WellPoint: Don't Know Much About Computer Programming; Aetna: Don't Know Much About Mathematics

Big US based health care insurance companies have not been covering themselves in glory in the last week.

Aetna's Math Errors

First, there was the case of Aetna's mathematical prowess, e.g., as reported by the Los Angeles Times:

A second insurance company in California has killed plans for double-digit rate hikes for individual policyholders because of errors in its filing that would have inflated premiums, state regulators said Thursday.

Connecticut-based Aetna Inc. had sought an average 19% increase in rates for its 65,000 individual customers, but pulled back after multiple math errors in its paperwork were found by its own staff and by an independent consultant working for the state.

Aetna's decision follows a similar move by Anthem Blue Cross, which canceled a rate increase of as much as 39% for many of its 800,000 California policyholders in April after the state consultant found calculation errors in its filing with the California Insurance Department.

Of course, Aetna tried to minimize the story:

An Aetna spokeswoman said the company found 'a miscalculation not previously detected' when it conducted a third round of internal reviews.

'This was a simple human error,' said spokeswoman Anjanette Coplin, who did not elaborate.

However,

'There were multiple errors … in the way [Aetna] annualized premiums and in the compounding of the rate increase,' said state Insurance Department spokesman Darrel Ng.

Of course, somehow the errors all were in Aetna's favor:

Even with the new disclosure requirements, regulators have limited authority to block rate increases. They can do so only if insurers fail to spend at least 70% of their premiums on medical claims.

In Aetna's recent rate filing, the insurer said its plan met the 70% minimum. But once the errors were identified, medical-claim spending fell below the 70% requirement. The proposed rates were higher than they should have been, officials said.

WellPoint's Computer Errors

A few minutes ago, the Associated Press reported:

WellPoint Inc. has notified 470,000 individual insurance customers that medical records, credit card numbers and other sensitive information may have been exposed in the latest security breach of the health insurer's records.

The Indianapolis company said the problem stemmed from an online program customers can use to track the progress of their application for coverage. It was fixed in March.

Spokeswoman Cynthia Sanders said an outside vendor had upgraded the insurer's application tracker last October and told the insurer all security measures were back in place.

But a California customer discovered that she could call up confidential information of other customers by manipulating Web addresses used in the program. Customers use a Web site and password to track their applications.

Note that this security breach was potentially serious:

WellPoint's security breach doesn't crack the top 10 in terms of number of people who may have had information exposed, said Paul Stephens, the [Privacy Rights Clearinghouse]organization's director of policy and advocacy. Even so, he labeled the breach 'very serious' because it possibly involved both financial and medical information.

This is not the first time WellPoint's computers and software have violated the privacy of its applicants or customers:

Two years ago, WellPoint offered free credit monitoring after it said personal information for about 128,000 customers in several states had been exposed online. In 2006, backup computer tapes containing the personal information of 200,000 of its members were stolen from a Massachusetts vendor's office.

Summary

Of course, everyone makes mistakes.  However, one would expect that at least health insurance companies/ managed care organizations ought to be able to do the math necessary to support their rate proposals correctly, and keep their policy-holders' and applicants' personal information confidential.  These would seem to be fundamental competencies that such organizations ought to display.  Of course, one can find other examples of lack the lack of competency (and worse) displayed by both Aetna and WellPoint. 

Furthermore, anyone can make mistakes, but in the real world, those who preside over such mistake-prone enterprises often do not do too well.  However, in the bizarre world of large health care organizations, the executives who preside over the ongoing bumbling just make more and more money, under the pretense that their continuing brilliant leadership just leads to one triumph after another. 

As we noted here, WellPoint CEO Angela Braly's total compensation increased in 2009 to an outsized $13.1 million, with the executives just underneath her paid proportionately well.  Per its 2010 proxy statement, WellPoint's

Total Rewards compensation program is designed to attract, engage, motivate and retain a talented team of executive officers and to appropriately reward those executive officers for their contributions to our business and our members. We seek to accomplish this goal in a way that is closely aligned with the long-term interests of our shareholders and the expectations of our members and health care providers.

I suspect that WellPoint's members' expectations did not include the three computer security breaches noted above.

Similarly, according to its 2010 proxy statement, Aetna CEO Ronald A Williams' total compensation in 2009 was a mere $18,058,162. Other top executives made proportionate amounts, from more than $1 million to more than $12 million. The rationale underlying executive compensation includes:

We seek to implement a pay-for-performance philosophy by tying a significant portion of our executives’ compensation to their achievement of financial and other goals that are linked to the Company’s business strategy and each executive’s contributions towards the achievement of those goals.

To me, avoiding mathematical errors in calculating policy premiums ought to be part of the company's goals linked to its business strategy.

An old rock song that starts with "don't know much about history," may have a certain charm.  Health insurance companies that cannot accurately calculate premiums or protect the confidentiality of policy-holders' computerized data has none. 

As long as "imperial CEOs" can continue to get extremely rich while presiding over incompetence and stupidity, if not worse (see here), we can expect the foolishness to continue.  Meanwhile, the foolishness drives up costs and drives down quality of health care for the poor suffering patients, let alone the physicians and other health care professionals who must deal with it.

