How the Fallacy of the "Perfect" Health Care Market Undermined Professionalism and Caused Health Care Dysfunction - in the New York Times

We began this blog way back in 2005 to discuss threats to physicians' values, especially from concentration and abuse of power.  Personal experience, and cases and anecdotes described by colleagues suggested that a dysfunctional health care system was making patients and physicians miserable.  Interviews with more physicians suggested pervasive threats to their values, many stemming from how leaders of health care organizations wielded their power.  

Threats to Professional Values

In a 2007 post, based on an article in JAMA by Dr Arnold Relman, I asserted that the notion that threats to physicians' professional values are a major cause of health care dysfunction was becoming mainstream.  Furthermore, Dr Relman's review of the history of the problem suggested that the rising power of for-profit health care corporations, for whom making money came before the health and safety of patients, was a primary culprit. 

Dr Relman has discussed the issue frequently (e.g., see this post).  However, despite occasional publication in some prestigious medical journals, his views seem to have gotten little traction. 

Arrow's Analysis: Is Health Care a Perfectly Competitive Market?

Amazingly, however, the issue has made it into the New York Times, in the form of two posts in the Economix blog by health economist Prof Uwe Reinhardt.  Prof Reinhardt started by resurrecting the classic article by "Nobel laureate economist Kenneth Arrow," which argued that health care's special context means that the health care market cannot be truly competitive.

First Prof Arrow reviewed the characteristics of a perfectly competitive market:

To lay down a standard to which to compare the health care sector, Professor Arrow explained first on what basis economists consider a perfectly competitive market for some good or service as 'maximizing human welfare,' an outcome economists describe as 'efficient.'

The crucial characteristics of a perfectly competitive market are (1) that all of the quality dimensions of the good or service traded in that market are accurately understood by buyer and seller; (2) that potential buyers have full transparency on the price they will have to pay per unit of that good or service; (3) that it is easy and relatively costless for potential sellers to enter and exit this market; (4) and that there are so many potential buyers and sellers that none individually can affect the market price of the thing being traded.

If those and some other conditions are met, Professor Arrow explained, then for any given initial distribution of income and wealth that market will settle down at a unique equilibrium, that is, a state from which no potential buyer or seller would want to move. This equilibrium has important attributes.

First, in what Professor Arrow calls the First Optimality Theorem of welfare economics, it can be shown that in this equilibrium the traded good or service is allocated among buyers in such a way that it would be impossible through any reallocation to make someone happier without making someone else less happy.

It is an allocation that economists call Pareto efficient, in honor of the Italian industrialist, economist and philosopher Vilfredo Pareto (1848-1923), who first proposed this criterion.

For any given initial distribution of income and wealth, economists declare the associated Pareto-efficient allocation of the thing being produced and traded to be 'welfare-maximizing' � hence the term 'welfare economics' for this type of analysis.

Second, and very importantly, in what Arrow calls the Second Optimality Theorem, he explains that if on ethical grounds society wished to distribute a good or service (for example, education or health care or food or beach houses) among people in a particular way � like egalitarian principles � it need not have government directly involved in producing or distributing that good or service.

In his second blog post, Prof Reinhardt summarized why health care cannot be such a competitive market. The problems are uncertainty and asymmetry of information:

This uncertainty has several aspects.

First, physicians may not agree on the medical condition causing the symptoms the patient presents.

Second, even if physicians agree in their diagnoses, they often do not agree on the efficacy of alternative responses � for example, surgery or medical management for lower-back pain.

Third, information on both the diagnosis of and the likely consequences of treatment are asymmetrically allocated between the sell-side (providers) and the buy-side (patients) of the health care market. The very reason that patients seek advice and treatment from physicians in the first place is that they expect physicians to have vastly superior knowledge about the proper diagnosis and efficacy of treatment. That makes the market for medical care deviate significantly from the benchmark of perfect competition, in which buyers and sellers would be equally well informed.

Uncertainty and asymmetry of information about the quality of goods or services being traded is not, of course, unique to the medical care market. It is ubiquitous in modern economies that trade in highly complex goods and services. We find these characteristics, for example, in financial transactions, including all types of insurance; in automobile repairs, in plumbing and even in the purchase of some consumer electronics.

