healthy4u: Northeast Health System

An Even Bigger Golden Parachute for Captain Outrageous

In 2009, I first <a href="http://hcrenewal.blogspot.com/2009/09/captains-outrageous-for-cape-annes.html">posted</a> about the amazingly colorful leadership and governance problems at a small hospital system in Massachusetts.  Background: Northeast Health System The story of Northeast Health System then included  leaders who solicited money from the community but concealed what they were doing from the same community, an adolescent pregnancy pact after the hospital system refused to provide confidential birth control information at the high school clinic it ran, a hospital vice-president accused of art theft, various cuts, some concealed, of medical services, accusations of conflicts of interest affecting the board of trustees, and no-confidence votes by nurses and physicians. Finally, Stephen Laverty, the CEO held responsible for much of the mess, resigned and things quieted down a bit.  However, he left a system in deficit, leading to further lay-offs, (e.g., see <a href="http://www.boston.com/yourtown/salem/articles/2010/08/18/beverly_hospital_group_to_cut_jobs/">this story</a> in the Boston Globe).  And the vice-president accused of art theft was also "arraigned on bribery and larceny charges" (also <a href="http://www.boston.com/business/healthcare/articles/2010/07/23/former_hospital_official_accused_of_kickback_scheme">per the Boston Globe</a>.) Nonetheless, in 2010, it was <a href="http://hcrenewal.blogspot.com/2010/09/golden-parachute-for-captain-outrageous.html">revealed</a> that Mr Laverty left with a golden parachute worth more than $1 million.  But wait, now there is more. A Guilty Plea In May, 2012, <a href="http://www.salemnews.com/local/x1221403196/Former-hospital-VP-gets-18-months-in-jail">per the Salem News</a>, <blockquote>A former associate vice president at Beverly Hospital pleaded guilty yesterday to soliciting bribes and kickbacks from hospital contractors and stealing valuable paintings and other antiques while overseeing a $50 million renovation of the facility. Paul Galzerano, 60, was sentenced to serve 18 months of a two-year jail term on four larceny counts and two years of probation on two counts of commercial bribery during a hearing yesterday at Salem Superior Court.</blockquote> Yet More Severance Payments But wait, there is even more. Yesterday, the Gloucester Times <a href="http://www.gloucestertimes.com/local/x1088167079/Ex-hospital-CEO-Laverty-cashing-in">reported</a> about Mr Galzerano's former boss, <blockquote>Nearly four years after he resigned under fire, former Northeast Health System CEO Stephen Laverty is still collecting big paychecks from his former employer. Laverty was paid $573,348 in severance in 2011, the second year in a row he has received buyout money from Northeast, the parent nonprofit corporation to Beverly Hospital and Gloucester’s Addison Gilbert Hospital, and a corporation that was essentially merged with Lahey Clinic to become the new Lahey Health System under an agreement that gained the necessary state approvals earlier this year. </blockquote> Laverty's total severance payments have reached "more than $1.56 million over those two years." Whether the payments have ended is not clear. Attempts to discover why payments continued and became so large revealed only, <blockquote>Beverly Hospital released a statement Monday saying, 'We cannot comment on Mr. Laverty or the terms of any agreements between the company and past employees.'</blockquote>Summary For a relatively small hospital system, Northeast Health System has produced an enormous example of the perverse incentives given to top executives of health care organizations. Mr Laverty has been made a millionaire despite what the Gloucester Times called in its news article a "tenure plagued by acrimony and controversy," and leadership previously described in a Gloucester Times editorial as "arrogant, dictatorial," and a history of what only can be described as outrageous management failures. Furthermore, the money he received came not from rich stockholders, but from a struggling community hospital system. The ability of top executives of many, probably most health care organizations to collect bloated paychecks out of proportion to, if not despite their performance attracts the wrong people to lead these organizations, and provides incentives for even the right people to lead badly.  Until we make health care leaders accountable, and until their incentives reflect their ability to uphold the health care mission, expect more unaccountable leadership that subverts the health care mission, and hence continually rising costs, declining access, and deteriorating quality.

An Even Bigger Golden Parachute for Captain Outrageous

In 2009, I first posted about the amazingly colorful leadership and governance problems at a small hospital system in Massachusetts. Backg...

