Thursday, August 30, 2012

Duchess of WellPoint Abdicates, Likely to Escape with Much Loot

A change in the leadership of one of the biggest health care organizations reveals a little more about how such leadership has become our new corporate royalty and nobility.

The Departure of WellPoint CEO Angela Braly

The basics of the story, as reported by the Anna Wilde Matthews in the Wall Street Journal,
Under pressure from investors unhappy with the health insurer's performance and direction, WellPoint Inc. Chief Executive Angela Braly resigned Tuesday, and the company's board said it would begin a search for a permanent replacement.

The abrupt shift came as the board's leadership had been meeting with major investors in the wake of a disappointing second-quarter earnings report that sharpened concerns about Ms. Braly and the company's strategy

Note that while this change was seemingly dramatic,
In its statement, the board signaled that WellPoint's direction might not change dramatically. Ms. Ward said that the board 'continues to believe that time will prove the wisdom of potentially transformative actions taken under Angela's leadership…But now is the right time for a leadership change.' She also said the board believes 'the remaining executive team is dynamic and strong, with great potential to drive WellPoint's future success.'

In addition, the Indianapolis Star suggested that Ms Braly would be richly rewarded for her departure:
Details about her exit package were not released Tuesday, but under her contract, she is entitled to at least $7.7 million if terminated without cause.

Furthermore, recall how much the board apparently thought of Ms Braly's leadership in the immediate past, as evidenced by the compensation she received. In 2011, her total compensation was a mere $13.2 million (see this article in the Indianapolis Star), just slightly less than that in 2010, $13.4 million (see this post). Such compensation, of course is gargantuan compared to that received by mere mortals such as primary care physicians (actually, conservatively it is at least 66, and probably more like 100 times that of primary care physician, and over 250 times the median US family income) Such compensation, and the likelihood of a rich severance package, suggests that either the board applauded Ms Braly's leadership right up until now, or perhaps that Ms Braly, despite being a hired employee, actually had more power than the board, sufficient to virtually set her own pay.

Was Financialization the Reason She Had to Go?

So why get rid of her now? Aside from references to recent issues with only short-term revenue, there were few hints in the media. The WSJ article did note
a series of stumbles over the past few years, including an unexpected earnings hit last year tied largely to problems with a Medicare plan in California. In 2010, the company scaled back a proposed rate increase in California that had become a lightning rod in the policy debate over a health overhaul, leading to a loss.

A Forbes post suggested that one problem was Ms Braly supported President Obama's health care reform legislation, the Patient Protection and Affordable Care Act (PPACA, or ACA):
Many blame Braly and her team for putting The Affordable Care Act over the top in Congress after Wellpoint’s Anthem Blue Cross plan in California two years ago raised rates nearly 40 percent on individual policyholders before the increase was tamed. Many at the time say that provided President Obama and Sebelius political momentum and ammunition to tell the story of excessive rate increases by the loathed insurance industry.

However, no media report so far has raised the issue of the ethics of past WellPoint behavior. In fact, as we have discussed, (most recently here), the company has made a lengthy series of ethical missteps, to put it kindly. (The complete list appears in an appendix at the end of this post.) These problems have been going on for quite a while, and if they were not a concern before, there is no hint that they became a concern within the company recently.

So, one explanation for the sudden leadership change is the dominance of financialization of for-profit health care insurance (and likely of all health care organizations.) The notion, pushed by a few economists in the 1980s, that the only thing that should matter to corporate leadership is short-term financial results may be that powerful (see this post). Of course, that is profoundly troubling for health care organizations, since it dismisses the importance of any long-term results, especially of results that affect patients' and the public's health, and the importance of values like honesty.

Corporate Leadership as Our New Royalty and Nobility

Another explanation, which need not contradict the one above, was suggested by Charles Ferguson in Predator Nation. He wrote that the leadership of big financial corporations, which became the dominant organizations in the US and, indeed, in the world,
became corporate royalty, with all the absurd arrogance, disconnections from reality, ego poisoning, and cults of personality thereby implied.

