Reading Between the Lines: "Scrappy" WellPoint as an Illustration of Contemporary Health Care's Flaws

Giant US for-profit insurance company/ managed care organization WellPoint has provided numerous examples of problems with the current way health care organizations are lead.  Here we discussed charges that recent rate increases by its Anthem subsidiary may have violated previous agreements not to directly fund from premiums the golden parachutes of executives who left after the merger of Anthem and WellPoint; that WellPoint used magical accounting to make administrative costs appear to be from patient care; and that WellPoint investigated patients who developed cancer to find minor errors in their policy applications, and  used these as excuses for post-hoc cancellations (rescissions) of their policies.  And here we discussed a long list of WellPoint's previous ethical issues.

Recently, Reed Abelson penned a discussion of WellPoint's leadership in the New York Times, entitled "A Scrappy Insurer Wrestles With Reform."  Reading between the lines suggests some fundamental flaws in our current model of leadership for health care organizations.

The Halo Effect

Over long years of service in the last century, many health care organizations built up sterling reputations. Blue Cross and Blue Shield health insurance plans, which were all originally not-for-profit, regionally (state-wide) based organizations, became known for paying for care rather generously and with little fuss. (However, in retrospect, this may have certainly contributed to rising health care costs.)  However, their reputation was clearly for good service leading to generous care.

However, in the last 20 years, many of these plans converted to for-profit corporations, and/or were bought out by for-profit corporations. WellPoint is now a for-profit corporation that operates many subsidiaries that still do business as "Blue Cross" and "Blue Shield."

Over the last decade, WellPoint has become one of the nation’s largest insurers by buying up the Blue Cross plans that dominate the individual and small group markets in their states.

So,

[WellPoint CEO] Ms. [Angela] Braly argues that WellPoint is well positioned because of its size and the strong appeal of the Blue Cross name. 'We have a lot of historical strengths,' she said in an interview

However, it is likely that the "strong appeal" of many of these Blue Cross plans is based on a halo effect. Many individuals and small businesses may still think that the plans are relatively local, not-for-profit organizations. If not, they may still believe the plans are run as mission-driven organizations, not subsidiaries of a massive for-profit corporation.

Thus many health care organizations may so profit by an outdated "halo effect." People may not realize that leadership of these organizations is no longer a calling, but a way to become very rich.  The strong appeal of the Blue Cross name may, in fact, be misleading.  Such confusing, if not deceptive marketing has become a hallmark of our era of commercialized health care.

Market Domination and Health Care Costs

Prior to almost every merger, one hears an argument that larger organizations and corporations are more efficient, and hence will charge lower prices and lead to lower costs. Mr Abelson wrote,

WellPoint now has about 34 million customers, putting it ahead of the UnitedHealth Group in membership, and $60 billion in revenue, second behind UnitedHealth. While UnitedHealth and the other national companies tend to focus on providing services to large employers with workers in multiple locations, WellPoint’s focus has been on the local markets. Its strong presence allows it to demand the lowest prices from doctors and hospitals, while still offering customers a broad network of providers from which to choose.

I doubt there is any good data to show that such market power has resulted in lower premiums or lower health care costs.

In fact, Mr Abelson also wrote,

Because of its dependence on the higher profit margins of its traditional business, WellPoint has also not been as adventurous in trying new approaches,....

If WellPoint really meant to use its market dominance to force down its costs, it appears that the main beneficiary of this has been the company's profit margin, not its policy-holders.

Furthermore,

Starting in 2014, WellPoint and its competitors will have to offer coverage to anyone who wants it, including people with potentially expensive pre-existing conditions, rather than carefully selecting the people they are willing to cover. As soon as next year, insurers will also have to spend at least 80 cents of every dollar they collect in premiums on providing health care to individual customers.

So WellPoint used its market power to "carefully select" the people it insured so as to avoid anyone who might get sick, thus making a mockery of the concept of health insurance. Furthermore, the implication is that WellPoint spent more than 20% of premiums on management and administration (including the breathtaking compensation of its top leaders), and less than 80% on actually paying for health care.

