in Health Care

(Corporate Healthcare Site)

The many extracts on these pages are from copyright material. They are owned by the reference given or its owner. They are reproduced here for educational purposes and to stimulate public debate about the provision of health and aged care. I consider this to be "fair use" in the common interest. They should not be reproduced for commercial purposes. The material is selective and I have not included denials and explanations which were routine. I am not claiming that all of the allegations are true. The intention is to show the general thrust of corporate practices as well as the nature and extent of any allegations made.



This page gives a brief outline of the role played by large financial institutions (comprising banks, brokers and analysts), accounting businesses, and lawyers in the marketplace and so in health care. The consequences are illustrated by quotes from the Nov 2004 book "Critical Condition" by Barlett and Steele which examines many of these issues.


Page 5
Not surprisingly, in a system so complicated and unwieldy, involving so much money, health care is riddled with fraud and abuse.
The entry of for-profit, business minded companies into health care was supposed to make it more efficient. Instead it's given us the world's largest, costliest health care bureaucracy, engulfed by red tape and maddening complexity.
Rather than health care for everyone, the free market has given us huge corporations with multimillion-dollar market caps, presided over by the new corporate royalty, whose names regularly appear among America's highest executives.
Its no secret that health care in America is in crisis.
Page 7
As long as Washington remains wedded to the illusion that market-based medicine will cure health care's woes, tens of billions of dollars a year will continue to vanish in waste, inefficiency, fraud, and in profits to companies that make money by denying care.

Page 34
But the driving force behind these and other factors is one that politicians refuse to recognise. Washington's blind obsession with market-based health care, the notion that competition is always good and can never have a bad result.
The glaring exception to the theory is health care. The very core principle of the market system, that companies will compete by selling more products to everyone, is actually the last thing the health care system needs.

Quotes from "Critical Condition: How Health Care in America Became Big Business & Bad Medicine" by Barlett & Steele Nov 2004 (DoubleDay)

The Financial Institutions
It is only recently that the central role of the fraud ridden financial marketplace in health care has been recognised. The part which the large financial institutions played, not only in their own frauds and scandals, but is assisting others became apparent when the DotCom bubble burst. Their involvement as advisers and facilitators in the Enron, Worldcom, and a host of other corporate scandals was revealed.

What had once been considered as "conflicts of interest", to be held at arms length, became "synergies" to be exploited for the benefit of the financiers. Analysts whose ethical responsibilities were to the investors whom they advised switched their allegiance to their financier employers and the bankers with whom they formed close relationships. They were richly rewarded for tailoring their market reports and their advice to the interests of the bankers at the expense of investors.

Compliant analysts were so valuable to their financial employers that they became very powerful. They often overrode decisions and set policy for brokers. The financial megacorps like Citigroup and UBS Warburg ran market conferences where company executives presented their successes and where close links with corporate executives were formed. Bankers and analysts not only advised these corporate contacts but attended board meetings to persuade and give legitimacy to the market practices adopted by the corporations. The bankers arranged manipulative "structured finance" to boost the balance sheets, set up floats to raise more capital, and ensured that their corporate customers were allocated large numbers of preferential shares from these floats. Analysts then overrated the potential of these floated shares in their advice to investors whose trust was abused. Share prices were sent up well beyond their true value.

Those favoured executives in on the scam made large profits and ordinary investors, whose trust was abused, were defrauded. When they complained market advocates pointed out that the market was a risky business and that by buying shares they accepted those risks. Citigroup was at the heart of what happened. A venture capitalist subsidiary is the leader in a buyout of Australia's largest hospital group, "Mayne Health" which has been renamed "Affinity Health". To illustrate these events and the way the marketplace operates I have analysed Citigroup's history and conduct.

CLICK HERE to go to the Citigroup web pages.

Financiers and Health Care Scandals
It was not until the HealthSouth fraud broke in March 2003 that the major role of the financial institutions in advising and doing deals with health care companies was revealed. HealthSouth's bankers have not yet been charged with complicity in this fraud but they certainly turned a very blind eye to what was happening under their noses.

The relationship with bankers at Salomon Smith Barney (now part of Citigroup), and later at UBS Warburg, was close and very similar to that at WorldCom. Bankers and analysts attended board meetings and were supplied with office, computer and secretarial services in HealthSouth's headquarters. Shareholders have already commenced actions against the bankers accusing them of complicity in the fraud.

I do not have details of the relationships between particular bankers and the other fraud plagued health and aged care corporations. They all worked with bankers in raising floats, had analysts assigned to cover their activities, and participated in the health care corporate meetings arranged by the financiers.

The close relationship between HealthSouth and its bankers commenced in 1986 and was maintained until the fraud was exposed. It is clear from the duration of this and from the extent of similar relationships across the marketplace, that much the same relationships with bankers would have occurred in multiple other health and aged care giants including Tenet, HCA, and the aged care chains.