To really reform health care, we need to provide incentives for competent, honest leadership, and make that leadership accountable for its shortcomings.

Slouching, or "Moving Towards ... Oligopoly"

A report by Bloomberg on a prediction that the US attempt at health care reform will lead to more concentration of power among health insurance companies.

U.S. health insurers are 'moving towards an oligopoly,' a process that this year’s health-care overhaul will accelerate, the investor-relations chief at WellPoint Inc. said today.

New regulations on administrative spending and premium increases will push some independent insurers out of business or into deals with bigger rivals, said Michael Kleinman, vice president for investor relations, at a Wells Fargo & Co. conference in Boston.

In addition,

The insurance market is becoming an oligopoly, a market where supply and pricing are dominated by a few companies, 'and health-care reform is going to move us in that direction more quickly,' Kleinman said. 'There are going to be smaller insurers that are not going to be able to survive in this marketplace.'

Wellpoint is not likely to suffer from a move to fewer, larger insurance companies:

Led by WellPoint, 12 health plans cover two-thirds of the enrollment in the U.S. commercial-insurance market, said Ana Gupte, a Sanford C. Bernstein & Co. analyst....

So, it is not that Mr Kleinman has any regrets about this. Far from it:

Indianapolis-based WellPoint, the country’s biggest health plan with 33.8 million members, has the scale to prosper from the overhaul, which is expected to add another 34 million to the ranks of the insured, he said.

Mr Kleinman might argue that WellPoint's increasing size and prospects for market domination are good for society as well as the company, and its top executives.  We have heard endless arguments in the last 30 years that larger hospital systems and larger insurance companies lead to more efficiency and lower costs.  However, the evidence is in the other direction.  There is plenty of reason to worry that increasingly dominant companies will extract higher prices, and the money they make will benefit their top leaders first, maybe their stockholders second, and patients and ordinary employees a very distant third, if at all.  So look for WellPoint CEO Angela Braly to make even more than $13 million a year in the future.

So it would have  been more reassuring if the response from the US executive branch included some opposition to the notion of a more concentrated market.  Instead,

Asked to comment today, Nicholas Papas, a spokesman for President Barack Obama, referred in an e-mail to the president’s remarks on June 22 touting the health-care overhaul.

The law 'will put an end to some of the worst practices in the insurance industry,' such as canceling policies when patients get sick or imposing lifetime limits on coverage, Obama, a Democrat, said at a White House ceremony.

The changes 'will make America’s health-care system more consumer-driven and more cost-effective and give Americans the peace of mind that their insurance will be there when they need it,' Obama said. 'Insurance companies should see this reform as an opportunity to improve care and increase competition.'

And rather than worrying about the government's response,

Angela Braly, WellPoint’s chairman and chief executive officer, was among a group of insurance chiefs who met Obama June 22. While Democrats have attacked the company for its premium increases, the relationship is improving, Kleinman said.

'The Obama administration understands that we need to work in partnership, that in order to make health-care reform work, the carriers need to be able to charge appropriate rates and make an appropriate margin,' he said. 'Hopefully, a lot of that bad rhetoric is behind us.'

If the increasing concentration of power in health insurance does not meet a more effective challenge, we will need a lot more than rhetoric, good or bad, to save health care.

Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

The Second Coming (Slouching Towards Bethlehem), by W B Yeats

Reading Between the Lines: "Scrappy" WellPoint as an Illustration of Contemporary Health Care's Flaws

Giant US for-profit insurance company/ managed care organization WellPoint has provided numerous examples of problems with the current way health care organizations are lead.  Here we discussed charges that recent rate increases by its Anthem subsidiary may have violated previous agreements not to directly fund from premiums the golden parachutes of executives who left after the merger of Anthem and WellPoint; that WellPoint used magical accounting to make administrative costs appear to be from patient care; and that WellPoint investigated patients who developed cancer to find minor errors in their policy applications, and  used these as excuses for post-hoc cancellations (rescissions) of their policies.  And here we discussed a long list of WellPoint's previous ethical issues.

Recently, Reed Abelson penned a discussion of WellPoint's leadership in the New York Times, entitled "A Scrappy Insurer Wrestles With Reform."  Reading between the lines suggests some fundamental flaws in our current model of leadership for health care organizations.

The Halo Effect

Over long years of service in the last century, many health care organizations built up sterling reputations. Blue Cross and Blue Shield health insurance plans, which were all originally not-for-profit, regionally (state-wide) based organizations, became known for paying for care rather generously and with little fuss. (However, in retrospect, this may have certainly contributed to rising health care costs.)  However, their reputation was clearly for good service leading to generous care.

However, in the last 20 years, many of these plans converted to for-profit corporations, and/or were bought out by for-profit corporations. WellPoint is now a for-profit corporation that operates many subsidiaries that still do business as "Blue Cross" and "Blue Shield."

Over the last decade, WellPoint has become one of the nation’s largest insurers by buying up the Blue Cross plans that dominate the individual and small group markets in their states.

