Ethical Challenges in Managed Care: A Casebook

By Karen Grandstrand Gervais; Reinhard Priester et al. | Go to book overview

10
CEO Salaries in For-Profit and
Nonprofit Health Plans

CASE STUDY

Philip Lancet is the CEO of MedOne, a nonprofit HMO in the Midwest that is part of an integrated health system including the HMO, three hospitals, and a number of large physician clinics. MedOne enrolls approximately 500,000 members. During Mr. Lancet's five-year tenure, MedOne has experienced tremendous growth and success both in financial terms and in terms of consumer perception and satisfaction. MedOne has consistently held its medical loss ratio—the ratio between health care costs incurred and premiums earned during a given period—at about 93 percent. This means that $93 of every$100 went to health care costs, and $7 went to administration of the product. Administration includes compensation paid to CEOs and others. In a for-profit setting, administration would also include any shareholder distributions. The last two years are the first years in which MedOne has not met its financial targets. Mr. Lancet has been instrumental in reacting to and leading MedOne into the next stage of managed care designed to stem these financial losses.

Mr. Lancet, who has an M.B.A. from Duke and a J.D. from Stanford, is paid $170,000 per year in salary and typically receives an annual performance-based bonus of approximately $70,000. He worked as a health lawyer for eight years before rising through the ranks at MedOne to become the CEO.

A large, for-profit Northeast HMO, Assure Health, is attempting to recruit Mr. Lancet to become its CEO. Assure Health has offered Mr. Lancet a base salary of $350,000 and a targeted bonus of 35 percent of base salary for the first year. Assure Health is a for-profit HMO and has historically had medical loss ratios of about 73 percent.

As a spokesman for MedOne over the past few years, Mr. Lancet has repeatedly pointed to its nonprofit status and high medical loss ratios as virtues of the

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