Pay for What? - Redux: Surrealistic Pay for Health Care Corporate CEOs

Pay-for-performance has been a persistently fashionable mantra for health care business leaders and policy advocates, particularly as applied to physicians to control costs and perhaps even improve quality.  We have been highly critical of current methods proposed to measure performance and tie pay to it (e.g., here), and other bloggers, notably Dr Robert Centor at DB's Medical Rants, have vigorously pursued this issue (e.g., here).

It is beyond ironic that meanwhile, the pay of health care organizations' leaders seems less and less related to their performance.  For example, in a recent series on local executive pay in the Boston Globe there were these examples:

Hologic

Hologic Inc. gave its chief executive, John W. Cumming, a $1.5 million “retention payment’’ as part of his $10.5 million pay package last year. He was promised the payment in mid-2006 if he remained with the company through the end of 2008. At the same time, the Bedford women’s health care products company posted a $2.2 billion loss, largely resulting from a big write-down related to the 2007 purchase of Cytic Corp. Cumming has since stepped down as chief executive, but remains chairman. Hologic declined to comment.

Charles River Laboratories

Charles River Laboratories International Inc. chief executive James C. Foster received $1.3 million in deferred compensation in a year when the company disclosed plans to cut 300 workers, or 3 percent of its workforce. Charles River declined to comment.

Note that a Charles River board member was one of the authors of an Institute of Medicine report advocating P4P for physicians, as we posted here. Ah, the irony.

Boston Scientific

New Boston Scientific Corp. CEO J. Raymond Elliott started midyear and received a $1.5 million bonus. Boston Scientific posted a $1 billion loss last year.

Elliott got a lot more than that, as reported in a companion Boston Globe article:

Elliott, whose experience includes running another medical device company, Zimmer Holdings Inc., was paid a performance bonus of nearly $608,000 last year, in addition to a $1.5 million signing bonus and $29.4 million in stock awards and options.

Meanwhile, the company's losses continue to mount:

And in February, Boston Scientific agreed to pay $1.7 billion to settle patent infringement charges from rival Johnson & Johnson, making it likely the company will post another loss this year.

Note that Boston Scientific has had its ethical as well as financial failings, especially involving the case of the faulty implantable cardiac defibrillators, which resulted in settlements of civil lawsuits alleging that it hid data about the defects, and two guilty pleas by a company subsidiary to charges that it did not notify the FDA about these problems (see post here).

Vertex Pharmaceuticals Inc

At Vertex Pharmaceuticals Inc., chief Matthew W. Emmens, who took over five months into the year, received $2.8 million performance award last year, a year in which the company lost $642 million.

He actually got a lot more than that, too, as per the second Globe article:

His pay package included more than $15 million in restricted stock and options.

Cephalon

At the same time, an op-ed by Michael Hiltzik in the Los Angeles Times noted that a health care company had the most unfairly paid CEO, according to "veteran compensation consultant Fraef Crystal,"

Cephalon Inc., ... CEO, Frank Baldino, Crystal identifies as the most overpaid chief executive in his database. (Baldino's $11.1 million pay last year is 832% of what would be fair, Crystal calculated.)

Note that Cephalon settled charges of off-label promotion of narcotics for over $400 million in 2008 (see post here).

Summary

So the general rule seem to be that top executives of health care organizations make large, sometimes enormous amounts of money, and that occurs regardless of company or personal performance. The riches keep flowing even if the company loses millions or billions, or lays off significant chunks of its workforce.

Hiltzik identified corporate executive pay as:

the No. 1 scandal of American business — executive pay that bears scant relationship to what these people are worth.

The CEO pay curve has been galloping out of control for so long that it has achieved the status of a cliche. In 1965 the average U.S. CEO earned 24 times the pay of the average worker. Four decades later the ratio was 411 to 1..

Furthermore,

The dismal reality of CEO pay is that it comprises two problems, not one. Top executive pay generally is too lavish in the U.S. no matter what performance standard you apply. Good performance or bad, the pay disparity between the CEO and the rank and file is larger than in any other country, contributing to rising income inequality and to its consequent social pathologies.

It's also based on several flawed assumptions, argue Jay Lorsch and Rakesh Khurana of Harvard Business School in a recent article for Harvard Magazine. One is that money is the only motivating factor behind executive performance.

Another is that shareholders are the only stakeholders in corporate performance whose interests matter. This is a relatively recent paradigm, they observe; as late as 1990 business groups recognized the importance of a corporation's responsibility to stakeholders such as employees, customers, suppliers and the community.

The flaw in the latter assumption is that it ties CEO pay to stock prices, which they can't influence on their own. But the picture of the CEO as virtually the sole auteur of a corporation's fate permeates American society. Listen to a Meg Whitman campaign ad talking about 'the EBay Meg created.' If you pay attention you may catch a reference to the 15,000 employees who were there when she left, at least a few of whom must have had something to do with the company's success.

A further problem is that the pay of top corporate leaders is generally set not by the share-holders, that is, the owners of the company, but by boards of their cronies, many of whom are also members of the CEO club.  As Hiltzik noted,

although most corporate boards make a show of placing pay decisions in the hands of a committee of 'independent' directors, the members are almost always current or former top executives themselves, members of a tight club.

By the way, as we posted here, a member of both the Hologic and Vertex boards was a former hospital CEO who got a generous retirement package despite its financial straits.

So while their policy flacks continue to push pay-for-performance for physicians, maybe health care corporate leaders should set an example by embracing real pay for performance themselves.

To repeat, again, again, again,.... Until they do, top executives remain really different from you and me.  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?

Pay for What? - Redux: Surrealistic Pay for Health Care Corporate CEOs

Pay-for-performance has been a persistently fashionable mantra for health care business leaders and policy advocates, particularly as applied to physicians to control costs and perhaps even improve quality.  We have been highly critical of current methods proposed to measure performance and tie pay to it (e.g., here), and other bloggers, notably Dr Robert Centor at DB's Medical Rants, have vigorously pursued this issue (e.g., here).

It is beyond ironic that meanwhile, the pay of health care organizations' leaders seems less and less related to their performance.  For example, in a recent series on local executive pay in the Boston Globe there were these examples:

Hologic

Hologic Inc. gave its chief executive, John W. Cumming, a $1.5 million “retention payment’’ as part of his $10.5 million pay package last year. He was promised the payment in mid-2006 if he remained with the company through the end of 2008. At the same time, the Bedford women’s health care products company posted a $2.2 billion loss, largely resulting from a big write-down related to the 2007 purchase of Cytic Corp. Cumming has since stepped down as chief executive, but remains chairman. Hologic declined to comment.

Charles River Laboratories

Charles River Laboratories International Inc. chief executive James C. Foster received $1.3 million in deferred compensation in a year when the company disclosed plans to cut 300 workers, or 3 percent of its workforce. Charles River declined to comment.

Note that a Charles River board member was one of the authors of an Institute of Medicine report advocating P4P for physicians, as we posted here. Ah, the irony.

Boston Scientific

New Boston Scientific Corp. CEO J. Raymond Elliott started midyear and received a $1.5 million bonus. Boston Scientific posted a $1 billion loss last year.

Elliott got a lot more than that, as reported in a companion Boston Globe article:

Elliott, whose experience includes running another medical device company, Zimmer Holdings Inc., was paid a performance bonus of nearly $608,000 last year, in addition to a $1.5 million signing bonus and $29.4 million in stock awards and options.

Meanwhile, the company's losses continue to mount:

And in February, Boston Scientific agreed to pay $1.7 billion to settle patent infringement charges from rival Johnson & Johnson, making it likely the company will post another loss this year.

Note that Boston Scientific has had its ethical as well as financial failings, especially involving the case of the faulty implantable cardiac defibrillators, which resulted in settlements of civil lawsuits alleging that it hid data about the defects, and two guilty pleas by a company subsidiary to charges that it did not notify the FDA about these problems (see post here).

Vertex Pharmaceuticals Inc

At Vertex Pharmaceuticals Inc., chief Matthew W. Emmens, who took over five months into the year, received $2.8 million performance award last year, a year in which the company lost $642 million.

He actually got a lot more than that, too, as per the second Globe article:

His pay package included more than $15 million in restricted stock and options.

Cephalon

At the same time, an op-ed by Michael Hiltzik in the Los Angeles Times noted that a health care company had the most unfairly paid CEO, according to "veteran compensation consultant Fraef Crystal,"

Cephalon Inc., ... CEO, Frank Baldino, Crystal identifies as the most overpaid chief executive in his database. (Baldino's $11.1 million pay last year is 832% of what would be fair, Crystal calculated.)

