For-Profit Medical Schools, Once Banished, Are Sneaking Back

In Idaho’s 2016 State of the State address, then-governor Butch Otter announced that he was directing the state’s Board of Education to work with the medical community to “develop a new plan for addressing future demand for healthcare providers.” Just six weeks later, the board held a special meeting to ratify a contract locking Idaho State University into a sixty-year agreement—that is, until the year 2076—with Idaho College of Osteopathic Medicine LLC (ICOM), to build and operate a medical school on the Idaho State University campus.¹

Six weeks is a pretty short time frame to arrive at a sixty-year agreement. But that’s not the most curious part of this deal. What really raises eyebrows is Idaho State University’s choice of partner: ICOM is a for-profit company that seems to have done everything it can to hide how its budgets and policies are adopted and who, ultimately, is responsible for its actions. And what’s worse is that this deal and others like it in the works seem to signal a return of for-profit medical schools—a troublesome model that health regulations had effectively banished for most of the twentieth century.

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The Trouble with ICOM and Its Sister School in New Mexico

ICOM is the second medical school business launched by investor Dan Burrell, the first one being an eponymous school in his adopted home state, the Burrell College of Osteopathic Medicine at New Mexico State University, which will graduate its first class this June.

The masked control over ICOM is built right into the contract between the university and the for-profit company.² The medical school is to be a college on the state university campus. Its name will be appended with the state university’s name. The student identity cards must be of “similar form and function” as those held by regular students of the state university.³ Almost everything about the medical school that is publicly facing tells students that the institution they are attending is part of the state system—except for a required disclaimer in any printed or digital material, somewhere, that the medical school is a separate entity from the public university.⁴

Almost everything about the medical school that is publicly facing tells students that the institution they are attending is part of the state system.

But even ICOM’s disclaimer will probably be misleading, if the Burrell College of Osteopathic Medicine is any example. The Burrell school’s “about“ page first describes the school as “private,” a term usually referring to nonprofit schools such as Stanford or Princeton, not for-profit schools. Then, it appears to dismiss that claim, assuring students that the medical school “is very closely affiliated with New Mexico State University and our students enjoy the student life and campus community benefits that come with a major public research university.”

The deception at the Burrell school goes even further. The school’s organizational charts exclude any mention of corporate ownership, implying that the listed “trustees,” which include state university officials, are fully in control. The medical school’s website and catalog do not include a single indication that the school is for-profit. Meanwhile, there are ways to donate and get a tax deduction—implying, again, that the school’s spending and assets are protected, like with a charity.

The medical school’s website and catalog do not include a single indication that the school is for-profit.

Before his entreaties to the Idaho governor, Burrell approached officials in Montana about establishing a medical school there. It was rejected because, according to the Bozeman Daily Chronicle, the local medical community suspected that Burrell was “just out to make money with his for-profit college, possibly at the expense of medical students, who might be left holding big debt with no way to land crucial residency training.”

Even if prospective students are aware that the school is for-profit, all of these other signs imply that they need not worry, this school is different, it is not vulnerable to the predatory recruiting and investor plundering that has led to for-profit education’s sketchy reputation. Was the Montana medical community wrong? Is there reason to believe that students are, in fact, safe?

The History of For-Profit Medical Schools in the United States

In the first half of the 1800s, the number of medical schools in the United States rose rapidly. Most of the schools were operations in which physicians would give lectures for a fee, promising to provide “the fastest, easiest and cheapest education.”⁵ As described by Harvard president Charles Elliott, educational standards and quality of instruction were quite low, because it was “in the pecuniary interest of the teachers composing a medical faculty to have as many pupils as possible, and grant as many degrees as possible, their receipts being proportionate to the number of fees paid for attendance at lectures and for graduation.”⁶ The Harvard Medical School itself was operated as a private venture until President Eliot made it a constituent part of the university in 1871.

