POLICY: Do No Evil, Part II.

Here’s my editorial in today’s issue of FH.

This week saw more controversy regarding some of the bad boys of healthcare past
and strong hints that some of the healthcare market stars of the present may
have adopted their bad habits. Criminal investigations into United HealthGroup
and ACS are now following The Wall Street Journal story about their
stock option pricing and Bill McGuire’s huge fortune. Now Caremark has been
subpoenaed, too. Those of you with very long memories may remember Caremark in a
previous life getting into legal trouble as a home infusion operation in the
1980s and being a financial disaster as a physician group roll-up in the

Meanwhile, Tenet accepts a death penalty on one hospital and is still
struggling to get out from the malfeasance and its appalling, if not outright
criminal behavior, in Redding, CA, and probably elsewhere. Not that this is the
first time that appalling criminal behavior has been seen from that company,
although it was called NME back when it was kidnapping children into its
psychiatric hospitals.

We won’t do more than mention the name HealthSouth. While they’ve been off
the news lately, it’s worth remembering that the other big hospital chain, HCA,
has paid two of the biggest fines ever for defrauding Medicare, and that the
Senate majority leader’s brother, who happened to be the chairman, had an SEC
investigation mysteriously end in 2002.

So it’s worth asking the question again. Is it just a few bad apples? Or is
the pressure for stock growth from Wall Street incompatible with running a
responsible healthcare company?


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11 replies »

  1. In support of Kaiser

    In a recent LA Times letter to the editor, a reader stated this concerning Kaisers attempt to open its own transplant facility.
    I trusted Kaiser with Ruben’s [her husband] healthcare; I never once thought they [Kaiser] would put cost before patients’ liv

  2. More transparency. Again. This is a business of, above all things, expectations.

  3. If the goal is to provide healthcare to everyone while at least capping the cost at the current spending level of 16% of GDP, I also believe that taxpayer financing is the best approach. With the cost of family coverage in the more expensive metropolitan areas currently the equivalent of $5-$7 per hour (2,000 hour work year), it is too high a percentage of total compensation for any jobs that pay less than $25 or so for an employer mandate to be viable. Just how the necessary taxes are structured can be debated, but I suspect that common ground would not be all that hard to find.
    The more difficult areas are: (1) what role, if any, is there for government in actually providing care, (2) negotiating, controlling or mandating prices, and (3) should there be a one size fits all system or choices with respect to scope of coverage. Personally, I would prefer a good / better / best approach with the “good” plan essentially catastrophic coverage, a sizeable but manageable deductible and somewhat limited coverage scope — for example, no coverage for drug rehab, massage thereapy, chiropractors, invitro fertilization, etc. The taxpayer financed voucher would be sufficient to allow people to buy this policy. If they wanted the better or best plan, they could pay the difference from their own resources. All plans would be offered and administered by private insurers which is the way the Federal Employee Health Benefit system works now. Some call this approach premium support, which I think is a better fit with our national culture.
    As I’ve said before, there is plenty that can be done, in my opinion, to take cost out of the system incluing electronic medical records, health courts to replace the current malpractice litigation system, QALY metrics to ration end of life care, and improved price and quality transparency.
    Finally, I think any system can do a reasonably good job of providing so-called well care. It is the care related to catastrophic events and end of life care which are consumed by the 5% of beneficiaries who account for 50% of the cost under most systems that is the challenge. People affected by these events do not want to be kept waiting for months to see a specialist or for surgery. It would be preferable to just deny futile care at the end of life if it can’t pass a QALY standard rather than create roadblocks that force patients to wait for treatment far longer than they should have to wait.

  4. Ok, then let’s compare return on assets. And just what assets do the health insurers have besides the lavish headquarters, so that the employees can sit around and decide how best to deny coverage to the people they insure.
    Healthcare is not a commodity like cars and computers. You can’t go to China, Korea, or anywhere else to compare prices for health care. You’re stuck in your own community
    As long as the US mandates universal healthcare, but doesn’t require everyone to contribute to the system, healthcare costs will continue to skyrocket out of control.
    Healthcare is no different than police and fire protection. We may never need the services of the police or fire departments, but we pay taxes to support the infrastucture established to provide those services to society.
    Everybody needs healthcare, and everybody benefits from the healthcare infrastructure established in the US. And everyone should have to pay for it. The rest of the world understands that, why is it the US hasn’t figured it out yet?

