Why one provider-owned HMO is flourishing while others falter · sold 250,000 shares to 400 new share-holders in Oregon at $30 per share. For- ... is flourishing while others falter

BY JAY GREENEWhile many provider-owned health plans

have lost money or failed to live up toexpectations in the past decade, 38,600-member Clear Choice Health Plansis planning for growth in 2006 with the helpof a $7 million in-state stock sale.

Last October, the Bend, Ore.-based plansold 250,000 shares to 400 new share-holders in Oregon at $30 per share. For-profit Clear Choice was formed in 1998 bya provider coalition representing about200 shareholders, mostly physicians andhospitals in the plan’s network.

Flush with cash, Clear Choice expects tolook at product and geographic expansionand potential acquisitions of third-partyadministrators and small companies, saysPatricia Gibford, the plan’s chief executiveofficer. “To grow the company, we neededaccess to capital that could not come fromthe medical community itself,” she says.

Clear Choice considered a nationwideContinued on p. 2

COV E R STO RY

Tenn. hospitals battle docs over wheresurgeries can be done Page 4

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Vol. 10/No. 2 • February 2006

Sponsored sectionsMarketplace . . . . . . . . . . . . . 11

Why one provider-owned HMOis flourishing while others falter

Patricia Gibford, left, and Gunnar Hansen, CEO and CFO, respectively, at Clear Choice.

Dav

id M

. Mo

rris

Why one provider-owned HMOis flourishing while others falter

initial public offering, but the costswere too high, says GunnarHansen, the plan’s chief financialofficer. “We had a great story tosell and wanted to broaden ourshareholder base. It had beendominated by providers in the com-munity,” Hansen says.

During the 1980s, physician- andhospital-led integrated delivery net-works began forming health plansas part of a strategy to protectpatient volume and combat thegrowing market clout of healthinsurers. But management prob-lems led to financial losses.

With its growth plans, Clear Choiceis betting against statis-tics: There’s been a22% drop in hospital-owned HMOs to 682 in2004 from 870 in2000, according to theAmerican HospitalAssociation. At thesame time, the nation’s10 largest managed-care companies haveincreased market shareto 55% of total HMOenrollment in 2005 from47% in 1987, saysHealthLeaders-InterStudy, an informa-tion company.

“We see continuedconsolidation in theindustry. Most of theactivity we see is ofprovider-sponsoredhealth plans being

acquired,” says Ed Fishman, man-aging director with the investmentbanking firm Cain Bros. But “inspecific regional or small mar-kets, (provider-sponsored plans)may do well.”

A lack of capital for expansion isone reason why provider-ownedHMOs have had difficulty compet-ing, Fishman says. “It is notunusual for provider-owned HMOsto issue stock, but it is unusual forthem to use the money for expan-sion,” he says.

Clear Choice’s members include21,000 Medicaid enrollees;10,000 Medicare Advantagemembers; 3,700 commercial

members in small- andlarge-group plans; and3,900 enrollees underthird-party administra-tive arrangements.

Despite losing moneyon Medicaid, ClearChoice finished 2004with net income of$9.6 million on revenueof $123.7 million. Thatwas up 32% from netincome of $6.5 millionon $107.9 million inrevenue in 2003.Numbers from 2005are not yet available.

“We project very favor-able growth” in 2006,Hansen says. “We havebeen averaging a 15%annual growth rate inmembership and rev-enue the last five years.

We expect similar growth trends inthe future.”

Gibford says diversification haskept Clear Choice growing. “Wesaw an opportunity to grow intoMedicare managed-care busi-ness” in 1997, she says. “We cutour teeth with a difficult Medicaidpopulation and that helped uswith Medicare.”

Clear Choice’s growth also hasbeen stimulated by a healthyregional economy and stabilizedby an organized hospital andphysician network, Gibford says.The network includes 525 physi-cians, with a 50-50 mix of special-ists and primary-care physicians inCentral Oregon IPA, and nine hos-pitals that are part of the CentralOregon Hospital Network. “Wehave about 98% of the doctorsand 100% of the hospitals in ournetwork,” she says.

Early on, Gibford says ClearChoice made a critical manage-ment decision to contract withnetwork hospitals and physicians

in a “user-friendly” yet busi-nesslike manner.

“Bad business decisions get youin trouble,” she says. “We lookedat a lot of provider-sponsoredplans and the big ‘P’ (provider) isthe hospital systems, but we arenot a hospital system.”

Gibford says she is not surprisedthat hospital-driven plans fail. “Webelieve our success is to developa user-friendly relationship with allthe players—members, employers,physicians and hospitals—andmanage our administrative andmedical dollars well.”

