Dr J Michael Wynne

Based on a presentation and paper

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, published by the University of Queensland Press. pages 98-127

(http://www.uow.edu.au/arts/sts/bmartin/dissent/documents/health)

SYNOPSIS

ABSTRACT

1. INTRODUCTION

1.1 Metaphors for medical care
1.2 The situation in Australia
1.3 The USA as an example

2. THE DEVELOPMENT OF CORPORATE MEDICINE IN THE USA

2.1 The birth of corporate medicine in the 1960's
2.2 Corporate responses to the regulation of health care in the 1980's
2.3 The consequences of deregulation in the late 1980's and early 1990's

3. CORPORATE RESPONSIBILITY TO THE STOCK MARKET

4. THE INFLUENCE OF THE STOCK MARKET ON CORPORATE PRACTICES

4.1 Corporate Priorities
4.2 Corporate Practices
4.3 The Bubble Bursts
4.4 The situation in the USA today
4.5 The US Solution

5. NATIONAL MEDICAL ENTERPRISES (NME): AN ANALYSIS

5.1 Basis for this review
5.2 History
5.3 NME's structure
5.4 Corporate Culture
5.5 Training Programs
5.6 Administrator Driven Admissions
5.7 Targeting Children
5.8 Bounty hunters
5.9 Keeping patients in hospital
5.10 Making money
5.11 Dishonest money strategies
5.12 Control of staff
5.13 Use of role models
5.14 Compliance by the medical profession
5.15 Patient care
5.16 Whistle Blowers
5.17 NME's strategies during the legal proceedings
5.18 Tenet/NME's current strategies - a new integrity
5.19 NME's new ethics structures
5.20 Corporate perceptions

6. AUSTRALIA'S RESPONSE TO NME

6.1 Background
6.2 The sale of Markalinga to NME
6.3 NME's promises
6.4 Hospital Licences
6.5 The Four Corners program
6.6 NSW Health investigates
6.7 Perceptions by Australian administrators and the profession
6.8 West Australia
6.9 Further evidence in New South Wales
6.10 The licence determination
6.11 Renewed support for NME
6.12 NME/AME attempts further expansion in Australia
6.13 The Singapore Court Transcripts
6.14 Australian bureaucracy does it again
6.15 Do things ever change?

7. CONCLUSIONS

Update on Tenet Healthcare February & July 2007

8. RESOURCES ON WHICH THIS REVIEW IS BASED

8.1 United States of America
8.2 Singapore
8.3 Australia
8.4 United Kingdom

The frames of reference through which we interpret the world we live in and the actions we take have a profound impact on the plans we make and their consequences. Different groups will apply different perceptions to the same situations and there will be conflicts. Where one group comes to dominate then the actions they advocate are likely to prevail regardless of the consequences for the other groups. Several different groups now compete in the development of health services and surgery cannot be immune. Medical services including the provision of surgery are increasingly costly and cost considerations dominate decision making. Decision making is increasingly made within a financial or marketplace frame of reference. This dominates the thinking of politicians, health managers and businessmen who increasingly fund modern healthcare. Doctors are identifying with this and thinking in the same terms.

This paper analyses the development of marketplace solutions for medicine in the USA. It analyses the behaviour of one of the largest US medical corporations, National Medical Enterprises (NME). It shows how the subjugation of alternative frames of interpretation to market perspectives resulted in a severely dysfunctional health system which had disastrous consequences for health care. Hundreds of doctors abandoned their medical traditions as they adopted a purely market mindset, transferred their allegiance to the corporation and cooperated in the systematic exploitation of their patients for profit. NME has paid massive fraud settlements and half its hospitals have pleaded guilty to criminal activities.

In spite of warnings and adequate information Australian politicians and federal bureaucrats saw the US system as the solution to our problems and welcomed NME to Australia. I describe their conduct and reveal how NME came to leave Australia.

The marketplace frame of analysis is deeply entrenched. US regulators, corporate executives and Australian authorities still frame solutions almost entirely within a marketplace perspective.

Society increasingly sees medicine as a business. Solutions to Healthcares problems are developed within a marketplace paradigm.

This paper analyses the development of "for profit" medical corporations in the USA. It examines the conduct of the company National Medical Enterprises (NME) as it developed its medical services within a dominant business culture. The application of business principles resulted in the systematic exploitation of innocent and trusting people who had come to the company's hospitals for help. Doctors were induced to place the interests of the company ahead of their duty to patients. They signed the authorisation.

Australian businessmen and politicians welcomed NME into Australia ignoring its conduct in the USA. Their behaviour and the manner in which NME was finally induced to leave is described.

Politicians, businessmen and bureaucrats in Australia and the USA continue to view health services entirely within a marketplace paradigm. Surgery is not exempt.

1. INTRODUCTION

The frames of reference through which we interpret the world we live in and the actions we take have a profound impact on the plans we make and their consequences. Different groups will apply different understandings to the same situations and there will be conflict. Where one group comes to dominate then the actions they advocate are likely to prevail regardless of the insights provided by other viewpoints and the consequences for others. Several different groups now compete in the development of health services and surgery is only one of these. Medical services including the provision of surgery are increasingly costly and cost considerations dominate decision making. Decision making is increasingly made within a financial or marketplace frame of reference. This dominates the thinking of politicians, health managers and businessmen who increasingly fund modern healthcare. Doctors are identifying with this.

History is filled with situations where communities are engulfed by disturbing events. These disrupt their lives and cannot be handled within the existing frames of analysis. At such times we are very vulnerable to new patterns of thought which provide solutions to the immediate problems but conflict with our cultural heritage and established ideas. We develop strategies to cope with the conflict between different perspectives. These allow us to pay lip service to our cultural heritage while taking immediately beneficial actions which are in total conflict.

The financial turmoil in Europe following the first world war allowed Hitler to sell an amoral ideology which solved Germany's acute financial problems. It also resulted in a world war, the systematic extermination of 6 million Jews and the destruction of Germany. The collapse of colonialism and the ideas on which it was based created an intolerable situation for the white population of South Africa. They came to own the concept of apartheid which was in direct conflict with large portions of their cultural heritage. It had short term gains for the white population but disastrous consequences for the black population and for the ultimate welfare of all the inhabitants of the country .

As doctors, with a scientific training we feel we are immune from such forces. I hope to persuade you that this is not so. Technology and rising costs are forcing changes. The dominant status of the profession is being eroded by other groups. The frames of interpretation from our cultural heritage are being repeatedly challenged and alternative viewpoints promoted. Those wishing to influence us will make every effort to induce us to embrace and own the ideas on which the changes they propose are based. We are vulnerable.

1.1 Metaphors for medical care:- Annas recently analysed three metaphors for medical care, the military metaphor where medicine is seen as a battle against disease, the market metaphor where medicine is seen as a business and an ecological metaphor which he favours. The ecological metaphor sees medicine in ecological terms for the benefit of the community. Annas fails to separately define a medical metaphor which sees medicine as a humanitarian endeavour built on a one to one relationship of trust and personal responsibility. In this metaphor the welfare of the individual receives priority over other considerations. While most doctors assimilate this metaphor during their training and come to own it, the ideas on which it is based are not fashionable. It's paternalistic approach is socially unacceptable. Few of us will boast publicly of a humanitarian "calling" to serve others. Annas also fails to point out that each of the other metaphors is in conflict with the medical metaphor in that the patient's interests are put second. It is because the medical metaphor is given priority by the health profession that the insights from the other metaphors prove useful and are not destructive for individuals.

Annas indicates that the Clinton health plans failed because they employed mixed metaphors and therefore did not provide coherent solutions which could be sold. As he points out we are uncomfortable operating with conflicting metaphors and we are not persuaded by proposals which utilise conflicting frames of interpretation. My thesis is that we must not fall prey to this trap. Conflicts between metaphors must be confronted and resolved. Rational argument within alternate frames of interpretation is anathema to the evangelist. Such people are careful to set the parameters within which discussion will take place so that it is framed within the ideas being promoted. In this situation it becomes difficult for unprepared individuals to clearly articulate their discomfort in regard to the concepts being promoted. When government bodies and major community groups are controlled by people with strong commitments to a particular viewpoint then we are most at risk. They have credibility and can control group perceptions.

1.2 The situation in Australia:- At the present time technology and financial pressures are radically changing the context within which medicine is practiced. We all feel threatened and challenged. There are strong political pressures towards the exclusive adoption of a market metaphor when making decisions. This is developed within the framework of managerialism. Both ignore the ultimate reality that medicine is practiced in a one to one relationship in which the doctor takes time to carefully assess the patient and then acts altruistically in the best interests of the patient. They are not party to this. These two non-medical frameworks can only contribute positively to this process by providing better services and greater efficiency outside the patient encounter. Both can be accomplished without market forces and excessive managerialism. The market demands profits and managerialism demands an expensive bureaucracy. When we have limited resources then the resources for both can only come from persuading doctors to alter the nature of the patient encounter in ways which may not give the patient's interests priority. In accepting the insights and useful contributions from these different groups we must not lose sight of their potential adverse impact on patient care.

