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Corporate Medicine - Hospital licenses

Revising the regulations


By the end of the first week in August 1997, three weeks after the FBI raids Columbia/HCA's Richard Scott and Vanderwater had been fired. Thomas Frist had been appointed as chairman. Frist immediately claimed that he had been unhappy with the the way that Richard Scott had been running the company. He indicated the practices he would be changing. In doing so Columbia/HCA tacitly admitted those practices and policies which had been so dysfunctional and had caused the problems. Like opponents in the USA I had been writing about them since 1992. The fraud investigation is of course only the tip of the iceberg, the objective manifestation of deeply entrenched patterns of thought and of practices which impact on patient care. No one has bothered to point out that Frist was chairman of HCA in the years when it too indulged in fraud and reached large settlements with government authorities. The DAY ONE video exposed these practices and the consequences for care in June 1993.

I have been at some pains to indicate that it is illogical to drive health care with dysfunctional forces and then bluff ourselves that the anticipated consequences can be controlled by regulation and policing. Regulations are however necessary and should be as effective as possible. I was aware that changes were being made to the regulations controlling private hospital licenses in Queensland. I took the opportunity to use Columbia/HCA's tacit admissions to restate my concerns and indicate the changes which might have some prospect of controlling corporate dysfunction.

In practical terms any regulations which are both effective and which can be enforced will impact on corporate profits. Without these practices corporations would not make the profits which shareholders expect. It is most unlikely that the corporate stakeholders "advising" the minister in regard to licenses would have permitted this. In a corporatist society they call the tune.




1. Market Driven Reform in Australia
2. Our leaders must confront the consequences of Market Driven Reform
3. Closed minded behaviour in both countries
4. The light is dawning in the USA
5. Even Columbia/HCA accepts what has happened and why

The Issues identified by Columbia/HCA itself

1. An aggressive profits first approach
2. Setting financial objectives for facilities and staff
3. Offering incentives and using coercion to obtain objectives
4. Deliberately not knowing what was happening
5. The construction of empires around corporate hospitals
6. Using incentives or advantageous arrangements to bribe doctors
7. Inappropriate and unregulated purchasing of hospitals
8. Advertising
9. Misusing patients

Revising hospital licensing

1. US practices in Australia
2. Matters which should receive attention.

[Top] - Introduction

[Top] - Market Driven Reform in Australia:- Australia is embarking on a program of "market driven reform" of healthcare built around concepts of an industry, competition, level playing fields, corporate providers, vertical and horizontal integration, one stop medicine, competitive bidding, business arrangements between doctors and corporations, contracts and managed care insurance schemes. The federal government and, with the possible exception of New South Wales, the governments of all our states are paying service to and supporting this process of market driven healthcare reform in one way or another. Government run humanitarian health services are being contracted out to corporations whose prime interest in these contracts is to generate profits for shareholders.

[Top] - Our leaders must be forced to confront the consequences of Market Driven "Reform":- It is essential that our leaders should be fully informed of events in the USA where such "marketplace reform" has been policy at least since the mid 1980's. Their prejudices must be challenged. They simply must not be allowed to look the other way. They must confront what has happened in the USA and learn from the mistakes of others.

[Top] - Closed minded behaviour in both countries:- In the USA businessmen and politicians have blindly embraced marketplace reform. They have chosen to deceive themselves and disregard both rational arguments and clear evidence of severely dysfunctional outcomes. The willingness of Australian politicians and businessmen to display a similar closed minded dedication to market processes in the face of mounting evidence of severe dysfunction is well illustrated by the way businessmen, the banks, politicians and even government controlled bodies supported Tenet/NME in 1993/4. Ron Williams in his prophetic book "Remission Impossible" predicted that they would do so.

The US business leaders promoting the corporatisation of health care embraced market reform with such blind faith that they simply could not see what their corporations were doing to the community and to their patients. Scott, Vanderwater, Eamer, Bedrosian and Turner are classic examples of such one eyed behaviour. It is clear that each believed in what he was doing. They still do not accept that it was wrong.

