The Massachusetts Blue Cross Blue Shield CEO's Golden Parachute - "'Have's' Greasing One Another's Pockets"

We have frequently discussed the kind of compensation now frequently given to leaders of health care organizations.  Although often even the most disproportionately outrageous compensation only attracts transient interest, a recent regional story in this genre has really gotten legs.

How Big the Golden Parachute?
The story was about the severance package given to one Cleve L Killingsworth, the former CEO of not-for-profit health care insurance company Massachusetts Blue Cross Blue Shield.  While first reported as being worth $8.6 million,(1) the estimate of his total severance was soon raised to $11 million.(2)

This is a Way to Control Costs?

Immediately, that amount was contrasted with the supposed emphasis of the company on controlling costs, and its recent poor performance:

Killingsworth’s tenure at Blue Cross, which has nearly 3 million members, was marked by efforts to address skyrocketing medical costs by launching a 'global payment' pilot program, under which health care providers are given an annual budget and incentives to keep patients healthy and out of the hospital.

'Without Cleve’s leadership, we wouldn’t be where we are today in shifting from fee-for-service to global payments,' said senior vice president Jay McQuaide.

But the insurer stumbled financially in recent years, recording back-to-back operating losses totaling nearly $215 million in 2009 and 2010 as the economy weakened and state regulators acted to limit premium increases for policies covering small businesses and individuals.(3)

Then focus shifted to the company's board of trustees, which lead to recognition of some more striking contrasts. First, some prominent members of the board which approved the huge golden parachute had been vocal supporters of controlling health care costs:

Key members of the Blue Cross Blue Shield board that gave the nod to then-CEO Cleve Killingsworth’s controversial $11 million severance have been public advocates for trimming soaring health-care costs — even as they sat on a panel that quietly approved the departing chief’s golden parachute.

Greater Boston Chamber of Commerce President Paul Guzzi has crusaded to lower health-care costs in his day job representing the interests of local businesses, many of which struggle under the burden of rising premiums for their employee health plans.

'Advancing payment reform to bring health-care costs under control' is one of the Greater Boston Chamber of Commerce’s top policy agenda items, Guzzi said in a statement in January. Guzzi made $84,463 as the Blue Cross board chairman at the time of the Killingsworth vote.

Robert J. Haynes, president of the Massachusetts AFL-CIO who made $72,700 as a Blue Cross board member in 2010, has championed health-care cost reduction for the thousands of union members he represents.

'Unions stand ready to be part of the solution to the health-care cost crisis in which we all find ourselves,' Haynes said in an AFL-CIO statement in January. 'The only way to ensure we are part of the solution is to guarantee that we have a voice and meaningful role in how cost savings are achieved.'

Bentley University president Gloria Larson, who earned $76,400 as a Blue Cross board member last year, helped organize a confab of business, labor and political leaders in Ashland in January that addressed rising health-care costs. Those who planned to attend reportedly included two other Blue Cross board members — Haynes and former Suffolk District Attorney Ralph C. Martin II.(4)

Why Pay a Non-Profit's Trustees?

Also, as the quote above pointed out, it appears that the board members were themselves paid fairly well for a very part-time job, even though in general trustees of not-for-profit organizations serve as unpaid volunteers. However, it was soon revealed the paying board members is common practice for all Massachusetts non-profit health insurance companies.(5)

Some Blue Cross board members tried to defuse the issue by minimizing the impact of their pay on the organization's total budget:

Robert J. Haynes, president of the Massachusetts AFL-CIO and a critic of excessive corporate pay, was questioned about his role on the board following a State House news conference he held on a union-backed plan aimed at lowering health care costs. He said he would not give up his $72,000 annual payment from Blue Cross until the issue was reviewed by the company, and said the money given to board members does not play a role in rising health care costs.

