Logical Fallacies in Support of Payments for Board Members of Non-Profit Health Insurers

The kerfuffle over the huge golden parachute given the departing CEO of an ostensibly non-profit Massachusetts health insurer/ managed care organization continues to evolve (see posts here and here), providing some new insight into governance problems afflicting health care organizations. 

One of the issues that aroused initially aroused concern was that Massachusetts Blue Cross Blue Shield paid the members of its board of trustees substantial amount, an unusual practice for a non-profit organization.  Board members who feel they owe their pay to the CEO they are supposed to be overseeing might be particularly inclined to over pay that same CEO.

Nonetheless, the Boston Globe just reported that other non-profit Massachusetts health insurers were defending their payments to board members:

The state�s second- and third-largest health insurers said yesterday their board members have decided to keep paying themselves five-figure annual fees despite objections from the state attorney general and an inquiry into directors� compensation at nonprofit health plans.

The rationales for these decisions were fascinating, amounting to four variations of special pleading, plus an appeal to tradition.

Special pleading: Our board members are experienced and independent

'Good governance is advanced by the recruitment and retention of experienced, independent, reasonably compensated directors,' Harvard Pilgrim said in its statement. 'In 2010, our board worked more than 2,000 hours.'

I doubt any non-profit organization would admit to not wanting experienced, independent board members,  but very few other non-profits pay their board members. Asserting that board members of the Massachusetts insurance companies especially deserve pay because of characteristics they share with other members of other boards who are not paid amounts to a special pleading.

The second statement seems just to be a simple exaggeration, since 2000 hours a year implies that the board members work there full-time (40 hours/week * 50 weeks = 2000 hours).  

Special Pleading: Our board members are skilled and experienced

Wellesley-based Harvard Pilgrim, however, said in its statement that board members 'apply their specialized experience and skills in the areas of medicine, accounting, finance and law, to support our company and its mission. Our board serves as responsible, independent fiscal stewards for our members� premium dollars.'

Again, board members of all sorts of non-profit organizations could be described in similar terms. So using this as an argument for paying board members when members with the same attributes of other boards are not paid is another special pleading.

Special Pleading: Our boards have great responsibility

Tufts, based in Watertown, said its board believes there is 'an additional overlay of responsibility' for directors of a health insurance company.

'Unlike the directors of other nonprofits, they are subject to distinct regulatory considerations,' the Tufts statement said. 'Therefore, compensation for time, commitment and skill of top talent is a responsible approach for the oversight of an organization that provides health care coverage to hundreds of thousands' of members.

Of course, boards of hospitals have their own "distinct regulatory considerations," as do boards of academic institutions  Boards of hospitals are also responsible for the health of their patients and boards of academic institutions are responsible for the education of their students. So this is a third example of a special pleading.

Special Pleading: Our responsibility, our time, our effort
Appeal to Tradition: Our tradition is to pay directors

The history and tradition of nonprofit health plans is to pay [directors] in this state. These are people from various walks of life who bring a skill set. These are not political hacks. . . . It�s because of the responsibility, the time, the effort, and the work you have to put into it. It�s a lot of homework.

It is true that the four non-profit Massachusetts health insurers all apparently did pay their board members, although in many other states, members of the boards of non-profit health insurers were not paid. But in the absence of any further argument that Massachusetts organizations were right when the others were wrong, this amounts to an appeal to tradition.   The rest of this personal statement was again a special pleading. 

Summary

Board members of non-profit organizations generally are said to have three duties, as per BoardSource:
- The Duty of Care: "a board member owes the duty to exercise reasonable care when he or she makes a decision as a steward of the organization."
- The Duty of Loyalty: "a board member must give undivided allegiance when making decisions affecting the organization. This means that a board member can never use information obtained as a member for personal gain, but must act in the best interests of the organization."
- The Duty of Obedience: "The duty of obedience requires board members to be faithful to the organization's mission. They are not permitted to act in a way that is inconsistent with the central goals of the organization."

The notion that boards stewarding non-profit organizations, including health care organizations, have these core responsibilities seems to have become increasingly ignored and forgotten in an increasingly commercialized health care environment.  Simply fulfilling these duties should not be regarded as exceptional board service, and certainly not so exceptional as to require pay.  The fallacious arguments made on behalf of lucrative payments given to members of the boards of two of the more highly regarded non-profit health insurance corporations in the country indicate how low governance and stewardship of health care organizations has sunk.

Again, we need governance of health care organization by people who understand their fundamental duties, who are willing to be accountable, and who put their organizations' mission ahead of personal gain. 

Those who profess concern about the stewardship of health care need not go far to find examples of fundamental misconceptions about what such stewardship involves.  We need to restore core values of governance to our health care organizations. 

Wendell Potter on "Insurers� Cynical Calculations on the Cost of Doing Business"

On his blog, Wendell Potter, former head of public relations for CIGNA, discussed big health insurance/ managed care organizations' attitudes toward paying financial penalties for wrong-doing:

Having served as head of PR for two of the country�s largest health insurers � CIGNA and Humana � I know from personal experience that such fines are not widely considered newsworthy.

Insurers know this, and so, annoying as being charged with breaking the law might be, they largely shrug off the fines and the threat of a day�s worth of bad publicity that occasionally accompany them. They are perfectly willing to risk being caught because they long ago realized that the fines are never severe enough to make them radically change the way they do business. Such a change would involve dealing more honestly with both their customers and the doctors who provide care to the people they insure.

We have frequently discussed the parade of legal settlements involving major health care organizations, including drug, device, biotechnology companies, and hospitals and health care systems as well as insurers and managed care organizations. We have repeatedly noted that fines or payments imposed on these organizations seem to have little deterrent effect. Now we have some documentation that this is true from someone who used to be in the belly of the beast.

So I get to repeat:  we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

How Large Health Care Organizations Set the "Rules of the Game" to Dominate Health Care

The notion that health care is increasingly "dominated by large, bureaucratic organizations which do not honor ... [its] core values"(1) just made it into a main-stream, large circulation US medical journal.  A brand new commentary in the American Journal of Medicine(2) by Supri and Malone declared:

To explain why we have the most expensive health care system in the world and yet one of the lowest performing, we need to take a perspective that focuses on the US institution of medicine as a whole. We expose the hidden rules by which this institution operates and discuss how its powerful organizations shape, control and perpetuate this ailing system.