[Top] - The light is dawning in the USA:- It is time for our leaders to remove the blinkers and address the issues without marketplace preconceptions. Even an editorial on 28 July 1997 in Modern Healthcare, that mouthpiece of corporate medicine and managerial processes, stresses the adverse consequences of market forces for health care and for medical ethics. The message in their concluding paragraph is unequivocal.

It is wise to keep in mind that while market forces may create economic efficiencies, they have never been known to guarantee sound ethical values. Distance between money and medicine is a prudent thing to create and protect.

It is interesting that they use the term "may" rather than "do" in regard to market forces creating economic efficiencies, a significant change in perspective.

[Top] - Even the Giant Columbia/HCA accepts what has happened and why:- Enclosed are fresh reports from the USA which are very revealing of the processes which gave rise to the misuse and abuse of trusting people. Corporations sought to maximise profits but ended by abusing the trust placed in them and defrauding the insurance system. Columbia/HCA are tacitly admitting that exactly those market practices which they so strongly advocated were responsible for what happened.

You should not of course be deceived by this. Critics like Professor Arnold Relman have been arguing that these processes were dysfunctional for at least 15 years. They were simply ignored. An examination of Frist and his father's own backgrounds, the family's political record and the conduct of HCA while Frist was its chairman should put to rest any beliefs that he was not part of what happened in Columbia/HCA. It is apparent that the claims about him as well as those made by him are little more than an exercise in maintaining credibility and shareholder confidence. He is well aware that the US government will impose conditions on Columbia/HCA's continued existence as it did with Tenet/NME. He is trying to claim the ground in advance.

[Top] - The Issues identified by Columbia/HCA itself.

Columbia/HCA has itself identified in its own practices, many of the factors which gave rise to the misuse of patients in Tenet/NME hospitals. I recently supplied you with a review I had written of Tenet/NME's conduct in the USA and Australia. It seems that in spite of the revelations between 1991 and 1994, corporate blindness continued in both countries.

1. [Top] - An aggressive profits first approach to the provision of a humanitarian service like health care. My thesis has been that when health is turned into a marketplace then "normal" corporate business practices, which are dysfunctional in health will be aggressively pursued by those with a sociopathic blindness to alternate dimensions of perception. My thesis has been confirmed. Persons like Scott, Eamer, Frist, Turner and their retinue of followers succeed at the expense of ethical providers of services. I quote from the NY Times 8/8/97 as it comments on the proposed changes Frist plans for Columbia/HCA's corporate policy.

Gone -- apparently -- is the obsession with 15 percent profit growth each year that at times led managers to actions that prompted a sweeping criminal investigation. Gone is the seemingly insatiable appetite for acquiring competing hospitals that has made Columbia one of the most feared participants in the health care industry.
Columbia's plan to alter or abandon many of its controversial business practices was announced Thursday. Elements of the plan, first disclosed Thursday in The New York Times, include selling the company's home health care division, eliminating its cash bonus program for executives who met financial targets, adopting new rules to ensure employees comply with the law and abandoning the practice of selling interests in Columbia hospitals to doctors, as well as other changes.

That anyone could see "aggression" as a virtue in a provider of humanitarian services defies belief but in the US business world Columbia/HCA's financially aggressive business methods were praised by the market. The NY Times 7 August 1997 refers to Columbia/HCA

- - - - - which under Scott developed a reputation in just nine years as one of the most aggressive -- and profitable -- companies in the business.

It is clear that the company will not make as much money and may no longer be competitive in the marketplace. I quote from NY Times 7 August 1997

"The extent of these reforms, I think, is a measure of the seriousness of the problems that the company has gotten itself into," said Dr. Arnold Relman, former editor of The New England Journal of Medicine. "We are going to see a softer company that is not going to make as much money as it did before."

"Indeed, the changes are the most striking shift in strategy since Columbia was formed in 1987 by Scott, a lawyer who never managed a hospital, and Richard Rainwater, the Texas investor."

On 8 August 1997 the NY Times reported

But by disposing of its home health care division while removing pressures for executives to meet financial targets, Columbia will not achieve the earnings performance it has in the past, analysts said.