Wherever asymmetry of information is present, there exists the potential for the better-informed market participants to exploit the ignorance of the less well informed. How society responds to this flaw in markets depends on the severity of its consequences.

In the market for electronic products, for example, the consequences appear to be regarded as trivial. A customer may be seduced into purchasing an excessively complex and expensive product, but society takes no action on this front. In finance, on the other hand, the consequences of asymmetric information can be severe, as we have been reminded once again in the recent financial crisis.

Professional Standards and Mission-Oriented Non-Profit Organizations to Remedy Market Imperfections
Prof Arrow suggested that how health care worked when he wrote his article, in 1963, could be partially explained as attempting to remedy the problems created by uncertainty and asymmetry of information.

Professor Arrow explained many of the nonmarket social institutions and regulations characteristic of medical care [at that time] that he had identified as 'attempts to overcome the lack of optimality resulting from asymmetry of information and the inability of competitive markets to allocate efficiently all of the risks inherent in health care.'

Pointedly, he said, 'It is the general social consensus, clearly, that the laissez-faire solution for medicine is intolerable.'

That was then and this is now.

The Rise of "Greed is Good"

The problem is, of course, that health care has changed a lot since 1963. In an interview with the Atlantic from 2009, Prof Arrow defended his basic analysis:

I think the fundamental questions are the same. I also think there are more problems in the market today than when I wrote the paper. But I think the basic analysis hasn't changed.

He also discussed how failure to heed it have lead to our current dysfunctional health care system:

The market won't work -- it doesn't work well in the health context. But something else supplements the market, and the thing I put stress on in the paper are the elements that put a non-economic influence on the market: professional commitments to provide a service, to engage in services that aren't self-serving. Standards of caring decided by non-economic actors. And one problem we have now is an erosion of professional standards. In a way there is more emphasis on markets and self-aggrandizement in the context of healthcare, and that has led to some of the problems we have today.

Furthermore, he commented on those who sold the idea, which today ought to be totally discredited, in my humble opinion, that health care could be a perfect market, and this market would make everything right:

Sometimes I think it's because of the Chicago School. I think there has been a general drift around the country towards the idea that greed is good. Look at Wall Street. All of these industries involve a professional element in which information is flowing. You're supposed to be constrained to be honest about it. I don't really know why. But there is now more of an emphasis on popularization, which does improve efficiency but can also lead to an erosion of professional standards. There was this idea that professional standards were a mask for monopoly power--a Chicago theory, which I believe came from George Stigler. I don't know if they were that influential, but they seemed to be saying a lot of things that people were taking up in practice. I'm not totally sure why these professional standards changed, but it's more than medical reasons.

So you do not need to take it from me, take it from a Nobel laureate economist.  It now seems clear in retrospect that a major characteristic of modern health care is how the "better-informed market participants ... exploit the ignorance of the less well informed."

Summary: What is to be Done?
We have been sold a real bill of goods that health care could function as an ideal market. That bill of goods has lead to the deprofessionalization and commercialization of physicians, the destruction of the basic values of health care professionals, and the rise of health care organizations that put making money ahead of patients' health, safety, and welfare. And in health care, the dominant slogan has become "greed is good." This is true of course, but only for the greedy.

True health care reform would help physicians and other health care professionals uphold their traditional values, including, as the AMA once stated, "the practice of medicine should not be commercialized, nor treated as a commodity in trade." True health care reform would put health care "delivery" back in the hands of mission-focused, not-for-profit organizations, which put patients' health, safety and welfare first.

These reforms, however, would certainly threaten the continuing wealth of a lot of people who have profited mightily from the current dysfunctional system. So do not expect them to be happy about even the discussion of them.

