A Call for Change in Healthcare Governance

Over the past 30-40 years many healthcare organizations have gradually shifted from a charitable, not-for-profit organization to a not-for-profit in name only business. Accompanying this shift, has been a shift in hospital governance away from a benevolent organization directed by charitable organizations such as religious organizations to businessman focused on revenue and profits. Of course, this does not mean that not-for-profit organizations are for loss. Small or modest profits are necessary to continue to operate.

Accompanying this change in organizational goals from a charitable to a more business focus, has been changes in the hospital board of directors or trustees (1). The mission of a publicly traded corporation is to return economic value to their shareholders and is the primary fiduciary focus of that board. On the other hand, the mission of a not-for-profit, 501c, charitable healthcare system is to provide health services improving the well-being of the community.

The board of directors or trustees of a not-for-profit organization theoretically must be primarily focused on the fulfillment of the charitable mission, not on generating profit for its own sake. Not-for-profit boards tend to be larger. In the 1980s the average size of a not-for-profit hospital board was well over 25, but is declining. By 2023 the average size was around 13 (1). At least 51% of the members of a not-for-profit charitable board must meet the Internal Revenue Service (IRS) definition of independence. This means that these board members must be independent of direct economic relationships with the organization and not have direct family members who work for the organization. This is one way that the IRS tries to ensure that the board is loyal to the charitable mission of the organization.

In the 1980’s new board members were often elected by the board and usually received no or minimal compensation (2). However, today board members are often “nominated” by the administration of the hospital and often receive compensation which can be substantial (2). For example, the 14 board members of Banner Health receive in excess of $95,000/year (3). In addition, hospital CEOs were usually ex officio non-voting board members. Again, using Banner Health as an example, the CEO is a full board member (4). Board composition has also changed. In the past there was often ample physicians and nurses providing medical guidance to the board. Today their numbers have dwindled. Banner has  only 2 physicians on its 14-member board (an internist/emergency room and a family physician). Nursing is not represented.

The role of the chief of staff (COS) has also changed. In the past COSs were usually members of the medical faculty who served one or two years on a part-time basis. They were compensated but that was largely to offset their loss of income as a physician. Now COSs are often full-time serving at the pleasure of the hospital CEO and/or board. They are no longer the doctors’ representative to the hospital administration but rather the hospital administration’s representative to the doctors (5). The concept that the COS can work in a “kumbaya” relationship with hospital administrators is a naive remanent from a bygone era. Although a good working relationship may exist in some healthcare organizations, increasingly the relationship is adversarial.

Physician practice has also changed. In the past physicians were often self-employed independents who practiced within the confines of the hospital or clinic. Now 77% of physicians are employed, a dramatic increase from 26% only 10 years ago (6). The reason most often cited has been declining reimbursement (7). Although cost containment is often cited as a reason for the decline, Medicare physician pay has plummeted by 26% when adjusted for inflation over the past 20 years while hospital reimbursement has surged by 70% (7). The decline in reimbursement has prompted many doctors to abandon independent practice for hospital or corporate employment (7). Some have equated increasing physician employment for decreasing access and quality of care (7).

It seems unlikely that without a change in governance any meaningful change in the businessmen’s stranglehold of medicine with its poor care, high prices and administrative overcompensation will be forthcoming. One simple improvement is election of the COS by an independent medical staff rather than appointment by a hospital director or board.

A second, also simple change is that independent doctors, nurses and technicians need to have their representation increased on the board of directors of the hospital or healthcare organization. They should be elected by the hospital staff and not appointed by the CEO. Rather than just requiring 51% of board members be independent, at least 51% of boards should have doctors, nurses or technicians who practice at the hospital or healthcare organization but are independent. This ensures adequate medical expertise including local knowledge about the operation of the organization.

Changes described above to the COS and board of directors should be required by the Joint Commission, Centers for Medicare and Medicaid, the state department of health and possibly the IRS. These changes could go a long way to resolving the intrusion in medicine by businessmen interested more in their own gain and not the charitable healthcare mission of a 501c hospital or healthcare organization.

