Category Archives: Board Chairman

UnitedHealth CEO Sold $5.6 Million in Shares the Same Day as Ransomware Attack

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https://healthcareuncovered.substack.com/p/unitedhealth-ceo-sold-56-million?utm_source=post-email-title&publication_id=255152&post_id=145375065&utm_campaign=email-post-title&isFreemail=true&r=59t65&triedRedirect=true&utm_medium=email

Other senior executives also cashed out as the company faced a $1.6 billion threat that wreaked havoc throughout the health care system.

On February 21, the same day that a ransomware attack began to wreak havoc throughout UnitedHealth Group and the U.S. health care system, five of UnitedHealth’s C-suite executives, including CEO Andrew Witty and the company’s chief legal officer, sold $17.7 million worth of their stock in the company. Witty alone accounted for $5.6 million of those sales.

The company’s stock has not recovered since the ransomware attack and has underperformed the S&P 500 index of major stocks by 8% during that time. In the two weeks following the ransomware attack, the company’s stock slid by 10.4%, wiping out more than $46 billion in market cap and greatly reducing the value of shares held by non-insiders. The slide continued for several weeks. On the day Witty and the other executives sold their shares, the stock price closed at $521.97. By April 12, it had fallen to $439.20.

The ransomware attack is estimated to have cost the insurance giant as much as $1.6 billion in total. Witty would later confirm, during his appearance before the Senate Finance Committee on May 1, that the company paid $22 million in ransom to the hackers. 

“He (Witty) sold the shares on the same day that he learned of the ransomware attack,” said Richard Painter, a professor at the University of Minnesota School of Law who is also the vice chair of Citizens for Responsibility and Ethics in Washington. “That’s not good. For the SEC to prove a civil case of insider trading they just have to prove that it’s more probable than not that executives acted on inside information. CEOs have got to be a heck of a lot more careful.

You’re the CEO of a company, you should not be buying or selling the stock right in the middle of a material event like a ransomware attack. You’re asking for trouble. You’re going to end up with an SEC investigation. If that goes badly you could end up with a DOJ investigation.” 

How much UnitedHealth’s C-suite executives sold in company stock on February 21, 2024:

Brian Thompson, the CEO of UHG’s insurance arm, sold $1.5 million on the same day. John Rex, then the CFO and now the CFO and president, sold $4.4 million, as did Dirk McMahon, now the former president. Chief Legal Officer Rupert Bondy, who would likely have to have signed off on the sales, sold $750,000. 

HEALTH CARE un-covered is the first media outlet to report these disclosures. 

The ransomware attack was caused at least in part by negligence on UnitedHealth’s part, Witty admitted at the Finance Committee hearing. He acknowledged that the company had failed to use multi-factor authentication — requiring more than just a password to access information — to secure its data. The cyberattack exposed the personal health information of as much as a third of Americans’ health information. 

“This incident and the harm that it caused was, like so many other security breaches, completely preventable and the direct result of corporate negligence,”

Sen. Ron Wyden (D-Ore.) wrote to federal regulators on May 30. “UHG has publicly confirmed that the hackers gained their initial foothold by logging into a remote access server that was not protected with multi-factor authentication (MFA). MFA is an industry-standard cyber defense that protects against hackers who have guessed or stolen a valid username and password for a system.”

UnitedHealth exploited the crisis created by its own negligence to further entrench its position as the largest employer of doctors in the country, acquiring medical practices that were unable to pay their bills due at least in part to the chaos created by the ransomware attack. The American Medical Association is considering legal action against the company for the attack, with a proposal for its House of Delegates conference beginning June 8 stating that “Optum is the largest employer of physicians and has acquired practices when the ransomware disruption made those practices unable to survive without acquisition… Even the practices that survive will have ongoing damages including but not limited to denials related to giving therapy when it was impossible to obtain prior authorization, from using lines of credit and having to pay interest, from having billing departments and others work overtime to submit claims, to losing key employees from inability to make payroll.”

Other well-timed insider stock transactions

In April, Bloomberg reported that in the lead up to the disclosure of an FTC investigation into UnitedHealth’s monopolistic practices, other UnitedHealth insiders, including Chairman Stephen Hemsley, had sold $102 million worth of their shares.

News of that investigation and the stock sales led Sen. Elizabeth Warren (D-Mass.) and other lawmakers to call for an SEC investigation into the trading.

