Another Reason for Hope? - Concern about Excessive Executive Pay in Health Care Goes Mainstream

Another recent case suggested that the problem of excess, disproportionate compensation of health care executives is becoming more of a mainstream concern. 

The Case of Eastern Connecticut Health Network

The case appeared in the Manchester (CT) Journal-Inquirer (link requires subscription).  Here are the basics:

ECHN Inc., which owns Mancester Memorial and Rockville General hospitals, reported to the IRS last year that the company paid its president and CEO, Peter J Karl, a total of $1,042,200 in salary and fringe benefits.  That's a 30.7 percent increase over Karl's compensation reported in the previous year,....

ECHN also reported that six other top executives were paid between $254,640 and $591,090, representing increases of as much as 20.6 percent. 

ECHN is yet another relatively small non-profit hospital system with a million dollar plus CEO.

For comment on this, I turn back to the Journal-Inquirer article.  One person the reporter interviewed

says the big salaries and bonuses paid to top officials at Eastern Connecticut Health Network are part of a national scandal over executive compensation propelled by the 'pursuit of talent for short-term gains.'

'The hospital industry is emblematic of what's happened in executive compensation in the United States, where the multiple of the lowest- paid employee to get to the salary of the highest-paid employee has just exploded over the last 30 years,'....

Furthermore, the person interviewed noted that hospital executives were bemoaning decreases in payments to their institutions by state government "while making 10 to 20 times as much money as" the state governor makes.  In this case, the CEO, Mr Karl's "compensation package was 6.9 times [Governor Daniel P] Malloy's salary of $150,000."

A second person interviewed said

Salaries have gotten to the point where they have skyrocketed and are out of control.

He also raised an issue about conflicts of interest affecting the ECHN board

he agreed with state health care advocate, Victoria Veltri, who told the Journal Inquirer last week that nearly $1 million in business deals between ECHN and five members of its board of trustees require further scrutiny

Criticism from the Mainstream

I have been coy about who the commentators were, but bear with me.

So we see in this one somewhat obscure newspaper article about one small regional hospital system points that we have been raising for years about the perverse incentives generated by excess executive compensation in health care.  We have frequently discussed how such compensation is often completely untethered to the organizations' financial results, much less its positive effects on patients' and the public's health.  Compensation often rises faster than inflation, faster than revenue (and sometimes when revenue declines and deficits loom), and even when the organization is facing financial, clinical, or ethical challenges.  Thus it often seems that the primary goal of the organization has become enriching top executives (look here for a recent example).  As the first commentator noted above, this seems to arise out of the business school dogma that puts short-term revenue ahead of all other goals (which we discussed here, and can be termed financialization.)

But our concerns do seem to be getting more mainstream.  The first commentator above was actually the Governor of Connecticut, Dannel P Malloy, himself.  The second commenter was Connecticut state Senator Steve Cassano.  So prominent politicians are beginning to see the perversity of excess executive compensation in health care at a time of still burgeoning health care costs and still threatened health care access and quality. 

So maybe some more people will listen this time when we repeat....  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.

For Whom Does the Center for the Protection of Patient Rights Advocate?

We have occasionally discussed the cases of  some patient advocacy organizations which seem to be influenced by substantial financial support from the health care industry.  For example, look here and here.  Related are "astroturf" organizations, which promote policies that may be favored by their industrial sponsors (e.g., here.)

Background on the Center for Protection of Patient Rights

The topic of this post is the Center for Protection of Patient Rights, which may have started out as something like an astroturf organization, but seems to have become something even more interesting.  The Center, which, by the way, seems not to have a web-site, was the subject of an investigative report in the Los Angeles Times in May, 2012.  Here is the article's description of how the Center began,

The Center to Protect Patient Rights was created in April 2009, just as the debate over the healthcare bill was heating up. The group's mission was to 'protect the rights of patients to choose and use medical care providers,' according to its corporate paperwork, filed in Maryland.

While never surfacing publicly, the center sent more than $10 million in its first year to groups such as Americans for Prosperity, which took a lead in protesting the measure.

'I think they saw what we were doing and liked it,' said Tim Phillips, president of Americans for Prosperity, which got $4.1 million. He said he did not know the source of the center's funding and declined to comment on whether it still supports his group.

So this group supported an advocacy position about health care reform, so perhaps it could be considered an astroturf organization, were we to know it was funded by the health care industry.  Many astroturf organizations do reveal support from particular corporations.  However, at the time the Los Angeles Times published the report, the source of the Center's funding was unknown. 

