Don't Cry for Me, Brazil - UnitedHealth May Buy Brazilian Managed Care Company

While Health Care Renewal's bloggers are at the moment all Americans, and hence tend to focus on the wild and crazy US health care system, we have suggested that many of the issues we discuss have global implications.  In fact, the first article I managed to publish on health care dysfunction was in a European journal, and framed the US experience as a cautionary tale for other countries. [Poses MD. A cautionary tale: the dysfunction of American health care.  Eur J Int Med 2003; 14: 123-130.  Link here.]

The Possible Acquisition by UnitedHealth of Brazil's Leading Managed Care Company

However, sometimes it appears that the US experience might be directly exported.  Today Bloomberg reported,

UnitedHealth Group Inc., the biggest U.S. health insurance company, is in talks to buy a stake or all of the Brazilian insurer and hospital operator Amil Participacoes SA, according to people familiar with the matter.

Acquiring all or part of Brazil’s biggest managed-care company, which carries a market value of 9.01 billion reais ($4.47 billion), would give Minnetonka, Minnesota-based UnitedHealth access to a growing private-insurance market in the world’s second-biggest emerging economy. It also may generate more opportunities for UnitedHealth’s Optum unit, which provides technology and consulting to health systems in India, China, the U.K. and elsewhere.

UnitedHealth's Ethical Record

UnitedHealth would be the company whose CEO once was worth over a billion dollars due to back dated stock options, some of which he had to give back, but despite all the resulting legal actions, was still the ninth best paid CEO in the US for the first decade of the 21st century (look here). UnitedHealth would be the company whose current CEO made a cool $106 million in 2009 (look here).

Moreover, UnitedHealth would also be the company known for a string of ethical lapses:
- as reported by the Hartford Courant, "UnitedHealth Group Inc., the largest U.S. health insurer, will refund $50 million to small businesses that New York state officials said were overcharged in 2006."
- UnitedHalth promised its investors it would continue to raise premiums, even if that priced increasing numbers of people out of its policies (see post here);
- UnitedHealth's acquisition of Pacificare in California allegedly lead to a "meltdown" of its claims paying mechanisms (see post here);
- UnitedHealth's acquisition of Sierra Health Services allegedly gave it a monopoly in Utah, while the company allegedly was transferring much of its revenue out of the state of Rhode Island, rather than using it to pay claims (see post here)
- UnitedHealth frequently violated Nebraska insurance laws (see post here);
- UnitedHealth settled charges that its Ingenix subsidiaries manipulation of data lead to underpaying patients who received out-of-network care (see post here).
- UnitedHealth was accused of hiding the fact that the physicians it is now employing through its Optum subsidiary in fact work for a for-profit company, not directly for their patients (see post here).

Exporting Health Care Dysfunction

So while the deal discussed above might be good for UnitedHealth, it is not so clear that it would be good for Brazil, as it would give a big toe-hold in Brazil to a US company whose actions have not always been exemplary, and hence may give Brazil a whiff of US health care dysfunction.


Health care dysfunction in the US has been manifested by continuously rising costs while access and quality have been threatened.  While it is possible that our recent Affordable Care Act reforms will improve access, and perhaps quality, it is likely the country will continue to lag other developed countries in providing health care value (for examples, look at this Commonwealth Fund site including international comparisons.) 

Moreover, health care dysfunction may have resulted in a uniquely distressed physician population in the US compared to those in other countries.  Here we discussed a recent large-scale survey showing nearly half of all US physicians, and more than half of generalist physicians are burned-out.  Here we discussed another recent large-scale survey showing that more than a third of US academic physicians want to quit their institution and/or academia. That survey may have suggested that their dissatisfaction was due to concerns that their leaders did not share their values about patient care and academics, their leaders may put revenue ahead of these values, their leaders may have suppressed dissent, free speech, academic freedom, and whistle-blowing, and their leaders may have acquiesced to a culture of dishonesty and deceit.

 On Health Care Renewal, we have postulated that our unique mix of health care misery may be due to a witch's brew of  concentration and abuse of power in health care, bad (that is, ill-informed, incompetent, mission-hostile, self-interested, conflicted or corrupt) leadership of health care, tactics used by bad health care leadership such as use of perverse incentives, creation of conflicts of interest, deception, disinformation, propaganda, intimidation, etc

Thus we would not recommend that other countries look to our health care system as a role model, and that their citizens should be very skeptical of US health care organizations, particularly large, for-profit health care corporations with spotty ethical records, when they come calling. Meanwhile, we in the US must do a better job solving our own health care problems, and should avoid trying to export them.

The Revolving Door's Bearings Overheat - Two Examples of the Health Care Insiders Who Keep it Spinning

Two recent stories illustrate a kind of conflict of interest affecting government health care policy. Note that neither story appeared in any one media outlet, but had to be pieced together from several sources, not all contemporaneous.

The Peripetatic Architect of Health Care Reform Implementation

Here is the story of Steve Larsen's latest career move, per the Wall Street Journal,

A top official in charge of implementing the federal health-care overhaul said Friday he would step down in mid-July, shortly after the Supreme Court is expected to rule on the fate of the law.

The official, Steve Larsen, heads the office at the Centers for Medicare and Medicaid Services that oversees most of the insurance provisions in the 2010 law. Those include setting up exchanges for consumers to shop for plans and obtain subsidies for premiums, establishing rules on how much money insurers must spend on medical benefits, and administering a federal program to provide insurance for consumers with pre-existing conditions.