1.3 The USA as an example:- Our problems closely follow the USA and we often copy their solutions. I am going to analyse the impact of market forces on medicine in the US health service. These were driven by a powerful group of carefully trained hospital administrators. I will use as an example the conduct of one of the largest medical corporations, National Medical Enterprises (NME). NME's success was idolised by stockbrokers. It indulged in disgraceful conduct in order to generate massive profits. Large numbers of documents are available for analysis. This company gained a foothold in Australia and the response of Australians is illuminating. I have no information in regard to NME's practices in supplying surgical services but the insights gained are applicable to all fields of medicine

NME was the prime offender but its practices are representative of similar practices adopted by other corporations. The company's financial success made it very credible and highly infectious. Others trying to compete poached its trained administrators and adopted the same practices. NME ultimately pleaded guilty to grossly unethical and criminal activities in the name of a subsidiary. Over half of its hospitals were listed in this guilty plea. NME have paid out probably in excess of US $700 million to settle actions for fraud. They were forced to sell over 75% of their US hospitals and now operate under court imposed restrictions. The fraudulent care was provided by health professionals and was ordered and signed for by members of the medical profession. Most came to own and give priority to the marketplace ideas on which corporate conduct was founded. They were well rewarded for doing so. Few dared speak out and those who did were mercilessly crushed. A colleague who did not identify with these practices and who did speak out described the hospital where he worked as "a dysfunctional family unit which had negative consequences for patient care". The company was so credible that it was only when dedicated employees kidnapped a teenager that the situation was exposed.

This can't happen here! :- I have been repeatedly assured by my colleagues that these things could not happen here. Our system is different. The operation of these same conceptual processes in Australia will be illustrated by the conduct of our politicians and of our health authorities in their dealings with NME when it entered Australia. We were only too willing to turn a blind eye to what was happening in the USA and the likely consequences for Australia in return for short term benefits, perceived within a political and financial frame of reference.

2. THE DEVELOPMENT OF CORPORATE MEDICINE IN THE USA

Large corporations have the wealth needed to fund badly needed and expensive medical services. They promise much and are capable of delivering. The reality is that they have not always done so. In the USA their advent has been marked by the abandonment of the ethical traditions of medical practice, exploitation of trusting people, escalating costs, deteriorating services, the migration of criminals from drugs to health care and a loss of humanity in health providers. Medical corporations employ skilled public relations teams to promote their interests. Their is evidence that businessmen in other countries are moving to adopt the same corporate approach to medicine and that this solution to the problems of healthcare has strong political support. This review examines the down side of corporate medicine. It is based on the works of Dave Lindorff (Marketplace Medicine), Ron Williams (Remission Impossible) and a study of the practices of National Medical Enterprises (NME) and other US multinational medical corporations.

2.1 The birth of corporate medicine in the 1960's:- In the 1960's US authorities initiated a system of medical insurance under the medicare and medicaid programs. This supplemented a system of private health insurance. These programs provided medical care for large numbers of previously disadvantaged citizens but relied on the ethical commitment of providers to prevent their exploitation. Opportunistic lawyers and businessmen soon formed organisations to exploit the situation and corporate medicine was born. These persons had little understanding of the relationships between doctors and their patients. The foundations were laid for the aggressive corporate activity and uncaring impersonal attitudes which have characterised sections of US medicine. Patterns of thought arose which saw medicine entirely within an administrative and business framework. The traditional framework within which medicine had been practiced by the medical profession was considered to be obsolete. Those, like Arthur Relman who spoke from an understanding of the nature of clinical care were discredited. The following are extracts from letters written some time later to NME's administrators by doctors working in their hospitals. They illustrate the ultimate disruption of the context within which doctors practiced caring and ethical medicine. This loss of professional credibility and influence ultimately permitted the introduction of a corporate ideology which legitimised the generation of profits at the expense of patient welfare.

Over the last few years there has been a gradual erosion of the power of the Medical directors so that in many hospitals there was just a facade of clinical care.

--- Medical Directors and Clinical Directors were kept out of the information loop

I wonder what is the purpose of having medical committees where the physicians have no authority and cannot make any decision pertaining to Laurelwood hospital.

"If people had questions about the tactics recommended from the top, they were not considered a team player and ultimately pushed aside."

"Nurses are told not to take orders from physicians"

"Admissions are handled by people with high school education"

The concepts within which the new medical policies were developed were validated by their financial success. Companies grew rapidly and became very wealthy. Unreasonable expectations for growth and profits were developed. Stockbrokers were delighted and company directors became the slaves to a greedy share market. Investigations and criminal prosecutions planned by the FBI in the late 1970's were prevented by a lack of funding. Their limited resources were directed to the more pressing national problem of drugs. Over the years the dysfunctional patterns of thought have been refined and the corporations which espoused them have become increasingly credible. Younger doctors growing up with all this have been seduced by the plausible sounding business jargon and the financial rewards which they reap by cooperation.

Increasingly corporate medical administrators have come to control hospitals and medical policy making. Their status and plausible sounding solutions have brought them increasing credibility. Lindorff is highly critical of corporate claims that profits come from increased efficiency rather than increased costs and skimping on patient care. The exposure of dreadful standards of care, the exploitation of trusting people and the remarkable business practices of companies like NME indicate that in large sections of the US for profit sector it has not. Lindorff and Relman have been shown to be prophets whose warnings fell on deaf ears.

2.2 Corporate responses to the regulation of health care in the 1980's:- In the early 1980's regulators moved to contain the escalating costs of care generated by US general hospitals. Effective controls were introduced to control corporate exploitation. Diseases and their treatment could be clearly defined. Treatment programs were monitored and mechanisms set in place for policing. The corporate response to this was to use public relations techniques to create a new market in ill defined areas which could not be effectively policed. Substance abuse, psychiatry and rehabilitation hospitals became massive growth areas. Large numbers of people were persuaded that they were ill.

With the demise of communism as a world force, political theorists who espoused the virtues of market forces over regulation came to dominate US political thought. The marketplace ethic was applied to medicine by politicians as never before in the illusionary belief that market forces would act as a controlling force to contain costs and maintain standards. State authorities had previously required companies to show a clinical need before receiving licences to build new hospitals. These restrictions were removed and companies were allowed to do much as they pleased. That market forces can only operate effectively when the user is informed and the nature of the service can be evaluated was conveniently ignored by the political theorists.

2.3 The consequences of deregulation in the late 1980's and early 1990's:- Market forces resulted in a massive oversupply of hospital services, scare advertising in order to create a false market, misinformation of patients to induce them to admit themselves to hospital, overservicing, overcharging and many fraudulent practices. Vast profits were made. Corporations acquired great credibility because of their wealth. They cultivated this further by making generous donations to research, charity, human rights movements and by forming relationships with academic institutions. They were well represented on accreditation and certification bodies and formed a powerful lobby group in Washington called the Federation of American Health Systems. They made loud and plausible claims to ethical conduct. They gained control over doctors who were the only people with the knowledge needed to expose what was happening. Because the "customers" were ignorant they could be persuaded that what they were receiving was high quality needed medical treatment which would benefit them. Medical costs rose alarmingly and standards of care fell. The prime offender and the leader in these practices was NME. To compete others had to adopt the same practices and they poached NME's trained staff in order to attain comparable profits for shareholders.

Credible and supposedly reputable businessmen saw regulations and accreditation procedures which controlled conduct and protected the welfare of patients as no more than an obstruction to legitimate business practices. While paying lip service to them, their intention was subverted. Required processes such as quality assurance were emasculated and used to support corporate activities.

3. CORPORATE RESPONSIBILITY TO THE STOCK MARKET.

Loyalty was to shareholders. The stock market became the driving force for corporate medicine. The attitudes of the business community are reflected in statements made about NME by stockbrokers in 1991 before and after the fraud was exposed. They chose to ignore the exposure of frightening and dysfunctional practices in NME's US hospitals. NME was very credible because of its financial performance. It could do no wrong.

"NME is America's pre-eminent specialty hospital manager and has achieved an enviable growth record in managing its specialty (psychiatric and rehabilitation) hospitals. Its specialty hospital operating profits were up 39% in fiscal 1989 and were up 23% in fiscal 1990 and 15.1% in the first half of fiscal 1991."

"---------- the effective way in which the company runs its operations."