Note that Cephalon settled charges of off-label promotion of narcotics for over $400 million in 2008 (see post here).

Summary

So the general rule seem to be that top executives of health care organizations make large, sometimes enormous amounts of money, and that occurs regardless of company or personal performance. The riches keep flowing even if the company loses millions or billions, or lays off significant chunks of its workforce.

Hiltzik identified corporate executive pay as:

the No. 1 scandal of American business — executive pay that bears scant relationship to what these people are worth.

The CEO pay curve has been galloping out of control for so long that it has achieved the status of a cliche. In 1965 the average U.S. CEO earned 24 times the pay of the average worker. Four decades later the ratio was 411 to 1..

Furthermore,

The dismal reality of CEO pay is that it comprises two problems, not one. Top executive pay generally is too lavish in the U.S. no matter what performance standard you apply. Good performance or bad, the pay disparity between the CEO and the rank and file is larger than in any other country, contributing to rising income inequality and to its consequent social pathologies.

It's also based on several flawed assumptions, argue Jay Lorsch and Rakesh Khurana of Harvard Business School in a recent article for Harvard Magazine. One is that money is the only motivating factor behind executive performance.

Another is that shareholders are the only stakeholders in corporate performance whose interests matter. This is a relatively recent paradigm, they observe; as late as 1990 business groups recognized the importance of a corporation's responsibility to stakeholders such as employees, customers, suppliers and the community.

The flaw in the latter assumption is that it ties CEO pay to stock prices, which they can't influence on their own. But the picture of the CEO as virtually the sole auteur of a corporation's fate permeates American society. Listen to a Meg Whitman campaign ad talking about 'the EBay Meg created.' If you pay attention you may catch a reference to the 15,000 employees who were there when she left, at least a few of whom must have had something to do with the company's success.

A further problem is that the pay of top corporate leaders is generally set not by the share-holders, that is, the owners of the company, but by boards of their cronies, many of whom are also members of the CEO club.  As Hiltzik noted,

although most corporate boards make a show of placing pay decisions in the hands of a committee of 'independent' directors, the members are almost always current or former top executives themselves, members of a tight club.

By the way, as we posted here, a member of both the Hologic and Vertex boards was a former hospital CEO who got a generous retirement package despite its financial straits.

So while their policy flacks continue to push pay-for-performance for physicians, maybe health care corporate leaders should set an example by embracing real pay for performance themselves.

To repeat, again, again, again,.... Until they do, top executives remain really different from you and me.  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?

University of California CEO - You Can Reduce My Pay if "You Throw In Air Force One"

The San Francisco Chronicle recently reported how students at the University of California have been providing a satirical approach to the problems of the university's leadership:

It's been a seriously dramatic year at the University of California, where hundreds of students seized buildings, demonstrated and shut down regents meetings last fall to protest rising tuition and the perceived privatization of the public school.

It's also been a satirically dramatic year, thanks to the UC Movement for Efficient Privatization, a fledgling group of mostly grad students in business attire that uses humor tinged with sarcasm to lampoon UC officials.

Their own name is an example. Many UC students believe leaps in tuition and reduced state funding are turning the public university into a private institution.

In particular, they drew attention to the university president's sense of entitlement:

UCMeP has made itself known on the Berkeley campus since September. That's when UC President Mark Yudof, who earns about $600,000, drew students' ire for telling the New York Times he'd take a $200,000 pay cut for salary parity with President Obama - if Air Force One were part of the package.

Seeing this as a philanthropic opportunity, UCMeP issued fundraising flyers: 'Help Buy Mark Yudof a Plane!'

The relevant parts of the New York Times interview, which I regret to say I missed at the time it was published, are:

Some people feel you could close the U.C. budget gap by cutting administrative salaries, including your own.
The stories of my compensation are greatly exaggerated.

When you began your job last year, your annual compensation was reportedly $828,000.
It actually was $600,000 until I cut my pay by $60,000. So my salary is $540,000, but it gets amplified because people say, 'You have a pension plan.'

What about your housing allowance? How much is the rent on your home in Oakland?
It’s about $10,000 a month.

Does U.C. pay for that on top of your salary?
Yes, and the reason they do that is because they have a president’s house, it needed $8 million of repairs and I decided that was not the way to go. Why the heck would I ever authorize $8 million for a house I didn’t want to live in anyhow?

Why can’t you have architecture students repair the house for course credit?
Let me ponder that.

What do you think of the idea that no administrator at a state university needs to earn more than the president of the United States, $400,000?

Will you throw in Air Force One and the White House?

While Yudof's response is clearly sarcastic, he obviously never substantively addressed why he is entitled to be paid comparably to the President of the richest country in the world.

We have written a few times about the travails of the University of California, some of its multiple campuses, and in particular its medical schools and teaching hospitals.  Most recently we have written about how leaders of its teaching hospitals also seemed to feel entitled to substantial compensation, including bonuses for "performance" even when their institutions were receiving bad publicity for quality problems (posts here and here).

Again and again we see examples of leaders of academic medical institutions, and health care organizations in general who seem to feel entitled to be judged differently, and rewarded differently than the common folk.  These entitlements exist even when the economy, or the financial performance of the specific organization prevents other people from making any economic progress. This entitlement exists even if those other poeple actually do the work, and ultimately provide the money that sustains the organization.


Although the executives of not-for-profit health care organizations generally make far less than executives of for-profit health care corporations, collectively, hired managers of even not-for-profit health care organizations have become richer and richer at a time when most Americans, including many health professionals, and most primary care physicians, have seen their incomes stagnate or fall. They are less and less restrainted by passive, if not crony boards, and more and more unaccountable. In a kind of multi-centric coup d'etat of the hired managers, they have become our new de facto aristocracy.

Or as we wrote in our previous post, executive compensation in health care seems best described as Prof Mintzberg described compensation for finance CEOs, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit." As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences. Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations. It is time to reverse the coup d'etat of the hired managers.

University of California CEO - You Can Reduce My Pay if "You Throw In Air Force One"

The San Francisco Chronicle recently reported how students at the University of California have been providing a satirical approach to the problems of the university's leadership:

It's been a seriously dramatic year at the University of California, where hundreds of students seized buildings, demonstrated and shut down regents meetings last fall to protest rising tuition and the perceived privatization of the public school.

It's also been a satirically dramatic year, thanks to the UC Movement for Efficient Privatization, a fledgling group of mostly grad students in business attire that uses humor tinged with sarcasm to lampoon UC officials.

Their own name is an example. Many UC students believe leaps in tuition and reduced state funding are turning the public university into a private institution.

In particular, they drew attention to the university president's sense of entitlement:

UCMeP has made itself known on the Berkeley campus since September. That's when UC President Mark Yudof, who earns about $600,000, drew students' ire for telling the New York Times he'd take a $200,000 pay cut for salary parity with President Obama - if Air Force One were part of the package.

Seeing this as a philanthropic opportunity, UCMeP issued fundraising flyers: 'Help Buy Mark Yudof a Plane!'

The relevant parts of the New York Times interview, which I regret to say I missed at the time it was published, are:

Some people feel you could close the U.C. budget gap by cutting administrative salaries, including your own.
The stories of my compensation are greatly exaggerated.

When you began your job last year, your annual compensation was reportedly $828,000.
It actually was $600,000 until I cut my pay by $60,000. So my salary is $540,000, but it gets amplified because people say, 'You have a pension plan.'

What about your housing allowance? How much is the rent on your home in Oakland?
It’s about $10,000 a month.

Does U.C. pay for that on top of your salary?
Yes, and the reason they do that is because they have a president’s house, it needed $8 million of repairs and I decided that was not the way to go. Why the heck would I ever authorize $8 million for a house I didn’t want to live in anyhow?

Why can’t you have architecture students repair the house for course credit?
Let me ponder that.

What do you think of the idea that no administrator at a state university needs to earn more than the president of the United States, $400,000?

Will you throw in Air Force One and the White House?

While Yudof's response is clearly sarcastic, he obviously never substantively addressed why he is entitled to be paid comparably to the President of the richest country in the world.

We have written a few times about the travails of the University of California, some of its multiple campuses, and in particular its medical schools and teaching hospitals.  Most recently we have written about how leaders of its teaching hospitals also seemed to feel entitled to substantial compensation, including bonuses for "performance" even when their institutions were receiving bad publicity for quality problems (posts here and here).

