Our Man in the NQF? - CareFusion Settles Kickback Allegations for $40.1 Million and Government Alleges They Meant to Manipulate National Quality Forum Standards

What appeared to be yet another entry in the <a href="http://hcrenewal.blogspot.com/search/label/legal%20settlements">march of legal settlements</a> turns out to be more interesting than it first appeared.<br /><br /><b>The Basic Story: Off-Label Marketing  </b><br /><br />The story was initially briefly reported in the media.  A <a href="http://blog.seattlepi.com/boomerconsumer/2014/01/09/company-to-pay-40-1-million-to-settle-medicaid-fraud-kickback-charges/">report</a> in the Seattle Post-Intelligencer on 9 January, 2014, was perhaps the most complete, <br /><br /><blockquote class="tr_bq">CareFusion, a manufacturer of medical and surgical supplies and medical devices, has agreed to <i>settle charges of illegal marketing practices and kickback payments for promoting sales of the company’s surgical preparation solution, Chloraprep.</i><br /><br />Under the terms of the settlement with Washington, other states, and the federal government, CareFusion will <i>pay a total of $40.1 million.</i></blockquote><br />In particular,<br />  <br /><blockquote class="tr_bq">When the FDA approves a surgical solution such as Chloraprep as safe and effective, its manufacturer can’t market or promote it for an 'off-label' use – any use not approved by the FDA.<br /><br />Chloraprep was approved for specific inpatient hospital procedures, including the preparation of a patient’s skin prior to surgery or an injection. The FDA rejected its use for prepping the skin prior to inserting catheters into veins for administering medications, or cleaning the skin as part of closing wounds.<br /><br />The lawsuit alleges that from Sept. 1, 2009 to Aug. 31, 2011, <i>CareFusion promoted Chloraprep for improper uses. CareFusion also allegedly publicized unverified information</i> about Chloraprep during the same time period, Ferguson said.</blockquote><br /><br />So this follows a template we have seen before, most recently <a href="http://hcrenewal.blogspot.com/2014/01/more-pharmaceutical-misadventures.html">here</a>.  A company promotes a drug or device for "off-label" uses.  While physicians are legally allowed to prescribe a drug or use a device for reasons other than its official indications, companies are not legally allowed to promote such uses.  Sometimes it turns out that the drug has benefits that outweigh its harms when used off-label, in which case the violation could be considered technical.  In other cases, the drug might turn out to be useless or even net harmful when used off-label, so the violation indicates putting revenue ahead of patients' welfare.   <br /><br />The reporting on the CareFusion Chloraprep settlement did not clearly suggest that the off-label use was harmful to patients.<br /><br /><b>Allegations of Kickbacks to Promote Off-Label Use, but How?</b><br /><br />It gets more interesting.  The Post-Intelligencer also noted,<br /><br /><blockquote class="tr_bq">The states also contend that in 2008 CareFusion’s predecessor corporation entered into agreements that CareFusion assumed legal and financial responsibility for. This included <i>payments to Health Care Concepts Inc., payments that were allegedly made to hide kickbacks to the physician-owner of HCC for promoting and influencing providers to use Chloraprep</i>, he said. This violates federal and state anti-kickback laws.</blockquote><br />Now the allegations also include kickbacks to the "physician-owner" of a company to facilitate off-label promotion.  So the issue goes beyond a technical violation of the law.  The Post-Intelligence report, however, did not make clear what Health Care Concepts Inc actually did to contribute to off-label promotion. <br /><br />A quick attempt to find out more about this company via the web was not fruitful.  There are lots of companies/ organizations called Health Care Concepts or some variant.  The most relevant may be<a href="http://www.hcc1.com/"> this one</a>, which lists CareFusion as a "partner" on its main web-page.  What this company actually does is a bit unclear.  Its business model is <a href="http://www.hcc1.com/node/3">described</a> as "a private incubator of early products, services, and technologies, as well as an accelerator of mature solutions that will be taken to scale." What that has to do with off-label promotion of a product of a big established company like CareFusion is not clear.  How this company could have influenced providers is not clear, given that it is not an advertising firm, public relations firm, or medical education and communication company (MECC). <br /><br />So what is going on here?   <br /><br /><b>Allegations of a $11.6 Million Payment to Manipulate the National Quality Forum Standards </b><br /><br /><br />Yesterday, 21 January, 2014, Modern Healthcare began to <a href="http://www.modernhealthcare.com/article/20140120/NEWS/301209952/nqf-committee-member-paid-11-6m-by-carefusion-to-influence-panels">explain</a> the mystery.    <br /><br /><blockquote class="tr_bq">Many healthcare companies have been accused of paying kickbacks to influence physicians' medical decisions, but one major supplier <i>allegedly tried to steer an entire industry by influencing the recommendations of the National Quality Forum</i><br /><br />The NQF, which reviews medical evidence and makes recommendations for improving healthcare, acknowledges that <i>a well-known patient safety advocate is alleged to have received millions of dollars to promote a surgical sterilization product while co-chairing an NQF committee that suggested hospitals use that product. </i><br /><br />Federal officials say <i>Dr. Charles Denham, co-chair of NQF's Safe Practices Committee in 2010, received $11.6 million from San Diego-based CareFusion to promote the company's ChloraPrep line of skin-preparation products. Denham's committee at the NQF also recommended surgeons use ChloraPrep products to prevent surgical infections, the NQF said.</i> </blockquote><br />The allegations about the role of Dr Denham in the NQF also did appear in the the official US Department of Justice <a href="http://www.justice.gov/opa/pr/2014/January/14-civ-021.html">press release</a>.<br /><br /><b>Allegations of Bogus Contracts, and Non-Denial Denials</b><br /><br />The allegations produced some <a href="http://en.wikipedia.org/wiki/Non-denial_denial">non-denial denials</a> (in the phrase found in All the President's Men). <br /><br />Dr Denham responded, but through a lawyer:<br /><br /><blockquote class="tr_bq">A statement from Denham's attorney, Larry Gondelman of Powers Pyles Sutter & Verville in Washington, said <i>reports that the underlying lawsuit involved Dr. Denham were 'blatantly false.' </i><br /><br />Denham was<i> not accused of wrong-doing in the whistleblower lawsuit</i>, and Gondelman said Denham has and continues to cooperate with investigators in the case.</blockquote><br />Note that while the attorney denied that Dr Denham was named in the underlying lawsuit, he did not apparently specifically deny the allegations.<br /><br />The NQF also reponded,<br /><br /><blockquote class="tr_bq"> An NQF review committee <i>removed the reference to the specific product</i> before final publication of '<a href="http://www.qualityforum.org/Publications/2010/04/Safe_Practices_for_Better_Healthcare_%E2%80%93_2010_Update.aspx">Safe Practices for Better Healthcare</a>' in 2010.<br /><br />'An NQF ad hoc review did not find sufficient evidence to support one skin preparation over another,' <a href="http://www.qualityforum.org/News_And_Resources/Press_Releases/2014/NQF_Statement_on_Department_of_Justice_Settlement.aspx">a statement from the organization said</a>. 'The ad hoc review effectively served its role of rapidly responding when a potential issue is identified.'</blockquote><br />Note that the <a href="http://www.qualityforum.org/News_And_Resources/Press_Releases/2014/NQF_Statement_on_Department_of_Justice_Settlement.aspx">NQF press release</a> did not deny that the CareFusion money was given to Dr Denham's organization, nor that the NQF report might have promoted the use of a class of products in which CareFusion's Chloraprep resides. <br /><br />A <a href="http://www.modernhealthcare.com/article/20140121/NEWS/301219952/nqf-panel-member-admits-he-got-11m-from-carefusion-but-calls">follow-up story</a> in Modern Healthcare noted that Dr Denham confirmed the payment of the money to his company, but not its purpose,<br /><br /><blockquote class="tr_bq"> Renowned quality expert Dr. Charles Denham <i>confirms that CareFusion paid his company more than $11 million</i>, but Denham says he was surprised to see the U.S. Justice Department describe the money as kickbacks intended to influence national quality-of-care guidelines published by the National Quality Forum.</blockquote><br />Dr Denham's lawyer confirmed the payment, but did not further explain it:<br /><br /><blockquote class="tr_bq">Denham's lawyer, Larry Gondelman of Powers Pyles Sutter & Verville in Washington, <i>acknowledged that CareFusion did pay Denham's company under two contracts. </i></blockquote><br />And,<br /><br /><blockquote class="tr_bq">Gondelman said the $11.6 million paid to Denham's company <i>covered 'an array of services' and that he could not elaborate.</i></blockquote><br />Again, note that Mr Gondelman did not specifically deny that the money served as a kickback.<br /><br />Meanwhile, the Department of Justice alleged something more elaborate, and nefarious,  <br /><br /><blockquote class="tr_bq">The Justice Department, though, says the contracts were written to <i>look as though CareFusion was buying consulting, software development and strategic marketing services, as well as the completion of three unnamed projects. </i>The value of the deals, the government alleges, <i>far exceeded the fair-market costs of those services,</i> and that one of the actual purposes of the deals was to conceal kickbacks to Denham while he served on the National Quality Forum.</blockquote><br /><b>Interval Summary </b><br /><br />So what is clear so far is that:<br />-  CareFusion agreed to a $40.1 million settlement of allegations that it provided kickbacks to promote off-label use of its product.<br />-  CareFusion paid $11.6 million to Health Care Concepts<br />-  Health Care Concepts is run (and possibly owned) by Dr Charles Denham, who chaired a National Quality Forum committee that recommended use of CareFusion's product ChloraPrep in a performance standard and the final version of the NQF standard recommended use of a group of products including ChloraPrep<br /><br />We have frequently discussed how health care corporations may promote goods, particularly drugs and devices and services through <a href="http://hcrenewal.blogspot.com/search/label/deception">deceptive</a> and unethical practices, including inducements ranging form creation of <a href="http://hcrenewal.blogspot.com/search/label/conflicts%20of%20interest">conflicts of interest</a> to outright <a href="http://hcrenewal.blogspot.com/search/label/bribery">bribes </a>and <a href="http://hcrenewal.blogspot.com/search/label/kickbacks">kickbacks</a>.   We have also discussed the influence of individual and <a href="http://hcrenewal.blogspot.com/search/label/institutional%20conflicts%20of%20interest">institutional conflicts of interest</a> on <a href="http://hcrenewal.blogspot.com/search/label/guidelines">clinical practice guidelines</a>.  This has become an important enough problem for the US Institute of Medicine to weigh in with <a href="http://www.iom.edu/Reports/2011/Clinical-Practice-Guidelines-We-Can-Trust.aspx">standards for trustworthy guidelines</a> that markedly limit such conflicts of interest.  <br /><br />This case seems notable because it may link the problems of <a href="http://hcrenewal.blogspot.com/search/label/deception">deceptive</a> and unethical promotion with the influencing of clinical practice guidelines.  It is particularly notable because the organization generating the guidelines in question, the National Quality Forum, has become large, influential, and authoritative.  Re the latter point, the latest Modern Healthcare article affirmed,<br /><br /><blockquote class="tr_bq">The NQF is a <i>standards-setting organization for the healthcare provider industry</i>. It holds the <i>exclusive contract to provide Medicare and Medicaid with recommendations on a national quality-of-care strategy and the measures used to gauge improvements.</i></blockquote><br />In fact, while the NQF performance standards can function as guidelines, they also may be bases for <a href="http://hcrenewal.blogspot.com/search/label/pay%20for%20performance">pay for performance</a> schemes that attach real incentives to guidelines, which could become <a href="http://hcrenewal.blogspot.com/search/label/perverse%20incentives">perverse</a> if the guidelines have been manipulated.<br /><br /><b>Can the NQF Defend Against Conflicts, and If Not, Should it Remain So Authoritative? </b><br /><br />So the big question is whether the NQF, given its unique influence, has any meaningful approach to prevent its standards from being influenced by conflicts of interest?<br /><br />The NQF does have a <a href="http://www.qualityforum.org/docs/CDP_Conflict_of_Interest_Policy.aspx">recent conflicts of interest policy</a>. However, according to my reading, it neither bans committee members with conflicts of interest, nor even requires public disclosure of conflicts of interest.  All it seems to require is that committee members disclose conflicts internally and <strike>voluntarily</strike> recuse themselves from deliberations which may be affected by them.  Although the policy states that conflicts of interest <i>may</i> be made public, I could find nothing in the <a href="http://www.qualityforum.org/Publications/2010/04/Safe_Practices_for_Better_Healthcare_%E2%80%93_2010_Update.aspx">report</a> which Dr Denham co-authored about conflicts of interest or competing interests affecting any of the authors, including Dr Denham <br /><br />Furthermore, a very quick look at information publicly available on the NQF web-site suggests the organization itself may have major institutional conflicts of interest.  The NQF is one of those "public-private partnerships" that have become all the rage.  Several members of its <a href="http://www.qualityforum.org/About_NQF/Board/Board_of_Directors_Roster.aspx">board of directors</a> have leadership positions in large health corporations, financial firms with large health care interests, or trade associations for large health care corporations:  <br /><br /><a href="http://www.qualityforum.org/About_NQF/Board/Elizabeth_Fowler.aspx">- Elizabeth J. Fowler</a>, PhD, JD, is Vice President, Global Health Policy, in the Government Affairs & Policy group at Johnson & Johnson.<br /><br />- <a href="http://www.qualityforum.org/About_NQF/Board/Robert_Galvin.aspx">Robert Galvin</a>,<b></b> MD, is Chief Executive Officer, Equity Healthcare, at The Blackstone Group. <br /><br /> - <a href="http://www.qualityforum.org/About_NQF/Board/Karen_Ignagni.aspx">Karen Ignagni</a>, President and Chief Executive Officer of America’s Health Insurance Plans (AHIP), is the voice of health insurance plans....<br /><br />- <a href="http://usa.healthcare.siemens.com/infrastructure-it/healthcare-it/about-health-services/leadership-profile-healthcare-it">J Mark Overhage</a> MD, PhD,  Chief Medical Informatics Officer, Health Services, Siemens Healthcare<br /><br /><br />Thus it is conceivable that they could personally profit, and that their organizations could institutionally profit from standards that favor their organizations' interests.   <br /><br />Furthermore, NQF receives <a href="http://www.qualityforum.org/About_NQF/Funding.aspx">funding</a> from the US government and private foundations, but also from pharmaceutical companies and their in-house foundations:<br /><br /><blockquote class="tr_bq">the Bristol-Myers Squibb Foundation, the Cardinal Health Foundation, Pfizer Inc., Sanofi-aventis,...</blockquote><br />Unless the current case leads to big changes in the prevalence of conflicts of interest among the NQF board, the continuation of its institutional conflicts of interest generated by its sources of funding, and its weak policy on conflicts affecting committee members, the question becomes whether it should continue to have such an authoritative role?<br /><br />As we have said over and over, pervasive conflicts of interest affect health care decision-makers and policy makers and the organizations within which they function.  Such conflicts threaten to put various private interests way ahead of patients' and the public's health.  If we really want health care that will put patients' and the public's health first, we need to end such arrangements that favor private gain.   <br /><br /> Roy M. Poses MD on Health Care Renewal<br /><br />ADDENDUM (23 January, 2014) - A closer re-reading of the NQF conflict of interest policy made it clear that recusal is not voluntary, and that conflicts of interest may be revealed publicly, but that such disclosure is not mandatory.  The paragraph above dealing with these issues was revised accordingly.   <br /><br />

