Being a Health Insurance Executive Means Never Being Able to Say You Are Sorry

WellPoint, the largest US for-profit health care insurance company, has provided a steady stream of examples of poor management and bad behavior for the edification of Health Care Renewal readers.  Most recently, a company whose core functions include reliably and confidentially managing electronic data on policy-holders allowed what should have been private data from nearly half a million people to appear on-line (see post here.  For other examples, look here.)

This week, the Los Angeles Times recounted what happened to a highly placed WellPoint executive who tried to improve the company's behavior. 

Leslie Margolin was the public face of Anthem this year when it sought to raise individual insurance rates as much as 39%. The move triggered a backlash in Washington and Sacramento, where lawmakers accused Margolin and her corporate bosses at insurance giant WellPoint Inc. of trying to gouge unknowing policyholders.

Margolin, 55, generated headlines statewide when she was called to testify before angry lawmakers in the state capital. With television cameras rolling, the hearing's chairman stared her down and asked bluntly: 'Have you no shame?'

Now, speaking publicly for the first time since her departure, Margolin says she had been chagrined over the rate hikes for the last year and had worked internally to get Indianapolis-based WellPoint to rescind them or scale them back, and to apologize.

'I thought the rates were too high,' she said. 'I thought the impact on our membership was too significant.'

Margolin did not object to the rates in her Sacramento testimony this February. But in the months that followed, she repeatedly voiced her objections to WellPoint and in appearances outside the company, remarks that went largely unnoticed by the public.

In a March talk at Pepperdine University's business school, for instance, she told a gathering of students and business leaders that she wasn't responsible for rate increases she believed were ill-timed and ill-advised.

'We have impacted individual consumers in ways that were so significant for those individuals,' she said. 'And for that, I personally feel very, very sorry.'

As she made the Pepperdine appearance and others, Margolin said, she privately pressed WellPoint to abandon the company's get-tough approach to longtime adversaries — doctors and hospitals — and instead collaborate as part of a new 'healthcare transformation strategy' to cut costs and improve patient safety and the quality of care.

So what happened to Ms Margolin? Did she get a big raise and an award for doing the right thing? Is the moon made of green cheese?

In fact, here is what happens to a health insurance executive who says she is sorry for excessively high insurance rates:

Last month, WellPoint replaced her. At the time, Margolin said her departure was a mutual decision. Interviews with company insiders, insurance industry leaders and others familiar with the situation now make clear that she was pushed out.

'Her undoing was that she rocked the boat and wanted to do things a different way,' said one person familiar with the events who declined to be identified for fear of retribution. 'She wasn't a good corporate soldier.'

Margolin herself spoke cautiously about her resignation, but said: 'There is no question I needed to leave.'

In fact, her exit was quite inglorious:

Margolin vividly recalls her last day. Even though her Anthem team was exceeding its financial goals and membership numbers, she said, she was ushered from the doors of Anthem's Woodland Hills headquarters. She didn't have a chance to send a farewell message to her 400 employees.

So it seems that being a top health insurance corporate executive means never admitting a mistake, and never, ever saying you are sorry.

In contrast, in the 2009 WellPoint Annual Report, CEO Angela Braly boasted:

As you can see throughout this report, we’re focused on making health benefits more affordable, improving access to care, and simplifying interactions with the delivery system. We believe that we have to favorably impact the value equation in health care while improving the experience of members, doctors, and employers.

So presumably at WellPoint, "making health benefits more affordable" means raising premiums 39%.  As we mentioned earlier this year, for this and other bits of legerdemain, Angela Braly's 2009 compensation increased 51 percent to $13.1 million. This seems more like pay for propaganda than pay for performance.

In a post in the Dismounting Our Tiger blog, Edwin Lee addressed the origins of the BP oil spill by noting how most big corporations have come to promote leaders distinguished mainly for their careerism, tribal attitude, and disinclination to question received wisdom.  He wrote that the result was promoting "mediocre, short term thinkers with similar work experiences, outlooks, temperaments and personal incentives. Disaster response, creative thinking and fundamental changes are outside their limited range of interests or competencies."  Thus we can expect that at some point, WellPoint, and many similarly lead health care organizations, will create their own disasters.  We can only hope that our health care system survives them.

