Healthcare Issues & Trends

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Labor Alert: Unions Attack Hospitals on 3 Fronts

Posted on July 14, 2011 by Kevin Haeberie

Employees have grown weary of the economic recession and the resulting minimal pay increases, benefit reductions and even staff reductions.  Labor unions are taking advantage of the declining employee moral and stepping up their battle to regain decades of lost membership, launching a well thought out war plan on three main fronts. 

  1. Long-term organizing strategies aimed at hospitals.  Unions, particularly Service Employees International Union (SEIU) and the new National Nurses United (consisting of the California Nurses Association and others) simply develop a core group of followers and exploit the growing distrust in the workplace by regularly highlighting issues, real or perceived.  When a serious enough action is made by management, like a minimal wage increase announcement or a significant benefit change, the union then bringing all forces of the union to bear on the hospital, including free meals and conferences, dozens of paid union organizers, and well orchestrated demonstrations and political actions.
  2. Pushing the National Labor Relations Board (NLRB) to make procedural changes that result in quicker and more favorable elections for the unions.  This includes shortening the time frame from petition to election to possibly less than ten days, and more importantly, allowing the unions to gerrymander a voting unit to include only those jobs which have a high percentage of employees favorable to the union.  The union’s goal for these procedural changes is simply to get in the door with a small group and then work to expand the bargaining unit later through contract negotiations or additional organizing efforts.  The NLRB is not making any effort to appear even-handed in their decisions, and has even stated that its objective is to increase the number of represented employees in America by making the process easier for unions.  Many healthcare organizations have faced an NLRB that clearly was not open to previously effective legal arguments on the composition of the voting unit or the timing of the election.  In addition, the Department of Labor (DOL) is also preparing to make what appears to be a minor definitional change on what is currently permitted in employer communications and the use of legal and consultative support during a union organizing attempt.  The DOL now wants to require public financial disclosures on the funds used to support any ‘anti-union’ activity, possibly including the time spent by managers talking with employees, as well as any amounts used to gather legal and other professional support.  
  3. Taking a much more aggressive, less flexible, and arguably, unreasonable position in bargaining and striking.   Unions, especially the Nursing Associations, believe hospitals are simply in too weak of a position to take a strike and they also know that employees are more willing to strike than they have been for decades.  This year alone in Boston, a number of hospitals have been faced at the same time with a clear and convincing threat of strike, along with negotiation demands by the union which were orchestrated and in coordination with other hospitals throughout the northeast.  This effort, led by the new National Nurses United and driven by the California Nurses Association, creates a new battlefield in existing contract negotiations.  Hospitals facing these situations need to go beyond just creating a negotiation plan for the bargaining table, to also crafting a communication plan for the employees and education for the managers to ensure enough employees (although represented by a union) remain connected to the hospital and the leadership team, thus diminishing the unions threat of strike. 

Union activity has tripled since last summer and three years from now, 2011 may likely be seen as the calm before the storm.  The unions have declared war on hospitals and their multi-front battle plan is already proving to be effective.  

CEO Compensation at Salinas Valley Memorial Healthcare System

Posted on June 24, 2011 by Eric Reehl

On this blog we will monitor developments in health care executive compensation, as well as media reports on healthcare executive pay.  Recently, newspapers and TV stations in California have focused attention on the compensation of Samuel Downing, the CEO of Salinas Valley Memorial Healthcare System (SVMHS).  SVMHS is a public hospital district in Salinas, California.  The system has 270 beds and had $380M in operating expenses last year. SVMHS is not a client of Integrated Healthcare Strategies and we have no inside knowledge of Downing’s compensation.  However, television and newspaper reports and public documents tell the following story. Downing started working for Salinas Valley in 1972 and became CEO in 1985.  In 2008 he received a “severance payment” of $947,594.  However, Downing did not leave Salinas Valley, but continued on as CEO until 2011.   In 2009, when he turned 65, Downing received $3 million from a supplemental pension plan.  Salinas Valley’s Board then created a new post 65 retirement plan for Downing.  On his retirement this year, Downing received a payment for the post 65 plan of almost $900,000 in addition to his regular pension of $150,000 per year.   After details of Downing’s compensation were reported in the Los Angeles Times, a panel of the California state Assembly requested an audit of SVMHS.  The audit is to be completed by the end of the year.   Over the next few weeks, we will look at several of the issues raised by the investigation of compensation at SVMHS, including severance and supplemental retirement plans.  For more background, you can read the Los Angeles Times articles on Downing’s compensation here, here, and here.

Should Hospital CEOs be Rewarded for Increasing Charitable Care?

