healthy4u: power elite

More Reasons to Doubt How CEOs are Chosen and Paid

Health Care Renewal is about problems with the leadership and governance of health care organizations.  Since the global financial collapse/ great recession began in 2008, it became evident that the problems we saw affecting health care leadership were similar to problems affecting other large organizations, notably financial firms.  Recently, I spotted a series of articles that raise more questions about how business leaders, and by extension, leaders of health care organizations are chosen and paid. Doubts about Generic Managers We have often questioned the wisdom of having health care organizations lead by people with little if any direct health care experience, little knowledge of health care on the ground, and little commitment to health care's core values.  We have called such leaders <a href="http://hcrenewal.blogspot.com/search/label/generic%20managers">generic managers</a>. A New York Times <a href="http://www.nytimes.com/2012/09/23/business/ceos-and-the-pay-em-or-lose-em-myth-fair-game.html">article</a> by Gretchen Morgenson from September, 2012, cited new academic work that questioned the abilities of generic managers.  The <a href="http://irrcinstitute.org/pdf/Executive-Superstars-Peer-Benchmarking-Study.pdf">source article </a>was Elson CM, Ferrere CK.  Executive superstars, peer groups, and overcompensation - cause, effect and solution.  Ms Morgenson summarized, <blockquote class="tr_bq">Mr. Elson and Mr. Ferrere conclude, contrary to the prevailing line, that chief executives can’t readily transfer their skills from one company to another.</blockquote> Furthermore, Ms Morgenson interviewed Mr Elson, who said, <blockquote class="tr_bq">But we found that C.E.O. skills are very firm-specific. C.E.O.’s don’t move very often, but when they do, they’re flops.</blockquote>Also, <blockquote class="tr_bq"><div itemprop="articleBody">But there is little evidence, according to Mr. Elson and Mr. Ferrere, that a hot market exists for interchangeable chief executives. First, they note numerous academic studies indicating that C.E.O.’s selected from within a company perform better than outsiders, especially in the creation of long-term shareholder value. </div><div itemprop="articleBody"> </div><div itemprop="articleBody">'There is no conclusive empirical evidence that outside succession leads to more favorable corporate performance, or even that good performance at one company can accurately predict success at another,' the authors conclude. 'In short, executive skills cannot pass the most basic test of generality: transferability.' </div><div itemprop="articleBody"> </div><div itemprop="articleBody">To be sure, this flies in the face of the widely held view that skilled managers have become generalists and are therefore far more interchangeable than in previous years. Proponents of this thesis argue that top managers today can accumulate a broad knowledge of economics, finance and management science, giving them the ability to manage any type of company effectively. Technological advancements also give chief executives access to untold amounts of data about a particular company that in previous times would have taken years to amass and synthesize, this view holds. </div><div itemprop="articleBody"> </div><div itemprop="articleBody">But the data on actual C.E.O. moves raises questions about just how portable C.E.O. skills really are. The Delaware paper cites several studies indicating that relatively few chief executives land new top jobs elsewhere. One study, a 2011 analysis of roughly 1,800 C.E.O. successions from 1993 to 2005, found that less than 2 percent had been public-company chief executives before their new jobs. </div></blockquote>This data and these observations seem to broadly apply to business executives, but there is no reason to think they do not apply to executives of health care corporations.  Furthermore, given that on its face, health care is less like making automobiles than, say, the restaurant business is, there is no reason to think doubts this raises about the abilities of generic managers should not be even bigger in health care, and should apply not just to for-profit, but to not for profit corporations.  Yet the trend in health care seems to increasingly favor generic managers of not just for-profit health care corporations, but also hospitals and hospital systems, non-profit health insurers and managed care organizations, health care charities, disease advocacy groups, and even medical associations, medical schools, and their parent universities.   Doubts about Executive Compensation Peer-Group Benchmarking We have often posted about<a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation"> amazingly generous compensation</a> given to top leaders of health care organizations.  Health care corporate CEOs can make tens of millions of dollars, occasionally even more.  While CEOs of not for profit health care organizations make less, they still now can makes millions of dollars.  Ms Morgenson called the usual justification for these huge amounts of compensation the "pay-'em-or-lose-'em" myth. <blockquote class="tr_bq">Corporations are forever defending big executive paydays. If we don’t pay up, the argument goes, our sharpest minds will jump to our rivals. </blockquote>This notion, or myth, depends on the argument that generic managers are the best managers, which appears to be largely unsubstantiated, as we noted above. <blockquote class="tr_bq"> In other words, the argument that C.E.O.’s will leave if they aren’t compensated well, perhaps even lavishly, is bogus. Using the peer-group benchmark only pushes pay up and up. </blockquote> Furthermore, <blockquote class="tr_bq">Importantly, the study disputes the notion that executive pay today is a result of an efficient bidding process for finding and retaining a scarce and valuable commodity: managerial talent. 'In essence, this process creates a model of a competitive market for executives where it otherwise does not exist,' the authors wrote. 'Through the operation of a market, it is argued, wages are bid up to an executive’s outside opportunities.' </blockquote> Instead, as noted above, since the skills needed to run one sort of company or organization may not readily transfer to other companies and organizations, even seemingly similar ones, such a market does not exist.     