For Hospital CEOs, Retirement May Mean Never Having to Lose Your Paycheck

 Dr Herbert Pardes was once one of the best paid CEOs of a US non-profit hospital system.  A new New York Times article reported that the hospital system continued to pay him millions after his retirement. 

Introduction - the Best Paid Non-Profit Hospital System CEO in 2008

In 2009, we first discussed the compensation given to Dr Herbert Pardes, the CEO of New York - Presbyterian Healthcare System, which appeared to make him one of the best paid, if not the best paid non-profit hospital system CEO in the US.  His total compensation for 2008 was $9.8 million, according to the NY Post.  While his compensation was lower in 2007, approximately $5.1 million, 9 other executives made over $1 million, and the 10 together made over $26 million.  This amount was approximately 20% of the system's total surplus, and 1% of its total budget.

The Times reported that since then, Dr Padres continued to do very well financially,

Dr. Pardes’s compensation has consistently been among the highest of any New York hospital C.E.O. His compensation in 2011, his last year as chief executive, was $4.1 million, including base pay of $1.7 million and a bonus of $1.8 million.

Retirement Means Never Having to Lose Your Paycheck

According to the Times, after Dr Pardes retired in 2011,

The next year, Dr. Pardes earned $5.6 million, which included $1 million in base salary, a $1.8 million bonus for his final year as chief executive and more than $2 million in deferred compensation, according to hospital tax records. That exceeded the amount earned by Dr. Pardes’s successor, Dr. Steven Corwin, who made $3.6 million that year.

Three years after retirement, Dr. Pardes is still employed by the hospital as the executive vice chairman of its board of trustees, a position that compensation experts say is rare in the nonprofit world,...

So the year after Dr Pardes retired, he made as much from what most people might have thought was his former employer as he did in 2007 as CEO, when he was one of the best paid non-profit CEOs in the country, and more than he made in 2011, the year of his retirement.

Why Pay a Retired CEO Millions More?

At least one prominent US Senator interviewed by the Times suggested that Dr Pardes' remunerative (non)retirement was questionable,

 Senator Charles E. Grassley, Republican of Iowa, who has been pressing for tax-exempt hospitals to be more accountable for the salaries they pay, said on Tuesday that Dr. Pardes’s compensation was an example of how 'major nonprofit hospitals often are indistinguishable from for-profit hospitals in their operations.' The senator added: 'It’s not enough to say high compensation is necessary and leave it at that. A nonprofit hospital should show how that compensation benefits its patients.'

Of course, supposedly non-profit hospitals escape corporate income taxes, and can solicit donations which provide tax deductions to the donors.  Non-profit hospitals are supposed to be more charitable than for-profit hospitals to deserve these benefits, but it seems hard to square the compensation given to top executives at New York - Presbyterian with is nominally charitable nature.  

Furthermore, the Times article noted how Dr Pardes' new position as a highly paid leader of the board of trustees of the hospital system may have detrimental effects on the system's leadership and governance.

'To have a former C.E.O. on the board is actually a big no-no,' said Uwe Reinhardt, a Princeton University health care economist. 'It’s not considered good board manners. Inevitably they begin to meddle and micromanage.'

The Times reporter asked the chairman of the hospital system board to justify the continued payments of millions to former CEO Pardes, 

Frank A. Bennack Jr., the chairman of the hospital and former chief executive of the Hearst Corporation (and executive vice chairman of the Hearst board, in a role similar to Dr. Pardes’s), said in a statement that Dr. Pardes was 'extraordinary' and was kept on for 'urgent fund-raising activities and a range of other institutional needs with which he could assist his superb successor.'

Furthermore, the Times article suggested that Dr Pardes' pay was justified based on comparisons with other executives,

The hospital’s tax return, which is public because the organization is a nonprofit, said that in paying its executives, NewYork-Presbyterian looked at compensation patterns in nonprofit and for-profit health care systems. Michael L. Wyland, a partner in a consulting firm to health care and other nonprofits, said that was permissible, because 'the I.R.S. explicitly allows comparison with for-profit as well as nonprofit entities.'

In addition, despite his comments above, Prof Reinhardt also found justification for the amount paid someone who is apparently his friend,

But Dr. Reinhardt, who said he was friendly with Dr. Pardes, and Mr. Wyland agreed that while Dr. Pardes’s position was unusual, it might not be unjustified. They said that after 12 years as chief, he had presumably forged strong relationships with donors that the board would consider worth paying handsomely to maintain.

They said that running a hospital was as challenging as running many corporations, because doctors tended to resent authority and because the job required not only management skills but also an understanding of government reimbursements, the insurance industry and medical and malpractice issues. 

The Talking Points Again

In 2011, we noticed that justifications of sky high compensation given to health care executives (especially hospital CEOs) seemed to follow a pattern.  As we just summarized,

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.

Furthermore, we just found evidence that these really are talking points.  A former public relations executive for a major for-profit health insurance company acknowledged using almost these exact justifications as talking points to justify his company's executive compensation.  

Now we have our first example of the compensation given to a retired hospital CEO justified with these talking points:

- Competitive rates - see the comments by the consultant, Mr Wayland

- How hard it is to be an executive -  see the comments by Prof Reinhardt, especially, "the job required not only management skills but also an understanding of government reimbursements, the insurance industry and medical and malpractice issues"

- Brilliance - see how the board chairman called Dr Pardes "extraordinary"

Finally, note that the apologia for Dr Pardes' extraordinary post-retirement compensation provide no new support for the talking points.  

In particular, consider the comments by Prof Reinhardt about all the sorts of expertise required of a hospital CEO.  What he did not acknowledge was that modern hospital systems have lots of people other than the CEO to deal with these issues.  Reporting to the CEO are numerous top executives who are themselves paid very well, and their pay is presumably justified by their own expertise.  For example, in 2011, in addition to Dr Pardes, New York - Presbyterian not only had a CEO, Dr Steven J Corwin, whose total compensation was over $3.5 million, but also 13 other executives who each received compensation over $1 million, and another 14 with compensation greater than $500,000  (see the system's 2012 990 form).  In turn, each of those must have had numerous senior managers reporting to them.  So why should Dr Pardes have to be an expert in, for example, "malpractice issues" when he had "Kathleen M Burke Esq, VP Board Ret, Secr & Counsel," with total compensation of $346,153, and "Maxine Frank Esq, exec SVP, CLO & Gen Counsel," with total compensation of $1,639,739 to advise him? 

Instead, the real reasons for ballooning executive compensation in health care appear to be cronyism on the boards of trustees who are supposed to be exercising stewardship over the hospital and supervision over the executives; the ratcheting up of compensation due to comparison with other executives, as opposed to other kinds of employees, when all boards want to think their executives are above average; and the dogma that CEOs must be "great men," or even have some divine endorsement. (See this post.)

Summary

The compensation given top executives of health care organizations gets ever more floridly exaggerated.  More and more this compensation seems to denote how these organizations have been taken over by insiders who make it a priority to benefit themselves.  Prof Reinhardt, who is himself on the board of directors of Boston Scientific (look here), suggested that such compensation should not be a worry because it "would not affect the bottom line," and that those who protest it are suffering from "social envy."  However, as we noted, current trends in executive compensation in health care could cause declining morale of other employees, increasing isolation of top executives, poor organizational performance, income equality and a declining economy, and ultimately social unrest.     

