More Stories of Million Dollar Plus Hospital Executives, but Now the NY Times Challenges the Talking Points

It is spring, time for birds to sing, flowers to bloom, and hospital executives to get more money.  As we do periodically, we have amassed a series of media accounts of the big to enormous compensation paid to top non-profit hospital leaders.  These reports follow a certain pattern, but this year's spring crop included something different.

The Pattern

In the groundbreaking science fiction series "Fringe," "The Pattern" was a series of apparently inexplicable events which eventually pointed to the existence of a parallel universe.




In non-profit hospitals, The Pattern of the discussion of executive compensation is this.  Nearly all non-profit hospitals must release minimal data on the total compensation of a few of the highest paid executives.  When these reports come out, sometimes the local media take a look, either at an individual hospital or hospital system, or at a number of local hospitals.  They almost inevitably find that some, usually most executives make what appears to be lots of money.  This could be hundreds of thousands of dollars at small community hospitals, or millions of dollars at larger hospitals and hospital systems.  Sometimes the reports end there.  Sometimes the reporters ask hospital representatives or local experts to explain the apparently exalted compensation figures.  The explanations are usually very similar, and so we have called this part of The Pattern The Talking Points.

The Talking Points

It seems nearly every attempt made to defend the outsize compensation given hospital and health system executives involves the same arguments, thus suggesting they are talking points, possibly crafted as a public relations ploy.   We first listed the talking points here, and then provided additional examples of their use here, here here, here, here, and here, and here. 

They are:
- We have to pay competitive rates
- We have to pay enough to retain at least competent executives, given how hard it is to be an executive
- Our executives are not merely competitive, but brilliant (and have to be to do such a difficult job).

The talking points are usually supplied by hospital public relations personnel, sometimes by hospital trustees or executives, sometime by various health care consultants.  The talking points are rarely questioned.

So let us look at some recent media articles for The Pattern, grouped in chronological order, to illustrate.

Jersey Boys

On April 6, 2014, Crain's New York Business reported some of the biggest yearly compensation figures seen for non-profit hospital CEOs.  

Ronald Del Mauro, the former president and chief executive of Barnabas Health, pulled in almost $22 million in 2012, the year after he retired from New Jersey's largest health system. Joseph Trunfio, president and chief executive at Atlantic Health, made $10 million.

Never before have such outsized compensation packages appeared on Crain's annual list of top-paid hospital executives

The explanations fit the pattern.  First from a Barnabas spokesperson,

'When Mr. Del Mauro began his career, Saint Barnabas Medical Center was a stand-alone community hospital,' she said, adding that Barnabas is 'well positioned both financially and operationally, despite significant industry challenges. His retirement package is a function of over four decades of service ... and reflects his exceptional legacy.'

He was just another brilliant executive, in other words.

Then about Mr Trunfio,

In a statement, Karen Kessler, board chair of Atlantic Health System, said that while Mr. Trunfio's 'current agreement does not have these bonus provisions, his compensation is performance-based, aligned with industry standards and intended to assure we retain top executive talent to provide the best quality of care to the communities we serve.'

There in italics were the competitive market rates and retention arguments, and a repeat ("top talent") of the brilliance argument.

Meanwhile, on April 28, 2014, NJBiz had its own report on non-profit executive compensation in the state.   Their summary included,

Heading up the list is Robert C. Garrett, CEO of the Hackensack University Health Network at $2.12 million, followed by Richard P. Miller, Virtua Health ($1.99 million); John K. Lloyd, Meridian Health System ($1.68 million); Barry H. Ostrowsky, Barnabas Health ($1.67 million); and Stephen K. Jones, Robert Wood Johnson Health System ($1.55 million).

Several New Jersey multi-hospital systems paid several top executives more than $1 million in 2012. Hackensack, for instance, has two executives over the million-dollar mark.

[It is not clear why the two different reports listed two different people from Barnabas - Ed]


Then came The Talking Points, for example, from Hackensack Hospital,

'The pay for HackensackUMC's executives reflects its complexity and is consistent with those levels paid to executives in other similarly situated not-for-profit academic and integrated health systems,' Hackensack said in a statement. "The compensation philosophy is to provide market-competitive base salaries....

 The bit about complexity implies the brilliance argument, since only a brilliant CEO could cope with such complexity.  Then we had two versions of the competitive market based payment argument.  

Here is another version of the same thing, this time from one "Joel Cantor, director of the Center for State Health Policy at Rutgers University,"

On the other hand, hospital systems are large, complex organizations. Ultimately, CEO compensation is driven by the market for senior talent.  

My favorite version of the brilliance argument came from one Ms Betsy Ryan, president of the New Jersey Hospital Association,

They literally are on call 24/7, 365 days a year and they are running an institution where lives are at stake

 
More on that later.....

Smatterings of Data from Connecticut and Pennsylvania

There were a series of reports that simply noted large amounts, but did not look for explanations.  

HartfordBusiness.com recounted a state report of the top 10 most highly paid executives of individual hospitals (but did not account for the pay given to executives of hospital system).  The figures started at $3.26 million for the CEO of Yale-New Haven Hospital, and finished with $1.48 million for the senior vice-president and chief of staff at the same institution.

