Same Old, Same Old - Johnson and Johnson Settles Charges it Concealed Adverse Effects of Risperdal, Vaginal Mesh Device, Pleads Guilty to Selling Adulterated Tylenol, Announces CEO Got 48% Raise to $25 Million

We have devoted a lot of bytes over the years to the stream of allegations and ethical questions about Johnson and Johnson, the giant pharmaceutical/ biotechnology/ device company, and resulting legal actions.  Meanwhile, the company has bestowed a gushing stream of money on its top executives.  Its almost spring, 2015, and it seems nothing has changed.

Johnson and Johnson's Latest Legal Misadventures

Jury Verdict that Company Concealed Harms of Risperdal

Let us start with the latest legal news about J&J.  In late February, 2015, as reported on the PharmaLot blog by Ed Silverman,

In a setback to Johnson & Johnson , a Philadelphia jury decided the health care giant must pay $2.5 million in damages for failing to warn that its Risperdal antipsychotic could cause gynecomastia, which is abnormal development of breasts in males. The lawsuit was brought by the family of an autistic boy who took the drug in 2002 and later developed size 46 DD breasts, according to a lawyer for the family.

The case has drawn attention for a few reasons. For one, this was the first lawsuit claiming J&J hid the risks of gynecomastia to go to trial after a handful of cases were settled in recent years. The trial also served as a reminder that J&J paid $2.2 billion two years ago to resolve criminal and civil allegations of illegally marketing Risperdal to children and the elderly.

Moreover, former FDA commissioner David Kessler served as a paid expert witness for the family and testified that J&J knew about the risks associated with Risperdal, but failed to disclose the data showing the extent to which youngsters may develop gynecomastia. In a report prepared for a 2012 case that was settled, Kessler wrote that J&J’s Janssen unit, which marketed the drug, had violated the law.

Note that the central allegation in this case was not simply that the drug had adverse effects, but that the company knew about these effects, and hid them.  In my humble opinion, since we entrust pharmaceutical companies to provide safe and effective products, withholding information about adverse effects is a fundamental violation of this trust. 

As noted above, this follows on another case with a much bigger financial settlement about questionable marketing of Risperdal. In addition, as the PharmaLot post noted, there are many more individual cases like this one waiting in the wings, "J&J says there are about 1,200 such lawsuits filed in courts around the country,..."

Jury Verdict that Company Concealed Harms of  Vaginal Mesh Device

Similarly, as reported by Reuters in early March, 2015,

A California jury on Thursday ordered Johnson & Johnson's Ethicon Inc unit to pay $5.7 million in the first trial over injuries blamed on the TVT Abbrevo, one of numerous transvaginal mesh products that are the subject of thousands of lawsuits.

Following more than three days of deliberations in Kern County, California, jurors found Ethicon liable for problems with the TVT Abbrevo's design and for failing to warn about its risks, according to a lawyer for plaintiff Coleen Perry.

Perry was awarded $700,000 in compensatory damages and an additional $5 million in punitive damages after jurors in the Bakersfield court found Ethicon's conduct amounted to 'malice,' her lawyer said.

Again, note that this lawsuit was not merely about the adverse effects of, in this case, a device, but about allegations that the company knew about these effects, but hid them.  My comments about violation of a fundamental trust above apply. 

Again, this is but one of the earlier cases of a cohort that may number 36,000.

Company Pleads Guilty to Selling Adulterated Tylenol

Finally, as reported in mid-March, 2015, by Reuters,

A Johnson & Johnson subsidiary pleaded guilty on Tuesday to selling liquid medicine contaminated with metal and agreed to pay $25 million to resolve the case, the U.S. Department of Justice said on Tuesday.

The subsidiary, McNeil Consumer Healthcare, pleaded guilty to one federal criminal charge in the case.

In 2010, the company launched mass recalls of certain children's over-the-counter-medicines, including Infants' Tylenol and Children's Motrin, made at its Fort Washington, Pennsylvania plant.

It was the latest in a series of recalls at the time. There were far-reaching multiple recalls from 2008 to 2010 involving hundreds of millions of bottles and packages of consumer brands such as Tylenol, Motrin, Rolaids, Benadryl and other products due to faulty manufacturing. The recalls kept widely used products such as Children's Tylenol off pharmacy shelves and seriously tarnished J&J's once-sterling reputation.

In addition to metal particles getting into liquid medicines, there were moldy odors and labeling problems.

Furthermore, as emphasized in a report in the Philadelphia Business Journal, this case also involved allegations that the company seemed to conceal the problem.

McNeil, after receiving the consumer complaint, did not initiate or complete a 'corrective action preventive action' plan as required by the federal government.

The federal government also alleged other instances in which McNeil found metal particles in bottles of infants' Tylenol at its Fort Washington facility, but failed to initiate or complete a corrective action plan.

Note that in this case, the company pleaded guilty and so could not claim it was merely settling to put the case behind it.  Furthermore, note that this was not the first case arising from charges that the company sold adulterated products made in the Pennsylvania and other factories (for example, see this post.)   We posted frequently about a long string of recalls of presumed defective or adulterated Johnson and Johnson products (here, here, here and here).  Again, in my humble opinion, we we trust drug companies to sell pure, unadulterated products.  Selling adulterated products again fundamentally violates this trust.

Unfortunately, these three cases, like many of the legal settlements we discuss, involved relatively small penalties that only accrued to the company as a whole.  The monetary penalties, while they may seem large to regular citizens, could appear as relatively trivial costs of doing business to company management.  Furthermore, no individual who authorized, directed, or implemented the behavior identified in these cases suffered any kind of penalty.  So these cases added to the many examples of the impunity of managers of large corporations who almost never seem to bear any legal responsibility for their actions.  In the case of Johnson and Johnson managers, this is all the more striking, since the current cases are just the latest in a very long string.  (See Appendix below for a list of Johnson and Johnson legal misadventures we have discussed since 2010.)


Johnson and Johnson CEO's Latest Raise


Finally, a day later, the Wall Street Journal reported on the continuing good fortune of the Johnson and Johnson CEO, to be contrasted with the company's poor fortunes in the courts of law.

Johnson & Johnson said Chairman and Chief Executive Alex Gorsky’s total compensation jumped 48% to $25 million last year, lifted by an increase in stock and option awards. Mr. Gorsky’s stock and option awards rose to a total value of $13.6 million from $8.7 million a year earlier. The board also raised Mr. Gorsky’s base salary to $1.5 million from $1.45 million in 2013, and the CEO also benefited from a jump in pension value.

In a filing Wednesday, the pharmaceutical giant said Mr. Gorsky’s compensation increase was based on the board’s conclusion that J&J successfully executed near-term priorities, exceeded financial goals and built on momentum in its pharmaceutical business.

As a result, J&J awarded Mr. Gorsky an annual performance bonus of 135% of target and long-term incentives at 130% of target. Awards at J&J are capped at 200% of target.

The article noted that at least one other top Johnson and Johnson manager also was raking it in.

Paulus Stoffels, world-wide chairman of Pharmaceuticals, made $18.3 million last year, more than double his 2013 total compensation, boosted by a stock award of $10.7 million.

Funny, the board's rosy view of Mr Gorsky's performance seemed totally uninformed by the company's latest legal misadventures.

(By the way, to anyone who would argue that many of these misadventures were the results of behavior that occurred before Mr Gorsky became CEO, note that his official company biography stated that he joined the company's Executive Committee in 2009, implying some shared responsibility for overall company management since then.)

Same Old, Same Old

A few weeks back, one of our commentators complained that our posts have a certain sameness.  Unfortunately, we agree.  We keep seeing variants of the same sorts of outrageous stories in the news media that we began to post about in 2004.   The problems are not getting better.  Perhaps they are getting worse.