The disclosures revealed here, however, are potentially more incriminating: the executives sold the stock the same day the company became aware of the devastating ransomware attack. When Witty was supposed to be all hands on deck strategizing how to protect health care providers and millions of patients, he spent at least part of his day taking action to preserve his net worth.

EDITOR’S NOTE: 

This is not the first time UnitedHealth executives have engaged in questionable or illegal stock transactions. In 2007, former CEO William McGuire agreed to a record $468 million settlement with the SEC after it was learned that for more than a decade he had engaged in a scheme to inflate the value of his holdings in the company and, consequently, his net worth.

An SEC investigation that year found that over a 12-year period, “McGuire repeatedly caused the company to grant undisclosed, in-the-money stock options to himself and other UnitedHealth officers and employees without recording in the company’s books and disclosing to shareholders material amounts of compensation expenses as required by applicable accounting rules.” In other words, he was back-dating his stock options.

As the SEC explained: 

[F]rom at least 1994 through 2005, McGuire looked back over a window of time and picked grant dates for UnitedHealth options that coincided with dates of historically low quarterly closing prices for the company’s common stock, resulting in grants of in-the-money options.

According to the complaint, McGuire signed and approved backdated documents falsely indicating that the options had actually been granted on these earlier dates when UnitedHealth’s stock price was at or near these low points.

These inaccurate documents caused the company to understate compensation expenses for stock options, and were routinely provided to the company’s external auditors in connection with their audits and reviews of UnitedHealth’s financial statements.

An Open Letter to Hospital Boards of Directors: Long-Term Strategic Planning needs Your Attention

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An Open Letter to Hospital Boards of Directors: Long-Term Strategic Planning needs Your Attention

As 2023 comes to an end and prognostics for 2024 pepper Inboxes, high anxiety is understandable. The near-term environment for hospitals, especially public hospitals and not-for-profit health systems, is tepid at best: despite the November uptick in operating margins to 2% (Fitch, Syntellis), the future for hospitals is uncertain and it’s due to more than payer reimbursement, labor costs and regulatory changes.

Putting lipstick on the pig serves no useful purpose:

though state hospital associations, AHA, FAH, AEH and others have been effective in fending off unwelcome threats ranging from 340B cuts, site neutral payments and others at least temporarily, the welcoming environment for hospitals in the throes of the pandemic has been replaced by animosity and distrust.

The majority of the population believes U.S. the health system is heading in the wrong direction and think hospitals are complicit (See Polling data from Gallup and Keckley Poll below). They believe the system puts its profit above patient care and welcome greater transparency about prices and business practices. In states like Colorado (hospital expenditure report), Minnesota (billing and collection), and Oregon (nurse staffing levels), new regulations feed the public’s appetite for hospital accountability alongside bipartisan Congressional efforts to limit tax exemptions and funding for hospitals.

It’s a tsunami hospital boards must address if they are to carry out their fiduciary responsibilities:

  • Set Direction: The organization’s long-term strategy in the context of its vision, mission and values.
  • Secure Capital: The amount and sourcing of capital necessary to execute the strategy.
  • Hire a Competent CEO and Give Direction: Boards set direction; CEOs execute.

Regretfully, near-term pressures on hospitals have compromised long-term strategic planning in which the Board play’s the central role. But most hospital boards lack adequate preparedness to independently assess the long-term future for their organization i.e. analysis of trends and assumptions that cumulatively reshape markets, define opportunities and frame possible destinations for hospitals drawn from 5 zones of surveillance:

  • Clinical innovations.
  • Technology capabilities.
  • Capital Market Access and Deployment.
  • Regulatory Policy Changes.
  • Consumer Values, Preferences and Actions.

In reality, the near-term issues i.e. labor and supply chain costs, insurer reimbursement, workforce burnout et al—dominate board meetings; long-range strategic planning is relegated to an annual retreat where the management team and often a consultant present a recommendation for approval. But in many organizations, the long-term strategic plans (LTSPs) fall short:

  • Most LTSPs offer an incomplete assessment of clinical innovations and technologies that fundamentally alter how health services will be provided, where and by whom.
  • Most LTSPs are based on an acute-centric view of “the future” and lack input about other sectors and industries where the healthcare market is relevant and alternative approaches are executed.
  • Most LTSPs are aspirational and short on pragmatism. Risks are underestimated and strengths over-estimated.
  • Most LTSPs are designed to affirm the preferences of the hospital CEO without the benefit of independent, studied review and discussion with the board.
  • Most LTSPs don’t consider all relevant ‘future state’ options despite the Board’s fiduciary obligation to assure they do.
  • Most rely on data that’s inadequate/incomplete/misleading, especially in assessing how and chare capital markets are accessing and deploying capital in healthcare services.
  • Most LTSPs are not used as milestones for monitoring performance nor are underlying assumptions upon which LRSPs are based revisited.

