Still No Questions Asked - Journalists Fail to Challenge Talking Points Used to Justify Million Dollar Plus Executive Compensation at New York Non-Profit Hospitals

boards of trustees conflicts of interest executive compensation hospital systems hospitals perverse incentives

Still No Questions Asked - Journalists Fail to Challenge Talking Points Used to Justify Million Dollar Plus Executive Compensation at New York Non-Profit Hospitals

Unknown 6/29/2016 Komentar

It's deja vu all over again. I even get to reuse the introduction of a post from one month ago.  As I wrote in May, 2016,...

 The problem of ever rising, amazingly generous pay for top health care managers is a frequent topic for Health Care Renewal.  We have suggested that the ability of top managers to command ever increasing pay uncorrelated with their organizations' contributions to patients' or the public's health, and often despite major organizational shortcomings indicates fundamental structural problems with US health, and provides perverse incentives for these managers to defend the current system, no matter how bad its dysfunction.

In particular, we have written a series of posts about the lack of logical justification for huge executive  compensation by non-profit hospitals and hospital systems.  When journalists inquire why the pay of a particular leader is so high, the leader, his or her public relations spokespeople, or hospital trustees can be relied on to cite the same now hackneyed talking points.

As I wrote last year,  and last month,

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

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

Yet as we discussed recently, these talking points are easily debunked.  Additionally, rarely do those who mouth the talking points in support of a particular leader provide any evidence to support their applicability to that leader.

Bit at least most journalists who inquire into hospital executive compensation used to make an attempt to be "fair and balanced" by also quoting experts who question the talking points.

But not so much lately,...

Million Dollar Plus Hospital CEOs in New York

The Journal News, based in the northern New York City suburbs, ran a series of articles about executive pay and perks at NY hospitals and hospital systems.  The main aricle in the series is here.  A listing of the five highest paid hospital officials is here.  A listing of executive perks, and conflicts of interests affecting the hospitals' and hospital systems' board members is here.  The main article began,

New York's nonprofit hospitals paid millions in bonuses to executives and doctors despite a high-stakes battle to reduce health care spending.

As patients struggled to afford rising medical bills, incentive packages for top hospital executives reached seven figures and approached payouts at Wall Street banks, The Journal News/lohud has found.

Perks at the nonprofit hospitals included first-class plane tickets, chauffeurs and country club memberships. Severance and retirement payments mirrored golden parachutes awarded to for-profit corporate executives.

The article noted that 112 people who worked for non-profit hospitals in the Lower Hudson valley earned more than $1 million.  The biggest pay went to the top executives of the biggest systems:

Bonuses and payments spiked the highest among executives at the helm of major hospital consolidations, data show.

North Shore University Hospital’s President/Chief Executive Officer Michael Dowling topped the list in 2014. He was paid $10.1 million in salary, bonuses and other pay. That is compared to $3 million in 2010.

Dowling’s payments came as the Long Island hospital and its affiliated organization, then North Shore-LIJ, began its ongoing expansion.

The health system, now Northwell Health, has pushed into the Lower Hudson Valley, partnering with Northern Westchester Hospital in Mount Kisco and other regional providers.

Also,

Dr. Steven Safyer, president and CEO of Montefiore Medical Center in the Bronx, was paid nearly $4.9 million in 2014, including a bonus of $1.3 million.

That's an $800,000 increase from the $4.1 million he was paid in 2010. It came as Montefiore bought bankrupt hospitals in Mount Vernon and New Rochelle, and pushed its expansion northward into Westchester County, which now includes a partnership with White Plains Hospital.

Note that Dr Sayfer also was given a hospital-paid car and driver.  

An accompanying article noted the three other highly paid CEOs in New York state, Warren Hern, CEO of Unity Health Systems in Rochester, $7,490,213;  Mark Clement, CEO of Rochester General Hospital, $5,323,856; and Dr Steven Crowin, CEO, New York Presbyterian Hospital, $4,591,728 [who also benefited from a policy allowing first-class or business airfare for flights over 6 hours, and some form of housing allowance.)

Other million dollar plus CEOs in the Lower Hudson valley included John Federspeil, president, Hudson Valley Hospital Center, $2,055,377; Joel Seligman, CEO, Northern Westchester Hospital, $2,043,289; Dr Cary Hirsch, CEO, Bon Secours Charity Health System (Good Samaritan Hospital in Suffern), $1,170,575; Keith Safian,  CEO, Phelps Memorial Hospital Center, Sleepy Hollow, $1,494,760; Lawrence Levine, CEO, Blythedale Children's Hospital, $1,701,471, Edward Dinan, CEO, Lawrence Hospital Center, $1,707,780; Dr Craig Thompson, CEO, Memorial Sloan-Kettering Cancer Center, $2,944,926 (who also got first-class or coach airfare for flights over 6 hours, and some form of housing allowance); and Jon Schandler, CEO, White Plains Hospital, $1.799,952.

The Usual Talking Points to Justify Executive Compensation

The Journal News article also included justifications for this munificent pay by hospital officials that used the usual talking points. 

We have to pay competitive rates

We have to pay enough to retain at least competitive executives


The spokesman for Northwell Health asserted,

The fact that we're located in the New York market ... only increases the competitive pressures on compensation.

Then,

Julius Green, a partner at Baker Tilly, a New Jersey-based accounting firm advising 100 hospitals in the Northwest, attributed expansions and higher pay to growing competition nationwide.

Also, from Blythedale Children's Hospital,

As the [Affordable Care Act] mandates take effect, and the number of insured individuals rise, the need for skilled healthcare workers will surely increase as will the competition for that talent.

Our executives are brilliant

Said Michael West, senior attorney for the New York Council of Nonprofits,

If you're running an organization that has a $500 million budget, you have to have someone with the wherewithal to run it and you have to pay for that.

Said Rachael McCallen, a Montefiore spokeswoman,

Our executives navigate a complex healthcare environment making appropriate investments to ensure a forward-thinking, innovative and responsive care model that provides higher value, lower cost integrated care services.

Furthermore, the next week the Journal News publised an op-ed by William Mooney, CEO of the Westchester County Association, which was devoted to defending the pay of his fellow CEOs.  It started with indignation against anyone who would question the pay of our fearless leaders,

While it is fashionable to cast aspersions on high-income earners, the arguments set forth about the compensation levels of area health-care CEOs are misguided and erroneous.

Then Mr Mooney again hit the talking points.

We have to pay competitive rates

We have to pay enough to retain at least competitive executives

Given that a hospital is a community organization, the compensation of their executives is decided by boards made up of community members who base their decisions on research, competitive market analyses and responsible financial projections.

Our executives are brilliant

Running a hospital is a business unlike any other. First and foremost, hospitals are complex organizations that are about protecting and promoting health, and saving lives.

Also,

A hospital CEO is responsible for overseeing and guiding his or her staff through a maze of financial and regulatory challenges while making sure safety and performance standards are at the highest possible levels.

Third, the technology and infrastructure enhancements that today’s hospital CEO must manage are vast and rapidly changing. The staffing required to support all of these disparate functions encompasses a wide range of skill sets and education. A hospital CEO must understand and manage all of those roles, and must keep an eye on the demands and responsibilities of maintaining new technology.

In addition, the op-ed concluded with the argument:

your readers would be better served by reporting on the qualitative and quantitative benefits our community derives from having the best health-care leaders in the nation at the helm of our local hospitals.

And these leaders to more than manage finances. The op-ed implied that hospital CEOs are personally responsible for savings lives. This can be seen in the quote above under the brilliance argument, and later:

Non-profit status is conferred upon an organization that does something for the public good. Saving lives clearly is in the public’s best interests!

This despite the fact that the majority of CEOs in the article above, and indeed the majority of top managers of hospitals and hospital systems are not health care professionals, and cannot take any direct responsibility for patient care.  This also despite the assertion by Mr West, the senior attorney for the New York Council of Nonprofits, that "hospitals are run like a business,..."suggesting that the people running them might put money, not "doing something for the public good," first.

