Wednesday, June 13, 2012

The Rise and Fall of Businessman Rick Scott 1/2

Businessman Rick Scott, 
the Face of 
Corporate Healthcare
by Nomad
The story of Rick Scott's career before entering politics is a fascinating one. How a person with such a background would even consider the public scrutiny of a campaign show something about the audacity of the man.

When businessman Rick Lynn Scott decided to throw himself into the Florida governor’s race, he had one significant problem to deal with. 

As a candidate with absolutely no prior political experience, his sole qualification for being the Sunshine State’s governor was his shady history in business. 

A Very Aggressive Corporation
Before he lost his empire, Rick Scott had much to be proud of. At the young age of 34, he co-founded what was to become the largest private for-profit health care company in the US, Columbia Hospital Corporation

According to his supporters, Columbia was a wonderful example of how the free market system could be applied to health care, an idea that conservatives have gushed about for decades. Columbia, like Bain Capital, became known for its aggressive business tactics and since its founding had embarked on one of the most aggressive and successful buying and takeover sprees ever seen.

Most amazingly, like politics, Scott came into the field with no prior experience in hospital administration. But then in his eyes, experience with the healthcare wasn't necessary. He saw healthcare as a means of making a profit much like fast food is a means of making profit for McDonald's. 
And, at least in the short term, he seemed to have a point. The healthcare whiz-kid was working miracles by applying the free-market principles of capitalism. Over the next ten years, he had built up an empire of 350 hospitals in several states. 

Columbia under Scott’s management did not stop there. In 1994, Columbia merged with Health Corporation of America (HCA) and tied itself with the politically powerful First family. Heir and major stockholder of HCA, William Harrison "Bill" Frist, Sr., was also served on Tennessee's Governor's Medicaid Task Force from 1992 to 1993. 

Additionally, Frist had friends in high places. He had joined the National Steering Committee of the Republican National Committee's Health Care Coalition, and was deputy director of the Tennessee Bush-Quayle '92 campaign. At the time of the merger, Frist had met in 1990 with Bush family friend and former Senate Majority Leader Howard Baker. Baker had advised him to make a run for the Senate in the 1994 election.

To his credit, Bill Frist said of President Obama's proposed healthcare reform in January of 2011:
"It is not the bill that [Republicans] would have written, It is not the bill that I would have drafted. But it is the law of the land and it is the platform, the fundamental platform, upon which all future efforts to make that system better, for that patient, for that family, will be based."
Proof that, in some cases, experience brings wisdom? Not really.

Update: Reuters gives the true motivation for his remarks.
If the law is struck down, for example, stocks of hospital companies such as HCA Holdings Inc or Tenet Healthcare Corp and health insurers that specialize in Medicaid programs for the poor, like Centene Corp or Molina Healthcare Inc, are expected to suffer as they lose out on an expansion of coverage for at least 30 million uninsured Americans.
Back in 1994, executives at healthcare corporations saw things differently.

Following the merger, Columbia/HCA became even more of a shark. As one source puts it:
Columbia/HCA used its wealth and its competitive market strategies to crush its intended victims. The chairman of a not for profit hospital in Texas said "in our minds, there was no way we could survive in the long haul given the changes coming in health care. Columbia/HCA is a very aggressive corporation". Purchases and joint ventures by Columbia/HCA have been characterised by their speed, their organisation, their silence, their legal ingenuity and their suddenness. They go to great lengths to discourage competitive bids. Teams of lawyers are followed by powerful lobbying. Negotiations are clandestine. Board members not disposed to such a sale are either removed or pushed. This even occurred in hospitals owned by the Catholic church.
According to sources, The Catholic church eventually took a stand in the USA forbidding members of the Catholic hospitals group from having dealings with Columbia/HCA. Another charge was that medical experts on hospital board of directors were systematically excluded from negotiations because they were expected to vote against Columbia/HCA's conditions for sales.

For a corporation that professes the free-market approach, it does seem strange to discourage competitive bids. But then, as any Darwinist can tell you, that approach always gives an advantage to the more ferocious beasts.

Other Problems with the Business Model
Critics of Columbia/HCA also pointed out that the for-profit principle itself was based on a flawed idea of how healthcare should work.

One critic has put together his own report of the deficiencies of the Columbia/HCA model, as it operated under Rick Scott. The report offers insight into what went wrong and why corporate healthcare is simply not workable. He calls Columbia "a leader in a dysfunctional system." (Before anybody jumps to the conclusion that the author of the report is politically bias, it is safe to assume he is not Republican or Democrat. In fact, he is Australian.)

