A Health Care CEO Who Didn't Put His Own Pay First

We recently posted about executives at two different not-for-profit health care insurance companies/ managed care organizations whose pay seemed to keep levitating, despite organizational financial losses, and commented on how the compensation of top executives of health care organizations seems always to go up, regardless of the financial fortunes, or quality of the products or services provided by their organizations. (Posts here and here.)

Today's Boston Globe, however, provided a contrast. The background is that the Beth Israel Deaconess Medical Center (BIDMC), a renowned Harvard teaching institution, is facing a budget shortfall.

Paul Levy, the guy who runs Beth Israel Deaconess Medical Center, was standing in Sherman Auditorium the other day, before some of the very people to whom he might soon be sending pink slips.

In the days before the meeting, Levy had been walking around the hospital, noticing little things.

He stood at the nurses' stations, watching the transporters, the people who push the patients around in wheelchairs. He saw them talk to the patients, put them at ease, make them laugh. He saw that the people who push the wheelchairs were practicing medicine.

He noticed the same when he poked his head into the rooms and watched as the people who deliver the food chatted up the patients and their families.

He watched the people who polish the corridors, who strip the sheets, who empty the trash cans, and he realized that a lot of them are immigrants, many of them had second jobs, most of them were just scraping by.

And so Paul Levy had all this bouncing around his brain the other day when he stood in Sherman Auditorium.

He looked out into a sea of people and recognized faces: technicians, secretaries, administrators, therapists, nurses, the people who are the heart and soul of any hospital. People who knew that Beth Israel had hired about a quarter of its 8,000 staff over the last six years and that the chances that they could all keep their jobs and benefits in an economy in freefall ranged between slim and none.

'I want to run an idea by you that I think is important, and I'd like to get your reaction to it,' Levy began. 'I'd like to do what we can to protect the lower-wage earners - the transporters, the housekeepers, the food service people. A lot of these people work really hard, and I don't want to put an additional burden on them.'

'Now, if we protect these workers, it means the rest of us will have to make a bigger sacrifice,' he continued. 'It means that others will have to give up more of their salary or benefits.'

He had barely gotten the words out of his mouth when Sherman Auditorium erupted in applause. Thunderous, heartfelt, sustained applause.

The editorialist's conclusion was:

Paul Levy is trying something revolutionary, radical, maybe even impossible: He is trying to convince the people who work for him that the E in CEO can sometimes stand for empathy.

Note that Levy is one of the few health care CEOs who blogs, and he appears to write his blog on his own, unfettered by public relations flacks or risk-averse lawyers. His discussion of his revolutionary plan is here.

Further note the context in which he is working. While his medical center does not seem to receive particularly payments from insurance companies and managed care organizations, a previously secret agreement between the previous CEO of Partners Healthcare, another renowned, but competing Harvard-affiliated medical system and the previous CEO of Blue Cross and Blue Shield of Massachusetts, the state's biggest, and not-for-profit health care insurer/ managed care organization awarded much higher payments to that health care system (see posts here and here). And the current CEO of that Blue Cross and Blue Shield of Massachusetts just received (see this post) a substantial raise, enough to make him the best paid health care CEO in the state, while his organization's revenues and membership decreased.

This case shows it is possible for a health care CEO to put the organization's mission, and the welfare and morale of its hard working staff ahead of his own remuneration. If only this example were not so rare.

The Fight at the Mar-a-Lago Club: the Madoff Case Opens a Window on Medical Centers' Ties to the Rich and Famous

We just discussed how the incredible scrutiny being given to the case of Bernard Madoff, the alleged author of the financial scandal of the century, has opened many windows on the mismanagement and misgovernance of health care organizations. For example, consider the attention given to a Madoff crony, one Robert Jaffe. The Boston Globe reported,

The scene was a society party at Donald Trump's famed Mar-a-Lago Club in Palm Beach, Fla. One guest was Robert Jaffe, 64, who had recruited investors for Bernard L. Madoff, the money manager who last week admitted to a Ponzi scheme in which he lost $50 billion of his clients' money. Another was 78-year-old Jerome Fisher, founder of the upscale shoe store chain 9 West, who reportedly lost millions with Madoff and was upset by Jaffe's presence at the club Saturday night.

According to Trump, the two almost came to blows. 'It was as if these people were born to be prizefighters,' Trump said in an interview yesterday.

