healthy4u: manager-kings

Clouded "Visionary" Leadership - Wake Forest Baptist Medical Center's EPIC "Business Cycle Disruptions"

A typical excuse for the multi-million dollar compensation now enjoyed by many leaders of health care organizations is these leaders' supposed brilliance. For example, in 2011 we <a href="http://hcrenewal.blogspot.com/2011/05/million-dollar-plus-hospital-ceo.html">noted  </a>that the total compensation of Dr John McConnell, the CEO of Wake Forest Baptist Medical Center, a non-profit teaching hospital, rose from over $700,000 in 2008-2009 to over $1.6 million in 2009-2010.  Other top executives in the system made nearly one million a piece.  An official statement from the hospital system claimed that this level of compensation was needed to "retain skilled executives and visionary leaders for the medical center."  Furthermore, in 2012 we <a href="http://hcrenewal.blogspot.com/2012/05/more-rising-compensation-for-executives.html">noted </a>that in 2010-2011 Dr McConnell's compensation had grown to nearly $2.5 million, while other top executives received from over $900,000 to over $1.1 million.  Recent events, however, suggest that the "visionaries" may need new glasses. An EPIC Challenge Last month, the Winston-Salem Journal <a href="http://www.journalnow.com/business/business_news/local/article_c2801866-9e0c-11e2-bf84-0019bb30f31a.html">reported</a> that Wake Forest Baptist Medical Center is facing some unexpected fiscal challenges, especially from its new electronic health record (EHR): <blockquote class="tr_bq">Wake Forest Baptist Medical Center’s struggles to implement its <a href="http://hcrenewal.blogspot.com/search/label/EPIC">Epic electronic records system</a> contributed to additional costs and lost revenue during the first half of its fiscal year 2012-13. The center provided the information in a second-quarter financial report submitted to bond agencies in which it also reported a $49.6 million operational loss and a gain of $7.4 million in overall excess revenue. </blockquote> That is interesting.  There have been many criticisms of EHRs, particularly for how they may <a href="http://hcrenewal.blogspot.com/search/label/healthcare%20IT%20difficulties">impede</a>, rather than help health professionals, and more importantly for their risks of causing <a href="http://hcrenewal.blogspot.com/search/label/healthcare%20IT%20dangers">adverse effects</a> affecting patients, in the absence of clear data from controlled clinical trials that they provide benefits that outweigh their potential harms to patients.  Some of these problems may stem from design and implementation that prioritizes benefits to managers and institutional finances over effects on patients and doctors.  As InformaticsMD <a href="http://hcrenewal.blogspot.com/2013/05/ama-says-ehrs-create-appalling-catch-22.html">noted</a>, even the AMA now admits that <blockquote class="tr_bq"> As the healthcare industry moves to EHRs, the medical record has essentially been reduced to a tool for billing, compliance, and litigation that also has a sustained negative impact on doctors' productivity, according to Steven J. Stack, MD, chair of the American Medical Association’s board of trustees. </blockquote> Yet in this case, a well known commercial EHR did not even help out the hospital system's finances. Furthermore, <blockquote class="tr_bq">Wake Forest Baptist said it spent as of Dec. 31 about $13.3 million directly on the Epic electronic-record system, which went live in September.</blockquote> And, <blockquote class="tr_bq"> The center also cited $8 million in 'other Epic-related implementation expense' that it listed among 'business-cycle disruptions (that) have had a greater-than-anticipated impact on volumes and productivity.' Also listed was $26.6 million in lost margin 'due to interim volume disruptions during initial go-live and post go-live optimization.'</blockquote> Note that InformaticsMD frequently criticizes proponents of commercial health care information technology for glossing over potentially bad effects on patients and practice with management-speak (e.g., as "glitches," or "hiccups.").  Here is a great example of an attempt to gloss over bad effects on finance with management-speak. Bond Downgrades and Furloughs, Wage Reductions, Hiring Freezes, Retirement Contribution Reductions, and Bonus Eliminations As a consequence, <blockquote class="tr_bq"> On March 20, Moody’s Investors Service downgraded the center’s long-term debt rating below the lowest level of high-grade investment quality. The downgrade to A1 from Aa3 affects $597.2 million of rated debt outstanding.</blockquote> The rationale was clear, <blockquote class="tr_bq"> Moody’s said the A1 rating 'reflects the unexpected decline in financial performance through the first half of fiscal 2013, largely due to the installation of a new information technology platform (Epic), encompassing 95 percent of all revenue components of the enterprise.'</blockquote>You know when you see bond downgrade by rating agencies that  financial matters are really going badly.   By May, 2013, month, the problems were evidently still not solved, and the hospital was forced to take more drastic measures.  As again <a href="http://www.journalnow.com/business/business_news/local/article_0cb3b3a8-b33d-11e2-a80f-0019bb30f31a.html">reported</a> by Richard Carver writing for the Winston-Salem Journal, <blockquote class="tr_bq">The workforce at Wake Forest Baptist Medical Center is paying a paycheck price to make up for the financial shortcomings to date of its Epic electronic records system. The center said in a statement Thursday it has begun another round of cost-cutting measures that will last through at least June 30, the end of its 2012-13 fiscal year. The measures include attempts at volunteer employee furloughs and hour-and-wage reductions, a hiring freeze, a reduction in employer retirement contributions, and elimination of executive incentive bonuses for 2013.</blockquote> Management made clear that the cuts were in response to the Epic debacle, <blockquote class="tr_bq">Even though management said Thursday the center is making progress with fixing the Epic revenue issues, it acknowledged it 'will not meet projected financial targets for the current fiscal year.' 