The dysfunction of modern health care likely arises from larger trends within the economy and the society. We frequently discuss how poor leadership and governance within health care and other organizations exist in a context of focus on short-term revenue above all else (financialization); perverse incentives, particularly leading to excess executive compensation unrelated to leaders' actions or performance; deception, especially in marketing and public relations coupled to suppression of internal dissent and whistle blowing; lax regulation and law enforcement, in a climate of regulatory capture and by governments afflicted with the revolving door allowing conflicts of interest and corruption, etc, etc.
I was thinking of this last weekend while like many Rhode Islanders we were shivering in an unheated house. A big but not unprecedented snow storm had apparently caused the failure of multiple high-voltage electrical transmission lines and substations, which should be designed to resist such conditions. (National Grid says cause still unknown for failure of high-voltage lines serving East Bay, Aquidneck Island.)
Poor leadership and governance under these circumstances likely lead to threats to public health and safety. Focus on cost-cutting and current revenue to drive executive compensation may lead to bad design, manufacture, and maintenance of critical systems. So maybe we should not be surprised at a recent barrage of cases involving threats to health and safety by well-known corporations:
Walmart in Supply Chain Crackdown after Bangladesh Factory Fire
Apple Vows to Eradicate Child Labour from Workforce
HSBC Got Away with Murder: the Bank Laundered Money for Drug Traffickers and Terrorist Groups...
Probe of Boeing 787 Battery Fire Expands
Sewage-laden Carnival Cruise Ship Docks in Mobile, Alabama: Passengers Finally Disembark from Vacation Vehicle Turned Smelly Nightmare
Amazon 'used neo-Nazi guards to keep immigrant workforce under control' in Germany
Those were just the cases I could easily recall. Readers are invited to add more to the comments section.
At least, I don't think I can blame poor leadership and governance for a huge exploding meteor:
But maybe a society less dominated by top insiders skimming off more and more money would be better prepared for the next meteor strike.
One can only hope that this onslaught of increasingly jaw-dropping cases that threaten health and safety that would have been unimaginable a short time ago might lead the public to demand accountable, transparent, mission-focused, honest leadership of the big organizations, for-profit, non-profit and governmental, that now control our lives.
Showing posts with label governance. Show all posts
Showing posts with label governance. Show all posts
Friday, February 15, 2013
Friday, January 11, 2013
Pfizer's Pfourteenth Settlement - a Small Reminder of Continuing Impunity
Well, that did not take long. Less than a month after its last legal settlements were announced, Pfizer had to settle again.
The Details of the Settlement
This case, involving charges filed by the Texas Attorney General, was only reported locally, e.g., here in the Houston Business Journal:
As usual, the settlement was about deceptions:
As usual, Pfizer had excuses:
Of course, Pfizer acquired the companies (which were listed in the settlement document as ESI Lederle, Lederle Labs, and Pharmacia) in order to make money from them. Furthermore, in acquiring the subsidiaries, Pfizer assumed responsibility for them and their actions.
As usual, there was no hint in the minimalist coverage of this settlement of any sort of negative consequences for anyone who authorized, directed, or implemented the relevant behavior, which did involve deception upon the government of Texas.
Nobody Held Responsible, Even After 14 Settlements
As is also usual, there was no mention in the media coverage, or the settlement document that Pfizer has made numerous other settlements in the recent past. By my best count, the total was up to thirteen from the beginning of the 21st century to the present, as most recently tabulated here, and listed in the Appendix below. (There may easily have been more that I missed.)
At the time of the twelfth and thirteenth settlements, we wondered whether the sheer volume of documentation of Pfizer's actions, and the sheer number of legal actions against it would finally lead to the end of the impunity of Pfizer's leaders. After all, one would think that if the town drunk showed up in court for his fourteenth drunk driving charge, the book would be figuratively thrown at him. Instead, at best, Pfizer had a wet noodle thrown at it. The costs of this settlement, and even the cumulative costs of all the previous ones over time just added up to costs of doing business. And these costs were not paid by the people who profited the most from the bad behavior, but were diffused among all stock-holders, employees, patients, and payers.
Of course, leadership and governance of Pfizer is by some very fancy people indeed, and our society has not been good lately at holding such fancy people to any standards whatsoever.
The sorts of practices discussed in Pfizer's multiple settlements have added to the revenue that have helped a lot of people live in the style to which they have become accustomed. Pfizer has had some very, very well paid executives. In 2011, according to the company's 2012 proxy statement, its CEO, Ian Read, got more than $25 million, that is to repeat more than twenty-five million dollars, count them, in total compensation. All the rest of its named executive officers got more than $5 million in total compensation. That 2012 report justified this other worldly munificence in part because
Really, after now 14 settlements?
The issue of the impunity of leaders of large organizations has finally made it to the big time. For example, a New York Times editorial called the latest US government settlement with the large banks whose exploitative mortgage practices helped to usher in the global financial collapse or great recession "another slap on the wrist." Writ large, continuing impunity is the sort of problem that indicates a degree of societal corruption that can destroy particular civilizations.
I am just a simple country doctor and can only do my small part to keep the barbarians outside the gate, but at least those who care about what has gone wrong with health care ought to be calling for vigorous, impartial law enforcement that holds leaders of health care organizations accountable for wrong-doing, and in general, changes that make leaders of health care organizations broadly accountable for their actions.
There are some luminaries from health care and academia on the current Pfizer board, like Dennis A. Ausiello, M.D.,
Jackson Professor of Clinical Medicine at Harvard Medical School and Chief of Medicine at Massachusetts General Hospital; Frances D. Fergusson, Ph.D., President Emeritus of Vassar College; Helen H. Hobbs, M.D., Investigator of the Howard Hughes Medical Institute since 2002, is a Professor of Internal Medicine and Molecular Genetics and Director of the McDermott Center for Human Growth and Development at the University of Texas (UT) Southwestern Medical Center; and Marc Tessier-Lavigne, Ph.D., President of The Rockefeller University since March 2011. Maybe some people at their base institutions ought to be asking them about Pfizer's multiple ethical lapses and what they are doing to make its leadership more accountable.
APPENDIX - Pfizer's Settlements
The Details of the Settlement
This case, involving charges filed by the Texas Attorney General, was only reported locally, e.g., here in the Houston Business Journal:
The state of Texas will receive more than $36 million from two civil Medicaid fraud settlements with Pfizer Inc and Endo Pharmaceuticals, Attorney General Greg Abbott said Friday.
Both companies will pay $18.17 million to the state, plus attorney fees and relator shares. The federal government is also entitled to a share of the total settlement, Abbott’s statement said.
As usual, the settlement was about deceptions:
State and federal law requires drug companies disclose to the Medicaid program the prices they charge pharmacies, wholesalers and distributors for their products. Texas’ lawsuits claimed the companies misreported the price of various generic drugs and overcharged Medicaid for certain products.
As usual, Pfizer had excuses:
In the Pfizer settlement, the state’s investigation originally targeted entities that are now wholly owned subsidiaries of Pfizer.
In making the settlements, neither company is admitting to any wrongdoing.
New York-based Pfizer released a statement saying the safety of its subsidiaries’ products was not an issue of the investigation and Pfizer was not a target or subject of the case.
'Pfizer’s subsidiaries are resolving this investigation to avoid the further time and cost of litigation,' the company said in its statement. 'The majority of the Texas investigation focused on reporting that took place prior to the subsidiaries being acquired by Pfizer. The company remains committed to providing accurate pricing information to the Texas Medicaid program and providing quality pharmaceutical products to the citizens of Texas.'
Of course, Pfizer acquired the companies (which were listed in the settlement document as ESI Lederle, Lederle Labs, and Pharmacia) in order to make money from them. Furthermore, in acquiring the subsidiaries, Pfizer assumed responsibility for them and their actions.
As usual, there was no hint in the minimalist coverage of this settlement of any sort of negative consequences for anyone who authorized, directed, or implemented the relevant behavior, which did involve deception upon the government of Texas.
Nobody Held Responsible, Even After 14 Settlements
As is also usual, there was no mention in the media coverage, or the settlement document that Pfizer has made numerous other settlements in the recent past. By my best count, the total was up to thirteen from the beginning of the 21st century to the present, as most recently tabulated here, and listed in the Appendix below. (There may easily have been more that I missed.)
At the time of the twelfth and thirteenth settlements, we wondered whether the sheer volume of documentation of Pfizer's actions, and the sheer number of legal actions against it would finally lead to the end of the impunity of Pfizer's leaders. After all, one would think that if the town drunk showed up in court for his fourteenth drunk driving charge, the book would be figuratively thrown at him. Instead, at best, Pfizer had a wet noodle thrown at it. The costs of this settlement, and even the cumulative costs of all the previous ones over time just added up to costs of doing business. And these costs were not paid by the people who profited the most from the bad behavior, but were diffused among all stock-holders, employees, patients, and payers.
Of course, leadership and governance of Pfizer is by some very fancy people indeed, and our society has not been good lately at holding such fancy people to any standards whatsoever.
The sorts of practices discussed in Pfizer's multiple settlements have added to the revenue that have helped a lot of people live in the style to which they have become accustomed. Pfizer has had some very, very well paid executives. In 2011, according to the company's 2012 proxy statement, its CEO, Ian Read, got more than $25 million, that is to repeat more than twenty-five million dollars, count them, in total compensation. All the rest of its named executive officers got more than $5 million in total compensation. That 2012 report justified this other worldly munificence in part because
We continued to improve our reputation in society through engagement with our customers, our shareholders, and the investor community.
Really, after now 14 settlements?
The issue of the impunity of leaders of large organizations has finally made it to the big time. For example, a New York Times editorial called the latest US government settlement with the large banks whose exploitative mortgage practices helped to usher in the global financial collapse or great recession "another slap on the wrist." Writ large, continuing impunity is the sort of problem that indicates a degree of societal corruption that can destroy particular civilizations.
I am just a simple country doctor and can only do my small part to keep the barbarians outside the gate, but at least those who care about what has gone wrong with health care ought to be calling for vigorous, impartial law enforcement that holds leaders of health care organizations accountable for wrong-doing, and in general, changes that make leaders of health care organizations broadly accountable for their actions.
There are some luminaries from health care and academia on the current Pfizer board, like Dennis A. Ausiello, M.D.,
Jackson Professor of Clinical Medicine at Harvard Medical School and Chief of Medicine at Massachusetts General Hospital; Frances D. Fergusson, Ph.D., President Emeritus of Vassar College; Helen H. Hobbs, M.D., Investigator of the Howard Hughes Medical Institute since 2002, is a Professor of Internal Medicine and Molecular Genetics and Director of the McDermott Center for Human Growth and Development at the University of Texas (UT) Southwestern Medical Center; and Marc Tessier-Lavigne, Ph.D., President of The Rockefeller University since March 2011. Maybe some people at their base institutions ought to be asking them about Pfizer's multiple ethical lapses and what they are doing to make its leadership more accountable.
APPENDIX - Pfizer's Settlements
In the beginning of the 21st century, according to the Philadelphia Inquirer, Pfizer made three major settlements,
Thereafter, 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 two other major cases from then to early 2010, including 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). In March, 2011, 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). In October, 2011, Pfizer settled allegations that it illegally marketed bladder control drug Detrol (see this post). Finally, in August, 2012, Pfizer settled allegations that its subsidiaries bribed foreign (that is, with respect to the US) government officials, including government-employed doctors (see this post).
October 2002: Pfizer and subsidiaries Warner-Lambert and Parke-Davis agreed to pay $49 million to settle allegations that the company fraudulently avoided paying fully rebates owed to the state and federal governments under the national Medicaid Rebate program for the cholesterol-lowering drug Lipitor.
