The owner of two research hospitals affiliated with the Harvard Medical School has imposed restrictions on outside pay for two dozen senior officials who also sit on the boards of pharmaceutical or biotechnology companies. The limits come in the wake of growing criticism of the ties between industry and academia.
Medical experts say they believe the conflict-of-interest rules at the institution, Partners HealthCare, go further than those of any other academic medical center in restricting outside pay from drug companies. The rules, which became effective on Friday, impose limits specifically on outside directors who guide some of the nation’s biggest companies.
Senior officials at the two hospitals, Massachusetts General and Brigham and Women’s Hospitals in Boston, must limit their pay for serving as outside directors to what the policy calls 'a level befitting an academic role' — no more than $5,000 a day for actual work for the board. Some had been receiving more than $200,000 a year. Also, they may no longer accept stock.
The proper pay for time spent on board meetings under the new policy was calculated at $500 an hour for a 10-hour day, said Christopher Clark, a senior lawyer at Partners and director of a new office for interactions with industry. Stock and options were banned because they tie the director’s fortunes to company profits.
As far as I know, this policy is the first instance of a US not-for-profit academic medical institution limiting the role its leaders and/or faculty may take as directors of for-profit health care corporations. So it is an important step. Furthermore, also as far as I know, the coverage this news item received on Sunday is the first time this issue has been discussed openly in the mainstream media.
A New Species of Conflicts of Interest
On the other hand, we first discussed the conflicts posed by leaders of academic medicine sitting on the boards of for-profit health care corporations in 2006 on Health Care Renewal, calling it a "new species of conflict of interest" at that time. Since then, we have found many other examples of such conflicts. We noted that sitting on a corporate board is a particular problem for an academic medical leader because 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.] This legal requirement ties a corporate board member far more tightly to the interests of the corporation than do the obligations of, for example, a consultant to the corporation.
Moreover, some have charged that many for-profit corporate board members are just cronies of the top corporate leaders.For example,
Tthe cronyism of major corporate boards, especially those in the finance area, has become legendary. Rubber-stamp directors who rarely buck the chairman or challenge the CEO are unfortunately all too common. These boards did not serve either their companies or shareholders well.[per Ritholtz B. Bailout Nation. Hoboken, NJ: John Wiley & Sons, 2009. pp. 198-199.]
In that case, this would only makes things worse, tying board members to the personal interests of top managers of health care corporations, rather than to the interests of the entire stockholder population.
A (Baby) Step in the Right Direction
Given the potential severity of board of directors level conflicts of interest for academic medical leaders, any step that reduces them deserves applause. That being said, Partners Healthcare's restrictions on these conflicts are at best baby steps in the right direction.
Note that the new policy only affects a small number of people. Liz Kowalczyk wrote, "the policy affects roughly 25 vice presidents, clinical department heads, and other top executives...." So it neither affects lower ranking clinical leaders, or Partners' own board.
The policy's limit on directors' compensation ($500/ hour, or $5000/ day, assuming a 10-hour day, which would annualize to $1,040,000 per year assuming an 8-hour day, and $1,300,000 assuming a 10-hour day), might be comparable to the current exaggerated earnings of top Partners' executives, but substantially exceeds the compensation of most practicing physicians or medical academics, and hence does not seem to be a very significant limitation. Requiring payments be made in cash rather than stock options might be regarded as an improvement rather than a restriction.
The policy does not restrict the number of boards a Partners leader may sit on.
Finally, the policy does not do anything substantial to manage to conflicts generated by board members' legal obligations to their companies and stockholders, nor their tendency to become cronies of top corporate management.
Are Conflicts of Interest Even a Problem?
While acknowledging the new, slightly restrictive policy, top Partners leaders did not seem to want to acknowledge that there is any downside to academic medical leaders sitting on health care corporations' boards. For example,
'We thought it was a very good idea to have institutional officials serve on boards, but we did not want to have personal enrichment,' [former Partners Chief Academic Officer and current Professor] Dr. [Eugene] Braunwald said.
Note that for most people, $500/hour appear to be personally enriching.
'These relationships also have significant benefits,' ... [Christopher Clark, director of Partners Office for Interactions with Industry] said. 'They give us some insight into how the companies work and how they are doing, and making sure the companies are aware of the academic perspective.'
Mr Clark did not note the many other ways to see how companies work and to communicate the academic perspective to them which do not involve academic leaders being paid by these companies.
Dr Dennis Ausiello, chief of medicine at Massachusetts General Hospital, said
Pfizer and other companies were crucial to translate academic research into drugs that benefit patients. At Partners, he has oversight of a research, ventures and licensing office that seeks to commercialize the hospitals’ intellectual property.
'I’m very proud of my board work,' he said. 'I’m not there to make money. I certainly think I should be compensated fairly and symmetrically with my fellow board members, but if my institutions rule otherwise, as they have, I will continue to serve on the board.'
While drug companies do make products that are good for society, could they not continue to do so without academic leaders on their boards? If Dr Ausiello did not care about his compensation, why did he continue to accept it?
So it is hardly clear that Partners Healthcare's leadership even now would credit Harvard Professor Emeritus and Editor Emeritus of the New England Journal of Medicine Dr Arnold Relman's point of view,
I think that’s a gross conflict for an official of an academic medical center to be on the board of a pharmaceutical company.
It’s happening more and more around the country. If it isn’t stopped, I think the academic institutions are going to lose the confidence of the country and the government and they will no longer deserve the tax exemption or anything else. They will be part of industry itself.
Indeed. But at least now, the issue may be apparent to more people than just the dedicated readers of Health Care Renewal. The more it is discussed, the more academic medical leaders may realize how much credibility they would gain if they were seen as impartial experts and dedicated physicians, rather than the protectors of corporate stockholders, or worse, the cronies of corporate bosses.
ADDENDUM (4 January, 2010) - see also comments by Professor Margaret Soltan on University Diaries, Merrill Goozner on the GoozNews blog, and Dr Howard Brody on the Hooked: Ethics, Medicine and Pharma blog.
ADDENDUM (6 January, 2010) - see also comments by Dr Daniel Carlat on the Carlat Psychiatry Blog.