What Me Worry? - American Legacy Foundation Executives' Relaxed Response to a $3 Million Plus Fraud

A Washington Post <a href="http://www.washingtonpost.com/investigations/inside-the-hidden-world-of-thefts-scams-and-phantom-purchases-at-the-nations-nonprofits/2013/10/26/825a82ca-0c26-11e3-9941-6711ed662e71_story.html">investigation</a> into diversion of money from US not-for-profit organizations provided a striking case study showing the apparently relaxed approach taken by managers to apparent wrongdoing by one of their own.  <br /><br /><b>Background: the American Legacy Foundation</b><br /><br />The Post noted that<br /><br /><blockquote class="tr_bq">The American Legacy Foundation is a revealing case study. While some challenges it faced were uncommon, fraud examiners said many resemble those they see time and again. Legacy was founded as a nonprofit organization in 1999 out of the Master Settlement Agreement that resolved health claims brought against cigarette companies on behalf of the public by authorities in 46 states and the District.<br /><br />With $50 million in annual expenditures and $1 billion in assets, Legacy is perhaps best known for its edgy anti-tobacco advertising campaign known as 'Truth.' </blockquote><br />The Foundation's governance is provided by some top government leaders, including leaders of law enforcement.<br /><br /><br /><blockquote class="tr_bq">Its board includes Idaho Attorney General Lawrence Wasden (R), its chairman; Missourci Gov. Jay Nixon (D), Utah Gov Gary R Herbert (R), and Iowa Attorney General Tom Miller (D).  Janet Napolitano, the recently departed U.S. secretary of homeland security, served on the board, and Sen Thomas R. Carper (D-Del) was Legacy’s founding vice chairman.</blockquote><br /><b>Outline of a Diversion</b><br /><br />The alleged culprit at the ALC  was<br /><br /><blockquote class="tr_bq">Deen Sanwoola, ... a charismatic computer specialist who was Legacy’s sixth hire. He was tasked with building the organization’s information technology department.<br /><br />No one realized, during Legacy’s frenetic early days, that the department had been formed <i>without adequate financial controls</i>, Legacy officials said. Or that Sanwoola had been placed in charge of both ordering electronic equipment and logging it as having been received — a mix of responsibilities that an outside auditor later described as <i>a classic error that placed Legacy at risk.</i></blockquote><br />So,<br /><br /><blockquote class="tr_bq">After Sanwoola’s arrival in October 1999, Legacy’s IT department began <i>spending freely</i> on computers, monitors and software, much of it purchased from a single company in suburban Maryland, [Legacy President and CEO Cheryl] Healton said.<br /><br />Thanks to the court settlement, Legacy enjoyed a tremendous flow of cash, with revenue exceeding $320 million. The first questionable purchase came in December 1999, according to a forensic audit conducted years later. 'The fraudulent billing started almost immediately on his arrival,' said [Idaho Attorney General Lawrence] Wasden, the board chairman.<br /><br />In that first transaction, the foundation paid more than $18,000 for a computer processor and related equipment that auditors concluded should have retailed for less than $7,000.<br /><br />Data, documents and a summary of findings that Wasden provided to The Post show that <i>questionable purchases of printers, software and servers steadily increased in size and frequency, peaking with 49 charges in 2006. In some instances, Legacy appeared to have paid many times an item’s worth,</i> auditors said. In others, auditors said <i>Legacy paid an inflated price for 'phantom purchases' of equipment that apparently never arrived.</i><br /><br />Over years, Sanwoola is thought to have generated as many as 255 invoices for computer equipment sold to the foundation, Legacy officials said; 75 percent of them later were deemed by the foundation to have been fraudulent. </blockquote><br /><b>A Relaxed Response</b><br /><br />Sanwoola left AFC in 2007, <br /><br /><blockquote class="tr_bq">In early 2007, Sanwoola, by then an <i>assistant vice president with a $180,000 compensation package</i>, announced he was leaving. It jolted [AFC President and CEO Cheryl] Healton, who said she 'begged' him to stay. [ALC CFO Anthony T[ O’Toole recalled Sanwoola saying that his wife wanted to raise their children in Nigeria and that the move would allow him to help his ailing mother.</blockquote><br />But then,<br /><br /><blockquote class="tr_bq">six months later, when an executive at Legacy approached O’Toole and told him he was unable to locate computer equipment listed in the inventory.  O’Toole said he <i>waved away the complaint without bothering to investigate.</i><br /><br />'He just pooh-poohed it,' Healton said of O’Toole, who received <i>current and deferred compensation totaling $568,000 in fiscal 2012.</i></blockquote><br />The Post previously noted that<br /><br /><blockquote class="tr_bq"><i>Sanwoola developed close personal ties to Legacy’s chief financial officer, Anthony T. O’Toole.</i><br /><br />'Everybody loved Deen,' O’Toole acknowledged.</blockquote><br />After a second complaint, managers took a bit more notice,<br /><br /><blockquote class="tr_bq">Three years later, the same employee — Legacy officials describe him as a whistleblower — again raised an alarm. This time, he <i>bypassed O’Toole and took his concerns to a staffer close to Healton.</i><br /><br />The response this time was different. Within days, <i>Legacy hired forensic examiners to investigate and Healton notified the board.</i><br /><br />One of the outside auditors’ first reactions, Healton recalled, was, 'There’s no way an organization like yours could spend this much on IT.' <br /><br />Auditors interviewed employees, reviewed invoices and recovered deleted files from a backup computer server in Chicago. Auditors found a template for invoices from the outside supply company, Legacy officials said, as well as computer code that showed the template had been designed and generated by someone using Sanwoola’s log-in.<br /><br />Officials concluded that of $4.5 million in checks and credit card charges associated with the Maryland IT supply company, $3.4 million had been fraudulent. </blockquote><br /><br /> In late 2010 or early 2011,<br /><br /><blockquote class="tr_bq">foundation executives <i>asked Miller, the Iowa attorney general on Legacy’s board, to call the office of the U.S. attorney.</i></blockquote><br />However, despite the fact that it was ALC money that had been lost, ACL managers thereafter seemed to take little interest in the case, <br /><br /><blockquote class="tr_bq">Legacy officials said they had <i>made no attempt to contact Sanwoola, based on a request from federal prosecutors. </i>In a statement for this article, the U.S. Attorney’s Office responded that they had <i>made no such request.</i></blockquote><br />They also were in no hurry to disclose the foundation's loss,<br /><br /><blockquote class="tr_bq"><i>Word that millions of dollars were thought to be missing remained largely within Legacy until it came time in 2011 to file its annual disclosure</i>, a public document signed under penalty of perjury.<br /><br /><a data-xslt="_http" href="https://www.documentcloud.org/documents/777449-american-legacy-foundation-2011.html#document/p38/a119573">The disclosure</a> said that the '<i>fraud' of more than $250,000 did not 'meet other materiality tests for financial reporting' and that the organization had told its board and law enforcement. It also said Legacy had filed an insurance claim that had been 'successfully settled.' The document did not reveal that the settlement fell far short of the loss.</i><br /><br />When first approached by The Post, Legacy general counsel <a data-xslt="_http" href="http://www.legacyforhealth.org/about/senior-leadership/vargyas-ellen" target="_blank">Ellen Vargyas</a> said the organization <i>had no obligation to identify the full estimate of the loss</i> and stressed that more information was in the foundation’s 2012 filing. That filing included a reference to $1.3 million in miscellaneous revenue from an insurance settlement, without saying what it was for.<br /><br />'I do think it was a full and appropriate disclosure,' Vargyas said.<br /><br />Legal specialists consulted by The Post disagreed. <i>'Those suffering a diversion are obligated to report the dollar amount,' </i>said <a data-xslt="_http" href="http://garyrsnyder.com/A_Bio_of_Gary_Snyder_W34Q.html" target="_blank">Gary R. Snyder</a>, a charity consultant who tracks fraud.<br /><br />Federal filing <a data-xslt="_http" href="http://www.irs.gov/pub/irs-tege/f990partvi_instructions2008.pdf" target="_blank">instructions</a> direct nonprofits to 'explain the nature of the diversion, amounts or property involved . . . and pertinent circumstances.' Charity specialists said there is no established penalty for a nonprofit that fails to follow the instructions.<br /><br />A day after declining to disclose the amount to The Post, <i>Vargyas reconsidered. 'Our best estimate of the full loss comes to this: $3,391,648,' she wrote in an e-mail.</i> She said her initial reluctance to disclose an amount was because Legacy’s number was based on estimates that had 'never been tested in a court of law. <br /><br />Wasden added that the absence of a total dollar figure in its public filing was the foundation’s way of being restrained in describing its loss, <i>in deference to the then-continuing federal investigation</i>. The U.S. Attorney’s Office stressed, however, that <i>it did not suggest that Legacy play down the size of the loss in its disclosure.</i><br /><br />Legacy officials said they were <i>told in March, for the first time, that there would be no charges</i>. The U.S. Attorney’s Office disputed that, saying<i> the FBI informed Legacy in February 2012 that the investigation had been closed because, despite warnings, Legacy had taken more than three years to report the missing computers and lacked reliable records of what it owned. </i></blockquote><br />It appears that there will be no further action in this case.  The statute of limitations has passed for any further criminal or civil actions, according to the Post.  And Mr Sanwoola seems to be comfortably ensconced in Lagos, Nigeria.<br /><br /> <b>Summary</b><br /><br />The American Legacy Foundation case showed that a "charismatic" management insider (who finished his career as an assistant vice president with a $180,000 compensation package according to the Post), who had "close personal ties" with the organization's CFO (who "received current and deferred compensation totaling $568,000 in fiscal 2012" according to the Post), was apparently able to embezzle something like $3.4 million dollars, then walk away.  Initial whistleblowing was ignored by the CFO (who received compensation of $729,000 in 2012 according to the Post), apparently delaying any action for three years.  A second complaint to the CEO provoked a response, but not exactly an urgent one.  While law enforcement was notified, there is no evidence that any foundation managers followed up on it, nor did they see fit to disclose much detail about the loss on their watch.  As a result, no one seems to have been held responsible, and only some money was recovered, but from insurance. <br /><br />Now we understand why these managers made the relatively big bucks. <br /><br />By the way, the Post article included a l<a href="http://www.washingtonpost.com/wp-srv/special/local/nonprofit-diversions-database/">ink to a database </a>of other diversions of money from non-profit organizations, including many prominent health care organizations (e.g., Memorial Sloan-Kettering Cancer Center, Children's Hospital of Pennsylvania, NYU Hospitals Center, Shands Jacksonville Medical Center, Harvard Medical School Faculty Physicians at Beth Israel Deaconess Hospital, and the Society for Academic Emergency Medicine).  Whether the circumstances of the diversions they suffered were anything like those affecting the ALC is unknown pending further investigation of their disclosures.<br /><br />Again, the top executives of a non-profit organization are supposed to put the organization's mission ahead of personal gain. Yet in this case, executives seemed more interested in keeping quiet about an apparent fraud by one of their own than in recovering the money or holding anyone accountable.<br /><br />This is yet another instance of top leaders in health care seeming to be more loyal to "managers' guild" than their own organizations, their organizations' mission, or patients' and the public's health in general.   A while ago, chief architect of "managed competition," (and former architect of body counts during the Vietnam War, look <a href="http://www.motherjones.com/politics/1993/05/motherjones-mj93-godfather-managed-competition">here</a>) Alain Enthoven admitted, but only to a European audience, that he wanted to end the influence of the "physicians' guild," which he blamed for rising health care costs, and turn health care over to managers (look <a href="http://hcrenewal.blogspot.com/2006/03/consequences-of-breaking-physicians.html">here</a>).  That "managers' coup d'etat" seems to have been accomplished.  The result, however, is that health care is now lead by people who seem sworn only to promote their own interests, while hiring public relations and marketing folks to make it appear otherwise. <br /><br />While many people debate health care reform in terms of the details of health insurance, true health care reform would restore control of health care to people held accountable for putting patients' and the public's health ahead of their personal enrichment.  

