Showing posts with label Medtronic. Show all posts
Showing posts with label Medtronic. Show all posts

Friday, January 27, 2017

Will Trump's Leadership Picks Smack Down Health Care? - A Drug Company Lobbyist, an Entrepreneur Who Wants to Weaken Drug Testing, and a Mysterious Billionaire Who Settled Fraud Charges

President Trump in his inauguration speech promised to reach out to "struggling families" and to benefit "American workers and American families," and promised all Americans "you will never be ignored again."  Yet the Trump transition team, and now presidential administration continues to consider individuals for health care policy leadership roles remarkable for their conflicts of interest, which often did not merely arise from small financial transactions but from their roles as corporate insiders, and in some cases, association with dubiously ethical practices.  They are particularly remarkable for their lack of interest in, if not ignorance of American workers' and families' health, except perhaps as a vehicle for personal profit. 

Discussed in order of increasing potential power.

Jack Kalavritinos for FDA "Beachhead Team"

As reported by StatNews (unfortunately behind a paywall) on January 19,

Former pharmaceutical lobbyist Jack Kalavritinos, who also worked in various capacities for the George W. Bush administration, will take a major role on the 'beachhead' team that the incoming Trump administration is sending to run the Food and Drug Administration following Friday’s inauguration, transition team sources say.

Kalavritinos spent seven years as director of global lobbying for the Irish pharmaceutical and medical device company Covidien, which sells a wide array of hospital supplies around the world.  The US company Medtronic bought Covidien in 2014 and promptly moved its headquarters to Ireland, which had a lower corporate tax rate.

Mr Kalavritinos worked in Department of Health and Human Services as the Director of the Office of Intergovernmental Affairs as until 2007 before moving to Covidien in 2008 (look here), and stayed until 2015 (look here).

Thus he is a frequent traveler through the revolving door, going from the Department of Health and Human Services to Covidien, and now back to the DHHS.  Some experts consider the revolving door to be a form of health care corruption (look here).

Further note that he secured this new position despite the fact that he worked in a leadership position at Covidien during its "tax inversion":

Such 'inversions' - deals structured to let American companies take advantage of lower tax rates overseas - began to draw heavy public ire around the time of the Medtronic-Covidien deal.  The Obama administration has sought to crack down on such transactions with new rules from the Treasury Department.

President ... Donald Trump seemed to be referring to such deals, as well as the outsourcing of manufacturing, when he recently accused the pharmaceutical industry of 'getting away with murder.'
Finally, note that Medtronic has quite a history of misbehavior, as documented here, including settling multiple cases alleging its use of kickback, and hiding device safety information. 

Thus, Mr Kalavritinos has been a corporate insider for years, and an insider of a corporation which used financial maneuvers and apparently unethical actions for financial benefit.  In his track record are no indications he has any particular interest in improving the health of American workers and American families. 


Dr Joseph Gulfo for Commissioner of the Food and Drug Administration

Dr Gulfo appears to be the latest person to be vetted by the Trump administration to be FDA Commissioner.  As reported by the Boston Business Journal on January 24,

In an interview today, Dr. Joseph Gulfo — an author and former CEO of drug and medical device companies — confirmed that he has spoken with two members of President Donald Trump’s transition team about being the named commissioner of the Food and Drug Administration.

While Dr Gulfo is a physician, it seems he has not practiced in years.  Instead, he has mainly been an entrepreneur and executive.  As noted in his online biography,

Dr. Gulfo has more than 25 years of experience in the biopharmaceutical and medical device industries. As President & COO of Anthra Pharmaceuticals and Chairman of its UK subsidiary, he was responsible for the 1998 NDA approval of Valstar, a drug for superficial bladder cancer, which had sales of $27 MM in 2012, 14 years after its approval. Dr. Gulfo was also instrumental in the development of ProstaScint (Cytogen Corporation), a BLA-approved monoclonal antibody for prostate cancer. He was CEO and Chairman of Antigen Express, an immunotherapy and immunodiagnostics company in the field of vaccines for cancer therapy, antiviral therapy, and asthma, and led its merger. In 2012, he received the American Business Awards’ Maverick of the Year Award....
Note that his personal biography emphasizes the sales of the drugs his companies sold, not their benefits to patients.

More recently,

he served as President & CEO of MELA Sciences (2004-2013), and was Chairman of the Board (2011-2013).

Currently,

 He is Executive Director of the Lewis Center for Healthcare Innovation and Technology at Fairleigh Dickinson University (FDU) [within the School of Pharmacy and Health Sciences].
His personal biography did not explain how any of his products or corporate accomplishments improve health of American workers of families.

So were he appointed, Dr Gulfo might be considered as transiting the revolving door, with implications as above.  Again, Dr Gulfo did not merely have financial relationships with health care corporations, but was top executive of several corporations, and thus was obviously a corporate insider.

Furthermore, as former top executive of multiple pharmaceutical and biotechnology companies, Dr Gulfo seems interested in making FDA standards for drug approval more lenient.  In particular, he has argued for approving drugs based only on their ability to make patients' "biomarkers," that is laboratory test results that may be correlated with clinical outcomes or patient-centered outcomes, but not absolutely.  So he would allow drugs that have never been shown to improve symptoms or functional status, or to reduce disease morbidity, complications, or early death. And it is likely that many drugs approved in this manner would never be proven to have any such benefits.  But all drugs have side effects, so this policy would expose patients to risks, without the chance of obtaining any benefits.  This is not what one should really call patient-centric.

Nothing in his track record suggests any great interest in the health of American workers and American families, except as consumers of his products.


Dr Patrick Soon-Shiong for "Health Care Czar"

As StatNews reported on January 24

Dr. Patrick Soon-Shiong, an audacious biotech billionaire who has pledged to 'solve health care,' has been in talks with the Trump administration about the possibility of serving in a senior role overseeing the US health care system, according to individuals familiar with the discussions.

Soon-Shiong, a trained surgeon, has met with President Trump and his advisers at least twice in recent weeks. During those discussions, he raised the possibility that he could serve as a 'health care czar' with a broad portfolio in the administration as it seeks to reshape the health care system and replace the Affordable Care Act, according to two individuals, who spoke on the condition of anonymity.

Far from solving health care, Dr Soon-Shiong seems known for making inflated claims that are never borne out.

In the early 1990s, Soon-Shiong claimed that he may have cured diabetes in a patient named Steven Craig by implanting cells that secrete insulin. The treatment worked, for a while — launching an outpouring of media attention for Soon-Shiong’s diabetes company, VivoRx. But he faced criticism in ensuing years, as the results were not reproducible.

'It’s far too early to view this as a cure, or even a therapy,' Dr. James Gavin, then-president of the American Diabetes Association, once said of Soon-Shiong’s therapy. 'We don’t need this kind of inappropriate hype.'

So this may be why

he now has a reputation for talking more than doing. 'Every time I hear his name uttered by an academic oncologist, it’s with an eye roll,' Dr. Vinay Prasad, an oncologist at Oregon Health and Science University, told STAT late last year. 'If you asked a dozen oncologists what they think of him, his general reputation is that of a shameless self-promoter.'

In fact, his claims have gone from inflated to allegedly fraudulent,

Generic drugmaker Mylan had invested in VivoRx to support its diabetes work, but much of the money was actually used to support a separate company Soon-Shiong set up — VivoRx Pharmaceuticals, which researched cancer drugs instead. That resulted in a fraud lawsuit from Mylan and Terrence Soon-Shiong, Patrick’s business partner.

Patrick Soon-Shiong paid $32 million to settle the lawsuit.

Furthermore, while he apparently became a billionaire, there is some controversy about how he did so. As another StatNews article reported on January 25,

The core of Soon-Shiong’s enterprise is called NantWorks, from which at least 10 interconnected biotech companies have grown. Each has raised hundreds of millions of dollars, and each tends to make deals with other firms under Soon-Shiong’s umbrella.

But not one has successfully developed a drug, and investor enthusiasm has waned.

Nonetheless, apparently Dr Soon-Shiong has paid himself handsomely, presumably in part of using other peopeles' money:

But Soon-Shiong personally has done well. In 2015, NantKwest paid him more than $148 million in stock and options, and he still owns a roughly 50 percent share of the company. He also owns about 57 percent of NantHealth, according to a regulatory filing, a stake worth more than $500 million.

All told, Bloomberg estimates he’s worth $8.8 billion.

The one drug with which he is most identified was apparently just an old drug repackaged, but sold for a then extremely handsome price:

It seems a little quaint now: More than 10 years ago, Soon-Shiong’s signature cancer drug, Abraxane, came under fire for being too costly. The medical community was outraged at Abraxane’s $4,200 price tag, describing the drug as 'old wine in a new bottle' because it’s an updated version of the long-used chemotherapy drug paclitaxel. Of course, considering the pricing of cancer drugs today, that’s practically a bargain.

Thanks to the commercial success of Abraxane, Celgene bought Soon-Shiong’s company, Abraxis, for a stunning $2.9 billion. That’s where he got most of his wealth.
Note that Abraxane is simply paclitaxel "protein bound." While it was not very innovative, Dr Soon-Shiong made it very pricey, leading to his own financial benefit, but not clearly to big benefits for patients. 

