Princess Health and No Questions Asked - Journalist Parrots the Talking Points in Support of Hospital Executive Compensation . Princessiccia

Princess Health and No Questions Asked - Journalist Parrots the Talking Points in Support of Hospital Executive Compensation . Princessiccia

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

Gusty 09:07 Add Comment

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. 

Princess Health and New Jersey Confidential: the Almost Secret Membership of the RWJ Barnabas Health Board. Princessiccia

Princess Health and New Jersey Confidential: the Almost Secret Membership of the RWJ Barnabas Health Board. Princessiccia

anechoic effect boards of trustees conflicts of interest hospital systems RWJ Barnabas Health UMDNJ

Gusty 08:28 Add Comment

A Hospital System Tries to Hide its Board of Trustees

The US Internal Revenue Service mandates disclosure of the membership of boards of trustees of non-profit corporations.  Nonetheless, as reported by New Brunswick (NJ) Today, the leadership of the newly formed RWJ Barnabas Health system has been doing their best to keep the membership of its board of trustees secret.

The new organization created to function as the state's largest hospital chain is refusing to tell the public who serves on their Board of Trustees,...

To elaborate,

The two hospital networks officially combined to form a new conglomerate, the state's second largest employer, in a deal that was finalized on March 31.

But since then, the new group has refused to identify its board members, after stalling for nearly two weeks.

'Thank you very much for your interest. It is a policy at RWJBarnabas Health not to share the names of the Board of Trustees" read a peculiar April 12 email response from an anonymous address affiliated with Barnabas, B4@barnabashealth.org.

The anonymous email address has not responded to follow up inquiries from this newspaper, including one urging them to make the 'smart choice' and 'be transparent.'

This goes against at least the spirit of the law.

'If the organization has been recognized by the IRS as tax-exempt under one of the subsections under 501(c), there are a number of documents that organizations must make available that would include board lists,' said the leader of the Center for Non-profits.

The initial application, and the three most recent annual filings, must be made available for inspection or copying by members of the public at their place of business, according to the IRS.

In general, any organization that files a Form 990... must make its three most recent Form 990's and its Form 1023 available for public inspection without charge at its principal place of business,' reads the Center's website.

'All parts of the return, schedules and attachments must be made available during regular business hours at the organization's principal office and at any regional offices having 3 or more employees.

There is an exception to the requirement if a non-profit chooses to make the documents widely available by posting them on the internet.

The anonymous email address that cited the policy of having a secret board, and the media contacts listed on the press release announcing the merger between RWJ and Barnabas, have not responded to questions about whether their healthcare organization is in compliance with the IRS rules regarding making the forms available to the public.

This obviously also is a remarkable rebuff to those in health care who advocate maximum transparency.

A Futile Attempt at Secrecy

Some good investigative reporting by New Brunswick Today penetrated the flimsy veil set up by hospital system leadership. The system chairman turns out to be one Jack Morris:

Documents provided by the NJ Department of Treasury show that controversial developer Jack Morris was made the Chairman of the RWJ Barnabas board.

Morris is a close friend and ally of former State Senate President and convicted felon John Lynch, Jr., who ruled New Brunswick as Mayor from 1978-1990, and some contend still is a key player in statewide politics.

Morris had previously served as Chairman of the Robert Wood Johnson University Hospital (RWJUH) Board of Directors. Morris is also tied to Cooper Hospital Chairman George Norcross, the state's most notorious unelected political boss.

The vice-chairman is actually Marc Benson.

another real estate mogul was named the RWJ Barnabas board's Vice Chair, according to the documents, which were filed with the State Treasurer in November 2015, nearly half a year before the merger was finalized.

Marc Berson founded the Millburn-based 'Fidelco Group' in 1981, a 'private investment owner-developer of residential, commercial, retail, and industrial properties in New York, New Jersey, Florida and Ohio,' according to a press release announcing his election as Chairman of the Barnabas Health Systems board in 2014.

As for the rest of the board, they are,

The other 18 secret board members are:

Robert L. Barchi, (Rutgers University, New Brunswick)
 James C. Salwitz, MD (Robert Wood Johnson University Hospital, New Brunswick)
Murdo Gordon (Bristol-Myers-Squibb, Princeton)
Susan Reinhard (AARP Public Policy Institute, Washington, DC)
Nicholas J. Valerani (West Health Institute, La Jolla, CA)
John A. Hoffman (Wilentz, Goldman, & Spitzer, Woodbridge)
Alan E. Davis, Greenbaum (Rowe, Smith & Davis LLP)
Robert E. Margulies, Esq. (Margulies Wind, Jersey City)
Kenneth A. Rosen (Lowenstein Sandler PC, Roseland)
 Lester J. Owens (J.P. Morgan Chase, New York, NY)
James Vaccaro (Manasquan Savings Bank, Wall)
Albert R. Gamper, Jr. (Caliber Home Loans, Inc., Far Hills)
Anne Evans-Estabrook (Elberon Development Corporation)
Gary Lotano (Lotano Development, Inc., Toms River)
Steve B. Kalafer (Flemington Car and Truck Country, Flemington)
Brian P. Leddy (former Chairman of RWJUH Rahway, Cranford)
Joseph Mauriello (formerly of KPMG, Chester)
Richard J. Kogan (formerly of Schering-Plough Products, Inc., Short Hills)

Why the Futile Effort to Make Board Membership Secret?