"Proprietary Information," Confidentiality Motions, and the Anechoic Effect; the Case of the Contaminated Heparin

The case of the deadly contaminated heparin sold by Baxter International has received much less attention than seems warranted given its human costs (81 lives).  How the heparin was contaminated, and how the contaminated heparin ended up being sold as a US Food and Drug Administration approved American product are still unknown.  Our most recent post, here, noted that an investigation into the contamination of the active pharmaceutical ingredient (API - actually the heparin itself) in China failed to produce any results, apparently because the Chinese government did not see fit to pursue it.  (Note that a brief summary of the whole case is at the end of this post.)
Now a new story in the Wall Street Journal by Alicia Mundy explains even more about why we do not know more about the contaminated heparin:

Baxter International Inc. faces a new challenge in federal court in its bid to block disclosure of documents about the 2008 contaminated-heparin crisis.

Baxter and Scientific Protein Laboratories LLC are fighting a civil mass tort lawsuit alleging deaths and injuries from imported Chinese heparin in 2007 and 2008. A company that isn't party to that lawsuit says some of the information Baxter and SPL want to keep confidential is important to public health and drug safety, and could reveal information about the sources of toxic heparin in the Chinese supply chain.

The two companies want to keep under seal portions of depositions taken in the case, including those related to Momenta Pharmaceuticals Inc., which helped the U.S. government investigate the contamination. Baxter and SPL say they will be hurt if forced to disclose proprietary information.

They have denied that they were negligent in the deaths linked to the blood-thinning drug, widely used in cardiovascular and other conditions.

So,

On Aug. 3, federal Judge James Carr in Toledo, Ohio, ruled in favor of the confidentiality motion by Baxter and SPL.

On the other hand, there are arguments, admittedly by parties with relevant financial interests, for making more information public:

Last Friday, another company entered the fray, contending that the information in the depositions shouldn't be sealed. Amphastar Pharmaceuticals Inc. said public health could benefit if the depositions shed light on circumstances in China.

Amphastar, which has been competing with Momenta for approval to make a newer and more expensive form of heparin, said the information is also important to a congressional investigation into the Food and Drug Administration's handling of the heparin crisis. Republican leaders of a House committee say the FDA failed to trace the contamination in the Chinese heparin supply chain.

On July 23, the FDA granted approval to Momenta to make the special heparin called enoxaparin, while Amphastar's application remains on hold.

Amphastar said in its court filing that the 'serious safety concerns' involving heparin are relevant to enoxaparin because heparin is the starting material of enoxaparin's active ingredient. Most U.S. heparin supplies come from China.

Of course, the companies who want to keep as much about the case secret as they can are not talking about it:

Lawyers for Baxter and SPL declined to comment on their efforts to restrict information related to Momenta. They referred inquiries to Baxter, whose spokeswoman declined to comment.

So here is more about what we do not know about the deadly contaminated heparin from China. One reason that this case has remained so anechoic is that the companies that sold and processed the contaminated heparin, and are now defendants in lawsuits have used that situation as a rationale for keeping "proprietary" information secret.  There clearly may be reasons that Baxter International, the company that sold the heparin under their (formerly?) prestigious US label  wants to keep secret the details about what efforts it did or did not make to assure that the heparin it sold was pure and unadulterated. There clearly also may be reasons that Scientific Protein Laboratories LLC, the US based company that sold the heparin API to Baxter wants to keep secret the details about what efforts it did or did not make to assure that the heparin API was pure and unadulterated. 

The ability of participants in lawsuits to keep "proprietary" information secret clearly adds to the anechoic effect.  Ironically, it may be that civil legal action, which is sometimes the only way to impose negative consequences on health care organizations that have misbehaved, may have the adverse effect of further hiding information about the events in question. 

However, to promote the safety of individual patients and the health of public, and to prevent another deadly case of drug contamination, understanding details about what happened is absolutely vital. The private pecuniary interests of Baxter International and Scientific Protein Laboratories LLC seem to be directly opposite to those of patients, physicians, and the public at large in this case. It is therefore disquieting to learn that the companies' wishes to keep information they declare is "proprietary" seem to have trumped individual patient safety and public health concerns. (Note that these concerns go beyond the commercial concerns of Amphastar Pharmaceutical, although in this case the pecuniary interests of that company do not seem to be opposed to patient safety and the public health.)

