While some hospital executives are cashing out, others are cashing in.
Joseph Swedish, the president and chief executive officer of Englewood, Colo.-based Centura Health, was named earlier this month to the board of directors of RehabCare Group, a St. Louis company whose subsidiary provides consulting services to the hospital system that Swedish oversees.
As a RehabCare board member, Swedish stands to earn $5,000 for every board meeting he attends and stock option grants that could amount to tens of thousands of dollars.
Swedish joins many other hospital executives who serve on the boards of for-profit vendor companies that sell goods and services to hospitals. Among them is Elaine Ullian, president and CEO of 417-bed Boston Medical Center, who serves on the boards of three for-profit companies-Vertex Pharmaceuticals, a biotechnology company; Thermo Electron Corp., a manufacturer of high-tech instruments; and the Citizens Bank of Massachusetts.
And while there is nothing illegal about these arrangements, some critics are concerned about the potential conflicts of interest they create as well as the perception that the executives are more concerned about taking care of themselves than patients.
"You could raise a question that he would end up with divided commitments or divided loyalties," said Vivian Weil, director of the Center for the Study of Ethics in the Professions.
Swedish earned more than $1.3 million in fiscal 2001 at Centura, $853,181 in salary and $474,466 in benefits, according to the system's 2001 Form 990, its annual federal tax filing. (Hospital officials declined to provide more current salary information.) As chair-elect of the Colorado Health and Hospital Association, he also serves as a representative on the American Hospital Association's regional policy board, which assists the national group in developing its policy agenda.
Swedish said there are enough safeguards in place, including independent oversight from a systemwide compliance officer, to prevent conflicts involving his board memberships with either RehabCare or Cross Country Healthcare, a national staffing company that also selected him to serve on its board. Swedish, who said he will not "engage in direct control" of any decision involving Centura's business with the two companies, adds that his involvement provides a benefit to Centura.
"Both organizations are providing some very innovative and progressive services to the industry-workforce (solutions) and ambulatory care," Swedish said.
Michael Fordyce, chairman of Centura's board of trustees, said: "There is no doubt that Joe's involvement with other healthcare companies brings great value to our organization. (The board) continues to ensure that the strictest standards of integrity are followed and will continue to evaluate these sorts of executive agreements."
Cross Country pays its board members $3,500 for each in-person meeting as well as a one-time fee of $1,500 for telephone meetings. Swedish also receives stock option grants. Though Cross Country works with Centura, the amount of healthcare staffing business the company did with Swedish's hospitals amounted to "less than half of 1%" of the staffing firm's 2003 revenue of $687 million, Cross Country spokesman Howard Goldman said.
RehabCare is a leading provider of rehabilitation services. Spokesman David Totaro said the only business the company does with Centura involves a contract with Phase 2 Consulting, a subsidiary that RehabCare purchased on May 1.
Last year, each of the board members who were not employed by the company received $5,000 for each of the 10 meetings they attended, along with expenses, and a one-time payment of $5,000 to cover all telephone meetings. They also received annual stock option grants of 4,000 to 7,500 shares.
Governance experts say there is nothing wrong with a hospital executive serving on the board for a vendor as long as the relationship is disclosed and approved by the hospital board.
Still, these arrangements have triggered increasing concerns and scrutiny in the wake of a litany of corporate scandals and questionable compensation packages in the broader corporate world.
Boston Medical Center's Ullian, who was paid $854,927 in salary and $112,797 in benefits by the hospital in 2001, according to its Form 990 for that year, receives annual retainers from Vertex and Thermo, and cash payments to attend meetings and stock option grants. As a Thermo board member, she receives a $35,000 annual retainer, at least $1,500 for every board meeting she attends and stock option grants. As of 2002, she received an annual retainer of $12,000 from Vertex, in addition to $2,500 for every board meeting attended and stock options. A spokeswoman for Citizens Bank did not respond to inquiries.
Ullian, the top official at Boston Medical Center since 1996, declined to comment. Kristen Guillemette, a hospital spokeswoman, said the medical center does business with Citizens Bank and said it uses a "relatively minimal" volume of an HIV medication marketed by Vertex. The hospital does not do any business with Thermo, she said.
A Modern Healthcare survey of top AHA chair officers discovered that several served on the boards of companies that do business with hospitals during their stints with the association (Dec. 2, 2002, p. 8). The AHA permits such arrangements under its conflict-of-interest policy as long as they're disclosed.
Some within the industry say hospital CEO membership on for-profit boards has become more the rule than the exception.
Larry Mathis, the 1993 AHA chairman and former longtime CEO of Methodist Health Care System in Houston, estimated that a "fairly high percentage" of hospital executives are serving on the boards of vendors despite a recent effort to ban such relationships. As the top executive at Methodist, Mathis instituted a strict policy that prohibited board memberships or any outside income whatsoever for him or other executives.
"Our theory," he said, "was that our executives were very well-compensated for what they do, and we were buying their time 100%," Mathis said.