link here. 

Why Weren't Existing Laws About Hospital CEO Compensation Enforced in Washington State?

Public radio station KUOW reported on the generous compensation given hospital CEOs in Washington:

KUOW has learned that 15 hospital executives in Washington made $1 million or more in 2009. That elite group includes 14 nonprofit executives and one head of a government hospital. CEOs at Multicare, Providence, Virginia Mason and Valley Medical each made more than $2 million.

Those numbers can be found in the hospitals' latest tax filings and other public records. The pattern was more lopsided in the two prior years. Nobody working at a public hospital cracked the top 10 list of the state's highest hospital paychecks in 2007 or 2008.

But then the story takes an interesting twist:

Most of Washington's largest hospitals are nonprofit organizations. The state gives the nonprofits a break on their business taxes to help reduce the cost of health care.

The hospitals have to jump through some hoops to qualify for the reduced taxes. For one thing, state law limits how much the hospitals can pay their executives. Their pay has to be comparable to what public servants in Washington make in similar jobs — or else no break on their B&O taxes.

Somehow everyone seems to have forgotten about this part of the law:

The limit on executive pay has been on the law books for 30 years.

Gowrylow: 'Frankly, I don't think it's something that's been on our radar since the mid–80s.'

Mike Gowrylow is a spokesman for the Washington Department of Revenue. He says the recent million–dollar incomes were news to the department.

Gowrylow: 'But it's certainly something that I think we need to take a look at again and examine whether these nonprofits are paying their executives excessively or not.'

Gowrylow says the agency only audits 2 or 3 percent of tax returns. It mostly relies on businesses to comply voluntarily with the state's tax laws.

Gowrylow: 'We can't be everywhere. If we become aware of a nonprofit or any other business that's underreporting their taxes, we investigate those complaints, and if tax is due, we will assess it.'

He says the agency can recover back taxes for the past four years, along with penalties and interest.

Although the article cited an unsuccessful legal action to enforce the law in a particular case in 1986, why the state government seemed to forget about it after that is unclear, and maybe deserving of further investigation.
Right  now, hospital management seems to be trying to avoid the issue, or is arguing about the meaning of "comparable,"

Several present day hospital officials declined to be interviewed on tape. They told KUOW they believe they are in compliance with the state law. But they generally provided little detail to back up that claim.

Providence and Group Health representatives both said their organizations are so large and complex that there may not be any comparable public service jobs in Washington.

Swedish spokeswoman Melissa Tizon told me that CEO Rodney Hochman's pay was generally comparable to what the highest paid public hospital executives made, at Valley and Evergreen hospitals.

On the other hand,

Harborview is the state's largest hospital. Eileen Whalen is its head and an employee of the University of Washington. She makes about $470,000.

[State Senator Karen] Keiser: 'That's really not comparable to the million dollar and more salaries of other hospital directors in our state. We are paying attention here in Olympia to that.'

Other executives at UW Medicine did make more than Whalen. Still, none of them, not even the president of UW, made as much as any of the 15 highest paid executives at nonprofit hospitals in 2009.

I searched high and low to find any public officials making as much as the top nonprofit CEOs.

The only one I found who consistently did so was the UW football coach. But it might be hard to argue that Steve Sarkisian's job is comparable to running a hospital system.

We have discussed numerous cases of executives of not-for-profit hospitals and hospital systems receiving lavish compensation and benefits that seem out of proportion to any reasonable measure of their performance or of their positions' difficulties.  (Remember that advocates of corpulent executive compensation love to cite the size of the company and the number of employees, but the CEO really has only to manage the next tier of executives, rarely numbering more than a dozen.)

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.

However, the twist in this story is that it appears the lavish compensation of hospital executives in this particular state may have violated state law, or at least the tax breaks these hospitals got may have violated the law, given their leaders excessive compensation, and that the law in question is over 30 years old.  However, the law seems to have been forgotten or ignored for nearly all that time, for reasons that are unclear. 

This seems reminiscent of how the Responsible Corporate Officers' Doctrine seems to have been forgotten and ignored.  this post from June, 2010).  However, in the last 30+ years, this notion has been ignored and abandoned by US government regulators at least in so far as it applies to health care organizations, particularly drug, biotechnology and device companies.

The big question is why have such laws and legal practices, which have not been repealed or refuted, instead been ignored and forgotten?  Surely this cries out for investigation.

Of course, It seems that somehow in the brave new world of laissez faire, anything goes capitalism foisted on health care over the last 30 plus years, old practices and customs that limited the power and enrichment of top leaders may have seemed increasingly prudish, and those advocating them may have seemed to be old fuddy duddies to those bent on personal gain.  But unhipness and scorn of prudishness are not reasons to ignore an existing law. 

So it is not that there are no legal tools to prevent abuses by leaders of health care organizations.  Instead, there has been increasing forgetfulness of the existence of such tools, and perhaps a growing effeteness of enforcement that has lead to a reluctance to even try to use them.  So we can start truly reforming health care by simply enforcing the laws that are already there. 
  

Why Weren't Existing Laws About Hospital CEO Compensation Enforced in Washington State?

Public radio station KUOW reported on the generous compensation given hospital CEOs in Washington:

KUOW has learned that 15 hospital executives in Washington made $1 million or more in 2009. That elite group includes 14 nonprofit executives and one head of a government hospital. CEOs at Multicare, Providence, Virginia Mason and Valley Medical each made more than $2 million.

Those numbers can be found in the hospitals' latest tax filings and other public records. The pattern was more lopsided in the two prior years. Nobody working at a public hospital cracked the top 10 list of the state's highest hospital paychecks in 2007 or 2008.

But then the story takes an interesting twist:

Most of Washington's largest hospitals are nonprofit organizations. The state gives the nonprofits a break on their business taxes to help reduce the cost of health care.

The hospitals have to jump through some hoops to qualify for the reduced taxes. For one thing, state law limits how much the hospitals can pay their executives. Their pay has to be comparable to what public servants in Washington make in similar jobs — or else no break on their B&O taxes.

Somehow everyone seems to have forgotten about this part of the law:

The limit on executive pay has been on the law books for 30 years.

Gowrylow: 'Frankly, I don't think it's something that's been on our radar since the mid–80s.'

Mike Gowrylow is a spokesman for the Washington Department of Revenue. He says the recent million–dollar incomes were news to the department.

Gowrylow: 'But it's certainly something that I think we need to take a look at again and examine whether these nonprofits are paying their executives excessively or not.'

Gowrylow says the agency only audits 2 or 3 percent of tax returns. It mostly relies on businesses to comply voluntarily with the state's tax laws.

Gowrylow: 'We can't be everywhere. If we become aware of a nonprofit or any other business that's underreporting their taxes, we investigate those complaints, and if tax is due, we will assess it.'

He says the agency can recover back taxes for the past four years, along with penalties and interest.

Although the article cited an unsuccessful legal action to enforce the law in a particular case in 1986, why the state government seemed to forget about it after that is unclear, and maybe deserving of further investigation.
Right  now, hospital management seems to be trying to avoid the issue, or is arguing about the meaning of "comparable,"

Several present day hospital officials declined to be interviewed on tape. They told KUOW they believe they are in compliance with the state law. But they generally provided little detail to back up that claim.

Providence and Group Health representatives both said their organizations are so large and complex that there may not be any comparable public service jobs in Washington.

Swedish spokeswoman Melissa Tizon told me that CEO Rodney Hochman's pay was generally comparable to what the highest paid public hospital executives made, at Valley and Evergreen hospitals.