Mr. Larsen said in an interview that his departure was '100% for personal and family reasons,' and that he hadn't considered the timing of the court decision. He cited his need to pay tuition for his college-bound children,...

The Wall Street Journal coverage made it sound like Mr Larsen was fleeing his post to avoid dealing with how the Supreme Court's decision on the Obama administration's health care reform law might complicate future functions of his office,

Mr. Larsen's departure highlights the challenges the administration will face once the Supreme Court rules. If the court upholds the law, the administration has a 2014 deadline to put it in place, including persuading states to set up the exchanges or establishing them on states' behalf.

If the court strikes down the law's key requirement, that most individuals purchase insurance or pay a fine, federal officials will have to establish whether they can make the remaining insurance elements of the law work, which would face stiff opposition from insurance companies and from Republican lawmakers who have pledged to overturn the law.

If the court voids the law entirely, officials will have to start undoing hundreds of its requirements that are set up to take effect or are, in many cases, already in place.

It only briefly mentioned where Mr Larsen was going, ostensibly in hopes that a better salary would aid in his tuition payments,

[he] said he would be working at a health-services business unit of UnitedHealth Group, an insurer

On the other hand, a report from Bloomberg suggested that UnitedHealth thought he would be well worth his salary,

Larsen will be executive vice president at Optum, a health services and information technology company that is part of UnitedHealth Group Inc., of Minnetonka, Minn., the company confirmed. UnitedHealth Group is the parent company of UnitedHealthcare, the largest health insurer in the United States in terms of policyholders and revenues.

'We are excited to welcome Steve Larsen to Optum,' company spokesman Matthew Stearns told BNA in an email. 'Steve's extensive, broad-based experience in health care will further enhance the support Optum provides to the health system and consumers in a rapidly evolving environment.'

It is funny how that experience seemed to be about crafting the regulations under which Optum, or at least its parent corporation would have to operate.

But wait, there is more. Bloomberg also mentioned that Mr Larsen had previously gone from a state government health policy position to the insurance industry before he wound up at the CCIIO.

Prior to joining the Obama administration to implement PPACA, Larsen served in a number of capacities at Amerigroup Corp., a public managed care company serving Medicaid and Medicare beneficiaries, according to his biography on the CCIIO website. Larsen also was Maryland insurance commissioner for six years, chairman of the Maryland Public Service Commission for Gov. Martin O'Malley (D),...

To clarify, Amerigroup is a publicly-held, Fortune 500 for-profit corporation (look here).
So in summary, and in chronological order, as best as I can establish it, Mr Larsen went from a Maryland state government policy position that affected health (and other insurance) companies, to a health insurance company (Amerigroup), to a US government policy position that affected health insurance, and now to another health insurance company (UnitedHealth).

The Peripatetic Legislative Policy Director

Brett Roper moved in the opposite direction, to government from industry, and to the Republican legislative majority, not the executive branch now controlled by the Democrats. Early in June, on the Republic Report,

In late 2010, as Congressman John Boehner (R-OH) prepared to take the gavel as Speaker, he hired a lobbyist named Brett Loper as his new policy chief. Loper left his job at the Advanced Medical Technology Association, a lobby group for medical device-makers, to join Boehner.

The Association did not seem to sad to see him go,

Republic Report reviewed ethics forms disclosed filed with the House clerk’s office, and noticed that Loper actually received a $100,147 bonus in 2011 for leaving his medical device lobbying group and becoming a public servant.

But wait, there is more. Loper also previously made more than one transition between government and industry. As Politico reported in 2010, before Loper worked for the Advanced Medical Technology Association,

Loper worked in senior positions for then House Majority Leader Tom DeLay and as the House Ways and Means Committee Republican staff director under then-ranking member Rep. Jim McCrery of Louisiana

But wait, there is still more. In 2011, the Atlantic reported,

In December, Boehner hired Brett Loper to be his policy director. At the time, articles focused on Loper's previous job as a lobbyist for the Advanced Medical Technology, where Loper vigorously resisted attempts to reduce the deficit by fighting cuts in fees to his clients proposed by the Obama administration.

That is part of the story.

But missing from the pieces about Loper have been his connection to the Abramoff scandal and knowledge of how to use government money to 'nfluence'legislators.

Sometimes a picture is worth a thousand words. Here is a photo of Loper (far right), basking in the tropical sun of the Marianas Islands, with Michael Scanlon (center), Jack Abramoff's partner in crime.

What is Loper doing in the Marianas?

As a staff member for Tom Delay, Loper was part of a mission to deliver money from the "favor factory," otherwise known as the Appropriations Committee of Congress, to two legislators in the Marianas, Norm Palacios and Alejo Mendiola (between Scanlon and Loper, above). In exchange for money for their two pet projects, Palacios and Mendiola agreed to switch their votes and support Abramoff's key ally in the Marianas, Benigno Fitial, in his bid to become Speaker of the House there.

The gambit worked. Fitial won. Abramoff -- whose lobbying contract to the Marianas had been canceled -- was re-hired by the Marianas. In that capacity, Abramoff resumed lobbying for the continuation of abusive labor practices in the islands. (For more on this, see my film, 'Casino Jack and the United States of Money.') Abramoff also continued to make sure that the grateful garment factory owners flowed campaign cash to key mainland Republican legislators, including Tom Delay.

