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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

Unequal Justice Under Law - Comparing Cases of Alleged Misbehavior by Large Health Care Organizations and Individuals

How the wealthy and powerful have become able to play by a different set of rules than those affecting ordinary people may be the defining issue of our time.  Yesterday, President Obama's State of the Union message asked for an economy in which "everyone plays by the same set of rule."  We posted about how this issue, which got national attention due to the Occupy movement, affects health care <a href="http://hcrenewal.blogspot.com/2011/11/health-care-also-needs-to-challenge.html">here</a>. We have previously posted again and again about how the penalties for misbehavior by large US health care organizations seem to be so minimal as to be incapable of deterring future bad behavior (e.g., see <a href="http://hcrenewal.blogspot.com/search/label/legal%20settlements">posts</a> about legal settlements).  At most, corporations often pay fines that are no more than a cost of doing business.  They rarely have to admit guilt, and when they do, it is usually to a relatively trivial charge.  The people who authorized, directed, or implemented the bad behavior almost never suffer any negative consequences.  Thus, the leaders of large US health care organizations seem to have <a href="http://hcrenewal.blogspot.com/search/label/impunity">impunity</a>. Similar complaints have been made about the lack of accountability of the leaders of the finance firms that lead us into the global financial crisis, or great recession.  However, while I have reviewed now hundreds of stories about such minimal organizational punishments, I have also seen hundreds of stories discovered by my automatic news searches of much more severe penalties paid by individuals who have been accused of similar misbehavior.  I have never previously made an explicit comparison of how health care corporate and individual misbehavior are handled. A recent set of examples of organizational misbehavior invites such a comparison.  Here they are, in chronological order. KV Pharmaceutical On December 6, 2011, the St Louis Post Dispatch <a href="http://www.stltoday.com/business/local/kv-pharmaceutical-agrees-to-million-settlement-with-doj/article_3c947aee-2054-11e1-8c50-001a4bcf6878.html">reported</a>: <blockquote>KV Pharmaceutical Co. has agreed to pay $17 million to federal and state authorities to settle Justice Department allegations that it defrauded federal health care programs. The settlement resolves allegations that KV, as the Bridgeton-based parent company of now-defunct Ethex Corp., misrepresented the regulatory status of two of its drugs that did not qualify for coverage under federal health care programs, the Justice Department said today. The Justice Department alleges that Ethex submitted false quarterly reports to the federal Centers for Medicare and Medicaid Services related to the two drugs: nitroglycerin extended release capsules and hyoscyamine sulfate extended release capsules.</blockquote> Company leadership made the usual sort of comment. CEO Greg Divis said: <blockquote>The closure of this matter is another step forward as KV moves ahead as a women's healthcare focused branded specialty pharmaceutical company.</blockquote>Corporate leaders seem to love putting such unpleasantness in the past and moving on, especially when they personally are not held accountable for the previous misbehvior. Note that this is just the latest settlement for KV Pharmaceutical: <blockquote>KV shut down Ethex after the subsidiary pleaded guilty in March 2010 to two felony counts of criminal fraud for failing to report to the Food and Drug Administration that it was making oversize drugs - and drew $27.6 million in fines and restitution.</blockquote> Catholic Healthcare West, Sutter Health On December 8, the Sacramento Bee <a href="http://www.sacbee.com/2011/12/08/4107855/chw-sutter-pay-23-million-to-settle.html">reported</a>: <blockquote>Two of Sacramento's biggest health care players paid a combined $2.3 million to the federal government to settle allegations that 61 of their hospitals double-billed Medicare for therapies and services, U.S. Department of Justice officials announced Wednesday. Catholic Healthcare West paid more than $875,000 and Sutter Health nearly twice that – more than $1.43 million – for alleged duplicate charges for infusion therapies and treatments to break up kidney and bladder stones, in what Lauren Horwood, a spokeswoman in the Sacramento U.S. attorney's office, called 'a significant settlement.'</blockquote> As usual, <blockquote>Officials at the two health networks admitted no wrongdoing in agreeing to the settlement, Horwood said. No charges will be filed.</blockquote> Again, however, this was not the first such issue to affect these large non-profit organizations: <blockquote>In 2006, Sutter Health agreed to grant discounts and refunds to uninsured patients the network was accused of overcharging, stemming from a 2004 class-action lawsuit.</blockquote> Blue Shield (California) On December 29, 2011, the Los Angeles Times <a href="http://articles.latimes.com/2011/dec/29/local/la-me-blue-shield-20111229">reported</a>: <blockquote>More than a year after the healthcare reform law sought to prevent sick patients from losing medical coverage, insurers are still paying for their alleged abuses. Blue Shield has agreed to pay $2 million to resolve accusations that the company improperly dropped policyholders after they got sick and needed expensive treatment. The settlement, announced Wednesday by Los Angeles City Atty. Carmen Trutanich, ends an investigation into more than 1,000 so-called rescissions by Blue Shield, a San Francisco-based not-for-profit company.</blockquote> As usual, there was no admission of guilt, and a company spokesperson claimed that while the company decided to pay out the money in response to the allegations, it, of course, was blameless: <blockquote>Blue Shield spokesman Steve Shivinsky said the firm settled to avoid litigation. 'Our process meets or exceeds all legal and regulatory requirements,' Shivinsky said in a statement. 'In every instance, we provide immediate notice, ensure multiple layers of review, involve a medical director in the decision, give members an opportunity to provide additional information before we take any action, and follow the guidance of an independent third party review.'</blockquote> Note that rescission is now against US federal law: <blockquote>President Obama made rescission a central theme in his push for a healthcare overhaul. In September 2010, a ban on rescissions for unintentional application errors became one of the first pieces of the healthcare law to take effect.</blockquote> GE Healthcare On December 29, 2011, the Detroit Free Press reported (<a href="http://www.usatoday.com/money/industries/health/story/2011-12-29/ge-healthcare-settlement-30-million-dollars/52268818/1">via</a> USA Today): <blockquote>Pharmaceutical giant GE Healthcare will pay $30 million to the U.S. Department of Justice to settle claims in a case filed by a Michigan salesman, alleging one of its companies marketed a diagnostic drug used in cardiology tests as one that could be diluted and stretched to more patients than intended.</blockquote> Not surprisingly, <blockquote>GE admitted no wrongdoing in the settlement. </blockquote> This was despite the fact that the actions alleged may have harmed patients as well as defrauding the government: <blockquote>For patients, the diluted product resulted in more false positives during cardiology tests and exposed them to additional and unnecessary testing....</blockquote>We have <a href="http://hcrenewal.blogspot.com/search/label/General%20Electric">posted previously</a> about some previous questionable behavior by GE in the health care sphere. Actavis On January 3, 2012, Bloomberg <a href="http://www.businessweek.com/news/2012-01-03/actavis-to-pay-84-million-to-end-medicaid-drug-pricing-suit.html">reported</a>: <blockquote>Two units of Actavis Group Hf will pay $84 million to settle a lawsuit over drug pricing, Texas officials said, less than half the amount an Austin jury said the company should pay. The state accused Actavis Mid-Atlantic LLC and Actavis Elizabeth LLC, subsidiaries of the Iceland-based company’s U.S. division, of inflating billings to the Texas Medicaid program by falsely reporting drug prices. The state court jury in February ordered the units to pay the state $170 million. The settlement resolves that litigation, Texas Attorney General Greg Abbott said today in a statement.</blockquote> Note that Medicaid is a joint federal-state insurance program for the poor. The company's statement had a familiar ring to it: <blockquote>'Actavis denies any and all wrongdoing, and denies that it has any liability relating to the Texas judgment,' the company and the state said in the settlement agreement. The parties reached a settlement 'to avoid the delay, uncertainty, inconvenience and expense of continuing the litigation.'</blockquote> Nothing to see here, just move along. Denver Health Medical Center On January 5, 2012, the Denver Post <a href="http://www.denverpost.com/breakingnews/ci_19680861">reported</a>: <blockquote>Denver Health Medical Center will pay $6.3 million to federal and state officials for overbilling Medicare and Medicaid, state and U.S. attorneys said. After investigating a whistleblower's lawsuit, government officials said Denver Health was classifying patients with an "inpatient" status when it should have been listing them as 'outpatient' or under 'observation' status, which paid less under government rules.</blockquote> Oops, missing from this story was the pro forma denial of blame, wrongdoing, misconduct by organizational leadership. However, the Denver Business Journal was <a href="http://www.bizjournals.com/denver/news/2012/01/05/denver-health-settles-medicare.html">able to add that</a>: <blockquote>Denver Health, in a statement, said it and the government agreed to the settlement to avoid 'protracted litigation' over the allegations. It did not admit guilt in agreeing to the settlement.</blockquote> Of course, again despite having to pay millions, the organization asserted that it is fine and upstanding: <blockquote>'Denver Health has, and will continue to, strive to ensure that its billing systems are accurate,' the hospital said in a statement, adding that the hospital has implemented a system to correct and improve billing accuracy.