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A Golden Parachute for Captain Outrageous

A year ago, I <a href="http://hcrenewal.blogspot.com/2009/09/captains-outrageous-for-cape-annes.html">posted</a> about leadership and governance problems at Northeast Health Systems, a small hospital system located in neighboring Massachusetts.  The colorful story included leaders who solicited money from the community but concealed what they were doing from the same community, an adolescent pregnancy pact after the hospital system refused to provide confidential birth control information at the high school clinic it ran, a hospital vice-president accused of art theft, various cuts, some concealed, of medical services, accusations of conflicts of interest affecting the board of trustees, and no-confidence votes by nurses and physicians. Finally, Stephen Laverty, the CEO held responsible for much of the mess, resigned and things quieted down a bit.  However, he left a system in deficit, leading to further lay-offs, (e.g., see <a href="http://www.boston.com/yourtown/salem/articles/2010/08/18/beverly_hospital_group_to_cut_jobs/">this story</a> in the Boston Globe).  And the vice-president accused of art theft was also "arraigned on bribery and larceny charges" (also <a href="http://www.boston.com/business/healthcare/articles/2010/07/23/former_hospital_official_accused_of_kickback_scheme">per the Boston Globe</a>.) Yet, Mr Laverty collected a tidy sum just to leave, as the Salem News just <a href="http://www.salemnews.com/local/x605762202/Laverty-got-1M-after-he-resigned">reported</a>: <blockquote>Former Northeast Health System President and CEO Stephen Laverty collected more than $1 million from the nonprofit hospital chain after he resigned under fire in the fall of 2008, newly released financial records show. The earnings, $1.08 million in total, include a settlement package of more than a year's salary plus pay for the one month the controversial Laverty was at the helm of Northeast, which owns Beverly Hospital, as well as Gloucester's Addison Gilbert Hospital. The documents provide the first details of how much Northeast, now laying off workers and cutting costs, was willing to pay to part ways with its CEO who had just endured no-confidence votes from nurses and doctors, plus the arrest of one of his top managers.</blockquote> Neither the hospital system nor its former CEO was exactly forthcoming about the rationale for this payment: <blockquote>As part of Laverty's resignation, both sides agreed not to discuss the settlement or any of the details that led them to part ways. 'I have no understanding of what you are talking about,' Laverty said yesterday afternoon from his home in Concord, when asked about his settlement package. He then hung up the phone. A spokeswoman for Northeast Health System said she could not comment on Laverty or the terms of any agreements between the company and past employees.</blockquote> So even the hired manager of a small community hospital system is entitled to a million dollar plus golden parachute when resigning in disgrace. This is another great example of the current perversity of the incentives given to hired health care managers. Even small community hospitals, the backbone of real community health care throughout the country, seem to feel obligated to make millionaires out of their managers, no matter how bad their performance. As we said before, the problem is not just the money wasted paying for bad performance. These perverse incentives are likely to encourage worse performance.  They send the message to even the worst executives that they are wonderful people, they can do no wrong, and should stand for no criticism, all further diverting them from what they really are supposed to be doing: upholding the mission. As an <a href="http://www.gloucestertimes.com/opinion/x627001820/Northeast-board-bears-blame-for-shameful-1M-Laverty-buyout">editorial</a> in the Gloucester Times noted, although the nexus is perverse incentives given to paid managers, it is not only the paid managers who are to blame for this situation. <blockquote>The other party to his contract was the Northeast Board of Trustees. </blockquote>So, <blockquote>Those who want to serve as trustees of Northeast need to get the notion out of their heads that their board seats are not just resume builders — with high-profile community roles and a few corporate dinners thrown in. These are positions of community leadership and responsibility that comes with a measure of accountability. New Northeast CEO Ken Hanover has indeed seemingly ushered in a new era of relative openness in dealing with the community. But the same cannot be said for the Board of Trustees. If Laverty's shameful buyout deal and these types of contracts are examples of their 'leadership' and responsibility, each and every one of them should step down now.</blockquote> As we have said many times before, true health care reform would encourage leaders of health care who understand health care and care about its mission, rather than those who just see a quick road to riches or social respectability.

A Golden Parachute for Captain Outrageous

A year ago, I posted about leadership and governance problems at Northeast Health Systems, a small hospital system located in neighboring M...

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