Clear Choice also has avoidedthe No. 1 mistake many unsuc-cessful provider-owned healthplans often make: paying doc-tors and hospitals rates theywant. “This is a business model,not a physician-reward endeav-or,” she says.

Hansen says Clear Choice paysproviders market-competitive ratesbut takes the extra step by workingwith providers on how to effectivelymanage healthcare costs. “We payclose attention to financials andwe share a lot of information” withnetwork providers, Gibford says.

Meanwhile, working closely withproviders and members helpskeep the plan’s administrativeexpenses low. “Our administrativeexpenses are 8%,” Hansen says.

A low member-turnover ratehelps, Gibford says. “Our voluntarydisenrollment for Medicare is verylow,” she says. “We have lost one

COV E R STO RY

Continued from p. 1

Continued on p. 3

Modern Physician | February 2006 • 2

‘We had a greatstory to sell andwanted to broadenour shareholderbase. It had beendominated byproviders in thecommunity.’

—Gunnar HansenChief financial officer

Clear Choice

HOSPITAL-OWNED HMOsON THE DECLINE

Source: American Hospital Association

870

715 698 693 682

2000 2001 2002 2003 2004

to owner doctors and hospitals? Iwould think there is tension,” CainBros.’ Fishman says.

Fishman says competing insurerssometimes feel they are at a disad-vantage because of the close rela-tionship that provider-owned healthplans have with their network doc-

tors and hospitals. ButGibford says she hasn’theard from insurers thatthey feel they are at acompetitive disadvan-tage because ClearChoice’s shareholdersare also doctors andhospitals in their net-work. “A couple yearsago a hospital asked usto pay them betterrates,” Gibson says.

A spokesman forLifeWise Health Plan ofOregon, a competinghealth plan also basedin Bend, says HMOs inthe central Oregonmarket compete fierce-ly on premiums and

provider reimbursement.Hansen says Clear Choice pays

network providers rates similar tothose of other health plans. “Wemake sure there is a relationshipwith the hospitals and physiciansand us,” he said. ■

commercial group in four years.”Like many small health plans,

Gibford says, Clear Choice is chal-lenged by a lack of electronic med-ical records. “We do not haveEMRs. Some physicians haveEMRs, mostly the larger groups thatare doing their ownthing,” she says.

But the companyinvests regularly in infor-mation technology topay claims, track dataand distribute clinicaland financial informationto network hospitals anddoctors, Gibford says.

Another step ClearChoice plans this yearis to develop a bonusincentive program toencourage physicians toimprove quality. “We putsimple things in placelike radiology standardsby taking dollars out ofsurplus,” Gibford says.“We will develop HEDIS(Health Plan Employer Data andInformation Set) incentives soonfor pay-for-performance.”

While a number of provider-ownedhealth plans are part of integrateddelivery networks, Clear Choicemaintains an arm’s-length relation-ship with its shareholder doctorsand hospitals to avoid conflict-of-interest charges, Gibford says.

“If I am a competing hospital, doI want to contract with an HMOthat may be directing its patients

COV E R STO RY

The path to providing

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With over 2,500 accredited organizations throughout the ambulatory

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For over 25 years, the Accreditation Association has been using an

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To learn more about how the Accreditation Association for Ambulatory Health Care can put your organization

on the path to quality health care, contact us at 847/853.6060 or [email protected], or visit www.aaahc.org.

Continued from p. 2


‘This is a businessmodel, not aphysician-rewardendeavor.’

—Patricia GibfordChief executive officer

Clear Choice

Jay Greene is a former ModernHealthcare reporter and now afreelance healthcare writer basedin St. Paul, Minn. Contact Greeneat [email protected].

BY MICHAEL ROMANOThe Tennessee Hospital

Association, which lost a court bat-tle two months ago over new stateguidelines governing office-basedsurgery, will now ask state lawmak-ers to overturn the new rules thatofficials say will greatly expand thekinds of procedures per-formed outside of hospi-tals, creating new safetyrisks for many patients.

Craig Becker, presidentand chief executive offi-cer of the association,says the guidelines,which took effect in mid-October 2005, willincrease the kinds of pro-cedures allowed in doc-tors’ offices, includingcomplicated Level III sur-geries that last as longas six hours and require as muchas 12 hours of recovery time. Twomonths ago, the Davidson CountyChancery Court rejected the asso-ciation’s request for a temporaryrestraining order to overturn theguidelines. The next step, Beckersays, is the political process.

“The battle is still going on,” Beckersays. “Basically, we’re going to theLegislature and take the battle there... we are certainly concerned aboutthis, and we think the Legislature willshare those concerns.”