A second Globe article provided more detail about Jaffe's relationship with Madoff:

Even in the rarefied world of high society in Palm Beach, Robert M. Jaffe cut quite the figure. With his impeccably coiffed hair, a golf game to envy, and a $17 million waterfront mansion, he was a man to be seen.

He was also the man to see, if you wanted in on a sure thing - Bernard L. Madoff's investment fund.

Jaffe moved among the rich and richer in Palm Beach and Boston, finding suitable clients, among the many who clamored to get a piece of Madoff's irresistible, too-good-to-be-true investment returns.

And,

As vice president of Cohmad Securities Corp., a company set up primarily to bring in clients for Madoff, Jaffe offered coveted access to the legendary New York firm. Jaffe used to keep a small office on Commonwealth Avenue in Boston, but the MBA dropout functioned more as a symbol of the extraordinary wealth and status Madoff clients could achieve.

Jaffe, who drove a green 1954 MG TF British convertible, seemed to find more success doing business on the golf course than in the boardroom.

Jaffe ... focused on recruiting clients with a high net worth. Investors and potential investors say that Madoff at times made it difficult to get in, often requiring connections and an investment of more than $1 million.

Jaffe provided those connections. Although his primary residence is in Palm Beach, he also has a home in Weston and is a member of the Pine Brook Country Club. A large number of the 360 members of the Weston club had investments with Madoff, according to members and employees. Jaffe played as recently as this fall on Weston's rolling fairways, where he was known as generous tipper.

Jaffe, who also runs M/A/S Capital Corp., a family-operated investment firm in Palm Beach, told the Palm Beach Daily News in an interview last week that he would refer potential investors to Madoff. If they became clients, Jaffe would be paid 1to 2 percent of the value of the first successful trade.

He described this arrangement as 'a common approach in the business.'

But that admission has taken some people in Palm Beach by surprise. People thought the breezy socialite was helping out friends by putting them in touch with Madoff.

Looking into Mr Jaffe's relationship with Mr Madoff also provides a view of the the relationships among not-for-profit academic medical centers and wealthy donors. Jaffe, it turns out, is also a prominent fund-raiser for Boston area hospitals,

Nonetheless, despite the scores of Palm Beach residents and Bostonians who have lost money with Madoff, Jaffe is still scheduled to preside over the Discovery Ball, a gathering of socialites and philanthropists Feb. 21 at the Breakers hotel in Palm Beach. In 2006, the last time Jaffe and his wife, Ellen, cochaired the fund-raiser for Boston's Dana-Farber Cancer Institute, they helped raise $2.25 million.

Furthermore,

Some say the cloud over Jaffe raises questions about his vast philanthropic efforts and leadership roles, including positions as chairman of the Palm Healthcare Foundation, an overseer of the Beth Israel Deaconess Medical Center, and co-chair with his wife of the 2009 Dana-Farber Cancer Institute and Jimmy Fund's Palm Beach 'Discovery Ball.'

The Globe went on to report the impact of the Madoff affair and Jaffe's association with it on lavish hospital fund-raising events,

The situation highlights how the Madoff scandal has upended a crucial part of fund-raising for many of Boston's world-renowned hospitals. For years, the hospitals have gone to Palm Beach seeking donations from rich donors, many of them snowbirds or transplants from the Boston area. They hold lavish events at hotels and private parties at homes in an effort to attract donations.

Now, with many donors out millions, that strategy is being reevaluated.

Beth Israel Deaconess Medical Center, for instance, is reconsidering a March event in Palm Beach aimed at impressing donors with the hospital's latest medical advances.

'Because of the economy, we had already planned to scale back the extent of it,' said Paul Levy, Beth Israel's chief executive. 'We are considering what further steps we might take in light of the Madoff news because it affects too many people in Palm Beach. We don't need as large a place and we might want a place that's a little more modest.' At its 2007 gala, Beth Israel touted $15 million in gifts, though not all of the money was raised at the event.

'I don't know if it makes sense at all' to have the Jaffes chair the Discovery Ball, said Trump, the hotel and gambling tycoon, and a Dana-Farber contributor who attended the ball last year. 'I don't know the level of animosity or hatred, but I got a bit of it the other night.'

Other hospitals had already begun to rethink their fund-raising approaches before the Madoff scandal broke.

