The Hospital Business

In 1970, a Fortune magazine cover story warned the nation: "Much of U.S. medical care, particularly the everyday business of preventing and treating routine illnesses, is inferior in quality, wastefully dispensed, and inequitably financed." That year, a Fortune editorial declared: "The time has come for radical change. ... The management of medical care is too important to leave to doctors who are, after all, not managers to begin with."

This was the beginning of the revolution Paul Starr described in his Pulitzer prize-winning 1982 book, The Social Transformation of American Medicine. In his final chapter, "The Coming of the Corporation," Starr expressed his concern that "those who talked about 'health care planning' in the 1970s now talk about 'health care marketing.' Everywhere one sees the growth of a kind of marketing mentality in health care. And, indeed, business school graduates are displacing graduates of public health schools, hospital administrators and even doctors in the top echelons of medical care organizations.

"The organizational culture of medicine used to be dominated by the ideals of professionalism and voluntarism which softened the underlying acquisitive activity," Starr wrote. "The restraints exercised by those ideals now grow weaker. The 'health center' of one era is the 'profit center' of the next."

In this brave new world of the 1980s, corporate executives would become both the wealthiest and the most powerful actors on the new cultural stage. Hospital CEOs would haul home salaries that made neurosurgeons look like pikers. In health care, as in other industries, CEOs, not physicians, make the decisions, and their goal, Starr suggested, would no longer be better health, but rather, "the rate of return on investments."

Earlier in the 20th century, many hospitals were run by physicians. Today, the vast majority are, as Starr predicted, run by MBAs and other businessmen. Some CEOs have studied hospital administration. Some do a fine job. The very best work well with the doctors in their hospitals.

Rogue CEOs

But today, it is too easy for someone who knows little about medicine -- and cares less -- to take charge of a hospital. Over at Health Care Renewal, Dr. Roy Poses offers a striking example:

Add this to our series of failed health care leaders, from the South Florida Sun-Sentinel:

A top Memorial Regional Hospital administrator caught up in a fraud investigation in the Virgin Islands resigned this week after admitting he spent time in a military prison and lied about it.

Rodney E. Miller, 36, who came to the Hollywood hospital less than a year ago as chief operating officer and a rising star, never disclosed he spent time in a Navy brig on theft charges, Frank Sacco, chief executive of the South Broward Hospital District, said Thursday. Sacco said when he confronted the man he hoped would one day succeed him, Miller admitted his lie and quit the $370,000 job on the spot Tuesday.

Details of Miller's past emerged in a series of stories published this week by the Virgin Islands Daily News that outlined widespread alleged financial abuses by Miller and others at Schneider Regional Medical Center in the Virgin Islands. The newspaper, and an audit by the U.S. Inspector General's Office, found that more than $1 million was improperly diverted to Miller's personal accounts between 2002 and 2007. Also, he received $3.8 million in salary over several years while patients went without basic needs for a lack of money, the newspaper reported.

But it was Miller's failure to disclose a "bad conduct" discharge from the Navy that led to his departure from Memorial Regional, Sacco said. Miller stole another serviceman's credit cards in 1995 and went on a spending spree, then concocted an elaborate scheme to cover his tracks, the Daily News reported. He left the service in 1996 and his discharge, after appeals, became official in 2000.

The information, including terms of his 10-month prison sentence and allegations that he submitted fraudulent documents to investigators, came from Miller's service records, which are public under federal law. No one from Memorial Regional or an independent search firm ever verified Miller's service, Sacco said. ...

Miller served as Schneider's chief executive officer for five years before accepting the job as head of the adult hospital at Memorial Regional in October. The inspector general's report was finished two weeks before Miller was hired in Broward, but not released until Monday.

The audit, conducted jointly by the Inspectors General of the Virgin Islands and the U.S. Interior Department, details an "alarming depth of mismanagement" at the hospital by Miller, his top executives and the board charged with overseeing their operations. Miller received more than $1.3 million above his contracted pay scale.

Investigators were met with "secrecy and a deliberate concealment of financial records" that forced them to seek subpoenas, according to the audit.

In a story in the Miami Herald, CEO Sacco was quoted, "we thought we had a rising star."

Not exactly.

If this were merely the story of an outlaw CEO somewhere in the Virgin Islands, I would not be so concerned. But the recent history of some of the largest U.S. hospital chains offers a rogue's gallery of top executives, particularly (but not exclusively) at for-profit hospitals. Time and again these CEOs have been able to make the numbers Wall Street is looking for only by making them up. To meet earnings expectations, some medical centers bilked taxpayers by overcharging Medicare. Others bribed doctors to "put heads on beds." Still others overcharged insurers and gulled investors. In the most harrowing instances, health care providers resorted to kidnapping patients.