The guidelines, established by

the state Board of MedicalExaminers, could endangerpatients by increasing the numberof office-based surgeries requiringanesthesia, Becker says. He saysno one can accurately predict therate of increase in complicatedoffice-based surgeries, but says

the new rules are almostcertain to boost physi-cians’ business at thesame time it reduces rev-enue at local hospitals.

“That’s what it’s allabout—revenue,” hesays. “It drains commer-cial-paying business fromhospitals at the sametime we’re seeing atremendous increase incharity care.”

Yarnell Beatty, director oflegal and government

affairs at the Tennessee MedicalAssociation, argues that the ruleswould actually decrease the numberof office-based surgeries becausethe rules add additional oversightand regulations for any use of anes-thesia. “These are rigid guidelines,”he says.

State officials say it was neces-sary to change the regulationsbecause many complex medicalprocedures, including face-lifts,were routinely being performed indoctors’ offices without any over-sight at all. ■

Surgery battle heats upTenn. association opposes out-of-hospital procedures

N E WS

Beatty: Rules addmore oversight foranesthesia use.


BY ANDIS ROBEZNIEKSAlong with buying such items as

socks, corn chips and shampoo,consumers can now get a quickmedical diagnosis from a nurse prac-titioner or physician assistant atdozens of retail stores across thecountry. Drugstores such as Bartell,Eckerd, Osco and Rite Aidas well as chains such asCub Foods and Target areinstalling in-store clinicswith specialist companieslike MinuteClinic,Minneapolis, and TakeCare Health Systems,Conshohocken, Pa.

The growth of such clin-ics prompted theAmerican Academy ofFamily Physicians, whichhas worked withMinuteClinic and TakeCare, to develop a list of necessaryattributes for such clinics. The AAFPsays in-store clinics should have:■ A well-defined and limited scopeof clinical practices;■ Evidence-based and quality-improvement-oriented clinical serv-ices and treatment plans;■ Formal connections with commu-nity physicians;■ Codified systems for referringpatients when symptoms exceed aclinic’s scope of services;■ Electronic health records systemsthat can communicate with the

patients’ family physicians.Last year, the AAFP decided

against fighting the growth of suchclinics. In a memo, AAFP BoardChair Mary Frank, M.D., statedthat “rather than expending energyin an ultimately unsuccessfulattempt to ‘stop’ the retail clinic

model,” the goal shouldbe to ensure that the clin-ics provide accurate infor-mation and operate underdesired AAFP guidelines.

There are indications ofstrong support for suchclinics. In a Wall StreetJournal Online/HarrisInteractive Health-CarePoll in October 2005, 83%of respondents agreedthat retail clinics couldprovide basic medicalservices on weekends or

evenings, when doctors’ offices aretypically closed.

That same month, the AAFPpassed a resolution at its scientificassembly calling for an investigationinto the growth of retail health clin-ics; identification of the essentialelements that the clinics shouldinclude; and leadership for helpingclinics meet community needs. Aworking group came up with the listof attributes, which was distributedto AAFP members Dec. 21, 2005,and posted on the AAFP Web site,aafp.org, in January. ■

OTC diagnosisRetail health clinics need strict guidelines: AAFP

N E WS

Frank: The AAFPis not trying tostop retail clinics.


Clinic wins McGaw PrizeVenice (Calif.) Family Clinic wonthe $100,000 Foster G. McGawPrize for excellence in communityservice. Prize judge SusanManilow, chairwoman emeritus ofnot-for-profit Sinai Health System,Chicago, commended the clinic’s“breadth and depth of primaryhealthcare and supportive services”for low-income, uninsured andminority patients in western LosAngeles County, according to anews release. Nearly 500 physi-cians volunteer to treat the clinic’s22,000 patients. The annualaward is sponsored by theAmerican Hospital Association,Baxter International Foundationand Cardinal Health Foundation.Three finalists received $10,000each: Franklin Community HealthNetwork, Farmington, Maine;Health Communities Initiative ofBartholomew County, Columbus,Ind.; and Pitt County MemorialHospital, Greenville, N.C.

Mayo pursues rural hospitalMayo Health System, Rochester,Minn., agreed to lease and eventu-ally own Cannon Falls (Minn.)Community Hospital. BeginningApril 1, Mayo will govern, manageand lease the 16-bed rural hospitaland Cannon Family Health Centerfor $1 per year from the CannonFalls Community Hospital District,says Glenn Christian, chief execu-tive officer at Cannon Falls. Thedistrict will continue operationsduring the seven-year lease toraise $2 million for a replacementhospital, Christian says. Ownership

will transfer to Mayo ahead ofschedule if construction finishesbefore the lease expires. MayoHealth System owns 15 hospitals.Mayo family physician GregAngstman will become CannonFalls’ president, CEO and medicaldirector; Christian will become thehospital’s administrator. Christiansays Cannon Falls sought sixrequests for proposal and selectedMayo for exclusive negotiations inAugust 2005.