Incentives Based on Short-Term Financial Results We have also previously discussed (look <a href="http://hcrenewal.blogspot.com/2012/04/health-care-dysfunction-explained-by.html">here</a>) how contemporary economic dogma suggest that the only measure of success of a for-profit corporation is "shareholder value," which has come to mean the stock price over the short term.  There is reason to think that this focus on short-term economic performance has also become the major measure of success of health care organizations.  Another word for this phenomenon is <a href="http://hcrenewal.blogspot.com/search/label/financialization">"financialization."  </a> An <a href="http://www.independent.co.uk/news/business/comment/anthony-hilton-how-bonuses-make-bosses-reluctant-to-invest-in-the-future-8163804.html">op-ed</a> in the UK Independent questions this focus because of its economic effects.  Anthony Hilton wrote about the views of Andrew Smithers, <blockquote class="tr_bq">His starting point was that the economy was floundering because of inadequate demand. Personal spending is flat for obvious reasons but the real culprit is the companies who are hoarding cash and refusing to invest. Others have noticed the cash hoarding but explain it away by saying we live in uncertain times and companies will start investing again once they become more confident about the economic outlook. Smithers disagrees fundamentally with this. He says companies are not investing because executives are bonused to deliver short-term profits. Costly spending on investment projects is therefore anathema to them. Investment may deliver long-term prosperity but by that time they will have left the company. It also depresses short-term profits while they are still there. We have in the last two decades, under the mantra of shareholder value and aligning the interests of management with shareholders, created a new breed of management incentivised to believe that what is good for them is good for the business. They dislike investment because it reduces their bonuses . They don't invest surplus cash. They hoard it or they use it to buy back their own company's shares. When the majority of the managements in publicly quoted companies start behaving this way, as they now do, we have a serious problem. They are sitting on cash which is the equivalent of six per cent of GDP. This deadweight of unused resources prevents lift-off and threatens to leave the economy forever trapped in the mire. Smithers says this behaviour by management is a structural change — meaning it is something which won't go away. It makes this down- turn different from all that have gone before.</blockquote>There is no reason to think that health care corporations are not hoarding money in the sense described above.  If so, they may be failing to invest in drugs or devices that would have helped patients in the future. Because of the limited reporting required of large health care non-profit organizations in the US, it may be very hard to tell if they are similarly hoarding money, but if they are, the effects again might be to fail to provide patients long-term benefits they might otherwise have enjoyed. The Ultimately Self-Destructive Outcome Meanwhile, <a href="http://www.nytimes.com/2012/10/14/opinion/sunday/the-self-destruction-of-the-1-percent.html">writing in</a> the New York Times, Chrystia Freeland, the author of Plutocrats: the Rise of the New Global Super-Rich and the Fall of Everyone Else, explained why picking the wrong leaders  and paying them too much may be bad for everyone.  We have noted that an increasing fraction of the wealthiest one percent of the US are current and former corporate executives.  Ms Freeland wrote how domination by an increasingly wealthy and powerful elite usually dooms the countries they dominate. <blockquote class="tr_bq">what separates successful states from failed ones is whether their governing institutions are inclusive or extractive. Extractive states are controlled by ruling elites whose objective is to extract as much wealth as they can from the rest of society.</blockquote>So <blockquote class="tr_bq">it is the danger America faces today, as the 1 percent pulls away from everyone else and pursues an economic, political and social agenda that will increase that gap even further — ultimately destroying the open system that made America rich and allowed its 1 percent to thrive in the first place.  </blockquote> Furthermore, <blockquote class="tr_bq">It is no accident that in America today the gap between the very rich and everyone else is wider than at any time since the Gilded Age. Now, as then, the titans are seeking an even greater political voice to match their economic power. Now, as then, the inevitable danger is that they will confuse their own self-interest with the common good. The irony of the political rise of the plutocrats is that, like Venice’s oligarchs, they threaten the system that created them.</blockquote>So it is not merely that overcompensating generic executives has likely been one of the major reasons our health care is so expensive, inaccessible, and mediocre.  The larger problem of overpaying under skilled executives threatens to destroy our whole society.  How cheerful Summary The way forward seems clear.  It is just blocked by the interests of the rich and powerful elite which our current foolish policies have created. In a health care context, leaders of organizations should only be those with clear knowledge of, experience in, and commitment to the values of health care.  Their compensation should be reasonable, and based on their ability to uphold these values first, with financial goals clearly second, and short-term financial goals probably not at all.  Pay should not be bench-marked to compensation of leaders of other organizations, especially not of vastly different kinds of organizations. Whether there is any chance of such changes happening while corporate boards of directors, and non-profit boards of trustees are dominated by executives of other organizations is doubtful.  Thus we also need to change the governance of for-profit health care corporations to clearly reflect the long-term interests of the stockholders, who will only prosper if in the long run their companies provide products and services that help patients at a fair price and with minimal risks.   Thus we further need to need to change the governance of health care non-profits to reflect the needs of patients, their communities and other key constituencies.  That should keep us all busy for a while.

