The New Business Coup? Increasing Evidence that Large Health Care Corporations are Funding Threats to Democracy

Introduction: Health Care Corporations' Political Contributions: From Bipartisan to Trumpian

 At one time, leadership of large health corporations were circumspect in their financial support for US politicians and political causes. They provided some funds directly to politicians and political organizations, but often amounts given to different parties and organizations with different ideologies were balanced. Presumably, the goal was to promote access to whomever was in power at any given time. 

 

With the rise of Donald Trump, things changed. Many leaders apparently went all in for Trump and his Republican supporters.  In June, 2018  we discussed how CVS channeled money to a "dark money group," that promoted Trump administration policies, including repeal of the Affordable Care Act (ACA). In October, 2018, we discussed important but incomplete revelations about corporate contributions to such dark money groups that mainly favored again right-wing ideology, the Republican party, and Trump and associates. In November, 2018, we noted that health care corporations funneled funds through dark money organizations to specifically attack designated left-wing, Democratic politicians. In March, 2019, we discussed how in the 21st century, health care corporate CEOs' personal political contributions were increasingly partisan, that is individual CEOs gave predominantly or exclusively to one party, and for the vast majority, to the Republican party. 

Some corporations paused some of their political giving after a mob whipped up by Trump at a January 6, 2021, rally violently stormed the US Capitol to try to prevent the certification of the 2020 election. However, within two months they started giving again in support of Republicans in Congress who voted not to certify the election (see this April, 2021, post, this July 7, 2021, post, and this September 7, 2021 post).

Now just after the anniversary of an insurrection that almost prevented the certification of the 2020 US presidential election results, there are new indications that leaders of big health care corporations are continuing to support Republicans in Congress who voted to overrule the results of that election.

Health Care Corporate Sponsorship of the Attempt to Overturn the 2020 Election 

Citizens for Responsibility and Ethics in Washington (CREW) has updated their report on corporate sponsorship of the politicians who wanted to overturn the election.  The January 3, 2022 version is entitled "The Corporate Insurrection: How companies have broken promises and funded seditionists." It described the "717 corporations and industry groups have donated over $18 million to 143 of the 147 members of Congress who objected to the results of the 2020 presidential election, as well as the National Republican Senatorial Committee and the National Republican Congressional Committee."  It referred to the updated data about the largest corporate funders appearing in the current version of CREW's previous report.  The health care corporations that appear in this list of 80 are:

Pfizer                                        $71,000

Merck                                      $68,000

Eli Lilly                                   $42,000

Johnson & Johnson                   $38,500

Anthem                                   $32,500

Cigna                                       $30,000

CVS Health                            $30,000 

AstraZeneca                           $26,500

Humana                                $15,000

Blue Cross & Blue Shield         $15,000 

Keep in mind that these amounts only reflect corporate donations directly to members of Congress, their own leadership PACs, and to the national Republican campaign committees, which must be disclosed by law. They do not include any amounts given by corporate executives, or amounts given to various kinds of dark money organizations, which do not have to be disclosed according to law.  Thus they may seriously undercount the financial support given by health care corporations to support those who wanted to nullify the election. But at least these figures suggest that 5 large pharmaceutical/ biotechnology companies, 4 health care insurance companies, and one diversified pharmacy company continue to be strong supporters of legislators who were willing to do so.  

Furthermore, as noted in a January 5, 2022, article in Fierce Pharma, spokespeople for some of these corporations declared they were no longer worrying about whether politicians support democracy or tried to overturn an election, but only about whether the politicians support policies that would improve their corporate bottom lines.  For example, see this from Pfizer:

Pfizer’s PAC supports policymakers who value innovation and expanded access to breakthrough medicines and vaccines that change patients’ lives,

And see this from Eli Lilly: 

[the company] supports candidates across the political spectrum who understand the value of a vibrant pharmaceutical ecosystem to address unmet patient needs.

Billionaires Who Made Their Money from Health Care Corporations Who Supported the Attempt to Overturn the Election  

A January 6, 2022 article in Forbes listed the "more than 50 billionaires [who] donated in the second half of 2021 to legislators who voted against certifying the presidential election, according to an analysis of Federal Election Commission records."  Two the billionaires made their fortunes from health care corporations.  They were: 

- Phillip Frost, worth $2,500,000,000, described as "a long-time health care investor, inventor and founder, Phillip Frost now runs diagnostics-maker Opko Health." He "joined Key Pharmaceuticals in 1972, reformulated its asthma drug and sold the company in 1986 for $836 million." Also, he "founded Ivax, a generic drugmaker, in 1987. He sold it to Teva Pharmaceuticals for $7.6 billion in 2005"  Frost supported Sen Hawley (R-MO). 

- James Leininger, worth $1,500,000,000, described as having "made his fortune founding medical devices company Kinetic Concepts (KCI), which focuses on wound care." He also runs "Medcare Investment Funds, which manages $1 billion in assets." Leininger supported Rep Cloud (R-TX). 

 Discussion

 As we said before, most health care corporations publish high-minded aspirational statements that promise pluralism, support of the community, and of our representative democratic society. Data revealed recently and discussed in our previous three posts increasingly show that some leaders of  large health care corporations saw fit to direct contributions to politicians who promoted anti-democratic policies. Funding political leaders who would challenge election outcomes in the absence of very clear evidence of election irregularities seems to violate high-minded corporate pledges of inclusiveness.

Is it that health care corporate leadership just are more interested in making money than in bettering society, despite their aspirational mission statements? As we previously discussed, that is a plausible formulation.  For example, per the Washington Post in January, 2021,

'Their attitude was: ‘Let’s take the big tax cuts and hold our noses for the obvious xenophobia and authoritarianism.’ It was a classic Faustian bargain,' said Rep. Brendan Boyle (D-Pa.), a member of the House Ways & Means Committee.

Also, the quotes above support the idea that corporate leaders put their own bottom lines ahead of supporting the republican form of government that partially made their revenues possible.

On the other hand, maybe it is not just about money.  Again, as we said before, by virtue of being top corporate managers, particular individuals can control political funds far beyond what they would  be able to control as private persons, and to do so quietly and sometimes anonymously.  Corporate leaders may thus be able to promote their own interests through their corporations' political giving.  Those interests may go beyond just personal enrichment.   Some may also be interested in personal political power, or have other ways they might benefit from anti-democratic, authoritarian, even openly fascist national political leadership.  

Big industrialists have backed authoritarian and openly fascist regimes in other countries before, some to make more money, but in retrospect, some for darker reasons. (See, for example, this article on how German industrialists financially bailed out the Nazi party in 1932.)  

There was at least one previous instance in which US business leaders tried to effect a coup to oust a President they considered too left wing.  This was sometimes called the "business coup."  According to a Washington Post article from 2021, its sponsors included "included J.P. Morgan Jr., Irénée du Pont and the CEOs of General Motors, Birds Eye and General Foods."  Their goal was to depose President Franklin D Roosevelt and 

install a dictator who was more business friendly. After all, they reasoned, that had been working well in Italy

The plot failed because the former military officer they chose to lead it informed the government.  So far, the attempt by now former President Trump and his followers to do something similar has also failed. That does not mean, however, that the next attempt will not succeed.

 

IMHO, all citizens need to wake up and  protect our republic.  Furthermore, all medical and public health professionals specifically need to take action to wake up and protect our republic specifically from self-interested health care corporate leaders.  Imagine what health care and public health might be like were they to exert near absolute control facilitated by an authoritarian they installed in office 

 

 

"A Kind of Blackmail": A Not-for-Profit Health Insurance Company CEO's Salary So Large It "Had Broken the Law"

Here is another case in the annals of over-paid executives of not-for-profit health care organizations, this time from the Burlington (VT) Free-Press,

Blue Cross and Blue Shield of Vermont overpaid its former chief executive officer by $3 million over an eight-year period and has been ordered to pay the money back to its subscribers by 2012 in the form of reduced premiums, a top state regulator said Wednesday.

The action by the state Banking, Insurance, Securities and Health Care Administration Department follows last year’s disclosure that William Milnes, the nonprofit firm’s former CEO, received a $7.2 million payout when he stepped down in 2008.

Furthermore, note that

[Commissioner of the Banking, Insurance, Securities and Health Care Administration Department Paulette] Thabault said her department had concluded Blue Cross had broken the law by paying Milnes more money than necessary to perform his functions as head of the nonprofit health-benefits provider.