Although the transition of executives into a new aristocracy is a society wide, if not a global problem, we in health care cannot be complacent that someone else will solve it.  True health care reform would enable accountable leadership that puts the health care mission and patients' and the public's health ahead of personal gain.   

 

American Board of Internal Medicine Quietly Discloses Some Conflicts of Interest

We recently discussed the American Board of Internal Medicine's exceedingly weak conflict of interest policy.  This came to light after the board's previous president was revealed to have simultaneously served for years on the board of directors of a privately held for-profit hospital purchasing organization.

The susceptibility of ABIM leadership to conflicts of interest is particularly important because the board, in its role as the de facto sole source of credentialing for all US internists and internal medicine sub-specialists, sets what these physicians need to know to pass the certifying examinations. Conflicts of interest raise doubts about whether the examinations may be used to further commercial agendas and similar vested interests.

Furthermore, the ABIM has been willfully expanding its scope into "maintenance of certification," that is, into requiring physicians to engage in ABIM educational and evaluation activities to maintain their previously obtained certification.  They have been criticized in particular (e.g., here and here) for pursuing maintenance of certification in the absence of clear evidence that it improves physician performance or patients' outcomes.  Conflicts of interest affecting MOC raise further doubts that this "innovation" may also be about furthering commercial interests.

ABIM Begins Conflict of Interest Disclosure

Now it appears that the ABIM is beginning to disclose more about its leadership's conflicts of interest.  One of our scouts notified me that the ABIM web-site now provides disclosures for the members of its board of directors and officer, council, and executives.

There seem to be limits to these disclosures.  As far as I can tell,They do not reflect a change in the preexisting ABIM conflict of interest policy, which still calls for conflicts to be disclosed, but only to ABIM leadership, while they are otherwise kept confidential.  Nor were these disclosures accompanied by any further explanation that I can find.  The disclosures include multiple categories, consulting relationships, peer educational activities, promotional activities, grants, intellectual property, stock/option, gift/ donations, expert witness, leadership in professional organizations, and other, which are not otherwise defined.  It was not clear, however, whether the disclosures covered services on corporate advisory boards or boards of directors, or service as executives or founders of companies.  The time course of the disclosed relationships were not clear.  Finally, ttere are no disclosures about members of exam writing committees of sub-specialty board members

Nonetheless, the disclosures do give an idea of the scope of conflicts of interest affecting ABIM leadership.  Because the disclosures have not otherwise been publicized, I thought it would be worthwhile to summarize them here.

Prevalence of Conflicts

Of the 12 officers and directors, 8 disclosed relationships with for-profit health care corporations

Of the 15 council members (one of whom is also a director), 9 revealed conflicts.

Of the 12 executives, 5 revealed conflicts.

Thus, a majority of ABIM physician leadership, and nearly a majority of  ABIM executives disclosed conflicts of interest.

Nature of Conflicts

The conflicts were predominantly consulting relationships, grants, holdings of patents, or of stocks or options.  The conflicts of the officers, directors and council members primarily involved pharmaceutical, biotechnology and device companies.  Several officers, directors and council members had two kinds of relationships with the same company, for example, consulting relationships and grant funding.




It was striking that 15 companies had multiple relationships with officers, directors and council members.  All were large pharmaceutical, biotechnology, and device companies.  They were

AbbVie (1 consulting relationship 2 grants)
Amgen (1 consulting, 1 grant, 2 stock holdings)
AstraZeneca (3 consulting, 1 grant)
Bristol-Myers-Squibb (2 consutling, 2 grants, 1 stocks)
Celgene (2 consulting, 1 grant)
Gilead (1 consulting, 2 grants, 1 stocks)
Johnson and Johnson (1 consulting, 2 grants [one through Janssen], 2 stocks)
Eli Lilly (1 consulting, 1 grant)
Medtronic (2 consulting, 1 grant)
Merck (2 consulting, 2 stocks)
Novartis (2 grants, 1 stocks)
Pfizer (1 consulting, 1 grant, 2 stocks)
Roche (1 consulting, 2 stocks)
Teva (1 consulting, 1 stocks)
Millennium (1 consulting, 1 grant)

The officers, directors, and council members additionally had relationships with a vast number of companies, including in attempted alphabetical order: Abbott Laboratories, Agios, Allos, AllScripts, Arrowhead, Biocontrol Medical, Cephalon, Cephied, CorAssist, Cornovus, CVRx, Covidien, Dr Redy's Labs, Emergent Biosolutions, Express Scripts, Genentech, Gen-Probe, Hologic, Human Genome Sciences, Incyte,  ION(?), miRNA Therapeutics, Peluton Therapeutics, Pharmacyclics, Regeneron, Repros Therapeutics, Research to Practice (owned by AmerisourceBergen) Prime Healthcare, Rigel, Seattle Genetics, Sunesis, TG Therapeutics, UnitedHealthcare, Value Capture, Viamet, Ventrigen, Vertex, XCenda,  and ZS Pharma.

Thus, the conflicts of interest were extensive, and involved major health care corporations.

Summary

The American Board of Internal Medicine is to be congratulated for taking steps towards more transparency and honesty about conflicts of interest affecting its leadership.  However, the steps were baby steps.  Lacking still are definitions and time courses of the relationships disclosed, assurances of the completeness of disclosure of all relevant relationships, assurances that disclosure is now the policy going forward, and disclosures for members of committees and sub-specialty boards who are also very influential in constructing examinations and maintenance of certification activities.  These ought to be addressed.

The disclosures reveal that the conflicts of ABIM leadership were extensive.  While disclosure is good, disclosure does not assure physicians and the public that certification and now maintenance of certification are not influenced by marketing needs and other commercial interests.  In my humble opinion, the ABIM now ought to phase out, as quickly as possible conflicts of interest affecting those who make its policy, write its exams, and conduct its other activities that can influence physician behavior, decisions made for patients, and health policy.  Also, in my humble opinion, the ABIM ought to suspend its efforts to promote maintenance of certification until it has greatly reduced the conflicts of interest that may affect this effort.

Finally, An Article in a Large Circulation Medical Journal with Systematic Data about Leaders of Academic Medicine Conflicted by their Service on Health Care Corporate Boards

Background - a New Species of Conflict of Interest

Since 2006, we have posted repeatedly about  what was then a new species of severe conflicts of interest.  This occurs when leaders of academic medical institutions or other health care non-profit organizations or non-governmental organizations (NGOs) also serve as members of boards of directors of for-profit corporations  whose products and actions have major effects on health care.

Most recently, we discussed the cases of the current CEO of the National Quality Forum and past CEO of the American Board of Internal Medicine who was found to be on the board of for-profit hospital group purchasing organization Premier Inc, and had been on the board of its privately held but for-profit predecessors.  We then discussed the case of the incoming president of the US Institute of Medicine and former Chancellor of Health Affairs at Duke University who was on the boards of Alnylam Pharmaceuticals, Medtronic and Pepsico.  We next discussed the case of the current Dean of medicine at the University of Illinois who is on the board of Novartis. 

