Warren Buffett: automakers must rethink business model

Warren Buffett, eminence grise of the US financial community, says that whether in bankruptcy or bailout, the US automakers must completely overhaul their business models. He would prefer a bailout with stringent terms to a bankruptcy. He would rather the President appoint someone to negotiate terms that include a business solution. He would also force management to invest significantly in a new auto industry - that would incentivize them to make it perform.

Domestic violence: Your coworker's dark secret

CNN Money has an article on domestic violence in the workplace.

Cindy Bischof was not the kind of woman who would normally let a boyfriend get in the way of her career.

Driven, persistent, productive, she was everybody's favorite partner at Darwin Realty, a commercial real estate firm on the outskirts of Chicago. She was a role model to the firm's young women, a mentor to junior brokers, a 43-year-old overachiever: in at 5:30 A.M., networking at lunch, so smart about heavy industry that her peers voted her Industrial Broker of the Year.

Cindy was neither submissive nor easily intimidated - which is why what happened to her on March 7 is all the more shocking.

For nearly a year Bischof had been trying to untangle herself from a soured five-year relationship with an out-of-work salesman named Michael Giroux. After their breakup in May of last year, according to friends, family, and police reports, the handsome and charming Giroux suddenly turned strange and dangerous.

The day they broke up, Bischof changed the locks on her house. That night she went to stay with her parents. Giroux smashed the back windows of her house, broke in, and threw paint all over her furniture, rugs, and appliances.

Giroux began calling her incessantly on her cell phone. He stalked her at her house, at her parents' house, even on the golf course.

Bischof's torment became Darwin Realty's nightmare as her co-workers rallied around her. They helped clean up the damage to her house, which cost her $70,000, according to police reports. The head of Darwin's construction department installed a camouflaged infrared deer-hunting camera in the bushes of her backyard to take pictures of her deck at night.

In August, it caught Giroux there with a rope, making a noose. Darwin's president, George Cibula, arranged for Bischof to move into a rental property 30 miles away in Plainfield so that Giroux couldn't find her. Cibula hired security guards for the company Christmas party. Sometimes Cindy's partners walked her out to her car at night, just in case.

But Bischof was alone that Friday afternoon in March as she left her office and headed to her car, looking forward to joining her parents at her condo in Estero, Fla. Minutes later, Brian Liston, a Darwin partner working in a corner office, heard four gunshots behind him. He turned and there, outside his office window, lay Bischof, face down on the parking-lot pavement. Giroux, wearing a baseball cap and a fake mustache, had been lying in wait at the tire store next door. He shot and fatally wounded her before shooting himself in the head.

While police spent hours investigating the obvious, employees huddled in the hallways and conference rooms as shock turned to horror and then to unbearable grief. "It's still not over," Cibula said months later, choking up. "All you can do is endure the shock of it."

As the boss, he doesn't know what he could have done differently. He couldn't shield his staff from the trauma. No amount of security would have stopped so determined a killer, he believes. "If everybody brings their problems to work, pretty soon you're a psych hospital," he says. "Cindy knew that, and she tried. But we butted our way in anyway because she was our friend."

Domestic violence is still a taboo topic in most of corporate America, and no wonder. Logic won't address it. It carries a great stigma. It raises difficult questions in high-powered workplaces that employ - let's face it - both perpetrators and victims.

Many executives believe the issue has no place at work. What happens at home is supposed to stay at home, especially matters of the heart. In a survey of 200 CEOs sponsored by Liz Claiborne Inc. (LIZ, Fortune 500) last year, most agreed that domestic violence was a serious issue, but 71% said they didn't believe it was a problem at their own companies. Only 13% felt that corporations need to play a major role in addressing domestic abuse.

Soon, though, they may have no choice. Employee attitudes, demographics, and the efforts of some CEOs are converging to drag this issue out of the closet. With so many women in the workforce, and with e-mail, text messaging, and cell phones connecting them to the office around the clock, domestic violence comes to work whether executives like it or not. Employees are well aware of this.

However, a recent large survey by the Sam Walton College of Business at the University of Arkansas shows as many as 1 in 10 female workers is currently experiencing some form of domestic violence. Additionally, this could happen to anyone - although the article focuses on women, a growing number of men also experience domestic violence.