So,

[WellPoint CEO] Ms. [Angela] Braly argues that WellPoint is well positioned because of its size and the strong appeal of the Blue Cross name. 'We have a lot of historical strengths,' she said in an interview

However, it is likely that the "strong appeal" of many of these Blue Cross plans is based on a halo effect. Many individuals and small businesses may still think that the plans are relatively local, not-for-profit organizations. If not, they may still believe the plans are run as mission-driven organizations, not subsidiaries of a massive for-profit corporation.

Thus many health care organizations may so profit by an outdated "halo effect." People may not realize that leadership of these organizations is no longer a calling, but a way to become very rich.  The strong appeal of the Blue Cross name may, in fact, be misleading.  Such confusing, if not deceptive marketing has become a hallmark of our era of commercialized health care.

Market Domination and Health Care Costs

Prior to almost every merger, one hears an argument that larger organizations and corporations are more efficient, and hence will charge lower prices and lead to lower costs. Mr Abelson wrote,

WellPoint now has about 34 million customers, putting it ahead of the UnitedHealth Group in membership, and $60 billion in revenue, second behind UnitedHealth. While UnitedHealth and the other national companies tend to focus on providing services to large employers with workers in multiple locations, WellPoint’s focus has been on the local markets. Its strong presence allows it to demand the lowest prices from doctors and hospitals, while still offering customers a broad network of providers from which to choose.

I doubt there is any good data to show that such market power has resulted in lower premiums or lower health care costs.

In fact, Mr Abelson also wrote,

Because of its dependence on the higher profit margins of its traditional business, WellPoint has also not been as adventurous in trying new approaches,....

If WellPoint really meant to use its market dominance to force down its costs, it appears that the main beneficiary of this has been the company's profit margin, not its policy-holders.

Furthermore,

Starting in 2014, WellPoint and its competitors will have to offer coverage to anyone who wants it, including people with potentially expensive pre-existing conditions, rather than carefully selecting the people they are willing to cover. As soon as next year, insurers will also have to spend at least 80 cents of every dollar they collect in premiums on providing health care to individual customers.

So WellPoint used its market power to "carefully select" the people it insured so as to avoid anyone who might get sick, thus making a mockery of the concept of health insurance. Furthermore, the implication is that WellPoint spent more than 20% of premiums on management and administration (including the breathtaking compensation of its top leaders), and less than 80% on actually paying for health care.

As Mr Abelson noted, (as we did here), just how personally remunerative WellPoint's market power has been for its top leader:

Ms. Braly, ... received $13.1 million last year in compensation....

In fact, as we should have learned in this country more than 100 years ago, market domination leads to higher profits for the dominant company, higher compensation for its employees, and higher prices. However, in health care, for some reason people still believe that concentration of power leads to efficiency.

Health Care Leaders Who Know Little About Health Care

Ms Braly appears to have no direct experience, training, or expertise in health care, medicine, public health, or biologic science.

Ms. Braly, 48, a native of the Dallas area who received a law degree from Southern Methodist University, worked as a lawyer before she became general counsel to a small Blue Cross insurer in Missouri. She eventually ran that company, which is now part of WellPoint. Before being picked for WellPoint’s top job in June 2007, Ms. Braly worked as both a corporate executive and the company’s general counsel.

Her selection as C.E.O. surprised many analysts and investors. While some believed that she would bring a warmer touch to the company, others worried that she did not have enough years as a manager to navigate a highly regulated and often highly political environment.

In the last year, WellPoint became a favorite example of Congress and the administration for why health care overhaul was needed. Even people inside the industry say the company has been painfully slow to recognize consequences of some of its controversial actions, whether canceling a sick patient’s coverage or raising premiums on policies that lawmakers already call too expensive. And some say that Ms. Braly’s quickness to argue with WellPoint’s critics, revealing her training as a lawyer, is not always productive.

'WellPoint is the most incredibly tone-deaf insurance company in an industry full of deaf executives,' says Mr. Laszewski, the Virginia consultant. He criticizes Ms. Braly, who received $13.1 million last year in compensation, as being insensitive to the politics involved in running a health insurer, at both the state and federal levels. 'I don’t think she has the scar tissue and experience,' he says. 'I don’t think she has the marketplace instincts.'

Ms. Braly says her experience in government affairs makes her well suited for handling a complex regulatory environment.

Ms. Braly's background was cited as unusual for a health care CEO not because she has no obvious experience in direct health care, or its scientific or social scientific bases, but because she is a lawyer, not an MBA. It is interesting that we as a society have become so used to health care run by businesspeople that nothing in the article even obliquely suggested that Ms. Braly could benefit from some direct knowledge of or experience in caring for patients (or in biology, epidemiology, public health, etc), much less some sympathy for the values of health care professionals.

So I submit that this profile of the leadership of WellPoint provides another reason to reconsider why we have journeyed so far from an era when the AMA asserted, "the practice of medicine should not be commercialized, nor treated as a commodity in trade."  Current commercial health insurance (and the power that generally has been concentrated in large health care organizations) has certainly turned medicine into a commercialized venture, and treated the work of the individual health care professional as a commodity in trade.  Yet so far, what we have called health care reform in the US has just reinforced the power of large health care organizations. 