What Me Worry? - American Legacy Foundation Executives' Relaxed Response to a $3 Million Plus Fraud

A Washington Post investigation into diversion of money from US not-for-profit organizations provided a striking case study showing the apparently relaxed approach taken by managers to apparent wrongd…

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Presto Chango - UPMC Tries to Make its Employees All Disappear

This story is just in time for Halloween. <br /><br /><b>The Lawsuit Challenging the Non-Profit Status of UPMC </b><br /><br />Back in March, 2013, we <a href="http://hcrenewal.blogspot.com/2013/03/the-push-back-continues-mayor-of.html">discussed</a> a lawsuit initiated by the then Mayor of Pittsburgh that challenged the tax-exempt, non-profit status of giant hospital system UPMC.  The suit charged that UPMC functions more like a for-profit corporation based on its large surplus (recently $1 billion), larger reserves ($3 billion), minimal commitment to charitable care, and generous executive pay (recently $5.9 million  to CEO Jeffrey Romoff, 19 executives paid more than $1 million, and ownership of a jet aircraft).  By the way, Romoff's latest total compensation was said to be $6.1 million (look <a href="http://hcrenewal.blogspot.com/2013/08/should-we-cry-for-non-profit-hospital.html">here</a>), and UPMC just bought an even fancier corporate jet, a Bombardier Global Express worth $51 million (look <a href="http://www.post-gazette.com/business/2013/10/25/New-jet-to-fly-UPMC-corporate-flag/stories/201310250134">here</a>).<br /><br /><b>The Employees Vanish </b><br /><br />The Pittsburgh Post-Gazette just <a href="http://www.post-gazette.com/business/2013/10/22/UPMC-says-it-does-not-have-employees-1/stories/20131022033">described</a> UPMC's remarkable response to the lawsuit.<br /><br /><blockquote class="tr_bq"> For purposes of the city's payroll taxes, [an attorney representing UPMC] Mr. [William] Pietragallo explained, UPMC's subsidiaries -- like UPMC Shadyside and Western Psychiatric Institute and Clinic -- file separate forms. Employees work for those legal subsidiaries. But UPMC itself?<br /> <br />'<i>We don't have employees</i>,' Mr. Pietragallo said.<br /><br /> The question is central to the city's suit to strip UPMC of its status as a purely public charity. UPMC argues the city can't challenge its exemption from payroll taxes because it technically has no employees. It's a case where the legal reality may differ significantly from the one that <i>UPMC, which on its website claims to have 55,000 employees, markets on a regular basis.</i><br /> <br />'You can't pay employment taxes unless you have employees,' Mr. Pietragallo said.</blockquote><br />This is not the first time UPMC has made this claim in response to a legal action,<br /><br /><blockquote class="tr_bq">Earlier this year, <i>when UPMC faced 80 complaints of unfair labor practices, it argued that it was only a holding company and did not technically employ those in the complaints.</i> The complaints alleged, among other things, that UPMC employees were being punished for attempting to unionize. UPMC ultimately settled.</blockquote><br /><b>Obvious Contradictions </b><br /><br />These claims of invisible employees appear to be contradicted by UPMC's own public relations,<br /><br /><blockquote class="tr_bq"> UPMC <i>touts it large workforce</i>. Its 2012 annual report, for example: 'The economic impact of UPMC is more substantial than most people realize. The organization is the <i>largest nongovernmental employer </i>in the Commonwealth of Pennsylvania, and <i>more than $6.2 billion in total labor income </i>can be attributed directly or indirectly to UPMC.'<br /><br />UPMC's website and media releases say the hospital giant <i>employs in the range of 55,000 people.</i> And when UPMC made the top rankings of U.S. News & World Report's Best Hospitals, it did so as a conglomeration of several facilities attorneys are now arguing are separate subsidiaries.</blockquote><br />Also,<br /><br /><blockquote class="tr_bq">[An attorney representing the city of Pittsburgh, Ronald]   Barber argued that even for tax purposes, UPMC has documented having employees. <i>In a Form 990 filed for the 'UPMC Group,' the hospital network said it employed around 52,000 people.</i></blockquote><br />A few days later, the Post-Gazette <a href="http://www.post-gazette.com/business/2013/10/28/City-of-Pittsburgh-fires-back-against-UPMC-claim-of-not-having-employees.print">reported</a> that the city responded to these UPMC claims in matter-of-fact way,<br /><br /><blockquote class="tr_bq"> On its website, in its annual report and in some tax filings, UPMC purports to have employees -- sometimes tens of thousands of them, the city of Pittsburgh's attorneys said in a court filing.</blockquote><br />Furthermore,<br /><br /><blockquote class="tr_bq"> The city also argued that those working for subsidiaries are UPMC employees as well, pointing to UPMC's 2012 Annual Report and website, which tout the hospital system as one of the state's largest employers. Attorneys also pointed to a lawsuit in which UPMC claimed to 'extend offers of employment.'</blockquote><br /><b>How Complexity Benefits Bureaucrats and Managers</b><br /><br />It is Halloween coming up, not April Fool's Day, and the claims made on behalf of UPMC do not appear to be jokes.  Instead, I believe they underline two serious problems with how large health care organizations are currently lead.<br /><br />The first is that health care organizations often have exceedingly complex structures for reasons that have nothing to do with fulfilling their health care mission.  One reason may be that the complexity creates options for plausible deniability.  In particular, when such organizations are accused of bad behavior, as they now often are, subsidiaries may be set up to "take the rap."  For example, we <a href="http://hcrenewal.blogspot.com/2013/06/pfizer-may-no-longer-be-able-to-delay.html">discussed</a> how Pfizer Inc has been using the bankruptcy filing of its Quigley subsidiary made as if that subsidiary were independent to delay resolution of claims that the subsidiary sold hazardous asbestos products.    <br /><br />This tactic of having the subsidiary take the rap may be particularly useful when taking the rap may lead to a severe penalty for the organization, such as disbarring it from being paid by the government.  A disbarred subsidiary may simply be dissolved and its work transferred to other parts of the organization.  For example, in May, 2013 we <a href="http://hcrenewal.blogspot.com/2013/05/ghosts-in-criminal-machine-how-drug.html">discussed</a> a settlement in which Baush and Lomb subsidiary Ista Pharmaceutical would be disbarred from participation in government programs.  However, Baush and Lomb itself would not be disbarred, and would be able to "wind down" Ista's operations and transfer its products to other parts of the larger company.  <br /><br />The current example appears to be a more creative use of subsidiaries to claim deniability, although whether the arguments about disappearing employess above are even plausible is open to question.<br /><br /><br />Complex organizations also offer many opportunities to employ and enrich administrators, bureaucrats and managers, and to justify ever larger <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">compensation for the top executives</a> who purport to run the whole thing.  That such proliferation of management and management compensation may detract from the mission does not appear to be a big concern of the sorts of people who now run health care.<br /><br /><b>Contempt for Truth </b><br /><br />The second problem is that the leadership of large organizations seem to have little use for the truth.  Instead, they may put lots of faith in their marketers, public relations people, and legal staff to obfuscate the truth in pursuit of ever more revenue and executive enrichment.  As management becomes less and less reality-based, however, it may be less likely to be able to respond to the very reality-based needs of patients and the public.<br /><br /><b>Conclusion</b><br /><br />I hope that the outlandish claims now being sanctioned by UPMC leadership may raise awareness of what is going wrong with the leadership of health care organizations in general.  As we have been saying for years, health care leadership that puts its self-interest ahead of patients and the public, and which disregards the truth in service of self-interest may be the biggest cause for ever increasing health care costs, and ever declining access and regard for the health of patients and the public.  True health care reform would encourage leadership that puts the mission ahead of self-interest, and values honesty more than personal profit. It would promote regulation that holds top leadership of organizations accountable for their organizations' actions and not allow the leadership to hide behind complex organizational structures.   

Presto Chango - UPMC Tries to Make its Employees All Disappear

This story is just in time for Halloween. The Lawsuit Challenging the Non-Profit Status of UPMC Back in March, 2013, we discussed a lawsuit initiated by the then Mayor of Pittsburgh that challenged th…

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The Long Con - "Charitable" Hospitals Make Multimillionaires out of Their CEOs

