Monday, September 15, 2008

University of Minnesota Courts McGuire - "We Don't Really Care About the Stock Options"

We have posted quite a bit about leadership problems at one of the US biggest for-profit managed care organizations/ health care insurers, the UnitedHealth Group (UHG), most recently here.

UHG has not always been known for being particularly patient-, employer-, or physician-friendly. For example, 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."

We have previously discussed how UHG promised its investors it would continue to raise premiums, even if that priced increasing numbers of people out of its policies (see post here); allegations that the UHG acquisition of Pacificare in California lead to a "meltdown" of its claims paying mechanisms (see post here); charges that the UHG acquisition of Sierra Health Services would give it a monopoly in Utah, and that UHG was transferring much of its revenue out of the state of Rhode Island, rather than using it to pay claims (see post here); and numerous violations of Nebraska insurance laws by UHG (see post here).

Such anecdotes conflict with the UHG mission statement, as recently revised. The company pledged to:

* Enhance the performance of the health care system, and improve the overall health and well-being of the people we serve and their communities.
* Work with health care professionals to expand access to high-quality health care so people get the care they need at an affordable price.
* Support the physician/patient relationship and empower people with the information, guidance and tools they need to make personal health choices and decisions.

One hypothesis is that UHG has trouble adhering to its idealistic mission because of the shortcomings of its leadership.The story of the fall of its recent CEO, Dr William McGuire, was strikingly instructive. As we have previously discussed, (see these posts 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). More recently, McGuire agreed to pay back some of those options, although that would reportedly leave him with more than $800 million worth of options (see post here).

Most recently, as reported by Bloomberg,

UnitedHealth Group Inc.'s former chief executive officer William McGuire agreed to pay $30 million to settle a lawsuit brought against the company and individual defendants over backdated stock options.

Under the deal, which needs court approval, McGuire will also return to UnitedHealth 3.68 million shares of stock options. The class-action, or group, lawsuit was brought over options that were backdated during McGuire's tenure at the helm of the company, the largest U.S. health insurer.

The settlement may be the largest cash recovery obtained from an individual defendant in a securities class-action lawsuit, Calpers said.

The company remains under a criminal probe of backdated stock options.

But at the same time, the Minneapolis Star-Tribune reported, Dr McGuire seems to have found ways to keep busy,

The University of Minnesota is courting William McGuire, the health insurance executive who lost his job in a stock options scandal, as "executive in residence" at its business school.

Stephen Parente, director of the Medical Industry Leadership Institute in the Carlson School of Management, said the school had given him the go-ahead to explore the idea with McGuire, former chief executive of Minnetonka-based UnitedHealth Group.

'We are courting him to be an executive-in-residence at Carlson,' Parente said, adding that McGuire's immense experience in health care is what appealed to the university.

Parente said he first reached out to McGuire in August 2007, inviting him to be the keynote speaker at an invitation-only event attended by 70 to 80 guests at the Lafayette Club in Minnetonka Beach. The subject of McGuire's talk was the future of health care.

McGuire hit familiar themes during the hourlong speech, including the need for universal access to health care and the need to track the quality of care by physicians and to pay them accordingly.

Parente said his approach to McGuire was along the lines of: 'We don't really care about the stock options. You know stuff. Tell us what you think.'

Since then, McGuire has attended two seminars at the Carlson school, including one where he arrived unannounced.

There was some discussion within the school, Parente said, on whether it was appropriate to engage McGuire, given the lawsuits and investigations in which he was embroiled. The conclusion was that it was.

'It's one thing if you're bringing in a criminal to speak. But if someone's under investigation, that's fair game,' he said.

Since then, McGuire has acted as "ad hoc kitchen-cabinet adviser" to him, Parente said.

In June, when Parente presented a paper titled 'Is Consumerism at Odds with Prevention?' at the American Society of Health Economics at Duke University, he listed McGuire as one of six co-authors.

Sometimes, you just can't make this stuff up. Under CEO McGuire, UnitedHealth became a poster child for the hypocrisy of managed care, promising affordable care while stuffing the pockets of its top managers. The company was reported to have committed numerous instances of unethical behavior that contradicted its lofty ideals. It had to re-state its earnings. McGuire was forced into early retirement. Both he and the company have had to settle lawsuits, and the company is reportedly still under criminal investigation.

So then, a prominent business school is "courting" McGuire? Its leadership invites him to speak about universal health care, after he managed to steer a billion or so dollars out of the health care system into his pocket (at least for a while)? It invites him to speak about the quality of physicians' medical management, after he managed his company in stark contrast to its lofty ideals?

Its leaders "don't care about the stock options." Anyone who has not (yet) been convicted of a crime has ethics good enough for them?

That's a pretty good way for the business school to tell its students that the health care management slogan should be "take the money and run."

With business schools setting these kinds of ethical examples for their students, no wonder the business-oriented leaders of health care have turned out so bad.

