Tag: For-profit Medicine

Divided Health Care Nation

Rapid change is engulfing health care across the United States, but the strategic responses of organizations to these changes are sharply divided. In the shift that has been broadly shorthanded “from volume to value,” many organizations across the country are deeply engaged in moving toward “value” by building new partnerships, affiliations, capacities and economic structures, striving to bring better health and health care to more people for less money.

At the same time, some organizations are using the chaos and fluidity of the moment to double down on the old way, aggressively seeking greater volume reimbursed at higher rates. For now, within their regions, some of these organizations appear to be “winning” at the game, building greater market share and margin and increasing their budgets. But is this in fact the wisest strategy to follow in the long run, not only for their institutions but for the good of their missions and the people they serve?

Moving toward Value

Virtually all serious attempts to answer the question, “Why do we pay so much more for health care in the United States?” have pointed to the competition for reimbursements under a commodified, insurance-supported fee-for-service system. If what you pay for is items off of a list, what you will get is lots of items, especially the more profitable ones. That’s how we end up with a system in which waste (stuff we could simply do without) is pegged by repeated studies at one-third or higher.

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On Corporate Medicine: A Response To Brian Klepper and His Reply

Maggie Mahar, the former Barron’s journalist, author of Money Driven Medicine, and Health Policy Fellow at The Century Foundation and frequent THCB contributor chewed on my [Brian Klepper] piece about Walgreen’s recent acquisition of worksite clinic firms, and wrote a strong response outlining why she believes that for-profit medicine should be abandoned in the US. I urged her to publish that comment here as its own post. It is below, followed by my reply.


I agree with 90 percent of what you say—particularly when you write so eloquently about what has happened to primary care. I believe that we need to make primary care far more attractive to doctors. One way to do it would be to forgive all med school loans for students who choose to go into primary care (or become family doctors, pediatricians or gerontologists), especially if they agree to work, for a few years, in areas where they are most needed.

But when you suggest that corporate medicine is the answer, I have to disagree. In the early 1980s, Paul Starr published his Pulitzer-prize-winning book The Social Transformation of American Medicine. At the end of that book, he predicted the “The Coming of the Corporation” :

“Those who talked about health care ‘planning’ in the 1970s now talk about health care ‘marketing’ . . . . “ Starr wrote. “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 at 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. The restraint exercised by those ideals now grows weaker. The ‘health center’ of one era is the ‘profit center’ of the next.”

Starr went on to explain that because the U.S. had failed at national health care reform , “The failure to rationalize medical services under public control meant that, sooner or later, they would be rationalized by private control. Instead of public regulation, there will be private regulation and instead of public planning, there will be corporate planning.”

The goal driving that planning, Starr suggested, would no longer be better health, but rather “the rate of return on investment.”

So when you tell us that: “Wecare clinic was found to produce a 3.1:1 hard return on investment,” I have a question. Where did that return go? Was it plowed back into our health care system, in order to provide access to high quality care for Americans who cannot afford care? Or did it go to shareholders?

I have no objection to investors making money. I, myself, am an investor. But there are some sectors of our society where I wouldn’t try to turn a profit. (I don’t invest in war, cigarettes, or the healthcare industry—in the latter case, because I know far too much about the industry.) Given the fact that our health care system is in shambles—and that we cannot afford to provide decent care for millions of Americans– I do not think that this is the time to try to figure out how make a profit on the sick and dying. Any savings that can be achieved by providing more efficient, more effective care should go back into the system so that we can provide better care for more people.

Like many others, I believe this is the time to find a public solution to a pubic problem.  We have had enough of private-sector health care planning, with drug-makers deciding what drugs should be developed—and how much we should know about them. We have had enough of for-profit insurers deciding who should be covered, and who should be left by the side of the road. We have had enough of unscrupulous surgeons taking kick-backs from device-makers who tell them which devices to implant in our bodies. Meanwhile, the same device-makers conceal information about defects in those devices, leading to many deaths. They are sued, but they view the cost of the lawsuit as simply “part of the cost of doing business.” The profits they have made on their over-priced products more than cover the expense.

