Some Dare Call It "Corruption" - the Massachusetts Blue Cross Blue Shield Golden Parachute Scandal Continues
We have discussed many cases of health care organizations' leaders reaping rewards disproportionate to any concept of their performance, and especially to any concept of the effect of their conduct on patients' or the public's health. Most of these cases have been pretty anechoic, but for some reason, the case of the huge golden parachute given to the outgoing CEO of Massachusetts Blue Cross Blue Shield despite a tenure marked by financial losses and no particularly brilliant advances in patients' care or outcomes, (see this post) continues to generate responses.
One editorial suggested that should the non-profit health insurance company continue to pay so lavishly, it should lose its tax exemption. Another noted that the company should start putting its stakeholders, defined as its policy-holders "first and its funding of overly generous compensation packages to board members and outgoing CEOs somewhere far below." Finally, an editorial in the local Providence Journal used the "c" word, "corruption," to define the company's and its CEO's behavior.
So it should not be surprising that defenders of the company have appeared. The Boston Globe published an article which featured attempts to minimize the importance of the CEO's golden parachute. Further analysis of the points are in order.
Executive Salaries are a Minimal Component of Cost
The article quoted an expert who asserted executive salaries are not themselves a big component of cost:
As I have argued before, the biggest problem created by excess compensation for health care organizations' leaders is not the amount of money they get, per se. The problem is the effect of the perverse incentives created by the money. One concern is that people paid that much may make decisions that support their pay in the short-term, but damage the organizations' mission in the long-term. Another is that the sorts of people attracted by the possibility of big pay packages are those least likely to uphold the mission in the first place. Another is that the huge disparity between the pay of the top leaders and of everybody else is demoralizing for the relatively poorly paid staff who actually must do the work.
Finally, it may be worth quoting the former President of Princeton University, just interviewed about what academic leadership was like in the days before giant pay packages:
The final argument in the Boston Globe piece was that huge executive compensation just is a distraction from the real issues:
That list of the "real" drivers of health care costs sounds very familiar.
Wendell Potter's Deadly Spin, is an expose of how how insurance and managed care corporations' public relations departments used deception, propaganda, and outright disinformation campaigns to make sure health policy supported the companies' interests.
Potter wrote (p.110) about how PR campaigns were designed to distract the public and policy makers from the industry's responsibility for health care dysfunction:
So it appears that Andrew Dreyfus is working from the same playbook that Wendell Potter described, down to the "drivers of health care costs" terminology.
Summary
The Massachusetts Blue Cross Blue Shield kerfuffle seems to be enlarging into a good case to teach about what health care dysfunction is really all about. It shows how the leaders of large health care organizations seem to be putting their self-interest ahead of the missions they are supposed to uphold. Without governance structures that hold them accountable for upholding these missions, they have set up perverse incentives to pay themselves very well regardless of the effects of their actions on patients' or the public's health.
So it appears, as the Providence Journal editorial asserted, that the leadership of health care organizations is increasingly corrupt, at least using the Transparency International definition of corruption, abuse of entrusted power for private gain.
True health care reform would make leaders of health care organizations accountable for upholding their missions, and for patients' and the public's health. Leaders of health care organizations ought to get reasonable incentives for improving health, but not incentives so large as to demoralize the people who actually do the work and take care of the patients.
Post Script: More Undisclosed Conflicts of Interest
It is obvious why Andrew Dreyfus, the new CEO of Massachusetts Blue Cross Blue Shield might quote the health insurance industry public relations party line about drivers of health care costs that conveniently do not include insurance company practices and executive compensation.
It was not obvious when reading the Boston Globe article why Professor Altman might be susceptible to that party line. Perhaps his conclusions were only based on his scholarship.
