Talking Points, Sans Original Thought, to Justify Million Dollar Hospital CEO Compensation

Generous pay given to health care leaders has become an area of interest in the media.  Some recent regional stories had a certain dreary sameness, however.  It seems that nearly everywhere in the US, million dollar CEOs have become commonplace at non-profit hospitals and health care systems. 

Atlanta, Georgia Region

In July, the Atlanta Journal Constitution reported on the compensation given to some regional hospital leaders.  It included the usual gaggle of million dollar CEOs:

Edward Bonn of Southern Regional Health System, which operates Southern Regional Medical Center and two affiliated facilities, made $2,610,175 in fiscal 2009. Bonn left the system that year and received his pay of $421,822 plus $2.2 million from a retirement plan. Hospital CEOs commonly receive extra pay from retirement plans when they leave.

and

In fiscal 2009, John Fox of Emory Healthcare made $1,671,999 to manage Emory University Hospital and five associated institutions.

Tim Stack of Piedmont Healthcare, who manages Piedmont Hospital and three others, made $1,340,974 the same year

There were two other million dollar CEOs that the article did not name.

The State of Georgia

Last month, Georgia Health News published a story on other highly paid hospital leaders. In general,

Georgia Health News has found that executives at nine other Georgia nonprofit hospitals or health systems outside metro Atlanta received at least $1 million in total compensation during their organizations’ most recent fiscal year

Some specifics:

Ken Beverly, former CEO and president of Archbold Medical Center, a four-hospital system based in Thomasville, who received $6.2 million in fiscal 2009. The health system told Atlanta Unfiltered that most of that compensation related to Beverly’s retirement benefits, accumulated over many years of service.

Also,

The Gainesville [Northeast Georgia Health] system, which has 5,000 employees, paid CEO James Gardner $1.4 million in total compensation in fiscal 2009.

Furthermore,

** The Medical Center of Central Georgia paid Donald Faulk, its CEO, $1,003,412 in fiscal 2009. Faulk has been CEO of the Macon hospital since 1995, and has been employed there for 37 years.

** Larry Sanders, CEO of Columbus Regional Healthcare System, received compensation of $2.2 million in fiscal 2010, with $1 million of it a payout of a supplemental retirement benefit called a split-dollar life insurance policy. Sanders has worked in that system, which includes the Medical Center in Columbus, for 30 years.
** Jack Drew, with 29 years of service at Athens Regional Medical Center, received $1,185,902 in fiscal 2009.

** University Health in Augusta paid CEO Larry Read $3.5 million in fiscal 2009, with the majority coming as payment of his retirement benefit. Read retired last year.
** Joel Wernick, longtime CEO at Phoebe Putney in Albany, received $1.3 million, with part of it a one-time deferred compensation payment, in fiscal 2010.
** Kurt Stuenkel, CEO of Floyd Medical Center in Rome, received $1.35 million in compensation in fiscal 2010.
** At St. Joseph’s/Candler in Savannah, Paul Hinchey received $1,053,390 in total compensation in fiscal 2010.

Madison, Wisconsin Region

Madison.com discussed the area's highest paid hospital CEOs. They included:

Javon Bea, CEO of Janesville-based Mercy Health System, made $3.6 million in total compensation in 2009 and $4.5 million the year before. The system has hospitals in Janesville, Lake Geneva and Harvard, Ill.

Columbus, Ohio Region

Columbus Business First noted compensation of regional hospital systems, including:

By far the highest paid was Dave Blom, CEO of Columbus-based OhioHealth Corp ., at $1.8 million. About $675,000 of that total is deferred compensation. Among chiefs, he’s followed by Dr. Steve Allen of Nationwide Children’s Hospital at $1.2 million,...

Furthermore, the justifications for these pay packages uncovered by reporters in different parts of the country also had a certain sameness.  They were actually so similar as to suggest they came from a common set of talking points generated by a common public relations effort. 

We Pay What Everyone Else Pays

In Atlanta, in general:

Atlanta hospital boards have compensation committees of community leaders to ensure executive salaries meet Internal Revenue Service guidelines and are competitive with salaries offered by other medical facilities.

Also,

All of the tax exempt hospitals in the area issued statements asserting their CEO’s compensation is vetted by their boards and in line with industry standards....

