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Perks at HealthPartners
Attorney general says he found a ``culture of luxury'' at the nonprofit.
Star Tribune: Newspaper of the Twin Cities (Minneapolis, MN)
January 16, 2003
Author: Glenn Howatt

Staff Writer
Estimated printed pages: 5

HealthPartners executives took trips to six continents, ate lavish meals, gave gifts of Waterford crystal and paid for a political fundraiser using company funds, according to a state investigation.

Despite the dubious business purpose of many expenses, controls at Minnesota's third-largest health insurer failed to prevent spending on unnecessary trips, gifts, dinners and entertainment, according to Minnesota Attorney General Mike Hatch, whose office released the investigative findings Wednesday.

Hatch said HealthPartners had a corporate culture similar to the one he found during his 2001 investigation of Medica and Allina Health System.

He said all three nonprofits made it too easy to spend money on executive perks and niceties, creating a ``culture of luxury.''

Hatch said that ``culture'' was inconsistent with the nonprofits' core mission of serving the public. Allina and Medica spent more than HealthPartners on such things, he said.
``The health care system itself has to be more accountable,'' Hatch said.

Unlike Medica and Allina, which Hatch helped to split apart and place under new leadership, he said he will ask HealthPartners to install a board member of his choosing to lead improvements in management.

``It is hard for a volunteer board member in a billion-dollar company to question actions of management,'' Hatch said. ``I would like to get somebody who at least has some experience . . . who will help supply some change in the culture.''

Mary Brainerd, who was promoted to chief executive of Bloomington-based HealthPartners in March, called the investigation fair, but said she had not talked to Hatch about remedies.

``It isn't easy to have all of this made public, and you clearly feel the need to defend the actions of the organization,'' she said. ``But I wouldn't disagree with'' the overall conclusions.

Hatch said he will ask HealthPartners to limit some expenses and closely monitor travel, entertainment and other administrative spending for the next 18 months. Medica has been under a similar agreement.

Brainerd, who previously was the company's chief operating officer, said changes will be made.

``It starts at the top, and I expect us to make the changes and make them effectively,'' she said. ``We are going to have the level of oversight that will allow me to know with confidence that we are making those changes.''

Hatch's report also said the company's executive compensation program was so complex that even the company board had a hard time understanding it. The public did not get a full accounting of executive pay, the report said.

The attorney general's office also asserted that HealthPartners violated member privacy when it shared medical information with a survey research firm. Investigators also discovered that HealthPartners commissioned polls to gauge public attitudes about Hatch after news broke about the Medica and Allina audits.

The investigation, which took more than a year, reviewed executive spending, compensation and consulting contracts between 1997 and 2001. Among the five volumes of material released Wednesday, Hatch's office detailed expenses that it said were improper, including a $700 staff meeting at a sports bar during happy hour, a $600 meeting at a pool hall, which included table fees and alcohol, and an $800 departmental ``lunch'' that actually took place at 5 p.m. on a Friday at a sports bar.

There were also many meals at high-end restaurants with tabs that went into the hundreds of dollars, but many of them failed to identify the diners or the business purpose. One $350 meal at Kincaid's Steak House was identified only as a ``cardiovascular dinner.''

The company spent $250,000 on club membership fees and dues, including a fully paid membership at the Minneapolis Club for former chief executive George Halvorson.

Although Halvorson signed a HealthPartners document certifying that he didn't use the club for private purposes, he held a private fundraiser there in August 2000 for Steve Novak, who at the time was a candidate in the DFL primary in the Fourth Congressional District, the report said.

It did not suggest that Novak had done anything wrong, but noted that Halvorson had told the club it was a personal, not business, event, yet HealthPartners paid the $1,000 bill for the event as if it were a company expense. The tab included a buffet of stuffed mushroom caps and quesadillas with mushroom and lobster.

Investigators also said some of Halvorson's travel had dubious value for a company that conducts business only in Minnesota and western Wisconsin.

He took an ``international trade mission'' trip to Sao Paulo, Brazil, that cost $5,000, including first-class air fare. He also took a $9,000 trip to Australia for a conference on how high health care costs were affecting consumers.

Investigators found 100 flights to 30 international destinations by HealthPartners executives. They often failed to submit documentation to justify the business purpose and also failed to submit invoices, the report said.

Brainerd, who was not named among those who took international travel, said foreign trips will be cut down.

``I expect we are going to have a focus quite a bit closer to home,'' she said.

Halvorson left HealthPartners last April for the top job at Kaiser Permanente, a multistate nonprofit health plan based in Oakland, Calif. He could not be reached for comment Wednesday.

When he left last year, he received more than $3.4 million in remaining salary and benefits, the investigators determined.

Despite previous statements by Halvorson that the corporate board had tight controls on expenses, investigators said its members were confused about Halvorson's compensation.

``The board did not appear active or even know what the top officers were getting,'' said Assistant Attorney General Karen Olson.

She said the company structured its compensation program so that it would be difficult for outsiders to know how much executives were paid.

Brainerd said the company simplified its compensation program last year and began disclosing more information to the public.

The report also said HealthPartners spent $26 million on outside consulting firms, but didn't get bids on all the contracts and paid consultant invoices that lacked a full explanation of the services.

One firm was Martiz Marketing Research Inc., which conducted member surveys in 1998 and 1999. HealthPartners gave the firm a list of members who were diabetic or had sought behavioral health care.

Although the health plan wanted to measure member experiences with their treatment, the survey company pretended not to know the members' diagnoses in its communications with them.

``This type of surveying is deceptive and highly questionable,'' the report said.

- Glenn Howatt is at


Changing HealthPartners

Attorney General Mike Hatch said he will ask HealthPartners to control expenses and report to the state in six months. The areas under scrutiny:

Travel and entertainment:

All expenses must be itemized and include invoices; limit club memberships; prohibit luxury items or hotel stays; ban out-of-state retreats; restrict international travel; limit alcohol at company-paid meals, and require prior approval for entertainment.

Executive Pay:

The corporate board must provide more oversight; the board must compare executive compensation to comparable firms; bonuses should not be linked to profits, and compensation must be publicly disclosed.

Consultants and lobbyists:

The board must require consultants to justify expenses; use separate outside firms for consulting and auditing, and limit spending on lobbyists, trade and professional group dues and other public relations or public affairs firms.

HealthPartners' spending

An investigation by the Minnesota Attorney General's office discovered that HealthPartners either violated its own expense policies or failed to prevent unnecessary spending. Between 1997 and 2001, the investigation found problems in these areas:

$26,000: International travel for former CEO George Halvorson to Brazil, Chile, Australia, Dublin

$34,500: Executive travel to Miami, California, New Mexico, Arizona and New York which lacked expense documentation or had no apparent business purpose

$389,883: Board retreats, including two events at the Hotel Del Coronado resort in California, which advertises itself as a playground for celebrities, politicians and world leaders

$33,713: Theater & sporting event tickets, including Vikings, Minnesota Wild and concerts by Elton John and Billy Joel, Yanni and Lorie Line

$250,000: Membership and fees for clubs, including the Decathlon Club, Minneapolis Club and Minnesota Horse and Hunt Club

$28,005: Board members or departing workers received gifts of Waterford crystal, kayaks, hammocks, clocks and gifts for showers and weddings

$321,167: Parties for board members or employees at hotels, restaurants or boating excursions on local lakes and rivers, including $8,800 for an outside consultant to plan the parties

Source: Minnesota Attorney General's office
Edition:  METRO
Section:  NEWS
Page:  1A
Copyright 2003 Star Tribune: Newspaper of the Twin Cities