A Motley Crew Formerly Known as the Leaders of UnitedHealth

There has been an interesting confluence of news stories lately that dealt directly or indirectly with the leadership of the US largest for-profit health insurance/ managed care corporation, the UnitedHealth Group (UHG).

UHG has not always been known for being particularly patient-, employer-, or physician-friendly. For example, as reported by the Hartford Courant, "UnitedHealth Group Inc., the largest U.S. health insurer, will refund $50 million to small businesses that New York state officials said were overcharged in 2006."

We have previously discussed how UHG promised its investors it would continue to raise premiums, even if that priced increasing numbers of people out of its policies (see post here); allegations that the UHG acquisition of Pacificare in California lead to a "meltdown" of its claims paying mechanisms (see post here); charges that the UHG acquisition of Sierra Health Services would give it a monopoly in Utah, and that UHG was transferring much of its revenue out of the state of Rhode Island, rather than using it to pay claims (see post here); and numerous violations of Nebraska insurance laws by UHG (see post here).

Such anecdotes conflict with the UHG mission statement, as recently revised. The company pledged to:

* Enhance the performance of the health care system, and improve the overall health and well-being of the people we serve and their communities.
* Work with health care professionals to expand access to high-quality health care so people get the care they need at an affordable price.
* Support the physician/patient relationship and empower people with the information, guidance and tools they need to make personal health choices and decisions.

One hypothesis is that UHG has trouble adhering to its idealistic mission because of the shortcomings of its leadership.

The story of the fall of its recent CEO, Dr William McGuire, was strikingly instructive. As we have previously discussed, (see these posts here, here, and here from 2006 with links backward) Dr McGuire received outrageously lavish remuneration, which stood in stark contrast to the previous UHG mission's pledge to "make health care more affordable."

Controversy has swirled over the timing of huge stock option grants given to Dr McGuire (see post here), leading to his resignation in October, 2006 (see post here). More recently, McGuire agreed to pay back some of those options, although that would reportedly leave him with more than $800 million worth of options (see post here).

This month, Dr McGuire unveiled his defense of the stock options he received, according to the Minneapolis Star-Tribune,

A stock-option scandal cost Dr. William McGuire one of the top health care jobs in the nation. Now he says he was simply following the questionable advice of his top legal and financial advisers.

McGuire's lawyers are expected to argue later this month that the former CEO of UnitedHealth Group relied on others to assess the legality and appropriateness of backdated stock options granted to top executives and new hires.

McGuire says he did not know that the options, which were backdated to times when the stock price was lower to maximize gains, were incorrectly recorded in company books.

'Dr. McGuire has no formal training or degrees in finance, accounting or law,' the brief states. 'His only professional training is as a medical doctor with a specialty in pulmonology.'

Thus, Dr McGuire, who ultimately collected more than a billion dollars to run the country's largest for-profit managed care corporation, claims he was just a country "medical doctor," who knew little about finance, accounting or law. Then why in the world did the company hire him for any post higher than local medical director? If we take Dr McGuire's lawyers at their word - which perhaps we should not - McGuire was foolish to accept such a responsible position, and the company's board must have been even more foolish to hire him.

So what of the board members who supported just a "medical doctor," who now claims he knew little about finance or accounting, as CEO of the country's biggest health care insurer?

We had previously posted about one board member, who was particularly uncritical in her praise of Dr McGuire. This was Mary Mundinger, whose day job is Dean of the School of Nursing of Columbia University. A 2006 Pulitzer Prize winning article in the Wall Street Journal quoted her thus, "We're so lucky to have Bill. He's brilliant." Dr Mundinger's support of McGuire lead Institutional Shareholder Services (ISS) Inc. and Proxy Governance Inc, to suggest that institutional investors withhold votes for her in the 2006 board election (see post here.)

To make things even more complex, Mundinger also is a member of the boards of directors of Gentiva Health Services, and Cell Therapeutics Inc. Gentiva Health Services provides home care services. Cell Therapeutics Inc is a biotechnology company that develops cancer treatments. Dr Mundinger's duty to the stockholders of UGH conflicts with her duties to the stockholders of these two companies. Their companies' interests, to maximize profits from home care services, and to maximize profits from cancer treatments, conflict with the interests of the UnitedHealth Group to minimize what it spends paying for these services and treatments.

Recent news items indirectly raised questions about two other board members who served through 2007 (see the UHG 2007 proxy statement for its roster of board members), and who thus supported a supposedly uninformed "medical doctor" as UnitedHealth Group CEO.