  5. Marc, as I have pointed out in the past, profit margin on sales is not the correct way to compare the profitability of companies in different industries because of significant differences in capital intensity (ratio of sales to assets). Oil exploration, development and production is a far more capital intensive business than health insurance. Exxon’s free cash flow (after all of their reinvestment in exploration) is astronomical, and my profitability reference was to a complete economic cycle, not one year. In any case, both Exxon and United Health have done very well for their shareholders over time. For the record, the best financial comparison to use in comparing the profitability of companies in different industries is EBIT ROA or earnings before interest and taxes as a percentage of assets.
    In the case of United Health, I believe they insure 29 million lives or thereabouts and are the biggest in the industry. Presumably, they did not get that way by either price gouging or blatantly denying care. While I agree that Dr. Maguire’s stock options (as well as outgoing Exxon CEO Lee Raymond’s retirement package) are excessive, both have done an excellent job in leading their respective companies. I have a lot less of a problem with either of those compensation packages than with, say, former Disney CEO, Michael Eisner, who destroyed value and drove talented people away from the company to the detriment of stockholders for at least the last ten years of his tenure while he, personally, never had a bad year.
    While governments and non-profit hospitals may be very well intentioned in their desire to provide care, that does not mean that they can provide it efficiently or cost-effectively without the benefit of market discipline threatening them with extinction if they cannot consistently satisfy enough customers enough of the time as compared to a competitive alternative.

  6. I think the record shows that the insurance industry is a highly competitive business, and returns on capital over a complete economic cycle are not out of line with the average for corporations generally.

    Last year, Unitedhealth Group, had a profit margin of over 11% with an operating profit of $4 Billion. Contrast that to Exxon which had a profit margin of less than 9%. Admittedly operating profit was significantly higher because their sales are considerably higher.
    At least Exxon reinvests much of its profits into exploring for more oil. What exactly do the health insurance companies do with their profits besides, giving 40% of it to their CEO?
    In the case of health care, I’ll take my chances with anybody whose main goal isn’t to deny me needed care, for the sake of profits.

  7. I guess it’s time for someone to speak up on behalf of the private sector. Is the private sector perfect? Of course, not. However, I think the record shows that the insurance industry is a highly competitive business, and returns on capital over a complete economic cycle are not out of line with the average for corporations generally. Furthermore, if a given insurance company or other private sector provider does not satisfy enough customers enough of the time, it will eventually go out of business.
    I see that Medicare and Medicaid, whose reimbursement rates are even lower than those of private insurers, still cannot control its costs as they continue to escalate far faster than general inflation. Yet, if we had a Medicare for all single payer system, we would be stuck with it no matter how expensive or inefficient it proved to be. While single payer advocates tout lower administrative costs, they conveniently ignore significantly higher provider fraud that persists as a result of lax and ineffective oversight.
    There have been any number of functions previously performed by state and local government that have been outsourced to the private sector over the last several decades in order to save money. Time and again, even after earning a profit and paying taxes, these outsourced services have been delivered to the taxpayer by private companies at a lower total cost than the public sector was previously able to deliver them for.
    Given a choice, I’ll take my chances with the private sector every time.
    That said, I think there is a need for the society to reach a consensus regarding such issues as how much to spend on futile care at the end of life, our approach to malpractice litigation, how to pay for (and reap the cost benefit from) electronic medical records and provide greater pricing and quality transparency to consumers. None of those factors, however, have anything to do with how healthcare is financed or whether we have a single payer system or not.

  8. My question is, why does this come as such a shock to anyone?
    As long as we support a health care system, that relies on health insurance companies, who through mergers and acquisitions, have transformed themselves into hugh oligopolies capable of forcing doctors and hospitals to provide care for ever decreasing reimbursement rates, while the health insurers report record profits, and lower payout ratios, what do you expect?
    And let’s not foget about the US government, which continues to reduce reimbursements for Medicare and Medicaid patients, for the sake of lower tax rates for the wealthy, while at the same time requiring providers to treat all patients whether they are insured or not, or regardless of their ability to pay.
    As long as all the onus continues to be placed on health care providers to reduce cost, while at the same time shifting profits away from where they are needed, health care providers are forced to make up the differences in other ways.
    Fraud and corruption will increase, or even worse, the quality of health care will suffer even more.