Use of Psychological Manipulation of Physicians to Sell Pharmaceuticals: The Drug Representative as "Den Mother"

We have discussed, most recently here, how marketers of health care goods and services use deception and psychological manipulation to sell their goods.  Physicians, of course, are particular targets of marketers of drugs and devices. 

A vivid anecdote showing how this works just appeared on a New York Times blog.  It may be easier to recall that psychological theories:

In the social and culinary wasteland that was residency training, it had been easy for Cheryl, a bubbly brunette in her mid-30s, to become our den mother. She never tired of listening to our grousing, had unerring taste in take-out, made it a point to come to our parties when invited and every so often brought in a plate of her homemade brownies.

But Cheryl was no den mother. She was a pharmaceutical rep.

That she managed to slip a plug for her wares into every conversation or tuck copies of studies promoting her product into our white coat pockets as we polished off her brownies was awkward. But we always overlooked the salesmanship because it was such a familiar part of our residency routine. As trainees in a large teaching hospital, we knew numerous sales reps by name and the products they peddled; and it was odd, even disappointing, to go to an educational conference where one of them was not standing next to a table laden with tchotchkes, information brochures and free take-out.

 But in retrospect, such docile acceptance was problematic. In an environment where no one, including senior doctors, ever questioned the presence of sales reps, we didn’t think too hard about why they might have been as friendly and helpful as they were. We didn’t ask where the money for all these giveaways was coming from and we were rarely curious about who these reps actually were (I only ever knew their first names).

It wasn’t that I or the other residents preferentially prescribed their products. But I do know that more than once when faced with a decision about what to prescribe, the first thought that came to mind was not what I needed to do to find the latest evidence-based recommendation, but what Cheryl had just told us over lunch. 

All of this became painfully clear after Cheryl suddenly disappeared. At first, the other trainees and I thought she had been fired, so we avoided bringing her absence up with the rep who replaced her. But when I ran into someone from her company at a national medical conference a year later, I learned otherwise.

'Oh, she got promoted,' the rep said, smiling broadly. 'Now she’s an executive in the central office.' 

Since Ahari and Fugh-Berman wrote and testified about the cynical tactics used in the marketing of drugs and other medical products years ago (look here, here, and here), it is now inexcusably naive for doctors to believe that drug (or device) representatives are their friends, no matter how friendly they appear.  Drug and device reps are trained to appear to be likable.  They may look like sympathetic friends, glamorous companions, or in this case, den mothers.  But as Sah and Fugh-Berman noted (look here), likability is a ruse to sell products.  Brownies are supplied to give the appearance of warmth and comfort, and to generate feelings of reciprocity.

How well it works appears above: "the first thought that came to mind was not what I needed to do to find the latest evidence-based recommendation, but what Cheryl had told us over lunch."  That it works well is demonstrated by Cheryl's promotion to an executive office.

As long as physicians remain trusting, naive, or foolish in their approach to deceptive marketing, there will be more use of needlessly expensive, and sometimes needlessly toxic drugs, and more drug reps made into well-paid executives. 

Words that Work: Singing Only Positive - And Often Unsubstantiated - EHR Praise As "Advised" At The University Of Arizona Health Network

When clinicians are told to promote a technology in no uncertain terms, that puts a chilling effect on critical thinking and discourse.  In effect, when under orders to only speak positively about a hospital or its technology, saying anything bad could very likely get clinicians labeled as 'troublemakers' or 'disruptive clinicians.'  Sometimes - in a sadly real example at Affinity Health - it may even get threats of having complaints plastered to one's forehead (see http://hcrenewal.blogspot.com/2013/07/hows-this-for-patient-rights-affinity.html), a threat answered to by a judge.

The 'disruptive' label usually does not have a good effect on one's evaluations and job (or, for doctors, even career) longevity.  See, for example, the resources at http://www.aapsonline.org/index.php/article/sham_peer_review_resources_physicians/ on sham peer review.

At University of Arizona Health Network (UAHN), clinicians are being told to promote the EPIC EHR.

The campaign is under the aegis of executives who know, should know, or should have made it their business to know the mayhem caused at other medical centers by EPIC and other major clinical IT systems (see for example query links http://hcrenewal.blogspot.com/search/label/EPIC and http://hcrenewal.blogspot.com/search/label/healthcare%20IT%20difficulties).

Here's what clinicians are bring told in the Oct. 3, 2013 "Weekly update for UAHN employees":

Words that Work 

Talking positively to our patients about our new Electronic Health Record system is important! Here are some key words and phrases you can use to emphasize the many benefits of the new system:

• Electronic health record (not ‘Epic’ or ‘EHR’)
• One comprehensive record
• Coordinated care
• Improves patient safety & quality
• Convenient, easy patient portal 
• Private and secure

Click here for more words and behaviors to inspire confidence in our patients (and ourselves) as we transition to this new system.

The link to "more words" produced this PDF:

"Words that Work" - If I worked there, I would be concerned that that using "words that don't work" about a project that probably cost hundreds of millions of dollars would likely injure my career.  Click to enlarge.

This is shameless.  Many of these claims are unsubstantiated or in significant doubt in the literature.

First:

They left out issues such as these:

• The software is tested and validated for safety by nobody, including traditional medical device safety testers.

• No postmarket surveillance for problems, either.

• Transparency about problems that can cause patient harm is severely impeded by systematic impediments to information flow (as per IOM's 2012 study of health IT safety at http://hcrenewal.blogspot.com/2012/03/doctors-and-ehrs-reframing-modernists-v.html, FDA via their leaked Internal Memo on HIT safety as at http://hcrenewal.blogspot.com/2010/08/smoking-gun-internal-fda-memorandum-of.html, the Joint Commission in their Sentinel Events Alert on Health IT as at http://hcrenewal.blogspot.com/2008/12/joint-commission-sentinel-events-alert.html, and others.)

• Problems known are only the "tip of the iceberg" (FDA, ECRI Institute), as at http://hcrenewal.blogspot.com/2010/02/fda-on-health-it-adverse-consequences.html and http://hcrenewal.blogspot.com/2013/02/peering-underneath-icebergs-water-level.html

Of the claims they do make:

• Efficient - see aforementioned links as well as "Common Examples of Healthcare IT Difficulties" at http://cci.drexel.edu/faculty/ssilverstein/cases/

• Convenient - as above.  According to whom?  Compared to what?  Pen and paper?

• Improves patient safety and quality - see IOM report post at http://hcrenewal.blogspot.com/2011/11/iom-report-on-health-it-safety-nix-fda.html .  We as a nation are only now studying safety of this technology, and the results are not looking entirely convincing, e.g. ECRI Deep Dive Study of health IT safety at http://hcrenewal.blogspot.com/2013/02/peering-underneath-icebergs-water-level.html.  171 health IT mishaps in 36 hospitals, voluntarily reported over 9 weeks, with 8 reported injuries and 3 reported possible deaths is not what I would call something that "improves patient safety and quality" without qualifications.

• The Cadillac of its kind - according to whom?

• Patients at hospitals using this system love it -  Do most patients even know what it, or any EHR, looks like?  Have they provided informed consent to its use?

• Exciting - clinician surveys such as by physicians at http://hcrenewal.blogspot.com/2010/01/honest-physician-survey-on-ehrs.html and by nurses at http://hcrenewal.blogspot.com/2013/07/candid-nurse-opinions-on-ehrs-at.html shed doubt on that assertion.

• The best thing for our patients - again, according to whom?

