Who Benefits? - Hospital Profits and Quality May Fall, But Hospital Executives' Compensation Keeps Rising

Despite recent attempts at health care reform, US health care dysfunction seems to proceed inexorably with ever rising costs, and continuing problems with access and quality.  A likely reason is that those who find the current system personally profitable are in a position to resist real reform.  The people who seem to gain the most from the status quo are top hired executives of big health care organizations.

In particular, stories about huge pay for hospital and hospital system managers continuously appear in the media.  For example, starting in October, 2015, we saw the following headlines:

- Pittsburgh, PA, October, 2015: "Former Highmark CEO Made Nearly $10 Million in 2014, Tax Records Show"
- Regarding Rochester General and Unity health systems in Rochester, NY, November, 2015: "Here's Why Execs Got Millions After Health Merger"
- Regarding the CEO of North Shore-LIJ Health System in NY, November, 2015: "This Guy Makes $10M a Year to Head a Nonprofit"
- In Idaho, February, 2016, "Pay for 9 Treasure Valley Nonprofit Hospital Employees Hits or Tops $1 Million"

Even more interesting are stories that show massive compensation of executives despite their hospitals' apparent poor performance.  Since October, 2015, we also found the following (in chronological order)


Let Go After "Uneven Financial Performance," CEO of Kaleida Health Got $1.6 Million of Severance in One Year, with More to Come

In November, 2015 the Buffalo (NY) New reported that James R Kaskie, the CEO of Kaleida Health, the "largest healthcare provider in Western New York," per its website, was "forced out" when

the board cited a need for a change in leadership amid an uneven financial performance for the system....

Nonetheless,

Kaleida Health paid $1.6 million in 2014 to its former CEO, James R. Kaskie, after forcing him out early last year, according to its most recent federal regulatory filing.

Also,

Kaleida will pay Kaskie 24 months of severance under the terms of Kaskie’s employment contract with the system, John R. Koelmel, chairman of the Kaleida board, told The Buffalo News on Thursday.

Kaskie was paid 10 months of severance plus deferred compensation, which is the $1.6 million reflected in the latest regulatory filing. He will be paid 12 months of severance in 2015 and a final two months of severance in 2016.

Mr Kaskie was paid even better the year before:

Kaskie earned $1.9 million in 2013, his last year as CEO.

Furthermore, other executives who were let go after Mr Kaskie's departure also were very well paid,

Dr. Margaret W. Paroski, former executive vice president and chief medical officer, who was replaced by Lomeo after he took over as CEO last year, $763,552.

Joseph M. Kessler, former executive vice president and chief financial officer, who was replaced by Lomeo, $608,454.

The article explained that

Hospitals, corporations and other entities negotiate severance agreements as part of the employment contracts when they hire top executives

So not only to these executives earn top dollar, but their earnings continue even if they lose their jobs because of poor performance. When asked to explain these levels of remuneration, and contracts that allow executives to get continuing pay even after being "forced out" for "uneven financial performance," John R Koelmel, the chairman of the system's board, said

Companies pay at market. To recruit the best talent, you need to pay at least market.

Public Hospital MetroHealth Medical Center Scored Below Average on Patient Satisfaction and Quality, but CEO Got $1.1 Million

In March, 2016, Cleveland Ohio television station NewsNet5 reported

MetroHealth Medical Center is a public hospital that is supported with $32.4 million of taxpayer money--roughly 5 percent of the hospital's budget.

Also,

a check with a federal database of patient satisfaction levels and quality measures at hospitals across the country found MetroHealth fell below the national average.

Nonetheless, its CEO, Dr Akram Boutos, got $1.1 million in salary, and presumably considerably more in bonuses.

Dr J B Silvers, '"a nationally recognized expert on hospital CEO compensation and professor at Case Western Reserve's business school," who is a MetroHealth board member,

insisted that Dr. Boutros is being fairly compensated when compared to his peers. 

Furthermore,

He admitted the salary is first tied to profits--then a series of other quality measures like patient care, diversity, hospital improvements and employee satisfaction.

But the ties to satisfaction and quality may not bind, because he then tried to explain away the quality and satisfaction data,

Silvers argues those surveys may be misleading.

'Populations like ours, Medicaid populations, uncompensated care--poor people tend to rate organizations lower,' said Silvers.

But then admitted it was really about the money,

'We have to have a target in terms of financial performance because if you don't make the money you can't be in business,' said Silvers.