An unlikely source of capitalIn a bid to restructure the debt ofone of its hospitals, for-profit cardio-vascular-care hospital companyMedCath Corp. has arranged to bor-row $20 million from a local not-for-profit health system. MedCath’sHarlingen (Texas) Medical Center willreceive the loan from Valley BaptistHealth System, a not-for-profit inte-grated healthcare system alsobased in Harlingen, to pay off debtand expand services. The first halfof the loan will automatically convertto equity for Valley Baptist afterthree years if Harlingen Medicalmeets undisclosed financial thresh-olds, giving Valley Baptist a minorityownership stake in the generalacute-care facility, says Art Parker,MedCath’s treasurer. Valley Baptistwould then have the option of con-verting the remaining portion of theloan to ownership, but it would stillbe minority owner, Parker says.Harlingen used proceeds from theinvestment, along with a $40 million

B R I E F LY

Continued on p. 7


mortgage loan from a third-partylender, to repay an existing debt of$60 million to its majority owner,MedCath, Parker says.

JCAHO taps doc expertiseThe Joint Commission onAccreditation of HealthcareOrganizations named 18 doctors toa “physician engagement advisorygroup” in an effort to boost themedical community’s participation inthe accreditation process andbroaden physicians’ involvement inthe JCAHO’s quality-of-care andpatient-safety initiatives. The newadvisory group includes physicianquality directors and educators,chief medical officers, private-prac-tice physicians and other leaders inthe medical community. It will bechaired by William Jacott, the com-mission’s special adviser for profes-sional relations. The JCAHO hasidentified efforts to boost physi-cians’ involvement in the accredita-tion process as a strategic priority.Greater involvement by doctors is“critically important to the successof patient-care and patient-safetyimprovement efforts,” Jacott says.

P4P penetration not too deepThere is more buzz than bucks inphysician pay-for-performance pro-grams so far, according to an issuebrief by the Center for StudyingHealth System Change, based onvisits to 12 communities. Of the 12 communities, only OrangeCounty, Calif., and Boston have sig-

nificant physician pay-for-perform-ance programs, according to theissue brief. In the remaining com-munities, “almost no physicianshave received quality-related pay-ments to date” and “physician atti-tudes about (pay-for-performance)range from skeptical to hostile,”the center says. The barriers tosuccessful programs include physi-cians’ reluctance to submit to mul-tiple performance-measurementsets, the difficulties in arriving at aconsensus set and the prevalenceof small-group practices.

Faculty stressed out, tooStress among faculty members atU.S. medical schools has led to highlevels of job dissatisfaction and anxi-ety, especially among younger fac-ulty, with about 20% showing symp-toms consistent with clinical depres-sion, according to a report in theJanuary issue of AcademicMedicine. The report, based on sur-vey responses from 1,951 academ-ic physicians and basic science fac-ulty at four medical schools, saysthe rapidly changing healthcare envi-ronment, financial instability andwork-related strain have affected fac-ulty members’ mental health and jobsatisfaction. About 35% of surveyrespondents say strain from workinterferes with family life, and 30%say they are more on edge thanbefore. “This study raises the con-cern that current medical studentsare being taught by faculty who areincreasingly stressed and dis-pirited,” the authors wrote.

B R I E F LY

Continued from p. 6


O P I N I O N

When physicians become busi-nessmen and businesswomen, theintersection of clinical practice andbusiness interest can be very dan-gerous. Just ask the prestigiousCleveland Clinic, which seems tohave run a red light (See SpecialReport, p. 10).

It all started inDecember 2005, whenEric Topol, M.D., arenowned cardiologist,was forced out as thehead of ClevelandClinic’s medicalschool. The movecame shortly afterTopol testified onbehalf of a plaintiff inone of the casesagainst drugmaker Merck over itsactions regarding its Cox-2 inhibitor,Vioxx. Not long after, he criticizedthe clinic’s chief executive, TobyCosgrove, M.D., for the latter’s myr-iad outside business interests.

Cosgrove recently resigned fromthe board of directors of AtriCure,a medical-device company whosesurgical products have been usedextensively at the clinic. The clinicis an investor in the company. Healso gave up his position as gen-eral partner of Foundation MedicalPartners, a venture-capital firmthat the clinic helped found, whichalso invested in AtriCure. Cosgroveand another doctor at the clinic

failed to disclose their ties toAtriCure in authoring a favorablepeer-reviewed article on the com-pany’s cardiac-surgery product.