Meanwhile, kudos to Ms Margolin for trying to put the interests of policy-holders and the public ahead of following the company line.  If only more such people were able to lead health care organizations rather than being unceremoniously fired, we might have a fighting chance to have health care that really is high quality, affordable, and accessible.   

PS - For those old enough to have been forced to watch Love Story, the original quote was "love means never having to say you're sorry."

A Golden Parachute for Making Contaminated Drugs?

In late 2009, we posted about problems at a Genzyme plant that manufactured some fabulously expensive drugs, e.g. Cerezyme whose cost to patients approximated $160,000 a year. We thought then that for a drug costing that much, the company ought to have figured out a conservative process to provide pure and unadulterated product. In a later post we also why a company that could afford to make its CEO very rich could not afford to adequately maintain its manufacturing facilities.  In May, 2010, we posted about a legal settlement of charges related to its manufacturing problems requiring Genzyme to pay a $175 million fine and function under US government supervision.

Recent news articles suggest that the fix of the company's inabilities to manufacture pure, unadulterated drug remained remote.  Reuters reported that it had to discard "additional inventories of drugs ... for failure to the meet the company's quality control standards."  Bloomberg reported that it "may take three to four years to complete changes requested by U.S regulators after plant contamination."

Meanwhile, however, the company continues to talk to Sanofi-Aventis about being bought out, and the Boston Globe reported just how much Genzyme CEO Henri A Termeer would stand to make if the buyout takes place:

Under the 'hange of control' agreement currently worth $23 million, Termeer would receive several payments. He would receive a lump sum of $11 million, a figure representing three times his base salary plus a bonus. He would also get $356,000 in benefits, including health, life, accident, and disability insurance, outplacement and relocation services, and legal fees. And he could cash out 175,137 shares through accelerated equity awards. Those shares are now worth $11.9 million, but almost certainly would be worth more if the company is acquired at a premium.

Furthermore,

Apart from the golden parachute, Termeer could reap huge stock gains if the company is sold. The 4.1 million Genzyme shares he owns represented about 1.5 percent of its stock as of April 9, the most recent regulatory filing. At the current share price, Termeer’s stake is worth more than $275 million.

So riddle me this: over the last 5 years, Genzyme stock-holders have seen their investment lose 5.7% of its value (according to Google Finance),  while patients have paid outlandish prices for contaminated medicine, or have had to reduce their medication dosages after the defective manufacturing plant was shut down.  So why should the CEO who presided over all this, whose has already become rich as a hired employee of Genzyme, get even richer? 

Once again we demonstrate how massively perverse incentives stupendously reward the top brass of health care organizations for mediocre, or worse leadership and bad results for both patients/ clients/ customers and stock-holders alike.  As long as being a health care CEO is effectively a license to loot the company, is it any wonder that health care organizations continue to be badly lead, and health care costs soar while quality and access suffer? 

Once more with feeling: real health care reform would require us to make health care executives truly accountable for their actions, and penalize them for those that are ill-informed, contemptuous of health care values, self-interested, or corrupt. 

Deceptive Marketing, For-Profit Universities, and Health Care Education

Last week, reports about deceptive marketing and other questionable practices used by the growing for-profit higher education industry in the US appeared in the news.  For example, per Bloomberg:

Recruiters at U.S. for-profit colleges lied to entice students and encouraged them to commit fraud to qualify for aid, a report by the Government Accountability Office found.

Recruiters at all 15 colleges studied by the GAO, Congress’s investigational arm, misled potential students about the costs, duration and quality of their programs, according to a report obtained by Bloomberg News....

Other deceptions include:

“'college representatives exaggerated undercover applicants’ potential salary after graduation and failed to provide clear information about the college’s program duration, costs, or graduation rate,' the report said. 'Admissions staff used other deceptive practices, such as pressuring applicants to sign a contract for enrollment before allowing them to speak to a financial advisor about program cost and financing options.'

Also,

In one case cited by the report, a GAO investigator posing as an applicant was told to lie on an aid application about the number of household members to qualify for grants. When the investigators told college employees that they had $250,000 in savings, officials at three colleges told them to hide their savings in order to qualify for financial aid.

