"Say on Pay" Legislation: Giving Patients a Say on CEO Pay

Warren Buffet once described the cost of health insurance mandates as "a hungry tapeworm on the American economy."  He was right.

Health care inflation continues to exceed the base inflation rate.  Health insurer CEO compensation has ballooned out of control --in 2017, Cigna CEO David Cordani took home $43.9 million, Humana CEO Bruce Broussard made $34.2 million, and Aetna CEO Mark Bertolini earned nearly $59 million. That’s approximately $162,000 per day.  Seven years after the Affordable Care Act created an insurance windfall, earnings at the 70 largest U.S. health care companies reached $9.8 billion cumulatively. 

When people like you and I are paying high insurance premiums, shouldn’t we get some say in how the money is spent?   

Local legislators, Michelle Caldier, a Port Orchard Republican, and Sherry Appleton, a Poulsbo Democrat, joined by Reps. Eileen Cody (D-West Seattle), Laurie Jinkins (D-Tacoma), Shelley Kloba (D-Kirkland), and Nicole Macri (D-Seattle) agree that people should have a voice in this process.  To that end, they have co-sponsored House Bill 1017, which is intended to regulate the salaries of nonprofit health carriers, defined as health maintenance organizations, insurers, health care service contractors, or other entities responsible for the provision of healthcare services. 

“Say on Pay” legislation would require any non-profit insurer to assemble a panel made up of 10 health plan enrollees chosen at random.  The enrollee panel would be tasked with setting the compensation and benefits package of the board of directors’ members and approving the salaries of those executive employees receiving the top five highest levels of pay and benefits.  Each enrollee on the taskforce would serve a one-year term with a two-term maximum.  

Inflated CEO compensation has many negative consequences for the typical American worker. According to the Economic Policy Institute (EPI), a non-profit economic think tank, the gap between CEO compensation and that of workers has never been greater than it is today.  In 1965, the CEO-to-worker compensation ratio was 20-to-1, by 1989, the CEO-to-worker compensation ratio had grown to 58-to-1 and in 2017, the CEO-to-worker compensation ratio is 312-to-1. 

Economists Josh Bivens and Lawrence Mishel, writing for the American Economics Association, found that the substantial income gains at the very top are a significant impediment to increases in the standard of living for low- and moderate-income households.  The Economic Policy Institute endorses reducing incentives for CEO’s and corporate executives to extract economic concessions while preserving the economy overall. 

The two best methods are by increasing taxes on CEO compensation and corporations with higher CEO-to-worker ratios or instituting a “say on pay” policy, allowing shareholders (or beneficiaries) to control compensation and benefits for the CEO and other top executives. 

“Say on Pay” legislation would empower beneficiaries and patients to hold their health carriers accountable for building and maintaining a “patient-centered” health organization more focused on value of the services provided than volume.   Patients would benefit from interventions that would reduce the price of care, limit unnecessary tests or procedures, and prioritize care coordination.  

Annual healthcare spending in the US reached $3.5 trillion last year – 17.9% of the GDP -- almost double per capita spending of other developed nations. According to the Kaiser Family Foundation, most recent growth in health expenditures is due to insurance program spending, both private and public. Private insurance expenditures represent 34% of total costs (up from 21% in 1970), and public insurance --including Medicare, Medicaid, CHIP, and the VA Health Systems – represent 41% of overall health spending in 2017 (up from 22% in 1970).  In comparison, hospital costs account for 33% and physicians’ services are only 8% of health care expenditures.

CEO compensation is closely tied to stock price; therefore, executives prefer focusing on methods to generate higher earnings per share.  Dr. J. Mario Molina, the CEO of Molina Healthcare – a Washington Apple Health Medicaid plan based in California-- was fired in May 2017 due to lackluster company performance, yet still pocketed $17 million that year and received almost $23 million in severance pay.  His brother John C. Molina, former CFO, also fired in May 2017, received $10.7 million in severance.  Despite coughing up $50 million, Molina had enough money to hire Joseph Zubretsky in November 2017 as CEO and pay him $19.7 million for two months’ work. 

Health care expenditures will continue to climb if pay packages for health insurance executives don’t provide incentives to control health care costs.   Health insurers should not be rewarded for higher stock prices and better profit margins.  Supporting HB 1017 will give consumers an opportunity to hold insurers accountable,  improving access to healthcare services for everyone.