Cosgrove and the board subse-quently asked for an outside experton ethics to review the clinic’s con-

flict policies. It is un-likely—given the conflictsrife in the ranks oftrustees, executives anddoctors at the famedclinic—that much willcome of this review.

For one thing, thechairman of the board,Malachi Mixon, is alsobound up in his own webof conflicts. He is theCEO of Invacare Corp., a

Cleveland-area medical devicecompany that is a supplier to theclinic. In addition, the clinic andInvacare are investors inNeuroControl Corp., anotherCleveland-area medical company,and collaborators on a state-funded project to create a clinicaltissue-engineering center thatwould develop new therapies.

There are many executives whomake hundreds of thousands ofdollars per year at their day jobswhile taking lucre from vendors.They should devote themselves tothat work and not to outside inter-ests about which they feel theneed to keep quiet.

Conflicting prioritiesDocs do IT for themselvesAs president of a large inde-pendent practice association inRhode Island, I wanted to letyou know of another approachto information technology adop-tion by physicians here(January, p. 10). Our group,Rhode Island Primary CarePhysicians Corp., is composedof 165 pure primary-care physi-cians in the fields of familypractice, internal medicine,pediatrics and obstetrics/gyne-cology. We are responsible forthe medical care of about340,000 Rhode Island resi-dents. In early 2002, after view-ing 10 to 12 available EHRs,we decided to produce our ownsystem. As a result, our sistercompany, Polaris MedicalManagement, embarked on theambitious task of producing ourown EHR.

In 2003, we introducedEpiChart, which has evolvedinto a fully functioning EHR sys-tem. The system has beencompletely designed and con-stantly updated by memberphysicians along with our ITteam. It is currently used byabout 100 physicians bothfrom our group as well as doc-tors outside of our group. Wefeel that our uniqueness lies inthe fact that our system is con-stantly improved and updated

Doc businesspersons should learn from Cleveland ClinicL E T T E R S

TODD SLOANEASSISTANT MANAGING

EDITOR OP/ED

What do you think? Let us and your fellowModern Physician readers know. Send yourletter to the editor to [email protected].

through the input of currentuser physicians, providing ahighly user-friendly system.

Albert J. Puerini Jr., M.D.President and chief

executive officerR.I. Primary Care Physicians Corp.

Polaris Medical ManagementCranston, R.I.

And some fan mailI love the new electronic versionof Modern Physician. Thank you!

Ronald E. LovelessVice president for healthcareHilb, Rogal & Hobbs of South

FloridaCoral Gables, Fla.

Just a quick note that I really likethe new Web approach you’re tak-ing with Modern Physician. I lookforward to seeing how this evolvesthroughout 2006.

Paul BerthiaumeSenior supervisor

promotional writersMedical Information

TechnologyWestwood, Mass.


BY RICHARD L. REECE, M.D.What can doctors do to improve

their business prospects in2006? Place your bets on threeactivities: political and businessactivism; creative grouping; andphysician entrepreneurs using“disruptive technologies”to improve productivity.■ Political activism is fun-damental. Take the caseof Tim Norbeck, whorecently retired as execu-tive director of theConnecticut StateMedical Society. In 2001,with the help of otherstate medical societyleaders, Tim and col-leagues in other stateslaunched an anti-racket-eering lawsuit againstnational HMOs. In 2004, the lawsuitwas settled in the doctors’ favor.The losing HMOs have funded twofoundations—the Physicians’Foundation for Health SystemsExcellence and the Physicians’Foundation for Health SystemsInnovation—with $98 million. Themoney is being used for grants to

help doctors become more effi-cient and to improve their prac-tices, particularly in their use ofelectronic medical records.

Norbeck and his colleagues’efforts show organized medicinecan win business and political

battles. Most of the $16 million in initialgrants went to primary-care organizations.

My other advice on politi-cal activism is this:Repeatedly inform yourpolitical representativesthat Medicare cuts will cre-ate a political crisis amongseniors, 65% of whomvote. Already 30% to 40%of doctors say they will notaccept new Medicarepatients if a 4% rate cut

goes through this year. Medical stu-dent enrollment is dropping; fewerphysicians are entering primary care;and a 50,000-doctor shortfall is pre-dicted by 2010, a deficit expected toreach 200,000 by 2020. Politicianswill soon be hearing from seniorswho can’t find a doctor.■ Physician-led economic groupingtakes various forms—consolidationof small groups into larger groups,joint ventures with hospitals,ambulatory surgery centers, inde-pendent practice associations andcommunity consortiums for imple-menting EMRs. My point is, in

F I R ST P E R S O N

A three-step program groups—tight or loose, even of“independent” practices—resideexpertise, marketing clout and dis-count clout. The $16 million ingrants awarded went to aggregat-ed groups of doctors.