In Massachusetts, "As Hospital Profits Fall, Executive Pay Soars"

In April, 2016, the Lowell (MA) Sun published a long report on local hospital executive compensation.  It started

It has been a lean couple of years for the region's hospitals.

Drawn by the higher reimbursement rates that insurers pay to academic teaching hospitals, such as those in Boston, more physicians are affiliating themselves with those institutions. Patients are following, and so is the money.

Some community hospitals, including Lowell General Hospital and Emerson Hospital in Concord, saw profit margins drop by more than half from 2012 to 2014.

Other hospitals' financial indicators, like ratios of assets to liabilities, are also weakening,...

However,

As they look to weather those storms and protect their space in a rapidly changing health-care landscape, the boards of directors of the region's hospitals have doubled down on a key investment: their executives.

'Each organization has to make its own decisions about how it can best compete in the marketplace,' said Gary Young, director of Northeastern University's Center for Health Policy and Healthcare Research.

Senior executives of hospitals and health-care systems -- there's a competitive market for that kind of talent ... some would say when organizations run into trouble, they need to spend more to get leaders.'

So,

At Lawrence General Hospital, compensation paid to top non-physician administrators increased 41 percent from 2012 to 2014, according to tax documents. President and CEO Dianne Anderson, who heads the list, was paid a total package of $884,092 in 2014.

Also,

From 2012 to 2014, Lahey Health's non-physician executives saw a compensation increase of 36 percent. A large part of that increase was in the salary of Dr. Howard Grant, who was promoted from president and CEO of Lahey Clinic to president and CEO of the entire Lahey Health system. The system includes facilities throughout northeastern Massachusetts and southern New Hampshire. Grant received $1.7 million in 2014.

In addition,

Lowell General Hospital's executives saw a slightly smaller increase during that three-year span, at 18 percent, although CEO Normand Deschene remains the highest-paid hospital executive in the region with a package worth $1.9 million in 2014. The hospital also pays the taxes on retirement benefits, which are worth hundreds of thousands of dollars, for Deschene and several other executives.

The justifications for these increases in times of financial trouble were similar.  For example, re Lawrence General Hospital,

'Because we're resource-limited, compared to (academic) hospitals, we're even more dependent in these challenging times to bring in somebody who can manage risk,' said Richard Santagati, chairman of Lawrence General's executive compensation committee. 'It takes a different breed and there's real competition for these people ... and once you have them there, you want to keep them because there's a learning curve there that is unique to each hospital.'

Re Lahey Clinic,

'Our executive compensation is comparable to the programs of other, similarly sized health networks and is reflective of the complex role of an executive leader at a leading health system,' Lahey Health said in a statement.

Finally, at Lowell General Hospital, the CEO defended his own pay:

'Lowell General has weathered significant changes in the delivery of health care,' Deschene said. 'At a time when many hospitals have failed, it's very crucial and critical that we have very talented individuals to lead the hospital.' 

The Usual Talking Points Again Invoked

Hospital management used the usual talking points to justify the pay they received,  As I wrote last year 

It seems nearly every attempt made to defend the outsize compensation given hospital and health system executives involves the same arguments, thus suggesting they are talking points, possibly crafted as a public relations ploy. We first listed the talking points here, and then provided additional examples of their use. here, here here, here, here, and here, here and here. 

They are:
- We have to pay competitive rates
- We have to pay enough to retain at least competent executives, given how hard it is to be an executive
- Our executives are not merely competitive, but brilliant (and have to be to do such a difficult job).

So in the stories above, we found, for example:

- Competitive Rates: "you need to pay at least market" (Kaleida), and "there's real competition for these people" (Lawrence General)
- Retention: "you want to keep them" (Lawrence General)
- Brilliance: "the best talent" (Kaleida),  "very talented individuals" (Lowell General)

It appears that those justifying huge executive payments have all been handed these same talking points.

Yet none of them quite make sense.  The brilliance argument is particularly suspect in cases like those above of CEOs whose hospitals' performance was clearly not brilliant according to the metrics supposedly used to judge them. 

Economists Challenge the Management Dogma Justifying Huge Executive Compensation

Furthermore, these talking points seem to derive from decreasingly credible current management dogma about executive compensation propagated by business schools.

The Invisible Hand, or A Hand on the Scales?

For example, writing in the Independent during January, 2016, Ben Chu questioned the market fundamentalist theory that all employees pay has been perfectly chosen by the infallible invisible hand of the market:

When confronted with an outburst of public anger over massive corporate pay for a privileged few, a common response of the libertarian right is to invoke the economics of the free market.

