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Reading Between the Lines: "Scrappy" WellPoint as an Illustration of Contemporary Health Care's Flaws

Giant US for-profit insurance company/ managed care organization WellPoint has provided numerous examples of problems with the current way health care organizations are lead.  <a href="http://hcrenewal.blogspot.com/2010/04/pay-for-hypocrisy-for-health-insurance.html">Here</a> we discussed charges that recent rate increases by its Anthem subsidiary may have violated previous agreements not to directly fund from premiums the golden parachutes of executives who left after the merger of Anthem and WellPoint; that WellPoint used magical accounting to make administrative costs appear to be from patient care; and that WellPoint investigated patients who developed cancer to find minor errors in their policy applications, and  used these as excuses for post-hoc cancellations (rescissions) of their policies.  And <a href="http://hcrenewal.blogspot.com/2010/04/what-me-worry-leaders-prosper-despite.html">here</a> we discussed a long list of WellPoint's previous ethical issues. Recently, Reed Abelson penned a <a href="http://www.nytimes.com/2010/05/16/business/16well.html">discussion</a> of WellPoint's leadership in the New York Times, entitled "A Scrappy Insurer Wrestles With Reform."  Reading between the lines suggests some fundamental flaws in our current model of leadership for health care organizations. The Halo Effect Over long years of service in the last century, many health care organizations built up sterling reputations. Blue Cross and Blue Shield health insurance plans, which were all originally not-for-profit, regionally (state-wide) based organizations, became known for paying for care rather generously and with little fuss. (However, in retrospect, this may have certainly contributed to rising health care costs.)  However, their reputation was clearly for good service leading to generous care. However, in the last 20 years, many of these plans converted to for-profit corporations, and/or were bought out by for-profit corporations. WellPoint is now a for-profit corporation that operates many subsidiaries that still do business as "Blue Cross" and "Blue Shield." <blockquote>Over the last decade, WellPoint has become one of the nation’s largest insurers by buying up the Blue Cross plans that dominate the individual and small group markets in their states. </blockquote> So, <blockquote>[WellPoint CEO] Ms. [Angela] Braly argues that WellPoint is well positioned because of its size and the strong appeal of the Blue Cross name. 'We have a lot of historical strengths,' she said in an interview </blockquote> However, it is likely that the "strong appeal" of many of these Blue Cross plans is based on a halo effect. Many individuals and small businesses may still think that the plans are relatively local, not-for-profit organizations. If not, they may still believe the plans are run as mission-driven organizations, not subsidiaries of a massive for-profit corporation. Thus many health care organizations may so profit by an outdated "halo effect." People may not realize that leadership of these organizations is no longer a calling, but a way to become very rich.  The strong appeal of the Blue Cross name may, in fact, be misleading.  Such confusing, if not deceptive marketing has become a hallmark of our era of commercialized health care. Market Domination and Health Care Costs Prior to almost every merger, one hears an argument that larger organizations and corporations are more efficient, and hence will charge lower prices and lead to lower costs. Mr Abelson wrote, <blockquote>WellPoint now has about 34 million customers, putting it ahead of the UnitedHealth Group in membership, and $60 billion in revenue, second behind UnitedHealth. While UnitedHealth and the other national companies tend to focus on providing services to large employers with workers in multiple locations, WellPoint’s focus has been on the local markets. Its strong presence allows it to demand the lowest prices from doctors and hospitals, while still offering customers a broad network of providers from which to choose. </blockquote> I doubt there is any good data to show that such market power has resulted in lower premiums or lower health care costs. In fact, Mr Abelson also wrote, <blockquote>Because of its dependence on the higher profit margins of its traditional business, WellPoint has also not been as adventurous in trying new approaches,.... </blockquote> If WellPoint really meant to use its market dominance to force down its costs, it appears that the main beneficiary of this has been the company's profit margin, not its policy-holders. Furthermore, <blockquote>Starting in 2014, WellPoint and its competitors will have to offer coverage to anyone who wants it, including people with potentially expensive pre-existing conditions, rather than carefully selecting the people they are willing to cover. As soon as next year, insurers will also have to spend at least 80 cents of every dollar they collect in premiums on providing health care to individual customers.