Our Man in the NQF? - CareFusion Settles Kickback Allegations for $40.1 Million and Government Alleges They Meant to Manipulate National Quality Forum Standards

What appeared to be yet another entry in the march of legal settlements turns out to be more interesting than it first appeared. The Basic ...

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What the Pfizer (III)? - Enormous Pay for Poor Performance

The recent in-depth <a href="http://features.blogs.fortune.cnn.com/2011/07/28/pfizer-jeff-kindler-shakeup/"><span style="color: #6699cc;">investigation</span></a> by Fortune reporters of 10 years of dysfunctional leadership at <a href="http://www.pfizer.com/"><span style="color: #6699cc;">Pfizer</span></a>, the "world's largest research-based pharmaceutical company," raises many issues about leadership and governance in health care (see our post <a href="http://hcrenewal.blogspot.com/2011/08/10-years-of-pfizer-leadership-saga-of.html"><span style="color: #6699cc;">here</span></a>).  To continue what is likely to become a lengthy series, let us now discuss the discrepancy between the markedly dysfunctional leadership performance documented in the Fortune article and the pay given to the leaders involved.<br /><br /><strong>"Hank" McKinnell et al - 2003-2006 </strong><br /><br />Mr McKinell was forced to retire in 2006. The Fortune article described Mr McKinnell as a "desperate CEO" by 2002 because he could find no way to replenish the company's fading drug pipeline; who then became an absent CEO who "left a power vacuum" and then triggered internal political warfare by setting up a "bitter contest" over succession planning.<br /><br />The <a href="http://services.corporate-ir.net/SEC/Document.Service?id=P3VybD1odHRwOi8vaXIuaW50Lndlc3RsYXdidXNpbmVzcy5jb20vZG9jdW1lbnQvdjEvMDAwMDkzMDQxMy0wNi0wMDIwOTEvZG9jLzAwMDA5MzA0MTMwNjAwMjA5MS5wZGYmdHlwZT0yJmZuPTAwMDA5MzA0MTMwNjAwMjA5MS5wZGY=">2006 Pfizer proxy statement</a> reported the total compensation received by Mr McKinnell from 2003-2005. <br />2003 - <em><strong>$10,706,002 </strong></em><br />2004 - <em><strong>$11,355,317 </strong></em><br />2005 - <em><strong>$12,767,270 </strong></em><br />Each line reflects the combination of salary, bonus, other annual compensation, restricted stock awards, securities underly  options, LTIP payouts, and all other compensation.  <br />  <br />The four other best paid executives were Karen Katen, Vice Chairman and President, Prizer Human Health,  David Shedlarz, Vice Chairman, Jeffrey B Kindler, Vice Chairman and General Counsel, and John LaMattina PhD, Senior Vice President, President, Pfizer Global Research and Development.  Their total compensation for these years were <br /><u>Ms Katen </u><br />2003 -  <strong><em>$4,747,478 </em></strong><br />2004 -  <em><strong>$8,541,220 </strong></em><br />2005 - <em><strong>$6,663,283 </strong></em><br /><u>Mr Shedlarz</u> <br />2003 - <em><strong>$3,722,508 </strong></em><br />2004 - <em><strong>$6,743,591 </strong></em><br />2005 - <em><strong>$3,897,293 </strong></em><br /><u>Mr Kindler</u><em><strong> </strong></em><br />2003 - <em><strong>$3,113,308 </strong></em><br />2004 - <em><strong>$4,181,817 </strong></em><br />2005 - <em><strong>$3,338,728</strong></em><br /><u>Mr LaMattina</u><br />2003 - <em><strong>$2,228,804</strong></em><br />2004 - <em><strong>$4,410,130</strong></em><br />2005 - <em><strong>$3,558,415</strong></em><br /><br />Despite MrMcKinnell's poor performance, he never received less than $10 million a year in the three years before he was forced out.  Other top managers, despite never effectively compensating for Mr McKinnell's bad performance earned at least $ 3 million a year in these three years, with one exception, one manager who only made a bit over $2 million in one of the three years.<br /><br /><strong>Jeffrey Kindler et al 2007 - 2010 </strong><br /><br />Kindler was forced to resign in 2010. The Fortune article also described Mr Kindler as "suddenly desperate" after two failures of drugs in development; someone who "just couldn't make up his mind," about acquisitions and spin-offs; "anguished" about research, leading to a "messy" overhaul; and putting "destructive" trust in a subordinate with previously described problems with "character, integrity and divisiveness" leading to loss of the loyalty of the executive team.<br /><br />The <a href="http://services.corporate-ir.net/SEC/Document.Service?id=P3VybD1odHRwOi8vaXIuaW50Lndlc3RsYXdidXNpbmVzcy5jb20vZG9jdW1lbnQvdjEvMDAwMTE5MzEyNS0xMC0wNTc5NDkvZG9jLzAwMDExOTMxMjUxMDA1Nzk0OS5wZGYmdHlwZT0yJmZuPTAwMDExOTMxMjUxMDA1Nzk0OS5wZGY=">2010 Pfizer proxy statement</a> revealed the total compensation received by Mr Kindler from 2007-2009.<br />2007 - <em><strong>$13,075,099</strong></em><br />2008 - <em><strong>$15,547,600</strong></em><br />2009 - <em><strong>$14,898,038</strong></em><br />In this proxy statement, each line included salary, bonus, stock awards, option awards, non-equity incentive plan compensation, change in pension value and non-qualified deferred compensation earnings, and all other compensation.  <br /><br />The four other best paid executives were F D'Amelio, Chief Financial Officer, I Read, Group President, Worldwide Biopharmaceutical Business, M Mackay, President, Pharmatherapeutics Research & Development, and Dr F Lewis-Hall, Chief Medical Officer.  Their total compensation for these years was:<br /><u>Mr F'Amelio</u><br />2007 - <em><strong>$12,338,821</strong></em><br />2008 - <em><strong>$6,979,111</strong></em><br />2009 - <em><strong>$7,858,969</strong></em><br /><u>Mr Read</u><br />2007 - <em><strong>$4,560,869</strong></em><br />2008 - <em><strong>$7,629,185</strong></em><br />2009 - <em><strong>$9,447,036</strong></em><br /><u>Mr Mackay</u><br />2007 - <em><strong>$3,590,158</strong></em><br />2008 -<em><strong> $6,718,580</strong></em><br />2009 - <em><strong>$5,878,806</strong></em><br /><u>Dr Lewis-Hall</u><br />2009 - $<em><strong>5,087,263</strong></em> (hired in 2009)<br /><br />Despite Mr Kindler's poor performance, he never received less than $13 million a year in the three years before he was forced out.  Other top managers, despite never effectively compensating for Mr McKinnell's bad performance earned at least $ 4.5 million a year in these three years, with one exception, one manager who only made a bit over $3.5 million in one of the three years.<br /><br /><br /><strong>Summary</strong> <br />  <br />The business oriented leaders of health care, and some of their sympathizers in health care and policy research are given to preach that "pay for performance," (P4P) applied to health care professionals is a solution to the problem of ever rising health care costs, and ever declining health care access and quality.  <br />  <br />Pay for performance applied to the top hired leaders of health care organizations has become a cruel joke.     The Pfizer example shows a company with chronically bad leadership paid hundreds of times what average workers receive.  Despite a parched drug pipeline and languishing stock price, top managers made millions a year, and CEOs who would eventually be forced out for poor performance made tens of millions a year.  One cannot help but conclude that the main goal of Pfizer was to enrich its top managers.  Managers whose main goal is to enrich themselves, of course, are unlikely to manage well, and unlikely to promote development and manufacturing of drugs whose benefits exceed their harms, and which decrease symptoms, improve function, prevent morbidity, extend life, and generally benefit health.    <br />  <br />Now that the scope of the failings of Pfizer's hired leaders has been made clearer, the company has become one of the best, or worst examples of self-interested leadership and its perils for health care.  <br />  <br />As I have repeated endlessly,... 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 />

