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HOSPITALS: Tenet losing independents off the board

Tenet stock is back up to $11.20 at Monday’s close, up from a low of $9.15 a few weeks back when rumors of bankruptcy caused some of the weaker hands (e.g. me–curses, curses) to fold, and the stock teetered towards its all time lows. But the story is not quite over yet. The Street.com which tends to be a shill for short-sellers, but often has nuggets of truth in its analysis, reports that several external directors are leaving the board. The WSJ further reports that one of those directors, ex-Toys’R’Us CEO Robert Nakasone made public a very sour resignation letter:

    The former director said he opposed the selection in September of an insider, Mr. Fetter, to be chief executive. He said he opposed the board’s decision last July to terminate discussions relating to a possible combination of Tenet with a smaller company, which he didn’t identify. But the final straw that prompted his resignation, he said, was the board’s adoption of a 2004 executive-bonus program that could result in big payouts to about 100 executives, including a $2 million award to Mr. Fetter.

    “In 17 years of service on large public company boards, I have never witnessed such a sense of executive entitlement,” Mr. Nakasone wrote. The bonuses might be paid even if financial results this year aren’t any better than those of 2003, he said.

You’ll recall that 2002-2003 wasn’t a banner year for Tenet or its stock price.

Apparently Tenet thinks that Nakasone is just a board member who was disruptive in meetings (and to be fair Bob Kerrey, 9/11 Commision member and Tenet Board member agrees with them). Of course, you can be disruptive in more ways than one. And publicly calling attention to multi-million dollar bonuses for the CEO, when things look bad financially might be seen as a little “disruptive”.

PHARMA: Oncology drugs seeing effect of payment changes

From the THCB’s Sacramento bureau, Matt Quinn has been following the changes in reimbursement for oncologists. He notes that although last week Genentech’s income rose 17%, not all is well at the onco-pharma shop. Matt writes:

    Change monetary incentives and utilization changes… how unexpected (!). Rituxan and Herceptin represent a big piece of Genentech’s revenue. Avastin (and other drugs that choke off blood vessels from tumors) haven’t proven to be the "silver bullet" that they were once thought to be. Genentech’s future is heavily reliant on them as well…as the WSJ notes:

    "At the same time, however, sales of another Genentech cancer drug (Rituxan) appeared to fall short, a situation company executives attributed in part to "initial caution" by physicians following a change in Medicare reimbursement practices for cancer drugs."

    "Officials of Genentech, South San Francisco, Calif., acknowledged some weakness in Rituxan sales. Ms. Potter blamed lower inventory levels at drug distributors, while also noting changes in Medicare-reimbursement practices. Under the new rules, doctors aren’t any longer able to profit by prescribing cancer drugs."

POLICY: News just in…..Bill Frist is connected to a hospital chain

OK, so its not really news, but Senate Majority leader Bill Frist has played the gallant heart surgeon for a very long time, and has had clear sailing for many years despite the fact that HCA (or as it was known Columbia/HCA) has both had a disreputable past, and continues to make money off Medicare. Given his role in health care in the Senate the fact that his father founded the company, his brother is Chairman and he owns millions of $$ of its stock, seems to have gone completely unnoticed.

So why is it coming up now? Malpractice is the answer. HCA owns a malpractice insurer, which will benefit (as will HCA) if malpractice awards are limited. A pro-lawyer consumer group has accused Frist of not being as disinterested as he claims to be in HCA’s dealings. It’s odd that it’s this little piece of Frist’s HCA dealings which is proving controversial when last December he helped shepherd the Medicare bill through the Senate that will greatly improve the Medicare funding stream for all hospitals, including of course the nation’s largest hospital chain — HCA.

QUALITY: Are we getting our money’s worth?

On the very day that a fascinating article confirms that high spending does not equal high quality overall care, Pfizer-sponsored doc Mike Magee has a new presentation out based on the industry report which suggested that every dollar spent on health care returned several dollars back to society. THCB regulars will remember me losing my cool over the methodology and PR behind that report. Incidentally the PR was put together by the same actors (and I mean that literally) who were involved in faked "news releases" that promoted the Bush Medicare bill.

But there is the tacit acceptance in healthcare that more technology is better, and similarly that more specialist-based care required to use that technology is better. There’s never really been an answer to Larry Weed’s question — "if the radical prostatectomy rate in Denver is 3 times what it is in Salt Lake City, should you move to Denver to get your cancer taken care of properly or should you move to Salt Lake to avoid unneccessary surgery."

However, for the first time I’ve seen, someone has now come out and answered the question. And of course the someones are the folks from Dartmouth, who’s leader and guru Jack Wennberg really deserves much greater recognition for his pioneering work in area practice variation.