Money was made by admitting more patients, having the hospitals full (ie census), keeping patients longer and making more money out of them each day by using a programmed system of care which extended for the full duration of the patients insurance and gave as much treatment as could be given each day. These were the measures of success and stockbrokers reported on them

"The company has by far the highest occupancy rate in the business. Its programmed approach to psychiatric care has proven very successful. - - - - - - - - - - - Revenues per patient day will continue to experience double-digit growth, and capacity is likely to continue to expand by at least 10%."

Financial success was automatically equated with high quality care - using the form of words rather than their substance

"In psychiatry and rehabilitation, NME's businesses are major factors that have achieved leading clinical positions in their respective specialties."

"NME is unique in that it is among the premier providers in each segment in which it participates."

Stockbrokers understood that the financial success of the business depended on securing admissions and providing services. Doctors controlled admissions and the treatment given. NME strategies for attracting doctors with large practices were highly regarded. It spent large sums of money to purchase the latest equipment which would attract doctors.

"However, success depends critically upon the ability to attract patients."

"In summary, hospitals face many seemingly insurmountable challenges. However, the item that stands out as the most critical to a hospital's success is its ability to attract patients and the doctors who refer them."

"Possible Response:- Joint services with physicians, add services or offices desired by physicians"

"Under the Medicare DRG system (which accounts for roughly 40% of hospital reimbursements), physicians and hospitals do not always have common objectives. ----------------------------------- These conflicts of interest persist, although hospitals have become more adept at resolving them."

The company's strategy for increasing utilization focuses on recruiting key doctors already established in a community. "

"---- hospitals must spend a great deal of time and money to attract physicians with big practices in order to ensure a flow of patients. "

"Helping a physician defray certain costs of doing business can be a powerful carrot to get his patient referrals."

"These conflicts of interest (with physicians) persist, although hospitals have become more adept at resolving them."

NME promoted a policy of product differentiation to attract referrals. Hospitals advertised highly specialised units in their hospitals to draw patients and increase profits. Doctors were promoted as experts and lecture tours were arranged for them. The possible consequences of turning doctors who have been in busy practices for several years into overnight superspecialists using the most sophisticated equipment in order to meet corporate business objectives must be considered. Would administrators tolerate interference by colleagues or quality assurance committees when these doctors who bring in the well insured patients are found to be deficient and out of date in the specialised area into which they have been pushed.

"Also aiding results is National Medical Enterprises' proven ability to consistently gain market share from its competitors by aggressively adding new technologies, specialising its service capabilities, and recruiting physicians. The company's success in rehabilitation hospitals is a particularly good example, as it represents 14% of earnings today and could become 25% by 1996."

"NME has successfully used a product differentiation strategy to attract high-margin hospital business."

NME like other corporations was accused of creating a market by fanning community anxieties. Stockbrokers reported on an interview with an NME executive

"The marketing efforts that I was describing are really the marketing effort followed by every single hospital in just the day to day routine of the telling of that hospital story and capabilities to the community and to the referral community. "

"The division also provides literature on a variety of mental health disorders, authored by physicians and counsellors at the facilities, through the PIA Press, whose 40-plus books are gaining national recognition as an information source on emotional problems and their treatment."

These books were advertised by NME to hospitals under the title "books as hooks" claiming that they were a proven way to increase a hospital's census. The morality of fanning the public's anxieties in search of admissions is revealing.

Profits per patient per day were critical and NME developed strategies for maximising profits from each patient, without regard to their medical needs.

"Once the hospital is able to achieve a strong patient flow, the other problems associated with running the business can be managed effectively. "

The division's facilities feature a programmatic model of care, whereby each patient enters a program dedicated to his or her particular diagnosis and receives specialized treatment; there are currently 70 such programs under way at the division's facilities. "

These programs were considered to be fraudulent by doctors giving evidence to inquiries. It was alleged that diagnoses were tailored to insurance cover and potential profits. Court allegations include extensive overservicing.

Stockbrokers refused to abandon their positive perceptions of this credible company even after exposures of its repugnant practices. They compartmentalised the discrepancies, rationalising their continued support . They chose to believe the company's claims.

"That recent barrage of negative publicity surrounding recruiting practices in the psych industry, especially in Texas, will cause an interruption in growth this year. However, we do not believe that it is permanent."

"Although the company faces substantial challenges to return its psychiatric division to profitability, the worst is behind it; management has revealed an aggressive action plan aimed at streamlining psychiatric facilities in an effort to get the operation back on track. "

"The TBI (traumatic brain injury) units that are at the hub of the negative publicity and potential investigations are significantly different operations than the acute facilities that NME operates. "

"In any case, we assume that the media will find something else to focus on by fiscal 1993. "

"Our instincts were correct, and it now looks as if a turnaround in this business may be long in the making."

"the company has traditionally had the highest length of stay and revenue per day in the industry. "

"NME conducted an audit of its facilities at the division, with positive results revealing none of the deficiencies found in the audit of the psychiatric division."

"NME undertook its own internal review and has, we believe, moved to correct these unacceptable practices. "

Stockbrokers praised NME's strategy when it sold most of its general hospitals, retaining only 35 and moved into psychiatry, chemical dependency and rehabilitation where there were few controls. In 1991 it owned over 150 US hospitals. The attitude of the stock market to NME's strategy to escape regulations protecting patients is illustrated by comments about NME's international expansion.

"The company's rationale for its current and future foreign operations lies in the fact that the hospital business is not hindered by government legislature limiting lengths of stay and monitoring reimbursement; further, there is less competition, more demand, and all private reimbursement in foreign markets"

4. THE INFLUENCE OF THE STOCK MARKET ON CORPORATE PRACTICES

4.1 Corporate Priorities:- That shareholders and the stock market were the driving force in determining corporate policy and the treatment received by patients is reflected in 1988 instructions to administrators in Recovery Centres of America (RCA), one of NME's subsidiaries. They were instructed to call staff meetings in order to ensure that staff were aware of corporate financial considerations. They were given "goals" for these staff meetings.

"To Clear up misconceptions. Example. We exist as a company to provide a high quality service to our patients (and in some cases society). I have heard individuals within the company make remarks along these lines and it is absolute nonsense. Lets call a spade a spade: We are here for one reason only - to make a profit for the shareholders who put up the money so that we could exist in the first place. "

The memorandum did go on to qualify this by some references to standards of care, rationalising this statement by claiming that the objectives were congruent

4.2 Corporate Practices:- NME's documents reveal the patterns of thought adopted by corporate medicine. These are congruent with the analysis of corporate medicine made by Lindorff. NME's activities were carefully planned and executed within a business framework which had its own terminology. Central administrators maintained tight control and took an interest in the day to day administration of the hospitals. All activities were evaluated, but only in financial terms. Reports were sent up and down the system. The concept used to drive the massive fraud was the idea of "plan".Plans were based on the financial indicators employed by stockbrokers to analyse corporate performance. These included admission rate, census (ie bed occupancy), length of stay and average profit per patient per day. Different insurers paid at different rates and for different conditions. A financially beneficial "payor mix" was therefore another marker of corporate success. Every effort was directed to increasing these positive indicators . Marketing activities were considered to be critical for success.

Plans for these indicators of success were made for each hospital. They were made centrally and each hospital administrator's survival depended on their success in meeting plan. If they failed they were fired. "Going over plan" was rewarded by bonuses of up to 50% of salary. The consequence of these practices was that the likelihood that a particular member of the public would be admitted to hospital, the diagnosis made, the treatment given and the duration of stay was determined not by the patient's clinical condition nor by their clinical requirements but by corporate policy decisions made centrally. The patient's insurance status was an important factor and diagnoses were tailored to insurance cover. Cure was determined by expiry of the patients insurance.

The consequences of these corporate priorities can be inferred from a statement to the US House of Representatives inquiry by Mr Lou Parisi, a fraud investigator from New Jersey. He indicated that a situation has developed where " some hospitals and substance abuse centres can achieve a reputation for professionalism and a high level of patient care and that reputation is only a facade"

NME in 1993 claimed to Australian authorities that NME's board was not involved in the running of the hospitals where the fraud was perpetrated. They received only financial statements from the subsidiary which ran these hospitals. They claimed that the NME appointed board members in Australia knew nothing of this fraud. Statutory declarations were supplied to support these assertions. Monthly memoranda are now in my possession from Zober, the administrator running the hospitals where the fraud occurred to three of NME's board members, two of them on the Australian board. It is clear they met regularly. The following extracted segments from these corporate memoranda reflect corporate attitudes and show the involvement of the medical profession in tailoring patient care to corporate objectives.

Memorandum Norm Zober to Eamer and others 18/3/91

Below I will discuss five of these facilities as I have in previous months and talk about our latest efforts or plans for the future in order to turn these situations around.