• Sophisticated new system - "New"?  Not so much, just new for U. Arizona Health.  "Sophisticated", as if that's a virtue?  Too much "sophistication" is in part what causes clinician stress and burnout, raising risk; see this summary of a new, not-free JAMIA article "Electronic medical records and physician stress in primary care: results from the MEMO Study", J Am Med Inform Assoc amiajnl-2013-001875 at http://www.beckershospitalreview.com/healthcare-information-technology/the-relationship-between-emrs-and-physician-stress.html.   From that summary:

... Compared with physicians at clinics with low-function EMRs, physicians at clinics with moderate-function EMRs experienced significantly more stress and had a higher rate of burnout. Additionally, physicians at clinics with moderate- or high-function EMRs felt less satisfied with their current position overall.

and:

... Results also showed a significant relationship between time pressure and physician stress in the cohort with high-function EMRs, and only in this cohort, suggesting physicians at these clinics may be particularly pressured for time during patient encounters in the face of a large number of EMR functions. "This 'made sense' to us in thinking about the possibility that those in the high-use group had more to do in the EMR" [say the authors].

• Smartest program out there - "Smartest" meaning what, exactly?  According to whom?  Who performed the comparison?

• Streamlined - compared to what?

• Thank you for your patience - even if the effects on clinicians gets you or your loved ones maimed or killed?

• Safe and secure network - really?  No break ins, ever, considering multiple breach stories like those at http://hcrenewal.blogspot.com/search/label/medical%20record%20privacy?

• Keeping you informed is our priority - informed of what?

• Specially trained staff - like these:  http://hcrenewal.blogspot.com/2010/08/epics-outrageous-recommendations-on.html?

and this:

• Take Responsibility - I ask, should clinicians "take responsibility" for IT-related disruptions that impair care such as "use error" (as opposed to user error), i.e., what the National Institute of Standards and Technology has called operator error due to poor usability and other features of bad health IT?  (See "NIST on the EHR Mission Hostile User Experience" at http://hcrenewal.blogspot.com/2011/10/nist-on-ehr-mission-hostile-user.html.)  What about "glitches" and bugs that corrupt or lose data?  Should clinicians also 'take responsibility' for those?  (See for example the posts on the wild things that happen when IT malpractice leads to clinical mayhem at http://hcrenewal.blogspot.com/search/label/glitch.)

It appears to me that this vendor is using its client hospitals' management to enforce an "acceptable point of view" clinicians must proffer to patients about EHRs (which they must call "health" records), despite well-known contradictory findings.  This is, in effect, forced marketing of a device.

Trying that for a drug or a conventional medical device (e.g., a particular stent) would be on its face unethical and likely illegal.

Finally, critical thinking is what keeps patients alive and safe.  Marketing measures like this (some might call it "propaganda"), espousing and enforcing 'EHR exceptionalism', in my opinion, damage critical thinking and expression, and are thus unacceptable to push on clinicians and on patients.

I add that requiring clinicians to promote deceptive propaganda the clinicians themselves know is untrue, from painful experience, is degrading, intimidating and destroys morale.  It is axiomatic that clinicians (or anyone) operating under such conditions cannot perform at their best.

Thus the management geniuses who came up with these instructions (if not outright vendor-ghostwritten as at the Aug. 2012 "Health IT Vendor EPIC Caught Red-Handed: Ghostwriting And Using Customers as Stealth Lobbyists", http://www.tinyurl.com/epic-stealth) are by their actions increasing risk of patient harm.

The nurses' unions at at http://hcrenewal.blogspot.com/2013/07/rns-say-sutters-new-electronic-system.html have it right, in my view:  complain about the disruptions this technology causes, and complain loudly, if at the very least to make sure the problems are out in the open.

-- SS

Vested Interests and Their Influence on Physicians- New Understanding from Cognitive and Social Psychology

Evidence-based medicine proposes patient care decisions based on the best evidence from critically reviewed clinical research, knowledge of biology and the biopsychosocial context, and patients' values and preferences.  Yet physicians often fail to make evidence-based decisions, despite many efforts to educate, or incentivize them to do so.  We used to think that the main reason was physicians' lack of knowledge and understanding of EBM, and human cognitive limitations that make such evidence-based thinking difficult.  However, now we realize that physicians are deluged by  attempts to influence their decisions so as to favor vested interests, whether or not that is good for patients.

We have discussed various kinds of deception used in marketing meant to increase physicians' prescriptions for drugs, and recommendations for devices and health care services.  Physicians have not proved to be very resistant to these methods.

Now a new article provides a different perspective on how marketers use cognitive and social psychology to manipulate physicians.(1)  Sunita Sah's and Adriane Fugh-Berman's introduction stated,

Physicians often believe that a conscious commitment to ethical behavior and professionalism will protect them from industry influence.  Despite increasing concern over the extent of physician-industry relationships, physicians usually fail to recognize the nature and impact of subconscious and unintentional biases on therapeutic decision-making. Pharmaceutical and medical device companies, however, routinely demonstrate their knowledge of social psychology processes on behavior and apply these principles to their marketing. 

The article then listed a number of findings from social (and cognitive) psychology that marketers may use to their advantage on naive physicians.

Psychological Mechanisms Promoting Acceptance of Conflicts of Interest and Dubious Marketing Ploys

First, marketers may take advantage of cognitive biases and psychological mechanisms that allow physicians to accept marketing maneuvers while denying the effect of marketing on their decision making.

Confidence and Over-Confidence

People are strongly influenced by messages delivered with confidence and do not take the trouble to ascertain the accuracy of these messages if doing so requires effort or money.

I would add that many humans, including physicians, are also over-confident in the accuracy of their own judgments.  (In 1989 we showed  that physicians often were excessively confident in their judgments of patients' outcomes, in particular, about survival of critically ill patients.)(2)

Of course, marketers often state their messages with great confidence regardless of their accuracy.

So physicians need to try to restrain their own over-confidence, and be more skeptical of the confidence of others. Maybe this would just be an exercise in simple humility.

Self-Serving (or Ego) Biases

People tend to believe that the results of their decisions, or of their groups' decisions, are better than average.  This can be called the Lake Wobegon effect (from Garrison Keilor's fictional town in which all the children are above average.)

We and others have shown that physicians may be overly optimistic about the outcomes of their own (versus others') patients, or their clinical units' (versus others') outcomes, again in the context of predicting survival of critically ill patients.(3)  We have also posted about how corporate boards of directors seem to almost always think that their hired executives are better than average, at least when determining their executive compensation.

Similarly, Sah and Fugh-Berman wrote,

Physicians believe that their own prescribing behavior is unaffected by industry influence, although they concede that other physicians are susceptible to such influence.

Furthermore,

Social psychology research confirms that people have a 'bias blind spot,' namely, they are more likely to identify the existence of cognitive and motivational biases in other than in themselves.

But, as Dana and Lowenstein wrote,

It cannot both be true that most physicians are unbiased and that most other physicians are biased.

So, to put it bluntly, physicians ought to be more humble about their own ability to resist outside influences and the resulting biases. Again, some simple humility might help.

Cognitive Dissonance

Sah and Fugh-Berman pointed out that

While articulating and believing in the importance of scientific objectivity, physicians' biases to accept industry gifts create cognitive dissonance; that is, discomfort that arises from discrepancy between conflicting beliefs, or between beliefs and behaviors.