The CEOs of ostensibly charitable hospitals founded to serve the poor continue to become rich.   <br /><br />The latest reminders are in two articles from Maryland, f<a href="http://www.delmarvanow.com/article/20130812/WIC01/308110024/Inside-Maryland-hospital-CEO-pay">rom DelMarVaNow,</a> and <a href="http://articles.baltimoresun.com/2013-08-17/health/bs-hs-health-compensation-20130817_1_hospital-ceos-health-care-executives-compensation">from the Baltimore Sun</a>,.and one <a href="http://www.bostonglobe.com/business/2013/08/15/top-executives-earned-million-boston-teaching-hospitals-according-filings/story.html">from the Boston Globe.</a><br /><br />All this diligent reporting showed multimillion dollar <a href="http://articles.baltimoresun.com/2013-08-17/health/bs-hs-health-compensation-20130817_1_hospital-ceos-health-care-executives-compensation">executive compensation</a>,  as usual not justified by evidence or logic, but also how executive compensation is becoming divorced from the ostensible charitable mission of non-profit hospitals.   <br /><br /><b>Most Hospital CEOs are Paid a Lot</b><br /><br />So jin Maryland, we found via DelMarVaNow,<br /><br /><blockquote class="tr_bq">Peninsula Regional Medical Center paid its top executive and her immediate predecessor a total of $2.37 million in compensation in 2011 as the nonprofit hospital gained millions of dollars in profit.</blockquote><br />In particular,<br /><br /><blockquote class="tr_bq"> The analysis shows that R. Alan Newberry was the third-highest paid hospital chief in Maryland, even though he has not run PRMC since 2009. <i>In the year after formally stepping down from the hospital’s top job, Newberry received <b>$1.57 million</b>,</i> about $600,000 more than he had while still working full time.</blockquote><br />The Baltimore Sun summarized compensation given to multiple executives,<br /><br /><blockquote class="tr_bq"> <i>Eleven executives earning seven-figure compensation packages</i> including salary, bonus, retirement and other pay saw their total pay rise from as little as 0.13 percent to as much as 308 percent in the fiscal year that ended in 2012, according to tax filings. Another executive earning more than $1 million saw a pay cut.</blockquote><br />In particular,<br /><br /><blockquote class="tr_bq"> The state's highest-compensated hospital executive that fiscal year was <i>Kenneth A. Samet, the CEO of the 10-hospital MedStar Health system, who</i> <i>earned <b>$6.3 million</b>.</i> More than half — $3.5 million — was money earned in a supplemental retirement plan during his 23 years of service. He won't get the money until he retires. His base pay was $1.2 million, and he received $1.5 million as a bonus and incentives.<br /><br />The other top five highest-paid executives in Maryland are James Xinis, CEO at Calvert Memorial Hospital in Prince Frederick; Ronald A. Peterson, CEO of the Johns Hopkins Health Center Corp.; Robert A. Chrencik, CEO of the University of Maryland Medical System; and Thomas Mullen, CEO of Mercy Medical Center.<br /><br /><i>Xinis saw his compensation package jump 307.8 percent to <b>$3.5 million</b></i>, $2.8 million of which was a required distribution of vested retirement funds from a plan he begin contributing to in 2003, the hospital said in a statement. Xinis has served as CEO for 26 years and plans to retire in the next 18 months, the hospital said. His base salary in fiscal 2012 was $309,557.<br /><br /><div class="mod-baltsunarticletext mod-articletext" id="mod-a-body-first-para"><i>Peterson, who oversees six hospitals, earned a <b>$3.5 million</b> compensation package. </i>Peterson's 86.5 percent pay increase largely reflected pension benefits he'd earned during 40 years at Hopkins. His annual base salary increased about $49,500 to $1.1 million in fiscal 2012.<br /><br /><i>Chrencik, whose system has 12 hospitals, earned about <b>$2.3 million</b>.</i> Chrencik's total pay grew 23.4 percent. Mercy's Mullen saw his pay rise 24 percent to $1.6 million for the fiscal year ending in 2012.</div><div class="float" style="clear: both; height: 1px; line-height: 1px;"><img alt="" height="1" src="http://articles.baltimoresun.com/images/pixel.gif" width="1" /></div><div class="float" style="clear: both; height: 1px; line-height: 1px;"><img alt="" height="1" src="http://articles.baltimoresun.com/images/pixel.gif" width="1" /></div><br />The one CEO earning more than $1 million who saw his compensation fall was <i>Edward D. Miller, who retired in June 2012 as CEO of Johns Hopkins Medicine and dean of the university's medical school. His reported pay dropped to just over <b>$1 million</b> in fiscal 2012 from nearly $2.3 million the prior year,</i> when he took a one-time retirement payout.</blockquote><br />Also,<br /><br /><blockquote class="tr_bq">According to Saint Agnes tax filings, [CEO Bonnie] <i>Phipps received <b>$1.9 million</b> </i>in the 2012 fiscal year, 4.4 percent more compensation than a year earlier.</blockquote><br /> Per the Boston Globe, local hospital executives also did really well<br /><br /><blockquote class="tr_bq"><i>Chief executives at the Boston area’s largest nonprofit teaching hospitals drew pay packages of $1 million to $2.1 million in 2011</i>, including salaries, bonuses, and compensation such as health and life insurance and retirement benefits.<br /><br />Topping the list locally was <i>Gary L. Gottlieb, chief executive of Partners HealthCare System, the state’s largest hospital and physicians organization, who received total compensation of <b>$2.1 million</b></i> in 2011, according to federal tax documents released Thursday by the nonprofits.</blockquote><br />And,<br /><br /><blockquote class="tr_bq">The presidents of Partners-owned Massachusetts General and Brigham and Women’s hospitals also drew seven-figure packages in 2011, with <i>Peter L. Slavin at Mass. General receiving a total of <b>$1.7 million</b> and Elizabeth G. Nabel at Brigham and Women’s a total of <b>$1.9 million</b>.</i></blockquote><br />Also,<br /><br /><br /><blockquote class="tr_bq"><i>Tufts Medical Center reported that Ellen M. Zane, who served as chief executive through September 2011, had total pay of <b>$1.6 million</b></i> that year.<br /><br />Eric J. Beyer, who took over from Zane in October, had total compensation of $744,722 that included pay for work as chief executive and at his previous job as president of the Tufts Medical Center Physicians Organization.<br /><br /><i>James Mandell, chief executive at Boston Children’s Hospital, was paid a total of <b>$1.5 million </b>in 2011. </i>That was down from the $2 million he earned the prior year when he received two separate incentive awards, according to a hospital spokeswoman. Mandell plans to retire next month and will be succeeded by Sandra Fenwick, the hospital’s president and chief operating officer.<br /><br />Total compensation for <i>Boston Medical Center chief executive Kate Walsh was listed at nearly <b>$1.4 million</b> in 2011</i>, an increase from $1.3 million in 2010.<br /><br /><i>At Dana-Farber Cancer Institute, chief executive Edward J. Benz Jr. received total compensation of nearly <b>$1.3 million</b></i> in 2011, up from $1.1 million in 2010.<br /><br />Beth Israel Deaconess Medical Center paid three different top executives in 2011.<br /><br /><i>Eric Buehrens, who served as interim chief executive from February to October, drew total compensation of just over <b>$1 million</b></i> for that role and other executive jobs. </blockquote><br /><b>The Justification for this Pay is Stereotyped (and not Supported by Logic or Evidence)</b><br /><br /><u>The Usual Talking Points</u><br /><br />The articles in combination provided the usual talking points as justification.  It seems nearly every attempt made to defend the outsize compensation given hospital and health system executives involves the same arguments, thus suggesting they are talking points, possibly crafted as a public relations ploy.   We first listed the talking points <a href="http://hcrenewal.blogspot.com/2011/09/talking-points-sans-original-thought-to.html">here</a>, and then provided additional examples of their use <a href="http://hcrenewal.blogspot.com/2011/09/more-repeats-of-talking-points.html">here</a>, <a href="http://hcrenewal.blogspot.com/2012/03/example-of-how-complex-takes-control.html">here</a> <a href="http://hcrenewal.blogspot.com/2012/12/health-care-hired-managers-not-playing.html">here,</a> <a href="http://hcrenewal.blogspot.com/2013/05/executive-compensation-as-legal.html">here</a>, <a href="http://hcrenewal.blogspot.com/2013/06/no-blues-but-lots-of-green-for-st-louis.html">here,</a> and <a href="http://hcrenewal.blogspot.com/2013/08/should-we-cry-for-non-profit-hospital.html">here</a>..   <br /><br />They are:<br />- We have to pay competitive rates<br />- We have to pay enough to retain at least competent executives, given how hard it is to be an executive<br />- Our executives are not merely competitive, but brilliant.<br /><br />As we have <a href="http://hcrenewal.blogspot.com/2013/08/should-we-cry-for-non-profit-hospital.html">noted before</a>, there is little evidence in support of these talking points.  What evidence there is on the topic suggests there is no real free market in interchangeable CEOs, and that CEOs are not very mobile, especially not across different kinds of organizations (look <a href="http://hcrenewal.blogspot.com/2012/10/more-reasons-to-doubt-how-ceos-are.html">here</a>).  There is little evidence that hospital (or other health care) executives are particularly brilliant, or any more brilliant than multitudes of physicians, nurses, and other health care professionals who work hard to make their institutions run.<br /><br />True to form, the reporting from Maryland and Boston found that defenders of executive pay cited the talking points, but without any further logic or evidence.  <br /><br /><i>Competition</i><br /><br />Re PRMC (from DelMarVaNow),<br /><br /><blockquote class="tr_bq"> '<i>We’ve looked at about 17 like institution</i>s. Eight are smaller than we are; eight are larger. Every hospital is different, so you have to always take into account there’s some variation, but <i>we’ve always stayed in the middle</i>. Our goal has been to <i>stay in that 60 percent level as far as compensation goes</i>,' said Martin Neat, chairman of PRMC’s board of directors, which oversees executives’ salaries.­</blockquote>Note that in this case, no justification was provided for constantly setting the CEOs pay above the median.<br /><br /><br />Re Maryland, via the Baltimore Sun<br /><br /><blockquote class="tr_bq"> Hospitals argue that they have to offer <i>competitive compensation</i> to attract talent to run a complicated business.</blockquote><br />Re Maryland and particularly UMMS, via the Sun,<br /><br /><blockquote class="tr_bq"> The medical institutions say they hire independent consultants and look at the pay of executives at <i>comparable health systems </i>when making their decisions. </blockquote><br /><br />Also, <br /><br /><blockquote class="tr_bq">UMMS hospital executives are compensated in line with national benchmarks,' [UMMS spokeswoman Mary Lynn] Carver said. </blockquote><br />Note that there was no justification for the comparability of these institutions, or why a national versus regional comparison was made. <br /><br /><i>Retention</i><br /><br />Re PRMC<br /><br /><blockquote class="tr_bq"> Above all, PRMC’s board of directors seeks to ensure that the hospital attracts and retains the best leaders.</blockquote><br />Note that there was no evidence given that current leaders might leave were their compensation reduced. <br /><br /> <i>Brilliance</i><br /><br />Re PRMC,<br /><br /><blockquote class="tr_bq">[Board Chairman Neat]  added: 'These are high-paid positions, but these are <i>very capable people</i> who could go elsewhere.'