In Georgia

Hospital boards 'have to pay market rates in order to attract talent,' said Glenn Pearson, Georgia Hospital Association executive vice president. CEO salaries in Georgia 'appear to be very much in line with national trends,' he said.

In Columbus, Ohio

Hospital trustees set compensation after studying comparable positions in both the nonprofit and for-profit sectors.

CEOs Work Hard and are Brilliant, so They Deserve High Pay

In Atlanta, in general:

Industry representatives say these pay packages ensure communities get the best possible care by attracting the few people capable of administering these complex organizations.

Also,

Pay in excess of $1 million a year may seem high for an organization subsidized by taxpayers, but hospital executives and industry representatives said the public should think of these hospitals not as charities, but as complex, billion-dollar organizations.

Georgia hospitals report to 27 state and federal agencies and engage in multimillion-dollar building projects. The larger hospital systems have billions in revenue and are among the largest employers in their communities. Many also operate for-profit subsidiaries.

'You can’t lose sight of the fact that it’s not an ice cream shop on the side of the street,' said Joseph Parker, president of the Georgia Hospital Association.

In Georgia as a whole,

GHA added that hospitals are accountable to 27 state and federal agencies, while dealing with tight Medicaid reimbursement and an increasing number of uninsured people.

In Madison, Wisconsin,

health care has become much more complicated than when Catholic nuns ran many nonprofit hospitals while taking vows of poverty, said [Integrated Healthcare Strategies vice president David] Bjork, the health care consultant.

He said today's hospital executives struggle to keep their complex enterprises afloat, dealing with independent doctors who make many of the key financial decisions while being largely unable to predict when patients need services.

High Pay is Needed to Attract and Retain Competent, If Not Brilliant People

In Atlanta,

The number of people who can manage these facilities is limited and recruitment is competitive, Parker said.

Qualified leaders will gravitate to other fields over time if compensation for nonprofit CEOs is decreased, [Mercer Inc pay consultant Jose] Pagoaga said. The 'substandard leadership' that replaces them will degrade the quality of medical care for the community.

In Georgia,

The pay decision is made by community leaders who serve on hospital boards, Pearson said. Those board leaders want to make sure they 'have the person of the highest quality,' given the challenging financial times that hospitals face, he said.

Furthermore,

It’s a competitive market nationally for the top people, said Kevin Talbot, a vice president of the [Integrated Healthcare Strategies consulting] firm.

Also,

Boards of Georgia nonprofit health systems responded to GHN that the compensation is needed to attract and retain talented executives.

In particular,

'Establishing and maintaining competitive executive compensation is critical to our ability to ensure that we have a highly competent and effective leader at the helm, and it is a responsibility that our board does not take lightly,' said Mary Lynn Coyle, chairman of the board of Northeast Georgia Health System.

Finally,

'This is a field where there's a great demand for talent,' said Nancy Anderson, chairman of the board of the Medical Center of Central Georgia.

In Madison, Wisconsin,

But large hospitals such as those in Madison have to pay top dollar to attract people with the skills to manage them, said David Bjork, senior vice president of the Minneapolis-based consulting firm Integrated Healthcare Strategies. 'Running a hospital is probably the toughest management job that exists,' Bjork said.

In Columbus, Ohio,

'People who are running hospitals and hospital systems are running businesses that are literally saving people’s lives, so it’s really important to have a quality leader,' said Tiffany Himmelreich, spokeswoman for the Ohio Hospital Association

And,

'People with these types of leadership abilities could easily be snatched up by for-profit businesses,' she said.

There was also a certain sameness in what the the reports did not say.

Things Unsaid, and Questions Begged

None of the news reports contained a response from a million dollar CEO.  Justifications of CEO pay came from hospital trustees, hospital spokespeople, or compensation consultants.

None of the news reports explained why a particular CEO should be considered above average, much less brilliant.  None explained why a particular group of comparator hospitals were appropriate for a particular hospital and its CEO.  As we have discussed before, all CEOs cannot be above average, some CEOs must be below average.  Yet while the reports mentioned CEOs who made less than $1 million, none would dare characterize them as below average. 

