The Greedy Leading the Greedy - Multimillionaire Former Johnson and Johnson CEO Approved Huge Compensation for JP Morgan Chase CEO After Company Paid $20 Billion in Legal Settlements

<b>JP Morgan Chase CEO Got Huge Raise Despite Company's Recent Huge Legal Settlements </b><br /><br />The current compensation set by the board of directors of JP Morgan Chase for CEO Jamie Dimon, $20 million a year, has attracted some attention (e.g., see <a href="http://www.rollingstone.com/politics/blogs/taibblog/jamie-dimons-raise-proves-u-s-regulatory-strategy-is-a-joke-20140130">this commentary</a> by Matt Taibbi), especially given the contrast between his raise and the $20 billion or so the company had to pay out last year in settlements of allegations of unethical practices.  A New York Times <a href="http://www.nytimes.com/2014/02/01/business/accounting-for-jamie-dimons-big-pay-raise.html">opinion piece</a> rushed to Mr Dimon's defense<br /><br /><blockquote class="tr_bq">in the world of executive compensation, especially when viewed from the rarefied perspective of other chief executives, and more broadly on Wall Street, Mr. Dimon’s pay — and how it was determined — is <i>not only defensible, but laudable.</i></blockquote><br /><br />Also,<br /><br /><blockquote class="tr_bq">I spoke this week to several people with direct knowledge of the board’s discussions about Mr. Dimon’s pay. They said that the <i>compensation committee went through an exhaustive process </i>to determine the right level and that the board considered the likely negative reaction. 'We were mindful of it, but it didn’t influence our decision,' said one, who like the others, spoke only on condition of anonymity. 'Some people were going to criticize us unless we paid him nothing. <i>We were trying to do the right thing</i>.' </blockquote><br />The author did conclude with a quote from Rep Peter Welch (D - Vermont),<br /><br /><blockquote class="tr_bq">This isn’t really about Jamie Dimon. It’s about <i>a whole culture of immunity</i> for the consequences of your actions.<br /></blockquote><b>A Retired Pharmaceutical CEO Who Also was Hugely Compensated Despite his Company's Troubles Set Dimon's Pay </b><br /><br />We have frequently discussed how the culture of immunity, or <a href="http://hcrenewal.blogspot.com/search/label/impunity">impunity</a> found in <a href="http://hcrenewal.blogspot.com/search/label/finance">finance</a> may carry over into health care, since now many extremely rich  leaders of finance firms sit on boards of trustees of health care institutions like hospitals and hospital systems, universities and their associated medical schools and teaching hospitals, and health related foundations, and boards of trustees of health care corporations. <br /><br />In this case, maybe the culture carried over from health care to finance.<br /><br />The NY Times article noted<br /><br /><blockquote class="tr_bq"> The compensation and management development committee of JPMorgan Chase’s board has three members, <i>all seasoned business luminaries in their own right</i>. Lee R. Raymond, the chairman, is the former long-serving chairman and chief executive of Exxon Mobil. Stephen B. Burke is chief executive of NBCUniversal. <i>William C. Weldon is the former chairman and chief executive of Johnson & Johnson.</i></blockquote><br />Mr Weldon is the former pharmaceutical representative who rose to CEO of giant pharmaceutical/ biotechnology/ device company Johnson and Johnson.  Despite the appellation of business luminary above bestowed by the author of the NYT article, we noted <a href="http://hcrenewal.blogspot.com/2013/12/the-camels-aching-back-johnson-and.html">here</a> how many settlements have been made by, fines assessed against, and other adverse legal actions affecting Johnson and Johnson in the recent past.  Our lengthy summary of such cases is appended at the end of this post.<br /><br />Yet Mr William Weldon, the outgoing CEO on whose watch most of the misbehavior resulting in the legal actions listed in the appendix below occurred, retired with a huge retirement package, after receiving extremely generous compensation prior to that.   The retirement package was estimated to be worth from $143 to $197 million (look <a href="http://hcrenewal.blogspot.com/2012/03/despite-recalls-legal-settlements-and.html">here</a>).  In 2010, his total compensation was $29 million (look <a href="http://hcrenewal.blogspot.com/2012/02/semi-retirement-of-salesman-weldon-to.html">here</a>).   According to the <a href="http://www.investor.jnj.com/secfiling.cfm?filingID=1193125-12-113826">2012 Johnson and Johnson proxy statement</a>, his 2011 total compensation was greater than $26 million. As far as I can tell, Mr Weldon never suffered any negative consequences for his company's sorry record, and retired a very rich man.<br /><br />Yet the luminous Mr Weldon got to make the decision about how much to pay Mr Jamie Dimond after his company's recent sorry record.<br /><br /><b>Summary</b><br /><br />So it appears that the top hired executives of health care and finance organizations, and the so-called stewards sitting on their boards of directors are all blending together.  Together they are in charge of assuring that top hired executives get richer and richer even while the companies they lead commit seemingly endless strings of ethical and sometimes legal offenses.<br /><br /><br />Is this any way to run health care, or the economy?<br /><br />As I have repeated ad nauseum,<br /><br /><div class="A_Standard__35__20_Normal">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. <br /><br />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 <a href="http://hcrenewal.blogspot.com/2012/08/duchess-of-wellpoint-abdicates-likely.html">here</a>). 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 "<a href="http://www.washingtonpost.com/blogs/election-2012/wp/2012/09/04/patrick-it-is-time-for-democrats-to-grow-a-backbone/">grow a backbone</a>" and go after the people who were responsible for and most profited from the ongoing ethical debacle in health care.<br /><br />Again, true health care reform would make leaders of health care organization accountable for their organizations' bad behavior.</div><br /><br /><div class="A_Standard__35__20_Normal"><b>Appendix - Johnson and Johnson Recent Legal Record</b></div><div class="A_Standard__35__20_Normal"></div><div class="A_Standard__35__20_Normal"></div><div class="A_Standard__35__20_Normal"><span style="background-color: #eeeeee;"><u>2010 </u></span></div><div class="A_Standard__35__20_Normal"><span style="background-color: #eeeeee;">- Convictions in two different states in 2010 for misleading marketing of Risperdal</span><br /><span style="background-color: #eeeeee;">- A guilty plea for misbranding Topamax in 2010</span><br /><span style="background-color: #eeeeee;"><u>2011</u></span></div><div class="A_Standard__35__20_Normal"><span style="background-color: #eeeeee;">- Guilty pleas to bribery in Europe in 2011 by Johnson and Johnson's DePuy subsidiary</span><br /><span style="background-color: #eeeeee;">- A guilty plea for marketing Risperdal for unapproved uses in 2011 (see <a href="http://hcrenewal.blogspot.com/2011/08/why-cultivate-weldons-confidence-ceo.html">this link</a> for all of the above)</span><br /><span style="background-color: #eeeeee;">- A guilty plea to misbranding Natrecor by J+J subsidiary Scios (see post <a href="http://hcrenewal.blogspot.com/2011/09/johnson-and-johnson-pleads-guilty.html">here</a>)</span><br /><span style="background-color: #eeeeee;"><u>2012 </u></span></div><div class="A_Standard__35__20_Normal"><span style="background-color: #eeeeee;">- 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 <a href="http://hcrenewal.blogspot.com/2012/02/texas-tmap-trials-as-illustration-of.html">here</a>).</span><br /><span style="background-color: #eeeeee;">-  Also in 2012,  Johnson & Johnson was fined $1.1 billion by a judge in Arkansas for deceiving patients and physicians again about Risperdal (look <a href="http://hcrenewal.blogspot.com/2012/04/once-more-with-feeling-johnson-and.html">here</a>).</span><br /><span style="background-color: #eeeeee;">-  Also in 2012, Johnson & Johnson announced it would pay $181 million to resolve claims of deceptive advertising again about Risperdal (see this <a href="http://hcrenewal.blogspot.com/2012/09/how-many-legal-settlements-does-it-take.html">post</a>). </span></div><div class="A_Standard__35__20_Normal"><span style="background-color: #eeeeee;"><u>2013</u></span> </div><div class="A_Standard__35__20_Normal"><span style="background-color: #eeeeee;">-  In 2013, Johnson & Johnson settled case by shareholders alleging that management made misleading statements and withheld material information about manufacturing problems (see this <a href="http://hcrenewal.blogspot.com/2013/07/johnson-and-johnson-settles-suit.html">post</a>)</span></div><div class="A_Standard__35__20_Normal"><span style="background-color: #eeeeee;">-  In 2013, Johnson & Johnson Janssen subsidiary pleaded guilty to a charge of misbranding Risperdal, and settled for a total of $2.2 billion allegations that it promoted the drug for elderly demented patients and adolescents without an indication, and despite evidence of its harms (see this <a href="http://hcrenewal.blogspot.com/2013/11/another-and-huge-22-billion-settlement.html">post</a>).  </span></div><div class="A_Standard__35__20_Normal"><span style="background-color: #eeeeee;">-  In 2013, Johnson & Johnson DePuy subsidiary agreed to settle with multiple plaintiffs for $2.5 billion allegations that it sold defective mental-on-metal artificial hip, and hid evidence of its harms .</span></div><div class="A_Standard__35__20_Normal"><span style="background-color: #eeeeee;">- In 2013, Johnson & Johnsonn Janssen subsidiary was found by two juries to have concealed harms of its drug Topamax (see this <a href="http://hcrenewal.blogspot.com/2013/11/there-they-go-again-again-johnson-and.html">post</a> for this and above case).</span></div><div class="A_Standard__35__20_Normal"><span style="background-color: #eeeeee;">- In 2013, Johnson & Johnson Ethicon subsidiary's Advanced Surgical Products and two of its executives agreed to settle charges by US FDA that is sold mislabeled products used to sterilize equipment such as endoscopes (see this <a href="http://hcrenewal.blogspot.com/2013/12/how-many-straws-johnson-and-johnson.html">post</a>). </span></div><div class="A_Standard__35__20_Normal"><span style="background-color: #eeeeee;">- In 2013, Johnson & Johnson fined by European Commission for anticompetitive practices, that is, collusion with Novartis to delay marketing generic version of Fentanyl (see this <a href="http://hcrenewal.blogspot.com/2013/12/the-camels-aching-back-johnson-and.html">post</a>).  </span></div>

The Greedy Leading the Greedy - Multimillionaire Former Johnson and Johnson CEO Approved Huge Compensation for JP Morgan Chase CEO After Company Paid $20 Billion in Legal Settlements

JP Morgan Chase CEO Got Huge Raise Despite Company's Recent Huge Legal Settlements The current compensation set by the board of directors of JP Morgan Chase for CEO Jamie Dimon, $20 million a year, ha…

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Putting Finance Executives in Charge of Health Care? - What Could Possibly Go Wrong?