In particular, we have previously contrasted this particular company's recurrent legal and ethical problems with its top managers' accumulating wealth.  In 2011 we posted about the contrast between previous Johnson and Johnson CEO William Weldon's enlarging fortune and political influence with some of the earlier legal cases that raised questions about the trustworthiness of the company.

But the point of this blog is not to come up with titillating stories to make people chuckle.  The point is to challenge the continuing, severe problems afflicting the leadership and governance of health care, the resulting incompetent, unethical, and sometimes criminal behavior, and the downstream effects on patients' and the public's health.  Do not blame the messenger for the sameness of the problem.  Blame those who are getting wealthy and powerful from the ongoing decline in health care. 

If we truly want to see more accessible, more effective, less costly health care in our life times, we need to first call out the bad leadership that has kept such aspirations at bay for so long, and second start to hold current leadership accountable for the mess they have made.


Appendix - Johnson and Johnson Legal Record since 2010 -
2010
- Convictions in two different states for misleading marketing of Risperdal
- A guilty plea for misbranding Topamax
2011
- Guilty pleas to bribery in Europe  by Johnson and Johnson's DePuy subsidiary
- A guilty plea for marketing Risperdal for unapproved uses  (see this link for all of the above)
- A guilty plea to misbranding Natrecor by J+J subsidiary Scios (see post here)
2012 
  - Testimony in a trial of allegations of unethical marketing of the drug Risperdal (risperidone) by the Janssen subsidiary revealed a systemic, deceptive stealth marketing campaign that fostered suppression of research whose results were unfavorable to the company, ghostwriting, the use of key opinion leaders as marketers in the guise of academics and professionals, and intimidation of whistleblowers. After these revelations, the company abruptly settled the case (see post here).
-  Johnson & Johnson was fined $1.1 billion by a judge in Arkansas for deceiving patients and physicians again about Risperdal (look here).
-  Johnson & Johnson announced it would pay $181 million to resolve claims of deceptive advertising again about Risperdal (see this post).
2013
-  Johnson & Johnson settled case by shareholders alleging that management made misleading statements and withheld material information about manufacturing problems (see this post)
-  Johnson & Johnson Janssen subsidiary pleaded guilty to a charge of misbranding Risperdal, and settled for a total of $2.2 billion allegations that it promoted the drug for elderly demented patients and adolescents without an indication, and despite evidence of its harms (see this post).
 -  Johnson & Johnson DePuy subsidiary agreed to settle with multiple plaintiffs for $2.5 billion allegations that it sold defective mental-on-metal artificial hip, and hid evidence of its harms .
- Johnson & Johnsonn Janssen subsidiary was found by two juries to have concealed harms of its drug Topamax (see this post for this and above case).
- Johnson & Johnson Ethicon subsidiary's Advanced Surgical Products and two of its executives agreed to settle charges by US FDA that is sold mislabeled products used to sterilize equipment such as endoscopes (see this post).
- Johnson & Johnson fined by European Commission for anticompetitive practices, that is, collusion with Novartis to delay marketing generic version of Fentanyl (see this post).
2014 
- Johnson & Johnson DePuy subsidiary settled Oregan state charges that it marketed the ASR XL metal-on-metal hip joint prosthesis without disclosing its high failure rate (see this post). 

How Many Straws? - After $60 Million Settlement for Poor Manufacturing Quality, Hospira Warned by FDA, Then Assessed Punitive Damages for Firing Whistle-Blower

How many legal cases suggesting failures of leadership of large health care corporations will it take to break the back of health care? 

$60 Million Settlement of Class Action Alleging Cost Cutting Led to Poor Manufacturing of Drugs and Devices

Earlier this year, we posted about the $60 million settlement of a class action lawsuit brought by investors in Hospira Inc,  a drug and device manufacturer.  The plaintiffs had contended that "cost cutting aimed at boosting short-term profitability," and ostensibly "shareholder value" lead to "gutting quality control efforts," and ultimately to quality problems discovered by inspections by the US Food and Drug Administration (FDA).

This case was brought not by law enforcement officials or regulators, but by stock holders who believed that their investments were degraded by management misbehavior. Nonetheless, as is usual in most settlements of civil cases involving big health care organizations, according to Law360, Hospira managers were able to assert,

Defendants deny that they have violated the federal securities laws or any laws and maintain that their conduct was at all times proper and in compliance with all applicable provisions of law.

Note also that company executives, including CEO Michael Ball, were named as defendants, but I could find no record that they had to pay anything themselves.

So this, like many other legal settlements we have discussed, only seemed to serve as a marker of probable, but not definite misbehavior by the leadership of a big health organization that led to problems with the manufacture of drugs or devices. This is concerning since the public and health care professionals trust drug and device manufacturers to proffer products of good quality.  Yet the resolution of the case left lingering uncertainty because the defendants could settle without admitting any wrongdoing.

FDA Warnings, and Punitive Damages for Firing a Whistleblower

Some more evidence that there really were quality problems in Hospira's manufacturing operation appeared in October, 2014, when the FDA warned the company about particles found in drugs manufactured in its Australian factory (per the Chicago Tribune).  

Furthermore, in November, 2014, a story appeared that not only corroborated the existence of important issues with manufacturing quality at Hospira, but suggested that the company had tried to cover up these problems.  As reported by Crain's Chicago Business,

A Lake County jury awarded almost $10 million to a former Hospira employee, finding that the company fired him because he raised concerns that it covered up quality and safety issues with a product. 

In particular, 

The former employee, Angel Estrada, was a vice president of quality systems and compliance for the Lake Forest-based pharmaceutical company from September 2010 to September 2011, when the company fired him, according to a lawsuit filed in Lake County Circuit Court.

Estrada raised concerns to supervisors that Hospira was not addressing issues in one of its medical pumps that a hospital in Spain reported to the company. The hospital reported that air bubbles had occurred in the device when used on children, which can cause fatalities, according to the complaint.

The lawsuit alleges that Estrada reached out to his superiors, including Hospira CEO Michael Ball, to address the reported issues and notify the FDA and European regulators of the pump's alleged defects.

The lawsuit alleges that on the same day Estrada sent Ball a report, two employees under Estrada were fired 'purportedly for altering a record during the course of an audit.' Hospira fired Estrada 'under the pretext of not properly investigating' one of the employee's conduct during the audit, the lawsuit says.

The real reason he was fired 'was to quash his reporting of the dangers associated' with the pump, the suit alleges.

The jury issued its verdict earlier this month. Of the almost $10 million Estrada was awarded, $7 million was punitive damages.

So in this case, a high ranking corporate executive tried to blow the whistle because of quality problems affecting the manufacture of a medical device.  These problems put patients at risk, and pediatric patients at that. His whistleblowing was vigorous, going as high as the company CEO.  Yet, the jury found that the company responded by firing the whistleblower.  

Still, not surprisingly,

Hospira said it will appeal and that it maintains that the allegations are 'fully without merit.'

That remains management's contention, but the jury found otherwise, and emphasized this finding with punitive damages.

Summary

These cases, added to all our other discussions of legal settlements, crime, and corruption in health care, suggests that bad behavior by leaders of large health care organizations is rampant.  Yet these cases also suggest how hard it is to understand the scope of the problem.  Each of the cases above involving Hospira seemed to proceed in a vacuum, uninformed by previous cases.  None got much media attention.  (For example, the latest jury findings only appeared in two media outlets, as far as I can tell, and both were in Chicago.)  There have been few efforts, beyond those of your humble servant, to try to link various civil, criminal, and regulatory cases involving large health care organizations together in any sense.  Continued lack of awareness of the scope of the problem of management misbehavior in health care mitigates against finding any effective solutions.

