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We recently posted about how top hospital managers are often the first to benefit from mergers and acquisitions, which once again have become fashionable in management circles. Now it appears that top executives can benefit even from failed mergers, as reported by the Daytona Beach (Florida) News-Journal,

Five months after Bert Fish Medical Center's failed merger, one board member said he was surprised to learn payments are still being made toward the $1 million buyout of the former hospital CEO.

Hospital board member Joe Benedict said he didn't know former hospital Chief Executive Officer Bob Williams, who steered the board into the illegal deal with Adventist Health System, is due to receive his $289,000-a-year salary until 2014 –– paid through the publicly owned hospital.

At the time the merger was announced, a memorandum of understanding with Williams became public and showed the deal had triggered a three-year buyout clause in Williams' contract. Starting July 1, 2010, the Adventist agreement paid him his salary for three years, as his contract required, plus seven months and eight days –– a deal worth $1 million and benefits.

'That man has got away with a lot more than he should have,' said Benedict, a former County Council member, explaining that he considers Williams as responsible for the failed merger as Jim Heekin, the board's former attorney.

These payments were made to the former CEO despite the cost of the failure of the merger:

The hospital district incurred $3.4 million in administrative and legal fees as a result.

Apparently, there are allegations that the merger failed because former CEO Williams agreed to keep the board meetings of this public hospital secret, which was illegal:

The hospital board has voted to pursue a legal malpractice lawsuit against Heekin, of the Orlando firm Lowndes, Drosdick, Doster, Kantor & Reed, for his advice to keep the public out of talks about merging the New Smyrna Beach hospital with a partner. The 21 closed meetings that were held over 16 months were called 'so much darkness for so long' they couldn't be cured, according to a ruling earlier this year from Circuit Judge Richard Graham, who threw out the merger.

Also,

Williams is quoted in transcripts of the closed meetings telling board members not to tell anyone Adventist had been chosen as Bert Fish's partner

Other contractual provisions for golden parachutes exist, but have yet to be activated:

Benedict said he's still hopeful he can undo other buyout clauses in hospital contracts he believes obligate the hospital to pay more than is allowed, under state law, for the departure of Bert Fish Medical Center administrators. According to the current contracts, provided to the News-Journal, the hospital's current CEO, chief financial officer and chief of nursing must be paid 24 months' salary should they be dismissed from their positions through no fault of their own. Their departures could be a possibility if Bert Fish were to seek another merger partner who doesn't want to keep them on.

The contracts were executed June 30. On July 1, a new state law went into effect that limits the buyout of public employees to 20 months.

Summary

So, a hospital CEO had a contract that made him eligible to begin receiving "golden parachute" payments just because a merger was in process, and these payments could not be stopped even though the merger was declared illegal, and hence never occurred. We noted recently that CEOs and other top officials of health care organizations are often the first to benefit financially from mergers and acquisitions, even when such transactions to not prove so beneficial to the affected institutions, much less patients' and the public's health in the long run. Here is a case in which a CEO could get extra money just because a merger was contemplated. This is some sort of new record for health care leaders personally profiting from their insider positions.

There has been growing public outrage about how ordinary people who play by the rules are disadvantaged in today's economy, while insiders profit from their positions. There ought to be equal outrage in health care over its version of this pheonomenon.

As long as health care leaders can continue to put their self-interest ahead of the health care mission in this way, is it any wonder that health care costs continue to rise while access and quality suffer? When will would be health care reformers realize that to truly reform health care, we will have to reform health care leadership? We need health care leaders who understand and uphold the mission, are accountable for how well they do so, and whose incentives depend on how they do so. We do not need leaders who put their self-interest first. Right now, however, that seeems to be the leadership we have.

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Will Hired Executives Let "Healing Prevail Over Profit?" - Questions from Public and Catholic Non-Profit Health Systems

Hospital - noun, 1. a charitable institution for the needy, aged, infirm or young 2. an institution where the sick or injured are given medical or surgical care, Merriam-Webster

- noun. 1. an institution providing medical and surgical treatment and nursing care for sick or injured people, Oxford Dictionary

Two recent NY Times articles raise concerns that changes in leadership may cause hospitals to stray from their original purpose.

