One More Bites the Dust: Pediatrix Director Resigns After Stock Option Backdating Revealed

Yet another US publicly traded for-profit health care corporation had admitted a problem with backdated stock options, and consequently let go one of its top leaders. We had previously posted about the nationally known problems of this sort at UnitedHealth Group, which lead to the early retirement of the company's CEO. We had also posted about similar problems at Cyberonics, leading to the resignations of its Chairman and CEO, and chief financial officer.

Now it's Pediatrix's turn. Pediatrix describes itself as "the nation’s leading provider of maternal-fetal, newborn and pediatric physician services." Last week the Miami Herald reported:

Pediatrix Medical Group, South Florida's largest publicly traded healthcare company, said Wednesday its audit committee had found ''deficiencies'' in its granting of stock options to executives, including backdating, and the company may have to recognize an additional $28 million in compensation expense from 1995 through 2006.

The Sunrise-based company, which provides newborn and related physician services throughout the nation, also announced that Lawrence M. Mullen had resigned from the board.

In a prepared statement, the company said Mullen had served as chief financial officer, chief operating officer and vice president in charge of special projects from 1995 to his retirement in 2001. During that time, Mullen ``had a significant role in the administration of the company's stock option program and practices.''

Mullen had been a member of the audit committee but had recused himself from the option review.

So this is yet example of a health care organization whose leadership apparently put their personal financial gain ahead of the ethical management of the organization.

In the past, some people have dismissed cases of financial mismanagement like this as irrelevant to the current health care mess. I beg to differ. There are lots of ways this kind of leadership problem can make health care worse. Most obviously, it drains money that could have gone to actually providing health care. Next, managers who are spending their energy dreaming up schemes like this are not likely to be very good at managing actual health care issues. Then, the people who work for such managers are likely to sense what the managers' priorities are, and hence may be demoralized and unlikely to work as hard and as efficiently as they otherwise would.

Hence, we again call for transparent, accountable, ethical leadership of health care organizations. Such leadership would take us a long way to addressing the chronic problems of rising costs, declining access, stagnant quality, and dissatisfied professionals.