Monday, February 14, 2011

"You Can't Say That" - Non-Disparagement Clauses and the Anechoic Effect

Here is another example of why health care organizations' leaders are different from you and me, and why that may not be a good thing for health care.  A few days ago, the San Jose (California) Mercury News reported on the upcoming departure of a local hospital CEO:
El Camino Hospital's handsomely-paid president and CEO Kenneth Graham is out of a job, the hospital announced Thursday afternoon.

Graham's contract will end June 30 'without cause, at the request of the hospital's Board of Directors,' according to a statement released to the media.

Until then, Graham will continue to fulfill his duties as the hospital's top administrator, according to the statement. Graham has been president and CEO of the hospital for 4½ years.

The brief statement did not explain why Graham has been ousted, focusing instead on his accomplishments. Graham earns an annual base salary of $632,640.

Not only was the CEO "handsomely paid," he will be handsomely paid to depart, as reported two days later by the same newspaper:
Former El Camino Hospital president and CEO Ken Graham may be out of a job, but he won't be hurting for a paycheck anytime soon.

Fired 'without cause' by the hospital's board of directors on Wednesday, Graham is now entitled to nearly $1 million in severance pay, according to his contract, which the hospital provided to The Daily News on Friday.

Specifically, the hospital will pay Graham a lump sum of 18 months' salary when he officially steps down June 30. Based on his annual salary of $632,640, he would receive $948,960.

The reporter could not get any clearer fix on the reason for his departure:
Hospital officials Friday were tight-lipped about their decision to drop Graham. Reached by phone, board Chairman Wesley Alles would only say it was 'without cause.'

'I guess as a generic (explanation) the only thing I can say is it's without cause, that (the board wants to take) some different directions, perhaps, as a generic (explanation),' Alles said.

El Camino Hospital spokeswoman Chris Ernst said she couldn't say more than what was written in a statement released to the media Thursday, which simply stated Graham's contract was ended 'without cause, at the request of the hospital's Board of Directors.'

'I know everyone wants to know if there's something really there, but it was clearly without cause,' Ernst said. 'It's not like you can point to one particular thing and say this is why this action was taken.'

Now wasn't that informative? It appears the CEO was let go "without cause." But reporter Diana Samuels did uncover why nobody was saying anything meaningful about this lucrative departure:
The contract also includes a 'non-disparagement' clause, which says the hospital and Graham cannot make any statements about each other that could cause 'any embarrassment or humiliation or otherwise reflect negatively on the other party(ies).'

I discussed the subject of executive contracts with one of our Health Care Renewal scouts who knows about such things. For high level executives in business, seemingly tidy severance packages are the rule.  We have discussed the problem with excess executive compensation in health care here.

Furthermore, various confidentiality, non-compete, and non-disparagement clauses are often common.

However, whether or not these are common practices in the larger business world, these contract provisions, especially non-disparagement clauses, pose problems in health care.  As we have discussed, there are lots of good reasons that the governance and leadership of health care ought to be maximally transparent.

Just to provide one example, consider the problem of medical errors, a subject which has received unending discussion since the report by Institute of Medicine entitled "To Err is Human."  One widely espoused doctrine about medical error prevention is that such errors ought to be disclosed and discussed openly so that their root causes can be found, and methods to prevent them developed.  Now suppose, for example, that the CEO of a hospital had discovered some medical errors, but made himself unpopular by pursuing them.  Were he to have a bilateral non-disparagement clause in his contract, and were this unpopularity to cause him to lose his job, he could say nothing about these errors, possibly allowing them to recur, but more seriously.  Of course, the example could be turned on its head.  Suppose the CEO had introduced a new process that was thought to be the cause of such errors.  Were he to lose his job because of this, hospital officials could say nothing about the problem, etc, etc.  Similarly, other problems at the hospital either discovered by the CEO or possibly caused by the CEO could remain anechoic due to non-disparagement clauses in hospital executives' contracts.

Of course, in the current case, the CEO might have left due to simple personality differences, and his departure might have nothing to do with medical errors, etc, etc.

However, this case suggests that the sort of non-disparagement clauses that may appear in contracts for executives in various type of businesses have metastasized to contracts for hospital executives.  These clauses, and their cousins, confidentiality clauses and non-compete clauses, may be major reasons for the anechoic effect, and the general lack of transparency of hospital leadership and governance. 

However, up to now, such clauses seem to be, you guessed it, anechoic in discussions of health care policy and health care reform. 

Thus, one step to true health care reform would be for there to be some open discussion of the reasons we cannot openly discuss many important issues in health care, particularly the likely increasing use of contractual clauses such as non-disparagement clauses.  Likely an even more important step would be discrediting such contractual provisions that reduce transparency.


Anonymous said...

I think Kenneth Graham was on the board of directors of Sutter Health at I don't think Sutter Health wants their name tarnished but here is a story about Ken Graham and his assocations to Sutter Health.

Anonymous said...

I have to wonder if such clauses exist in the academic world as we seem to see high level administrators move from university to university with less than stellar results.

Steve Lucas

Pete said...

You conflate here a discussion of population data (error disclosure) and anecdotal data (why a CEO was fired). If I hear that one million children were diagnosed with autism because of inoculations, I can say with some certainty that there is evidence to say that is unlikely to the point of being impossible. If I hear that one child's autism was caused by an inoculation, I can doubt it but can't refute it -- maybe there is some specific issue in this case.

In the state of Florida, I have anecdotal evidence that committing fraud against the government gets you elected governor. Still, I think you'd find that, on average, the outcomes are worse. We need to remember to apply population statistics to populations, and understand that individuals may be outliers. This is why you'll see mutual non-disparagement clauses.

InformaticsMD said...


I disagree. Explanation is simple.

Hospital administration's become a closed country club.

One doesn't publicly disparage one's country club buddies. It prevents them from getting another equally lucrative job.

Doing so also invites litigation, even if the negative information is true.

Non-disclosure clauses in health IT contributes to patients being harmed. Same with healthcare leadership non-disparagement agreements.

Patients and the clinicians who take care of them under increasingly adverse circumstances ultimately pay.

-- SS

Chrissy said...

Healthcare is needed everywhere. I found a book that has been amazing and has motivated me to try and help fix Healthcare .
The book is called, Uproot U.S. Healthcare: To Reform Healthcare by Deane Waldman a physician who has 35 years experience.
Working in healthcare, you see first hand a lot of the problems...It's now time to do something!

Afraid said...

This sort of stuff is very very very common. Often though, when they don't reach an agreement ahead of time, the individual is let go for breaking some sort of unspecified personal misconduct.

Then, being left out on their own, they are more ameanable to a financial settlement which then includes a two sided non-disparagement clause. The financial settlement is contingent (forever) upon keeping the non-disparagement clause intact with treble damages threatened (e.g. the healthcare institution can ask fro 3 times the amount they gave you back should you break the clause since its a contract).

Of course if you don't sign (and take the offer) you are ruined for sure no matter what, often even if you are in the right side of the battle. Mud splashes everyone in the fight if there is one.