Million dollar plus executives of not-for-profit health care insurance companies seem to be becoming a dime a dozen.  Late in April, Buffalo Business First reported the pay of executives of some western New York health insurance companies:

The top local executives at the region’s three major nonprofit health plans received nearly $23 million in salaries and bonuses last year.

More than 70 people received total compensation of $160,000 or more. That’s the level at which insurers are required to report in annual reports to the state Department of Insurance.

When you include executives who work for those three health plans but are located outside Western New York, the total compensation for top-paid execs totaled $46.4 million last year.

Among the local executives in the Western New York region, 23 individuals took home more than $300,000 last year.

Among the CEO-level executives:

• Alphonso O’Neil-White, president and CEO at HealthNow NY Inc./BlueCross BlueShield of WNY earned $1.65 million.

• Dr. Michael Cropp, president and CEO at Independent Health, earned $1.3 million.

• Univera Healthcare President Art Wingerter, who joined the company part-way through the year, earned $248,348, while David Klein, president/CEO of Univera’s Rochester-based parent Excellus Health Plan, received a total of $2 million.

Wingerter says compensation levels are fair and are determined with help from outside consultants based on nationwide industry surveys. They are also adjusted annually based on the organization’s performance: Top officers at Excellus saw salaries decline last year by 20 percent based on the company’s 2008 performance.

'Our compensation levels fall into the midpoint by design,' he says. 'It’s a $5 billion company. If you compared it to any leader of a $5 billion (for-profit) company, I do not believe it would be considered excessive.'

Consider that argument while reading this story from neighboring New Jersey reported by the Ashbury Park Press:

William J. Marino, president and chief executive officer of Horizon Blue Cross Blue Shield of New Jersey, received $8.7 million in compensation in 2009, a 59 percent increase from 2008, according to the company's annual financial statement.

The salary and bonus were part of a windfall for Horizon's nine highest-paid executives, who received on average 61 percent more than in 2008, the statement, filed with the New Jersey Department of Banking and Insurance, showed.

Part of the increase came from compensation that was deferred from previous years, the company said. But the pay sparked anger from consumers and medical professionals who have battled Horizon over rising premiums and declining reimbursements.

Newark-based Horizon is the state's biggest health insurance company, writing policies and administering self-funded programs for more than 3 million people. It has 72 percent of the individual market and 52 percent of the small employer market, according to the state.

The company is a nonprofit....

Meantime, Horizon's top nine executives took home a total of $24.3 million in salaries and bonuses last year, up from $15.1 million in 2008.

Another article in the same paper stated that in 2009, Horizon

reported net income of $75.1 million last year, compared with a loss of $45 million in 2008. It reported revenue of $8.3 billion, up from $7.9 billion the previous year.

The company collected 3.5 percent more in premiums. And it lowered administrative expenses by 3.5 percent, according to the annual report.

Let us reconsider the rationale for the pay of the Excellus (NY) CEO. Its basis was the pay given to CEOs of for-profit corporations. Yet the nature of for-profit and not-for-profit corporations are fundamentally different. The former exist to make money. The latter exist to fulfill their missions.

For example, this statement is on the Excellus web-site:

As New York state's largest nonprofit health plan, the company remains committed to three core principles:

* We exist to assure, in the communities we serve, that as many people as possible have affordable, dignified access to needed, effective health care services, including long-term care.
* We recognize the need, and our responsibility, to reach out to all segments of the communities we serve, particularly the poor and aged and others who are underserved, to enhance quality of life, including health status.
* We are committed to being a nonprofit health insurer.

The devotion that a not-for-profit organization is supposed to have to its mission suggests that working for such an organization, particularly in a leadership capacity should be calling, rather than just a way to make money. Equating leadership of such an organization to leadership of a for-profit corporation of comparable financial size provokes cognitive dissonance. So the notion that the leader of Excellus, an organization supposedly devoted to serving the "poor and aged," is entitled to make as much money as the leader of a for-profit corporation with similar revenues likewise provokes cognitive dissonance.