Again and again we see examples of leaders of academic medical institutions, and health care organizations in general who seem to feel entitled to be judged differently, and rewarded differently than the common folk.  These entitlements exist even when the economy, or the financial performance of the specific organization prevents other people from making any economic progress. This entitlement exists even if those other poeple actually do the work, and ultimately provide the money that sustains the organization.


Although the executives of not-for-profit health care organizations generally make far less than executives of for-profit health care corporations, collectively, hired managers of even not-for-profit health care organizations have become richer and richer at a time when most Americans, including many health professionals, and most primary care physicians, have seen their incomes stagnate or fall. They are less and less restrainted by passive, if not crony boards, and more and more unaccountable. In a kind of multi-centric coup d'etat of the hired managers, they have become our new de facto aristocracy.

Or as we wrote in our previous post, executive compensation in health care seems best described as Prof Mintzberg described compensation for finance CEOs, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit." As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences. Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations. It is time to reverse the coup d'etat of the hired managers.

Hospital Executive Pay in the Land Where All Our CEOs Are Above Average

In the US, it seems to be the season for news reports on the pay of hospital executives.  Here are reports from three states in the southeast, in alphabetical order.

Florida

The St Petersburg (FL) Times reported on the total compensation of local hospital executives:

While many workers in the Tampa Bay area have had their wages frozen or reduced in the past few years, life has been kinder to chief executives at nonprofit hospitals in the Tampa Bay area.

A bright light in a dim economy, most local tax-exempt hospitals have continued to post surpluses, despite losses on investments and the growing number of uninsured. And the executives at the helms of these organizations have been duly rewarded by their community-based boards, according to the federal tax filings required of such organizations. In fact, average compensation at tax-exempt hospitals here is well above the national average.

Members of the millionaire men's club include:

• Isaac Mallah, chief executive of St. Joseph's Hospital in Tampa, who received total compensation of $2.2 million in 2008, the most recent year available.

• Mallah's boss, Steve Mason, who heads BayCare Health System, toted up total compensation of more than $1.7 million.

• Tampa General Hospital's chief executive, Ron Hytoff, also earned more than $1.7 million.

• At All Children's Hospital in St. Petersburg, Gary Carnes' pay package was about $1.2 million. Across the street at Bayfront Medical Center, Sue Brody, the only female chief executive of a freestanding nonprofit hospital in the area, was paid $744,149.

• Dr. William Dalton, president and chief executive of Tampa's H. Lee Moffitt Cancer Center and Research Institute, received just over $1 million in total compensation in 2008. But it could have been higher. In both 2008 and 2009, Moffitt's board eliminated bonuses for all managers because of tough economic conditions.

Average compensation for chief executives at 14 nonprofit hospitals in the Tampa Bay area was about $876,000. Meanwhile, according to an IRS survey of more than 500 nonprofit hospitals last year, the national average was $490,000.

How were these generous amounts of compensation justified?

BayCare's Mason said he won't apologize for what he's paid to lead the seven-hospital system, which had more than $2 billion in revenue in 2008.

'I have significant responsibility over a lot of resources, providing a service that improves the health of the community,' said Mason, who joined BayCare in 2004. 'This is what it would cost our board to replace me.'

In addition,

Officials at area hospitals say their boards adhere 'meticulously' to IRS rules, hiring independent consultants every year to ensure their chief executives' salaries are comparable to pay at similarly sized nonprofit institutions. Mason said BayCare's board tries to ensure that its total compensation stays at about 75 percent of the maximum paid.

North Carolina

The Charlotte Business Journal noted:

Carolinas HealthCare paid Chief Executive Michael Tarwater $3.4 million in 2009, down from $3.5 million a year earlier. His 2009 compensation includes a base salary $950,697 and bonuses of $1.87 million.

Paul Wiles, chief executive at Winston-Salem-based Novant, earned total compensation of a little more than $2 million in 2009, roughly the same as in 2008. His base salary last year was $900,000, and he was paid a bonus of $827,462. Novant estimates Wiles received $339,000 in other compensation, including benefits and deferred compensation.

Carolinas HealthCare released compensation information for these other top executives:

•Joseph Piemont, president and chief operating officer, $1,731,581.

•Greg Gombar, chief financial officer and executive vice president, $1,526,254.

•Paul Franz, executive vice president of the physician services group, $1,399,528.

•Dennis Phillips, executive vice president of the Metro Group, $1,084,859.

•David Dunlap, president and chief executive of Roper St. Francis Healthcare, $1,043,078.

•Laurence Hinsdale, executive vice president, regional group, $1,041,586.

•John Knox, executive vice president and chief administrative officer, $992,993.

•Russell Guerin, executive vice president of business development and planning, $922,769.

•Keith Smith, senior vice president and general counsel, $783,643.

Presbyterian also released compensation information for its other top executives. Its figures include 2009 base salaries and 2008 bonuses, which were paid in 2009:

•Greg Beier, president of acute-care services Novant Health, $1,615,322.

•Carl Armato, president Novant core markets, $1,295,030.

•Dean Swindle, president of ambulatory services and chief financial officer for Novant Health, $1,084,155.

•Dr. Hayes Woollen, former president of Novant Medical Group, $1,009,168.

•Jacque Gattis, chief administrative officer for Novant Health, $902,374.

•Sallye Liner, president of Forsyth Medical Center and Winston-Salem market, $887,109.

•Dr. Stephen Wallenhaupt, chief medical officer for Novant Health, $867,740.

•Lawrence McGee, general counsel for Novant Health, $728,584.

•Dr. A.J. Patefield, chief medical information officer Novant Health, $706,889.

Again, how was the pay justified?

'We need to stay on top of what’s going on in the market and stay competitive,' says James Hynes, chairman of Carolinas HealthCare’s board of commissioners and a member of its compensation committee.

'Our process delivers the number we think we ought to have,' Hynes says. 'We feel like we’ve done it correctly.'

Texas

Moving on to Texas, the Dallas Morning News reported:

Top executives at Parkland Memorial Hospital collected about $1.7 million in bonuses at the end of last year, according to records released recently to The Dallas Morning News.

The 2009 bonuses, approved in December by the hospital's board of managers, went to vice presidents, senior vice presidents and executive vice presidents at the charity hospital.

The bonuses ranged from $36,054 for the vice president who heads the hospital's community clinics to $143,325 for Parkland's chief financial officer.

And what was the justification for these bonuses?

In previous years, Parkland's top three administrators were rewarded with bonuses for meeting certain goals. Last year, the pay plan was expanded to include the hospital's 'senior executive staff.'

Dr. Lauren McDonald, chairwoman of Parkland's board of managers, objected Wednesday to referring to the payments as bonuses, a term that could imply nothing was done to earn the money.

'We kind of stay away from the word 'bonus,'' she said. 'It's really earned incentives. We have certain goals that we set forth as a board.'

'Working with a consultant, we made sure these were earned, instead of just given.'

Dallas County Commissioner John Wiley Price said that he was aware of the new executive pay plan at Parkland and that he wholeheartedly approved.

'It's a step in the right direction,' he said. 'You pay to keep good talent, and what we're paying them is not unreasonable.'

In particular, Price lauded the work of Anderson, who will earn $853,044 when his bonus is approved next week. His bonus will bring the hospital's total to about $2 million.

'The man has 29 years experience at Parkland,' Price said. 'He's put together the kind of executive team that has won Parkland an excellent bond rating. And it's debt-free, too.'

On the other hand, a second Dallas Morning News article noted,

The Parkland Memorial Hospital board of managers began its monthly meeting Tuesday by strongly endorsing the $1.7 million in 'incentive pay it handed out to 27 top executives at the end of December.

'There are a lot of negatives out there about this,' acknowledged Dr. Lauren McDonald, who chairs the board.

Some employees who received only 2 percent to 3 percent in merit increases last year were unhappy to hear last week that their bosses had gotten 19 percent to 31 percent in extra pay.

Dozens flooded online message boards with angry comments. A few called reporters to register their complaints.

Summary

So once again note that the top executives of health care organizations are not like you and me. Their total compensation generally ranges from generous to sufficiently lavish to make them instantly rich. Their pay almost never substantially decreases. If incentives are offered, they almost never fail to earn them.

Furthermore, notice the way the executives, and the boards to whom they supposedly report justify these practices.

