Health Science

In our most recent post, we noted the latest tragic, and gruesome development at Cooper Health System, the largest hospital system in southern New Jersey.  Months after the system CEO, John F Sheridan, and his wife Joyce were found dead after a fire in their home, local law enforcement concluded that Mr Sheridan murdered his wife, set fire to the house, then committed suicide.  It turns out this is just the latest, albeit possibly most tragic and grisly, troubling news from that health care system.

Our last post summarized the history from 1978, including:
-  Seven people, including the hospital system chief financial officer, confessed to and/or found guilty of participating in an embezzlement scheme that cost the hospital more than $21 million
-  An internal investigation was suppressed for years, but later revealed several severe management problems
-  The media revealed multiple conflicts of interest affecting the system's board of trustees, including members of the committee that performed the investigation
-  One member of the board of trustees who participated in the internal investigation was later convicted of arranging his wife's murder
-  Resulting financial losses caused layoffs and service reductions, some of which affected the hospital system's charitable mission
-  The stories received little attention outside the region, and apparently did not result in any fundamental changes in governance or the structure of leadership.

Since 2005, there have been other troubles at Cooper.

Conflicts of Interest Involving Local and State Politics

Board Chairman George E Norcross III

In 2006, the Philadelphia Inquirer found close ties between NJ politicians and hospital leaders (see this post).  In particular, the story noted "the board of South Jersey's major hospital, Cooper University Hospital in Camden, is chaired by the region's most powerful political figure, Democratic power broker George E. Norcross III."

In 2012, as we posted here, Mr Norcross' relationships became more evident.   The New York Times reported that a story about his conflicts of interest had been held from publication by the Inquirer because Mr Norcross was part of a business group seeking to purchase that newspaper.  When the Inquirer story finally came out, it stated firms with financial relationships to the hospital under Norcross had donated generously to Norcross' political allies, and that Norcross had influenced the creation of relationships with these firms.  It suggested that Norcross' political influence had resulted in an unusual level of state financial support for the hospital system.  It noted that the law firm for which Cooper CEO John F Sheridan had previously worked did lobbying for the hospital.  It noted that the hospital did millions of dollars of business with firms tied to hospital trustees, including Mr Norcross.

Trustee Emeritus Peter Driscoll

Recent reporting after Mr Sheridan's death suggested the rehabilitation of former board chairman Peter Driscoll under Chairman Norcross.  Mr Driscoll was the former board chair who resigned in 1999 after the embezzlement scandal report and revelations about conflicts of interest affecting the board were finally made public, and the hospital system was in financial difficulty.  However, by 2014, he was identified by the board as a "trustee emeritus."  Per the Philadelphia Inquirer, after the fire at the Sheridan house was attributed to arson,

'If they had died because the house was on fire, that would be a terrible, terrible tragedy,' said Cooper Health System trustee Peter E. Driscoll, a senior member of the Haddonfield law firm of Archer & Greiner. '. . .I don't know what to make of it. I can't imagine anybody that would want to do something like this.'

New Vice President Kevin O'Dowd and his Family

Also after Mr Sheridan's death, the hospital system hired a new top manager with his own extensive political connections and conflicts of interest.  Per the Inquirer,

Gov. Christie's chief of staff, Kevin O'Dowd, will step down this month to work for Cooper University Hospital in Camden, nearly a year after the governor named O'Dowd his pick for attorney general.

O'Dowd, whose selection as attorney general never moved forward after controversy arose over lane closures on the George Washington Bridge, will serve as senior executive vice president and chief administrative officer at Cooper, where he will focus on business development, Christie officials said. He will start at Cooper in January.

The conflict was

 O'Dowd's wife, Mary, serves as commissioner of the state Department of Health.

A NJ.com story made that more explicit,

 State Health Commissioner Mary O’Dowd will refrain from making decisions that would directly affect Cooper University Hospital in Camden after her husband accepted a senior management job there, officials said Friday night.

The move was made to avoid any conflicts of interest as the state Department of Health licenses and inspects hospitals, and doles out money to compensate them for treating uninsured charity care patients. Cooper will receive $37.3 million in charity care payments from the state this year, the fifth highest amount in the state.

A story in the NJ Spotlight suggested that would not solve the problem,

The question that the O’Dowds will have to face is whether they can overcome even the perception of a conflict of interest when their jobs so pervasively present opportunities for such a situation.

'It’s a very, very tenuous situation,' said William Schluter, a former longtime member of the State Ethics Commission and state senator.

He noted that nearly everything that senior hospital executives do in their jobs is influenced by state regulations.

'It’s a situation that I sure as heck wouldn’t want to be in,' said Schluter, adding that he expects second-guessing in the media and by elected officials as the state handles issues affecting Cooper.

Just to ice the cake for Mr O'Dowd, the Courier-Post noted that Mr O'Dowd's job at Cooper could be considered an example of the revolving door, albeit delayed,

O'Dowd, previously the governor's deputy chief counsel, also worked under Christie at the U.S. Attorney's Office for New Jersey.

During seven years as an assistant United States attorney, O'Dowd oversaw a securities and healthcare fraud unit. He also prosecuted cases ranging from child pornography distribution, cybercrime and drug trafficking.

