Being a Non-Profit Hospital CEO Means Never Having to Say You Are Sorry

When my arm was twisted heartily to see the movie "Love Story" a very long time ago, I could never understand why so many audience members sighed upon hearing that immortal line, "love means never having to say you're sorry."  I could not understand it then, and still cannot.

However, it seems that for reasons that are not any more clear, being the CEO of a not-for-profit hospital or hospital system also means never having to say you are sorry, as shown in some recent stories from the media.

Not Sorry for Leaving

Originally published in the Fargo (ND) InForum:

The merger 1½ years ago of Sanford Health and MeritCare created a new entity that doubled in size and covers a service area of more than 130,000 square miles.

But the unified health care giant needed only one top executive, and the departing chief administrator received a $1 million contract buyout, according to documents obtained by The Forum.

Dr. Roger Gilbertson, a neuroradiologist who had served as MeritCare’s top executive since its founding 17 years earlier, received a 'separation payment' provided by his contract of $1,000,920, according to a report Sanford filed with the Internal Revenue Service that recently became available.

Not only did Dr Gilbertson not have to say he was sorry for leaving, he collected what amounted to a million dollar plus bonus just for going out the door.

Not Sorry for Leaving Amidst Financial Losses

A long story in the Atlanta Journal Constitution discussed compensation for a number of Atlanta area hospital and hospital system CEOs.  For example,

Edward Bonn of Southern Regional Health System, which operates Southern Regional Medical Center and two affiliated facilities, made $2,610,175 in fiscal 2009. Bonn left the system that year and received his pay of $421,822 plus $2.2 million from a retirement plan. Hospital CEOs commonly receive extra pay from retirement plans when they leave.

Bonn did not receive a bonus because the hospital system lost $12 million that year, the hospital said.

Mr Bonn apparently did not need to say he was sorry for collecting over $2 million when that amount was equal to about one-sixth of his system's yearly loss.

Not Sorry for Financial Losses Plus a "Culture of Entitlement"

This story was in the Peterborough (NH) Examiner:

Former Peterborough Regional Health Centre CEO Paul Darby was given at least $340,126 plus benefits as a financial package after his retirement in December 2009.


He didn't work a single day or offer a single service in 2010 while earning the second top salary at PRHC, just behind current CEO Ken Tremblay.

'The compensations with Paul were in line with similar arrangements with other CEOs and other public hospitals which include support to the executive following the employment period,' board chairwomen Barb Cameron said. 'It is important that we are able to make transitions between leaders smoothly and these kinds of arrangements with the executive allow us to do that.'

Darby retired before a whirlwind of controversy hit the hospital last year including a scathing peer-review report blaming hospital top brass for a 'culture of entitlement' leading to spiraling, cumulative debt.


When Darby left, the hospital faced a growing deficit of just under $25 million.

He was paid $364,275 in 2009, $310,983 in 2008 and $269,419 in 2007.

At least his severance package was less than one-sixth of the deficit.
Not Sorry for Not Even Revealing One's Salary

Here is a local Rhode Island story reported by WPRI:

The nonprofit group that runs three Rhode Island Hospitals including Women & Infants won’t say whether its new chief executive will receive a seven-figure pay package that matches his predecessor’s.

Care New England tapped Cambridge Health Alliance CEO Dennis Keefe as its new president and CEO this week. He will succeed John Hynes, who is retiring, in August.

Care New England spokeswoman May Kernan said the organization would not release details about Keefe’s compensation. 'Other than complying with public reporting requirements as part of the federal [IRS] 990 forms, we do not disclose personal salary information,' she told WPRI.com in an email.

Hynes’ compensation totaled $1.5 million in 2008-09, up from $873,332 in 2007-08, tax records show.

Note that the hired executives of big for-profit corporations also are increasingly uncomfortable about public discussion of their compensation (see this post).
Where All CEOs Are Above Average

The rationales presented for such apparently exceptional treatment given non-profit hospital CEOs (and other hired health care managers) are those we have heard before.

The most prominent rationale for exceptional treatment of an individual CEO is that he (or rarely she) was such an exceptional leader. This would be more believable if it was not used so often, suggesting that those who defend these leaders, often including the boards of trustees who are supposed to supervise them, believe all hospital CEOs, like the mythical children of Lake Woebegone, are above average.

For example, the InForum article provided this explanation of Dr Gilbertson's compensation:

The only comment Sanford provided The Forum was a statement about Gilbertson’s contributions to MeritCare over his long tenure.

'Dr. Gilbertson’s gift to this region is invaluable – 30 years in medicine and 17 years as President/CEO of MeritCare only glance the surface,' said Andrew Richberg, a Sanford executive vice president. 'His vision for health care integration, medical knowledge and dedication to patients made him a pillar in our industry.'

Gilbertson’s legacy, Richberg added, is 'strong, safe and sustainable health care for all people, in their hometowns, all across the region.'

While the article did not suggest Dr Gilbertson's leadership was poor, it is hard to believe that he alone was responsible for "strong, safe and sustainable health care for all people ... all across the region." I am sure there are many other health care professionals in North Dakota who have worked for many years, and who have a strong vision, good medical knowledge, and dedication to patients.  I am sure almost none got $1 million severance packages.  If health care in North Dakota is really that good, is that not because of a lot of hard work by a lot of health care professionals?

The rationale of exceptional treatment for exceptional individuals would also be more believable if it was not used to defend CEOs whose organization performed poorly under their leadership. For example, in the Peterborough Examiner:

'I would like to acknowledge that these are big salaries, but they are big positions in a large hospital involving large responsibilities and requiring unique skills,' [hospital board of trustees chairwoman] Cameron said,....

Would not having the large responsibility for a large deficit argue against a large severance package?

The Market Made Us Do It

Despite substantial evidence and strong arguments (see here) that health care cannot approach being an ideal free market, another favorite rationale for CEO exceptionalism is that the market made us do it. For example, per the AJC:

The number of people who can manage these facilities is limited and recruitment is competitive, [Georgia Hospital Association President Joseph] Parker said.

Qualified leaders will gravitate to other fields over time if compensation for nonprofit CEOs is decreased, [executive search consulting company Mercer Inc partner Jose] Pagoaga said. The 'substandard leadership' that replaces them will degrade the quality of medical care for the community.

There’s debate on the issue.

It’s hard to believe that people who choose the field of charitable medical care would leave because they make only $800,000 a year instead of $1.5 million, said Mark Rukavina, executive director of the Access Project, a Boston patient advocacy organization.

But Pagoaga said nonprofit hospitals cannot count on their charitable duty to attract and retain the best administrators.

'Yes, it’s a social mission, but this is not the priesthood and these people have not taken a vow of poverty,' he said. 'You can’t discount the views of people that look at this as an altruistic mission and think that pay should therefore be limited. All I’m saying is there is an entirely different point of view based on free-market principles.'

In the real world, of course, poverty would hardly be defined as an income less than $1 million a year. Mr Pagoaga never explicated the point of view based on "free-market principles," but I wonder if it can be summarized as "greed is good?"  It would be interesting to see how Mr Pagoaga could explain how health care is like unto an ideal free market.  

Non-Profit Organizations are Not Very Different from For-Profit

Perhaps the most intriguing argument was found in the AJC article:

Pay in excess of $1 million a year may seem high for an organization subsidized by taxpayers, but hospital executives and industry representatives said the public should think of these hospitals not as charities, but as complex, billion-dollar organizations.

Georgia hospitals report to 27 state and federal agencies and engage in multimillion-dollar building projects. The larger hospital systems have billions in revenue and are among the largest employers in their communities. Many also operate for-profit subsidiaries.

'You can’t lose sight of the fact that it’s not an ice cream shop on the side of the street,' said Joseph Parker, president of the Georgia Hospital Association.

Note that currently US non-profit organizations do not have to report much data on their for-profit subsidiaries.  The above argument suggests they deserve considerably more scrutiny.
Of course, that last explanation begs the question of why the compensation of for-profit hired executives should be even higher, with CEO compensation often well more than two orders of magnitude, that is, hundreds of times higher than that of the lowest paid also hired employees (see this post).

Summary

I submit that non-profit hospitals and hospital systems do have a "social mission," which ought to be upheld by their leadership. Despite the rationales supplied above, the leaders ought to be accountable, which may sometimes mean having to say they are sorry.

As I have repeated endlessly,... health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.

What Is to Be Done?

Based on our ever enlarging file of cases on compensation of the top hired managers of non-profit health care organizations, let me make some concrete suggestions, based on my humble opinion.

A step forward would be to make the finances and compensation arrangements of health care non-profit organizations at least as transparent as those of large public for-profit organizations. So my big idea is:

- Non-profit health care organizations above a reasonable threshold size should provide prompt, public, annual reports analogous and very similar to the reports required by the US Securities and Exchange Commission of public, for-profit companies.

These reports should include, at a minimum, a summary of financial and operational status, an audited financial report, an explanation and accounting for any for-profit subsidiaries and any interlocking non-profit organizations, the compensation given to the CEO and some minimum number of the top-paid officers and employees, a detailed explanation and rationale for the pay of these individuals, and a listing of other affiliations and all conflicts of interest affecting them.