It seems that the executives of every hospital are always above average. If pay is determined by comparisons to other institutions, it is never set at or below the average rate.  At every hospital, "our" executives are superior, but without any clear definition of how they might be superior to whom.  The processes by which compensation is made competitive are asserted to be accurate, without any objective confirmation of that accuracy provided (and note above that one leader seemed to justify the process because it produced the numbers he thought were right.)  Bonuses are awarded for reaching "goals," but the goals always seem easily within reach, and the bonuses offered executives are always a much larger proportion of base pay than the bonuses offered anyone else. 

So, to repeat, the sorts of compensation reported in Florida, North Carolina, and Texas are a product of the current management culture that has been infused into nearly every health care organization in the US. That culture holds that managers are different from you and me. They are entitled to a special share of other people's money. Because of their innate and self-evident brilliance, they are entitled to become rich. This entitlement exists even when the economy, or the financial performance of the specific organization prevents other people from making any economic progress. This entitlement exists even if those other poeple actually do the work, and ultimately provide the money that sustains the organization.


Although the executives of not-for-profit health care organizations generally make far less than executives of for-profit health care corporations, collectively, hired managers of even not-for-profit health care organizations have become richer and richer at a time when most Americans, including many health professionals, and most primary care physicians, have seen their incomes stagnate or fall. They are less and less restrainted by passive, if not crony boards, and more and more unaccountable. In a kind of multi-centric coup d'etat of the hired managers, they have become our new de facto aristocracy.

Or as we wrote in our previous post, executive compensation in health care seems best described as Prof Mintzberg described compensation for finance CEOs, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit." As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences. Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations. It is time to reverse the coup d'etat of the hired managers.

Hospital Executive Pay in the Land Where All Our CEOs Are Above Average

In the US, it seems to be the season for news reports on the pay of hospital executives.  Here are reports from three states in the southeast, in alphabetical order.

Florida

The St Petersburg (FL) Times reported on the total compensation of local hospital executives:

While many workers in the Tampa Bay area have had their wages frozen or reduced in the past few years, life has been kinder to chief executives at nonprofit hospitals in the Tampa Bay area.

A bright light in a dim economy, most local tax-exempt hospitals have continued to post surpluses, despite losses on investments and the growing number of uninsured. And the executives at the helms of these organizations have been duly rewarded by their community-based boards, according to the federal tax filings required of such organizations. In fact, average compensation at tax-exempt hospitals here is well above the national average.

Members of the millionaire men's club include:

• Isaac Mallah, chief executive of St. Joseph's Hospital in Tampa, who received total compensation of $2.2 million in 2008, the most recent year available.

• Mallah's boss, Steve Mason, who heads BayCare Health System, toted up total compensation of more than $1.7 million.

• Tampa General Hospital's chief executive, Ron Hytoff, also earned more than $1.7 million.

• At All Children's Hospital in St. Petersburg, Gary Carnes' pay package was about $1.2 million. Across the street at Bayfront Medical Center, Sue Brody, the only female chief executive of a freestanding nonprofit hospital in the area, was paid $744,149.

• Dr. William Dalton, president and chief executive of Tampa's H. Lee Moffitt Cancer Center and Research Institute, received just over $1 million in total compensation in 2008. But it could have been higher. In both 2008 and 2009, Moffitt's board eliminated bonuses for all managers because of tough economic conditions.

Average compensation for chief executives at 14 nonprofit hospitals in the Tampa Bay area was about $876,000. Meanwhile, according to an IRS survey of more than 500 nonprofit hospitals last year, the national average was $490,000.

How were these generous amounts of compensation justified?

BayCare's Mason said he won't apologize for what he's paid to lead the seven-hospital system, which had more than $2 billion in revenue in 2008.

'I have significant responsibility over a lot of resources, providing a service that improves the health of the community,' said Mason, who joined BayCare in 2004. 'This is what it would cost our board to replace me.'

In addition,

Officials at area hospitals say their boards adhere 'meticulously' to IRS rules, hiring independent consultants every year to ensure their chief executives' salaries are comparable to pay at similarly sized nonprofit institutions. Mason said BayCare's board tries to ensure that its total compensation stays at about 75 percent of the maximum paid.

North Carolina

The Charlotte Business Journal noted:

Carolinas HealthCare paid Chief Executive Michael Tarwater $3.4 million in 2009, down from $3.5 million a year earlier. His 2009 compensation includes a base salary $950,697 and bonuses of $1.87 million.

Paul Wiles, chief executive at Winston-Salem-based Novant, earned total compensation of a little more than $2 million in 2009, roughly the same as in 2008. His base salary last year was $900,000, and he was paid a bonus of $827,462. Novant estimates Wiles received $339,000 in other compensation, including benefits and deferred compensation.

Carolinas HealthCare released compensation information for these other top executives:

•Joseph Piemont, president and chief operating officer, $1,731,581.

•Greg Gombar, chief financial officer and executive vice president, $1,526,254.

•Paul Franz, executive vice president of the physician services group, $1,399,528.

•Dennis Phillips, executive vice president of the Metro Group, $1,084,859.

•David Dunlap, president and chief executive of Roper St. Francis Healthcare, $1,043,078.

•Laurence Hinsdale, executive vice president, regional group, $1,041,586.

•John Knox, executive vice president and chief administrative officer, $992,993.

•Russell Guerin, executive vice president of business development and planning, $922,769.

•Keith Smith, senior vice president and general counsel, $783,643.

Presbyterian also released compensation information for its other top executives. Its figures include 2009 base salaries and 2008 bonuses, which were paid in 2009:

•Greg Beier, president of acute-care services Novant Health, $1,615,322.

•Carl Armato, president Novant core markets, $1,295,030.

•Dean Swindle, president of ambulatory services and chief financial officer for Novant Health, $1,084,155.

•Dr. Hayes Woollen, former president of Novant Medical Group, $1,009,168.

•Jacque Gattis, chief administrative officer for Novant Health, $902,374.

•Sallye Liner, president of Forsyth Medical Center and Winston-Salem market, $887,109.

•Dr. Stephen Wallenhaupt, chief medical officer for Novant Health, $867,740.

•Lawrence McGee, general counsel for Novant Health, $728,584.

•Dr. A.J. Patefield, chief medical information officer Novant Health, $706,889.

Again, how was the pay justified?

'We need to stay on top of what’s going on in the market and stay competitive,' says James Hynes, chairman of Carolinas HealthCare’s board of commissioners and a member of its compensation committee.

'Our process delivers the number we think we ought to have,' Hynes says. 'We feel like we’ve done it correctly.'

Texas

Moving on to Texas, the Dallas Morning News reported:

Top executives at Parkland Memorial Hospital collected about $1.7 million in bonuses at the end of last year, according to records released recently to The Dallas Morning News.

The 2009 bonuses, approved in December by the hospital's board of managers, went to vice presidents, senior vice presidents and executive vice presidents at the charity hospital.

The bonuses ranged from $36,054 for the vice president who heads the hospital's community clinics to $143,325 for Parkland's chief financial officer.

And what was the justification for these bonuses?

In previous years, Parkland's top three administrators were rewarded with bonuses for meeting certain goals. Last year, the pay plan was expanded to include the hospital's 'senior executive staff.'

Dr. Lauren McDonald, chairwoman of Parkland's board of managers, objected Wednesday to referring to the payments as bonuses, a term that could imply nothing was done to earn the money.

'We kind of stay away from the word 'bonus,'' she said. 'It's really earned incentives. We have certain goals that we set forth as a board.'

'Working with a consultant, we made sure these were earned, instead of just given.'

Dallas County Commissioner John Wiley Price said that he was aware of the new executive pay plan at Parkland and that he wholeheartedly approved.

'It's a step in the right direction,' he said. 'You pay to keep good talent, and what we're paying them is not unreasonable.'

In particular, Price lauded the work of Anderson, who will earn $853,044 when his bonus is approved next week. His bonus will bring the hospital's total to about $2 million.

'The man has 29 years experience at Parkland,' Price said. 'He's put together the kind of executive team that has won Parkland an excellent bond rating. And it's debt-free, too.'

On the other hand, a second Dallas Morning News article noted,

The Parkland Memorial Hospital board of managers began its monthly meeting Tuesday by strongly endorsing the $1.7 million in 'incentive pay it handed out to 27 top executives at the end of December.

'There are a lot of negatives out there about this,' acknowledged Dr. Lauren McDonald, who chairs the board.