It is certainly striking that a big non-profit hospital system would try to conceal the membership of its board of trustees.  One might think the leadership should be proud of the board members, and the board members would be happy to advertise their community service.

This did not seem to be the case here.  Once more we see how the new overlords of health care reflexively seem to choose secrecy over transparency, deliberately creating the anechoic effect which we have frequently discussed.

Perhaps the board wanted to avoid undue attention to the political connections of its new chairman, one of which  was to a"convicted felon," and another of which was to Mr Norcross, whose apparent conflicts of interest in his role in the governance of a former UMDNJ hospital were discussed here. Parenthetically, an article in NJ.com on the merger noted that this new hospital system is a descendant of the now dissolved University of Medicine and Dentistry of New Jersey, UMDNJ (look here), an organization whose extensive troubles kept Health Care Renewal very busy in past years.

Perusing the list of the members of the board reveals two people with pharmaceutical connections that could be conflicts of interest, a few people with health care affiliations, but no obvious affinity for the patients and public in New Jersey whom the new hospital system is supposed to serve, and many lawyers and business people with no obvious affinity for the values of health care professionals.

However, as summarized by the National Council for Nonprofits,

the board of directors have three primary legal duties known as the 'duty of care,' 'duty of loyalty,' and 'duty of obedience.'

...

In sum, these legal duties require that nonprofit board members:

Take care of the nonprofit by ensuring prudent use of all assets, including facility, people, and good will; and provide oversight for all activities that advance the nonprofit�s effectiveness and sustainability. (legal 'Duty of due care')

Make decisions in the best interest of the nonprofit corporation; not in his or her self-interest. (legal Duty of loyalty')

Ensure that the nonprofit obeys applicable laws and acts in accordance with ethical practices; that the nonprofit adheres to its stated corporate purposes, and that its activities advance its mission. (legal 'Duty of obedience')

So it is not obvious that these board members are particularly familiar with the nuances of the mission of a large academic hospital system, which includes delivering excellent patient care that puts individual patients first, particularly ahead of board members' self interest, and of its academic role, seeking and disseminating the truth.  One wonders what sort of governance this sort of board will provide.  Maybe the hospital leadership wanted to forestall such questions by keeping board membership as obscure as possible.

Speaking of the anechoic effect, while the new RWJ Barnabas Health system will be a very major player in NJ health care, and while trying to keep the board members of a non-profit health care system is rather a remarkable action, so far, only one local newspaper, and now your humble blogger seem interested.  This is yet another example of the anechoic effect.

Comments

We have been writing now for a long time about the tremendous and growing dysfunction of US health care.  Some now obvious reasons for its problems are poor leadership of ever larger and more powerful health care organizations, and failure of existing governance bidues to exercise stewardship over these organizations.  We have discussed numerous previous problems with boards of trustees of non-profit health care organizations here.  We have noted that board member may have conflicts of interest, and are often rich business executives who may be more interested in preserving the power and wealth of their fellow executives, including those generic managers who know often run large health care organizations, than defending vulnerable patients.  These problems are compounded by the anechoic effect: information and opinions which might offend those currently in power and who stand to benefit most from the current system is kept very quiet, treated as a taboo subject, that is, made to have no echoes.  This new case again suggests that these problems are not going away.

How many times must we say this?....   True US health care reform would vastly increase transparency, not just of prices, but of leadership and governance.  True US health care reform would put the operation of US health care organizations more in the hands of people who have knowledge and experience in health care, and are willing to be transparent and accountable to support health care professionals' values.  Furthermore, oversight and stewardship of these organizations should represent the patients and public which the organizations are supposed to serve. 

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

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

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

Gusty 10:39 Add Comment

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.

Princess Health and John Stossel Discovers Health Care Dysfunction, Blames it on "Socialists" - Like Maurice Greenberg (AIG), John Thain (Merrill Lynch), Sanford Weill (Citigroup), and David H Koch? . Princessiccia

Princess Health and John Stossel Discovers Health Care Dysfunction, Blames it on "Socialists" - Like Maurice Greenberg (AIG), John Thain (Merrill Lynch), Sanford Weill (Citigroup), and David H Koch? . Princessiccia

boards of trustees bureaucracy finance generic managers managerialism New York - Presbyterian Hospital

Gusty 19:47 Add Comment

We have been ranting for a while about the dysfunctionality of the US health care system.  Unfortunately, many people only realize how bad things are when they become patients, when they have bigger things to worry about than complaining.   Furthermore, even if they complain, many patients may not feel they understand enough about what has gone wrong to suggest solutions.