The article then described the main types of large, powerful health care organizations:

The US institution of medicine is not a single, comprehensive and cohesive system of health care. Instead, it is comprised of a myriad of large and powerful organizations, including insurance companies, Health Maintenance Organizations (HMOs), corporate for-profit hospital chains, and pharmaceutical companies. This institutional structure is large and vast, and has over the years become ever more labyrinthine.

Note that there are even more kinds of large and powerful health care organizations, including non-profit hospitals and hospital systems, employers acting as payers for health care, government agencies, device and biotechnology companies, health care information technology companies, public relations firms, medical education and communication companies, contract research organizations, professional societies, patient advocacy groups, accrediting bodies, health care charities, etc, etc, etc.  But the point is that the large organizations, not the patients, the physicians, nor the public dominate.

Supri and Malone suggested that each kind of organization sets the "rules of the game," that is, the priorities important to the organization, which are very different from the core values that many of us believe ought to guide health care:

Not only is the institutional structure large, it is dynamic, and actively creates, shapes, and maintains the institution of medicine. It does this through what we call setting the �rules of the game�; that is, by imposing the terms by which the system operates.

For example,

Insurance companies have set the rule 'restrict choice and coverage.' They enact this through their elaborate system of copayments and deductibles, exclusion clauses and loopholes, each designed to deter patients from claiming the health care they need, and to override physicians' medical judgment.

Similarly, it cited the rules for managed care, "manage care," that is, "restrict utilization of health care" regardless of patients' needs; the pharmaceutical industry, "charges as much as we want, because insurance will pay;" and "corporate hospital chains ... test as much as we want, because insurance will pay." Thus it made the point that US health care now is driven by the priorities of large organizations whose interests at best may disregard and at worst may conflict with providing the best possible care for individual patients.

Further, the resulting complexity is to the benefit of the large organizations:

As each organization has created its own 'rules of the game,' the institution of medicine has grown into a complex entity that few really understand. This very complexity actually works to the advantage of the organizations that comprise the system, creating an operating environment that allows them to siphon off billions of dollars. It is one of the main reasons why the cost of health care has spiraled out of control.

This is very important, and suggests that the system will just become more bureaucratic, complex and opaque until it finally collapses.

Finally, it raised the point that the organizations collude to promote their priorities at the expense of patients' and the public's health:

Although each organization sets their 'own rules of the game,' they are also strongly and deeply interlinked, and cooperate and collaborate to protect the system of health care that they have devised, so that it remains intact and continues to serve their own interests.

Although  Supri and Malone did not differentiate the leadership of large organizations from the organizations themselves, we have pointed out that the top leaders of various kinds of organizations seem to think alike, becoming a sort of de facto executives' guild, with a "superclass" of oligarchs at its pinnacle.  The guild may be enabled by these leaders' often huge compensation and other benefits and corporate arrangements that keep them shielded from the vicissitudes of daily life that patients, health care professionals, and lower level organizational employees must face.  Furthermore, the leadership of these organizations is often interlinked, for example, by leaders of one organization serving on boards of directors or trustees of others.

It is so nice for us at Health Care Renewal to have some company. It is a very important blow to the anechoic effect for these sorts of views to appear in a mainstream medical journal.

When I interviewed a motley group of physicians and health care professionals in the early part of the 21st century, many expressed concerns about how medicine had been taken over by large organizations which did not honor its values. The article published in 2003(1) in Europe which tried to summarize their concerns probably could not have been published at that time in the US, but its publication remote from its main topic only made it more anechoic. It may be that an article published in a respected American journal will generate some more echoes. Here is hoping that Health Care Renewal can help create some such echoes. 

Obviously, those who lead large organizations in health care will not be happy about that, so it is possible this article's appearance in a main-stream journal may incite some pushback, perhaps generated by the public relations machines of the large health care organizations (see this post about how Wendell Potter's excellent Deadly Spin documented how large organizations use propaganda and disinformation to undermine viewpoints that threaten their domination.)

In conclusion, I strongly support Supri and Malone's final sentiments:

The sum of the 'rules of the game' devised by these organizations has resulted in a fragmented, haphazard and broken system of health care. Reform is long overdue, and demands root and branch transformation of the 'rules of the game' governing the US institution of medicine. This requires us to understand these rules, who is setting them, and how these rules are being used to exploit the system of medicine. Only then can we begin to heal our ailing health care system.

Well said!

But now almost 8 years since the publication of "A Cautionary Tale," we still have a long way to go.

References


1.  Poses RM. A cautionary tale: the dysfunction of American health care.  Eur J Inte Med 2003; 14: 123-130.  Link here.
2.  Supri S, Malone K. On the critical list: the US institution of medicine. Am J Med 2011; 124: 192-193.  Link here. 

"Government-Run Health Insurance" Run by Corporations? - Two Medicaid Examples

In the US, there seems to have been a constant argument between right- and left-wingers over "government-run" health insurance.  The right tends to disparage all aspects of "government-run" health care, and in the case of insurance, uses the alleged faults of the two big US government health insurance programs as examples.  (Medicare is a federal government health insurance program for the elderly and disabled. Medicaid is federal-state program for the poor.) 

For example, per the Associated Press via BusinessWeek, from a currently prominent Republican hopeful for President, former Minnesota Governor Tim Pawlenty,

The former Minnesota governor was the latest politician to participate in the Health Policy Grand Rounds program that Dartmouth-Hitchcock Medical Center has organized for its staff during the past two presidential campaign cycles. Using Medicare and Medicaid as examples, he criticized the notion that government-run health care will produce efficiency and said the answer lies in empowering consumers.

Republican Congressman Darrell Issa (California) wrote in 2010:

an expansion of the federal bureaucracy at that rate will greatly increase the incidence of waste, fraud and abuse in health care. Already Medicare, which accounts for 14% of all federal spending, is rife with waste, fraud and abuse. Even Attorney General Eric Holder has said, 'By all accounts, every year we lose tens of billions of dollars in Medicare and Medicaid funds to fraud.'

A recent analysis by the Government Accountability Office (GAO) estimated that federal subsidy programs cost taxpayers about $100 billion every year in improper payments, with Medicare and Medicaid accounting for more than half of that.

The left may advocate for government-run, "single-payer" insurance programs, perhaps using the alleged benefits of Medicare and Medicaid as examples.

Scholarly articles about health care policy may refer to Medicaid as a government "single-payer" system.  (For example, see: Robinson JC. The commercial health insurance industry in an era of eroding employer coverage. Health Aff 2006; 25:1475-1486. Link here.)