Here is an admission by the largest corporation in the world that the money making practices on which its success has been built are dysfunctional for health care. I have been on about this for years. Our leaders will not confront the clear contradictions in their policies. Australian regulatory authorities, including the Director General of Health in Queensland have supported such practices which have become part of the modern medical managers armamentarium.

2. [Top] - Setting financial objectives for individual hospitals and for administrators. These are usually based on previously determined financial targets and measures of financial performance such as census, admission rate, length of stay and profit per patient day. Tenet NME called this "plan". In Tenet/NME pecuniary incentive rewards, honours such as the Golden Circle award, titles such as "PIA administrator of the Year" and decisions about demotion, promotion and termination were largely if not entirely based on the concept of "meeting plan". Columbia/HCA similarly set up a system of "scorecards". I quote from the NY Times 7 August 1997.

Some changes address even small details of the company's culture. For example, according to the internal documents, Columbia will eliminate the use of "scorecards" that have been annually distributed to all employees, targeting precisely the amounts of revenue in various categories that Columbia's senior executives have wanted hospital managers to obtain. That change is part of an effort to end the company's "short-term profit orientation," the documents say.

Such "plans" and "scorecards" have been integral to corporate culture and have been the mode of operation which has driven the misuse and abuse of patients. This is a "small detail" only to the business mind. It is a major threat in health care. Forward planning and setting financial profit objectives are normal sound corporate business practices and a failure to implement such practices might be in breech of a director's fiduciary duty to shareholders.

It is the observed adverse consequences of these normal corporate business practices which bring out the basic inconsistency inherent in turning health care into an industry operating in the corporate marketplace. There is something seriously amiss in the intellectual armamentarium of our country when politicians attempt to drive humanitarian activities by using an economic rationalist paradigm. This stresses profit, selfishness and marketplace competition. The effective provision of these humanitarian services depends on driving forces developed within professional paradigm's which value personal dedication and cooperative service to others above personal financial rewards.

Please note that I am not criticizing forward planning which looks at the financial resources available (or which can be generated) and which plans to use these for the maximum benefit of those who need care.

3. [Top] - Offering incentives and using coercion to obtain corporate financial objectives. This was the secret of Tenet/NME's success and the driving force in inducing staff to misuse and even abuse patients in order to generate profits for the company. Staff knew what the company wanted and that it was not particular about how staff accomplished this. I quote from the NY Times (7/8/97) as it describes the steps Columbia/HCA is taking.

Eliminate all cash-bonus programs, which were designed to encourage employees to meet financial targets and other corporate goals.
By eliminating cash incentive compensation, Columbia would be addressing what some critics have contended has been a flash point for abuse. Under its current compensation system, hospital administrators and other executives have been able to almost double their salaries through bonuses based almost entirely on meeting financial targets.

4. [Top] - Deliberately not knowing what was happening. As I have previously indicated the Tenet/NME board deliberately chose to look the other way and not see what was happening. I have pointed to exactly this sort of behaviour in Australian companies and the same sort of rationalisations and deliberate blindness to critical issues on the board of the Reserve bank. I quote from the NY Times (7/8/97) report on Columbia/HCA's new strategies.

Adopt new programs to insure that employees comply with all laws and regulations, and significantly increase its enforcement staff.
But decisions about how to meet those targets have been left in the administrators' hands; doctors, nurses and some hospital executives contend that the financial incentives led to rapid staff cuts that compromised care.

5. [Top] - The construction of empires around corporate hospitals including primary care services, investigative pathology services, radiology services and home care operations. Corporations have developed a new corporate health care language built around ideas about vertical and horizontal integration, seamless service and "one stop medicine". While talking of market reform and of a level playing field these ideas are used to eliminate useful competition and create a monolithic organisation which controls the marketplace and eliminates consumer choice. Doctors working within these integrated systems are encouraged to use the corporate services even when they are not the best solution for the patient. Loyalty to the corporation takes precedence over duty to the patient. Social pressures and the ever present threat of canceling contracts or not receiving benefits ensures this.