Bad Customer Service at New York Presbyterian

This may not apply when media pundits, especially those with strong ideological views, become patients.  So this week Fox News commentator and well known libertarian John Stossel disclosed his new illness, and vented his opinions about his hospital stay.   Mr Stossel unfortunately developed lung cancer, although he was optimistic about his prognosis: "My doctors tell me my growth was caught early and I'll be fine. Soon I will barely notice that a fifth of my lung is gone."

However, he was not happy about his hospital's customer service:

But as a consumer reporter, I have to say, the hospital's customer service stinks. Doctors keep me waiting for hours, and no one bothers to call or email to say, 'I'm running late.' Few doctors give out their email address. Patients can't communicate using modern technology.

I get X-rays, EKG tests, echocardiograms, blood tests. Are all needed? I doubt it. But no one discusses that with me or mentions the cost.

Also,

I fill out long medical history forms by hand and, in the next office, do it again. Same wording: name, address, insurance, etc.

And,

In the intensive care unit, night after night, machines beep, but often no one responds. Nurses say things like 'old machines,' 'bad batteries,' 'we know it's not an emergency.'

Finally,

Some of my nurses were great -- concerned about my comfort and stress -- but other hospital workers were indifferent.

Unfortunately, long wait times, poor communications, excess paperwork, and misapplied technology are all too familiar problems to those in the health care system.

Moreover, this all was happening at one of the most highly rated US hospitals, 

After all, I'm at New York-Presbyterian Hospital. U.S. News & World Report ranked it No. 1 in New York.

Were "Socialist Bureaucracies" Responsible?


Mr Stossel had his own ideas about the causes of these problems. 

Customer service is sclerotic because hospitals are largely socialist bureaucracies. Instead of answering to consumers, which forces businesses to be nimble, hospitals report to government, lawyers and insurance companies.

Whenever there's a mistake, politicians impose new rules: the Health Insurance Portability and Accountability Act paperwork, patient rights regulations, new layers of bureaucracy...

Also,

Leftists say the solution to such problems is government health care. But did they not notice what happened at Veterans Affairs? Bureaucrats let veterans die, waiting for care. When the scandal was exposed, they didn't stop. USA Today reports that the abuse continues. Sometimes the VA's suicide hotline goes to voicemail.

Patients will have a better experience only when more of us spend our own money for care. That's what makes markets work.

A "Socialist Bureaucracy" with a VIP Penthouse?

I am sorry to hear Mr Stossel has lung cancer, and hope that his prognosis is indeed good.  I am a bit surprised that a media celebrity who became a patient found big issues with "customer service" at such a prestigious hospital.  After all, many big hospitals have programs to give special treatment to VIPs (for example, see these posts from 2007 and 2011).

In particular, back in 2012 we posted about the contrast between the VIP services specifically at New York - Presbyterian Hospital and how poor patients are treated there.  Then we quoted from a 21 January, 2012 article from the New York Times focused on the ritzy comforts now provided for wealthy (but perhaps not very sick) patients at the renowned New York Presbyterian/ Weill Cornell Hospital.  It opened,

The feverish patient had spent hours in a crowded emergency room. When she opened her eyes in her Manhattan hospital room last winter, she recalled later, she wondered if she could be hallucinating: 'This is like the Four Seasons � where am I?'

The bed linens were by Frette, Italian purveyors of high-thread-count sheets to popes and princes. The bathroom gleamed with polished marble. Huge windows displayed panoramic East River views. And in the hush of her $2,400 suite, a man in a black vest and tie proffered an elaborate menu and told her, 'I�ll be your butler.'

It was Greenberg 14 South, the elite wing on the new penthouse floor of NewYork-Presbyterian/Weill Cornell hospital. Pampering and d�cor to rival a grand hotel, if not a Downton Abbey, have long been the hallmark of such 'amenities units,' often hidden behind closed doors at New York�s premier hospitals. But the phenomenon is escalating here and around the country, health care design specialists say, part of an international competition for wealthy patients willing to pay extra, even as the federal government cuts back hospital reimbursement in pursuit of a more universal and affordable American medical system.

Additional amenities include:

A waterfall, a grand piano and the image of a giant orchid grace the soaring ninth floor atrium....

Also,

the visitors� lounge seems to hang over the East River in a glass prow and Ciao Bella gelato is available on demand....

An architect who specializes in designing such luxury facilities for hospitals noted:

'These kinds of patients, they�re paying cash � they�re the best kind of patient to have,' she added. 'Theoretically, it trickles down.'

It appears that someone failed to book Mr Stossel into the penthouse.  Instead, he found out what service was like for the masses.

Perhaps this was why Mr Stossel railed at the "socialist bureaucracies" he perceived as running New York - Presbyterian Hospital.  However, calling the hospital management "socialist" seems - not to put too fine a point on it - wrong.

