HMO Executives Scolded for ‘Hypocrisy’

The bosses at America’s biggest HMOs earned more than $6 million on average in 1996, even as they preach thriftiness to the medical industry and complain that the nation can’t afford legislation to protect patients, a consumers group charged Wednesday.

A survey by Families USA, a Washington-based consumers group, said that payments to executives of one major HMO, Oxford Health Plans, was equivalent to $40 for each of Oxford’s members. By contrast, a congressional study estimated that a key White House reform proposal--the right to an independent appeal of medical care denials by HMOs--would cost less than $1 per HMO enrollee.

HMO executives “are complaining about the pennies it would cost to extend basic consumer protections” even as they enjoy multimillion-dollar paydays, said Ron Pollack, executive director of Families USA, calling it “pure hypocrisy.”

An HMO trade group criticized the study’s methodology and said it misses the point of the managed-care debate. “The fact is, health plans have had a very favorable effect on the affordability of medical care in this country,” said Susan Pisano, spokeswoman for the American Assn. of Health Plans.

HMO executive pay is a familiar target for consumer groups, doctors and labor unions, which have been critical of some of the industry’s cost-cutting practices. The issue is sure to get increased attention this year, when HMOs have begun raising prices even as they battle proposed reforms.

Compensation expert Graef Crystal said his own study last year of HMO executive pay found that, based on company size and financial performance, “HMOs did not pay their CEOs significantly more or less than any other industry.”

But Crystal noted that, unlike other industries, HMOs’ big selling point is their ability to cut costs and eliminate wasteful spending. That creates a credibility problem when HMO executives get rich.

“When people see doctors’ pay being reduced and nurses thrown out on the street, as you wade through this sea of misery, you suddenly find yourself knee-deep in the plush-carpeted office of an HMO executive who’s making millions,” Crystal said. “The worst you can say about HMOs is they’ve got an awful tin ear when it comes to public relations.”

New York-based Oxford Health Plans, which is mired in financial problems, accounted for four of the five highest-paid HMO executives, according to the report. Those four executives received a total of more than $57.2 million in 1996.

Among executives at California-based HMOs, WellPoint Health Networks Chairman Leonard Schaeffer was the nation’s eighth-highest-paid HMO executive in 1996, earning $7 million, which included nearly $5.5 million in long-term incentive pay. Roger Taylor, a former executive vice president of PacifiCare Health Systems, received $4.1 million, including $3.7 million in stock option payouts.

The Families USA study relied on the companies’ 1996 filings with the Securities and Exchange Commission. Pollack said that 1997 figures were largely unavailable when the study was begun early this year.