Money vs Mission - How Generic Managers vs Physicians Think

On Health Care Renewal, we emphasize problems in leadership and governance in large health care organizations, and how they affect health care professionals' attempts to carry out their mission, and ultimately how they affect patients' and the public's health.  Large health care organizations are increasingly led by people trained in business, not health care professionals, thus generic managers.  The stewards of these organizations, the members of their boards of directors or boards of trustees, are also increasingly current or former managers without direct health care experience. Yet all too often, health care leadership is ill-informed, incompetent, unsympathetic or hostile to health care professionals' values, self-interested, conflicted, dishonest, or even corrupt.

Recently, in an effort to "bridge the gap" between physicians and MBAs, a new article in Becker's Hospital Review by Todd Kislak discussed differences in the thinking and values among business trained health care managers and physicians.  The author, an MBA, listed nine issues on which MDs and MBAs have different views.  I have summarized below what appear to me to be the main points, somewhat reorganized from how he did it. Whether he meant to or not, Mr Kislak showed why physicians may have reason not to trust their new generic managers. 

Making Widgets vs Treating Patients

Mr Kislak wrote that MBAs see health care in terms of orderly, uniform and standardized processes, while physicians see it in terms of the complexity and variability of patients, the ambiguity of diagnosis, and the unpredictability of outcomes.  

 2. Scalability. As a rule, MBAs tend to seek solutions to problems in a way that they perceive to be scalable and replicable, trained in the belief that the capacity to perform repetitively and consistently leads to better efficiency and quality. One-off situations are by definition outliers, and as such their importance tends to be downplayed.

Also,

 3. Centralization....   MBAs, ... tend to seek centralized approaches to decision-making, often appearing in the guise of policies, programs and processes. 

So, the gist is MBAs see health care as analogous to an assembly line.  The idea is to provide uniform, consistent services that conform to the policies, programs and processes that come down from central headquarters, run by MBAs.

On the other hand, he noted that physicians think that "every case has the potential to be unique in some way," while MBAs "view the unusual case as an unwelcome break in the routine, adding cost while slowing down the efficient care of other patients."

IMHO, common sense, and a raft of epidemiological data support the MDs.  Patients differ in demographics, biopsychosocial characteristics, co-morbid conditions, histories of previous treatment, responses to therapy, etc, etc, etc.  Patients, their complaints, and their situations are complex and variable.   Furthermore, acute illnesses, complications of chronic illnesses, accidents occur unexpectedly, in unexpected ways.  Diagnosis are often unclear and ambiguous.  Patients' prognoses and responses to therapy are unpredictable.  Thus, IMHO, seeing health care like an assembly, in terms of regularity and uniformity, seems dissociated from reality.  I have a hard time believing that MBAs who actually require medical care want to be treated as if they were identical to the next 10 patients.

"You Manage What You Measure" vs Complexity, Variability, Ambiguity, and Unpredictability of Patients, Diseases, Prognoses, and Treatments 

Mr Kislak suggested that MBAs emphasize measurement, especially the measurement of physicians' performance,

5. Performance. One of the healthcare MBA's favorite analytical tools is performance rankings of the MDs. Quantifying 'results' based on pre-determined metrics, assigning them a weight for averaging purposes and reducing performance down to a number is, to the MBA, how MDs and indeed all workers should be measured. 'You manage what you measure' is the MBA's mantra.

Also,

6. Productivity. MBAs look at MDs' productivity statistics (another performance measure) and wonder why so many MDs claim they are overworked. Looking at work hour statistics supplied by the Medical Group Management Association, one would not come away convinced that most MDs are logging more hours than, say, the typical healthcare MBA or indeed any high-caliber professional service provider.

Mr Kislak noted that physicians object to pay for performance and "may viscerally react to this uniform approach to performance assessment as inappropriate and even fundamentally at odds with the practice of medicine. Too much context is lost in the numbers, and too many factors beyond their personal control bear upon the performance 'data.'"   He did explain why MBAs are unconcerned about the accuracy and meaning of the measures they manage. 

The "you manage what you measure" heuristic seems based on the concept, or better yet fallacy that everything in health care is uniform and predictable.  This seems an extended version of what has been called the streetlight effect or the drunkard's search.  (See, for example, the version from Wikipedia, attributed to David H Freedman.  (2010). Wrong: Why Experts Keep Failing Us)  It begs the question of what is practical to measure is worth measuring, that is, is accurate, reliable, and meaningful.
 
Furthermore, there is now a considerable literature in medicine and health care showing that it is extremely difficult to develop performance measures that are reliable and meaningfully predictive.  (I cannot claim to have written comprehensively on this topic, but see posts here, and here.  For some good informal writing on why pay for performance [P4P] may not work, see Dr Robert Centor's blog DBs Medical Rants)

Considerable research has also shown that P4P rarely improves performance, and may make it worse.   For example, the results of a systematic review published in 2012 [Houle SKD, McAlister FA, Jackevicius CA et al.  Does performance-based remuneration for individual health care practitioners affect patient care? - a systematic review.  Ann Intern Med 2012; 157: 889-899.  Link here.] were that

The effect of P4P targeting individual practitioners on quality of care and outcomes remains largely uncertain.

Furthermore, a 2012 analysis of pay for performance [Glasziou PP, Buchan H, Del Mar C et al.  When financial incentives do more good than harm: a checklist.  Brit Med J 2012; 345: e5047. Link here.] included the summary statement,

Current evidence on the effectiveness of financial incentives is modest and inconsistent.

Thus, it would seem that the MBAs have neither good logic nor good evidence to support their faith in their current metrics, particularly those they use to assess physicians' performance. 



Power and Money vs Patients' and the Public's Health

Mr Kislak saw himself as supporting physicians in "their mission to provide high quality and effective care to their patients."  In the conclusion to his article, he asserted that physicians and MBAs "share the same overarching goals ... - effective healthcare delivery...."  However, in the body of the article, Mr Kislak suggested that MBAs see their goals in terms of power and money...  

4. Leadership. MBAs like to think of themselves as either nascent or actual leaders. It is understood that their intention is to build a career trajectory that will move them up in their organization (or in another organization) into positions of increasing authority and control. After all, this is an important reason why they become MBAs in the first place.

Furthermore, Mr Kislak wrote

8. Language. MDs and MBAs usually work for some type of business entity, whether that entity is for-profit, nonprofit, academic, government or sole proprietorship. To the MBA, however, it is all too apparent that with few exceptions MDs have little training in the language of business that all entities speak — the language of finance and accounting.

He noted that "this is a significant disconnect and a root cause of why MDs and MBAs often find themselves talking past each other on even the most basic business issues."  However, interestingly he did not even mention that MBAs may have as little facility with the language of medicine and health care as physicians have with the language of finance or accounting.  Furthermore, he seemed unaware that it makes as little sense to say that discourse in health care should be in the language of finance as to say discourse in finance should be in the language of health care. 

Finally, Mr Kislak made it very clear that to MBAs, money comes ahead of patient care,

9. Growth. MBAs are trained to look for ways to grow the organization's revenues and profits to the long-term benefit of the owners or stewards of that organization. Improvements to quality, efficiency, profits, revenues, technology and the like are generally viewed as a means to that end of growing,

Yet he noted that

the MDs sometimes wonder what all the growth talk may be costing their own priorities, including their compensation. This issue can become rather sensitive when it implies that the MD is less concerned with the long-term health of the organization than the MBA, and can devolve into finger-wagging about lack of engagement or weak physician-hospital alignment.

It is a measure of how much generic managers have taken over that the physicians may be blamed for lack of interest in the long-term "health of the organization," while the MBAs seem totally unconcerned about what effects the organization has on the real health of patients or the public.

Thus, fundamentally, MBAs running health care organizations are mainly interested in growing their organizations so that they bring in more money.  MBAs hope to leverage their organizations' financial performance so that they personally can rise to positions of greater power and wealth.  Health care is simply a "means to that end."  Mr Kislak seems to have confirmed my worst fears that most of health care's current generic managers put short-term revenue, and their own wealth and power, ahead of patients' and the public's health. 