So Dr Soon-Shiong is the ultimate corporate insider, a multi-billionaire corporate CEO, an "entrepreneur" who has mainly benefited from financial manipulation, a great "innovator" who has never developed an innovative product that actually has been shown to improve human health.  Again, there is nothing in his track record demonstrating concern for the health of American workers and American families. 


Summary

These latest examples show that the Trump transition team and now the Trump administration seem to have affinity for health care advisers and leaders with numerous and severe conflicts of interest, whose expertise may be more in marketing and public relations that biomedical science, medicine, public health, or health policy, and who are known to make outrageous claims, even to the point of carrying whiffs of fraud.  They are all rich corporate insiders.  The administration's latest flirtations include a former lobbyist for a biotechnology firm, and two non-practicing physician-entrepreneurs.  The former worked for a company with a long history of ethical lapses.  One of the latter has promised many breakthroughs, none of which has so far apparently panned out, and settled allegations of fraud.  Nothing made public about any of them at this point suggests that they have deep underlying concerns for patients' and the public's health. 

While their flamboyant histories may appeal to someone like Mr Trump, with his own history of outrageous marketing stunts, and of marketing dubious health schemes (look here), their potential to put the health needs of patients and the public first is not obvious.  None of the three people discussed above are credible candidates to lead any part of any US government agency involved in health, health care, or public health, in my opinion.  None of these three people displayed any great concern for patients' or the public's health, despite Mr Trump's fervent claims that he will not ignore American workers and American families.

To repeat, true health care reform requires well-informed leaders who uphold health care professionals' values, put patient's and the public's health ahead of all other considerations, avoid self-interest and conflicts of interest, are honest and ethical, and surely are not corrupt.  They need to work in the context of a government that is of, by and for the people, not of, by and for a demagogic leader.

US health care may be heading for not better health for American workers and families, but for a Trump administered smackdown, like the one he delivered on a professional wrestling show:




Maybe it would have been better had Mr Trump ignored us American workers and families.

Thursday, November 12, 2015

"Dreaming On" - The Illusions of the Leaders of Large Health Organizations, as Illustrated by Medtronic's Founder


On Health Care Renewal, we have posted story after story about amazingly well paid leaders of big organizations presiding over amazingly bad organizational behavior (including subversion of mission, conflicts of interest, deception, fraud, kickbacks, various other crimes and outright corruption).  Yet the leaders often seem curiously disconnected from what occurs on their watches, while they are sometimes hailed as "visionaries," and at times exude messianic confidence.

Medtronic's Founder on its Sacred Mission

A recent article appearing in an unexpected place provides an example of leaders' excess confidence in their own righteousness.  In the IEEE (Institute of Electrical and Electronics Engineers) Institute was a commentary by Earl Bakken, the founder of medical device/ biotechnology giant Medtronic, modestly proclaiming the "secrets of corporate success."

Keep in mind that while Mr Bakken founded the company, at age 91, while no longer its leader, he proclaimed, " I stay involved with my company."  As such, he remains proud of its mission statement,

In 1960, when corporate mission statements were rare, I wrote one that has never changed. It remains the company’s guiding principle. There are six tenets, but the first one is the most important: To contribute to human welfare by application of biomedical engineering in the research, design, manufacture, and sale of instruments or appliances that alleviate pain, restore health, and extend life.

Starting in the 1970s, I met with all new employees, explained our history and mission, and in each of their hands I placed a medallion imprinted with the mission statement. I encouraged them to live by it—at work and at home.
Note that the official mission also includes,

To strive without reserve for the greatest possible reliability and quality in our products; to be the unsurpassed standard of comparison and to be recognized as a company of dedication, honesty, integrity, and service. [ital added]

Apparently, he believes that under the "visionary leadership" and "astute direction" of the current, this mission remains central to the organization.

At Medtronic, we live our mission. It’s the basis for how we behave in relationship to our stakeholders, each other, our communities, and the world. But it also guides our relationships with ourselves. We live the Medtronic Mission every day in truly genuine ways by serving others. I am proud to have a mission that is so deeply woven into the fabric of this company that improves millions of lives throughout the world.

Here’s to dreaming on.

Honesty? Integrity? - the Company's 10 Year Track Record 

I hate to disillusion a 91-year old, but in light of the company's last 10 year track record, as discussed on Health Care Renewal, he does appear to be in a dream world.


Medtronic has provided our blog with lots of material, including some amazing stories about conflicts of interest (starting in 2006, here, here, here, here, here, here, here, here, nad here,) and revolving doors  (here, here, here, and here). 

The company has also made a series of legal settlements of various allegations of infamous behavior, in chronological order...
 
2006

- We discussed detailed and vivid allegations that Medtronic had been paying off doctors starting in 2003.
 - Medtronic subsidiary Sofamor Danek settled for $40 million allegations that it gave kickbacks to doctors in the form of sham consulting fees and lavish trips (look here).

2007

As Bloomberg summarized in 2014,
Medtronic agreed in 2007 to pay about $130 million to settle consumer suits accusing the device maker of hiding defects in its defibrillators.
 2008

- Medtronic subsidiary Kyphon settled a suit for $75 million and signed a corporate integrity agreement for allegations that it defrauded Medicare through a scheme that lead to excessive hospitalization for patients who received the company's spine surgery device (link here)

2010

Per the Bloomberg 2014 summary again,
The company agreed to a $268 million settlement of suits in 2010 over allegations that fractured wires in another line of defibrillators caused at least 13 patient deaths.


2011

-  Medtroinic settled for $23.5 million two other federal lawsuits alleging it paid kickbacks to encourage physicians to implant its devices (look here).

2014  

In June, we discussed a settlement Medtronic made of allegations that  Medtronic gave kickbacks (that is, bribes) to doctors to get them to use its cardiac devices.

2015

In April, 2015 we discussed three settlements made by Medtronic:
- Its subsidiary EV3 settled old allegations that it coached hospitals how to overbill the US government for procedures using its products
- The company settled allegations it gave kickbacks to physicians to induce them to use its neuromodulation devices.
- The company settled allegations it lied to the US military about US origins of its devices.

(And by the way, we will not belabor the contrast between the statement's committment to "recognize the personal worth of employees," and the gargantuan payments made to certain employees, that is, the top managers, all who got over $3.5 million in 2014, and the "visionary" CEO, who got over $12 million, look here. )

Summary

Someone needs to wake up Mr Bakken.  He may still believe in the mission statement, and wish that it is central to his company.  However, the track record seems to suggest that the mission statement has been honored often in the breach.

Perhaps the problem is that Mr Bakken is really much more detached from the company he founded than he now admits.  However, I worry that this immensely positive spin suggests that he, like many other health care oragnizational leaders, live in some sort of bubble into which no negative karma is allowed to penetrate.  Thus convinced of their own innate goodness, they can provide no check on continuing manifestations of corporate greed, most likely with the solace of the own fortunes they build up. 

IMHO, we need to break up these huge health care organizations which have become so big that those who run them cannot be in touch with what really goes on.  We need to reestablish the accountablity of leaders, and no longer allow them to get credit for all the good that happens, and dodge responsibility for all the bad.  True health care reform would entirely transform health care leadership, so that it can become well-informed, supportive of the mission, unconflicted, less self-interested, honest, and certainly law abiding. 

Wednesday, April 08, 2015

Three More Settlements by Medtronic of Allegations of Deceptive Behavior, but No Umpire Says "You're Out"

Medtronic, the giant, previously US based device maker settled three lawsuits, all alleging deceptive practices, over three months in early 2015.  I will summarize the settlements in chronological order.

Medtronic Subsidiary EV3 Settled Suit Alleging it Coached Hospitals about How to Overbill Medicare

This was actually an old case, originally against a company that Medtronic bought out, but only settled this year, in February.  As reported by the Minneapolis Star-Tribune,


A Plymouth medical device company owned by Medtronic has agreed to pay $1.25 million to settle a federal lawsuit alleging that it wasted Medicare dollars.

The medical device company EV3 is settling a whistleblower’s claims that in 2006 and 2007, a company it acquired improperly coached hospitals across the country on how to overbill Medicare for minimally invasive procedures to remove hardened plaque from patients’ arteries using one of its devices, called the Silver Hawk.

Specifically, former sales representative Amanda Cashi alleged that the company told hospitals that 80 percent of their patients for the Silver Hawk procedure should stay overnight in the hospital following an atherectomy, leading to higher Medicare payments. The promises of higher reimbursement were intended to drive sales of Silver Hawk devices. Cashi and federal prosecutors who joined her lawsuit said most of the patients should have gotten lower-paying same-day procedures in an outpatient setting.

As is standard operating procedure for such litigation,

[Irish Medtronic subsidiary] Covidien, which negotiated the settlement agreement, is not admitting wrongdoing and specifically denies the allegations in the six-year-old lawsuit, the settlement agreement says.

'Medtronic is committed to the highest standards of ethical conduct, and we take responsibility for delivering outstanding results to our partners, patients and colleagues,' a company statement said. 'The case relates to historical conduct that took place under Fox Hollow. … We are pleased to have the matter resolved.'

Of course, there may be a bit of irony there, since I doubt that the original manufacturer of Silver Hawk, FoxHollow, or its successors were pushing to get the case resolved quickly, and Medtronic likely ultimately financially benefited from the prolonged delay. 