May 2004: Pfizer agreed to pay $430 million to settle DOJ claims involving the off-label promotion of the epilepsy drug Neurontin by subsidiary Warner-Lambert. The promotions included flying doctors to lavish resorts and paying them hefty speakers' fees to tout the drug. The company said the activity took place years before it bought Warner-Lambert in 2000.
April 2007: Pfizer agreed to pay $34.7 million in fines to settle Department of Justice allegations that it improperly promoted the human growth hormone product Genotropin. The drugmaker's Pharmacia & Upjohn Co. subsidiary pleaded guilty to offering a kickback to a pharmacy-benefits manager to sell more of the drug.
Thereafter, 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 two other major cases from then to early 2010, including 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). In March, 2011, 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). In October, 2011, Pfizer settled allegations that it illegally marketed bladder control drug Detrol (see this post). Finally, in August, 2012, Pfizer settled allegations that its subsidiaries bribed foreign (that is, with respect to the US) government officials, including government-employed doctors (see this post).
In December, 2012, Pfizer settled federal charges that its Wyeth subsidiary deceptively marketed the proton pump inhibitor drug Protonix, using systematic efforts to deceive approved by top management, and settled charges by multiple states' Attorneys' General that it deceptively marketed Zyvox and Lyrica (see this post).
Monday, December 31, 2012
Question for the New Year: Why is There Next to No Reaction to the Gilded Age of Health Care?
For the New Year, it is time to ponder- why is there still no organized outrage over the ongoing incompetent, uncaring, self-interested, conflicted, and often outright corrupt leadership of health care organizations we have documented incessantly on Health Care Renewal?
For example, just a few days ago, we documented a series of cases in which large US and multinational health care organizations settled cases alleging they deceptively marketed drugs so as to exaggerate their benefits and conceal their harms, bribed doctors and officials outside of the US, gave kickbacks to US doctors, defrauded the US government, and monopolized markets for drugs, yet few leaders, and no top leaders of the companies involved suffered any negative consequences for authorizing, directing, or implementing these activities. We have discussed many previous legal settlements involving similar bad behavior and similar impunity by the leaders of the organizations involved. Again and again we have discussed how large organizations, often but not always drug, biotechnology and device companies, have manipulated the scientific literature (e.g., see examples of manipulation of clinical research, suppression of clinical research, and specific practices such as ghost-writing of apparently scholarly articles to benefit vested interests.) We have discussed overblown compensation that made top managers and other organizational insiders rich without any rationale other than their ability to take such money off the top. Yet in the US, despite ever rising costs presumably provoked by such leadership, without corresponding improvements in quality or access, there is still no organized movement for change.
The problems in US health care, however, seem to parallel problems in the larger society, and the world at large. We have discussed parallels with bad leadership of financial firms, including the firms that drove us into the global financial collapse/ great recession, and to continuing income stagnation, recession, austerity, and decreasing opportunity for the poor and middle class around the world.
Yet parallel questions are just beginning to be asked about larger related political economic problems. Recently, historian Brad DeLong attempted to address the question, "why next to no reaction to the second gilded age?" (See this.). Unfortunately, while he could demonstrate two powerful political movements that opposed the first Gilded Age, he was completely at a loss to explain why there has been no similar organized outrage about the second Gilded Age in which we exist today. Despite incompetent, uncaring, self-interested, conflicted, and often outright corrupt leadership of many large corporations, non-profit organizations, and government agencies only a few voices, often bloggers like us, have objected.
Economist Mark Thoma then took up the question, but the best he could do was suggest that outrage has been moderated because of the existing, if frayed, social safety net, and because many people nonetheless saw the last two decades as a time of increasing economic opportunity. (See this. ) He did not address how this view may have been wrong, since the last two decades were a time of obviously worsening income inequality.
Yves Smith of Naked Capitalism finally offered some insight (see this) by noting the importance of "propaganda," corresponding, I think, to the widespread deceptive marketing and public relations, and the use of covertly paid key opinion leaders to further both that we frequently discuss. Finally she suggested that people feel powerless because they see themselves as "atomized individuals," even though they many are currently being treated as interchangeable parts by the leaders of large organizations who can control the actions of large number of employees to further their self-interest.
There must be more reasons. There ought to at least be some organized discussion of these reasons. After that there needs to be some organized action to promote real reform. I conclude the often miserable 2012 with a plea for those who are interested and concerned to come together to create real solutions.
ADDENDUM (1 January, 2013) - see comments by Dr Howard Brody on the Economism Scam blog.
For example, just a few days ago, we documented a series of cases in which large US and multinational health care organizations settled cases alleging they deceptively marketed drugs so as to exaggerate their benefits and conceal their harms, bribed doctors and officials outside of the US, gave kickbacks to US doctors, defrauded the US government, and monopolized markets for drugs, yet few leaders, and no top leaders of the companies involved suffered any negative consequences for authorizing, directing, or implementing these activities. We have discussed many previous legal settlements involving similar bad behavior and similar impunity by the leaders of the organizations involved. Again and again we have discussed how large organizations, often but not always drug, biotechnology and device companies, have manipulated the scientific literature (e.g., see examples of manipulation of clinical research, suppression of clinical research, and specific practices such as ghost-writing of apparently scholarly articles to benefit vested interests.) We have discussed overblown compensation that made top managers and other organizational insiders rich without any rationale other than their ability to take such money off the top. Yet in the US, despite ever rising costs presumably provoked by such leadership, without corresponding improvements in quality or access, there is still no organized movement for change.
The problems in US health care, however, seem to parallel problems in the larger society, and the world at large. We have discussed parallels with bad leadership of financial firms, including the firms that drove us into the global financial collapse/ great recession, and to continuing income stagnation, recession, austerity, and decreasing opportunity for the poor and middle class around the world.
Yet parallel questions are just beginning to be asked about larger related political economic problems. Recently, historian Brad DeLong attempted to address the question, "why next to no reaction to the second gilded age?" (See this.). Unfortunately, while he could demonstrate two powerful political movements that opposed the first Gilded Age, he was completely at a loss to explain why there has been no similar organized outrage about the second Gilded Age in which we exist today. Despite incompetent, uncaring, self-interested, conflicted, and often outright corrupt leadership of many large corporations, non-profit organizations, and government agencies only a few voices, often bloggers like us, have objected.
Economist Mark Thoma then took up the question, but the best he could do was suggest that outrage has been moderated because of the existing, if frayed, social safety net, and because many people nonetheless saw the last two decades as a time of increasing economic opportunity. (See this. ) He did not address how this view may have been wrong, since the last two decades were a time of obviously worsening income inequality.
Yves Smith of Naked Capitalism finally offered some insight (see this) by noting the importance of "propaganda," corresponding, I think, to the widespread deceptive marketing and public relations, and the use of covertly paid key opinion leaders to further both that we frequently discuss. Finally she suggested that people feel powerless because they see themselves as "atomized individuals," even though they many are currently being treated as interchangeable parts by the leaders of large organizations who can control the actions of large number of employees to further their self-interest.
There must be more reasons. There ought to at least be some organized discussion of these reasons. After that there needs to be some organized action to promote real reform. I conclude the often miserable 2012 with a plea for those who are interested and concerned to come together to create real solutions.
ADDENDUM (1 January, 2013) - see comments by Dr Howard Brody on the Economism Scam blog.
Friday, June 1, 2012
Dartmouth's Governance and Wall Street
While the money spent on health care in the US continues to increase, care becomes less accessible and its quality becomes more dubious. Most public health care discourse seems at a loss to explain how we can keep spending more to get less.
Of many possible explanations, one that has become more credible is continuing erosion of health care stewardship. The boards of trustees of health care organizations, those charged with their stewardship, seem increasingly preoccupied with self-interest rather than the health care mission. As more information about how such boards currently operate sneaks into public view, the problems appear more serious and salient.
New information about the governance of Dartmouth College, an issue we have followed since 2007, is illustrative.
The Case So Far
The problems at Dartmouth were notable because in many ways its governance was superior to that of many US higher educational and health care institutions. At the time we first stumbled on these problems, Dartmouth was unusual in that nearly half of its board of trustees were elected by alumni, rather than being self-appointed. That made its governance both more representative and more accountable.
In 2007, however, a dispute was ongoing about the extent that the institution's board of trustees ought to represent the alumni at large, or instead, ought to be a self-elected body not clearly accountable to anyone else. The unelected, or "charter" board members were pushing to increases their numbers. In 2007, what really got our attention was the stated rationale for this push towards less representative and accountable governance. Mr Charles Haldeman, then the chairman of the board of trustees, announced a smaller proportion of elected trustees would ensure that the board "has the broad range of backgrounds, skills, expertise, and fundraising capabilities needed," and that the board members would possess "even more diverse backgrounds." However, despite his appeal to diversity, Mr Haldeman seemed most intent on reducing "divisiveness," especially dissent that challenged his own authority. At the time, we thought his argument for more diversity to reduce dissent and increase his own authority seemed Orwellian.
Yet when we examined the backgrounds of the self-appointed trustees, we found that they exhibited little diversity. Furthermore, rather than resembling followers of Ingsoc, they resembled more the group that the radical left traditionally reviled. Remarkably, three-quarters (6/8) were leaders of the finance sector, of what is popularly called "Wall Street." In 2007, they seemed not very diverse, but why the majority should be in the financial sector, and what implications that had, was then obscure.
After the fall of Lehman Brothers and the onset of the global financial collapse/ great recession, the implications of this Wall Street majority on the board of an institution of higher education became more troubling. Since 2008, growing concerns about the extent that finance is driven by a "greed is good" culture increasingly suggest that domination of university, medical school, or hospital boards by leaders in the finance sector may increasingly divorce boards from the missions which they are supposed to uphold.
Yet in 2008, the unelected "charter" members of the Dartmouth board succeeded in increasing their numbers, and hence their proportion of total board seats. The new board was no more diverse. Of its 13 charter members, 9 were from finance, and one more was the CEO of a corporation with a major finance subsidiary. (Look here.) By 2009, the charter board members had succeeded in ousting a dissident alumni-elected member, labeling him a member of a "radical cabal," and rewriting a board loyalty oath apparently to discourage further dissent. (Look here.)
All this spoke to the increasing power of the culture of finance among members of the board. Perhaps, though, there were reasons that the financial majority on the board wanted to suppress dissent other than to make themselves more comfortable with their own dominant culture, In 2010, as the global financial crisis continued, "Educational Endowments and the Financial Crisis: Social Costs and Systemic Risks in the Shadow Banking System," published by the Center for Social Philanthropy, Tellus Institute, focused on how prominent educational institutions, including Dartmouth College, came to invest much of their endowments in risky, illiquid "alternative" investments, the sort provided by the "shadow banking system." (See this post.) The report noted extensive conflicts of interest on the Dartmouth board involving trustees who were also leaders of finance. Their firms, it turned out, were managing a substantial fraction of the money in the college's endowment. Half of the charter trustees were also being paid to manage the finances of the institution for whose stewardship they were responsible.
Trustees of non-profit organizations are supposed to exhibit a duty of loyalty, that is, they "must give undivided allegiance when making decisions affecting the organization." (For a summary of their duties, look here.) In 2010, I noted, "letting a board member's firm manage millions of dollars worth of the institution's endowment portfolio seems an obvious violation of the duty of loyalty." So, "these sorts of conflicts of interest may be another 'missing link' explaining why the leadership and governance of health care organizations has gone so far astray." I then posited, "as disclosure continues, maybe enough outrage will ensue so that improved leadership and governance will become possible.
The Friends of Eleazar Wheelock Charge Corruption
Now there seems to be more outrage. Last month, the dissident Dartblog broke the story of a letter sent in February, 2012 to the New Hampshire Attorney General by an anonymous group called the "Friends of Eleazar Wheelock." (Wheelock was the founder of the college.) To the the letter was appended a report that included an even more extensive list of conflicts of interest affecting Dartmouth trustees, the college's Finance Committee and Investment Committees, and their friends and relatives.