A US News and World Report <a href="http://health.usnews.com/health-news/hospital-of-tomorrow/articles/2014/01/28/wanted-hospital-ceos-without-health-care-experience">article</a> affirms what we have <a href="http://hcrenewal.blogspot.com/2013/12/health-care-experience-hospital-ceos.html">previously written</a>, that those charged with the stewardship of US hospitals are even more inclined now to hire top managers with little or no health care experience or credentials. <br /><br /><b>Putting Finance Managers in Charge </b><br /><br />They particularly seem to favor executives drawn from the world of finance.<br /><br />Just to make it really clear, the exposition started with the article title, <br /><br /><blockquote class="tr_bq">Wanted: Hospital CEOs Without Health Care Experience </blockquote><br />The article drew on some of the figures about executive hiring which we <a href="http://hcrenewal.blogspot.com/2013/12/health-care-experience-hospital-ceos.html">discussed</a> in December, 2013,<br /><br /><blockquote class="tr_bq">It’s expected that<i> two-thirds of hospital CEOs hired this year will have little to no health care experience,</i> according to Black Book Rankings, which last year conducted a poll of 1,404 human resource officers and board members of health care organizations</blockquote><br />However, the new article profiled some examples,<br /><br /><blockquote class="tr_bq">.When Carlos Migoya was hired in May 2011 to run Jackson Health System, Miami-Dade County’s safety net hospital system, he had no health care experience. <i>A career banker</i>, Migoya took over.....</blockquote><br />Also,<br /><br /><blockquote class="tr_bq">Mike Keating, CEO of Christ Hospital in Cincinnati, previously was <i>an investment banker</i>.;Robert Meyer, president and CEO of Phoenix Children's Hospital, came from the <i>consulting world;</i>... </blockquote><br /><br />The article stressed that hospital boards think a background in finance is particularly valuable.<br /><br /><blockquote class="tr_bq">Hospital board and HR directors are looking for <i>non-industry productivity, business development and <b>financial management </b>experts with heavy technological expertise. </i></blockquote><br />Also,<br /><br /><blockquote class="tr_bq">[executive vice president and managing principle at Cejka Executive Search. Paul]  Esselman  notes that boards increasingly 'are looking at leaders from managed care, the payer side or from f<i>inance or banking</i>.'</blockquote><br /><b>Why Hospital Boards Favor Finance Executives </b><br /><br /><blockquote class="tr_bq">banking, like health care, is heavily regulated and that two decades ago banking went through significant consolidation, which hospitals today face.</blockquote><br />So,<br /><br /><blockquote class="tr_bq">[ managing partner of Black Book Rankings Doug] Brown says leaders that come from productivity-focused fields and sectors that have endured consolidation are particularly suited for running hospitals today. <i>Those in financial services may prove useful in today’s climate,</i> as 'there are a lot of troubled hospitals,' he says.</blockquote><br />As we <a href="http://hcrenewal.blogspot.com/2013/12/health-care-experience-hospital-ceos.html">noted before</a>, the article suggested that those who hire hospital executives think their most important challenges s included  -<br /><br /><blockquote class="tr_bq">'<i>Communication</i> is now more important than ever,; says Paul Esselman</blockquote><br /><blockquote class="tr_bq">the opportunities come in <i>delivering its service or business lines to ever-expanding distribution channels</i>.</blockquote><br /><blockquote class="tr_bq">says [former investment banker Mike] Keating. 'The key in health care is how you go about <i>executing</i> and executing well.'</blockquote><br /><blockquote class="tr_bq">[former banker Carlos] Migoya put in place <i>operational reforms</i>, including bringing in 'a lot of people with for-profit experience' to <i>maintain expense controls, monitor operations, collect payments more quickly and pay its own bills sooner</i> to gain prompt-payment discounts. Then, 'we <i>realigned procurement</i>,' he says, adding 'we motivate our procurement department with incentives,' which 'dramatically improved' Jackson Health’s process, time and costs. Meanwhile, the system <i>outsourced pharmaceutical management</i>, saving $15 million a year.... </blockquote><br />Note that these examples are all about management process and financial outcomes, NOT about clinical processes, quality of care, or patient outcomes.  (The only mention of anything close to clinical management was a plan to outsource same.)<br /><br />Left unsaid is that the boards charged with the stewardship of hospitals are now mainly composed of business executives, often heavily weighted with those in finance. <br /><br /><b>Summary - What Could Go Wrong?</b><br /><br />Of course, former bankers, and others from the world of <a href="http://hcrenewal.blogspot.com/search/label/finance">finance </a>may not really know much about clinical work, quality of care, or patient outcomes.  They may not have been picked because they care about such issues, nor socialized with the "patient first" mantra which health professionals are supposed to support. <br /><br />Worse, it seems that those who choose hospital executives may not be thinking about the recent history of finance.  True, it shares with health care the presence of regulation and increasing consolidation.  However, as we all started to realize in 2008, the leaders of finance helped bring on the worst financial crisis since the great depression.  More than five years since the beginning of this new great recession, US median income is dropping adjusted for inflation, while income inequality has tremendously increased.  Finance executives have been prime proponents of <a href="http://hcrenewal.blogspot.com/search/label/financialization">financialization</a>, the theory that increasing shareholder value, which really seems to translate into increasing organizational short term income and increasing executive compensation are more important than any other outcomes.  Thus seems to correspond to the discussion above about financial and management objectives sans any notion of what is good for patients.<br /><br />Even more disturbing is all the anecdotal evidence that business management, particularly in finance, has been gripped by overarching greed.  Pope Francis called it the "idolatry of money."  (look <a href="http://www.washingtonpost.com/business/economy/pope-francis-denounces-trickle-down-economic-theories-in-critique-of-inequality/2013/11/26/e17ffe4e-56b6-11e3-8304-caf30787c0a9_story.html">here</a>).<br /><br />In his graphic <a href="http://www.nytimes.com/2014/01/19/opinion/sunday/for-the-love-of-money.html">memoir</a> of his days as a successful Wall Street trader, Sam Polk called it wealth addiction, .  <br /><br /><blockquote class="tr_bq">I noticed the vitriol that traders directed at the government for limiting bonuses after the crash. I heard the fury in their voices at the mention of higher taxes. These traders despised anything or anyone that threatened their bonuses. Ever see what a drug addict is like when he’s used up his junk? He’ll do anything — walk 20 miles in the snow, rob a grandma — to get a fix. Wall Street was like that. In the months before bonuses were handed out, the trading floor started to feel like a neighborhood in 'The Wire' when the heroin runs out.</blockquote><br />He was not the first to describe wealth addiction:<br /><br /><blockquote class="tr_bq"> Wealth addiction was described by the late sociologist and playwright Philip Slater in a 1980 book, but addiction researchers have paid the concept little attention. Like alcoholics driving drunk, wealth addiction imperils everyone. Wealth addicts are, more than anybody, specifically responsible for the ever widening rift that is tearing apart our once great country. Wealth addicts are responsible for the vast and toxic disparity between the rich and the poor and the annihilation of the middle class. Only a wealth addict would feel justified in receiving $14 million in compensation — including an $8.5 million bonus — as the McDonald’s C.E.O., Don Thompson, did in 2012, while his company then published a brochure for its work force on how to survive on their low wages. Only a wealth addict would earn hundreds of millions as a hedge-fund manager, and then lobby to maintain a tax loophole that gave him a lower tax rate than his secretary.</blockquote><br />Physicians swear oaths to put patient care ahead of all else.  While we may be far from perfect in our adherence to these oaths, I would like to think that when health care organizations were lead by health professionals, many tried to put patient care first  Yet professional managers, not health care professionals now lead health care.<br /><br />.In 1988, Alain Enthoven advocated in <a href="http://www.amazon.com/gp/product/0444703594/102-6581115-0444916?n=283155">Theory and Practice of Managed Competition in Health Care Finance</a>, a book published in the Netherlands, that to decrease health care costs it would be necessary to break up the "physicians' guild" and replace leadership by clinicians with leadership by managers (see 2006 post <a href="http://hcrenewal.blogspot.com/2006/03/consequences-of-breaking-physicians.html">here</a>). Thus from 1983 to 2000, the number of managers working in the US health care system grew 726%, while the number of physicians grew 39%, so the manager/physician ratio went from roughly one to six to one to one (see 2005 post <a href="http://hcrenewal.blogspot.com/2005/04/growing-proliferation-of-managers.html">here</a>). As we noted <a href="http://hcrenewal.blogspot.com/2013/09/a-plague-of-bureaucrats-now-10-per.html">here</a>, the growth continued, so there are now 10 managers for every US physician.<br /><br />The managers who first took over health care may have had some health care background.  Now it seems that health care managers are decreasingly likely to have any health care background, and increasingly likely to be from the world of finance.  Can anyone seriously believe that finance managers taught to put short-term revenue first, and who may often be wealth addicts who practice the idolatry of money in charge of health care is going to improve anything other than those same managers' wealth?<br /><br />As I have said before,  true health care reform would put in place leadership that understands the health care context, upholds health care professionals' values, and puts patients' and the public's health ahead of extraneous, particularly short-term financial concerns. We need health care governance that holds health care leaders accountable, and ensures their transparency, integrity and honesty.<br /><br />But this sort of reform would challenge the interests of managers who are getting very rich off the current system.  So I am afraid the US may end up going far down this final common pathway before enough people manifest enough strength to make real changes.

Putting Finance Executives in Charge of Health Care? - What Could Possibly Go Wrong?

A US News and World Report article affirms what we have previously written, that those charged with the stewardship of US hospitals are even more inclined now to hire top managers with little or no he…

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Question for the New Year: Why is There Next to No Reaction to the Gilded Age of Health Care?