As Mr Abelson noted, (as we did here), just how personally remunerative WellPoint's market power has been for its top leader:

Ms. Braly, ... received $13.1 million last year in compensation....

In fact, as we should have learned in this country more than 100 years ago, market domination leads to higher profits for the dominant company, higher compensation for its employees, and higher prices. However, in health care, for some reason people still believe that concentration of power leads to efficiency.

Health Care Leaders Who Know Little About Health Care

Ms Braly appears to have no direct experience, training, or expertise in health care, medicine, public health, or biologic science.

Ms. Braly, 48, a native of the Dallas area who received a law degree from Southern Methodist University, worked as a lawyer before she became general counsel to a small Blue Cross insurer in Missouri. She eventually ran that company, which is now part of WellPoint. Before being picked for WellPoint’s top job in June 2007, Ms. Braly worked as both a corporate executive and the company’s general counsel.

Her selection as C.E.O. surprised many analysts and investors. While some believed that she would bring a warmer touch to the company, others worried that she did not have enough years as a manager to navigate a highly regulated and often highly political environment.

In the last year, WellPoint became a favorite example of Congress and the administration for why health care overhaul was needed. Even people inside the industry say the company has been painfully slow to recognize consequences of some of its controversial actions, whether canceling a sick patient’s coverage or raising premiums on policies that lawmakers already call too expensive. And some say that Ms. Braly’s quickness to argue with WellPoint’s critics, revealing her training as a lawyer, is not always productive.

'WellPoint is the most incredibly tone-deaf insurance company in an industry full of deaf executives,' says Mr. Laszewski, the Virginia consultant. He criticizes Ms. Braly, who received $13.1 million last year in compensation, as being insensitive to the politics involved in running a health insurer, at both the state and federal levels. 'I don’t think she has the scar tissue and experience,' he says. 'I don’t think she has the marketplace instincts.'

Ms. Braly says her experience in government affairs makes her well suited for handling a complex regulatory environment.

Ms. Braly's background was cited as unusual for a health care CEO not because she has no obvious experience in direct health care, or its scientific or social scientific bases, but because she is a lawyer, not an MBA. It is interesting that we as a society have become so used to health care run by businesspeople that nothing in the article even obliquely suggested that Ms. Braly could benefit from some direct knowledge of or experience in caring for patients (or in biology, epidemiology, public health, etc), much less some sympathy for the values of health care professionals.

So I submit that this profile of the leadership of WellPoint provides another reason to reconsider why we have journeyed so far from an era when the AMA asserted, "the practice of medicine should not be commercialized, nor treated as a commodity in trade."  Current commercial health insurance (and the power that generally has been concentrated in large health care organizations) has certainly turned medicine into a commercialized venture, and treated the work of the individual health care professional as a commodity in trade.  Yet so far, what we have called health care reform in the US has just reinforced the power of large health care organizations. 

It also suggests that true health care reform ought to address the power now concentrated in large health care organizations, and ought to foster more honest and less profuse marketing by companies lead by people who have some knowledge of health care, and sympathy for its values.  We need to reinforce the neglected idea that health care ought to be a calling, not simply a way for some to become rich.

Investigations, Indictments and Guilty Pleas at Famous US Teaching Hospitals

Some of the US most prestigious academic medical centers have been receiving unusual scrutiny lately.

Mount Sinai Medical Center and New York - Presbyterian Hospital.

As reported first by the Wall Street Journal,

Federal prosecutors are investigating allegations that bid rigging and fraud at Mount Sinai Medical Center and New York-Presbyterian Hospital resulted in the hospitals awarding contracts worth tens of millions of dollars to outside contractors.

Purchasing officials at the hospitals, two of the city's largest and most prestigious, are alleged to have gotten more than a million dollars in payments from companies that were then given lucrative contracts to perform work such as re-insulating pipes and removing asbestos, according to documents filed in the Southern District of New York.

Nine contractors are involved in the case. So far, eight people and three companies supplying the hospitals have pleaded guilty to charges including bid-rigging, mail fraud and tax fraud. Three more people have been indicted on similar charges.

