Wednesday, September 24, 2008

Failed "Masters of the Universe" Running a Renowned Teaching Hospital

The Wall Street Journal Health Blog recently reported about some New York City hospitals worried about the current financial/ economic crisis, but for interesting reasons:

To give you a sense of how the crisis on Wall Street is affecting New York hospitals, we need only provide the names of some financial execs who are on the board and donor list of of New York-Presbyterian Hospital.

The chairman of the board is John Mack, Chairman and CEO of Morgan Stanley — you know, that big investment bank that just scrapped its business model? Serving alongside him was Richard Fuld, CEO of Lehman Brothers, the one that’s now reorganizing under bankruptcy protection. Another board member is John Thain, CEO of Merrill Lynch, which is selling itself to Bank of America. The hospital’s chairman emeritus is Maurice “Hank” Greenberg, former chairman and CEO of AIG, the insurance titan effectively taken over by the government.

Hospital execs worry that now just might not be the time to call their friends on Wall Street to ask for donations.

I will make a bet that if one were to get lists of the top current and recent former leaders of all the financial corporations that have just failed, one way or the other, in particular, Bear Stearns, Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, and AIG, you would find quite a few who also have leadership positions (often as board members) of important health care organizations, both for-profit and not-for-profit. For example, we noted that the former CEO of Fannie Mae, James A Johnson, who was forced out after an accounting scandal that presaged the current plight of the company, was also a board member of UnitedHealth, and had approved the outlandish compensation given to now prematurely retired UnitedHealth CEO Dr William McGuire.

But the board members of a not-for-profit teaching hospital are not just supposed to be a group of the largest contributors. The board of directors or trustees of a not-for-profit institution provides the highest and final layer of oversight for the organization. Hospital executives are supposed to answer to, and are hired and fired by the board. The board has ethical, and in some states legal responsibilities to uphold the mission of the organization, and when making decisions for the organization, to put the mission and the interests of the organization ahead of personal interests.

So it seems reasonable that all the board members of not-for-profit hospitals should be devoted to the mission of the hospital, and the values that underlie it. Furthermore, it seems reasonable that all board members should at least either have substantial knowledge about the health care context, and/or have considerable intelligence and leadership abilities.

However, the board of this one illustrious teaching hospital included four corporate executives who had no particular knowledge of health care. They have now been shown to have lead spectacularly failed corporations, corporations whose failures have contributed to what some people now call the biggest economic crisis since the great depression. This is not a great testament to the intelligence and leadership abilities of these former "masters of the universe," although it is perhaps a testament to their ability to promote themselves.

So whoever is now responsible for leading the hospital, and beyond that, all those who are concerned about the reputation of the hospital and its ability to fulfill its mission should be wondering why in the world these people were on the board? Furthermore, they should be wondering what was and is wrong with the process that appointed such leaders to this level?

We have frequently discussed how leaders of health care organizations have often proved to be autocratic and "imperial," ill-informed about health care, indifferent to the values of health care, isolated and insulated, self-interested, conflicted, or even corrupt. We have contended that such bad leadership is a major, but rarely discussed cause of what has gone wrong with health care.

That arrogant and over-paid CEOs of some of the most spectacularly failed financial corporations of this century were also leading one of the country's (formerly?) great teaching hospitals says something major about what has gone wrong with the leadership of health care.

ADDENDUM (24 September, 2008) - the US Federal Bureau of Investigation (FBI) is now investigating four of the above firms, Fannie Mae, Freddie Mac, Lehman Brothers, and AIG, according to the New York Times.


Anonymous said...

While reading Melinda Beck’s Sept. 23rd WSJ Health Journal article I could not help but feel I was reading a classic business school case study. The article deals with the race to build proton-beam facilities to treat cancer. While the technology is specific to some very delicate cancers the secondary use will be for treating prostate cancer.

With an aging population the targeted market are males. Building cost run between $100-200M and treatment costs are $40K and up. The Illinois legislature has just approved a $140M center nine miles from a $159M center already being built. What better way to build a career than to oversee a multi-million dollar project with large per-treatment incomes.

