Tales of the Wayfaring Generic Manager - from Ritz Carlton Hotels to Henry Ford West Bloomfield Hospital to Cancer Treatment Centers of America

In 2006, we wondered what a former hotel manager, Mr Gerard van Grinsven, admittedly known for putting the "wow" back in the Detroit Ritz-Carlton, would be doing as a hospital CEO.  This seemed at the time like a real "wow" example of how generic managers were taking over health care.  Mr Grinsven had extensive experience in the hospitality field, but no known background in health care. 

Organic Local Produce, "Wellbeing Centers," Gourmet Dining, Wedding Receptions, and Corporate Functions

Over the next few years, Mr van Grinsven's Henry Ford West Bloomfield hospital did make a name for itself.  In 2009, Becker's Hospital Review reported on some of Mr Van Grinsven's innovations. 

First, he lead an apparent change in the hospital's mission from acute care to recreating:

the hospital experience into one focused on promoting wellbeing and healthy living. The hospital has already begun to realize its mission statement, which reads 'to take health and healing beyond the boundaries of imagination.'

The new hospital apparently was designed to look like a luxury hotel:

The hospital is located on 160 acres of woodlands and is designed to resemble a Northern Michigan lodge. The facility also features a retail 'main street' which looks like an actual main street in a Northern Michigan town and includes stores focused on sleep, pregnancy, organic food and healthy cooking as well as a pharmacy.

Apparently it is now a favored site for weddings:

The hospital also holds free concerts for the community and has already received nine wedding inquiries. 

It had a "wellness center"

Henry Ford West Bloomfield also features a unique, integrated wellness center called Vita. Vita offers acupuncture, therapeutic message, yoga and relaxation classes, an aqua therapy suite, a spa and health coaches who provide lifestyle and exercise consultations. In addition to offering one-time services, the hospital offers memberships to community members to encourage frequent use of the center.

What really stood out was its food service:

Henry Ford brought in top Michigan chef Matt Prentice to transform traditional hospital food service. The hospital features 24-hour room service for patients, all of which is served by the hospital's on-site gourmet, organic restaurant, Henry's. All food served in the hospital is organic, promotes sustainable agriculture and, in many cases, is procured from local farmers.

A 2011 article in Fortune noted that

the hospital is on track to generate millions of dollars a year hosting and catering functions for companies and community groups.

It all sounds great, if it were describing a luxury hotel.

The Fortune article ended with the gushing summation:

While it will be years before anyone can say whether this model works, there's no question that it captures a spirit of innovation that just might be a cure for what ails so many organizations. We are living today through the age of disruption. You can't do big things if you're content with just doing things a little better than everyone else or a little differently from how you've done them in the past. In an era of intense competition and non-stop reinvention, the only way to stand out from the crowd is to stand for something special. Originality has become the acid test of strategy.

Neither it nor the Becker's rather uncritical discussions dealt with what any of this had to do with the fundamental mission of a hospital, to care for the sick, what it has to particularly do with quality of care, especially care of severely acutely or chronically ill patients, traditionally those whom hospitals were meant to serve.  Would a patient desperately sick from a myocardial infarction (heart attack), stroke, sepsis (bacterial blood stream infection) or the other major ills that bring people to hospitals really care that if he or she were to survive without major sequelae, organic, locally grown food would be served in the hospital's fancy restaurant?  Is there any evidence that provision of any of these fancy hotel amenities would affect important clinical outcomes for such patients?  Could the funds needed for all these fancy hotel services be better spent to improve patients' the the population's health?

On to a More Ethically Challenged Environment

We may never know.  But what we do know is that Mr van Grinsven, having brought "wellness" centers and organic, locally grown, gourmet food to an acute care hospital, is now moving on.

Crain's Detroit Business just reported:

Henry Ford West Bloomfield Hospital President and CEO Gerard van Grinsven has resigned from the position effective June 1, according to an internal email sent Friday to employees from Henry Ford Health System President and COO Bob Riney.

Van Grinsven is leaving the hospital to become the president and CEO of Chicago-based Cancer Treatment Centers of America, Riney said in the email. He will oversee the CTCA's five hospitals and medical centers in Illinois, Pennsylvania, Oklahoma, Arizona and Georgia. The CTCA is expected to announce van Grinsven's new position later today.

Henry Ford Health System CEO Bob Riney saluted van Grinsven thus,

'Gerard's leadership talents and his tremendous global experience made the transformation of this innovation and distinctive vision a reality,' Riney told employees in the email.

He did not apparently mention anything about the quality of care for acutely and chronically ill patients.  The press release from CTCA proclaimed

'Gerard's arrival is an exciting and dramatic step in the evolution of our leadership that will herald new opportunities for all of our talented Stakeholders and the thousands of patients we serve,' said [executive chairman and former CEO Stephen B] Bonner. 'Our expertise in Patient Empowerment Medicine® and track record implementing change is unparalleled. Nothing we do today is the same as we did two years ago. Gerard is uniquely qualified to provide the leadership required to advance our commitment to patient-centered care in all we do,' concluded Bonner.

Of course, there was nothing about how van Grinsven's expertise in wellness centers and organic produce would be useful to an organization supposedly devoted to cancer patients, whose care may involve risky treatment choices and who may become desperately ill.

There was also nothing about how van Grinsven's background would help CTCA to avoid new ethical misadventures.  Earlier this year, we posted about issues involving CTCA making unsubstantiated survival claims; promoting "integrative" treatments that are unsupported by evidence; and manipulating survival statistics, in part by turning away patients with poor prognoses.  Of course, it is not clear that given van Grinsven's background he would even understand why such behavior is unethical. 

Summary

As a physician, it is hard not to laugh at all this, at least to keep from crying.  As we have noted frequently, health care has been taken over by generic hired managers.  At best, while well meaning, many of them seem clueless about the nature and context of health care, and health care professionals' values.  At worst, the manager's coup d'etat has turned managers into manager-kings, queens and nobles, while driving up health care costs, and sacrificing the health of patients and the public.  The depth of this phenomenon is demonstrated by the absolute lack of skepticism about the worthiness of a former Ritz-Carlton executive to run either a community hospital or a system of cancer treatment centers.

I say once again that true health care reform would put in place leadership that understands the health care context, upholds health care professionals' values, and puts patients' and the public's health ahead of extraneous, particularly short-term financial concerns. We need health care governance that holds health care leaders accountable, and ensures their transparency, integrity and honesty.

Carolinas Healthcare System Pays Executives Even More

In May, 2012, we discussed the contrast between the outsize compensation given to top executives of Carolinas Healthcare System, a large tax-exempt public hospital authority, and the apparent failure of the system to fulfill it promise to provide community care.  Now we can update that story.

2012 Executive Compensation

The Charlotte Observer reported on the compensation given to top executives at the Carolinas Health Care System in 2012:

The top executive at Carolinas HealthCare System received $4.76 million in 2012 compensation, a 12 percent increase over 2011, as the system celebrated a profitable year and met all of its systemwide performance goals, the system announced.

CEO Michael Tarwater, 59, who has led the $7.5 billion nonprofit system for more than 10 years, received a salary of $1.1 million, two bonuses totaling $2.8 million, and other compensation, including retirement and health benefits, of $795,724.

The top 10 executives at Carolinas HealthCare each received more than $1 million in total compensation. Most received increases of more than 8 percent.