The Federal Bureau of Investigation and Internal Revenue Service have been investigating and the Justice Department's Antitrust Division is prosecuting the allegations in the case.

Some relevant specifics:

The most recent indictment, handed up by a federal grand jury April 6, involved the alleged awarding of more than $195,000 in maintenance and insulation contracts. Mario Perciavalle, associate director of plant services at Mount Sinai, is accused of taking at least $20,500 in cash from a Long Island City company in 2004 and 2005 in exchange for the company, unnamed in documents, winning the deals.

Prosecutors also are pursuing a case involving a former official at New York-Presbyterian, Salvatore Scotto-DiVetta, a supervisor at the hospital's Facilities Operations department. He pleaded guilty in March to rigging bids for re-insulation contracts, the Department of Justice said.

The next day, the Journal reported:

Two New York-Presbyterian Hospital officials and two contractors who did business with the prestigious hospital were indicted on fraud charges Tuesday in the latest cases stemming from a federal investigation into bid-rigging and fraud.

The indictment alleges that the hospital officials—Santo Saglimbeni of Armonk, N.Y., and Emilio Figueroa, whose hometown wasn't given—received payments and gifts in exchange for awarding contracts to certain companies.

And already the box score for this investigation increased:

As a result of the investigation, a total of five hospital employees, 10 people outside the hospitals and six companies have either pleaded guilty or face charges.

The comments by hospital officials had a familiar ring to anyone who has been following the hearings in Washington on the global financial collapse. From the first article:

A Mount Sinai spokesman said the hospital notified the Justice Department 'about the possibility of impropriety immediately after it was identified in an internal audit' and is cooperating with the investigation. The spokesman said the hospital dismissed the employee under investigation and instituted tougher contracting systems.

From the second:

New York-Presbyterian was an 'unknowing victim of these alleged crimes,' a hospital spokeswoman said. She also said that the staffers named in the indictment no longer work at the hospital, and it is cooperating with the investigation.

Partners Healthcare System

Just out today in the Boston Globe:

The US Department of Justice has opened a civil investigation into possible anticompetitive behavior by Partners HealthCare System Inc., the region’s most powerful hospital and physician network.

In a letter sent to Partners and the state’s three largest health insurers on April 19, investigators from the Justice Department’s antitrust division demanded documents relating to Partners’ 'contracting and other practices in health care markets in Eastern Massachusetts.'

The letter, obtained by the Globe, said the probe sought to determine whether the practices violated the Sherman Antitrust Act, which bars companies from using their market power to limit trade or artificially raise prices.

The background is:

Boston-based Partners has been under growing scrutiny because of its market power and ability to draw high prices from insurers. The company employs about 5,500 physicians and operates a half dozen smaller hospitals, in addition to their prestigious Harvard-affiliated Boston teaching hospitals, Mass. General and the Brigham.

Earlier this year, Attorney General Martha Coakley issued a report documenting that Massachusetts insurance companies pay some hospitals and doctors, including those in the Partners network, twice as much money as others for essentially the same patient care. The report pointed to the market clout of the best-paid providers as a main driver of the state’s spiraling health care costs.

A 2008 Globe Spotlight Team series focused on the Boston market found that hospitals such as Mass. General and the Brigham typically are paid 15 to 60 percent more for essentially the same work as other hospitals.

Soon after that series, Coakley launched her investigation into whether Partners and Blue Cross-Blue Shield, the state’s largest health insurer, may have illegally colluded to increase the price of health insurance statewide over the last decade, according to several legal and government sources.

And again, the official response had a familiarly evasive ring:

Partners spokesman Rich Copp yesterday noted that the hospital network already has supplied similar information to investigators from the state attorney general’s office, which launched its own review of Partners’ contracting practices last year. He noted in Partners’ defense that it vies with other providers in the area’s 'highly competitive' health care market.

'The Department of Justice has requested the same information that we have provided to the attorney general’s office,' said Copp. 'We will continue to cooperate with both government agencies during this ongoing analysis of health care in Massachusetts.'

Summary

So there it is.  Multiple indictments for and guilty pleas to charges of bid-rigging and fraud at two New York academic medical centers, and state collusion and federal anti-trust investigations of a Massachusetts hospital system.  The issues involve four of the most prestigious teaching hospitals in the US.