The Department's review found obvious flaws in how Blue Cross Blue Shield set its former CEO's pay:

The department’s review found that Milnes’ salary package while at Blue Cross was excessive, and in some years, he was paid more in bonuses than he received in base pay. In 2005, for example, Milnes was paid $425,000 in salary and $489,800 in bonuses.

'Other health insurance or managed care organizations of a similar size to the Vermont company compensate their chief executive officers at a level of about 45 percent to 50 percent less than the compensation levels set by the company for Mr. Milnes,' the department order said in part.

The department said Blue Cross used a 'peer group' study to justify the pay it gave Milnes, but regulators concluded the study was flawed because it put Milnes’ position on the same level of chief executive officers of much larger Blue Cross sister companies.

'The peer group ... used in 2007 included 14 companies, all but one of which were substantially larger in terms of annual gross premiums,' the department’s order said. 'Nine of the 14 companies had gross premiums in excess of $1 billion.' Blue Cross gross premiums for 2007 were $590 million.

This story is striking because it seems that the overpayment of a not-for-profit health care organization's executive this time seemed to rise to the level of crime. However, current Blue Cross leaders seemed unconcerned.

'The company accepts the findings of the department, and it just wants to move on at this point,' [Blue Cross and Blue Shield spokesman Kevin] Goddard said.

Somehow, whenever a health care organization's conduct is publicly revealed to be shameful, the response is not sorrow or apology, but let's just "move on." Moving on, of course, minimizes the accountability of those initially responsible for the bad behavior.

Furthermore, do not expect corporate leadership to acknowledge anything wrong with how the pay for the top hired corporate executive was determined.

Goddard said the company thought the peer group numbers it was using were sound.

'Our board used a comprehensive analysis to come up with a compensation package for Bill,' he said. 'We relied on what we thought was professional information.'

One begins to feel a little sorry for the poor spokesman who is obligated to mouth these sorts of sentiments. Whether the analysis was rational, or the "professional information" was relevant or correct seems not to have bee anyone's concern.

In addition, although Blue Cross and Blue Shield is now obligated to reimburse its policy-holders for former CEO Milnes' excessive pay, do not expect the money to come out of his pocket:

None of the $3 million the company has to pay back will come from Milnes. Blue Cross asked Milnes, through his attorney, if he would give back some of the money but was rejected, according to documents in the case made public Wednesday.

'He has made it quite clear that Mr. Milnes is not willing to make a voluntary repayment of any portion of the Supplemental Executive Retirement Program distribution,' Christopher Gannon, a Blue Cross vice president, wrote in a letter to Thabault’s department Jan. 21.

One would think that the current company management would be so upset about its new $3 million obligation, that it would aggressively try to recover the money from the person who benefited from it. However, it seems that all the current Blue Cross and Blue Shield management was willing to do was politely requesting that Mr Milnes return it. Suing a former CEO, of course, is just something that is not done. Perhaps it would be too disturbing to  the cozy atmosphere now prevailing among top executives and the boards of trustees who are supposed to be supervising them. This seems to make clear that no one at Blue Cross and Blue Shield ever really was responsible for what Mr Milnes was paid.

As an editorial in the Rutland Herald put it:

On its face, it was an outrage. Blue Cross is a nonprofit corporation that insures about 150,000 Vermonters. That a nonprofit with a mission of providing health care coverage should be a source of extravagant personal profit was an affront to all Vermonters, including those struggling to pay escalating premiums, those struggling to find adequate care, or those with no coverage at all.

The usual excuse from companies is that big money is necessary to attract big talent. It's a marketplace. But this excuse is really a kind of blackmail that allows corporate executives to collude in the inflation of their own worth.

So the notion of the "imperial CEO" who can virtually set his or her own pay, unencumbered by any real accountability to a board of trustees who would dare not ruffle the imperial feathers has now been imported even into relatively small health care organizations in New England states once famed for their common-sense and frugality.

So here we go again.... We have discussed numerous examples of compensation of health care organizations' leadership that seems orders of magnitude above that which would be rationally justified. These latest examples of the wealth being accumulated by leaders of supposedly mission-centered not-for-profit organizations are a product of the current management culture that has been infused into nearly every health care organization in the US. That culture holds that managers are different from you and me. They are entitled to a special share of other people's money. Because of their innate and self-evident brilliance, they are entitled to become rich. This entitlement exists even when the economy, or the financial performance of the specific organization prevents other people from making any economic progress. This entitlement exists even if those other people actually do the work, and ultimately provide the money that sustains the organization.

Although the executives of not-for-profit health care organizations generally make far less than executives of for-profit health care corporations, collectively, hired managers of even not-for-profit health care organizations have become richer and richer at a time when most Americans, including many health professionals, and most primary care physicians, have seen their incomes stagnate or fall. They are less and less restrained by passive, if not crony boards, and more and more unaccountable. In a kind of multi-centric coup d'etat of the hired managers, they have become our new de facto aristocracy.

Or as we wrote in our previous post, executive compensation in health care seems best described as Prof Mintzberg described compensation for finance CEOs, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit." As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences. Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations. It is time to reverse the coup d'etat of the hired managers.

Paying CEOs of Health Care Not-For-Profit Organizations: "Greed is Good?"

Million dollar plus executives of not-for-profit health care insurance companies seem to be becoming a dime a dozen.  Late in April, Buffalo Business First reported the pay of executives of some western New York health insurance companies:

The top local executives at the region’s three major nonprofit health plans received nearly $23 million in salaries and bonuses last year.

More than 70 people received total compensation of $160,000 or more. That’s the level at which insurers are required to report in annual reports to the state Department of Insurance.

When you include executives who work for those three health plans but are located outside Western New York, the total compensation for top-paid execs totaled $46.4 million last year.

Among the local executives in the Western New York region, 23 individuals took home more than $300,000 last year.

Among the CEO-level executives:

• Alphonso O’Neil-White, president and CEO at HealthNow NY Inc./BlueCross BlueShield of WNY earned $1.65 million.

• Dr. Michael Cropp, president and CEO at Independent Health, earned $1.3 million.

• Univera Healthcare President Art Wingerter, who joined the company part-way through the year, earned $248,348, while David Klein, president/CEO of Univera’s Rochester-based parent Excellus Health Plan, received a total of $2 million.

Wingerter says compensation levels are fair and are determined with help from outside consultants based on nationwide industry surveys. They are also adjusted annually based on the organization’s performance: Top officers at Excellus saw salaries decline last year by 20 percent based on the company’s 2008 performance.

'Our compensation levels fall into the midpoint by design,' he says. 'It’s a $5 billion company. If you compared it to any leader of a $5 billion (for-profit) company, I do not believe it would be considered excessive.'

Consider that argument while reading this story from neighboring New Jersey reported by the Ashbury Park Press:

William J. Marino, president and chief executive officer of Horizon Blue Cross Blue Shield of New Jersey, received $8.7 million in compensation in 2009, a 59 percent increase from 2008, according to the company's annual financial statement.

The salary and bonus were part of a windfall for Horizon's nine highest-paid executives, who received on average 61 percent more than in 2008, the statement, filed with the New Jersey Department of Banking and Insurance, showed.

Part of the increase came from compensation that was deferred from previous years, the company said. But the pay sparked anger from consumers and medical professionals who have battled Horizon over rising premiums and declining reimbursements.

Newark-based Horizon is the state's biggest health insurance company, writing policies and administering self-funded programs for more than 3 million people. It has 72 percent of the individual market and 52 percent of the small employer market, according to the state.

The company is a nonprofit....

Meantime, Horizon's top nine executives took home a total of $24.3 million in salaries and bonuses last year, up from $15.1 million in 2008.

Another article in the same paper stated that in 2009, Horizon

reported net income of $75.1 million last year, compared with a loss of $45 million in 2008. It reported revenue of $8.3 billion, up from $7.9 billion the previous year.

The company collected 3.5 percent more in premiums. And it lowered administrative expenses by 3.5 percent, according to the annual report.

Let us reconsider the rationale for the pay of the Excellus (NY) CEO. Its basis was the pay given to CEOs of for-profit corporations. Yet the nature of for-profit and not-for-profit corporations are fundamentally different. The former exist to make money. The latter exist to fulfill their missions.

For example, this statement is on the Excellus web-site:

As New York state's largest nonprofit health plan, the company remains committed to three core principles:

* We exist to assure, in the communities we serve, that as many people as possible have affordable, dignified access to needed, effective health care services, including long-term care.
* We recognize the need, and our responsibility, to reach out to all segments of the communities we serve, particularly the poor and aged and others who are underserved, to enhance quality of life, including health status.
* We are committed to being a nonprofit health insurer.

