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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Health Care Organizations Ensnared in Giant Ponzi Scheme

It seems that news about concentration and abuse of power in health care, about ill-informed, ill-advised, conflicted, self-interested, even corrupt management of health care organizations, has almost been swamped by stories of even worse concentration and abuse of power elsewhere, from mysterious hedge funds, to US state government, to countries on multiple continents. And yet, health care and health care organizations seem to have been swept up into these larger fiascos. We commented briefly earlier on one health care connection to the allegations that the Governor of Illinois tried to auction off an appointment to a US Senate seat.

Now it turns out that the spectacular collapse of a financial organization that really was a giant Ponzi scheme also has ensnared many health care organizations.

Reporting on the collapse of Bernard L Madoff Investment Securities is everywhere. (See this initial story, for example, in the New York Times.) Here is a list of the health care organizations that are involved.

Madoff was on the Board of Trustees of Yeshiva University, and its Treasurer. Yeshiva University is the parent university of the Albert Einstein College of Medicine. (The Board of Trustees web-site has had its content removed, but the cached version listed Madoff. This role was also reported by Bloomberg.)

Another member of the Yeshiva University board, J Ezra Merkin, ran a hedge fund, "which then put almost all of its $1.8 billion in capital in Madoff's hands." (per AP)

Yeshiva University itself was reported to have "lost tens of millions of dollars, if not more." (per New York Magazine.)

The Carl and Ruth Shapiro family charity, formerly a major donor to Boston health care institutions such as the Beth Israel Deaconess Medical Center, Boston Medical Center, and the Dana/Farber Brigham and Womens' Cancer Center, lost about half its assets, which had been invested with Madoff (per the Boston Globe).

Robert Jaffe, who "operated a company whose sole purpose was to market Madoff investment products," is "an overseer of Beth Israel Deaconess Medical Center." (Also per the Globe.)

The North Shore - Long Island Jewish Health System was "believed to have lost millions" (per AP).

So besides being a stunning example of financial mismanagement and fraud, this case is a reminder of how prominent health care institutions got caught up in the contemporary business culture, which in turn was dominated by the self-proclaimed Masters of the Universe who lead the big financial institutions. But after the Madoff case, as one writer on TheStreet.com put it, "does anyone still doubt that the global banking and investing industry is full of greedy idiots?"

ADDENDUM (16 December, 2008) - see multiple posts about the relationships among Yeshiva University and Madoff on the University Diaries blog.

Boston University Back-Tracked on Conflict of Interest Guidelines

The Boston Globe reported how Boston University has back-tracked on its conflict of interest policy for its board of trustees. In April, 2004, the board approved new and more stringent guidelines, which barred financial relationships between trustees' companies and the university unless such a relationship "has been found to be of exceptional necessity to the university."
However, apparently the new guidelines were never implemented, and in December, the board enacted new relaxed guidelines that would allow such a relationship if it "has been found to be of clear benefit to the university." The new code of ethics resulting was only distributed to university staff last week.
In 2004, the chair of the board, Alan Leventhal, heralded the "very high standard" set by the "exceptional necessity" requirement. But the Globe reported that this week, Stephen Burgay, Vice President for Marketing and Communications, said that the board's audit committee found that the "exceptional necessity" requirement would be "unworkable."
The example given was that Boston University did $6 million in business with Lehman Brothers, while its Vice Chairman, Howard L. Clark Jr, was on the board.
Some trustees whose firms did business with the University have left, e.g., Gerald S. J. Cassidy, whose lobbying firm, Cassidy & Associates, got $1 million from Boston University last year.
However, Frederick H. Chicos, President and CEO of Chickering Group, which has been bought out by Aetna, is still on the board. Chickering is the only company allowed to provide health insurance to students. It received only $36,000 from the University last year. How much it got from University students for premiums is unknown. Also remaining on the board are executives for Barnes & Noble, and John Hancock Financial services, both of which did more than $1 million worth of business with the University.
One Boston University Professor commented that University officials' claimes that "they were trying to improve the public image and make people think they were cleaning up the place" were a "misrepresentation."
My comments are that allowing board members with such conflicts of interests makes it unclear whether they will put their companies' or the universities' interests first, and whether the university will put their companies' interests or its mission first.

Boston University Delayed Reporting Tularemia Outbreak

The Boston Globe reported (here and here) Boston University's (BUs) sluggish public response to an apparent tularemia outbreak at one of its research laboratories. In May, 2004, two laboratory staff became ill with flu-like illnesses. After a third worker got sick in October, researchers discovered that instead of working with harmless bacteria, their specimens were contaminated with a virulent tularemia strain. On November 4, the University's Biosafety Committee shut down the research project.
Why mention this here? Apparently, Massachusetts law requires immediate reporting of infectious diseases like tularemia, yet BU did not report the outbreak to the public health department until November 9. BU has been planning the construction of a Level 4 laboratory to study extremely virulent pathogens at a site in the densely populated South End of Boston. To gain approval for the new laboratory, BU filed an environmental impact report with the state Environmental Affairs department that claimed a perfect safety record for protecting workers against laboratory acquired infections. However, BU failed to update the report with information about the outbreak, despite state environmental regulations that require such corrections.
Finally, as a Globe editorial noted, to sell the laboratory to a dubious public, BU promised maximum opennes and candor. However, BU never notified the public of the tularemia outbreak until the stories appeared in the Globe. At that point, the spin put on the events by BU spokesperson Ellen Berlin was, "It doesn't change our stellar safety record." Moreover, our "first obligation in this incident was to ensure there was no public health risk and to report the incident to ... local, state, and federal public health authorities," although, not apparently, to do so very quickly.
As a Globe columnist pointed out, "Trust is a fragile thing - hard to build, harder still to rebuild." Many large health care organizations need some serious education about what openness and candor really mean.