If we really want a health care system that improves the health of individuals and the public, we need it to put health and safety concerns ahead of the incomes of health care corporations.  That such a statement seems not a platitude, but revolutionary is a mark of how our health care system has been turned on its head.

Case Summary


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


(For a more detailed summary of the case, look here.)

St. Vincent's Goes Bankrupt, Executives Earn Millions

St. Vincent's Hospital in the Greenwich Village section of New York City was a landmark institution which filed for bankruptcy in April, 2010, and then closed its doors. 

Background

A New York Times article written earlier this year described an institution "threatened with extinction" because it stuck to its mission of "compassionate care" in a health care environment that values "fancy equipment and celebrity doctors."  Thus, "officials blamed a high rate of poor and uninsured patients as well as cuts in Medicare and Medicaid and the hospital's inability to negotiate favorable contracts with health insurance companies...." 

Painting Another Picture

However, a story this week in the grittier New York Post painted a different picture:

St. Vincent's Hospital was looted by execs and consultants in the two years before it closed, then grossly exaggerated its debt, according to blockbuster papers set to be filed tomorrow in Manhattan Supreme Court.

The filing, a petition that seeks to force the state Health Department to turn over documents on the closing, says the defunct medical center blew through millions in 'highly questionable' expenses, including $278,000 for a golf outing, while paying its top 10 executives a combined $10 million a year.

It also shelled out $17 million for 'management consultants,' $3.8 million on 'professional fund-raising' and a staggering $104 million on unspecified costs it listed simply as 'other' on its federal tax returns, the petition says.

But even with all that money going out, St. Vincent's wasn't nearly as cash strapped as it claimed, say the court papers, prepared by a law firm working for doctors and nurses formerly employed there and the hospital's West Village neighbors.

Its crushing debt of about $1 billion, which the hospital blamed for having to close its doors in April, was bloated by hundreds of millions of dollars in loans dumped on St. Vincent's from other medical entities run by the Archdiocese of New York, starting in 2001, after the other institutions merged with the hospital, the papers say.

'The debt of the hospital was specifically exaggerated by numerous factors, including the transfer of debt from other Catholic medical centers and mismanagement by the board of directors,' the documents say. 'These transfers . . . remain undisclosed to the public.'

Historical Parallels
These accusations parallel themes that appeared towards the end of the February, 2010, NY Times piece. First, regarding the transfer of debt:

To remain competitive, in 2000 St. Vincent�s merged with several other Catholic hospitals to form St. Vincent Catholic Medical Centers.

Along with the flagship hospital in the Village, it ran seven other hospitals: Bayley Seton and St. Vincent�s on Staten Island; Mary Immaculate, St. John�s and St. Joseph�s in Queens; St. Mary�s in Brooklyn; and St. Vincent�s Westchester, in Harrison, N.Y. It was also affiliated with St. Vincent�s Midtown, formerly St. Clare�s, in Midtown Manhattan.

The merger was conceived as a way to streamline management and give the hospitals pricing leverage, but it was troubled from the beginning. After closings and sales, the network was left with just one New York City hospital, the flagship; a psychiatric and substance abuse treatment hospital in Westchester; and several nursing homes and other outpatient facilities. Some of St. Vincent�s debt was inherited from the closed hospitals.

Second, regarding mismanagement:

In 2004, St. Vincent�s turned over management to Speltz & Weis, the first in a series of turnaround consultants. It paid the firms millions of dollars a year to run the hospital and hired their officials as hospital executives. The system filed for Chapter 11 bankruptcy protection in early July 2005, when it appeared, according to court papers filed by hospital creditors, that it would be unable to make its payroll.

In a lawsuit filed in 2007, some of the hospital�s creditors painted a picture of a hospital system trapped between unscrupulous consultants and a passive or gullible board. The lawsuit accused David E. Speltz and Timothy C. Weis, the hospital system�s former chief executive and chief financial officer, of delaying the bankruptcy organization while they and their consulting firm collected millions of dollars in fees.

The lawsuit accused them of hiring high-priced contractors and padding their fees, instead of using hospital employees to do work. And it says they leveraged their positions with the hospital to negotiate the sale of their consulting company to Huron Consulting Group, in Chicago, also a defendant in the case.