'The cost of health insurance is not affected very much,' Haynes said. 'It’s about $1 million that board members get paid. On $13 billion in revenue, it’s like pennies a year.' (6)

What Should the New CEO Be Paid?
However, soon the board felt the need to suddenly stop paying itself.(7) The current Blue Cross CEO noted how little he would be paid:

Dreyfus emphasized that he has taken 'rock-bottom-of-the-market' compensation levels -- $800,000 in base pay with the opportunity for $1.6 million in severance – for comparable positions in the insurance industry.

'I will be one of the lowest paid Blue Cross executives in the country,' he said.... (8)

Things are tough all over.

What is Mr Killingsworth Now Up To?

Meanwhile, Mr Killingsworth seems to be weathering the storm. An enterprising reporter attempted to interview him in his house in New York, described as "a sprawling clapboard monstrosity with the charm of an assisted-living facility." However, "Mr Killingsworth was nowhere to be found," and Mrs Killingsworth "slammed the door" on the reporter.  (See picture in cited article.)  (9)

Possibly, Mr Killingworth was away tending his other responsibilities, which include serving on the Boards of Directors of The Traveler's Company and TIAA-CREF, and apparently despite their apparently competitive nature, on the boards of the Harvard Medical School and Boston University.

The Reaction

There were plenty of reactions, mostly vigorously unfavorable, to the contrast between the company's non-profit status, supposed commitment to reducing costs, and financial performance, on one hand, and the compensation given to executives, and board members:

"undermines the credibility of insurers when they say they're serious about bringing down the cost of care" Deidre Cummings, President of the Massachusetts Public Interest Research Group (3)

"If you lose $149 million and then you get paid $11 million for doing it, it is very clear to people where their health-care dollars are going.  And it is not to health care." - Ethan Rome, Health Care for America Now (2)

There were also judgments that health care had become the sandbox for wealthy and well-connected insiders, at the expense of everyone else:

"What we have here today is yet another enraging story of the 'haves'greasing one another's pockets while the 'have-nots' slip beneath the waves." Margery Egan, columnist for the Boston Herald(10)

"Therein lies the problem with boards.  They're supposed to provide oversight, but too often it's the same people tossing money at each other to serve on the boards of each other's companies, the operative word always being 'Yes!'" Brian McGrory, Boston Globe columnist (5)

Most pessimistically:

"If Massachusetts is the model, then national health care reform is ultimately doomed." Derrick Z Jackson, Boston Globe columnist (11)

I am actually now more optimistic.  The coverage of this story really shows that the anechoic effect may be fading .  There is starting to be frank discussion of the role of bad leadership of health care organizations as a cause of health care dysfunction.  If we start to admit these problems, maybe we can figure out solutions.

I will add just one opinion to those expressed in these articles.  The clear problem here is again perverse incentives.  The issue with how much this CEO was paid, and how his board members were paid was not mainly the diversion from direct health care of the funds involved.  Instead, the concerns ought to be: what sorts of people do these payments attract?  Are they the sorts of people who will uphold the organization's mission?  Once attracted, what sorts of incentives do the prospects of these payments supply for what sorts of decisions?  Do these sorts of incentives lead to decisions that uphold the mission in the long-term?

In this case, these concerns are underlined by the Blue Cross trustees' cavalier attitude to their own pay, and the new CEO's belief that $800,000 a year is "rock-bottom." 

I hope that the amount of discussion this case provoked might actually lead to some needed regional changes.

More globally, 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.

References


1.  Gil G. Former Blue Cross CEO got $8.6m last year.  Boston Globe, March 1, 2011. 
2. McConville C. Ex-Blue Cross CEO walks away with $11M. Boston Herald, March 2, 2011.
3. Weisman R. Blue Cross CEO got $8.6m in exit deal. Boston Globe, March 2, 2011.
4. McConville C, Chabot H. Trio publicly crusade against rising health costs: behind the shield. Boston Herald, March 3, 2011.
5. McGrory B. Such health pay, it's sick. Boston Globe, March 4, 2011.
6. Levenson M, Weisman R. 2 Blue Cross directors justify stipends. March 8, 2011.
7. Crimaldi L, Dwinnell J. Blue Cross board suspends pay, CEO perks cut. Boston Herald, March 8, 2011.
8. Cheney K. Amid outrage, Blue Cross chief fights to 'reclaim' company's standing. Enterprise News, March 10, 2011.
9. Gelzinis P. Cleve Killingsworth's New York castle not shielded from bad taste. Boston Herald, March 11, 2011.
10. Egan M. You call this health care? - it's nauseating.  Boston Herald, March 3, 2011.
11.  Jackson DZ. No wonder health costs are so high.  Boston Globe, March 5, 2011.