Furthermore, the cases above, like most others we have discussed, did not lead to any negative consequences to any individuals for authorizing, directing, or implementing the bad behavior, even though the behavior may have lead to their individual enrichment.  Managers in this era of "shareholder value" are often lavishly awarded for cost cutting that increases short term revenue.  Note that the top executives of Hospira have been lavishly rewarded.  According to the company's 2014 proxy statement, its five top executives each had total compensation exceeding $2,750,000 in 2013.  CEO Michael Ball, who was named as a defendant in the case settled earlier this year, and allegedly ignored the whistleblower's warnings in the most recent case, received $9,892,283.  It is quite possible that all these executives at least indirectly benefited financially from the cost cutting that lead to the quality problems implied by the cases above. Yet as long as there is no accountability for any person who was directly involved in authorizing, directing, or implementing the bad behavior, or who might have benefited from being furnished plausible deniablity about it, future bad behavior will not be deterred.

So how many more cases will it take before we start holding the leaders of large health care organizations accountable?  Will we do so before the back of our health care system is broken?

Johnson and Johnson Settles Suit Alleging Management Incompetence and Deception, Managers Continue to Prosper

Very quietly, pharmaceutical/ biotechnology/ medical device corporate giant Johnson & Johnson just settled another lawsuit. The most pithy version is by Ed Silverman on Pharmalot, although Reuters and Bloomberg published short accounts.

The New Settlement

Per Mr Silverman, the gist is:

The health care giant agreed to resolve the dispute brought over allegations that J&J management shirked their responsibilities and allowed a chain of events that resulted in congressional probes; lost market share, consumer confidence and revenue, and a consent decree with the FDA. In the lawsuit, a shareholder charged that J&J bungled the integration of the Pfizer consumer health acquisition, placed inexperienced execs in charges of its OTC unit and cut costs so drastically that quality control suffered.

The lawsuit, which was brought by Ronald Monk, alleged that the health care giant made misleading statements about its products before disclosing problems with the Fort Washington plant and another in Puerto Rico. He also maintained that J&J withheld material information before its decision three years ago to shut down the Fort Washington plant, where contamination led to the unpublicized recall of defective Motrin tablets in 2009.

In agreeing to the settlement, J&J refused to admit any wrongdoing

So let me review. The allegations in this case were all about problems with the management of Johnson and Johnson.  They included allegations that management was incompetent and deceptive.  The incompetence was in handling the core functions of the company, assuring that its drug products were pure and unadulterated.  The deception was of patients, the public, and the nominal owners of the company to whom management is supposed to report, and allegedly included an attempt to cover up concerns about the purity of its drug products.

The proposed settlement follows the current practice of allowing the defendant not to admit the allegations, leaving their truth unproven.  However, one wonders, given that the allegations are about the core responsibilities of management and were leveled by the company owners, why the management would not defend their honor more forthrightly.

The Company's Sorry Legal Record

Furthermore, this settlement also follows the current practice of being made without reference to any other seemingly relevant legal proceedings.  In fact, it is just the latest of a long string of settlements and other resolutions of legal actions, including guilty pleas, by Johnson and Johnson management.  As we summarized most recently here, these included:

- Convictions in two different states in 2010 for misleading marketing of Risperdal
- A guilty plea for misbranding Topamax in 2010
- Guilty pleas to bribery in Europe in 2011 by Johnson and Johnson's DePuy subsidiary
- A guilty plea for marketing Risperdal for unapproved uses in 2011 (see this link for all of the above)

- A guilty plea to misbranding Natrecor by J+J subsidiary Scios (see post here)
- In 2012, testimony in a trial of allegations of unethical marketing of the drug Risperdal (risperidone) by the Janssen subsidiary revealed a systemic, deceptive stealth marketing campaign that fostered suppression of research whose results were unfavorable to the company, ghostwriting, the use of key opinion leaders as marketers in the guise of academics and professionals, and intimidation of whistleblowers. After these revelations, the company abruptly settled the case (see post here).
-  Also in 2012,  Johnson & Johnson was fined $1.1 billion by a judge in Arkansas for deceiving patients and physicians again about Risperdal (look here).
-  Also in 2012, Johnson & Johnson announced it would pay $181 million to resolve claims of deceptive advertising again about Risperdal (see this post).

Even though the record includes a number of settlement in which management did not have to admit guilt, the company has made a surprising number of guilty pleas in just the last few years.  Despite all this evidence of poor, that is incompetent or unethical management, Johnson and Johnson managers have been getting very rich.

As we mentioned here, Mr William Weldon, the outgoing CEO on whose watch most of the misbehavior resulting in the legal actions above occurred, retired with a huge retirement package, after receiving extremely generous compensation prior to that.  The new CEO as of April, 2012,  Mr  Alex Gorsky, per the company's 2013 proxy statement, already owns more than 190,000 Johnson and Johnson shares,  and received $10,977,109  total compensation in 2012.  Mr Weldon received over $29 million in total compensation just for 2012, the year in which he retired.  Other top executives received from over $3.5 million to over $8 million. 

Summary

So why do the stockholders, the owners of Johnson and Johnson continue to pay so much to an executive team on whose watch so many bad things have happened?  Why did law enforcement authorities allow the company to continue to plead guilty or settle cases without imposing any negative consequences on these executives?  Maybe only the Shadow knows. Of course, the lack of any discussion beyond that on Health Care Renewal, that puts each new settlement or guilty plea in the context of the ones before, and juxtaposes them to the rewards of given to management, may not help. 

As we said the last time we addressed the contrast between Johnson and Johnson's sorry legal record and its voluminous payments to executives, we have noted again and again and again that many of largest and once proud health care organizations now have recent records of repeated, egregious ethical lapses. Not only have their leaders have nearly all avoided penalties, but they have become extremely rich while their companies have so misbehaved.

These leaders seem to have become like nobility, able to extract money from lesser folk, while remaining entirely unaccountable for bad results of their reigns. We can see from this case that health care organizations' leadership's nobility overlaps with the supposed "royalty" of the leaders of big financial firms, none of whom have gone to jail after the global financial collapse, great recession, and ongoing international financial disaster (look here). The current fashion of punishing behavior within health care organization with fines and agreements to behave better in the future appears to be more law enforcement theatre than serious deterrent.  As Massachusetts Governor Deval Patrick exhorted his fellow Democrats, I exhort state, federal (and international, for that  matter) law enforcement to "grow a backbone" and go after the people who were responsible for and most profited from the ongoing ethical debacle in health care.

As we have said before, true health care reform would make leaders of health care organization accountable for their organizations' bad behavior.

Six Years Later, Ranbaxy - Oops, Daiichi Sankyo - Pleads Guilty to Adulteration, Pays $500 Million

It only took until 2013, but the US Food and Drug Administration finally secured guilty pleas and fines.  The basics are in an Associated Press story (via the Washington Post):

 A subsidiary of India’s largest pharmaceutical company has agreed to pay a record $500 million in fines and penalties for selling adulterated drugs and lying to federal regulators in a case that is part of an ongoing crackdown on the quality of generic drugs flowing into the U.S.

Federal prosecutors say the guilty plea by Ranbaxy USA Inc. represents the largest financial penalty against a generic drug company for violations of the Federal Food, Drug and Cosmetic Act, which prohibits the sale of impure drugs.

Note that the company pleaded guilty to criminal charges.

 The subsidiary of Ranbaxy Laboratories Limited pleaded guilty to federal criminal charges and the company separately agreed to resolve civil claims with all 50 states and the District of Columbia. The company had earlier set aside $500 million to cover potential criminal and civil liability stemming from the Justice Department investigation.

It admitted as part of the deal that it sold adulterated batches of drugs — including an antibiotic and generic versions of medications used to treat severe acne, epilepsy and nerve pain — that were developed at two manufacturing sites in India. 

Ironies

Note that this resolution has certain ironies.

Lateness

There is a saying that justice delayed is justice denied.  Note that it took six years to obtain the guilty pleas.  As noted by the AP,

 The problems were largely revealed by a whistleblower in a federal lawsuit filed in Maryland in 2007. 

