Daniel Garcia is the chief compliance officer of Kaiser Permanente, a sort of “chief investigator” for the organization. He was hired into that position, a position he helped create, in 2002. His history with Kaiser Permanente, however, dates back to 1992, when he first became a member of the organization’s Board of Directors. He continued to serve as an outside and independent director until he became chief compliance officer on February 1, 2002.

What is interesting about Mr. Garcia’s role at the organization is that he reports to the chief executive officer, George Halvorson and is also responsible for investigating Mr. Halvorson’s conduct. This reciprocal reporting relationship is not unique, however, and similar situations exist at many other organizations and companies. What is troubling, however, is the disturbing role Mr. Garcia played in hiring Mr. Halvorson, the significant resulting conflict of interest, and Mr. Garcia’s alarming history in Los Angeles politics, which is littered with serious allegations of corruption. In fact, it appears Mr. Garcia has never met a potential conflict of interest he didn’t like, but more on that in a moment…

When Mr. Halvorson was recently forced to address the mutual conflict of interest, he, again, mislead Kaiser Permanente employees by leaving out key details. Mr. Halvorson admitted that Mr. Garcia was “was on the committee that recommended that I be hired.” In fact, Mr. Garcia was the chair of the committee that hired Mr. Halvorson.

Mr. Halvorson went on to insist that “It’s…naïve, however, to say that Dan can’t subsequently do his job [as the chief of] compliance because of that prior committee role.” Mr. Halvorson insisted that he believes that demanding otherwise would mean that “any Board member on a search committee would be unable to make future decisions and judgments about people they had voted for in a search process.”

His straw man argument couldn’t be weaker. Here’s why…

It is extremely rare for an inside director to chair a search committee, let alone an inside director who also happens to be the chief compliance officer. A chief compliance officer should be be above reproach, and avoid even the appearance of a conflict of interest.

Dan Garcia was an outside director when he was appointed to chair the selection committee. However, when he later became the primary candidate for the position chief compliance officer (which would have changed his status to a non-independent director), he should have stepped aside as head of the search committee. He didn’t. Instead, he created an even more troubling situation: Mr. Garcia hired Mr. Halvorson, the man who would become his boss. Mr. Garcia did so under the pretense of still being an “independent director.” Mr. Halvorson, by then the (not yet announced, but designated) chief executive officer, turned around and approved Mr. Garcia’s appointment as chief compliance officer. Tit for tat?

Perhaps if Mr. Garcia had been qualified to become chief compliance officer, the conflict would be less obvious. Instead, Mr. Garcia had no executive-level compliance experience or healthcare experience. In fact, Mr. Garcia’s most recent executive position at that point had been as a real estate advisor for a movie studio. That apparently qualified Mr. Garcia to make well over $1,800,000 each year as Kaiser Permanente’s chief compliance officer.

Take a closer look at the timeline:

In July 2001, then-Kaiser Foundation Health Plan chief executive David Lawrence announced he would be retiring, and Mr. Garcia was selected by the board to be the independent director who would chair the search committee.

Over the following months, Mr. Garcia eventually became a candidate to become the organization’s new chief compliance officer.

By October 2001, Minnesota Attorney General Mike Hatch had announced he intended to launch an investigation into Mr. Halvorson and his then-employer, HealthPartners.

By January 2002, Mr. Halvorson had become the lead candidate for the position, meaning he likely began receiving briefings on the organization’s operations, and almost certainly began having input into any major decisions the organization was making, such as… The appointment of Mr. Garcia on February 1, 2002.

Mr. Halvorson’s appointment was then announced by Mr. Garcia on March 7, 2002, barely a month later.

Assuming Mr. Garcia wasn’t qualified for the position of chief compliance officer, perhaps his record as an attorney and politician alone would have been clean enough to assume he could be a sort of “chief ethics officer”? Sadly, no. From quietly recommending his future wife to a city position (without pointing out they had a relationship and while glossing over her previous conviction and short jail time for forgery), to serious allegations that he engaged in a “pay for play” relationship with Los Angeles real estate developer Ted Stein, to his troubling relationship with Leland Wong (who he subsequently was required to investigate at Kaiser Permanente), Mr. Garcia’s past is filled with allegations of conflicts of interest and abuse of power.