You get a sense of that in a chilling study of a group of batterers conducted by the state of Maine four years ago to assess the implications for occupational health and safety. Many of the 152 men surveyed described a consuming need to know their wives' whereabouts. They felt compelled to check up on them constantly - by calling or leaving work to see if their wives were where they were supposed to be. The urges were so overwhelming that half said they had trouble on the job, making mistakes or causing accidents, and that the feelings intensified when their wives tried to leave them.

Forget any notions you might have about what makes a person vulnerable. She doesn't have to be weak or somehow masochistic. There is no "type." People we interviewed for this story included an employment lawyer in Kansas City, a Red Cross administrator who worked alongside North Carolina Senator Elizabeth Dole, a Yale MBA who handled a groundbreaking project for GM, a New York University MBA who's chief of staff to the Bronx borough president, even an FBI agent. (She disassembled her gun when she got home every night and left it in the trunk of her car, having made, she says, a conscious decision: "We were not going to have live fire in the house.")

Anybody, even the strongest, smartest, most talented women - your highest producer, your rising star, your daughter, your granddaughter - can fall victim. "I've met Ph.D.s who say, 'Yes, I was in love with the guy. I got doled out just enough money for food for the kids,'" says Allstate's Tom Wilson. "Money is the weapon of choice, often in combination with other things, because it keeps the victims locked up. It's the keys. If you don't have a car, you can't run away. If you don't have credit, you can't get an apartment."

That's what makes the workplace so central to the struggle. "Economic independence is the strongest indicator of whether or not a victim can leave a batterer," says Stacey P. Dougan, chief professional development officer at the Atlanta law firm Powell Goldstein, who advises companies on how to handle domestic-violence issues.

That means you can count on the abuser to "relentlessly try to interfere with that employment relationship." Work is the one place a stalker can be absolutely sure he'll find his victim. Sometimes it's a target. It's nearly always a flash point. It's the site of a surprising amount of activity in these struggles, as the stories of the women we interviewed demonstrate in chilling detail.

I once recall talking to a student advisor with bruises on her face consistent with being beaten. She said she fell off her bike - I know firsthand what sort of injuries you're likely to sustain falling off a bike, and her injuries were different. Of course, I couldn't ask what happened, and couldn't prove anything. She later died of cancer.

Nothing you can do will stop a truly determined assailant, as Cindy Bischoff's ex boyfriend was. However, domestic violence has to exert a substantial cost on companies. Additionally, the workplace can be a sanctuary for an abused person - and that person's success at work can be a threat to the abuser.

In the US, employers need to be aware of their country's legal complications:

Domestic abuse exposes companies to an increasingly complicated thicket of federal, state, and local laws designed to protect victims. (More than 40 states have some kind of legislation designed to give victims some workplace protections.) In New York City, for instance, it's illegal to punish a victim for the actions of her abuser. So you can be damned if you do and if you don't.

Well-intentioned bosses can violate medical-privacy laws or antidiscrimination laws if they aren't careful about how they approach an employee they suspect might be a victim. That, more than anything, is reason to confront domestic violence head-on rather than ignore it, says Stacey Dougan, who became an expert on the issue after winning a landmark case in Florida in 1998.

Liz Claiborne, an early pioneer, developed a three-word call to action: "Recognize. Respond. Refer." "Recognize" means noticing if a colleague wears turtlenecks in summer, shrugs unenthusiastically at the arrival of flowers, is secretive about home, is absent a lot. "Respond" means inquiring and sharing your concerns. "Refer" means acting as a conduit to the resources and agencies that can help.

What bosses shouldn't do is try to solve the problems themselves. Domestic violence is too complex and potentially dangerous. A victim is at greatest risk when she leaves the batterer, studies show. And she can risk losing custody of her children in divorce courts, where abuse allegations can sometimes backfire on a victim.

There are bound to be similar legal issues elsewhere, of course.

In any case, this is a difficult situation, and employers should be on the lookout for their employees - but ham-handedness might be do more harm than good.

More info on the auto industry

I previously mentioned that the auto industry is linked to 1 in 10 jobs in the US. The NY Times reports that this estimate may be high.

The figure appears to come from a 2003 study conducted by the Center for Automotive Research on the “economic contributions of the motor vehicle to the U.S. economy, to a multitude of U.S. industries in retail, manufacturing and service sectors, and to individual Americans.”