It would be decades before reforms in medical education took hold. Many schools, especially those operated for profit, would then feign compliance with new rules. And they, along with financially weaker public or nonprofit schools, lobbied against reforms. A 1910 report commissioned by the Carnegie Foundation found that too many medical schools were “mercenary concerns that trade on ignorance and disease,” operating like factories rather than scientific establishments. That report along with regulatory efforts by states (especially Illinois) and accrediting agencies contributed to the closure, by 1930, of more than half of the medical schools that had existed in 1901.⁷

For-profit medical education returned to the United States in the 1970s, from outside its borders. With federal student loans newly available to for-profit schools, entrepreneurs realized that they could launch medical schools offshore, enroll U.S. students with federal aid, and use processes established for immigrant physicians as a route for licensing their graduates. Small Caribbean countries became hosts to medical schools catering to Americans who had been unable to gain admission to a U.S. medical school. By the early 1980s, the Government Accountability Office reported that thousands of students were using loans for offshore medical schools where the standards of quality could not be assured.⁸ Reforms in 1992 and 2008 established a separate oversight system for offshore medical schools, including a requirement that the schools primarily enroll non-U.S. residents and demonstrate minimum passage rates on U.S. medical board exams. In response to lobbying pressure, however, five Caribbean schools were exempted from the citizenship and pass rate requirements.⁹ (Bipartisan legislation in Congress has sought to close that loophole.)

One of the exempt schools, the Ross University School of Medicine, on the island of Dominica, in 1999 sought to open a medical school in Wyoming. It was denied approval by the agency that okays MD-granting schools, the Liaison Committee on Medical Education (LCME). At that time, LCME’s standards required its accredited schools to be nonprofit, except in extraordinary circumstances.

A few years later, Yife Tien, an investor whose father had made a fortune by starting a Caribbean medical school, launched a plan for a U.S.-based school. Rather than seeking LCME approval, Tien sought accreditation from the agency that okays schools offering the doctor of osteopathic medicine (DO) degree, the Commission on Osteopathic College Accreditation (COCA). While osteopathic (DO degree) approaches to health care are different from allopathic (MD degree) approaches, both qualify students for state medical tests and licenses. In 2007, COCA granted pre-accreditation to Tien’s Rocky Vista University, in Parker, Colorado, leading to accreditation in 2012 after the school graduated its first class. Rocky Vista paved the way for the pre-accreditation of the Burrell and Idaho schools (along with another for-profit, the California Health Sciences College of Osteopathic Medicine, near Fresno, California).

Meanwhile, the LCME eliminated its nonprofit preference in 2013, explaining that the change “follows from the premise that accreditation decisions must be based on the ability of an institution to meet accreditation standards and not on its form of governance.”¹⁰ The next year, LCME approved the purchase of nonprofit Ponce Health Sciences University, in Puerto Rico, by Arist Education. Arist is a division of the large German publishing conglomerate, Bertelsmann, but Ryan Craig, who runs an investment firm called University Ventures, told me that his firm manages the school on behalf of Bertelsmann and other passive investors.

In 2015, LCME approved pre-accreditation status for a medical school at California Northstate University, a for-profit school near Sacramento already offering pharmacy and other health career training.

Last week, the St. Louis Post Dispatch reported that a campus of Ponce, the Puerto Rico school, will open in St. Louis in 2022 “to provide opportunities for minority and low-income students who fail to get a spot in a traditional medical school but show promise to succeed.” The justification harkens back to the Carnegie report more than a century ago, which cautioned against “schools that claim to exist for the sake of the poor boy and the back country,” explaining that “the excuse which has hitherto been put forward in the name of the poor boy is in reality an argument on behalf of the poor medical school.”¹¹

Both medical school accrediting agencies—LCME and COCA—now seem willing if not eager to accredit for-profit medical schools. Do they know what they are getting themselves into? Do they understand how much a for-profit governance structure can mask who is in charge at these schools?

Hiding behind Corporate Shields and Shells

Roy Poses, MD, a professor of medicine at Brown University, recently published a blog entitled, “Who Owns, and Who Is Accountable for the New US For-Profit Medical Schools?” Having previously written about the opaque ownership of some of the offshore medical schools, Poses is now concerned that domestic for-profit medical schools have mysterious ownership, a practice “associated with money laundering, fraud and corruption.” While these schools hire administrators to manage a school, “it is the owners who are ultimately accountable.” Accrediting boards, Poses says, “should not trust medical schools who keep their ownership secret.”

At public and nonprofit colleges and universities, the identity of those who are ultimately responsible—the regents, trustees, or boards of directors—are known and public. The buck stops with them: while they may defer many decisions to administrators and faculty, they have the ultimate responsibility for everything the college does.

The COCA standards require that a freestanding medical school’s governing board must be composed of qualified physicians and other experts—people whose interests are aligned with students and good medicine, not personal gain. Judging by the Burrell medical school’s website and its catalog, it meets that test. The people listed as trustees include the chancellor and president of New Mexico University, physicians, and community members.

