UnitedHealthcare Expands Physician Network -AND- UnitedHealth CEO Payout Could Exceed $1B

[CAL/AAEM News Service]

Dear Colleagues, 

The juxtaposition of these two stories is too much. They literally appeared side by side.

Steven C. Gabaeff, M.D., F.A.A.E.M. 

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UnitedHealthcare Expands Physician Network 

Source: California Healthline (http://www.californiahealthline.org) 
Date: October 17, 2006


UnitedHealthcare earlier this month announced that it has expanded its network by 41
hospitals and 11,000 doctors, the San Francisco Business Times reports. The expansion
represents a 7% increase in doctors from its previous network that "leased" doctors and
hospitals from Blue Shield of California. 

After acquiring PacifiCare in December 2005, the federal government required
UnitedHealthcare to terminate its lease with a Blue Shield subsidiary within one year.
However, Blue Shield's CareTrust network narrowed the deadline to six months, ending June
22 (Rauber, San Francisco Business Times, 10/13). 

After the merger, hundreds of Bay Area doctors rejected proposed contracts with
UnitedHealthcare, saying reimbursement rates were too low (California Healthline, 6/9). 

To compete with UnitedHealthcare, Blue Shield began offering employers the same health
insurance rates for one year that they paid for worker benefits the year before under
contracts with UnitedHealthcare (California Healthline 6/16). 

Tyler Mason, spokesperson for UnitedHealthcare, said that while the expanded network is
not the same, the crossover from the lease arrangement is about 97%. 

Roxann Loose -- a consultant at Burlingame-based Physician Focus, which handles
negotiations for 45 local medical practices -- said UnitedHealthcare is offering
inadequate incentives for physicians to sign contracts and is paying some clients at
rates "well below Medicare on what they say are existing PacifiCare contracts" (San
Francisco Business Times, 10/13).

For more information, please visit:
http://californiahealthline.org/index.cfm?Action=dspItem&itemID=125989&classcd=CL109  


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UnitedHealth CEO Payout Could Exceed $1B

Source: California Healthline (http://www.californiahealthline.org) 
Date: October 17, 2006


UnitedHealth Group Chair and CEO William McGuire "could walk away with about $1.1 billion
in stock options, retirement payouts and other benefits," the Wall Street Journal reports
. McGuire has (agreed to resign, after the release of a report that found he likely
received backdated stock options (Forelle/Maremont, Wall Street Journal, 10/17). 

The stock options that McGuire received were valued at $1.78 billion at the end of 2005.
McGuire also received a base salary of $2.3 million (Freed, AP/Los Angeles Times, 10/17).

UnitedHealth officials in a statement said that the company is "engaged in discussions"
with McGuire over the terms of his resignation. Under his contract, McGuire is entitled
to a lump sum payment of $6.4 million and $5.09 million annually in retirement benefits
(Phelps et al., Minneapolis Star Tribune, 10/17). 

According to the Journal, the contract "deems just about any departure short of firing to
be a 'retirement,' under which all of his options immediately vest and continue in force
for another six years." In addition, the contract "takes a fairly restrictive view of
what constitutes grounds for firing: in effect, either a felony conviction or repeated
failure to remedy a serious problem despite repeated notices demanding that he clean it
up," the Journal reports (Wall Street Journal, 10/17). 

In related news, Stephen Hemsley, a lieutenant to McGuire who will replace him as CEO in
December, also received backdated stock options, although he does not face accusations of
wrongdoing, the New York Times reports. 

According to the Wilmer Cutler report, after Hemsley joined UnitedHealth in June 1997, he
received 400,000 stock options based on the company stock price five months earlier for a
gain of $7.26 per share. In addition, almost half of the nine stock option grants that
Hemsley received between 1997 and 2002 were issued when the stock price was at or near a
low point, the report found. 

The report said that Hemsley played a "more limited role in the option-granting process"
and that he had claimed he "was unaware of how the grant dates were selected." However,
the report "does raise some questions about Mr. Hemsley," the New York Times reports. 

Patrick McGurn, a corporate governance expert at Institutional Shareholder Services,
said, "That obviously raises credibility issues. He added, "They are not claiming to know
nothing, but only part of what went on" (Dash, New York Times, 10/17).

NPR's "All Things Considered" on Monday reported on the value of the stock options that
McGuire received. The segment includes comments from Mercer Bullard, a law professor at
the University of Mississippi, and Peter Henning, former SEC attorney and a law professor
at Wayne State University (Arnold, "All Things Considered," NPR, 10/16). 

The complete segment is available online in RealPlayer.

For more information, please visit:
http://californiahealthline.org/index.cfm?Action=dspItem&itemID=125997&classcd=CL109 


Cyrus Shahpar & Brian Potts 
Managing Editors, CAL/AAEM News Service
University of California, Irvine

The CAL/AAEM Archives are available at: http://maillists.uci.edu/mailman/public/calaaem/


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