More Reasons to Doubt How CEOs are Chosen and Paid

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15 Oct 2012

Former US Secretary of Health and Human Services Saunters Through Revolving Door, Ends Up as Director of Medtronic

There they go again.  Another US government health care leader, this time the top health care leader at the end of the previous George W Bush administration, has wound up in a leadership position in a big, for-profit health care corporation.  As per the press release <a href="http://www.bizjournals.com/twincities/news/2011/10/17/medtronic-board-leavitt-fda.html">published</a> in the Minneapolis-St Paul Business journal, <blockquote>Mike Leavitt, the former Governor of Utah who also oversaw the Food and Drug Administration for four years, has been elected to the board of Medtronic Inc. Leavitt is the founder and chairman of Leavitt Partners, which advices clients in the healthcare and food safety sectors, according to a news release from Fridley-based Medtronic (NYSE: MDT). He served as governor of Utah from 1993 through 2003. Former President George W. Bush appointed Leavitt administrator of the Environmental Protection Agency in late 2003 and secretary of Health and Human Services in January 2005. Leavitt served in that position into January 2009. At Health and Human Services, he oversaw the FDA and the Center for Medicare and Medicaid Services — two agencies that are important to Medtronic, which makes medical devices.</blockquote> Mr Leavitt's full-time job is to chair <a href="http://leavittpartners.com/">Leavitt Partners</a>, which advertises that it "advises clients that invest in health care and food safety." It does not publicize its client list, but that list apparently includes Alliance Health Networks, whose press release noted that Leavitt Partners "will help it expand its presence in the US health industry and beyond "(look <a href="http://www.healthcareitnews.com/news/alliance-health-networks-gets-boost-leavitt-partners">here</a>); and Connextions, Inc, whose press release noted that it would work with Leavitt Partners to " refine existing health insurance exchange models for federal and state governments, as well as private sector organizations that are navigating health care reform law," (look <a href="http://www.businesswire.com/news/home/20110614005331/en/Connextions-Leavitt-Partners-Enter-Agreement-Bring-Health">here.</a>) Note that Mr Leavitt's official Department of Health and Human Services <a href="http://www.hhs.gov/secretary/dhhssec.html">biography</a> listed no training or experience in direct health care (or in biomedical sciences or the engineering of health care devices, for that matter.) Before he was Secretary of HHS, he was Governor of Utah, and before then, he was the CEO of an insurance company.  Since I very much doubt Mr Leavitt is a large Medtronic shareholder, it would appear that the rationale for his position on its board is his conectedness with other powerful health care insiders. Summary: the Revolving Door Mr Leavitt did not transit the revolving door as quickly as did other health care leaders from that administration.  We <a href="http://hcrenewal.blogspot.com/2010/12/former-nih-director-spins-trhough.html">noted</a> in 2010 that the leaders of the US Food and Drug Administration (FDA), US National Institute of Health (NIH), and US Centers for Disease Control (CDC) at the end of the Bush administration had already gotten powerful positions in the health care corporate world.  Mr Leavitt is not the first recent former Secretary of HHS to become the director of a big health care corporation whose fortunes may be affected by what HHS does.  We <a href="http://hcrenewal.blogspot.com/2011/06/embedded-networks-of-influence-in.html">noted</a> in 2011 how rapidly the Secretary of HHS at the end of the William Clinton administration, Donna Shalala, signed up as a director for UnitedHealth.  We have also noted a variety of <a href="http://hcrenewal.blogspot.com/search/label/revolving%20doors">other examples</a> of the revolving door phenomenon. These examples suggest how the leaders of government health care agencies and health care corporations are becoming interchangeable, forming a giant embedded network of influence.  Furthermore, they suggest how top government health care leaders can now expect a cushy corporate position to open up as soon as they can legally accept it.  Whether government leaders who expect such future job opportunities will avoid offending possible corporate employers while in office, even if giving such offense would be good for patients' or the public's health, is an open question.  The answer, I fear, may be obvious.    These examples suggest that the US is becoming increasingly corporatist, a country dominated by an unholy alliance between top leaders of government and of large corporations, who are becoming increasingly interchangeable.  Another way of putting it is the country is increasingly dominated by an insider elite that manipulates the system for its own benefit.  A recent <a href="http://www.theatlantic.com/politics/archive/2011/10/can-an-overpaid-ceo-and-2-sleazy-union-lobbyists-unite-us/247302/">article</a> in the Atlantic juxtaposed two cases, one that of a CEO given a golden retirement package after presiding over the decline of his media company, and two union lobbyists who gamed the system to get outsized pensions.  While the first example would commonly draw condemnation from the left wing, and the second from the right, they are similar, and similar to those of  revolving doors we have discussed.   Author Conor Friedersdorf summarized the cases thus <blockquote>neither the CEO nor the lobbyists were paid what they earned, nor were they compensated in a way that made the relevant stakeholders better off. Instead they were taken care of in a way that reflected their elite insider status and their ability to take advantage of wrinkles in the system while breaking no laws. In both cases, less politically connected people -- other Gannett employees, Gannett shareholders, readers of Gannett newspapers, Illinois school teachers, and Illinois taxpayers -- were unjustly made worse off by what transpired. And isn't the overlapping ethic that guided the behavior of these people a big part of what's wrong with America? Behavior like theirs is one reason Americans on the right and left have recently taken to the streets. Ours is a society that has always tolerated inequality of wealth; and so long as some imperfect degree of fairness is maintained in the getting of material goods, the system functions smoothly. But if people feel that wealth they struggled to earn is being taken from them to pad the nest eggs of dishonorable union lobbyists; or that they're at risk of being fired from their $14 an hour job if they're ten minutes late, whereas their ultimate boss retires with an eight-figure package after presiding over plummeting stock prices and massive layoffs; people put in situations like that eventually revolt, if they've concluded that injustice is the norm rather than an aberration. </blockquote> I would propose that the fundamental injustice of having an insider elite run health care so as to put their self-interest first is the basis of what has gone wrong with health care (and the rest of the country, and maybe the world.) If we do not have the courage to first say this out loud, and then restore some rationality and justice to the structure and leadership of health care, the spiral will continue downward. Additional Thought I expect if any of the insider elite's defenders bother to read this, one argument they might propose is it was always thus.  How can one expect people who work as government leaders for a short time not to take advantage of the best possible job offers when they leave?  My answer is that an admittedly cursory look at history suggests it has not always been thus.  Using Wikipedia as an imperfect but quick source, I found that <a href="http://en.wikipedia.org/wiki/Joseph_A._Califano,_Jr.">Joseph A Califano Jr</a>, the last Secretary of Health, Education and Welfare under President Carter worked at a law firm, founded the National Center for Addiction and Substance Abuse, and wrote books after he left office.  He did serve on a corporate board (CBS), but not for a health care corporation.  <a href="http://en.wikipedia.org/wiki/Patricia_Roberts_Harris">Patricia Roberts Harris</a>, the first Secretary of HHS under President Carter, became a law professor.  <a href="http://en.wikipedia.org/wiki/Otis_R._Bowen">Dr Otis R Bowen</a>, the last Secretary of HHS under President Reagan, retired after that, but served on some non-profit boards and government committees.

Former US Secretary of Health and Human Services Saunters Through Revolving Door, Ends Up as Director of Medtronic

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27 Oct 2011

Leadership by Those Who "Live Insulated from the Daily Travails of Ordinary" People; the University of Washington Example

<a href="http://www.margaretsoltan.com/?p=17513">On the University Diaries blog</a>, Prof Margaret Soltan picked up on an article on the privileges now given to university leaders, using the example of the President of the University of Washington (which includes a medical school, academic medical center, etc). At a time when the university budget was being cut, President Mark Emmert refused to take a voluntary cut in his greater than $900,000 total annual compensation. This included a $12,000 car allowance and free use of the university mansion. From the original article comes this key quote: <blockquote> How could this happen? It happened for the same reason that Wall Street types, with acquiescence of their boards and public officials, saw no reason to make any personal sacrifice at a time when others are sacrificing greatly. The UW Board of Regents, as most others at public universities, is not made up of scholars and altruists. It consists mainly of governor-appointed businessmen, lawyers, and other high-income types who themselves live insulated from the daily travails of ordinary state taxpayers. </blockquote> As <a href="http://www.projo.com/opinion/columnists/content/CL_harrop16_09-16-09_0FFNJ2L_v15.3f88fbb.html">Froma Harrop put it</a>, the ethos among leaders of the finance sector now seems to be "heads, I win, tails, I'm bailed out." That ethos has now infiltrated the leadership of many kinds of organizations, perhaps because in many cases the Masters of the Universe from the finance sector now lead the boards of these organizations. The result may be leaders of academia more focused on enriching and empowering themselves than on their organizations' high-minded missions.

Leadership by Those Who "Live Insulated from the Daily Travails of Ordinary" People; the University of Washington Example

On the University Diaries blog, Prof Margaret Soltan picked up on an article on the privileges now given to university leaders, using the example of the President of the University of Washington (whic…

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16 Sep 2009

"Man's Best Hospital," Run by the Boss of a MECC (Medical Education and Communications Company)?