In any case, I suspect most of us think of Medicaid as an example of "government-run" health care insurance, regardless of whether we believe that is a good or a bad thing.

Yet the reality may be more complex. Two recent stories, one a follow-up on an old Health Care Renewal post, provide some dots to connect.

Connecticut HUSKY Medicaid Program

In 2007, we posted about how the state of Connecticut was going to end participation in the HUSKY state Medicaid program for poor children by four insurance companies/ managed care organizations.  They apparently refused to provide information about payments to physicians and denial of payments for prescription drugs to the state.  The two largest organizations involved were Anthem Health Plans (a subsidiary of WellPoint), and Health Net.  At the time, we noted that this case provided an example of the lack of transparency exhibited by major health organizations.

Late last year, the Connecticut Mirror documented more criticism of the HUSKY program based on a report that showed that participating companies were making big profits from it (but perhaps not from other state Medicaid programs): 

The three managed care companies in the state's HUSKY insurance program for low-income children and families recorded profits of $18.8 million last year, according to figures released by the state Department of Social Services.

In one part of HUSKY, the insurers made margins of at least 20 percent and spent less than 72 percent of their revenues on medical care.

The figures released this month drew criticism from members of the Medicaid Care Management Oversight Council, who are in the midst of considering moving HUSKY out of managed care.

In more detail, the relevant numbers were:

AmeriChoice, part of UnitedHealthcare, spent 62 percent of its revenue on medical care and posted a 22.9 percent profit margin in the HUSKY B program.

By contrast, the federal health reform law sets minimum medical care ratios for insurers of 80 percent or 85 percent, depending on the type of plan. The provision does not apply to Medicaid plans, but was cited as a benchmark in the council's discussion.

None of the insurers met those benchmarks in HUSKY B, which covers children whose family income does not qualify for Medicaid. Last year, it covered between 13,000 and 16,000 children, many whose families earned below 300 percent of the federal poverty level.

Aetna spent 70.5 percent on medical care and made a 20 percent margin, while Community Health Network of Connecticut, a non-profit with far more enrollees than the other insurers, spent 71.8 percent of its revenues on medical care and made a 20.6 percent margin.

Margins were lower, and medical care ratios higher, in HUSKY A, a Medicaid program that enrolled as many as 358,088 children and adults in 2009.

Community Health Network reported a 95.1 percent medical care ratio and a -0.3 percent margin. AmeriChoice spent 86.3 percent of its revenue on medical care and achieved a 3.5 percent margin, while Aetna had an 83.9 percent medical care ratio and 6.5 percent margin.

Overall, the medical care ratio was 90.7 percent for both HUSKY programs and all three insurers. The overall margin was 2.3 percent.

The insurers involved defended themselves by noting to participate in HUSKY they also had to participate in another program, Charter Oak Health Plan, "on which they lose money."

Last month, it looked to be the end of managed care in these Medicaid programs, again as reported by the Connecticut Mirror:

The Malloy administration announced plans Tuesday to move the HUSKY and Charter Oak health programs out of managed care and increase care coordination in the state's other Medicaid programs, an effort officials said would save money while giving the state more control over health programs that serve more than 500,000 people.

This article also noted:

In the current system, the state pays three managed care companies set fees for each HUSKY and Charter Oak member every month, and the companies use the money to pay medical claims. Critics say it gives the managed care companies an incentive to deny care since they get to keep the money not spent on medical costs.

So let us deal directly with the cognitive dissonance generated by these articles. In the ongoing US health reform debate, Medicaid is usually discussed as a "government-run" health care (insurance) program. Yet these news articles from Connecticut suggest at least in that state, part of Medicaid was out-sourced to mostly large, national, for-profit health insurance companies/ managed care organizations. Furthermore, as noted just above, these corporations seemed to be mainly calling the shots in how their part of Medicaid was run. So is this "government-run" health care (insurance)?

But wait, there is more....

Minnesota Medicaid Controversy

Last month, the Politics in Minnesota web-site ran a report on an unlikely reformer:

Dave Feinwachs is no stranger to the Capitol.

For three decades he was the general counsel to the Minnesota Hospital Association. In that capacity, he negotiated with state agencies and testified regularly before legislative committees on health care issues.

But early last year, Feinwachs said, he was ordered by his superiors at the hospital association not to provide any further testimony at the Capitol. The reason for the muzzle: his vocal insistence that health maintenance organizations (HMOs) should contribute money to help salvage the state�s General Assistance Medical Care program for indigent adults.

Feinwachs says he abided by the prohibition on testimony before legislative committees, but apparently it was not enough to keep him in the good graces of his employer. In November he was fired as the group�s principal attorney. Feinwachs will not discuss the reason for his termination, citing potential litigation. But it almost certainly had something to do with his ongoing zealous campaign to force greater transparency and accountability on the state�s HMOs - primarily Blue Cross & Blue Shield, HealthPartners, Medica and UCare - which receive roughly $3 billion annually to run health plans for many of the state�s poorest residents.

So here we go again. This article suggested that Minnesota had out-sourced a very large part of its Medicaid program.

Furthermore, it also appears that the state government knows little about what happens to the money it hands over:

In the next two years, Minnesota is slated to funnel about $6 billion to the state�s HMOs to provide health care for 550,000 of the state�s poorest residents. To put that figure in perspective, it is nearly 20 percent of the state�s expected 2012-13 general fund revenues - and nearly identical to the state�s projected $6.2 billion deficit. In coming up with a solution to Minnesota�s financial crisis, Feinwachs and others believe, legislators must at least have a clear accounting of this massive pot of health care dollars.

HMOs, meanwhile, are not exactly yearning for scrutiny, especially as they launch a pitch to administer even more of the state�s health care spending.

In addition, there is reason to believe that Minnesota may be paying a significant amount for administration:

Feinwachs believes that the administrative overhead collected by HMOs could be in the neighborhood of 16 percent. He concedes, however, that this is no more than a 'guesstimate' pieced together from the limited information that is publicly available.

Then, there is reason to suspect that the private (and nominally not-for-profit) HMOs that Minnesota pays to run Medicaid have resisted accounting for how the money they got was spent:

Past attempts to bolster accountability and transparency for HMOs have largely run into a brick wall. For instance, when legislators considered requiring the health plans to chip in on a plan to restore the General Assistance Medical Care program last year, they were told by officials from the Department of Human Services that such a move would be illegal. Efforts to provide more financial disclosure have been rebuffed by the argument that such information is proprietary and not subject to the state�s data practices rules. The complexity of Minnesota�s patchwork of publicly funded health care plans, which very few individuals clearly understand, has also helped forestall changes.