References

1. Wagner SE. A Taxonomy of Health Care Boards. Trustee Insights. American Hospital Association. September, 2023. Available at: https://trustees.aha.org/system/files/media/file/2023/09/TI_0923_orlikoff_interview_3.pdf (accessed 6/14/2024).
2. Blodgett MS, Melconian LJ,  Peterson JH. Evolving Corporate Governance Standards for Healthcare Nonprofits: Is Board of Director Compensation a Breach of Fiduciary Duty. Brooklyn Journal of Corporate Financial & Commercial Law. 2013;7(2): 444-474. Available at: https://brooklynworks.brooklaw.edu/cgi/viewcontent.cgi?article=1046&context=bjcfcl (accessed 6/14/2024).
3. ProPublica. Nonprofit Explorer. December 2022 Tax Filing. Available at: https://projects.propublica.org/nonprofits/organizations/450233470 (accessed 6/14/24).
4. Board of Directors. Banner Health. Available at: https://www.bannerhealth.com/about/leadership/board-of-directors (accessed 6/14/24).
5. Robbins RA. The Potential Dangers of Quality Assurance, Physician Credentialing and Solutions for Their Improvement. Southwest J Pulm Crit Care Sleep. 2022;25(4):52-58. [CrossRef]
6. Physicians Advocacy Institute. Updated Report: Hospital and Corporate Acquisition of Physician Practices and Physician Employment 2019-2023. April 2024. Available at: https://www.physiciansadvocacyinstitute.org/Portals/0/assets/docs/PAI-Research/PAI-Avalere%20Physician%20Employment%20Trends%20Study%202019-2023%20Final.pdf?ver=uGHF46u1GSeZgYXMKFyYvw%3d%3d (accessed 6/16/24).
7. G Grossi. Dr David Eagle: CMS Reimbursement Cuts Encourage Trend of Independent Physician Exodus. American Journal of Managed Care. Feb 12, 2024. Available at: https://www.ajmc.com/view/dr-david-eagle-cms-reimbursement-cuts-encourage-trend-of-independent-physician-exodus (accessed 6/16/24).

Cite as: Robbins RA. A Call for Change in Healthcare Governance. Southwest J Pulm Crit Care Sleep. 2024;28(6):91-93. doi: https://doi.org/10.13175/swjpccs028-24 PDF

Hospitals, Aviation and Business

Boeing’s recent troubles remind us that in many ways, healthcare is like aviation:

1. They are both highly technical endeavors, guided by highly educated and trained personnel such as physicians and pilots.
2. Even small mistakes can be devastating.
3. Operating margins (operating income/revenue) are very low.
4. Both are led by businessmen not trained in the industry.
5. Some have put profit ahead of safety.

The cockpit of the typical airliner or the multitude of instruments in the typical intensive care unit demonstrates that aviation and medicine are both highly technical. Airline pilots have a minimum of 1,500 hours of flight time. This includes time spent obtaining a private pilot’s license, commercial license, instrument rating, multiengine rating, and airline transport pilot (ATP) certificate. Pilots often have additional in type ratings for turboprop or jet engines. Many have spent time as flight instructors and normally have at least 5 years of experience. A pilot must be over the age of 23 and be able to pass a 1st class medical exam. The military also trains pilots and brings them along faster, usually requiring some time commitment for the training they receive. In addition, they have recurring requirements to train in simulators to practice emergency procedures or when they begin flying new aircraft.

Physicians have four years of medical school after college. After medical school they become residents, a term from the past when the young physician resided in the hospitals. Residency lasts 3-5 years and is often followed by additional training called fellowship. For example, the typical cardiologist spends 3 years in an internal medicine resident, then an additional 3 years as a cardiology fellow. After fellowship, additional training may occur. For example, in cardiology this could be in interventional cardiology, nuclear cardiology, electrophysiology, etc. which are 1-2 years in length. In many cases additional time is spent doing research to become competitive for grants. Many have PhD’s and some have administrative or business degrees such as master of public health (MPH) or business (MBA). Like pilots, recertification is required. Nurses and physician’s assistants are also highly educated. Some have PhD’s and many have master’s degrees. Like physicians, administrative or business degrees are becoming increasingly common. 