</blockquote><br />Re Maryland, from the Baltimore Sun<br /><br /><blockquote class="tr_bq"> Executives need to <i>understand everything from the latest health technologies to regulatory changes, including health reform</i>.</blockquote>So do doctors and nurses, so why do they not not get similar pay?<br /><br />Also,<br /><br /><blockquote class="tr_bq"> [Carmela Coyle, CEO of the Maryland Hospital Association, said,] 'Hospital executives are <i>in charge of incredibly complex organizations,' she said. 'They are organizations that are open 24 hours a day and are highly regulated. These are really difficult, difficult jobs'.</i></blockquote><br />Note again the lack of comparison with the doctors and nurses who must staff the hospitals 24 hours a day, and make difficult decisions while caring for patients with sometimes life-threatening conditions.  How often does a hospital CEO get a call in the middle of the night, and how often does it require a decision in a life-and-death situation?<br /><br />Re Mercy Medical Center,<br /><br /><blockquote class="tr_bq"> 'As a result of <i>Mr. Mullen's leadership, vision and skillful stewardship, Mercy has been an economic engine for the city</i>, infusing additional jobs into the local economy,' the hospital said in a statement.</blockquote><br />When in doubt, use the v (for visionary) word.  Note that this begs the questions of how many other people were responsible for the economic benefits, and whether such benefits, rather than, say ability to provide good care to patients, should be the main consideration.<br /><br /><u>Should Brilliance be Measured by Revenue? </u><br /><br />At best, some defenders of high CEO pay seem to argue that the main measure of CEO brilliance ought to be their hospitals' financial performance. For example, the DelMarvaNow article included,<br /><br /><blockquote class="tr_bq"><i>Fiscal health is one of the most important considerations in determining [new CEO Peggy] Naleppa's pay</i>, [board chairman] Neat said. </blockquote><br />Also, he was quoted,<br /><br /><blockquote class="tr_bq">'There's <i>no question that the financial performance of the institution is going to affect what you're going to pay',</i> Neat said.</blockquote><br />While,<br /><br /><blockquote class="tr_bq">Nationwide, hospital boards subscribe to a similar philosophy.  <i>Financial health was cited by 100 percent of multi-hospital organizations </i>in a 2006 survey as a factor in determining bosses' incentive plans.</blockquote><br /><br />Similarly, the Baltimore Sun quoted Dr Stephen F Jencks, "who serves on the board of the cost review commission," <br /><br /><blockquote class="tr_bq">executives should be judged by <i>whether they are running cost-efficient organizations</i></blockquote><br />However, CEO pay seems to increase even at financially challenged institutions,  as the Baltimore Sun noted,<br /><br /><blockquote class="tr_bq">The CEO pay question — always a hot-button issue — is generating debate again this year after a state panel spurned a push by hospitals for higher rates, instead approving smaller increases and calling on them to do more to curb expenses. Hospitals have sought rate increases in each of the past three years, and this year <i>at least one Baltimore-area hospital responded with layoffs in an effort to trim labor costs.</i></blockquote><br />So,<br /><br /><blockquote class="tr_bq">'<i>If they are laying off staff and decreasing what they invest in the community and executive compensation is increasing, that is a real question,</i>' said Jessica Curtis, project director of the hospital accountability project at Community Catalyst, a national advocacy group that promotes wider access to affordable health care.</blockquote>Even if one accepts that the compensation of leaders of organizations that take care of sick and injured patients ought to mainly depend on the brilliance of their leadership as measured by how much money the organizations make, rather than the quality of that care, it is not clear that all these leaders are brilliant in that sense.<br /><br /><b>The Charitable Mission and CEO Compensation</b><br /><br />Essentially all US non-profit hospitals and hospital systems have a history of a charitable mission to improve the health of their patients and communities, even if that means taking care of poor people who cannot pay for these services.  Nearly all justify their legal status as non-profit corporations by stating this mission. <br /><br />For example, Peninsula Regional Medical Center, the main subject of the DelMarVaNow article, describes its mission thus in its <a href="http://www.guidestar.org/FinDocuments/2012/520/591/2012-520591628-094036fd-9.pdf">US tax filing</a>,<br /><br /><blockquote class="tr_bq">Peninsula Regional Medical Center is a not-for-profit 501 (c) 3 non-stock corporation founded in 1897 to serve the health care needs of the community.  The Hospital's <i>primary purpose is to provide the highest [sic] primary, secondary, and selected tertiary health care services to residents of and visitors</i> to the Mid-Delmarva Peninsula in a competent, compassionate, and cost effective manner designed to elicit a high degree of consumer satisfaction.  The Hospital's mission is to <i>improve the health of the communities we serve</i>....</blockquote><br />Yet it appears that this mission is honored mainly in the breach, at least when it comes to CEO compensation.  <br /><br />The DelMarVaNow article emphasized that hospitals' charitable functions are not seen as relevant by hospital boards when setting CEO compensation, <br /><br /><blockquote class="tr_bq">Despite the nonprofit status of the organizations they oversee, <i>hospital boards don't appear to put weight toward the amount of free medical services and community outreach activities, good deeds collectively known as charity care,</i> [executive vice president of Integrated Healthcare Strategies Kevin] Talbot</blockquote><br />Also,<br /><br /><blockquote class="tr_bq">The head of the consulting firm that helps PRMC's board establish [current CEO] Naleppa's pay said <i>community benefit shouldn't be part of the equation.</i><br /><br />'In my over 25 years of consulting on hospital compensation, <i>I have never seen community benefit used as a factor in determining executive pay,' </i>Rian Yaffe said.  'Community benefit has nothing to do with how difficult a hospital is to manage and lead.'</blockquote><br />However, community benefit is the mission of the hospital, and is justification for most US hospitals' non-profit status, which allows them to escape certain kinds of taxation, and for donors to make charitable, tax-advantaged contributions to the hospitals.   <br /><br />The Baltimore Sun listed financial but not charitable performance as a justification for the compensation of a particular executive, the CEO of Johns Hopkins Medical Center, who is<br /><br /><blockquote class="tr_bq">'held responsible for stringent qualitative measures,'  in such areas as financial performance, patient safety and service excellence, [Johns Hopkins] spokeswoman Kim Hoppe said in a statement.</blockquote><br />When asked by the Sun to comment, the advocacy group Community Catalyst stated<br /><br /><blockquote class="tr_bq">One of the factors that should be considered, it says, is the role of non-profit hospitals in the community and in providing charity care.  </blockquote><br />Meanwhile, while the hospitals gain advantages from ostensibly focused on the mission of providing community care and benefit, not only are there leaders not given incentives to uphold this mission, they are explicitly compared to leaders of for-profit organizations who have no such missions, and who are primarily tasked with increasing short term revenue in this era of "<a href="http://hcrenewal.blogspot.com/search/label/financialization">financialization</a>."  <br /><br />In the Baltimore Sun,<br /><br /><blockquote class="tr_bq">Hospitals note that they <i>compete with private sector businesses where their executives could choose to work instead.</i></blockquote>Again, as noted above, there is little evidence that top hired managers are really that mobile, and less that a manager from one sector, e.g., non-profit hospitals, would be in great demand in another, e.g., a for-profit corporation.<br /><br />The Boston Globe noted an argument made that implied no one should complain about how much non-profit hospital executives make, since executives of for-profit corporations make even more.<br /><br /><blockquote class="tr_bq"> 'In a big successful teaching hospital, it’s very rare to see anything less than $1 million in total compensation for the chief executive, and $1.5 million to $2 million is the norm,' [managing director of consulting firm Compensation Resources Paul R] Dorf said. '<i>Executives at publicly traded pharma or medical device companies can make 10 times as much</i>.' </blockquote>So if there is little evidence for the mobility of top hired managers, there is less for the desirability of managers of non-profit hospitals as heads of large pharmaceutical or medical device companies.  But furthermore, in trying to justify, albeit illogically, outsize CEO compensation, the defenders of this compensation have provided evidence that the leaders and stewards of non-profit hospitals may no longer care about the hospitals' fundamental mission.  This suggests that hospitals' overt declarations of their mission, especially when used to obtain more donations and tax benefits, may amount to the ethical equivalent of a "long con," that is, a long-term confidence scheme.<br /><br /><br /><b>Summary</b><br /><br />While F Scott Fitzgerald noted that the very rich are different from you and me, it may now be more appropriate to say that top hired managers are very different from you and me.  Again and again we see that they play by very different sets of rules than do other people who work in health care.  Notably, while they often emphasize cost cutting, and may be quick to lay off or outsource other employees, their compensation increases year by year no matter how well their organizations are doing.  While other employees, increasingly now including doctors as well as other health care professionals, have to answer to the hired managers, the hired managers only answer to boards of directors or trustees who often act like their cronies, perhaps because they are often also current or retired hired managers.<br /><br />Hired managers are subject to incentives that seem designed not to improve patients' and the public's health, but at best to improve the short-term revenue of health care organizations, and at worst to increase the wealth of hired managers.  Such perverse incentives risk promoting ill-considered, mission-hostile, or even corrupt management.  The sorts of people who aspire to be hired managers in such conditions are likely not the sort of people one would expect to really advance the health of patients or of the population.<br /><br />As a first step to restoring health care leadership to some state of reasonable accountability and responsibility, we need to challenge the rules that only hired managers play by.  It would be nice to see articles in the media about health care CEO compensation that at least attempt to question the usual talking points.  All of us could think about how we could challenge our local million dollar plus hospital CEOs to justify why they should be treated so differently from all other hospital employees.<br /><br />Since it seems that many hospitals no longer fit at least the spirit of the definition of not-for-profit organizations, even though they use this designation for financial advantage, we need policies to encourage them to uphold their mission, and that provide negative consequences if they do not.  <br /><br />

