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Corporate Medicine in Australia

Introductory Comment [Contents]

By late 1997 many recent US press reports regarding Columbia/HCA, Tenet/NME, OrNda Healthcare, Kaiser, Smith Kline Beecham and many other corporations were widely available in Australia. A number of critical analysis by US newspapers were also available.

The US revolts:- In the USA the mounting public indignation, complaints by nurses and doctors, and opposition from groups representing "not for profit" medicine was putting intense pressure on corporate medicine. Politicians were responding by uncoordinated legislation which sought to patch the cracks in the regulatory system and protect patients from specific abuses such as drive-by mastectomies and denial of care. The underlying problems were not being addressed.

The corporate response:- Corporate America has responded by mounting a massive lobbying and public relations exercise to stop the proposed legislation. Health care corporations feeling the heat have developed an unprecedented interest in international expansion. Those with international experience, including past Tenet/NMe staff have seized the opportunity to become "international health care consultants" proclaiming "silos of opportunity" in selling corporate medicine and managed care by playing on "politicians pain".

The Australian response:- The response in Australia was similar to that in the USA. Politicians and regulators claimed that our regulations would prevent such practices. Some politicians put their faith in the terms of contracts between government and corporations. I pointed out that accreditation and regulation had failed abysmally in the more experienced USA. I pointed to the difficulties and considerable costs in policing regulations and contracts pointing to the costs of the FBI investigations. I pointed to the failure of contracts protecting the environment in the coal industry in Queensland and to the state auditor general's criticism of contracts to run hospitals in Port Macquarie (and recently Western Australia). I did not get a reasonable response.

Why I wrote this:- I wrote this page at this time in order to relate what was happening in health care to the other problems of our times and to move attention from the visible manifestations of corporate medicine to the underlying processes at work.

Did you ever expect a corporation to have a conscience, when it has no soul to be damned, and no body to be kicked?
(Edward, First Baron Thurlow 1731-1806)
But corporate executives are employed by shareholders, not patients. Ultimately the laws of the market demand allegiance to profit over health, and the laws of the land require corporate officers to maximise shareholders' returns. Should such organisational imperatives govern health care?
(J S Boyd, D.U. Himmelstein, S Woolhandler,
The Lancet July 8, 1995 p 64)


Introductory Comment

1. Introduction and background

1.1. Economic rationalism:
1.2. Critics of economic rationalism
1.3. Medicine at the eye of the storm
1.4. US Healthcare as a corporate experiment:
1.5. The response of politicians: in the USA:
1.6. The response of politicians in Australia:

2. Multinational Corporations in Australia
3. Ron Williams predictions
4. The Australian political scene
5. The origin of the US corporate level playing field in health care
6. Signs of trouble
7. The early 1990's
8. The rise and fall of Columbia/HCA
9. Managed care in the USA
10. PACMAN activities
11. Columbia/HCA exposed
12. Health Care fraud in the USA
13. The costs of the corporate model of medicine
14. Care of patients
15. US Politicians and Health care
16. The Federation of American Health Systems
17. The Response in Australia
18. The Foreign Investment and Review Board (FIRB)
19. State Health Departments
20. My position
21. Health care is about caring

[Top] - 1. Introduction and background:- The USA is the home of corporate medicine, but it is now spreading across the world. The ability of large corporations to make massive profits for shareholders by exploiting the vulnerability of patients has made them seem invincible. The enthusiasm of the stockbrokers is translated through shareholders to the community. The credibility of the health care corporations and their hospitals is bolstered by aggressive marketing and impressive corporate offices. Financial success is automatically equated with "quality care". The community including politicians are persuaded that corporations which take up to 30% of the insurance payment as profits are able to supply a superior service more economically. The illogicality is hidden by a complex system of rationalisations made within the framework of economic rationalist jargon. The corporate solution to the problems of heath care is particularly appealing to economic rationalists.

[Top] - 1.1. Economic rationalism:- Politicians in most countries including the USA, Australia and the UK have adopted an economic rationalist ideology. Economic rationalism and its offshoot managerialism see the corporate marketplace as being self regulating and this is thought to be functional. All restrictions to market forces must be removed. The ideology extends beyond a commitment to an unregulated marketplace. The whole of society is seen to be a marketplace and ideologists believe that all functions of society can run as marketplace activities and be subject to corporate managerial practices. Market forces will solve all problems. The centrality of this to our culture is revealed by the massive salaries and bonuses offered to corporate managers. While a small number of business theorists advocate a marketplace constrained by ethics and value systems, a dominant and more successful corporate movement follows the theories of the Chicago economist Friedman. He claims that corporate managers have a prime responsibility to shareholders and that any attempt to pay service to social issues is dysfunctional for the market system. While many corporations have documents proclaiming values and ethical principles, their practices follow Friedman's principles.

