Tuesday, July 08, 2008

UnitedHealth Settles

We had posted often (see these posts here, here, and here from 2006 with links backward) about the hugely lavish compensation afforded to the Dr William McGuire, former CEO of UnitedHealth Group, one of the largest US insurers/ managed care organizations, and how this remuneration stood in stark contrast to the (older version of the) stated mission of UnitedHealth Group:

UnitedHealth Group is a diversified health and well-being company dedicated to making the health care system work better. The company directs its resources into designing products, providing services and applying technologies that:
- Improve access to health and well-being services;
- Simplify the health care experience;
- Promote quality; and,
- Make health care more affordable.

Most recently, controversy has swirled over the timing of huge stock option grants given to Dr McGuire (see post here), leading to his resignation in October, 2006 (see post here). More recently, McGuire agreed to pay back some of those options, although that settlement would reportedly leave him with more than $800 million worth of options at the time (see post here).

Once again, it seems that in retrospect, Dr McGuire's conduct stood in sharp contrast to the lofty sentiments expressed in UnitedHealth's mission statement. It also stood in stark contrast to the lavish praise once heaped upon him. A 2006 Pulitzer Prize winning article in the Wall Street Journal quoted UnitedHealth director and Dean of the Columbia University School of Nursing Mary Mundinger, "We're so lucky to have Bill. He's brilliant."

The latest consequence of how UnitedHealth was lead appeared last week. As reported by Bloomberg News,

UnitedHealth Group Inc. agreed to the biggest settlement of lawsuits involving backdated stock options and said the company would trim 4,000 jobs after its membership fell and expenses for providing medical coverage rose.

UnitedHealth, the largest U.S. health insurer, said today it would pay $912 million to end two class-action cases over grants of stock options to executives.

The proposed legal settlements announced today consist of $895 million to the plaintiffs in a group led by the California Public Employee's Retirement System, and $17 million to a group of plaintiffs led by Matthew Zilhaver and Sascha Lynn.

The UnitedHealth settlements, if approved by all parties and the courts, would end these two lawsuits with no admission of wrongdoing by past or current company officials, said UnitedHealth Chief Executive Officer Stephen Hemsley today on a conference call with analysts.

In December, McGuire agreed to increase to more than $600 million his repayment of benefits after an investigation of stock options that investors claimed in another lawsuit were illegally backdated. That settlement hasn't been approved by the court. Federal securities and criminal investigators are still probing the matter.

Another day, another settlement (by a big health care organization accused of unethical practices.)

At one time, managed care was touted as the cure for the US chronic health care problems of increasing costs, declining access, and stagnant quality. UnitedHealth, in fact, can trace its roots to Dr Paul Ellwood, one of the leaders of the Jackson Hole Group and a leading proponent of managed care. The transformation of a company with "innovation ... in [its] DNA" to a company that seemed to spend a lot of its resources enriching its then CEO suggests a common theme in what has gone wrong with US (and global) health care. Organizations hyped as solutions to the problems turn into vehicles for enriching their insiders.

Maybe the current woes of UnitedHealth will lead to health care organizations with more accountable, representative, transparent and consciously ethical governance, given incentives to actually provide good health care rather than perform clever financial manipulations that benefit the well-connected.


Nicholas said...

Dr. Poses,

With all due respect, your attempt to cause further damage to Bill McGuire's name and reputation is unwarranted and ridiculous on its face.

Over more than 15 years, Dr. McGuire built a company that today provides care to 70 million and provides jobs to 55,000. He increased the value of UnitedHealth shares more than 5000% while at the helm. Backdated stock options grants were a compensation tool used by the company to attract the best available talent, including Dr. McGuire, whose contract specifically gave him the authority to backdate. Many other companies (Apple, for example) engaged in the practice as well. When it became apparent that the practice was wrongful, as leader of the company Dr. McGuire took responsibility for the wrongful actions and stepped down. His stock option grants were subsequently repriced to the highest trading day of each calendar years (making them all but worthless today thanks to the CEO Hemsley running the company into the ground).

The real story here is that UnitedHealth's has just settled a lawsuit for 2x the amount of any possible damages in the wake of revelations that current CEO Steve Hemsley, former CFO of Arthur Anderson, had intimate knowledge of the backdating scandal. Who approved the settlement? Why Steve Hemsley did! McGuire is and was brilliant, the current management are a bunch of frauds.

Anonymous said...

So I guess there is honor among thieves?

Nicholas said...