Should doctors team with hospi-tals or go it alone? Together ispreferable, apart if necessary. Itdepends on physician relationshipswith hospital chief executive officers.It may depend on Stark laws, statecertificate-of-need laws, or inspectorgeneral’s office regulations. Rightnow the feds are considering safeharbor exemptions for joint hospital-doctor EMR ventures. Generally hos-pitals have the brand-name recogni-tion and other resources, includingcapital, to make a joint venture bet-ter than a solo deal. Also keep thisin mind: Most hospital executiveshave concluded that partnershipswith physicians are required for long-term survival. Success will dependon a critical mass and mix of hos-pital and doctor skills that appealto consumers.■ To crawl out of their economicholes, physicians must make themost of new technologies. Thebusiness world often speaks of“disruptive technologies,” whichare just simpler, more-convenientand cheaper ways of doing things.

James Weintrub, a plastic sur-geon in Providence, R.I., with thehelp of a software expert, GregBrownell, has converted the 400-page CTP code book and the900-page ICD-9 book into oneelectronic volume. For $99 per

Activism, grouping and technology can benefit docs

Reece: Primarycare is key tomanaging disease.

If you’re a physician and you’d like to tellyour business story, please contact us [email protected]. Submissions shouldbe no longer than 1,000 words and shouldinclude a color photo of the author.


year, you and your coding peoplecan subscribe to this book bygoing to the Web site dpnx.com.

Why is this “disruptive”? Well,one, you can toss those bulkycode books. Two, you can savetime looking up those codes.Three, you can find out how codesreally work. Four, you can speedhealth plan pre-authorizationrequiring codes. Five, you can con-trol and capture charges for thoseprocedures you perform out ofyour office.

What about EMRs? Don’t theyqualify as disruptive technologies?Many are promoting EMRs as aholy grail. Everybody knows, exceptfor practicing doctors, that EMRimplementation is the thing to do.It’s being pushed by government,health plans, pundits, economists,and more than 100 EMR vendors,all of whom benefit one way oranother by EMR implementation.

Certainly EMRs are disruptive. Butthey are not simple. They changeworkflow, initially lower productivity,suck up lots of money—as much as$44,000 per physician the firstyear—and encounter resistancefrom many physicians within anygiven group. But the handwriting ison the wall. By 2010, EMRs willprobably be necessary for practicemarketing and survival. ■

Richard L. Reece, M.D., is apathologist, author and speaker basedin Old Saybrook, Conn. He is alsoeditor of Physicians Practice Options,a national monthly newsletter.

S P EC I A L R E P O RT

BY MICHAEL ROMANOThe Cleveland Clinic ranks among the best-

known hospitals in the nation, joining institu-tions such as Johns Hopkins Hospital and theMayo Clinic among healthcare’s aristocracy.

But the elite institution is now strugglingwith ethical issues that have triggered anuncomfortable self-examination over potentialconflicts in its business practices and thecozy relationships that exist between top offi-cials, physicians and the high-tech vendorsthat sell products to the clinic.

Yet, despite the self-analysis and outside criti-cism, the brash ClevelandClinic announced plans toco-sponsor a new educa-tional track with a local uni-versity to better train futurehealthcare industry leaders(See sidebar).

Toby Cosgrove, the hos-pital’s president and chiefexecutive officer, askedfor an independent reviewof conflict-of-interest poli-

cies just days after news reports in mid-December 2005 detailed his role as a boardmember of a medical-device company thatthe clinic helped found through a venture-cap-ital partnership. The clinic reportedly ownsabout $7 million worth of stock in AtriCure,whose products are used by clinic doctors tocorrect atrial fibrillation.

Cosgrove, a well-known cardiac surgeon,invested in the venture-capital fund and servedas a general partner until he cut his ties aboutlate last year.

The well-publicized controversy at the famoushospital could trigger soul-searching at otherinstitutions grappling with this potentiallyvolatile mixture of private industry, academicresearch, patient care and profits.

For example, revelations of the ClevelandClinic’s arrangements with vendors led to acritical reappraisal of the 3-year-old conflict-of-interest policy at the Johns HopkinsUniversity School of Medicine in Baltimore,says Julie Gottlieb, assistant dean for policy coordination.

“I think many institutions are evaluating whatpolicies and procedures they have in place tocapture and manage or eliminate conflicts ofinterest,” Gottlieb says. “This (situation with theclinic) is a very high-profile case. It’s a strongreminder to all of us in this business that weneed to make sure we have robust policies.”

To some, the case is another example of theblurred ethical lines in an industry where drugcompanies lavish gifts on doctors to prescribetheir costly medicines, and peer-reviewed med-ical studies are conducted by researchers withties to drug companies.