On the other hand,

Harborview is the state's largest hospital. Eileen Whalen is its head and an employee of the University of Washington. She makes about $470,000.

[State Senator Karen] Keiser: 'That's really not comparable to the million dollar and more salaries of other hospital directors in our state. We are paying attention here in Olympia to that.'

Other executives at UW Medicine did make more than Whalen. Still, none of them, not even the president of UW, made as much as any of the 15 highest paid executives at nonprofit hospitals in 2009.

I searched high and low to find any public officials making as much as the top nonprofit CEOs.

The only one I found who consistently did so was the UW football coach. But it might be hard to argue that Steve Sarkisian's job is comparable to running a hospital system.

We have discussed numerous cases of executives of not-for-profit hospitals and hospital systems receiving lavish compensation and benefits that seem out of proportion to any reasonable measure of their performance or of their positions' difficulties.  (Remember that advocates of corpulent executive compensation love to cite the size of the company and the number of employees, but the CEO really has only to manage the next tier of executives, rarely numbering more than a dozen.)

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.

However, the twist in this story is that it appears the lavish compensation of hospital executives in this particular state may have violated state law, or at least the tax breaks these hospitals got may have violated the law, given their leaders excessive compensation, and that the law in question is over 30 years old.  However, the law seems to have been forgotten or ignored for nearly all that time, for reasons that are unclear. 

This seems reminiscent of how the Responsible Corporate Officers' Doctrine seems to have been forgotten and ignored.  this post from June, 2010).  However, in the last 30+ years, this notion has been ignored and abandoned by US government regulators at least in so far as it applies to health care organizations, particularly drug, biotechnology and device companies.

The big question is why have such laws and legal practices, which have not been repealed or refuted, instead been ignored and forgotten?  Surely this cries out for investigation.

Of course, It seems that somehow in the brave new world of laissez faire, anything goes capitalism foisted on health care over the last 30 plus years, old practices and customs that limited the power and enrichment of top leaders may have seemed increasingly prudish, and those advocating them may have seemed to be old fuddy duddies to those bent on personal gain.  But unhipness and scorn of prudishness are not reasons to ignore an existing law. 

So it is not that there are no legal tools to prevent abuses by leaders of health care organizations.  Instead, there has been increasing forgetfulness of the existence of such tools, and perhaps a growing effeteness of enforcement that has lead to a reluctance to even try to use them.  So we can start truly reforming health care by simply enforcing the laws that are already there. 
  

ACO = Arrogant Clinical or Aggressive Care Oligopoly?

In the 1970s, it was managed care organizations.  In the 1990s, it was vertically integrated health care systems.  In the 2010s, the fashionable concept for improving health care, apparently beloved by left-wing policy wonks and right-wing health care executives is the "accountable care organization." (ACO).  Development of the ACO is funded by the recently passed US health care reform legislation.  The official definition of ACO from the US Center for Medicare and Medicaid Services is: 

An Accountable Care Organization, also called an 'ACO' for short, is an organization of health care providers that agrees to be accountable for the quality, cost, and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service program who are assigned to it.

Oddly enough, that seems like it could also describe a 1970s managed care organization, or a 1990s vertically integrated health care system. The only real difference is the idea that the ACO would be paid fees for service. All these similar concepts embody the notion that health care needs to be highly organized into big, bureaucratic organizations to improve quality and access while controlling costs.

Back in August, we warned:

There seems to be a strange and increasing alliance between politically- correct academic theorists and proponents of raw economic power. The theorists' notion of "accountable care organizations" seems to have become a great foil for would-be monopolists, yet the theorists have done nothing to show how their creation would really bring "power to the people." Meanwhile, maybe 'ACO' should stand for 'aggressive care oligopoly.' Meanwhile, be extremely skeptical of the latest health care fad, especially when it is supported both by academics and CEOs.

I am not sure you really heard it here first, but you did hear it here early. Now, three months later, our doubts have become main-stream.

Revisiting Sutter Health

n California, National Public Radio continued to document the increasing market dominance of the Sutter Health system (which we discussed in August here) as it marches toward becoming an ACO:

Through new construction and expanding its doctors' groups, Sutter Health is enhancing its position as one of the most dominant hospital systems in California. In addition, Sutter is further ahead of many competitors in fashioning itself into a so-called accountable care organization, responsible for coordinating care between hospitals, specialists and primary doctors.

A companion article gave examples of how this emerging ACO is becoming increasingly oligoplistic:

Hospital prices in the Sacramento region are among the highest in California, driven in large part by the negotiating clout of the hospital chain Sutter Health.

Over the last decade and a half, Sutter has gradually accumulated hospitals and amassed a roster of doctors who contract exclusively with the company. Sutter is now one of the largest hospital chains in California with 24 acute care hospitals.

'In this Roseville market, which is a big suburban area, the hospital is Sutter,' says John Murray, a veteran insurance broker. 'It's a lock right now. Because Sutter dominates the market, major insurance companies, like Blue Cross and Aetna, can't sell policies that exclude Sutter hospitals and doctors. That dependence means the hospital chain can dictate high prices.'

Concerns about Sutter's market dominance are also increasing:

'As Sutter gets bigger,' says Anthony Wright, executive director of Health Access California, a nonprofit advocacy group based in Sacramento, 'it can dictate higher prices and is less accountable for ensuring good quality because it has a lock on certain markets.'

Doubts in the New York Times

In the New York Times, Robert Pear reported:

When Congress passed the health care law, it envisioned doctors and hospitals joining forces, coordinating care and holding down costs, with the prospect of earning government bonuses for controlling costs.

Now, eight months into the new law there is a growing frenzy of mergers involving hospitals, clinics and doctor groups eager to share costs and savings, and cash in on the incentives. They, in turn, have deployed a small army of lawyers and lobbyists trying to persuade the Obama administration to relax or waive a body of older laws intended to thwart health care monopolies, and to protect against shoddy care and fraudulent billing of patients or Medicare.

Consumer advocates fear that the health care law could worsen some of the very problems it was meant to solve — by reducing competition, driving up costs and creating incentives for doctors and hospitals to stint on care, in order to retain their cost-saving bonuses.

'The new law is already encouraging a wave of mergers, joint ventures and alliances in the health care industry,' said Prof. Thomas L. Greaney, an expert on health and antitrust law at St. Louis University. 'The risk that dominant providers and dominant insurers may exercise their market power, individually or jointly, has never been greater.'

Skeptical Liberals and Libertarians
Amazingly, while ACOs seem to be supported by many left-wing policy wonks and right-wing health care executives, they have also rapidly engendered skepticism from both liberals on the left and libertarians on the right, and from within government and the private sector. For example, at the end of the NY Times article we find:

Dr. Donald M. Berwick, the administrator of the Centers for Medicare and Medicaid Services, hails the benefits of 'integrated care.' But, Dr. Berwick said, “we need to assure both patients and society at large that destructive, exploitative and costly forms of collusion and monopolistic behaviors do not emerge and thrive, disguised as cooperation.”

Dr Berwick is a well-known advocate of innovative approaches to improve the quality of care, but was tarred as a raving left-winger when he was nominated to his current position.

On the other hand, in the New York Post was an op-ed by Dr Scott Gottlieb:

I warned that the creation of 'accountable care organizations,' which put hospitals in control of all the doctors in their outlying areas, would lead to concentrated power over the provision of medical care -- turning physicians into salaried employees and reducing consumer choices.