The center is a nonprofit research organization with ties to labor and government. The study was commissioned by the Alliance of Automobile Manufacturers, an industry group.

The study concludes that “new vehicle production sales, and other jobs related to the use of automobiles are responsible for one out of every 10 jobs in the U.S economy.” The term “responsible for” is interpreted quite broadly and covers jobs in steel, glass and electronics as well as those in taxi-driving, travel and advertising companies, among others.

The study has two drawbacks in addressing the question of how many jobs are at risk if the Detroit automakers go bankrupt.

First, the study uses data from 1998 to 2001, and the industry has changed significantly since then. Employment in the motor vehicles and parts-manufacturing sector has fallen, for example.

Second, the auto-related jobs covered in the report include more than those dependent on the Detroit automakers; they are related to cars sold by any manufacturer in the American market.

In other words, the loss of a single United States car company would not necessarily dissolve all those jobs that the entire auto industry supports. The failure of General Motors, for example, would not eliminate the entire car-wash industry. If a foreign company could come in to fill the demand left by G.M. with minimal disruption, then, theoretically, car-wash employees would keep their jobs.

That said, the ripple effects from a Big 3 bankruptcy or liquidation would be significant. The Center estimated that 2.5-3 million jobs would be lost (directly and indirectly) in 2009 if one or more of the Big 3 went bankrupt. 40-60% of the jobs could eventually be recovered if foreign automakers stepped in and hired people.

Next, an article on Seeking Alpha debunks some misconceptions people have with the auto industry. Briefly, the author contends that Ford and Chrysler CEOs Mullaly and Nardelli weren't involved at all in the industry's past missteps, that GM CEO Waggoner did more than most past CEOs to try to clean up, that the unions aren't primarily responsible for the Big 3's predicament and that the Big 3 do build some smaller cars - they just don't build desirable ones and their overall lineup is very weak in some models.

They don't build small cars.

The Detroit Three build plenty of small cars - they're just not very good. In the U.S.News rankings of affordable small cars, for instance, seven out of 34 models are domestics. But the highest ranked - the Chevrolet Cobalt - lands at No. 20, while the top three are all Hondas (HMC). So, CEO Rick Wagoner is telling the truth when he says that in 2009 GM will offer 20 models (including a few mid-sized cars, a couple small sports cars, and a few others) that will get 30 mpg on the highway. The question is whether anybody will want to buy them - and if not, is it the government's job to subsidize uncompetitive products.

They don't build any desirable cars.

A few recent Detroit models have been hits, like the Ford Fusion, Chevrolet Malibu, Cadillac CTS, and Saturn Outlook. And even Consumer Reports, which has mercilessly trashed Detroit's shoddier vehicles, recently issued a statement saying, "We've seen some progress among the domestic automakers lately, with improved reliability and performance in certain models."

The problem is that the domestics are strong in a few segments, while weak - or nonexistent - in many others. So when soaring gas prices and a stumbling economy torpedoed their flagship vehicles - trucks and SUVs - there wasn't much else to balance out the portfolio. Neither GM nor Ford offers a competitive minivan, for instance. Their small crossovers and SUVs haven't kept pace with the best offerings from Honda and Toyota (TM). And a puny "B car" that's actually fun, like the Mini Cooper or Honda Fit? Does not compute. And it's pretty hard to survive as a global car company when you simply write off a big chunk of the market.

The same guys asking for handouts are the ones who caused the problems.

Not really. Chrysler CEO Bob Nardelli and Ford CEO Alan Mulally are new arrivals recruited from outside the auto industry. Their boards offered them a lot of money because of their expertise on fixing huge, messed-up organizations. Wagoner has been on the job longer, and he bears more responsibility for some of GM's problems. But he wasn't in charge in the 1980s and 1990s, when GM built sprawling factories that are approaching obsolescence, let quality slip, and short-shrifted cars in favor of SUVs. And since becoming CEO in 2000, Wagoner has overseen many improvements at GM, like an improved car lineup, more efficient factories, and success in China and other overseas markets. He may still get the boot, but he's probably done more to fix GM than the three or four CEOs who preceded him.

The CEOs should fly coach.