However, let us assume, just assume, that the $2 million pay of the CEO of Excellus Health Plan was fair for a $5 billion not-for-profit company. Horizon is an $8.3 billion company, roughly 60% larger, but its CEO got $8.7 million, 330% more. Furthermore, the Horizon CEO saw his pay go up 59% while company revenue rose 3.5%. What possible argument could there be to justify these even more extreme levels of compensation?

Here was the Ashbury Park Press' editorial reaction:

If truth be told, when it comes to the American health insurance system, the Hippocratic Oath — 'First, do no harm' — is too often trumped by Gordon Gecko's 'Wall Street' axiom: 'Greed is good.'

There's no better example than the shameful $8.7 million in compensation paid last year to William J. Marino, president and chief executive officer of Horizon Blue Cross Blue Shield of New Jersey....

How tone-deaf could Horizon be to bestow this kind of compensation on its executives? The only decent thing for Marino and his cohorts to do is to return the bonuses.

The disconnect between these well-heeled executives and the customers their non-profit company — that's right, nonprofit — are supposedly serving is staggering.

We have discussed numerous examples of compensation of health care organizations' leadership that seems orders of magnitude above that which would be rationally justified.  These latest examples of the wealth being accumulated by leaders of supposedly mission-centered not-for-profit organizations are a product of the current management culture that has been infused into nearly every health care organization in the US. That culture holds that managers are different from you and me. They are entitled to a special share of other people's money. Because of their innate and self-evident brilliance, they are entitled to become rich. This entitlement exists even when the economy, or the financial performance of the specific organization prevents other people from making any economic progress. This entitlement exists even if those other people actually do the work, and ultimately provide the money that sustains the organization.

Although the executives of not-for-profit health care organizations generally make far less than executives of for-profit health care corporations, collectively, hired managers of even not-for-profit health care organizations have become richer and richer at a time when most Americans, including many health professionals, and most primary care physicians, have seen their incomes stagnate or fall. They are less and less restrained by passive, if not crony boards, and more and more unaccountable. In a kind of multi-centric coup d'etat of the hired managers, they have become our new de facto aristocracy.

Or as we wrote in our previous post, executive compensation in health care seems best described as Prof Mintzberg described compensation for finance CEOs, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit." As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences. Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations. It is time to reverse the coup d'etat of the hired managers.

Health Care Renewal presents a guest blog by Steve Lucas, a retired businessman who formerly worked in real estate and construction who has a long standing interest in business ethics, and has long observed the health care scene.

We have a verdict in the largest legal suit, $110M, ever brought before the court in Stark County, Ohio. The issue at hand has been the payment of fees by a nonprofit hospital (Aultman) through its for-profit insurance subsidiary (AultCare) to switch clients to this hospital's insurance plan. Aultman is the only in program hospital in our area.

Confidentiality agreements have kept this practice in place for a total of 12 years, with knowledge of the arrangement only recently becoming public.

First the back story: What is today Mercy Medical Center is owned by The Sisters of Charity. This hospital had popular community and business support. Wishing to get away from the business of running a hospital and focus on philanthropy, half of the hospital was sold to Columbia Health in 1996.

Columbia traded on the name and community support and followed a common course of action of reducing staff and maintenance in an effort to maximize profit. Realizing their mistake, the Sisters entered into another partnership with a nonprofit in 1999 and have recently been able to regain total control of the facility.

During this time Aultman Hospital, owned by The Aultman Health Foundation, was able to leverage this discontent into a massive expansion of both its physical plant and position in the community.

Unknown to the community at large this growth was being driven by questionable business practices:

The case revolves around allegations by Mercy that Aultman 'bribed' brokers with extra payments – in some cases, as large as $1 million – to persuade employer groups to switch to Aultman’s insurance plans, AultCare and McKinley Life Insurance.

These payments weren’t disclosed to the brokers’ clients or on federal tax forms that non-profits must fill out to maintain their tax-exempt status, lawyers told jurors in court.(1)

The point of contention was the payment of to a select group of brokers of what amounted to a kick-back, without notifying their customers of the additional payments.

We then find:

The leader of Aultman Health Foundation on Tuesday defended the nonprofit’s practice of using tax-exempt money to fund confidential payments to select insurance brokers. (2)

I guess it is ok as long as nobody knows, and the 65,000 people covered under this scheme should be happy.

