healthy4u: golden parachutes

WellPoint's Former Manager-Queen Got $20.6 Million and Its Nobility Got Millions

Score another for our new would be royalty, that is, for the hired managers who run big corporations.  Early this month a few scattered reports came out showing just how much even apparently failed executives of big health care organizations can make on their way out the door.  A New Fortune for the Abdicating Queen of WellPoint Last year we <a href="http://hcrenewal.blogspot.com/2012/08/duchess-of-wellpoint-abdicates-likely.html">discussed</a> the abdication of Angela Braly, the former queen of giant insurance company WellPoint.  We then speculated about how much she might abscond with.  Now the Associated Press has <a href="http://bigstory.ap.org/article/outgoing-wellpoint-ceo-made-over-20m-last-year">reported</a>: <blockquote class="tr_bq"> The compensation paid to outgoing Wellpoint Inc. CEO Angela Braly last year rose 56 percent, even as the company's shares slid on lower enrollment in its Blue Cross Blue Shield health plans. Braly, who resigned in August, received 2012 compensation valued at $20.6 million, according to an Associated Press analysis of the company's annual proxy statement. Most of the increase came from stock options. Braly, 51, became CEO in 2007. She received a $1.2 million salary last year, up slightly from $1.1 million in 2011. Her compensation included a performance-related bonus of nearly $1.4 million. More than 85 percent of Braly's compensation came from stock options and awards, which totaled $17.8 million. That total was up from about $10 million the year before. She also received $179,618 in other compensation, including $3,700 spent on security measures for her and her family due to concerns about her safety 'as a result of the national health care debate,' according to the proxy, which was filed Tuesday with the Securities and Exchange Commission.</blockquote> Despite Bad Financial Performance and Investors' Losses Remember, though, that Braly was asked to leave: <blockquote class="tr_bq"> investors had grown frustrated with the company's performance, leading Braly to resign last August. </blockquote> In particular, in terms of financial performance <blockquote class="tr_bq">shares fell 8 percent last year to close 2012 at $60.92, while the Standard & Poor's 500 index rose more than 13 percent. WellPoint's 2012 earnings were nearly flat compared to 2011. The insurer earned $2.65 billion, or $8.18 per share, last year, as total revenue climbed 1.6 percent to $61.71 billion.</blockquote> A slightly different <a href="http://www.ibj.com/wellpoint-brass-given-doule-digit-pay-bumps-while-stock-price-falls/PARAMS/article/40583">analysis</a> by the Indianapolis Business Journal came up with similar results, <blockquote class="tr_bq"> WellPoint’s membership growth came mainly from its acquisition <a href="http://www.ibj.com/wellpoint-buying-1-800-contacts-for-about--900m/PARAMS/article/34779" target="_blank"></a>of Virginia-based Amerigroup Corp., which operates Medicaid managed care plans for states. The rest of WellPoint’s existing business lost customers during 2012. And while WellPoint has boosted earnings per share by continuing to buy back shares, overall profit was unchanged last year compared with about $2.6 billion in 2011. WellPoint raised its dividend in 2012 and acquired 1-800-Contacts Inc. But its stock price fell 8 percent to close the year at $60.92 per share. Even taking into account dividends, WellPoint shares lost 6.3 percent of their value during the year.</blockquote> So while the nominal owners of the company, the investors, lost money on their investments, the CEO who presided over this loss left with a huge pile of cash. The Royal Court of WellPoint Also Prospered Incidentally, the Indianapolis Business Journal also showed that WellPoint executives who did not leave generally got big increases in their compensation, again while the company owners to whom they ostensibly report lost money, <blockquote class="tr_bq"> WellPoint Inc.’s top brass all enjoyed double-digit bumps in 2012 compensation, according to a proxy released April 2, even though the stock price fell and the company admittedly did not meet its financial goals. The Indianapolis-based health insurer’s board of directors approved higher salaries and larger potential stock awards heading into 2012 after most of its top executives saw their pay hold steady or decline in 2011. The company’s performance merited its executives receiving only 83 percent of their target stock awards. But because the board had already established larger pools of stock to award to executives, the value of those awards still rose over previous years. Bonus amounts fell in 2012 compared with the previous year. The extra cash and stock drove up Chief Financial Officer Wayne DeVeydt's overall pay 11.9 percent to nearly $4.4 million. Ken Goulet, executive vice president of WellPoint's commercial insurance business, saw his total compensation rise 18.2 percent to nearly $4.4 million. And Lori Beer, executive vice president of information technology, enjoyed a 17.9-percent boost. She earned $3.2 million, although that was still below the nearly $4.5 million she received in 2010. John Cannon, the general counsel, saw his compensation more than double to nearly $6.5 million. But that was partly because WellPoint hiked his salary by $350,000 and gave him a $500,000 bonus for agreeing to serve as interim CEO after the August resignation of former CEO Angela Braly.</blockquote> Despite Angry Policy-Holders and Ethical Missteps So the compensation given the outgoing CEO and some of the remaining top hired managers seemed wildly out of proportion to the company's financial results.  Could the generosity they received be based on how well the company performed in other dimensions?  That, of course, seems equally improbable. The Los Angeles Times <a href="http://www.latimes.com/business/money/la-fi-mo-wellpoint-ceo-pay-20130403,0,6503087.story">noted</a>, <blockquote class="tr_bq"> Braly had also caught the ire of consumers and even President Obama<a class="taxInlineTagLink" href="http://www.latimes.com/topic/politics/government/barack-obama-PEPLT007408.topic" id="PEPLT007408" title="Barack Obama"></a> in 2010 for trying to raise rates by up to 39% in California. The national outrage that ensued helped Obama win approval for his healthcare overhaul in Congress.</blockquote> Furthermore, as we have discussed again and again, most recently <a href="http://hcrenewal.blogspot.com/2012/08/duchess-of-wellpoint-abdicates-likely.html">here</a>, WellPoint has a very sorry record of ethical misadventures.   (The updated list is at the end of this post.)  So one could certainly not justify the huge payments given WellPoint hired managers by their upstanding ethical leadership. Summary In a new book just published by Robert A G Monks, entitled <a href="http://www.governmentcapture.com/citizens-disunited/">Citizens Disunited</a>, the author describes one of the biggest problems affecting the US economy and society as the rise of "manager-kings."  Clearly, Angela Braly could be called the former "manager-queen" of WellPoint.  The company seemed to be run primarily for the benefit of the queen and her court, while its investors lost money, its customers became outraged, and it stumbled from one ethical quandary to another. In the eighteenth century, British colonial subjects in North America succeeded in a revolution that lead them out from under the rule of a British King.  How many examples do we have to have before there is action to repudiate the rule of our new manager-kings and queens?  And to turn health care back into a calling meant to put patients' and the public's health first, rather than a feudal society meant to benefit its nobility? As we have said again, again, again,... True health care reform would decrease the size and scope of health care organizations, and make their leaders accountable to ownership, when appropriate, and to the community at large for patients' and the public health.  Appendix: WellPoint's Ethical Misadventures <ul><li>settled a RICO (racketeer influenced corrupt organization) law-suit in California over its alleged systematic attempts to withhold payments from physicians (see 2005 post <a href="http://hcrenewal.blogspot.com/2005/07/wellpoint-settles-rico-law-suit.html">here</a>).</li><li>subsidiary New York Empire Blue Cross and Blue Shield misplaced a computer disc containing confidential information on 75,000 policy-holders (see 2007 story <a href="http://www.nytimes.com/2007/03/14/business/14insure.html">here</a>).</li><li>California Anthem Blue Cross subsidiary cancelled individual insurance policies after their owners made large claims (a practices sometimes called rescission).  The company was ordered to pay a million dollar fine in early 2007 for this (see post <a href="http://hcrenewal.blogspot.com/2007/03/wellpoint-fined-1-million-for-canceling.html">here</a>).  A state agency charged that some of these cancellations by another WellPoint subsidiary were improper (see post <a href="http://hcrenewal.blogspot.com/2007/07/more-than-half-of-wellpoints-policy.html">here</a>).  WellPoint was alleged to have pushed physicians to look for patients' medical problems that would allow rescission (see post <a href="http://hcrenewal.blogspot.com/2008/02/wellpoint-halts-attempts-to-have.html">here</a>).  It turned out that California never collected the 2007 fine noted above, allegedly because the state agency feared that WellPoint had become too powerful to take on (see post <a href="http://hcrenewal.blogspot.com/2008/07/wellpoint-settles-but-has-it-become-too.html">here</a>). But in 2008, WellPoint agreed to pay more fines for its rescission practices (see post <a href="http://hcrenewal.blogspot.com/2008/07/fines-re-statements-and-more-fines-just.html">here</a>).  In 2009, WellPoint executives were defiant about their continued intention to make rescission in hearings before the US congress (see post <a href="http://hcrenewal.blogspot.com/2009/06/managed-care-executives-will-not-limit.html">here</a>).</li><li>California Blue Cross subsidiary allegedly attempted to get physicians to sign contracts whose confidentiality provisions would have prevented them from consulting lawyers about the contracts (see 2007 post <a href="http://hcrenewal.blogspot.com/2007/11/physicians-and-contracts-cautionary.html">here</a>).</li><li>formerly acclaimed CFO was fired for unclear reasons, and then allegations from numerous women of what now might be called Tiger Woods-like activities surfaced (see post <a href="http://hcrenewal.blogspot.com/2008/01/more-managed-care-management-mumbo.html">here</a>).</li><li>announced that its investment portfolio was hardly immune from the losses prevalent in late 2008 (see post <a href="http://hcrenewal.blogspot.com/2008/10/if-this-is-how-wellpoint-has-managed.html">here</a>).</li><li>was sanctioned by the US government in early 2009 for erroneously denying coverage to senior patients who subscribed to its Medicare drug plans (see 2009 post <a href="http://hcrenewal.blogspot.com/2009/01/wellpoint-sanctioned.html">here</a>).</li><li>settled charges that it had used a questionable data-base (built by Ingenix, a subsidiary of ostensible WellPoint competitor UnitedHealth) to determine fees paid to physicians for out-of-network care (see 2009 post <a href="http://hcrenewal.blogspot.com/2009/02/wellpoint-settles.html">here</a>).  </li><li>violated state law more than 700 times over a three-year period by failing to pay medical claims on time and misrepresenting policy provisions to customers, according to the California health insurance commissioner (see 2010 post <a href="http://hcrenewal.blogspot.com/2010/02/argument-over-insurance-rate-hikes.html">here</a>). </li><li>exposed confidential data from about 470,000 patients (see 2010 post <a href="http://hcrenewal.blogspot.com/2010/06/wellpoint-dont-know-much-about-computer.html">here</a>) and settled the resulting lawsuit in 2011 (see post <a href="http://hcrenewal.blogspot.com/2011/10/still-more-ehr-chaos-pandemonium-bedlam.html">here</a>).</li><li>fired a top executive who publicly apologized for the company's excessively high charges (see 2010 post here).</li><li>California Anthem subsidiary was fined for systematically failing to make fair and timely payments to doctors and hospitals (see 2010 post <a href="http://hcrenewal.blogspot.com/2010/12/health-insurers-sanctioned-fined.html">here</a>).</li><li>management was accused of hiding the company's political contributions from the company's own stock-holders (see 2012 posts <a href="http://hcrenewal.blogspot.com/2012/04/some-of-wellpoints-owners-stockholders.html">here</a> and <a href="http://hcrenewal.blogspot.com/2012/05/wall-street-journal-defends-hired.html">here</a>).</li><li>settled charges that its Anthem subsidiary cheated former policy-holders out of money owed when that company was converted from a mutual insurance company (see 2012 post <a href="http://hcrenewal.blogspot.com/2012/06/huge-insurance-company-wellpoint.html">here</a>)</li></ul>