Ambiguities about Responsibility

First, note that while all the headlines are about Ranbaxy, Ranbaxy is not really an independent company.  As reported by Reuters (and only by Reuters so far as I can tell at this time),

Ranbaxy ... [is] majority-owned by Japan's Daiichi Sankyo.

Second, as per the AP, see the comment made by the Ranbaxy CEO,

'While we are disappointed by the conduct of the past that led to this investigation, we strongly believe that settling this matter now is in the best interest of all of Ranbaxy’s stakeholders; the conclusion of the DOJ investigation does not materially impact our current financial situation or performance,' Ranbaxy CEO and managing director Arun Sawhney said in a statement.

Maybe there was something lost in translation, but the CEO certainly spoke as if someone else was responsible for the "conduct of the past."  Incidentally, it does not appear that so far any journalist has even sought comment from the people really in charge, at Daiichi Sankyo.

Third, just like many other cases we have reported before, no individual, especially anyone who authorized, directed, or implemented the bad behavior, was held legally responsible.  The cost of the fines will no doubt be spread among the corporate structures involved.  Since a company pleaded guilty, no individual pays a fine, much less goes to jail.

It does appear that when the settlement was first announced in 2011, a cut in compensation for top executives of Daiichi Sankyo was announced, but the cuts were temporary, and apparently in response to the immediate financial consequences of the settlement, not any larger implications.  See Bloomberg's report:

 Chief Executive Officer Joji Nakayama and board members will receive 5 percent to 30 percent less compensation for six months in response to the cut in the earnings forecast, Daiichi Sankyo said today. The company has lost about half its market value since agreeing to buy a majority stake in Ranbaxy, India's largest drugmaker, in June 2008. 

 The Contrast with the Case of the Adulterated Heparin

Note that in this case, there have been no allegations that patients were harmed by the admitted adulteration,  Per the AP:

 It’s not known whether the problems with the drugs led to any health issues.... The government’s allegations against the company make no claims that the drugs, whose strength, purity or quality differed from the specifications, harmed anyone.

In 2008, we began blogging about how  US patients started to get sick and die after being infused with heparin, the common anti-coagulant drug. As we have discussed repeatedly  (look here, and see the summary at the end of the post), Baxter International was selling contaminated heparin under its label which was made in unregulated workshops in China, and then transmitted through a complex chain of Chinese and US companies.

The AP article stated,

 The case comes as federal regulators and prosecutors focus attention on the quality of ingredients of generics and other drugs manufactured overseas, said Allan Coukell, an expert on drug safety at The Pew Charitable Trusts. He said the 2008 deaths linked to tainted batches of the blood-thinner heparin that were imported from China served as a 'wake up call' about just how much of the nation’s drug supply comes from overseas.

So perhaps this wake up call helped propel the current case against Ranbaxy, that is, Daiichi Sankyo.  However, since 2008, if there has been a criminal investigation of the tainted heparin, which appears to have been much more consequential, sometimes fatally so, to patients, the results have not been made public.  A cynic might note that the contaminated heparin was sold by a US based manufacturer of branded pharmaceuticals, not a foreign based manufacturer of generic drugs.

Summary

The most fundamental obligation of a drug company is to produce pure, unadulterated drugs.  The first attempts to regulate the drug industry in the US were meant to ensure that these companies fulfilled this obligation.  Yet now there is increasing evidence that the contemporary pharmaceutical industry has trouble with this most basic responsibility. 

As we discussed here, the managers of pharmaceutical companies have been swept up in a dominant business management fad, outsourcing, as a means to cut costs to the bone.  (It seems that most health care managers are also caught up in the larger rage for financialization, to emphasize short term revenue over all other concerns, including patients' and the public's health.)  As the New York Times reported  re the Ranbaxy case,

Others say the company’s problems highlight how little oversight federal drug safety officials have of overseas plants. Studies that have shown the F.D.A. inspects foreign generic manufacturing plants about once every seven to 13 years, compared with once every two years for domestic manufacturers. A law passed last year will eventually require the F.D.A. to apply the same standards when inspecting all manufacturing plants, regardless of location. But some worry that federal budget cuts are slowing the adoption of that law. 

'They just happened to stumble across the Ranbaxy problem at those two plants in India,' said Joe Graedon, a pharmacologist who runs a consumer Web site, the People’s Pharmacy, which has raised questions about the safety of generic drugs. 'Ranbaxy was the biggest and one of the best in India. What about all the smaller ones? What does that say about them?'

Again, all pharmaceutical companies, not just generic drug manufacturers, have seen fit to outsource much, if not most of their production.

In our rush to market fundamentalism, we seem to have deregulated, at least de facto, most aspects of health care.  We now cannot trust the drugs we take to have been made by the companies whose labels they bear, or to be pure.  We now cannot trust that regulators will find that out, or having found that out, will do anything about it in a timely manner. 

To repeatedly reiterate, as long as the leaders of health care organizations are not held accountable for the results of their decisions on health care quality, cost, and access (even in such extreme quality violations as those resulting in multiple patient deaths), we can expect continuing decisions that sacrifice quality, increase costs, and worsen access, but that are in the self-interest of the people making them.

To really reform health care, we must hold health care organizations and their leaders accountable (and not blame all the problems on doctors, other health care professionals, patients, and society at large).

- Roy M. Poses MD for Health Care Renewal 


Appendix - Heparin Case Summary

- We have posted several times, recently here about the tragic case of suddenly allergenic heparin. Although heparin, an intravenous biologic anti-coagulant, has been in use for over 70 years, serious allergic reactions to it had heretofore been rare. Starting late in 2007, hundreds of such reactions, and 21 deaths were reported in the US after intravenous heparin infusions.All the heparin related to these events in the US was made by Baxter International.

- We then learned that although the heparin carried the Baxter label, it was not really made by Baxter. The company had outsourced production of the active ingredient to a long, and ultimately mysterious supply chain. Baxter got the active ingredient from a US company, Scientific Protein Laboratories LLC, which in turn obtained it from a factory in China operated by Changzhou SPL, which in turn was owned by Scientific Protein Laboratories and by Changzhou Techpool Pharmaceutical Co. Changzhou SPL, in turn, got it from several consolidators or wholesalers, who in turn got it from numerous small, unidentified "workshops," which seemed to produce the product in often primitive and unsanitary conditions. None of the stops in the Chinese supply chain had apparently been inspected by the US Food and Drug Administration nor its Chinese counterpart. (See posts here and here.)

- We found out that the Baxter International labelled heparin was contaminated with over-sulfated chondroitin sulfate, a substance not found in nature, but which mimics heparin according to the simple laboratory tests used in the Chinese facilities to check incoming heparin. (See post here.) Further testing revealed that the contamination seemed to have taken place in China prior to the provision of the heparin to Changzhou SPL. (See post here.) It is not clear whether Baxter International or Scientific Protein Laboratories had inspected most of the steps in the supply chain, or even knew what went on there.

- The Baxter and Scientific Protein Laboratories CEOs did not seem aware of where they got the heparin on which the Baxter International label was eventually affixed. But one report in the New York Times alleged that Scientific Protein Laboratories would not pay enough for heparin to satisfy any sources other than the small "workshops."

- Leaders of all organizations involved, Baxter International, Scientific Protein Laboratories, Changzhou SPL, the Chinese government, and the US Food and Drug Administration, and the US Congress assigned blame to each other, but none took individual or organizational responsibility. (See post here.)  Note that SPL was recently bought out and taken private, making its current leadership even less transparent (see post here).  A 2010 inspection of an SPL facility by the FDA revealed ongoing manufacturing problems (see post here).

- Researchers (who turned out to have financial ties to a company which is developing an anti-coagulant drug that could compete with the heparin made by Baxter International) investigated the biological mechanisms by which the contamination of the heparin lead to adverse effects, but no one investigated further how the contamination occurred, or who was responsible. (See post here.)

