Few managed care firms have enjoyed a run of financial success close to that experienced by United HealthGroup, and its executives have done remarkably in the process. But success can be a dangerous thing, as it appears UHG’s executive greed may have superceded good judgement. The latest is the ongoing drip drip of news about United Healthcare’s inappropriate executive stock options program continued today with the news that UHG may have to restate earnings to account for the practice of backdating stock options.
Executive stock options at United did not have specific dates for granting of options; the dates floated. The floating date in and of itself is not the issue; what could be problematic is the accusation that the option grant date was backdated to take advantage of movements in the underlying stock, thereby artificially inflating the value of the options.
And we aren’t talking a few bucks here and there. According to the Minneapolis Star-Tribune, United Chairman and CEO Bill “McGuire held options valued at $1.6 billion at the end of 2005; (COO Steve) Hemsley had options worth $663 million. Collectively, the 10 outside directors have cashed in options worth $159.2 million in the past five years.”
While we all admire capitalism and the wealth it creates, when the wealth-creation process is manipulated to generate fortunes for a few, that’s not quite so admirable. And, if this happens while the company itself is hammering its contracted providers for ever-lower reimbursement, that’s a PR problem writ large.
With United’s current status as one of the top three insurers in the nation (covering some 27 million members, or 9% of the national population) and the dominant player in many markets, it does have market power, and has never been shy about exercising same. But success appears to have bred contempt on the part of UHG’s executives for their fellow shareholders and contracted providers, an attitude that may come back to haunt UHG.
What does this mean for you?
Another example that hubris kills.
May
16
