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

It is spring, time for birds to sing, flowers to bloom, and hospital executives to get more money.  As we do periodically, we have amassed a series of media accounts of the big to enormous compensation paid to top non-profit hospital leaders.  These reports follow a certain pattern, but this year's spring crop included something different.<br /><br /><b>The Pattern</b><br /><br />In the groundbreaking science fiction series "Fringe," "The Pattern" was a series of apparently inexplicable events which eventually pointed to the existence of a parallel universe.<br /><br /><br /><iframe allowfullscreen="" frameborder="0" height="315" src="//www.youtube.com/embed/i8DqLs7254E" width="560"></iframe> <br /><br />In non-profit hospitals, The Pattern of the discussion of executive compensation is this.  Nearly all non-profit hospitals must release minimal data on the total compensation of a few of the highest paid executives.  When these reports come out, sometimes the local media take a look, either at an individual hospital or hospital system, or at a number of local hospitals.  They almost inevitably find that some, usually most executives make what appears to be lots of money.  This could be hundreds of thousands of dollars at small community hospitals, or millions of dollars at larger hospitals and hospital systems.  Sometimes the reports end there.  Sometimes the reporters ask hospital representatives or local experts to explain the apparently exalted compensation figures.  The explanations are usually very similar, and so we have called this part of The Pattern The Talking Points. <br /><br /><b>The Talking Points </b><br /><br />It seems nearly every attempt made to defend the outsize compensation given hospital and health system executives involves the same arguments, thus suggesting they are talking points, possibly crafted as a public relations ploy.   We first listed the talking points <a href="http://hcrenewal.blogspot.com/2011/09/talking-points-sans-original-thought-to.html">here</a>, and then provided additional examples of their use <a href="http://hcrenewal.blogspot.com/2011/09/more-repeats-of-talking-points.html">here</a>, <a href="http://hcrenewal.blogspot.com/2012/03/example-of-how-complex-takes-control.html">here</a> <a href="http://hcrenewal.blogspot.com/2012/12/health-care-hired-managers-not-playing.html">here,</a> <a href="http://hcrenewal.blogspot.com/2013/05/executive-compensation-as-legal.html">here</a>, <a href="http://hcrenewal.blogspot.com/2013/06/no-blues-but-lots-of-green-for-st-louis.html">here,</a> and <a href="http://hcrenewal.blogspot.com/2013/08/should-we-cry-for-non-profit-hospital.html">here</a>, and <a href="http://hcrenewal.blogspot.com/2013/08/the-long-con-charitable-hospitals-make.html">here</a>.  <br /><br />They are:<br />- We have to pay competitive rates<br />- We have to pay enough to retain at least competent executives, given how hard it is to be an executive<br />- Our executives are not merely competitive, but brilliant (and have to be to do such a difficult job).<br /><br />The talking points are usually supplied by hospital public relations personnel, sometimes by hospital trustees or executives, sometime by various health care consultants.  The talking points are rarely questioned. <br /><br />So let us look at some recent media articles for The Pattern, grouped in chronological order, to illustrate.<br /><br /><b>Jersey Boys</b><br /><br />On April 6, 2014, Crain's New York Business<a href="http://www.crainsnewyork.com/article/20140406/HEALTH_CARE/140409916/hospital-execs-receive-sky-high-payouts"> reported</a> some of the biggest yearly compensation figures seen for non-profit hospital CEOs.   <br /><br /><blockquote class="tr_bq"><i>Ronald Del Mauro, the former president and chief executive of Barnabas Health, pulled in almost <b>$22 million</b> in 2012</i>, the year after he retired from New Jersey's largest health system. Joseph Trunfio, president and chief executive at Atlantic Health, made $10 million.<br /><br />Never before have such outsized compensation packages appeared on <i>Crain's</i> <a href="http://www.crainsnewyork.com/data-lists/business-lists/details/30/2962924" target="_blank" title="Crain's list of top-paid health care executives">annual list of top-paid hospital executives</a></blockquote><br />The explanations fit the pattern.  First from a Barnabas spokesperson,<br /><br /><blockquote class="tr_bq">'When Mr. Del Mauro began his career, Saint Barnabas Medical Center was a stand-alone community hospital,' she said, adding that Barnabas is 'well positioned both financially and operationally, despite significant industry challenges. His retirement package is a function of over four decades of service ... and reflects his <i>exceptional legacy</i>.'</blockquote><br />He was just another brilliant executive, in other words.<br /><br />Then about Mr Trunfio,<br /><br /><blockquote class="tr_bq">In a statement, Karen Kessler, board chair of Atlantic Health System, said that while Mr. Trunfio's 'current agreement does not have these bonus provisions, his compensation is performance-based, <i>aligned with industry standards</i> and intended to <i>assure we retain top executive talent</i> to provide the best quality of care to the communities we serve.'</blockquote><br />There in italics were the competitive market rates and retention arguments, and a repeat ("top talent") of the brilliance argument.<br /><br />Meanwhile, on April 28, 2014, NJBiz had its own <a href="http://www.njbiz.com/article/20140428/NJBIZ01/304259991/What%27s-fair-pay-at-nonprofits?-When-it-comes-to-hospitals-a-proper-diagnosis-is-difficult">report</a> on non-profit executive compensation in the state.   Their summary included,<br /><br /><span id="highlighter_target"></span><br /><blockquote class="tr_bq">Heading up the list is Robert C. Garrett, CEO of the Hackensack University Health Network at<b><i> $2.12 million</i></b>, followed by Richard P. Miller, Virtua Health (<b><i>$1.99 million</i></b>); John K. Lloyd, Meridian Health System (<i><b>$1.68 million</b></i>); Barry H. Ostrowsky, Barnabas Health (<b><i>$1.67 million</i></b>); and Stephen K. Jones, Robert Wood Johnson Health System (<b><i>$1.55 million</i></b>).<br /><br />Several New Jersey multi-hospital systems paid several top executives more than $1 million in 2012. Hackensack, for instance, has two executives over the million-dollar mark.</blockquote><br />[It is not clear why the two different reports listed two different people from Barnabas - Ed] <br /><br /><br />Then came The Talking Points, for example, from Hackensack Hospital,<br /><br /><blockquote class="tr_bq"><span id="highlighter_target">'The pay for HackensackUMC's executives <i>reflects its complexity</i> and is <i>consistent with those levels paid to executives </i>in other similarly situated not-for-profit academic and integrated health systems,' Hackensack said in a statement. "The compensation philosophy is to provide market-competitive base salaries....</span></blockquote><br /><span id="highlighter_target"> The bit about complexity implies the brilliance argument, since only a brilliant CEO could cope with such complexity.  Then we had two versions of the competitive market based payment argument.  </span><br /><span id="highlighter_target"><br /></span><span id="highlighter_target">Here is another version of the same thing, this time from one "</span><span id="highlighter_target">Joel Cantor, director of the Center for State Health Policy at Rutgers University,"</span><br /><br /><blockquote class="tr_bq"><span id="highlighter_target"><span id="highlighter_target">On the other hand, hospital systems are <i>large, complex organizations</i>. Ultimately, CEO compensation is <i>driven by the market </i>for senior talent.  </span></span></blockquote><br /><span id="highlighter_target"><span id="highlighter_target">My favorite version of the brilliance argument came from one Ms Betsy Ryan, president of the New Jersey Hospital Association,</span></span><br /><span id="highlighter_target"><span id="highlighter_target"><br /></span></span><br /><blockquote class="tr_bq"><span id="highlighter_target">They literally are on call 24/7, 365 days a year and they are running an institution where lives are at stake</span></blockquote><span id="highlighter_target"><span id="highlighter_target"> </span></span><span id="highlighter_target"><span id="highlighter_target"> </span></span><br /><span id="highlighter_target">More on that later.....</span><br /><span id="highlighter_target"><br /></span><b><span id="highlighter_target">Smatterings of Data from Connecticut and Pennsylvania </span></b><br /><span id="highlighter_target"><br /></span><span id="highlighter_target">There were a series of reports that simply noted large amounts, but did not look for explanations.  </span><br /><span id="highlighter_target"><br /></span><span id="highlighter_target">HartfordBusiness.com<a href="http://www.hartfordbusiness.com/article/20140512/PRINTEDITION/305099967/15-ct-hospital-execs-paychecks-top-1m"> recounted</a> a state report of the top 10 most highly paid executives of individual hospitals (but did not account for the pay given to executives of hospital system).  The figures started at <b><i>$3.26 million</i></b> for the CEO of Yale-New Haven Hospital, and finished with <b><i>$1.48 million</i></b> for the senior vice-president and chief of staff at the same institution.</span><br /><br /><span id="highlighter_target">The Pittsburgh Post-Gazette <a href="http://www.post-gazette.com/business/businessnews/2014/05/15/Former-president-CEO-was-highest-paid-West-Penn-Allegheny-Health-System-employee-in-2012/stories/201405150395">reported</a> pay at the West Penn Allegheny Health System, including that given to a former CEO, <b><i>$1.89 million</i></b>, and to a former chief administrative officer, <b><i>$1.29 million</i></b>.    </span><br /><span id="highlighter_target"><br /></span><span id="highlighter_target">Then the Pittsburgh Tribune <a href="http://triblive.com/business/headlines/6100989-74/million-2012-upmc">noted</a> even bigger compensation given out at competitor UPMC.</span><br /><blockquote class="tr_bq"><br /><div class="News-body-text">UPMC CEO Jeffrey Romoff got an 8 percent raise two years ago, placing his generous compensation package near the top of the nonprofit hospital industry. </div><div class="News-body-text"><br /></div><div class="News-body-text">The 68-year-old Romoff, who leads the largest integrated health system in Western Pennsylvania and one of the biggest in the nation, <i>brought in <b>$6.6 million</b> in 2012, up from $6.1 million in 2011</i>, according to tax documents UPMC made public on Friday. </div></blockquote><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">Also,</div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><blockquote class="tr_bq"><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">UPMC paid 30 other executives and doctors <i>more than $1 million each in 2012</i>, up from 21 employees who were in the $1 million club the year before.</div></blockquote><br /><br /><b>Wake Forest Baptist</b><br /><br />The Winston-Salem Journal <a href="http://www.journalnow.com/news/local/wake-forest-baptist-releases-annual-regulatory-filing/article_f0db42e0-dc9e-11e3-a040-0017a43b2370.html">reported</a> details of executive compensation at Wake Forest Baptist on May 16, 2014.  Its CEO, Dr John McConnell, had "total compensation [which] rose 0.8 percent to <b><i>$2.06 million</i></b> in 2012."  Then, however, "Donny Lambeth, the former president of N.C. Baptist, had a 52 percent drop in total compensation to <b><i>$1.18 million</i></b>."  Also, "Dr. Thomas E. Sibert, president of Wake Forest Baptist Health and chief operating officer, received a 10 percent drop in total compensation to <b><i>$1.02 million</i></b>."  