Summary

In 1988, Alain Enthoven advocated in Theory and Practice of Managed Competition in Health Care Finance, a book published in the Netherlands, that to decrease health care costs it would be necessary to break up the "physicians' guild" and replace leadership by clinicians with leadership by managers (see 2006 post here). Thus from 1983 to 2000, the number of managers working in the US health care system grew 726%, while the number of physicians grew 39%, so the manager/physician ratio went from roughly one to six to one to one (see 2005 post here). As we noted here, the growth continued, so there are now 10 managers for every US physician. 


Now we have one MBA with considerable experience inside health care, and personal sympathy for the goals of high quality and effective care for patients, who. perhaps inadvertently, suggested why this managers' coup d'etat was a terrible idea, and why MBAs should not be allowed to lead health care organizations.  He corroborated our concerns that generic managers may be ill-informed and do not understand the health care context, particularly the variability and complexity of patients and their problems, the ambiguity of diagnosis, and the unpredictability of prognosis and response to therapy.  They believe in simplistic management approaches, particularly the usefulness of measurement and metrics, even in the absence of logic or evidence supporting them.  Furthermore, they may be heedless of the mission of health care, particularly of the primacy of the patient, and in fact put their own organizations' revenue ahead of patient care, and ultimately may pursue power and money rather than patients' and the public's health.  

As I have said before,  true health care reform would put in place leadership that understands the health care context, upholds health care professionals' values, and puts patients' and the public's health ahead of extraneous, particularly short-term financial concerns. We need health care governance that holds health care leaders accountable, and ensures their transparency, integrity and honesty.

But this sort of reform would challenge the interests of managers who are getting very rich off the current system.  So I am afraid the US may end up going far down this final common pathway before enough people manifest enough strength to make real changes.

ADDENDUM - This post was re-posted on the Naked Capitalism blog. 
 

Putting Finance Executives in Charge of Health Care? - What Could Possibly Go Wrong?

A US News and World Report article affirms what we have previously written, that those charged with the stewardship of US hospitals are even more inclined now to hire top managers with little or no health care experience or credentials. 

Putting Finance Managers in Charge

They particularly seem to favor executives drawn from the world of finance.

Just to make it really clear, the exposition started with the article title,

Wanted: Hospital CEOs Without Health Care Experience 

The article drew on some of the figures about executive hiring which we discussed in December, 2013,

It’s expected that two-thirds of hospital CEOs hired this year will have little to no health care experience, according to Black Book Rankings, which last year conducted a poll of 1,404 human resource officers and board members of health care organizations

However, the new article profiled some examples,

.When Carlos Migoya was hired in May 2011 to run Jackson Health System, Miami-Dade County’s safety net hospital system, he had no health care experience. A career banker, Migoya took over.....

Also,

Mike Keating, CEO of Christ Hospital in Cincinnati, previously was an investment banker.;Robert Meyer, president and CEO of Phoenix Children's Hospital, came from the consulting world;...

The article stressed that hospital boards think a background in finance is particularly valuable.

Hospital board and HR directors are looking for non-industry productivity, business development and financial management experts with heavy technological expertise. 

Also,

[executive vice president and managing principle at Cejka Executive Search. Paul]  Esselman  notes that boards increasingly 'are looking at leaders from managed care, the payer side or from finance or banking.'

Why Hospital Boards Favor Finance Executives

banking, like health care, is heavily regulated and that two decades ago banking went through significant consolidation, which hospitals today face.

So,

[ managing partner of Black Book Rankings Doug] Brown says leaders that come from productivity-focused fields and sectors that have endured consolidation are particularly suited for running hospitals today. Those in financial services may prove useful in today’s climate, as 'there are a lot of troubled hospitals,' he says.

As we noted before, the article suggested that those who hire hospital executives think their most important challenges s included  -

'Communication is now more important than ever,; says Paul Esselman

the opportunities come in delivering its service or business lines to ever-expanding distribution channels.

says [former investment banker Mike] Keating. 'The key in health care is how you go about executing and executing well.'

[former banker Carlos] Migoya put in place operational reforms, including bringing in 'a lot of people with for-profit experience' to maintain expense controls, monitor operations, collect payments more quickly and pay its own bills sooner to gain prompt-payment discounts. Then, 'we realigned procurement,' he says, adding 'we motivate our procurement department with incentives,' which 'dramatically improved' Jackson Health’s process, time and costs. Meanwhile, the system outsourced pharmaceutical management, saving $15 million a year....

Note that these examples are all about management process and financial outcomes, NOT about clinical processes, quality of care, or patient outcomes.  (The only mention of anything close to clinical management was a plan to outsource same.)

Left unsaid is that the boards charged with the stewardship of hospitals are now mainly composed of business executives, often heavily weighted with those in finance. 

Summary - What Could Go Wrong?

Of course, former bankers, and others from the world of finance may not really know much about clinical work, quality of care, or patient outcomes.  They may not have been picked because they care about such issues, nor socialized with the "patient first" mantra which health professionals are supposed to support. 

Worse, it seems that those who choose hospital executives may not be thinking about the recent history of finance.  True, it shares with health care the presence of regulation and increasing consolidation.  However, as we all started to realize in 2008, the leaders of finance helped bring on the worst financial crisis since the great depression.  More than five years since the beginning of this new great recession, US median income is dropping adjusted for inflation, while income inequality has tremendously increased.  Finance executives have been prime proponents of financialization, the theory that increasing shareholder value, which really seems to translate into increasing organizational short term income and increasing executive compensation are more important than any other outcomes.  Thus seems to correspond to the discussion above about financial and management objectives sans any notion of what is good for patients.

Even more disturbing is all the anecdotal evidence that business management, particularly in finance, has been gripped by overarching greed.  Pope Francis called it the "idolatry of money."  (look here).

In his graphic memoir of his days as a successful Wall Street trader, Sam Polk called it wealth addiction, . 

I noticed the vitriol that traders directed at the government for limiting bonuses after the crash. I heard the fury in their voices at the mention of higher taxes. These traders despised anything or anyone that threatened their bonuses. Ever see what a drug addict is like when he’s used up his junk? He’ll do anything — walk 20 miles in the snow, rob a grandma — to get a fix. Wall Street was like that. In the months before bonuses were handed out, the trading floor started to feel like a neighborhood in 'The Wire' when the heroin runs out.

He was not the first to describe wealth addiction:

 Wealth addiction was described by the late sociologist and playwright Philip Slater in a 1980 book, but addiction researchers have paid the concept little attention. Like alcoholics driving drunk, wealth addiction imperils everyone. Wealth addicts are, more than anybody, specifically responsible for the ever widening rift that is tearing apart our once great country. Wealth addicts are responsible for the vast and toxic disparity between the rich and the poor and the annihilation of the middle class. Only a wealth addict would feel justified in receiving $14 million in compensation — including an $8.5 million bonus — as the McDonald’s C.E.O., Don Thompson, did in 2012, while his company then published a brochure for its work force on how to survive on their low wages. Only a wealth addict would earn hundreds of millions as a hedge-fund manager, and then lobby to maintain a tax loophole that gave him a lower tax rate than his secretary.

Physicians swear oaths to put patient care ahead of all else.  While we may be far from perfect in our adherence to these oaths, I would like to think that when health care organizations were lead by health professionals, many tried to put patient care first  Yet professional managers, not health care professionals now lead health care.

.In 1988, Alain Enthoven advocated in Theory and Practice of Managed Competition in Health Care Finance, a book published in the Netherlands, that to decrease health care costs it would be necessary to break up the "physicians' guild" and replace leadership by clinicians with leadership by managers (see 2006 post here). Thus from 1983 to 2000, the number of managers working in the US health care system grew 726%, while the number of physicians grew 39%, so the manager/physician ratio went from roughly one to six to one to one (see 2005 post here). As we noted here, the growth continued, so there are now 10 managers for every US physician.