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The Long Con - "Charitable" Hospitals Make Multimillionaires out of Their CEOs

The CEOs of ostensibly charitable hospitals founded to serve the poor continue to become rich.   The latest reminders are in two articles from Maryland, from DelMarVaNow, and from the Baltimore Sun,.a…

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The Financialized Medical Center - Executives of Non-Profit Wake Forest Baptist Medical Center Make an "Investor Call," but Have no Investors

<br />We recently discussed the uncomfortable situation of Wake Forest Baptist Medical Center, the non-profit health system/ academic medical center of Wake Forest School of Medicine.  The organization suffered acute monetary losses after a problem plagued roll out of its new electronic health record.  Presiding over this mess were some extremely well paid executives who had been hailed as "visionaries" by their own public relations people. (Look <a href="http://hcrenewal.blogspot.com/2013/05/executive-compensation-as-legal.html">here</a> and <a href="http://hcrenewal.blogspot.com/2013/05/clouded-visionary-leadership-wake.html">here</a>.)<br /><br /><b>An Even Bigger Financial Loss </b><br /><br />The resourceful Richard Craver, <a href="http://www.journalnow.com/business/business_news/local/article_52778d60-d2f5-11e2-aeb0-001a4bcf6878.html">writing</a> in the Winston-Salem Journal, just documented that the financial losses due to this cybernetic chaos now seem even bigger, <br /><br /><blockquote class="tr_bq">The center said Monday in a report submitted to bond agencies that it had <i>a $62.8 million operational loss</i> and an overall loss of $3.2 million in the third quarter of fiscal year 2012-13, which ended March 31.<br /><br />Stock investment gains of $54.6 million helped offset much of the operational revenue loss.<br /><br />Still, <i>the operational loss was $13.2 million higher than the $49.6 million it reported Dec. 31</i>. At that time, the center reported $7.4 million in overall excess revenue because of investment gains.  </blockquote><b>A Call to Non-Existent Investors </b><br />  <br />That, however, was not the big news.  Mr Craver further noted,<br /><br /><blockquote class="tr_bq"><i>Wake Forest Baptist chief executive Dr. John McConnell and chief financial officer Edward Chadwick held an<a href="http://emma.msrb.org/ER677717-ER525248-ER927930.pdf"> <b>investors call</b></a> on Monday to discuss the financial performance. It is the third such presentation of the fiscal year</i>, according to the Municipal Securities Rulemaking Board’s <a href="http://www.emma.msrb.org/">www.emma.msrb.org</a> website.</blockquote><br />Mr Craver noted that there was something distinctly odd about this.  <br /><br /><blockquote class="tr_bq"><i>The investor call represents a potential blurring of the lines between how not-for-profit hospitals and corporations operate,</i> which also includes executive compensation as a hot-button topic.<br /><br />Analysts said the call is comparable to an earnings warning that corporations provide when they try to soften the negative reaction from a poorer-than-projected financial performance.<br /><br /><i>Wake Forest Baptist did not comment when asked how long has it made investor calls and who receives notifications of the presentations</i>. According to <a href="http://emma.org/">emma.org</a>, the center did not have investor calls listed prior to the first quarter of the current fiscal year.<br /><br />A search of Wake Forest Baptist’s public website did not find any references to investor calls or quarterly and annual financial reports. Spokesman Chad Campbell said the quarterly financial calls are in the public domain.</blockquote><br />While US publicly traded for-profit companies usually do schedule quarterly conference calls with investors to inform them about recent developments, Wake Forest Baptist Medical Center is clearly not a publicly held for-profit company.  It is a non-profit organization.  Non-profit organizations do not have investors or shareholders,<br /><br />For-profit corporations also may do periodic calls with bondholders.  Wake Forest Baptist Medical Center does have bondholders.  But the <a href="http://emma.msrb.org/ER677717-ER525248-ER927930.pdf">posted notice</a> for the call discussed above clearly refers to an "investor call," not a bondholders call.  One can now listen to the call (+1 855 859 2056, conference ID 90279604), and when I did, I heard the call was introduced by the operator, and by the Wake Forest Baptist Medical Center CFO as an "investor call."   <br /><br /><b>A Financialized Mindset? </b><br /><br />So what in the world is going on here?  So why would its CEO and CFO make a quarterly call to "investors?"  The idea is absurd on its face.  <br /><br />Mr Craver was able to find one person to comment, who seemed to assume that the calls were truly "investor calls," not mislabeled calls to bondholders:<br /><br /><blockquote class="tr_bq">Ken Berger, president and chief executive of Charity Navigator, said a not-for-profit hospital holding an investors call 'is <i>the antithesis of why a nonprofit exists</i>.'<br /><br />'<i>Nonprofits are not supposed to be trying to maximize shareholder value, but maximize their benefit to the communities they serve</i>,' Berger said. 'Transparency is great, whether corporation or nonprofit, for shedding light on financial performance.'<br /><br />'In this instance, the investor call doesn’t represent full transparency, but only represents more <i>morphing of a not-for-profit into a for-profit organization</i> where only a select few investors are chosen to have access to pertinent current information.'<br /></blockquote>My guess is that Mr Berger got it right.  It may be that the top executives of Wake Forest Baptist Medical Center have the mindsets of executives of a big for-profit corporation in an era of <a href="http://hcrenewal.blogspot.com/search/label/financialization">financialization</a>. <br /><br /><a href="http://economix.blogs.nytimes.com/2013/06/11/financialization-as-a-cause-of-economic-malaise/">In the New York Times Economix blog</a>, Bruce Bartlett, an economist who has served in the administration of two Republican Presidents, Ronald Reagan and George HW Bush, and has worked for two Republican legislators, Jack Kemp and Ron Paul, cited financialization as the big largely anechoic reason for the global economic malaise.  He wrote,<br /><br /><blockquote class="tr_bq"> According to <a href="http://web.williams.edu/Economics/wp/BakijaColeHeimJobsIncomeGrowthTopEarners.pdf">research</a> by the economists Jon Bakija, Adam Cole and Bradley T. Heim, <i>financialization is a principal driver of the rising share of income going to the ultrawealthy – the top 0.1 percent </i>of the income distribution.<br /> <br />Research by the University of Michigan sociologist <a href="http://cas.umkc.edu/econ/economics/faculty/wray/631Wray/Week%207/Krippner.pdf">Greta R. Krippner</a> supports this position. She notes that financialization exacerbates the well-known problem of corporate ownership and control: <i>while corporate assets are owned by shareholders, they are controlled by managers who often extract an excessive share of corporate profits for themselves.</i></blockquote><br /> As we have <a href="http://hcrenewal.blogspot.com/2012/04/health-care-dysfunction-explained-by.html">discussed</a>, for a generation business schools have taught managers that there primary goal is to maximize shareholder value, which has been interpreted to mean short-term financial performance.  Large corporations now give top managers tremendous incentives to maximize such performance, such that top managers have become rich, often the richest members of society.  Many top managers of health care organizations now come from a business background, and health care managers, even of non-profit organizations, also get large incentives.  <br /><br />Note also that the two executives on the "investor call" both had outsize compensation in 2011, the latest year for which the non-profit Wake Forest Baptist Medical Center has released the disclosure form (990 form) required by the US government.  The CEO, Dr McConnell, received over $2 million, while the CFO, Mr Chadwick, received just short of $1 million. (Look <a href="http://hcrenewal.blogspot.com/2013/05/executive-compensation-as-legal.html">here</a>.)  So it looks like they have a good reason to continue to operate a financialized organization so they can keep extracting sufficient revenue to make themselves rich.<br /><br />Clearly, though, if we want our health care organizations to preserve and protect patients' and the public health, we need them to be lead by leaders who care much more about health care than about short-term revenue and making themselves rich.<br /> <br /><br />As we have said endlessly,  true health care reform would put in place leadership that understands the health care context, upholds health care professionals' values, and puts patients' and the public's health ahead of extraneous, particularly short-term financial concerns. We need health care governance that holds health care leaders accountable, and ensures their transparency, integrity and honesty. <br /><br />

The Financialized Medical Center - Executives of Non-Profit Wake Forest Baptist Medical Center Make an "Investor Call," but Have no Investors

We recently discussed the uncomfortable situation of Wake Forest Baptist Medical Center, the non-profit health system/ academic medical center of Wake Forest School of Medicine.  The organization suff…

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More Signs of Organized Resistance? - Proposed Legislation for More Hospital Leadership Accountability

This year we note the beginning of action against the power of large health care organizations lead by hired executives and cronies who seem to put their self-interest and self-enrichment ahead of patients' and the people's health.  In 2013 we noted no confidence votes by medical school faculty (<a href="http://hcrenewal.blogspot.com/2013/01/at-university-of-miami-faculty-without.html">here</a>), and university faculty (<a href="http://hcrenewal.blogspot.com/2013/03/nyu-faculty-vote-no-confidence-in-their.html">here</a>) against academic leaders perceived as putting their power and wealth ahead of core values, actions by a state governor (<a href="http://hcrenewal.blogspot.com/2013/02/another-reason-for-hope-concern-about.html">here</a>) and a big city mayor (<a href="http://hcrenewal.blogspot.com/2013/03/the-push-back-continues-mayor-of.html">here</a>) against local health care systems perceived as putting their executives' enrichment ahead of their services to patients, and a union labor action (<a href="http://hcrenewal.blogspot.com/2013/03/the-market-made-us-do-it-increasing-low.html">here</a>) against a health care system perceived as putting executive enrichment ahead of adequate health insurance for low level employees.  We have posted about numerous examples of hospital (and other health care organization) executives receiving <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">compensation</a> far out of proportion to any realistic measure of their organizations' performance or positive effects on patients' or the public's health, and seemingly skimmed off the top of these organizations' budgets. <br /><br />Now Modern Healthcare has <a href="http://www.modernhealthcare.com/article/20130330/NEWS/303309961/calif-bill-challenges-tax-exemption-for-profitable-not-for-profit">reported</a> about a bill in the California legislature aimed at supposedly not for profit hospitals that put money ahead of patients:<br /><br /><blockquote class="tr_bq">Officials with the California Nurses Association say the proposed law—AB 975—is an <i>attempt to bring more accountability to money-making hospitals that use tax exemptions to turn tidy profits and give hefty salaries to executives.</i></blockquote><br />Furthermore,<br /><br /><blockquote class="tr_bq"> Charles Idelson, spokesman for the California Nurses Association, said <i>many profitable tax-exempt hospitals have lost the public's trust in recent years by making profits their top mission and paying salaries that allow executives to buy yachts</i> while <i>'chipping away' at less-profitable services for women, children, the poor and mentally ill.</i><br /><br />'What this bill does is, it really is an effort to <i>increase transparency and make hospitals more accountable to the communities that they purport to serve</i>,' Idelson said. 'Hospitals that are meeting their charity care obligation should welcome this process and understand that it is an opportunity to rebuild some of the public trust that they have lost through their other policies and practices.'</blockquote><br /><b>Hospital Leaders Deploy Talking Points, Including Logical Fallacies </b> <br /><br />Perhaps predictably, hospital executives are not so happy:<br /><br /><br /><blockquote class="tr_bq"><div id="storyGraf2">'This is less about good public policy than it is about politics,' said Michael Hunn, chief executive for southern California hospitals at Providence Health & Services, which has five hospitals in the state. 'I would <i>hate to see a political agenda</i> further harm those that are marginalized in society,' Hunn said. 'No matter what the legislative and political process is, we need to keep in mind the human beings that it is our responsibility to care for.'</div></blockquote><div id="storyGraf2"><br /></div><div id="storyGraf2">Note that Providence Health & Services is the ostensibly non-profit Catholic hospital system accused of putting paying executives multi-million dollar compensation ahead of giving low level employees minimally adequate health insurance as we posted <a href="http://hcrenewal.blogspot.com/2013/03/the-market-made-us-do-it-increasing-low.html">here</a>.  According to the <a href="http://www.guidestar.org/FinDocuments/2011/510/216/2011-510216586-08d12748-9.pdf">organization's latest 990 form</a>, Mr Hunn got $1,576,978 total compensation in 2011.  So one wonders which human beings he is feeling most responsible for?  Note also that the unsubstantiated allusion to a "political agenda," appears to be an <a href="http://www.nizkor.org/features/fallacies/appeal-to-ridicule.html">appeal to ridicule</a>, "a fallacy in which ridicule or mockery is substituted for evidence in an 'argument.'"  We have noted before how public relations flacks working for top executives of health care organizations seem to be very good at using such <a href="http://hcrenewal.blogspot.com/search/label/logical%20fallacies">logical fallacies</a>.  The argument Mr Hunn made seems essentially identical to an argument used against a lawsuit to end the tax exemption of a huge Pennsylvania hospital system that has apparently angered the communities which it is supposed to serve while paying its executives millions (look <a href="http://hcrenewal.blogspot.com/2013/03/the-push-back-continues-mayor-of.html">here</a>).</div><div id="storyGraf2"><br /></div><div id="storyGraf2">In addition, </div><div id="storyGraf2"><br /></div><div id="storyGraf2"><br /><blockquote class="tr_bq">Jan Emerson-Shea, spokesman for the California Hospital Association, said the bill's union backers were hiding their real agenda with 'red herring' issues like highly compensated executives and the superficial dissonance of not-for-profit organizations with healthy margins.<br /><br />''Not-for-profit hospital' doesn't mean that you don't make a profit--<i>all hospitals need to make a profit to keep the doors open</i>,' Emerson-Shea said</blockquote></div><div id="storyGraf2"><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">Of course, that last assertion is not true.  Non-profit organizations need to avoid sustaining repeated losses to keep their doors open, but do not need to make any surplus to do so.  And the issue was not whether hospitals make small surpluses, but whether they behave like for-profit corporations, especially in regard to how well they pay hired executives.  So while protesting "red herrings," one spokesperson for hospitals, presumably for hospitals' hired executives, seemed to be arguing that the only alternative to a very large surplus and a very large reserve is a deficit.  By ignoring another obvious alternative, having a small surplus and a small reserve, this argument thus is derived from the logical fallacy known as the <a href="http://www.nizkor.org/features/fallacies/false-dilemma.html">false dilemma</a>.  The spokesperson also seemed to be arguing that a deficit inevitably leads to bankruptcy.  Of course prolonged deficits might lead to bankruptcy, but a single deficit would not necessarily do so.  Thus we see the logical fallacy known as the <a href="http://www.nizkor.org/features/fallacies/slippery-slope.html">slippery slope</a>. Note further that the argument used by the California executive here was again essentially identical to an argument used against a lawsuit to end the tax exemption of a huge Pennsylvania hospital system that has apparently angered the communities which it is supposed to serve while paying its executives millions.  So it looks like once again the hired executives and their public relations operatives have their talking points in line.   (See this <a href="http://hcrenewal.blogspot.com/2013/03/the-push-back-continues-mayor-of.html">pos</a>t, from which our argument about the logical fallacies employed first in Pennsylvania came.)</div></div><br /><br /><b>Summary</b><br /><br />It really is beginning to look like there is some sort of trend, albeit still small, towards organized resistance against the hired executives and cronies who have made themselves rich from large health care organizations, putting their self-interest and enrichment apparently before taking care of patients and serving the public's health.  As we have said ad infinitum....<br /><br />Health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.<br /><br />If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses. <br /><br />