Then, "Edward Chadwick, chief financial officer, had a 2.3 percent drop in total compensation to <b><i>$956,465</i></b>."  It is interesting that some executives actually saw small decreases.  Then again, the system lost $4.5 million for fiscal 2012-2013.<br /><br />The article also offered up the usual explanations, first provided by the hospital system itself,<br /><br /><blockquote class="tr_bq">there are <i>few executives with the required skill set </i>to manage and provide leadership for an integrated (center) such as ours</blockquote><br />There goes another version of the brilliance argument.  Then,<br /><br /><blockquote class="tr_bq">Its executive compensation packages, it said, 'are fiscally responsible, <i>appropriate for the marketplace</i> and an <i>essential part of the effort to recruit and retain skilled executives and visionary leaders </i>for the medical center.'</blockquote><br />Those included the competitive market rates and the retention arguments, plus the ante for brilliance was upped to the visionary level.<br /><br />The article ladled on one another version, this time supplied by "John Challenger, chief executive of outplacement consultancy Challenger, Gray & Christmas,"<br /><br /><blockquote class="tr_bq"> 'Communities who want the best health-care system they can get should support paying the compensation levels required to <i>attract top talent</i>,' Challenger said.<br /><br />'Cutting salaries will result in an <i>exodus of top talent to systems that will pay it</i>,...'</blockquote><br />So "top talent" = brilliance argument, threatening an "exodus" = retention argument. <br /><br />So there they go again, again.<br /><br /><br /><b>Something Different: the New York Times Challenges the Pattern </b><br /><br />We have previously challenged the talking points.  For example, in August, 2013 we <a href="http://hcrenewal.blogspot.com/2013/08/the-long-con-charitable-hospitals-make.html">wrote</a>,<br /><br /><blockquote class="tr_bq">As we have <a href="http://hcrenewal.blogspot.com/2013/08/should-we-cry-for-non-profit-hospital.html">noted before</a>, there is little evidence in support of these talking points.  What evidence there is on the topic suggests there is no real free market in interchangeable CEOs, and that CEOs are not very mobile, especially not across different kinds of organizations (look <a href="http://hcrenewal.blogspot.com/2012/10/more-reasons-to-doubt-how-ceos-are.html">here</a>).  There is little evidence that hospital (or other health care) executives are particularly brilliant, or any more brilliant than multitudes of physicians, nurses, and other health care professionals who work hard to make their institutions run.</blockquote>Yet most discussions of executive compensation in hospitals, and indeed in health care, follow The Pattern.<br /><br />So it was refreshing in this season of outsized compensation reports is that the New York Times ran an <a href="http://www.nytimes.com/2014/05/18/sunday-review/doctors-salaries-are-not-the-big-cost.html">article</a> that challenged The Pattern, albeit with limitations.  The most obvious problem with the pattern is that the arguments are out of context, and not challenged in context.  However, in the NY Times,<br /><br /><blockquote class="tr_bq">Physicians,<i> the most highly trained members in the industry’s work force, are on average right in the middle of the compensation pack.</i><br /><br /><div class="story-body-text story-content" data-para-count="134" data-total-count="471" itemprop="articleBody">That is because<i> the biggest bucks are currently earned not through the delivery of care, but from overseeing the business of medicine</i>.</div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"><br /></div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"><i>The base pay of insurance executives, hospital executives and even hospital administrators often far outstrips doctors’ salaries</i>, according to an analysis performed for The New York Times by Compdata Surveys: $584,000 on average for an insurance chief executive officer, $386,000 for a hospital C.E.O. and $237,000 for a hospital administrator, compared with $306,000 for a surgeon and $185,000 for a general doctor.</div></blockquote><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"><br /></div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody">Note that this comparison only refers to salaries, not total compensation, so</div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"><br /></div><blockquote class="tr_bq"><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody">And those numbers almost certainly understate the payment gap, since top executives frequently earn the bulk of their income in nonsalary compensation.</div></blockquote><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"><br /></div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody">We just saw examples of non-profit hospital CEOs making over $1 million to over $6 million in total compensation.  That would imply that non-profit CEOs may make from three times to over thirty times the total compensation of a surgeon, and from over five times to over thirty-five times the compensation of a general internist.  (And the ratio for such outliers as Mr Del Mauro above would be even higher.)  </div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"><br /></div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody">So is a hospital CEO thirty times more brilliant than a general internist?  </div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"><br /></div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody">That suggests also that we go back to another version of the brilliance argument found in one article above.  In the NJBiz article, the NJ Hospital Association President said, about CEOs, not physicians,</div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"><br /></div><blockquote class="tr_bq"><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody">They are literally on call 24/7, 365 days a year and they are running an institution where lives are at stake.</div></blockquote><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"><br /></div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody">They may be on call in a sense, but they are never on first call.  Their decisions may ultimately affect lives, and perhaps put lives at risk.  But they never have to make a decision about a patient that could literally cost that patient his or her life.  And they almost never have to be accountable for what happens to individual patients.  </div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"><br /></div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody">It is easy to argue that physicians' responsibilities for life and death decisions are much more direct.  Explain, then, those pay ratios again.  </div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"><br /></div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody">Actually, in an <a href="http://www.fiercehealthfinance.com/story/could-watson-replace-high-paid-hospital-execs/2014-04-21">opinion piece</a> about executive compensation in FierceHealthFinance, Ron Shinkman described the life of a typical seven-figure a year hospital executive,</div><div class="story-body-text story-content" data-para-count="418" data-total-count="889" itemprop="articleBody"><br /></div><blockquote class="tr_bq">While the days of seven-figure club members are long, they are also predictable--check the census and cash flow reports, confer with the medical staff, get updates on supplies, negotiate with payers, have some meetings on long-term planning. If it is a large hospital in a large market, those meetings are likely focused on site expansion and acquisition. If it is a medium-sized facility, tI expect they spend their time focused on finding a larger partner. Breakfast and dinner meetings and events switch focus to development and fundraising.<br /><br />There may also be some meetings on quality initiatives, but they are of nominal consequence. Members of the seven-figure club enjoy little to no accountability from their customers.</blockquote><br />So is executive compensation in hospitals, or other parts of the health care system, based on executives' brilliance.  Or is it based on their ability to be rentiers, rent-seekers, who can control the choke points of money flow, and make sure they get more than their share before what is left can go to real health care?  <br /><br /><br />Of course, hospital executives and their ubiquitous spokespeople do not discuss what they do day to day.  Maybe they need to, and also need to address the implications of these statements in the NY Times article, given that the US has the highest health care costs of any developed country, but nowhere near the best results,<br /><br /><blockquote class="tr_bq"><div class="story-body-text story-content" data-para-count="372" data-total-count="4255" id="story-continues-3" itemprop="articleBody">And studies suggest that <i>administrative costs make up 20 to 30 percent of the United States health care bill, far higher than in any other country</i>. American insurers, meanwhile, spent $606 per person on administrative costs, more than twice as much as in any other developed country and more than three times as much as many, according to <a href="http://www.commonwealthfund.org/%7E/media/Files/Publications/In%20the%20Literature/2013/Nov/PDF_Schoen_2013_IHP_survey_chartpack_final.pdf">a study by the Commonwealth Fund</a>.</div><div class="story-body-text story-content" data-para-count="372" data-total-count="4255" id="story-continues-3" itemprop="articleBody"><br /></div><div class="story-body-text story-content" data-para-count="274" data-total-count="4529" itemprop="articleBody"><i>As a result of the system’s complexity, there are many jobs descriptions for positions that often don’t exist elsewhere</i>: medical coders, claims adjusters, medical device brokers, drug purchasers — not to mention the 'navigators' created by the Affordable Care Act.</div><div class="story-body-text story-content" data-para-count="189" data-total-count="4718" itemprop="articleBody"><br /></div><div class="story-body-text story-content" data-para-count="189" data-total-count="4718" itemprop="articleBody">Among doctors, there is growing frustration over the<i> army of businesspeople around them and the impact of administrative costs, which are reflected in inflated charges for medical services.</i></div></blockquote><div class="story-body-text story-content" data-para-count="189" data-total-count="4718" itemprop="articleBody"><br /></div><div class="story-body-text story-content" data-para-count="189" data-total-count="4718" itemprop="articleBody">We had <a href="http://hcrenewal.blogspot.com/2013/08/the-long-con-charitable-hospitals-make.html">previously argued</a> (see above) against the talking points, and specifically that there is nothing to suggest that hospital executives are any more, much less an order of magnitude more brilliant than physicians or other health care professionals. But I confess as a physician I did not have the courage to extend that argument to a direct comparison of executive versus health care professional pay. The Times article, written by someone who is not a physician, did not have to worry about appearing self-serving.  I am glad, for it is high time to discuss the degree that the incentives produced by executive pay in health care have become perverse, and how to change these incentives to make health care leaders more accountable for health, and less focused on their own riches.  </div><div class="story-body-text story-content" data-para-count="189" data-total-count="4718" itemprop="articleBody"><br /></div>

