"You Can't Say That" - Non-Disparagement Clauses and the Anechoic Effect

Here is another example of why health care organizations' leaders are different from you and me, and why that may not be a good thing for health care.  A few days ago, the San Jose (California) Mercury News reported on the upcoming departure of a local hospital CEO:

El Camino Hospital's handsomely-paid president and CEO Kenneth Graham is out of a job, the hospital announced Thursday afternoon.

Graham's contract will end June 30 'without cause, at the request of the hospital's Board of Directors,' according to a statement released to the media.

Until then, Graham will continue to fulfill his duties as the hospital's top administrator, according to the statement. Graham has been president and CEO of the hospital for 4½ years.

The brief statement did not explain why Graham has been ousted, focusing instead on his accomplishments. Graham earns an annual base salary of $632,640.

Not only was the CEO "handsomely paid," he will be handsomely paid to depart, as reported two days later by the same newspaper:

Former El Camino Hospital president and CEO Ken Graham may be out of a job, but he won't be hurting for a paycheck anytime soon.

Fired 'without cause' by the hospital's board of directors on Wednesday, Graham is now entitled to nearly $1 million in severance pay, according to his contract, which the hospital provided to The Daily News on Friday.

Specifically, the hospital will pay Graham a lump sum of 18 months' salary when he officially steps down June 30. Based on his annual salary of $632,640, he would receive $948,960.

The reporter could not get any clearer fix on the reason for his departure:

Hospital officials Friday were tight-lipped about their decision to drop Graham. Reached by phone, board Chairman Wesley Alles would only say it was 'without cause.'

'I guess as a generic (explanation) the only thing I can say is it's without cause, that (the board wants to take) some different directions, perhaps, as a generic (explanation),' Alles said.

El Camino Hospital spokeswoman Chris Ernst said she couldn't say more than what was written in a statement released to the media Thursday, which simply stated Graham's contract was ended 'without cause, at the request of the hospital's Board of Directors.'

'I know everyone wants to know if there's something really there, but it was clearly without cause,' Ernst said. 'It's not like you can point to one particular thing and say this is why this action was taken.'

Now wasn't that informative? It appears the CEO was let go "without cause." But reporter Diana Samuels did uncover why nobody was saying anything meaningful about this lucrative departure:

The contract also includes a 'non-disparagement' clause, which says the hospital and Graham cannot make any statements about each other that could cause 'any embarrassment or humiliation or otherwise reflect negatively on the other party(ies).'

I discussed the subject of executive contracts with one of our Health Care Renewal scouts who knows about such things. For high level executives in business, seemingly tidy severance packages are the rule.  We have discussed the problem with excess executive compensation in health care here.

Furthermore, various confidentiality, non-compete, and non-disparagement clauses are often common.

However, whether or not these are common practices in the larger business world, these contract provisions, especially non-disparagement clauses, pose problems in health care.  As we have discussed, there are lots of good reasons that the governance and leadership of health care ought to be maximally transparent.

Just to provide one example, consider the problem of medical errors, a subject which has received unending discussion since the report by Institute of Medicine entitled "To Err is Human."  One widely espoused doctrine about medical error prevention is that such errors ought to be disclosed and discussed openly so that their root causes can be found, and methods to prevent them developed.  Now suppose, for example, that the CEO of a hospital had discovered some medical errors, but made himself unpopular by pursuing them.  Were he to have a bilateral non-disparagement clause in his contract, and were this unpopularity to cause him to lose his job, he could say nothing about these errors, possibly allowing them to recur, but more seriously.  Of course, the example could be turned on its head.  Suppose the CEO had introduced a new process that was thought to be the cause of such errors.  Were he to lose his job because of this, hospital officials could say nothing about the problem, etc, etc.  Similarly, other problems at the hospital either discovered by the CEO or possibly caused by the CEO could remain anechoic due to non-disparagement clauses in hospital executives' contracts.

Of course, in the current case, the CEO might have left due to simple personality differences, and his departure might have nothing to do with medical errors, etc, etc.

However, this case suggests that the sort of non-disparagement clauses that may appear in contracts for executives in various type of businesses have metastasized to contracts for hospital executives.  These clauses, and their cousins, confidentiality clauses and non-compete clauses, may be major reasons for the anechoic effect, and the general lack of transparency of hospital leadership and governance. 

However, up to now, such clauses seem to be, you guessed it, anechoic in discussions of health care policy and health care reform. 

Thus, one step to true health care reform would be for there to be some open discussion of the reasons we cannot openly discuss many important issues in health care, particularly the likely increasing use of contractual clauses such as non-disparagement clauses.  Likely an even more important step would be discrediting such contractual provisions that reduce transparency.

Post Title → "You Can't Say That" - Non-Disparagement Clauses and the Anechoic Effect

Why Weren't Existing Laws About Hospital CEO Compensation Enforced in Washington State?

Public radio station KUOW reported on the generous compensation given hospital CEOs in Washington:

KUOW has learned that 15 hospital executives in Washington made $1 million or more in 2009. That elite group includes 14 nonprofit executives and one head of a government hospital. CEOs at Multicare, Providence, Virginia Mason and Valley Medical each made more than $2 million.

Those numbers can be found in the hospitals' latest tax filings and other public records. The pattern was more lopsided in the two prior years. Nobody working at a public hospital cracked the top 10 list of the state's highest hospital paychecks in 2007 or 2008.

But then the story takes an interesting twist:

Most of Washington's largest hospitals are nonprofit organizations. The state gives the nonprofits a break on their business taxes to help reduce the cost of health care.

The hospitals have to jump through some hoops to qualify for the reduced taxes. For one thing, state law limits how much the hospitals can pay their executives. Their pay has to be comparable to what public servants in Washington make in similar jobs — or else no break on their B&O taxes.

Somehow everyone seems to have forgotten about this part of the law:

The limit on executive pay has been on the law books for 30 years.

Gowrylow: 'Frankly, I don't think it's something that's been on our radar since the mid–80s.'

Mike Gowrylow is a spokesman for the Washington Department of Revenue. He says the recent million–dollar incomes were news to the department.

Gowrylow: 'But it's certainly something that I think we need to take a look at again and examine whether these nonprofits are paying their executives excessively or not.'

Gowrylow says the agency only audits 2 or 3 percent of tax returns. It mostly relies on businesses to comply voluntarily with the state's tax laws.

Gowrylow: 'We can't be everywhere. If we become aware of a nonprofit or any other business that's underreporting their taxes, we investigate those complaints, and if tax is due, we will assess it.'

He says the agency can recover back taxes for the past four years, along with penalties and interest.

Although the article cited an unsuccessful legal action to enforce the law in a particular case in 1986, why the state government seemed to forget about it after that is unclear, and maybe deserving of further investigation.
Right  now, hospital management seems to be trying to avoid the issue, or is arguing about the meaning of "comparable,"

Several present day hospital officials declined to be interviewed on tape. They told KUOW they believe they are in compliance with the state law. But they generally provided little detail to back up that claim.

Providence and Group Health representatives both said their organizations are so large and complex that there may not be any comparable public service jobs in Washington.

Swedish spokeswoman Melissa Tizon told me that CEO Rodney Hochman's pay was generally comparable to what the highest paid public hospital executives made, at Valley and Evergreen hospitals.

On the other hand,

Harborview is the state's largest hospital. Eileen Whalen is its head and an employee of the University of Washington. She makes about $470,000.

[State Senator Karen] Keiser: 'That's really not comparable to the million dollar and more salaries of other hospital directors in our state. We are paying attention here in Olympia to that.'

Other executives at UW Medicine did make more than Whalen. Still, none of them, not even the president of UW, made as much as any of the 15 highest paid executives at nonprofit hospitals in 2009.

I searched high and low to find any public officials making as much as the top nonprofit CEOs.

The only one I found who consistently did so was the UW football coach. But it might be hard to argue that Steve Sarkisian's job is comparable to running a hospital system.

We have discussed numerous cases of executives of not-for-profit hospitals and hospital systems receiving lavish compensation and benefits that seem out of proportion to any reasonable measure of their performance or of their positions' difficulties.  (Remember that advocates of corpulent executive compensation love to cite the size of the company and the number of employees, but the CEO really has only to manage the next tier of executives, rarely numbering more than a dozen.)

As we have said before, far too often the leaders of not-for-profit health care institutions seem more interested in padding their own bottom lines than upholding the institutions' missions. They often seem entirely unaware of their duty to put those missions ahead of their own self-interest. Like the financial services sector in the era of "greed is good," health care too often seems run by "insiders hijacking established institutions for their personal benefit." True health care reform would encourage leadership of health care who understand health care and care about its mission, rather than those who see a quick way to make a small fortune.

However, the twist in this story is that it appears the lavish compensation of hospital executives in this particular state may have violated state law, or at least the tax breaks these hospitals got may have violated the law, given their leaders excessive compensation, and that the law in question is over 30 years old.  However, the law seems to have been forgotten or ignored for nearly all that time, for reasons that are unclear. 

This seems reminiscent of how the Responsible Corporate Officers' Doctrine seems to have been forgotten and ignored.  this post from June, 2010).  However, in the last 30+ years, this notion has been ignored and abandoned by US government regulators at least in so far as it applies to health care organizations, particularly drug, biotechnology and device companies.