My take:

The Board’s role in Long-Range Strategic Planning is, in many ways, it’s most important. It is the basis for deciding the capital requirements necessary to its implementation and the basis for hiring, keeping and compensating the CEO. But in most hospitals, the board’s desire to engage more directly around long-term strategy for the organization is not addressed. Understandable…

  • Boards are getting more media attention these days, and it’s usually in an unflattering context. Disclosures of Board malperformance in high profile healthcare organizations like Theranos, Purdue and others has been notable. Protocols for responding among Board members in investor-owned organizations is a priority, but less-so in many not-for-profit settings including hospitals often caught by surprise by media.
  • And Board members are asking for their organizations to engage them in more in strategy development. In the latest National Association of Corporate Directors’ survey, 81% of directors cited “oversight of strategic execution” and 80% “oversight of strategy development” as their top concerns from a list of 13 options. Hospital boards are no exception: they want to be engaged and cringe when treated as rubber stamps.

Hospital boards intuitively understand that surviving/thriving in 2024 is important but no guarantee of long-term stability given sobering realities with long-term impact:

  • The core business of hospitals–inpatient, outpatient and emergency services—is subject to market constraints on its prices, consumer and employer expectations and non-traditional competition. Bricks, sticks and clicks strategies will be deployed in a regulatory environment that’s agnostic to an organization’s tax status and competition is based on value that’s measured and publicly comparable.
  • The usefulness of artificial intelligence will widen in healthcare services displacing traditional operating models, staffing and resource allocation priorities.
  • Big tech (Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), Amazon (AMZN), Meta (META), Tesla (TSLA) and Nvidia (NVDA)—collectively almost 60% of all S&P 500 gains in 2023—will play a direct and significant role in how the healthcare services industry responds to macro-opportunities and near-term pressures. They’re not outside looking in; they’re inside looking out.
  • Private capital will play a bigger role in the future of the system and in capitalizing hospital services. Expanded scale and wider scope will be enabled through partnerships with private capital and strategic partners requiring governance and leadership adaptation. And, the near-term hurdles facing PE—despite success in fund-raising—will redirect their bets in health services and expectations for profits.
  • State and federal regulatory policies and compliance risks will be more important to execution. Growth through consolidation will face bigger hurdles, transparency requirements in all aspects of operations will increase and business-as-usual discontinued.
  • The scale, scope and effectiveness of an organization’s primary and preventive health services will be foundational to competing: managing ‘covered lives’, reducing demand, integrating social determinants and behavioral health, enabling consumer self-care, leveraging AI and enabling affordability will be key platform ingredients that enable growth and sustainability.
  • Media attention to hospital business practices including the role Boards play in LRSPs will intensify.

Granted: the issues facing hospitals are reliably short-term: as Congress returns next week, for instance, funding for the FDA, Community Health Center Fund, Teaching Health Center Graduate Medical Education Program, National Health Services Corps and Veterans Health is not authorized and $16 billion in cuts to Medicaid disproportionate share payments remains unsettled, so the short-term matters.

But arguably, engaging the hospital board in longer term planning is equally important. It’s not a luxury.

Happy New Year. Buckle up!

10 signs your board has a strong pulse

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https://www.beckershospitalreview.com/hospital-management-administration/10-signs-your-board-has-a-strong-pulse.html

Great systems are usually governed by great boards, who are made up of people who match the following 10 descriptions. 

Great board members do more than comply with corporate governance structure and rules. Too often, board members have loose ties to one another, are passive to the wants and views of the CEO or are not as informed about the specifics of healthcare as they ought to be. We view all of these traits, and more, as signs that a board has lost its charge and is no longer effectively governing.

We consider the following 10 items as descriptors of a board member who has a strong pulse and adds value to a governing body. 

1. The board member is active, engaged and passionate about being a board member. No board can afford to have disengaged members. Bylaws and attendance requirements are important, but simply complying with them does not necessarily equate to being an active, contributing and passionate trustee. Engaged board members show up to meetings, and they show up prepared. While members typically refrain from meddling in day-to-day operations, boards with high levels of trust and candor make a point to communicate with the CEO outside of scheduled board meetings. Quality of board engagement is an important contributing factor to board performance, and there is a correlation between board engagement and the ability to attract board members. Everything that follows is dependent on board engagement. 