So,

Cognitive dissonance theory specifies three methods - not mutually exclusive - by which people manage or reduce dissonance.  Changing one of the dissonant beliefs, opinions or behaviors (possibly a difficult or painful process that requires sacrificing a pleasurable behavior or treasured belief); Lowering the importance of one of the discordant factors which can be accomplished by denial - forgetting or rejecting the significance of one or more of the conflicting cognitions; and adding consonant elements that resolve or lessen the dissonance (this may involve rationalizations to buffer the dissonance between conflicting cognitions.)

Physicians may use denial and rationalization to reduce cognitive dissonance caused by their concurrent desire for relationships with marketers and others with vested interests on one hand, and their professionalism and its obligation to put patients' needs first on the other hand.  Sah and Fugh-Berman cited Chimonas and colleagues,

Denial included (a) avoiding thinking about the conflict of interest; (b) rejecting the notion that industry relationships affect physician behavior, and (c) disavowing or universalizing responsibility for problems that arose from conflicts of interest ('there's always a conflict of interest...').  Rationalizations included (a) asserting techniques that would help maintain impartiality and (b) reasoning that meetings with drug reps were educational and benefited patients.

We have discussed various public justifications for accepting conflicts of interest by physicians and other health care decision makers that employed a variety of logical fallacies along these lines.

So physicians need to re-examine their treasured beliefs and the gratification they get from relationships with industry (as opposed to those with patients, colleagues, friends and families).  They could remember the advice that no one can serve two masters.

Sense of Entitlement

Physicians' sense of entitlement, especially given the increasing stress upon them, may be used to rationalize relationships with drug, device and biotechnology companies since these corporations seem to be among their few friends (versus insurance companies, government agencies, and sometimes hospital administrations whom physicians feel may be more burdensome.).  So, in one study,

Implicitly reminding physicians of the burdens of medical training and their working conditions more than doubled reported willingness to accept gifts....

So physicians need to reconsider that to which they feel entitled.  This is the third instance in which some humility might help. 

Principles of Influence Used by Marketers

Markets seem to also be well acquainted with the six principles of influence and persuasion identified by Cialdini and colleagues.

Reciprocity

The norm of reciprocity - the obligation to help those who have helped you - is one of the guiding principles of human interaction

This is the foundation of the effect of relatively small conflicts of interest, such as giving of small gifts.

Physicians pay off industry gifts through changes in their practice

Furthermore,

Gifts associated with a subtle implicit request may be more likely to achieve compliance than gifts that call for explicit reciprocation. 

So physicians need to be wary of Greeks, or anyone else bearing gifts, even those less conspicuous than wheeled horses.

Commitment and Consistence

Consistency is highly valued in our society and associated with rationality and stability.  After committing to a decision or opinion, people justify that choice or opinion by remaining consistent with it.

So marketers try to get physicians to make small commitments to leverage larger ones.  This is

why drug reps, ask, for example, 'will you try my drug on your next five patients?'

So physicians should remember there is no virtue in commitment to erroneous beliefs.  "A foolish consistency is the hobgoblin of little minds." - Ralph Waldo Emerson

Social Proof

This is basically the deliberate deployment of the logical fallacy of the appeal to common practice.

Social proof, also referred to as social validation or conformity, is the practice of deciding what to do by looking at what others are doing.

So,

If accepting industry gifts is a cultural norm in medicine, physicians will continue to do so.  The opinions of colleagues are often used by industry representatives to sway physicians to adopt a particular therapy. 

This may be why industry works so hard to sign up health care academics.

Trainees in an institution, for example, are affected by the institution's stated policies but also - and sometimes more so - by what they see their mentors do.

So physicians, who often pride themselves on independence, need to be skeptical about the need to follow the crowd.

Liking or Rapport

The more you like someone, the more you are apt to follow their advice, even if your feelings towards them have been manipulated.

This is obviously why drug representatives, for example, are so nice to physicians.

Physicians often feel overworked, underpaid, and unappreciated [ed note -  and their is plenty of evidence, some of which we have discussed on this blog, that this is not unreasonable.]  Drug reps dispense sympathy, flattery, food, gifts, services and income-enhancing opportunities and seek to ask nothing in return but scholarly consideration of the benefits of drugs.

So physicians need to reconsider who really are their friends, and be skeptical of "friends" with something to sell. 

Authority and Security

This is basically the deliberate deployment of the logical fallacy of the appeal to authority.  The best example is industry's efforts to recruit key opinion leaders, that is health professionals who are perceived as authority figures, but have really been hired to market.

From an industry perspective, the best KOLs radiate status and authority while successfully convincing their peers (and perhaps themselves) of their illusory independence and lack of bias.

Note that

KOL speakers not only influence audience members' prescribing behavior, but also - as predicted by cognitive dissonance theory - become more convinced themselves of the benefits of the products they endorse.

So physicians need to be skeptical of those claiming to be authorities, especially when they are connected with people who have something to sell.

Summary

We used to strongly believe (and Dr Wally Smith and I used to teach a course to the effect that) the major barrier to true evidence-based practice was the cognitive limitations that physicians share with all humans.  We thought in terms of cognitive biases and the inappropriate use of cognitive heuristics leading physicians to inaccurately judge the probabilities of diagnoses and medical outcomes, and thus make less than optimal decisions.

Now it seems apparent that the deliberate influencing of health professionals' judgments and decisions by external actors, mainly those interested in selling more products and services, but sometimes by those with ideological or political motives, is currently a much more important challenge to evidence based practice.  It looks like the influencers may be very knowledgeable about human cognitive limitations and how social psychology influences judgment and decisions, and may use this knowledge to pursue their vested interests, at the financial and physical expense of patients, and ultimately the public.

 True health care reform would encourage professional education designed to increase resistance to external influences that put self-interest ahead of patients' and the public's health, and careful regulation that would decrease some of the more dangerous practices used.  Of course, much more resistance might be achieved if physicians used a little more common sense when dealing with people who are obviously trying to sell them on goods, services, or ideas.  A good proportion of the deceptive methods discussed above could be countered by remembering the usefulness of humility, skepticism, and a few simple aphorisms.   

Again, as we have written repeatedly, not only should all conflicts of interest be disclosed for the sake of honesty, but physicians and other health professionals ought to consider repudiating most of all of them, maybe at some personal expense, but in the interest of re-establishing their commitment to putting the patient, not their own self-interest, or the vested interests of others, first.  
 

References

1.  Sah S, Fugh-Berman A. Physicians under the influence: social psychology and industry marketing strategies.  J Law Med Ethics 2013; 14:  . Link here:

2. Poses RM, Bekes C, Copare F, Scott WE.  The answer to "what are my chances, doctor?"  depends on whom is asked: prognostic disagreement and inaccuracy for critically ill patients.  Crit Care Med 1989; 17: 827-833.  Link here.

3. Poses RM,  McClish DK, Bekes C, Scott WE, Morley JN. Ego bias, reverse ego bias, and physicians' prognostic judgments for critically ill patients. Crit Care Med 1991; 19: 1533-1539.  Link here.

Why Trust Drug Company Executives After One Admits Commercially Sponsored Clinical Research Is All About "Competitive Advantage?"

Mickey, the semi-anonymous blogger on 1BoringOldMan, wrote a righteously angry post in support of transparent clinical research.  As we have noted frequently, clinical trials done on human subjects are often manipulated to increase the likelihood of results favorable to commercial sponsors, or suppressed when even such manipulation does not produce the desired results.

Note that such suppression and manipulation degrade the scientific value of the studies, impede the evidence-based medicine process to rationally apply clinical research evidence to improve the health of patients and the public, and violate the trust of research subjects who volunteer to participate based on the assumption that clinical research is meant to improve patient care and public health, and contribute to science, not just secure commercial advantage.  