The big question is why have such laws and legal practices, which have not been repealed or refuted, instead been ignored and forgotten?  Surely this cries out for investigation.

Of course, It seems that somehow in the brave new world of laissez faire, anything goes capitalism foisted on health care over the last 30 plus years, old practices and customs that limited the power and enrichment of top leaders may have seemed increasingly prudish, and those advocating them may have seemed to be old fuddy duddies to those bent on personal gain.  But unhipness and scorn of prudishness are not reasons to ignore an existing law. 

So it is not that there are no legal tools to prevent abuses by leaders of health care organizations.  Instead, there has been increasing forgetfulness of the existence of such tools, and perhaps a growing effeteness of enforcement that has lead to a reluctance to even try to use them.  So we can start truly reforming health care by simply enforcing the laws that are already there. 
  

Post Title → Why Weren't Existing Laws About Hospital CEO Compensation Enforced in Washington State?

More on Hospital Executives' Disproportionate Pay

Local US news media brought some more striking examples of disproportionate pay given to health care organizational leaders. 

Carolinas HealthCare System: Corporate-Style Compensation for a Public Hospital CEO

Carolinas HealthCare System declares it is "the largest health care system in the Carolinas and the third largest public system in the nation" in its membership blurb for the National Association of Public Hospitals and Health Systems.  That association describes its members thus,

Since the establishment of the first public hospital in the United States in the early 1700s, safety net hospitals and health systems have been an essential part of our nation’s health care delivery system.

In the 21st century, safety net hospitals continue their long tradition of quality and service to the community. By delivering care to America’s growing number of working uninsured families, providing world-class trauma and emergency care, preparing for and responding to the threat of terrorism, epidemics, and natural disasters, and training the next generation of doctors, nurses, and dentists—safety net health systems ensure our nation’s communities are health and strong.

The Charlotte Observer just noted how much this "safety net hospital," which declared solidarity with "working uninsured families," pays its CEO:

Carolinas HealthCare System paid its CEO $3.7 million in 2010, $287,000 more than the year before as the system lifted a pay freeze and paid bonuses for reaching annual and long-term goals.

Chief Executive Officer Michael Tarwater, 57, who has led the $6.3 billion public hospital system for nine years, received a base salary of $986,172, two bonuses totaling $2 million, and other compensation, including retirement and health benefits, of $630,346.

In 2009 his compensation package totaled $3.4 million.

So the leader of an organization that serves the poor and uninsured gets enough compensation to make him  quite rich.    

Mary Washington Healthcare: Net Income Increases, but 20% Goes to Bonuses of Top 20 Executives

According to the Fredricksburg (Virginia) Free Lance-Star, from 2008 to 2009, Mary Washington Healthcare saw its total revenues increase, but its net surplus decrease,

The company's net income was $25 million in 2008, up from $20 million in 2007.

Then

The company opened its second hospital that year [2009] and recorded revenues of more than $666 million, up from $551 million in 2008. However, net income dropped to $8 million, in part because of the opening of Stafford Hospital.

So what happened to its executive compensation?

The top employees at Mary Washington Healthcare earned more than $1.1 million in bonuses in 2009, their reward for a successful 2008.

More than two dozen key executives and employee physicians earned annual bonuses ranging from $2,000 to $246,278. The median bonus for the company was more than $28,000.

Fred Rankin, president and chief executive officer, received the largest bonus among managers: $151,430. Rankin continues to be the firm's highest-paid employee, with a 2009 salary package of $955,282.

The hospital's net income increased $5 million (25%) from 2007 to 2008.  It then dropped $17 million (66%) from 2008 to 2009.  Reflecting 2008 results, its top 20 executives received 2009 bonuses of over $1 million, an amount that exceeded 20% of the hospital's 2008 net revenue increase on which the bonuses were based.  The total compensation of these 20 people in 2009 was approximately $6.5 million (see here), which exceeded the hospital's entire increase in net revenue from 2007 to 2008.  The hospital CEO's compensation in 2009 would have consumed one-eighth of the net revenue that year.  This all suggests that the top executives of this hospital consume an inordinate part of the organization's total revenue stream.    

Hutcheson Medical Center: CEO Compensation and Deficits Rise

Here is how the Rome News-Tribune described the financial status of Hutcheson Medical Center, located in Fort Oglethorpe, Georgia:

HMC reported a profit of $766,766 in 2007 and a $7.3 million loss in 2009.

In addition,

In 2008 more than 80 Hutcheson employees lost their jobs when the hospital eliminated its emergency medical services.

And after the profitable year of 2007, the Hutcheson administration approved major renovations for the hospital’s front lobby and entered into a $35.5 million dollar bond issue to fund further renovations and pay off debt.

That bond issue is currently in default, which prohibits the next $10 million payment from being released to HMC.

Things look worse in the future:

At a meeting Thursday, Jan. 28, of the Hospital Authority Board, HMC chief financial officer Gerald Faircloth revealed that the hospital had losses of $3.3 million in the first quarter of budget year 2011 and projected total 2011 losses at around $9 million.

Faircloth, whose compensation went down by $15,000 from 2008 to 2009, also reported that HMC has an estimated 15 days of operating cash on hand.

'So the wolf is at the door,' said Bill Cohen, a trustee who represents Catoosa County on the Hospital Authority Board.

Faircloth agreed.

Wolves notwithstanding, however, the Hutcheson CEO has done very well:

In the face of Hutcheson Medical Center’s financial losses over the past several years, financial documents reveal that president and CEO Charles Stewart’s compensation package has increased more than 26 percent from 2007 to 2009.

According to Internal Revenue Service documents for the 2007 and 2009 budget years, Stewart received $337,081 and $425,745, respectively, in total compensation. The Fort Oglethorpe hospital’s budget year runs from October through September.

Stewart’s 2009 income includes a “bonus and incentive compensation” of $69,750.

So despite a major financial loss, lay-offs and service discontinuations, and a bond default, the CEO got "bonus and incentive compensation" in 2009.   At least that drew some attention:

'I’m really surprised that the board (Stewart) works for would give him such an increase,' said Walker County commissioner Bebe Heiskell, referring to the HMC board of directors that oversees the day-to-day operations of the hospital. 'For a failing hospital that’s exorbitant.'

So while the hospital's financial performance continued to decline, the total compensation provided its CEO continued to increase.

Summary

Here were three instances in which the compensation of top non-profit hospital leaders seemed out of all proportion to the hospitals' financial results, let alone their accomplishment of their missions. In the first case, the CEO of a public hospital system meant to serve poor and uninsured patients was paid enough in one year to make him an instant multi-millionaire. In the second, the bonuses alone handed out to a handful of top executives ostensibly based on a net revenue increase would have consumed one-fifth of that increase, and when net revenue declined the next year, those executives' compensation would have almost consumed that entire year's net revenue. In the third, a CEO got increasing compensation while his hospital suffered increasing losses.

As we have said before, far too often the leaders of not-for-profit health care institutions seem more interested in padding their own bottom lines than upholding the institutions' missions. They often seem entirely unaware of their duty to put those missions ahead of their own self-interest. Like the financial services sector in the era of "greed is good," health care too often seems run by "insiders hijacking established institutions for their personal benefit." True health care reform would encourage leadership of health care who understand health care and care about its mission, rather than those who see a quick way to make a small fortune.

Post Title → More on Hospital Executives' Disproportionate Pay

BLOGSCAN - Why Problems at Local Marquee Hospitals May be Anechoic

We have often discussed how the shortcomings of leadership of big health care organizations may be anechoic.  (See this post for a recent example.) 

Now, on the HealthBeat blog, Maggie Mahar discussed how journalists often fail to look closely at the actions of large, well-known local hospitals.  She noted some possible causes:
- "Hospitals, after all, are major advertisers."
- "the marquee hospital’s patrons tend to be powerful local figures."
- " most readers really don’t want to hear that their local academic medical center is having problems...."
She also summarized just how unhealthy relationships among the news media and marquee hospitals can become, but also provided some examples of incisive investigative reporting.  As they say, read the whole thing.

Post Title → BLOGSCAN - Why Problems at Local Marquee Hospitals May be Anechoic

More Tales of Hospital Executive Compensation: Pay for What?

I have collected another series of stories from the wild and wacky world of health care executive compensation.  These are from three different hospitals/ hospital systems, ordered from smallest to largest.

Jefferson Healthcare

This story, from Jefferson County, Washington state, came from the Peninsula Daily News:

When Mike Glenn takes over the Jefferson Healthcare CEO office Oct. 4, he will be receiving $225,000 annually to run the 25-bed publicly funded hospital.

And he will become the highest-paid public official in Jefferson County.

Jefferson Healthcare's budget is $65 million, and it employs 360 full-time workers and about 550 part-timers.

Note that the amount above is apparently salary, not total compensation, which could well be higher.

Lakeland Regional Medical Center

This story, from Lakeland, Florida, came from the Lakeland Ledger.

The latest IRS report available on Lakeland Regional Medical Center shows, for the first time, how much LRMC officials receive in base pay and how much in 'bonus and incentive compensation' based on meeting goals assigned them.

Not-for-profit hospitals are required to release their IRS reports. Previously, those reports combined salary and bonuses, which may or may not be awarded in a given year.