The Pittsburgh Post-Gazette reported pay at the West Penn Allegheny Health System, including that given to a former CEO, $1.89 million, and to a former chief administrative officer, $1.29 million.    

Then the Pittsburgh Tribune noted even bigger compensation given out at competitor UPMC.

UPMC CEO Jeffrey Romoff got an 8 percent raise two years ago, placing his generous compensation package near the top of the nonprofit hospital industry. 

The 68-year-old Romoff, who leads the largest integrated health system in Western Pennsylvania and one of the biggest in the nation, brought in $6.6 million in 2012, up from $6.1 million in 2011, according to tax documents UPMC made public on Friday.

Also,

UPMC paid 30 other executives and doctors more than $1 million each in 2012, up from 21 employees who were in the $1 million club the year before.

Wake Forest Baptist

The Winston-Salem Journal reported details of executive compensation at Wake Forest Baptist on May 16, 2014.  Its CEO, Dr John McConnell, had "total compensation [which] rose 0.8 percent to $2.06 million in 2012."  Then, however, "Donny Lambeth, the former president of N.C. Baptist, had a 52 percent drop in total compensation to $1.18 million."  Also, "Dr. Thomas E. Sibert, president of Wake Forest Baptist Health and chief operating officer, received a 10 percent drop in total compensation to $1.02 million."  Then, "Edward Chadwick, chief financial officer, had a 2.3 percent drop in total compensation to $956,465."  It is interesting that some executives actually saw small decreases.  Then again, the system lost $4.5 million for fiscal 2012-2013.

The article also offered up the usual explanations, first provided by the hospital system itself,

there are few executives with the required skill set to manage and provide leadership for an integrated (center) such as ours

There goes another version of the brilliance argument.  Then,

Its executive compensation packages, it said, 'are fiscally responsible, appropriate for the marketplace and an essential part of the effort to recruit and retain skilled executives and visionary leaders for the medical center.'

Those included the competitive market rates and the retention arguments, plus the ante for brilliance was upped to the visionary level.

The article ladled on one another version, this time supplied by "John Challenger, chief executive of outplacement consultancy Challenger, Gray & Christmas,"

 'Communities who want the best health-care system they can get should support paying the compensation levels required to attract top talent,' Challenger said.

'Cutting salaries will result in an exodus of top talent to systems that will pay it,...'

So "top talent" = brilliance argument, threatening an "exodus" = retention argument.

So there they go again, again.


Something Different: the New York Times Challenges the Pattern 

We have previously challenged the talking points.  For example, in August, 2013 we wrote,

As we have noted before, there is little evidence in support of these talking points.  What evidence there is on the topic suggests there is no real free market in interchangeable CEOs, and that CEOs are not very mobile, especially not across different kinds of organizations (look here).  There is little evidence that hospital (or other health care) executives are particularly brilliant, or any more brilliant than multitudes of physicians, nurses, and other health care professionals who work hard to make their institutions run.

Yet most discussions of executive compensation in hospitals, and indeed in health care, follow The Pattern.

So it was refreshing in this season of outsized compensation reports is that the New York Times ran an article that challenged The Pattern, albeit with limitations.  The most obvious problem with the pattern is that the arguments are out of context, and not challenged in context.  However, in the NY Times,

Physicians, the most highly trained members in the industry’s work force, are on average right in the middle of the compensation pack.

That is because the biggest bucks are currently earned not through the delivery of care, but from overseeing the business of medicine.

The base pay of insurance executives, hospital executives and even hospital administrators often far outstrips doctors’ salaries, according to an analysis performed for The New York Times by Compdata Surveys: $584,000 on average for an insurance chief executive officer, $386,000 for a hospital C.E.O. and $237,000 for a hospital administrator, compared with $306,000 for a surgeon and $185,000 for a general doctor.

Note that this comparison only refers to salaries, not total compensation, so

And those numbers almost certainly understate the payment gap, since top executives frequently earn the bulk of their income in nonsalary compensation.

We just saw examples of non-profit hospital CEOs making over $1 million to over $6 million in total compensation.  That would imply that non-profit CEOs may make from three times to over thirty times the total compensation of a surgeon, and from over five times to over thirty-five times the compensation of a general internist.  (And the ratio for such outliers as Mr Del Mauro above would be even higher.)  

So is a hospital CEO thirty times more brilliant than a general internist?  

That suggests also that we go back to another version of the brilliance argument found in one article above.  In the NJBiz article, the NJ Hospital Association President said, about CEOs, not physicians,

They are literally on call 24/7, 365 days a year and they are running an institution where lives are at stake.

They may be on call in a sense, but they are never on first call.  Their decisions may ultimately affect lives, and perhaps put lives at risk.  But they never have to make a decision about a patient that could literally cost that patient his or her life.  And they almost never have to be accountable for what happens to individual patients.  

It is easy to argue that physicians' responsibilities for life and death decisions are much more direct.  Explain, then, those pay ratios again.  