A European initiative to combat suppression of clinical research has been opposed by a lawsuit from US pharmaceutical manufacturers AbbeVie, spun off from Abbott Laboratories, and Intermune.  The European Medicines Agency had been willing to to make public unpublished patient level data from commercially sponsored clinical trials.  The lawsuit has shut down the process, and is meant to shut it down permanently, claiming that the clinical data, obtained from volunteer research subjects, includes "trade secrets."

As summarized by Mickey, their motivation seems to be to conceal how pharmaceutical manufacturers and other commercial sponsors of human research use this research for promotional, rather than scientific purposes.

An AbbeVie lawyer asserted that some adverse effects data should be kept confidential, and that "internal tactical decisions on how we are going to run a study, engage with regulators, and confront and solve problems and challenges we have uncovered during clinical trials" should also be kept secret because revealing them could "give other companies a tremendous competitive advantage," never mind whether keeping secrets could undermine science, decrease the study's usefulness to aid clinical and policy decision making, and break the implicit contract between researchers and study subjects.

It is becoming more obvious that many drug company executives, and other leaders of large health organizations, may care more about "competitive advantage" than patients, science or the public good, as Mickey points out.  So much for that advertising puffery  about drug development to improve patient health.  Thus it may be ridiculous to think that these executives they will negotiate to improve transparency of clinical research in good faith when doing so could decrease such advantage, again no matter what the effect on patients, public health, or science.

On this case there is an opportunity to speak out, Dr David Healy has a petition up on Change.org to oppose the AbbeVie and Intermune lawsuit which might get some notice if there are enough signatures.

The Long Con - "Charitable" Hospitals Make Multimillionaires out of Their CEOs

The CEOs of ostensibly charitable hospitals founded to serve the poor continue to become rich.  

The latest reminders are in two articles from Maryland, from DelMarVaNow, and from the Baltimore Sun,.and one from the Boston Globe.

All this diligent reporting showed multimillion dollar executive compensation,  as usual not justified by evidence or logic, but also how executive compensation is becoming divorced from the ostensible charitable mission of non-profit hospitals.  

Most Hospital CEOs are Paid a Lot

So jin Maryland, we found via DelMarVaNow,

Peninsula Regional Medical Center paid its top executive and her immediate predecessor a total of $2.37 million in compensation in 2011 as the nonprofit hospital gained millions of dollars in profit.

In particular,

 The analysis shows that R. Alan Newberry was the third-highest paid hospital chief in Maryland, even though he has not run PRMC since 2009. In the year after formally stepping down from the hospital’s top job, Newberry received $1.57 million, about $600,000 more than he had while still working full time.

The Baltimore Sun summarized compensation given to multiple executives,

 Eleven executives earning seven-figure compensation packages including salary, bonus, retirement and other pay saw their total pay rise from as little as 0.13 percent to as much as 308 percent in the fiscal year that ended in 2012, according to tax filings. Another executive earning more than $1 million saw a pay cut.

In particular,

 The state's highest-compensated hospital executive that fiscal year was Kenneth A. Samet, the CEO of the 10-hospital MedStar Health system, who earned $6.3 million. More than half — $3.5 million — was money earned in a supplemental retirement plan during his 23 years of service. He won't get the money until he retires. His base pay was $1.2 million, and he received $1.5 million as a bonus and incentives.

The other top five highest-paid executives in Maryland are James Xinis, CEO at Calvert Memorial Hospital in Prince Frederick; Ronald A. Peterson, CEO of the Johns Hopkins Health Center Corp.; Robert A. Chrencik, CEO of the University of Maryland Medical System; and Thomas Mullen, CEO of Mercy Medical Center.

Xinis saw his compensation package jump 307.8 percent to $3.5 million, $2.8 million of which was a required distribution of vested retirement funds from a plan he begin contributing to in 2003, the hospital said in a statement. Xinis has served as CEO for 26 years and plans to retire in the next 18 months, the hospital said. His base salary in fiscal 2012 was $309,557.

Peterson, who oversees six hospitals, earned a $3.5 million compensation package. Peterson's 86.5 percent pay increase largely reflected pension benefits he'd earned during 40 years at Hopkins. His annual base salary increased about $49,500 to $1.1 million in fiscal 2012.

Chrencik, whose system has 12 hospitals, earned about $2.3 million. Chrencik's total pay grew 23.4 percent. Mercy's Mullen saw his pay rise 24 percent to $1.6 million for the fiscal year ending in 2012.

The one CEO earning more than $1 million who saw his compensation fall was Edward D. Miller, who retired in June 2012 as CEO of Johns Hopkins Medicine and dean of the university's medical school. His reported pay dropped to just over $1 million in fiscal 2012 from nearly $2.3 million the prior year, when he took a one-time retirement payout.

Also,

According to Saint Agnes tax filings, [CEO Bonnie] Phipps received $1.9 million in the 2012 fiscal year, 4.4 percent more compensation than a year earlier.

 Per the Boston Globe, local hospital executives also did really well

Chief executives at the Boston area’s largest nonprofit teaching hospitals drew pay packages of $1 million to $2.1 million in 2011, including salaries, bonuses, and compensation such as health and life insurance and retirement benefits.

Topping the list locally was Gary L. Gottlieb, chief executive of Partners HealthCare System, the state’s largest hospital and physicians organization, who received total compensation of $2.1 million in 2011, according to federal tax documents released Thursday by the nonprofits.

And,

The presidents of Partners-owned Massachusetts General and Brigham and Women’s hospitals also drew seven-figure packages in 2011, with Peter L. Slavin at Mass. General receiving a total of $1.7 million and Elizabeth G. Nabel at Brigham and Women’s a total of $1.9 million.

Also,

Tufts Medical Center reported that Ellen M. Zane, who served as chief executive through September 2011, had total pay of $1.6 million that year.

Eric J. Beyer, who took over from Zane in October, had total compensation of $744,722 that included pay for work as chief executive and at his previous job as president of the Tufts Medical Center Physicians Organization.

James Mandell, chief executive at Boston Children’s Hospital, was paid a total of $1.5 million in 2011. That was down from the $2 million he earned the prior year when he received two separate incentive awards, according to a hospital spokeswoman. Mandell plans to retire next month and will be succeeded by Sandra Fenwick, the hospital’s president and chief operating officer.

Total compensation for Boston Medical Center chief executive Kate Walsh was listed at nearly $1.4 million in 2011, an increase from $1.3 million in 2010.

At Dana-Farber Cancer Institute, chief executive Edward J. Benz Jr. received total compensation of nearly $1.3 million in 2011, up from $1.1 million in 2010.

Beth Israel Deaconess Medical Center paid three different top executives in 2011.

Eric Buehrens, who served as interim chief executive from February to October, drew total compensation of just over $1 million for that role and other executive jobs.

The Justification for this Pay is Stereotyped (and not Supported by Logic or Evidence)

The Usual Talking Points

The articles in combination provided the usual talking points as justification.  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..   

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.

As we have noted before, there is little evidence in support of these talking points.  What evidence there is on the topic suggests there is no real free market in interchangeable CEOs, and that CEOs are not very mobile, especially not across different kinds of organizations (look here).  There is little evidence that hospital (or other health care) executives are particularly brilliant, or any more brilliant than multitudes of physicians, nurses, and other health care professionals who work hard to make their institutions run.

True to form, the reporting from Maryland and Boston found that defenders of executive pay cited the talking points, but without any further logic or evidence. 