We then find that Mercy’s CEO:

... said he first learned of Aultman’s program that gave extra payments to select brokers who switched clients from other insurance companies in a 2004 Akron Beacon Journal article. (3)

The Aultman CEO responded:

Roth said those payments were part of a business strategy to save area businesses money by sharing the results of Aultman Hospital’s cost cutting measures since the 1980’s.

'We want to pass to pass that low cost onto the community,' Roth said. (4)

It is interesting to note that Aultman changed the structure of its agreements with doctors to allow for them, the doctors, to receive co-pays directly. It was also revealed Aultman was paying at least one large medical group direct payments for exclusive referrals.

So now we come to the jury’s decision: $6.1M for Mercy, both sides claim victory. Mercy feels it will change the way Aultman does business.

Aultman plans to continue business as usual and won’t make any changes as a result of the verdict, President and Chief Executive Edward Roth said. (5)

In our small market, the dollars are so large in health care that a multi-million dollar settlement will not change behavior. The use of tax-exempt funds to pay kickbacks and bribes is ignored and there is no public out cry, only Aultman filing another suit to have the verdict set aside.

Altman claimed it needed the payments to be competitive with Columbia. This, win at any cost business attitude, has taken over great parts of medicine reducing what was once a proud profession into a simple process of number crunching.

Aultman focused time and time again during the trial on its size, the largest employer in Stark County, and its position in the community. This is no excuse for corrupt behavior.

Has health care become so corrupt, the dollars so large, that a little corruption is ok, as long as it does not hurt the bottom line?

Follow on radio reports made it very clear Aultman would suffer no financial hardship due to the verdict and there would be no change in services. Business would continue as usual.

Here is another case in the annals of over-paid executives of not-for-profit health care organizations, this time from the Burlington (VT) Free-Press,

Blue Cross and Blue Shield of Vermont overpaid its former chief executive officer by $3 million over an eight-year period and has been ordered to pay the money back to its subscribers by 2012 in the form of reduced premiums, a top state regulator said Wednesday.

The action by the state Banking, Insurance, Securities and Health Care Administration Department follows last year’s disclosure that William Milnes, the nonprofit firm’s former CEO, received a $7.2 million payout when he stepped down in 2008.

Furthermore, note that

[Commissioner of the Banking, Insurance, Securities and Health Care Administration Department Paulette] Thabault said her department had concluded Blue Cross had broken the law by paying Milnes more money than necessary to perform his functions as head of the nonprofit health-benefits provider.

The Department's review found obvious flaws in how Blue Cross Blue Shield set its former CEO's pay:

The department’s review found that Milnes’ salary package while at Blue Cross was excessive, and in some years, he was paid more in bonuses than he received in base pay. In 2005, for example, Milnes was paid $425,000 in salary and $489,800 in bonuses.

'Other health insurance or managed care organizations of a similar size to the Vermont company compensate their chief executive officers at a level of about 45 percent to 50 percent less than the compensation levels set by the company for Mr. Milnes,' the department order said in part.

The department said Blue Cross used a 'peer group' study to justify the pay it gave Milnes, but regulators concluded the study was flawed because it put Milnes’ position on the same level of chief executive officers of much larger Blue Cross sister companies.

'The peer group ... used in 2007 included 14 companies, all but one of which were substantially larger in terms of annual gross premiums,' the department’s order said. 'Nine of the 14 companies had gross premiums in excess of $1 billion.' Blue Cross gross premiums for 2007 were $590 million.

This story is striking because it seems that the overpayment of a not-for-profit health care organization's executive this time seemed to rise to the level of crime. However, current Blue Cross leaders seemed unconcerned.

'The company accepts the findings of the department, and it just wants to move on at this point,' [Blue Cross and Blue Shield spokesman Kevin] Goddard said.

Somehow, whenever a health care organization's conduct is publicly revealed to be shameful, the response is not sorrow or apology, but let's just "move on." Moving on, of course, minimizes the accountability of those initially responsible for the bad behavior.

