Tuesday, March 03, 2009

Meet the New Boss, Same as the Old Boss? - Health Care Reform to be Lead by a Director of Boston Scientific, Cerner, and Medco

Today we learned that President Obama has announced his new picks for Secretary of Health and Human Services and for Director of the White House Office for Health Reform. The choice of Nancy-Ann DeParle for the latter position raises some issues. The NY Times provides some background:

He also named Nancy-Ann DeParle to coordinate health policy for the administration. Her position, counselor to the president and director of the White House Office for Health Reform, is not subject to Senate confirmation.

Ms. DeParle was commissioner of the Tennessee Department of Human Services from 1987 to 1989. Under President Bill Clinton, from 1997 to 2000, she was administrator of the Health Care Financing Administration, now known as the Centers for Medicare and Medicaid Services.

Since then, she has gained extensive experience in the business world. That experience, though seen as an asset by many, prompted questions from some of the people vetting personnel for Mr. Obama, supporters of Ms. DeParle said.

Ms. DeParle has been a director of large health care companies including Medco Health Solutions, a pharmacy benefit manager; Cerner, a supplier of health information technology, including electronic medical records; Boston Scientific, a medical device company; DaVita, which runs kidney dialysis centers; and Triad Hospitals.

In addition, according to the Washington Post,

DeParle, 52, was previously commissioner of the Department of Human Services in Tennessee. During the Clinton administration, she worked in the Office of Management and Budget and later oversaw Medicare and Medicaid as the administrator of the Health Care Financing Administration.

DeParle currently is managing director of CCMP Capital, a private equity firm. She also serves on the boards of several firms related to health care. A White House spokesman said she is in the process of resigning all those positions.

Administration spokespeople apparently brushed aside any questions about Ms DeParle's conflicts of interest. A separate article in the NY Times noted:

In picking Nancy-Ann DeParle to champion an overhaul of the nation’s health system, President Obama selected someone with deep roots in the Washington bureaucracy, an intimate familiarity with health policy and respect on both sides of the political aisle — not to mention degrees from Harvard Law School and Oxford University.

But in putting Ms. DeParle in charge of an issue that has bedeviled presidents for decades, Mr. Obama also chose to overlook Ms. DeParle’s business ties to companies that have a direct stake in the health care debate.

In announcing her appointment Monday as the director of the White House Office of Health Reform, Mr. Obama expressed 'absolute confidence' in Ms. DeParle, who ran the agency that oversaw Medicare and Medicaid during the Clinton administration. But the White House instantly faced questions about whether her appointment was skirting the spirit, if not the letter, of the president’s tough conflict-of-interest policy.

Since leaving the Clinton administration, Ms. DeParle has been managing director of a private equity firm, CCMP Capital, and a board member of companies like Boston Scientific, Cerner and Medco Health Solutions. White House officials said Ms. DeParle was severing ties with those companies and would recuse herself from participating in any matter that was 'directly or substantially' related to former clients or employers.

'It is our view, and the view of counsel here, that the incidence of that will be very low,' an administration official said of the need for Ms. DeParle to recuse herself from decisions. The official, who was not authorized to speak publicly, said Ms. DeParle would be working mostly with federal agencies and lawmakers, and not directly with companies.

MedInformaticsMD just posted about his concerns specifically vis a vis Ms DeParle's current position as a leader of Cerner.

My main concern here is that Ms DeParle's ties to multiple health care corporations are so strong as to jeopardize her ability to be the new leader of health care reform for the whole country.

To review, Ms DeParle is currently a member of the boards of three health care corporations, Boston Scientific, Cerner, and Medco. As we have discussed many times previously, a corporate director has a legal obligation to advance the profits and financial fortunes of the corporation he or she serves. As Robert AG Monks put it, corporate directors are supposed to "demonstrate unyielding loyalty to the company's shareholders" [Per Monks RAG, Minow N. Corporate Governance, 3rd edition. Malden, MA: Blackwell Publishing, 2004. P.200.] As compensation for that loyalty, corporate directors are usually exceedingly well-paid for the nominal hours they spend in their meetings.

In particular, per the company's 2008 proxy statement, in 2007, Ms DeParle received $160,338 in total compensation from Boston Scientific, and held 62,020 of its shares. Further, per the Cerner 2008 proxy statement, in 2007 she received $195,051 from that company, and held 27,000 of its shares. Ms DeParle was just elected to the Medco board in 2008, so her compensation and stock holdings were not listed in that year's proxy statement, but presumably her total compensation would mirror what other directors received in 2007: a retainer of $50,000, and an annual grant of shares and options worth $175,000 at the time it would be granted.

Given her previous obligation of "unyielding loyalty"to and generous compensation from major health care corporations, it might be hard to suddenly be indifferent to their interests.

Of course, a White House spokesperson pledged that Ms DeParle would "recuse herself from any matter that was 'directly or substantially' related to former clients or employers." The problem is that most of the issues that might come up in discussions of health care reform might be directly and substantially related to the interests of the companies Ms DeParle now leads. For example, one obvious way to control costs in a reformed health care system would be to reduce the current reimbursement system's bias in favor of procedures over cognition. Boston Scientific makes much of its money selling devices that are used during such procedures. Any general shifting of reimbursement more in favor of cognition rather than procedures could reduce Boston Scientific's profits, profits which Ms DeParle is currently sworn to protect. So would Ms DeParle recuse herself from all discussions of reimbursement?

I submit that if Ms DeParle recused herself from discussion of all issues that might affect the interests of Boston Scientific, Cerner, and Medco, let alone the private corporations she directs whose interests might be less easy to define, and let alone the corporations which she used to direct, she would have very little to do in her new position.

On the other hand, were Ms DeParle to be an active Director of the White House Office of Health Care Reform, would the reform be in the interests of all the US people, or in the interests from the large and powerful corporations whose interests she was so recently pledged to protect? Does this new appointment truly reflect President Obama's statement that he did not come to Washington "to work for the powerful and well-connected interests who have run this city for too long?"

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