However, the Boston Globe article failed to disclose Prof Altman's part-time jobs. As per this 2010 proxy statement, he is a member of the board of directors of Lincare, a company that provides respiratory care services, including disease management, and of Aveta Inc, a privately held health insurance company. Prof Altman's total compensation from Lincare in 2009 (per the latest proxy statement available, i.e., that issued in 2010), was over $1.7 million. Note that corporate directors, as we have discussed previously, have a fiduciary duty to exhibit "unyielding loyalty" to the stockholders of the company and their interests [Per Monks RAG, Minow N. Corporate Governance, 3rd edition. Malden, MA: Blackwell Publishing, 2004. P.200.]. Given Prof Altman's membership in the board of directors of a health insurance company, and his towering compensation as a director of a health care company that may need to maintain good relationships with health care insurers, it would seem that he has multiple financial relationships that could lead to sympathy with the health insurance industry's public relations party line.
So it seems that regardless of the intent of the reporter who wrote it, the latest Boston Globe article about the Massachustts Blue Cross Blue Shield CEO golden parachute scandal ended up being an apologia for excess compensation of health care insurance executives that followed the script written years ago by health care insurance corporate public relations.
So I need to add another conclusion. The discussion of health care policy needs to be informed by disclosure of the financial interests of those participating, particularly those participating as experts in the media. True health care reform would lead to such disclosure. However, in our currently dysfunctional health care environment, be very skeptical about the interests of "health policy experts" who seem eager to support the powers that be.
One editorial suggested that should the non-profit health insurance company continue to pay so lavishly, it should lose its tax exemption. Another noted that the company should start putting its stakeholders, defined as its policy-holders "first and its funding of overly generous compensation packages to board members and outgoing CEOs somewhere far below." Finally, an editorial in the local Providence Journal used the "c" word, "corruption," to define the company's and its CEO's behavior.
So it should not be surprising that defenders of the company have appeared. The Boston Globe published an article which featured attempts to minimize the importance of the CEO's golden parachute. Further analysis of the points are in order.
Executive Salaries are a Minimal Component of Cost
The article quoted an expert who asserted executive salaries are not themselves a big component of cost:
The outcry grew big enough to force Blue Cross board members to vote to suspend their own payments and to lead the insurer to make promises to curb excessive payouts to executives. There’s just one problem: Those steps will do little to fix soaring health care costs.My comment is that just because administrative costs are not the largest component of health care costs does not mean they do not drive health care costs.
'I have the same outrage,' Stuart H. Altman, a national health policy professor at Brandeis University, said about Blue Cross’s payments. But, 'We need to put executive pay and board salaries in perspective. It is not the major force, or even close to the major force, in driving up health care costs.'
As I have argued before, the biggest problem created by excess compensation for health care organizations' leaders is not the amount of money they get, per se. The problem is the effect of the perverse incentives created by the money. One concern is that people paid that much may make decisions that support their pay in the short-term, but damage the organizations' mission in the long-term. Another is that the sorts of people attracted by the possibility of big pay packages are those least likely to uphold the mission in the first place. Another is that the huge disparity between the pay of the top leaders and of everybody else is demoralizing for the relatively poorly paid staff who actually must do the work.
Finally, it may be worth quoting the former President of Princeton University, just interviewed about what academic leadership was like in the days before giant pay packages:
I’m not a fan of huge salaries for presidents of academic institutions. These are hard jobs. But people don’t really do them for the money. What kind of message do you really want to convey concerning the nature of the institution and its leadership? I always thought that it was important to convey a message of we’re all in this together. If you as president earn so much more than everyone else, it’s hard to argue that we’re all in this together.Focusing on Executive Compensation Distracts from the Real Issues
The final argument in the Boston Globe piece was that huge executive compensation just is a distraction from the real issues:
Yet [current Massachusetts Blue Cross Blue Shield CEO Andrew] Dreyfus said he is concerned that the focus on executive and director pay will distract insurers, providers, and policy makers from addressing factors driving health care costs higher. Those factors range from an aging population to increases in obesity to expensive tests, drugs, and treatments that cure diseases and prolong lives.
'If you had a dozen health economists sitting in this room and you asked them what’s driving health care [costs], you know executive and board compensation wouldn’t be at the top of the list,' he said. 'It would be chronic illness and prices of hospitals and doctors and medical advances and discoveries and technology.'