If need to supply such information causes non-profit health care organizations' hired executives and boards of trustees some cognitive dissonance, that would be a good thing. 

More Revelations About How Top Managers Prosper While Care-Giving Employees are Laid Off This Time Leads to Labor Strife

Last month, we discussed the contrast between executive compensation at Salinas Valley Memorial Healthcare System (SVMH), a small California public hospital system, and the treatment of employees in the trenches. While the hospital had laid off workers ostensibly because of the poor economic climate, the local newspaper revealed that its CEO was leaving with a multi-million dollar retirement package, and that some of his supposed severance pay had been given him before he was severed.

This month, amidst growing labor unrest partially driven by the disparate treatment of the hired top manager and the more lowly employees who actually take care of patients, a new report revealed further contrasts between how hired executives and "regular" employees are treated.

Let me give a blow by blow summary in chronological order.

The Employees Strike

This month, the hospital system suffered its first strike ever, partially in response to the discrepancy between executive compensation and how lesser employees were treated.  According to the Los Angeles Times:

About 850 workers at a Salinas public hospital went on strike Tuesday, about two months after revelations of a multimillion-dollar pension awarded to the hospital's CEO.

Caregivers at Salinas Valley Memorial Hospital walked off their jobs at 6 a.m., according to representatives of the National Union of Healthcare Workers. The workers are protesting proposed layoffs and cuts to their retirement benefits as well as pay given to hospital executives and consultants.

The Times reported in April on the retirement package granted the hospital's outgoing chief executive, Samuel Downing, which included about $5 million in supplemental payments along with a $150,000 annual benefit. Hospital officials and board members have defended the package, saying that Downing was a successful leader throughout his 27 years as CEO.

The hospital workers' union has been negotiating with administrators since January and indicated its plan to strike earlier this month, according to union vice president John Borsos.

'There's a sense of disbelief here that the hospital can come up with millions of dollars for Downing's retirement and millions for their consultants, but when it comes to caregivers by the bedside, they say they can't find the money,' he said.

The Management's Lock-Out

Then, hospital managers' responses to the strike provoked more anger from union members, and one state agency affirmed their complaints, according to The Californian:

The California Public Employment Relations Board issued a five-page complaint against Salinas Valley Memorial Healthcare Systems, alleging that the public hospital district violated several sections of state labor law when it barred striking workers from returning to their posts Wednesday.

Prompted by charges brought by the National Union of Healthcare Workers, PERB Regional Attorney Katharine Nyman charged SVMH with committing unfair labor practices and with violating PERB regulations in the way it blocked workers from going back to work after Tuesday's one-day labor walk-out.

Strikers Picket a Board Member

Then, the union escalated its protest by picketing the house of the hospital board treasurer, according to television station KION:

Thursday morning, some union members took their demonstration from the front entrance of SVMH directly to the home of Harry Wardwell, Treasurer of the SVMH Board of Directors and President of Rabobank. 129 employees were still unable to go back on the job, replaced by temporary workers for one more day.

Wardwell is one of five publicly elected members of Salinas Valley Memorial Healthcare System's Board of Directors.

'We have to draw the Salinas community and everybody in the hospital district. Every resident in this neighborhood votes and they need to know that Harry Wardwell is making these cuts,' said Marilyn Benson, an NUHW member.

How Executive Pay Rose Faster than Inflation While Employees Were Laid Off

Just after that protest ended, The California published a new article about executive compensation:

At the same time it laid off hundreds of rank and file employees, the Salinas Valley Memorial Healthcare System steadily provided generous increases to the salary and benefits packages of its senior executive team, records show.

SVMH vice presidents Bev Ranzenberger, John Fletcher, Dr. David Perrott, Elizabeth Lorenzi, Irene Neumeister and James Griffith all received double-digit increases in their total compensation packages during the years of 2005 through 2010 according to an SVMH document obtained by The Californian on Thursday.

And while not all of the vice presidents received salary increases every year during that time period, they all received percentageincreases in total salary and benefits of 29.4 percent to 153.8 percent, which translates to annual average increases of between 5.9 percent and 30.8 percent. By comparison, for the12 months that ended in May, the national rate of inflation rose just 3.6 percent, based on the Consumer Price Index.

News of the increases incensed National Union of Healthcare Workers leaders whose members went on a one-day strike Tuesday after declaring an impasse with health care district management over wage and benefit issues and over how many more employees will be laid off as SVMH continues to struggle with reducing costs.

'How could a majority of the board approve of the outrageous salary increases while claiming that the hospital had to lay off hundreds of caregivers out of financial necessity?' asked union vice president John Borsos. 'It's not just hypocritical, but it demonstrates that the hospital has more than enough money to keep caregivers at the bedside.'

Note that the SVMH leadership's defense of the pay given top executives was typical of explanations of outsize pay given to other health care leaders:

But according to SVMH spokeswoman Adrienne Laurent, the executives' salaries are in keeping with industry standards and have been reviewed by an outside consulting agency for appropriateness.

"Compensation for our hospital executives is not taken lightly, and that's why our [Board of Directors] engaged an outside, third party to assist us in this process. An important goal set forth by our board is that all of our employees, including our executives, receive compensation that is comparable to our competitors. In order for us to successfully recruit and retain the best people, it is critical that we remain competitive with not only other public district hospitals, but also private companies," Laurent wrote in an email to The Californian.

In her email, however, Laurent did not address the seeming disparity of the institution increasing executive salaries while at the same laying-off employees.

Laurent also added that the six SVMH vice presidents do not enjoy some of the standard perquisites offered to executives at other health care institutions such as bonuses and car and cellphone allowances.

It must be tough having to pay for a cell-phone package when one's salary is only somewhat in excess of a quarter-million dollars a year.

Note that the irony of defending high pay to recruit "the best people" to executive positions while health care professionals are being laid off seemed to escape Ms Laurent.
Summary

Once again we see how the notion that "top management are different from you and me" plays out throughout the health care system. Even at a small public community hospital system, the top hired managers seem to feel entitled to be treated differently, and much better than other employees, even those who directly care for patients.  Top hired managers do not flinch at the doublethink necessary to use poor financial results as a rationale for laying-off line employees, but simultaneously for hiking the pay of top hired managers.

Again, we see how top hired managers of all sorts of health care organizations, big and small, for-profit, not-for-profit and government, delivering direct care, and manufacturing products used in care, have become accountable only to themselves. This situation, of course, produces health care done first for the benefit of its new overlords.

The case of Salinas Valley Memorial Healthcare, however, also now demonstrates that this situation is starting to produce reactions.  It now seems that the ordinary employees of health care organizations are not continuing to welcome their new overlords. SVMH endured its first strike ever mainly in response to the disparity between how top hired managers treated other employees and treated themselves. Angry employees publicly identified the board of trustees that seemed to exert no functional oversight over top management as part of the problem. I suspect that if current trends continue, we will see more labor unrest, and that unrest will be directed at hired managers and those who are supposed to oversee them.

This may eventually yield major changes in how health care is lead, but if the confrontations continue, these changes may be very messy, and continued strife may end up being bad for everyone.

Instead, we should consider real, peaceful health care reform. As I have repeated endlessly,... health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.


If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.

CEO Compensation: Nothing to See Here, Just Move Along

An article in the Washington Post showed how uncomfortable executives of big corporations, including health corporations, are about making their outsize compensation transparent. 

Here’s one financial figure some big U.S. companies would rather keep secret: how much more their chief executive makes than the typical worker.

Now a group backed by 81 major companies — including McDonald’s, Lowe’s, General Dynamics, American Airlines, IBM and General Mills — is lobbying against new rules that would force disclosure of that comparison.

The lobbying effort began more than a year ago. It involved some of the biggest names in corporate America and meetings with members of both parties on the House Financial Services Committee and Senate banking committee.

The companies and their Republican allies in Congress call comparisons between the chief and everyone else in the company 'useless.'

It's not just useless, they also claimed:

Disclosing such comparisons 'can mislead or confuse investors,' said Rep. Nan A.S. Hayworth (R-N.Y.), who filed the bill to repeal the disclosure. 'It creates heat but sheds no light.'

She also said the calculation of the ratio would be a burden for companies, especially those with global operations.

One apparent reason for their discomfort is that the pay of top hired executives has been skyrocketing while the pay of most other employees stagnates:

'The real reason House Republicans want to keep the typical worker’s pay secret is that it may embarrass some companies to reveal that they pay their CEO in the range of 400 times what they pay their typical worker,' said Sen. Robert Menendez (D-N.J.), who added the requirement to the financial regulatory overhaul bill that passed last year.

Executive compensation at the nation’s largest firms has more than quadrupled in real terms since the 1970s, according to research by Carola Frydman of MIT’s Sloan School of Management and Raven E. Molloy of the Federal Reserve, even as pay for 90 percent of American earners has stalled.

In 1970, average executive pay at the nation’s top companies was 28 times the average worker income, according to the Frydman-Molloy data and numbers provided by Emmanuel Saez at the University of California at Berkeley. By 2005, executive pay had jumped to 158 times that of the average worker.