Also, note that while Mr Mooney extolled the community based boards whose members made such discerning decisions about executive pay, he did not address these members' numerous conflicts of interests.  For example, re some of hospitals and hospital systems with the most highly paid CEOs,

Stephen Friedman was a board member of Memorial Sloan-Kettering in 2014 when the cancer center paid $10.5 million for architectural services from Perkins/Eastman. Friedman’s brother-in-law, identified as Mr. Perkins, is affiliated with the firm, tax filing show. Bradford Perkins is listed as the co-founder and chairman of Perkins/Eastman, according to its website.

Jamie Nicholls was a Memorial Sloan-Kettering board member in 2014. Her spouse was a co-founder of King Street Capital Management, which the hospital paid nearly $700,000 for management fees, tax filings show.

And,

White Plains Hospital disclosed one business transaction involving an interested person. The filing has few details. It reported the name of the interested person as 'Donor #24' and the relationship with the hospital as a 'substantial contributor.' The amount of the transaction was $15,350,345, and the description is 'BUS TRANS.'

And,

New York-Presbyterian paid $440,225 for investment management fees to Coatue Management, which listed its founder and chief executive officer as Philippe Laffont, a hospital trustee, tax filings show.

And,

Kaleida Health in Buffalo paid $121,660 to the Greater New York Hospital Association for participation dues in 2014. James Kaskie, former president and chief executive officer at Kaleida, was also a board member at the association, tax filings show.

Finally, note that neither the main article nor Mr Mooney's op-ed cited any evidence, even anecdotal, that these particular leaders are so brilliant, or that their hospitals are better than average, even in terms of finance, much less actual care of patients.   

No Challenges to the Talking Points

The main article did not include any dissenters who questioned expansive executive pay.  An accompanying editorial in the Journal News could only muster some anemic concern.  It called multi-million dollar compensation for local non-profit hospital system executives "unsettling."  It did contrast ever rising executive pay with the difficulty patients have paying their bills.  But it could only muster conclusions that mirror the talking points:

Hospitals are quick to defend their executives' rising compensation, and their arguments are good ones. Chief among them is that hospitals must compete for the best top officials, including with for-profit hospitals across the U.S. They say they need to attract and keep leaders who can competently oversee growing health-care systems, meet ever-changing government regulations and improve patient care and satisfaction.

So, all they called for was disclosure of compensation:

Hospital executives deserve fair pay for hard work; taxpayers deserve to know that resources are being used to attain quality care for all.

Although Mr Mooney seemed to see "aspersions" in the article,  and thought "the article implies that hospital CEO compensation is somehow responsible for the continued rise in healthcare costs," and argued that "hospitals do not deserve to have nonprofit status," I could find no such challenges in the Journal News series to the notion that top non-profit hospital managers deserved every penny they got.

Conclusion

Sadly, the ever rising compensation of top health care managers seems to inspiring less, rather than more skepticism in the media.  No more is it true that  nearly all articles that try to delve into executive compensation at all at least quote some experts who are skeptical of current practices.

The Journal News series included no such attempts at balance.  In my humble opinion, while it reported on useful facts, the opinions it contained leaned towards propaganda for managers' current privileged position in health care. 

Despite all the blather about how top hospital executives deserve millions of dallars, there are real reasons to be skeptical.  As we discussed here, there is a strong argument that huge executive compensation is more a function of executives' political influence within the organization than their brilliance or the likelihood they are likely to be fickle and jump ship for even bigger pay.  This influence is partially generated by their control over their institutions' marketers, public relations flacks, and lawyers.  It is partially generated by their control over the make up of the boards of trustees who are supposed to exert governance, especially when these boards are subject to conflicts of interest and  are stacked with hired managers of other organizations. 

While Mr Mooney was indignant that high executive pay may be considered a reason that hospital charges and health care costs are rising, he did not even discuss the argument that the current method of determining such pay may provide perverse incentives to grow hospital systems to achieve market domination, raise charges, and increase administrative bloat.  As an op-ed in US News and World Report put it about executive pay in general,

But the executive pay decisions made inside corporate boardrooms have an enormous impact in the outside world. Outrageous pay gives top executives an incentive to behave outrageously. To hit the pay jackpot, they'll do most anything. They'll outsource and downsize and make all sorts of reckless decisions that pump up the short-term corporate bottom line at the expense of long-term prosperity and stability.

So I get to recycle my conclusions from my last post in this series....

We will not make any progress reducing current health care dysfunction if we cannot have an honest conversation about what causes it and who profits from it.  In a democracy, we depend on journalists and the news media to provide the information needed to inform such a discussion.  When the news media becomes an outlet for  propaganda in support of the status quo, the anechoic effect is magnified, honest discussion is inhibited, and out democracy is further damaged.

True health care reform requires ending the anechoic effect, exposing the web of conflicts of interest that entangle health care, publicizing who benefits most from the current dysfunction, and how and why.  But it is painfully obvious that the people who have gotten so rich from the current status quo will use every tool at their disposal, paying for them with the money they have extracted from patients and taxpayers, to defend their position.  It will take grit, persistence, and courage to persevere in the cause of better health for patients and the public. 

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No Questions Asked - Journalist Parrots the Talking Points in Support of Hospital Executive Compensation

boards of trustees Catholic Health Initiatives executive compensation hospital systems hospitals Lancaster General Health perverse incentives

No Questions Asked - Journalist Parrots the Talking Points in Support of Hospital Executive Compensation

Unknown 5/20/2016 Komentar

The problem of ever rising, amazingly generous pay for top health care managers is a frequent topic for Health Care Renewal.  We have suggested that the ability of top managers to command ever increasing pay uncorrelated with their organizations' contributions to patients' or the public's health, and often despite major organizational shortcomings indicates fundamental structural problems with US health, and provides perverse incentives for these managers to defend the current system, no matter how bad its dysfunction.

In particular, we have written a series of posts about the lack of logical justification for huge executive  compensation by non-profit hospitals and hospital systems.  When journalists inquire why the pay of a particular leader is so high, the leader, his or her public relations spokespeople, or hospital trustees can be relied on to cite the same now hackneyed talking points.

As I wrote last year,  and last week,

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

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

Yet as we discussed recently, these talking points are easily debunked.  Additionally, rarely do those who mouth the talking points in support of a particular leader provide any evidence to support their applicability to that leader.

Bit at least most journalists who inquire into hospital executive compensation make an attempt to be "fair and balanced" by also quoting experts who question the talking points.

Hospital Executive Compensation in Central Pennsylvania

However, we just found an ostensibly journalistic survey of local hospital executive compensation in the Reading (PA) Eagle which seemed designed to encourage the public to welcome their ever more highly paid corporate health overlords.  This started with its title:

Nonprofit health care organizations pay for the best executives

And its opening paragraph

At first blush, the leaders of area hospitals are handsomely compensated. But a Reading Eagle analysis finds that their compensation is in line with hospital administrators in other areas.

The author was not shy about documenting the munificent pay of local hospital executives, seven of whom received more than $1 million as documented by their organizations' most recent financial reports.

 Harold Paz, CEO of Hershey Medical Center (Penn State University) topped the list in 2014, at $1.57 million.
+++
Second was Thomas E. Beeman, former president and CEO of Lancaster General Health, at $1.5 million.
+++
Third was Clint Matthews, president and CEO of Reading Health System, at $1.44 million in 2014, the most recent year information was available.

Then,

Fourth place in total compensation went to Ronald W. Swinfard, trustee and CEO of the Lehigh Valley Health Network, at $1.32 million in 2014.

Fifth place in total compensation was Kevin Mosser, director and CEO, WellSpan Health at Ephrata Community Hospital, at $1.29 million.

Sixth place was Rod Erickson, former president, Hershey Medical Center, Penn State, $1.28 million.

Seventh place was Richard Seim, president, WellSpan Specialty Services, WellSpan Health, $1.01 million.

In eighth place was Michael F. O'Connor, CFO. WellSpan, Ephrata Community Hospital, $993.618.

Ninth was Charles Chodroff, president, South Central Preferred, WellSpan Health, $906,582.

Tenth was Rodney Kirsch, senior VP, development, Hershey Medical Center Penn State, $860,445.