What the Pfizer (III)? - Enormous Pay for Poor Performance

The recent in-depth investigation by Fortune reporters of 10 years of dysfunctional leadership at Pfizer , the "world's largest re...

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What the Pfizer (II)? - Lack of Transparency About Dysfunctional Leadership

The recent in-depth <a href="http://features.blogs.fortune.cnn.com/2011/07/28/pfizer-jeff-kindler-shakeup/">investigation</a> by Fortune reporters of 10 years of dysfunctional leadership at <a href="http://www.pfizer.com/">Pfizer</a>, the "world's largest research-based pharmaceutical company," raises many issues about leadership and governance in health care (see our post <a href="http://hcrenewal.blogspot.com/2011/08/10-years-of-pfizer-leadership-saga-of.html">here</a>).  To continue what is likely to become a lengthy series, let us discuss the most obvious one, is the discrepancy between what appeared in Fortune and what Pfizer chose to make public about its leadership.<br /><br />This discrepancy is most apparent when one compares official descriptions of executive performance with what the Fortune reporters found.  To illustrate, consider the official descriptions of the performance of former Pfizer CEOs Hank McKinnell and Jeffrey Kindler in the respective years in which they were forced out.<br /><br /><strong>"Hank" McKinnell -2006</strong><br /><br />Mr McKinell was forced to retire in 2006.  The Fortune article described Mr McKinnell as a "desperate CEO" by 2002 because he could find no way to replenish the company's fading drug pipeline; who then became an absent CEO who "left a power vacuum" and then triggered internal political warfare by setting up a "bitter contest" over succession planning.<br /><br />The <a href="http://services.corporate-ir.net/SEC/Document.Service?id=P3VybD1odHRwOi8vaXIuaW50Lndlc3RsYXdidXNpbmVzcy5jb20vZG9jdW1lbnQvdjEvMDAwMDkzMDQxMy0wNi0wMDIwOTEvZG9jLzAwMDA5MzA0MTMwNjAwMjA5MS5wZGYmdHlwZT0yJmZuPTAwMDA5MzA0MTMwNjAwMjA5MS5wZGY=">2006 Pfizer proxy statement</a>  explained how the Board of Directors' Compensation Committee assessed Mr McKinnell's performance,<br /><blockquote>The Committee does not rely solely on predetermined formulas or a limited set of criteria when it evaluates the performance of the Chairman and CEO and the Company's other elected officers.<br /><br />In 2005, the Committee considered management's continuing achievement of its short and long-term goals versus its strategic imperatives, including Dr. McKinnell's objectives which are shown below:<br /><br />• Achieve specific revenue, EPS, operating cash flow per share, and merger-related synergy goals<br />• Effectively communicate strategy and financial results to increase shareholder value<br />• Deliver more new medicines more quickly to patients, through industry- leading R&D productivity and significant in-licensing activity<br />• Adapting to Scale<br />• Promote new directions in health and wellness<br />• Shape a positive environment for better healthcare<br />• Developing People, Talent, and the Organization</blockquote><br />The Compensation Committee then assessed McKinnell's performance thus:<br /><br /><u>Financial and merger synergy goals</u><br /><blockquote>Overall, the financial targets, which reflected a significant stretch for the organization given the dynamic business environment and the loss of exclusivity for certain key products, were <em>exceeded</em>.</blockquote><br /><u>Communicate effectively</u><br /><blockquote>However, given the performance of the Company's stock price in 2005 when compared to prior years, the Committee felt that the goal of effectively communicating strategy and financial results to increase shareholder value was <em>not met</em>.</blockquote><br /><u>More medicines more quickly</u><br /><blockquote>All R&D productivity and licensing goals were <em>met or exceeded</em>, with, notably, five products under priority review at the FDA — an industry first. As the R&D organization continues to establish the industry standard in productivity, the Committee determined that performance against this objective significantly <em>surpassed expectations</em>.</blockquote><br /><u>Adapting to scale</u><br /><blockquote>In 2005, initiatives related to Adapting to Scale resulted in twice the cost reduction that had been estimated for the year, giving a very strong start to the Company's efforts to reduce the cost base and streamline the organization. </blockquote>So,<br /><blockquote>the Committee believes that overall performance <em>significantly surpassed</em> the expected outcomes for this objective.</blockquote><br /><u>Promote new directions</u><br /><blockquote>In promoting new directions in health and wellness, Pfizer's newly launched Healthy Directions program for U.S. based colleagues <em>far exceeded expectations</em>.... the Committee determined that these goals were <em>significantly exceeded</em>.</blockquote><br /><u>Shape a positive environment</u><br /><blockquote>The Company is also leading efforts to rebuild trust in the industry and large companies in general.</blockquote>So,<br /><blockquote>Overall, the Committee believes that the Company <em>surpassed expectations</em> of performance against this particularly challenging objective.</blockquote><br /><u>Developing people, talent, and the organization</u><br /><blockquote>With respect to the final objective for 2005 — Developing People, Talent, and the Organization — the Committee recognized that senior leadership of the Company has been instrumental in developing and implementing new People & Talent strategies related to long-term development planning for key talent, enhancing leadership skills for all 'people managers', and enabling Pfizer to become a global leader in attracting, developing, and engaging a diverse workforce that delivers superior business results. As a result, the Committee determined that the goals of this objective were <em>surpassed</em>.</blockquote><br />So, according to the Committee, Mr McKinnell's performance was excellent in all areas but one.<br /><br />Accordingly, based apparently on this stated "General Compensation Philosophy,"<br /><blockquote>The Committee believes that compensation paid to executive officers should be <em>closely aligned with the performance of the Company</em> on both a short-term and long-term basis....</blockquote><br />So the present value of Mr McKinnell's total compensation was estimated to be <em><strong>$15,880,989</strong></em>. <br /><br /><strong>Jeffrey Kindler - 2010</strong><br /><br />Kindler was forced to resign in 2010. The Fortune article also described Mr Kindler as "suddenly desperate" after two failures of drugs in development; someone who "just couldn't make up his mind," about acquisitions and spin-offs; "anguished" about research, leading to a "messy" overhaul; and putting "destructive" trust in a subordinate with previously described problems with "character, integrity and divisiveness" leading to loss of the loyalty of the executive team.<br /><br />However, in the company's <a href="http://services.corporate-ir.net/SEC/Document.Service?id=P3VybD1odHRwOi8vaXIuaW50Lndlc3RsYXdidXNpbmVzcy5jb20vZG9jdW1lbnQvdjEvMDAwMTE5MzEyNS0xMC0wNTc5NDkvZG9jLzAwMDExOTMxMjUxMDA1Nzk0OS5wZGYmdHlwZT0yJmZuPTAwMDExOTMxMjUxMDA1Nzk0OS5wZGY=">2010 proxy statement</a>, the Compensation Committee made this general assertion:<br /><blockquote>The Committee believes that Mr. Kindler's <em>leadership was a significant factor in the continued progress</em> made by Pfizer in 2009 in strengthening the foundation for future growth and long-term success.</blockquote><br />Then, Mr Kindler, like Mr McKinnell, was assessed against specific performance standards thus:<br /><br /><u>Financial Results</u><br /><blockquote>Despite the unprecedented challenges in the global macroeconomic environment and other challenges, the Company <em>exceeded</em> the target goals for 2009 set by the Committee for annual incentive purposes</blockquote><br /><u>Enhancing the Product Portfolio</u><br /><blockquote>Under Mr. Kindler's leadership and oversight, during 2009 we<em> improved</em> the product portfolio (early stage through late stage),...</blockquote><br /><u>People Management</u><br /><blockquote>In 2009, we <em>met or exceeded</em> each of our people management goals,...</blockquote><br /><u>Business Model Implementation</u><br /><blockquote>the Company remains <em>on track to meet</em> the various research and development goals announced in March 2009. Mr. Kindler also <em>further strengthened</em> the Company's leadership team through strategic hiring and the redeployment of key senior leaders across the Company.</blockquote><br /><u>Wyeth Transaction</u><br /><blockquote>During 2009, we devoted significant attention to the acquisition of Wyeth. Under Mr. Kindler's leadership, we finalized negotiations, gained regulatory approval and closed the $68 billion acquisition of Wyeth, all in an <em>expeditious manner</em>. During the year, Mr. Kindler oversaw a detailed review of Wyeth and its businesses and the development of an integration plan,...</blockquote>So,<br /><blockquote>With the completion of the acquisition under Mr. Kindler's leadership, Pfizer is one of the largest biopharmaceutical companies in the world, as well as a more diversified company in the health care industry.</blockquote><br /><u>Industry Leadership</u><br /><blockquote>During 2009, Mr. Kindler was <em>actively involved</em>, through both Pfizer and external organizations, in developing and advancing U.S. and global public policies that serve the overall interests of our Company and our shareholders</blockquote><br />In summary,<br /><blockquote>In view of Mr. Kindler's accomplishments noted above and the fact that he <em>achieved all of his objectives and exceeded most of them,</em> the Committee believes that Mr. Kindler <em>successfully led the Company toward the achievement of its strategic goals during 2009</em>....</blockquote><br />Based on the same general compensation philosophy noted above, Mr Kindler's total compensation in 2009 was <em><strong>$14,898,038</strong></em>.<br /><br /><strong>Summary</strong><br /><br />Anyone who depended on these proxy statements to assess the performance of the Pfizer CEOs in 2006 and in 2010 would have likely concluded that both CEOs exhibited exemplary performance. These impressions would have apparently been sharply discrepant with the realities inside the company at those times.<br /><br />Like the children of Lake Woebegone, we have frequently noted how almost all CEOs seem to appear "above average" or better to their boards of directors or trustees. The case of Pfizer in 2006 and in 2010 shows a board of directors which painted a grossly optimistic view of CEO performance to the public. In both years, these views would almost immediately clash with the fates of the particular CEOs. Now, based on the Fortune investigative report, these views seem even more overblown if not absurd.<br /><br />This case, which again concerns the "world's biggest research driven pharmaceutical company," suggests one should be very skeptical about evaluations of executive performance in proxy reports. Proxy reports now appear to be a very cloudy window through which to view how corporations are really run. However, in the US, proxy reports have legal standing and are supposed to be sources of definitive information for stockholders and anyone else interested in the corporations that produce them. <br /><br />Thus, the large organizations that dominate US health care may be even less transparent than they appear. True health care reform requires true transparency, and meaningful deterrence of propaganda disguised as fact.