- Hundreds of lawsuits against Baxter have now been filed, so far without resolution. (See post here.)  Efforts to make documents to be used in these cases public so far have not succeeded (see post here).

- A government report which attracted little attention warned of the dangers of pharmaceutical ingredients made in China and subject to virtually no oversight. (See post here.)

-  Despite requests from the US, the Chinese government did not investigate the production of the heparin that lead to the deaths (see post here.)

-  In February, 2011, a congressional investigation of the case was announced, but results are so far unavailable (see post here.)

-  In June, 2011, a jury returned the first verdict in a civil case about the contaminated heparin, awarding money from Baxter International and Scientific Protein Laboratories to the estate of a man who apparently died due to tainted heparin (see post here).

-  If there was a criminal investigation of the case, its results have not yet appeared. 

Who Really Makes Brand-Name Pharmaceuticals?

A striking illustration of the hazards to patients' and the public's health from health care organizational leaders using fashionable management techniques to maximize short-term revenue appeared in Reuters. 

Background: The Contaminated Heparin from China

The particular issue got public notice after US patients started to get sick and die after being infused with heparin, the common anti-coagulant drug. As we have discussed repeatedly starting in 2008 (look here, and see the summary at the end of the post), Baxter International was selling contaminated heparin under its label which was made in unregulated workshops in China, and then transmitted through a complex chain of Chinese and US companies.  What helped to further obscure the problem was what Baxter was buying was called the active pharmaceutical ingredient (API), which actualy means it was buying the active drug from poorly documented foreign sources.  In other words, it had entirely outsourced the manufacturing of a drug it sold as if it had been made by Baxter in the US.

Continued Outsourcing to Questionable Drug Manufacturers

Reuters reported on a new investigation of outsourcing of drug manufacturing to China.  The main point was:

Four years ago, Beijing promised to clean up its act following the deaths of at least 149 Americans who received contaminated Chinese supplies of the blood-thinner heparin. But an examination by Reuters has found that unregulated Chinese chemical companies making active pharmaceutical ingredients (API) are still selling their products on the open market with few or no checks.

Interviews with more than a dozen API producers and brokers indicate drug ingredients are entering the global supply chain after being made with no oversight from China's State Food and Drug Administration (SFDA), and with no Good Manufacturing Practice (GMP) certification, an internationally recognized standard of quality assurance.

'There is falsification of APIs going on, we know it,' said Lembit Rago, coordinator for Quality Assurance and Safety in Medicines with the World Health Organisation (WHO).

In fact, the article made the point that the majority of drugs sold worldwide are the product of outsourced, often unregulated, and potentially contaminated and adulterated manufacturing:

'Illegal ingredients in bulk are a big problem, but nobody talks about it,' said Guy Villax, chief executive of Hovione, an API supplier based in Portugal with factories there and in China, the United States and Ireland.

About 70 to 80 percent of all active drug ingredients - the biologically active component in medicines - originate in China and India, estimate industry experts, with China accounting for the lion's share. Its export market in these products is worth $22 billion in annual sales, according to the China Chamber of Commerce for Import and Export of Medicines and Health Products.

'If China for some reason decided to stop exporting APIs, within three months all our pharmacies would be empty,' said Villax.

How Dodgy Manufacturers Continue to Operate

Apparently, a particular problem in China is that APIs, that is, the particular drugs in question, can be made by chemical as opposed to officially designated "pharmaceutical" companies, and these chemical companies are not regulated,

A key regulatory weakness in China is the distinction between pharmaceutical and chemical companies. While the former are regulated by the SFDA, the latter, making everything from sweeteners to solvents, are not. Yet many chemical companies also churn out drug ingredients, exploiting a loophole by describing the products as chemicals, which they are, rather than the more specific designation of APIs.

For example, the article recounted how an unregulated chemical company was apparently a source for a well-known branded pharmaceutical sold by two big pharmaceutical companies headquartered in developed countries,

[A]company, Jinan Hongfangde Pharmatech (JHP), of Jinan city in Shandong province, had a product list showing at least five patented products for sale. They included tiotropium bromide, a blockbuster lung drug co-promoted by Boehringer-Ingelheim and Pfizer Inc and sold under the name Spiriva,...

Both Boehringer-Ingelheim and Pfizer spokespeople claimed that they only bought drugs from known sources, but then it would be pointless for Jinan Hongfangde Pharmatech to manufacture tiotropium bromide.

The Use of Brokers

More questions were raised by the pharmaceutical company's apparently common practice of buying drugs through brokers,

The rise of the Internet has facilitated exports of drug ingredients. An online search brings up websites offering hundreds of Chinese API sellers. Those not GMP-certified or SFDA-registered are not necessarily substandard, but buyers lack independent quality assurance.

The pervasive presence of brokers in the supply line is another risk. Pharmaceutical companies looking to source APIs in China typically hire middlemen to help them navigate the language, red tape and protocol. That system helps Chinese companies making substandard APIs avoid detection.

The reason corporate executives choose to buy drugs in China rather than having their companies manufacture them themselves seems to be to reduce costs. A post on the In-Pharma blog quoted Lembit Rago, the same WHO official quoted by Reuters, thus,

There are Chinese manufacturers supplying APIs of high quality to multinational companies, but there are also companies producing APIs of poor or not defined quality.

So,

As long as there are customers for substandard APIs they will be produced and sold.

The cheapest Chinese drugs, of course, come from the most questionable manufacturers, and that may not be apparent to companies who use brokers to facilitate purchases.

'Any number of foreign pharmaceutical companies go no further than looking for API suppliers at CPhI (an international pharmaceutical fair) based only on price,' [manaing director of Samsara Biopharma Consulting Robert] Walsh said.

Reuters spoke to brokers who said an API made by an unregulated chemical company would cost less than one from a company that had a GMP certificate.

'Different (API) grades have different prices. Sometimes we accept an order sheet and we happen to find a factory that can do it cheaper than our factory, we will outsource to them and make a bigger margin,' said one broker based in China who sources for a South African outsourcing firm.

In China there are few legal repercussions for broker firms who relabel or misrepresent products, and tracing counterfeit and substandard APIs is extremely difficult.

'There are a lot of brokers who are relabeling (APIs) which means you can't trace where the API comes from and that adds to the risk,' said the WHO's quality assurance expert Rago.

Andre, the Belgian drug detective, estimates he has uncovered fraud or misrepresentations in as many as 25 percent of cases where he has been hired to audit factories all over China. 'If you can substitute an API that is expensive to make and manufactured at a high level with something that costs much less, then that can happen,' Andre said. 'It's impossible to give an exact number, but it's not rare. It's a minority, but not tiny minority.'

Use of Substandard Raw Materials

Meanwhile, a post on PharmaLot suggested that the supposedly regulated Chinese "pharmaceutical" companies may implement questionable manufacturing practices,

A subsidiary of the Joincare Pharmaceutical Group reportedly used reprocessed cooking oil – otherwise known as ‘gutter’ oil – to make a widely used antibiotic in China. If the term gutter oil is unfamiliar, this refers to reprocessed oil made from kitchen waste dredged from gutters behind restaurants. The State Food and Drug Administration is now investigating the charge after media reports over the past several days, China Daily reports.

Why might gutter oil be purchased to produce antibiotics? The oil is cheaper than the more expensive soybean oil used to make 7-aminocephalosporinic acid, or 7-ACA, a chemical for produce cephalosporins. Joincare produces 25 percent of the total amount of the chemical, although up to a dozen other drugmakers may have purchased gutter oil from various suppliers, according to various Chinese media reports. For its part, Joincare reportedly denied using gutter oil.

The companies reportedly bought the recycled cooking oil from a company called Huikang Grease Co., which is facing prosecution over its alleged processing and selling of thousands of tons of gutter oil in 2010 and 2011. The Shanghai Daily reported that Huikang received around $22.5 million for roughly 14,700 tons of gutter oil sold to Jiaozuo Joincare Biological Product, a unit of Joincare.