The devotion that a not-for-profit organization is supposed to have to its mission suggests that working for such an organization, particularly in a leadership capacity should be calling, rather than just a way to make money. Equating leadership of such an organization to leadership of a for-profit corporation of comparable financial size provokes cognitive dissonance. So the notion that the leader of Excellus, an organization supposedly devoted to serving the "poor and aged," is entitled to make as much money as the leader of a for-profit corporation with similar revenues likewise provokes cognitive dissonance.

However, let us assume, just assume, that the $2 million pay of the CEO of Excellus Health Plan was fair for a $5 billion not-for-profit company. Horizon is an $8.3 billion company, roughly 60% larger, but its CEO got $8.7 million, 330% more. Furthermore, the Horizon CEO saw his pay go up 59% while company revenue rose 3.5%. What possible argument could there be to justify these even more extreme levels of compensation?

Here was the Ashbury Park Press' editorial reaction:

If truth be told, when it comes to the American health insurance system, the Hippocratic Oath — 'First, do no harm' — is too often trumped by Gordon Gecko's 'Wall Street' axiom: 'Greed is good.'

There's no better example than the shameful $8.7 million in compensation paid last year to William J. Marino, president and chief executive officer of Horizon Blue Cross Blue Shield of New Jersey....

How tone-deaf could Horizon be to bestow this kind of compensation on its executives? The only decent thing for Marino and his cohorts to do is to return the bonuses.

The disconnect between these well-heeled executives and the customers their non-profit company — that's right, nonprofit — are supposedly serving is staggering.

We have discussed numerous examples of compensation of health care organizations' leadership that seems orders of magnitude above that which would be rationally justified.  These latest examples of the wealth being accumulated by leaders of supposedly mission-centered not-for-profit organizations are a product of the current management culture that has been infused into nearly every health care organization in the US. That culture holds that managers are different from you and me. They are entitled to a special share of other people's money. Because of their innate and self-evident brilliance, they are entitled to become rich. This entitlement exists even when the economy, or the financial performance of the specific organization prevents other people from making any economic progress. This entitlement exists even if those other people actually do the work, and ultimately provide the money that sustains the organization.


Although the executives of not-for-profit health care organizations generally make far less than executives of for-profit health care corporations, collectively, hired managers of even not-for-profit health care organizations have become richer and richer at a time when most Americans, including many health professionals, and most primary care physicians, have seen their incomes stagnate or fall. They are less and less restrained by passive, if not crony boards, and more and more unaccountable. In a kind of multi-centric coup d'etat of the hired managers, they have become our new de facto aristocracy.

Or as we wrote in our previous post, executive compensation in health care seems best described as Prof Mintzberg described compensation for finance CEOs, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit." As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences. Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations. It is time to reverse the coup d'etat of the hired managers.

Effort to Make Health Insurance Reimbursement Fairer Lead by Director of Insurance Company Accused of Unfair Practices

We previously discussed a legal settlement of charges that UnitedHealth's Ingenix subsidiary manipulated its database of payments to physicians so as to reduce its and other insurers' payments to "out-of-network" physicians. 

One aspect of the settlement was a new initiative to better determine such payments.  Now that effort has been caught up in the web of conflicts of interests that has ensnared health care.  As reported by the Syracuse (NY) Post-Standard,

[New York state Attorney General Andrew] Cuomo obtained $100 million in settlements from 13 insurers, including Excellus, that used the defective reimbursement data supplied by Ingenix, a subsidiary of United Health, the nation’s second biggest insurer. Cuomo’s investigation showed insurers such as Excellus used that data to shortchange New York consumers by as much as 28 percent.

Also, the settlement included

money ... to create FAIR Health Inc., a New York City-based nonprofit that is supposed to come up with a new, fair reimbursement system that will be used by insurers nationwide. FAIR Health has contracted with SU [Syracuse University] to help create that database.

The effort was lead by SU Professor Deborah Freund, "a distinguished professor of public administration and economics. She also is an adjunct professor of orthopedics and pediatrics at Upstate Medical University."

However,

Freund also happens to be listed on the health insurance company’s payroll.


Excellus paid Freund $61,378 last year for serving on its board of directors, according to a financial report Excellus filed with the state last week.

After The Post-Standard spent several days investigating her ties to the insurance company, Freund quit the Excellus board Friday afternoon.

The Post-Standard noted,

But some consumer advocates said it was odd that a paid director of Excellus, one of the companies targeted in Cuomo’s investigation, was playing such an important role.

[Art] Levin, of the Center for Medical Consumers, said it was ironic that one of the people helping to fix a payment system riddled with industry conflicts of interest may have had a conflict of her own.

'This makes no sense whatsoever given that Excellus is part of the settlement,' Levin said.

Chuck Bell, programs director of Consumers Union, publisher of Consumer Reports and an outspoken supporter of the payment reform project, was unaware of Freund’s ties to Excellus.

'I think it’s a concern because consumers do want this to be an entity that is independent of the insurance industry,' Bell said.

Among Freund's defenders was

Dr. Nancy Nielsen, immediate past president of the American Medical Association and a board member of FAIR Health, [who] said the AMA looked closely at Freund’s qualifications and her Excellus affiliation. She said the doctors’ group concluded her expertise is important to the project and was comfortable that there were enough safeguards in place to avoid any conflicts. Nielsen said FAIR Health would have independent experts not tied to the insurance industry review any recommendations from Freund’s research team.

But to add another level of irony, and perhaps conflict of interest, the Minneapolis - St Paul Business Journal just announced

The American Medical Association will use an electronic health records system from Ingenix, the company said Monday.

The Eden Prairie health care information technology said its Web-based CareTracker software will run on an AMA platform currently in beta testing with the Michigan State Medical Society and will launch nationwide later this year.

The platform is touted as a way to improve patient care, clinical efficiency and make administration simpler. CareTracker is the first such system that the AMA will provide to physicians online.

'Ingenix and the AMA will help doctors adopt health IT systems that reduce time spent on administrative tasks and enable them to devote more of their time to patient care,' said Bill Miller, Ingenix executive vice president of health care delivery systems, in a news release. 'Ingenix CareTracker integrates patient medical records and e-prescribing tools into the physician’s workflow. By selecting CareTracker for its platform, the AMA is helping physicians make smarter, more practical decisions about technologies to support their practice.'

Although we often discuss conflicts of interests involving physicians or health care academics who moonlight for drug and device companies, and the effects of these relationships on clinical research and medical education, it seems like the pervasive web of conflicts of interest in health care has entangled just about every kind of health care organization, health care decision-maker, and health care opinion leader.

Thus, we need to be extremely skeptical of just about everyone and every organization claiming to provide health care related goods and services, or whose goal is to improve any aspect of health care. The danger is that such skepticism will lead to cynicism and distrust.

At the least, comprehensive, detailed disclosure of all even indirectly relevant financial and other relationships by all health care decision-makers and opinion leaders at any level, whether they be individuals or organizations, would make it somewhat easier to assess their decisions and opinions.

A $4.3 Million Dollar CEO for a Not-For-Profit Health Care Insurance Corporation

The US stock markets are at lows unseen for more than 10 years, unemployment is rising, around the world national deficits are increasing, and times are tough for ostensibly not-for-profit Blue Cross and Blue Shield of Massachusetts, the state's largest health care insurer/ managed care organization. Per the Boston Globe:

Blue Cross-Blue Shield's business was affected by the stock market decline, the recession, and the increasing cost of medical care.

Membership at the state's largest health plan declined about 40,000 to just over 3 million.

'The decline in membership had an impact on results,' said chief financial officer Allen Maltz. 'In addition, many of our customers changed their benefits plans to products that have much lower margins.'

Blue Cross-Blue Shield insures employees of national companies that have locations outside Massachusetts, Maltz said, and those customers accounted for some of the drop-off in membership.

Maltz said Blue Cross-Blue Shield aims for a profit margin of between 1.5 and 2 percent. Last year's margin was almost zero. The firm had operating income from its medical claims business of just $1.6 million.

A new state assessment on reserves lowered income by $21 million, Maltz said. Revenue was flat at $6.7 billion, and medical claims were also unchanged at $6 billion.

Like most health insurers, Blue Cross-Blue Shield also relies on investment income, which fell 28 percent to $111 million. Maltz said the firm managed to avoid losses in the market by investing primarily in bonds and avoiding derivative securities that have declined precipitously in value.

