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RUC Off - the New England Journal Once Again Fails to Mention the Unmentionable

Last week, the influential New England Journal of Medicine published an article by Bruce Vladek entitled "Fixing Medicare's Physician Payment System."(1)  Although only identified as working for Nexara, a health consulting business, Mr Vladek was a <a href="http://www.leighbureau.com/speaker.asp?id=128">former administrator</a> of what was then called the Health Care Financing Administration (HCFA) of the US Department of Health and Human Services (DHHS), the part of the department that then ran the US Medicare program.  Vladek thus can reasonably be viewed as an expert on Medicare.  Vladek identified two main problems with the current way physicians are paid by Medicare.  First, <blockquote>Medicare is captive to an arbitrary, if elegantly conceived, formula for total payments to physicians — the sustainable growth rate (SGR). In the alternate reality of the Congressional budget process, the SGR will reduce Medicare's physician payments, which already trail those from private insurers, as far into the future as the eye can see.</blockquote> Second, <blockquote>there is widespread consensus that the relative fees in the current system are a significant cause of the growing imbalance in supply and utilization between primary care and specialty services in the U.S. health care system. That imbalance, in turn, is widely perceived as a major cause of both excessive costs and inadequate quality of care. This is not just a Medicare problem: the Medicare Resource-Based Relative Value Scale is used by most private insurers to set relative prices for physicians.</blockquote> Vladek expanded on the second point as follows <blockquote>the basic mechanics of the Medicare Physician Fee Schedule, which was supposed to change physician payment to increase rewards for primary care services at the expense of procedural and interventional services, appears to have gone totally off track. For various reasons, the fee schedule, which originally did increase the prices of evaluation and management services relative to those of surgery or invasive procedures, turned in the other direction through the process of annual updating of relative value units. Surgeons, radiologists, and some medical specialists are now paid two to three times as much per hour as providers of cognitive services, which is about where we began 20 years ago; this was the situation that the fee schedule was supposed to fix. The question of the relative virtues of primary versus specialty care can be debated ad nauseam, but in other wealthy countries that serve their populations at least as well as we do, the ratio of primary care physicians to specialists is much higher than in the United States, and the gap in compensation is much smaller or the poles even reversed. Young physicians, burdened by increasing educational debts, may well choose a career path on the basis of a major difference in compensation, especially when the better-compensated positions require less ongoing responsibility for patients and offer better working hours.</blockquote> This is about all that Vladek wrote about how the imbalance between how Medicare pays for primary care and other "cognitive services," and for procedures came about. Vladek, and many others have argued that this imbalance has lead to strong financial incentives that have been slowly destroying primary care, and strong incentives that have lead to the use of too many procedures, both strong drivers of rising costs in the most expensive health care system in the world. Vladek noted vaguely that "through various reasons," the incentives were imbalanced by "the process of annual updating of relative value units." However, as we have discussed in several blog posts, a lot more is known about how this process got "totally off track." In fact, in 2007, an article by Bodenheimer et al in the Annals of Internal Medicine explained the problems in considerably more detail.(2)  As we <a href="http://hcrenewal.blogspot.com/2007/03/on-disparities-between-reimbursement-of.html">wrote then</a>, Its main points included <ul><li>Proceduralists are often able to learn how to do their procedures more quickly, and thus increase the volume of procedures done, while office and hospital visits can only be sped up so much.</li><li>The process used to update the RBRVS system is biased towards procedures for three main reasons: 1. "specialty society influence in proposing RVU [relative value unit] increases," 2. the specialist-heavy RUC [Relative Value Scale Update Committee] membership," and 3. "the desire of RUC specialists to avoid increases in evaluation and management [that is, cognitive, or non-procedural] RVUs."</li><li>Medicare now uses a formula to limit increases in overall spending. The use of this formula leads to across the board cuts in all reimbursements. Since cognitive services reimbursements were never high to begin with, and have rarely been individually increased, these cuts tend to have disproportionate decreases.</li><li>Private insurers and managed care organizations tend to follow Medicare's lead in their reimbursement procedures, but tend to tilt the playing field even more in favor of procedures versus cognitive services. Several studies showed that such payers paid more for procedures than did Medicare, but about the same for office and hospital visits.</li></ul>The role of the RBRVS Update Committee (RUC) is complex and in many ways mysterious.  As we <a href="http://hcrenewal.blogspot.com/2009/02/what-ruc-again-one-of-worlds-most.html">wrote before</a>, to update the system, the Center for Medicare and Medicaid Services (CMS) relies almost exclusively on the advice of the <a href="http://www.ama-assn.org/ama/pub/physician-resources/solutions-managing-your-practice/coding-billing-insurance/medicare/the-resource-based-relative-value-scale/the-rvs-update-committee.shtml">RBRVS Update Committee</a>. The RUC is a private committee of the AMA, <a href="http://www.ama-assn.org/ama1/pub/upload/mm/380/toptenthings.pdf">touted</a> as an "expert panel" that takes advantage of the organization's First Amendment rights to petition the government. Membership on the RUC is allotted to represent specialty societies, so that the vast majority of the members represent specialties that do procedures and focus on expensive, high-technology tests and treatments. However, the identities of RUC members are opaque, and the proceedings of the group are secret. To expand on the penultimate point, the <a href="http://www.ama-assn.org/ama/pub/physician-resources/solutions-managing-your-practice/coding-billing-insurance/medicare/the-resource-based-relative-value-scale/the-rvs-update-committee.shtml">current page</a> on the AMA web-site that describes the RUC only lists its members in terms of their specialties and organizational affiliation.  Their names do not appear.  A <a href="http://www.ama-assn.org/ama1/pub/upload/mm/380/posesresponse.pdf">response </a>to a <a href="http://hcrenewal.blogspot.com/2009/02/what-ruc-again-one-of-worlds-most.html">previous post</a> by me on the subject by the then Chair and Chair-Elect of the RUC suggested that the RUC membership is not quite secret. They stated that "a list of the individual members of the RUC is published in the AMA publication, Medicare RBRVS 2009: The Physicians Guide." This publication is available from the AMA <a href="https://catalog.ama-assn.org/Catalog/product/product_detail.jsp?productId=prod1170041">here</a> for a mere $71.95. However, the book is not on the web, or in my local or university library, and I have no other way to easily access it.  Thus, the RUC membership as at best relatively opaque. To expand on the ultimate point, as Goodson(3) noted, RUC "meetings are closed to outside observers except by invitation of the chair." Furthermore, he stated, "proceedings are proprietary and therefore not publicly available for review." The fog surrounding the operations of the RUC seems to have affected many who write about.  We have posted (<a href="http://hcrenewal.blogspot.com/2007/12/is-sustainable-growth-rate-main-problem.html">here</a>, <a href="http://hcrenewal.blogspot.com/2008/07/can-we-fix-medicare-while-pretending.html">here</a>, and <a href="http://hcrenewal.blogspot.com/2008/12/no-such-ruc-new-england-journal-takes.html">here</a>) about how previous publications about problems with incentives provided to physicians seemed to have avoided even mentioning the RUC.  In 2010, post the US recent attempt at health care reform, the RUC seems to remain the great unmentionable.  Even the leading US medical journal seems reluctant to even print its name.  Thus, as we <a href="http://hcrenewal.blogspot.com/2008/12/no-such-ruc-new-england-journal-takes.html">noted before</a>, however, the mysteries about it remain: <ul><li>How did the government come to fix the payments physicians receive? Government price-fixing has not been popular in the US, yet this has caused no outcry.</li><li>Why is the process by which they are fixed allowed to be so opaque and unaccountable? Why are there no public hearings on the updates, and why is there no input from practicing physicians or organizations other than those related to the RUC?</li><li>How did the RUC become de facto in charge of this process?</li><li>Why does the AMA keep the membership on the RUC so opaque, and give no input into the RUC process to its general membership?</li><li>Why is the RUC membership so dominated by procedural specialists? Why were primary care physicians, who made up at least a sizable minority of physicians when the update process was started, not represented according to their numbers?</li><li>Why has there been so little discussion of the RUC and its responsibility for an extremely expensive health care system dominated by high-technology, expensive, risky and invasive procedures?</li></ul>Without discussing how the incentives for physicians became so unbalanced, do we really expect we can fix them?  In this case, the persistence of the <a href="http://hcrenewal.blogspot.com/search/label/anechoic%20effect">anechoic effect</a> seems to be doing real damage to the discussion of the critical issues we in the US face today. References 1. Vladek B. Fixing Medicare's physician payment system. N Engl J Med 2010; 362:1955-1957. (Link <a href="http://content.nejm.org/cgi/content/full/NEJMp1004709">here</a>.) 2. Bodenheimer T, Berenson RA, Rudolf P. The primary care-specialty income gap: why it matters. Ann Intern Med 2007; 146: 301-306. (Link <a href="http://www.annals.org/content/146/4/301.full">here.</a>) 3. Goodson JD. Unintended consequences of Resource-Based Relative Value Scale reimbursement. JAMA 2007; 298(19):2308-2310.  (Link <a href="http://jama.ama-assn.org/cgi/content/short/298/19/2308">here</a>.)

