Do Employers Really Care About Health Care Executives’ Rising Pay

By Staff Report

Jun. 15, 2006

The backdating of stock options at UnitedHealth Group has set off a widespread regulatory investigation into the practice and elicited outcry from shareholders and doctors, but barely a whimper has been heard from those employers for whom rising health care costs are among their biggest concerns.

In late May, for example, the New York Business Group on Health, an organization that counts IBM, Pitney Bowes, the Bank of New York and Verizon among its 175 members, met with a senior team from UnitedHealth Group as part of the group’s ongoing effort to measure the performance of health plans based on standardized metrics. The compensation issue, however, did not come up, says Laurel Pickering, the New York group’s executive director.

“Employers feel very far removed” from the creation of compensation standards at the health insurance giant, Pickering says. Plus, Pickering speculates, most executives at large companies are used to hefty compensation packages. “Among the pressing issues going on in health care, it’s not one of the main things employers are talking about or trying to fix.”

Instead, employers in her group are focused on the problems they believe they can fix, such as measuring and improving quality and reducing cost.

For its part, UnitedHealth Group has communicated via letter, e-mail and phone to employers and shareholders alike, reiterating some of the efforts the company has undertaken to reduce its executives’ compensation, UnitedHealth spokesman Tyler Mason says. The company has eliminated equity-based compensation for most senior management and eliminated post-retirement health insurance for CEO William McGuire and COO Stephen Helmsley. The board of directors also has reduced its own pay, Mason says.

Executive compensation and benefits, of course, are costs that are ultimately passed on to employers, says Carolyn Brancato, director of corporate governance at the Conference Board.

“With any corporation, executive pay is the cost of doing business,” says Brancato, who does not comment on specific companies but was speaking more generally on corporate governance. “Backdating stock options doesn’t seem like a very direct way of linking pay to performance.”

This was a point not lost on physician groups around the country. They are among the most vocal critics of insurance companies and view them as bent on underpaying doctors for their services.

Physician group administrators on an e-mail listserv facilitated by the Medical Group Management Association expressed dismay almost immediately after news broke in April that UnitedHealth Group’s CEO had received part of his $1.6 billion in unrealized gains on options he exercised at or near the stock’s quarterly low points.

Among the group’s 20,000 members, a handful of administrators were particularly incensed.

Christopher Francis, an administrator for Waco Surgical Group, a six-surgeon practice in Waco, Texas, read the news on his computer and thought about how difficult it was to get reimbursed by the health insurer.

“My immediate reaction was ‘Why is it so difficult to contract with UnitedHealth when they obviously have the resources to pay their executives?’ ” Francis says.

Francis’ criticisms are aimed not just at UnitedHealth, but at all insurers.

“A provider may fight for a small increase on a contract,” he says. “To have that be so difficult to achieve and then turn around to see what they are doing on the compensation for their own folks, it’s hard to reconcile.”

Though Francis says only a small portion of the physician practice’s revenue comes from UnitedHealth Group, most doctors are afraid to speak out against UnitedHealth. As the country’s second-largest health insurer, behind Wellpoint, it dominates most markets, says Elizabeth Johnson, a spokeswoman for the Medical Group Management Association.

“In any market there may only be a couple of insurers, so our members really don’t have a choice and they need to be careful about what they say,” she says.

The Securities and Exchange Commission has broadened its investigation into the backdating of stock options to include at least 26 companies. Health care companies included in the probe are Caremark Rx, a pharmacy benefit manager; Medarex, a Princeton, New Jersey, bio-pharmaceutical company; and Renal Care Group, a Nashville, Tennessee, company that offers dialysis services.

Jeremy Smerd

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