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

It is spring, time for birds to sing, flowers to bloom, and hospital executives to get more money.  As we do periodically, we have amassed a...

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"Emotion, not Information" - the Lucrative Deceptive Marketing of Hospice, and its Potentially Fatal Consequences

One of the real recent advances in health care, in my humble opinion, was the organization of compassionate, palliative care for people at the end of life.  During my training and early career I saw too many patients with terminal illness getting aggressive, sometimes very painful treatments which at best only offered hope of briefly prolonging their lives.  Some patients chose such treatments with full knowledge of the implications, at times with the hope that they might survive until some significant event, for example, the birth of a grandchild.  Many patients, however, seemed to be suffering with no purpose.<br /><br />The hospice and palliative care movement, however, offered true comfort to those with little hope of prolonged survival.  Good hospice care eased the final days of patients with advanced disease for whom no definitive treatments could be found.<br /><br />Hospice seemed like a great alternative for such patients, but its reasonable use depended on physicians' abilities to identify patients who really were at the end of life, and for whom aggressive treatment would be futile.  The Achilles Heel of the hospice movement remained health care professionals' inability to reliably identify such patients.  The big problem is that putting a patient who actually potentially could survive for a long time in hospice will doom that patient were he or she to develop an acute illness for which treatment is available, like a bacterial pneumonia that might respond to antibiotics, because in hospice antibiotics are not given for acute infections.<br /><br />So the development of hospice had a downside which could be fatal for some patients.  I think most physicians hoped, however, that we could minimize the number of such patients by trying hard to make accurate predictions, and that in the future, better technology would lead to better predictions.<br /><br /><b>The Rise of Corporate Hospices </b><br /><br />Back in the 1980s, however, I did not anticipate that hospices might become parts of for-profit corporations, and that such corporations might be able to make more money by admitting more patients, even patients who really were not at the end of life.   Starting in 2011, however, we started to find cases in which that appeared to be what was going on (look <a href="http://hcrenewal.blogspot.com/2011/07/prepare-them-to-die-for-profit-hospices.html">here</a>, then <a href="http://hcrenewal.blogspot.com/2012/03/gentivas-odyssey-healthcare-settles.html">here</a>, <a href="http://hcrenewal.blogspot.com/2012/05/who-cares-if-patients-die-apparently.html">here</a>, and <a href="http://hcrenewal.blogspot.com/2012/09/more-hospices-pretending-patients-are.html">here</a>).<br /><br />In 2013, more cases appeared, listed in chronologic order -<br /><br /><u>Hospice of Arizona LC and American Hospice Management LLC</u> - Per a <a href="http://www.justice.gov/opa/pr/2013/March/13-civ-326.html">news release</a> from the Department of Justice, these entities settled litigation that alleged, among other things, that they "submitted or caused the submission of false Medicare claims between Sept. 1, 2002, and Dec. 31, 2010, for Hospice of Arizona patients who did not need end of life care...."<br /><br /> <u>Hospice Care of Kansas, and parent company Voyager HospiceCare</u> - Per a Topeka (Kansas) Capital-Journal <a href="http://cjonline.com/news/state/2012-06-21/kansas-hospice-firm-pays-61-m-settlement">article</a>, these entities settled to resolve allegations that they "submitted inappropriate claims between January 2004 and December 2008 for patients without a terminal prognosis of six months or less."<br /><br /><u>Hernando-Pasco Hospice</u> - <a href="http://www.tampabay.com/news/health/hernando-pasco-hospice-agrees-to-pay-1-million-to-settle-false-billing/2132592">Per the Tampa Bay Times</a>, " Hernando-Pasco Hospice has agreed to pay $1 million to settle allegations that it billed the Medicare and Medicaid programs for patients who did not need end-of-life care, the U.S. Attorney's Office for the Middle District of Florida announced Monday.  The not-for-profit Hernando-Pasco Hospice, which goes by HPH Hospice, is accused of admitting ineligible patients in order to meet targets imposed by its management team, federal authorities said in a statement."<br /><br />These were all small settlements, that is, less than $15 million, reported in relatively small media outlets. <br /><br />This week the issue was in the media spotlight courtesy the Washington Post, in <a href="http://www.washingtonpost.com/business/economy/medicare-rules-create-a-booming-business-in-hospice-care-for-people-who-arent-dying/2013/12/26/4ff75bbe-68c9-11e3-ae56-22de072140a2_story.html">an article</a> which provided yet more data and vivid examples suggesting that for-profit hospices were putting money ahead of vulnerable patients' well-being.    <br /><br /><br />The Post added to the background we provided above,<br /><br /><br /><blockquote class="tr_bq">Medicare began paying for hospice care in 1983, following a resurgence of interest in end-of-life care, sparked in part by the publication of '<a data-xslt="_http" href="http://www.amazon.com/gp/product/0684839385?ie=UTF8&camp=1789&creativeASIN=0684839385&linkCode=xm2&tag=thewaspos09-20">On Death and Dying</a>' by Elisabeth Kubler-Ross.<br /><br />'We can give families more help with home care and visiting nurses, giving the families and the patients the spiritual, emotional, and financial help in order to facilitate the final care at home,' Kubler-Ross testified to the Senate Special Committee on Aging in 1972.</blockquote><br />After this well-intentioned beginning, there was a rapid increase in the use of hospice, and hence its costs,<br /><br /><br /><blockquote class="tr_bq">The benefit was quickly embraced by Americans and continues to grow, with Medicare paying for hospice care for more than 1.2 million people annually. <i>In 2000, Medicare spent $2.9 billion on the hospice benefit. By 2012, that figure has risen fivefold, to $15.1 billion.</i><br /><br />But as more Americans have taken up hospice care, <i>a profound change has been underway: <b>Big businesses have moved in.</b></i></blockquote><br />In parallel, the nature of hospices changed, going from being predominantly local non-profit organizations to predominantly corporate,<br /><br /><br /><blockquote class="tr_bq">When Medicare paid its first hospice benefit, the vast majority of hospice-care providers were nonprofit groups. Over the past decade, however, the for-profits have come to dominate the industry.<br /><br /><i>In 2000, 70 percent of hospices were run by nonprofit organizations or government agencies. Today, nearly 60 percent are for-profit companies</i>, and they may account for an even larger share of patients.</blockquote><br /><br />They really were for-profit,<br /><br /><br /><blockquote class="tr_bq">The profit margins as measured by MedPAC, the Medicare watchdog, <i>climbed to 8.7 percent in 2011.</i><br /><br /><i>The per-patient operating profit has risen from $353 in 2002 to $1,975 in 2012</i>, according to the analysis of California data.</blockquote><br />Big money lured aggressive players, in particular, private equity,<br /><br /><blockquote class="tr_bq"> The returns have attracted some prominent financial firms, whose analysts have run the numbers and decided to invest. Among the private investment companies that have put down bets on hospices in recent years are <i>Kohlberg Kravis Roberts & Co., KRG Capital Partners and Summit Partners.</i></blockquote><br />As we have discussed <a href="http://hcrenewal.blogspot.com/2012/07/private-equity-vs-patient-care-bainful.html">elsewhere</a>, the private equity model involves not long term management, but trying to make big money in the short term, either by directly extracting it from the companies taken over, of by rapidly selling them, if necessary, piece by piece.  <br /><br /><br /><b>Financial Incentives to Enroll the Wrong Patients</b><br /><br />Keep in mind that the revenue fueling the uber capitalists involved in for-profit hospices came predominantly from the US government, and depended on the rules set by the government to pay for hospice,<br /><br /><blockquote class="tr_bq">The vast majority of those profits flow from the U.S. government and Medicare, which makes an estimated 85 to 90 percent of all payments to hospices.