A "Socialist Bureaucracy" Paying Millions to its CEOs?


First of all, New York Presbyterian is hardly a government agency.  It is a private, non-profit corporation.  Every year as such it files a form 990 with the dread US Internal Revenue Service. (The latest publicly available version is from 2013, here.)  Obviously, US government agencies do not file with the IRS.


In fact, the New York Presbyterian system seems about as far from a federal government agency as one can imagine.

First, its top managers are paid like for-profit corporate executives.  In 2014, we posted about the humongous compensation given to its previous, long-serving CEO, Dr Herbert Pardes, who received multi-million dollar compensation every year through his 2011 retirement, and then continued to receive several million a year from the system in his retirement.  His successor, current CEO Dr Steven Corwin, received $3.6 million in 2012.  (More recent compensation figures are not yet available.)

A "Socialist Bureaucracy" Dominated by Managers, with Stewardship by Top Financial Executives, and one of the Koch Brothers?

The current leadership of New York Presbyterian is dominated by businesspeople, not physicians, nurses, or other health care professionals.  Only 10 of 33 listed senior leaders are health care professionals.  The rest have administrative/ management or legal backgrounds and training.  Many appear to be generic managers, that is, people with background and experience primarily in administration or management, but not in medicine, health care, public health, etc.


The hospital system's board of trustees was and is filled with some of the top business executives in the US, including some finance executives who have been cited as responsible for the global financial collapse/ great recession.

For example, we wrote about Mr Dick Fuld, a trustee until recently.  Mr Fuld was the CEO who presided over the bankruptcy of Lehman Brothers, which heralded the beginning of the great financial crisis/ great recession of 2008 onward.  Mr Fuld seemed to lack the sort of compassionate approach one might expect from someone charged with the stewardship of a big hospital system.  He had once publicly said about those who sold Lehman Brother stock short: "what I really want to do is I want to reach in, rip out their heart, and eat it before they die."



Another recently retired board member was Sanford I Weill, architect of the mergers that created the now federally bailed out Citigroup.  In 2014, we posted about how Mr Weill, contemplating retirement from the board of trustees of Weill Cornell Medical School, one of the two medical schools with primary affiliations with New York Presbyterian, managed to bequeath his board seat to his daughter, Ms Jessica Bibliowicz, also the CEO of a finance firm, National Financial Partners.  Ms Bibliowicz now also seems to have Mr Weill's seat on the New York Presbyterian board. 

Also, still on the board are two top finance CEOs who have been blamed for the global financial collapse.  These are  Maurice R Greenberg of the federally bailed out AIG, and John A Thain, CEO of the nearly collapsed Merrill Lynch (merged into Bank of America).  See this post for more information about their roles in the global financial collapse.

Finally, one other board member is David H Koch, described by Wikipedia

Koch is an influential libertarian. He was the 1980 candidate for Vice President of the United States from the United States Libertarian Party and helped finance the campaign. He founded Citizens for a Sound Economy. He and his brother Charles have donated to political advocacy groups and to political campaigns, almost entirely Republican

With socialists like these ...?   

Summary

I do not doubt that John Stossel found the customer service at New York Presbyterian not up to his expectations.  And I actually have no doubt that New York Presbyterian has to operate within a complex health care system in which government bureaucracy plays a large role, and sometimes a counter-productive one.  Furthermore, I have no doubt that the management of New York Presbyterian is very bureaucratic, and this may in part may be a reason for poor customer service, and other failings.

However, to say that the management and governance of the hospital system is "socialist" is dead wrong.  In fact, like many other large health care organizations, the New York Presbyterian system appears to be run largely by "managerialists," that is generic managers who have little experience or background in health care, may have little understanding or sympathy for its values, and approach health care with the same management techniques that might be applied to selling soap powder.  Furthermore, the stewardship of this particular hospital system seems to be largely up to some of the biggest, and loudest "capitalists," and one of the most prominent "libertarians" in the US.

But to someone with a hammer, most problems look like nails.

Maybe Mr Stossel needs to complain to Mr Koch.

In conclusion, I am glad that some of the problems in the dysfunctional US health care system are getting more public attention.  However, now we need to calmly and rationally consider what is causing them and what to do about them without the blinders of ideology or vested interests. 

IMHO, true US health care reform would put the operation of US health care organizations more in the hands of people who have knowledge and experience in health care, and are willing to be accountable to support health care professionals' values.  Furthermore, oversight and stewardship of these organizations should represent the patients and public which the organizations are supposed to serve. 

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

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

boards of trustees generic managers hospital systems hospitals managerialism

Gusty 11:23 Add Comment

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. 

Princess Health and Generic Management of Health Care Non-Profits, Brought to You by Leaders of (Sometimes Failed, or Bailed Out) Finance on the Board?. Princessiccia

Princess Health and Generic Management of Health Care Non-Profits, Brought to You by Leaders of (Sometimes Failed, or Bailed Out) Finance on the Board?. Princessiccia

boards of trustees finance generic management generic managers managerialism

Gusty 13:55 Add Comment

Introduction - 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.

