Long After the Start of the "War on Terror," a Conflict of Interest about an Anthrax Scare Comes to Light

In May, David Willman writing for the Los Angeles Times broke a story of a somewhat new variant on the conflict of interest theme, one that has not gotten a lot of attention, but should.

The issue was medical, with a twist, - how to best treat a bioterror attack with anthrax engineered to be resistant to multiple drugs, an event that luckily is not known to ever have occurred.  The story came from the bad old days of the "war on terror," but only has now come to light years later.

The Alarm Raiser

The story opened thus,

Over the last decade, former Navy Secretary Richard J. Danzig, a prominent lawyer, presidential advisor and biowarfare consultant to the Pentagon and the Department of Homeland Security, has urged the government to counter what he called a major threat to national security.

Terrorists, he warned, could easily engineer a devastating killer germ: a form of anthrax resistant to common antibiotics.

In particular,

Danzig began warning about antibiotic-resistant anthrax after the terrorist attacks of Sept. 11, 2001, and the mailings of anthrax-laced letters that fall.

The powdered anthrax in the letters killed five people but was not resistant to common antibiotics. Asked what gave rise to his concern about resistant strains, Danzig cited conversations with 'people whose technical skills exceed mine.' One of them, Dr. Robert P. Kadlec, a bioterrorism advisor in the Bush White House, said he and others were concerned that terrorists could develop such a weapon.

Danzig has sounded the alarm in published papers and in private briefings and seminars for biodefense and intelligence officials.

In a 2003 report funded by the Pentagon, "Catastrophic Bioterrorism — What Is To Be Done?" he wrote that it would be 'quite easy' for terrorists to produce antibiotic-resistant anthrax. He has expanded on that theme over the years, including in a 2009 paper for the Pentagon.

In the 2003 report, published while raxi [raxibacumab, an anthrax anti-toxin] was in development at Human Genome, Danzig said a drug to combat resistant strains of anthrax should be produced 'as soon as possible' and that stockpiling such a treatment, 'even if expensive and in limited supply' would deter an attack.

John Vitko Jr., a top Homeland Security official during the Bush and Obama administrations, said he turned frequently to Danzig for advice on biodefense matters — and read and 'paid attention to' his 'Catastrophic Bioterrorism' report.

Note that while Danzig is a lawyer, and certainly not a physician or biomedical researcher, he had major credibility in the defense field, particularly in anti-terrorism, so his recommendations had great influence.

He served as a Pentagon appointee during the Carter administration and as undersecretary and then secretary of the Navy under President Clinton. He has a long-standing interest in biowarfare.

During the 2008 presidential campaign, Danzig advised then-Sen. Barack Obama on national security and bioterrorism. After Obama's election, Danzig was named to the Pentagon's Defense Policy Board and the President's Intelligence Advisory Board, in addition to his consulting positions with the Defense Department and Homeland Security.

So apparently at least partly due to Mr Danzig's persistent warnings, the government took action,

 In 2004, President Bush signed into law Project BioShield, which provided billions of dollars for biodefense drugs.

The contracts are administered by the Department of Health and Human Services, based on advice from federal agencies and consultants. Homeland Security must certify the need for a drug before the government can buy it.

 Danzig, through his seminars, writings and consulting duties, has helped frame the discussion over whether a given biological threat is 'material' and whether the government should stockpile medicines to defend against it.

Also,

Speaking of Danzig's broader role as a government advisor, Vitko said: 'Richard's got incredible insights into this and I think has made major contributions'

He called Danzig one of 'the major bio player' and said his views had informed a range of policy considerations, including 'how many countermeasures do you need, of what kind.'

It was in response to advice from Vitko and his staff that Homeland Security Secretary Tom Ridge in 2004 declared anthrax a 'material threat,' the certification required for the government to buy drugs to fight it.

The drug the government bought was raxibacumab, or raxi, an anthrax anti-toxin made by Human Genome Sciences Inc.  

