The Covert Rationing Blog

Why Backdating Stock Options Is Completely Understandable

June 4th, 2008 by DrRich

The Wall Street Journal Health Blog reported yesterday that Bill McGuire, the former CEO of UnitedHealth, did not know that backdating stock options was wrong. McGuire was eventually fired for his unfortunate backdating activities.

According to the WSJ, in the way of explaining how McGuire might be unaware that backdating stock options is frowned upon his attorneys state (in a brief filed on his behalf in a shareholder lawsuit), “Dr. McGuire has no formal training or degrees in finance, accounting or law. His only professional training is as a medical doctor with a specialty in pulmonology.”

The WSJ Health Blog, affecting its usual snarky tone, scoffs at this: “The Health Blog has no formal training in pulmonology, but the sums involved in this case do make us gasp for breath.” The value of McGuire’s backdated stock options, they go on to say, has been estimated at $1 billion.

It will undoubtedly be a great comfort to Dr. McGuire that DrRich now wishes to come to his defense.

Yes, it is clearly absurd for McGuire to argue that, because he’s just a dumb pulmonologist, he didn’t know that backdating was wrong. Every doctor, even radiologists*, understand that backdating important documents is wrong and probably illegal.

What the WSJ, and more importantly the litigious and thankless shareholders of UnitedHealth, fail to realize is that the skewing of McGuire’s moral compass has nothing whatever to do with his original profession or training. Rather, it is an essential skill required by anybody running a health insurance company.

These outfits, which exist to covertly ration healthcare, have got to do everything they can possibly get away with to avoid subscribers who are ill or might become ill, who are economically disadvantaged, or who are particularly demanding. They are obligated to do whatever it takes to deny coverage retrospectively to legitimate subscribers who have developed expensive illnesses. In a thousand ways they have got to play fast and loose with the rules and - more to the point - with documents. In fact, if the purpose of documents is not to manipulate the facts to the company’s best advantage, then what earthly good are they?

Once McGuire became the CEO of such an organization, manipulating the truth, largely through the creative use of documents, must have become second nature. And he must have become very good at it. (Otherwise why would the shareholders award him all those stock options?) Getting documents to say what you need them to say would become more than second nature to such a one; it would become why God put him on the earth in the first place.

So when a CEO of a big health insurer is given yet another document on which changing something as simple as a date will significantly improve the bottom line, it must have been unthinkable - nay, unethical! - for him to not simply go ahead and change the date.

The WSJ can laugh all it wants at McGuire’s plea that he didn’t know backdating was wrong. And the shareholders can profess as much outrage as they please. One might as well rail at a rigorously trained pit bull which, in the frenzy of a death match, clamps its jaws on the calf of a spectator who has inadvertently strayed too close to the action. If you’re going to employ such single-minded beasts, be careful of the objects you place before them.

DrRich hopes that it provides Dr. McGuire with a touch of consolation to know that at least one compassionate observer buys his protest of innocence without any reservation whatsoever. Indeed, DrRich would be far more disturbed by the notion that a CEO of a successful health insurance company might actually understand right from wrong, yet still do his job anyway.

* Cardiologists (like DrRich) and radiologists are traditional enemies, engaging as they often do in turf battles over medical procedures, promulgating dueling guidelines, and the like. Consequently, for a member of one group to impugn the native intelligence of the other, as DrRich has done here, is a revered and honored pastime for both of these specialties. So no one need take offense at DrRich’s gratuitous slur of radiological aptitude. Anyone who does is as thin-skinned as a pathologist.

Posted in Gekkonian Rationing

One Response to “Why Backdating Stock Options Is Completely Understandable”

1. Dr. Wes wrote on 06/13/08 at 1:48 pm :

   So when a CEO of a big health insurer is given yet another document on which changing something as simple as a date will significantly improve the bottom line, it must have been unthinkable - nay, unethical! - for him to not simply go ahead and change the date.

   Heh. Yep, he couldn’t help himself… “what’s a little date change amongst friends?”

   Great post.

TrackBack URI

Leave a Reply