Note that according to the Washington Post web-page on the Abramoff scandal,

Former Republican lobbyist Jack Abramoff was sentenced to five years and 10 months in prison on March 29, after pleading guilty to fraud, tax evasion and conspiracy to bribe public officials in a deal that requires him to cooperate in an investigation into his relationshps with members of Congress. Sources familiar with the federal probe have told The Post that half a dozen lawmakers are under scrutiny, along with Hill aides, former business associates and government officials.

The scandal prompted Rep. Tom DeLay (R-Tex.) and Rep. Robert Ney (R-Ohio) to give up their leadership posts,...

So Mr Larsen went from Republican senior legislative staff positions, during which time he associated with the now admittedly guilty Abramoff, to an industry trade association, and then back to a Republican senior legislative staff position.

Summary

So here are two recent good examples of a particular type of conflict of interest involving government and health care corporations. Both cases are of people who have made multiple transitions through the "revolving door" between the health care corporate world, and government agencies and organizations that are involved in policies that affect that world.

These transitions' multiplicity appears to represent a conflict of interest because these peoples' frequent revolutions through the door might diminish any sense that they ever have a primary interest on behalf of any immediate employer when another employer on the other side of the supposed arms' length government-industry relationship is always beckoning. Thus the people involved appear to have become members of a peculiar class always in transition, and hence more attuned to self-interest than to promoting the health of patients and the population (which ought to have been the primary concern for government leaders.) As Matt Kelley on the Compliance Week blog wrote in response to the Larsen story,

if you ever wonder why so many Americans feel like their country is slipping away from them, the revolving door—the sense that a private club of success exists in this country, and most Americans don't get to go through it, but merely live with the dictates of those who do—is a big reason why.

As we wrote before health policy in the US, in particular, has become an insiders' game. Unless it is redirected to reflect patients' and the public's health, facilitated by the knowledge of unbiased clinical and policy experts rather than corporate public relations, expect our efforts at health care reform to just increase health care dysfunction.

Physicians, public health advocates, whatever unbiased health policy experts remain must educate the public about how health policy has been turned into a corporate sandbox. We must try to somehow activate the public to call for health care policy of the people, by the people, and for the people.

Insurers' diversification creating monopoly power and conflict of interest - quoted in the Washington Post

I am quoted in a Washington Post article today on potential conflicts of interest when medical payers/insurers acquire the firms that hospitals and doctors use to challenge medical payment denials:

 "Health insurers’ push to diversify raises ethical concerns"

Washington Post
Jay Hancock, Sunday, April 29

Like hospitals and doctors everywhere, Banner Health fights a daily battle to get paid by insurance companies and government agencies for the care it delivers.  So the hospital system hired a company called Executive Health Resources to fight back against the likes of Medicare and UnitedHealthcare when they deny claims or pay bills for less than what Banner thinks it is owed.

Fair enough.

But Banner executives began to worry about EHR’s independence when the firm was acquired in 2010 by UnitedHealth Group, UnitedHealthcare’s parent.

Issues can get a bit sticky under such an arrangement.

I put it this way:

Critics call United’s ownership of EHR a troubling conflict of interest that could give it confidential information about rivals as well as patients and limit EHR’s power to demand payment from its much larger corporate sister. “How is that ownership going to affect the mission of a company whose business is to extract more money from payers?” said Scot Silverstein, a physician and specialist in medical software and patient records at Drexel University. “Imagine going to a plaintiff’s lawyer to take your malpractice case and not knowing that plaintiff’s lawyer actually works for the hospital that you’re suing.”

When payers acquire those who would challenge their payment denials, I worry about the consolidation of power being too great for the public good.

As we learn, the relationship is somewhat stealthy:

... There is no mention of EHR’s ownership in the “Corporate Overview” section of its Web site or elsewhere on the site. Nor did the American Hospital Association identify EHR as a United subsidiary in September when it renewed its exclusive endorsement of EHR’s denial-fighting services. EHR pays the hospital association a fee for the endorsement. The group declined to disclose the amount. 

The plot thickens:

Claims consultants such as EHR typically gain access to millions of patient records and confidential contracts between hospitals and insurers, industry officials say. If UnitedHealthcare, United’s insurance wing, gained access to that data, it would obtain “a huge business advantage” over insurance rivals as well as the hospitals, Kofman said.

In today's healthcare business environment, "if" seems to me to be optimistic.

Hancock goes further in the article:

As insurers eager to add revenue streams convert themselves into diversified health-services companies, they often buy traditional business adversaries, including physician groups and hospital consultants such as EHR. They’re also buying technology companies and research firms that serve medical-care providers, raising questions not only about independence but about the privacy of patient information.

A Georgetown professor, formerly a state insurance superintendent, gets to the heart of the matter, using United as but one example:

“I am not convinced that, even with proper disclosure, that an entity owned by United could aggressively advocate against United’s interests,” said Mila Kofman, a Georgetown professor who was Maine’s insurance superintendent.

This factoid is eye-opening:

Appealing claims denials has become a huge, high-tech business, reflected in the more than $1 billion that United reportedly paid for EHR [Executive Health Resources].

You might think there were better things to do with $1 billion besides administrative bloat - such as taking care of patients.

We probably need new laws to catch up with the flurry of M&A's going on in healthcare between payers, the healthcare delivery sector, and the "referees" that mediate between them when disputes arise.