In addition,

For-profit colleges overstated the quality of their programs and the organizations overseeing their accreditation, the report said. One recruiter told an investigator posing as an applicant that his school was accredited by the same one that accredits Harvard University.

'It’s the top accrediting agency,' the recruiter said, according to the report. 'Harvard, University of Florida --they all use that accrediting agency.'

Recruiters exaggerated their colleges’ benefits and graduation rates, the report said. A beauty college recruiter said barbers earn as much as $250,000 a year, while the Bureau of Labor Statistics said 90 percent of barbers make less than $43,000 annually, according to the report.

A later report by the Dow Jones news service named some of the corporate players whose educational "institutions" were involved in dubious schemes.

Colleges operated by Apollo Group Inc. (APOL), Corinthian Colleges Inc. (COCO) and Washington Post Co.'s (WPO) Kaplan Higher Education unit were among the schools the U.S. Government Accountability Office found provided 'deceptive and otherwise questionable information' to agents who posed as prospective students in an undercover investigation of for-profit student recruitment tactics.

It is tempting to look for parallels with health care, once a calling like higher education, but now increasingly an "industry," often run, as we have documented endlessly, by people with little experience or knowledge about how health care is actually done on the ground, with little sympathy for the values of health care professionals, and given strong incentives to maximize the money coming in, whatever it takes.

However, the issue goes beyond these parallels. In fact, many of the bigger for-profit education corporations provide considerable health care education, including the three named above. The University of Phoenix, a subsidiary of the Apollo Group Inc, offers a Masters of Science in Nursing degree. Several of the "brands" of Corinthian Colleges Inc offer offer "diploma and/or degree programs in health care." Kaplan University, a subsidiary of Kaplan Higher Education Corporation, has a School of Health Sciences.  So it seems likely that many health care professionals, or would-be health care professionals, have been enticed by the sorts of sales practices documented in the report. 

There are no known for-profit US medical schools.  However, as we have discussed, many US students go to for-profit "off-shore" medical schools, often in the Caribbean, who mainly "educate" US citizens who want to practice here (as opposed to all the schools in countries other than the US whose main goal is to educate doctors for their own countries.)  Some of these off-shore schools are owned by big US corporations.  One can only wonder whether their recruitment tactics are similar to those of the for-profit "universities" located in the US. 

We have discussed deceptive marketing of hospitals, drugs and devices, but now it seems that deceptive marketing is even more widespread in health care than we originally thought, along with the take the money and run ethos that has infected so much of the business world.

If we truly want to reform health care to improve quality and access, and control costs, we need to restore the focus to care, the care of the patient, and away of the false pursuit of economic efficiency that only seems to benefit the quick buck artists. 

UK: ISO draft standards for the development, manufacture and deployment of healthcare IT focus on SAFETY

The UK's NHS has not had the best of success to date implementing national health IT, as indicated by reports here and here, for example.

However, they have appeared to have learned from their mistakes and in fact are on the way to being far ahead of the U.S. in terms of understanding what it truly takes for HIT to be efficacious - and perhaps even more importantly, as safe as possible.

From an informatics colleague who informed me of these developments:

The UK has recently adopted the ISO draft standards for the development and deployment of HIT. They don't go as far as premarket approval, but do require vendors to develop and deliver to healthcare organizations a formal hazard assessment for their products, require both to continually update their risk assessments, and require care delivery organizations to have an explicit process for identifying & mitigating risks, and formally accepting (or not) the residual risks that remain. The thinking is these standards will be adopted across the EU once the ISO approval process is completed.

These two remarkable documents are available from the UK's NHS:

http://www.connectingforhealth.nhs.uk/engagement/clinical/occo/safety/dscn18.pdf (PDF)

"Health informatics — Guidance on the management of clinical risk relating to the deployment and use of health software"
Formerly ISO/TR 29322:2008(E)
DSCN18/2009

and

http://www.connectingforhealth.nhs.uk/engagement/clinical/occo/safety/dscn14.pdf (PDF)

"Health Informatics — Application of clinical risk management to the manufacture of health software"
Formerly ISO/TS 29321:2008(E)
DSCN14/2009

From the first of these, the overall intro:

ISO (the International Organization for Standardization) is a worldwide federation of national standards bodies (ISO member bodies). The work of preparing International Standards is normally carried out through ISO technical committees. Each member body interested in a subject for which a technical committee has been established has the right to be represented on that committee. International organizations, governmental and non-governmental, in liaison with ISO, also take part in the work. ISO collaborates closely with the International Electrotechnical Commission (IEC) on all matters of electrotechnical standardization.