Furthermore, do not expect corporate leadership to acknowledge anything wrong with how the pay for the top hired corporate executive was determined.

Goddard said the company thought the peer group numbers it was using were sound.

'Our board used a comprehensive analysis to come up with a compensation package for Bill,' he said. 'We relied on what we thought was professional information.'

One begins to feel a little sorry for the poor spokesman who is obligated to mouth these sorts of sentiments. Whether the analysis was rational, or the "professional information" was relevant or correct seems not to have bee anyone's concern.

In addition, although Blue Cross and Blue Shield is now obligated to reimburse its policy-holders for former CEO Milnes' excessive pay, do not expect the money to come out of his pocket:

None of the $3 million the company has to pay back will come from Milnes. Blue Cross asked Milnes, through his attorney, if he would give back some of the money but was rejected, according to documents in the case made public Wednesday.

'He has made it quite clear that Mr. Milnes is not willing to make a voluntary repayment of any portion of the Supplemental Executive Retirement Program distribution,' Christopher Gannon, a Blue Cross vice president, wrote in a letter to Thabault’s department Jan. 21.

One would think that the current company management would be so upset about its new $3 million obligation, that it would aggressively try to recover the money from the person who benefited from it. However, it seems that all the current Blue Cross and Blue Shield management was willing to do was politely requesting that Mr Milnes return it. Suing a former CEO, of course, is just something that is not done. Perhaps it would be too disturbing to  the cozy atmosphere now prevailing among top executives and the boards of trustees who are supposed to be supervising them. This seems to make clear that no one at Blue Cross and Blue Shield ever really was responsible for what Mr Milnes was paid.

As an editorial in the Rutland Herald put it:

On its face, it was an outrage. Blue Cross is a nonprofit corporation that insures about 150,000 Vermonters. That a nonprofit with a mission of providing health care coverage should be a source of extravagant personal profit was an affront to all Vermonters, including those struggling to pay escalating premiums, those struggling to find adequate care, or those with no coverage at all.

The usual excuse from companies is that big money is necessary to attract big talent. It's a marketplace. But this excuse is really a kind of blackmail that allows corporate executives to collude in the inflation of their own worth.

So the notion of the "imperial CEO" who can virtually set his or her own pay, unencumbered by any real accountability to a board of trustees who would dare not ruffle the imperial feathers has now been imported even into relatively small health care organizations in New England states once famed for their common-sense and frugality.

So here we go again.... We have discussed numerous examples of compensation of health care organizations' leadership that seems orders of magnitude above that which would be rationally justified. These latest examples of the wealth being accumulated by leaders of supposedly mission-centered not-for-profit organizations are a product of the current management culture that has been infused into nearly every health care organization in the US. That culture holds that managers are different from you and me. They are entitled to a special share of other people's money. Because of their innate and self-evident brilliance, they are entitled to become rich. This entitlement exists even when the economy, or the financial performance of the specific organization prevents other people from making any economic progress. This entitlement exists even if those other people actually do the work, and ultimately provide the money that sustains the organization.

Although the executives of not-for-profit health care organizations generally make far less than executives of for-profit health care corporations, collectively, hired managers of even not-for-profit health care organizations have become richer and richer at a time when most Americans, including many health professionals, and most primary care physicians, have seen their incomes stagnate or fall. They are less and less restrained by passive, if not crony boards, and more and more unaccountable. In a kind of multi-centric coup d'etat of the hired managers, they have become our new de facto aristocracy.

Or as we wrote in our previous post, executive compensation in health care seems best described as Prof Mintzberg described compensation for finance CEOs, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit." As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences. Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations. It is time to reverse the coup d'etat of the hired managers.

We have posted before about how certain health care insurance companies/ managed care organizations in California were found to have cancelled individual health insurance policies after the people holding them made substantial claims, supposedly rationalized by minor errors or omissions in the information the people supplied to the companies on their individual applications found after the claims were made. Several companies were subsequently disciplined by the state government for these "rescissions." See posts on rescissions by WellPoint here, here, and here, and by Health Net here.