We also recently posted about the first time these sorts of severe conflicts of interest issue have been addressed in a large circulation medical journal.  A commentary in JAMA called for many such conflicts to be banned.

A Small Study of the Prevalence of a New Species of Conflict of Interest

Now JAMA has just published a research letter which examined the prevalence of board members of large, for-profit, publicly held pharmaceutical companies who also were among the leadership of academic medical centers. [Anderson TS, Dave S, Good CB et al. Academic medical center leadership on pharmaceutical company boards of directors.  JAMA 2014; 311: 1353-5.  Link here.]

The authors looked at public data about 2012 board membership of the 47 biggest publicly held companies based on global prescription drug sales. They tabulated those who were also leaders at (apparently only US) academic medical centers. 

The most important findings were:
- 19/47 companies (40%) had at least one board member who was a leader of an academic medical center (AMC)
- 16/17 US based companies had at least one board member who was also a leader of a US AMC
-  pharmaceutical company board members included 2 university presidents, 6 deans of medicine, 6 hospital or health system executives, 7 clinical department chairs or center directors
-  28 board members were also members of boards of trustees or directors of US hospitals, medical schools, or their parent universities.

Comments

We have been trying to raise awareness of this issue since 2006.  Now we have some idea of the size of the problem.

Keep in mind that this study did not attempt to determine the prevalence of academic medical center leaders on boards of smaller pharmaceutical companies, privately held companies, biotechnology or device companies, or other health care and health care related companies (e.g., for-profit hospital systems, health insurance companies, for-profit contract research organizations, for-profit medical education and communication companies, large companies with major health care components, etc, etc, etc)  It also did not attempt to determine the prevalence of leaders of other important health care non-profit organizations (e.g., hospitals and hospital systems, insurance companies, professional societies, patient advocacy groups, accrediting boards, etc, etc, etc) on health care or related corporate boards.  It also did not address leaders of health care organizations outside of the US.  So this study likely greatly underestimates the overall prevalence of and the number of people involved in what we first called a "new species of conflict of interest."

But it is a start.  And publishing it in JAMA will begin to make more health care professionals, policy makers, and researchers, and more of the public at large aware of the problem.

As I said before, it is very nice to see that the issue of what we once called a new species of conflict of interest finally has made the big time.  Whether it now gets any more traction remains to be seen.  Unfortunately, since conflicts of interest can be so profitable for the directly affected parties, I fully expect they will continue to oppose any restrictions.  The money they have made will likely be used to deploy marketing and public relations personnel and legal counsel to counter any attempts to try to make this aspect of health care more honest.

As we have said again and again, the web of conflicts of interest that is pervasive in medicine and health care is now threatening to strangle medicine and health care.  Furthermore, this web is now strong enough to have effectively transformed US health care into an oligarchy or plutocracy.  Health care is effectively run by a relatively small group of people, mainly professional managers plus a few (lapsed?) health care professionals, who simultaneously run or influence multiple corporations and organizations.

For patients and the public to trust health care professionals and health care organizations, they need to know that these individuals and organizations are putting patients' and the public's health ahead of private gain. Health care professionals who care for patients, those who teach about medicine and health care, clinical researchers, and those who make medical and health care policy should do so free from conflicts of interest that might inhibit their abilities to put patients and the public's health first.

Health care professionals ought to make it their highest priority to ensure that the organizations for which they work, or with which they interact also put patients' and the public's health ahead of private gain, especially the private gain of the organizations' leaders and their cronies.

ADDENDUM (3 April, 2014) - see also comments by Paul Levy on the Not Running a Hospital blog, on the 1BoringOldMan blog, and by Ed Silverman (welcome back!) on the WSJ Corporate Intelligence blog. 

Better Late than Never - JAMA Article Advocates Banning Academic Medical Leaders from Serving on Many Health Care Corporate Boards

Will wonders never cease? Eight years after we started posting about this issue, it has made it into a large circulation medical journal, albeit not completely

A JAMA Commentary Decries Leaders of Academic Medical Centers Serving on Boards of Organizations with Conflicting Priorities

A recent JAMA commentary(1) noted the importance of conflicts of interest affecting top leaders of academic medicine,

Conflict of interest is particularly relevant for those in the upper echelons of academic health system leadership—presidents, vice presidents, provosts, deans, chief executive officers, and the senior administrators who report to them.

(The article oddly omitted discussing conflicts of interest affecting the boards of trustees of such institutions, who are charged with their stewardship.)

Anyway, the authors' rationale was that,

Unlike most faculty and staff, senior institutional officials are involved in financial and business decisions, including purchasing, resource allocation, and development of corporate partnerships, and have fiduciary responsibility to the entire institution. In addition, it is critical that the public, students, employees, and faculty maintain confidence in the integrity of institutional leaders. Leaders have a responsibility to set an example for others in their institution, especially for those training to be health care professionals.

Independence and integrity of judgment are core precepts of professionalism. Every employee, faculty member, and student in an academic health system should feel confident that their leaders are making decisions based on the best interests of the institution and not driven by biases secondary to financial connections to outside corporate entities.

So,

Having a fiduciary responsibility to 2 separate entities is at best a very difficult situation. Will the leader direct business inappropriately to the outside company on whose board he or she sits? Will the leader inappropriately use information about the institution he or she leads to influence decisions by the outside corporation? It is difficult to separate these types of activities and decisions. In addition, there are administrative costs associated with the management of this level of conflict, and such relationships might have a 'chilling effect' on other companies that could do business with the academic health system. Beyond service on fiduciary boards, undertaking any paid role (consulting, participation on advisory boards, etc) with an outside entity with interests that overlap those of the leader’s institution raises the same issues.

The authors stressed that the most intense conflicts are generated by service on the boards of directors of "organizations with interests that overlap those of the academic health system."  Presumably they would have included among such organizations health care corporations that sell goods or services that might be used within academic medical centers, and/or be the subject of teaching or research by faculty at these centers, although the article did not make that explicit.

The authors suggested such conflicts are not infrequent, noting a survey by Campbell et al of department chairs in academic medical institutions that showed a majority had some sort of relationships with industry, although they did not specify what these relationships were.  In fact, the Campbell article did report that 11% of department chairs admitted to being on the board of directors of companies that had activities that related to the chairs' academic or administrative responsibilities.(2)

Finally, the authors called for banning most such conflicts

the fiduciary responsibilities of presidents, provosts, vice presidents, deans, chief executive officers, and those who report to them should preclude a paid relationship with an outside entity in related and relevant areas,... 

Note however that they did offer some loopholes.

unless a case can be made that there is a compelling institutional interest in the leader’s service in such a role, or if the role with the outside organization is outside the scope of the leader’s role at the academic health system.

Despite the omissions and loopholes, this is a very significant article.  It is the first challenge to such severe conflicts of interest affecting academic medicine to appear as an article in a major medical journal, at least to my knowledge. 

You Heard It Here First

However, on Health Care Renewal we have been attempting to challenge such conflicts for at least eight years. In 2006 we first discussed a newly discovered species of conflict of interest in health care, in which leaders of medical or health care organizations were simultaneously serving on boards of directors of health care corporations.