Well, things are tough all over. But they are apparently not so tough for Blue Cross Blue Shield's CEO:

The salary and bonus paid to Cleve L. Killingsworth, chairman and chief executive of Blue Cross and Blue Shield of Massachusetts, increased 26 percent last year, to $3.5 million, even though the health insurer's membership declined and its net income fell 49 percent.

Based on previous years' retirement benefits - which Blue Cross-Blue Shield did not report for 2008 - Killingsworth's total pay package was likely about $4.3 million, making him by far the highest paid healthcare executive in Massachusetts.

And what was the justification for Killingworth's stellar pay?

Salaries at Blue Cross-Blue Shield were inflated by a complex executive bonus plan in which senior officials get bonuses based on a rolling average of the previous three years.

'These executives and the company performed and exceeded our expectations,' said Jay McQuaide, a Blue Cross-Blue Shield spokesman. 'They earned these incentives.' The key metrics in the incentive plan are membership and net profit, he said.

The company's board of directors did not do badly either. Unlike most boards of not-for-profit corporations, this one was paid:

The insurer's board members also received a 33 percent increase in base pay, from $30,000 a year to $40,000. Most earn far more because of payments for attending meetings and serving on committees.

Finally, according to the Boston Herald, other executives did quite nicely too:

Bay State health insurance bosses continued to rake in multimillion-dollar compensation packages last year as the state and its taxpayers struggled to pay ever-increasing health-care costs.

Data filed yesterday with the state’s Division of Insurance shows that Blue Cross Blue Shield of Massachusetts, the state’s largest HMO, doled out million-dollar pay packages to five executives, while Harvard Pilgrim Health Care paid its two highest-ranking executives a total of $2.7 million.

Blue Cross’ top earner is Peter Meade, who retired last spring as executive vice president of corporate affairs. Meade took home $4 million, a sum that includes retirement benefits accrued during his 12 years at the HMO.

It's just amazing that with all their talk about "pay for performance," top executives of health care organizations seem to make huge sums year in and year out, regardless of their organization's performance. (As an aside, how could someone say that the company's pay for performance "main metrics" were membership and net profit, when both fell, yet the CEO's pay rose?)

There was a brilliant discussion of the culture that lead to this sad state of affairs in the Times (UK) by Minette Marrin. It was about British bankers, but it just as well could have been about American health care executives:

The filthy rich, as Peter Mandelson affectionately calls them, are different. It is not just that they’re rich but that there’s something about being extremely rich that blurs ordinary perspective in all but the most exceptional people. Power may corrupt, but extreme wealth blinds and deafens.

I first came across the filthy rich just after I was married and went to live in Hong Kong in the 1970s. Leaving poverty-stricken Britain, my husband and I joined a gold rush of bankers and brokers to what was then still a crown colony. What we saw was wealth and conspicuous consumption beyond the wildest dreams of avarice.

Though we weren’t extremely highly paid, we spent a lot of time with people who were. Some were entrepreneurs and others were employees of banks and trading houses that, as today, offered them ways of making megabucks. Soon it became obvious that being very rich is like catching an insidious virus. Some people are able to resist it, but with most people the super-riches virus burrows into your nervous system for life. It blurs your perspective, weakens your grasp on reality and changes your identity into someone who is entitled to be very rich.

Ms Marrin's description of "plutocratic blindness" seems to apply to a CEO of a so-called not-for-profit organization who could claim more than $4 million in a year in which the global economy collapsed, and his own organization did rather badly by any financial measure.

This passage by Ms Marrin seems applicable to the Blue Cross Blue Shield Board who approved this disproportionate pay package:

But I do know things are done quite differently on the parallel planet inhabited by the filthy rich. Remuneration boards unselfconsciously award each other astonishing packages, wrapped up in euphemism.

The lack of selfconsciousness in this case may have been driven by the board's familiarity with how things used to be done in the American financial sector. A quarter of the board's members are leaders in that sector (see post here).

Let me close with Ms Marrin's suggested solution:

The filthy rich culture that has developed in the past 20 years is sick. It needs strong medicine, fresh air, open windows. Above all, what’s needed is a cold dose of fear – fear of failing, of being sacked and of losing the lovely money. Here is an excellent antidote to greed.

To Whom Did the "Scorpions in a Bottle" Owe Their Allegiance?

In 2000, an important meeting took place between two men.

The first was a member of the board of directors of Merck Inc, the global pharmaceutical company, and of the board of Charles River Laboratories, which helps "our global partners accelerate drug discovery and development by providing them with tailored research models and preclinical, clinical, support services." The second was a member of the board of IMH Health, which advertises that it provides "global information, analytics and consulting" to support "the life cycle of medicines," from "the earliest stages of research and development through product launch, product maturation and patent expiration," and on the board of BankBoston Corporation, a national and international bank holding company. What might they have talked about?

It does not seem unreasonable to guess that they talked about pharmaceutical development. But that was not their topic.

In fact, the two men were Dr Samuel O Thier, who was then also the CEO of Partners Healthcare, and Mr William C Van Faasen, then CEO of Blue Cross and Blue Shield (BCBS) of Massachusetts. Their subject, as we discussed recently, was a secret increase in the reimbursement BCBS would give to Partners, far beyond the reimbursement given to other Boston teaching hospitals. Why BCBS was so willing to pay so much money to one hospital system is unclear. This revelation of this secret agreement showed how an important precept of the supposedly "market-based" US health care broke down. We had previously discussed that in a deregulated system, organizations like hospitals and health insurers/ managed care organizations were supposed to have negotiated vigorously for their interests. The former would try to maximize their reimbursement. The latter would try to minimize their costs. In the secret agreement between Thier and van Faasen, this did not happen.

I cannot explain why this secret agreement was made. I can point out some factors that may have been influential, but have not often been discussed.

The first factor is that the people leading health care organizations often have divided loyalties, and hence their actions on behalf of particular organizations may not be completely explained by their roles with these organizations, and consequent responsibilities and duties. For example, as noted above, the CEO of Partners also was a director of a pharmaceutical corporation, and a contract research/ drug development corporation. His responsibilities to advance the mission of Partners may have conflicted with his fiduciary duties to the stock-holders of Merck and Charles River Laboratories. Similarly, the CEO of Blue Cross Blue Shield was also a director of a drug development corporation and an international finance corporation. His responsibilities to advance the mission of Blue Cross Blue Shield may have conflicted with his fiduciary duties to the stock-holders of IMH Health and BankBoston Corporation.

The second factor may be revealed by considering the current leadership of the two organizations, leadership which has maintained the secret agreement (at least until it was made public).

The current Board of Trustees of Partners Healthcare, which has 16 members, includes:
- Jack Connors, the chair of the board, who is also the Chairman Emeritus of marketing communications company Hill, Holliday, Connors, Cosmopoulos Inc, whose clients include pharmaceutical and pharmacy benefits manager CVS / Caremark, and is also a member of the board of directors of Covidien, a medical device company.
- Anne M Finacane, who is chief marketing officer for Bank of America, an international financial corporation
- Steven S Fischman, who is President and Chief Operating Officer of New England Development, and real estate development and investment company.
- Edward P Lawrence, a member of the board of directors of Invesco, a global investment management corporation, and of AMVESCAP PLC, another global investment management corporation.
- Jay O Light, an "advisor/trustee to several corporate and institutional pools of capital," a member of the board of directors of Blackstone Group Management, the general partner of the Blackstone Group, a global investment and advisory firm, and a member of the board of directors of ESurg.com, an online source of health care supplies and information.
- Terrence Murray, who is on the board of directors of CVS/Caremark, and is former chair of FleetBoston Financial Corporation and its predecessor FleetBoston, into which BankBoston merged, and which subsequently merged into Bank of America.
- Gary A Spiess, former vice-president of FleetBoston Financial.
- Dorothy A Terrell, a venture partner of First Light Capital, a venture capital firm.
- David A Thomas, a member of the board of directors of Cambridge Trust Company.