The managers who first took over health care may have had some health care background.  Now it seems that health care managers are decreasingly likely to have any health care background, and increasingly likely to be from the world of finance.  Can anyone seriously believe that finance managers taught to put short-term revenue first, and who may often be wealth addicts who practice the idolatry of money in charge of health care is going to improve anything other than those same managers' wealth?

As I have said before,  true health care reform would put in place leadership that understands the health care context, upholds health care professionals' values, and puts patients' and the public's health ahead of extraneous, particularly short-term financial concerns. We need health care governance that holds health care leaders accountable, and ensures their transparency, integrity and honesty.

But this sort of reform would challenge the interests of managers who are getting very rich off the current system.  So I am afraid the US may end up going far down this final common pathway before enough people manifest enough strength to make real changes.

Health Care Experience? - Hospital CEOs Don't Need No Stinkin' Health Care Experience

It looks like the complete takeover of health care by generic managers is nigh. 

Who Are Now Candidates to be Hospital CEOs?

On PRWeb is a summary of data about what sort of CEO candidates hospitals' boards of trustees are seeking:

A Black Book Rankings poll of 1,404 healthcare provider organizations’ human resources officers and board members revealed the developing trend affecting the way headhunters will seek candidates. Black Book estimates that two-thirds of CEOs hired in 2014 will have little to no healthcare sector experience, in favor of non-industry productivity, business development and financial management experts with heavy technological expertise.

From where are the new CEOs coming?

 Among survey respondents, the most intriguing new hospital CEO candidates are emerging from the Venture Capital, Private Equity industry (idealized by 42% of survey participants), Finance and Accounting (40%), Banking (32%), Technology (22%), Marketing and Sales (19%), Not-for-Profits ( 14%), and Pharma/Biotech (12%).

Note that the CEO candidates did not seem particularly intimidated by running a hospital without any relevant experience, knowledge, or possibly values.

 94% of new CEOs without extensive hospital backgrounds indicate they do not believe healthcare expertise is required for replacing other senior leadership team members after a management overhaul.

Why Are Health Care Naive CEOs Increasingly Common?

What is causing the attractiveness of candidates without background in, knowledge of, to particular agreement with the values of health care?

'An outside hire will not have developed hospital management skills from within or understand an organization's unwritten rules at first, but that’s not a bad thing either as more hospitals face fresh ideas to avoid bankruptcy, expedite smoother consolidations, conquer payment reform, and productivity issues,' said Doug Brown, Managing Partner of Black Book™.

In addition,

A new CEO’s first decisions are often distruptive to a hospital’s staff, particularly the incumbent management team. 'An outsider's perspective on hospital operations will be controversial but often credited in several facility turnarounds for bolstering organizational financial stability, and ultimately profitability,' noted Brown.

It is not just Mr Brown's opinion,

89% of board members hiring outsiders agree that broad business operational expertise and singular vision pays off with fresh perspectives on efficiencies, value, cost savings, and the goodwill to the community.

What particular circumstances might prompt hospital boards to look for health care naive CEO candidates?

 'Hospitals facing stalled growth or new competitive challenges need fresh thinking. Hiring internal candidates with the same norms and values as your current team will not meet the long term strategic growth needs of the hospital organization. Relevant outside thinking makes a valuable contribution, enhancing business vitality, longevity and sustainability. Staying contemporary, revitalizing your brand, enhancing products and expanding into new markets all begin with the next person you interview and add to your senior leadership team,' added Brown.

By the way, similar surveys suggest the same trend affecting other parts of health care,

Payers, chains, ancillaries, ACOs, support firms, vendors, medical product manufacturers and pharmaceutical firms are tapping other business’ top talent, a major shift from the 'healthcare industry experience only' mindset for executive placement that has prevailed since the 1970’s, according to corresponding Black Book 2013 surveys.

Discussion

 In 1988, Alain Enthoven advocated in Theory and Practice of Managed Competition in Health Care Finance, a book published in the Netherlands, that to decrease health care costs it would be necessary to break up the "physicians' guild" and replace leadership by clinicians with leadership by managers (see 2006 post here). Thus from 1983 to 2000, the number of managers working in the US health care system grew 726%, while the number of physicians grew 39%, so the manager/physician ratio went from roughly one to six to one to one (see 2005 post here). As we noted here, the growth continued, so there are now 10 managers for every US physician.

Health care went from being controlled by clinicians to controlled by a growing volume of managers.  Most of these managers were generic, in that they had little if any knowledge of, experience in, or sympathy to the values of health care. These generic managers have used the same techniques advocated for the management of supermarkets or automobile manufacturers to manage health care organizations, despite all the obvious differences in context, goals, values, and people involved.  They also have been trained in theory of maximizing shareholder value (even though non-profit health care organizations have no shareholders), which actually means maximizing short-term revenue (financialization), and then using that revenue as an excuse to plutocratic pay packages for management.

The survey results above say the takeover is nearly complete.  The majority of top hospital management recruits are now generic.  It appears that the majority of top management recruits  in health insurance, medical device, pharmaceutical, and other health care corporations are also now generic  The reasons for their recruitment suggest that those exerting stewardship over hospitals are completely abandoning interest in improving health care, patients' outcomes, clinical practice, or anything related.  Instead, look at the wording (highlighted in color thus above) reflecting their concerns.

This is all about

 productivity issues

long term strategic growth

business vitality

revitalizing your brand

efficiencies 

cost saving

profitablity

Nobody is talking about quality of care, improving practice, patients' outcomes, public health, or about honesty, integrity, and particularly not about putting patients first.

Instead, it is now going to be all about the money. 

So of course the US has the most expensive health care (non) system in the world, and that system manages to at best be mediocre by nearly every measure of health outcomes. 

I say once again that true health care reform would put in place leadership that understands the health care context, upholds health care professionals' values, and puts patients' and the public's health ahead of extraneous, particularly short-term financial concerns. We need health care governance that holds health care leaders accountable, and ensures their transparency, integrity and honesty.

But this sort of reform would challenge the interests of the generic managers who are getting very rich off the current system.  So I am afraid the US may end up going far down this final common pathway before enough people manifest enough strength to make real changes.

What Me Worry? - American Legacy Foundation Executives' Relaxed Response to a $3 Million Plus Fraud

A Washington Post investigation into diversion of money from US not-for-profit organizations provided a striking case study showing the apparently relaxed approach taken by managers to apparent wrongdoing by one of their own. 

Background: the American Legacy Foundation

The Post noted that

The American Legacy Foundation is a revealing case study. While some challenges it faced were uncommon, fraud examiners said many resemble those they see time and again. Legacy was founded as a nonprofit organization in 1999 out of the Master Settlement Agreement that resolved health claims brought against cigarette companies on behalf of the public by authorities in 46 states and the District.

With $50 million in annual expenditures and $1 billion in assets, Legacy is perhaps best known for its edgy anti-tobacco advertising campaign known as 'Truth.'

The Foundation's governance is provided by some top government leaders, including leaders of law enforcement.

Its board includes Idaho Attorney General Lawrence Wasden (R), its chairman; Missourci Gov. Jay Nixon (D), Utah Gov Gary R Herbert (R), and Iowa Attorney General Tom Miller (D).  Janet Napolitano, the recently departed U.S. secretary of homeland security, served on the board, and Sen Thomas R. Carper (D-Del) was Legacy’s founding vice chairman.

Outline of a Diversion

The alleged culprit at the ALC  was

Deen Sanwoola, ... a charismatic computer specialist who was Legacy’s sixth hire. He was tasked with building the organization’s information technology department.

No one realized, during Legacy’s frenetic early days, that the department had been formed without adequate financial controls, Legacy officials said. Or that Sanwoola had been placed in charge of both ordering electronic equipment and logging it as having been received — a mix of responsibilities that an outside auditor later described as a classic error that placed Legacy at risk.