For the New Year, it is time to ponder- why is there still no organized outrage over the ongoing <a href="http://hcrenewal.blogspot.com/search/label/ill-informed%20management">incompetent</a>, <a href="http://hcrenewal.blogspot.com/search/label/mission-hostile%20management">uncaring</a>, <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">self-interested</a>, <a href="http://hcrenewal.blogspot.com/search/label/conflicts%20of%20interest">conflicted</a>, and often outright <a href="http://hcrenewal.blogspot.com/search/label/crime">corrupt</a> leadership of health care organizations we have documented incessantly on Health Care Renewal?<br /><br />For example, just a few days ago, we <a href="http://hcrenewal.blogspot.com/2012/12/tis-season-for-legal-settlements.html">documented</a> a series of cases in which large US and multinational health care organizations settled cases alleging they deceptively marketed drugs so as to exaggerate their benefits and conceal their harms, bribed doctors and officials  outside of the US, gave kickbacks to US doctors, defrauded the US government, and monopolized markets for drugs, yet few leaders, and no top leaders of the companies involved suffered any negative consequences for authorizing, directing, or implementing these activities.  We have discussed many previous <a href="http://hcrenewal.blogspot.com/search/label/legal%20settlements">legal settlements</a> involving similar bad behavior and similar impunity by the leaders of the organizations involved.   Again and again we have discussed how large organizations, often but not always drug, biotechnology and device companies, have manipulated the scientific literature (e.g., see examples of <a href="http://hcrenewal.blogspot.com/search/label/manipulating%20clinical%20research">manipulation of clinical research</a>, <a href="http://hcrenewal.blogspot.com/search/label/suppression%20of%20medical%20research">suppression of clinical research,</a> and specific practices such as <a href="http://hcrenewal.blogspot.com/search/label/ghost%20writing">ghost-writing</a> of apparently scholarly articles to benefit vested interests.)   We have discussed <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">overblown compensation</a> that made top managers and other organizational insiders rich without any rationale other than their ability to take such money off the top.  Yet in the US, despite ever rising costs presumably provoked by such leadership, without corresponding improvements in quality or access, there is still no organized movement for change.<br /><br />The problems in US health care, however, seem to parallel problems in the larger society, and the world at large.  We have discussed parallels with bad leadership of <a href="http://hcrenewal.blogspot.com/search/label/finance">financial firms</a>, including the firms that drove us into the global financial collapse/ great recession, and to continuing income stagnation, recession, austerity, and decreasing opportunity for the poor and middle class around the world.<br /><br />Yet parallel questions are just beginning to be asked about larger related political economic problems.  Recently, historian Brad DeLong attempted to address the question, "why next to no reaction to the second gilded age?"  (See <a href="http://delong.typepad.com/sdj/2012/12/brad-delong-why-next-to-no-political-reaction-to-the-second-gilded-age.html">this</a>.).  Unfortunately, while he could demonstrate two powerful political movements that opposed the first Gilded Age, he was completely at a loss to explain why there has been no similar organized outrage about the second Gilded Age in which we exist today.  Despite incompetent, uncaring, self-interested, conflicted, and often outright corrupt leadership of many large corporations, non-profit organizations, and government agencies only a few voices, often bloggers like us, have objected.<br /><br />Economist Mark Thoma then took up the question, but the best he could do was suggest that outrage has been moderated because of the existing, if frayed, social safety net, and because many people nonetheless saw the last two decades as a time of increasing economic opportunity. (See <a href="http://economistsview.typepad.com/economistsview/2012/12/why-next-to-no-political-reaction-to-the-second-gilded-age.html">this</a>. )   He did not address how this view may have been wrong, since the last two decades were a time of obviously worsening income inequality.<br /><br />Yves Smith of Naked Capitalism finally offered some insight (see <a href="http://www.nakedcapitalism.com/2012/12/links-123012.html">this</a>) by noting the importance of "propaganda," corresponding, I think, to the widespread deceptive <a href="http://hcrenewal.blogspot.com/search/label/marketing">marketing</a> and <a href="http://hcrenewal.blogspot.com/search/label/public%20relations">public relations</a>, and the use of covertly paid <a href="http://hcrenewal.blogspot.com/search/label/key%20opinion%20leaders">key opinion leaders </a>to further both that we frequently discuss.  Finally she suggested that people feel powerless because they see themselves as "atomized individuals," even though they many are currently being treated as interchangeable parts by the leaders of large organizations who can control the actions of large number of employees to further their self-interest.<br /><br />There must be more reasons.  There ought to at least be some organized discussion of these reasons.  After that there needs to be some organized action to promote real reform.  I conclude the often miserable 2012 with a plea for those who are interested and concerned to come together to create real solutions. <br /><br />ADDENDUM (1 January, 2013) - see <a href="http://theeconomismscam.blogspot.com/2012/12/why-no-outrage-more-on-how-economism.html">comments</a> by Dr Howard Brody on the Economism Scam blog.

Question for the New Year: Why is There Next to No Reaction to the Gilded Age of Health Care?

For the New Year, it is time to ponder- why is there still no organized outrage over the ongoing incompetent, uncaring, self-interested, conflicted, and often outright corrupt leadership of health c…

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Pfizer's 13th Legal Settlement - Will it be Enough to End the Impunity?

It has been almost two months since we lasted <a href="http://hcrenewal.blogspot.com/2012/10/when-clinical-trials-are-meant-for.html">noted</a> misbehavior by giant global pharmaceutical firm Pfizer Inc. With little fanfare, however, a few small news items noted the corporation's latest legal settlements.<br /><br /><b>Deceptive Marketing of Protonix </b><br /><br />The first settlement merited only a few paragraphs <a href="http://www.reuters.com/article/2012/12/12/us-pfizer-settlement-idUSBRE8BB19O20121212">from Reuters</a>.  The gist was:<br /><br /><blockquote class="tr_bq"><span id="articleText"><span class="focusParagraph"><span class="articleLocatio</span>n"><i>Pfizer Inc will pay $55 million plus interest to settle charges that Wyeth promoted its acid reflux drug Protonix for unapproved uses and made unproven claims</i> about the medicine, the U.S. Department of Justice said on Wednesday.  </span></span></span><br /><br /><span id="articleText">The infractions took place between February 2000 and June 2001, long before the world's largest drugmaker acquired Wyeth in 2009 for $68 billion.</span></blockquote><br /><span id="articleText">A <a href="http://www.examiner.com/article/pfizer-agrees-to-pay-55m-for-illegally-promoting-protonix">report</a> in the examiner explained that Wyeth did not merely go beyond the label in promoting Protonix, it went beyond the evidence.</span><br /><br /><blockquote class="tr_bq">Wyeth allegedly promoted Protonix as the 'best PPI for nighttime heartburn' <i>even though there was never any clinical evidence that Protonix was more effective</i> than any other PPI for nighttime heartburn. </blockquote><br />Furthermore, the charges were that systemic efforts to mislead were sanctioned by top management:<br /><br /><blockquote class="tr_bq"> The allegations in the complaint are that this superiority slogan was formulated <i>at the highest levels of the company</i>. Wyeth retained an outside market research firm, at the cost of tens of thousands of dollars, to ensure that sales representatives delivered that misleading superiority message.</blockquote><br />Finally, the government asserted that Wyeth corrupted physicians' continuing medical education in the process:<br /><br /><br /><blockquote class="tr_bq">Finally, the government alleges that Wyeth<i> used continuing medical education (CME) programs to promote Protonix for unapproved uses. </i>CME programs are sponsored by accredited independent providers, such as universities, nonprofit organizations, or specialty societies. Pharmaceutical companies are permitted to provide financial support for CME programs, but they are not permitted to use CME programs as promotional vehicles for off-label indications.<br /><br />According to the complaint, Wyeth spent millions of dollars providing 'unrestricted educational grants' to CME providers, and <i>these grants invariably included promises that Wyeth would not attempt to influence the content of the program in any way. Nevertheless, the government alleges that one of Wyeth’s core marketing tactics for Protonix was to use CME programs to drive off-label use of the drug. According to the complaint, the Protonix 'brand team' influenced virtually every aspect of these CME programs: program topics, speaker selection, organization, and content.</i> In addition, the government alleges that <i>Wyeth even insisted that the CME program materials use the same color and appearance as Protonix promotional materials</i>–a tactic that Wyeth and the vendor called 'branducation.'</blockquote><br />So it seemed that the company put on quite an effort to promote what we have called elsewhere pseudo-evidence based medicine, yet, like many other legal settlements involving large health care organizations, this one involved no penalties of any type against the people within the organization who authorized, directed, or implemented the bad behavior.  <br /><br /><span id="articleText"> <b>Misleading Marketing of Zyvox, Lyrica</b></span><b><span id="articleText"> </span></b><br /><br /><span id="articleText">Another settlement, for a few dollars less, got even less attention.  Fox Business news did <a href="http://www.foxbusiness.com/news/2012/12/12/pfizer-will-pay-42-million-to-settle-unfair-marketing-charges-related-to-zyvox/">repor</a>t this:</span><br /><br /><blockquote class="tr_bq"><span id="articleText"> </span><i>Pfizer Inc. (PFE) agreed to pay a combined $42.9 million to North Carolina and 32 other states in a settlement of allegations that the drug maker used unfair and deceptive practices in the marketing of antibiotic Zyvox and nerve-pain medicine Lyrica.</i></blockquote><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">I could find no detail about the sorts of deception allegedly involved in the news media.  What little more Fox provided did suggest that this case also involved pitching drugs in instances in which their use was unsupported by good evidence:</div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><blockquote class="tr_bq"><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">The states had alleged that Pfizer had marketed Zyvox as superior to another antibiotic in fighting certain types of infections, though there allegedly <i>wasn't substantial evidence to support superior results </i>for some uses that Pfizer claimed.<br /><br />The states also alleged that Pfizer marketed Lyrica for some off-label, or unapproved, uses. </div></blockquote><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">There was no hint that again any individual would suffer any negative consequences for this particular set of deceits either.</div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><b>Avoiding Impunity as a Topic of Polite Discussion</b></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">We have discussed a seemingly endless parade of <a href="http://hcrenewal.blogspot.com/search/label/legal%20settlements">legal settlements</a> by large health care organizations.  In almost none was there any consequence beyond a fine paid by the company, and sometimes a pledge that the company would thereafter behave better.  While these relatively small costs were diffused throughout the organizations, almost never did the people who authorized, directed, or implemented the bad behavior pay any price or suffer any penalty.  Thus we have opined again and again (e.g., most recently <a href="http://hcrenewal.blogspot.com/2012/11/phony-consulting-and-royalty-agreements.html">here</a>) that these settlements have become just another cost of doing business, and have no power to deter future bad behavior.