Jack Stephens, president and chief executive, was paid $856,514. Of that, $644,034 was his base pay and $212,480 was bonuses.

Second-highest paid was Paul Powers, vice president and chief financial officer. He earned a total $435,581, of which $352,661 was base pay and $82,920 in bonuses.

Third was Dr. William Sadowski, psychiatrist, earning $430,117, of which $149,226 was base pay and $280,891 bonuses.

Others listed as highest compensated:

Dr. Edward Sammer, chief medical officer, $404,789 ($327,607 base pay, $77,182 bonus).

Dr. Olumide O. Sobowale, who heads trauma services, $306,792 ($227,692 base pay, $79,100 bonus).

Janet Fansler, vice president/cardiac and specialty care, $266,672 ($215,954 base, $50,718 bonus).

Mary Ford, chief information officer, $264,283 ($213,978 base, $50,305 bonus).

Carole Philipson, vice president support services and facilities, $246,530 ($199,474 base, $47,056 bonus).

Hugh Autry, vice president acute/surgical care, $245,216 ($198,408 base, $46,808 bonus).

Jeffery Payne, vice president human resources, $229,304 ($185,696 base, $43,608 bonus).

John Schliesser, vice president planning and external relations, $226,571 ($183,363 base, $43,208 bonus).

Dr. Michael A. Campanelli, neurosurgeon, $197,887, not divided into base/bonus.

Ken Menefee, executive director LRMC Foundation, $181,045 ($151,142 base, $29,953 bonus).

Dr. Joy L. Jackson, physician adviser, $164,923, not divided into base/bonus.

Dr. Rajan K. Raj, trauma surgeon, $141,344, not divided into base/bonus.

Note that LRMC is a bigger institution that Jefferson Healthcare, with operating revenue just under $650 million. However, it is now having financial woes, as reported in a separate story in the Ledger.

Lakeland Regional Medical Center's rates will increase an average 10 percent, for the third year in a row, in the fiscal year starting Friday.

These continual increases reflect the financial pressures affecting hospitals, patients and the health care system nationwide.

Costs are increasing for almost everything LRMC pays for - drugs, bad debts, charity care, write-offs to managed-care and government insurance plans, insurance and utilities among them.

The number of hospitalized patients is expected go up very little, an increase of slightly less than 2 percent, according to Vice President and Chief Financial Officer Paul Powers.

UCLA Medical Center

Our last story, from the Los Angeles Times, is about a large, prestigious academic medical center.

First, the board [of regents] approved $3.1 million in bonuses for medical center executives that are linked to efficiencies and improvements in patient health. That money, which comes from hospital revenues, will be distributed among 37 UC hospital leaders across the state.

As part of that group, Feinberg, UCLA's hospital system chief executive officer, will receive a $210,000 bonus. But in a more divisive matter, UCLA officials also received the regents' approval to give Feinberg an extra raise of about $410,000, boosting his total compensation to more than $1.3 million.

Why was this divisive? It turns out that the University of California system is in deep financial trouble.

The University of California regents took steps Thursday to shore up the university's badly underfunded retirement plans by raising the amounts employees and the university will be expected to contribute to them.

In particular,

Meeting at UC San Francisco, the regents unanimously approved a plan that will raise contributions to the pension and retirement health plans over two years to 5% from the current 2% of employees' paychecks, and to 10% from 4% of payroll for the university. The change will take effect quickly for about half of UC's 115,000 employees, including its faculty, but must be negotiated with its unionized employees.

More tough choices are ahead as UC tries to fill an estimated $21-billion liability gap in its retirement plans. Until this spring, neither the university nor its employees had made any contributions to the plans for 20 years.

In December, the regents are expected to review proposals for even more extensive changes, including one that would create a less generous program for employees hired after 2013 and boost the minimum retirement age to 55 from 50.

So in times of such financial stress, why increase the compensation of the UCLA medical center CEO so much?

UCLA Chancellor Gene Block said Feinberg was doing an excellent job and was being wooed by other employers. 'Keeping this team together is essential,' he said.

Summary

So to summarize, the CEO of a tiny hospital gets $225,000 in salary, presumably more in total compensation. The CEO of a mid-size medical center with stagnant revenues and rising costs got over $850,000 in total compensation, while 11 other executives, mostly non-physicians, all got more than $180,000. The CEO of a large medical center, within a university system with a seriously underfunded pension plan which is increasing deductions from all employees' pay, and contemplating reduced retirement programs for new hires, got a $210,000 bonus and a $410,000 raise for total compensation of more than $1.3 million.

So once again we see that even in tiny, public hospitals, the CEOs are paid well, and in bigger hospitals, even those in the midst of financial problems, the CEOs are paid very well. 

There does seem to be a rough correlation with hospital size.  Executives, and their boosters like to imply that the bigger the institution, the harder the job.  Keep in mind, however, that most hospitals, like most modern corporations, are highly pyramidal.  The CEO hardly manages each and every worker.  Rather, the CEO manages a few top executives, who in turn manage a few middle-managers, etc, etc.  For example, a Bloomberg report noted that only 11 top executive report to the CEO of the huge Bank Of America. 

Another claim by CEOs and their defenders is that it is all about pay for performance.  As noted above, and in other posts about executive compensation, the criteria for performance are rarely stated, and hardly explicit.   Anecdotally, there are many examples, including one above, of financially stressed institutions cutting back in other areas, but paying top executives more.  As in the last case above, nearly every CEO seems to be doing a wonderful job, at least according to the boards of directors or trustees to whom he or she is supposed to be accountable. 

In fact, the real lesson seems to be that top managers almost always do well financially, regardless of performance, regardless of financial pressures on their organizations, and do better and better the longer they hold their jobs.  Top executives are really different from you and me.

I say again, if we do not hold health care leaders accountable, if we do not provide them with incentives that are proportional to their actual performance, why should we expect health care organizations to do any more than satisfy their leaders' self-interest?

Post Title → More Tales of Hospital Executive Compensation: Pay for What?

More Than $1 Million to Run a Public Health Agency

After a well-publicized story that managers of small town in California were paid in the high six-figures, reporters in California have gotten interested in the pay of public officials.

Thus the San Diego Union-Tribune reported on the compensation received by CEOs of local public health agencies, called public health care districts, two of which run hospitals. One in particular received generous compensation:

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.

One other public health CEO, also responsible for a hospital, made somewhat less:

Tri-City chief executive Larry Anderson collects a base salary of $480,000 and benefits that drive his total compensation past $625,000 a year. He also received a $50,000 relocation benefit when he arrived last year.

Two CEOs of health districts that did not run hospitals, having leased them out, made less still:

Grossmont chief executive Barry Jantz makes about $183,000 a year in base pay and benefits that increase his total compensation to just under $250,000 a year.

Fallbrook administrator Vi Dupre, ... is paid a base salary of $61,000 a year and benefits that raise her compensation to just over $69,000,....

Why is Mr Covert paid so much?

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.'

So now even the managers of public health agencies have become million dollar babies. And of course, according to the boards of trustees who are supposed to supervise them, they all do excellent work and therefore are underpaid even then. As we have noted before, it seems that every board supervising every health care executive thinks their executives are above average, if not stellar. Note, though, that the chair of the board overseeing Mr Covert is himself a retired hospital administrator. So, as we have noted before, it seems that the boards of such organizations often have a preponderance of members who are not inclined to be critical of their hired executives, much less limit their pay.

So the rules for top leaders of health care organizations seem to be different from those for you and me.  All these managers seem to be entitled to be above average.  (The only ones who are eventually deemed below average seem to be those up to no good in ways that do not financially benefit their organizations, e.g., see this.)

In my humble opinion, it is unseemly for the leader of a government run public health organization to make so much. 

True health care reform would decrease perverse incentives throughout the systems, spread the power in organizations more broadly, and make leaders accountable.

Post Title → More Than $1 Million to Run a Public Health Agency

Health Care Leaders: the Best and the Brightest?

We have recently discussed how even executives of relatively small, not-for-profit health care organizations are paid enough to make them rich.  The compensation and privileges given to leaders of health care organizations are often justified by the notion that they are the "best and brightest," such arguments sometimes accompanied by a few choice logical fallacies (e.g., here).  So here are a few news stories about the activities of some choice health care executives.

Canopy Financial

This company provided financing for health care services.  As reported by the Associated Press,

A former executive of the bankrupt health care company Canopy Financial Inc. has agreed to plead guilty in an alleged multimillion-dollar fraud.

Court documents released Wednesday say former chief technology officer Anthony Banas will plead guilty to wire fraud.

Chicago-based Canopy was known as one of the nation's fastest growing businesses before its 2009 bankruptcy. Many clients relied on it to pay medical bills.

Danbury Hospital

This is a community hospital in Connecticut. As reported by the Danbury News Times,

Danbury Hospital's former Chief Financial Officer William Roe pleaded not guilty Thursday morning to defrauding the hospital and a previous employer out of nearly $200,000. Roe was freed on bond after he agreed to a stringent set of conditions imposed by a federal judge.