The outcome of that earlier lawsuit was unclear.  It does suggest that St. Vincent's may have been chronically bled by greedy managers and consultants.

Contrasting Financial Health and Executive Compensation

Of course, as one of our unofficial legal consultants noted, anyone can file a lawsuit. However, perusal of the latest 990 form filed with the Internal Revenue Service by St Vincent Catholic Medical Centers for calendar year 2008 did reveal a disquieting contrast.

That form stated that the the hospital lost over $65 million in 2008, and over $34 million in 2007. However, in 2008, here were the compensation of its highest paid managers

- Brian Fitzsimmons, Executive Director, $2,135,401
- Bernadette Kingman-Bez, Senvior Vice President, CCO (?), $1,520,841
- Paul Rosenfeld, Executive Director, CC, $1,196,458
- Henry Amoroso, CEO, $1,081,592

In addition, seven current and former executives at the Senior Vice President of Vice President level earned over $500,000 that year, and another 13 earned over $250,000.

Summary

So clearly, while the hospital was hemorrhaging money, and a little more than a year away from bankruptcy, this not-for-profit hospital whose mission emphasized serving the poor served a large corps of  executives very large amounts of money.  So we see again the pattern of top managers rewarding themselves disproportionately (here, grossly so) given the mission and financial status of their organizations.  The picture is of pay entirely independent of performance, and leaders who are ultimately only in it for the money.

How many more examples like this do we need until there is resolve that real health care reform will make top health care leaders accountable for their performance, and provide them incentives that are fair and rational, rather than perverse?

Post-Script

Of course, if we regard the fall of institutions whose mission was to do good as inevitable in our Darwinian world, an explanation that earlier coverage of this story suggested, all we can do is to throw our hands up.  However, the inevitability argument is often made by those who are benefiting from the current way of doing things.  A more skeptical view of this case, and related health policy issues, may suggest a different approach. 

EPIC's outrageous recommendations on healthcare IT project staffing

"Critical thinking always, or your patient's dead" - Victor Satinsky, MD, NSF-funded summer science training program (SSTP) for high school students, Hahnemann Medical College, early 1970's.

Health IT projects are incredibly complex undertakings in equally complex, mission-critical medical environments. They are definitely not an area for novices.

From conception to design to implementation, faulty systems can endanger patients.

Further, one astute author of an article entitled "Faulty Construction" in the journal ForTheRecord.com (link) observes that:

Critics wonder what good it is to invest in EHR technology if it fails to engender itself to users who feel betrayed by its lack of intuitiveness.

Inexperience is a critical factor in creating and implementing HIT that "betrays" users in many ways (see, for example, here on mission hostile HIT).

With these issues in mind, here is how the major HIT vendor, EPIC, recommends hospitals staff their clinical IT projects. It also follows that they staff their own development teams in the same manner.

The recommendations are largely outrageous, especially in the context of medical environments where uninformed, unconsenting patients are subjected to IT experimentation in clinical matters.

From this link at the "Histalk" site on staffing of health IT projects, Aug. 16, 2010. Emphases mine:

Epic Staffing Guide

A reader sent over a copy of the staffing guide that Epic provides to its customers. I thought it was interesting, first and foremost in that Epic is so specific in its implementation plan that it sends customers an 18-page document on how staff their part of the project.

Epic emphasizes that many hospitals can staff their projects internally, choosing people who know the organization. However, they emphasize choosing the best and brightest, not those with time to spare. Epic advocates the same approach it takes in its own hiring: don�t worry about relevant experience, choose people with the right traits, qualities, and skills, they say.

The guide suggests hiring recent college graduates for analyst roles. Ability is more important than experience, it says. That includes reviewing a candidate�s college GPA and standardized test scores.

I bet many readers were taught by their HR departments to do behavioral interviewing, i.e. �Tell me about a time when you �� Epic says that�s crap, suggesting instead that candidates be given scenarios and asked how they would respond. They also say that interviews are not predictive of work quality since some people just interview well.

Don�t just hire the agreeable candidate, the guide says, since it may take someone annoying to push a project along or to ask the hard but important questions that all the suck-ups will avoid.