<br /></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">In addition, we have noted not only have multiple organizations made such settlements, some organizations have settled again and again.  Yet even in the cases of these multiple organizational offenders, the individuals involved maintain their immunity from any negative consequences.  Thus these are examples of impunity.  </div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">Transparency International declared 23 November, 2012, as the <a href="http://www.transparency.org/news/feature/international_day_to_end_impunity">International Day to End Impunity</a>, explained as follows:</div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"></div><blockquote class="tr_bq"><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">At Transparency International we view <i>impunity as getting away with bending the law, beating the system or escaping punishment. <b>Impunity is anathema</b> to the fight against corruption</i>.</div></blockquote><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br />However, impunity is one of those concepts which never seems to be a subject of polite conversation in health care, or, as we say, it has become <a href="http://hcrenewal.blogspot.com/search/label/anechoic%20effect">anechoic</a>.  </div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br />Therefore, it is fascinating that while these two Pfizer settlements were announced almost simultaneously, each was discussed, such as it was, as if it occurred in a vacuum.  Moreover, it also seems that each settlement was crafted by law enforcers without any attention to the record of the company making the settlement.  Thus, any implications about impunity were avoided.</div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><b>Pfizer's Multiple Ethical Opfenses</b></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">In fact, during the time we have been posting on Health Care Renewal, Pfizer has become one of the great repeat ethical offenders in the health care arena.  Its track record since the beginning of the 21st century, (with yello colored background below, compiled from <a href="http://hcrenewal.blogspot.com/2012/08/pfizers-pforeign-pfiasco.html">this post</a>), is remarkable.</div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><span style="background-color: #fff2cc;">In the beginning of the 21st century, <a href="http://articles.philly.com/2009-09-03/business/25267571_1_pfizer-employee-pfizer-sales-representatives-zyvox">according to the Philadelphia Inquirer</a>, Pfizer made three major settlements,</span> <br /><blockquote><span style="background-color: #fff2cc;">October 2002: Pfizer and subsidiaries Warner-Lambert and Parke-Davis agreed to pay $49 million to settle allegations that the company fraudulently avoided paying fully rebates owed to the state and federal governments under the national Medicaid Rebate program for the cholesterol-lowering drug Lipitor.</span></blockquote><blockquote><span style="background-color: #fff2cc;">May 2004: Pfizer agreed to pay $430 million to settle DOJ claims involving the off-label promotion of the epilepsy drug Neurontin by subsidiary Warner-Lambert. The promotions included flying doctors to lavish resorts and paying them hefty speakers' fees to tout the drug. The company said the activity took place years before it bought Warner-Lambert in 2000.</span> </blockquote><blockquote><span style="background-color: #fff2cc;">April 2007: Pfizer agreed to pay $34.7 million in fines to settle Department of Justice allegations that it improperly promoted the human growth hormone product Genotropin. The drugmaker's Pharmacia & Upjohn Co. subsidiary pleaded guilty to offering a kickback to a pharmacy-benefits manager to sell more of the drug.</span></blockquote><span style="background-color: #fff2cc;"><br />Thereafter, Pfizer paid a $2.3 billion settlement in 2009 of civil and criminal allegations and a Pfizer subsidiary entered a guilty plea to charges it violated federal law regarding its marketing of Bextra (see post <a href="http://hcrenewal.blogspot.com/2009/09/pfour-legal-settlements-for-pfizer-why.html">here</a>).  Pfizer was involved in two other major cases from then to early 2010, including one in which a jury found the company guilty of violating the RICO (racketeer-influenced corrupt organization) statute (see post <a href="http://hcrenewal.blogspot.com/2010/03/settlement-and-conviction-round-up.html">here</a>).  The company was listed as one of the pharmaceutical "big four" companies in terms of defrauding the government (see post <a href="http://hcrenewal.blogspot.com/2010/12/drug-companies-are-now-no-1-when-it.html">here</a>).  Pfizer's Pharmacia subsidiary settled allegations that it inflated drugs costs paid by New York in early 2011 (see post <a href="http://hcrenewal.blogspot.com/2011/02/pharmacia-or-maybe-pfizer-settles-only.html">here</a>).   In March, 2011, a settlement was announced in a long-running class action case which involved allegations that another Pfizer subsidiary had exposed many people to asbestos (see <a href="http://www.bloomberg.com/news/2011-03-22/pfizer-reaches-asbestos-settlement-that-may-end-quigley-unit-s-bankruptcy.html">this story</a> in Bloomberg).  In October, 2011, Pfizer settled allegations that it illegally marketed bladder control drug Detrol (see this <a href="http://hcrenewal.blogspot.com/2011/10/what-pfizer-v-few-consequences-for-long.html">post</a>). Finally, in August, 2012, Pfizer settled allegations that its subsidiaries bribed foreign (that is, with respect to the US) government officials, including government-employed doctors (see this <a href="http://hcrenewal.blogspot.com/2012/08/pfizers-pforeign-pfiasco.html">post</a>).  </span></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">By my count, the two current settlements would be numbers twelve and thirteen.  Of course, while I believe this list is accurate, it may be incomplete.</div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">Since none of these posts involved any negative consequences for any individuals who authorized, directed, or implemented the bad behavior, or who profited from it, and none involved any changed in the leadership or organization of the company, this becomes an amazing record of the impunity of Pfizer leadership over time and space. <br /></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><b>Will Impunity Finally Lead to Outrage? </b></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br />Impunity, though, is a concept that is beginning to command some attention.</div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">The <a href="http://15iacc.org/about/declarations/the-brasilia-declaration/">Brasilia Declaration</a> which was published at the conclusion of the 15th International Anti-Corruption Conference (hosted by <a href="http://www.transparency.org/">Transparency International</a>) included:</div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"></div><blockquote class="tr_bq"><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">it is clear <i>we all face a common challenge in our work: impunity for those who abuse positions of power. </i></div></blockquote><blockquote class="tr_bq"><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">If impunity is not stopped, <i>we risk the dissolution of the very fabric of society and the rule of law, our trust in our politics and our hope for social justice.</i><br /><br />Activists, businesspeople, politicians, public officials, journalists, academics, youth and citizens who gathered in Brasilia to discuss the threat of corruption made it clear that <strong>impunity undermines integrity everywhere. </strong><br /><br />Whether we are investing collective efforts and resources in fighting poverty, human rights violations, climate change or bailing out indebted economies, <i>we need to give the people a reason to believe that impunity will be stopped.</i></div></blockquote><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">While the two latest Pfizer settlements barely got media coverage, maybe a $1.9 billion dollar settlement in the US by international banking giant will get more attention.  The charges in this case were not merely deceiving some doctors and patients about drug efficacy and safety.  The company was accused of aiding money laundering by drug cartels, and facilitating rogue regimes get around international sanctions.  As the New York Times <a href="http://dealbook.nytimes.com/2012/12/10/hsbc-said-to-near-1-9-billion-settlement-over-money-laundering/">reported</a>, </div><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><blockquote class="tr_bq"><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;">State and federal authorities decided against indicting HSBC<a class="tickerized" href="http://dealbook.on.nytimes.com/public/overview?symbol=HBC&inline=nyt-org" title="More information about HSBC Holdings PLC"></a> in a money-laundering case over concerns that criminal charges could jeopardize one of the world’s largest banks and ultimately destabilize the global financial system.<br /><br />Instead, HSBC announced on Tuesday that it had <i>agreed to a record $1.92 billion settlement with authorities. The bank, which is based in Britain, faces accusations that it transferred billions of dollars for nations like Iran and enabled Mexican drug cartels to move money illegally through its American subsidiaries.</i></div></blockquote><div style="background-color: white; border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; color: black; overflow: hidden; text-align: left; text-decoration: none;"><br /></div><span id="articleText">Unlike Pfizer's slow-motion impunity, this example got attention.  The Los Angeles Times <a href="http://articles.latimes.com/2012/dec/11/business/la-fi-hsbc-fine-20121212">noted</a>,</span><br /><br /><blockquote class="tr_bq">The massive penalty still was not enough to appease some critics. No bank executives were charged as part of the investigation, leading some analysts to question the government's willingness to hold powerful Wall Street firms accountable.<br /><br />'<i>It's mind-boggling how they think you can have a financial system and allow this kind of impunity</i>,' said William Black, a former banking regulator who aided federal prosecutors during the savings and loan crisis of the 1980s and 1990s. <i>HSBC 'put the world at enormous risk.'</i></blockquote><span id="articleText"><br /></span><span id="articleText">A NY Times <a href="http://www.nytimes.com/2012/12/12/opinion/hsbc-too-big-to-indict.html">editorial</a> opened,</span><br /><br /><blockquote class="tr_bq"><span id="articleText"><i>It is a dark day for the rule of law. </i>  Federal and state authorities have not to indict HSBC, the London-based bank, on charges of vast and prolonged money laundering, for fear that criminal prosecution would topple the bank and, in the process, endanger the financial system.  They have also not charged any top HSBC banker in the case, though it boggles the mind that a bank could launder money as HSBC did without anyone in a position of authority making culpable decisions.</span><br /><br /><span id="articleText">Clearly, the government has bought into the notion that too big to fail is too big to jail.  When prosecutors choose not to prosecute to the full extent of the law in a case as egregious as this, the law itself is diminished.  The deterrence that comes from the threat of criminal prosecution is weakened, if not lost.</span></blockquote><br /><span id="articleText">So maybe this huge financial case will prove to be the straw that breaks impunity's back.  So I will close by quoting the end of the Brasilia Declaration, in the hope that a few people will take it to heart in the context of health care, as well as in finance.</span><br /><br /><br /><blockquote class="tr_bq">To take this important struggle forward the international anti-corruption community should promote greater people engagement and find ways to provide greater security for anti-corruption activists.<br /><br />Reducing impunity also requires independent and well-resourced judiciaries that are accountable to the people they serve.<br /><br />We call on leaders everywhere to embrace not only transparency in public life but a culture of transparency leading to a participatory society in which leaders are accountable.<br /><br />We call on the anti-corruption movement to support and protect the activists, whistleblowers and journalists who speak out against corruption, often at great risk.<br /><br />It is up to all of us in government, business and society to embrace transparency so that it ensures full participation of all people, bringing us together to send a clear message: <i>We are watching those who act with impunity and we will not let them get away with it.</i></blockquote>