But while the list of trustees looks respectable, they do not control the corporation. Who does? A tangle of limited liability companies, or LLCs.¹²

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According to incorporation records for the state of New Mexico, the corporation known as Burrell College of Osteopathic Medicine, LLC, in Las Cruces, was organized by John Hummer, the president of the college, and George Mychaskiw, founding dean of the college. However, Mychaskiw, who no longer works at the school, told me that he never saw any documentation for how corporate decisions would be made, or by whom.¹³

Mychaskiw assured me that the real owners are respectable people who can be trusted, Dan Burrell and Rice University, and that Rice is the majority owner, and thus in control of both the New Mexico and Idaho schools. However, a Standard and Poors bond prospectus for the Idaho school says that it is Burrell who is in control, with 51 ownership compared to Rice’s 49 percent.

Burrell did not respond to requests for clarification and for copies of operating agreements or bylaws that would show who really holds the corporate reins. But a bylaws document TCF acquired through a FOIA request confirms that the “Board of Trustees” is not the school’s governing body.¹⁴ The trustees merely “assist and advise” the corporation, which is controlled by a separate Board of Directors, the members of which are not named in the document.

It seems that COCA—the agency that accredited the Burrell school and ICOM—might not be fully aware of this murky chain of ownership. I called COCA and asked executive vice president Josh Prober and vice president Wambui Wang’ombe how the “governing body” described in COCA’s standards for medical schools should relate to the governance of an LLC. Prober said that they had not yet had to face that question, since none of their colleges were LLCs. When I told them that the Burrell school and ICOM were owned and operated by LLCs, Prober apologized. Asked again about the governing body requirement, he said the trustees “should be the equivalent of the corporate board of directors.” They “should have the ultimate authority to control the corporation.” When I asked a follow-up question the following week, Prober emailed that he had been misunderstood.¹⁵

I asked Mychaskiw, the founding dean, if it is plausible that COCA was not aware of the corporate structure of the Burrell school. He thought it implausible, but then acknowledged that he was not privy to the materials that were sent to the agency.

Even when who controls a for-profit school can be determined, that ownership is frequently not stable.

Even when who controls a for-profit school can be determined, that ownership is frequently not stable. COCA’s first for-profit, Rocky Vista, was sold, apparently. In 2018, an online post on a medical students’ forum reported that students were told that the school had been purchased by the company that owned St. George’s University, a medical school on the island nation of Grenada. But what company is that? The online post said it was Medforth, which does list the two schools on the company’s website. However, a school ownership list TCF received in November from the U.S. Department of Education identifies the owner as “Altas Partners Holdings (A) LP & Selinus.” Who is that? Well, it turns out, they own Medforth. What that means for governance of Rocky Vista, I don’t know.

Next Up: A For-Profit Medical School at a Public HBCU?

Mychaskiw, the former Burrell school dean, told me that the key to avoiding the hazards of for-profit education is to involve mission-oriented investors who are not too greedy. While most venture investors seek returns of 40 percent or more per year, mission-oriented investors such as Dan Burrell or Rice University, he said, are willing to accept lower returns, on the order of 18 or 20 percent per year. With his experience and contacts, Mychaskiw said he was looking to forge new deals similar to those that created the Burrell and Idaho medical schools. Morgan State University, a historically black school in Maryland, recently announced that it is formally working with Mychaskiw’s team on the idea.

But for-profit financiers and LLCs are not necessary to start a new medical school, even in rural areas with limited resources. In Tennessee, in 2007, a new medical school opened at the nonprofit Lincoln Memorial University. Another one had opened ten years earlier in neighboring Kentucky, at the University of Pikeville. The medical school that opened in 2016 on the campus of Arkansas State University, Jonesboro (ASUJ), is a branch campus of the nonprofit NYIT College of Osteopathic Medicine—and making that happen did not require a sixty-year contract. It is a much more sane ten years.¹⁶

One of the possible investors in the Morgan State deal, according to Mychaskiw, is Rice University. “Rice has been interested in doing something with an HBCU for a long time.” I have a better idea. Rice University was founded as an explicitly racist, whites-only school—a past that it wants to move beyond. Instead of owning and profiting from a medical school on a historically black college campus, Rice University should donate a small piece of its $6.5 billion endowment to Morgan State to help found a nonprofit medical school.