Executives of several such companies testified before a US congressional committee recently, with remarkable results, as reported by Lisa Girion writing in the Los Angeles Times. First, by way of background, the article suggested that rescissions are widespread:

An investigation by the House Subcommittee on Oversight and Investigations showed that health insurers WellPoint Inc., UnitedHealth Group and Assurant Inc. canceled the coverage of more than 20,000 people, allowing the companies to avoid paying more than $300 million in medical claims over a five-year period.

Furthermore,

The committee's investigation found that WellPoint's Blue Cross targeted individuals with more than 1,400 conditions, including breast cancer, lymphoma, pregnancy and high blood pressure. And the committee obtained documents that showed Blue Cross supervisors praised employees in performance reviews for rescinding policies.

One employee, for instance, received a perfect 5 for 'exceptional performance' on an evaluation that noted the employee's role in dropping thousands of policyholders and avoiding nearly $10 million worth of medical care.

Nonetheless, the executives were not prepared to abandon rescissions:

Executives of three of the nation's largest health insurers told federal lawmakers in Washington on Tuesday that they would continue canceling medical coverage for some sick policyholders, despite withering criticism from Republican and Democratic members of Congress who decried the practice as unfair and abusive.

The executives -- Richard A. Collins, chief executive of UnitedHealth's Golden Rule Insurance Co.; Don Hamm, chief executive of Assurant Health and Brian Sassi, president of consumer business for WellPoint Inc., parent of Blue Cross of California -- were courteous and matter-of-fact in their testimony.

But they would not commit to limiting rescissions to only policyholders who intentionally lie or commit fraud to obtain coverage, a refusal that met with dismay from legislators on both sides of the political aisle.

Sassi said rescissions are necessary to prevent people who lie about preexisting conditions from obtaining coverage and driving up costs for others.

'I want to emphasize that rescission is about stopping fraud and material misrepresentations that contribute to spiraling healthcare costs,' Sassi told the committee.

But rescission victims testified that their policies were canceled for inadvertent omissions or honest mistakes about medical history on their applications. Rescission, they said, was about improving corporate profits rather than rooting out fraud.

Also,

Late in the hearing, Stupak, the committee chairman, put the executives on the spot. Stupak asked each of them whether he would at least commit his company to immediately stop rescissions except where they could show 'intentional fraud.'

The answer from all three executives:

'No.'

This is just amazing. Here are executives of three of the country's largest for-profit health care insurance companies/ managed care organizations asserting they will continue cancelling peoples' policies after they make claims, simply because of minor errors or omissions in the application documents that have no bearing on the particular claims, or on discrepancies between information provided by patients and doctors, given that patients may not have full access to or understanding of what is in their charts. What good is an insurance policy that is liable to be cancelled as soon as one makes a claim on it?

Whatever these companies are selling, it is not insurance. Basing our health care system on their products is foolish, but that is what we are doing, and what many political leaders would continue to do.

In my humble opinion, if we are going to have a system based on privately provided insurance, that insurance has to be honest, unlike what some of our largest insurance companies seem to be peddling.

We posted several times, most recently in 2009 (here and here), about misbehavior by the health insurance company/ managed care organization Wellcare. That year, the company settled criminal charges that it defrauded the Florida state Medicaid program by paying a fine and accepting a deferred prosecution agreement. Previously, the state of Connecticut had canceled its arrangement with Wellcare to run a Medicaid program in that state after the company refused to provide the state with requested data. Then the company signed a consent order with the Florida Elections Commission in which it admitted making "questionable" political contributions.

Then this year, it was announced that the company would settle additional civil charges, as per the St. Petersburg (FL) Times,

Tampa-based WellCare Health Plans Inc. has agreed to pay $137.5 million to the U.S. Department of Justice and other federal agencies to settle civil lawsuits accusing the company of overcharging for its Medicaid and Medicare programs.

Also,

Under the tentative deal, which must be approved in court, WellCare would have three years to make payments to the Justice Department's civil division, the U.S. Attorney's Office for the Middle District of Florida and the U.S. Attorney's Office for Connecticut.

WellCare said the payments will include the approximately $23 million owed to the Florida Agency for Health Care Administration for overpayments received by the company in 2005.