A more detailed list, which included the rate of increase since 2011::

Michael Tarwater, CEO: $4,760,026 – 12.36 percent increase
Joseph Piemont, president and chief operating officer: $2,880,926 – 13.57 percent increase
Greg Gombar, chief financial officer: $1,898,027 – 8.35 percent increase
Laurence Hinsdale, executive vice president: $1,844,413 – 8.92 percent increase
Paul Franz, executive vice president: $1,704,671 – 8.17 percent increase
Dennis Phillips, executive vice president: $1,420,521 – 5.14 percent increase
Dr. Roger Ray, chief medical officer: $1,315,148 – 21.76 percent increase
John Knox, chief administrative officer: $1,296,185 – 8.24 percent increase
Debra Plousha Moore, executive vice president: $1.145,357 – increase not available
Russell Guerin, executive vice president: $1,141,171 million – 7.56 percent increase

Read more here: http://www.charlotteobserver.com/2013/02/06/3835851/charlotte-hospital-pay.html#storylink=cpy

Read more here: http://www.charlotteobserver.com/2013/02/06/3835851/charlotte-hospital-pay.html#storylink=cpy

Also here were the compensation figures for some leaders of individual hospitals within the system:

Others in Carolinas HealthCare System - 2012
• Spencer Lilly, president, Carolinas Medical Center: $633,326
• Robert Larrison, president, Carolinas Rehabilitation: $348,976
• Douglas Roush, president, CMC-Mercy: $262,745
• Christopher Hummer, president, CMC-Pineville: $549,616
• William Leonard, president, CMC-University: $378,369
• Phyllis Wingate-Jones, president, CMC-NorthEast: $761,160
• Peter Acker, president, CMC-Lincoln: $385,847
• Michael Lutes, president, CMC-Union: $488,427

Read more here: http://www.charlotteobserver.com/2013/02/06/3835851/charlotte-hospital-pay.html#storylink=cpy

The Context

The context is that Carolinas Healthcare is a large tax-exempt public hospital system that claims that it "works to improve and enhance the overall health and wellbeing of its communities" according to its web-site.  However, there have been accusations, for example here by "Jessica Curtis, director of the Hospital Accountability Project for Community Catalyst in Boston," that is has been

'...sending very low income patients to collections and suing them as well.'

The Observer and The News & Observer reported last year that during the five years ending in 2010, North Carolina hospitals filed more than 40,000 lawsuits. Most of the suits were filed by Carolinas HealthCare.

Note that we discussed the contrast between this hospital system's public nature and aspirational statements about serving the community on one had, and its oversize executive compensation on the other hand here.  Since then, executive compensation has only gone up.

The Usual Talking Points for Justification

Of course, when asked, defenders of the hospital system gave the stock justifications.  For example,

Carolinas HealthCare officials said executive compensation is 'performance based' and reflects the system’s growth. 

The Observer found a health care executive compensation consultant to make the usual arguments about the need to pay market rates to prevent supposedly talented executives from being recruited elsewhere:

 Consultants who assist hospitals in setting executive compensation say they compare peers at hospital systems of comparable size, complexity and performance.

'If , he’s going to get paid higher in the range. That individual is very vulnerable to being recruited away' said Bob Erra, president of Integrated Healthcare Strategies.

'The last thing a compensation committee wants to do is to lose a leader over pay,' said Erra, whose Minneapolis-based firm works with Novant Health but not Carolinas HealthCare.

 Just as we mentioned in our most recent post, whenever anyone bothers to try to justify extravagant executive compensation at hospitals, and for that matter, most other health care organizations throughout the US, they seem to repeat the same set of talking points.    We first listed the talking points here, and then provided additional examples of their use here, here and here.   The talking points are:
-  we pay what everyone else pays
-  CEOs work hard and are brilliant, and so deserve high pay
-  high pay is needed to attract and retain competent, if not brilliant people.



Note that without specific evidence to back them up, the first two talking points at least are logical fallacies.  The first is an appeal to common practice.  The second is an appeal to authority.

None of the examples of these talking points we have seen so far explain why these apply to CEOs and other top hired managers, but not to other kinds of employees.

So it should be no surprise that the justifications for the largess to hospital executives at Carolinas follow the talking points yet again.

-  We Pay What Everyone Else Pays => "they compare peers at hospital systems of comparable size, complexity and performance."  Note further that it is hard to believe the comparisons were only to other public hospital systems, that is, hospital systems run by local government

- CEOs Work Hard and Are Brilliant => "(the CEO) is a high performer...."  Note further that as usual no evidence of the CEO's specific performance was offered.

- High Pay Needed for Retention => "That individual is very vulnerable to being recruited away."  Note that as we wrote recently, most CEOs are recruited from within the organization, and no specific evidence that this specific CEO was particularly likely to be recruited away was offered. 

So as is usual, underlying these talking points there was no evidence, nor arguments that would make them more logical.


Summary: the More Things Change

The more they stay the same.  Thus this seems to be yet another example of how top managers almost always now seem able to personally profit from their positions of trust.  In this particular example, however, these were managers of a public organization, so it may be possible that public pressure could make them more accountable and hold them to more reasonable pay.  

So to repeat my conclusions from 2012....  The governance of this organization, like that of many others we have discussed, needs to regain accountability, transparency, integrity, and ethics. It must insist that the leaders it hires uphold the mission ahead of other concerns, particularly personal enrichment. It must provide these leaders with realistic incentives based on how well they uphold this mission, not on revenue or operating margin.

Until such changes are accomplished, expect this hospital system, like many other health care organizations, to contribute only to our ever rising prices, declining access, and stagnating health care quality.

Non-Profit Hospital Executive Salaries Continue to Defy Gravity and Logic

The old saying is that nothing is certain except death and taxes.  In health care, the other near certainty seems to be that compensation for health care leaders is big and always getting bigger. 

Over the past few weeks several reports about the compensation of top executives of US non-profit hospitals and hospital systems have appeared.  So it is time to do our latest round-up of incessantly buoyant hospital executive compensation, and argumentative hot air that seems to fuel it.  I will first summarize the latest cases in alphabetical order by state, and then examine some common justifications for the seemingly anti gravitational nature of executive compensation in this part of health care.

Arizona

On AZCentral.com was an article about the CEO of a single relatively small public hospital system:

The leaders of Maricopa County’s public health-care system agreed to raise chief executive Betsey Bayless’ pay by 33 percent, bringing her salary to $500,000.

That may not seem like a lot of money as executive compensation goes, but consider the context:

The Maricopa Integrated Health System is a public hospital system that provides care for the Valley’s poor and uninsured. It is funded by federal and state health-care dollars and a special county levy paid by all county property-tax payers.

MIHS budgeted $3.5 million for market adjustments and merit raises for its employees in fiscal 2013. Bayless’ salary increase alone will consume one-quarter of the $500,000 the board had allocated this fiscal year to bring all employees’ pay in line with similar positions elsewhere.

The health-care system’s rank-and-file employees have received annual merit-based salary increases of no more than 2.9 percent since fiscal 2008.

Nonetheless, the CEO did not exactly feel rich:

Bayless said she did not request the raise and was not expecting it. She said she believes MIHS employees will understand that her salary has been comparatively low and that her replacement likely will be brought in at an even higher salary.

She justified her pay by comparing it to what she thought the market would bear.

'Any salary information will show you that my salary is always the lowest of any (hospital) CEO currently in the entire state, even the little-bitty hospitals,' Bayless said. 'On any measure, 375 (thousand dollars) is below market. So, do I feel undercompensated? I don’t know. But on any measure, it always comes in below market.'

Members of the hospital system's board also justified the pay on the grounds that it was at the market rate:

[Board Members Mary] Harden and [Terence] McMahon said they voted for the pay raise because a national search firm hired to find Bayless’ replacement set $500,000 as a minimum competitive salary for qualified candidates.

Another board member also noted how hard CEO Bayless works:

'The lady works 70-plus hours a week. She’s on call 24/7. So, I think the job warrants it. She works very, very hard,'  Dewane said.

I am sure health care professionals who also work long hours, and are frequently on call, but unlike managers, have to make decisions with real life and death consequences would understand, or not.


California

In California a report focused in contrast on the bigger hospitals and hospital systems.  California Healthcare News reported on the best compensated hospital executives in the state.  In general,

More than one in five non-profit hospital chief executive officers in California received compensation totaling $1 million or more in 2010, according to a new pay survey by Payers & Providers.

Altogether, 32 CEOs of the 154 surveyed received pay packages that ventured into the seven figures. That compares to 19 CEOs who received seven-figure pay packages in the only prior survey Payers & Providers conducted. That survey was published in June 2010, and relied primarily on data from 2007 and 2008.  

Some specifics about the best paid executives:

Kaiser Permanente's George Halvorson is the most highly-compensated hospital system executive in California, receiving $7.74 million in 2010. That included more than $6 million in additional compensation. Halvorson is retiring as Kaiser's CEO in June.

Thomas Priselac, the chief executive officer of Cedars-Sinai Medical Center in Los Angeles, was the highest-paid standalone hospital CEO, earning $2.77 million in 2010. That included additional compensation of $1.6 million.

The article provided the justification for Priselac's seven-figure compensation:

According to an email response from Cedars-Sinai spokesperson Duke Helfand, Priselac's compensation 'reflects the top-tier clinical, research and educational performance the medical center consistently has delivered in his 19 years of leadership.'