Late last year, the Journal of Thoracic andCardiovascular Surgery announced a new poli-cy that will bar authors who fail to disclosefinancial ties to industry. The tough new guide-lines stemmed from the failure of two authors,including Cleveland Clinic heart surgeon MarkGillinov, to disclose their financial ties toAtriCure in a September 2005 article that castthe company in a positive light.

Meanwhile, it has become more routine fordoctors and healthcare executives to sit onthe boards of directors of for-profit vendors

Cosgrove orderedoutside review ofconflict policies.


Walking the lineCleveland Clinic navigates conflicts

Injecting realityOhio clinic, school team up to teach

BY MICHAEL ROMANOThe Cleveland Clinic is teaming

with Case Western ReserveUniversity’s Weatherhead School ofManagement on an educational pro-gram for healthcare executives as away to boost the skills of tomorrow’shealthcare leaders.

As many as four “health-managementscholars” will begin their studies thisfall in the school’s MBA program, witha concentration of health systems man-agement. The students also will fulfill “actionlearning” requirements through working on areal-life project for a local organization, a sum-mer internship at the hospital and seminars

taught by clinic managers. Weatherhead Dean Myron Roomkin says he

knows of no other health-management program in the country with such a close rela-

tionship to an institution such as theCleveland Clinic.

The clinic, he says, will help selectthe “elite” scholars and provide alearning laboratory that features thehospital’s top practitioners and admin-istrators as teachers.

He says the collaboration, which pro-vides considerable hands-on training tofuture leaders of healthcare institu-tions, is a natural progression in thelong-term relationship between the two

Cleveland institutions. Top clinic executivesoften enroll in the school’s executive educa-tion program, and the school is a pipeline fortop managers at the hospital. ■

Roomkin: Anaturalprogression.

Continued on p. 11

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industry erode research integrityand hurt patient care. “No matterwhat you are told by any physicianor administrator, these gifts––nomatter how small––influence doc-tors’ behavior,” says DavidRothman, president of theInstitute on Medicine as aProfession in New York.

The think tank at the ColumbiaUniversity College of Physiciansand Surgeons helped fund thereport by a group of about a dozenmedical experts who urged aca-demic medical centers to take thelead in abolishing gifts of any size,including meals, payment for travelor for participating in continuingmedical-education programs, andto strictly regulate ties betweendoctors and drug companies.

M A R K E T P L AC E Modern Physician | February 2006 • 11

that do business with their insti-tutions, a situation that can gen-erate at least the perception of aconflict of interest.

In February 2005, the NationalInstitutes of Health unveiled astrict policy prohibiting all employ-ees from taking drug-companymoney in the aftermath of newsreports that raised questionsabout those relationships.

And just last month, an articlepublished in the Jan. 25 Journal ofthe American Medical Associationcalls for rigid guidelines that wouldprohibit drug companies from pro-viding physicians with gifts of anykind, saying that long-standingfinancial ties between the medicalprofession and pharmaceutical

Other recommendations include:replacing direct drug samples witha system of vouchers for low-income patients and insulatingcontinuing medical education fromindustry influence by requiringcompanies to contribute to a central academic office that would disperse funds to individualprograms.

“There’s kind of a tsunami oftrouble out there for healthcare interms of these kinds of conflicts,”says Arthur Caplan, director of theCenter for Bioethics at theUniversity of Pennsylvania. “The sit-uation with the Cleveland Clinic maybe a big wave, but it’s just one ofmany. It definitely gives the clinic ablack eye. I think they’re going tohave some work to do to rebuild

their reputation.”Like Gottlieb, Caplan says he

thinks the harsh media attentionfocused on the Cleveland Clinicsends a “strong message” toother institutions that “You’d bet-ter re-examine policies andstances on conflicts of interest.”While he suggests that the indus-try “doesn’t know or have anagreement on how to manage con-flicts of interest,” he says the sim-ple formula boils down to two keyprinciples: “One: Where there areconflicts, disclose them; and, two:Don’t study what you own.

“I think the biggest lesson fromthe Cleveland Clinic situation isthat no institution—even ourbest—has figured out a way tomanage conflicts of interest.” ■

Continued from p. 10

BY T H E N U M B E R S

MATCHMAKING CHALLENGES

Source: Medical Group Management Association and Merritt, Hawkins & Associates 2005 Survey of Physician Recruiting Trends

Finding the right kind of doctor is hospitals’ biggest physician- recruiting challenge, far outweighing hospitals’ ability to offer competitive incentives, according to a survey by Merritt,Hawkins & Associates. In addition, meeting the requirementsof a physician’s spouse presents a significant challenge tohospitals’ physician recruiters, according to Merritt, Hawkins.