</blockquote> Whoever wrote the statement seemed to overlook the implication that flowed from the need to "correct" the system. CVS Caremark On January 12, 2012, the Baltimore Sun <a href="http://articles.baltimoresun.com/2012-01-12/business/bal-consuming-interests-cvs-caremark-settles-deceptive-pricing-charge-for-5-million-20120112_1_cvs-caremark-drug-pricing-information-drug-plan">reported</a>: <blockquote>The Federal Trade Commission announced that CVS Caremark Corp. agreed to pay $5 million to settle a complaint that it misinformed seniors about the price of certain Medicare Part D prescription drugs sold through CVS and Walgreens pharmacies. The action by the company, according to the FTC, caused seniors and consumers with disabilities to pay significantly more for drugs. It also pushed them more quickly into the so-called 'doughnut hole,' in which drug costs aren’t covered by the federal program.</blockquote> Despite its multimillion dollar payment, the company admitted no guilt, of course, and asserted its exemplary corporate citizenship: <blockquote>CVS Caremark released a statement: 'During the course of this two year investigation, our company cooperated fully with the FTC and provided to the government millions of documents as well as access to numerous members of our management team who participated in voluntary interviews and depositions,' said Douglas A. Sgarro, Executive Vice President and Chief Legal Officer of CVS Caremark.</blockquote> He also took comfort from the fact that there were not even more charges: <blockquote>It is important to note that, at the conclusion of this comprehensive investigation, the FTC made no allegations of antitrust law violations or anti-competitive behavior associated with any of our business practices, products or service offerings.</blockquote> Stryker Corp On January 18, 2012, Bloomberg <a href="http://www.bloomberg.com/news/2012-01-18/stryker-biotech-pleads-guilty-to-misbranding-charge-pays-15-million-fine.html">reported</a>: <blockquote>A Stryker Corp. (SYK) unit agreed to plead guilty and pay a $15 million fine while the medical-device maker was on trial on charges it marketed an unapproved mixture of products for strengthening human bone growth. The unit, Stryker Biotech, and three Stryker sales representatives were on trial in federal court in Boston on a 13-count criminal indictment claiming conspiracy and wire fraud. The trial began Jan. 9 with jury selection. Stryker Biotech agreed to plead to one misdemeanor count of misbranding a medical device, according to a letter dated yesterday from the U.S. Attorney’s Office in Boston and filed with the federal court. </blockquote> This did involve an admission of guilt, but to what amounts to a financial violation when there were allegations that patients may have been harmed: <blockquote>The U.S. had charged Stryker Biotech with misbranding and its sales force with conspiring to defraud surgeons into combining the company’s OP-1 and OP-1 Putty with the bone filler Calstrux. Some patients suffered adverse side effects and required more surgery, the U.S. said. 'That mixture was never studied clinically,' Assistant U.S. Attorney Susan Winkler told the jury in her opening statement on Jan. 12. 'They did not know if it worked. They did not know if it was safe, and they marketed it to doctors anyway.' </blockquote> Interval Summary We have presented eight cases in which  major US health care organizations settled cases involving allegations of financial gain under false pretenses. Nearly all involved US federal charges, and the others included alleged misbehavior that affected a federal program or that now would be illegal under federal law. All the cases were resolved with fines over $1 million. However, while these fines may seem big to most people, they were trivial compared to the revenues of the organizations. None of the settlements involved any penalties to actual people who authorized, directed, or implemented the misbehavior. No individuals at any of the involved organizations admitted any mistakes, much less wrong doing. While the volume of such settlements indicates the prevalence of misbehavior by large health care organizations, it is not clear that their results, which amount to slaps on corporate wrists, have any deterrent effect. In comparison, see what happens when little people obtain money from the government under false pretenses. I found a convenience sample of such cases reported in the last month through a Google search. Vasquez On January 9, the San Francisco Chronicle <a href="http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2012/01/09/state/n193158S68.DTL">reported</a>: <blockquote>A Los Angeles woman who pleaded guilty to committing $6.2 million in Medicare fraud has been sentenced to 5 years in prison. Federal Health and Human Services officials say 47-year-old Carolyn Ann Vasquez has also been ordered to pay $6.2 million in restitution. Vasquez admitted to conspiring with others to use a series of fraudulent Los Angeles-area medical clinics to defraud the federal health care insurance program for people over age 65 and the disabled. Between 2007 and 2008, Vasquez obtained a physician's personal information and Medicare provider number and used it to print prescription pads. She then had a physician's assistant, David Garrison, write fraudulent prescriptions for pricey medical equipment.</blockquote> Curtis On January 7, 2012, the [Jacksonville] Florida Times-Union <a href="http://jacksonville.com/news/georgia/2012-01-07/story/leader-medicare-fraud-scheme-gets-3-years-6-months-prison">reported</a>: <blockquote>A federal judge sentenced the would-be owner of a Brunswick prosthetic business to three years and six months in prison for his organization and leadership of a scheme that defrauded Medicare of more than $250,000.</blockquote> Also, <blockquote>In addition to prison, Wood sentenced Curtis to repay $254,750.94 to Health and Human Services and serve three years’ probation. She dismissed eight other counts as part of his plea agreement.</blockquote> In stark contrast to the stories above about cases of fraud involving large health care organizations: <blockquote>Samuel Curtis III, who had submitted false claims from Preferred Prosthetics and Orthotics in Brunswick and Team Orthotics and Prosthetics of Houston, had pleaded guilty in July to conspiring to commit health care fraud. Curtis, 38, apologized and asked U.S. District Judge Lisa Godbey Wood for leniency during his sentencing hearing Friday.</blockquote> Popov On January 12, 2012, the Sacramento Bee <a href="http://blogs.sacbee.com/crime/archives/2012/01/doctor-posing-as-sacramento-clinic-owner-sentenced-in-scam.html">reported</a>: <blockquote>A Los Angeles physician who assumed the role as co-owner of a Sacramento medical clinic has been sentenced to federal prison for his participation in a Medicare fraud scam. Alexander Popov, 47, was sentenced today by U.S. District Judge Morrison C.England Jr. to eight years and one month in prison for committing health care fraud and conspiring to commit health care fraud, according to a federal Department of Justice news release. He was found guilty by a jury in July. In sentencing, Judge England found that Popov was responsible for more than a million dollars in fraudulent billings submitted to Medicare and more than $600,000 in payments made on false claims. Evidence at trial showed that Popov gave false testimony and manufactured evidence at trial, amounting to an obstruction of justice, officials said.</blockquote> Also, <blockquote>Vardges Egiazarian previously pleaded guilty in the case and is serving 78 months in prison. </blockquote> Applebaum On January 20, 2012, Medscape <a href="http://www.medscape.com/viewarticle/757251">reported</a>: <blockquote>A former Idaho psychiatrist was ordered to pay nearly $95,000 in a legal judgment this week, adding to a prison sentence of up to 5 years, which he received in November for obstruction and falsifying records relating to Medicaid fraud. The judgment, obtained by the US Attorney's Office against Michael Applebaum, MD, of Nampa, Idaho, involved a civil lawsuit in which he was accused of submitting false Medicare and Medicaid claims for undocumented and ineligible services from 2004 through 2009. Prosecutors claimed Dr. Applebaum failed to properly document services for approximately 502 claims, including falsifying service dates on 49 claims to make them appear eligible for reimbursement under Medicaid's rule of submitting claims within 12 months of the date of service.</blockquote> Summary As we noted above, if a large organization, such as a hospital system, pharmaceutical company, or health insurance company is accused of fraud against the government, the outcome is likely to be a large fine that is nonetheless small compared with the organization's revenue, no admission of guilt or responsibility, and no penalties for any individuals who authorized, directed or implemented the misbehavior. However, if an individual or small business is accused of such fraud, the results are likely to include fines sufficient to bankrupt either, admissions of guilt, and years of jail time. Yet such actions by large organizations are likely to be more harmful to individuals and society than those of individuals or small businesses. This seems like a glaring, stark example of unequal justice in health care. If an individual does something bad in a health care context, the punishment is likely to be severe and life altering. If an individual who is a leader of a large health care organization does something equally bad, he or she is likely to receive no punishment at all. This is an example that ought to unite the left and the right, liberals and libertarians in outrage. Liberals are supposed to believe in the rights of the individual and economic justice. Libertarians are supposed to believe in economic freedom and the economic rights of the individual. In this example, the government and large corporations seem to have gotten together to let corporate leaders play by different rules than individuals. Corporate leaders seem to be above the law, the same law that can ruin individuals who violate it. If we really want to reform health care, we need to make sure that its rules apply equally to all individuals, whether humble or rich, whether they are individual professionals of corporate CEOs. As long as the rich and powerful can play by different rules, we only fuel cynicism and anger. Down that road lies disaster.