Based on this progress, particularly on the census and the payor mix side, we are a bit unsure in reviewing past months if our lack of performance has been a result of physician and hospital inertia, or if the problems that we faced in New Jersey over the past five to six have really affected the census.

--- and also continue to pump up our physicians and administrative staff to try to build on the success of February.

Dr Potash has stated that if we increase the census he will find physicians.

--- we are continuing to try to improve our programs, increase our marketing contacts, and expand our interface with the community in order to improve the hospital census.

Memorandum Zober to Eamer and others 18/3/91

By working on discharge planning with the medical staff, coordination of discharges can be done in an orderly fashion and generally helps to control large swings in census.

At each PIA hospital we typically do what we call "seasonal planning' in order to provide activities at the hospital around the holiday to avoid a large amount of discharges.

Admissions are up by 23.9%. Length of stay declined by 3.5 days. Percent occupancy declined by 4.7 percentage points. Net revenue per Patient Day increased by 9.9%.

The hospitals that had big swings from plan during the month of March were as follows:-

--- the fact that we do not have a sufficient number of Potash and Gold doctors to help aggressively market the hospital, adds further to the problem.

I should also mention that the ATC at Lake is also performing below expectations and this is also an issue that we are actively discussing with the physician group.

Our facility in San Antonio has huge swings in average daily census and length of stay is very inconsistent. I am personally going to visit the hospital immediately following the April Board Meeting to meet with the medical staff and get a better feel for the issues and the actions we need to put in place in order to improve the performance of this hospital.

The implementation of NME's corporate plans is reflected in letters from doctors and in statements they made to inquiries. Dr Charles Arnold tape recorded an interview with an NME administrator whom he claims attempted to buy the use of his MD degree:-

"We've got people out there --- and we're going to hire another one in marketing that does nothing but beat the bushes and finds the patients and sends them to the hospital"

A contract with an administrator in Recovery Centres of America (RCA) states

"You will be eligible to participate in the RCA Bonus Program up to a maximum of 50% of your base compensation."

Russell Durrett a hospital administrator gave evidence in regard to central corporate involvement to the US House of Representatives Inquiry

The decision to add expenses and reduce the profit was made at the corporate level.

All of the marketing and referral network policies and procedures came from a corporate level.

Several administrators and controllers were fired because they did not meet the financial goals. No one that I can recall was ever fired over a patient care issue. There were no measurements nor did we ever attempt to track patient care of the result of our treatments.

There was a tremendous amount of pressure put on everybody within the PIA network that we had to meet or exceed our budgets. There was no question in anybody's mind about that

The incentive for money exceeded considerations of proper patient care and/or their rights.

4.3 The Bubble Bursts:- The bubble burst when bounty hunters paid by NME for each head on a bed kidnapped an unsuspecting teenager in Texas. A public senate inquiry was commenced. Hundreds of patients and staff came forward to give evidence of similar practices and the abuse of their trust in corporate hospitals. Staff told of the strategies which had been used to stop them from speaking out. Court action and stringent injunctions in Texas were followed by a US House of Representatives Inquiry in April 1992. Investigations followed throughout the USA exposing abuses by corporate medicine in the areas of psychiatry, substance abuse and rehabilitation. Government and private insurers took to the courts, resulting in some of the largest fraud settlements ever made. The principle offender was NME. It's vast wealth enabled it to pay fraud settlements exceeding US $600 million. It pleaded guilty to criminal charges in the name of a subsidiary. Over half of NME's hospitals were listed as part of the guilty plea and NME agreed to sell over 75% of its hospitals. It's legal skills were considerable. It's lawyers were successful in negotiating its survival. It was not barred from receiving medicare and medicaid payments. There are only rumours to explain this leniency and the failure to prosecute those NME directors who were involved in driving the fraud. Others guilty of far lesser offences have been barred from receiving medicare and medicaid payments. Shareholders took action, as have administrators and doctors who suffered when they refused to follow corporate directives. Hundreds if not thousands of patients were the victims of this carefully planned fraud. They have taken to the courts. One lawyer obtained US $15 million for his 50 clients. NME is now restricted to operating general hospitals in the USA. It operates subject to court injunctions obtained by the Texas attorney general in 1992 and by the US Securities and Exchange Commission in 1994. A compliance program has been set up and this reports directly to the US attorney general.

4.4 The situation in the USA today:- As a consequence of the practices of companies like NME the US system is tightly controlled and intensively monitored. There is a massive and expensive bureaucracy involved in health care regulation and control. Vast sums are spent by the FBI in investigating and prosecuting health fraud. The director of the FBI has indicated to the US senate that the problems in control are so difficult and the rewards so great that major crime syndicates are entering health care. A recent US senate investigation has exposed a massive fraud, this time exploiting the vulnerable elderly . It is worth noting that one of the largest owners of aged nursing homes was an NME subsidiary which was spun off as a separate company under the same directors 1989.

The USA has many university centres with the highest standards of care. It also has the highest cost of healthcare per citizen in the world and one of the lowest overall standards of population health in the developed world. One of the major factors in what has happened in the USA has been the failure by the medical profession to resist corporate practices. Some congressmen at the US House of Representatives seemed to understand this. They stated

"---- because ultimately it's the physician or somebody who signs the ticket that gets the billing done."

"----- you can write all the legislation you want. It's a matter of how you're going to enforce it."

Dr Walter Afield an investigator from Florida indicated to the US House of Representatives inquiry that the system had been set up to be raped and it had been. He described this as "one of the major hoaxes on the American public". He indicated that people simply could not believe that their doctors would be party to such practices.

4.5 The US Solution:- US politicians correctly diagnosed the disastrous situation in their health system to be a consequence of the financial priorities built into their health regulations. They failed to consider the impossibility of adequately regulating and controlling something as diverse and ill defined as health care. They failed to understand the impact of a powerful marketplace culture on the ethical structures of the medical profession. These are the only people with the knowledge and power to effectively control the abuses which were occurring. They framed their solution, "managed care" within a marketplace framework. This places even greater financial pressures on the ethical structures of the medical profession. Early reports from the USA suggest that the consequences for patients will be even more unfortunate than we have seen to date.

5. NATIONAL MEDICAL ENTERPRISES (NME): AN ANALYSIS

5.1 Basis for this review:- The conduct of NME (now renamed Tenet Healthcare) is representative of the worst corporate excesses in the USA. Because so many of its documents are available, it lends itself to analysis. NME has made no attempt to confront the allegations made about its conduct. Instead it settled court actions for large sums and then claimed that the allegationswere never proven. It has persistently attempted to avoid the true extent of its practices and has denied the consequences for patients. The testimony of witnesses at government inquiries and NME's own documents do not favour their position. This review is based on court documents, government inquiries, the transcripts of evidence available, NME's internal documents, letters from doctors and my experience talking to those involved as whistle blowers or fraud investigators. The weight of circumstance indicates that the practices described occurred on a massive scale, were carefully planned and were centrally controlled and directed.

5.2 History:- National Medical Enterprises was founded by three lawyers in the 1960's. Like other corporations it expanded rapidly in the 1970's. In the early 1980's strict controls were introduced into US general hospitals. These prevented unethical practices and restricted excessive profits. NME responded by selling general hospitals and expanding into psychiatry, substance abuse and rehabilitation hospitals. It also commenced its international expansion. These areas were uncontrolled and because of the nature of the services provided almost impossible to regulate or police.

NME became enormously wealthy and its skills in running hospitals profitably were widely praised. In 1991 and 1992 NME's fraudulent practices were exposed and in 1994 it pleaded guilty to criminal practices including buying patient referrals It was forced to sell 75% of its US hospitals. When Australia stepped in to restrict NME's expansion this destroyed its international credibility and it sold its international operations in 1995. It used the funds generated to purchase American Medical International (AMI). It changed its name to Tenet Healthcare. It claims the word "tenet" reflects its integrity. Its directors and senior staff are largely unchanged.

5.3 NME's structure:- At the time of the exposures in 1991 NME owned 151 hospitals in the USA. 35 were unsold general hospitals. There were three other major subsidiaries, Psychiatric Institutes of America (PIA) which ran the psychiatric hospitals, Recovery Centres of America (RCA) which ran substance abuse hospitals and the rehabilitation hospitals. Each operated as a separate entity and each group had separate but similar central training programs. These three companies were loosely grouped as "specialty hospitals". These companies and their 115 hospitals were controlled by Norm Zober. He reported in some detail on the activities in the specialty hospitals to NME's founders Eamer and Cohen each month. They met regularly. It is clear that the same sorts of business practices were introduced into each of the three specialty groups and that the training programs were similar. NME expanded internationally in 1985 and soon owned 2 hospitals in Singapore. When it came under pressure in 1991 it moved rapidly into Australia and other countries around the pacific rim. The international division came under the general hospitals which by 1991 were under the control of Michael Focht He has since become CEO of Tenet/NME and responsible for Tenet/NME's "compliance program". Michael Focht had been president of the international division in 1986/7, the time when a Singapore doctor alleges Focht's immediate deputy first attempted to trade patient admissions with him.