In 2006, the Department of Health and Human Services finalized its first order of raxi — 20,000 doses at a cost of $174 million.

That year, Ridge's successor, Michael Chertoff, signed a second, more specific declaration, adding 'multi-drug-resistant' anthrax to the government's list of material threats.

Asked the basis for the second declaration, Vitko said: 'I think the concern was more forward-looking, and saying, 'How could the threat evolve, and are we prepared for that?''

Since 2009, the Obama administration has ordered an additional 45,000 doses of raxi for $160 million.

There was just one catch.

The Undisclosed Conflict

Mr Danzig had a largely undisclosed conflict of interest.  He was on the board of directors of Human Genome Sciences Inc, the company whose drug his constant warnings and exhortations lead the government to buy.

When Human Genome named Danzig to its board on May 24, 2001, the company's chief executive said his high-level federal experience would 'serve us well.'

He thus was on the board on September 11, 2001, and later when the events on that day and soon after apparently induced him to start sounding the alarm about resistant anthrax, and he stayed on the board as he continued sounding alarms, and after the government started buying his company's drug.

During his 11-year tenure on the board, which ended in August, Danzig collected at least $1,054,255 in director's fees and by cashing in grants of Human Genome stock and stock options, according to Fred Whittlesey of Compensation Venture Group, who reviewed the company's Securities and Exchange Commission filings for The Times.

Nearly half of Danzig's compensation came from the stock options, of which he had been granted 184,000 by the end of 2011, Whittlesey said.

Danzig did not seem to think that serving on the board of the company which made the primary drug directed at the perhaps hypothetical disease about which Danzig was sounding the warning constituted any sort of conflict of interest.

Danzig said in an interview that he believed his position at Human Genome posed no conflict.

He said he had tried to improve policymakers' understanding of biodefense issues, including the threat of antibiotic-resistant anthrax, but never lobbied the government to purchase raxi.

'My view was I'm not going to get involved in selling that,' Danzig said. 'But at the same time now, should I not say what I think is right in the government circles with regard to this? And my answer was, 'If I have occasion to comment on this, it ought to be in general, as a policy matter, not as a particular procurement.'

'I feel that I've acted very properly with regard to this'' he said.

He also apparently did not feel he needed to disclose his board membership to most of the people he was trying to persuade to be alarmed about resistant anthrax, and to pursue a treatment, such as that made by the company on whose board he sat.

 A number of senior federal officials whom Danzig advised on the threat of bioterrorism and what to do about it said they were unaware of his role at Human Genome.

Dr. Philip K. Russell, a biodefense official in the George W. Bush administration who attended invitation-only seminars on bioterrorism led by Danzig, said he did not know about Danzig's tie to the biotech company until The Times asked him about it.

Also,

 Vitko said he knew nothing of Danzig's involvement with Human Genome until a Times reporter asked him about it.

'I'm surprised I didn't,' Vitko said. 'I'm not aware of it.'

Five other present or former biodefense officials who conferred with Danzig said they, too, had been unaware of his position with the company. Danzig, they said, made no mention of it in their presence during group discussions he led or in smaller meetings.

Furthermore,

A Times search found seven papers Danzig had written on bioterrorism since 2001. In only one of those did he disclose his tie to Human Genome.

As an advisor to the federal government, Danzig is required to file confidential forms annually, revealing any outside affiliations but not his related compensation. Danzig said he had noted his position with the biotech firm on the forms.

Asked whether he mentioned his corporate role during contacts with government officials, Danzig replied: 'If I thought any of it posed a potential conflict that might cause somebody who knew about it to discount my views, I would tell them.'

Some people disagreed with Danzig's failure to perceive a conflict of interest

 'Holy smoke—that was a horrible conflict of interest,' said Russell, a physician and retired Army major general who helped lead the government's efforts to prepare for biological attacks.