[Top] - 1.2. Critics of economic rationalism:- A number of thinkers and writers both inside and outside the economic institutions have analysed the impact of these ideologies on society and their assessments are very disturbing. Unrestrained and unregulated economic rationalism can be seen as setting in place a form of Social Darwinism which selects on the basis of profit and profit only. Value systems established over thousands of years are disregarded as they are subjected to market forces. Groups unable to exert effective consumer pressures will be exploited and those who do not give profits priority go under. Kuttner and Cox argue that we have social and civic selves which are more important in a human society. It is human value systems which have enabled us to rise above physical and social Darwinism. It is only because the marketplace has been subjected to the human value systems of society that it has been functional.

On the other side of the Pacific these critical writers include John Ralston Saul (The Unconscious Civilisation: The Massey Lectures), Robert Kuttner ( "The Limits of Markets" The American Prospect No 31 Mar-Apr 1997: p 28-41) and W I Robinson ("Globalisation: nine theses on our epoch" Race and Class, 38,2- 1996) among many others. In Australia Eva Cox (A Truly Civil Society in 1995 Boyer Lectures) and Stuart Rees ("The Human Costs of Managerialism" 1995 edited by Rees S and Rodley G Pluto Press, Australia) have addressed the same themes.

In health care writers include Dave Lindorff (Marketplace Medicine: The Rise of the For-Profit Hospital Chains Bantam Books), Rochelle Jones (The Supermeds: How the Big Business of Medicine is Endangering Our Health Care. 1988 Charles Macmillan) Dr Arnold Relman ("What market values are doing to medicine" The Atlantic Monthly March 1992 p99). Many others are now speaking out including Boyd J.W., and Woolhandler S & Himmelstein D.U.(Extreme Risk - the new corporate proposition for physicians. New Eng J Med 21/12/95 p1706), Pellegrino E.D. ("A matter of integrity" Australian Medicine 20/7/92) and Kuttner (Kuttner R- "Columbia/HCA and the resurgence of the for-profit hospital business New Eng J Med 1/8/96 p 362, 8/8/96 p 446). In Australia the health care issues have been addressed by Ron Williams (Remission Impossible 1992), Stuart Rees ("The Human Costs of Managerialism"), Professor Stephen Leeder (Mad Cow Thinking), Dr Peter Arnold "Price competition, professional cooperation and standards MJA 2/9/96 p 272), Dr David Weedon ("The challenges ahead". AMAQ News April 1996) and myself (Wynne J.M. "The Impact of Financial Pressures on Clinical Care: Lessons from Corporate Medicine." in Access to Surgery: A National Symposium on the Planning and Management of Health Care Programs under Medicare. Townsville, May 23-24, 1996, editors Prof. P.K. Donnelly and Assoc. Prof. L. Wadhwa)

These writers come from different backgrounds and use different perspective's. They see the events in different ways. What is disturbing is the remarkable and disturbing congruence of their conclusions and fears. The arguments and evidence are cogent and convincing but as Kuttner states ideology trumps evidence every time. The first casualties are common sense and perspective.

[Top] - 1.3. Medicine at the eye of the storm:- Saul includes economic rationalism, managerialism and related ideologies under the umbrella of a broad corporatism. I have argued that health care poses a fundamental challenge to the ideas which give economic rationalism and corporatism legitimacy as a universal ideology applicable to all fields of human activity. "Customers" are more vulnerable than in any other area of human endeavour and are largely ineffective in the corporate marketplace. Health care is built around trust, value systems and ethics. These are attributes devalued by these ideologies. In addition health services go to fundamental human concerns, our physical and mental well being. If corporatism in its various forms is to show that it is universal then it must reduce health care to no more than any other market activity governed by corporatist paradigms. Experience with the other dysfunctional ideologies which have plagued our century indicates that converts will disregard evidence and common sense to prove their belief patterns. I have argued that health care is a threat to these belief patterns. As a consequence it is the target of corporatism and it is here that the battle for human values will be fought. Like it or not health care professionals are draftees into the battle. We are at the eye of the storm. Corporatism will seek to convert us. Sadly the nature of health care training equips us poorly for this battle. Many of us do not have the skills to confront the plausible justifications offered, nor the ability to withstand the public ridiculing of our value systems claiming that they are obsolete.

[Top] - 1.4. US Healthcare as a corporate experiment:- I have also argued that the health care market in the USA is an excellent pilot study and fully confirms the arguments of those who are concerned about uncontrolled economic rationalism. Social Darwinism based on profits only has ensured the success of individuals whom Robertson et al (MJA 4/3/96 p 304) described as successful sociopaths. They are arrogant, dominating, self opinionated, glib, facile and able to turn a blind eye to the concerns of others. They are unable to entertain any adverse consequences of their actions and rationalise criminal and unethical conduct. In an environment like health care those who have genuine human values and who are sufficiently open minded to confront the human consequences of dysfunctional practices go under. As a consequence deviant and allegedly criminal organisations like the corporate providers Columbia/HCA and Tenet/NME, and the corporate managed care companies US Healthcare and Kaiser have dominated the health care market in the USA. They have become so powerful that it is extremely difficult if not impossible to reverse the process. Reports coming from the USA indicate that fraud and the misuse of patient have become dominant features of the US health marketplace.