Cook County Health and Hospitals System

The first NY Times article discussed leadership of Cook County Health and Hospitals System (in the Chicago, IL area). This is a public health system whose mission was traditionally "to serve Cook County's neediest patients." The management of the system, however, is now increasingly in the hands of paid consultants. For example, until recently, its COO (chief operating officer) was:

Mr. [Tony] Tedeschi, [who] like other of the system’s recent top managers, works for the Sibery Group, which has had contracts with the system to provide temporary executive talent.

Furthermore, his successor was

Ms. [Carol] Schneider, whose contract runs through December, works for the Washington Group Ltd., a consulting company that provides administrative help to the system.

Furthermore,

PricewaterhouseCoopers has a three-year, $50 million contract calling for it to save the system $300 million or bring in the equivalent in new revenue.

Not to mention,

consultants from the Sibery Group, which is based in Oak Brook, [were appointed] to top management posts within County Health. For example, a Sibery employee, Robert Hamilton, was until recently chief operating officer of Provident Hospital. Another, David Sibery, was until recently head of support services for the health system.

Turning leadership over to executives hired by outside, commercial firms has lead to concern.

The role consultants play at County Health is the object of strong criticism from doctors, nurses and other staff members who say they fear that consultants driven by the bottom line are at odds with the system’s obligation to serve Cook County’s neediest patients. Hundreds of front-line staff members have been laid off in the last two years.

One particular concern was the lay-offs directed by yet another group of consultants.

The county decided to close Oak Forest based in part on the advice of Navigant Consulting, which in a 2009 report found that Cook County’s hospitals were overstaffed compared to those of other health systems. Navigant’s assessment also formed the basis for the layoff of 1,350 people systemwide in the last two years.

Doctors, nurses and union leaders argued that Navigant’s calculations were flawed.

Most troubling are allegations that outsourced leadership by commercial consultants is stifling health care professionals' input into the system, including perhaps whistle-blowing about threats to its core mission:

A doctor at a county clinic who would not let his name be used because he feared losing his job said consultants were 'coming at it like our county system is a system that could make money.'

The purpose of the system 'is to take care of people regardless of their ability to pay,' the doctor said. 'If they want to get out of that commitment, that’s fine, but they’re going to leave people in the dust.'

In addition,

A nonunion supervisor, who would speak only on the condition that her name not be used for fear of retaliation, said the constant presence of consultants — and a lack of clear results — was undermining staff morale.

'I’ve never seen employee morale as low as it is now, at all levels,' the supervisor said.

A survey of employees conducted by management in January found that fewer than a third of health system employees think senior managers are 'trustworthy' or have 'a sincere interest in the well-being of employees.' The survey also found that more than half of employees do not think they can voice their opinion without fear of retaliation.

Dr. Richard David, co-director of neonatal intensive care at Stroger Hospital, said doctors were frustrated that Pricewaterhouse consultants had not sought their advice and seemingly ignored opinions offered by medical staff members.

Dr. David said cuts most likely recommended by consultants were interfering with patient care in his unit. He cited calls from other doctors that go unanswered because staff reductions have left only one desk clerk, who also covers another unit.

So it appears that through the miracle of out-sourcing, nominally public hospitals can now be lead by hired executives from commercial firms, whose corporate culture may be more about laissez faire capitalism than serving the poor.
SSM Health Care

The second NY Times article was about the exit of nuns as leaders of Catholic hospitals and health systems. In summary,

In 1968, nuns or priests served as chief executives of 770 of the country’s 796 Catholic hospitals, according to the Catholic Health Association. Today, they preside over 8 of 636 hospitals. ... only 8 of 59 Catholic health care systems are directed by religious executives.

The focus of the article was on the retirement of Sister Mary Jean Ryan as CEO of SSM Health Care, (SSM honors Sisters of St. Mary, a predecessor of the Franciscan Sisters of Mary, the Sister's order). Sister Mary Jean Ryan was not a typical hospital system CEO:

her legacy ... extends to preaching about the dignity of patients, paying blue-collar workers above scale, making her hospitals smoke-free, banning the use of foam cups and plastic water bottles, and insisting on gender-neutral and nonviolent language. There are no 'bullet points' in SSM presentations, and photographs are 'enlarged,' never 'blown up.'