The Take-Over by a Familiar Corporation

By the way, Human Genome Science was eventually bought out by a bigger company which has had its own sets of issues regarding conflicts of interest, GlaxoSmithKline,

 Human Genome was acquired by GlaxoSmithKline in August [presumably 2012] for $3.6 billion.

It may yet stand to make even more money from raxi,

 Because raxi loses its potency after three years in storage, the government's supply will expire as of 2015, according to federal documents and people familiar with the matter. 

Summary

This appears to be a variant on the "key opinion leader" (KOL) theme writ large.  Mr Danzig clearly functioned as a very major key opinion leader about bioterrorism.  Like many KOLs we have previously discussed, he had financial interests that favored the company whose drugs his key opinion leadership seemed to be favoring.  His influence seems to have lead to huge purchases of these drugs. Like many KOLs who are physicians or health care academics, Mr Danzig seems utterly blind to the possibility that his multiple efforts to emphasize the importance of the supposed disease for which his company made a drug could somehow be viewed as a conflict of interest, or to why failure to tell his audiences about his major relationship to this company might have appeared just a small bit dishonest.  We have seen many medical/ health care KOLs who deny that somehow their opinions could have been influenced by their financial relationships, or that their audiences deserved at least to be aware of these relationships.  Yet, of course, Mr Danzig is not a doctor, and he was trying to influence government purchasers of drugs, not physician prescribers of it.

It does seem that the leadership of health care organizations, particularly but certainly not limited to pharmaceutical and biotechnology companies, have no lack of imagination about how to construct financial relationships with influential people who could help sell their products, whether or not they acknowledge what amounts to their marketing roles.

Given that this story involved influencing the government, it will be interesting to see at this late date whether it results in any legal action.  After all, as David Willman pointed out,

 Federal law bars U.S. officials, including consultants, from giving advice on matters in which they or a company on whose board they serve have 'a financial interest.'

It will also be interesting to see if it gets any more attention.  Only a few blogs have noted it, but at least they included The Scientist.


Yet our country has an unfortunately very long history of corporate leaders getting close to political leaders who then may overlook the legal niceties when their friends' interests are at stake.  Nonetheless, true health care reform would require all those who have decision making power over patients, health policy, or the public health to be completely transparent about their conflicts of interest, and would ban the more serious variants of conflicts of interest, even if that might cost some already rich people a bit of money.  I am not holding my breath, however, about when this might happen.

More Cause for Hope - After Novartis Chairman's Rescinded Golden Parachute, Swiss Voters Give Control of Hired Executives' Salaries Back to Owners

Recently, we discussed the latest stupefyingly big golden parachute given to a departing pharmaceutical executive.  Former Novartis CEO and outgoing chairman Daniel Vasella was to be given more than $75 million, after making multiple millions previously, ostensibly so he would not go to work for a competitor.  After a public outcry, the company cancelled the plan, and Vasella admitted a "mistake."  This was the only instance in recent memory in which a big health care organization pulled back some huge executive pay package due to public protest.

Swiss Voters Give Control of Pay of Hired Executives Back to Company Owners

Now Swiss voters have approved a referendum which would actually let the owners of public companies, the stockholders, decide how much to pay hired executives.  As summarized by the New York Times,

Swiss citizens voted Sunday to impose some of the world’s most severe restrictions on executive compensation, ignoring a warning from the business lobby that such curbs would undermine the country’s investor-friendly image.

 The vote gives shareholders of companies listed in Switzerland a binding say on the overall pay packages for executives and directors. Pension funds holding shares in a company would be obligated to take part in votes on compensation packages.

In addition, companies would no longer be allowed to give bonuses to executives joining or leaving the business, or to executives when their company was taken over. Violations could result in fines equal to up to six years of salary and a prison sentence of up to three years. 

The new rules in Switzerland would be unprecedented in the current era.  