At about the same time the Detroit Three CEOs were boarding corporate jets to head to Washington for recent congressional hearings, Northwest Flight 234 (on-time percentage: 77 percent) was backing away from the gate at Detroit Metro, headed for Reagan National Airport, across the river from the Capitol building. Obviously, the CEOs should have been on that flight instead of a Gulfstream, relaxing with some free coffee and reading the morning paper before huddling with aides (please remain seated, with your seatbelts fastened) to discuss emergency measures like which division to sell off or which supplier to stop paying. They'd have to speak in whispers, since a couple dozen reporters looking for a scoop would no doubt be sitting in nearby rows - but at least that way nobody would disturb other passengers trying to catch a nap. And if there were any urgent calls from outposts in Shanghai or Dubai, United Arab Emirates, or São Paolo, Brazil, somebody back at HQ with a reliable phone connection could just handle it.

Sure, these are complex global companies with command decisions that need to be made every hour. But if the CEOs are going to ask for the people's money, they should take the people's transportation! Come to think of it, instead of flying, they should have pooled their money and chartered a bus for the trip to Washington.

It's all the unions' fault.

Generous union protections clearly pumped up Detroit's costs in the past and added to bloat, but recent concessions have solved many of those problems. Many other factors now weigh more heavily on Detroit: Soaring healthcare costs, especially for retirees the automakers are still responsible for; poor strategic planning; and buyers who can't get loans. The biggest problem with the unions might be unrealistic expectations fostered by leaders like Ron Gettelfinger - because many of the job and wage protections of the past are no longer there.

They've done nothing to help themselves.

All three Detroit automakers have slashed costs and closed factories over the past few years, in aggressive but methodical efforts to become profitable once again. If we still had the 2006 economy, they might make it by 2010 or 2012. But obviously we don't. What the Detroit Three haven't done is something dramatic that would send the silverware flying, like killing off overlapping divisions such as Mercury, Pontiac, and Saturn, closing redundant dealerships, or demanding universal healthcare to help manage soaring medical costs. If the government coughs up some "bridge" money to tide them over for a few months, there's no reason to think much would change. But if the automakers land in bankruptcy, plenty will change - and self-help will no longer be an option.

I would still have preferred that the CEOs flew on regular airliners, or at least shared one corporate jet. I also wish that the unions had given some ground earlier on.

Does natural gas drilling endanger water supplies?

Abraham Lustgarten writes an article for Businessweek on the increasing suspicions that natural gas drilling is introducing toxic chemicals into groundwater.

There is abundant natural gas in the domestic United States locked in underground shale formations. The shale must be shattered to release the gas.

Chesapeake, Halliburton, and others in the energy industry say hydraulic fracturing is entirely safe. They point to the 2004 EPA study concluding that the process was not dangerous and did not warrant further study. Fracturing fluids aren't necessarily hazardous, can't travel far underground, and there is "no unequivocal evidence" of a health risk, the EPA concluded.

The report's release followed years of industry lobbying to limit study of hydraulic fracturing. After the EPA's study, Congress in 2005 exempted hydraulic fracturing from the Safe Drinking Water Act. That effectively eliminated EPA jurisdiction over the drilling technique and left oversight to state regulators and, in the case of federally owned land, the U.S. Bureau of Land Management (BLM), an agency often characterized as friendly to industry.

"I think fracturing has been given a clean bill of health," contends Kenneth A. Wonstolen, an attorney who represents the Colorado Oil & Gas Assn. "You have intervening rock in between the area that you are fracturing and the areas that provide water supplies. The notion that fractures are going to migrate up to those shallow formations—there is just no evidence of that happening."

The problem should be immediately obvious: the Bush administration as a whole was in complete denial about any sort of environmental problem. Congress in 2005 was full of conservative Republicans and the EPA's administration ignored its own scientists when it released the study:

The industry relies heavily on the 2004 EPA study. But that 424-page report's conclusions appear, on close examination, to ignore some of its own findings. The report actually notes that fracturing fluids migrated unpredictably through rock layers in half the cases studied in the U.S. The agency characterized some of the chemicals as biocides and lubricants that "can cause kidney, liver, heart, blood, and brain damage through prolonged or repeated exposure." The report also noted that as much as a third of injected fluids used in hydraulic fracturing remains in the ground and is "likely to be transported by groundwater."

In connection with the report's release, service companies voluntarily agreed to stop using diesel fuel in fracturing fluid because it is one possible source of benzene. But that agreement, according to the EPA, isn't legally enforceable, and the agency acknowledges that it hasn't checked to see whether diesel is still being used.