Some news reports noted reasons that particular hospitals or CEOs or CEOs ought not to be compared so favorably to their peers.  For example, Edward Bonn's Southern Regional Health System in the Atlanta area lost $12 million in 2009, Tim Stack's Piedmont Health "will cut 464 jobs," and Ken Beverly, of Archbold Medical Center, "was found guilty on six counts in a health care fraud case." (See this post on the latter.)However, nobody in the news reports dared to suggest that these CEOs might be below average in some sense, and hence might not be entitled to such high pay.   

The report from Atlanta noted, "hospital executives and industry experts consider the examination of salaries a titillating issue for the public, but a subject lacking in substance."   However, they failed to explain why the incentives created by large salaries may not generate concerns of substance, or address the concern that "the 'rarified existence' of some nonprofit hospital CEOs may warp their financial decisions and blunt the charitable mission."

Finally, if CEOs, most of whom are not health care professionals, are credited with "literally saving people's lives," why are the health care professionals who actually do save people's live not credited even more?

Summary

The extreme consistency of justifications for generous compensation given to hospital and health system CEOs, (and as we have seen, for such compensation given to other health care leaders) suggests that these justifications are talking points being generated by the leaders public relations flacks.  They may be using talking points because they know the real reason for the high pay is that the CEOs have become unaccountable, and able to set their own pay.  If the CEOs and their friendly boards cannot refute this contention, the latter do not deserve their pay, and the former do not deserve their positions of stewardship.

Over and over, I say... 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.

Wendell Potter's "Deadly Spin"

We recently discussed how Wendell Potter, author of Deadly Spin, has provided a chilling picture of health care corporate disinformation campaigns and the tactics used therein.  I finally had a chance to read the whole book, which should be read by anyone interested in concentration and abuse of power in health care.

Let me summarize some of its main points.

The Unholy History of Public Relations

Mr Potter set "PR" in its historical context, and noted parallels among the modern deceptions he recounts and how the father of PR white-washed tobacco companies, and with the propaganda and disinformation used by 20th century totalitarian states to cement their rule.

How Deceptive PR Changed the Course of Health Care

As noted earlier, Mr Potter recounted how deceptive PR campaigns subverted the health care reform plans of US President Bill Clinton, reduced the impact of Michael Moore's movie, "Sicko," and helped to remodel the recent health care reform bill to reduce its threat to commercial health insurers.  He further noted how PR distracted public attention from the growing faults of a health care system based on commercial health insurance, and how practical and legal safeguards against abuses by insurance companies were eroded. 

Making More by Providing Less Care

Mr Potter catalogued the tactics insurance companies use to reduce care and increase revenue, such as rescision, elimination of coverage for groups with high costs, the use of high deductibles disguised as "consumer choice," etc.

The Tactics of Stealth Health Policy Advocacy

As noted in our earlier post, Mr Potter described "charm offensives;" the deliberate creation of distractions, including the planting of memes for short-term goals that went on to have long-term adverse effects; fear mongering; the use of front groups, including "astroturf," (faux disease advocacy and/or grass roots organizations), public policy advocacy groups, and tame (and conflicted) scientific/professional groups; and intelligence gathering.  He provided some practical advice for detecting such tactics. For example, be very suspicious of policy advocacy by groups with no apparent address or an address identical to that of a PR firm, or with anonymous leaders and/or anonymous financial backing.

Why Good People Do Bad Things

Mr Potter provides some insight into the rationalization and compartmentalization that allow apparently upstanding people to peddle deceptive PR.

Memes Metastasizing

Mr Potter noted how memes are created to fit short term goals.  My observation is that these memes may then acquire lives of their own that then may have long term adverse effects.  Think about "the best health care system in the world," fears of "government bureaucrats," but not corporate bureaucrats running health care, to what the label "junk science" may be applied, and where fears of the "nanny state" came from.

Summary

Mr Potter seems to be the only known example of a defector from the ranks of the leadership of modern corporate health care prompted by conscience.  Anyone who finds this blog useful should find his book at least equally useful.  (To those from outside the US:  although most of Mr Potter's experience was with the US system, the role of PR in society here is likely not that different from its role in other developed countries.)

I hope to return to some of the issues he raises in more detail from time to time.

Bravo, Wendell Potter, for returning from the "dark side."

 Note that I have added Mr Potter's blog to our blog-roll.

The Failure of "Success Healthcare" - When Financial Maneuvering Takes Precedence Over the Health Care Mission

In the last few years, it seems that the whole world got tangled up in a web of complex financial dealings that mostly benefited those moving the money and paper, but often harmed everyone else.  So it should be no surprise that health care was similarly affected. 