One Explanation - Finance Leaders Ascendant on the Boards of Health Care Non-Profits

I just found a useful article that provides one explanation for the rise of managerialism in health care non-profit organizations.  It postulated that the increasing prevalence of leaders of finance firms on the baords of trustees of such organizations led to increasingly managerialistic leadership.

Thanks to a link from Naked Capitalism to a post on ShadowProof that led to an article in the Stanford Social Innovation Review by Garry W Jenkins, entitled, "The Wall Street Takeover of Nonprofit Boards."  It described a study of the membership of the boards of 23 of "the nation's leading private research universities," most of which have medical schools and academic medical centers, and all of which have major biomedical and/ or health care research operations, as well as leading liberal arts colleges and large New York City non-profit organizations, including a few hospitals.  (We will restrict our discussion of the quantitative results to the former group of leading universities.)

The most important result was that 40% of trustees of the universities in 2014 "had a substantial professional career in finance," up from 19% in 1989.  Futhermore, in 2014, 56% of university board leadership positions were held by people from finance, up from 26% in 1989.   The author noted that the prevalence of people from the finance sector on university boards was far bigger than their prevalence in the population.  Only 6% of the private non-farm workforce in the US was in finance in 2012.

The author summarized his findings:

Over the past twenty-five years the compostion of the boards at some of America's most important nonprofit organizaI I has dramatically changed. Without much notice, a legion of Wall Street executives (investment bankers, hedge fund managers, and others) has taken a growing number of seats in nonprofit boardrooms. Not only that, they hold a disproportionate share of the leadership positions on these boards.

He then linked the increasing dominance of non-profit governance to the increasing tendency of these organizations to be run like for-profit businesses, that is, the rise of "managerialism."

Scholars and practitioners have documented various pressures placed on nonprofit organizations by donors and private foundations to adopt business approaches.

Although some of the pressure to adopt business approaches has come from external forces, it may also be true that the concepts and norms of philanthrocapitalism are also now carried into nonprofit organizations by the directors of public charities themselves.

He then provided a much more detailed discussion:

As financiers come to dominate the boards of leading nonprofits, it is not surprising that their approaches and priorities have made their way, very explicitly and fundamentally, into the governance of the nonprofit sector. Practices such as data-driven decision-making, an emphasis on metrics, prioritizing impact and competition, managing with three- to five-year horizons and plans, and advocating executive-style leadership and compensation have all become an essential part of the nonprofit lexicon.

Nonprofit leaders regularly hear about these finance practices from board members and donors whose native habitat is the financial services world. Moreover, nonprofit managers have come to accept them as reasonable principles upon which donors base their giving. More often than not, organizations are also expected to incorporate these principles in the management of the not-for-profit enterprises for which managers and boards share responsibility.

Although many of these business approaches may strengthen nonprofit capacity, we should also be mindful of the ways in which these same tools can morph into pathologies, ignore the costs or trade-offs associated with extending business thinking to the charitable sector, or distort organizational priorities. Numerous critics have written thoughtfully about the ways in which market-based thinking and approaches applied to the nonprofit sector provide false promise, with the potential to dilute charitable values, undermine long-term mission focus, incentivize small, incremental goals, and threaten shared governance and other forms of participatory problem-solving.

Beyond leading to the borrowing of financial concepts and tools in the boardroom, the rise in the number of nonprofit directors with ties to finance may also contribute to deeper changes in the underlying institutional values and motivations, a trend that economic sociologists refer to as the financialization of the nonprofit sector.

Financialization describes a spread of financial logics, influence, and strategies into new fields and organizations in ways that transform the culture, policies, and values of institutions.  Indeed, wealthy nonprofits-like colleges, universities, and museums-have long engaged with financial markets as endowment investors, but the scope and scale of today's nonprofit borrowing, aggressive debt financing, securitization transactions, and complex real estate transactions is unprecedented. Such shifts may affect the organization's strategic direction and orientation in a number of ways, including directing board and management attention to debt service, incentivizing organizations to invest resources on activities that return higher profit margins to cover debt service, elevating the centrality and importance of financial managers in strategic planning and decision-making, and increasing the need for and power of senior staff well versed in complex financial instruments.

The list of practices above and the description of financialization sound very much like standard operating procedures of generic management which we have previously described.  The discussion of pathologies above sounds similar to our discussions of how managerialism distracts from or undermines the mission.


The one quibble I have with Jenkins' discussion is that it puts almost the entire onus on the financial leaders on the boards of trustees, rather than the top managers of the organizations.  It may be that increasingly financialized boards hire increasingly generic managers, but there may be a symbiosis between the two groups.

So Jenkins' conclusion seems reasonable:

if boards are to operate as designed, and if they are to be maximally effective, then the composition of nonprofit boards must be more diverse and not dominated by financiers. 