RUC Off - the New England Journal Once Again Fails to Mention the Unmentionable

Last week, the influential New England Journal of Medicine published an article by Bruce Vladek entitled "Fixing Medicare's Physici...

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Did EPIC CEO Judy Faulkner of Epic declare that ‘healthcare IT usability would be part of certification over her dead body?'

At the <a href="http://histalk2.com/2010/05/29/monday-morning-update-53110/">HisTALK blog 5/31/10 update</a>, a site with thousands of readers involved in all aspects of health IT, the following anonymous (at this point) report appeared: <blockquote> From Tabula Rosa: “Re: EMR usability. At one of the ONC Policy Committee meetings, [founder and CEO] Judy Faulkner of Epic supposedly declared that ‘usability would be part of certification over her dead body.’ I wonder if she has similar sentiments about making software accessible to people with disabilities?” Unverified. This inspired my new poll question – keep reading below. </blockquote> <a href="http://www.epic.com/">Epic Systems Corporation</a> is one of the largest health IT vendors in the U.S. If this report is true, it would have very, very serious implications towards the healthcare IT industry's attitudes about the usability - and ultimately the safety - of its products. The essential nature of usability and the relationship to safety is not an issue for debate - period. It was settled long ago in relation not only to IT, but also to devices and machinery that use IT. For instance, see the mid 1980's wisdom written for the U.S. Air Force on user interfaces at my eight part series on mission hostile health IT user experiences at <a href="http://tinyurl.com/hostileuserexper">http://tinyurl.com/hostileuserexper</a>. Microsoft and other responsible IT vendors spend billions on <a href="http://www.google.com/search?client=firefox-a&rls=org.mozilla%3Aen-US%3Aofficial&channel=s&hl=en&source=hp&q=microsoft+usability&btnG=Google+Search">usability research</a>. I think it incumbent of the U.S. Office of the National Coordinator for Health IT, and its leader Dr. <a href="http://healthit.hhs.gov/portal/server.pt?open=514&objID=15930&&PageID=15653&mode=2&in_hi_userid=10731&cached=true">David Blumenthal</a>, to confirm or deny that such a statement was made, on or off-record, at an ONC policy committee meeting, and if it was made, its exact context. If it was made, it would raise the following questions: <ul><li>Would its utterer be saying this out of concern that their products have usability deficiencies that competitors do not, and that are not correctable in a short time frame?</li><li>How much concern would such a statement indicate for the complex jobs of physicians, nurses and other clinicians whose safe conduct of their medical obligations depends on health IT?</li><li>How much concern would such a statement imply towards the injured and dead bodies of patients affected by health IT of deficient usability?</li><li>Since the CEO sets the tone for their company and has the ultimate responsibility for its conduct (and its Board of Directors as well), would such a statement reflect willful negligence and perhaps criminal conduct?</li></ul> The last question is pertinent, for if, say, the CEO of Boeing were to relate that "usability of the control systems of its aircraft would be an FAA certification requirement over his or her dead body", or the CEO of oil drilling companies said same about their instrumentation that helps avoid underwater blowouts, I believe it would rise to the level of criminally negligent conduct. This is all the more pertinent to me, as my relative was just seriously injured by a medication error that appears to have started with the med list in an EMR. I am seriously wondering, in fact, if the average hospital has the gravitas and political and technologic maturity to truly implement health IT so that the technology is uniformly beneficial, instead of spontaneously harmful, to meet the needs of the grandiose plans for national health IT. The lack of seriousness, petty political fights, and technological dyscompetence and incompetence I have noted in my 20 years in this field do not seem surmountable in any time frame I consider "soon." Here seems to be the health IT industry and hospital MIS department view of healthcare IT, as some sort of game to be played for profit, power and political advantage: <a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhyUCuCvfT3WTsv7KDqUEvbOGDWGFCN4B1WLVzhtocsecJhyphenhyphenhEjC-VHtDeFwJk0d0Rsm_X7O7F5dOZtIUUDoF3eojtJJ9v6ZtIFMrFqUdkCc1eH8hvR2ar4O5-ULSq1ia-_kyIWHnaPp5tk/s1600/operation_game.jpg"><img alt="" border="0" id="BLOGGER_PHOTO_ID_5477041640529184818" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhyUCuCvfT3WTsv7KDqUEvbOGDWGFCN4B1WLVzhtocsecJhyphenhyphenhEjC-VHtDeFwJk0d0Rsm_X7O7F5dOZtIUUDoF3eojtJJ9v6ZtIFMrFqUdkCc1eH8hvR2ar4O5-ULSq1ia-_kyIWHnaPp5tk/s320/operation_game.jpg" style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 320px; height: 320px;" /></a> -- SS

Did EPIC CEO Judy Faulkner of Epic declare that ‘healthcare IT usability would be part of certification over her dead body?'

