It’s Time for the UVM Health Network Board to Talk with the People They Serve

Photo Courtesy UVM Medical Center

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The stated mission of the UVM Health Network (UVMHN) is “… to improve the health of the people in the communities we serve by integrating patient care, education, and research in a caring environment.”

Their “Statement of Values” continues:

  • “We respect the dignity of all individuals and are responsive to their physical, emotional, spiritual and social needs and cultural diversity.”
  • “We are just and prudent stewards of limited natural and financial resources.”
  • “We foster a climate which encourages both those receiving and providing care to make responsible choices.”
  • “We strive for excellence in quality and care and seek to continuously learn and improve.”
  • “We acknowledge a partnership with the community to ensure the best possible care at the right time, in the right place, and by the right provider.”
  • “We are caring and compassionate to each other and to those we serve.”
  • “We communicate openly and honestly with the community we serve.”

When I chaired Fletcher Allen many years ago, this was called the three-legged stool: clinical work (patient care), education (teaching) and research work at the UVM College of Medicine, largely funded by federal grants. It described the life of most doctors, but did not, nor does it today, address the universally understood concept of “population health.” “Population health” is a different three-legged stool, one defined by quality of patient care, access, and affordability as measured within a population not just an individual patient.

So if the mission focuses on the institution rather than the population it serves, how do we measure its success? This is my question to the Board of Directors of the UVM Health Network.

To operate a hospital in Vermont, one must, by statute, be a nonprofit organization and apply for a “certificate of need” from the Green Mountain Care Board to function legally.

Furthermore, although poorly observed or regulated, Vermont’s 6700 nonprofits have a statutory obligation to deliver on social mission not on profitability. This doesn’t mean they should not produce “retained earnings” to further invest in mission, but they cannot distribute “profits” to associated parties.

Nonprofits are governed by a board of directors who cannot be compensated for their service, only for their expenses. The institution is managed by a chief executive who is chosen by the board, whose compensation is set by them, and whose performance is reviewed annually by the board or a committee of the board of directors and must include constituent and community stakeholder input. It is then signed off on by the whole board. If the review indicates consistent poor performance measured against mission, the board has an obligation to replace the chief executive.

Simply stated, the board is responsible   ̶  and legally liable for the success or failure of the organization, as defined by its ability to deliver on mission.

Delivery on Mission: Dollars or Patients?

On November 30th, The New York Times (NYT) published a guest essay entitled “Why are Nonprofit Hospitals Focused more on Dollars than on Patients?” It raised a number of ethical questions that I and others have raised with regard to Vermont’s largest network of hospitals.

Over half U.S. hospitals are nonprofits and, as such, are exempt from $28B worth of federal, state, and local taxes. One must ask, given their acquisitive market behavior, how far might that money go towards creating an independent community-based primary care network integrated with community-support system such as the one in place at Brattleboro Memorial Hospital?

The NYT’s piece goes on to detail the many cross-market acquisitions used to create ever-expanding hospital systems and markets such as Kaiser Permanente’s recent acquisition of Geisinger Health that has created a system with 600,000 patients and over 100 specialty and primary care clinics.

But the key point the article makes has to do with flawed board performance. I quote:

“A good first step is to reform how boards reward hospitals to accomplish the mission. Instead of paying leaders to pursue conventional financial goals, executives’ compensation should be tied to metrics reflecting the mission. Perhaps the most visible example of this is the heavy focus of nonprofit chief executive compensation on financial performance. A survey by the American College of Healthcare Executives noted that only about a quarter of nonprofit hospitals tied chief executive bonuses to community services. This prioritizes revenue from patient care over caring for patients. Instead, health care organizations should tie meaningful amounts of executive compensation to metrics like reducing disparities in care.”

The essay also makes the point that, unlike health insurers whose administrative costs and profit margins are capped at 15-20% (BCBS-VT targets its own at 7-8%), nonprofit hospitals have no such regulatory limit as to what they can spend on administration as opposed to patient care. The Green Mountain Care Board has been taking a serious look at administration-to-clinical expense ratios in its current oversight role. UVM Medical Center Hospital (UVMMC) is currently at 31% of total.