Of course, not all the indictments may result in convictions, and the investigations may not result in charges.  But this involves some institutions that at one time would have appeared beyond reproach.  The lack of clear denials from the inevitable official spokespeople, and attempts to deny responsibility for the actions of employees elsewhere identified as "officials" do not provide much reassurance.

Of course, readers of Health Care Renewal would have known that questions could be raised about leadership and governance of these once-revered institutions.  Questions could be raised about the incentives implied by the huge compensation given to the top hired executives at New York - Presbyterian, awarded by a board of trustees that includes some of the leaders of the more prominent failed finance corporations involved in the global financial collapse.  Questions could be raised about the dominant presence of finance leaders and possibly conflicted individuals on the Partners board, and apparent interlocks among Partners leadership and the leadership of the largest health insurer in Massachusetts, which was willing to pay that system so much.

Maybe, instead of lecturing the more lowly among us about our responsibilities to improve health care, the leaders of our previously most august health care institutions need to introspect more about their own responsibility to address the metastasis of "greed and incompetence" in health care from the financial sector.

Turning Patients into "Dialysis Dollars"

As we have discussed in previous posts (here and here), prior to a US Supreme Court decision in 1975, physicians (and other professionals) were left free to set up and enforce their own codes of ethics. Until about 1980, the US American Medical Association (AMA) stated,

• "in the practice of medicine a physician should limit the source of his professional income to medical services actually rendered by him, or under his supervision, to his patients"
• "the practice of medicine should not be commercialized, nor treated as a commodity in trade"

The Supreme Court decision was widely construed as meaning that any promulgation by US professional organizations of ethical regulations that constrained any economic practices of their members was a violation of anti-trust laws. Thus, in 1980, the AMA dropped their prohibitions against the commercialization of medicine, and nobody, it appeared, tried to change the anti-trust law whose provisions the court interpreted.

A vivid example of how physicians and patients may be caught in the cross-fires among health care corporations in this brave new era of commercialized health care was provided by a recent report in the Denver Post:

News that Fortune 500 company DaVita Dialysis is moving its headquarters to Denver socked its competitors like a punch in the gut.

To its rivals, the kidney-care giant is a bully armed with high-powered attorneys who use lawsuits as tools to intimidate.

DaVita executives counter that they are simply strong competitors — they act as aggressors only when doctors or nurses or other dialysis companies break promises and double-cross them.

Either way, a string of DaVita-filed lawsuits around the country — with two major battles boiling in Denver and Colorado Springs — shed light on the ruthless competition over dialysis patients in an industry that costs Medicare alone more than $8 billion per year.

For years, DaVita's competition in Colorado's two largest cities was almost nonexistent.

The mud began to fly last year when the second-largest group of Denver kidney doctors, called nephrologists, ended their exclusive affiliation with DaVita and partnered with a Massachusetts dialysis company entering the Denver market. Near the same time, the largest nephrology group in Colorado Springs dumped DaVita in favor of Liberty Dialysis, which recently opened two dialysis centers in the city.

DaVita quickly sued doctors in both cities, plus a nurse battling breast cancer who quit her job at a DaVita dialysis center and took one with Liberty.

The hostility between the companies is so intense, it's seeping down to the patients.
'With everything that is going on, you feel like you are becoming sort of a dialysis dollar,' said Julie Estes, a 53-year- old Colorado Springs woman who spends three days a week, four hours at a time, hooked to a dialysis machine in order to stay alive.

DaVita says it 'paid millions' in 1998 to the doctors of Western Nephrology in Denver to retain them as medical directors of six dialysis centers in the metro area for 10 years. The doctors signed non-compete agreements, promising not to join forces with DaVita rivals or steal any of the California-based company's nurses.

Patients are free by law to choose any dialysis center they want. But dialysis companies bank on the fact that snagging the most popular kidney doctors in town to serve as medical directors of their centers will bring in the most patients — and the most dollars.

