healthy4u: executive compensation

A Real Example of Public Relations Talking Points to Justify Outsize Executive Compensation - and Why We Should No Longer be Fooled

We frequently discuss outsize <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">executive compensation</a> in health care organizations as both a symptom and a cause of these organizations' poor leadership and governance, and hence of widespread health care dysfunction. The Latest Stories of Huge CEO Pay Stories of gargantuan compensation appear almost daily.  For example, some headlines about pay at hospitals and hospital systems in the last few months included, <blockquote class="tr_bq"><a href="http://www.gjsentinel.com/news/articles/millionaire-health-care">Millionaire health care?</a> With high costs and insurance premiums in Garfield County, focus falls on pay of a hospital’s chief executive <a href="http://www.masslive.com/politics/index.ssf/2014/05/audit_faults_umass_medical_sch.html">Audit faults UMass Medical School for improper documentation of $2 million in bonus compensation</a> <a href="http://www.tennessean.com/story/news/health/2014/05/25/saint-thomas-ceos-salary-benefits-soar/9556721/">St Thomas CEO's salary, benefits soar</a> <a href="http://bangordailynews.com/2014/06/07/news/state/mainehealth-defends-executive-pay-despite-major-cuts/">MaineHealth defends top executives' pay despite major cuts</a></blockquote> Then there were stories about the amazing pay given to CEOs of top for-profit health insurance companies, e.g., <a href="http://ifawebnews.com/2014/05/30/single-payer-advocate-reports-pay-increases-for-many-health-carrier-ceos-in-2013/">via IFAwebnews,</a> <blockquote class="tr_bq">According to research published by a single-payer advocacy group, average compensation for nine CEOs at large health insurance companies rose by more than 19% in 2013, with some chief executives seeing steep increases in pay, while others received less remuneration. Healthcare-NOW!, a non-profit that says its goal of single-payer health coverage is also known as 'improved Medicare for all,' analyzed recent financial reports of the Fortune 500 health insurance carriers. According to Healthcare-NOW!, the highest compensation increase went to Aetna CEO Mark Bertolini, who received a $30.7 million compensation package in 2013. The Bertolini pay package, which included a large “special one-time performance-based retention award,” represented a 131% increase over his $13.3 million compensation in 2012. Molina Healthcare and Centene, insurers that specialize in privately managed Medicaid plans, roughly doubled CEO compensation in 2013. J. Mario Molina received $11.9 million, up from $5 million in 2012, while Centene’s CEO Michael Neidorff made $14.5 million, up from $8.5 million. Overall, average CEO pay across Fortune 500 health insurers rose from $11.6 million in 2012 to $13.9 million in 2013.</blockquote> Here we go again.  In May, 2014, I <a href="http://hcrenewal.blogspot.com/2014/05/more-stories-of-million-dollar-plus.html">summarized</a> how discussion of executive compensation, particularly in non-profit hospitals and hospital systems, seemed to follow a clear pattern. <blockquote class="tr_bq">The Pattern Nearly all non-profit hospitals must release minimal data on the total compensation of a few of the highest paid executives.  When these reports come out, sometimes the local media take a look, either at an individual hospital or hospital system, or at a number of local hospitals.  They almost inevitably find that some, usually most executives make what appears to be lots of money.  This could be hundreds of thousands of dollars at small community hospitals, or millions of dollars at larger hospitals and hospital systems.  Sometimes the reports end there.  Sometimes the reporters ask hospital representatives or local experts to explain the apparently exalted compensation figures.  The Talking Points  The explanations are usually very similar, and so we have called this part of The Pattern The Talking Points. It seems nearly every attempt made to defend the outsize compensation given hospital and health system executives involves the same arguments, thus suggesting they are talking points, possibly crafted as a public relations ploy.   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>, <a href="http://hcrenewal.blogspot.com/2012/03/example-of-how-complex-takes-control.html">here</a> <a href="http://hcrenewal.blogspot.com/2012/12/health-care-hired-managers-not-playing.html">here,</a> <a href="http://hcrenewal.blogspot.com/2013/05/executive-compensation-as-legal.html">here</a>, <a href="http://hcrenewal.blogspot.com/2013/06/no-blues-but-lots-of-green-for-st-louis.html">here,</a> and <a href="http://hcrenewal.blogspot.com/2013/08/should-we-cry-for-non-profit-hospital.html">here</a>, and <a href="http://hcrenewal.blogspot.com/2013/08/the-long-con-charitable-hospitals-make.html">here</a>.  They are: - We have to pay competitive rates - We have to pay enough to retain at least competent executives, given how hard it is to be an executive - Our executives are not merely competitive, but brilliant (and have to be to do such a difficult job). The talking points are usually supplied by hospital public relations personnel, sometimes by hospital trustees or executives, sometime by various health care consultants.  The talking points are rarely questioned.</blockquote> There Really Were Talking Points, at Least at Cigna I hypothesized that perhaps public relations managers at various hospitals might actually have organized these talking points, since so many news stories of executive compensation in health care seemed to faithfully follow the pattern.  That was, however, speculation.  However, now there is anecdotal evidence that public relations executives really did use these talking points to defend their bosses' compensation. Wendell Potter is the former head of public relations for for-profit health insurance company Cigna who defected, and now advocates for honest, fair health care.  On June 9, 2014, he <a href="http://wendellpotter.com/2014/06/skyrocketing-salaries-for-health-insurance-ceos/">wrote</a> in <a href="http://wendellpotter.com/blog/">his blog</a> about the latest revelations about outrageous executive compensation given to health insurance CEOs (as summarized above).  <blockquote class="tr_bq">When I handled financial communications for Cigna, the day I dreaded most every year was the day we filed the company’s proxy. That’s because I knew I would get calls from reporters wanting to know how we could justify paying the CEO so much when most other employees were lucky to get 3 percent raises. I always had talking points drafted with plenty of help from the company’s lawyers and HR executives. They didn’t vary much from year to year. Basically, all I said was, hey, this is a very big company, the CEO has a very big job and his pay is in line with what other firms of similar size pay their top guys.</blockquote> So there you are.  First, at least at this company, it appears that an important responsibility of the company public relations department was to defend the CEOs pay.  In my humble opinion, this confirms my suspicion that corporate public relations and marketing often put the personal interests of the top company executives ahead of everything else, including the interests of shareholders of for-profit companies in fair executive compensation, and the interests of patients in reasonable health care costs. Second, there really were talking points used at least in this company's public relations that were pretty similar to those I hypothesized:  - We have to pay competitive rates = "his pay is in line with what other firms of similar size pay their top guys." - We have to pay enough to retain at least competent executives, given how hard it is to be an executive = " this is a very big company, the CEO has a very big job" - Our executives are not merely competitive, but brilliant (and have to be to do such a difficult job) = by implication. You heard it here first. So maybe we should all be a lot more skeptical about executive compensation.  Unfortunately, Mr Potter suggests we may be getting less so. <blockquote class="tr_bq">I made frequent use of those talking points the first couple years. But toward the end of my 15 years at the company, I would rarely get more than one or two calls. By 2008, the year I left, the phone didn’t ring at all, at least not from the media. Fewer and fewer reporters even bothered to look at the proxy statements.</blockquote> Of course, that may have something to do with the general decline of journalism, perhaps partially due to the transformation of journalism into a pursuit of a few big corporations, lead by overly compensated executives. Furthermore, instead of the talking points, consider some recent ideas about causes and effects of excess executive compensation.  We have discussed some of these frequently, but here are some recent versions. Causes of Excess Executive Compensation Cronies on the Board - from an Associated Press story <a href="http://www.usnews.com/news/business/articles/2014/05/27/the-ceo-got-a-huge-raise-you-didnt-heres-why">via US News and World Report</a>, <blockquote class="tr_bq">Some board members defer to a CEO's judgment on what his or her own compensation should be. There's a good reason: Many boards are composed of current and former CEOs at other companies. And in some cases, board members are essentially hand-picked or at least vetted by the CEO. Not surprisingly, the boards' compensation committees offer generous bonuses.</blockquote> In more detail, from <a href="http://www.startribune.com/opinion/commentaries/258379541.html">an op-ed in the Minneapolis-St Paul Star Tribune</a>, <blockquote class="tr_bq"> Under current practice, a nominating committee made up of current board members selects nominees to be presented to the shareholders for approval. Since there are rarely any more nominees than open positions, being nominated virtually assures election. These elections are the same as what you would expect in a communist country where voters vote yes or no on a single candidate.  