Actually, in an opinion piece about executive compensation in FierceHealthFinance, Ron Shinkman described the life of a typical seven-figure a year hospital executive,

While the days of seven-figure club members are long, they are also predictable--check the census and cash flow reports, confer with the medical staff, get updates on supplies, negotiate with payers, have some meetings on long-term planning. If it is a large hospital in a large market, those meetings are likely focused on site expansion and acquisition. If it is a medium-sized facility, tI expect they spend their time focused on finding a larger partner. Breakfast and dinner meetings and events switch focus to development and fundraising.

There may also be some meetings on quality initiatives, but they are of nominal consequence. Members of the seven-figure club enjoy little to no accountability from their customers.

So is executive compensation in hospitals, or other parts of the health care system, based on executives' brilliance.  Or is it based on their ability to be rentiers, rent-seekers, who can control the choke points of money flow, and make sure they get more than their share before what is left can go to real health care? 


Of course, hospital executives and their ubiquitous spokespeople do not discuss what they do day to day.  Maybe they need to, and also need to address the implications of these statements in the NY Times article, given that the US has the highest health care costs of any developed country, but nowhere near the best results,

And studies suggest that administrative costs make up 20 to 30 percent of the United States health care bill, far higher than in any other country. American insurers, meanwhile, spent $606 per person on administrative costs, more than twice as much as in any other developed country and more than three times as much as many, according to a study by the Commonwealth Fund.

As a result of the system’s complexity, there are many jobs descriptions for positions that often don’t exist elsewhere: medical coders, claims adjusters, medical device brokers, drug purchasers — not to mention the 'navigators' created by the Affordable Care Act.

Among doctors, there is growing frustration over the army of businesspeople around them and the impact of administrative costs, which are reflected in inflated charges for medical services.

We had previously argued (see above) against the talking points, and specifically that there is nothing to suggest that hospital executives are any more, much less an order of magnitude more brilliant than physicians or other health care professionals. But I confess as a physician I did not have the courage to extend that argument to a direct comparison of executive versus health care professional pay. The Times article, written by someone who is not a physician, did not have to worry about appearing self-serving.  I am glad, for it is high time to discuss the degree that the incentives produced by executive pay in health care have become perverse, and how to change these incentives to make health care leaders more accountable for health, and less focused on their own riches. 

Presto Chango - UPMC Tries to Make its Employees All Disappear

This story is just in time for Halloween. 

The Lawsuit Challenging the Non-Profit Status of UPMC

Back in March, 2013, we discussed a lawsuit initiated by the then Mayor of Pittsburgh that challenged the tax-exempt, non-profit status of giant hospital system UPMC.  The suit charged that UPMC functions more like a for-profit corporation based on its large surplus (recently $1 billion), larger reserves ($3 billion), minimal commitment to charitable care, and generous executive pay (recently $5.9 million  to CEO Jeffrey Romoff, 19 executives paid more than $1 million, and ownership of a jet aircraft).  By the way, Romoff's latest total compensation was said to be $6.1 million (look here), and UPMC just bought an even fancier corporate jet, a Bombardier Global Express worth $51 million (look here).

The Employees Vanish

The Pittsburgh Post-Gazette just described UPMC's remarkable response to the lawsuit.

 For purposes of the city's payroll taxes, [an attorney representing UPMC] Mr. [William] Pietragallo explained, UPMC's subsidiaries -- like UPMC Shadyside and Western Psychiatric Institute and Clinic -- file separate forms. Employees work for those legal subsidiaries. But UPMC itself?

'We don't have employees,' Mr. Pietragallo said.

The question is central to the city's suit to strip UPMC of its status as a purely public charity. UPMC argues the city can't challenge its exemption from payroll taxes because it technically has no employees. It's a case where the legal reality may differ significantly from the one that UPMC, which on its website claims to have 55,000 employees, markets on a regular basis.

'You can't pay employment taxes unless you have employees,' Mr. Pietragallo said.

This is not the first time UPMC has made this claim in response to a legal action,

Earlier this year, when UPMC faced 80 complaints of unfair labor practices, it argued that it was only a holding company and did not technically employ those in the complaints. The complaints alleged, among other things, that UPMC employees were being punished for attempting to unionize. UPMC ultimately settled.

Obvious Contradictions

These claims of invisible employees appear to be contradicted by UPMC's own public relations,

 UPMC touts it large workforce. Its 2012 annual report, for example: 'The economic impact of UPMC is more substantial than most people realize. The organization is the largest nongovernmental employer in the Commonwealth of Pennsylvania, and more than $6.2 billion in total labor income can be attributed directly or indirectly to UPMC.'

UPMC's website and media releases say the hospital giant employs in the range of 55,000 people. And when UPMC made the top rankings of U.S. News & World Report's Best Hospitals, it did so as a conglomeration of several facilities attorneys are now arguing are separate subsidiaries.

Also,

[An attorney representing the city of Pittsburgh, Ronald]   Barber argued that even for tax purposes, UPMC has documented having employees. In a Form 990 filed for the 'UPMC Group,' the hospital network said it employed around 52,000 people.

A few days later, the Post-Gazette reported that the city responded to these UPMC claims in matter-of-fact way,

 On its website, in its annual report and in some tax filings, UPMC purports to have employees -- sometimes tens of thousands of them, the city of Pittsburgh's attorneys said in a court filing.