One was James A. Johnson, who was just forced to resign as a member of the committee which was vetting potential candidates for the US Vice Presidency for Senator Barack Obama. The New York Times reported thus about Mr Johnson's tenure on the UHG board,

Mr. Johnson served on the boards of a number of corporations that were at the center of a furor over excessive executive compensation, a subject that has been not only a campaign cause for Mr. Obama but also the subject of major legislation he introduced in the Senate to rein in such high-dollar pay packages. Mr. Obama’s 'Say on Pay' legislation calls for greater shareholder oversight of executive compensation.

Perhaps the best-known case was Mr. Johnson’s board seat at UnitedHealthcare, a Minneapolis company where he headed the compensation committee. In that position, he oversaw and approved executive pay packages that have since come under fire, even becoming symbols of corporate excess and greed.

In addition, the Times reported other reasons to question Mr Johnson's judgment,

As chief executive of Fannie Mae, the government-sponsored organization that guarantees mortgages for millions of homeowners, Mr. Johnson earned a lucrative paycheck, even by private-sector standards. In 1998 alone, he earned $21 million, according an analysis by federal regulators.

After Mr. Johnson left in 1998, Fannie Mae was caught up in an accounting scandal in which federal regulators found that the company had manipulated its earnings to provide large bonuses for Fannie Mae executives.

While Mr. Johnson was not implicated in the accounting scandal, federal regulators said he had created a culture of arrogance at the company that contributed to its fall from grace.

In Mr. Johnson’s tenure at Fannie Mae, he became close to Countrywide, the hobbled mortgage lender now at the center of the subprime mortgage crisis. Countrywide was Fannie Mae’s largest mortgage provider, which brought Mr. Johnson into contact with Angelo R. Mozilo, Countrywide’s chief executive.

Through that relationship, Mr. Johnson received three home mortgages totaling at least $2 million at rates that appear to be lower than the prevailing mortgage rates at the time. When the story about the personal mortgages broke in The Wall Street Journal last weekend, Mr. Johnson’s business relationships began to draw greater scrutiny.

It's interesting that the Times included this aside about why Mr Johnson's actions had not previously received scrutiny,

In years past, Mr. Johnson’s ties hardly raised an eyebrow. But a combination of the ethical standards that Mr. Obama set for his campaign and an explosion of readily available information on the Internet contributed to the controversy.

Another past UHG board member was Donna Shalala, current President of the University of Miami, and former Secretary of Health and Human Services in the Clinton administration. Somewhat improbably, Shalala was nominated by current President George W Bush for the Medal of Freedom. This resurrected criticism of Ms Shalala's support of restrictions on free speech and political association in academia. A post on The Torch blog on the web-site of FIRE (the Foundation for Individual Rights in Education) noted:

We at FIRE do not take a position on whether someone deserves such an award, which can be based on a lifetime of service and achievements that are unrelated to individual rights. But in the area of individual rights, we remember Shalala for her role in two cases, FIRE's case at the University of Miami (where a conservative student group was not allowed recognition simply because it was conservative) and a speech code case at the University of Wisconsin prior to FIRE's founding. Alan Charles Kors wrote on the Wisconsin case in 1999.

The Torch also quoted an article by John Leo,

As chancellor of the University of Wisconsin in the late eighties, [Shalala] proved a fervent early advocate of campus speech restrictions. Though Shalala occasionally praised free speech, she and her team imposed not only a full-fledged student speech code, later struck down in federal court, but also a faculty code [that] was a primitive, totalitarian horror. Professors found themselves under investigation, sometimes for months, without a chance to defend themselves or even to know about the secret proceedings. One female professor said: 'It was like being put in prison for no reason. I had no idea what it was that I was supposed to have done.'

To summarize, UnitedHealth Group was previously lead by CEO who received more than a billion dollars in compensation, partially in the form of back-dated stock options. At least one of his board members proclaimed his brilliance, but now, through his lawyers, he argues that he was no more than a "medical doctor," with no training or expertise in financial matters. That board member also served on boards of companies whose interests conflict with UHG. Another member of the UnitedHealth board was cited for creating a "culture of arrogance," and apparently received questionably favorable treatment from a company at the center of the sub-prime mortgage crisis. Yet another board member sponsored what was called a "totalitarian horror" of repression on a university campus.

Why did such a motley crew lead the biggest health insurer in the US? One can only shake one's head in bewilderment. Perhaps the particular assemblage was due to allegiance members of the power elite, now called the "superclass," feel to each other even if such allegiances contradict more conventional affiliations. This might explain some of the anomalies in the stories above: a former corporate CEO and member of multiple corporate boards picked by a liberal Democratic presidential candidate to vet vice presidential prospects; a liberal "queen of PC" selected by a conservative Republican President for a Medal of Freedom?

In any event, this sort of leadership seems bound to produce overpriced, inaccessible, poor quality health care delivered by demoralized professionals. If we really want reasonably priced, accessible, high-quality care that respects professional values, we will need to find dedicated, unconflicted leaders who understand the health care context and the values that support it.