Monday, February 24, 2014

Incoming President of IOM Outed as Member of Boards of Alnylam Pharmaceuticals, Medtronic and Pepsico

We just discussed how the new CEO of the National Quality Forum was revealed to be a member of the board of directors of Premier Inc, and discussed the implications of this apparently intense conflict of interest. 

Now another new leader of an influential non-profit organization dedicated to improving health and health care has also been shown to have major conflicts of interest.

All Hail the New President of the Institute of Medicine

In 2010, we posted about a student protest of the salaries of some top administrators at Duke University, including then Chancellor of Health Affairs Dr Victor Dzau, at a time when the university was undergoing financial difficulties.  We pointed out that Dr Dzau's income was further increased by compensation received as a member of the boards of directors of multiple corporations, and further that serving as a highly paid steward of health care companies like Alnylam Pharmaceuticals, Genzyme, and Medtronic appeared to be a major conflict of interest.  .  

Last week Dr Victor Dzau was hailed as the new president of the Institute of Medicine.  The simple version, in Modern Healthcare:

 Duke University Health System President and CEO Dr. Victor Dzau was named president of the Institute of Medicine, succeeding the longtime president, Dr Harvey Fineberg, the National Academy of Sciences announced Wednesday.

Dzau, whose six-year term will begin July 1, has done research in the area of treatment for high blood pressure and congestive heart failure and pioneered the use of gene therapy for vascular disease, the institute said in announcing the selection. Dzau served on the IOM Council from 2008 through 2013, Fineberg said in a statement.

'As a physician-scientist and leader in academic medicine, Victor has consistently demonstrated inspirational leadership, innovative thinking and multifaceted achievement. Now, all of us at the IOM, both members and staff, will benefit more fully from his leadership,' said Fineberg, who has served as president of the institute for 12 years.

Conflicts of Interest Barely Noted

Neither this article, the official Institute of Medicine press release, nor articles in the few media outlets that initially covered this new appointment on 19-20 February, 2014,, including the Boston Globe and the Charlotte News-Observer, noted Dr Dzau's positions on the boards of directors of Alnylam Pharmaceuticals, device manufacturer Medtronic, and sugary soft drink maker Pepsico.

However, Forbes blogger Larry Husten, was the first to publicly report these memberships, drawing on our 2010  post  on Dr Dzau's conflicts of interest as Duke Chancellor for Health Affairs.

Then a blog post on Modern Healthcare by Steven Ross Johnson added some more detail,

IOM spokeswoman Jennifer Walsh said in an e-mail that Dzau initiated steps to resign from his corporate board positions before Wednesday's announcement and that he has committed to severing the ties by the time he begins his six-year term in July.

It did not mention why the IOM press release and the initial news stories did not mention Dr Dzau's board memberships nor his intention to resign from them.  The IOM spokeswoman apparently did not discuss why Dr Dzau was going to resign his board memberships now, while he had maintained them as a member of the IOM Council from 2008 to 2013.

Since then, later on 21 February, a single mainstream media article, in Bloomberg, did address Dr Dzau's new job, his corporate board memberships, and his planned resignations, with emphasis on his break from PepsiCo:

The newly appointed president of the Institute of Medicine, which advises government leaders and policymakers on health issues, plans to resign from several corporate boards in advance of taking his new job—including one that might have created a sticky situation.

Among the companies that Victor Dzau will sever ties with is PepsiCo (PEP), according to Jennifer Walsh, a spokeswoman for the IOM. 'Dr. Dzau had already decided to step down from corporate boards before he accepted the position,' she says.

For Dzau, who’s leaving his position as chief executive officer of the Duke University Health System to head up the IOM, the PepsiCo relationship might have been a problem: Several of the company’s products are among those blamed for contributing to the obesity epidemic in the U.S. The Purchase (N.Y.)-based company is best known for its Pepsi soft-drink line and snacks including Fritos and Cheetos.

The IOM, which has identified solving the nation’s weight problem as a top priority, endorsed the idea of a soda tax in a report detailing the 'staggering toll' of obesity. The agency estimates obesity-related illness in the U.S. costs $190 billion a year.

The Bloomberg article mentioned his memberships on the Alnylam and Medtronic boards mainly in passing.