Competition

Re PRMC (from DelMarVaNow),

 'We’ve looked at about 17 like institutions. Eight are smaller than we are; eight are larger. Every hospital is different, so you have to always take into account there’s some variation, but we’ve always stayed in the middle. Our goal has been to stay in that 60 percent level as far as compensation goes,' said Martin Neat, chairman of PRMC’s board of directors, which oversees executives’ salaries.­

Note that in this case, no justification was provided for constantly setting the CEOs pay above the median.


Re Maryland, via the Baltimore Sun

 Hospitals argue that they have to offer competitive compensation to attract talent to run a complicated business.

Re Maryland and particularly UMMS, via the Sun,

 The medical institutions say they hire independent consultants and look at the pay of executives at comparable health systems when making their decisions.

Also,

UMMS hospital executives are compensated in line with national benchmarks,' [UMMS spokeswoman Mary Lynn] Carver said.

Note that there was no justification for the comparability of these institutions, or why a national versus regional comparison was made.

Retention

Re PRMC

 Above all, PRMC’s board of directors seeks to ensure that the hospital attracts and retains the best leaders.

Note that there was no evidence given that current leaders might leave were their compensation reduced.

 Brilliance

Re PRMC,

[Board Chairman Neat]  added: 'These are high-paid positions, but these are very capable people who could go elsewhere.'

Re Maryland, from the Baltimore Sun

 Executives need to understand everything from the latest health technologies to regulatory changes, including health reform.

So do doctors and nurses, so why do they not not get similar pay?

Also,

 [Carmela Coyle, CEO of the Maryland Hospital Association, said,] 'Hospital executives are in charge of incredibly complex organizations,' she said. 'They are organizations that are open 24 hours a day and are highly regulated. These are really difficult, difficult jobs'.

Note again the lack of comparison with the doctors and nurses who must staff the hospitals 24 hours a day, and make difficult decisions while caring for patients with sometimes life-threatening conditions.  How often does a hospital CEO get a call in the middle of the night, and how often does it require a decision in a life-and-death situation?

Re Mercy Medical Center,

 'As a result of Mr. Mullen's leadership, vision and skillful stewardship, Mercy has been an economic engine for the city, infusing additional jobs into the local economy,' the hospital said in a statement.

When in doubt, use the v (for visionary) word.  Note that this begs the questions of how many other people were responsible for the economic benefits, and whether such benefits, rather than, say ability to provide good care to patients, should be the main consideration.

Should Brilliance be Measured by Revenue?

At best, some defenders of high CEO pay seem to argue that the main measure of CEO brilliance ought to be their hospitals' financial performance. For example, the DelMarvaNow article included,

Fiscal health is one of the most important considerations in determining [new CEO Peggy] Naleppa's pay, [board chairman] Neat said. 

Also, he was quoted,

'There's no question that the financial performance of the institution is going to affect what you're going to pay', Neat said.

While,

Nationwide, hospital boards subscribe to a similar philosophy.  Financial health was cited by 100 percent of multi-hospital organizations in a 2006 survey as a factor in determining bosses' incentive plans.

Similarly, the Baltimore Sun quoted Dr Stephen F Jencks, "who serves on the board of the cost review commission,"

executives should be judged by whether they are running cost-efficient organizations

However, CEO pay seems to increase even at financially challenged institutions,  as the Baltimore Sun noted,

The CEO pay question — always a hot-button issue — is generating debate again this year after a state panel spurned a push by hospitals for higher rates, instead approving smaller increases and calling on them to do more to curb expenses. Hospitals have sought rate increases in each of the past three years, and this year at least one Baltimore-area hospital responded with layoffs in an effort to trim labor costs.

So,

'If they are laying off staff and decreasing what they invest in the community and executive compensation is increasing, that is a real question,' said Jessica Curtis, project director of the hospital accountability project at Community Catalyst, a national advocacy group that promotes wider access to affordable health care.

Even if one accepts that the compensation of leaders of organizations that take care of sick and injured patients ought to mainly depend on the brilliance of their leadership as measured by how much money the organizations make, rather than the quality of that care, it is not clear that all these leaders are brilliant in that sense.

The Charitable Mission and CEO Compensation

Essentially all US non-profit hospitals and hospital systems have a history of a charitable mission to improve the health of their patients and communities, even if that means taking care of poor people who cannot pay for these services.  Nearly all justify their legal status as non-profit corporations by stating this mission. 

For example, Peninsula Regional Medical Center, the main subject of the DelMarVaNow article, describes its mission thus in its US tax filing,

Peninsula Regional Medical Center is a not-for-profit 501 (c) 3 non-stock corporation founded in 1897 to serve the health care needs of the community.  The Hospital's primary purpose is to provide the highest [sic] primary, secondary, and selected tertiary health care services to residents of and visitors to the Mid-Delmarva Peninsula in a competent, compassionate, and cost effective manner designed to elicit a high degree of consumer satisfaction.  The Hospital's mission is to improve the health of the communities we serve....

Yet it appears that this mission is honored mainly in the breach, at least when it comes to CEO compensation. 

The DelMarVaNow article emphasized that hospitals' charitable functions are not seen as relevant by hospital boards when setting CEO compensation,

Despite the nonprofit status of the organizations they oversee, hospital boards don't appear to put weight toward the amount of free medical services and community outreach activities, good deeds collectively known as charity care, [executive vice president of Integrated Healthcare Strategies Kevin] Talbot

Also,

The head of the consulting firm that helps PRMC's board establish [current CEO] Naleppa's pay said community benefit shouldn't be part of the equation.

'In my over 25 years of consulting on hospital compensation, I have never seen community benefit used as a factor in determining executive pay,' Rian Yaffe said.  'Community benefit has nothing to do with how difficult a hospital is to manage and lead.'

However, community benefit is the mission of the hospital, and is justification for most US hospitals' non-profit status, which allows them to escape certain kinds of taxation, and for donors to make charitable, tax-advantaged contributions to the hospitals.  

The Baltimore Sun listed financial but not charitable performance as a justification for the compensation of a particular executive, the CEO of Johns Hopkins Medical Center, who is

'held responsible for stringent qualitative measures,'  in such areas as financial performance, patient safety and service excellence, [Johns Hopkins] spokeswoman Kim Hoppe said in a statement.

When asked by the Sun to comment, the advocacy group Community Catalyst stated

One of the factors that should be considered, it says, is the role of non-profit hospitals in the community and in providing charity care. 

Meanwhile, while the hospitals gain advantages from ostensibly focused on the mission of providing community care and benefit, not only are there leaders not given incentives to uphold this mission, they are explicitly compared to leaders of for-profit organizations who have no such missions, and who are primarily tasked with increasing short term revenue in this era of "financialization." 

In the Baltimore Sun,

Hospitals note that they compete with private sector businesses where their executives could choose to work instead.

Again, as noted above, there is little evidence that top hired managers are really that mobile, and less that a manager from one sector, e.g., non-profit hospitals, would be in great demand in another, e.g., a for-profit corporation.

The Boston Globe noted an argument made that implied no one should complain about how much non-profit hospital executives make, since executives of for-profit corporations make even more.

 'In a big successful teaching hospital, it’s very rare to see anything less than $1 million in total compensation for the chief executive, and $1.5 million to $2 million is the norm,' [managing director of consulting firm Compensation Resources Paul R] Dorf said. 'Executives at publicly traded pharma or medical device companies can make 10 times as much.'