'Wake Forest Baptist has identified immediate multimillion-dollar savings with a series of short-term measures that impact personnel,' according to the statement.</blockquote> To give credit where it is due, at least the cuts will apparently not affect line clinical employees: <blockquote class="tr_bq"> Those primarily affected by the volunteer furloughs and hour-and-wage reduction requests are nonclinical full-time employees, including administrative staff. They can volunteer to work as few as 30 hours a week with no loss of health or dental benefits for May and June. In the memo, management said employees can volunteer to continue the reduced-hour work week into fiscal year 2013-14.</blockquote> However, it seems likely that they will affect many employees, including some proportion who likely had not responsibility for the problems with Epic. When in Doubt, Lobby the Government What the hospital system did not seem to be cutting was lobbying and public relations.  Perhaps this was a response to its unexpected inability to manage its own commercial health care information technology?  What bad management can lose, maybe government can supplant.  Once again Richard Carver had <a href="http://www.journalnow.com/news/state_region/article_1aee766e-b5e1-11e2-bba7-001a4bcf6878.html">the story</a> for the Journal: <blockquote class="tr_bq">Stung by a series of unusual setbacks at the General Assembly, the North Carolina hospital industry is launching a public relations campaign aimed, in part, at protecting revenues and staving off competition from lower cost surgery centers. In a social media initiative targeted at lawmakers and their constituents, the N.C. Hospital Association says hospitals are 'fighting for their economic survival.' [It was not said whether they were fighting in part because they had already managed to shoot themselves in their economic feet - Ed] The association and some of the state’s bigger hospitals also are hiring more GOP lobbyists to make inroads with the Republicans who control the state House, Senate and governor’s mansion. The hospital association recently began promoting a new website — <a href="http://www.healthyhospitalsnc.org/">www.healthyhospitalsnc.org</a> — that describes an array of financial threats.</blockquote> Wake Forest Baptist is a big part of this initiative: <blockquote class="tr_bq">When asked about its lobbying efforts, Wake Forest Baptist spokeswoman Paula Faria said last week that the center’s Office of Government Relations monitors proposed legislation and regulations at both the federal and state levels. 'It informs North Carolina’s congressional delegation, members of the General Assembly and their staff about how proposed language could impact the day-to-day operations of the medical center.'</blockquote> Maybe they should be first worrying about the impact of badly chosen, designed, or implemented commercial health care information technology on "day-to-day operations of the medical center" first.  Summary So the top executives of Wake Forest Baptist Medical Center have seen compensation rising at a rate greater than inflation and than the general public's income over the last few years.  In particular, the CEO has seen his compensation go up three and one-half times in three years!  The hospital system administration has justified this extraordinary increase by referring to supposedly "visionary" leadership.  Yet over this time frame these "visionaries" decided to implement an EHR whose first effects were to lose the hospital system a lot of money.  Based on previous anecdotes about the Epic system, it is quite possible it had other adverse effects.  For example, InformaticsMD <a href="http://hcrenewal.blogspot.com/2012/09/in-addition-to-nurses-doctors-now-air.html">discussed</a> a case in which an EPIC system apparently lead to a large disruption in patient workflow and hence large increases in waits for acute care, and <a href="http://hcrenewal.blogspot.com/2012/08/contra-costas-45-million-computer.html">lead to errors</a> that could have adversely affected patients.  So this underscores some important lessons: So beware that "visionary" behind the curtain. As we have noted repeatedly, top health care managers can now easily make themselves rich.  They, their boards of directors (who may be their cronies), and their public relations flacks often justify their exorbitant compensation by their supposed brilliance, if not visionary status.  Such claims are rarely further explained, and mostly seem be be humbug, for want of a better term.  It seems that most top leaders of health care organizations have participated in the managers' coup d'etat, and become at least manager nobility, if not manager-kings  At least, the public should know that their compensation is what they can grab, and its justification is often nonsense.  Note that contrary to a red herring argument often made, outrageous compensation is important not so much because of how much money it drains out of health care, although that can be large in the aggregate.  It is important because it reflects a system that is no longer accountable, and leaders who follow perverse incentives. Such management compensation is almost never revisited to determine whether it turned out to be justified.  Instead, the public, watchdog organizations, health care professionals, and even politicians ought to demand accountability of health care management, good  justification for their compensation, and rationality for the incentives they are provided.  True health care reform would encourage well-informed, competent, mission-focused, honest, responsible, accountable and transparent management, leading organizations of manageable size.  But as long as things stay the same, expect the craziness to continue.

Clouded "Visionary" Leadership - Wake Forest Baptist Medical Center's EPIC "Business Cycle Disruptions"

A typical excuse for the multi-million dollar compensation now enjoyed by many leaders of health care organizations is these leaders' supposed brilliance.For example, in 2011 we noted that the total …

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10 May 2013

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

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23 Apr 2013

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