Behind the repeal effort are some of the largest US companies:

The Center on Executive Compensation has led the criticism of the provision. The group is part of the HR Policy Association, which represents the human resources executives at 325 large companies.

The thrust of the group’s criticism is that the information would have little value for investors comparing firms, because companies have workforces that differ in skills and expected pay. Wages also vary across regions and industries.

Current rules already require disclosure of executive compensation; the new requirement calls for the additional disclosure of median worker pay. Critics say that would add little to what is already known.

'You can already tell where a CEO falls relative to his peers,' said Tim Bartl, senior vice president and general counsel for the Center on Executive Compensation. 'You can already tell where he falls relative to the average worker in the industry. What is this number going to tell us?'

Last year, the HR Policy Association paid Bartl’s law firm, McGuiness & Yager, more than $1.5 million for lobbying, according to OpenSecrets.org.

The HR Policy Association's board of directors includes executives from some of the biggest health care corporations, including pharmaceutical and device firms (Amgen, Johnson and Johnson, and Merck), commercial health insurance companies and managed care organizations (Aetna, CIGNA, and Humana), and other firms with major health care interests (General Electric, Procter and Gamble).

Note that Mr Bartl's concession that calculation of the ratio would be simple seemed to contradict Rep Hayworth's claim that the calculation would be burdensome.

Summary

It certainly appears that top hired managers of big corporations are not happy about the common people seeing how huge their pay is compared to that of other workers. They seem particularly unhappy to have their own stockholders, the common people who actually own their companies and to whom they theoretically report see how much they are making. Perhaps they fear the realization that they may be running their companies more for their personal advantage than in the interests of their supposed owners, much less the other, lesser employees, much less their customers, clients and patients, much less the public at large.

The ability of small cabals of top executives at big corporations to set their own pay independent of the wishes and interests of the corporations' owners would seem to be the fundamental threat to the capitalistic and free market ideal. After all, in my humble and perhaps naive opinion, private ownership is central to capitalism, and the apparent managers' coup d'etat seems to be a existential challenge to private ownership. (For much more informed commentary on how executives have wrested control from owners, see the blog Naked Capitalism and Robert A G Monks' website.) One wonders why so few of the many vocal supposed supporters of capitalism and free markets fail to see this as a problem.

Even though it is increasingly informative to see what has happened to health care within the context of the larger political economy, Health Care Renewal, however, is about health care issues first. So to put this in health care terms....

First, we see again how top leaders of health care organizations prefer opacity to transparency, especially when that opacity increases their ability to put self-enrichment ahead of their organizations' missions and ultimately individuals' and the public's health. They embrace opacity when it protects the perverse incentives that likely are the major cause of increasing health care costs, declining access, and worsening quality.

To repeat, and repeat, and repeat.... to reform health care, we must reverse the managers' coup d'etat, and restore leadership of health care organizations that puts the mission, and the health of patients and the population first, and is accountable to corporate owners (when applicable) and to patients and the public.  But that will mean now going up against those who have made themselves the richest and most powerful people in the country and the world, who will not lightly give up their oligarchy.

Embedded Networks of Influence in Health Care: An Illustrative Case

At the 12th International Anti-Corruption Conference (IACC), sponsored by Transparency International, one of the plenary sessions was devoted to the topic of "embedded networks of influence."  The session description included this description of the topic as:

the major stumbling block in the fight against corruption, namely, the power of 'embedded networks' in advancing personal or group interests through state institutions. The extent of their power can create what is known as “state capture” meaning democratic governance failure. It will take a close look at the influential role of private sector, especially of the multinational private sector.

A recent investigative report in the Chronicle of Higher Education illustrated a striking case of how one key individual has affected health care through multiple connections to what can be regarded as embedded networks of influence, thus tying in to many of the topics we have discussed on Health Care Renewal.

The article focused on the University of Miami and its current President, Donna Shalala. Let me summarize the set of relevant topics in roughly chronological order and note how the article links them to President Shalala.

Speech Codes and Restrictions on Free Speech within Academia

As I wrote in my 2003 article, (Poses RM. A cautionary tale: the dysfunction of the American health care system.  Eur J Int Med 2003; 14: 123-130.  Link here), speech codes and other restrictions on free speech within academia created the framework for the suppression of clinical research that may offend those with vested interests:

Failure of universities to champion the academic freedom of their clinical researchers may stem from their abandonment of their own academic core value of free enquiry. There is abundant evidence that universities may restrict expression and limit academic freedom. In The Shadow University, Kors and Silverglate charged that 'universities have become the enemy of a free society.' Universities have punished faculty and students who raised unpopular viewpoints.

In the Chronicle,

Ms. Shalala, ... was previously president of Hunter College of the City University of New York and chancellor of the University of Wisconsin at Madison....

The Shadow University, the pioneering work on challenges to individual rights by leaders at academic institutions, dealt with Ms Shalala's role as a leading early proponent of silencing speech that offended academic leaders.

Wisconsin chose to enact a speech code. On March 29, 1990, the Wisconsin ACLU joined a suit against the university, announcing that the important moral goals of toleration and equal opportunity 'can be accomplished through means other than the creation of rules which infringe upon the fundamental freedom to express ideas.'

The speech code was drafted with the help of UW-Madison Law School professors Richard Delgado, Gordon Baldwin, and Ted Finman.... On June 9, 1989, upon recommendation by Chancellor Shalala, it was adopted by the Board of Regents...."

The speech code was soon declared unconstitutional by a federal court, which held:

the policy was unconstitutional precisely because 'the UW rule regulates its speech upon its content.'

Ms Shalala then:

recommended a new code to the regents in the spring of 1992, which they adopted in March.

However,

Faced with another lawsuit, the regents reversed themselves

For these and similar efforts, as discussed by Evans and Novak in 1993, Ms Shalala was dubbed "the Queen of PC" [political correctness].

Speech codes and other restrictions on free speech in the academic setting seem mainly to be used to target speech that administrators find offensive, including speech critical of management practices. This is echoed in the Chronicle story, which suggested how fearful University of Miami faculty now are of criticizing Ms Shalala:

Others, including several current and former faculty members, outline their complaints in far more detail. But they do so anonymously, saying they don't want to tangle head-on with such a politically powerful president.

Ms Shalala's prominence in academics, probably more due to rather that in spite of her hostility to free speech and free enquiry, may have enabled her to join another and even more powerful network of influence, this one at the center of the US political world.
 
The Rise of Commercial Health Insurance 

In Deadly Spin, former CIGNA executive Wendell Potter documented how clever and unscrupulous use of public relations and marketing techniques enabled commercial health care insurance and managed care companies to increase dominance of US health care, while allowing health care costs to soar, and denying access to larger numbers of patients. 

The Chronicle article briefly alluded to Ms Shalala's role in the rise of for-profit health insurance.  Despite being labelled "farthest to the left and most controversial of all President-elect Clinton's Cabinet appointments," again per Evans and Novak, Ms Shalala departed the University of Wisconsin in 1993 to become US Secretary of Health and Human Services. In that role, she presided over the administration's failed attempt at health care reform, as Potter wrote,

When President Bill Clinton was forced to give up on comprehensive health care reform in 1994, the damage was far more extensive than anyone could have imagined - the administration's defeat emboldened health insurance companies to totally redefine the mission and methods of an industry that now strands nearly fifty million people without insurance.

As I outlined..., insurers knew after the Clinton disaster that the coast was clear for them to abandon nonprofit practices, long-standing commitments to public service, and traditional insurance models and turn instead to satisfying Wall Street investors' desire to make money, by limiting spending on health care.

Note that my only quibble with what Wendell Potter wrote is that it may be that the insurance companies' top executives, rather than their stockholders who benefited the most from these changes, as we will address below.

Ms Shalala remained Secretary of HHS until 2001, but after the failure of the health care reform proposal in 1994, her department apparently did nothing to try to ameliorate the changes to health care that Potter described above.

Bloated Executive Compensation Disproportionate to Any Measure of Organizational Performance

We have frequently discussed how health care leaders now seem entitled to get huge amounts of compensation disproportionate to their organizations' performance and their responsibility for it. 

Despite Ms Shalala's reputation in the 1990s as an extreme leftist, upon leaving her role in the Clinton administration, she almost immediately embraced the for-profit corporate model of health insurance. In a notable example of what now is called the "revolving door" that went unnoticed at the time,  Ms Shalala went from would be regulator of commercial managed care to leader of commercial managed care.  As noted by the Chronicle:

Debates over ethical boundaries are not new to those involved in the university's growth surge. Ms. Shalala was on the compensation committee of the board of the health insurer UnitedHealth Group when it was caught in one of the nation's largest-ever stock-options scandals. She also received low-cost loans in 2002 as part of a favors-for-politicians scandal at Countrywide Financial Corporation.

Both Ms. Shalala and [University of Miami medical school dean] Dr. Goldschmidt have served on the boards of companies directly or indirectly affected by the university's business decisions. The university had $30-million in annual business with UnitedHealth Group when Ms. Shalala was on its board.