Such spectacular rewards, we’re informed, are delivered by individuals selling their labour in a free market. And because such pay levels were set through this natural process, no one has the moral right to question them. Further, to interfere with such natural processes would be economically inefficient, making us all worse off in the end.

Such contentions are based on

a venerable economic theory [that is] behind this kind of reasoning. At the end of the 19th century, the American economist John Bates Clark hypothesised that in a perfectly competitive economy, demand for labour is determined by its 'marginal productivity' and wage rates are determined by the 'marginal product' of labour.

To translate, if a firm can make a profit by adding another worker to its payroll, it will do so. And the amount a firm will be willing to pay for that labour in wages will be determined by the additional profit the individual worker adds to the company’s bottom line. So if a worker adds a lot of profit, he or she can command a lot of compensation. But if they add only a little profit, he or she will get only a little. This means people with low personal productivity get small amounts. But people with high personal productivity (chief executives for instance) receive big bucks.

For a start, how does a company know what the marginal product of an individual worker is, or will be? This isn’t something that is directly measurable. The vast majority of us work in teams; how is it possible for management to determine our individual contribution to the financial success of that team, or of that team to the company? How can a business know how much of the profit added was due to the individual’s particular skills? The conditions necessary for the Clark theory that everyone gets what they 'deserve' don’t exist.

But isn’t the marginal product of bosses, who make big strategic decisions, easier to measure? The ASI cites the late Steve Jobs of Apple as an employee who was clearly worth a lot. However, there are plenty of other chief executives whose individual contribution is impossible to measure. Yes, the company’s share price might have gone up. But was this because the boss was smart? Or just lucky?

Furthermore,

The economist Dani Rodrik, in his latest book Economics Rules, argues that such broad theories of income distribution by the market are best viewed as intellectual 'scaffolding', adding: 'They are shallow approaches that identify the proximate causes but need to be backed up with considerable detail'.

And there are other theories of wage determination that are likely to be relevant. One important one is bargaining theory. This suggests that those who have political power within a firm can extract more than those without it. Maybe the reason chief executives tend to get paid ever growing multiples of the pay of the average worker is not because they are 'worth it' but because they are powerful. As the economist JK Galbraith put it: 'The salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself.'

The Dangers of Pay for Performance

In a February, 2016, article in the Harvard Business Review, Cable and Vermeulen challenged the dogma that managers' (and in health care, physicians' and other professionals') pay should largely be based on "performance."

performance-based pay can actually have dangerous outcomes for companies that implement it.

They cited five points based on at least some research evidence to back up their contention.

1. Contingent pay only works for routine tasks. Companies should abolish contingent pay for their top executives because theirs is the least appropriate job for it. Decades of strong evidence make it clear that large performance-related incentives work for routine tasks, but are detrimental when the tasks is not standard and requires creativity.

***

2. Fixating on performance can weaken it. The goal of most executive incentive plans is to focus leaders on hitting goals and achieving outcomes. After all, that’s why it’s often called performance-based pay.' But as researchers have found, if you want great performance, performance is the wrong goal to fixate on.

Several studies have shown that when employees frame their goals around learning (i.e., developing a particular competence; acquiring a new set of skills; mastering a new situation) it improves their performance compared with employees who frame their work around performance outcomes (i.e., hitting results targets; proving competence; seeking favorable judgments from others).

***

3. Intrinsic motivation crowds out extrinsic motivation. When people feel intrinsically motivated, they do things because they inherently want to, for their own satisfaction and sense of achievement. When people are extrinsically motivated, they do things because they will receive bigger rewards. The goal of contingent pay is to increase extrinsic motivation – but intrinsic motivation is fundamental to creativity and innovation.

***

4. Contingent pay leads to cooking the books. When a large proportion of a person’s pay is based on variable financial incentives, those people are more likely to cheat. In academic terms, we would put it this way: extrinsic motivation causes people to distort the truth regarding goal attainment.

When people are largely motivated by the financial rewards for hitting results, it becomes attractive to game the metrics and make it seem as though a payout is due. For example, different studies have shown that paying CEOs based on stock options significantly increases the likelihood of earnings manipulations, shareholder lawsuits, and product safety problems. When people’s remuneration depends strongly on a financial measure, they are going to maximize their performance on that measure; no matter how.