Some employees who received only 2 percent to 3 percent in merit increases last year were unhappy to hear last week that their bosses had gotten 19 percent to 31 percent in extra pay.

Dozens flooded online message boards with angry comments. A few called reporters to register their complaints.

Summary

So once again note that the top executives of health care organizations are not like you and me. Their total compensation generally ranges from generous to sufficiently lavish to make them instantly rich. Their pay almost never substantially decreases. If incentives are offered, they almost never fail to earn them.

Furthermore, notice the way the executives, and the boards to whom they supposedly report justify these practices.

It seems that the executives of every hospital are always above average. If pay is determined by comparisons to other institutions, it is never set at or below the average rate.  At every hospital, "our" executives are superior, but without any clear definition of how they might be superior to whom.  The processes by which compensation is made competitive are asserted to be accurate, without any objective confirmation of that accuracy provided (and note above that one leader seemed to justify the process because it produced the numbers he thought were right.)  Bonuses are awarded for reaching "goals," but the goals always seem easily within reach, and the bonuses offered executives are always a much larger proportion of base pay than the bonuses offered anyone else. 

So, to repeat, the sorts of compensation reported in Florida, North Carolina, and Texas are a product of the current management culture that has been infused into nearly every health care organization in the US. That culture holds that managers are different from you and me. They are entitled to a special share of other people's money. Because of their innate and self-evident brilliance, they are entitled to become rich. This entitlement exists even when the economy, or the financial performance of the specific organization prevents other people from making any economic progress. This entitlement exists even if those other poeple actually do the work, and ultimately provide the money that sustains the organization.


Although the executives of not-for-profit health care organizations generally make far less than executives of for-profit health care corporations, collectively, hired managers of even not-for-profit health care organizations have become richer and richer at a time when most Americans, including many health professionals, and most primary care physicians, have seen their incomes stagnate or fall. They are less and less restrainted by passive, if not crony boards, and more and more unaccountable. In a kind of multi-centric coup d'etat of the hired managers, they have become our new de facto aristocracy.

Or as we wrote in our previous post, executive compensation in health care seems best described as Prof Mintzberg described compensation for finance CEOs, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit." As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences. Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations. It is time to reverse the coup d'etat of the hired managers.

More California Medical Centers Plagued by Quality Problems While Their Executives Get Bonuses for "Improved Patient Care"

Earlier this week, we noted that while executives at one University of California medical center were getting large bonuses supposedly for "improved patient health," the hospital was being cited for serious health care quality deficiencies.  Now, more stories have appeared that raise questions about the rationale for the generous bonuses handed out to multiple top hospital executives at University of California hospitals. 

University of California - San Diego

First, in alphabetical order by city, the San Diego Union-Tribune reported on penalties for poor quality care announced by the California Department of Public Health:

UCSD Medical Center in San Diego was fined $50,000.... The state said the hospital staff failed to follow its surgical policies and procedures, which resulted in a patient having to have a second surgery to remove a foreign object — a guide wire that was left in the patient when a central venous catheter was inserted into the patient’s right femoral vein in the groin area in January 2009. The wire migrated into a chamber of the patient’s heart.

The procedure was done by a first-year intern and supervised by a third-year resident.

This marks the third time the state has penalized UCSD, with the first penalty issued in May 2008 and the second in May 2009.

However, a few days earlier, the Union-Tribune had reported:

Despite criticism from union leaders and rank-and-file employees, University of California regents yesterday overwhelmingly approved $3.1 million in incentive payouts to 38 medical center executives.

The payouts mean, for instance, that former UC San Diego Medical Center CEO Richard Liekweg will receive $136,174 in performance pay for the last fiscal year, added to his base of $660,500.

Regents justified the payments by noting that incentive programs are common in the health care industry, and necessary to compete for top talent.

'It’s the way this industry works,' said Regent William De La Pena, an ophthalmologist and medical director of eye clinics throughout Southern California.

At UCSD Medical Center, 10 senior managers will receive a combined $754,650 for surpassing goals set in areas ranging from improved patient safety to increased revenue. The bonuses amount to 14 to 23 percent added to executives’ salaries.

University of California - San Francisco
Meanwhile, the San Francisco Chronicle reported that a major University of California - San Francisco teaching hospital was also cited by the state Department of Public Health for quality problems:

San Francisco General was fined $25,000 for leaving a piece of surgical gauze in a patient who underwent an eight-hour operation for two types of cancer in September 2008. The foreign object was discovered about three months later and was removed without surgery during an office visit.

The Chronicle also reported a possibly major breach in the confidentiality of patient records at the UCSF Medical Center:

Medical records for about 4,400 UCSF patients are at risk after thieves stole a laptop from a medical school employee in November, UCSF officials said Wednesday.

The laptop, which was stolen on or about Nov. 30 from a plane as the employee was traveling, was found in Southern California on Jan. 8.

There is no indication that unauthorized access to the files or the laptop actually took place, UCSF officials said, but patients' names, medical record numbers, ages and clinical information were potentially exposed.

The security breach is UCSF's second in recent months. Last month, UCSF officials revealed that a faculty physician responding to an Internet 'phishing' scam potentially exposed the personal information of about 600 patients.

However, despite these obvious quality problems, the San Francisco Business Times reported

University of California regents approved $500,000 in bonuses to six top officials at the UC San Francisco Medical Center, part of a package of $3.1 million in payments to 38 hospital executives across the UC system.

In an interview last week with UCSF Chancellor Susan Desmond-Hellman, she said that the executive bonuses were tied to meeting specific performance goals, such as reducing clinical infections and increasing satisfaction ratings by patients. She also pointed out that additional payments of $14.3 million to the UCSF Medical Center’s 6,600-strong workforce were approved earlier.

The UCSF officials awarded bonuses were:

* Mark Laret, chief executive officer, $181,227;
* Ken Jones, chief financial officer, interim chief operating officer, $89,162;
* Larry Lotenero, chief information officer, $66,045;
* John Harris, chief strategy and business development officer, $63,196;
* Susan Moore, finance director and interim chief financial officer, $53,261; and
* Sheila Antrum, chief nursing/patient care services officer, $49,280.

Summary

So, in summary, multiple executives at three major University of California medical centers received generous bonuses.  The rationale for these bonuses, given out at a time when the university system was under major financial constraints, was that they were incentives for exemplary performance and patient care. 

Yet almost simultaneous with announcement of the bonuses were news reports indicating serious patient care problems at the same medical centers.  The point I am NOT trying to make is that the care at any of these medical centers is bad.  The examples of quality problems were limited.  I am sure that many other major medical centers hae had such quality problems as well.  However, the cases cited above were sufficient to argue that the care at these medical centers was not outstanding, not exemplary.  Yet, the bonuses were awarded not for acceptable performance or average quality.  Their rationale was exceptional performance and quality.  Thus, the rationale for the performance bonuses seems at best naive, if not foolish. 

I would suggest, instead, that the sorts of bonuses given out at the University of California are a product of the current management culture that has been infused into nearly every health care organization in the US.  That culture holds that managers are different from you and me.  They are entitled to a special share of other people's money.  Because of their innate and self-evident brilliance, they are entitled to become rich.  This entitlement exists even when the economy, or the financial performance of the specific organization prevents other people from making any economic progress.  This entitlement exists even if those other poeple actually do the work, and ultimately provide the money that sustains the organization. 

Although the executives of not-for-profit health care organizations generally make far less than executives of for-profit health care corporations, collectively, hired managers of even not-for-profit health care organizations have become richer and richer at a time when most Americans, including many health professionals, and most primary care physicians, have seen their incomes stagnate or fall.  They are less and less restrainted by passive, if not crony boards, and more and more unaccountable.  In a kind of multi-centric coup d'etat of the hired managers, they have become our new de facto aristocracy. 

Or as we wrote in our previous post, executive compensation in health care seems best described as Prof Mintzberg described compensation for finance CEOs, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit." As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences. Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations.  It is time to reverse the coup d'etat of the hired managers.

More California Medical Centers Plagued by Quality Problems While Their Executives Get Bonuses for "Improved Patient Care"

Earlier this week, we noted that while executives at one University of California medical center were getting large bonuses supposedly for "improved patient health," the hospital was being cited for serious health care quality deficiencies.  Now, more stories have appeared that raise questions about the rationale for the generous bonuses handed out to multiple top hospital executives at University of California hospitals. 