Australian companies like Mayne Nickless and Alpha Healthcare follow this US approach which can be seen as essential for corporate financial success. In the USA Columbia/HCA's conduct in its home health care business has gone too far even for the corporate world and Frist is trying to defuse the situation by selling these off. I quote NY Times 8 August 1997

And gone is the once unshakable faith that to succeed in the modern health care system, a company must own businesses that provide every phase of treatment, from hospital care to home care.
Frist also made clear that by deciding to sell its home health care division, the company was moving away from Scott's faith that the future of health care was in full-service health care systems that owned every outlet for the delivery of care.

On 7 August 1997.

Sell its home health care business, which along with Columbia's hospitals is being examined for its expense-reporting practices.
By deciding to sell the home health care business, Columbia is abandoning an area that has become a lightning rod for federal investigators examining possible fraud in cost reports filed to receive government reimbursement.

Columbia/HCA, the prime proponent of integrated services driven by profit has now admitted that this is dysfunctional and susceptible to abuse. In spite of this Mayne Nickless, Alpha Healthcare and Sun Healthcare are all promoting integrated services to Australian politicians This is where Columbia/HCA, Tenet/NME and other US giants have made their money. Corporations will not abandon such practices until the sword of Damocles is over their heads. Many of our politicians are businessmen and so readily persuaded.

6. [Top] - Using incentives or advantageous arrangements to bribe the medical profession. Such practices which are not only unethical but illegal in the USA have been widely employed, and not only in Tenet/NME hospitals. All those working with or within the hospitals were richly rewarded for getting and keeping heads on beds regardless of whether they needed to be there. Columbia/HCA crafted a system of corporate investments for doctors in an attempt to circumvent the regulations prohibiting kickbacks. In the business world it is legitimate to do things if you can get away with them. The letter of the law rather than professional ethical considerations dominate. Columbia/HCA believes its arrangements are legal. Representative Stark who drafted the law does not. The NY Times 7 August 1997 now indicates Columbia/HCA will

Abandon its practice of selling interests in hospitals to its doctors and buy out doctors who already hold such investments.

7. [Top] - Inappropriate and unregulated purchasing of hospitals, particularly "not for profit" community hospitals. Economic rationalist's convinced that marketplace reforms would resolve health care problems unleashed a feeding frenzy when they removed all requirements that new hospitals be required to secure a certificate of need. Instead of reducing the number of unneeded hospitals, the opposite occurred with overservicing, abuse, misuse; and even kidnapping of patients, anything to fill the beds. A report in the Houston Chronicle 4 August 1997 indicates that Columbia/HCA will abandon its aggressive purchasing policies and will not seek to duplicate services already adequately provided. Columbia/HCA's practice has been to move into an area already overbedded, build more beds and then use its large financial resources and marketing skills to dominate the area and force others who often provide superior services out of business.

At the same time the Houston Chronicle reports that the company is shown to be doing exactly what it claims it will not do and is building a duplicate hospital in competition with not for profits who are already supplying a full service to the region and addressing needs.

Columbia/HCA will also, so it claims stop its aggressive pursuit of not for profit hospitals and seek to cooperate with them. I have supplied you with many documents and analyses which show that the aggressive purchase and expansionist practices which characterise the corporate scene have adverse consequences for the local communities served by the hospitals purchased. The best interests of communities are subjugated to those of the shareholder.

The Houston Chronicle 4 August states

The new facility will provide many of the same specialized services now provided by Texas Children's Hospital and Hermann Children's Hospital, both located in the Texas Medical Center.
Additional competition for patients covered by insurance could diminish the resources available at Hermann and Texas Children's to care for low-income patients, said David Page, Hermann's chief executive.
Frist was quoted as saying Columbia won't enter markets where it is not wanted or needed, - - - - .

The NY Times on 8 August says

But the changes in the industry could reach further. In particular, with Columbia declaring its intent to sharply slow the pace of acquisitions and become more cooperative with competitors, the number of large -- and sometimes ill-planned -- health care deals could drop, some health care experts said.
"The threat of Columbia was like the Vikings coming on the coast of France, and people made very rash decisions in response," said Uwe Reinhardt, a health care economist at Princeton University. "So a lot of the irrational integration and dealmaking that wasn't well thought out might diminish."