Since the 1980s, we have experimented with “corporate medicine, ”and discovered that Starr was right. The goal driving for-profit medicine is always “the rate of return on investment”—not better health. The history of our for-profit hospitals is a long, sordid tale of corporate crime. Time and again, the most successful investor-owned hospitals have bilked taxpayers, bribed doctors and gulled investors. In the most harrowing cases, for-profit hospital resorted to performing hundreds of unnecessary heart operations while another kidnapped patients. (I devoted an entire chapter of Money-Driven Medicine to the history of for-profit hospitals)

This is why so many of us want to see evidence-based guidelines drawn up by panels of physicians and researchers who have absolutely no financial interest in the outcomes.   Health care is a public good, and as such, should be overseen by non-profit organizations overseen by a government organization that reviews quality and is accountable only to the public.

We have tried experimenting with for-profit medicine, for-profit public schools and for-profit prisons. In each case we have failed.

Why? Because when a for-profit corporation tries to deliver a public service, inevitably, there is a conflict of interest. By law, a corporation’s first obligation is to make a profit for its shareholders. Its customers come second. It is not supposed to lie to its customers—but caveat emptor (buyer beware) always applies.

As economist Rashie Fein once said, “We live in a society, not just in an economy”.
Corporations, on the other hand, live only in the economy. And properly so: that is their mandate.

Sometimes corporations tells us that they want to play a role in shaping society. (So Enron built a football stadium, Philip Morris gave scholarships to Hispanic women; Pfizer would have us believe that it is a philanthropist) When they do that, it’s time to take a close look at the corporation. Chances are they are hiding something. (I spent nearly 20 years of my life covering Wall Street, mainly for Barron’s, and so I know, all too well, that you can never be too cynical about the motives of a publicly traded corporation.)

Now, of course, some will argue that private-sector corporations are always more efficient than non-profits or government. As you put it: “No flying by the seat of your pants if you’re a corporation.” And you go on to suggest that this is why we should believe that corporate medicine will always use the newest, best medical evidence available when establishing
guidelines for care.

If corporations are that intelligent then how does one explain the entire U.S. auto industry? (Forget about the cost of health benefits. The industry seems incapable of designing a competitive car—incapable even of forecasting the oil crisis, and the need for smaller, more efficient cars.)

If corporations never “fly by the seat of their pants” how, then, does one explain an operation like Enron, that made up the rules for its business as it went along. Or WorldCom? Or Merrill Lynch? Think of the waste and fraud in corporate America that begins with obscene executive compensation and ends with insiders selling their shares just months before a stock tanks.

Then there is Walgreens. Its CEO earns $9.780,000– substantially more than most primary care doctors , though I would venture to suggest that his job is no more difficult than that of a busy family practitioner. Most of his compensation comes in the form of stock and stock options. So when a primary care operation produces a hefty return on investment in Walgreen’s clinics, the doctors who provide the care are helping to boost Rein’s salary. I would suggest that there are be better ways to invest those savings in our health care system—perhaps by funding SCHIP so that all children in the U.S. have access to health care.

Further, Business Week reveals that Rein has a connection to 10 members of the Walgreens board. Long, hard experience has taught us that when the CEO of a company has close ties to board members that CEO (along with the board members) are likely to be over-compensated. The CEO’s power goes unchecked, and too often, absolute power corrupts.

Meanwhile, Walgreen’s stock is not doing well—down 20 percent for the year. No doubt management is concerned about this. I wonder how they will use their clinics in order to try to boost their share price?