Pfizer's 13th Legal Settlement - Will it be Enough to End the Impunity?

It has been almost two months since we lasted noted misbehavior by giant global pharmaceutical firm Pfizer Inc. With little fanfare, however, a few small news items noted the corporation's latest lega…

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"Why Do We Always Need to Blame Somebody?" - An Investment Banker Pushes Back Against Health Care Leadership Accountability

One of the many dramatic stories generated by the destructive Hurricane Sandy illustrated, oddly enough, the influence of big finance on American academic medicine.<br /><br />Vivid video showed patients being carried down darkened stairways after flooding and a power failure at Langone Medical Center in New York (for example, see<a href="http://www.cnn.com/2012/10/30/health/sandy-hospital/index.html"> this CNN story</a>.)  Amazingly, all the patients survived, thanks to heroic work by health care professionals and first responders.  CNN noted, "Some 1,000 staff members -- doctors, nurses, residents and medical students -- along with firefighters and police officers evacuated the patients."<br /><br />The medical center suffered significant damage beyond that caused by the blackout.  A New York Times <a href="http://www.nytimes.com/2012/11/10/nyregion/damage-from-hurricane-sandy-could-cost-nyu-langone-millions.html">story</a> about the problems was entitled, "A Flooded Mess that was a Medical Gem."  It noted the hospital's basement flooding destroyed major equipment like MRI machines, a linear accelerator and a gamma knife.  An animal research facility was destroyed and most of the animals died.  A renovated lecture hall and the library were ruined.<br /><br /><b>What Went Wrong?</b><br /><br />However, soon after the debate began about why the hospital flooded and power failed.  A Bloomberg <a href="http://www.businessweek.com/news/2012-10-30/new-york-hospital-evacuates-patients-as-sandy-hits-power">story</a> stated, <b> </b><br /><br /><blockquote class="tr_bq">New York University Langone Medical Center, the 705-bed hospital in lower Manhattan <i>that assured city officials it was ready for Hurricane Sandy, stood dark and empty a day after the storm</i> rolled through. </blockquote><br />That story raised questions whether hospital leadership gave adequate priority to infrastructure like generators, or put too much emphasis on spending likely to produce more rapid rewards.<br /><br /><blockquote class="tr_bq">Blame is being placed on the building’s outdated backup power system, which has raised concern that aging infrastructure at U.S. hospitals has created a risk for similar outages that jeopardize patient care.<br /><br /><br /><i>'Hospitals are careful to get the latest and greatest medical equipment, but then they don’t spend on the infrastructure,'</i> Michael Orlowicz, a principal at consulting company Lawrence Associates LLC, said....</blockquote><br />A story on ProPublica (<a href="http://www.salon.com/2012/11/01/why_do_hospital_generators_keep_failing/">available on Salon</a>) noted,<br /><br /><blockquote class="tr_bq">Experts say such failures are troubling but not entirely surprising. Dr. Arthur Kellermann founded the emergency department at Emory University and headed it from 1999 to 2007. Now, he’s Paul O’Neill-Alcoa Chair in Policy Analysis at RAND Corporation think tank.<br /><br /><br />The other night, as the NYU evacuation was unfolding, he tweeted, <i>'Hospital preparedness and well-functioning backup systems are a <b>costly distraction from daily business, until they are needed.</b> Like now.'</i><br /><br /><br />In an email interview with ProPublica, Kellermann elaborated: 'I have no doubt when the hospital assured the Mayor that their backup systems were ready, they believed they were. They were wrong. What I find most remarkable about this story is that [more than seven] years after Hurricane Katrina, major hospitals still have critical backup systems like generators in basements that are prone to flooding.'</blockquote><br />Similarly, a <a href="http://www.reuters.com/article/2012/11/03/storm-sandy-hospitals-idUSL1E8M1LR620121103">Reuters story</a> included another quote from Dr Kellermann, <br /><span id="articleText"></span><br /><blockquote class="tr_bq"><span id="articleText"><span id="articleText">'I've been asking hospitals to look at their own survivability' after a natural or manmade disaster, 'and I just can't get it on their radar screens,' said Dr. Art Kellerman,...</span></span></blockquote><span id="articleText"></span>  <br />It added, <br /><br /><blockquote class="tr_bq">For hospital administrators trying to keep their institutions in the black, <i>disaster-resistant infrastructure is expensive and lacks the sex appeal of robotic surgery suites and proton-beam cancer therapy to attract patients. </i><br /><br />'People don't pick hospitals based on which one has the best generator,' Kellerman said. </blockquote><br />The notion that hospital leaders may put short-term revenue ahead of long-term infrastructure development, even when such development might be critical for patient safety, should not surprise <a href="http://hcrenewal.blogspot.com/">Health Care Renewal</a> readers.  Hospitals are often lead or influenced by those who believe maximizing short-term revenue should be the main goal of all management, an over-generalization of the idea promoted in business schools for a generation that business leaders should maximize "shareholder value," which has come to be defined as short-term stock price (see <a href="http://hcrenewal.blogspot.com/2012/04/health-care-dysfunction-explained-by.html">this post</a>).<br /><br />  <b>Who Defended the Disaster Planning</b><br /><br /> In response to this or anticipated criticism, leaders of Langone Medical Center deployed.  Not unexpectedly, one was Richard Cohen, the vice president for facilities, as reported by ProPublica, <a href="http://www.huffingtonpost.com/sheri-fink/nyu-hospital-evacuation_b_2072362.html">via the Huffington Post,</a>   <br /><blockquote class="tr_bq">After Hurricane Irene, officials at NYU Langone Medical Center spent several million dollars protecting its backup power system from flooding, according to Richard Cohen, vice president of facilities operations. <br /><br />The hospital removed a fuel tank and a set of emergency generators at street level and chose to depend on what Cohen termed an 'extremely modern, extremely reliable' system of rooftop generators.<br /><br />The hospital also built a new, flood-resistant house for pumps that draw fuel from the hospital's sealed underground tank and feed it to the generators that make electricity when New York City's power fails.<br /><br /><i>One vulnerability remained, and it proved to be the system's Achilles Heel. A portion of the hospital's power distribution circuits, which direct the generated electricity out into various areas of the hospital, were located in the hospital's basement.</i><br /><br />'It's like what happens when you have a flood in your basement and the electrical panel is in your basement,' Cohen said.</blockquote><br />Oops.  Why a crucial component of the system meant to protect the back up power system from threats including flooding was placed in an area at risk from flooding was not clear.   Only one story I could find (<a href="http://www.nytimes.com/2012/11/10/nyregion/damage-from-hurricane-sandy-could-cost-nyu-langone-millions.html?smid=tw-nytimeshealth&seid=auto">in the NY Times</a>) included a response by the Dean of the Medical School and CEO of the Medical Center Dr Robert I Grossman.<br /><br /><br /><blockquote class="tr_bq">At this point, Dr. Grossman said, he could only theorize as to why the generators had shut down. All but one generator is on a high floor, but the <i>fuel tanks are in the basement. The flood, he said, was registered by the liquid sensors on the tanks, which then did what they were supposed to do in the event, for instance, of an oil leak. They shut down the fuel to the generators.</i></blockquote><br />Oops again.  Why an effort to flood proof the hospital included an undeground fuel tank which could not be operated if water got near it was also not clear.  <br /><br />The most voluble defender of the hospital's management proved to be one Mr Kenneth Langone.  As noted in a <a href="http://blogs.wsj.com/metropolis/2012/10/30/among-the-patients-at-evacuated-hospital-a-benefactor/">blog post</a> in the Wall Street Journal, Mr Langone is the medical center's "board chair and benefactor."  In fact, as the NY Times <a href="http://www.nytimes.com/2008/04/16/nyregion/16donate.html">reported</a> in 2008, <br /><br /><br /><blockquote class="tr_bq">Kenneth G Langone, a billionaire financier and founder of Home Depot, is giving another $100 million donation to New York University Medical Center, matching the one he made anonymously in 1999.  <br /><br />In return, the university plans to name the medical center the N.Y.U. Langone Medical Center,....</blockquote><br />The WSJ blog post asserted,<br /><br /><br /><blockquote class="tr_bq">Langone said the hospital 'frequently' tested its generators and they had passed the tests, and the hospital was prepared for a 12-foot storm surge. 'We anticipated 12-foot surges, which we knew we could handle. We got 14-foot surges,' he said.<br /><br /><br />Some of the hospital generators were in the basement, which flooded. Langone acknowledged that the generators were 'not in the right location,' but that was an artifact of aging facilities undergoing an extensive upgrade. <i>'They’ve been there for years,'</i> he said of the generators in the basement. As part of a $3.2 billion modernization, NYU Langone was planning on buying new generators and locating them in better locations than the basement, Langone said.</blockquote><br />Oops one more time.  Mr Langone seemed to only offer inertia as an excuse for why some generators remained in the basement after an effort to flood proof the back up electrical system. <br />Langone was quoted in the CNN story mentioned above,<br /><br /><blockquote class="tr_bq">Kenneth Langone, the chairman of the hospital's board of trustees who also happened to be a patient there until he was discharged Tuesday morning, said that regulations require the generators to be tested regularly and that they've worked every time.<br /><br /><br />Langone said the hospital is in the midst of an 'enormous' building campaign. The generators are going to be replaced in a renovation, he said.</blockquote><br />In a Bloomberg <a href="http://www.bloomberg.com/news/2012-10-30/chairman-langone-was-nyu-hospital-patient-in-storm-evacuation.html">story</a>, Langone was quoted again,<br /><blockquote class="tr_bq">'We believed the machines would work, and we believed everything we were told about the scope and size of the storm,' Langone said.</blockquote><br /> In that story, he tried to deflect attention from tha apparent infrastructure failure, and presumably the responsibility of the organization's leadership for it, to the efforts of health professionals,<br /><br /><blockquote class="tr_bq">'The backup generators failed, it’s that simple, but the story here is the magnificence of the effort of all of our people and what they did,' Langone, 77, said yesterday.... </blockquote><br />He also defended the relatively silent Dean and medical center CEO,<br /><br /><blockquote class="tr_bq">'What this dean has done is nothing short of spectacular, in every respect,' Langone said of Grossman. 'So last night God decides to give us a test and our machines failed.' </blockquote><br />The story ended with yet another of his attempts to deflect attention to management's responsibility,<br /><br /><blockquote class="tr_bq">'Machines fail, airplanes take off in great shape and they have malfunctions,' Langone said. <i>'Why do we always need to blame somebody for something that could just have happened?</i> Why not write a story about what people did because things happened? Let’s be a little positive once in a while.' </blockquote><br />And in the <a href="http://www.wnyc.org/blogs/wnyc-news-blog/2012/nov/10/nyu-chairman-says-hospital-shut-down-sandy-was-configured-code/">WNYC News Blog</a>, Langone appeared yet again with this apologia,  <br /><br /><blockquote class="tr_bq">He said hospital pumps failed, because they were overwhelmed by an event that was 'unprecedented' and 'an act of god.'<br /><br /><br />'The generators are on the seventh floor, and the fuel supply is in cement vaults in the basement, where they're supposed to be according to code,' Langone said. 'Moisture sensors shut down the pumps, but they did what they're supposed to do.'</blockquote><br /><b>Summary</b><br /><br />Certainly the survival of all the former patients at Langone Medical Center due to brave efforts by health care professionals and first responders ought to be celebrated.  From the discussion so far, it is not clear whether the infrastructure failures were unavoidable due to the scope of a huge natural disaster, or whether the failures were the results of poor planning and insufficient attention to and investment in infrastructure.  Celebration of personal and professional dedication, however, ought not to distract from determining what lessons could be learned about making health care infrastructure safer in cases of natural disaster.  <br /><br />It also ought not to distract from concerns about management accountability.  In this day and age, it is not surprising that no executive at Langone Medical Center would accept any responsibility for an effort to protect its electrical back-up power from flooding that included an underground fuel tank which would be shut down if any water affected it.  However, these executives are rewarded handsomely supposedly for their "spectacular" leadership.  (Dean Grossman received $1,744,780 in the 2010-2011 period according to the NYU Hospitals Center 2010 form 990.  That document listed four other executives who made over $1 million.)  One would think they would at least try to substantively address how their patients got put into such a precarious situation.<br /><br />It is surprising that the silence from management was supplanted by the opinions of a very wealthy board chairman who paid hundreds of millions for some of the improvements to the hospital that were destroyed by the storm, but improvements that may not have included fully flood proofing the hospital's back up electrical system.  Why he may well be disappointed about the loss of what he spent so much to build, it is not clear why his opinions about technical aspects of disaster preparation should replace responses from those who were responsible for disaster preparedness.  After all, Mr Langone, while very wealthy, has no evident expertise in engineering, science, or anything pertaining to protecting infrastructure from natural disasters.  (Mr Langone's <a href="http://csis.org/expert/kenneth-g-langone">biography</a> showed his background seems to be only in investment banking and finance.)  One wonders whether Mr Langone's prominence in the discussion suggests how influential the views of investment bankers, versus those of health care professionals, engineers and scientists, have become in the operation of health care systems.<br /><br />Again, it appears that the culture of <a href="http://hcrenewal.blogspot.com/search/label/finance">finance</a> has intruded progressively into the cultures of health care and academics during an era in which finance has been increasingly irresponsible, as shown by the global financial collapse and our current economic woes.  Instead, true health care reform would develop leadership and governance that upholds health care professionals' values rather than worshiping short term revenue.