5.4 Corporate Culture:- The most disturbing feature in these documents is the corporate culture revealed. It is clear that staff enthusiastically adopted NME's patterns of thought and identified with them. They were well rewarded for doing so. Corporate financial objectives were given priority over all other considerations. Doubters were assured that patient care and corporate success were complementary and interdependent. Corporate patterns of thought and the practices they gave rise to were deeply entrenched in the staff. They were proud of their activities and boasted about them. In his evidence to the US House of Representatives Dr Charles Arnold stated

"The introduction of the commercial enterprise mentality to psychiatric care, the abandonment of ethical, scientific principles by many mental health care providers, and the indulgence of greed have allowed these developments to occur. The provision of mental health care, especially as it relates to the psychiatric hospital industry, has largely changed from what was once a professional and caring environment and an honourable part of the medical world, to one that is based on commercialism and profit. The changes that have developed over the past decade are very pervasive, deeply entrenched, and have occurred across the entire United States

Corporate practices which illustrate corporate culture are described by senators who investigated corporate conduct, by credible witnesses and in corporate documents. NME made all sorts of denials but did not attempt to confront these witnesses.

5.5 Training Programs:- Each of NME's subsidiaries ran its own central training program. Documents indicate that the content were similar. I do not have access to material from these training programs. Corporate instructions to administrators and staff give some indication of the corporate ethos imparted and the likely content. Administrators interviewing prospective employees were instructed to "look for a shark". Instructions on writing notes so that insurers would not challenge hospital accounts were headed "WEECHEETUM". NME itself spoke of an "intake culture".

5.6 Administrator Driven Admissions:- NME's top priority was a 100% census (ie bed occupancy). This was accomplished by admission strategies and by keeping people in hospital until their insurance cover expired when they were declared to be cured. Senator Mike Moncrief was chairman of the Texas senate inquiry which triggered the country wide investigations. He stated " --- --- social workers, school counsellors, probation officers, crisis hot line workers and even ministers were paid to refer paying patients to private psychiatric hospitals. These are the people in our communities we have all been taught to trust -- not avoid" In his evidence to the US House of Representatives Mr Russell Durrett stated "The success or failure of the referral system was more important than the success or failure of the treatment of the patients"

Administrators replaced doctors and took over the process of assessment and admission of patients to hospital. This was considered to be simply a matter of advertising and persuasion. Public anxiety was fanned by misleading advertisements urging patients to phone for advice or to come to free public seminars. Phones were manned by persons trained only in phone bonding. They were required to persuade people who phoned to come for an assessment. They were given clear numerical targets and their success in meeting them was monitored. These practices are described in an internal document entitled "Administrator Driven Intake Systems". Assessors were medically untrained and were given clear targets specifying the required number of assessments to be converted to admissions. Their "conversion rates" were tracked by computer and they were rewarded accordingly. Administrators were instructed to watch for comments which might indicate attitudes which would impede the assessors conversion performance. The wording suggests that they were looking to weed out persons who displayed genuinely caring or empathic attitudes. One court action alleges staff persuading patients into hospital were given written instructions to "push the pain". I do not have this document. The Administrator Driven Intake Systems sets out a number of "Intake Focus Golden Rules". These include

Item 3:- I've made it clear to everyone in the hospital that inquiry/intake is our most important system - nothing else matters if we don't do that well - and I foster an intake culture in the hospital.

Item 8 refers to intake staff and includes

" --- I want them to be able to sell the benefits of the free evaluation ------- regularly review and discuss each others' conversion rates ---- to be sure that they don't have professional/personal issues or biases that can impede their intake performance."

Another section of this manual devoted to "Backup system poor" includes "Make "intake culture" part of orientation for all new staff members"

A doctor who wrote to an executive about the practices in his hospital complained that "Admissions are handled by people with high school education"

5.7 Targeting Children:- The words of the theme song from a corporate video are particularly disturbing. The song promotes the search for potential admissions by dedicated administrators. They are being induced to identify with the corporate mission. Adults in the USA were insured for only 28 days whereas children were insured for 6 months. Each child was a potential gold mine. NME targeted children in its admission practices. Parents were persuaded that their children needed admission. This song is particularly revealing in the subtle manner in which the admission of children is promoted. It seeks to destroy any vestige of caring sentiments.

No more looking for patients in all the wrong places

Slumming for admissions in non-insured spaces

Spanning the globe, covering my bases, for a six month length of stay...

NME placed its own counsellors in schools and it seems that they were paid for each head on a bed. Many children were admitted to adult hospitals. Allegations indicate that standards of care were very poor. Children were stressed and deprived of sleep to impede recovery. They were unreasonably restrained and punished. Some were subjected to "rage therapy" which involved holding the child down and beating it!

5.8 Bounty hunters:- Bounty hunters made contracts with NME hospitals which specified the number of persons they would admit each month. They were paid bounty for each admission. They infiltrated community and church groups in order to identify potential persons who could be persuaded into hospital. Bounty hunters flourished in Canada and were richly rewarded. Patients were flown to hospitals in the USA.

5.9 Keeping patients in hospital:- Many patients were initially told that they were being admitted for further assessment. Teams were set up to persuade them of the need for a full course of treatment. They were misinformed of their rights and sometimes denied access to phone and to legal advice. They were told that their insurer would not pay and that they would be responsible for all their medical bills if they did not complete the prescribed course of treatment. I have the job description of someone who was employed by Recovery Centres of America, purely to maximise each patient's length of stay.

---- the objectives of the case manager are:

Increase the ALOS (Average Length of Stay) of all inpatient admissions

Attend weekly staffing of all patients under concurrent review to maximise LOS (Length of Stay).

5.10 Making money:- All three specialty groups adopted a "programmatic" model of care. This meant that a program of care was designed to extend for the duration of the patient's insurance. As much treatment activity as could be accomplished in each day was given. This was designed to increase the profits per patient per day. These practices were described by Dr Charles Arnold a psychiatrist who gave evidence to the US House of Representatives. A corporate document "Managing Winning Programs" provides documentary support for his assertions. Dr Arnold stated

In the "programmatic" concept, a medical facility is used by persons with absolutely no medical training to perform activities which are neither medical nor therapy, but the activities are labelled as "therapy" and are billed as such to patients and insurance companies. The programs provided are inappropriate for a medical setting, do not necessitate a hospital facility, and could be inexpensively provided in alternate settings.

Such practices were justified to staff on the basis that patients had paid for their medical insurance and were entitled to the full benefits of their insurance. If treatment was beneficial then more treatment was more beneficial and patients were entitled to this benefit.

Dr Afield from Florida indicated to the House of Representatives that this was "one of the major hoaxes on the American public". He said "Every new disease that's defined gets a new hospital program, new admissions, a new system and a way to bilk it -"

5.11 Dishonest money strategies:- Mr Durrett describes the unsavoury financial practices in NME's hospitals at the time when he was employed. Not only was there overservicing and overcharging but charges were made for services not provided, group therapy was charged as individual treatment and charges were made for services provided by untrained persons. Durrett is emphatic that these practices were directed from a senior corporate level and were company wide.

5.12 Control of staff:- Central administrators became involved in the hospitals. One hospital administrator claims he was fired because he refused to pay bounty for patient referrals and would not tailor patient's stay in hospital to their insurance cover. Bonuses were paid to successful team players. This administrators employment contract stated "You will be eligible to participate in the RCA Bonus Program up to a maximum of 50% of your base compensation." Staff in NME hospitals were fired because they were "too clinical". This administrator was instructed "I concur with your assessment of the current associate administrator; that he is too clinical and not a decision maker. Please proceed with his 'resignation' " Administrators were instructed to stop the practice of clinicians discharging patients while the administrator was off duty. This was referred to as the "back door problem". A letter to this RCA administrator stated "I concur with your decisive action with regard to the 'back door problem:' " Nurse managers frequently countermanded doctors discharge orders. A doctor complaining to a corporate executive wrote "Nurses are told not to take orders from physicians". Another doctor, unaware that the practices were centrally driven stated in a letter to a corporate founder "When the message is that people's jobs, from Administrators to Regional Vice Presidents and so on up the line are dependent upon filling beds they do it any way they can". In the same letter he stated "The PIA climate has been, over the years, to put "heads on beds" at any cost".

5.13 Use of role models:- Administrators with a good financial performance and a track record for admissions and for inducing doctors to become "team players" were used as role models. They were given titles like "PIA administrator of the year". It is perhaps significant that an administrator in the international arena was repeatedly honoured in this way. A doctor alleges that this administrator made multiple attempts to induce him to trade patient admissions.