WellPoint's Former Manager-Queen Got $20.6 Million and Its Nobility Got Millions

Score another for our new would be royalty, that is, for the hired managers who run big corporations. Early this month a few scattered repo...

Đọc thêm »

Reason for Hope? - Novartis Rescinds Vasella's Golden Parachute

Enormous compensation of hired health care executives, out of all proportion, if related at all to whether their work had any positive effect on patients' or the public's health, has long been a <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">concern</a> on <a href="http://hcrenewal.blogspot.com/">Health Care Renewal</a>.  For example, back in 2006, we posted repeatedly (look <a href="http://hcrenewal.blogspot.com/2006/10/another-really-big-one-bites-dust-ceo.html">here</a> for links) about the billion dollar plus fortune amassed by the then CEO of UnitedHealthcare which vividly contrasted with the company's avowal to "make health care more affordable." We have posted many such stories.  Yet maybe there is a whiff of change in the air.  For the first time that I can recall, a gigantic pay package to a top health care executives has been rescinded after public protest. Novartis' Golden Parachute for Vasella This is how the New York Times <a href="http://www.nytimes.com/2013/02/19/business/global/for-daniel-vasella-of-novartis-78-million-to-keep-secrets.html">described</a> the huge golden parachute that was initially proposed: <blockquote class="tr_bq">A plan by Novartis<a class="meta-org" href="http://topics.nytimes.com/top/news/business/companies/novartis_ag/index.html?inline=nyt-org" title="More information about Novartis A.G"></a>, one of Switzerland’s biggest drug makers, to pay its departing chairman $78 million to keep him from sharing his knowledge with competitors has added fuel to an already heated debate about executive pay. <div itemprop="articleBody">The announcement of the payment to the chairman, Daniel Vasella, was made last Friday, just two weeks before a Swiss referendum to give shareholders more power to determine executive compensation. Mr. Vasella, who had previously said that he would step down as chairman at Novartis’s annual shareholder meeting on Friday, is to receive the sum, 72 million Swiss francs, over six years. </div><div itemprop="articleBody"> </div>In a statement, Mr. Vasella said that 'it has been very important to Novartis that I refrain from making my knowledge and know-how available to competitors and to take advantage of my experience with the company.'</blockquote> Unprecedented Resistance by Shareholders, Politicians and the Public The plan to provide this "golden parachute" met stunning resistance from Swiss citizens and company shareholders.  As the Times reported, <blockquote class="tr_bq"><div itemprop="articleBody">Swiss lawmakers and shareholder activists criticized the company over the weekend for not making the amount public earlier. They also contended that the planned payment was just the latest of several bad decisions by Novartis on executive pay. </div><div itemprop="articleBody"> </div><div itemprop="articleBody">Ethos, a Swiss group of investors, on Monday called on Novartis to immediately cancel the contract with Mr. Vasella and take back any money already paid. </div><div itemprop="articleBody"> </div><div itemprop="articleBody">Christophe Darbellay, president of the Christian Democratic People’s Party, told a Swiss newspaper, SonntagsZeitung, that Mr. Vasella’s compensation was 'beyond evil.' Simonetta Sommaruga, the Swiss federal justice minister, told another newspaper, SonntagsBlick, that the payment was an 'enormous blow for the social cohesion of our country' and that such 'help-yourself mentality' was damaging confidence in the economy. </div></blockquote><div itemprop="articleBody"> </div><div itemprop="articleBody">Even Swiss identified as pro-business or right-wing joined in the criticism.  As <a href="http://www.swissinfo.ch/eng/swiss_news/Vasella_s_extra_pay_stirs_up_emotions.html?cid=35006618">reported</a> by the Swiss Broadcasting Company, </div><div itemprop="articleBody"> </div><blockquote class="tr_bq"><div itemprop="articleBody">Philipp Müller, president of the centre-right Radical Party which traditionally has close links with the business community, is quoted as saying Vasella was 'taking liberal Switzerland to the henchman'. Other politicians described the latest figure as 'disgusting' and denounced the recklessness of top managers. The director of the Swiss Business Federation, which has been leading the fight against the initiative, said he was surprised by the 'dimension of the payment' to Vasella.</div></blockquote><div itemprop="articleBody"> </div><div itemprop="articleBody">A Golden Parachute Despite a Past Record of Misadventures </div><div itemprop="articleBody"> </div><div itemprop="articleBody">Maybe there would have been even more outrage if those in Switzerland had known about Novartis' track record of misadventures, at least in the US, while Vasella had been leading it.  In particular,</div><div itemprop="articleBody">-  In 2011, as we noted <a href="http://hcrenewal.blogspot.com/2011/12/legal-settlements-have-become-so-common.html">here</a>, a company subsidiary paid $150 million to settle charges by several US states that it had misrepresented pricing information</div><div itemprop="articleBody">-  In 2010, as we noted <a href="http://hcrenewal.blogspot.com/2010/10/novartis-settles-but-wait-theres-more.html">here</a>, the company settled US federal civil and criminal charges in connection with its marketing of multiple drugs for $422.5 million.  The charges included giving kickbacks to physicians disguised as speakers' honorariums and fees for serving on advisory boards.  </div><div itemprop="articleBody">-  In 2010, as we noted <a href="http://hcrenewal.blogspot.com/2010/05/novartis-settles-again.html">here</a>, the company settled separate US charges that it made false claims to support off-label marketing of its drug tobramycin for cystic fibrosis for $72.5 million.  </div><div itemprop="articleBody">- In 2008, as we noted <a href="http://hcrenewal.blogspot.com/2008/07/bad-week-in-court-for-us-health-care.html">here</a>, the company settled charges in the US state of Alabama that it defrauded Medicaid for $33.7 million. However, these legal escapades were not mentioned in the recent media coverage of the proffered and then withdrawn parachute.  </div><div itemprop="articleBody"> </div><div itemprop="articleBody"> </div><div itemprop="articleBody">The Company Backs Down. </div><div itemprop="articleBody"> </div><div itemprop="articleBody">Nonetheless, what was really surprising was that the outrage made the company back down.  <a href="http://online.wsj.com/article/SB10001424127887323495104578313670408396876.html">Per</a> the Wall Street Journal, </div><div itemprop="articleBody"> </div><blockquote class="tr_bq"><div itemprop="articleBody">Novartis AG on Tuesday abandoned a 72-million-Swiss-franc ($78 million) exit package for its chairman, bowing to pressure from shareholders and Swiss politicians after four days of increasing criticism.</div><div itemprop="articleBody"> </div>The Swiss drug maker said its board and Chairman Daniel Vasella<a class="topicLink" href="http://topics.wsj.com/person/V/Daniel-Vasella/4329"></a> agreed to cancel a six-year noncompete and related-compensation agreement designed to prevent him from joining or advising rivals and which would have paid him 12 million francs a year. The agreement was scheduled to take effect on Friday, when Dr. Vasella, 59 years old, is planning to leave the Basel-based company at its annual shareholder meeting</blockquote> Furthermore, <blockquote class="tr_bq">In the Novartis statement on Tuesday, Dr. Vasella acknowledged that his offer hadn't soothed public opinion: 'I have understood that many people in Switzerland find the amount of the compensation linked to the noncompete agreement unreasonably high,' he said. </blockquote> In addition, as Reuters noted, Vasella actually admitted he made "mistakes," <blockquote class="tr_bq">'The fierce reaction and reproaches that were made as a consequence of the many-sided discussions about my compensation did leave its mark on me,' 59-year-old Vasella said in his opening address to 2,688 shareholders gathered at Novartis's annual general meeting in Basel. 'I made two avoidable mistakes: the first was to even negotiate this contract. And the second to believe that giving up this individual payment to charities would be considered as something positive by society.'</blockquote> Of course, it is hard to believe that Novartis had previously paid him as lavishly as it did  - the New York Times had reported that his pay just prior to resignation was 12.4 million francs, "about $13.4 million a year" -  without securing an agreement to protect trade secrets.  Many businesses routinely add confidentiality clauses, trade secret protection, and non-compete clauses to contracts of many employees.  Thus adding a $78 million golden parachute ostensibly just to protect trade secrets and defection to the competition seems like impossibly gilding the lily.  Furthermore, if Novartis really thought that Vasella was likely to run to another firm at the drop of a hat, it would have made no sense to entrust someone thought to be at risk of such disloyalty with top leadership positions. Reason for Hope At least Chairman Vasella admitted "mistakes," and at least the ridiculous pay package was rescinded. This incident does show that it is possible for public and shareholder outrage over gargantuan payments to executives to have some effect.  That seems like real progress, and a reason to hope.  Of course, executives of public for-profit corporations are supposed to be working for shareholders.  Thus their general impunity from shareholders' control up to now remains inexplicable.  Furthermore, executives of pharmaceutical companies and other health care corporations seemingly should be responsible for putting patients' and the public's health ahead of their own enrichment.  Thus their ability up to now to ignore public concern about their companies' actions, and to avoid personal responsibility for their companies' bad actions also remains inexplicable. But progress may now be possible.  In and outside of Switzerland, shareholders of publicly-held for-profit health care corporations should demand accountability from the executives who are supposed to be working for them.  In and outside of Switzerland, health care professionals, policymakers, and the public at large should demand accountability from leaders of health care organizations for the effects of their organizations on patients' and the public's health.