Here are more details of the charges:

The 54-year-old Roe is accused of wire fraud and two counts of interstate transportation of stolen money, stemming from fraudulent invoices he allegedly submitted to Danbury Hospital and his previous employer, St. Rita's Medical Center of Lima, Ohio, a member of Catholic Healthcare Partners. The invoices were from a software company Roe set up in Pennsylvania in 2008, and, according to investigators, no services were ever provided to either institution.

The wire fraud charge carries a maximum penalty of up to 20 years in prison, and the other two charges carry potential maximum penalties of up to 10 years each behind bars, Assistant U.S. Attorney Rahul Kale said.

Kale initially expressed reservations about releasing Roe on bond because the court determined that hours after his arrest by FBI agents on Aug. 17, Roe violated a previous no-contact order by barraging Danbury Hospital president Dr. John Murphy with e-mails and cell phone calls and begging him to make the charges 'go away.'

A day later, on Aug. 18, Roe also sent an e-mail to the hospital's vice president for human resources, asking her to arrange a meeting with Murphy, Kale said.

Those actions resulted in the judge revoking the $100,000 bond Roe had posted and filing additional charges against him, including witness tampering and harassment.

In the Aug. 18 e-mail, Roe acknowledged that he wasn't supposed to contact any hospital officials, but sought a 'brief conversation' with Murphy 'before any court proceedings begin,' Kale said.

The prosecutor said the order had been entered because 'Danbury Hospital had expressed a concern about the employee's return' and referenced a shooting at the hospital earlier this year and another incident of workplace violence in Manchester.

Not only did Roe violate the no-contact rule, but he also traveled to Pennsylvania on Aug. 18 without notifying court officials, Kale said, even though he was supposed to seek permission before leaving the state.

H. C. Healthcare

This company operated a community hospital in Florida. As reported by the Gainesville (Florida) Sun:

The former chief financial officer of a Gainesville company that ran medical facilities in several small North Florida counties has been arrested in Illinois on racketeering charges for allegedly misusing grant money, reported the Florida Department of Law Enforcement.

Arrested was Natalie Ann Krasnow, 35, of Huntley, Ill., on various felony charges including racketeering, aggravated white-collar crime and operating a scheme to defraud. Krasnow is now being held on a $250,000 bond pending an initial appearance before a judge in McHenry County, Ill.

Krasnow was the former CFO of H.C. Healthcare Inc. of Gainesville. It operated and owned Trinity Community Hospital in Jasper. Krasnow's arrest is a continuation of the joint investigation by the Attorney General's Medicaid Fraud Control Unit, FDLE and the State Attorney's Office for the 3rd Judicial Circuit into activities at the now closed Trinity Community Hospital and its affiliated clinics in Hamilton, Suwannee and Columbia counties.

Krasnow is the eighth person employed by or associated with H.C. Healthcare who has been arrested during the investigation. In July, investigators with the Attorney General's Medicaid Fraud Control Unit, FDLE and the McHenry County Sheriff's Office arrested owner Robert A. Krasnow, 36, of Gainesville; Dr. Yong Am Park, 66, of Lake City; Robert T. Krasnow, 58, of Gainesville, the father of Robert A. Krasnow; hospital administrator Christina L. Ortega, 42, of Lake City; and licensed practical nurse Ashley Lane Butler, 37, of Live Oak.

The former medical director at Trinity Hospital, Dr. Wayne A. Rahming, and former Trinity staff physician, Jorge Prieto, were arrested by Medicaid fraud investigators in a separate scheme involving the unlicensed practice of medicine at a clinic in High Springs. Additional arrests may follow.

The investigation of Trinity Community Hospital established that more than $660,000 in state grant funds dedicated to hospital improvements were received by the corporation, but little if any of the money was used to make such improvements, FDLE reported.

Natalie A. Krasnow was the corporation's grants liaison officer with the Florida Department of Health and was instrumental in applying for and accounting for the proper disposition of these funds.

Most of the money was used either to support the activities of the criminal enterprise or diverted to the personal use of Krasnow or her brother, hospital owner Robert A. Krasnow, FDLE said.

North Memorial Health Care

This is a health care system in Minnesota. Per the Minneaopolis - St Paul Star Tribune:

David Cress, the hospital executive arrested and charged with engaging in prostitution this week, has been suspended indefinitely without pay as president and chief executive of North Memorial Health Care, officials said late Thursday.

Cress, 60, was one of about a dozen men arrested at a Richfield hotel during a daylong vice operation. He was released from jail Wednesday and is scheduled to appear in court Sept. 15 on a misdemeanor charge.

He has been at North Memorial since 1982, and took over as the top executive in 2005.

Summary

So the box score is one guilty plea to fraud charges, arrests for wire fraud. interstate transport of stolen money, witness tampering and harassment; for racketeering, white collar crime, and operating a scheme to defraud; and for engaging in prostitution; and violation of a no-contact order.  The people involved were all "C-level" executives, including a CTO, two CFOs, and a CEO.

Of course, all people who are arrested are not guilty.  There are only four organizations, all relatively small, involved in this series of cases.

Again, however, should not the standard of conduct for health care leaders be somewhat higher than that of, for example, garbage haulers?  (I am sorry if that appears to insult garbage haulers.  Such was not my intention.)  For people generally paid so well because they were thought to be the best and the brightest, should not our expectations be higher.

Post Title → Health Care Leaders: the Best and the Brightest?

Logical Fallacies in Defense of Million Dollar Babies

We recently posted about the latest example of generously paid health care leaders, million dollar plus hospital CEOs in the Baltimore area (here).  Such stories are appearing more often in the media, and increasingly generating skeptical, anguished, or angry responses. 

Defending Millionaire Hospital CEOs

So it should be no surprise that the defenders of rich hospital CEOs are starting to rally.  The Baltimore Sun published two letters defending the million dollar plus compensation received by many local hospital CEOs.  But what arguments they made.

First, let us examine in detail  the arguments made by Carmela Coyle, "president and CEO of the Maryland Hospital Association."  She opened with this description of hospitals as organizations:

Famed management expert Peter Drucker said that health care is the most difficult, chaotic, and complex industry to manage today, and that the hospital is "altogether the most complex human organization ever devised."

Indeed, hospitals are not your typical business. Hospitals are places where lives are saved. They ease pain and suffering. Hospitals are open every minute of every day, driven by a mission of caring and rooted in their communities. Hospitals do not close up and move on when economic times get tough. This requires extraordinary dedication, commitment, talent, and leadership. And hospitals are governed by trustees--independent leaders from the communities hospitals serve.

She then briefly described her version of how hospital CEO compensation is set:

The compensation for hospital executives is determined by those boards and compensation committees who follow nationally recommended practices for setting contract terms, evaluating CEO performance, reviewing salary comparability data, setting and approving compensation, and ensuring the process is free from conflict of interest.

Then she provided this extraordinary description of what hospital CEOs do:

Perhaps the more important look is at what these hospital leaders do day in and day out for Marylanders:

•Provide more than 88,000 Maryland jobs; most hospitals are the largest employers in their communities and they employ your friends and neighbors;

•Make health care available 24 hours a day, every day of the year, regardless of a recession, blizzards, physician and nurse shortages, or other obstacles;

•Bring you the latest technology and facilities so you, your family, and your neighbors can get the care they need, when they need it;

•Manage the uncertainties and vast change that health care reform will bring;

•Preserve your local hospital as the cornerstone of care in your community.

Hospitals are unique places, and it takes unique people to run them. Maryland is fortunate to have such leaders.

.

"Famed management expert Peter Drucker said...." - Appeal to Authority

Mr Drucker may be a management expert, but what expertise does he have in health care, medicine, or the health care environment?  I actually agree that the hospital environment is "difficult, chaotic, and complex" in many senses, but would assert that it is the health care professionals in hospitals (doctors, nurses, other clinicians, therapists, technicians, etc) who are most expert at and primarily tasked with responding to these complexities (see below).  I submit that the opening citation of Drucker is an example of an appeal to authority (chosen not because of his specific expertise in the relevant context.)

"Hospitals are places where lives are saved...." - Appeal to Emotion

Of course they are, and the general description of the hospital is true.  However, who is it who (rarely) save lives, (hopefully often) relieve pain and suffering, and provide continuous service "every minute of every day?" 

It is, glaringly obviously, the health care professionals listed above, admittedly assisted by a variety of staff who keep the lights on, make the food, clean the operating rooms, etc, etc.  The most removed from the actual clinical care are the managers.  The higher the managers are in the food chain, the less likely they are to have any contact with actual clinical care.  I submit that most CEOs deal mainly with C-level officers and vice presidents, and interact mainly with them, spread sheets, PowerPoints, and emails.  Given that hospitals do al these wonderful things, should not the support, credit, and frankly, pay go to those who actually do wonderful things, not sit in meetings and play with spread sheets?

I believe that this wonderful description of the hospital mission is mainly an appeal to emotion, designed to generate warm and fuzzy opinions about hospitals that make paying their detached top managers much more than the people who actually provide patient care more emotionally, but not logically palatable.