A story from the St. Louis Post-Dispatch provided an illustrative case.  The news article began discussing the current difficulties of two local St Louis hospitals, then provided an explanation in what amounted to a series of flashbacks. Let me re sequence it a bit, starting with the background of two local hospitals that got caught up in web.

Background

For several decades, Forest Park Hospital — founded in 1889 as Deaconess Central Hospital — was one of the city’s leading community hospitals, serving a broad spectrum of patients including many African-American residents from north St. Louis.

But in recent years, the hospital’s revenues and its number of patient visits had waned because, in part, of the emergence of major hospitals in west St. Louis County and its decision in 2006 to discontinue obstetric services.

As the hospital struggled, it continued to be passed along from one owner to the next. In 2004, it was acquired by Argilla Healthcare Inc. Argilla merged with Doctors Community Healthcare Corp. of Scottsdale, Ariz., which became Envision Hospital Corp.

Former board member Buford said Forest Park’s downfall began several years ago when Envision executives made the decision to use the hospital’s profits to help prop up a faltering hospital that Envision owned in Washington.

In 2005, Envision sold the buildings and land of Forest Park Hospital and St. Alexius Hospital to Medline Industries, the Illinois manufacturer of surgical supplies.

How the Hospitals were Sold to Success Healthcare LLC

To address its financial problems, Envision decided to sell its accounts receivable to a firm in Florida. Here is the rationale:

Less successful hospitals operate on razor-thin profit margins, waiting for slow-paying state and federal agencies to provide Medicaid and Medicare reimbursements. Such hospitals have difficulty obtaining financing and lack dependable cash flow.

To provide support to a distressed hospital, the Florida partners would purchase its accounts receivables at a discount. For instance, if the government, a health insurer or patient owed a hospital for services, the partners would purchase that invoice for less money. The hospital, in turn, would have cash in hand.

Note that "hospitals tend to avoid such cash-flow companies, because some of them use heavy-handed collection tactics." However,

For struggling Forest Park and St. Alexius, selling their accounts receivables was an alluring option.

So,

Forest Park also was dogged by creditors and having difficulty making its payroll and paying utility bills.

That’s when Envision began doing business with one of the Florida partners’ firms, Sun Capital Healthcare Inc., which purchased $61 million in receivables from Forest Park and St. Alexius.

When Envision defaulted on its sales agreement in September 2008, the Florida partners formed Success [Healthcare LLC] to purchase the two hospitals for $39.5 million.

The Promise of a Turn Around

To the public and the struggling hospitals, the purchase by Success Healthcare LLC seemed a promise of deliverance:

Eighteen months ago, the new buyers of Forest Park Hospital vowed to revive the beleaguered institution.


They voiced optimism that the once-thriving, 450-bed medical center could be saved by fresh capital and determined leadership. They seemed equally enthusiastic about their other acquisition — St. Alexius Hospital in south St. Louis. Even the name of their company — Success Healthcare LLC — evoked the sense that better days were ahead.

Also,

When Success Healthcare bought Forest Park Hospital in December 2008, company officials spoke of transitions, not cutbacks.

In a statement, the company called Forest Park and St. Alexius hospitals important community assets, saying that it planned to enact a 'turnaround plan and financial strategy' in the next six months “that will support the immediate and long-term objectives for the hospitals.'

The Actual Results

Better days were not ahead.  Instead, as summarized by the Post-Dispatch article,

But the three partners from South Florida were ill-prepared to make good on their words. In reality, they were already deep in a financial scandal that involved the potential loss of more than $500 million in investor funds, the suicide of an investment manager in Bermuda, and allegations of fraud and self-dealing.

The mess resulted from the involvement of what became Success Healthcare LLC and an off-shore financier. First, here is some information on the history of the ironically named Success Healthcare LLC:

In recent years, [Peter] Baronoff, [Howard] Koslow and [Lawrence] Leder had built a small empire of health-related companies, whose holdings include at least 18 hospitals, and two finance firms. The firms share an office building at 999 Yamato Road in Boca Raton, Fla.

Baronoff, a former deputy mayor of Boca Raton, had worked as a wine and spirits importer. Koslow had experience in financial services and real estate. Leder, an accountant, was a former supervisory auditor for the U.S. General Accounting Office.