University of California - San Diego

First, in alphabetical order by city, the San Diego Union-Tribune reported on penalties for poor quality care announced by the California Department of Public Health:

UCSD Medical Center in San Diego was fined $50,000.... The state said the hospital staff failed to follow its surgical policies and procedures, which resulted in a patient having to have a second surgery to remove a foreign object — a guide wire that was left in the patient when a central venous catheter was inserted into the patient’s right femoral vein in the groin area in January 2009. The wire migrated into a chamber of the patient’s heart.

The procedure was done by a first-year intern and supervised by a third-year resident.

This marks the third time the state has penalized UCSD, with the first penalty issued in May 2008 and the second in May 2009.

However, a few days earlier, the Union-Tribune had reported:

Despite criticism from union leaders and rank-and-file employees, University of California regents yesterday overwhelmingly approved $3.1 million in incentive payouts to 38 medical center executives.

The payouts mean, for instance, that former UC San Diego Medical Center CEO Richard Liekweg will receive $136,174 in performance pay for the last fiscal year, added to his base of $660,500.

Regents justified the payments by noting that incentive programs are common in the health care industry, and necessary to compete for top talent.

'It’s the way this industry works,' said Regent William De La Pena, an ophthalmologist and medical director of eye clinics throughout Southern California.

At UCSD Medical Center, 10 senior managers will receive a combined $754,650 for surpassing goals set in areas ranging from improved patient safety to increased revenue. The bonuses amount to 14 to 23 percent added to executives’ salaries.

University of California - San Francisco
Meanwhile, the San Francisco Chronicle reported that a major University of California - San Francisco teaching hospital was also cited by the state Department of Public Health for quality problems:

San Francisco General was fined $25,000 for leaving a piece of surgical gauze in a patient who underwent an eight-hour operation for two types of cancer in September 2008. The foreign object was discovered about three months later and was removed without surgery during an office visit.

The Chronicle also reported a possibly major breach in the confidentiality of patient records at the UCSF Medical Center:

Medical records for about 4,400 UCSF patients are at risk after thieves stole a laptop from a medical school employee in November, UCSF officials said Wednesday.

The laptop, which was stolen on or about Nov. 30 from a plane as the employee was traveling, was found in Southern California on Jan. 8.

There is no indication that unauthorized access to the files or the laptop actually took place, UCSF officials said, but patients' names, medical record numbers, ages and clinical information were potentially exposed.

The security breach is UCSF's second in recent months. Last month, UCSF officials revealed that a faculty physician responding to an Internet 'phishing' scam potentially exposed the personal information of about 600 patients.

However, despite these obvious quality problems, the San Francisco Business Times reported

University of California regents approved $500,000 in bonuses to six top officials at the UC San Francisco Medical Center, part of a package of $3.1 million in payments to 38 hospital executives across the UC system.

In an interview last week with UCSF Chancellor Susan Desmond-Hellman, she said that the executive bonuses were tied to meeting specific performance goals, such as reducing clinical infections and increasing satisfaction ratings by patients. She also pointed out that additional payments of $14.3 million to the UCSF Medical Center’s 6,600-strong workforce were approved earlier.

The UCSF officials awarded bonuses were:

* Mark Laret, chief executive officer, $181,227;
* Ken Jones, chief financial officer, interim chief operating officer, $89,162;
* Larry Lotenero, chief information officer, $66,045;
* John Harris, chief strategy and business development officer, $63,196;
* Susan Moore, finance director and interim chief financial officer, $53,261; and
* Sheila Antrum, chief nursing/patient care services officer, $49,280.

Summary

So, in summary, multiple executives at three major University of California medical centers received generous bonuses.  The rationale for these bonuses, given out at a time when the university system was under major financial constraints, was that they were incentives for exemplary performance and patient care. 

Yet almost simultaneous with announcement of the bonuses were news reports indicating serious patient care problems at the same medical centers.  The point I am NOT trying to make is that the care at any of these medical centers is bad.  The examples of quality problems were limited.  I am sure that many other major medical centers hae had such quality problems as well.  However, the cases cited above were sufficient to argue that the care at these medical centers was not outstanding, not exemplary.  Yet, the bonuses were awarded not for acceptable performance or average quality.  Their rationale was exceptional performance and quality.  Thus, the rationale for the performance bonuses seems at best naive, if not foolish. 

I would suggest, instead, that the sorts of bonuses given out at the University of California are a product of the current management culture that has been infused into nearly every health care organization in the US.  That culture holds that managers are different from you and me.  They are entitled to a special share of other people's money.  Because of their innate and self-evident brilliance, they are entitled to become rich.  This entitlement exists even when the economy, or the financial performance of the specific organization prevents other people from making any economic progress.  This entitlement exists even if those other poeple actually do the work, and ultimately provide the money that sustains the organization. 

Although the executives of not-for-profit health care organizations generally make far less than executives of for-profit health care corporations, collectively, hired managers of even not-for-profit health care organizations have become richer and richer at a time when most Americans, including many health professionals, and most primary care physicians, have seen their incomes stagnate or fall.  They are less and less restrainted by passive, if not crony boards, and more and more unaccountable.  In a kind of multi-centric coup d'etat of the hired managers, they have become our new de facto aristocracy. 

Or as we wrote in our previous post, executive compensation in health care seems best described as Prof Mintzberg described compensation for finance CEOs, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit." As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences. Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations.  It is time to reverse the coup d'etat of the hired managers.

UCI Medical Center Fails Inspection, UCI Executives Get Bonuses

Back in the early days of Health Care Renewal, we had many occasions to write about problems with the leadership of the University of California - Irvine (UCI) medical school.  Starting in late 2005, we posted  about various management problems at the institution, involving its liver transplant service, cardiology division, and bone marrow transplant service, (see posts here and here) which lead the new chancellor of the campus to "acknowledge a failure of leadership and accountability" (see post here.) Slightly more recently, we noted the almost 20 year history of questionable financial relationships that involved one of UCI's "biggest stars" in clinical researach and several pharmaceutical companies (see post here).  Then, in 2007, we wrote about some strange contracting practices involving UCI and a local orthopedic practice (see post here).

So it was deja vu all over again when last week the Los Angeles Times reported about the latest batch of problems at UC Irvine Medical Center:

Federal investigators found scores of problems at UC Irvine Medical Center during a fall inspection that again put the troubled hospital's Medicare funding at risk, according to report released Thursday.

In an 85-page report on their surprise October inspection, regulators said they observed poor oversight and mistakes by UCI doctors, nurses and pharmacists, leading to inadequate care that in some cases harmed patients.

Among the findings:

* An 82-year-old man was mistakenly given a narcotic patch by a medical resident, without approval of doctors or pharmacists. The patch led to an overdose that required emergency intervention and may have contributed to his death a week later.

* A patient in the neuropsychiatric unit fell twice in three days and despite yelling 'Help me, doctor, help me,' suffered a head injury and had to be taken to intensive care.

* An on-call resident did not respond to repeated emergency pages from nurses in the neurological intensive care unit, where a patient with an irregular heartbeat languished for more than an hour.

* Pharmacists failed to monitor and store drugs correctly, allowing nurses to carry narcotics in their pockets and inject patients without proper oversight.

The report comes a year after investigators from the Centers for Medicare and Medicaid Services documented repeated examples of poor oversight at the hospital and threatened to cut Medicare funding.

In July, Medicare officials issued a finding of immediate jeopardy after investigators discovered that five UCI patients had received overdoses because nurses using pain medication pumps were not properly trained. UCI officials immediately began training nurses to use the pumps, the finding was lifted within 24 hours and the hospital submitted a plan of correction.

However, the 2010 continuation of the sad tale of UCI adds an interesting contrast.

UCI nurses said Thursday that many of the latest problems stem from understaffing and other cost-cutting, even as the facility turned a $54.2-million profit last year and the chief executive earned an $83,250 bonus.

'This is a problem of money. To provide extra training, extra staffing, is money,' said Beth Kean, California Nursing Assn. director for UC nurses, including 1,000 at UCI.

Terry A. Belmont, who took over as the hospital's chief executive last year, disputed that the facility was understaffed.

The new wrinkle in the UCI saga seems to be that now the leadership of UCI has been raking in bonuses while the mismanagement of the organization apparently continues.

Indeed, also last week several California newspapers reported on a series of bonuses granted to the top executives of the University of California system.  For example, per the Los Angeles Times,

The University of California regents Thursday approved the controversial payment of $3.1 million in performance bonuses to 38 senior executives at UC's five medical centers.