"And hospitals are governed by trustees...."
"The compensation for hospital executives is determined by those boards...."
- Begging the Questions and an Appeal to Common Practice

The description of how CEO pay is set merely describes a process, but does not explain why this process is likely to come up with the right result.  It begs questions about hospital leadership and governance that we have discussed often, including whether boards populated by people with little understanding of health care, sometimes including leaders of financial firms who helped usher in the great recession, and sometimes including individuals with obvious conflicts of interest are likely to make decisions about executive compensation that ultimately support the hospitals' missions.  It begs questions about the standards to which executive pay is compared, especially the phenomenon that all executives are above average (see this post).  The implication that because a process is in place that follows the usual practice, the outcome must be good amounts to an appeal to common practice. 

"what these hospital leaders do day in and day out...." -Appeal to Emotion and the Questionable Cause Fallacy

In one sense, this is just a more extreme version of the appeal to emotion used above.  Furthermore, the bullet points are really about what hospitals and their health care professionals and support staff, not what their leaders do.  It is the hospitals as organizations that provide jobs.  It is the professionals and support staff who make the health care available every hour of every day.  (Have you ever seen the CEO of a hospital caring for an acute patient at 2 AM?  LOL.)  It is the hospital that provides the technology and facilities.  It is largely the health care professionals who manage uncertainties. 

Suggesting that the few CEOs, sitting in their meetings and reading their spread-sheets, rarely directly interacting with health professionals, and virtually never actually involved in patient care, should get most of the credit for these good works insults the thousands of health care professionals who actually do the health care.  It also amounts to an example of the questionable cause fallacy: the fallacy is that because the managers are somehow associated with actual health care, they cause the health care to happen.  (Think how long a hospital could provide services if the health care professionals and support staff were to vanish.  Think how long a hospital could provide services if the managers vanished.)

The second letter to the Baltimore Sun was by the chairman and CEO of Yaffe & Company, Inc, apparently a firm that consults on executive pay.  This letter was even less to the point than that above.  I invite our readers to discover its logical fallacies.

Summary

For a while we have been writing an informal series of posts about how logical fallacies may be deployed to advocate questionable health policy arguments, usually in a highly self-serving manner.  Our most recent example was here.  Most of the examples seemed to involve defenses of financial relationships among doctors and medical academics and drug and device companies, often written by people who themselves have financial relationships with such companies. 

The question of huge compensation given to leaders of health care organizations, and related questions about the effects of their perverse incentives, impunity from negative consequences of their actions, status as a new aristocracy, etc on health care dysfunction are getting more attention in the media.  So it should be no surprise that the defenders of the pay and power of these leaders are appearing.  It probably, but regrettably should also be no surprise that the defenses are mostly illogical, and made by people with financial interests in continuing excess compensation for health care leaders.

Physicians, other health care professionals, those interested in health policy, and the public at large need to be continuously skeptical about health policy advocacy appearing in the media, especially by those who stand to personally gain from the results of the advocacy.

My just slightly tongue-in-cheek suggestion for a policy position that could address this issue would be mandatory training in logical and evidence-based thinking, specifically to include recognition of logical fallacies, beginning at least at the middle-school level for all Americans (and around the globe), reinforced for those in health care.  (See the Nizkor Project site for a useful catalog of logical fallacies.)

Post Title → Logical Fallacies in Defense of Million Dollar Babies

More Hospital CEOs Join the Millionaire's Club, This Time in Baltimore

As we predicted, more stringent requirements by the US Internal Revenue Service for financial reporting by not-for-profit organizations, including hospitals and hospital systems, have produced an enlarging parade of revelations of obese pay packages for hospital leaders.  The latest report came out courtesy the Baltimore Sun:

Baltimore-area hospital CEOs and presidents boast seven-figure salaries, club and gym memberships, and paid financial planning and tax services as part of compensation packages from their nonprofit employers.

According to a survey of Baltimore-area hospitals, the highest-ranking executives were often the recipients of financial payouts and perquisites that many private-sector companies have abandoned in the face of intense public debate about excessive CEO pay. The heads of hospital systems, which oversee many facilities, tended to make the biggest salaries and incentives. Eight top executives made more than $1 million, and the largest CEO pay package totaled $7.8 million.

The article described some of the more corpulent compensation packages.

St Joseph Medical Center

One was from St Joseph Medical Center, already under fire for for the lavish use of cardiac procedures by one of its staff doctors:

St. Joseph Medical Center, a member of Catholic Health Initiatives, said in a statement that it offers a level of compensation that allows it to compete for talent. The hospital paid former CEO John K. Tolmie $846,128 in salary, bonus and other pay, the latest IRS filing shows.

'Hospital CEOs have one of the most demanding, high-pressure jobs in the nation, dealing on a daily basis with everything from ever-changing regulations to workforce shortages and lower reimbursement for services,' the hospital statement said.

Tolmie resigned in May 2009 after being on administrative leave to avoid a conflict of interest during a federal investigation. Since then, one of the hospital's cardiologists, Dr. Mark G. Midei, has been accused of performing hundreds of unnecessary heart procedures. 

Mercy Medical Center:

Mercy Medical Center head Thomas Mullen made $1.08 million in compensation during fiscal 2009. The hospital said in a statement that it 'believes this compensation to be appropriate given the responsibilities of serving as a president and CEO of a $520 million health system.'

Johns Hopkins
One might expect the CEO of the Johns Hopkins hospital system to be paid well, but he was paid particularly well since he also seemed to have the full-time, separately paid position of dean of the medical school:

Edward Miller, CEO of Johns Hopkins Medicine, made $729,297. He also gets paid separately for his position as dean of the School of Medicine at Johns Hopkins University. The fiscal 2009 filing for the medical school was not yet available. But Miller collected $1.4 million for that job the year before.

Summary


A chart of the compensation of all CEOs is here. As noted in the article, eight CEOs got more than $1 million, and another three got over $900,000.

A Baltimore Sun commentator noted that not only did the CEOs get large salaries, but:

Close to a dozen had personal dues for 'social clubs' financed by your charitable donations, tax dollars and health insurance premiums. Many enjoy lavish and opaque executive retirement plans that also put upward pressure on the medical costs that threaten government budgets and the economy.

As we have noted before, he pointed out that it is unseemly for not-for-profit hospitals, which are supposed to be devoted to the mission of caring for patients, usually explicitly including poor patients, and which are funded to a great extent by government programs and the income from donations, to make millionaires out of their top hired executives:

Hospitals aren't Goldman Sachs. They're not Stanley Black & Decker or Microsoft, either. They're nonprofits, getting charitable donations and huge government subsidies beyond all the loot they rake in from Medicare and Medicaid. If the newly required disclosures on the IRS 'Form 990' put pressure on hospital boards and CEOs to tone it down, it's about time.

People who donate to hospitals, thinking they are doing so to provide better health care, or to help out the less fortunate, may be surprised to hear about the hospital CEO as millionaire:

For some hospital donors, the revelations are transparently shocking.

'Donors are completely outraged,' says Ken Berger, president of Charity Navigator, an organization that helps people make smart giving choices. 'Donors tell us more than anything that they're just blown away by the fact that an organization that is a charity basically is creating millionaires in its leadership.'

'The most common remark we get is this: 'I've been giving to this organization for years, and I can't believe what the CEO is making, and I will never support this organization again.' '

I am glad that newspaper commentators are getting even more wound up on this issue than I have:

Why any hospital executive should need a company-paid club membership is a deep mystery. It can't be to woo potential donors. No donor with half a brain wants to endow an institution so employees can play golf with her money.

It shouldn't be to wine and dine business prospects. A hospital's business is collecting revenue for medical care. To be frank, there's too much of that going on already for the good of the country's wallet. Hospitals are far too focused on sales and marketing and not enough on delivering quality, efficient care.

Hospital trustees on any compensation committee can deliver a windy treatise about how pay for senior executives is ethical, carefully considered and worth every penny.

It's all a crock. The 'independent' compensation consultants that boards rely on are often referred by the CEO himself. The consultants know they can't make waves, or they won't get hired to rubber-stamp executive pay at other hospitals. To justify high pay, boards and consultants often use unrealistic comparisons from much bigger institutions or from the for-profit sector.

It doesn't take $1 million to get a great boss.

But it gets worse. People who love to play golf on company money, and feel entitled to make a million or more are not the right people to lead organizations that are supposed to focus first on health care, including health care for the less fortunate. Moreover, people who get used to the pay and perks are likely to focus on keeping them coming, rather than the mission, even if they started out with some devotion to the mission.  Furthermore, the excessive pay and perks are perverse incentives, telling the CEOs that they are wonderful people, they can do no wrong, and should stand for no criticism, all further diverting them from what they really are supposed to be doing: upholding the mission.

As we have said many times before, true health care reform would encourage leadership of health care who understand health care and care about its mission, rather than those who see a quick way to make a small fortune.

Post Title → More Hospital CEOs Join the Millionaire's Club, This Time in Baltimore

More Examples of US Hospital Market Consolidation: Connecticut and Florida

Two recent stories from two different parts of the US continue the theme of ever increasing concentration of power in our health care system.

Connecticut

The Hartford Business Journal reported on growing interest in mergers among small Connecticut hospitals.

Rising costs and reductions in government reimbursements related to health care reform could lead to consolidation among the state’s 29 acute care hospitals in the coming months and years, industry experts said.

Indeed signs of consolidation in Connecticut are already taking shape. Danbury and New Milford hospitals, for example, recently signed an affiliation agreement that will put both organizations under the control of a single corporate parent.