O'Dowd served earlier as a state Deputy Attorney General, where his responsibilities included providing legal counsel to the state Department of Health.

As US Attorney, Christie, possibly with the aid of Mr O'Dowd, pursued a deferred prosecution agreement for UMDNJ, then Cooper's primary academic affiliation, for a complicated set of allegations that we discussed extensively in the past (look at this post and follow links backward).  

Late CEO John F Sheridan and Family


Apparently only after Mr Sheridan's death did the media report extensively on his political connections.  The earliest report I found was in the Philadelphia Inquirer from September 28, 2014.  He served

on Gov. Christie's health-care transition subcommittee in 2010.

The statement said he was New Jersey commissioner of transportation under Gov. Thomas H. Kean and served as New Jersey deputy attorney general and assistant counsel for the New Jersey Turnpike Authority, and was counsel for the New Jersey Senate majority.

Also,

 his son Mark - a prominent lawyer ... has represented Christie in the Bridgegate scandal 

NJ.com added,

John Sheridan Jr., the CEO of Cooper University Health System ... previously spent 40 years in New Jersey government

Also,

He has held positions on Gov. Thomas Kean's cabinet as transportation commissioner and chairman of the New Jersey Transit board, as well as held roles on transition teams for Gov. Chris Christie and Gov. Christine Todd Whitman. 

Furthermore,

 Earlier in his career, he served as Deputy Attorney General of the State of New Jersey, Assistant Counsel to Gov. William T. Cahill, General Counsel to the New Jersey Turnpike Authority and Counsel to the New Jersey Senate Majority.

Finally, his son

Mark Sheridan, a partner at Squire Patton Boggs, acts as general counsel for the New Jersey Republican State Committee.

 So, in the years since conflicts of interest at the board of trustees level were noted as part of the investigation after the management embezzlement scandal at Cooper, many more apparent conflicts affecting top managers and board members have appeared, most recently in late 2014. 


Settlement of Allegations of Kickbacks

In 2013, the media reported that Cooper settled federal allegations that it gave kickbacks to doctors to induce referrals.  As reported by the Inquirer,

The Cooper Health System in Camden has agreed to pay $12.6 million to settle a whistle-blower lawsuit alleging that it made improper payments to doctors in an effort to build its cardiology business, the U.S. attorney for the District of New Jersey said Thursday.

From October 2004 through 2010, local doctors were paid $18,000 to attend four meetings of the Cooper Heart Institute Advisory Board in any given year under 'consulting' and 'compensation' agreements, in possible violation of antikickback laws, state and federal law enforcement officials contended.

The whistle-blower was South Jersey cardiologist Nicholas L. DePace. He attended an advisory board meeting in 2007 and was convinced that the board's purpose was not to provide advice to Cooper, but to be a source of patient referrals to the Heart Institute, according to a lawsuit he filed in 2008.

'He was invited to be a member of the advisory board. He attended a meeting and it quickly became apparent to him what the advisory board really was. It was sitting and listening to lectures and not providing advisory services,' said Michael A. Morse, a partner in Pietragallo, Gordon, Alfano, Bosick & Raspanti L.L.P. in Philadelphia, one of DePace's lawyers.

As is typical of legal settlements involving prominent health care organizations,

Cooper admitted no liability.

'After more than three years of extended discussions with government lawyers, we decided, in the best interests of Cooper, to settle our dispute without the admission of wrongdoing to avoid the burdens and uncertainties of a protracted litigation,' Cooper president and chief executive officer John P. Sheridan Jr. said. 'This allows us to focus our full energies on serving our community.'

In a note to Cooper employees, Sheridan said the board was established to 'improve the quality and responsiveness of our cardiac programs' and 'was reviewed by outside legal counsel before it began operations.

However, given that the Inquirer reported that "the $12.6 million penalty is financially significant for Cooper," one wonders why it was made if hospital leadership felt that the case against it was poor.  

So years after the embezzlement scandal, another scandal involving allegations of illegal behavior was settled.  This time, there was no trial, but since the settlement was financially burdensome for the hospital, it is plausible that it resulted from managers' realization that they would not have a good defense against the charges at trial. 

The Death of the Sheridans

Mr Sheridan became CEO of Cooper in 2008.  As noted in the Gloucester County Times,

On Feb. 7 John P. Sheridan Jr., was appointed president and chief executive officer of The Cooper Health System by the Cooper Board of Trustees. Sheridan joined Cooper as senior executive vice president in July 2005 and has served as president of Cooper University Hospital since September of 2007.

'Cooper has grown dramatically in recent years and is positioned as the academic medical leader of South Jersey,' said George E. Norcross III, chairman of the Board of Trustees at Cooper.  'John Sheridan is a proven leader. He has the skills required to build-out our $500 million health care campus in Camden, implement our suburban strategy and achieve our vision of creating the premier academic health care system in South Jersey and the Delaware Valley.'

As of early 2014, he was getting substantial compensation typical for a hospital system CEO, per NJBiz, "John T. Sheridan Jr. (of the $913 million Cooper Health System) received $963,433."