We posited these conflicts would be particularly important because being on the board of directors entails not just a financial incentive.  It ostensibly requires board members to "demonstrate unyielding loyalty to the company's shareholders" [Per Monks RAG, Minow N. Corporate Governance, 3rd edition. Malden, MA: Blackwell Publishing, 2004. P.200.]  Of course, after the global financial collapse of 2008 made us sadder and a little wiser, we realized that many board members actually seem to have unyielding loyalty to their cronies among top management.  However, in any case, the stated or actual interests of a member of the board of a health care corporation, like a pharmaceutical company or medical device company, could be very different and at odds with the mission of an academic medical institution or a non-profit ostensibly dedicated to improving health care quality.

Vivid Cases Would Strengthen the Argument

It is odd that the JAMA article included very little evidence about the occurrence of such conflicts of interest.  It really is not hard to find.  Since 2006, we have discussed numerous cases of such conflicts of interest.

The case that first attracted our attention was that of Marye Anne Fox, the then Chancellor of the University of California - San Diego, a major campus of the state university that includes a medical school.  January, 2006 media reports noted that Chancellor Fox was simultaneously servingon 10 corporate boards, including those of two health care corporations, Boston Scientific, a medical device company, and Pharmaceutical Product Development Inc (PPDI), a for-profit contract research organization.  At the time, I wrote,

having ultimate leadership responsibilities for a medical school and medical center, while also having ultimate fiduciary responsibilities for the management of a medical device company and a contract medical research company amounts to the biggest conflicts of interest I have ever seen.   

Nonetheless, beyond local media, the case got little attention at the time.  What attention it did get focused on the magnitude of Chancellor Fox's commitments to outside organizations, not the conflicts they apparently caused (look here).  Chancellor Fox apparently retired from the PPDI board in 2008 (look here) but did not retire from the Boston Scientific Board until 2011 (look here). 

Since then, we found many more striking cases.
-  A month later, there was the case of the president of the University of Miami, a board member of for-profit health insurance company UnitedHealth, whose lowest paid employees were on strike to protest their lack of health insurance, among other issues.
-  It turned out the UnitedHealth board in particular seemed to be a refuge for multiple academic leaders, at least one of whom seemed partly responsible for allowing the then UnitedHealth CEO to collect many backdated stock options (look here)..
-  Then there was the 2008 case of the conflict of interest involving an anti-health company.  After Virginia Commonwealth University was criticized for taking money from giant tobacco company Philip Morris for medical research, it turned out that the then president of the university, Eugene Trani, was on the board of another tobacco company, Universal Corp (see post here).
-  Then, in 2009, some attributed the problems at George Washington University's medical school that caused it to be put on probation to the conflict of interest of its provost and vice president for health affairs, John F Williams, who also sat on the board of Universal Health Services, which owned the university hospital (look here).
 We posted about a number of other colorful cases since then (look here)


Although this evidence is admittedly case based and therefore anecdotal, it could be used to highlight the importance of the problem and develop support for its solution.

A Welcome Addition to Previous Recommendations about Countering Conflicts of Interest

For whatever reason, this issue somehow seemed to escape the attention of many of those who have written about conflicts of interest in health care.  Even those who advocated taking a harder line on conflicts of interest have generally avoided this issue.

Brennan et al made recommendations about reducing conflicts of interest in 2006, but focused on students and faculty, not top leaders and executives (see post here).(3)  The 2009 Institute of Medicine report set relatively tough standards for managing conflicts of interest affecting clinical research and teaching, which unfortunately since have largely been ignored.  It did call for senior institutional officials to disclose their conflicts of interest, and for institutional boards of trustees to form conflicts of interest committees that would exclude conflicted individuals, but otherwise did not address conflicts of interest affecting academic leaders or institutional trustees.  The 2013 Pew Charitable Trusts Conflicts-of-Interest Policies for Academic Medical Centers suggested restrictions on conflicts affecting faculty, trainees, and students, but again did not mention senior institutional leaders or boards of trustees.

Conclusion

So it is very nice to see that the issue of what we once called a new species of conflict of interest finally has made the big time.  Whether it now gets any traction remains to be seen.  Unfortunately, since conflicts of interest can be so profitable for the directly affected parties, I fully expect they will continue to oppose any restrictions.  The money they have made will likely be used to deploy marketing and public relations personnel and legal counsel to counter any attempts to try to make this aspect of health care more honest.

As we have said again and again, the web of conflicts of interest that is pervasive in medicine and health care is now threatening to strangle medicine and health care.  For patients and the public to trust health care professionals and health care organizations, they need to know that these individuals and organizations are putting patients' and the public's health ahead of private gain. Health care professionals who care for patients, those who teach about medicine and health care, clinical researchers, and those who make medical and health care policy should do so free from conflicts of interest that might inhibit their abilities to put patients and the public's health first. 


References

1. Pisano ED, Golden RN,Schweitzer L. Conflict of interest policies for academic health system leaders who work with outside corporations.  JAMA 2014;311(11):1111-1112. doi:10.1001/jama.2014.788  Link here.

2.  Campbell EG, Weissman JS, Ehringhaus S et al.  Institutional academic-industry relationships.  JAMA 2007;298(15):1779-1786. doi:10.1001/jama.298.15.1779.  Link here.
3,  Brennan TA, Rothman DJ, Blank L et al.  Health industry practices that create conflicts of interest.  a policy proposal for academic medical centers.  JAMA  2006;295(4):429-433. doi:10.1001/jama.295.4.429  Link here.

NYU Faculty Vote No Confidence in their President

Faculty at large American universities, in which most of the country's medical schools and teaching hospitals are embedded, are becoming increasingly concerned about the leadership and governance of their organizations, and whether the universities are putting their academic (and clinical) missions ahead of other concerns, like making money and rewarding top executives.

In January, 2013, we discussed a an informal, anonymous vote faculty at the University of Miami medical school expressing no confidence in their dean and his chief lieutenant.

The NYU No Confidence Vote

The faculty of a major component of another big US university have just openly voted no confidence in their president, and are raising questions about their board of trustees.  The setting was New York University.  Some background comes from a New York Times article this month:

 Embarking on an ambitious expansion at home, constructing a network of new campuses around the globe, wooing intellectual superstars and raising vast amounts of money, John Sexton of New York University is the very model of a modern university president — the leader of a large corporation, pushing for growth on every front.
 

To some within N.Y.U., Dr. Sexton is a hero who has transformed the university. The trustees have thanked him by elevating his salary to nearly $1.5 million from $773,000 and guaranteeing him retirement benefits of $800,000 a year.

But to others, he is an autocrat who treats all but a few anointed professors as hired help, ignoring their concerns, informing them of policies after the fact and otherwise running roughshod over American academic tradition, in which faculty members are partners in charting a university’s course.

'He has a very evangelical sense of purpose,' said Andrew Ross, a professor of social and cultural analysis, 'that does not extend beyond the concept that the university should be an entity of his own making.' 

'I think,' he added, 'when other administrations see that they say, Well that’s what leadership should be. And when faculty see that they say, That is not what university leadership should be. It’s the style of a maverick C.E.O.'