</blockquote><br />The payments provide more profit from patients with the longest stay in hospice,<br /><br /><br /><blockquote class="tr_bq">The reason that longer stays are more profitable is that hospice companies typically spend more on patients at the beginning of their care and then again at the end of their lives.<br /><br />When a patient is first enrolled, the hospice often must diagnose the patient’s illness, set up home equipment and get them stabilized. Then, during the last week of life, a hospice typically must pay for more frequent home visits by the nurse, aides and others.<br /><br />As a result, patients who live a longer time — and for whom there is a long, stable period in the middle — generate more profits.</blockquote><br />There is evidence that for-profit hospice management has reacted to these incentives to enroll patients who would live a long time, despite the fact noted above that hospice was intended for patients who were at the end of life, and were obviously thus expected not to live for a long time,<br /><br /><br /><blockquote class="tr_bq">Indeed, it has been an open secret in the industry that, <i>because of the method of payment, the way to run a hospice profitably is to enroll patients who stay for a long time.</i><br /><br />The <a data-xslt="_http" href="http://www.wikinvest.com/stock/VistaCare_%28VSTA%29/Filing/10-K/2007/F3366157">annual report in 2004 for one large hospice provider, VistaCare</a>, noted that its fortunes depended on its ability to manage costs and '<i>maintain a patient base with a sufficiently long length of stay</i>.'<br /><br />The company also warned that 'cost pressures resulting from shorter patient lengths of stay . . . could negatively impact our profitability.'<br /><br />'It is common knowledge in the industry that <i>a longer length of stay is going to be more lucrative</i>,' said Rachel Mason, who worked in marketing at Delta Hospice in California, where one of the company’s branches had one of the highest discharge rates of living patients in the state last year — 63 percent. 'If they come in very sick and die right away, it’s difficult to run a business that way.'</blockquote><br />So, in the aggregate, stays have gone up, costs have increased, partially because there are more hospice ''urvivors," that is, patients who actually were admitted to hospice not at the end of life, survived much more than the six months which was supposed to have been their expected lifespan, and thus ended up graduating from hospice, a service meant originally for the terminally ill,<br /><br /><blockquote class="tr_bq">over the past decade, the number of 'hospice survivors' in the United States has risen dramatically, in part because hospice companies earn more by recruiting patients who aren’t actually dying, a Washington Post investigation has found. Healthier patients are more profitable because they require fewer visits and stay enrolled longer.<br /><br />The proportion of patients who were discharged alive from hospice care rose about 50 percent between 2002 and 2012, according to a Post analysis of more than 1 million hospice patients’ records over 11 years in California, a state that makes public detailed descriptions and that, by virtue of its size, offers a portrait of the industry.<br /><br />The average length of a stay in hospice care also jumped substantially over that time, in California and nationally, according to the analysis. Profit per patient quintupled, to $1,975, California records show.</blockquote><br />Yet, while Medicare administrators have been warned about these perverse incentives, they have done nothing to fix them,<br /><br /><blockquote class="tr_bq">For five years, Medicare’s watchdog group has been recommending that the payments to hospice companies be revised to eliminate the financial incentive for improper care, but Medicare has not yet done so. To ensure that patients are appropriately selected for hospice care, Medicare relies on strict medical documentation requirements, a spokesman said. </blockquote><br />Perhaps Medicare administrators are listening harder to for-profit hospice executives than to their own advisory committee,<br /><br /><blockquote class="tr_bq"> The hospice industry is opposed to fundamental changes to the payment system. Jonathan Keyserling, senior vice president of health policy at the <a data-xslt="_http" href="http://www.nhpco.org/">National Hospice and Palliative Care Organization</a>, an industry group, said that the current payment system is sound and that tampering with it could have unintended consequences. </blockquote><br />Furthermore,<br /><br /><blockquote class="tr_bq">because of the large sums of money at stake, <a data-xslt="_http" href="http://www.medpac.gov/documents/Jun13_EntireReport.pdf" target="_blank">MedPAC in June added a sense of urgency</a> to its recommendation.<br /><br />'Given the magnitude of hospice spending devoted to long-stay patients, who are more profitable under the current payment system than other patients, it is important that an initial step toward payment reform be taken as soon as possible,' MedPAC wrote.</blockquote><br />Yet Medicare administrators still seemed to feel no sense of urgency, and are not eager to address the specifics of the MedPac recommendations, <br /><br /><blockquote class="tr_bq">A spokesman for Medicare said the agency is considering hospice payment reform but that no such changes will happen in fiscal 2014.<br /><br />'While the Medicare hospice benefit provides a choice for beneficiaries to seek the care that best meets their care needs and desires, Medicare has and will continue to take actions to safeguard this benefit from inappropriate use,' said <a data-xslt="_http" href="http://www.cms.gov/About-CMS/Leadership/jonathanblum2.html">Jonathan Blum</a>, principal deputy administrator of the Centers for Medicare and Medicaid Services, said in a statement. </blockquote><br />So to recap so far, the hospice movement devolved from one involving non-profit organizations providing care to the terminally ill to ever larger corporations providing care to the less ill, paid largely by the US government under rules from a simpler era.  However, since hospice provides only palliative care, this transition meant that some patients who were not terminally ill may have died from illness that would have been treated in an environment other than hospice.<br /><br /><b>Vivid Anecdotes of the Deceptive Marketing of Hospice</b><br /><br />The Washington Post article summarized allegations from multiple legal actions that provided a disturbing tapestry of deceptive marketing deployed to recruit patients unsuitable to hospice care,<br /><br /><blockquote class="tr_bq">While the lawsuits against the for-profit hospices vary in the details, as a whole they depict an industry in which companies compete for new patients and provide services to patients who are not eligible for them.<br /><br />Hospice 'outreach specialists' and 'community education representatives' seek out patients in a variety of ways: They solicit doctors and hospitals who might regularly deal with the terminally ill; they make connections at nursing homes, assisted-living developments and Meals on Wheels groups. They show up at the 'health fairs' held at senior centers with, for example, machines that test blood pressure. For families struggling to take care of a loved one, they offer the promise of extra help.<br /><br />At AseraCare, officials gave advice to their recruiters on how to close a deal with families who are 'not ready yet' for hospice, according to a company presentation for Alabama employees. It instructed recruiters to 'focus families' by <i>stressing the urgency of a decision, and saying things like, 'We only have 10 minutes left.'</i><br /><br />'<i>Effective communication is the transfer of emotion, not information</i>,' the presentation said.<br /><br />At Odyssey Healthcare, one of the nation’s largest hospice companies, <i>representatives earned bonuses if they met their goals for new patients,</i> according to that complaint. The case led to a $25 million settlement with the company. <br /><br />At <a data-xslt="_http" href="http://www.vitas.com/Aboutus/Newsroom/ParentCompany.aspx">Vitas</a>, a division of Chemed, a company that also owns the Roto-Rooter plumbing service, the <i>corporate culture encouraged staff members to admit as many patients as possible, regardless of whether they were eligible for hospice care</i>, according to the lawsuit. The lawsuit said the <i>company paid bonuses based on the number of patients enrolled.