Accountants and lawyers
Accountants have similarly, acted in their own interests. Accountants were required to audit company books, but they made most of their money from other accounting services provided to the same companies. While they had the responsibility of detecting fraud during their auditing, their economic well being depended on being awarded other projects by the same companies. These projects which might not have been awarded to accountants who probed too deeply. It is not surprising therefore that accountants either participated in the fraud or else turned a convenient blind eye. Arthur Andersen was a repeat offender and was put out of business. Ernst and Young denied any knowledge of the HealthSouth fraud even though they had been alerted by whistle blowers. Enron lawyers were also heavily criticised for the way the dealt with Enron's practices. Citigroup's layers happily advised Citigroup that its structured finance deals were strictly legal but not that they would be illegal if the intent was to assist in fraud. Had employees not discussed the illegality in emails which became evidence the Citigroup claim that they were doing nothing wrong in setting up the fraud for Enron would have stood up in a court of law.

Staff Movements
As is well illustrated by HealthSouth, bankers, accountants and lawyers frequently migrate to the companies they have served in the past and assume senior positions. They can maintain these links and are well placed to participate in any fraud. Several HealthSouth staff, who have come from accountants and bankers have pleaded guilty to participating in the fraud. Bankers, financiers and lawyers pepper the boards, and the ranks of senior management across the health and aged care sector.

These issues are illustrated in web pages describing
bankers and auditors at HealthSouth in a page in the HealthSouth Section, and on another page in the Citigroup section of this web site. The role of the financiers in setting up this fraud is described on the Enron page, as is the role of Arthur Andersen in another section.

Critical condition

How Health Care in America Became Big Business & Bad Medicine

Page 4
But what kind of system shuts out forty-four million Americans? What kind of system excludes people with illnesses beyond their control? What kind of system insures a husband but denies coverage to his wife. What kind of system forces people to choose between risking financial ruin and risking their lives?
Page 115
But the main intent of the restructuring was to cut jobs and reduce payrolls, the single largest cost. Talk to people who work in hospitals about a typical day, and the picture that emerges is remarkably consistent: how staff is asked to take on more work, how there are fewer people to perform it, how management is constantly pressuring them to produce more, how conditions are frequently unsafe and unsanitary. These changes are hard on everyone, especially the nurses, many of whom are so burned out and saddened by what is happening to their profession that they are leaving the field.
Critical Condition: How Health Care in America Became Big Business & Bad Medicine by Barlett & Steele

Barlett and Steele
In their ground breaking analysis of the US health system "Critical Condition: How Health Care in America Became Big Business & Bad Medicine" (Doubleday Nov 2004), Pulitzer prize winning New York Times journalists Barlett and Steele lay the blame for the failure of the health system firmly at the feet of the market system and the application of market principles. For the first time highly credible analysts in the USA place the large financial institutions at the heart of the problem. While they did not analyse the processes as I have done, they describe what has happened so confirming the accuracy of the material on these web pages and the conclusions reached. The book is short, goes to the heart of the problems and is eminently readable. They have interviewed many of those who suffered at the hands of the system and their book tells these stories to bring home the human costs. Having identified the root cause of the problem their solution takes a first step in dealing with it but falls short of what will ultimately be required.

This comments below are based in part on their book and I have illustrated this page using extracts from that book.

Wall Street Prescriptions
When Wall Street saw the potential in health care they responded to the health reform agenda by becoming instant health care experts. They set themselves up as consultants - experts in implementing marketplace efficiency and market practices - restructuring hospitals and other services for large fees. They came with a variety of impressive terms like "Just-in-Time Inventories" and "Total Quality Care ". Soon the views of these credible and impressive people became the recognised way to run hospitals. Not for profit groups followed and adopted the practices prescribed by their bankers.

Hospitals were radically restructured in order, it was claimed, to make them more efficient. The installation of just in time inventory systems meant that all too often there were no reserves. Urgently needed devices were simply not available, occasionally patients were even left lying on the operating table as equipment was frantically sought from nearby hospitals.

The intention behind all this restructuring was simply to squeeze more profits from the system. As funding was largely fixed this meant cutting costs. The major costs were staffing - nursing staff - the gentle people who provide much of the care. They are the ones who stop and spend time to talk to and empathise with patients to address their anxiety - the care in health care.

The pressures have driven the nurses to join unions. Nursing unions have been the main voices pressing for minimum staffing levels and protecting the interests of patients. But with vast numbers of disgruntled staff leaving the profession and few enrolling problems remain acute.

Page 16
The Medical Center of Aurora in Aurora, Colorado, charged an uninsured patient $24,100 for cranial and peripheral disorder treatment. The average insurer would have paid $4600 for the same care. Medicare would have paid $4100. For the hapless Colorado patient, the bill was a 424% percent premium over the price an uninsured patient would have been charged and 488 percent over Medicare.
Every type of hospital - for profit, nonprofit, community, and university - takes advantage of our most vulnerable citizens in this way. The victims are Americans who work at low paying jobs and fall between the economic cracks, folks who earn a little too much money to qualify for Medicaid or charity, but not enough to afford the stiff premiums for health insurance.
Critical Condition: How Health Care in America Became Big Business & Bad Medicine
by Barlett & Steele



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This page created January 2004 by Michael Wynne

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