Posted on June 21, 2011 by David Bjork

We know how trustees decide how much to pay their CEOs—what factors they consider, and what they want to reward.  So why are professors at the University of Connecticut trying to figure this out through statistical analysis?  And why do they conclude that tax exemptions should be tied to the amount of charity care and community benefit an organization provides?  Jeffrey Kramer and Rexford Santerre, professors at the University of Connecticut, published an interesting study of executive compensation at Connecticut’s hospitals in Inquiry (“Not-for-Profit Hospital CEO Performance and Pay:  Some Evidence from Connecticut,” Fall 2010, pp. 242-251).  The study covers 35 CEOs at 29 hospitals between 1998 and 2006. Hospitals’ pay practices encourage CEOs to fill beds with privately insured patients instead of Medicare, Medicaid or uninsured patients, the authors conclude and, for that reason, question whether hospitals deserve to be tax-exempt.  The question derives from the assumption that tax-exemption is predicated on using what would otherwise be paid as taxes to provide uncompensated care, education, research, and outreach programs, or other community benefits, and the presumption that CEOs should therefore be rewarded more for charitable performance than for economic performance.    Both the assumption and the presumption are wrong.  The IRS long ago changed the rationale for hospitals’ tax-exemption to promotion of health and access to healthcare for the community as a whole.  Regardless, even if tax-exemption were still predicated on providing free care to the poor, that would not mean that CEOs should be rewarded for increasing charity care, bad debt, and losses on Medicare and Medicaid patients.  In exchange for tax-exemption, the authors believe, hospitals should pay CEOs for their success at fulfilling the hospitals’ charitable mission—for increasing charitable care and other community benefits.  They believe that hospitals may instead allow CEOs to maximize the benefits they obtain from being CEOs, since there are no investors to counterbalance the CEOs’ interests.  (Oddly enough, this posits the absurd notion that boards of for-profit firms do a better job governing pay than boards of not-for-profit organizations and the equally absurd notion that shareholders have any ability to constrain executive pay in public companies.)  Previous studies, the authors note, demonstrate that pay for hospital CEOs is determined largely by size of the hospital; that there is little difference in total CEO pay between not-for-profit and for-profit hospitals; that there is no clear relationship between total CEO pay and financial performance at not-for-profit hospitals; and that there is no clear relationship between CEO pay and charitable performance.  None of this is surprising.  It can all be easily explained. Kramer and Santerre undertook their study “to sort out the precise relationship” between pay and performance.  They developed a model to determine whether pay is more closely related to charitable performance or to economic performance.  They decided to use number of staffed beds and the number of major procedures (CAT, MRI, linear accelerator procedures, and cardiac catheterization procedures) per FTE employee as the indicators of hospital size; operating margin and occupancy rate as indicators of economic performance; and uncompensated care (charity care and bad debt) and Medicare and Medicaid reimbursement, as a percent of operating revenues, as indicators of charitable performance. Their statistical analysis shows that CEO pay is proportional to the number of staffed beds and the occupancy rate, affected only modestly by the intensity of clinical procedures, barely affected by operating margin, slightly reduced by increases in charity care, and significantly reduced by increases in Medicare and Medicaid volume.  The authors deduce from this that “not-for-profit hospital CEOs, at least in Connecticut, are motivated by pay incentives to increase the occupancy of privately insured patients at the expense of uncompensated care and public-pay patients”; that “economic performance takes precedence over charitable performance”; that “not-for-profit hospital CEOs may face the . . . incentive to cherry-pick additional privately insured patients and ignore community benefits at the margin.”   What a lot of work to identify what any trustee could have told the professors!   A few brief interviews with the conscientious trustees who determine executive pay could have told them a lot more, of course.  They would have told the professors that of course they and their CEOs prefer privately insured patients, because they lose money on Medicare and Medicaid and on uninsured patients.  They would eventually go bankrupt if the balance between privately insured patients and Medicare, Medicaid and uninsured patients got out of kilter.  Hospitals couldn’t maintain their mission, they would say, if they preferred and pursued money-losing cases.  The idea that they should incent or reward CEOs for increasing uncompensated care or Medicaid volume is preposterous and irresponsible.  Then the trustees would explain how they determine CEO’s pay.  First they choose a peer group; then decide whether to pay at median, or higher, and decide how much pay to put at risk. They reward good performance, they would say, on clinical quality, patient satisfaction, cost-effectiveness, and operating margin—not occupancy, not unreimbursed care, and not Medicare or Medicaid volume.  Yes, they would admit that size and complexity are the principal determinants of pay; but they measure size by revenue and operating expenses, not by staffed beds, since so much of their business is now outpatient care; and they wouldn’t consider intentionally increasing or decreasing pay in relation to uncompensated care or Medicare or Medicaid volume.    If Kramer and Santerre then asked a consultant how trustees determine CEO pay, they would say the same thing, except that a consultant would have explained that a study that ignores the boards’ intentions (as expressed in their compensation philosophy), the difference between independent and subsidiary hospitals, and distance from Manhattan couldn’t possibly begin to give an accurate explanation of CEO pay. Their study isn’t very informative.  CEO pay is determined largely on the basis of size, the same as it is in any industry, and size is measured by revenues (or expenses), since that is the best way to measure the total volume and value of services provided.  CEOs are paid to keep their institutions afloat, under circumstances that make this difficult: Americans expect unlimited access to the best possible care, nurses want higher pay and higher staffing levels, and doctors want hospitals to pay for the newest (and most expensive) technology and drugs, while employers and insurers, Congress and the states want to pay as little as possible.  Trustees pay CEOs to manage the hospitals’ business as well as possible and reward them for the very things Americans want from hospitals—patient safety, clinical quality, attentive service, and cost-effectiveness.

Meet our bloggers

Posted on May 20, 2011 by Gallagher Integrated

Welcome to the IHStrategies blog!  We are excited to join the blogosphere and share our healthcare management insights, tips, and knowledge.  We'd like to introduce you to our regular contributors:

  David A. Bjork - Executive Compensation expert

  Eric Reehl - Executive Compensation expert

  Kevin Haeberle - Employee Engagement and Labor Relations

  Jim Rice - Governance and Leadership expert

Past Posts