Then, there are complaints from shareholders about how the company is being run. This from comments to the Wall Street Journal’s health blog: “At Walgreen’s pace of new store openings, it will blow away its goal of 7000 stores by 2010 (by about 400 stores)…I say GREAT, but at what cost for its investors and the company??? We just had a “heart attack” in the stock price.. EASE UP ON THE NEW STORE CONSTRUCTION… the marketplace can’t handle it yet. When a new store opens and it takes away form existing Walgreen’s stores, but does NOTHING for the district’s income, what does that tell you??? Hmm, maybe due diligence (read as: better market studies) should have been done BEFORE that money was spent. I figure it takes about $6million per new store opening, I wonder what would happen if you add a billion or two to the bottom line…”

The Wall Street Journal reports that as generics replace prescription drugs, Walgreens is having a hard time making money on generics– in large part because Wal-Mart keeps prices low. Is Walgreens a desperate company that has set out on an ill-fated building boom while simultaneously branching out into a business that it knows nothing about—primary care? I don’t know enough about the company or the stock to know. But it certainly seems a possibility. (Reins, btw, is a relatively new CEO—came on board a year or two ago.)

Finally, Brian, I very much like the idea of work-site clinics. And I’m sure the clinics you are personally involved with are doing their best to deliver rational, evidence-based medicine. But even so, to avoid conflict of interest these clinics must be not-for-profit.  As a society, we can’t afford to try to make a profit on a health care system that is going broke.

But I would add that work-site clinics do little to address one of the biggest problems in our health care system—lack of access to care. Most of the people who are uninsured don’t work for corporations that are wealthy enough to set up a work-site clinic.

We need neighborhood clinics—in inner-city neighborhoods, and in desperately poor rural areas. There is, of course, no profit to be made on these clinics. And this is why we don’t have them.

Brian responds:


Thanks, as always, for your thoughtful response to my post. All the issues you raise are important. Let me try to address them.

First, and most importantly, I believe that if you’ll re-read my column carefully, you will find that I do not advocate for further corporatization in health care, but simply argue that it is irresistible and will occur. If you inventory my writings over the past decade, you will discover that, like yours, I have focused a great deal on the corrosive effects of financial conflict. I am acutely aware of the corrupting influence of special interests in health care, and have publicly stated that we won’t fix health care in America until we first fix America by eliminating the ability of special interests to shape policy to their own ends by buying control of Congress and the legislatures.

When I closed down the Center for Practical Health Reform early in 2007, it was because I realized that, under the current system, it is impossible to effect meaningful policy change. In 2006, 16% of the $2.5 billion in lobbying dollars spent on Congress (>$55 million per Congressional representative) were from the health care industry, and almost half of that was from the supply chain sector. Health care is the largest part of the economy – one dollar in seven and one job in eleven – and it has translated that strength into an ability to shape policy. Until the non-health care business sector, the one group with more heft than health care, recognizes that it is in its interests to galvanize and drive policies that are also in the common interest, it will be impossible to change American health care policy in ways that re-establish stability and sustainability.

While I absolutely agree that corporations are built to act in their own interests, the reality is that America is built on markets and the drive for profits. I believe it is important to face that this is how the system works, and then deal with that. With the possible exception of certain areas of public health – like local public health units – virtually all American health care is now either for-profit or intricately wrapped up in for-profit ventures. To my mind, there are two main problems here. The first is not that they’re for-profit, but that American policy makers have abrogated any sense of a common covenant that requires profit-driven organizations to behave in socially-responsible ways – through transparency, accountability and appropriate contributions to the general welfare – in exchange for the maintenance of a stable environment that allows the pursuit of commerce. The second is that, in our zeal for and attention to markets, we have given short shrift to critical societal functions that are not profitable, at least in the short term. You mention the access issue, true, but the problem extends much further, to our management of public health generally as well as to education, housing, and most other areas relating to social welfare.