Unequal Justice Under Law - Comparing Cases of Alleged Misbehavior by Large Health Care Organizations and Individuals

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25 Jan 2012

They Think We are "Imbeciles," and They Run Health Care Organizations

Arrogance seems to fuel many of the problems with health care leadership that we discuss, particularly <a href="http://hcrenewal.blogspot.com/search/label/mission-hostile%20management">hostility to the mission</a>, often driven by self-interest; a sense of entitlement to <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">lavish compensation</a> out of proportion to any measure of performance; and a lack of <a href="http://hcrenewal.blogspot.com/search/label/accountability">accountability</a> shading into <a href="http://hcrenewal.blogspot.com/search/label/impunity">impunity</a>.  Some recent stories hint at some of the origins of such arrogance.  The Occupy Wall Street movement drew attention to the plight of the poor and middle class, who had lost income, retirement benefits, jobs, houses, and access to health care while the richest, especially corporate executives, got richer.  The less fortunate's anger was not directed indiscriminately at the successful or the rich, but those who got wealthy by gaming the system, or flaunting the rules that lesser mortals had to obey.  Perhaps not surprisingly, some of those most vulnerable to such criticism have responded with contempt.  Anonymous or Indirect Defenses of the One Percent The initial defense of the plutocrats came from some of their political supporters, who denounced their "demonization" (see this <a href="http://www.washingtonpost.com/opinions/rich-people-demonized-for-flaunting-their-wealth-are-under-attack/2011/09/28/gIQAcJn4AL_story.html">opinion piece</a> by Barbara Ehrenreich in September, 2011) or decried the rise of "mob rule" (see <a href="http://www.nytimes.com/2011/10/10/opinion/panic-of-the-plutocrats.html">this</a> by Paul Krugman in October).  Then several articles documented the anonymous complaints of finance insiders about: <blockquote>a bunch of whiny people who are lazy and incompetent and have nothing to do with their time</blockquote>from a Reuters <a href="http://www.reuters.com/article/2011/10/11/us-usa-wallstreet-bankers-idUSTRE79A4LF20111011">article</a> in October. <blockquote>a ragtag group looking for sex, drugs and rock 'n' roll</blockquote>from a NY Times <a href="http://www.nytimes.com/2011/10/15/business/in-private-conversation-wall-street-is-more-critical-of-protesters.html">article</a> in October. The Plutocrats Strike Back However, increasingly those in the one percent are willing to be open. In late December a Bloomberg <a href="http://www.businessweek.com/news/2011-12-28/bankers-join-billionaires-to-debunk-imbecile-attack-on-top-1-.html">article</a> documented the sentiments of a number of finance and other corporate leaders. - Jamie Dimon, CEO of JP Morgan Chase, complained: <blockquote>Acting like everyone who's been successful is bad and because you're rich you're bad, I don't understand it.</blockquote> - Bernard Marcus, founder of Home Depot: <blockquote>Who gives a crap about some imbecile? Are you kidding me?</blockquote> - John A Allison IV, Chairman of BB&T: <blockquote>'Instead of an attack on the 1 percent, let’s call it an attack on the very productive,' Allison said. 'This attack is destructive.'</blockquote> - Stephen Schwarzman, CEO of the Blackstone Group: <blockquote>'You have to have skin in the game,' said Schwarzman, 64. 'I’m not saying how much people should do. But we should all be part of the system.'</blockquote> - John Paulson, President of hedge fund Paulson & Co: <blockquote>has also said the rich benefit society. 'The top 1 percent of New Yorkers pay over 40 percent of all income taxes,...'</blockquote> - Tom Galisano, founder of Paychex Inc: <blockquote>If I hear a politician use the term ‘paying your fair share’ one more time, I’m going to vomit</blockquote> - Ken Langone, founder of Home Depot: <blockquote>I am a fat cat, I’m not ashamed</blockquote> Considering how <a href="http://www.nytimes.com/2011/10/10/opinion/panic-of-the-plutocrats.html">Paul Krugman explained </a>the generation of the global financial collapse by <blockquote>people who got rich by peddling complex financial schemes that, far from delivering clear benefits to the American people, helped push us into a crisis whose aftereffects continue to blight the lives of tens of millions of their fellow citizens. Yet they have paid no price. Their institutions were bailed out by taxpayers, with few strings attached. They continue to benefit from explicit and implicit federal guarantees — basically, they’re still in a game of heads they win, tails taxpayers lose. And they benefit from tax loopholes that in many cases have people with multimillion-dollar incomes paying lower rates than middle-class families. </blockquote>Thus the responses by the very rich above only represent some or more arrogance. The Plutocrats as Health Care Leaders One wonders how much this arrogance carried over into health care. We have <a href="http://hcrenewal.blogspot.com/2011/10/health-cares-99-percenters.html">noted previously</a> how the leadership of finance has increasingly overlapped the leadership of health care, and how top executives increasingly seem to identify more with each other than with their employees, customers, or other stakeholders. Therefore, it should be no surprise that all but one of the group above also had or have leadership roles in health care organizations. - Jamie Dimon is on the <a href="http://www.med.nyu.edu/about-us/who-we-are/medical-center-leadership/trustees">board of trustees of the New York University Langone Medical Center</a>.  - Bernard Marcus formerly served as the chair of the <a href="http://www.cdcfoundation.org/who/board">board of the CDC Foundation</a>. - John A Allison IV is a member of the board of visitors of Wake Forest University Baptist Medical Center, per <a href="http://bbt.mediaroom.com/index.php?s=18&item=94">his BB&T Corp official biography</a>. - Stephen Schwarzman's Blackstone Group includes the Blackstone Healthcare Group, which invests in various health care corporations (as of 2010, Nycomed, Gerresheimer, Stiefel Laboratories, and Catalant per <a href="http://www.blackstone.com/cps/rde/xchg/bxcom/hs/news_pressrelease_6354.htm">this press release</a>), and all of whose members serve on one or more boards of directors of health care corporations (per the <a href="http://www.blackstone.com/cps/rde/xchg/bxcom/hs/news_pressrelease_6354.htm">press  release</a>, Arthur Higgins serves on the boards of Zimmer, Eco Labs, and Resverlogix Corp; Lodewijk J R de Vink serves on the <a href="http://www.roche.com/about_roche/management/board_of_directors/board_of_directors-devink.htm">board of Roche</a>; Doug Rogers serves on the <a href="http://www.codevax.com/n/who.html">boards of Codevax</a>, Charles River Laboratories, and Computerized Medical Systems.) - John Paulson is on the <a href="http://www.nyu.edu/about/leadership-university-administration/board-of-trustees.html">board of trustees of New York University</a>, - Kenneth G Langone, is vice chair again of the board of trustees of New York University, and chair of the board of trustees of the NYU Langone Medical Center. I submit that linking their sentiments above to their leadership roles in health care should be highly disconcerting.  Do we want people running medical centers who are proud to be "fat cats?"  Do we want people running medical centers who do not understand why people who have lost income, retirement funds, jobs or their homes might be upset?  Do we want people running health care corporations who do not think the poor and middle-class have any skin in the economic game?   Do we want people running health care foundations who think that those who complain about the current economic situation are "imbeciles?" Summary The problems of health care increasingly seem to be a part of the larger problems with the global political economy.  The problems we have been discussing that affect health care leadership seem to have come out of the culture of what now many are calling the larger plutocracy.  So it now seems that true health care reform will require a larger reform of the political economy.  However, we still need leaders who understand the health care context, uphold health care professionals' values, and put patients first.  We do not need leaders who are ill-informed, incompetent, self-interested, conflicted, or corrupt.  We need governance that is accountable, honest, transparent, ethical, and again puts patients first.