What the Pfizer (II)? - Lack of Transparency About Dysfunctional Leadership

The recent in-depth investigation by Fortune reporters of 10 years of dysfunctional leadership at Pfizer , the "world's largest re...

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Pay for What? - Redux: Surrealistic Pay for Health Care Corporate CEOs

Pay-for-performance has been a persistently fashionable mantra for health care business leaders and policy advocates, particularly as applied to physicians to control costs and perhaps even improve quality.  We have been highly critical of current methods proposed to measure performance and tie pay to it (e.g., <a href="http://hcrenewal.blogspot.com/2006/09/p4p-band-wagon-rolls-but-in-whose.html">here</a>), and other bloggers, notably Dr Robert Centor at DB's Medical Rants, have vigorously pursued this issue (e.g., <a href="http://www.medrants.com/archives/5837">here</a>).<br /><br />It is beyond ironic that meanwhile, the pay of health care organizations' leaders seems less and less related to their performance.  For example, in a recent series on local executive pay in the Boston Globe <a href="http://www.boston.com/business/articles/2010/10/03/executive_share/">there were</a> these examples:<br /><br /><strong>Hologic</strong><br /><blockquote>Hologic Inc. gave its chief executive, John W. Cumming, a <em>$1.5 million “retention payment’’ as part of his <strong>$10.5 million</strong> pay package last year</em>. He was promised the payment in mid-2006 if he remained with the company through the end of 2008. At the same time, the Bedford women’s health care products company<em> posted a <strong>$2.2 billion</strong> loss</em>, largely resulting from a big write-down related to the 2007 purchase of Cytic Corp. <em>Cumming has since stepped down as chief executive</em>, but remains chairman. Hologic declined to comment.</blockquote><br /><strong>Charles River Laboratories</strong><br /><blockquote>Charles River Laboratories International Inc. chief executive James C. Foster received <em>$1.3 million in deferred compensation</em> in a year when the company disclosed plans to <em>cut 300 workers, or 3 percent of its workforce</em>. Charles River declined to comment.</blockquote><br />Note that a Charles River board member was one of the authors of an Institute of Medicine report advocating P4P for physicians, as we posted <a href="http://hcrenewal.blogspot.com/2006/09/p4p-band-wagon-rolls-but-in-whose.html">here</a>. Ah, the irony.<br /><br /><strong>Boston Scientific</strong><br /><blockquote>New Boston Scientific Corp. CEO J. Raymond Elliott started midyear and received a <em><strong>$1.5 million</strong> bonus</em>. Boston Scientific posted a <em><strong>$1 billion</strong> loss</em> last year. </blockquote>Elliott got a lot more than that, as reported in a <a href="http://www.boston.com/business/articles/2010/10/03/like_sports_stars_top_business_players_command_big_bucks/">companion Boston Globe article</a>:<br /><blockquote>Elliott, whose experience includes running another medical device company, Zimmer Holdings Inc., was paid a performance bonus of nearly $608,000 last year, in addition to a $1.5 million signing bonus and <em><strong>$29.4 million</strong></em> in stock awards and options.</blockquote><br />Meanwhile, the company's losses continue to mount:<br /><blockquote>And in February, Boston Scientific agreed to pay $1.7 billion to settle patent infringement charges from rival Johnson & Johnson, making it likely the company will post another loss this year.</blockquote>Note that Boston Scientific has had its ethical as well as financial failings, especially involving the case of the faulty implantable cardiac defibrillators, which resulted in settlements of civil lawsuits alleging that it hid data about the defects, and two guilty pleas by a company subsidiary to charges that it did not notify the FDA about these problems (see post <a href="http://hcrenewal.blogspot.com/2010/04/who-guards-guardians-case-of-boston.html">here</a>). <br /><br /><strong>Vertex Pharmaceuticals Inc</strong><br /><blockquote>At Vertex Pharmaceuticals Inc., chief Matthew W. Emmens, who took over five months into the year, received $2.8 million performance award last year, a year in which the company lost $642 million.</blockquote><br />He actually got a lot more than that, too, as per the second Globe article:<br /><blockquote>His pay package included more than <em><strong>$15 million</strong></em> in restricted stock and options. </blockquote><br /><strong>Cephalon</strong><br /><br />At the same time, an <a href="http://articles.latimes.com/2010/oct/03/business/la-fi-hiltzik-20101003">op-ed </a>by Michael Hiltzik in the Los Angeles Times noted that a health care company had the most unfairly paid CEO, according to "veteran compensation consultant Fraef Crystal,"<br /><blockquote>Cephalon Inc., ... CEO, Frank Baldino, Crystal identifies as <em>the most overpaid chief executive</em> in his database. (Baldino's <em><strong>$11.1 million</strong></em> pay last year is 832% of what would be fair, Crystal calculated.)</blockquote><br />Note that Cephalon settled charges of off-label promotion of narcotics for over $400 million in 2008 (see post <a href="http://hcrenewal.blogspot.com/2008/09/whats-drug-addicts-life-worth-to.html">here</a>).<br /><br /><strong>Summary</strong><br /><br />So the general rule seem to be that top executives of health care organizations make large, sometimes enormous amounts of money, and that occurs regardless of company or personal performance. The riches keep flowing even if the company loses millions or billions, or lays off significant chunks of its workforce. <br /><br />Hiltzik identified corporate executive pay as:<br /><blockquote><em><strong>the No. 1 scandal of American business</strong></em> — executive pay that bears scant relationship to what these people are worth.<br /><br />The CEO pay curve has been galloping out of control for so long that it has achieved the status of a cliche. In 1965 the average U.S. CEO earned 24 times the pay of the average worker. Four decades later the ratio was 411 to 1..</blockquote><br />Furthermore,<br /><blockquote>The dismal reality of CEO pay is that it comprises two problems, not one. Top executive pay generally is too lavish in the U.S. no matter what performance standard you apply. <em>Good performance or bad, the pay disparity between the CEO and the rank and file is larger than in any other country</em>, contributing to rising income inequality and to its consequent social pathologies.<br /><br />It's also based on several flawed assumptions, argue Jay Lorsch and Rakesh Khurana of Harvard Business School in a recent article for Harvard Magazine. One is that money is the only motivating factor behind executive performance.<br /><br />Another is that shareholders are the only stakeholders in corporate performance whose interests matter. This is a relatively recent paradigm, they observe; as late as 1990 business groups recognized the importance of a corporation's responsibility to stakeholders such as employees, customers, suppliers and the community.<br /><br />The flaw in the latter assumption is that it ties CEO pay to stock prices, which they can't influence on their own. But <em>the picture of the CEO as virtually the sole auteur of a corporation's fate permeates American society</em>. Listen to a Meg Whitman campaign ad talking about 'the EBay Meg created.' If you pay attention you may catch a reference to the 15,000 employees who were there when she left, at least a few of whom must have had something to do with the company's success.</blockquote><br />A further problem is that the pay of top corporate leaders is generally set not by the share-holders, that is, the owners of the company, but by boards of their cronies, many of whom are also members of the CEO club.  As Hiltzik noted,<br /><blockquote>although most corporate boards make a show of placing pay decisions in the hands of a committee of 'independent' directors, <em>the members are almost always current or former top executives themselves, members of a tight club</em>.</blockquote><br />By the way, as we posted <a href="http://hcrenewal.blogspot.com/2009/09/safety-net-medical-center-ceo-gets.html">here</a>, a member of both the Hologic and Vertex boards was a former hospital CEO who got a generous retirement package despite its financial straits.<br /><br />So while their policy flacks continue to push pay-for-performance for physicians, maybe health care corporate leaders should set an example by embracing real pay for performance themselves.<br /><br />To repeat, again, again, again,.... Until they do, top executives remain really different from you and me.  If we do not hold health care leaders accountable, if we do not provide them with incentives that are proportional to their actual performance, why should we expect health care organizations to do any more than satisfy their leaders' self-interest?