In late September, 2014, Mr Sheridan and his wife were found dead in a house fire.  Initial reports suggested the fire was accidental.  Then it was declared to be arson.  Then Joyce Sheridan's death was found to be the result of a homicide.  Finally, as we posted here, law enforcement declared that Mr Sheridan killed his wife, set the fire, and then committed suicide.

That news was so horrendous that it dumbfounded Cooper insiders.  As reported by the Inquirer,

 'It's not something I can imagine,' said Peter Driscoll, a Cooper Health System trustee emeritus and a senior member of the Haddonfield law firm Archer & Greiner. 

Also,



Summary

Since 1978, there have been multiple stories about mismanagement, conflicts of interest affecting managers and board members, and crimes committed or alleged to have been committed by management and at least one trustee at Cooper Hospital/UMC which then became Cooper Health System.  Despite these often lurid stories, there is no indication that there has been a fundamental change in the governance of the institution.  While managers have come and gone, sometimes under difficult circumstances, there is no indication that how managers were hired has changed.  Since the early 1990s, there has been no obvious effort made by management or board members to change, at least not one announced publicly.  There has been no outside investigation.

Given that the hospital system has long enjoyed a cozy relationship with state government, including both the legislative and executive branch, maybe it has been easy to go along to get along.  More cozy relationships, including some with ownership of the news media, may have helped to keep this story anechoic outside of the region.

Yet the cumulative story is so striking that it should prompt national attention, and inspire some real hard thought about how health care leadership and governance has gotten so bad.

To repeat what I have said all too often, and I admit with little impact so far....

True health care reform requires governance that is accountable, transparent, true to the organization's mission, and honest, ethical, and without conflicts of interest; and leadership that understands health care, upholds its values, is honest, ethical, and without conflicts of interest, is transparent and open, and is willing to be accountable and subject to appropriate incentives. 

The theme of non-profit hospital CEO as Scrooge seems to be persisting in the media even beyond the holiday season.  (Our last post on this theme was in December, 2014).  The previous cases we discussed (also here) involved  marked contrasts between how well top hired managers of non-profit hospitals were doing, and how their institutions were doing.

Turning Around the Hospital, but Turning Away Employees

The background to this story comes from an article in the Cape Cod (MA) Times from January, 2014.  Cape Cod Healthcare, a regional non-profit hospital system, hired Dr Richard Saluzzo as CEO to turn around the system's troubled finances.

Cape Cod Healthcare had 'a pretty significant economic turnaround' under Salluzzo's stewardship, as well as accolades for quality of care, [board chairman Thomas] Wroe said.

'We were really in trouble. He was the architect and foundation of turning that around,' Wroe said.

In this case, the turn around seemed to be strictly financial,

During his tenure Cape Cod Healthcare's bond rating improved from one grade above junk status to BBB with a favorable outlook.

However, the turn around also involved turning away employees,

The financial turnaround came in part from cost-cutting measures such as layoffs for about 200 employees and improved billing.

More details about these layoffs were in a Cape Cod Times article from 2008,

A hospital chaplain and several psychiatric nurses are among the cuts emerging from Cape Cod Healthcare's announcement last month that it is eliminating 169 positions.

In particular,

the hospital's largest union is expected to begin the process of 'bumping' later this week, which allows employees with more years of service to move into jobs of junior colleagues.

Most of the layoffs announced last month are at Cape Cod Hospital.

Union jobs scheduled for elimination are going through a process of negotiation with management.

Seventy-six positions held by members of the 1199SEIU United Healthcare Workers East are slated for elimination.

Also still in negotiation is the fate of seven members of the Massachusetts Nurses Association, several of whom are employees of the psychiatric center located across the parking lot from Cape Cod Hospital in Hyannis.

Some of the nurses work part time, said Marilyn Rouette, president of the Cape Cod Hospital chapter of the association.

But the psychiatric services help 'a very vulnerable population,' she said.

So the hospital apparently did improve its financial performance during the reign of Dr Saluzzo, but at the expense of quite a few employees, including health professionals serving vulnerable patients.

CEO Compensation as the Gift that Keeps on Giving

CEO Dr Saluzzo earned pretty good pay during his last full year, as reported by the Cape Cod Times in 2014,

In fiscal 2010 — his last full year of employment at Cape Cod Healthcare — Salluzzo earned under $1 million, garnering $835,609 in salary and $23,967 in other compensation. He also received a benefit plan worth $78,618.

He did much better than did the previous CEO,

Salluzzo's most recent salary stands in striking contrast to that of his predecessor, retired Cape Cod Healthcare CEO Stephen Abbott, whose salary came to $621,225 in fiscal 2008, his last full year on the job. That year he also had a benefit plan worth $111,544.

However, CEO Dr Saluzzo's compensation did not stop when he left.  The 2014 article in the Cape Cod Times included,

Even as Dr. Richard F. Salluzzo abruptly left his CEO position at Cape Cod Healthcare more than three years ago, he was due to receive more than $2 million in compensation.

Reports filed with the state attorney general's office for fiscal 2012 and 2011 show that Salluzzo remained Cape Cod Healthcare's highest-paid employee those years, despite the fact that he left just two months into fiscal 2011.

