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Legislature Should Consider a Surtax on Healthcare Executive Pay

The author says it’s time to weed out the greed, particularly at Cambia which paid Mark Ganz, its CEO and president, $2.5 million.
January 23, 2017

OPINIOIN -- With healthcare prices out-of-control, the Oregon legislature should borrow an idea from Steve Novick's playbook. Establish a state surtax on for-profit and "nonprofit" healthcare executive pay.

Oregon is flush with mostly "nonprofit" hospitals that conceal their "chargemasters" (price list) from public view. Nearly four years ago, journalist Steven Brill wrote an exposé on arbitrary price gouging. Insurance companies add to the "system's psychotic complexity," cruelly shifting costs to patients with surprise medical bills.

 Behind the curtains of hospitals and insurance companies are business executives who charge "what the market will bear." Executive salaries bear close scrutiny--in particular those at Oregon Health & Science University (Dr. Joe Robertson: $1.7 million) since more and more people can't bear the Obamacare marketplace.

After all, what's the biggest take-away for the medical student at this institution? Debt. OHSU has been ranked as one of the most costly public medical schools for over a decade.

Debt bondage entraps and bewilders doctors who can't afford an independent practice. That works well for hospitals which increasingly pay physicians salaries. With that, a steady stream of patients is assured. Since hospital executives negotiate prices with insurance company executives, doctors are in the dark when it comes to healthcare billing.

Retired CEO/President of Peace Health, Alan Yordy is president of The Infinity Group, a healthcare consulting company he founded in 1997. At a State of Reform conference last fall, he questioned whether nonprofit hospitals are keeping up with their charitable mission. (It's unsurprising that for-profit hospitals skimp on charity care.)

In his presentation, Yordy showed that uncompensated care in Oregon plummeted from $208.5 million to $69.1 million with Medicaid expansion since Obamacare. That means Medicaid expansion freed up nearly $140 million of hospitals' charitable costs. Where is all this money going? 2014 data shows 2/3 of Oregon hospitals' charitable dollars are now going to "unreimbursed" costs to Medicare and Medicaid.

Yordy thinks this is wrong. With Medicaid expansion, hospitals should invest charitably in the many social determinants of health, which includes access to educational, economic, and job opportunities. But that would be like Nike investing $12 Billion toward innovations, rather than in stock buy-backs --as they did in 2015 to increase shareholder value. It's no wonder Nike is losing ground to companies like Under Armour and Adidas. 

In late 2014, Humana did the same, repurchasing $500 million in shares--after doing poorly on quarterly earnings. Stock buy-backs are a type of financial cannibalization to plump up executive pay. Les Leopold, director of the Labor Institute, says the financialization of the modern corporation is the driving force of runaway inequality. In turn, runaway inequality exacerbates health challenges that are socially determined.

When conflicts of interest drive healthcare executive pay, patients pay the price. Yordy's total compensation was $1,366,742 in 2013 and $1,434,230 in 2014. Yordy's retirement, according to the Lund Report, was involuntary because of his inability to improve operating margins and oversee the transition to Epic as its electronic medical system. 

Kaiser Permanente has spent over $30 billion on electronic records and computer systems. Kaiser Permanente compensates doctors with incentive pay for reaching quality targets. Yet Kaiser Permanente has not been able to achieve better prices. Electronic medical records are implicated in elevated billing codes that pay fatter fees . Perverse incentives drive up healthcare costs because healthcare delivery is dependent on what does and doesn't get reimbursed. Doctors might claim it's above their pay grade to question how business executives run healthcare. This perverse incentive is exactly what business executives want. Retired Chairman of Kaiser Permanente George Halverson (2014 total compensation $10,399,970) claimed, "lower costs are going to be about finding ways to get people to take more responsibility for their health."

Healthcare executives should take more responsibility for their healthcare prices.