The nominating committee is usually selected by the board chairman and the CEO (in too many cases, the same person). The CEO and the chairman are almost always on the nominating committee. It is in the CEO’s interest to select board members whose loyalty can be trusted. In many cases, a nominee’s primary qualification is loyalty to the CEO and the board chairman, with little knowledge of or experience in the business. Often there is a prior business or personal relationship to the nominee and very often the CEO and/or the chairman serves on the board of a nominee, a cozy mutual back-scratching arrangement. Serving on the board is prestigious and lucrative and abounds in perks. Besides cash and/or stock options or grants, perks such as company-paid travel to foreign trade shows, board meetings in posh resorts (with spouses, of course) and other company benefits make continuing on the board the first priority of most board members, with shareholder interests a distant second priority. This is akin to a politician whose first priority is to get re-elected and whose constituents’ interests come next.  To maintain continuation of this bonanza of benefits, the board member must be assured of being renominated by the nominating committee. Since the CEO and the chairman are on the nominating committee, which they selected, they have great influence over the ultimate choices for nominees. Now, if you are a board member and want to be assured of being renominated, it pays (literally) to be looked upon favorably by the CEO and the chairman. </blockquote> Note that both of these accounts referred to for-profit corporations, but could easily apply to boards of non-profit organizations as well.   Note further that crony boards violate the expectations of their charges, which are to defend the organizations' mission and the interests of all their stakeholders, not just a few top executive cronies. The Ratchet, or "Lake Wobegon" Effect -  from an Associated Press story <a href="http://www.usnews.com/news/business/articles/2014/05/27/the-ceo-got-a-huge-raise-you-didnt-heres-why">via US News and World Report</a>, <blockquote class="tr_bq">Robert Solow, a Nobel Prize-winning economist, recently observed that CEOs live in 'Lake Wobegon,' that fabled town created by radio show host Garrison Keillor where, it is said, 'all the children are above average.' Solow didn't mean it as a compliment. Corporate boards often set CEO pay based on what the leaders of other companies make. No board wants an 'average' CEO. So boards tend to want to pay their own CEO more than rival CEOs who are chosen for benchmarking compensation packages. This will 'naturally create an upward bias' in pay, Charles Elson and Craig Ferrere of the University of Delaware concluded in a 2012 paper. '(T)he compounded effect has been to create a significant disparity between the pay of executives and what is appropriate to the companies they run.'</blockquote> Note that the Lake Wobegon effect is based on a logical fallacy.  All CEOs cannot be above average.  CEOs as "Great Men" - from an <a href="http://www.washingtonpost.com/opinions/great-men-great-pay-why-ceo-compensation-is-sky-high/2014/06/12/6e49d796-d227-11e3-9e25-188ebe1fa93b_story.html">op-ed in the Washington Post</a>, <blockquote class="tr_bq">It is a system that rests on the Great Man theory of history: a school of thought that attributes virtually all important developments through time to heroic individuals. Think back to Jack Welch’s 20-year reign as chief executive of General Electric. He was lauded as a corporate leader and management guru who, seemingly single-handedly, grew the company’s revenue and market capitalization many times over. Before long, GE had become a synonym for Jack Welch (or was it the other way around?).</blockquote> The theory is from the 19th century, <blockquote class="tr_bq"> As a historian trying to parse America’s enthrallment with superstars, I keep coming back to the Great Man theory of history. Popularized in the mid-19th century by the Scottish essayist Thomas Carlyle, this concept holds that history is largely attributable to the actions of great individuals, who because of their personal (and often mysterious) qualities — such as intelligence, wisdom, deftness, goodness and energy — use their agency to make a big impact. 'In all epochs of the world’s history,' <a href="http://grammar.about.com/od/classicessays/a/On-Heroes-And-Hero-Worship-By-Thomas-Carlyle.htm" title="grammar.about.com">Caryle wrote</a> in his 1841 book, <a href="http://www.amazon.com/gp/product/1461064619?ie=UTF8&camp=1789&creativeASIN=1461064619&linkCode=xm2&tag=thewaspos09-20" title="www.amazon.com">'On Heroes, Hero-Worship and the Heroic in History,''</a> 'we shall find the Great Man to have been the indispensable saviour of his epoch.'</blockquote> But it makes no real sense, <blockquote class="tr_bq"> Such lionization is misplaced. Operating a sustainable enterprise, as any executive, manager or employee knows well, is inherently a team sport. Across companies and industries, this activity depends on many people working in concert in all kinds of groups, at all levels of the organization. Such interdependence means that it is hard to precisely delineate, much less quantify, any one individual’s contribution, even that of the most senior manager, to a firm’s performance.</blockquote> This is particularly true in health care, and particularly in organizations that provide direct patient care.  In my humble opinion, it is ridiculous to lionize managers when health care professionals actually take care of patients, using tests and treatments developed by other professionals and scientists.  Effects of Excess Executive Compensation Declining Morale of all Other Employees -  from an Associated Press story <a href="http://www.theguardian.com/business/2014/may/27/us-ceo-median-package-rise-10m">via the UK Guardian</a>, <blockquote class="tr_bq"> 'There's this unbalanced approach, where there's all this energy put into how to reward executives, but little energy being put into ensuring the rest of the workforce is engaged, productive and paid appropriately,' says Richard Clayton, research director at Change to Win Investment Group, which works with labor union-affiliated pension funds.</blockquote> The CEO Disease - per Dan Quiggle, who invented the term, <a href="http://www.exchangemagazine.com/morningpost/2014/week24/Thursday/14061910.htm">in Exchange Magazine</a>, which leads to: <blockquote class="tr_bq">You either hear really good things from your people…or nothing at all. You don’t trust the feedback you receive. You take criticism too personally. In general, your employees don’t seem engaged. Your best employees are unhappy or leaving. You don’t connect with people in a way that leads to loyalty.</blockquote> That is, bad management, and hence... Poor Organizational Performance - from a <a href="http://www.forbes.com/sites/susanadams/2014/06/16/the-highest-paid-ceos-are-the-worst-performers-new-study-says/">Forbes column by Susan Adams</a>,  Across the board, the more CEOs get paid, the worse their companies do over the next three years, according to extensive <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1572085">new research</a>. This is true whether they’re CEOs at the highest end of the pay spectrum or the lowest. 'The more CEOs are paid, the worse the firm does over the next three years, as far as stock performance and even accounting performance,' says one of the authors of the study, Michael Cooper of the University of Utah’s David Eccles School of Business. Since most health care CEOs seem to know more about finance and health care, I wonder if this effect is even more pronounced on health care quality and patient outcomes? Income Inequality and a Declining Economy - from <a href="http://www.fiercehealthcare.com/story/ceo-compensation-time-reign-skyrocketing-salaries-incentives/2014-06-19">an editorial in FierceHealthcare</a>, <blockquote class="tr_bq">Indeed, the continual <a href="http://www.fiercehealthfinance.com/story/healthcare-ceo-pay-skewing-economy/2014-06-12" target="_blank">rise of executive paychecks may contribute to inequities in the U.S. economy</a>, according to a new Roosevelt Institute paper, 'Taking Stock: Why Executive Pay Results in an Unstable and Inequitable Economy.' 'The toxic combination of stock-based executive pay and open-market stock repurchases has contributed to not only the growing concentration of income at the top but also the failure of the U.S. economy to sustain existing middle-class jobs and create new ones,' wrote author William Lazonick, professor and director of the Lowell Center for Industrial Competitiveness at the University of Massachusetts.</blockquote> Civil Unrest - from a <a href="http://www.washingtonpost.com/opinions/robert-j-samuelson-the-ceo-aristocracy-may-not-be-worth-all-that-money-they-get/2014/06/22/d0bbd596-f888-11e3-8aa9-dad2ec039789_story.html">Washington Post op-ed by Robert J Samuelson</a>, <blockquote class="tr_bq">Americans dislike aristocracies. Unless companies can find a more restrained pay system, they risk an anti-capitalist public backlash. This is the ultimate danger.</blockquote> Summary So far, the rise of executive compensation in health care has been inexorable.  Much of the public and many health care professionals have been lulled into complacency, or paralyzed by learned helplessness.  Yet the talking points used to justify outrageous executive pay are nonsense.  Rising compensation seems to be really due to crony capitalism, logical fallacies, and false historical analogies.  Rising pay may lead to poor management, poor organizational performance, worsening social inequality, a failing economy, and ultimately civil unrest.  Although the transition of executives into a new aristocracy is a society wide, if not a global problem, we in health care cannot be complacent that someone else will solve it.  True health care reform would enable accountable leadership that puts the health care mission and patients' and the public's health ahead of personal gain.