The Rewards of Board Membership

The Modern Healthcare blog post provided a list of recent compensation Dr Dzau received from his board memberships.

According to Pepsico's 2013 proxy statement, Dzau deferred his retainer of $66,667 for the year ending Dec. 29, 2012, in lieu of 944 units of phantom stock, where cash is paid at a future date in an amount equal to the market value of stock shares. Dzau also serves on the boards of Alynylam Pharmaceuticals (he was paid $50,000 and received option awards of $89,000 in 2013) and medical devicemaker Medtronic (PDF) (he was paid $80,000 and received stock awards worth $140,000 in 2013).

It did not mention whether he currently owns any stock, or the equivalent, in any of these companies. 

However, the most recent Alnylam, Medtronic, and PepsiCo proxy statements show Dr Dzau's considerable stock holdings in these companies.

- According to the 2013 Alnylam Pharmaceuticals proxy statement, he currently owns the equivalent of 90,000 shares today worth $8,070,300 at the current price of $89.67.
- According to the 2013 Medtronic proxy statement, he currently owns 9636 stock options and 15,200 deferred stock units for total holdings of 25,156 share equivalents today worth $1,450,495 at a current price of $57.66.
-  According to the 2013 Pepsico proxy statement, Dr Dzau currently owns the equivalent of  36,173 shares of Pepsico stock. today worth $2,830,537 given a current price of $78.25. 

The Bloomberg article provided a somewhat lower estimate of the value his PepsiCo stock holdings based on an otherwise unidentified 2 December, 2013 filing with the US Securities and Exchange Commission.  It estimated the value of his deferred stock units in Medtronic based on an April, 2013 disclosure, but did not list the stock options which appeared in the July, 2013 proxy statement.  It noted his membership on the Alnylam board but did not mention that he held any shares or the equivalent in Alnylam stock.

I cannot find anything public about what, if anything, Dr Dzau plans to do with these not inconsiderable stock holdings in health care and health related corporations.  

Note that as we posted in 2010, in its last proxy statement before it was acquired by Sanofi, Genzyme declared that Dr Dzau owned the equivalent of 75,137shares as of 2009, which in 2010 were worth approximately $5.3 million.  I cannot tell what Dr Dzau did with these stock holdings after the merger.  

Thus while there may be some confusion about this current holdings and their exact value, it seems clear that Dr Dzau has become a multimillionaire by virtue of his holdings of stock or equivalent from the three companies, a drug company, and medical device company, and a company whose products have apparent public health implications, on whose boards he currently sits, and possibly by virtue of his holdings in another drug/ biotechnology company on whose board he previously sat.  .  

The Intensity of the Conflicts

The acuity of the conflicts presented were the President of the IOM to continue sitting on these boards was emphasized by this description of the influence wielded by the IOM written in an article in the Durham (NC) Herald-Sun,

 Under the congressional charter of the National Academy of Sciences, the Institute of Medicine is recognized as a primary source for independent, scientifically informed analysis and recommendations on health issues.

Even though Dr Dzau will apparently exit his board memberships before he becomes IOM President, the IOM  has been providing such analysis and recommendations under the supervision of a Council member who had fiduciary duties to the stockholders of two pharmaceutical companies a medical device company, and company that makes sugar-laden soft drinks and snack foods.  It will continue to provide such analysis and recommendations under the supervision of a President who became a multimillionaire by virtue of the stock holdings he acquired through his board positions.

In 2006 we first discussed a newly discovered species of conflict of interest in health care, in which leaders of medical or health care organizations were simultaneously serving on boards of directors of health care corporations.  We posited these conflicts would be particularly important because being on the board of directors entails not just a financial incentive.  It ostensibly requires board members 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.]  Of course, after the global financial collapse of 2008 made us sadder and a little wiser, we realized that many board members actually seem to have unyielding loyalty to their cronies among top management.  However, in any case, the stated or actual interests of a member of the board of a health care corporation, like a pharmaceutical company or medical device company, could be very different and at odds with the mission of an academic medical institution or a non-profit ostensibly dedicated to improving health care quality.