In a 2004 exposé, the Los Angeles Times highlighted Mr. Garcia’s lack of concern for avoiding conflicts of interest (let alone the appearance):

Under the City Charter, commissioners are required to disqualify themselves from voting on projects in which they have a conflict of interest or the appearance of a conflict. In a series of opinions dating back many years, the city attorney’s office has consistently held that a commissioner should withdraw ‘whenever the facts are such that the public might well question his objectivity.’ [...] But in voting on Stein’s zoning change, Garcia [voted to approve] the request.”

Mr. Garcia, who chaired the planning commission, voted to approve a string of other requests that Mr. Stein brought before the commission, without ever disclosing their past business relationship (until the Los Angeles Times came knocking).

It’s clear that Dan Garcia is neither qualified nor capable of serving as any sort of “chief compliance” or “chief ethics” officer. As a city politician, he time and time again resigned under the stench of corruption, moving from the planning commission to the police commission and finally the airport commission. By the time the Los Angeles Times did its exposé in 2004, Mr. Garcia was already firmly in place at Kaiser Permanente, protected by his boss (and the man he just happened to have hired), George Halvorson.

Making $1.8 million each year.

Tit for tat.

In my message last fall to my colleagues at Kaiser Permanente, I voiced my concerns that the Kaiser Foundation Health Plan Board of Directors was abdicating its most important responsibility: the oversight of our chief executive officer. I had spoken with several directors last fall, and was disappointed and shocked by their lack of knowledge of the organization, its operations, and its finances. In my message, though, my goal was to encourage the board to take its responsibilities seriously, and I acknowledged that the board was made up of “knowledgeable, respected, and experienced men and women.”

In a “the lady doth protest too much” moment, though, Mr. Halvorson responded angrily, writing that he couldn’t believe anyone would label his board a “rubber-stamp board.” I’m not sure where he got the term, as it wasn’t a term I had ever used to describe our board, but, since then, I have come to recognize it as a sadly accurate label.

Not surprisingly, it wasn’t the first time Mr. Halvorson had to defend a board overseeing him for incompetence. In 2003, Mr. Halvorson tried to defend his previous board, at HealthPartners, after a report by Minnesota Attorney General showed that directors there spent only a few hours each year overseeing the organization (a situation eerily similar to Kaiser Permanente today). Mr. Halvorson insisted the HealthPartners board, which he also had assembled, was not a “parade” board that only rubber stamped a “padded agenda.”

If the accountability and competency of Mr. Halvorson’s HealthPartners board was questionable, it paled in comparison to the rubber-stamp board he would set up at Kaiser Permanente. Less than two years after he became chairman of Kaiser Permanente, Mr. Halvorson had cleared nearly the entire board. By the spring of 2004, the organization had five vacancies on its board, an unimaginable situation for the largest not-for-profit healthcare organization in the country.

In addition to the five empty seats, three other directors had already quit and been replaced. That meant eight of the twelve independent directors had resigned less than two years into Mr. Halvorson’s tenure as chief executive officer, and five of those twelve seats were empty by March 2004. As I’ve said before, it was unprecedented turnover in the history of Kaiser Permanente, for the organization to lose two-thirds of its independent directors in less than two years.

Only two men remain from the board that hired Mr. Halvorson. One is Daniel Garcia, the man who hired George Halvorson, the same man who was later hired and (surprise!) kept by Mr. Halvorson to manage the organization’s ethics department (amid much controversy). Although Mr. Garcia was an independent director when he hired George Halvorson, he is now considered an inside director as his paycheck is signed by Mr. Halvorson. The other man remaining from the original board is Thomas Chapman, an independent director who was recently caught up in an illegal non-profit healthcare kickback scheme investigation by the Connecticut Attorney General. (Yes, you read that correctly. The only two remaining directors that hired George Halvorson have both been caught up in ethical scandals, and, yes, one of them now “runs” the Kaiser Permanente ethics and compliance department.)