ChallengePercentage of respondents rating

it among most difficult

Finding physicians who fit facility’s parameters

Geographic location of facility

Meeting requirements of the physician’s spouse

Overall physician shortage

Ability to offer competitive incentives

29%

PUTTING IN THE HOURS

Source: MGMA Physician Compensation and Production Survey, 2005 report based on 2004 data

Mean clinical service hours worked per week for selected physician specialities

BIGGER PRACTICE, BIGGER PAYCHECK

Source: MGMA Management Compensation Survey, 2005 report based on 2004 data

Medical group CEO pay by practice revenue

2005

$2 millionto $5 million




$50 millionor more

$106,685$128,448

$153,910

$189,317

$291,554

47.5

Cardiology: invasive, interventional

Family practice (without obstetrics)

36.7

Orthopedic surgery: general41.1

Internal medicine: general

37.9

Pediatrics: general36.4

Cardiovascular surgery

48.9

PayRevenue

55%

50%

43%

35%

Modern Physicisn | February 2006 • 12

N E WS M A K E R S

ASSOCIATIONSRaymond Fabius, M.D., presidentof I-trax, a Chadds Ford, Pa.-basedcompany offering health-manage-ment solutions, was elected to theAmerican College of PhysicianExecutives board of directors.Fabius, 51, is a pediatrician andauthor of the book Total CareManagement—A PhysicianExecutive’s Guide to MedicalManagement in the 21st Century.He served as global medicalleader at General Electric Co.before joining I-trax in April 2005.

GROUPSKarl Ulrich, M.D., a psychiatristwho is a division medical directorof the Marshfield (Wis.) Clinic, was

named presidentof the medicalgroup and health-care system.Ulrich is the 19thdoctor to serve asthe leader of the728-physiciangroup practice,replacing internistFrederic

Wesbrook, M.D., 60, who com-pleted his fourth term as presi-dent. Ulrich, 56, joined Marshfield

in November 1995 and chaired theclinic’s department of psychiatryand behavioral health from 1997to 1999.

HOSPITALS, SYSTEMSMichael Eleff, M.D., was namedmedical director of the CancerInstitute of New Jersey at theRobert Wood Johnson UniversityHospital at Hamilton. Eleff, 51,was most recently chief medicalofficer for ITA Partners, an oncol-ogy disease-management companyin Philadelphia … St. Luke’sEpiscopal Hospital, Houston, pro-moted its chief medical officer,David Pate, M.D.,to senior vicepresident andCEO. Pate, 49, aspecialist in inter-nal medicine, hasboth a medicaldegree and lawdegree. He is anadjunct professorat the University ofHouston Law Center. The 685-bedhospital is the flagship of St. Luke’sHealth System, Houston … RobertRyan, M.D., was named chief med-ical officer of Bon SecoursHampton Roads Health System,Norfolk, Va. Ryan, 59, is replacingThomas Thames, M.D., 50, whoheld the job on an interim basisand is now vice president of med-ical affairs at Bon Secours DePaulMedical Center in Norfolk. Ryanspent the past two years consult-ing with healthcare organizations,

particularly on information technol-ogy adoption.

INSURERSAetna Chairman and ChiefExecutive Officer John Rowe,M.D., will retire to become a con-sultant for the health insurancegiant at the end of 2006 when hisemployment contract expires. Asof Feb. 14, Aetna PresidentRonald Williams, 56, will becomeCEO and take over managementresponsibility from Rowe, 61, whowill trade in his chairman title forexecutive chairman through theremainder of his contract. Aetna,Hartford, Conn., says Rowe, asexecutive chairman of the board,will “continue to be an active, full-time executive” until his retire-ment and then be hired as a con-sultant to allow the company totap into his “significant expertiseon specific business issues relatedto health.”

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SUPPLIERS, VENDORSRussell Holman, M.D., 38, waspromoted to senior vice president

of Irvine, Calif.-based CogentHealthcare, aprovider of hospi-talist programs.Holman, who willcontinue in hiscurrent role asnational medicaldirector, will helpdirect the overall

medical operations and physician-development programs at Cogent,which manages hospitalist pro-grams in more than 16 states …Richard Kremsdorf, M.D., 58,president and chief executiveofficer of CliniComp International,a San Diego-based provider ofclinical information tools foracute-care hospitals and academ-ic medical centers, resigned tobecome president of Five RightsConsulting in San Diego.

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Ulrich

Pate

Holman

Why one provider-owned HMO is flourishing while others falter · sold 250,000 shares to 400 new share-holders in Oregon at $30 per share. For- ... is flourishing while others falter

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