Then on to matters at hand:

Introduction

The threat to patient safety

There is mounting concern around the world about the substantial number of avoidable clinical incidents which have an adverse effect on patients, of which a significant proportion result in avoidable death or serious disability, see references [1], [2], [3], [4], [5] and [6]. A number of such avoidable incidents involved poor or "wrong" diagnoses or other decisions. A contributing factor is often missing or incomplete information, or simply ignorance, e.g. of clinical options in difficult circumstances or of the cross-reaction of treatments (a substantial percentage of clinical incidents are related to missing or incomplete information).

It is increasingly claimed that information systems such as decision support, protocols, guidelines and pathways could markedly reduce such adverse effects.

[As I have written in many places such as here and here, this may or may not be true regarding today's commercial healthcare IT as it is currently designed and deployed. Evidence supporting the assertion, especially robust studies such as randomized controlled clinical trials, is scarce, and evidence contradicting it is growing. The technology remains experimental - ed.]

If for no other reason – and there are others – this is leading to increasing deployment and use of increasingly complex health software systems, such as for decision support and disease management. It can also be anticipated that, due to pressures on time and to medico-legal aspects, clinicians will increasingly rely on such systems, with less questioning of their "output", as a "foreground" part of care delivery rather than as a "background" adjunct to it. Indeed, as such systems become integrated with medical care, any failure by clinicians to use standard support facilities may be criticised on legal grounds.

Increased use of such systems is not only in clinical treatment but also in areas just as important to patient safety, such as referral decision-making. Failure to make a "correct" referral, or to make one "in time", can have serious consequences.

Economic pressures are also leading to more decision support systems. The area of generic and/or economic prescribing is the most obvious, but achieving economy in the number and costs of clinical investigative tests is another.

Thus the use of health software and medical devices in increasingly integrated systems, e.g. networks, can bring substantial benefit to patients. However unless they are proven to be safe and fit for purpose they may also present potential for harm or at least deter clinical and other health delivery staff from making use of them, to the ultimate detriment of patients. Annex A provides some examples of the potential for harm.

Harm can of course result from unquestioning and/or non-professional use, although the manufacturers of health software products, and those in health organizations deploying and using such products within systems, can mitigate such circumstances through, for example, instructions for use, training and on-screen presentation techniques, guidance, warnings or instructions.

Some of these system deficiencies are insidious, may be invisible to the end user [an obviously perilous situation - ed.] and are typically out of the sole control of either the manufacturer or the deploying health organization.

The reports note the obvious, something that the health IT vendors' contractual gag clauses and secrecy in the health IT industry make difficult to rigorously evaluate:

A necessary pre-cursor for determining and implementing controls to minimize risks to patients, from a health software systems that is manufactured and then deployed and used within a health organization, is a clear understanding of the risks which the deployed system might present to patients if malfunction or an unintended event were to occur, and the likelihood of such a malfunction or event causing harm to the patient.

These risks cannot be properly evaluated in an industry where the flows of information are dominated by the vendors.

Some examples of potential for harm, from annex (appendix) A, will likely sound quite familiar to readers of Healthcare Renewal:

• Patient (mis)identification
• Inadvertent accidental prescribing of dangerous drugs (such as methotrexate)
• Incorrect patient details retrieved from radiology information system
• CT and MRI images could not be seen after being moved to PACS
• Drug mapping error
• Pre-natal screening risk computation errors
• Radiotherapy errors
• Slack security

I especially note the following in the first document (on deployment):

5.3 Competencies of personnel

Persons performing risk management tasks will need to have the knowledge, experience and competencies appropriate to the tasks assigned to them. This will need to include, where appropriate, knowledge and experience of the particular health software systems (or similar health software products) and applications, the technologies involved and risk management techniques. This should include appropriate registered clinical input throughout the process. Appropriate competency and experience records will need to be maintained.