Read the entire article at the WaPo link above.  The examples get even more convoluted.

-- SS

Addendum:

Roy Poses notes:

This appears to be a newly recognized type of conflict of interest that contributes to the concentration of power in the US commercialized health care system.  While many people tout how our health care system is "competitive" and a "free market," it is ever more dominated by a decreasing number of enlarging organizations.  True health care reform would break up health care oligopolies.

-- SS

Big Door Keeps On Turning - Bi-Directional Interchanges Among Government and Corporate Health Care Leadership

Recently we noted some complex examples of the health care "revolving door," cases of health care corporate leaders who came from government heading back into government.  The first was reported by Politico:

California Rep. Mary Bono Mack has hired PhRMA’s former chief spokesman as a senior adviser, adding another Republican lawmaker to the list of those who have recruited staff members with K Street ties.

Ken Johnson will serve as a senior policy and communications adviser to Bono Mack, chairwoman of a House Energy and Commerce subcommittee. Johnson has deep ties to the committee, having worked for former Republican Rep. Billy Tauzin when he headed the Energy and Commerce Committee.

When PhRMA hired Tauzin months after the Louisiana congressman helped pass the industry-supported Medicare drug benefit, Johnson followed. So it was not surprising that Johnson did not stay on with PhRMA last year after Tauzin stepped down.

In 2009, Tauzin made more than $4.5 million and Johnson pulled in more than $500,000, according to tax records.

Note that Mr Johnson went from an influential government position to a position representing the pharmaceutical industry, and then back to government
In the same vein and in the same article was:

House Speaker John Boehner hired the medical device industry’s chief lobbyist as his policy director.

Meanwhile, the Minneapolis Star-Tribune noted:

Minnesota health executive Lois Quam has signed to lead the multibillion dollar Global Health Initiative at the U.S. State Department.

A State Department spokesman confirmed Wednesday that Quam will be executive director of the initiative.

In 2009, President Barack Obama committed $63 billion over six years to the program aimed at helping developing nations fight disease, improve nutrition and provide more aid for prenatal and postnatal care.

Quam, of St. Paul, is a former UnitedHealth Group executive who co-founded a health consulting firm last year. She is married to Matt Entenza, a former state lawmaker who ran unsuccessfully for governor in 2010.

The appointment reunites Quam with Secretary of State Hillary Clinton. Quam was a senior adviser to Clinton's health care task force in the 1990s.

Note that Ms Quam went from government leadership (in the Clinton administration's abortive attempt at health care reform via an elaborate version of managed care), to corporate leadership (in one of the largest commercial managed care organizations, some of whose exploits are discussed here), then back to government (now leading global health.  As an aside, UnitedHealth has been developing its global presence for years, e.g., see this post about its forays into the UK.)

We last discussed the "revolving door," that is, the easy interchange among leadership in government and health care corporations here.  The brief news items above shows how the door spins continuously, resulting not only in former government leaders ending up in influential, and well-recompensed positions in the health care industry, but also in industry leaders ending up in influential government positions.  In two cases above, people who started out in influential government positions transitioned to health care corporate positions, and then back to government. 

As we noted earlier, the continually revolving door is a sign of the increasingly corporatist nature of the US.  Government and the biggest corporations now seem to see themselves as natural allies, partially because their leadership increasingly forms a cozy combined group.  The big problem, of course, is such an alliance leaves out everybody else, from small business, to individual professionals, to the people at large. 

As I noted earlier, if we want health care to put the needs of individual patients first, we ought to consider ways to make both government and corporate health care leaders more responsive to the people rather than to their combined self-interest. 

Can a $1 Billion Group of Babies Provide Fair Value in Health Care?

The issue of executive compensation in health care seems to be attracting more media attention.

A St Louis Post-Dispatch editorial noted how executive compensation for for-profit health insurance CEOs has grown. It started with a quote from Steven Hemsley, the CEO of UnitedHealth:

Today the American people are questioning whether or not we receive fair value for the $2.6 trillion we, as a society, are expecting to spend this year on our health care system. The vast majority, including those of us at UnitedHealth Group, believe the answer is, 'No.'

Here is a summary of the compensation information:

Modern Healthcare, a leading health industry trade journal, published its annual executive compensation survey this week. Topping the list is Stephen Hemsley, quoted above, who gave a speech to the Detroit Economic Club last year questioning the value Americans receive for all that health spending. [Note: We discussed Hemsley's compensation here.]

His take for 2009: $106 million — $7.5 million in salary and benefits and $98.5 million in stock options.

Mr. Hemsley is not alone. The CEOs at insurance giants Cigna, Humana, Aetna, Coventry Health Systems and WellPoint all took home between $10 million and about $18 million. Many of those companies already have announced double-digit premium increases for next year.

In all, the CEOs of America’s 10 largest health insurance companies made $228.1 million in salary and stock options during 2009, according to the liberal advocacy group Health Care For America Now. (That's enough to buy health insurance for at least 47,284 people, based on figured cited in this Kaiser Family Foundation survey on average premiums.)

Since 2000, those CEOs have received slightly less than $1 billion in compensation, the group said.

As an aside, the article noted how the compensation received by CEOs of the larger US health care corporations of all types, not just health insurance companies, has grown:

Researchers analyzed pay and benefits for 342 CEOs of corporations in the Standard & Poor’s 500 index.