Note that Ms Shalala served as Secretary of Health and Human Services from 1993 to 2001, (see this list), then joined the board of UnitedHealth Group within months (see this article.)

We discussed in considerable detail the ethical failings of UnitedHealth Group while Ms Shalala had fiduciary responsibility as a board member for its conduct. A particularly striking failing was how the board of directors granted sufficient back-dated stock options to the company's former CEO to make him a billionaire on paper.  The resulting scandal was followed by his resignation.  Later, Dr McGuire was forced to give back some the options.  The final settlement of the fiasco cost UnitedHealth $895 million, and Dr McGuire $30 million and the cancellation of 3.6 million stock options.  As we most recently summarized here, former CEO William McGuire was one of the top 10 best compensated CEOs of the first decade of the 21st century, despite the company's multiple ethical failings. 

Conflicts of Interest, Especially Involving Key Opinion Leaders who Promote Marketing Objectives Cloaked in Academic Respectability

We have extensively discussed the web of conflicts of interest that now pervades health care. For academic health care leaders, the most intense kind of conflict of interest may be created by service on the board of directors of a for-profit health care corporation.  Note that corporate directors, as we have discussed previously, have a fiduciary duty to exhibit "unyielding loyalty" to the stockholders of the company and their interests  [Per Monks RAG, Minow N. Corporate Governance, 3rd edition. Malden, MA: Blackwell Publishing, 2004. P.200.].  We first started to discuss the intense conflicts of interest generated when leaders of academic medicine are also members of boards of directors of for-profit health care corporations in 2006.  The issue really made the big time in 2010 when the New York Times published a front page article in its Sunday Business section about whether university presidents who also were corporate directors were part of an "academic-industrial complex."  As we noted above, Ms Shalala's service on the board of UnitedHealth Group created such a conflict, and she apparently presided a similar board level conflict of interest affecting her medical school dean. 

A particularly pernicious kind of conflict of interest may be created when a company selling health care goods or services pays an academic to become a "key opinion leader."  Industry spokespeople and key opinion leaders themselves tout KOLs as clinical, educational, and/or scientific experts chosen for their expertise to advance medicine, science and public health.  There are documented instances (e.g., see posts here and here) in which defectors from marketing departments of commercial health care corporations described KOLs as salespeople who could be more influential hidden within their professional or academic cloaks.  Even some physicians paid to be speakers on behalf of pharmaceutical corporations have acknowledged their role as salespeople in fancy dress (see post here).  There are cases of documents revealed by discovery in legal actions that show how companies planned organized stealth marketing efforts for drugs that included activities by KOLs (e.g., see post here about marketing of Lexapro, and here about Neurontin).

The Chronicle recounted how Ms Shalala also was linked to one of the better known examples of industry paid KOLs:

Dr. Goldschmidt did not fully report the income from such corporate associations on the medical school's financial-disclosure Web site, even while promoting the site as evidence of his faculty's commitment to openness. He also brought to Miami a repeat violator of financial-conflict-of-interest standards, Charles B. Nemeroff, to serve as a professor and chairman of the department of psychiatry and behavioral sciences.

In a companion article, the Chronicle summarized Dr Nemeroff's career thus:

Dr. Nemeroff had quit as chairman of Emory University's psychiatry department in December 2008 after the university received complaints about his secretly receiving money from GlaxoSmithKline and other pharmaceutical companies while helping promote their products.

We (Dr Bernard Carroll more than yours truly)  have posted previously about Dr Nemeroff's exploits, including those at the University of Miami, numerous times. 

The Fall of Municipal Hospitals, the Rise of For-Profit Hospitals

We have frequently discussed how the leaders have undermined health care organizations' core missions, and particularly how hospitals and hospital systems have strayed from their patient care mission to make more money. The Chronicle suggested how Ms Shalala's leadership of the University of Miami has enriched the institution's teaching hospital at the apparent expense of the local municipal hospital system:

Another set of problems, cited by current and former university faculty and Jackson staff members, stems from the 2007 takeover of a facility that became the University of Miami Hospital, across the street from Jackson. The purchase has greatly expanded the university's ability to direct many of the area's most profitable patients and procedures to the new facility and to other university-owned hospitals, further worsening Jackson's own considerable budget woes.

In addition,

The university's patient-enrollment practices were part of the problem. The inspector general of the U.S. Department of Health and Human Services and the U.S. Attorney's Office for the Southern District of Florida are looking into the question of whether university doctors routinely enrolled Jackson patients in research projects without telling the hospital.

In a 2008 letter from Jackson officials to university leaders, Nathan Anspach, who was vice president for physician services at the hospital, described a series of failed efforts 'to stop new clandestine research' at Jackson by university doctors.

Meetings with university officials aimed at stopping the practice 'went badly,' Mr. Anspach wrote, and Dr. Goldschmidt, the medical-school dean, was 'outwardly annoyed' by Jackson's requests for information that would help it identify research patients in the building.

Ms. Shalala was copied on at least some of the correspondence, including a 2006 letter in which Marvin O'Quinn, then-president and chief executive of the Jackson Health System, which runs Jackson Memorial, warned Dr. Goldschmidt about the legal risks of submitting claims for patient care that should be covered by a medical study.

The current director of compliance at Jackson Health System, Diana Salinas, said the allegations are a matter of investigation by the two federal agencies. Ms. Shalala and Dr. Goldschmidt told The Chronicle that they were unfamiliar with the matter. 'This must not be a very big issue,' Ms. Shalala said, 'because none of the Jackson senior leadership has ever brought it up with me.'

Finally,

And the departing chief executive of the Jackson Health System, Eneida O. Roldan, whose appointment two years ago was supported by the university, said medical-school officials made clear from the start 'that they were going to take cardiology across the street.'

Ms. Dixon-Shim, of the support-workers' union, is among those who say they've seen it happen. 'Most of the indigent patients, they're staying at Jackson,' she says. 'But most of the private patients, the physicians are taking them over to their area' at the university-owned hospitals.

Note that we previously discussed how Jackson's financial troubles lead to a bid by for-profit Steward Health Care to take it over.

Summary

So, through her mutiple roles that allowed her to serve at several key nodes of networks of influence in health care, one person has been linked to multiple dysfunctional aspects of US health care that arguably have been responsible for our increasing costs, declining access, and poor quality.  Note that these multiple roles seem to have been logically and even ideologically inconsistent, suggesting that multiplying her roles within the  networks may have been more compelling to her than logical or ideological rationales for particular actions.

We have discussed before, the leadership of health care organizations has become incredibly interrelated, interlocked, and incestuous. It appears that top leaders of various health care organizations may be more familiar with and identify more with each other, and with other hired executives and managers, than with their organizations, their organizations' missions, and their organizations' professionals, staff, students, clients, and patients.  It now appears reasonable to characterize the relationships among health care leaders as embedded networks of influence. 


So to repeat- I strongly believe that there needs to be much more investigation, academic, journalistic, and perhaps legal, of the identity, nature, and culture of the leaders of health care, and their relationships. A few bloggers cannot do it all. Obviously, the anechoic effect mitigates against medical and health care academics looking into their own leaders. However, failing to understand who is leading our march to the brink of health care failure ought not to be something such academics would want on their conscience.

Finally, and obviously, health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research.

If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.

The Managers' Coup: How the "Hired Hands" Got "Paychecks as Big as Tajikistan"

We have frequently discussed the perverse incentives provided to the leaders of health care organizations.  They almost never pay a penalty for presiding over organizational actions that are unethical, harmful to patients, or even criminal (e.g., see posts here and here for some very recent examples.)  However, they often collect outrageously huge compensation disproportionate to any reasonable measure of their organizations' performance.  (e.g., see posts here and here for relevant recent examples.)

Now two news articles, based in turn on research studies, further illuminate how hired managers and executives have become so wealthy and unaccountable.

The first news article was in the New York Times, and was in turn based on an accounting study.  In summary,

a recent, immensely detailed report in The Analyst’s Accounting Observer, a publication of R. G. Associates, an independent research firm in Baltimore. Jack Ciesielski, the firm’s president, and his colleague Melissa Herboldsheimer have examined proxy statements and financial filings for the companies in the Standard & Poor’s 500-stock index. In a report titled 'S.& P. 500 Executive Pay: Bigger Than ...Whatever You Think It Is,' they compare senior executives’ pay with other corporate costs and measures.

Here are some of the major comparisons the report makes:

- Paid More than the GDP of Tajikistan

Total executive pay increased by 13.9 percent in 2010 among the 483 companies where data was available for the analysis. The total pay for those companies’ 2,591 named executives, before taxes, was $14.3 billion.

That’s some pile of pay, right? But Mr. Ciesielski puts it into perspective by noting that the total is almost equal to the gross domestic product of Tajikistan, which has a population of more than 7 million.

Again, note that all comparisons below refer only to these 2591 most highly paid executives of 483 companies, not all the companies' executives.

- Paid More than Audit Expenses

158 companies paid more in cash compensation to their top guys and gals last year than they paid in audit fees to their accounting firms.