More Signs of Organized Resistance? - Proposed Legislation for More Hospital Leadership Accountability

This year we note the beginning of action against the power of large health care organizations lead by hired executives and cronies who seem to put their self-interest and self-enrichment ahead of pat…

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The Push Back Continues: the Mayor of Pittsburgh Sues UPMC Claiming it is No "Public Charity"

There is another indication that push back against the power of large health care organizations is getting more significant.<br /><br />In February, 2013, we <a href="http://hcrenewal.blogspot.com/2013/02/another-reason-for-hope-concern-about.html">noted</a> that the Governor of the state of Connecticut publicly criticized lavish executive compensation at a small regional hospital system, compensation partially fueled by government funded health insurance payments, and in contrast to hospitals' claims that insufficient reimbursement was driving them to poverty.    <br /><br /><b>The Suit Challenging the Charitable Status of UPMC</b><br /><br />Now the outgoing Mayor of Pittsburgh has launched a lawsuit challenging the status of huge, nominally non-profit health system UPMC as a public charity.  A summary of the arguments comes from an <a href="http://www.post-gazette.com/stories/local/neighborhoods-city/upmc-pittsburgh-stake-positions-for-court-fight-on-nonprofit-status-680393/">article</a> in the Pittsburgh Post-Gazette.  First, in the state of Pennsylvania, a Supreme Court description set out a test to determine if a particular organization is a public charity, the status the UPMC currently claims:<br /><br /><blockquote class="tr_bq">The Supreme Court's 1985 ruling involving the Hospital Utilization Project (or HUP) set out a test that requires that a purely public charity must fulfill all five of the test's points that it: advances a charitable purpose; donates or renders gratuitously a substantial portion of its services; benefits a substantial and indefinite class of persons who are legitimate subjects of charity; relieves the government of some of its burden; and operates entirely free from private profit motive.<br /><br />That ruling was reaffirmed by the Supreme Court in April in a case involving an Orthodox Jewish summer camp in Pike County that was found to not deserve its property tax exemption.</blockquote><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br />The city's lawyer, E.J. Strassburger of Strassburge Mckenna Gutnick & Gefsky, argued that UPMC does not pass that test:</div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><a href="http://www.post-gazette.com/stories/local/neighborhoods-city/upmc-pittsburgh-stake-positions-for-court-fight-on-nonprofit-status-680393/#ixzz2OezY8Lbc" style="color: #003399;"></a><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /><blockquote class="tr_bq">Mr. Strassburger wrote, first and most strongly, that 'it seems virtually certain that<i> UPMC would fail to carry its burden of proving that it satisfies the fifth prong of the HUP test by 'operating entirely free from profit motive</i>.''<br /><br />He cited <i>UPMC's nearly $1 billion surplus</i> over the last two years and <i>$3 billion in reserves</i> as evidence of this, and that UPMC 'is <i>carefully structuring its operations to prioritize profits-generation over charity</i>.'</blockquote><br />Also,  <br /><br /><blockquote class="tr_bq">In addition, Mr. Strassburger wrote that UPMC <i>does not 'advance a charitable purpose' in part because UPMC 'maintains an 'open admissions policy' in name only' and it does not make all of its health care available to everyone, regardless of ability to pay</i>.</blockquote><br />Furthermore,<br /><br /><blockquote class="tr_bq">the review says UPMC <i>fails to provide sufficient charity care, operates far-flung international operations that are losing money, and has closed operations in poor communities only to open or expand into richer ones.</i><br /><br />But it also cites what it terms <i>'excessive' benefits of UPMC executives, including CEO Jeffrey Romoff's <b>$5.9 million</b> salary; the fact that more than 20 employees are paid more than <b>$1 million</b>; UPMC's corporate jet; Mr. Romoff's 'lavish'  Downtown headquarters (which it claims includes a private chef, chauffeur and private dining room).</i></blockquote><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"></div></div><br /><br />The Post-Gazette also sought the advice of experts,<br /><br /><br /><blockquote class="tr_bq">Nicholas Cafardi, dean emeritus and professor at Duquesne University's Law School, said he believes the argument that UPMC is not free from a private profit motive is the strongest one in Mr. Strassburger's review, in part because of how far-flung UPMC has become.<br /><br />'<i>The more they do that gets them away from their core purpose, the more they open themselves up to the argument that they aren't doing charity,</i>' he said.<br /><br />In addition, Mr. Cafardi said, <i>UPMC's extensive advertising campaign --sometimes directly against rival Highmark -- makes it look like the organization is operating for profit</i>.<br /><br />'A lot of things like that make them look like they're operating for a private profit,' he said. 'You advertise because you're in competition. That's the private profit motive.'<br /><br />Gary M. Grobman, former head of the nonprofit Pennsylvania Jewish Coalition and author of 'The Pennsylvania Nonprofit Handbook,' said UPMC would have a fight on its hands.<br /><br />'Based on what [Mr. Strassburger] has written, which may or may not be true, it seems some staff at the hospital are paid quite well and <i>some decisions are made based on achieving as much revenue as possible instead of providing as much charity as possible</i>,' he said. 'And if all of that is true, they don't deserve their not-for-profit status.'</blockquote><br /><br />So the main issues brought up by the city are similar to issues we have raised about numerous nominally non-profit health care organizations.  We have shown that many particular organizations appear not to act like charities when they appear to put short-term revenue ahead of the organization's mission, a process sometimes called <a href="http://hcrenewal.blogspot.com/search/label/financialization">financialization</a>, and put <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">lavish compensation of top hired managers </a>ahead of the organization's general financial well-being; and when their leadership appears to <a href="http://hcrenewal.blogspot.com/search/label/mission-hostile%20management">subvert the organization's mission</a>.<br /><br /><b>The UPMC Response versus Anger in the Community</b><br /><br />Of course, UPMC public relations disagreed with the premises of the lawsuit: <br /><br /><blockquote class="tr_bq">'We think the 13-page memo that a local law firm wrote for the City is very weak and reaches its conclusions entirely based on opinion, not fact,' UPMC spokesman Paul Wood wrote. 'Rather than responding to <i>partisan politics and blatant union pandering</i> by the Mayor, UPMC looks forward to demonstrating in a court of law that we meet all five prongs of the HUP test and that our hospitals easily qualify for the tax-exempt status they unquestionably deserve. Interestingly, by hiring an outside law firm the City is prepared to waste millions of dollars of taxpayer funds on an unsuccessful attempt to pursue this case.'</blockquote><br />Note that the unsubstantiated allusions to "partisan politics" and "pandering" appear to be an <a href="http://www.nizkor.org/features/fallacies/appeal-to-ridicule.html">appeal to ridicule</a>, "a fallacy in which ridicule or mockery is substituted for evidence in an 'argument.'"  We have noted before how public relations flacks working for top executives of health care organizations seem to be very good at using such <a href="http://hcrenewal.blogspot.com/search/label/logical%20fallacies">logical fallacies</a>.<br /><br />Mr Wood also scoffed at the naive notion that having a $1 billion surplus and $3 billion in reserves means the organization operates like a business:<br />  <br /><blockquote class="tr_bq">Mr. Wood wrote that 'numerous people have tried to distort the meaning of that component to attain a political result.'<br /><br />'It does not mean a nonprofit shouldn't strive to have a positive operating margin -- organizations that don't do that go out of business,' he added.</blockquote><br />Note that Mr Wood seems to be arguing that the only alternative to a very large surplus and a very large reserve is a deficit.  By ignoring another obvious alternative, having a small surplus and a small reserve, his argument thus is derived from the logical fallacy known as the <a href="http://www.nizkor.org/features/fallacies/false-dilemma.html">false dilemma</a>.  He also seemed to be arguing that a deficit inevitably leads to bankruptcy.  Of course prolonged deficits might lead to bankruptcy, but a single deficit would not necessarily do so.  Thus he also employed the logical fallacy known as the <a href="http://www.nizkor.org/features/fallacies/slippery-slope.html">slippery slope</a>.  <br /><br />On the other hand, a Post-Gazette columnist <a href="http://www.post-gazette.com/stories/opinion/sally-kalson/mayor-v-moneybags-upmc-could-be-beloved-if-it-put-patients-over-profits-and-perks-680646/">showed</a> the depth of community concern over the role of UPMC:<br /><br /><blockquote class="tr_bq">Someone in power is taking official action against <i>the biggest corporate bully in town</i>. Can I get an Amen?<br /><br />In fact, I can get many Amens, and that says a lot about the behavior of the region's dominant hospital system.<br /><br /><i>Has there ever been a 'charity' so disliked and mistrusted by the people it's supposed to serve and the people it employs? </i>You rarely hear anyone say 'I cannot stand CARE,' or 'I despise Doctors Without Borders.' But you hear it all the time about UPMC, notwithstanding the jobs it creates, the medical innovations it advances, the life-saving care its doctors deliver and its commitment of $100 million for the Pittsburgh Promise scholarship fund. With all that to its credit it should be beloved, but the opposite is true.<br /><br />Not helping matters is its <i>corporate public relations, which is increasingly tone deaf.</i> In an emailed response to the mayor's announcement, UPMC spokesman Paul Wood said the lawsuit 'appears to be based on the mistaken impression that a non-profit organization must conduct its affairs in a way that pleases certain labor unions, certain favored businesses, or particular political constituencies.'<br /><br />No, Mr. Wood. It's based on the correct impression that a nonprofit hospital's top priority should be the patients, not building a monopoly. And that a $10 billion system with a billion-dollar surplus and $2 billion to $3 billion in reserves should be taking care of many more indigent sick people than UPMC has been treating -- especially when it owns land that a Post-Gazette investigation valued at $1.6 billion, even as it enjoys a $20-million tax break every year, underwritten by the good citizens of Pittsburgh and Allegheny County. You can try blaming the SEIU organizing campaign or your arch-enemy, Highmark the insurer, or politics, but this is so much bigger than any of those things. And the public knows it.</blockquote><br /><br />Keep in mind that the current discussion of UPMC in the media focuses on very recent events.  On Health Care Renewal, we have <a href="http://hcrenewal.blogspot.com/search/label/UPMC">posted frequently</a> over the last eight years about problems with the leadership of UPMC.  We <a href="http://hcrenewal.blogspot.com/2005/05/guilty-pleas-in-another-hospital.html">started </a>in 2005 with their inability to prevent a fraud  perpetrated by some UPMC middle managers. In 2008, we <a href="http://hcrenewal.blogspot.com/2008/11/questions-of-benefits-vs-risks-for-upmc.html">discussed </a>the apparent mismanagement of the highly touted UPMC liver transplant program.    <a href="http://hcrenewal.blogspot.com/2009/02/healthcare-it-blamed-in-patient-death.html">Starting in 2009</a>, and continuing <a href="http://hcrenewal.blogspot.com/2013/03/when-human-error-causes-ehr-downtime.html">through 2013</a>, InformaticsMD chronicled how the leadership has presided over health care information technology so problematic that it has been <a href="http://hcrenewal.blogspot.com/2009/02/healthcare-it-blamed-in-patient-death.html">blamed for patient deaths</a>.  In 2009, we<a href="http://hcrenewal.blogspot.com/2009/09/upmc-fouls-another-one-off.html"> noted</a> sanctions against UPMC's public relations.   In 2010, we <a href="http://hcrenewal.blogspot.com/2010/05/at-upmc-dealings-with-board-members.html">noted</a> conflicts of interest and apparent self-dealing and nepotism affecting the UPMC board of trustees and UPMC executives.  <br /><br /><b>Summary</b><br /><br />For at least a generation, health care leaders and health policy makers have been pushing for consolidation of health care organizations in the name of efficiency.  We now have a health care system dominated by fewer, larger organizations, and whatever efficiencies have been produced mainly seem to have benefited organizational insiders.  Maybe now, though, some are beginning to remember that monopolists - starting at least with John D Rockefeller, I believe - have historically touted their ability to improve efficiency and rationality.  The results, however, have been higher prices and poorer results for everyone else. <br /><br />Hospitals and hospital systems have been particularly good at getting away with the efficiency argument despite the fact that health care prices in the US have been soaring ever since the "vertical integration" craze in the early 1990s.  I believe such organizations have been getting away with this nonsense because of their revered status within their communities.  Now, however, as huge hospital systems drive up prices and make their top executives rich, maybe we will remember Theodore Roosevelt's warnings about trusts and malefactors of great wealth.<br /><br />There is no good evidence that large hospitals and even larger hospital systems take better care of patients, or provide better teaching and research.  Not only should we question whether huge hospital systems like UPMC are public charities, we should wonder how we ever let them get so big, and proceed to break up these new sorts of "trusts."<br /><br /><br />