Medicaid Expansion: Nothing But an Empty Promise for Children

Recently, a child was on a waitlist for five months to get into my practice. For this article, I will call him Tiny Tim.

Tiny Tim, now 5 years old, has a skin condition known as eczema or atopic dermatitis. When we first met, virtuously every area of his body was covered with wounds from constant scratching. Skin that breaks easily and heals poorly can give bacteria access to other parts of the body.  After our first visit his mother complied with all the necessary care and his condition was slowly improving.

But on a weekend day in December Tim was rushed to an urgent care center, with a fever and pain in his ankle. He had no history of injury and the blood work, at first glance, indicated only mild infection.  He was diagnosed with a virus and sent home.  Two days later his fever spiked to 103 degrees and he refused to walk, insisting on being carried everywhere, so his mother brought him to my office.

He looked sick. Here was a usually defiant boy whose expression telegraphed fear and pain. On examination, his ankle was warm and swollen; he nearly jumped off the table when I flexed his joint.  Having eczema increased his risk of developing a joint infection and additional bloodwork supported the presence of a serious bacterial infection. 

Today, despite advances in antibiotics and surgical treatment, significant joint destruction can occur in children if infection is not caught early. It can lead to life-threatening complications and even death.  Within hours, he was admitted to Seattle Children’s Hospital and operated on the following morning. By the end of the month, he was skipping into my office as if nothing ever happened, if not for the IV line in his arm delivering daily antibiotics at home. 

I remember wishing there had been space in my practice earlier than the five-month mark. But Tiny Tim is on the state’s Apple Health plan, which is Washington’s Medicaid option for children, and providers can realistically only accept a certain number of those patients. He faced a delay that points to a serious flaw in the good intentions of the Medicaid expansion for children.

For the first time in a decade, the number of uninsured children in the United States increased in 2018.  Apple Health seemed like the quintessential success story because it expanded Medicaid coverage for children — in Kitsap County alone, the number enrolled grew from 9,000 to over 21,000 in the last 10 years. However, Medicaid reimbursement also decreased by more than 35 percent, after a federal provision that kept Medicaid payments on par with Medicare expired in 2015.  Some states set aside funding to maintain rates equal to those of Medicare, but Washington was not one of them. 

Medicaid reimbursement is set at two-thirds the rate of Medicare, forcing many physicians to limit the number of children they treat on Medicaid to keep their doors open. Physician costs amount to just 8 percent of all healthcare expenditures, a small slice of the healthcare pie. Every day, physicians are retiring early or closing their doors; those who remain on the front lines have more patients than the capacity to manage. 

Sarah Rafton, the executive director of the Washington Chapter American Academy of Pediatrics (WCAAP), calls Medicaid expansion “a hollow promise.”  She told the Columbian newspaper of Vancouver, “This isn’t about doctors who… want to make a lot of money. If half of your potential patients are on Medicaid, it becomes difficult to sustain your practice.” To my dismay, I have to limit the number of Medicaid patients in my own practice. 

Tiny Tim received timely, high quality pediatric primary and specialty care. He deserved nothing less.  Children like him need health care funding parity so primary care physicians can afford to stay in business. But the Washington State Legislature has been loath to fund health care for children on Medicaid. Getting access to high quality healthcare can seem akin to winning the lottery. 

Last year, Rep. Monica Stonier (D-Vancouver) introduced a bill aimed at increasing reimbursement rates for treating children and pregnant women. Local Reps. Sherry Appleton (D) and Michelle Caldier (R) were co-sponsors. The bill got a hearing but died in committee. The “Medicaid parity bill” has been reintroduced for the session that opens this coming week, calling for $80 million in state funding to raise Medicaid reimbursement to that of Medicare, $30 million of which would be designated for pediatric primary care.

When Medicare rates are already considered the “bottom line,” why is Medicaid reimbursement below sustainability? Who will care for children like Tiny Tim if basic medical care for children remains underfunded? As we open a new year, please think about children like Tiny Tim and the 840,000 other children also enrolled in Apple Health of Washington. And then contact your local representatives and encourage them to support legislation to bring reimbursement up to the Medicare equivalent. 