- Paid More than Income Taxes

Thirty-two companies paid their top executives more in 2010 than they paid in cash income taxes.

- Pay Rises While Stock Prices Fall

The report calculated that at 179 companies in the study, the average value of stockholders’ stakes fell between 2008 and 2010 while the top executives at those companies received raises.

- Paid a Substantial Fraction of Total Operating Revenue

It identified 24 companies where cash compensation last year amounted to 2 percent or more of the company’s net income from continuing operations.

The article used a health care example to illustrate this one:

Topping this list is Allergan Inc., the health care concern whose top executives received, after taxes, an estimated $2.6 million in salaries last year. That amounted to 50 percent of what the company earned from continuing operations, the report said.

Further details made this a particularly telling example of perverse incentives given to executives:

Caroline Van Hove, an Allergan spokeswoman, said that the salaries were large when compared with net income in 2010 because one-time charges reduced earnings significantly that year; in previous years, she noted, earnings were far higher than executives’ pay. She also said the company’s C.E.O. had not received an increase in salary over the past three years.

Parenthetically, some of the charges that affected Allergan's earnings were clearly due to a $375 million fine after a guilty plea to a federal misbranding charge and $225 million related civil penalties the company paid in 2010. As we noted in this post, the US Department of Justice alleged that Allergan paid kickbacks to promote a drug for unapproved uses. Thus, what cost the company a major piece of its revenues were costs related to unethical behavior including one federal misdemeanor, and allegedly paying kickbacks to doctors to promote a drug for unapproved uses. However, while this behavior caused a marked drop in earnings, the research above showed the impunity of the executives who presided over this behavior, whose compensation held steady or rose.

- Paid a Substantial Proportion of Research and Development Expenses

Moving on to R.& D. costs, the report examined the 62 technology companies in its sampling that reported such an expense, excluding certain costs associated with acquisitions.

Mr. Ciesielski found that the median level of executive pay was equal to 5.3 percent of these companies’ R.& D. expenditures.

- Pay Equal to a Substantial Proportion of Market Capitalization

Finally, there’s the comparison of executive pay with market capitalization. As Mr. Ciesielski noted, this calculation provides the biggest shock value.

Eleven companies analyzed in the report gave top executives a combined pay package amounting to 1 percent or more of the companies’ average market value over the course of the year.

To put it a different way, for a few corporations, the pay of the top five executives was equal to at least one percent of the total value of the corporations as measured by the value of all stock shares outstanding.

In summary, the R. G. Associates' report suggests that the salaried executives, who the NY Times article reminded us are "hired hands," were generally paid amounts that seemed outrageously disproportionate to every metric used.

Furthermore, a second article in the Washington Post provided an even more astonishing comparison.

- Paid Enough to Become a Majority of the Richest Americans

The largest single chunk of the highest-income earners, it turns out, are executives and other managers in firms, according to a landmark analysis of tax returns by economists Jon Bakija, Adam Cole and Bradley T. Heim. These are not just executives from Wall Street, either, but from companies in even relatively mundane fields such as the milk business.

The top 0.1 percent of earners make about $1.7 million or more, including capital gains. Of those, 41 percent were executives, managers and supervisors at non-financial companies, according to the analysis, with nearly half of them deriving most of their income from their ownership in privately-held firms. An additional 18 percent were managers at financial firms or financial professionals at any sort of firm. In all, nearly 60 percent fell into one of those two categories.

Summary
So now it appears that the disproportionate compensation given to hired executives of large corporations, including health care corporations, have made them the majority of the very rich.  Most of the very rich are thus hired corporate employees, not company owners, not entrepreneurs, not even those who inherited wealth, or who are sports stars or rock musicians. This transformation of the face of the very wealthy has occurred at a time when the other employees of those corporations have generally stagnant incomes, and when those who have invested in those corporations, including many in the middle-class who have invested their retirement savings, have barely made money.

So it turns out that in large corporations, including large health care corporations, it has become all about the top bosses.  The top bosses are likely to be paid enough to make them some of the richest US citizens.  Their pay likely comes off the top, so it has priority over profits and stock-holders gains, much less the pay of the lesser employees. 

So it is clear that hired executives of large corporations have engineered perverse incentives for themselves that means never having to say they're sorry, never having to be accountable for anything the company does wrong.  Hence, there should be no mystery why US health care is the most expensive in the world, and despite its expense, is not very accessible and not of good quality.  The main culprit is a peculiar perversion of laissez faire capitalism in which the top managers have staged a coup, and have become the new oligarchs and plutocrats, and thus put their interests ahead of all others. 

So to reform health care, we must reverse the managers' coup d'etat, and restore leadership of health care organizations that puts the mission, and the health of patients and the population first, and is accountable to corporate owners (when applicable) and to patients and the public.  But that will mean now going up against those who have made themselves the richest and most powerful people in the country and the world, who will not lightly give up their oligarchy.

Covert's Anechoic Misadventures

We have frequently discussed how health care leaders' compensation seems to reflect the opposite of the pay for performance they often tout.  One example we discussed recently turns out to be even more vivid than we first discovered.

Last week we discussed the case of Mr Michael Cover, the CEO of the small, public Palomar Pomerado Health system in southern California, whose total compensation increased to over $1 mllion a year, while his hospital system was cited for severe, life-threatening medical errors.  The current and previous system board chairmen called his work "excellent, and " phenomenal," and asserted Mr Covert was "one of the nation's leading health administrators."

It turns out that a local weekly newspaper, the Community Paper, investigated Mr Covert's background in 2008, and what they found was not exactly the story of one of the nation's leading health administrators.  Let us summarize his record over 25 or so years.

1980s - Failure to Investigate the Michael Swango Case

As reported by the Community Paper:

Michael J Swango had received a surgical internship at Ohio State University in 1983. Nurses began noticing that apparently healthy patients on floors where Swango worked began dying mysteriously with an alarming frequency. One nurse caught him injecting some 'medicine' into a patient who later became strangely ill. The nurses reported their concerns to the administrators, headed by Michael Covert, but were met with accusations of paranoia. Only a perfunctory investigation was conducted.

In response to the board's inquiries, Surgery Director Dr. Larry Carey expressed misgivings about Swango, citing run-ins with hospital personnel and, specifically, the episode with several patients who became ill after treatment by Swango, one of whom died (and for whom Swango would later plead guilty to having killed).

At no time did Mike Covert, as executive director of the Ohio State University Hospital system, call in either University Police or Columbus, Ohio Police to investigate the matter, even though patients of Dr. Swango had died, even though documented observations and evidence had been submitted to the proper internal authorities.

Later, after Swango had been arrested in Illinois, the Ohio authorities got involved, however:

'It was only then,' says Dick Harp, Lead Investigator for the Ohio State University police department on the Michael Swango case, 'when the Quincy, Illinois, police department called us and told us they had this guy who had been a doctor at Ohio State and he had poisoned some people, that we got involved.' Harp said he contacted the Ohio State Hospital University staff and there appeared to be a collective effort to resist the investigation. They were not terribly cooperative, he said.

Eventually,

The Columbus Dispatch, Columbus, Ohio’s, daily newspaper, reported in a June 1985 article that as a result of the controversial fallout caused by this failure to notify police authorities, a new hospital policy was implemented. This, following an internal report concerning the allegations against Swango as well as a highly critical internal report against Dr. Swango.

Swango was convicted of aggravated battery for attempting to poison co-workers in Illinois, and in 2000 pleaded guilty to killing three patients, and is in jail for life.

In retrospect, Covert's resistance to investigating complaints about Swango does not seem to have exemplified excellent leadership.

The 1990s - Jury Findings of Illegal Revocation of Privileges

Mr Covert then moved to Kansas, and then to Sarasota, Florida to become CEO of Sarasota Memorial Hospital.

The Community Paper noted that Mr Covert and the Hospital lost a multi-million dollar lawsuit that alleged the they had illegally revoked a physicians' hospital privileges:

Dr. Flynn and his attorneys alleged, and proved, that Michael Henri Covert, president and CEO of Sarasota’s Memorial Hospital, and the Sarasota County Public Hospital Board, doing business as Sarasota Memorial Hospital, unlawfully and without just cause, revoked or terminated the medical privileges of a doctor at the hospital who specialized in pain management, and that they did so because the doctor had earlier (in 1994) filed and pursued a federal lawsuit. Secondly, the jury also found that the Hospital Board had additionally executed the revocation and termination of medical privileges for other than the filing of the federal lawsuit. Under Section II of the jury verdict they also found that the Sarasota County Public Hospital had terminated or revoked the doctor’s privileges as as a result of the doctor having exercised his freedom of speech rights.

Called to the witness stand, Michael Covert was clearly and thoroughly impeached by Plaintiff’s attorney, Tony Leon.

Impeachment is a lawyer’s fancy word that simply means the witness and his veracity is questioned. The witness is accused of not being honest in his actions and statements. Based on his testimony while being impeached, the jury then made their judgment, ruling against Michael R. Covert and the Sarasota Memorial Hospital, finding the Defendant had violated 28 U.S.C., Section 1983 (depriving the plaintiff of his constitutional rights of free speech) and the Plaintiff was entitled to damages.

