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ProvidenceWatch Exclusive:
February 14, 2007

Providence Executives Implicated in "Anticompetitive Secret Society" Break-up

Three current and former Providence Health & Services executives were member-owners of the "anticompetitive secret society" dissolved under a January 25, 2007 settlement with the Connecticut and Florida Attorneys General. John Koster, Richard Umbdenstock, and Henry "Hank" Walker were all members of the Healthcare Research Development Institute (HRDI), the for-profit entity labeled a secret society by Connecticut Attorney General Richard Blumenthal.

According to the settlement titled an "Assurance of Voluntary Compliance," current Providence Health & Services CEO John Koster was on the HRDI board when Blumenthal began his investigation in 2005 . HRDI website records show that former Providence Health System CEO Henry "Hank" Walker became a member of the group in 2000 and then Providence Services CEO Richard Umbdenstock became a member of the group in 2002 .

The agreement between HRDI and the Connecticut and Florida Attorneys General includes these terms: HRDI, Inc. will dissolve immediately, "winding up its obligations and liabilities." HRDI will be succeeded by the Health Education Network, Inc. This entity will form as a not-for-profit corporation and "will conduct all its activities in the public’s best interest." For at least three years, the Health Education Network’s membership will consist of CEOs and other healthcare professionals who are not affiliated with vendors. Members will pay dues to the network not to exceed $25,000. Health Education Network will provide annual disclosure reports to member hospitals which will include: Health Education Network’s Audited Financial Statement Statement describing annual dues to the Network Names of all CEOs in the network and their respective hospitals Any updates on the Networks structure, including amendments to organizational documents, and a list of officers and directors of the Network. Network membership requires a two-year commitment by CEOs and the hospitals they lead. Health Education Network will not offer membership or any formal business relationship to health industry vendors. Vendors may, however, be invited to attend or speak at general session meetings of the new Network and receive "reasonable honoraria." Whether or not the new Network qualifies for federal tax exemption, it will operate within the parameters of federal 501(c)(3) status. HRDI admits no wrongdoing or unlawful activity in Connecticut, Florida, or elsewhere. HRDI will pay the State of Connecticut $150,000 toward the cost of the investigation.

The for-profit HRDI, owned by CEOs of leading nonprofit hospitals and healthcare institutions, called itself an "education" company. The company paid its member-owner CEOs consulting fees and provided in-kind perks such as travel, lodging, and entertainment. HRDI’s income came from hospital vendors, known in HRDI-speak as "clients." Vendors paid for face time with the CEOs, ostensibly receiving education and advice. The vendors included companies in the medical device, pharmaceutical, financial, consulting and other health care businesses. HRDI strictly enforced a "Rule of Two" which limited its "clients" to two from each type of heath care business .

Mark Leahey, executive director of the Medical Device Manufacturers Association, commented to the Salt Lake Tribune, "These guys were making $30,000 and $50,000 a year to rub shoulders with top pharmaceutical and medical device companies," Leahey said. "They had fiduciary duty to their hospitals and they were essentially getting kickbacks from suppliers."

Attorney General Blumenthal states HRDI should have been called "Healthcare Titans of America - an organization where the most powerful vendors and hospital CEOs enjoyed lucrative marketing opportunities, and lavish accommodations." He said that "HRDI claimed to offer health care consulting services to industry players. In reality, it was an exclusive network that shut out potential competitors in various health care markets - everything from pharmaceuticals, syringes, medical devices and financial and consulting services."

According to Blumenthal, "Vendors intentionally exploited the opportunities provided by HRDI, resulting in an uneven playing field and less competitive selling environment. Vendors gained direct access to hospital CEOs who potentially wielded influence over service and supply purchasing decisions at their respective hospitals."

HRDI defended its model however, insisting that the company’s goals were to share ideas and strategies, improve health systems, and educate other health care companies so their products would better meet consumer demands.

HRDI hosted two meetings each year attended by its owner-member CEOs and its vendor clients. CEOs participated on panels at these meetings; so did the vendors. The meetings also featured receptions and golf tournaments. During the year, each CEO served as "liaison" for HRDI vendors, ostensibly helping them to prepare for their presentations at the meetings.

The CEOs received compensation averaging $20,000 to $25,000; some, who spent more time with vendors, received as much as $40,000 and $50,000. In addition, they were reimbursed for travel, lodging, and entertainment expenses for both the CEO and their spouse in connection with each meeting.

