Covert's Anechoic Misadventures

We have frequently discussed how health care leaders' compensation seems to reflect the opposite of the pay for performance they often tout.  One example we discussed recently turns out to be even more vivid than we first discovered.

Last week we discussed the case of Mr Michael Cover, the CEO of the small, public Palomar Pomerado Health system in southern California, whose total compensation increased to over $1 mllion a year, while his hospital system was cited for severe, life-threatening medical errors.  The current and previous system board chairmen called his work "excellent, and " phenomenal," and asserted Mr Covert was "one of the nation's leading health administrators."

It turns out that a local weekly newspaper, the Community Paper, investigated Mr Covert's background in 2008, and what they found was not exactly the story of one of the nation's leading health administrators.  Let us summarize his record over 25 or so years.

1980s - Failure to Investigate the Michael Swango Case

As reported by the Community Paper:

Michael J Swango had received a surgical internship at Ohio State University in 1983. Nurses began noticing that apparently healthy patients on floors where Swango worked began dying mysteriously with an alarming frequency. One nurse caught him injecting some 'medicine' into a patient who later became strangely ill. The nurses reported their concerns to the administrators, headed by Michael Covert, but were met with accusations of paranoia. Only a perfunctory investigation was conducted.

In response to the board's inquiries, Surgery Director Dr. Larry Carey expressed misgivings about Swango, citing run-ins with hospital personnel and, specifically, the episode with several patients who became ill after treatment by Swango, one of whom died (and for whom Swango would later plead guilty to having killed).

At no time did Mike Covert, as executive director of the Ohio State University Hospital system, call in either University Police or Columbus, Ohio Police to investigate the matter, even though patients of Dr. Swango had died, even though documented observations and evidence had been submitted to the proper internal authorities.

Later, after Swango had been arrested in Illinois, the Ohio authorities got involved, however:

'It was only then,' says Dick Harp, Lead Investigator for the Ohio State University police department on the Michael Swango case, 'when the Quincy, Illinois, police department called us and told us they had this guy who had been a doctor at Ohio State and he had poisoned some people, that we got involved.' Harp said he contacted the Ohio State Hospital University staff and there appeared to be a collective effort to resist the investigation. They were not terribly cooperative, he said.

Eventually,

The Columbus Dispatch, Columbus, Ohio�s, daily newspaper, reported in a June 1985 article that as a result of the controversial fallout caused by this failure to notify police authorities, a new hospital policy was implemented. This, following an internal report concerning the allegations against Swango as well as a highly critical internal report against Dr. Swango.

Swango was convicted of aggravated battery for attempting to poison co-workers in Illinois, and in 2000 pleaded guilty to killing three patients, and is in jail for life.

In retrospect, Covert's resistance to investigating complaints about Swango does not seem to have exemplified excellent leadership.

The 1990s - Jury Findings of Illegal Revocation of Privileges

Mr Covert then moved to Kansas, and then to Sarasota, Florida to become CEO of Sarasota Memorial Hospital.

The Community Paper noted that Mr Covert and the Hospital lost a multi-million dollar lawsuit that alleged the they had illegally revoked a physicians' hospital privileges:

Dr. Flynn and his attorneys alleged, and proved, that Michael Henri Covert, president and CEO of Sarasota�s Memorial Hospital, and the Sarasota County Public Hospital Board, doing business as Sarasota Memorial Hospital, unlawfully and without just cause, revoked or terminated the medical privileges of a doctor at the hospital who specialized in pain management, and that they did so because the doctor had earlier (in 1994) filed and pursued a federal lawsuit. Secondly, the jury also found that the Hospital Board had additionally executed the revocation and termination of medical privileges for other than the filing of the federal lawsuit. Under Section II of the jury verdict they also found that the Sarasota County Public Hospital had terminated or revoked the doctor�s privileges as as a result of the doctor having exercised his freedom of speech rights.

Called to the witness stand, Michael Covert was clearly and thoroughly impeached by Plaintiff�s attorney, Tony Leon.

Impeachment is a lawyer�s fancy word that simply means the witness and his veracity is questioned. The witness is accused of not being honest in his actions and statements. Based on his testimony while being impeached, the jury then made their judgment, ruling against Michael R. Covert and the Sarasota Memorial Hospital, finding the Defendant had violated 28 U.S.C., Section 1983 (depriving the plaintiff of his constitutional rights of free speech) and the Plaintiff was entitled to damages.

The Community Paper story also alleged that Sarasota Memorial lost millions of dollars through an ill-advised subsidiary set up by Mr Covert to buy physicians practices.

Losing the trial and losing the money again hardly seem to be the mark of an outstanding leader.

21st Century - Alleged Misrepresentations to Secure Government Funding

Mr Covert became CEO of Palomar Pomerado in 2003. In 2007, the Community Paper reported:

Mike Covert, the president and CEO of the Palomar Pomerado Health District, was quite active in promoting Proposition BB which would deliver $496 million dollars to the district to aid in building a new hospital. It suggested further that Mr. Covert was so active that he and his minions may have, in fact, made substantial misrepresentations in order to persuade the electorate to pass the bond issue. We also documented how the cost overruns had run up to $1.2 billion dollars (from an original projected cost of $753 million). This figure was later trimmed back to $990 million. Further, the downtown business community was concerned that a major promise that was made about importing the administrative staff to the existing downtown Palomar Hospital campus might not be kept. If that promise was broken then downtown Escondido might well become a ghost town.

That story lead the paper to inquire further.  Further, misrepresentations are not the mark of an excellent leader.

2008 - Alleged Dictatorial Management Style

Reporters found:

Talking with medical staff, newspaper reporters from Columbus, Ohio, and Sarasota, Florida, and with medical staff here in North San Diego County, a picture of an energetic, eager, impatient, egotistical, demanding, and often angry chief executive emerges. It was interesting that a parallel term was used by medical staff in Sarasota and in Escondido to describe Mr. Covert�s management style. 'He�s a Little Hitler,' was the common expression used by both medical communities.

According to several medical staffers at Sarasota Memorial Hospital, Covert was not well liked, was described as manipulative and that he would do anything to get his way. Former board member Catherine Bowles, who had been at odds with the board and Covert testified at Dr. Flynn�s trial that 'people who complained about patient care were not warmly received by a majority of the board.' Nor, it is said, by Mr. Covert.

A number of others who know him, both within the medical community as well as within the Escondido community at large, agree that he is a highly egotistical man. He has to have things done his way. He is very good at playing politics and is also very good at playing hardball with contracted medical service suppliers.

Yet another doctor gave a somewhat contrasting view: 'He�s affable on one hand . . . a very good salesman; in front of a group he�s almost evangelical in his passion . . he almost bowls you over. Makes me kinda question someone who has so much zeal like . . 'I�m right.''

'Like all CEO�s, he�s very egotistical. He wants to have total control over everything, including the doctors.'

It is said he wields departmental administrative assignments as a tool and dangles the financial remuneration of them, ranging from as little as $10,000 to as much as $150,000 a year, as an incentive to fall in step with his wishes.

A number of doctors who practice at the Escondido campus of Palomar Medical Center confided to us, off the record, that they feared Covert.

One doctor complained, 'Covert is trying to take over as dictator of the hospital. There is supposed to be a separation between the hospital, the medical staff and the administrator. If you have the administrator making all the decisions then all decisions are made on money issues rather than what is best for the patient or the patient population. This poses a threat to the medical population and harms the quality of medical care. Covert is simply Hitler reborn.'

Another doctor agreed, saying, 'At most hospital districts, administrators don't normally show up at Medical Executive Meetings unless invited . . . but here, administrators are present at closed meetings. They should not be privy to private medical meetings/discussions and they tend to dominate the meetings.'

Again, a "brilliant" leader who is manipulative, rebukes criticism, and dictatorial?

2008 - Contrasting Praise from the Board

While the physicians questioned his management style, just as we noted this year, the then board chairman was effusive:

You and your readers need to know that Covert is one of the most highly regarded executives in the industry. He has received a number of very prestigious awards. Some of them puts him in the company of surgeon generals, such as C. Everett Koop. He has held high executive and board membership in national organizations.

At that time, the board chairman claimed that when Mr Covert was hired, after having been recommended by a national search firm, none of the issues noted above had come to light. 