The civil settlement is separate from a deal struck last year on the criminal front. In that case, WellCare agreed to pay $80 million to settle a charge of conspiracy to defraud the Florida Medicaid program and the Florida Healthy Kids Corp.

It also previously agreed to a $10 million civil penalty settling an informal inquiry by the Securities and Exchange Commission that regulatory filings reflected more than $40 million in profits that WellCare failed to return to the Florida agencies from 2003 to 2007.

WellCare, which is Florida's largest Medicaid plan operator, has acknowledged that it overcharged Florida and Illinois health programs by about $46.5 million.

But wait, there is more. No sooner than this settlement been announced than it was challenged. While considering the settlement, the judge involved unsealed a set of complaints by whistle-blowers about Wellcare. First, as reported by the Miami Herald,

The complaint, filed by former WellCare financial analyst Sean J. Hellein, portrays a company so ethically challenged that it rewarded employees who dumped hundreds of sick newborns and terminally ill patients from the membership rolls, thereby pumping up profits by millions of dollars.

It describes a company that embraced fraudulent accounting as a business model, eventually stealing between $400 million and $600 million from Medicare and Medicaid programs in several states, perhaps most of it from Florida.

See these specifics:

Hellein, who wore a wire for more than a year to gather evidence for federal agents, says in the complaint that:

- WellCare moved money between accounts to make it appear that patients' treatment cost much more than it actually did. In some cases, the company made payments years in advance to jack up the apparent cost of care to fool states into increasing Medicaid premiums. It worked, he said.

- When states made overpayment errors, WellCare didn't pay the money back, as its contract requires. Florida Medicaid made a series of overpayment blunders that fattened WellCare's bottom line by many millions; those who made the errors included both state officials and contractors.

- Sometimes hospitals and physician groups helped WellCare hide its true spending from Medicaid programs by accepting payments through one account for expenses incurred by another. Sometimes they allowed WellCare to pay for future years' expenses to make it appear spending for the current year was higher than it actually was.

Hellein named two hospital systems - one in Illinois and one in Florida - that he said participated in the sham arrangement, but he said it was common.

WellCare pushed expenses into certain programs - behavioral health programs in Florida and Illinois and the Healthy Kids program in Florida, a program for uninsured children of families with modest incomes - because they required repayment if the cost of treatment fell below a certain threshold.

Florida public officials were repeatedly duped by WellCare. The director of the Florida Medicaid program from 2004 to 2007, while much of the alleged fraud was going on, was Tom Arnold. He currently is Secretary of the Agency for Health Care Administration.

Another agency that fell for WellCare's line was the Office of Insurance Regulation, where an actuary found nothing wrong with a WellCare subsidiary in the Cayman Islands acting as the company's reinsurer.

The reinsurance arrangement enabled WellCare to bank $5 for each insured while making it appear that the cost was just 11 cents, the complaint says.

After Wall Street analysts raised questions about the legality of the reinsurance arrangement in 2007, some thought it might be reviewed by Chief Financial Officer Alex Sink. But nothing ever came of it.

WellCare conducted a study to figure out which Medicaid recipients were profitable and which were not so that it could engage in "cherry-picking," a term for enrolling only the profitable members. The study found that disenrolling a baby born with health problems saved the company an average of $20,000; each terminally ill patient saved $11,500.

Those who were persuaded to resign from WellCare went into the general Medicaid or Medicare fee-for-service programs.

WellCare also restructured its benefit package to discourage the least-profitable Medicaid recipients from enrolling and encouraging those who were more profitable to sign up.

Low-income mothers and children yielded a net of only about 10 percent, while the physically and mentally disabled paid for by Medicare yielded a net of 30 percent, the complaint says.

The complaint names about 20 employees of WellCare who knew about the fraudulent activities. Only one, Gregory West, has been charged. He pleaded guilty in December 2007 but sentencing has been postponed several times.

No charges have been brought against three former executives of the company named in the complaint as orchestrating the fraud: President, CEO and Chairman Todd Farha, CFO Paul Behrens and General Counsel Thaddeus Bereday.

