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Flop at the Top: What Has Happened to Health Care Leadership Ethics?

by Emily Friedman

First published in Hospitals & Health Networks OnLine, February 6, 2007

Several high-profile incidents of demonstrated or alleged leadership misbehavior in health care have raised serious questions about the ethics of our field and the oversight exercised of and by top executives and boards. What on earth is going on, and what should be done about it?

The CEO of a New England hospital is found guilty of 35 counts of conspiracy and mail fraud in connection with the bribing of a member of the state legislature.

The chairman and CEO of one of the largest health insurance firms in the United States is forced out after revelations that he received millions of dollars in stock options that were artificially underpriced and not properly accounted for by the company. Members of the board that fired him had voted themselves tens of millions of dollars of stock options during the same period; the executive the board chooses to replace the fallen CEO also received millions of dollars in underpriced options. This man claims he does not recall receiving them, despite the fact that his windfall profit was more than $17.4 million.

The majority leader of the United States Senate sells a large amount of stock in the for-profit hospital chain his family controls; the stock price then falls sharply. Trustees of his investments, which were supposedly in blind trusts, had kept him informed of the details of his holdings.

The commissioner of the Food and Drug Administration, who quits his job abruptly, later pleads guilty to failing to disclose that he owned stock in firms that he was charged with regulating. After his resignation, he joins a lobbying firm that specializes in food and drug issues.

The CEO of a pharmaceutical company whose stock price has fallen by 37 percent during his tenure is forced out--and is promptly given a $198 million severance package by the board on whose watch the company's problems took place.

The founder and chairman of a major rehabilitation firm is indicted and tried for accounting fraud but acquitted; he is also accused of receiving underpriced stock options. He is later convicted of bribing the governor of Alabama.

The majority of the $3.1 billion in fines and repayments collected by the federal government under the False Claims Act in fiscal 2006 involved health care entities, including individual facilities, hospital chains, biotech firms and pharmaceutical manufacturers.

And that was only in the last year...

In 1968, Olympic high jumper Dick Fosbury won the gold medal after developing a new technique for his sport. It involved running diagonally toward the bar, then jumping over it in an off-center manner and landing with a pronounced plop. A newspaper reporter named it the "Fosbury flop."

Maybe we should recommend some of the aforementioned health care leaders to the U.S. Olympic Committee.

We Are Not Alone

Health care is hardly the only sector whose image has been tarnished by malfeasance. In the past few years, we have had to endure the consequences of grossly unethical (and mostly illegal) activities at Enron, WorldCom, Tyco, Adelphia, Global Crossing, the Nature Conservancy and many other firms and charities--including, sadly, two companies that were once seen as gold-standard examples of proper conduct, Arthur Andersen and Hewlett-Packard.

Even Apple Computer got soiled because of those pesky stock options, in this case awarded to CEO Steve Jobs. The firm investigated itself and found no wrongdoing. The investigation was headed by former U.S. Vice President Al Gore Jr. who once said that any act not prohibited by a "legally controlling authority" is moral on its face. Right.

As a result of these scandals, thousands of people lost jobs and savings, investors were defrauded, Congress was lied to, companies were ruined. And a growing cynicism about American corporations in general emerged.

However, when this sort of thing happens in health care, it is especially serious. For one thing, people want to trust their health care system; they probably do not have the same faith in their friendly health insurer or energy supplier. For another thing, health care is held to a higher standard; we are supposed to behave better because the stakes in our work are so high. Also, the health care sector itself has long gone to great pains to portray itself as adhering to high moral standards; if questions were raised about quality of care or credentialing or treatment of the poor, the answer was always, "You can trust us."

And in most cases--indeed, in almost all cases--we can. But what is truer in our sector than in most others is that the worst actors define the field in the public mind. And that is what has happened.

As a result, we have seen congressional hearings, attorneys general issuing subpoenas, political figures suddenly changing their career plans, civil and criminal litigation, and a decline in public trust. A Harris Poll in 2006 found that only 31 percent of the public had "a great deal" of confidence in the health care system, and 18 percent reported little or none.

Who's Minding the Store?

One thread seems to run consistently through these sad stories, and that is a lack of oversight. In virtually every case, people knew or suspected what was going on, but failed to act. Furthermore, there seems to have been a truly appalling lack of accountability on the part of many of the malefactors. My favorite example is Richard Scrushy, founder and head of HealthSouth, who, when massive accounting fraud and other problems were revealed, claimed that he was an absentee executive who spent most of his time at his estate in Florida and didn't really know what was going on at the company. He was the CEO, for God's sake!

Hewlett-Packard chairman Patricia Dunn, who had operatives illegally spy on and obtain private information about her fellow trustees, told Congress in 2006 that as a "non-executive" chair, she really didn't know what the people she hired were doing and just trusted that they were following the law and company procedures. She testified that for this reason, she refused to take any personal responsibility for the scandal. She was removed from the board, and was subsequently indicted by the California attorney general.

If these people weren't minding the store, who was?

Another salient aspect of this mess is that those who did the deeds seem to have convinced themselves that they weren't doing anything wrong. The psychology of this self-deception (if, in fact, it is real) is fascinating and offers valuable lessons. Among the excuses:

Everybody's doing it. Apparently the UnitedHealth Group attorney assured the board members, when they were handing out backdated stock options to the now-disgraced billionaire CEO William McGuire, that "everybody is doing it," as though somehow that makes it all right. Everyone might be jumping off a cliff, too.