So,

After Sanwoola’s arrival in October 1999, Legacy’s IT department began spending freely on computers, monitors and software, much of it purchased from a single company in suburban Maryland, [Legacy President and CEO Cheryl] Healton said.

Thanks to the court settlement, Legacy enjoyed a tremendous flow of cash, with revenue exceeding $320 million. The first questionable purchase came in December 1999, according to a forensic audit conducted years later. 'The fraudulent billing started almost immediately on his arrival,' said [Idaho Attorney General Lawrence] Wasden, the board chairman.

In that first transaction, the foundation paid more than $18,000 for a computer processor and related equipment that auditors concluded should have retailed for less than $7,000.

Data, documents and a summary of findings that Wasden provided to The Post show that questionable purchases of printers, software and servers steadily increased in size and frequency, peaking with 49 charges in 2006. In some instances, Legacy appeared to have paid many times an item’s worth, auditors said. In others, auditors said Legacy paid an inflated price for 'phantom purchases' of equipment that apparently never arrived.

Over years, Sanwoola is thought to have generated as many as 255 invoices for computer equipment sold to the foundation, Legacy officials said; 75 percent of them later were deemed by the foundation to have been fraudulent. 

A Relaxed Response

Sanwoola left AFC in 2007,

In early 2007, Sanwoola, by then an assistant vice president with a $180,000 compensation package, announced he was leaving. It jolted [AFC President and CEO Cheryl] Healton, who said she 'begged' him to stay. [ALC CFO Anthony T[ O’Toole recalled Sanwoola saying that his wife wanted to raise their children in Nigeria and that the move would allow him to help his ailing mother.

But then,

six months later, when an executive at Legacy approached O’Toole and told him he was unable to locate computer equipment listed in the inventory.  O’Toole said he waved away the complaint without bothering to investigate.

'He just pooh-poohed it,' Healton said of O’Toole, who received current and deferred compensation totaling $568,000 in fiscal 2012.

The Post previously noted that

Sanwoola developed close personal ties to Legacy’s chief financial officer, Anthony T. O’Toole.

'Everybody loved Deen,' O’Toole acknowledged.

After a second complaint, managers took a bit more notice,

Three years later, the same employee — Legacy officials describe him as a whistleblower — again raised an alarm. This time, he bypassed O’Toole and took his concerns to a staffer close to Healton.

The response this time was different. Within days, Legacy hired forensic examiners to investigate and Healton notified the board.

One of the outside auditors’ first reactions, Healton recalled, was, 'There’s no way an organization like yours could spend this much on IT.'

Auditors interviewed employees, reviewed invoices and recovered deleted files from a backup computer server in Chicago. Auditors found a template for invoices from the outside supply company, Legacy officials said, as well as computer code that showed the template had been designed and generated by someone using Sanwoola’s log-in.

Officials concluded that of $4.5 million in checks and credit card charges associated with the Maryland IT supply company, $3.4 million had been fraudulent.

 In late 2010 or early 2011,

foundation executives asked Miller, the Iowa attorney general on Legacy’s board, to call the office of the U.S. attorney.

However, despite the fact that it was ALC money that had been lost, ACL managers thereafter seemed to take little interest in the case,

Legacy officials said they had made no attempt to contact Sanwoola, based on a request from federal prosecutors. In a statement for this article, the U.S. Attorney’s Office responded that they had made no such request.

They also were in no hurry to disclose the foundation's loss,

Word that millions of dollars were thought to be missing remained largely within Legacy until it came time in 2011 to file its annual disclosure, a public document signed under penalty of perjury.

The disclosure said that the 'fraud' of more than $250,000 did not 'meet other materiality tests for financial reporting' and that the organization had told its board and law enforcement. It also said Legacy had filed an insurance claim that had been 'successfully settled.' The document did not reveal that the settlement fell far short of the loss.

When first approached by The Post, Legacy general counsel Ellen Vargyas said the organization had no obligation to identify the full estimate of the loss and stressed that more information was in the foundation’s 2012 filing. That filing included a reference to $1.3 million in miscellaneous revenue from an insurance settlement, without saying what it was for.

'I do think it was a full and appropriate disclosure,' Vargyas said.

Legal specialists consulted by The Post disagreed. 'Those suffering a diversion are obligated to report the dollar amount,' said Gary R. Snyder, a charity consultant who tracks fraud.

Federal filing instructions direct nonprofits to 'explain the nature of the diversion, amounts or property involved . . . and pertinent circumstances.' Charity specialists said there is no established penalty for a nonprofit that fails to follow the instructions.

A day after declining to disclose the amount to The Post, Vargyas reconsidered. 'Our best estimate of the full loss comes to this: $3,391,648,' she wrote in an e-mail. She said her initial reluctance to disclose an amount was because Legacy’s number was based on estimates that had 'never been tested in a court of law.

Wasden added that the absence of a total dollar figure in its public filing was the foundation’s way of being restrained in describing its loss, in deference to the then-continuing federal investigation. The U.S. Attorney’s Office stressed, however, that it did not suggest that Legacy play down the size of the loss in its disclosure.

Legacy officials said they were told in March, for the first time, that there would be no charges. The U.S. Attorney’s Office disputed that, saying the FBI informed Legacy in February 2012 that the investigation had been closed because, despite warnings, Legacy had taken more than three years to report the missing computers and lacked reliable records of what it owned.

It appears that there will be no further action in this case.  The statute of limitations has passed for any further criminal or civil actions, according to the Post.  And Mr Sanwoola seems to be comfortably ensconced in Lagos, Nigeria.

 Summary

The American Legacy Foundation case showed that a "charismatic" management insider (who finished his career as an assistant vice president with a $180,000 compensation package according to the Post), who had "close personal ties" with the organization's CFO (who "received current and deferred compensation totaling $568,000 in fiscal 2012" according to the Post), was apparently able to embezzle something like $3.4 million dollars, then walk away.  Initial whistleblowing was ignored by the CFO (who received compensation of $729,000 in 2012 according to the Post), apparently delaying any action for three years.  A second complaint to the CEO provoked a response, but not exactly an urgent one.  While law enforcement was notified, there is no evidence that any foundation managers followed up on it, nor did they see fit to disclose much detail about the loss on their watch.  As a result, no one seems to have been held responsible, and only some money was recovered, but from insurance.

Now we understand why these managers made the relatively big bucks.

By the way, the Post article included a link to a database of other diversions of money from non-profit organizations, including many prominent health care organizations (e.g., Memorial Sloan-Kettering Cancer Center, Children's Hospital of Pennsylvania, NYU Hospitals Center, Shands Jacksonville Medical Center, Harvard Medical School Faculty Physicians at Beth Israel Deaconess Hospital, and the Society for Academic Emergency Medicine).  Whether the circumstances of the diversions they suffered were anything like those affecting the ALC is unknown pending further investigation of their disclosures.

Again, the top executives of a non-profit organization are supposed to put the organization's mission ahead of personal gain. Yet in this case, executives seemed more interested in keeping quiet about an apparent fraud by one of their own than in recovering the money or holding anyone accountable.

This is yet another instance of top leaders in health care seeming to be more loyal to "managers' guild" than their own organizations, their organizations' mission, or patients' and the public's health in general.   A while ago, chief architect of "managed competition," (and former architect of body counts during the Vietnam War, look here) Alain Enthoven admitted, but only to a European audience, that he wanted to end the influence of the "physicians' guild," which he blamed for rising health care costs, and turn health care over to managers (look here).  That "managers' coup d'etat" seems to have been accomplished.  The result, however, is that health care is now lead by people who seem sworn only to promote their own interests, while hiring public relations and marketing folks to make it appear otherwise.

While many people debate health care reform in terms of the details of health insurance, true health care reform would restore control of health care to people held accountable for putting patients' and the public's health ahead of their personal enrichment.  