They all resigned in January of 2008, three months after the FBI and other law-enforcement agents raided the Tampa campus of WellCare and carted off computers and files.

The the St. Petersburg Times reported about two more complaints that were unsealed:

Clark J. Bolton, a former supervisor of special investigations at WellCare, said the insurer encouraged overbilling and refused to audit claims for fraud in order to curry favor with doctors and hospitals and build market share. The result was millions in excessive and illegal expenses passed through to federal Medicare and state Medicaid programs, Bolton said.

Eugene Gonzalez, a referral coordinator for seven years, claimed WellCare met government customer service standards only because it had employees create backdated documents and make bogus calls to the company's phone lines. Failure to meet these standards would have resulted in the loss of billions of dollars worth of Medicare and Medicaid contracts.

As we have before, we see a striking contrast between the scope of the allegations and the response by the government agencies that are supposed to regulate insurers, insure that public money is spent wisely, and investigate and seek punishment for illegal activities. As the latter St. Petersburg Times article noted,

U.S. Rep. Kathy Castor criticized the proposed settlement as wholly inadequate in a letter this week to Attorney General Eric Holder. 'Where is the penalty and punishment for such egregious actions?' she wrote. 'It appears that companies such as these simply build such payments into the 'cost of doing business.' We cannot allow this to continue.'

This notion should be familiar to readers of Health Care Renewal. The Wellcare case fits right into the parade of legal settlements we have discussed. As we have said again and again, the usual sorts of legal settlements we have described do not seem to be an effective way to deter future unethical behavior by health care organizations. Even large fines can be regarded just as a cost of doing business. Furthermore, the fine's impact may be diffused over the whole company, and ultimately comes out of the pockets of stockholders, employees, and customers alike. It provides no negative incentives for those who authorized, directed, or implemented the behavior in question. My refrain has been: we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

Also note that the case of Wellcare remains relatively anechoic. Despite the severity of allegations, and the national scope of the company, the case has only been mentioned in news stories, mainly in Florida where the company has its headquarters, and in a few health care trade publications. It, like many of the cases we discuss on Health Care Renewal, has not been mentioned in the medical/ health care research/ health care policy literature.

If we cannot even speak about the sort of very bad management that afflicted Wellcare as a cause of many of the ills of our health care system, how do we really expect to constructively reform that system?

A Denver Post article offered a brief glimpse into the health benefits of corporate leaders, on the unusual occasion of a former CEO now in legal fight for the health benefits in the style to which he had become accustomed:

Poor Joe. He's not getting the health-care benefits he was promised.

His former employer merged with another company, and then another, and then another. And, you know how it goes after a slew of mergers. Suddenly the new, conglomerated monster just doesn't care about retirees any more.

Joe isn't going to sit back and take it like an average Joe. He's suing his former employer in U.S. District Court in Manhattan for breach of contract, breach of faith, breach of fiduciary duty and even promissory estoppel.

The Joe in question was really:

Lord & Taylor's CEO.

Joseph E. Brooks of Greenwich, Conn., lorded over a fourfold increase in sales at Lord & Taylor, expanding to 46 from 19 locations.

His career and Lord and Taylor's course after that were checkered, perhaps contributing to the current dispute:

But that was a long time ago. And Macy's Inc., the current parent company, is resisting some of his medical claims.

Brooks didn't get a deal like this from Filene's, where he served as president before joining Lord & Taylor. Or Ann Taylor, where he went on to generate shareholder lawsuits and shopper hate mail after demanding lower prices from suppliers and higher prices from customers, destroying both quality and value at the same time.

Brooks also made his son president of Ann Taylor, sparking cries of nepotism. And then his son got snagged trying to slip by U.S. Customs without paying duties on pricey watches and was forced to resign. The senior Brooks subsequently resigned as well. A 1992 Newsday article called him 'as egotistical and extravagant as he was brilliant.'

What Health Care Benefits Do CEOs Get?

What had Brooks been promised as CEO of Lord and Taylor?

In 1983, Lord & Taylor's corporate parent told Brooks it sought to provide 'great comfort to executives knowing that their medical costs are fully reimbursed by the Corporation.' The company told Joe it was a lifetime guarantee.