He did not offer how this performance was measured, how it compared to that of any other hospital, or whether anyone other than the CEO might have been responsible for that performance.

The survey results included the best compensated CEO of a health-district

Michael Covert,  the CEO of the two hospital Palomar-Pomerado Health system in San Diego County, was the highest-paid district hospital CEO, earning $1.09 million in 2010. He was among two district hospital CEOs to earn seven-figure compensation.

The survey results also included the best compensated CEO for academic medical centers run by the (state supported) University of California:

David T. Feinberg, M.D., is by far the highest-paid CEO among those who oversee the five research hospitals operated by the University of California. Feinberg, who runs Ronald Reagan UCLA Medical Center, earned $1.33 million in 2010 – the only seven-figure pay package among that cohort of CEOs, and nearly $450,000 more than the second-highest earner in that group, Mark Laret of UC San Francisco Medical Center.

Connecticut

Becker's Hospital Review provided information on the highest paid Connecticut hospital CEOs:

Here are the nine CEOs who earned at least $1 million in 2011.

•    Clarence Silvia, The Hospital of Central Connecticut: $2.76 million
•    Marna Borgstrom, Yale-New Haven Hospital: $2.59 million
•    Brian Grissler, Stamford Hospital: $2.24 million
•    Elliot Joseph, Hartford Hospital: $1.74 million
(*CEO is now Jeff Flaks)
•    Frank Corvino, Greenwich Hospital: $1.71 million
•    Susan Davis, RN, Saint Vincent's Medical Center: $1.48 million
•    Chris Dadlez, Saint Francis Hospital and Medical Center: $1.42 million
•    John Murphy, MD, Danbury Hospital: $1.08 million
•    Christopher O'Connor, Hospital of Saint Raphael: $1.04 million

 The report did not provide any justification for the pay levels, and I could find no further news coverage that was relevant.

Massachusetts

The Fitchburg (MA) Sentinel and Enterprise seemed to be the only media outlet which  noted the compensation of hospital executives reported to the state attorney general.  It listed compensation of some regional hospital leaders,

Patrick Muldoon, president and CEO of HealthAlliance Hospital, a member of the UMass Memorial Health Care system, received a compensation package of $653,868 in 2010, the most recent year for which compensation data is publicly available.

The HealthAlliance system includes a 135-bed community hospital with services on two campuses in Leominster and Fitchburg.

Over that same period, Daniel P. Moen, former president and CEO of the 153-bed Heywood Hospital in Gardner, received a compensation package of $386,126.

Christine Schuster, CEO of Emerson Hospital in Concord, earned a total compensation package of $669,844. Emerson has 179 beds.

Lahey Clinic chief executive Howard Grant, who oversees a facility with 317 beds, was paid a total compensation package of $768,568 in 2010.

The article did not note the justification for the pay of any of these CEOs.  I was unable to find any other recent reporting that took advantage of the data supplied to the state Attorney General.

New York

SUNY - Downstate Medical Center

The New York Daily News reported on compensation given to executives at one state supported university medical center:

15 SUNY Downstate Medical Center bigs are raking in $200,000-plus salaries even as plans move forward to shut down its Long Island College Hospital campus.

Downstate president Dr. John Williams who’s leading the drive to close the Cobble Hill hospital gets the fattest pay of all.

He’s paid $650,000 a year salary and gets an annual housing allowance of up to $80,000 and the use of a car.

It listed the following compensation information for other executives:

Other big hospital administrators’ salaries, 2011
* $552,556.33 — Debra Carey, vice president
* $357,379.26 - Grace Wong, vice president
* $334,072.19 — Ivan Lisnitzer, vice president
* $312,182.24 — Paul Davis, assistant vice president
* $286,954.51 Renee Poncet, vice president

This should be viewed in the context of the medical center's current dire straits:

SUNY Downstate — which has a hospital and medical school in East Flatbush — is in such bad financial shape it could go broke by March, SUNY chairman Carl McCall has said.

Of course, despite these financial threats, a "spokesman" defended these payments again as market-based:

[Robert] Bellafioire defended the brigade of big salaries — though the controller’s audit suggested Downstate should consider cutting the number of high-paid administrators.

'We have to offer competitive compensation, particularly when we’re up against any number of the country’s best hospitals and medical schools just across the bridge and in the metropolitan area,' Bellafiore said.

Rural Hospitals in Upstate New York

On the other hand, the Plattsburgh (NY) Press-Republican reported on the compensation given to hospital executives in rural northern New York state.  These included Alice Hyde Medical Center:

John Johnson, president and chief executive officer, was paid $339,539 in 2010. He retired in the fall of 2012.

He was replaced by Douglas DiVello, who is paid $246,682 in salary and benefits.

Then there was CVPH Medical Center in Plattsburgh

Hospital President Stephens Mundy has been at CVPH for 10 years and was paid $749,563 in salary, bonuses and other compensation in 2010.

His base salary for 2013 is $478,421,...

In addition, there was Elizabethtown Community:

Rodney Boula, president and chief executive officer at ECH, was paid $229,902 in 2010.

Note that later the article explained that this hospital has no more than 25 beds.

However, the reporter was unable to find out the compensation of the CEO of the Adirondack Medical Center in Saranac Lake:

Chandler Ralph, president and chief executive officer for 16 years, is not employed by the hospital or its umbrella organization, Adirondack Health.

She is paid through a contract with a management company, Health Tech Management Services, said Joe Riccio, AMC communications director.

Her salary is a confidential employment contract, 'just like any other vendor that does business' with the hospital, he said.

Because of that, her salary was not available through IRS records. The Press-Republican pressed Ralph to release her salary, noting that it was publishing the pay of all other area hospital CEOs, but she refused, citing confidentiality.

Parenthetically, this seems to be an unusual case of the actual outsourcing of top leadership.

This compensation information again should be considered in the context.  These are all relatively small hospitals in a rural area with low costs of living.  In addition, these hospitals were facing substantial financial challenges:

Numerous jobs were cut in 2012 at the area’s five hospitals, some the first substantial layoffs in decades. One hospital recorded an operating deficit, and at some, programs and services were reduced.

Adirondack Health, parent company of Adirondack Medical Center in Saranac Lake, and CVPH Medical Center in Plattsburgh, each laid off 17 employees last fall and eliminated vacant positions.

Alice Hyde Medical Center in Malone let 12 people go in September and had closed down more than a dozen vacancies.

Nonetheless, the justifications for these compensation levels included the usual suspects.In an introductory discussion not specific to any hospital, we find:

'The responsibilities of a CEO have exploded in the last four years,' said William Van Slyke of the Healthcare Association of New York State, an organization that represents hospitals and health-care systems across the state.

Similarly,

'Being a hospital CEO, you are ‘all in,’ all the time, every hour. It’s a tremendous responsibility.'

 
This is the familiar argument about how hard seemingly all hospital CEOs work.  As noted above, it is particularly incongruous in a health care setting in which numerous health professionals are also "all in," and these professionals bear the responsibility of making decisions and taking actions that can directly affect patients' health, safety, and even survival.

 Following this were the equally familiar arguments that the compensation of CEOs is determined by the market, and so to retain CEOs one must pay at this market rate:

'Being a hospital CEO, especially in the state of New York, is complex and demanding job. There is an extraordinarily limited pool of candidates, and that increases their value.'

'I can’t speak for the hospitals in your area,' he told the Press-Republican, 'but a qualified and successful CEO can go anywhere in the country and make equal or higher salaries.'

The Press Republican also elicited very similar articles justifying pay for individual hospital CEOs, for example, regarding the CEO of the Alice Hyde Medical Center, here is the "compensation is determined by the market" argument from "Dean Johnston, president of the Board of Trustees, and member of the hospital's Compensation Committee"

'It’s important that the salary is competitive with other institutions because it’s difficult to attract professional leaders who will improve the quality of care.'

And from the same person, here is the "CEOs work very hard" argument

 'It’s difficult being CEO,' Johnston continued, 'because you’re the head of a complex and multi-faceted institution.'

Very similar arguments were made to justify the compensation of the CEO of CVPH Medical Center. 