The letter also added
It rhetorically asked how the college came into
The letter charged that there has been a
A post on the American Thinker blog noted that the letter alleged "corruption." It is impossible to tell whether these expanded allegations will result in any charges, much less convictions. The state Attorney General is currently looking into this (see Reuters). Certainly, the allegations are at least of ethical corruption as it is defined by Transparency International, "abuse of entrusted power for private gain."
The revelations since 2007 (and I could argue beginning with my finding that the majority of the supposedly "diverse" charter trustees were leaders of finance) first raised questions whether Dartmouth governance's was attentive to the mission, then, whether it was conflicted, and now, whether it is corrupt.
That these questions can be credibly raised about one of our most prestigious institutions of higher education and health care demonstrates the depth of our health care crisis. It also demonstrates how the health care crisis seems inextricably linked to the financial crisis, and to a fundamental crisis about our society and its commitment to democracy and fairness.
A fair and thorough enquiry about the mess at Dartmouth, resulting in clear actions to uphold the institution's mission and ethics, and, if applicable, the law, would start us down the path of true health care reform.
However, if this just gets swept under the rug, we will not have reached the bottom of our descent.
ADDENDUM (2 June, 2012) - Note that Dartmouth's most recent President, Jim Yong Kim, who was appointed by and served under the Trustees in question above, is now President of the World Bank (see this LA Times article.)
See also comments in the University Diaries blog.
Of many possible explanations, one that has become more credible is continuing erosion of health care stewardship. The boards of trustees of health care organizations, those charged with their stewardship, seem increasingly preoccupied with self-interest rather than the health care mission. As more information about how such boards currently operate sneaks into public view, the problems appear more serious and salient.
New information about the governance of Dartmouth College, an issue we have followed since 2007, is illustrative.
The Case So Far
The problems at Dartmouth were notable because in many ways its governance was superior to that of many US higher educational and health care institutions. At the time we first stumbled on these problems, Dartmouth was unusual in that nearly half of its board of trustees were elected by alumni, rather than being self-appointed. That made its governance both more representative and more accountable.
In 2007, however, a dispute was ongoing about the extent that the institution's board of trustees ought to represent the alumni at large, or instead, ought to be a self-elected body not clearly accountable to anyone else. The unelected, or "charter" board members were pushing to increases their numbers. In 2007, what really got our attention was the stated rationale for this push towards less representative and accountable governance. Mr Charles Haldeman, then the chairman of the board of trustees, announced a smaller proportion of elected trustees would ensure that the board "has the broad range of backgrounds, skills, expertise, and fundraising capabilities needed," and that the board members would possess "even more diverse backgrounds." However, despite his appeal to diversity, Mr Haldeman seemed most intent on reducing "divisiveness," especially dissent that challenged his own authority. At the time, we thought his argument for more diversity to reduce dissent and increase his own authority seemed Orwellian.
Yet when we examined the backgrounds of the self-appointed trustees, we found that they exhibited little diversity. Furthermore, rather than resembling followers of Ingsoc, they resembled more the group that the radical left traditionally reviled. Remarkably, three-quarters (6/8) were leaders of the finance sector, of what is popularly called "Wall Street." In 2007, they seemed not very diverse, but why the majority should be in the financial sector, and what implications that had, was then obscure.
After the fall of Lehman Brothers and the onset of the global financial collapse/ great recession, the implications of this Wall Street majority on the board of an institution of higher education became more troubling. Since 2008, growing concerns about the extent that finance is driven by a "greed is good" culture increasingly suggest that domination of university, medical school, or hospital boards by leaders in the finance sector may increasingly divorce boards from the missions which they are supposed to uphold.
Yet in 2008, the unelected "charter" members of the Dartmouth board succeeded in increasing their numbers, and hence their proportion of total board seats. The new board was no more diverse. Of its 13 charter members, 9 were from finance, and one more was the CEO of a corporation with a major finance subsidiary. (Look here.) By 2009, the charter board members had succeeded in ousting a dissident alumni-elected member, labeling him a member of a "radical cabal," and rewriting a board loyalty oath apparently to discourage further dissent. (Look here.)
All this spoke to the increasing power of the culture of finance among members of the board. Perhaps, though, there were reasons that the financial majority on the board wanted to suppress dissent other than to make themselves more comfortable with their own dominant culture, In 2010, as the global financial crisis continued, "Educational Endowments and the Financial Crisis: Social Costs and Systemic Risks in the Shadow Banking System," published by the Center for Social Philanthropy, Tellus Institute, focused on how prominent educational institutions, including Dartmouth College, came to invest much of their endowments in risky, illiquid "alternative" investments, the sort provided by the "shadow banking system." (See this post.) The report noted extensive conflicts of interest on the Dartmouth board involving trustees who were also leaders of finance. Their firms, it turned out, were managing a substantial fraction of the money in the college's endowment. Half of the charter trustees were also being paid to manage the finances of the institution for whose stewardship they were responsible.
Trustees of non-profit organizations are supposed to exhibit a duty of loyalty, that is, they "must give undivided allegiance when making decisions affecting the organization." (For a summary of their duties, look here.) In 2010, I noted, "letting a board member's firm manage millions of dollars worth of the institution's endowment portfolio seems an obvious violation of the duty of loyalty." So, "these sorts of conflicts of interest may be another 'missing link' explaining why the leadership and governance of health care organizations has gone so far astray." I then posited, "as disclosure continues, maybe enough outrage will ensue so that improved leadership and governance will become possible.
The Friends of Eleazar Wheelock Charge Corruption
Now there seems to be more outrage. Last month, the dissident Dartblog broke the story of a letter sent in February, 2012 to the New Hampshire Attorney General by an anonymous group called the "Friends of Eleazar Wheelock." (Wheelock was the founder of the college.) To the the letter was appended a report that included an even more extensive list of conflicts of interest affecting Dartmouth trustees, the college's Finance Committee and Investment Committees, and their friends and relatives.
The letter also added
The mismanagement extends beyond the investments and endowment. 1) Over a period of seven years The College engaged Lehman Brothers in six 'interest rate swaps' totaling $550 million dollars. The current value of these 'swaps' is now in excess of two hundred million dollars. That is what Dartmouth owes on these bets. These losses are not reported in the College’s financial statements. 2) The College’s 'cash' was invested in six hedge funds. Up to 40% of it was lost. Again, this was not reported. This comprises grant money for research, advances to faculty, and other working capital which should have been invested in the safest of money market instruments. 3) over 50% of the endowment is invested with Trustees, Investment Committee members, or their friends.The report summary stated,
The pattern that the Dartmouth trustees and members of the Endowment/Investment committee have engaged in for decades is clear. That pattern is that a donor/investment manager’s pledge to support Dartmouth is reciprocated with an investment of ever increasing proportions in the donor’s firm, lending the credibility of an Ivy League institution to the firm. The investment returns are of little import; most of these alum/donor/investment manager returns are average to poor.
It rhetorically asked how the college came into
the grip of a club of investment manager alums who have invested almost six hundred million dollars in their very own funds and directed over one billion dollars to their friends? And who have taken almost one hundred million dollars in fees to manage the endowment, often with poor results culminating in the twenty three per cent loss in 2008 and the worst performance of all the Ivies in 2011?
The letter charged that there has been a
quiet takeover of this great College by a cabal of external, wealthy alumni/ae of the college. They have mortgaged the College’s future through borrowing heavily in the tax exempt marketplace under NH HEFA (Health and Education Facilities Authority). They have simultaneously directed the College’s three billion dollar endowment to themselves, their firms, and their friends. They have furthered their own self-interest at the expense of the College and the Upper Valley. They have abused the non-profit status of Dartmouth College. They have enriched themselves through managing and directing Dartmouth’s three billion dollar endowment. In all cases they have taken gargantuan fund management fees through 'Private Equity', 'Venture Capital', and 'Hedge Funds' investments which they, themselves, manage and are the owners of.Summary
A post on the American Thinker blog noted that the letter alleged "corruption." It is impossible to tell whether these expanded allegations will result in any charges, much less convictions. The state Attorney General is currently looking into this (see Reuters). Certainly, the allegations are at least of ethical corruption as it is defined by Transparency International, "abuse of entrusted power for private gain."
The revelations since 2007 (and I could argue beginning with my finding that the majority of the supposedly "diverse" charter trustees were leaders of finance) first raised questions whether Dartmouth governance's was attentive to the mission, then, whether it was conflicted, and now, whether it is corrupt.
That these questions can be credibly raised about one of our most prestigious institutions of higher education and health care demonstrates the depth of our health care crisis. It also demonstrates how the health care crisis seems inextricably linked to the financial crisis, and to a fundamental crisis about our society and its commitment to democracy and fairness.
A fair and thorough enquiry about the mess at Dartmouth, resulting in clear actions to uphold the institution's mission and ethics, and, if applicable, the law, would start us down the path of true health care reform.
However, if this just gets swept under the rug, we will not have reached the bottom of our descent.
ADDENDUM (2 June, 2012) - Note that Dartmouth's most recent President, Jim Yong Kim, who was appointed by and served under the Trustees in question above, is now President of the World Bank (see this LA Times article.)
See also comments in the University Diaries blog.
Wednesday, May 16, 2012
Wall Street Journal Defends Hired WellPoint Executives' Lack of Accountability to the Company's Owners
The lack of accountability of the hired managers (or executives or bureaucrats) of health care organizations came into sharper focus thanks to a bizarre, in my humble opinion, Wall Street Journal editorial from last week.
Background: Shareholder Campaign for Oversight of Hired Executives Use of Corporate Money for Political Purposes
In the background is the campaign by some of the owners, that is, shareholders of giant publicly held for-profit insurance company WellPoint to make its executives' attempts to involve the company in politics more transparent and accountable. (See our previous post here.) As noted more recently in Fortune (by way of CNN),
Note that this money was supposedly used by WellPoint executives to undermine the Obama administration's health care reform proposals while the company was publicly supporting aspects of these proposals.
The Wall Street Journal Says Hired Executives Not Accountable to Shareholders
The Wall Street Journal's editorial page's denunciation of this campaign by corporate owners to assert their rights, and the accountability of hired managers opened thus,
If some owners do not think that executives should be spending company money on political causes (especially presumably causes that the executives favor, or that reflect the executives' self-interest), they have a perfect right to think so, and to act on their thoughts.
Then the Journal went on to assail the shareholders' challenge to some members of the WellPoint board of directors. After first defining Change to Win as a "union front group," -
However, the Journal fulminated,
Note further that all stockholders are owners, whether they are also union members, or have green hair. Note further that the owners again have a perfect right to criticize or vote against board members who they believe are not properly exercising their fiduciary responsibilities to stockholders, that doing so has nothing to do with the ad hominem fallacy, and that this right is not nullified for stockholders with particular political opinions, or stockholders whom the Wall Street Journal does not like.
Summary
So we see the Wall Street Journal, supposed defender of capitalism, attacking a fundamental part of capitalism, the right of ownership, corporate ownership in this case. Instead, presumably, the Journal editorialists thinks that hired corporate executives ought to be completely unaccountable to the stockholders, and able to do whatever they want, including to do what is in their self-interest but not the owners' interests.
So this is how far the coup d'etat by hired executives/ managers/ bureaucrats has progressed. Supposed defenders of capitalism are now defending the rule of hired corporate insiders, completely disregarding the rights of owners. All we are lacking is a catchy name for rule by the hired managers/ bureaucrats/ executives. I am open to suggestions.
We have long criticized leaders of health care organizations who are ill-informed, unaware or hostile to health care professionals' core values, self-interested, or even corrupt. We have discussed how bad leadership has advanced as leaders have become less accountable. It appears that the lack of accountability of health care leaders, and their tendencies to put their own interests first, is part of a larger problem. This is the take-over by most of society's important organizations by the managers, bureaucrats, and executives who were hired to run them. For profit corporate hired leaders have become unaccountable to the corporations' owners. Non-profit organizations' hired leaders have become unaccountable for the mission, or for their organizations' stakeholders.