Epic likes giving candidates tests, particularly those of the logic variety.

While there's some good here, the part about "not worrying about relevant experience" and about "hiring recent college graduates as HIT project analysts" is downright frightening.

Medical environments and clinical affairs are not playgrounds for novices, no matter how "smart" their grades and test scores show them to be, and these practices as described, in my view, represent faulty and dangerous advice.

The advice also is at odds with the taxonomy of skills published by the Office of the National Coordinator I outlined at the post "ONC Defines a Taxonomy of Robust Healthcare IT Leadership."

One wonders if these recommendations are simply the idiosyncratic opinions of EPIC's leadership. They certainly deviate wildly from medicine's culture (e.g., of rigorous domain-specific training, and certification where the test cannot even be taken without prerequisite, very specific experience).

One could also look at these recommendations from an economic perspective. The word "cheap" and a corollary concept, "age discrimination" come to mind regarding a stated preference for recent graduates over experienced personnel.

Finally, from a personal perspective, my grades and test results out of college were very high. Yet the �modern me� (after medical, IT and informatics education and hard earned experience) knows I would not have wanted the �young me� to have been involved in critical clinical IT functions on that basis.

-- SS

Being a Health Insurance Executive Means Never Being Able to Say You Are Sorry

WellPoint, the largest US for-profit health care insurance company, has provided a steady stream of examples of poor management and bad behavior for the edification of Health Care Renewal readers.  Most recently, a company whose core functions include reliably and confidentially managing electronic data on policy-holders allowed what should have been private data from nearly half a million people to appear on-line (see post here.  For other examples, look here.)

This week, the Los Angeles Times recounted what happened to a highly placed WellPoint executive who tried to improve the company's behavior. 

Leslie Margolin was the public face of Anthem this year when it sought to raise individual insurance rates as much as 39%. The move triggered a backlash in Washington and Sacramento, where lawmakers accused Margolin and her corporate bosses at insurance giant WellPoint Inc. of trying to gouge unknowing policyholders.

Margolin, 55, generated headlines statewide when she was called to testify before angry lawmakers in the state capital. With television cameras rolling, the hearing's chairman stared her down and asked bluntly: 'Have you no shame?'

Now, speaking publicly for the first time since her departure, Margolin says she had been chagrined over the rate hikes for the last year and had worked internally to get Indianapolis-based WellPoint to rescind them or scale them back, and to apologize.

'I thought the rates were too high,' she said. 'I thought the impact on our membership was too significant.'

Margolin did not object to the rates in her Sacramento testimony this February. But in the months that followed, she repeatedly voiced her objections to WellPoint and in appearances outside the company, remarks that went largely unnoticed by the public.

In a March talk at Pepperdine University's business school, for instance, she told a gathering of students and business leaders that she wasn't responsible for rate increases she believed were ill-timed and ill-advised.

'We have impacted individual consumers in ways that were so significant for those individuals,' she said. 'And for that, I personally feel very, very sorry.'

As she made the Pepperdine appearance and others, Margolin said, she privately pressed WellPoint to abandon the company's get-tough approach to longtime adversaries � doctors and hospitals � and instead collaborate as part of a new 'healthcare transformation strategy' to cut costs and improve patient safety and the quality of care.

So what happened to Ms Margolin? Did she get a big raise and an award for doing the right thing? Is the moon made of green cheese?

In fact, here is what happens to a health insurance executive who says she is sorry for excessively high insurance rates:

Last month, WellPoint replaced her. At the time, Margolin said her departure was a mutual decision. Interviews with company insiders, insurance industry leaders and others familiar with the situation now make clear that she was pushed out.

'Her undoing was that she rocked the boat and wanted to do things a different way,' said one person familiar with the events who declined to be identified for fear of retribution. 'She wasn't a good corporate soldier.'

Margolin herself spoke cautiously about her resignation, but said: 'There is no question I needed to leave.'

In fact, her exit was quite inglorious:

Margolin vividly recalls her last day. Even though her Anthem team was exceeding its financial goals and membership numbers, she said, she was ushered from the doors of Anthem's Woodland Hills headquarters. She didn't have a chance to send a farewell message to her 400 employees.