Secretive Leadership

Furthermore, while astroturf organizations may be eager to get more public notice, presumably so they can further their advocacy, the Center seemed oddly secretive.  Its executive director and president is one Sean Nobel.  However, as the LA Times article noted,

Noble did not respond to repeated phone calls and emails. Courtney Koshar, a Phoenix anesthesiologist and the organization's only other director, did not respond to requests for comment. And a Phoenix doctor who once sat on its board said he couldn't remember who asked him to join.

'I honestly played very little role,' said Dr. Eric Novack, who headed an organization called the US Health Freedom Coalition that received nearly its entire budget — $1.7 million — from the center to help pass a state ballot measure that aimed to block President Obama's healthcare overhaul.

Support for Political Organizations, not Health Care Advocacy

Even more curiously, despite its name, the most of the Center's spending was not for advocacy about health care reform, but went to organizations that  seemed to have little or nothing directly to do with health.  As the Times reported,

During the 2010 midterm election, the center sent more than $55 million to 26 GOP [Grand Old Party, that is, Republican Party] -allied groups, tax filings show, funding opaque outfits such as American Future Fund, 60 Plus and Americans for Job Security that were behind a coordinated campaign against Democratic congressional candidates.

It seemed that these grants were used for nothing that directly related to health.  For example,

The largest share of the center's money went to American Future Fund, a Des Moines-based group started by onetime GOP congressional aide Nick Ryan. The fund, which ran campaigns against two dozen Democrats in the 2010 election cycle, spent $23 million that period, tax filings show, with nearly $13 million coming from the center.

Its biggest target was an up-and-coming Iowa Democrat, Rep. Bruce Braley. In August 2010, American Future Fund launched an ad falsely claiming that Braley supported building a mosque at the former World Trade Center site in New York — the beginning of a $2-million fusillade that included radio ads, robo-calls and nine mailers.

A list of the recipients of the Center's 2010 grants was also publised in the LA Times here.

Where Did the Center Get its Support?

Just before this week's US election, the plot thickened.  The LA Times reported that because of the Center's obviously political activities in California, an effort was made to determine its source of funding, but that came up short.

After a frantic court battle, state election officials succeeded Monday in forcing an Arizona group to disclose the identities of contributors that provided $11 million to a California campaign fund.

But the revelations added little clarity for voters. The mystery donors turned out to be other nonprofits, whose individual contributors remained secret.

The money started with the Virginia-based Americans for Job Security and was transferred to a group called the Center to Protect Patient Rights. Over the course of a few days in October it was sent to the Arizona group, Americans for Responsible Leadership, and then transferred again to California.

Finding the source of the money 'becomes daunting,' said Derek Cressman of Common Cause, an activist organization that filed the original complaint about the donation. 'How many layers can you drill through?'

Note that in 2010, the Center for Protection of Patient Rights gave money to the Americans for Job Security, but in 2012, the latter organization gave money to the former - curiouser and curiouser. 

Allegations of Illegalities, Including Money Laundering

It turns out the Americans for Job Security has been in trouble before for activities that seemed contrary to state election law:

Americans for Job Security, one of the nonprofits involved in the $11-million donation, was investigated by Alaskan officials for its role in a 2008 mining referendum.

Authorities concluded that the organization's 'sole purpose is to allow individuals and corporations to financially support various causes without having to disclose that financial support.'

That investigation showed how a wealthy landowner sent $2 million to the group, which then funneled most of it back to Alaska to try to fend off construction of a mine near the landowner's property.

Americans for Job Security agreed to a settlement, paying a $20,000 fine and pledging 'not to engage in similar activity' again in Alaska.

In addition, the Mercury News reported allegations that the fund transfers by the Committee for the Protection of Patient Rights were illegal.

two conservative groups, Americans for Job Security and the Center to Protect Patient Rights, are part of a tangled web of so-called dark donors who operate largely out of public view, shielded by their status as nonprofit advocacy groups that are supposedly not involved primarily in politics.

While the groups have been identified, however, individual donors who have bankrolled them remain a mystery.

But 'this isn't going to stop here,' said Ann Ravel, chairwoman of the Fair Political Practices Commission, the state's political watchdog. 'They admitted to money laundering. We agreed to do this without an audit because we wanted to get information to the public before the election. But we in no way agreed this would preclude further action.'

The FPPC determined that the Arizona group, Americans for Responsible Leadership, had violated California campaign law.

Money laundering -- sending money through multiple sources to conceal the original donor -- is a misdemeanor. But a conspiracy to commit money laundering is a felony. It was not clear Monday whether the FPPC or the state Attorney General's Office will pursue criminal charges.