***

 5. All measurement systems are flawed. Incentive plans demand that some metric be used as the trigger for a payout. The problem is that whatever package you construct – bonds, stocks, or bonuses – whatever performance criteria you decide on will be imperfect. For a complex job such as senior management, it is simply not possible to precisely measure someone’s “actual” performance, given that it consists of many different stakeholders’ interests, tangible and tacit resources, and short- and long-term effects. Even with HR executives clamoring for enhanced “people analytics” (and technology companies bending over backwards to deliver them) any measure you choose is going to be an inadequate representation of how you would like your CEO to behave.

Note first that these points suggest that the increased use of performance based pay for health care organizations' top managers may explain why many health care organizations actually perform so badly, and point 4 may help explain why pay for performance may actually help increase health care corruption.  

Note further that pay for performance (P4P) for health care professionals has been strongly pushed by many health policy experts, yet all these points also seem applicable to that usage.

Conclusion - Change Will be Resisted

So even when non-profit hospitals and hospital systems perform poorly, their executives continue to receive ever greater remuneration.  The executives, their public relations flacks, and their often compliant boards of trustees continue to cite the same stale talking points to justify their pay.  Yet these talking points are based on market fundamentalist theory and business school dogma whose credibility is increasingly challenged.  In the absence of anyone willing to confront them with these criticisms, the apologists for soaring health care executive pay continue to prattle their tired talking points.    

Meanwhile, as corporate governance expert Robert A G Monks said in a 2014 interview,

Chief executive officers' pay is both the symptom and the disease.

Also,

CEO pay is the thermometer. If you have a situation in which, essentially, people pay themselves without reference to history or the value added or to any objective criteria, you have corroboration of... We haven't fundamentally made progress about management being accountable.

Moreover, top health care executives' power to make warm personal gestures to themselves correlates with the ability to defend this power, per Mr Monks,

People with power are very reluctant to give it up. While all of us recognize the problem, those with the power to change it like things the way they are.

So I expect that many hospital and health system CEOs, like leaders of other big health care organizations, may talk about health care reform, but will avoid talking about, and will likely oppose attempts at real reform using their command of their organizations' marketers, public relations flacks, lobbyists, and lawyers.


We need true health care reform that would enable leadership that understands the health care context, upholds health care professionals' values, and puts patients' and the public's health ahead of extraneous, particularly short-term financial concerns. We need health care governance that holds health care leaders accountable, and ensures their transparency, integrity and honesty.  What we will get is endless resistance to such reform from those who personally profit from the current dysfunctional, and increasingly corrupt system.

"MetroHealth, Explorys use huge patient database to revolutionize medical research"

As I have written in the past, beware claims of "revolutions" where healthcare or medical research are involved.  As in a slide in my recent presentation to the Health Informatics Society of Australia on healthcare IT trust, I asked:

In that same talk, I pointed out the "revolutions" usually have downsides, and IT always produces winners and losers (per the empirical research of Social Informatics). 

I also asked "have we suffered a complete breakdown in the scientific method with regard to EHR and clinical IT?" in a 2009 post on uncontrolled EHR data and comparative effectiveness studies at this link.  

In the Aug. 29, 2012 article "MetroHealth, Explorys use huge patient database to revolutionize medical research"  in The Plain Dealer (Ohio), the following claims are proffered.  I am assuming regarding this article, as in newspaper articles I make contributions to, that the researchers were involved in its provenance and content:

Large databases of electronic medical records hold great promise for medical research. In theory they can provide doctors access to huge amounts of anonymous patient data, allowing large-scale population studies without the cost and hassle of patient recruitment, review boards and staff training.

Now, a team of data experts at MetroHealth Medical Center and the Cleveland Clinic Innovations spinoff company Explorys has shown just how powerful such medical records can be: In three months, they've replicated a major medical study that took a Norwegian team 14 years to research and report. And they've done it at a fraction of the cost, with a sample about 40 times as large.

The local effort, led by MetroHealth Chief Medical Informatics Officer Dr. David Kaelber, was possible because of Explorys' database of 14 million electronic medical records gathered from 12 major health systems.

14 million records gathered from 12 major health systems, which may in fact be using disparate EHR systems or versions, is almost indisputably not controlled data.

A comparison to a more rigorous study was conceptualized and performed:

Most of all though, he [Kaelber] needed to prove that it worked -- that he could get exactly the same results as traditional research studies that required more time and resources.

Enter the Norwegian study. In 1994, a group of researchers started registering 26,714 people in the northern region's largest city, Tromso. It was part of a much longer study on the population's heart disease risk. They recorded height, weight and other measures of obesity, then followed participants for 13 years, recording any blood clots they had.

Their conclusion: the combination of obesity and a tall stature significantly increases risk of blood clots, especially in men.