2008 - The Temporary End of the Story

The Community Paper story ended on a disquieting note, suggesting that even the extensive results of their investigation recounted above were not complete, and that there might be grounds for a criminal investigation:

There are many other comments from physicians, other leads to follow in pursuit of the rest of this story. However, we, as a weekly newspaper, have neither the time nor resources to explore the labyrinthine depths of hospital administration committees, subcommittes, advisory councils, etc. Side financial agreements, whether or not their are 'kickback' arrangements within the hospital structure. That additional research and reporting would be better left to someone who has the resources, such as a Grand Jury.

I could find nothing to suggest any further investigation ensued. There appears to have been no local reaction to the Community Paper story. As we noted above, instead Mr Covert got a raise, and is currently getting over $1 million a year in total compensation.

Summary

A more complete look at the record of one CEO of one small, public hospital system suggests even more discrepancies between his ever increasing remuneration, justified by ongoing effusive support by his board, and a record that at best suggests multiple questionable management decisions and multiple bad results.

Note that even though considerable information was available on the public record that should have lead to questions about his leadership, this information remained relatively anechoic, and the questions were not repeated.  We have found that very few have been willing to question or investigate the powers that be in health care, and that direct or implied concerns about how health care is lead tend to be anechoic.

This case demonstrates the sorts of problems in health care governance and leadership that we started Health Care Renewal to discuss. Perverse incentives and poor oversight seem to encourage leadership by the wrong people, hired for the wrong reasons, to do the wrong thing.

There is again an ongoing discussion in the US about the costs of health care. Bad leadership of health care organizations is not only directly costly, but leads to huge indirect costs as the results of bad, if not sometimes corrupt decisions. As Matthew Holt pointed out in a comment on our earlier post on Palomar Pomerado, it is not that the case above is an outlier. It is likely just a better documented version of what is going on throughout health care.

Yet outside of a few lonely bloggers, not many people talk about bad leadership and bad governance as fundamental, major causes of our ongoing health care crisis.

We say again, true health care reform will require having health care leadership and governance that displays accountability, integrity, transparency, and honesty.  But first, we have to be willing to openly discuss bad, that is unaccountable, opaque, dishonest, and corrupt leadership. 

Hat tip to our own Health Care Renewal blogger Dr Scot Silverstein for finding the 2008 Community Paper story (see his comment here).

A Severance Package to an Un-Severed CEO - A Manifestation of "CEO Disease?"

The latest jaw-dropping story about executive compensation in health care has been unfolding in California, but at least now I have a diagnosis for this syndrome. 

A Generous Retirement Package, Paid Before Retirement

In April, the Los Angeles Times reported about the generous retirement package given to an outgoing public hospital district CEO in California:

When he turned 65 two years ago, Samuel Downing received a $3-million retirement payment from a public hospital district in Salinas, Calif., where he serves as president and chief executive.


But Downing continued working at his $668,000-a-year job for another two years, and after he retires this week, he will receive another payment of nearly $900,000. That comes on top of his regular pension of $150,000 a year.

Note that not only was this pension package large in an absolute sense, but it was provided before the CEO actually retired. This compensation was clearly out of the ordinary:

The payments amount to one of the more generous pension packages granted to a public official in California and come amid growing debate about 'supplemental' pensions that some officials receive on top of their basic retirement benefits.

Though Downing's case is extreme, it follows the disclosure of extra pension benefits received by employees in municipalities including Bell and San Diego. Earlier this year, a state watchdog group called for stricter pension rules, saying California's retirement plans are 'dangerously underfunded, the result of overly generous benefit promises, wishful thinking and an unwillingness to plan prudently.' Seventy percent of Californians support a cap on pensions for current and future government workers, according to a recent Los Angeles Times/USC Poll.

Furthermore, there was a disconnect between the size of the pension payments and the hospital district's financial situation:

But the $3.9 million in supplemental retirement payments to Downing has come during a period of cutbacks at the hospital, including the reduction of 600 positions through layoffs and attrition.

Hospital representatives said the cuts were mainly a response to recent economic conditions. The hospital has faced declining revenues and patient admissions and has been burdened by construction costs of a state-mandated retrofit project, they said.

Hospital district apologists had the usual excuses: the pensions reflected the market, and the CEO is brilliant:

Officials at the Salinas Valley Memorial Healthcare System defended the payouts, saying they need to pay private-sector-level benefits to retain top talent. They described Downing as a gifted and experienced administrator.

'I think I've earned it,' Downing said in an interview. 'I've stayed here out of my commitment to try to build a great hospital.... I worked for this institution and gave them my heart and soul.'

As usual, left unsaid were how the CEO's "brilliance" was justified, other than by his own assertion, and why the CEO deserved so much credit for the performance of a hospital system that employed many other people.

A Generous Severance Package, Paid to Someone Still Employed 

Yesterday, it turned out that there was even more to Mr Downing's compensation. As again reported by the Los Angeles Times,

A Salinas public hospital district, already under fire for granting its outgoing chief executive $3.9 million in retirement payments, also gave him nearly $1 million as part of an unusual severance agreement, according to records obtained by The Times.

The payment fattened what was already considered one of the more generous public pensions ever given in California. Its disclosure prompted the state Assembly earlier this month to order an audit of the hospital district's finances.

The Salinas Valley Memorial Healthcare System board gave Samuel Downing a cash payment of $947,594 in 2008, according to a hospital report on his compensation. The money came from a special severance fund set aside for when Downing ended his employment with the agency.

But the board decided to award him the money while he was still CEO.

By the time Downing retired last month, he had received a series of supplemental retirement benefits totaling $3.9 million, in addition to the severance payment. He will also be paid a regular pension of $150,000 a year. He earned about $670,000 in base salary during his final years of employment, along with other benefits such as a car allowance and paid time off.

The details of how the CEO became entitled to this severance agreement, and how a severance payment was made to someone whose employment was not severed was sketchy:

Salinas Valley officials said the severance payment stemmed from a handshake agreement in the 1980s between Downing and a previous president of the board of directors. In 2000, the hospital's board agreed to a contract in which Downing would be paid 18 months' salary upon the end of his employment. In 2008, the board voted to give Downing that money, which totaled nearly $948,000.

It's unclear exactly why the board of directors decided to grant Downing the cash-out. The five board members, who are elected at-large by residents of the hospital district, didn't return calls seeking comment.

Mr Downing, of course, once again asserted he deserved the money:

Downing said he felt he deserved the pay after a long and successful career at the hospital, where he started in 1972.

'It sounds like a lot of money to everybody � but I know what the industry is and I know the board did an independent study,' he said. 'The board did an excellent job. They made sure we had competitive salaries.'

Once again, a hospital district public relations person went to bat for him, by blaming previous board members:

A hospital district spokeswoman released a statement Wednesday saying the current hospital directors were 'obligated by a previous board' to pay out Downing's severance.

At least no one so far is claiming that this part of Mr Downing's compensation was determined by the almighty "market." In fact,

But several outside experts said it is unusual for an entity to award severance to someone who remains an employee.

Typically, they said, severance is promised to employees only in the event that they are pushed out of their jobs. Downing's severance was also atypical because he was entitled to it even if he retired of his own accord rather than being forced to leave.

'It's absolutely outside of the industry standard to pay a severance upon retirement,' said Jeff Christenson, a compensation consultant at the firm Integrated Healthcare Strategies. 'The theory of severance pay is to protect an executive or an employee from an unforeseen termination.'

And of course the severance was not even paid on retirement, but paid while Mr Downing was still working.

Summary - A Manifestation of "CEO Disease?"

Once again we see how top health care leaders are different from you and me.  Despite the fact that executives are paid employees, they seem to be entitled to special treatment far beyond that afforded other employees.  While the modern treatment of health care executives as minor deities seemed to start in the private health care sector, it seems to be extending even into government.