'We can�t let the complexity of data and information beat us down, and I think that�s what happened in the years past,' Hosch said. 'The systems almost seem like they�re deliberately complex in order to confuse us.'

Apparently in these parlous financial times, Mr Feinwachs got some attention. Last week, the state Governor announced his willingness to dig into the results of the state's out-sourcing of Medicaid, per the Minneapolis Star-Tribune:

It's high time that Minnesota started treating its nonprofit health plans for what they are -- some of state government's largest vendors.

Reforms announced this week by Gov. Mark Dayton's office are a promising first step toward scrutinizing health plan contracts for savings and finding new ways to rein in Minnesota's soaring medical costs.

Managing care for more than 500,000 low-income, disabled and elderly Minnesotans enrolled in state public health programs is a $3.1 billion-a-year business for health plans in Minnesota, with the state and federal government jointly footing the bill.

Over the past decade, the state's portion of this outsourced care has increased from 5 percent to 11 percent of the state budget, according to Dayton's office.

The state also has more than 249,000 people -- typically the sickest of the sick -- in a fee-for-service public program. That spending is also ripe for a cost-savings review.

On Wednesday, Dayton announced plans to do what good business leaders do in difficult financial circumstances. His administration is going to start driving harder bargains with health plans.

Key parts of the plan include making the contracting system more competitive, making financial information more transparent, and doing deeper auditing of plans' books to analyze administrative and medical expenses.

So again in Minnesota, it appeared that the state had out-sourced a large proportion of its Medicaid program, covering apparently two-thirds of the state's Medicaid patients. It appears that knowledge of the out-sourcing of most of Medicaid was relatively anechoic, and that even the state's former Governor Pawlenty was unaware of it (see his comments in introduction to this post). Despite the amounts of money and the numbers of people involved, up to now the state government had apparently very little information about how billions of dollars were being spent by private, albeit nominally non-profit health insurance companies/ managed care organizations.

Summary

Two cases from two states suggest that some proportion of Medicaid, perhaps a very large proportion, has been out-sourced to private corporations, both nominally non-profit and for-profit.

In fact, a Washington Post article last year suggested that 70% of Medicaid patients are in managed care plans, most of which are likely out-sourced, not run by state Medicaid agencies.

Our two cases above further suggest that government officials may know little about how the money given to these corporations was spent, and how the corporations managed the supposedly "government-run" health insurance.

So much for the notion that the US Medicaid program is "government-run" health insurance.  Whether one believes that government bureaucrats are good or bad at running health care, it seems that most Medicaid patients' care is managed by corporate, not government bureaucrats.

The likelihood that a substantial proportion of Medicaid patients actually get their health care coverage from corporations, be that non-profit or for-profit, raises some important questions.
- What proportion of the government funds provided these corporations goes to health care versus administration, overhead, etc?
-  What then is the proportion of all Medicaid money spent on health care versus administration, overhead, etc at the federal, state, and corporate levels?
-  What proportion of the revenue of major health insurers/ managed care organizations actually comes from tax-payers via Medicaid?
-  To what extent do health insurers/ managed care organizations influence clinical care through their role implementing Medicaid?
-  How transparent are their finances and their implementation of Medicaid?
-  How well are they supervised and regulated by national and state government?

Meanwhile, it appears that there is far more overlap between government and corporate health insurance and managed care than most of us realized.  That suggests the usual debate between the foes and proponents of "government-run" health care (insurance) was vastly too simplistic.  Maybe some of those involved in the debate should have known that.   

Meanwhile, the concerns I discussed in 2002 that "health care has become dominated by large, bureaucratic organizations" appear increasingly well-founded.  This domination seems to be increasingly facilitated by collaboration - or should that be collusion? - among government and private bureaucracies.  The danger, as we have repeatedly discussed, is that the leaders of these bureaucracies may feel increasing loyalty to the managers' and executives' guild, and decreasing pressure not to fulfill their own and their cronies' self-interest.  We need at least to have some frank discussions about the increasing corporatism of health care and all of society, and what to do about it. 

Passport to ... Fraud? - AmeriHealth Mercy Settles

Back in November, 2010, we discussed the relatively opulent pay and perks given to and conflicts of interest affecting leaders of Passport Health Plan, a non-profit, state (Kentucky) supported Medicaid managed care organization/ health insurer.  This seemed to be another case of health care organizational insiders putting their personal gain ahead of their mission, which was particularly unseemly because their mission was serving the poor. 

Now Passport Health is in the news again, and not in a favorable way, as per the Louisville (Kentucky) Courier-Journal:

Passport Health Plan�s main contractor has agreed to pay more than $2 million in damages to the Kentucky Medicaid program to settle a fraud investigation, Attorney General Jack Conway announced Wednesday.

The settlement with AmeriHealth Mercy Plan is the result of a nine-month investigation by the Attorney General's Medicaid Fraud Unit into alleged falsification of records by the company that entitled it to more than $677,000 in bonus money for good performance.

Conway said the investigation centered on an allegation from a whistleblower that AmeriHealth falsely reported data to the state Medicaid Services Department on the number of Medicaid recipients who received cervical cancer screenings in 2009. The false numbers allowed AmeriHealth to receive the bonus money under the terms of its contract.

We have discussed a variety of cases of leaders of health care organizations getting compensation or benefits that seemed disproportionate in their organizations' context. The usual justification seems to be that it takes such rewards to attract the excellent leaders needed by health care organization.

Here is another example of leaders who not only seemed to get excessive compensation and benefits, but whose performance seemed far from excellent.

Moreover, it suggests that compensation and benefits may actually have an inverse correlation to performance. Organizations whose stewards seem unrealistic about the talents of their hired managers, and dependent on material rewards to retain such managers may lack good stewardship. Leaders who find themselves rewarded beyond any reasonable evaluation of their work may learn the lesson that they cannot ask for too much. Meanwhile, the excess of their rewards may inspire increasing greed rather than increasing devotion to the mission, while the pay and perks increasingly place them in a bubble that insulates from the concerns of the common people who their organizations are supposed to serve.