[Top] - 1.5. The response of politicians: in the USA:- In the USA it is no longer possible to challenge the economic rationalist ethic. The massive exposure of widespread fraud and the misuse of patients in 1991 and 1992 spawned only a mass of regulations and policing. The basic flaws were not confronted and the same corporate management policies were continued. In 1997 the FBI mounted a massive fraud investigation code named "Restore Trust". FBI raids on hospitals seem to be more common than on drug syndicates. Columbia/HCA the world leader in aggressive health care corporatism has been the prime target. Once again politicians are introducing band aid measures to contain the outward form of the processes and to increase the marketplace pressures which are perceived as the necessary remedy.

Kuttner asserts that "much of the economics profession, after an era of embracing a managed form of capitalism, has also reverted to a new fundamentalism about the virtues of markets. So there is today a stunning imbalance of ideology, conviction, and institutional armor between right and left." Kuttner maintains that there is at the core of the celebration of markets a relentless tautology. If everything is a market and market principles are universal then if anything is wrong it "must be insufficiently market like. This is a no-fail system for guaranteeing that theory trumps evidence." and "It does not occur that the theory mis-specifies human behavior." He asserts that "real people also have civic and social selves."

Vast sums have been spent by insurers and corporate providers in lobbying, advertising and destroying opponents of the unregulated corporate free market. Health care most readily exposes the limits of the unregulated marketplace model and is consequently the most heavily funded lobbying area in US history. The outcome has been that political policy has continued to support and drive the dysfunctional corporate health care practices while at the same time large numbers of ineffective band aid laws have been passed in federal and state legislatures in order to contain specific dysfunctional practices consequent on these policies.

[Top] - 1.6. The response of politicians in Australia:- The initial response of our politicians and our health departments has been that Australia was different, that these things could not happen here and that our regulations would prevent such practices. When persuaded by evidence that these arguments simple were not valid some, like Victoria have turned attention to the wording of contracts between government and corporations in the belief that these would prevent dysfunction. I have pointed out to them that this does not address the fundamental problems. Policing and enforcement of contracts in health care is difficult and costly. Politicians and Australian government bodies have been extremely reluctant to enforce contracts on wealthy corporations when there might be short term financial or political costs.

[Top] - 2. Multinational Corporations in Australia:- Until recently corporate for profit hospital owners have played only a small part in the provision of health care in Australia. Their corporate activities have been constrained by the dominance of genuine medical and humanitarian ethics. The health care professionals have called the tune and dominated hospital culture.

There have been several attempts by multinational (particularly US based) corporate health care giants to operate in Australia. Health Corporation of America (HCA) sold its hospitals to Mayne Nickless in about 1990. National Medical Enterprises or NME (now renamed Tenet Healthcare) sold to Mayne Nickless in 1995. The US hospital giant Columbia/HCA attempted to enter Australia in February 1997 but withdrew when its business practices became known in Australia. The Managed care group Kaiser Healthcare has taken an interest in Australia and has a small contract in South Australia. As yet it plays no part in clinical care. General de Sante Internationale the French health care giant backed away in 1995 amidst disturbing publicity about its activities in the UK. Parkway Holdings, the Singapore/Malaysian real estate group shifted to health care but its bid to buy into Australia was rejected by shareholders.

Mayne Nickless is now the largest health care operator in Australia. It has had international corporate health care ambitions in Indonesia and Europe. It most closely follows the US model. AXA the French Insurance giant purchased control of National Mutual which is introducing a version of managed care into Victoria, South Australia and Queensland. It is being heavily criticised by the Australian Medical Association who are at loggerheads with the minister of health and health insurance firms who would benefit most from managed care.

Alpha Healthcare has for some years had a major investment by members of the same Malaysian groups which owned Parkway Holdings. The US rehabilitation and aged care giant Sun Healthcare has recently purchased a 38% holding in Alpha Healthcare making it the largest shareholder and the only US health care multinational currently providing clinical services in Australia. Alpha has expanded by purchasing Health Care Corporation Pty Ltd so making it the second largest hospital provider in NSW.

[Top] - 3. Ron Williams predictions:- The Australian social scientist Ron Williams studied the US system for his PhD. When he returned to Australia he analysed the financial and political forces at work. In his gloomy 1992 book "Remission Impossible" he predicted that both major political parties would see the US corporate model as the only solution to the emerging problems in health care. Health care would be dominated by multinational megacorps. The changes he predicted were so depressing that the president of the AMA described them as dystopian. The subsequent conduct of Australian politicians and the revelations from the USA have revealed the perceptiveness of Ron Williams' predictions.