Please also acknowledge that financial conflict is not limited to for-profit corporations, but to any group with power it seeks to retain and enhance. As I recently described, the AMA, which formally represents fewer than 30% of American physicians, has effectively “enabled” – I mean that word in the clinical as well as operational sense – the dominance of a cottage industry and kept both efficiency and quality at bay through its cozy relationship with the US government. Nor is it clear that, for example, the not-for-profit Blue Cross and Blue Shield plans, have operated any more in the public interest than their for-profit counterparts at United, Aetna and CIGNA.

On the positive side, the market is now driving many important structural changes that should disrupt the power dynamics of the current paradigm and dramatically improve the way care is delivered and managed. The reconfiguration of primary care is one area, of course, but another is the accelerating influence of data sharing, analytics and data-driven decision support, which all come under the heading of Health 2.0. Justice Brandeis’ comment that “Sunshine is the best disinfectant” is keenly relevant today, because the real value of Health 2.0 will come through unprecedented levels of transparency, performance identification and accountability that have never been available before in American health care. These new paradigms will be the real sources of transformation in health care and hopefully, will have more far-reaching influence into the ways that we allow ourselves to be governed.

The 3.1:1 clinic ROI I mentioned was retained by the client, the City of Port St. Lucie. We encourage our clients to be self-funded for their health plans, because the savings resulting from their investments in the clinic accrue directly back to them, rather than to the insurance company. In this sense, we are advocates and fiduciaries for the patient and the purchaser, and we do not benefit if health care costs more. Our value proposition is linked to initial savings and long term performance that has significantly better outcomes and lower costs than other approaches. Ours is a traditional market play. We hope to succeed by delivering terrific value that is based on a better mouse trap.

Its worth mentioning that, as I described it, the worksite clinic model is really just a medical home that uses the full range of contemporary tools – electronic medical records, claims and encounter data analytics to identify patients with risk and high performance providers, face-to-face condition management, information therapy – to more effectively the full range of health and financial risk. It is well-suited to mid-sized and large employers and coalitions, but would work just as effectively in public health settings or when bundled with insurance products. To be clear, where the clinic is located is a lot less important than how the medical care process is structured and managed.

The problems that we face in health care will require two kinds of fixes. The cost control issues can and will be addressed by the marketplace, where there are financial incentives to create value by improving quality and driving down cost, As you know as well as anyone, most reasons for exploding health care cost are directly traceable to structural anomalies that have been perpetrated by special interests. Over time, the problems they have created have become vacuums, waiting to be filled by new solutions. This is the classical dynamic interplay described by Thomas Kuhn in The Structure of Scientific Revolutions.

But the access issues must be addressed through policy. To my knowledge, America has not made a policy decision based on social-justice in more than 40 years. The last was Medicare, in 1964, when my parents’ generation, who had weathered the Great Depression and World War II, and who had a more generous sensibility than my generation, were entering middle age. I do not know whether, with a change in Administrations and the emerging influence of a younger generation, we can rediscover the more responsible, open-hearted spirit that I used to think of as the source of American greatness. I certainly hope so.

I share your concern, Maggie, that health care and, for that matter, America, has been compromised by unbridled capitalism. Still, I side with George Soros that the problem is not capitalism, but a failure of societies to develop an aware, disciplined regulatory environment that keeps it in check and requires its interests to also remain aligned with the common interest.

This is one of two big challenges. I believe that the market is responding to many of health care’s issues with new approaches that will help re-establish a healthier national health system. The other large question is whether we, as a people, will mature enough to make health care more readily available to everyone within our borders.

I hope this is helpful.


Brian Klepper is a health care market analyst and a Founding Principal of Health 2.0 Advisors, Inc. Maggie Mahar is an award winning journalist and author. A frequent contributor to THCB, her work has appeared in the New York Times, Barron’s and Institutional Investor. She is the author of  “Money-Driven Medicine: The Real Reason Why Healthcare Costs So Much,” an examination of the economic forces driving the health care system. A fellow at the Century Foundation, Maggie is also the author the increasingly influential HealthBeat blog, one of our favorite health care reads, where this piece first appeared.