Furthermore, he wrote:

Since the ACOs will have local monopolies, they'll also have little incentive to compete for more patients in an open marketplace. Yet this is the only incentive that would spur an ACO to truly innovate and improve its delivery of medical care and offer better services.

Private health plans vie to contract with the best doctors and hospitals, creating market prices for services and competition to improve outcomes. If the ACOs squeeze out this competition, the result will be a de facto 'single payer': Every market will be controlled by a single ACO,....

Dr Gottlieb writes frequently about health care and policy issues, and is a "resident fellow at the American Enterprise Institute."

Missing the Main Point: Doctors vs Business Executives as Leaders
At least it did not take long this time for the fundamental flaws in the latest fashionable health care reform effort to get attention. It is really striking that this time around, skepticism is coming from both liberals and libertarians.  Maybe we all have learned something from the failures of managed care and of vertically integrated hospital systems.

A Washington Post op-ed by Steven Pearlstein hinted at one fundamental problem with the ACO concept.

Most reformers believe ...that the best way to deliver affordable quality care is through organizations such as the Mayo Clinic, which coordinate physician and hospital services under one roof and are paid not on the basis of how many procedures they do but on the quality of the care they provide. These organizations tend to rely on salaried doctors, make extensive use of electronic medical records and evidence-based 'best practices,' and, in effect, take on much of the risk traditionally borne by insurers. Several provisions of the new health-care reform law encourage the formation of such 'accountable care organizations.'

Somehow, however, the supposed health care reformers seemed to have overlooked a crucial fact about the Mayo Clinic they are using as a model. The Mayo Clinic traditionally was basically a large physician group practice. It was run by physicians. Even now, the Mayo Clinic's CEO is a physician (Dr John H. Noseworthy) who had a substantial clinical and academic career. The CAO is a nurse, and the three top Vice Presidents are physicians.  I submit the fact that the organization was run by physicians, physicians who once swore to put their patients' clinical care ahead of all other considerations, was crucial to the Clinic's success in taking care of patients as well as maintaining its finances.

However, nearly all of the would-be ACOs we hear about now are centered on big hospital systems, run by business executives who have never taken care of patients, and never swore to put patient care ahead of anything. For example, the most advanced degree possessed by the CEO of Sutter Health is a Master's in Health Administration (see here). Sutter Health does not make biographical information about its top executives particularly easy to find, but according to the most recent (2008) 990 form posted on Guidestar, of its 19 top executives, only 2 had MD degrees. As we have seen time and again on Health Care Renewal, such executives have become extremely good at becoming rich in their jobs. (For example, according to the 2008 990 form, of those 19 executives, all had total compensation greater than $200,000, 16 had compensation greater than $500,000, and 9 had compensation greater than $1 million.) When things go wrong, these royally paid executives may take their golden parachutes and open the exit door, and jump on the slide.

The advent of ACOs reminds me of the advent of managed care. The original managed care organizations, exemplified by Kaiser - Permanante, were also not-for-profit large group practices run by physicians. However, the "managed care organizations" that evolved out of the 1970s law, favored by our glorious former President Nixon, were for-profit corporations run by business executives. Somehow, when legislators seek to promote better health care, the legislation they right often get the crucial details wrong.

The one good thing about ACOs seems to be that they have galvanized liberals and libertarians alike to worry about big, collective, bureaucratic health care organizations run by executives with no clear commitment to putting care of individual patients first.

ADDENDUM (26 November, 2010) - See also comments by David Williams on the Health Business Blog.

ACO = Arrogant Clinical or Aggressive Care Oligopoly?

In the 1970s, it was managed care organizations.  In the 1990s, it was vertically integrated health care systems.  In the 2010s, the fashionable concept for improving health care, apparently beloved by left-wing policy wonks and right-wing health care executives is the "accountable care organization." (ACO).  Development of the ACO is funded by the recently passed US health care reform legislation.  The official definition of ACO from the US Center for Medicare and Medicaid Services is: 

An Accountable Care Organization, also called an 'ACO' for short, is an organization of health care providers that agrees to be accountable for the quality, cost, and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service program who are assigned to it.

Oddly enough, that seems like it could also describe a 1970s managed care organization, or a 1990s vertically integrated health care system. The only real difference is the idea that the ACO would be paid fees for service. All these similar concepts embody the notion that health care needs to be highly organized into big, bureaucratic organizations to improve quality and access while controlling costs.

Back in August, we warned:

There seems to be a strange and increasing alliance between politically- correct academic theorists and proponents of raw economic power. The theorists' notion of "accountable care organizations" seems to have become a great foil for would-be monopolists, yet the theorists have done nothing to show how their creation would really bring "power to the people." Meanwhile, maybe 'ACO' should stand for 'aggressive care oligopoly.' Meanwhile, be extremely skeptical of the latest health care fad, especially when it is supported both by academics and CEOs.

I am not sure you really heard it here first, but you did hear it here early. Now, three months later, our doubts have become main-stream.

Revisiting Sutter Health

n California, National Public Radio continued to document the increasing market dominance of the Sutter Health system (which we discussed in August here) as it marches toward becoming an ACO:

Through new construction and expanding its doctors' groups, Sutter Health is enhancing its position as one of the most dominant hospital systems in California. In addition, Sutter is further ahead of many competitors in fashioning itself into a so-called accountable care organization, responsible for coordinating care between hospitals, specialists and primary doctors.

A companion article gave examples of how this emerging ACO is becoming increasingly oligoplistic:

Hospital prices in the Sacramento region are among the highest in California, driven in large part by the negotiating clout of the hospital chain Sutter Health.

Over the last decade and a half, Sutter has gradually accumulated hospitals and amassed a roster of doctors who contract exclusively with the company. Sutter is now one of the largest hospital chains in California with 24 acute care hospitals.

'In this Roseville market, which is a big suburban area, the hospital is Sutter,' says John Murray, a veteran insurance broker. 'It's a lock right now. Because Sutter dominates the market, major insurance companies, like Blue Cross and Aetna, can't sell policies that exclude Sutter hospitals and doctors. That dependence means the hospital chain can dictate high prices.'

Concerns about Sutter's market dominance are also increasing:

'As Sutter gets bigger,' says Anthony Wright, executive director of Health Access California, a nonprofit advocacy group based in Sacramento, 'it can dictate higher prices and is less accountable for ensuring good quality because it has a lock on certain markets.'

Doubts in the New York Times

In the New York Times, Robert Pear reported:

When Congress passed the health care law, it envisioned doctors and hospitals joining forces, coordinating care and holding down costs, with the prospect of earning government bonuses for controlling costs.

Now, eight months into the new law there is a growing frenzy of mergers involving hospitals, clinics and doctor groups eager to share costs and savings, and cash in on the incentives. They, in turn, have deployed a small army of lawyers and lobbyists trying to persuade the Obama administration to relax or waive a body of older laws intended to thwart health care monopolies, and to protect against shoddy care and fraudulent billing of patients or Medicare.

Consumer advocates fear that the health care law could worsen some of the very problems it was meant to solve — by reducing competition, driving up costs and creating incentives for doctors and hospitals to stint on care, in order to retain their cost-saving bonuses.

'The new law is already encouraging a wave of mergers, joint ventures and alliances in the health care industry,' said Prof. Thomas L. Greaney, an expert on health and antitrust law at St. Louis University. 'The risk that dominant providers and dominant insurers may exercise their market power, individually or jointly, has never been greater.'