If we want health care, and democratic society to survive, we need to counter the managers' coup d'etat and make leaders accountable once again.
Background: Shareholder Campaign for Oversight of Hired Executives Use of Corporate Money for Political Purposes
In the background is the campaign by some of the owners, that is, shareholders of giant publicly held for-profit insurance company WellPoint to make its executives' attempts to involve the company in politics more transparent and accountable. (See our previous post here.) As noted more recently in Fortune (by way of CNN),
shareholders and major U.S. companies have been meeting behind the scenes to discuss improvements in oversight and disclosure practices. 'Companies need to remember that shareholders have a right to know how their money is being spent,' wrote Eric Sumberg, spokesperson for New York State Comptroller Thomas P. DiNapoli, representing the New York State pension fund, in an email. 'Transparency and full disclosure will help to deter high risk political spending that could hurt shareholder value.'
Aetna and WellPoint are two companies contending with shareholder proposals on political spending disclosure this year.
The Center for Public Accountability (CPA) rates the disclosures at Aetna and WellPoint as having 'room for improvement.' Both WellPoint and Aetna have disclosure practices that 'leave significant room for serious misrepresentation of the company's political spending through trade associations,' according to the Center's Political Accountability and Transparency Reports. According to the Center reports, both companies gave money to AHIP (American Health Insurance Plans). And $86 million in funds from AHIP were allegedly funneled to the Chamber of Commerce to lobby against health care reform, according to reports from Bloomberg and the National Journal.
Note that this money was supposedly used by WellPoint executives to undermine the Obama administration's health care reform proposals while the company was publicly supporting aspects of these proposals.
The Wall Street Journal Says Hired Executives Not Accountable to Shareholders
The Wall Street Journal's editorial page's denunciation of this campaign by corporate owners to assert their rights, and the accountability of hired managers opened thus,
The campaign to intimidate companies from exercising their free-speech rights is in high gear as shareholder proxy season arrives, and the most prominent early target is health-insurer WellPoint. The arc of this attack will be one of the election year's political leitmotifs, and it should be on the radar of every corporate boardroom.The Journal conveniently ignored that the campaign is not from outside the corporation, but from its very owners, and that the people they are supposedly trying to intimidate are actually supposed to be responsible to them. In addition, it begged the question of how political spending by hired corporate bureaucrats unaccountable to the people who own the company could possible have anything to do with free markets.
In the favored new tactic of the left, unions and activists are using politicized shareholder resolutions to send a message to corporations: Drop support for free-market and conservative causes, or you'll take a political beating.
If some owners do not think that executives should be spending company money on political causes (especially presumably causes that the executives favor, or that reflect the executives' self-interest), they have a perfect right to think so, and to act on their thoughts.
Then the Journal went on to assail the shareholders' challenge to some members of the WellPoint board of directors. After first defining Change to Win as a "union front group," -
Change to Win is now targeting WellPoint's annual meeting on May 16 when it will demand that shareholders vote against board members Julie Hill and Susan Bayh (wife of former Indiana Democratic Senator Evan Bayh) because the company has refused to disclose or stop all of its political spending. Among the company's crimes? Corporate funding of, you guessed it, ALEC.Now let us back up a minute. This is about a campaign by stockholders, that is, people who are owners, albeit fractional owners of WellPoint. It is some shareholders who want to vote against the particular board members. WellPoint directors are supposed to have a fiduciary duty to represent the stockholders', that is, the owners' financial interests. If stockholders think members of the board of directors are not representing the stockholders' interests, the stockholders have a perfect right to vote against them.
However, the Journal fulminated,
The union attack on WellPoint is notable for targeting two board members by name and the effort to make extra hay out of Susan Bayh's political profile. (Added frisson: Evan Bayh has worked as a consultant to the Chamber.) The ad hominem attack is right out of the Saul Alinsky playbook and is intended as a warning to other corporate directors that their personal reputation will be damaged if they don't force companies to stop donating to industry groups.
Note further that all stockholders are owners, whether they are also union members, or have green hair. Note further that the owners again have a perfect right to criticize or vote against board members who they believe are not properly exercising their fiduciary responsibilities to stockholders, that doing so has nothing to do with the ad hominem fallacy, and that this right is not nullified for stockholders with particular political opinions, or stockholders whom the Wall Street Journal does not like.
Summary
So we see the Wall Street Journal, supposed defender of capitalism, attacking a fundamental part of capitalism, the right of ownership, corporate ownership in this case. Instead, presumably, the Journal editorialists thinks that hired corporate executives ought to be completely unaccountable to the stockholders, and able to do whatever they want, including to do what is in their self-interest but not the owners' interests.
So this is how far the coup d'etat by hired executives/ managers/ bureaucrats has progressed. Supposed defenders of capitalism are now defending the rule of hired corporate insiders, completely disregarding the rights of owners. All we are lacking is a catchy name for rule by the hired managers/ bureaucrats/ executives. I am open to suggestions.
We have long criticized leaders of health care organizations who are ill-informed, unaware or hostile to health care professionals' core values, self-interested, or even corrupt. We have discussed how bad leadership has advanced as leaders have become less accountable. It appears that the lack of accountability of health care leaders, and their tendencies to put their own interests first, is part of a larger problem. This is the take-over by most of society's important organizations by the managers, bureaucrats, and executives who were hired to run them. For profit corporate hired leaders have become unaccountable to the corporations' owners. Non-profit organizations' hired leaders have become unaccountable for the mission, or for their organizations' stakeholders.
If we want health care, and democratic society to survive, we need to counter the managers' coup d'etat and make leaders accountable once again.
Wednesday, April 25, 2012
Some of WellPoint's Owners (Stockholders) Allege Their Hired Executives Hid Political Contributions
We have frequently had reason to question the actions of WellPoint, the second largest for-profit health insurance company/ managed care organization in the US.
Hidden Political Contributions
The Washington Post reported yet another one,
However,
But,
So, to summarize, WellPoint management is accused of spending tens of millions on political lobbying while hiding the spending from the public and from the company's nominal owners, that is, its stock-holders, by laundering it through a third party.
WellPoint's Sorry Ethical Record
This is just the latest questionable behavior by WellPoint we have discussed. Previously, we have noted incidents in which the company ...
While her compensation dropped 2%,
The compensation above did not take into account that
Summary
WellPoint CEO Angela Braly, like many of her fellow top hired managers of health care organizations, has become more wealthy every year despite her company's record of questionable conduct, and out of proportion to her company's financial results.
Based on illusory promises of greater efficiency that would benefit everyone, we have handed health care over to large, increasingly for-profit organizations, and we have handed control over these organizations to hired managers. We have made these managers accountable to no one, so they seem to run their organizations to benefit themselves first. Is it any surprise that organizations run to benefit top insiders do not much benefit patients' or the public's health?
Maybe the campaign by some of WellPoint's nominal owners to at least make what the company pays to influence politics transparent is a tiny first step to making the leadership of health care organizations accountable both to the organizations' owners (when they exist) and to patients and the public at large. Until they become so accountable, do not expect any improvements in health care cost, quality or access.
Hidden Political Contributions
The Washington Post reported yet another one,
Health insurance giant WellPoint is the latest target of an increasingly aggressive campaign to force disclosure of corporate political and lobbying expenditures, including payments to the U.S. Chamber of Commerce, which has become more active in elections over the past decade.
The WellPoint campaign, set to be formally announced Thursday by a coalition of activist investor groups, demands the resignation of two WellPoint board members, including Susan Bayh, the wife of former senator Evan Bayh (D-Ind.), for allegedly failing to oversee 'high risk political spending.'
The shareholder coalition cited WellPoint’s reluctance to answer questions about a transfer of $86 million from the health insurers trade association to the U.S. Chamber of Commerce in 2010, when the Chamber was actively opposing President Obama’s health-care overhaul. WellPoint is a member of the association, America’s Health Insurance Plans.
'This is the most egregious clandestine campaign funding we have ever seen,' said Michael Pryce-Jones of the CtW Investment Group, a labor-affiliated organization that is part of the shareholders’ coalition, referring to the payments from the trade association to the Chamber of Commerce.
However,
At WellPoint, officials dismissed the notion that the company has been secretive about its political giving. On the contrary, spokeswoman Kristin Binns said, the firm discloses a great deal on its Web site.
'WellPoint complies with all disclosure requirements under federal, state and local laws,' she said, noting that the company publishes a 'very extensive' annual report on its political contributions.
But,
That report does not include details of the sort of special payment that the shareholders coalition said WellPoint made to the health insurers association.
So, to summarize, WellPoint management is accused of spending tens of millions on political lobbying while hiding the spending from the public and from the company's nominal owners, that is, its stock-holders, by laundering it through a third party.
WellPoint's Sorry Ethical Record
This is just the latest questionable behavior by WellPoint we have discussed. Previously, we have noted incidents in which the company ...
- settled a RICO (racketeer influenced corrupt organization) law-suit in California over its alleged systematic attempts to withhold payments from physicians (see 2005 post here).
- subsidiary New York Empire Blue Cross and Blue Shield misplaced a computer disc containing confidential information on 75,000 policy-holders (see 2007 story here).
- California Anthem Blue Cross subsidiary cancelled individual insurance policies after their owners made large claims (a practices sometimes called rescission). The company was ordered to pay a million dollar fine in early 2007 for this (see post here). A state agency charged that some of these cancellations by another WellPoint subsidiary were improper (see post here). WellPoint was alleged to have pushed physicians to look for patients' medical problems that would allow rescission (see post here). It turned out that California never collected the 2007 fine noted above, allegedly because the state agency feared that WellPoint had become too powerful to take on (see post here). But in 2008, WellPoint agreed to pay more fines for its rescission practices (see post here). In 2009, WellPoint executives were defiant about their continued intention to make rescission in hearings before the US congress (see post here).
- California Blue Cross subsidiary allegedly attempted to get physicians to sign contracts whose confidentiality provisions would have prevented them from consulting lawyers about the contracts (see 2007 post here).
- formerly acclaimed CFO was fired for unclear reasons, and then allegations from numerous women of what now might be called Tiger Woods-like activities surfaced (see post here).
- announced that its investment portfolio was hardly immune from the losses prevalent in late 2008 (see post here).
- was sanctioned by the US government in early 2009 for erroneously denying coverage to senior patients who subscribed to its Medicare drug plans (see 2009 post here).
- settled charges that it had used a questionable data-base (builty by Ingenix, a subsidiary of ostensible WellPoint competitor UnitedHealth) to determine fees paid to physicians for out-of-network care (see 2009 post here).
- violated state law more than 700 times over a three-year period by failing to pay medical claims on time and misrepresenting policy provisions to customers, according to the California health insurance commissioner (see 2010 post here).
- exposed confidential data from about 470,000 patients (see 2010 post here) and settled the resulting lawsuit in 2011 (see post here).
- fired a top executive who publicly apologized for the company's excessively high charges (see 2010 post here).
- California Anthem subsidiary was fined for systematically failing to make fair and timely payments to doctors and hospitals (see 2010 post here).
Braly, 50, received 2011 compensation valued at $13.2 million, according to an Associated Press analysis of the Indianapolis company's annual proxy statement. That represents a 2 percent drop compared with 2010.
Braly, who has served as CEO for nearly five years, received a $1.1 million salary in 2011, a total that has stayed flat since 2008. Her compensation also included a performance-related bonus of nearly $1.9 million, stock and option awards totaling about $10 million and $216,279 in other compensation.
While her compensation dropped 2%,
WellPoint's earnings fell in the final three quarters of last year compared with 2010, capped by a 39 percent drop in the fourth quarter. In total, the insurer's earnings sank 8 percent compared with 2010.
