Hiring the CEO
There’s an often-told story about how Karen Pletz, the fired president of the Kansas City University of Medicine and Biosciences, got her job in the first place.
On a flight from Phoenix to Kansas City in 1995, a stranger sat next to her: Jack Weaver, then chairman of the university’s board of trustees.
Pletz, with a law degree and a career in banking, so impressed Weaver that he proposed she join the board. When the trustees met her, they asked her to apply for the president’s job.
The CEO's Compensation
Big paydays: Pletz’s compensation skyrocketed from $261,000 in fiscal 1999 to nearly $1.2 million — about $250,000 more than the president of Johns Hopkins University made.Also,
Pletz’s million-dollar compensation package put her among an elite group of university presidents.The CEO's Spending Decisions
A review of the latest available tax records — for the fiscal year ending June 30, 2008 — shows that the leaders of other osteopathic medical schools in the region were being compensated far more modestly.
While Pletz was making $1.2 million, the CEO of the larger Des Moines University received $347,000. A.T. Still University of Health Sciences in Kirksville, Mo., where osteopathy got its start, changed CEOs nine months into the year. Both were paid about $50,000 a month; their combined compensation was $609,000.
The last time the Chronicle of Higher Education included free-standing medical schools in its survey of compensation of private college and university presidents, in 2006, Pletz was one of only seven making seven figures.
She spent disproportionately on administration versus education:
Spending on the university’s primary mission — educating medical students — didn’t keep pace with the school’s rapidly growing administrative costs. From fiscal 1999 to 2008, the amount spent on educating students and other program services rose 59 percent. At the same time, administration expenses jumped 384 percent.Other executives were paid well:
For Douglas Dalzell, executive vice president for institutional development, the compensation was $437,000 in fiscal 2008, more than double his pay in 1999. For Richard Hoffine, chief financial officer, it was $616,000, more than triple.
Dalzell’s compensation frequently rose in five-figure increments. Hoffine’s pay increased by as much as $127,000 in a single year.
The board fired Dalzell on Dec. 31, and Hoffine resigned over the New Year’s weekend.
She spent copiously on entertainment and items less well defined:
Along with the generous compensation paid to Pletz and her top lieutenants, the university was spending large sums on special events and other activities.
Shortly before a retreat for university managers in 1998, the university spent $15,000 to have 26 members of the Kansas City Symphony play for faculty and department heads at the Folly Theater. The object was to demonstrate with music how teamwork and good leadership produce the best work.
Records show that expenses for graduation activities jumped 47 percent in just three years, from $199,000 in 2005 to $294,000 in 2008.
Entertainment costs averaged $84,000 a year.
In fiscal 2002, the university spent more than $197,000 for various services at the Fairmont hotel — now the InterContinental — on the Plaza.
Even 'miscellaneous expenses' exploded, according to the university’s tax forms: They were about $81,000 in fiscal 2001 and $1.4 million in fiscal 2005, the last year they appear on tax reports.
The university also was spending as much as $739,000 a year on expenses for 'healthcare leadership,' tax records show.
Pletz defended the spending on graduation and other ceremonies because of their importance to medical students and their families.
Graduation is 'a whole weekend of events,' Pletz said. Many homecoming activities were held at the Fairmont, she said.
As to what the healthcare leadership spending entailed, Pletz said she didn’t know.
Executives hired their relatives:
Family members and friends, including Pletz’s daughter and a top associate’s daughter-in-law, were added to the payroll in administrative positions. The university’s nepotism policy allowed a lot of leeway.And then there was the mysterious Health Policy Institute (as reported separately by the Kansas City Star):
After HCA, Inc., acquired the large, nonprofit hospital group Health Midwest in 2003, opportunity came knocking for Health Midwest executive Barry Seward:
An appointment as president of the Kansas City University of Medicine and Biosciences’ new Health Policy Institute.
It was an unpaid position, but Seward didn’t have to work for free. He received consulting fees of as much as $177,300 a year from the university, tax records show.
Seward’s son, Michael, became the institute’s unpaid vice president. The younger Seward also has a paying job as the university’s director of grant development.
Along with his consulting income, Barry Seward has had the fringe benefit of extensive travel for the institute.
The Health Policy Institute’s budget was $62,909 in 2008, tax records show. A few thousand dollars of that went to office overhead. The rest was spent on travel and meals.