[Top] - 4. The Australian political scene:- Ron Williams gloomy predictions have not yet come to pass but this is not because of a lack of commitment by our politicians. It is a consequence of corporate misconduct and the rapid availability of disturbing US corporate documents in Australia. Australia's predominantly not for profit health insurers and hospitals have not adopted managed care contracts with the sort of enthusiasm our politicians would have liked. The medical profession is implacably opposed to the managed care side of corporate medicine. The number of Australian corporations able and willing to implement government policy is limited. Some have a poor track record. If the government are to successfully introduce a corporate managed care system and also contract the care of public patients to private corporations then they have no choice but to bring international groups in to do this. As Ron Williams indicated these groups will only come in on their own terms and on condition that they can introduce their successful business practices into the "immature health care market" in Australia. It is the profits to be made from health care which will entice them.

Politicians including Richardson, Lawrence and Wooldridge have tried very hard, turning a blind eye to events in the USA. Wooldridge is ambitious and very determined. He has not abandoned his policies in the face of overwhelming evidence that they are not in the public interest. Wooldridge made his position very clear in a superficially plausible speech given to the Australian Medical Association in Canberra in May 1996. He spoke of health care as an industry, of level playing fields, of contestability, of consumers rights, of shopping for quality and cost. He claimed that corporate insurers and medical practitioners should be industry allies and work together. This is close to the spiel of the US protagonists who saw corporate market forces as the solution to health problems in the USA. US corporate moguls seized on these rationalisations to claim that the medical ethic was outdated and that health services were a commodity, like any other item to be bought and sold. Columbia/HCA, the largest corporate provider in the world openly modelled itself on Macdonald's fast food chain.

In his speech Dr Wooldridge did not talk of corporations but it is clear that corporations would thrive and dominate on his level playing field. He failed to talk of professionalism, of values, of trust, of patient vulnerability and of the power which knowledge gave over patients. He failed to confront the information which showed that in the USA such a level playing field had resulted in the exploitation and misuse of patients as well as widespread medical fraud. Consumer rights, contestability and the ability to shop around have been casualties of the US corporate system of care.

In all states except for NSW governments are contracting with corporations to run public hospitals and provide care for public patients. This is part of the ideological baggage of the economic rationalist policies of our governments. The present NSW minister for health has abandoned this policy following the Auditor General's criticism of the Port Macquarie experiment with Mayne Nickless. The Modbury Hospital in South Australia has been such a dismal failure that the government have had to bail it out three times. Australian Hospital Care is alleged to have taken only a year to turn a $1.2 million surplus by the Latrobe hospital in Victoria into a $1.6 million deficit. I am not aware of any real success stories.

(Note:- The West Australian Auditor General's Nov 1997 report is critical of the contract for Mayne Nickless to build and run the Joondaloop hospital)

[Top] - 5. The origin of the US corporate level playing field in health care:- The introduction of medicare and medicaid in the USA in the 1960's created opportunities for the development of "for profit" health care corporations. This publicly funded insurance system provided opportunities for profits not previously possible. Groups of lawyers, businessmen and some doctors formed hospital corporations. These became wealthy and expanded rapidly to harvest the golden eggs laid by the political goose. These included Humana, National Medical Enterprises or NME (lawyers Eamer, Cohen and Bedrosian) and Health Corporation of America-HCA (the political and medical Frist family). These corporations expanded rapidly and accumulated vast health. They were praised by the stock market. In the corporate and public mind profits were automatically equated with success and consequently with high standards of care. Variable standards, exploitation of patients, medical fraud and unethical relationships with doctors became features of the system. This corporate sector was balanced by a much larger number of smaller not for profit church and community groups who provided care in the interests of the communities they served, and by teaching hospitals which maintained high standards of ethical care. The main medical colleges were powerful and maintained some ethical control over members. With the steady expansion of for profit medicine commercial pressures increasingly affected the not for profit sector which was forced to adopt many corporate practices. Doctors and their ethics were placed under increasing pressure. Abuse and fraud steadily increased.