The same hypothesis was tested with the uncontrolled EHR data, with claims that (obviously) the time and expense were lower, at least in the instant sense (costs of EHR implementation and maintenance in 12 major health systems could be in the billions of dollars at a time when a health system can easily spend $100 million each over just a few years as Bob Wachter points our here - one hundred million dollars for UCSF):

... The sample: 959,030 patients with medical records in the Explorys platform. The method: using software to search for blood clots in the health and claims records contained in the database, and then looking for patterns in those patients' height and weight. The result: Exactly the same as the Tromso study.

"And actually the statistical significance of our study was much, much higher because our sample size was 40 times greater," Kaelber said. Kaelber and his team published their results online in July in the Journal of the American Medical Informatics Association.

The conclusion to the article here (subscription required) was:

With the right clinical research informatics tools and EHR data, some types of very large cohort studies can be completed [and, by implication, trusted and acted upon at local, regional or societal levels - ed.] with minimal resources.

This data was, and I don't think this can be refuted, poorly controlled.  There are limits to what "data cleansing" and standardization can accomplish with such data. In methodologies like this, confounders are too numerous to list comprehensively, but just a few - missing data; variability in observations (inter- and intra-observer variability); data originating from different vendor systems with different terminology and definitions, input by myriad people of different backgrounds with differing interpretations of terminologies (students/MD's/RN's etc); different pressures creating bias (time, reimbursement maximization, litigation avoidance); to name just a few.

Several questions: 

• What is the likelihood these results were themselves a chance outcome? Correlation is not proof, especially where n=1. 

• How do we reliably identify ante hoc the "types of very large cohort studies" that we can complete?

• What is the likelihood that such techniques are generalizable to all studies (such as comparative effectiveness research, currently a governmental initiative), especially where issues and confounders might be subtle?

• Related to generalizability supra, where are the scientific studies that prove methodologies like this are valid and reliable for other than, say, low-granularity epidemiological purposes?  Put more colloquially - how do we know what these efforts attempt to do, in what is almost indisputably a radical deviation from controlled-trial norms, is not "computational alchemy" (i.e., attempting to turn lead into gold)?

• Is there rigorous data on attempted studies like this that failed to correlate with more traditional research?  Unless the latter is studied and/or attempted and some sense gained of whether a radical approach using uncontrolled data such as this does not fail to a concerning extent, then claims of "revolutions" need to be postponed.

Worst case scenario: large dataset, radical analytics and a political agenda can lead to undesired outcomes.  We need to know what we are doing.

More on these issues in a 2009 article I authored here. 

I have invited Dr. Kaelber to comment on the questions I raise. 

Note:  I am not challenging this specific study per se, which is an experiment, but am challenging the generalizability of this type of "from data rags to information riches" methodology, as I've done in other posts on similar topics. Not to mention, the overconfidence as expressed in the press, which is what the public including our lawmakers and people responsible for resource allocation read.  I think it's highly premature to write of "revolutionizing medical research."

Sep. 4, 2012

Here is the reply from Dr. Kaelber -

We actually cover many of the points you raise in the discussion of the article.

I think it is important if we are focusing on a scientific discussion of a scientific article to focus on the primary source - the scientific article itself, and not a secondary source - the reporting of the scientific article.

One of the major points in the discussion (quoted from the published manuscript) is that we feel that there are three keys to using pooled, standardized, normalized, and de-identified EHR data, including:

1. Understanding data sources - understanding of the characteristics of the underlying EHR data sources, including a data dictionary and ontologies used.

2. Corroborating data findings - internal and/or external methods to corroborate retrospective EHR cohort study data and/or findings. For example, manual chart review of a sample of the EHR data (internal validation), or other studies demonstrating similar results (external validation), ideally coupled with a biologically plausible hypothesis.

3. Clinical data versus research data - recognizing that retrospective EHR data were typically collected for clinical and not research purposes. Therefore, depending on the type of data, the quality may not meet typical research standards. In some cases, the large quantity of clinical data may help mitigate the fact that it was not collected with the higher precision and accuracy that can occur as part of a prospective research study.

As I was also quoted in the Plain Dealer article as saying this is like a new type of power drill for those who have been used to using hand drills for retrospective (electronic or paper) chart reviews. To be used appropriately, researchers need to understand the opportunities and disadvantages of using of the new tool and be trained on how to use it.