Salluzzo earned $1,309,308 for fiscal 2011 and $1,095,342 for fiscal 2012, according to forms filed with the attorney general's nonprofit/public charities division. Cape Cod Healthcare's fiscal year starts Oct. 1.

This week, the January 5, 2015 Cape Cod (MA) Times updated the figures,

Three years after he abruptly left Cape Cod Healthcare, former CEO Dr. Richard Salluzzo continued to be one of its highest-paid employees, according to new financial reports filed with the state attorney general’s office.

Since departing the nonprofit organization in November 2010, Salluzzo has taken in more than $3 million in compensation, including $857,953 for the most recent fiscal year on file, 2013.

The compensation made Salluzzo the fourth-highest-paid employee at Cape Cod Healthcare for that period, which started Oct. 1, 2012, according to forms recently filed with the attorney general’s nonprofit/public charities division. The payout is less than what Salluzzo earned in fiscal years 2011 and 2012, which came to $1,309,308 and $1,095,342.

The Board Continues its Defense of the Seemingly Endless CEO Compensation

According to the 2015 Cape Cod Times article, the new board chairman continued the defense of the continuing payment of a CEO who departed over three years ago,

This was a commitment made by the board years ago,' said William Zammer, chairman of the Cape Cod Healthcare Board of Trustees. 'The system was hemorrhaging money, and we were in a terrible position.'

'Salluzzo came onboard and did the job' of shifting the health care system from the red to the black,' Zammer said.

Never Mind the Questions Raised about the CEO Since 2008

This defense, admittedly not as strident as some other defenses by hospital board members of CEO compensation that we have discussed, was maintained despite some pretty significant questions about former CEO Dr Saluzzo since he was hired back in 2008.

Dr Saluzzo's Leadership of Wellmont Health System

This concern goes all the way back to 2009, as reported again by the Cape Cod Times,

Amid the good news, however, comes word from the Wellmont Health System in Kingsport, Tenn., that profits under Salluzzo were significantly less than first reported. A recent audit by a new firm found the system overstated its net earnings for fiscal years 2006 and 2007 by nearly $20 million and lost $4.6 million in 2008. The financial restatement came as a shock to Salluzzo, who said audits during his tenure always came back clean.

'This is a disagreement between auditors,' he said. 'I know my team and I did nothing wrong.'

Wellmont officials, who have not returned phone calls, said in a prepared statement that the audit turned up no evidence of criminal acts. The press release referred to errors in recording expenses, receivables and assets and said the system was imposing a new set of controls to reconcile accounts and strengthen internal auditing.

At that time, the board of Cape Cod Healthcare just seemed relieved that the issue was not criminal,

'There's no indication of fraud, manipulation of funds or personal gain,' [board chairman Thomas Wroe] ... said. 'They changed auditors. Any time you do that, you have a different translation of financial results. We have strong confidence in Dr. Salluzzo. He's been doing a great job for us.'

Saying that there is no indication that a person is a criminal seems like rather faint praise.  Never mind that it was still on CEO Dr Saluzzo's watch that these results, which now appear less than stellar, were produced, and that the belief, not apparently wrong, that CEO Dr Saluzzo produced stellar results at Wellmont was a reason to hire him as CEO of Cape Cod Healthcare.  Never mind that it was on CEO Dr Saluzzo's watch that the Wellmont hospital systems accounting was full of errors, yet it was Dr Saluzzo's financial leadership at Wellmont that apparently endeared him to the Cape Cod board.

Dr Saluzzo Sanctioned by the Massachusetts State Medical Board

In 2011, after Dr Saluzzo left his position as CEO, the Falmouth (MA) Enterprise reported,

Dr. Richard F. Salluzzo, former CEO of Cape Cod Healthcare, was disciplined by the state Board of Registration in Medicine this week for using drugs prescribed to others for his own use and prescribing drugs to family members without keeping proper records.

In particular,

Among the allegations in the board’s investigation of Dr. Salluzzo are that in 2008, before he started at Cape Cod Healthcare, he wrote four prescriptions for Valium for an employee working under him and then asked the employee to fill the prescriptions and give him the drugs. In 2009, while holding the top job at Cape Cod Healthcare, he wrote prescriptions for Zoloft for a friend and filled the prescriptions for his own use.

According to the board’s allegations, he also wrote prescriptions for controlled substances for his wife, his two adult children and his father but did not keep medical records for the family members.

In disciplining Dr. Salluzzo for those actions, the board cites the American Medical Association’s Code of Medical Ethics that 'physicians should not treat themselves or family members as professional objectivity may be compromised and issues of patient autonomy and informed consent may arise.'

In a consent order, Dr. Salluzzo agreed to the ruling and punishment, signing the document on November 1.

At that time, the Cape Cod Healthcare board of trustees responded to the disciplinary measures taken for unprofessional actions by the system's former CEO thus,

Cape Cod Healthcare’s board of directors, in a press release, stated, 'We became aware of a complaint and followed our established policies to ensure that the licensing board was involved in this matter on a timely basis. We then cooperated fully with the Board of Medicine’s investigation.'