A Plague of Bureaucrats - Now 10 Per Physician in US Health Care

There seems to be a reasonable argument that the US health care system is more dependent on the private sector, and in particular the for-profit private sector, than systems in other developed countries.  Advocates of private, for-profit health care often tout the private sector as more efficient and less bureaucratic than government.  

However, a post by Robert Kocher in the Harvard Business Review blog, of all places, noted that US health care is increasingly inflicted by a proliferation - perhaps a plague - of bureaucrats.


Dr Kocher looked at employment of physicians, other health care professionals and clinical workers, and bureaucrats in a more recent time frame, 1990-2012.  The key findings were:

 Using data from the Bureau of Labor Statistics (BLS) and the American Medical Association, my colleagues and I found that from 1990 to 2012, the number of workers in the U.S. health system grew by nearly 75%. Nearly 95% of this growth was in non-doctor workers, and the ratio of doctors to non-doctor workers shifted from 1:14 to 1:16.

Furthermore,

 Today, for every doctor, only 6 of the 16 non-doctor workers have clinical roles, including registered nurses, allied health professionals, aides, care coordinators, and medical assistants. Surprisingly, 10 of the 16 non-doctor workers are purely administrative and management staff, receptionists and information clerks, and office clerks. 

So, in summary, for every doctor, there are 6 clinical workers (nurses, aides, etc) and 10 bureaucrats (including managers).

Note that this data appears compatible with 1983-2000 employment data we summarized in 2005. During that period, the ranks of health care managers grew much faster than the ranks of physicians or nurses.  The growth rates from 1983 to 2000 were 1.39x (39%) for physicians, 1.54x (54%) for nurses, and a whopping 8.26x (726%) for managers.

Another way to look at it is, in 1983 there was 1 manager for every 5.7 physicians and every 15.1 nurses. In 2000, there was 1 manager for every 0.96 physicians and every 2.9 nurses. Again, by 2000, the number of health care managers exceeded the number of physicians. There were more managers than any other species of health care worker other than nurses.

So, by 2000, there was one manager per doctor.  By 2012, there were 10 bureaucrats, including managers, per doctor. 

We have discussed the increasing power of managers, administrators and executives over health care.  Management gurus, such as Alain Enthoven, had advocated breaking the power of the supposed "physicians' guild" to reduce health care costs, and replacing physician leaders with managers (look here).  We have discussed the growing role of generic managers, that is leaders trained only to manage, but not experienced in , and often not sympathetic to the values of health care.  Now there is increasing evidence that managers and bureaucrats are increasingly numerous in health care, the former somewhat and the latter greatly out-numbering physicians.

We cannot scientifically prove that this plague of bureaucrats is responsible for US health care's mediocre quality and access, despite higher costs per capita than in any other developed country.  However, it does appear to be a reasonable hypothesis that increasing the relative numbers of health care professionals versus bureaucrats might produce at least more health care per dollar, if not also better health care per dollar.   

This suggests that true health care reform requires decreasing the influence of generic management.  Health care leaders ought to be those with some knowledge of health care and some sympathy for its values. Such health care leadership might be less concerned with increasing bureaucracy, and more concerned with more and better actual care of actual patients.  (But do not expect such reforms to be popular with the very well-paid generic managers who now run health care, and hence do not expect such reforms to be easy to implement.)

Clouded "Visionary" Leadership - Wake Forest Baptist Medical Center's EPIC "Business Cycle Disruptions"

A typical excuse for the multi-million dollar compensation now enjoyed by many leaders of health care organizations is these leaders' supposed brilliance.

For example, in 2011 we noted  that the total compensation of Dr John McConnell, the CEO of Wake Forest Baptist Medical Center, a non-profit teaching hospital, rose from over $700,000 in 2008-2009 to over $1.6 million in 2009-2010.  Other top executives in the system made nearly one million a piece.  An official statement from the hospital system claimed that this level of compensation was needed to "retain skilled executives and visionary leaders for the medical center."  Furthermore, in 2012 we noted that in 2010-2011 Dr McConnell's compensation had grown to nearly $2.5 million, while other top executives received from over $900,000 to over $1.1 million. 

Recent events, however, suggest that the "visionaries" may need new glasses.

An EPIC Challenge

Last month, the Winston-Salem Journal reported that Wake Forest Baptist Medical Center is facing some unexpected fiscal challenges, especially from its new electronic health record (EHR):

Wake Forest Baptist Medical Center’s struggles to implement its Epic electronic records system contributed to additional costs and lost revenue during the first half of its fiscal year 2012-13.

The center provided the information in a second-quarter financial report submitted to bond agencies in which it also reported a $49.6 million operational loss and a gain of $7.4 million in overall excess revenue.

That is interesting.  There have been many criticisms of EHRs, particularly for how they may impede, rather than help health professionals, and more importantly for their risks of causing adverse effects affecting patients, in the absence of clear data from controlled clinical trials that they provide benefits that outweigh their potential harms to patients.  Some of these problems may stem from design and implementation that prioritizes benefits to managers and institutional finances over effects on patients and doctors.  As InformaticsMD noted, even the AMA now admits that

 As the healthcare industry moves to EHRs, the medical record has essentially been reduced to a tool for billing, compliance, and litigation that also has a sustained negative impact on doctors' productivity, according to Steven J. Stack, MD, chair of the American Medical Association’s board of trustees.

Yet in this case, a well known commercial EHR did not even help out the hospital system's finances.

Furthermore,

Wake Forest Baptist said it spent as of Dec. 31 about $13.3 million directly on the Epic electronic-record system, which went live in September.

And,

 The center also cited $8 million in 'other Epic-related implementation expense' that it listed among 'business-cycle disruptions (that) have had a greater-than-anticipated impact on volumes and productivity.' Also listed was $26.6 million in lost margin 'due to interim volume disruptions during initial go-live and post go-live optimization.'

Note that InformaticsMD frequently criticizes proponents of commercial health care information technology for glossing over potentially bad effects on patients and practice with management-speak (e.g., as "glitches," or "hiccups.").  Here is a great example of an attempt to gloss over bad effects on finance with management-speak.

Bond Downgrades and Furloughs, Wage Reductions, Hiring Freezes, Retirement Contribution Reductions, and Bonus Eliminations

As a consequence,

 On March 20, Moody’s Investors Service downgraded the center’s long-term debt rating below the lowest level of high-grade investment quality. The downgrade to A1 from Aa3 affects $597.2 million of rated debt outstanding.

The rationale was clear,

 Moody’s said the A1 rating 'reflects the unexpected decline in financial performance through the first half of fiscal 2013, largely due to the installation of a new information technology platform (Epic), encompassing 95 percent of all revenue components of the enterprise.'

You know when you see bond downgrade by rating agencies that  financial matters are really going badly.  

By May, 2013, month, the problems were evidently still not solved, and the hospital was forced to take more drastic measures.  As again reported by Richard Carver writing for the Winston-Salem Journal,

The workforce at Wake Forest Baptist Medical Center is paying a paycheck price to make up for the financial shortcomings to date of its Epic electronic records system.

The center said in a statement Thursday it has begun another round of cost-cutting measures that will last through at least June 30, the end of its 2012-13 fiscal year.


The measures include attempts at volunteer employee furloughs and hour-and-wage reductions, a hiring freeze, a reduction in employer retirement contributions, and elimination of executive incentive bonuses for 2013.

Management made clear that the cuts were in response to the Epic debacle,

Even though management said Thursday the center is making progress with fixing the Epic revenue issues, it acknowledged it 'will not meet projected financial targets for the current fiscal year.'

'Wake Forest Baptist has identified immediate multimillion-dollar savings with a series of short-term measures that impact personnel,' according to the statement.

To give credit where it is due, at least the cuts will apparently not affect line clinical employees:

 Those primarily affected by the volunteer furloughs and hour-and-wage reduction requests are nonclinical full-time employees, including administrative staff. They can volunteer to work as few as 30 hours a week with no loss of health or dental benefits for May and June. In the memo, management said employees can volunteer to continue the reduced-hour work week into fiscal year 2013-14.