They found that health care CEOs received an average compensation of $10.5 million last year. That’s 40 percent more than the average for all S&P 500 companies — 77 percent higher than chief executives at financial services companies.

Even the CEOs of not-for-profit hospital systems have become million dollar babies:

Last year, the average compensation for hospital system CEOs was $1 million. That’s enough to hire five new primary care doctors.

However, the editorial was a bit vague about why paying CEOs of health care organizations so much was a bad idea, although it did imply that it was unseemly given that much of health care is funded by government programs, and not-for-profit health care organizations receive tax breaks that give "the public an even larger stake in their efficient operation"

In my humble opinion, there are other big problems with the massive compensation that hired managers of health care organizations now command.

Paying them so much instantly vaults them into the upper class, and the CEOs of larger health care corporations now live a life style more reminiscent of aristocracy than of that of the patients who depend on them. Such riches isolate those who receive them in their own bubbles. Can one really expect a million, or ten million, or hundred million dollar CEO to really care about the health of individual patients?

Furthermore, paying them so much, usually regardless of their performance, their companies' performance, or the health effects of their products and services gives them perverse incentives to maintain their position at any cost, even at the cost of the patients they are supposed to serve.

So, we do not receive "fair value for the $2.6 trillion we, as a society, are expecting to spend on our health care system." But we cannot really expect a billion dollar group of babies to fix that.

True health care reform would decrease perverse incentives throughout the systems, spread the power in organizations more broadly, and make leaders accountable.

Despite Scandal, Former UnitedHealth CEO was Ninth Best Paid CEO of the Decade

A little while ago, the Wall Street Journal reported on the highest paid US corporate CEOs of the past decade.  One name stood out for those interested in  health care: Dr William W McGuire, the former CEO of giant health care insurance company/ managed care organization UnitedHealth Group.  Dr McGuire was number 9 on the list, with a total realized compensation of $469,300,000. 

We started discussing the disconnect between Dr McGuire's corpulent pay and his company's failure to uphold its stated ideals back in 2005, when he was reported to have received more than $124 million to lead a company which championed "affordable" health care.  Later, it turned out that much of Dr McGuire's compensation came in the form of back-dated stock-options, and the resulting scandal was followed by his resignation.  Later, Dr McGuire was forced to give back some the options.  The final settlement of the fiasco cost UnitedHealth $895 million, and Dr McGuire $30 million and the cancellation of 3.6 million stock options.

Meanwhile, UnitedHealth was compiling an unenviable record of ethical lapses:

• as reported by the Hartford Courant, "UnitedHealth Group Inc., the largest U.S. health insurer, will refund $50 million to small businesses that New York state officials said were overcharged in 2006."
• UnitedHalth promised its investors it would continue to raise premiums, even if that priced increasing numbers of people out of its policies (see post here);
• UnitedHealth's acquisition of Pacificare in California allegedly lead to a "meltdown" of its claims paying mechanisms (see post here);
• UnitedHealth's acquisition of Sierra Health Services allegedly gave it a monopoly in Utah, while the company allegedly was transferring much of its revenue out of the state of Rhode Island, rather than using it to pay claims (see post here)
• UnitedHealth frequently violated Nebraska insurance laws (see post here);
• UnitedHealth settled charges that its Ingenix subsidiaries manipulation of data lead to underpaying patients who received out-of-network care (see post here).

At the same time, UnitedHealth continues to boast that:

Our mission is to help people live healthier lives.

* We seek to enhance the performance of the health system and improve the overall health and well-being of the people we serve and their communities.
* We work with health care professionals and other key partners to expand access to quality health care so people get the care they need at an affordable price.
* We support the physician/patient relationship and empower people with the information, guidance and tools they need to make personal health choices and decisions.

Dr McGuire certainly expanded his access to money, which doubtless empowered him.   

And as we noted here, his successor, Mr Stephen J Helmsley, seems to be going down the same path.  In 2009 his total compensation was $8.9 million, and he sold stock options obtained from previous compensation packages for $98.6 million.  Mr Helmsley was a top leader (President and Chief Operating Officer [COO]) of UnitedHealth during Dr McGuire's reign as CEO, so should be viewed as having some responsibility for the excesses of the McGuire years.

Despite recent attempts to reform health care, or at least health insurance, it seems that the health insurance industry still leads the way in providing its leaders perverse incentives while failing to hold them accountable for their organizations' unethical behavior and subversion of their stated missions.  Is it any wonder that these organizations continue to act unethically, and that the costs of the goods and services they provide rise continuously?


If we truly want health care that is accessible, of high quality, at a fair price, and more importantly, if we want health care that is honest and focused on patients, we need to provide health care leaders with clear, rational incentives in these directions, and make them fully accountable for their actions, and the courses of their organizations under their leadership.

How Can a $101 Million a Year CEO Help "People Get the Care They Need at an Affordable Price?"

In 2005, we entitled a post, "How Can a $124.8 Million a Year CEO Make Health Care More Affordable?"  At that time, we contrasted the enormous compensation given to the then CEO of UnitedHealth, Dr William McGuire, with the stated mission of his corporation.  Since then, we have traced the travails of UnitedHealth and its leadership.  Dr McGuire was eventually accused of receiving backdated stock options (which at one time raised his personal fortune to over $1 billion), and was pushed into retirement.  UnitedHealth was accused of a variety of management and ethical lapses.  The rather sorry story as of April, 2010 was summarized here.