Fast forward to today. The majority of the independent directors on the Kaiser Foundation Health Plan board have barely three years of experience with the organization (some even fewer, as high turnover has continued). Each independent director, with one exception, was hand-picked by Mr. Halvorson. Just like in Minnesota, Mr. Halvorson’s hand-picked board has become the epitome of an unaccountable, irresponsible, and incompetent board.

Mr. Halvorson, last year, defended his conduct at HealthPartners, saying that the Kaiser Permanente Board of Directors read the Minnesota Attorney General’s report on his behavior there, and found no problems. If that’s so, why did eight of the directors resign following that discussion?

(If KP were a publicly traded company, it would likely have been required to file a report with the SEC, indicating the reasons for eight directors resigning or being replaced in such a short period of time. Instead, under Mr. Halvorson, the organization has kept director resignations quiet, and only mentioned any vacancy once the seat is subsequently filled. Which explains the large five seat vacancy in 2004: Mr. Halvorson had to fill those seats slowly, to prevent outside knowledge of a rash of resignations. The fact that five or more board seats were empty is buried on page 54 of an obscure bond sale notice from 2004.)

In Minnesota, the Attorney General considered installing his own independent directors on the HealthPartners board. By that point, though, Mr. Halvorson was gone, and the problems had largely (but not surprisingly) left with him. If the Kaiser Foundation Health Plan Board of Directors continues to refuse to adequately meet and consider the critical flaws of the direction in which George Halvorson is taking Kaiser Permanente, perhaps it is time California Attorney General Jerry Brown implement the Minnesota Attorney General’s plan to create a truly independent and competent board to oversee Kaiser Permanente?

This story was originally posted at justendeal.com.

]]>

Chuck Prince, chief executive of Citigroup since 2003, has resigned. Prince is being temporarily replaced as Citi chairman by Bob Rubin, who was Treasury Secretary for most of the Clinton years. Win Bischoff also will serve as interim chief executive.

The country club of bad former chief executive officers is growing. Now that Chuck Prince and Stan O’Neal are out, I’m thinking there are still a few men left to join the ex-CEO party…

That’s: Jim Cayne (Bear Stearns), Angelo Mozilo (Countrywide), Todd Farha (WellCare), and George Halvorson (Kaiser Permanente).

Good luck, gentlemen.

This story was originally posted at justendeal.com.

In his latest weekly update, George Halvorson insists Kaiser Permanente has no “glass ceiling.” Mr. Halvorson’s spin couldn’t be further from the truth, sadly. WellPoint and Blue Shield of California both have many more women among their senior executive ranks than Kaiser Permanente. How disappointing that, instead of using his energy to close this gap, George Halvorson is “celebrating” it.

Mr. Halvorson focussed on the fact that two of his top “operations” executives reflect the diversity of Kaiser Permanente. One is a woman. One is an African American man. Sadly, when you zoom out and look at the top twenty-two executives at Kaiser Permanente, the picture isn’t nearly as diverse: that one African American man is the only black officer of Kaiser Permanente. That one woman is joined by only four others, with women making up barely 22% of the top executives at KP, compared to 40% at WellPoint (Blue Cross of California) and 36% at Blue Shield of California.

One more time, that’s an absolutely embarrassing 22% for Kaiser Permanente, versus 40% at WellPoint and 36% at Blue Shield. This is something George Halvorson thinks is worthy of celebration?

Looking elsewhere in the broader insurance industry, Aflac has three talented, successful African American women among its top executive ranks. Kaiser Permanente? Not one.

Kaiser Permanente has a single Latino executive among its senior ranks (and there are even serious ethical concerns surrounding his alleged involvement in political corruption). For an organization with tens of thousands of talented Latino and Latina caregivers, physicians, and managers, how can that be? (See this comment from 2006 for more disappointing information on Latino and Latina diversity at Kaiser Permanente.)

