Monday, March 21, 2011

Insurance Executive Compensation and Medical Ethics

The uproar in Massachusetts about the golden parachute given to the former Blue Cross Blue Shield CEO that I posted about two weeks ago refuses to go away, as evidenced by the first two paragraphs in a front page story in yesterday's Boston Globe:
The doctor was angry. Not long after Blue Cross Blue Shield of Massachusetts urged him and other health care providers to keep their costs down, the insurer this month disclosed it had agreed to an $11 million payout for its former chief executive. In a terse voicemail, the physician told Blue Cross: You have a credibility problem.

It was the kind of call Andrew Dreyfus expected. Hired as chief executive of Blue Cross last fall, Dreyfus has been championing affordability — prodding payers and providers to work together to rein in the price of medical care following years of double-digit insurance premium increases. Then came the uproar over millions of dollars collected by his predecessor, Cleve L. Killingsworth, and headlines about five-figure annual fees paid to board members. Suddenly, the talk about lowering health care costs rang hollow.
The doctor was right!

The issue isn't dollars and cents economics. By my back of the envelope calculation, if the top 50 executives at Massachusetts Blue Cross Blue Shield worked for free and received only a handshake on retiring, there would be no visible impact on the cost of insurance for members and employers.

What's at stake is the challenge of integrating the two fundamental values a health system must serve: fidelity to the needs of individual patients and stewardship of society's resources to allow access to health care for all.

When one group (clinicians) is charged with protecting fidelity, and another (insurers) is charged with protecting stewardship, human nature and group psychology inevitably leads to mutual suspicion. Clinicians can see insurers as "uncaring bean counters." Insurers can see clinicians as narcissists who feel entitled to spend other people's money in an unchecked manner. In the 1990s, these reactions ran amok, leading to the demise of managed care.

Tension between those who are directly responsible for patient care and those who are directly responsible for stewardship of collective funds isn't peculiar to the United States. I observed the same tension in England between clinicians and the National Health Service. The tension arises from a classical good v good conflict. It is good to care about patients and to seek to do everything possible for them (fidelity). And it is good to care about containing health care costs so that individuals and society have the wherewithal to address other important areas of life (stewardship). As important as health care is, individuals and societies have other interests as well!

For us to get a grip on health care costs, insurers - no matter whether they are private or public, for profit or not for profit - must be able to work collaboratively with clinicians. For this to happen, they have to be seen as understanding and caring about core clinical values. Appearance counts for a lot. An $11 million golden parachute to a departing CEO and high compensation for a board of directors will lead many clinicians and patients to see insurers as "uncaring bean counters" even if Albert Schweitzer or Mother Theresa is in charge of the organization!


Roy M. Poses MD said...

Albert Schweitzer and Mother Theresa never would have accepted compensation remotely that large.

The issue is not how much money gets drained out of the insurance company in the form of executive compensation.

The issue is what sort of incentives the compensation creates. Executives attracted by the possibility of making millions are not likely to be good at stewardship in the sense you use the word. Furthermore, a company that offers millions to its hired executives is likely to make those millions contingent on a style of leadership that is not conducive to good stewardship.


Jim Sabin said...

Hi Roy

Great to hear from you. As always, your perspective is illuminating.

I hadn't thought of the correlation you suggest between the offer of a very high (by health care standards) salary and the desired leadership style. I think you're probably right.

But I think that even if a CEO is guided by excellent ethical standards, the tradeoffs required in meeting patient needs and staying within a budget create enough tension so that mega million compensation will elicit distrust and alienation.

When I was Associate Medical Director of the not for profit Harvard Community Health Plan HMO in the 1980s, we paid folks in positions like mine a relatively small stipend on top of our regular clinical salary. Our rationale for doing that was to maintain group solidarity, not primarily to save the dollars.



Anonymous said...

I work for a health insurer so I was really caught by your comment that:
my back of the envelope calculation, if the top 50 executives at Massachusetts Blue Cross Blue Shield worked for free and received only a handshake on retiring, there would be no visible impact on the cost of insurance for members and employers.

But you are right that we cannot get this message across about the relative costs of health care vs. compensation when people don't trust our ethics even as nonprofits.

Consumer groups hype the compensation because it's easier than tackling the sheer scope of medical spending.

Who will people believe? That will determine whether we get real reform that reduces spending and improves quality while covering everyone, or "insurance" reform that does nothing about costs.

Your "no margin no mission" is true for nonprofit insurers, too -- it doesn't work to pay more in claims than we collect in premiums.

Jim Sabin said...

Dear Anonymous -

I'm sorry for the delay in posting your comment and responding to it - I was in Hawaii for two excellent weeks and am now in DC for a meeting.

I agree that consumers (and others) can use the fact of executive compensation to avoid coming to grips with the real drivers of health costs. But that said, I think there's an unavoidable problem when a hard working nurse or primary care physician who is barely making a middle class income looks at the income of the CEO of their hospital or of the insurer they are haggling with. It adds to the "us versus them" feeling that is such a common component of our human natures.

I'm not a scholar of the sociological and economic literature on income equity, but what I've read persuades me that it's "healthier" for a society to have less income discepancy/more income equity than we have in the U.S.

But you're definitely correct that executive compensation is a very minor part of the cause of our runaway costs.