Every dialysis center is required by federal law to have a medical director to oversee the care of patients and the water purification system used to flush toxins from the blood of people with failing kidneys.

It's a side job, separate from a nephrologist's practice, that some estimate takes only a couple of hours each week. Companies and doctors declined to say what salary comes with the job, but estimates range from $20,000 to $200,000 per year depending on the competitiveness of the market.

After 10 years with DaVita, when they believed the non-compete agreement was about to expire, Western Nephrology doctors began making plans to become medical directors of shiny-new American Renal Associates dialysis centers opening in Denver with a flat-panel TV and heated, massage chair at every dialysis station.

Four of the new centers are within 3 1/2 miles of existing Da Vita centers. The non-compete agreement that Western Nephrology doctors had signed for DaVita prohibited them from having relationships with competitors within a 35-mile radius.

DaVita contends in its lawsuit that it found out about Western Nephrology's 'secret campaign' because the dialysis company they were working with applied for Medicare billing numbers for five new centers in the Denver area.

In its counterclaim, American Renal Associates accused DaVita of violating federal antitrust law — the company had controlled at least 80 percent of the Denver market. DaVita lagged in updating its dialysis centers until competition was imminent, according to court records. And the claim accused DaVita of 'filing legal actions that are objectively baseless' merely as an 'anticompetitive weapon.'

"Ruthless competition," "lawsuits as a tool to intimidate," "double crosses," flying mud, patients who feel like "dialyis dollars," non-compete agreements, medical directors paid according to "the competitiveness of the market," "secret campaigns?" - is this any way to run a health care system?

As Dr Arnold Relman pointed out (see our previous posts linked above), through the 1960s there was some consensus that health care does not function like a pure market, partially because patients cannot function like steely-eyed consumers. They do not have enough information about the benefits, harms and costs of their possible choices. They have trouble understanding the ambiguity and uncertainty of the medical context. And most important, they may not be capable of the cold cognition the free market model requires, since they may be dealing with choices whose potential outcomes prompt extreme emotions, and in many cases, they may be too frightened, sick, or cognitively impaired to make fully rational choices. In particular, patients with end-stage kidney disease, requiring dialysis to maintain life, seem very different from some ideal, coldly cognitive consumers. So what in the world are they doing caught up in these sorts of disputes?

I submit that real health care reform ought to help physicians and other health care professionals renew their professionalism, and put the provision of health care (and health education and clinical research) back in the hands of people who view these activities as callings, not purely as ways to get rich. Meanwhile, when you are a patient, be prepared to be treated merely like a source of revenue.

PS - Please note that, as we have posted before, the new US "czar" for health care reform is a former member of the board of directors of DaVita.

Why Did US Physicians Give Up Their Ability to Enforce Their Own Professional Standards?

In his recent review of Dr Ezekiel Emanuel's book, (Healthcare, Guaranteed: A Simple, Secure Solution for America,) Dr Arnold Relman, Editor-Emeritus of the New England Journal of Medicine, discussed the history of the deprofessionalization of American physicians.

The behavior of US physicians has been changed by the commercialization of medical care, and this too has increased costs. US medical practice has traditionally relied on fee-for-service, which has always given it some of the attributes and incentives of a business. However, the American Medical Association (AMA) maintained for many years that medical practice was a profession, not a business. The AMA's ethical guidelines therefore advised physicians to limit their income to reasonable earnings from the care of patients, and to refrain from advertising and from entering financial arrangements with drug and device manufacturers. Those restrictions were lifted after the US Supreme Court decided in 1975 that lawyers, and by extension members of other professions, including physicians, are engaged in interstate commerce and therefore must be subject to antitrust law (from which they had largely been exempt).(1)

This decision had an enormous effect on the medical profession, but its consequences have received relatively little public attention. Although the courts did not initiate the commercialization of medicine, they certainly accelerated it and gave it legal justification. In 1980, after medical organizations lost some costly antitrust trials, in which they were accused of such offenses as limiting doctor fees or denying staff privileges, the AMA changed its ethical guidelines, declaring medicine to be both a business and a profession. This lowered the AMA's barriers to the commercialization of medical practice, allowing physicians to participate in any legal profit-making business arrangement that did not harm patients.