1. The contract, which TCF acquired through a FOIA request, has a forty-year initial term with two additional ten-year periods if requested by either party. See https://drive.google.com/file/d/19Atx7r4eNW8Z3ugmQokJ7zJWUKKg_pgP/view.
2. TCF has filed FOIA requests for the New Mexico contract but it has not yet been made available.
3. Some of the contractual rights are contingent on the medical school receiving its accreditation. The medical school pays a per-student fee to cover Idaho State’s costs. (The state’s constitution prohibits public funds from going to private entities: “The credit of the state shall not, in any manner, be given, or loaned to, or in aid of any individual, association, municipality or corporation; nor shall the state directly or indirectly, become a stockholder in any association or corporation.”)
4. The contract requires the medical school to include a disclaimer on its website indicating that it is not a part of the state university. But the sample wording says “free-standing” and “privately funded,” nothing about the medical school being for-profit.
5. Martin Kaufman, American Medical Education, the Formative Years: 1765-1910 (Westport, Conn.: Greenwood Press, 1976), cited in Lynn E. Miller and Richard M. Weiss, “Medical Education Reform Efforts and Failures of U.S. Medical Schools, 1870–1930,” Journal of the History of Medicine and Allied Sciences 63, no. 3 (2008): 348-87, 351, accessed February 20, 2020, www.jstor.org/stable/24631864.
6. James Bordley III and A. McGehee Harvey, Two Centuries of American Medicine, (Philadelphia, Penn.: Saunders, 1976), 26.
7. Miller and Weiss, 351.
8. Federal, State, and Private Activities Pertaining to U.S. Graduates of Foreign Medical Schools GAO/HRD-85-112 (Washington, D.C.: U.S.Government Accountability Office, September 27, 1985).
9. The five exempt Caribbean medical schools are St. George’s University, Our Lady of Fatima University, American University of the Caribbean, Tel Aviv University, and Ross University. If the standards were applied to these schools, the GAO concluded in 2010 that two would not meet the requirement, though those two institutions alone accounted for over 50 percent of federal student loans to foreign medical students.
10. Later explanations point to a settlement years earlier between the American Bar Association’s law school accreditation arm the the U.S. Department of Justice, in which the ABA agreed to no longer bar for-profit schools. But that decree was specific to the ABA situation and did not necessarily create any legal precedent that would apply to LCME.
11. Abraham Flexner, Medical Education in the United States and Canada, Carnegie Foundation for the Advancement of Teaching, 1910, 303, xi.
12. LLCs serve as vehicles for putting pieces of a business into separate boxes so that if something goes wrong with one investment, the profits from other investments are not in peril. For example, real estate investment companies frequently place each apartment building or shopping center into its own separate LLC. State laws govern the formation and rules of LLCs. Generally, they do not have owners, but instead designate members, managers or partners, with bylaws or operating agreements—not available to the public—that determine how decisions are made and how profits are shared.
13. Documents TCF has received through a FOIA request indicate that the “manager” of the school LLC is another LLC: BCOM Management, LLC, in Aspen, Colorado. And the “owner” of that is yet another LLC: BCOM Investment Partners, LLC. BCOM Investment Partners consists of: William Marsh Rice University, in Houston, Texas; Burrell Diversified Investments, LLC, in Aspen; Cristal Medical, Inc., in Albuquerque, New Mexico; Pot Black, Inc., in Albuquerque; AstonMedical, Inc., in Albuquerque; LM Roadrunner, LLC, in Chicago, Illinois; and REDSANDS Investments, LLC, in The Woodlands, Texas.
14. “The Corporation’s Board of Directors serves as the governing body of the BCOM and retains ultimate responsibility…”
15. His February 21, 2020, email said: “My recollection is that you called the COCA offices and asked about how the Commission on Osteopathic College Accreditation would treat an application from an Limited Liability Company. We answered—correctly—that the COCA had not specifically addressed the issue of corporate form (LLC or LLP vs corporation) in its prior accreditation decisions. The topic then changed to expectations from COCA for a governing board within a corporation or LLC.”
16. After seven years ASUJ may notify NYIT that it wishes to end the partnership. Alternatively, at the end of the ten-year term NYIT can continue it for five years (if ASUJ has not sought to end it). The contract was acquired through a FOIA request.

Tags: for profit, for profit medical school, icom