Around 2010, the hot strategy was all about facility integration to improve quality of care and to lower costs. This triggered a consolidation and expansion race, but the newly consolidated systems produced little or no improvements in coordinated care, patient access, or affordability. In fact, the latter two suffered greatly. While Medicare and Medicaid reined in hospital payments, the healthcare systems’ newly expanded market power enabled them to charge more to commercial insurers who then passed those costs on to consumers in the form of rising health insurance premiums. All this new revenue didn’t inure to the benefit of the patient community but instead was used to expand administration, executive salaries, and infrastructure, all of which add incremental expense.

Compensation Philosophy

Not mentioned in the essay, but a point I would add, is that the board of directors of any nonprofit has obligations with regard to setting executive compensation. The chief executive’s compensation is tied to his or her performance on mission.

They must also formulate and publish a compensation philosophy to be used by the chief executive in compensating employees.

When I discussed the latter with the Chair of the UVMHN Board, Allie Stickney, she explained the Board’s compensation philosophy by saying their goal is to source the best leadership available by compensating competitively, adding that their goal is to offer 50% of the national compensation range for hospital CEOs.

The current salary for Dr. Eappen, who last year replaced Dr. John Brumsted, was listed at his hiring as $1.3M, but that figure did not include ancillary compensation such as bonus incentives, retirement contributions, and benefit values. With those included, total compensation is thought to be closer to $2M. According to UVMHN’s 2022 990, Dr. Brumsted made close to $2M with ancillary benefits when he retired. 20 years ago, I negotiated a former CEO’s compensation at $880,000. I would suggest that the compensation philosophy could be improved.

Let’s be clear: In nonprofit governance, there are more considerations than market competition. Other considerations should include:

  1. Bed-size consideration: Compensation should be adjusted for the relative size of the institution as indicated by its licensed bed-count. A CEO running the Mayo Clinic with 24 hospitals in 5 states with 2500 beds and $18B in revenues has a different challenge than one running a six-hospital system in two states with 1,000 beds and $5B in revenues. UVMHN is, in fact, the 47th smallest of 219 American medical centers based on discharges.
  2. Regional consideration: Executive compensation in New York City or Los Angeles metro areas will inevitably differ from a market catchment area of under a million prospective patients as in Vermont and upstate New York.
  3. Fairness consideration: What is the ratio of the highest-paid employee to the lowest-paid employee? A custodial staff member typically makes $40,000 compared to the CEO’s total compensation of nearly $2M. So, the CEO makes 50 times what the custodial staff member does. By comparison, this ratio within most Vermont school systems is 4.5 times. Of course, by today’s ludicrous standards, 50 times seems insignificant when the average Standard & Poor 500 company’s CEO-to-worker pay ratio is 272-1 as of last year. Regardless, an ethical standard for a maximum worker compensation ratio should be defined within the compensation philosophy.

Another governance concern is how directors are chosen. If the chair or the CEO selects board members, mission-accountability is compromised. Proper governance procedure ensures a self-perpetuating board wherein a nominating and governance committee of directors assess what skills are needed on the board to hold the CEO to account and to best deliver on mission. For objectivity, the constituent community comprises at least a quarter of the director positions. Self-perpetuating boards ensure an appropriate boundary between the legal obligations of the board and their ability to objectively evaluate CEO performance.

I know Vermonters would welcome UVMHN’s Board coming out of the shadows and addressing not only the questions raised here and in the recent New York Times piece but also inverting their “statement of values” into questions and answering them in a public forum… explaining clearly how they achieve each one.

By way of examples:

“Do we acknowledge a partnership with the community to ensure the best possible care at the right time, in the right place, and by the right provider?”

“Do we communicate openly and honestly with the community we serve?”

I expect Vermonters would welcome a dialogue with UVMHN’s twenty directors since they hold so many Vermonters’ and upstate New Yorkers’ wellbeing in their hands.

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