</i> One former manager said that <i>the company philosophy was 'sign everybody up' and that medical staffers felt pressured to admit patients regardless of whether they were appropriate.</i><br /><br />And at Angels of Hope hospice in LaGrange, Ga., audio recordings cited in the complaint described how <i>some salespeople found patients: by cruising neighborhoods, looking for elderly people with disabilities.</i></blockquote><br />The article coned down on specific litigation about AnseraCare,<br /><br /><br /><blockquote class="tr_bq">One of the primary lawsuits against AseraCare was initiated by Dawn Richardson, a clinical manager at the company, and Marsha Brown, the former executive director at the company’s Monroeville, Mobile and Foley, Ala., outlets.<br /><br />There was <i>steady pressure for AseraCare managers to find more patients</i>, the lawsuit said. <br /><br /><i>An executive who did not meet a quota was penalized</i>, according to the lawsuit, and the company offered a massage chair for the person who brought in the most hospice patients.<br /><br />'<i>In order to make our admission goal for the month, we are down to the wire, and need today to be a huge admit day for every region,</i>' a regional vice president wrote in an e-mail, according to the lawsuit. <i>'Mobilize your teams, get them into the game this morning . . . when we call on them, they always respond with referrals and a push to convert those referrals into admits ASAP</i>.'<br /><br />'We had a director who would be like, ‘<i>Get a patient, get a patient, get a patient,</i>’ ' Michael Bonham, a Lutheran minister who worked as a chaplain at the company in Alabama, said in an interview. He is not a party to any of the lawsuits.<br /><br />These demands for patients were sometimes met with people who were sickly but not dying, according to the federal lawsuit, which outlines five examples.<br /><br /><i>One patient was supposed to have had end-stage heart disease</i> and thus would have had trouble breathing and walking, according to the lawsuit. <br /><br /><i>He left the nursing home for his granddaughter’s graduation and for Christmas, had a good time and ate a lot,</i> according to notes from hospice workers cited in the lawsuit.<br /><br />Another, <i>diagnosed with end-stage 'debility,</i>' was not losing weight as is typically the case, according to the legal filing, and instead <i>went out for a trip to Wendy’s and another to go birdwatching</i>.</blockquote><br />Hospice firms' public relations departments provided the usual high minded statements that did not address specific allegations about the marketing of hospice, for example, <br /><br /><blockquote class="tr_bq">'AseraCare provides an important and valuable service to patients and their families facing difficult end-of-life decisions,' the company said in a statement. 'Our policies and programs comply with the Congressional intent of the hospice benefit to reduce the stress and anxiety of the end of life of a loved one,' the company said.<br /><br />'Doctors for each patient in question determined that the patient needed hospice care, and expressed their clinical judgment by signing the required physician certifications. Other independent and well-qualified physicians reviewed the charts of these ­patients, and overwhelmingly agreed with the original conclusions that these patients were entitled to receive the hospice benefit.'<br /><br />The company declined to identify the doctors who certified the patients in Alabama.</blockquote>That seems about as relevant as the <a href="http://www.goldenliving.com/about-us.aspx">mission and values statements of Golden Living,</a> AseraCare's parent corporation,<br /><br /><blockquote class="tr_bq"><h3><span style="font-size: small;">Our Mission</span></h3>To share our passion for improving quality of life through innovative healthcare — one <b>person</b>, one <b>family</b> and one <b>community</b> at a time.<br /><br /><h3><span style="font-size: small;">Our Values</span></h3>Make <b>integrity</b> and <b>accountability</b> your pledge.<br />Share our passion for <b>excellence</b>.<br />Be uncompromising in delivering <b>quality</b> care.</blockquote><br /><br /><b>Summary</b><br /><br /><blockquote class="tr_bq">Yet somehow our society must make it right and possible for old people not to fear the young or be deserted by them, for the test of a civilization is in the way that it cares for its helpless members. </blockquote><br />Pearl S Buck, <i>My Several Worlds</i>, 1954, p 377 (see <a href="http://en.wikiquote.org/wiki/Civilization">Wikiquote</a>) <br /><br />I also was once taught that the true test of a doctor is his or her care of the sickest and most vulnerable patients.  By this token,  how the hospice movement in the US evolved into corporate health care delivery which generates tremendous revenues from the most vulnerable patients, and in some cases may condemn ill but not terminal patients to death from treatable disease marks how badly US health care has failed.<br /><br />The story combines many of the themes we have sounded before -<br /><br /><a href="http://hcrenewal.blogspot.com/search/label/perverse%20incentives"><u>Perverse Incentives</u></a> - a reimbursement scheme that made sense when hospices were local community non-profit organizations now provides incentives for commercial hospices to enroll patients who are not terminally ill, putting them at risk of inadequate care should they develop a new serious but treatable problem.<br /><br /><u>Money Before Mission</u> - For-profit hospices which market themselves as equivalent to their community non-profit forerunners, are run, as is suggested above, to maximize revenue no matter the effect on mission. Presumably this is justified by the fallacy of <a href="http://hcrenewal.blogspot.com/2012/04/health-care-dysfunction-explained-by.html">maximizing shareholder value</a>, which really means maximizing apparent short-term revenue in order to maximize executive compensation, no matter what the collateral damage. <br /><br /><a href="http://hcrenewal.blogspot.com/search/label/impunity"><u>Impunity</u></a> - Although hospice enrollment of unsuitable patients not only may defraud the government, but may put such patients at risk of their lives, the only regulatory or law enforcement actions against big corporate hospices so far involve corporate fines that are small in comparison with revenues, but not penalties imposed on any individuals who authorized, directed or implemented such patient enrollment, even when patients wrongly enrolled have died from lack of treatment of potentially treatable problems.<br /><br /><a href="http://hcrenewal.blogspot.com/search/label/corporatism">Corporatism</a> - Government agencies which could seriously challenge corporate hospices' actions have been curiously inert, perhaps because agency leaders feel more sympathetic to their fellow managers within corporate hospices than to the citizens whose interests they are supposed to protect.<br /><br />Because of their potentially severe adverse effects on our most vulnerable patients, reform of hospices should be at the forefront of true health care reform.  At the least, we need vastly tougher regulation of corporate hospices, removal of perverse incentives for them from the government payment system, and vigorous law enforcement when their leaders induce them to misbehave.  Leaders of corporate hospices need to be held accountable for their actions, and must be pushed towards putting their patients' health ahead of all other considerations, including the leaders' personal enrichment.<br /><br />Furthermore, the story of corporate hospices shows that while turning direct health care over to poorly regulated for-profit corporations may have been increased efficiency, been "disruptive" and lead to innovations, the efficiency, disruption and innovation have mainly lined the pockets of corporate insiders, and not improved patients' or the public's health.  We ought to give strong consideration to banning corporate hospices, and banning all forms of the <a href="http://hcrenewal.blogspot.com/search/label/corporate%20physician">corporate practice of medicine </a>and corporate health care "delivery." <br /><br />Given how many insiders make so much money from the current version of laissez faire capitalism in health care, however, I would expect strong resistance should such apparently "radical," but actually conservative proposals actually get any mainstream attention.     <br /><br /><br /><br />