</blockquote> So WellPoint used its market power to "carefully select" the people it insured so as to avoid anyone who might get sick, thus making a mockery of the concept of health insurance. Furthermore, the implication is that WellPoint spent more than 20% of premiums on management and administration (including the breathtaking compensation of its top leaders), and less than 80% on actually paying for health care. As Mr Abelson noted, (as we did <a href="http://hcrenewal.blogspot.com/2010/04/what-me-worry-leaders-prosper-despite.html">here</a>), just how personally remunerative WellPoint's market power has been for its top leader: <blockquote>Ms. Braly, ... received $13.1 million last year in compensation....</blockquote> In fact, as we should have learned in this country more than 100 years ago, market domination leads to higher profits for the dominant company, higher compensation for its employees, and higher prices. However, in health care, for some reason people still believe that concentration of power leads to efficiency. Health Care Leaders Who Know Little About Health Care Ms Braly appears to have no direct experience, training, or expertise in health care, medicine, public health, or biologic science. <blockquote>Ms. Braly, 48, a native of the Dallas area who received a law degree from Southern Methodist University, worked as a lawyer before she became general counsel to a small Blue Cross insurer in Missouri. She eventually ran that company, which is now part of WellPoint. Before being picked for WellPoint’s top job in June 2007, Ms. Braly worked as both a corporate executive and the company’s general counsel. Her selection as C.E.O. surprised many analysts and investors. While some believed that she would bring a warmer touch to the company, others worried that she did not have enough years as a manager to navigate a highly regulated and often highly political environment. In the last year, WellPoint became a favorite example of Congress and the administration for why health care overhaul was needed. Even people inside the industry say the company has been painfully slow to recognize consequences of some of its controversial actions, whether canceling a sick patient’s coverage or raising premiums on policies that lawmakers already call too expensive. And some say that Ms. Braly’s quickness to argue with WellPoint’s critics, revealing her training as a lawyer, is not always productive. 'WellPoint is the most incredibly tone-deaf insurance company in an industry full of deaf executives,' says Mr. Laszewski, the Virginia consultant. He criticizes Ms. Braly, who received $13.1 million last year in compensation, as being insensitive to the politics involved in running a health insurer, at both the state and federal levels. 'I don’t think she has the scar tissue and experience,' he says. 'I don’t think she has the marketplace instincts.' Ms. Braly says her experience in government affairs makes her well suited for handling a complex regulatory environment. </blockquote> Ms. Braly's background was cited as unusual for a health care CEO not because she has no obvious experience in direct health care, or its scientific or social scientific bases, but because she is a lawyer, not an MBA. It is interesting that we as a society have become so used to health care run by businesspeople that nothing in the article even obliquely suggested that Ms. Braly could benefit from some direct knowledge of or experience in caring for patients (or in biology, epidemiology, public health, etc), much less some sympathy for the values of health care professionals. So I submit that this profile of the leadership of WellPoint provides another reason to reconsider why we have journeyed so far from an era <a href="http://hcrenewal.blogspot.com/2007/12/relman-in-jama-on-threats-to-physicians.html">when the AMA asserted</a>, "the practice of medicine should not be commercialized, nor treated as a commodity in trade."  Current commercial health insurance (and the power that generally has been concentrated in large health care organizations) has certainly turned medicine into a commercialized venture, and treated the work of the individual health care professional as a commodity in trade.  Yet so far, what we have called health care reform in the US has just reinforced the power of large health care organizations.  It also suggests that true health care reform ought to address the power now concentrated in large health care organizations, and ought to foster more honest and less profuse marketing by companies lead by people who have some knowledge of health care, and sympathy for its values.  We need to reinforce the neglected idea that health care ought to be a calling, not simply a way for some to become rich.