So if there is little evidence for the mobility of top hired managers, there is less for the desirability of managers of non-profit hospitals as heads of large pharmaceutical or medical device companies.  But furthermore, in trying to justify, albeit illogically, outsize CEO compensation, the defenders of this compensation have provided evidence that the leaders and stewards of non-profit hospitals may no longer care about the hospitals' fundamental mission.  This suggests that hospitals' overt declarations of their mission, especially when used to obtain more donations and tax benefits, may amount to the ethical equivalent of a "long con," that is, a long-term confidence scheme.


Summary

While F Scott Fitzgerald noted that the very rich are different from you and me, it may now be more appropriate to say that top hired managers are very different from you and me.  Again and again we see that they play by very different sets of rules than do other people who work in health care.  Notably, while they often emphasize cost cutting, and may be quick to lay off or outsource other employees, their compensation increases year by year no matter how well their organizations are doing.  While other employees, increasingly now including doctors as well as other health care professionals, have to answer to the hired managers, the hired managers only answer to boards of directors or trustees who often act like their cronies, perhaps because they are often also current or retired hired managers.

Hired managers are subject to incentives that seem designed not to improve patients' and the public's health, but at best to improve the short-term revenue of health care organizations, and at worst to increase the wealth of hired managers.  Such perverse incentives risk promoting ill-considered, mission-hostile, or even corrupt management.  The sorts of people who aspire to be hired managers in such conditions are likely not the sort of people one would expect to really advance the health of patients or of the population.

As a first step to restoring health care leadership to some state of reasonable accountability and responsibility, we need to challenge the rules that only hired managers play by.  It would be nice to see articles in the media about health care CEO compensation that at least attempt to question the usual talking points.  All of us could think about how we could challenge our local million dollar plus hospital CEOs to justify why they should be treated so differently from all other hospital employees.

Since it seems that many hospitals no longer fit at least the spirit of the definition of not-for-profit organizations, even though they use this designation for financial advantage, we need policies to encourage them to uphold their mission, and that provide negative consequences if they do not. 

Why Do People Think US Health Care is Corrupt? - The Examples of Amgen, Mallinckrodt Settling Charges of Giving Kickbacks to Doctors to Induce them to Prescribe Their Products, While No Individual Suffers Negative Consequences

We recently posted a discussion of the results of Transparency International's 2013 corruption barometer, focusing on the US results.  43% of survey respondents thought US health care is corrupt.  Our coverage, apparently the only substantial discussion of the US results published in the US, got star ranking for a while on Reddit.  But many anonymous commentators dismissed the survey results as coming from a naive public who does not understand health care economics.

I submit that one can recognize corruption without a degree in economics.  In fact, as we discussed in the initial post, there is a lot of evidence for the prevalence of health care corruption in the US, other developed countries, and globally.  It is just that such evidence rarely gets discussed in public (the anechoic effect, as we say on this blog), probably because doing so might make those who are profiting from the corruption uncomfortable.

So today let me summarize just the latest evidence about US health care corruption, as defined by Transparency International as the abuse of entrusted power for private gain.  (Note that the Transparency International definition of corruption, which is an ethical, not necessarily a legal definition, at least in most jurisdictions.)

Amgen

An article in the Thousand Oaks [CA] Acorn described the legal settlement,

Amgen Inc. paid the United States more than $15 million this month as part of a settlement agreement to resolve allegations that the biopharmaceutical company used financial kickbacks to persuade doctors to prescribe the cancer drug Xgeva to their patients.

The settlement resolves a qui tam, or 'whistleblower,' lawsuit filed Jan. 20, 2012, in federal court by William Davis and Spencer Miller—two Amgen employees who work at the company’s Thousand Oaks headquarters.

Davis, sales planning director for Amgen’s oncology business unit, and Miller, a senior marketing manager at the company, alleged their employer violated both the Medicare Anti- Kickback Statute and False Claims Act—two laws that aim to prevent Medicare fraud and abuse.

The allegations were that Amgen used a somewhat complex and deceptive strategy to pay doctors who prescribed its drug, using a survey about practice patterns as a cover story,

According to the U.S. attorney’s office, Amgen used what the company called 'Deep Dive' contracts—or data purchase agreements—in an effort to boost sales of Xgeva, which was approved by the FDA in late 2010 for use by certain cancer patients undergoing chemotherapy.

The drug is most commonly prescribed to prevent bone fractures in patients who have been diagnosed with a certain type of tumor after it has spread to the bones.

Under Amgen’s original Deep Dive program, the company paid doctors to fill out an Internet-based survey, which asked how they were treating patients with bone cancer and which drugs they used.

'That’s not illegal to do,' said Abraham Meltzer, assistant U.S. attorney in the Los Angeles civil fraud section. 'A lot of pharmaceutical companies purchase data legitimately on how various conditions are treated.'

But Amgen altered its Deep Dive program, Meltzer said, by increasing the amount of money it offered to pay the doctors who specifically prescribed Xgeva to their patients.

Also,

 The U.S. attorney’s office also alleged that Amgen paid oncologists and urologists to participate in market research surveys, audience response sessions and advisory programs that publicized the benefits of Xgeva.

As is typical in such cases, the settlement did not require any contrition on Amgen's part.  Instead,

In a prepared statement emailed to the Thousand Oaks Acorn on Tuesday, Amgen denied all allegations of wrongful conduct.

'Amgen settled this matter to avoid the delay, uncertainty, inconvenience and expense of protracted litigation,' the statement read.

As is also typical, there seemed to be no negative consequences for the human beings who must have engineered the "Deep Dive" contracts and the payments to the oncologists and urologists.  Nor was there any overt consideration of Amgen's sketchy recent ethical record, as described by the Acorn,

This month’s settlement is not the first time the biopharmaceutical giant has been held to answer for kickback allegations or false claims charges.

In December 2012, Amgen pleaded guilty to illegally selling the drug Aranesp, an anti-anemia drug, for uses or doses not approved by the FDA, according to the U.S. Department of Justice.

As part of the false claims case, which was also brought on by a whistleblower lawsuit, Amgen agreed to pay a $612-million civil settlement to the U.S. and individual states, as well as $150 million in criminal penalties.

Then in April, the Thousand Oaks-based company paid the U.S. another $24.9 million to settle whistleblower allegations that it gave financial kickbacks to long-term care pharmacy providers in exchange for switching Medicare and Medicaid benefi- ciaries from a competing drug to Aranesp, a DOJ press release states.

We discussed the guilty plea in the cases of Aranesp misbranding and alleged kickbacks to pharmacists.  Also, in 2013, we noted that Amgen settled allegations that it overpriced its products sold to government health programs in 36 states.  We also noted that despite, or perhaps because of all this misbehavior, the current CEO of Amgen received over $13 million in compensation in 2012, while his predecessor walked away with over $9 million that year.

Mallinckrodt

A small news item from the Associated Press, via the Nanaimo (MO) Daily News, outlined this legal settlement,

A St. Louis-based drug maker will pay $3.5 million to settle allegations that it paid doctors to prescribe 'outdated, third rate' antidepressants and sleep aids, the U.S. attorney's office in San Francisco announced.

In particular,

The lawsuit alleged the company targeted doctors who prescribed the type of antidepressants and sleep pills Mallinkrodt manufactured.

Again, the company was allowed to settle without admitting anything.

'While we deny the allegations in this matter, we are glad they are resolved,' company spokeswoman Erica Abbett said in a statement.

Again, although human beings would have had to engineer any payments to the doctors to induce them to prescribe, no human beings suffered any consequences as a result of this settlement.

Mallinckrodt, a storied corporate name, had been acquired by Covidien, and then was spun off again as a separate company in June, 2013 (look here).  It had been acquired in 2000 by Tyco International, which later spun off its health care operations as Covidien.   According to its 2013 proxy statement, Covidien's CEO received over $10 million in total compensation in 2012.