Eleventh was John Morahan, chair, president and CEO, Bornemann Health Corp. and St. Joseph Regional Health, at $841, 246. Bornemann is an affiliate of St. Joseph Regional Health, and compensation came from Catholic Health Initiatives.

Parroting the Talking Points

But the public should fear not, because, as the talking points say....

We have to pay competitive rates

This was invoked early in the article.

The Reading Eagle review also found that leaders of hospitals in Berks County are compensated in line with their counterparts at other medical centers in Pennsylvania.

Also,

Overall, the compensation of medical nonprofit leaders in Berks County is on par with leaders of similar locations elsewhere, said Chester Mosteller, founder and president of Mosteller and Associates, a human resource professional services firm in Reading.

We have to pay enough to retain at least competitive executives

To support both the first and this talking point, the article cited a local expert,

 Nonetheless, people are sometimes surprised at high compensation levels at nonprofit hospitals, said Tish Mogan, standards for excellence director at the Pennsylvania Association of Nonprofit Organizations in Harrisburg. But, Mogan noted, if the leaders of nonprofit hospitals were not well compensated, they could be poached by for-profit medical centers.

'They have to be competitive,...

Doubling down, the article also cited  "Anna Valuch, director of marketing for Reading Health System," whose CEO, her boss, pulled down $1.44 million. She said

the system's board of directors takes seriously its responsibilities in terms of creating an executive compensation plan that is fair, competitive and consistent with the system's mission to provide the highest quality health care.

Later, the reporter quoted Ms "Cindy Bergvall, co-owner of accounting firm Bee Bergvall and Co in Bucks County and its affiliate, the Catalyst Center for Nonprofit Management," as saying

nonprofit health care organizations are competing with for-profit organizations for talent, so they must offer competitive wages.

Our executives are brilliant

Ms Morgan immediately segued into a claim that executives

have to make sure that somebody's in charge that has the capability to make sure that, if I'm on that procedure table, things are in place to take care of me,

Mr Mosteller had a different version of the brilliance argument.

'It's been extremely challenging with the Affordable Care Act and Medicare, and that all results in some very big challenges within the health care arena,' he said. 'It is by no means an easy nonprofit to run and manage. It's become increasingly complex to operate and fulfill your mission in those environments.'

Similarly, "J Andrew Weidman, chairman of the board of directors for Penn State Health St. Joseph," put all three talking points into one sentence,

'To be in the best position to recruit and retain vital and talented employees, we must pay competitive wages,' Weidman said.

So did "Brian Downs, director of media relations for Lehigh Valley Health Network," who worked for CEO Ronald W Swinfard, who pulled down $1.32 million,

'To attract and retain the highest caliber health care professionals needed to sustain the quality of care LVHN provides to our community, and to oversee the operation of a nearly $2 billion organization, we must offer compensation that is competitive with organizations we compete with for talent in the job market,' Downs said.

Note that several of these experts/ commenators worked directly for the very well compensated hospital system CEOs of interest, and the others apparently worked for firms that got financial support from these CEOs' hospital systems. 

No Questions Asked

While the Eagle quoted multiple proponents of high executive pay repeating all the talking points, the reporter apparently did not challenge any of them to justify any of the talking points in the context of interest.  In particular, no one provided any evidence that any of the particular executives are so brilliant, or as the article implies, why ALL local executives are brilliant.  How can there not be a single average one in the bunch?

In fact, a quick Google search reveals reasons to questions the brilliance of at least some of them.  For example, Hershey Medical Center, whose CEO was the highest paid of the group, has proposed a controversial merger which is the subject of strong opposition by the US Federal Trade Commission (FTC).  (See articles in Modern Healthcare and PennLive.  Per Modern Healthcare, the FTC is claiming that the merger would lead to "higher prices and diminished quality [of care]." Especially given that the FTC seemingly has a high threshold to challenge a hospital system merger, its opposition certainly suggests questions about current hospital management.  Also, Lancaster General Health, whose CEO was the second best paid of the group, had to pause a big expansion project because of cost overruns (see this article in Lancaster Online), and suffered a major outage of its electronic health record (EHR) system (see this article in Lancaster Online).  

Yet the Reading Eagle reporter did not raise these incidents, nor question anyone about the supposed brilliance of the leaders at the institutions that suffered them.

Furthermore, many of the points made on behalf of high executive pay raised obvious questions that were not asked.  For example,  Ms Morgan was not asked whether any executives actually have been recently "poached."  Ms Bergvall was not asked to name the for-profit organizations with which the hospital systems was competing for talent.   Strikingly, Ms Bergvall also was not asked to justify the assertion that it is the responsibility of hospital managers, not physicians, to make sure that "when I am on the procedure table, things are in place to take care of me."

Even more strikingly, Ms Bergvall was apparently not questioned further after she suggested that CEOs may command more pay simply because  they may feel entitled to a big dollop of all the money flowing throught he health care system

when nonprofit organizations bill for services, like hospitals do, they usually have the financial resources to compensate people well.  

'In the health care industry, you have an income stream that allows you to pay better,' Bergvall said.

Of course, many of the media reports on high executive compensation in health care do not report any cross-examination of its supporters.  Perhaps these advocates refused to respond to such questions, or the reporters felt too intimidated to challenge them.

But nearly all articles that try to delve into executive compensation at all at least quote some experts who are skeptical of current practices.  And there are real reasons to be skeptical.  As we discussed here, there is a strong argument that huge executive compensation is more a function of executives' political influence within the organization than their brilliance or the likelihood they are likely to be fickle and jump ship even bigger pay.  This influence is partially generated by their control over their institutions' marketers, public relations flacks, and lawyers.  It is partially generated by their control over the make up of the boards of trustees who are supposed to exert governance, especially when these boards are subject to conflicts of interest and  are stacked with hired managers of other organizations. 

This article included no such attempts at balance.  So it ended up more like propaganda for managers' current privileged position in health care than journalistic inquiry.  It is sad to see reporting about important health policy issues devolve into propaganda to support the status quo, and those who personally profit the most from it.  But perhaps those who work at the Reading Eagle hesitate to offend those who are making the most from the current system.  It appears that the newspaer is owned by the Reading Eagle Company, and this, in turn is owned by the Barbey family, which according to Politico also

controls the publicly-traded lifestyle clothier VF Corporation (Nautica, Jansport, Wrangler, Timberland, Lee, Vans, etc.) and is ranked no. 48 on Forbes' list of America's richest families.

Discussion

We will not make any progress reducing current health care dysfunction if we cannot have an honest conversation about what causes it and who profits from it.  In a democracy, we depend on journalists and the news media to provide the information needed to inform such a discussion.  When the news media becomes an outlet for  propaganda in support of the status quo, the anechoic effect is magnified, honest discussion is inhibited, and out democracy is further damaged.

True health care reform requires ending the anechoic effect, exposing the web of conflicts of interest that entangle health care, publicizing who benefits most from the current dysfunction, and how and why.  But it is painfully obvious that the people who have gotten so rich from the current status quo will use every tool at their disposal, paying for them with the money they have extracted from patients and taxpayers, to defend their position.  It will take grit, persistence, and courage to persevere in the cause of better health for patients and the public. 

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Who Benefits? - Hospital Profits and Quality May Fall, But Hospital Executives' Compensation Keeps Rising

boards of trustees executive compensation hospital systems hospitals Lahey health market fundamentalism MetroHealth Medical Center pay for performance

Who Benefits? - Hospital Profits and Quality May Fall, But Hospital Executives' Compensation Keeps Rising

Unknown 5/03/2016 Komentar

Despite recent attempts at health care reform, US health care dysfunction seems to proceed inexorably with ever rising costs, and continuing problems with access and quality.  A likely reason is that those who find the current system personally profitable are in a position to resist real reform.  The people who seem to gain the most from the status quo are top hired executives of big health care organizations.