The Push Back Continues: the Mayor of Pittsburgh Sues UPMC Claiming it is No "Public Charity"

There is another indication that push back against the power of large health care organizations is getting more significant.In February, 2013, we noted that the Governor of the state of Connecticut pu…

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For Whom Does the Center for the Protection of Patient Rights Advocate?

We have occasionally discussed the cases of  some patient advocacy organizations which seem to be influenced by substantial financial support from the health care industry.  For example, look <a href="http://hcrenewal.blogspot.com/search/label/patient%20advocacy%20groups">here</a> and <a href="http://hcrenewal.blogspot.com/search/label/NAMI">here</a>.  Related are "astroturf" organizations, which promote policies that may be favored by their industrial sponsors (e.g., <a href="http://hcrenewal.blogspot.com/2007/11/cultivating-astroturf.html">here</a>.) <br /><br /><strong>Background on the Center for Protection of Patient Rights</strong><br /><br />The topic of this post is the Center for Protection of Patient Rights, which may have started out as something like an astroturf organization, but seems to have become something even more interesting.  The Center, which, by the way, seems not to have a web-site, was the subject of an <a href="http://www.latimes.com/news/nationworld/nation/la-na-secret-money-20120528,0,7342535,full.story">investigative report</a> in the Los Angeles Times in May, 2012.  Here is the article's description of how the Center began,<br /><br /><blockquote class="tr_bq">The Center to Protect Patient Rights was created in April 2009, just as the debate over the healthcare bill was heating up. The group's mission was to 'protect the rights of patients to choose and use medical care providers,' according to its corporate paperwork, filed in Maryland.<br /><br />While never surfacing publicly, the center sent more than $10 million in its first year to groups such as Americans for Prosperity, which took a lead in protesting the measure.<br /><br />'I think they saw what we were doing and liked it,' said Tim Phillips, president of Americans for Prosperity, which got $4.1 million. He said he did not know the source of the center's funding and declined to comment on whether it still supports his group.</blockquote><br />So this group supported an advocacy position about health care reform, so perhaps it could be considered an astroturf organization, were we to know it was funded by the health care industry.  Many astroturf organizations do reveal support from particular corporations.  However, at the time the Los Angeles Times published the report, the source of the Center's funding was unknown.  <br /><br /><strong>Secretive Leadership</strong><br /><br />Furthermore, while astroturf organizations may be eager to get more public notice, presumably so they can further their advocacy, the Center seemed oddly secretive.  Its executive director and president is one Sean Nobel.  However, as the LA Times article noted, <br /><br /><blockquote class="tr_bq"><em>Noble did not respond to repeated phone calls and emails. Courtney Koshar, a Phoenix anesthesiologist and the organization's only other director, did not respond to requests for comment. And a Phoenix doctor who once sat on its board said he couldn't remember who asked him to join.</em><br /><br />'I honestly played very little role,' said Dr. Eric Novack, who headed an organization called the US Health Freedom Coalition that received nearly its entire budget — $1.7 million — from the center to help pass a state ballot measure that aimed to block President Obama's healthcare overhaul.</blockquote><br /><strong>Support for Political Organizations, not Health Care Advocacy</strong><br /><br />Even more curiously, despite its name, the most of the Center's spending was not for advocacy about health care reform, but went to organizations that  seemed to have little or nothing directly to do with health.  As the Times reported, <br /><br /><blockquote class="tr_bq">During the 2010 midterm election, the center sent more than $55 million to 26 GOP [Grand Old Party, that is, Republican Party] -allied groups, tax filings show, funding opaque outfits such as American Future Fund, 60 Plus and Americans for Job Security that were <em>behind a coordinated campaign against Democratic congressional candidates.</em></blockquote>It seemed that these grants were used for nothing that directly related to health.  For example,<br /><br /><blockquote class="tr_bq">The <em>largest share of the center's money went to American Future Fund</em>, a Des Moines-based group started by onetime GOP congressional aide Nick Ryan. The fund, which <em>ran campaigns against two dozen Democrats in the 2010 election cycle, spent $23 million that period, tax filings show, with nearly $13 million coming from the center.</em><br /><br /><em>Its biggest target was an up-and-coming Iowa Democrat</em>, Rep. Bruce Braley. In August 2010, American Future Fund launched an ad falsely claiming that Braley supported building a mosque at the former World Trade Center site in New York — the beginning of a $2-million fusillade that included radio ads, robo-calls and nine mailers. </blockquote><br />A list of the recipients of the Center's 2010 grants was also publised in the LA Times <a href="http://spreadsheets.latimes.com/cppr-funding/">here</a>.<br /><br /><strong>Where Did the Center Get its Support?</strong><br /><br />Just before this week's US election, the plot thickened.  The LA Times <a href="http://articles.latimes.com/2012/nov/05/local/la-me-secret-donors-20121106">reported </a>that because of the Center's obviously political activities in California, an effort was made to determine its source of funding, but that came up short.<br /><br /><blockquote class="tr_bq">After a frantic court battle, state election officials succeeded Monday in <em>forcing an Arizona group to disclose the identities of contributors that provided $11 million to a California campaign fund.</em><br /><br />But the revelations added little clarity for voters. <em>The mystery donors turned out to be other nonprofits, whose individual contributors remained secret.</em><br /><br /><em>The money started with the Virginia-based Americans for Job Security and was transferred to a group called the Center to Protect Patient Rights. Over the course of a few days in October it was sent to the Arizona group, Americans for Responsible Leadership, and then transferred again to California.</em><br /><br />Finding the source of the money 'becomes daunting,' said Derek Cressman of Common Cause, an activist organization that filed the original complaint about the donation. 'How many layers can you drill through?'</blockquote><br />Note that in 2010, the Center for Protection of Patient Rights gave money to the Americans for Job Security, but in 2012, the latter organization gave money to the former - curiouser and curiouser.  <br /><br /><strong>Allegations of Illegalities, Including Money Laundering</strong><br /><br />It turns out the Americans for Job Security has been in trouble before for activities that seemed contrary to state election law:<br /><br /><blockquote class="tr_bq">Americans for Job Security, one of the nonprofits involved in the $11-million donation, was investigated by Alaskan officials for its role in a 2008 mining referendum.<br /><br />Authorities concluded that the organization's <em>'sole purpose is to allow individuals and corporations to financially support various causes without having to disclose that financial support.</em>'<br /><br />That investigation showed how a wealthy landowner sent $2 million to the group, which then funneled most of it back to Alaska to try to fend off construction of a mine near the landowner's property.<br /><br /><em>Americans for Job Security agreed to a settlement, paying a $20,000 fine and pledging 'not to engage in similar activity'</em> again in Alaska.</blockquote><br />In addition, the Mercury News<a href="http://www.mercurynews.com/elections/ci_21932215/fppc-releases-names-donors-who-made-secret-11"> reported</a> allegations that the fund transfers by the Committee for the Protection of Patient Rights were illegal.<br /><blockquote class="tr_bq">two conservative groups, <em>Americans for Job Security and the Center to Protect Patient Rights, are part of a tangled web of so-called dark donors who operate largely out of public view, shielded by their status as nonprofit advocacy groups that are supposedly not involved primarily in politics.</em><br /><br />While the groups have been identified, however, individual donors who have bankrolled them remain a mystery.<br /><br />But 'this isn't going to stop here,' said Ann Ravel, chairwoman of the Fair Political Practices Commission, the state's political watchdog. <em><strong>'They admitted to money laundering</strong></em>. We agreed to do this without an audit because we wanted to get information to the public before the election. But we in no way agreed this would preclude further action.'<br /><br />The FPPC determined that the Arizona group, Americans for Responsible Leadership, had violated California campaign law.<br /><br /><em>Money laundering -- sending money through multiple sources to conceal the original donor -- is a misdemeanor. But a conspiracy to commit money laundering is a felony</em>. It was not clear Monday whether the FPPC or the state Attorney General's Office will pursue criminal charges.</blockquote><br /><strong>Summary</strong><br /><br />So the answer to the question posed in the title of this post is unknown.  At this point, there is nothing public that indicates for whom the Center for Protection of Patient Rights advocates.  However, it is hard to conceive that its advocacy is for patients.  <br /><br />So rather than merely being an astroturf organization (a health care policy advocacy group funded by industry money), the benignly named Center for the Protection of Patient Rights appears to be a dark money group whose goals may have allegedly included money laundering to facilitate vast monetary influence on political campaigns by people and organizations whose identities remain secret.<br /><br />We have often discussed the role of deception in health care, including <a href="http://hcrenewal.blogspot.com/search/label/stealth%20marketing">stealth marketing</a>, <a href="http://hcrenewal.blogspot.com/search/label/stealth%20health%20policy%20advocacy">stealth public policy advocacy</a>, and <a href="http://hcrenewal.blogspot.com/search/label/stealth%20lobbying">stealth lobbying</a>.  Now we see health care being used as a vehicle for political deception, stealth political campaigns being disguised as stealth public relations campaigns.  The convolutions of the deceptions induce dizziness.  <br /><br />Of course, this is the opposite of the sorts of transparency health care professionals and academics ought to support, and patients and the public ought to demand.  How will we ever improve health care when health care organizations are used to hide layer upon layer of deception?<br /><br />Real improvements in health care require health care leadership dedicated to transparency, honesty, and accountability. 