The Massachusetts Blue Cross Blue Shield CEO's Golden Parachute - "'Have's' Greasing One Another's Pockets"

We have frequently discussed the kind of compensation now frequently given to leaders of health care organizations.  Although often even the most disproportionately outrageous compensation only attracts transient interest, a recent regional story in this genre has really gotten legs.

How Big the Golden Parachute?
The story was about the severance package given to one Cleve L Killingsworth, the former CEO of not-for-profit health care insurance company Massachusetts Blue Cross Blue Shield.  While first reported as being worth $8.6 million,(1) the estimate of his total severance was soon raised to $11 million.(2)

This is a Way to Control Costs?

Immediately, that amount was contrasted with the supposed emphasis of the company on controlling costs, and its recent poor performance:

Killingsworth’s tenure at Blue Cross, which has nearly 3 million members, was marked by efforts to address skyrocketing medical costs by launching a 'global payment' pilot program, under which health care providers are given an annual budget and incentives to keep patients healthy and out of the hospital.

'Without Cleve’s leadership, we wouldn’t be where we are today in shifting from fee-for-service to global payments,' said senior vice president Jay McQuaide.

But the insurer stumbled financially in recent years, recording back-to-back operating losses totaling nearly $215 million in 2009 and 2010 as the economy weakened and state regulators acted to limit premium increases for policies covering small businesses and individuals.(3)

Then focus shifted to the company's board of trustees, which lead to recognition of some more striking contrasts. First, some prominent members of the board which approved the huge golden parachute had been vocal supporters of controlling health care costs:

Key members of the Blue Cross Blue Shield board that gave the nod to then-CEO Cleve Killingsworth’s controversial $11 million severance have been public advocates for trimming soaring health-care costs — even as they sat on a panel that quietly approved the departing chief’s golden parachute.

Greater Boston Chamber of Commerce President Paul Guzzi has crusaded to lower health-care costs in his day job representing the interests of local businesses, many of which struggle under the burden of rising premiums for their employee health plans.

'Advancing payment reform to bring health-care costs under control' is one of the Greater Boston Chamber of Commerce’s top policy agenda items, Guzzi said in a statement in January. Guzzi made $84,463 as the Blue Cross board chairman at the time of the Killingsworth vote.

Robert J. Haynes, president of the Massachusetts AFL-CIO who made $72,700 as a Blue Cross board member in 2010, has championed health-care cost reduction for the thousands of union members he represents.

'Unions stand ready to be part of the solution to the health-care cost crisis in which we all find ourselves,' Haynes said in an AFL-CIO statement in January. 'The only way to ensure we are part of the solution is to guarantee that we have a voice and meaningful role in how cost savings are achieved.'

Bentley University president Gloria Larson, who earned $76,400 as a Blue Cross board member last year, helped organize a confab of business, labor and political leaders in Ashland in January that addressed rising health-care costs. Those who planned to attend reportedly included two other Blue Cross board members — Haynes and former Suffolk District Attorney Ralph C. Martin II.(4)

Why Pay a Non-Profit's Trustees?

Also, as the quote above pointed out, it appears that the board members were themselves paid fairly well for a very part-time job, even though in general trustees of not-for-profit organizations serve as unpaid volunteers. However, it was soon revealed the paying board members is common practice for all Massachusetts non-profit health insurance companies.(5)

Some Blue Cross board members tried to defuse the issue by minimizing the impact of their pay on the organization's total budget:

Robert J. Haynes, president of the Massachusetts AFL-CIO and a critic of excessive corporate pay, was questioned about his role on the board following a State House news conference he held on a union-backed plan aimed at lowering health care costs. He said he would not give up his $72,000 annual payment from Blue Cross until the issue was reviewed by the company, and said the money given to board members does not play a role in rising health care costs.