In particular, stories about huge pay for hospital and hospital system managers continuously appear in the media.  For example, starting in October, 2015, we saw the following headlines:

- Pittsburgh, PA, October, 2015: "Former Highmark CEO Made Nearly $10 Million in 2014, Tax Records Show"
- Regarding Rochester General and Unity health systems in Rochester, NY, November, 2015: "Here's Why Execs Got Millions After Health Merger"
- Regarding the CEO of North Shore-LIJ Health System in NY, November, 2015: "This Guy Makes $10M a Year to Head a Nonprofit"
- In Idaho, February, 2016, "Pay for 9 Treasure Valley Nonprofit Hospital Employees Hits or Tops $1 Million"

Even more interesting are stories that show massive compensation of executives despite their hospitals' apparent poor performance.  Since October, 2015, we also found the following (in chronological order)


Let Go After "Uneven Financial Performance," CEO of Kaleida Health Got $1.6 Million of Severance in One Year, with More to Come

In November, 2015 the Buffalo (NY) New reported that James R Kaskie, the CEO of Kaleida Health, the "largest healthcare provider in Western New York," per its website, was "forced out" when

the board cited a need for a change in leadership amid an uneven financial performance for the system....

Nonetheless,

Kaleida Health paid $1.6 million in 2014 to its former CEO, James R. Kaskie, after forcing him out early last year, according to its most recent federal regulatory filing.

Also,

Kaleida will pay Kaskie 24 months of severance under the terms of Kaskie’s employment contract with the system, John R. Koelmel, chairman of the Kaleida board, told The Buffalo News on Thursday.

Kaskie was paid 10 months of severance plus deferred compensation, which is the $1.6 million reflected in the latest regulatory filing. He will be paid 12 months of severance in 2015 and a final two months of severance in 2016.

Mr Kaskie was paid even better the year before:

Kaskie earned $1.9 million in 2013, his last year as CEO.

Furthermore, other executives who were let go after Mr Kaskie's departure also were very well paid,

Dr. Margaret W. Paroski, former executive vice president and chief medical officer, who was replaced by Lomeo after he took over as CEO last year, $763,552.

Joseph M. Kessler, former executive vice president and chief financial officer, who was replaced by Lomeo, $608,454.

The article explained that

Hospitals, corporations and other entities negotiate severance agreements as part of the employment contracts when they hire top executives

So not only to these executives earn top dollar, but their earnings continue even if they lose their jobs because of poor performance. When asked to explain these levels of remuneration, and contracts that allow executives to get continuing pay even after being "forced out" for "uneven financial performance," John R Koelmel, the chairman of the system's board, said

Companies pay at market. To recruit the best talent, you need to pay at least market.

Public Hospital MetroHealth Medical Center Scored Below Average on Patient Satisfaction and Quality, but CEO Got $1.1 Million

In March, 2016, Cleveland Ohio television station NewsNet5 reported

MetroHealth Medical Center is a public hospital that is supported with $32.4 million of taxpayer money--roughly 5 percent of the hospital's budget.

Also,

a check with a federal database of patient satisfaction levels and quality measures at hospitals across the country found MetroHealth fell below the national average.

Nonetheless, its CEO, Dr Akram Boutos, got $1.1 million in salary, and presumably considerably more in bonuses.

Dr J B Silvers, '"a nationally recognized expert on hospital CEO compensation and professor at Case Western Reserve's business school," who is a MetroHealth board member,

insisted that Dr. Boutros is being fairly compensated when compared to his peers. 

Furthermore,

He admitted the salary is first tied to profits--then a series of other quality measures like patient care, diversity, hospital improvements and employee satisfaction.

But the ties to satisfaction and quality may not bind, because he then tried to explain away the quality and satisfaction data,

Silvers argues those surveys may be misleading.

'Populations like ours, Medicaid populations, uncompensated care--poor people tend to rate organizations lower,' said Silvers.

But then admitted it was really about the money,

'We have to have a target in terms of financial performance because if you don't make the money you can't be in business,' said Silvers.

In Massachusetts, "As Hospital Profits Fall, Executive Pay Soars"

In April, 2016, the Lowell (MA) Sun published a long report on local hospital executive compensation.  It started

It has been a lean couple of years for the region's hospitals.

Drawn by the higher reimbursement rates that insurers pay to academic teaching hospitals, such as those in Boston, more physicians are affiliating themselves with those institutions. Patients are following, and so is the money.

Some community hospitals, including Lowell General Hospital and Emerson Hospital in Concord, saw profit margins drop by more than half from 2012 to 2014.

Other hospitals' financial indicators, like ratios of assets to liabilities, are also weakening,...

However,

As they look to weather those storms and protect their space in a rapidly changing health-care landscape, the boards of directors of the region's hospitals have doubled down on a key investment: their executives.

'Each organization has to make its own decisions about how it can best compete in the marketplace,' said Gary Young, director of Northeastern University's Center for Health Policy and Healthcare Research.

Senior executives of hospitals and health-care systems -- there's a competitive market for that kind of talent ... some would say when organizations run into trouble, they need to spend more to get leaders.'

So,

At Lawrence General Hospital, compensation paid to top non-physician administrators increased 41 percent from 2012 to 2014, according to tax documents. President and CEO Dianne Anderson, who heads the list, was paid a total package of $884,092 in 2014.

Also,

From 2012 to 2014, Lahey Health's non-physician executives saw a compensation increase of 36 percent. A large part of that increase was in the salary of Dr. Howard Grant, who was promoted from president and CEO of Lahey Clinic to president and CEO of the entire Lahey Health system. The system includes facilities throughout northeastern Massachusetts and southern New Hampshire. Grant received $1.7 million in 2014.

In addition,

Lowell General Hospital's executives saw a slightly smaller increase during that three-year span, at 18 percent, although CEO Normand Deschene remains the highest-paid hospital executive in the region with a package worth $1.9 million in 2014. The hospital also pays the taxes on retirement benefits, which are worth hundreds of thousands of dollars, for Deschene and several other executives.

The justifications for these increases in times of financial trouble were similar.  For example, re Lawrence General Hospital,

'Because we're resource-limited, compared to (academic) hospitals, we're even more dependent in these challenging times to bring in somebody who can manage risk,' said Richard Santagati, chairman of Lawrence General's executive compensation committee. 'It takes a different breed and there's real competition for these people ... and once you have them there, you want to keep them because there's a learning curve there that is unique to each hospital.'

Re Lahey Clinic,

'Our executive compensation is comparable to the programs of other, similarly sized health networks and is reflective of the complex role of an executive leader at a leading health system,' Lahey Health said in a statement.

Finally, at Lowell General Hospital, the CEO defended his own pay:

'Lowell General has weathered significant changes in the delivery of health care,' Deschene said. 'At a time when many hospitals have failed, it's very crucial and critical that we have very talented individuals to lead the hospital.' 

The Usual Talking Points Again Invoked

Hospital management used the usual talking points to justify the pay they received,  As I wrote last year 

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

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

So in the stories above, we found, for example:

- Competitive Rates: "you need to pay at least market" (Kaleida), and "there's real competition for these people" (Lawrence General)
- Retention: "you want to keep them" (Lawrence General)
- Brilliance: "the best talent" (Kaleida),  "very talented individuals" (Lowell General)

It appears that those justifying huge executive payments have all been handed these same talking points.

Yet none of them quite make sense.  The brilliance argument is particularly suspect in cases like those above of CEOs whose hospitals' performance was clearly not brilliant according to the metrics supposedly used to judge them. 

Economists Challenge the Management Dogma Justifying Huge Executive Compensation

Furthermore, these talking points seem to derive from decreasingly credible current management dogma about executive compensation propagated by business schools.

The Invisible Hand, or A Hand on the Scales?

For example, writing in the Independent during January, 2016, Ben Chu questioned the market fundamentalist theory that all employees pay has been perfectly chosen by the infallible invisible hand of the market:

When confronted with an outburst of public anger over massive corporate pay for a privileged few, a common response of the libertarian right is to invoke the economics of the free market.

Such spectacular rewards, we’re informed, are delivered by individuals selling their labour in a free market. And because such pay levels were set through this natural process, no one has the moral right to question them. Further, to interfere with such natural processes would be economically inefficient, making us all worse off in the end.