With its aggressive and expensive advertising campaign, Columbia/HCA claimed that it could match or exceed non-profit competitors and that its business model had many advantages. Objective evaluations by a reputable and independent firm of lawyers revealed that there were critical differences in the manner in which health care was delivered. 
Among these critical differences were:

Community Benefits
In for profits important decisions are made centrally and not at the community level. The conduct of Columbia/HCA shows a lack of commitment to any particular community.

Non-profit companies reinvest profits in humanitarian endeavour and so provide a broader range of services, particularly those services which are costly and do not pay well. For-profits do not invest in costly services as readily as not for profits. Shareholders take 20% or more in profits and considerable resources leave the community to benefit shareholders.
That for-profit organizations put profits above health care seems pretty obvious to an outsider. There are other less obvious considerations too.
Charges are consistently higher at for-profit hospitals and Columbia/HCA's charges are the highest. The amount of charitable and indigent care provided is much lower in for-profit hospitals, particularly those run by Columbia/HCA. The broader services provided by non-profit hospitals provide employment for many more people in the local community. Non-profit hospitals provide far more community benefits.
Contrary to Columbia/HCA's claims these community benefits are much greater even when account is taken of the tax exemptions granted to non-profits.
Another point worth noting is that, according to report, the effect of using health care as a commodity to buy and sell had an extremely negative effect on the charitable activities. 

For-profit corporations taking over non-profit hospitals are required by law to continue community services including charity care. However, prior to the sale of the non-profit hospital, there would be, the report claims, a termination of charitable community services. In doing so, after the sale, Columbia/HCA would be free of all legal obligations to continue those valuable charitable  activities- something that the executives at Columbia/HCA  saw as wasteful and unnecessary- simply because it made no profit for shareholders.

The report also charges that, "in some instances closed community hospitals once it had secured market dominance in the area." Essentially closing the competitive healthcare market. 
Columbia has a track record of closing local community hospitals once it has secured market position with control of all hospital facilities in the region.
Naturally, this had a direct impact on the community. The report looks at what happened in Destin, Florida, after Columbia/HCA moved in:
Once Columbia had established control and market share by purchasing facilities in neighbouring areas it shut down emergency services and then closed the hospital. Patients were forced to travel a considerable distance and this was compounded when a cyclone struck the town.
Claims to cost-efficiencies in purchasing as a result of size are not sustained. Ancillary costs and the costs of supplies are lower at non-profits.
Administrative Costs and Staff Reduction
Any cost savings at Columbia hospitals have been due to one factor only, staff reductions. Non-profit hospitals invest more of their resources in staff.

There are concerns that corporate staff reductions are at the expense of the quality of care. Nursing bodies are publicly claiming this, but there is no objective data. It seems that there are substantial changes in mission, governance, accountability and service to the community. Larger profits are made by Columbia/HCA through charges which are substantially higher, by not providing expensive and less profitable services, and by reducing staff levels. These profits are passed to shareholders and do not benefit the community. It seems that non-profit hospitals provide superior value to their communities.
Administrative costs at for-profit hospitals were much higher and less was spent on staffing the hospitals.
For these reasons (and others) the model that Rick Scott and Columbia/HCA were hard-selling the American public simply did not work. 
Furthermore, deregulation-a demand of the proponents of the free market approach to health care- presented a whole new set of problems. For example, one of Columbia/HCA more controversial deals involved an attempt to take over Blue Cross and Blue Shield in Ohio. 
These companies are insurers and managed-care companies. .. Blue Cross also act as fraud investigators. This takeover was accomplished with all the stealth which characterised other Columbia/HCA purchases and partnerships. Once again the information suggests massive benefits to the board of the selling companies. This purchase had it been successful would have made Columbia/HCA the managed care company responsible for restricting services as well as the provider. It would have become its own fraud investigator. A rash of lawsuits followed the attempt to buy Blue Cross and Blue Shield.
Finally the attorney general was forced to step in and to stop what was happening.
A case of foxes guarding the hen house is unlikely to be the solution to the national healthcare problem. Still, for folks like Scott and others, it did have only one thing going for it: the for-profit, free market business plan was likely to make a lot of already wealthy people even richer.

When the last chapter of story of Columbia/HCA was finally written, it would expose one more problem, something insidious and corrupting about the business model. 
Namely, it had the distressing tendency to turn doctors into whores.

I especially wish to thank Michael Wynne whose efforts to blow the whistle on the "corporatization" of health care led him to conduct one of the best and most detailed articles on this complex subject I've seen. I strong recommend his work as a source for any researcher or interested party.

PART TWO of this series will continue the story of Rick Scott's fall from grace.