'The cost of health insurance is not affected very much,' Haynes said. 'It’s about $1 million that board members get paid. On $13 billion in revenue, it’s like pennies a year.' (6)

What Should the New CEO Be Paid?
However, soon the board felt the need to suddenly stop paying itself.(7) The current Blue Cross CEO noted how little he would be paid:

Dreyfus emphasized that he has taken 'rock-bottom-of-the-market' compensation levels -- $800,000 in base pay with the opportunity for $1.6 million in severance – for comparable positions in the insurance industry.

'I will be one of the lowest paid Blue Cross executives in the country,' he said.... (8)

Things are tough all over.

What is Mr Killingsworth Now Up To?

Meanwhile, Mr Killingsworth seems to be weathering the storm. An enterprising reporter attempted to interview him in his house in New York, described as "a sprawling clapboard monstrosity with the charm of an assisted-living facility." However, "Mr Killingsworth was nowhere to be found," and Mrs Killingsworth "slammed the door" on the reporter.  (See picture in cited article.)  (9)

Possibly, Mr Killingworth was away tending his other responsibilities, which include serving on the Boards of Directors of The Traveler's Company and TIAA-CREF, and apparently despite their apparently competitive nature, on the boards of the Harvard Medical School and Boston University.

The Reaction

There were plenty of reactions, mostly vigorously unfavorable, to the contrast between the company's non-profit status, supposed commitment to reducing costs, and financial performance, on one hand, and the compensation given to executives, and board members:

"undermines the credibility of insurers when they say they're serious about bringing down the cost of care" Deidre Cummings, President of the Massachusetts Public Interest Research Group (3)

"If you lose $149 million and then you get paid $11 million for doing it, it is very clear to people where their health-care dollars are going.  And it is not to health care." - Ethan Rome, Health Care for America Now (2)

There were also judgments that health care had become the sandbox for wealthy and well-connected insiders, at the expense of everyone else:

"What we have here today is yet another enraging story of the 'haves'greasing one another's pockets while the 'have-nots' slip beneath the waves." Margery Egan, columnist for the Boston Herald(10)

"Therein lies the problem with boards.  They're supposed to provide oversight, but too often it's the same people tossing money at each other to serve on the boards of each other's companies, the operative word always being 'Yes!'" Brian McGrory, Boston Globe columnist (5)

Most pessimistically:

"If Massachusetts is the model, then national health care reform is ultimately doomed." Derrick Z Jackson, Boston Globe columnist (11)

I am actually now more optimistic.  The coverage of this story really shows that the anechoic effect may be fading .  There is starting to be frank discussion of the role of bad leadership of health care organizations as a cause of health care dysfunction.  If we start to admit these problems, maybe we can figure out solutions.

I will add just one opinion to those expressed in these articles.  The clear problem here is again perverse incentives.  The issue with how much this CEO was paid, and how his board members were paid was not mainly the diversion from direct health care of the funds involved.  Instead, the concerns ought to be: what sorts of people do these payments attract?  Are they the sorts of people who will uphold the organization's mission?  Once attracted, what sorts of incentives do the prospects of these payments supply for what sorts of decisions?  Do these sorts of incentives lead to decisions that uphold the mission in the long-term?

In this case, these concerns are underlined by the Blue Cross trustees' cavalier attitude to their own pay, and the new CEO's belief that $800,000 a year is "rock-bottom." 

I hope that the amount of discussion this case provoked might actually lead to some needed regional changes.

More globally, 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.