Skeptical Liberals and Libertarians
Amazingly, while ACOs seem to be supported by many left-wing policy wonks and right-wing health care executives, they have also rapidly engendered skepticism from both liberals on the left and libertarians on the right, and from within government and the private sector. For example, at the end of the NY Times article we find:

Dr. Donald M. Berwick, the administrator of the Centers for Medicare and Medicaid Services, hails the benefits of 'integrated care.' But, Dr. Berwick said, “we need to assure both patients and society at large that destructive, exploitative and costly forms of collusion and monopolistic behaviors do not emerge and thrive, disguised as cooperation.”

Dr Berwick is a well-known advocate of innovative approaches to improve the quality of care, but was tarred as a raving left-winger when he was nominated to his current position.

On the other hand, in the New York Post was an op-ed by Dr Scott Gottlieb:

I warned that the creation of 'accountable care organizations,' which put hospitals in control of all the doctors in their outlying areas, would lead to concentrated power over the provision of medical care -- turning physicians into salaried employees and reducing consumer choices.

Furthermore, he wrote:

Since the ACOs will have local monopolies, they'll also have little incentive to compete for more patients in an open marketplace. Yet this is the only incentive that would spur an ACO to truly innovate and improve its delivery of medical care and offer better services.

Private health plans vie to contract with the best doctors and hospitals, creating market prices for services and competition to improve outcomes. If the ACOs squeeze out this competition, the result will be a de facto 'single payer': Every market will be controlled by a single ACO,....

Dr Gottlieb writes frequently about health care and policy issues, and is a "resident fellow at the American Enterprise Institute."

Missing the Main Point: Doctors vs Business Executives as Leaders
At least it did not take long this time for the fundamental flaws in the latest fashionable health care reform effort to get attention. It is really striking that this time around, skepticism is coming from both liberals and libertarians.  Maybe we all have learned something from the failures of managed care and of vertically integrated hospital systems.

A Washington Post op-ed by Steven Pearlstein hinted at one fundamental problem with the ACO concept.

Most reformers believe ...that the best way to deliver affordable quality care is through organizations such as the Mayo Clinic, which coordinate physician and hospital services under one roof and are paid not on the basis of how many procedures they do but on the quality of the care they provide. These organizations tend to rely on salaried doctors, make extensive use of electronic medical records and evidence-based 'best practices,' and, in effect, take on much of the risk traditionally borne by insurers. Several provisions of the new health-care reform law encourage the formation of such 'accountable care organizations.'

Somehow, however, the supposed health care reformers seemed to have overlooked a crucial fact about the Mayo Clinic they are using as a model. The Mayo Clinic traditionally was basically a large physician group practice. It was run by physicians. Even now, the Mayo Clinic's CEO is a physician (Dr John H. Noseworthy) who had a substantial clinical and academic career. The CAO is a nurse, and the three top Vice Presidents are physicians.  I submit the fact that the organization was run by physicians, physicians who once swore to put their patients' clinical care ahead of all other considerations, was crucial to the Clinic's success in taking care of patients as well as maintaining its finances.

However, nearly all of the would-be ACOs we hear about now are centered on big hospital systems, run by business executives who have never taken care of patients, and never swore to put patient care ahead of anything. For example, the most advanced degree possessed by the CEO of Sutter Health is a Master's in Health Administration (see here). Sutter Health does not make biographical information about its top executives particularly easy to find, but according to the most recent (2008) 990 form posted on Guidestar, of its 19 top executives, only 2 had MD degrees. As we have seen time and again on Health Care Renewal, such executives have become extremely good at becoming rich in their jobs. (For example, according to the 2008 990 form, of those 19 executives, all had total compensation greater than $200,000, 16 had compensation greater than $500,000, and 9 had compensation greater than $1 million.) When things go wrong, these royally paid executives may take their golden parachutes and open the exit door, and jump on the slide.

The advent of ACOs reminds me of the advent of managed care. The original managed care organizations, exemplified by Kaiser - Permanante, were also not-for-profit large group practices run by physicians. However, the "managed care organizations" that evolved out of the 1970s law, favored by our glorious former President Nixon, were for-profit corporations run by business executives. Somehow, when legislators seek to promote better health care, the legislation they right often get the crucial details wrong.

The one good thing about ACOs seems to be that they have galvanized liberals and libertarians alike to worry about big, collective, bureaucratic health care organizations run by executives with no clear commitment to putting care of individual patients first.

ADDENDUM (26 November, 2010) - See also comments by David Williams on the Health Business Blog.

About to be Bought-Out Non-Profit Hospital System Tries to Hide Executives' Golden Parachutes

A report from FloridaToday (in Brevard County) about the sale of a not-for-profit Florida hospital system to a for-profit corporation raises some interesting questions. The background is that the non-profit Wuesthoff Health System was bought by for-profit Health Management Associates (HMA):

HMA, a for-profit hospital management company in Naples, bought the not-for-profit Wuesthoff Oct. 1 for $145 million. Wuesthoff lawyer William Kopit has said it was forced to sell because the hospital system lacked the capital to compete.

The question is about the conditions of the sale:

A foundation formed to manage the proceeds of the sale and continue providing indigent health care has refused to disclose the executive packages to the state, claiming it constitutes a trade-secret exemption under Florida law.

This was despite the state Attorney General's authority to oversee sales of charitable non-profit organizations to for-profit entities:

Under its statutory obligation to oversee charities registered in the state, the Attorney General's Office requested the executive pay information from Wuesthoff, Wiggins said. Wuesthoff's lawyers submitted 40 pages of heavily redacted material. Negotiations led to Wuesthoff agreeing to redact only the names and compensation details of the executives.

The materials submitted suggested a lot of executives getting golden parachutes, but not the amounts or conditions involved:

The unredacted portions show as many as eight former executives receiving three years of salary paid out over 12 months, a pay-to-stay retention bonus for continuing to work for the company during sale discussions, a senior executive retirement package and regular retirement pay and extended health benefits. Based on Wuesthoff's tax returns, those payouts will be in the millions.

So, legal action will ensue:

'Therefore we will look to the court for guidance and abide by any judicial ruling on the public record and trade secret issues,' said Ryan Wiggins, communications director for the attorney general.

The notion that how much a for-profit corporation will pay in golden parachutes to former executives of a not-for-profit hospital system is a "trade secret" just boggles the mind.  What could a competitor possibly gain from this information that could lead to specific action that would disadvantage Wuesthoff?

On the other hand, it might be that the size of these golden parachutes, if revealed, would lead to some raised eyebrows, or worse.  Consider first the contrast between payments made and to be made to fortunate executives and the performance of the health care system. 

Note that what is available on the public record (via the hospital system's latest available, that is, 2008 form 990 disclosures to the US Internal Revenue Service) suggests that in the past, Wuesthoff executives were already quite well-paid. On that form we found the following total compensation reported:
Emil Miller, President: $927,543 ($523,069. compensation; $342,130, benefits; $62,344, benefits)
Brian Bodi, Controller: $184,789
George Fayer, CFO: $439,580
Johnette Gindling, Senior Vice President: $236,975
Marchita Marino, Senior Vice President: $264,529

Nearly a million dollars was a lot of compensation for the CEO of a small, non-profit hospital system in 2007.  Although there is no easily publicly available information about executive compensation since 2007 (the year covered by the 2008 report noted above), these high rates of compensation were paid by a hospital system that now apparently has so little capital that it no longer can "compete" without being bought by a for-profit corporation.   Now the executives who could not amass a competitive amount of capital will amass quite a sizable amount of personal riches.