They Think We are "Imbeciles," and They Run Health Care Organizations

Arrogance seems to fuel many of the problems with health care leadership that we discuss, particularly hostility to the mission, often driven by self-interest; a sense of entitlement to lavish compens…

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29 Dec 2011

Health Care Also Needs to Challenge "Crony Capitalism," the "New Gilded Age, and "the Idolatry of the Market"

The increasing size and scope of the "Occupy Wall Street" movement, and continuing instability in the finance system, most recently due to the threatened default of Greece, and resulting problems with the Euro, and now the bankruptcy of yet another prominent financial firm, MF Global, has lead to renewed discussion of what has gone wrong with the greater political economy. As I have perused some of it, I noted distinct parallels with the some of the discussion we have had about what has gone wrong with health care.  In fact, at the root of health care dysfunction appear to be the dysfunction of the greater political economy. Few in the One Percent Deserved the Money A dominant slogan of the "Occupy" movement is "we are the 99 percent," that is <blockquote>'We are the 99 percent,' is the continuing chant of the protesters, who are now in their seventh week of marching through the streets of Manhattan. And, surprisingly, they have hit upon the crux of America's problems with precisely this sentence. Indeed, they have given shape to a development in the country that has been growing more acute for decades, one that numerous academics and experts have tried to analyze elsewhere in lengthy books and essays. It's a development so profound and revolutionary that it has shaken the world's most powerful nation to its core. Inequality in America is greater than it has been in almost a century. Those fortunate enough to belong to the 1 percent, made up of the super-rich, stand on one side of the divide; the remaining 99 percent on the other. Even for a country that has always accepted opposite extremes as part of its identity, the chasm has simply grown too vast.</blockquote>[Schulz T] The One Percent are Mostly Salaried Corporate Executives Contrary to some propaganda, many in the one percent are not entrepreneurs, but corporate employees, albeit special ones. <blockquote>Also cited as factors contributing to the rapid growth of income at the top were the structure of executive compensation....</blockquote>[Pear R] In Health Care - We have frequently discussed the outsized compensation given to a few top executives. CEOs of for-profit health care corporations may make tens of millions of dollars a year (<a href="http://hcrenewal.blogspot.com/2011/10/peer-benchmarking-lake-wobegone-effect.html">here</a> is a recent example, and many similar stories can be found <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">here</a>.) Even CEOs of non-profit hospital systems can make millions of dollars a year. (See <a href="http://hcrenewal.blogspot.com/2011/09/highly-paid-skilled-executives-and.html">this recent example</a>, then go <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">here</a> for more.) Thus, a fair number of the one percent are likely to be from health care, and most of those at the top are likely to be current or former top hired executives. The One Percent's Wealth May be More Due to Luck than Skill, Intelligence, or Creativity According to a recent simulation study, <blockquote>by the 'inexorable effect of chance,' and chance alone, 'a small proportion of entrepreneurs come to possess essentially all of the wealth. ... The concentration of wealth occurs merely because some individuals are lucky by randomly receiving a series of high growth rates, and once they are ahead with exponentially growing capital, they tend to stay ahead.' According to Fargione, greater variation in rates of return hastened the concentration of wealth. Inequality grows with time. Wealth concentration continues despite periods of recession and depression.</blockquote>[Breining G] In Health Care-No similar study has been done in health care. However, we have documented many cases in which top health care executives' compensation seemed to have nothing to do with their skill, originality, or ability to uphold the health care mission. How "peer benchmarking," and the "Lake Woebegone Effect" account for immense compensation despite bad results was discussed <a href="http://hcrenewal.blogspot.com/2011/10/peer-benchmarking-lake-wobegone-effect.html">here</a>. A recent series of cases (with links to others) of hospital CEOs who prospered while their institutions' finances decayed was <a href="http://hcrenewal.blogspot.com/2011/08/more-executives-prospering-despite.html">here</a>. The One Percent Gamed the System, and Personally Profited from Perverse Incentives <blockquote>Most fundamentally, what protest groups on the left and the right share with less activist middle-class Americans -- the apolitical voters who often decide elections -- is an abiding sense that the bond between work and reward has been broken. Huge financial rewards are given to executives who fail miserably and get fired. Debt relief programs help not only those who have fallen behind through no fault of their own, but also the profligate who lived beyond their means. The list goes on: What’s inflaming voters isn’t so much inequality per se, though that’s certainly a symptom of the problem. It’s the fact that the rewards in our economic system seem increasingly divorced from American values of hard work, risk taking and innovation. Instead, these benefits are more and more likely to be awarded on the basis of connections and political power. </blockquote>[Klain R] In Health Care-We have seen not merely cases of top health care leaders paid a lot of money for mediocre financial results. We have seen cases in which leaders got outsize pay despite evidence of organizational misconduct, or even crime. For example, see posts <a href="http://hcrenewal.blogspot.com/2011/09/johnson-and-johnson-pleads-guilty.html">here</a>, <a href="http://hcrenewal.blogspot.com/2011/08/why-cultivate-weldons-confidence-ceo.html">here</a> and <a href="http://hcrenewal.blogspot.com/2011/03/despite-recalls-legal-settlements.html">here</a> that contrast one company's multiple legal settlements and guilty pleas and its CEO's eight-figure compensation. The One Percent Deny Accountablity While Blaming Others for the Problems They Produce Based on a as yet unpublished survey of top finance leaders in London, its leader, Rev Andrew Studdert-Kennedy, <blockquote>said he had been 'astonished' by the attitudes of some City workers displayed towards the financial crisis. He said, 'I did speak to many people about morality. I was amazed by how many banking crises there had been and how sanguine people were about them. A number of people said 'this is just what happens - it's the nature of banking, it's the nature of capitalism.' 'It's one thing having historical perspective, but I was astonished that people didn't try to learn a bit more. There is a recognition that there is something wrong, but a reluctance to admit they are part of the problem.'