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  Teflon may be outdated now, but there certainly seems to be some health care executives who have unique non-stick coatings.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. 

BLOGSCAN - On Device Company's Obfuscation of the Reasons for Payments to Surgeons

On the Hooked: Ethics, Medicine and Pharma blog, Dr Howard Brody analyzed further the case of the huge royalties paid to spine surgeons by Medtronic (see our most recent post here).  He wondered why surgeons would get such sizable payments for "intellectual property" related to devices that they neither seemed to use or to research?  I would note that the lack of clarity about the reason for Medtronic's payments to these surgeons is just part of a larger lack of clarity about most of the payments made to physicians and medical and health care academics for "consulting" or serving on advisory boards.  If such professional-industrial collaboration is so important for "innovation," one wonders why the people engaged in it are almost never willing to disclose the topics of these wonderful interchanges?

Spine Surgeons Reticent About Disclosing Huge Medtronic Payments

Starting in 2007, we posted (here, here, here, here and here) about the payments, often huge, that five manufacturers of prosthetic joints (Biomet, DePuy Orthopaedics (a unit of Johnson & Johnson), Stryker Orthopedics,a unit of Stryker Inc, Zimmer Holdings, and Smith & Nephew) revealed they made to orthopedic surgeons and various academic and other organizations. We also noted that some of the leadership of the major orthopedic societies have received substantial amounts from these companies, as have the societies themselves.

In 2008, our post on this subject noted the minimal disclosure some of the surgeons receiving these huge payments made when writing scholarly articles on related topics.  In 2009, an article in the New England Journal of Medicine showed that almost 30% of surgeons who got such payments in 2007 failed to disclose them when they presented at the 2008 American Academy of Orthopedic Surgeons meeting.(1)

Medtronic's Payments to Spine Surgeons

This month, the media reported that Medtronic also made payments, sometimes huge, to orthopedic and spine surgeons (see this post by Dr Howard Brody on the Hooked: Ethics, Medicine and Pharma blog, and our summary post here.) 

Now further investigation by John Fauber of the Milwaukee Journal-Sentinel suggests that surgeons receiving often huge payments from Medtronic may not have been good at disclosing them either.

The article examined payments made to surgeons who authored two major studies about bone morphogenetic protein-2, a biologic drug manufactured by Medtronic used to promote bone growth at surgical sites:

Over the last decade, a small group of prominent surgeons from around the country has been enlisted by medical device-maker Medtronic to do clinical research or write articles about the company's new spine surgery product.

This year alone, many of those doctors received payments of hundreds of thousands to millions of dollars each in royalties for a variety of other Medtronic spinal devices, according to a Journal Sentinel analysis of newly released company payments. Medtronic began disclosing the payments this year, in advance of a federal requirement set to take effect in 2013.

Since it won approval for narrow uses in 2002, the product - bone morphogenetic protein-2, known as BMP-2 - has been an increasingly dominant force in spinal fusion surgery, with sales of about $800 million a year, often for use in other procedures.

Independent doctors say the product's success is due largely to positive findings made by the surgeons affiliated with the company.

Doctors involved with two of the many research articles on BMP-2 published since it was approved - one in 2002, the other in 2004 - received a combined $6 million in royalties this year for other Medtronic spinal products, the newspaper found. The payments went directly to the doctors or business entities they are associated with.

No Disclosure in a 2002 Article

The Journal-Sentinel article referred to two scholarly articles written about BMP-2. Regarding the first,

At the time BMP-2 was approved in 2002, little was known about the financial connections between Medtronic and doctors associated with the clinical trial. Likewise, little was known that year when the Journal of Spinal Disorders & Techniques published the article on the trial.

The paper made no mention of doctors getting royalties or having any financial connection to the company.

[Note: I am unable to find this article using standard search techniques, so I cannot give a citation for it.]
Regarding the lack of disclosures made in the first article,

The four co-authors of a 2002 paper about that trial received a total of $2.8 million this year from Medtronic in royalties for products not including BMP-2.

The paper made no mention of any financial relationship between the authors and Medtronic.