As we have said before, far too often the leaders of not-for-profit health care institutions seem more interested in padding their own bottom lines than upholding the institutions' missions. They often seem entirely unaware of their duty to put those missions ahead of their own self-interest. Like the financial services sector in the era of "greed is good," health care too often seems run by "insiders hijacking established institutions for their personal benefit." True health care reform would encourage leadership of health care who understand health care and care about its mission, rather than those who see a quick way to make a small fortune.

PS - Also note that this is also another example of the sort of legal settlements of misbehavior by health care organizations that seems to have little deterrent effect, mainly because no individual who authorized, directed or implemented the bad behavior suffers any negative consequences.  See our discussion in these previous posts.  True health care reform would also hold leaders accountable for their organizations' misdeeds.

Health Insurers Sanctioned, Fined

It has not been a good few weeks for big US health insurance companies.  First was a report (e.g., per the Wall Street Journal) that three companies had been suspended from selling Medicare Advantage plans:

The U.S. government's Medicare program has ordered three health insurers--Universal American Corp. (UAM), Health Net Inc. (HNT) and Arcadian Health--to stop marketing to and enrolling new members in their Medicare Advantage health and prescription-drug plans, saying the companies violated regulations.

In particular,

Universal American was told to stop marketing to and enrolling people in its Medicare Advantage plans effective Dec. 5. The action doesn't affect current members or the enrolling of beneficiaries in the company's stand-alone Medicare prescription-drug plans.

Health Net had to suspend the marketing of and enrollment in its Medicare Advantage plans and stand-alone Medicare prescription-drug plans as of Friday, as the government said the company's conduct poses a 'serious threat' to enrollees. The sanction doesn't affect the status of current enrollees, however.

In a letter Friday to Theodore Carpenter, head of Universal American's Medicare Advantage business, the Centers for Medicare and Medicaid Services alleged the company has a 'longstanding pattern of prohibited marketing practices targeted to highly vulnerable populations in violation' of federal law and guidelines as well as contractual terms with CMS.

Universal American is a 'chronic poor performer' with respect to the regulations, according to CMS, which said the company's agents engaged in aggressive sales tactics and abusive behavior, and misled or confused beneficiaries or misrepresented the plan.

The agency's letter to Health Net government-programs executive Scott Kelly said the company's conduct 'poses a serious threat to the health and safety of its enrollees,' as a result of the company's 'intractable failure to provide its enrollees with prescription drug benefits in conformance" with laws, guidelines and contract terms.' CMS cited a 'history of non-compliance.'

Then, the state of California fined and ordered restitution from multiple companies, as reported by the San Francisco Chronicle:

State regulators Monday fined seven of California's largest health insurers nearly $5 million for systematically failing to pay doctors and hospitals fairly and on time.

The California Department of Managed Health Care issued the fines following an 18-month audit in which investigators looked at a small but statistically significant sample of claims. The investigation found the plans were paying on average about 80 percent of the claims correctly, far below the legal threshold of 95 percent.

'Our clear and consistent message is that California's hospitals and physicians must be paid fairly and on time,' said Cindy Ehnes, director of the Department of Managed Health Care, which is charged with regulating the states' health maintenance organizations, or HMOs.

In addition to the fines, the companies must pay the doctors and hospitals restitution that is expected to run into the "tens of millions of dollars," Ehnes said. The plans will also be required to come up with a plan to correct the problem and submit to future audits.

Failing to pay providers properly makes it tougher for them to survive in the struggling economy, Ehnes said. 'If providers are not paid, patient care and access suffer,' she said.

Regulators fined Anthem Blue Cross and Blue Shield of California $900,000 each. United/PacifiCare was fined $800,000 and Kaiser Foundation Health Plan and Health Net were both hit with fines of $750,000.


The fines for Cigna and Aetna were $450,000 and $300,000, respectively, for a total of $4.85 million.

Please note that some of these companies have become "frequent flyers" on the Health Care Renewal blog.  Anthem Blue Cross in California is a subsidiary of WellPoint. WellPoint, in particular, just appears again and again on Health Care renewal.  A list of all posts about that company is here, and see this post for a list of past ethical and management missteps.  Health Net appeared in both stories above, and appeared on Health Care Renewal here.  Posts on Aetna are here.

Having been writing for this blog now for several years, I am struck by how often the conduct of particular health care organizations has been discredited, without any discernible effect on the organization's leadership or course.  It is particularly striking how the attention paid and pay given to the leaders of some health care organizations contrasts with the public record of their organization's bad behavior.

In particular, contrast the long catalog of misbehavior by WellPoint, noted above, with the enormous earnings of the company's CEO (more than $13 million in 2009), and her status as a prominent speaker on health care policy (see post here). 

In the laissez faire, anything goes, wild, wild west economy of today, spearheaded by the financial service companies that lead us to the global economic collapse, it seems that ethical leadership counts for nothing.  This is bad when it applies to the leadership of financial services, whose bad leadership can cost us all a lot of money.  It is worse when it applies to health care, whose bad leadership can cost us our health and our lives.

As I have said ad infinitum, to really reform health care, we will need to get accountable, ethical, transparent leadership of health care organizations.

"Living High Life on Money to Treat the Poor"

Here is another story that has developed over the last week about questionable goings on at a not-for-profit health care organization.  The organization in question this time was the not-for-profit, but state government supported Medicaid managed care organization/ health insurer for the Louisville, Kentucky region.  The details came from a Louisville (Kentucky) Courier-Journal article about a state auditor's report on the Passport Health Plan:

The organization providing Medicaid services in Jefferson and surrounding counties has spent lavishly on such things as travel, meals, salaries, bonuses and lobbying in recent years, the state auditor�s office said in a report released Tuesday.

The scathing report, which Gov. Steve Beshear described as 'disheartening,' said two Passport Health Plan officials � Executive Vice President Shannon Turner and Associate Vice President Nici Gaines � were paid well, ate well and traveled extensively.

'Lodgings were often luxury spas and resorts,' the report said. 'The executives used limousine services and dined at expensive restaurants. While these types of expenditures may be routine for many private, for-profit companies, they should not be typical in nonprofit, health care organizations.'

The report also said Passport made extraordinary efforts to burnish its public image and gain political support by spending $1 million since 2007 on lobbying and public relations, as well as $423,000 in donations and sponsorships.

Many of the donations had no connection with health care, the report said � including $600 to sponsor a reception for the Senate Republican majority in 2009, $10,000 to sponsor an 'inflatable character' for the Kentucky Derby Festival's Pegasus Parade, and contributions to the Boy Scouts, Kentucky Opera, Volunteers of America and others.