Note that in 2005 we first posted about the questionable clinical research data that FoxHollow used to promote the device

Medtronic Settled Suit Alleging it Gave Kickbacks to Doctors to Promote Unjustified Procedure that Used Medtronic Neuromodulation Device

Just two days later, the Star-Tribune reported,

Medtronic PLC will pay $2.8 million to the U.S. Justice Department to settle a false-claims case that alleged that the Minnesota devicemaker made illegal payments to doctors to recommend a medical procedure that was neither safe nor effective.

In particular,

The case surrounds allegations of corporate promotion of uses of a neurostimulation device that were not approved by the U.S. Food and Drug Administration. The Justice Department said Medtronic paid doctors in 20 states 'tens of thousands of dollars' to encourage health providers to use the device off-label.

This 'created a new, rapidly expanding market for their devices and a potentially huge source of profit for themselves at the expense of the federal Treasury,' the government said in a federal lawsuit.

As in the previous case, the settlement allowed Medtronic to deny "it did anything wrong."

Medtronic Settled Suit that Alleged it Sold Chinese or Malaysian Spinal Surgery Devices as Made in the USA

Finally, in April, 2015, the Star-Tribune again reported,

In its third federal settlement in two months, Medtronic PLC has agreed to pay $4.4 million to settle allegations that it deliberately violated U.S. law requiring that devices sold to the military be manufactured in the United States or its international trading partners.

The False Claims Act lawsuit, handled by Minnesota U.S. Attorney Andrew Luger’s office, alleged among other things that the formerly Fridley-based med-tech company brought spinal surgery devices in from China and then relabeled them 'Manufactured in Memphis, TN,' where its spinal division is based, before selling them to the government.

Of course,

Medtronic spokeswoman Cindy Resman said that although the company has since improved its country-of-origin disclosures in government contracts, it 'makes no admission that any of its activities were improper or unlawful.'

The settlement focused on 'a limited number of accessories and surgical instruments used in spinal surgeries that were provided to Medtronic by third-party suppliers and were manufactured in China or Malaysia. The overwhelming majority of Medtronic’s products are manufactured in the United States or its trading partners, such as Mexico or Ireland,' she said in an e-mail.

But can you believe them now?

Discussion

Medtronic made three settlements over three months, all of allegations that it deceived, directly or indirectly, doctors, patients, or the government.  These settlements were not isolated events.  In June, 2014 we discussed a settlement Medtronic made of allegations that  Medtronic gave kickbacks (that is, bribes) to doctors to get them to use its cardiac devices.  Previously, as we noted then, ...   As Bloomberg summarized,


 Medtronic agreed in 2007 to pay about $130 million to settle consumer suits accusing the device maker of hiding defects in its defibrillators. The company agreed to a $268 million settlement of suits in 2010 over allegations that fractured wires in another line of defibrillators caused at least 13 patient deaths.

In fact, Medtronic has provided our blog with lots of material.  We first discussed detailed and vivid allegations that Medtronic had been paying off doctors starting in 2003 here in 2006.  Medtronic has been involved in other lawsuits alleging various kinds of deception.
-  In 2011, it settled for $23.5 million two other federal lawsuits alleging it paid kickbacks to encourage physicians to implant its devices (look here).  
- In 2008, Medtronic subsidiary Kyphon settled a suit for $75 million and signed a corporate integrity agreement for allegations that it defrauded Medicare through a scheme that lead to excessive hospitalization for patients who received the company's spine surgery device (link here)
- In 2006, Medtronic subsidiary Sofamor Danek settled for $40 million allegations that it gave kickbacks to doctors in the form of sham consulting fees and lavish trips (look here).

One loses count of all the settlements and cases in which Medtronic was accused of deceptive practices.  Some settlements were for larger amounts, some for smaller.  Yet none of the settlements were large enough to really affect a company which reported earnings of just under $1 billion in 2014 (per this WSJ article.)   None of the later legal settlements seem to have taken into account the company's previous record.

But this is typical of how legal settlements made by large health care corporations are handled.  Almost never is the settlement big enough to have deterrent value.   

The revenues of the company could very well have been increased by the activities alleged to have occurred in the course of this litigation, and these revenues were likely used to justify outsize compensation for top corporate managers.  According to the company's 2014 proxy statement, in fiscal 2014, CEO Omar Ishrak got $12,118,846 in total compensation.  All other listed executives got at least $3.5 million.  In none of these cases did anyone at the company who might have authorized, directed, or implemented bad, and particularly deceptive behavior suffer any negative consequences.   

But this is typical of the impunity seemingly granted to top health care organizational managers.

In baseball, it's three strikes and you're out.  For the leaders of big health care corporations, however, no matter how many strikes your company makes, you never seem to be out.  Despite a continuing stream of ethical issues occurring on their watch, management usually succeeds in becoming filthy rich.


Maybe that would change if the public, or health care professionals, knew all about such things.  However, these settlements remain anechoic.  Although the latest Star-Tribune article did note that the latest 2015 settlement occurred after two previous settlements this year, none of the reporting about these settlements seems to have noted all the previous settlements.  Finally, the discussion of these cases involving a prominent device company and multiple allegations of deceptive, dishonest, unethical behavior never seems to go beyond business sections of media outlets.  Even though such continuing dishonest behavior could have corrosive cumulative effects on health care ethics, the morale of health professionals who have to deal with such deception, and patients' and the public's health, discussion of it never makes it into the medical and health care literature, a striking example of the anechoic effect.

Maybe if more health care professionals, and the public at large, knew the story better, they might ask what sort of stewardship was exerted by the Medtronic board of directors? Maybe they could ask current Medtronic board members, like Rensellaer Polytechnic Institute President Shirley Ann Jackson, and  former US Secretary of Health and Human Services Michael O Levitt,  and former board members, like Dr Victor J Dzau, who was pressured to leave the Medtronic board after he became President of the Institute of Medicine and this membership was noticed (look here)  These board members were making over $200,000 a year, and piling up Medtronic stock, supposedly for exerting stewardship over the company.

But typically board members of big health care organizations remain unaccountable.  

There seems to be increasing recognition that the continuing rise in US health care costs is unsustainable, and that these costs are not buying us good health care.  There are calls to avoid unnecessary, and sometimes harmful care.  Yet there is a persistent disconnect between how continuing dishonest behavior by health care organizations, impunity of their leaders, and lack of accountability by their board members fuel rising costs, shrinking access, and bad outcomes for patients.

To truly reform health care, we will have to at least recognize the causes of the current dysfunction.  Recognizing how health care dysfunction is created by unaccountable, dishonest leadership should lead to true reform that would promote well-informed, honest, accountable leadership that puts patients' and the public's health ahead of personal gain.  

Monday, March 02, 2015

Turn, Turn, Turn - Another Health Care Revolving Door Update

It has been a while since our last revolving door update, so it's time to take another spin.


Summary of the Revolving Door Phenomenon

Before we get to some cases, though, let me summarize an important article on the revolving door that came out since.  This was published by U4, the "anti-corruption resource center" NGO based in lovely Bergen, Norway.  The title was "The Revolving Door Indicator: Estimating the distortionary power of the revolving door."  Although it's main point was to summarize a new measure the importance of the revolving door in a particular economic sector, it started with a very useful summary of the revolving door phenomenon.  It included a useful definition

According to Transparency International UK, the term 'revolving door' refers to 'the movement of   individuals between positions of public office and jobs in the private sector, in either direction.'

To expand,

The revolving door involves two distinct types of movement.  The first is from the public to the private sector, as regulators (ministers, cabinet secretaries, legislators, high-level officials, advisers) leave the public sector to enter the private sector they have regulated. The second is from the private to the public sector, as high-level executives of regulated companies enter the executive branch, the legislature, or key regulatory agencies.

It also included some idea of prevalence

The revolving door is particularly common in countries where explicit bribes cannot be paid safely, and thus regulators look forward to future employment with the regulated firms

We will discuss what the U4 report said about the implications of the revolving door after a quick review of the cases we have run across since May, 2014, involving the US government.  They will be listed in order of their appearance in the news.

Former National Coordinator for Health Information Technology and Colleague at ONC to Aledade (Company Supporting Accountable Care Organizations)

In June, 2014, various versions of this story appeared.  The Modern Healthcare version stated,

Dr. Farzad Mostashari, former head of the Office of the National Coordinator for Health Information Technology, is starting a new firm, Aledade, to help independent primary-care physicians form accountable care organizations. The startup has $4.5 million in seed funding from venture capital firm Venrock.

Independent practices looking to form ACOs have to expend money 'to hire the people, to get the agreements, to get the licenses, to do the legal work, to hire the executive director, and a medical director, practice transformation, the analytics software, the data warehousing, the EHR interfaces,' he said. 'All of that takes money,' often $1 million to $2 million.

Note that the current concept of the "accountable care organization" [ACO] includes heavy dependence on the electronic health records (EHRs) and other health information technology that Dr Mostashari had been so vigorously promoting as head of the ONC, so this transition seems to fit the revolving door rubric.