It also suggests that true health care reform ought to address the power now concentrated in large health care organizations, and ought to foster more honest and less profuse marketing by companies lead by people who have some knowledge of health care, and sympathy for its values.  We need to reinforce the neglected idea that health care ought to be a calling, not simply a way for some to become rich.

Pay for Hypocrisy for Health Insurance Executives

A few weeks ago, we discussed the cognitive dissonance produced by huge salary boosts for top executives of health care companies with miserable ethical track records.  One of our examples contrasted a long list of ethical violations by US giant health insurance company/ managed care organization WellPoint and the huge raises given its CEO and top executives.  Now more ethical questions are being raised about WellPoint.

Rate Hikes Retrospectively for Golden Parachutes

An op-ed published in several California newspapers (here via the Sonoma Index-Tribune) claimed that the huge rate hike that WellPoint's California subsidiary proposed earlier this year, an action that helped to revitalize the US legislative health care reform process, was meant to recoup costs of a previous merger that the company had agreed not impose on its policy-holders:

Nobody at Anthem Blue Cross, the firm that's now a poster boy for out-of-control health insurance premiums, likes remembering the company's days of high anxiety back in 2004, when California's then-Insurance Commissioner John Garamendi was holding up its $18 billion deal to take over Thousand Oaks-based WellPoint and its California Blue Cross subsidiary.

A frequent resister of insurance rate increases, he at least wanted to make sure Anthem didn't pass along the inflated price it paid for WellPoint to Blue Cross customers.

So he refused for months to sign off on the merger, a form of passive resistance that threatened to hold up the entire deal, which also involved WellPoint insurance subsidiaries in other states.

...in the process, he achieved some things for California consumers: Anthem formally agreed to forego any rate increases for Blue Cross customers to cover the costs of the merger, which increased more than $2 billion during the delay as WellPoint shares rose from $91 to $113 between the day the deal was announced and the day it went through. The company also promised to invest $200 million over 10 years in under-served communities through California's Healthy Families program, plus another $15 million on children's insurance programs and $50 million for training nurses and operating clinics in California.

It wasn't as good as keeping California Blue Cross a California company, but at least it was something.

'Was' now appears likely to be the operative word, because there is no way the cost of medical tests, doctor and hospital fees and medical supplies has risen 39 percent in one year, a claim made by Anthem executives while testifying before Congress and state legislative committees.

Nope, it's now clear that, even if Anthem doesn't admit it, a good part of its rate increase would go to replenish corporate cash spent on the WellPoint takeover.

It's been just over five years since that deal was completed, with Anthem adopting the WellPoint name for its parent company, much as North Carolina-based NationsBank renamed itself Bank of America after taking over the B of A. The Anthem tag was then hung on California Blue Cross.

That's enough time so the corporation can conveniently maintain it has lived up to its written commitment not to make customers pay for its high-priced acquisition - while in reality making them do just that.

For certain, the huge price increases Anthem may now assess violate the spirit of its agreement with Garamendi, even if they might not violate the letter of that deal.

Note that this article did not make explicit what  "costs of the merger" Mr Garamendi did not want policy-holders to pay for.  As contemporaneous coverage of the negotiations by USAToday made clear, these included golden parachutes for some of the executives involved.

Commissioner John Garamendi was the last major stumbling block to the $16.4 billion deal, delaying the merger of a piece of the company, Blue Cross Life & Health, over which he had jurisdiction. His main concerns were costs to policyholders and the size of executives' golden parachutes, estimated at $200 million to $600 million.

WellPoint CEO Leonard Schaeffer alone is expected to get a package worth $53.5 million in cash, stock options and pension payments when the deal is completed.

Now, of course, it appears that the policy-holders are being called upon to retrospectively reimburse the company for the outrageous amounts it gave to executives back then, who may turn out to have been the biggest beneficiaries of the merger.

Turning Administrative into Patient Care Costs

Then, an article in the Washington Post reported how WellPoint was reclassifying administrative costs as patient care costs to fulfill an upcoming requiement of health care reform to spend at least 80 percent of premiums on health care.

The idea was simple enough: Make sure that health insurers spend the vast majority of their revenue on patient care, instead of using it for things such as advertising, profits and executive pay.

To that end, the new health-care law says an insurer must give money back to consumers if it devotes less than 80 percent of premiums to paying medical claims and improving care. For insurers serving large groups, the target is 85 percent.

But even before the health-care overhaul was signed into law last month, one of the nation's largest insurance companies reclassified certain expenses in a way that increased its so-called medical-loss ratio. In January, WellPoint began including under medical benefits such costs as nurse hotlines, 'medical management,' and 'clinical health policy,' a WellPoint executive said in a March briefing for investors.

To be clear, while it may be that "nurse hotlines" actually involve care for patients, it is hard to fathom what "medical management" by an insurance company means.  Certainly, "clinical health policy" is not direct patient care.