At the HisTALK blog 5/31/10 update , a site with thousands of readers involved in all aspects of health IT, the following anonymous (at this...

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A "Pump and Dump" Stock Scheme and a University's "Incredible Gift"

Here is a new twist on how respected academic institutions have gained from less than respectable donors.  As <a href="http://www.palmbeachpost.com/news/crime/gardens-man-accused-of-stealing-60-million-from-708546.html">reported</a> by the Palm Beach (FL) Post, <blockquote>John David Mazzuto and a colleague stole more than $60 million from his former company and its investors, New York prosecutors said Tuesday afternoon. ... the Manhattan District Attorney said today that, while he was in bankruptcy from 2002 to 2009, he siphoned more than $15 million from Industrial Enterprises, and used the money to support 'a lavish lifestyle using millions of company dollars for homes, travel, and personal expenses.' They included Mazzuto's 7,715-square foot house at 11503 Green Bayberry Drive. Palm Beach County records show a corporation managed by him bought it for $2.6 million in 2007. No mortgage was recorded, suggesting the company bought it outright. New York prosecutors said Mazzuto also bought a $3 million home in the exclusive Long Island community of Southampton and spent more than $500,000 to fly on private jets. Palm Beach Gardens police arrested Mazzuto Thursday and investigators from New York were in a Palm Beach County court Monday to collect him. The New York indictment alleges Mazzuto and Cleveland, Ohio, attorney James W. Margulies, the corporation's general counsel, illegally issued millions of shares of stock and used fraud to inflate its value and deceive investors. Mazzuto and Margulies are charged with grand larceny, scheme to defraud, conspiracy, falsifying business records, and violations of New York State's securities fraud law. The district attorney said the two illegally issued millions of shares to family, friends, and associates. 'The defendants stole from the corporation and legitimate investors, and engaged in a variety of fraudulent accounting and securities practices to disguise the theft and pump up the value of the stock,' the release said. It said one outside investor lost more than $20 million. 'This was the wholesale looting of a public company,' Manhattan District Attorney Cyrus R. Vance, Jr., said in a statement. A 2007 class-action lawsuit filed by investors alleged Mazzuto had a long history of unscrupulous business practices. It also alleged Mazzuto used more than $100,000 from insider trading to buy a Porsche for his girlfriend. The suit said the federal Securities and Exchange Commission was investigating Industrial Enterprises for insider trading and accounting fraud during Mazzuto's tenure. The SEC has declined to comment. Mazzuto and Industrial Enterprises, saying the accounting mistakes were unintentional, agreed in April to settle the lawsuit for $3.8 million, records show. The settlement still is awaiting the court's approval. Industrial Enterprises has been negotiating since October for Yale to return a gift that paid for a head coach and a new all-weather baseball practice facility. Lawsuits alleged the bequest included improperly issued stock worth $1.7 million. </blockquote> The New York Times <a href="http://www.nytimes.com/2010/05/26/nyregion/26yale.html">added</a> some detail about Mezzuto's dontation to Yale: <blockquote>The news release called John D. Mazzuto one of the 'greatest supporters' of the Yale University baseball team. Mr. Mazzuto, a 1970 Yale graduate who played shortstop for the team, had donated to the baseball program about $1.5 million worth of shares in a company he owned. The university rewarded him by naming a new practice facility after him and his wife — the John and Theresa Mazzuto Field — and by adding his family name to the baseball coach’s official title: the Mazzuto Family Head Coach of Baseball. 'John has bestowed upon Yale baseball an incredible gift,' John Stuper, the baseball coach at Yale, said in the release, dated April 17, 2009. 'His support of our program has been absolutely phenomenal.' Manhattan prosecutors said Tuesday that Mr. Mazzuto’s support of his alma mater was illegal. Mr. Mazzuto, 61, was indicted on charges of fraudulently inflating the value of a company he owned to mislead investors into buying worthless shares. He gave shares of the company, Industrial Enterprises of America, to family and friends and to companies he controlled, and they sold them on the open market, giving some of the profits to Industrial Enterprises, prosecutors said. Those profits made Industrial Enterprises seem as though it was in better financial health than it actually was, raising its stock’s value, prosecutors said. 'It’s a new twist on a pump-and-dump,' said Garrett A. Lynch, the assistant district attorney handling the case. Mr. Mazzuto also gave shares of the stock to Yale, prosecutors said. The university sold its shares before their value plummeted and earned about $1.5 million, prosecutors said. Yale officials did not know that Mr. Mazzuto was issuing stocks illegally, prosecutors said, although some of the recipients of the shares did conspire with him. </blockquote> A <a href="http://online.wsj.com/article/SB10001424052748704026204575266662496877220.html">report</a> in the Wall Street Journal added: <blockquote>Industrial Enterprises, which was based in New York at one point, sought Chapter 11 bankruptcy protection in May 2009. [a month after Yale announced the donation - Editor] A shareholder lawsuit, filed in federal court in Manhattan in 2007, alleged the company engaged in accounting fraud by 'materially overstating' its revenue between December 2006 to November 2007. The company announced in November 2007 it had overstated revenue by millions of dollars for two quarters that year.</blockquote> For the sake of fairness, I must emphasize that the allegations against Mr Mezzuto and Mr Margulies are just that. However, there ought to be considerable suspicion that something unethical was going on, at least based on the company's admission of over-stated earnings, Mr Mezzuto's provision of the gift while he apparently was in personal bankruptcy, and (at least in retrospect), the company's filing for bankruptcy weeks after the gift of its stock was announced . Thus, Yale's acceptance of the gift, and its effusive accolades to its donor at best suggest an attitude of "what, me worry." At best, it seems that our once unimpeachable academic institutions have become so eager to raise money that the provenance of donations is no longer of interest to them.  Furthermore, it seems that anyone who provides a big donation becomes a local hero, regardless of the source of the donation.  Embracing donations arising out of questionably ethical situations implies a tacit endorsement of the means used to provide them.  Our universities ought to remember that their mission is teaching, research, and for academic medical institutions (as Yale is), patient care.  It may be true that if there is no margin, there is no mission, but if margin comes first, regardless of where it comes from, there soon will be no mission.

A "Pump and Dump" Stock Scheme and a University's "Incredible Gift"

Here is a new twist on how respected academic institutions have gained from less than respectable donors. As reported by the Palm Beach (F...

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How Did the CEO Who Presided Over the Company that Paid a $1.7 Billion Fraud Settlement Become a Credible Candidate for a State Governorship?