Summary

There is increasing evidence that a substantial proportion, probably the majority of drugs sold by big pharmaceutical companies based in developed countries were actually made by often poorly regulated firms based elsewhere, often China or India. To put it more directly, most so called pharmaceutical companies in the US and other developed countries have outsourced the actual manufacturing of drugs. Thus, most companies that appear to be pharmaceutical manufacturing companies are really just pharmaceutical marketing and development companies. (And not so much the latter, look here:  Light DW, Lexchin JR. Pharmaceutical R&D; what do we get for all that money? Brit Med J 2012; 345: 22-25.  Link here.) Pharmaceutical companies appear to be abandoning their core essence, but are content to market drugs  under their logos without telling the patients who take them the real source of these products.  This would appear to be a big scandal, but one that stays curiously anechoic.

I have yet to see any discussion with pharmaceutical executives about why their companies hardly make drugs anymore. In the absence of such discussion, I can only speculate that most likely, this is first a product of financialization. Drug company executives, like most organizational leaders, have fallen under the spell that says their only goal should be to increase short-term revenues. It may be cheaper to buy drugs from perhaps dodgy outsourced suppliers rather than manufacturing them them themselves. Continuing stories like those above, and that of the contaminated Chinese heparin suggest that these outsourced drugs are cheap for a reason. It appears that to save money short-term, pharmaceutical executives may be abandoning their most central mission, to provide pure, unadulterated drugs.

The continuing story of outsourced pharmaceutical manufacturing provides yet more evidence that current management dogma may be literally toxic. Once again, I suggest that true health care reform requires leadership of health care organization who put patients' and the public's health ahead of short-term revenue (and the personal enrichment that may result).

It is likely that a number of policy changes will be needed to reduce the threats posed by contaminated or adulterated outsourced pharmaceuticals.  There is one simple step that ought to be taken quickly to at least make the problem more transparent.  In the US, most manufactured products have a label disclosing the country of origin.  In parallel with that, all pharmaceutical containers, and all pharmaceutical labels and marketing materials ought to disclose the country in which the active pharmaceutical ingredient was manufactured, and the name and location of the company responsible for that manufacture. 


Appendix - Heparin Case Summary

- We have posted several times, recently here about the tragic case of suddenly allergenic heparin. Although heparin, an intravenous biologic anti-coagulant, has been in use for over 70 years, serious allergic reactions to it had heretofore been rare. Starting late in 2007, hundreds of such reactions, and 21 deaths were reported in the US after intravenous heparin infusions.All the heparin related to these events in the US was made by Baxter International.

- We then learned that although the heparin carried the Baxter label, it was not really made by Baxter. The company had outsourced production of the active ingredient to a long, and ultimately mysterious supply chain. Baxter got the active ingredient from a US company, Scientific Protein Laboratories LLC, which in turn obtained it from a factory in China operated by Changzhou SPL, which in turn was owned by Scientific Protein Laboratories and by Changzhou Techpool Pharmaceutical Co. Changzhou SPL, in turn, got it from several consolidators or wholesalers, who in turn got it from numerous small, unidentified "workshops," which seemed to produce the product in often primitive and unsanitary conditions. None of the stops in the Chinese supply chain had apparently been inspected by the US Food and Drug Administration nor its Chinese counterpart. (See posts here and here.)

- We found out that the Baxter International labelled heparin was contaminated with over-sulfated chondroitin sulfate, a substance not found in nature, but which mimics heparin according to the simple laboratory tests used in the Chinese facilities to check incoming heparin. (See post here.) Further testing revealed that the contamination seemed to have taken place in China prior to the provision of the heparin to Changzhou SPL. (See post here.) It is not clear whether Baxter International or Scientific Protein Laboratories had inspected most of the steps in the supply chain, or even knew what went on there.

- The Baxter and Scientific Protein Laboratories CEOs did not seem aware of where they got the heparin on which the Baxter International label was eventually affixed. But one report in the New York Times alleged that Scientific Protein Laboratories would not pay enough for heparin to satisfy any sources other than the small "workshops."

- Leaders of all organizations involved, Baxter International, Scientific Protein Laboratories, Changzhou SPL, the Chinese government, and the US Food and Drug Administration, and the US Congress assigned blame to each other, but none took individual or organizational responsibility. (See post here.)  Note that SPL was recently bought out and taken private, making its current leadership even less transparent (see post here).  A 2010 inspection of an SPL facility by the FDA revealed ongoing manufacturing problems (see post here).

- Researchers (who turned out to have financial ties to a company which is developing an anti-coagulant drug that could compete with the heparin made by Baxter International) investigated the biological mechanisms by which the contamination of the heparin lead to adverse effects, but no one investigated further how the contamination occurred, or who was responsible. (See post here.)

- Hundreds of lawsuits against Baxter have now been filed, so far without resolution. (See post here.)  Efforts to make documents to be used in these cases public so far have not succeeded (see post here).

- A government report which attracted little attention warned of the dangers of pharmaceutical ingredients made in China and subject to virtually no oversight. (See post here.)

-  Despite requests from the US, the Chinese government did not investigate the production of the heparin that lead to the deaths (see post here.)

-  In February, 2011, a congressional investigation of the case was announced, but results are so far unavailable (see post here.)

-  In June, 2011, a jury returned the first verdict in a civil case about the contaminated heparin, awarding money from Baxter International and Scientific Protein Laboratories to the estate of a man who apparently died due to tainted heparin (see post here).

Why Cultivate Weldon's Confidence? - CEO Goes to White House Days After His Company's Latest Guilty Plea Announced

Earlier this month, US President Barack Obama met "with eight business leaders to hunt for ideas to revive the economy," according to the Wall Street Journal.  At the session, the President asked "what he and his administration could do to improve their confidence...."  The reporters' White House informants emphasized that the point was "listening to the CEOs and not telling them what to do."

Included amongst the eight CEOs was "Bill [William] Weldon of Johnson & Johnson."  Why would the US President want to improve Mr Weldon's confidence?

Johnson and Johnson's Latest Guilty Plea

After all, two days earlier, Bloomberg noted how Mr Weldon's company was ready to plead guilty, yet again.

Johnson & Johnson (JNJ) said it reached an agreement to settle a misdemeanor criminal charge related to marketing of its antipsychotic drug Risperdal.

The U.S. has been investigating its Risperdal sales practices since 2004, including allegations the company marketed the drug for unapproved uses, J&J said in its quarterly filing yesterday. The Justice Department and the U.S. attorney in Philadelphia 'are continuing to pursue both criminal and civil actions,' the company said.

In particular,

The agreement in principle on the criminal charge is 'pursuant to a single misdemeanor violation of the Food, Drug and Cosmetic Act,' the company said.

Other Recent Johnson and Johnson Legal Misadventures
This would be just the latest in a string of adverse legal results for Johnson and Johnson. As Bloomberg noted regarding Risperdal:

Last year, jurors in Louisiana ordered the drugmaker to pay almost $258 million to state officials for making misleading claims about the antipsychotic’s safety. J&J has appealed. [see our post here]

In June, a South Carolina judge ordered J&J officials to pay $327 million in penalties for deceptively marketing the medicine. J&J has asked the judge to throw that verdict out. [see our post here]

'The attorneys general of approximately 40 other states have indicated a potential interest in pursuing similar litigation against' the Janssen unit, J&J said.