[Note that Tyco was the subject of one of the major scandal stories of the early 21st century.  In 2005, at a time when law enforcement authorities were still pursuing actions against elite corporate executives,  its former CEO and CFO were convicted of stealing millions from it (see USAToday summary)].

Summary - Why do People Think US Health Care is Corrupt?  

Again, the Transparency International definition of corruption is abuse of entrusted power for private gain.  I would argue that pharmaceutical companies are entrusted with the power to honestly sell drugs whose benefits to patients outweigh their harms.  I would further argue that paying physicians, who are entrusted with providing the best possible care to each individual patient, to prescribe drugs which may not be the best treatment for individual patients is an abuse of both the company's and the physicians' entrusted power.  Further, such payments provide private gain to the physicians.  They also may increase revenues for the company who makes these payments, and very likely these increased revenues lead to better compensation for those in the company who authorized, directed or directly provided the payments, that is to private gain for these corporate insiders.  Thus it seems that kickbacks to physicians to prescribe drugs is a form of corruption.

While both cases above were settled without admissions of guilt, such settlements do not refute the contentions that kickbacks were given.  Why would the law enforcement officials have brought the cases in the absence of evidence, and why would the companies have settled if the cases were completely baseless?  So I would argue that these settlements provide evidence, although not legal proof, that kickbacks were given.  People with far more legal knowledge than I possess have remarked on the absurdity of settling cases of alleged wrongdoing without any acknowledgement or statement of the facts (see posts here and here).

We have posted lots of instances of conflicts of interest affecting health care, many of which likely involved payments providing private gain that raised the risk of abuse of entrusted power.  We have also discussed many instances of crime, kickbacks, bribery, fraud other kinds of health care corruption.

So were the people who answered the Transparency International survey naive and foolish about health care corruption?  Or did they have reasonable beliefs about a topic that the powers that be really do not want to discuss?

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.

A "Simply Outstanding," "Superb" Hospital CEO Cops a Plea to Two Felonies

In all the discussions of what is wrong with US health care, very rarely is the quality of the leadership of health care organizations questioned.  In fact, no major US health care organization seems to have leadership that is anything short of brilliant.  The amazing brilliance of these leaders serves as a rationale for the ever increasing compensation that they receive.  Yet while subordinates, friendly members of boards of trustees, and hard working public relations flacks may stress their leaders' wondrous qualities, there rarely is an opportunity to compare their proclamations with results.

A few small items in the New York media provide us one case study of how these proclamations may not square with reality.

Background

In 2005, the CEO of New York's renowned Hospital for Special Surgery announced his retirement.  In a hospital news release, we find these pronouncements about outgoing President and CEO John Reynolds,

HSS board Co-Chairman Aldo Papone said, 'John's guidance and devotion to the Hospital for Special Surgery these last two decades have been simply outstanding. Under his watch, the quality of care, fiscal health and scope of treatment for musculoskeletal disease at the hospital have reached the highest level in its history.  While we regret his decision, we can only offer a most grateful expression of thanks...'

Also, HSS board Co-Chairman Dean R. O'Hare said,

He is a superb leader and we appreciate his thoughtful approach to succession which is emblematic of his service to HSS.

I cannot find anything on the internet about Mr Reynolds' compensation prior to his retirement, but in 2006, after he took on the position of Co-CEO during the transition, a copy of the hospital's 2006 990 form filed with the US Internal Revenue service, (and still available here, note though that rather confusingly, the Hospital still files under its archaic original name, "The New York Society for the Relief of the Ruptured and Crippled,") showed that Mr Renynolds' total compensation was $1,310,603

The CEO as Crook

Nothing publicly appeared to challenge the notion that Mr Reynolds' leadership was less that "outstanding" and "superb" until a Bloomberg article in September, 2012,

.

John R. Reynolds, former chief executive officer of New York's Hospital for Special Surgery, was charged by federal prosecutors with taking $1.4 million in a decade-long illegal-kickback scheme.

Reynolds, 63, was arrested at his home in Massachusetts this morning, according to a statement from the office of U.S. Attorney Preet Bharara. An indictment unsealed today in Manhattan federal court charges Reynolds with racketeering and making false statements to the government. He faces as long as 25 years in prison if convicted.

Prosecutors claim that, from 1996 to 2007, Reynolds took money from at least two hospital vendors, a hospital employee and an unidentified health-care organization in the U.K.

Furthermore,

 The government claims Reynolds took a total of $420,000 in kickbacks from at least two hospital vendors, from 1996 to 2002, in exchange for steering hospital business to them. From 2000 to 2005, he extorted an additional $298,500 from a subordinate at the hospital after negotiating an annual bonus for the employee, according to the charges. Reynolds also received $670,000 for approving a clinical partnership between his hospital and the U.K. health-care organization, prosecutors claim.


Reynolds is also charged with lying in 2008 to an agent of the U.S. Department of Health and Human Services inspector general’s office.

'By allegedly exploiting his position at the helm of a world renowned hospital for his own personal gain, John Reynolds tarnished the hospital’s reputation and did a disservice to its employees,' Bharara said in the statement.

Not surprisingly,

 'Obviously, it was a shock to us,' said Deborah Sale, a hospital spokeswoman, referring to the charges.

Of course, in the US, people accused of crimes are assumed to be innocent until proven guilty.  So I am now writing about this case because yesterday Bloomberg published the follow up story,

The former chief executive officer of New York’s Hospital for Special Surgery, charged by federal prosecutors with taking $1.4 million in kickbacks, pleaded guilty to two felonies. 

John R. Reynolds, 64, today pleaded guilty to wire fraud and making false statements, admitting that he took payments from a hospital employee and lied to investigators about it.

He will be subject to a stiff fine, although less than what he was charged with extracting through his scheme, and may be imprisoned,

 Under a plea agreement with the government, Reynolds will forfeit $718,500. Both sides agreed that federal sentencing guidelines, which are advisory, call for him to serve 27 to 33 months in prison.

The story so far has also been covered briefly by two tabloids, the New York Post, and the Daily News.  To date, the Hospital for Special Surgery has not issued a news bulletin on this.

Summary

So yet another "outstanding," "superb" multimillion dollar CEO turned out to be something rather less, in  fact, to be a criminal.


We have frequently discussed how the leaders of large US health care organizations are often hailed as brilliant, and compensated hugely for their brilliance, but rarely publicly subject to any objective assessment of their performance.  In many cases, they seem unaccountable for leadership that may be ill-informed, hostile to the health care mission, or even criminal or corrupt.

 The good news is that this criminal was eventually caught.  The bad news is that it only happened 18 years after he began acting criminally, hardly an example of swift justice.  One wonders how many other brilliant health care leaders will years later turn out not to be so, and how many others' performance will never be publicly assessed.  

While we breathlessly await the rigorous prospective study that assesses public assessments of the leaders of large health care organizations against objective results, we are stuck with case studies as a means to do so.  This case study shows a particularly stark contrast between the public relations puffery and the sordid reality. 


Instead of "brilliant" leaders paid like royalty, we would do better with competently collegial leaders rewarded reasonably as part of a team all focused on the health care mission, which puts service to patients first.  As long as health care organizations appear to be a path to riches for their leaders, expect the people who want to lead them to be more interested in their own fortunes than patients' and the public's health.  As long as health care professionals, policy makers and the public assume that those who lead health care organizations are fully qualified, fairly paid, and always do what is right, expect the insiders to continue to run things for their own profit. 