In January, 2009 we <a href="http://hcrenewal.blogspot.com/2009/01/to-whom-did-scorpions-in-bottle-owe.html">posted</a> about how the CEO of Blue Cross Blue Shield (BCBS) of Massachusetts and of Partners HealthCare, made a secret oral agreement that BCBS would pay Partners at a higher rate than that given to other hospitals. Why BCBS would want to pay so much to this one hospital system was never clear. Partners does include some extremely prestigious hospitals, including the Brigham and Womens Hospital, and the Massachusetts General Hospital, ("Man's Best Hospital" in the House of God), but there are some other very prestigious teaching hospitals in Boston that were not blessed by BCBS' largess. We speculated about one possible cause: the leadership of the two organizations may have felt they had more in common with each other than with the constituencies of their own organizations. A few leaders of each organization had direct ties to the other. Many leaders of both organizations were simultaneously leaders of finance, the same sector that has brought us what is now called the Great Recession. Leadership of both organizations had conflicted loyalties. The organizations' CEOs at the time, and many members of their boards had divided loyalties and apparent conflicts of interest. For example, Jack Connors, the chair of the Partners HealthCare board, <a href="http://www.adclub.org/2008_Legends/jack.html">is also </a>the Chairman Emeritus of marketing communications company Hill, Holliday, Connors, Cosmopoulos Inc, whose clients include pharmaceutical and pharmacy benefits manager CVS / Caremark, and is also a member of the board of directors of Covidien, a medical device company. The Boston Globe just published <a href="http://www.boston.com/business/healthcare/articles/2009/05/31/partners_leader_questioned_on_outside_ties/">a report </a>that Mr Connors had even more intense conflicts that had not heretofore been made public. <blockquote>He's chairman of New England's largest healthcare company, and that position atop Partners HealthCare has tested the limits of Jack Connors's considerable corporate dexterity. Though he has no background in medicine, Connors has been Partners' chief overseer, champion, and its most public face for 13 years. [One board member] is the cofounder and chairman emeritus of Partners' advertising firm. That would be Jack Connors. And that potential point of conflict has been disclosed.... But to the chagrin of some former board members, never brought up for board review was Connors's stake in a leading medical education firm whose sale in 2004 made Connors a very wealthy man. Nor has the board notified public officials of Connors's ownership of a fledgling home healthcare firm that has directly solicited Partners' hospitals for business. Connors and top Partners officials defended the decision not to publicly disclose Connors's potential conflicts, saying that because Partners did not directly contract with either of Connors's firms there were no conflicts to report. Connors also defended his right to be an entrepreneur in the healthcare business while also chairing Partners' board, and strongly denied ever using his position for personal or financial advantage. The larger company, M/C Communications, grew to become the biggest commercial provider of continuing education to physicians in the decade between its inception in 1994 and when Connors sold it in 2004. It profited hugely from an exclusive commercial relationship it maintained with Harvard Medical School, whose faculty teach at seminars the company holds. Partners' signature institutions, Massachusetts General Hospital and Brigham and Women's Hospital, are major teaching affiliates of Harvard Medical School. In addition, M/C Communications benefited financially from millions of dollars in sponsorship revenue paid it from major pharmaceutical firms eager to play to this professional audience. Connors said he was under no obligation to disclose his ownership of M/C Communications to the Partners board. He said that while there is an 'affiliation' between Harvard Medical School and the two Partners hospitals, there is no formal contract between them. Connors said he informed Partners executives of his ownership of M/C Communications, and that they determined it did not warrant disclosure to the full Partners board. 'There is no contract between Partners and Harvard,' Partners said in a statement to the Globe. Connors made a name for himself as an executive with Hill, Holliday, Connors, Cosmopulos, the Boston advertising company that he helped found and guided throughout a long career. Less well known is that he made most of his fortune from M/C Communications, which he sold to Bain Capital for $450 million in 2004. The sale was the largest of a private healthcare-related company in Massachusetts that year, according to TM Capital Corp., an investment banking company. Connors, who led an investor group that bought the firm outright for $13 million in 2000, made about $250 million from its sale. After his 2004 windfall, he founded a company that helps elderly patients readjust to life at home after a hospitalization. That company, Dovetail Health, has - Connors acknowledged - solicited business from hospitals owned by Partners. And Connors confirmed that after Dovetail executives failed to convince Blue Cross Blue Shield of Massachusetts to contract with the firm, he personally spoke to the giant insurer's president, Cleve L. Killingsworth, on Dovetail's behalf. Partners and Blue Cross Blue Shield regularly negotiate over $2.5 billion worth of medical business a year. Connors acknowledged in an interview that it might have appeared 'inappropriate' to some for him to pitch Killingsworth. But he said the conversation stemmed from a shared belief that new ways must be found to reduce frequent return trips of elderly patients to the hospital. More recently, however, he said he does not believe his approach to Killingsworth was inappropriate. </blockquote>So let's try to recap this. While Jack Connors has been chairman of the board of Partners HealthCare, the largest and most prestigious hospital system in Massachusetts, he also ran an advertising agency that did business with Partners, and has been on the board of Covidien, a medical device company. Both of these relationships he disclosed to his fellow board members, although no one seemed troubled by them. However, while a Partners board member, Connors was also the founder, and ultimately profited very handsomely from the sale of M/C Communications. M/C Communications apparently begat <a href="http://www.mc-comm.com/live/MCHCGateway.html">M/C Holding Corporation</a>, which in turn owns M/C Communications and Pri-Med Institute LLC. M/C Communications now <a href="http://www.mc-comm.com/live/MC/">describes itself </a>as " established in 1994 and has become a leading provider of medical education event management solutions for health care professionals and others around the globe." M/C Communications runs <a href="http://www.pri-med.com/pmo/Home.aspx">Pri-Med</a>, which is <a href="http://www.pri-med.com/industry/">described</a> thus: "Pri-Med is a platform for science and medicine that includes meetings, resources, online, and new media tools designed to meet the information and education needs of today’s practicing physician." Pri-Med <a href="http://www.pri-med.com/industry/conference.htm">markets itself to industry</a>, presumably the pharmaceutical, biotechnology, and device industry, "Sixty percent of doctors’ offices restrict rep access, making it more challenging than ever to get in front of your customers. But with Pri-Med, you get to meet clinicians in a professional environment where they seek you out. More than 66% of attendees say they come to Pri-Med events to meet you, industry representatives." So Connors' company was a medical education and communication company (MECC), which provided what appeared to be educational programs to physicians that in fact were also sold to the health care industry as marketing opportunities. So Partners HealthCare, which includes two of the world's most prestigious teaching hospitals, has been run by the boss of a MECC? Say it ain't so. Not only did Connors own a company that had an exclusive contractual relationship (as described above) with the Harvard faculty who staff the main Partners HealthCare hospitals, that company was engaged in marketing the products of sponsoring drug and device companies disguised as education. Finally, Connors denied that this presented any kind of conflict of interest, because Partners HealthCare has no explicit contract, just an "affiliation" with Harvard Medical School. Finally, just to ice the cake, Connors' latest venture is a home health care company that did business with Partners, and tried to do business with BCBS, spearheaded by Connors' direct conversations with the BCBS CEO. Jack Connors thus seems to have just become the latest poster boy for leaders of health care organizations who put their personal financial interests ahead of their responsibilities to those organizations, and function as a power elite whose collective interests trump those of the constituents of the organizations they run. Quoting <a href="http://www.boardsource.org/Knowledge.asp?ID=3.364">from BoardSource</a>, the main duties of the leader of any US not-for-profit are: <blockquote> Duty of Care The duty of care describes the level of competence that is expected of a board member, and is commonly expressed as the duty of 'care that an ordinarily prudent person would exercise in a like position and under similar circumstances.' This means that a board member owes the duty to exercise reasonable care when he or she makes a decision as a steward of the organization. Duty of Loyalty The duty of loyalty is a standard of faithfulness; a board member must give undivided allegiance when making decisions affecting the organization. This means that a board member can never use information obtained as a member for personal gain, but must act in the best interests of the organization. Duty of Obedience The duty of obedience requires board members to be faithful to the organization's mission. They are not permitted to act in a way that is inconsistent with the central goals of the organization. A basis for this rule lies in the public's trust that the organization will manage donated funds to fulfill the organization's mission. </blockquote> By leading companies that did direct business with Partners and its staff, and failing to disclose that he was doing so to his fellow Partners board members, Connors appeared to have violated the Duty of Loyalty. By running a MECC that helps drug and device companies market to physicians in the guise of education, using faculty from the academic teaching hospitals that he lead, Connors seems to have mocked the mission of the academic hospitals within Partners, and thus appeared to violate the Duty of Obedience. This episode certainly does suggest that health care, and the organizations involved in this case, are lead by an "old-boy network," as one person interviewed for the Globe article suggested. More than just an old-boy network, they seem to be lead by chummy members of the power elite whose collective personal interests supersede the missions of the organizations they are supposed to steward. When this happens, is it any surprise that health care becomes less accessible, more expensive, and of lower quality? Yet challenging the power elite that are increasingly revealed as controlling much of health care seems to be something that one cannot talk about when discussing health care reform. However, failing to address this problem will likely doom any effort, no matter how well intentioned, to improve health care. Hat tip to and see <a href="http://alison-bass.blogspot.com/2009/06/fish-rots-from-top-conflicts-of.html">comments</a> by Alison Bass on the Alison Bass Blog. ADDENDUM (3 June, 2009) - See also <a href="http://carlatpsychiatry.blogspot.com/2009/06/harvard-med-school-jack-connors-and.html">comments</a> by Dr Daniel Carlat on the Carlat Psychiatry Blog.