A Real Example of Public Relations Talking Points to Justify Outsize Executive Compensation - and Why We Should No Longer be Fooled

We frequently discuss outsize executive compensation in health care organizations as both a symptom and a cause of these organizations' poor leadership and governance, and hence of widespread health c…

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25 Jun 2014

Fourth Time is the (Anti)Charm? - UK NICE Highlights "Uncertainties in the Evidence Base" About Sovaldi

As we have discussed, (<a href="http://hcrenewal.blogspot.com/2014/04/knee-deep-in-hoopla-triumph-of-medical.html">here</a>, <a href="http://hcrenewal.blogspot.com/2014/05/some-authoritative-skepticism-about.html">here</a> and <a href="http://hcrenewal.blogspot.com/2014/05/sovaldi-revolution-in-clinical-care-or.html">here</a>), while anger continues to build about the $1000/ pill price sought by Gilead for its new antiviral drug for hepatitis C, Sovaldi (sofosbuvir), almost all public discussion still treats the drug as miraculous.  However, my reading of some key trials, and reviews by three groups of evidence-based medicine experts, suggested that the evidence supporting the drug is actually weak and unclear, and hardly suggests it is miraculous. NICE Weighs In Now, as first noted by the indomitable Ed Silverman in his revived PharmaLot blog, the National Institute for Health and Care Excellence in the UK is also skeptical.    <blockquote class="tr_bq"> the U.K.’s National Institute for Health and Care Excellence, otherwise known as NICE, has declined to endorse the use of Sovaldi, at least for now, until Gilead supplies further evidence of the medication works in certain subgroups of patients. In announcing the move, NICE officials wrote there are 'substantial uncertainties' in the evidence from the drug maker. In <a data-ls-seen="1" href="http://www.nice.org.uk/newsroom/pressreleases/NICEOnDraftGuidanceForSofosbuvirSovaldiDrugHepatitisC.jsp">a statement</a> issued about a draft guidance, NICE wrote that the agency 'is minded not to recommend' that the U.K.’s National Health Service cover the cost of Sovaldi,</blockquote> The actual <a href="http://www.nice.org.uk/newsroom/pressreleases/NICEOnDraftGuidanceForSofosbuvirSovaldiDrugHepatitisC.jsp">statement</a> said, <blockquote class="tr_bq"> The available evidence shows that sofosbuvir is an effective treatment for chronic hepatitis C in certain patients. However, evidence is lacking for some subgroups of patients with chronic hepatitis C, and there are also substantial uncertainties in the evidence base presented by the manufacturer. The Committee has therefore requested further information from the manufacturer before it can decide whether sofosbuvir is a cost-effective use of NHS resources.</blockquote> In the US, the only other news source that covered the NICE statement was <a href="http://www.businessweek.com/news/2014-06-16/u-dot-k-dot-cost-regulator-may-reject-gilead-s-sovaldi-treatment">Bloomberg</a>. The Problems with the Evidence As we discussed in our previous posts, the problems with the evidence underlying Sovaldi include: - Lack of a randomized controlled trial comparing Sovaldi to the previously most recommended treatment regimen - The only trial trial to compare an antiviral regimen containing Sovaldi to one without it  (Sovaldi plus ribavirn versus peg-interferon plus ribavirin) used a lower dose of ribavirin in the comparator regimen, seemingly handicapping it; had a highly selected patient population whose results would be unlikely to generalize to many patients in the real world; had issues with randomization of patients; only assessed short-term "sustained" virologic response, but not any clinical outcomes; even so, did not show that the sofosbuvir containing regimen produced a better SVR than did the comparator; and appeared to show that the sofosbuvir containing regimen produced more severe adverse effects, and perhaps a higher death rate than the comparator regimen -  So far, the other published trials included one versus placebo, and multiple trials that compared only sofosbuvir containing regimens to each other, and hence were effectively just case series of patients receiving sofosbuvir.  These case-series all had highly selected patient populations results from whom would be unlikely to generalize to real world patients. The severe problems with the evidence have now also been noted by -  the <a href="https://www.iqwig.de/en/press/press_releases/press_releases/sofosbuvir_indication_of_added_benefit_for_specific_patients.6099.html">German Institute for Quality and Efficiency in Healthcare</a> (IQWiG) -  the US Institute for Clinical and Economic Review (look <a href="http://archinte.jamanetwork.com/article.aspx?articleid=1867174">here</a>) -  the US Center for Evidence-Based Policy (look <a href="http://hcrenewal.blogspot.com/2014/05/sovaldi-revolution-in-clinical-care-or.html">here</a>) -  the<a href="http://www.nice.org.uk/newsroom/pressreleases/NICEOnDraftGuidanceForSofosbuvirSovaldiDrugHepatitisC.jsp"> UK National Institute for Health and Care Excellence</a> (NICE) Summary - Why Does the Evidence, or Lack Thereof, Remain Anechoic? Yet none of these reviews have gotten any significant attention in the US media or medical and health care literature, and the idea that Sovaldi has hardly been proven to be a miracle drug, or even better than older drugs for hepatitis C has not informed the US debate and the US outrage about its price.  Examples of the most recent outrage include <a href="http://www.forbes.com/sites/theapothecary/2014/06/17/the-sovaldi-tax-gilead-cant-justify-the-price-its-asking-americans-to-pay/">this in Forbes</a>, <blockquote class="tr_bq">A cure for hepatitis C is within reach for 170 million people around the world — thanks to the charitable efforts of poor and sick Americans who are picking up the tab by paying outrageous prices for their own treatment. It’s like Robin Hood in reverse. </blockquote> Also, <blockquote class="tr_bq"> It also took a complete lack of self-awareness — and unmitigated gall — to price Sovaldi the way Gilead has.</blockquote> Furthermore, Democrats in the US House of Representatives are calling for an investigation (which their Republican "colleagues" will doubtless block), <a href="http://www.bloomberg.com/news/2014-06-19/democrats-want-gilead-to-explain-84-000-cost-for-therapy.html">according to Bloomberg</a>, <blockquote class="tr_bq">The company 'did not provide a compelling justification for the high price they are charging for most patients,' Waxman and DeGette wrote  </blockquote> If the price is outrageous for a miracle drug, it would be even more outrageous for a drug that has not been proven to be better than previously available treatments. The fact that skepticism about all the hype for Sovaldi has hardly touched the public discussion in the US is a prime example that the <a href="http://hcrenewal.blogspot.com/search/label/anechoic%20effect">anechoic effect</a> lives.  (The only skepticism from an expert could [probably only] be <a href="http://blogs.wsj.com/pharmalot/2014/06/12/will-oregon-restrict-coverage-for-a-pricey-gilead-pill-for-hepatitis-c/">found again in PharmaLot</a>, and came from one of the authors of the Center for Evidence Based Policy report [see above]).  <blockquote class="tr_bq">'For most patients with hepatitis C, they have time to make those decisions,' Valerie King, one of the physicians at the center who worked on the Sovaldi review, tells OregonLive. 'I’m certainly not saying that this is a bad drug. I’m just saying that we don’t know that it is a good drug.' [UPDATE: King later called us to say that 'the research hasn't been extensive enough or transparent enough to tell us it is a good drug or bad drug, or has limited application.' This was based solely on assessing clinical research, not cost issue.]</blockquote> We have endlessly discussed the anechoic effect, that information and ideas that challenge the powers that be in health care, and particularly that challenge the ability of health care leaders and well-connected insiders to personally profit, often to a tremendous extent - the CEO of Gilead, John Martin, was <a href="http://www.fiercepharma.com/special-reports/biopharma-ceos-2013-john-martin-gilead">listed by FiercePharma </a>as the eighth highest paid biotech CEO in 2013, with total compensation of $15.45 million, before sales of Sovaldi really increased -  are considered recent unpleasantness that are just not to be discussed.  However, without open honest discussion of truths, however inconvenient or unpleasant, and the ideas that they suggest, health care will continue to degenerate into a plutocratically run, often corrupt swamp with ever increasing costs, and ever worsening access and quality, causing increasing suffering of patients and worsening of public health. A good place to start true health care reform might be honest discussion of the evidence about sofosbuvir.

Fourth Time is the (Anti)Charm? - UK NICE Highlights "Uncertainties in the Evidence Base" About Sovaldi

As we have discussed, (here, here and here), while anger continues to build about the $1000/ pill price sought by Gilead for its new antiviral drug for hepatitis C, Sovaldi (sofosbuvir), almost all pu…

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20 Jun 2014

More Stories of Million Dollar Plus Hospital Executives, but Now the NY Times Challenges the Talking Points