However, it seems likely that they will affect many employees, including some proportion who likely had not responsibility for the problems with Epic.

When in Doubt, Lobby the Government

What the hospital system did not seem to be cutting was lobbying and public relations.  Perhaps this was a response to its unexpected inability to manage its own commercial health care information technology?  What bad management can lose, maybe government can supplant.  Once again Richard Carver had the story for the Journal:

Stung by a series of unusual setbacks at the General Assembly, the North Carolina hospital industry is launching a public relations campaign aimed, in part, at protecting revenues and staving off competition from lower cost surgery centers.

In a social media initiative targeted at lawmakers and their constituents, the N.C. Hospital Association says hospitals are 'fighting for their economic survival.' [It was not said whether they were fighting in part because they had already managed to shoot themselves in their economic feet - Ed]


The association and some of the state’s bigger hospitals also are hiring more GOP lobbyists to make inroads with the Republicans who control the state House, Senate and governor’s mansion.

The hospital association recently began promoting a new website — www.healthyhospitalsnc.org — that describes an array of financial threats.

Wake Forest Baptist is a big part of this initiative:

When asked about its lobbying efforts, Wake Forest Baptist spokeswoman Paula Faria said last week that the center’s Office of Government Relations monitors proposed legislation and regulations at both the federal and state levels.

'It informs North Carolina’s congressional delegation, members of the General Assembly and their staff about how proposed language could impact the day-to-day operations of the medical center.'

Maybe they should be first worrying about the impact of badly chosen, designed, or implemented commercial health care information technology on "day-to-day operations of the medical center" first.

 Summary

So the top executives of Wake Forest Baptist Medical Center have seen compensation rising at a rate greater than inflation and than the general public's income over the last few years.  In particular, the CEO has seen his compensation go up three and one-half times in three years!  The hospital system administration has justified this extraordinary increase by referring to supposedly "visionary" leadership.  Yet over this time frame these "visionaries" decided to implement an EHR whose first effects were to lose the hospital system a lot of money.  Based on previous anecdotes about the Epic system, it is quite possible it had other adverse effects.  For example, InformaticsMD discussed a case in which an EPIC system apparently lead to a large disruption in patient workflow and hence large increases in waits for acute care, and lead to errors that could have adversely affected patients.  So this underscores some important lessons:

So beware that "visionary" behind the curtain. As we have noted repeatedly, top health care managers can now easily make themselves rich.  They, their boards of directors (who may be their cronies), and their public relations flacks often justify their exorbitant compensation by their supposed brilliance, if not visionary status.  Such claims are rarely further explained, and mostly seem be be humbug, for want of a better term.  It seems that most top leaders of health care organizations have participated in the managers' coup d'etat, and become at least manager nobility, if not manager-kings  At least, the public should know that their compensation is what they can grab, and its justification is often nonsense. 

Note that contrary to a red herring argument often made, outrageous compensation is important not so much because of how much money it drains out of health care, although that can be large in the aggregate.  It is important because it reflects a system that is no longer accountable, and leaders who follow perverse incentives.

Such management compensation is almost never revisited to determine whether it turned out to be justified.  Instead, the public, watchdog organizations, health care professionals, and even politicians ought to demand accountability of health care management, good  justification for their compensation, and rationality for the incentives they are provided.  True health care reform would encourage well-informed, competent, mission-focused, honest, responsible, accountable and transparent management, leading organizations of manageable size.  But as long as things stay the same, expect the craziness to continue.   

WellPoint's Former Manager-Queen Got $20.6 Million and Its Nobility Got Millions

Score another for our new would be royalty, that is, for the hired managers who run big corporations.  Early this month a few scattered reports came out showing just how much even apparently failed executives of big health care organizations can make on their way out the door. 

A New Fortune for the Abdicating Queen of WellPoint

Last year we discussed the abdication of Angela Braly, the former queen of giant insurance company WellPoint.  We then speculated about how much she might abscond with.  Now the Associated Press has reported:

 The compensation paid to outgoing Wellpoint Inc. CEO Angela Braly last year rose 56 percent, even as the company's shares slid on lower enrollment in its Blue Cross Blue Shield health plans.

Braly, who resigned in August, received 2012 compensation valued at $20.6 million, according to an Associated Press analysis of the company's annual proxy statement. Most of the increase came from stock options.

Braly, 51, became CEO in 2007. She received a $1.2 million salary last year, up slightly from $1.1 million in 2011. Her compensation included a performance-related bonus of nearly $1.4 million. More than 85 percent of Braly's compensation came from stock options and awards, which totaled $17.8 million. That total was up from about $10 million the year before.

She also received $179,618 in other compensation, including $3,700 spent on security measures for her and her family due to concerns about her safety 'as a result of the national health care debate,' according to the proxy, which was filed Tuesday with the Securities and Exchange Commission.

Despite Bad Financial Performance and Investors' Losses

Remember, though, that Braly was asked to leave:

 investors had grown frustrated with the company's performance, leading Braly to resign last August. 

In particular, in terms of financial performance

shares fell 8 percent last year to close 2012 at $60.92, while the Standard & Poor's 500 index rose more than 13 percent.

WellPoint's 2012 earnings were nearly flat compared to 2011. The insurer earned $2.65 billion, or $8.18 per share, last year, as total revenue climbed 1.6 percent to $61.71 billion.

A slightly different analysis by the Indianapolis Business Journal came up with similar results,

 WellPoint’s membership growth came mainly from its acquisition of Virginia-based Amerigroup Corp., which operates Medicaid managed care plans for states. The rest of WellPoint’s existing business lost customers during 2012.

And while WellPoint has boosted earnings per share by continuing to buy back shares, overall profit was unchanged last year compared with about $2.6 billion in 2011.

WellPoint raised its dividend in 2012 and acquired 1-800-Contacts Inc. But its stock price fell 8 percent to close the year at $60.92 per share. Even taking into account dividends, WellPoint shares lost 6.3 percent of their value during the year.

So while the nominal owners of the company, the investors, lost money on their investments, the CEO who presided over this loss left with a huge pile of cash.

The Royal Court of WellPoint Also Prospered

Incidentally, the Indianapolis Business Journal also showed that WellPoint executives who did not leave generally got big increases in their compensation, again while the company owners to whom they ostensibly report lost money,

WellPoint Inc.’s top brass all enjoyed double-digit bumps in 2012 compensation, according to a proxy released April 2, even though the stock price fell and the company admittedly did not meet its financial goals.

The Indianapolis-based health insurer’s board of directors approved higher salaries and larger potential stock awards heading into 2012 after most of its top executives saw their pay hold steady or decline in 2011.

The company’s performance merited its executives receiving only 83 percent of their target stock awards. But because the board had already established larger pools of stock to award to executives, the value of those awards still rose over previous years. Bonus amounts fell in 2012 compared with the previous year.

The extra cash and stock drove up Chief Financial Officer Wayne DeVeydt's overall pay 11.9 percent to nearly $4.4 million.

Ken Goulet, executive vice president of WellPoint's commercial insurance business, saw his total compensation rise 18.2 percent to nearly $4.4 million.

And Lori Beer, executive vice president of information technology, enjoyed a 17.9-percent boost. She earned $3.2 million, although that was still below the nearly $4.5 million she received in 2010.

John Cannon, the general counsel, saw his compensation more than double to nearly $6.5 million. But that was partly because WellPoint hiked his salary by $350,000 and gave him a $500,000 bonus for agreeing to serve as interim CEO after the August resignation of former CEO Angela Braly.

Despite Angry Policy-Holders and Ethical Missteps

So the compensation given the outgoing CEO and some of the remaining top hired managers seemed wildly out of proportion to the company's financial results.  Could the generosity they received be based on how well the company performed in other dimensions?  That, of course, seems equally improbable.