The Usual Talking Points and Logical Fallacies

So, to summarize, hospital executive compensation, at least such compensation that gets noted in the media, seemingly never has been better.  CEOs at even the smallest, most rural, non-profit community hospitals can make well into the six figures.  CEOs at public hospitals can make over half a million dollars.  CEOs at larger hospitals, even those that are state supported, can make even more, up to millions a year for CEOs of moderate to large non-profit hospital systems.  Even hospitals that are facing financial challenges, or that are laying off employees still pay substantial amounts.

In previous posts, we noted that whenever anyone bothers to try to justify extravagant executive compensation at hospitals, and for that matter, other health care organizations throughout the US, they seem to repeat the same set of talking points.    We first listed the talking points here, and then provided additional examples of their use here, here and here.   The talking points are:
-  we pay what everyone else pays
-  CEOs work hard and are brilliant, and so deserve high pay
-  high pay is needed to attract and retain competent, if not brilliant people.

None of the examples of these talking points we have seen so far explain why these apply to CEOs and other top hired managers, but not to other kinds of employees. 

So it should be no surprise that the justifications for the largesse to hospital executives found in the cases above follow the talking points yet again.

We Pay What Everyone Else Pays

 Another way to put this is that some market determines CEO pay.  We saw versions of this to support the compensation of the CEOs of Maricopa Integrated Health System in Arizona, and SUNY - Downstate Medical Center and Alice Hyde Medical Center in New York.

Note that almost never is this argument supported by data about whether comparisons were actually made to a representative peer group.  In any case, as we asserted before, this justification may be a logical fallacy, an appeal to common practice.

CEOs Work Hard and Are Brilliant

 This is an especially frequently used talking point.  I have yet to see an instance in which any hospital official would omit a CEO was anything other than supremely diligent and totally brilliant.  We saw versions of this to support the compensation of the CEOs of Maricopa (AZ), Cedars-Sinai Medical Center in California, the Alice Hyde Medical Center and CVPH Medical Center in New York, and generically to support all New York State hospital CEOs.

As we noted above, this justification is almost never accompanied by any evidence that CEOs work harder or are more brilliant than the numerous health care professionals who actually make it possible for the hospital to operate.  I would guess it would be very hard to show that CEOs work longer hours, are under more stress, make more consequential decisions, are smarter or better trained than typical doctors, nurses and other health care professionals.  This justification thus appears to be another kind of logical fallacy, an appeal to authority.

High Pay is Needed for Retention

 We saw versions of this to support the CEOs of Maricopa, SUNY - Downstate, Alice Hyde, CVPH, and generically again to support all NY hospital CEOs. 

 

Note that this justification is also almost never supported by any evidence.  As we noted here, while this argument, probably like the others, comes from the generic business management literature, there is little data in the larger business world to show that CEOs are very mobile, or likely to succeed when transplanted to a new environment.  In fact, a recent report looking at the mobility of CEOs worldwide called this a "self-serving myth."  (See this summary for a link to it.)

 

It is too bad that no one ever seems to get the opportunity to challenge these talking points when they are offered as justifications for outlandish executive compensation. 

Read more here: http://www.charlotteobserver.com/2013/02/06/3835851/charlotte-hospital-pay.html#storylink=cpy

Read more here: http://www.charlotteobserver.com/2013/02/06/3835851/charlotte-hospital-pay.html#storylink=cpy

Summary

As we have shown again and again, the pay of top health care leaders seems to endlessly increase, without clear justification, regardless of the vicissitudes affecting the organizations they lead, their employees, their patients and society.  This suggests that health care organizations, like many other organizations, seem to be run primarily for the benefit of their executives and their cronies, regardless of what happens to anyone else.  

As we have frequently said, current policies about paying hired health care managers leave the managers unaccountable for the effects of their actions on patients' and the public's health, and worse, fail to deter and may even encourage ignorance of the health care mission, frankly mission-hostile behavior, self-interest, conflicts of interest, and outright corruption.  Meanwhile, paying nearly all top managers as if they were brilliant, while setting much harsher standards for the employees who actually take care of patients, including health professionals, demoralizes those on whom patients actually depend for care.

As we have said endlessly,....   Health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.

If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.

Will the Circle be Unbroken? - Hospital Executive Compensation Continues to Defy Gravity and Logic

A report from Health Leaders Media, a prominent media site about health care management, shows how non-profit hospital executive compensation continues to levitate.  In general,

For not-for-profit CEOs nationwide the median total cash compensation (base plus incentives) increased 3% to 6.7% over last year, and these organizations' senior leadership teams gained similar pay increases,...

The specifics included

Health system CEOs' median base salaries increased to $717,500 (2012) from $650,000 (2011), while independent hospital CEOs' median base salaries rose to $506,100 from $472,000 during that period, according to IHS. Comparatively, Sullivan, Cotter and Associates shows the base pay for system CEOs nationwide increased while the TCC declined slightly—base pay increased to $334,700 from $325,000, while TCC decreased to $411,100 from $412,100 from 2012 to 2011, respectively. Unlike their health system counterparts, independent hospital CEOs' base pay and TCC climbed between 2011 and 2012—base pay went up to $530,000 from $504,000 (a 4.9% gain) and TCC jumped 4.3% to $600,000 from $574,000.

The report also showed that pay increased for some species of top executives.  CIOs (chief information officers) did the best,

Nationally, system CIOs received one of the largest TCC increases year over year, according to Sullivan, Cotter and Associates (5.8%). IHS reported a median base salary increase of (3.5%).

These increases ought to be compared to the base rate for the population.  In September, the Census Bureau reported that median family income dropped in 2011 (per the New York Times):

 Median household income after inflation fell to $50,054, a level that was 8 percent lower than in 2007, the year before the recession took hold.

The actual decline from 2010 to 2011 was 1.5% (look here).

So executive compensation in health care continues to defy gravity, even as the income of the typical family does the opposite. 

Will the Circle be Unbroken?

Conveniently, the day before, another well regarded site for hospital management information, Becker's Hospital Review, provided a rationale for current health care executive compensation, based on a blog post from Integrated Healthcare Strategies, which claims to be one of the largest US healthcare consulting firms.

The Review article first noted that "executive compensation is a delicate subject," without explaining why it was more delicate than the compensation given to other people.  It then answered the question its title posed, "are hospital executives paid too much?"  In summary,

compensation levels are currently appropriate, on the whole, because employers are generally keeping them on the job with such consistent pay levels.

The syntax is a little difficult, but I believe the translation is the circular cliche, "it is what it is."  More formally, this appears to be a version of begging the question, or circular reasoning.

The Integrated Healthcare Stragies blog post by David Bjork, "thought leader," Senior Vice President and Senior Advisor, who authored two books on executive compensation in health care, rotated this again.

ARE EXECUTIVES PAID TOO MUCH?  The short answer is no. Executives are not overpaid. If they were, employers would not willingly pay them as much as they do.

And again

the intrinsic value of a job can be quantified. Economists and most workers judge the value of a job by how much it pays. A job is worth what an employer is willing to pay an employee to do it, or what an employee is willing to accept as payment for the job. Virtually no one doubts that principle—except when it comes to executive jobs.

Have we got that?  Bjork argued that executive pay is self-justifying.  All executives are worth what they are paid because that is what they are paid.

Another way to understand the fallaciousness of this argument is to try to apply it to jobs other than executive positions.  Presumably, it would mean that everybody's pay is appropriate, and hence nobody's pay could ever be changed.  But one's head begins to hurt just trying to think about this.

Yet those were the main arguments that Mr Bjork made to justify his contention that

There is no rational basis for the view that executives should not be paid as much as they are paid, just a personal attitude, generally held by someone who is paid less.

A Side Trip to the Fallacy of Composition

Mr Bjork did make an attempt to supplement that argument.  For example, he wrote "labor market forces drive pay for executives," without explaining how much they do so, or the nature of the market for executive pay.  Later, he wrote,

Hospitals and health systems continually look for ways to reduce their costs. When they come across jobs that cost more than they are worth, they eliminate the jobs and either eliminate the work, redistribute it to other employees, or outsource it to cheaper labor. They view executive jobs the same way. When hospitals and health systems find an executive job that seems to cost more than it is worth, they eliminate it if they can and redistribute the work to other managers.