I would also add that, again, as was stated in the introduction for the published paper that clinical research informatics as a field is in its infancy and we need more people involved in the field, more tools for people in the field, and more experience of people using tools in the field to really understand both the contributions and limitations for electronic health record data to advance clinical research.

I hope these comments are of some interest/use.

-David

My thoughts are that use of of experimental EHR-based methodologies like this, that could have significant social implications, requires significant caution and validation.  I think we are in agreement on that point.  The methodology of use of EHR data from myriad sources needs to be shown valid, as well as proven not to be invalid, before the findings of "new" studies that are not attempting to duplicate prior ones are translated to the bedside or beyond.

The disadvantages include, among other issues (and perhaps most important) the spread of premature over-optimism about health IT such as in newspapers.  That problem has, I believe, contributed greatly to the prevalent hyper-enthusiasm and "there's little supportive data - nevertheless, we believe - so let's spend $15+ billion dollars" attitudes about current health IT as I wrote about, for instance, here (ONC's 'Data Palooza') and here (on MU Stage 2 justifications).

Finally, I would question whether increasing the quantity of data could ever reliably compensate for lack of quality (unless, perhaps  the additions were themselves of high quality).  Adding low quality data to already low quality data should not produce better results, it seems to me.

-- SS

More Executives Prospering Despite the Financial Distress of their Hospitals

Cases that demonstrate the contrast between compensation given to the hired executives of health care organizations and their or their organizations' performance continue to appear.  Last week we discussed how freely million dollar plus compensation is given to executives of nominally non-profit hospitals, and discussed how well some executives were paid just prior to charges of financial mismanagement, arrests or guilty pleas that drove them from their jobs.

I have also found a series of cases of executives whose pay seemed disproportionate in the context of their institutions' financial difficulties.  Here they are, discussed in alphabetical order.

Greenwich Hospital, Connecticut

According to GreenwichTime.com, here is the context:

Greenwich Hospital went under the knife on Wednesday, announcing the layoffs of 36 employees and a series of cutbacks to what it characterized as non-core programs to offset the loss of revenue from a newly implemented state hospital tax.

A Yale-New Haven Health System affiliate and the town's largest employer, the hospital estimated it needs to make up for $8.5 million in lost revenue.

The hospital's top administrator blamed the situation on the state, which now gets a 4.6 percent cut of all hospital income as part of a flat tax enacted on July 1.

While the CEO announced cuts in services, he was not about to cut his own compensation:

'If they're doing so much cost-cutting, what are they doing about [hospital CEO Frank] Corvino's $1.5 million salary?' [former town first selectman Richard] Bergstresser said. 'It seems to me that they should do some trimming before they do layoffs.'

Note that a hospital public relations official had the usual explanation:

Yale New Haven Health System uses a third-party consultant to gauge executive compensation levels, according [hospital spokesman George]Pawlush, who said that Corvino wears two hats.

In addition to his duties as hospital president and chief executive, Corvino is executive vice president of Yale New Haven Health System.

'Each organization contributes half of Frank's total earnings,' Pawlush said. 'Frank's experience in hospital administration has given him the skills needed to successfully balance both of these highly demanding roles simultaneously.'

So in summary, the CEO of a hospital forced to make lay-offs and close popular programs was paid more than $1 million a year because of his great "skills."
Hoboken University Medical Center (HUMC), New Jersey

The context here is a bit complicated. First, according to the Jersey Journal,

The Hoboken hospital was ... in a sea of debt when it was called St. Mary Hospital. In early 2008 the city took over the hospital and its $52 million debt, but the city has never sought to remain in the business of running a hospital.

So,

The HMHA, the board that oversees the operations and sale of the HUMC, is in exclusive negotiations with HUMC Holdco, whose proposal was chosen over seven others last month.

As negotiations about the sale of the distressed hospital continued, the Jersey Journal then reported,

the hospital's manager, Hudson Healthcare Inc., recently declared bankruptcy. Earlier this week, HMHA Chairperson Toni Tomarazzo said that declaring bankruptcy was a necessary step in facilitating the sale,

However, just before then, as a reporter from the Newark Star-Ledger found out,

Less than three weeks before the operator of the city-owned Hoboken University Hospital filed for bankruptcy — putting millions of dollars in taxpayer money and union pension funds at risk — the hospital’s chief executive received a six-figure payout, records show.

Spiros Hatiras, 46, stepped down as chief executive on July 16 after two years on the job with a severance package that includes $600,000 in compensation and full medical benefits for a year, according to records obtained under the Open Public Records Act.