Such contentions are based on

a venerable economic theory [that is] behind this kind of reasoning. At the end of the 19th century, the American economist John Bates Clark hypothesised that in a perfectly competitive economy, demand for labour is determined by its 'marginal productivity' and wage rates are determined by the 'marginal product' of labour.

To translate, if a firm can make a profit by adding another worker to its payroll, it will do so. And the amount a firm will be willing to pay for that labour in wages will be determined by the additional profit the individual worker adds to the company’s bottom line. So if a worker adds a lot of profit, he or she can command a lot of compensation. But if they add only a little profit, he or she will get only a little. This means people with low personal productivity get small amounts. But people with high personal productivity (chief executives for instance) receive big bucks.

For a start, how does a company know what the marginal product of an individual worker is, or will be? This isn’t something that is directly measurable. The vast majority of us work in teams; how is it possible for management to determine our individual contribution to the financial success of that team, or of that team to the company? How can a business know how much of the profit added was due to the individual’s particular skills? The conditions necessary for the Clark theory that everyone gets what they 'deserve' don’t exist.

But isn’t the marginal product of bosses, who make big strategic decisions, easier to measure? The ASI cites the late Steve Jobs of Apple as an employee who was clearly worth a lot. However, there are plenty of other chief executives whose individual contribution is impossible to measure. Yes, the company’s share price might have gone up. But was this because the boss was smart? Or just lucky?

Furthermore,

The economist Dani Rodrik, in his latest book Economics Rules, argues that such broad theories of income distribution by the market are best viewed as intellectual 'scaffolding', adding: 'They are shallow approaches that identify the proximate causes but need to be backed up with considerable detail'.

And there are other theories of wage determination that are likely to be relevant. One important one is bargaining theory. This suggests that those who have political power within a firm can extract more than those without it. Maybe the reason chief executives tend to get paid ever growing multiples of the pay of the average worker is not because they are 'worth it' but because they are powerful. As the economist JK Galbraith put it: 'The salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself.'

The Dangers of Pay for Performance

In a February, 2016, article in the Harvard Business Review, Cable and Vermeulen challenged the dogma that managers' (and in health care, physicians' and other professionals') pay should largely be based on "performance."

performance-based pay can actually have dangerous outcomes for companies that implement it.

They cited five points based on at least some research evidence to back up their contention.

1. Contingent pay only works for routine tasks. Companies should abolish contingent pay for their top executives because theirs is the least appropriate job for it. Decades of strong evidence make it clear that large performance-related incentives work for routine tasks, but are detrimental when the tasks is not standard and requires creativity.

***

2. Fixating on performance can weaken it. The goal of most executive incentive plans is to focus leaders on hitting goals and achieving outcomes. After all, that’s why it’s often called performance-based pay.' But as researchers have found, if you want great performance, performance is the wrong goal to fixate on.

Several studies have shown that when employees frame their goals around learning (i.e., developing a particular competence; acquiring a new set of skills; mastering a new situation) it improves their performance compared with employees who frame their work around performance outcomes (i.e., hitting results targets; proving competence; seeking favorable judgments from others).

***

3. Intrinsic motivation crowds out extrinsic motivation. When people feel intrinsically motivated, they do things because they inherently want to, for their own satisfaction and sense of achievement. When people are extrinsically motivated, they do things because they will receive bigger rewards. The goal of contingent pay is to increase extrinsic motivation – but intrinsic motivation is fundamental to creativity and innovation.

***

4. Contingent pay leads to cooking the books. When a large proportion of a person’s pay is based on variable financial incentives, those people are more likely to cheat. In academic terms, we would put it this way: extrinsic motivation causes people to distort the truth regarding goal attainment.

When people are largely motivated by the financial rewards for hitting results, it becomes attractive to game the metrics and make it seem as though a payout is due. For example, different studies have shown that paying CEOs based on stock options significantly increases the likelihood of earnings manipulations, shareholder lawsuits, and product safety problems. When people’s remuneration depends strongly on a financial measure, they are going to maximize their performance on that measure; no matter how.

***

 5. All measurement systems are flawed. Incentive plans demand that some metric be used as the trigger for a payout. The problem is that whatever package you construct – bonds, stocks, or bonuses – whatever performance criteria you decide on will be imperfect. For a complex job such as senior management, it is simply not possible to precisely measure someone’s “actual” performance, given that it consists of many different stakeholders’ interests, tangible and tacit resources, and short- and long-term effects. Even with HR executives clamoring for enhanced “people analytics” (and technology companies bending over backwards to deliver them) any measure you choose is going to be an inadequate representation of how you would like your CEO to behave.

Note first that these points suggest that the increased use of performance based pay for health care organizations' top managers may explain why many health care organizations actually perform so badly, and point 4 may help explain why pay for performance may actually help increase health care corruption.  

Note further that pay for performance (P4P) for health care professionals has been strongly pushed by many health policy experts, yet all these points also seem applicable to that usage.

Conclusion - Change Will be Resisted

So even when non-profit hospitals and hospital systems perform poorly, their executives continue to receive ever greater remuneration.  The executives, their public relations flacks, and their often compliant boards of trustees continue to cite the same stale talking points to justify their pay.  Yet these talking points are based on market fundamentalist theory and business school dogma whose credibility is increasingly challenged.  In the absence of anyone willing to confront them with these criticisms, the apologists for soaring health care executive pay continue to prattle their tired talking points.    

Meanwhile, as corporate governance expert Robert A G Monks said in a 2014 interview,

Chief executive officers' pay is both the symptom and the disease.

Also,

CEO pay is the thermometer. If you have a situation in which, essentially, people pay themselves without reference to history or the value added or to any objective criteria, you have corroboration of... We haven't fundamentally made progress about management being accountable.

Moreover, top health care executives' power to make warm personal gestures to themselves correlates with the ability to defend this power, per Mr Monks,

People with power are very reluctant to give it up. While all of us recognize the problem, those with the power to change it like things the way they are.

So I expect that many hospital and health system CEOs, like leaders of other big health care organizations, may talk about health care reform, but will avoid talking about, and will likely oppose attempts at real reform using their command of their organizations' marketers, public relations flacks, lobbyists, and lawyers.


We need true health care reform that would enable 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.  What we will get is endless resistance to such reform from those who personally profit from the current dysfunctional, and increasingly corrupt system.

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"Immersion Day" to Expose Hospital Board Members to Real Health Care for a Day - A Great Idea, but Why Should It Be News?

boards of trustees generic managers hospital systems hospitals managerialism

"Immersion Day" to Expose Hospital Board Members to Real Health Care for a Day - A Great Idea, but Why Should It Be News?

Unknown 4/08/2016 Komentar

Last week, the New England Journal of Medicine published an article by Bock and Paulus describing an innovative program at Mission Health in Asheville, NC to expose health system board members to the real world of health care.(1)  The article was nice, but begged an important question: why was such a program news?

The Immersion Day Program

 The article asserted:

The U.S. health care industry has long been beset by seemingly intractable problems: incomplete and unequal access to care; perverse payment incentives; fragmented, uncoordinated care that threatens patient safety and wastes money; and much more.

So the hypothesis on which the program was based was:

These challenges are particularly vexing to the people who oversee or set policy for health care organizations. The disconnect between health care in its intimate, real-world setting and the distilled information delivered in the boardroom or policy discussions is a key barrier to responsive governance and policymaking. Sometimes seeing with new eyes can lead to transformational understanding

In particular, the two physician authors of the article noted

Yet until 2013, none of our lay board members had ever been afforded the opportunity to see the complexities of care delivery, except when they were patients, visited someone in the hospital, or watched a TV show like Grey’s Anatomy. Like most boards, we did our work in the boardroom. There, management and our four physician board members did our best to paint accurate pictures of our system’s complexity: the workflows and the choreography, the opportunities for error, the forces behind increasing costs, and the good derived from serving all patients regardless of ability to pay. We shared our struggles and successes using PowerPoint presentations, graphs, spreadsheets, and patient statements.

So Doctors Bock and Paulus came up with the idea of providing basically provided a one-day clinical immersion program to members of the hospital system's board of directors.

we created 'Immersion Day,' when board members and thought leaders could spend 9 to 12 hours in scrubs, behind the scenes, immersed in the nuances of care delivery.