Only one member of senior management at Kaiser Foundation Health Plan is Asian Pacific American.

Sadly, to understand just how seriously George Halvorson considers diversity at Kaiser Permanente, you need only count the number of typographical errors in his latest update. If diversity was truly an issue he took seriously, perhaps he could bother sending out professional, truthful messages.

This isn’t a record to be “celebrating” and spinning. This is a record to be ashamed of. It’s inexcusable, and it’s just one more example of how out of touch George Halvorson is with the employees of Kaiser Permanente.

This story was originally posted at justendeal.com.

Ever heard of the so-called Foundation for Support of Health and Development in Africa? No? Me neither. It was a supposedly not-for-profit organization that was involuntarily shut down by the Louisiana Secretary of State. Do you think it had any connection to a so-called CentralHealth of Louisiana, Inc.? Which was incorporated for less than a year, and then dissolved?

I’d like to ask George Halvorson if he knows anything about these two mysterious entities…

Better yet, remember The Council of Ethical Organizations, from yesterday’s post? I wonder if they might have anything to say about the matter? You’re right. I really better not ask…

Moving on. Remember J. Clifford Dodd’s connection to that outside company that Kaiser Permanente paid millions of dollars to? You know, back when he was serving as an officer of Kaiser Permanente and a director of the so-called “Tanning Technology”? I wonder if the Kaiser Foundation Health Plan Board of Directors ever bothered looking into that? It’s not like it’s their duty or anything… I’m just asking…

Speaking of which, maybe it’s time California Attorney General Jerry Brown gives a visit to his hometown of Oakland, California? There’s a bit of a mess there, that maybe he can help clean up?

This story was originally posted at justendeal.com.

You might want to read my last post, just in case you missed it. I’m not saying it has anything to do with this one. I’m just saying…

Is there anything odd about this press release from last week? I didn’t think anything of it at the time, but I had a reason to take a look at it again this evening, and I noticed this…

…George Halvorson, an internationally known health care leader and author…

Did nobody tell them that he was is the chief executive officer of the largest not-for-profit health plan in America? Maybe they just didn’t want to mention it, eh?

But, it gets better…

…George Halvorson, who has led two of the most successful nonprofit health plans in the country (Health Partners in Minnesota and Kaiser Foundation Health Plan in California)…

Not once in the press release does it refer to George Halvorson as the current chief executive officer of Kaiser Permanente. Odd choice, no?

Maybe whoever wrote that press release just has issues keeping things in the proper tense? Or, maybe George Halvorson decided to stop exploiting promoting his position at Kaiser Permanente? Or, maybe, just maybe…

Finally? I’m just saying…

This story was originally posted at justendeal.com.

“A committee of the [...] Board of Directors has been formed and is conducting the search for a new CEO.”

That particular statement came from Sprint today, somewhat earlier than expected, to announce that Gary Forsee has stepped down as chief executive officer, effective immediately.

On a much more important note, however, I learned this evening that the board of directors for a particular not-for-profit health plan (which I happen to care quite a bit about) may have finally begun a discussion on how it will handle replacing its own chief executive officer.

I repeat: Finally.

This story was originally posted at justendeal.com.

On Friday, the non-profit Kaiser Foundation Health Plan reported that its profit for the first half of the year was over $1.9 billion. For the first time in years, the organization also reported its figures on an operating income basis, a more helpful measure of ongoing performance, rather than net income (which happens to be an issue I had raised again and again).

Last year, internal projections showed that the organization would begin seeing significant operating losses this year. So, you might, understandably, be wondering: where exactly is all of this unexpected profit coming from?

Good question. In technical terms, it’s usually referred to as funny money.

Beginning last year, Kaiser Permanente essentially set up a printing press for profit in some accounting office in Oakland. For starters, tack on about $350 million in “profit” from the most recent quarter for “reduction of reserves for professional liability and worker’s compensation.” A key question, from an accounting standpoint, is how much of this reserve reduction profit, in fact, came from previous quarters? Those dollars should have been treated as an adjustment to prior quarters, not as misleading profit for the most recent one.