"Emotion, not Information" - the Lucrative Deceptive Marketing of Hospice, and its Potentially Fatal Consequences

One of the real recent advances in health care, in my humble opinion, was the organization of compassionate, palliative care for people at t...

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

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

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

The CEOs of ostensibly charitable hospitals founded to serve the poor continue to become rich.   The latest reminders are in two articles fr...

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Should We Cry for Non-Profit Hospital System CEOs Paid Less than For-Profit CEOs?

Two recent articles (<a href="http://www.modernhealthcare.com/article/20130810/MAGAZINE/308109991">here</a> and <a href="http://www.modernhealthcare.com/article/20130810/MAGAZINE/308109954/pay-for-value">here</a>) in Modern Healthcare providing an update on the compensation of CEOs of non-profit hospital systems raised new questions.<br /><br /><b>The CEOs' Compensation </b><br /><br /><a href="http://www.modernhealthcare.com/article/20130810/MAGAZINE/308109991">The first article</a> documented the rich compensation of the top paid CEOs of non-profit US hospital systems.  A summary of their total compensation:<br /><br />-  Donald Faulk (now retired), Central Georgia Health System - <b><i>$8 million</i></b> <br />-  George Halvorson, Kaiser Permanente - <b><i>$7.9 million</i></b><br />-  Jeffrey Romoff, UPMC - <b><i>$6.1 million</i></b><br /> -  Pat Fry, Sutter Health - <b><i>$5.2 million</i></b><br />-  Gregory Beier (retired), Novant Health  - <b><i>$5.1 million</i></b><br />-  Dr Steve Safyer, Montefiore Medical Center - <b><i>$5 million</i></b><br />-  David Bernd, Sentara - <b><i>$4.6 million</i></b><br /><br /><b>The Usual Talking Points </b><br /><br />The articles in combination provided the usual talking points as justification for this compensation.   We have noted that nearly every attempt made to defend the outsize compensation given hospital and health system executives involves the same talking points.   We first listed the talking points <a href="http://hcrenewal.blogspot.com/2011/09/talking-points-sans-original-thought-to.html">here</a>, and then provided additional examples of their use <a href="http://hcrenewal.blogspot.com/2011/09/more-repeats-of-talking-points.html">here</a>, <a href="http://hcrenewal.blogspot.com/2012/03/example-of-how-complex-takes-control.html">here</a> <a href="http://hcrenewal.blogspot.com/2012/12/health-care-hired-managers-not-playing.html">here,</a> <a href="http://hcrenewal.blogspot.com/2013/05/executive-compensation-as-legal.html">here</a> and <a href="http://hcrenewal.blogspot.com/2013/06/no-blues-but-lots-of-green-for-st-louis.html">here</a>.   They are:<br />- We have to pay competitive rates<br />- We have to pay enough to retain at least competent executives, given how hard it is to be an executive<br />- Our executives are not merely competitive, but brilliant.<br /><br />So true to form, we found in the Modern Healthcare articles these justifications of the executives multimillion dollar pay.<br /><br /><u>Competition</u><br /><br />In general, <br /><br /><blockquote class="tr_bq">In interviews, health system directors and executives at the systems where these top-paid executives work defended the compensation packages as <i>necessary to remain competitive</i>....</blockquote><br />Re UPMC<br /><br /><blockquote class="tr_bq">UPMC spokeswoman Susan Manko described his [that is, Romoff's] pay as <i>competitive</i> for an institution of UPMC's size and complexity.  </blockquote><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br />Re Novant</div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><blockquote class="tr_bq">Novant spokeswoman Kati Everett said Novant follows IRS rules that call for pay to be <i>compared against the market</i>.... </blockquote><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br />Re Sutter</div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><blockquote class="tr_bq"><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">[Sutter Health board of trustees member and chair of the compensation committee Andy] Pansini said the Sutter board set the CEO's salary <i>halfway between the lowest and the highest amount he could earn elsewhere.</i></div></blockquote><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">Also,</div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"></div><blockquote class="tr_bq"><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">He said Sutter's board relies heavily on consultants to <i>compare Fry's compensation against the market</i>. </div></blockquote><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"></div><div style="background-color: white; border: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div></div></div><br /><u>Retention</u><br /><br /> Re Sentara<br /><br /><blockquote class="tr_bq">'Mr Bernd's compensation takes into account his <i>40-year tenure of leadership</i> at Sentara, with nearly 20 serving as the organization's top executives.</blockquote><br /><u>Brilliance</u><br /><br />Re Novant<br /><br /><blockquote class="tr_bq">[Novant spokeswoman Kati Everett said] 'At Novant Health, we recognize (that) our responsibility to serve our community depends on the <i>caliber of talent </i>in our workforce, <i>our leadership group</i>....'</blockquote><br />Re Sentara<br /><br /><blockquote class="tr_bq">[CEO Bernd's] 'pay reflects his <i>experience, expertise</i>....'</blockquote><br />Re Sutter<br /><br /><blockquote class="tr_bq">[Pansini] defended [CEO] Fry's compensation as reasonable and necessary to meet Sutter's strategic goals by hiring a<i> skilled executive team.</i>  </blockquote><br /><u>Explicit Comparison to For-Profit Corporations </u><br /><br />The articles also introduced one new element.  Some defenders of non-profit hospital CEO compensation explicitly argued that should take into account compensation of for-profit CEOs.<br /><br />This argument was made by "Jill Horwitz, a law professor at the University of California at Los Angeles,' who had "defended paying not-for-profit healthcare executives market rates." <br /><br /><blockquote class="tr_bq">She also noted that not-for-profit systems have to <i>compete with the for-profit sector</i> for top talent. 'This idea that people should be donating their labor is a misunderstanding of charity.'</blockquote><br />Defenders of CEO compensation at specific health systems also made similar points.  For example, a Kaiser Permanente spokesman explicitly compared his CEO's pay to that given to CEOs of for-profit health plans, <br /><br /><blockquote class="tr_bq">Kaiser spokesman Won Ha, in a written statement, said Halvorson's pay <i>falls short of the average compensation of $14 million, not including option exercises, earned by CEOs of the 12 largest for-profit healthcare systems</i>, which had average 2011 revenue of $37 billion. <br /><br />'Compensation paid to senior management is <i>substantially less than that of many for-profit health (plans),</i>...'</blockquote><br />Also, re Sutter,<br /><br /><blockquote class="tr_bq">[board committee chair Pansini noted that when comparing his CEO's pay against the market] That comparison includes other executives of similar not-for-profit health systems, and to a lesser degree, of <i>for-profit systems</i>.</blockquote><br /> <b>Summary: An Extension, but Still no Clear Justification for the Talking Points</b><br /><br /><br />The talking points to explain executive compensation in health care are used again and again.  They never seem to be publicly challenged.  However, they should raise some obvious questions.<br /><br />The argument about competition raises several obvious questions.  Why should the top hired managers' pay be only compared to other top managers, and not explicitly to other employees?  Even if the comparison is restricted to other top managers, how can they be used for those at the top of the pay scale for non-profit hospital system CEOs?  How these CEOs' compensation could be dubbed merely competitive, much less "halfway between the lowest and highest amount he could earn elsewhere," is not clear.<br /><br />The retention argument begs the questions of whether any of these managers is really likely to leave, whether they really would be attractive to other organizations at the same or even higher pay, and whether it would really be difficult to find replacements.<br /><br />The brilliance argument raises the question of how brilliance is defined.  Given that it is almost unheard of for a fan of current compensation practices to dub any top manager anything less than brilliant, the obvious question is how can CEOs, like the children of Lake Woebegone, all be above average?  <br /><br /> Furthermore, the talking points seem to be in the process of extension, which should raise even more questions.<br /><br />Defenders of CEO pay, usually "spokespeople" or members of boards of trustees, often cite the need for "competitive" pay.  They usually are not clear about with whom they are competing.  Now it seems to be more popular to say that non-profit health care organizations are competing with for-profit corporations, despite the ostensible difference in their natures.  Non-profits are supposed to have a charitable nature and function, to have some sort of mission that serves the greater good.  To support that apparently benevolent purpose, in the US they are exempt from certain taxes, are are able to receive charitable contributions which in turn earn deductions for their givers.  For-profit corporations are in business ostensibly for their owners.  <br /><br /><br />In addition, by now asserting that the non-profit CEOs should be likened to the CEOs of for-profit corporations, the expanded talking points highlight questions that have been raised about how these hired managers are paid. We have previously discussed some pithy critiques of American practices of executive compensation (look <a href="http://hcrenewal.blogspot.com/2013/05/executive-compensation-as-legal.html">here</a> and <a href="http://hcrenewal.blogspot.com/2012/10/more-reasons-to-doubt-how-ceos-are.html">here</a>.) <br /><br />CEO compensation as a multiple of the pay of the average worker has risen 10-fold since the 1960s (see <a href="http://stateofworkingamerica.org/chart/swa-wages-figure-4-ceo-worker-compensation/">this chart</a>). As a consequence, the top 1% and 0.1% of the US income distribution is increasingly and disproportionately made up of executives, that is hired managers, (see the <a href="http://www.epi.org/publication/pay-corporate-executives-financial-professionals/">recent article</a> by Bivens and Mishel[1] for a summary).  Per the article, the income of top corporate executives has grown even faster than that of other members of the top 0.1%.  It seems evident that these rates of growth cannot be explained by increases in the financial performance of their companies.  Furthermore, while it appears that compensation of US health care corporate executives has grown as fast as their brethren, there is no data that US health care has improved at anything like a similar rate.  It may have hardly improved at all.  A recent JAMA article is just the latest example of studies showing that US health is lagging that of other developed countries, although the US spends far more per capita on health care.(2)      <br /><br />Furthermore, there is more and more criticism about how the compensation of top hired managers is set.  Steve Denning's <a href="http://www.forbes.com/sites/stevedenning/2012/02/22/hbr-blows-the-lid-off-c-suite-over-compensation/">blog  post</a> in Forbes summarized a 2012 Harvard Business Review article(3) suggesting that "market-based" compensation schemes mistake top managers for innovative entrepreneurs, when they are mainly simply "bureaucrats"; reward managers for luck rather than skill; and is "inversely related to shareholder returns."<br /><br />Finally, Elson and Ferrere <a href="http://www.thefreelibrary.com/What+is+a+CEO+worth%3F+Don%27t+look+to+peers%3A+peer+group+comparisons+skew...-a0272184752">critiqued </a>the mechanics of how compensation is set.  In particular, while boards of directors may attend to data on compensation of CEOs at other, supposedly comparable corporations, they almost always "choose a package that is in the 50th, 75th, or 90th percentile of their target peer group.  Targeting levels below the 50th percentile is rarely, if ever done."  Thus, boards nearly always act as if their CEO is above average, while by definition, most CEOs cannot be above average.  Why do boards commit this folly?  The authors postulated that suggesting the CEO is less than average "may raise concerns over the executive's position within the company...."  Perhaps boards also fear that labeling the CEO below average may be an admission of below average governance. <br /><br />Desai suggested that the perverse incentives created by current schemes to compensate managers were a major cause of the 2008 financial meltdown.  As Dennings wrote,<br /><br /><blockquote class="tr_bq">despite the constraints to change, the overcompensation of the C-suite and the financial sector is not sustainable. It causes serious misallocation of capital and talent, repeated governance crises, rising income inequality and an overall decline of the US economy. It obviously cannot continue, if only because, as Margaret Thatcher used to say in a different context, 'Sooner or later you run out of other people’s money'</blockquote><br />Clearly, in the health care context, the results could be even worse.  Perverse executive compensation could not only lead to misallocation of capital and talent in health care, it could lead to bad health care decisions that could harm patients' and the public's health.  However, there seems to be almost no discussion of, much less research about, much less policy changes addressing perverse incentives for health care managers and their likely ruinously bad effects on people and patients.<br /><br />Such discussion and research is a prerequisite to true health care reform, which would require such policy changes.<br /><br />Meanwhile, I hope at least the next time huge compensation of some health care managers is announced, someone asks the next set of questions after the usual talking points are made.   <br /><br />Roy M. Poses MD in Health Care Renewal <br /><br /><b>References</b><br />1.  Bivens J, Mishel L. The pay of corporate executives and financial professionals as evidence of rents in top 1 percent incomes.  J Econ Perspect 2013; 27: 57-78.<br />2. US Burden of Disease Collaborative.  The state of US health, 1990-2010 burden of diseases, injuries, and risk factors.  JAMA 2013; 310: 591-608.  Link <a href="http://jama.jamanetwork.com/article.aspx?articleid=1710486">here</a>. <br />3. Desai M. The incentive bubble.  Harvard Business Review, March 2012.  <br /><br />