The current Board of Directors of Blue Cross Blue Shield of Massachusetts, which has 18 members, includes:
- Mara Aspinall, senior advisor to Genzyme Corporation, a biotechnology firm, member of the board of directors of Predictive Biosciences, also a biotechnology company, and member of the board of trustees of the Dana-Farber Cancer Institute, a component of Partners Healthcare.
- Brian Barefoot, a former executive vice president and director of investment banking for PaineWebber Inc, an investment firm that was merged into UBS.
- Samuel Cabot III, a member of the board of directors of Fiduciary Trust Company, an investment management firm.
- Richard C Garrison, senior vice president and "catalyst" of Vertex Pharmaceuticals, a biotechnology company.
- Paul Guzzi, member of the Partners Healthcare corporation.
- Marian L Heard, is a member of the board of directors of CVS/ Caremark.
- Philip W Johnston is president and CEO of Johnston Associates, a consulting firm whose clients include Partners Healthcare, numerous medical device companies, including Covidien, and numerous other health care corporations.
- Cleve L Killingsworth, a member of the board of overseers of TIAA/CREF, an investment company.
- Karen Kruck, a senior managing director and head of strategy for State Street Global Advisors, an investment management company.

So another factor seems to be that the leadership of organizations which are supposed to negotiate at arms' length may have more in common with each other than with their organizations' constituencies. Note that these two boards have a lot in common. Both have disproportionate numbers of members who work or retired from one sector of the economy, financial services, and are or were top leaders within that sector. (Half, 8/16 of Partners board members are from this sector. 22%, 4/18 of the Blue Cross Blue Shield board are from this sector.) Keep in mind that of the employed US population, less than 6% work in this sector. This sector is also that which has brought us the global financial crisis.

There are also a variety of interlocks and overlaps among the two boards. These include:
- A major client of a firm run by a member of the BCBS board (Johnston) is Covidien, whose own board includes a member of the Partners board (Connors).
- Another major client of Johnston's firm is Partners itself.
- A member of the Partners board (Murray) and a member of the BCBS board (Heard) both sit on the CVS/ Caremark board.
- A major client of the former firm of a member of the Partners board (Connors) is CVS/ Caremark, a firm on whom a member of the BCBS board and a member of the Partners board sit.
- a member of the BCBS board (Aspinall) also sits on the board of a the Dana-Farber, a component of Partners.
- a member of the BCBS board (Guzzi) is also on the Partners corporation.

Finally, a number of the members of both boards have leadership roles in other health care corporations whose goals could conflict with Partners of BCBS respectively. Two members of the Partners board and three members of the BCBS board sit on the board of such health care corporations.

In summary, the current "market-based" approach to the organization of our health care system is based on the assumption that health care organizations will compete vigorously with each other, and different kinds of health care organizations will negotiate vigorously and at arms' length for their own interests.

However, it appears that the leaders of large health care organizations may have more in common with each other than with other members of their organizations' constituencies. For example, the leaders of a hospital system and of a health insurance/ managed care corporation may be more like each other than like their own employees, patients, trainees, etc. This may make it less likely that they will negotiate vigorously and at arms' length.

It also appears that conflicts of interest affecting these leaders may be widespread, and that conflicts can be of a variety of types.

Finally, it appears that leaders of the finance sector may have a disproportionate overlap with the leadership of health care organizations. The current global economic collapse have lead many to characterize the culture of the financial sector as marked by arrogance, greed, and corruption. Having this culture disproportionately influence the leadership of health care organizations may be responsible for some aspects of the ongoing health care crisis.

This case, and many others reported on Health Care Renewal, suggests that we need leaders of health care organizations to be dedicated to the principles and mission of their organizations, and not to have divided loyalties and conflicts of interest.

Merger Mania Redux: Combination Would Lead to Windfalls for Blue Cross Executives

The Philadelphia Inquirer published a story about what seems to drive merger mania in health care. In Pennsylvania, the two largest health insurance companies in the state, both not-for-profit, Highmark and Independence Blue Cross, have been pushing to merge

Highmark Inc. and Independence Blue Cross would pay their top executives as much as $4.2 million more if they were allowed to merge.

Kenneth Melani, the chief executive of Highmark, who is expected to have the same job at the combined companies, would get a 31 percent raise, to $3.9 million from $2.97 million, including incentives, according to documents filed with the Pennsylvania Insurance Department.

Independence Blue Cross' CEO, Joseph Frick, who is slated for the role of chief operating office after the merger, would earn $2.94 million, the same as his current pay. In 2006, Frick's pay was $1.6 million.

The two biggest raises after Melani's $930,000 are planned for chief financial officer Nanette DeTurk and David M. O'Brien, executive vice president for government services, both from Pittsburgh-based Highmark.

DeTurk, who is in line to be CFO of the combined entity, could get a $635,098 increase in total pay, which includes possible annual and long-term incentives. O'Brien, head of Medicare operations, would get a $556,184 raise under the plan filed Thursday.

Lance Haver, director of Philadelphia's Office of Consumer Affairs, said yesterday that the raises were another 'indication that the Blues have lost their social mission and operate more like for-profit insurance companies.'

If the reason for the merger is 'to better serve the public, then they don't need to raise executive salaries like this,' he said.

The insurers have said that efficiencies from the merger, which would create the largest health insurer in state history and one of the largest in the nation, would spin off $1 billion in savings to benefit subscribers, the uninsured and other charities.

Part of the savings would come from the elimination of 745 to 1,200 jobs, the companies have projected.

An editorial in the same newspaper noted that while executives would enrich themselves, the benefits to others were not so obvious.

Short of the windfalls for the top execs, the proposed merger looks like a loser for other Pennsylvanians.

Employees: Up to 1,200 Blue Cross jobs are expected to be eliminated if the deal goes through. Mergers create job overlaps that lead to reductions and a big annual savings.

Of course, there's no overlap for the two chief executives, who instead will divvy up their duties and still get big paydays.

Customers: Independence Blue Cross and Highmark already have a stranglehold on their respective markets, which helps explain why they can jack up rates without much recourse by their clients.

The proposed merger won't lead to a reduction in premiums for customers, who have been socked with annual double-digit increases. The Blue Cross CEOs say the merger will have 'minimal' impact when it comes to reining in rate hikes.

Competitors: If the merger is approved, the prospect of any real competition among health-insurance providers in the state will disappear.

The merger would give the new firm a combined market share of roughly 65 percent - making it the largest private health insurer in Pennsylvania. The result will be a more dominant health-insurance provider, making it even harder for other existing insurers to expand while scaring any new competitors from entering the state.

The leaders of not-for-profit corporations are supposed to have a duty of obedience, the obligation to advance their organization's mission, and a duty of loyalty, the obligation to put the mission ahead of their self-interest when acting in their leadership capacity. Highmark proclaims its mission to be "to provide access to affordable, quality health care." Independence Blue Cross seems to have avoided committing itself to a mission, but by implication also should be about providing fairly priced, accessible health insurance. However, the main effect of this merger seemingly would be to enrich the two organizations' top executives, not to improve health care or make it more affordable or accessible. This example of merger mania reminds us that far too many health care leaders seem more interested in enriching and empowering themselves rather than improving health care.

We need health care leaders who actually care about health.

Making the governance of health care organizations, particularly not-for-profit organizations, more representative of key constituencies, more transparent, more accountable, and subject to clear ethical standards might encourage people who care about health to lead health care organizations, and discourage people who care mainly about their own wealth and power from doing so.

Blue Cross of California - Wellpoint to Use EMR's to Deny Women Prenatal Care and Encourage Abortions, it follows...

I commented on the "irrational exuberance" over healthcare IT here. Health IT is a double-edged sword. It can be used, and it can be misused. In the hands of the wrong people, it will "revolutionize healthcare" all right ... but not in the direction health informaticists and clinicians would desire.

The title of this post seems the logical outcome based on the self-initiated debacle of Blue Cross of California, as posted at Wellpoint Halts Attempts to Have Doctors "Rat Out Patients":

Blue Cross of California is sending physicians copies of health insurance applications filled out by new patients, along with a letter advising them that the company has a right to drop members who fail to disclose 'material medical history,' including 'pre-existing pregnancies.''Any condition not listed on the application that is discovered to be pre-existing should be reported to Blue Cross immediately,' the letters say.

The full extent of the "medical derangement syndrome" represented by this incident calls for elucidation that seems absent in the main stream media.

First, a plan seeking to deny coverage that specifically singles out a "condition" of "pre-existing pregnancy" is heartless beyond hope:

• Is pregnancy now considered by Wellpoint to be merely a "pre-existing condition?"
• What about women who might not have known they were pregnant at the time of application? With the history of Wellpoint's cancellation of policies, how would such situations be adjudicated, and how rapidly considering the clinical time windows involved?
• Why would such patients be subject to cancellation instead of rate adjustments? Who was to make that determination? What was it to be based on?
  