This one fits in the "you just can't make this stuff up" category.  Let me provide a <a href="http://articles.sun-sentinel.com/2010-05-20/news/fl-rick-scott-governor-hca-20100520_1_medicare-fraud-case-hospitals-in-el-paso-hospital-giant-columbia">summary</a> from the Fort Lauderdale, Florida Sun-Sentinel, <blockquote>It was and still is the biggest Medicare fraud case in U.S. history and ended with the hospital giant Columbia/HCA paying a record $1.7 billion in fines, penalties and damages. Now the man who ran the company at the time wants to be Florida's governor. Rick Scott was co-founder and CEO of Columbia/HCA in the 1990s, when the FBI launched a massive, multi-state investigation that led to the company pleading guilty to criminal charges of overbilling the government. Today, Scott is a Republican candidate for governor, running his campaign from an office in downtown Fort Lauderdale.</blockquote> Here is the Sun-Sentinel's review of the Columbia/ HCA case from the end of the 20th century: <blockquote>A Dallas lawyer whose clients included health care companies, Scott came from humble Midwestern roots — his father was a truck driver and his mother a JC Penney sales clerk. In 1987, at the age of 34, he started Columbia, investing $125,000 to buy two hospitals in El Paso, Texas. Within a decade, he was running the largest health care company in the country with more than 340 hospitals and $20 billion in annual revenue. Columbia aggressively bought other health care companies, including the Hospital Corporation of America, and became Columbia/HCA. The federal government began investigating in the mid 1990s with the help of whistleblowers including [Jim] Alderson and John Schilling, a Medicare reimbursement supervisor in Fort Myers. Among the fraudulent practices uncovered: billing Medicare and Medicaid for unnecessary lab tests, creating false diagnoses to claim a higher reimbursement and charging for marketing and advertising costs that were disguised as community education. The company even billed the government for tickets to the Kentucky Derby and country club dues, according to news accounts. The government's investigation became public in 1997 and that July, the FBI raided Columbia/HCA offices in seven states, including Florida. Days later, the board of directors announced Scott was out.</blockquote> The St Petersburg Times/ Miami Herald Politifacts Florida <a href="http://www.politifact.com/florida/statements/2010/may/20/alex-sink/rick-scott-healthcare-ceo-faces-questions-a/">web-site </a>included more details about the nature of the offenses alleged: <blockquote>* Columbia billed Medicare, Medicaid, the Defense Department's TRICARE health care program, and the Federal Employees' Health Benefits Program for lab tests that were not medically necessary or not ordered by physicians; * The company attached false diagnosis codes to patient records in order to increase reimbursement to the hospitals; * The company illegally claimed non-reimbursable marketing and advertising costs as community education; * Columbia billed the government for home health care visits for patients who did not qualify to receive them. </blockquote> It also documented the guilty pleas resulting from the charges: <blockquote>Southern District of Florida (Miami) -- Columbia Homecare Group Inc., a subsidiary of Columbia, will plead guilty to one count of conspiracy to defraud the U.S. and to violate the Medicare Anti-kickback Statute involving its fraudulent business in the purchase and operation of home health agencies and fraudulent billing of Medicare for management and personnel costs. The criminal fine is $3.36 million; Northern District of Georgia (Atlanta) -- Columbia Homecare Inc. will plead guilty to one count of violating the Medicare Anti-kickback Statute related to purchase of home health agencies. The criminal fine is $3.36 million; Department of Justice Criminal Fraud Section -- Another subsidiary, Columbia Management Companies Inc., will plead guilty to one count of conspiracy to defraud the U.S. and to make and use false writings and documents in connection with its fraudulent 'upcoding' of bills to Medicare for patients diagnosed with certain types of pneumonia. The criminal fine is $27.5 million. This investigation was based in Nashville, Tennessee; Middle District of Florida (Tampa) -- Columbia Homecare Group will plead guilty to one count of conspiring to defraud the U.S. and one count of conspiracy to violate the Medicare Anti-kickback Statute in connection with the purchase and operation of home health agencies. The criminal fine is $8.4 million. Also, Columbia Management Companies will plead guilty to eight counts of making false statements to the U.S. in connection with the submission of false cost reports to Medicare. The fine amount is $22.6 million; and, Western District of Texas (El Paso) -- Columbia Homecare Group will plead to a conspiracy to pay kickbacks and other monetary benefits to doctors in violation of the Medicare Anti-kickback Statute. The criminal fine is $30.1 million.</blockquote> The case was extensively dicussed in <a href="http://www.moneydrivenmedicine.org/">Money-Driven Medicine</a> by Maggie Mahar, who suggested that the business culture that Scott created lead to these crimes: <blockquote>Scott was obsessed not just with winning, but with money</blockquote> <blockquote>He bullied his subordinates. 'My father owned and operated a millinery factory in the garment district and [even in that tough garmento environment] I never witnessed such an extent of demeaning, debasing, and devaluing behavior as I personally experienced at Columbia,' Mark E. Singer, administrative director for medicine at Michael Reese Hospital in Chicago told The New York Times.</blockquote> <blockquote>Internal records showed that at Columbia/ HCA, just as at many other for-profits, executive salaries hinged not on such criteria as reducing infections or lowering death rates, but on meeting financial targets like 'growth in admissions and surgery cases.'</blockquote> <blockquote>Scott's detractors claimed that his cost cutting threatened patient care and safety: 'Gloves come in only one size and rip easily,' complained hospital workers in Florida. In California, nurses protested 'filty conditions,' and being 'stretched to the limit'....</blockquote> The Sun-Sentinel article included allegations that Scott actually knew about the crimes to which Columbia/ HCA subsidiaries pleaded guilty: <blockquote>Alderson thinks Scott had to know. The hospitals kept two sets of books: One showed the reimbursements actually submitted to Medicare and the other, marked confidential, detailed those charges that would likely be rejected if caught by federal auditors. The company kept funds in reserve to repay the government for those claims and once the timeframe for an audit had passed, the reserves would be reclassified as revenue, Alderson said. 'They had $1 billion in play in these reserves,' said Alderson, who now lives in La Quinta, Calif., and speaks to college students and Rotary clubs about business ethics. 'Anywhere from 25 to 33 percent of their bottom line was these reserves, so you bet he knew about it.''</blockquote> Scott was never charged with a crime. Instead, he "left Columbia/HCA with $10 million in severance and stock valued at $300 million." Now, he "lives in Naples in a $9 million house on the Gulf of Mexico." But, <blockquote>Joe Ford, the FBI agent who led the Columbia/HCA investigation and then took on corporate fraud at Enron, retired from the bureau and lives near San Francisco. He declined to comment for this story article but was quoted in a 2008 book by Schilling as saying that his biggest regret in the Columbia/HCA case was not charging corporate executives. 'After Columbia/HCA, I realized people, individual corporate officers, had to be held ccountable for the actions of their companies,' Ford said in Schilling's book, 'Undercover: How I Went from Company Man to FBI Spy – and Exposed the Worst Healthcare Fraud in U.S. History.' 'Instead of just giving us [the government] money, people need to go to jail,' Ford said in the book. 'I learn from my mistakes, and this was my first big one.'</blockquote> Of course, we have noted a parade of <a href="http://hcrenewal.blogspot.com/search/label/legal%20settlements">legal settlements</a> involving and <a href="http://hcrenewal.blogspot.com/search/label/crime">guilty pleas and criminal convictions</a> by  health care organizations, (or often just subsidiaries conveniently available to take the rap).  As we have noted, resulting fines may be just be treated as costs of doing business by health care leaders.  Almost never have the people who authorized, directed, or implemented wrong-doing almost never suffer negative consequences. Instead, they may just continue to haunt health care and society at large. Mr Scott's campaign web-site noted "mistakes were certainly made at Columbia/ HCA. As CEO I accept responsibility for what happened on my watch." If only.... To conclude, as I have repeated seemingly infinitum, we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich. ADDENDUM (27 May, 2010) - see comments by Maggie Mahar <a href="http://www.healthbeatblog.com/2010/05/hca-columbias-rick-scott-the-next-governor-of-florida.html">on the Health Beat Blog</a>.