For many years it has been known that in some states Medicare (and by extension) other payers, are spending more, by a factor of up to three, on similar populations than in other states. This Wennberg presentations from 2000 shows that spending on patients in the last 6 months of life varies dramatically, with South Florida’s costs being up to three times those in Minnesota. Now Wennberg’s colleagues Katherine Baicker and Amitabh Chandra have a new Health Affairs article which shows that there is at the least an inverse relationship between spending levels and general care quality measures. Their conclusion is pretty brutal:

    Higher spending is associated with lower quality of care…..These relationships are statistically significant: Spending is not merely uncorrelated with the quality of care provided. Exhibit 1 quantifies the relationship between an increase in spending of $1,000 per beneficiary (roughly the rise in average spending from 1995 to 1999) and the twenty-four individual quality measures, as well as end-of-life care and patient satisfaction……The effect of increased spending on fifteen of the measures is estimated to be negative and statistically significant, and there is no statistical effect on the remaining nine. The first row demonstrates that a state spending $1,000 more per beneficiary dropped almost ten positions in overall quality ranking (p < .001). Similarly, states spending $1,000 more per Medicare beneficiary had beta-blocker usage rates at discharge that were 3.5 percentage points lower (p < .02), and mammography rates that were 2.1 percentage points lower (p < .01) than the average usage in 2000.

They can’t overall prove that commonly accepted quality processes, such as prescribing of beta-blockers and ACE inhibitors for post-MI patients, are not being followed because spending is higher, and in fact it’s probably circular, as the patients end up back in the hospital because their follow-up care wasn’t good. But if they can’t show the cause, they certainly point out the striking collinearity. And it’s what the Enthoven’s of the world have been saying forever–poor quality care costs more money. Why? Well among other things there is of course the incentive that performing heroic interventions at the last moment is much better rewarded than good quality primary preventative care. And of course that is related to the greater pre-ponderance of specialists (as a proxy for expensive technology), which the article says is responsible for 42% of the difference in spending.

No one is going to pretend that this will be easy to change. We have a structural preponderance of specialists and a Medicare payment schedule that continues to favor increased reimbursements for procedures on the very sick rather than improving care processes for the near-sick. (To be fair MedPAC has been advising changing this for some time). And we have GOGME calling for more specialists in the future. Plus, if you hadn’t noticed, specialists make a heck of a lot more money than generalists, so why would a smart young doc become a generalist?

But this research is a clarion call for the improvement of care processes and evidence-based medicine. And it is a counter-weight to ill-informed trumpeting of the benefits of technology from health care industry groups, who should be spending much less on their PR and more on helping clinicians improve the quality of the care they deliver. In the meantime, if you intend to get old, move to New Hampshire.

PHARMA: The re-import battle that will not die

Surely big pharma can put together an organized retreat on this re-import issue. All they have to do is allow the FDA to announce that they will allow imports, have them promise to report back on how some time after November, and take this issue off the table. As I’ve said before, it’s just not a big financial deal for them right now, and probably won’t be for a while. But instead they insist on trotting out a case that no one other than they and the Surgeon-General believes. Did they not read these polls showing 79% of seniors disapproving of their position? I’m sure my friends at Harris will be happy to share more results with them for a small fee!

POLICY: Health care lobbyists pay up, get their money’s worth

In a recent study originally in JAMA, it was shown that health care companies put $237m into lobbying in the year 2000. 2000 was you may recall the year of a somewhat controversial and close election. Of the money

    Drug companies and medical supply companies together spent $96m. Physicians and other health professionals, such as nurses, spent $46m, hospitals and nursing homes $40m, health insurance and managed care companies $31m, and disease advocacy and public health organizations spent $12m. During the study period, 1997-2000, spending on lobbying by health professionals grew by only 10% compared with 26% by other organizations.

Given that the recent Medicare bill returned big increases in Medicare fees (or at least overturned planned reductions) for both physicians and hospitals, increased Medicare payments for health plans, and of course added billions in potential new government revenue to pharma companies, I’d say the money was well spent.

OK, so that’s cynical, but the current state of US campaign and electoral financing is that all politicians need money, mostly for TV advertising. Those who contribute get their issues heard. And the health care industry is merely doing the logical thing.

HOSPITALS: Emergency departments and how hospitals make money. With UPDATE late afternoon 4/6/04

There’s a very interesting new(ish) and counter-intuitive web-only article out in Health Affairs from USC and RAND health economist Glen Melnick about emergency department (ED) capacity in California. The conventional wisdom is that emergency departments at hospitals are flooded with the uninsured, they on average lose money on their patients, and the prevailing trend is for the hospitals to close their EDs if they can get away with it. Melnick’s team looked at a decade’s worth of data from the state and found that:

    ED capacity, measured in terms of beds, expanded 20 percent over the twelve-year period, while the population rose 16.3 percent and visits increased 13.4 percent. As a result, ED beds per 100,000 population grew over the period. . . the percentage of hospitals with an ED at the beginning and end of each of the six-year periods. . . fell only slightly.

Although the total number of EDs declined, most of those closings were by-products of total hospital closings rather than specific closings by hospitals getting out of the market. So why was the conventional wisdom wrong? Not because hospitals made money on their ED “outpatient” visits–they lost money on their EDs on average. How come they then weren’t closing EDs in droves, with appalling consequences for access to health services for the poor and the availability of emergency care for all of us?