"Man's Best Hospital," Run by the Boss of a MECC (Medical Education and Communications Company)?

In January, 2009 we posted about how the CEO of Blue Cross Blue Shield (BCBS) of Massachusetts and of Partners HealthCare, made a secret oral agreement that BCBS would pay Partners at a higher rate th…

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02 Jun 2009

Bio-Tech U

The San Francisco Chronicle just <a href="http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/01/BA7517D185.DTL">reported</a> that a new Chancellor has been nominated for the <a href="http://www.ucsf.edu/">University of California - San Francisco </a>(UCSF). UCSF is functionally a health sciences university, and its Chancellor functions as its president. The UCSF medical school is generally considered one of the elite US academic medical institutions. <blockquote> Genentech executive Susan Desmond-Hellmann has been nominated to be the next chancellor of UCSF, making her the first woman or biotech leader ever asked to run the research campus and hospital system that is San Francisco's second-largest employer. Desmond-Hellmann has served most recently as president of drug development at Genentech, the South San Francisco biotech firm that was recently acquired by Swiss drugmaker Roche. She was trained as a physician, did her internship at UCSF and has taught there recently as an adjunct associate professor while working at Genentech. Although prior UCSF chancellors have come from more academic or scientific backgrounds, [Dr Holly] Smith said Desmond-Hellmann's biotech connections would be an advantage as the university tries to translate scientific discoveries into medical treatments. </blockquote> Dr Desmond-Hellmann is, in my humble opinion, a very unusual candidate to be Chancellor of one of the country's premier academic medical institutions. According to her official Genentech bio (taken off the Genentech server, but transiently available in the Google cache <a href="http://74.125.95.132/search?q=cache:9WvMoqIzF38J:www.gene.com/gene/about/management/exec/desmond-hellman.html+Desmond-Hellmann&cd=3&hl=en&ct=clnk&gl=us">here</a>), and a <a href="http://www.nature.com/drugdisc/nj/articles/nrd1794.html">biography in Nature Drug Discovery</a>, Dr Desmond-Hellmann, after getting both an MD and an MPH, spent two years doing AIDS research in Uganda as a UCSF junior faculty member, and then spent a few years in private practice hematology-oncology. She published few articles (5, <a href="http://www.ncbi.nlm.nih.gov/sites/entrez?orig_db=PubMed&db=pubmed&cmd=Search&term=Desmond-Hellmann[author]">according to Medline</a>, last in 1995), and by 1993 went to work in industry, first for Bristol-Myers-Squibb. She started at Genentech in 1995, and worked her way up to her current position, "president, Product Development. In this role, Hellmann is responsible for Genentech's Development, Process Research & Development, Business Development, Product Portfolio Management, Alliance Management and Pipeline Planning Support functions. Hellmann is a member of Genentech's executive committee." Before her nomination to be Chancellor, Dr Desmond-Hellmann was <a href="http://www.epibiostat.ucsf.edu/general/people/affilfac.html">"affiliated" faculty </a>of the Department of Epidemiology and Biostatistics at UCSF, apparently with the rank of adjunct associate professor. In that capacity, she apparently <a href="http://www.epibiostat.ucsf.edu/general/events/seminar_archives.html">gave a single seminar in 2007,</a> and lectured in the <a href="http://www.epibiostat.ucsf.edu/courses/clin_research/2003/">Designing Clinical Research course in 2003</a>. So, on one hand, Dr Desmond-Hellmann, to be charitable, does not have much of an academic track record, at best approximating that of a very junior medical faculty member. She also certainly has no experience in academic administration. In general, people who lead academic medicine often have substantial track records in academics and in academic administration. So, in some sense, Dr Desmond-Hellmann's appointment seems to based on the theory of the generic manager. That is, the popular notion in the business world managers can manage anything, any organization, with any mission, in any context. Managing in the complex health care context, especially managing large, complex academic medical institutions, may not be easy for those used to managing elsewhere, even in the health care corporate world. Furthermore, the complex mission of academic medicine, which includes providing excellent care of individual patients, while discovering and disseminating the truth in a spirit of free enquiry, is very different from the mission of a for-profit biotechnology company. How well someone used to the bottom-line mentality of the corporate world would uphold the academic mission is not clear. Dr Desmond-Hellmann came from a company known for charging very high prices for the drugs it marketed, and Dr Desmond-Hellmann was on record personally defending this practice. Quoting from a <a href="http://jnci.oxfordjournals.org/cgi/content/extract/djm031v1">news article </a>in the Journal of the National Cancer Institute [McNeil C. Sticker shock sharpens focus on biologics. JNCI 2007; 99: 910-914.] <blockquote> Never mind their novel targets and mechanisms. It's the cost of new biologic agents that's creating a buzz these days. At thousands of dollars a month, which can mean many tens of thousands for some regimens, sticker shock has generated recent, prominent articles in both the national and trade press. On one level, the argument is about macroeconomics. Neal Meropol, M.D., of Fox Chase Cancer Center in Philadelphia, pointed out that cancer drugs account for 40% of all Medicare drug expenditures. That makes them a major contributor to the country's high health care costs, now about 17% of our gross domestic product (GDP) and growing. That percentage is much higher than in other developed countries with higher life expectancies, he said at a forum on cancer care costs at the American Association of Cancer Research annual meeting. On the other side of the macroeconomic debate, experts point out that the U.S. has a high GDP to begin with and so can afford to spend more on health. And cancer biologics, though among the most costly drugs, are still only a tiny fraction of total GDP, said Genentech's Susan Desmond-Hellmann, president for product development, at AACR. Hellmann and others argue that with these drugs’ potential to alleviate the huge societal burden of cancer, biologics are worth the cost. The industry has responded to concerns about costs by putting more resources into patient assistance programs. When Genentech received U.S. Food and Drug Administration approval for bevacizumab in lung cancer last October, it also announced a cap on expenditures for the drug for patients with family incomes less than $100,000 a year. In 2005, the median household income was $46,326. Originally announced as $55,000, the cap actually doesn't kick in until after a patient has received 10,000 mg. At the wholesale acquisition cost, 10,000 mg is about $55,000, said Genentech spokesperson Edward Lang. What the companies have not done so far is reduce prices. The reason, industry representatives say, is the need to recoup massive research and development costs, including high manufacturing costs for biologics. These costs have long kept biotech companies from making much of a profit overall, Hellmann said. She noted that profit levels of publicly held biotech firms have "hovered close to zero" throughout the life of the industry. </blockquote> But, while Dr Desmond-Hellmann was defending pricing drugs that at more than $55,000 a year, and complaining about low industry profits, she was pocketing lavish rewards. According to <a href="http://www.sec.gov/Archives/edgar/data/318771/000095013408004633/0000950134-08-004633-index.htm">Genentech's 2008 proxy statement</a>, (the last available, since the company has been bought out by Roche), her total compensation was $8,361,348 in 2007 and $7,820,142 in 2006. In 2007, her total compensation was equal to 0.3% of the firm's total net income, and the top five company executives' total compensation was equal to about 1.5% of the firm's total revenues. In 2007, the firm's stock price declined from 91.30 on 6 January 2007 to 66.38 on 4 January, 2008, or 27%, <a href="http://www.google.com/finance?q=NYSE%3ADNA">according to Google Finance</a>. In 2007, she held 1,616,383 shares of stock, or stock options exercisable within 60 days of January 31, 2008. In 2007 she exercised 170,000 stock options, realizing $11,556,663. So perhaps those high drug prices were needed not only to pay for research, but to make top executives, including Dr Desmond-Hellmann, very rich. This raises further questions about her inclination to uphold the <a href="http://www.ucsf.edu/about-ucsf/">university's mission </a>in the future. <blockquote> University of California, San Francisco is a leading university dedicated to defining health worldwide through advanced biomedical research, graduate-level education in the life sciences and health professions, and excellence in patient care. </blockquote> In any case, hiring a lavishly compensated top executive from a biotech firm known for its high drug prices to run a public health sciences university does considerably blur the line between academic medicine and the health care industry. In the Chronicle article, Dr Desmond-Hellmann declared, "I began my career at UCSF and my heart has never left it." If she does become Chancellor, let us hope that her heart will speak louder than all those millions she used to make by, among other means, charging more than $55,000 a year for bevacizumab.