It also turns out that one of Dr Mostashari's former ONC colleagues was already at Aledade  

Mostashari will be joined by Mat Kendall, a former leader with the regional extension center program at ONC, who will be executive vice president

Former US Senators to Lobby for Medtronic and Covidien

In August, 2014, per Bloomberg,

Former U.S. Senators Trent Lott and John Breaux are part of a lobbying effort by companies that want to preserve the option of reducing their corporate taxes by moving their legal addresses overseas.

Nine U.S. companies that have sought cross-border mergers for tax reasons, are considering doing so or are targets of such deals have been pressuring lawmakers since April on legislation to stop the practice, federal disclosure reports show.

They include Medtronic Inc., the Minneapolis-based company that is seeking to acquire Dublin-based Covidien Plc. Medtronic paid Breaux-Lott Leadership Group $200,000 in June to block legislation from moving forward. Breaux, a Democrat, was once a member of the Senate Finance Committee. Lott, a Republican, is a former Senate majority leader.

Note that as Senator, Breaux had an important role in health policy, particularly the passage of the Affordable Care Act (ACA).

Former Assistant Secretary of Health and Human Services to Drinker Biddle & Reath (Lobbying Firm)

In August, 2014, per the Washington Post,

District Policy Group, the lobbying unit of law firm Drinker Biddle & Reath, is experimenting with a new model of using outside consultants to capture new business in the health-care field.

The group, which lobbies primarily on health-care policy, has taken the unusual step of forming an advisory board that includes external consultants. The outside advisers are not employees of the firm and instead receive a consultant’s fee, which means the firm does not have to pay their salary or benefits, but can still tout their services to clients.

The board was formed in July and is made up of four Drinker Biddle attorneys and two outside consultants, Tracy Sefl, a Democratic communications strategist, and Michael O’Grady, a health economics specialist and former Health and Human Services assistant secretary under President George W. Bush. Both Sefl and O’Grady have day jobs running their own consulting shops.

This seems to require no further comment.

Former Federal Trade Commissioner to Herbalife

In October, 2014, per the Hill,

Herbalife has hired a former federal regulator to run its compliance program as it deals with allegations of running a pyramid scheme.

Pamela Jones Harbour, who served at the Federal Trade Commission (FTC) from 2003 to 2010, has been named the company’s senior vice president of global member compliance and privacy, according to media reports.

The FTC opened a probe into Herbalife’s business practices earlier this year after lobbyists, interest groups and policymakers asked for a review.

Shortly after the FTC announced its investigation, the FBI began looking into how the direct-selling company recruits new distributors.

Herbalife is best known for its meal-replacement shakes and dietary supplement products. Harbour says she has been a Herbalife customer since 2004, according to Reuters, favoring the company’s Formula 1 shake mix.

Note that the FTC devotes considerable energy to health care issues, and Herbalife styles itself a "a global nutrition company" which makes "weight management" and "energy and fitness" products.

Director of US Centers for Disease Control and Prevention (CDC) to Merck as President of Merck Vaccines, then Executive Vice President for Strategic Communications, Global Public Policy and Population Health

In December, 2014, per a news release on BusinessWire,

Merck (NYSE:MRK), known as MSD outside the United States and Canada, today announced the appointment of Dr. Julie Gerberding, 59, as executive vice president for strategic communications, global public policy and population health, effective Dec. 15. In this newly created Executive Committee position, Gerberding, who most recently served as president of Merck Vaccines, will be responsible for Merck’s global public policy, corporate responsibility and communications functions, as well as the Merck Foundation and the Merck for Mothers program.

Note that

Prior to joining Merck, Gerberding served as director of the U.S. Centers for Disease Control and Prevention (CDC) from 2002-2009 and before that served as director of the Division of Healthcare Quality Promotion.

From UnitedHealth (Optum Subsidiary) Executive to Administrator of the Center for Medicare and Medicaid Services (CMS) of the Department of Health and Human Services

In January, 2015, per the Business Journals,

Marilyn Tavenner's replacement at the Center for Medicare and Medicaid Services is a former executive at one of the contractors for the initially botched HealthCare.gov insurance exchange.

Andy Slavitt, former group executive vice president of United Health Group's Optum unit, joined CMS last June to help fix HealthCare.gov. Now he'll be acting administrator of CMS.

An Optum subsidiary, Quality Software Services Inc., was one of the original contractors for HealthCare.gov. QSSI developed the exchange's data services hub and a registration tool that allows users to create secure accounts.

Apparently nothing succeeds like failure.


Discussion

I apologize for the somewhat desultory way I have been summarizing health care revolving door cases.  My excuse is that such cases are almost never publicized as such.  Most of the stories above were found when looking for something else.  Despite its potential importance, the revolving door phenomenon gets little consistent coverage in the news media, and the particular issue of the revolving door affecting health care is particularly anechoic.  (If one searches for "'health care revolving door," one finds discussion of patients who are frequently re-admitted to the hospital.)  There is one website devoted to the revolving door affecting the US government, (OpenSecrets.org has a database here.)   However, it is not searchable by sector, and seems not to be complete (that is, for example, it fails to contain most of the cases I listed above). 

None of the cases above got more than minimal media coverage, yet they all involved people who at one time held high government positions, including US Senators, director of the Centers for Disease Control and Prevention (CDC), a Federal Trade Commission (FTC) commissioner, the director of Center for Medicare and Medicaid Services (CMS) within the US Department of Health and Human Services (DHHS), an Assistant Secretary of DHHS, and the National Coordinator for Healthcare Information Technology. So the anechoic effect persists regarding this issue.

Yet the revolving door is a significant issue.  As discussed in the U4 article

The literature makes clear that the revolving door process is a source of valuable political connections for private firms. But it generates corruption risks and has strong distortionary effects on the economy, especially when this power is concentrated within a few firms.

Also, the principal way the revolving door can benefit a company is...

The rent-seeking channel: The revolving door is used to capture public resources, through legal and illegal means, rather than to increase production or efficiency.  Transparency International UK (2011) and the OECD (2009) point out that the revolving door may lead to various schemes involving conflicts of interest, both during and after a regulator’s term in public office. This in turn generates undue bureaucratic and political power for firms using such schemes

Furthermore,

The revolving door is also related to lawful behaviours (Brezis 2013), termed 'legal corruption' by Kaufmann and Vicente (2011). This phrase refers to 'efforts by companies and individuals to shape law or policies to their advantage, often done quasi-legally, via campaign finance, lobbying or exchange of favors to politicians, regulators and other government officials. […] In its more extreme form, legal corruption can lead to control of entire states, through the phenomenon dubbed ‘state capture,’ and result in enormous losses for societies'

So,

Firms connected through the revolving door may therefore derive undue advantages by legally and illegally influencing the formulation, adoption, and implementation of laws, regulations, and public policies. For example, when firms are connected to (former) members of Parliament [or the legislature], they may influence the enactment of laws and regulations in their favour. When firms are connected to (former) ministers [or in the US, cabinet secretaries] and their advisers, they may influence the upstream formulation and implementation of policies and regulations in their favour. When firms are connected to (former) high-level officials, they may influence the downstream implementation of regulations in their favour.

Finally,

Empirical studies suggest that the revolving door gives firms political and bureaucratic power that enables them to divert state resources by biasing public procurement processes (Goldman, Rocholl, and So 2013; Cingano and Pinotti 2013), obtaining preferential access to public finance (Faccio, Masulis, and McConnell 2006; Boubakri et al. 2012), and unduly benefiting from tax exemption, arrears, and subsidies (Faccio 2010; Slinko, Yakovlev, and Zhuravskaya 2005; Johnson and Mitton 2003).

Therefore, firms politically connected through the revolving door tend to shape laws and regulations in their favour and to divert state resources to their own benefit. They are unlikely to gain a productivity advantage, and indeed may reduce productivity in the private and the public sectors. The literature on state capture and political influence (Hellman and Kaufmann 2004; Hellman, Jones, and Kaufmann 2003; Slinko, Yakovlev, and Zhuravskaya 2005) supports the thesis that such distortions result from the high concentration of political and bureaucratic power among a few powerful firms.
That all suggests that the revolving door in health care ought to get attention beyond posts in Health Care Renewal, but so far there has been precious little of that.  The continuing egregiousness of the revolving door in health care shows how health care leadership can play mutually beneficial games, regardless of the their effects on patients' and the public's health.  Once again, true health care reform would cut the ties between government and corporate leaders that have lead to government of, for and by corporate executives rather than the people at large

Thursday, February 05, 2015

Outsize Compensation for "Teflon-Coated" Executives - After Many Lawsuits and Negative News Stories, Norton Healthcare Executives Still Get Millions

In an earlier era of chemistry, politicians who continued to acquire votes while shedding doubts, criticisms, and allegations were called "Teflon-coated."  Teflon may be outdated now, but there certainly seems to be some health care executives who have unique non-stick coatings.

The Executives' Compensation

Our latest example comes from the Louisville (KY) Courier-Journal, which just published an article about the compensation received by top executives of one of the region's major hospital systems.  The essentials were:

From 2011 to 2013, the three most recent years available, tax records show the chief executive of Norton Healthcare, Stephen A. Williams, received total compensation that averaged $3.2 million a year.