Here are some more specifics about amounts spent:

Travel: Passport spent $106,722 on more than 36 trips including trips to conferences at resorts in New Orleans, Key West, Las Vegas, Seattle, Philadelphia, Tucson, Washington and Coeur d'Alene, Idaho.
Meals: Spent $72,994 on 753 meals for groups large and small. These were mostly at Louisville restaurants but included tabs at some famous restaurants outside Kentucky, such as Emeril's and Commander's Palace in New Orleans.
Limo services: Five uses of limos totaling $3,996.
Lobbying and public relations: Spent $1 million.
Donations and sponsorships: Spent $423,000, some with no connection to health care, including $10,000 to be an �Inflatable Character Sponsor� for the Kentucky Derby Festival.
Gifts: Spent $9,311 for 95 gifts, which included flowers and Christmas gifts.
Salaries: Paid salary and bonuses of $303,750 to Executive Vice President Shannon Turner and $156, 000 to Associate Vice President Nici Gaines in most recent year.

Here are more specifics about conflicts of interest:

Conflicts of interest: Both Turner and Gaines received additional compensation in contracts with subcontractor they were overseeing, AmeriHealth Mercy. Also, Larry Cook, Passport's chairman and CEO, had divided loyalties because he serves as an executive vice president of U of L. He also was reimbursed $1,717 by AmeriHealth for expenses for a trip to Ireland in 2007.
Grants: Many grants were made by Passport to groups with ties to staff and/or board members

The organization also was charged with distributing additional funds to area health providers based on their initial investment in the not-for-profit managed care organization, but not on the amount of care they were providing to Medicaid patients:

[State Senator Tim] Shaughnessy was particularly concerned about distributions of $10 million in excess funds in late 2008 and again in and 2009 to the large Jefferson County health-care providers that formed Passport.

These distributions were reported to the Kentucky Department of Insurance as grants to cover indigent care costs incurred by Passport's provider partners � University Medical Center, University Physician Associates, Norton Healthcare, Jewish Hospital and St. Mary's Healthcare, and the Louisville/Jefferson County Primary Care Association.

But the auditor�s report said the money was distributed based on the percentage of the providers' initial investments to create Passport � not the amount of indigent care they provided. And the report said this money was placed in the general funds of these providers 'rather than specifically set aside for uncompensated indigent care.'

Finally, it appears that Passport tried to block disclosure of important information, including the compensation of its executives, even though it is a not-for-profit organization entirely funded by the government:

Early this year The Courier-Journal filed a request under the state open records law seeking Passport records on compensation of its executives and minutes of its board meetings. But Passport refused to release them, claiming that the law did not apply.

The attorney general's office disagreed, saying that Passport is 100 percent publicly funded and must release the records. But Passport again refused and took the matter to Jefferson Circuit Court, where it is pending.

So again we have the same tiresome features of leaders who apparently regard their organization as their own personal sandbox: lavish compensation, given the context, luxuries supplied the leadership out of organizational funds, conflicts of interest that apparently increased further the leaders' personal gains, and attempts to keep the whole thing secret. As a Lexington (Kentucky) Herald-Leader editorial ("Living High Life on Money to Treat the Poor") noted, given the mission of the organization, this sort of sleaze is particularly unfortunate:

In one way, though, Passport's profligacy deserves special condemnation. Every dollar Passport executives spent on their own pleasurable pursuits, on lobbying to insure tax money kept flowing their way, on buying goodwill in the Louisville area or on any other unnecessary expense was a dollar taken away from providing Medicaid services to the most vulnerable, needy members of society.

This case resembles one we discussed previously, that of the non-profit community health agency in Florida whose leaders again seemed to regard their job as an opportunity for personal enrichment.  It seems that even leaders of non-profit organizations whose mission is to help the needy may seem to put their own needs before those of their disadvantaged constituents.  Of course, given they may have seen leaders of not-for-profit universities and hospital systems making millions, and leaders of for-profit pharmaceutical, device, and especially managed care organizations/ health insurers making tens of millions, and conclude that their six-figure salaries and occasional luxuries were barely adequate compensation.

As we have noted before, the "executives take all" mentality of an era economically dominated by financiers as aristocrats seems to have infected health care.  Somehow we have to restore the idea that executives and managers  like doctors and nurses, should regard their work as calling meant to put the needs of patients and public health first, rather than a quick way to get rich. 

Wellcare Settles Again, but Wait, There is More...

We posted several times, most recently in 2009 (here and here), about misbehavior by the health insurance company/ managed care organization Wellcare.  That year, the company settled criminal charges that it defrauded the Florida state Medicaid program by paying a fine and accepting a deferred prosecution agreement.  Previously, the state of Connecticut had canceled its arrangement with Wellcare to run a Medicaid program in that state after the company refused to provide the state with requested data.  Then the company signed a consent order with the Florida Elections Commission in which it admitted making "questionable" political contributions.

Then this year, it was announced that the company would settle additional civil charges, as per the St. Petersburg (FL) Times,

Tampa-based WellCare Health Plans Inc. has agreed to pay $137.5 million to the U.S. Department of Justice and other federal agencies to settle civil lawsuits accusing the company of overcharging for its Medicaid and Medicare programs.

Also,

Under the tentative deal, which must be approved in court, WellCare would have three years to make payments to the Justice Department's civil division, the U.S. Attorney's Office for the Middle District of Florida and the U.S. Attorney's Office for Connecticut.

WellCare said the payments will include the approximately $23 million owed to the Florida Agency for Health Care Administration for overpayments received by the company in 2005.

The civil settlement is separate from a deal struck last year on the criminal front. In that case, WellCare agreed to pay $80 million to settle a charge of conspiracy to defraud the Florida Medicaid program and the Florida Healthy Kids Corp.

It also previously agreed to a $10 million civil penalty settling an informal inquiry by the Securities and Exchange Commission that regulatory filings reflected more than $40 million in profits that WellCare failed to return to the Florida agencies from 2003 to 2007.

WellCare, which is Florida's largest Medicaid plan operator, has acknowledged that it overcharged Florida and Illinois health programs by about $46.5 million.