In one case, a chain of psychiatric hospitals kept its beds full by setting targets for its hospital executives. They in turn targeted the patients they needed: adolescents who had sought help from school counselors, clergy and parole officers for emotional problems.

National Medical Enterprises (NME) paid the counselors, clergymen and parole officers bounty fees of as much as $2,000 to "recruit" patients who were then hospitalized, often against their will, until their insurance ran out. One 17-year-old was pinioned to his bed for months. His only "mental health problem" -- before he landed in the hospital -- was that his girlfriend had jilted him and he was depressed. By 1993, some 130 patients had brought suits against the NME, and it faced 14 separate federal and state investigations. But Richard Eamer, the entrepreneurial businessman who founded the chain, never went to jail. Instead, he walked away with a lump sum of $2.66 million and the promise of retirement payments of more than $500,000 a year.

As for NME itself, an investment banker who was a friend of the founder took over the business in 1994. He had no hospital experience, but he knew how to merge and acquire. Before long NME became the $2 billion Tenet Healthcare Corporation, boasting 116 hospitals in 17 states.

Then, in 2002, came the FBI raid. Ultimately, Tenet would pay the government $54 million to settle charges that the Redding Medical Centers had billed Medicare and Medicaid for thousands of cardiac procedures, including angioplasties and open-heart surgeries that, according to an FBI affidavit, were in many cases completely unnecessary. In the affidavit other cardiologists charged that in an estimated one-quarter of the cases, the hospital's rainmakers were operating on patients who had no serious heart problems whatsoever.

Some of those patients did not survive. Others were crippled. All suffered some form of psychological trauma. Tenet admitted no wrongdoing.

Redding had a sterling reputation. In 2002 its cardiac treatment center received a five-star rating from HealthGrades, the Colorado-based health care information company, for the fifth year running.

According to the FBI's affidavit, local cardiologists had tried to raise a red flag at Redding. One said he warned Steve Schmidt, who was the hospital's chief executive at the time, of a "serious problem" with unnecessary heart procedures as far back as 1998. Another physician alerted Schmidt's successor, Hal Chilton, during the summer of 2001. He quoted Chilton's response: "We have heard that, but we're not sure how to handle it."

Neither Schmidt nor Chilton were physicians; nor did they have a degree in public health.

Jeffrey Barbakow, the investment banker CEO who had created the Tenet chain, did not go to prison. Instead, he left with his pockets well-lined: $111 million that he had collected when he cashed in his stock options, plus $1.3 million in severance and another $585,000 in pro-rated salary for the year when the hospital system went down.

This brings me back to blogger-doctor Poses, who reminds his readers that he has argued, in the past, for "developing a licensure process for leaders of health care organizations. Licensing doctors and health professionals has been going on for a long time. But now leaders of health care organizations, from hospitals to drug companies, have as much if not more influence over health care, and hence the health and safety of patients as do doctors. Yet," Poses points out, "there are no requirements that leaders of health care organizations have any particular educational background, knowledge, commitment to health care values, or, for that matter, that they have not committed crimes. Given the scope of bad leadership discussed on Health Care Renewal, maybe a licensing process for health care executives would at least ensure that they have not served time in the brig for theft."

This would be an excellent start.

In an article titled "Physician as Hospital Chief Executive Officer" published in Vascular and Endovascular Surgery earlier this year, Robert E. Falcone, M.D., and Bhagwan Satiani, M.D., MBA, go a step further, suggesting that perhaps the management of medical care is so important that it should be left to doctors -- or at the very least, they should be involved.

"As the pendulum swings back from lay leader to clinician leader, there is a strong and appropriate opportunity for physicians to reinsert themselves into a leadership role," write Falcone and Satiani, who both hail from the Ohio State University School of Medicine. "In fact, the time has perhaps never been more appropriate than today. In a health care system that is complex, troubled, and challenging, the physician CEO brings a unique set of skills to the business of medicine. The successful physician leader, however, must understand the business of medicine as well as or better than he or she understands the practice of medicine. Training, developing, and equipping our future physician leaders with the necessary skill sets will be one of medicine's many challenges as it expands into the 21st century."

Should either an M.D. or a degree in public health be a requirement for becoming a hospital CEO? Probably not. There are many fine hospital executives who possess neither degree. But I do think that all CEOs should be required to work closely with a panel of the hospital's physicians, focusing on how they can collaborate to improve patient safety and health. Physicians also should have a say in how hospitals invest their surpluses: Should they add on to the new wing and install whirlpool baths in the maternity wards, or put the money into an infection control program?

And I agree with Poses: Hospital CEOs should be licensed. Electricians are licensed. Accountants are licensed. Common sense dictates that someone running a hospital should be required to pass exams showing that he or she knows something about "management and administration" and has a solid grounding in what matters to patients -- how to reduce errors and lift the quality of care.

Source - Health Beat