In addition,

A physical therapist who rose through the hospital’s ranks, Hatiras was earning a $400,000 a year and incentive bonuses at the time of his resignation, records show; his contract was set to expire in five months, and called for a severance payment only in the event the hospital terminated the contract.

The package was negotiated by Hudson Healthcare Inc., the current operator of the hospital that filed for bankruptcy protection, and was approved by the Hoboken Municipal Hospital Authority.

Initially, no one could come up with a clear explanation. First,

Doug Petkus, a spokesman for the authority, said officials 'cannot' comment on the issue.

Then, the Hoboken mayor made this attempt, per the Jersey Journal,

Asked why the HMHA decided to give Hatiras the generous severance even though it didn't have to, Mayor Dawn Zimmer, also an HMHA commissioner, skirted the question.

'Given the totality of the circumstances, this was the best way to save our hospital and relieve our taxpayers of a $52 million bond guarantee.

Asked if that meant the sale of the hospital was contingent upon Hatiras receiving the lucrative severance, Zimmer said 'Given the totality of the circumstances, this was the best way to save our hospital and relieve our taxpayers of a $52 million bond guarantee.'

Finally, the Jersey Journal reported this version:

The Hoboken Municipal Hospital Authority (HMHA) was obligated to pay out a $600,000 severance package to the former Hoboken University Medical Center CEO because he met the conditions of his contract for the lucrative parting gift, according to HMHA chairwoman Toni Tomarazzo.

Tomarazzo refuted stories that appeared in The Jersey Journal, Star-Ledger, and online at NJ.com that said the HMHA, the city entity that runs the hospital, was not bound to pay Spiro Hatiras the severance amount because he resigned.

Hatiras’ contract called for payment of the severance package 'upon termination, non-renewal or expiration of the term of Employment Agreement,' according to the HMHA resolution authorizing payment.

'It was a contractual obligation,' Tomarazzo said. 'There was nothing we could do about it.'

The resolution said 'even though the employment ended through a mutual agreement to step aside and cease to serve as CEO that shall be documented in a resignation letter...' the HMHA agreed that Hatiras 'is entitled to' the severance package.

So, in summary, the CEO of  a public hospital deeply in debt, and which had to be sold to a for-profit corporation, received a substantial golden parachute just prior to its operating authority's bankruptcy filing.  The only explanation was that this payment was a contractual obligation, which, of course, begged some questions: knowing that the hospital was in a perilous financial condition, why did the authority write such severance into the contract, and if it did not intend that severance should be paid under the conditions which finally obtained, why is the authority not disputing the payments?

Kingsbrook Jewish Medical Center, New York

According to the New York Post, here is the context.

The 326-bed facility is considered one of five Brooklyn hospitals that advocates fear is in danger of being shuttered by Gov. Cuomo's medical redesign team. Many of Kingsbrook's patients are Medicaid recipients.

Furthermore, in 2009,

the hospital was forced to close a clinic and lay off workers and staff members took furloughs because of budget tightening.

However,

hospital officials defended Brady's compensation, noting she was paid $1,094,443 in base salary in 2009 - and that $2,891,335 will be doled out as retirement and deferred compensation she accumulated from 30 years of service.


Brady also received $215,241 in bonuses and nontaxed benefits in 2009.

The Post asserted that her total compensation of over $4 million was "more than any other nonprofit hospital executive in the state."

Her previous two years' compensation was slightly more modest, but still greater than the magic $1 million a year:

In 2008, Brady took home $1,054,406 in base pay plus an additional $137,335 in deferred compensation and nontaxable benefits, tax records show.

In 2007, she hauled in $1,023,452 in base salary plus $195,661 in deferred compensation, the records show.

The chairman of the hospital board's finance committee offered the usual rationalization:

'Dr. Brady's compensation is, in fact, at market rate and reflects the board's full faith in her abilities and execution of her job,' said Ed Lieberstein, chairman of the Kingsbrook board of trustees' finance committee.

So, in summary, the CEO of a small non-profit hospital threatened with closure and forced to lay-off workers and close programs was paid over $4 million, supposedly the "market rate."  One wonders if the "market" here was that including small, financially distressed hospitals?

MetroHealth Medical Center, Ohio

This public, not for profit Cleveland, Ohio health care system has had its share of troubles lately, as the Cleveland Plain Dealer noted,

MetroHealth, the county's safety-net hospital, has faced a myriad of economic hurdles and is still undergoing what its leaders call a turnaround: The system reported a $2.2 million loss on net income in 2007. It continued to bleed money in early 2008, losing $11 million in the first quarter, according to long-time trustee and now MetroHealth Board Chair Ron Fountain.