References


1.  Gil G. Former Blue Cross CEO got $8.6m last year.  Boston Globe, March 1, 2011. 
2. McConville C. Ex-Blue Cross CEO walks away with $11M. Boston Herald, March 2, 2011.
3. Weisman R. Blue Cross CEO got $8.6m in exit deal. Boston Globe, March 2, 2011.
4. McConville C, Chabot H. Trio publicly crusade against rising health costs: behind the shield. Boston Herald, March 3, 2011.
5. McGrory B. Such health pay, it's sick. Boston Globe, March 4, 2011.
6. Levenson M, Weisman R. 2 Blue Cross directors justify stipends. March 8, 2011.
7. Crimaldi L, Dwinnell J. Blue Cross board suspends pay, CEO perks cut. Boston Herald, March 8, 2011.
8. Cheney K. Amid outrage, Blue Cross chief fights to 'reclaim' company's standing. Enterprise News, March 10, 2011.
9. Gelzinis P. Cleve Killingsworth's New York castle not shielded from bad taste. Boston Herald, March 11, 2011.
10. Egan M. You call this health care? - it's nauseating.  Boston Herald, March 3, 2011.
11.  Jackson DZ. No wonder health costs are so high.  Boston Globe, March 5, 2011.

After Manufacturing Problems, Genzyme CEO's Golden Parachute Means "Failure = Success"

In late 2009, I posted about problems at a Genzyme plant that manufactured some fabulously expensive drugs, e.g. Cerezyme whose cost to patients approximated $160,000 a year. We thought then that for a drug costing that much, the company ought to have figured out a conservative process to provide pure and unadulterated product. In a later post I asked why a company that could afford to make its CEO very rich could not afford to adequately maintain its manufacturing facilities. In May, 2010, I posted about a legal settlement of charges related to its manufacturing problems requiring Genzyme to pay a $175 million fine and function under US government supervision.  And in August, 2010, I posted about how this series of management missteps could lead to the company's CEO becoming even richer because they lead to a declining stock price, which increased the likely that the company would be bought out, which could trigger the CEO's golden parachute.  I suggested then that were this to happen, it would be a gross example of how massively perverse incentives stupendously reward the top brass of health care organizations for mediocre, or worse leadership and bad results for both patients/ clients/ customers and stock-holders alike.

Now it  looks like this will happen.  Yesterday, the Boston Globe reported:

Ggenzyme Corp., the largest biotechnology company in Massachusetts and one of the industry’s historic pioneers, has struck a definitive agreement to be bought by French pharmaceutical giant Sanofi-Aventis SA, in a deal valued at about $20.1 billion.

As a result of this deal,

Genzyme’s high-profile president and chief executive, Henri A. Termeer, who has run the company for 28 years, will resign following the close of the transaction. But he will advise Sanofi on integrating the two companies. Termeer built the company into a global operation with 10,000 employees worldwide and a business model that has been the envy of the biotechnology industry. He turns 65 on Feb. 28.

Termeer, though fiercely proud of Genzyme’s independence, stands to make more than $23 million when the sale is completed, according to a 'change of control' clause in his employment contract. In addition, as a major Genzyme shareholder, he would be in a position to cash out shares that last year were worth more than $275 million.

That and several other articles s noted that it was Genzyme's manufacturing problems that lead to the buy-out:

the string of events that made Genzyme vulnerable to a takeover began in the summer of 2009 when workers discovered viral contamination at Genzyme’s Allston Landing plant overlooking the Charles River.

Genzyme was forced to temporarily shut down and clean up the plant and ration shipments of its best-selling Cerezyme and Fabrazyme drugs, both of which treat enzyme deficiencies. The events created an opening for competitors such as Shire and Israel’s Protalix Biotherapeutics and sent Genzyme’s stock tumbling on the Nasdaq.

The dip in Genzyme’s share price drew activist investors, including Carl C. Icahn of New York and Ralph Whitworth of San Diego, who accumulated shares they hoped to sell at a rich premium. They pressured management to take steps to boost shareholder value, including a stock buyout and the elimination of 1,000 jobs worldwide.

Ultimately, the company gave Whitworth a seat on its board, and, after Icahn threatened to unseat Genzyme directors in a proxy battle, it granted two seats to his associates.

In many ways, industry watchers said, an acquisition became inevitable once Genzyme stumbled at its Allston plant.