The debate over Dr. Sexton’s presidency will come to a head this week. The faculty of the university’s largest school, Arts and Science, has scheduled a five-day vote of no confidence. Given Dr. Sexton’s international stature, the vote may serve as the most important referendum yet on the direction of American higher education. 

President Sexton lost the no-confidence vote, as noted in another NY Times article a week later:

The vote, 298 to 224 (with 47 abstaining), took place via electronic balloting from Monday through Friday. Full-time tenured and tenure-track professors were asked to respond to the statement: 'The faculty of Arts and Science has no confidence in John Sexton’s leadership.' Voter participation was 83 percent.

Top Executives Usurp Power from Faculty

An op-ed in the NY Times by a leading dissenting faculty member further explained the issues.  He charged that the President ignored faculty concerns about an ambitious plan to expand the physical plant of the university:

How did Dr. Sexton lose the confidence of so many faculty members? By ignoring us. Of course, many professors everywhere feel overlooked by today’s generation of jet-setting university presidents. But we have very specific complaints: above all, Dr. Sexton has consistently refused to address concerns about plans to expand N.Y.U. offices and dorms into the part of Greenwich Village south of Manhattan’s Washington Square Park, where many of us live. 

This expansion plan is known as N.Y.U. 2031, indicating the year in which all the building will be complete. The very name told us that we’d be living on a construction site for a couple of decades.

Not surprisingly, this did not go over very well with many faculty members. We were also concerned about where the money would come from to pay for this expansion, as no business plan for the project has been made public.

Thirty-nine departments and schools passed resolutions last year against the 2031 plan. These resolutions were typically passed unanimously or nearly unanimously. And yet Dr. Sexton’s response was a deafening silence.

Academic Values, Particularly Academic Freedom and Free Speech Ignored

Furthermore, the faculty were concerned about plans to expand the university overseas to nations not known for their vigorous support of academic freedom and free speech:

 Many of us are also concerned with Dr. Sexton’s plans to expand N.Y.U. overseas, including branch campuses in Abu Dhabi and Shanghai, with inadequate faculty involvement or oversight. It is doubtful that faculty members would have chosen to build campuses in countries where academic freedom, and free speech generally, are so parlous. 

Executives Enriching Themselves at University Expense

Finally, the faculty were concerned about top university executives immodestly enriching themselves from the coffers of a non-profit university:

As the faculty vote approached, more trouble arose for Dr. Sexton in the form of news reports about lavish compensation for NY administrators.  The central but by no means sole figure in this scandal is Jacob J Lew, the Obama administration’s new Treasury secretary, who worked at N.Y.U. in the early 2000s for a salary that eventually reached $900,000, larger even than Dr. Sexton’s at the time. 

Mr. Lew received loans to buy a nice home, which apparently were largely forgiven. He also received a severance of some $700,000 when he left for a well-paid position at Citigroup. Severance? For someone who leaves voluntarily?

 Dr. Sexton himself is to receive a salary of more than $1.4 million this year, and a 'length of service' bonus of $2.5 million in 2015. (Full disclosure: the university gave me a set of mugs when I completed 25 years of teaching.) And he will receive $800,000 a year after he retires. 

Other top administrators make similarly extravagant salaries. Some experts believe there may even be something illegal in the way Dr. Sexton has rewarded them; N.Y.U.’s chapter of the American Association of University Professors has asked New York States’s attorney general to investigate. 

All of which raises a question for many N.Y.U. faculty members: Should administrators be able to enrich themselves like this at educational institutions? N.Y.U. is not a Wall Street firm, but a tax-exempt university that gets millions in taxpayer dollars, not least from student loans. In fact, our students have the highest total debt load of any university in the country. Rather than expanding, or paying huge salaries to top administrators, why doesn’t N.Y.U. do more to help its alumni pay off their debts?

Forsaking the Academic Mission

An article in Inside Higher Education underlined how the dispute is really about the mission of the university in this brave new corporate era:

As Rebecca Karl, an associate professor of East Asian studies and history recently told Inside Higher Ed, 'We’ve become very critical of the whole idea of ‘expand or die,’ which of course is a corporate maxim, but we don’t understand why it needs to become our maxim.'

Also,

 Mark Crispin Miller, a professor of media, culture and communication in NYU's Steinhardt School of Culture, Education and Human Development, who has been an outspoken critic of the Greenwich Village plan [said]. 'The fact is we see NYU as a school, we see our mission as educational. Sexton and the trustees who support him view NYU as a bundle of assets whole value they will apparently do anything to maximize on paper. We believe that this approach is destroying this university.'

By the way, maybe in retrospect the trustees' role should not be so surprising.  Back in 2011 we posted about a group of extremely rich corporate and finance leaders who attacked critics of their growing power as "imbeciles," among other terms.  Several of the individuals featured in the news article which inspired this post were trustees of New York University.  These included   Kenneth Langone and John Paulson.  A quick look at the list of current trustees shows that it includes  many top leaders of finance firms, including firms whose actions were alleged to have helped cause the great recession/ global financial collapse or have been subsequently accused of other financial shenanigans, e.g., Steven S Miller, a Vice President of JP Morgan Chase, and Maurice Greenberg (a life trustee), former leader of AIG, E John Rosenwald Jr (a life trustee), Vice Chairman Emeritus of JP Morgan Chase, and William R Salomon (a life trustee), honorary chairman of Citigroup.

Summary

In summary, the issues that inspired the no-confidence vote against the President of New York University appeared to be allegations that university:
-  administration usurped power, particularly from the faculty
-  administration used this power to put corporate priorities, like expansion for its own sake, and increasing short-term revenue ahead of the academic mission
-  administration took advantage of their power to enrich themselves
-  trustees, who are supposed to exert stewardship that ensures the university upholds its mission, instead aided and abetted all this

All of these should be very familiar issues to Health Care Renewal readers.  We have discussed the rise of generic managers of health care organizations, trained supposedly in general management skills, but not in health care, and indifferent at best to the values of health care professionals.  At times their power has gotten so great as to constitute a manager's coup d'etat.   We have discussed how managers of health care organizations often put short-term revenue ahead of all other concerns, sometimes called financialization.  In doing so, they may end up perpetrating mission hostile- management.  We have discussed how managers are able to command often outrageous levels of  executive compensation.   Boards of trustees, who are supposed to exert stewardship over the organization, and see that its leadership upholds its values, often come from management backgrounds themselves, and are at best clueless about, if not hostile to the mission. 

It is time for university faculty to defend their institutions' mission.  Students, alumni, and patients at academic medical centers, medical school clinics, and of academic health professionals ought to be equally fervent in support of the academic and academic health care missions.  Academic medicine needs to be lead and stewarded by people who understand that mission, value it, uphold it, and are accountable for that.  These leaders and stewards should eschew management fads, cronyism, and excess personal enrichment.

Maybe the vote of no confidence at NYU is a small step on the path back to the academic and academic medical missions.  But do not expect those who are enriching themselves in the current system to go quietly.

ADDENDUM - see also this post by Prof Margaret Soltan on the University Diary blog.

