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2 more boards rethink own pay

Harvard Pilgrim, Tufts set meetings; O’Neill donates his director’s fee

By Robert Weisman
Globe Staff / March 10, 2011

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Health insurers Harvard Pilgrim Health Care and Tufts Health Plan said yesterday that their board members will meet later this month to discuss whether to bow to state Attorney General Martha Coakley’s wishes and stop taking five-figure annual payments.

The planned meetings of the Tufts board and the Harvard Pilgrim board’s governance committee were disclosed a day after the state’s largest nonprofit health insurer, Blue Cross Blue Shield of Massachusetts, said it will suspend payments to its board of directors at least through this year, and consider changing its legal structure.

The actions follow public criticism over extravagant executive and director pay at a time of surging health care costs.

“These board fees for insurance companies are off the reservation,’’ said F. Warren McFarlan, professor emeritus at Harvard Business School and an authority on nonprofit boards, noting that the state’s nonprofit hospitals and universities do not pay their part-time directors.

“On for-profit boards, you expect to be paid. In the nonprofit world, it’s about time, talent, and treasure. It’s about serving the organization’s mission,’’ he said.

Documents filed with the state Division of Insurance last week showed that Harvard Pilgrim, Tufts, and Fallon Community Health Plan, like Blue Cross, paid most of their directors large sums for part-time board service in 2010. While less generous than those given to Blue Cross board members, payments ranged from $21,900 to $68,100 at Harvard Pilgrim, $19,500 to $82,500 at Tufts (except for two board members who received nominal fees), and $13,900 to $24,350 at Fallon.

Meanwhile, the highest-profile member of the Tufts board said yesterday he won’t take any more money until the issue of board compensation is settled at the Watertown-based insurer.

Board member Thomas P. O’Neill III — chief executive of Boston public affairs firm O’Neill & Associates, former lieutenant governor, and the son of legendary House Speaker Thomas P. “Tip’’ O’Neill Jr. — said he asked Tufts chief executive James Roosevelt Jr. to give fees he hasn’t yet received this year to Boston Health Care for the Homeless, until the Tufts board decides on director compensation. O’Neill received $26,000 in board fees from Tufts last year.

Calling himself the “most public face on the board,’’ O’Neill said he made the request to allow the directors to consider the matter with fewer distractions.

Coakley said on Tuesday the Blue Cross vote to suspend board fees was an encouraging step, and she urged the state’s three other major health plans to follow suit. Her office is wrapping up a 16-month inquiry into nonprofit board compensation, and was expected to recommend this month that nonprofit insurers stop paying directors.

Fallon, based in Worcester, is “evaluating its practices,’’ said spokeswoman Christine Cassidy, but she could not give a timetable for a decision. The governance committee of Wellesley-based Harvard Pilgrim’s board will meet in the next few weeks to consider the issue, while the Tufts board will meet within two weeks, representatives said.

In addition, members of the Tufts foundation board, who are paid fees of $500 per meeting four times a year, will meet later this week to weigh the matter. Foundation board members at Blue Cross and Harvard Pilgrim are not paid.

Within all the health plans, there is sentiment in favor of continuing the directors’ pay despite the opposition of Coakley and others. O’Neill, who said he sits on eight other nonprofit and two for-profit boards, said Tufts directors work hard and deserve the money they receive, but he wants other board members to make their own determination. He said he would stay on the board even if the payments are ended. More than a dozen other directors at Tufts, Harvard Pilgrim, and Fallon did not return phone calls or could not be reached yesterday.

Harvard Pilgrim spokeswoman Sharon Torgerson said board members make crucial contributions to the company.

“Our directors actively participate in the operation of a $3 billion business and we rely on them to apply their specialized experience and skills in the areas of law, accounting, finance, and medicine,’’ she said.

Similar arguments were used earlier this week by a pair of Blue Cross directors — Paul Guzzi, president of the Greater Boston Chamber of Commerce, and Robert J. Haynes, president of the Massachusetts AFL-CIO — to justify their board compensation. Guzzi collected $84,463 in 2010, while Haynes was paid $72,700.

But the Blue Cross board, on the urging of new chief executive Andrew Dreyfus, ultimately suspended directors’ payments until it reaches a decision on whether to seek a change in the company’s legal classification as a public charity.

Blue Cross dominates the health insurance industry in Massachusetts, with nearly 3 million members. If the plan converts to another legal structure, such as a member-owned mutual insurance company, it could put pressure on rivals to reassess their structures, suggested Harvard Business School’s McFarlan.

“They would be viewed and monitored in a different way if they were no longer a nonprofit,’’ said McFarlan, a former board chairman at Mount Auburn Hospital in Cambridge. “If they [Blue Cross] move, I would bet you $100 to $1 that the others move as well.’’

But representatives of the other plans said the agendas at their upcoming meetings will focus on payments to board members, not their legal classification.

While the Blue Cross payment suspension has called attention to the matter, a larger issue may be executive compensation at nonprofit health plans. Criticism of Blue Cross board fees mounted after the insurer disclosed last week that it gave an $11 million exit package to its former chief executive, Cleve L. Killingsworth. That included his 2010 salary, retirement pay, and severance.

“As long as health care costs are soaring rapidly, the spotlight on executive compensation will be relentless,’’ McFarlan said.

Killingsworth’s successor, Dreyfus, said he has asked to be paid at the lowest end of the market. He will receive $800,000 this year, with potential total compensation of $1.8 million if he meets performance goals. That’s half of what Killingsworth got in his peak earning year.

Dreyfus, who took over at Blue Cross in September, earned a total of $799,899 last year, most of it for work in his prior job as executive vice president for health care services.

Tufts’ Roosevelt received total compensation of nearly $1.2 million in 2010. Eric H. Schultz, who became Harvard Pilgrim’s chief executive last March, earned $795,017. Fallon chief executive W. Patrick Hughes drew total pay of $649,581.

Megan Woolhouse, Casey Ross, and Jenifer B. McKim of the Globe staff contributed to this report. Robert Weisman can be reached at weisman@globe.com.