Targeting Breast Cancer Patients for Insurance Policy Cancellation

At least the above two cases were only about money. The third case affects patient care.

A Reuters report showed how WellPoint deliberately targeted every patient who developed breast cancer for a fraud investigation, often resulting in findings of minor irregularities in insurance applications that the company used as pretexts to retroactively cancel the patients' policies. Many of these patients then could not get needed cancer care.

...WellPoint was using a computer algorithm that automatically targeted them and every other policyholder recently diagnosed with breast cancer. The software triggered an immediate fraud investigation, as the company searched for some pretext to drop their policies, according to government regulators and investigators.

Once the women were singled out, they say, the insurer then canceled their policies based on either erroneous or flimsy information. WellPoint declined to comment on the women's specific cases without a signed waiver from them, citing privacy laws.

That tens of thousands of Americans lost their health insurance shortly after being diagnosed with life-threatening, expensive medical conditions has been well documented by law enforcement agencies, state regulators and a congressional committee. Insurance companies have used the practice, known as 'rescission,' for years. And a congressional committee last year said WellPoint was one of the worst offenders.

But WellPoint also has specifically targeted women with breast cancer for aggressive investigation with the intent to cancel their policies, federal investigators told Reuters.

Not only did this seem heartless and unethical, it demonstrated the hypocrisy of WellPoint's leadership.

The revelation is especially striking for a company whose CEO and president, Angela Braly, has earned plaudits for how her company improved the medical care and treatment of other policyholders with breast cancer.

Specifically,

Singling out women with breast cancer for aggressive investigation with the intent of canceling their insurance stands in stark contrast not only to the public image WellPoint cultivates for itself but also to the good work it does for many other policyholders with breast cancer.

WellPoint CEO Braly has taken a strong personal interest in women's health issues. Foremost among them is how to increase services to people with breast cancer.

The company prides itself on being one of the United States' largest corporations with women at the helm. Besides Braly, two high-powered, politically connected women sit on WellPoint's board: Susan Bayh, the wife of retiring Democratic Sen. Evan Bayh of Indiana, and Sheila Burke, who was chief of staff to former Senate Republican leader Bob Dole.

On Braly's initiative, WellPoint has funded groundbreaking studies about the disparities in quality of health care to minority women -- including women with breast cancer.

WellPoint has worked to encourage mammography for at-risk women. Personalized letters -- followed up by phone calls -- are sent to more than 80,000 women between the ages of 52 and 69 if they have not had a mammogram in the past year. The company conducts automated calls for women ages 40 to 69 to make sure they are getting mammograms.

Once diagnosed, WellPoint has set up an 'Breast Cancer Resource Center' for its policyholders to help them 'navigate the complex health care system.'

And in May 2009, WellPoint's charitable foundation, the WellPoint Foundation LLC, provided a grant for the American Cancer Society for its 'Hope Lodges,' which allow cancer patients and family members free lodging and support while receiving care far from home.

The only explanation provided in the article for this behavior was that politically correct concerns about womens' health issues only go so far, money is more important.

Why would WellPoint on the one hand work to improve health care for women with breast cancer while automatically investigating every single woman diagnosed with breast cancer for possible cancellation of their policies?

Karen L. Pollitz, a research professor at the Health Policy Institute at Georgetown University, offers one possible explanation: 'It is important for these companies' profit margins that they get rid of policyholders with expensive diseases,' she said.

I would add also that these profit margins provide the excuses for baronial compensation for the company's top executives. 

Parenthetically, the article also noted that WellPoint had lobbied against provisions in the health care reform bill that might have threatened its ability to retrospectively cancel insurance policies after their holders got sick:

Many critics worry the new law will not lead to an end of these practices. Some state and federal regulators -- as well as investigators, congressional staffers and academic experts -- say the health care legislation lacks teeth, at least in terms of enforcement or regulatory powers to either stop or even substantially reduce rescission.

'People have this idea that someone is going to flip a switch and rescission and other bad insurance practices are going to end,' says Peter Harbage, a former health care adviser to the Clinton administration. 'Insurers will find ways to undermine the protections in the new law, just as they did with the old law. Enforcement is the key.'

During the recent legislative process for the reform law, however, lobbyists for WellPoint and other top insurance companies successfully fought proposed provisions of the legislation. In particular, they complained about rules that would have made it more difficult for the companies to fairly -- or unfairly -- cancel policyholders.

For example, an early version of the health care bill passed by the House of Representatives would have created a Federal Office of Health Insurance Oversight to monitor and regulate insurance practices like rescission. WellPoint lobbyists pressed for the proposed agency to not be included in the final bill signed into law by the president.

They also helped quash proposed provisions that would have required a third party review of its or any other insurance company's decision to cancel a customer's policy.

Furthermore, an article on the Huffington Post noted that a former WellPoint executive seems to have written a good part of the health care reform legislation:

As Marcy Wheeler reported last year, the Senate Finance Committee bill was written by former WellPoint VP Liz Fowler, who left her position at the insurance company in February 2009 expressly for the purpose of helping the committee to draft the health care bill.