It turns out, over 20 years ago, the BusinessWeek cover story was entitled "CEO Disease."  It summarized the pathology that now seems to be the major cause of health care system dysfunction.  Yet the warning still goes largely unheeded:

Pampered, protected, and perked, the American CEO can know every indulgence. The executive who finally reaches the top of a major corporation enters an exclusive fraternity. The CEO's judgment and presence are eagerly sought by other captains of industry and policymakers. CEOs zip around the world in private jets and cash the heftiest personal paychecks in industry. They take home 85 times what the average blue-collar worker makes, unlike their counterparts in Japan, where the ratio is closer to 10 to 1 (page 60). [That was in 1991.  For larger US companies, the ratio was 343 in 2010.  See this link. -Editor]

It is a job that can easily go to one's head--and often does. 'Too many people treat CEOs as some kind of exalted, omnipotent leader,' says John Sculley, CEO of Apple Computer Inc. 'The real danger is that you start believing that stuff.' Sculley took a sabbatical in 1988 as a way of "reacquainting myself with the fact that I'm a mere mortal."

Many chief executives come to believe that they are much more than that. The perquisites and deferences create a protective cocoon--if not a full-fledged fantasy world--for the chieftains of some of the nation's largest companies. 'Many CEOs take on a level of self-importance that goes way beyond reality,' says Douglas D. Danforth, former CEO of Westinghouse Electric Corp. and now a director at several large corporations. 'They view the company as their own . . . . Some people's personalities change completely. If you're not careful, you can be seduced.'

Call it CEO Disease. The symptoms are all too familiar: The boss doesn't seem to understand the business anymore. Decisions come slowly, only to be abruptly changed. He (there are only two women CEOs in the BUSINESS WEEK 1000) feels he can do no wrong and refuses to concede any mistake. He begins to surround himself with sycophants in senior management and on the board.

TELLTALE SIGNS. Increasingly, the boss may seem out of touch--spending too much time away from the job, playing the role of statesman for the sake of personal recognition. He may even compete with industry counterparts over how much money he makes, how big the headquarters building is, or how many corporate jets are parked on the landing strip. And when it's time to leave the job, the boss just hangs on, often by undermining potential successors.

In 1991, the BusinessWeek article suggested some ways to prevent CEO disease. In 20 years, these suggestions have been largely ignored in health care corporations, and in the larger health care system and the surrounding economy:

A few fairly simple reforms would go a long way toward preventing many cases of CEO Disease, at least in its most virulent form. One obvious answer is to disperse decision-making. An advantage of this approach is that it focuses attention on a group of executives, not just the CEO.

The prevalence of the problem also makes an overwhelming case for more involvement at the board level. To be effective, boards must be composed of a sizable percentage of outside directors who have the time to learn enough about a company and its management to make informed decisions about its leadership.

If the boss isn't receptive and problems mount, a responsible director has no choice but to press for change. On four separate occasions since he started serving on boards, Jewel's Perkins says, 'I've sat down with the CEO and said: `In my judgment, you've made the contribution you can to this organization.' Three CEOs took early retirement.

Ultimately, the power to prevent, and if necessary, cure CEO Disease rests with the shareholders. They have the right, and the duty, to insist on a board of competent and aggressive outsiders. At least, they do in theory. In reality, shareholders are often either passive, indifferent, or only invested in the stock on a short-term basis.

CEO disease would seem to be an explanation for why a public hospital district gave an outlandish retirement package and a severance payment to a CEO who was still in office. CEO disease would describe much of the bad management we have described on this blog.

So, as I have said before,.... health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.


If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.

We need to launch a crash program to prevent CEO disease and cure existing cases, before it kills off our health care system. 

Was the Wright Medical CEO Really "Pleased" to "Continue Our Commitment to the Highest Standards of Legal and Ethical Conduct?"

This story fits into the "if you believed that one, I have a bridge to sell you" category. 

Let's go back seven months to 2010, when we discussed the legal settlement, which included submission to deferred prosecution and corporate integrity agreements by Wright Medical, a device manufacturer.  We noted that the company CEO, one Gary D Henley, said he was "pleased to announce these agreements and look[ing] forward to working with the independent monitor as we continue our commitment to the highest standards of ethical and legal conduct."  At the time, we wondered whether the only real reason he was pleased was that he got to keep his job (with total compensation of greater than $2 million a year) and hang onto his stock options (then consisting of 436,601 shares).

Now it is 2011, and the Memphis Daily News reported that last month, Mr Henley was out of a job:

It was just last month that [Chairman David] Stevens was appointed interim president and CEO after Gary D. Henley resigned from the position, which he had held since 2006.

Stevens at that time asked not to be considered for the permanent position.

Henley tendered his resignation prior to a board of directors meeting called to discuss management�s oversight of the company�s ongoing compliance program.

The board accepted Henley�s resignation, but deemed it to be without 'good reason' under the terms of his employment agreement, making him ineligible for severance.

He was accompanied out the door by

Frank S. Bono, the company�s senior vice president and chief technology officer, for failing to exhibit appropriate regard for Wright�s ongoing compliance program.

It appeared that the previous company leadership may not have been all that "pleased" to work with external monitors to "continue our commitment to the highest standards of ethical and legal conduct." The Daily News also reported:

Wright Medical Group Inc. on Thursday announced that it received a letter from the United States Attorney�s Office for the District of New Jersey pursuant to Paragraph 50 of the Deferred Prosecution Agreement stating that the USAO believes Wright Medical Group knowingly and willfully breached material provisions of the DPA.

Also, Corporate Counsel reported:

Two days after its general counsel departed abruptly, the Wright Medical Group, Inc., said Thursday that the U.S. attorney�s office believes the company 'has knowingly and willfully' breached its deferred prosecution agreement.

As a result, the company said it could face 'significant liability' including potential criminal and civil litigation. It also faces possible exclusion from federal health care programs such as Medicare, 'which would have a material adverse effect on our financial condition.'

The Tennessee-based company revealed the legal problems in 8-K filings on Wednesday and Thursday with the Securities and Exchange Commission. Wright has declined further comment.

One explanation for the company's pessimism:

The board recently received a tip about non-compliance and hired unnamed outside counsel to conduct an internal investigation. The probe found 'credible evidence of serious wrongdoing,' which the board communicated to the U.S. attorney�s office on Wednesday.

The Memphis Daily News noted that another slew of managers just went out the door:

Raymond Kolls, senior vice president, general counsel and secretary, Alicia Napoli, vice president of Clinical and Regulatory Affairs, and Cary Hagan, senior vice president of EMEA Commercial Operations, have all stepped down from their positions.

So should we believe Wright Medical Chairman and now interim CEO Stevens when he said:

The board is committed to maintaining the highest standards of ethical conduct and we remain diligent in ensuring that Wright Medical complies with all applicable laws and regulations...

?

Are you looking to buy a bridge? I know a nice one in Brooklyn.

More seriously, day in and day out we hear righteous, if not pompous pronouncements from health care organizational leaders about their organizations' integrity, brilliant performance, quality of care, devotion to patients, etc, etc, etc. Meanwhile, we have seen an astonishing parade of legal settlements, sometimes including guilty pleas to bribery, fraud, kickbacks, and other crimes by top health care organizations.  This parade raises serious questions about the performance and integrity of some of our biggest and best known health care organizations.

In nearly all cases, these settlements did not include specific negative consequences for those who authorized, directed or implemented the bad behavior that caused the need for the settlements. In nearly every case, the top leaders of the organizations continued to get generous compensation, often more generous than Mr Henley's $2 million plus a year.

Yet rarely does the media, much less health care scholarship check back later to see if the righteous pronouncements turned out to be true. Rarely do they check back to see if the settlements lead to better behavior.

Here is one vivid anecdote that suggests that the pronouncements may be nothing more than vapid PR, and the settlements lead to no change in behavior as long as the people who were in charge when the bad behavior occurred remain in charge, and richly remunerated.

So the next time you see a corporate health care CEO's boasts, think about that bridge in Brooklyn

To reprise: we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

[Originally posted on Health Care Renewal by Roy Poses]

"We're Only In It for the Money" - Big Businesses Pretending to be Medical Schools Discussed in Main-Stream Medical Journal

This is a first, the contention that medical schools are only in it for the money has appeared in a prestigious, main-line, large-circulation medical journal(1). The author started by noting that medical schools are now academic in name only.

US medical schools have evolved into big businesses that derive most of their income by providing healthcare services and securing extramural research grants. In 2009, for example, 53% of medical school revenues came from clinical services and 29% from extramural grants. By comparison, less than 4% came from tuition.