The compensation above did not take into account that
Braly also made about $6.9 million last year mostly from previously awarded restricted stock units that had vested.
Summary
WellPoint CEO Angela Braly, like many of her fellow top hired managers of health care organizations, has become more wealthy every year despite her company's record of questionable conduct, and out of proportion to her company's financial results.
Based on illusory promises of greater efficiency that would benefit everyone, we have handed health care over to large, increasingly for-profit organizations, and we have handed control over these organizations to hired managers. We have made these managers accountable to no one, so they seem to run their organizations to benefit themselves first. Is it any surprise that organizations run to benefit top insiders do not much benefit patients' or the public's health?
Maybe the campaign by some of WellPoint's nominal owners to at least make what the company pays to influence politics transparent is a tiny first step to making the leadership of health care organizations accountable both to the organizations' owners (when they exist) and to patients and the public at large. Until they become so accountable, do not expect any improvements in health care cost, quality or access.
Wednesday, March 14, 2012
A Case Demonstrating Links Between Poor Governance, Conflicts of Interest, and Excess Executive Compensation at a Hospital System
The Salinas Valley Memorial Healthcare System in California first appeared on our radar in 2011 for not only giving an improbably large severance package to its CEO, but doing so two years before he actually retired. At the time, hospital "officials" gave the usual sorts of justifications we see for huge executive compensation packages. They suggested the CEO is brilliant, in particular, "gifted and experienced," and that to retain him they needed to pay "private sector-level benefits." Then it turned out the system was rapidly raising the compensation of other executives while laying off employees who actually took care of patients.
A Government Audit
Because the system, despite its title, is actually a local government agency, these controversies triggered not only outrage, but also a state audit. The Los Angeles Times described its results.
A San Jose Mercury News article listed some other problems found by the audit:
First, this case should not be viewed as an indictment of hospitals run by local governments. Rather than indicating that bad behavior is particularly likely at such hospitals, the fact that questionable behavior came to light at such a hospital is more likely due to better regulation of such hospitals leading to more transparency about them compared to other hospitals. The regulations and laws governing the operations of non-profit hospitals not run by government agencies, or for-profit hospitals vary from US state to state. To my knowledge, rarely do states strictly regulate conflicts of interest affecting, or require much transparency about governance at hospitals that are not government run. There is a similar lack of state regulation of for-profit hospitals, and federal regulation of either non-profit or for-profit in these areas. Thus it is extremely rare to see an audit or report about any non-governmental hospital like the one about Salinas Valley Memorial Healthcare. Without the greater transparency produced by such investigations, there is little data about whether the practices seen at Salinas Valley are common at other hospitals, be they government run, non-profit and private, or for-profit.
However, while this is just one case, it does allow an interesting comparison. We have discussed the usual "talking points" proffered by management and boards to explain outsized compensation packages in health care. They often include statements about the brilliance of the executives in question, almost never with any supporting evidence, and the need to pay "market" rates. Although these, and other talking points may seem implausible, they are hard to challenge, because hospital and other health care organizations are usually able to conceal the processes which actually lead to compensation decisions.
However, in this case there is documentation of problems with governance processes which may have plausibly enabled unjustified levels of compensation. Failure to maintain processes to disclose and deal with conflicts of interest could increase the likelihood that conflicts would occur. A board that included individuals who may have been personally profiting from their board membership might be inclined to go along to get along with the CEO. Meeting in secret despite an open meeting law would prevent discovery of cronyism.
This case therefore suggests that governance that lacks transparency, accountability and integrity may lead to self-interested, conflicted leadership that responds to perverse incentives. Such leadership is likely to pay more attention to its own interests than the health care mission, short-changing patients' and the public's health.
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.
A Government Audit
Because the system, despite its title, is actually a local government agency, these controversies triggered not only outrage, but also a state audit. The Los Angeles Times described its results.
The audit found that the Salinas Valley Memorial Healthcare System regularly did business with firms that the board and top officials had financial stakes in — in some cases in apparent violation of state conflict-of-interest laws.
The report stated that Salinas Valley lacks sufficient safeguards against making decisions that violate conflict-of-interest laws, and that the district therefore can't guarantee 'that it's board members and executives do not experience personal financial gain from its transactions with businesses.'
The audit found 11 instances between 2006 and 2010 in which board members had reported economic ties — including stocks, salaries and other types of payments — to vendors with which the district did business.
Not all the cases represented violations of conflict-of-interest rules, state auditors said, but in two cases they found that officials may have broken the law.
One case involved former Chief Executive Samuel Downing, who had $50,000 in investments with 1st Capital Bank, an institution Salinas Valley and the executive agreed to deposit $1 million into.
In another case, the hospital made $5.6 million in disbursements to Rabobank, where a board member, Harry Wardwell, serves as a regional president and receives a salary of more than $100,000, according to his most recent statement of economic interest.
A San Jose Mercury News article listed some other problems found by the audit:
· Absence of a formal executive compensation policy despite paying its top administrators at the upper end of the industry scale. Downing received a nearly $5 million retirement payout, and other executives received generous pay topping out at $341,000 per year. The reported also cited supplemental pensions, which have been discontinued.Conclusions
· Violations of state open-meeting laws as the board approved executive pay.
· Failure to ensure all employees who are required to file statements of economic interest had done so.
· Absence of a duly approved, legally binding conflict of interest code, which must be approved by the county Board of Supervisors. The report noted the hospital board instituted a properly approved code in December.
· Lack of proper documentation on the selection process for no-bid contracts, necessary to ensure the hospital gets the best value for its money. The report found only one of eight contracts reviewed during the audit included such documentation.
· Need for better oversight of hospital funding of community events, including the rationale for why and how they benefit Salinas Valley Memorial, to adhere to the ban on making gifts of public money. The report found the board delivered $54,000 to California Rodeo Salinas without any evidence it had considered how it furthered its public purposes.
First, this case should not be viewed as an indictment of hospitals run by local governments. Rather than indicating that bad behavior is particularly likely at such hospitals, the fact that questionable behavior came to light at such a hospital is more likely due to better regulation of such hospitals leading to more transparency about them compared to other hospitals. The regulations and laws governing the operations of non-profit hospitals not run by government agencies, or for-profit hospitals vary from US state to state. To my knowledge, rarely do states strictly regulate conflicts of interest affecting, or require much transparency about governance at hospitals that are not government run. There is a similar lack of state regulation of for-profit hospitals, and federal regulation of either non-profit or for-profit in these areas. Thus it is extremely rare to see an audit or report about any non-governmental hospital like the one about Salinas Valley Memorial Healthcare. Without the greater transparency produced by such investigations, there is little data about whether the practices seen at Salinas Valley are common at other hospitals, be they government run, non-profit and private, or for-profit.
However, while this is just one case, it does allow an interesting comparison. We have discussed the usual "talking points" proffered by management and boards to explain outsized compensation packages in health care. They often include statements about the brilliance of the executives in question, almost never with any supporting evidence, and the need to pay "market" rates. Although these, and other talking points may seem implausible, they are hard to challenge, because hospital and other health care organizations are usually able to conceal the processes which actually lead to compensation decisions.
However, in this case there is documentation of problems with governance processes which may have plausibly enabled unjustified levels of compensation. Failure to maintain processes to disclose and deal with conflicts of interest could increase the likelihood that conflicts would occur. A board that included individuals who may have been personally profiting from their board membership might be inclined to go along to get along with the CEO. Meeting in secret despite an open meeting law would prevent discovery of cronyism.
This case therefore suggests that governance that lacks transparency, accountability and integrity may lead to self-interested, conflicted leadership that responds to perverse incentives. Such leadership is likely to pay more attention to its own interests than the health care mission, short-changing patients' and the public's health.
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.
Thursday, December 29, 2011
They Think We are "Imbeciles," and They Run Health Care Organizations
Arrogance seems to fuel many of the problems with health care leadership that we discuss, particularly hostility to the mission, often driven by self-interest; a sense of entitlement to lavish compensation out of proportion to any measure of performance; and a lack of accountability shading into impunity. Some recent stories hint at some of the origins of such arrogance.
The Occupy Wall Street movement drew attention to the plight of the poor and middle class, who had lost income, retirement benefits, jobs, houses, and access to health care while the richest, especially corporate executives, got richer. The less fortunate's anger was not directed indiscriminately at the successful or the rich, but those who got wealthy by gaming the system, or flaunting the rules that lesser mortals had to obey. Perhaps not surprisingly, some of those most vulnerable to such criticism have responded with contempt.
Anonymous or Indirect Defenses of the One Percent
The initial defense of the plutocrats came from some of their political supporters, who denounced their "demonization" (see this opinion piece by Barbara Ehrenreich in September, 2011) or decried the rise of "mob rule" (see this by Paul Krugman in October). Then several articles documented the anonymous complaints of finance insiders about:
The Plutocrats Strike Back
However, increasingly those in the one percent are willing to be open. In late December a Bloomberg article documented the sentiments of a number of finance and other corporate leaders.
- Jamie Dimon, CEO of JP Morgan Chase, complained:
- Bernard Marcus, founder of Home Depot:
- John A Allison IV, Chairman of BB&T:
- Stephen Schwarzman, CEO of the Blackstone Group:
- John Paulson, President of hedge fund Paulson & Co:
- Tom Galisano, founder of Paychex Inc:
- Ken Langone, founder of Home Depot:
Considering how Paul Krugman explained the generation of the global financial collapse by
The Plutocrats as Health Care Leaders
One wonders how much this arrogance carried over into health care. We have noted previously how the leadership of finance has increasingly overlapped the leadership of health care, and how top executives increasingly seem to identify more with each other than with their employees, customers, or other stakeholders. Therefore, it should be no surprise that all but one of the group above also had or have leadership roles in health care organizations.
- Jamie Dimon is on the board of trustees of the New York University Langone Medical Center.
- Bernard Marcus formerly served as the chair of the board of the CDC Foundation.
- John A Allison IV is a member of the board of visitors of Wake Forest University Baptist Medical Center, per his BB&T Corp official biography.
- Stephen Schwarzman's Blackstone Group includes the Blackstone Healthcare Group, which invests in various health care corporations (as of 2010, Nycomed, Gerresheimer, Stiefel Laboratories, and Catalant per this press release), and all of whose members serve on one or more boards of directors of health care corporations (per the press release, Arthur Higgins serves on the boards of Zimmer, Eco Labs, and Resverlogix Corp; Lodewijk J R de Vink serves on the board of Roche; Doug Rogers serves on the boards of Codevax, Charles River Laboratories, and Computerized Medical Systems.)
- John Paulson is on the board of trustees of New York University,
- Kenneth G Langone, is vice chair again of the board of trustees of New York University, and chair of the board of trustees of the NYU Langone Medical Center.
I submit that linking their sentiments above to their leadership roles in health care should be highly disconcerting. Do we want people running medical centers who are proud to be "fat cats?" Do we want people running medical centers who do not understand why people who have lost income, retirement funds, jobs or their homes might be upset? Do we want people running health care corporations who do not think the poor and middle-class have any skin in the economic game? Do we want people running health care foundations who think that those who complain about the current economic situation are "imbeciles?"
Summary
The problems of health care increasingly seem to be a part of the larger problems with the global political economy. The problems we have been discussing that affect health care leadership seem to have come out of the culture of what now many are calling the larger plutocracy.
So it now seems that true health care reform will require a larger reform of the political economy. However, we still need leaders who understand the health care context, uphold health care professionals' values, and put patients first. We do not need leaders who are ill-informed, incompetent, self-interested, conflicted, or corrupt. We need governance that is accountable, honest, transparent, ethical, and again puts patients first.