Pay for What? - Redux: Surrealistic Pay for Health Care Corporate CEOs

Pay-for-performance has been a persistently fashionable mantra for health care business leaders and policy advocates, particularly as applie...

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University of California CEO - You Can Reduce My Pay if "You Throw In Air Force One"

The San Francisco Chronicle recently <a href="http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/02/15/BA6A1BUGLU.DTL">reported</a> how students at the University of California have been providing a satirical approach to the problems of the university's leadership:<br /><blockquote>It's been a seriously dramatic year at the University of California, where hundreds of students seized buildings, demonstrated and shut down regents meetings last fall to protest rising tuition and the perceived privatization of the public school.<br /><br />It's also been a satirically dramatic year, thanks to the UC Movement for Efficient Privatization, a fledgling group of mostly grad students in business attire that uses humor tinged with sarcasm to lampoon UC officials.<br /><br />Their own name is an example. Many UC students believe leaps in tuition and reduced state funding are turning the public university into a private institution.</blockquote><br />In particular, they drew attention to the university president's sense of entitlement:<br /><blockquote>UCMeP has made itself known on the Berkeley campus since September. That's when UC President Mark Yudof, who earns about $600,000, <em><strong>drew students' ire for telling the New York Times he'd take a $200,000 pay cut for salary parity with President Obama - if Air Force One were part of the package.</strong></em><br /><br />Seeing this as a philanthropic opportunity, UCMeP issued fundraising flyers: 'Help Buy Mark Yudof a Plane!'</blockquote>The relevant parts of the <a href="http://www.nytimes.com/2009/09/27/magazine/27fob-q4-t.html">New York Times interview</a>, which I regret to say I missed at the time it was published, are:<br /><blockquote>Some people feel you could close the U.C. budget gap by cutting administrative salaries, including your own. <br />The stories of my compensation are greatly exaggerated. <br /><br />When you began your job last year, your annual compensation was reportedly $828,000. <br />It actually was $600,000 until I cut my pay by $60,000. <em>So my salary is $540,000, but it gets amplified because people say, 'You have a pension plan.'</em><br /><br />What about your housing allowance? How much is the rent on your home in Oakland? <br /><em>It’s about $10,000 a month.</em> <br /><br /><em>Does U.C. pay for that on top of your salary? </em><br /><em>Yes, and the reason they do that is because they have a president’s house</em>, it needed $8 million of repairs and I decided that was not the way to go. Why the heck would I ever authorize $8 million for a house I didn’t want to live in anyhow? <br /><br />Why can’t you have architecture students repair the house for course credit? <br />Let me ponder that. <br /><br />What do you think of the idea that no administrator at a state university needs to earn more than the president of the United States, $400,000? <br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhT2dQCrvLxxi5nojjEMyPLIkI317MeI3P-ns4ZiESpXjSefmnUowhjM3i4TtGWzxx7rTAwKf6BdcTJAXSUi4E77ZRVZhdp9LDnmqS8GGqYo_VBwBB6-aoPtYT0bo0xDc7lqyjlTnKX4Euq/s1600-h/Air_Force_One_over_Mt__Rushmore.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" ct="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhT2dQCrvLxxi5nojjEMyPLIkI317MeI3P-ns4ZiESpXjSefmnUowhjM3i4TtGWzxx7rTAwKf6BdcTJAXSUi4E77ZRVZhdp9LDnmqS8GGqYo_VBwBB6-aoPtYT0bo0xDc7lqyjlTnKX4Euq/s320/Air_Force_One_over_Mt__Rushmore.jpg" /></a></div><em><strong>Will you throw in Air Force One and the White House?</strong></em></blockquote><br />While Yudof's response is clearly sarcastic, he obviously never substantively addressed why he is entitled to be paid comparably to the President of the richest country in the world.<br /><br />We have written a few times about the travails of the <a href="http://hcrenewal.blogspot.com/search/label/University%20of%20California">University of California</a>, some of its multiple campuses, and in particular its medical schools and teaching hospitals.  Most recently we have written about how leaders of its teaching hospitals also seemed to feel entitled to substantial compensation, including bonuses for "performance" even when their institutions were receiving bad publicity for quality problems (posts <a href="http://hcrenewal.blogspot.com/2010/01/more-california-medical-centers-plagued.html">here</a> and <a href="http://hcrenewal.blogspot.com/2010/01/uci-medical-center-fails-inspection-uci.html">here</a>).<br /><br />Again and again we see examples of leaders of academic medical institutions, and health care organizations in general who seem to feel entitled to be judged differently, and rewarded differently than the common folk.  These entitlements exist even when the economy, or the financial performance of the specific organization prevents other people from making any economic progress. This entitlement exists even if those other poeple actually do the work, and ultimately provide the money that sustains the organization. <br /><br /><br />Although the executives of not-for-profit health care organizations generally make far less than executives of for-profit health care corporations, collectively, hired managers of even not-for-profit health care organizations have become richer and richer at a time when most Americans, including many health professionals, and most primary care physicians, have seen their incomes stagnate or fall. They are less and less restrainted by passive, if not crony boards, and more and more unaccountable. In a kind of multi-centric coup d'etat of the hired managers, they have become our new de facto aristocracy. <br /><br />Or as we wrote in our previous post, executive compensation in health care seems best <a href="http://hcrenewal.blogspot.com/2009/12/compensation-madness-insiders-hijacking.html">described as Prof Mintzberg</a> described compensation for finance CEOs, "All this <em><strong>compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit</strong></em>." As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences. Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations. It is time to reverse the coup d'etat of the hired managers.

University of California CEO - You Can Reduce My Pay if "You Throw In Air Force One"

The San Francisco Chronicle recently reported how students at the University of California have been providing a satirical approach to the ...

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Hospital Executive Pay in the Land Where All Our CEOs Are Above Average