Can CEO's Dean and Lofton Perform A Miracle through the CommonSpirit Health Merger?

Last week the community learned that exterior work on the Harrison Medical Center expansion project in Silverdale will slow down for an unspecified period of time and interior work will temporarily be deferred. In the face of reduced revenue due to increasing labor costs coupled with lower insurance reimbursement, CHI Franciscan likely had no other choice. The parent corporation, Colorado-based Catholic Health Initiatives, has made budget adjustments in order to remain financially solvent. 

CHI Franciscan is not alone in their struggle for solvency. Moody's Investors Service recently issued a negative outlook on the nonprofit healthcare and hospital sector for 2019. The change in rating from "stable" to "negative" reflects Moody's prediction that operating cash flow will either remain flat or decline by as much as 1 percent and bad debt will increase this year. Moody’s predicts expenses will outpace revenue due to workforce issues, including the ongoing need for temporary nurses and continued recruitment of employed physicians. 

Nonprofit hospitals, in general, are facing challenging times. And that challenge is going to reverberate through our county, whether that means a major facility on a new construction timeline or further corporate creativity to reduce health care costs.

To that end, a year ago Catholic Health Initiatives and Dignity Health signed a formal agreement to join “ministries” and create a $28 billion health system giant with more than 700 facilities across 28 states. The merger is expected to be finalized by the end of the year. After receiving approval from the Federal Trade Commission and the Vatican, the newly combined organization — which becomes the largest non-profit hospital system in the country — will be known as CommonSpirit Health.

The new moniker reflects both the entity’s faith-based mission and the essence of those providing care to patients. According to CHI CEO Kevin Lofton, “We appreciate how the manifestation of the Spirit is woven into so many messages – God’s gift of compassion, the calling to heal others and the serving the common good. Each comes together and is reflected in just one powerful word, CommonSpirit.” 

While “common” doesn’t seem all that powerful to me, the fundamental question is whether merging two non-profit healthcare giants will boost the financial outlook for the newly combined corporation. 

At one time, Dignity executives had expressed concern over CHI’s financial performance and heavy debt load. But there was little reticence in the remarks of CEO Lloyd Dean, who recently said, “we remain steadfast in the belief that we can deliver a bold new health care enterprise of the future through our alignment with Catholic Healthcare Initiatives.”

His confidence in mergers may be based on financial statements, though revenue and expense isn’t always a safe forecast of what’s coming next. 

For example, acute admissions and outpatient visits declined 5 percent from 2017 to 2018 for CHI, yet the company’s operating loss fell during that time period, from $593 million to $276 million. It stands to reason in the face of reduced revenue, they accomplished this feat by cutting costs, including labor, benefits, supplies and other overhead expenditures. 

Dignity Health, a San Francisco-based system, looks formidable on paper, posting a net income of $988 million in fiscal year 2018, up from $425 million in 2017.  However, these numbers were boosted by a backlog in the California Provider Fees, which generated $447 million for 2018 and an additional $217 million in “catch-up” revenue from 2017. A quirky twist via the U.S. HealthWorks merger, an urgent care and occupational medicine subsidiary, garnered a one-time cash influx of $500 million plus a $120 million bonus on top of that. 

Sounds like a solid financial base for the new company. However, the regulatory burden of hospital consolidation can be costly and can leave open questions like the one Kitsap consumers may rightfully be asking about Harrison’s future. 

The California Attorney General made merger approval contingent on a number of charity care requirements, including creation of a program for homeless healthcare initiative and implementing a 100 percent discount to patients who earn up to 250 percent of the federal poverty level. CommonSpirit Health will invest $20 million over six years toward the homeless healthcare program alone, that will serve 30 communities in California where Dignity Health operates hospitals. How will these financial commitments in California affect future decisions nationwide if expenses must be reduced? 

Loften, the CHI CEO, recently told the Denver Business Journal, “If we do our jobs right, we won’t look like a hospital company. We still will have hospitals, but there will be fewer people in them.” But CommonSpirit Health is a hospital company, at least, for now. 

There’s little doubt Harrison and CHI will retain their footprint in Kitsap, but hospital mergers around the country haven’t always demonstrated that having more facilities under a common name bolsters the bottom line. Who knows what that will mean for a patient’s healthcare options in Kitsap County into the future, and for the health of our lone hospital.