These big businesses disguised as academic institutions behave like other big businesses:

Academic medical centers vie for clinical market share through direct-to-consumer advertising. To increase referrals, they offer free continuing medical education that boost the visibility of their most profitable services to community providers. Physicians with MBA degrees are becoming increasing common at academic medical centers....

Then University of Utah cardiology professor Matthew Movsesian clearly asserted that faculty realize that they are only valued for the money they bring in:

It's worth noting that medical school faculty members perceive that their-revenue-generating activities are of paramount importance in the eyes of academic leadership. In a recent survey of US medical schools, 51% of respondents agreed that 'the administration is only interested in me for the revenue I generate'; a less extreme statement might have elicited [even] more widespread concurrence.

Emphasis on revenue generation by faculty is evident in the incentive plans that typically compensate clinicians in proportion to the billable services they provide. And researchers understand that their salaries for time spent on research must be paid, sometimes in full, from extramural grants.

Dr Movsesian implied who the main beneficiaries of this revenue generation are:

Executives at these teaching institutions are paid industry-level salaries.

All of this should be familiar to those who have been reading Health Care Renewal.  We first wrote about how medical school leaders mainly evaluated faculty by their revenue generation, and dismissed those who did not generate sufficient revenue as "welfare recipients," here in 2007.  We discussed the survey that revealed that medical school faculty realize their supervisors only value their revenue generation here in 2010.  But the first post was derived from an interview in the SGIM newsletter, and the survey noted above so far is only publicly available in an on-line abstract.  To my knowledge, the notion that medical schools have abandoned their primary mission of discovering and disseminating the truth in favor of making money, perhaps mainly for the benefit of their top leaders, has not heretofore appeared in a main-stream medical or health care journal.  So this new publication marks an important weakening of the anechoic effect.

Late in 2010, we discussed an important new report in the Lancet about the reform of global health care education(2)(see post here).  It hinted at some of the threats to the academic medical mission we have long discussed on Health Care Renewal.  An accompanying editorial stressed the need to uphold the academic mission, implying that it was in some way threatened, but again did not discuss what actually threatened it.(3)(See our post here which listed some of threats that should be considered.  The threats are reprinted in the box below.)  Now the peril to the mission of US medical, and by extension, perhaps global health care education has made it into polite discussion.  Maybe it is not too late to address threats to global health care education before the system collapses from its internal contradictions.

Threats to the Global Health Care Education Mission (the "Thirteen Plagues")

Health Care Renewal, is largely concerned with threats to health care's core values, including threats to the mission of academic medicine, largely from concentration and abuse of power.  The largest set of threats come from the ascendancy of financial goals amidst the commercialization of health care (mentioned briefly both in Frenk et al and the editorial).  

Abandonment of traditional prohibitions of the commercial practice of medicine - In the US, a Supreme Court decision was interpreted to mean that medical societies could no longer regulate the ethics of their members.  Until 1980, the US American Medical Association had  ruled that the practice of medicine should not be "commercialized, nor treated as a commodity in trade."  After then, it ceased trying to maintain this prohibition.  The result was increasing, now rampant commercialization.  See posts  here and here.

Making money takes precedence over education -  A recent survey showing that more than half the faculty at multiple US medical schools felt they were valued more for how much money they brought in than their teaching or patient care abilities (here), confirming previous anecdotal reports (see here). 

The medical school re-imagined as a biotechnology company -  In 2000, a Vice President of the American Association of Medical Colleges(4) wrote that research universities must respond to "societal demands that they become engines of economic development�."  Many universities now defend lax conflict of interest policies with similar arguments.  For more details, go here

Faculty become employees of industry - For numerous examples of this and other kinds of conflicts of interest, go here.  A survey by Campbell et al suggested that approximately two-thirds of medical academics get significant payments from industry.(5)

Academics become "key opinion leaders" paid to market drugs and devices - Marketers regard "key opinion leaders" as salespeople who appear more credible because of their professional guise.  See anecdotal evidence here. 

Control of clinical research given to commercial sponsors - A study by Mello et al showed how universities' grant administrators are willing to sign contracts giving commercial sponsors control over key aspects of human research studies.(6)  See post here. 

Conflicts of interest allow manipulation and suppression of clinical research - Commercially sponsored research design, implementation, and dissemination are often manipulated to favor the sponsor's interests.  When such manipulation fails to produce favorable results, the results may simply be suppressed

Academics take credit for articles written by commercially paid ghost-writers - Such ghost-writing is often part of organized stealth marketing campaigns. 

Whistle blowers are discouraged, or worse, and academic freedom is damaged.  Discussion of some examples of what may happen to whistle blowers is here.  The survey mentioned earlier (here) showed that about one-third of faculty fear they may be punished for speaking  out. 

Leadership of academic medical centers by businesspeople - Ill-informed management may result from leaders who have no background or training in actual health care. 

Leaders of teaching hospitals and universities become millionaires -  A recent example is here, and more may be found here.  Leaders of academic medical centers and the parent universities of medical schools often make more than $1 million a year in the US.  When such amounts are in play, executives may focus more on short-term measures that lead to even more pay than on upholding the mission. 

Medical school leaders become stewards (as members of boards of directors) of for-profit health care corporations - A recent example is here, and a summary of how we discovered this phenomenon in 2006 is here.   The conflict of interest is severe because directors of for-profit corporations are supposed to have unyielding loyalty to the interests of the corporation and its stockholders, although they are frequently accused of acting mainly as cronies of the top hired executives (see here and here).

Leaders of failed finance firms become stewards of academic medicine - We have found numerous examples, recently here, here, and here, of top executives and/or board members of the finance firms who helped bring on the global financial collapse also being trustees of medical schools, academic medical centers, or their parent universities.  Such "stewards" may bring to the academic environment the "greed is good" culture now pervasive in finance. 

Reference
1.  Movsesian M. Intramural conflicts of interest warrant scrutiny, too. Nature Medicine 2011; 17: 21. Link here.
2.  Frenk J, Chen L, Bhutta ZA, Cohen J, Crisp N, Evans T et al. Health professionals for a new century: transforming education to strengthen health systems in an interdependent world.  Lancet 2010; 376: 1923-1958.  Link here.
3.  Horton R. A new epoch for health professionals' education.  Lancet 2010; 376: 1875-7.  Link here.
4. Korn D. Conflicts of interest in biomedical research. JAMA 2000; 284: 2234-2237. Link here.

5. Campbell EG, Gruen RL, Mountford J et al. A national survey of physician�industry relationships. N Engl J Med 2007; 356:1742-1750. Link here.
6. Mello MM, Clarridge BR, Studdert DM. Academic medical centers' standards for clinical-trial agreements with industry. N Engl J Med 2005; 352: 21. Link here.

Title with apologies to the late Frank Zappa.

RUCing About - Conflicts of Interest Affecting the Members of the RBRVS Update Committee

Since 2007, we have been writing about the secretive RUC (RBRVS Update Committee), the private AMA committee that somehow has managed to get effective control over how Medicare pays physicians. The RUC has been accused of setting up incentives that strongly favor invasive, high technology procedures while disfavoring primary care and other "cognitive medicine." Despite the central role of (perverse) incentives in raising health care costs while limiting access and degrading quality, there was surprisingly little discussion about the pivotal role played by the RUC until the formation of the "Replace the RUC" movement (see post here). 

Recently, the leaders of Replace the RUC scored a journalistic coup by putting the current list of RUC members publicly on-line.  As we have discussed, previously the membership of this committee was kept very obscure, although the committee argued it was not exactly secret. 

Some Google searching suggests one possible reason that the RUC was in no hurry to disclose its own membership.  It appears that many of the RUC members have significant conflicts of interest with respect to their roles as de facto setters of the rates at which physicians are paid by the government.

The RUC Members and Their Financial Relationships

Below is the list of the current RUC membership (from this link), and relevant conflicts of interest obtained by Google searching.  Note that for each member, I first give the name, affiliation relevant to the RUC, location, and first year of membership as provided by the link above.  Then I list relevant financial relationships that appear to present conflicts of interest.