Clinical risk management tasks can, and should, be performed by a project team that contains representatives of each of the functions that are involved in deploying and subsequently using the health software systems or system, with each contributing their specialist knowledge to build both awareness and consensus. Of particular importance will be clinical input from clinicians who are familiar with the practical realities of the environments within which the software system will be used and the clinical processes to which the software system is directed.

Emphasis on the last sentence is mine. At a time when U.S. CIOs and health IT "talking heads" still find the need to write touchy-feely "Master of the Obvious" articles extolling the virtues of permitting clinicians 'input' into health IT projects, usually under the aegis of unempowered "Directors of Informatics" or "Chief Medical Information Officers" (a.k.a. Directors of Nothing and Chiefs of Nothing, with no true executive presence or authority), the latter direct, definitive sentence is refreshing.

Miracle of miracles, even postmarketing surveillance is covered (the pharma and medical device industries have been mandated by regulators to conduct such studies on their products for decades):

11 Post-deployment monitoring

Both manufacturers and organizations deploying and using health software and other products within systems, have a business need to establish, document and maintain a process to collect and review information about the clinical safety performance of the products and system in the post-deployment phase, at least to help manage their liabilities but also to enable them to optimize their products and systems.

There is much more in these documents.

Download and read the PDF's. I will have more to say in future posts, but thank god someone is considering the risks to patients of this technology, touted as universally beneficent by health IT exceptionalists, in a serious manner.

Now if only we can import this thinking into the United States.

-- SS

2 Legal Settlements + 1 Corporate Integrity Agreement = $130 Million Retirement Package?

Omnicare's Trail of Legal Settlements

Last year, we discussed a $98 million settlement made by Omnicare, US based corporation that manages pharmacy-benefits, of allegations that it received kickbacks from generic drug manufacturers for buying and recommending their drugs.  Omnicare had previously submitted to a corporate integrity agreement in 2006, and paid $102 million to settle allegations it defrauded Medicaid.  At the time, we noted that this was yet another of the many cases in which the organization alleged to be involved in wrong-doing paid a fine, but no one who authorized, directed, or implemented the bad behavior was subject to any negative consequences.

So last week, Cincinnati.com ran a story on the retirement of the CEO who presided over Omnicare during the time of the alleged misconduct. 

Before reading further, would anyone care to guess whether the company's previous bad behavior would negatively impact his fortunes?

Contrasted with the Size of the CEO's Retirement Package

No exactamente:

As Omnicare Inc.'s new leadership begins to reshape its corporate culture - one that had included generous pay for senior executives - the Fortune 500 firm's exiting CEO stands to collect one of the largest payouts landed by a U.S. corporate executive in recent history.

Former president and CEO Joel Gemunder, who surprised analysts and investors when he retired on July 31, is in line to receive more than $130 million in severance, pension and departing payouts.

At 71, Gemunder had led Omnicare Inc., the nation's largest provider of pharmaceuticals for the elderly, for nearly 30 years.

On his retirement, Gemunder was up for a lump sum pension payment of more than $91 million. That's in addition to a monthly pension payment of $1,719 and roughly $5.38 million from a deferred compensation plan.

Gemunder also will receive $16.2 million in cash severance payable through next July. His 2.7 million in stock options and more than 705,100 shares of restricted common stock also became fully vested on his retirement. Collectively, the shares were worth more than $21.7 million, according to the company's most recent proxy.

To recapitulate so far: the company had to make two settlements of charges of kickbacks and fraud, totalling about $200 million, and accept a corporate integrity agreement. The CEO on whose watch this occurred left the company with a $130 million retirement package.

Can we spell "impunity?"

Protest from the Main-Stream Media

But this case was different from many of the legal settlements that we have chronicled in the past. In those previous cases, we noted how corporate bad behavior cost the organization as a whole, and hence collectively cost the stock-owners, the employees, and the customers/ clients/ patients involved, but not the leaders who authorized and directed the bad behavior, nor the particular people who implemented it. Hardly anyone else, however, took notice.

However, after Mr Gemunder's obese retirement package was made public, there was actually outrage in the opinion section of the Wall Street Journal:

Health-care costs, the national debt and taxes are all going up, and Joel Gemunder is one reason why.