Reason for Hope? - Novartis Rescinds Vasella's Golden Parachute

Enormous compensation of hired health care executives, out of all proportion, if related at all to whether their work had any positive effec...

Đọc thêm »

An Even Bigger Golden Parachute for Captain Outrageous

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

An Even Bigger Golden Parachute for Captain Outrageous

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

Đọc thêm »

Another Cautionary Tale about Conflicts of Interest: the CEO's Stretch Limousine, Golden Parachute, and Slush Fund

It remains fashionable in academic medicine to tolerate, if not celebrate conflicts of interest as necessary to support the "collaboration" needed for "innovation," while minimizing their risks (e.g., look <a href="http://hcrenewal.blogspot.com/2012/03/logical-fallacies-in-defense-of.html">here</a>).  Recently, another cautionary tale about how conflicts of interest signal the risk of all sorts of unpleasantness has appeared in the media. A Sentinel Event: the First Conflicts Uncovered In 2009, we <a href="http://hcrenewal.blogspot.com/2009/03/some-conflicts-grow-in-brooklyn.html">wrote</a> about some conflicts of interest at Wyckoff Heights Medical Center in my hometown of Brooklyn, NY.  The New York Daily News had reported that Dr. Addagada Rao, the hospital's chief of surgery was simultaneously the president and part-owner of a Caribbean medical school that funneled medical students to clerkships at Wyckoff.  The hospital's CEO, Rajiv Garg, was an investor in the same school.  At the time, I wrote, <blockquote>This story illustrates another twist on conflicts of interest affecting the leaders of not-for-profit health care organizations. Many of the smaller not-for-profit hospitals, of which there are thousands in the US, may have minimal conflict of interest policies, which may be minimally enforced, without much transparency or accountability. The coziness of the leadership culture of such smaller institutions may preclude anyone within the culture from asking tough questions. The results may be total confusion as to whose interests particular leaders are serving. In particular, the interests of each hospital's patients may get lost in the shuffle. In this case, the interests of medical students may also get lost in the shuffle. Although the institutions involved may be small, and hence the conflicts may seem small in terms of their monetary value, they aggregate to contribute to the moral miasma that now is the atmosphere of health care. </blockquote>You heard it here first. The CEO's Golden Parachute Fast forward to 2012. In January, the Daily News again <a href="http://articles.nydailynews.com/2012-01-31/news/31007403_1_brooklyn-hospital-center-state-advisory-panel-severance-payout">reported</a> that CEO Garg had been ousted, but that <blockquote>Trustees at Wyckoff Heights Medical Center asked to consider a whopping $875,000 severance payout for its former CEO are balking at the package....</blockquote> It seems that Garg's attorney claimed <blockquote>They were on the verge of bankruptcy when he arrived. He reduced the debt by tens of millions of dollars.</blockquote>However, <blockquote>the hospital’s financial situation remains grim. According to the work group’s final report, Wyckoff’s liabilities are $91 million greater than its assets and it is saddled with $114 million in long-term debt.</blockquote>So here is yet another example of a CEO personally profiting while his or her organization's finances fester. The Chauffeured Cars, the Stretch Limousine The the Daily News began <a href="http://articles.nydailynews.com/2012-02-10/news/31048142_1_security-guards-limo-beleaguered-hospital">chipping away </a>at the other ways CEO Garg benefited from his leadership of the fiscally troubled hospital. A notable symbol of these benefits was a stretch limousine: <blockquote>The ousted CEO of a debt-riddled Brooklyn hospital had his security guards ferry friends to the U.S. Open and his wife around town in a stretch limo, the Daily News has learned. Rajiv Garg, the disgraced honcho of Wyckoff Heights Medical Center, also enjoyed his own commutes in the hospital-issued ride — a sleek, black $33,000 Lincoln Royale.</blockquote>Garg rolled in style, <blockquote>The beleaguered hospital bought the fancy car — equipped with a mini-bar, four champagne flutes and a fridge for chilling Dom Pérignon — last summer for Garg It also owned two other cars for his use, sources said. Several times a week, the limo was dispatched to take Garg’s wife from her job near the hospital to the couple’s midtown apartment, said an employee. Sometimes, it picked her up and then swung by the hospital to get Garg and whisk them to dinner before dropping them home, sources said. Two or three times a month, the limo picked her up at home and took her shopping. 'I haven’t had a raise in seven years,' said the employee. 'They always tell us they don’t have any money. They spent it on cars.' The limo has comfy leather seats with room to spare for six passengers and a stereo system capable of drowning out highway noise when Garg and his wife were driven in it to Washington.</blockquote>More Conflicts of Interest Discovered Then the Daily News <a href="http://articles.nydailynews.com/2012-02-08/news/31039487_1_trustees-garg-hospital">started to reveal </a>conflicts of interest beyond the ones we discussed in 2009: <blockquote>Then-trustee Frank Chiarello was in a partnership that loaned money to hospital entities, according to a list of board members’ conflicts the Daily News eyeballed. The $2.5 million loan had an 18% interest rate, sources said, costing the hospital hundreds of thousands of dollars. Chiarello, a real estate exec, resigned from the board last week. Another trustee who quit the board last week, attorney John Rucigay, serves as a lawyer for other trustees, owns real estate with other trustees, and rents space to the Polish and Slavic Federal Credit Union — whose head of operations is yet another Wyckoff trustee, Agnieszka Poslednik. Additional trustees on the conflicts list first reported by Crain’s New York Business, include Andrew Boiselle, whose Cebco Check Cashing Corp. does check-cashing business with hospital employees, and attorney Fred Haller, who provides legal services to Wyckoff employees about issues not related to the hospital.</blockquote>Slush Funds and Bribes Last week, the Daily News <a href="http://articles.nydailynews.com/2012-03-19/news/31212038_1_bank-account-upstate-judge-bribes">reported </a>about findings by a judge that the CEO kept slush funds used to pay bribes: <blockquote>Wyckoff Heights Medical Center kept a secret bank account that a former CEO used to bribe a disgraced state assemblyman, an upstate judge said in a court decision. Orange County Supreme Court Judge Elaine Slobod’s decisionk brought to light new details about the Bushwick hospital’s alleged dealings with Tony Seminerio (D-Far Rockaway), who died in a North Carolina prison last year. The bank account used for the Stockholm St. hospital’s payoffs to the corrupt pol belonged to 397 Himrod Corporation. Former Wyckoff board chairman Emil Rucigay originally set up the company to buy real estate for the hospital to turn into a parking lot, the judge’s order said. The bank account was kept active — though the corporation was dissolved in 2001. The bank account still had approximately $130,000 in it in 2008. “[Wyckoff’s] CEO was using monies in the Himrod account to bribe Seminerio,” Slobad wrote in her decision last week, referring to Dominick Gio, who was the hospital’s head honcho at the time. Gio refused to talk a reporter last week. Wcykoff’s interim CEO Ramon Rodriguez also declined to comment. Money from the Himrod account was used to make payments totaling $15,000 to Seminerio, other court filings charge.</blockquote>A Lexus, a Bentley, Oh My Then the story really hit the big time when the New York Times <a href="http://www.nytimes.com/2012/03/26/nyregion/at-ailing-brooklyn-hospital-insider-deals-and-lavish-perks.html">picked it up yesterday</a>. That report added some colorful details about how magnificently the CEO traveled: <blockquote>In August 2009, Mr. Garg said, he fell asleep at the wheel and crashed his Lexus into a truck. He then lost his license. Asked why in the interview, he said he was not certain, though he offered several explanations, including unpaid tickets and previous accidents. He then used the hospital’s cars — a Lincoln Town Car and a Cadillac Escalade — for himself and his family around the clock. They were driven by two security guards on overtime, a hospital official said. He parked his other car, the $160,000 Bentley, at Wyckoff and had the hospital put the vehicle on its own insurance policy. </blockquote> The limo only came later, <blockquote>Mr. Garg said in the interview that he suspected that the drivers of the Town Car and the Escalade were eavesdropping on his conversations. So he had the hospital purchase a used stretch limousine for about $33,000. </blockquote>Yet More Conflicts of Interest Discovered The Times story also found more conflicts of interest. Some involved CEO Garg: <blockquote>Mr. Garg introduced hospital officials to Skyscape, a provider of mobile medical references, in which he had a financial interest. Wyckoff signed a contract with the company worth at least $38,700, hospital records show, though the deal eventually fell through.</blockquote> Others involved hospital trustees. This example might have affected patient care at the hospital: <blockquote>Dr. Theophine Abakporo arrived at Wyckoff in 1996 from Harlem Hospital to work in emergency medicine. Originally from Nigeria, he said he found his way to the top blocked by what he believed was a clique of doctors at Wyckoff. In 2009, according to data provided by MapLight.org, Dr. Abakporo, an American citizen, began donating money to the campaign of Representative Edolphus Towns, the Democrat who represents a nearby area. Mr. Towns, a longtime board member of Wyckoff, had by then been replaced by his chief of staff, Albert Wiltshire, on the board. Dr. Abakporo gave $1,000 to the Towns campaign, then $750, according to election records. With Mr. Wiltshire’s support, Dr. Abakporo became chairman of emergency medical services. </blockquote> This example might also have affected patient care: <blockquote>With his solicitous manner and tailored sport jackets, Gary Goffner, a pharmacist who serves on Wyckoff’s board, has long endeared himself to customers and doctors alike. He inherited his pharmacy, Kraupner, from his father, a prominent Bushwick landlord as well as a pharmacist, who died recently. It is an old-fashioned store, crammed with supplies, the opposite of an orderly Rite Aid. It is also a half-mile walk from Wyckoff, a disadvantage Mr. Goffner overcame through a contract that gave him exclusive access to Wyckoff patients as they were being discharged, and allowed him to keep an employee at the hospital to promote his business. </blockquote> In summary, the Times found, <blockquote>According to internal hospital documents, 13 of the hospital’s 22 board members declared at least one conflict of interest. </blockquote>Summary So, from a single story about conflicts of interest affecting the CEO and a medical leader at the hospital, we have gone to stories about widespread conflicts of interest affecting the hospital's board and leadership, about lavish payments and benefits to the CEO while the hospital's finances suffered, and allegations (by a judge) of bribes and slush funds.  Recall that the Institute of Medicine's <a href="http://www.iom.edu/Reports/2009/Conflict-of-Interest-in-Medical-Research-Education-and-Practice.aspx">report on conflicts of interest in medicine and health care</a> defined conflicts of interest as “circumstances that create a risk that professional judgments or actions regarding a primary interest will be unduly influenced by a secondary interest.” While no particular conflict of interest is guaranteed to cause someone to abuse entrusted power, conflicts of interest create the risk of such abuse. The case of the leadership and governance of Wyckoff Heights Medical Center shows how such risks may manifest. Yet we have noted again and again how leaders of supposedly mission-oriented non-profit medical organizations seem to be ignoring these risks while pursuing ever more money from health care corporations. We <a href="http://hcrenewal.blogspot.com/2012/02/logical-fallacies-in-defense-of.html">noted</a> how the Chancellor of the University of California-San Francisco "has no qualms" about faculty's financial relationships with industry. Just this week at Brown University, my alma mater, while discussing a new conflicts of interest policy, we <a href="http://www.browndailyherald.com/conflict-of-interest-policy-shifts-responsibility-to-u-1.2718709#.T3HWwdnefao">heard</a>, <blockquote>'People do have conflicts of interest, and it’s not the end of the world,' said Janet Blume, associate dean of the faculty. </blockquote>Conflicts of interest may not lead to the apocalypse. However, they certainly may lead to all sorts of unpleasantness. As Joe Collier <a href="http://bmj.bmjjournals.com/cgi/content/full/332/7555/1447">stated</a>, “people who have conflicts of interest often find giving clear advice (or opinions) particularly difficult." Conflicts of interest clearly lead to conflicted, and confused thinking, and such thinking may lead to bad decisions, and hence bad outcomes for patients' and the public's health. Worse, as the IOM asserted, conflicts of interest are a risk factor for outright corruption. True health care reform might start with a reasoned discussion, based as much as possible on evidence, about the risks as well as the supposed benefits of conflicts of interest affecting those who make decisions about individual patients' health care, and about public health and health care policy.

