At UPMC: Dealings with Board Members' Firms and Executives' Relatives, a $5 Million Plus CEO, and 8 $1 Million Plus Executives

Last year we noted that the US Internal Revenue Service (IRS) required more detailed reporting starting in 2009 by US not-for-profit organizations.  Many US health insurance companies/ managed care organizations, most hospitals, nearly all medical associations, nearly all disease advocacy organizations, all health care charities, and nearly all medical schools are not-for-profit organizations.  We suggested then that this reporting might lead to more transparency about the leadership and governance of these organizations.  Some of these new 990 forms are now being publicly disclosed, with some interesting findings. 

The Pittsburgh Tribune-Review just reported some interesting findings about financial ties between the University of Pittsburgh Medical Center (UPMC) and its board members and hired executives.

Health giant UPMC paid more than $10 million last year to companies and individuals with ties to its directors and high-ranking executives, newly released tax records show.

The payments include more than $3 million in salaries and contracts to relatives of UPMC CEO Jeffrey Romoff, who earned $5.16 million in fiscal 2009.

It was no surprise that a UPMC spokesman pooh-poohed the significance of these relationships.

'Given that UPMC is the largest employer in Pittsburgh and attracts talent from across the world, it's easy to understand why there are hundreds of employees with family members who also work at UPMC,' said spokesman Paul Wood.

'We seek to hire the best and brightest in every position, regardless of family relationships, and take appropriate steps to manage any conflicts that those relationships might entail.'

The specifics about payments to the relatives of top hired executives were:

Tax records show UPMC paid $264,274 to Rebecca Kaul, the CEO's daughter. Wood said UPMC then billed a contractor for her services. Kaul now works for UPMC as executive director of the Technology Development Center, Wood said.

UPMC paid $259,488 to Scott Gilstrap, who joined the health care giant before marrying Romoff's daughter. Gilstrap, now divorced, no longer works for UPMC, Wood said.

Wood said UPMC's contract for $2.48 million with Paradise Group, an advertising firm owned by the CEO's brother, Douglas Romoff, was not renewed after its March 2009 expiration.

'Jeffrey Romoff was not involved in any of the decisions pertaining to this contract,' Wood said.

In addition to Romoff's family connections, the tax records show UPMC paid Scott Cindrich, son of its chief counsel Robert J. Cindrich, $141,599.

Wood said the younger Cindrich joined UPMC before his father left a federal judgeship in 2004 to become UPMC's top lawyer. Robert Cindrich was paid $1.86 million.

Cindrich did not return telephone calls seeking comment.

The specifics about dealings between UPMC and its board members were:

Tax records show companies affiliated with board member Anne V. Lewis do the most business with UPMC. Oxford Development Company, where Lewis is board chair, received $4.84 million from UPMC.

Lewis is affiliated with Central Securities Services, which received $201,198 from UPMC, and Central Property Services, which received $457,051. Lewis did not return repeated telephone calls from the Tribune-Review.

According to the returns, the Downtown law firm of Pietragallo Gordon Alfano Bosick and Raspanti earned $348,616 in legal fees. William Pietragallo is a UPMC board member. The law firm paid $792,215 to UPMC for heath insurance.

Pietragallo said he filled out a conflict-of-interest form, as he has in past years.

'It reminds me of how much I pay for health insurance,' he said.

IGate Mastech, the tech company founded by UPMC board member Sunil Wadhwani, received $204,215 for computer services. JJ Gumberg and Co., affiliated with board member Ira Gumberg, was paid $103,521, tax records show. Neither Wadhwani nor Gumberg returned telephone calls.

Board member John R. McGinley Jr.'s law firm, Eckert Seamans Cherin and Mellott, was paid $804,414 for legal services, according to the returns. McGinley and board member Robert A. Paul and members of their families are affiliated with Pittsburgh Steelers Premium Tickets LP, which was paid $129,425, tax returns show.

McGinley said he believed the figures UMPC reported are correct. Paul did not return telephone calls.

Also, in a separate article, the Tribune-Review noted transactions between UPMC's insurance subsidiary and its board members' firms

Recent federal tax filings show companies associated with some UPMC board members also buy their employee health insurance through the health care giant's insurance arm.

The tax returns show that health insurance premiums paid by the companies affiliated with board members totaled about $8 million in the fiscal year ending June 30, 2009. Nine firms affiliated with board members purchased UPMC health insurance.

That figure includes nearly $1.8 million by Bank of New York Mellon. UPMC board member Stephen Elliott is affiliated with the bank.

Oxford Development paid $2.1 million in premiums. The development firm's chairman is Anne Lewis, a UPMC board member.

