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Time Capsule: Who Wants to Be a Healthcare Millionaire?

September 13, 2013 Time Capsule 4 Comments

I wrote weekly editorials for a boutique industry newsletter for several years, anxious for both audience and income. I learned a lot about coming up with ideas for the weekly grind, trying to be simultaneously opinionated and entertaining in a few hundred words, and not sleeping much because I was working all the time. They’re fun to read as a look back at what was important then (and often still important now).

I wrote this piece in June 2009.

Who Wants to Be a Healthcare Millionaire?
By Mr. HIStalk

I’m a conservative capitalist, but I’m inherently distrustful (jealous?) of anyone who is obscenely wealthy (like most people, I define that as anyone making more than me). For that reason, I can’t decide how I feel about the $30 million in compensation that McKesson paid CEO John Hammergren last year.

As a capitalist, I say more power to him. The board sets his compensation and they should know what he’s worth to the company. That’s how the free market system works (recent spectacular free market failures aside). Greed is good.

On the other hand, I’d be miffed I owned MCK shares, which dropped by a third during that same year. They’re still worth less than half of what they were when McKesson paid $14 billion for HBOC in 1998, only to find out its books were stored in the fiction section. Why is the CEO raking it in but shareholders and 401K employees are losing their nest eggs? (I can’t see from SEC filings that he evens owns any shares, which probably doesn’t inspire much confidence in those who do).

I might be upset as a customer, seeing where my McKesson products fall in the rankings and not getting much innovation for my investment. Heck, Steve Jobs only made $15 million in 2007 and the man invented the iPhone and changed the world, for goodness sake.

I’d be furious as a general critic of CEO compensation. Hammergren’s comp is something like 1,000 times that of the average employee, actually hitting a reported 5 percent of total company earnings last year when he supposedly took home $59 million. He’s also got what magazines have said is the largest going-away nest egg of any American CEO at $85 million (companies spend a fortune getting a CEO and then another one to get rid of them). Surely the financial and automotive industries taught us that companies have no backbone when it comes to paying their executives rationally.

I’m personally upset is as a healthcare purist working stiff. All we on the ground hear is how we have to sacrifice and put the brakes on endless healthcare price increases. No more generous 3 percent pay raises, cafeteria discounts, or travel budgets. The hospital CEOs telling us that are often making $1 million or more a year, as breathtakingly excessive for a non-profit as Hammergren’s $30 million. The people on the wrong end of the decision are wearing scrubs and actually delivering the only service the hospital is paid for – too bad they toil in the non-carpeted areas of the hospital.

Who should be most miffed, though, are consumers watching their medical insurance get more expensive even as it covers less. McKesson basically resells drugs, a manufacturer’s middleman holding and distributing inventory. Is that really such a valuable service? And is running a hospital really such hard work that nobody would to it for less? Is running a mid-sized IT department really worth $300K?

If we get serious about healthcare reform, we cannot avoid debate about who, personally, is making what. I don’t know if the average citizen wants to finance $30 million middleman CEOs, $2 million hospital CEOs, and $1 million doctors. Healthcare must not be much of a calling if nobody in it is willing to work cheaper.

But here’s where I really get confused. Equally debatable are $300K CIOs, $150K IT directors, and $100K programmers. The salary is less, but there are a lot of us. Who’s to say what value we IT types add to healthcare vs. what we’re paid to do it?

I’m no accountant, so I look at healthcare costs as a black box. Profits have to end up as some kind of payment or equity earned by individuals. Lots of people on that list are making more than they are worth, at least judged from the value they appear add to patient outcomes. Still, I don’t see any of them offering to give it back.

So who’s on that list of the massively overpaid people making healthcare so expensive that it threatens the future of the country? John Hammergren for sure, but maybe you and me, too.

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Currently there are "4 comments" on this Article:

  1. He may be overpaid, but based on today’s McKesson stock value it probably is waranted. To correct a couple inaccuracies in your article, in September 1998 the stock was about $75. But Mr. Hammergren didn’t assume the position as President and CEO until April of 2001 when the stock was at $27. The stock is currently at $128. With roughly 230M shares outstanding that represents an increased market value of roughly $23B.

    And some other updates since you wrote this. He was paid about $50M last year, not $30M. And he currently owns about 2M shares of McKesson stock worth over $250M. That should inspire some confidence!

  2. In response to the ‘conservative capitalist’ who wrote “Who wants to be a healthcare millionaire”, I don’t get it. Why are you worried about what others are getting paid? I understand that, as a stockholder, the performance and compensation of CEOs is, and should be, scrutinized, along with stock performance. I don’t understand the scrutiny of *all* healthcare compensation packages, health system CEOs, and even, as you say, “Equally debatable are $300K CIOs, $150K IT directors, and $100K programmers.” As an industry insider for over 15 years, I can say with equal conviction that, if anything, these people don’t get paid nearly enough. Keeping a health system moving forward (notice the word “forward”) and meeting aggressive timelines along with the pressure of meeting all the check boxes to make HITECH dollars, merits more than a 3% increase, especially considering the massive uptick in their workloads. The man on the ground, those CIOs and those IT Directors, manage the equivalent of mini companies, massive teams, budgets and projects that keep healthcare moving forward – not staying in the same place. Thanks for bringing this to everyone’s attention.

  3. You seem to have overlook/ignored the fact that Hammergren took over as co-CEO in 1999, during the crisis, when the stock price fell from $65 to $16. The stock price reached $129 (the day of your article). Total value increased by : $29.7 billion. He actually not just saved the shareholder’s money, but helped them make a fortune. I think its surely worth the compensation paid to him, of which a major portion was the options that he recieved. Plus an IT guy put in his place would have brought the company down. Look what happened to the co-ceo at the time with Hammergren who bridged out to head iMcKesson; it shut shop in 6 months. So do your research well. Something for you to read : http://www.cwhonors.org/archives/histories/Hammergren.pdf

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