Nearly a half-century ago, Stanford economics professor Kenneth Arrow, later a Nobel laureate, convincingly argued that medical care cannot conform to market laws because patients are not ordinary consumers and doctors are not ordinary vendors. He said that sick or injured patients must rely on physicians in ways fundamentally different from the price-driven relation between buyers and sellers in an ordinary market. This argument implied that, contrary to the assumptions of antitrust law, market competition among physicians cannot be expected to lower medical prices. And since physicians influence decisions to use medical services far more than patients do, the volume and types of services provided to patients—and hence total health costs—need to be controlled by forces other than the market, such as professional standards and government regulation. But Arrow's argument was largely ignored in the rush to exploit health care for commercial purposes that ensued after the passage of Medicare and Medicaid in 1965.(2)

Writing about the decline of physicians' professionalism in 2007 [ Relman AS. Medical professionalism in a commercialized health care market. JAMA 2007; 298: 2668-2670. [link here) ], Dr Relman had briefly alluded to the effect of the 1975 Supreme Court decision, (see our post here):

The law also has played a major role in the decline of medical professionalism. The 1975 Supreme Court ruling that the professions were not protected from anti-trust law undermined the traditional restraint that medical professional societies had always placed on the commercial behavior of physicians, such as advertising and investing in the products they prescribe or facilities they recommend. Having lost some initial legal battles and fearing the financial costs of losing more, organized medicine now hesitates to require physicians to behave differently from business people. It asks only that physicians' business activities should be legal, disclosed to patients, and not inconsistent with patients' interests. Until forced by anti-trust concerns to change its ethical code in 1980, the American Medical Association had held that 'in the practice of medicine a physician should limit the source of his professional income to medical services actually rendered by him, or under his supervision, to his patients' and that 'the practice of medicine should not be commercialized, nor treated as a commodity in trade.' These sentiments reflecting the spirit of professionalism are now gone.

It seems to me that Dr Relman has elucidated one of the "missing links" that help explain the current sorry state of physicians' core values, and the broader continuing health care crisis. I am amazed that this bit of history seems to have been so thoroughly forgotten. Dr Relman did write about it before 2007, but in publications that few physicians and other health care professionals were likely to see. Other than Dr Relman, almost no one writing in the medical and health care literature seems to have interest in this issue. (It has been discussed in the Journal of Health Politics, Policy and Law, and the Stanford Law Review by M. Gregg Bloche, but these unfortunately also could have easily been missed by nearly all physicians and health care professionals.) So we have another example of the anechoic effect.

Yet in my humble opinion, every physician and health care professional ought to know that the profession once foreswore the commercialization of medical practice, but gave up on its ability to police its own conflicts of interest after the US Supreme Court decided that professionals are subject to anti-trust law.

But knowing this important bit of history raises more questions than it answers:

• The Supreme Court decision apparently involved interpretation of law, not the constitution. Therefore, why didn't organized medicine pursue a change in the law that would allow physicians to continue to enforce their traditional professional values?
• The Supreme Court decision was primarily directed at lawyers, not physicians. Since the decision, to my knowledge, the law profession has maintained strict rules about conflicts of interest. (For example, no legal CME is sponsored by corporations whose products they seek to have the attendees favor.) Why did the decision wreck physicians' but not lawyers' abilities to regulate their own conflicts of interest?
• The Supreme Court decision only affects US law. Why have physicians in other countries also abandoned their traditional values about commercial entanglements?
• Why did this application of US antitrust law have such significant effects during an era when antitrust enforcement in health care was generally declining? (Insurance companies and hospitals that dominate local markets have not feared antitrust enforcement.)
• Why did only Dr Relman and Prof Bloche seem to care about this up to now?

Inquiring minds want to know.... And answering these questions might bring us back on the path of true medical professionalism.

Hat tip to Merrill Goozner in the GoozNews blog.

References (from Relman)

1. Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975).

2. Kenneth J. Arrow, "Uncertainty and the Welfare Economics of Medical Care," The American Economic Review, Vol. 53, No. 5 (December 1963).