Consider second the contrast between the extraordinary assertion that these golden parachutes should remain secret, and the hospital system's stated interest in "transparency," or its stated devotion to "five core values that drive our hospital and its mission: integrity, courtesy, compassion, competence and stewardship." It seems that preventing embarrassment about executive enrichment may trump transparency and integrity.

Health care, probably infected by the finance industry that brought us the global financial collapse, aka "great recession," seems to have been overcome by "compensation madness."  A central value of many health care organizations seems to be enriching their top leaders/ managers/ executives, no matter what the financial condition of the organization, or the performance of the leaders in terms of fulfilling the organization's mission.  From these perverse incentives, the perverse incentives favoring short-term financial performance over patient care seem to have sprung.  As Prof Mintzberg wrote, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit."

If we truly want health reform that addresses spiraling costs, declining access, and threatened quality of care, we need to give health care practitioners and leaders positive incentives for being caring, competent, well-informed, and honest, not for clever financial manipulation and short-term profits, or just for managing to show up for work.

ADDENDUM (2 December, 2010) - 4 days after the above post, Florida Today reported that details about the golden parachutes were released:

[Emil] Miller, who ran Wuesthoff for more than a decade, received $6.25 million total. Of that, $2.2 million was severance pay and $3.2 million was retirement pay. The balance was the cost of his employee benefits.

Former CFO George Fayer has the next highest exit pay at $973,000, which includes a $171,000 for staying through the sale and transition. Fayer is a consultant to the foundation, Gindling said.

Chantal LeConte, who ran the Rockledge hospital, received the third highest payout, $553,000. LeConte's package included about $138,000 for staying through the transition.

Given that the health system was merged out of existence because it supposedly no longer had enough capital to "compete," now we see why system leaders were so reluctant to reveal the amounts.

About to be Bought-Out Non-Profit Hospital System Tries to Hide Executives' Golden Parachutes

A report from FloridaToday (in Brevard County) about the sale of a not-for-profit Florida hospital system to a for-profit corporation raises some interesting questions. The background is that the non-profit Wuesthoff Health System was bought by for-profit Health Management Associates (HMA):

HMA, a for-profit hospital management company in Naples, bought the not-for-profit Wuesthoff Oct. 1 for $145 million. Wuesthoff lawyer William Kopit has said it was forced to sell because the hospital system lacked the capital to compete.

The question is about the conditions of the sale:

A foundation formed to manage the proceeds of the sale and continue providing indigent health care has refused to disclose the executive packages to the state, claiming it constitutes a trade-secret exemption under Florida law.

This was despite the state Attorney General's authority to oversee sales of charitable non-profit organizations to for-profit entities:

Under its statutory obligation to oversee charities registered in the state, the Attorney General's Office requested the executive pay information from Wuesthoff, Wiggins said. Wuesthoff's lawyers submitted 40 pages of heavily redacted material. Negotiations led to Wuesthoff agreeing to redact only the names and compensation details of the executives.

The materials submitted suggested a lot of executives getting golden parachutes, but not the amounts or conditions involved:

The unredacted portions show as many as eight former executives receiving three years of salary paid out over 12 months, a pay-to-stay retention bonus for continuing to work for the company during sale discussions, a senior executive retirement package and regular retirement pay and extended health benefits. Based on Wuesthoff's tax returns, those payouts will be in the millions.

So, legal action will ensue:

'Therefore we will look to the court for guidance and abide by any judicial ruling on the public record and trade secret issues,' said Ryan Wiggins, communications director for the attorney general.

The notion that how much a for-profit corporation will pay in golden parachutes to former executives of a not-for-profit hospital system is a "trade secret" just boggles the mind.  What could a competitor possibly gain from this information that could lead to specific action that would disadvantage Wuesthoff?

On the other hand, it might be that the size of these golden parachutes, if revealed, would lead to some raised eyebrows, or worse.  Consider first the contrast between payments made and to be made to fortunate executives and the performance of the health care system. 

Note that what is available on the public record (via the hospital system's latest available, that is, 2008 form 990 disclosures to the US Internal Revenue Service) suggests that in the past, Wuesthoff executives were already quite well-paid. On that form we found the following total compensation reported:
Emil Miller, President: $927,543 ($523,069. compensation; $342,130, benefits; $62,344, benefits)
Brian Bodi, Controller: $184,789
George Fayer, CFO: $439,580
Johnette Gindling, Senior Vice President: $236,975
Marchita Marino, Senior Vice President: $264,529

Nearly a million dollars was a lot of compensation for the CEO of a small, non-profit hospital system in 2007.  Although there is no easily publicly available information about executive compensation since 2007 (the year covered by the 2008 report noted above), these high rates of compensation were paid by a hospital system that now apparently has so little capital that it no longer can "compete" without being bought by a for-profit corporation.   Now the executives who could not amass a competitive amount of capital will amass quite a sizable amount of personal riches.

Consider second the contrast between the extraordinary assertion that these golden parachutes should remain secret, and the hospital system's stated interest in "transparency," or its stated devotion to "five core values that drive our hospital and its mission: integrity, courtesy, compassion, competence and stewardship." It seems that preventing embarrassment about executive enrichment may trump transparency and integrity.

Health care, probably infected by the finance industry that brought us the global financial collapse, aka "great recession," seems to have been overcome by "compensation madness."  A central value of many health care organizations seems to be enriching their top leaders/ managers/ executives, no matter what the financial condition of the organization, or the performance of the leaders in terms of fulfilling the organization's mission.  From these perverse incentives, the perverse incentives favoring short-term financial performance over patient care seem to have sprung.  As Prof Mintzberg wrote, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit."

If we truly want health reform that addresses spiraling costs, declining access, and threatened quality of care, we need to give health care practitioners and leaders positive incentives for being caring, competent, well-informed, and honest, not for clever financial manipulation and short-term profits, or just for managing to show up for work.

ADDENDUM (2 December, 2010) - 4 days after the above post, Florida Today reported that details about the golden parachutes were released:

[Emil] Miller, who ran Wuesthoff for more than a decade, received $6.25 million total. Of that, $2.2 million was severance pay and $3.2 million was retirement pay. The balance was the cost of his employee benefits.

Former CFO George Fayer has the next highest exit pay at $973,000, which includes a $171,000 for staying through the sale and transition. Fayer is a consultant to the foundation, Gindling said.

Chantal LeConte, who ran the Rockledge hospital, received the third highest payout, $553,000. LeConte's package included about $138,000 for staying through the transition.

Given that the health system was merged out of existence because it supposedly no longer had enough capital to "compete," now we see why system leaders were so reluctant to reveal the amounts.

More on Hospital Market Dominance, Enabled by Secret Pricing

This week two more articles appeared describing how large hospital systems use market dominance to charge more.  Naturally, both were in news publications, not scholarly health services research journals.

San Francisco

Kaiser Health News (via the Contra Costa [CA] Times) discussed hospital market dominance in the San Francisco area.  The article documented how particular systems can command higher prices. Consider the example of John Muir Health vs San Ramon Medical Center:

Often, a hospital's dominance in an area helps determine how much it can charge, experts say. Consider John Muir Health, a two-hospital nonprofit system in the East Bay. With campuses in Concord and Walnut Creek, John Muir has the biggest footprint in the local hospital market, accounting for 54 percent of all the acute care inpatient stays in 2009, more than any other hospital group, according to state data.

The hospital with the weakest market penetration is San Ramon Medical Center, a Tenet-owned, for-profit hospital, with 10 percent of the acute care inpatients.