- Barbara Levy, MD

Chair, RVS Update Committee
Federal Way, WA 2000

Consultant/Advisory Boards: Conceptus; AMS; Covidien; Halt Medical; Gynesonics; Idoman Medical (hysteroscopic surgery and sterilization, endometrial ablation, electrosurgery, vaginal hysterectomy) per UptoDate

- Bibb Allen, Jr., MD
American College of Radiology (ACR)
Birmingham, AL 2006

- Michael D. Bishop, MD
American College of Emergency Physicians (ACEP)
Bloomington, IN 2003

- James Blankenship, MD
American College of Cardiology (ACC)
Danville, PA 2000

Lecture fees from Sanofi-Aventis per New England Journal of Medicine

- Robert Dale Blasier, MD
American Academy of Orthopaedic Surgeons (AAOS)
Little Rock, AK 2008

- Joel Bradley, MD
American Academy of Pediatrics (AAP)
Brentwood, TN 2008

Medical Director, Americhoice by UnitedHealthcare, per AAP conference brochure

- Ronald Burd, MD
American Psychiatric Association (APA)
Fargo, ND 2006

- William F. Gee, MD
American Urological Association (AUA)
Lexington, KY 2010

Member, Physician Advisory Board, Aetna per Aetna

- John O. Gage, MD
American College of Surgeons (ACS)
Pensacola, FL 1991

- David F. Hitzeman, DO
American Osteopathic Association (AOA)
Tulsa, OK 1996

- Peter A. Hollmann, MD
CPT Editorial Panel (AMA/CPT)
Providence, RI 2003

Medical Director, Blue Cross and Blue Shield of Rhode Island, per RI Medical Society

- Charles F. Koopmann, Jr., MD
American Academy of Otolaryngology-Head and Neck Surgery (AAO-HNS)
Ann Arbor, MI 1996

- Robert Kossmann, MD
Renal Physicians Association (RPA)
Santa Fe, NM 2009

Member of Advanced Renal Technologies Advisory Board, Network 15 Medical Advisory Board, Baxter Home Dialysis Advisory Board, Fresenius Medical Advisory Board per Renal Physicians Association

- Walter Larimore, MD
American Academy of Family Physicians (AAFP)
Colorado Springs, CO 2009

- Brenda Lewis, DO
American Society of Anesthesiologists (ASA)
Cleveland, OH 2009

- J. Leonard Lichtenfeld, MD
American College of Physicians (ACP)
Atlanta, GA 1994

Member, Physician Advisory Board, Aetna per Aetna

- Scott Manaker, MD, PhD
American College of Chest Physicians (ACCP)
Philadelphia, PA 2010

Consultant to Pfizer and Johnson and Johnson. Owns stock in Neose Technologies, Pfizer, Johnson & Johnson, and Rohm and Haas per Chest

- Bill Moran, MD
Practice Expense Review Committee
Oklahoma City, OK 2000

- Guy Orangio, MD
American Society of Colon & Rectal Surgeons (ASCRS)
Atlanta, GA 2009

- Gregory Przybylski, MD
American Association of Neurological Surgeons (AANS)
Edison, NJ 2001

Stock Ownership: United Healthcare (300 shares);  ...  Scientific Advisory Board: United Health Group (B, Spine Advisory Board) per NASS meeting

- Marc Raphaelson, MD
American Academy of Neurology (AAN)
Leesburg, VA 2009

personal compensation for activities with Jazz Pharmaceuticals and Medtronics as a speakers bureau member or consultant per AAN

- Sandra Reed, MD
American College of Obstetricians and Gynecologists (ACOG)
Thomasville, GA 2009

GlaxoSmithKline Consulting, $1750 in 2009, $1500 in 2010 per ProPublica Dollars for Docs search through here

- Daniel Mark Siegel, MD
American Academy of Dermatology (AAD)
Brooklyn, NY 2003

Vivacare Dermatology Advisory Board, 2006 � present. Photomedex Scientific Advisory Board, 2006-present, Ad Hoc consultant to ClickDiagnostics, per Encite CV
DermFirst-Shareholder, Logical Image � Consultant, Vivacare - Consultant per MOHS Surgery

- Lloyd S. Smith, DPM
Health Care Professionals Advisory Committee
Bethesda, MD 2007

- Peter Smith, MD
Society of Thoracic Surgeons (STS)
Durham, NC 2006

Eli Lilly, Consulting, $1500 in 2009, $1990 in 2010 per Pro Publica Dollars for Docs search through here
Advisor or consultant to Bayer per Medscape

- Susan Spires, MD
College of American Pathologists (CAP)
Lexington, KY 2007

- Arthur Traugott, MD
American Medical Association (AMA)
Champaign, IL 2006

- James Waldorf, MD
American Society of Plastic Surgeons (ASPS)
Jacksonville, FL 2008

- George Williams, MD
American Academy of Ophthalmology (AAO)
Royal Oak, MI 2009

Advisory Team, RetroSense Therapeutics
Shareholder and consultant for ThromboGenics Ltd. and holds intellectual property on the use of plasmin per Review of Opthamology
Alcon Laboratories, consultant, lecturer; Allergan, consultant, lecturer; Macusight, consultant, equity owner; Neurotech, consultant; Nu-Vue Technologies, equity owner, patent/ royalties; OMIC- Ophthalmic Mutual Insurance Company, employee; Optimedica, consultant, equity owner; Thrombogenics, consultant, equity owner per AAO meeting
Pfizer, �Professional Advising,� $5534 in 2009 per Pro Publica Dollars for Docs search through here

Summary

There you have it.  A substantial proportion, almost half, 14 of 29 members of the RUC have financial relationships with pharmaceutical companies, biotechnology companies, device companies, companies that directly provide health care, and health care insurance companies. 

As we have noted in our previous discussions of the RUC, that committee has been accused of being the de facto controller of how the US government pays physicians.  In that role, it has been accused of favoring procedural care rather than cognitive or primary care by increasing the relative financial incentives for the former over the latter.  This may be one of the most important reasons for the expensive, high-technology, procedural-heavy style of care in the US, which has likely been a major driver for increasing costs, declining access and stagnant quality.

It seemed obvious that a committee dominated by a majority of physicians who perform procedures would tend to favor bigger financial incentives for procedures.  But now it appears the committee also includes a substantial number of people who work part-time or have ownership interests in companies that also stand to benefit from increasing use of procedures.  Procedures drive increased consumption of drugs, supplies and devices, and lead to larger revenue for hospitals and clinics.  Thus these financial relationships could reasonably be suspected of even further distorting the committee's decision-making in favor of procedures.

I was surprised how many RUC members have financial ties to health care insurance companies.  Such companies are not usually thought of as beneficiaries of high-technology, procedural care.  However, if one conceives of their revenue as a percentage of health care costs, perhaps they are.  Furthermore, one can only wonder if the links between the RUC and health care insurance companies have anything to do with how such companies have apparently unquestioningly adapted the RBRVS system controlled by the RUC?

The prevalence of conflicts of interest among RUC members highlight the need for a more accountable, transparent and honest system to manage how the government pays physicians, and a need for more transparency and accountability in the relationship among the government, health care insurance, and physicians.

 As we have previously noted,  there are still many unanswered questions about the RUC:

- How did the government come to fix the payments physicians receive? Government price-fixing has not been popular in the US, yet this has caused no outcry.
- Why is the process by which they are fixed allowed to be so opaque and unaccountable? Why are there no public hearings on the updates, and why is there no input from practicing physicians or organizations other than those related to the RUC?
- How did the RUC become de facto in charge of this process?
- Why does the AMA [keep the membership of the RUC so opaque, and] give no input into the RUC process to its general membership?
- Why is the RUC membership so dominated by procedural specialists? Why were primary care physicians, who made up at least a sizable minority of physicians when the update process was started, not represented according to their numbers?
- Why has there been so little discussion of the RUC and its responsibility for an extremely expensive health care system dominated by high-technology, expensive, risky and invasive procedures?

Stay tuned, maybe these will be answered in our life-times....

Johnson and Johnson Runs Afoul of Foreign Corrupt Practices Act

Johnson and Johnson, the once highly reputed international pharmaceutical and device company, cannot catch a break. 

International Bribery Charges

As reported by Bloomberg, the latest story is about bribery claims across multiple countries and two continents:

Johnson & Johnson (JNJ), the world�s second-biggest seller of medical products, will pay $70 million after admitting that the company bribed doctors in Europe and paid kickbacks in Iraq to win contracts and sell drugs and artificial joints.