So, when a new CEO, Mark Moran, was hired to turn the system around, per the Plain Dealer,

'At MetroHealth, starting in 2008, we turned over every chief -- the chief financial officer, chief executive, chief operating officer, chief medical officer, everybody,' said MetroHealth board member Thomas McDonald, who has been on the voluntary board since March 2008. 'We had to get the ship righted.'

While doing so, however, the new leadership saw fit to reward those it pushed out the door,

The MetroHealth System has agreed to pay more than $4 million for consulting contracts in lieu of severance to top executives and high-level employees who have left the county-owned hospital since 2008.

The contracts, similar to the one the hospital granted to departing Chief Financial Officer Sharon Kelley, have provided salary and benefits, in some cases up to one year, to dozens of departing employees. The deals also include up to $114,000 in performance bonuses for three executives.

The agreements allow for continued accrual of vacation pay benefits and continued contributions to the Ohio Public Employees Retirement System. The work required of employees under the contracts is not specified.

CEO Moran later acknowledged that the "consulting agreements" really did not require any consulting to be done, again in the Plain Dealer,

Awarding what Moran called 'employee transition contracts' lowered the risk of potential litigation and provided access to the institutional knowledge of the departing employees. He acknowledged, however, that most of the employees 'probably didn't' do any work.

Mr Moran explained the need for such severance packages thus:

the amount MetroHealth pays its executives, including severance, is necessary to compete against the Cleveland Clinic and University Hospitals for qualified professionals.

However, MetroHealth was not exactly competing to keep these executives, it was trying to get them to leave.

Furthermore, while the health care system has just gotten beyond its financial distress, the compensation given to its current executives has surged ahead, again according to the Plain Dealer,

The pay packages of MetroHealth System's top-tier executives -- base salary plus potential incentives -- ranks near the top 25 percent when compared to that of similarly sized health systems, according to a report by a national compensation adviser.

The report, completed in April and provided to The Plain Dealer last week, provides an inside-look at the way MetroHealth pays 18 executives when county leaders and the public have questioned the spending practices of the county-owned health system.

MetroHealth hired Mercer, as it has for at least four years, to review the system's executive-level pay and severance policy to determine if they were in line with industry averages.

What Mercer found this year was a staff with "more competitive pay levels than has historically been the case" -- including one salary so high that the firm suggested a review of whether it was "reasonable."

That concerned one board member,

MetroHealth board member John Moss, who reviewed the report for the first time late last week, called it "disconcerting." He was particularly bothered by the salaries, saying the health system's administration had told the board that the compensation was "closer to the middle."

"They seem to be closer to the top 25 percentile," Moss said. "[It's] not what we've been told."

Can anyone guess the justification for the lucrative payments given by the CEO?

Moran goes on to write that the contracts 'support our ability to recruit the best and brightest talent.'

So, in summary, many executives of a public hospital that had been in financial distress were discharged, but given large "consulting payments" which appeared to be golden parachutes.  The new executives were paid at very high rates compared to some sort of market because they were "the best and the brightest."
Summary

So we see more cases of executive exceptionalism.  The hired executives of health care organizations, including non-profit and public hospitals, seem to prosper financially regardless of their organizations' financial status.  The executives, their boards of trustees and the hospitals' own hired public relations staff may justify the financial success of their leaders by referring to "market" conditions, which do not seem to be references to "markets" consisting of financially troubled hospitals, and by praising their leaders' abilities, including literally calling them "the best and the brightest," without any obvious evidence supporting their claims.

To an outsider, it just seems like the hospitals are now run primarily for the financial benefit of their hired leaders.  The problems seem to be:

-  Paying the leaders so well (and supporting the public relations staff who sing their praises) costs money that could better be used to provide actual health care.

-  Providing such perverse incentives, which seem entirely unrelated to the hospitals' ability to uphold their primary patient care  and public health missions (and academic mission if applicable), is likely to detract from the hospitals' ability to support these missions.

-  It is likely that employees of such institutions who actually try to uphold the mission will be demoralized by the realization that their leaders' enrichment comes first, further damaging the hospitals' ability to uphold the mission.

-  Finally, it is possible that such perverse incentives attract leaders who are particularly unsuited to the task of upholding the mission.

One cannot help but notice that the quaint notion that hospitals exist to uphold patient care, public health, or academic missions rarely is acknowledged nowadays in discussion of hospital leadership.

Turning blue in the face, I say again... Health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.


If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.