The least the insurer Aetna paid John Muir for an outpatient colonoscopy was $3,185, according to Aetna's website, which tracks two years of payments. Aetna paid $1,483 to San Ramon Regional Medical Center for the same service. The least Aetna paid John Muir for an uncomplicated birth was $7,722, while its lowest price for a birth at San Ramon was $5,278.

Yet on broad quality measures, John Muir's hospitals generally score no better than San Ramon's, according to the California Hospitals and Reporting Taskforce, a nonprofit that produces hospital report cards published at Calhospitalcompare.org.

San Ramon ranks equal to John Muir's Walnut Creek campus in most major measures, including mortality rates in the intensive care units, overall patient satisfaction and maternity care. John Muir's Concord campus ranks below San Ramon on several measures, including mortality rate and patient experience, though John Muir was rated better in avoiding complications for patients on ventilators.

Then there is Sutter Health:

[Stanford University associate vice president for Benefits Les] Schlaegel says so many employees like to see doctors at the Palo Alto Medical Foundation, a doctors' organization affiliated with Sutter with a clinic near the Stanford campus, that the university feels obliged to keep offering insurance networks that include Sutter.

'Sutter basically has a stranglehold on Northern California,' says Schlaegel. 'They are strategically situated, both for hospitals and medical groups. They know purchasers need them. When you are strategically located, you can say 'this is our price and you can pay it.''

Secret Pricing
The ability of dominant hospitals to charge higher prices is facilitated by secrecy in which hospital pricing is cloaked

The hospitals haven't made it easy for consumers to comparison shop. State law requires hospitals to reveal their charges for specific services. But those charges don't reflect the lower negotiated rates insurers actually pay - rates hospitals usually insist be kept secret. The California Hospital Association has opposed legislation to ban such 'gag clauses'; the most recent of these bills died in the state Assembly in August.

Hospitals have also resisted a four-year campaign by the Pacific Business Group on Health, an employer coalition, and CalPERS to create a 'hospital value initiative' that would allow hospital comparison based on cost and quality of care.

Summary

In many cases, hospitals are able to keep raising prices beyond inflation because their sizes or reputations give them clout in negotiating rates with insurers, researchers say. Yet high prices don't always equate with superior care.

Quality measures for some of the Bay Area's most prestigious hospitals, including Stanford and John Muir, show that in some instances, less expensive competitors perform as well or better in their basic responsibilities, such as avoiding infections and high death rates for patients in intensive care.

'Some hospitals are able to charge higher prices than the market normally would bear, even without providing higher quality,' says Dr. R. Adams Dudley, a professor of medicine and health policy at the University of California, San Francisco. 'That means they're getting those higher prices without really offering more to patients or the rest of society.'

New York City


Meanwhile, a long feature story in New York magazine about the demise of St Vincent's hospital (see our post here) also discussed the market power of its competitors as one factor in its decline:

The city’s largest and most powerful hospitals, which are crucial to an insurer’s customers, exert their leverage to secure deals that are believed to pay well above the average margin; smaller hospitals, which are often located in low-income neighborhoods, have little choice but to accept the dismal rates dictated by insurers if they want to remain in the insurers’ plans. 'When the big players take their cut, there are only scraps left for everyone else,' says the CEO of an outer-borough hospital. “'United HealthCare couldn’t care less about having my hospital in their network. They tell me to take it or leave it.

Secret Prices

Like in California, market dominance is enabled by secret pricing:

the rates negotiated between hospitals and insurance providers are withheld from public scrutiny—even state health and insurance regulators are denied the information

Free Markets?

Secret prices determined by market power hardly sound like characteristics of a free market. Yet in New York, at least, they seem partially to be the result of the free market ideology of previous political leaders:

Then George Pataki took office in 1995, determined to allow hospitals to test their mettle in the free market by negotiating their own terms with insurers. It turned out to be an exercise in shock-therapy capitalism. Inexperienced at the bargaining table, hospitals engaged in intramural rivalry with each other, cutting unfavorable deals with insurers in order to hold on to patients in the short term. With their already thin margins pared down further by deregulation, many hospitals soon built up paralyzing debt loads. Even the largest and seemingly least vulnerable facilities decided that their best hope for survival was to get bigger. A flurry of mergers and buyouts ensued, and by the end of the nineties, the hospital system began to assume its current bewildering patchwork of partnerships and affiliations. Columbia Presbyterian and New York Hospital, both attached to elite medical schools, joined forces. NYU and Mount Sinai forged a deal (it later came undone). On the eastern edge of the city, North Shore hospitals merged with nearby Long Island Jewish, staking out an enormous swath of the hospital market on Long Island, Queens, and Staten Island. Beth Israel and St. Luke’s–Roosevelt, debt-ridden and left on the sidelines by the major academic hospitals, decided to try making a go of it together. It was unclear if bigger was actually better—for patients or the bottom line—but size seemed to offer hospitals a buffer against collapse.

By 2005, less than a decade into its dalliance with free enterprise, the city’s hospital system had taken on something of a post-Soviet tinge, with winners ruling the roost like oligarchs and losers reduced to a state of grim dependency. A pecking order emerged, with elite academic centers at the top, well-regarded independent hospitals like Lenox Hill in the middle, and community hospitals on the bottom.

Summary

We have previously written (for example, here and here) about how increasing market dominance by large, sometimes strategically located, and sometimes politically well-connected (e.g., see here) hospital systems run by conflicted leaders. This seems like another unintended consequence of the "free markets solve all problems" ideology, possibly fueled by conflicts of interest that has done so badly in our financial arena (see here). What some of these free market enthusiasts seem to forget, their forgetfulness perhaps fueled by payments received from the large corporations that have profited from this movement, are that true free markets are hard to maintain. This is particularly so in health care, in which knowledge is asymetric, outcomes are uncertain, and sick and anxious patients have trouble making cool, rational choices (as per Arrow, see this post.)

But if the free market enthusiasts really believe in free markets, why have they not been out campaigning to prevent the "unfree" characteristics, like secret pricing, of current health care markets?  Of course, ending secret pricing might compromise the ability of their financial sponsors to keep earning their millions

More on Hospital Market Dominance, Enabled by Secret Pricing

This week two more articles appeared describing how large hospital systems use market dominance to charge more.  Naturally, both were in news publications, not scholarly health services research journals.

San Francisco

Kaiser Health News (via the Contra Costa [CA] Times) discussed hospital market dominance in the San Francisco area.  The article documented how particular systems can command higher prices. Consider the example of John Muir Health vs San Ramon Medical Center:

Often, a hospital's dominance in an area helps determine how much it can charge, experts say. Consider John Muir Health, a two-hospital nonprofit system in the East Bay. With campuses in Concord and Walnut Creek, John Muir has the biggest footprint in the local hospital market, accounting for 54 percent of all the acute care inpatient stays in 2009, more than any other hospital group, according to state data.

The hospital with the weakest market penetration is San Ramon Medical Center, a Tenet-owned, for-profit hospital, with 10 percent of the acute care inpatients.

The least the insurer Aetna paid John Muir for an outpatient colonoscopy was $3,185, according to Aetna's website, which tracks two years of payments. Aetna paid $1,483 to San Ramon Regional Medical Center for the same service. The least Aetna paid John Muir for an uncomplicated birth was $7,722, while its lowest price for a birth at San Ramon was $5,278.

Yet on broad quality measures, John Muir's hospitals generally score no better than San Ramon's, according to the California Hospitals and Reporting Taskforce, a nonprofit that produces hospital report cards published at Calhospitalcompare.org.