More Hospices Pretending Patients are Terminally Ill

In the US, we have been engaged in an experiment involving handing over an ever increasing proportion of direct patient care to for-profit corporations, and non-profit organizations that act increasingly like for-profit corporations (as opposed to mission oriented non-profit organizations or individual health care professionals).  The results have been particularly striking for the care of one of the most vulnerable patient groups, the chronically ill. 

Over the last months, a number of stories about the hospices enrolling patients who are not terminally ill have accumulated.  Keep in mind that hospices are supposed to provide compassionate palliative care to the terminally ill.  While they are supposed to make such patients as comfortable and free of pain as is possible, they are not supposed to otherwise aggressively treat other medical problems (based on the assumption that such treatment would benefit dying patients.)  However, such treatments could benefit, or even save the life of patients who are not dying.  (See posts here and here.)

Hospice of the Bluegrass

Back in March, there was very brief report on Kentucky.com that the non-profit Hospice of the Bluegrass "agreed to pay the federal government $685,000 for submitting claims to Medicare to receive reimbursements for services it provided patients who did not qualify for Medicare services,..."  Note that the main requirement for Medicare payments for hospice services is that the patients receiving these services have no more than six months of survival expected.

However, then in June a detailed investigative report also on Kentucky.com recounted numerous conflicts of interest affecting that hospice's board,

The non-profit Hospice of the Bluegrass has spent more than $1.82 million since 2005 on business deals with several of its board members and the spouses of its executives.

In particular,

On its tax returns from 2005 to 2010, Hospice reported paying at least:

■ $540,178 for political lobbying and legal representation to the law firm of McBrayer, McGinnis, Leslie & Kirkland. One of the firm's partners and co-owners, Lisa English Hinkle, was a Hospice board member and a former board chairwoman. Hinkle rotated off the board at the end of 2011. She was preceded on the board by another partner in the firm, James Frazier.

■ $837,999 for insurance to the firm of Powell-Walton-Milward, whose managing director, John Milward, is a Hospice board member. His brother Greg Milward, who also works at the insurance firm, previously was on the Hospice board and was board chairman in 2007.

■ $392,042 for printing to Pat Byrne Printing, owned by the husband of Deede Byrne, Hospice's chief clinical officer.

■ $22,506 for heating and air conditioning to Gary Merckle, husband of Carol Ruggles, Hospice's chief financial officer.

■ $28,577 for advertising to the Lexington Herald-Leader while then-editor Marilyn Thompson sat on the board.

The article also noted that the hospice CEO seems very well-paid given the context,

CEO Gretchen Marcum Brown, whose 2010 compensation was $238,650 in base pay, $10,570 in bonus pay and $84,978 in other reportable compensation. The other compensation included Hospice's payment into Brown's deferred-compensation account, from which she can draw in the future.

Hospice also paid for a membership in Brown's name at The Club at Spindletop Hall, which offers swimming, tennis and dining.

Such a pay package may provide incentives to maximize revenue by maximizing enrollment, regardless of whether enrolled patients really should be in hospice.
Hospice Family Care

As reported by the Phoenix Business Journal in May,

Hospice Family Care Inc. has agreed to pay the federal government $3.7 million to settle civil allegations that the Mesa-based company violated the False Claims Act by submitting false bills to Medicare.

Also,

The U.S. Attorney’s Office had alleged that Hospice Family Care submitted claims for payment to Medicare for patients who were either completely or partially ineligible for hospice,...

So this settlement is partly for charges that the hospice enrolled patients who were not terminally ill.

Note that in this particular case, the government made an effort to punish the owners of the company, who found a way to evade such punishment:

However, on the day the U.S. Attorney’s Office announced that settlement, Hospice Family Care’s owners closed on a deal to sell the company.

So,

Neither the company’s attorney, Frederick Petti, nor government officials would disclose the name of the buyer.

“Unfortunately, I can’t provide that information because it’s not in the public domain,” said Assistant U.S. Attorney Bill Solomon.

The company’s co-owners, Nancy Smith and Nancy Turner, deferred all comments to Petti.

'Believe me, if my clients weren’t in the process of selling this company, we would have fought this to the bitter end,' Petti said. 'We would have prevailed. This is a business decision.'

He emphasized that the settlement agreement was not an admission of guilt.

Smith and Turner agreed to be excluded from Medicare and Medicaid and all other federal health care programs for seven years, effective immediately. However, Petti said the company’s new owners will not be affected by that settlement agreement and will be free to accept reimbursement from government payers.

Such maneuvers obviously reduce any deterrent effect of settlements like this on bad behavior, and particularly on the behavior of enrolling patients who are not terminally ill in hospice.
Harden Healthcare

Then in June the Wichita (Kansas) Eagle reported,

A Kansas hospice care provider and its Texas-based parent company will pay $6.1 million to resolve allegations that they submitted false claims to the federal Medicare program. The case arose from a whistleblower lawsuit filed by a nurse more than six years ago, the U.S. Justice Department said Thursday.

Justice officials said in a news release that they hope the settlement with Wichita-based Hospice Care of Kansas LLC and Fort Worth-based Voyager HospiceCare Inc. will serve as a warning to other hospice providers.

Prosecutors alleged the companies submitted false claims to the federal health care program for the elderly and disabled between 2004 and 2008 for patients who weren’t expected to die in less than six months, a requirement for the benefits in question.

Note that this report makes very explicit the allegation that the hospice was enrolling patients who were not terminally ill. Further note that while the beginning of the report makes it appear that the company that owns the hospice is regional, it actually is larger

The agreement includes no admission or determination of wrongdoing, Harden Healthcare, the owner of Voyager HospiceCare and Hospice of Kansas, said in a statement.

Harden Healthcare, according to the Austin (Texas) Business Journal, is the largest private employer in that city, with over 3800 employees and revenues of over $810 million.

Hospice of the Comforter

The Orlando Sentinel reported in late August,

The federal government is taking over a whistleblower lawsuit against the Altamonte Springs-based Hospice of the Comforter — a suit that alleges the nonprofit routinely over-billed Medicare for patients who didn't qualify as terminally ill, sometimes keeping them in hospice care for as long as five years.

These are allegations of course, but it turns out that both sides of the action agree on certain facts of interest,

Both sides agree that Hospice of the Comforter officials discharged a large number of Medicare patients after the federal government began scrutinizing the ballooning number of hospice patients nationwide.

In fact, Stone said, the initial sampling by government auditors showed Hospice of the Comforter had an error rate of 18 percent, just slightly over the 15-percent rate the government allowed and therefore triggering a second, more intense review.

That phase, in January 2010, revealed a troubling 77 percent denial rate, Stone said — meaning that Medicare officials believed the hospice was improperly billing the government in 77 percent of the cases it reviewed. According to the government, hospice care should be limited to patients certified by a hospice physician as having six months or less to live.

Meanwhile, though, an internal hospice committee did its own review of patients, discharging more than 133 of them and noting they were, 'no longer terminally ill,' the lawsuit states. Some had been designated 'FOB' for 'Friends of Bob [Wilson, the CEO of the hopsice],' and Wilson later insisted some be readmitted and their care billed to Medicare, the lawsuit says.

