Dr. Silverstein and Dr. Poses in WSJ: "The Literature Is Hardly Pristine"

I have considered Dr. Roy Poses' Dec. 14, 2010 post "The Lancet Emphasizes the Threats to the Academic Medical Mission" (with its hyperlinks to source posts and articles) an excellent summary of many of the pathologies we address at Healthcare Renewal, especially with regard to the academic mission and the disruption of the integrity of the medical literature by commercial interests. His post is consistent with what might be considered our mission statement:

Addressing threats to health care's core values, especially those stemming from concentration and abuse of power. Advocating for accountability, integrity, transparency, honesty and ethics in leadership and governance of health care.

The Wall Street Journal published the following letter to the editor authored by me today in which I cited and summarized Dr. Poses' accounting of the medical literature's ills.

Unfortunately, the print version cannot contain the hyperlinks as above, but I have included them in the reproduced letter below in [brackets]. They are worth reviewing, along with additional links at the aforementioned source post "The Lancet Emphasizes the Threats to the Academic Medical Mission":

April 8, 2011
Wall Street Journal
Letters to the Editor

The Literature Is Hardly Pristine

I find it unfortunate having to inform reader James Reichmann, (Letters, April 1) who prefers his physician to recommend only treatments proven in the "synthesized medical literature," that the very literature on which he wishes his life to depend may be tainted.

As Dr. Roy Poses points out on the Healthcare Renewal Blog, numerous factors common in today's culture can and do corrupt the literature.

The factors include but are not limited to: rampant commercialization of medicine [here, here, here and here], research universities with lax conflict of interest policies [here], faculty as de facto employees of industry through grants [here], academics paid to be "key opinion leaders" to stealth-market drugs and devices [here], control of clinical research given to commercial sponsors [here], conflicts of interest allowing manipulation and suppression of clinical research [here and here], academics taking credit for articles written by commercially paid industry "ghost writers," [here and here], whistleblowing discouraged [here and here], leadership of academic medical centers by business people [here] and medical school leaders becoming stewards (as members of boards of directors) of for-profit health-care corporations [here, here, here and here].

As for me, until the medical literature can be freed of these contaminants, I'd rather trust a well-trained personal physician's good judgment in my own medical care.

Scot Silverstein, M.D.

Drexel University

Philadelphia

I believe it's also worth reviewing my own views on the subject, that the degree of contamination of medical literature is unknown and may be unrecoverable, due to spread of the contaminant vectors to the "experts" who then propagate the disease.

See my Aug. 2009 post "Has Ghostwriting Infected The Experts With Tainted Knowledge, Creating Vectors for Further Spread and Mutation of the Scientific Knowledge Base?" where I raise these questions.

At that post I suggest that while the damage might not be easily recoverable, the practices that lead to contaminated literature must be stopped going forward if true evidence-based medicine is ever to be a reality.

-- SS

Dr. Silverstein and Dr. Poses in WSJ: "The Literature Is Hardly Pristine"

I have considered Dr. Roy Poses' Dec. 14, 2010 post "The Lancet Emphasizes the Threats to the Academic Medical Mission" (with its hyperlinks to source posts and articles) an excellent summary of many of the pathologies we address at Healthcare Renewal, especially with regard to the academic mission and the disruption of the integrity of the medical literature by commercial interests. His post is consistent with what might be considered our mission statement:

Addressing threats to health care's core values, especially those stemming from concentration and abuse of power. Advocating for accountability, integrity, transparency, honesty and ethics in leadership and governance of health care.

The Wall Street Journal published the following letter to the editor authored by me today in which I cited and summarized Dr. Poses' accounting of the medical literature's ills.

Unfortunately, the print version cannot contain the hyperlinks as above, but I have included them in the reproduced letter below in [brackets]. They are worth reviewing, along with additional links at the aforementioned source post "The Lancet Emphasizes the Threats to the Academic Medical Mission":

April 8, 2011
Wall Street Journal
Letters to the Editor

The Literature Is Hardly Pristine

I find it unfortunate having to inform reader James Reichmann, (Letters, April 1) who prefers his physician to recommend only treatments proven in the "synthesized medical literature," that the very literature on which he wishes his life to depend may be tainted.

As Dr. Roy Poses points out on the Healthcare Renewal Blog, numerous factors common in today's culture can and do corrupt the literature.

The factors include but are not limited to: rampant commercialization of medicine [here, here, here and here], research universities with lax conflict of interest policies [here], faculty as de facto employees of industry through grants [here], academics paid to be "key opinion leaders" to stealth-market drugs and devices [here], control of clinical research given to commercial sponsors [here], conflicts of interest allowing manipulation and suppression of clinical research [here and here], academics taking credit for articles written by commercially paid industry "ghost writers," [here and here], whistleblowing discouraged [here and here], leadership of academic medical centers by business people [here] and medical school leaders becoming stewards (as members of boards of directors) of for-profit health-care corporations [here, here, here and here].

As for me, until the medical literature can be freed of these contaminants, I'd rather trust a well-trained personal physician's good judgment in my own medical care.

Scot Silverstein, M.D.

Drexel University

Philadelphia

I believe it's also worth reviewing my own views on the subject, that the degree of contamination of medical literature is unknown and may be unrecoverable, due to spread of the contaminant vectors to the "experts" who then propagate the disease.

See my Aug. 2009 post "Has Ghostwriting Infected The Experts With Tainted Knowledge, Creating Vectors for Further Spread and Mutation of the Scientific Knowledge Base?" where I raise these questions.

At that post I suggest that while the damage might not be easily recoverable, the practices that lead to contaminated literature must be stopped going forward if true evidence-based medicine is ever to be a reality.

-- SS

"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. 

"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. 

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 crème 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.

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 crème 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.

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."

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."