5.14 Compliance by the medical profession:- Corporate financial success was entirely dependent on compliance by the medical profession. Doctors in the USA legally control admissions and make the diagnoses. They order the treatment and decide when the patients are cured and can be discharged. They had to put their signatures to corporate treatment. Most of the practices required doctors signatures.

NME's strategy was to offer doctors exciting and rewarding opportunities which ensured that their careers and their financial well being were under corporate control. These golden handshakes became golden handcuffs as young doctors made financial commitments to houses and schools for their children based on the promised financial rewards. The benefits were restricted to team players.

The corporation funded office expenses, office rental, house loans and research projects. Doctors were given nominal hospital appointments which were richly rewarded. A policy of product differentiation benefited both doctors and the hospitals. Each doctor became a specialist in some narrowly defined area. Hospitals mounted a public relations exercise for the doctor and arranged lecture tours. He or she became an overnight expert and a drawcard for the hospital.

Dr Charles Arnold tape recorded the conversations he had with NME administrators. His evidence includes the following

I was given a detailed explanation of how other psychiatrists had been made rich, and was told that this would be done for me if I would go along with the program.

Tragically, a large number of psychiatrists, psychologists , --------- , and have - in effect - sold their souls.

What happened here -- this is what I was asked to do, to sell my MD degree which gives me admitting power to a hospital. Once that's done, the sky is the limit. If you as you said, look the other way, you'll become enormously wealthy and the treatment is taken over by the non-medical people, absolutely non-medical with no medical training at all.

Mr Durrett, a former employee stated

We were over generous. We would pay for such things as setting up their office. We would pay for their personal staff for several months after they were in business. In almost all cases of the psychiatrists that we recruited, we paid them a monthly stipend anywhere from $8,000.00 to $15,000.00 a month. As we admitted patients then, they would be assigned to the psychiatrists.

It was very easy for a psychiatrist in our facilities to generate $600,000 to $800,000 a year in private practice fees from us alone and he was still free then to go out and set up their own private practice in addition.

---- we have made it very profitable for the psychiatrists. So when you first went out to talk to the psychiatrist it was very easy to convince them that what we were doing were some of the things that they wanted to do. Then once they got involved it was very --- we have to re-educate the physician as to how we want our practice provided. So, it was that re-education process that got a lot of the psychiatrists trapped in the middle of the situation.

A surgeon in Singapore has alleged in evidence that NME administrators in a general hospital attempted to trade an advantageous transaction for the purchase of office space in return for a guaranteed number of admissions. The Singapore hospital's lawyer alleged that the doctor initiated the unethical proposal but the hospital did not call any of the several witnesses present at the meetings to refute the doctors claims and substantiate their own. No explanation was offered as to why the hospital had not referred the doctor's claimed unethical conduct to the hospital's accreditation committee and ultimately to the Singapore medical council for disciplinary action. The following are extracts from the doctors evidence

Mr "A" (senior NME executive in NME's international division) then told me that he could give me a lower price if I could admit more patients into hospital. If I admitted enough I could even be given rent free premises.

"A" insisted on a guarantee, saying my reduction in price would have to correlate with the number of patients --

"B" (a hospital administrator) has mentioned figure of $50.000 and $100, 000 and also 200 patients a year ----

They made several proposals how the discounted price could be disguised so that it would not look unethical.

They then suggested free or subsidised equipment, free or subsidised rent, and free trips abroad, ostensibly to help them in their medical projects.

"C" (another hospital administrator) then said in "B's" presence that you don't have to worry anything about ethics. He said that all these incentive documents could be signed and kept hidden in a safe where no one could see them.

By the techniques described in previous paragraphs NME gained control of admissions. These patients were allocated to doctors who were expected to rubber stamp the diagnosis and the treatment arranged by the programmatic system. Doctors were expected to charge for their daily visit and then hand care over to the hospital. These practices gave rise to the terms "howdy rounds" and "wave therapy". After discharge the charts were allegedly doctored to massage them for profits. Doctors were expected to come and sign the charts. Refreshments were provided. These became known as "charting parties".

5.15 Patient care:- It is clear that clinical considerations became a very secondary concern. Diagnoses were tailored to insurance requirements. Costly investigations were performed and vast amounts of unneeded treatment given. Treatment was given by untrained therapists. Allegations suggest that on occasions when existing staff objected to practices which were detrimental for patient care then hospital accreditation procedures were ignored in order to appoint less competent or untrained outsiders who were willing to be team players.

Patients were not transferred to other hospitals when NME hospitals did not have needed facilities. Their clinical requirements were ignored in the corporate interest. Children were powerless and allegations suggest that they were deliberately stressed to impede recovery. The psychological scarring produced by prolonged and needless incarceration of young children and adolescents in psychiatric hospitals is considerable. One Texas lawyer secured US $15 million damages for his 50 clients. Large numbers have taken action but the sums paid in settlement are not known. Hundreds if not thousands of patients still have actions for damages in progress.

Both Senator Moncrief who chaired the Texas senate inquiry and Congresswoman Schroeder who chaired the US House of Representatives inquiry commented on the standards of care provided and the adverse consequences for patients. Russell Durrett in his evidence stated

Again in the case of the adolescent patient, it was easy to extend the discharge date by not allowing the patient to show progression in their treatment program. Dr Bok's statement reflects the double bind that was used to extend their discharge dates. (double bind was a technique which Dr Bok alleged was used to stress the children so that they did not improve)

Several administrators and controllers were fired because they did not meet the financial goals. No one that I can recall was ever fired over a patient care issue. There were no measurements nor did we ever attempt to track patient care of the result of our treatments.

The incentive for money exceeded considerations of proper patient care and/or their rights.

An internal NME memorandum to Mr Michael Focht dated 18/11/91 refers to complaints about Great Plains hospital which is not in Texas. The company's own staff reported on the following allegations and reported that "essentially all allegations were true". This was a company making record profits. The allegations included

Changing length of stay based on available insurance coverage

Refusal to transport patients for second opinion on proposed treatment

Inadequate staff training due to high turnover rate

Numerous injuries to patients and staff due to inadequate training.

5.16 Whistle Blowers:- The documents suggest that corporations developed a coordinated plan to deal with whistle blowers and those who refused to become team players. It seems likely that NME like other corporations anticipated such problems and developed strategies to cope with those who spoke out in the interests of patients. Such persons were seen to be disruptive. A group of doctors in the USA has formed the Semilweis society to support doctors who find themselves in this situation.

Doctors in disfavour were initially starved of patients and the lucrative arrangements were terminated. When this failed their reputations and their practices were destroyed by rumours and innuendo. There are suggestions that such persons were accused of unethical conduct such as having sexual relations with patients and were then fired or their hospital accreditation removed. Quality assurance and accreditation committees were stacked with team players in order to accomplish this. The quality assurance committee in one NME hospital attempted to have one whistle blower discredited and suspended from practice by declaring that he was psychologically unfit to practice. Those who have spoken out about NME's conduct have been threatened with costly litigation and NME has taken action against those who have not bowed to the threats.

5.17 NME's strategies during the legal proceedings:- NME has persistently and repeatedly misinformed the public and regulatory authorities in regard to the true extent of its practices. It has made no attempt to confront the allegations made against it. Instead it entered into settlement agreements with state authorities and insurance companies without admitting guilt, claiming that the allegations had not been proven. It negotiated with the US government for a guilty plea localised to its psychiatric subsidiary and for the right to continue to receive medicare and medicaid payments because only one subsidiary was convicted. In return it quickly sold all of its rehabilitation hospitals prior to the guilty plea and subsumed all of its substance abuse hospitals into the psychiatric company. All were subsequently sold as a condition of the settlement. As a consequence of this the true extent of NME's conduct was never made known to the American public.

Typical of NME's conduct was the case in Singapore. The allegations made referred directly to directors and administrators running the Australian company. Pre-trial documents show that the doctor had indicated the nature of his evidence in January 1993. In March 1993 NSW Health department requested the disclosure of all court actions against the company and its subsidiaries. Had Australian authorities known of this case they would have been most unlikely to grant licences. At the time AME was negotiating with health authorities for the exclusion of staff, who were implicated in the allegations made by this doctor, from licensing conditions imposed by the judge delegate. The judge claimed that these conditions would shield AME hospitals from the influence of NME and the sort of practices alleged by the doctor in Singapore. When the case came to court the NME hospital made no attempt to confront the allegations with evidence and they consequently receivedminimal press coverage in Singapore. This came to court before the Australian judge handed down his decision but the press only reported it a month later by which time the matter had been finalised. Had an Australian not suspected that such practices were occurring in NME's international operations this report would have passed unnoticed. The court transcripts naming the persons concerned did not become available in Australia until a year later.