The board notes that the Board of Medicine discipline concerns Dr. Salluzzo’s private practice and not his management performance.

'No complaint was ever reported or filed by any patients or physicians here regarding the quality of the clinical care provided by Dr. Salluzzo during his tenure on the medical staff of both CCHC hospitals,' according to the statement.

The board reiterated its statement last year about Dr. Salluzzo’s tenure at the hospital. 'He achieved the goals set for him as witnessed by our financial turnaround and improved relationships with our physicians, then decided to pursue other career challenges and professional interests.'

By the way, the January, 2014, Cape Cod Times article also noted,

On the basis of the Massachusetts disciplinary actions, Salluzzo also was fined and reprimanded in 2012 by medical boards in New York, Tennessee and Pennsylvania — all states where he has practiced medicine in the past.

I would guess that this means that actions uncovered by the Massachusetts board of medicine included some that took place in these other states.  

The real issue raised was not whether Dr Salluzzo's professional actions harmed patients, but whether a physician so sanctioned for unprofessional conduct deserved continuing payments, amounting to millions of dollars, for his previous employment as CEO of  Cape Cod Healthcare. 

The usual justification for extremely high compensation of hired health care managers is their brilliance. Recall that in 2014, well after CEO Dr Saluzzo departed from Cape Cod Healthcare, then chairman of the board of trustees Thomas Wroe gave him accolades for "quality of care."  It seems that one could question the quality of care produced by the leadership of a physician who wrote used subterfuges to obtain controlled substances for himself and his family.  Such questions did not occur to the former chair of the system's board of trustees even by 2014.

Summary

Note that the 2014 Cape Cod Times article quoted W. Michael Hoffman, executive director of the Center for Business Ethics at Bentley University, who called CEO Dr Saluzzo's cumulative compensation "outrageously lucrative."  The 2015 Cape Cod Times article quoted David Schildmeier, spokesman for the Massachusetts Nurses Association, who called it "obscene," and furthermore,

We're paying this failure of a CEO millions of dollars.

Nevertheless, heaven forfend that a hospital board of trustees would try to withhold pay for a CEO, even pay provided years after that CEO's departure, that might violate a previously written contract, even new information discovered might now provide reasons to challenge that contract.

So here is an amazing example in which a former hospital system CEO continues to be rewarded with millions of dollars after he actually left his employment as CEO.  These rewards started even though the financial turnaround he supposedly engineered required layoffs of health care professionals serving vulnerable patients  The hospital system board of trustees continued to authorize, and failed to question these payments even after subsequent revelations that the CEO's initial hiring was apparently based on a false impression of the financial performance of his previous hospital system generated by accounting problems within that system, and that the CEO had behaved unprofessionally in obtaining prescriptions of controlled substances for his family and for himself.

As we have said before, in US health care, the top managers/ administrators/ bureaucrats/ executives - whatever they should be called - continue to prosper ever more mightily as the people who actually take care of patients seem to work harder and harder for less and less. This is the health care version of the rising income inequality that the US public is starting to notice.

 Thus, like hired managers in the larger economy, non-profit hospital managers have become "value extractors."  The opportunity to extract value has become a major driver of managerial decision making.  And this decision making is probably the major reason our health care system is so expensive and inaccessible, and why it provides such mediocre care for so much money. 

One wonders how long the people who actually do the work in health care will suffer the value extraction to continue?

So to repeat, true health care reform would put in place 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.

But this sort of reform would challenge the interests of managers who are getting very rich off the current system.  So I am afraid the US may end up going far down this final common pathway before enough people manifest enough strength to make real changes.

As I have written before, sometimes you just could not have made this stuff up.

The Retiring Board Chairman Appoints His Own Daughter to Succeed Him

The most even handed reporting on this story was in Inside Higher Ed,

Leadership of the board that oversees Cornell University’s medical college is passing from father to daughter, an unusual transition of power for a higher education board.

Weill Cornell Medical College’s Board of Overseers has been chaired for the past two decades by its namesake and major donor, Sandy Weill, the former CEO of Citigroup.

His daughter, Jessica Bibliowicz, is now set to take over Weill's role. She is the founder and former CEO of a major insurance brokerage, and has also been on the board for a decade.

Let me just dissect this a bit.  Weill Cornell Medical College is a large, prestigious medical school located in New York City, and part of Cornell University.  The chair of its Board of Overseers for the last two decades as been one Sanford I Weill.  Mr Weill is a famous finance executive, formerly CEO of Citigroup from 1998 - 2003, remained chairman of the board of Citigroup through 2006, and is now chairman emeritus (look here). 

According to a Cornell press release, the new chairperson, ms Jessica Bibliowicz, is a

Cornell University graduate in 1981 and after working 18 years in financial services, Ms. Bibliowicz became CEO of National Financial Partners in 1999, a financial services firm that specializes in benefits and wealth management. The company went public in 2003 and was sold to Madison Dearborn in 2013.

 Currently,

Ms. Bibliowicz is a senior advisor at Bridge Growth Partners and serves on the board of directors of Sotheby's(NYSE: BID); Realogy (NYSE: RLGY); and the Asia Pacific Fund (NYSE: APB). She is a board director/trustee of Prudential Insurance Funds....