Is Reinhardt talking about closed minded behaviour and successful sociopathy?

8. [Top] - Advertising:- Corporate conduct has been characterised by aggressive dishonest, misleading and "in your face" advertising. Advertising has been misused to generate a false market. Much has been written about Columbia/HCA and Tenet/NME's advertising practices. It is clear that replacing professional restrictions on advertising with an "anything goes" marketplace approach has led to numerous abuses. In one of the press reports which I have seen Frist indicates that Columbia/HCA will abandon some of its advertising practices.

9. [Top] - Misusing patients:- The full consequences for the patients who came to Columbia/HCA and other corporate hospitals trusting that they would be treated within a professional paradigm of care will not be revealed for some years if ever. A report from the NY Times dated 8 August describes what happened to some of the unfortunates who trustingly entered Tenet/NME hospitals. The accounts sound more like stories from the penal colonies in Port MacArthur and Norfolk Island than medical care. Tenet/NME paid out US $100 million to settle with those it had abused but in a typical example of closed mindedness they continue to deny what happened. I have spoken to doctors who blew the whistle on what was happening and to lawyers who prosecuted actions on behalf of patients. I am utterly revolted by what I heard. I quote from the NY Times 8 August 1997

At Brookhaven and other psychiatric hospitals operated by National Medical Enterprises, patients like Ms. Stafford said they had their arms or legs strapped down for months at a time. Others said they were forced to sit motionless and silent for 12-hour stretches. And a medieval-looking device called a "body net" was used to completely restrain some.
"I had to eat Thanksgiving and Christmas dinner in restraints," said Ms. Stafford, who now works as a model. "There's not a day that goes by that you don't think about it."
For many mental health care professionals, National Medical came to symbolize the excesses of an era when the corporate thirst for insurance dollars overrode patients' needs. Now, as managed care companies move into the area of mental health, many psychiatrists fear that patients' needs are again being overlooked -- but this time to scrimp on insurance costs. Today, seriously ill patients are often discharged from mental-health units after just a few days, trapping them in a cycle of hospitalization, relapse and hospitalization, doctors say.

"National Medical was treating the insurance contract and not the patient," said Dr. Fred Goodwin, director of the Center on Neuroscience, Medical Progress and Society at George Washington University Medical Center. "Now, in reaction, doctors are being forced to react to the needs of managers, not patients."

Those involved in the settled cases are barred from speaking about them. But in lengthy interviews before the settlement was reached, Ms. Stafford and two other former Brookhaven patients spoke of their lives at the hospital and of the years since. What emerged were stories not only of individual suffering -- and of its long-lasting effects -- but also a cautionary tale with lessons for the health care industry today.

With National Medical aggressively seeking patients, a teen-ager could land in one of its hospitals for months as a consequence of behaviors that many psychologists say could have been treated with short-term therapy.

One of the victims expresses our gut reaction to such conduct very nicely

"I would like to take the staff members and tie them down for a few months," Ms. Stafford said. "Make them sit down until we could tell them to move. I would like to make them do everything we'd have to do. I want these people to feel what I feel. I want them to know with their own two eyes what they put us through."

As I have indicated many times in the past, economic rationalist ideology has blindly refused to entertain the possibility that the adoption of corporate marketplace solutions based on this ideology in healthcare is severely dysfunctional. As a consequence the problems exposed in the corporate for profit model have been addressed by the even more dysfunctional corporate managed care model. This is having an even greater impact on the care provided to patients. Kuttner, Cox and Saul have all argued these issues very elegantly in a much broader context. Perhaps the proponents of a healthcare marketplace should be tied down and subjected to the same ordeal, going on for month after month until they develop insight.