Tufts Medical Center, which has held a Palm Beach event for the past two years in conjunction with Tufts University School of Medicine, will not hold one this winter.

'We decided several months ago that with the economy the way it was, this wouldn't be the most productive year,' said Brooke Tyson Hynes, a spokeswoman. 'We'll reconsider it in the future.'

Children's Hospital Boston also scaled back a Palm Beach event prior to the scandal.

'We had decided before the economy was a problem not to hold an event but to instead engage in personal visits' with potential donors, said Janet Cady, president of the hospital's fund-raising trust.

The Globe article gave more of a flavor of these fund-raising events,

In the late 1980s, many of Massachusetts General Hospital's key donors who once lived in Boston and throughout New England asked the institution to hold events in and around Palm Beach, according to James E. Thompson, vice president for development at Mass. General.

The hospital holds an annual event, called an educational session, in which doctors speak about research at the hospital, followed by a reception. This year's session, scheduled for Feb. 3 at the Four Seasons Resort in Palm Beach, will go on as planned, said Thompson.

'We want to be sensitive and we've spoken to many of our key friends,' said Thompson. 'We're hearing that it's important that MGH continue to be in front of its key friends and contributors and that they want us to come. That doesn't mean all our close friends and competitors are as well off today as 12 months ago.'

Brigham and Women's Hospital is planning a series of events over three days starting Jan. 22, highlighted by a dinner at The Breakers.

'We're not changing our plans at this point,' said Jim Asp, vice president for development.

He added, 'The current uncertainty means donors are looking very carefully about the support they provide. They're taking a bit of a pause before they make some of their decisions. This is a time when it's important for us to stay close to our donors.'

But Dana-Farber has by far the biggest Palm Beach presence, with a full-time office and a schedule of events spread over five weeks, including a kick-off party, a preball dinner, 'breakfast with the doctors,' a dinner for 'major donors,' and the ball itself.

One starts to get a sense of how much academic medical centers have been caught up in the world of the rich and famous. One wonders what they gave up in order to cultivate the rich and famous. We have noted before how some teaching hospitals seem more focused on their profit margins and their CEOs' salaries, and on lavish buildings and high-tech equipment, then on general medical care, and sometimes on teaching at all. One wonders if hospital leaders have gotten distracted from their missions as they got caught up in the world of the rich and the famous.

At least the Madoff case has lead many people to question some of their assumptions about the rich and famous. First, from the New York Jewish Week, focusing on the dependence of Jewish not-for-profit organizations on a few rich donors,

Madoff’s alleged Ponzi scheme had such a devastating impact, they say, because so many organizations rely on informal networks of rich contributors who move in insular circles and operate on the basis of personal connections, not transparent fiscal procedures — the very qualities Madoff allegedly exploited to ensnare otherwise-savvy investors.

In recent years the donor bases of most major Jewish groups have shrunk as the focus shifts to small groups of big givers — a mode of fundraising that was seen, until now, at least — as more efficient and reliable than big networks of small givers.

All that may change as organizations assess the damage and struggle to recover.

'A whole ritual of the organized Jewish community is going to end: going down to Palm Beach and Boca Raton every winter, putting on a good show for these people in the country clubs and coming back with the funds you need to run your organization,'....

Madison Powers in CQ Politics on broader implications of the culture of access to the privileged,

The allegations in the pay-to-play scandal involving Illinois Gov. Rod R. Blagojevich and the admission by former NASDAQ chairman Bernard Madoff that his exclusive investment enterprise has (for more than 20 years) been nothing more than an elaborate ponzi scheme are perfect bookends to a familiar American narrative.

What both stories reveal, each in its own way, is how much American political and financial elites depend upon a series of elaborate rituals for the exchange of various forms of privileged access.

But whether illegal or not, such alleged behavior is part and parcel of a familiar political culture, and of a more general culture, in which some people routinely pay for or otherwise bargain for access, while others lacking the means — or awareness of the option — to pay, remain on the sidelines.

One problem with a culture of access for sale is that it offers no clear point at which we can agree when a line is crossed. But at some point the line is crossed, even if the boundary between what is conventionally accepted and what is not, is inherently fuzzy.

What the Madoff scandal makes clear is that the practice of buying privileged access is by no means confined to the political realm.

