Friday, April 16, 2010

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

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

The news about UnitedHealth over the years has provided plenty of examples of organizational behavior that did not fit the company's stated lofty goals, per its "Social Responsibility" page:
UnitedHealth Group's mission is to help people live healthier lives.

Social responsibility begins with us–and how we do business. Every day, our 75,000 employees strive to find smart ways to promote healthier lives in our communities.
On its "Mission and Values" page:
Our mission is to help people live healthier lives.

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

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

  • as reported by the Hartford Courant, "UnitedHealth Group Inc., the largest U.S. health insurer, will refund $50 million to small businesses that New York state officials said were overcharged in 2006."
  • UnitedHalth promised its investors it would continue to raise premiums, even if that priced increasing numbers of people out of its policies (see post here);
  • UnitedHealth's acquisition of Pacificare in California allegedly lead to a "meltdown" of its claims paying mechanisms (see post here);
  • UnitedHealth's acquisition of Sierra Health Services allegedly gave it a monopoly in Utah, while the company allegedly was transferring much of its revenue out of the state of Rhode Island, rather than using it to pay claims (see post here)
  • UnitedHealth frequently violated Nebraska insurance laws (see post here);
  • UnitedHealth settled charges that its Ingenix subsidiaries manipulation of data lead to underpaying patients who received out-of-network care (see post here).
However, it being proxy season, the Washington Post just reported current UnitedHealth CEO Stephen J Helmsley's compensation,
$8.9 million, up from $3.2 million in 2008. The 2009 total included a salary of $1.3 million, which was unchanged from the previous year, and a cash bonus of $2 million, up from $1.8 million the year before. It also included $5.6 million attributed to stock-related awards.

But that was not the only money Mr Helmsley reaped from his job at UnitedHealth:
The chief executive of UnitedHealth Group, one of the nation's largest health insurers, reaped almost $100 million from exercising stock options last year, the company reported Thursday.

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

$98.6 million here, $98.6 million there, and soon you have some real money. How did the UnitedHealth board rationalize making Mr Helmsely such a wealthy man?
The compensation committee of UnitedHealth's board believed that Hemsley's 2009 compensation package 'was appropriate to recognize Mr. Hemsley's overall leadership in positioning the Company for long-term success in a very difficult overall economic environment,' UnitedHealth said in the report filed with the SEC Thursday.

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

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

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

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

Moreover, as noted in the 2010 proxy statement,
Mr Helmsley is President and Chief Executive Officer of UnitedHealth Group and has served in that capacity since November 2006. he has been a member of the Board of Directors since February 2000. Mr Helmsley joined the Company in 1997 as Senior Executive Vice President. He became Chief Operating Officer in 1998, was named President in 1999, and served as President and Chief Operating Officer from 1999 to November 2006.
So it was on Mr Helmsley's watch as Chief Operating Officer that all of the events and issues listed above occurred. Tell me again about that "enhanced ethical culture?"

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

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


james gaulte said...

One of Thomas Sowell's home run insights is: Do not look at an organization's mission statement but look at the incentives,constraints and the feedback it faces.

Pharma Conduct Guy said...

This post is exemplary for comparing and contrasting a corporations stated mission and values versus its actions. Companies can write all of the sublime statements they want, but the old cliche-Actions speak louder than words. still applies. This blog is absolutely one of the best for reporting on ethics and healthcare.