It is spring, time for birds to sing, flowers to bloom, and hospital executives to get more money.  As we do periodically, we have amassed a series of media accounts of the big to enormous compensation paid to top non-profit hospital leaders.  These reports follow a certain pattern, but this year's spring crop included something different. The Pattern In the groundbreaking science fiction series "Fringe," "The Pattern" was a series of apparently inexplicable events which eventually pointed to the existence of a parallel universe. <iframe allowfullscreen="" frameborder="0" height="315" src="//www.youtube.com/embed/i8DqLs7254E" width="560"></iframe> In non-profit hospitals, The Pattern of the discussion of executive compensation is this.  Nearly all non-profit hospitals must release minimal data on the total compensation of a few of the highest paid executives.  When these reports come out, sometimes the local media take a look, either at an individual hospital or hospital system, or at a number of local hospitals.  They almost inevitably find that some, usually most executives make what appears to be lots of money.  This could be hundreds of thousands of dollars at small community hospitals, or millions of dollars at larger hospitals and hospital systems.  Sometimes the reports end there.  Sometimes the reporters ask hospital representatives or local experts to explain the apparently exalted compensation figures.  The explanations are usually very similar, and so we have called this part of The Pattern The Talking Points. The Talking Points It seems nearly every attempt made to defend the outsize compensation given hospital and health system executives involves the same arguments, thus suggesting they are talking points, possibly crafted as a public relations ploy.   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>, <a href="http://hcrenewal.blogspot.com/2012/03/example-of-how-complex-takes-control.html">here</a> <a href="http://hcrenewal.blogspot.com/2012/12/health-care-hired-managers-not-playing.html">here,</a> <a href="http://hcrenewal.blogspot.com/2013/05/executive-compensation-as-legal.html">here</a>, <a href="http://hcrenewal.blogspot.com/2013/06/no-blues-but-lots-of-green-for-st-louis.html">here,</a> and <a href="http://hcrenewal.blogspot.com/2013/08/should-we-cry-for-non-profit-hospital.html">here</a>, and <a href="http://hcrenewal.blogspot.com/2013/08/the-long-con-charitable-hospitals-make.html">here</a>.  They are: - We have to pay competitive rates - We have to pay enough to retain at least competent executives, given how hard it is to be an executive - Our executives are not merely competitive, but brilliant (and have to be to do such a difficult job). The talking points are usually supplied by hospital public relations personnel, sometimes by hospital trustees or executives, sometime by various health care consultants.  The talking points are rarely questioned. So let us look at some recent media articles for The Pattern, grouped in chronological order, to illustrate. Jersey Boys On April 6, 2014, Crain's New York Business<a href="http://www.crainsnewyork.com/article/20140406/HEALTH_CARE/140409916/hospital-execs-receive-sky-high-payouts"> reported</a> some of the biggest yearly compensation figures seen for non-profit hospital CEOs.   <blockquote class="tr_bq">Ronald Del Mauro, the former president and chief executive of Barnabas Health, pulled in almost $22 million in 2012, the year after he retired from New Jersey's largest health system. Joseph Trunfio, president and chief executive at Atlantic Health, made $10 million. Never before have such outsized compensation packages appeared on Crain's <a href="http://www.crainsnewyork.com/data-lists/business-lists/details/30/2962924" target="_blank" title="Crain's list of top-paid health care executives">annual list of top-paid hospital executives</a></blockquote> The explanations fit the pattern.  First from a Barnabas spokesperson, <blockquote class="tr_bq">'When Mr. Del Mauro began his career, Saint Barnabas Medical Center was a stand-alone community hospital,' she said, adding that Barnabas is 'well positioned both financially and operationally, despite significant industry challenges. His retirement package is a function of over four decades of service ... and reflects his exceptional legacy.'</blockquote> He was just another brilliant executive, in other words. Then about Mr Trunfio, <blockquote class="tr_bq">In a statement, Karen Kessler, board chair of Atlantic Health System, said that while Mr. Trunfio's 'current agreement does not have these bonus provisions, his compensation is performance-based, aligned with industry standards and intended to assure we retain top executive talent to provide the best quality of care to the communities we serve.'</blockquote> There in italics were the competitive market rates and retention arguments, and a repeat ("top talent") of the brilliance argument. Meanwhile, on April 28, 2014, NJBiz had its own <a href="http://www.njbiz.com/article/20140428/NJBIZ01/304259991/What%27s-fair-pay-at-nonprofits?-When-it-comes-to-hospitals-a-proper-diagnosis-is-difficult">report</a> on non-profit executive compensation in the state.   Their summary included, <blockquote class="tr_bq">Heading up the list is Robert C. Garrett, CEO of the Hackensack University Health Network at $2.12 million, followed by Richard P. Miller, Virtua Health ($1.99 million); John K. Lloyd, Meridian Health System ($1.68 million); Barry H. Ostrowsky, Barnabas Health ($1.67 million); and Stephen K. Jones, Robert Wood Johnson Health System ($1.55 million). Several New Jersey multi-hospital systems paid several top executives more than $1 million in 2012. Hackensack, for instance, has two executives over the million-dollar mark.</blockquote> [It is not clear why the two different reports listed two different people from Barnabas - Ed] Then came The Talking Points, for example, from Hackensack Hospital, <blockquote class="tr_bq">'The pay for HackensackUMC's executives reflects its complexity and is consistent with those levels paid to executives in other similarly situated not-for-profit academic and integrated health systems,' Hackensack said in a statement. "The compensation philosophy is to provide market-competitive base salaries....</blockquote>  The bit about complexity implies the brilliance argument, since only a brilliant CEO could cope with such complexity.  Then we had two versions of the competitive market based payment argument.   Here is another version of the same thing, this time from one "Joel Cantor, director of the Center for State Health Policy at Rutgers University," <blockquote class="tr_bq">On the other hand, hospital systems are large, complex organizations. Ultimately, CEO compensation is driven by the market for senior talent.  </blockquote> My favorite version of the brilliance argument came from one Ms Betsy Ryan, president of the New Jersey Hospital Association, <blockquote class="tr_bq">They literally are on call 24/7, 365 days a year and they are running an institution where lives are at stake</blockquote>  More on that later..... Smatterings of Data from Connecticut and Pennsylvania There were a series of reports that simply noted large amounts, but did not look for explanations.   HartfordBusiness.com<a href="http://www.hartfordbusiness.com/article/20140512/PRINTEDITION/305099967/15-ct-hospital-execs-paychecks-top-1m"> recounted</a> a state report of the top 10 most highly paid executives of individual hospitals (but did not account for the pay given to executives of hospital system).  The figures started at $3.26 million for the CEO of Yale-New Haven Hospital, and finished with $1.48 million for the senior vice-president and chief of staff at the same institution. The Pittsburgh Post-Gazette <a href="http://www.post-gazette.com/business/businessnews/2014/05/15/Former-president-CEO-was-highest-paid-West-Penn-Allegheny-Health-System-employee-in-2012/stories/201405150395">reported</a> pay at the West Penn Allegheny Health System, including that given to a former CEO, $1.89 million, and to a former chief administrative officer, $1.29 million.     Then the Pittsburgh Tribune <a href="http://triblive.com/business/headlines/6100989-74/million-2012-upmc">noted</a> even bigger compensation given out at competitor UPMC. <blockquote class="tr_bq"> <div class="News-body-text">UPMC CEO Jeffrey Romoff got an 8 percent raise two years ago, placing his generous compensation package near the top of the nonprofit hospital industry. </div><div class="News-body-text"> </div><div class="News-body-text">The 68-year-old Romoff, who leads the largest integrated health system in Western Pennsylvania and one of the biggest in the nation, brought in $6.6 million in 2012, up from $6.1 million in 2011, according to tax documents UPMC made public on Friday. </div></blockquote><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"> </div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">Also,</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;">UPMC paid 30 other executives and doctors more than $1 million each in 2012, up from 21 employees who were in the $1 million club the year before.</div></blockquote> Wake Forest Baptist The Winston-Salem Journal <a href="http://www.journalnow.com/news/local/wake-forest-baptist-releases-annual-regulatory-filing/article_f0db42e0-dc9e-11e3-a040-0017a43b2370.html">reported</a> details of executive compensation at Wake Forest Baptist on May 16, 2014.  Its CEO, Dr John McConnell, had "total compensation [which] rose 0.8 percent to $2.06 million in 2012."  Then, however, "Donny Lambeth, the former president of N.C. Baptist, had a 52 percent drop in total compensation to $1.18 million."  Also, "Dr. Thomas E. Sibert, president of Wake Forest Baptist Health and chief operating officer, received a 10 percent drop in total compensation to $1.02 million."  Then, "Edward Chadwick, chief financial officer, had a 2.3 percent drop in total compensation to $956,465."  It is interesting that some executives actually saw small decreases.  Then again, the system lost $4.5 million for fiscal 2012-2013. The article also offered up the usual explanations, first provided by the hospital system itself, <blockquote class="tr_bq">there are few executives with the required skill set to manage and provide leadership for an integrated (center) such as ours</blockquote> There goes another version of the brilliance argument.  Then, <blockquote class="tr_bq">Its executive compensation packages, it said, 'are fiscally responsible, appropriate for the marketplace and an essential part of the effort to recruit and retain skilled executives and visionary leaders for the medical center.'