How Did the CEO Who Presided Over the Company that Paid a $1.7 Billion Fraud Settlement Become a Credible Candidate for a State Governorship?

This one fits in the "you just can't make this stuff up" category. Let me provide a summary from the Fort Lauderdale, Florid...

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Genzyme Settles

In late 2009, we <a href="http://hcrenewal.blogspot.com/2009/11/genzymes-remarkable-businessstrategy.html">posted </a>about problems at a Genzyme plant that manufactured some fabulously expensive drugs, e.g. Cerezyme whose cost to patients approximated $160,000 a year.  We thought then that for a drug costing that much, the company ought to have figured out a conservative process to provide pure and unadulterated product.  In a later <a href="http://hcrenewal.blogspot.com/2009/11/was-is-worst-biotech-ceo-worth.html">post</a> we also why a company that could afford to make its CEO very rich could not afford to adequately maintain its manufacturing facilities. Now Genzyme has reached a settlement with the US Food and Drug Administration (FDA) on the matter.  As <a href="http://www.boston.com/business/healthcare/articles/2010/05/25/supervision_of_7_8_years_ordered_for_genzyme/">reported</a> by the Boston Globe, <blockquote>Genzyme Corp will remain under federal oversight for the next seven to eight years as it works to fix quality-control problems that have bedeviled its Allston Landing plant for 15 months. The timetable was spelled out in a consent decree struck between Genzyme and the Food and Drug Administration. Under its terms, Genzyme will pay a previously disclosed $175 million federal fine, the first in its 29-year history. The agreement, filed with the US District Court in Boston yesterday, is subject to court approval. Although the company said last month that it expected to pay the $175 million fine, other terms of the consent decree were not known until yesterday. Among them, Genzyme agreed to move fill-finishing work for its domestic drug shipments out of the Allston site by November. The transfer of fill-finishing for overseas shipments will take place by Aug. 31, 2011. Fill finishing is the process of pouring drugs into vials for shipments to hospitals and clinics, where they are administered to patients. Late last year, inspectors found bits of steel, rubber, and fiber in some drugs during the fill-finishing process in Allston. The work will be moved to a Genzyme operation in Waterford, Ireland, and to subcontractors such as Hospira Inc., subject to approval by federal regulators. The firm faces additional fines if it fails to meet FDA deadlines In all, the Cambridge biotechnology giant will spend two to three years in remediation under the consent decree, and another five years under oversight by a third-party contractor, the Quantic Group, a Livingston, N.J., consulting firm focused on boosting manufacturing quality and safety. Quantic will craft a remediation plan with Genzyme, and the company could be fined $15,000 a day for missing milestones.</blockquote> So now Genzyme is marching in our <a href="http://hcrenewal.blogspot.com/search/label/legal%20settlements">parade of settlements</a>.  While this settlement is of charges related to very fundamental violations, failure to manufacture pure and unadulterated drugs, in one important way its provisions seem similar to many other such settlements we have now seen.  The settlement fines the company as a whole, but results in no penalties for any individuals.  As we have noted before, fines, even fines larger than this one, can be regarded just as a cost of doing business (especially when the business is very lucrative.  The company's <a href="http://www.sec.gov/Archives/edgar/data/732485/000104746910004189/a2198211zdefc14a.htm">2010 proxy statement</a> noted that even in 2009, when production was affected by the plant closure, "sales of Cerezyme were $793 million, compared with $1.2 billion in 2008. Sales of Fabrazyme were $431 million compared with $494 million in the previous year. So the company was fined $175 million for production problems with two drugs that brought in over $1.2 billion in revenue in 2009.)  Furthermore, the fine's impact may be diffused over the whole company, and ultimately comes out of the pockets of stockholders, employees, and customers alike.  It provides no negative incentives for those who authorized, directed, or implemented the behavior in question.  So it is not clear that settlements like this deter future wrong-doing. Additionally, as we noted in the <a href="http://hcrenewal.blogspot.com/2009/11/was-is-worst-biotech-ceo-worth.html">earlier post</a>, the current CEO of Genzyme has gotten quite rich by virtue of his position.  While the <a href="http://www.sec.gov/Archives/edgar/data/732485/000104746910004189/a2198211zdefc14a.htm">2010 Genzyme proxy statement</a> indicates his compensation was affected by the financial impact of the production slowdown, even so he continued to get richer, albeit at a slightly slower pace than he did before.  That statement indicates that in 2009, CEO Henri Termeer's total compensation was a mere $9,507,403, down from $12,699,301 the previous year.  The main difference was that his non-equity incentive plan compensation dropped from $1,962,725 to 0.  While a $3 million plus salary decrement seems sizable, it is hard to conceive of an executive who makes nearly $10 million a year as suffering major financial consequences from the current debacle.  As I have said before, endlessly, we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

Genzyme Settles

In late 2009, we posted about problems at a Genzyme plant that manufactured some fabulously expensive drugs, e.g. Cerezyme whose cost to pat...

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The Stewards of an Elite University, or a "Politburo" of "Shadow Bankers?"