The Occupy Wall Street movement drew attention to the plight of the poor and middle class, who had lost income, retirement benefits, jobs, houses, and access to health care while the richest, especially corporate executives, got richer. The less fortunate's anger was not directed indiscriminately at the successful or the rich, but those who got wealthy by gaming the system, or flaunting the rules that lesser mortals had to obey. Perhaps not surprisingly, some of those most vulnerable to such criticism have responded with contempt.
Anonymous or Indirect Defenses of the One Percent
The initial defense of the plutocrats came from some of their political supporters, who denounced their "demonization" (see this opinion piece by Barbara Ehrenreich in September, 2011) or decried the rise of "mob rule" (see this by Paul Krugman in October). Then several articles documented the anonymous complaints of finance insiders about:
a bunch of whiny people who are lazy and incompetent and have nothing to do with their timefrom a Reuters article in October.
a ragtag group looking for sex, drugs and rock 'n' rollfrom a NY Times article in October.
The Plutocrats Strike Back
However, increasingly those in the one percent are willing to be open. In late December a Bloomberg article documented the sentiments of a number of finance and other corporate leaders.
- Jamie Dimon, CEO of JP Morgan Chase, complained:
Acting like everyone who's been successful is bad and because you're rich you're bad, I don't understand it.
- Bernard Marcus, founder of Home Depot:
Who gives a crap about some imbecile? Are you kidding me?
- John A Allison IV, Chairman of BB&T:
'Instead of an attack on the 1 percent, let’s call it an attack on the very productive,' Allison said. 'This attack is destructive.'
- Stephen Schwarzman, CEO of the Blackstone Group:
'You have to have skin in the game,' said Schwarzman, 64. 'I’m not saying how much people should do. But we should all be part of the system.'
- John Paulson, President of hedge fund Paulson & Co:
has also said the rich benefit society.
'The top 1 percent of New Yorkers pay over 40 percent of all income taxes,...'
- Tom Galisano, founder of Paychex Inc:
If I hear a politician use the term ‘paying your fair share’ one more time, I’m going to vomit
- Ken Langone, founder of Home Depot:
I am a fat cat, I’m not ashamed
Considering how Paul Krugman explained the generation of the global financial collapse by
people who got rich by peddling complex financial schemes that, far from delivering clear benefits to the American people, helped push us into a crisis whose aftereffects continue to blight the lives of tens of millions of their fellow citizens.Thus the responses by the very rich above only represent some or more arrogance.
Yet they have paid no price. Their institutions were bailed out by taxpayers, with few strings attached. They continue to benefit from explicit and implicit federal guarantees — basically, they’re still in a game of heads they win, tails taxpayers lose. And they benefit from tax loopholes that in many cases have people with multimillion-dollar incomes paying lower rates than middle-class families.
The Plutocrats as Health Care Leaders
One wonders how much this arrogance carried over into health care. We have noted previously how the leadership of finance has increasingly overlapped the leadership of health care, and how top executives increasingly seem to identify more with each other than with their employees, customers, or other stakeholders. Therefore, it should be no surprise that all but one of the group above also had or have leadership roles in health care organizations.
- Jamie Dimon is on the board of trustees of the New York University Langone Medical Center.
- Bernard Marcus formerly served as the chair of the board of the CDC Foundation.
- John A Allison IV is a member of the board of visitors of Wake Forest University Baptist Medical Center, per his BB&T Corp official biography.
- Stephen Schwarzman's Blackstone Group includes the Blackstone Healthcare Group, which invests in various health care corporations (as of 2010, Nycomed, Gerresheimer, Stiefel Laboratories, and Catalant per this press release), and all of whose members serve on one or more boards of directors of health care corporations (per the press release, Arthur Higgins serves on the boards of Zimmer, Eco Labs, and Resverlogix Corp; Lodewijk J R de Vink serves on the board of Roche; Doug Rogers serves on the boards of Codevax, Charles River Laboratories, and Computerized Medical Systems.)
- John Paulson is on the board of trustees of New York University,
- Kenneth G Langone, is vice chair again of the board of trustees of New York University, and chair of the board of trustees of the NYU Langone Medical Center.
I submit that linking their sentiments above to their leadership roles in health care should be highly disconcerting. Do we want people running medical centers who are proud to be "fat cats?" Do we want people running medical centers who do not understand why people who have lost income, retirement funds, jobs or their homes might be upset? Do we want people running health care corporations who do not think the poor and middle-class have any skin in the economic game? Do we want people running health care foundations who think that those who complain about the current economic situation are "imbeciles?"
Summary
The problems of health care increasingly seem to be a part of the larger problems with the global political economy. The problems we have been discussing that affect health care leadership seem to have come out of the culture of what now many are calling the larger plutocracy.
So it now seems that true health care reform will require a larger reform of the political economy. However, we still need leaders who understand the health care context, uphold health care professionals' values, and put patients first. We do not need leaders who are ill-informed, incompetent, self-interested, conflicted, or corrupt. We need governance that is accountable, honest, transparent, ethical, and again puts patients first.
Tuesday, October 25, 2011
What the Pfizer (V)? - Few Consequences of a Long History of Bad Behavior
The recent in-depth investigation by Fortune reporters of 10 years of dysfunctional leadership at Pfizer, the "world's largest research-based pharmaceutical company," raised many issues about leadership and governance in health care (see our post here). In a series of posts, we then discussed lack of transparency in Pfizer's communication about management performance here, how bad management was rewarded with outsize compensation here, and how a board of directors dominated by members of the "CEOs union," with a number of apparent conflicts of interests and multiple ties to the financial firms that brought us the "great recession," seemed happy to continually reward poor executive performance here.
The Latest Settlement
A recent article also serves as a reminder that Pfizer's dysfunctional leadership and stewardship coincided with an amazing series of ethical missteps. Just the latest legal settlement by Pfizer appeared in the Washington Post (from the AP).
As usual,
Maybe the company will stay out of trouble for a little while. Its statement noted,
Based on recent history, it seems unlikely that the company will be able to stay out of trouble. This settlement is just the latest chapter in a long story of misbehavior.
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). In March, 2011, 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).
And going back a little further, from the Philadelphia Inquirer,
Summary
Looking at a summary of this bad behavior, it seems remarkable that no individual in a leadership position at Pfizer has suffered any obvious negative consequence of these events, that Pfizer's whole leadership has not been forced to reorganize, maybe even that the company is still in business.
Naively, one might ask why trust a company with such a track record? Why is there not so much mistrust of this organization that it could no longer continue business as usual?
Yet, while as noted in previous posts, Pfizer has not had the best financial results, and has gone through several CEOs, the company has made no fundamental changes in its leadership or governance despite this sorry history.
Perhaps one reason for the lack of response to these events is that they have not previously been presented together so that their pattern is evident, as we did above on Health Care Renewal. It is true that in 2009, then Pfizer CEO Jeffrey Kindler acknowledged the company has had ethical lapses, and called on government and industry leaders in general to face up to ethical breaches or else the people would find a way to force changes upon them (see post here.) However, not even then did Kindler detail Pfizer's own troubled history, and he did not last much longer as CEO.
I have not found any other publication that puts together the list of bad behaviors that appears above. Most publications in business sections of the news media focus on only the most recent lapses. The medical, and health care/ services/ policy research literature generally ignores these issues entirely.
So here is the tragedy of the anechoic effect. Because it is still simply not done to talk about the poor stewardship, bad leadership, and ethical misadventures of big health care organizations, the dysfunction just continues.
As long as we fear to even talk about what has gone wrong with the leadership and governance of health care, how are we ever going to make any real improvements?
The Latest Settlement
A recent article also serves as a reminder that Pfizer's dysfunctional leadership and stewardship coincided with an amazing series of ethical missteps. Just the latest legal settlement by Pfizer appeared in the Washington Post (from the AP).
The drugmaker Pfizer Inc. has agreed to pay the government $14.5 million to settle charges it illegally marketed its drug for a condition called overactive bladder.
The settlement disclosed Friday resolves the last of 10 whistleblower lawsuits, dating back to 2003, that claimed Pfizer marketed a number of its prescription medicines for unapproved uses. Pfizer agreed to pay $2.3 billion in September 2009 to settle both criminal charges and civil claims in many of those cases. The rest were dismissed.
In the final case, Pfizer was accused of marketing overactive bladder drug Detrol for men with enlarged prostates and related conditions including bladder obstruction. The drug wasn’t approved for those uses.
As usual,
New York-based Pfizer, the world’s biggest drugmaker by revenue, said in a statement it denies all allegations of wrongdoing and that the 'settlement allows Pfizer to avoid the cost and distraction of litigation.'
Maybe the company will stay out of trouble for a little while. Its statement noted,
the company has put 'numerous controls and oversight mechanisms in place to ensure compliance with state and federal laws,' including a corporate compliance committee.A History of Misbehavior
Based on recent history, it seems unlikely that the company will be able to stay out of trouble. This settlement is just the latest chapter in a long story of misbehavior.
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). In March, 2011, 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).
And going back a little further, from the Philadelphia Inquirer,
Repeat Offender: Previous Pfizer SettlementsBy my count, Pfizer made nine separate settlements from 2002 to 2011. Some other bad behavior by Pfizer that did not necessarily result in legal action can be found under our label "Pfizer."
April 2007: Pfizer agreed to pay $34.7 million in fines to settle Department of Justice allegations that it improperly promoted the human growth hormone product Genotropin. The drugmaker's Pharmacia & Upjohn Co. subsidiary pleaded guilty to offering a kickback to a pharmacy-benefits manager to sell more of the drug.
May 2004: Pfizer agreed to pay $430 million to settle DOJ claims involving the off-label promotion of the epilepsy drug Neurontin by subsidiary Warner-Lambert. The promotions included flying doctors to lavish resorts and paying them hefty speakers' fees to tout the drug. The company said the activity took place years before it bought Warner-Lambert in 2000.
October 2002: Pfizer and subsidiaries Warner-Lambert and Parke-Davis agreed to pay $49 million to settle allegations that the company fraudulently avoided paying fully rebates owed to the state and federal governments under the national Medicaid Rebate program for the cholesterol-lowering drug Lipitor.
Summary
Looking at a summary of this bad behavior, it seems remarkable that no individual in a leadership position at Pfizer has suffered any obvious negative consequence of these events, that Pfizer's whole leadership has not been forced to reorganize, maybe even that the company is still in business.
Naively, one might ask why trust a company with such a track record? Why is there not so much mistrust of this organization that it could no longer continue business as usual?
Yet, while as noted in previous posts, Pfizer has not had the best financial results, and has gone through several CEOs, the company has made no fundamental changes in its leadership or governance despite this sorry history.
Perhaps one reason for the lack of response to these events is that they have not previously been presented together so that their pattern is evident, as we did above on Health Care Renewal. It is true that in 2009, then Pfizer CEO Jeffrey Kindler acknowledged the company has had ethical lapses, and called on government and industry leaders in general to face up to ethical breaches or else the people would find a way to force changes upon them (see post here.) However, not even then did Kindler detail Pfizer's own troubled history, and he did not last much longer as CEO.
I have not found any other publication that puts together the list of bad behaviors that appears above. Most publications in business sections of the news media focus on only the most recent lapses. The medical, and health care/ services/ policy research literature generally ignores these issues entirely.
So here is the tragedy of the anechoic effect. Because it is still simply not done to talk about the poor stewardship, bad leadership, and ethical misadventures of big health care organizations, the dysfunction just continues.
As long as we fear to even talk about what has gone wrong with the leadership and governance of health care, how are we ever going to make any real improvements?
Monday, October 10, 2011
Health Care's "99 Percenters"
As Occupy Wall Street has gone from an obscure protest covered only on blogs and social media to a national phenomenon, the apparent parallels between the issues it is raising and the issues we have been raising in health care grows.