A Bloomberg article noted that this sequence of events would lead to

The departure package [which] makes him 'one of the biggest all- time winners in biotech,' said [University of Michigan business professor Erik] Gordon, who has studied the pharmaceutical industry for three decades.

Our criticism of the Genzyme CEO's potential for reaping hugely perverse incentives was paralleled by Jim Edwards' critique of what actually happened:

Here’s how crazy CEO incentive compensation is: Genzyme (GENZ) CEO Henri Termeer walked away from his company with a payout that may be worth $300 million yesterday when Sanofi-Aventis (SNY) acquired his company. But the only reason Genzyme was acquired — triggering Termeer’s gargantuan change-of-control package — is because Termeer nearly ran his company into the ground, making his stock cheap enough for Sanofi to buy.

In other words, failure = success when it comes to change-of-control packages for CEOs.

So let me just repeat my conclusion from last August: As long as being a health care CEO is effectively a license to loot the company, is it any wonder that health care organizations continue to be badly lead, and health care costs soar while quality and access suffer?

Once more with feeling: real health care reform would require us to make health care executives truly accountable for their actions, and penalize them for those that are ill-informed, contemptuous of health care values, self-interested, or corrupt.

After Manufacturing Problems, Genzyme CEO's Golden Parachute Means "Failure = Success"

In late 2009, I posted about problems at a Genzyme plant that manufactured some fabulously expensive drugs, e.g. Cerezyme whose cost to patients approximated $160,000 a year. We thought then that for a drug costing that much, the company ought to have figured out a conservative process to provide pure and unadulterated product. In a later post I asked why a company that could afford to make its CEO very rich could not afford to adequately maintain its manufacturing facilities. In May, 2010, I posted about a legal settlement of charges related to its manufacturing problems requiring Genzyme to pay a $175 million fine and function under US government supervision.  And in August, 2010, I posted about how this series of management missteps could lead to the company's CEO becoming even richer because they lead to a declining stock price, which increased the likely that the company would be bought out, which could trigger the CEO's golden parachute.  I suggested then that were this to happen, it would be a gross example of how massively perverse incentives stupendously reward the top brass of health care organizations for mediocre, or worse leadership and bad results for both patients/ clients/ customers and stock-holders alike.

Now it  looks like this will happen.  Yesterday, the Boston Globe reported:

Ggenzyme Corp., the largest biotechnology company in Massachusetts and one of the industry’s historic pioneers, has struck a definitive agreement to be bought by French pharmaceutical giant Sanofi-Aventis SA, in a deal valued at about $20.1 billion.

As a result of this deal,

Genzyme’s high-profile president and chief executive, Henri A. Termeer, who has run the company for 28 years, will resign following the close of the transaction. But he will advise Sanofi on integrating the two companies. Termeer built the company into a global operation with 10,000 employees worldwide and a business model that has been the envy of the biotechnology industry. He turns 65 on Feb. 28.

Termeer, though fiercely proud of Genzyme’s independence, stands to make more than $23 million when the sale is completed, according to a 'change of control' clause in his employment contract. In addition, as a major Genzyme shareholder, he would be in a position to cash out shares that last year were worth more than $275 million.

That and several other articles s noted that it was Genzyme's manufacturing problems that lead to the buy-out:

the string of events that made Genzyme vulnerable to a takeover began in the summer of 2009 when workers discovered viral contamination at Genzyme’s Allston Landing plant overlooking the Charles River.

Genzyme was forced to temporarily shut down and clean up the plant and ration shipments of its best-selling Cerezyme and Fabrazyme drugs, both of which treat enzyme deficiencies. The events created an opening for competitors such as Shire and Israel’s Protalix Biotherapeutics and sent Genzyme’s stock tumbling on the Nasdaq.

The dip in Genzyme’s share price drew activist investors, including Carl C. Icahn of New York and Ralph Whitworth of San Diego, who accumulated shares they hoped to sell at a rich premium. They pressured management to take steps to boost shareholder value, including a stock buyout and the elimination of 1,000 jobs worldwide.