Another Cautionary Tale about Conflicts of Interest: the CEO's Stretch Limousine, Golden Parachute, and Slush Fund

It remains fashionable in academic medicine to tolerate, if not celebrate conflicts of interest as necessary to support the "collaborat...

Đọc thêm »

Despite Recalls, Legal Settlements and Guilty Pleas - A $143.5 Million (or Perhaps $197 Million) Golden Parachute for the Former Drug Representative Who Is Now CEO of Johnson and Johnson

After 30 separate product recalls since 2009, and multiple legal settlements and guilty pleas, we <a href="http://hcrenewal.blogspot.com/2012/02/semi-retirement-of-salesman-weldon-to.html">noted</a> that the former pharmaceutical representative who is now the CEO of Johnson and Johnson will be retiring.  The $143.5 Million (or Perhaps $197 Million) Golden Parachute The Wall Street Journal just <a href="http://online.wsj.com/article/SB10001424052702304459804577281560545538288.html">reported</a> his retirement will come with an immense golden parachute: <blockquote>Johnson & Johnson Chairman and Chief Executive William Weldon stands to collect pension benefits and deferred compensation currently valued at $143.5 million after his retirement, according to new details released by the health-care conglomerate. </blockquote> The details were: <blockquote>Mr. Weldon, who will be succeeded as CEO by Vice Chairman Alex Gorsky, stands to collect benefits from two main sources. The present value of his accumulated pension benefits is $48.4 million, portions of which are paid out as a monthly annuity for life, according to Wednesday's filing with the Securities and Exchange Commission. His pension's value places Mr. Weldon well into the top 10% of CEOs of Standard & Poor's 500 companies, said Paul Hodgson, chief communications officer and senior research associate at GMI Ratings, which tracks corporate-governance information. Mr. Weldon also has amassed $95.1 million in nonqualified deferred-compensation plans. This represents parts of his salary and bonus that had been deferred in prior years, as well as company contributions to savings plans. Portions of Mr. Weldon's deferred compensation have been recorded each year as part of his total annual pay. Of the $95.1 million, more than $70 million represents Mr. Weldon's accumulated balance from a legacy cash-incentive plan that J&J has discontinued and replaced with a new executive-compensation plan. This sum would be paid to Mr. Weldon at retirement, J&J said. All deferred compensation is subject to taxes. </blockquote> Actually, an argument that the $143.5 million figure is an major under-estimate <a href="http://shearlingsplowed.blogspot.com/2012/03/wsj-under-estimates-j-ceo-weldons-walk.html">appeared</a> in the Shearlings Got Plowed blog: <blockquote>The MSM reports calculate only the cash values for soon to be Ex-CEO Weldon, not the present value of his stock options, at today's NYSE closing price for J&J of $65.08. So, that -- plus the vesting of his February 2012 JNJ RSUs and Stock Option awards [see page 45 of the link (but such amounts are ommitted from the year end 2011 proxy, on which the WSJ relied)] -- add about $53.47 million to the Weldon walkaway haul.</blockquote> Thus, Mr Weldon's golden parachute may be as big as $197 million. The Board's Justification for the Riches Of course, the Johnson and Johnson board justified the latest additions to Mr Weldon's wealth, as reported by the WSJ: <blockquote>In a regulatory filing Wednesday, the board said Mr. Weldon 'successfully managed our company through a challenging economic environment in 2011,' with solid financial results and advances in J&J's pharmaceutical pipeline. The board added that while J&J made progress in addressing manufacturing-quality issues in 2011, 'continued focus is needed to address critical product supply and quality issues that impact our responsibility of being able to deliver products to patients and customers who need them.' </blockquote> Johnson and Johnson's Recent Record The board's upbeat assessment sharply contrasts with Johnson and Johnson's actual recent record. As we <a href="http://www.blogger.com/profile/00497209843184497847">discussed </a>recently, Johnson and Johnson seems to have lost the ability to manufacture high quality products. It has had to make 30 separate product recalls since 2009. The latest was Liquid Infant Tylenol. (The current WSJ Health Blog list of recalls can be found <a href="http://blogs.wsj.com/health/2012/02/17/jj-recall-watch-mcneil-pulls-liquid-infant-tylenol-on-dosing-system-concerns">here</a>.)  This seems to be more than a "rough patch," which is how the WSJ article described the manufacturing problems. In addition, the WSJ article failed to mention that Johnson and Johnson also has an amazing recent record of ethical lapses and guilty pleas, including: - Convictions in two different states in 2010 for misleading marketing of Risperdal - A guilty plea for misbranding Topamax in 2010 - Guilty pleas to bribery in Europe in 2011 by J+J'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) - Accusations that the company, which makes smoking cessation products, participated along with tobacco companies in efforts to lobby state legislators (see post <a href="http://hcrenewal.blogspot.com/2011/09/smart-alecs-strange-bedfellows.html">here</a>) - 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>) - More recently, 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>). -  Most recently, there are reports that the company is in negotiation with the US Department of Justice to settle other lawsuits about the marketing of Risperdal, perhaps for as much as $1.8 billion (see <a href="http://www.businessweek.com/news/2012-03-12/j-and-j-said-to-face-u-dot-s-dot-demand-to-raise-risperdal-settlement-offer">this BusinessWeek story</a>.) Meanwhile, an <a href="http://knowledge.wharton.upenn.edu/article.cfm?articleid=2943">article</a> from the Wharton Business School suggested that the problems at Johnson and Johnson stemmed directly from former drug representative Weldon's management approach, which put short term revenues, "making the numbers," ahead of everything else, apparently including good manufacturing practices, or ethical business practices: <blockquote>[University of Michigan Ross School of Business Professor Erik] Gordon argues that CEO Weldon's relentless focus on the bottom line -- the company's website touts its record of 27 consecutive years of adjusted earnings increases and 49 consecutive years of dividend increases -- is the reason for the current woes. 'Bill Weldon sets the priorities and the culture for the company,' says Gordon. And the problems, from overly aggressive marketing to underinvestment in safety and quality systems, reflect 'people trying to get their bonuses, hit their numbers and keep their job.' No doubt the global economic collapse in 2008 put renewed pressure on managers at multinationals like Johnson & Johnson. John Kimberly -- a Wharton management professor and executive director of the Wharton/INSEAD Alliance who has worked with J&J executives in Europe since the late 1990s -- says he detected a shift among those managers starting in 2008. 'I got the sense that there were some things happening at corporate, and that messages were being sent about the need to deliver profitability,' Kimberly notes. 'It seemed as though the people I was working with were feeling pressure from above to pay closer attention to the bottom line. It was a palpable, tangible change.' Wharton's Donaldson gives J&J management credit for the aggressive steps the company is now taking to overhaul its manufacturing processes and plants. But he also notes that the balance between profits and patients is a tricky one. Managers at J&J, he says, 'are juggling a lot of balls. In the credo, they say they put patients first and stockholders further down the line. But there is a red ball that every manager knows about, [which is] profit -- and they don't let that red ball drop.' Figuring out how to serve patients well and still deliver for Wall Street is not easy. 'J&J believes they can do both those things,' Donaldson says. 'But if the weight of one side of that formula gets too heavy, the entire structure collapses.' </blockquote> Summary The ongoing news from the once proud Johnson and Johnson, whose <a href="http://www.jnj.com/wps/wcm/connect/c7933f004f5563df9e22be1bb31559c7/jnj_ourcredo_english_us_8.5x11_cmyk.pdf?MOD=AJPERES">credo</a> famously states: <blockquote>We believe our first responsibility is to doctors, nurses and patients, to mothers and fathers, and all others who use our products and services. In meeting their needs, everything we do must be of high quality. </blockquote>suggests that instead, the company's first responsibility is now to the hired managers, to obey their dictates no matter how they undermine the credo, and most importantly, to pay them so much as to make them some of the most wealthy people in the world. Johnson and Johnson has become exemplary, not of putting patients or health care professionals first, but of <a href="http://hcrenewal.blogspot.com/search/label/managers%27%20coup%20d%27etat">how hired managers took over health care</a>, and turned it to their own advantage. So should we trust Johnson and Johnson to do better, now that another former pharmaceutical representative will be its new CEO? The case of Johnson and Johnson indicates why we need a huge change in how health care organizations are lead. Health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior. If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.