The yearly numbers were:

2013: $2,447,122
2012: $4,705,333
2011: $2,376,186

Other top executives also were paid handsomely,

The tax reports show Norton paid chief operating officer Russell Cox an average of $1.5 million annually over the three years and chief financial officer Michael Gough $1.2 million. Cox also was promised an average of $547,580 annually over those years in additional future compensation and Gough $375,567 a year.

The Usual Talking Points as Justification

The justification given for such munificent pay for top hired managers of non-profit organizations that are supposed to put patient care (and sometimes teaching and research) ahead of personal enrichment never seems to go beyond the talking points we have previously discussed.

 It seems nearly every attempt made to defend the outsize compensation given hospital and health system executives involves the same arguments, thus suggesting they are talking points, possibly crafted as a public relations ploy.   We first listed the talking points here, and then provided additional examples of their use here, here here, here, here, and here, and here

They are:
- We have to pay competitive rates
- We have to pay enough to retain at least competent executives, given how hard it is to be an executive
- Our executives are not merely competitive, but brilliant (and have to be to do such a difficult job).
True to form, per the Courier-Journal article,

Industry leaders — and Norton board members — say the salaries and bonuses are essential to attract and retain executives with the skills to run complex organizations as they navigate enormous reimbursement and regulatory changes. Norton operates five hospitals and has revenues of about $1.8 billion.

In an interview, Hank Robinson, Norton's finance committee chairman and former board chairman, said Williams' compensation is 'very fair, very competitive and appropriate.'

So there, in three sentences, were direct versions of the "competitive rates," and "retention" talking points, and an indirect version ("skills to run complex organizations") of the "brilliance" talking point.

Also, the Courier-Journal article included,

Norton's chief communication officer, Thomas Johnson, points out that since Williams was named CEO, the company's revenues have climbed sixfold, and its work force has tripled to more than 12,000 employees, making it the third-largest employer in the Louisville area.

That was another indirect version of the "brilliance" talking point, since Mr Johnson seemed to be arguing that the CEO was the person most personally responsible for the "company's" [not "hospital system's?" - Ed)] increased revenue, regardless of the work of the more than 12,000 other employees.  Of course, Mr Johnson doubtless reports nearly directly to the CEO.

Pointedly left out of the discussion was that Norton Healthcare's financial performance in the recent years in which the CEO had received so much money was hardly brilliant.   As apparently first reported in Modern Healthcare in August, 2014, but going back to 2012,

A multimillion-dollar installation of an electronic health-record system dragged down Norton Healthcare's financials in 2012 and 2013, but the Louisville, Ky.-based health system rebounded in the first half of this year.

Norton—like many others racing to adopt the latest health information technology—began implementing an Epic Systems Corp. EHR in 2012. Norton's five hospitals and several physician practices fully converted to the Epic system by 2013. In total, the EHR cost nearly $80 million to install, according to Norton's audited 2013 financial documents (PDF).

According to Modern Healthcare, Norton had a $13.4 million operating loss in the first half of 2013.  However, Norton CEO Williams received nearly $2.5 million in 2013. So these negative financial results in 2012 and 2013 did not apparently drag down the CEO's compensation in those years.

Compared to What?

The Courier-Journal went a bit farther in their reporting of executive compensation at Norton Healthcare than other media outlets have when reporting on the pay of other health care leaders.  In particular, reporter Andrew Wolfson delved into how Mr Williams' compensation was justified by comparing it to the compensation of other health care CEOs.

The Norton finance committee chair, Mr Robinson

said it is derived through a rigid process based on an outside consultant's survey of pay at 66 comparable hospitals nationwide. The board then sets it at the 65th percentile of that compensation, which Robinson described as standard industry practice.

Furthermore,

Norton's consultant, Integrated Healthcare Strategies, says it looks at comparable peer groups — hospital companies, some larger and some smaller — to find a benchmark for Norton's board.

They include Baptist Health of Florida, whose CEO was paid $3.2 million in 2013, and Inova Health Care Services, of Falls Church, Va., whose top executive received total compensation of $4.2 million in 2012.

'Norton tries to set salary a little bit above the middle of the market,' Integrated's Dave York said in an interview. 'They are neither a conservative nor an aggressive payer.'


That still begged the question of why the compensation was "above the middle of the market," specifically, the 65th percentile?  Presumably, the board thought that CEO Williams has been at the 65the percentile of CEO performance.  But why did they pick that figure? What evidence is there that Mr Williams was better than average?

The Courier-Journal article also questioned the choice of the group of CEOs whose pay was used for comparison,


But Paul R. Dorf, managing director at Compensation Resources Inc., a Saddle River, N.J., consulting firm, who reviewed Norton's executive pay at the newspaper's request, said 'it doesn't seem right.
They are exceptionally well compensated,' he said.

The average compensation for the top 147 nonprofit hospital CEOs in 2012 was $2.2 million in 2012, according to Modern Healthcare, an industry publication.

Williams' average compensation from 2011-13 was more than paid in 2012 to the CEOs of 20 of the 25 top grossing nonprofit hospitals in the U.S., all of which were bigger than Norton, according to Becker's Hospital Review, another industry news outlet.

Given that compensation consultants like Mr Dorf usually seem to back the status quo for executive compensation, Mr Dorf's doubts should be underlined.  The Courier-Journal's coverage did suggest that the CEO and other top executives of Norton Healthcare are paid not only much more than the typical hospital employee, and the health care professionals who make the hospital run, but more than CEOs and top executives of other hospitals.  The reasons for this unclear.

Left unanswered were further questions.   Why are so called market comparisons limited to other CEOs or top managers, and never take into account other hospital employees, especially the health care professionals who actually provide the health care?  Why is the complexity of the managers' jobs never compared to complexity of other health care jobs, like the care of complex patients with multiple diseases, or neurosurgery, for example?  How is the "brilliance" of the managers measured, and compared to the brilliance of other employees, especially health care professionals?

Shedding Doubts, Criticisms, and Allegations

A little internet searching and dot connecting, however, did suggest that there may be one argument for the "brilliance" of the Norton Healthcare leadership, but it is an argument that the hospital system's board might not have been eager to make.

It seems, at least in my humble opinion, that the leadership has been brilliant, but brilliant in fending off multiple questions that have been raised in recent years about its management of the health care system, particularly questions about the ethics and integrity of their health care system's acts and practices. 

So far I have found the following issues, in more or less chronologic order,

Top Spine Surgeons' Questionable Royalties

In 2010, the Wall Street Journal reported that spine surgeons at Norton had been collecting millions in questionable royalty payments.

Norton Hospital in Louisville, Ky., may not be a household name nationally. But five senior spine surgeons have helped put it on the map in at least one category: From 2004 to 2008, Norton performed the third-most spinal fusions on Medicare patients in the country.

The five surgeons are also among the largest recipients nationwide of payments from medical-device giant Medtronic Inc. In the first nine months of this year alone, the surgeons—Steven Glassman, Mitchell Campbell, John Johnson, John Dimar and Rolando Puno—received more than $7 million from the Fridley, Minn., company.

Furthermore, Norton surgeons' use of spinal fusion for disc problems, a procedure whose benefits do not clearly outweigh its harms, was particularly notable.

At Norton, spinal fusions on patients who only suffered from aging disks accounted for 24% of the 2,475 fusions the hospital performed for Medicare between 2004 and 2008, compared with 17% nationally. This placed it 11th in percentage terms out of 60 hospitals that performed 1,000 or more spine fusions in those years, and fourth in raw count. Norton ranked third nationally in the overall numbers of spine-fusion surgeries.
Furthermore, the WSJ reported that it had obtained documents from a lawsuit filed by whistle-blowers against Medtronic which alleged


the five surgeons at Kentucky's Norton Hospital became Medtronic's biggest spine client [sic] after they signed consulting and royalty deals in early 2001.


We posted briefly about Norton's spinal fusion enthusiasts here, and Dr Howard Brody discussed it extensively on his blog, concluding,

some of my surgeon colleagues who actually care about professionalism and ethics believe that these 'royalty and consulting' payments are a huge cesspool. It's that much harder to get to the bottom of it because the device companies have been smart about how to cover their tracks.

Yet while there have been continuing questions raised about the actions of Medtronic vis a vis its medical "consultants" since then, it seems that no one has so far thought to question the role of Norton Healthcare, especially given that the hospital system doubtless collected millions for the performance of these procedures in its operating rooms.    

University of Louisville Litigation Claims Contract Violations, Debts Owed by Norton Healthcare

Apparently since at least 2013, Norton Healthcare has been involved in litigation with the University of Louisville over Kosair Children's Hospital, which is run by Norton on land owned by the University.  As summarized in Louisville Business First in October, 2013,

Norton Healthcare Inc. has filed a complaint in Franklin Circuit Court that seeks to establish that the University of Louisville has no legal right to evict the organization from Kosair Children’s Hospital.

Louisville-based Norton owns and operates Kosair Children’s Hospital on land it leases from the state.

U of L executive vice president of health affairs David Dunn issued this response late Friday to Norton's claim:

'It’s unfortunate that Norton filed a lawsuit instead of meeting to negotiate a long-term agreement for the care of children at Kosair Children’s Hospital. The University of Louisville’s repeated attempts to meet and negotiate have been rejected again and again by Norton’s CEO, who told us today that he will neither meet nor negotiate while their lawsuit is pending.'