Bio-Tech U

The San Francisco Chronicle just reported that a new Chancellor has been nominated for the University of California - San Francisco (UCSF). UCSF is functionally a health sciences university, and its C…

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04 May 2009

Hospital Board Members with "the Juice" in New Jersey

We recently <a href="http://hcrenewal.blogspot.com/2009/04/new-jersey-legislator-found-guilty-of.html">commented</a> on the conviction of a state legislator charged with selling his influence to a powerful local medical center. NorthJersey.com has a <a href="http://www.northjersey.com/news/njpolitics/humc042609.html">follow-up </a>on this story which shows how health care leaders are often members of the power elite, if not quite of the superclass, and how their machinations put this group's interests ahead of the mission of their health care organizations. The General Overview <blockquote> The trial of former state Sen. Joseph Coniglio, convicted in a bribery scandal involving Hackensack University Medical Center [<a href="http://humed.com/index.php?page=about">affiliated with UDMNJ</a>, which has had its own issues, e.g., <a href="http://hcrenewal.blogspot.com/2008/11/yet-more-investigations-of-umdnj.html">here</a>], exposed the hospital’s reach into the State House — and put a spotlight on the wealthy, influential men who serve as the hospital’s power brokers. Hackensack’s board members have connections and political muscle that extend far beyond the hospital. At black-tie fund-raisers and dinners at board member Joseph Sanzari’s Stony Hill Inn, business — hospital and otherwise — is on the agenda. Various board members help to underwrite Bergen County’s Democratic machine and powerful lawmakers in Trenton. They’re awarded many of the region’s public construction contracts. They have the network — and the money — to smooth over zoning issues for the hospital. Testimony at the trial this month showed they supported the hiring of Coniglio, who was convicted of steering millions in grants to Hackensack while on the hospital’s payroll. 'A political machine' is how Assistant U.S. Attorney Thomas R. Calcagni described the hospital as he told jurors about Hackensack’s relationships with former acting governor and Senate President Richard Codey, state Sen. Paul Sarlo, Coniglio and others during the trial. </blockquote> Board Members' Self-Dealing There are several results. One is that "some [board members] are also making money off the hospital." The article gave several examples of such conflicts of interest. <blockquote> A few examples from the hospital’s federal tax filings for 2007, the latest available: * Companies owned by Sanzari and Creamer are building a 975-car garage as part of the $135 million cancer center now under construction. Creamer was paid more than $475,000 by the hospital for construction services. * The hospital paid more than $2 million to Progenitor Cell Therapy, a private stem cell research company owned in part by Ferguson; Dr. Andrew Pecora, director of the cancer center; board members Peter C. Gerhard, George T. Croonquist and Samuel Toscano Jr.; and the hospital’s chief operating officer, Robert C. Garrett. * The hospital paid $2.5 million to lease space from Sanzari 2001, where board member David Sanzari — Joseph’s cousin — is a managing member with an ownership stake. It also spent $68,000 at the Marriott at Glenpointe hotel, which is owned by David Sanzari’s family. * The DeCotiis law firm, one of the most influential in the state, made more than $1 million from the hospital. It is representing the hospital in the Coniglio case and guiding its campaign to reopen Pascack Valley Hospital in Westwood. During that time, Frank Huttle III, a partner, served on the board. He said Friday that he resigned recently. * Universal Health, which operates a retail pharmacy at the hospital, received $200,000. At the time, Toscano was the company’s chief executive officer. </blockquote> Political Influence Disadvantages the Competition The membership of the hospital's leaders in the power elite could be used to advance the hospital against less-connected competitors. <blockquote> The Coniglio trial served as a primer on the backroom politics of New Jersey, where certain grants, known as 'Christmas tree items,' were doled out based on who has 'the juice.' By all accounts, Hackensack mastered the game and loomed large in Trenton. From 2004 to 2006, the hospital received $17.4 million for its cancer center, an extra $9 million in charity care above the millions it was already getting and $250,000 for the Joseph M. Sanzari Children’s Hospital. A $900,000 research grant was awarded to the private stem cell firm at the hospital and $70,000 went for a seat belt study. Those awards dwarf the grants given to Hackensack’s competitors. </blockquote> Connectedness of the Hospital's Board Members The article gave further examples of how connected were the board members, and how they used their connections. <blockquote> At Hackensack, a few names — Simunovich, Ferguson, Sanzari, Creamer — keep showing up in influential roles on key boards. They serve as trustees of the Hackensack University Medical Center Foundation, the hospital’s fund-raising arm, as well as the hospital’s board of governors and Hillcrest Health Service System, the hospital’s parent corporation. Leading contractors and developers — Sanzari, Creamer and John C. Fowler — are on the building committee. Simunovich is the former chairman of the board of governors and current chairman of the board of trustees for the Hackensack University Medical Center Foundation, the hospital’s fund-raising arm. Governor Corzine did not reappoint Simunovich to the Turnpike Authority in 2007 after he was investigated by the State Ethics Commission; as chairman, he had voted on millions in public contracts that were awarded to Sanzari while he accepted free rides on the contractor’s private jet. Simunovich paid a $50,000 fine, which was not an admission of guilt. 'Mr. Simunovich’s actions do not reflect the standards demanded by the governor for those who serve in his administration,' Corzine’s then-spokesman Anthony Coley said. Joseph Sanzari serves as first vice chairman, the No. 2 position on the hospital’s board of governors. Sanzari is part owner of both the Stony Hill Inn in Hackensack and the New Bridge Inn in New Milford, popular hangouts for Bergen County’s political elite. Sanzari, his companies and employees have contributed more than $100,000 to political campaigns and political action committees in the past three years, according to data the company provided to state elections regulators. Among his top employees is state Sen. Paul Sarlo, also the mayor of Wood-Ridge. Sarlo oversees billions in public spending as a lead member of the Senate Budget and Appropriations Committee. As chairman of the Senate Judiciary Committee, he also controls key appointments to state agencies that have awarded millions in contracts to Sanzari’s firms. Sarlo, chief operating officer for Sanzari’s construction company, testified at the trial that he was largely responsible for getting the $900,000 grant for the hospital’s cancer center. He said he also lobbied Codey for the $9 million cancer center grant and played a role in the $900,000 grant for stem cell research at the hospital. </blockquote>Conclusions Hospitals often have sterling reputations within their communities as selfless organizations devoted to improving the health of the people. As we have noted, hospitals and other health care organizations have come to be run more often by people with managerial background than those with health care experience. Not-for-profit hospitals have boards of trustees who are supposed to exercise stewardship, making sure the organization upholds its mission. But as we have noted before, e.g., <a href="http://hcrenewal.blogspot.com/2009/04/investment-bankers-strike-back.html">here</a>, boards of health care and related organizations may put their own agendas ahead of the mission. Furthermore, boards of big hospitals and other health care organizations seem to be increasingly composed of the well-connected, often to the point that they can be regarded as members of the power elite, if not the superclass. There may be some short term benefits to having such people on the boards. In the long run, however, is it any surprise that their missions may give way to other interests? Hat tip to <a href="http://www.margaretsoltan.com/?p=12174">University Diaries</a>. ADDENDUM (4 May, 2009) - Hackensack University Medical Center's <a href="http://www.politickernj.com/wallye/29412/humc-bans-record">response</a> to the news story discussed above was apparently first to stop advertising in the offending newspaper, and ban its sales in the hospital. Another example, almost laughable, of a health care organization's leadership trying to shoot the messenger, and of how the anechoic effect may be generated. Hat tip to the <a href="http://blog.lib.umn.edu/schwitz/healthnews/178972.html">Schwitzer Health News Blog</a>.