Despite Recalls, Legal Settlements and Guilty Pleas - A $143.5 Million (or Perhaps $197 Million) Golden Parachute for the Former Drug Representative Who Is Now CEO of Johnson and Johnson

After 30 separate product recalls since 2009, and multiple legal settlements and guilty pleas, we noted that the former pharmaceutical repr...

Đọc thêm »

Three Golden Parachutes and Some Unexpected Sequels

Golden parachutes are an always fascinating aspect of executive compensation in health care.  I have collected three relatively recently revealed stories about golden parachutes given to government and non-profit hospital system CEOs, at least two of which involve unexpected, and also fascinating sequels.  They will appear in order of the apparent size of the parachutes. Santa Clara Valley Health and Hospital System Santa Clara Health and Hospital System is a county (government) system of moderate size in California.  Last week, the compensation given its outgoing CEO in 2010 was <a href="http://www.bizjournals.com/sanjose/blog/2012/01/ex-santa-clara-county-health-chief-kim.html">revealed</a> by the San Jose Business Journal: <blockquote>Former Santa Clara Valley Health and Hospital System CEO Kim Roberts walked away with an impressive chunk of change when she abruptly left the job in February 2010. According to a city and county salary report released from the State Controllers Office, the position earned a little over $1 million that year. A county spokeswoman confirmed that the total included accrued vacation, sick leave and other payments Roberts was entitled to. The salary was the highest in the Bay Area for public employees in 2010. </blockquote> Note that <blockquote>Roberts was hired as CEO in March 2007 with a five-year contract. The agreement included a starting salary of $285,744 with annual salary adjustments, severance and other benefits.</blockquote> The issue here is that Ms Roberts was the CEO of a local government run health system. Traditionally, the pay given to people in such positions is closely scrutinized by politicians and tax payers, and hence is usually less than that given out by private, non-profit hospital systems, much less for-profit ones. Nonetheless, while it appears that Ms Roberts got something more than $700,000 worth of compensation beyond her usual salary in her last year, the nature of this compensation, and the justification for it is unclear. Erlanger Health System The <a href="http://timesfreepress.com/news/2012/jan/10/brexler-erlanger-trustees-ok-728000-severance-deal">story</a> that got my attention appeared two days ago in the Chattanooga Times-Free Press: <blockquote>After more than a month of negotiations, Erlanger trustees reversed a previous vote and approved a controversial $728,000 severance package for outgoing CEO Jim Brexler. Trustees voted 4-4 against the same severance package in December but voted 5-4 to approve it during a 30-minute meeting Monday morning.</blockquote> More detail about the package: <blockquote>The approved agreement provides 15 months of severance for Brexler, worth about $713,000. He also keeps his Erlanger health coverage for 18 months, paying his employee portion, a benefit worth about $15,000.</blockquote> This story is actually a complex sequel. We <a href="http://hcrenewal.blogspot.com/2011/01/making-their-numbers-examples-of.html">discussed</a> CEO compensation at Erlanger Health System, an academic medical center affiliated with the University of Tennesse, a year ago. At that time, we noted that a substantial bonus given to then CEO Jim Brexler was based on favorable financial results in the previous year, but did not apparently take into account the more recent decline in the system's finances. That bonus was justified by the typical paean to the leadership's "real expertise in health care" by one member of its board. By last month, however, Erlanger's finances had deteriorated dramatically. A Free Press <a href="http://timesfreepress.com/news/2011/dec/22/1222-a1-erlanger-considers-layoffs">article</a> then stated, <blockquote>Erlanger hospital employees have been asked to take 12 days off in the next two months, consider voluntary buyouts and face possible layoffs as Chattanooga's only public hospital bleeds money. The hospital has lost more $6 million in the last five months, half of that in November.</blockquote> The reason for this accelerating misfortune deterioration remain unexplained. Apparently, CEO Brexler had decided to depart, for also unclear reasons, two months earlier: <blockquote>In October, the hospital announced CEO Jim Brexler would retire at the end of the year.</blockquote> At that time, the board had voted to give him the severance package described above, but then suddenly began to reconsider after how bad things were became clear: <blockquote>The board voted earlier this month not to give Brexler a more than $700,000 severance package, but the issue may be brought back up, board members have said.</blockquote> It was unclear whether the decline in Erlanger's finances had to do with its relationship with another troubled hospital, Hutcheson Medical Center, as described in another Free Press <a href="http://timesfreepress.com/news/2012/jan/02/hutcheson-continues-to-bleed-money">article</a>: <blockquote>Despite a new board, new management and the infusion of a $20 million line of credit, a struggling North Georgia public hospital continues to lose money. Erlanger at Hutcheson, formerly known as Hutcheson Medical Center, lost more than $9 million in the first five months of the 2012 fiscal year, which began in July. It lost the most -- $2.7 million -- in September. Hutcheson board Chairman Corky Jewell could not be reached for comment last week. The hospital's administrator, Debbie Reeves, and other management personnel were not in the office the week between Christmas and New Year's, according to spokeswoman Haley Johnson. The publicly funded hospital in Fort Oglethorpe had been losing about $1 million a month, defaulted on a $35 million bond and laid off 75 employees in fiscal year 2011. In May, Erlanger Health System took over management of the hospital and extended up to $20 million in credit to it.</blockquote> Apparently inflated compensation to Hutcheson's CEO was also a subject of <a href="http://hcrenewal.blogspot.com/2011/01/more-on-hospital-executives.html">one of our posts </a>from about a year ago. At that time, we wrote, "despite a major financial loss, lay-offs and service discontinuations, and a bond default," the CEO got "bonus and incentive compensation" in 2009. So, to summarize, despite major financial problems, Hutcheson Medical Center's CEO got a bonus and incentive compensation in 2009. As its situation got worse, it was taken over in some sense by Erlanger Health System, whose CEO also got a bonus despite increasing financial problems in 2010. Thereafter, the finances of Erlanger really declined, its CEO announced his retirement, and still will collect a golden parachute. Thus Erlanger Health System's golden parachute for its outgoing CEO symbolizes the anti-gravitational powers of executive compensation. While lavish executive pay is often justified by short-term financial results, health care executives seem to be able to just keep collecting more and more until they have to flee. Health care seems to more and more be run for the benefit of self-interested insiders. Also, this case demonstrates how skeptical we ought to be of the breathless praise for health care executives and managers and the uncritical touting of their latest advances and initiatives.  (By the way, we posted <a href="http://hcrenewal.blogspot.com/2011/09/another-hospital-putting-on-ritz.html">here</a>, just before it became apparent how badly Erlanger's finances were collapsing, about its breathless advertisement of a "new service excellence program" for Erlanger employees run by the Ritz-Carlton hotel chain.  One wonders whether the attention to the peripheral ahead of core responsibilities this denoted could have been one reason for the system's decline.)  And we are just working our way up to our big case.... University of Chicago Medical Center This story actually dates back to 2009, but was first revealed briefly in late 2011, <a href="http://www.beckershospitalreview.com/compensation-issues/northwestern-memorial-ceo-dean-harrison-made-97m-in-2010.html">in Becker's Hospital Review</a>, <blockquote>The other three highest-paid hospital CEOs in Chicago in 2010 include the following: • James Madara, MD, and Ken Sharigian, University of Chicago Medical Center: $7.9 million Note: This includes severance for Dr. Madara, who resigned in Oct. 2009. Mr. Sharigian served as the interim in 2010.</blockquote> A little more detail came out in a side-bar to a <a href="http://chronicle.com/article/On-Campuses-the-Income-Gap/129980">story</a> on executive compensation in higher education by the Chronicle of Higher Education: <blockquote>James L. Madara, dean of the school of medicine and chief executive of the medical center, U. of Chicago Total compensation: $7,038,944 Mr. Madara’s base salary was $1.3-million, and he received $2.5-million in severance pay.</blockquote> There was also a hint of why this was so interesting: <blockquote>Mr. [sic] Madara stepped down after seven years as dean and three as chief executive to return to the faculty. He resigned amid controversy over his management decisions, such as a plan to redirect medical-center patients to neighboring hospitals, according to local news reports. </blockquote> A little digging shows there was more to it than that. Recall our recent <a href="http://hcrenewal.blogspot.com/2012/01/us-presidential-candidates-financial.html">post</a> that discussed the "Urban Health Initiative," a program ostensibly meant to direct some patients, allegedly mainly poor patients, to more appropriate health care venues, allegedly away from the Emergency Department of the university medical center, and again allegedly to make room for patients who need and whose insurance can pay for more lucrative services. By February, 2009, the Wall Street Journal <a href="http://online.wsj.com/article/SB123577975486997825.html">reported</a> that <blockquote>In February, two high-ranking doctors quit their administrative posts to protest the plan, saying it could lengthen already long waiting times for patients who visit the ER.</blockquote> In particular, <blockquote>The two doctors who gave up their administrative posts in Chicago were Dr. Vanden Hoek, who stepped down as interim chief of emergency medicine, and pulmonology researcher Joe G.N. Garcia, who had been chairman of medicine. The doctors still can practice medicine at the hospital. About a dozen other doctors from the emergency room and other departments had signed a letter of protest over the hospital administration's plan to reduce the number of beds available to emergency patients in the ER and other units.</blockquote> Three months later, as <a href="http://www.chicagobusiness.com/article/20090502/ISSUE01/100031705/u-of-c-docs-attack-ceos-finance-focus">reported</a> by Chicago Business, <blockquote>Some University of Chicago Medical Center faculty members are accusing CEO James Madara of putting hospital finances ahead of research and teaching. A letter delivered to Dr. Madaar last month and signed by 76 faculty members asserts that, since adding the hospital CEO title in 2006, Dr. Madara has lost focus on his role as a dean of the Hyde Park medical center's vaunted research and academic enterprise. A preocccupation with hospital profits and an 'insular management style' have 'disenfranchised' the faculty, the letter says. </blockquote> By that month, <a href="http://online.wsj.com/article/SB123681502175301913.html">according to the Wall Street Journal</a>, <blockquote>More than 190 doctors at the University of Chicago Medical Center signed a letter to trustees protesting plans to reduce the number of beds available to emergency patients as 'unnecessarily risky' and a threat to patient safety.</blockquote> The plan was put on hold by the university president a few days later. Dr Madara resigned in August. So, somewhat like the case above, this involved a hospital system CEO who got a very large golden parachute after leaving under fire, not for declining revenue, but for his role in overseeing a program of questionable ethics, one possibly bad for patients, and having lost the confidence of some important proportion of his medical faculty. He did not, however, go off quietly into the night. His next stop was Leavitt Partners (as noted in <a href="http://www.ama-assn.org/ama/pub/news/news/ama-names-new-evp-ceo.page">this AMA press release</a>), founded by former President George W Bush administration Secretary for Health and Human Services James Leavitt. As we noted <a href="http://hcrenewal.blogspot.com/2011/10/former-us-secretary-of-health-and-human.html">here</a>, <a href="http://leavittpartners.com/">Leavitt Partners</a> advertises that it "advises clients that invest in health care and food safety." It does not publicize its client list, but that list apparently includes Alliance Health Networks, whose press release noted that Leavitt Partners "will help it expand its presence in the US health industry and beyond "(look <a href="http://www.healthcareitnews.com/news/alliance-health-networks-gets-boost-leavitt-partners">here</a>); and Connextions, Inc, whose press release noted that it would work with Leavitt Partners to " refine existing health insurance exchange models for federal and state governments, as well as private sector organizations that are navigating health care reform law," (look <a href="http://www.businesswire.com/news/home/20110614005331/en/Connextions-Leavitt-Partners-Enter-Agreement-Bring-Health">here.</a>)  Mr Leavitt joined the board of Medtronic last year (look <a href="http://www.bizjournals.com/twincities/news/2011/10/17/medtronic-board-leavitt-fda.html">here</a>).  Then, however, he got back into the CEO business.  While still maintaining <a href="http://leavittpartners.com/team/dr-james-madara">a role at Leavitt</a>, in 2011, per the <a href="http://www.ama-assn.org/ama/pub/news/news/ama-names-new-evp-ceo.page">AMA release</a>, <blockquote>The American Medical Association (AMA) today named James L. Madara, M.D., as its new Executive Vice President and Chief Executive Officer. Dr. Madara will assume leadership of the nation’s oldest and largest physician group on July 1.</blockquote> That news release noted his past positions, <blockquote>the Thompson Distinguished Service Professorship and deanship at the University of Chicago Pritzker School of Medicine, where he was the longest serving Pritzker dean in the last 35 years. Subsequently, he added the responsibility of CEO of the University of Chicago Medical Center, bringing together the university’s biomedical research, teaching and clinical activities. </blockquote> Perhaps not surprisingly, it did not mention the controversies at the medical center that preceded his resignation, nor his sizable golden parachute, nor his ongoing role at Leavitt Partners. So, the American Medical Association claims to represent all US physicians and their values. It turns out that its current Executive Vice President and CEO is a former hospital system CEO who departed under fire with a golden parachute beyond any severance package a practicing or academic physician would dream about.  He also is a former and current consultant with a firm lead by one of our better recent examples of beneficiaries of the revolving door.  We have come a long, and the wrong way since the AMA asserted, "the practice of medicine should not be commercialized, nor treated as a commodity in trade." (See <a href="http://hcrenewal.blogspot.com/2007/12/relman-in-jama-on-threats-to-physicians.html">this post</a>.) This story is not just about the ridiculous compensation given to health care executives, and how this provides perverse incentives and suggests that many health care leaders have become insiders who put their self-interest ahead of the health care mission. This story is also about the connectedness of these insiders, and how they appear to control nearly every part of health care. The Moral of the Stories Maybe if I write this often enough, it will get some notice.... health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior. If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.