The regents emphasized that the payments were linked to improved patient health and stronger hospital finances and said they were important tools to attract and retain talent. They said the bonuses were part of a 16-year-old plan funded by hospital revenue, not state funds or student fees. An additional $33.7 million is distributed among 22,000 lower-ranking medical employees.

However, union activists denounced the executive bonuses as unconscionable as other parts of the university were coping with pay cuts and layoffs.

'This is appalling to do this when they are telling the lowest-paid workers to stay in poverty,' said Lakesha Harrison, president of the American Federation of State, County and Municipal Employees Local 3299, which represents about 20,000 UC workers, including hospital technicians and campus custodians.

Some of the union's members get bonuses of about $300 a year, Harrison said. In contrast, the payments to the 38 senior managers range from about $30,100 to nearly $219,000.

The incentives were awarded after the UC medical center system met such targets as reducing catheter-related infections and saving money through group purchases of supplies, officials said.

Among the payments approved Thursday by the regents in San Francisco were $218,728 to UCLA Medical Center Chief Executive David Feinberg, on top of his $739,695 base salary; $181,227 to UC San Francisco medical center Chief Executive Mark Laret, on top of $739,700 in pay; and $87,000, in addition to his $580,000 salary, for John Stobo, the UC system's senior vice president for health sciences.

Corroborating the assertion that the bonus plan is not new is a document that lists executive compensation at the University of California in 2008. (2009 data does not yet seem to be available on the web.) This document noted the following bonuses paid to University of California - Irvine medical leaders in 2008:
- Susan J Rayburn, Executive Director of Clinical Enterprise - Base Salary= $212,700, Bonus=$28,401
- Lisa M Reiser, Chief Patient Care Services Officer - $243,000, $26,507
- Eugene Spiritus, Chief Medical Officer - $310,000, $38,373
- Patricia D Thatcher, Executive Director - HR and Customer Service, Medical Center - $197,547, $17,542
- Cynthia A Winner, Chief Ambulatory Care Officer - $238,200, $24,371
- Maureen L Zehntner, Associate Vice Chancellor/ Chief Executive Officer, Medical Center - $555,000, $74,432

Note that Dr Spiritus, the Chief Medical Officer, did not mention that he was a 2008 bonus recipient when he defended bonuses given to UCI leaders in the LA Times article,

'Everybody's fallible. We just have to make sure we have the right processes in place' to catch errors, said Dr. Eugene Spiritus, UCI Medical Center's chief medical officer.

Spiritus also defended the compensation for hospital managers, saying they need to stay competitive in order to attract and keep talented managers, especially given the cost of living in California.

F Scott Fitzgerald wrote, "the very rich are different from you and me."  These days, it is executives and managers who are very different from you and me. 

Physicians are beginning to dread the notion of "pay for performance," which may mean tiny increases in fees paid to physicians who uncritically follow wooden-headed guidelines based on over-simplified notions of disease, poor measurement schemes, and manipulated and suppressed clinical data. 

However, for health care organization executives, "pay for performance" seems to mean lavish bonuses only tenuously related to any rational notion of performance.  In the example above, it seems that multiple UCI executives earned bonuses for their management of clinical affairs at the medical center in 2008, and at least the medical center CEO earned a bonus in 2009 for "improved patient health" while outside review of the medical center's performance in 2009 revealed "scores of problems" sufficient to threaten withdrawal of Medicare funding.  One wonders about the basis for all the millions in bonuses that have been paid to University of California executives over the years?

In fact, the executive "pay for performance" programs that started in the for-profit corporate world, and now are prevalent in not-for-profit health care organizations, seem to reflect the culture of executive entitlement now so prevalent in the US (and maybe most developed countries.)  First, executives claim credit for any improvements in their organizations, while the workers in the trenches who actually accomplished the improvements get chump change.  Second, when things go wrong, the workers face salary cuts and lay-offs, while the executives' total compensation never seems to go down. 

As we mentioned before, executive compensation in health care seems best described as Prof Mintzberg described compensation for finance CEOs, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit." As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences. Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations.

UCI Medical Center Fails Inspection, UCI Executives Get Bonuses

Back in the early days of Health Care Renewal, we had many occasions to write about problems with the leadership of the University of California - Irvine (UCI) medical school.  Starting in late 2005, we posted  about various management problems at the institution, involving its liver transplant service, cardiology division, and bone marrow transplant service, (see posts here and here) which lead the new chancellor of the campus to "acknowledge a failure of leadership and accountability" (see post here.) Slightly more recently, we noted the almost 20 year history of questionable financial relationships that involved one of UCI's "biggest stars" in clinical researach and several pharmaceutical companies (see post here).  Then, in 2007, we wrote about some strange contracting practices involving UCI and a local orthopedic practice (see post here).

So it was deja vu all over again when last week the Los Angeles Times reported about the latest batch of problems at UC Irvine Medical Center:

Federal investigators found scores of problems at UC Irvine Medical Center during a fall inspection that again put the troubled hospital's Medicare funding at risk, according to report released Thursday.

In an 85-page report on their surprise October inspection, regulators said they observed poor oversight and mistakes by UCI doctors, nurses and pharmacists, leading to inadequate care that in some cases harmed patients.

Among the findings:

* An 82-year-old man was mistakenly given a narcotic patch by a medical resident, without approval of doctors or pharmacists. The patch led to an overdose that required emergency intervention and may have contributed to his death a week later.

* A patient in the neuropsychiatric unit fell twice in three days and despite yelling 'Help me, doctor, help me,' suffered a head injury and had to be taken to intensive care.

* An on-call resident did not respond to repeated emergency pages from nurses in the neurological intensive care unit, where a patient with an irregular heartbeat languished for more than an hour.

* Pharmacists failed to monitor and store drugs correctly, allowing nurses to carry narcotics in their pockets and inject patients without proper oversight.

The report comes a year after investigators from the Centers for Medicare and Medicaid Services documented repeated examples of poor oversight at the hospital and threatened to cut Medicare funding.

In July, Medicare officials issued a finding of immediate jeopardy after investigators discovered that five UCI patients had received overdoses because nurses using pain medication pumps were not properly trained. UCI officials immediately began training nurses to use the pumps, the finding was lifted within 24 hours and the hospital submitted a plan of correction.

However, the 2010 continuation of the sad tale of UCI adds an interesting contrast.

UCI nurses said Thursday that many of the latest problems stem from understaffing and other cost-cutting, even as the facility turned a $54.2-million profit last year and the chief executive earned an $83,250 bonus.

'This is a problem of money. To provide extra training, extra staffing, is money,' said Beth Kean, California Nursing Assn. director for UC nurses, including 1,000 at UCI.

Terry A. Belmont, who took over as the hospital's chief executive last year, disputed that the facility was understaffed.

The new wrinkle in the UCI saga seems to be that now the leadership of UCI has been raking in bonuses while the mismanagement of the organization apparently continues.

Indeed, also last week several California newspapers reported on a series of bonuses granted to the top executives of the University of California system.  For example, per the Los Angeles Times,

The University of California regents Thursday approved the controversial payment of $3.1 million in performance bonuses to 38 senior executives at UC's five medical centers.

The regents emphasized that the payments were linked to improved patient health and stronger hospital finances and said they were important tools to attract and retain talent. They said the bonuses were part of a 16-year-old plan funded by hospital revenue, not state funds or student fees. An additional $33.7 million is distributed among 22,000 lower-ranking medical employees.

However, union activists denounced the executive bonuses as unconscionable as other parts of the university were coping with pay cuts and layoffs.

'This is appalling to do this when they are telling the lowest-paid workers to stay in poverty,' said Lakesha Harrison, president of the American Federation of State, County and Municipal Employees Local 3299, which represents about 20,000 UC workers, including hospital technicians and campus custodians.

Some of the union's members get bonuses of about $300 a year, Harrison said. In contrast, the payments to the 38 senior managers range from about $30,100 to nearly $219,000.

The incentives were awarded after the UC medical center system met such targets as reducing catheter-related infections and saving money through group purchases of supplies, officials said.

Among the payments approved Thursday by the regents in San Francisco were $218,728 to UCLA Medical Center Chief Executive David Feinberg, on top of his $739,695 base salary; $181,227 to UC San Francisco medical center Chief Executive Mark Laret, on top of $739,700 in pay; and $87,000, in addition to his $580,000 salary, for John Stobo, the UC system's senior vice president for health sciences.