Board members went from pre-operative care, to the operating room, to intesive care, to surgical wards to rounds with "nephrologists, pulmonologists, trauma surgeons, and hospitalists, finally to the emergency department.

The board members apparently greatly appreciated thr program:

Board members have called their Immersion Day 'eye-opening and endlessly fascinating,' 'unforgettable and humbling,' even 'the best-spent day of my life.' One said, 'I learned more about hospitals and health care from my 10 immersion hours than 6 years sitting on our board.' Our staff benefits, too: when a physician or nurse meets a board member in scrubs, the encounter builds trust and admiration in both directions. Word spreads. Caregivers express gratitude that the board is spending time seeing what they do; many had never previously met a board member. Physicians’ relationships with the board and management, though imperfect, are far better than they’ve been in years, despite ever-increasing challenges.

The authors are now trying to make the program available to journalists, and "state and federal policy makers."  Their conclusion was:

we’ve built a transformative experience that can guide our board. Deep immersion in the work of our health system has strengthened governance and engendered trust in our community, staff, and physicians, while elucidating health care for policymakers. After three years of Immersion Days, we cannot imagine being governed by a board that hasn’t seen so intimately how a health system works.

There are some obvious limitations to this article, which unfortunately were not addressed in the text.  The article was entirely impressionistic.  It presented no data about actual end results of immersion day, much less a comparison to any other kind of interevention.

Furthermore, the authors did not describe some important characteristics of their hospital system which may differentiate it from others.  In particular, the management of Mission Health is much less generic than that of other hospitals.  Half of the top hospital administrators have medical or nursing degrees.  The CEO of the hospital is a physician.  In fact, he was the second author of the article. Five of 21 directors (including the CEO) are physicians.   So it is not clear how this program would work in a hospital whose management is dominated by people with business backgrounds.

Why Is This News?

But the article begged the questions of why this is news? The article stated that there is a big "disconnect" between what is discussed in hospital board rooms, and the health care that goes on in hospitals day by day.  Furthermore, it stated that many hospital board members had no direct experience with health care.  Instead, the article described the non-physician board members, who were by far in the majority, as "educators, attorneys, manufacturers, investors, and bankers."  It did not say why the majority of people responsible for the governance of a health care organization had no direct familiarity with health care.  That does not seem to make sense.  So why did it take so long to try to give them such familiarity, and why would a program to do so be newsworthy? 

The article also failed to note that the hospital in which the immersion program was initiated actually had a board that was more familiar with health care that the typical hospital board.  Many hospital boards of trustees are completely dominated by "attorneys, manufacturers, investors, and bankers," that is, wealthy businesspeople without health care experience, and parenthetically probably without much familiarity with the context of the many less financially fortunate patients of their hospitals.  Mission Health at least had a few physicians on its board.

We have posted some vivid stories about the skewed natures of hospital boards before.  For example,
-  the board of IU Health (Indiana), dominated by top executives and board members of large for-profit corporations (look here).
-  the board of the Hospital for Special Surgery (New York), of whose 42 members, 23 had major relationships, often top executive positions or board memberships, just in large financial firms, including some which were responsible for the great recssion.
Other examples can be found here.

Hospital boards whose members are unfamiliar with health care may reflect hospital management that is similarly unfamiliar with health care. In fact, most hospitals and hospital systems, like most US health care organizations, are not led by health care professionals.  Instead, they are led by generic managers, following the dogmas of managerialism.

We have frequently posted about what we have called generic management, the manager's coup d'etat, and mission-hostile management. Managerialism wraps these concepts up into a single package.  The idea is that all organizations, including health care organizations, ought to be run people with generic management training and background, not necessarily by people with specific backgrounds or training in the organizations' areas of operation.  Thus, for example, hospitals ought to be run by MBAs, not doctors, nurses, or public health experts.  Furthermore, all organizations ought to be run according to the same basic principles of business management.  These principles in turn ought to be based on current neoliberal dogma, with the prime directive that short-term revenue is the primary goal.

Of course, if top hospital leaders do not perceive their own unfamiliarity with health care as a problem, they are unlikely to perceive their boards' unfamiliarity as a problem too.  So it really was news that at one hospital, the management thought it necessary to better educate their own board about what really goes on in hospitals outside board rooms and management suites.

At a really manageralist hospital, whose management is dominated by people with business backgrounds, which may lack any top managers who have any health care background, and whose board is dominated by wealthy businesspeople with backgrounds outside of health care, the management would likely not bother trying to improve their board members' or their own familiarity with health care.  Were they to do so for some reason, I hypothesize that an immersion day for board members would have little effect.  The apparent, but not clearly proven success of  "immersion day" at Mission Health may be due to the important presence of health care professionals in top management and on the board of trustees, but may not generalize to most other hospitals.

In fact, the current leadership of hospitals and other health care organizations almost entirely by generic managers, reporting to boards made up almost entirely of generic managers, defies common sense.  Although trying to give board members some rudimentary familiarity with the health care context, during one day of the year, is obviously better than nothing, it clearly is only a tiny bandage on a gaping wound.  When one hospital deploys such a bandage, it is news.  That most hospitals' managers and boards would not even think of deploying such measures is a scandal.

So as we have said endlessly,...  

We need far more light shined on who runs the health care system, using what practices, to what ends, for the benefits of whom.

True health care reform would enable transparent, honest, accountable governance and leadership that puts patients' and the public's health over ideology, self-interest, and self-enrichment.

Reference
1. Bock RW, Paulus RA. Immersion day - transforming governance and policy by putting on scrubs.  N Engl J Med 2016; 374: 1201-1203.  Link here. 

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"How Employed Physicians' Contracts May Threaten Their Patients and Professionalism" Authored by Health Care Renewal Bloggers Published in Annals of Internal Medicine

Annals of Internal Medicine contracts corporate physician generic managers hospital systems hospitals

"How Employed Physicians' Contracts May Threaten Their Patients and Professionalism" Authored by Health Care Renewal Bloggers Published in Annals of Internal Medicine

Unknown 3/10/2016 Komentar

We have noted that increasing numbers of physicians provide patient care as employees of large organizations, often hospital systems, sometimes for-profit.  Since in these settings physicians must answer to generic management which may be more concerned with short-term revenues than patient care, these new arrangements are frought with hazards for physicians and patients.

One set of hazards may be found in the contracts employed physicians must sign.  

My fellow blogger, Dr Wally Smith, and I authored an article just published online "How Employed Physicians' Contracts May Threaten Their Patients and Professionalism." Here is the link.

In it we listed multiple contractual provisions that may be found in employed physicians contracts  that may threaten professionalism and good patient care:

 Confidentiality clauses - which may hide quality and safety problems, medical errors, unethical conduct, other problematic contract clauses, and malfeasance
Productivity clauses - which may provide incentives for actions that primarily increase employers' revenues, and thus may encourage overtreatment
"Leakage control" clauses - which may discourage referrals outside of the employers' systems and thus discourage appropriate referrals for particular patients, potentially threatening quality
Clauses that allow termination without cause - which may reduce access for the terminated physicians' patients, and may discourage complaints by physicians about quality, safety, unethical behavior, or malfeasance
Noncompete clauses - which may reduce access and physicians' ability to leave unsatisfactory positions
Clauses that restrict outside activites - which may restrict teaching or research, or academic freedom or free speech

We also noted clauses in contracts that employers may sign with third parties that may also threaten professionalism and good patient care:

"Gag" clauses affecting employees - which may hide quality and safety problems, medical errors, unethical conduct and malfeasance
"Anti-poaching" clauses - which may reduce patients' access to care, and physicians' ability to leave unsatisfactory positions.

We were able to find cases illustrating all the clauses published in the news media, or publications such as Medscape or Medical Economics.  However, they have largely anechoic in the scholarly medical and health services literature, and largely unaddressed by the medical societies that ostensbibly protect physicians' professionalism and patients' and the public's health.   

We suggested that such contractual problems may be becoming more frequent in a health care system in which physicians more often are corporate. We suggested that all physicians confronted with new employment contracts should seek competent legal connsel and try to negotiate egregious provisions.  However, such actions may now be futile given the increasing market dominance of the hospital systems that are employing increasing numbers of physicians.