Small mistakes can be devastating. Overshooting or undershooting a runway leading to a crash can kill not only the pilot but passengers on board. Poor handling of an emergency such as an engine failure, a door plug dislodging in flight or poor programming of the complex flight computers, such as occurred with the Boeing 737 Max, can be lethal. Similarly, mistakes in care for a sick patient can be deadly. The popular literature is rife with reports of physicians or nurses overlooking a laboratory or x-ray abnormality, giving the wrong medication, falls, or the wrong surgery on the wrong patient.

Although the high education and need for care are well appreciated, what is not so well known is that profit margins are narrow for both aviation and medicine.  Airlines are expected to have a 2.7% net profit margin in 2024 which is a slight improvement from the 2.6% in 2023 (1). Boeing’s net profit margin as of September 30, 2023 was -2.86%. (2). Hospitals began 2023 with a median operating margin of -0.9% and currently have a margin of -10.6% to 11.1% (3). For the three months ending Sept 30, the Mayo Clinic (Rochester, MN) had a relatively healthy 6.7% profit margin. In contrast, Banner Health was only 1.5%. Hospitals and health systems are estimated to finally break even after several years of losses secondary to the COVID-19 pandemic and higher than expected contract labor costs. The recent median margin data show that essentially half of hospitals and health systems are still operating at a financial loss, with many more just barely covering their costs (3). This means little to no discretionary money. Hospital executives who receive high compensation packages can consume much of this discretionary money. Many would argue that it could be better spent on patient care. 

Both aviation and hospitals are usually led by businessmen. This was not always so. Early airlines and hospitals were usually led by pilots and doctors. Only in the past 50 years have businessmen become involved. The rationale has nearly always been financial. Early aviators cared a great deal about demonstrating that aviation was safe. For example, Boeing Aircraft, founded in 1916 by William Boeing, was considered first and foremost an engineering firm where production of reliable aircraft was most important (4). The emphasis on quality and safety spawned the quote, “If it isn’t Boeing, we aren’t going”. In 1997 Boeing merged with its longtime rival McDonnell Douglas. The new CEO of the merged companies from McDonnell Douglas, Harry Stonecipher, brought a different attitude to the merged companies.

Figure 1. Harry Stonecipher. CEO of Boeing 2001-2, 2003-5.

Stonecipher said, “When people say I changed the culture of Boeing, that was the intent, so that it’s run like a business rather than a great engineering firm. It is a great engineering firm but people invest in a company because they want to make money” (5).  The company became fixated on stock market value and lost sight of the core value of manufacturing reliable, safe airplanes. Boeing is now reaping the decline in quality that was sown by Stonecipher years ago. The Federal Aviation Administration (FAA) which is supposed to  oversee airplane manufactures has also apparently become slack, allowing Boeing to have major declines in quality (6).

In hospitals we have seen a similar progression. Doctors or nurses were replaced as hospital heads in the later part of the twentieth century by businessmen who often did not understand, and in some instances did not care to understand, the core value of quality patient care. Recently, private equity firms have been acquiring hospitals or portions of hospitals such as emergency rooms or radiology practices. Data on the quality of care has been scant but there have been a multitude of complaints from doctors and nurses. Now, a recent systematic review that included 55 studies from 8 countries concluded that not only has private equity ownership increased over time across many health care sectors, but it has also been linked with higher costs to patients or payers (7). Although results for the 27 studies that looked at health care quality were mixed, the researchers found evidence that private equity ownership was tied to worse quality in 21 (7). This suggests a poorer quality of care. The lack of oversight by a variety of healthcare organizations such as the Joint Commission, Centers for Medicare and Medicaid Services (CMS), state departments of health, etc. may be following the FAA example in becoming lax at their jobs.