"Why Do We Always Need to Blame Somebody?" - An Investment Banker Pushes Back Against Health Care Leadership Accountability

One of the many dramatic stories generated by the destructive Hurricane Sandy illustrated, oddly enough, the influence of big finance on American academic medicine.Vivid video showed patients being ca…

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More Reasons to Doubt How CEOs are Chosen and Paid

Health Care Renewal is about problems with the leadership and governance of health care organizations.  Since the global financial collapse/ great recession began in 2008, it became evident that the problems we saw affecting health care leadership were similar to problems affecting other large organizations, notably financial firms.  Recently, I spotted a series of articles that raise more questions about how business leaders, and by extension, leaders of health care organizations are chosen and paid.<br /><br /><b>Doubts about Generic Managers </b><br /><br />We have often questioned the wisdom of having health care organizations lead by people with little if any direct health care experience, little knowledge of health care on the ground, and little commitment to health care's core values.  We have called such leaders <a href="http://hcrenewal.blogspot.com/search/label/generic%20managers">generic managers</a>.<br /><br />A New York Times <a href="http://www.nytimes.com/2012/09/23/business/ceos-and-the-pay-em-or-lose-em-myth-fair-game.html">article</a> by Gretchen Morgenson from September, 2012, cited new academic work that questioned the abilities of generic managers.  The <a href="http://irrcinstitute.org/pdf/Executive-Superstars-Peer-Benchmarking-Study.pdf">source article </a>was Elson CM, Ferrere CK.  Executive superstars, peer groups, and overcompensation - cause, effect and solution.  Ms Morgenson summarized,<br /><br /><blockquote class="tr_bq">Mr. Elson and Mr. Ferrere conclude,<i> contrary to the prevailing line, that chief executives can’t readily transfer their skills from one company to another.</i></blockquote><br />Furthermore, Ms Morgenson interviewed Mr Elson, who said,<br /><br /><blockquote class="tr_bq">But we found that C.E.O. skills are very firm-specific. C.E.O.’s don’t move very often, but when they do, they’re flops.</blockquote>Also,<br /><br /><br /><blockquote class="tr_bq"><div itemprop="articleBody">But <i>there is little evidence, according to Mr. Elson and Mr. Ferrere, that a hot market exists for interchangeable chief executives. </i>First, they note numerous academic studies indicating that C.E.O.’s selected from within a company perform better than outsiders, especially in the creation of long-term shareholder value. </div><div itemprop="articleBody"><br /></div><div itemprop="articleBody">'There is no conclusive empirical evidence that outside succession leads to more favorable corporate performance, or even that good performance at one company can accurately predict success at another,' the authors conclude. 'In short, executive skills cannot pass the most basic test of generality: transferability.' </div><div itemprop="articleBody"><br /></div><div itemprop="articleBody">To be sure,<i> this flies in the face of the widely held view that skilled managers have become generalists and are therefore far more interchangeable than in previous years. Proponents of this thesis argue that top managers today can accumulate a broad knowledge of economics, finance and management science, giving them the ability to manage any type of company effectively. </i>Technological advancements also give chief executives access to untold amounts of data about a particular company that in previous times would have taken years to amass and synthesize, this view holds. </div><div itemprop="articleBody"><br /></div><div itemprop="articleBody">But the data on actual C.E.O. moves raises questions about just how portable C.E.O. skills really are. The Delaware paper cites several studies indicating that relatively few chief executives land new top jobs elsewhere. One study, a 2011 analysis of roughly 1,800 C.E.O. successions from 1993 to 2005, found that less than 2 percent had been public-company chief executives before their new jobs. </div></blockquote>This data and these observations seem to broadly apply to business executives, but there is no reason to think they do not apply to executives of health care corporations.  Furthermore, given that on its face, health care is less like making automobiles than, say, the restaurant business is, there is no reason to think doubts this raises about the abilities of generic managers should not be even bigger in health care, and should apply not just to for-profit, but to not for profit corporations.  Yet the trend in health care seems to increasingly favor generic managers of not just for-profit health care corporations, but also hospitals and hospital systems, non-profit health insurers and managed care organizations, health care charities, disease advocacy groups, and even medical associations, medical schools, and their parent universities.   <br /><br /><b>Doubts about Executive Compensation</b><br /><br /><u>Peer-Group Benchmarking</u><br /><br />We have often posted about<a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation"> amazingly generous compensation</a> given to top leaders of health care organizations.  Health care corporate CEOs can make tens of millions of dollars, occasionally even more.  While CEOs of not for profit health care organizations make less, they still now can makes millions of dollars.  Ms Morgenson called the usual justification for these huge amounts of compensation the "pay-'em-or-lose-'em" myth.<br /><br /><blockquote class="tr_bq">Corporations are forever defending big executive paydays.<i> If we don’t pay up, the argument goes, our sharpest minds will jump to our rivals. </i></blockquote>This notion, or myth, depends on the argument that generic managers are the best managers, which appears to be largely unsubstantiated, as we noted above. <br /><br /><blockquote class="tr_bq"> In other words, <i>the argument that C.E.O.’s will leave if they aren’t compensated well, perhaps even lavishly, is bogus. Using the peer-group benchmark only pushes pay up and up. </i></blockquote><br />Furthermore,<br /><br /><blockquote class="tr_bq">Importantly, the study disputes the notion that executive pay today is a result of an efficient bidding process for finding and retaining a scarce and valuable commodity: managerial talent. 'In essence, this process creates a model of a competitive market for executives where it otherwise does not exist,' the authors wrote. 'Through the operation of a market, it is argued, wages are bid up to an executive’s outside opportunities.' </blockquote><br />Instead, as noted above, since the skills needed to run one sort of company or organization may not readily transfer to other companies and organizations, even seemingly similar ones, such a market does not exist.  <br />  <br /> <u>Incentives Based on Short-Term Financial Results</u><br /><br />We have also previously discussed (look <a href="http://hcrenewal.blogspot.com/2012/04/health-care-dysfunction-explained-by.html">here</a>) how contemporary economic dogma suggest that the only measure of success of a for-profit corporation is "shareholder value," which has come to mean the stock price over the short term.  There is reason to think that this focus on short-term economic performance has also become the major measure of success of health care organizations.  Another word for this phenomenon is <a href="http://hcrenewal.blogspot.com/search/label/financialization">"financialization."  </a><br /><br />An <a href="http://www.independent.co.uk/news/business/comment/anthony-hilton-how-bonuses-make-bosses-reluctant-to-invest-in-the-future-8163804.html">op-ed</a> in the UK Independent questions this focus because of its economic effects.  Anthony Hilton wrote about the views of Andrew Smithers,<br /><br /><blockquote class="tr_bq">His starting point was that the economy was floundering because of inadequate demand. Personal spending is flat for obvious reasons but the real culprit is the companies who are hoarding cash and refusing to invest.<br /><br />Others have noticed the cash hoarding but explain it away by saying we live in uncertain times and companies will start investing again once they become more confident about the economic outlook. Smithers disagrees fundamentally with this. He says<i> companies are not investing because executives are bonused to deliver short-term profits. Costly spending on investment projects is therefore anathema to them.</i> Investment may deliver long-term prosperity but by that time they will have left the company. It also depresses short-term profits while they are still there.<br /><br />We have in the last two decades, <i>under the mantra of shareholder value and aligning the interests of management with shareholders, created a new breed of management incentivised to believe that what is good for them is good for the business. They dislike investment because it reduces their bonuses .</i><br /><br />They don't invest surplus cash. They hoard it or they use it to buy back their own company's shares.<br /><br />When the majority of the managements in publicly quoted companies start behaving this way, as they now do, we have a serious problem. They are sitting on cash which is the equivalent of six per cent of GDP. This deadweight of unused resources prevents lift-off and threatens to leave the economy forever trapped in the mire.<br /><br />Smithers says this behaviour by management is a structural change — meaning it is something which won't go away. It makes this down- turn different from all that have gone before.</blockquote>There is no reason to think that health care corporations are not hoarding money in the sense described above.  If so, they may be failing to invest in drugs or devices that would have helped patients in the future.<br /><br />Because of the limited reporting required of large health care non-profit organizations in the US, it may be very hard to tell if they are similarly hoarding money, but if they are, the effects again might be to fail to provide patients long-term benefits they might otherwise have enjoyed. <br /><br /><b>The Ultimately Self-Destructive Outcome</b><br /><br />Meanwhile, <a href="http://www.nytimes.com/2012/10/14/opinion/sunday/the-self-destruction-of-the-1-percent.html">writing in</a> the New York Times, Chrystia Freeland, the author of <i>Plutocrats: the Rise of the New Global Super-Rich and the Fall of Everyone Else</i>, explained why picking the wrong leaders  and paying them too much may be bad for everyone.  We have noted that an increasing fraction of the wealthiest one percent of the US are current and former corporate executives.  Ms Freeland wrote how domination by an increasingly wealthy and powerful elite usually dooms the countries they dominate.<br /><br /><blockquote class="tr_bq">what separates successful states from failed ones is whether their governing institutions are inclusive or extractive. E<i>xtractive states are controlled by ruling elites whose objective is to extract as much wealth as they can from the rest of society.</i></blockquote>So<br /><br /><blockquote class="tr_bq">it is the danger America faces today, as the 1 percent pulls away from everyone else and pursues an economic, political and social agenda that will increase that gap even further —<i> ultimately destroying the open system that made America rich and allowed its 1 percent to thrive in the first place.  </i></blockquote><br />Furthermore,<br /><br /><blockquote class="tr_bq">It is no accident that in America today the gap between the very rich and everyone else is wider than at any time since the Gilded Age. Now, as then, the titans are seeking an even greater political voice to match their economic power. Now, as then, the inevitable danger is that they will confuse their own self-interest with the common good. The irony of the political rise of the plutocrats is that, like Venice’s oligarchs, they threaten the system that created them.</blockquote>So it is not merely that overcompensating generic executives has likely been one of the major reasons our health care is so expensive, inaccessible, and mediocre.  The larger problem of overpaying under skilled executives threatens to destroy our whole society.  How cheerful<br /><br /><b>Summary</b><br /><br />The way forward seems clear.  It is just blocked by the interests of the rich and powerful elite which our current foolish policies have created.<br /><br />In a health care context, leaders of organizations should only be those with clear knowledge of, experience in, and commitment to the values of health care.  Their compensation should be reasonable, and based on their ability to uphold these values first, with financial goals clearly second, and short-term financial goals probably not at all.  Pay should not be bench-marked to compensation of leaders of other organizations, especially not of vastly different kinds of organizations. <br /><br />Whether there is any chance of such changes happening while corporate boards of directors, and non-profit boards of trustees are dominated by executives of other organizations is doubtful.  Thus we also need to change the governance of for-profit health care corporations to clearly reflect the long-term interests of the stockholders, who will only prosper if in the long run their companies provide products and services that help patients at a fair price and with minimal risks.   Thus we further need to need to change the governance of health care non-profits to reflect the needs of patients, their communities and other key constituencies.  That should keep us all busy for a while.  <br />  <br /><br /><br /><br /><br /><br />

More Reasons to Doubt How CEOs are Chosen and Paid

Health Care Renewal is about problems with the leadership and governance of health care organizations.  Since the global financial collapse/ great recession began in 2008, it became evident that the p…

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Parallels Between the Anechoic Effect in Finance and in Health Care: Predator Nation by Charles Ferguson