[Top] - 6. Signs of trouble:- A newspaper report indicates that the FBI were aware of widespread rorting of the system towards the end of the 1970's. The complexities of the health system and the individual nature of care created difficulties for investigation and prosecution. The FBI had limited resources and these were fully expended in prosecuting the growing trade in addictive drugs. Instead the DRG system was introduced during the early 1980's. Episodes of care were codified and hospital services were closely monitored and controlled. Fraud became more difficult and profits fell. Tenet/NME (to escape its past NME has now been renamed Tenet Healthcare) led the way by diversifying into ill defined areas of care which were not monitored and which were difficult to control. Others like HCA followed. These areas included psychiatric care, childhood problems, rehabilitation and aged care. At the same time companies like Tenet/NME (Singapore, UK) and HCA (Australia) established international footings. In the USA a false market of vulnerable people was created by misleading advertisements. The trust of those who came to health seminars or who phoned "hot lines" for help was exploited. Bounty hunters, paid up to $2000 for each head on a bed held contracts to supply a specified number of patients to the hospitals each week. They scoured the sensitised community for people who could be persuaded into hospital. Witnesses indicate that vast numbers were needlessly admitted to hospital and their insurers were milked to the limits of each patients insurance. Doctors from these less tightly controlled disciplines were bribed and coerced to comply. Corporations like Tenet/NME made vast profits and stockbrokers were ecstatic.

The bubble finally burst in 1991 when Tenet/NME hospitals in Texas started kidnapping patients. Government inquiries in Texas and the US House of Representatives have revealed the misuse and abuse of trusting patients in psychiatry, rehabilitation and aged care. These are the groups most vulnerable to misleading advertisement, to misinformation and to exploitation. They were the most trusting groups least able to exert their rights on a market's level playing field. They naively believed that hospitals would adhere to the medical ethic of care. In the USA adults were insured for only one month's hospitalisation. Children were insured for six months. They became the prime targets as corporations sought to convince parents that normal childhood and teenage problems were pathological and required hospital admission. Children were imprisoned in psychiatric institutions for many months by corporations like NME. It is clear that standards were poor and many children were mistreated. Staff were employed specifically to keep patients in hospital for longer. Both a doctor and an administrator alleged in evidence that children were deliberately stressed in order to prevent them from showing signs of recovery. Tenet/NME has already paid at least US$135 million to compensate those who suffered in these hospitals. Internal corporate documents are revealing of the corporate patterns of thought which were used to justify and rationalise these practices. They illustrate the manner in which staff enthusiastically identified with the corporate profit before care culture. Particularly revealing is the way staff (including health care providers), flushed with corporate and personal financial success turned a blind eye to what was happening. Tenet/NME's response to the exposure of its practices in 1991 was to intensify its attempts to expand internationally into the UK, Switzerland, Spain, Italy, Indonesia and Australia.

[Top] - 7. The early 1990's:- The US department of justice, federal and state government bodies, insurance companies, shareholders, staff wrongly dismissed for refusing to indulge in criminal and unethical practices, and patients who were misused in order to generate profits for shareholders took to the courts. Almost all of these actions were settled by paying hundreds of millions of dollars, often without admitting guilt. Many companies including HCA were involved in such settlements. The business and banking communities have remained loyal to the corporate ethic and to the companies which made so much money for shareholders. They have mounted rescue packages. Tenet/NME, the prime offender has paid probably in excess of $1billion in settlements and was forced by the US government to sell its psychiatric, drug dependence and rehabilitation hospitals, over 75% of its hospitals. NME changed its name to Tenet Healthcare claiming that this new name reflected its value systems. The banks supported a massive buying spree which re-established its influence and position as the second largest hospital owner in the USA. It even considered a take over of Columbia/HCA but has decided to re-enter the international marketplace instead. Few now realise that it is the same company and that many past NME staff who never openly confronted allegations of complicity in these practices hold senior positions.

[Top] - 8. The rise and fall of Columbia/HCA:- Columbia was established when the lawyer Scott and the businessman Rainwater bought three Texas hospitals in 1988. It commenced an unprecedented 1990's buying spree by absorbing corporations which were less aggressive in their business practices. It bought up Humana hospitals and in 1994 merged with HCA to become Columbia/HCA. It became the largest hospital owner in the world owning well over 300 hospitals. HCA's Frist assumed a senior position. The corporation was in a position to benefit from the Frist family's political patronage. Scott modelled the health care provided on Macdonald's fast food and Walmart supermarket chains. The company spent over $100 million a year on advertising. It adopted extremely aggressive business practices which placed corporate financial interests ahead of community interests. Scott's response to government's attempts to stem the rising cost of health care and contain health care fraud was to use teams of lawyers to stretch the law to its limits.

[Top] - 9. Managed care in the USA:- The response of the USA to the escalating costs was to use an economic model which placed increasing financial pressures on the provision of health care. The corporate solution was managed care. The rationale for managed care was to oppose corporate excesses with corporate constraints through contracts made with corporate managed care companies. These acted for the insurers or for the large business corporations which in the US pay for the health insurance of workers and their families. Profits for the the shareholders of the corporate managed care company and the corporate provider both compete with patient care for the available insurance dollar. These changes placed enormous pressures on smaller not for profit community based health care groups and on teaching hospitals. Smaller groups whose primary responsibilities were to the community and to patients were unable to survive. They were run by community appointees accountable to the community. Unlike their corporate competitors they could not close unprofitable services needed by the community, reject non paying patients or imperil services by cutting staff. As a consequence of these pressures there has been a massive consolidation of hospital groups in both for profit and not for profit sectors across the USA by mergers and take-overs. For profit groups have bought not for profit community hospitals at bargain prices.