But the problem of financial sector domination of health care non-profit boards may be even worse than that Jenkins describes.

The Dark Side of Finance

Even though Mr Jenkins is concerned about excess of influence of too many financially oriented people on the boards of non-profits, he is quite respectful of those in the finance field. "Individual finance professionals do bring skills, wisdom, and other positive attributes to nonprofit boards."  He also wrote, "This is not to say that finance professionals care less (or more) about a nonprofit organization or its mission.  Nor do I believe that all finance professionals think alike."  Many finance professionals may be very well-intentioned, of course.  But Jenkins seems to thus ignore the dark side of finance's recent history.

Finance firms are certainly known for the use of "financial logics, influence and strategies," and the employment of specific practices.  However, after 2008, they were also known for dangerously slipshod, if not unethical, sometimes corrupt management.  


In 2008, the global financial collapse/ great recession reshaped the global economy, and has been linked to the stagnation of the middle class and growth of plutocracy.  There have been numerous discussions of the role of the leadership of financial organizations in these events.  The blog Naked Capitalism has been covering these issues from the global financial collapse to the current day.  Some of the very many excellent sources on this era include the movie Inside Job,



and books such as Predator Nation by Charles Ferguson, 13 Bankers by Simon Johnson and James Kwak, and Bailout Nation by Barry Ritholtz.

A chapter in Predator Nation was entitled "Crime and Punishment: Banking and the Bubble as Criminal Enterprises.  In it, Mr Ferguson noted the following list of

prosecutable crimes committed during the bubble, the crisis, and the aftermath period by financial services firms ...

Securities fraud (many forms)
Accounting fraud (many forms)
Honest services violations (mail fraud statute)
Bribery
Perjury and making false statements to federal investigators
Sarbanes-Oxley violations (certifying false accounting statements)
RICO offences and criminal antitrust violations
Federal aid disclosure regulations (related to Federal Reserve loans)
Personal conduct offenses (many forms: drug use, tax evasion, etc)

Most of these never led to prosecution in an era of the revolving door and exceedingly lax law enforcement of actions by big corporations ("too big to jail")  Yet Ferguson argued for investigation of possible illegal acts by many large companies, and specifically named Citigroup, AIG, Lehman Brothers, Goldman Sachs, JP Morgan Chase as worthy of investigation.

Many of these organizations' leaders also were on the boards of health care organizations. Since 2008, we began noting that the governance of prominent health care non-profits was often dominated by finance firms, including those implicated in the 2008 collapse, although our observations were case-based, not quantitative.  The concern was not simply that health care organizations were being led into generic management and "managerialism," but that that the incompetence, unethical behavior, and corruption in the finance sector could cause equally bad problems in health care.  We have no systematic proof of that, but consider some of our more colorful cases, which include leaders of the financial firms named by Mr Ferguson...


2008

What Linked the Parallel Declines of Citigroup and the Harvard University Endowment? - In 2008, the collapse of the value of the Harvard endowment occurred on the watch of Harvard Corporation (board of trustees) members half of whom were leaders of big finance firms.

The Leadership of an Elite American University - Brought to You by the People Who Brought You the Global Financial Collapse - Six of the seven "charter trustee" members of the board of Dartmouth College who led a crusade, facilitated by packing the board with self-appointed as opposed to alumni elected members, to discredit elected board dissidents were leaders of big finance firms. Of the six new people whom they packed on as "charter trustees," half were also leaders of such firms.

2009

Hedge Fund U - Bernie Madoff, the supposed finance wizard who went to jail for a huge Ponzi scheme was on the board of Yeshiva University. The chairman of the board's finance committee was Ezra Merkin, a hedge fund operator who ran a "feeder" operation for Madoff's Ponzi scheme.

A Board of Trustees, or a Social Club for the Superclass? - Of the 29 non-physician board members of the Hospital for Special Surgery, 23 had major relationships with, and many of these had leadership roles in finance firms, including such bailed out, too big to fail firms as AIG, Bank of America, Citigroup, Goldman Sachs, JP Morgan Chase, and Wachovia.

2010

Members of the Board of Now Bankrupt Lehman Brothers as Leaders of Health Care? - Members of the board of Lehman Brothers, whose failure was related to the onset of the financial crisis, also served on the boards of Vanderbilt University, the American Red Cross (as CEO), New York - Presbyterian Hospital, New York University, and Tel Aviv University.

A "Very Well Paid Boob" on the Harvard Corporation? - the university's governing board included one of the architects of the overgrowth of Citigroup, which had to be bailed out, and also of the deregulation of finance which allowed the company to be too big to fail.

Failed Leaders of Citigroup as Leaders of Health Care - The bailed out Citigroup board of directors also served on the boards of trustees of Johns Hopkins Medicine, Health System and Hospital, Brown University, Tufts University, Columbia University, Howard University, the Rockefeller Foundation, Harvard (as mentioned above), and Cornell University. 