What has gone wrong with health care now seems to be the same as what has gone wrong with finance, and society at large.  This was not always obvious to those of us toiling in medicine, probably because we were so focused on medicine that we paid too little attention to the larger world around us.  The people I interviewed in preparation for writing A Cautionary Tale, [Poses MD. A cautionary tale: the dysfunction of American health care.  Eur J Int Med 2003; 14: 123-130.  Link <a href="http://www.ejinme.com/article/S0953-6205%2803%2900029-3/abstract">here</a>.] identified broad issues that helped characterize American health care dysfunction.  Neither they nor I, however, initially thought that these problems were tied to the broader society.  In fact, I often wondered back then why health care, and it seemed particularly academic medicine, was so uniquely cursed.<br /><br />Now it seems obvious in retrospect that health care, finance, politics, and society are circling the same drain.  Now there has been enough time since the beginning of the great recession/ global financial collapse for some people to describe the larger problems.<br /><br /><strong>The Anechoic Effect</strong><br /><br />We have frequently discussed what we called the "<a href="http://hcrenewal.blogspot.com/search/label/anechoic%20effect">anechoic effect</a>" in health care.  In short, this meant that discussing the big problems in health care, particularly those involving leadership and governance, was simply not done, particularly by the academics who could have addressed the problem.  Lots of examples of the anechoic effect are <a href="http://hcrenewal.blogspot.com/search/label/anechoic%20effect">here</a>.  We have postulated that this has to do with fear of offending the rich and powerful who now lead and govern health care organizations, and the benefits, which may be produced by conflicts of interest, of maintaining good relationships with these rich and powerful.<br /><br /><strong>Charles Ferguson in Predator Nation on the Anechoic Effect</strong><br /><br />Meanwhile, the anechoic effect was a big reason that finance became such a big mess.  Charles Ferguson, as we have previously discussed, has been one of the most insightful commentators on the great recession/ global financial collapse, starting with his Academy Award winning documentary <a href="http://www.sonyclassics.com/insidejob/"><em>Inside Job</em></a>.<br /><br /><iframe allowfullscreen="allowfullscreen" frameborder="0" height="315" src="http://www.youtube.com/embed/FzrBurlJUNk" width="560"></iframe><br /><br />This year he published <a href="http://www.amazon.com/Predator-Nation-Corporate-Corruption-ebook/dp/B005DXOQMC">Predator Nation</a> (Ferguson C. Predator Nation: Corporate Criminals, Political Corruption, and the Hijacking of America. New York: Crown Business, 2012.) a more complete account of our financial disaster.  It has a section on what we on Health Care Renewal would call the anechoic effect, and how it is driven by perverse incentives (pp 81-82) :<br /><blockquote>You see a horrific train wreck in the making, with all your coworkers contributing to it. But they are all making a fortune, and their manager - who is <em>your</em> boss too - is making <em>even more</em> money by keeping it going. Quite obviously, they're going to keep doing it whether you participate or not; so even if you refuse to participate, the firm will be dead anyway. You can try to stop it by going over your boss's head to the CEO; but your boss won't like that at all, and he and the entire department will tell the CEO whatever they need to tell him in order to keep it going. And if - speaking purely hypothetically - your CEO is an oblivious, selfish, obnoxious egomaniac nearing retirement age, heavily focused on his golf game and art collection, with a few hundred million in cash already stashed away, scheduled to rake in another $50 million this year, whose contract guarantees him another $100 million <em>if he loses his job</em> - well, then he probably won't be very sympathetic to you either. You could try going to the board of directors, but even if you could reach them, it will turn out that they are old pals of the CEO, often stunningly clueless, picked largely so that they won't rock the boat. <br /><br />So if you try to stop the party, you'll probably get marginalized or fired, as happened to a number of serious, ethical people who tried to warn their management and curtail unethical and illegal conduct in Merrill Lynch, Lehman, Citigroup, AIG and elsewhere. So you'd gain nothing by acting ethically - quite the contrary, you'd ostracize yourself and lose your chance to build (or rather, transfer to yourself) some real personal wealth - possibly once-in-a-lifetime opportunity.</blockquote><br /><strong>Summary: the Application to Health Care, and What Must be Done to Change Things</strong><br /><br />So consider how much of this might apply to a) serious, ethical employees of large health care corporations, and b) health care professionals who are employees of large health care non-profits, and/or have major financial relationships (conflicts of interest) with large health care corporations.  <br /><br />Regarding the latter, think of the health care professionals who worked at the <a href="http://hcrenewal.blogspot.com/search/label/AHERF">Allegheny Health Education and Research Foundation</a> (AHEF) back in the 1990s, and who were told by their multi-millionaire CEO,  <a href="http://www.post-gazette.com/aherf/part6.asp">"Don’t cross me or you will live to regret it."</a>  How inclined would they have been to blow the whistle on his supposedly "visionary" leadership?  On Health Care Renewal, we have posted lots of relevant newer examples of bad behavior by wealthy leaders of drug, device, biotechnology, health care information technology, and health insurance companies.  We have also posted lots of relevant newer examples of bad behavior within hospital systems and academic medical centers.  Yet most of these generated little resistance from within the organizations at the time they were occurring, and those who did try to blow the whistle often did not fare very well.  <br /><br />The biggest issue is clearly that if you are in a system which may hugely award clueless, or bad behavior (i.e., that has perverse incentives), then those who might protest will be effectively silenced by those who are profiting from the status quo. <br /><br />Combating this would require serious outside regulation to discourage perverse incentives and conflicts of interest, serious law enforcement to prosecute any resulting fraud, bribery, etc, and serious protection of whistleblowers, just for a start. All are currently lacking in finance, and in health care. But if we do not put such measures in place, the downward spirals in health care and finance will just continue.<br /><br />Do not expect to see much discussion of these issues in health care or finance in the current political debate, unless those currently outside of the debate break the anechoic effect and inject them into the debate.

Parallels Between the Anechoic Effect in Finance and in Health Care: Predator Nation by Charles Ferguson

What has gone wrong with health care now seems to be the same as what has gone wrong with finance, and society at large.  This was not always obvious to those of us toiling in medicine, probably becau…

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Paging Doctor EBDITA - How Private Equity May Push Hospitals to Put Revenue Ahead of Patient Care