Subsidiaries of J&J paid bribes to doctors and hospital administrators in Greece, Poland and Romania, the Securities and Exchange Commission and Department of Justice said today in filings at U.S. District Court in Washington. The company also made illegal payments to Iraqi officials to win contracts under the U.N. oil-for-food program, the filings said.

J&J, based in New Brunswick, New Jersey, used slush funds, sham contracts and off-shore companies in the Isle of Man to carry out the bribery, the SEC said. Public health system doctors and administrators who ordered J&J products such as surgical implants or prescribed the company�s drugs were rewarded in a variety of ways, including with cash and travel.

Simultaneously, in the UK,

J&J�s DePuy International Ltd. subsidiary was ordered to pay 4.8 million pounds ($7.9 million) to resolve U.K. claims related to the bribery in Greece, the Serious Fraud Office said in a statement today.

Per the Wall Street Journal, the company also entered into a deferred prosecution agreement.

Admissions of Guilt

The company could not deny wrong-doing, as reported by the Wall Street Journal:

As part of the settlement, J&J acknowledged responsibility for the actions of its units, employees and agents who made 'various improper payments to publicly employed health-care providers in Greece, Poland and Romania in order to induce the purchase of medical devices and pharmaceuticals manufactured by J&J subsidiaries,' according to the Justice Department.

Also,

J&J also acknowledged that kickbacks were paid on behalf of J&J units to the former government of Iraq under the United Nations Oil-for-Food program in order to secure contracts to provide humanitarian supplies.

But No Apology, Nor Acknowledgement of Responsibility
The Johnson and Johnson CEO issued the de rigeur non-apology apology:

'More than four years ago, we went to the government to report improper payments and have taken full responsibility for these actions,' J&J Chief Executive William C. Weldon said in a press release. 'We are deeply disappointed by the unacceptable conduct that led to these violations.'

Notice the clever phrasing that seems to deny that Weldon had any responsibility for these actions, which occurred in the remote past and which were addressed as soon as top management were made aware of them.

Management was Aware

In fact, however, as discussed by Jim Edwards on his BNEt blog, it appears that management had been well aware of the bad behavior for a long time:

But J&J�s internal emails, plus the U.K. Serious Fraud Office�s records, indicate that J&J management knew as early as 1999 that it was making improper payments to Greek sales agents, and that money was disappearing into what it called a 'black hole' in Europe.

Yet J&J later acquired the company that operated that 'black hole' in order to maintain its illegal sales relationships in Greece, according to the SEC�s complaint. And although the SEC praised J&J�s cooperation in its probe, J&J took eight years to initially inform the SEC of its problems.

For the gory details, see his blog post.

Only the Latest Troubles

This latest ethical black eye comes after numerous other troubles for the giant company. As Bloomberg put it:

The settlement comes less than a month after J&J�s McNeil Consumer Healthcare unit signed a consent decree giving the Food and Drug Administration more oversight at three plants making children�s Tylenol, Motrin and other over-the-counter drugs recalled in the past year because of faulty ingredients or foul odors caused by chemical contamination of storage pallets.

The March 10 agreement left the plants under enhanced scrutiny for five years, and J&J faces fines of as much as $10 million a year if the FDA doesn�t approve of changes at the facilities, the company said in a statement last month.

J&J has recalled more than 50 products since the start of 2010, from the consumer medications to failing artificial hips, improperly rinsed contact lenses, insulin cartridges that may leak and cracked syringes loaded with prescription drugs. The company installed a new corporate quality-control director and announced companywide compliance standards in August.

In February, J&J reorganized its consumer division and announced the head of its DePuy Orthopaedics unit had resigned.

There is actually more. We noted last month that Johnson and Johnson's Janssen's subsidiary's Risperdal marketing was found deceptive by a South Carolina jury. In addition,  In 2010, another jury found that the company had committed marketing fraud in its promotion of Risperdal (see post here), and its Ortho-McNeil-Janssen subsidiary also made a guilty plea to a misdemeanor for and civil settlement of charges of "misbranding" Topamax (see post here).

No Penalties for Individuals

As in many such cases we have discussed before, despite the seriousness of the charges and the corporate, although not individual admissions of responsibility, no individual in the US apparently will suffer any negative consequences for the misbehavior.  (Per the WSJ, one UK executive went to prison for bribery by DePuy in Greece.) 

Moreover, rather than suffering, the US company leadership has personally profited.  As we have mentioned more than once, most recently here, the increasing numbers of legal and regulatory sanctions and the increasing numbers of product recalls stand in stark contrast to the plutocratic remuneration given to top Johnson and Johnson executives.  CEO Weldon received about $29 million in 2010, while his top five lieutenants each got from over $5 million to just under $9 million.  The company board asserted that Weldon "met expectations," and exerted "strong leadership."  At best, it appears that the clubby and out-of touch governance of health care organizations, generally by fellow members of the CEO's guild, leavened with a few conflicted academic health care leaders, rewards insiders despite, or even because of  failed leadership.  

So once more with feeling, ... health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research.  On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.

If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.

Meanwhile, I can only ask Johnson and Johnson executives and board members, have you no shame?

ADDENDUM (13 April, 2011) - See also posts by Merrill Goozner on the GoozNews blog, and by Maggie Mahar on the HealthBeat blog.

Despite Poor Financial Results, Diminishing Pipeline, Multiple Settlements of Legal Cases, Outgoing Pfizer CEO Got Over $24 Million

It is the season for share-holders' meetings of big US publicly held corporations, and as the proxy statements prepared for these meetings, prepare for more eye-popping, jaw-dropping examples of executive compensation. 

Pfizer's 2010 CEO Compensation
The AP (via the Wall Street Journal) just noted the compensation given to Jeffrey Kindler, the outgoing (in 2010) CEO of Pfizer, Inc, the world's largest pharmaceutical company:

Former Pfizer Inc. Chairman and CEO Jeffrey B. Kindler may have left the world's largest drugmaker abruptly last December, but he didn't leave empty-handed thanks to a compensation package valued almost $22 million.

Kindler received a 60 percent increase last year over his 2009 compensation, according to an Associated Press analysis of a Pfizer regulatory filing Tuesday.

The New York-based drugmaker gave Kindler a salary and performance-related bonus totaling $4.9 million, a $4.5 million severance payment and more than $12 million in stock and option awards. The company also will continue his health coverage for 12 months 'at active employee rates,' the filing said.

In fact, perusal of the new 2011 Pfizer proxy statement shows that Kindler, who stepped down on 5 December, 2010, made even more based on Pfizer's own calculations, $24,688, 849. Curiously, Ian Read, the CEO after 5 December, and previously Group President, Worldwide Pharmaceutical Business, received $17,396,112, despite only being CEO for 26 days.

Pay for What Kind of Performance?

These opulent pay packages stand in contrast to Pfizer's performance under Kindler and its financial results in 2010:

Kindler was ousted by Pfizer's board unexpectedly Dec. 6 after four years of languishing share prices and several failures of promising drugs in late testing, including a successor to cholesterol fighter Lipitor, the world's top-selling drug. Pfizer will lose U.S. patent protection in November for Lipitor.

Also,

Pfizer's 2010 net income fell 4 percent to $8.26 billion, or $1.02 per share. Revenue totaled $67.81 billion, up 36 percent, thanks to $18.1 billion from sales of Wyeth products.

Its stock price slipped 4 percent to close 2010 at $17.31, while the Standard & Poor's 500 index climbed 12.8 percent.

Furthermore, the compensation given the former and current CEO also stood in sharp contrast to Pfizer's amazing track record of recent unethical behavior.   Pfizer paid a $2.3 billion settlement in 2009 of civil and criminal allegations and a Pfizer subsidiary entered a guilty plea to charges it violated federal law regarding its marketing of Bextra (see post here).  Pfizer was involved in three other major cases from then to early 2010, including two involving settlements of fraud charges, and one in which a jury found the company guilty of violating the RICO (racketeer-influenced corrupt organization) statute (see post here).  The company was listed as one of the pharmaceutical "big four" companies in terms of defrauding the government (see post here).  Pfizer's Pharmacia subsidiary settled allegations that it inflated drugs costs paid by New York in early 2011 (see post here).   Just yesterday a settlement was announced in a long-running class action case which involved allegations that another Pfizer subsidiary had exposed many people to asbestos (see this story in Bloomberg).