The Community Paper story also alleged that Sarasota Memorial lost millions of dollars through an ill-advised subsidiary set up by Mr Covert to buy physicians practices.

Losing the trial and losing the money again hardly seem to be the mark of an outstanding leader.

21st Century - Alleged Misrepresentations to Secure Government Funding

Mr Covert became CEO of Palomar Pomerado in 2003. In 2007, the Community Paper reported:

Mike Covert, the president and CEO of the Palomar Pomerado Health District, was quite active in promoting Proposition BB which would deliver $496 million dollars to the district to aid in building a new hospital. It suggested further that Mr. Covert was so active that he and his minions may have, in fact, made substantial misrepresentations in order to persuade the electorate to pass the bond issue. We also documented how the cost overruns had run up to $1.2 billion dollars (from an original projected cost of $753 million). This figure was later trimmed back to $990 million. Further, the downtown business community was concerned that a major promise that was made about importing the administrative staff to the existing downtown Palomar Hospital campus might not be kept. If that promise was broken then downtown Escondido might well become a ghost town.

That story lead the paper to inquire further.  Further, misrepresentations are not the mark of an excellent leader.

2008 - Alleged Dictatorial Management Style

Reporters found:

Talking with medical staff, newspaper reporters from Columbus, Ohio, and Sarasota, Florida, and with medical staff here in North San Diego County, a picture of an energetic, eager, impatient, egotistical, demanding, and often angry chief executive emerges. It was interesting that a parallel term was used by medical staff in Sarasota and in Escondido to describe Mr. Covert’s management style. 'He’s a Little Hitler,' was the common expression used by both medical communities.

According to several medical staffers at Sarasota Memorial Hospital, Covert was not well liked, was described as manipulative and that he would do anything to get his way. Former board member Catherine Bowles, who had been at odds with the board and Covert testified at Dr. Flynn’s trial that 'people who complained about patient care were not warmly received by a majority of the board.' Nor, it is said, by Mr. Covert.

A number of others who know him, both within the medical community as well as within the Escondido community at large, agree that he is a highly egotistical man. He has to have things done his way. He is very good at playing politics and is also very good at playing hardball with contracted medical service suppliers.

Yet another doctor gave a somewhat contrasting view: 'He’s affable on one hand . . . a very good salesman; in front of a group he’s almost evangelical in his passion . . he almost bowls you over. Makes me kinda question someone who has so much zeal like . . 'I’m right.''

'Like all CEO’s, he’s very egotistical. He wants to have total control over everything, including the doctors.'

It is said he wields departmental administrative assignments as a tool and dangles the financial remuneration of them, ranging from as little as $10,000 to as much as $150,000 a year, as an incentive to fall in step with his wishes.

A number of doctors who practice at the Escondido campus of Palomar Medical Center confided to us, off the record, that they feared Covert.

One doctor complained, 'Covert is trying to take over as dictator of the hospital. There is supposed to be a separation between the hospital, the medical staff and the administrator. If you have the administrator making all the decisions then all decisions are made on money issues rather than what is best for the patient or the patient population. This poses a threat to the medical population and harms the quality of medical care. Covert is simply Hitler reborn.'

Another doctor agreed, saying, 'At most hospital districts, administrators don't normally show up at Medical Executive Meetings unless invited . . . but here, administrators are present at closed meetings. They should not be privy to private medical meetings/discussions and they tend to dominate the meetings.'

Again, a "brilliant" leader who is manipulative, rebukes criticism, and dictatorial?

2008 - Contrasting Praise from the Board

While the physicians questioned his management style, just as we noted this year, the then board chairman was effusive:

You and your readers need to know that Covert is one of the most highly regarded executives in the industry. He has received a number of very prestigious awards. Some of them puts him in the company of surgeon generals, such as C. Everett Koop. He has held high executive and board membership in national organizations.

At that time, the board chairman claimed that when Mr Covert was hired, after having been recommended by a national search firm, none of the issues noted above had come to light. 

2008 - The Temporary End of the Story

The Community Paper story ended on a disquieting note, suggesting that even the extensive results of their investigation recounted above were not complete, and that there might be grounds for a criminal investigation:

There are many other comments from physicians, other leads to follow in pursuit of the rest of this story. However, we, as a weekly newspaper, have neither the time nor resources to explore the labyrinthine depths of hospital administration committees, subcommittes, advisory councils, etc. Side financial agreements, whether or not their are 'kickback' arrangements within the hospital structure. That additional research and reporting would be better left to someone who has the resources, such as a Grand Jury.

I could find nothing to suggest any further investigation ensued. There appears to have been no local reaction to the Community Paper story. As we noted above, instead Mr Covert got a raise, and is currently getting over $1 million a year in total compensation.

Summary

A more complete look at the record of one CEO of one small, public hospital system suggests even more discrepancies between his ever increasing remuneration, justified by ongoing effusive support by his board, and a record that at best suggests multiple questionable management decisions and multiple bad results.

Note that even though considerable information was available on the public record that should have lead to questions about his leadership, this information remained relatively anechoic, and the questions were not repeated.  We have found that very few have been willing to question or investigate the powers that be in health care, and that direct or implied concerns about how health care is lead tend to be anechoic.

This case demonstrates the sorts of problems in health care governance and leadership that we started Health Care Renewal to discuss. Perverse incentives and poor oversight seem to encourage leadership by the wrong people, hired for the wrong reasons, to do the wrong thing.

There is again an ongoing discussion in the US about the costs of health care. Bad leadership of health care organizations is not only directly costly, but leads to huge indirect costs as the results of bad, if not sometimes corrupt decisions. As Matthew Holt pointed out in a comment on our earlier post on Palomar Pomerado, it is not that the case above is an outlier. It is likely just a better documented version of what is going on throughout health care.

Yet outside of a few lonely bloggers, not many people talk about bad leadership and bad governance as fundamental, major causes of our ongoing health care crisis.

We say again, true health care reform will require having health care leadership and governance that displays accountability, integrity, transparency, and honesty.  But first, we have to be willing to openly discuss bad, that is unaccountable, opaque, dishonest, and corrupt leadership. 

Hat tip to our own Health Care Renewal blogger Dr Scot Silverstein for finding the 2008 Community Paper story (see his comment here).

Should a "Phenomenal" $1 Million CEO be Accountable for "Errors that Caused Severe Injury or Death?"

A recent story with some local color once again illustrates the cognitive dissonance evoked by current patterns of compensation of health care leaders.

Let me start chronologically.

The Stratospheric Compensation of the CEO, and Its Justification

In 2009, the compensation given to the CEO of the Palomar Pomerado Health, a public health system in the vicinity of San Diego, California, provided some headlines. As reported then by the San Diego Times-Union,

Palomar Pomerado Health CEO Michael Covert has received a 26 percent — or $154,000 — pay raise.

The increase, approved by the hospital district’s board of directors last month, is retroactive to July 1, the beginning of the fiscal year, board Chairman Bruce Krider said.

The increase brought Covert’s pay from $582,000 a year to $736,000 a year.

Not unexpectedly, the hospital system board chair had an explanation:

Krider said Covert has done a 'phenomenal job' of improving the quality of care and charting the district’s future, but is underpaid compared with five California hospitals that generate gross revenues of $357 million to $457 million a year.

By 2010, it was apparent that Mr Covert's compensation was even larger than it appeared above. As reported then by the San Diego Times-Union:

The top official at Palomar Pomerado Health, a public agency serving health-care needs in Poway and Escondido, receives in excess of $1 million in compensation per year.


Michael Covert, who has run the North County hospital district since 2003, receives a base salary of $736,000 a year. Retirement, bonuses and other benefits push Covert’s total pay past $1.1 million.

The compensation package is in the median range of his private and nonprofit counterparts and places Covert among the elite among public employees.

At that point, the system's board chairman gave a similar justification:

Bruce Krider, the health-care district chairman, said Covert does an excellent job managing a complex enterprise that includes two major hospitals. Covert juggles the interests of staff, physicians, patients, volunteers, board members and other stakeholders, he said.

'A million dollars sounds pretty good to anybody, but my view is, pay a lot and expect a lot,' said Krider, a management consultant who also is a former hospital executive. 'You can’t have some mediocre public servant. You need somebody that has got vision, that can see the issues that are most important and put it all together.'

Later in 2010, when it turned out that Mr Covert was the second most highly paid government official in California (and the most highly paid official was facing criminal charges), the Times-Union reported:

'We have to compete for talent with all of the for-profit and nonprofit health systems,' said Theodore Kleiter, a former hospital administrator who is now chairman of the Palomar Pomerado Health board of directors. 'If you want the top management, that’s what you have to pay.'

Kleiter said Covert is one of the nation’s leading health care administrators and noted only 3 percent of the district’s $480 million budget comes from taxpayers.

'The people in our area expect the best and we’re trying to provide that,' Kleiter said

Also, per the Los Angelest Times a few weeks later:

Officials at the hospital strongly defended his pay.

