Physicians gauge impact as CEO leaves UnitedHealth

An insider is selected to lead the health plan giant as a stock-option scandal claims the careers of other executives.

By Jonathan G. Bethely — Posted Nov. 6, 2006

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Now that embattled UnitedHealth Group CEO William McGuire, MD, is leaving the company amid a stock options scandal that has damaged the company's financial reputation, state medical societies are skeptical that new leadership will improve the take-it-or-leave-it tactics physicians said marked United under Dr. McGuire's tenure.

After a sweeping internal probe and ongoing investigations by the Securities and Exchange Commission, federal prosecutors in New York and the Minnesota attorney general, Dr. McGuire, whose unexercised stock options are valued at $1.8 billion, announced he would immediately step aside as chair and vacate his CEO post by Dec. 1. His longtime lieutenant, Stephen Hemsley, was tapped to replace him.

"[Stephen Hemsley] has been groomed under [Dr. McGuire], so we expect that many of the same practices will be carried over," said Susan Strate, MD, chair of the council on socioeconomics for the Texas Medical Assn. said. "At the local level we've had dialogue. Sometimes we're able to affect change, and many times we're not."

Reed Tuckson, MD, UnitedHealth's senior vice president of consumer health and medical care advancement, said he expects the level of what he called collaborative partnering to intensify in the coming months and years. United has shown some willingness to meet with doctors on contracting issues, though usually after physicians protest loudly, as they have in some states over United's attempt to impose a pay-for-performance plan based on claims data.

"We will continue to behave in a collaborative way that respects the role that physicians have in helping us design, implement and refine our programs," Dr. Tuckson said.

"Stephen Hemsley understands this point and has charged me with insuring that we implement this strategy," Dr. Tuckson said.

Dr. McGuire's resignation comes after reports in The Wall Street Journal earlier this year pointed out that in the late 1990s, Dr. McGuire was allowed to structure his stock options -- contracts that allow their holder to buy stock at a certain price, no matter its true market price -- so that they kicked in at a date of his choosing, rather than on a randomly assigned date. Looking at 12 option grants between 1994 and 2002, the Journal found that if the options had been randomly dated, "the odds of their occurring at such propitious times were about 1 in 200 million."

UnitedHealth said Dr. McGuire had agreed to have all of the options issued to him from 1994 to 2002 repriced, but terms of his departure will be further scrutinized. The Senate Finance Committee also has stepped into the fray, requesting documents related to the $1.1 billion in compensation that Dr. McGuire could receive when he leaves the company. Under Dr. McGuire, who left clinical practice as a pulmonologist in the mid-1980s, United's annual revenues grew from $600 million to more than $70 billion.

William Thompson, president and managing partner at the Indianapolis-based law firm Hall Render, said since United's example brought retrospective stock option pricing to the forefront of the public's attention, the SEC more than likely will issue regulations or policies that will eliminate or severely limit the practice. More than 100 U.S. companies are currently under investigation over the practice.

"United and other [health plans] seem to be garnering profits at the expense of reimbursement to physicians," Thompson said. "The insurance companies on the financing side are wholly profit-motivated. It does not appear that the delivery side is bearing the cost of the care to the uninsured and the underinsured as much as that burden is being borne by physicians and hospitals."

United's internal probe was conducted by the law firm WilmerHale. The final report noted that of 27 grants under review, eight were given at the lowest price of the dated quarter and eight were at the second- or third-lowest price of the quarter. Dr. McGuire has said he was in contact with the compensation committee to establish option grants, but the report concluded that the facts don't support his claims. More than 30 top executives at United lost their posts after the investigation.

"It's offensive that that much money is being taken out of the pockets of the people who are paying health care premiums and is put in an individual's pocket instead of paying for health care services," said Brent Mulgrew, executive director of the Ohio State Medical Assn.

Many in organized medicine on the state level say that lately UnitedHealth is developing a reputation among physicians as their most disliked health plan. Some suggest that the source of such attitudes is United's refusal to settle a nationwide class-action lawsuit that accused 10 health plans of conspiring to reduce or deny reimbursement to the nation's doctors.

Additionally, United recently sent physicians a letter informing them that they must enroll in the company's Electronic Payments and Statements program as a way to improve service.

While the company is transitioning to a paperless system, it informs physicians in the letter that if they don't enroll in the program, the company will do it for them. Besides paying doctors electronically, the EPS program also gives United the liberty to remove money automatically from a physician's account if United feels it has overpaid a claim.

"It's an edict on high that says we are no longer going to pay you by check," said Matthew Katz, executive director of the Connecticut State Medical Society. "Some of the tension is that they believe they can walk on high and don't have to make adjustments that benefit patients and physicians. A lot of the other health plans have settled. They have dramatically improved their relationships with physicians."

Katz said United suffers from its for-profit status and its allegiance to Wall Street. Katz said United makes national decisions from its Minnetonka, Minn., headquarters without thinking about the effect those decisions will have on local markets. Because of Minnesota's ban on for-profit health plans, United doesn't operate in its home state.

United has long maintained, in the face of such criticism, that its contracting strategy with physicians is fair.

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