Top officials at the agency's headquarters in Washington stand by the study's conclusions, says Roy Simon, associate chief of the Prevention Branch of the EPA's Drinking Water Protection Div. "Since the agency has not conducted a more comprehensive study for all hydraulic fracturing, we do not have further opinion," Simon explains in an e-mail. Asked whether the EPA can confidently say that drilling is safe, Simon adds: "The EPA does not deny that oil and gas production can result in the types of complaints noted in your examples. However, addressing these types of complaints, including hydraulic fracturing and its associated fluids (other than diesel fuel), is beyond the authorities of the Safe Drinking Water Act."

One of the report's three main authors, Jeffrey Jollie, an EPA staff hydrogeologist, cautions that the study was narrowly focused and has been misconstrued by the gas-drilling industry. The study looked at the effects of fracturing in so-called coalbed methane deposits; it did not consider the above-ground impact of drilling or what goes on in many of the large new gas reserves being developed today.

"It was never intended to be a broad, sweeping study," Jollie says. "I don't think we ever characterized it that way."

Companies aren't yet required to release data on the chemicals they use in hydraulic fracturing. However, there are a growing number of unexplained releases of toxic chemicals in groundwater:

n June a rancher in Parachute, Colo., was hospitalized after he drank well water from his tap. Tests showed benzene in his water. The Colorado Oil & Gas Conservation Commission blamed four gas operators in the area for spilling waste fluids. An investigation is continuing.

Pointing to such episodes, several experts in the EPA's regional office in Denver have begun to raise questions about the agency's conclusion in its 2004 report that hydraulic fracturing is safe. "We've kind of reached the tipping point where the impacts are there," says Joyel Dhieux, an EPA scientist in Denver who reviews the effects of industrial projects.

In rural Sublette County, Wyo., an area the size of Connecticut with two mountain ranges but no stoplights, recent testing by federal and state officials near one of the nation's largest gas fields found 88 contaminated water wells stretching over 28 miles. Fifteen contained benzene, in one case at more than 1,500 times the amount the EPA says is safe, according to the Bureau of Land Management. Wyoming regulators and the BLM, which both assessed the situation, minimize the significance of the contamination. They attribute the spills to leaky trucks, saying improved valves would address the problem.

But the EPA's Denver-based regional water expert, Gregory Oberley, isn't convinced: "You've got benzene in a usable aquifer, and nobody is able to verbalize well, using factual information, how the benzene got there." In written statements, regional EPA officials formally rebuked the BLM for not requiring a more thorough cleanup and investigation of the contamination. In September, the BLM approved 4,400 new wells in Sublette County.

The US Constitution requires just compensation for any regulatory taking - this could be a state using its eminent domain power to take land, or forcing a company to disclose a proprietary formula. That legal barrier could possibly be overcome if there was sufficient evidence. However, some people have done their own detective work:

A list of some of the ingredients for fracturing fluids has been pieced together by environmentalists and regulators who have scoured drillers' patent applications and government records, such as worker-safety forms required by the U.S. Occupational Safety & Health Administration. Of the more than 300 chemicals thought to be in use by drillers, more than 60 are listed as hazardous by the federal government.

But the exact recipes drillers use, including chemical concentrations and volumes, aren't publicly known. Researchers say that without that information, they can't vouch for the safety of the drilling process or precisely track the effects of hydraulic fracturing. "I am looking more and more at water- quality issues [related to natural-gas drilling]," says the EPA's Dhieux. "But if you don't know what's in [the fracturing fluid], I don't think it's possible."

This is an emerging issue of environmental justice that the US will have to address. US law does not adequately protect the public from companies polluting the air or groundwater. This situation is intolerable. The public health should not be sacrificed for profit - and if the industry is right that they aren't endangering the public's health, they would have nothing to hide by showing everyone.

Editor's Note: Lustgarten is a reporter with ProPublica, a nonprofit journalism organization in New York. For more on the controversy surrounding natural-gas drilling, go to Propublica.org or to Businessweek.

Patient voices: HIV and AIDS

The New York Times has a series of audio interviews of people living with HIV.

Georgia's claims on Russian war called into question

NY Times has an article stating that Georgia's claims that Russia initiated hostilities in their recent skirmish are questionable.