"Nonprofit" Regence BlueCross BlueShield of Oregon is a poster child of financial engineering. It's the only major Oregon insurance company to post a profit in 2015. Cambia Health Solutions, Inc., the parent company, is also registered as a nonprofit. It's headquartered in Portland and through subsidiaries in Oregon, Idaho, Utah and Washington, sells health insurance as a member of the Blue Cross Blue Shield Association. Mark Ganz is the President and CEO of Cambia. His last reported compensation was $2,503,905. But this is an under-estimate, as payments in Idaho were excluded. 

"Nonprofit" Cambia Health Solutions paid a $750,000 fine after a multiyear investigation into high tech investments that created chaos for customer service, billing and payments in Washington. Kreidler, a Democrat who won his re-election for Commissioner of Insurance, acknowledged that the fines were low compared to company profits. 

The Oregon Department of Consumer and Business Services approved a 23% premium increase for Cambia's for-profit subsidiary, BridgeSpan Health Company, to be sold on Oregon's exchange. This increase was up from the originally approved 18.9 percent increase. Could this have been in exchange for Cambia's agreement to be sold statewide, thus ensuring two insurance carriers in each county?

It's hard to understand why Cambia Health Solutions Inc. and Regence BlueCross BlueShield are registered as nonprofits in Oregon.

  • "Nonprofit" Cambia/Regence BlueCross BlueShield has amassed huge surpluses, five times industry requirements as of Dec. 31, 2014.
  • "Nonprofit" Cambia contributed $5000 directly to Governor Kate Brown this year.
  • "Nonprofit" Cambia Health Solutions Inc. contributed an additional $158,251 to Regence Oregon Political Action Committee, which in turn contributed $113,800 to political candidates and leadership PACs.
  • "Nonprofit" Cambia Health Solutions Inc. contributed $7,971,517 to Cambia Health Foundation in 2014, dispersing $7,778,442 from a fund ten times the size and paying $2,463,948 in administrative costs.

Cambia sold its Portland headquarters in December, 2013 to the California State Teachers' Retirement System (CalSTRS) for $48,800,000, recording the "bargain and sale deed" in Multnomah County. A spokesman for CBRE, the global real estate company that brokered the deal said, “Corporate America frequently sells real estate because they’re in the business of doing other things. There’s plenty of capital, low interest rates. It’s not a bad time to sell.”

Doing "other things"?

Certainly "other things" do not include selling more affordable insurance premiums.

Cambia has contributed to Portland's commercial real estate bubble. In June 2016, CalSTRS valued the property at $26,872,000. On October 31, CalSTRS sold the property to Wealthcap, a German company, for $94,350,000. That means the price nearly doubled in less than 3 years. The real market value of this property is $66,464,280, while the taxable assessed value is only $36,156,980--compliments of Measure 50.

This past fall, "nonprofit" Cambia spent $550,000 to defeat Measure 97, which would have imposed a 2.5 percent tax on C corporations' gross annual sales in Oregon exceeding $25 million. "Cambia is a taxpaying nonprofit C corporation that would be subject to Measure 97 tax," said spokesman Jared Ishkanian.


California tax authorities stripped Blue Shield of California of tax-exempt status there because it held reserves, four times larger than the Blue Cross and Blue Shield Association requires its members to hold in surplus to pay out member claims. They had contributed about only a fraction, $325 million, to its charitable foundation.

Regence BlueCross BlueShield of Oregon claims, "Unlike Blue Shield of California, Regence BlueCross BlueShield of Oregon does not receive an income tax exemption where it files.”


Then how does nonprofit status benefit Regence Blue Shield of Oregon and the parent company, Cambia Health Solutions Inc.?

Of course, I haven't even weighed in on pharmaceutical companies and medical device makers. CEOs in these industries should be targeted too. We need to weed out greed. It's uncharitable and unconscionable to pay healthcare executives exorbitant amounts when conflicts of interest ensure that healthcare is unaffordable. These fat cats will do anything to undermine a universal healthcare system: one that has a single risk pool, a single comprehensive benefit package and an all-provider network.

Oregonians should demand a surtax on healthcare executive pay.

Dr. Kris Alman retired from healthcare to become a citizen activist for a healthier democracy. She advocates for fair taxation to invest in our common goods--prioritizing education, renewable energy, campaign finance and healthcare policies and laws.