Even Sister Mary Jean can struggle to define precisely what the nuns brought to their hospitals. 'There is this thing called presence, she said, explaining that she was trained to see Jesus in the face of every patient....

Also, her leadership:

meant turning away business arrangements with doctors who decline to accept Medicaid. It has meant discounting treatment for the poor and offering charity care to the uninsured, just as the order’s founders did. The St. Louis nuns’ earliest ledgers denoted patients unable to pay as 'Our dear Lord’s.'

But Sister Mary Jean has left, and this, and the general loss of religious leadership of Catholic hospitals and health systems:

has stirred angst in many Catholic hospitals about whether the values imparted by the nuns, concerning the treatment of both patients and employees, can withstand bottom-line forces without their day-to-day vigilance. Although their influence is often described as intangible, the nuns kept their hospitals focused on serving the needy and brought a spiritual reassurance that healing would prevail over profit, authorities on Catholic health care say.

Money is likely to become much more important at SSM:

Mr. William P Thompson, Sister Mary Jean’s handpicked successor, said he planned to hold fast to her commitment to patients, the environment and nonviolence. But he also acknowledged that he would be 'trying to drive more efficiencies in the system.'

One cannot help but wonder if these "efficiencies" will resemble those deployed by the outsourced consultant leadership of Cook County.

On Private Equity and Catholic Hospitals

Furthermore, there is reason to think that Catholic, non-profit hospitals and health care systems may become even more like commercial firms. An article in HealthLeaders Media about the increasing interest by private equity firms in non-profit hospitals and health care systems noted,

[A] well-publicized deal was the buyout of Massachusetts-based Caritas Christi Health Care, which was a nonprofit, by Cerberus Capital Management. [see our posts here and here] The 2010 sale not only gave Caritas a cash infusion, but altered its tax status to for-profit. These acquisitions moved to center stage the use of private equity capital as a strategic opportunity for healthcare leaders.

For instance, this past February, the nation's largest Catholic health system, Ascension Health, partnered with the Stamford, CT–based private equity firm Oak Hill Capital Partners, embarking on a joint venture to buy Catholic hospitals.

Leo P. Brideau, FACHE, president and CEO of the St. Louis–based Ascension Health Care Network, says the joint venture allows the organization to provide an alternative funding source for the acquisition of Catholic healthcare entities.

Then,

Brideau says seeing other Catholic hospitals financially flounder—only to be sold to non-Catholic entities—aligns with the organization's mission to grow its network of Catholic hospitals. The vision to strengthen Catholic healthcare was another driver for Ascension's partnership with Oak Hill Capital.

However, the article raises further concerns about whether private equity's interest in non-profit, particularly Catholic hospitals will help these institutions' missions. The thinking of one private equity expert was:

The core goal of a nonprofit hospital or health system is to provide patients with high-quality, cost-effective care, while earning a healthy margin; private equity firms have a different end goal. The general aim of a private equity firm is to achieve a large return on investment in the form of capital gains. How the private equity firm achieves those ends is where hospitals need to do their homework, [managing partner of Linden Capital Partners Brian] Miller says.

Despite what private equity gurus may think, non-profit hospitals' missions never used to make a goal "earning a healthy margin" co-equal with that of taking good care of patients. It does not appear that achieving "a large return on investment" will be compatible with the traditional culture of Catholic hospitals in which "healing would prevail over profit."

Nor does it appear compatible with the recent words of Pope Benedict XVI (as reported by the AP, via the Boston Globe):

'The economy doesn’t function with market self-regulation but needs an ethical reason to work for mankind,' he told reporters traveling aboard the papal plane. 'Man must be at the center of the economy, and the economy cannot be measured only by maximization of profit but rather according to the common good.'

He said the current crisis shows that a moral dimension isn’t 'exterior' to economic problems but 'interior and fundamental.'

Summary

As hospitals and health systems are increasingly lead by people from the world of business, at a time when business culture increasingly believes "greed is good," the fundamental values of hospitals and health care professionals are more often ignored, if not directly threatened.

To repeat, 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.

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.

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