Ultimately, the company gave Whitworth a seat on its board, and, after Icahn threatened to unseat Genzyme directors in a proxy battle, it granted two seats to his associates.

In many ways, industry watchers said, an acquisition became inevitable once Genzyme stumbled at its Allston plant.

A Bloomberg article noted that this sequence of events would lead to

The departure package [which] makes him 'one of the biggest all- time winners in biotech,' said [University of Michigan business professor Erik] Gordon, who has studied the pharmaceutical industry for three decades.

Our criticism of the Genzyme CEO's potential for reaping hugely perverse incentives was paralleled by Jim Edwards' critique of what actually happened:

Here’s how crazy CEO incentive compensation is: Genzyme (GENZ) CEO Henri Termeer walked away from his company with a payout that may be worth $300 million yesterday when Sanofi-Aventis (SNY) acquired his company. But the only reason Genzyme was acquired — triggering Termeer’s gargantuan change-of-control package — is because Termeer nearly ran his company into the ground, making his stock cheap enough for Sanofi to buy.

In other words, failure = success when it comes to change-of-control packages for CEOs.

So let me just repeat my conclusion from last August: As long as being a health care CEO is effectively a license to loot the company, is it any wonder that health care organizations continue to be badly lead, and health care costs soar while quality and access suffer?

Once more with feeling: real health care reform would require us to make health care executives truly accountable for their actions, and penalize them for those that are ill-informed, contemptuous of health care values, self-interested, or corrupt.

A Golden Parachute for Captain Outrageous

A year ago, I posted about leadership and governance problems at Northeast Health Systems, a small hospital system located in neighboring Massachusetts.  The colorful story included leaders who solicited money from the community but concealed what they were doing from the same community, an adolescent pregnancy pact after the hospital system refused to provide confidential birth control information at the high school clinic it ran, a hospital vice-president accused of art theft, various cuts, some concealed, of medical services, accusations of conflicts of interest affecting the board of trustees, and no-confidence votes by nurses and physicians. Finally, Stephen Laverty, the CEO held responsible for much of the mess, resigned and things quieted down a bit.  However, he left a system in deficit, leading to further lay-offs, (e.g., see this story in the Boston Globe).  And the vice-president accused of art theft was also "arraigned on bribery and larceny charges" (also per the Boston Globe.)

Yet, Mr Laverty collected a tidy sum just to leave, as the Salem News just reported:

Former Northeast Health System President and CEO Stephen Laverty collected more than $1 million from the nonprofit hospital chain after he resigned under fire in the fall of 2008, newly released financial records show.

The earnings, $1.08 million in total, include a settlement package of more than a year's salary plus pay for the one month the controversial Laverty was at the helm of Northeast, which owns Beverly Hospital, as well as Gloucester's Addison Gilbert Hospital.

The documents provide the first details of how much Northeast, now laying off workers and cutting costs, was willing to pay to part ways with its CEO who had just endured no-confidence votes from nurses and doctors, plus the arrest of one of his top managers.

Neither the hospital system nor its former CEO was exactly forthcoming about the rationale for this payment:

As part of Laverty's resignation, both sides agreed not to discuss the settlement or any of the details that led them to part ways.

'I have no understanding of what you are talking about,' Laverty said yesterday afternoon from his home in Concord, when asked about his settlement package. He then hung up the phone.

A spokeswoman for Northeast Health System said she could not comment on Laverty or the terms of any agreements between the company and past employees.

So even the hired manager of a small community hospital system is entitled to a million dollar plus golden parachute when resigning in disgrace. This is another great example of the current perversity of the incentives given to hired health care managers. Even small community hospitals, the backbone of real community health care throughout the country, seem to feel obligated to make millionaires out of their managers, no matter how bad their performance.

As we said before, the problem is not just the money wasted paying for bad performance. These perverse incentives are likely to encourage worse performance.  They send the message to even the worst executives 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 an editorial in the Gloucester Times noted, although the nexus is perverse incentives given to paid managers, it is not only the paid managers who are to blame for this situation.