Let us unpack this a bit.  First, hospital and health systems are organizations composed of humans.  They do not look for anything, but the executives who run them may certainly look for ways to reduce costs and eliminate apparently unnecessary jobs.  Confusing hospital executives with the organizations they run appears to be a version of the fallacy of composition, which "arises when a person reasons from the characteristics of individual members of a class or group to a conclusion regarding the characteristics of the entire class or group (taken as a whole)."

Taken literally, this paragraph suggested that executives could decide their own jobs "cost more than they are worth," and then fire themselves and give their work to someone else.   

Nonetheless, were this targument to be true, it in fact contradicts the conclusion based on this argument that appeared two sentences later

Therefore, executives must be worth what they are paid, because employers keep them on the job and willingly continue to pay what¬ever they are paid.

Note that this conclusion is yet another restatement of the circular argument above.  . 

Summary

We have noted that logical fallacies are increasingly deployed to defend the status quo in health care, and particularly to defend the interests of those who are profiting the most from the current dysfunctional system.  In our latest example we find some particularly ripe repitition of a fundamentally fallacious argument to support ever rising compensation for health care executives.  It is distressing that the arguments were made by a prominent health care management consultant and published author on the subject of health care executive pay, and was picked up without question by a prominent health care management media site.  It suggests, like other posts we have written about the generous use of logical fallacies to protect the powers that be, that these eminences really may have not the slightest idea what they are doing, and have truly risen to their level of incompetence, if not ridiculousness; or else, they do know what they are doing, but have nothing but contempt for the reasoning powers of anyone outside their circle, and feel no need to justify their actions to such hoi polloi.

The sheer foolishness of arguments made to protect the status quo ought to lead the rest of us, particularly health care professionals, to question that status quo further. 

The ability of top executives of many, probably most health care organizations to collect bloated paychecks out of proportion to, if not despite their performance attracts the wrong people to lead these organizations, and provides incentives for even the right people to lead badly.

Until we make health care leaders accountable, and until their incentives reflect their ability to uphold the health care mission, expect more unaccountable leadership that subverts the health care mission, and hence continually rising costs, declining access, and deteriorating quality.

Traits that "Define a Great Hospital CFO" - Honesty, Integrity, Accountability not Included

A recent article in Becker's Hospital Review entitled, "6 Traits That Define a Great Hospital CFO" [Chief Financial Officer] was most remarkable for what traits were not included.

The Six Traits

Based on interviews with a managing director of health care recruiting for a large executive search firm, and an experienced CFO of large hospital system, the included traits were:
- "Conviction," including "some type of conviction and confidence that their decision-making abilities will lead the hospital to great healthcare outcomes, a healthy population and — as a result — a more financially stable organization."
- "Nimbleness and flexibility"
- "Calm demeanor"
- "Willingness to understand the clinical aspects," in particular, the ability to "at least understand the [clinical] processes from a layperson's point of view, and the most effective CFOs have great working relationships with physicians, nurses, technicians and others."
- "Ability to think long term"
- "Sense of humor"

To be fair, I am glad to see expectations that hospital leaders, even chief financial officers, know something about clinical care, and that they have some sort of commitment to it. This seems to be in contrast to our frequent posts about how the leadership of health care organizations often seems ignorant and uncaring about the health care context and health care values. (However, the phrase above about conviction was not clearly worded. In particular, it did not explicitly suggest quality clinical care ought to be a higher priority than revenue, and could have been read to mean that good care is just a means to increase revenue.)

I am also glad that the article promoted long-term thinking. It also seems to contrast with concerns (e.g., here) about how health care leadership may put short-term revenue ahead of all other goals, also called "financialization." However, again, the article did not explicitly give long-term goals a higher priority than short-term ones.

What was Missing

However, what was more striking were the dogs that did not bark. In particular, transparency, honesty and integrity or even being law-abiding were not on the list of key traits for a CFO. This is particularly noteworthy given how often we have discussed bad behavior by large health care organizations, including various kinds of deception and dishonest behavior, as well as outright crime, such as fraud, bribery or kickbacks, etc.

Also, the list of important traits did not include responsibility or accountability.   This is also noteworthy given that rarely if ever have the leaders of these organizations taken any responsibility or paid any penalty for bad behavior occurring on their watches. Although may large health care organizations have made numerous legal settlements of accusations that include fraud, kickbacks, etc, the leadership almost never admitted wrongdoing in any of them, and almost never had to accept any financial penalty form the organization. This parallels how the US legal system has rarely sought to punish any leader of a large health care organization in such cases, suggesting that health care leaders now have developed impunity.

Given that the article appeared in Becker's Hospital Review, a leading publication for hospital leaders, its apparent cynicism about what once were considered indispensable characteristics of good leadership was disturbing.  It is also disturbing that at the time this was written, the only comment on the on-line version of the article, also the only comment to note this lack, was written by your this humble scribbler.

Summary

This may test some CFOs' sense of humor, but instead let me propose my hopes for better health care leadership. To truly reform health care we should seek reasonable leadership that draws on the collective knowledge and values of health care professionals, and that shows accountability, integrity, transparency, honesty, and ethics.  Not asking our leaders to be honest, ethical and accountable just enables the current dysfunction. 

The Case of the Vanishing Graduate Medical Education Funds

While primary care falters in the US, those who teach it seem to feel increasingly poverty stricken.  Now it appears that one reason for this is an amazing example of multiple failures of transparency and accountability.  Let me work through it, begging your pardon for a little bit of "inside baseball," medical education style.  The results suggest how we desperately need some medical disciples of Sherlock Holmes.

Background

My personal experience and increasing data suggests that most medical school faculty believe that their teaching is not valued by their institutions because teaching brings in no external funds.  In 2004, Dr Catherine DeAngelis, then the editor of JAMA, wrote "few medical schools provide adequate, if any, reimbursement for teaching time."(1)  (See this 2005 post.)   This seems absurd on its face, since what are medical schools for if it is not to provide teaching. 

However, there is evidence of this mission-hostile behavior.  In 2007, we quoted from a revealing interview with Dr Lee Goldman, Executive Vice President for Health and Biomedical Sciences at Columbia University,(2) who stated that "taxpayers," faculty who "generate more [money] than they cost," are valued most, and implied that faculty who focus on teaching are regarded as "welfare recipients," who bring in less external funding, and are valued least.  In 2010, we noted the results of a large-scale survey presented by Dr Linda Pololi in which 51% of faculty felt that the administration only valued them for the money that they brought in, and half felt that their institutions did not value teaching.(3)

Yet while faculty seem to believe that educational institutions receive little if any money to pay for teaching, it is not clear why the believe something so counter intuitive, and it is less clear what money actually goes to pay for medical education.

US Government Funding for Graduate Medical Education

However, several recent publications affirm that actually a lot of money goes towards one important form of medical education, yet the specifics of the money flows are shrouded in secrecy.  In the May, 2012, SGIM Forum, Dr Mark Liebow and colleagues summarized some of what is known about federal support of graduate medical education, that is, education of interns, residents, and other house officers.(4)  There are two streams of money that flow from Medicare to US hospitals:

Direct GME (DGME) payments help hospitals pay the salaries of residents, teaching faculty, and support staff. DGME is the product of three numbers: a per resident amount that varies by hospital, adjusted annually for inflation; the number of residents in the hospital (capped for each hospital at 1997 levels); and the fraction of discharges from the hospital that are Medicare beneficiaries. The Indirect Medical Education (IME) payment is a percentage amount added on to each DRG payment. The percentage is calculated via a complex formula (the only US statute containing an exponent!), where the key factor is the ratio of interns/residents to beds (IRB ratio).

These two streams are of considerable size:

Of the $9.2 billion Medicare paid for GME in 2010, $3 billion was for DGME and $6.2 billion for IME. The money is paid to hospitals sponsoring training programs rather than to the training programs or other hospitals where training occurs. While about 1,100 hospitals receive GME payments, 66% goes to the 200 hospitals that have the largest numbers of residents.

So, the 200 largest hospitals get about $2 billion in direct GME money (and presumably about another $4 billion in indirect money). This averages then to about $10 million DGME and $20 million indirect GME per hospital.

Thus, teaching, at least the teaching of interns, residents, and other house-staff does pay, and much more than trivial amounts. (Note that these amounts are not for teaching of medical students, which ought to be supported by other funding streams.)

Why then do faculty think that teaching does not bring in any money?