The more things change, the more they stay the same.  The Minneapolis Star-Tribune just reported:

Stephen Hemsley, a serious and studious man, is known for his marathon-like work schedule, which regularly includes Saturdays and Sundays, in his role as chief executive of Minnetonka-based UnitedHealth Group.

Now, he also is known as the highest-paid CEO in Minnesota with a 2009 pay package totaling $101.96 million, six times the amount paid to the next CEO in the Star Tribune's annual survey of the state's 100 highest-paid chief executives at publicly traded companies.

But Hemsley's big pay package is also a vestige of the company's former practice of loading executive compensation heavily with stock options, a practice that changed in the wake of a crippling backdating scandal four years ago.

Those options, granted under a different regime of board directors, accounted for $98.6 million of Hemsley's income in 2009.

The attempts company officials made to minimize Hemsley's outsized compensation were almost funny:

UnitedHealth officials assert that Hemsley's 2009 pay package minus the 10-year-old options was $8.9 million, far less than the compensation paid to CEOs in other health insurance organizations.

But Hemsley did exercise the options, so he did receive the additional $98.6 million.

Hemsley also seems on target to get gargantuan compensation this year too:

Nonetheless, Hemsley has already put up good compensation numbers for 2010 with the exercising of additional options granted after 1999 worth $21 million. He also controls 6 million exercisable and unexercisable options, half of which are underwater or below the stock's current value.

The cringe-inducing contrast is with UnitedHealth's high-minded mission statement:

Our mission is to help people live healthier lives.

* We seek to enhance the performance of the health system and improve the overall health and well-being of the people we serve and their communities.
* We work with health care professionals and other key partners to expand access to quality health care so people get the care they need at an affordable price.
* We support the physician/patient relationship and empower people with the information, guidance and tools they need to make personal health choices and decisions.

Hemsley's compensation could have provided "care they need" to quite a few people at an affordable price.

More to the point, it is hard to imagine that a company that feels the need to pay so much to its CEO, and a CEO that can accept such riches, have the slightest understanding or interest in providing people "the care they need at an affordable price."

In this cynical age, I doubt many people credit the UnitedHealth mission statement with being more than advertising fluff. Nonetheless, I suspect most people believe that our society should try to provide as many people as possible with "the care they need at an affordable price," but realize that we are far from doing so. Health care insurance companies/ managed care organizations that see fit to make their hired leaders extremely rich seem to be part of the problem, not the solution.

Corporate Proxies Suggest CEOs Rewarded for Influencing Health Care Reform

We have frequently discussed the often outsized, if not outrageous compensation awarded to top leaders of health care organizations.  Such compensation may seem disproportionate to the leaders' real-world achievements, and may contrast with organizational actions that seem inept, mission-hostile, or unethical.

In perusing this year's crop of proxy statements from some of the biggest US health care corporations, I noted that some provide some narrative, qualitative justification for their top leaders pay.  I was struck by three similar statements:

Johnson and Johnson

We recently discussed the contrast between Johnson and Johnson CEO William Weldon's gargantuan compensation and his detached response to the findings of an inspection of one of his company's factories that lead to its shutdown and the recall of its products.   According to the company's 2010 proxy statement, Mr Weldon's total compensation approved  in 2010 was $19,847,026.   The proxy statement included this overview of his performance:

The Board believes that Mr. Weldon generally exceeded expectations despite substantial economic, political, regulatory and competitive challenges as well as significant patent expirations. As referenced in the table above, the Company delivered solid financial results and positioned itself for future growth.

Under "strategic results" was this statement:

Mr. Weldon played an effective role in helping shape health care policy around the world and has been very involved with efforts on U.S. Health Care Reform. Mr. Weldon’s personal involvement with key leaders and organizations has ensured the interests of the Company are well represented.

Pfizer

We recently discussed the contrast between Pfizer Inc CEO Jeffrey Kindler's sizable compensation and the number and size of lawsuits alleging unethical conduct that the organization has settled, and its criminal conviction as a "racketeering influenced and corrupt organization" (RICO). According to the company's 2010 proxy statement, Mr Kindler's total compensation in 2009 was $14,898,038. The proxy statement included an Executive Compensation Discussion and Analysis. Its summary of Mr Kindler's performance was:

The committee believes that Mr Kindler's leadership was a significant factor in the continued progress made by Pfizer in 2009 in strengthening the foundation for future growth and long-term success.

It also specifically addressed Mr Kindler's "industry leadership":

During 2009, Mr Kindler was actively involved, through both Pfizer and external organizations, in developing and advancing US and global public policies that serve the overall interest of our Company and our shareholders, as well as doctors and patients. These efforts included constructive participation in the US legislative process to advance Pfizer's goals of achieving a more rational operating environment....

UnitedHealth Group

We recently discussed the contrast between UnitedHealth Group CEO Stephen J Helmsley's large total compensation and the profit he recently made from the sale of stock options and various questions raised about his company's ethical performance.  According to the company's 2010 proxy statement, his 2009 total compensation was $8,901,916. The company's 2010 proxy statement stated his compensation was based upon a variety of factors, including:

Positive participation and leadership of the Company in the health care reform and modernization debate

Summary

We have noted how health care organization may be gripped by "compensation madness," caused by "insiders hijacking established organizations for their personal benefit."  One could view the statements above as just one form of post-hoc justification for compensation madness.  It is possible that timid, if not crony boards are simply getting more inventive in their rationalizing CEOs' imperial pay scales.  On the other hand, those justifying the compensation of three extremely well-compensated health care corporate CEOs may really believe what they wrote about their CEOs roles in health care reform. 