Three Golden Parachutes and Some Unexpected Sequels

Golden parachutes are an always fascinating aspect of executive compensation in health care. I have collected three relatively recently rev...

Đọc thêm »

It Was the Best of Times, It Was the Worst of Times ... for Synthes Executives

The latest news about the Synthes Norian XL bone cement case shows just how bizarre incentives for health care leaders can be.  The Synthes Case Synthes USA, the American branch of a Swiss based device company, first settled charges that it had been paying surgeons with company stock to use its products in its clinical trials in 2009 (see <a href="http://hcrenewal.blogspot.com/2009/05/synthes-settles-agrees-to-stop-giving.html">this post</a>).  Then prosecutors alleged that these were not really rigorous trials. Instead, for marketing purposes, executives of Synthes subsidiary Norian persuaded surgeons to use its Norian XR product in a case series of spine surgery patients and then publish the results.  Three patients who received the product for this "off-label" use died.  This scheme was alleged to have been directed by "person no. 7," whom journalists identified as the company CEO, Hansjorg Wyss (see post <a href="http://hcrenewal.blogspot.com/2009/06/synthes-indicted.html">here</a>.)   In an unusual move, the prosecutors indicted four company executives, who then pleaded guilty.  They did not take any further action against Wyss, who turns out to be one of the world's richest men (see post <a href="http://hcrenewal.blogspot.com/2009/12/person-no-7-also-known-as-83rd-richest.html">here</a>).  Executives Sentenced In late November, three of the executives were sentenced, as <a href="http://www.philly.com/philly/business/134297618.html">per the Philadelphia Inquirer</a>: <blockquote>Three former executives of medical-device manufacturer Synthes Inc. were sentenced to prison Monday. A fourth might have been if his attorney hadn't collapsed while standing at a lectern moments after saying that Synthes' unindicted board chairman was the ultimate authority and responsible for the illegal, sometimes fatal, bone-cement trial at the center of the proceedings. Michael Huggins, 54, of West Chester, the former president of Synthes USA, was sentenced to nine months in prison and taken into custody immediately. Thomas Higgins, 55, of Berwyn, former leader of Synthes' spine division, got the same sentence. John Walsh, 48, of Coatesville, who was in charge of regulatory affairs, got five months. U.S. District Judge Legrome D. Davis gave Higgins two weeks to report to prison so he could arrange for extra medical care for his wife. Davis gave Walsh until next Monday to report because Tuesday is his young daughter's birthday. The three will pay $100,000 each in fines and be on supervised release after prison. All pleaded guilty to a single misdemeanor count under the responsible-corporate-officer doctrine. Richard Bohner, 56, of Malvern, former vice president for operations, was the third of four defendants on Davis' docket Monday and might have gotten a sentence similar to those received by Huggins and Higgins.</blockquote> No Penalty for the Former CEO However, there were no penalties for the company CEO who was allegedly "person no. 7": <blockquote>Hansjorg Wyss, the Synthes board chairman, who also was chief executive officer when the illegal bone-cement trial occurred, was not in the courtroom but still was part of Monday's events. Gurney, Bohner's attorney, said Wyss was the undisputed leader of the company. 'He made some of the very critical decisions that put the trials on the ultimate pathway,' Gurney said. 'The culture of an organization is set at the top.' Wyss could not be reached for comment.</blockquote> Meanwhile, Mr Wyss continues to grow richer. <a href="http://www.forbes.com/profile/hansjorg-wyss/">Forbes</a> currently lists him as number 164 on its list of the world's wealthiest people, estimating his assets at $6.4 billion. A Golden Parachute for the Current CEO Mr Wyss may be made even more wealthy because US health care corporate giant Johnson and Johnson has agreed to buy Synthes. Furthermore, as also <a href="http://articles.philly.com/2011-12-02/business/30467555_1_depuy-sec-filing-j-j-spokesman">reported</a> by the Philadelphia Inquirer, the current Synthes CEO is in line to also greatly benefit from that deal: <blockquote>Orsinger is getting $51.9 million for leaving the old company and a multimillion-dollar pay package from the new company. His new base salary of $700,000 will be a cut in pay from his old firm, but he will have some lucrative bonus opportunities. If he can make do clipping coupons for three years, he will get a stock package worth $17.2 million. Orsinger is the chief executive officer of Synthes Inc., the medical-device manufacturer based in Switzerland but with U.S. headquarters and facilities in West Chester.</blockquote> Implications On one hand, up to now, it has been very rare for any top executives of health care corporations to suffer any negative consequences due to ethical missteps by their companies, much less to go to jail. The current case may be the first real example of government prosecutors using the responsible corporate officer doctrine in such a setting. We first discussed this concept <a href="http://hcrenewal.blogspot.com/2010/06/attempt-to-hold-health-care-leaders.html">here</a> in 2010. As <a href="http://www.reuters.com/article/2011/12/06/us-legal-idUSTRE7B50Q420111206">noted</a> in Reuters about the Synthes case, <blockquote>After decades in relative obscurity, a U.S. legal doctrine that holds corporate officers liable for company wrongdoing is finding its way back into some high-profile healthcare prosecutions. The 'responsible corporate officer' doctrine allows for prison terms of up to one year for misdemeanor violations of the Federal Food, Drug and Cosmetic Act, but typically defendants have received only probation. Recently, however, the government has sought to reinvigorate the doctrine, and some executives are facing stiffer penalties than they had ever imagined.</blockquote>Why only now has this doctrine been dusted off, when it has been around for over 70 years, and validated by the Supreme Court over 35 years ago, remains unclear. Does its use now signal the end of health care leaders' impunity? We have noted that despite all sorts of misbehavior leading to a <a href="http://hcrenewal.blogspot.com/search/label/legal%20settlements">march of legal settlements</a>, almost no one who authorized, directed or implemented the bad behavior within a large health care corporation has ever paid any penalty for it. The penalties for the four Synthes executives are certainly a break in the pattern. Moreover, while in the Synthes case the executives who pleaded guilty were aware of what was going on, the doctrine allows prosecution of responsible corporate officers who were not so aware. As in the Reuters article, <blockquote>The principle behind the doctrine was validated by the Supreme Court in 1975, when it affirmed the conviction of John Park, the chief executive of a national food chain who had been charged with allowing warehoused food to be exposed to rodent contamination. The court held that, to convict Park, the jury did not have to find that he was aware of the unsanitary conditions, only that he was in a position of authority to prevent them.</blockquote> However, in the Synthes case, there was no attempt made to prosecute even more highly placed "responsible corporate officers." As noted above, the past and current CEO were not charged, and meanwhile have engineered a merger that may make them even more wealthy (ironically, with a company, Johnson and Johnson, that has also had a <a href="http://hcrenewal.blogspot.com/search/label/Johnson%20and%20Johnson">troubled recent record</a>). Furthermore, as per Reuters, prosecutors are not exactly gung ho about using the responsible corporate doctrine: <blockquote>Over the next few decades, prosecutors used the doctrine sparingly, concerned that overuse would bring unwanted judicial scrutiny, said Paul Hyman, formerly of the U.S. Food and Drug Administration's Chief Counsel's Office and now a director at the law firm of Hyman, Phelps & McNamara.</blockquote> Also, <blockquote>The future of the responsible corporate officer doctrine could depend on whether executives who plead guilty under the doctrine are able to find other employment. Cory Andrews, a lawyer with the Washington Legal Foundation, which filed a friend-of-the-court brief on behalf of the Purdue defendants, said that as the severity of penalties increase for misdemeanors, so do the odds of a constitutional challenge. 'Arguably, where the deprivation is very small, the due process violations are not as significant,' Andrews said. 'But where the deprivation goes to someone's ability to earn a living -- I think that raises the constitutional temperature.'</blockquote> Many of the legal settlements we have discussed involved activities that threatened the safety, health or even lives of patients. But if a corporate executive might not be able to get further lucrative employment as such after participating in such misbehavior, quelle horreur! Let us hope that government officials, who have been so solicitous in the past about the financial well-being of the health care corporations they are supposed to oversee, will start thinking about the consequences of these corporations' misbehavior for the public to whom those officials are supposed to answer. I conclude, de rigueur, to really deter bad behavior, those who authorized, directed or implemented bad behavior must be held accountable. As long as they are not, expect the bad behavior to continue. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