NME made elaborate claims to ethical conduct in Australia in 1992 and 1993. In October 1994 four months after the guilty plea and the forced sale of 75% of its hospitals senior staff referred to an "infected appendage" which had been removed. While continuing to make elaborate claims to overall integrity and refusing to use the courts to prove this, NME has not hesitated to employ the courts and exploit deficiencies in the law to further its own interests. It indicated its intention to take court action against Australian health authorities if hospital licences were rejected. The fact that the alleged offences occurred in the USA and in Singapore created legal problems for our authorities. NME used their wealth to fund an abortive defamation action against an Australian critic.

5.18 Tenet/NME's current strategies - a new integrity :- NME pleaded guilty in the name of a subsidiary in June 1994. It sold its specialty hospitals and immediately purchased more general hospitals. It changed its name to Tenet Healthcare. In 1994 and 1995 company statements Tenet/NME claimed that NME's new name Tenet Healthcare reflected a deep commitment to integrity and the values associated with the word "Tenet". They stated

We wanted a name that would convey the idea that a number of values are at the core of our business philosophy. Key among those attributes is our intention to build our business upon a foundation of partnerships: partnerships with employees, with shareholders, with physicians, with other providers, with suppliers, with payors and with the communities we serve.

Successful partnerships require that the parties share certain beliefs; that they hold philosophies, expectations and standards in common. And That's exactly what the word "tenet" conveys. Our new name says that we have strong values and beliefs and that we will seek out others with similar views for the benefit of both.

Among our core beliefs are the importance of integrity, teamwork and innovation. We will put these into practice daily as we provide the full spectrum of quality, cost-efficient services.

Nine months earlier the US Securities and Exchange Commission (SEC) obtained court injunctions restraining NME. In its submission the SEC claimed.

"Unless restrained and enjoined, Defendant will continue to engage in acts, practices and courses of business as set forth in this complaint or in acts, practices and courses of similar object and purpose."

The public and the medical profession in Missouri recently torpedoed an attempt by NME to enter into a contract with its teaching hospital. News papers report comments by Tenet/NME and by doctors currently working in Tenet hospitals.

Modern Healthcare November 20th 1995, page 29, reporting this matter quoted a statement by W Randolph Smith an executive vice president of Tenet. He states "Tenet is a very different company. It has a brand new management team, and is a company that is intensely steeped in an environment of high ethical standards" The same article quotes a Jay Dix MD who stated "I don't know how you can change 100% when some of the same people are involved"."

Smith is also quoted as saying that Tenet's current president and chief operating officer, Michael Focht Sr., was far removed from psychiatric operations during his tenure at NME. One must ask whether Smith could have been unaware of the Singapore court documents which had been repeatedly brought to the attention of NME's companies. Did he not know that NSW health department had recommended against granting a hospital licences in Australia and against granting licences under conditions because of NME and its subsidiary's lack of "frankness and candour" in dealings with them. Focht was a director in Australia.

Andrea Widener a Missouri reporter reported comments made by staff from other NME hospitals. Her articles include the following statements

Anxiety about Tenet is not limited to Columbia doctors. Some physicians at the Kirksville Osteopathic Medical Centre have found their relationship with Tenet less than satisfying

Two doctors who requested their names not be used, said Tenet has not bought medical equipment it had promised, and the hospital was understaffed

"There is a lot of resentment toward (Tenet) here," one doctor said.

The same physician said his patients often want to go to nearby Grim-Smith Hospital because Kirksville Osteopathic is understaffed.

"A good nurse can only take care of so many patients," he said. "I work at both hospitals, and I will take the patients where they want to go. They are more satisfied and think they get better care there."

Another doctor who is a professor at the medical school in Kirksville, said he also is concerned about how hospital staff has decreased under Tenet. He says he has not found Tenet to be honest when it sits down at the table to negotiate.

They say one thing, then systematically don't allow them to be followed through," the internist said. I would not recommend an agreement. I do not feel Tenet Healthcare can be trusted."

5.19 NME's new ethics structures :- Company reports at the end of 1994 stated "To ensure our ongoing integrity, NME has implemented what we believe is the most comprehensive ethics program in the health care industry". This included an ethics committee and an ethics hot line. The report further states "Our compliance program is directed by a management-level committee, chaired by Michael H. Focht Sr., president and chief operating officer, and supervised by the ethics and quality assurance committee of the board. We have made it very clear that NME will not tolerate ethical misconduct."

I find it disturbing that Focht was in overall charge of NME's international division at the time when his immediate deputy was alleged to be trading patients with a doctor. He was a director of Australian Medical Enterprises (AME) in 1992/3 when submissions later criticised as showing a lack of frankness and candour were made to licensing authorities. He was still a director in July 1993 when AME was negotiating with health authorities for the exclusion of one of those the subject of the Singapore allegations from conditions imposed by a judge. He was a director of AME in October 1994 and was in Australia when AME's chairman was given the Singapore court documents and asked to stand the persons aside until an investigation had exonerated them. Focht was a director of the Federation of American Health Systems when they refused to acknowledge these court documents, even after they had been approached by the American Medical Association. Focht was CEO of Tenet/NME and still a director of AME in 1995 at the time when the person who had requested that the matters be addressed and supplied the documents to AME's chairman and the Federation of American Health Systems was threatened with 3 separate defamation actions. He was CEO of NME and a director of AME when it funded a defamation action taken by one of its administrators in Australia. These events followed soon after Tenet/NME's elaborate claims to integrity. This administrator was unable to formulate claims acceptable to the judge and the case was withdrawn. Three days later two hospitals in Singapore served a further writ in regard to statements made in regard to the management of the hospitals when they were owned by NME and managed by NME's US trained administrators. These hospitals had since been sold to Parkway, a Singapore company. It is not known whether NME or Focht was instrumental in this. Such a response is out of character for Parkway. Its health care interests have not been linked to undesirable corporate practices.

Several requests have been made to Tenet's ethics committee since November 1995 asking that the committee review the ethical conduct of the senior staff who ran the hospitals in Singapore and who supplied information to Australian health authorities. They have been supplied with a complete set of relevant documents. The committee has elected not to acknowledge these letters and the documents.

Ten years ago in April 1985 newspapers published documents which indicated that NME had attempted to bribe politicians in order to reverse a licensing decision. John Bedrosian, a founder of NME replied "This company does not engage in illegal and improper conduct. God help anybody that does". It seems that US lawyers are godlike! Has anything really changed?

5.20 Corporate perceptions:- This is still one of the largest and most powerful medical corporations in the USA. We must ask ourselves whether all the staff of this company are inherently dishonest. Are we looking at deeply entrenched patterns of thought, patterns so fundamental to corporate activities that individuals are unable to change? In such a situation groups will band together to angrily reject allegations, make forceful rationalisations and reinforce each other in this.

We can postulate that a few intelligent people in the company have worked with trained cognitive sociologists and psychologists to systematically plan and execute this fraud. Such people would have been advisers in the cold war during the 1970's and 80's and may have assimilated a wartime morality. I believe that this is possible because the planning and execution were so detailed and well organised. It is difficult to conceive that the many hundreds of ordinary people who constitute senior and middle rank Tenet/NME employees were party to this. One can only conclude that NME's culture was deeply entrenched and that the current actions and responses are congruent with its persistence. NME has made claims to integrity and to ethical conduct. It has not claimed that it has abandoned the corporate culture which made it so wealthy nor the philosophy on which it is based.

It is clear that a large number of NME's corporate staff saw nothing amiss in their practices. The enthusiasm is obvious in reports to meetings and to senior staff. These attitudes persisted even after sensational newspapers reports. They expected it all to blow over. The evidence given by John Bedrosian, one of NME's founders who was in overall charge of NME's public pronouncements and public relations exercises is particularly revealing. It is clear from his evidence that after the exposure of NME's practices in psychiatric hospitals in Texas, neither Bedrosian nor staff in the Texas hospitals believed that they had done anything wrong. They saw the problem as something which the newspapers had created. Instead of visiting the hospitals to deal with the problems, executive staff went to Texas to employ public relations experts to deal with what they perceived as an image problem. Months after the exposures and after NME claimed to have dealt with the problems a review of some of NME's hospitals found identical practices.

From Bedrosian's evidence it can be concluded that misinformation was considered to be legitimate public relations activity provided it was in the corporate interest. When asked about misinformation given to government inquiries he justified this, explaining that he was "singing to the choir". The misinformation given to Australian citizens by Bedrosian himself and to Australian licensing authorities by NME administrators in 1992 and 1993 amply illustrates the persistence of corporate patterns of thought long after NME claimed to have addressed its deficiencies. Its refusal to confront evidence produced by its critics, long after its guilty pleas and its loud claims to integrity fuel this perception.