[Top] - 10. PACMAN activities:- Columbia/HCA became known as the Pacman of the industry. Columbia/HCA and Tenet/NME set out to gobble up not for profit community and church hospitals, often at bargain prices, a fraction of their real value. There were allegations about financial mis-dealing between Columbia/HCA and the directors of the not for profit takeover targets. Columbia/HCA also attempted to buy up managed care and insurance companies and so become both payer and provider. It attempted to buy Blue Shield in Ohio. Allegations suggest that the Blue Shield directors would have benefited personally from their sale of the not for profit insurer to the for profit provider at a bargain price. Community and consumer groups became increasingly alarmed at what was happening. They banded together and took action. Attorney Generals in US states stepped in to block the purchase of Blue Shield and also of not for profit hospitals.

Most states have now introduced "PACMAN" legislation to protect the community. Congressman Pete Fortney Stark accused the company of breaking the law he sponsored prohibiting payment of inducements to doctors. He indicated that directors would end in jail. As the pressures built up and opportunities to expand decreased Columbia/HCA, like Tenet/NME turned its eyes overseas. In February it attempted to enter Australia. In Europe it bid to buy the French Company Generale de Sante Internationale (GSI), the largest European health corporation. Some members of the medical profession in these countries had been tracking corporate conduct in the USA and were aware of Columbia/HCA's business practices. They were in a position to obtain documents. Politicians and senior members of the profession in these countries were soon under pressure from large numbers of US documents and Columbia/HCA's endeavour failed.

[Top] - 11. Columbia/HCA exposed:- On 16 July 1997 the FBI raided 35 of Columbia/HCA's hospitals across the USA and a massive fraud investigation is now in progress. Three senior staff have already been indicted. Shareholders and patients have commenced court actions which are likely to be similar to those settled by Tenet/NME. Scott, Vanderwater and a number of other senior staff have been fired. Frist has become chairman. In a remarkable display Frist tacitly acknowledges exactly those errant business practices which were the secret of Tenet/NME's financial success and which were so heavily criticised in Columbia/HCA. He claims that he has always been critical of these practices and was in conflict with Scott. He is charting a new direction which will embrace the sort of practices which characterised HCA when he was its chairman. An examination of HCA's practices and its fraud settlements at this time is not reassuring! A June 1993 US television program dramatically exposes practices very similar to those in NME hospitals.

[Top] - 12. Health Care fraud in the USA:- In 1994 Mr Freeh, head of the FBI estimated to a US senate inquiry that Health care fraud cost the USA up to $100 billion each year. Fraud is so profitable, the difficulties in policing and prosecuting so great and the penalties so small in comparison that the drug syndicates are moving into health care fraud. Convictions are often considered as the cost of doing business. The prime offenders have been the large corporations and there are many of them.

The difficulties in detection and prosecution of criminal offences, the pressures on the criminal courts, as well as the small criminal penalties for fraud were also described to a 1992 US House of Representatives committee by Mr Parisi the fraud investigator who carried out the earliest investigations of NME's practices in New Jersey in 1990. NME was able to settle this investigation confidentially and then claim no wrongdoing. Parisi indicated that NME used provisions in the New Jersey law which were introduced to streamline the prosecution of motor car fraud. First offender's could pay large settlements and so escape publicity. Parisi indicated that civil penalties are much larger than criminal penalties for fraud. They have proven to be a better deterrent. Health fraud investigators have therefore pursued large settlements through the civil courts. This approach was reaffirmed by the head of the FBI. It has characterised the settlement of most US department of justice fraud investigations in health care. These large "no wrongdoing admitted" settlements, while costly have served wealthy corporations well. These settlements have muzzled public criticism and enabled corporations to use defamation laws to silence their critics.

Health care fraud is now the major thrust of the FBI's activities. Large numbers of staff have been transferred to this endeavour. Funds have been provided and they have had more success. The settlements are usually on a "no wrongdoing proven" basis. Tenet/NME settled with insurers and the Texas government in this way. SmithKline Beecham recently paid $325 million to settle in this way. The down side of this is that the companies cannot be prohibited from receiving medicare benefits. Companies will not pay settlements which put them out of business. This also creates major problems for us in Australia because these companies are technically not guilty of any offence. Regulatory bodies like FIRB are unable to keep them out and state licensing authorities might face costly court cases if they rejected licence applications. This situation existed when Tenet/NME first entered Australia and may apply to Sun Healthcare if it settles the current investigation by the US department of justice in this way.