Also, this case could be aggregated with that of Dr Cassel, the new CEO of the National Quality Forum (and former CEO of the American Board of Internal Medicine) who was found to be a member of the board of directors of Premier Inc, a for-profit hospital group purchasing organization.(see this post).  In my humble opinion, the issue here goes even beyond blatant conflicts of interest.  That top stewards of big for-profit health care corporations could simultaneously be  top leaders of influential non-profit organizations ostensibly dedicated to improving health and health care suggests that increasingly US health care is run by an insular group of insiders whose influence gets ever larger because of their collective power, not necessarily because of their dedication or ability to improvement of health care.  As reported by ProPublica about Dr Cassel's case,

Rosemary Gibson, an author and senior adviser to The Hastings Center, a research group dedicated to bioethics in the public interest, said she wasn’t surprised at Cassel’s outside compensation. So much money permeates decision-making in Washington, she said, that participants have become oblivious.

'The insiders don’t see it,' Gibson said. 'It’s like a fish in water.'

How Would Dr Dzau Respond to Criticisms of the Companies He Directs, and How Would His Responses Reflect on the IOM?

Even if  Dr Dzau were to resign from all three corporate boards, and sells all his stock holdings in the three companies, as previous board member he was responsible for the stewardship of these four companies for years. Therefore it would not be unfair for someone to ask him to address any questionable actions of those companies that affected patients' and the public's health.

For example, as we have discussed here, Medtronic has been involved in a series of recent misadventures, including most recently a settlement between multiple hospitals and the Us Department of Justice of charges that they allowed themselves to be persuaded by executives of Medtronic subsidiary Kyphon to inflate their billings for patients who had a Kyphon device implanted (look here),  and a Senate report that Medtronic manipulated articles in the medical literature to market another of its products (look here).

But the awkward fact is that Dr Dzau, as a board member of Medtronic, can be seen to be a steward of that corporation, and hence responsible for the its overall direction.  Even if he were no longer a board member, he cannot erase his responsibility for Medtronic activities that occurred on his watch.  Thus, Dr Dzau could easily find herself in the uncomfortable situation of having to defend and justify questionable past behavior by Medtronic while simultaneously wearing the hat of President of the IOM.  How that would play out is not obvious.


To date, the case of Dr Dzau as incoming president of the IOM and current board member of Alnylam Pharmaceuticals, Medtronic and Pepsico has received little attention, and therefore no ethics expert has gotten a chance to speak up in public about it, as they have about the case of Dr Cassel, the NQF, and Premier Inc.  So I will have to step in.

As I have said before,  Dr Joe Collier said, "people who have conflicts of interest often find giving clear advice (or opinions) particularly difficult."  [Collier J. The price of independence. Br Med J 2006; 332: 1447-9. Link here.]  To reduce further unclear thinking and its consequences, we again urge that academic medical institutions, and non-profit organizations dedicated to improving patient care and public health forthwith begin real reductions of conflicts of interest affecting all those who make clinical or policy decisions.

The IOM ought to consider
-  Immediately disclosing conflicts of interest affecting all its members, staff, and leadership in a very clear and accessible manner
-  Beginning a gradual but complete phase out of such conflicts

Otherwise, we all ought to be concerned that the leadership of medicine and health care is increasingly in the hands of a small group of insiders, interchangeable executives who simultaneously or sequentially lead multiple organizations, and are likely to become more comfortable with the fellow members of this interlocking leadership than with ordinary health care professionals, patients and the public.   


Anonymous said...

Who was it that said that those in academic medicine do not earn as much as those in the private practice of medicine?

Now, one may understand why the IOM was milque toast when it came to its report on electronic medical record devices. Rest assured that Dzau, often a pontificator at national science meetings, is not the only one at IOM with conflicts coloring their "opinions".

Bernard Carroll said...

The IOM is riddled with conflicts of interest. I dissected some of these in Nature Medicine back in 2005. See PubMed #PMID: 15812509. Quoting from that article: "Some of the most esteemed members of the IOM are employees and executives of major pharmaceutical corporations... these members are not shy about representing their corporate interests in public forums... One IOM member(has)listed 46 financial relationships with 21 corporations."

Although the IOM public relations machine maintains a carefully cultivated image of independent, Olympian wisdom on matters affecting the health of the American public, the public is mostly unaware of these pervasive and compromising conflicts of interest.