Two main reasons. The big hospitals that couldn’t politically afford to close their EDs because they are a major source of outpatient care in their communities (poster-child here being LA County of course) received enough money via the DSH program in Medicaid to stay alive. The rest of them were making so much money through providing inpatient services to the people admitted via the ED which accounted for 40% of all admissions, that they could afford to run the ED as a loss leader. And of course, though it’s politically incorrect to say it, hospitals have the ability to discover the insurance status of those coming in the ED in advance of admitting them to an inpatient bed.

In other words, the ED is being used as a quasi-screening program. Hospitals run these screening programs all the time trawling for people in the community who might legitimately need their services. CPM is well regarded consumer marketing company that helps them do just that. Hospitals make so much money on admitting a well-insured patient for an invasive procedure that it’s worth the cost of screening many “negatives”, in say cardiology, many times over if it generates a well-paying “positive” admission. Of course hospitals are also interested in reducing their levels of bad debt from non-paying ED patients, and this delicate balance of providing care to the needy and at the same time getting hold of the well-paying admission is being played out across the country every day.

Interestingly enough, several other loss-leaders also exist in the hospital world. As this article makes clear, hospitalists don’t generate enough fees to cover the cost of employing them but they improve the throughput of a hospital by getting DRG-based patients to discharge earlier, and increase admissions by improving the lives of admitting physicians. So overall hospitalist programs improve the hospitals bottom line and so are growing. So like the ED situation, any one aspect of the economics of a hospital must be assessed in the overall scheme of how hospitals make money. And the way hospitals make money is by filling their key service lines with patients that need services and have decent insurance to pay for it.

UPDATE: ED doc Doug Evans points out to me that the response article to the Melnick study from ACEP President Wes Fields shows that most of the bed growth related to ED admissions is in the wealthier suburban hospitals, while the inner city hospitals have EDs that are increasingly over-crowded and offering poor primary care. Ambulance diversions and other mal-effects of ED overuse are on the rise according to Kellerman, Duaner, and Siegel. None of this means that, given the hand that they’ve been dealt, hospitals shouldn’t try to make money via their EDs. It also doesn’t mean that we ought to have a health “system” that doesn’t provide insurance coverage to 15% of the population and dumps that care on a handful of inner city hospitals. I think Melnick agrees.

INDUSTRY: Consolidation in the health care sector

Today looks like a big day for more consolidation. Big drug chain CVS is getting bigger by buying part of the Eckerd chain owned by JC Penny. The other part is being bought by Canadian chain Jean Coutu Group.

In the health plan sector Oxford Health Plans is up 10% up on strong rumors that it will be bought by Wellchoice, the for-profit company that used to be Empire Health Plans, the New York City Blues plan. This is an interesting one, as it may be the first time that a Blues plan has gone outside the Blues system for an aquistion. Almost every other Blues plan has grown by aquiring other Blues, with the Anthem/Wellpoint merger being the latest example.

PERSONAL/QUALITY: Knee surgery update

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So I had arthroscopic surgery at a Healthsouth facility from a Brown & Toland surgeon on Friday. The admin staff and the nursing staff were superb, and the majority of my information from the physician’s office had in fact got over to the surgi-center, so there was no need for me to repeat everything. They also allowed me to not pay anything up front, as I explained that I thought my previous office visits and MRI would take up all my deductible and out of pocket. I even have a new MSA (should be HSA) card from the "MSA Bank" which I should be able to use to make those payments tax-free. So I am now one of those health care consumers I’ve been warning you about!

The surgery was in some ways rather fun, particularly as it was minor enough that I was able to be woken up after a quick general anesthetic and was able to watch the monitor as it happened. I could see a huge drill blasting the odd bit of white scar tissue, and although there was a cloth barrier stopping me from seeing the surgeon, I was even able to get the nurse to bring it down by joking that I was watching a tape from another surgery. But there he was slicing/drilling away, and describing to me what he was doing. I’ve since told several people about this but none of them seemed to be anything other than queasy.

The most amazing thing is that although I had a couple of Percocet in the facility, I have taken none of the Vicodin I thought I’d need over the past 48 hours. The knee is pretty swollen, but I can already walk OK–it’s stiff but not painful. Hopefully in a couple of weeks I’ll be better than before. I’ll keep you in touch, but going through this experience is always interesting for those of us in the health care business who don’t often see things from the "business" end!

By the way, if you don’t know the history, the surgery was follow up to much more significant knee surgery 2 years ago when I had ACL/PCL grafts following a violent snowboarding accident.

PERSONAL: Back on the slab

By the time most of you read this, I’ll be on the table having yet more knee surgery (An arthroscopy to repair cartilage and scar tissue following my ACL/PCL repair 2 years ago). I’ll report back Monday about how it went, and hopefully I’ll get a last snowboarding run in before all the snow melts.

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