healthy4u: Lancaster General Health

That all people in the US do not play by the same rules, and that more specifically the richest people do not play by the same rules as the somewhat or a lot less rich, became a topic of discussion after the 2008 global financial collapse/ great recession.  A powerful discussion of this theme appeared in <i><a href="http://www.randomhouse.com/book/213722/predator-nation-by-charles-h-ferguson">Predator Nation</a></i>, the book by Charles Ferguson that followed his award winning documentary, <a href="http://www.sonyclassics.com/insidejob/">Inside Job</a>:<br /><br /><blockquote class="tr_bq">Ponder the toxic effects of too much wealth, too much power, the new culture of American investment banking, and a <i>life conducted within the cocoon of America's new oligarchy</i>. [p 112]</blockquote><br />He focused on the culture of <a href="http://hcrenewal.blogspot.com/search/label/finance">finance</a>, but as we have seen, this culture has overlapped the culture of health care.  Thus we have shown <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">multiple examples</a> of those who have become rich due to their positions in health care, almost always positions as high-ranking hired managers of health care organizations.  They get paid according to different rules than apply to other hired employees, and <a href="http://hcrenewal.blogspot.com/search/label/executive%20life%20style">live by different rules</a> than their less-favored fellow employees, again by virtue of their positions.<br /><br />Some of these examples were of CEOs of huge, for-profit health care corporations,  However, we have increasingly seen hired managers of moderate size non-profit organizations who also appear to play by different rules than their fellow employees.<br /><br /><b>The Executives of Lancaster General Health </b><br /><br />The latest example appeared through <a href="http://lancasteronline.com/article/local/790929_Healthy-paychecks-for-LGH-executives.html">reporting</a> found in LancasterOnline, the web presence of several newspapers in Lancaster, Pennsylvania, about a regional community health care system, Lancaster General Health.  The <a href="http://www.lancastergeneralhealth.org/LGH/About-Lancaster-General-Health.aspx">system</a> includes one major hospital, Lancaster General, an obstetrics hospital, and a variety of satellites and out-patient facilities.     <br /><br />The system was facing challenges in 2010:<br /><br /><blockquote class="tr_bq">In 2010, times were getting tougher for Lancaster General Health.<br /><br />The mammoth [sic] health care system would notch record revenues of nearly  $1 billion that year. But its <i>annual surplus fell</i> for the fourth  straight year. Though destitute by no means, <i>galloping expenses and  uncertainty in the marketplace</i> were hammering LGH's business model,  prompting changes. <i>Two units were closed, some positions were  eliminated, and 170 employees were reassigned.</i></blockquote><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">However, despite these difficulties, </div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><blockquote class="tr_bq">Two executives — CEO Tom Beeman, who was on military leave part of  the year, and Executive Vice President Jan Bergen, who helped fill in  for Beeman in his absence — <i>earned <b>more than $1 million</b> in total  compensation; another six got at least $500,000.</i><br /><br />And those top 21 executives collectively received more than $2 million in bonuses and incentives.</blockquote><br />That lavish total compensation included "perks" that were likely not furnished to lesser employees, for example<br /><br /><br /><blockquote class="tr_bq">The IRS form lists few explicit perks, save one: LGH paid $1,044 in <i>social club dues</i> for Beeman in 2010.<br /><br />Said Regina Mingle, LGH's executive vice president of human  resources: 'In this community, if you need to do business, you do it at  the Hamilton Club or Lancaster Country Club. We decided ... we would pay  those fees.'</blockquote><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">It seems doubtful, however, that any other employees who felt that they did "business" at country clubs or similar establishments were entitled to subsidized dues.</div><br />This relatively lavish pay was part of a pattern.  Executive compensation had been increasing out of proportion to any obvious benchmark for a while.<br /><br /><blockquote class="tr_bq"><i> In fiscal year 2005-06, CEO Tom Beeman earned a comparatively modest  total compensation of <b>$646,094</b>. By 2010, that had more than doubled, to  <b>$1.35 million</b>.