It’s become a national pastime to bash Wall Street’s lavish pay packages, but as we enter the vortex of another health-care showdown, consider these overlooked facts: With median annual compensation of more than $12.4 million, C.E.O.’s at the big health-care companies make two-thirds more than their counterparts in finance and are the highest paid of any industry. The health-care industry’s total annual profit has grown to an estimated $200 billion, and it doled out nearly $170 million in campaign contributions in 2007 and 2008. It now spends more than any other industry lobbying the federal government—$3.5 billion over the past decade and a record $263 million in the first six months of this year. That’s six lobbyists and nearly half a million dollars for each member of Congress. It’s been a good year on K Street, too.
It should come as no surprise, then, that we spend 17 percent of our G.D.P. and more than $7,500 per American per year on health care. That’s 50% more than any other industrialized nation. Meanwhile, the quality of care we get in return has fallen to embarrassing lows. According to the World Health Organization, our health-care system ranks 37th in overall quality and fairness, placing us between Costa Rica and Slovenia. We rank 41st in infant-mortality rates, alongside Slovakia and Serbia, and dead last among 19 leading industrialized countries in preventable deaths. Nearly two-thirds of personal bankruptcies in the U.S. are caused by illness, yet more than three-quarters of those people actually had health insurance when they fell ill. In other words, we’re all getting ripped off.
Gambling investors’ money on exotic securities in pursuit of outsize returns may be a dubious profit model, but what could be worse than the health-insurance industry’s core model: screwing sick people to boost margins. President Obama has taken aim at big health-insurance companies and their “record profits.” While it’s true they’ve managed to more than triple their profits over the last eight years, they’ve still only lifted their average margin to 3.4 percent, enough to place 87th out of 215 industries. But they shouldn’t be complaining about lackluster profits when they’re paying their C.E.O.’s and executives as extravagantly as they are. Dishing out this much scratch, it’s a wonder they’re making any profits at all: Aetna C.E.O. Ronald Williams has helped purge millions of members from the company’s rolls; his total annual compensation in 2008 was $24,300,112. Angela Braly, who has promised that WellPoint “will not sacrifice profitability,” also saw a raise, to $9,844,212. Cigna’s Edward Hanway saw his pay cut in half and still hauled in $12,236,740, but he was forced to manage a major P.R. crisis after the company initially refused to approve a liver transplant for a 17-year-old girl, which it said was “outside the scope of the plan’s coverage.” She died just hours after Cigna changed its mind and decided it would pay for a new liver after all. Despite a 75 percent pay drop in 2008, cutting him down to a humiliating $3,241,042, UnitedHealth Group’s Stephen Hemsley put on a brave face for Congress, assuring legislators: “Our mission at UnitedHealth Group is to help people live healthier lives.” UnitedHealth has been fined tens of millions of dollars for claims-processing violations (i.e., stiffing patients and doctors). Hemsley’s predecessor, William McGuire, resigned amid a stock-options backdating scandal in 2006. He still walked away with nearly half a billion dollars in stock options. Hemsley surrendered $190 million in options himself, but with $744,232,068 left over, he should be fine.
Even C.E.O.’s at “not-for-profit” insurance companies (like most state Blue Cross and Blue Shields) collect multi-million-dollar compensation packages, even as their companies pay little in the way of taxes. Blue Cross of Massachusetts’s C.E.O., Cleve Killingsworth, got a 26 percent raise in 2008, to $3.5 million, and Blue Cross of North Carolina’s C.E.O., Bob Greczyn, pulled down nearly $4 million after a 19 percent raise. Gail Boudreaux left Blue Cross of Illinois in December 2007 with $15.3 million. The not-for-profits can be just as freewheeling with expense accounts. In early September, a state audit found that Blue Cross of North Dakota used premiums to pay for a $238,000 sales managers’ retreat in the Cayman Islands and a $34,814 retirement party for an executive.
The bottom line for health-insurance companies is that things like new livers really eat into profits. But it’s not just the expensive life-and-death stuff they’re rejecting. While health-insurance premiums have more than doubled in the past decade, a recent study by the California Nurses Association found that the six biggest insurers in California denied an average of 21 percent of all claims in the first half of 2009, with PacifiCare denying an astonishing 39.6%. The nurses were able to conduct their study, the first of its kind, only because California requires insurance companies to provide detailed records of claims denials. (It’s the only state with such a mandate.)