The qualifications of those who would lead health care, how much they are paid, what they are doing and what the results of their work are ought to be publicly known and publicly discussed.  Health care professionals, policy makers, and the public should demand nothing less.  . 

Pfizer May No Longer be Able to Delay Paying Its Asbestos Claims of Nearly $1 Billion

Pfizer, which claims to be the "world's largest research-based pharmaceutical company," is one step closer to paying a nearly one billion dollar settlement of legal claims of harms due to the asbestos products it used to manufacture.

Pfizer Settles - More or Less - Some of its Asbestos Liability

Most people would not think of Pfizer as a producer of asbestos.  However, the back-story, as reported in the Philadelphia Inquirer, and as we discussed here in 2011, is that

Pfizer used to have a minerals, pigments and metals division and, in 1968, it bought Quigley Company Inc., which made insulation for heavy industry.

Quigley's Insulag contained asbestos.

So,

Quigley stopped production at its facility in Old Bridge, N.J., in 1992.  When it filed for bankruptcy in 2004, Quigley faced more than 160,000 lawsuits, most related to asbestos product liability.

By apparently holding out the legal fiction that Quigley was an independent entity, Pfizer seemed to use to use the bankruptcy filing to delay making any payment of these claims, most of which likely involved illnesses due to asbestos exposure.  As the Inquirer article said,

Pfizer has spent the nine years since arguing that bankruptcy law protects it from such lawsuits.

notwithstanding the fact that Pfizer itself is hardly bankrupt.

But now, as Bloomberg reported (via the New London [CT] Day),

 Pfizer Inc.'s non-operating Quigley Co. won permission to end almost nine years in bankruptcy under a plan that resolves most asbestos claims against the former insulation maker and its parent, the world's largest drugmaker.

U.S. Bankruptcy Judge Stuart Bernstein in Manhattan Wednesday approved a Chapter 11 plan under which Pfizer will contribute assets worth $964 million. He rejected a prior plan almost three years ago, saying Pfizer was improperly using Quigley's bankruptcy to shield itself from asbestos claims.

Note that Pfizer has consistently argued that it should bear no responsibility for the effects of the asbestos made by its subsidiary:

'Pfizer has never been found derivatively or directly liable for injuries allegedly caused by Quigley's asbestos- containing products,' [Pfizer spokesman Christopher] Loder said.

Pfizer used to have a minerals, pigments and metals division and, in 1968, it bought Quigley Company Inc., which made insulation for heavy industry. Quigley's Insulag contained asbestos.
Read more at http://www.philly.com/philly/business/20130627_Drug-maker_Pfizer_fails_to_escape_costly_asbestos_case.html#AltGBB8oXa8YPkAC.99

Furthermore,

Pfizer has said throughout the case that it never made or sold Quigley's products and it doesn't have liability for them. Asbestos, once widely used as an insulator, was later shown to cause cancer.

Convenient Fictions

This case received little notice in 2011 and is receiving little notice now, and mainly for its business implications.  Yet the reporting does suggest  dots to connect to reveal some larger hypocrisies.

Dedicated to improving health and well being?

Pfizer asserts on its website that it

has remained dedicated to discovering and developing new, and better, ways to prevent and treat disease and improve health and well being for people around the world.[italics added]

Yet despite this supposed dedication to health and well-being, it has long delayed any possible compensation to people who may have acquired severe, if not fatal disease from contact with one of its products.

As per Bloomberg, note the examples of

people like Brenda Hagerich, 62, of Hot Springs, Ark., may get payments on their claims. Hagerich, whose father died in 1999 of mesothelioma, said she has been waiting for a second distribution of a $125,000 payment.

Ownership without responsibility

According to current media reports,  Pfizer attorneys repeatedly contended that because Quigley was a subsidiary of Pfizer, Pfizer could not be held accountable for its actions.  Yet Pfizer owned, and presumably thus gained all revenue from and chose the leadership of Quigley.  At best, maintaining this fiction seems heartless given Pfizer's stated interest in peoples' "health and well being."

Who knew asbestos was dangerous?

The current reports seem to imply that Pfizer's accountability should be mitigated because at the time it acquired Quigley, no one knew that asbestos was hazardous.  The Bloomberg report stated,

Quigley made asbestos-containing products from the 1940s to the 1970s, including Insulag, a powdered insulation. Pfizer, based in New York, bought the company in 1968.

But,

Pfizer has said throughout the case that it never made or sold Quigley's products and it doesn't have liability for them. Asbestos, once widely used as an insulator, was later shown to cause cancer.

The last sentence implies that asbestos was only shown to cause cancer after Pfizer acquired Quigley in 1968.  However, this suggests a lack of knowledge of medical history.

In fact, evidence that asbestos was dangerous would have been readily available in 1968. Pulmonary asbestosis was recognized in 1927.(1, noted in 2).  Furthermore, by 1952, as per Dr Richard Doll(3),

The majority of workers (cited by Hueper, 1952) consider that a causal relationship between asbestosis and lung cancer is either proved or is highly probable and the reality of the relationship was agreed at the recent International Symposium on the Epidemiology of Lung Cancer.

Doll reported further data in 1954 and concluded,

lung cancer was a specific industrial hazard of certain asbestos workers....

Summary

So while Pfizer officials ought to have known that in 1968 it was acquiring a company that made products that likely caused lung cancer, for more than 40 years, they have managed to stall payments to now mainly the heirs of people who acquired severe disease due to those products.  This clearly suggests that in this matter the company leadership has consistently put its revenue ahead of its ostensible dedication to peoples' health and well being.  Then again, this is hardly the first example of dubious ethical conduct by Pfizer.  See this post for a list of the 14 legal settlements of allegations of misconduct made by Pfizer since 2000, only one of which was related to the current case.

Furthermore, dedication to short-term revenue over everything else has resulted in huge wealth for Pfizer's hired managers.  Per the Wall Street Journal, only the latest example is,

The total 2012 compensation for Pfizer Inc. (PFE) Chief Executive Ian C. Read was valued at $25.6 million, up 2.5% from 2011, as the drug maker hit two out of three key financial objectives last year. 

Mr. Read's compensation was based partly on the company exceeding targets for total revenue and adjusted earnings-per-share, while missing its target for cash flow in 2012, Pfizer said in a proxy statement filed Thursday with the U.S. Securities and Exchange Commission.

Presumably, the total revenue target would have been a bit lower if Pfizer had managed to set aside assets to pay the asbestos related claims discussed above in 2012 rather than in 2013.

This relatively anechoic example shows how hollow ring most of the claims by leaders of big health care organizations that they value patients' and the public's health.  That may be convenient public relations puffery, but again and again the bottom line seems to matter more to them.  We have shown numerous examples of mission-hostile management, and of leaders compensated outrageously out of proportion to their contributions to patients' and the public's health.  Thus, why should health care professionals, or patients believe that anything they do puts patients ahead of money?

As we have said so often, health care professionals and society at large needs to hold large health care organizations' leadership accountable for their missions, and push out leaders who put their own pocketbooks and their organizations' revenue ahead of patients' and the public's health. 



References

1.  Cooke WE.  Pulmonary asbestosis.  Br Med J 1972; 2: 1024.
2.  Hasan FM, Nash G, Kazemi H. Asbestos exposure and related neoplasia: the 28 year experience of a major urban hospital.  Am J Med 1978, 65: 649-654. Link here.
3.  Doll R. Mortality from lung cancer in asbestos workers.  Br J Indust Med 1955; 12: 81-86.  Link here.