Monday, September 21, 2009

A "Safety-Net" Medical Center CEO Gets a Golden Parachute

From comes this story on executive compensation in a not-for-profit health care organization,

Boston Medical Center – a financially troubled hospital – gave its outgoing CEO a one-time, nearly $3.5 million payment, in addition to her $1.3 million annual salary, Team 5 Investigates reported Friday.

Elaine Ullian, 61, has led the city’s major 'safety net' hospital for the last 15 years. She recently announced she will retire when her contract expires in January.

The hospital's financial situation is such that hospital leaders say it could face closure in the years ahead. It is currently suing the Executive Office of Health and Human Services over how it gets paid for treating poor and uninsured patients.

Team 5 Investigates discovered, in a review of the hospital’s financial filings with the state, that Ullian was paid $3,466,458 'in recognition of exceptional performance over a period of 15 years.'

The nearly $3.5 million bonus was on top of Ullian’s 2008 compensation of $1,348,504 including salary and benefits.

In a written statement to Team 5 Investigates, Ted English, the chairman of BMC’s board said that Ullian’s 'compensation is set by a committee of the Boston Medical Center Board of Trustees who consult with independent compensation advisors. It is based on her performance evaluation and measurable goals that are reviewed annually.'

'The Board considers Elaine Ullian to be one of the most competent and successful hospital CEOs in the country and believes she is primarily responsible for the success of Boston Medical Center over the past 15 years,' English's statement said.

Boston Medical Center was formed by the merger of University Hospital (the Boston University teaching hospital), and Boston City Hospital, the legendary municipal hospital. (Note: I served as an internal medicine intern and resident in the University Hospital program, and rotated through Boston City frequently.) Thus, as noted above, BMC is the city's primary "safety net" hospital for the care of the poor. BMC has for its mission:

We will provide consistently excellent and accessible health services to all in need of care regardless of status or ability to pay – exceptional care, without exception.

Such generous pay seems inconsistent with this mission and the organization's not-for-profit status. Such a golden parachute seems inconsistent with the current threats to its finances.

Any worry about the CEO's retirement finances should further be reduced by her ongoing part-time work on the boards of directors of three public for-profit health care corporations, Hologic, a medical device company specializing in "womens' health," ThermoFisher Scientific, a manufacturer of laboratory equipment and supplies for health care and research, and Vertex Pharmaceuticals, a biotechnology company focusing on small-molecule drugs. For her work as a director of Hologic, she received $304,698 in total compensation in 2008, and owned 40,000 shares or equivalent of common stock (per the company's 2009 proxy statement). For her work for ThermoFisher Scientific, she received $275,319 total compensation, and owned 61,068 shares or equivalent (per the 2009 proxy statement). For her work for Vertex Pharmaceuticals, she received $337,480 total compensation, and owned 79,500 shares or equivalent (per the 2009 proxy statement). As Robert AG Monks put it, corporate directors are supposed to "demonstrate unyielding loyalty to the company's shareholders" [Per Monks RAG, Minow N. Corporate Governance, 3rd edition. Malden, MA: Blackwell Publishing, 2004. P.200.] Therefore, Ms Ullian's directorships seem to pose conflicts with her primary employment as CEO of an academic medical center which must buy products used in womens' health, buy laboratory supplies, and implement basic and clinical research.

The BMC board chair's assertion that the CEO is "primarily responsible for the success" of the institution merits special comment. It seems obvious that the main determinant of the success of a medical center is the work done by its health care professionals and support personnel. A medical center cannot provide care, much less good care, without doctors, nurses, therapists and technicians, supported by supply, logistics, cleaning, maintenance, dietary, clerical, medical record, financial and yes, even health care information technology workers and systems (and if I left out an important group of support personnel, I apologize now.) The chair's assertion suggests the hubris central to the ethos of contemporary business managers, but is at odds with the clinical context. (Of course, if the CEO was primarily responsible for the organization's success, she should now shoulder primary blame for its current awkward financial situation, but such consistency may be the hobgoblin of minds too little to understand the gravitas of the C-level manager.)

A long time ago, in a galaxy far, far away, health care was a calling. Doctors once pledged to avoid all commercialization (see post here), and hospital directors or superintendents (not CEOs) did not earn riches, much less become "imperial." (See Ludmerer's Time to Heal.) But in the culture of wretched excess that spread from the financial world, hospital CEOs now seem to feel entitled to become wealthy, as they claim responsibility for all successes, while all failures are blamed on someone else. The current system has made hired managers into an ersatz aristocracy, entitled to fill their pockets while denying any responsibility for ever rising costs, declining access, poor quality and demoralized professionals. In my humble opinion, to achieve true health care reform, health care again must become a calling, lead by people who will put the mission ahead of the accumulation of wealth and power.


Anonymous said...

An extension of this behavior can be seen in the Sept. 19-20 WSJ article Health Officials' Salaries Draw Fire. Highlighted is Title 42 allowing the government to pay above government rates to secure "extraordinary individuals." Currently about 2,000 are considered "special consultants" with 378 earning over $191,000 in 2008, more than a cabinet secretary.

Frank Torti was a top FDA deputy and made $350,000, more than the $153,000 paid Margaret Hamburg who as an agency head does not qualify for this special compensation.

Dr. Anthony Fauci made $335,000 last year as director of the NIH's infectious-disease division. These salaries are justified as a means to keep talented people in government positions.

One has to ask if these people could in fact achieve these salaries in the private sector? If so: Why stay a government employee? How does this income gap with their fellow employees impact their working relationships?

There seems to be an ever growing sense of entitlement in both the private, nonprofit, and government sector, where performance is not related to compensation.

Steve Lucas

moviedoc said...

You can call all you want, but the best CEO's will go for the dollars. I'd rather pay a great health care CEO that kind of money than a baseball player. And before decide to renege on the contract they might recall the Pied Piper.

It was indeed a very long time ago when even docs, at least many of them, didn't exploit their situation for financial gain. That's part of what got us into this mess.

Hiring a CEO is like an auction. If they want to cap the bid at, say, $100k, they might end up with someone like me. And they'll really be in trouble.

Roy M. Poses MD said...

Moviedoc, how do you define a "great health care CEO?" In the case above, there is no reason to think the CEO is particularly bad, but she is leaving a hospital in financial distress. That does not suggest she was a "great CEO." Furthermore, if there any clear, valid metrics, I have not heard about them.

Who said anything about reneging on a contract? But unless the contract were made public, who can tell if the CEO unconditionally entitled to the bonus? Furthermore, she could voluntarily turn it down, if perhaps she felt a little bad about leaving a hospital, as I noted above, that is in financial distress.

Remember, in most cases, hiring CEOs is done by boards of trustees or directors which are usually dominated by CEOs or former CEOs of for-profit corporations. (Just as for-profit corporate boards are also usually dominated by CEOs of other corporations.) Such boards have a vested interest in keeping the pay of CEOs high. There is hardly a "free market" for CEOs.