The Inside Higher Ed article noted that

In a statement, Cornell said, Weill Cornell Medical College engaged in a comprehensive process to select its chair of the Board of Overseers by canvassing multiple members of the board in full consultation with senior leadership. The search was headed by a group of senior trustee overseers with extensive knowledge of the institution and Weill Cornell firmly believes it has selected the best choice as chair.'

The New York Times reporting of the succession, oddly in the Dealbook blog, which is focused on finance and Wall Street, not medicine, made it seem, however, that Mr Weill handpicked his daughter to succeed him,

he increasingly felt that the time was nearing to appoint a successor.

'I felt like it was a good time for younger blood,' he said.

Ultimately, he decided upon his daughter,

The Cornell press release lauded Mr Weill, the retiring chair as providing "bold and visionary leadership," having "enduring dedication," exemplifying "benevolence and unwavering resolve to ensure a healthier future," etc, etc.  It called him a "self-made man who exemplifies the philosophy of leading by example."  It quoted the current dean of the medical school, Dr Laurie Glimcher, (whose apparent conflict of interest as a board member of Bristol-Myers-Squibb we discussed here and here) calling his accomplishments "breathtaking."  It quoted the university president, David Skorton, calling him again a "visionary."

In the Dealbook article, Dr Glimcher further praised the chairperson designate, Ms Bibliowicz, as "a person of enormous energy and passion," who will "bring her energy, her connections and her passion for medicine and medical research and education to the role."


The Inside Higher Ed article noted some vague questions about the position of chair of the board of trustees of an important medical school being passed from father to daughter,

'On the other side of the coin, within-family succession planning adds complexity to the issue -- it just raises certain questions,' [former vice president for programs and research at the Association of Governing Boards of Universities and Colleges Peter] Eckel said.

However, Mr Eckel did not really list these questions.

Later, the article referred to "nepotistic arrangements," presumably in part referring to this father - daughter transition, but then found someone to defend them. 

The Real Questions

Weill Cornell Medical College is part of a non-profit organization.  Nonprofit organizations have no owners. Non-profit organizations are formed to support particular missions, under the stewardship of boards of trustees (or directors or overseers).  These boards have three basic duties [italics added]

 Duty of care: Board members are expected to actively participate in organizational planning and decision-making and to make sound and informed judgments.
Duty of loyalty: When acting on behalf of the organization, board members must put the interests of the nonprofit before any personal or professional concerns and avoid potential conflicts of interest.
Duty of obedience: Board members must ensure that the organization complies with all applicable federal, state, and local laws and regulations, and that it remains committed to its established mission.

Thus, the transfer of the position of chair of the board from parent to offspring, apparently directly under the control of the parent, is questionable on its face, suggesting that family interests came before the "interests of the nonprofit."  Such transfers may commonly occur on the boards of privately family held for-profit companies, but are basically unheard of for medical schools or other large academic medical nonprofit organizations, where they certainly could appear nepotistic.

That concern is amplified when neither parent or child have any appreciable background or training in the work of the nonprofit.  Neither Mr Weill nor Ms Bibliowicz seem to have any training or background in health care, biomedical research, or specifically medicine.  Yet Weill Cornell Medical School's basic mission is to train students to be physicians.  So how well either or their personal judgments about the policy and operations of a medical school are "informed" is not exactly clear.  

Further concerns are raised by the background of the father in this father daughter transaction, the part of the background that was entirely ignored by the rather fawning public discussion of the transaction in the Cornell press release, and also the NY Times Dealbook article.

In fact, Mr Weill's leadership in the past was of Citigroup during the lead up to the global financial collapse of 2008.  Citigroup, the poster child for the too big to fail bank, nearly went bankrupt, and required a huge government bailout.  Its near collapse, again apparently only prevented by government action, is widely considered to have been a major cause of the finance disaster starting in 2008.  As we noted in a 2009 blog post about Weill Cornell,   The Sellout, by Charles Gasparino, featured vivid portraits of the bad leadership that lead to the collapse, including specifically Mr Weill,

But in reality, Will never really ran anything. He was a visionary, to be sure, but one whose vision was so myopically focused on building the empire had lusted for for so long and on its share price that he ignored just about everything else. (p. 144)

Furthermore, this was Mr Weill's listing in the "key people" section of the book,

Former CEO and chairman of Citigroup, Weill created the idea of the one-stop-shopping mega-financial conglomerate, engineering a series of mergers ... and in the process created the world's largest financial company.  Famously obsessed with his firm's stock price, Weill announced his resignation in 2003 after investigators discovered he'd pressured a stock analyst, Jack Grubman, to raise his rating on AT&T, where Weill was on the board, in return for ensuring that Grubman's children got into an exclusive preschool.

Furthermore, in the Time magazine series on the "25 People to Blame for the Financial Crisis," Mr Weill is listed as  "blameworthy" because,

Who decided banks had to be all things to all customers? Weill did. Starting with a low-end lender in Baltimore, he cobbled together the first great financial supermarket, Citigroup. Along the way, Weill's acquisitions (Smith Barney, Travelers, etc.) and persistent lobbying shattered Glass-Steagall, the law that limited the investing risks banks could take. Rivals followed Citi. The swollen banks are now one of the country's major economic problems. Every major financial firm seems too big to fail, leading the government to spend hundreds of billions of dollars to keep them afloat. The biggest problem bank is Weill's Citigroup. The government has already spent $45 billion trying to fix it. 