'This is a disturbing trend in dealing with Norton as we try to resolve these complicated matters in a way that best meets the needs of Kosair Children’s Hospital, the patients we serve and U of L’s Department of Pediatrics. It is our hope that, later today, Norton will take a deep breath, accept our invitation to meet, and we all can focus on securing a long-term agreement to best serve the children of our community.'

Furthermore, the University of Louisville also demanded

that the hospital company rectify alleged violations  of a land lease and other agreements

In addition,

other claims in U of L's letter was that Norton owes U of L millions of dollars related to the Kosair agreements.

The dispute apparently also involves the University of Kentucky and the KentuckyOne hospital system. Some of the other relevant issues were summarized on the Kentucky Health Policy Institute website here.  It seems that patient care and medical education have become caught in the cross-fire between these powerful organizations. It is not obvious that Norton Healthcare is more or less responsible for this state of affairs than the other large organizations involved. However, neither is it obvious that Norton has taken the high ground regarding this matter.

Kosair Charities Sues Norton Healthcare for Misusing Charitable Funds

In mid-2014, another litigation front opened against Norton Healthcare.  As reported then by the Louisville Courier-Journal,

Kosair Charities, which has given more than $6 million annually to Kosair Children's Hospital, is accusing parent company Norton Healthcare of misusing some of that money to enhance its bottom line and 'line the pockets' of its executives.

In a lawsuit filed Thursday in Jefferson County Circuit Court, the charity says Norton has refused to provide an accounting of how Kosair's donations are spent.

'We have an obligation to the kids and our donors to make sure the money is being used to help children,' said Randy Coe, president of Kosair Charities, which is the hospital's largest donor. 'We don't want our money to go into the Norton pot.'
Note that the source of generous executive compensation at Norton Healthcare is a direct point of contention in this legal matter.


This lawsuit stems from the previously cooperative relationship between Kosair and Norton,

 At one time, Kosair Charities and Norton each operated their own pediatric hospitals — Kosair Crippled Children's Hospital and Norton Children's Hospital.

But in 1982, Kosair agreed to close its hospital on Eastern Parkway and to help pay for a new one downtown that was named Kosair Children's Hospital.

Kosair Charities said that, in an agreement struck that year, Norton agreed to keep separate accounts for the children's hospital in exchange for millions of dollars of contributions. Kosair says that arrangement was continued when the agreement was renewed in 2006.

In fact, the charges brought in this lawsuit about Norton executive compensation led the Courier-Journal to publish the 2015 article about the hospital system's executive compensation. Also, in 2014, Norton further belayed this previous spirit of cooperation by counter-suing Kosair, again as dutifully reported by the Courier-Journal. These lawsuits have not been resolved.


Patient Lawsuit Claiming "Unfair, False, Misleading or Deceptive Acts or Practices" by Norton

Also first reported in August, 2014, by the Courier-Journal, was a lawsuit by a patient who claimed that  in the emergency department of a Norton hospital,

he was seen only by a nurse practitioner who failed to diagnose that he was suffering from an acute and potentially fatal version of diverticulitis, an inflammation of the intestinal lining — and sent him home with a prescription for oral antibiotics. Two days later, he began vomiting and was rushed back to the hospital, where he underwent emergency surgery for a perforated bowel and was fitted with a colostomy bag.

However, that hospital had been advertising

 You don't just deserve emergency care. You deserve remarkable care.

This lawsuit, which alleges that Norton Healthcare violated a law prohibiting "unfair, false, misleading or deceptive acts or practices" by advertising "remarkable care," but delivering much less,  has not been resolved, either.

Summary

The 2015 report about executive compensation at Norton Healthcare raise the same points that many, many stories about executive compensation in health care have raised before.  Top managers/ administrators/ bureaucrats/ executives in health care seem to be paid ever increasing amounts, even as other employees, including health care professionals, work harder, burn out more frequently, and may be laid off.  These executives' payments rise faster than inflation, and are seemingly unrelated to the financial performance of the the relevant health care organizations, much less the health care quality provided, or the positive effects on patients' or the public's health

Yet the defenders of excess compensation seem to get away with repeatedly reciting the same tired talking points, without clear logic, and certain without evidence.

In the current case, however, one talking point, the argument that the pay was justified by the executives' hard work and "brilliance" may be justified, albeit in a somewhat twisted way.  Executives at Norton Healthcare have been fending off questions about the ethics and integrity of their system raised by a barrage of news stories and claims, including many for which litigation is in progress, claiming the hospital system engaged in a variety of allegedly deceptive or dishonest practices.  One might think that the doubts raised by these claims might have threatened the compensation of the executives on whose watch they occurred.  Instead, perhaps they got even more pay for being "brilliant," not so much brilliant at providing excellent health care, but brilliant at keeping all these doubts at bay for so long, without so far actually disproving any of them. 

As we have said before, in US health care, the top managers/ administrators/ bureaucrats/ executives - whatever they should be called - continue to prosper ever more mightily as the people who actually take care of patients seem to work harder and harder for less and less. This is the health care version of the rising income inequality that the US public is starting to notice.

Thus, like hired managers in the larger economy, non-profit hospital managers have become "value extractors."  The opportunity to extract value has become a major driver of managerial decision making.  And this decision making is probably the major reason our health care system is so expensive and inaccessible, and why it provides such mediocre care for so much money. 


One wonders how long the people who actually do the work in health care will suffer the value extraction to continue?

So to repeat, true health care reform would put in place leadership that understands the health care context, upholds health care professionals' values, and puts patients' and the public's health ahead of extraneous, particularly short-term financial concerns. We need health care governance that holds health care leaders accountable, and ensures their transparency, integrity and honesty.

But this sort of reform would challenge the interests of managers who are getting very rich off the current system.  So I am afraid the US may end up going far down this final common pathway before enough people manifest enough strength to make real changes. 

Tuesday, June 03, 2014

Fool Me Twice? - Boehringer Ingelheim, Medtronic Settle Lawsuits Alleging Deceptive Marketing

It seems like it has been really quiet on the legal settlement front in the US, but maybe corporate executives wanted to wait until things calmed down after the unofficial start of summer to let out news that some people might not think reflected well on them.  So this week it was time to announce two new legal settlements of allegations of bad behavior by corporate health were announced, as we will list in alphabetical order....

Boehringer Ingelheim Settles Suits Alleging it Hid Data About Pradaxa Harms

As per Bloomberg,

Boehringer Ingelheim GmbH, the German family-owned drugmaker, agreed to pay $650 million to settle the majority of lawsuits filed over its blood thinner Pradaxa, which has been linked to more than 500 patient deaths.

The major allegations were about deception,

 Patients and their families alleged Boehringer executives knew Pradaxa posed a deadly risk to some consumers when they brought it to the U.S. market in October 2010.

In particular, as we discussed in more detail in February, 2014,

Documents made public as part of patients’ Pradaxa suits showed Boehringer officials didn’t disclose to U.S. regulators a data analysis that indicated the blood-thinning drug may have caused more fatal bleeding after it was cleared for sale than in a study used to win approval. 

Per the New York Times, Boehringer Ingelheim executives continued to maintain

that it stood behind the safety and efficacy of Pradaxa and continued to believe that the lawsuits lacked merit, but that settling the case allowed the company to move on. 'Time and again, the benefits and safety of Pradaxa have been confirmed,' said Desiree Ralls-Morrison, senior vice president and general counsel of Boehringer Ingelheim USA.

This is typical of most legal settlements involving large health care organizations, whether they end lawsuits brought by private parties or by the US government.  The settlements often allow the parties to continue to disagree, do not establish guilt or innocence, but leave one to wonder why executives would pay so much of admittedly other peoples' money just to "move on" without upholding their or their companies' honor, especially when documents revealed and legal findings made in cases prior to settlement remain unchallenged.

So this settlement also comes after December, 2013, as we discussed here, December, when a judge

ordered Boehringer to pay a $931,000 fine in December for failing to preserve 'countless' files on Pradaxa’s development and marketing. Patients’ lawyers say Boehringer should have placed an effective 'litigation hold' on the documents, forcing employees to preserve them.

(The above per Bloomberg.)  That finding, which the settlement does not dispute, does not fill one with confidence about the openness and transparency of Boehringer Ingelheim managers.

Also the settlement does not refute documents released during this litigation which suggested that Boehringer Ingelheim personnel tried to influence, or manipulate a company sponsored research paper to prevent it from contradicting the company's official marketing message that Pradaxa administration does not require monitoring of patients with blood tests (as we discussed here).    

Note further that this case comes only a few years after a case in which Boehringer Ingelheim settled allegations of deceptive marketing of drugs other than Pradaxa, as we discussed here.

Medtronic Settles Suit Alleging Kickbacks to Physicians

The most extensive and colorful report was in the Minneapolis Star-Tribune,

Medtronic Inc. will pay the U.S. Justice Department $9.9 million to settle a whistleblower lawsuit that accused the company of paying kickbacks to doctors for using its defibrillators and pacemakers.

The alleged kickbacks, according to the newly unsealed suit, included 'gifts of wine and alcohol' and 'trips to strip clubs' paid for by the Fridley-based company. The lawsuit also says Medtronic paid to fly doctors to events in San Francisco, Las Vegas, New Orleans, New York, Minneapolis and other cities that some physicians used as 'a free vacation.'