Burkus, who also was involved in the 2004 study, again declined to say if he was receiving royalties from Medtronic or if had some other financial connection with the company at the time the 2002 paper was published. He got $573,000 through September.

Curtis Dickman, a Phoenix surgeon, did not respond to phone calls and e-mails. He and Vantage Investments LLC received $306,000 in royalties.

Matthew Gornet, a St. Louis surgeon, and Gornet Enterprises got $591,000 in royalty payments.

Gornet said he did not have a financial connection with the company at the time of the study, though he developed a relationship as a consultant right after the trial, an arrangement that ended after about a year.

He said his patent rights with Medtronic did not begin until 2003 and none of his royalties involves BMP-2.

The last author listed was Thomas Zdeblick, an orthopedic surgeon at the University of Wisconsin School of Medicine and Public Health. Through September, he and Taz Consulting received $1.4 million in royalties for a variety of products.

Other records show Zdeblick has received more than $23 million in royalties from Medtronic since 2002.

In an e-mail, Zdeblick said he had no financial interest in BMP-2. He does receive royalties for the invention of the LT-Cage, which was used in the BMP-2 clinical trial, but the two products are sold separately.

Little Disclosure in the 2004 Article

Regarding the second article,(2)

Three of the four authors of a 2004 article on the study of the productare listed as receiving nearly $4 million this year in royalties from Medtronic for a variety of spinal products, not BMP-2.

That paper was important because it involved a clinical trial that had to be stopped because the product was causing troubling bone formation in the spinal canal of patients. In the paper, that finding was downplayed, with the authors describing the results as 'encouraging.'

[Professor Dan] Spengler, the Vanderbilt orthopedic surgeon and former medical journal editor, said he doubted the paper would have been written in such positive terms by authors without financial ties to Medtronic.

He described the article as egregious, saying it 'just blew off the complications. It's a horrible article.'

Orthopedic surgeon [University of California - Irvine Clinical Professor Charles] Rosen said the paper was biased, calling it 'more of a marketing paper than an objective scientific study.'

Regarding the disclosures made in the second article,

The article described three of the authors as consultants to Medtronic, though it did not disclose that any of them were receiving royalties at the time.

Regis Haid, lead author of the article and an Atlanta neurosurgeon, told the Journal Sentinel he was getting royalties for other Medtronic products. Haid noted disclosure rules for medical journals have become more stringent in recent years.

He said BMP-2 provides excellent benefit to patients, adding he had it implanted in his own neck in an off-label procedure. ;I have BMP in me, and I would put it in you . . . ,' he told a reporter.

Through September, Haid and Spinal Engineering LLC received about $2 million in royalties this year from Medtronic.

Meanwhile, co-author Ken Burkus, a Columbus, Ga., surgeon, and RBCK Research & Consulting, received $573,000.

'Very importantly, you cannot assume that such royalty payments were made prior to 2010,' he said in an e-mail, declining to say whether he got royalties at the time the paper was written. 'I follow the rules to my fullest ability as put forward by the specific journal.'

He took issue with criticism that the paper put a positive spin on a troubling clinical trial.

'I believe the words used were appropriate . . . ,' he said. 'I believe the words used were neither 'positive nor negative' but rather were representative of the data presented.'

He said if other doctors have problems with the paper, they should take it up with the editor of the journal: 'They can write a letter to the editor.'

Co-author Charles Branch Jr., chairman of neurosurgery at Wake Forest University, and the university itself have received $1.2 million in royalties this year.

A spokeswoman for the university said it owns the intellectual property rights to Branch's patents and that royalties generally are split with 35% to the individual and 65% to the university. None of those royalties involved BMP-2, university media relations manager Bonnie Davis said in an e-mail.

She said Branch and Wake Forest were getting royalties at the time the paper was published, but not when the trial was going on.

In a separate e-mail, Branch said use of the term 'encouraging' in the paper 'was not a strong endorsement,' but, rather, recognition that patients getting BMP-2 had superior results to those receiving a traditional bone graft.