Meanwhile, the Central Connecticut Health Alliance, which is the parent company of the Hospital of Central Connecticut, has signed a memorandum of understanding to affiliate with Hartford Healthcare. If that deal gets federal regulatory approval, the two organizations would be integrated under the Hartford Healthcare umbrella.

Note that this story suggests the rationale has everything to do with financial issues, and little to do with patient care issues.

In some cases, deals could be fueled by the needs of cash-strapped, independent hospitals to find larger, more stable partners. In other cases, independent hospitals that have remained financially stable may look to form partnerships to gain greater access to capital markets.

'There are a lot of hospitals that are struggling financially and I think the changes that health care reform is going to bring with reimbursements could be the straw that breaks the camel’s back,' said Vincent Capece, the senior vice president and chief operating officer of Middletown-based Middlesex Hospital, which has nearly 300 beds. 'It will force hospitals to either go out of business, or find a partner.'

Mergers or partnerships allow smaller, independent hospitals to leverage the purchasing power of larger institutions — especially with insurance companies — and consolidate backroom or administrative services, among other benefits.

Note also that the recent US attempt at health care reform, later characterized as health insurance reform, is seen as driving, not preventing mergers.

Hospital officials say talks of mergers, or other types of partnerships, are likely to continue as the economy remains on shaky ground and health reform changes the landscape of how the industry does business.

Officials say reform will lead to reduced Medicare reimbursements from the federal government and require significant capital investments as hospitals prepare for larger patient loads and acquire new technology to provide more efficient care.

Florida

The Orlando Sentinel reported on increasing merger hospital merger activity in central Florida.

In health-care circles, the summer of 2010 may be remembered as the end of small, independent hospitals in Central Florida. Three community facilities here have set their course toward consolidation by joining — or announcing plans to join — large systems.

This month, Health Central, the last independent hospital in Orange County, voiced its intention to partner with a hospital chain. In July, the Wuesthoff hospital system in Brevard County was purchased by a for-profit corporation in Naples that owns 60 hospitals across the country. And on July 1, a partnership between Bert Fish Medical Center and Florida Hospital took effect, giving the system the option to buy the New Smyrna Beach facility.

The latter case could apparently lead to quite a substantial local concentration of power:

In Orlando, two major hospital chains dominate: Orlando Health, which owns all or part of eight hospitals, and Florida Hospital, which owns or operates 13 hospitals in Central Florida and 18 throughout the state.

Both are likely suitors for Health Central, which operates a 171-bed hospital, a nursing home and other health-care services in west Orange County.

Officials from Orlando Health did not respond to requests for interviews.

Florida Hospital system already is involved in a partnership with Bert Fish Medical Center that could lead to a purchase of the facility in 2015. As part of the agreement, Florida Hospital, which is owned by Winter Park-based Adventist Health System, would provide $24 million in capital improvements for Bert Fish in the next five years, pay off the hospital's debt and prop up an underfunded pension plan. In addition, residents in the hospital's taxing district were told their tax rates would go down.

The partnership cements Florida Hospital's dominance in Volusia and Flagler counties, where it already owns hospitals in DeLand, Orange City, Daytona Beach, Ormond Beach and Palm Coast. Its sole remaining competitor is Halifax Health, which owns hospitals in Daytona Beach and Port Orange.

This story contained some protestations from hospital leaders that it is all about the patients:

Florida Hospital officials say their goal is not to create health-care monopolies.

'We're a church-sponsored, church-related organization,' said Florida Hospital Vice President Richard Morrison. 'It's our mission to serve people — and if we can come to other communities and bring what we think is a distinctive approach to health care, then we'll do that.'

On the other hand,

'Hospitals today are like mom-and-pop grocery stores were 40 years ago,' said Dr. Kevin Schulman of Duke University's Fuqua School of Business. Before there was a Publix in every neighborhood, there were small grocery stores. Today, like the grocers, hospitals are joining forces or selling out to regional chains.

For the hospitals, there's strength in numbers, Schulman said. A large hospital system has more leverage when negotiating with insurance companies. Likewise, there's power in purchasing.

But these widespread hospital mergers 'have led to more market power for hospitals. Another word for that is 'monopoly,'' Schulman said.

Furthermore, just as history tells us, monopoly may be good for monopolists but not for everyone else.

A single small hospital doesn't have much clout to bargain with insurance companies. On the other hand, a hospital system that dominates a market is more likely to be able to charge higher rates to insurers — and their customers, say experts.

'There may be some efficiencies in being larger,' said Dr. Robert Berenson, a health-policy expert at the Urban Institute, a think tank in Washington. 'More to the point, however, it gives a hospital much more leverage in negotiating with health plans.'

And although there are many forces driving hospitals to join larger systems, Berenson says the results have been clear to health-care economists.

'There's some theory that [consolidation] improves quality,' he said, 'but the reality is, it drives up prices.'

While at least the folk wisdom among doctors is that the federal authorities will jump on any two doctors who informally discuss their prices, in the laissez faire, let the good times roll era of the 1980s through 2000s, there seemed to be little governmental concern about hospital (or health care in general) consolidation of power:

'Because many hospitals are not-for-profit entities, we seem to have given them a lot more latitude from an antitrust perspective, [Dr Kevin] Schulman said. 'Yet they act like the worst of the for-profit monopolies.'

Summary

As we just noted, advocates of laissez faire commercialized health care often trumpet the advantages of competitive markets as a rationale for deregulation. While there are theoretic, and possibly empiric reasons to think that competitive markets are the optimal way to distribute goods and services, we recently discussed aspects of health care that make it extremely hard for health care markets to be ideally competitive.

In the 1960s, it became recognized that physicians' professionalism, hospitals' devotion to their missions, and sometimes even (gasp) government regulation might partially compensate for distortions in the health care market. However, as supposed free market advocates became more powerful, they pushed for the commercialization of medicine and hospitals, reducing professionalism and mission support, and the hollowing out government regulation. (However, why did the people who attacked medical societies' codes of ethics as monopolistic have no interest in attacking market domination by insurers or hospital systems? Inquiring minds want to know.)

As we said last time, true health care reform would help physicians and other health care professionals uphold their traditional values, including, as the AMA once stated, "the practice of medicine should not be commercialized, nor treated as a commodity in trade." True health care reform would put health care "delivery" back in the hands of mission-focused, not-for-profit organizations, which put patients' health, safety and welfare first.

Post Title → More Examples of US Hospital Market Consolidation: Connecticut and Florida

Where No Hospital CEOs are Below Average

In Lake Woebegon, all children are above average.  Now it seems that hospital CEOs have moved there. 

Ventura County, Where No CEO is Below Average

The Ventura County (California) Star reported on the uniformly high remuneration of the CEOs of local, mostly small, not-for-profit hospitals and hospital systems.

T. Michael Murray reaped $330,545 in 2008 as chief executive officer of St. John’s hospitals in Oxnard and Camarillo. He drew an additional $187,071 in bonuses with $73,113 more in benefits and other compensation.

His total package, according to IRS records, reached $590,729.

And he may have been underpaid, according to a statewide survey of 118 nonprofit hospitals. The report by the Payers & Providers healthcare business publication suggests the base salary for CEOs averaged $514,237.

Kick in bonuses, retirement money, reimbursement for education costs, expense accounts and the average total compensation hit $732,004.

Public records show similarly lofty numbers at Ventura County’s three nonprofit, tax-exempt hospital groups. Gary Wilde of Community Memorial Health System, which runs hospitals in Ventura and Ojai, was the highest paid CEO in 2008. He earned a base salary of $508,682 and his total compensation was $853,528, with much of the additional money placed into a retirement fund that won’t be paid out until Wilde serves six more years as CEO.

Simi Valley Hospital changed its leadership in 2008, with a total compensation of $1.25 million recorded in 990 tax forms for two different CEOs. That’s slightly more than the hospital provided in treatment for poor uninsured patients where there was no attempt to collect payment, though hospital leaders say charity care definitions encompass only a fraction of the total care they provide without pay.

Outside the county, tax records from the Cottage Health System in Santa Barbara showed a base salary of $848,826 for CEO Ronald Werft and other compensation of $546,846. His total topped $1.3 million.

Ken Anderson of the John Muir Health System, which operates hospitals in Walnut Creek and Concord, was the highest compensated CEO in the Payers & Providers study. He made $745,000 in base salary and nearly $7 million in other compensation, much of it deferred over his career for retirement.

Recall that these people are leading relatively small, not-for-profit community hospitals whose missions are to provide health care to the community.  Total compensation ranging from three-quarters of a million dollars to multi-millions seems vastly disproportionate to the jobs and their settings.

Explanations and Excuses
As expected, those supporting the CEOs have all sorts of explanations and excuses:

Hospital leaders in Ventura County and throughout California say the numbers are inflated by retirement plan accumulations that must be included on tax records even before executives qualify to receive the money. They defend the half-million-dollar salaries, with bonuses on top, as the only way to compete with for-profit hospitals for executives who can lead a facility that may employ more than 1,000 workers, drive a community’s economy, provide access to the uninsured and deliver care that saves lives.