We urged medical societies to inform physicians about such employment issues, and better support physicians who struggle with them.  However, these contract problems may merely be a reflection of an increasingly commercialized, deregulated health care system run by generic managers who may put revenue generation ahead of supporting physicians' professionalism.  So, better enforcement of existing laws, and new laws including bans on the commercial practice of medicine may be the only solutions to this newly recognized plight of corporate physicians and their patients.   

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Second Order Generic Management: Lobbyist Named CEO of American Hospital Association

American Hospital Association generic management generic managers hospitals non-profit organizations

Second Order Generic Management: Lobbyist Named CEO of American Hospital Association

Unknown 5/06/2015 Komentar

A long time ago, in a universe far, far away, hospitals had relatively small administrations, usually lead by a older physician or nurse who served as executive director or superintendent.  Leading a hospital was seen as a calling, not a means to become rich.  With the rise of generic management, hospital management grew, and became dominated by generic managers who were trained as managers, not as health care professionals.

So if hospitals are now usually lead by generic managers, it should be no surprise that hospital organizations are lead by generic managers.  So it should be no surprise that the current CEO of the American Hospital Association, Richard J. Umbdenstock, was formerly " executive vice president of Providence Health & Services and president and chief executive officer of the former Providence Services, Spokane, Washington." (Look here.)

What should be a surprise, however, is what was just reported in Modern Healthcare,

The American Hospital Association has chosen Richard Pollack, its longtime lead lobbyist, to succeed Richard Umbdenstock as CEO. Hospital leaders say Pollack is the right pick, even though he never led a hospital or health system.

Pollack, 59, has been with the AHA for more than three decades and has served as the group's executive vice president for advocacy and public policy since 1991. He will take over the top post in September, the AHA announced Monday during its annual meeting in Washington.

Pollack has developed a sterling reputation for pressing the hospital group's agenda on Capitol Hill and beyond. He's played an integral role in top healthcare policy discussions in recent years, including passage of the Affordable Care Act.

Chip Kahn, president of the Federation of American Hospitals, which represents investor-owned hospitals, called Pollack a 'wise Washington hand.'

In addition,

John Rother, president of the nonpartisan National Coalition on Health Care, noted that it's an unusual pick in the sense that Pollack has not overseen a major hospital system. Before joining the AHA, Pollack served as a lobbyist for the American Nurses Association. The Brooklyn native started his professional career in 1977 as a legislative assistant for Rep. David Obey (D-Wis.)

So, the incoming American Hospital Association CEO is not a doctor or a nurse.  He has not had any known direct experience in patient care.  He has no training or experience in public health or biomedical sciences.  Furthermore, he has no direct experience working, even just as a manager, in a hospital or any organization that provides patient care or for the public health.

His entire experience is in Washington, DC, first as a legislative staffer, and then - not to put too fine a point on it - as a lobbyist.

This would make sense if he were going to lead a lobbying firm.  However, the AHA says:

In summer 1995, after regional policy board (RPB) review, the Board of Trustees approved vision and mission statements:

Vision: The AHA vision is of a society of healthy communities, where all individuals reach their highest potential for health.

Mission: To advance the health of individuals and communities. The AHA leads, represents and serves hospitals, health systems and other related organizations that are accountable to the community and committed to health improvement.

So now we have hospitals largely run by generic managers.  Furthermore, hospital associations, whose members are largely represented by generic managers, now may be run by lobbyists, people even more removed from actual health care.  Hence, perhaps too archly, I suggest that Mr Pollack is the first known example of a second order generic manager.

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.

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.  Meanwhile, for a long time, business schools seem to have been teaching managers that they have a God given right to manage every organization and every aspect of society, regardless how little they know about what the particular context, business, calling, etc involves.  Presumably this is based on a faith or ideology that modern management tools are universally applicable and nigh onto supernatural in their powers.  Of course, there is not much evidence to support this, especially in health care.

We have discussed other examples of bizarre proclamations by generic managers and their supporters that seem to corroborate their belief in such divine powers.  Most recently, there was the multimillionaire hospital system CEO who proclaimed new artificial intelligence technology could replace doctors in short order (look here).   Top hospital managers are regularly lauded as "brilliant," or "extraordinary," often in terms of their managerial skills (look here), but at times because of their supposed ownership of all aspects of patient care, e.g., (look here)

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

As noted above, if the new generic managers work in offices that are physically, intellectually and spiritually distant from the real world of health care, a lobbyist running a hospital association would be at best distant even from the management suite.

It is way past time for health care professionals to take back health care from generic managers.  True health care reform would restore leadership by people who understand the health care context, uphold health professionals' values, are willing to be held accountable, and put patients' and the public's health ahead of self-interest.

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Pay 'em When They're Up, Pay 'em When They're Down - CEO Value Extraction Even at Small Non-Profit Hospitals

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Pay 'em When They're Up, Pay 'em When They're Down - CEO Value Extraction Even at Small Non-Profit Hospitals

Unknown 2/18/2015 Komentar

To the tune of "Dirty Laundry," by Don Henley, some more of health care's dirty laundry...
We have frequently discussed the seemingly unstoppable rise of compensation given to top hired managers of health care organizations.  Their compensation seems to rise regardless of the financial status of their organizations, much less how well their organizations are caring for patients or otherwise fulfilling the mission.  Top hired managers of other organizations, particularly big for-profit corporations, have seen similar enhancements of their personal wealth, leading to the charge that they are acting as "value extractors," rather than responsible leaders.
  
Justifications for this rise are superficial, often limited to talking points we have repeatedly discussed, (first  here, with additional examples of their use here, here here, here, here, here, here, and here.)  They are:
- We have to pay competitive rates
  We have to pay enough to retain at least competent executives, given how hard it is to be an executive
- Our executives are not merely competitive, but brilliant (and have to be to do such a difficult job).

The notion that top hired managers are entitled to rich compensation no matter what now seems to have metastasized to medium-sized and even small US non-profit hospitals and other health care provider organizations.  Three relevant examples have appeared so far in February, 2015, listed in alphabetical order by state.

Georgia - West Georgia Health

West Georgia Health is a health system that includes a single hospital, West Georgia Medical Center, in LaGrange, Georgia, a town with a population of approximately 30,000 located southwest of Atlanta.This story comes courtesy of the LaGrange (GA) News.  Here are the essentials regarding compensation given the CEO.

About a month ago, someone at WGMC went into the doctors’ and surgeons’ lounges and anonymously posted pages of the hospital’s publicly available 2012 IRS 990 form, according to a confidential source who is a local doctor.

On the surface, they appear condemning. The pages showed compensation for CEO Fulks and other top hospital management. By the numbers, Fulks was compensated $1,989,538 during fiscal year 2012. On top of that, the hospital also paid $90,867 in travel expenses for Fulks and his wife, Cindy. It didn’t stop there: they also paid his monthly dues at a country club, according to the 990s obtained by the Daily News.

In years prior, Fulks was compensated $469,785 with $88,637 in travel expenses and $470,814 with $86,210 in travel for 2011 and 2010, respectively.

In 2012, Fulks’ base salary was $375,812, but with the $1.6 million “payout” and other compensation, such as nontaxable benefits and deferred compensation, the hospital actually gave Fulks more than $2 million in compensation.

In contrast, the News reported that the health system has been running deficits, decreasing services, and laying off employees.

Between the years of 2010 and 2013, West Georgia Medical Center on Vernon Road listed revenue deficits each year — sometimes as high as nearly $6.2 million dollars as in 2013, according to publicly available IRS filings by WGMC.

A round of layoffs in August of 2014 and the sale of its dialysis center in 2012 wasn’t enough to turn the tide, and hospital officials have said publicly they’ve hired a firm to shop around for what they’re calling a 'strategic partner' for a potential merger.

Seeking an explanation of a million dollar plus payout to the CEO when the system was running deficits, reducing services and laying off employees, Reporter Tyler Jones was able to do what reporters in larger markets rarely can do, get a response from the CEO himself,

'It’s … 10 years worth of funding 457(f) retirement plan vested for me during that year and I took it and paid the taxes on it and continued with investments,' he said.