More colorful details,

The lawsuit, whose details remained secret until Tuesday, describes Medtronic business plans with names such as 'Project Wildfire' that had sales representatives offer 'cash payments, expensive trips and meals, expensive gifts and entertainment to physicians as kickbacks in exchange for the physicians’ agreement to implant Medtronic devices.'

The lawsuit alleged that Medtronic 'funneled millions of dollars in unrestricted grant money to physicians' to get them to encourage the use of Medtronic defibrillators and pacemakers in patients whose 'mild heart failure symptoms did not meet [Food and Drug Administration] criteria for an implantable device.'

Those procedures were not only unnecessary, the suit alleged, but potentially dangerous.

The suit describes payments of thousands of dollars in speaking fees to doctors for attending dinners at which they spoke for only a few minutes, if at all. In other cases, Medtronic allegedly prepared entire presentations that physicians offered almost verbatim.

The suit talks of a plan that 'instructed sales representatives to personally review patient charts in friendly doctor’s offices' and to flag those patients the sales representative 'felt should receive an implant.'

Note that commercially supplied "unrestricted grant money" is now the lifeblood of many ostensibly academic continuing medical education (CME) programs, but this case suggests that corporate executives may believe they are paying such money to get doctors to use their products.  Note further that many physicians defend their receipt of money in payment of talks they have given on behalf of commercial firms as fair payment for providing unbiased education, but this case suggests that corporate executives may believe they are paying such money for marketing, and/or to get the supposedly unbiased physician speakers to use their products. 

Once again, the settlement did not resolve the allegations.

 Medtronic said it did not admit that any of its activities were improper or illegal and that the settlement would bring to a close a long-running review of events dating from 2001 to 2009.

Also,

 Asked to comment specifically on the strip club allegations and the accusation that it financially facilitated unnecessary implantations, Medtronic reiterated that its $9.9 million payment was not an admission that it had done anything illegal or improper.

See my comments above.  Why would executives with even the slightest ability to feel shame not contest such allegations if they were untrue?  But maybe many of today's corporate health care executives are not capable of feeling shame, and of course they get to pay off these lawsuits with other peoples' money.

By the way, this is just one of many Medtronic settlements.  As Bloomberg summarized,

 Medtronic agreed in 2007 to pay about $130 million to settle consumer suits accusing the device maker of hiding defects in its defibrillators. The company agreed to a $268 million settlement of suits in 2010 over allegations that fractured wires in another line of defibrillators caused at least 13 patient deaths.

In fact, Medtronic has provided our blog with lots of material.  We first discussed detailed and vivid allegations that Medtronic had been paying off doctors starting in 2003 here in 2006.  Medtronic has been involved in other lawsuits alleging various kinds of deception.
-  In 2011, it settled for $23.5 million two other federal lawsuits alleging it paid kickbacks to encourage physicians to implant its devices (look here).  
- In 2008, Medtronic subsidiary Kyphon settled a suit for $75 million and signed a corporate integrity agreement for allegations that it defrauded Medicare through a scheme that lead to excessive hospitalization for patients who received the company's spine surgery device (link here)
- In 2006, Medtronic subsidiary Sofamor Danek settled for $40 million allegations that it gave kickbacks to doctors in the form of sham consulting fees and lavish trips (look here).

Yet we are now writing at the end of May, 2014, and Medtronic is still settling lawsuits involving vivid allegations of payoffs to physicians, and its executives are still saying nothing to see here, move on.

Summary

These sorts of cases provide evidence that large health care corporations, including not just pharmaceutical companies, but biotechnology and medical device companies, commonly use deceptive and unethical practices to market their products.  Such marketing lets them charge high, even outrageous prices and sometimes results in patients getting expensive treatments that do them no good, or worse, that do more harm than good.  Some of the executives of these companies doubtless got large bonuses, and may have gotten millions in compensation partially because of the sales generated by these practices.  However, they get to walk away from such lawsuits without any personal accountability, just by paying out a few millions, or billions, of the company's, that is, other peoples' money.  They get do pay that money without any other explanation that it eliminates distractions and allows them to move on (with whatever they have already made).

The more this goes on, the more health care dysfunction continues, and the more the health care oligarchy prospers.  As we have written many times,

penalties that only appear to be (relatively small) costs of doing business are unlikely to deter future bad behavior. Until the people who actually authorized, directed and implemented the bad behavior have to suffer some negative consequences, expect the bad behavior to continue.  Note that each of the companies discussed above have had their previous ethical lapses discussed in previous Health Care Renewal posts.

The continuing march of settlements, and sometimes criminal convictions involving major health care organizations should be regarded merely as providing a floor to estimates of the extent of bad behavior by large health care organizations. Bad behavior may not be reported, or lead to legal action, and legal action may not lead to settlements or convictions. However, it is amazing how many organizations that were once regarded as exemplary have had to settle, or plead guilty, or been convicted.

When it comes to health care's leadership, society seems to have acceded to defining deviancy down. Until we start holding health care leaders to high standards, expect their organizations not to uphold high standards.

(That version was from 2010, posted here re Medtronic's 2010 settlement. You heard it here first.  Medtronic is still settling, and according to its most recent proxy, from 2013, the annual total compensation of its CEO was last reported to be $8,975,886.)


Monday, April 14, 2014

Planned Obsolescence Disguised as Innovation, Oligopoly Disguised as a Free Market, and the Enrichment of Oligarchs

The New York Times published another article in its series on the high cost of US health care.  This one, focused on the care of type 1 diabetes mellitus and other chronic diseases, shines some light on the business management practices that now determine how our health care system functions, or not, and implies who benefits the most from them.

Planned Obsolescence Disguised as Innovation

The article first discussed the brave new world of type 1 diabetes treatment.  The introductory theme was:

Today, the routine care costs of many chronic illnesses eclipse that of acute care because new treatments that keep patients well have become a multibillion-dollar business opportunity for device and drug makers and medical providers.

Much of modern diabetes treatment seems to depend on medical devices and disposable medical supplies:

That captive audience of Type 1 diabetics has spawned lines of high-priced gadgets and disposable accouterments, borrowing business models from technology companies like Apple: Each pump and monitor requires the separate purchase of an array of items that are often brand and model specific.

A steady stream of new models and updates often offer dubious improvement: colored pumps; talking, bilingual meters; sensors reporting minute-by-minute sugar readouts. [Diabetes patient] Ms. Hayley’s new pump will cost $7,350 (she will pay $2,500 under the terms of her insurance). But she will also need to pay her part for supplies, including $100 monitor probes that must be replaced every week, disposable tubing that she must change every three days and 10 or so test strips every day.

Of course, the device and supply manufacturers claim that the high prices reflect the value of the wondrous new innovations:

Companies that produce the treatments say the higher costs reflect medical advances and the need to recoup money spent on research.

Yet now the Times reporter was able to find physicians who claim the "innovations" are really just the latest version of planned obsolescence:

Diabetes experts say a good part of what companies label as innovation amounts to planned obsolescence. Just as Apple customers can no longer buy an iPhone 3 even if they were content with it, diabetics are nudged to keep up with the latest model.
For example,

Those companies spend millions of dollars recruiting patients at health fairs, through physicians’ offices and with aggressive advertising — often urging them to get devices and treatments that are not necessary, doctors say. 'They may be better in some abstract sense, but the clinical relevance is minor,' said Dr. Joel Zonszein, director of the Clinical Diabetes Center at Montefiore Medical Center.

'People don’t need a meter that talks to them,' he added. 'There’s an incredible waste of money.'


Pharmaceutical companies have also discovered this model.

insulin ... has been produced with genetic engineering and protected by patents, so that a medicine that cost a few dollars when Ms. Hayley was a child now often sells for more than $200 a vial, meaning some patients must pay more than $4,000 a year.

In particular,

Synthetic human insulin is safer for patients, who sometimes developed reactions to animal insulin. But it is made by only three companies: Eli Lilly, Sanofi and Novo Nordisk. Manufactured in microbes, each one’s product has minor dissimilarities that reflect the type of cell in which it was made. Since the companies owned the cell lines, it is nearly impossible for other companies to make exact copies or even similar versions that would be cheaper, even once the patents expire. And the pharmaceutical companies defend the patents ferociously.

What’s more, the three companies continued to refine their product, adding chemical groups that made the insulin absorb somewhat more quickly or evenly, for example. They are called insulin analogues, and their benefits are promoted tirelessly to doctors and patients.


Of course, the pharmaceutical companies also claim that it's all about innnovation,

Dr. Todd Hobbs, chief medical officer of Novo Nordisk, defended the rising prices of insulin, linking them to medical benefits. 'The cost to develop these new insulin products has been enormous, and the cost of the insulin to the consumer in developed countries has risen to enable these and future advancements to occur,' he wrote in an email.
 Not everyone is convinced,

'The insulins are tweaked for minor benefits that may help a small number of patients with difficult-to-control diabetes, and result in major price increases for all,' [Kings College, London, UK Professor] Dr. Pickup said. Because of analogues, he added, Britain’s National Health Service has had to spend 130 percent more on insulin in the past five years.