It seems to me that the intent was to deny coverage to pregnant women who did not for whatever reason disclose their pregnancy, thus pushing them towards inadequate prenatal care and/or abortions.

I would like to know the answers to the following:

• Who conceived this policy and the announcement? What committee and executives approved it?
• Did they have any idea of the all too predictable physician reaction? If yes, did they care?
• If they knew the likely reaction and did not care, why are these people in a position of authority in healthcare?
• If they did not know the predictable reaction, what are people so utterly divorced from medical culture and ethics doing in a position of authority in healthcare?
• Who hired these people?

Finally, being denied access to physicians "ratting out" their patients, it's likely Blue Cross of California will resort to using Health Information Technology and Electronic Medical Records data from physicians to provide the same information.

In effect, it seems Blue Cross of California - Wellpoint will use EMR's and other healthcare IT to deny people coverage, including denying women prenatal care and probably pushing them to have abortions.

Is this the "revolution" health informaticists had in mind when we began advancing the field of computing in medicine?

With regard to their statement "As a result, we are discontinuing the dissemination of this letter going forward", the business-speak spin term "going forward" is best translated as:

We got caught doing some seriously bad sh*t, but let's just sanitize it and brush it under the carpet.

Finally, I find it pathetically ironic that this organization expects potentially hostile-to-self-interest honesty out of its subscribers about their medical histories, when as Roy Poses pointed out, their own corporate history includes:

• Settling a RICO (racketeer influenced corrupt organization) law-suit in California over its alleged systematic attempts to withhold payments from physicians (see post here).
• Being fined for cancelling individual insurance policies (again in California) after their holders filed claims (see post here)
• Being found to have mis-handled at least half of its revocations of individual policies (see post here)

Perhaps honesty best begins at home.

-- SS

More Managed Care Management Mumbo Jumbo

A number of news items about managed care organizations/ health insurers published last week make for an interesting juxtaposition.

Innovative Physician Reimbursement?

First were articles about managed care proposals for innovative physician reimbursement. First, from the Boston Globe, an article about a proposal to resurrect capitation.

Massachusetts' dominant health insurer is proposing to overhaul the way it pays doctors and hospitals, in what company officials said is an attempt to slow runaway healthcare costs and improve the quality of care.

Blue Cross and Blue Shield of Massachusetts wants to stop paying doctors and hospitals for each patient visit or treatment, a common arrangement that most experts agree has led to unnecessary, inefficient, and fragmented care that is sometimes harmful to patients.

Instead, they want to pay doctors and hospitals a flat sum per patient each year, adjusted for age and sickness, plus a significant bonus if the providers improve care, Blue Cross officials said. In most cases, the payment would cover all services from primary care doctors, specialists, counselors, and hospitals - forcing them to work together closely.

Hmmm, that sounds like "capitation," paying physicians or hospitals fixed sums per patient covered. That idea died out in the 1990s. Its main drawback was that it effectively transferred risk from the insurer to the physician or hospital. The latter were at risk for bankrupting losses if their patient populations turned out to be unusually expensive. The risk was greatest, per the laws of probability and statistics, for the doctors and hospitals with the smallest patient populations. Thus the problem with capitation is that it provides a perverse incentive to avoid sick or complicated patients. This suggests it will not improve quality or access.

Would this new version of capitation address this problem? Not obviously. The quote above suggests some adjustment for "sickness," but how whether that would be adequate to avoid perverse incentives is unclear. Also,

The Blue Cross plan has some similarities to the 'capitation' payment system behind those problems, which was widely used in the 1990s but was vehemently rejected by many doctors and patients. Blue Cross says its plan includes safeguards to avoid the undertreatment, underpayment, and strict controls on patient choices that doomed capitation.

'We have no interest in returning to the heyday of managed care or denying care,' [executive vice president for healthcare services at Blue Cross Andrew] Dreyfus said. He said several mechanisms would prevent patients from being denied appropriate care, including public scrutiny of doctors' performance and Blue Cross's commitment to cut off any caregiver providing substandard service.

That isn't very reassuring. The problem is not only that doctors might deny patients adequate care, but that doctors may avoid having sick or complex patients on their panels.

The next brilliant idea was described by the Wall Street Journal.

Health plans are drawing scrutiny for offering financial incentives to entice doctors to prescribe cheaper generic medicines, including paying doctors $100 each time they switch a patient from a brand-name drug.

The incentive program that has drawn the most scrutiny is one initiated last year by Blue Care Network, a health-maintenance organization owned by Blue Cross Blue Shield of Michigan. Under the three-month program, called Blue Reward$, primary-care physicians were asked to consider switching patients from a brand-name drug and received $100 for each plan member who filled a generic cholesterol-lowering statin prescription. To assist doctors, the HMO mailed them a list of Blue Care Network patients who were taking Lipitor and Lescol, two brand-name statins.

This seems to come from the two wrongs make a right school of thought. We, and many others have criticized pharmaceutical, biotechnology, and device companies for gifts and payments to doctors that may influence their decision making in ways that do not necessarily help their patients. Now managed care organizations and health insurers are doing the same, this time to directly influence physicians to prescribe more generic drugs. Of course, there are many patients now taking expensive brand-name drugs who could do just as well taking generics. However, there are many other patients for whom the brand-name drugs may provide the best benefit/ harm ratio. Paying doctors to prescribe generics, regardless of whether his or her patients may experience benefit or harm from this decision, is also a perverse incentive likely to lead to bad decisions harmful for some patients.

Such concerns were raised in the WSJ article.

But the more aggressive approaches, such as cash rewards for each patient switched from a given list of drugs, are coming under fire for injecting financial incentives into what some patient advocates and legislators say should be a purely medical decision. Medical societies are also concerned that such rewards may put doctors in the ethically questionable position of taking a payment that patients know nothing about.
'I'm all for saving health-care dollars, but my concern is if there's a direct financial incentive for a physician to prescribe a certain generic drug, we cannot really trust that decision,' says Peter Koutoujian, house chairman of the Massachusetts legislature's Joint Committee on Public Health. He introduced a bill in the committee last month to ban drug-switching incentive payments to doctors.

It's interesting that both these innovations hinged on physicians' reimbursement, yet did not clearly address what seems to be the biggest distortion of such reimbursement, the imbalance favoring procedures over cognitive care, propagated by the Medicare reimbursement system influenced by the secretive RBRVS Update Committee (RUC). (See related posts here, here, and here.) Also, these innovations represent yet another example of managed care organizations/ health insurers avoiding addressing the prices of drugs and devices directly.

The Corporate Culture of Managed Care

Hints about why managed care organizations' and health insurers' leadership may favor perverse incentives and avoid confronting the more difficult problems comes from some more of last week's articles.

First, again in the Boston Globe, was an article about the leadership of the same Blue Cross and Blue Shield of Massachusetts that advocated a new version of capitation above.

Attorney General Martha Coakley is investigating the $16.4 million payment Blue Cross and Blue Shield of Massachusetts made to William C. Van Faasen, the insurer's former chairman and chief executive, who retired Jan. 1, according to a Blue Cross-Blue Shield director and others with direct knowledge of the probe.
more stories like this

Coakley is also examining the new management structure at Blue Cross-Blue Shield under which Cleve L. Killingsworth holds the positions of chairman and chief executive.

The size of the payment is considered extraordinary by some because as a nonprofit, Blue Cross-Blue Shield is expected to use surpluses to support its healthcare mission.
Commenting on public charities in general, Harry Pierre, a spokesman for the attorney general, said, 'A public charity must use all of its funds to advance the charitable purpose for which it was established.'

Van Faasen earned nearly $3 million in salary and bonus in 2006, according to a recent filing made with Coakley's office, which oversees the state's charities and nonprofits. That included $500,000 in base pay and $2.46 million in bonus based on results, according to the company's filing.

Some healthcare industry officials said they are troubled that Blue Cross-Blue Shield chose to let one person hold the titles of chief executive and chairman.

'This is a terrible design and it's just a bad idea,' said Nancy M. Kane, professor of management at the Harvard School of Public Health. 'It makes accountability of the organization to the community, represented by the board, a farce.'

Linda Crompton, chief executive of BoardSource, a Washington, D.C., organization that advises nonprofits on corporate governance, said the insurer's structure 'raises all kinds of issues about independence.'

'Having one person fill both positions is a very poor practice, and it's something we counsel against,' said Crompton.

A not-for-profit health care insurer which sees fit to make its executives rich, and set up a governance structure which renders accountability a "farce" is probably not going to be terribly hostile to perverse incentives for physicians.