The Los Angeles Times noted,

 Braly had also caught the ire of consumers and even President Obama in 2010 for trying to raise rates by up to 39% in California. The national outrage that ensued helped Obama win approval for his healthcare overhaul in Congress.

Furthermore, as we have discussed again and again, most recently here, WellPoint has a very sorry record of ethical misadventures.   (The updated list is at the end of this post.)  So one could certainly not justify the huge payments given WellPoint hired managers by their upstanding ethical leadership.

Summary

In a new book just published by Robert A G Monks, entitled Citizens Disunited, the author describes one of the biggest problems affecting the US economy and society as the rise of "manager-kings."  Clearly, Angela Braly could be called the former "manager-queen" of WellPoint.  The company seemed to be run primarily for the benefit of the queen and her court, while its investors lost money, its customers became outraged, and it stumbled from one ethical quandary to another.

In the eighteenth century, British colonial subjects in North America succeeded in a revolution that lead them out from under the rule of a British King.  How many examples do we have to have before there is action to repudiate the rule of our new manager-kings and queens?  And to turn health care back into a calling meant to put patients' and the public's health first, rather than a feudal society meant to benefit its nobility?

As we have said again, again, again,...

True health care reform would decrease the size and scope of health care organizations, and make their leaders accountable to ownership, when appropriate, and to the community at large for patients' and the public health. 



Appendix: WellPoint's Ethical Misadventures

• settled a RICO (racketeer influenced corrupt organization) law-suit in California over its alleged systematic attempts to withhold payments from physicians (see 2005 post here).
• subsidiary New York Empire Blue Cross and Blue Shield misplaced a computer disc containing confidential information on 75,000 policy-holders (see 2007 story here).
• California Anthem Blue Cross subsidiary cancelled individual insurance policies after their owners made large claims (a practices sometimes called rescission).  The company was ordered to pay a million dollar fine in early 2007 for this (see post here).  A state agency charged that some of these cancellations by another WellPoint subsidiary were improper (see post here).  WellPoint was alleged to have pushed physicians to look for patients' medical problems that would allow rescission (see post here).  It turned out that California never collected the 2007 fine noted above, allegedly because the state agency feared that WellPoint had become too powerful to take on (see post here). But in 2008, WellPoint agreed to pay more fines for its rescission practices (see post here).  In 2009, WellPoint executives were defiant about their continued intention to make rescission in hearings before the US congress (see post here).
• California Blue Cross subsidiary allegedly attempted to get physicians to sign contracts whose confidentiality provisions would have prevented them from consulting lawyers about the contracts (see 2007 post here).
• formerly acclaimed CFO was fired for unclear reasons, and then allegations from numerous women of what now might be called Tiger Woods-like activities surfaced (see post here).
• announced that its investment portfolio was hardly immune from the losses prevalent in late 2008 (see post here).
• was sanctioned by the US government in early 2009 for erroneously denying coverage to senior patients who subscribed to its Medicare drug plans (see 2009 post here).
• settled charges that it had used a questionable data-base (built by Ingenix, a subsidiary of ostensible WellPoint competitor UnitedHealth) to determine fees paid to physicians for out-of-network care (see 2009 post here). 
• violated state law more than 700 times over a three-year period by failing to pay medical claims on time and misrepresenting policy provisions to customers, according to the California health insurance commissioner (see 2010 post here).
• exposed confidential data from about 470,000 patients (see 2010 post here) and settled the resulting lawsuit in 2011 (see post here).
• fired a top executive who publicly apologized for the company's excessively high charges (see 2010 post here).
• California Anthem subsidiary was fined for systematically failing to make fair and timely payments to doctors and hospitals (see 2010 post here).
• management was accused of hiding the company's political contributions from the company's own stock-holders (see 2012 posts here and here).
• settled charges that its Anthem subsidiary cheated former policy-holders out of money owed when that company was converted from a mutual insurance company (see 2012 post here)

More Cause for Hope - After Novartis Chairman's Rescinded Golden Parachute, Swiss Voters Give Control of Hired Executives' Salaries Back to Owners

Recently, we discussed the latest stupefyingly big golden parachute given to a departing pharmaceutical executive.  Former Novartis CEO and outgoing chairman Daniel Vasella was to be given more than $75 million, after making multiple millions previously, ostensibly so he would not go to work for a competitor.  After a public outcry, the company cancelled the plan, and Vasella admitted a "mistake."  This was the only instance in recent memory in which a big health care organization pulled back some huge executive pay package due to public protest.

Swiss Voters Give Control of Pay of Hired Executives Back to Company Owners

Now Swiss voters have approved a referendum which would actually let the owners of public companies, the stockholders, decide how much to pay hired executives.  As summarized by the New York Times,

Swiss citizens voted Sunday to impose some of the world’s most severe restrictions on executive compensation, ignoring a warning from the business lobby that such curbs would undermine the country’s investor-friendly image.

 The vote gives shareholders of companies listed in Switzerland a binding say on the overall pay packages for executives and directors. Pension funds holding shares in a company would be obligated to take part in votes on compensation packages.

In addition, companies would no longer be allowed to give bonuses to executives joining or leaving the business, or to executives when their company was taken over. Violations could result in fines equal to up to six years of salary and a prison sentence of up to three years. 

The new rules in Switzerland would be unprecedented in the current era.  

Those who are Ostensibly Pro-Business Defend Hired Executives, not Owners

Despite the fact that the new rules would give control over one type of hired employees, hired executives, back to the shareholders, the owners of companies, spokespeople for big companies, but presumably really for their top executives, claimed that the rule would be bad for shareholders.

 

Ahead of the vote, [the Swiss business federation] EconomieSuisse and Mr. Minder’s other opponents warned of dire consequences if the referendum passed, notably in terms of keeping Switzerland attractive to foreign companies and investors. 

But [chief proponent of the new rules] Mr. Minder argued that Switzerland would benefit if it gave shareholders control over the companies in which they invested.

Furthermore, the Guardian reported, 

Minder says the massive sums demonstrate that company boards have lost control of pay and prefer to fork out 'astronomical' salaries rather than pay dividends to shareholders.

Minder told the Swiss daily Le Temps that the only solution was to give shareholders the power to set pay.

 A Bloomberg article suggested that driving the vote were how the Swiss are

 worried about how long they can fend off the crisis that has engulfed the rest of Europe, and dissatisfied with a feeling of being ripped off by their elites.

'It is scandalous. No one deserves to be paid such monstrously high salaries, especially when their employees get paid not much in comparison,' Marianne Lecoultre, a pensioner who lives in a modest flat on the outskirts of Geneva, told me. 

The Germans are Thinking of Making Hired Executives More Accountable

The German media outlet Deutsche Welle reported that there is now more interest in returning control of hired executive pay to company owners there as well.

 After Swiss citizens voted Sunday to impose controls on executive pay, a similar debate has started in Germany. 

Furthermore,

Joachim Poß, the parliamentary leader of the opposition Social Democratic Party, told the daily Neue Osnabrücker Zeitung that the outcome of the referendum was an important step towards restricting the money-grabbing prevalent in corporate management,

He noted that the referendum was encouragement for an initiative at the EU level, and added that 'people do no longer accept perverted bonus systems, neither in banks nor in the real economy.'

Summary: Ripped Off by Health Care Elites

I can start to imagine how supposedly pro-business people in the US will dismiss actions taken by European countries as anti-business and probably "job killing," even though these actions actually gave more control of publicly held business to their owners, not to government, which would seem to be fully in support of capitalism.  Again, maybe some people making the loudest pro-business noises are really sympathetic to, if not paid by, the hired managers of businesses who have put their enrichment ahead of the interests of other employees, customers, clients or patients, the business owners (stockholders, that is), and the public at large. 

