To Whom Did the "Scorpions in a Bottle" Owe Their Allegiance?

In 2000, an important meeting took place between two men.

The first was a member of the board of directors of Merck Inc, the global pharmaceutical company, and of the board of Charles River Laboratories, which helps "our global partners accelerate drug discovery and development by providing them with tailored research models and preclinical, clinical, support services." The second was a member of the board of IMH Health, which advertises that it provides "global information, analytics and consulting" to support "the life cycle of medicines," from "the earliest stages of research and development through product launch, product maturation and patent expiration," and on the board of BankBoston Corporation, a national and international bank holding company. What might they have talked about?

It does not seem unreasonable to guess that they talked about pharmaceutical development. But that was not their topic.

In fact, the two men were Dr Samuel O Thier, who was then also the CEO of Partners Healthcare, and Mr William C Van Faasen, then CEO of Blue Cross and Blue Shield (BCBS) of Massachusetts. Their subject, as we discussed recently, was a secret increase in the reimbursement BCBS would give to Partners, far beyond the reimbursement given to other Boston teaching hospitals. Why BCBS was so willing to pay so much money to one hospital system is unclear. This revelation of this secret agreement showed how an important precept of the supposedly "market-based" US health care broke down. We had previously discussed that in a deregulated system, organizations like hospitals and health insurers/ managed care organizations were supposed to have negotiated vigorously for their interests. The former would try to maximize their reimbursement. The latter would try to minimize their costs. In the secret agreement between Thier and van Faasen, this did not happen.

I cannot explain why this secret agreement was made. I can point out some factors that may have been influential, but have not often been discussed.

The first factor is that the people leading health care organizations often have divided loyalties, and hence their actions on behalf of particular organizations may not be completely explained by their roles with these organizations, and consequent responsibilities and duties. For example, as noted above, the CEO of Partners also was a director of a pharmaceutical corporation, and a contract research/ drug development corporation. His responsibilities to advance the mission of Partners may have conflicted with his fiduciary duties to the stock-holders of Merck and Charles River Laboratories. Similarly, the CEO of Blue Cross Blue Shield was also a director of a drug development corporation and an international finance corporation. His responsibilities to advance the mission of Blue Cross Blue Shield may have conflicted with his fiduciary duties to the stock-holders of IMH Health and BankBoston Corporation.

The second factor may be revealed by considering the current leadership of the two organizations, leadership which has maintained the secret agreement (at least until it was made public).

The current Board of Trustees of Partners Healthcare, which has 16 members, includes:
- Jack Connors, the chair of the board, who is also the Chairman Emeritus of marketing communications company Hill, Holliday, Connors, Cosmopoulos Inc, whose clients include pharmaceutical and pharmacy benefits manager CVS / Caremark, and is also a member of the board of directors of Covidien, a medical device company.
- Anne M Finacane, who is chief marketing officer for Bank of America, an international financial corporation
- Steven S Fischman, who is President and Chief Operating Officer of New England Development, and real estate development and investment company.
- Edward P Lawrence, a member of the board of directors of Invesco, a global investment management corporation, and of AMVESCAP PLC, another global investment management corporation.
- Jay O Light, an "advisor/trustee to several corporate and institutional pools of capital," a member of the board of directors of Blackstone Group Management, the general partner of the Blackstone Group, a global investment and advisory firm, and a member of the board of directors of ESurg.com, an online source of health care supplies and information.
- Terrence Murray, who is on the board of directors of CVS/Caremark, and is former chair of FleetBoston Financial Corporation and its predecessor FleetBoston, into which BankBoston merged, and which subsequently merged into Bank of America.
- Gary A Spiess, former vice-president of FleetBoston Financial.
- Dorothy A Terrell, a venture partner of First Light Capital, a venture capital firm.
- David A Thomas, a member of the board of directors of Cambridge Trust Company.

The current Board of Directors of Blue Cross Blue Shield of Massachusetts, which has 18 members, includes:
- Mara Aspinall, senior advisor to Genzyme Corporation, a biotechnology firm, member of the board of directors of Predictive Biosciences, also a biotechnology company, and member of the board of trustees of the Dana-Farber Cancer Institute, a component of Partners Healthcare.
- Brian Barefoot, a former executive vice president and director of investment banking for PaineWebber Inc, an investment firm that was merged into UBS.
- Samuel Cabot III, a member of the board of directors of Fiduciary Trust Company, an investment management firm.
- Richard C Garrison, senior vice president and "catalyst" of Vertex Pharmaceuticals, a biotechnology company.
- Paul Guzzi, member of the Partners Healthcare corporation.
- Marian L Heard, is a member of the board of directors of CVS/ Caremark.
- Philip W Johnston is president and CEO of Johnston Associates, a consulting firm whose clients include Partners Healthcare, numerous medical device companies, including Covidien, and numerous other health care corporations.
- Cleve L Killingsworth, a member of the board of overseers of TIAA/CREF, an investment company.
- Karen Kruck, a senior managing director and head of strategy for State Street Global Advisors, an investment management company.

So another factor seems to be that the leadership of organizations which are supposed to negotiate at arms' length may have more in common with each other than with their organizations' constituencies. Note that these two boards have a lot in common. Both have disproportionate numbers of members who work or retired from one sector of the economy, financial services, and are or were top leaders within that sector. (Half, 8/16 of Partners board members are from this sector. 22%, 4/18 of the Blue Cross Blue Shield board are from this sector.) Keep in mind that of the employed US population, less than 6% work in this sector. This sector is also that which has brought us the global financial crisis.

There are also a variety of interlocks and overlaps among the two boards. These include:
- A major client of a firm run by a member of the BCBS board (Johnston) is Covidien, whose own board includes a member of the Partners board (Connors).
- Another major client of Johnston's firm is Partners itself.
- A member of the Partners board (Murray) and a member of the BCBS board (Heard) both sit on the CVS/ Caremark board.
- A major client of the former firm of a member of the Partners board (Connors) is CVS/ Caremark, a firm on whom a member of the BCBS board and a member of the Partners board sit.
- a member of the BCBS board (Aspinall) also sits on the board of a the Dana-Farber, a component of Partners.
- a member of the BCBS board (Guzzi) is also on the Partners corporation.

Finally, a number of the members of both boards have leadership roles in other health care corporations whose goals could conflict with Partners of BCBS respectively. Two members of the Partners board and three members of the BCBS board sit on the board of such health care corporations.

In summary, the current "market-based" approach to the organization of our health care system is based on the assumption that health care organizations will compete vigorously with each other, and different kinds of health care organizations will negotiate vigorously and at arms' length for their own interests.

However, it appears that the leaders of large health care organizations may have more in common with each other than with other members of their organizations' constituencies. For example, the leaders of a hospital system and of a health insurance/ managed care corporation may be more like each other than like their own employees, patients, trainees, etc. This may make it less likely that they will negotiate vigorously and at arms' length.

It also appears that conflicts of interest affecting these leaders may be widespread, and that conflicts can be of a variety of types.

Finally, it appears that leaders of the finance sector may have a disproportionate overlap with the leadership of health care organizations. The current global economic collapse have lead many to characterize the culture of the financial sector as marked by arrogance, greed, and corruption. Having this culture disproportionately influence the leadership of health care organizations may be responsible for some aspects of the ongoing health care crisis.

This case, and many others reported on Health Care Renewal, suggests that we need leaders of health care organizations to be dedicated to the principles and mission of their organizations, and not to have divided loyalties and conflicts of interest.