Hospital Board Members with "the Juice" in New Jersey

We recently commented on the conviction of a state legislator charged with selling his influence to a powerful local medical center. NorthJersey.com has a follow-up on this story which shows how healt…

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27 Apr 2009

More Gravity Defying Compensation for Not-for-Profit Health Care Leaders

Two recent articles featured more about gravity-defying compensation given to the leaders of not-for-profit health care organizations. We had recently <a href="http://hcrenewal.blogspot.com/2009/03/43-million-dollar-ceo-for-not-for.html">posted</a> about how the CEO of one not-for-profit health care insurer rose while the organization's revenue and enrollment fell. Similarly, <a href="http://www.detnews.com/apps/pbcs.dll/article?AID=/20090310/BIZ/903100328/1040">from the Detroit News</a>, <blockquote> Blue Cross Blue Shield of Michigan -- the state's largest insurer -- gave pay hikes to six top-level executives in 2008 and doled out generous retirement packages for four former senior vice presidents, despite the nonprofit organization's loss of $144 million last year. The organization's deteriorating financial health, a justification for Blue Cross officials wanting to raise rates on its line of individual insurance policies, had prompted widespread job cuts at the Detroit-based insurer. In January, Blue Cross said it needed to eliminate about a 1,000 positions. Despite those cuts, CEO Daniel Loepp received a compensation package of base salary, bonuses and other compensation totaling $1.8 million in 2008, up from $1.7 million in 2007. The CEO's bonus last year was $727,575, up from $696,777 in 2007, according to documents filed last week with the Michigan Office of Financial and Insurance Regulation. Blue Cross spokesman Andrew Hetzel said the 2007 to 2008 increase was to help bring Loepp's total compensation in line with CEOs at other comparable-size Blue Cross organizations nationwide. The retirement packages -- ranging from $3.1 million to $994,132 depending on the executive -- were for four senior vice presidents who'd each been with the organization an average of nearly two decades, Hetzel said. Hetzel added that all the senior level executives are taking pay cuts this year -- including a 5 percent reduction in their base salary. And the compensation packages for 2008 were set by the Blue Cross board at the end of 2007, Hetzel added, well before the organization saw need to cut its work force. </blockquote> Note how the pay of the top leaders of many health care organizations seems to defy gravity, going up faster than inflation, going up even when the organizations lose money, going up even when the organizations have to lay off workers. There is always an excuse. But in this case, once the miserable results of 2008 became clear, why could the board not re-assess the CEO's pay? Finally, note that even if there is a decrease in 2009, it is a decrease only compared to the elevated 2008 level. Locally, the <a href="http://www.blogger.com/thephoenix.com/Boston/News/76685-Health-cares-big-moneyman-in-New-England/?page=1#TOPCONTENT">Boston Phoenix assessed </a>the pay of the CEOs and other top leaders of all the states not-for-profit hospitals. Some of its main findings were - The compensation of the CEO of the state's biggest hospital system is higher than any other New England hospital CEO: <blockquote> Receiving almost $3 million in annual salary and benefits in each of the last two years, Lifespan CEO George Vecchione is the highest-paid health-care executive in New England. Vecchione collects almost $1 million more each year than the CEO at the region’s largest health care network, Partners HealthCare System in Boston, although Lifespan is much smaller than Partners, and New England’s second largest network, Caritas Christi Health Care, also in Boston. In 2007, only Lahey Clinic CEO David Barrett approached Vecchione’s compensation, thanks to a one-time supplemental retirement benefit of $1.5 million; even with that payment, Barrett received $300,000 less than the Lifespan leader. </blockquote> The compensation of many RI hospital CEOs, and of other RI hospital leaders is high compared with peers in other states, and has risen much faster than inflation: <blockquote> Modern Healthcare's executive compensation survey suggests that Vecchione is not the only Rhode Island health-care CEO who is paid well above the national median. When benefits, expenses, and long-term incentive plan payments are subtracted from Care New England CEO John Hynes's compensation package, the remaining $911,562 is well above the $570,000 median base pay and bonus paid to the 60 CEOs of small hospital networks surveyed in 2007. Once benefits, long-term incentive pay, and terminated life insurance payments are subtracted, Women & Infants Hospital CEO Constance Howes received $481,625 in 2007, and Kent County Memorial Hospital's Mark Crevier collected $551,799. Meanwhile, salary and bonuses for Rhode Island Hospital's Amaral ($693,477) and Miriam's Hittner ($572,132), were more than $100,000 above the national median. Several other Lifespan administrators received more than $500,000 in compensation in 2007: general counsel Kenneth Arnold ($623,902); treasurer Mary Wakefield ($672,057); chief physician Arthur Klein ($935,291); senior vice president for shared services Frederick Macri ($569,777); and Lifespan Physician Service Organization CEO Joel Kaufman ($542,162). No other Rhode Island hospital executives listed on the tax returns received more than $500,000. Salaries at the smaller community hospitals present a mixed picture. Modern Healthcare's 2007 median compensation at independent hospitals with revenues under $200 million is $350,500. The CEOs of Westerly and South County hospitals and Roger Williams Medical Center were well below the median, while St. Joseph's John Keimig was slightly above. The 2007 salary and bonuses, however, for Memorial Hospital's Francis Dietz ($572,000), Landmark Medical Center's Gary Gaube ($673,164), and Rehabilitation