</blockquote> Those included the competitive market rates and the retention arguments, plus the ante for brilliance was upped to the visionary level. The article ladled on one another version, this time supplied by "John Challenger, chief executive of outplacement consultancy Challenger, Gray & Christmas," <blockquote class="tr_bq"> 'Communities who want the best health-care system they can get should support paying the compensation levels required to attract top talent,' Challenger said. 'Cutting salaries will result in an exodus of top talent to systems that will pay it,...'</blockquote> So "top talent" = brilliance argument, threatening an "exodus" = retention argument. So there they go again, again. Something Different: the New York Times Challenges the Pattern  We have previously challenged the talking points.  For example, in August, 2013 we <a href="http://hcrenewal.blogspot.com/2013/08/the-long-con-charitable-hospitals-make.html">wrote</a>, <blockquote class="tr_bq">As we have <a href="http://hcrenewal.blogspot.com/2013/08/should-we-cry-for-non-profit-hospital.html">noted before</a>, there is little evidence in support of these talking points.  What evidence there is on the topic suggests there is no real free market in interchangeable CEOs, and that CEOs are not very mobile, especially not across different kinds of organizations (look <a href="http://hcrenewal.blogspot.com/2012/10/more-reasons-to-doubt-how-ceos-are.html">here</a>).  There is little evidence that hospital (or other health care) executives are particularly brilliant, or any more brilliant than multitudes of physicians, nurses, and other health care professionals who work hard to make their institutions run.</blockquote>Yet most discussions of executive compensation in hospitals, and indeed in health care, follow The Pattern. So it was refreshing in this season of outsized compensation reports is that the New York Times ran an <a href="http://www.nytimes.com/2014/05/18/sunday-review/doctors-salaries-are-not-the-big-cost.html">article</a> that challenged The Pattern, albeit with limitations.  The most obvious problem with the pattern is that the arguments are out of context, and not challenged in context.  However, in the NY Times, <blockquote class="tr_bq">Physicians, the most highly trained members in the industry’s work force, are on average right in the middle of the compensation pack. <div class="story-body-text story-content" data-para-count="134" data-total-count="471" itemprop="articleBody">That is because the biggest bucks are currently earned not through the delivery of care, but from overseeing the business of medicine.</div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"> </div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody">The base pay of insurance executives, hospital executives and even hospital administrators often far outstrips doctors’ salaries, according to an analysis performed for The New York Times by Compdata Surveys: $584,000 on average for an insurance chief executive officer, $386,000 for a hospital C.E.O. and $237,000 for a hospital administrator, compared with $306,000 for a surgeon and $185,000 for a general doctor.</div></blockquote><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"> </div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody">Note that this comparison only refers to salaries, not total compensation, so</div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"> </div><blockquote class="tr_bq"><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody">And those numbers almost certainly understate the payment gap, since top executives frequently earn the bulk of their income in nonsalary compensation.</div></blockquote><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"> </div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody">We just saw examples of non-profit hospital CEOs making over $1 million to over $6 million in total compensation.  That would imply that non-profit CEOs may make from three times to over thirty times the total compensation of a surgeon, and from over five times to over thirty-five times the compensation of a general internist.  (And the ratio for such outliers as Mr Del Mauro above would be even higher.)  </div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"> </div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody">So is a hospital CEO thirty times more brilliant than a general internist?  </div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"> </div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody">That suggests also that we go back to another version of the brilliance argument found in one article above.  In the NJBiz article, the NJ Hospital Association President said, about CEOs, not physicians,</div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"> </div><blockquote class="tr_bq"><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody">They are literally on call 24/7, 365 days a year and they are running an institution where lives are at stake.</div></blockquote><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"> </div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody">They may be on call in a sense, but they are never on first call.  Their decisions may ultimately affect lives, and perhaps put lives at risk.  But they never have to make a decision about a patient that could literally cost that patient his or her life.  And they almost never have to be accountable for what happens to individual patients.  </div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"> </div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody">It is easy to argue that physicians' responsibilities for life and death decisions are much more direct.  Explain, then, those pay ratios again.  </div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"> </div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody">Actually, in an <a href="http://www.fiercehealthfinance.com/story/could-watson-replace-high-paid-hospital-execs/2014-04-21">opinion piece</a> about executive compensation in FierceHealthFinance, Ron Shinkman described the life of a typical seven-figure a year hospital executive,</div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"> </div><blockquote class="tr_bq">While the days of seven-figure club members are long, they are also predictable--check the census and cash flow reports, confer with the medical staff, get updates on supplies, negotiate with payers, have some meetings on long-term planning. If it is a large hospital in a large market, those meetings are likely focused on site expansion and acquisition. If it is a medium-sized facility, tI expect they spend their time focused on finding a larger partner. Breakfast and dinner meetings and events switch focus to development and fundraising. There may also be some meetings on quality initiatives, but they are of nominal consequence. Members of the seven-figure club enjoy little to no accountability from their customers.</blockquote> So is executive compensation in hospitals, or other parts of the health care system, based on executives' brilliance.  Or is it based on their ability to be rentiers, rent-seekers, who can control the choke points of money flow, and make sure they get more than their share before what is left can go to real health care?  Of course, hospital executives and their ubiquitous spokespeople do not discuss what they do day to day.  Maybe they need to, and also need to address the implications of these statements in the NY Times article, given that the US has the highest health care costs of any developed country, but nowhere near the best results, <blockquote class="tr_bq"><div class="story-body-text story-content" data-para-count="372" data-total-count="4255" id="story-continues-3" itemprop="articleBody">And studies suggest that administrative costs make up 20 to 30 percent of the United States health care bill, far higher than in any other country. American insurers, meanwhile, spent $606 per person on administrative costs, more than twice as much as in any other developed country and more than three times as much as many, according to <a href="http://www.commonwealthfund.org/%7E/media/Files/Publications/In%20the%20Literature/2013/Nov/PDF_Schoen_2013_IHP_survey_chartpack_final.pdf">a study by the Commonwealth Fund</a>.</div><div class="story-body-text story-content" data-para-count="372" data-total-count="4255" id="story-continues-3" itemprop="articleBody"> </div><div class="story-body-text story-content" data-para-count="274" data-total-count="4529" itemprop="articleBody">As a result of the system’s complexity, there are many jobs descriptions for positions that often don’t exist elsewhere: medical coders, claims adjusters, medical device brokers, drug purchasers — not to mention the 'navigators' created by the Affordable Care Act.</div><div class="story-body-text story-content" data-para-count="189" data-total-count="4718" itemprop="articleBody"> </div><div class="story-body-text story-content" data-para-count="189" data-total-count="4718" itemprop="articleBody">Among doctors, there is growing frustration over the army of businesspeople around them and the impact of administrative costs, which are reflected in inflated charges for medical services.</div></blockquote><div class="story-body-text story-content" data-para-count="189" data-total-count="4718" itemprop="articleBody"> </div><div class="story-body-text story-content" data-para-count="189" data-total-count="4718" itemprop="articleBody">We had <a href="http://hcrenewal.blogspot.com/2013/08/the-long-con-charitable-hospitals-make.html">previously argued</a> (see above) against the talking points, and specifically that there is nothing to suggest that hospital executives are any more, much less an order of magnitude more brilliant than physicians or other health care professionals. But I confess as a physician I did not have the courage to extend that argument to a direct comparison of executive versus health care professional pay. The Times article, written by someone who is not a physician, did not have to worry about appearing self-serving.  I am glad, for it is high time to discuss the degree that the incentives produced by executive pay in health care have become perverse, and how to change these incentives to make health care leaders more accountable for health, and less focused on their own riches.  </div><div class="story-body-text story-content" data-para-count="189" data-total-count="4718" itemprop="articleBody"> </div>