We have postulated that one of the key reasons US health care has become so dysfunctional is that the leaders of some of the most august health care institutions have strayed from, if not totally abandoned their organizations' fundamental missions.  There are many possible reasons for this phenomenon, but one is that the ultimate stewards of not-for-profit health care organizations, their boards of directors or trustees, have become uninterested in the mission, or impotent to uphold it.  So, we have tried to figure out what has happened to these boards that has lead to this sorry state. Dartmouth College: the Packing of the Board of Trustees One example we have come frequently discussed (beginning <a href="http://hcrenewal.blogspot.com/2007/09/oceania-in-new-hampshire.html">here</a>) is that of Dartmouth College, despite its name, really a university, and one of the elite American universities which includes a well-regarded medical school.   For a long time, Dartmouth had one of the more accountable and representative systems of governance found in US universities.  Recently, however, this accountability and transparency was challenged by some of the College's own leaders.  Most boards of trustees are self-elected.  When an old member leaves, the new members elect his or her successor.  Dartmouth alumni, however can elect eight members of the board of trustees. Until recently, eight others were "charter trustees," who were individually chosen by the other charter trustees, and two were ex-officio. Although the College's Association of Alumni traditionally nominated alumni to run for trustee positions, candidates could be nominated by petition, and starting in 2004, four such petition candidates were elected. As <a href="http://www.thefire.org/index.php/article/10355.html">described</a> by FIRE, the Foundation for Integrity and Responsibility in Medicine, this more open process fostered change in how the university was lead, and seemed to foster renewed attention to the institution's mission: <blockquote>These trustees spoke out when they perceived their alma mater as not living up to its mission, and Dartmouth students benefited. In May 2005, the college repealed its speech code, and it immediately moved from FIRE's 'red-light' rating and became a 'green-light' institution.</blockquote> As might be expected, the reigning leadership was not pleased. <blockquote>Some campus officials viewed the propensity of petition candidates to voice their opinions on illiberal policies as detrimental to the school's image. The Wall Street Journal profiled T.J. Rodgers, a petition-nominated trustee, who explained the criticisms leveled at the 'divisive dissidents.' 'If 'divisive' means there are issues and we debate the issues and move forward according to a consensus, then divisive equals democracy, and democracy is good. The alternative, which I fear is what the administration and [Board of Trustees Chairman] Ed Haldeman are after right now, is a politburo-one-party rule.'</blockquote> In 2007, in apparent response to the "divisiveness" of the petition trustees, the Charter Trustees proposed increasing their own numbers. Chairman Ed Haldeman's rationale for this, as we discussed <a href="http://hcrenewal.blogspot.com/2009/04/hedge-fund-u-version-2.html">here</a>, was to ensure that the board "has the broad range of backgrounds, skills, expertise, and fundraising capabilities needed," and that the board members would possess "even more diverse backgrounds." Charter Trustees or "Shadow Bankers"? Yet when we examined the backgrounds of the current charter trustees, we found that they exhibited little diversity. Remarkably, three-quarters (6/8) were in leaders of the finance sector. The board chairman, Ed Haldeman, was then the leader of Putnam Funds.  Now, he is the <a href="http://www.freddiemac.com/bios/exec/haldeman.html">CEO of "Freddie Mac."</a>  In 2007, the significance of this kind of lack of diversity were not clear.  However, it did seem strange that those accused of seeking to form a "politburo" came from the Wall Street, the street that the left once loved to hate. However, by late 2008, the world economy descended into an unprecedented financial collapse. Many concluded that the global economic collapse was caused by arrogance, greed, and corruption within the financial sector. This suggested that leadership of academia, and academic medicine in particular, by leaders of the finance sector might not, in retrospect, have been a such a good idea. When we reexamined the composition of the now enlarged cohort of Charter Trustees, however, we found nine of 13 "charter" trustees were leaders in finance, now including three in asset management, two in private equity, one in the field formerly known as investment banking, one in venture capital, one in mutual funds, and one in strategic consulting and investment. Of the remaining four, one was the CEO of a large diversified corporation that has a major finance subsidiary. The remaining three were two physicians and a pharmaceutical corporate CEO. Given the ongoing financial chaos at the time, we again suggested that a board dominated by business leaders in the finance sector might not be a good idea. Last week, a report came out suggesting why we were right. Charter Trustees as Dartmouth's Own "Shadow Bankers" "<a href="http://www.tellus.org/publications/files/endowmentcrisis.pdf">Educational Endowments and the Financial Crisis: Social Costs and Systemic Risks in the Shadow Banking System</a>," published by the Center for Social Philanthropy, Tellus Institute, focused on how prominent educational institutions, including Dartmouth College, came to invest much of their endowments in risky, illiquid "alternative" investments, the sort provided by the "shadow banking system." The report noted that this change lead to greater financial risks, leading to recent losses and consequent sharp cutbacks in spending, programs, and employment at the affected institutions. In particular, however, it focused on leadership and governance problems at the institutions that lead to this state of affairs. <blockquote>Although the emergence of the high-risk Endowment Model of Investing has taken place against the backdrop of powerful forces of financial globalization and the influence of Modern Portfolio Theory, its consolidation and influence today at colleges and universities depend vitally on college leaders: senior administrators, trustees, and investment managers, especially the increasingly prominent role of chief investment officer, or CIO. The financial crisis has in many ways been a crisis of leadership. The precipitous declines endowments have suffered during the credit crisis need to be understood as the logical outcome of the Endowment Model’s high risk strategies, but behind the model stand those who are ultimately responsible for its execution: whether as professional money managers, investment officers, affiliated investment management companies, outside managers, or investment consultants, or as the fiduciaries sitting on governing boards and investment committees.