2012

New York - Presbyterian Hospital Trustee Advocated Novel Cardiac Procedure - "Reach In, Rip Out Their Heart, and Eat It Before They Die" - Richard Fuld, the former CEO of Lehman Brothers, whose failure was related to the onset of the crisis, and who once advocated, presumably only symbolically, eating the hearts of his financial competitors, was on the board of the prestigious hospital.

2014

The Medical School as Hereditary Plutocracy - Retiring Board Chair Sanford Weill of Cornell Weill Medical School Names His Own Daughter as New Chair - the board chairmanship of the medical school went from the former CEO and chairman of the bailed out, too big to fail Citigroup (see above) to his daughter, who runs her own finance firm.

Yet outside of a few grumpy bloggers, the continuing presence of leaders of too big to fail, too big to jail, often bailed out financial firms on the boards of some of our most notable health care organizations and universities has attracted almost no comment, and less concern.


Summary

The continuing dysfunction of US health care, with ever rising costs, stagnant quality, and still inadequate access, is well known.  There is constant loud argumentation over "Obamacare."  (Congress just passed a repeal of it, which the president has threatened to veto.)  Yet there is little in depth discussion or inquiry about what is really going wrong.  The really unpleasant issues rarely surface in polite discussion.  We have called this aversion to direct discussion of big problems the anechoic effect.

So I hope that there is more discusison of who gets to lead health care organizations, and who gets to sit on the boards that exercise stewarship over them.  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.

Princess Health and Health Care Professional Societies Whose Leadership Betrays Their Own Members - the APA Alleged to Have Supported Torture, and Deceived its Members to Collect Money. Princessiccia

Princess Health and Health Care Professional Societies Whose Leadership Betrays Their Own Members - the APA Alleged to Have Supported Torture, and Deceived its Members to Collect Money. Princessiccia

APA boards of trustees crimes against humanity deception executive compensation legal settlements mission-hostile management

Gusty 09:35 Add Comment

Health care professionals usually view their professional societies as allies, supporting their values and acting in their professional and their patients' interests.  Increasingly, however, these societies appear to be run more to support the interests of their top leaders. 

Allegations that the American Psychological Association (APA) Supported Torture

The latest example is the American Psychological Association.  As noted by a Washington Post article from May, 2015, "the APA ... represents more than 122,000 doctoral-level psychologists around the world...."  Of these, about 60,000 are licensed clinical psychologists, and the remainder are mainly research psychologists.

The most serious allegations that the APA had betrayed its members values were described in a New York Times article from late April, 2015. 

The American Psychological Association secretly collaborated with the administration of President George W. Bush to bolster a legal and ethical justification for the torture of prisoners swept up in the post-Sept. 11 war on terror, according to a new report by a group of dissident health professionals and human rights activists.

Furthermore,

The involvement of health professionals in the Bush-era interrogation program was significant because it enabled the Justice Department to argue in secret opinions that the program was legal and did not constitute torture, since the interrogations were being monitored by health professionals to make sure they were safe.

The interrogation program has since been shut down, and last year the Senate Intelligence Committee issued a detailed report that described the program as both ineffective and abusive.

In particular,

In early June 2004, a senior official with the association, the nation�s largest professional organization for psychologists, issued an invitation to a carefully selected group of psychologists and behavioral scientists inside the government to a private meeting to discuss the crisis and the role of psychologists in the interrogation program.

Psychologists from the C.I.A. and other agencies met with association officials in July, and by the next year the association issued guidelines that reaffirmed that it was acceptable for its members to be involved in the interrogation program.

To emphasize their argument that the association grew too close to the interrogation program, the critics� new report cites a 2003 email from a senior psychologist at the C.I.A. to a senior official at the psychological association. In the email, the C.I.A. psychologist appears to be confiding in the association official about the work of James Mitchell and Bruce Jessen, the private contractors who developed and helped run the enhanced interrogation program at the C.I.A.�s secret prisons around the world.

In the email, written years before the involvement of the two contractors in the interrogation program was made public, the C.I.A. psychologist explains to the association official that the contractors 'are doing special things to special people in special places.'

These are very serious allegations.  In a Forbes blog post, Todd Essig wrote,

Starting after 9/11, and continuing to the present day, APA leadership has made a series of bad decisions, ones with appalling and destructive consequence. Significant numbers of people have been harmed. Opportunities to apply psychological knowledge to benefit society and improve people�s lives have been lost. The public trust in the profession of psychology has been undermined. Things are so bad that the only way forward now is for the involved leadership to resign.

Essig emphasized that the actions of APA leadership appeared to directly conflict with the organization's mission,

Every day without decisive action to redress the breach of the public trust further undermines the APA�s ability to fulfill its mission to 'advance the creation, communication and application of psychological knowledge to benefit society and improve people�s lives.'

Nonetheless, the APA leadership has made no move to resign, and appear to be waiting for the supposedly independent review they have commissioned of the society's actions regarding torture.