In the US, it seems to be the season for news reports on the pay of hospital executives.  Here are reports from three states in the southeast, in alphabetical order.<br /><br /><strong>Florida</strong><br /><br />The <a href="http://www.tampabay.com/news/business/economic-downturn-not-for-these-tampa-bay-nonprofit-hospital-chiefs/1069575">St Petersburg (FL) Times reported</a> on the total compensation of local hospital executives:<br /><blockquote>While many workers in the Tampa Bay area have had their wages frozen or reduced in the past few years, life has been kinder to chief executives at nonprofit hospitals in the Tampa Bay area.<br /><br />A bright light in a dim economy, most local tax-exempt hospitals have continued to post surpluses, despite losses on investments and the growing number of uninsured. And the <em>executives at the helms of these organizations have been duly rewarded</em> by their community-based boards, according to the federal tax filings required of such organizations. In fact, <em>average compensation at tax-exempt hospitals here is well above the national average</em>.<br /><br />Members of the millionaire men's club include:<br /><br />• Isaac Mallah, chief executive of St. Joseph's Hospital in Tampa, who received total compensation of <em><strong>$2.2 million</strong></em> in 2008, the most recent year available.<br /><br />• Mallah's boss, Steve Mason, who heads BayCare Health System, toted up total compensation of more than <em><strong>$1.7 million</strong></em>.<br /><br />• Tampa General Hospital's chief executive, Ron Hytoff, also earned more than <em><strong>$1.7 million</strong></em>.<br /><br />• At All Children's Hospital in St. Petersburg, Gary Carnes' pay package was about <em><strong>$1.2 million.</strong></em> Across the street at Bayfront Medical Center, Sue Brody, the only female chief executive of a freestanding nonprofit hospital in the area, was paid <em><strong>$744,149</strong></em>.<br /><br />• Dr. William Dalton, president and chief executive of Tampa's H. Lee Moffitt Cancer Center and Research Institute, received just <em><strong>over $1 million</strong></em> in total compensation in 2008. But it could have been higher. In both 2008 and 2009, Moffitt's board eliminated bonuses for all managers because of tough economic conditions.<br /><br />Average compensation for chief executives at 14 nonprofit hospitals in the Tampa Bay area was about $876,000. Meanwhile, according to an IRS survey of more than 500 nonprofit hospitals last year, the national average was $490,000.</blockquote><br />How were these generous amounts of compensation justified?<br /><blockquote>BayCare's Mason said he won't apologize for what he's paid to lead the seven-hospital system, which had more than $2 billion in revenue in 2008.<br /><br /><em>'I have significant responsibility over a lot of resources</em>, providing a service that improves the health of the community,' said Mason, who joined BayCare in 2004. 'This is what it would cost our board to replace me.'</blockquote><br />In addition, <br /><blockquote>Officials at area hospitals say their boards adhere 'meticulously' to IRS rules, hiring independent consultants every year to ensure their chief executives' salaries are comparable to pay at similarly sized nonprofit institutions. Mason said BayCare's board tries to ensure that its <em>total compensation stays at about 75 percent of the maximum paid.</em></blockquote><br /><strong>North Carolina</strong><br /><br />The <a href="http://charlotte.bizjournals.com/charlotte/stories/2010/01/11/daily30.html">Charlotte Business Journal noted</a>: <br /><blockquote>Carolinas HealthCare paid Chief Executive Michael Tarwater <em><strong>$3.4 million</strong></em> in 2009, down from $3.5 million a year earlier. His 2009 compensation includes a base salary $950,697 and bonuses of $1.87 million.<br /><br />Paul Wiles, chief executive at Winston-Salem-based Novant, earned total compensation of a <em><strong>little more than $2 million</strong></em> in 2009, roughly the same as in 2008. His base salary last year was $900,000, and he was paid a bonus of $827,462. Novant estimates Wiles received $339,000 in other compensation, including benefits and deferred compensation.<br /><br />Carolinas HealthCare released compensation information for these other top executives:<br /><br />•Joseph Piemont, president and chief operating officer, $1,731,581.<br /><br />•Greg Gombar, chief financial officer and executive vice president, $1,526,254.<br /><br />•Paul Franz, executive vice president of the physician services group, $1,399,528.<br /><br />•Dennis Phillips, executive vice president of the Metro Group, $1,084,859.<br /><br />•David Dunlap, president and chief executive of Roper St. Francis Healthcare, $1,043,078.<br /><br />•Laurence Hinsdale, executive vice president, regional group, $1,041,586.<br /><br />•John Knox, executive vice president and chief administrative officer, $992,993.<br /><br />•Russell Guerin, executive vice president of business development and planning, $922,769.<br /><br />•Keith Smith, senior vice president and general counsel, $783,643.<br /><br />Presbyterian also released compensation information for its other top executives. Its figures include 2009 base salaries and 2008 bonuses, which were paid in 2009:<br /><br />•Greg Beier, president of acute-care services Novant Health, $1,615,322.<br /><br />•Carl Armato, president Novant core markets, $1,295,030.<br /><br />•Dean Swindle, president of ambulatory services and chief financial officer for Novant Health, $1,084,155.<br /><br />•Dr. Hayes Woollen, former president of Novant Medical Group, $1,009,168.<br /><br />•Jacque Gattis, chief administrative officer for Novant Health, $902,374.<br /><br />•Sallye Liner, president of Forsyth Medical Center and Winston-Salem market, $887,109.<br /><br />•Dr. Stephen Wallenhaupt, chief medical officer for Novant Health, $867,740.<br /><br />•Lawrence McGee, general counsel for Novant Health, $728,584.<br /><br />•Dr. A.J. Patefield, chief medical information officer Novant Health, $706,889.</blockquote><br />Again, how was the pay justified?<br /><blockquote>'We need to stay on top of what’s going on in the market and stay competitive,' says James Hynes, chairman of Carolinas HealthCare’s board of commissioners and a member of its compensation committee.<br /><br /><em>'Our process delivers the number we think we ought to have,'</em> Hynes says. 'We feel like we’ve done it correctly.'</blockquote><br /><strong>Texas</strong><br /><br />Moving on to Texas, the <a href="http://www.dallasnews.com/sharedcontent/dws/news/localnews/stories/DN-bonuses_21met.ART.State.Edition2.4ba1b02.html">Dallas Morning News reported</a>:<br /><blockquote>Top executives at Parkland Memorial Hospital collected about <em>$1.7 million in bonuses</em> at the end of last year, according to records released recently to The Dallas Morning News.<br /><br />The 2009 bonuses, approved in December by the hospital's board of managers, went to vice presidents, senior vice presidents and executive vice presidents at the charity hospital.<br /><br />The bonuses ranged from <em>$36,054 for the vice president who heads the hospital's community clinics to $143,325 for Parkland's chief financial officer</em>.</blockquote><br />And what was the justification for these bonuses?<br /><blockquote>In previous years, Parkland's top three administrators were rewarded with bonuses for meeting certain goals. Last year, the pay plan was expanded to include the hospital's 'senior executive staff.'<br /><br />Dr. Lauren McDonald, chairwoman of Parkland's board of managers, objected Wednesday to referring to the payments as bonuses, a term that could imply nothing was done to earn the money.<br /><br />'We kind of stay away from the word 'bonus,'' she said. 'It's really earned incentives. <em>We have certain goals that we set forth as a board.</em>'<br /><br />'Working with a consultant, we made sure these were earned, instead of just given.'<br /><br />Dallas County Commissioner John Wiley Price said that he was aware of the new executive pay plan at Parkland and that he wholeheartedly approved.<br /><br />'It's a step in the right direction,' he said. <em>'You pay to keep good talent</em>, and what we're paying them is not unreasonable.'<br /><br />In particular, Price lauded the work of Anderson, who will earn $853,044 when his bonus is approved next week. His bonus will bring the hospital's total to about $2 million.<br /><br />'The man has 29 years experience at Parkland,' Price said. 'He's put together the kind of executive team that has won Parkland an excellent bond rating. And it's debt-free, too.'</blockquote><br />On the other hand, a second <a href="http://www.dallasnews.com/sharedcontent/dws/news/localnews/stories/012710dnmetbonuses.4254b92.html">Dallas Morning News article </a>noted, <br /><blockquote>The Parkland Memorial Hospital board of managers began its monthly meeting Tuesday by strongly endorsing the $1.7 million in 'incentive pay it handed out to 27 top executives at the end of December.<br /><br />'There are a lot of negatives out there about this,' acknowledged Dr. Lauren McDonald, who chairs the board.<br /><br />Some employees who received only 2 percent to 3 percent in merit increases last year were unhappy to hear last week that their bosses had gotten 19 percent to 31 percent in extra pay.<br /><br />Dozens flooded online message boards with angry comments. A few called reporters to register their complaints. </blockquote><br /><strong>Summary</strong><br /><br />So once again note that the top executives of health care organizations are not like you and me. Their total compensation generally ranges from generous to sufficiently lavish to make them instantly rich. Their pay almost never substantially decreases. If incentives are offered, they almost never fail to earn them.<br /><br />Furthermore, notice the way the executives, and the boards to whom they supposedly report justify these practices.<br /><br />It seems that the executives of every hospital are always above average. If pay is determined by comparisons to other institutions, it is never set at or below the average rate.  At every hospital, "our" executives are superior, but without any clear definition of how they might be superior to whom.  The processes by which compensation is made competitive are asserted to be accurate, without any objective confirmation of that accuracy provided (and note above that one leader seemed to justify the process because it produced the numbers he thought were right.)  Bonuses are awarded for reaching "goals," but the goals always seem easily within reach, and the bonuses offered executives are always a much larger proportion of base pay than the bonuses offered anyone else. <br /><br />So, to repeat, the sorts of compensation reported in Florida, North Carolina, and Texas are a product of the current management culture that has been infused into nearly every health care organization in the US. That culture holds that managers are different from you and me. They are entitled to a special share of other people's money. Because of their innate and self-evident brilliance, they are entitled to become rich. This entitlement exists even when the economy, or the financial performance of the specific organization prevents other people from making any economic progress. This entitlement exists even if those other poeple actually do the work, and ultimately provide the money that sustains the organization. <br /><br /><br />Although the executives of not-for-profit health care organizations generally make far less than executives of for-profit health care corporations, collectively, hired managers of even not-for-profit health care organizations have become richer and richer at a time when most Americans, including many health professionals, and most primary care physicians, have seen their incomes stagnate or fall. They are less and less restrainted by passive, if not crony boards, and more and more unaccountable. In a kind of multi-centric coup d'etat of the hired managers, they have become our new de facto aristocracy. <br /><br />Or as we wrote in our previous post, executive compensation in health care seems best <a href="http://hcrenewal.blogspot.com/2009/12/compensation-madness-insiders-hijacking.html">described as Prof Mintzberg</a> described compensation for finance CEOs, "All this compensation madness is not about markets or talents or incentives, but rather about <em><strong>insiders hijacking established institutions for their personal benefit</strong></em>." As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences. Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations. It is time to reverse the coup d'etat of the hired managers.

Hospital Executive Pay in the Land Where All Our CEOs Are Above Average

In the US, it seems to be the season for news reports on the pay of hospital executives.  Here are reports from three states in the southeas...

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More California Medical Centers Plagued by Quality Problems While Their Executives Get Bonuses for "Improved Patient Care"