The GME Money Vanishes

An article by Dr Saima I Chaudhry and colleagues in the American Journal of Medicine begins to explain, although the explanations are found between the lines.(5)

First of all, while the graduate medical education money is paid by the government to the hospitals, the government does not publish what it pays to individual hospitals:

It has been previously reported that the amount of GME funding individual hospitals receive is not publicly reported by the Centers for Medicare and Medicaid Services,....

The government also does not hold the hospitals accountable for how they spend this money, nor for the quantity or quality of education they supply in exchange for it.

Remarkably, Chaudhry et al imply that that the people who run graduate medical education teaching programs also may not know how much money their hospitals receive from the government to fund their programs. The introduction to their article noted:

It is unclear how much program directors know about the amount and flow of DME funds to their programs. Program directors' beliefs about the transparency of funding to their programs, or their desire to influence how funds are distributed to them, also are unknown.

The article reported on a survey of internal medicine residency program directors which asked about "their knowledge of D[G]ME funding for their programs, the transparency with which funds are distributed to them, and their desire to influence this disbursement." The researchers sent surveys to 372 member programs, representing 97.1% of all US internal medicine residencies. They got 268 responses, a 72.0% response rate.

The main results were that only 159/268 (59.3%) of program directors had tried to find out how much DGME money their programs received, and of those, only 84 (52.8% of those enquiring, but only 31.3% of all respondents) actually knew how much money their programs got.

Of the 92 program directors who did not even try to discover how much money their programs received, approximately 21% said that "no one would tell me," 21% said that the "information would be inaccurate," 14% said they "don't know who to ask," and 2% were "afraid to ask."

Summary

US medical school faculty, especially those in primary care, increasingly feel pressured to perform activities that they perceive brings in money from external sources. They tend to believe that their own teaching somehow does not bring in any money, and that their careers will fail if they do not put more emphasis on other activities that the institution views as more profitable.

However, literally billions of US government dollars go to support the education of house staff, including the salaries of faculty who teach interns and residents, who probably are the majority of physician faculty. Faculty probably do not know this, because the government does not publish the amounts given to individual hospitals, nor demand of the hospitals any accountability for how they spend the money they receive.

Presumably, the top executives of each hospital know how much money the government gives them. Nonetheless, the majority of physician leaders of residency programs are never told these amounts, apparently because their hospital executives kept the amounts secret. Many of those educators who have tried to find out the figures were unsuccessful. Some did not even try to find out based on beliefs that their attempts would be unsuccessful, any amounts they discovered would be inaccurate, the people who knew the amounts were hidden, or that it would be dangerous to their careers to even try.

Thus billions of dollars of money flowing from the government to fund graduate medical education seems to have vanished in an amazing example of widespread deficiencies in accountability and transparency.

There are many people who blame government for many social ills. In this case, one can blame the US Congress for not writing a law that makes the money flows transparent and hospitals accountable for providing good educational value for the money provided. One can also blame the executive branch, particularly the Center for Medicare and Medicaid Services (CMS) of the US Department of Health and Human Services (DHHS) for not making the money flows and the values received for them transparent.

There are a few people, including this author, who also blame the leadership of health care organizations for many of the problems besetting health care. In this case, one can blame top leadership, presumably CEOs and chief financial officers (CFOs) of hospitals for hiding the amounts of money they receive from Medicare to finance graduate medical education. One can also blame the physician leaders of residency programs for not insisting that they know the true sources of financial support for their programs, obtain budgets that reflect this support, and recognition that their faculty really do bring in external funds for their teaching of house staff (and are thus valuable "taxpayers" in Dr Goldman's parlance.)

It is amazing that such amounts of money have been flowing for years mostly in secret. The secrecy has fueled incorrect, and in retrospect, bizarre ideas about the funding of medical education, and the value of medical educators to their institutions. This secrecy, in turn, has helped suppress the morale of medical educators, support the control of managers of health care professionals, and distort the flow of money within academic institutions and to compensation for certain favored individuals.

Would our dysfunctional health care system not be better off if we demanded transparency and accountability from its leaders?  In particular, the US government should make payments to hospitals for graduate medical education completely transparent, and develop a system to hold these hospitals accountable for how they spend the money.  Meanwhile, top leaders of hospitals receiving this money should make the amounts transparent, first to the people who are supposed to be doing the education that the money pays for, and to the public at large.  This would allow those running the relevant educational programs to develop reasonable and realistic budgets, to treat their faculty with respect, and to demonstrate what value they provide for the money received. 
The ongoing anechoic effect, and related deception and secrecy fostered by leaders in health care are major reasons our health care system is so dysfunctional, that costs are so high, and access and quality so poor.  True health care reform would ensure health care leaders put the mission before their personal enrichment, and act ethically with accountability, transparency, and honesty. 
References
1.   DeAngelis CD. Professors not professing. JAMA 2004; 292: 1060-1.  Link here.
2.  Goldman L, Halm EA.  A view from the top: general internal medicine from the perspective of a chair and dean.  SGIM Forum, April, 2007.  Link here.
3.  Pololi L, Ash A, Krupat E.  Faculty Values in the Culture of Academic Medicine: Findings of a National Faculty Survey. Link here.
4.  Liebow M, Jaeger J, Schwartz MD. How does Medicare pay for graduate medical education? SGIM Forum, May, 2012.  Link here.
5. Chaudhry SI, Khanijo S, Halvorsen AJ, McDonald FS,Patel K. Accountability and transparency in graduate medical education expenditures. Am J Med 2012; 125: 517-522. Link here.

An Example of How the Complex Takes Control - A Board Dominated by Hired Managers Levitates Its Hired CEO's Pay

The Indianapolis Star published the latest story about anti-gravity health care executive compensation.  The report emphasized how the largest hospital systems in the metropolitan area raised CEO pay faster than any reasonable metric:

CEO pay is up, sharply in some cases, at Indianapolis' four large hospital groups, as the systems have grown and dumped more responsibilities on their top leaders.

Total pay for those CEOs rose anywhere from 15 percent to 53 percent from 2008 to 2010. While experts say the pay is in line with executive compensation at other large hospital groups, the rate of the increases far outpaces the minimal wage gains that area health-care workers (1.7 percent) and hourly workers (3.1 percent) have seen over the same time.

The rising CEO pay comes at one of the shakiest financial periods ever for hospitals, as they struggle with cuts in reimbursements for care from federal Medicare and Medicaid programs and private insurers.

CEO Pay Up More than Revenue

Pay at specific health care systems also rose faster than revenue. At the Indiana University Health System:

At the top of the best-paid list: IU Health's President and Chief Executive Daniel F. Evans Jr., who pulled down $2.08 million in compensation in 2010, up 17 percent from 2008. Subtracting Evans' retirement payouts, which vary year to year, his base pay jumped 19 percent since 2008.

However,

From 2008 to 2010, IU Health has seen revenue grow 10 percent to $2.46 billion,...

At St Vincent Hospital and Health Care

Close behind comes Vincent Caponi, CEO of St. Vincent Hospital and Health Care Center, who took in $1.86 million in 2009-10, a two-year jump of 44 percent, or 64 percent when retirement is removed.

However,

Revenue over the two years rose 28 percent at St. Vincent,...

At Franciscan Alliance,

Robert Brody of Franciscan Alliance earned $1.27 million in 2010 (53 percent more than in 2008),...

However, over that period revenue only rose 17%.

At Community Health Network,

Bryan A. Mills, the relatively new CEO of Community Health Network, received $1.35 million, or 15 percent more than his predecessor, William Corley, collected in 2008. (Corley retired in 2009.)

while revenue only rose 4%.

The Usual Talking Points

At this point, it should come as no surprise that hospital leadership trotted out the same old talking points to account for the ever upward trajectory of CEO pay as used in other areas and to account for the pay of leaders of other kinds of health care organizations (look here). These included...

We Pay What Everyone Else Pays

It was easy to find a professional compensation consultant to repeat this one:

Jim Otto, senior principal in Atlanta for the Hay Group, a consultant on executive benefits, said pay to top hospital CEOs in Indianapolis appears in line with rising compensation, including retirement benefits and bonuses, being paid nationally to most large-system hospital executives.

CEOs Work Hard and Are Brilliant

So we read:

At IU Health, formerly Clarian Health Partners, where Evans has been CEO since 2002, 'The system's grown significantly. It makes us think twice about the difficulty of running such a system. We literally cover the entire state of Indiana. And much of that has been under Dan's oversight,' said Charles Golden, an IU Health board member and chair of its compensation committee.