A culture of privileged access to economic opportunity or political power or both will always redistribute risk and reward in ways neither fair nor transparent.

Finally, Paul Krugman in the New York Times

So, how different is what Wall Street in general did from the Madoff affair? Well, Mr. Madoff allegedly skipped a few steps, simply stealing his clients’ money rather than collecting big fees while exposing investors to risks they didn’t understand. And while Mr. Madoff was apparently a self-conscious fraud, many people on Wall Street believed their own hype. Still, the end result was the same (except for the house arrest): the money managers got rich; the investors saw their money disappear.

But the costs of America’s Ponzi era surely went beyond the direct waste of dollars and cents.

At the crudest level, Wall Street’s ill-gotten gains corrupted and continue to corrupt politics, in a nicely bipartisan way.

Meanwhile, how much has our nation’s future been damaged by the magnetic pull of quick personal wealth, which for years has drawn many of our best and brightest young people into investment banking, at the expense of science, public service and just about everything else?

Most of all, the vast riches being earned — or maybe that should be “earned” — in our bloated financial industry undermined our sense of reality and degraded our judgment.

Think of the way almost everyone important missed the warning signs of an impending crisis. How was that possible? How, for example, could Alan Greenspan have declared, just a few years ago, that 'the financial system as a whole has become more resilient' — thanks to derivatives, no less? The answer, I believe, is that there’s an innate tendency on the part of even the elite to idolize men who are making a lot of money, and assume that they know what they’re doing.

After all, that’s why so many people trusted Mr. Madoff.

Now, as we survey the wreckage and try to understand how things can have gone so wrong, so fast, the answer is actually quite simple: What we’re looking at now are the consequences of a world gone Madoff.

Those are hard acts to follow, but to conclude in the health care context, we need to remember our core values, remember the calling of medicine comes before the siren songs of money and power, and stop idolizing "men who are making a lot of money," much less assume they know what they are doing.

Health Care Organizations Ensnared in Giant Ponzi Scheme

It seems that news about concentration and abuse of power in health care, about ill-informed, ill-advised, conflicted, self-interested, even corrupt management of health care organizations, has almost been swamped by stories of even worse concentration and abuse of power elsewhere, from mysterious hedge funds, to US state government, to countries on multiple continents. And yet, health care and health care organizations seem to have been swept up into these larger fiascos. We commented briefly earlier on one health care connection to the allegations that the Governor of Illinois tried to auction off an appointment to a US Senate seat.

Now it turns out that the spectacular collapse of a financial organization that really was a giant Ponzi scheme also has ensnared many health care organizations.

Reporting on the collapse of Bernard L Madoff Investment Securities is everywhere. (See this initial story, for example, in the New York Times.) Here is a list of the health care organizations that are involved.

Madoff was on the Board of Trustees of Yeshiva University, and its Treasurer. Yeshiva University is the parent university of the Albert Einstein College of Medicine. (The Board of Trustees web-site has had its content removed, but the cached version listed Madoff. This role was also reported by Bloomberg.)

Another member of the Yeshiva University board, J Ezra Merkin, ran a hedge fund, "which then put almost all of its $1.8 billion in capital in Madoff's hands." (per AP)

Yeshiva University itself was reported to have "lost tens of millions of dollars, if not more." (per New York Magazine.)

The Carl and Ruth Shapiro family charity, formerly a major donor to Boston health care institutions such as the Beth Israel Deaconess Medical Center, Boston Medical Center, and the Dana/Farber Brigham and Womens' Cancer Center, lost about half its assets, which had been invested with Madoff (per the Boston Globe).

Robert Jaffe, who "operated a company whose sole purpose was to market Madoff investment products," is "an overseer of Beth Israel Deaconess Medical Center." (Also per the Globe.)

The North Shore - Long Island Jewish Health System was "believed to have lost millions" (per AP).

So besides being a stunning example of financial mismanagement and fraud, this case is a reminder of how prominent health care institutions got caught up in the contemporary business culture, which in turn was dominated by the self-proclaimed Masters of the Universe who lead the big financial institutions. But after the Madoff case, as one writer on TheStreet.com put it, "does anyone still doubt that the global banking and investing industry is full of greedy idiots?"

ADDENDUM (16 December, 2008) - see multiple posts about the relationships among Yeshiva University and Madoff on the University Diaries blog.