But wait, there is more. No sooner than this settlement been announced than it was challenged. While considering the settlement, the judge involved unsealed a set of complaints by whistle-blowers about Wellcare. First, as reported by the Miami Herald,

The complaint, filed by former WellCare financial analyst Sean J. Hellein, portrays a company so ethically challenged that it rewarded employees who dumped hundreds of sick newborns and terminally ill patients from the membership rolls, thereby pumping up profits by millions of dollars.

It describes a company that embraced fraudulent accounting as a business model, eventually stealing between $400 million and $600 million from Medicare and Medicaid programs in several states, perhaps most of it from Florida.

See these specifics:

Hellein, who wore a wire for more than a year to gather evidence for federal agents, says in the complaint that:

- WellCare moved money between accounts to make it appear that patients' treatment cost much more than it actually did. In some cases, the company made payments years in advance to jack up the apparent cost of care to fool states into increasing Medicaid premiums. It worked, he said.

- When states made overpayment errors, WellCare didn't pay the money back, as its contract requires. Florida Medicaid made a series of overpayment blunders that fattened WellCare's bottom line by many millions; those who made the errors included both state officials and contractors.

- Sometimes hospitals and physician groups helped WellCare hide its true spending from Medicaid programs by accepting payments through one account for expenses incurred by another. Sometimes they allowed WellCare to pay for future years' expenses to make it appear spending for the current year was higher than it actually was.

Hellein named two hospital systems - one in Illinois and one in Florida - that he said participated in the sham arrangement, but he said it was common.

WellCare pushed expenses into certain programs - behavioral health programs in Florida and Illinois and the Healthy Kids program in Florida, a program for uninsured children of families with modest incomes - because they required repayment if the cost of treatment fell below a certain threshold.

Florida public officials were repeatedly duped by WellCare. The director of the Florida Medicaid program from 2004 to 2007, while much of the alleged fraud was going on, was Tom Arnold. He currently is Secretary of the Agency for Health Care Administration.

Another agency that fell for WellCare's line was the Office of Insurance Regulation, where an actuary found nothing wrong with a WellCare subsidiary in the Cayman Islands acting as the company's reinsurer.

The reinsurance arrangement enabled WellCare to bank $5 for each insured while making it appear that the cost was just 11 cents, the complaint says.

After Wall Street analysts raised questions about the legality of the reinsurance arrangement in 2007, some thought it might be reviewed by Chief Financial Officer Alex Sink. But nothing ever came of it.

WellCare conducted a study to figure out which Medicaid recipients were profitable and which were not so that it could engage in "cherry-picking," a term for enrolling only the profitable members. The study found that disenrolling a baby born with health problems saved the company an average of $20,000; each terminally ill patient saved $11,500.

Those who were persuaded to resign from WellCare went into the general Medicaid or Medicare fee-for-service programs.

WellCare also restructured its benefit package to discourage the least-profitable Medicaid recipients from enrolling and encouraging those who were more profitable to sign up.

Low-income mothers and children yielded a net of only about 10 percent, while the physically and mentally disabled paid for by Medicare yielded a net of 30 percent, the complaint says.

The complaint names about 20 employees of WellCare who knew about the fraudulent activities. Only one, Gregory West, has been charged. He pleaded guilty in December 2007 but sentencing has been postponed several times.

No charges have been brought against three former executives of the company named in the complaint as orchestrating the fraud: President, CEO and Chairman Todd Farha, CFO Paul Behrens and General Counsel Thaddeus Bereday.

They all resigned in January of 2008, three months after the FBI and other law-enforcement agents raided the Tampa campus of WellCare and carted off computers and files.

The the St. Petersburg Times reported about two more complaints that were unsealed:

Clark J. Bolton, a former supervisor of special investigations at WellCare, said the insurer encouraged overbilling and refused to audit claims for fraud in order to curry favor with doctors and hospitals and build market share. The result was millions in excessive and illegal expenses passed through to federal Medicare and state Medicaid programs, Bolton said.

Eugene Gonzalez, a referral coordinator for seven years, claimed WellCare met government customer service standards only because it had employees create backdated documents and make bogus calls to the company's phone lines. Failure to meet these standards would have resulted in the loss of billions of dollars worth of Medicare and Medicaid contracts.

As we have before, we see a striking contrast between the scope of the allegations and the response by the government agencies that are supposed to regulate insurers, insure that public money is spent wisely, and investigate and seek punishment for illegal activities. As the latter St. Petersburg Times article noted,

U.S. Rep. Kathy Castor criticized the proposed settlement as wholly inadequate in a letter this week to Attorney General Eric Holder. 'Where is the penalty and punishment for such egregious actions?' she wrote. 'It appears that companies such as these simply build such payments into the 'cost of doing business.' We cannot allow this to continue.'

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

Also note that the case of Wellcare remains relatively anechoic. Despite the severity of allegations, and the national scope of the company, the case has only been mentioned in news stories, mainly in Florida where the company has its headquarters, and in a few health care trade publications. It, like many of the cases we discuss on Health Care Renewal, has not been mentioned in the medical/ health care research/ health care policy literature.

If we cannot even speak about the sort of very bad management that afflicted Wellcare as a cause of many of the ills of our health care system, how do we really expect to constructively reform that system?

Board Member Blows Whistle on Health Insurance Company's Accounting

We previously posted about some of the travails of for-profit health insurance company/ managed care organization Wellcare.  In August, 2009, we posted about Wellcare's "admission" that it had made numerous questionable campaign contributions.  In May, 2009 we posted about WellCare's submission to a deferred prosecution agreemeent based on charges that it defrauded state programs by inflating its expenses. In 2007, we posted about how the state of Connecticut stopped WellCare from running a plan for poor children after the company refused to reveal what it was paying physicians, and why it was failing to pay for particular services. So WellCare has been cited for three different kinds of unethical behavior in 2007-09.

Here's a story about Wellcare with a new twist in the Wall Street Journal:

A prominent director at WellCare Health Plans Inc. resigned Wednesday and raised questions about accounting practices at the Medicare and Medicaid company.

Regina Herzlinger, the head of the board's audit committee and a professor of business administration at Harvard Business School, said internal audits found WellCare overbilled the Illinois Medicaid program by $1 million in 2009 and potentially overcharged states for almost $500,000 worth of maternity care. Additionally, the Tampa, Fla., company ran afoul of Georgia's requirements that it account for each patient visit for which it paid providers, resulting in a $610,000 fine, she said.