2. The board member has a point of view on what the organization must be great at, and the board member is vehement about it. Health systems cannot be all things to all people, although the opportunities to attempt this are ample. The best organizations are not static, but disciplined. Well-governed systems know the specialties they are great in, and they continue to double down on their strengths. Their boards are cognizant of where revenues come from and ensure resources are allocated accordingly.

3. The board member realizes that her top job is to ensure the system has great leadership in place. Leaders can fall short in all sorts of ways, some more visible and easily detectable than others. The active, engaged and vehement board does not easily accept disappointment. Boards have many steps at their disposal to manage a problem before firing a CEO or senior leader, but they should never function in a way where termination is unthinkable. Boards cause great damage when they tolerate mediocre performance or compromised values among people at the top of the organization. 

4. The board member understands accountability for patient safety and quality of care rests firmly in the boardroom. It rests on board members to insist that they receive sufficient, timely information about patient safety and care quality from the CEO. It rests on board leadership to ensure members have access to expertise and resources to properly obtain, process and interpret this information. It is not a bad idea for quality expertise to be included in board members’ competency profiles and for boards to undergo training and continued education in quality and safety. This is especially relevant for board members who come from industries outside of healthcare. It rests on the board when care quality declines or when lapses in patient safety are unaddressed: It is unacceptable for a board to say it missed the memo on care outcomes or that it did not understand the information in front of it. 

5. The board member is a watchdog on societal, governance and audit issues. Informed citizens make for strong board members. It is important to not only be plugged in and aware of the issues and challenges confronting the organization today, but to be aware of broader societal issues that could affect system strategy and performance tomorrow. This is not hypothetical thinking. The past year was a master class in how broader issues affected healthcare in acute and direct ways: systemic racism, a global supply chain and a churning labor market are just three. Good boards are made up of members who stay informed and are biased toward anticipatory thinking, in which they are eager to explore the ways in which issues larger than or outside of their industry may come to affect the organization they help govern. 

6. The board member supports the leadership team, but also questions it and holds it accountable. Board members cannot be pushovers for leadership. Directors are nominated by existing board directors on the nominating committee, which often includes the CEO. As a result, trustees can empathize with the CEO of the organization on whose board they sit. Empathy does not equate to blind acceptance, but this is nonetheless a dynamic trustees should be aware of and work to keep in check. It is not unusual for board members to struggle when giving candid feedback to the CEO, for example. As a result, chief executives carry on and live in a bigger and bigger bubble. 

It’s worth noting that the reverse can occur within boardrooms as well, in which board members disagree about strategy and seek a CEO they can easily influence. At the end of the day, being a pushover is not associated with strong leadership and should be avoided by both trustees and senior executives. Instead, trustees need to embrace constructive tension in the boardroom. Questions, challenges and disagreements that reach resolution can drive valuable dialogue and stronger outcomes.

7. The board member allows others to voice their thoughts. In many boardrooms, a small number of the participants do most of the talking while the majority stays relatively quiet. A powerful or well-connected member may dominate discussions. Ideally, boards embrace the middle in interpersonal communication, with trustees contributing not too much nor too little. Either goes against the board’s very reason for being. 

8. The board member helps ensure the board as a whole reflects the racial, ethnic, gender, religious and socioeconomic diversity of the community served by the organization. This is important for a number of reasons, with health equity being principal. Trustees are stewards for the communities they serve. For hospitals and health systems to increase opportunities for everyone to be healthier — including those who face the greatest obstacles — they need visions, strategies and goals that begin at the top from individuals who have viewpoints from the community. Without these insights, the board simply can’t govern effectively. Additionally, research has consistently found that teams of people who have diversity in knowledge and perspectives — as well as in age, gender and race — can be more creative and better avoid groupthink.

9. The board member is accessible. Just as no board wants its CEO in a bubble, governing bodies must actively resist this risk. For a stretch of time, boards were less visible groups of people who would meet four to six times a year in a mahogany-paneled room to decide the future of an organization that employs tens of thousands and serves even more. This dynamic cannot hold in healthcare. Community members and employees should know — or be able to easily learn — who serves on their health system’s board. If stakeholders bring issues or concerns to a board member, the trustee should be prepared to respond and follow up. In 2021’s healthcare, board members cannot breathe rarified air.