</blockquote> At Dartmouth, in particular, the report focused on conflicts of interest among the board of trustees: <blockquote>When it comes to weakened endowment oversight, the most glaring problem arises from trustees from the finance industry whose firms provide investment management services. One of the most disconcerting cases in this respect is that of Dartmouth College, where the sudden departure of CIO David Russ in 2009 created a leadership vacuum over endowment management. The college’s investment committee chair and trustee Stephen Mandel has played the CIO role on a voluntary, part-time basis since last summer and will continue to do so until he becomes chair of the board of trustees later this year. At the same time, Mandel’s firm, Lone Pine Capital LLC, a well known hedge-fund complex he founded in 1997, has also managed an investment mandate from the college’s endowment valued originally at $10 million. Although the college has a conflict-of interest policy and is required to disclose such 'pecuniary benefit transactions' with the state of New Hampshire, it would seem difficult for fellow trustees to provide proper oversight of investments managed by a fellow trustee serving as the de-facto CIO. Additionally, if Mandel recuses himself from committee or board deliberations related to his firm, then the investment committee must function without its chair. However, the problem is magnified because Mandel is only one of more than half a dozen Dartmouth trustees whose firms manage multimillion-dollar investments for the endowment, according to the college’s filings with Charitable Trusts Unit of the New Hampshire Department of Justice. Leon Black’s firm Apollo Management has reportedly managed at least $40 million in Dartmouth investments. Russell Carson’s private equity firm[Welsh, Carson, Anderson and Stowe] has reportedly received at least $45 million in commitments of capital from Dartmouth. William Helman, IV’s venture capital firm Greylock Partners, has reportedly received $10 million investment mandates from the college, while R. Bradford Evans’ firm Morgan Stanley has done multiple transactions with the college, varying from investments in international real estate and hedge funds to bond issuances, all at undisclosed levels. P. Andrew McLane [T A Associates] and Jonathan Newcomb [Leeds Weld and Co] have also had reported interests in college investments at undisclosed levels. For an endowment of its size— Dartmouth’s endowment fell to less than $3 billion in fiscal year 2009—the deep dependence on trustees’ own businesses for endowment management seems disproportionate.</blockquote> Thus, one half of the membership of Dartmouth's Charter Trustees were also being paid by Dartmouth to manage its endowment investments.  However, as the Tellus Institute report noted, <blockquote>Leading experts on nonprofit board governance, such as Richard Chait at Harvard University, stress that colleges should simply not do business with the companies of their board members, in order to avoid inevitable distractions and the sense of divided loyalties that arise, to say nothing of appearances of self-dealing and personal enrichment</blockquote> Another "Missing Link": Board Members Doing Business with the Organizations They are Supposed to Steward We have frequently discussed the web of conflicts of interest that now permeates health care.  Most of the conflicts we have discussed up to now involve physicians or academicians who have financial ties to pharmaceutical, biotechnology, and device companies.  Health care organizational leaders also do business  with the organizations they lead have not until recently been a topic of discussion, mainly because such conflicts of interest have rarely been disclosed. It looks like this is going to change.  The US Internal Revenue Service sought disclosure of such conflicts of interest affecting hired executives and boards of trustees of not-for-profit organizations beginning in 2009.  These disclosures, reported on IRS form 990, are just beginning to be made public.  We just <a href="http://hcrenewal.blogspot.com/2010/05/at-upmc-dealings-with-board-members.html">posted</a> about members of the board of directors of a large academic health care system who also lead or owned companies that did substantial business with the system.  Now we see that a substantial portion of the board of trustees of Dartmouth lead financial firms that managed a major portion of the College's endowment, perhaps to the overall detriment of the endowment's performance.  No wonder the Charter Trustees got nervous about petition trustees poking about their business.  As <a href="http://www.boardsource.org/Knowledge.asp?ID=3.364">summarized</a> by BoardSource, there are three traditional duties of members of boards of trustees of not-for-profit organizations: <blockquote>Duty of Care The duty of care describes the level of competence that is expected of a board member, and is commonly expressed as the duty of "care that an ordinarily prudent person would exercise in a like position and under similar circumstances." This means that a board member owes the duty to exercise reasonable care when he or she makes a decision as a steward of the organization. Duty of Loyalty The duty of loyalty is a standard of faithfulness; a board member must give undivided allegiance when making decisions affecting the organization. This means that a board member can never use information obtained as a member for personal gain, but must act in the best interests of the organization. Duty of Obedience The duty of obedience requires board members to be faithful to the organization's mission. They are not permitted to act in a way that is inconsistent with the central goals of the organization. A basis for this rule lies in the public's trust that the organization will manage donated funds to fulfill the organization's mission. </blockquote> Letting a board member's firm manage millions of dollars worth of the institution's endowment portfolio seems an obvious violation of the duty of loyalty. (Letting a board member's legal firm handle the institution's legal issues, or having a board member's advertising firm do its marketing, as described in our earlier post, also seem to be obvious violations of this duty.) A board member who sees nothing wrong with doing business with the organization he or she is supposed to steward would likely see nothing wrong in allowing the organization's mission to become a casualty of the means used to protect that business relationship. I suspect we are soon to see many more examples of hired executives and board members of revered not-for-profit organizations who have been doing business on the side with the organizations of which they are supposed to be leaders or stewards.  These sorts of conflicts of interest may be another "missing link" explaining why the leadership and governance of health care organizations has gone so far astray.  As disclosure continues, maybe enough outrage will ensue so that improved leadership and governance will become possible.