Should We Cry for Non-Profit Hospital System CEOs Paid Less than For-Profit CEOs?

Two recent articles ( here and here ) in Modern Healthcare providing an update on the compensation of CEOs of non-profit hospital systems r...

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Another Attempt to Show the RUC Behind the Curtain

In 2007, readers of the Annals of Internal Medicine could read part of the solution to a great medical mystery.(1)  For years, health care costs in the US had been levitating faster than inflation, without producing any noticeable positive effect on patients.  Many possible reasons were proposed, but as the problem continued to worsen, none were proven.<br /><br /><b>Prices are High Because They are Fixed That Way</b><br /><br />The article in the Annals, however, proposed one conceptually simple answer.<br /><br />The prices of most physicians' services, at least most of those that involved procedures or operations for Medicare patients, were high because the US government set them that way. Although the notion that prices were high because they were fixed to be so high was simple, how the fixing was done, and how the fixing affected the rest of the health system was complex, mind numbingly complex.<br /><br />Perhaps because of the complexity of its implementation, the simplicity of the concept has not seemingly reached the consciousness of most American health care professionals or policy makers, despite the publication of several scholarly articles on the subject,.<a href="http://hcrenewal.blogspot.com/search/label/RUC">efforts by humble bloggers such as yours truly,</a> a major journalistic expose, and recent congressional hearings.  The lack of discussion of this issue seemed to be a prime example of what we have called the <a href="http://hcrenewal.blogspot.com/search/label/anechoic%20effect">anechoic effect</a>, that important causes of health care dysfunction whose discussion would discomfit those who are currently personally profiting from the current system rarely produce many public echoes.  (For a review of what is known to date about how the offputtingly named Resource Based Relative Value Scale Update Committee (RUC) works, and previous attempts to makes it central role in fixing what US physicians are paid public, see the Appendix.)<br /><br /><b>The Washington Monthly Pulls Back the Curtain </b><br /><br />Now another attempt to pull back the curtain that hides the RUC was just made by the Washington Monthly.  A long, detailed, well-written <a href="http://www.washingtonmonthly.com/magazine/july_august_2013/features/special_deal045641.php">article</a> by Haley Sweetland Edwards went through the major points, and included some new discoveries.  She asserted:<br /><br /><u>The RUC is Well Hidden</u><br /><br /><blockquote class="tr_bq">[The RUC is] probably one of the most powerful committees in America that you’ve never heard of.</blockquote><br /><u>The RUC Fixes Prices</u><br /><br /><blockquote class="tr_bq">when a roomful of professionals from the same trade meet behind closed doors to agree on how much their services should be worth. It’s called price-fixing. </blockquote><br /><u>The Government Enables the RUC to Fix Prices</u><br /><br /><blockquote class="tr_bq"> this kind of 'price-fixing' is not only perfectly legal, it’s sanctioned by the U.S. government. At the end of each of these meetings, RUC members vote anonymously on a list of 'recommended values,' which are then sent to the Centers for Medicare and Medicaid Services (CMS), the federal agency that runs those programs. For the last twenty-two years, the CMS has accepted about 90 percent of the RUC’s recommended values—essentially transferring the committee’s decisions directly into law.</blockquote><br /><u>The Government Fixed Prices are Endorsed by the Private Sector</u><br /><br /><blockquote class="tr_bq"> private insurance companies also use Medicare’s fee schedule as a baseline for negotiating prices with hospitals and other providers. </blockquote><br /><u>The Price Fixing Drives Up Costs and the Use of Services</u><br /><br /><blockquote class="tr_bq"> So if the RUC inflates the base price Medicare pays for a specific procedure, that inflationary effect ripples up through the health care industry as a whole.</blockquote><br /><u>These Incentives Cripple Primary Care</u><br /><br /><blockquote class="tr_bq"> These manipulated prices are also a major reason why specialists are in oversupply in many parts of the country, while a worsening shortage of primary care providers threatens the whole health care delivery system. </blockquote><br /><u>These Incentives Benefit Big Corporations, not just Medical Specialists </u><br /><br /><blockquote class="tr_bq"> the incentives are perfectly aligned: ordering that extra test means more money for a doctor’s practice or hospital, more money for the labs, and often more money for the device makers and drug companies, too. (Oh, and, by the way, the device makers and drug companies are, not incidentally, major funders of the medical specialty societies whose members vote on the RUC.)</blockquote><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhHWzSplnD2du3x_SfpKZJ5CaSFXrAoZkdhDxue_1J1f0wQIAV2rbRMgDA-oHz01r7lgv341htPKIV2_EfPKtU_eEAzu6xAn9ZPSUdVYtqfaappwD18k5EziA-KfAvazcaaooKFrlj7doQ9/s1600/SpecialDeal(WashingtonMonthly0713).jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="195" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhHWzSplnD2du3x_SfpKZJ5CaSFXrAoZkdhDxue_1J1f0wQIAV2rbRMgDA-oHz01r7lgv341htPKIV2_EfPKtU_eEAzu6xAn9ZPSUdVYtqfaappwD18k5EziA-KfAvazcaaooKFrlj7doQ9/s320/SpecialDeal(WashingtonMonthly0713).jpg" width="320" /></a></div><br />[Art by Monte Wolverton for the Washington Monthly article]<br /><br /><b>What to Do and What Will Happen?</b><br /><br />We previously wrote,<br /><br /> Economists have beaten us over the head with idea that incentives matter.  The RUC seems to embody a corporatist approach to fixing prices for medical services to create <a href="http://hcrenewal.blogspot.com/search/label/perverse%20incentives">perverse incentives</a> for physicians to do more procedures, and do less conversing with and examining patients, examining the best clinical research evidence about their problems, and rigorously thinking about how best to help them.  More procedures at higher prices helps physicians who do procedures.  It may help even more the corporations that provide the devices and drugs whose use is necessitated by such procedures, and the hospitals who can charge a lot of money as sites for performance of procedures.  It may even help insurance companies by driving ever more money through the health care system, and thus allow rationalization for higher administrative expenses as a function of overall money flow.<br /><br />Yet incentives favoring procedures over all else may lead to worse outcomes for patients, and more costs to patients and society.  If we do not figure out how to make incentives given to physicians more rational and fair, expect health care costs to continue to rise, while access and quality continue to suffer.<br /><br />Ms Edwards ended her article with two specific suggestions:<br /><br /><blockquote class="tr_bq">take the process away from the control of the AMA and put it in the hands of a well-resourced group of experts under the auspices of the federal government. This might take the form of a panel of doctors employed by the government, or of an advisory committee of representatives of different medical societies but with greater representation of primary care doctors.</blockquote><br />Or<br /><br /><blockquote class="tr_bq"> get Medicare out of the business of funding fee-for-service medicine. </blockquote><br />I can only hope that the latest Washington Monthly article, which was accompanied by an <a href="http://www.washingtonmonthly.com/magazine/july_august_2013/editors_note/the_doctor_cartel_will_see_you045632.php">editorial</a> and a short first-hand <a href="http://www.washingtonmonthly.com/magazine/july_august_2013/features/a_day_in_the_life_of_a_primary045640.php">account</a> of how difficult is the lot of the modern primary care physician, will succeed in increasing awareness of the RUC and its essential role in making the US health care system increasingly unworkable.  Of course, such awareness may disturb the many people who are making so much money within the current system.  