Corroborating the assertion that the bonus plan is not new is a document that lists executive compensation at the University of California in 2008. (2009 data does not yet seem to be available on the web.) This document noted the following bonuses paid to University of California - Irvine medical leaders in 2008:
- Susan J Rayburn, Executive Director of Clinical Enterprise - Base Salary= $212,700, Bonus=$28,401
- Lisa M Reiser, Chief Patient Care Services Officer - $243,000, $26,507
- Eugene Spiritus, Chief Medical Officer - $310,000, $38,373
- Patricia D Thatcher, Executive Director - HR and Customer Service, Medical Center - $197,547, $17,542
- Cynthia A Winner, Chief Ambulatory Care Officer - $238,200, $24,371
- Maureen L Zehntner, Associate Vice Chancellor/ Chief Executive Officer, Medical Center - $555,000, $74,432

Note that Dr Spiritus, the Chief Medical Officer, did not mention that he was a 2008 bonus recipient when he defended bonuses given to UCI leaders in the LA Times article,

'Everybody's fallible. We just have to make sure we have the right processes in place' to catch errors, said Dr. Eugene Spiritus, UCI Medical Center's chief medical officer.

Spiritus also defended the compensation for hospital managers, saying they need to stay competitive in order to attract and keep talented managers, especially given the cost of living in California.

F Scott Fitzgerald wrote, "the very rich are different from you and me."  These days, it is executives and managers who are very different from you and me. 

Physicians are beginning to dread the notion of "pay for performance," which may mean tiny increases in fees paid to physicians who uncritically follow wooden-headed guidelines based on over-simplified notions of disease, poor measurement schemes, and manipulated and suppressed clinical data. 

However, for health care organization executives, "pay for performance" seems to mean lavish bonuses only tenuously related to any rational notion of performance.  In the example above, it seems that multiple UCI executives earned bonuses for their management of clinical affairs at the medical center in 2008, and at least the medical center CEO earned a bonus in 2009 for "improved patient health" while outside review of the medical center's performance in 2009 revealed "scores of problems" sufficient to threaten withdrawal of Medicare funding.  One wonders about the basis for all the millions in bonuses that have been paid to University of California executives over the years?

In fact, the executive "pay for performance" programs that started in the for-profit corporate world, and now are prevalent in not-for-profit health care organizations, seem to reflect the culture of executive entitlement now so prevalent in the US (and maybe most developed countries.)  First, executives claim credit for any improvements in their organizations, while the workers in the trenches who actually accomplished the improvements get chump change.  Second, when things go wrong, the workers face salary cuts and lay-offs, while the executives' total compensation never seems to go down. 

As we mentioned before, executive compensation in health care seems best described as Prof Mintzberg described compensation for finance CEOs, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit." As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences. Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations.

A $4.3 Million Dollar CEO for a Not-For-Profit Health Care Insurance Corporation

The US stock markets are at lows unseen for more than 10 years, unemployment is rising, around the world national deficits are increasing, and times are tough for ostensibly not-for-profit Blue Cross and Blue Shield of Massachusetts, the state's largest health care insurer/ managed care organization. Per the Boston Globe:

Blue Cross-Blue Shield's business was affected by the stock market decline, the recession, and the increasing cost of medical care.

Membership at the state's largest health plan declined about 40,000 to just over 3 million.

'The decline in membership had an impact on results,' said chief financial officer Allen Maltz. 'In addition, many of our customers changed their benefits plans to products that have much lower margins.'

Blue Cross-Blue Shield insures employees of national companies that have locations outside Massachusetts, Maltz said, and those customers accounted for some of the drop-off in membership.

Maltz said Blue Cross-Blue Shield aims for a profit margin of between 1.5 and 2 percent. Last year's margin was almost zero. The firm had operating income from its medical claims business of just $1.6 million.

A new state assessment on reserves lowered income by $21 million, Maltz said. Revenue was flat at $6.7 billion, and medical claims were also unchanged at $6 billion.

Like most health insurers, Blue Cross-Blue Shield also relies on investment income, which fell 28 percent to $111 million. Maltz said the firm managed to avoid losses in the market by investing primarily in bonds and avoiding derivative securities that have declined precipitously in value.

Well, things are tough all over. But they are apparently not so tough for Blue Cross Blue Shield's CEO:

The salary and bonus paid to Cleve L. Killingsworth, chairman and chief executive of Blue Cross and Blue Shield of Massachusetts, increased 26 percent last year, to $3.5 million, even though the health insurer's membership declined and its net income fell 49 percent.

Based on previous years' retirement benefits - which Blue Cross-Blue Shield did not report for 2008 - Killingsworth's total pay package was likely about $4.3 million, making him by far the highest paid healthcare executive in Massachusetts.

And what was the justification for Killingworth's stellar pay?

Salaries at Blue Cross-Blue Shield were inflated by a complex executive bonus plan in which senior officials get bonuses based on a rolling average of the previous three years.

'These executives and the company performed and exceeded our expectations,' said Jay McQuaide, a Blue Cross-Blue Shield spokesman. 'They earned these incentives.' The key metrics in the incentive plan are membership and net profit, he said.

The company's board of directors did not do badly either. Unlike most boards of not-for-profit corporations, this one was paid:

The insurer's board members also received a 33 percent increase in base pay, from $30,000 a year to $40,000. Most earn far more because of payments for attending meetings and serving on committees.

Finally, according to the Boston Herald, other executives did quite nicely too:

Bay State health insurance bosses continued to rake in multimillion-dollar compensation packages last year as the state and its taxpayers struggled to pay ever-increasing health-care costs.

Data filed yesterday with the state’s Division of Insurance shows that Blue Cross Blue Shield of Massachusetts, the state’s largest HMO, doled out million-dollar pay packages to five executives, while Harvard Pilgrim Health Care paid its two highest-ranking executives a total of $2.7 million.

Blue Cross’ top earner is Peter Meade, who retired last spring as executive vice president of corporate affairs. Meade took home $4 million, a sum that includes retirement benefits accrued during his 12 years at the HMO.

It's just amazing that with all their talk about "pay for performance," top executives of health care organizations seem to make huge sums year in and year out, regardless of their organization's performance. (As an aside, how could someone say that the company's pay for performance "main metrics" were membership and net profit, when both fell, yet the CEO's pay rose?)

There was a brilliant discussion of the culture that lead to this sad state of affairs in the Times (UK) by Minette Marrin. It was about British bankers, but it just as well could have been about American health care executives:

The filthy rich, as Peter Mandelson affectionately calls them, are different. It is not just that they’re rich but that there’s something about being extremely rich that blurs ordinary perspective in all but the most exceptional people. Power may corrupt, but extreme wealth blinds and deafens.

I first came across the filthy rich just after I was married and went to live in Hong Kong in the 1970s. Leaving poverty-stricken Britain, my husband and I joined a gold rush of bankers and brokers to what was then still a crown colony. What we saw was wealth and conspicuous consumption beyond the wildest dreams of avarice.

Though we weren’t extremely highly paid, we spent a lot of time with people who were. Some were entrepreneurs and others were employees of banks and trading houses that, as today, offered them ways of making megabucks. Soon it became obvious that being very rich is like catching an insidious virus. Some people are able to resist it, but with most people the super-riches virus burrows into your nervous system for life. It blurs your perspective, weakens your grasp on reality and changes your identity into someone who is entitled to be very rich.

Ms Marrin's description of "plutocratic blindness" seems to apply to a CEO of a so-called not-for-profit organization who could claim more than $4 million in a year in which the global economy collapsed, and his own organization did rather badly by any financial measure.

This passage by Ms Marrin seems applicable to the Blue Cross Blue Shield Board who approved this disproportionate pay package:

But I do know things are done quite differently on the parallel planet inhabited by the filthy rich. Remuneration boards unselfconsciously award each other astonishing packages, wrapped up in euphemism.

The lack of selfconsciousness in this case may have been driven by the board's familiarity with how things used to be done in the American financial sector. A quarter of the board's members are leaders in that sector (see post here).

Let me close with Ms Marrin's suggested solution:

The filthy rich culture that has developed in the past 20 years is sick. It needs strong medicine, fresh air, open windows. Above all, what’s needed is a cold dose of fear – fear of failing, of being sacked and of losing the lovely money. Here is an excellent antidote to greed.