'Given the context, it’s not out of line,' said Murray, a CEO with 28 years of experience who is now semiretired after resigning from St. John’s at the end of March. 'I think you need to retain and also attract sufficient talent. I’m not saying there aren’t inappropriate salaries out there. I don’t think mine was one of them.'

Also,

But [economist Sung Won] Sohn said that paying below average is risky.

'When you try to get somebody at $400,000 rather than $700,000 you will get plenty of takers but they’re not competent,' he said. 'Hospitals are so important in the community that you want to make sure it’s run properly.'

Nor does he see any problem with paying more than average if a hospital board wants to reward an executive.

Furthermore,

John Romley, an economist at the Schaeffer Center for Health Policy and Economics at USC, said the amount hospitals spend on executive pay is a sliver of their total expenses and can’t legitimately be blamed for driving the rising cost of healthcare.

'I guess I’m not shocked even though I’m jealous,' he said of the compensation.

Some people were not pleased about this use of health care dollars:

Others worry the compensation may push hospitals into spending more on executives than their nonprofit mission of providing care for the poor. Federal regulations already limit compensation for CEOs of corporations bailed out by the government to $500,000. Similar caps placed on nonprofit hospitals could create dramatic differences, said Ron Shinkman, author of the Payers & Providers statewide survey on CEO salaries.

'You’re looking at close to $39 million that could be used on uncompensated patient care,' he said. 'It’s a lot of money.'

Consumer advocates aim much of their concern at nonprofit hospitals that not only reward CEOs with lucrative paydays but also provide little charity care to poor, uninsured patients. The Payers & Providers research identifies 17 hospitals — all outside of Ventura County — where the total compensation to CEOs exceeded the cost of charity care.

'It would be outrageous if hospitals are paying more to their (entire) executive teams than in indigent care in their community,' said Anthony Wright of Health Access California. 'For some hospitals to provide more to one individual just seems wrong.'

The Mechanism: Ego Bias

The mechanism making CEO compensation constantly increase appears to be simple:

Typically, hospital boards hire consultants to conduct studies showing market averages for comparable hospitals in their regions. They often try to pay somewhere around the 50th percentile.

That’s a reasonable way to do it, but such studies tend to push up the salaries, said economist Sung Won Sohn, who was involved in setting compensation at two Minneapolis hospitals.

'People at the low end try to increase the CEO closer to the average,' said the professor at CSU Channel Islands. 'If everyone does that, the average CEO salary will go up.'

So there you have it. At no hospital is the CEO deemed by a sympathetic (and sometimes crony filled board) below average. If the CEO's compensation has somehow dropped below average one year, it is immediately raised to at least average the next. Apparently almost never is the CEO's pay deemed to be too high.

That notion is corroborated by the assumption by the CEO documented above that all CEOs have "sufficient talent," and the assertion above that anyone who would accept a lower salary would be "not competent."

So every year all the CEOs who had below average compensation the previous year get compensation increased at least to last year's average.  Almost no CEO gets a reduction.  So the average moves up relentlessly year after year. 

Of course, unless all CEOs are exactly alike, some CEOs must be below average. 

So this becomes a great example of the ego bias at work. Ego bias is a common cognitive bias usually discussed in the context of making probabilistic judgments. A simple definition is that people tend to believe that outcomes of what they do, or what a group with whom they identify does will be above average. A long time ago, colleagues and I showed that interns in an intensive care unit judged the survival of their patients on average to be better than their judgments of the mean survival of all patients in the ICU. On the other hand, ICU attending physicians displayed a slightly more sophisticated version of the bias. They judged their patients' survival accurately, but judged the mean survival of their ICU's patients to be higher than it really was. [Poses RM, McClish DK, Bekes C, Scott WE, Morley JN.  Ego bias, reverse ego bias, and physicians' prognostic judgments.  Crit Care Med. 1991 Dec;19(12):1533-9.  Link here.]

So we have the ego bias writ large in judgments made about the performance and compensation of hospital CEOs, at least in Ventura County, California.

The Implications

I agree that paying a CEO more than a hospital's entire expenditures for the care of the poor is unseemly.

However, in my humble opinion, the issue is even bigger than that. It is not so much how much of the hospital's budget goes to executive compensation, but what lessons this teaches CEOs.  I propose they are:
-  I am a wonderful person.   I can do no wrong.
-  If I do wrong, I cannot be punished.
-  I can get rich and powerful doing this.

Of course, as we have written many times, being the CEO of a small community hospital is supposed to be a calling, whose goal is to uphold the institution's mission.  Instead, CEOs are learning to be tin-pot dictators.  Some are probably sensible enough to resist learning this message.  I am afraid many are not.

Furthermore, there is no reason to think that this phenomenon is confined to Ventura County, California, or to small community hospitals.  We have discussed how the management of health care organizations have become unsympathetic to, or even hostile to the mission.  We have discussed their organizations' institutional conflicts of interests.   We have discussed how they have wound up with imperial CEOs. 

The resulting ill-informed, mission-ignorant or mission-hostile, self-interested, conflicted, or even corrupt leadership is a major, but still largely anechoic cause of our health care dysfunction.

As I have said endlessly, true health care reform will require finding well-informed leaders who understand and support the mission, put the mission before their own self-enrichment, and are unconflicted and honest.

Post Title → Where No Hospital CEOs are Below Average

The Hospital CEO as Debt Collector

Last year we noted that the US Internal Revenue Service (IRS) required more detailed reporting starting in 2009 by US not-for-profit organizations. Many US health insurance companies/ managed care organizations, most hospitals, nearly all medical associations, nearly all disease advocacy organizations, all health care charities, and nearly all medical schools are not-for-profit organizations. We suggested then that this reporting might lead to more transparency about the leadership and governance of these organizations.  The 2009 990 forms seem to be trickling into public view, sometimes leading to some striking disclosures about how US not-for-profit health care organizations are lead.

The California Watch blog just reported about the interesting part-time job of a hospital CEO:

The former president of a Laguna Beach hospital has been operating a debt-collection company that recovered medical payments from his own facility, raising conflict-of-interest questions as the CEO moves to a new hospital in Riverside County.

Bruce Christian ran South Coast Medical Center from 2005 until it was sold in 2009. At the same time, Christian was owner of Metro Republic Commercial Services, a consulting and medical debt-collection firm that provided at least $110,000 in services to South Coast while Christian was a top manager, records show.

South Coast Medical Center disclosed the arrangement as 'self-dealing' in federal tax filings. State law allows self-dealing by board members of nonprofits, typically as long as the body explores other options and determines they are not unduly enriching one of their own.

Of course, I also get to write, but wait, there is more:

Christian was also at the helm of the hospital in 2006 when Adventist hired one of his Metro Republic consultants as interim chief financial officer, tax records show.

Adventist said it appointed the interim CFO when it believed the hospital would be sold quickly.

Additionally, a version of the Metro Republic website in 2006 said the firm supplied South Coast Medical Center with health care financial consulting, managed care-revenue recovery and accounts-receivable services.

The website, which appears to have been offline since 2006, describes Christian as a health industry leader for 30 years who built the Corona-based Metro Republic from a three-person office to one with 150 employees.

Predictably, the response from the hospital and its parent health system was that it was all no big deal.

Adventist Health West, the Roseville-based company that owned South Coast, acknowledged that the arrangement was 'unusual' and 'not the norm' for the firm.

In a statement, Adventist said Christian's firm collected hospital debts for years before Adventist bought the hospital and prior to Christian’s tenure as president and CEO.

Board members were aware of the arrangement. It remained in place while the chain sought to sell the medical facility throughout Christian’s tenure, the statement said.

'Unfortunately, it took much longer than originally envisioned to sell the hospital,' Adventist Health said in a statement. 'Adventist Health continues its deep commitment to providing mission-driven, quality health care to the communities we serve.'

Some thought otherwise:

But allowing a hospital administrator – who can have considerable power over setting prices on medical procedures – to operate as the hospital’s own bill collector presents a thorny conflict of interest, said Ken Berger, executive director of Charity Navigator, a New Jersey-based charity evaluation group.

'Just because the (hospital) board may sanction it doesn’t make it right, appropriate or ethical,' he said. 'The mission of hospitals and the mission to squeeze money out of those that are slow to pay can be quite contradictory. It’s just wrong.'

Another expert thought something ought to be done:

Kathryn Peisert, managing editor for publications at the San Diego-based Governance Institute, said a hospital CEO’s duty is to further the interests of the hospital. As such, she said, Christian should have eliminated all appearances of impropriety and cut ties between the medical center and his consulting firm.

'That’s really a big no-no,' said Peisert, whose organization advises hospital boards. 'I’m surprised some regulatory agencies haven’t been after this.'

We will see if anything will be done, but this conflict of interest seems not to have gotten in the way of Mr Christian's career advancement.

Christian is now chief executive of a Loma Linda University Medical Center campus expected to open in 2011 in Riverside County. A Loma Linda University Medical Center spokesman said the Murrieta campus will not contract with Metro Republic.

As I have said before, I expect that as more 990s dribble out, seemingly as slowly as many organizations can manage, we will see many more examples of these sorts of conflicts of interest, in which top organizational leaders also turn out to be vendors, consultants, etc.