In addition, last week featured several more stories about the corporate culture of managed care organizations/ health insurers.

From the AP, via the Indianapolis Star, was this story about the formerly "most admired executive" of WellPoint, a for-profit insurance company which runs multiple Blue Cross plans. Its California operation has under fire for allegations that it cancelled coverage of individuals after they developed expensive medical problems (see post here). The executive clearly seemed to have too much money to burn.

David Colby was one of corporate America's most admired executives before he was fired abruptly last spring for what was vaguely described at the time as misconduct of a "nonbusiness nature." Now details about his personal life are spilling out, and it's clear he was more than just Wall Street's darling.

Details in a motion filed Jan. 15 in Ventura (Calif.) Superior Court depict the former chief financial officer of health insurance giant WellPoint as a corporate Casanova -- a world-class, love-'em-and-leave-'em sort of guy who romanced dozens of women around the country simultaneously, made them extravagant promises and then went back on his word.

Colby helped put together the $16.4 billion deal that created Indianapolis-based WellPoint in 2004. He was named best CFO in managed care for four years in a row by Institutional Investor magazine.

After the company passed him over for CEO last February, it gave Colby thousands of stock options to stick around. But three months later, to Wall Street's surprise, he was out. All WellPoint has ever said is that he was ousted over a nonbusiness violation of the company code of conduct.

By all accounts, the 54-year-old Colby charmed attractive women by showering them with compliments and gifts.

DiCarlo and the other women suing him tell similar stories of aggressive courtship, big promises and broken hearts.

They say that Colby was carrying on with more than 30 women in the last half of 2007 alone....

Colby would supplement such declarations with gifts such as jewelry or trips, the women say.

Meanwhile, the Tampa Tribune reported,

In the wake of federal and state investigations into the company and a stock market free-fall, WellCare Health Plans chief executive Todd Farha and two other executives resigned Friday.

Farha, 39, announced his departure three months after federal agents stormed the company's Henderson Road headquarters Oct. 24. Agents removed documents and computer drives, but the U.S. attorney based in Tampa has not revealed the target of the investigation. The state attorney general's office also is investigating WellCare.

The New York Times added,

WellCare manages benefits for 160,000 elderly customers under Medicare plans and for 1.2 million low-income recipients of Medicaid benefits. The company, based in Tampa, Fla., is being investigated by federal and Florida authorities over possible overpayments, according to court records.

In October, 200 investigators conducted an all-day raid of the company’s headquarters. Several agents interrupted a quarterly board meeting and held directors there for hours of interviews, according to The St. Petersburg Times. They left the campus with a rented truck filled with seized documents.

Two days after the raid, Connecticut officials said they were reviewing whether WellCare hid the extent of its profit on a health insurance contract with the state Medicaid program. The Securities and Exchange Commission is also investigating.

The company has said it is conducting an internal inquiry and is defending itself against a lawsuit filed by a former employee who said WellCare defrauded the government.

Wellcare, by the way, was one of the companies which used to run the the state of Connecticut's Medicaid program, but was ousted from that role after it refused to tell the state about how it reimbursed physicians (see previous post).

To recapitulate, it seems that far too often, managed care organizations and health insurers, whether for-profit or not-for-profit, seem to be not very accountable to the people they insure, much less the physicians they purport to reimburse. Such lack of accountability may foster a corporate culture that puts enriching top managers ahead of providing accessible, quality health care at the most reasonable cost. Although these organizations' leadership may claim to innovate, it is unlikely that their innovation will do much good as long as the leaders remain representative of and accountable mainly to themselves. However, although we talk about it endlessly on Health Care Renewal, opaque, unrepresentative, unaccountable, and/or unethical governance remains off most peoples' and most policy-makers' radar as causing health care to be expensive, inaccessible, and mediocre.

ADDENDUM (28 January, 2008) - see also this comment on paying physicians to prescribe generic drugs on the Clinical Psychology and Psychiatry Blog.

Another Day, Another Deferred Prosecution Agreement

As I mentioned earlier, a major impetus for setting up this blog was finding out that most physicians knew local examples of badly or corruptly run local health care organizations, and felt that their core values were threatened by the actions of these organizations. However, the doctors all felt they were peculiarly unlucky to practice in such a uniquely sleazy environment. They did not realize that things were likely just as bad in the next town, and thus, that the problems were systemic. When I have taken my Health Care Renewal talk on the road, only a few people in the audiences have ever heard of some of the most vivid examples of bad health care organizational governance, e.g., the collapse of the Allegheny Health Education and Research Foundation (see post here).

So it may be easy to dismiss the next story as just the sort of corruption that goes on in our little state of Rhode Island. But remember that the something similar is likely going on in your cities, states, and countries.

Starting with one of the first posts on this blog, we began to recount the follies of the management of Blue Cross and Blue Shield of Rhode Island (BCBSRI), a not-for-profit insurance company and managed care organization, the dominant health insurer in the state. In 2004, Blue Cross "fired its CEO this year after news reports of his huge salary, receipt of a $600,000 no-interest loan which he did not pay back, and, receipt of free acupuncture treatments from a practitioner who wanted to influence Blue Cross reimbursement policies. Meanwhile, Blue Cross was paying health care professionals poorly (often less than Medicare), while hiking premiums at double-digit rates." (See post here.) In 2005, the company settled a class action suit after it was accused of "bilking subscribers" by using a complex scheme to inflate their drug co-payments (see post here). In 2007, a former RI state senator pleaded guilty to literally being a Blue Cross "bag man," being paid for many more bags than he actually delivered to the company in return for promoting legislation favored by it (see post here).

Today, the Providence Journal reported that four high-ranking Blue Cross executives resigned in connection with "an expected announcement ... by the health insurer and the U.S. Attorney's office." They included Lynne A Urbani, who "was promoted to senior vice president for external services, taking on oversight of community services along with her prior responsibilities over customer, provider and medical services"; Matthew T Brannigan, "a former chairman of the East Greenwich Republican Town Committee, [who] joined Blue Cross in 1996 and had also been promoted earlier this year, from vice president to senior vice president for sales and marketing"; Scott A Fraser, "vice president for government relations, and also served for years as Blue Cross’ spokesman"; and Brian Jordan, "who was assistant vice president for government relations."

Then, a news release from the US Department of Justice revealed the Blue Cross had entered into a deferred prosecution agreement with the government. In it, the company acknowledged its conduct, including:

BCBSRI acknowledged in the agreement that while lobbying [former Rhode Island state Senator] Celona on legislation, its executives caused the insurer to pay $74,000 to a communications company to produce a cable access program hosted by Celona. Celona was paid $13,565.

Likewise, BCBSRI acknowledged that, while its executives were lobbying [former Rhode Island state Senator] Martineau on legislation, members of the insurer’s executive management caused the insurer to pay about $175,500 to a business run by Martineau for the purchase of paper prescription bags.

BCBSRI further acknowledges that it paid $400,000 in insurance brokerage commissions to an unidentified former Rhode Island Senate President while its executives were lobbying him concerning legislation.

The company took responsibility for these actions.

BCBSRI acknowledges and accepts responsibility for conduct of certain former executives, who caused the payments in question to be made, knowing that its executives were lobbying the legislators. The company also acknowledges that the executives were acting within their apparent authority as executives of Blue Cross Blue Shield of Rhode Island.

The nature of the deferred prosecution agreement was explained.

As part of the agreement entered today, BCBSRI will continue to cooperate fully with the government’s ongoing investigation. As long as BCBSRI complies with the terms of the agreement, the government agrees not to criminally prosecute BCBSRI for any conduct described in the agreement and in the plea agreements of the former state senators.

The company agreed to pay a fine, and revise its operations.

Under the terms of the non-prosecution agreement, BCBSRI has agreed to pay $20 million to the government and not to seek any rate increases specifically to recoup the $20 million. The money will go into a fund to be administered by the Rhode Island Foundation. The earnings and interest from the $20 million fund will be used to support projects designed to provide quality, affordable health care services in Rhode Island.

BCBSRI has also agreed to a series of ethical reforms that it has already implemented and will maintain. These reforms include: compliance oversight by a Corporate Compliance and Ethics Committee; a full time corporate compliance officer and ethics department; a code of ethics governing the conduct of directors, officers and employees; and ethics training programs. The insurer also agrees to hire a government-approved monitor to oversee its ethics reform and its compliance with the agreement. The monitor will be in place for at least two years.