Hospital of Rhode Island's Richard Charest (440,593) were considerably above the median. Not only are compensation packages high, they have increased at incredible rates for some executives. Two Care New England executives watched their pay more than double over the last seven years, in part due to long-term incentive plan payments in 2007. Butler Hospital CEO Patricia Recupero's compensation grew 117 percent, while Hynes' pay increased 107 percent. In addition, Landmark Medical Center CEO Gaube's compensation increased 107 percent as his hospital slid into financial insolvency. The compensation for three other CEOs, Memorial Hospital's Dietz, Emma Pendelton Bradley Hospital's Daniel Wall, and Lifespan's Vecchione, increased between 90 and 99 percent over the last seven years. Three CEOs of Lifespan hospitals received lesser raises since 2000: Amaral (65 percent), Hittner (62 percent) and Newport Hospital's Arthur Sampson (55 percent). St Joseph Health Service CEO Keimig, who, like Amaral and Gaube, has resigned, received a 72 percent pay increase over seven years. </blockquote> CEO compensation has risen quickly even at institutions whose finances are failing: <blockquote> Increases in compensation for Gaube and Charest are among the most notable. In a December 2008 report, the state Department of Health labeled Landmark Rhode Island's financially weakest hospital. Landmark ran a small profit in 2004, but starting in 2005, the Woonsocket hospital slid into insolvency. In June 2008, the Rhode Island Superior Court appointed a special master to run the troubled institution. Landmark also owns 50 percent of the Rehabilitation Hospital of Rhode Island, where Charest served as president, as well as second in command to Gaube at Landmark. While the hospital ran in the red, however, Gaube and Charest continued to receive raises. A review of the hospital's tax returns indicates that Gaube's compensation increased 37 percent, or almost $200,000, from 2005 to 2007. Over the same two-year period, Charest's pay increased 32 percent, or more than $100,000. </blockquote> The article does provide some insight into the thinking of those in charge of awarding these bloated pay packages. For example, regarding the pay received by the Care New England CEO: <blockquote> 'John Hynes earns every penny,' says Care New England board chairman Jonathan Farnum, adding, that few people have the skill set to handle the job. He describes Hynes and Vecchione as workaholics who are always on call and constantly handling crises. 'The people are well-served,' Farnum says. 'I don't think they're [the CEOs] driven to maximize their own personal salaries.' </blockquote> What a peculiar argument to make in a health care context. Lots of people in health care work long hours and are on call frequently, and unlike a hospital CEO, may have to handle life and death decisions in the wee hours of the morning. And most of them make far less than Hynes, who was still not the highest paid leader in the Phoenix article. What really seems to be the rationale, in my humble opinion, is the belief that the work of executives is somehow much harder and more deserving than the work of anyone else, including physicians. Those who set executive pay were unmoved by the arguments that medicine and health care are callings, and that not-for-profit should not pay their executives comparably to the richest for-profit corporations: <blockquote> With 10,000 employees and $1 billion in revenue, Lifespan is more like a for-profit health-care institution, [Lifespan board chairman Alfred] Verrecchia says, adding, 'We wouldn't be paying any different if we were for-profit or not-for-profit.' Verrecchia also disputes the idea that high CEO salaries may discourage donations to the hospital. 'We're not receiving funds to manage day-to-day operating procedures at the hospitals,' he says. Fundraising pays for specific programs, he explains, like a new emergency or operating room. </blockquote> In response, let me just quote more of the Phoenix article: <blockquote> 'They may be able to persuade donors of that,' counters Alan Sager, a Boston University professor of health policy and management, 'but money is fungible. Money can be moved.' Sager adds, 'If the CEO gets $2.9 million, that's money the hospital can't use to underwrite care for uninsured or underinsured people.' Sager notes that 30 nurses could be hired with Vecchione's salary. 'Does this person do as much good in the world as 30 nurses?' he asks. 'I find that hard to believe.' </blockquote> The follow up to that may make the most important point of all: <blockquote> As president and CEO at Pawtucket-based toymaker Hasbro, Verrecchia was paid $8.4 million in 2006, and $16.5 million in 2007, according to Security and Exchange Commission documents. This is another part of the problem, says Sager: The corporate lawyers and executives who sit on hospital boards form 'a club' with the hospital executives, in which six- and seven-figure salaries are normal. The result, he says, is a 'financially combustible combination' for nonprofit hospitals. </blockquote> That really seems to be the bottom line. As hospitals become more like big businesses, their leaders identify more with the power elite, or the "superclass," than with their staff, much less their patients. Their sense of entitlement grows, and their understanding of the problems of ordinary people wanes. Whether their devotion to the healing (and sometimes academic) missions of their organizations can survive under these circumstances is open to question. (Note, for full disclosure: I am a part-time voluntary teaching attending at one of the Lifespan hospitals, if my position survives this posting.)

More Gravity Defying Compensation for Not-for-Profit Health Care Leaders

Two recent articles featured more about gravity-defying compensation given to the leaders of not-for-profit health care organizations. We had recently posted about how the CEO of one not-for-profit he…

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10 Mar 2009

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