More Stories of Million Dollar Plus Hospital Executives, but Now the NY Times Challenges the Talking Points

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20 May 2014

Planned Obsolescence Disguised as Innovation, Oligopoly Disguised as a Free Market, and the Enrichment of Oligarchs

The New York Times published another<a href="http://www.nytimes.com/2014/04/06/health/even-small-medical-advances-can-mean-big-jumps-in-bills.html"> article</a> in its series on the high cost of US health care.  This one, focused on the care of type 1 diabetes mellitus and other chronic diseases, shines some light on the business management practices that now determine how our health care system functions, or not, and implies who benefits the most from them. Planned Obsolescence Disguised as Innovation The article first discussed the brave new world of type 1 diabetes treatment.  The introductory theme was: <blockquote class="tr_bq">Today, the routine care costs of many chronic illnesses eclipse that of acute care because new treatments that keep patients well have become a multibillion-dollar business opportunity for device and drug makers and medical providers.</blockquote> Much of modern diabetes treatment seems to depend on medical devices and disposable medical supplies: <blockquote class="tr_bq">That captive audience of Type 1 diabetics has spawned lines of high-priced gadgets and disposable accouterments, borrowing business models from technology companies like Apple: Each pump and monitor requires the separate purchase of an array of items that are often brand and model specific. A steady stream of new models and updates often offer dubious improvement: colored pumps; talking, bilingual meters; sensors reporting minute-by-minute sugar readouts. [Diabetes patient] Ms. Hayley’s new pump will cost $7,350 (she will pay $2,500 under the terms of her insurance). But she will also need to pay her part for supplies, including $100 monitor probes that must be replaced every week, disposable tubing that she must change every three days and 10 or so test strips every day.</blockquote> Of course, the device and supply manufacturers claim that the high prices reflect the value of the wondrous new innovations: <blockquote class="tr_bq">Companies that produce the treatments say the higher costs reflect medical advances and the need to recoup money spent on research.</blockquote> Yet now the Times reporter was able to find physicians who claim the "innovations" are really just the latest version of planned obsolescence: <blockquote class="tr_bq">Diabetes experts say a good part of what companies label as innovation amounts to planned obsolescence. Just as Apple customers can no longer buy an iPhone 3 even if they were content with it, diabetics are nudged to keep up with the latest model.</blockquote>For example, <blockquote class="tr_bq"><div class="story-body-text story-content" data-para-count="410" data-total-count="4006" id="story-continues-3" itemprop="articleBody">Those companies spend millions of dollars recruiting patients at health fairs, through physicians’ offices and with aggressive advertising — often urging them to get devices and treatments that are not necessary, doctors say. 'They may be better in some abstract sense, but the clinical relevance is minor,' said Dr. Joel Zonszein, director of the Clinical Diabetes Center at Montefiore Medical Center.</div><div class="story-body-text story-content" data-para-count="410" data-total-count="4006" id="story-continues-3" itemprop="articleBody"> </div><div class="story-body-text story-content" data-para-count="109" data-total-count="4115" itemprop="articleBody">'People don’t need a meter that talks to them,' he added. 'There’s an incredible waste of money.'</div></blockquote> Pharmaceutical companies have also discovered this model. <blockquote class="tr_bq">insulin ... has been produced with genetic engineering and protected by patents, so that a medicine that cost a few dollars when Ms. Hayley was a child now often sells for more than $200 a vial, meaning some patients must pay more than $4,000 a year.</blockquote> In particular, <blockquote class="tr_bq">Synthetic human insulin is safer for patients, who sometimes developed reactions to animal insulin. But it is made by only three companies: Eli Lilly, Sanofi and Novo Nordisk. Manufactured in microbes, each one’s product has minor dissimilarities that reflect the type of cell in which it was made. Since the companies owned the cell lines, it is nearly impossible for other companies to make exact copies or even similar versions that would be cheaper, even once the patents expire. And the pharmaceutical companies defend the patents ferociously. <div class="story-body-text story-content" data-para-count="270" data-total-count="12681" itemprop="articleBody">What’s more, the three companies continued to refine their product, adding chemical groups that made the insulin absorb somewhat more quickly or evenly, for example. They are called insulin analogues, and their benefits are promoted tirelessly to doctors and patients.</div></blockquote> Of course, the pharmaceutical companies also claim that it's all about innnovation, <blockquote class="tr_bq">Dr. Todd Hobbs, chief medical officer of Novo Nordisk, defended the rising prices of insulin, linking them to medical benefits. 'The cost to develop these new insulin products has been enormous, and the cost of the insulin to the consumer in developed countries has risen to enable these and future advancements to occur,' he wrote in an email.</blockquote> Not everyone is convinced, <blockquote class="tr_bq">'The insulins are tweaked for minor benefits that may help a small number of patients with difficult-to-control diabetes, and result in major price increases for all,' [Kings College, London, UK Professor] Dr. Pickup said. Because of analogues, he added, Britain’s National Health Service has had to spend 130 percent more on insulin in the past five years. In the United States, said Dr. Zonszein at Montefiore, the price of Humalog, Lilly’s analogue insulin, was typically two to four times that of its older human insulin line, called Humulin. 'There is not a lot of difference between Humulin and analogues,' he said, but he noted that Humulin was getting 'hard to find.' Sanofi Aventis has stopped selling its older product in the United States, and Mr. Kliff, the financial analyst, said other companies were likely to follow suit, effectively forcing patients to use the costlier versions.</blockquote> The arguments about valuable innovation also do not explain why the prognosis of diabetes in the US does not seem to reflect all the money we spend on the disease, <blockquote class="tr_bq"><div class="story-body-text story-content" data-para-count="306" data-total-count="4993" itemprop="articleBody">Complication rates from diabetes in the United States are generally higher than in other developed countries. That is true even though the United States <a href="http://www.cdc.gov/diabetes/statistics/complications_national.htm">spends more</a> per patient and per capita treating diabetes than elsewhere, said Ping Zhang, an economist at the Centers for Disease Control and Prevention.</div><div class="story-body-text story-content" data-para-count="306" data-total-count="4993" itemprop="articleBody"> </div><div class="story-body-text story-content" data-para-count="280" data-total-count="5273" itemprop="articleBody">The high costs are taking their toll on public coffers, since 62 percent of that treatment money comes from government insurers. The cumulative outlays for treating Type 1 and Type 2 diabetes <a href="http://www.diabetes.org/advocacy/news-events/cost-of-diabetes.html">reached nearly $200 billion</a> in 2012, or about 7 percent of America’s health care bill.</div></blockquote> So to summarize, there is considerable evidence that companies that make drugs and devices to manage type 1 diabetes constantly provide "innovations," yet most are minor changes that encourage obsolescence of previous products, but do not provide important increases in benefits or reductions in harm for patients.  Oligopoly Disguised as a Free Market Many in the US sing the praises of our supposed free-market health care system.  As noted above however, the insulin market is an oligopoly, dominated by three companies.  The diabetes device market is also dominated by a few companies, and in particular, the insulin pump market is dominated by a single company, <blockquote class="tr_bq"><a href="http://www.medtronic.com/">Medtronic</a> is the dominant insulin pump manufacturer, serving 65 percent of American patients and the majority of those worldwide. Though smaller companies sell cheaper pumps, it is hard to make inroads: Once familiar with the Medtronic system and its extensive support network for troubleshooting problems, patients are reluctant to switch. Doctors are leery of prescribing equipment from a new company that may be out of business in a year; their office computer may not sync with the new software anyway.</blockquote> Of course, Medtronic public relations will justify it all again based on innovation, <blockquote class="tr_bq">Medtronic declined to talk about specific prices, but said a core tenet was to make only 'a fair profit.' Amanda Sheldon, a spokeswoman, added: 'We are committed to reinvesting in research and development of new technologies to improve the lives of people with diabetes, and our current pricing structure ensures that we can bring new products to market.' </blockquote> The article also discussed the prices of treating chronic diseases other than diabetes.  For example, see how a nominally non-profit hospital priced treatments for chronic diseases, <blockquote class="tr_bq">Dr. Kivi was on high doses of steroids for debilitating joint pain that left him unable to walk at times. But when his last three-hour infusion at NYU Langone Medical Center’s outpatient clinic generated a bill of $133,000 — and his insurer paid $99,593 — Dr. Kivi was so outraged that he decided to risk switching to another drug that he could inject by himself at home. </blockquote> However,  this pricing appears to have been facilitated by the hospital's increasing market domination generated by its purchase of physician practices, <blockquote class="tr_bq">He had moved his care to NYU Langone to follow his longtime doctor, who had moved her practice from a nearby hospital where the same infusion had been billed at $19,000. The average price that hospitals paid for Dr. Kivi’s dose of Remicade late last year was about $1,200, according to Medicare data.</blockquote> So in summary, a few companies now dominate the production of drugs and devices for the management of diabetes, and a few large hospitals may increasingly dominate the treatment of particular chronic diseases.  Such oligopolists are able to increase prices without improving treatment to or outcomes of patients. Enrichment of the Oligarchs This example shows how the current US health care system is dominated by huge organizations, mostly for-profit corporations but including some nominally non-profit corporations that act similarly.  They loudly proclaim innovation, but much of that innovation seems to provide few benefits to patients, and actually appears to be planned obsolescence.  The result is high and ever-rising prices. So if patients do not benefit from this, who does? It does not appear to be the health care professionals, <blockquote class="tr_bq">Meanwhile, as the price of supplies rises, endocrinologists remain among the lowest-paid specialists in American medicine, meaning severe physician shortages in many areas and long waits to see a doctor.</blockquote> We  have seen other examples of how leaders of the big health care organizations have become as<a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation"> rich as royalty</a>.  Therefore, let us consider the pay of the leaders of the organizations mentioned above.  I will focus on the two US based corporations, Eli Lilly and Medtronic, and the New York hospital, NYU Langone Medical Center. Eli Lilly According to the company's <a href="http://investor.lilly.com/secfiling.cfm?filingID=59478-14-90&CIK=59478">2014 proxy statement</a>, the 2013 total compensation of its five highest paid hired executives was - John C Lechleiter PhD, CEO                                      $11,217,000 - Derica W Rice, CFO                                                   $5,176,822 - Jan M Lundberg, PhD, EVP, Science and Technology   $4,774,535 - Michael J Harrington, General Counsel                          $3,174,222 - Erico A Conterno, President Lilly Diabetes                    $3,009,041 Note that all of these executives save Mr Harrington have also amassed more than 100,000 shares of company stock, and Dr Lechleiter has amassed more than 1,000,000. It should be no surprise, given our recent discussion (e.g., <a href="http://hcrenewal.blogspot.com/2014/04/finally-article-in-large-circulation.html">here</a>) of the currently symbiotic relationship among top health care corporations and academic medicine, that several of the members of the Lilly board of directors that has exercised stewardship over the company, and is thus responsible for these gargantuan compensation packages and the business practices discussed above are top academic leaders.  These include, - Alfred G Gilman, MD, PhD, Regental Professor Emeritus, recent (until 2009) executive vice presdient, provost, and dean of medicine, University of Texas Southwestern  - William G Kaelin Jr, MD, Professor of Medicine, Associate Director of Basic Science, Dana-Farber Cancer Center, Harvard University - Marschall S Runge MD, Executive Dean and Chair of the Department of Medicine, University of North Carolina Medical School - Katherine Baicker PhD, Professor of Health Economics, Harvard University School of Public Health  (I must note that Prof Baicker is also - amazingly - on the Medicare Payment Advisory Committee, MEDPAC). - Ellen R Marram, Trustee, New York-Presbyterian Hospital - Ralph Alvarez, President's Council, University of Miami - R David Hooper, Trustee, Children's Hospital of Colorado - Franklyn G Pendergast MD PhD, Professor, Mayo Medical School All but the newest directors were paid at least $250,000 a year by the company (and thus by the executives the directors are supposed to supervise), and all but the newest directors had accumulated tens of thousands of shares of stock or the equivalent as pay for their services. Medtronic Similarly, according to the company's<a href="http://phx.corporate-ir.net/phoenix.zhtml?c=76126&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTkwMjY0MzAmRFNFUT0wJlNFUT0wJlNRREVTQz1TRUNUSU9OX0VOVElSRSZzdWJzaWQ9NTc%3d"> 2013 proxy</a> (the latest now available), CEO Omar Ishrak made $8,975,866 in 2013, and the next four highest paid executives all made over $2,500,000 each.   Mr Ishrak owned or could acquire the equivalent of more than 500,000 shares of stock, and the other top paid executives owned of could acquire from over 100,000 to over 1,000,000 shares of stock. Again, the executives were nominally supervised by a board of directors that included an academic and non-profit leader, Dr Victor J Dzau, MD former chancellor for health affairs at Duke University, and president-elect of the Institute of Medicine (note that we discussed Dr Dzau's conflicts of interest most recently <a href="http://hcrenewal.blogspot.com/2014/02/incoming-president-of-iom-outed-as.html">here</a>).  It also included a former government leader, Michael O Leavitt, former US Secretary of Health and Human Services; and a hospital leader, Preetha Reddy, Managing Director of Apollo Hospitals Enterprise Limited (India).  NYU Langone Medical Center The Medical Center's<a href="http://www.guidestar.org/FinDocuments/2012/133/971/2012-133971298-09798bbc-9.pdf"> 2011 US form 990</a> is old, but the latest available, and is remarkably obscure, omitting, for example, mentioning the titles of any of the people listed as highest paid officers and employees.  The current CEO, was listed as receiving total compensation of just over $2.000,000.  Four individuals then received over $1,000,000.  The 990 form also mentioned that the Medical Center provided some individuals with first class travel, tax gross-up payments, housing allowances, and reimbursement for personal services.  Neither the 990, nor the center's <a href="http://www.med.nyu.edu/about-us/who-we-are/medical-center-leadership/trustees">web-site</a> makes all the possible conflicts of interest of its trustees obvious.    So in summary, the large organizations, for-profit and non-profit, that are able to greatly increase their prices through planned obsolescence disguised as innovation, and oligopoly disguised as free markets, are able to make their top executives very rich, and also enrich those who are supposed to exercise stewardship over them.  Summary An extensive journalistic investigation revealed how certain aspects of chronic care in the US health care system are dominated by a few large organizations.  These organizations are able to charge very high prices, mainly through market domination, and with the aid of marketing and public relations that tout planned obsolescence as valuable innovation.  The leaders of these organizations have become wealthy, often fabulously so.  This state of affairs has not been challenged by those who are supposed to provide stewardship, including many prominent academics. The US health care system is the most expensive, on a per capita basis, in the world, and far more expensive than that in any other developed country.  Yet there is no evidence that its results are superior to those of other countries.  What evidence there is suggests in fact that our results are mediocre at best. The current example suggests how the US system differs from those of other countries.  It has an ostensible free market focus.  Yet the system appears more to be an oligopoly, with most of its market components dominated by a few large organizations, run as an oligarchy, by a small, overlapping in-group of managers, executives and their cronies, with elements of corporatism, that is with the cooperation of, rather than regulation by government entities and leaders A real free market health care system would include a level playing field.  This could only be achieved by the government acting as a fair umpire, not a crony.  Anti-competitive practices would have to end.  Oligopolies would have to be broken.  Deceptive marketing and public relations would have to be exposed.  Leaders would have to be made accountable, especially for putting patients' and the public's health ahead of their own enrichment.  All this would be horribly difficult, as the oligarchs have amassed much money and control, and would oppose, possibly violently, any effort to challenge them.  If we do not challenge them in the US, however, not only will our health care continue to become ever more expensive, less accessible, and less beneficial to patients, but we will all cease to be citizens of one of the first real democracies, and end up serfs instead.