ADDENDUM (18 September, 2008) - Now it appears that the University of Minnesota is disavowing any plans to make McGuire a faculty member, per the Star-Tribune.


Anonymous said...

McGuire=Jobs. Steve Jobs that is

Sure. Steve Jobs has done some great things with Apple but would we allow him on a campus to talk?

Apple settled with the SEC for a mere $14 million (or about 8 minutes of iPhone sales) and Jobs himself doesn’t seem to be paying anything.

InformaticsMD said...

In a recent article about McGuire in the WSJ I believe, he spoke of "putting the past behind him and moving on" or words to that effect.

Based on the spin, it's likely he hired one of those "reputation improving" P.R. agencies.

As far as allowing this man access to business students, why not? Ethics be damned. It's the letter of the law, not the spirit that matters and he (like others, such as Saddam Hussein) has not been 'convicted' of crimes.

May I remind that these same geniuses just engineered the largest financial meltdown since 1929.

Roy M. Poses MD said...

If there is any silver lining to the current financial crisis, it may be the end of the myth of the genius CEO. CEOs and other top managers of financial firms, in particular, have been revered as if they have magic powers. Now they mainly seem incompetent and greedy, if not corrupt.

The myth of the genius CEO, and the accompanying cult of the imperial CEO, have been a major cause of the health care crisis, in my humble opinion. Of course, you are unlikely to see that in many health care research or policy journals

APeticola said...

Wonderful post! but very sad situation.

Yes, the idea that CEO's somehow deserve more and more every year and physicians (like other workers) less and less somehow does not seem to go away. No matter how much damage is done.

Anonymous said...

It's the "cult of the personality" that's been the problem. I remind that this is predominantly a leftist idea and phenomenon, not a capitalist one.

Roy M. Poses MD said...

The "cult of personality" is a good shorthand for the problem.

I'm glad we try to run this blog in a non-partisan manner, and also try not to get too much into left-right distinctions, because such distinctions ar confusing.

In fact, I agree that the "cult of personality" is often associated with how communist countries were run. But is also associated with Hitler and the Nazis. Of course, they called themselves "National Socialists." Confusing, eh?

Furthermore, it seems to me that many large corporations are often run these days in a hierarchical, collectivist manner, but not by the owners (the old "capitalists") but by hired managers. CEOs, after all, are supposed to be just employees of the owners.

Its very confusing, and hard to analyze from an old left-right perspective.

But whatever you call it, the cult of personality, the cult of the imperial CEO, the collectivist, hierarchical leadership of hired managers, it has been bad for health care.

Anonymous said...

From a student perspective, I believe that McQuire has a lot to offer. But then again, I believe that there might be someone on death row from whom I might learn.

People make mistakes, even leaders too. Yes I believe that leaders need to be held to a higher standard and pay the price when they participate in unethical practices. In the case of McGuire, he lot his job, lost a big chunk of his reputation and much of his ethical credibility.

Does he still have something to offer society? Can students still learn from him? I believe that the answer to both is yes.

Would I rather he went and crawled under a rock and did not share his lessons learned? To me that would be even a worse crime.

I do not know the man personally and cannot speak to his motives for wanting to devote his time to Carlson. Either he feels little guilt for the actions that got him into this pickle or he is the type of person that is trying to face his demons and move forward.

Knowing the great people at Carlson, I am betting he leans towards the latter. If that is not the case, he won't last long. If it is the case, I can forgive him and hopefully learn to grow from him.

Regardless, his involvement at Carlson will not make me a less ethical person... maybe just a wiser one.

InformaticsMD said...

Would I rather he went and crawled under a rock and did not share his lessons learned? To me that would be even a worse crime.

He can share his lessons learned in written form, perhaps an apologia.

On the other hand, I believe there is significant value to healthcare and to society that far transcends his giving lectures to students in his being compelled by his deeds to "crawl under a rock" (i.e., suffer professional consequences that isolate him from respectable positions in healthcare, business and education).

It's called "deterrence" - deterrence to future CEO's who contemplate how their actions might affect themselves.

A strong view? You bet. Healthcare is serious business.

Roy M. Poses MD said...

Please note that there was nothing in the newspaper article about McGuire's possible new position that indicated that he was regretfuly, apologetic, remorseful, penitential, etc. There was also nothing in the article suggesting that he was being recruited to teach students not to do what he did. In fact, the article suggested the opposite, that the business school honcho who was recruiting him was doing so out of admiration of his accomplisments.

I think that were the business school to set McGuire up as a figure to be respected and emulated would be a sign of the decadence of its leadership.

Mr. B. said...

The University is now trying to extricate itself from this mess, see:

Hold That Thought - U Claims No Intent To Gown McGuire

Unfortunately for them, the quotations from Parente make this less than credible. It would be more convincing if the President of the University made the denial rather than the flack-catcher-in chief...

InformaticsMD said...

Hold That Thought - U Claims No Intent To Gown McGuire

sung to the tune of "Turn, turn, turn":

Spin, spin, spin!