And when Max Baucus did a 'victory lap' after the health care bil passed, he expressly thanked Fowler for her work:

'I wish to single out one person, and that one person is sitting next to me. Her name is Liz Fowler. Liz Fowler is my chief health counsel. Liz Fowler has put my health care team together. Liz Fowler worked for me many years ago, left for the private sector, and then came back when she realized she could be there at the creation of health care reform because she wanted that to be, in a certain sense, her profession lifetime goal. She put together the White Paper last November-2008-the 87-page document which became the basis, the foundation, the blueprint from which almost all health care measures in all bills on both sides of the aisle came.'

Summary

To make this more personal than these posts usually are, I wonder how WellPoint CEO Angela Braly sleeps in whatever luxurious accomodations her eight-figure compensation affords her?  I wonder how all the other current and former WellPoint leaders who styled themselves great proponents of "womens' health issues" can live with putting profits ahead of the care of breast cancer patients?

Adding this latest list of ethical offenses to those we discussed earlier, WellPoint is beating out the heavy corporate competition as an example of the hypocrisy produced by putting imperial CEOs and their trusty hench-people ahead of every other consideration.  It has also become a premier example of how self-interested leadership can raise costs, decrease access, and degrade clinical care.  It further shows how compensating health care leaders to the point where they become imperial also grants them the power to fend off most threats to their power.  (Consider what health care reform might have become if it were orchestrated by people really interested in improving care, controlling costs, and increasing access, rather than by imperial CEOs who just wanted to become more imperial.) 

If we truly want health care that is accessible, of high quality, at a fair price, and more importantly, if we want health care that is honest and focused on patients, we need to provide health care leaders with clear, rational incentives in these directions, and make them fully accountable for their actions, and the courses of their organizations under their leadership.

What Me Worry? - Leaders Prosper Despite Questions About Their Organizations' Ethics and Performance

There were two examples in the recent news about how the leaders of health care organizations seem to prosper no matter what questions are raised about their organizations' ethics or performance.

WellPoint

It seemed that anger over a rate increase by a subsidiary of the huge insurance company/ managed care organization WellPoint was one reason for the revival of efforts in the US to enact some sort of health care reform legislation.  In our comment on this controversy, we noted that questions about the ethics of WellPoint's actions have appeared again and again.  Wellpoint...

• settled a RICO (racketeer influenced corrupt organization) law-suit in California over its alleged systematic attempts to withhold payments from physicians (see post here).
• subsidiary New York Empire Blue Cross and Blue Shield misplaced a computer disc containing confidential information on 75,000 policy-holders (see story here).
• California Anthem Blue Cross subsidiary cancelled individual insurance policies after their owners made large claims (a practices sometimes called rescission).  The company was ordered to pay a million dollar fine in early 2007 for this (see post here).  A state agency charged that some of these cancellations by another WellPoint subsidiary were improper (see post here).  WellPoint was alleged to have pushed physicians to look for patients' medical problems that would allow rescission (see post here).  It turned out that California never collected the 2007 fine noted above, allegedly because the state agency feared that WellPoint had become too powerful to take on (see post here). But in 2008, WellPoint agreed to pay more fines for its rescission practices (see post here).  In 2009, WellPoint executives were defiant about their continued intention to make rescission in hearings before the US congress (see post here).
• California Blue Cross subsidiary allegedly attempted to get physicians to sign contracts whose confidentiality provisions would have prevented them from consulting lawyers about the contract (see post here).
• formerly acclaimed CFO was fired for unclear reasons, and then allegations from numerous women of what now might be called Tiger Woods-like activities surfaced (see post here).
• announced that its investment portfolio was hardly immune from the losses prevalent in late 2008 (see post here).
• was sanctioned by the US government in early 2009 for erroneously denying coverage to senior patients who subscribed to its Medicare drug plans (see post here).
• settled charges that it had used a questionable data-base (builty by Ingenix, a subsidiary of ostensible WellPoint competitor UnitedHealth) to determine fees paid to physicians for out-of-network care (see post here). 
• violated state law more than 700 times over a three-year period by failing to pay medical claims on time and misrepresenting policy provisions to customers, according to the California health insurance commissioner (see post here).

But a few days ago, according to the Indianapolis Star:

Large stock awards helped boost total compensation to top executives at WellPoint by 51 percent to 75 percent last year over 2008.

The big jumps in take-home pay are detailed in the Indianapolis health insurer's annual proxy report to shareholders filed Friday.

Angela Braly, who is chair of the board, president and chief executive, saw her 2009 total compensation rise 51 percent, to $13.1 million. That compares with $8.67 million in 2008 and $14.8 million in 2007.

Braly's salary of $1.14 million barely budged from 2008, but she earned a $6.2 million stock award, almost triple the award she got in 2008.

Total compensation to other top executives:

Wayne DeVeydt, chief financial officer, $7.25 million, up 75 percent from 2008.

Ken Goulet, executive vice president, $4.43 million, up 62 percent.

Dijuana Lewis, executive vice president, $4.46 million, up 64.5 percent.