</blockquote>[Brady et al] In addition, <blockquote>Talk to most bank executives and they’ll still place the blame for the 2008 financial crisis on 'irresponsible consumers' who took out mortgages they couldn’t afford; dishonest mortgage brokers; and—at the top of the list—the government, which used Fannie Mae and Freddie Mac to finance mortgage lending to 'people who shouldn’t own homes,' as one senior New York bank executive put it to me recently. All of which is partly true but omits the enthusiasm with which Wall Street feasted on that market, and the fact, as Warren puts it, 'that Wall Street made tens of billions of dollars' from it. In short, there is no remorse, let alone a sense of obligation, because bank executives generally do not believe they were the cause of the financial collapse. As Neil Barofsky, Treasury’s former inspector general charged with oversight of TARP, the $700 billion government bailout of the banks, recalls from his interviews with bankers, the attitude instead was that 'shit happens.' The state of denial has been massive. On Wall Street today, says the vice-chairman of a private-equity firm, 'there is this enormous persecution complex in the banking industry about Dodd-Frank, that everyone is going after the banks.'</blockquote>[Andrews S] In Health Care-Health care leaders and their apologists sometimes cite their awesome responsibility as a rationale for their outrageous compensation. Yet while health care leaders often decry the state of the health care system, I have yet to hear one take any responsibility for what has gone wrong. Meanwhile, Wendell Potter has described how the leaders of one part of health care, health insurance and managed care, set up elaborate but stealthy public relations campaigns to blame the problems of health care mainly on patients and doctors, but certainly not the health insurance or managed care (see post <a href="http://hcrenewal.blogspot.com/2011/03/millions-to-health-insurance-ceos-but.html">here</a>). This echoes how top finance leaders blame their industry's problems on feckless consumers. The One Percent are Not Held Accountable, and Have De Facto Impunity <blockquote>So, yes, we face a threat to our capitalist system. But it’s not coming from half-naked anarchists manning the barricades at Occupy Wall Street protests. Rather, it comes from pinstriped apologists for a financial system that glides along without enough of the discipline of failure and that produces soaring inequality, socialist bank bailouts and unaccountable executives. </blockquote>[Kristof ND] <blockquote>In our article in the last issue,1 we showed that, contrary to the claims of some analysts, the federally regulated mortgage agencies, Fannie Mae and Freddie Mac, were not central causes of the crisis. Rather, private financial firms on Wall Street and around the country unambiguously and overwhelmingly created the conditions that led to catastrophe. The risk of losses from the loans and mortgages these firms routinely bought and sold, particularly the subprime mortgages sold to low-income borrowers with poor credit, was significantly greater than regulators realized and was often hidden from investors. Wall Street bankers made personal fortunes all the while, in substantial part based on profits from selling the same subprime mortgages in repackaged securities to investors throughout the world. Yet thus far, federal agencies have launched few serious lawsuits against the major financial firms that participated in the collapse, and not a single criminal charge has been filed against anyone at a major bank. The federal government has been far more active in rescuing bankers than prosecuting them.</blockquote>[Madrick J et al] In Health Care-We have gone on endlessly how despite numerous examples of unethical or even criminal behavior by health care organizations, almost never has any individual who authorized, directed or implemented the bad behavior suffered any negative consequences. (Look <a href="http://hcrenewal.blogspot.com/search/label/crime">here</a> and <a href="http://hcrenewal.blogspot.com/search/label/legal%20settlements">here</a>.) The One Percent Have Captured Government The most important reason for the unaccountability of the one percent is regulatory capture, leading to corporatism: <blockquote>much as the economic giants of the Gilded Age developed such enormous influence that they could dictate basic political conditions, today's Wall Street bosses and CEOs have successfully arranged extensive deregulation for their industries. Indeed, he argues that this is the only thing that can explain how hedge fund managers suddenly started making billions of dollars a year. Former Citigroup CEO Sanford Weill, for example, kept a framed pen in his office as a symbol of his influence. It was the pen President Bill Clinton -- at Weill's instigation -- used in 1999 to sign into law legislation repealing the provisions in the Glass-Steagall Act of 1933 that separated the transactions of investment and commercial banks. At the same time, Bartels writes, the wealthy receive enormous tax breaks worth hundreds of billions of dollars. </blockquote>[Schulz T] In Health Care- We have discussed <a href="http://hcrenewal.blogspot.com/search/label/regulatory%20capture">regulatory capture</a>, <a href="http://hcrenewal.blogspot.com/search/label/embedded%20networks%20of%20influence">embedded networks of influence</a>, and <a href="http://hcrenewal.blogspot.com/search/label/corporatism">corporatism</a> in health care. Summary The articles I summarized above called for the need to "save capitalism from crony capitalists," [Kristof ND], and to seize "the high political ground" by "reform that lessens the influence of money in politics and government," and to strengthen "the bonds between work and reward," [Klain], and to end the impunity of the wealthy [Madrick et al]. A Vatican Council has <a href="http://www.zenit.org/article-33718?l=english">called</a> for the end of the "idolatry of the market," the "ethic of solidarity," and the "primacy of the spiritual and the ethical," and of "politics - which is responsible for the common good - over the economy and finance." This has also been supported by the Archbishop Of Canterbury. In parallel, as we have said again and again, true health care reform requires competent, ethical leadership that upholds health care's core values within a governance structure of accountability, integrity, transparency, and honesty. Tackling the deep problems in health care will require tackling the deeper problems in the global political economy which helped to generate them. References Andrews S. The woman who knew too much. Vanity Fair, November, 2011. Link <a href="http://www.vanityfair.com/politics/features/2011/11/elizabeth-warren-201111">here</a>. Brady B, Merrick J. Exclusive: cover-up at St Paul's. The Independent, Oct 30, 2011. Link <a href="http://www.independent.co.uk/news/uk/home-news/exclusive-coverup-at-st-pauls-2377923.html">here</a>. Breining G. The 1 percent: how lucy they are. Minneapolis Star-Tribune, Oct 29, 2011. Link <a href="http://www.startribune.com/opinion/132819963.html">here</a>. Klain R. Americans want a government that ties rewards to work. Bloomberg, Oct 31, 2011. Link <a href="http://www.bloomberg.com/news/2011-10-31/americans-want-a-government-that-ties-rewards-to-work-ron-klain.html">here</a>. Kristof ND. Crony capitalism comes home. NY Times, Oct 28, 2011. Link <a href="http://www.nytimes.com/2011/10/27/opinion/kristof-crony-capitalism-comes-homes.html">here</a>. Madrick J, Portnoy F. Should some bankers be prosecuted? NY Review of Books, November 10, 2011. Link <a href="http://www.nybooks.com/articles/archives/2011/nov/10/should-some-bankers-be-prosecuted/">here</a>. Pear R. Top earners doubled share of nation's income, study finds. NY Times, Oct 25, 2011. Link <a href="http://www.nytimes.com/2011/10/26/us/politics/top-earners-doubled-share-of-nations-income-cbo-says.html">here</a>. Schulz T. The second gilded age: has America become an oligarchy? Spiegel Online, Oct 28, 2011. Link <a href="http://www.spiegel.de/international/spiegel/0,1518,793896,00.html">here</a>.