Hospitals and aviation companies do have one major difference. Hospitals are generally not-for-profit entities that should operate for the public good. Profit is secondary which does not mean that losses can be long tolerated. Aviation companies are for-profit entities where revenue is primary. However, as demonstrated by Boeing, quality is still very important. As more hospitals are acquired by private equity companies, many remain concerned that quality will suffer for the sake of profit. Perhaps in 20 years we will be shaking our heads and lamenting about the decline in the quality of US healthcare the way many are viewing Boeing today.

Richard A. Robbins MD

Editor, SWJPCCS

References

1. https://www.iata.org/en/pressroom/2023-releases/2023-12-06-01/#:~:text=Airline%20industry%20net%20profits%20are,2.6%25%20net%20profit%20margin)
2. Boeing Profit Margin 2010-2023. Macrotrends. Available at: https://www.macrotrends.net/stocks/charts/BA/boeing/profit-margins#:~:text=Current%20and%20historical%20gross%20margin,%2C%202023%20is%20%2D2.86%25 (accessed 2/9/24).
3. Condon A, Ashley M. From -10.6% to 11.1%: 34 systems ranked by operating margins. Becker’s Hospital Review. December 29, 2023. Available at: https://www.beckershospitalreview.com/finance/from-10-6-to-11-1-34-systems-ranked-by-operating-margins.html (accessed 2/9/24).
4. Boeing. Wikipedia. Available at: https://en.wikipedia.org/wiki/Boeing (accessed 2/9/24).
5. Surowiecki J. What’s Gone Wrong at Boeing. The Atlantic. January 15, 2024. Available at:  https://www.theatlantic.com/ideas/archive/2024/01/boeing-737-max-corporate-culture/677120/ (accessed 2/9/24).
6. Rose J. The FAA is tightening oversight of Boeing and will audit production of the 737 Max 9. January 12, 2024. NPR. Available at: https://www.npr.org/2024/01/12/1224444590/boeing-faa-737-max-9-alaska-airlines-door-plug (accessed 2/9/24).
7. Harris E. Private Equity Ownership in Health Care Linked to Higher Costs, Worse Quality. JAMA. 2023 Aug 22;330(8):685-686. [CrossRef] [PubMed]

Cite as: Robbins RA. Hospitals, Aviation and Business. Southwest J Pulm Crit Care Sleep. 2024;28:20-23. doi: https://doi.org/10.13175/swjpccs009-24 PDF

Not-For-Profit Price Gouging

Kaiser Health News reports the case of Brianna Snitchler (1). She had a visible cyst on her abdomen which was biopsied using ultrasound as an outpatient at Henry Ford Health System’s main hospital. The cyst was found to be benign, but she received a $3,357.52 bill for her biopsy, ultrasound, lab tests and physician charges but the bill also included a $2,170 additional charge.

Although the initial bill from Henry Ford referred to “operating room services”, Ford later sent an itemized bill that referred to the charge for a treatment room in the radiology department. Both descriptions boil down to a facility fee, a common charge that has become controversial as hospitals search for additional streams of income, and as more patients complain to have been blindsided by these fees.

David Olejarz, manager of the media relations department of Henry Ford, said the “procedure was performed in the Interventional Radiology procedure room, where the imaging allows the biopsy to be much more precise. ...We perform procedures in the most appropriate venue to ensure the highest standards of patient quality and safety.” The need for a biopsy before removal of this cyst is questionable since the lesion had been present for years and had not changed. Furthermore, the need for the radiology procedure room and an ultrasound would seem superfluous since it could probably have been biopsied efficiently and safely in a physician’s office for considerably less money.

Ted Doolittle, with the Office of the Healthcare Advocate for Connecticut, called these facility fees “a black box” (1). In Connecticut hospitals are required to notify patients in advance about facility fees. Connecticut hospitals billed more than $1 billion in facility fees in 2015 and 2016, according to state records. Furthermore, Henry Ford would collect fees for every part of the procedure including the ultrasound, the lab tests, and probably the physician fees. Additionally, it is likely that the physician who referred Ms. Snitchler worked for Henry Ford and they would have collected a fee there, also.