Furthermore,

 The city also argued that those working for subsidiaries are UPMC employees as well, pointing to UPMC's 2012 Annual Report and website, which tout the hospital system as one of the state's largest employers. Attorneys also pointed to a lawsuit in which UPMC claimed to 'extend offers of employment.'

How Complexity Benefits Bureaucrats and Managers

It is Halloween coming up, not April Fool's Day, and the claims made on behalf of UPMC do not appear to be jokes.  Instead, I believe they underline two serious problems with how large health care organizations are currently lead.

The first is that health care organizations often have exceedingly complex structures for reasons that have nothing to do with fulfilling their health care mission.  One reason may be that the complexity creates options for plausible deniability.  In particular, when such organizations are accused of bad behavior, as they now often are, subsidiaries may be set up to "take the rap."  For example, we discussed how Pfizer Inc has been using the bankruptcy filing of its Quigley subsidiary made as if that subsidiary were independent to delay resolution of claims that the subsidiary sold hazardous asbestos products.   

This tactic of having the subsidiary take the rap may be particularly useful when taking the rap may lead to a severe penalty for the organization, such as disbarring it from being paid by the government.  A disbarred subsidiary may simply be dissolved and its work transferred to other parts of the organization.  For example, in May, 2013 we discussed a settlement in which Baush and Lomb subsidiary Ista Pharmaceutical would be disbarred from participation in government programs.  However, Baush and Lomb itself would not be disbarred, and would be able to "wind down" Ista's operations and transfer its products to other parts of the larger company. 

The current example appears to be a more creative use of subsidiaries to claim deniability, although whether the arguments about disappearing employess above are even plausible is open to question.


Complex organizations also offer many opportunities to employ and enrich administrators, bureaucrats and managers, and to justify ever larger compensation for the top executives who purport to run the whole thing.  That such proliferation of management and management compensation may detract from the mission does not appear to be a big concern of the sorts of people who now run health care.

Contempt for Truth

The second problem is that the leadership of large organizations seem to have little use for the truth.  Instead, they may put lots of faith in their marketers, public relations people, and legal staff to obfuscate the truth in pursuit of ever more revenue and executive enrichment.  As management becomes less and less reality-based, however, it may be less likely to be able to respond to the very reality-based needs of patients and the public.

Conclusion

I hope that the outlandish claims now being sanctioned by UPMC leadership may raise awareness of what is going wrong with the leadership of health care organizations in general.  As we have been saying for years, health care leadership that puts its self-interest ahead of patients and the public, and which disregards the truth in service of self-interest may be the biggest cause for ever increasing health care costs, and ever declining access and regard for the health of patients and the public.  True health care reform would encourage leadership that puts the mission ahead of self-interest, and values honesty more than personal profit. It would promote regulation that holds top leadership of organizations accountable for their organizations' actions and not allow the leadership to hide behind complex organizational structures.   

Should We Cry for Non-Profit Hospital System CEOs Paid Less than For-Profit CEOs?

Two recent articles (here and here) in Modern Healthcare providing an update on the compensation of CEOs of non-profit hospital systems raised new questions.

The CEOs' Compensation

The first article documented the rich compensation of the top paid CEOs of non-profit US hospital systems.  A summary of their total compensation:

-  Donald Faulk (now retired), Central Georgia Health System - $8 million
-  George Halvorson, Kaiser Permanente - $7.9 million
-  Jeffrey Romoff, UPMC - $6.1 million
 -  Pat Fry, Sutter Health - $5.2 million
-  Gregory Beier (retired), Novant Health  - $5.1 million
-  Dr Steve Safyer, Montefiore Medical Center - $5 million
-  David Bernd, Sentara - $4.6 million

The Usual Talking Points

The articles in combination provided the usual talking points as justification for this compensation.   We have noted that nearly every attempt made to defend the outsize compensation given hospital and health system executives involves the same talking points.   We first listed the talking points here, and then provided additional examples of their use here, here here, here and here.   They are:
- We have to pay competitive rates
- We have to pay enough to retain at least competent executives, given how hard it is to be an executive
- Our executives are not merely competitive, but brilliant.

So true to form, we found in the Modern Healthcare articles these justifications of the executives multimillion dollar pay.

Competition

In general,

In interviews, health system directors and executives at the systems where these top-paid executives work defended the compensation packages as necessary to remain competitive....

Re UPMC

UPMC spokeswoman Susan Manko described his [that is, Romoff's] pay as competitive for an institution of UPMC's size and complexity. 

Re Novant

Novant spokeswoman Kati Everett said Novant follows IRS rules that call for pay to be compared against the market....

Re Sutter

[Sutter Health board of trustees member and chair of the compensation committee Andy] Pansini said the Sutter board set the CEO's salary halfway between the lowest and the highest amount he could earn elsewhere.

Also,

He said Sutter's board relies heavily on consultants to compare Fry's compensation against the market.

Retention

 Re Sentara

'Mr Bernd's compensation takes into account his 40-year tenure of leadership at Sentara, with nearly 20 serving as the organization's top executives.

Brilliance

Re Novant

[Novant spokeswoman Kati Everett said] 'At Novant Health, we recognize (that) our responsibility to serve our community depends on the caliber of talent in our workforce, our leadership group....'

Re Sentara

[CEO Bernd's] 'pay reflects his experience, expertise....'