[Top] - 13. The costs of the corporate model of medicine:- Managed care companies control the insurance dollar and take up to 30% of this as profit for shareholders. Corporations like Columbia/HCA which provide the services take up to 20% as profit for shareholders. Columbia/HCA spends about $100 million each year on marketing. It considers this essential for its success. I am not clear whether this is included in the 35% which one investigation suggests was spent on administration. What is clear is that there is not much of the insurance dollar left to provide the care paid for by the patient when taking out insurance. Nurses and doctors allege that cost cutting has resulted in serious problems with staffing and with standards of care. I do not know of any objective evaluations of standards of care in corporate hospitals using case analysis by medical assessors. It would surprise me if corporations cooperated with anything like this. Corporations also do not provide care-intensive money losing services like burns units. These are left to the not for profit hospitals.

Managed care has resulted in a check on the rising cost of health care but the costs in standards and suffering are not known. The horror stories from the USA suggest that it is considerable. The additional costs of state regulatory inspections, accreditation, policing, surveillance, investigation and prosecution are never factored into the costs of health care. These expensive structures are needed to contain dysfunction in a system where the financial objectives of corporate health care providers is in conflict with the mission of care on which the services provided depend.

[Top] - 14. Care of patients:- The first concerns I had about corporate medicine several years ago were about standards consequent on corporate practices. I know of no independent corporate supported comparison of standards of care in corporate and non-corporate hospitals. Doctors and nurses still able to complain about standards do so. Tenet/NME's own internal reports admitted to poor standards of care and dysfunctional practices. Staff were fired for being "too clinical". They have paid over US $135 million to compensate those patients, many of them children who suffered when exploited for profits. They deny that the patients were mistreated. Columbia/HCA patients have also commenced a class action. Another glaring recent example is Kaiser. The Texas Insurance Commission produced a damning report claiming that Kaiser's managed care gatekeepers had refused badly needed care to patients who were entitled to it. They were fined. An investigation of Kaiser Hospitals in California following a number of deaths revealed such poor standards that two hospitals were forced to close.

[Top] - 15. US Politicians and Health care:- With the collapse of Communism those who advocate a free and unregulated marketplace have come to dominate US politics, particularly in the republican party. This belief is now so established in the US psyche that protagonists will not examine evidence which challenges it. The failures in the health care marketplace challenge these beliefs in a fundamental way which impacts on every US citizen. In the USA and Canada the writer Jonathan Saul, the financial critic Robert Kuttner and the doctor Arnold Relman have eloquently argued these issues. In Australia Eva Cox, Stuart Rees and Ron Williams have echoed their arguments in different ways. A burgeoning health marketplace has not stopped to listen.

[Top] - 16. The Federation of American Health Systems:- This is the powerful and wealthy corporate lobbying group based in Washington. It is dominated by Columbia/HCA and Tenet/NME. It lobbies on behalf of corporate medicine. In 1994 I sent the federation copies of court documents in which a Singapore surgeon alleged that Michael Ford at the time deputy president of Tenet/NME's international division was among those who attempted to trade patient admissions with him. The hospital denied this but admitted that such discussions had taken place claiming that it was the doctor who had made the suggestions. None of the NME staff involved were called to give evidence. Michael Focht who was president of the international division and Ford's superior was a director of the federation. Ford was a member of the federation's quality assurance board. I suggested that the federation should examine these matters to determine whether the allegations had substance and whether in the light of their failure to effectively challenge the allegations these persons should hold these positions in a health care organisation. The federation refused to acknowledge these documents even when the American Medical Association took this up with them. Instead I was threatened in Australia and when I refused to give a number of undertakings, a defamation action was commenced against me claiming that I had made the allegations. It was never prosecuted.

[Top] - 17. The Response in Australia:- Members of the Federal government, the federal opposition, state governments and state oppositions are all in possession of large amounts of material documenting and criticising corporate practices in health care and analysing the reasons why it is so dysfunctional. I do not believe that there can be any serious doubt that the corporate model of care will be dysfunctional in Australia and will not be in the best interests of Australians. Our governments are still locked into the same economic rationalist patterns of thought which characterise the US system. Costello, Reith and Wooldridge have been prime proponents of an unregulated corporate marketplace and of globalisation. Their political futures depend on their success in forcing these policies onto Australia. It is therefore not surprising that there is no sign that any of our governments are prepared to open rational discussion about health care with consumers and the profession. These would expose fundamental deficiencies in the economic theories on which they base their policies. They are adhering rigidly to their health care policies.