Let me just note that for someone truly terminally ill, the way to become no longer terminally ill is to die.

A column in the Orlando Sentinel suggested that the hospice CEO had a strong personal incentive to enroll patients who were not terminally ill,

there are facts not in dispute — such as Wilson's financial incentive to keep his patient counts high: bonuses of $50,000 every three months on top of his base salary of $120,000.

Again, maintaining lucrative compensation could be an inducement for hospice executives to sanction enrollment of patients who were not really terminally ill.
Summary

Hospices arose to provide compassionate care for among the most vulnerable of patients, the terminally ill.  Hospices began as mission oriented non-profit organizations, often affiliated with hospitals or religious groups.  However, the generous payments for hospice care provided by Medicare and commercial insurance, and the increasingly laissez faire supposedly "market-based" health care context lead to the growth of for-profit hospices, and the emulation of their management by ostensibly non-profit organizations.  In the Orlando Sentinel, Scott Maxwell used the example of the Hospice of the Comforter to assert

you've been duped when it comes to waste, fraud and abuse in America's health-care system.

Politicians love to rant about it. They often do so when explaining why they're about to cut your benefits.

They're right that fraud happens. But the individual scammers they portray as the problem are nothing compared to the systemic white-collar fraud perpetrated by corporations — and, yes, faith-based nonprofits.

This is America's dirty little health-care secret.

We all know health-care costs are soaring. But we have done little to address the organized fleecing — often because the fleecers are either campaign donors or nonprofits wrapped in a cloak of altruism.

In this country, you can go to prison for stealing a TV. But if companies get caught stealing millions from taxpayers, the fines are simply viewed as the cost of doing business.

We have made similar assertions about systemic misbehavior in the US health care system, and how failure of local through national government to impose any penalties on the individuals who authorize, direct or implement bad behavior just allow the problem to get worse. However, the consequences of increasing hospice enrollment (hence short-term revenue, and hence the compensation of top hospice executives) by enrolling patients who are not terminally ill go well beyond just increasing health care costs. As we have said before, enrolling patients into hospice who are not already really doomed to die soon denies them the possibility of treatment for new acute illnesses and worsening of chronic illnesses, which then could hasten their deaths. (Pretending those patients were terminally ill could have fooled their relatives into thinking those deaths were inevitable, instead of results of bad practice and potentially fraud.)

So the pattern of fraud now increasingly documented to be taking place in for-profit and even non-profit hospices is particularly reprehensible. It preys on vulnerable patients, and may cost some patients their lives who otherwise might have lived for a long time. This is a prime example of what goes wrong when our main health care policy seems to be based on letting the good times roll.

I hope that the realization that enrollment of patients who are not terminally ill into hospices can result in their untimely death may lead to some reconsideration of our experiment in lightly regulated, "market based" health care. Those who directly care for patients ought to be motivated by professional values, not short-term revenue.

From Serving the Poor to Paying Executives Millions - Carolinas HealthCare System

A striking contrast between a large health care organization's historic mission and its current practices appeared in a series published by the Charlotte News-Observer called "Prognosis: Profits" about the Carolinas HealthCare System.

A Historical Mission to Serve the Poor

The system evolved from a public hospital meant to serve the poor.  In particular,(1)

Only 30 years ago, it was a charity hospital called Charlotte Memorial – a crowded, dreary place that lost money every year because most of its patients couldn’t pay their bills.

The hospital system is actually "a public, tax-exempt entity called a hospital authority". Because of this special status, it has the power of eminent domain, the ability to seize property albeit with compensation, and its employees have "more privacy protection that those of other public agencies."

However, in the "greed is good" 1980s, the hospital began a transformation,

The board hired [Harry] Nurkin in 1981 to revamp Charlotte Memorial’s image, attract paying patients and avoid the fate of struggling public hospitals in Atlanta and Chicago.

Until then, patients with insurance mostly chose Presbyterian Hospital or Mercy Hospital, with stately buildings at the edge of Myers Park.

With a vision of building one of the Southeast’s finest medical centers, Nurkin paid attention to details, such as wallpaper, plants and furniture. And he put the hospital in the black by improving collections from patients and insurers.

In 1983, when Nurkin unveiled the hospital’s first long-range plan, some board members sat in wonder at a slide show that accompanied his bold outline, according to 'A Great Public Compassion,' a book by writer Jerry Shinn.

The plan called for a heart institute, a doctors’ building and an 11-story, $40 million tower that would replace a 1940s wing. All of that came true – and more.

Now a Huge Hospital System

From those humble origins, Carolinas HealthCare System has now become(2)

a juggernaut. It’s now the country’s second-largest public hospital system, behind only the nationwide system of Veterans Affairs hospitals.

One of the benefits of that growth is access to quality medical care. Carolinas HealthCare offers one of five organ transplant programs in the state and operates the region’s most comprehensive trauma center, where accident victims frequently arrive via medical helicopter. Five-year-old Levine Children’s Hospital has brought new pediatric specialties to Charlotte, and Levine Cancer Institute has recruited specialists from such respected institutions as the Cleveland Clinic.

With nearly $7 billion in annual revenue, Carolinas HealthCare runs about 30 hospitals and owns more than $1 billion worth of property in Mecklenburg County alone. It has more than $2 billion in investments.

In the five-year period ending in 2011, it spent $1.8 billion on capital projects.

Forgetting the Mission: Suing Poor Patients

However, as the system grew, its mission seems to have been forgotten.

In particular, Carolinas HealthCare seems to now have a penchant for suing poor patients who cannot pay its bills. A Charlotte Observer article documented that while the hospital does not refuse poor patients care, it may later pursue them if they cannot pay. The article noted the case of a woman who was assured that the hospital had funds to pay for patients like her, but who then faced a lawsuit for $34,000 and a lien on her house. In general(3)

most N.C. hospitals are tax-exempt – a distinction that saves them millions each year. In exchange, these nonprofits are expected to provide financial help to those without the means to pay.

But thousands of times a year, hospitals are suing patients instead, an investigation by the Charlotte Observer and The News & Observer of Raleigh found.

An in-depth look at some of those cases suggests most of the patients were uninsured, and that a significant number of them should have qualified for free hospital care.

Critics contend those hospitals are financially ruining people they could afford to help. Carolinas HealthCare System, the multibillion-dollar public enterprise that owns CMC-Mercy, has generated average annual profits of more than $300 million over the past three years.

During the five years ending in 2010, N.C. hospitals filed more than 40,000 lawsuits to collect on bills.

Most of those suits were filed by just two entities: Carolinas HealthCare and Wilkes Regional Medical Center in North Wilkesboro. Each filed more than 12,000 suits over the five-year period, according to state courts data. Wilkes Regional, which is managed by Carolinas HealthCare, appears to be the state’s most litigious individual hospital.

In addition,

Often, the lawsuits hit people who are among those paying the highest rates for hospital care: the uninsured. Bills for uninsured patients are usually higher because they don’t have insurance companies to negotiate discounts on their behalf.

It’s unclear how many of the patients sued in North Carolina lacked health insurance and substantial income or assets. But in interviews with 25 of those patients, the newspapers found 17 of them were uninsured; 10 said they were never told about the hospitals’ financial assistance programs.