99 Percenters
A growing number of protesters are calling themselves the "99 Percenters," (Alter, Jonathan. Why Occupy Wall Street Should Scare Republicans. Bloomberg, October 6, 2011. Link here) referring to those who are not in the top 1% of earners. (The top 1% of income is clearly greater than $250,000/ year [see 2009 census data on US household income here], and likely around $380,000 a year [based on the distribution of income reported on tax returns here.])
In health care, nearly all who are paid more than $380K/ year are either proceduralists (some medical sub-specialist physicians, and some surgeons, again mainly sub-specialist), or managers and executives of health care organizations.
Health Care's 1%
We have been discussing since 2007 how the inequality among physicians' incomes favoring those who do procedures over primary care and other "cognitive" physicians has been driven not by the market, but by regulatory capture. The fees paid for all physicians services by Medicare, a fee schedule adopted without question or major changes by nearly all insurers, are set through the Resource Based Relative Value System (RBRVS) by the US Center for Medicare and Medicaid Services (CMS). CMS, in turn, gets virtually all its input on these fees from the RBRVS Update Committee (RUC), a private committee of the American Medical Association (AMA), made up largely of proceduralists, whose deliberations are secret, and whose membership has been secret until recently. See here for most recent posts. Note that the CMS' peculiar relationship with the RUC is now subject of a lawsuit that accuses this relationship of violating the Federal Advisory Committee Act (Klepper B, Kibbe D. A legal challenge to CMS' reliance on the RUC. Health Affairs Blog, August 9, 2011. Link here)
The real top earners in health care, however, are not physicians, but executives of big corporations, non-profit and especially for profit. We have discussed endlessly how huge their compensation may be, and how it seems unrelated to any aspect of their own or their organizations' performance, especially not to how much they benefit patients' or the public's health. Furthermore, we have noted how executives have prospered even when their management seems overtly hostile to the health care mission, when it leads to ethical missteps requiring legal settlements, or even guilty pleas or verdicts to criminal charges.
So health care's "99 percenters" ought to be angry at the top 1%.
The Power of Finance
Furthermore, the Occupy Wall Street protesters are not merely upset with the upper 1%, but particularly outraged by those in the financial sector, which "with regulators and elected officials in collusion, inflated and profited from a credit bubble that burst, costing millions of Americans their jobs, incomes, savings and home equity." Then, "the initial outrage has been compounded by elected officials' hunger for campaign cash from Wall Street, a toxic combination that reaffirmed the economic and political power of banks and bankers, while ordinary Americans suffer. Extreme income inequality is the hallmark of a dysfunctional economy, dominated by a financial sector that is driven as much by speculation, gouging and government backing as by productive investment." (Anonymous. Protesters against Wall Street. NY Times, October 8, 2011. Link here)
In another report, the protesters "unite around a common theme: bankers are ripping off America. Two secondary themes also emerge.... One is that the super rich own the politicians. The other is that the news media, almost across the board, view events through the eyes of the super rich." (Johnston DC. Occupy Wall Street. Reuters Blogs, October 7, 2011. Link here.)
Finance's Links to Health Care
We have noted parallels between the effects of Wall Street and health care on the economy. Furthermore, we have noted active ties among Wall Street and health care organizations. (Look here for examples.) Top executives and board members of some of the financial firms most obviously responsible for the global economic collapse/ great recession have served on boards of trustees of top medical schools and academic medical centers, and their parent universities. The top leaders of medical schools, academic medical centers, and their parent universities have served on the boards of such financial firms. There are also board interlocks among Wall Street firms and all sorts of health care corporations. The corporate culture of Wall Street and health care have long overlapped.
We have further noted how the leadership of big health care organizations has deceptively influenced policy, particularly through stealth health policy advocacy. Meanwhile, until the last few years, much of health care dysfunction has been anechoic. Now the media is beginning to report some of the abuses. Little about them appears, however, in the medical and health care literature that health care professionals are likely to trust more than news media.
Summary
We have frequently suggested that true health care reform requires reform of health care leadership and governance. We need leaders who understand the health care context, uphold health care professionals' values, and put patients first. We do not need leaders who are ill-informed, incompetent, self-interested, conflicted, or corrupt. We need governance that is accountable, honest, transparent, ethical, and again puts patients first. Maybe to do that we will have to "occupy health care."
In any case, it is time for health care's "99 percenters" to stand up for their patients and the integrity of their values.
99 Percenters
A growing number of protesters are calling themselves the "99 Percenters," (Alter, Jonathan. Why Occupy Wall Street Should Scare Republicans. Bloomberg, October 6, 2011. Link here) referring to those who are not in the top 1% of earners. (The top 1% of income is clearly greater than $250,000/ year [see 2009 census data on US household income here], and likely around $380,000 a year [based on the distribution of income reported on tax returns here.])
In health care, nearly all who are paid more than $380K/ year are either proceduralists (some medical sub-specialist physicians, and some surgeons, again mainly sub-specialist), or managers and executives of health care organizations.
Health Care's 1%
We have been discussing since 2007 how the inequality among physicians' incomes favoring those who do procedures over primary care and other "cognitive" physicians has been driven not by the market, but by regulatory capture. The fees paid for all physicians services by Medicare, a fee schedule adopted without question or major changes by nearly all insurers, are set through the Resource Based Relative Value System (RBRVS) by the US Center for Medicare and Medicaid Services (CMS). CMS, in turn, gets virtually all its input on these fees from the RBRVS Update Committee (RUC), a private committee of the American Medical Association (AMA), made up largely of proceduralists, whose deliberations are secret, and whose membership has been secret until recently. See here for most recent posts. Note that the CMS' peculiar relationship with the RUC is now subject of a lawsuit that accuses this relationship of violating the Federal Advisory Committee Act (Klepper B, Kibbe D. A legal challenge to CMS' reliance on the RUC. Health Affairs Blog, August 9, 2011. Link here)
The real top earners in health care, however, are not physicians, but executives of big corporations, non-profit and especially for profit. We have discussed endlessly how huge their compensation may be, and how it seems unrelated to any aspect of their own or their organizations' performance, especially not to how much they benefit patients' or the public's health. Furthermore, we have noted how executives have prospered even when their management seems overtly hostile to the health care mission, when it leads to ethical missteps requiring legal settlements, or even guilty pleas or verdicts to criminal charges.
So health care's "99 percenters" ought to be angry at the top 1%.
The Power of Finance
Furthermore, the Occupy Wall Street protesters are not merely upset with the upper 1%, but particularly outraged by those in the financial sector, which "with regulators and elected officials in collusion, inflated and profited from a credit bubble that burst, costing millions of Americans their jobs, incomes, savings and home equity." Then, "the initial outrage has been compounded by elected officials' hunger for campaign cash from Wall Street, a toxic combination that reaffirmed the economic and political power of banks and bankers, while ordinary Americans suffer. Extreme income inequality is the hallmark of a dysfunctional economy, dominated by a financial sector that is driven as much by speculation, gouging and government backing as by productive investment." (Anonymous. Protesters against Wall Street. NY Times, October 8, 2011. Link here)
In another report, the protesters "unite around a common theme: bankers are ripping off America. Two secondary themes also emerge.... One is that the super rich own the politicians. The other is that the news media, almost across the board, view events through the eyes of the super rich." (Johnston DC. Occupy Wall Street. Reuters Blogs, October 7, 2011. Link here.)
Finance's Links to Health Care
We have noted parallels between the effects of Wall Street and health care on the economy. Furthermore, we have noted active ties among Wall Street and health care organizations. (Look here for examples.) Top executives and board members of some of the financial firms most obviously responsible for the global economic collapse/ great recession have served on boards of trustees of top medical schools and academic medical centers, and their parent universities. The top leaders of medical schools, academic medical centers, and their parent universities have served on the boards of such financial firms. There are also board interlocks among Wall Street firms and all sorts of health care corporations. The corporate culture of Wall Street and health care have long overlapped.
We have further noted how the leadership of big health care organizations has deceptively influenced policy, particularly through stealth health policy advocacy. Meanwhile, until the last few years, much of health care dysfunction has been anechoic. Now the media is beginning to report some of the abuses. Little about them appears, however, in the medical and health care literature that health care professionals are likely to trust more than news media.
Summary
We have frequently suggested that true health care reform requires reform of health care leadership and governance. We need leaders who understand the health care context, uphold health care professionals' values, and put patients first. We do not need leaders who are ill-informed, incompetent, self-interested, conflicted, or corrupt. We need governance that is accountable, honest, transparent, ethical, and again puts patients first. Maybe to do that we will have to "occupy health care."
In any case, it is time for health care's "99 percenters" to stand up for their patients and the integrity of their values.
Monday, September 19, 2011
What the Pfizer (IV)? - One Board to Rule Them All
The recent in-depth investigation by Fortune reporters of 10 years of dysfunctional leadership at Pfizer, the "world's largest research-based pharmaceutical company," raises many issues about leadership and governance in health care (see our post here). We then discussed lack of transparency in Pfizer's communication about management performance here, and how bad management was rewarded with outsize compensation here. To continue what has become a lengthy series, let us now discuss the board of directors who were responsible for "stewardship" or governance of what turned out to be a very troubled company.
Let us focus on the membership of the boards that appointed the two CEOs Fortune described as failed.
Henry A "Hank" McKinnell - 2001
In 2001, the board appointed Henry A "Hank" McKinnell CEO. Mr McKinell was forced to retire in 2006. The Fortune article described Mr McKinnell as a "desperate CEO" by 2002 because he could find no way to replenish the company's fading drug pipeline; who then became an absent CEO who "left a power vacuum" and then triggered internal political warfare by setting up a "bitter contest" over succession planning.
In 2001, the board is as listed below. (I include their current positions, any former positions as chairman, CEO, president or the equivalence, and current leadership positions in health care or finance.) -
- Michael S Brown -
Distinguished Chair in Biomedical Sciences, Texas Southwestern Medical Center... Director of Regeneron Pharmaceuticals
- M Anthony Burns -
Chair of the Board, former CEO of Ryder System Inc ... Director of JP Morgan Chase and Co... Trustee of the University of Miami
- Robert N Burt -
Chairman of the Board and CEO of FMC Corporation... Director of the Rehabilitation Institute of Chicago and Evanston Hospital Corp
- W Don Cornwell -
Chairman of the Board and CEO of Granite Broadcasting Corporation... Director of CVS Corporation
- William H Gray III -
President and CEO of the College Fund/UNCF... Director of JP Morgan and Co... Trustee of the University of Miami
- Constance J Horner -
Guest Scholar at the Brooking Institution... Director of the Prudential Insurance Company of America
- William R Howell -
Chairman Emeritus and former CEO of JC Penney Company Inc...
- Stanley O Ikenberry -
President of the American Council on Education... Former President of the University of Illinois... President of the Board of Overseers of Teachers' Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF)
- Harry P Kamen -
Former Chairman of the Board and CEO of Metropolitan Life Insurance Company... Director of Banco Santander Central Hispano SA, BDirect Capital ... Metropolitan Life Insurance Company
- George A Lorch -
Chairman Emeritus and Former CEO of Armstrong Holdings Inc...
- Alex J Mandl -
Chairman of the Board and CEO of Teligent
- Henry A McKinnell -
CEO of Pfizer... Director of Moody's Corporation
- Dana G Mead -
Retired Chairman and CEO of Tenneco Inc... Director of Zurich Financial Services
- John F Niblack -
President of Pfizer Global Research and Development
- Franklin D Raines -
Chairman and CEO of Fannie Mae...
- Ruth Simmons -
President of Brown University... Director of Goldman Sachs Group Inc, Metropolitan Life Insurance
- Michael I Sovern -
Chairman of the Board of Sotheby's Holdings Inc... President Emeritus of Columbia University
- Jean-Paul Valles -
Chairman and Former CEO of Minerals Technology Inc
- William C Steer Jr -
Former CEO of Pfizer... Director of Metropolitan Life Insurance Company... Director of New York University Medical Center.... Member of the Board of Overseers of Sloan-Kettering Cancer Center
The box score is... Of 19 directors, 17 were current or former chairpeople or CEO/ Presidents of large organizations.