Re Sutter

[Pansini] defended [CEO] Fry's compensation as reasonable and necessary to meet Sutter's strategic goals by hiring a skilled executive team. 

Explicit Comparison to For-Profit Corporations

The articles also introduced one new element.  Some defenders of non-profit hospital CEO compensation explicitly argued that should take into account compensation of for-profit CEOs.

This argument was made by "Jill Horwitz, a law professor at the University of California at Los Angeles,' who had "defended paying not-for-profit healthcare executives market rates."

She also noted that not-for-profit systems have to compete with the for-profit sector for top talent. 'This idea that people should be donating their labor is a misunderstanding of charity.'

Defenders of CEO compensation at specific health systems also made similar points.  For example, a Kaiser Permanente spokesman explicitly compared his CEO's pay to that given to CEOs of for-profit health plans,

Kaiser spokesman Won Ha, in a written statement, said Halvorson's pay falls short of the average compensation of $14 million, not including option exercises, earned by CEOs of the 12 largest for-profit healthcare systems, which had average 2011 revenue of $37 billion.

'Compensation paid to senior management is substantially less than that of many for-profit health (plans),...'

Also, re Sutter,

[board committee chair Pansini noted that when comparing his CEO's pay against the market] That comparison includes other executives of similar not-for-profit health systems, and to a lesser degree, of for-profit systems.

 Summary: An Extension, but Still no Clear Justification for the Talking Points


The talking points to explain executive compensation in health care are used again and again.  They never seem to be publicly challenged.  However, they should raise some obvious questions.

The argument about competition raises several obvious questions.  Why should the top hired managers' pay be only compared to other top managers, and not explicitly to other employees?  Even if the comparison is restricted to other top managers, how can they be used for those at the top of the pay scale for non-profit hospital system CEOs?  How these CEOs' compensation could be dubbed merely competitive, much less "halfway between the lowest and highest amount he could earn elsewhere," is not clear.

The retention argument begs the questions of whether any of these managers is really likely to leave, whether they really would be attractive to other organizations at the same or even higher pay, and whether it would really be difficult to find replacements.

The brilliance argument raises the question of how brilliance is defined.  Given that it is almost unheard of for a fan of current compensation practices to dub any top manager anything less than brilliant, the obvious question is how can CEOs, like the children of Lake Woebegone, all be above average? 

 Furthermore, the talking points seem to be in the process of extension, which should raise even more questions.

Defenders of CEO pay, usually "spokespeople" or members of boards of trustees, often cite the need for "competitive" pay.  They usually are not clear about with whom they are competing.  Now it seems to be more popular to say that non-profit health care organizations are competing with for-profit corporations, despite the ostensible difference in their natures.  Non-profits are supposed to have a charitable nature and function, to have some sort of mission that serves the greater good.  To support that apparently benevolent purpose, in the US they are exempt from certain taxes, are are able to receive charitable contributions which in turn earn deductions for their givers.  For-profit corporations are in business ostensibly for their owners. 


In addition, by now asserting that the non-profit CEOs should be likened to the CEOs of for-profit corporations, the expanded talking points highlight questions that have been raised about how these hired managers are paid. We have previously discussed some pithy critiques of American practices of executive compensation (look here and here.)

CEO compensation as a multiple of the pay of the average worker has risen 10-fold since the 1960s (see this chart). As a consequence, the top 1% and 0.1% of the US income distribution is increasingly and disproportionately made up of executives, that is hired managers, (see the recent article by Bivens and Mishel[1] for a summary).  Per the article, the income of top corporate executives has grown even faster than that of other members of the top 0.1%.  It seems evident that these rates of growth cannot be explained by increases in the financial performance of their companies.  Furthermore, while it appears that compensation of US health care corporate executives has grown as fast as their brethren, there is no data that US health care has improved at anything like a similar rate.  It may have hardly improved at all.  A recent JAMA article is just the latest example of studies showing that US health is lagging that of other developed countries, although the US spends far more per capita on health care.(2)     

Furthermore, there is more and more criticism about how the compensation of top hired managers is set.  Steve Denning's blog  post in Forbes summarized a 2012 Harvard Business Review article(3) suggesting that "market-based" compensation schemes mistake top managers for innovative entrepreneurs, when they are mainly simply "bureaucrats"; reward managers for luck rather than skill; and is "inversely related to shareholder returns."

Finally, Elson and Ferrere critiqued the mechanics of how compensation is set.  In particular, while boards of directors may attend to data on compensation of CEOs at other, supposedly comparable corporations, they almost always "choose a package that is in the 50th, 75th, or 90th percentile of their target peer group.  Targeting levels below the 50th percentile is rarely, if ever done."  Thus, boards nearly always act as if their CEO is above average, while by definition, most CEOs cannot be above average.  Why do boards commit this folly?  The authors postulated that suggesting the CEO is less than average "may raise concerns over the executive's position within the company...."  Perhaps boards also fear that labeling the CEO below average may be an admission of below average governance. 

