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Despite Being 'Very Much Alive,' 4,200 Veterans' Benefits Cut Off After Being Declared Dead

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Closing Arguments Held In Illinois Hospital-Merger Antitrust Case

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Blue Shield 'Lifts The Veil' On Executive Pay

In its first detailed disclosure on executive pay, nonprofit Blue Shield of California said Chief Executive Paul Markovich made $3.5 million last year – a 40 percent increase since he took the top job in 2013.

The San Francisco-based health insurer has faced criticism for years from consumer advocates about its lack of transparency on executive compensation, and the issue attracted even more scrutiny after a state audit raised questions about the insurer's big pay increases and large financial reserves.

Following that audit, in 2014, California revoked Blue Shield's state tax exemption, which it had held since its founding in 1939.

Blue Shield of California CEO Paul Markovich (Steve Yeater/AP)

In the report issued Thursday, Blue Shield for the first time listed the compensation for its 10-highest paid executives by name. The company also offered details, such as base salary and incentive awards.

Markovich made $2.5 million in 2013, $3 million in 2014 and $3.5 million last year. That 2015 compensation included a base salary of $1.07 million and incentive plan payouts of $2.45 million.

Blue Shield is California's third-largest health insurer with 4 million members and $14.8 billion in annual revenue. The company's 10-member board is led by Chairman Robert Lee, a retired Pacific Bell executive, and also includes Leon Panetta, who served as defense secretary and as director of the Central Intelligence Agency during the Obama administration.

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“While we have been providing reports as required to regulators, it left something to the imagination,” said company spokesman Steve Shivinsky. The company wanted to “lift the veil and make sure we are going above and beyond what is required so there is a higher level of transparency.”

Shivinsky said Markovich's pay increases reflect the company meeting or exceeding many of its performance goals as well as the overall growth of the company. His reported compensation doesn't include retirement plan payouts that accumulate over time and would be reported when an executive leaves the company, Shivinsky said.

Consumer advocates said Blue Shield waited far too long to share details with their policyholders and the public.

“This is the kind of information that should have been forthcoming from Blue Shield a long time ago,” said Anthony Wright, executive director of Health Access, a consumer advocacy group. “We are paying for these salaries through our premiums.”

Jamie Court, president of Consumer Watchdog in Santa Monica, said the new report still doesn't address all of the deferred compensation and retirement money that top executives could leave with.

“Blue Shield is a black hole when it comes to where the money is going,” Court said. “They are the least transparent health insurance company in America.”

The company didn't provide information about executive pay until it was required to do so by a 2010 state law. Even then, the company wouldn't put names with the amounts listed and didn't spell out what was included in terms of salary, bonuses or other compensation.

In the new report, Blue Shield didn't provide any details on payouts prior to 2015, including for former CEO Bruce Bodaken.

Michael Johnson, the former public policy director at Blue Shield who has become a critic of the company, said last year that Bodaken received about $20 million as part of his 2012 retirement package, on top of his annual pay. He was chairman and CEO from 2000 to 2012.

Blue Shield had omitted the pay for Bodaken and other executives who had departed during 2012 from a state filing that required annual compensation data on the company's 10-highest paid employees.

The company said it interpreted the rule to apply only to executives still employed at the time it filed the paperwork, which was March 2013 in that case.

Blue Shield insists it did nothing wrong, and the company called the $20 million figure for Bodaken “speculative.”

“We won't go and revisit previous board decisions or payments made to executives,” Shivinsky said. “Our board spent a lot of time discussing this, and going back in time didn't seem like a reasonable step to take.”

Although pay increases and the former CEO's retirement package have drawn fire, the annual compensation of top executives is comparable to what other health care companies pay. Many of Blue Shield's competitors are publicly traded industry giants that pay their CEOs more.

Anthem Inc., which sells Blue Cross policies in California and 13 other states, paid CEO Joseph Swedish $13.6 million in salary and other compensation last year.

Nonprofit Kaiser Permanente also pays top executives more than Blue Shield. George Halvorson, Kaiser Permanente's former chairman and CEO, made $10.4 million in 2014, the latest figures available.

But Kaiser Permanente and other insurers are more transparent about salaries than Blue Shield. Kaiser lists compensation for dozens of executives in its federal 990 filings as a nonprofit, tax-exempt organization.

Blue Shield doesn't file a form 990 because it falls into a unique category. It has paid federal income taxes for years under a change Congress made in 1986 to treat large Blue Cross Blue Shield health plans the same as for-profit insurers. But it had been exempt from California income taxes before the state revoked that status in 2014.

In the new disclosure, the second- and third-highest paid executives for 2015 are no longer at the company.

Janet Widmann, who was then an executive vice president, received $3.4 million last year. That amount may include one-time payments such as retirement or pension money, according to the company. Next was Robert Geyer, the former senior vice president for customer quality, who made $2.5 million.

In all, the top 10 executives at Blue Shield received $18.8 million.

The questions about transparency have come as the insurer has experienced significant growth. Blue Shield's enrollment last year shot up 17 percent to 4 million members, due in large part to the $1.2 billion acquisition of insurer Care1st. Annual revenue also increased 11 percent to $14.8 billion.