In a post on the Baseline Scenario blog, Simon Johnson, author of another authoritative book on the financial crisis, 13 Bankers, wrote this about Citigroup leadership,

Citigroup is a very large bank that has amassed a huge amount of political power. Its current and former executives consistently push laws and regulations in the direction of allowing Citi and other megabanks to take on more risk, particularly in the form of complex highly leveraged bets. Taking these risks allows the executives and traders to get a lot of upside compensation in the form of bonuses when things go well – while the downside losses, when they materialize, become the taxpayer’s problem.

Citigroup is also, collectively, stupid on a grand scale. The supposedly smart people at the helm of Citi in the mid-2000s ran them hard around – and to the edge of bankruptcy. A series of unprecedented massive government bailouts was required in 2000-09 – and still the collateral damage to the economy has proved enormous. Give enough clever people the wrong incentives and they will destroy anything.

Physicians are supposedly rigorously trained, and tasked with upholding important ethical principles.   So did it make sense to entrust the stewardship of a premier American medical school to the man who engineered the expansion of Citigroup that turned out to be "stupid on a grand scale," in order to "get a lot of upside compensation," while leaving the "downside losses" to become "the taxpayer's problem," so that the "collateral damage to the economy has proved enormous?"   Does it make sense to allow him to choose his own daughter, who has no more medical experience than he did (which was zero), to steward the school in the future?

I wonder what Cornell medical students, or physician alumni would say, if they felt safe enough to answer the question?

As we wrote in 2009,  boards of trustees of not-for-profit health care institutions have a primary duty to uphold the institutions' missions.  Thus, one would think such boards would be selected according to their dedication to their missions.  But perhaps, in the grubby real world, there may be more important criteria, possibly such as the size of their donations to the institution.  Furthermore, those likely to donate the most  may be more likely to be richest (and perhaps most in need to making themselves appear philanthropic and public-spirited) than the most fervent upholders of patient care, teaching and research.

Maybe giving stewardship of our once proud health care institutuions to people most likely to defend their missions, rather than most likely to donate a lot of money, would result in somewhat poorer institutions which do a better job of patient care, teaching and research.

You heard it here first.  
 

Less than two weeks ago, we discussed a series of cases in which there was a marked contrast between how well top hired managers of non-profit hospitals were doing, and how their institutions were doing. 

Now another vivid example of this problem as appeared, affecting Erlanger Health System,  a non-profit hospital system in Tennessee that has recently seen hard times.

Freezing Paid Time Off

In March, 2014, as reported by the (Chattanooga, TN) Time Free Press,

Erlanger Health System's latest strategy to staunch financial losses has hit its most personal note yet, as hospital executives have decided to freeze the paid time off accruals for 4,000 employees from now until July.

Erlanger employees used the words 'defeated,' 'distressed' and 'betrayed' when describing staff reactions to the cuts, announced Friday.

The sudden decision shows just how high stakes are becoming at the Chattanooga public hospital. Erlanger is $3.8 million in the red this fiscal year and is also feeling the weight of roughly $14 million in state, federal and insurance cuts this year, hospital executives say.

At that time, hospital managers emphasized the fairness of the freeze because it would be applied across the board,

 No one -- including executive staff and doctors-- will be exempt from the freeze, which will span nine pay periods and is expected to save the hospital $5.4 million, said hospital Chief Administrative Officer Gregg Gentry.

Furthermore,

 Of all potential cuts discussed -- including layoffs -- the executive staff said the decision to temporarily freeze paid time off would have the most impact on the budget while having the 'least impact' on employees.

The result means 'everyone has to sacrifice' to make those goals, [CEO Kevin] Spiegel said.

The freeze may have so badly affected employee morale because it came on top of other changes imposed on employees,

 Erlanger has already made significant changes to employees' benefits this year -- phasing out its traditional pension plan in favor of 401(k)-like accounts; changing how paid leave is structured and approved; and increasing what retirees pay toward their health insurance.

However, there was hope that perhaps the freeze would not last long, since hospital managers had located some government money that might be obtained to relieve the deficit.

More Money, So the First Thing to Do is Give Bonuses to Top Hired Managers

By December, 2014, Erlanger finances had at least temporarily improved, partially because of access to the government money.  So, as again reported by the Times Free Press, the first thing the hospital system board did was to give bonuses to the managers who had imposed all those cuts on other employees.

At the end of a year that started with freezing employees' vacation time and warnings of financial crisis, Erlanger Health System will award $1.7 million in bonuses to its top management for financial performance.

Erlanger trustees voted Thursday to pay the incentives, which were determined by a series of benchmarks set last year. The public hospital's financial turnaround -- driven largely by a $19 million infusion of federal money -- will enable the payout averaging $17,100 to 99 managers.