6. AUSTRALIA'S RESPONSE TO NME

6.1 Background:- Ron Williams is an academic whose analysis of US corporate medicine earned him a PhD. When he returned to Australia he analysed the political dimensions of the Australian health sector. In his book "Remission Impossible" he predicted that our politicians would follow the US model regardless of which party was in power. He predicted that our health system would soon be owned and run by US multinational megacorporations. Some of his statements are illuminating.

"--- a huge and depressing departure from the system as they (readers) now know it."

"I see little but doom and gloom"

" -----, compassion will give way at an increasing ratio to profit. Care for the patient will give way to care for the corporation --------"

"---- if it (this book) corners overseas corporate forces into putting genuine human compassion behind the deceptively human face that they (megacorps) will present then ------"

"----, whether Australians like it or not, and they certainly will not, the new century will see the Australian Health industry controlled by overseas megacorps, part of an international oligopoly, whose primary concern will be measured in terms of the profits derived from its exploitation of the local population and its indigenous labour force"

There is not much chance that this recognition will come in time, in the next few years. (page 191)

Suppose that some media group does put discussion of Americanisation into the nations living rooms. Or suppose that society itself picks up on the issue. (page 193)

The whole task is vast; it requires that a national plan be developed, ----- (page 199)

The might of the megacorps is formidable; they are practised in the use of politics, and power and wealth, in getting their own way. The only way that this nation can impose its will on any of them is to do so as a nation; ------ (Page 197)

---- will not pay over their capital unless they can run their businesses along the free enterprise lines that they think fit.

(page 195)

Ron Williams did not know that NME, a US company would, by its own conduct give us the opportunity to address the problems. If he had he would, I am sure have predicted how resistant our authorities would be to confronting the reality of US corporate medicine. It is still not clear whether we will do so.

The Australian Medical Association were not impressed by Ron Williams. After the AMA had been criticised for its inaction in regard to NME's entry into Australia the president wrote a letter to a senator in regard to these matters. In it he stated

"Consequently, the Association is disturbed by dystopian portrayals of future health care provision which conjure up the worst excesses of the US system, without its compensatory benefits (eg a recent monograph by Ron Williams Remission Impossible: The future of the Australian Health Industry)".

6.2 The sale of Markalinga to NME:- Markalinga, an Australian company was in serious financial difficulties and there was a likelihood that several hospitals might have to close. Markalinga commenced negotiations with NME in 1991 and NME agreed to buy a controlling interest. In October 1991 the Sydney Morning Herald reported the alleged fraud in Texas including the abuse of citizens basic human rights. The West Australian also reported these matters. A brief statement was made by the company to the stock exchange acknowledging the actions. On 5th December 1991 NME lodged its final application to enter Australia with the Foreign Investment and Review Board (FIRB). It did not disclose the senate inquiries and court actions in Texas. A senior FIRB executive later indicated to me that they were not aware of these matters. It is difficult to believe that FIRB were not told and that they made their decision without examining the information supplied to the Australian stock exchange

A report was commissioned by Markalinga for its shareholders. This reported on the financial situation and recommended the sale to shareholders. The possible implications of the practices revealed in the Texas court actions for patients, for hospital licences and for the health system in Australia were not evaluated. The sale went through and Markalinga was subsequently renamed Australian Medical Enterprises (AME).

6.3 NME's promises:- It seems that NME had privately given many assurances of its willingness to fund and support a flagging private health system. Stockbrokers praised its success in doing so. Newspapers reported its intention to spend $200 million to expand private health services in Sydney alone and build the badly needed St Georges private hospital.

6.4 Hospital Licences:- Hospital licences in Western Australia could be legally transferred without departmental approval. In April 1992 Markalinga applied for the transfer of licences in New South Wales. The Citizen's Commission for Human Rights, a human rights group immediately lodged objections. The department of health wrote to authorities in the USA asking in effect whether NME was a fit corporation to hold hospital licences. They supplied the president of NME's international division with copies enabling NME to approach the authorities concerned. NME had settled actions in New Jersey and Texas but without proven wrongdoing and the official responses were predictably within the legal framework. The Texas attorney general supplied copies of the charges and the settlement agreement but health authorities chose to ignore the content of these documents. NSW Health did not insist on the production of the relevant regulations quoted in the New Jersey settlement. These would have been revealing. When a private individual later wrote to the Texas attorney general asking specific questions in regard to this matter the responses were in keeping with the content of the documents. Conversations with the fraud investigator in New Jersey revealed the provisions of the act under which the settlement agreement was made and also that a new investigation had followed further complaints.

Markalinga (renamed Australian Medical Enterprises) responded to the objection in a letter dated 5th June 1992. The letter was signed by the NME appointed executive. This was written after the US House of representatives inquiry and after several internal and external reports were available to NME but not yet in Australia. Segments are revealing

NME intends that Markalinga will develop into the premier hospital group in Australia. NME is offering access to NME's management resources and technology to ensure this objective is achieved.

Messrs Eamer, Cohen and Focht are Chairman and Chief Executive Officer, President and Chief Operating Officer and Director of Operations / Senior Executive Vice President of National Medical Enterprises, Inc. respectively. Although not the direct licensees, these persons are also more than qualified to be determined fit and proper. (Eamer and Cohen received monthly reports from Zober. Focht was director of the international division at the time when a doctor in Singapore alleges unethical suggestions were made to him.)

NME was founded on the principle that quality patient care always comes first and that, by satisfying the need for quality health care, NME could produce adequate financial performance for its investors.

This remains NME philosophy today. Patient care comes first. Further the firm is determined to operate to the highest ethical and legal standards in every state and country where it operates. (I quote from NME's 1988 internal instructions to staff "Lets call a spade a spade: We are here for one reason only - to make a profit for the shareholders who put up the money so that we could exist in the first place". )

NME began and continues to be primarily, an acute care hospital company. (Not that 35 of 152 hospitals were acute care)

Further, NME's international hospitals are separate and distinct from the US operations. (They were included under the general hospitals in company reports. Focht was in charge of the general hospitals.)

NME operates nursing homes in the United Kingdom and two highly successful hospitals in Singapore, Mount Elizabeth Hospital and East Shore Hospital, hospitals renowned for their quality of care ----------

While NME does acknowledge that some mistakes were made, as individuals placed their own agendas ahead of the corporate mission, it believes that the press coverage was overblown and inherently unbalanced. (50% of NME's hospitals guilty and >US $600 million fraud)

After a thorough review of the situation, management found no evidence of systemic practices that negatively affected the quality of patient care. (NME refused to disclose its review to NSW Health)

Management expects that NME's psychiatric hospitals will set the standard among private psychiatric hospitals for patient care and sound business practice. (they were all listed in a guilty plea in 1994 and NME was forced to sell them)

NME is encouraged that its psychiatric hospitals are now, and always have been, providing superior patient care, and they continue to attract outstanding physicians from leading academic and government settings. (Prior contrary conclusions by government investigations in Texas in October 1991 and House of Representatives in April 1992)

NME acknowledges that there were isolated problems in Texas but also notes that the balance of its psychiatric hospitals have not been subject to any extraordinary regulatory or governmental security.

It has always operated such facilities -- operations that have been models of quality care with the highest ethical and legal standards. (Documents indicate the introduction of NME's business strategies into at least 75% of its US empire.)

NSW Health department accepted these assurances and hospital licences were approved.

6.5 The Four Corners program- Australian Medical Enterprise now applied for a licence to build the new St Georges hospital in Sydney. In October 1992 Andrew Olie showed sequences from a program made in Texas by the UK company Thames Television. This described NME's practices in Texas and featured an interview with the Texas attorney general. NME declined to be interviewed but sent a videotaped statement by John Bedrosian. He stated that these practices were "at a few of our psychiatric hospitals in the state of Texas" and that "it is crucial to note, our review did not find anything systemic that negatively affected patient care". He gave an assurance to all Australians that "standards are being continuously, monitored at each of our hospitals throughout the world .... and we will not tolerate any practices that do not meet the highest, ethical and legal standards."

NSW Health authorities were angry that this program had been screened and protested strongly in a press release. Private individuals who were already concerned at the possibility of such practices internationally were more persuaded. They obtained NSW documents under Freedom of Information legislation and made their own inquiries. Further objections to the licence followed. In addition a number of persons in the USA sent copies of documents to NSW Health. Multiple insurance companies commenced actions alleging a billion dollar fraud. Two groups of shareholders took actions against the company alleging a variety of offences. This information became available in Australia. NME was contesting these actions and NSW Health faced the prospect of a multimillion dollar court action requiring overseas witnesses if they refused licences. The NSW government would have to fund this. AME indicated its willingness to seek redress if the licence was rejected.

6.6 NSW Health investigates:-</