Desai suggested that the perverse incentives created by current schemes to compensate managers were a major cause of the 2008 financial meltdown.  As Dennings wrote,

despite the constraints to change, the overcompensation of the C-suite and the financial sector is not sustainable. It causes serious misallocation of capital and talent, repeated governance crises, rising income inequality and an overall decline of the US economy. It obviously cannot continue, if only because, as Margaret Thatcher used to say in a different context, 'Sooner or later you run out of other people’s money'

Clearly, in the health care context, the results could be even worse.  Perverse executive compensation could not only lead to misallocation of capital and talent in health care, it could lead to bad health care decisions that could harm patients' and the public's health.  However, there seems to be almost no discussion of, much less research about, much less policy changes addressing perverse incentives for health care managers and their likely ruinously bad effects on people and patients.

Such discussion and research is a prerequisite to true health care reform, which would require such policy changes.

Meanwhile, I hope at least the next time huge compensation of some health care managers is announced, someone asks the next set of questions after the usual talking points are made.  

Roy M. Poses MD in Health Care Renewal

References
1.  Bivens J, Mishel L. The pay of corporate executives and financial professionals as evidence of rents in top 1 percent incomes.  J Econ Perspect 2013; 27: 57-78.
2. US Burden of Disease Collaborative.  The state of US health, 1990-2010 burden of diseases, injuries, and risk factors.  JAMA 2013; 310: 591-608.  Link here.
3. Desai M. The incentive bubble.  Harvard Business Review, March 2012. 

Monetary losses and layoffs from EHR expenses and EHR mismanagement

More on monetary losses and layoffs from EHR expenses and EHR mismanagement:

1.  Layoffs to balance the budget...

http://www.news-record.com/news/local_news/article_da765340-d912-11e2-9eac-001a4bcf6878.html

... Wake Forest University Baptist Medical Center [Winston-Salem, NC] said in November 2012, that it would cut 950 jobs — 6 percent of its total staff.

Electronic records programs continue to push costs higher. The Winston-Salem Journal reported that Wake Forest’s Epic [EHR] program caused $8 million in work interruptions during the 2012-2013 year alone. Wake Forest is cutting costs at least through June 30 to make up for some of Epic’s expense. Its efforts include furloughs, wage reductions and other cuts.

2.  Cerner EHR Project Loses U.K. Hospital 18 Million Pounds

http://www.informationweek.com/healthcare/electronic-medical-records/ehr-project-loses-uk-hospital-18-million/240157036

... Royal Berkshire Foundation Trust's implementation of Cerner Millennium electronic health record system is costly to maintain and hard to use, causing patient backlogs ... British hospital's attempt to implement an electronic health record (EHR) system has been so disastrous that it has had to write off £18 million ($28 million).


... "Unfortunately, implementing the [EHR] system has at times been a difficult process and we acknowledge that we did not fully appreciate the challenges and resources required in a number of areas," said the hospital's chief executive, Ed Donald. 

In 2013, I find the statement "we did not fully appreciate the challenges and resources required in a number of areas" remarkable.

Dear Mr. Donald, please allow me to introduce you to a novel concept:

A Google search.  (Free, no less.)

Try this, for example:  https://www.google.com/search?q=healthcare%20IT%20failure

(I note that competent experts in my field, Medical Informatics, given appropriate executive presence - including hiring and firing authority, instead of the usual 'internal consultant' roles - could have prevented your organization's mistakes, and for a mere fraction of the £18 million.)

A campaign against public sector waste in Britain, The Taxpayer's Alliance, has seized on the hobbled project as an especially egregious example of bad procurement. "[NHS] trusts must work a lot harder to get a good deal for the taxpayers footing the bill," it warned.  [I guess money doesn't grow on trees in the UK as it seems to in the US -ed.]

The row comes in the same week British Parliament members expressed frustration that the funding scheme that supported other British hospitals' investment in EHRs, the controversial £9.8 billion ($15.2 billion) National Program for IT cancelled in 2011, continues to cost the country millions, with contracts in some cases not set to expire for 12 more years. [NPfIT in the NHS - see query link http://hcrenewal.blogspot.com/search/label/NPfIT - ed.]

Berkshire, however, opted out of that program in 2008 and had instead linked with the University of Pittsburgh Medical Center to help it implement Millennium.

I am merely the messenger here...

-- SS

The Push Back Continues: the Mayor of Pittsburgh Sues UPMC Claiming it is No "Public Charity"

There is another indication that push back against the power of large health care organizations is getting more significant.

In February, 2013, we noted that the Governor of the state of Connecticut publicly criticized lavish executive compensation at a small regional hospital system, compensation partially fueled by government funded health insurance payments, and in contrast to hospitals' claims that insufficient reimbursement was driving them to poverty.   

The Suit Challenging the Charitable Status of UPMC

Now the outgoing Mayor of Pittsburgh has launched a lawsuit challenging the status of huge, nominally non-profit health system UPMC as a public charity.  A summary of the arguments comes from an article in the Pittsburgh Post-Gazette.  First, in the state of Pennsylvania, a Supreme Court description set out a test to determine if a particular organization is a public charity, the status the UPMC currently claims:

The Supreme Court's 1985 ruling involving the Hospital Utilization Project (or HUP) set out a test that requires that a purely public charity must fulfill all five of the test's points that it: advances a charitable purpose; donates or renders gratuitously a substantial portion of its services; benefits a substantial and indefinite class of persons who are legitimate subjects of charity; relieves the government of some of its burden; and operates entirely free from private profit motive.