Those who are Ostensibly Pro-Business Defend Hired Executives, not Owners

Despite the fact that the new rules would give control over one type of hired employees, hired executives, back to the shareholders, the owners of companies, spokespeople for big companies, but presumably really for their top executives, claimed that the rule would be bad for shareholders.

 

Ahead of the vote, [the Swiss business federation] EconomieSuisse and Mr. Minder’s other opponents warned of dire consequences if the referendum passed, notably in terms of keeping Switzerland attractive to foreign companies and investors. 

But [chief proponent of the new rules] Mr. Minder argued that Switzerland would benefit if it gave shareholders control over the companies in which they invested.

Furthermore, the Guardian reported, 

Minder says the massive sums demonstrate that company boards have lost control of pay and prefer to fork out 'astronomical' salaries rather than pay dividends to shareholders.

Minder told the Swiss daily Le Temps that the only solution was to give shareholders the power to set pay.

 A Bloomberg article suggested that driving the vote were how the Swiss are

 worried about how long they can fend off the crisis that has engulfed the rest of Europe, and dissatisfied with a feeling of being ripped off by their elites.

'It is scandalous. No one deserves to be paid such monstrously high salaries, especially when their employees get paid not much in comparison,' Marianne Lecoultre, a pensioner who lives in a modest flat on the outskirts of Geneva, told me. 

The Germans are Thinking of Making Hired Executives More Accountable

The German media outlet Deutsche Welle reported that there is now more interest in returning control of hired executive pay to company owners there as well.

 After Swiss citizens voted Sunday to impose controls on executive pay, a similar debate has started in Germany. 

Furthermore,

Joachim Poß, the parliamentary leader of the opposition Social Democratic Party, told the daily Neue Osnabrücker Zeitung that the outcome of the referendum was an important step towards restricting the money-grabbing prevalent in corporate management,

He noted that the referendum was encouragement for an initiative at the EU level, and added that 'people do no longer accept perverted bonus systems, neither in banks nor in the real economy.'

Summary: Ripped Off by Health Care Elites

I can start to imagine how supposedly pro-business people in the US will dismiss actions taken by European countries as anti-business and probably "job killing," even though these actions actually gave more control of publicly held business to their owners, not to government, which would seem to be fully in support of capitalism.  Again, maybe some people making the loudest pro-business noises are really sympathetic to, if not paid by, the hired managers of businesses who have put their enrichment ahead of the interests of other employees, customers, clients or patients, the business owners (stockholders, that is), and the public at large. 

Enormous compensation of hired health care executives, out of all proportion, if related at all to whether their work had any positive effect on patients' or the public's health, has long been a concern on Health Care Renewal.  For example, back in 2006, we posted repeatedly (look here for links) about the billion dollar plus fortune amassed by the then CEO of UnitedHealthcare which vividly contrasted with the company's avowal to "make health care more affordable."  That seemed to be an example back then of a rip off by a member of the health care elite.  Now the notion that our top elites have been generally ripping us off is becoming more widespread.

In my humble opinion, the perverse incentives generated by a system that allows top executives to make almost unlimited amounts, regardless of all other considerations, has been a major reason for US and global health care dysfunction.  Making executive compensation less perverse, and ultimately making health care leaders accountable for the effects of what they do on patients' and the public's health may be an absolutely necessary step to make our health care system more functional.  Now at least there is some precedent, admittedly from Europe, for making top hired managers more accountable. 


As Pierre Briancon wrote in Reuters,

 Corporate boards had better take notice: public outrage at what looks like persistent and unapologetic greed in the most severe economic slump in decades is forcing governments to step in. Throughout Europe, indignation at private excess has become a policy problem for administrations trying to explain the need to cut public spending.

In addition,

Self-moderation doesn’t work and self-interest continues to prevail. Throughout the Western world, corporate boards have paid lip service to the need to take into account public opinion, and nothing much has changed either in the banking industry – the symbol of immoderation – or in the wider corporate world. In desperation, governments are taking more forceful action – sometimes reluctantly: the Swiss referendum followed a failure by the country’s parliament to heed to public indignation.