Everybody in Kaiser Permanente is asking: those “administrative efficiencies [which] have contributed to these favorable results” are coming from where, exactly? So, to top up the funny money, George Halvorson has turned Kaiser Permanente into a lean, mean job cutting machine, but you won’t hear a word about that in any press release. Budgets for a number of areas are being “rationalized,” and, in particular, Oakland has been ordering up quite a bit of cash through unannounced job cuts through attrition (which is to say, when somebody retires or leaves, their position may not be filled). Quite a bit of cash that previously was flowing into KP-IT for staffing has also been reduced, which started last fall with mandatory “vacations” without pay. (Can you say “great morale builder“?)

So why the sudden switch to reporting results as operating income, rather than as net income? Did someone at Oakland finally see the light? Was some accountant at headquarters taking accounting advice from my blog? No, I don’t think so.

Year-over-year, net income wasn’t looking so hot. So, George Halvorson did what he does best: he found the numbers that made <i>his</i> performance look as good as possible. (Afterall, what can you judge a chief executive by if not the financial performance of the organization he’s supposed to be leading?) It just so happened that, with all the funny money, operating income was looking quite nice at this point.

Which brings me, once again, to the big issue: transparency. Kaiser Permanente reports its figures, essentially, however it so chooses. Net income last quarter. Operating income this quarter. Who knows what we’ll see for the third quarter? And questions, such as how exactly it’s treating reserve reductions, or even exactly how many employees the organization currently has, just can’t be answered, since the public doesn’t have access to any more detailed information than about 532 words in a press release every few months than George Halvorson has deemed acceptably favorable.

Financially, over the past year, Kaiser Permanente has built an increasingly fragile house of cards. Misreporting of reserve reductions are one issue that led the SEC to file charges against the chief financial officer at ConAgra in 2003. Sadly, as a not-for-profit, Kaiser Permanente is able to operate in the abyss of financial honesty, where barely no agency polices the accuracy or integrity of the numbers it reports.

George Halvorson has chosen to exploit the not-for-profit status of Kaiser Permanente. But that’s not the way everybody plays the game. The American Red Cross, under Mark Everson, the former Commissioner of the IRS, has audited financial statements for 2006 available right on its website.

You won’t be finding any such information on kp.org. And, speaking of the IRS, Kaiser Permanente normally files its Form 990 months late (and 2004, yes, that was three years ago, is the most recent filing you’ll find on GuideStar).

Eliminating financial transparency for Kaiser Foundation Health Plan is a choice George Halvorson makes on a daily basis, a choice that our inept board rubberstamps every time it meets. For George Halvorson, it’s an issue of job security. For Kaiser Permanente members, it’s an issue of their money being wasted and misspent, and most of them don’t even know about it. And if George Halvorson has anything to say about it, they never will.

This story was originally posted at justendeal.com.

You could be forgiven for wondering why the name Benjamin Chu seems to appear whenever there is some questionable organization breaking the boundary that is supposed to exist between not-for-profit and for-profit healthcare. Ben Chu, who reports to George Halvorson, serves as the Southern California regional president for the not-for-profit Kaiser Foundation Health Plan.

You might recall that, earlier this year, the Connecticut Attorney General, Richard Blumenthal, admonished a group of healthcare executives, including Dr. Chu, for allowing “undue and improper influence” (that is, money) to potentially affect purchasing decisions at their not-for-profit organizations. It turned out that Dr. Chu and about three dozen other not-for-profit healthcare “leaders” had set up a firm called the Healthcare Research and Development Institute, or HRDI, a fancy name for an organization that apparently served to funnel perks from for-profit healthcare vendors to for-profit executives.