In theory, and perhaps in a golden era in the past, leaders of not-for-profit health care organizations were supposed to regard their work as a calling, and to be primarily concerned with upholding the mission of the organization. Instead, we now see more leaders who seem to regard their organizations as their own personal sand boxes, providing opportunities for play, and sometimes personal enrichment. (Note that Mr Christian's total compensation from the hospital was "$360,000 and $400,000 in salary, benefits and deferred compensation in 2006 and 2007 at South Coast Medical Center.")

Unfortunately, Mr Christian's case demonstrates that leaders who get used to their organizations as personal sand boxes, rather than face punishment,  may be given the opportunity to play in larger venues. One wonders how much he will make at the helm of a new academic medical center, what other side deals he will manage, and how much he will be concerned with the academic and clinical missions.

Once again, I say that true health care reform will only be achieved when health care organizations are lead by people who put the mission ahead of their personal enrichment, and are held accountable for their ability to do so.

Post Title → The Hospital CEO as Debt Collector

Stifling Whistle-Blowers: Old and New Approaches

We have frequently discussed the anechoic effect, how it is just not done to discuss certain topics, particularly those related to the adverse effects of bad (ill-informed, incompetent, self-interested, conflicted, or corrupt) leadership and bad (opaque, unaccountable, mission-hostile, unethical) governance of health care organizations.  We have discussed many possible causes of the anechoic effect, but one particularly obvious cause is the silencing of dissenters and whistle-blowers.

Three recent stories illustrate old and new tactics to reinforce the anechoic effect.

A Classic Case - ValleyCare Medical System Nurse Fired

From the San Francisco Chronicle,

An Alameda County jury awarded more than $344,000 in damages this week against ValleyCare Medical System for refusing to rehire a Castro Valley operating nurse who claimed the hospital was retaliating against her for complaints she made about patient safety issues, including concerns about surgical equipment left inside patients.

Kristeen Klaas, a 15-year veteran at ValleyCare and a registered nurse for more than 30 years, sued the hospital system, which has services in Pleasanton and Livermore, after she quit in distress in May 2008 and hospital managers failed to respond to her request to be rehired days later.

The 54-year-old Klaas, who now works at Alta Bates Summit Medical Center in Oakland and San Leandro Hospital, had brought numerous safety complaints about the Pleasanton hospital to the attention of ValleyCare's management over the two years prior to her resignation.

Klaas complained about a fellow nurse who brought a dog into the operating team's break room and jumped rope with an electrical cord in the operating room, as well as a surgical technician who brought a rifle into the operating room office to sell. She also complained that a tip of a surgical instrument went missing during a surgery and was never found, and that an instrument was left in a patient because the hospital did not have a formal policy of counting instruments after surgery.

She also accused a supervisor of forging her signature on a performance evaluation after she refused to sign an evaluation that was backdated to comply with state regulations.

Here is the tactic allegedly used to silence the whistle-blowing nurse:

On her last day on the job, Klaas got permission from her supervising nurse to leave work because she was in distress after a colleague, the subject of three of her complaints, screamed at her.

'She realized, for the patient's safety, she couldn't continue to go forward that day in the operating room because she was so upset,' he said.

But then a supervisor called her at home and accused her of leaving without permission, prompting Klaas to resign, he said.

This is the classic, rather blunt way to do it: just make the would-be truth-teller's job experience so miserable that she quits.

Now we will present two examples of a more subtle approach, one directly from health care, one at least from a sphere with major health care implications.

A New Approach: A Contract Preventing Communication "Inimical" to a Pharmaceutical Company's Business

This case was documented by a personal narrative by Marc Lipsitch, a Professor of Epidemiology and the Harvard School of Public Health, published in the Chronicle of Higher Education,

I received a request from a large pharmaceutical company to assist in the design of a clinical trial, and the proposed terms seemed to require that I sign away my right to criticize the product. One provision would prohibit me from entering into 'any agreement or relationship to render services as ... adviser or consultant to, any other individual, firm, or corporation that would be inimical to or in conflict with' the aspects of the company's business covered by the agreement. Another would forbid me to engage, in any capacity, directly or indirectly, in "any business," with or without compensation, relating to the class of products under discussion—not just for the term of the contract, but for the year after as well. Those provisions could restrain me from providing candid advice to a regulator, a government official, or the editor of a peer-reviewed journal about the class of products on which I was consulting, even if the advice were based on publicly available information. I objected to those terms, as did a colleague who was offered the same arrangement.

Prof Lipsitch also noted that government research funding agencies and universities may not provide any protections to their faculty against such agreements. He also noted that the contract he was asked to sign was not one of a kind:

Discussions with my colleagues suggest that the problem is not limited to one pharmaceutical company ....

We and many others have frequently discussed the conflicts of interest that may be generated by physicians or health care academics having financial relationships with industry. The Institute of Medicine's definition of conflict of interest (in a health care context) found in its report, Conflict of Interest in Medical Research, Education, and Practice, is:

Conflicts of interest are defined as circumstances that create a risk that professional judgments or actions regarding a primary interest will be unduly influenced by a secondary interest. Primary interests include promoting and protecting the integrity of research, the quality of medical education, and the welfare of patients. Secondary interests include not only financial interests....

Thus the concern is that a faculty member,for example, who is paid to consult for a drug company might tend to favor the company, its products, or policies to its advantage in his or her clinical teaching, scholarly talks and writing, or public policy opinions. That might happen even if the consulting work is technical or scientific and not directly related to the particular topic about which communication might be influenced.

However, the situation described by Prof Lipsitch is much worse. Were he to have signed the contract, he would have been constrained by this legal agreement from writing or saying anything "inimical to or in conflict with" the company's business.

Last week, a similar, but more wide-spread example surfaced (pardon the pun) in a domain that is at least related to health care.

Another Version of the New Approach: the BP Consulting Contracts Making Any Communication Between the Company and the Consultant Confidential

Originally reported by the BBC,

The head of the American Association of Professors has accused BP of trying to 'buy' the best scientists and academics to help its defence against litigation after the Gulf of Mexico oil spill.

'This is really one huge corporation trying to buy faculty silence in a comprehensive way,' said Cary Nelson.

The BBC has obtained a copy of a contract offered to scientists by BP. It says that scientists cannot publish the research they do for BP or speak about the data for at least three years, or until the government gives the final approval to the company's restoration plan for the whole of the Gulf.

It also states scientists may perform research for other agencies as long as it does not conflict with the work they are doing for BP.

And it adds that scientists must take instructions from lawyers offering the contracts and other in-house counsel at BP.

Here are some examples of the wording of the contract as obtained by the BBC about confidentiality.

Confidentiality. All communications (including non-public information disclosed in such communications) between you (and your agents), BP Attorneys and/or other BP representatives in the course of your performance of the BP NRDA Services are deemed to be incidental to the rendering of legal services and are to be privileged and confidential. You shall maintain a strict confidentiality of such non-public communications and information unless or until a person from whom you are authorized to take instructions informs you in writing that this restriction is no longer applicable to any particular non-public communications and information. In the event you are required to disclose such privileged and confidential non-public communication and information by an order entered by a court or by similar judicial process, or by a judicial or administrative subpoena, you shall notify a person from whom you are authorized to take instructions as soon as practicable, and you are required to cooperate with BP if BP decides to seek relief from such required disclosure, including commencement of a legal or administrative proceeding to prevent or limit disclosure of such privileged or confidential information.

Here is the description of those from whom the signer of the contract must take orders.

Instructions. You agree to take your instructions only from me, from other lawyers in my firm, from Brian Israel or other lawyers in the Arnold & Porter law firm, and from Donna Ward or other in-house counsel at BP (collectively 'BP Attorneys').

Note that the contract defines privileged, confidential information as any communication between BP and its representatives and the contract signer. Thus, to make something confidential, all BP would have to do is mention it in a communication. It appears that this would allow BP to render off-limits any topic it chose. Also, since by the same mechanism, it appears that the contract itself, once signed, would also become privileged and confidential.

Summary

I submit that ideally medicine and health care ought to be a very transparent calling.  Physicians are obliged to keep confidential the information disclosed to them by patients, enabling the patients to trust physicians sufficiently to provide them the accurate information needed for optimal care.  However, it is hard to think of much other information or communication in health care that ought to be kept secret, (other than the processes used by commercial firms to manufacture drugs or devices.) 

Yet as health care becomes more of a business and less of a calling, businesspeople's proclivity to keep as much as possible secret to avoid giving any advantage to a competitor has become more influential.  Furthermore, those leading big organizations have realized that it is easier to maintain their power if they can keep their mistakes, if not misconduct secret.  So businesspeople's proclivity to mount overwhelming legal defenses of their interests may lead to persuading or fooling people who might be inclined to delve into such mistakes and misconduct to sign contracts to keep them silent through confidentiality clauses, requirements to protect privileged or proprietary information, non-disparagement clauses and the like.  The result will be better coddled self-interests, but more opacity that is inimical to good patient care, teaching, research, and public policy discussion.

To truly reform health care, we need more transparency.  To produce more transparency, we need constraints on contracts that inhibit needed clinical, teaching, research and public policy communication.

Meanwhile, as my father, who was an attorney, done told me: "don't sign a contract you don't understand, and don't sign a contract giving away any right you need to keep." 

Post Title → Stifling Whistle-Blowers: Old and New Approaches