So it seems that being a top health insurance corporate executive means never admitting a mistake, and never, ever saying you are sorry.

In contrast, in the 2009 WellPoint Annual Report, CEO Angela Braly boasted:

As you can see throughout this report, we�re focused on making health benefits more affordable, improving access to care, and simplifying interactions with the delivery system. We believe that we have to favorably impact the value equation in health care while improving the experience of members, doctors, and employers.

So presumably at WellPoint, "making health benefits more affordable" means raising premiums 39%.  As we mentioned earlier this year, for this and other bits of legerdemain, Angela Braly's 2009 compensation increased 51 percent to $13.1 million. This seems more like pay for propaganda than pay for performance.

In a post in the Dismounting Our Tiger blog, Edwin Lee addressed the origins of the BP oil spill by noting how most big corporations have come to promote leaders distinguished mainly for their careerism, tribal attitude, and disinclination to question received wisdom.  He wrote that the result was promoting "mediocre, short term thinkers with similar work experiences, outlooks, temperaments and personal incentives. Disaster response, creative thinking and fundamental changes are outside their limited range of interests or competencies."  Thus we can expect that at some point, WellPoint, and many similarly lead health care organizations, will create their own disasters.  We can only hope that our health care system survives them.

Meanwhile, kudos to Ms Margolin for trying to put the interests of policy-holders and the public ahead of following the company line.  If only more such people were able to lead health care organizations rather than being unceremoniously fired, we might have a fighting chance to have health care that really is high quality, affordable, and accessible.   

PS - For those old enough to have been forced to watch Love Story, the original quote was "love means never having to say you're sorry."

A Golden Parachute for Making Contaminated Drugs?

In late 2009, we posted about problems at a Genzyme plant that manufactured some fabulously expensive drugs, e.g. Cerezyme whose cost to patients approximated $160,000 a year. We thought then that for a drug costing that much, the company ought to have figured out a conservative process to provide pure and unadulterated product. In a later post we also why a company that could afford to make its CEO very rich could not afford to adequately maintain its manufacturing facilities.  In May, 2010, we posted about a legal settlement of charges related to its manufacturing problems requiring Genzyme to pay a $175 million fine and function under US government supervision.

Recent news articles suggest that the fix of the company's inabilities to manufacture pure, unadulterated drug remained remote.  Reuters reported that it had to discard "additional inventories of drugs ... for failure to the meet the company's quality control standards."  Bloomberg reported that it "may take three to four years to complete changes requested by U.S regulators after plant contamination."

Meanwhile, however, the company continues to talk to Sanofi-Aventis about being bought out, and the Boston Globe reported just how much Genzyme CEO Henri A Termeer would stand to make if the buyout takes place:

Under the 'hange of control' agreement currently worth $23 million, Termeer would receive several payments. He would receive a lump sum of $11 million, a figure representing three times his base salary plus a bonus. He would also get $356,000 in benefits, including health, life, accident, and disability insurance, outplacement and relocation services, and legal fees. And he could cash out 175,137 shares through accelerated equity awards. Those shares are now worth $11.9 million, but almost certainly would be worth more if the company is acquired at a premium.

Furthermore,

Apart from the golden parachute, Termeer could reap huge stock gains if the company is sold. The 4.1 million Genzyme shares he owns represented about 1.5 percent of its stock as of April 9, the most recent regulatory filing. At the current share price, Termeer�s stake is worth more than $275 million.

So riddle me this: over the last 5 years, Genzyme stock-holders have seen their investment lose 5.7% of its value (according to Google Finance),  while patients have paid outlandish prices for contaminated medicine, or have had to reduce their medication dosages after the defective manufacturing plant was shut down.  So why should the CEO who presided over all this, whose has already become rich as a hired employee of Genzyme, get even richer? 

Once again we demonstrate how massively perverse incentives stupendously reward the top brass of health care organizations for mediocre, or worse leadership and bad results for both patients/ clients/ customers and stock-holders alike.  As long as being a health care CEO is effectively a license to loot the company, is it any wonder that health care organizations continue to be badly lead, and health care costs soar while quality and access suffer? 