Newly available accounts by independent military observers of the beginning of the war between Georgia and Russia this summer call into question the longstanding Georgian assertion that it was acting defensively against separatist and Russian aggression.

Instead, the accounts suggest that Georgia’s inexperienced military attacked the isolated separatist capital of Tskhinvali on Aug. 7 with indiscriminate artillery and rocket fire, exposing civilians, Russian peacekeepers and unarmed monitors to harm.

The accounts are neither fully conclusive nor broad enough to settle the many lingering disputes over blame in a war that hardened relations between the Kremlin and the West. But they raise questions about the accuracy and honesty of Georgia’s insistence that its shelling of Tskhinvali, the capital of the breakaway region of South Ossetia, was a precise operation. Georgia has variously defended the shelling as necessary to stop heavy Ossetian shelling of Georgian villages, bring order to the region or counter a Russian invasion.

President Mikheil Saakashvili of Georgia has characterized the attack as a precise and defensive act. But according to observations of the monitors, documented Aug. 7 and Aug. 8, Georgian artillery rounds and rockets were falling throughout the city at intervals of 15 to 20 seconds between explosions, and within the first hour of the bombardment at least 48 rounds landed in a civilian area. The monitors have also said they were unable to verify that ethnic Georgian villages were under heavy bombardment that evening, calling to question one of Mr. Saakashvili’s main justifications for the attack.

Dark side of the US health care industry: 10 things hospital CEOs won't tell you

From Smartmoney.com

1. “I’m a CEO first and a health care professional second.”


With 46 million uninsured Americans and major health care reform possibly ahead, the roughly 5,000 CEOs at U.S. community hospitals aren’t in an enviable position. In the 1980s almost all hospital heads held advanced degrees in health administration, but the American College of Healthcare Executives says more than one in four of its member CEOs now has an MBA, which President Tom Dolan thinks has “advantages and disadvantages.” One plus: Business savvy sure helps in the $1 trillion U.S. hospital industry.

But along with that have come less welcome changes, like Wall Street–style salaries and perks. Gary Mecklenburg, former CEO of Chicago’s Northwestern Memorial Hospital, was paid $16.4 million from September 2005 to October 2006, including a nearly $11 million retirement bonus. A Northwestern spokesperson says the hospital complies with IRS standards of “fair and reasonable” compensation.

Cathy Glasson, a nurses union leader in Iowa, says only recently have hospitals internally begun calling patients “consumers” or “clients.” “Even that small shift hints at today’s business model,” she says. “Focus
less on care and more on profits.”

[US nonprofits have been forced to act like for profits to compete. It's a tough industry.]


2. “Just because we’re nonprofit doesn’t mean we’re good guys.”


These days even nonprofit hospitals have become more entrepreneurial. Executives have all but replaced the nuns who once ran Catholic hospitals, and at least a few facilities have upped prices to several times what procedures cost. What’s more, even though nonprofit hospitals get roughly $12.6 billion in annual tax breaks and billions more in government subsidies in exchange for community service, there’s no standard for how much free care they must provide. Studies show many hospitals don’t give enough free care to equal their tax breaks, and figures they report can be misleading. For instance, many facilities claim
the amount they bill for a service instead of what it costs to provide it.

The Service Employees International Union recently criticized Beth Israel Deaconess Medical Center in Boston for reporting bad debt (unpaid bills for which it had already been partially compensated by the state) as charity care, inflating its free-care figure by about 20 percent. A Beth Israel spokesperson says hospital auditors have “never found any cause for concern.” And no wonder: The hospital was acting in accordance with IRS regulations.

[Free care is only one type of benefit to the community that hospitals provide, and it's a very narrow measure. Under Catholic Health Association guidelines, Catholic hospitals count free care, shortfalls from Medicaid payments


3. “Who says you can’t haggle for health care?”


After media coverage about how they often accept lower payments from insurers while charging higher list prices to the uninsured, hospitals are now more open to bargaining. So how can you take advantage? For starters, many facilities have financial counselors who can set up no-interest payment plans or adjust prices based on financial need—all you have to do is ask. Or team up with an outfit such as North American surgery—which pairs patients willing to pay up front with small hospitals willing to give discounts—and you could save up to 80 percent on common procedures like bypass surgery.