Ms Pletz justified the Health Policy Institute thus:
Pletz said the institute’s position papers are widely distributed. Eight are posted on the institute’s Web siteHowever,
they average about 240 words. Stem-cell research took five paragraphs; pandemic flu got three.Neither the Health Policy Institute web-site nor a Google search revealed any experience or expertise in health policy on the part of its President. I would note also that Institute's position paper on "healthcare workforce" failed to note the shortage of primary care physicians, and the paper on integrative medicine advocated for more access to, more insurance coverage for, and more medical school training in complementary and alternative medicine without acknowledging the lack of evidence supporting many "CAM" treatments.
The Role, Such As It Was, of the University Board
Current board chairman Danny Weaver, who also is the university’s acting president, won’t discuss why she was fired. Pletz, who says she’s proud of her work for the school, won’t get into specifics.
Danny Weaver, son of Jack Weaver, will say only that more than one person in September brought 'extremely serious' issues to the board’s attention that led to Pletz’s termination.
University administrators kept the governing board in the dark for months at a time about important issues, Weaver said.
But it was the board Weaver has led since 2004 that approved Pletz’s salary and incentive package. The board, which met just twice a year, approved the university’s budget, but it did not monitor the way money was actually spent. And it did not routinely review key filings the university made to the Internal Revenue Service.
How the board justified Peltz's compensation:
Questions about her salary and incentives, Pletz said, should go to the university’s trustees.In addition,
'Compensation was a board decision,' she said. 'It was the board’s responsibility.'
She said she thought the board was interested in retaining top managers.
'It was a very team-oriented approach,' Pletz said. 'If the performance was there, the compensation was there.'
Weaver defended the compensation the board granted Pletz.
'Based on her production and what she brought to the university, her compensation was within reason,' he said.
However, apparently none of her production had to do with familiarity with her own university's budget:
The spending figures are all line items in tax documents called 990 forms that nonprofit corporations, such as the university, must file each year with the IRS. The forms are available to the public.
Pletz could not say what the line items on the 990 forms represented.
'Any questions about the 990, I would not be able to answer for you,' she said. 'You’re going back a number of years, and I really don’t have direct knowledge about those line items and what they would have been comprised of in any given year.'
Of course, the board might not have caught that problem, since they seemed equally unfamiliar with the budget:
Weaver, who has been on the board since 2001, said he has never reviewed the documents.Summary
'I never see the 990s as the chairman. … The board never saw the 990s,' he said. 'That’s the business of the president and the CFO.'
Weaver said he had no idea how the university could run up $1.4 million in miscellaneous expenses. He 'couldn’t even gather a guess' on the entertainment costs.
And Weaver said he could only speculate on what 'healthcare leadership' expenses were: Perhaps they were expenses Pletz and her vice presidents incurred in their work with community organizations.
So here we have a particularly colorful example of how the leaders of health care organizations are different from you and me. The CEO of one osteopathic health care university got more than one million a year despite her lack of any experience or expertise in health care, and her unawareness of her institution's budget, which apparently included lavish spending on administration and other expenses unrelated to the educational mission. She nominally reported to a board of trustees which seemed completely clueless about her activities, but happy to pay her for "production" of what they did not know.
So, as I wrote last week about out-size compensation given for no clear reasons to CEOs and other top executives of not-for-profit hospitals in three US states...
Although the executives of not-for-profit health care organizations generally make far less than executives of for-profit health care corporations, collectively, hired managers of even not-for-profit health care organizations have become richer and richer at a time when most Americans, including many health professionals, and most primary care physicians, have seen their incomes stagnate or fall. They are less and less restrainted by passive, if not crony boards, and more and more unaccountable. In a kind of multi-centric coup d'etat of the hired managers, they have become our new de facto aristocracy.
Or as we wrote in our previous post, executive compensation in health care seems best described as Prof Mintzberg described compensation for finance CEOs, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit." As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences. Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations. It is time to reverse the coup d'etat of the hired managers.
A final note - we have heard a lot from health policy "experts" in this time of interest in health care reform, and millions of words about health policy have been dispensed by such "experts" during the continuous health care "crisis" of the last 30 years. This case demonstrates how little one needs to know about health policy to run a university "Health Policy Institute" to churn out health policy position papers, especially when the university CEO and board of trustees are equally unkowledgeable.
Hat tip to Prof Margaret Soltan on the University Diaries blog.