Until Mr. Gemunder's abrupt retirement was announced on Monday, he was CEO of Covington, Ky.-based Omnicare, the nation's largest dispenser of pharmaceuticals to nursing homes.

Omnicare gets most of its revenue from Medicare, Medicaid and other companies sucking on these same government feeding tubes. Omnicare also lives up to its name, serving 1.4 million beds in 47 states.

Mr. Gemunder, 71, had been in charge since 1981, but now he's split with one of the largest lump-sum pension payouts in history, The Wall Street Journal reported. He's getting a $91 million pension payout, plus severance, vesting of restricted stock and other goodies that bring his final payday to at least $130 million. And that's on top of the $14 million he bagged last year.

As CEO, Mr. Gemunder touted 'cost reduction initiatives,' including salary cuts for employees, but these initiatives didn't apply to himself.

And what did the shareholders get for their money? Omnicare shares took a tumble last week after the company reported a shocking drop in the number of prescriptions it fills.

Omnicare stock peaked in March 2006 at more than $61, but now trades under $23. That's a drop of more than 60% -- versus a roughly 11% decline in the S&P 500 during the same period.

And what did the taxpayers and customers get? Omnicare has long been plagued by huge litigation costs amid allegations of kickback and billing schemes.

It's nice to have company. And it's very nice that the issue of the impunity enjoyed by leaders of top health care organizations has made it into the main-stream media. Now it is time to do something about it.

Summary

Let me say it again:  The Omnicare settlement coupled with its CEO's outlandish retirement package fit right into the parade of legal settlements we have discussed. As we have said again and again, the usual sorts of legal settlements we have described do not seem to be an effective way to deter future unethical behavior by health care organizations. Even large fines can be regarded just as a cost of doing business. Furthermore, the fine's impact may be diffused over the whole company, and ultimately comes out of the pockets of stockholders, employees, and customers alike. It provides no negative incentives for those who authorized, directed, or implemented the behavior in question. My refrain has been: we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

Postscript: A Conflicted Board Member?

The Cincinati.com story described the bizarre process used to set the size of the Omnicare CEO's retirement package.

Just ahead of Gemunder on the big pension list is Thomas M. Ryan, president and CEO of CVS Caremark Corp. with $94.4 million at the end of 2009.

CVS posts annual sales in excess of $98 billion compared to Omnicare's $6.17 billion. Annual profit at CVS is $3.6 billion compared to $ 211 million at Omnicare.

Despite the sizable differences, CVS is among 40 companies whose CEOs pay is considered when Omnicare's executive compensation committee determines pay for its top executives, according to the firm's April proxy. The company's compensation committee, which declined comment for this story, is made up of three long-time directors Andrea R. Lindell, board chair John T. Crotty and Steven J. Heyer.

Other companies considered include New York-based Bristol-Myers Squibb Co. with $17.8 billion in sales; Dublin, Ohio-based Cardinal Health, Inc. with $99 billion in sales and New Jersey-based Medco Health Solutions, Inc. with $72 billion in sales.

'These companies are enormously bigger than you would expect for a comparative group' for Omnicare, Crystal said. 'It's the equivalent of the local ball team that's not in the major leagues using their comparative group as the New York Yankees.'

Note that one member of the compensation committee that used this absurd standard to set the CEO's compensation was one Andrea R Lindell. The above story did not identify her further, but as we noted last year, she "is also Dean of the College of Nursing at the University of Cincinnati. One would think that someone who thus boasts 'the success of our students, faculty, staff and alumni who work together to promote excellence in education, research, service and practice' needs to keep a closer eye on the ethical aspects of her company's management. But as the New York Times just noted on the front-page of last Sunday's business section, as another blow to the anechoic effect, "Academics may be trained to ask tough questions in their own fields, but when confronted with tricky business issues far above their level of expertise they 'often become as meek as church mice'...." and hence are just the sort of directors that self-interested CEOs intent on lining their own pockets love. 

So this case becomes another reason to take seriously the increasingly frequent conflicts of interest generated when top leaders of non-profit health care organizations sit on boards of for-profit health care corporations.  These conflicts may not only distract the leaders from the mission of the non-profit organizations, but also distract them from their fiduciary duties to the stock-holders of the for-profit corporations.