The other party to his contract was the Northeast Board of Trustees.

So,

Those who want to serve as trustees of Northeast need to get the notion out of their heads that their board seats are not just resume builders — with high-profile community roles and a few corporate dinners thrown in. These are positions of community leadership and responsibility that comes with a measure of accountability.

New Northeast CEO Ken Hanover has indeed seemingly ushered in a new era of relative openness in dealing with the community. But the same cannot be said for the Board of Trustees.

If Laverty's shameful buyout deal and these types of contracts are examples of their 'leadership' and responsibility, each and every one of them should step down now.

As we have said many times before, true health care reform would encourage leaders of health care who understand health care and care about its mission, rather than those who just see a quick road to riches or social respectability.

A Golden Parachute for Captain Outrageous

A year ago, I posted about leadership and governance problems at Northeast Health Systems, a small hospital system located in neighboring Massachusetts.  The colorful story included leaders who solicited money from the community but concealed what they were doing from the same community, an adolescent pregnancy pact after the hospital system refused to provide confidential birth control information at the high school clinic it ran, a hospital vice-president accused of art theft, various cuts, some concealed, of medical services, accusations of conflicts of interest affecting the board of trustees, and no-confidence votes by nurses and physicians. Finally, Stephen Laverty, the CEO held responsible for much of the mess, resigned and things quieted down a bit.  However, he left a system in deficit, leading to further lay-offs, (e.g., see this story in the Boston Globe).  And the vice-president accused of art theft was also "arraigned on bribery and larceny charges" (also per the Boston Globe.)

Yet, Mr Laverty collected a tidy sum just to leave, as the Salem News just reported:

Former Northeast Health System President and CEO Stephen Laverty collected more than $1 million from the nonprofit hospital chain after he resigned under fire in the fall of 2008, newly released financial records show.

The earnings, $1.08 million in total, include a settlement package of more than a year's salary plus pay for the one month the controversial Laverty was at the helm of Northeast, which owns Beverly Hospital, as well as Gloucester's Addison Gilbert Hospital.

The documents provide the first details of how much Northeast, now laying off workers and cutting costs, was willing to pay to part ways with its CEO who had just endured no-confidence votes from nurses and doctors, plus the arrest of one of his top managers.

Neither the hospital system nor its former CEO was exactly forthcoming about the rationale for this payment:

As part of Laverty's resignation, both sides agreed not to discuss the settlement or any of the details that led them to part ways.

'I have no understanding of what you are talking about,' Laverty said yesterday afternoon from his home in Concord, when asked about his settlement package. He then hung up the phone.

A spokeswoman for Northeast Health System said she could not comment on Laverty or the terms of any agreements between the company and past employees.

So even the hired manager of a small community hospital system is entitled to a million dollar plus golden parachute when resigning in disgrace. This is another great example of the current perversity of the incentives given to hired health care managers. Even small community hospitals, the backbone of real community health care throughout the country, seem to feel obligated to make millionaires out of their managers, no matter how bad their performance.

As we said before, the problem is not just the money wasted paying for bad performance. These perverse incentives are likely to encourage worse performance.  They send the message to even the worst executives 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 an editorial in the Gloucester Times noted, although the nexus is perverse incentives given to paid managers, it is not only the paid managers who are to blame for this situation.

The other party to his contract was the Northeast Board of Trustees.

So,

Those who want to serve as trustees of Northeast need to get the notion out of their heads that their board seats are not just resume builders — with high-profile community roles and a few corporate dinners thrown in. These are positions of community leadership and responsibility that comes with a measure of accountability.

New Northeast CEO Ken Hanover has indeed seemingly ushered in a new era of relative openness in dealing with the community. But the same cannot be said for the Board of Trustees.

If Laverty's shameful buyout deal and these types of contracts are examples of their 'leadership' and responsibility, each and every one of them should step down now.

As we have said many times before, true health care reform would encourage leaders of health care who understand health care and care about its mission, rather than those who just see a quick road to riches or social respectability.