Erlanger CEO Kevin Spiegel will collect $234,669 in bonus pay, bringing his total compensation this year to $914,669. Trustees also voted to give Spiegel a 10 percent raise next year, upping his base pay to $748,000, and approved a 2 percent nonbudgeted pay raise for hospital employees.

Sometimes, you just cannot make this stuff up. The CEO gets a 10% increase in base pay, and almost a quarter-million dollar bonus, while regular employees may get a 2% increase after enduring vacation time freezes, and various reductions in benefits.

Furthermore, while money was saved by supposedly across the board cuts, reducing the benefits of hard working employees, including health professionals who took direct care of patients, and revenues were increased by some relatively easily found money from the federal government, the hospital system board seemed to attribute the sudden success only to the top hired managers.

 'Management has performed exceedingly well,' said board Chairman Donnie Hutcherson, [a certified public accountant, and partner in an accounting firm] who added that the compensation is comparable to that of other hospitals such as Erlanger.  'This is well deserved. They have put in long, long hours.'

He explicitly did not seem to consider whether other Erlanger employees, especially doctors, nurses, and other health professionals also were putting in long hours, and working diligently under difficult circumstances.

 One Erlanger nurse, who asked not to be named for fear of losing her job, said the management incentives 'have come at the expense of their employees and the sacrifices they have made.'

'[Employees] have had vacation time taken away and are paying more for benefits. They are routinely overworked and understaffed,' the nurse said Friday. 'The morale among staff and doctors is the lowest I have ever witnessed. If that constitutes a bonus, obviously my belief system of what I think is morally and ethically right and wrong is not shared by the management or board members at Erlanger.'

Thus this was a strikingly bizarre use of one of the talking points that are often used to justify high and ever increasing compensation for top hired managers.  Managers are often hyped as "brilliant," and "hard working," without any explicit comparison to any other employees, especially to health care professionals who often go through much more rigorous training, and may work far longer hours than managers, administrators, bureaucrats, or executives.  (Look here)


Previous Disconnects Between Executive Compensation and Hospital Finances

In fact, discrepancies between how hired executives are treated and how the hospital system is faring financially are old hat for the Erlanger Health System.  In 2012, we noted how the board voted to give a previous CEO a golden parachute soon after the system first began running a deficit, and after unpaid work days were imposed on other employee.  After further financial deterioration, the board voted to put the severance package on hold.  However, this 2013 Times Free-Press article suggestsd that CEO ultimately received it, paid out over 15 months.  Furthermore, as we wrote in 2011, the system board did something similar in 2009, giving the CEO bonuses despite financial losses and a bond default.

This history did not seem to inform the board's current decision making, or perhaps it did inform the board that they could get away with such decisions?

Once Again, the Board Temporarily Backs Off Under Public Pressure

The Times Free-Press reported today, December 12, 2014, that once again the board has retreated,at least for a while, 

Facing criticism and questions from state lawmakers after voting to award executives $1.7 million in bonuses, Erlanger Health System officials said Thursday night they will put the payments on hold and review their actions.

Trustees for the public hospital voted Dec. 4 to approve bonuses for 99 managers, including more than $234,000 for CEO Kevin Spiegel.

The Hamilton County legislative delegation -- which appointed three trustees to the 11-member board -- harshly criticized the move, saying the hospital had not proven it could afford such bonuses after ending the last three years in the red and relying on a federal funding pool to end this year with a profit.

Whether or not the bonuses will be cancelled, reduced, or merely delayed, however, still is unclear.

 Summary

In US health care, the top managers/ administrators/ bureaucrats/ executives - whatever they should be called - continue to prosper ever more mightily as the people who actually take care of patients seem to work harder and harder for less and less. This is the health care version of the rising income inequality that the US public is starting to notice.  It seems all the more unfair in health care, since the income inequality is clearly between managers/ administrators/ bureaucrats/ executives who are mostly generic, that is, not specifically trained or experienced in health care or biomedical science, and the doctors, nurses, therapists, and technicians who actually take care of patients.  (For example, the CEO of Erlanger Health Systems, Mr Kevin Spiegel, has an MBA in Health Care Administration from Adelphi, and no obvious training or experience in actual patient care, nor biomedical science.)

As we have noted before, most recently here, the favored treatment of the managers/ etc ... is often justified by other managers on the boards of trustees who are supposed to exercise stewardship over health care organizations, and by the public relations flacks, marketers and lawyers employed by the self-same managers.  The justifications usually consist of repetitions of the same stale talking points, as if in a vacuum.  Note above that the Erlanger board member justified the bonuses by extolling the managers' performance and long hours, totally ignoring how many other hospital system employes worked hard and well to keep the system above water.

Thus, like hired managers in the larger economy, non-profit hospital managers have become "value extractors."  The opportunity to extract value has become a major driver of managerial decision making.  And this decision making is probably the major reason our health care system is so expensive and inaccessible, and why it provides such mediocre care for so much money. 


One wonders how long the people who actually do the work in health care will suffer the value extraction to continue?

So to repeat, true health care reform would put in place 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.

But this sort of reform would challenge the interests of managers who are getting very rich off the current system.  So I am afraid the US may end up going far down this final common pathway before enough people manifest enough strength to make real changes.