Summary

So the answer to the question posed in the title of this post is unknown.  At this point, there is nothing public that indicates for whom the Center for Protection of Patient Rights advocates.  However, it is hard to conceive that its advocacy is for patients. 

So rather than merely being an astroturf organization (a health care policy advocacy group funded by industry money), the benignly named Center for the Protection of Patient Rights appears to be a dark money group whose goals may have allegedly included money laundering to facilitate vast monetary influence on political campaigns by people and organizations whose identities remain secret.

We have often discussed the role of deception in health care, including stealth marketing, stealth public policy advocacy, and stealth lobbying.  Now we see health care being used as a vehicle for political deception, stealth political campaigns being disguised as stealth public relations campaigns.  The convolutions of the deceptions induce dizziness. 

Of course, this is the opposite of the sorts of transparency health care professionals and academics ought to support, and patients and the public ought to demand.  How will we ever improve health care when health care organizations are used to hide layer upon layer of deception?

Real improvements in health care require health care leadership dedicated to transparency, honesty, and accountability. 

Majority of the Public Wants Politicians Who Will Root Out Corporate Corruption

Here is a story that makes me unusually optimistic, at least about the wisdom of the people at large. Reuters reported on a new poll,  

With less than two months to go before the U.S. presidential election, a new survey found 61 percent of Americans say a candidate's commitment to rooting out corporate wrongdoing will be key in deciding who gets their vote.

Along with keen interest in knowing each candidate's plans to fix the struggling economy, voters want government to do more to fight corporate misconduct - which they say helped cause the financial crisis.

'In these difficult economic times, Americans are mad as hell about corporate wrongdoing and are going to do something about it in the November elections and beyond,' said Jordan Thomas, a partner at law firm Labaton Sucharow, which commissioned the survey and which represents corporate whistleblowers.

A telephone poll of 1,015 people conducted from August 16-19 found that 64 percent of Americans said corporate misconduct helped bring about the current economic crisis.

And 81 percent of respondents said the government has not done enough to stop corporate wrongdoing.

Furthermore,

77 percent of respondents saying they believe politicians favor corporate interests over constituent interests.

Some 63 percent of Americans believe government should make more money available to regulators and law enforcement to eliminate corporate wrongdoing.

This is really amazing in its contrast to the usual received wisdom in all its cynicism.

We on Health Care Renewal have been railing about misbehavior and outright criminal behavior by major health care organizations and their leaders for a long time.  In 2008, the global financial collapse shocked us into awareness that the problems in health care actually parallel perhaps worse problems in finance.  Yet while numerous legal settlements documented the continuing epidemic of bad behavior in health care, the relatively small penalties they entailed, generally limited to corporate fines that could be viewed as costs of doing business, and to toothless corporate integrity agreements seemed to do little to deter future bad behavior.  Again, since 2008 there were parallels in the world of finance.   As Oscar winning producer of Inside Job Charles Ferguson complained, no one went to jail for financial misbehavior either.

In health care, the anechoic effect dampened public discussion of bad leadership, including criminally bad leadership as a major cause of health care dysfunction.  While we have been calling for more serious efforts to deter bad behavior at least since 2008 (look here), our position seemed very lonely.  It took until last week for arguably the most prestigious US medical journal to run an article suggesting that leaders of health care corporations that commit fraud ought to go to jail (look here).

Yet it may be that the general public has been paying attention to this issue even if policy makers and political leaders have not.  The brief Rueters article did not make it clear whether these poll results only apply to wrongdoing by financial corporations and their leaders, or to all corporations and their leaders. Even if it were the former, the results were certainly striking, suggesting a majority of Americans now identify corporate corruption, and its influence on politics as a major, maybe the major problem for this country. That might lead to some interesting election outcomes, especially since very few US politicians seem to have taken any sort of stand against corporate corruption, at least to my knowledge.

If there is so much public awareness of the problem of bad corporate leadership, corporate misdeeds, and corporate corruption of politics, I can only hope that it will translate into awareness of these problems as they affect health care. As I wrote in 2009, not long after Pfizer's mere $2.3 billion settlement,...   "Until the people responsible for the bad behavior experience negative consequences from that behavior, they will continue to perform, direct, and condone bad behavior. We will not achieve real health care reform in the US until we effectively deter unethical, self-serving behavior by leaders of health care organizations."  We can start realistically anticipating real health care reform once we get some politicians in office who are committed to "rooting out corporate wrongdoing."