A terrific article today by Julie Creswell and Reed Abelson in the New York Times the sheds further light on why Dr. Atul Gawande is wrong in thinking that “Big Medicine”, following the management model of the Cheesecake Factory, is “the best prospect for change” for the US health care system.
The NYT article sheds a harsh light on the management practices of industry giant HCA, which controls 163 hospitals from New Hampshire to California. HCA has made huge profits—much more than its competitors—through financial innovation without necessarily providing benefits to patients or society. HCA has succeeded in:
- Charging more for the same: New ways to get more revenue from private insurance companies, patients and Medicare by billing much more aggressively for its services than ever before; The NYT reports that “In late 2008, for instance, HCA changed the billing codes it assigned to sick and injured patients who came into the emergency rooms. Almost overnight, the numbers of patients who HCA said needed more care, which would be paid for at significantly higher levels by Medicare, surged… The change, which HCA’s executives said better reflected the service being provided, increased operating earnings by nearly $100 million in the first quarter of 2009.”
- Restricting access to low-return services: New ways to reduce emergency room overcrowding and expenses; for instance by turning away with minor conditions like a sprained wrist unless they are paid for in advance. Some 80,000 patients have been turned aside in this fashion.
- Increasing the quantity of lucrative services: On August 6, 2012, HCA revealed that it is currently under investigation by the Civil Division of the U.S. Attorney’s office in Miami for generating unnecessary high-cost cardiology services, the largest U.S. hospital operator disclosed Monday.
- Cutting staff costs: New ways to reduce the cost of its medical staff, sometimes at the expense of patient care. The article says, “In one measure of adequate staffing — the prevalence of bedsores in patients bedridden for long periods of time — HCA clearly struggled. Some of its hospitals fended off lawsuits over the problem in recent years, and were admonished by regulators over staffing issues more than once.”
The big winners from these practices at HCA have been three private equity firms—Bain Capital, Merrill Lynch and Kohlberg Kravis Roberts & Company—that bought HCA in late 2006. According to the NYT, “HCA’s robust profit growth has raised the value of the firms’ holdings to nearly three and a half times their initial investment in the $33 billion deal…. The new owners contributed about $1.2 billion in equity outlay from funds they oversaw, borrowing around $16 billion and assuming $11.7 billion of HCA’s outstanding debt. The deal essentially doubled the amount of debt held by HCA hospitals to $26 billion by borrowing from banks and selling bonds.”
Does care improve?
For its part, HCA says that the overall quality of care has improved. The NYT article says:
“HCA says that more than 80 percent of its hospitals ranked among the top 10 percent in the country for federal quality measures, compared with 13 percent in 2006 when it went private. Last year, the company provided a $2.68 billion provision for charity care. And under the control of its private equity owners, HCA has invested around $8 billion in its hospitals in the last five years, according to Securities and Exchange Commission findings. ‘You must know that we firmly believe that there is no sustainable business model as a health care delivery system that does not have at its core the provision of high-quality patient care and services,’ HCA’s chief executive, Richard M. Bracken, has written to the NYT.”
Mr. Bracken talks about the primacy of high-quality patient care. But is it a reality? The NYT article reports:
HCA owned eight of the 15 worst hospitals for bedsores among 545 profit-making hospitals nationwide, each with more than 1,000 patient discharges, tracked by the Sunlight Foundation using Medicare data from October 2008 to June 2010.
A more fundamental question is: can high-quality patient care have primacy when the goal of the firm is to make money?
The dynamic of profit-driven innovation
In Dr. Gawande’s article in the New Yorker, we can see the dynamic of innovation in a private equity setting. Gawande describes a Big-Brother-like command center in the Steward Hospital System owned by the private equity firm, Cerberus. In some circumstances, one could imagine how such a command center might turn out to be helpful in improving care to some extent, particularly if it is operated in a negotiation mode, as described by Gawande, rather than a command center, as it is named. The command center’s director, Dr. Ernst, seems to be a conscientious well-meaning doctor. He believes he is “not telling clinicians what to do.”
But how long can this last? Steward is owned by private equity whose its explicit goal is to make as much money as possible for itself and its investors as soon as possible. Such a goal leads inexorably to top-down command-and-control style management to force the staff like Dr. Ernst to give priority to the goal of making money, since it is hardly likely that Dr. Ernst or his colleagues spent years and years in medical training with the goal of making money for Cerberus.
So if Cerberus is succeed in its goal of making money as quickly as possible, it will have to compel Dr. Ernst and his colleagues to give priority to its goal, rather than the goal that he might personally espouse, like, say, improving the health of their patients. Is it plausible that Dr. Ernst will be able to go on “not telling clinicians what to do”, when telling people what to do is the inexorable modus operandi of Steward’s private equity owner? We know from history who is going to win this battle.
HCA: The Unsustainble Private Equity Bubble in US Health Care – Forbes.