The Stewards of an Elite University, or a "Politburo" of "Shadow Bankers?"

We have postulated that one of the key reasons US health care has become so dysfunctional is that the leaders of some of the most august hea...

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At UPMC: Dealings with Board Members' Firms and Executives' Relatives, a $5 Million Plus CEO, and 8 $1 Million Plus Executives

Last year we <a href="http://hcrenewal.blogspot.com/2009/05/irs-changes-form-990-to-make-not-for.html">noted</a> that the US Internal Revenue Service (IRS) required more detailed reporting starting in 2009 by US not-for-profit organizations.  Many US health insurance companies/ managed care organizations, most hospitals, nearly all medical associations, nearly all disease advocacy organizations, all health care charities, and nearly all medical schools are not-for-profit organizations.  We suggested then that this reporting might lead to more transparency about the leadership and governance of these organizations.  Some of these new 990 forms are now being publicly disclosed, with some interesting findings.  The Pittsburgh Tribune-Review just <a href="http://www.pittsburghlive.com/x/pittsburghtrib/news/pittsburgh/s_682244.html">reported</a> some interesting findings about financial ties between the University of Pittsburgh Medical Center (UPMC) and its board members and hired executives. <blockquote>Health giant UPMC paid more than $10 million last year to companies and individuals with ties to its directors and high-ranking executives, newly released tax records show. The payments include more than $3 million in salaries and contracts to relatives of UPMC CEO Jeffrey Romoff, who earned $5.16 million in fiscal 2009.</blockquote> It was no surprise that a UPMC spokesman pooh-poohed the significance of these relationships. <blockquote>'Given that UPMC is the largest employer in Pittsburgh and attracts talent from across the world, it's easy to understand why there are hundreds of employees with family members who also work at UPMC,' said spokesman Paul Wood. 'We seek to hire the best and brightest in every position, regardless of family relationships, and take appropriate steps to manage any conflicts that those relationships might entail.'</blockquote> The specifics about payments to the relatives of top hired executives were: <blockquote>Tax records show UPMC paid $264,274 to Rebecca Kaul, the CEO's daughter. Wood said UPMC then billed a contractor for her services. Kaul now works for UPMC as executive director of the Technology Development Center, Wood said. UPMC paid $259,488 to Scott Gilstrap, who joined the health care giant before marrying Romoff's daughter. Gilstrap, now divorced, no longer works for UPMC, Wood said. Wood said UPMC's contract for $2.48 million with Paradise Group, an advertising firm owned by the CEO's brother, Douglas Romoff, was not renewed after its March 2009 expiration. 'Jeffrey Romoff was not involved in any of the decisions pertaining to this contract,' Wood said. In addition to Romoff's family connections, the tax records show UPMC paid Scott Cindrich, son of its chief counsel Robert J. Cindrich, $141,599. Wood said the younger Cindrich joined UPMC before his father left a federal judgeship in 2004 to become UPMC's top lawyer. Robert Cindrich was paid $1.86 million. Cindrich did not return telephone calls seeking comment.</blockquote> The specifics about dealings between UPMC and its board members were: <blockquote>Tax records show companies affiliated with board member Anne V. Lewis do the most business with UPMC. Oxford Development Company, where Lewis is board chair, received $4.84 million from UPMC. Lewis is affiliated with Central Securities Services, which received $201,198 from UPMC, and Central Property Services, which received $457,051. Lewis did not return repeated telephone calls from the Tribune-Review. According to the returns, the Downtown law firm of Pietragallo Gordon Alfano Bosick and Raspanti earned $348,616 in legal fees. William Pietragallo is a UPMC board member. The law firm paid $792,215 to UPMC for heath insurance. Pietragallo said he filled out a conflict-of-interest form, as he has in past years. 'It reminds me of how much I pay for health insurance,' he said. IGate Mastech, the tech company founded by UPMC board member Sunil Wadhwani, received $204,215 for computer services. JJ Gumberg and Co., affiliated with board member Ira Gumberg, was paid $103,521, tax records show. Neither Wadhwani nor Gumberg returned telephone calls. Board member John R. McGinley Jr.'s law firm, Eckert Seamans Cherin and Mellott, was paid $804,414 for legal services, according to the returns. McGinley and board member Robert A. Paul and members of their families are affiliated with Pittsburgh Steelers Premium Tickets LP, which was paid $129,425, tax returns show. McGinley said he believed the figures UMPC reported are correct. Paul did not return telephone calls.</blockquote> Also, in a separate article, the Tribune-Review <a href="http://www.pittsburghlive.com/x/pittsburghtrib/news/pittsburgh/s_682217.html">noted</a> transactions between UPMC's insurance subsidiary and its board members' firms <blockquote>Recent federal tax filings show companies associated with some UPMC board members also buy their employee health insurance through the health care giant's insurance arm. The tax returns show that health insurance premiums paid by the companies affiliated with board members totaled about $8 million in the fiscal year ending June 30, 2009. Nine firms affiliated with board members purchased UPMC health insurance. That figure includes nearly $1.8 million by Bank of New York Mellon. UPMC board member Stephen Elliott is affiliated with the bank. Oxford Development paid $2.1 million in premiums. The development firm's chairman is Anne Lewis, a UPMC board member. The law firm headed by UPMC board member William Pietragallo paid $792,215 in premiums, according to the returns. AMPCO-Pittsburgh, which is affiliated with UPMC board member Robert A. Paul, paid a little more than $1 million in premiums.</blockquote> Of course, Mr Wood pooh-poohed that too: <blockquote>UPMC spokesman Paul Wood said the premiums paid by the companies were at "market rates."</blockquote> He also apparently stated that the hospital system follows "strict conflict-of-interest rules. Board members are barred from voting or acting on matters relating to their business interests...."  The standard approach of most not-for-profit organizations to conflicts of interests involving their board members or executives is to have these people recuse themselves from votes or actions that directly affect their own or their families' business interests.  I submit that whether this prevents the conflict of interest from influencing decision making by the organizations is questionable.  I doubt that the board members are unaware of their fellow members' and executives' direct or familial business interests.  The fact that certain individuals need to step out of meetings when votes come up on particular contracts would be a good reminder that they or their relatives have business interests at issue at these times.  Board members tend to keep their seats for a long time, and tend to get to know their fellow members pretty well.  Even if an individual member cannot vote on a contract or action relating to his or her business interests, would it be any surprise that his or her buddies on the board might look favorably on such a contract? Furthermore, would it really be that hard to find development companies, property management firms, advertising agencies, law firms, or information technology companies in a large metropolitan area that are not affiliated with board members or top executives and their families?  Instead, UPMC seems to have found quite a few vendors affiliated with board members which do not seem particularly specialized in their organizational attributes.  Can we be sure that they are run by the best and the brightest? Maybe board members who are too cozy with each other, and too cozy with the hired executives they are supposed to supervise, would be distracted from the attentiveness required to their organization's mission by their buddies' businesses?  Perhaps coziness among board members and hired executives might have something to do with the munificent compensation given to numerous hired leaders of UPMC.  A separate <a href="http://www.post-gazette.com/pg/10135/1058260-28.stm">article</a> in the Pittsburgh Post-Gazette stated: <blockquote>Jeffrey Romoff, president and CEO of the University of Pittsburgh Medical Center, received $3.563 million in salary in 2009, a 24.4 percent decrease from his 2008 salary of $4.711 million.</blockquote>However, <blockquote>In addition to Mr. Romoff's $4.711 million in cash compensation in 2008, he received $428,214 in deferred compensation and $21,671 in nontaxable benefits, for a total package valued at $5.161 million.</blockquote> In addition, <blockquote>Other top UPMC earners include Elizabeth Concordia, executive vice president and president of the Hospital and Community Services Division, $2.139 million; Amin Kassam, the department of neurological surgery chair who resigned in July, $2.083 million; Robert Cindrich, senior vice president and chief legal officer, $1.869 million; neurosurgeon Ghassan Beijani, $1.798 million; neurosurgeon Adnan Abla, $1.620 million. Also, Marshall Webster, executive vice president and chief medical officer, $1.514 million; Diane Holder, president and CEO of UPMC Health Plan, $1.485 million; James Luketich, co-director of surgical affairs at the University of Pittsburgh Cancer Institute, $1.442 million; Daniel Drawbaugh, senior vice president and chief information officer, $1.335 million; and David Farner, senior vice president and chief of staff in the office of the president, $1.253 million.</blockquote>By my count, that was eight executives with yearly total compensation greater than $1 million (in addition to two very well paid neurosurgeons.)  These payments, which most people would say are sufficient to make their recipients rich, were handed out by a not-for-profit organization whose <a href="http://www.upmc.com/aboutupmc/TheUPMCStory/governance/Pages/mission-vision-values.aspx">mission statement</a> includes being "committed to providing premier health care services to our region and contributing to this community" at the end of a bog of business-speak.  I suspect most people would think "contributing to this community" means something in addition to contributing to the wealth of a few top executives, and contributing to the business income of board members and executives' relatives.  Again, are board members who have become cozy with each other and the executives they are supposed to supervise more likely to be distracted from their fiduciary duty to the not-for-profit organization by their buddies' friendships? We often discuss <a href="http://hcrenewal.blogspot.com/search/label/conflicts%20of%20interest">conflicts of interest</a> on this blog.  Many of these involve financial relationships among health care professionals and academics on one hand, and pharmaceutical, biotechnology, device and other health care corporations on the other.  However, I suspect that conflicts involving leadership of hospitals and local businesses and vendors may be more common.  The latter may not always have as much influence on the quality of care, teaching and research as former group of conflicts.  However, they may have more effects on the total costs of health care, and may contribute more to the coziness, sense of entitlement, and inattention to the mission that seem to characterize much of health care leadership.  They may contribute to the perception that health care, like finance, may now be about , <a href="http://hcrenewal.blogspot.com/2009/12/compensation-madness-insiders-hijacking.html">as Prof Mintzberg said</a>, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit." The new version of the IRS forms are just beginning to become public, so we expect to see many more juicy stories about the financial and family ties of leaders of health care not-for-profit organizations.  Watch your local newspapers for details about conflicts of interest at your local health care not-for-profit organizations. Maybe as more is revealed, the need for more transparent, accountable, and ethical governance of health care organizations will become apparent.

At UPMC: Dealings with Board Members' Firms and Executives' Relatives, a $5 Million Plus CEO, and 8 $1 Million Plus Executives

Last year we noted that the US Internal Revenue Service (IRS) required more detailed reporting starting in 2009 by US not-for-profit organi...

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