Health Care Also Needs to Challenge "Crony Capitalism," the "New Gilded Age, and "the Idolatry of the Market"

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03 Nov 2011

How the Rich and Influential Get Health Care Different from You and Me: Data About How Very Influential Persons Get Expedited Care

An MSNBC <a href="http://www.msnbc.msn.com/id/44723391/ns/health-health_care/#.Ton_TnK5LDU">story</a> summarized some new data about how at least a particular subset of the rich can get different health care from you and me: Expedited Care for the Influential <blockquote>In a letter published in this week’s Annals of Emergency Medicine, Dr. A.J. Smally of Hartford Hospital and the University of Connecticut reports that more than half of the 33 emergency department medical directors in his state said they routinely provide so-called 'expedited' care to influential people.</blockquote> The influential people here include "corporate donors, hospital administrators, or, say, the brother-in-law of the president of the board of directors." This was corroborated by "a survey of 100 emergency doctors nationwide" which showed that "84 of them had given or would given extra attention to an influential person, such as a famous person or a hospital donor." Dr Smally asserted, "emergency triage protocols mandate treating the sickest patients first, no matter their social status." However, he also acknowledged that influential people will get treated more quickly, <blockquote>'Somebody calls and says so-and-so is coming in, can you make sure they get good care,' Smally said. 'We bump them up a notch. If everyone is waiting four hours, they might just wait one hour.'</blockquote>Better "Hotel Services" The article also noted that influential people are likely to get better "hotel services" from hospitals, presumably at no extra cost to them: <blockquote>to the head of the Association for Healthcare Philanthropy, a 5,000-memeber organization dedicated to boosting donations, tending to contributors when they’re sick or injured is just part of doing business. 'It is true, we pay attention to our donors,' said Bill McGinly, president and CEO of AHP, who says most development departments are alerted when VIPs enter their hospitals. 'They’ve gone above and beyond. We recognize that their contributions can make a difference to the community.' In some cases, that care can border on coddling. At Norwalk Hospital in Norwalk, Conn., donors who contribute $100,000 or more are known as 'Navigators' who receive not only a place at the front of the line, but top-tier attention as well. 'We help the family in any which way that we can,' said Carol Brennan-Smith, communications manager for the Norwalk Hospital Foundation. 'If their cell phone has no juice or they need a battery charger. It can be ‘I want lemonade, I want a Ben and Jerry’s Cherry Garcia ice cream.’ If we can do it, we will.' </blockquote> Grumbling and a Little Dissent The ER docs involved also seemed unwilling to question the practic, although they did not seem perfectly comfortable with it: <blockquote>grumbling is common, but to Smally and other ED docs, there’s little moral dilemma. Dr. Michael Carius, chair of the emergency department at Norwalk Hospital, home of the 'Navigators,' said he’s confident that no one is harmed by the practice — and that it actually may wind up doing greater good. 'This is a way of building good will so that when there is a need the hospital has, there’s this favor bank,' he said.</blockquote> The article only noted briefly that not all would agree with him: <blockquote>ethicists and patient advocates worry that improved access for VIPs undermines the public mission of community emergency rooms and raises sharp questions about health care equality. 'It’s not fair at the micro-level and I’m not sure it’s fair at the macro-level,' noted Laura Weil, former director of the Health Advocacy Program at Sarah Lawrence College in Bronxville, N.Y. </blockquote> In my humble opinion, the data and anecdotes summarized in the article raise a host of issues that deserve further thought. Can the Self-Interested Be Donors, and Should They Receive Favored Treatment from the Government? First, let us address the issue of donors receiving better "hotel services." I am not sure there are problems with offering better hotel services, as long as they have no direct effect on medical care, for a price to anyone who is willing to pay. However, the article suggests that the donors receive special services that might not be available to anyone else, even for a price. If so, that challenges their claim to be donors. Donation implies a lack of self interest, and is honored socially, and financially by the US Internal Revenue Service in the form of a tax deduction. If donors are receiving special consideration in return for their donation, their donations may actually be self-interested means to get services they could not buy on the open market, and do not deserve honor. Even if the donation was given expecting a partial quid pro quo in the form of a service that could otherwise be obtained by others for a price, to the extent that the donations included money paid for services, they may not deserve tax deductions. If the hospitals did not report the donation less the price of the services received in exchange for it, or if the donors did not subtract this amount from their donation before deducting it from their taxes, it might be worth an IRS investigation, perhaps both of the hospitals' non-profit status and the donors' personal tax returns. I hope the IRS is paying attention to this issue. Is It Ethical to Give Patients Who Are Not Donors Slower Care for Acute Illnesses? A much bigger problem is the data suggesting donors, hospital executives, and their relatives may get not only cushier hotel services, but more rapid emergency department care.  Since emergency departments are often operating near capacity, this rapid care for some may mean slower care for others.  In many cases, slower care means more pain, more suffering, more morbidity, and in certain cases, a higher likelihood of dying. Physicians have an ethical obligation to put each patient's interests ahead of other concerns (like attracting more donations to the hospital). It seems unethical to me to put a less sick patient ahead of a more sick patient because the former is an influential person. Knowing that sick patients sometimes get delayed care to make way for a VIP may open a whole new area of legal discovery for plaintiffs' lawyers seeking to litigate against hospitals when patients suffer from slow care in the Emergency Department. I hope plaintiffs' attorneys are paying attention to this issue. There may also be legal issues for hospitals if the law requires them to make emergency care available to all acutely ill patients. If some hospitals delay emergency care for some acutely ill patients to provide expedited care for some less acutely ill patients because they are influential, there may be legal ramifications. I hope the US Department of Justice, state attorneys general, and state departments of health are paying attention to this issue. Does Insulating the Rich and Powerful from the Dysfunctional Health Care System Make for Bad Health Care Policy? Finally, there is a larger health policy issue. At least a few of my fellow health care dissenters has been known to grimly opine that no real health care reform will take place until some big-wig, or his or her child, spouse, lover, sibling, or parent gets really bad care at the hands of our dysfunctional health care system. However, it appears that the rich and powerful have found ways to make this improbable. In a number of ways, the rich and powerful have found ways to engineer a deluxe health care system for themselves. We have <a href="http://hcrenewal.blogspot.com/search/label/executive%20health%20plans">posted</a> how big corporate executives have access to "executive health insurance" which provides benefits beyond what any normal person can obtain, even from seemingly the best employer paid policy. In 2007, we <a href="http://hcrenewal.blogspot.com/2007/11/academic-medical-center-with-a-list.html">posted</a> about how one academic medical center had an "A-list" of influential people who got special amenities and more rapid care. Now there is data to suggest this may be common practice. If the rick and powerful can insulate themselves from the dysfunction of the current health care system, do not expect their sympathy or support in reforming this system. It appears that to truly reform health care, we will have do something about the context, call it a new gilded age, new age of the robber barons, oligarchy, plutocracy, or age of crony capitalism, in which it exists.

How the Rich and Influential Get Health Care Different from You and Me: Data About How Very Influential Persons Get Expedited Care

An MSNBC story summarized some new data about how at least a particular subset of the rich can get different health care from you and me:Expedited Care for the InfluentialIn a letter published in this…

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03 Oct 2011

Health Care for the Very Rich is Different from That for You and Me - the Case of the CEO's Six-Figure Hip Replacement

Another glimpse of health care for the very rich comes by way of a BNet <a href="http://www.bnet.com/blog/drug-business/whats-wrong-with-solomon-forest-labs-spent-316k-on-ceos-medical-bills/9014">post</a> by Jim Edwards about the beleaguered CEO of Forest Laboratories. The background is that: <blockquote>The CEO is fighting to retain his place atop the company against both investor Carl Icahn, who wants his own directors on Forest’s board, and the Department of Health & Human Services, which wants to exclude Solomon from the drug business as a punishment for the company settling a $313 million investigation by the Department of Justice over its illegal marketing of Levothroid and other drugs.</blockquote> We had posted about the government threat to disbar him from government business after his company <a href="http://hcrenewal.blogspot.com/2011/05/logical-fallacies-to-defend-ceos-from.html">here</a>. Edwards noted that despite these setbacks, Solomon's total compensation actually increased: <blockquote>Forest Labs (FRX) reported that CEO Howard Solomon earned $8.9 million in fiscal 2011, 7 percent more than last year,...</blockquote> This is par for the course for <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">executive compensation</a> in health care. We have discussed numerous instances in which such pay defies gravity, rising even when serious questions have been raised about the performance of the executives and the organizations they lead. We most recently belabored this issue <a href="http://hcrenewal.blogspot.com/2011/07/being-non-profit-hospital-ceo-means.html">here</a>. However, Edwards also wrote <blockquote>The company also spent $316,638 on medical expenses for the 83-year-old CEO, up from $56,571 in 2010. The company’s proxy disclosure did not say what was wrong with Solomon. UPDATE: A spokesperson for the company said: Mr. Solomon is in excellent health and has no ongoing medical conditions that would impair his ability to continue functioning as the Company’s CEO. A good portion of last year’s expense was related to hip replacement following a fall when he was playing tennis – which he has now reluctantly discontinued.</blockquote> Later, he summarized the amounts the company paid for Mr Solomon's medical care in previous years: <blockquote>Here’s how Solomon’s medical bills have increased over the last few years. 2011: $316,638 2010: $56,571 2009: $28,000 2008: $25,000 </blockquote> Mr Solomon is 83 years old, and therefore qualified years ago for Medicare, the US single payer health insurance system for the elderly and disabled. Medicare serves as the primary health insurance for many elderly people, and it covers hip replacements for quite a few of them. A <a href="http://www.zimmer.com/web/enUS/pdf/Hip_Coding_Guide_Revised_121108.pdf">publication</a> by Zimmer, one of the larger manufacturers of prosthetic hips, noted that Medicare payment rates in 2009 for hip replacement were up to about $25,000 for hospitals, and up to about $1500 for surgical fees. Yet Forest Laboratories increased its payments to Mr Solomon for health care by about $250,000 due to his hip replacement. This amount is obviously an order of magnitude bigger than the usual Medicare payments for hip replacements, and presumably was paid in addition to the amounts Medicare paid for this surgery. Nothing in Mr Edwards' post, or in the proxy statement from which the numbers came explains the use to which the $250,000 was put. The size of the amount does suggest that Mr Solomon received some sort of health care much more expensive than that available to the general public. We have previously noted a few instances (e.g. <a href="http://hcrenewal.blogspot.com/2009/07/are-health-plans-of-very-rich-different.html">here</a>)  suggesting that the amounts large corporations pay for their top executives' health care are far larger than even the high prices charged by commercial health insurers.  Information from litigation suggested that one retired corporate CEO was entitled to payments for all sorts of amenities, such as first-class transportation, services of personal aides and trainers, cosmetic procedures, etc in conjunction with his health care (see post <a href="http://hcrenewal.blogspot.com/2010/07/not-your-average-joes-health-plan.html">here</a>).  The case of the Forest Laboratories CEO provides more evidence that top corporate leaders receive health care in what amounts to a system separate from and in a tier above what even supposedly well-insured "regular people" can access.  The existence of this separate health care system for very rich corporate executives may provide yet another explanation of why real health care reform is so difficult.  We have frequently suggested that those who have become rich from the current health care system are likely to strongly resist any changes to that system that might threaten their continued accumulation of wealth.  These peoples' riches provide them with the resources to fight such changes, e.g., through stealth policy advocacy (see posts <a href="http://hcrenewal.blogspot.com/2011/02/health-care-corporate-disinformation.html">here</a> and <a href="http://hcrenewal.blogspot.com/2011/02/wendell-potters-deadly-spin.html">here</a>).  Furthermore, these peoples' access to a separate health care system for the very rich makes it extremely unlikely that they or their families will ever experience the problems that drive many common folk to despair about our current health care dysfunction. Perhaps some intrepid investigative reporter will write a Pulitzer prize-worthy story about the parallel health care system for the very rich.  Perhaps some honest health services researcher will study how the existence of such a system affects policy-makers. At the least, we deserve health care policy informed by how the health care affects real people, and not made solely by those who are sheltered from he vicissitudes of the real, and currently dysfunctional health care system.