Earlier this week, we <a href="http://hcrenewal.blogspot.com/2010/01/uci-medical-center-fails-inspection-uci.html">noted</a> that while executives at one University of California medical center were getting large bonuses supposedly for "improved patient health," the hospital was being cited for serious health care quality deficiencies.  Now, more stories have appeared that raise questions about the rationale for the generous bonuses handed out to multiple top hospital executives at University of California hospitals.  <br /><br /><strong>University of California - San Diego</strong><br /><br />First, in alphabetical order by city, the San Diego Union-Tribune <a href="http://www.signonsandiego.com/news/2010/jan/27/three-hospitals-fined-for-mistakes/">reported</a> on penalties for poor quality care announced by the California Department of Public Health: <br /><blockquote>UCSD Medical Center in San Diego was fined $50,000.... The state said the hospital staff failed to follow its surgical policies and procedures, which resulted in a patient having to have a second surgery to remove a foreign object — a guide wire that was left in the patient when a central venous catheter was inserted into the patient’s right femoral vein in the groin area in January 2009. The wire migrated into a chamber of the patient’s heart.<br /><br />The procedure was done by a first-year intern and supervised by a third-year resident.<br /><br />This marks the third time the state has penalized UCSD, with the first penalty issued in May 2008 and the second in May 2009.<br /></blockquote><br />However, a few days earlier, the Union-Tribune had <a href="http://www.signonsandiego.com/news/2010/jan/22/bonuses-uc-medical-center-execs-okd/">reported</a>:<br /><blockquote>Despite criticism from union leaders and rank-and-file employees, University of California regents yesterday overwhelmingly approved $3.1 million in incentive payouts to 38 medical center executives.<br /><br />The payouts mean, for instance, that <em>former UC San Diego Medical Center CEO Richard Liekweg will receive $136,174 in performance pay for the last fiscal year, added to his base of $660,500.</em><br /><br />Regents justified the payments by noting that incentive programs are common in the health care industry, and necessary to compete for top talent.<br /><br />'It’s the way this industry works,' said Regent William De La Pena, an ophthalmologist and medical director of eye clinics throughout Southern California.<br /><br /><em>At UCSD Medical Center, 10 senior managers will receive a combined $754,650 for surpassing goals set in areas ranging from <strong>improved patient safety</strong> to increased revenue. The bonuses amount to 14 to 23 percent added to executives’ salaries.</em><br /></blockquote><br /><strong>University of California - San Francisco</strong><br />Meanwhile, the San Francisco Chronicle <a href="http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/01/27/BA1U1BOD7C.DTL">reported</a> that a major University of California - San Francisco teaching hospital was also cited by the state Department of Public Health for quality problems:<br /><blockquote>San Francisco General was fined $25,000 for leaving a piece of surgical gauze in a patient who underwent an eight-hour operation for two types of cancer in September 2008. The foreign object was discovered about three months later and was removed without surgery during an office visit.<br /></blockquote><br />The Chronicle also <a href="http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/01/27/BA1U1BOI6U.DTL&type=health">reported</a> a possibly major breach in the confidentiality of patient records at the UCSF Medical Center:<br /><blockquote>Medical records for about 4,400 UCSF patients are at risk after thieves stole a laptop from a medical school employee in November, UCSF officials said Wednesday.<br /><br />The laptop, which was stolen on or about Nov. 30 from a plane as the employee was traveling, was found in Southern California on Jan. 8.<br /><br />There is no indication that unauthorized access to the files or the laptop actually took place, UCSF officials said, but patients' names, medical record numbers, ages and clinical information were potentially exposed.<br /><br />The security breach is UCSF's second in recent months. Last month, UCSF officials revealed that a faculty physician responding to an Internet 'phishing' scam potentially exposed the personal information of about 600 patients.<br /></blockquote><br />However, despite these obvious quality problems, the San Francisco Business Times <a href="http://sanfrancisco.bizjournals.com/sanfrancisco/stories/2010/01/18/daily68.html">reported</a><br /><blockquote><em>University of California regents approved $500,000 in bonuses to six top officials at the UC San Francisco Medical Center</em>, part of a package of $3.1 million in payments to 38 hospital executives across the UC system.<br /><br />In an interview last week with UCSF Chancellor Susan Desmond-Hellman, she said that the <em>executive bonuses were tied to meeting specific performance goals, such as reducing clinical infections and increasing satisfaction ratings by patients</em>. She also pointed out that additional payments of $14.3 million to the UCSF Medical Center’s 6,600-strong workforce were approved earlier.<br /><br />The UCSF officials awarded bonuses were:<br /><br />* Mark Laret, chief executive officer, $181,227;<br />* Ken Jones, chief financial officer, interim chief operating officer, $89,162;<br />* Larry Lotenero, chief information officer, $66,045;<br />* John Harris, chief strategy and business development officer, $63,196;<br />* Susan Moore, finance director and interim chief financial officer, $53,261; and<br />* Sheila Antrum, chief nursing/patient care services officer, $49,280.<br /></blockquote><br /><strong>Summary<br /></strong><br />So, in summary, multiple executives at three major University of California medical centers received generous bonuses.  The rationale for these bonuses, given out at a time when the university system was under major financial constraints, was that they were incentives for exemplary performance and patient care.  <br /><br />Yet almost simultaneous with announcement of the bonuses were news reports indicating serious patient care problems at the same medical centers.  The point I am NOT trying to make is that the care at any of these medical centers is bad.  The examples of quality problems were limited.  I am sure that many other major medical centers hae had such quality problems as well.  However, the cases cited above were sufficient to argue that the care at these medical centers was not outstanding, not exemplary.  Yet, the bonuses were awarded not for acceptable performance or average quality.  Their rationale was exceptional performance and quality.  Thus, the rationale for the performance bonuses seems at best naive, if not foolish.  <br /><br />I would suggest, instead, that the sorts of bonuses given out at the University of California are a product of the current management culture that has been infused into nearly every health care organization in the US.  That culture holds that managers are different from you and me.  They are entitled to a special share of other people's money.  Because of their innate and self-evident brilliance, they are entitled to become rich.  This entitlement exists even when the economy, or the financial performance of the specific organization prevents other people from making any economic progress.  This entitlement exists even if those other poeple actually do the work, and ultimately provide the money that sustains the organization.  <br /><br />Although the executives of not-for-profit health care organizations generally make far less than executives of for-profit health care corporations, collectively, hired managers of even not-for-profit health care organizations have become richer and richer at a time when most Americans, including many health professionals, and most primary care physicians, have seen their incomes stagnate or fall.  They are less and less restrainted by passive, if not crony boards, and more and more unaccountable.  In a kind of multi-centric coup d'etat of the hired managers, they have become our new de facto aristocracy.  <br /><br />Or as we wrote in our previous post, executive compensation in health care seems best <a href="http://hcrenewal.blogspot.com/2009/12/compensation-madness-insiders-hijacking.html">described as Prof Mintzberg</a> described compensation for finance CEOs, "All this <em>compensation madness</em> is not about markets or talents or incentives, but rather about <em><strong>insiders hijacking established institutions for their personal benefit</strong></em>." As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences. Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations.  It is time to reverse the coup d'etat of the hired managers.

More California Medical Centers Plagued by Quality Problems While Their Executives Get Bonuses for "Improved Patient Care"

Earlier this week, we noted that while executives at one University of California medical center were getting large bonuses supposedly for ...

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UCI Medical Center Fails Inspection, UCI Executives Get Bonuses

Back in the early days of Health Care Renewal, we had many occasions to write about problems with the leadership of the University of California - Irvine (UCI) medical school.  Starting in late 2005, we posted  about various management problems at the institution, involving its liver transplant service, cardiology division, and bone marrow transplant service, (see posts <a href="http://hcrenewal.blogspot.com/2005/12/more-trouble-in-oc-golden-parachutes.html">here</a> and <a href="http://hcrenewal.blogspot.com/2006/01/even-more-trouble-in-oc-uci-bone.html">here</a>) which lead the new chancellor of the campus to "acknowledge a failure of leadership and accountability" (see post <a href="http://hcrenewal.blogspot.com/2006/04/some-themes-emerge-from-problems-at.html">here</a>.) Slightly more recently, we noted the almost 20 year history of questionable financial relationships that involved one of UCI's "biggest stars" in clinical researach and several pharmaceutical companies (see post <a href="http://hcrenewal.blogspot.com/2006/08/yet-more-trouble-in-oc-psychiatrist.html">here</a>).  Then, in 2007, we wrote about some strange contracting practices involving UCI and a local orthopedic practice (see post <a href="http://hcrenewal.blogspot.com/2007/03/strange-contracting-at-uci.html">here</a>).<br /><br />So it was deja vu all over again when last week the Los Angeles Times <a href="http://www.latimes.com/news/local/la-me-uci22-2010jan22,0,4604550.story">reported</a> about the latest batch of problems at UC Irvine Medical Center:<br /><blockquote>Federal investigators<em> found scores of problems at UC Irvine Medical Center during a fall inspection that again put the troubled hospital's Medicare funding at risk</em>, according to report released Thursday.<br /><br />In an 85-page report on their surprise October inspection, regulators said they observed poor oversight and mistakes by UCI doctors, nurses and pharmacists, leading to inadequate care that in some cases harmed patients.<br /><br />Among the findings:<br /><br />* An 82-year-old man was mistakenly given a narcotic patch by a medical resident, without approval of doctors or pharmacists. The patch led to an overdose that required emergency intervention and may have contributed to his death a week later.<br /><br />* A patient in the neuropsychiatric unit fell twice in three days and despite yelling 'Help me, doctor, help me,' suffered a head injury and had to be taken to intensive care.<br /><br />* An on-call resident did not respond to repeated emergency pages from nurses in the neurological intensive care unit, where a patient with an irregular heartbeat languished for more than an hour.<br /><br />* Pharmacists failed to monitor and store drugs correctly, allowing nurses to carry narcotics in their pockets and inject patients without proper oversight.<br /><br />The report comes a year after investigators from the Centers for Medicare and Medicaid Services documented repeated examples of poor oversight at the hospital and threatened to cut Medicare funding.<br /><br />In July, Medicare officials issued a finding of immediate jeopardy after investigators discovered that five UCI patients had received overdoses because nurses using pain medication pumps were not properly trained. UCI officials immediately began training nurses to use the pumps, the finding was lifted within 24 hours and the hospital submitted a plan of correction.<br /></blockquote>However, the 2010 continuation of the sad tale of UCI adds an interesting contrast.<br /><blockquote>UCI nurses said Thursday that <em>many of the latest problems stem from understaffing and other cost-cutting, even <strong>as the facility turned a $54.2-million profit</strong> last year and the <strong>chief executive earned an $83,250 bonus</strong>.</em><br /><br />'This is a problem of money. To provide extra training, extra staffing, is money,' said Beth Kean, California Nursing Assn. director for UC nurses, including 1,000 at UCI.<br /><br />Terry A. Belmont, who took over as the hospital's chief executive last year, disputed that the facility was understaffed.<br /></blockquote>The new wrinkle in the UCI saga seems to be that now the leadership of UCI has been raking in bonuses while the mismanagement of the organization apparently continues.<br /><br />Indeed, also last week several California newspapers reported on a series of bonuses granted to the top executives of the University of California system.  For example, <a href="http://www.latimes.com/news/local/la-me-uc22-2010jan22,0,487236.story">per the Los Angeles Times</a>, <br /><blockquote>The University of California regents Thursday approved <em>the controversial payment of $3.1 million in performance bonuses to 38 senior executives at UC's five medical centers</em>.<br /><br />The regents emphasized that the payments were <em>linked to improved patient health and stronger hospital finances</em> and said they were important tools to attract and retain talent. They said the bonuses were part of a 16-year-old plan funded by hospital revenue, not state funds or student fees. An additional $33.7 million is distributed among 22,000 lower-ranking medical employees.<br /><br />However, union activists denounced the executive bonuses as unconscionable as other parts of the university were coping with pay cuts and layoffs.<br /><br />'This is appalling to do this when they are telling the lowest-paid workers to stay in poverty,' said Lakesha Harrison, president of the American Federation of State, County and Municipal Employees Local 3299, which represents about 20,000 UC workers, including hospital technicians and campus custodians.<br /><br />Some of the union's members get bonuses of about $300 a year, Harrison said. In contrast, the payments to the 38 senior managers range from about $30,100 to nearly $219,000.<br /><br />The incentives were awarded after the UC medical center system met such targets as reducing catheter-related infections and saving money through group purchases of supplies, officials said.<br /><br />Among the payments approved Thursday by the regents in San Francisco were $218,728 to UCLA Medical Center Chief Executive David Feinberg, on top of his $739,695 base salary; $181,227 to UC San Francisco medical center Chief Executive Mark Laret, on top of $739,700 in pay; and $87,000, in addition to his $580,000 salary, for John Stobo, the UC system's senior vice president for health sciences.<br /></blockquote>Corroborating the assertion that the bonus plan is not new is a <a href="http://www.universityofcalifornia.edu/news/compensation/payroll2008/table3.pdf">document</a> that lists executive compensation at the University of California in 2008. (2009 data does not yet seem to be available on the web.) This document noted the following bonuses paid to University of California - Irvine medical leaders in 2008:<br />- Susan J Rayburn, Executive Director of Clinical Enterprise - Base Salary= $212,700, Bonus=$28,401<br />- Lisa M Reiser, Chief Patient Care Services Officer - $243,000, $26,507<br />- Eugene Spiritus, Chief Medical Officer - $310,000, $38,373<br />- Patricia D Thatcher, Executive Director - HR and Customer Service, Medical Center - $197,547, $17,542<br />- Cynthia A Winner, Chief Ambulatory Care Officer - $238,200, $24,371<br />- Maureen L Zehntner, Associate Vice Chancellor/ Chief Executive Officer, Medical Center - $555,000, $74,432<br /><br />Note that Dr Spiritus, the Chief Medical Officer, did not mention that he was a 2008 bonus recipient when he defended bonuses given to UCI leaders in the LA Times article,<br /><blockquote>'Everybody's fallible. We just have to make sure we have the right processes in place' to catch errors, <em>said Dr. Eugene Spiritus, UCI Medical Center's chief medical officer</em>.<br /><br /><em><strong>Spiritus also defended the compensation for hospital managers, saying they need to stay competitive in order to attract and keep talented managers</strong></em>, especially given the cost of living in California.<br /></blockquote><br />F Scott Fitzgerald wrote, "the very rich are different from you and me."  These days, it is executives and managers who are very different from you and me.  <br /><br />Physicians are beginning to dread the notion of "pay for performance," which may mean tiny increases in fees paid to physicians who uncritically follow wooden-headed guidelines based on over-simplified notions of disease, poor measurement schemes, and manipulated and suppressed clinical data.  <br /><br />However, for health care organization executives, "pay for performance" seems to mean lavish bonuses only tenuously related to any rational notion of performance.  In the example above, it seems that multiple UCI executives earned bonuses for their management of clinical affairs at the medical center in 2008, and at least the medical center CEO earned a bonus in 2009 for "improved patient health" while outside review of the medical center's performance in 2009 revealed "scores of problems" sufficient to threaten withdrawal of Medicare funding.  One wonders about the basis for all the millions in bonuses that have been paid to University of California executives over the years?<br /><br />In fact, the executive "pay for performance" programs that started in the for-profit corporate world, and now are prevalent in not-for-profit health care organizations, seem to reflect the culture of executive entitlement now so prevalent in the US (and maybe most developed countries.)  First, executives claim credit for any improvements in their organizations, while the workers in the trenches who actually accomplished the improvements get chump change.  Second, when things go wrong, the workers face salary cuts and lay-offs, while the executives' total compensation never seems to go down.  <br /><br />As we <a href="http://hcrenewal.blogspot.com/2009/12/98-million-dollar-man.html">mentioned before</a>, executive compensation in health care seems best described <a href="http://hcrenewal.blogspot.com/2009/12/compensation-madness-insiders-hijacking.html">as Prof Mintzberg described compensation</a> for finance CEOs, <em><strong>"All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit."</strong></em> As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences. Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations.