The partners marketed themselves as 'rescuing health care clients in financial emergencies,' including providers that file for bankruptcy protection or are considering such a filing.

Then enter the off-shore financier:

Court records indicate that the Florida partners approached [William] Gunlicks in 1999 to invest in the health care receivables business. Two of the partners — Koslow and Baronoff — formed a Bermuda-based venture with Gunlicks in December 2009 called Stewards & Partners Ltd. to attract offshore investors.

But between 1999 and December, 2009, things had had gone bad,

The first sign of serious problems appeared in April 2009, when the Securities and Exchange Commission filed a case against money manager William Gunlicks, a former Chicago banker whose investment funds provided hundreds of millions of dollars to the Florida partners to help finance their ventures. The SEC accused Gunlicks of placing at risk about $550 million in investor funds, including $5 million invested by the archdiocese of New Orleans.

Soon after, Gunlicks’ fund manager in Bermuda killed himself with an overdose of pills, upset that he had lured investors to the troubled fund, according to media reports. Gunlicks, who declined to comment, settled the SEC case — agreeing not to operate another investment fund.

In July 2009, a receiver appointed by a federal judge — whose mission is to recover Gunlicks’ investor’s money — sued the Florida partners’ finance companies for allegedly defaulting on loan payments to Gunlicks. The receiver accused the partners of fraudulently transferring hundreds of millions of dollars to purchase or prop up distressed hospitals that they owned. Investors also have sued the Florida partners.

The troubles afflicting Success Healthcare LLC quickly affected the hospitals they had promised to save:

There are conflicting accounts about the financial strength of the Florida partners, but this is clear: They do not appear to have the wherewithal to operate Forest Park as a full-service hospital, and their financial troubles could also negatively affect St. Alexius, which reported in 2008 a bare-bones profit margin of 1.38 percent.

Daniel Newman, the court-appointed receiver, has asserted that the Florida partners’ finance firms 'had long been insolvent ... and had been losing money.' He has accused them of overstating their revenues and assets to conceal at least $50 million in losses in recent years.

The results on local health care were not good:

By April of this year, Forest Park Hospital had laid off about three-quarters of its staff and reduced its operations to a small emergency department, 20-bed psychiatric ward, laboratory and pharmacy.

'It’s a very dire situation,' said Dr. James Buford, president of the Urban League and a former member of the Forest Park Hospital’s board. 'It wouldn’t surprise me if the hospital went under. There hasn’t been a necessary infusion of capital to make it work.'

Today, Forest Park Hospital is an almost empty landmark that overlooks the renovated Highway 40 (Interstate 64). The hospital is trying to use only one of its six floors and staffs a few dozen patient beds. Meanwhile, St. Alexius Hospital continues to offer a range of patient services, though it staffs only about one-third of its 456 licensed beds.

Summary

First, I must admit that it is possible that the two St Louis hospitals could not have been maintained in their original configurations by even the most knowledgeable, dedicated, and visionary leadership. It may be that there location was untenable, given the growth of powerful competitors.

However, it is hard to believe that the complex financial maneuvers in which they were caught up provided any benefits to patients, health care, or health professionals. Instead, it is likely that these maneuvers provided considerable personal gains to the people behind them (although these were not investigated in the St Louis Post Dispatch story).

The big lesson: be very skeptical of glorious promises, especially those that come from new health care leaders who turn out to have no knowledge or background in health care. (Note that the leaders of Success Healthcare had no apparent background in actually providing health care, and no apparent commitment to the values health care professionals ought to support.) When you meet the new boss, assume at best he or she will be "same as the old boss," (to the lyrics of "Won't Get Fooled Again.")  We seem to be caught up in a business culture in which every new leader and fashionable management strategy is hyped and spun, and somehow people believe it all, forgetting how badly the previously hyped leaders and strategies crashed.

How many times have we health professionals been told the new CEO, the new corporation taking over, the new business strategy will make everything better? How often has that been true?

Health care desperately needs leadership that understand the context, and believes in the values.  The quick buck artists have been making themselves rich, while health care on the ground becomes poor.  How much money goes into the pocket of the clever leaders for their fancy financial maneuvers, rather than to provide patient care?  The answer might explain why US health care is the most expensive in the world, while primary care, and in this case, basic hospital acute care becomes less available.