For Whom Does the Center for the Protection of Patient Rights Advocate?

We have occasionally discussed the cases of  some patient advocacy organizations which seem to be influenced by substantial financial support from the health care industry.  For example, look here and…

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How Big Health Care Charities Rely on Lying Telemarketers

A modern day Diogenes searching for an honest organization in health care would have a very hard time.  Close to the "you can't make this stuff up" category is a new <a href="http://www.bloomberg.com/news/2012-09-12/charities-deceive-donors-unaware-money-goes-to-a-telemarketer.html">investigative report</a> from Bloomberg on deceptive - to use a polite word - practices at some of the US' biggest health care charities.<br /><br /><strong>Using Commercial Telemarketing Firms that Keep Nearly All Money Raised</strong><br /><br />The report showed how major US health care charities use privately held for-profit telemarketing firm InfoCision Management Corp to raise money, but most of the money raised went back to InfoCision.  The opening example was of a particular telemarketing call:<br /><blockquote>A woman named Robin <em>said she was representing the American Diabetes Association.</em> <br /><br />Robin didn’t ask for money. She asked Patterson to stamp and mail pre-printed fundraising letters to 15 neighbors. Both of Patterson’s parents and one grandmother had been diabetic, so she agreed to do it, Bloomberg Markets magazine reports in its October issue.<br /><br />'I thought since it does run in the family, it wouldn’t hurt for me to help,' says Patterson, 64, a retired elementary school teacher. She guessed, based on what she knew about charity fundraising, that about 70 to 80 percent of the money she brought in would be used for diabetes research.<br /><br />The truth was almost the exact opposite. <em>The vast majority of funds Patterson, her neighbors and people like them throughout the country would raise -- almost 80 percent -- would never be made available to the Diabetes Association. Instead, that money collected from letters sent to neighbors would go to the company that employed Robin and an army of other paid telephone solicitors: InfoCision Management Corp.</em><br /><br /><em>Just 22 percent of the funds the association raised in 2011 from the nationwide neighbor-to-neighbor program went to the charity</em>, according to a report on its national fundraising that InfoCision filed with North Carolina regulators. </blockquote><br />So while some American health care charities boast that most of the money they receive goes to programming, not management or fund raising, in this case, the opposite was true.<br /><br /><strong>Many of the Biggest US Health Care Charities Were Involved</strong><br /><br />As the article stated, <br /><blockquote>Many of the biggest-name charities in the U.S. have signed similarly one-sided contracts with telemarketers during the past decade. The <em>American Cancer Society, the largest health charity in the U.S., enlisted InfoCision from 1999 to 2011 to raise money. </em></blockquote><br />Also,<br /><blockquote>In the past decade, many of the nation’s biggest health charities have hired InfoCision, including the <em>American Heart Association, American Lung Association, American Society for the Prevention of Cruelty to Animals, March of Dimes Foundation and National Multiple Sclerosis Society. </em></blockquote><br />Note that the Bloomberg article was focused on InfoCision. I suspect that if one were able to look at arrangements with similar telemarketing firms made by all US health care charities, the results might be even more extreme.<br /><br /><strong>The Fund Raisers and the Charities Lied </strong><br /><br />The article contained instances in which the telephone callers lied about who they were or about where the money they were trying to collect would go.<br /><br />First, regarding who the callers were:<br /><blockquote>The ruse begins with <em>the name that flashes on your caller ID when a telemarketer is phoning on behalf of a charity. It’s the charity’s name that often shows up, not that of the telemarketing firm.</em><br /><br />The misrepresentation can continue on the call itself. <em>Solicitors in recordings obtained by the Ohio Attorney General’s Office sometimes identify themselves to potential donors as 'volunteers.' They’re not; they’re paid employees of InfoCision.</em> </blockquote><br />Second, regarding where the money would go:<br /><blockquote><em>The bigger lie telemarketers tell is what they say about how much money will go to the charities they’re working for.</em><br /><br />According to documents obtained through an open records request with the Ohio attorney general, <em>the Diabetes Association approved a script for InfoCision telemarketers in 2010 that includes the following line: 'Overall, about 75 percent of every dollar received goes directly to serving people with diabetes and their families, through programs and research.'</em><br /><br />Yet that same year, <em>InfoCision’s contract with the association estimated that the charity would keep just 15 percent of the funds the company raised</em>; the rest would go to InfoCision. </blockquote><br />This deception appears to be sanctioned by the leaders of the charities for whom InfoCision worked,<br /><blockquote>[American Diabetes] Association Vice President [Richard] Erb offers no apologies for the script, saying the association runs many fundraising campaigns and, overall, about 75 percent of the money goes to its programs. He acknowledges that the contract with InfoCision estimated that the telemarketer would get to keep 85 percent of the funds it raised.<br /><br />Erb also says he isn’t happy that volunteers are upset upon learning the truth.<br /><br />'Obviously, if people feel betrayed or that we’re not being honest with them, it doesn’t make me feel well,' he says. </blockquote><br />The American Cancer Society similarly seemed to sanction deceptive fund raising practices.<br /><blockquote><em>The Cancer Society, in a Sept. 1, 2009, contract with InfoCision, estimated that the charity would get 44 percent of the amount the company collected</em> in the following fiscal year.<br /><br /><em>The telemarketer script for the same year approved by the society for InfoCision asks solicitors to say something different: 'Overall, about 70 cents of every dollar received goes to the programs and services that we provide.' </em></blockquote><br />Predictably, an executive for the society dodged responsibility for such lying:<br /><blockquote>[Greg] Donaldson, the society’s senior vice president, declined to comment on the contradiction between the contract and the script, saying the society doesn’t provide 'proprietary competitive information regarding individual programs.' </blockquote><br /><strong>The Telemarketing Firm Stonewalls</strong><br /><br />While the Bloomberg reporters were able to get some health care "charity" executives to respond to the issues, InfoCision was not even slightly forthcoming. The best they could do was get an InfoCision executive to protest the company's importance for charity:<br /><blockquote>InfoCision Chief of Staff Steve Brubaker says his company is vital to the success of charity fundraising. Many nonprofits have stayed with InfoCision for more than 20 years, proving the firm offers value and integrity, he says.<br /><br />'We’ve developed that high level of trust by being good stewards of their money and mission,' he says. Campaigns to develop new donors are more expensive than those seeking money from previous supporters, he says. He declined to answer specific questions, saying such information is proprietary to the company or its clients.<br /><br />He turned down a request for interviews with Taylor and InfoCision executives. </blockquote><br />Previously, the company owner had taken on the mantle now familiar in the current US election campaign, "job creator,"<br /><blockquote>[InfoCision founder Gary] Taylor was an outspoken opponent of efforts by the Federal Trade Commission in 2003 to begin the National Do Not Call Registry, allowing people to block calls from for-profit solicitors. In an interview with Customer Interaction Solutions, a trade journal, he said:<br /><br />'The most pressing issue, without a doubt, is excessive governmental regulation. It seems that the politicians and regulators are ignoring the significant benefits we provide through job creation, economic growth and the goods and services we cost-effectively market for our clients.' </blockquote><br />Keep in mind that the article documented how much of those jobs are minimum wage, and they may involve lying. <br /><br />Note further that Taylor "got his start raising money for evangelical preachers." The company also " did fundraising for Citizens United, the conservative group best known as the plaintiff in the Supreme Court case that allowed unlimited independent spending by corporations and unions on behalf of political candidates." <br /><br /><strong>Health Care Charities are Really Just "Businesses"</strong><br /><br />Underlying all this seems to be the transformation of health care from a calling to a business. While US health care charities have reputations as organizations out to do good, one executive, the American Diabetes Soceiety's Mr Erb, admitted that doing good was no longer really the focus,<br /><blockquote>'But the thing is, <em><strong>we’re a business</strong></em>. There has never been a time or a place where we said, 'Most of this money is coming to us.'' </blockquote><br />An expert the Bloomberg reporters interviewed said that the fund raising tactics these organizations used meant they were no longer charities. Per Ken Berger, "who runs Glen Rock, New Jersey- based Charity Navigator, the nation’s largest nonprofit watchdog group,"<br /><blockquote>'These organizations were created to provide public benefit,' he says. <em>'The fact that the vast majority of money is instead lining the pockets of telemarketers defies the whole reason behind the very creation of these charities.' </em></blockquote><br /><strong>The Experts Say It's Fraud</strong><br /><br />Bloomberg reporters interviewed several experts on philanthropy and law. They were not amused. One suggested that the fund raising tactics described in the article were fraudulent:<br /><blockquote>Charities should be held accountable for deceptive fundraising done in their name, says James Cox, a professor at the Duke University School of Law in Durham, North Carolina, and co-author of 'Cox and Hazen on Corporations' (Aspen Publishers, 2003).<br /><br /><em>'If that’s what they do systematically, then they’re obtaining money under false pretenses,' he says. 'I don’t just think it’s incredible. <strong>I’d be surprised if it isn’t criminal</strong>.' </em></blockquote><br />Another labeled the practices "deceitful."<br /><br />Bloomberg cited a 2003 US Supreme Court decision:<br /><blockquote>While telephone solicitors have no obligation to volunteer what the firm’s cut is of each donation, they don’t have a constitutional right to lie, the court ruled in a 2003 Illinois case.<br /><br />'States may maintain fraud actions when fundraisers make false or misleading representations designed to deceive donors about how their donations will be used,' the court said. </blockquote><br /><strong>Summary</strong><br /><br />This horrendous story illustrates how the mission of health care has been undermined by the last 30 years' push to turn health care organizations into businesses at a time managers were indoctrinated that they only thing that matters is short-term revenue (that is, they have become "financialized," look <a href="http://hcrenewal.blogspot.com/2012/04/health-care-dysfunction-explained-by.html">here</a>). Here we see ostensibly charitable organizations that solicit donations from the public supposedly to aid patients and support medical education and research willing to do whatever it takes to raise money, including deception, and what might be fraud. This is just disgusting.<br /><br />In my humble opinion, patients, health care professionals, and the public should insist that health care non-profit organizations disclose their fund-raising tactics, and abandon any that are dishonest. Law enforcement should investigate to see if prosecutions for fraud or related crimes are warranted. Organizations that refuse to change their ways should lose their tax exempt status.<br /><br />Meanwhile, I would suggest that everyone should be extremely skeptical of fund raising by major health care charities. In no instance should anyone give money solely based on telephone solicitations. <br /><br />If we, health care professionals, patients, the public do not take our heads out of the sand and realize how dishonest health care has become, we will have only ourselves to blame when it collapses.

How Big Health Care Charities Rely on Lying Telemarketers

A modern day Diogenes searching for an honest organization in health care would have a very hard time.  Close to the "you can't make this stuff up" category is a new investigative report from Bloomber…

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