We have posted little about the US health care reform effort because so much of it seemed irrelevant to the concerns mentioned on Health Care Renewal.  Health care reform legislation did little to address problems with health care leadership, governance and ethics, and how they challenge health care professionals' values and lead to higher costs, declining access, poor health care quality and disgruntled health care professionals (see this summary).  Maybe one reason this was so was that the top leaders of health care organizations did a good job pushing their personal and organizational priorities into the reform legislation, meanwhile discouraging any provisions that might threaten the way they were leading their organizations, and how much they were making while doing so. 

There a many reasons for the popular dissatisfaction with the recently enacted US health care reform legislation.  The influence of the leadership of top health care corporations in promoting their, rather than the populace's goals, ought to be a topic of further inquiry.  Meanwhile, it may be that the "superclass" has struck again. 

What Me Worry, Redux - Another Leader Prospers Despite Questions about His Organization's Ethics and Performance

We have posted lately (here and here) about how leaders of health care organizations seem to be getting even richer despite questions about their organizations' ethics or performance.  Here we go again. 

The news about UnitedHealth over the years has provided plenty of examples of organizational behavior that did not fit the company's stated lofty goals, per its "Social Responsibility" page:

UnitedHealth Group's mission is to help people live healthier lives.

Social responsibility begins with us–and how we do business. Every day, our 75,000 employees strive to find smart ways to promote healthier lives in our communities.

On its "Mission and Values" page:

Our mission is to help people live healthier lives.

* We seek to enhance the performance of the health system and improve the overall health and well-being of the people we serve and their communities.
* We work with health care professionals and other key partners to expand access to quality health care so people get the care they need at an affordable price.
* We support the physician/patient relationship and empower people with the information, guidance and tools they need to make personal health choices and decisions.

However, a few years ago, we posted repeatedly about a block-buster scandal that lead to the ouster of the UnitedHealth CEO, Dr William McGuire. As we discussed, (here, here, and here from 2006 with links backward) Dr McGuire received outrageously lavish remuneration, which stood in stark contrast to the previous UHG mission's pledge to "make health care more affordable."  Controversy has swirled over the timing of huge stock option grants given to Dr McGuire (see post here), leading to his resignation in October, 2006 (see post here). Later, McGuire agreed to pay back some of those options, although that reportedly still left him with more than $800 million worth of options (see post here).  Iin 2009, we posted about the final settlement of the back-dating scandal, which cost UnitedHealth $895 million, and Dr McGuire $30 million and the cancellation of 3.6 million stock options. 

Also,

• as reported by the Hartford Courant, "UnitedHealth Group Inc., the largest U.S. health insurer, will refund $50 million to small businesses that New York state officials said were overcharged in 2006."
• UnitedHalth promised its investors it would continue to raise premiums, even if that priced increasing numbers of people out of its policies (see post here);
• UnitedHealth's acquisition of Pacificare in California allegedly lead to a "meltdown" of its claims paying mechanisms (see post here);
• UnitedHealth's acquisition of Sierra Health Services allegedly gave it a monopoly in Utah, while the company allegedly was transferring much of its revenue out of the state of Rhode Island, rather than using it to pay claims (see post here)
• UnitedHealth frequently violated Nebraska insurance laws (see post here);
• UnitedHealth settled charges that its Ingenix subsidiaries manipulation of data lead to underpaying patients who received out-of-network care (see post here).

However, it being proxy season, the Washington Post just reported current UnitedHealth CEO Stephen J Helmsley's compensation,

$8.9 million, up from $3.2 million in 2008. The 2009 total included a salary of $1.3 million, which was unchanged from the previous year, and a cash bonus of $2 million, up from $1.8 million the year before. It also included $5.6 million attributed to stock-related awards.

But that was not the only money Mr Helmsley reaped from his job at UnitedHealth:

The chief executive of UnitedHealth Group, one of the nation's largest health insurers, reaped almost $100 million from exercising stock options last year, the company reported Thursday.

Stephen J. Hemsley exercised 4.9 million options in February 2009 at a gain of $98.6 million, the company said in a regulatory filing. The options were awarded almost a decade earlier.

$98.6 million here, $98.6 million there, and soon you have some real money. How did the UnitedHealth board rationalize making Mr Helmsely such a wealthy man?

The compensation committee of UnitedHealth's board believed that Hemsley's 2009 compensation package 'was appropriate to recognize Mr. Hemsley's overall leadership in positioning the Company for long-term success in a very difficult overall economic environment,' UnitedHealth said in the report filed with the SEC Thursday.

The committee credited Hemsley with 'enhancing the Company's reputation, ethical culture and tone at the top.'

'Although Mr. Hemsley's total compensation is below the median as compared to other CEOs in the Company's peer groups, the Compensation Committee and Mr. Hemsley agree that it is sufficient to motivate and retain him,' the company reported.

Note first that some of the issues listed above (after the back-dated options scandal) accruef on Mr Helmsley's watch as CEO, which began in 2006.   They did not enhance the company's reputation, or seem to be evidence of an enhanced "ethical culture and tone." 

The rationale to have given Mr Helmsley so many stock options in 1999 as to give him a nearly $100 million dollar profit in 2009 was not stated.