CEOs should never, ever, have to worry about health care.

Here are some details about his benefits:

And for nearly 27 years, substantially all medical costs have been fully covered, even premiums.

We're not just talking doctors' visits, hospitals, medications and tests. We're talking all travel and ancillary expenses associated with care, too.

We're talking first-class transportation, accommodations and meals while being treated at the Mayo Clinic and the Duke Diet and Fitness Center. We're talking expenses for a companion or personal aide, too.

We're also talking 'cosmetic services (surgery, medications, injections, creams and the like)' dental care, gym memberships, personal trainers, vitamins, massages — all paid by Joe's former employer for the rest of Joe's life.

Oh, and if any of these benefits have tax consequences, we're talking gross-up payments to cover that, too.

Why should we be concerned about the extravagant health plans given to top corporate executives?

The Implications

We noted in 2009 that the Goldman Sachs 2009 proxy statement indicated that top executives of that now controversial company received health plans worth about $40,000 each.

My concern then were not how much the costs of the plans contribute to top corporate leaders' compensation packages. Such packages are generally already so outrageously huge that providing $40,000 rather than $13,000 worth of health insurance is a trivial increase. My concern was not that plan recipients' demands for health care will collectively increase health care costs, because they likely include only a tiny portion of the population.


My main concern, instead, was how much these plans further insulate already cocooned top executives from the vicissitudes of daily life, particularly related to coping with our current dysfunctional health care system. What benefits executive health care plans provided were not clear from the 2009 story about Goldman Sachs. However, this year's case of Joe Brooks does suggest that the plans paid for every expense that could be conceivably health related.

As I worried then, it now does appear that such plans could completely insulate executives from having to deal with the managed care/ health insurance bureaucracy which frustrates patients seeking particular services, but not necessarily the most expensive, or least beneficial services. Furthermore, such plans may completely insulate executives from the various other vicissitudes of managing our currently dysfunctional health care system. (By the way, that is why it seemed amazing that the CEO of Pfizer had to put up with some of the common vicissitudes when he went to a hospital for an elective procedure, an experience he publicly talked about with an almost charming naivete, given that he runs such a powerful health care organization which has been so influential in shaping our US "health care reform," see post here.)

Such executives isolated from the real world of health care might thus not have gut level appreciation of how dysfunctional the health care system has become for even insured patients. Since top executives often are disproportionately influential members of the "superclass," their disconnection from the realities of dysfunctional health care is likely to translate into little real support by the powers that be for meaningful health care reform. There support may be further retarded by the influence of their fellow superclass members whose personal fortunes depend on the status quo in health care.

Real improvement of health care may depend on finding leaders who have better understanding of the plight of real people.

Two Postscripts

Note: the Goldman Sachs 2010 proxy indicates that the executive health plans given to the five most highly paid executives cost up to $56,927.

Also note that despite the effect that executive health plans may have on the thinking of those with the most power to influence health care policy, the plans have been of little interest to health care services and policy researchers. I have not been able to find a single article in these literatures on the subject. This appears to be yet another version of the anechoic effect, that certain inconvenient truths (to borrow from former US Vice President Al Gore) are not subjects of polite discussion of health care, lest the results excessively disturb the powers that be.

Merrill Goozner, on the GoozNews Blog, dissected recent pronouncements on health care reform by economist Uwe Reinhardt. Reinhardt compared our US "system" of financing health care with those of some other countries. He noted some advantages of the latter systems, but wondered whether US citizens would accept the trade-offs they implied. In particular, he wondered whether the US would accept the tight regulation of private insurance companies found in Germany. But he conveniently failed to note that the German plan's success may depend on its exclusive use of only not-for-profit health insurers.

Mr Goozner wondered whether if this omission had to do with Mr Reinhardt's position on the board of a for-profit US health insurance company, a relationship not disclosed in Mr Reinhardt's New York Times blog post. (We have posted before about how Mr Reinhardt's authoritative writings on health policy have not been accompanied by disclosure of his positions on the boards of several major health care corporations.) Once again, it is hard to tell whose interests prominent health care advocacy serves.

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.