Enormous compensation of hired health care executives, out of all proportion, if related at all to whether their work had any positive effect on patients' or the public's health, has long been a concern on Health Care Renewal.  For example, back in 2006, we posted repeatedly (look here for links) about the billion dollar plus fortune amassed by the then CEO of UnitedHealthcare which vividly contrasted with the company's avowal to "make health care more affordable."  That seemed to be an example back then of a rip off by a member of the health care elite.  Now the notion that our top elites have been generally ripping us off is becoming more widespread.

In my humble opinion, the perverse incentives generated by a system that allows top executives to make almost unlimited amounts, regardless of all other considerations, has been a major reason for US and global health care dysfunction.  Making executive compensation less perverse, and ultimately making health care leaders accountable for the effects of what they do on patients' and the public's health may be an absolutely necessary step to make our health care system more functional.  Now at least there is some precedent, admittedly from Europe, for making top hired managers more accountable. 


As Pierre Briancon wrote in Reuters,

 Corporate boards had better take notice: public outrage at what looks like persistent and unapologetic greed in the most severe economic slump in decades is forcing governments to step in. Throughout Europe, indignation at private excess has become a policy problem for administrations trying to explain the need to cut public spending.

In addition,

Self-moderation doesn’t work and self-interest continues to prevail. Throughout the Western world, corporate boards have paid lip service to the need to take into account public opinion, and nothing much has changed either in the banking industry – the symbol of immoderation – or in the wider corporate world. In desperation, governments are taking more forceful action – sometimes reluctantly: the Swiss referendum followed a failure by the country’s parliament to heed to public indignation.

Government intervention can often be clumsy, and it is fraught with the risk of unintended consequences. But it is the right of governments to legislate on social ills – and excessive and provocative private-sector pay has become one. Meanwhile the lobbies promising economic apocalypse have failed to make their case – and to scare anyone with warnings that 'talent' – as they call it – may relocate to friendlier countries. It would be in the interest of all if they stopped turning a deaf ear to calls for decency emanating even from countries like Switzerland, which is hardly a hotbed of Soviet-style command economics.

Even though the final impetus for the overwhelming majority vote on the Swiss referendum came from a ridiculous golden parachute from a pharmaceutical company, the discussion so far has not centered on health care.  So I get to close with something I have repeated on and on, now with a little hope that it may not be considered so extreme....

 Health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.

If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.

Wall Street Journal Defends Hired WellPoint Executives' Lack of Accountability to the Company's Owners

The lack of accountability of the hired managers (or executives or bureaucrats) of health care organizations came into sharper focus thanks to a bizarre, in my humble opinion, Wall Street Journal editorial from last week. 

Background: Shareholder Campaign for Oversight of Hired Executives Use of Corporate Money for Political Purposes

In the background is the campaign by some of the owners, that is, shareholders of giant publicly held for-profit insurance company WellPoint to make its executives' attempts to involve the company in politics more transparent and accountable.  (See our previous post here.)  As noted more recently in Fortune (by way of CNN),

shareholders and major U.S. companies have been meeting behind the scenes to discuss improvements in oversight and disclosure practices. 'Companies need to remember that shareholders have a right to know how their money is being spent,' wrote Eric Sumberg, spokesperson for New York State Comptroller Thomas P. DiNapoli, representing the New York State pension fund, in an email. 'Transparency and full disclosure will help to deter high risk political spending that could hurt shareholder value.'

Aetna and WellPoint are two companies contending with shareholder proposals on political spending disclosure this year.

The Center for Public Accountability (CPA) rates the disclosures at Aetna and WellPoint as having 'room for improvement.' Both WellPoint and Aetna have disclosure practices that 'leave significant room for serious misrepresentation of the company's political spending through trade associations,' according to the Center's Political Accountability and Transparency Reports. According to the Center reports, both companies gave money to AHIP (American Health Insurance Plans). And $86 million in funds from AHIP were allegedly funneled to the Chamber of Commerce to lobby against health care reform, according to reports from Bloomberg and the National Journal.

Note that this money was supposedly used by WellPoint executives to undermine the Obama administration's health care reform proposals while the company was publicly supporting aspects of these proposals.

The Wall Street Journal Says Hired Executives Not Accountable to Shareholders

The Wall Street Journal's editorial page's denunciation of this campaign by corporate owners to assert their rights, and the accountability of hired managers opened thus,

The campaign to intimidate companies from exercising their free-speech rights is in high gear as shareholder proxy season arrives, and the most prominent early target is health-insurer WellPoint. The arc of this attack will be one of the election year's political leitmotifs, and it should be on the radar of every corporate boardroom.

In the favored new tactic of the left, unions and activists are using politicized shareholder resolutions to send a message to corporations: Drop support for free-market and conservative causes, or you'll take a political beating.

The Journal conveniently ignored that the campaign is not from outside the corporation, but from its very owners, and that the people they are supposedly trying to intimidate are actually supposed to be responsible to them.  In addition, it begged the question of how political spending by hired corporate bureaucrats unaccountable to the people who own the company could possible have anything to do with free markets.

If some owners do not think that executives should be spending company money on political causes (especially presumably causes that the executives favor, or that reflect the executives' self-interest), they have a perfect right to think so, and to act on their thoughts.


Then the  Journal went on to assail the shareholders' challenge to some members of the WellPoint board of directors.  After first defining Change to Win as a "union front group," -

Change to Win is now targeting WellPoint's annual meeting on May 16 when it will demand that shareholders vote against board members Julie Hill and Susan Bayh (wife of former Indiana Democratic Senator Evan Bayh) because the company has refused to disclose or stop all of its political spending. Among the company's crimes? Corporate funding of, you guessed it, ALEC.

Now let us back up a minute. This is about a campaign by stockholders, that is, people who are owners, albeit fractional owners of WellPoint. It is some shareholders who want to vote against the particular board members.  WellPoint directors are supposed to have a fiduciary duty to represent the stockholders', that is, the owners' financial interests. If stockholders think members of the board of directors are not representing the stockholders' interests, the stockholders have a perfect right to vote against them. 

However, the Journal fulminated,

The union attack on WellPoint is notable for targeting two board members by name and the effort to make extra hay out of Susan Bayh's political profile. (Added frisson: Evan Bayh has worked as a consultant to the Chamber.) The ad hominem attack is right out of the Saul Alinsky playbook and is intended as a warning to other corporate directors that their personal reputation will be damaged if they don't force companies to stop donating to industry groups.

Note further that all stockholders are owners, whether they are also union members, or have green hair. Note further that the owners again have a perfect right to criticize or vote against board members who they believe are not properly exercising their fiduciary responsibilities to stockholders, that doing so has nothing to do with the ad hominem fallacy, and that this right is not nullified for stockholders with particular political opinions, or stockholders whom the Wall Street Journal does not like.

Summary

So we see the Wall Street Journal, supposed defender of capitalism, attacking a fundamental part of capitalism, the right of ownership, corporate ownership in this case. Instead, presumably, the Journal editorialists thinks that hired corporate executives ought to be completely unaccountable to the stockholders, and able to do whatever they want, including to do what is in their self-interest but not the owners' interests.

So this is how far the coup d'etat by hired executives/ managers/ bureaucrats has progressed. Supposed defenders of capitalism are now defending the rule of hired corporate insiders, completely disregarding the rights of owners. All we are lacking is a catchy name for rule by the hired managers/ bureaucrats/ executives. I am open to suggestions.

We have long criticized leaders of health care organizations who are ill-informed, unaware or hostile to health care professionals' core values, self-interested, or even corrupt.  We have discussed how bad leadership has advanced as leaders have become less accountable.  It appears that the lack of accountability of health care leaders, and their tendencies to put their own interests first, is part of a larger problem.  This is the take-over by most of society's important organizations by the managers, bureaucrats, and executives who were hired to run them.  For profit corporate hired leaders have become unaccountable to the corporations' owners.  Non-profit organizations' hired leaders have become unaccountable for the mission, or for their organizations' stakeholders. 

If we want health care, and democratic society to survive, we need to counter the managers' coup d'etat and make leaders accountable once again.