Moreover, as noted in the 2010 proxy statement,

Mr Helmsley is President and Chief Executive Officer of UnitedHealth Group and has served in that capacity since November 2006. he has been a member of the Board of Directors since February 2000. Mr Helmsley joined the Company in 1997 as Senior Executive Vice President. He became Chief Operating Officer in 1998, was named President in 1999, and served as President and Chief Operating Officer from 1999 to November 2006.

So it was on Mr Helmsley's watch as Chief Operating Officer that all of the events and issues listed above occurred. Tell me again about that "enhanced ethical culture?"

So I say it again. Clearly we see examples of both profoundly perverse incentives and a complete lack of accountability and responsibility affecting the leadership of major health care organizations. Is it any wonder that these organizations continue to act unethically, and that the costs of the goods and services they provide rise continuously?

If we truly want health care that is accessible, of high quality, at a fair price, and more importantly, if we want health care that is honest and focused on patients, we need to provide health care leaders with clear, rational incentives in these directions, and make them fully accountable for their actions, and the courses of their organizations under their leadership.

Effort to Make Health Insurance Reimbursement Fairer Lead by Director of Insurance Company Accused of Unfair Practices

We previously discussed a legal settlement of charges that UnitedHealth's Ingenix subsidiary manipulated its database of payments to physicians so as to reduce its and other insurers' payments to "out-of-network" physicians. 

One aspect of the settlement was a new initiative to better determine such payments.  Now that effort has been caught up in the web of conflicts of interests that has ensnared health care.  As reported by the Syracuse (NY) Post-Standard,

[New York state Attorney General Andrew] Cuomo obtained $100 million in settlements from 13 insurers, including Excellus, that used the defective reimbursement data supplied by Ingenix, a subsidiary of United Health, the nation’s second biggest insurer. Cuomo’s investigation showed insurers such as Excellus used that data to shortchange New York consumers by as much as 28 percent.

Also, the settlement included

money ... to create FAIR Health Inc., a New York City-based nonprofit that is supposed to come up with a new, fair reimbursement system that will be used by insurers nationwide. FAIR Health has contracted with SU [Syracuse University] to help create that database.

The effort was lead by SU Professor Deborah Freund, "a distinguished professor of public administration and economics. She also is an adjunct professor of orthopedics and pediatrics at Upstate Medical University."

However,

Freund also happens to be listed on the health insurance company’s payroll.


Excellus paid Freund $61,378 last year for serving on its board of directors, according to a financial report Excellus filed with the state last week.

After The Post-Standard spent several days investigating her ties to the insurance company, Freund quit the Excellus board Friday afternoon.

The Post-Standard noted,

But some consumer advocates said it was odd that a paid director of Excellus, one of the companies targeted in Cuomo’s investigation, was playing such an important role.

[Art] Levin, of the Center for Medical Consumers, said it was ironic that one of the people helping to fix a payment system riddled with industry conflicts of interest may have had a conflict of her own.

'This makes no sense whatsoever given that Excellus is part of the settlement,' Levin said.

Chuck Bell, programs director of Consumers Union, publisher of Consumer Reports and an outspoken supporter of the payment reform project, was unaware of Freund’s ties to Excellus.

'I think it’s a concern because consumers do want this to be an entity that is independent of the insurance industry,' Bell said.

Among Freund's defenders was

Dr. Nancy Nielsen, immediate past president of the American Medical Association and a board member of FAIR Health, [who] said the AMA looked closely at Freund’s qualifications and her Excellus affiliation. She said the doctors’ group concluded her expertise is important to the project and was comfortable that there were enough safeguards in place to avoid any conflicts. Nielsen said FAIR Health would have independent experts not tied to the insurance industry review any recommendations from Freund’s research team.

But to add another level of irony, and perhaps conflict of interest, the Minneapolis - St Paul Business Journal just announced

The American Medical Association will use an electronic health records system from Ingenix, the company said Monday.

The Eden Prairie health care information technology said its Web-based CareTracker software will run on an AMA platform currently in beta testing with the Michigan State Medical Society and will launch nationwide later this year.

The platform is touted as a way to improve patient care, clinical efficiency and make administration simpler. CareTracker is the first such system that the AMA will provide to physicians online.

'Ingenix and the AMA will help doctors adopt health IT systems that reduce time spent on administrative tasks and enable them to devote more of their time to patient care,' said Bill Miller, Ingenix executive vice president of health care delivery systems, in a news release. 'Ingenix CareTracker integrates patient medical records and e-prescribing tools into the physician’s workflow. By selecting CareTracker for its platform, the AMA is helping physicians make smarter, more practical decisions about technologies to support their practice.'

Although we often discuss conflicts of interests involving physicians or health care academics who moonlight for drug and device companies, and the effects of these relationships on clinical research and medical education, it seems like the pervasive web of conflicts of interest in health care has entangled just about every kind of health care organization, health care decision-maker, and health care opinion leader.

Thus, we need to be extremely skeptical of just about everyone and every organization claiming to provide health care related goods and services, or whose goal is to improve any aspect of health care. The danger is that such skepticism will lead to cynicism and distrust.

At the least, comprehensive, detailed disclosure of all even indirectly relevant financial and other relationships by all health care decision-makers and opinion leaders at any level, whether they be individuals or organizations, would make it somewhat easier to assess their decisions and opinions.