Meanwhile, the Providence Journal also reported that the current chairman of the board of Blue Cross, Frank J Montanaro, has been accused of a conflict of interest apparently unrelated to the deferred prosecution agreement. Montanaro, who also is head of the Rhode Island State Association of Firefighters and president of the Rhode Island AFL-CIO labor union, served on an arbitration panel which had to decide on the health care benefits for Providence city fire-fighters. Montanaro was on the panel ostensibly to represent the fire-fighters' interests. Yet, he "argued during the arbitration that the city needed to stay with Blue Cross because a change would result in a disruption for the firefighters, but he never disclosed his connection, or that granting that clause would guarantee millions in business for his company." The arbitrator who represented the city's interests asserted, “Frank shouldn’t even be having this discussion with us. Because Frank is biased. Frank is on the board of Blue Cross. How can the chairman of Blue Cross sit here and impartially and objectively decide on this?”

So, another day, another set of executive resignations, another conflict of interest and another deferred prosecution agreement for a big (at least for little Rhody) health care organization. (This is, by the way, the second deferred prosecution agreement imposed on a big health care organization in the state. See our previous post on the agreement affecting the Roger Williams Medical Center.) Is it any wonder that honest health care professionals in this state are demoralized?

That one small state has had two such agreements in two years, and, of course, all the mismanagement and malfeasance we have documented now for three years on Health Care Renewal, suggests that the US, and most likely other countries, have big systemic problems with unethical health care practices and bad health care governance. But as Transparency International noted, health care corruption for a while has been the unacknowledged elephant in health care's living room, raising costs, stifling access, and degrading quality.

How many more such stories will it take for the remaining honest physicians to demand that we throw sunlight on the infestations and drain the swamps of corruption? Will the public and policy-makers ever notice?

By the way, although cases like that of Rhode Island Blue Cross at least serve to exemplify the problems, the failure so far of anybody at Blue Cross to lose more than their current jobs as penalties for their actions suggests that there is still little deterrence for malfeasance in the health care sphere.

Health Care Policy Found to be Holding the Bag for Private Interests

This is a local Rhode Island tale, but one with some ramifications. Mike Stanton, the Providence Journal's well-known investigative reporter, just broke the story of yet another legislative leader pleading guilty to selling his office. In this case, he sold his office to prominent local and national health care organizations, for the purposes of influencing health policy.

Gerard M. Martineau was the bag man of Blue Cross [and Blue Shield of Rhode Island] and CVS — but he was 8 million bags short.

Now, the former Rhode Island House majority leader is the second ex-legislator, after John Celona, to admit to selling his office in the federal State House corruption probe known as Operation Dollar Bill.

As part of a $900,000 corruption scheme that the longtime Woonsocket Democrat has admitted to, Martineau sold 10 million bags to Blue Cross & Blue Shield of Rhode Island — but fewer than 2 million bags were ever manufactured, according to court documents filed yesterday by federal prosecutors.

Besides inflating invoices for phantom bags, Martineau also admitted using his power to act favorably on legislation that benefited CVS and Blue Cross, most notably by thwarting pharmacy-choice legislation that both companies opposed from 1999 to 2002, when he left the General Assembly after 16 years.

While Martineau was doing the companies’ bidding at the State House, he was paid $715,000 in commissions by CVS and $175,500 by Blue Cross for paper and plastic bags, according to charges filed in federal court yesterday.

Martineau, who co-chaired a working group of state health officials, lawmakers and lobbyists that led to his sponsorship of landmark health-insurance reform in 2000, also admits that he failed to disclose his financial ties to Blue Cross and CVS while he sat in a position to influence hundreds of health-care bills.

The main focus of Martineau's now admittedly illegal enterprise was health care legislation.

On March 1, 1999 — weeks after the introduction of pharmacy-choice legislation opposed by CVS and Blue Cross — someone at CVS wrote Martineau that the company was examining its plastic-bag contracts and invited him to submit a contract proposal. That same day, Martineau told a newspaper reporter that he had changed his opinion on pharmacy-choice legislation, and now believed it was unnecessary.

In April, CVS invited Martineau to submit another proposal, this time for paper bags. The same day, the House Corporations Committee voted 17-0 against four pharmacy-choice bills. Martineau, the information says, 'opposed that legislation and used his power, influence and authority as Majority Leader to influence the vote in the Corporations Committee to help obtain that result.'

In the following months, the information says, CVS awarded paper and plastic bag contracts to manufacturers in Canada and New Jersey. In each case, Martineau’s Upland Group received commissions.

Over the next three legislative sessions, in 2000, 2001 and 2002, Martineau thwarted pharmacy-choice legislation and also used his influence to affect several other bills of interest to CVS, including fair pricing for prescription drugs, pharmaceutical assistance for the elderly and competition from mail-order and Canadian pharmacies.

Martineau was also doing business with Blue Cross. In 1998, when he was chairman of the House Corporations Committee, Martineau solicited bag business from an unidentified Blue Cross executive who had come to the State House to lobby him on legislation. Although Blue Cross did not use bags, Martineau proposed that the insurer place advertisements on bags and distribute them for free to about 29 independent pharmacies that had become part of Blue Cross’ exclusive pharmacy network — a network administered by CVS.

The first order, Martineau proposed, should be for 1 million bags, at $19,500 per million. Blue Cross hired him, the information says, 'without comparing prices, obtaining other bids, analyzing the effectiveness of the advertising approach, determining specifically where the bags were to be delivered or assessing the need for the quantity of bags proposed.'

Blue Cross issued its first purchase order, for 1 million bags, on Jan. 5, 1999 — the first day of the legislative session. On Jan. 27, about a week after the insurer issued a $19,500 check to Martineau’s company, Martineau met, as the majority leader, with lobbyists for Blue Cross and CVS to discuss pharmacy-choice and other health-care legislation.

Over the next few years, a pattern emerged. Blue Cross lobbyists would meet with Martineau to discuss legislation, he would support their agenda and he would sell them bags. In 1999, when Blue Cross was experiencing financial difficulties, Martineau was the primary sponsor of a Health Conversion Act that would have facilitated the sale of Blue Cross to a for-profit company. A Blue Cross lobbyist referred to the act as 'The Martineau Conversion Bill.'

On May 1, 2000, a Blue Cross executive sent Martineau a list of 'those House bills which are of significant concern.' In 2002, Martineau sponsored legislation delaying rate restrictions on small employers — 'our number one priority,' according to a Blue Cross report.

This, of course, is just the latest story about conflicts of interest and corruption in health care in this small state. One state senator is already in jail for selling his office to local health care organizations, particularly, a local medical center (see post here). The CEO and one other former executive of that medical center were also convicted of mail fraud (see post here), and the medical center is now operating under a federal deferred prosecution agreement (see post here), and under new management.

But lest anyone scoff that this sort of corruption is merely a Rhode Island problem, I would point to similar cases in other US states (e.g., UMDNJ, the largest medical university in the country, is also operating under a deferred prosecution agreement, as summarized in this recent post). It is also worth revisiting Transparency International's 2006 Global Corruption Report which asserted health care corruption is a global problem that has raised costs, denied access, and hurt quality worldwide.

One particularly important element of this current case is, I believe, its links to health policy, rather than the day to day operation of health care. Although the state legislator may have been just seeking to feather his own nest, he did so by influencing bills which affected health policy at least state-wide, and formed part of a larger mosaic of health policy making. To some extent, the defeat of pharmacy-choice legislation, which would have disrupted the cozy business relationships among specific insurers and specific pharmacies, seems to have occurred because of Martineau's sale of his office.

One wonders how much health policy in a larger sense has ended up mainly serving private interests?

Another particularly important element of this case is how it has not been discussed in a health care context. Other previous cases in the state that had large effects on health care also have largely not been discussed in their health context, and have never had visibility in the medical or health care literature. Justice then and now was primarily pursued by the civil authorities charged with enforcing the law in general. There was no framework for enforcement or ethics that seemed to bear directly on the health care issues involved.

This points out some important voids in health care. Health care organizations (like Rhode Island Blue Cross, and CVS in this case), generally:

- Do not have explicit ethical codes that apply to their management as well as to their rank-and-file.
- Do not have inspectors general, ombudsmen, or the like to help enforce such codes.
- Do not have specific protection for whistle-blowers.
- Are not required to have leaders who are licensed, or have met any specific competency or ethical standards.
- Are not required by government or accrediting bodies to adhere to a higher standard of ethics than any other organizations, e.g., a higher standard than applies to garbage-hauling companies.

Is something wrong with this picture?