Some Payback by a Former Managed Care CEO

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 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).

Today, per Bloomberg News,

UnitedHealth Group Inc.'s former Chief Executive Officer William W. McGuire agreed to give back more than $600 million in benefits, mostly stock options that investors claimed in a lawsuit were illegally backdated.

Other past and present officers have relinquished about $300 million, UnitedHealth said today in a statement announcing settlement of the lawsuit. Attorneys for pension funds in Ohio and other states that filed the suit said current CEO Stephen J. Hemsley is paying $240 million, although the company said he isn't doing so as part of the settlement.

UnitedHealth's former general counsel David Lubben will pay about $30 million, including $20.6 million gained through the March 2007 exercise of stock options, the company said.

William Spears, former head of the company board's compensation committee, has also agreed to settle. The amount will be determined by binding arbitration, the company said.

McGuire also agreed to pay a $7 million fine in an agreement today with the U.S. Securities and Exchange Commission, the largest levied by the regulatory agency so far for options backdating. McGuire didn't admit or deny wrongdoing under the SEC settlement.

McGuire said that the settlements of the derivative suit and the SEC action end major legal actions against him.

'The last 18 months have been extraordinarily challenging period for my family and me,' he said in an e-mailed statement. 'I am very pleased to have reached a resolution that puts these matters to rest.'

It would just be too much to ask the CEO of a huge health care corporation to ever admit even to making a mistake. Of course, others saw things differently,

'The recovery of more than $920 million is an extraordinary event,' said plaintiffs' attorney Chad Johnson in an e-mailed statement. 'This result sends a clear message to corporate executives everywhere -- that if you abuse your position for personal gain at the expense of the shareholders, you will be held accountable by institutional investors.'

'Whenever a corporate officer misleads investors about a company's performance by secretly backdating stock options, the integrity of our markets is undermined,' SEC Chairman Christopher Cox said in a statement.

It is remarkable that McGuire had to return so much money. How much of a fortune he still holds due to his tenure as leader of UnitedHealth is unclear. At one time, his stock option holdings were valued at a stratospheric $1.78 billion. [ADDENDUM 8 December, 2007 - In fact, the Wall Street Journal reported that McGuire still will have stock options worth approximately $800 million left, and received $530 million in pay from 1991 to 2006.] Having to pay back some ill-gotten gains may serve as a minor deterrent to abuse by corporate health care leaders, although the prospect of still walking away with many millions may lessen this deterrent effect. Given that many miasmanagers of health care organizations walked away with no negative consequences whatsoever in the past, this settlement may mark some slight degree of progress.

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.

This case is a poster child for much of what is wrong with health care in the US today. Health care is dominated by large organizations who profess to be acting for lofty ideals, and are often lead by autocratic executives who are hugely compensated and hailed as "brilliant" and more. Yet it is clear that too many of these leaders are in it mainly for themselves. When they fall, their sycophantic supporters move on, and no one seems to admit that there were lessons to be learned. Any penalties the leaders pay are not sufficient to make up for the damage done, and the companies write the whole thing off as the cost of doing business.

When health care leaders are paid fabulously no matter how badly they perform, why does anyone wonder why costs keep going up, access keeps shrinking, and quality keeps eroding?