"There's this notion that because you're a public agency you should hire less-talented people than private companies, and if we followed that idea, PPH would not be where it is today," hospital spokesman Andy Hoang said. "We must compete for the best physicians, nurses and executives to provide the highest level of care. The community deserves that."

So, do we see a pattern here? According to one board chairman, Mr Covert had "vision," was doing an "excellent job," a "phenomenal job."  Furthermore, the chairman gave Mr Covert credit, apparently sole credit, for improving quality of care within the system, and noted how he was responsible apparently for all that was done by everyone who worked in or was associated with the hospital.  That board chairman was a "management consultant", and "former hospital executive."  The next chairman thought Mr Covert was "top management." and one of "the nation's health care administrators."  That chairman was "a former hospital administrator."  Finally, a paid hospital spokesman insisted Mr Covert is one of the "best executives."

Celebrity Endorsements and Fines for Medical Errors

On the other hand, once more reported by the Times-Union, some community residents, including hospital nurses, were not convinced that Mr Covert's performance was so unequivocally brilliant:

More than 200 community residents signed petitions raising questions about the salary paid to the chief executive at Palomar Pomerado Health and other business practices at the medical organization.

'Your highest priorities should be improving the health of our residents ... Out of control executive pay, costly celebrity spokespeople endorsements and out-of-district clinics (are) a waste of public funds,' the petition states.

The signatures were collected by nurses concerned about the compensation package and other issues over the past months.

By the way, concerning the issue of celebrity endorsements:

The district signed former San Diego Chargers running back LaDainian Tomlinson to a $2 million promotional contract before he signed with the New York Jets, a marketing plan that was criticized by some employees.

And this week, there was more reason to think that all is not so "phenomenal" at Palomar Pomerado.

The San Diego Union-Tribune just reported about California hospitals fined by the state for serious errors affecting patient care. 

Five San Diego County hospitals were fined a total of $300,000 for errors that caused serious injury or death to patients, state regulators announced Thursday.

The penalties were levied for leaving a retractor inside one patient and a 28-inch guide wire inside another after surgery, giving two deadly drug overdoses, and leaving a patient unattended who fell and then died from a fractured skull.

Palomar Medical Center in Escondido, Pomerado Hospital in Poway and Scripps Memorial Hospital in La Jolla were each fined $75,000, the highest fines among 12 California hospitals penalized by the state on Thursday. All three had been cited at least twice before, prompting the higher penalty.

Note that the previous citations came in 2010, the year in which Mr Covert's compensation exceeded $1 million.
Of course, medical errors are unfortunately not rare. I suspect that while we may be able to reduce them, they cannot always be avoided. I do not mean to condemn these hospitals, nor the people who work there.

In one sense, it would be silly to expect Palomar Pomerado Health to be perfect, for errors and mistakes never to be made there. It also would be silly to blame the system's CEO for everything that went wrong there.  It would be silly, except that the justifications given for the comparatively stratospheric compensation given to the CEO of this government funded health care organization implied that he was nearly perfect, and he was responsible for all the good that went on within the organization.

Summary

So here again we see an example of a health care leader who is nearly god-like, is responsible for all the wonderful things that his organization does, and is therefore worthy of pay sufficient to make him rich, at least according to the board of directors to whom he is supposed to report.  On the other hand, there seems to be no real evidence of the CEO's near divinity, and if he is supposed to be responsible for all the wonderful things his organization does, he also ought to be responsible for its errors and mistakes. 

In fact, comparatively high executive compensation justified by hyperbole seems more likely to indicate a board that is not sufficiently independent to exert stewardship than an executive who is truly exceptionally brilliant.  Lack of such stewardship, in turn, may lead to lack of executive accountability and hence poor rather than brilliant outcomes for the health care organization. 

So here is the latest example of CEO disease.  As it becomes more prevalent, health care leadership becomes more disconnected, unaccountable, and self-interested.  The increasing prevalence of CEO disease in health care may explain why costs keep increasing, access keeps declining, and quality and safety are stagnant.


As I have said before,.... health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research.

 If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.


We need to launch a crash program to prevent CEO disease and cure existing cases, before it kills off our health care system.

Million Dollar Plus Hospital CEO Compensation: "It Is What It Is" or What the Board Says It Is?

Health care leaders' compensation has again been in the news. Below are highlights from stories about four medical centers, emphasizing the magnitude of executive compensation, how it is related, or not to hospital and executive performance, and whether and how the organizations' boards chose to justify it. The medical centers are in alphabetical order.

University of Pittsburgh Medical Center

Compensation
According to the Pittsburgh Post-Gazette:

In tax documents released Friday, Jeffrey Romoff, president and CEO of the University of Pittsburgh Medical Center, received $4.01 million in salary, bonuses and benefits that year.

Also,

Other top earners at UPMC include neurosurgeons Ghassan Bejjani, $2.37 million in salary and benefits, and Richard Spiro, $2.23 million; cardiothoracic surgeon James Luketich, $1.96 million and executive vice president Elizabeth Concordia, $1.88 million.

In summary, UPMC has a four plus million dollar CEO, and a nearly two million dollar executive vice president.

Hospital/ Executive Performance

None of the articles I found on these executives' pay juxtaposed information on their or their institutions' performance.

A Pittsburgh Business Times article summarized the medical center's recent financial results:

Strength in outpatient revenue, insurance premiums and hospital admissions helped drive operating income to $313 million for the third quarter at the University of Pittsburgh Medical Center, a 75 percent increase from $179 million a year earlier, according to financial results released Friday.

However,

UPMC’s operating margin still trails the 4.1 percent of other institutions with an AA bond rating....

However, there have been recent concerns about ethics and quality at the institution.

Another Post-Gazette article revealed how relatives of top leaders seem to gain well-paid positions within the system:

particularly at UPMC, gainful employment extends to other branches of the family tree.

Mr. Romoff's daughter, Rebecca Kaul, was paid $388,659 in fiscal year 2010 for her work as president of UPMC's Technology Development Center. The center "is helping develop the next generation of information technology at UPMC," said spokeswoman Susan Manko.

Ms. Kaul's salary jumped from the $264,274 reported for the fiscal year ending June 30, 2009, an increase that Ms. Manko said was the result of a sale of a computer-assisted coding product joint venture 'at a substantial return on investment at which time Ms. Kaul received certain compensation based on the terms of the sale of the company.'

She added that, 'Mr. Romoff was not involved in the decisions pertaining to this transaction.'

According to the tax document, Mr. Romoff's former son-in-law by another daughter, Scott Gilstrap, was paid $236,347. He worked with grants and services contracts before leaving UPMC in December 2009.

Kathleen Pietragallo, sister-in-law of UPMC board member and attorney William Pietragallo, received $88,646 working in a laboratory at UPMC Presbyterian Hospital. Mr. Pietragallo's brother, Louis Pietragallo, is a medical oncologist for UPMC who was paid $613,082, according to the tax return.

And Scott Cindrich, son of UPMC's former chief legal officer, Robert Cindrich, received $138,618 as legal counsel for UPMC, according to Ms. Manko.

Also listed on the UPMC return is Anna Roman ($288,696), senior vice president for the University of Pittsburgh Physicians, who is the wife of University of Pittsburgh Physicians board member and UPMC pathologist George Michalopoulos.

The University of Pittsburgh Physicians is a multispecialty practice plan that employs UPMC physicians who are on the faculty of the Pitt School of Medicine and also care for patients and train residents in UPMC facilities, Ms. Manko said.

Note that we discussed questions of favoritism towards relatives of top leaders at UPMC here.

Also, Dr Scot Silverstein just posted on a major quality problem at UPMC, the transplantation of an organ from a hepatitis C positive donor.

To summarize, the medical center is making a lot of money, but its operating margin may not be has high as some of its peers. There are questions about nepotism amongst the leadership, and there is a current serious concern about the medical center's transplant program.

The Board's Justification

There was no recent reporting on this.

Valley Medical Center

This hospital is in Renton, Washington.

Compensation

Per King5 News:

The chief executive officer of the hospital, Rich Roodman, is the highest paid public employee in the state of Washington. Last year he made a base salary of $615,000. He also collected a bonus of $201,201 for meeting performance goals. On top of that he was paid $263,335 in a retention payment.

In total, Roodman earned $1,134,837 in 2010 to run Valley Medical Center, which is part of King County Hospital District No. 1.

Note that

Roodman makes about 40 percent more than the chief executive officer of University of Washington Medicine and more than double what the executive director of the University of Washington Medical Center earns.

Also,

The reporters found it's not just the CEO, but all top managers at Valley Medical Center who pack home healthy paychecks.

Paul Hayes, the executive vice president, made $588,249 last year, which included a bonus of $154,275 for meeting performance goals.

The senior vice president of medical affairs, Kathryn Beattie, made $489,479. Those figures outpace the top boss at renowned Harborview Medical Center, which is also funded by tax dollars.

The in-house attorney for Valley Medical Center, David Smith, pulled in $352,196 in 2010, which makes him the highest paid public lawyer in the state. Smith makes about two-and-a-half times what Attorney General Rob McKenna is paid.