That list of the "real" drivers of health care costs sounds very familiar.
Wendell Potter's Deadly Spin, is an expose of how how insurance and managed care corporations' public relations departments used deception, propaganda, and outright disinformation campaigns to make sure health policy supported the companies' interests.
Potter wrote (p.110) about how PR campaigns were designed to distract the public and policy makers from the industry's responsibility for health care dysfunction:
Rather than admit responsibility for the failures, insurance executives pointed the finger of blame at their customers, the 'consumers' of health care, and, of course, the providers of care. In introducing the concept of their new silver bullet - consumer driven health care - insurance executives claimed that the 'real drivers of health care costs' (one of my CEO's favorite expressions) were the people who sought care when they really didn't need it and the doctors and hospitals who were all too willing to provide this unnecessary care. Sure, the aging population and expensive new technology were also factors, but the main culprits were people who just didn't realize how expensive health care had become.I color coded the factors listed by the current Blue Cross CEO as the real "drivers" of health care using the same colors with which I coded Mr Potter's list the specific distractors created by insurance company executives to deflect attention from the companies' inability (and probable) disinclination to control costs.
So it appears that Andrew Dreyfus is working from the same playbook that Wendell Potter described, down to the "drivers of health care costs" terminology.
Summary
The Massachusetts Blue Cross Blue Shield kerfuffle seems to be enlarging into a good case to teach about what health care dysfunction is really all about. It shows how the leaders of large health care organizations seem to be putting their self-interest ahead of the missions they are supposed to uphold. Without governance structures that hold them accountable for upholding these missions, they have set up perverse incentives to pay themselves very well regardless of the effects of their actions on patients' or the public's health.
So it appears, as the Providence Journal editorial asserted, that the leadership of health care organizations is increasingly corrupt, at least using the Transparency International definition of corruption, abuse of entrusted power for private gain.
True health care reform would make leaders of health care organizations accountable for upholding their missions, and for patients' and the public's health. Leaders of health care organizations ought to get reasonable incentives for improving health, but not incentives so large as to demoralize the people who actually do the work and take care of the patients.
Post Script: More Undisclosed Conflicts of Interest
It is obvious why Andrew Dreyfus, the new CEO of Massachusetts Blue Cross Blue Shield might quote the health insurance industry public relations party line about drivers of health care costs that conveniently do not include insurance company practices and executive compensation.
It was not obvious when reading the Boston Globe article why Professor Altman might be susceptible to that party line. Perhaps his conclusions were only based on his scholarship.
However, the Boston Globe article failed to disclose Prof Altman's part-time jobs. As per this 2010 proxy statement, he is a member of the board of directors of Lincare, a company that provides respiratory care services, including disease management, and of Aveta Inc, a privately held health insurance company. Prof Altman's total compensation from Lincare in 2009 (per the latest proxy statement available, i.e., that issued in 2010), was over $1.7 million. Note that corporate directors, as we have discussed previously, have a fiduciary duty to exhibit "unyielding loyalty" to the stockholders of the company and their interests [Per Monks RAG, Minow N. Corporate Governance, 3rd edition. Malden, MA: Blackwell Publishing, 2004. P.200.]. Given Prof Altman's membership in the board of directors of a health insurance company, and his towering compensation as a director of a health care company that may need to maintain good relationships with health care insurers, it would seem that he has multiple financial relationships that could lead to sympathy with the health insurance industry's public relations party line.
So it seems that regardless of the intent of the reporter who wrote it, the latest Boston Globe article about the Massachustts Blue Cross Blue Shield CEO golden parachute scandal ended up being an apologia for excess compensation of health care insurance executives that followed the script written years ago by health care insurance corporate public relations.
So I need to add another conclusion. The discussion of health care policy needs to be informed by disclosure of the financial interests of those participating, particularly those participating as experts in the media. True health care reform would lead to such disclosure. However, in our currently dysfunctional health care environment, be very skeptical about the interests of "health policy experts" who seem eager to support the powers that be.
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