This story was produced by Kaiser Health News, which publishes California Healthline, a service of the California Health Care Foundation.

Viewpoints: Doctors And Gun Violence; In Funding Scrum, Lawmakers Pit One Virus Against Another

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State Highlights: Georgia Strikes Mental Health Services Deal With Feds; States Consider Soda, Cigarette Taxes

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State Highlights: Wash. Senator Pushes More Affordable Insurance Options; New England Drinking Water Linked To Bladder Cancer

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For Hospitals, Prestige Leads To Profits

When it comes to hospitals, which benefit most from high health care prices? It may sound counter-intuitive, but a group of not-for-profit hospitals appear to be among those doing the best business.

At least, that's the idea in a study published Monday in Health Affairs. It analyzes how hospitals make money and ranks the nation's 10 most profitable ones - those making hundreds of millions of dollars through their inpatient and outpatient care. Seven were nonprofits, including the top four.

The findings are based on Medicare cost reports from fiscal year 2013, analyzing almost 3,000 acute-care hospitals. About 60 percent were nonprofit, while one in four were for-profit. The rest were public, or government-owned.

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The top three were nonprofits. Gundersen Lutheran Medical Center, part of the large Wisconsin-based health system, made the most money: $302.5 million just on its patients. California-based Sutter Medical Center, also part of a large system, came in second. Stanford Hospital, also in California, was third.

Those hospitals share a key attribute, the authors argued. Whether because of their size, their prestige or their influence in the community, they have more power to negotiate prices, meaning they can charge insurers more for the care they give.

“They are the only provider - or they are clearly the dominant provider - and the insurers in that community are relatively weaker, and there are a lot of them,” said Gerard Anderson, director of the Johns Hopkins University Center for Hospital Finance and Management, and one of the study's authors. “[The hospitals] can take advantage of their market position. And they do.”

The researchers looked only at profits made from actual medical care, meaning they didn't factor in the often substantial amount of money hospitals make from sources like investments, grants, donations, parking fees and property rentals. The idea was to focus on what hospitals make from patients alone, said Ge Bai, the study's primary author. Bai is currently an assistant professor of accounting at Washington and Lee University, though she's joining the faculty at Johns Hopkins' Carey Business School in the fall.

Most hospitals - particularly nonprofits - don't actually earn money from patient care. Rather, a large market share or inclusion in a big health system - like Gundersen - better predicted how well hospitals would do.

“Many of the hospitals best-positioned to earn profits are non-profits - they're the ones often that have the most prestige, they're the largest hospitals,” said Paul Ginsburg, the director of the Center for Health Policy at the Brookings Institution and director of public policy at the University of Southern California's Schaeffer Center for Health Policy and Economics.

Ginsburg, an expert in health economics, wasn't affiliated with the study.

Market muscle matters in bargaining with insurers. That may be driving the hospital industry trend toward consolidation.

In recent years, many hospitals have merged to form larger health networks. They argue that doing so leads to better service to patients - for instance, care can be coordinated across more locations. In addition, they say they can then better negotiate with insurance companies. The study notes that in markets dominated by insurance companies, hospitals were less likely to profit from patient services.

But mergers have also been shown to increase the cost of health care. That's because they often give hospitals leverage to set higher prices or charge insurance companies more. Likewise, brand-name hospitals, such as those affiliated with prestigious universities, can exert a similar pressure, Bai said. For instance, she explained, if she were shopping for health insurance in Baltimore she wouldn't buy a plan that didn't include Johns Hopkins Hospital.

Increased health care costs, the study authors said, are felt by consumers - either in the form of higher health plan premiums, or, in higher hospital bills for patients who don't have insurance or who receive care out of network. The latter situation happens more often than people expect, Bai said, especially in emergencies, when people don't have time to pick who'll treat them.

The study also adds to the debate about whether the tax status of nonprofit hospitals needs more thorough scrutiny, Ginsburg said. They typically don't have to pay taxes because, the idea goes, they provide a public service. But the paper's findings “very clearly raise the issue about … whether these hospitals need or deserve the tax exemption.”

That's an issue federal policy has tried to address, too. The 2010 health law, for instance, included a provision intended to make nonprofit hospitals prove they deserve their tax-exemption - increasing the standards for the “community benefit” those hospitals are supposed to provide.

Often, the local hospital is the largest economic engine in a community, and not taxing it means the local governments forgo a significant amount of revenue. The benefit a not-for-profit hospital provides hardly differs from that provided by one that's for-profit, especially when both types of hospitals have rosy financial outlooks, based on the patient care, Ginsburg said.

Meanwhile, Bai said, the findings also support the notion that hospital mergers need to be better regulated. Setting federal limits on what hospitals can charge for a particular service might also help, she added. Maryland and West Virginia have experimented with that idea. Despite outcry from some executives, the study notes, hospitals in those states are still profiting.

Without that kind of oversight, Bai said, consumers will get shortchanged.

“We're absolutely paying a higher price,” she said.