I earned/deserve this largesse. The social and professional isolation of the captains of industry is legendary; that makes it easier to tell yourself that you work so hard, and the stress is so profound, and you really do a good job, so you deserve several hundred million dollars while you are laying off the janitorial staff and outsourcing tech support to India. Spend a little time with those at the bottom of the food chain and see if they agree.

I didn't know what was going on. This, the argument used by Richard Scrushy and Patricia Dunn, is pathetic. If you are in charge, you make it your business to know what's going on. That's your job.

I want to be No. 1. This would be a laudable goal if first place were tied to high quality, great customer service, long-term return on investment or other high aspirations. Mostly, it's tied to personal income. When Leonard Abramson converted U.S. Healthcare to for-profit status, he was personally rewarded with $1 billion. That set the bar quite high, although several other health care CEOs have approached or achieved that kind of wealth. One is reminded of the famous quote from Henry Tyroon, James Garner's character in the 1963 film The Wheeler-Dealers: "You don't go wheelin' 'n' dealin' for money. You do it for fun. Money's just the way you keep score." (By the way, media mogul Ted Turner has taken credit for this quote, but Garner said it first. And what's a little plagiarism in the face of everything else that's going on?)

We won't get caught. I sometimes think that the worst aspect of the long series of corporate scandals is that many of the culprits got off scot-free or with a slap on the wrist, and even if they are eventually brought to justice, it takes years and years. Some are politically powerful and have ample reason to believe that the wheels of justice will never start rolling. Others can stall indefinitely; at the time of his death, former Enron executive Kenneth Lay was enjoying his mansion in Aspen, having never spent a moment in prison. Miguel Recarey, the politically connected head of International Medical Centers, an early Medicare HMO, looted millions of dollars from his firm and fled the country in 1987; he hasn't been seen since. Or so we are told.

A Few Suggestions

It's all very depressing, and it is even more dispiriting, when we see the stellar sense of responsibility displayed by other leaders. The CEO of one of the country's most-respected rehabilitation hospitals resigned last year because it was discovered that the former CFO had been engaging in accounting irregularities. The CEO was unaware of this, and resigned voluntarily because, he said, he should have known.

Because people must be able to trust their health care system, and because we cannot allow creeps to soil the work of so many honest and ethical people, I would like to offer a few suggestions for maintaining and strengthening leadership ethics in our field.

Be accountable. It is easy to take credit when the sun is shining and life is good. It is much more difficult when you learn of books being cooked or sexual harassment of staff or Medicare fraud. The true leader is accountable for both, and should be so publicly. Whimpering about having spent too much time away on one's tropical estate is not an acceptable excuse.

Be open in your reporting. As the old saying goes, if you have nothing to hide, you have nothing to be afraid of. I have my doubts about some aspects of health care's headlong rush toward "transparency," but I certainly and heartily support true public accounting, financial statements that make sense and are understandable, meaningful reporting of community benefit activities, truthful disclosure to stockholders, and immediate release of information about possible problems. Most of this is mandated by law, but that hasn't stopped the bad guys from lying.

Have competent people doing the oversight. There is nothing easier than manipulating board committee assignments so that the people on key committees have no expertise in that area. It is almost as easy to make sure that certain executive positions are filled by lapdogs. It is also a recipe for disaster. In areas such as quality improvement, credentialing, finance and audit, the people exercising oversight should be bulldogs with 20/20 vision.

Prevent conflicts of interest. Maybe things at UnitedHealth Group would have gone differently if the board members weren't feeding at the same trough as the executive staff. As former Minnesota Sen. Dave Durenberger wrote, "This board was drawn into the same honey-pit as its mentor, Dr. McGuire, and there was no way they were going to stand up to each other." Perhaps the best way to avoid having leaders give in to temptation is to remove the temptation.

Review and enforce ethics standards. Some level of ethics is required by law, by the markets, by The Joint Commission and by several other entities. The problem is that the requirements may be vague, and the standards may not fit the times. It is important that the rules be reviewed regularly for their appropriateness for current circumstances. It is even more important that the rules be enforced; it is worse to have rules that are winked at than to have no rules at all. Learn from the catastrophe in major league baseball: Just because you're a star doesn't mean you get to use steroids and lie to the Congress of the United States.

Use both rewards and penalties. Obviously, if misbehavior is detected, it should be stopped and appropriate penalties assigned. Most health care entities do this. What is less common is celebration of ethical behavior, praise of those who call problems to the attention of the leadership, commendation for those who refuse to take the bait. Leo Greenawalt, president of the Washington State Hospital Association, wrote recently of celebrations that some hospitals hold for employees who report lapses in quality of care; the same should apply to those who have the courage of their convictions, no matter how lowly their place in the organization.

Employ the sniff test. In his best-selling book Blink, Malcolm Gladwell tells us, among many things, that immediate first impressions are usually rational and reliable. The same applies to how one approaches a possible ethics problem. You can analyze it, you can collect data, you can seek advice, you can check the law, you can furrow your brow. But if something smells funny, look deeper. If it walks like a rat, acts like a rat, and smells like a rat, it probably isn't a daisy. If it doesn't pass the sniff test, don't let it go any further.

The great health economist and humanist Uwe Reinhardt, in a piece written for the Wall Street Journal, asked a basic question: "Why should we not demand impeccable honor and decency from absolutely all of the lucky, extraordinarily well-paid executives and their consultants to whom we entrust the management of the nation's resources?" Why not, indeed? That applies to trustees as well. And it all goes double for health care.

First published in Hospitals & Health Networks OnLine, February 6, 2007

Emily Friedman 2007

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