Summary

So here we go again.  Once again we see an example of a single medical device company paying heroic amounts, hundreds of thousands to over a million dollars a year, to surgeons ostensibly as royalties for their intellectual property.  The company and the surgeons were all rather cagey about the nature of the intellectual property for which the money was paid, and about the justification for the size of the payments.

While it is likely that the payments have been going on for a while, previous influential articles written by some of the surgeons receiving the payments contained at best minimal disclosure of their financial relationships with Medtronic, and gave no hint about the magnitude of these relationships.  These previous influential articles seemed more enthusiastic about a Medtronic product than was justified by their results.  Of course, maybe getting hundreds of thousands or millions of dollars a year from a commercial health care firm could lead to some excess enthusiasm about its products.

It seems that every drug, biotechnology, and device company has its stable of highly paid physicians and surgeons who can be counted on for their enthusiasm about the companies' products, and their reticence about their financial relationships with the companies.  We have often discussed the pervasiveness of the web of conflicts of interest that seems to link most commercial health care firms with most influential medical academics and practitioners.  The web seems even more pervasive than we once imagined, and the conflicts seem even more intense. 

Those who laud ties between academic medicine and industry may perseverate about how collaboration leads to innovation, while denying that mere money can influence professional judgement.  However, it is difficult to imagine how even the most well-intentioned professional would not be influenced by hundreds of thousands or millions of dollars a year.  When professionals hide the magnitude of such relationships, it only raises more suspicions that they know they have something to hide because they realize they have been bought.

The ever increasing revelations about conflicts of interest pervading academic medicine should inspire extreme skepticism about clinical research or clinical teaching supported in any way by commercial interests.  At the very least, these revelations justify the need for detailed and complete disclosure of all financial relationships among commercial health care firms and academic and practicing physicians, and others who make or influence health care decisions. 

I suspect that if such full disclosure took place, physicians, other health care professionals and the public, at least those who had not been paid themselves, would be so aghast that such relationships would not remain legal for long. 


References
1.  Okike K, Kocher MS, Wei EX, Mehlman CT, Bhandari M.  Accuracy of conflict-of-interest disclosures reported by physicians. N Engl J Med 2009; 361:1466-1474.
2. Haid RW, Branch CL, Alexander JT, Burkus JK. Posterior lumbar interbody fusion using recombinant human bone morphogenetic protein type 2 with cylindrical interbody cates. The Spine Journal 2004; 4: 527-539.

BLOGSCAN - Medtronic's Multi-Million Dollar Payments to Spine Surgeons

Starting in 2007, we discussed the huge payments made by four medical device companies to orthopedic surgeons and medical organizations related to the use of hip and knee prostheses.  (See post here with links backward.)  Payments, in the millions of dollars per year range, went to surgeons including noted academics, and leaders of the main orthopedic physicians' society.  Payments went to medical schools, teaching hospitals, and professional societies.  Many of these financial relationships were not disclosed, and the disclosures that were made rarely indicated the amounts involved.

Now the Wall Street Journal reports millions being paid to spine surgeons by Medtronic in connection with devices used in spinal fusion.  See Dr Howard Brody's discussion here on the Hooked: Ethics, Medicine, and Pharma blog, and also Felix Salmon's discussion here on the Felix Salmon blog.

What seems lacking is a clear rationale for any payments, much less for payments of the sizes listed.  The WSJ article cited a Medtronic spokesperson, "surgeons' device-development work goes beyond mere consulting when the company deems that they are contributing valuable intellectual property to a product. But that intellectual property doesn't necessarily have to be patented."  The reporters found, "search of spine-device patents awarded to the Norton surgeons turned up about a dozen total for Drs. Puno, Johnson, Campbell and Dimar, most owned by companies other than Medtronic. The search turned up no patents for Dr. Glassman."  So what intellectual property that was not or could not be patented could be worth millions a year?

Physicians As Significant Investors in the Manufacturers of the Devices They Implant

OK, the holidays are over, so it's time to catch up.

Just before the New Year, the New York Times reported on some questionable financial entanglements among spine surgeons and the companies that make the devices they use. The main points are below, somewhat edited and re-ordered as necessary for clarity.