Kelly Proffitt, a 39-year-old teacher in Bassett, Va., knows the benefits of bargaining. In May, when her mother got a $12,000 bill from a hospital after spending almost a week there with a near-fatal blood infection, Proffitt hired a health care advocate—a private individual, often with insurance experience, who helps tackle charges. Weeks later the hospital offered to cut the bill by 80 percent. The advocate “found strings to pull we didn’t even know existed,” Proffitt says. To follow her example, visit www.billadvocates.com to find your own bill bargainer.

[Unfortunately true. Hospital charges are basically a fiction.]

4. “If we build it, you will come.”


The hospital industry is in the midst of a serious building boom, having spent more than $100 billion on construction from 2002 through 2007, double the amount from the previous five years. Hospital executives argue that they’re trying to make patients more comfortable, but critics claim much of the work is unnecessary, “like putting waterfalls in the lobby,” says Maggie Mahar, author of Money Driven Medicine. “And that cost trickles right back down to consumers.”

What’s more, when construction increases the number of hospital beds, doctors tend to fill them and charge accordingly. Researchers at Dartmouth University have repeatedly found that patients with chronic conditions spend more time in the hospital in areas with more hospital beds per capita. And during the last months of life, patients in bed-glutted regions like Miami spend 20 days in the hospital on average, compared with six days elsewhere.

The upshot for patients? “Researchers have never found all that extra care is producing better health outcomes,” says Paul Ginsberg, president of the Center for Studying Health Systems Change. “In some cases, outcomes are actually somewhat worse.”



5. “We don’t like competition, especially from doctors.”


Tensions are up between hospital executives and doctors, especially since many physicians have begun opening small outpatient-surgery centers or mini hospitals in direct competition with big hospitals. The CEOs worry such facilities—which often focus on profitable specialties like liver transplants—will shear off the most high-paying, well-insured patients.

Orthopedic surgeon William Reed has felt the blowback: In 2003, when he and 21 colleagues opened Heartland Spine & Specialty Hospital in Kansas City, Kan., he says the six biggest insurance firms in the area stopped talking to him about adding the facility to their networks. When Reed filed suit alleging tortious interference and civil conspiracy, his lawyers uncovered e-mail showing several large local hospitals had told the insurers they didn’t want them working with Heartland. One hospital allegedly said it would drop an insurer that did. Five hospitals settled for undisclosed sums this spring; the one that allegedly threatened to drop an insurer says its contracting uses a “thorough, lawful approach.” But says Reed, “They were trying to find a way to choke me right out of business.”

[Consider the previous point. Then consider these physician owned specialty hospitals. First, they skim profitable patients from community hospitals. Second, they raise medical usage without necessarily bettering health. The specialty hospitals treat far fewer Medicaid patients; all hospitals lose money on Medicaid payments, which means the specialty hospitals dumped unprofitable patients on the community hospital. Furthermore, specialty hospitals also tend to treat healthier patients with the same diagnosis - the more complicated cases are less profitable. Interested parties can read this letter to Sen. Max Baucus from the American Hospital Association and a couple other associations.]

6. “It’s all about PR.”

You can hardly log on to a hospital’s Web site without a logo proclaiming it “one of the country’s best.” Rankings have proliferated in recent years and are now offered by such varied sources as the for-profit firm HealthGrades and magazines like U.S. News & World Report. The problem is, consumers still don’t know how to assess and research hospitals adequately, says Howard Peterson, managing partner of hospital-consulting firm TRG Healthcare, so “image becomes everything.” That’s why each year when hospital rankings that factor in the reputation of a facility within the health care community get compiled, “I can’t even tell you how many e-mails I get wanting my vote,” Peterson says.

How to find reliable rankings? For starters, look closely at what goes into these calculations. For example, a facility may label itself “best hospital” when only one division (say, ophthalmology) has won an award. Among rankers, HealthGrades (www.healthgrades.com) bases its ratings on more than 90 individual procedures and lets you access ratings based on mortality or complication rates of patients, as well as data on safety and what the hospital charges.

7. “You might be paying for the guy in the next bed.”