An editorial summarized the contrast between Carolinas HealthCare historic mission and its current practices(4)

Carolinas HealthCare, once a small, struggling operation, has become one of the top hospital systems in the country. Novant Health, owner of Presbyterian Hospital, has grown into a powerful and respected health care provider. Their successes have come thanks to an aggressive philosophy of accumulation and growth, which has led to patients in the Charlotte region having access to the latest in medical technology and research, as well as top doctors in a diversity of medical fields.

But that accumulation has contributed to the high cost of health care in North Carolina, and that growth has caused the hospitals to stray at times from their non-profit charitable mission. A Charlotte Observer and News & Observer investigation that begins today details how a hunger for money and power has caused the two hospitals to sometimes lose their way, contributing to the region’s health care cost woes and leaving thousands of patients with financially crippling bills.

Opaque, Unaccountable Governance

While the Charlotte Observer did not provide opinions about the reasons that this large health care organization appears to have forgotten its raison d'etre, its reporting suggests some familiar elements.

The governance of the organization may have been appropriate for a small, struggling public hospital, but as the system grew, lack of accountability and transparency may have become more important. It is easier to lose one's way when no one is observing one's actions.(1)

Most hospital business gets done quietly – until there is a well-planned announcement.

The system’s self-perpetuating board includes top community and business leaders whose nominations get approval from the Mecklenburg commissioners’ chairman.

Quarterly hospital system board meetings, at 7 a.m., are polite and scripted. Votes are unanimous on everything from building new hospitals to borrowing millions of dollars. Questions are worked out in private discussions, closed-door committee meetings or executive sessions.

Meetings aren’t widely publicized. Except for a couple of newspaper reporters, only board members and hospital officials attend. Future meeting dates are provided to those who attend board meetings or call the system’s main office.

State law requires public organizations with websites to post meeting times. Carolinas HealthCare had not been doing that until last week, after an Observer reporter asked about it.

The board’s agenda sets no time for public comment.

While operating so quietly, the board appears to have become a very cozy little group,

The 1943 hospital authority law intentionally kept elected officials and politics out of operations. The link is that the commissioners’ chairman must sign off on hospital board nominees.

It has been a rubber stamp.

County officials remember once in 30 years that a proposed board member was rejected. That was in 2008 when nominees included Gloria Pace King, who had been ousted as CEO of the United Way of the Central Carolinas because of public outcry over her $2 million pension package.

In December 2008, the board renominated King for a new term. But hospital officials say Roberts, then commissioners’ chairwoman, objected, and King wasn’t reappointed.

Over the years, the board has included city leaders, such as bank CEOs Hugh McColl and Ed Crutchfield, and Stuart Dickson, the retired head of the company that owns Harris Teeter. His father, Rush S. Dickson, was an original board member whose name is on the entrance to what is now Carolinas Medical Center.

Lavish CEO Compensation

As noted earlier, not only are the actions of the hospital system's governing body kept secret, but up to recently, compensation paid to all employees, including top executives was also secret.(1)

State law gives its employees more privacy protection than those of other public agencies.

For example, salaries of all state, county and city government employees are public. That’s not true for public hospital employees.

Until a 2009 change in state law, Carolinas HealthCare had for years refused to make public the total compensation for top executives. They said state law precluded them from disclosing more than basic salary.

As a result, the public hospital system wasn’t disclosing as much detail as its private counterpart, Novant Health, does in publicly available reports to the IRS.

At the urging of the Observer and other state newspapers, legislators broadened the law in 2009 to require disclosure of total compensation for top executives at public hospitals.

So it should not be any surprise that an opaque, unaccountable board run by a cozy group of insiders saw fit to allow its friends in the management make some money, a lot of money. The Charlotte Observer reported that there were nine hired managers with total compensation greater than $1 million in 2011.(5)

Michael Tarwater
CEO, Carolinas HealthCare System
Total 2011 compensation:
$4,236,305
Percentage increase over prior year:
14.10%

Joseph Piemont
President/Chief Operating Officer,
Carolinas HealthCare System
Total 2011 compensation:
$2,536,792
Percentage increase over prior year:
19.70%

Greg Gombar
CFO, Carolinas HealthCare System
Total 2011 compensation:
$1,751,798
Percentage increase over prior year:
8.90%

Laurence Hinsdale
Executive Vice President, Carolinas HealthCare System
Total 2011 compensation:
$1,693,314
Percentage increase over prior year:
44.10%

Paul Franz
Executive Vice President, Carolinas HealthCare System
Total 2011 compensation:
$1,575,927
Percentage increase over prior year:
-1.30%

Dennis Phillips
Executive Vice President, Carolinas HealthCare System
Total 2011 compensation:
$1,351,138
Percentage increase over prior year:
12.20%

John Knox
Chief Administrative Officer, Carolinas HealthCare System
Total 2011 compensation:
$1,197,528
Percentage increase over prior year:
11.80%

Roger Ray
Chief Medical Officer, Carolinas HealthCare System
Total 2011 compensation:
$1,080,159
Percentage increase over prior year:
No data for prior year

Russ Guerin
Executive Vice President, Carolinas HealthCare System
Total 2011 compensation:
$1,060,931
Percentage increase over prior year:
3.00%

Should it be surprising that executives who can become so rich, and who are subject to so little oversight, are more interested in preserving the hospital system's operating margin which supports their wealth than in providing the care to poor people that was the hospital system's original reason to exist?

Summary

As the local NAACP pointed out, the hospital system should better uphold its mission(6)

'The Bible says we’re not supposed to burden the poor and the sick and the afflicted. We’re supposed to lift them and help them and heal them,' NAACP President the Rev. William Barber said during the Charlotte stop of a statewide tour designed to bring attention to the struggles of low-income people. '(Carolinas HealthCare) is a group with money hounding people who are just trying to make it.'

However, I submit that restoration of this organization's mission will require more than exhortation. The governance of this organization, like that of many others we have discussed, needs to regain accountability, transparency, integrity, and ethics. It must insist that the leaders it hires uphold the mission ahead of other concerns, particularly personal enrichment. It must provide these leaders with realistic incentives based on how well they uphold this mission, not on revenue or operating margin.

Until such changes are accomplished, expect this hospital system, like many other health care organizations, to contribute only to our ever rising prices, declining access, and stagnating health care quality.

References

1.  Garloch K, Alexander A. Carolinas HealthCare System's evoluation: public hospital with private attitude.  Charlotte Observer, April 21, 2012.  Link here.
2. Alexander A, Garloch K, Neff J. Nonprofit hospitals thrive on profits. Charlotte Observer, April 21, 2012. Link here.
3. Alexander A, Raynor D. Hospital suits force new pain on patients. Charlotte Observer, April 23, 2012. Link here.
4. Anonymous. Money over mission at non-profit hospitals. Charlotte Observer, April 22, 2012. Link here.
5. Anonymous. Million-dollar hospital executives in North Carolina. Charlotte Observer, April 21, 2012. Link here.
6. Alexander A. Stop suing patients, NAACP tells Carolinas HealthCare System. Charlotte Observer, May 2, 2012. Link here.