Spinal-fusion surgery is one of the most lucrative areas of medicine. An estimated half-million Americans had the operation this year, generating billions of dollars for hospitals and doctors.

Spinal screws are relatively simple to develop and cost only $65 to $100 to make ... often by a supplier that handles the production of screws for a variety of companies.
A single screw ... sells for about $1000....
Doctors’ taking significant ownership stakes in spinal parts makers, critics say, provides an extra financial incentive for a doctor to recommend a surgery. It may be one of the most distinct examples yet of the way monetary considerations can play a role in the way doctors practice medicine.

Such doctors face 'an awfully pernicious conflict of interest,' said Dr. Richard A. Deyo, a physician and health services professor at the University of Washington in Seattle.

About 30 start-up companies have begun selling spinal devices, including screws, in the last couple of years. And industry experts say about a dozen companies have doctors among their investors. Because most of the companies are private and the relationships are not publicly disclosed, there is no way to know how many spine surgeons around the country are partial owners of device makers.

One of the fastest growing companies is Allez Spine, of Irvine, Calif. It was founded on a business model that called for the 120 doctors who invested in Allez to serve as “its customer base,” according to a lawsuit filed by a former chief executive last April. Those doctors, who pay $50,000 or more to become investors, own two-thirds of the company, according to legal filings.

Selling the company’s screws to its “investor-doctors” was a way to “generate more profits for the company” according to a related lawsuit involving the former executive.

At one midsize Nevada hospital, a surgeon who performs many spinal fusions is an Allez investor who uses the company’s screws, said an administrator.
The identities of most of the surgeons who invest in Allez are not publicly disclosed. And the doctors who could be identified and were called for comment did not return repeated telephone calls.

Some of the new [spinal screw] companies aim to recruit surgeons who perform a high volume of back operations, according to doctors who have been approached. The exact nature of the investment opportunity is left vague in the discussions, the doctors say, with details made available only to those who agree to become investors.

One surgeon described being contacted by Globus Medical, a start-up company in Audobon, Pa. The surgeon said he was not persuaded to use Globus screws and other hardware, despite the sales representative’s mention of the 'good opportunities' available if he were to become a large user.

The policies of Globus forbid its representatives from offering stock to reward surgeons who use their products, said Dave Demski, chief financial officer of Globus.
At Alphatec Holdings, a company in Carlsbad, Calif., doctors are shareholders because they have either invested directly or are paid in stock for consulting, according to filings by Alphatec, which is one of the few publicly held companies among the small start-ups.

The chairman of Alphatec’s scientific advisory board is Dr. Stephen J. Hochschuler, a prominent surgeon who helped start the Texas Back Institute, one of the largest spine clinics in the country.

For his work as an adviser, Dr. Hochschuler received a restricted stock grant that was worth about $640,000 when Alphatec went public in June, according to the company’s public filings. Because the share price has fallen, the grant — which vests over five years — is currently now worth only about $270,000.

Dr. Hochschuler, in a written response to an interview request, said doctors should work closely with device companies like Alphatec.

Some surgeons who have bought Alphatec stock argue that their holdings are no different than their investments in any other company.

Dr. E. Claiborne Irby Jr., a surgeon in Richmond, Va., who invested in Alphatec before it went public, says he uses its devices, but not exclusively. 'I don’t change anything I do because of any kind of investment,' he said.

But federal regulators and law-enforcement officials are on the lookout for surgeons who step over the line.

Doctors 'are supposed to make the decision based on the best interest of the patient,' said Peter Winn, a lawyer in the United States attorney’s office in Seattle, who has aired his concerns in a speech to spine surgeons.

To do otherwise, he said in an interview, 'is a violation of the ethical rules, and it has been since the time of Hippocrates.'

It seems that there are an endless variety of schemes out there to financially entangle physicians with the companies that make the products they may use or prescribe for patients. It raises the question of whether physicians who own a significant proportion of a particular company can make decisions for patients about whether to use that company's products without being influenced by the consequences of such decisions on the physicians' own pocket-books?