San Ramon ranks equal to John Muir's Walnut Creek campus in most major measures, including mortality rates in the intensive care units, overall patient satisfaction and maternity care. John Muir's Concord campus ranks below San Ramon on several measures, including mortality rate and patient experience, though John Muir was rated better in avoiding complications for patients on ventilators.

Then there is Sutter Health:

[Stanford University associate vice president for Benefits Les] Schlaegel says so many employees like to see doctors at the Palo Alto Medical Foundation, a doctors' organization affiliated with Sutter with a clinic near the Stanford campus, that the university feels obliged to keep offering insurance networks that include Sutter.

'Sutter basically has a stranglehold on Northern California,' says Schlaegel. 'They are strategically situated, both for hospitals and medical groups. They know purchasers need them. When you are strategically located, you can say 'this is our price and you can pay it.''

Secret Pricing
The ability of dominant hospitals to charge higher prices is facilitated by secrecy in which hospital pricing is cloaked

The hospitals haven't made it easy for consumers to comparison shop. State law requires hospitals to reveal their charges for specific services. But those charges don't reflect the lower negotiated rates insurers actually pay - rates hospitals usually insist be kept secret. The California Hospital Association has opposed legislation to ban such 'gag clauses'; the most recent of these bills died in the state Assembly in August.

Hospitals have also resisted a four-year campaign by the Pacific Business Group on Health, an employer coalition, and CalPERS to create a 'hospital value initiative' that would allow hospital comparison based on cost and quality of care.

Summary

In many cases, hospitals are able to keep raising prices beyond inflation because their sizes or reputations give them clout in negotiating rates with insurers, researchers say. Yet high prices don't always equate with superior care.

Quality measures for some of the Bay Area's most prestigious hospitals, including Stanford and John Muir, show that in some instances, less expensive competitors perform as well or better in their basic responsibilities, such as avoiding infections and high death rates for patients in intensive care.

'Some hospitals are able to charge higher prices than the market normally would bear, even without providing higher quality,' says Dr. R. Adams Dudley, a professor of medicine and health policy at the University of California, San Francisco. 'That means they're getting those higher prices without really offering more to patients or the rest of society.'

New York City


Meanwhile, a long feature story in New York magazine about the demise of St Vincent's hospital (see our post here) also discussed the market power of its competitors as one factor in its decline:

The city’s largest and most powerful hospitals, which are crucial to an insurer’s customers, exert their leverage to secure deals that are believed to pay well above the average margin; smaller hospitals, which are often located in low-income neighborhoods, have little choice but to accept the dismal rates dictated by insurers if they want to remain in the insurers’ plans. 'When the big players take their cut, there are only scraps left for everyone else,' says the CEO of an outer-borough hospital. “'United HealthCare couldn’t care less about having my hospital in their network. They tell me to take it or leave it.

Secret Prices

Like in California, market dominance is enabled by secret pricing:

the rates negotiated between hospitals and insurance providers are withheld from public scrutiny—even state health and insurance regulators are denied the information

Free Markets?

Secret prices determined by market power hardly sound like characteristics of a free market. Yet in New York, at least, they seem partially to be the result of the free market ideology of previous political leaders:

Then George Pataki took office in 1995, determined to allow hospitals to test their mettle in the free market by negotiating their own terms with insurers. It turned out to be an exercise in shock-therapy capitalism. Inexperienced at the bargaining table, hospitals engaged in intramural rivalry with each other, cutting unfavorable deals with insurers in order to hold on to patients in the short term. With their already thin margins pared down further by deregulation, many hospitals soon built up paralyzing debt loads. Even the largest and seemingly least vulnerable facilities decided that their best hope for survival was to get bigger. A flurry of mergers and buyouts ensued, and by the end of the nineties, the hospital system began to assume its current bewildering patchwork of partnerships and affiliations. Columbia Presbyterian and New York Hospital, both attached to elite medical schools, joined forces. NYU and Mount Sinai forged a deal (it later came undone). On the eastern edge of the city, North Shore hospitals merged with nearby Long Island Jewish, staking out an enormous swath of the hospital market on Long Island, Queens, and Staten Island. Beth Israel and St. Luke’s–Roosevelt, debt-ridden and left on the sidelines by the major academic hospitals, decided to try making a go of it together. It was unclear if bigger was actually better—for patients or the bottom line—but size seemed to offer hospitals a buffer against collapse.

By 2005, less than a decade into its dalliance with free enterprise, the city’s hospital system had taken on something of a post-Soviet tinge, with winners ruling the roost like oligarchs and losers reduced to a state of grim dependency. A pecking order emerged, with elite academic centers at the top, well-regarded independent hospitals like Lenox Hill in the middle, and community hospitals on the bottom.

Summary

We have previously written (for example, here and here) about how increasing market dominance by large, sometimes strategically located, and sometimes politically well-connected (e.g., see here) hospital systems run by conflicted leaders. This seems like another unintended consequence of the "free markets solve all problems" ideology, possibly fueled by conflicts of interest that has done so badly in our financial arena (see here). What some of these free market enthusiasts seem to forget, their forgetfulness perhaps fueled by payments received from the large corporations that have profited from this movement, are that true free markets are hard to maintain. This is particularly so in health care, in which knowledge is asymetric, outcomes are uncertain, and sick and anxious patients have trouble making cool, rational choices (as per Arrow, see this post.)

But if the free market enthusiasts really believe in free markets, why have they not been out campaigning to prevent the "unfree" characteristics, like secret pricing, of current health care markets?  Of course, ending secret pricing might compromise the ability of their financial sponsors to keep earning their millions

Health Care Leaders in Maine Fail to Learn from Past Experience

From down east Maine comes a telling story about the problems of contemporary health care leadership.  I assembled this case from three articles by Meg Haskell in the Bangor Daily News, links are below. (1-3)

Complaints About the CEO's Clinical Policies

The story begins with complaints about clinical policies instituted by the CEO of Acadia Hospital.

[Acadia CEO David] Proffitt has come under fire in recent weeks from current and former Acadia Hospital employees who say the incidence and severity of staff injuries have risen since he initiated a policy that essentially eliminates the use of mechanical and physical restraints with mentally ill patients who become violent. (2)

The concerns were raised with government agencies:

Since the end of July, the federal Occupational Safety and Health Administration has been conducting an on-site investigation into employee complaints of unsafe working conditions at Acadia. The state Department of Health and Human Services also recently has investigated conditions at Acadia, with a report due later this month. (2)

Furthermore,

The OSHA investigation was triggered earlier this summer by a complaint filed with the agency alleging an increase in patient assaults on staff after Proffitt implemented stricter standards against the use of mechanical and physical restraints, even when patients turn violent.(3)

Loss of Experienced Clinicians

There were also concerns that Mr Proffitt presided over the loss of experienced clinicians who were replaced by those with less experience

Employees also have alleged that Proffitt has fired or pushed out a number of clinical leaders at Acadia, including former Vice President for Medical Affairs Dr. Paul Tisher and former Chief Nursing Officer April Giard. They have criticized his replacements as lacking expertise in psychiatric care.(3)

Lack of Clinical Experience or Training, Questionable Educational Credentials

Given his direct involvement in clinical decision making, it surprising that Mr Proffitt has no clinical training or experience:

Proffitt’s academic qualifications also have been questioned.