HRDI clients August 2005 - present Abbott Accenture / formerly Cap Gemini Amgen Aramark Baxter Healthcare BD Healthcare Boston Scientific Cardinal Healthcare CB Health Ventures Cerner Citigroup CR Bard Dion Durrell Eclipsys Eli Lilly Ernst & Young Excel Medical First Consulting Group Gardner, Carton & Douglas (Drinker Biddle) GE Healthcare Governance Institute Heidrick & Struggles Herman Miller Hill-Rom Hospira Johnson & Johnson Kimberly-Clark Lillibridge Health Trust 3M McKesson McManis Consulting MedAssets Modern Healthcare Magazine Morgan Stanley NBBJ NRC/Picker Owens & Minor Press Ganey Roche Labs Sanofi-Aventis Siemens Medical Smith & Nephew Sodexho Healthcare Solucient Stockamp & Associates Team Health Tiber Group a Navigant Co.

Compensation came in the form of:

• a "liaison fee" equal to 20% of the fee their assigned "clients" paid for membership in HRDI. (in 2005, this totaled $8,000 from each vendor for whom a CEO served as liaison)
• $1,000 for participation on a vendor’s panel. (over the course of a four-day meeting, CEOs would sit on five or six panels); and
• year-end HRDI profit sharing.

A preliminary examination of Providence IRS form 990s and business press sources by ProvidenceWatch revealed these relationships between Providence and HRDI vendors:

• Dion Durrell provided actuarial services to Providence Services Professional and General Liability Loss Fund Trust in 2005.
• Gardner, Carton & Douglas (now Drinker Biddle) served as counsel when Providence Health System sold its Seattle Medical Center to Swedish Health Services.
• Gardner, Carton & Douglas (now Drinker Biddle) represented PH&S subsidiary John Gabriel Ryan Association in securing tax exempt 501(c)(3) status. The subsidiary’s sole activity is participating in joint ventures, including ancillary health care services (imaging, for example) and medical office buildings.
• Gardner, Carton & Douglas (now Drinker Biddle) provided legal services to Providence Services subsidiary Benefis Healthcare.
• Providence Health System purchased "a rigorous, data-driven, decision-making process" from GE Healthcare’s Six Sigma, for use in all of its hospitals.
• PH&S held positions on Johnson & Johnson's "Promise of Nursing" steering committees in Olympia, Washington and Southern California.
• PHS-Southern California’s Little Company of Mary hospital spent $930,460 on "Medical Services" from Johnson & Johnson in 2004.
• Providence has been a McKesson customer since 1991. Providence Health System - Oregon’s uses McKesson’s Pathways Contract Management software to "identify and begin collecting on $6 million in underpayments" and Providence Health System-Washington paid McKesson $2,585,100 for software support and consulting in 2004 and 2005.
• In Portland, OR, Providence participates in a joint-venture with McKesson, "a state-of-the-art development and testing lab within [Providence’s] regional data center."
• Many Providence hospitals have been clients of the consulting firm Press Ganey; a Providence Hood River executive credits Press Ganey with helping stimulate a "cultural revolution" at the hospital in 2002.
• Solucient has included Providence hospitals on its annual 100 Top Hospitals list, in recognition of performance on measures of both finance and quality.
• Providence Health System-Oregon appears on the client list of Stockamp & Associates, a business touting itself for helping "high-performing hospitals reach the pinnacle of financial and operational excellence."
• Navigant worked as Providence Sacred Heart Medical Center’s "turnaround firm," helping the hospital to lay off 350 employees and end 2005 in the black.

Providence Health & Services spokespersons did not return a phone call from ProvdienceWatch.org seeking comment.

Documents and Other Press

• Download the full agreement between HRDI and the Attorneys General
• See the full list of HRDI CEO member-owners
• See other HRDI documents:
  • Agenda, Panel Schedule, Panel List, and "Spouse Agenda" from the May 2006 HRDI meeting The Broadmoor in Colorado Springs.
  • Preliminary Agenda for the March 2001 HRDI meeting in Chicago
  • Meeting Agenda for the November 2002 meeting at The Ritz Carlton Reynolds Plantation, Greensboro, GA
• See other press on the HRDI settlement:
  • Press Release — "Attorney General Announces Settlement Disbanding Anticompetitive Group Of Hospital Executives And Health Care Vendors"
  • Insurance Journal — "Health Execs' Group Disbands Under Antitrust Settlement with Conn."
  • The Salt Lake Tribune — "Suppliers heaped freebies on IHC chief"
  • Commercial Appeal — "No conflict, says Baptist CEO"