Thomas Scully, the leader of the investor-owned hospital sector, is a paid director on the board of a for-profit HMO, where he also enjoys lucrative stock options, MODERN HEALTHCARE has learned.
The HMO, Oxford Health Plans, also is a dues-paying member of the Group Health Association of America, which often squares off against the Federation of American Health Systems, which Scully heads as president and chief executive officer, on major healthcare policy issues, including the hotly contested provider-sponsored network debate.
Norwalk, Conn.-based Oxford pays Scully, a former Bush administration official who joined the board in September 1993, $3,000 per board meeting as a director. He also is paid $3,000 per meeting of the board's compensation committee and another $3,000 per meeting of the board's audit committee. Scully is on both board committees, according to Oxford's latest 10K filing with the Securities and Exchange Commission.
In an interview with MODERN HEALTHCARE last week, Scully defended his dual roles, denying that the situation represented a conflict of interest.
"This was discussed at length before I took the job at the federation," Scully said. The federation board "didn't think it was a problem."
Through a spokeswoman, James Dalton Jr., president and CEO of Nashville, Tenn.-based Quorum Health Group and chairman of the federation's board, said the association was aware of Scully's HMO directorship when it hired him in November 1994. Scully then was a partner in the Washington lobbying firm of Patton, Boggs & Blow and a former associate director of the White House Office of Management and Budget. Dalton said the federation didn't consider the HMO directorship a conflict of interest and doesn't now.
But, the situation has some other hospital lobbyists in Washington privately grumbling about whether it has played a role in the debate over provider-sponsored networks.
Last November, the American Hospital Association and nearly 100 other state and special-interest hospital groups opposed the compromise budget bill passed by Congress, largely because of the regulatory restrictions placed on PSNs, which in theory could directly contract with Medicare. Such restrictions were successfully lobbied for by the GHAA and other insurance industry interests. However, the federation wasn't part of the organized hospital opposition (Nov. 27, 1995, p. 14).
At that time, Scully said the federation's split with the rest of the hospital community was because of a difference of opinion over the timing of opposition to the budget bill, which was vetoed.
Richard Wade, the AHA's senior vice president for communications, said the association is aware of Scully's dual roles as federation president and paid Oxford board member.
"I seriously doubt many people know about it," he said. "But it's very troubling given the level of importance of the PSN debate to hospitals nationwide."
Wade declined to elaborate further.
Scully is a paid nonemployee member of the board of directors of Oxford. The HMO is a publicly traded managed-care plan with nearly 1 million enrollees.
Oxford's service area includes Connecticut, New York, New Jersey and Pennsylvania. For the nine months ended Sept. 30, 1995, Oxford earned $36.8 million on revenues of $1.2 billion.
As a director, Scully also has the option to buy up to 5,000 shares of Oxford common stock at a preferred price. As of March 1, 1995, Scully owned 6,250 shares with an option to buy another 8,750 shares, the company reported.
Based on a closing price of $67.75 per share on Jan. 22, the shares are worth more than $1 million.
Scully said his dual role doesn't represent a conflict of interest for two reasons. First, few investor-owned hospitals operate in Oxford's service area, avoiding a conflict on the local level, he said. And second, it's clear to both the federation and to Oxford that his main allegiance is to the federation when lobbying on Capitol Hill, he said.
"My primary responsibility is to the federation," Scully said. "If anything, Steve Wiggins should be the one with some concerns." Stephen Wiggins is Oxford's chairman and CEO.
At deadline, Wiggins hadn't responded to an interview request.
Scully also defended his work on the PSN issue.
"No one took a more aggressive position on PSNs than I did," he said. He emphasized that Oxford was on "the opposite side of the fence."