Planned Obsolescence Disguised as Innovation, Oligopoly Disguised as a Free Market, and the Enrichment of Oligarchs

The New York Times published another article in its series on the high cost of US health care. This one, focused on the care of type 1 diabetes mellitus and other chronic diseases, shines some light …

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14 Apr 2014

The Greedy Leading the Greedy - Multimillionaire Former Johnson and Johnson CEO Approved Huge Compensation for JP Morgan Chase CEO After Company Paid $20 Billion in Legal Settlements

JP Morgan Chase CEO Got Huge Raise Despite Company's Recent Huge Legal Settlements The current compensation set by the board of directors of JP Morgan Chase for CEO Jamie Dimon, $20 million a year, has attracted some attention (e.g., see <a href="http://www.rollingstone.com/politics/blogs/taibblog/jamie-dimons-raise-proves-u-s-regulatory-strategy-is-a-joke-20140130">this commentary</a> by Matt Taibbi), especially given the contrast between his raise and the $20 billion or so the company had to pay out last year in settlements of allegations of unethical practices.  A New York Times <a href="http://www.nytimes.com/2014/02/01/business/accounting-for-jamie-dimons-big-pay-raise.html">opinion piece</a> rushed to Mr Dimon's defense <blockquote class="tr_bq">in the world of executive compensation, especially when viewed from the rarefied perspective of other chief executives, and more broadly on Wall Street, Mr. Dimon’s pay — and how it was determined — is not only defensible, but laudable.</blockquote> Also, <blockquote class="tr_bq">I spoke this week to several people with direct knowledge of the board’s discussions about Mr. Dimon’s pay. They said that the compensation committee went through an exhaustive process to determine the right level and that the board considered the likely negative reaction. 'We were mindful of it, but it didn’t influence our decision,' said one, who like the others, spoke only on condition of anonymity. 'Some people were going to criticize us unless we paid him nothing. We were trying to do the right thing.' </blockquote> The author did conclude with a quote from Rep Peter Welch (D - Vermont), <blockquote class="tr_bq">This isn’t really about Jamie Dimon. It’s about a whole culture of immunity for the consequences of your actions. </blockquote>A Retired Pharmaceutical CEO Who Also was Hugely Compensated Despite his Company's Troubles Set Dimon's Pay We have frequently discussed how the culture of immunity, or <a href="http://hcrenewal.blogspot.com/search/label/impunity">impunity</a> found in <a href="http://hcrenewal.blogspot.com/search/label/finance">finance</a> may carry over into health care, since now many extremely rich  leaders of finance firms sit on boards of trustees of health care institutions like hospitals and hospital systems, universities and their associated medical schools and teaching hospitals, and health related foundations, and boards of trustees of health care corporations. In this case, maybe the culture carried over from health care to finance. The NY Times article noted <blockquote class="tr_bq"> The compensation and management development committee of JPMorgan Chase’s board has three members, all seasoned business luminaries in their own right. Lee R. Raymond, the chairman, is the former long-serving chairman and chief executive of Exxon Mobil. Stephen B. Burke is chief executive of NBCUniversal. William C. Weldon is the former chairman and chief executive of Johnson & Johnson.</blockquote> Mr Weldon is the former pharmaceutical representative who rose to CEO of giant pharmaceutical/ biotechnology/ device company Johnson and Johnson.  Despite the appellation of business luminary above bestowed by the author of the NYT article, we noted <a href="http://hcrenewal.blogspot.com/2013/12/the-camels-aching-back-johnson-and.html">here</a> how many settlements have been made by, fines assessed against, and other adverse legal actions affecting Johnson and Johnson in the recent past.  Our lengthy summary of such cases is appended at the end of this post. Yet Mr William Weldon, the outgoing CEO on whose watch most of the misbehavior resulting in the legal actions listed in the appendix below occurred, retired with a huge retirement package, after receiving extremely generous compensation prior to that.   The retirement package was estimated to be worth from $143 to $197 million (look <a href="http://hcrenewal.blogspot.com/2012/03/despite-recalls-legal-settlements-and.html">here</a>).  In 2010, his total compensation was $29 million (look <a href="http://hcrenewal.blogspot.com/2012/02/semi-retirement-of-salesman-weldon-to.html">here</a>).   According to the <a href="http://www.investor.jnj.com/secfiling.cfm?filingID=1193125-12-113826">2012 Johnson and Johnson proxy statement</a>, his 2011 total compensation was greater than $26 million. As far as I can tell, Mr Weldon never suffered any negative consequences for his company's sorry record, and retired a very rich man. Yet the luminous Mr Weldon got to make the decision about how much to pay Mr Jamie Dimond after his company's recent sorry record. Summary So it appears that the top hired executives of health care and finance organizations, and the so-called stewards sitting on their boards of directors are all blending together.  Together they are in charge of assuring that top hired executives get richer and richer even while the companies they lead commit seemingly endless strings of ethical and sometimes legal offenses. Is this any way to run health care, or the economy? As I have repeated ad nauseum, <div class="A_Standard__35__20_Normal">Many of largest and once proud health care organizations now have recent records of repeated, egregious ethical lapses. Not only have their leaders have nearly all avoided penalties, but they have become extremely rich while their companies have so misbehaved. These leaders seem to have become like nobility, able to extract money from lesser folk, while remaining entirely unaccountable for bad results of their reigns. We can see from this case that health care organizations' leadership's nobility overlaps with the supposed "royalty" of the leaders of big financial firms, none of whom have gone to jail after the global financial collapse, great recession, and ongoing international financial disaster (look <a href="http://hcrenewal.blogspot.com/2012/08/duchess-of-wellpoint-abdicates-likely.html">here</a>). The current fashion of punishing behavior within health care organization with fines and agreements to behave better in the future appears to be more law enforcement theatre than serious deterrent.  As Massachusetts Governor Deval Patrick exhorted his fellow Democrats, I exhort state, federal (and international, for that  matter) law enforcement to "<a href="http://www.washingtonpost.com/blogs/election-2012/wp/2012/09/04/patrick-it-is-time-for-democrats-to-grow-a-backbone/">grow a backbone</a>" and go after the people who were responsible for and most profited from the ongoing ethical debacle in health care. Again, true health care reform would make leaders of health care organization accountable for their organizations' bad behavior.</div> <div class="A_Standard__35__20_Normal">Appendix - Johnson and Johnson Recent Legal Record</div><div class="A_Standard__35__20_Normal"></div><div class="A_Standard__35__20_Normal"></div><div class="A_Standard__35__20_Normal">2010 </div><div class="A_Standard__35__20_Normal">- Convictions in two different states in 2010 for misleading marketing of Risperdal - A guilty plea for misbranding Topamax in 2010 2011</div><div class="A_Standard__35__20_Normal">- Guilty pleas to bribery in Europe in 2011 by Johnson and Johnson's DePuy subsidiary - A guilty plea for marketing Risperdal for unapproved uses in 2011 (see <a href="http://hcrenewal.blogspot.com/2011/08/why-cultivate-weldons-confidence-ceo.html">this link</a> for all of the above) - A guilty plea to misbranding Natrecor by J+J subsidiary Scios (see post <a href="http://hcrenewal.blogspot.com/2011/09/johnson-and-johnson-pleads-guilty.html">here</a>) 2012 </div><div class="A_Standard__35__20_Normal">- In 2012, testimony in a trial of allegations of unethical marketing of the drug Risperdal (risperidone) by the Janssen subsidiary revealed a systemic, deceptive stealth marketing campaign that fostered suppression of research whose results were unfavorable to the company, ghostwriting, the use of key opinion leaders as marketers in the guise of academics and professionals, and intimidation of whistleblowers. After these revelations, the company abruptly settled the case (see post <a href="http://hcrenewal.blogspot.com/2012/02/texas-tmap-trials-as-illustration-of.html">here</a>). -  Also in 2012,  Johnson & Johnson was fined $1.1 billion by a judge in Arkansas for deceiving patients and physicians again about Risperdal (look <a href="http://hcrenewal.blogspot.com/2012/04/once-more-with-feeling-johnson-and.html">here</a>). -  Also in 2012, Johnson & Johnson announced it would pay $181 million to resolve claims of deceptive advertising again about Risperdal (see this <a href="http://hcrenewal.blogspot.com/2012/09/how-many-legal-settlements-does-it-take.html">post</a>). </div><div class="A_Standard__35__20_Normal">2013 </div><div class="A_Standard__35__20_Normal">-  In 2013, Johnson & Johnson settled case by shareholders alleging that management made misleading statements and withheld material information about manufacturing problems (see this <a href="http://hcrenewal.blogspot.com/2013/07/johnson-and-johnson-settles-suit.html">post</a>)</div><div class="A_Standard__35__20_Normal">-  In 2013, Johnson & Johnson Janssen subsidiary pleaded guilty to a charge of misbranding Risperdal, and settled for a total of $2.2 billion allegations that it promoted the drug for elderly demented patients and adolescents without an indication, and despite evidence of its harms (see this <a href="http://hcrenewal.blogspot.com/2013/11/another-and-huge-22-billion-settlement.html">post</a>).  </div><div class="A_Standard__35__20_Normal">-  In 2013, Johnson & Johnson DePuy subsidiary agreed to settle with multiple plaintiffs for $2.5 billion allegations that it sold defective mental-on-metal artificial hip, and hid evidence of its harms .</div><div class="A_Standard__35__20_Normal">- In 2013, Johnson & Johnsonn Janssen subsidiary was found by two juries to have concealed harms of its drug Topamax (see this <a href="http://hcrenewal.blogspot.com/2013/11/there-they-go-again-again-johnson-and.html">post</a> for this and above case).</div><div class="A_Standard__35__20_Normal">- In 2013, Johnson & Johnson Ethicon subsidiary's Advanced Surgical Products and two of its executives agreed to settle charges by US FDA that is sold mislabeled products used to sterilize equipment such as endoscopes (see this <a href="http://hcrenewal.blogspot.com/2013/12/how-many-straws-johnson-and-johnson.html">post</a>). </div><div class="A_Standard__35__20_Normal">- In 2013, Johnson & Johnson fined by European Commission for anticompetitive practices, that is, collusion with Novartis to delay marketing generic version of Fentanyl (see this <a href="http://hcrenewal.blogspot.com/2013/12/the-camels-aching-back-johnson-and.html">post</a>).  </div>

The Greedy Leading the Greedy - Multimillionaire Former Johnson and Johnson CEO Approved Huge Compensation for JP Morgan Chase CEO After Company Paid $20 Billion in Legal Settlements