In summary, the CEO of a relatively small, public hospital made over $1 million, and several executives made over $350,000.

Hospital/ Executive Performance

Controversy over money isn't new to Valley Medical Center. Four years ago the Washington State Public Disclosure Commission (PDC) fined CEO Roodman $120,000 after they found the hospital illegally spent tax dollars on mailings, postage and consultants to sway voter opinion on ballot measures in 2005 and 2006.

The PDC called it the biggest case ever involving a public agency misusing taxpayer dollars for a campaign. Valley Medical Center called it a misunderstanding.

In 2009 the Washington State Auditor’s Office found Roodman collected a troubling $1.7 million retirement payment that year, on top of the $900,000 salary he earned in 2009. The auditor found the commissioners authorized this payment 'without explanation or public benefit.' The auditor also recommended Valley Medical Center should 'avoid including similar provisions in future contracts.'

State authorities have questioned the ethics and legality of actions apparently authorized by the hospital's top leadership.

The Board's Justification

Board president Sue Bowman did speak with KING 5 by telephone. She said the compensation levels are important to stay competitive. They don’t want to lose top talent to other hospitals.

'I don’t know why Rich’s [CEO] pay is an issue? Commissioner Hemstad brings it up over and over again. I told him, 'Anthony, it is what it is,'' said Bowman. 'I don’t think the five-member board needs to keep focusing on compensation. What are we doing for the community? That’s what’s important.'

Bowman also said the board carefully considers research presented to them by outside consultants and attorneys before voting on CEO compensation. Milliman, a healthcare compensation consulting firm, provides the hospital with a full analysis of market comparative data every other year. They consistently find Valley Medical Center’s pay structure is right on target.

John Hankerson, principal and strategic rewards practice leader of Milliman, wrote a memo about his findings to Roodman and Bowman dated February 9, 2011.

'We have consistently found that base pay and total cash compensation have been well aligned with [hospital goals] and that the magnitude of the incentive plan is consistent with other healthcare organizations that are striving to improve performance and quality patient care,' wrote Hankerson.

'We defined the appropriate market [comparable salaries] as ‘where VMC [Valley Medical Center] might recruit executive talent from or where it might lose executive talent to.’ In that light we have included such local organizations as Evergreen, Overlake, Virginia Mason to name just a few,' wrote Hankerson. 'In our opinion, the current levels of incentives used at VMC are appropriate and consistent with best practice as well as smart management.'

However, note that:

Senator Cheryl Pflug, the ranking minority on the Senate Health & Long-Term Care Committee, doesn’t think public hospitals should be basing salaries on what non-profit and for-profit institutions pay.

'They pick and choose who they compare themselves to. A much more appropriate comparison would be the University of Washington,' said Pflug.

Note that the chair of the hospital board first tried to give the impression that the executives' compensation was a natural phenomenon ("it is what it is,") rather than set by the board. Then it appeared that the compensation was set partially by referring to pay at clearly dissimilar institutions which generally pay more than public hospitals. Finally, although the implication was that high levels of compensation were justified by the performance of the executives, no specifics about that performance was provided, and certainly the recent questions about the ethics and legality of the executives' decisions were ignored.

Wake Forest Baptist Medical Center

Compensation

The Winston-Salem Journal reported:

Dr. John McConnell, the system's chief executive, was paid $1.68 million in total compensation for fiscal 2009-10, compared with $764,797 for fiscal 2008-09. McConnell took over as chief executive — a new position — in October 2008.

McConnell was paid $831,288 in salary for fiscal 2009-10, as well as $266,667 in bonuses and incentives, and $115,661 in other reportable compensation. He also received $441,589 in retirement and other deferred compensation.

In fiscal 2008-09, McConnell was paid $133,333 in salary, $140,000 in bonuses and incentives, $38,564 in other compensation and $440,105 in deferred compensation.

Donny Lambeth, the president of N.C. Baptist Hospital, had a 29 percent increase in total compensation to $849,521. His salary was raised 20 percent to $604,495, while his bonus and incentive compensation decreased 37 percent to $70,030. He had $136,459 in retirement and other deferred compensation.

Edward Chadwick, the system's chief financial officer, received $734,282 in total compensation, including $294,218 in salary and $350,000 in bonus and incentive compensation. He took over in his role in July 2009.

Besides McConnell, the top executives listed for Wake Forest University Health Sciences were Dr. William Applegate, president of the division and dean of its medical school; Dr. Thomas Sibert, its president and chief operating officer; and Doug Edgeton, president of the Piedmont Triad Research Park.

Applegate, who is retiring from both posts June 30 to focus on his geriatrics practice and research, received a 38 percent increase in total compensation to $996,706. His salary was raised 4 percent to $534,843 in salary, while his bonus and incentive compensation rose from $115,000 to $378,900.

Sibert received $974,188 in total compensation, including $266,654 in salary, $550,000 in bonus and incentive compensation and $112,390 in other reportable compensation. Sibert took over his role in September 2010.

Edgeton received a 44 percent increase in total compensation to $906,202. His salary was raised 7 percent to $491,391, while his bonus and incentive compensation rose from $102,200 to $361,600.

In summary, the CEO made over $1.5 million, and other leaders made from just under three-quarters to just under $1 million.

Hospital/ Executive Performance

There was nothing in the article above or in the news media about the performance of the executives or the hospital.

The Board's Justification

Per the Winston-Salem Journal:

Wake Forest Baptist said in a statement that it has a 'very rigorous system' to determine and approve its executive compensation packages. It has an external compensation consultant provide comparable data from similar health-care institutions, such as Duke University Health System, UNC Health Care and the University of Chicago Medical Center.

The Wake Forest Baptist system said that as one of 130 academic medical centers in the United States, 'there are few executives with the required skill set to manage and provide leadership for an integrated (center) such as ours.'

'Wake Forest Baptist's executive-compensation packages are fiscally responsible, appropriate for the marketplace and an essential part of the effort to recruit and retain skilled executives and visionary leaders for the medical center,' the statement said.

According to the Triad Area Business Journal:

'Recruitment and retention of the capably skilled executives is key to keeping Wake Forest Baptist fiscally sound and appropriately managed so we can continue to be a primary medical resource for patients in our community and our region,' the health system said in a prepared statement.

Again, much was made of process that compared the executives' compensation to that of other institutions. Their compensation was apparently based on the assertion that they were all "skilled and visionary," without any specifics provided to back it up.


West Penn Allegheny Health System

Compensation

Again, according to the Pittsburgh Post-Gazette

Christopher Olivia, ... at West Penn Allegheny Health System, received total compensation worth $1.91 million.

Also,

At West Penn, neurosurgeon Hae Dong Jho received $1.39 million in compensation in 2009 and Roy Santarella, executive vice president and chief administrative officer for the health system, received $1.25 million.

In summary, the CEO received nearly $2 million, and the executive vice president $1.25 million.

Hospital/ Executive Performance

Per the Pittsburgh Tribune-Review:

The region's No. 2 hospital network is losing money, but West Penn Allegheny Health System's board of directors gave its CEO a 40 percent bonus, according to tax documents released on Friday.

More specifically,

West Penn Allegheny Health System reported an operating loss of $89.9 million in the fiscal year that ended June 30. From July to December, it lost an additional $26.8 million, a drop officials attributed to $12 million in employee severance packages, extra consulting fees and falling inpatient volumes.

In a bid to improve its financial position, the system is consolidating many of its services at Allegheny General Hospital in the North Side. Last year, it shut down its emergency room at Suburban General Hospital in Bellevue and plans to do the same at West Penn Hospital in Bloomfield on Dec. 31.

The system's officials have said they expect to lay off up to 400 workers this year.

In summary, the hospital is losing a lot of money, and likely will be laying off a lot of workers.

The Board's Justification

Kelly Sorice, a hospital system spokeswoman, declined to comment on the bonus.

Summary

CEOs at even small medical centers in the US can now expect to receive more than $1 million a year in compensation.  Those at larger institutions may get several millions a year.  Other top executives can now expect proportionately high compensation.  Thus, being a top executive at a medium or large hospital now practically guarantees becoming rich. 

Worse, there seems to be no correlations among compensation and performance of the executives or the hospitals.  Executives at hospitals that are losing money, having quality problems, or criticized for unethical behavior still can make this much.

The boards that are supposed to exercise stewardship over these institutions do not seem to feel the need to justify the money they hand to executives in any detail.  They almost never seem to feel that their own executives are anything less than above average, despite facts that might cast doubt on this assumption, and almost always seem to feel that their executives are entitled to be paid at least as well as their peers.  This suggests at best a lack of critical thinking by board members, and at worst, crony capitalism.

Making hospital leaders feel entitled to make more and more regardless of their or their institutions' performance seems to be a recipe for "CEO Disease," leading to disconnected, unaccountable, self-interested leaders.  The increasing prevalence of CEO disease in health care may explain why costs keep increasing, access keeps declining, and quality and safety are stagnant. 

So, as I have said before,.... health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.


If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.