It Was the Best of Times, It Was the Worst of Times ... for Synthes Executives

The latest news about the Synthes Norian XL bone cement case shows just how bizarre incentives for health care leaders can be. The Synthes ...

Đọc thêm »

A New Low - A Hospital CEO Got a "Golden Parachute" for A Merger that Never Occurred

We recently <a href="http://hcrenewal.blogspot.com/2011/11/ceos-first-to-benefit-from-for-profit.html">posted</a> about how top hospital managers are often the first to benefit from mergers and acquisitions, which once again have become fashionable in management circles.  Now it appears that top executives can benefit even from failed mergers, as <a href="http://www.news-journalonline.com/news/local/east-volusia/2011/11/12/ideas-run-the-gamut-on-future-of-bert-fish-medical-center.html">reported</a> by the Daytona Beach (Florida) News-Journal, <blockquote>Five months after Bert Fish Medical Center's failed merger, one board member said he was surprised to learn payments are still being made toward the $1 million buyout of the former hospital CEO. Hospital board member Joe Benedict said he didn't know former hospital Chief Executive Officer Bob Williams, who steered the board into the illegal deal with Adventist Health System, is due to receive his $289,000-a-year salary until 2014 –– paid through the publicly owned hospital. At the time the merger was announced, a memorandum of understanding with Williams became public and showed the deal had triggered a three-year buyout clause in Williams' contract. Starting July 1, 2010, the Adventist agreement paid him his salary for three years, as his contract required, plus seven months and eight days –– a deal worth $1 million and benefits. 'That man has got away with a lot more than he should have,' said Benedict, a former County Council member, explaining that he considers Williams as responsible for the failed merger as Jim Heekin, the board's former attorney. </blockquote> These payments were made to the former CEO despite the cost of the failure of the merger: <blockquote>The hospital district incurred $3.4 million in administrative and legal fees as a result. </blockquote> Apparently, there are allegations that the merger failed because former CEO Williams agreed to keep the board meetings of this public hospital secret, which was illegal: <blockquote>The hospital board has voted to pursue a legal malpractice lawsuit against Heekin, of the Orlando firm Lowndes, Drosdick, Doster, Kantor & Reed, for his advice to keep the public out of talks about merging the New Smyrna Beach hospital with a partner. The 21 closed meetings that were held over 16 months were called 'so much darkness for so long' they couldn't be cured, according to a ruling earlier this year from Circuit Judge Richard Graham, who threw out the merger. </blockquote> Also, <blockquote>Williams is quoted in transcripts of the closed meetings telling board members not to tell anyone Adventist had been chosen as Bert Fish's partner</blockquote> Other contractual provisions for golden parachutes exist, but have yet to be activated: <blockquote>Benedict said he's still hopeful he can undo other buyout clauses in hospital contracts he believes obligate the hospital to pay more than is allowed, under state law, for the departure of Bert Fish Medical Center administrators. According to the current contracts, provided to the News-Journal, the hospital's current CEO, chief financial officer and chief of nursing must be paid 24 months' salary should they be dismissed from their positions through no fault of their own. Their departures could be a possibility if Bert Fish were to seek another merger partner who doesn't want to keep them on. The contracts were executed June 30. On July 1, a new state law went into effect that limits the buyout of public employees to 20 months. </blockquote> Summary So, a hospital CEO had a contract that made him eligible to begin receiving "golden parachute" payments just because a merger was in process, and these payments could not be stopped even though the merger was declared illegal, and hence never occurred. We noted recently that CEOs and other top officials of health care organizations are often the first to benefit financially from mergers and acquisitions, even when such transactions to not prove so beneficial to the affected institutions, much less patients' and the public's health in the long run. Here is a case in which a CEO could get extra money just because a merger was contemplated. This is some sort of new record for health care leaders personally profiting from their insider positions. There has been growing public outrage about how ordinary people who play by the rules are disadvantaged in today's economy, while insiders profit from their positions. There ought to be equal outrage in health care over its version of this pheonomenon. As long as health care leaders can continue to put their self-interest ahead of the health care mission in this way, is it any wonder that health care costs continue to rise while access and quality suffer? When will would be health care reformers realize that to truly reform health care, we will have to reform health care leadership? We need health care leaders who understand and uphold the mission, are accountable for how well they do so, and whose incentives depend on how they do so. We do not need leaders who put their self-interest first. Right now, however, that seeems to be the leadership we have.

A New Low - A Hospital CEO Got a "Golden Parachute" for A Merger that Never Occurred

We recently posted about how top hospital managers are often the first to benefit from mergers and acquisitions, which once again have beco...

Đọc thêm »