Health Care for the Very Rich is Different from That for You and Me - the Case of the CEO's Six-Figure Hip Replacement

Another glimpse of health care for the very rich comes by way of a BNet post by Jim Edwards about the beleaguered CEO of Forest Laboratories.The background is that:The CEO is fighting to retain his pl…

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19 Jul 2011

Can a $1 Billion Group of Babies Provide Fair Value in Health Care?

The issue of executive compensation in health care seems to be attracting more media attention. A St Louis Post-Dispatch <a href="http://www.stltoday.com/news/opinion/columns/the-platform/article_7c8df848-aca4-11df-9b5b-0017a4a78c22.html">editorial</a> noted how executive compensation for for-profit health insurance CEOs has grown. It started with a quote from Steven Hemsley, the CEO of UnitedHealth: <blockquote>Today the American people are questioning whether or not we receive fair value for the $2.6 trillion we, as a society, are expecting to spend this year on our health care system. The vast majority, including those of us at UnitedHealth Group, believe the answer is, 'No.'</blockquote> Here is a summary of the compensation information: <blockquote>Modern Healthcare, a leading health industry trade journal, published its annual executive compensation survey this week. Topping the list is Stephen Hemsley, quoted above, who gave a speech to the Detroit Economic Club last year questioning the value Americans receive for all that health spending. [Note: We discussed Hemsley's compensation <a href="http://hcrenewal.blogspot.com/2010/06/how-can-101-million-year-ceo-help.html">here</a>.] His take for 2009: $106 million — $7.5 million in salary and benefits and $98.5 million in stock options. Mr. Hemsley is not alone. The CEOs at insurance giants Cigna, Humana, Aetna, Coventry Health Systems and WellPoint all took home between $10 million and about $18 million. Many of those companies already have announced double-digit premium increases for next year. In all, the CEOs of America’s 10 largest health insurance companies made $228.1 million in salary and stock options during 2009, according to the liberal advocacy group Health Care For America Now. (That's enough to buy health insurance for at least 47,284 people, based on figured cited in this Kaiser Family Foundation survey on average premiums.) Since 2000, those CEOs have received slightly less than $1 billion in compensation, the group said.</blockquote> As an aside, the article noted how the compensation received by CEOs of the larger US health care corporations of all types, not just health insurance companies, has grown: <blockquote>Researchers analyzed pay and benefits for 342 CEOs of corporations in the Standard & Poor’s 500 index. They found that health care CEOs received an average compensation of $10.5 million last year. That’s 40 percent more than the average for all S&P 500 companies — 77 percent higher than chief executives at financial services companies.</blockquote> Even the CEOs of not-for-profit hospital systems have become million dollar babies: <blockquote>Last year, the average compensation for hospital system CEOs was $1 million. That’s enough to hire five new primary care doctors.</blockquote> However, the editorial was a bit vague about why paying CEOs of health care organizations so much was a bad idea, although it did imply that it was unseemly given that much of health care is funded by government programs, and not-for-profit health care organizations receive tax breaks that give "the public an even larger stake in their efficient operation" In my humble opinion, there are other big problems with the massive compensation that hired managers of health care organizations now command. Paying them so much instantly vaults them into the upper class, and the CEOs of larger health care corporations now live a life style more reminiscent of aristocracy than of that of the patients who depend on them. Such riches isolate those who receive them in their own bubbles. Can one really expect a million, or ten million, or hundred million dollar CEO to really care about the health of individual patients? Furthermore, paying them so much, usually regardless of their performance, their companies' performance, or the health effects of their products and services gives them perverse incentives to maintain their position at any cost, even at the cost of the patients they are supposed to serve. So, we do not receive "fair value for the $2.6 trillion we, as a society, are expecting to spend on our health care system." But we cannot really expect a billion dollar group of babies to fix that. True health care reform would decrease perverse incentives throughout the systems, spread the power in organizations more broadly, and make leaders accountable.

Can a $1 Billion Group of Babies Provide Fair Value in Health Care?

The issue of executive compensation in health care seems to be attracting more media attention.A St Louis Post-Dispatch editorial noted how executive compensation for for-profit health insurance CEOs …

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29 Aug 2010

Not Your Average Joe's Health Plan

A <a href="http://www.denverpost.com/business/ci_15533672">Denver Post article</a> offered a brief glimpse into the health benefits of corporate leaders, on the unusual occasion of a former CEO now in legal fight for the health benefits in the style to which he had become accustomed: <blockquote>Poor Joe. He's not getting the health-care benefits he was promised. His former employer merged with another company, and then another, and then another. And, you know how it goes after a slew of mergers. Suddenly the new, conglomerated monster just doesn't care about retirees any more. Joe isn't going to sit back and take it like an average Joe. He's suing his former employer in U.S. District Court in Manhattan for breach of contract, breach of faith, breach of fiduciary duty and even promissory estoppel.</blockquote> The Joe in question was really: <blockquote>Lord & Taylor's CEO. Joseph E. Brooks of Greenwich, Conn., lorded over a fourfold increase in sales at Lord & Taylor, expanding to 46 from 19 locations. </blockquote> His career and Lord and Taylor's course after that were checkered, perhaps contributing to the current dispute: <blockquote>But that was a long time ago. And Macy's Inc., the current parent company, is resisting some of his medical claims.</blockquote> <blockquote>Brooks didn't get a deal like this from Filene's, where he served as president before joining Lord & Taylor. Or Ann Taylor, where he went on to generate shareholder lawsuits and shopper hate mail after demanding lower prices from suppliers and higher prices from customers, destroying both quality and value at the same time. Brooks also made his son president of Ann Taylor, sparking cries of nepotism. And then his son got snagged trying to slip by U.S. Customs without paying duties on pricey watches and was forced to resign. The senior Brooks subsequently resigned as well. A 1992 Newsday article called him 'as egotistical and extravagant as he was brilliant.'</blockquote>What Health Care Benefits Do CEOs Get? What had Brooks been promised as CEO of Lord and Taylor? <blockquote>In 1983, Lord & Taylor's corporate parent told Brooks it sought to provide 'great comfort to executives knowing that their medical costs are fully reimbursed by the Corporation.' The company told Joe it was a lifetime guarantee. CEOs should never, ever, have to worry about health care.</blockquote> Here are some details about his benefits: <blockquote>And for nearly 27 years, substantially all medical costs have been fully covered, even premiums. We're not just talking doctors' visits, hospitals, medications and tests. We're talking all travel and ancillary expenses associated with care, too. We're talking first-class transportation, accommodations and meals while being treated at the Mayo Clinic and the Duke Diet and Fitness Center. We're talking expenses for a companion or personal aide, too. We're also talking 'cosmetic services (surgery, medications, injections, creams and the like)' dental care, gym memberships, personal trainers, vitamins, massages — all paid by Joe's former employer for the rest of Joe's life. Oh, and if any of these benefits have tax consequences, we're talking gross-up payments to cover that, too.</blockquote>Why should we be concerned about the extravagant health plans given to top corporate executives?  The Implications We <a href="http://hcrenewal.blogspot.com/2009/07/are-health-plans-of-very-rich-different.html">noted in 2009</a> that the Goldman Sachs 2009 proxy statement indicated that top executives of that now controversial company received health plans worth about $40,000 each.  My concern then were not how much the costs of the plans contribute to top corporate leaders' compensation packages. Such packages are generally already so outrageously huge that providing $40,000 rather than $13,000 worth of health insurance is a trivial increase. My concern was not that plan recipients' demands for health care will collectively increase health care costs, because they likely include only a tiny portion of the population. My main concern, instead, was how much these plans further insulate already cocooned top executives from the vicissitudes of daily life, particularly related to coping with our current dysfunctional health care system. What benefits executive health care plans provided were not clear from the 2009 story about Goldman Sachs.  However, this year's case of Joe Brooks does suggest that the plans paid for every expense that could be conceivably health related.  As I worried then, it now does appear that such plans could completely insulate executives from having to deal with the managed care/ health insurance bureaucracy which frustrates patients seeking particular services, but not necessarily the most expensive, or least beneficial services. Furthermore, such plans may completely insulate executives from the various other vicissitudes of managing our currently dysfunctional health care system.  (By the way, that is why it seemed amazing that the CEO of Pfizer had to put up with some of the common vicissitudes when he went to a hospital for an elective procedure, an experience he publicly talked about with an almost charming naivete, given that he runs such a powerful health care organization which has been so influential in shaping our US "health care reform," see post <a href="http://hcrenewal.blogspot.com/2010/06/finding-out-about-health-care.html">here</a>.) Such executives isolated from the real world of health care might thus not have gut level appreciation of how dysfunctional the health care system has become for even insured patients. Since top executives often are disproportionately influential members of the "<a href="http://hcrenewal.blogspot.com/search/label/superclass">superclass</a>," their disconnection from the realities of dysfunctional health care is likely to translate into little real support by the powers that be for meaningful health care reform. There support may be further retarded by the influence of their fellow superclass members whose personal fortunes depend on the status quo in health care. Real improvement of health care may depend on finding leaders who have better understanding of the plight of real people.   Two Postscripts   Note: the <a href="http://www2.goldmansachs.com/our-firm/investors/financials/current/proxy-statements/2010-proxy-doc.pdf">Goldman Sachs 2010 proxy</a> indicates that the executive health plans given to the five most highly paid executives cost up to $56,927.     Also note that despite the effect that executive health plans may have on the thinking of those with the most power to influence health care policy, the plans have been of little interest to health care services and policy researchers.  I have not been able to find a single article in these literatures on the subject.  This appears to be yet another version of the anechoic effect, that certain inconvenient truths (to borrow from former US Vice President Al Gore) are not subjects of polite discussion of health care, lest the results excessively disturb the powers that be.