[Top] - 18. The Foreign Investment and Review Board (FIRB):- FIRB acts as an advisory board to the treasury. It encourages foreign corporations to invest in Australia and vets applications by foreign companies. It was criticised by the health department in NSW for not making any inquiries about Tenet/NME in 1991 when it entered Australia. Tenet/NME was at the time facing charges of fraud and the abuse of human rights in Texas. When confronted by overwhelming evidence in 1994 it finally stepped in to restrict Tenet/NME. It immediately granted approval to GSI and Parkway Holdings who were bidding for Tenet/NME's Australian holdings. It made no attempt to investigate GSI and refused to retract its approval when supplied with information which raised serious concerns about GSI's practices.. Its attitude to Columbia/HCA is unknown. It was in possession of a large number of documents and had not indicated its position when Columbia/HCA withdrew. When Sun recently bought a 38% holding in Alpha Healthcare FIRB was supplied with publicly available documents from the UK and the USA. These included court documents making allegations about the conduct of the company and its founder. These actions were settled but I do not know the nature of the settlement. Newspapers report that Sun was asked to explain and that FIRB accepted this explanation. When I wrote to FIRB inquiring about this decision a spokesman indicated to me that the decision was made by the deputy treasurer. FIRB is only an advisory body to the treasury. It is not clear from this response whether this decision was made because of FIRB's advice or in spite of it. The response did not indicate whether FIRB used federal government resources to investigate in the USA. It is not known whether the corporate witness whom, the court documents allege described the practices in Sun's hospitals was interviewed.

[Top] - 19. State Health Departments:- Regulations in most states specify that hospital licence holders and those who exert real influence must be "fit and proper persons". This clause, a measure of character formed the basis for the recommendation by WA and NSW Health departments that licence applications by Tenet/NME/AME be reviewed and/or rejected. The WA government ignored the advice. In NSW Justice Yeldham overruled the health department's objections in a behind closed doors process and granted licences. Victoria did not accept Yeldham's decision and commenced their own investigation. In Victoria a rejection would have gone to a public appeal process. Tenet/NME/AME abandoned their plans to enter Victoria and Queensland.

Mayne Nickless pleaded guilty to running a price fixing racket and paid $7.7 million to settle this in 1994. When it purchased AME from Tenet/NME the licences were transferred without raising any questions about its being fit and proper. When these apparent double standards were taken up with health departments a number of not very plausible explanations were offered. In most states government and also heads of health departments had changed. In Queensland the minister for health indicated to me that the licences were held by the subsidiary HCoA and not by Mayne Nickless. The fit and proper clause in the regulations refers only to the licence holder! The minister is aware that Mayne Nickless is giving senior staff in the HCoA chain of command massive incentives linked to profit, exactly the practice adopted by US corporations. The strategy of exploiting the letter of the law over common sense and common morality is a characteristic of economic rationalism and modern corporate management. Financial practicalities, effectiveness and getting results are prior values. An assessment of value systems is fundamental to an assessment of being fit and proper. The minister has given no indication that he will consider my request that he broaden the terms of the "fit and proper" clause in the regulations in order to make it work.

[Top] - 20. My position:- I am not politically opposed to a reasonably regulated market in society, to corporations or to private medicine. I am very opposed to managed care, to the provision of medical services in a way which directly benefits corporate shareholders. I am opposed to managers and directors whose fiduciary duty and personal economic rewards encourage them to give profits priority over care. I am opposed to many managerial practices common in the corporate marketplace. I have had over 40 years experience of private medicine provided under contracts in three countries. It has, in my experience been repeatedly exploited, usually by the less ethical members of the medical profession. I am totally apposed to providing health care under a system of contracts.

I believe that corporations and even globalisation serve many useful functions and have major benefits. They do however have very major down sides and dysfunctions which are seldom confronted. Their fields of endeavour should therefore be limited and controlled so that the adverse consequences are prevented. They must somehow be induced to identify and act within the value systems which form the structures of the rest of society. They are only one part of society and cannot be permitted to dominate and control. The large multinational corporations have become more powerful than governments. Their executives live in their own worlds and set their own standards of conduct. They can dictate to governments. They do not suffer the consequences of their practices.

[Top] - 21. Health care is about caring. It cannot function effectively as an agressive competitive market:- Many have pointed out that in health care the product being marketed is difficult for the consumer to assess. Few have the knowledge or a sufficiently wide experience. They are often under extreme stress. Market forces simply do not work to the benefit of patients. Decisions in a corporate marketplace are based on image, credibility, marketing and the advice given by the medical profession whose ability to act in the interests of patients is limited by financial contracts and corporate loyalties. The fiduciary duty of corporate employees is to generate profits for shareholders. The care of patients competes directly with profits for the available dollar. A situation is created where the objectives and incentives offered by the corporate system are in direct conflict with the expectations of the system, ie to provide care. Such a system creates intolerable stresses for employees and threatens patient care. The issues go very deeply and impact directly on the physical and psychological well being of large numbers of citizens. It is time we examined the implications from points of view which are not entirely economic. There is a great deal to be learned and the information gained will have wide practical implications.


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