On August 17, Representative Henry Waxman sent out a letter to 52 health-insurance companies asking for revenue and profit figures over the past five years, a list of employees making more than $500,000 a year, and an itemization of expenses for “all conferences, retreats, or other events held outside company facilities” since 2007. The deadline for responses was September 14. When the details are released, we can expect a collective gasp.
The companies that manage hospitals post annual average profit margins of 5 percent, slightly better than the insurers. Hospital Corporation of America, founded by former senator Bill Frist’s father and brother, saw revenues climb 23 percent, to $28 billion, in 2008 with a tidy (if comparatively tiny) profit of $673 million. The Nashville-based company is doing better in 2009, doubling second-quarter revenue over last year. Back in 2002, H.C.A. paid $1.7 billion in fines to settle charges of Medicare and Medicaid fraud, the biggest settlement for an individual corporation in U.S. history at the time. And now H.C.A., whose outgoing chairman, Jack Bovender, made $6.87 million in 2007 and reportedly rides around Nashville in a cherry-red Ferrari, is fighting a class-action lawsuit alleging that “systematic understaffing” at H.C.A. facilities endangered patients.
Tenet Healthcare’s rap sheet is equally impressive. In 1994 the company settled with the government for $362 million after allegedly holding patients at psychiatric hospitals against their will and paying bribes and kickbacks for patient referrals. In 2006 it agreed to pay the government $900 million to settle charges it had bilked a billion dollars from a special Medicare fund by marking up its prices 477 percent over actual costs. While it’s been a turbulent ride for Tenet’s shareholders lately, C.E.O. Trevor Fetter is still allowed 75 hours’ worth of personal use of the company jet each year and pulled down a cool $9.7 million in 2008.
HealthSouth’s Richard Scrushy used to throw garish fêtes on his 92-foot yacht, the Chez Soiree, and was worth an estimated $300 million at the peak of the party. He’s now serving an 82-month sentence for bribery, conspiracy, and mail fraud; in June, he was ordered to pay $2.87 billion in damages to shareholders. “I have no interest in having money,” Scrushy told the judge when pleading for leniency at his sentencing. “I’m just a pastor.” HealthSouth lawyers are still trying to seize the Chez Soiree, now dry-docked in Florida.
The $50 billion medical-lab-testing sector’s average profit margin is a healthy 8.2 percent, putting it just above restaurants and below oil and gas equipment and services. The mother of all lab-test companies, Quest Diagnostics, earned a 9.1 percent margin during the last year, just a hair behind Exxon Mobil. In April, Quest settled with the Justice Department for $302 million for misbranding one of its tests, the Nichols Advantage Chemiluminescence Intact Parathyroid Hormone Immunoassay. (With names like these, they could just as well charge you for their afternoon coffee and call it Post Meridien Genera Coffea Robusta on your bill.) Despite the fine, Quest’s revenues were up 3.5 percent in the second quarter of 2009, to $1.9 billion, and its C.E.O., Surya Mohapatra, pulled down $11,964,632 in compensation last year.
In March, California attorney general Jerry Brown announced a civil lawsuit against seven medical labs, including Quest and LabCorp, for allegedly overcharging the state’s Medi-Cal program by up to 600 percent for routine tests. “In the face of declining state revenues,” he said at a press conference, “these medical laboratories have been ripping off our medical program for our most vulnerable people.” The suit claims that Quest was charging Medi-Cal $8.59 for simple blood-count tests while billing other clients $1.43 for the same test, and that LabCorp was charging Medi-Cal five times what it was charging others for hepatitis C antibody screenings. A little more than a decade ago, LabCorp paid $173 million to settle fraud allegations arising from the Justice Department’s Operation labscam crackdown on fraudulent lab-company billing. LabCorp C.E.O. David King’s pay was $8.2 million in 2008. The company posted a $514 million profit, with a margin of 10.3 percent, just behind AT&T.
Giant settlements for lab-billing scams have been commonplace since the 1980s, but Congress has failed to implement any real anti-fraud protections for Medicare: a paltry $756 million is currently devoted to fraud prevention, less than one-fifth of one percent of Medicare’s annual budget. Given the unbridled pillaging going on, it’s little wonder Medicare is projected to become insolvent by 2017. The Government Accountability Office has estimated that 10 cents of every dollar spent on Medicare is lost to fraud, which means that $42 billion is expected to vanish this year. That’s $280 picked from the pocket of every wage-earning American.
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