Legal Settlement that the APA Deceived its Members to Collect More Money

While less dramatic, another story appeared last month that further suggested that the APA has seemed to have gone rogue from the interests of its members and their patients.  The Washington Post reported,

The American Psychological Association (APA) has settled a class-action lawsuit that accused the organization of deceptively requiring many of its members to pay a large annual fee to fund the group's lobbying arm. The fee was actually optional.

Under the settlement, the APA, which represents more than 122,000 doctoral-level psychologists around the world, has agreed to refund a total of $9.02 million to members who paid the fee between 2000 and early 2015. The assessment, which changed from year to year, was about $140 annually and was charged only to licensed clinicians, not research scientists and others. It generated about $6 million a year, according to the lawsuit.

Note that...

The lawsuit claimed that in a variety of ways over the years, the APA 'deceptively created the impression that the fee was actually required as part of annual APA dues.' For example, an annual dues assessment said that members who provide health-related services �must pay" the fee that supports the lobbying arm, a separate group known as the APA Practice Organization (APAPO). It was established separately because tax laws restrict nonprofits like the APA from political work and other forms of advocacy.

In 2002, the APA�s Web site stated that members 'must pay the Special Assessment,' and in 2004, the APA announced that starting in 2005 'all APA members who are licensed psychologists will be billed the assessment,' the lawsuit claimed.

This was a legal settlement, so APA leadership did not have to

concede that its communications were misleading and acknowledged no wrongdoing in the settlement. In a news release sent out in January, when the settlement was announced, the organization said that 'APA/APAPO and the plaintiffs disagreed about whether the APA dues statement could mislead practice members concerning the annual practice assessment.'

How Did a Society's Leadership Become So Disconnected from its Members and their Values?

These allegations do raise the question of how the leadership of a health care professional society could become so profoundly disconnected from its members.  I briefly would suggest the hypothesis that many health care professional societies have functionally become more like publishing houses or marketing and public relations firms. 

Consider the most recent financial statement (US IRS form 990) available from the APA (for 2013, link here).    The APA had total revenue of over $127 million.  Of that, less than 10% came from membership dues ($10,802,967) and convention and conference fees ($2,742,353).  So the major sources of revenue of this supposed membership organization were not the members, but "licensing, royalties, and rights," "journal subscriptions," "publication sales," and "other program service."  Thus, the organization's finances were more that of a publishing house/ marketing and public relations firm than that of a membership organization. Presumably, leadership may have been more concerned about continuing to generate revenue from such activities than about their membership's wishes, or interests.


The revenue from these activities allowed the organization to accrue real estate valued at over $78 million, and investments valued at over $90 million.  Also, it allowed generous payments to the members who served as officers.  Twelve members who served as officers, on the board of directors, or otherwise in leadership got more than $10,000 a year.  The president got more than $38,000.  Traditionally, officers and board members of true membership organizations are unpaid.  In addition, the APA paid its hired managers very handsomely.  Sixteen received more than $225,000.  Of those, twelve received more than $300,000.  The executive vice president/ CEO received over $750,000. 

So the transformation of the APA from a membership organization to a publishing house/ marketing and public relations firm that allegedly ended up supporting torture, and deceiving its supposed members created a very cozy and remunerative environment for its leaders and those who ostensibly exercised stewardship over them.

Again, this is particularly egregious since this was supposed to be a membership organization that would support research and education in psychology, and psychological care of patients. 

Summary

In the bigger story from last month, very serious allegations surfaced about the American Psychological Association.  These included accusations that top society leaders collaborated with torture, which would seem to be a huge contradiction of the organization's supposed mission to help patients with psychological problems.  At the same time, the organization settled a lawsuit that had alleged organizational leaders had deceived their own members in order to collect money to support their lobbying efforts. 

We have frequently discussed how leaders of large nominally non-profit health care organizations, mainly hospitals and hospital systems, often seem to put revenue, and their own financial advancement, ahead of the organizations' missions.  Sometimes, their actions have been actively mission-hostile.  The takeover of hospitals and hospital systems by people with little concern for, or even hostility to those organizations' once noble missions appears to be a singularly bad problem that may be responsible for much health care dysfunction, rising costs, declining access, and ultimately bad patient outcomes. 

Now we see another example of a large health care organization, this time a health care professional society,  whose leadership seems to have trampled their members' values, supported mistreatment of human beings, and just incidentally deceived their members' to make more money.  An important difference in this case is that the organization's leadership is nominally supposed to represent its members.  So maybe its members can rise up to ensure leadership that would actually uphold their professional values and their and most importantly their patients' interests.


Maybe the members will still rise up and force the resignations of the officers and managers who profited so much from this mess.  At least, if they were to leave the organization, it could no longer pretend to be a membership organization.

As we have said until blue in the face, true health care reform requires leadership of health care organizations that understand health care, cares about its mission, and is willing to be held accountable.  A good place to start such reform would be the organizations that are supposed to represent health care professionals.