So whatever top WellPoint executives are paid for, it is not insuring that the company avoids ethical questions about its conduct, or controls health care costs or mdoerates premiums, for that matter. 

Boston Scientific, and Zimmer Holdings

We just commented on the generous compensation given the new and former CEOs of Boston Scientific, despite a series of ethical questions about that company's conduct, culminating in a guilty plea by the company to charges that it concealed information about important and potentially dangerous defects in its products.

A few days ago, I found a reminder, buried in an article in the Minneapolis Star-Tribune about a dispute between Boston Scientific and St Jude Medical, that current Boston Scientific CEO Ray Elliott has a track record of collecting generous compensation despite ethical questions about the companies he has lead.

Elliott is certainly familiar with the potential ethical minefield surrounding the relationships between sales reps and doctors. He was CEO at orthopedic devicemaker Zimmer Holdings Inc., which paid (along with four other companies) $311 million in 2007 to settle a Department of Justice investigation into the consulting fees paid to doctors.

As we discussed back in 2007, Zimmer Holdings Inc was one of four medical device companies which submitted to deferred prosecution agreements in response to charges that the companies implemented criminal conspiracies to violate federal anti-kickback laws. We posted several times about one aspect of this settlement, the mandate that the companies make public the payments (often huge) to orthopedic surgeons, academic institutions, and medical associations. (See posts here, here, here, here, here.) At the time, I did not think to look into what happened to the leadership of these companies thereafter.

According to the 2008 proxy statement by Zimmer Holdings, Ray Elliott conveniently retired in 2007, just before the deferred prosecution agreement was announced. Since he had been President of Zimmer since 1997 and CEO since 2001, according to the 2007 proxy statement, he appeared to have been in the top leadership of the corporation during the time the actions were performed that resulted in the deferred prosecution agreement. Nonetheless, again according to the 2008 statement, for the part of 2007 during which he served as CEO, his total compensation was $7,987,158. For 2006, his total compensation was $11,998,121. In 2007, the present value of his two pension plans were $269,764 and $5,302,050. In 2007, he owned 1,235,859 shares of stock (now worth $72,952,757 at the current price of $59.03 /share), and had the right to acquire 1,169,987 more within 60 days.

And of course, as we posted earlier, Boston Scientific paid him over $30 million for working part of 2009.

So Mr Elliott prospered mightily from his leadership of ethically challenged Zimmer Holdings, and was then further rewarded by ethically challenged Boston Scientific.

Summary

We have commented again and again that while numerous health care organizations have been charged with unethical, and sometimes illegal behavior, the people who oversaw, directed, or implemented the behavior almost never have had to suffer any negative consequences.  Now we see that while some large health care organizations have been subject to penalties for unethical and illegal behavior, the leaders of these organizations have been compensated so well as to make them rich, rich beyond the dreams of most people.  So the problem is not merely that captaining an organization onto the ethical rocks costs one nothing, but that it can make one very rich.

Clearly we see examples of both profoundly perverse incentives and a complete lack of accountability and responsibility affecting the leadership of major health care organizations.  Is it any wonder that these organizations continue to act unethically, and that the costs of the goods and services they provide rise continuously?

If we truly want health care that is accessible, of high quality, at a fair price, and more importantly, if we want health care that is honest and focused on patients, we need to provide health care leaders with clear, rational incentives in these directions, and make them fully accountable for their actions, and the courses of their organizations under their leadership.

What Me Worry? - Leaders Prosper Despite Questions About Their Organizations' Ethics and Performance

There were two examples in the recent news about how the leaders of health care organizations seem to prosper no matter what questions are raised about their organizations' ethics or performance.

WellPoint

It seemed that anger over a rate increase by a subsidiary of the huge insurance company/ managed care organization WellPoint was one reason for the revival of efforts in the US to enact some sort of health care reform legislation.  In our comment on this controversy, we noted that questions about the ethics of WellPoint's actions have appeared again and again.  Wellpoint...

• settled a RICO (racketeer influenced corrupt organization) law-suit in California over its alleged systematic attempts to withhold payments from physicians (see post here).
• subsidiary New York Empire Blue Cross and Blue Shield misplaced a computer disc containing confidential information on 75,000 policy-holders (see story here).
• California Anthem Blue Cross subsidiary cancelled individual insurance policies after their owners made large claims (a practices sometimes called rescission).  The company was ordered to pay a million dollar fine in early 2007 for this (see post here).  A state agency charged that some of these cancellations by another WellPoint subsidiary were improper (see post here).  WellPoint was alleged to have pushed physicians to look for patients' medical problems that would allow rescission (see post here).  It turned out that California never collected the 2007 fine noted above, allegedly because the state agency feared that WellPoint had become too powerful to take on (see post here). But in 2008, WellPoint agreed to pay more fines for its rescission practices (see post here).  In 2009, WellPoint executives were defiant about their continued intention to make rescission in hearings before the US congress (see post here).
• California Blue Cross subsidiary allegedly attempted to get physicians to sign contracts whose confidentiality provisions would have prevented them from consulting lawyers about the contract (see post here).
• formerly acclaimed CFO was fired for unclear reasons, and then allegations from numerous women of what now might be called Tiger Woods-like activities surfaced (see post here).
• announced that its investment portfolio was hardly immune from the losses prevalent in late 2008 (see post here).
• was sanctioned by the US government in early 2009 for erroneously denying coverage to senior patients who subscribed to its Medicare drug plans (see post here).
• settled charges that it had used a questionable data-base (builty by Ingenix, a subsidiary of ostensible WellPoint competitor UnitedHealth) to determine fees paid to physicians for out-of-network care (see post here). 
• violated state law more than 700 times over a three-year period by failing to pay medical claims on time and misrepresenting policy provisions to customers, according to the California health insurance commissioner (see post here).