Not Your Average Joe's Health Plan

A Denver Post article offered a brief glimpse into the health benefits of corporate leaders, on the unusual occasion of a former CEO now in legal fight for the health benefits in the style to which he…

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19 Jul 2010

Corporate Proxies Suggest CEOs Rewarded for Influencing Health Care Reform

We have frequently <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">discussed</a> the often outsized, if not outrageous compensation awarded to top leaders of health care organizations.  Such compensation may seem disproportionate to the leaders' real-world achievements, and may contrast with organizational actions that seem inept, mission-hostile, or unethical. In perusing this year's crop of proxy statements from some of the biggest US health care corporations, I noted that some provide some narrative, qualitative justification for their top leaders pay.  I was struck by three similar statements: Johnson and Johnson We recently <a href="http://hcrenewal.blogspot.com/2010/05/19-million-means-never-having-to-say.html">discussed</a> the contrast between Johnson and Johnson CEO William Weldon's gargantuan compensation and his detached response to the findings of an inspection of one of his company's factories that lead to its shutdown and the recall of its products.   According to the company's <a href="http://files.shareholder.com/downloads/JNJ/895865678x0xS950123-10-25426/200406/filing.pdf">2010 proxy statement</a>, Mr Weldon's total compensation approved  in 2010 was $19,847,026.   The proxy statement included this overview of his performance: <blockquote>The Board believes that Mr. Weldon generally exceeded expectations despite substantial economic, political, regulatory and competitive challenges as well as significant patent expirations. As referenced in the table above, the Company delivered solid financial results and positioned itself for future growth.</blockquote> Under "strategic results" was this statement: <blockquote>Mr. Weldon played an effective role in helping shape health care policy around the world and has been very involved with efforts on U.S. Health Care Reform. Mr. Weldon’s personal involvement with key leaders and organizations has ensured the interests of the Company are well represented.</blockquote> Pfizer We recently <a href="http://hcrenewal.blogspot.com/2010/04/pfizer-settles-one-lawsuit-loses.html">discussed</a> the contrast between Pfizer Inc CEO Jeffrey Kindler's sizable compensation and the number and size of lawsuits alleging unethical conduct that the organization has settled, and its criminal conviction as a "racketeering influenced and corrupt organization" (RICO). According to the company's 2010 proxy statement, Mr Kindler's total compensation in 2009 was $14,898,038. The proxy statement included an Executive Compensation Discussion and Analysis. Its summary of Mr Kindler's performance was: <blockquote>The committee believes that Mr Kindler's leadership was a significant factor in the continued progress made by Pfizer in 2009 in strengthening the foundation for future growth and long-term success.</blockquote> It also specifically addressed Mr Kindler's "industry leadership": <blockquote>During 2009, Mr Kindler was actively involved, through both Pfizer and external organizations, in developing and advancing US and global public policies that serve the overall interest of our Company and our shareholders, as well as doctors and patients. These efforts included constructive participation in the US legislative process to advance Pfizer's goals of achieving a more rational operating environment....</blockquote> UnitedHealth Group We recently <a href="http://hcrenewal.blogspot.com/2010/04/what-me-worry-redux-another-leader.html">discussed</a> the contrast between UnitedHealth Group CEO Stephen J Helmsley's large total compensation and the profit he recently made from the sale of stock options and various questions raised about his company's ethical performance.  According to the company's <a href="http://www.sec.gov/Archives/edgar/data/731766/000119312510083028/ddef14a.htm#toc14068_20">2010 proxy statement</a>, his 2009 total compensation was $8,901,916. The company's 2010 proxy statement stated his compensation was based upon a variety of factors, including: <blockquote>Positive participation and leadership of the Company in the health care reform and modernization debate</blockquote> Summary We have noted how health care organization may be gripped by <a href="http://hcrenewal.blogspot.com/2009/12/compensation-madness-insiders-hijacking.html">"compensation madness,"</a> caused by "insiders hijacking established organizations for their personal benefit."  One could view the statements above as just one form of post-hoc justification for compensation madness.  It is possible that timid, if not crony boards are simply getting more inventive in their rationalizing CEOs' imperial pay scales.  On the other hand, those justifying the compensation of three extremely well-compensated health care corporate CEOs may really believe what they wrote about their CEOs roles in health care reform.  We have posted little about the US health care reform effort because so much of it seemed irrelevant to the concerns mentioned on Health Care Renewal.  Health care reform legislation did little to address problems with health care leadership, governance and ethics, and how they challenge health care professionals' values and lead to higher costs, declining access, poor health care quality and disgruntled health care professionals (see <a href="http://hcrenewal.blogspot.com/2010/03/health-care-reform-bill-and-health-care.html">this summary</a>).  Maybe one reason this was so was that the top leaders of health care organizations did a good job pushing their personal and organizational priorities into the reform legislation, meanwhile discouraging any provisions that might threaten the way they were leading their organizations, and how much they were making while doing so.  There a many reasons for the popular dissatisfaction with the recently enacted US health care reform legislation.  The influence of the leadership of top health care corporations in promoting their, rather than the populace's goals, ought to be a topic of further inquiry.  Meanwhile, it may be that the <a href="http://hcrenewal.blogspot.com/search/label/superclass">"superclass"</a> has struck again.

Corporate Proxies Suggest CEOs Rewarded for Influencing Health Care Reform

We have frequently discussed the often outsized, if not outrageous compensation awarded to top leaders of health care organizations. Such compensation may seem disproportionate to the leaders' real-w…

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12 May 2010

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

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

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

The San Francisco Chronicle recently reported how students at the University of California have been providing a satirical approach to the problems of the university's leadership:It's been a seriously…

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18 Feb 2010

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