That ruling was reaffirmed by the Supreme Court in April in a case involving an Orthodox Jewish summer camp in Pike County that was found to not deserve its property tax exemption.

The city's lawyer, E.J. Strassburger of Strassburge Mckenna Gutnick & Gefsky, argued that UPMC does not pass that test:

Mr. Strassburger wrote, first and most strongly, that 'it seems virtually certain that UPMC would fail to carry its burden of proving that it satisfies the fifth prong of the HUP test by 'operating entirely free from profit motive.''

He cited UPMC's nearly $1 billion surplus over the last two years and $3 billion in reserves as evidence of this, and that UPMC 'is carefully structuring its operations to prioritize profits-generation over charity.'

Also, 

In addition, Mr. Strassburger wrote that UPMC does not 'advance a charitable purpose' in part because UPMC 'maintains an 'open admissions policy' in name only' and it does not make all of its health care available to everyone, regardless of ability to pay.

Furthermore,

the review says UPMC fails to provide sufficient charity care, operates far-flung international operations that are losing money, and has closed operations in poor communities only to open or expand into richer ones.

But it also cites what it terms 'excessive' benefits of UPMC executives, including CEO Jeffrey Romoff's $5.9 million salary; the fact that more than 20 employees are paid more than $1 million; UPMC's corporate jet; Mr. Romoff's 'lavish'  Downtown headquarters (which it claims includes a private chef, chauffeur and private dining room).

The Post-Gazette also sought the advice of experts,

Nicholas Cafardi, dean emeritus and professor at Duquesne University's Law School, said he believes the argument that UPMC is not free from a private profit motive is the strongest one in Mr. Strassburger's review, in part because of how far-flung UPMC has become.

'The more they do that gets them away from their core purpose, the more they open themselves up to the argument that they aren't doing charity,' he said.

In addition, Mr. Cafardi said, UPMC's extensive advertising campaign --sometimes directly against rival Highmark -- makes it look like the organization is operating for profit.

'A lot of things like that make them look like they're operating for a private profit,' he said. 'You advertise because you're in competition. That's the private profit motive.'

Gary M. Grobman, former head of the nonprofit Pennsylvania Jewish Coalition and author of 'The Pennsylvania Nonprofit Handbook,' said UPMC would have a fight on its hands.

'Based on what [Mr. Strassburger] has written, which may or may not be true, it seems some staff at the hospital are paid quite well and some decisions are made based on achieving as much revenue as possible instead of providing as much charity as possible,' he said. 'And if all of that is true, they don't deserve their not-for-profit status.'

So the main issues brought up by the city are similar to issues we have raised about numerous nominally non-profit health care organizations.  We have shown that many particular organizations appear not to act like charities when they appear to put short-term revenue ahead of the organization's mission, a process sometimes called financialization, and put lavish compensation of top hired managers ahead of the organization's general financial well-being; and when their leadership appears to subvert the organization's mission.

The UPMC Response versus Anger in the Community

Of course, UPMC public relations disagreed with the premises of the lawsuit:

'We think the 13-page memo that a local law firm wrote for the City is very weak and reaches its conclusions entirely based on opinion, not fact,' UPMC spokesman Paul Wood wrote. 'Rather than responding to partisan politics and blatant union pandering by the Mayor, UPMC looks forward to demonstrating in a court of law that we meet all five prongs of the HUP test and that our hospitals easily qualify for the tax-exempt status they unquestionably deserve. Interestingly, by hiring an outside law firm the City is prepared to waste millions of dollars of taxpayer funds on an unsuccessful attempt to pursue this case.'

Note that the unsubstantiated allusions to "partisan politics" and "pandering" appear to be an appeal to ridicule, "a fallacy in which ridicule or mockery is substituted for evidence in an 'argument.'"  We have noted before how public relations flacks working for top executives of health care organizations seem to be very good at using such logical fallacies.

Mr Wood also scoffed at the naive notion that having a $1 billion surplus and $3 billion in reserves means the organization operates like a business:
 

Mr. Wood wrote that 'numerous people have tried to distort the meaning of that component to attain a political result.'

'It does not mean a nonprofit shouldn't strive to have a positive operating margin -- organizations that don't do that go out of business,' he added.

Note that Mr Wood seems to be arguing that the only alternative to a very large surplus and a very large reserve is a deficit.  By ignoring another obvious alternative, having a small surplus and a small reserve, his argument thus is derived from the logical fallacy known as the false dilemma.  He also seemed to be arguing that a deficit inevitably leads to bankruptcy.  Of course prolonged deficits might lead to bankruptcy, but a single deficit would not necessarily do so.  Thus he also employed the logical fallacy known as the slippery slope. 

On the other hand, a Post-Gazette columnist showed the depth of community concern over the role of UPMC:

Someone in power is taking official action against the biggest corporate bully in town. Can I get an Amen?

In fact, I can get many Amens, and that says a lot about the behavior of the region's dominant hospital system.