More Executives Prospering Despite the Financial Distress of their Hospitals

Cases that demonstrate the contrast between compensation given to the hired executives of health care organizations and their or their organizations' performance continue to appear.  Last week we <a href="http://hcrenewal.blogspot.com/2011/08/what-goes-up-non-profit-hospital-ceo.html">discussed</a> how freely million dollar plus compensation is given to executives of nominally non-profit hospitals, and <a href="http://hcrenewal.blogspot.com/2011/08/best-and-brightest-behaving-badly.html">discussed</a> how well some executives were paid just prior to charges of financial mismanagement, arrests or guilty pleas that drove them from their jobs. I have also found a series of cases of executives whose pay seemed disproportionate in the context of their institutions' financial difficulties.  Here they are, discussed in alphabetical order. Greenwich Hospital, Connecticut <a href="http://www.greenwichtime.com/news/article/Greenwich-Hospital-announces-layoffs-program-1614583.php">According to</a> GreenwichTime.com, here is the context: <blockquote>Greenwich Hospital went under the knife on Wednesday, announcing the layoffs of 36 employees and a series of cutbacks to what it characterized as non-core programs to offset the loss of revenue from a newly implemented state hospital tax. A Yale-New Haven Health System affiliate and the town's largest employer, the hospital estimated it needs to make up for $8.5 million in lost revenue. The hospital's top administrator blamed the situation on the state, which now gets a 4.6 percent cut of all hospital income as part of a flat tax enacted on July 1.</blockquote> While the CEO announced cuts in services, he was not about to cut his own compensation: <blockquote>'If they're doing so much cost-cutting, what are they doing about [hospital CEO Frank] Corvino's $1.5 million salary?' [former town first selectman Richard] Bergstresser said. 'It seems to me that they should do some trimming before they do layoffs.'</blockquote> Note that a hospital public relations official had the usual explanation: <blockquote>Yale New Haven Health System uses a third-party consultant to gauge executive compensation levels, according [hospital spokesman George]Pawlush, who said that Corvino wears two hats. In addition to his duties as hospital president and chief executive, Corvino is executive vice president of Yale New Haven Health System. 'Each organization contributes half of Frank's total earnings,' Pawlush said. 'Frank's experience in hospital administration has given him the skills needed to successfully balance both of these highly demanding roles simultaneously.'</blockquote>So in summary, the CEO of a hospital forced to make lay-offs and close popular programs was paid more than $1 million a year because of his great "skills." Hoboken University Medical Center (HUMC), New Jersey The context here is a bit complicated. First, <a href="http://www.nj.com/hobokennow/index.ssf/2011/03/no_conflicts_of_interest_and_n.html">according to </a>the Jersey Journal, <blockquote>The Hoboken hospital was ... in a sea of debt when it was called St. Mary Hospital. In early 2008 the city took over the hospital and its $52 million debt, but the city has never sought to remain in the business of running a hospital.</blockquote> So, <blockquote>The HMHA, the board that oversees the operations and sale of the HUMC, is in exclusive negotiations with HUMC Holdco, whose proposal was chosen over seven others last month.</blockquote> As negotiations about the sale of the distressed hospital continued, the Jersey Journal then <a href="http://www.nj.com/hobokennow/index.ssf/2011/08/state_health_planning_board_ap.html">reported</a>, <blockquote>the hospital's manager, Hudson Healthcare Inc., recently declared bankruptcy. Earlier this week, HMHA Chairperson Toni Tomarazzo said that declaring bankruptcy was a necessary step in facilitating the sale,</blockquote> However, just before then, as a reporter from the Newark Star-Ledger <a href="http://www.nj.com/news/index.ssf/2011/08/hoboken_university_hospital_ch.html">found out</a>, <blockquote>Less than three weeks before the operator of the city-owned Hoboken University Hospital filed for bankruptcy — putting millions of dollars in taxpayer money and union pension funds at risk — the hospital’s chief executive received a six-figure payout, records show. Spiros Hatiras, 46, stepped down as chief executive on July 16 after two years on the job with a severance package that includes $600,000 in compensation and full medical benefits for a year, according to records obtained under the Open Public Records Act.</blockquote> In addition, <blockquote>A physical therapist who rose through the hospital’s ranks, Hatiras was earning a $400,000 a year and incentive bonuses at the time of his resignation, records show; his contract was set to expire in five months, and called for a severance payment only in the event the hospital terminated the contract. The package was negotiated by Hudson Healthcare Inc., the current operator of the hospital that filed for bankruptcy protection, and was approved by the Hoboken Municipal Hospital Authority.</blockquote> Initially, no one could come up with a clear explanation. First, <blockquote>Doug Petkus, a spokesman for the authority, said officials 'cannot' comment on the issue.</blockquote> Then, the Hoboken mayor made this attempt, <a href="http://www.nj.com/hobokennow/index.ssf/2011/08/hoboken_taxpayers_on_hook_for.html">per</a> the Jersey Journal, <blockquote>Asked why the HMHA decided to give Hatiras the generous severance even though it didn't have to, Mayor Dawn Zimmer, also an HMHA commissioner, skirted the question. 'Given the totality of the circumstances, this was the best way to save our hospital and relieve our taxpayers of a $52 million bond guarantee. Asked if that meant the sale of the hospital was contingent upon Hatiras receiving the lucrative severance, Zimmer said 'Given the totality of the circumstances, this was the best way to save our hospital and relieve our taxpayers of a $52 million bond guarantee.'</blockquote> Finally, the Jersey Journal <a href="http://www.nj.com/jjournal-news/index.ssf/2011/08/hoboken_municipal_hospital_aut_1.html">reported</a> this version: <blockquote>The Hoboken Municipal Hospital Authority (HMHA) was obligated to pay out a $600,000 severance package to the former Hoboken University Medical Center CEO because he met the conditions of his contract for the lucrative parting gift, according to HMHA chairwoman Toni Tomarazzo. Tomarazzo refuted stories that appeared in The Jersey Journal, Star-Ledger, and online at NJ.com that said the HMHA, the city entity that runs the hospital, was not bound to pay Spiro Hatiras the severance amount because he resigned. Hatiras’ contract called for payment of the severance package 'upon termination, non-renewal or expiration of the term of Employment Agreement,' according to the HMHA resolution authorizing payment. 'It was a contractual obligation,' Tomarazzo said. 'There was nothing we could do about it.' The resolution said 'even though the employment ended through a mutual agreement to step aside and cease to serve as CEO that shall be documented in a resignation letter...' the HMHA agreed that Hatiras 'is entitled to' the severance package.</blockquote>So, in summary, the CEO of  a public hospital deeply in debt, and which had to be sold to a for-profit corporation, received a substantial golden parachute just prior to its operating authority's bankruptcy filing.  The only explanation was that this payment was a contractual obligation, which, of course, begged some questions: knowing that the hospital was in a perilous financial condition, why did the authority write such severance into the contract, and if it did not intend that severance should be paid under the conditions which finally obtained, why is the authority not disputing the payments? Kingsbrook Jewish Medical Center, New York <a href="http://www.nydailynews.com/blogs/dailypolitics/2011/08/the-4-million-hospital-boss">According to </a>the New York Post, here is the context. <blockquote>The 326-bed facility is considered one of five Brooklyn hospitals that advocates fear is in danger of being shuttered by Gov. Cuomo's medical redesign team. Many of Kingsbrook's patients are Medicaid recipients.</blockquote> Furthermore, in 2009, <blockquote>the hospital was forced to close a clinic and lay off workers and staff members took furloughs because of budget tightening.</blockquote> However, <blockquote>hospital officials defended Brady's compensation, noting she was paid $1,094,443 in base salary in 2009 - and that $2,891,335 will be doled out as retirement and deferred compensation she accumulated from 30 years of service. Brady also received $215,241 in bonuses and nontaxed benefits in 2009.</blockquote> The Post asserted that her total compensation of over $4 million was "more than any other nonprofit hospital executive in the state." Her previous two years' compensation was slightly more modest, but still greater than the magic $1 million a year: <blockquote>In 2008, Brady took home $1,054,406 in base pay plus an additional $137,335 in deferred compensation and nontaxable benefits, tax records show. In 2007, she hauled in $1,023,452 in base salary plus $195,661 in deferred compensation, the records show.</blockquote> The chairman of the hospital board's finance committee offered the usual rationalization: <blockquote>'Dr. Brady's compensation is, in fact, at market rate and reflects the board's full faith in her abilities and execution of her job,' said Ed Lieberstein, chairman of the Kingsbrook board of trustees' finance committee.</blockquote>So, in summary, the CEO of a small non-profit hospital threatened with closure and forced to lay-off workers and close programs was paid over $4 million, supposedly the "market rate."  One wonders if the "market" here was that including small, financially distressed hospitals? MetroHealth Medical Center, Ohio This public, not for profit Cleveland, Ohio health care system has had its share of troubles lately, as the Cleveland Plain Dealer <a href="http://www.cleveland.com/healthfit/index.ssf/2011/08/metrohealths_leader_fears_taxp.html">noted</a>, <blockquote>MetroHealth, the county's safety-net hospital, has faced a myriad of economic hurdles and is still undergoing what its leaders call a turnaround: The system reported a $2.2 million loss on net income in 2007. It continued to bleed money in early 2008, losing $11 million in the first quarter, according to long-time trustee and now MetroHealth Board Chair Ron Fountain. </blockquote> So, when a new CEO, Mark Moran, was hired to turn the system around, <a href="http://www.cleveland.com/healthfit/index.ssf/2011/08/metrohealth_agreed_to_pay_more.html">per</a> the Plain Dealer, <blockquote>'At MetroHealth, starting in 2008, we turned over every chief -- the chief financial officer, chief executive, chief operating officer, chief medical officer, everybody,' said MetroHealth board member Thomas McDonald, who has been on the voluntary board since March 2008. 'We had to get the ship righted.' </blockquote> While doing so, however, the new leadership saw fit to reward those it pushed out the door, <blockquote>The MetroHealth System has agreed to pay more than $4 million for consulting contracts in lieu of severance to top executives and high-level employees who have left the county-owned hospital since 2008. The contracts, similar to the one the hospital granted to departing Chief Financial Officer Sharon Kelley, have provided salary and benefits, in some cases up to one year, to dozens of departing employees. The deals also include up to $114,000 in performance bonuses for three executives. The agreements allow for continued accrual of vacation pay benefits and continued contributions to the Ohio Public Employees Retirement System. The work required of employees under the contracts is not specified. </blockquote> CEO Moran later acknowledged that the "consulting agreements" really did not require any consulting to be done, again <a href="http://www.cleveland.com/healthfit/index.ssf/2011/08/metrohealths_leader_fears_taxp.html">in</a> the Plain Dealer, <blockquote>Awarding what Moran called 'employee transition contracts' lowered the risk of potential litigation and provided access to the institutional knowledge of the departing employees. He acknowledged, however, that most of the employees 'probably didn't' do any work.</blockquote> Mr Moran explained the need for such severance packages thus: <blockquote>the amount MetroHealth pays its executives, including severance, is necessary to compete against the Cleveland Clinic and University Hospitals for qualified professionals.</blockquote> However, MetroHealth was not exactly competing to keep these executives, it was trying to get them to leave. Furthermore, while the health care system has just gotten beyond its financial distress, the compensation given to its current executives has surged ahead, again <a href="http://www.cleveland.com/healthfit/index.ssf/2011/08/metrohealth_executive_compensa.html">according to </a>the Plain Dealer, <blockquote>The pay packages of MetroHealth System's top-tier executives -- base salary plus potential incentives -- ranks near the top 25 percent when compared to that of similarly sized health systems, according to a report by a national compensation adviser. The report, completed in April and provided to The Plain Dealer last week, provides an inside-look at the way MetroHealth pays 18 executives when county leaders and the public have questioned the spending practices of the county-owned health system. MetroHealth hired Mercer, as it has for at least four years, to review the system's executive-level pay and severance policy to determine if they were in line with industry averages. What Mercer found this year was a staff with "more competitive pay levels than has historically been the case" -- including one salary so high that the firm suggested a review of whether it was "reasonable." </blockquote> That concerned one board member, <blockquote>MetroHealth board member John Moss, who reviewed the report for the first time late last week, called it "disconcerting." He was particularly bothered by the salaries, saying the health system's administration had told the board that the compensation was "closer to the middle." "They seem to be closer to the top 25 percentile," Moss said. "[It's] not what we've been told." </blockquote> Can anyone guess the justification for the lucrative payments given by the CEO? <blockquote>Moran goes on to write that the contracts 'support our ability to recruit the best and brightest talent.' </blockquote>So, in summary, many executives of a public hospital that had been in financial distress were discharged, but given large "consulting payments" which appeared to be golden parachutes.  The new executives were paid at very high rates compared to some sort of market because they were "the best and the brightest." Summary So we see more cases of executive exceptionalism.  The hired executives of health care organizations, including non-profit and public hospitals, seem to prosper financially regardless of their organizations' financial status.  The executives, their boards of trustees and the hospitals' own hired public relations staff may justify the financial success of their leaders by referring to "market" conditions, which do not seem to be references to "markets" consisting of financially troubled hospitals, and by praising their leaders' abilities, including literally calling them "the best and the brightest," without any obvious evidence supporting their claims. To an outsider, it just seems like the hospitals are now run primarily for the financial benefit of their hired leaders.  The problems seem to be: -  Paying the leaders so well (and supporting the public relations staff who sing their praises) costs money that could better be used to provide actual health care. -  Providing such perverse incentives, which seem entirely unrelated to the hospitals' ability to uphold their primary patient care  and public health missions (and academic mission if applicable), is likely to detract from the hospitals' ability to support these missions. -  It is likely that employees of such institutions who actually try to uphold the mission will be demoralized by the realization that their leaders' enrichment comes first, further damaging the hospitals' ability to uphold the mission. -  Finally, it is possible that such perverse incentives attract leaders who are particularly unsuited to the task of upholding the mission. One cannot help but notice that the quaint notion that hospitals exist to uphold patient care, public health, or academic missions rarely is acknowledged nowadays in discussion of hospital leadership. Turning blue in the face, I say again... Health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior. If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.

More Executives Prospering Despite the Financial Distress of their Hospitals

Cases that demonstrate the contrast between compensation given to the hired executives of health care organizations and their or their organ...

Đọc thêm »