JP Morgan Chase CEO Got Huge Raise Despite Company's Recent Huge Legal Settlements The current compensation set by the board of directors of JP Morgan Chase for CEO Jamie Dimon, $20 million a year, ha…

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31 Jan 2014

"Engaging Excellence" while Engaging Secret Paychecks - The Rise and Fall of the Upstate Medical University President

Yet another leader of a big health care organization seems to have acquired the excessively entitled CEO syndrome. Another Brilliant, Fearless Leader When Dr David R Smith was appointed President of Upstate Medical University, a part of the State University of New York (SUNY) system located in Syracuse, he got the usual rave reviews from the school's board of trustees, <a href="http://www.suny.edu/sunyNews/News.cfm?filname=2006-06-27BOTApprovesSmith.htm">according to a university press release</a>: <blockquote class="tr_bq">'David Smith rose to national prominence through his leadership ability, experience in children’s medicine, public health policy, and as the chancellor of the Texas Tech University system. We are very pleased to have a one of the country’s foremost educators and health-care professionals lead Upstate Medical University,' said Board Chairman Thomas F. Egan. 'The State University of New York continues to enjoy an excellent record of success in attracting top academic and administrative talent from all over the country.' 'My colleagues and I are very impressed by Dr. Smith’s tremendous record of success and pleased that the Upstate Medical University search committee and University Council have brought Dr. Smith to New York. I am confident that Dr. Smith will excel as the next president of Upstate Medical Center,' said Ryan.</blockquote> By 2012, Dr Smith's <a href="http://www.upstate.edu/president/biography.php">official presidential biography on the university web-site</a> trumpeted, <blockquote class="tr_bq">Since coming to Central New York, Dr. Smith has reenergized the Upstate campus in a time of dwindling State resources with an aggressive program of patient revenue and research growth. The Upstate campus has emerged as one of the true economic engines of the region. There are now over 9,200 State, research and contract jobs on campus and an all-funds budget that exceeds $1.3 billion. Dr. Smith has built upon a vigorous expansion and renewal of campus facilities with 'The Upstate Initiative' which is achieving $600 million worth of bricks-and-mortar projects. Included in that is a long-awaited repurposing of several neglected properties within the City of Syracuse. At the start of his presidency, Dr. Smith launched the Engaging Excellence campaign as his invitation to the entire SUNY Upstate community to achieve and recognize work of the highest standard. The centerpiece of Engaging Excellence was the development of a 10-year strategic plan for purposeful campus growth. </blockquote>They must have used a thesaurus to generate all those superlatives. As we have mentioned in discussions of the <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">outsize compensation</a> now routinely given to the leaders of big health care organizations, the boards of trustees or directors that govern such institutions almost always seem to think their presidents and CEOs are brilliant, or at least, like the children of Lake Woebegone, above average (look <a href="http://hcrenewal.blogspot.com/2013/08/the-long-con-charitable-hospitals-make.html">here</a> for recent example).  Such leaders usually command <a href="http://hcrenewal.blogspot.com/search/label/public%20relations">public relations</a> teams whose job is to continually reinforce impressions of their brilliance.  Of course, anyone who starts an "excellence" campaign has to be excellent, doesn't he? Yet not every leader can be above average, much less excellent or brilliant.  In fact, the need for such leaders to have public relations apparati constantly touting their excellence suggests the opposite.   Secret Paychecks In any case, Dr Smith thus seemed to be collecting all the usual accolades acquired by top health care leaders, and appeared poised to take on an even bigger position when it all came to a crashing halt. As <a href="http://www.timesunion.com/local/article/SUNY-president-got-349-295-on-side-4958828.php">reported</a> first by the Albany (NY) Times-Union, <blockquote class="tr_bq">The president of the State University of New York's upstate medical campus ruined his chance to become the 18th president of Pennsylvania State University and has been placed on leave after SUNY leaders learned he has been padding his state pay without authorization, two state officials familiar with the matter said. SUNY headquarters is reviewing all sources of compensation for SUNY Upstate Medical University President David R. Smith and is threatening more severe measures, according to a letter obtained by the Times Union on Tuesday. Smith, who is based in Syracuse, was put on paid leave Tuesday. Penn State trustees were close to announcing that Smith would be the next president at the home of the Nittany Lions, according to the people familiar with the search. Instead, the public announcement planned for last Friday was canceled after questions about Smith's compensation in New York arose. A search firm working for Penn State, which also works for SUNY, found out about extra pay Smith arranged through outside companies linked to his school, the people familiar with the situation said. The search firm contacted SUNY officials about Smith's additional income. Several members of his executive team at Upstate Medical — the biggest employer in the Syracuse region — may also have been receiving unapproved extra pay from the outside companies, according to the sources. Smith, a pediatrician, became president of Upstate Medical in 2006 after five years as chancellor of Texas Tech University. SUNY pays Smith $625,000, including $315,000 in salary plus a $60,000 housing stipend approved by the SUNY trustees, plus $250,000 from the SUNY Research Foundation. Smith is a member of the Research Foundation's board of directors. </blockquote> However, in addition to that <blockquote class="tr_bq">Smith's outside money has been coming from two companies during recent years that are linked to SUNY Upstate: Medbest Medical Management Inc. and Pediatrics Service Group LLP. Officials with the companies did not respond to emails and calls on Tuesday. Smith's unapproved arrangements added substantially to his pay, according to a Nov. 1 letter to Smith from SUNY Chancellor Nancy Zimpher. In the letter, she alerts Smith to a recent review of his income and says he accepted $349,295 from the outside sources without Zimpher's approval.</blockquote> I could not find a web-page for the Pediatric Services Group LLC. Medbest did not list Dr Smith as a member of its <a href="http://medbest.org/pages/page.cfm?pageid=3">administrative team</a>. A Conflict of Interest? As <a href="http://www.syracuse.com/news/index.ssf/2013/11/union_upstate_medical_pay_investigation_shows_institution_needs_to_be_more_trans.html">reported</a> by the Syracuse Post-Standard, it does not appear that the interests of Upstate are precisely aligned with those of at least one of the companies that was paying Dr Smith on the side, Medbest. <blockquote class="tr_bq">Susan Kent, president of the New York State Public Employees Federation, which represents 1,430 workers at Upstate, said Upstate has been hiring non-union nurses employed by MedBest to fill jobs traditionally filled by union nurses. 'It's being done in a very sneaky backdoor fashion,' Kent said. 'We see it as their (Upstate's) way of trying to drive down wages and not use public sector workers.' MedBest, headquartered at 251 Salina Meadows Parkway in Liverpool, provides billing and other practice management services for doctors affiliated with Upstate. It also provides staffing. On its website, the company says it employs more than 500 people. </blockquote> Also, <blockquote class="tr_bq">Bobbi Stafford, a registered nurse and PEF representative at Upstate, said Upstate has been filling positions formerly held by union nurses with MedBest nurses in outpatient clinics to save money on retirement costs and other benefits. 'It's just a matter of time before they (MedBest employees) weasel their way into the hospital,' she said. Kent said using MedBest may not be a savings to Upstate if the intent of the arrangement is to increase the pay of Upstate administrators. </blockquote> The implication is that while outsourcing nursing services may cut how much the university pays nurses, the financial gain may be used as a rationale to increase payments to administrators, and not, for example, to decrease costs to patients.. Thus the revelations about the Upstate Medical University President's sources of income raise not only questions about his honesty, since he did not see fit to reveal these payments until the search firm found them, and about whether they are conflicts of interest. Ending the "Distraction" Supposedly to end the "distraction" causes by pondering such questions, Dr Smith just announced he will resign his executive position, <a href="http://blog.timesunion.com/capitol/archives/199003/suny-upstate-president-resigns-amid-compensation-review/">according to</a> the Albany Times-Union, <blockquote class="tr_bq">To avoid further distraction for the University from its important mission, I intend to submit my resignation as president of SUNY Upstate Medical Center, so that this great institution can move on to even greater success. </blockquote> Summary This case provides another reason to be very skeptical of the hype now that constantly emerges from health care organizations' public relations and communications departments about their managements', particularly their top managements' brilliance. Consider waiting for real results before believing in the next Excellent program to Excellently Promote Excellence.   Furthermore, I wonder if Dr Smith had come to believe all the hype about him.  Top leaders of big organizations often seem to exist in a bubble created by people who keep telling them what they want to hear, and protect them from anything that might discomfit them.  Many of the bubble keepers are dependent on the leaders for their own exalted administrative pay.  Other bubble keepers who are members of governing boards supposedly entrusted with stewardship of the organization may want to bask in the reflected glory of a brilliant leader renowned for encouraging "excellence," and also certainly to do not want to be seen as supporting an average or mediocre leader. In this bubble, it must be very hard not to take on a sense of entitlement.  I can only speculate that such a sense of entitlement may lead to feeling entitled to receive enough money from whatever the source to get close to the magic $1 million a year figure that CEOs now seem to regard as the minimum acceptable. How many more examples do we need of the currently "toxic" culture that surround the leadership of health care organizations  (to borrow a term from Prof Alan Sager, look <a href="http://www.golocalprov.com/news/rhode-island-non-profit-hospital-ceos-criticized-for-big-paychecks/">here</a>) to motivate action to change this culture, and how such organizations are lead.  Breaking up market dominant organizations, and thus dispersing the power of their leadership, and finding ways to make leaders accountable for putting patients' and the public's health first would be true health care reform.  Hat tip to <a href="http://www.margaretsoltan.com/?p=41906">University Diaries</a>.

"Engaging Excellence" while Engaging Secret Paychecks - The Rise and Fall of the Upstate Medical University President

Yet another leader of a big health care organization seems to have acquired the excessively entitled CEO syndrome.Another Brilliant, Fearless Leader When Dr David R Smith was appointed President of Up…

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08 Nov 2013

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