Ms. Herzlinger said those problems, which the company corrected last year and this year after an internal auditor discovered them, are evidence of weak accounting practices. Ms. Herzlinger said she had hoped to provide oversight, as chairwoman of the audit committee, but that the board didn't renominate her for re-election at this year's annual meeting of shareholders. Ms. Herzlinger alleges that the board forced her out for asking questions about accounting problems and corporate-governance practices.

Wellcare offered the response one might expect:

WellCare said good corporate-governance practices require it to bring in new board members periodically to provide a fresh perspective. The company said the accounting errors Ms. Herzlinger identified were relatively small and the company's own internal controls identified them, indicating that its processes are working well. The company said the board chose not to renominate Ms. Herzlinger.

'At any company, you are always going to have these kinds of immaterial amounts pop up,' said Thomas Tran, WellCare's chief financial officer, who added that it is important to 'address them and document them and learn from them to change your processes.'

That might have been more convincing were Wellcare not to have the track-record discussed above.

Every now and then we have discussed cases of whistle-blowers from within health care organizations, but I cannot remember another instance in which the whistle-blower was on the board of directors.  In our post of August, 2009, we noted Prof Herzlinger's position on the Wellcare board, and urged her, as a main stream health policy expert, "to acknowledge that health care leadership may be unaccountable, opaque, dishonest, and sometimes flagrantly corrupt."  We also urged her to "pay a bit more attention to the mischief being committed by those who answer to her."  From this new story, it looked like she did just that, and hopefully made a contribution to more transparent and honest governance of health care organizations.  Good for her!

It is time for the often well-paid and not over-worked members of the board of directors of health care corporations to take some responsibility for the actions of the corporations over which they are supposed to exercise stewardship.

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.

The Argument Over Insurance Rate Hikes: A Systemic Problem with Health Care Organizations' Leadership and Governance?

There has been a tremendous amount of news coverage of a large rate increase proposed by Anthem Blue Cross, a subsidiary of WellPoint, in California.  For example, the Los Angeles Times reported last week,

Congress opened an investigation Tuesday into Anthem Blue Cross' impending rate increases in California as President Obama cited the premium hikes -- some as high as 39% -- in his bid to pass national healthcare legislation.

The House Committee on Energy and Commerce and its Subcommittee on Oversight and Investigations announced they were examining the increases, which are set to take effect March 1. The subcommittee has scheduled a Feb. 24 hearing in Washington, while an Assembly committee in Sacramento has set a hearing for Feb 23.

'Reports of premium increases up to 39% are deeply troubling,' Rep. Henry A. Waxman (D-Beverly Hills), who chairs the energy committee, said in a statement. 'At a time when millions of Americans are struggling to keep their health insurance, we need to know what possible justification there could be for increases of this magnitude.'

Anthem of Woodland Hills is the state's largest for-profit insurer and a unit of Indianapolis health insurance giant WellPoint Inc.

At issue are increases in monthly premiums for many of Anthem's estimated 800,000 customers with individual health insurance policies who are not part of group coverage.

Anthem began informing individual policyholders last month that prices would go up March 1 and could be adjusted 'more frequently' than typical yearly increases.

The company would not say how high the rates could go or how many customers would be affected. Brokers and policyholders said many of the anticipated increases were 30% to 39%, the largest they could recall. The brokers said other insurers also were raising rates by double digits.

Anthem maintains that its increases are necessary to meet growing healthcare costs, even as it voices sympathy for policyholders whose premiums are rising.

In addition, per again a Los Angeles Times article this week,

Executives from California health insurance giant Anthem Blue Cross, under fire for scheduled rate hikes of up to 39%, insisted Tuesday that their premiums were fair and legal, and they told lawmakers they expected that the increases would go forward.

Appearing before the state Assembly's health committee, the officials said that they believed rate increases for individual health insurance policies, delayed until May 1 while being reviewed by the Department of Insurance, would survive scrutiny by regulators

In Sacramento, Anthem's president, Leslie Margolin, told the committee that much of the public frustration over the rate hikes was misdirected and should be aimed at the nation's healthcare system.

'This debate and this inquiry cannot and should not be just about the insurance industry or the delivery system or regulators or legislators or customers or brokers,' Margolin said.

'We have wasted precious time and precious resources doing battle with each other,' she added. 'We must come together collaboratively and strategically to address the distressing symptoms of our troubled system -- rising premiums, for example -- and to address the fundamental underlying causes of our collective failure.'

As we have discussed time after time on Health Care Renewal, there are multiple fundamental problems with health care in the US (and around the world.) The Anthem President above did not apparently specify what she thought these problems are. We have discussed in particular problems that arise out of abuse and concentration of power in health, particularly problems with the leadership and governance of health care organizations. We have suggested that such problems are major causes of the ever rising costs of, declining access to, and stagnant quality of health care in the US.

These problems do not seem to particularly afflict WellPoint more than most other organizations, and certainly do afflict the other organizations with which WellPoint has to deal.  On the other hand, WellPoint has certainly had its own share of issues. These have been sufficient to raise questions about the organization's leadership's transparency, ethics, and management abilities. While WellPoint perhaps should not be singled out for these sorts of problems, the extent they may have contributed to the costs it imposes, and its ability to manage its relationships with other organizations should be a source of skepticism about the idealized pronouncements of its leaders.

For a recent example, the Los Angeles Times also just reported,

California's largest for-profit health insurer 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, the state's insurance commissioner said Monday.

Anthem Blue Cross of Woodland Hills could face fines of up to $7 million stemming from the alleged violations from 2006 to 2009. Commissioner Steve Poizner said the insurer repeatedly failed to respond to state regulators in a 'reasonable time' as they investigated complaints over the last year.

'We believe there is evidence to suggest there are serious issues with how Anthem Blue Cross pays claims,' Poizner said at a Sacramento news conference. 'Most disturbing to us is that they don't even respond' to the Department of Insurance 'in a timely way.'

Furthermore, 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). 

So, WellPoint's subsidiary Anthem President Margolin was right in that her company, or insurance and managed care companies should not be blamed for all of our health care woes.  But I submit that her company should no less have to address concerns about the transparency, honesty, and skill of its management, and how problems in these areas have driven up costs, decreased access, threatened quality, and demoralized health care professsionals  than do leaders of other health care organizations.  At the moment, such concerns are at best peripheral to the ongoing debate on health care reform in the US.  I suggest they ought to be central.

ADDENDUM (24 February, 2010) - see also comments on the Covert Rationing Blog, and on the Managed Care Matters blog.