Issues raised by the increasing influence of <a href="http://hcrenewal.blogspot.com/search/label/private%20equity">private equity</a> firms in the direct care of patients were illuminated by a series of articles about the for-profit hospital chain HCA.<br /><br /><strong>Quality Problems</strong><br /><br />The articles highlighted a series of concerns about quality problems affecting the chain's patients.  <br /><br /><u>Cardiac Overtreatment</u><br /><br />First, a New York Times <a href="http://www.nytimes.com/2012/08/07/business/hospital-chain-internal-reports-found-dubious-cardiac-work.html">article</a> described problems in the care of cardiac patients.  <br /><blockquote>HCA, the largest for-profit hospital chain in the United States with 163 facilities, had uncovered evidence as far back as 2002 and as recently as late 2010 showing that <em>some cardiologists at several of its hospitals in Florida were unable to justify many of the procedures they were performing. </em>Those hospitals included the Cedars Medical Center in Miami, which the company no longer owns, and the Regional Medical Center Bayonet Point. In some cases, the doctors made misleading statements in medical records that made it appear the procedures were necessary, according to internal reports. </blockquote><br />More specifically, at one hospital, cardiac catheterizations seemed to occur to often: "about half the procedures ... were determined to have been done to patients without significant heart disease." Two patients at another hospital had severe adverse effects after cardiac procedures that seemed unnecessary in retrospect. There were "incidents at Bayonet Point where patients were treated for multiple lesions, or blockages, even when 'the second lesion (or third) did not appear to have significant disease....' [In] 'several cases'  ... patients were treated even though their arteries did not have significant blockages." Then, <br /><blockquote>HCA brought in an external company, CardioQual Associates of Franklin, Mich., in 2004 to examine medical records from Bayonet Point. In a confidential memo prepared in December 2004 and reviewed by The Times, CardioQual concluded that as many as 43 percent of 355 angioplasty cases, where doctors performed invasive procedures to open up a patient’s arteries, <em>were outside reasonable and expected medical practice</em>. Worse, the investigation revealed that some physicians had indicated in medical records that the patients had blockages of 80 to 90 percent when a later, more scientific analysis of a sampling of cases revealed the blockages had ranged from 33 to 53 percent.</blockquote><br /><u>Possible Undertreatment of Acute Illness</u><br /><br />Then, a second NY Times <a href="http://www.nytimes.com/2012/08/15/business/hca-giant-hospital-chain-creates-a-windfall-for-private-equity.html">article</a> found that<br /><blockquote>HCA decided <em>not to treat patients who came in with nonurgent conditions</em>, like a cold or the flu or even a sprained wrist, <em>unless those patients paid in advance</em>. In a recent statement, HCA said that of the six million patients treated in its emergency rooms last year, 80,000, or about 1.3 percent, 'chose to seek alternative care options.'</blockquote><br />Of course, the problem with this approach is that it is not always possible to tell how severe an acute illness is without a more complete evaluation than can be done in emergency department triage. There is anecdotal evidence that HCA turned away some patients who actually had serious illness:<br /><blockquote>Regulators in several states have taken HCA hospitals to task over screening out patients too aggressively, including situations where the<em> screening missed serious conditions</em>.<br /><br />In early 2010, an uninsured patient who entered HCA’s TriStar Skyline Medical Center in Nashville, complaining of 'pain when breathing,' was sent away. An hour and a half later, at another hospital, the same patient was <em>found to have pneumonia</em>, according to the results of a Medicare investigation. Regulators cited Skyline for having 'failed to ensure that an appropriate medical screening examination was conducted.'<br /><br />This year, the Office of Inspector General fined HCA’s Northside Hospital in St. Petersburg, Fla., $38,000 for sending home <em>a feverish patient with an artificial heart valve</em>. Two days later, the patient reappeared with the flu and severe respiratory problems. The following day, <em>he died. </em></blockquote><br /><u>Undertreatment of Bed Sores</u><br /><br />The second Times <a href="http://www.nytimes.com/2012/08/15/business/hca-giant-hospital-chain-creates-a-windfall-for-private-equity.html">article </a>also suggested that decreased nurse staffing at HCA hospitals lead to worse treatment of bed sores (decubitus ulcers):<br /><blockquote>Experts say there is often a direct correlation between bedsores and the quality of hospital staff levels. 'Staffing is critical,' said Courtney H. Lyder, the dean at the UCLA School of Nursing and an expert on wound care. 'When you see high levels of wounds, you usually see a high level of dysfunctional staff,' he said.<br /><br /><em>HCA owned eight of the 15 worst hospitals</em> for bedsores among 545 profit-making hospitals nationwide, each with more than 1,000 patient discharges, tracked by the Sunlight Foundation using Medicare data from October 2008 to June 2010. HCA’s West Houston Medical Center and CJW Medical Center in Richmond, Va., landed near the top of the list.<br /><br />HCA says it has increased its nursing staff at its hospitals each year over the last five years. But an examination of lawsuits shows <em>bedsore problems have been persistent at several HCA facilities.</em> In Portsmouth Regional Hospital in New Hampshire, a 60-year-old woman died in 2009 after her bedsores went untreated for three days and became infected, according to a wrongful-death lawsuit filed in the spring of 2011 in federal court against the hospital.</blockquote><br />One HCA hospital <br /><blockquote>was <em>cited twice by Florida regulators, in 2008 and 2010, for having inadequate numbers of nurses on its staff to oversee wound care</em> for patients. During the 2010 examination, regulators noted that Memorial had less than the equivalent of two full-time nurses who specialized in wound care to treat the 132 patients who required aid.<br /><br /><em>'The system of treatment for wound care places patients at risk for additional medical complications</em>,' the examiners said. </blockquote><br />So, in summary, there is reason for concern about overtreatment of cardiac disease, and undertreatment of acute illness and bedsores at HCA hospitals. However, no hospital and no doctor is perfect. Everyone makes mistakes, and many decisions can be questioned in retrospect. Instead<br /><br /><strong>Putting Money Ahead of Quality</strong><br /><br />Instead, the articles suggested they were part of a pattern in which concerns about short-term revenue trumped concerns about patient care.<br /><br /><u>Cardiac Procedures to Generate More Revenue</u><br /><br />The <a href="http://www.nytimes.com/2012/08/07/business/hospital-chain-internal-reports-found-dubious-cardiac-work.html">article</a> about cardiac care noted that one of the physicians who allegedly was doing too many cardiac procedures<br /><blockquote>was highlighted by the hospital in a 2009 business plan as being the most profitable doctor at the facility. <em><strong>'Our leading EBDITA MD,'</strong></em> the plan described him. (Ebitda, or earnings before interest, taxes, depreciation and amortization, is a measure of corporate earnings.) </blockquote><br />On the other hand, <a href="http://www.tampabay.com/news/health/medicine/scrutiny-of-cardiac-care-at-pasco-hca-hospital-latest-in-long-saga/1244719">according to the Tampa Bay Times</a>, some of the doctors whom HCA suspended for doing too many percutaneous cardiac revascularization procedures charged that the issue was that<br /><blockquote>far from concern over the cost of stents — <em>Bayonet Point was upset that stents were replacing more expensive bypass surgeries.</em></blockquote><br />The first NY Times <a href="http://www.nytimes.com/2012/08/07/business/hospital-chain-internal-reports-found-dubious-cardiac-work.html">article</a> also suggested that HCA executives did their best to keep the issue quiet so as not to affect revenue. First,<br /><blockquote>HCA declined to provide evidence that it had alerted Medicare, state Medicaid or private insurers of its findings, or reimbursed them for any of the procedures that the company later deemed unnecessary, as required by law. </blockquote><br />Also,<br /><blockquote>HCA also declined to show that it had ever notified patients, who might have been entitled to compensation from the hospital for any harm. </blockquote><br />The Times uncovered internal HCA communications suggesting that obfuscation was deliberate:<br /><blockquote>In January 2005, David Williams, who was then the chief executive of Bayonet Point, wrote in an e-mail: 'Clearly, <em>we have protected ourselves under the peer review umbrella and have released very little information</em>.' The recipients of his message included Dan Miller, who then oversaw HCA’s hospitals in western Florida, and Charles R. Evans, a Nashville executive who was president of all of HCA’s hospitals on the eastern side of the country.<br /><br />In his response, Mr. Evans thanked Mr. Williams for the update and asked for a 'summary as to the business impact.' </blockquote><br />Furthermore, as the last sentence above indicated, review of internal emails suggested that executives were more worried about revenue than quality of care or patient outcomes:<br /><blockquote>A review of those communications reveals that <em>rather than asking whether patients had been harmed or whether regulators needed to be contacted, hospital officials asked for information on <strong>how the physicians’ activities affected the hospitals’ bottom line</strong></em>. </blockquote><br /><u>Avoiding Caring for Poor Patients in the Emergency Department</u><br /><br />On the other hand, the impetus for triaging away apparently less acutely ill patients from the Emergency Department was to avoid such patients who could not pay. The <a href="http://www.nytimes.com/2012/08/15/business/hca-giant-hospital-chain-creates-a-windfall-for-private-equity.html">second NY Times article </a>noted there was a way for supposedly less ill patient to get Emergency Department treatment,<br /><blockquote>Patients whose ailments were not deemed urgent were told to go somewhere else, like a free clinic, or that<em> they could be treated if they paid the co-payment for their insurance or around $150 in cash. </em></blockquote><br />In addition, there is reason to think that HCA management pushed health care professionals to put off increasing numbers of patients, regardless of their clinical problems,<br /><blockquote>Several former emergency department doctors at Lawnwood Regional Medical Center in Fort Pierce, Fla., said they frequently had felt compelled to override the screening system in order to treat patients. </blockquote>Also,<br /><blockquote>'Physicians had a really, really hard time with it,' said Dr. J. Patrick Pearsall, who worked for an emergency physician group based in Houston that worked in HCA hospitals. <em>When the doctors failed to meet the hospital’s goals for how many patients should be considered emergencies, 'they really started putting pressure on.'</em><br /><br />One emergency room doctor who worked at an HCA Florida hospital said <em>doctors had been told they had targets to hit.</em> The doctors’ concerns about the screening policy were acknowledged in an e-mail reviewed by The Times that was sent to the doctors at the hospital in early 2008 by an outside company that worked in the emergency room.<br /><br />The doctors were told HCA’s regional executives were 'quite intent on pursuing this program at least for the time being and fully expects us to comply. <em><strong>Their expectations are that approximately 15 percent of all patients are to be screened and of those screened no more than 35 percent overridden.' </strong></em></blockquote><br />Keep in mind that variations in patient populations over time and across geographic areas means that the proportions of more and less severely ill patients showing up at individual Emergency Departments will vary substantially. Pressuring health care professionals to turn away a minimum percentage of people will make it very likely that at some times severely acutely ill patients will not be seen. <br /><br />So it appears that at HCA, patients sometimes were overtreated, and sometimes were undertreated, and that executives trying to increase revenue may have been more responsible for both than simple human error.<br /><br />Finally, there is reason to think that the take-over of HCA by private equity (that is, leveraged buy-out) firms further increased the for-profit corporation's emphasis on short-term revenue leading to worsening quality of care. <br /><br /><strong>Private Equity Pushed for Even More Short-Term Revenue</strong><br /><br />The second NY Times <a href="http://www.nytimes.com/2012/08/15/business/hca-giant-hospital-chain-creates-a-windfall-for-private-equity.html">article</a> first noted,<br /><blockquote>During the Great Recession, when many hospitals across the country were nearly brought to their knees by growing numbers of uninsured patients, one hospital system not only survived — it thrived. <br /><br />In fact, profits at the health care industry giant HCA, which controls 163 hospitals from New Hampshire to California, have soared, far outpacing those of most of its competitors.<br /><br />The big winners have been <em>three private equity firms — including Bain Capital, co-founded by Mitt Romney, the Republican presidential candidate — that bought HCA in late 2006.</em><br /><br />HCA’s robust profit growth has raised the value of the firms’ holdings to nearly three and a half times their initial investment in the $33 billion deal.<br /><br />The financial performance has been so impressive that HCA has become a model for the industry.</blockquote><br />Note that the private equity firms extracted a considerable amount of cash from HCA at the time they turned it back into a publicly held for-profit corporation:<br /><blockquote>In 2010, buoyed by robust growth in profit, <em>HCA was able to issue billions of dollars in debt that was used to pay funds overseen by the three buyout firms nearly $1 billion in dividends — each.</em> In the spring of 2011, in one of the most closely watched public offerings since the financial crisis, HCA became a public company once again. Its three buyout owners each sold another $500 million worth of stock, allowing them to recoup all their initial investment.</blockquote>By thus increasing the new public corporation's debt load, they further increased pressure on its executives to bolster short-term revenue.<br /><br />However,<br /><blockquote>As HCA’s profits and influence grew, strains arose with doctors and nurses over whether the chain’s pursuit of profit may have, at times, come at the expense of patient care. </blockquote><br /><strong>Summary:  Why No Hospital Should be For-Profit?</strong><br /><br />Among all developed countries, I believe only the US has such a high proportion of for-profit hospitals, and physicians employed by for-profit corporations to take care of patients.<br /><br />However, in summary, this case shows there is evidence that<br />- The management of one for-profit hospital chain was pushed to focus even more on short-term revenue by a leveraged buy-out engineered by private equity firms<br />- This focus lead management to pressure health care professionals to increase revenue, even if that required over- or under-treating patients<br />- The resulting over- and under-treatment likely harmed patients. <br /><br />As a Tampa Bay Times <a href="http://www.tampabay.com/opinion/editorials/hcas-prescription-for-profits/1245248">editorial</a> put it,<br /><blockquote>the allegations suggest a disturbing pattern of endangering patients, and they again expose the <em>weaknesses of a health care system driven by volume and profit rather than efficiencies and patient outcomes</em>.</blockquote><br />In a <a href="http://www.forbes.com/sites/stevedenning/2012/08/15/private-equity-wont-fix-health-care-either/">column</a> in Forbes, Steve Denning warned,<br /><blockquote>The hospitals owned by private equity are making money in the short-term at the expense of Medicare and the economy. But when the private equity firms depart, as they plan to do, they leave the hospitals with a load of debt, dispirited doctors and nurses, and a bankrupt Medicare system, with serious questions as to whether overall care has been maintained, let alone improved.<br /><br /><em><strong>The current bonanza for private equity from milking Medicare is a bubble that cannot be sustained</strong></em>.</blockquote><br />We have <a href="http://hcrenewal.blogspot.com/2012/04/health-care-dysfunction-explained-by.html">noted</a> how health care organizations have increasingly been "financialized," lead by executives who put short-term revenue generation ahead of all other goals, including good patient care. Furthermore, hospitals are increasingly likely to be formally for-profit, and hence likely to be lead by such executives. Worse, hospitals are increasingly likely to be owned by <a href="http://hcrenewal.blogspot.com/search/label/private%20equity">private equity</a> firms, further increasing the emphasis on short-term money making. Even worse, physicians are now more frequently <a href="http://hcrenewal.blogspot.com/search/label/corporate%20physician">employed by such organizations</a>, which may pressure them to do what it takes to increase revenue, no matter what the effect on patients' and the public's health. <br /><br />The probably effects on the quality of care, access, and costs are obvious.<br /><br />In my humble opinion, before the health care bubble bursts, we need to challenge the notion that direct health care should ever be provided, or that medicine ought to be practiced by for-profit corporations. Before market fundamentalism became so prominent, many stated prohibited the corporate practice of medicine, and the American Medical Association <a href="http://hcrenewal.blogspot.com/2007/12/relman-in-jama-on-threats-to-physicians.html">forbade the commercialization of medicine.</a> It is time to heed that wisdom. I submit that we will not be able to have good quality, accessible health care at an affordable price until we restore physicians as independent, ethical health care professionals, and until we restore small, independent, community responsible, non-profit hospitals as the locus for inpatient care. <br /><br />As Todd Hixon wrote, surprisingly <a href="http://www.forbes.com/sites/toddhixon/2012/08/16/where-the-market-approach-to-health-care-completely-fails/">in Forbes</a>,<br /><blockquote>I believe a big part of the answer lies in changing the idea that health care should be a path to riches. There are professions, like university teaching and research, where a big part of the motivation is helping people and gaining respect in the community. If we could shift the balance for health care providers in that direction, solving problems like the one manifest at HCA would be a lot more possible.</blockquote><br />True health care reform will require an end to market fundamentalism in health care. <br /><br />Note - See also <a href="http://runningahospital.blogspot.com/2012/08/lets-do-numbers.html">comments</a> by Paul Levy in the Not Running a Hospital Blog.

Paging Doctor EBDITA - How Private Equity May Push Hospitals to Put Revenue Ahead of Patient Care

Issues raised by the increasing influence of private equity firms in the direct care of patients were illuminated by a series of articles about the for-profit hospital chain HCA.Quality ProblemsThe ar…

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