Despite Pfizer's recent dismal financial performance, clotted drug pipeline, and unfortunate ethical/ legal track record, the company's board compensation committee reported thus:

The Committee believes that Pfizer�s executive compensation program implements and achieves the goals of our executive compensation philosophy. Pfizer�s executive compensation philosophy, which is set by the Committee, is to align each executive�s compensation with Pfizer�s short-term and long-term performance and to provide the compensation and incentives needed to attract, motivate and retain key executives who are crucial to Pfizer�s long-term success.

Who Provided "Stewardship" of Pfizer?
So I had to ask: who were these people who thought that compensation of over $24 million was somehow "aligned" with declining profits, declining revenues, little output of new drugs, and multiple legal settlements of charges like fraud and violating the RICO act?

Here is a list of Pfizer's board of directors in 2010, and some relevant affiliations, taken from Pfizer's web-site, and where indicated, elsewhere (color coding to be explained below)

- Dennis A. Ausiello, M.D. -
Jackson Professor of Clinical Medicine at Harvard Medical School and Chief of Medicine at Massachusetts General Hospital since 1996.
Member of the Institute of Medicine....
Director of TARIS BioMedical, Inc.
(per Research!America bio) advisor to drug delivery and biosensing start-up companies Entra, BIND Biosciences, and Seventh Sense Biosystems, Inc., to drug-discovery startup companies Promedior and Pulmatrix, to Proventys, an evidence-based medicine delivery system, and to Ore Pharmaceuticals and Polaris, investment and venture capital companies working in the biotech and device area.

- Michael S. Brown, M.D. -
Distinguished Chair in Biomedical Sciences since 1989 and Regental Professor since 1985 at the University of Texas Southwestern Medical Center at Dallas.
Member of ... the Institute of Medicine,....
Director of Regeneron Pharmaceuticals, Inc.

- M. Anthony Burns -
Chairman Emeritus since 2002, Chairman of the Board from 1985 to 2002, Chief Executive Officer from 1983 to 2000, and President from 1979 to 1999 of Ryder System, Inc., a provider of transportation and logistics services.
Life Trustee of the University of Miami.

- Robert N. Burt -
Retired Chairman and Chief Executive Officer of FMC Corporation, a chemicals manufacturer, and FMC Technologies Inc., a machinery manufacturer....
Life Trustee of the Rehabilitation Institute of Chicago

- W. Don Cornwell -
Chairman of the Board and Chief Executive Officer of Granite Broadcasting Corporation from 1988 until his retirement in August 2009 and Vice Chairman until December 2009.
(per Wallace Foundation web-site) He previously served as vice president, investment banking division, of Goldman Sachs.

- Frances D. Fergusson, Ph.D. -
President Emeritus of Vassar College since 2006 and President from 1986 to 2006. Served on the Mayo Clinic Board for 14 years, the last four years as its Chairman, and as President of the Board of Overseers of Harvard University from 2007 through 2008.

- William H. Gray III -
Co-Chairman of GrayLoeffler, LLC (formerly the Amani Group), a business advisory and consulting firm. Chairman of the Amani Group from 2004 through September 2009.
Currently Director of ... J. P. Morgan Chase & Co.

- Constance J. Horner -
Guest Scholar from 1993 until 2005 at The Brookings Institution....

- James M. Kilts -
Founding Partner, Centerview Partners Management, LLC, a private equity firm, since 2006.
(Per Centerview Partners web-site) Centerview Partners' investment banking advisory business serves some of the largest companies globally in a broad range of industries, with particular expertise in Food & Consumer Products, Financial Institutions, General Industrials, Healthcare, Media & Entertainment ....
The firm has executed many significant transactions in recent years, including:
Altria's $113 billion spin-off of Philip Morris International, its $62 billion spin-off of Kraft and its $11.7 billion acquisition of UST...
Facet Biotech's $722 million sale to Abbott Labs;
OSI Pharmaceuticals' $4.0 billion sale to Astellas Pharma;

- George A. Lorch -
Chairman Emeritus of Armstrong Holdings, Inc., a global manufacturer of flooring and ceiling materials,....

- John P. Mascotte -
Retired President and Chief Executive Officer of Blue Cross and Blue Shield of Kansas City, Inc.,...

- Suzanne Nora Johnson -
Retired Vice Chairman, Goldman Sachs Group, Inc.,...
Director of American International Group, Inc., .... Board member of the American Red Cross, The Brookings Institution, ... and the University of Southern California.
(per Milken Institute web-site) on the board of numerous not-for-profit organizations, including ... RAND Health ....
She is on the Advisory Board of Councilors of Harvard Medical School

- Ian C. Read -
President and Chief Executive Officer since December 2010.

- Stephen W. Sanger -
Chairman of General Mills, Inc.
Currently Director of ... Wells Fargo & Company.

- William C. Steere, Jr. -
Chairman Emeritus of Pfizer Inc. since 2001.
Currently Director of Health Management Associates, Inc.
Director of the New York University Medical Center ...; and Member of the Board of Overseers of Memorial Sloan-Kettering Cancer Center.

Of Pfizer's 14 directors (excluding its CEO), seven have or had leadership positions at teaching hospitals, academic medical centers, medical schools or their parent universities. Three have or had leadership positions at other influential non-profit health care organizations. 


Two had leadership positions at potentially competing pharmaceutical or biotechnology companies.

Two had leadership positions at companies that finance pharmaceutical, biotechnology and other health related companies.

One had a leadership position at a health insurance company.

One had a leadership position at a for-profit hospital operating company.

Four had leadership positions in financial services corporations, including some that were implicated in the global financial collapse, and/or required massive federal bail-outs to avoid collapse.

It seems that every time we look at the boards of directors or trustees who are supposed to provide stewardship to a troubled health care organization, we see a similar pattern.  Just as we recently said about the Johnson and Johnson board, ....
 
Summary
 
So here we have the latest striking case that indicates the confluence of forces that can lead to health care dysfunction. Not only has the compensation given to health care leaders got so large that it is per se a cause of increased health spending, but also, and more importantly, such compensation often provides perverse incentives that perpetuate mismanagement, raising costs and lowering quality. This situation appears to be enabled by governance (or "stewardship") by individuals who are often fellow members of the CEOs' club, and hence who may feel more sympathy with the executives they are supposed to supervise than the stockholders whose financial interests they are supposed to protect, or the public whom the companies' products and services are supposed to benefit. Moreover, these individuals often have conflicts of interest which may mitigate against objective scrutiny of the executives they are supposed to oversee. Finally, these individuals often may come from corporate cultures which do not espouse the values that we in health care are supposed to uphold. (See this post and its links for other examples of the sorts of people who are supposed to provide stewardship to health care organizations.)


So to repeat once more-

I strongly believe that there needs to be much more investigation, academic, journalistic, and perhaps legal, of the identity, nature, and culture of the leaders of health care, and their relationships. A few bloggers cannot do it all. Obviously, the anechoic effect mitigates against medical and health care academics looking into their own leaders. However, failing to understand who is leading our march to the brink of health care failure ought not to be something such academics would want on their conscience.

Finally, and obviously, health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research.

If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.

ADDENDUM (23 March, 2011) - See also comments by Merrill Goozner on the GoozNews blog.

Millions to Health Insurance CEOs, But Blame Everyone Else for Rising Health Care Costs

The revelations about the huge golden parachute given the outgoing CEO of ostensibly non-profit Massachusetts Blue Cross Blue Shield induced some public discussion about the disconnect between executive compensation and the mission of health care organization (see most recent post here).  Several other recent stories should generate more discussion on these issues. 

First, new proxy statements revealed the compensation of executives of two large for-profit health care insurers/ managed care companies.  In alphabetical order,

Cigna

As reported by the AP, via ABC news, the CEO got a big raise:

Cigna Corp. CEO David M. Cordani's total compensation more than doubled in 2010, his first year as leader of the nation's fourth-largest health insurer, and a period in which the company's earnings, revenue and enrollment all climb.