The law firm headed by UPMC board member William Pietragallo paid $792,215 in premiums, according to the returns. AMPCO-Pittsburgh, which is affiliated with UPMC board member Robert A. Paul, paid a little more than $1 million in premiums.

Of course, Mr Wood pooh-poohed that too:

UPMC spokesman Paul Wood said the premiums paid by the companies were at "market rates."

He also apparently stated that the hospital system follows "strict conflict-of-interest rules. Board members are barred from voting or acting on matters relating to their business interests...." 

The standard approach of most not-for-profit organizations to conflicts of interests involving their board members or executives is to have these people recuse themselves from votes or actions that directly affect their own or their families' business interests.  I submit that whether this prevents the conflict of interest from influencing decision making by the organizations is questionable.  I doubt that the board members are unaware of their fellow members' and executives' direct or familial business interests.  The fact that certain individuals need to step out of meetings when votes come up on particular contracts would be a good reminder that they or their relatives have business interests at issue at these times.  Board members tend to keep their seats for a long time, and tend to get to know their fellow members pretty well.  Even if an individual member cannot vote on a contract or action relating to his or her business interests, would it be any surprise that his or her buddies on the board might look favorably on such a contract?

Furthermore, would it really be that hard to find development companies, property management firms, advertising agencies, law firms, or information technology companies in a large metropolitan area that are not affiliated with board members or top executives and their families?  Instead, UPMC seems to have found quite a few vendors affiliated with board members which do not seem particularly specialized in their organizational attributes.  Can we be sure that they are run by the best and the brightest?

Maybe board members who are too cozy with each other, and too cozy with the hired executives they are supposed to supervise, would be distracted from the attentiveness required to their organization's mission by their buddies' businesses? 

Perhaps coziness among board members and hired executives might have something to do with the munificent compensation given to numerous hired leaders of UPMC.  A separate article in the Pittsburgh Post-Gazette stated:

Jeffrey Romoff, president and CEO of the University of Pittsburgh Medical Center, received $3.563 million in salary in 2009, a 24.4 percent decrease from his 2008 salary of $4.711 million.

However,

In addition to Mr. Romoff's $4.711 million in cash compensation in 2008, he received $428,214 in deferred compensation and $21,671 in nontaxable benefits, for a total package valued at $5.161 million.

In addition,

Other top UPMC earners include Elizabeth Concordia, executive vice president and president of the Hospital and Community Services Division, $2.139 million; Amin Kassam, the department of neurological surgery chair who resigned in July, $2.083 million; Robert Cindrich, senior vice president and chief legal officer, $1.869 million; neurosurgeon Ghassan Beijani, $1.798 million; neurosurgeon Adnan Abla, $1.620 million.

Also, Marshall Webster, executive vice president and chief medical officer, $1.514 million; Diane Holder, president and CEO of UPMC Health Plan, $1.485 million; James Luketich, co-director of surgical affairs at the University of Pittsburgh Cancer Institute, $1.442 million; Daniel Drawbaugh, senior vice president and chief information officer, $1.335 million; and David Farner, senior vice president and chief of staff in the office of the president, $1.253 million.

By my count, that was eight executives with yearly total compensation greater than $1 million (in addition to two very well paid neurosurgeons.)  These payments, which most people would say are sufficient to make their recipients rich, were handed out by a not-for-profit organization whose mission statement includes being "committed to providing premier health care services to our region and contributing to this community" at the end of a bog of business-speak.  I suspect most people would think "contributing to this community" means something in addition to contributing to the wealth of a few top executives, and contributing to the business income of board members and executives' relatives.  Again, are board members who have become cozy with each other and the executives they are supposed to supervise more likely to be distracted from their fiduciary duty to the not-for-profit organization by their buddies' friendships?

We often discuss conflicts of interest on this blog.  Many of these involve financial relationships among health care professionals and academics on one hand, and pharmaceutical, biotechnology, device and other health care corporations on the other.  However, I suspect that conflicts involving leadership of hospitals and local businesses and vendors may be more common.  The latter may not always have as much influence on the quality of care, teaching and research as former group of conflicts.  However, they may have more effects on the total costs of health care, and may contribute more to the coziness, sense of entitlement, and inattention to the mission that seem to characterize much of health care leadership.  They may contribute to the perception that health care, like finance, may now be about , as Prof Mintzberg said, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit."

The new version of the IRS forms are just beginning to become public, so we expect to see many more juicy stories about the financial and family ties of leaders of health care not-for-profit organizations.  Watch your local newspapers for details about conflicts of interest at your local health care not-for-profit organizations.

Maybe as more is revealed, the need for more transparent, accountable, and ethical governance of health care organizations will become apparent.