Also,

Golden says Evans 'has done a really superb job. Almost everything favorable to our system has been positive in his time.'

Here is the version pertaining to St Vincent's

Caponi 'is on an airplane and out of town a good bit, running a much bigger area' for Ascension, said Bill Estes, chairman of St. Vincent's board. 'That's the way we justify (higher CEO pay) and feel comfortable with that.'

High Pay is Needed to Attract Competent, if not Brilliant People

From Mr Otto, the compensation consultant:

Large hospital groups make certain they pay similar to their peers to remain competitive.

One reason for rising pay, Otto says: 'These aren't easy jobs. They are not easy to fill. The candidate pool isn't terribly large.'

Furthermore, Mr Golden, from the IU Board, added,

'Unless you want to default to mediocrity, I suppose you can do that (cut CEO pay),' he said. 'But I don't think that's where we are going. I don't think these (hospital) systems will get any easier to manage.'

Talking Points Sans Justification

As in previous cases, no one that reporter Jeff Swiatek could find provided any specifics to back up these talking points. It is striking that those who stewarded all the major hospital systems in this one area
felt the need to raise executive pay substantially faster than the rate of rise of revenue, that is from 1.7 times to 3.75 times the rate of revenue rise.

Why Are Hospital Boards So Nice to CEOs?

In the interests of full disclosure, I noticed this article because reporter Jeff Swiatek chose yours truly, plus fellow blogger Dr Howard Brody (look here) to comment for it.

'Whenever the nonprofit sector starts acting more like the for-profit sector, I start to get worried,' said Dr. Howard Brody, director of the Institute for the Medical Humanities. 'It just becomes crony capitalism. If one executive gets paid $3 million instead of $1 million, then every executive wants $3 million. It just becomes a vicious cycle of inflation of CEO benefits.'

Also, I suggested:

Put more noncorporate members on hospital boards because they'd be less inclined to endorse large compensation packages that are more typical of for-profit companies.

'Boards are populated by wealthy executives, who themselves are getting increasing compensation, rather than by community representatives or patient representatives,' Poses said.

Could the Composition of the Board Explain Excess Deference to the CEO?

I made the above comments after hearing approximations of the compensation given out by the hospital systems, but without any knowledge of the composition of the boards that approved that compensation. I am guessing that Dr Brody also was not told anything about board composition when he suggested the possibility of crony capitalism.

However, now that the article is out, I think it makes sense to look at the composition of at least one of the boards involved. I chose IU Health, since it is the largest of the systems, paid the most to its CEO, and was kind enough to list board members' brief biographies on a web-page.  Here they are, listed with their primary affiliations, and some notable other affiliations.

- Judge Sarah Evans Barker, former federal district court judge.
- Dr D Craig Brater, "dean of the Indiana University School of Medicine and director of IU Medical Center." Also on  the Board of Advisors of Spring Mill Venture Partners, "an early stage venture capital firm focused on investing in high-growth information technology and life sciences companies;" recipient of consulting and travel money from Pfizer (per ProPublica); and who was listed as having "a financial interest/relationship or affiliation in the form of: Consultant for AstraZeneca Pharmaceuticals; BioGen, Inc.; Forest Laboratories; Merck & Co., Inc.; Pfizer Inc.; and Pharmacia and Upjohn Company" per CMECorner.
- William R Cast, "CEO of NoMore Clipboard, an online, patient-controlled personal health record management system."
- Thomas W Chapman, "president and CEO of The HSC Foundation in Washington, DC, the parent corporation for two subsidiaries, The HSC Pediatric Center and Health Services for Children with Special Needs. He was previously senior associate vice president for Network Development and Professor of Health Services Management and Policy at George Washington University Medical Center in Washington, DC."
- Bishop Michael J Coyner, "Bishop of the Indiana Area United Methodist Church"
- J Scott Davison, "chief financial officer for OneAmerica and its affiliated companies," and member of the board of directors for Indiana Bond Bank."
- Daniel F Evans Jr - CEO of IU Health, also member of the board of Lakeland Financial Corp, (per Bloomberg)
- Charles E Golden, "retired from Eli Lilly and Company in 2006 as executive vice president and CFO and a member of the board of directors. He was previously a corporate vice president of General Motors...." He is also currently on the boards of Unilever, which makes health care related products, and Hill-Rom, which makes medical devices and supplies.
- David W Goodrich, "retired in 2005 as president and CEO of Central Indiana Corporate Partnership, Inc."
- V William Hunt, "chairman of Hunt Capital Partners, LLC, a venture capital and consulting firm based in Indianapolis. Until August 2001, he was the vice chairman and president of ArvinMeritor Inc...."
- Dr James E Lingeman, "long-standing member of the IU Health Methodist Hospital medical staff," but also according to a 2009 American Urologic Association Education and Research paper, Consultant or Advisor to, and Meeting Participant or Lecturer for Boston Scientific Corp and Lumenis, scientific investigator for Boston Scientific and Olympus, investor in Beck Analytical Laboratories and Midstate Mobile Lithotripsy, and having "Other" financial relationships with Beck and Midstate.
- Angela Barron McBride, " distinguished professor and university dean emerita at Indiana University School of Nursing"
- Michael A McRobbie, "Indiana University President," also on the board of OneAmerica (look here).
- Anne Nobles, "senior vice president for Enterprise Risk Management and chief ethics and compliance officer for Eli Lilly and Company."

When considering the composition of this board, note that members of non-profit organizations' boards generally are said to have three duties, as per BoardSource:
- The Duty of Care: "a board member owes the duty to exercise reasonable care when he or she makes a decision as a steward of the organization."
- The Duty of Loyalty: "a board member must give undivided allegiance when making decisions affecting the organization. This means that a board member can never use information obtained as a member for personal gain, but must act in the best interests of the organization."
- The Duty of Obedience: "The duty of obedience requires board members to be faithful to the organization's mission. They are not permitted to act in a way that is inconsistent with the central goals of the organization."

The Duties of Care and Obedience require board members to exercise prudent and reasonable supervision over hired managers, and provide these managers reasonable pay and incentives.  However, boards dominated by hired managers may put the interests of such managers ahead of their organizations' missions. 

So of the 14 members of the IU Health board, 8 are current or retired top level corporate executives or corporate board members, 4 of which have such leadership positions at financial service companies, (two at OneAmerica). In addition, 5, including 4 apparently ex-officio members, had or have top leadership positions in academic institutions. The board also included one Methodist Bishop and one federal judge. All but two board members are thus current or former top level hired managers of for-profit corporations or non-profit organizations.

Thus this board is largely populated by executives who are likely to be wealthy. Thus it is similar to many other boards of health care corporations (e.g., look here and here) and non-profit organizations  (e.g., look here,  here, and here) which we have discussed.  It stands to reason that boards dominated by hired managers will feel comfortable with and look kindly on the hired managers whom they are supposed to supervise, and view their compensation sympathetically.  Thus such boards may not exercise the Duties of Care and Obedience.

Furthermore, the Duty of Loyalty requires boards not to be affected by conflicts of interest. 
 
However, many of the IU Health board members have financial relationships that could be considered conflicts of interest. Two have or had executive positions at the same pharmaceutical company, Eli Lilly, one of whom also was on the board of medical device and supply company. In addition, both of the doctors on the board have or had significant disclosed financial relationships with drug, device, or biotechnology firms.  Again, it is like other boards affected by such conflicts that we have discussed.  Again, such boards may not exercise the Duty of Loyalty.
 
Summary
 
Combined with other examples of the composition of boards of for-profit health care corporations, and non-profit health care organizations, the latest example suggests the complex has taken control.  Nearly every board we have scrutinized is dominated by hired managers of other companies, and salted with conflicts of interest.  It seems likely that such boards will put the interests of hired managers ahead of those of the shareholders of for-profit corporations, and ahead of the missions of non-profit organizations. 
 