Eight had leadership positions at teaching hospitals, academic medical centers, medical schools or their parent universities, or other influential non-profit health care organizations. 1 had a leadership position at a potentially competing pharmaceutical company. 1 had a leadership position at a pharmacy corporation.
Furthermore, 10 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.
Jeffrey Kindler 2006
In 2006, the board appointed Jeffrey Kindler CEO. Mr Kindler was forced to resign in 2010. The Fortune article also described Mr Kindler as "suddenly desperate" after two failures of drugs in development; someone who "just couldn't make up his mind," about acquisitions and spin-offs; "anguished" about research, leading to a "messy" overhaul; and putting "destructive" trust in a subordinate with previously described problems with "character, integrity and divisiveness" leading to loss of the loyalty of the executive team.
The board in 2006 appears below, with information formatted as above. Note that all were members in 2001, although some members from 2001 were no longer there.
- Michael S Brown -
Distinguished Chair in Biomedical Sciences at University of Texas Southwestern Medical Center at Dallas... Director of Regeneron Pharmaceuticals.
- M Anthony Burns -
Chairman and CEO Emeritus of Ryder System Inc.... Life trustee of the University of Miami
- Robert N Burt -
Retired Chairman and CEO of FMC Corporation...
- W Don Cornwell -
Chairman of the Board and CEO of Granite Broadcasting Corporation.... Director of CVS Corporation.
- William H Gray III -
Chairman of the Amani Group... Director of JP Morgan Chase and Co, Prudential Financial Inc
- Constance J Horner -
Former Guest Scholar at the Brookings Institute... Director of Prudential Financial Inc
- William R Howell -
Chairman and CEO Emeritus of JC Penney Company Inc... Director of Deutsche Bank Trust Corporation and Deutsch Bank Trust Company Americas.
- Stanley O Ikenberry -
President Emeritus University of Illinois... President, Board of Overseers TIAA-CREF
- George A Lorch -
Chairman and CEO Emeritus of Armstrong Holdings Inc.... Director of HSBC Finance Co and HSBC North America Holding Company.
- Henry A McKinnell -
CEO of Pfizer... Director of Moody's Corporation.
- Dana G Mead -
Chairman of Massachusetts Institute of Technology Corporation. Former Chairman and CEO of Tenneco Inc... Director of Zurich Financial Services.
- Ruth J Simmons -
President of Brown University... Director of Goldman Sachs Group Inc.
- William C Steere Jr -
Chairman and CEO Emeritus of Pfizer... Director of Metlife Inc and Health Management Associates... Director of New York University Medical Center... Member of the Board of Overseers of Memorial Sloan-Kettering Cancer Center.
The new box score is similar to the old one, as expected, since none of the directors in 2006 was new since 2001. Of 13 directors, 11 were current or former chairpeople or CEO/ Presidents of large organizations.
Five had leadership positions at teaching hospitals, academic medical centers, medical schools or their parent universities, or other influential non-profit health care organizations. 1 had a leadership position at a potentially competing pharmaceutical company. 1 had a leadership position at a pharmacy corporation. 1 had a leadership position at a for-profit hospital operating company.
Furthermore, 9 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.
Summary
The board that acquiesced to huge compensation for very dysfunctional leadership arguably provided dubious "stewardship" of the company and the interests of its stockholders. The composition of the board suggests some reason for this. The board itself was mainly composed of current and former CEOs, and hence may have felt more in common with the executives whom it was supposed to supervise than the stockholders. Many board members had conflicts of interests, also leading organizations that were supposed to be dealing at least at arms length with Pfizer. Many of the board members were likely influenced by the corporate culture of the financial services industry, since they were in leadership roles there as well. That culture, which let unaccountable, hugely remunerated executives gamble with other peoples' money, personally benefit when the gambles went well, and unload their losses on others, including tax-payers when their gambles failed, seems to have infected health care.
We have often discussed how conflicted, overpaid, and/or unaccountable leadership can damage non-profit health care organizations, like hospitals and academic medical institutions. I would suggest it can also damage for-profit health care corporations, sapping their ability to create new and useful products, and undercutting shareholders.
I submit that all health care organizations would benefit from leadership and stewardship that cares more about patients' and the public's health, and the values of health care professionals than it does about the welfare of CEOs; that is accountable for and receives incentives proportionate to its effect on health and health care; and that is free from conflicts of interest and corruption. True health care reform would reform health care leadership and governance.
Let us focus on the membership of the boards that appointed the two CEOs Fortune described as failed.
Henry A "Hank" McKinnell - 2001
In 2001, the board appointed Henry A "Hank" McKinnell CEO. Mr McKinell was forced to retire in 2006. The Fortune article described Mr McKinnell as a "desperate CEO" by 2002 because he could find no way to replenish the company's fading drug pipeline; who then became an absent CEO who "left a power vacuum" and then triggered internal political warfare by setting up a "bitter contest" over succession planning.
In 2001, the board is as listed below. (I include their current positions, any former positions as chairman, CEO, president or the equivalence, and current leadership positions in health care or finance.) -
- Michael S Brown -
Distinguished Chair in Biomedical Sciences, Texas Southwestern Medical Center... Director of Regeneron Pharmaceuticals
- M Anthony Burns -
Chair of the Board, former CEO of Ryder System Inc ... Director of JP Morgan Chase and Co... Trustee of the University of Miami
- Robert N Burt -
Chairman of the Board and CEO of FMC Corporation... Director of the Rehabilitation Institute of Chicago and Evanston Hospital Corp
- W Don Cornwell -
Chairman of the Board and CEO of Granite Broadcasting Corporation... Director of CVS Corporation
- William H Gray III -
President and CEO of the College Fund/UNCF... Director of JP Morgan and Co... Trustee of the University of Miami
- Constance J Horner -
Guest Scholar at the Brooking Institution... Director of the Prudential Insurance Company of America
- William R Howell -
Chairman Emeritus and former CEO of JC Penney Company Inc...
- Stanley O Ikenberry -
President of the American Council on Education... Former President of the University of Illinois... President of the Board of Overseers of Teachers' Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF)
- Harry P Kamen -
Former Chairman of the Board and CEO of Metropolitan Life Insurance Company... Director of Banco Santander Central Hispano SA, BDirect Capital ... Metropolitan Life Insurance Company
- George A Lorch -
Chairman Emeritus and Former CEO of Armstrong Holdings Inc...
- Alex J Mandl -
Chairman of the Board and CEO of Teligent
- Henry A McKinnell -
CEO of Pfizer... Director of Moody's Corporation
- Dana G Mead -
Retired Chairman and CEO of Tenneco Inc... Director of Zurich Financial Services
- John F Niblack -
President of Pfizer Global Research and Development
- Franklin D Raines -
Chairman and CEO of Fannie Mae...
- Ruth Simmons -
President of Brown University... Director of Goldman Sachs Group Inc, Metropolitan Life Insurance
- Michael I Sovern -
Chairman of the Board of Sotheby's Holdings Inc... President Emeritus of Columbia University
- Jean-Paul Valles -
Chairman and Former CEO of Minerals Technology Inc
- William C Steer Jr -
Former CEO of Pfizer... Director of Metropolitan Life Insurance Company... Director of New York University Medical Center.... Member of the Board of Overseers of Sloan-Kettering Cancer Center
The box score is... Of 19 directors, 17 were current or former chairpeople or CEO/ Presidents of large organizations.
Eight had leadership positions at teaching hospitals, academic medical centers, medical schools or their parent universities, or other influential non-profit health care organizations. 1 had a leadership position at a potentially competing pharmaceutical company. 1 had a leadership position at a pharmacy corporation.
Furthermore, 10 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.
Jeffrey Kindler 2006
In 2006, the board appointed Jeffrey Kindler CEO. Mr Kindler was forced to resign in 2010. The Fortune article also described Mr Kindler as "suddenly desperate" after two failures of drugs in development; someone who "just couldn't make up his mind," about acquisitions and spin-offs; "anguished" about research, leading to a "messy" overhaul; and putting "destructive" trust in a subordinate with previously described problems with "character, integrity and divisiveness" leading to loss of the loyalty of the executive team.
The board in 2006 appears below, with information formatted as above. Note that all were members in 2001, although some members from 2001 were no longer there.
- Michael S Brown -
Distinguished Chair in Biomedical Sciences at University of Texas Southwestern Medical Center at Dallas... Director of Regeneron Pharmaceuticals.
- M Anthony Burns -
Chairman and CEO Emeritus of Ryder System Inc.... Life trustee of the University of Miami
- Robert N Burt -
Retired Chairman and CEO of FMC Corporation...
- W Don Cornwell -
Chairman of the Board and CEO of Granite Broadcasting Corporation.... Director of CVS Corporation.
- William H Gray III -
Chairman of the Amani Group... Director of JP Morgan Chase and Co, Prudential Financial Inc
- Constance J Horner -
Former Guest Scholar at the Brookings Institute... Director of Prudential Financial Inc
- William R Howell -
Chairman and CEO Emeritus of JC Penney Company Inc... Director of Deutsche Bank Trust Corporation and Deutsch Bank Trust Company Americas.
- Stanley O Ikenberry -
President Emeritus University of Illinois... President, Board of Overseers TIAA-CREF
- George A Lorch -
Chairman and CEO Emeritus of Armstrong Holdings Inc.... Director of HSBC Finance Co and HSBC North America Holding Company.
- Henry A McKinnell -
CEO of Pfizer... Director of Moody's Corporation.
- Dana G Mead -
Chairman of Massachusetts Institute of Technology Corporation. Former Chairman and CEO of Tenneco Inc... Director of Zurich Financial Services.
- Ruth J Simmons -
President of Brown University... Director of Goldman Sachs Group Inc.
- William C Steere Jr -
Chairman and CEO Emeritus of Pfizer... Director of Metlife Inc and Health Management Associates... Director of New York University Medical Center... Member of the Board of Overseers of Memorial Sloan-Kettering Cancer Center.
The new box score is similar to the old one, as expected, since none of the directors in 2006 was new since 2001. Of 13 directors, 11 were current or former chairpeople or CEO/ Presidents of large organizations.
Five had leadership positions at teaching hospitals, academic medical centers, medical schools or their parent universities, or other influential non-profit health care organizations. 1 had a leadership position at a potentially competing pharmaceutical company. 1 had a leadership position at a pharmacy corporation. 1 had a leadership position at a for-profit hospital operating company.
Furthermore, 9 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.
Summary
The board that acquiesced to huge compensation for very dysfunctional leadership arguably provided dubious "stewardship" of the company and the interests of its stockholders. The composition of the board suggests some reason for this. The board itself was mainly composed of current and former CEOs, and hence may have felt more in common with the executives whom it was supposed to supervise than the stockholders. Many board members had conflicts of interests, also leading organizations that were supposed to be dealing at least at arms length with Pfizer. Many of the board members were likely influenced by the corporate culture of the financial services industry, since they were in leadership roles there as well. That culture, which let unaccountable, hugely remunerated executives gamble with other peoples' money, personally benefit when the gambles went well, and unload their losses on others, including tax-payers when their gambles failed, seems to have infected health care.
We have often discussed how conflicted, overpaid, and/or unaccountable leadership can damage non-profit health care organizations, like hospitals and academic medical institutions. I would suggest it can also damage for-profit health care corporations, sapping their ability to create new and useful products, and undercutting shareholders.
I submit that all health care organizations would benefit from leadership and stewardship that cares more about patients' and the public's health, and the values of health care professionals than it does about the welfare of CEOs; that is accountable for and receives incentives proportionate to its effect on health and health care; and that is free from conflicts of interest and corruption. True health care reform would reform health care leadership and governance.
Subscribe to:
Posts (Atom)