This begs the question that what, if any, treatment is needed in many prostate cases. The case is made by those who have these centers to treat, treat, treat, and not to wait for any type of clinical trial. EBM can wait until we have made our money.

Much like the business leaders in the latest melt-down we find a drive for the latest and greatest, spending large amounts of money, while not wanting to wait for the hard evidence. Evidence that may prove our theory wrong and will have caused us to have missed out on wasting, sorry, investing large amounts of money on questionable treatments. As a Sept.11, AP story by Linda A. Johnson points out, concerning arthroscopy knee surgery, once a treatment is accepted in the medical community all the evidence in the world will not stop it from being used, regardless of future data showing it to be, in some cases, worthless.

My personal fear is that as medicine takes on an ever increasing business motif we will see an ever increasing misuse of scarce resources. Major medical melt-downs, such as seen on Wall Street, will not only impact the ability of large institutions to provide service, but like Wall Street, leave the little guy, in this case the patient, at a loss for service and the investment they have in their care.

Steve Lucas

Robyn McIntyre said...

Thanks for the wake-up! I hadn't even thought about who might be on the board of these institutions. It explains so much.

Anonymous said...

Sorry, must make this anonymous...

But the board members of a not-
for-profit teaching hospital are
not just supposed to be a group
of the largest contributors....

The comment is on this entire paragraph.

When you see the Captains of Local Industry on the board of a local hospital, there is an inherent conflict of interest.

These men (usually men) want to keep their aggregate healthcare costs as low as possible and still retain their employees. Any mission broader than "take care of my employees, or at least make them think you are" is unimportant. This is one more reason why medical insurance and employment must be de-linked.

Anonymous said...

Steve Lucas, I think it's hard to compare the case of medical treatment and Wall street investment, as similar as they may seem. Cancer patients don't have the time to wait for trials to finish, whereas Wall street investors are rushing things in order to make larger profits. I think one is more justified than the other.

Anonymous said...


I think you go too far when you suggest that people's lack of knowledge of health care should make them ineligible for hospital board membership. It can be very useful to have people on boards who have no knowledge of the industry and to bring what they have learned in other fields to this one. That applies to hospital boards but also boards of public corporations and other nonprofits. Indeed, an outside perspective is often useful.

I also wonder if you would say that CEOs with no hospital experience (like, er, me) should be ineligible for those jobs as well.

Roy M. Poses MD said...

Paul, please re-read my original post.

I said, "So it seems reasonable that all the board members of not-for-profit hospitals should be devoted to the mission of the hospital, and the values that underlie it. Furthermore, it seems reasonable that all board members should at least either have substantial knowledge about the health care context, and/or have considerable intelligence and leadership abilities."

Note the "either, or" construction. I don't have a problem with board members who don't have substantial knowledge of the health care context, as long as they are both devoted to the mission, and have considerable intelligence and leadership abilities."

So CEOs like you would appear to be qualified according to these criteria.

But the financial CEOs who helped drive their companies into failure wouldn't.

Anonymous said...

Thanks, Roy. I missed the "either." Sorry. But darn, I was also set to switch careers and get into the capital markets, where it is clear that no qualifications whatsoever are needed.

Anonymous said...

I agree with Roy's comment. I am just starting my third semester as an MHA student. Being quite young, 23, I don't have many answers but feel strongly about the diversification of leadership within the healthcare setting. The field of health care is one of the most difficult industrusties, to say the least, so just having stictly medical people run a hospital would develop an even bigger disaster and visa versa with just business people running the show. So picking the board of trustees should be like picking a leadership team. You want individuals with leadership experience and specific knowledge of the economy and how health care will be affected or affect that part of their market and then all members collaborate to make the best decision. Many of you do make spectacular points to the discussion and I think that we can all agree America needs to get back into the mindset of acquiring leaders that are "Rowboats" and not "Showboats" like we have had in the past with Lincoln and CEO's like Herb Kelleher.