In the United States, said Dr. Zonszein at Montefiore, the price of Humalog, Lilly’s analogue insulin, was typically two to four times that of its older human insulin line, called Humulin. 'There is not a lot of difference between Humulin and analogues,' he said, but he noted that Humulin was getting 'hard to find.' Sanofi Aventis has stopped selling its older product in the United States, and Mr. Kliff, the financial analyst, said other companies were likely to follow suit, effectively forcing patients to use the costlier versions.


The arguments about valuable innovation also do not explain why the prognosis of diabetes in the US does not seem to reflect all the money we spend on the disease,

Complication rates from diabetes in the United States are generally higher than in other developed countries. That is true even though the United States spends more per patient and per capita treating diabetes than elsewhere, said Ping Zhang, an economist at the Centers for Disease Control and Prevention.

The high costs are taking their toll on public coffers, since 62 percent of that treatment money comes from government insurers. The cumulative outlays for treating Type 1 and Type 2 diabetes reached nearly $200 billion in 2012, or about 7 percent of America’s health care bill.

So to summarize, there is considerable evidence that companies that make drugs and devices to manage type 1 diabetes constantly provide "innovations," yet most are minor changes that encourage obsolescence of previous products, but do not provide important increases in benefits or reductions in harm for patients. 


Oligopoly Disguised as a Free Market

Many in the US sing the praises of our supposed free-market health care system.  As noted above however, the insulin market is an oligopoly, dominated by three companies.  The diabetes device market is also dominated by a few companies, and in particular, the insulin pump market is dominated by a single company,

Medtronic is the dominant insulin pump manufacturer, serving 65 percent of American patients and the majority of those worldwide. Though smaller companies sell cheaper pumps, it is hard to make inroads: Once familiar with the Medtronic system and its extensive support network for troubleshooting problems, patients are reluctant to switch. Doctors are leery of prescribing equipment from a new company that may be out of business in a year; their office computer may not sync with the new software anyway.

Of course, Medtronic public relations will justify it all again based on innovation,

Medtronic declined to talk about specific prices, but said a core tenet was to make only 'a fair profit.' Amanda Sheldon, a spokeswoman, added: 'We are committed to reinvesting in research and development of new technologies to improve the lives of people with diabetes, and our current pricing structure ensures that we can bring new products to market.'

The article also discussed the prices of treating chronic diseases other than diabetes.  For example, see how a nominally non-profit hospital priced treatments for chronic diseases,

Dr. Kivi was on high doses of steroids for debilitating joint pain that left him unable to walk at times.

But when his last three-hour infusion at NYU Langone Medical Center’s outpatient clinic generated a bill of $133,000 — and his insurer paid $99,593 — Dr. Kivi was so outraged that he decided to risk switching to another drug that he could inject by himself at home. 

However,  this pricing appears to have been facilitated by the hospital's increasing market domination generated by its purchase of physician practices,

He had moved his care to NYU Langone to follow his longtime doctor, who had moved her practice from a nearby hospital where the same infusion had been billed at $19,000. The average price that hospitals paid for Dr. Kivi’s dose of Remicade late last year was about $1,200, according to Medicare data.

So in summary, a few companies now dominate the production of drugs and devices for the management of diabetes, and a few large hospitals may increasingly dominate the treatment of particular chronic diseases.  Such oligopolists are able to increase prices without improving treatment to or outcomes of patients.

Enrichment of the Oligarchs

This example shows how the current US health care system is dominated by huge organizations, mostly for-profit corporations but including some nominally non-profit corporations that act similarly.  They loudly proclaim innovation, but much of that innovation seems to provide few benefits to patients, and actually appears to be planned obsolescence.  The result is high and ever-rising prices. So if patients do not benefit from this, who does?

It does not appear to be the health care professionals,

Meanwhile, as the price of supplies rises, endocrinologists remain among the lowest-paid specialists in American medicine, meaning severe physician shortages in many areas and long waits to see a doctor.

We  have seen other examples of how leaders of the big health care organizations have become as rich as royalty.  Therefore, let us consider the pay of the leaders of the organizations mentioned above.  I will focus on the two US based corporations, Eli Lilly and Medtronic, and the New York hospital, NYU Langone Medical Center.

Eli Lilly

According to the company's 2014 proxy statement, the 2013 total compensation of its five highest paid hired executives was

- John C Lechleiter PhD, CEO                                      $11,217,000

- Derica W Rice, CFO                                                   $5,176,822

- Jan M Lundberg, PhD, EVP, Science and Technology   $4,774,535

- Michael J Harrington, General Counsel                          $3,174,222

- Erico A Conterno, President Lilly Diabetes                    $3,009,041

Note that all of these executives save Mr Harrington have also amassed more than 100,000 shares of company stock, and Dr Lechleiter has amassed more than 1,000,000.

It should be no surprise, given our recent discussion (e.g., here) of the currently symbiotic relationship among top health care corporations and academic medicine, that several of the members of the Lilly board of directors that has exercised stewardship over the company, and is thus responsible for these gargantuan compensation packages and the business practices discussed above are top academic leaders.  These include,

- Alfred G Gilman, MD, PhD, Regental Professor Emeritus, recent (until 2009) executive vice presdient, provost, and dean of medicine, University of Texas Southwestern 

- William G Kaelin Jr, MD, Professor of Medicine, Associate Director of Basic Science, Dana-Farber Cancer Center, Harvard University

- Marschall S Runge MD, Executive Dean and Chair of the Department of Medicine, University of North Carolina Medical School

- Katherine Baicker PhD, Professor of Health Economics, Harvard University School of Public Health  (I must note that Prof Baicker is also - amazingly - on the Medicare Payment Advisory Committee, MEDPAC).

- Ellen R Marram, Trustee, New York-Presbyterian Hospital

- Ralph Alvarez, President's Council, University of Miami

- R David Hooper, Trustee, Children's Hospital of Colorado

- Franklyn G Pendergast MD PhD, Professor, Mayo Medical School

All but the newest directors were paid at least $250,000 a year by the company (and thus by the executives the directors are supposed to supervise), and all but the newest directors had accumulated tens of thousands of shares of stock or the equivalent as pay for their services.


Medtronic

Similarly, according to the company's 2013 proxy (the latest now available), CEO Omar Ishrak made $8,975,866 in 2013, and the next four highest paid executives all made over $2,500,000 each.   Mr Ishrak owned or could acquire the equivalent of more than 500,000 shares of stock, and the other top paid executives owned of could acquire from over 100,000 to over 1,000,000 shares of stock.

Again, the executives were nominally supervised by a board of directors that included an academic and non-profit leader, Dr Victor J Dzau, MD former chancellor for health affairs at Duke University, and president-elect of the Institute of Medicine (note that we discussed Dr Dzau's conflicts of interest most recently here).  It also included a former government leader, Michael O Leavitt, former US Secretary of Health and Human Services; and a hospital leader, Preetha Reddy, Managing Director of Apollo Hospitals Enterprise Limited (India). 

NYU Langone Medical Center

The Medical Center's 2011 US form 990 is old, but the latest available, and is remarkably obscure, omitting, for example, mentioning the titles of any of the people listed as highest paid officers and employees.  The current CEO, was listed as receiving total compensation of just over $2.000,000.  Four individuals then received over $1,000,000.  The 990 form also mentioned that the Medical Center provided some individuals with first class travel, tax gross-up payments, housing allowances, and reimbursement for personal services.  Neither the 990, nor the center's web-site makes all the possible conflicts of interest of its trustees obvious.   

So in summary, the large organizations, for-profit and non-profit, that are able to greatly increase their prices through planned obsolescence disguised as innovation, and oligopoly disguised as free markets, are able to make their top executives very rich, and also enrich those who are supposed to exercise stewardship over them. 


Summary

An extensive journalistic investigation revealed how certain aspects of chronic care in the US health care system are dominated by a few large organizations.  These organizations are able to charge very high prices, mainly through market domination, and with the aid of marketing and public relations that tout planned obsolescence as valuable innovation.  The leaders of these organizations have become wealthy, often fabulously so.  This state of affairs has not been challenged by those who are supposed to provide stewardship, including many prominent academics.

The US health care system is the most expensive, on a per capita basis, in the world, and far more expensive than that in any other developed country.  Yet there is no evidence that its results are superior to those of other countries.  What evidence there is suggests in fact that our results are mediocre at best.

The current example suggests how the US system differs from those of other countries.  It has an ostensible free market focus.  Yet the system appears more to be an oligopoly, with most of its market components dominated by a few large organizations, run as an oligarchy, by a small, overlapping in-group of managers, executives and their cronies, with elements of corporatism, that is with the cooperation of, rather than regulation by government entities and leaders

A real free market health care system would include a level playing field.  This could only be achieved by the government acting as a fair umpire, not a crony.  Anti-competitive practices would have to end.  Oligopolies would have to be broken.  Deceptive marketing and public relations would have to be exposed.  Leaders would have to be made accountable, especially for putting patients' and the public's health ahead of their own enrichment.  All this would be horribly difficult, as the oligarchs have amassed much money and control, and would oppose, possibly violently, any effort to challenge them.  If we do not challenge them in the US, however, not only will our health care continue to become ever more expensive, less accessible, and less beneficial to patients, but we will all cease to be citizens of one of the first real democracies, and end up serfs instead.