But if we do nothing about the RUC, and about the ever expanding bubble of health care costs, that bubble will surely burst, and the results for patients' and the public's health will be devastating. <br /><br /><span style="font-size: x-small;"><b>APPENDIX - Background on the RUC</b></span><br /><br /><span style="font-size: x-small;"> We have <a href="http://hcrenewal.blogspot.com/search/label/RUC">frequently posted</a>, first <a href="http://hcrenewal.blogspot.com/2007/03/on-disparities-between-reimbursement-of.html">here in 2007</a>, and more recently <a href="http://hcrenewal.blogspot.com/2010/07/primary-care-and-hc-renewal-ruc-kus.html">here,</a>  <a href="http://hcrenewal.blogspot.com/2010/06/ruc-off-new-england-journal-once-again.html">here</a>, <a href="http://hcrenewal.blogspot.com/2011/02/replace-ruc.html">here</a>, and <a href="http://hcrenewal.blogspot.com/2011/03/getting-out-of-our-ruc-open-letter-to.html">here</a>, about the little-known group that controls how the US Medicare system pays physicians, the RBRVS Update Committee, or <a href="http://hcrenewal.blogspot.com/search/label/RUC">RUC</a>. </span><span style="font-size: x-small;"></span><br /><span style="font-size: x-small;"><br />Since 1991, Medicare has set physicians' payments using the Resource Based Relative Value System (RBRVS), ostensibly based on a rational formula to tie physicians' pay to the time and effort they expend, and the resources they consume on particular patient care activities. Although the RBRVS was meant to level the payment playing field for cognitive services, including primary care vs procedures, over time it has had the opposite effect, as explained by Bodenheimer et al in a 1997 article in the Annals of Internal Medicine.(1) A system that pays a lot for procedures, but much less for diagnosing illnesses, forecasting prognoses, deciding on treatment, and understanding patients' values and preferences when procedures and devices are not involved, is likely to be very expensive, but not necessarily very good for patients. </span><span style="font-size: x-small;"><br /> </span><br /><span style="font-size: x-small;">As we <a href="http://hcrenewal.blogspot.com/2009/02/what-ruc-again-one-of-worlds-most.html">wrote before</a>, to update the system, the Center for Medicare and Medicaid Services (CMS) relies almost exclusively on the advice of the <a href="http://www.ama-assn.org/ama/pub/physician-resources/solutions-managing-your-practice/coding-billing-insurance/medicare/the-resource-based-relative-value-scale/the-rvs-update-committee.shtml">RBRVS Update Committee</a>. The RUC is a private committee of the AMA, <a href="http://www.ama-assn.org/ama1/pub/upload/mm/380/toptenthings.pdf">touted</a> as an "expert panel" that takes advantage of the organization's First Amendment rights to petition the government. Membership on the RUC is allotted to represent specialty societies, so that the vast majority of the members represent specialties that do procedures and focus on expensive, high-technology tests and treatments.</span><span style="font-size: x-small;"><br /> </span><br /><span style="font-size: x-small;">However, the identities of RUC members were opaque for a long time, and the proceedings of the group are secret.  As Goodson(2) noted, RUC "meetings are closed to outside observers except by invitation of the chair." Furthermore, he stated, "proceedings are proprietary and therefore not publicly available for review."</span><span style="font-size: x-small;"><br /> </span><br /><span style="font-size: x-small;">In fact, the fog surrounding the operations of the RUC seems to have affected many who write about it. We have posted (<a href="http://hcrenewal.blogspot.com/2007/12/is-sustainable-growth-rate-main-problem.html">here</a>, <a href="http://hcrenewal.blogspot.com/2008/07/can-we-fix-medicare-while-pretending.html">here</a>, <a href="http://hcrenewal.blogspot.com/2008/12/no-such-ruc-new-england-journal-takes.html">here</a>, and <a href="http://hcrenewal.blogspot.com/2010/06/ruc-off-new-england-journal-once-again.html">here</a>) about how previous publications about problems with incentives provided to physicians seemed to have avoided even mentioning the RUC. Up until 2010, after the US recent attempt at health care reform, the RUC seemed to remain the great unmentionable. Even the leading US medical journal seemed reluctant to even print its name.</span><span style="font-size: x-small;"><br /> </span><br /><span style="font-size: x-small;">That <a href="http://hcrenewal.blogspot.com/2010/10/ruc-it-up-how-us-government-fixes.html">changed</a> in October, 2010.  A combined effort by the Wall Street Journal, the Center for Public Integrity, and Kaiser Health News yielded two major articles about the RUC, <a href="http://online.wsj.com/article/SB10001424052748704657304575540440173772102.html">here</a> in the WSJ (also with two more spin-off articles), and <a href="http://www.publicintegrity.org/articles/entry/2571/">here </a>from the Center for Public Integrity (also <a href="http://www.kaiserhealthnews.org/Stories/2010/October/27/AMA-center-public-integrity.aspx">reprinted</a> by Kaiser Health News.) The articles covered the main points about the RUC: its de facto control over how physicians are paid, its "secretive" nature (quoting the WSJ article), how it appears to favor procedures over cognitive physician services, etc.</span><span style="font-size: x-small;"><br /> </span><br /><span style="font-size: x-small;">In 2011, after the "<a href="http://www.replacetheruc.org/">Replace the RUC</a>" movement generated some more interest about this secretive group, and its complicated but obscure role in the health care system, the current RUC membership was finally revealed.  It was relatively <a href="http://hcrenewal.blogspot.com/2011/04/rucing-about-conflicts-of-interest.html">easy for me to determine </a>that many of the members had conflicts of interest (beyond their specialty or sub-specialty identity and their role in medical societies that might have institutional conflicts of interest, and leaders with conflicts of interest).   </span><span style="font-size: x-small;"><br /> </span><br /><span style="font-size: x-small;">Then that year a lawsuit was filed by a number of primary care physicians that contended that the RUC was functioning illegally as a de facto US government advisory panel.  It appeared that things might change.  However, it was not to be.  A judge <a href="http://careandcost.com/2012/05/19/medicare-physician-payment-the-rucs-hollow-victory/">dismissed the lawsuit</a> in 2012, based on his contention that the law that set up the RBRVS system prevented any challenges through the legal system to the mechanism used to set payment rates.  The ruling did not address the legality of the relationship between the RUC and the federal government.  The eery quiet then resumed, only punctuated briefly in early 2013, when a <a href="http://hcrenewal.blogspot.com/2013/01/us-senate-subcommittee-asks-what-ruc-is.html">Senate committee held hearings</a> with no obvious effect.      </span><br /><br /><span style="font-size: x-small;">ADDENDUM (15 July, 2013) - see also <a href="http://brodyhooked.blogspot.com/2013/07/the-ruc-revisited-more-corruption-in.html">comments</a> by Dr Howard Brody on the Hooked: Ethics, Medicine and Pharma blog.  </span><br /><br /><span style="font-size: x-small;">ADDENDUM (18 July, 2013) - see also <a href="http://www.nakedcapitalism.com/2013/07/how-the-ama-engages-in-government-sanctioned-price-fixing.html">comments</a> by Yves Smith on the Naked Capitalism blog. </span><br /><span style="font-size: x-small;"><br /></span><span style="font-size: x-small;"><b>References</b></span><br /><span style="font-size: x-small;">1. Bodenheimer T, Berenson RA, Rudolf P. The primary care-specialty income gap: why it matters. Ann Intern Med 2007; 146: 301-306. (Link <a href="http://www.annals.org/content/146/4/301.full">here</a>.)</span><span style="font-size: x-small;"><br /></span><span style="font-size: x-small;">2. Goodson JD. Unintended consequences of Resource-Based Relative Value Scale reimbursement. JAMA 2007; 298(19):2308-2310. (Link <a href="http://jama.ama-assn.org/cgi/content/short/298/19/2308">here</a>.)</span>

Another Attempt to Show the RUC Behind the Curtain

In 2007, readers of the Annals of Internal Medicine could read part of the solution to a great medical mystery.(1)  For years, health care c...

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