</i> That figure included a base compensation of $606,728,  along with $345,000 in bonuses and incentives and $279,511 in retirement  and other deferred compensation. <br /><br />Bergen, who along with Executive Vice President Marion A. McGowan  took on some of Beeman's duties when he left in October 2010 for a  nine-month military leave of absence, saw her compensation rise from<b><i>  $332,823</i></b> in 2005-06 to a total of <b><i>$1.1 million</i></b> in 2010. The latter  figure included $425,967 in base pay, $177,752 in bonuses and  incentives, $111,383 in retirement and other deferred compensation, and  $320,208 in what the IRS calls 'other reportable compensation' such as  employee contributions to 401(k) or 403(b) retirement plans.<br /><br />The third highest-paid LGH executive in 2010 was McGowan, whose  compensation package totaled <b><i>$772,978,</i></b> including $456,789 in base pay  and $192,226 in bonuses and incentives. Fourth on the list was  </blockquote><blockquote class="tr_bq">Dr. Lee  M. Duke II, senior vice president and chief physician executive, whose  compensation totaled<b><i> $746,830,</i></b> including $405,083 in base pay and  $140,377 in bonuses and incentives.<br /><br />Fifth was Chief Financial Officer F. Joseph Byorick Sr., whose total  compensation of <b><i>$652,667</i></b> included $397,160 in base pay and $140,500 in  bonuses and incentives.</blockquote><br />So note that CEO Beeman's compensation was for less than one full year's worth of work.  His annualized rate would have been even more.<br /><br />A <a href="http://lancasteronline.com/article/local/790937_25-execs---2-1-million-in-bonuses-at-LGH.html">companion article</a> noted that part of CEO Beeman's bonus for 2010 was justified by his efforts to keep in touch with the institution while he was physically not present, and was, in fact off-site for an extended period fulfilling a military reserve commitment<br /><br /><blockquote class="tr_bq"> In October 2010, Lancaster General Health had a problem.<br /><br />Its <i>CEO,  Tom Beeman, was shipping out for a military tour of duty</i>, to serve as  deputy director of the National Intrepid Center of Excellence in  Bethesda, Md. <i>Two other administrators —  Executive Vice Presidents  Jan Bergen and Marion W. McGowan — would step into Beeman's shoes while  he was away.</i><br /><br />Yet Beeman stayed involved. '<i>We had regular Skype  [video-conferencing] calls,' </i>said Alex Henderson, chairman of the LGH  Board of Trustees.<br /><br /><i>That, LGH officials believed, merited a bonus</i>. So Beeman got nearly $90,000 for his efforts in absentia.</blockquote><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br />Note that this verified that Beeman got more than $1 million in compensation despite not having worked a whole year, since it was necessary for two other executives to take over his work.<br /><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">Furthermore, while US law does mandate employers to re-hire employees who take leaves to fulfill military reserve commitments (look <a href="http://www.dol.gov/vets/programs/userra/userra_fs.htm">here</a>),  I suspect that very few employers pay employees anything while they are away (although reservists are certainly paid by the government for their reserve duty).  However, Beeman got a bonus merely for keeping in touch while he was away doing another job.  I further suspect it is extremely unusual to pay an employee a bonus for trying to keep in touch during his or her military service.<br /><br />So the reporting on compensation given to top hired managers at Lancaster General emphasized that executive pay is set using very different rules than are used to set the pay of other employees. <br /><br /><b>The Talking Points Reappear as Justifications for Exceptional Compensation of Hired Managers </b></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">Furthermore, the justifications made for the Lancaster General top executives' large compensation packages echoed talking points used to support such largess for top hired managers in other health care settings, but did not explain why hired managers merit exceptional treatment.   We first listed the talking points <a href="http://hcrenewal.blogspot.com/2011/09/talking-points-sans-original-thought-to.html">here</a>, and then provided additional examples of their use <a href="http://hcrenewal.blogspot.com/2011/09/more-repeats-of-talking-points.html">here</a>, and <a href="http://hcrenewal.blogspot.com/2012/03/example-of-how-complex-takes-control.html">here</a>.   The talking points are:<br />-  we pay what everyone else pays<br />-  CEOs work hard and are brilliant, and so deserve high pay<br />-  high pay is needed to attract and retain competent, if not brilliant people.<br /><br />None of the examples of these talking points we have seen so far explain why these apply to CEOs and other top hired managers, but not to other kinds of employees.  .<br /><br /><u>We Pay What Everyone Else Pays</u><br /><br />A <a href="http://lancasteronline.com/article/local/790930_Compensation-for-LGH-executives-has-nowhere-to-go-but-up.html">third article</a> in the LancasterOnline series noted that executive compensation was based on information on what everyone else pays,<br /><br /><blockquote class="tr_bq">nonprofits must hire consultants to study how similarly sized nonprofits pay their executives.