Proffitt’s education includes a 1984 bachelor’s degree in therapeutic recreation from the University of Nebraska at Omaha, a 1989 master’s degree in recreational administration from Arizona State University, and a 2007 doctoral degree in health administration from Warren National University, now a defunct, unaccredited on-line program. His academic career has been criticized as being inadequate to prepare him for the top-level positions he has held at both Riverview and Acadia, although neither position requires a doctoral degree.(2)

Repeating the Past

It turns out that similar concerns were raised about Proffitt's performance in his previous position:

Psychiatrists formerly employed at Riverview said this week that both patient care and employee morale eroded under Proffitt’s leadership there.

'Over the course of David Proffitt’s tenure at Riverview, a significant number of long-standing and experienced staff left and were replaced with less experienced or temporary people,' said Dr. Bryan Woods, who was employed at Riverview from 2003 to 2006 and now practices in Portland. “\'In my opinion, this resulted in a decrease in the quality of patient care.'

Woods said Proffitt’s management style was often in conflict with the collaborative 'treatment team' approach commonly used in acute-care psychiatric settings.

'Ultimately, I left, because I simply could not work with him,' Woods said.

Woods’ colleague Dr. Dan Filene, who also worked at Riverview under Proffitt, said direct-care staff at the state hospital were placed at increased risk by a stringent policy that all but eliminated the use of any kind of restraints.

'The staff at Riverview are heroic,' he said. 'It’s not just dangerous; it is emotionally challenging, fatiguing, low-paying work. When they are actively being injured, it can’t help but affect patient care.' Filene stressed that most people with mental illness are not dangerous or violent.

Sen. Stanley Gerzofsky, D-Brunswick, is chairman of the Legislature’s Criminal Justice Committee. The committee oversees the locked forensic unit at Riverview, where criminals with severe mental illness are housed and treated. Proffitt’s policy of doing away with restraints for even the most dangerous patients prompted a number of complaints, he said.

'We heard concerns that staff members were being injured [by patients],' Gerzofsky said in an interview this week. 'Staff were complaining that [Proffitt] didn’t have the right credentials and that he didn’t take the violence very seriously. We had him in front of our committee several times.'

Gerzofsky’s colleague on the committee, Sen. John Nutting, D-Leeds, said he heard from several Riverview patient families and staff members.

'Legislators were called to see if he could be replaced,' he said. 'There was really just one single reason — he was telling doctors how to treat their patients. He was trying to get between the patients and their doctors.

Nutting said parents of patients were especially concerned.

'They wanted their loved ones to get the care their doctors wanted them to receive, not the CEO of the hospital,' he said.(2)

Proffitt's credentials were also questioned before:

Proffitt’s degrees in recreational therapy and his online doctorate, Nutting observed, did little to reassure worried families.(2)

Proffitt's Defenders

The allegations made against Proffitt, which appear to be from clinical professionals and patients' relatives, were countered by support from, perhaps not surprisingly, managers and executives:

Michelle Hood, CEO of the hospital’s corporate parent Eastern Maine Healthcare Systems, says that under Proffitt, Acadia is 'moving in the right direction.' She lauded the progress he has made toward de-stigmatizing mental illness and ramping up Acadia’s outpatient and community services.

Note that Michelle Hood, although she has considerable health care management experience, appears not to have any clinical experience of expertise, from her official biography:

Before arriving at EMHS, Michelle was president and CEO of the Sisters of Charity of Leavenworth Health System, Montana Region, as well as president and CEO of its flagship hospital, St. Vincent Healthcare. She received her Bachelor of Science in 1978 at Purdue University and her Master of Health Care Administration at Georgia State University in 1981. Her early career included roles of associate hospital director at Emory University Hospital in Atlanta Georgia, executive vice president and chief operating officer of St. Vincent’s Hospital (of now Ascension Health) in Birmingham, Alabama and chief administrative officer of Norton Hospital in Louisville, Kentucky.

Somehow, the process that hired Mr Proffitt, presided over by Ms Hood, did not seem to consider his previous work at Riverview:

At EMHS, Michelle Hood said Proffitt’s troubles at Riverview 'did not come up' during his interviews for the position of CEO at Acadia.

One of 16 applicants in a nationwide search to replace outgoing CEO Dorothy Hill, he had appropriate letters of reference from former employers, she said.(2)

By the way, the process involved checking whether his educational credentials were accurate, but apparently was unconcerned with the meaning of an on-line degree from an unaccredited institution (subsequently closed down by state authorities, see here.)

His educational credentials checked out.... (2)

Hood dismissed concerns about losses of experienced staff:

Asked about the loss of key clinical administrators at Acadia, including Vice President for Medical Affairs Dr. Paul Tisher and Chief Nursing Officer April Giard, Hood said 'turnover is normal' with a new administration and that Proffitt has successfully recruited new talent and promoted qualified staff from within the organization.

The board of trustees of Acadia Hospital also supported their CEO

At the end of last week, John Bragg, chairman of the hospital’s board of directors, said the board supports embattled CEO David Proffitt, despite a deluge of concerns raised by current and former employees and unflattering revelations about Proffitt’s educational credentials and his leadership at his previous post.

At its regular meeting last Wednesday, the board went into executive session to discuss the situation, Bragg said Friday.

'We came out supporting Dr. Proffitt and the changes that are in place and the team he has put together,' he said.

As best as I can tell, Mr Bragg is the President of a local industrial firm, N H Bragg.

By the way, here is what George Eaton, chairman of the board of Eastern Maine Healthcare Systems, the parent not-for-profit corporation for Acadia Hospital, said about the executives that are accountable to him:

By making critical decisions, engaging in aggressive fundraising and other activities, 'exceptional senior executives can and should add many multiples of what they cost to the value of the institution,' he said. Eaton said CEO compensation packages within EMHS are determined using information from comparable institutions nationwide.(1)

Also,

The job of the CEO is 'incredibly complex,' working in 'the most regulated environment in any industry,' Eaton said.

'The prudent thing to do is to get the best people you can,' he said, 'and pay them what you need to in order to retain them — so long as they are achieving the performance goals set by their board.'

Note that Mr Eaton appears to be an attorney, according to the EMHS site, "George F. Eaton II, Esq.; Bangor; attorney, Rudman & Winchell."
Summary

This case illustrates much of what has gone wrong with leadership and governance of health care organizations.

We see health care organizations lead by people who have no experience or training in actually giving health care. Yet people who are not doctors, nurses, or therapists make clinical policies and control clinical care, even against the advice of experienced clinicians. In fact, some such leaders seem to regard clinicians as interchangeable widget-makers making interchangeable widgets. The ill-informed leaders of health care organizations often seem sensitive about their lack of knowledge and experience, and hence may be quick to punish any health care professional who protests their ill-informed decisions.  Moreover, the ill-informed leaders of health care seem to band together to support each other, even in the face of criticism from people with real expertise in health care, or from patients and relatives directly affected by health care and how it is delivered.  Higher level executives who are supposed to supervise lower level executives, and boards of directors which are supposed to exercise stewardship and support institutional values may seem more concerned with protecting the prerogatives of all executives rather than than the patient care mission.

As we have said again, again, again, health care desperately needs leadership that understand the context, and believes in the values.  It needs leaders that puts patients first, ahead of the pay and prerogatives of the executive and managerial class, our would-be new aristocracy.

References


1.  Haskell M. Maine's hospitals: big jobs, big pay. Bangor Daily News, March 6, 2009.  Link.


2.  Haskell M. Acadia CEO criticized at previous post.  Bangor Daily News, September 10, 2010.  Link.


3.  Haskell M. Acadia board supports CEO despite claims.  Bangor Daily News, September 20, 2010.  Link.