UCI Medical Center Fails Inspection, UCI Executives Get Bonuses

Back in the early days of Health Care Renewal, we had many occasions to write about problems with the leadership of the University of Califo...

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A $4.3 Million Dollar CEO for a Not-For-Profit Health Care Insurance Corporation

The US stock markets are at lows unseen for more than 10 years, unemployment is rising, around the world national deficits are increasing, and times are tough for ostensibly not-for-profit Blue Cross and Blue Shield of Massachusetts, the state's largest health care insurer/ managed care organization. <a href="http://www.boston.com/business/healthcare/articles/2009/02/28/blue_cross_ceos_pay_rose_26/">Per the Boston Globe</a>:<br /><blockquote><br />Blue Cross-Blue Shield's business was affected by the stock market decline, the recession, and the increasing cost of medical care.<br /><br /><em>Membership at the state's largest health plan declined</em> about 40,000 to just over 3 million.<br /><br />'The decline in membership had an impact on results,' said chief financial officer Allen Maltz. 'In addition, many of our customers changed their benefits plans to products that have much lower margins.'<br /><br />Blue Cross-Blue Shield insures employees of national companies that have locations outside Massachusetts, Maltz said, and those customers accounted for some of the drop-off in membership.<br /><br />Maltz said Blue Cross-Blue Shield aims for a profit margin of between 1.5 and 2 percent. <em>Last year's margin was almost zero. The firm had operating income from its medical claims business of just $1.6 million.</em><br /><br />A new state assessment on reserves lowered income by $21 million, Maltz said. <em>Revenue was flat at $6.7 billion</em>, and medical claims were also unchanged at $6 billion.<br /><br />Like most health insurers, <em>Blue Cross-Blue Shield also relies on investment income, which fell 28 percent to $111 million</em>. Maltz said the firm managed to avoid losses in the market by investing primarily in bonds and avoiding derivative securities that have declined precipitously in value.<br /></blockquote><br /><br />Well, things are tough all over. But they are apparently not so tough for Blue Cross Blue Shield's CEO:<br /><blockquote><br />The salary and bonus paid to Cleve L. Killingsworth, chairman and chief executive of Blue Cross and Blue Shield of Massachusetts, <em><strong>increased 26 percent last year, to $3.5 million</strong></em>, even though the health insurer's membership declined and its net income fell 49 percent.<br /><br />Based on previous years' retirement benefits - which Blue Cross-Blue Shield did not report for 2008 - <em><strong>Killingsworth's total pay package was likely about $4.3 million, making him by far the highest paid healthcare executive in Massachusetts</strong></em>.<br /></blockquote><br /><br />And what was the justification for Killingworth's stellar pay?<br /><blockquote><br />Salaries at Blue Cross-Blue Shield were inflated by a complex executive bonus plan in which senior officials get bonuses based on a rolling average of the previous three years.<br /><br />'These executives and the company performed and exceeded our expectations,' said Jay McQuaide, a Blue Cross-Blue Shield spokesman. 'They earned these incentives.' The key metrics in the incentive plan are <em>membership and net profit</em>, he said.<br /></blockquote><br /><br />The company's board of directors did not do badly either. Unlike most boards of not-for-profit corporations, this one was paid:<br /><blockquote><br />The insurer's board members also<em> received a 33 percent increase in base pay, from $30,000 a year to $40,000. Most earn far more</em> because of payments for attending meetings and serving on committees.<br /></blockquote><br /><br />Finally, <a href="http://www.bostonherald.com/business/general/view.bg?articleid=1155201&srvc=home&position=1">according to the Boston Herald</a>, other executives did quite nicely too:<br /><blockquote><br />Bay State health insurance bosses continued to rake in multimillion-dollar compensation packages last year as the state and its taxpayers struggled to pay ever-increasing health-care costs.<br /><br />Data filed yesterday with the state’s Division of Insurance shows that Blue Cross Blue Shield of Massachusetts, the state’s largest HMO, <em>doled out million-dollar pay packages to five executives</em>, while Harvard Pilgrim Health Care paid its two highest-ranking executives a total of $2.7 million.<br /><br />Blue Cross’ top earner is <em>Peter Meade, who retired last spring as executive vice president of corporate affairs. Meade took home <strong>$4 million</strong>, a sum that includes retirement benefits</em> accrued during his 12 years at the HMO.<br /></blockquote><br /><br />It's just amazing that with all their talk about "pay for performance," top executives of health care organizations seem to make huge sums year in and year out, regardless of their organization's performance. (As an aside, how could someone say that the company's pay for performance "main metrics" were membership and net profit, when both fell, yet the CEO's pay rose?)<br /><br />There was a brilliant discussion of the culture that lead to this sad state of affairs <a href="http://www.timesonline.co.uk/tol/comment/columnists/minette_marrin/article5822151.ece">in the Times (UK) by Minette Marrin</a>. It was about British bankers, but it just as well could have been about American health care executives:<br /><blockquote><br />The filthy rich, as Peter Mandelson affectionately calls them, are different. It is not just that they’re rich but that <em><strong>there’s something about being extremely rich that blurs ordinary perspective in all but the most exceptional people.</strong></em> <em><strong>Power may corrupt, but extreme wealth blinds and deafens.<br /></strong></em><br />I first came across the filthy rich just after I was married and went to live in Hong Kong in the 1970s. Leaving poverty-stricken Britain, my husband and I joined a gold rush of bankers and brokers to what was then still a crown colony. What we saw was wealth and conspicuous consumption beyond the wildest dreams of avarice.<br /><br />Though we weren’t extremely highly paid, we spent a lot of time with people who were. Some were entrepreneurs and others were employees of banks and trading houses that, as today, offered them ways of making megabucks. Soon it became obvious that <em><strong>being very rich is like catching an insidious virus. Some people are able to resist it, but with most people the super-riches virus burrows into your nervous system for life. It blurs your perspective, weakens your grasp on reality and changes your identity into someone who is entitled to be very rich</strong></em>.<br /></blockquote><br /><br />Ms Marrin's description of "<em><strong>plutocratic blindness</strong></em>" seems to apply to a CEO of a so-called not-for-profit organization who could claim more than $4 million in a year in which the global economy collapsed, and his own organization did rather badly by any financial measure.<br /><br />This passage by Ms Marrin seems applicable to the Blue Cross Blue Shield Board who approved this disproportionate pay package:<br /><blockquote><br />But I do know things are done quite differently on the parallel planet inhabited by the filthy rich. Remuneration boards unselfconsciously award each other astonishing packages, wrapped up in euphemism.<br /></blockquote><br /><br />The lack of selfconsciousness in this case may have been driven by the board's familiarity with how things used to be done in the American financial sector. A quarter of the board's members are leaders in that sector (see post <a href="http://hcrenewal.blogspot.com/2009/01/to-whom-did-scorpions-in-bottle-owe.html">here</a>).<br /><br />Let me close with Ms Marrin's suggested solution:<br /><blockquote><br /><em><strong>The filthy rich culture that has developed in the past 20 years is sick. It needs strong medicine, fresh air, open windows. Above all, what’s needed is a cold dose of fear – fear of failing, of being sacked and of losing the lovely money. Here is an excellent antidote to greed.</strong></em><br /></blockquote>

A $4.3 Million Dollar CEO for a Not-For-Profit Health Care Insurance Corporation

The US stock markets are at lows unseen for more than 10 years, unemployment is rising, around the world national deficits are increasing, a...

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