<br /><br />LGH's  consultant is a firm called Mercer, headquartered in New York City with  an office in Philadelphia. Charlie Scott, of Mercer, has in recent  years helped LGH determine what to pay its highest-compensated  executives.<br /><br /> 'Our role is to be [an] <i>independent source of market norms</i>,' said Scott,  determining '<i>levels of compensation available in the market for  executive positions</i>, as well as how compensation is paid.</blockquote><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"></div><br /><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><a href="http://lancasteronline.com/article/local/790930_Compensation-for-LGH-executives-has-nowhere-to-go-but-up.html#ixzz2Em2365eC" style="color: #003399;"></a>This is an interesting variant of this talking point, because it essentially blames the reasoning on the Internal Revenue Service.  The article did not explain how Mercer determined the extent of the appropriate market, nor how it obtained a representative sample of data about that market.</div><br /><u>CEOs Work Hard and Are Brilliant, and So Deserve High Pay</u><br /><br /><u>High Pay is Needed to Attract and Retain Competent, if not Brilliant People</u></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">These justifications are often combined.  In the case of Lancaster General, the examples <a href="http://lancasteronline.com/article/local/790929_Healthy-paychecks-for-LGH-executives.html">included</a></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><blockquote class="tr_bq">At LGH, officials say the <i>generous compensation is necessary to  attract and retain the top talent.</i> Said Lancaster attorney Alex  Henderson III, chairman of the Lancaster General Health board of  trustees and its compensation committee, which decides what to pay top  execs: 'Demand for top-notch hospital executives has grown, and we have  to respond to that.'<br /><br />'<i>We're not looking to be average.'</i></blockquote><br />I seriously doubt that the hospital system is committed to "generous" pay to get "top talent" for all of its job openings.  Again, I doubt the generosity includes full pay for leaves taken for military service, or, for that matter country club dues.<br /><br />Another version was offered by the chair of the system's board of trustees:<br /><br /><blockquote class="tr_bq"> Trustee Henderson said that as LGH's goal<i> isn't to maximize revenue but  save lives</i>, executives can be doing a fantastic job — worthy of  six-figure bonus and incentive pay — even when the system's financial  performance slips.<br /><br />Consider an executive who devises a way to  shorten stays for patients, Henderson said: 'That's great for the  patients, for insurance companies, for nurses who don't have to take  care of people who don't need to be here' — but it's bad for LGH's  bottom line.</blockquote><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">Left out of the first part of the statement was how one could attribute lives saved to the work of a hired manager, especially, as in the case of CEO Beeman, a manager with no direct experience caring for patients.  Mr Beeman's <a href="http://www.lancastergeneralhealth.org/LGH/About-Lancaster-General-Health/About-LGH/Executive-Leadership.aspx">official hospital bio</a> listed this educational background,</div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><blockquote class="tr_bq"><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">Prior to joining Lancaster General Health, he served at Saint Thomas  Health Services as its President and Chief Executive Officer, and the  Senior Vice President for Hospital Operations and Executive Director of  the Hospital of the University of Pennsylvania. </div></blockquote><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">It did not include any former positions that would have involved direct patient care.  </div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">Health care actually does not save lives that often, but hopefully does often ameliorate disease and injury, reduce suffering and improve function.  However, the people who actually directly accomplish this are health care professionals, nurses, doctors, therapists, etc, not managers who sit in offices.  </div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">I will merely note that Mr Henderson's second example apparently was theoretical.  There was no example given of an executive who actually did shorten length of stay.  </div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">In a <a href="http://lancasteronline.com/article/local/790930_Compensation-for-LGH-executives-has-nowhere-to-go-but-up.html">third article</a> in the LancasterOnline series, the compensation consultant employed by Lancaster General Health reiterated the argument that one must pay top dollar for scarce managerial talent:</div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"></div><blockquote class="tr_bq"><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">[Mercer consultant Charlie] Scott said that the law of supply and demand that applies 'to any type  of talent pool applies to health care executives. There's normally a  lack of supply of <i>what's considered blue-chip talent</i> ... [and] the  increasing complexity of the health care industry requires an increasing  level of talent and capability.'