(Incidentally, Dr. Chu wasn’t the only Kaiser Permanente individual benefiting from HRDI. We later found out that Thomas Chapman was in on the game as well; Dr. Chapman serves on the Kaiser Foundation Health Plan and Kaiser Foundation Hospitals board, and also was an “individual member” of HRDI.)

Fast forward to today, and take note of a little organization called “AHA Solutions, Inc.” Tim, over at HIStalk, says it better than I ever could:

What the hell is the American Hospital Association doing running a for-profit subsidiary that shills vendor products to its members?

Perhaps we should let “AHA Solutions” speak for themselves:

AHA Solutions, Inc. is a for-profit subsidiary of the American Hospital Association. Our job is to “cut through the clutter” for AHA members by finding products and services that efficiently and effectively satisfy a hospital’s core operating needs. These high-quality products and services – provided by vendors that pass our tests for flexibility, stability, and customer service – are awarded the AHA endorsement.

That setup sounds so oddly improper familiar, does it not? Coincidentally, I’m sure, Dr. Chu just so happens to serve on the board of AHA. Could it be that once the Attorney General shut down HRDI, the scheme just up and moved to a new subsidiary of AHA? No, never.

Unfortunately, the never ending string of demonstrated lapses in ethics and judgment by Kaiser Permanente executives doesn’t end there. Kaiser Thrive has the story of a $3 million fine being levied against Kaiser Permanente, one of the largest in the history of the Department of Managed Health Care, for KP’s “haphazard investigations of questionable care, physician performance and patient complaints at its California hospitals.”

After hearing that, you might not be shocked to learn that Dr. Chu heads up Kaiser Foundation Hospitals, in Southern California, as well.

The $3 million fine is probably second to the $5 million penalty imposed on Kaiser Permanente just a few months ago by the Department of Managed Health Care. But, for an organization that generates more revenue each year than Disney, American Express, and even Coca-Cola, what’s a few million here to make some serious issues yesterday’s news?

This story was originally posted at justendeal.com.

With governance at Kaiser Permanente in shambles, it is sad but not surprising to hear that the respected musical chair method of reorganization is now in full swing at KP-IT, under Phil Fasano. The new orgchart has been drawn up and distributed. The only trouble? Well, there aren’t any names. Simple math says there are now fewer positions than there were a few days ago, but nobody knows who’s out just yet.

The details of the brilliant reorganization plan don’t end there. Every year or so, KP hires an outside firm to gather opinions about KP-IT from a sampling of top executives from across the organization. Needless to say, last year’s results painted a bleak picture for KP-IT. In particular, concerns have reached the boiling point with regard to the amount of money being wasted by KP-IT: it’s killing the regions outside California. The solution? Put a new middleman between head CIO Fasano and the itty-bitty CIOs in each of the other regions. I’d hate to be that middleman. (His name is Garry Hurlbut. Pray for him, won’t you?) Just so you’re following me… Dodd: centralize everything! (Pendulum swinging…) Fasano: regionalize everything! (Sad inside joke: somewhere, off in the distance, I hear a Boeing crashing.)

Needless to say, all stop at KP-IT is about how things are going right now. Uptime has held fairly steady these past few months (after doubling every few months last year), but the amount of lost productivity by physicians, nurses, and pharmacists as the result of unavailable and malfunctioning systems is still an enormous (and growing) drain on Kaiser Permanente.

The cash spigot is being tightened to KP-IT, as the organization as a whole is beginning to feel the painful results of poor financial (mis)management. Fasano is bracing KP-IT for job cuts, but so far is coy about whether there will be net losses of positions.

It’s sad to see the wheels coming off the wagon. You know this organization can do better, you know these people, if given the right resources, can do more (well, except one or two of them).

I gave up, long ago, thinking the Kaiser Foundation Health Plan Board of Directors would do something about all of this. (There’s a reason, after all, that Halvorson felt such a strong need to defend his “rubber stamp” board, a term he chose himself, and an accusation I had never made.) But, when Halvorson is finally forced out, the pieces will not be easy to put back together. What a mess. What an unnecessary mess.

This story was originally posted at justendeal.com.