The complex that has taken control looks like a confederation of hired managers.  In 2003, five years before the fall of Lehman Brothers ushered in the global financial collapse, John C Bogle warned of the "grotesque transformation" of capitalism into an oligarchy of hired managers:

The root causes of the disease in our system are deep, and the remedies that are required to cure it will not be easy to come by. For what we have witnessed in the failure of corporate governance in America has been, as journalist William Pfaff described it, 'a pathological mutation in capitalism.' He was right on the mark. The classic system—owners capitalism—had been based on a dedication to serving the interests of the corporation’s owners, maximizing the return on their capital investment. But a new system developed—managers capitalism—in which 'the corporation came to be run to profit its managers, in complicity if not conspiracy with accountants and the managers of other corporations.' Why did it happen? 'Because,' in Mr. Pfaff’s words, 'the markets had so diffused corporate ownership that no responsible owner exists. This is morally unacceptable, but also a corruption of capitalism itself.'

This plague of managers' capitalism seems not to have spared health care, and to have infected the non-profit as well as public for-profit sphere.

To stave off the coming dystopia, we must return the control of for-profit corporations, including health care corporations, to their owners, and stewardship of non-profit organizations to those who will put their missions ahead of self-interest.

The Bloat Continues: More Tales of Non-Profit Hospital Executive Compensation

While unemployment remains high, and mortgage foreclosures continue in the US, nothing seems to stop the rise of health care costs, lead by compensation for top health care leaders. So, it is time once again for a round-up of inflated executive compensation at non-profit and government hospital systems.  We will describe the bloat in order of the appearance of the information in public.

Cincinnati

The December, 2011, the Cincinnati Business Courier tabulated the pay of the best compensated hospital employees, and discussed the results in an accompanying article.  By my count, 19 local hospital employees made more than $1 million in 2010.  These included 6 system CEO, 4 division CEOs, 5 chief level executives or vice presidents, 1 clinical department chair, and 3 doctors.  The top compensation went to Kenneth Hanover, CEO of Health Alliance/ UC Health, $2,799,338. Three others made more than $2 million.

Western New York

In January, 2012, Buffalo Business First reported:

The top hospital administrators in Western New York took home more than $53 million in compensation during 2010, with four executives earning $1 million-plus paydays.

Hospital presidents and chief executives at the region’s two largest health systems were among the top earners, with James Kaskie, president and CEO of Kaleida Health , earning $2.36 million; and Joseph McDonald, president and CEO at Catholic Health , earning nearly $1.1 million.

Kaskie’s compensation, as well as Kaleida executives Connie Vari, Robert Nolan and Margaret Paroski, included a deferred retirement plan payout. All four were among the top five earners for 2010, the most recent year for which complete data is available.

The life of a top hospital executive near Buffalo was not quite as plush as in Cincinnati. Only 4 made more than $1 million, including the CEO, Chief Medical Officer/ Executive Vice President, and Chief Operating Officer of Kaleida Health, and the CEO of Catholic Health System. Eleven more executives got more than $500,000.

North Carolina

It was a very good year for executives from some of the state's biggest health care systems, per a February, 2012 article in the Charlotte Observer.

Carolinas HealthCare System paid its CEO $4.2 million in 2011, $523,000 more than the year before, as the system celebrated a profitable year and met all of its systemwide goals, according to hospital officials.

Chief Executive Officer Michael Tarwater, 58, who has led the $6 billion public hospital system for 10 years, received a base salary of about $1 million, two bonuses totaling $2.5 million, and other compensation, including retirement and health benefits, of about $700,000.

That represents a 9 percent increase in base salary and a 14 percent overall increase compared to 2010, when Tarwater's salary was $986,172 and total compensation was $3.7 million.

Meanwhile, at Novant Health,

The most recent compensation figures for Novant executives are from 2010. In that year, Novant's CEO Paul Wiles, 64, received total compensation of $3.2 million, including his salary of $1 million, a bonus of about $837,000, and $1.37 million in other income, including retirement and health benefits.

Wiles retired at the end of 2011 and was succeeded by Carl Armato, who was previously chief operating officer for Novant.

A data table within the article showed that there were 10 employees, all executives, at Carolinas Healthcare System in 2011, and 6, again all executives, at Novant Health in 2010, who got more than $1 million in compensation.

Why did the Carolinas CEO warrant a multi-million dollar pay package? One of his employees endeavored to explain,

'We've had extremely good performance,' said Debra Plousha Moore, the system's chief of human resources. 'All performance goals this year were either met or exceeded.'

Why the credit for that performance should not be spread amongst more hospital employees, especially those who actually took care of patients, she did not explain.
Northern New York City Suburbs

In February, 2012, LoHud.com reported:

Eight executives from 15 Lower Hudson Valley hospitals received more than $1 million in salary, bonuses, benefits and other pay in 2010 at a time when the state struggled to control health-care costs.

The details included:

Three executives received more in total compensation than Westchester Medical Center CEO Michael Israel, who earned $1.3 million and oversees a hospital that’s more than twice the size of other facilities in the region.

Also,

The highest-paid hospital employees include White Plains Hospital CEO Jon Schandler with $1.6 million in total compensation, Dr. Edward Lundy at Good Samaritan Hospital in Suffern with $1.48 million and Edward Dinan, CEO of Lawrence Hospital in Bronxville, with $1.41 million.

Others in the million-dollar range include John Federspiel, president of Hudson Valley Hospital Center in Cortlandt; Joel Seligman, CEO of Northern Westchester Hospital in Mount Kisco; and Keith Safian, CEO of Phelps Memorial Hospital Center in Sleepy Hollow. A year earlier, Federspiel received a compensation package of nearly $2 million due partly to an $800,000 deferred compensation payout.

The average CEO compensation rose 13 percent from 2009, to $939,751.

Ten hospitals paid $7.7 million in bonuses to top executives, an increase of 15 percent over 2009. White Plains Hospital alone distributed $2.1 million in bonuses, including $650,000 to Dr. Jesus Jaile-Marti, chief of neonatology, and $575,000 to Schandler.

This article highlighted the contrast between compensation for executives and for employees who provide front line care:

The high salaries also come as hospitals pressure many employees for wage freezes, rising insurance costs and watered-down pensions, said Deborah Elliott, a nurse and deputy executive officer of the New York State Nurses Association, a statewide union representing nurses at Sound Shore, Mount Vernon, St. John’s Riverside, St. Joseph’s and Nyack hospitals as well as Westchester Medical Center.

'It never ceases to amaze me that we sit at the bargaining table with these executives who are making $1 million and they give us such a hard time about a half-percent increase for a nurse who is making $63,000,' Elliott said. 'It’s galling.'

Again, contrast that one half percent with the average chief executive increase of 13%.

While it is a rare hospital that would disparage the performance of its dedicated nurses and physicians, somehow executive talent seems to matter more. For example, here is how Hudson Valley Hospital Center president John Federspiel's compensation was justified by his board chair:

Edward B. MacDonald Jr., chairman of Hudson Valley Hospital Center’s board of directors, said Federspiel deserves his paycheck. The hospital has earned a profit for 22 of the 25 years that Federspiel has been at the helm and has expanded both its services and payroll in that time, he said.

'He’s the best administrator, planner and motivator I have ever had the privilege to work with,' MacDonald said. 'I wish I could pay him more.'

Again, why the CEO, but not the nurses and doctors deserves the credit for the hospital's performance was not stated.
Summary

It all gets so tedious, doesn't it? CEOs of all but the smallest non-profit hospitals now seem entitled to at least $1 million a year. At larger systems, multiple executives per system seem entitled to that level of compensation, and CEOs may get multiple millions a year. Yet these are ostensibly non-profit organizations dedicated or providing care to their communities, and often to serving the poor. Thus the health care bubble continues to inflate, and executives are ever more distracted by money, and seem less focused on mission.

Note that reporting of this ever rising compensation seems to be becoming more perfunctory as the results seem more routine (and tedious). Two of the four articles noted above did not provide any justifications for the high pay, while two only trotted out brief versions of the "our CEO is so brilliant" meme.

As I said in December, in a health care system with ever rising costs, declining access, and stagnant quality, we no longer can tolerate the perverse incentives generated by unaccountably high compensation to top executives. As long as top executives continue their sense of "self-entitlement," and can continue their current management practices reinforced by ever rising pay checks, expect poor leadership to undermine any attempts to improve health care. Tired repetitions of the usual rationales, that the CEOs are brilliant and hard-working, and that their compensation is mandated by the market do not make these rationales true.

We need health care leadership that has compassion for the increasing hardships that their patients have to endure, and that puts doing the right thing for patients' and the public's health ahead of self-interest.