When asked if it was appropriate for him to take such a large lump sum of money when the hospital was doing so poorly financially, Fulks balked.

'I don’t determine what my income is,' he said. 'There is a process that involves bringing in an outside consultant who does surveys and can report what the compensation is for higher compensated executives compared to the region.'

'Part of the answer to your question is that money was accumulated over a 10-year period, which included up and down periods in terms of financial performance. It was already funded. It’s not like they took it out of operations, it had been written through the books already. So, it was part of my employment contact arrangement with the board.'

The CEO did not explain, however, why his retirement benefits were so high relative to his base salary (apparently averaging $160,000/ year, at least 40% of base salary), and how they compared to the benefits given other employees.  Note that he did invoke, however, one of the talking points commonly used to justify large payments to hired management even by financially stressed organizations.  This was the "we have to pay competitive rates" argument.

In summary, despite financial stress causing recurring deficits, and leading to layoffs, service reductions and merger discussions, the CEO of a single hospital health system in a small town in Georgia recently had a base salary exceeding $300,000, got retirement benefits at least worth about 40% of his salary, and extra perks such as country club dues.   

Idaho -  St Luke's Health System, Saint Alphonsus Health System

Boise, Idaho is a city with a population over 200,000.  The Idaho Statesman recent published a story about executive compensation at Idaho hospital systems.   Key points about compensation were:

The latest tax filings by St. Luke's Health System, Saint Alphonsus Health System and their hospitals show that pay boosts at the top exceeded overall raises the systems reported for employees, and for Idaho workers.

Total compensation - including salary, bonuses, retirement and other pay - rose an average of 14 percent for the six CEOs. St. Luke's Health System CEO David Pate again led the pack. His total compensation rose 19 percent to $1.2 million, mainly because of other compensation, including retirement pay.

The second-highest paid CEO was Sally Jeffcoat, of St Alphonsus Health System, who received $849,880.  The highest paid executive who was not a CEO was Gary Fletcher, Chief Operating Officer of St Lukes, who received $1.08 million.

However, neither St Lukes nor St Alphonsus has been doing particularly well financially as of late.

St. Luke’s Regional Medical Center lost almost $6 million in fiscal 2013 — a drastic change from recent years. St. Luke’s local operations had reported net income of $39 million to $58 million since fiscal year 2010.

The St. Luke’s cancer center, Mountain States Tumor Institute, also lost money in fiscal 2013 for the first time in at least five years. Expenses overran revenues by $10 million.

Also,

Net revenues at Saint Alphonsus Medical Center-Nampa also declined in fiscal year 2013, though the hospital did not lose money. The decline was due to fewer emergency visits and inpatient admissions at the Nampa hospital, said Saint Alphonsus Health System CFO Blaine Petersen.

Furthermore, note that the St Luke's mentioned above is the same St Luke's that recently was found by a court to have violated antitrust laws in the course of its takeover of physicians' practices, and that ruling was just affirmed by an appeals court (see this post, and this Associated Press story via MagicValley.com) Also note that St. Luke's strenuously tried to keep details of the litigation out of the public eye, including details suggesting that the main goal of St Luke's actions was increased revenue, not better patient care. 

The Idaho Statesman article included only this brief justification of rising executive compensation in the face of declining revenues,

Hospital officials say the raises were deserved.

'There are people here working really hard, and I think we have a lot to be proud of,' said Jeff Taylor, St. Luke's chief financial officer. 'Our board is actively involved in setting (executive) compensation, and we are transparent about it.'

Note that this is a brief version of the "brilliance" talking point, and the person making it presumably reports directly to the CEO who received so much.  Given the results of the antitrust case noted above, I wonder specifically what he was proud of?

Vermont -  Health Care and Rehabilitation Services of Southeastern Vermont

This story came by way of the Barre Montpelier (VT) Times-Argus.  It described Health Care and Rehabilitation Services thus,

HCRS is one of five 'designated agencies' in the state that provides mental health services to people in crisis, school-based mental health services, and programs such as the Kindle Farm, a private school for troubled boys in Newfane and Townshend, and the Hilltop Recovery Residence in Westminster.

The issue was again a lump-sum retirement payment given a former CEO

A $650,000 compensation package for the retired CEO of Health Care and Rehabilitation Services of Southeastern Vermont has raised eyebrows from Montpelier to Springfield.

Judith Hayward left HCRS after 17 years as CEO on July 1, 2014, with a $650,000 cash golden parachute that HCRS officials said compensated her for the organization’s lack of a pension plan.

Hayward oversaw an agency with a $41 million budget with 600 employees, with offices in Springfield, Brattleboro and White River Junction. She was paid $162,000 annually.

The details of the special retirement package were,

The HCRS board approved a $450,000 compensation package, in addition to Hayward’s $162,000 annual salary in June 2010, he said. But when the agency’s auditors said the finance package had been poorly designed, forcing Hayward to pay a higher rate of taxes on the deferred compensation, the board added another $200,000 to the package for a total of $650,000

He said the most recent filing showed Hayward was paid a total of $497,000 in 2012.

The contrast between the payment and the current financial status of the organization was:

The package comes as its hundreds of employees didn’t receive a wage increase in 2014, and the state faces an anticipated $100 million funding shortfall.

According to HCRS tax forms, in 2012, the first year of the extra payments to Hayward, the agency had a revenue shortfall of $102,000, while in 2013, it had a surplus of $99,000 on a budget of $41 million.

An article from the Brattleboro (VT) Reformer, via the Valley News, contains the justification for the payout,

'Everyone on the board thought she did a tremendous job. She brought the organization out of bankruptcy, developed new programs and everyone who had contact with her, including people from the state, thought she did a magnificent job,' said J. Allen Dougherty, former HCRS Chairman of the Board of Trustees who signed off on the package. 'She never had a retirement package and the board thought this was a way we could make it up to her.'

Again, this was a version of the "brilliance" talking point. 

A blog post in the Nonprofit Quarterly downplayed the amount of the payout as excusable, given the CEO's long tenure.  However, it also acknowledged that the amount may have seemed excessive to other employees,

[Current CEO]  Karabakakis said staff have been 'disappointed, angry and outraged.'

'Some people may see it as excessive,” he said. “If we’re going to provide a deferred compensation package, it’s important that we look at the industry standard, and make sure that we do have a culture of openness and transparency.'

But the staff were unlikely to have been solely concerned about transparency. The other thing a board needs to ensure is that fair retirement benefits extend to all workers. The notion of caring only about the old age comfort of top employees is, naturally, abhorrent and insulting to many others. It’s no surprise, and in times where income inequality begs for our attention, our organizations should try not to mimic the bad policies of the larger economy.

Summary

Here were more instances of generous compensation given to CEOs and other top executives of small to medium sized non-profit hospitals and health care provider organizations.  In all cases, the pay seemed disproportionate given the financial situations of the organization, the pay and benefits given to other employees, or the services provided to patients.  In all cases, justifications provided were perfunctory, and were at best based on talking points used before to justify executive pay, but without supporting evidence or logic.

In a 2014 interview, corporate governance experts Robert Monks and Nell Minow, Monks said,

Chief executive officers' pay is both the symptom and the disease.

Also,

CEO pay is the thermometer. If you have a situation in which, essentially, people pay themselves without reference to history or the value added or to any objective criteria, you have corroboration of... We haven't fundamentally made progress about management being accountable.

The symptom and the disease have metastasized to health care, from huge for-profit corporations now also to even small non-profit hospitals.   Thus, like hired managers in the larger economy, even managers of small non-profit hospitals have become "value extractors."  The opportunity to extract value has become a major driver of managerial decision making.  And this decision making is probably the major reason our health care system is so expensive and inaccessible, and why it provides such mediocre care for so much money. 

One wonders how long the people who actually do the work in health care will suffer the value extraction to continue?

So to repeat, 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.

As Robert Monks also said in the 2014 interview,

People with power are very reluctant to give it up. While all of us recognize the problem, those with the power to change it like things the way they are.

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. 

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