Insurance executive Calvin Anderson says joining the board of bioscience startup Luminetx Corp. earlier this month was just another way for him to give back to the community.
The 49-year-old vice president of federal and community relations for not-for-profit Blue Cross and Blue Shield of Tennessee has long been a director of the Memphis Bioworks Foundation, which works to promote Tennessee's largest city as a mecca for bioscience research. By lending his industry expertise to Memphis-based Luminetx, Anderson said, he could further support both local business and the broader health-sciences field.
Incorporated in December 2004, privately held Luminetx is gearing up to roll out its first product, called VeinViewer, which projects the image of a patient's veins directly onto the surface of the skin, making it easier for doctors and nurses to insert needles. The election of the company's board last week followed an initial round of financing that raised $4 million.
"At this point, my engagement in the company is more for civic reasons than for compensation reasons," said Anderson, a close friend of Luminetx Chairman, President and Chief Executive Officer James Phillips, who also serves on the Bioworks board.
But that isn't to say the arrangement won't be lucrative down the road. While Luminetx directors aren't paid for their services, they receive stock options, which could surge in value if the VeinViewer becomes a must-have for physicians and hospitals, as Phillips predicts.
Anderson joins a growing list of not-for-profit insurance executives who sit on the boards of for-profit healthcare vendors-many of which pay their directors handsomely.
While legal and often mutually beneficial for both the executive and the vendor, such arrangements also raise questions about potential conflicts of interest, divided loyalties and executives' ability to satisfy the demands of two distinctly different corporate masters, said Edward Bryant, a partner with law firm Gardner, Carton & Douglas.
"If you have an executive from a nonprofit payer on the board of a large, industrial company like a pharmaceutical company, you have to wonder what they're doing there," said Bryant, a faculty member of the Governance Institute.
While not-for-profit insurers must answer to the community, he said, publicly traded vendors are required to focus on maximizing shareholder value. "That can be a tricky balance to strike," he said.
But that hasn't discouraged many executives.
John Forsyth, chairman and CEO of not-for-profit Wellmark Blue Cross and Blue Shield, serves on the board of medical products and services giant Baxter International, which pays its directors $45,000 in cash, $60,000 in stock options and $60,000 in restricted stock annually. Forsyth resigned as president of Iowa's Board of Regents, which oversees the University of Iowa Hospitals and Clinics, earlier this year after the system and Wellmark became locked in a contract dispute (Jan. 31, p. 14).
Gail Boudreaux, president of Blue Cross and Blue Shield of Illinois, receives $25,000 a year plus stock options as a director at biotechnology giant Genzyme Corp. Nancy Leaming, president and CEO of Tufts Health Plan receives $24,000 a year plus stock options as a director of Hologic, which sells medical imaging systems. She's also eligible to receive up to $1,500 for each board meeting and $1,200 for each committee meeting attended. Last year, Hologic held seven board meetings, and Leaming sat on three committees, which met a total of 18 times.
William Marino, president and CEO of Horizon Blue Cross and Blue Shield of New Jersey, receives $20,000 a year plus stock options as a director at Computer Horizons Corp., which provides information technology and consulting to a wide range of industries including healthcare. On its Web site, Chimes, a unit of Computer Horizons, touts Horizon as a major client. Horizon officials did not respond to a call seeking comment.
Governance experts say there is nothing inherently wrong with an insurance executive serving on the board of a vendor-even one that does business directly with the insurer-as long as the relationship is disclosed and safeguards are in place to ensure that the directors remain impartial.
"On the other side of the coin, there is such hypersensitivity to potential conflicts of interest these days that many companies have become gun-shy about having any board members even remotely related to" healthcare, said Barry Bader, a governance consultant.
"What you get then are boards of directors with no industry experience. That's not a good situation either," he said.
Anderson pointed out that most insurers have no direct relationship with medical-products vendors, which typically sell their wares to healthcare providers.
"VeinViewer is not a product that would be purchased directly by Blue Cross Blue Shield of Tennessee or other insurance companies," he said. "So there's no conflict-of-interest issue as there could be with hospitals" and physicians.
Still, the potential for impropriety exists, said Vivian Weil, director of the Center for the Study of Ethics in the Professions. Insurers, for example, create drug formularies and determine which medical devices and procedures they will cover. They also work extensively with vendors that provide services such as consulting, outsourcing and information technology.
"People are never totally unbiased," Weil said. If an insurance executive sits on the board of an IT vendor, for example, "the concern is that there is going to be a competing IT vendor that is not going to get adequate consideration, which is not fair for the insurer," Weil said.
Both Bader and Weil advise insurers to implement policies that explicitly outline whether they allow their executives to serve on the boards of outside companies and which types of companies are considered off-limits.
"In this day and age, every company needs to take a greater look at both the real and perceived conflicts of interest they could face," Bader said. "The bar is higher than ever before."