10. The board member emulates the values of the health system. So often when people talk about the tone being set at the top, they have the CEO in mind. The board is just as responsible, if not more responsible, for this charge. What a board permits, it promotes. Board members that emulate system values are better positioned to collaborate with mutual respect, candor and trust. Board members whose values are mismatched or personal agendas are at cross-purposes with the good of the organization should be replaced. 

MetroHealth fires CEO over more than $1.9M in unreported bonuses

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https://www.beckershospitalreview.com/hospital-management-administration/metrohealth-fires-ceo-over-more-than-1-9m-in-unreported-bonuses.html?utm_medium=email&utm_content=newsletter

The board of trustees at Cleveland-based MetroHealth System has fired President and CEO Akram Boutros, MD.

Dr. Boutros was fired Nov. 21 after the board received findings of a probe into compensation issues involving more than $1.9 million in supplemental bonuses, Vanessa Whiting, chair of the board, said in a statement posted on the health system’s website. The probe found that between 2018 and 2022, Dr. Boutros authorized the compensation for himself, without disclosure to the board.

“We have taken these actions mindfully and deliberately but with sadness and disappointment,” Ms. Whiting said. “We all recognize the wonderful things Dr. Boutros has done for our hospital and for the community. However, we know of no organization permitting its CEO to self-evaluate and determine their entitlement to an additional bonus and at what amount, as Dr. Boutros has done.”

Dr. Boutros took the helm of MetroHealth in 2013. Last year, Dr. Boutros announced his plans to retire at the end of 2022. In September, MetroHealth named Airica Steed, EdD, RN, its next president and CEO. Dr. Steed, who is executive vice president and system COO of Sinai Chicago Health System, will take the helm of MetroHealth Dec. 5, according to Ms. Whiting’s statement. Meanwhile, Nabil Chehade, MD, executive vice president and chief clinical transformation officer at MetroHealth, will assume the CEO’s duties on an interim basis.

Ms. Whiting said MetroHealth discovered the compensation issues related to Dr. Boutros while preparing for the CEO transition, and an internal investigation took place, led by the Tucker Ellis law firm.

She said Dr. Boutros admitted to conducting self-assessments of his performance under specific metrics he established and authorizing payment to himself of more than $1.9 million in supplemental bonuses between 2018 and 2022.

According to Ms. Whiting, Dr. Boutros repaid more than $2.1 million in October, representing the supplemental bonus money paid without board approval for performance in calendar years 2017 through 2021, plus more than $124,000 in interest.

She said the board has also implemented immediate CEO spending and hiring limitations through Dec. 31, 2022, and Dr. Boutros has self-reported to the Ohio Ethics Commission.

MetroHealth’s internal investigation is ongoing.

Among Dr. Boutros’ accomplishments at MetroHealth were helping annual revenue increase from $785 million to more than $1.5 billion; growing the health system’s workforce from 6,200 to nearly 8,000 while seeing employee minimum wage increase to $15 per hour; and developing Ohio’s only Ebola treatment center.

Will choosing a “white coat CEO” advance physician alignment?

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https://mailchi.mp/a2cd96a48c9b/the-weekly-gist-october-1-2021?e=d1e747d2d8

Physician Advocates Docs Ditch The White Coat - Too Germy | WUKY

We recently got a call from a health system board chair seeking our perspective on the system’s ongoing search for a new CEO. At the top of his list: trying to understand how important it will be for the next CEO to be a physician. “We’ve never had a doctor in the role,” he mused. “But now we employ hundreds of doctors. And you’d have to imagine that having a physician as CEO would help with physician alignment.” 

While choosing a physician CEO brings great signal value to the medical staff, we cautioned that it’s far from a panacea. 

Of course, there are advantages in having walked in a frontline clinician’s shoes, being able to personally identify with their challenges and speak their language. But over the years, working with hundreds of health system CEOs, we’ve found that the most important characteristic of a CEO who will advance physician strategy is the desire to form strong personal relationships with doctors and draw on their counsel.

Does the CEO build a “kitchen cabinet” of physician leaders whom he can consult? Are physicians viewed as something to be managed, a problem to solve, or seen as true partners in strategy? Even more simply, does she like spending time with physicians, or groan every time a meeting with doctors pops up on the calendar? We’ve seen many non-physician CEOs excel at building strong, strategic ties with doctors, and some physician executives, who become jaded by never-ending physician alignment struggles, fail to advance partnerships with their colleagues.

One retiring physician CEO, reflecting on his replacement by a nonclinical executive, summed it up well: “I have a feeling he’ll do well with our doctors. He counts several physicians among his closest friends, which is a great sign.”