Has there ever been a 'charity' so disliked and mistrusted by the people it's supposed to serve and the people it employs? You rarely hear anyone say 'I cannot stand CARE,' or 'I despise Doctors Without Borders.' But you hear it all the time about UPMC, notwithstanding the jobs it creates, the medical innovations it advances, the life-saving care its doctors deliver and its commitment of $100 million for the Pittsburgh Promise scholarship fund. With all that to its credit it should be beloved, but the opposite is true.

Not helping matters is its corporate public relations, which is increasingly tone deaf. In an emailed response to the mayor's announcement, UPMC spokesman Paul Wood said the lawsuit 'appears to be based on the mistaken impression that a non-profit organization must conduct its affairs in a way that pleases certain labor unions, certain favored businesses, or particular political constituencies.'

No, Mr. Wood. It's based on the correct impression that a nonprofit hospital's top priority should be the patients, not building a monopoly. And that a $10 billion system with a billion-dollar surplus and $2 billion to $3 billion in reserves should be taking care of many more indigent sick people than UPMC has been treating -- especially when it owns land that a Post-Gazette investigation valued at $1.6 billion, even as it enjoys a $20-million tax break every year, underwritten by the good citizens of Pittsburgh and Allegheny County. You can try blaming the SEIU organizing campaign or your arch-enemy, Highmark the insurer, or politics, but this is so much bigger than any of those things. And the public knows it.

Keep in mind that the current discussion of UPMC in the media focuses on very recent events.  On Health Care Renewal, we have posted frequently over the last eight years about problems with the leadership of UPMC.  We started in 2005 with their inability to prevent a fraud  perpetrated by some UPMC middle managers. In 2008, we discussed the apparent mismanagement of the highly touted UPMC liver transplant program.    Starting in 2009, and continuing through 2013, InformaticsMD chronicled how the leadership has presided over health care information technology so problematic that it has been blamed for patient deaths.  In 2009, we noted sanctions against UPMC's public relations.   In 2010, we noted conflicts of interest and apparent self-dealing and nepotism affecting the UPMC board of trustees and UPMC executives. 

Summary

For at least a generation, health care leaders and health policy makers have been pushing for consolidation of health care organizations in the name of efficiency.  We now have a health care system dominated by fewer, larger organizations, and whatever efficiencies have been produced mainly seem to have benefited organizational insiders.  Maybe now, though, some are beginning to remember that monopolists - starting at least with John D Rockefeller, I believe - have historically touted their ability to improve efficiency and rationality.  The results, however, have been higher prices and poorer results for everyone else. 

Hospitals and hospital systems have been particularly good at getting away with the efficiency argument despite the fact that health care prices in the US have been soaring ever since the "vertical integration" craze in the early 1990s.  I believe such organizations have been getting away with this nonsense because of their revered status within their communities.  Now, however, as huge hospital systems drive up prices and make their top executives rich, maybe we will remember Theodore Roosevelt's warnings about trusts and malefactors of great wealth.

There is no good evidence that large hospitals and even larger hospital systems take better care of patients, or provide better teaching and research.  Not only should we question whether huge hospital systems like UPMC are public charities, we should wonder how we ever let them get so big, and proceed to break up these new sorts of "trusts."

When "Human Error" Causes EHR Downtime, Who is Liable For Patient Injuries That Result?

In the Pittsburgh Post-Gazette was this story of yet another EHR "glitch":

March 9, 2013 12:17 am 

Human error the cause of UPMC electronic issue

A systemwide problem with UPMC's information systems Wednesday left electronic patient records and other data inaccessible for about three hours. A UPMC spokeswoman said the hospitals "immediately went to manual backup systems, and we quickly identified and fixed the problem." She said there was no indication that patient care was compromised by the incident, which was due to human error.

I will presume the "human error" was not a physician or nurse pressing the wrong button, but a "human error" involving the servers or IT infrastructure such as a botched system upgrade, action that caused a server room power fault, etc.

UMPC is a very large system as their webpage shows, showing approximately fifteen major facilities.

The now-expected "patient care has not been compromised" line was provided to the Gazette, a line so commonly heard after EHR outages that I  use it as a Healthcare Renewal indexing tag (see this query link).

The following questions arise:

• What, exactly, was the "human error" and why was there no fault tolerance built into these mission-critical systems to account and compensate for it, such as via redundancy?

• If paper is so bad as a record-keeping medium that hundreds of billions of dollars are being spent to replace it, then how can patient care not be compromised, especially when multiple hospitals unexpectedly and without warning have to return to its use? 

• How can a very large hospital system rapidly declare that "patient care was not compromised" without a thorough and comprehensive patient review, accounting for possible delayed negative outcomes (by way of just a few simple examples, due to medication or imaging delays?)

•  Who is liable for any adverse patient outcomes that occurred related to the sudden unavailability of past records:  the clinicians?  The "human" who committed the computer-related error?  The corporation, either for direct negligence in implementing and mandating use of a system prone to mass outage by human error, or vicariously for the negligence and/or misconduct of its information technology employees and/or agents?

•  How many "outages" will it take before some patient is outright, no-doubt-about-it harmed or killed?  Do we want to find out, or is a priority to have redundancies so these systems don't crash?

I, for one, would not want to have a family member be "crashing" at the time of a sudden, unexpected system-wide EHR outage.

-- SS