Cordani, 45, received compensation valued at $15.1 million last year from the Philadelphia managed-care company, according to an Associated Press analysis of a regulatory filing Friday.

That included a $1 million salary, a performance-related bonus totaling more than $7.3 million and stock and option awards adding up to $6.7 million.

In 2009, Cordani's compensation was $6.5 million, but he did not serve for the entire year. Note that according to the 2009 proxy, the previous CEO, H Edward Hanway, received $12,236,740 in total compensation in 2008, his last year as CEO.

What was the rationale for the huge rise in Cordani's compensation from 2009 to 2010? (And implicitly, the fairly large increase compared to Hanway's compensation in his last year?)

The company said in its proxy statement filed with the Securities and Exchange Commission that Cigna 'effectively executed on its growth strategy under Cordani's leadership last year.

'Revenue rose significantly in 2010, reflecting strong premium growth in (Cigna's) ongoing business segments,' the proxy said.

Cigna earned about $1.35 billion, or $4.89 per share, on $21.25 billion in revenue in 2010. That was up from $1.3 billion, or $4.73 per share, on $18.41 billion in revenue in 2009. The insurer's medical membership climbed 4 percent to 11.4 million people compared to the final quarter of 2009, when it fell more than 5 percent. That helped raise premiums and fees in health care, the insurer's largest segment.

Also,

Cigna shares climbed 4 percent to close 2010 at $36.66, while the Standard & Poor's 500 index rose 12.8 percent.

So to recap, Cigna's current CEO's total compensation doubled in a year while earnings and the stock price rose about 4%.

WellPoint

Also reported by AP, via the Washington Post, the CEO got a small raise (but ended up with compensation similar to Mr Cordani's above):

The president and CEO of health insurer WellPoint Inc. received a 3 percent boost in total compensation in 2010 even as the company�s profit and enrollment numbers slipped during a transitional year for U.S. health care companies.

The Indianapolis-based insurer awarded Angela Braly a total pay package worth $13.4 million up from $13.1 million in 2009. Wellpoint disclosed the compensation � which includes salary, bonus and other awards � in a filing with federal financial regulators late Friday.

On the other hand, the company did not do so well financially:

The insurer�s profit fell sharply last year compared with 2009, when the sale of its NextRx subsidiary contributed $2.2 billion in after-tax income. Medical enrollment also slid 1 percent last year to 33.3 million members.

So what was the rationale for even a small raise (over an already huge compensation package)?

In the company�s filing, Wellpoint�s board of directors highlighted accomplishments by management, including reducing general expenses by 3 percent.

Also,

A Wellpoint spokeswoman stressed Friday that the company�s pay formula rewards executives for improving enrollee health, boosting share prices and meeting other pre-set goals.

'For the CEO, almost 90 percent of total target compensation is based on company performance and is tied to meeting established goals,' Kristin Binns said in a statement.

So while Cigna did slightly better financially than last year, its CEO's total compensation doubled to well over $10 million, and while WellPoint did slightly worse financially than last year, its CEO's total compensation increased, again remaining well over $10 million.  It seems that the leaders of top health care organizations will continue to get richer, no matter how well their organizations performed financially, let alone what effect they had on patients' and the public's health.
So What Drives Up Health Care Costs?

Just to distract from CEOs getting increases in their already huge compensation that seem disproportionate to any reasonable measure of their companies' financial performance, health care insurers continued to deny any responsibility for the rise in health care costs.

For example, the San Francisco Chronicle published a story entitled, "Insurer Wants Focus on What Drives Up Health Costs," which had a familiar ring:

When health insurers notify members that rates are going up - often in the punishing double-digits - they typically blame rising medical costs.

They say the problem really isn't theirs; it's all the other pieces of the health-care puzzle that drive up costs that must be passed on to customers.

Don't blame you, don't blame me, blame that fella behind the tree.
It went on to name all the usual suspects (color-coded for comparison below):

Insurers say their costs grow in part because of new medical technologies and the rising price of pharmaceutical products and medical equipment.

The consolidation of hospitals and doctors into large networks also makes it hard to keep prices low, as do waste, fraud and malpractice, they say. The system also lacks incentives for hospitals and doctors to curb costs. For example, they can charge twice by repeating tests and procedures, and by readmitting patients.

Insurers also say they lose money with policies people buy on their own, as opposed to group coverage from employers. Because the individual policies are more expensive, healthier people tend to avoid them, leaving insurers with a sicker pool.

Poor reimbursement from government programs such as Medi-Cal also forces insurers to raise private insurance prices to make up the slack, they say.

Finally, as people get older and fatter, they gobble up more health care resources.

'When you're looking at growth in premiums, the largest engine of that growth are those medical costs,' said Charles Bacchi, executive vice president of the California Association of Health Plans, which represents health insurers. He said critics who claim that insurers raise prices to increase profits and pad executive salaries are wrong, and that insurers' average profit margin has remained at 3 to 5 percent for years.

First, note that the executive compensation, the administrative costs, the marketing, public relations and lobbying costs all come off the top of revenues before any profits are generated, and before any possible dividends get paid to stock-holders.   I suspect that the insurance industry spokespeople immediately switch the topic to profits and investors' results to distract from those who really make money from health insurance companies, the top executives, and all those managers, bureaucrats, marketers, public relations people, and lobbyists who never touch patients and never deliver any care.  As Wendell Potter has written, many people like to blame government bureaucrats for health care's problems. They may deserve some blame, but not any more, and perhaps less than corporate bureaucrats and executives.

Recall further what Wendell Potter described in Deadly Spin. All those health insurance corporate public relations people were earning good salaries in part based on their ability to distract the public and policy-makers from the insurance companies' roles in health care dysfunction. Potter wrote (p. 110):

Rather than admit responsibility for the failures, insurance executives pointed the finger of blame at their customers, the 'consumers' of health care, and, of course, the providers of care. In introducing the concept of their new silver bullet - consumer driven health care - insurance executives claimed that the 'real drivers of health care costs' (one of my CEO's favorite expressions) were the people who sought care when they really didn't need it and the doctors and hospitals who were all too willing to provide this unnecessary care. Sure, the aging population and expensive new technology were also factors, but the main culprits were people who just didn't realize how expensive health care had become.

Note the similarities among the "real drivers of health care costs" promulgated by the corporate PR people and the defense of the health insurers' role mounted above (some of the more obvious color-coded). Note that the defenses never explain why the insurance companies seem unable to negotiate prices down, and why they all use the physician payment schedule derived from the recommendations of the secretive RUC.

For some final irony, the Chronicle found an academic who was not too hard on the health insurance companies:

Glenn Melnick, a health economist at the University of Southern California, sympathizes with many of the insurers' arguments.

He blamed rising costs mainly on higher prices charged by hospitals and doctors, which account for the largest portion of health care spending.

The reporter did not note Prof Melnick's full title, Professor and Blue Cross of California Chair in Health Care Finance. Oops.

So in summary, health care costs continue rising, access keeps declining, and there is no evidence of improvements in quality. Large health care organizations blame each other for the problems, but nearly all of them continue to make their top executives extremely rich. Although the amounts diverted to these executives cannot solely account for the rise in health care costs, the perverse incentives given those who lead health care are likely a major cause of the problems. A health care system run by leaders who are comfortable becoming extremely rich while the health care crisis worsens is a likely recipe for dysfunction.

We now know commercial health insurers deploy well paid public relations departments to use stealthy if not downright deceptive means to distract those who want to address what really causes health care dysfunction (see this post.) It is likely that all large health care organizations use similar stealth advocacy strategies. These strategies have successfully distracted the conversation away from problems with health care leadership and governance, at least until now.

As we have said before, far too often the leaders of not-for-profit health care institutions seem more interested in padding their own bottom lines than upholding the institutions' missions. They often seem entirely unaware of their duty to put those missions ahead of their own self-interest. Like the financial services sector in the era of "greed is good," health care too often seems run by "insiders hijacking established institutions for their personal benefit." True health care reform would encourage leadership of health care who understand health care and care about its mission, rather than those who see a quick way to make a small fortune.

Furthermore, we need an open discussion of the real issues related to health care dysfunction, not one stifled by the anechoic effect, spun by corporate PR, and dominated by "third parties" whose conflicts of interest are hidden.