[Top] - Revising hospital licensing

1. [Top] - US practices in Australia:- Australian companies are following the same practices. As you are aware, Mayne Nickless is paying executives in its healthcare chain of command massive bonuses linked to profits. They are promoting integrated "one stop" medicine. I recall seeing on a Four Corners program segments of TV advertisements very similar to those used in the USA. The advertisements in the 1992 Four Corners program on Tenet/NME and the 1993 DAY ONE program on HCA hospitals were at variance with the practices revealed. Mayne Nickless (HCoA) advertisements were also not congruent with the corporate practices shown on TV programs.

You will recall the problem with the regulations in Queensland in regard to Mayne Nickless. HCoA holds the hospital licenses and only the license holder must be of good character. That the company which owns and controls HCoA has a criminal record is irrelevant. Queensland is currently revising the regulations and we can only hope that it will address these issues. Until such time as we have developed a system of care which does not create a situation where patient care and profits for shareholders compete for the patients dollar we will have to regulate in an attempt to limit the adverse consequences. I write again to urge a critical examination of licensing arrangements in all states.

2. [Top] - I believe that the following matters should receive attention.

  1. Scrutiny and policing of corporate business practices to ensure that they are appropriate for health care. It must be accepted that healthcare is vulnerable to corporate aggression. Practices which might be considered legitimate business conduct in other contexts are often totally inappropriate in health care. The professional ethic must be protected and adopted by corporations.
  2. Corporate plans for profit are a threat but it will be difficult to conduct a business without planning. I suggest that such plans must be publicly disclosed and subjected to state departmental review. They must not be used as "scorecards".
  3. Incentives of any sort should be prohibited. There is a deep personal reward in serving others and this should not be devalued. Administrators and managers should identify with the medical ethic and the rewards which it offers.
  4. Corporations and their directors must be held fully accountable and responsible for all the actions of staff. There must be no opportunities to avoid responsibility. Tenet/NME staff were sent to prison when they met corporate objectives. The board members who were responsible for corporate policies and set the objectives retired with massive bonuses.
  5. Situations which might permit the flow of care to be directed by corporate organisation or profit needs rather than patient care should be anticipated and prevented. For profit hospital corporations should be prevented from owning primary care practices, radiology services and pathology services.
  6. Situations which favour or permit corporations to influence the way doctors refer patients or treat them must be prohibited. An important step would be to address the balance of power given to corporate giants over individual medical practitioners by current competition legislation. The nature of any contracts or arrangements between payers, hospitals and doctors should be carefully scrutinised. Any arrangements or contracts should be fully disclosed to the patient.
  7. The services provided by charity and church hospitals should be protected from dysfunctional corporate practices and from the sort of aggressive corporate expansion which has characterised the USA. Some form of certificate of need is essential.
  8. Advertising should be carefully regulated and monitored. The sort of advertising common in the business community has adverse consequences within professional and humanitarian services. Scare advertising must not occur. Honesty in presenting the services offered is essential and overstated claims must be prohibited. The regulations controlling advertising in the marketplace are inadequate.
  9. Above all, the interests of patients and their welfare must dominate the ethos of the provider of health care. Strategies to determine the culture of an organisation are required before anything more than provisional hospital licenses are granted.

Note:- The Queensland minister for health's response to concerns that Mayne Nickless might not be a "fit and proper" organisation to run hospitals because of its criminal conviction was to indicate that under Queensland regulations only the company holding the hospital licenses was required to be fit and proper. HCoA which was wholly owned and controlled by Mayne Nickless held the license. I was not impressed by this play on words and suggested that this anomaly in the regulations be changed. I do not know if this was done.

Central Map ..... Initial Map ..... USA Map ..... Australian Map ..... International Map ..... Corporate Practices Map..... (to print)
 Home Page .... US Corporate Page .... Access to Columbia/HCA ... Map ... to print
Overview 1 (1997) ... Overview 2 (2000) ...Overview 3 (2003) ... Patients ... I told you ... Licenses

Columbia/HCA submission pages
Background--The USA--Australia--Business Practices--Mayne--Conclusion--References

Put on www 31 March 1998 Last modified October 1998 J.M. Wynne -
Checked and minor editing August 2003