Government intervention can often be clumsy, and it is fraught with the risk of unintended consequences. But it is the right of governments to legislate on social ills – and excessive and provocative private-sector pay has become one. Meanwhile the lobbies promising economic apocalypse have failed to make their case – and to scare anyone with warnings that 'talent' – as they call it – may relocate to friendlier countries. It would be in the interest of all if they stopped turning a deaf ear to calls for decency emanating even from countries like Switzerland, which is hardly a hotbed of Soviet-style command economics.

Even though the final impetus for the overwhelming majority vote on the Swiss referendum came from a ridiculous golden parachute from a pharmaceutical company, the discussion so far has not centered on health care.  So I get to close with something I have repeated on and on, now with a little hope that it may not be considered so extreme....

 Health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.

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

Another Reason for Hope? - Concern about Excessive Executive Pay in Health Care Goes Mainstream

Another recent case suggested that the problem of excess, disproportionate compensation of health care executives is becoming more of a mainstream concern. 

The Case of Eastern Connecticut Health Network

The case appeared in the Manchester (CT) Journal-Inquirer (link requires subscription).  Here are the basics:

ECHN Inc., which owns Mancester Memorial and Rockville General hospitals, reported to the IRS last year that the company paid its president and CEO, Peter J Karl, a total of $1,042,200 in salary and fringe benefits.  That's a 30.7 percent increase over Karl's compensation reported in the previous year,....

ECHN also reported that six other top executives were paid between $254,640 and $591,090, representing increases of as much as 20.6 percent. 

ECHN is yet another relatively small non-profit hospital system with a million dollar plus CEO.

For comment on this, I turn back to the Journal-Inquirer article.  One person the reporter interviewed

says the big salaries and bonuses paid to top officials at Eastern Connecticut Health Network are part of a national scandal over executive compensation propelled by the 'pursuit of talent for short-term gains.'

'The hospital industry is emblematic of what's happened in executive compensation in the United States, where the multiple of the lowest- paid employee to get to the salary of the highest-paid employee has just exploded over the last 30 years,'....

Furthermore, the person interviewed noted that hospital executives were bemoaning decreases in payments to their institutions by state government "while making 10 to 20 times as much money as" the state governor makes.  In this case, the CEO, Mr Karl's "compensation package was 6.9 times [Governor Daniel P] Malloy's salary of $150,000."

A second person interviewed said

Salaries have gotten to the point where they have skyrocketed and are out of control.

He also raised an issue about conflicts of interest affecting the ECHN board

he agreed with state health care advocate, Victoria Veltri, who told the Journal Inquirer last week that nearly $1 million in business deals between ECHN and five members of its board of trustees require further scrutiny

Criticism from the Mainstream

I have been coy about who the commentators were, but bear with me.

So we see in this one somewhat obscure newspaper article about one small regional hospital system points that we have been raising for years about the perverse incentives generated by excess executive compensation in health care.  We have frequently discussed how such compensation is often completely untethered to the organizations' financial results, much less its positive effects on patients' and the public's health.  Compensation often rises faster than inflation, faster than revenue (and sometimes when revenue declines and deficits loom), and even when the organization is facing financial, clinical, or ethical challenges.  Thus it often seems that the primary goal of the organization has become enriching top executives (look here for a recent example).  As the first commentator noted above, this seems to arise out of the business school dogma that puts short-term revenue ahead of all other goals (which we discussed here, and can be termed financialization.)

But our concerns do seem to be getting more mainstream.  The first commentator above was actually the Governor of Connecticut, Dannel P Malloy, himself.  The second commenter was Connecticut state Senator Steve Cassano.  So prominent politicians are beginning to see the perversity of excess executive compensation in health care at a time of still burgeoning health care costs and still threatened health care access and quality. 

So maybe some more people will listen this time when we repeat....  Health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.

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