Hospital CEOs tend to focus on “the mix of privately insured and Medicare patients at their hospitals,” says Leah Binder, CEO of industry monitor The Leapfrog Group. And for good reason: Because Medicare reimbursements barely cover the cost of procedures, privately insured patients and their insurers often pay more to compensate. One PricewaterhouseCoopers study predicts one of every four dollars spent by private insurers will cover such cost shifting by 2009. That can lead to some pretty outrageous charges. For example, says consumer advocate Nora Johnson, many hospitals bill about $30,000 for appendectomies when the cost to do the procedure is more like $4,200. (Insurers negotiate prices, usually somewhere between those two benchmarks.) But because it isn’t easy to compare prices, Johnson says there are “no checks and balances to keep hospitals from marking things up as much as they want.”

Richard Clark, CEO of the Healthcare Financial Management Association, a professional group for hospital CFOs, says it’s “frustrating” to hear arguments that pricing is arbitrary, since hospitals painstakingly adjust prices based on the number of patients covered by government programs and on market forces.

[Depending on their costs, hospitals may lose a bit of money on Medicare patients, lose quite a bit of money on each Medicaid patient, and obviously lose a lot of money on the uninsured. Given the bizarrely convoluted structure of the US health financing system and the lack of a national insurance solution, hospitals have no choice but to use the privately insured patients to essentially subsidize everyone else.]

8. “Our mergers are pretty messy.”

the hospital industry has been rapidly consolidating since the 1990s, with more than 100 merger-type deals announced or completed in 2007 alone. What does this mean for consumers? When a hospital buys another close by, prices can jump more than 40 percent. That’s because big chains have more leverage to demand higher rates from insurers, says Robert Town, professor of health policy at the University of Minnesota.

Hospitals say mergers ultimately help them improve quality—they’ll spend more on care and less on back-office needs. But the process can cause customer-service snafus and occasionally compromise quality. Hospital consultant Corbett Price says it’s “very common” for hospitals to have problems coordinating accounting systems after a merger, which can result in duplicate or flawed bills, for example. And since mergers gobble up competition, some critics say hospital CEOs no longer feel they have to address black marks—like low nurse-to-patient ratios—to compete.

Price urges concerned consumers to talk with their primary-care doctor about changes at a newly merged hospital and make sure the facility remains accredited by checking www.jointcommission.org. Another option: Wait at least three months for the dust to settle before going back.


9. “If it were up to me, we’d be doing more breast implants.”

With more hospitals focused on financial survival, many are pushing the most profitable types of care. Nowhere is this trend more apparent than in advertising: A 2005 study of top academic medical centers’ adsfound that 29 percent of those focused on specific treatments touted cosmetic procedures, while another 38 percent focused on experimental (read: high-priced) services like deep-brain stimulation for Parkinson’s disease.

Critics worry hospitals are becoming dangerously out of sync with the needs of the public. Author Mahar says ERs are often crowded because hospitals don’t want to expand this low-profit unit. Poor financials also explain why the U.S. doesn’t “have nearly enough burn units,” she says, and why more than three-quarters of hospitals don’t offer palliative care. Clark says that while a focus on building up profitable parts of facilities is “definitely going on,” nonprofit hospitals also focus on “making sure they are still providing the services the community needs while making a hospital financially sustainable.”

10. “We don’t like you poking into our business.”

things have improved in recent years, but consumer advocates trying to make data publicly available on such topics as staph infection rates in hospitals often describe a multiphased process of resistance. “First the executives just flat-out oppose you,” says Denise Love, executive director of the National Association of Health Data Organizations. “Then they say they love the idea but begin attacking the data points and methodology.”

At HealthGrades, Chief Medical Officer Samantha Collier says she gets calls “at least once a week” from hospital CEOs or their underlings complaining about everything from her methodology to where they fall in the hierarchy of rankings. Granted, hospital execs have some legitimate concerns: For example, there’s the issue of whether hospital researchers and raters are properly adjusting data to be easier on facilities seeing the toughest cases and thus posting higher mortality rates. But Mahar says hospitals’ stake in keeping the public underinformed is mostly business savvy. “CEOs realize that patients walk away [from the hospital] knowing whether they like the food and the view,” she says. “They’ve got no idea if they actually got good quality health care.”

[This is true and inexcusable. Hospitals are not ordinary businesses. They provide an essential public service and take much public financing, and therefore should be open to scrutiny. That said, hospital operations are highly complex and aren't easy for a layperson to interpret. For example, a layperson might be outraged at the way charges are structured, but there is a reason behind it as discussed earlier.]