Furthermore, the company has been in legal hot water regarding how it sold other products:

In April, in a separate case, J&J agreed to pay $70 million to resolve criminal and civil charges after admitting it bribed doctors in Europe and paid kickbacks in Iraq to win contracts and sell drugs and artificial joints. As part of a deferred prosecution agreement, J&J subsidiary DePuy was charged with conspiracy and violations of the Foreign Corrupt Practices Act. [see our post here]

In May 2010, J&J’s Ortho-McNeil Pharmaceutical LLC pleaded guilty to a misdemeanor charge of selling a misbranded drug, admitting it illegally marketed its Topamax epilepsy drug. J&J paid $81 million to resolve criminal and civil cases. [see our post here]

Johnson and Johnson's 25 Recalls
And just a few days after President Obama's meeting with Mr Weldon and his fellow CEOs, just the latest in the string of recalls of apparently defective products was announced by Johnson and Johnson. Tylenol, made by the McNeil Consumer Healthcare division of Johnson and Johnson, was the recalled product this time, per the Wall Street Journal Health Blog. Note that this post was part of the blog's now long-running J+J Recall Watch feature, and the post cataloged 25 separate recalls of Johnson and Johnson products since 2009, including previous recalls of various versions of Tylenol, and a June, 2011, recall of Risperdal. We have written several times about the inability of Johnson and Johnson management to fulfill a core component of any drug company's mission, to produce pure, unadulterated products (look here, here and here).

We have also noted several times (e.g., here, here, and here) how CEO William Weldon continues to get richer and richer despite his company's guilty pleas, product recalls, and other questionable behavior (for more details about the latter, look here).

Whose Confidence to Cultivate?

So again I ask, why would the US President want to cultivate William Weldon's confidence?  At best, I can only hope that Mr Weldon was invited to the White House because its staff did not do their homework, and only noted the size of the company he leads, rather than the rate of its blunders and misdeeds. 

There is already too much evidence that government is excessively cozy with the leaders of big health care (and other) corporations, and gets too much of advice from them rather than from less well-heeled citizens.  At least, if the President is going to get advice from corporate CEOs, he should try to find some whose companies appear to be better lead.    

Maybe the difficulty he would have finding such CEOs in the health care field would provide a clue that true health care reform requires better leadership and governance of health care organizations. 

Despite Recalls, Legal Settlements, Guilty Plea, Johonson & Johnson Board Paid CEO $29 Million, Says He "Met Expectations"

For our latest story about the tremendous disconnect between the pay and performance of leaders of health care organizations, we turn to Reuters. 

Astronomical Pay

Despite having a very bad 2010, Johnson and Johnson continued to reward its CEO royally:

After a year in which Johnson & Johnson's product quality control was deemed such a shambles that the U.S. government will oversee some plants, the board had praise for Chief Executive William Weldon and awarded him almost $29 million in overall compensation.

The once golden reputation of the diversified healthcare giant was severely tarnished by seemingly endless recalls of widely used consumer products as well as recalls of medical devices and products from other units in 2010.

U.S. consumer product sales fell by more than 19 percent in 2010 and the company's 2011 forecast for earnings growth of only 1 percent to 3 percent fell shy of Wall Street projections.

Weldon's compensation was trimmed 7 percent, but in what appears to be a disconnect with the reality of its situation, J&J's (JNJ.N) board, in a year-end regulatory filing, said his performance 'generally met expectations' despite a year in which 'operational sales declined and fell below the goals for the year.'

'The board believes that Mr Weldon provided strong leadership during a very demanding year and has worked to resolve multiple challenging issues and position the company for future growth,' it said in the filing.

The rash of consumer medicine recalls in 2009 and 2010 were largely responsible for the first back-to-back years of company sales declines since World War Two.

Last week, U.S. health regulators filed a consent decree against J&J's McNeil consumer unit that will put some of its manufacturing plants under government supervision for at least five years.
The McNeil unit has recalled more than 300 million bottles and packages of Tylenol, Motrin, Rolaids, Benadryl and other products in the past year over faulty manufacturing and quality control problems.
The recalls cost the company $900 million in sales last year and hurt earnings, and Weldon was called to testify before Congress about problems that left pharmacy and supermarket shelves without Children's Tylenol.

But Weldon's 2010 compensation fell just 7 percent to $28.7 million from the $30.8 million he received in 2009. His performance bonus for 2010 was down 45 percent to $1.98 million.

The Wall Street Journal article on Weldon's pay also mentioned that Weldon also received " perquisites and other benefits in 2010 [which] included personal use of company aircraft, valued at $89,796; a car and driver for commuting and other personal transportation valued at $29,635; and a nominal amount of home security system monitoring fees."

The 2011 Johnson and Johnson proxy statement also noted that the other four of the five most highly paid Johnson and Johnson executives received compensation valued from $5,632,285 to $8,851,965 in 2010. In particular, Ms Colleen A Goggins, who retired under fire as head of the embattled Johnson and Johnson consumer group, walked away with $7,738,614 in 2010.

Other Aspects of Bad Company Performance

The WSJ Health Blog has been keeping an eye on the running total of Johnson and Johnson recalls. On 9 March, 2011, the list included 18 separate recalls of various different drugs and devices since July, 2009, from over-the-counter cold medications to sutures and hip replacements.

While suffering such a massive breakdown of the ability to perform the company's most basic function, to supply pure, unadulterated medicines and well-made devices, the company has also suffered from ethical lapses which were not listed in the Reuters article. In 2010, these included a jury verdict that the company had committed marketing fraud in its promotion of the atypical anti-psychotic drug Respirdal (see post here), and a guilty plea to a misdemeanor for and civil settlement of charges of "misbranding" Topamax by Johnson and Johnson subsidiary Ortho-McNeil-Janssen Pharmaceuticals (see post here).

Of course, we once speculated that the Johnson and Johnson CEO commanded such astronomical pay in part based on his ability to influence US government health policy in favor of his and his company's interests (see this post).

Who Made Up the Board Who Was Responsible?

Responsible for the astronomical amounts paid to Mr Weldon despite his company's ongoing inability to make pure, unadulterated medicines, and to other executives who presided over the company's recalls, guilty plea, and legal settlements was the company's board of directors.  Its members are listed below.  For explanation of the color coding, see the explanation below:

• Mary Sue Coleman - President, University of Michigan.
• James G Cullen - Retired Chairman and CEO, Bell Atlantic Corp
• Ian E L Davis - Senior Advisor, Apax Partners; Former Chairman and Worldwide Managing Director, McKinsey & Company, non-executive director, BP plc
• Michael M E Johns - Chancellor, Emory University, Past Chair of the Council of Teaching Hospitals, member of the editorial board, JAMA, chair of the publication committee, Academic Medicine
• Susan L Lindquist - Member and Former Director, Whitehead Institute for Biomedical Research, Co-Founder of FoldRx Pharmaceuticals, Inc, a subsidiary of Pfizer Inc.
• Anne M Mulcahy - Former Chairman and CEO, Xerox Corp, director of the Washington Post Company, previously director of Citigroup Inc, and Federal National Association (Fannie Mae)
• Leo F Mullin - Retired Chairman and CEO, Delta Airlines, director of Education Management Corporation
• William D Perez -Senior Advisor, Geenhill & Co, Inc, Trustee of Cornell University and Northwestern Hospital
• Charles Prince - Senior Counselor, Albright Capital Management LLC, Retired Chairman and CEO, Citigroup
• David Satcher - Director, Center of Excellent on Health Disparities, Director, Satcher Health Leadership Institute and Poussaint-Satcher-Crosby Chair in Mental Health, Morehouse School of Medicine, and trustee of the Kaiser Family Foundation

Of Johnson and Johnson's 10 directors (excluding its CEO), four have leadership positions at teaching hospitals, academic medical centers, medical schools or their parent universities.  Of these, two also had leadership positions at other influential non-profit health care organizations, including medical journals, a teaching hospital association, and a charitable foundation.

One had a management position at a competing pharmaceutical company.

Four had leadership positions in  financial services corporations, including some that were implicated in the global financial collapse, and/or required massive federal bail-outs to avoid collapse.

Three had had leadership positions in other organizations now under fire , that is, McKinsey, for the role of one of its former executives in an alleged insider trading scandal (e.g., latest coverage in the NY Times); several for-profit higher education companies caught up in allegations of luring students destined to fail in order to collect tuition funded by government loans;  and BP, under investigation for its role in a massive oil spill.