This is just more evidence of the pervasive web of conflicts of interest that has seemingly caught up many physicians and other influential people in health care. The physicians involved ought to remember that their duties are to the patients first. They ought to select implantable devices first according to their ratios of benefits/harms for patients, and maybe second, according to price. The manufacturers of spinal devices, and other health care corporations should not put physicians in positions in which the decisions they make for patients could be influenced by the effect of these decisions on their investments.

Finally, I can't help wondering if conflicts of interest could also somehow be affecting what appears to be ridiculously high prices charged for simple pieces of hardware whose manufacture is out-sourced, and which seemingly could not have entailed much in the way of research and development costs?

Medtronic's Payments to Doctors: "Too Damn Lucrative to Believe Anyone Can Resist"

The New York Times reported allegations about the payments device manufacturers have made to physicians.

Documents came from a whistle-blower lawsuit which charged that Medtronic Inc., the medical device manufacturer, gave sugeons "excessive remuneration, unlawful perqueisites and bribes in other forms for purchasing goods and medical devices."

The Times reported that the documents show that:

Medtronic spent at least $50 million on payments to doctors over some four years, through June or later in 2005.
Medtronic played host at medical conferences where the 'principal objective' was to 'induce the physician, through any financial means necessary' to use its devices.
According to Medtronic documents, the company closely tracked the use of its devices by the doctors who attended the conferenences, choosing some for 'special attention.'
While payments to some doctors slowed during 2004, when the company was first under investigation, they rebounded last year.... A doctor in Virginia, Hallett Matthews, for example, made $300,000 in consulting fees in 2003, but only $75,000 in 2004. Last year, the company paid him nearly $700,000 for his consulting work through September.
Dr Matthews ... said the spike in payments was a result of a change in how he was paid, requiring him to document his work before he received any money and therefore increasing the amount he received last year. The consulting fees he got from Medtronic, he said, are compensation for his time spent away from his family and practice.
Medtronic's overtures to doctors often began when the surgeons were still in training, Ms. Poteet said. The company commonly paid for doctors to attend any of 200 professional meetings a year. If the doctors wanted to go snorkeling or play golf, the sales representatives or Medtronic employees almost invariably paid for the expense, she said.
When the doctors visited Memphis, she said, Medtronic employees would take them to a local strip club, PlatinumPlus, disguising the expenses as an evening at the ballet.
A spreadsheet compiled by Medtronic for a June 2003 meeting in Dana Point, Calif., indicated what Medtronic hoped to accomplish with each doctor attending an event....
This list of 230 or so doctors included an estimate of the dollar value of the devices each doctor used in surgery, including the value of the devices made by Medtronic. One doctor is described as 'a 100 percent compliant M.S.D. customer,' while others were cited for 'special attention.' M.S.D. referred to Medtronic Sofamor Danek, the largest competitor in the spinal device market.
Many doctors were paid consulting fees far higher than the $3,000 a day a surgeon might typically expect, documents from the legal filing suggested. Dr. Thomas A. Zdeblick, the Wisconsin surgeon, signed a 10-year contract in 1998 that required him to consult with the company for two days every three months, a total of eight days, for which he would be paid $400,000 a year, according to a copy of his contract. Those payments stopped in 2004.

The New York Times article contained some reaction to the allegations about Medtronic's interactions with physicians.

In a written response, a spokesman, Rob Clark, said, 'We take these allegations very seriously and we do not tolerate conduct that is illegal or unethical.' Consulting arrangements with doctors to improve devices, he said, 'are critical, in our view, to the delivery of state-of-the-art health care and are perfectly legal.'

On the other hand,

But even if the payments are within the law - and Medtronic has not been found guilty of any illegal activity - the increasing amounts being given to doctors distort their judgment, said Arthur Caplan, a medical ethicist at the University of Pennsylvania, who said such industry payments were 'too damn lucrative to believe anyone can resist.'

Amen to Dr Caplan.

We surely need better mechanisms to prevent both parties, physicians and health care organizations (device makers in this case, but not limited to device makers) from partaking of such relationships, and when prevention fails, for penalizing them.