Once more with feeling: real health care reform would require us to make health care executives truly accountable for their actions, and penalize them for those that are ill-informed, contemptuous of health care values, self-interested, or corrupt. 

Deceptive Marketing, For-Profit Universities, and Health Care Education

Last week, reports about deceptive marketing and other questionable practices used by the growing for-profit higher education industry in the US appeared in the news.  For example, per Bloomberg:

Recruiters at U.S. for-profit colleges lied to entice students and encouraged them to commit fraud to qualify for aid, a report by the Government Accountability Office found.

Recruiters at all 15 colleges studied by the GAO, Congress�s investigational arm, misled potential students about the costs, duration and quality of their programs, according to a report obtained by Bloomberg News....

Other deceptions include:

�'college representatives exaggerated undercover applicants� potential salary after graduation and failed to provide clear information about the college�s program duration, costs, or graduation rate,' the report said. 'Admissions staff used other deceptive practices, such as pressuring applicants to sign a contract for enrollment before allowing them to speak to a financial advisor about program cost and financing options.'

Also,

In one case cited by the report, a GAO investigator posing as an applicant was told to lie on an aid application about the number of household members to qualify for grants. When the investigators told college employees that they had $250,000 in savings, officials at three colleges told them to hide their savings in order to qualify for financial aid.

In addition,

For-profit colleges overstated the quality of their programs and the organizations overseeing their accreditation, the report said. One recruiter told an investigator posing as an applicant that his school was accredited by the same one that accredits Harvard University.

'It�s the top accrediting agency,' the recruiter said, according to the report. 'Harvard, University of Florida --they all use that accrediting agency.'

Recruiters exaggerated their colleges� benefits and graduation rates, the report said. A beauty college recruiter said barbers earn as much as $250,000 a year, while the Bureau of Labor Statistics said 90 percent of barbers make less than $43,000 annually, according to the report.

A later report by the Dow Jones news service named some of the corporate players whose educational "institutions" were involved in dubious schemes.

Colleges operated by Apollo Group Inc. (APOL), Corinthian Colleges Inc. (COCO) and Washington Post Co.'s (WPO) Kaplan Higher Education unit were among the schools the U.S. Government Accountability Office found provided 'deceptive and otherwise questionable information' to agents who posed as prospective students in an undercover investigation of for-profit student recruitment tactics.

It is tempting to look for parallels with health care, once a calling like higher education, but now increasingly an "industry," often run, as we have documented endlessly, by people with little experience or knowledge about how health care is actually done on the ground, with little sympathy for the values of health care professionals, and given strong incentives to maximize the money coming in, whatever it takes.

However, the issue goes beyond these parallels. In fact, many of the bigger for-profit education corporations provide considerable health care education, including the three named above. The University of Phoenix, a subsidiary of the Apollo Group Inc, offers a Masters of Science in Nursing degree. Several of the "brands" of Corinthian Colleges Inc offer offer "diploma and/or degree programs in health care." Kaplan University, a subsidiary of Kaplan Higher Education Corporation, has a School of Health Sciences.  So it seems likely that many health care professionals, or would-be health care professionals, have been enticed by the sorts of sales practices documented in the report. 

There are no known for-profit US medical schools.  However, as we have discussed, many US students go to for-profit "off-shore" medical schools, often in the Caribbean, who mainly "educate" US citizens who want to practice here (as opposed to all the schools in countries other than the US whose main goal is to educate doctors for their own countries.)  Some of these off-shore schools are owned by big US corporations.  One can only wonder whether their recruitment tactics are similar to those of the for-profit "universities" located in the US. 

We have discussed deceptive marketing of hospitals, drugs and devices, but now it seems that deceptive marketing is even more widespread in health care than we originally thought, along with the take the money and run ethos that has infected so much of the business world.

If we truly want to reform health care to improve quality and access, and control costs, we need to restore the focus to care, the care of the patient, and away of the false pursuit of economic efficiency that only seems to benefit the quick buck artists.