If the leadership of big financial firms became royalty, then the leadership of big health care organizations became nobility. The issues above only would affect nobility slightly less. In that sense, the departure of Ms Braly likely resulted from personal and political battles among royalty. The good thing is that in this somewhat more enlightened age, the results are merely abdication, probably with a huge severance payment. In the old days, the results would likely have been imprisonment in the castle dungeon, if not beheading.

Nonetheless, the notion that top corporate leaders, including leaders of for-profit and non-profit health care corporations, are becoming the new royalty and nobility should be profoundly disturbing in the US, which was founded after a revolution against royalty's excess power.  They should be no less disturbing in other countries which have overthrown their former royal leaders, or instituted constitutional monarchies in which the royals and nobles have little political or real power. 

Obviously, the growing power and decreasing accountability of hired managers of large health care organizations has become a major reason, if not the major reason for health care dysfunction.  True health care reform would decrease the size and scope of health care organizations, and make their leaders accountable to ownership, when appropriate, and to the community at large for patients' and the public health. 

Appendix: WellPoint's Ethical Misadventures
  • settled a RICO (racketeer influenced corrupt organization) law-suit in California over its alleged systematic attempts to withhold payments from physicians (see 2005 post here).
  • subsidiary New York Empire Blue Cross and Blue Shield misplaced a computer disc containing confidential information on 75,000 policy-holders (see 2007 story here).
  • California Anthem Blue Cross subsidiary cancelled individual insurance policies after their owners made large claims (a practices sometimes called rescission).  The company was ordered to pay a million dollar fine in early 2007 for this (see post here).  A state agency charged that some of these cancellations by another WellPoint subsidiary were improper (see post here).  WellPoint was alleged to have pushed physicians to look for patients' medical problems that would allow rescission (see post here).  It turned out that California never collected the 2007 fine noted above, allegedly because the state agency feared that WellPoint had become too powerful to take on (see post here). But in 2008, WellPoint agreed to pay more fines for its rescission practices (see post here).  In 2009, WellPoint executives were defiant about their continued intention to make rescission in hearings before the US congress (see post here).
  • California Blue Cross subsidiary allegedly attempted to get physicians to sign contracts whose confidentiality provisions would have prevented them from consulting lawyers about the contracts (see 2007 post here).
  • formerly acclaimed CFO was fired for unclear reasons, and then allegations from numerous women of what now might be called Tiger Woods-like activities surfaced (see post here).
  • announced that its investment portfolio was hardly immune from the losses prevalent in late 2008 (see post here).
  • was sanctioned by the US government in early 2009 for erroneously denying coverage to senior patients who subscribed to its Medicare drug plans (see 2009 post here).
  • settled charges that it had used a questionable data-base (built by Ingenix, a subsidiary of ostensible WellPoint competitor UnitedHealth) to determine fees paid to physicians for out-of-network care (see 2009 post here). 
  • violated state law more than 700 times over a three-year period by failing to pay medical claims on time and misrepresenting policy provisions to customers, according to the California health insurance commissioner (see 2010 post here).
  • exposed confidential data from about 470,000 patients (see 2010 post here) and settled the resulting lawsuit in 2011 (see post here).
  • fired a top executive who publicly apologized for the company's excessively high charges (see 2010 post here).
  • California Anthem subsidiary was fined for systematically failing to make fair and timely payments to doctors and hospitals (see 2010 post here).
  • management was accused of hiding the company's political contributions from the company's own stock-holders (see 2012 posts here and here).
  • settled charges that its Anthem subsidiary cheated former policy-holders out of money owed when that company was converted from a mutual insurance company (see 2012 post here)

1 comment:

Afraid said...

Could well be that Wellpoint is about to settle again on something bad.

Still though doctors, some soul searching is needed if you are making 2 to 4 times what the rest of us average.

Our trust is with the physician, not the administrator, not the hospital executive and not the hospital boardmember. We all think you are worth being paid more, sure, but that is because we believe you have the responsibility to take care of us.

Abdicate that responsibility, you lose your value to us.

With all due respect, and thoughtfully expressed I hope, but it is gut check time methinks.