But a few days ago, according to the Indianapolis Star:

Large stock awards helped boost total compensation to top executives at WellPoint by 51 percent to 75 percent last year over 2008.

The big jumps in take-home pay are detailed in the Indianapolis health insurer's annual proxy report to shareholders filed Friday.

Angela Braly, who is chair of the board, president and chief executive, saw her 2009 total compensation rise 51 percent, to $13.1 million. That compares with $8.67 million in 2008 and $14.8 million in 2007.

Braly's salary of $1.14 million barely budged from 2008, but she earned a $6.2 million stock award, almost triple the award she got in 2008.

Total compensation to other top executives:

Wayne DeVeydt, chief financial officer, $7.25 million, up 75 percent from 2008.

Ken Goulet, executive vice president, $4.43 million, up 62 percent.

Dijuana Lewis, executive vice president, $4.46 million, up 64.5 percent.

So whatever top WellPoint executives are paid for, it is not insuring that the company avoids ethical questions about its conduct, or controls health care costs or mdoerates premiums, for that matter. 

Boston Scientific, and Zimmer Holdings

We just commented on the generous compensation given the new and former CEOs of Boston Scientific, despite a series of ethical questions about that company's conduct, culminating in a guilty plea by the company to charges that it concealed information about important and potentially dangerous defects in its products.

A few days ago, I found a reminder, buried in an article in the Minneapolis Star-Tribune about a dispute between Boston Scientific and St Jude Medical, that current Boston Scientific CEO Ray Elliott has a track record of collecting generous compensation despite ethical questions about the companies he has lead.

Elliott is certainly familiar with the potential ethical minefield surrounding the relationships between sales reps and doctors. He was CEO at orthopedic devicemaker Zimmer Holdings Inc., which paid (along with four other companies) $311 million in 2007 to settle a Department of Justice investigation into the consulting fees paid to doctors.

As we discussed back in 2007, Zimmer Holdings Inc was one of four medical device companies which submitted to deferred prosecution agreements in response to charges that the companies implemented criminal conspiracies to violate federal anti-kickback laws. We posted several times about one aspect of this settlement, the mandate that the companies make public the payments (often huge) to orthopedic surgeons, academic institutions, and medical associations. (See posts here, here, here, here, here.) At the time, I did not think to look into what happened to the leadership of these companies thereafter.

According to the 2008 proxy statement by Zimmer Holdings, Ray Elliott conveniently retired in 2007, just before the deferred prosecution agreement was announced. Since he had been President of Zimmer since 1997 and CEO since 2001, according to the 2007 proxy statement, he appeared to have been in the top leadership of the corporation during the time the actions were performed that resulted in the deferred prosecution agreement. Nonetheless, again according to the 2008 statement, for the part of 2007 during which he served as CEO, his total compensation was $7,987,158. For 2006, his total compensation was $11,998,121. In 2007, the present value of his two pension plans were $269,764 and $5,302,050. In 2007, he owned 1,235,859 shares of stock (now worth $72,952,757 at the current price of $59.03 /share), and had the right to acquire 1,169,987 more within 60 days.

And of course, as we posted earlier, Boston Scientific paid him over $30 million for working part of 2009.

So Mr Elliott prospered mightily from his leadership of ethically challenged Zimmer Holdings, and was then further rewarded by ethically challenged Boston Scientific.

Summary

We have commented again and again that while numerous health care organizations have been charged with unethical, and sometimes illegal behavior, the people who oversaw, directed, or implemented the behavior almost never have had to suffer any negative consequences.  Now we see that while some large health care organizations have been subject to penalties for unethical and illegal behavior, the leaders of these organizations have been compensated so well as to make them rich, rich beyond the dreams of most people.  So the problem is not merely that captaining an organization onto the ethical rocks costs one nothing, but that it can make one very rich.

Clearly we see examples of both profoundly perverse incentives and a complete lack of accountability and responsibility affecting the leadership of major health care organizations.  Is it any wonder that these organizations continue to act unethically, and that the costs of the goods and services they provide rise continuously?

If we truly want health care that is accessible, of high quality, at a fair price, and more importantly, if we want health care that is honest and focused on patients, we need to provide health care leaders with clear, rational incentives in these directions, and make them fully accountable for their actions, and the courses of their organizations under their leadership.