</div></blockquote></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br />Note that no one who defended the compensation given to CEO Beeman or other top managers provided evidence that they are "top" or "blue chip" talent, or that they, rather than the health care professionals who work at or for the system save lives.<br /><br /><b>Summary</b></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">In our last US election campaign season, a few candidates pledged to level the playing field so that rich and poor would play by the same rules.  Other candidates scoffed at the importance of the problem, or called its invocation class warfare.  Meanwhile, in health care, we just accumulate more examples that different people play by different rules. <br /><br />So we have yet another particular example of how top hired managers, particularly CEOs, of even modestly sized, non-profit health care organizations get to play by different rules than those affecting other employees, and other people who work in health care.  As in previous cases, the justifications provided for these different rules were basically a repeat of poorly conceived arguments that have been cited often by defenders of executive exceptionalism. <br /><br />The "we pay what everyone else pays" is basically an<a href="http://www.nizkor.org/features/fallacies/appeal-to-common-practice.html"> appeal to common practice fallacy</a>.  Why we have to do so is never stated.  In any case, the argument did not include why the limited selection of comparator hospitals and executives used is a representative sample of "everyone."  Furthermore, as we noted <a href="http://hcrenewal.blogspot.com/2012/10/more-reasons-to-doubt-how-ceos-are.html">here</a>, what evidence there is suggests that skills required to run one organization do not necessarily transfer to another, suggesting the comparison to "everyone" makes no sense.<br /><br />As is usual, the "CEOs are brilliant" argument is basically an <a href="http://www.nizkor.org/features/fallacies/appeal-to-authority.html">appeal to authority fallacy</a>, and provided no evidence that the particular CEO is brilliant.  In fact, it seems that everyone who has used this talking point before claims his or her CEO is brilliant. (Look <a href="http://hcrenewal.blogspot.com/2011/09/talking-points-sans-original-thought-to.html">here</a> for example.) Obviously, all CEOs cannot be above average. <br /><br />Finally, as noted <a href="http://hcrenewal.blogspot.com/2012/10/more-reasons-to-doubt-how-ceos-are.html">here</a>, there is no evidence that without high pay worthy leaders could not be hired or retained.</div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br />Unfortunately, the otherwise excellent articles on Lancaster General did not challenge any of the defenders of executive exceptionalism to better justify their assertions.  Nor were they asked to consider its adverse effects. <br /><br />As we have frequently said, current policies about paying hired health care managers leave the managers unaccountable for the effects of their actions on patients' and the public's health, and worse, fail to deter and may even encourage ignorance of the health care mission, frankly mission-hostile behavior, self-interest, conflicts of interest, and outright corruption.  Meanwhile, paying nearly all top managers as if they were brilliant, while setting much harsher standards for the employees who actually take care of patients, including health professionals, demoralizes those on whom patients actually depend for care.<br /><br />As we have said endlessly,....   Health care organizations need leaders that uphold the core values of  health care, and focus on and are accountable for the mission, not on  secondary responsibilities that conflict with these values and their  mission, and not on self-enrichment. Leaders ought to be rewarded  reasonably, but not lavishly, for doing what ultimately improves patient  care, or when applicable, good education and good research. On the  other hand, those who authorize, direct and implement bad behavior ought  to suffer negative consequences sufficient to deter future bad  behavior.<br /><br />If we do not fix the severe problems affecting the leadership and  governance of health care, and do not increase accountability, integrity  and transparency of health care leadership and governance, we will be  as much to blame as the leaders when the system collapses. </div></div>

Health Care Hired Managers Not Playing by the Same Rules - the Example of Lancaster General Health

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