Hospital officials argue that medical centers need the boosted income to provide the expensive care sick patients require, 24 hours a day, 365 days a year. However, Henry Ford Hospital already receives Medicaid disproportionate share (DSH) payments to help offset Henry Ford Hospital’s Medicaid shortfall because of its high portion of poor and Medicaid patients (2). Many “facility fees”, like Snitchler’s, are higher than would be considered reasonable or fair and are exploitative and unethical. In Snitchler’s case the facility fees nearly tripled the cost of the biopsy which despite having United Health Care insurance she will need to pay out of pocket. All this and she still has not had her cyst removed.

Hospitals appear to have solid finances. Although balance sheets are often inaccurate and misleading, most have greatly expanded their administrative personnel paying them record amounts (3). Henry Ford’s former CEO and trustee, Nancy Schlichting, was paid a salary or $4.77 million in 2016 (4). However, CEO salary is often only a portion of the total compensation with some tripling their salary through other compensation (3). Furthermore, Henry Ford lists page after page of administrative personnel which likely translates into hundreds of millions of dollars annually (5).

Henry Ford Health System was founded in 1915 by auto pioneer Henry Ford and is a leading health care provider for the poor in the Detroit area (6). Legislative action should be taken not only to notify patients of facility fees available prior to services but also to limit these fees to a reasonable amount of the total charges. The Centers for Medicare and Medicaid services could reexamine Henry Ford’s safety net designation or their tax-exempt not-for-profit status could be reexamined.

Henry Ford’s mission statement is, “We improve people's lives through excellence in the science and art of health care and healing” (6). However, as Henry Ford said, “Business must be run at a profit, else it will die. But when anyone tries to run a business solely for profit, then also the business must die, for it no longer has a reason for existence” (7). In this case, the Henry Ford Health System seems to be price gouging the poor rather than serving them. If profit is their sole goal, Henry Ford Hospital and medical centers like them have no reason to exist and are best left to perish.

Richard A. Robbins, MD

Editor, SWJPCC

References

1. Anthony C. Her biopsy report was benign. But the bill is a spot of contention. Kaiser Health News. September 30, 2019. Available at: https://khn.org/news/bill-of-the-month-facility-fees-biopsy-bill-september/?utm_campaign=KHN%20-%20Weekly%20Edition&utm_source=hs_email&utm_medium=email&utm_content=77684052&_hsenc=p2ANqtz--ET6FHWzEGP_A7C5P7POEonKEpK9CvrI-71lI6WxyIZ1hwGzbaD0LxeJv0kE7B8vvPpZqCJsYWmtxxXeGIAt4tSW_tlg&_hsmi=77684052 (accessed 10/5/19).
2. MACPAC. Fact sheet: Henry Ford Hospital. March 2017. Available at: https://www.macpac.gov/wp-content/uploads/2017/03/Henry-Ford-Hospital.pdf (accessed 10/5/19).
3. Robbins RA. CEO compensation-one reason healthcare costs so much. Southwest J Pulm Crit Care. 2019;19(2):76-8. [CrossRef]
4. Welch S. Turnover, retirements factor in big changes in nonprofit compensation. Crain’s Detroit Business. May 20, 2017. Available at: https://www.crainsdetroit.com/article/20170521/news/628871/turnover-retirements-factor-big-changes-nonprofit-compensation (accessed 10/5/19)
5. Henry Ford Health System. Henry Ford Health System governance leadership. Available at: https://www.henryford.com/-/media/files/henry-ford/about/annual-reports/2017-system-report-leadership-listing.pdf (accessed 10/5/19).
6. Henry Ford Health System. About us. https://www.henryford.com/about (accessed 10/5/19).
7. AZ quotes. https://www.azquotes.com/quote/830473 (accessed 10/5/19).

Cite as: Robbins RA. Not-for-profit price gouging. Southwest J Pulm Crit Care. 2019;19(4):121-2. doi: https://doi.org/10.13175/swjpcc063-19 PDF