Summary

So here we have the latest striking case that indicates the confluence of forces that can lead to health care dysfunction.  Not only has the compensation given to health care leaders got so large that it is per se a cause of increased health spending, but also, and more importantly, such compensation often provides perverse incentives that perpetuate mismanagement, raising costs and lowering quality.  This situation appears to be enabled by governance by individuals who are often fellow members of the CEOs' club, and hence who may feel more sympathy with the executives they are supposed to supervise than the stockholders whose financial interests they are supposed to protect, or the public whom the companies' products and services are supposed to benefit.  Moreover, these individuals often have conflicts of interest which may mitigate against objective scrutiny of the executives they are supposed to oversee.  Finally, these individuals often may come from corporate cultures which do not espouse the values that we in health care are supposed to uphold.  (See this post and its links for other examples of the sorts of people who are supposed to provide stewardship to health care organizations.)

So to repeat once more-

I strongly believe that there needs to be much more investigation, academic, journalistic, and perhaps legal, of the identity, nature, and culture of the leaders of health care, and their relationships. A few bloggers cannot do it all. Obviously, the anechoic effect mitigates against medical and health care academics looking into their own leaders. However, failing to understand who is leading our march to the brink of health care failure ought not to be something such academics would want on their conscience.

Finally, and obviously, health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research.

If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.

ADDENDUM (17 March, 2011) - Also see comments on by Jim Edwards on the Placebo Effect blog: "heads he wins, tails shareholders lose," as do patients and doctors. 

Three Years Later, A Congressional Investigation of the Deadly Adulterated Heparin

Slightly more than three years ago, we first posted about the case of the deadly adulterated heparin.  (A case summary is appended to the end of this post, and nearly all our posts are here.)  The case is of fundamental importance because it involves the failure of pharmaceutical companies to fulfill their core mission, to supply pure, unadulterated drugs.   Three years later, how the heparin was adulterated, and who was responsible are still unknown.

So now, it seems, there will actually be an official investigation.  As reported by Alicia Mundy in the Wall Street Journal,

The House Energy and Commerce Committee is conducting a formal investigation into the contaminated-heparin crisis of 2008, saying it wants regulators to figure out who was responsible for adulteration linked to 81 U.S. deaths.

The panel's chairman, Rep. Fred Upton (R., Mich.), and two colleagues sent a letter Wednesday to the Food and Drug Administration asking for documents on whether the agency pursued possible culprits in China and pushed the Chinese government for more information.

'The committee is investigating the unsolved case of who contaminated the U.S. supply of heparin,' a blood thinner used by about 12 million Americans annually, said Mr. Upton, joined by Reps. Clifford Stearns (R., Fla.) and Michael Burgess (R., Texas).

Better late than never, I suppose. In March, 2008, I called the case "outrageous," and called for an investigation. You really did hear it here first on Health Care Renewal. So three years later, an investigation has actually begun.

The latest WSJ article noted:

'There is substantial public interest in solving this case' because more than 80% of the standard heparin supply in the U.S. today comes from China, the lawmakers wrote. About 16% of all pharmaceutical ingredients in the country are imported from China, they wrote.

Also,

'There is reason to believe all or some of the individuals responsible for the adulteration are still actively engaged in the Chinese pharmaceutical supply chain, and pose a continuing threat to pharmaceutical products imported to the U.S.,' the lawmakers wrote.

However, why this "substantial public interest" and the existence of "a continuing threat" did not lead to an investigation earlier is still completely obscure.

The article hinted at some partisan discord in the committee that will do the investigation:

Over the last two years, Mr. Burgess and the Energy and Commerce Committee's then-top Republican, Rep. Joe Barton of Texas, pressed the FDA for information on the agency's inspections of Chinese heparin facilities and on the extent of cooperation from national and local Chinese authorities.

At the time, Republicans were in the minority. Their inquiries didn't constitute a committee investigation, and they couldn't demand nonpublic information from the FDA or call hearings. They now are in the majority and have those powers.

The implication is that the Democrats on the committee blocked the investigation. Why they would have blocked an investigation when the executive branch was in Republican hands, and why the matter could not have been investigated in another congressional committee, or by some other organization, is unknown.

So, again, better late than never. An investigation could at least be the beginnings of accountability for the very well paid pharmaceutical company leaders who up to now have denied all responsibility for failing their most important responsibility, to provide pure, unadulterated drugs.

As we have said again and again, as long as the leaders of health care organizations are not held accountable for the results of their decisions on health care quality, cost, and access (even in such extreme quality violations as those resulting in multiple patient deaths), we can expect continuing decisions that sacrifice quality, increase costs, and worsen access, but that are in the self-interest of the people making them.

To really reform health care, we must hold health care organizations and their leaders accountable (and not blame all the problems on doctors, other health care professionals, patients, and society at large).

Case Summary

- We have posted several times, recently here, about the tragic case of suddenly allergenic heparin. Although heparin, an intravenous biologic anti-coagulant, has been in use for over 70 years, serious allergic reactions to it had heretofore been rare. Starting late last year, hundreds of such reactions, and now 21 deaths were reported in the US after intravenous heparin infusions.All the heparin related to these events in the US was made by Baxter International.


- We then learned that although the heparin carried the Baxter label, it was not really made by Baxter. The company had outsourced production of the active ingredient to a long, and ultimately mysterious supply chain. Baxter got the active ingredient from a US company, Scientific Protein Laboratories LLC, which in turn obtained it from a factory in China operated by Changzhou SPL, which in turn was owned by Scientific Protein Laboratories and by Changzhou Techpool Pharmaceutical Co. Changzhou SPL, in turn, got it from several consolidators or wholesalers, who in turn got it from numerous small, unidentified "workshops," which seemed to produce the product in often primitive and unsanitary conditions. None of the stops in the Chinese supply chain had apparently been inspected by the US Food and Drug Administration nor its Chinese counterpart.

- We found out that the Baxter International labelled heparin was contaminated with over-sulfated chondroitin sulfate, a substance not found in nature, but which mimics heparin according to the simple laboratory tests used in the Chinese facilities to check incoming heparin. (See post here.) Further testing revealed that the contamination seemed to have taken place in China prior to the provision of the heparin to Changzhou SPL. (See post here.) It is not clear whether Baxter International or Scientific Protein Laboratories had inspected most of the steps in the supply chain, or even knew what went on there.

- The Baxter and Scientific Protein Laboratories CEOs did not seem aware of where they got the heparin on which the Baxter International label was eventually affixed. But one report in the New York Times alleged that Scientific Protein Laboratories would not pay enough for heparin to satisfy any sources other than the small "workshops."


- Leaders of all organizations involved, Baxter International, Scientific Protein Laboratories, Changzhou SPL, the Chinese government, and the US Food and Drug Administration, and the US Congress assigned blame to each other, but none took individual or organizational responsibility. (See post here.)  Note that SPL was recently bought out and taken private, making its current leadership even less transparent (see post here).  A 2010 inspection of an SPL facility by the FDA revealed ongoing manufacturing problems (see post here).

- Researchers (who turned out to have financial ties to a company which is developing an anti-coagulant drug that could compete with the heparin made by Baxter International) investigated the biological mechanisms by which the contamination of the heparin lead to adverse effects, but no one investigated further how the contamination occurred, or who was responsible. (See post here.)

- Hundreds of lawsuits against Baxter have now been filed, so far without resolution. (See post here.)  Efforts to make documents to be used in these cases public so far have not succeeded (see post here).

- A government report which attracted little attention warned of the dangers of pharmaceutical ingredients made in China and subject to virtually no oversight. (See post here.)

-  Despite requests from the US, the Chinese government did not investigate the production of the heparin that lead to the deaths (see post here.)

Hat tip to the Postscript blog.