Reading Between the Lines: "Scrappy" WellPoint as an Illustration of Contemporary Health Care's Flaws

Giant US for-profit insurance company/ managed care organization WellPoint has provided numerous examples of problems with the current way h...

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Corporate Proxies Suggest CEOs Rewarded for Influencing Health Care Reform

We have frequently <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">discussed</a> the often outsized, if not outrageous compensation awarded to top leaders of health care organizations.  Such compensation may seem disproportionate to the leaders' real-world achievements, and may contrast with organizational actions that seem inept, mission-hostile, or unethical. In perusing this year's crop of proxy statements from some of the biggest US health care corporations, I noted that some provide some narrative, qualitative justification for their top leaders pay.  I was struck by three similar statements: Johnson and Johnson We recently <a href="http://hcrenewal.blogspot.com/2010/05/19-million-means-never-having-to-say.html">discussed</a> the contrast between Johnson and Johnson CEO William Weldon's gargantuan compensation and his detached response to the findings of an inspection of one of his company's factories that lead to its shutdown and the recall of its products.   According to the company's <a href="http://files.shareholder.com/downloads/JNJ/895865678x0xS950123-10-25426/200406/filing.pdf">2010 proxy statement</a>, Mr Weldon's total compensation approved  in 2010 was $19,847,026.   The proxy statement included this overview of his performance: <blockquote>The Board believes that Mr. Weldon generally exceeded expectations despite substantial economic, political, regulatory and competitive challenges as well as significant patent expirations. As referenced in the table above, the Company delivered solid financial results and positioned itself for future growth.</blockquote> Under "strategic results" was this statement: <blockquote>Mr. Weldon played an effective role in helping shape health care policy around the world and has been very involved with efforts on U.S. Health Care Reform. Mr. Weldon’s personal involvement with key leaders and organizations has ensured the interests of the Company are well represented.</blockquote> Pfizer We recently <a href="http://hcrenewal.blogspot.com/2010/04/pfizer-settles-one-lawsuit-loses.html">discussed</a> the contrast between Pfizer Inc CEO Jeffrey Kindler's sizable compensation and the number and size of lawsuits alleging unethical conduct that the organization has settled, and its criminal conviction as a "racketeering influenced and corrupt organization" (RICO). According to the company's 2010 proxy statement, Mr Kindler's total compensation in 2009 was $14,898,038. The proxy statement included an Executive Compensation Discussion and Analysis. Its summary of Mr Kindler's performance was: <blockquote>The committee believes that Mr Kindler's leadership was a significant factor in the continued progress made by Pfizer in 2009 in strengthening the foundation for future growth and long-term success.</blockquote> It also specifically addressed Mr Kindler's "industry leadership": <blockquote>During 2009, Mr Kindler was actively involved, through both Pfizer and external organizations, in developing and advancing US and global public policies that serve the overall interest of our Company and our shareholders, as well as doctors and patients. These efforts included constructive participation in the US legislative process to advance Pfizer's goals of achieving a more rational operating environment....</blockquote> UnitedHealth Group We recently <a href="http://hcrenewal.blogspot.com/2010/04/what-me-worry-redux-another-leader.html">discussed</a> the contrast between UnitedHealth Group CEO Stephen J Helmsley's large total compensation and the profit he recently made from the sale of stock options and various questions raised about his company's ethical performance.  According to the company's <a href="http://www.sec.gov/Archives/edgar/data/731766/000119312510083028/ddef14a.htm#toc14068_20">2010 proxy statement</a>, his 2009 total compensation was $8,901,916. The company's 2010 proxy statement stated his compensation was based upon a variety of factors, including: <blockquote>Positive participation and leadership of the Company in the health care reform and modernization debate</blockquote> Summary We have noted how health care organization may be gripped by <a href="http://hcrenewal.blogspot.com/2009/12/compensation-madness-insiders-hijacking.html">"compensation madness,"</a> caused by "insiders hijacking established organizations for their personal benefit."  One could view the statements above as just one form of post-hoc justification for compensation madness.  It is possible that timid, if not crony boards are simply getting more inventive in their rationalizing CEOs' imperial pay scales.  On the other hand, those justifying the compensation of three extremely well-compensated health care corporate CEOs may really believe what they wrote about their CEOs roles in health care reform.  We have posted little about the US health care reform effort because so much of it seemed irrelevant to the concerns mentioned on Health Care Renewal.  Health care reform legislation did little to address problems with health care leadership, governance and ethics, and how they challenge health care professionals' values and lead to higher costs, declining access, poor health care quality and disgruntled health care professionals (see <a href="http://hcrenewal.blogspot.com/2010/03/health-care-reform-bill-and-health-care.html">this summary</a>).  Maybe one reason this was so was that the top leaders of health care organizations did a good job pushing their personal and organizational priorities into the reform legislation, meanwhile discouraging any provisions that might threaten the way they were leading their organizations, and how much they were making while doing so.  There a many reasons for the popular dissatisfaction with the recently enacted US health care reform legislation.  The influence of the leadership of top health care corporations in promoting their, rather than the populace's goals, ought to be a topic of further inquiry.  Meanwhile, it may be that the <a href="http://hcrenewal.blogspot.com/search/label/superclass">"superclass"</a> has struck again.

Corporate Proxies Suggest CEOs Rewarded for Influencing Health Care Reform

We have frequently discussed the often outsized, if not outrageous compensation awarded to top leaders of health care organizations. Such ...

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Bigotry Against the Obese by Leaders of Massachusetts General Hospital and Blue Cross and Blue Shield of Massachusetts?

I am amplifying a post by Roy Poses entitled "<a href="http://hcrenewal.blogspot.com/2010/05/why-pretend-advertising-executive-and.html">Why Pretend An Advertising Executive and Chamber of Commerce Leader Are Public Health Experts?</a>". In that post, Dr. Poses noted a lack of relevant professional credentials in executives making profoundly misinformed and indeed cruel statements about the obese: <blockquote>Obesity as a public health problem has been the subject of considerable discussion. So that luminaries from the prestigious Partners Healthcare system and Massachusetts Blue Cross Blue Shield would weigh in on the issue at a public meeting should surprise no one. But see this <a href="http://www.bostonherald.com/business/healthcare/view.bg?articleid=1247334&srvc=rss">report</a> by the Boston Herald: <blockquote>When asked about rising health-care costs, Jack Connors - chairman of the Partners chain, which includes Mass. General and Brigham and Women’s hospitals - said yesterday, 'Taking care of yourself starts at home.' 'What happened to individual responsibility?' Connors said at a Greater Boston Chamber of Commerce breakfast at the Westin Boston Waterfront. 'Why is obesity such an epidemic (when) we all know that a big part of being healthy is exercising and eating the right food?' Blue Cross Blue Shield Chairman Paul Guzzi echoed Connors’ attitude yesterday. 'What is the responsibility of the individual?' said Guzzi, who as the chamber’s chief executive hosted Senate President Therese Murray’s speech on health care yesterday, despite his dual role as Blue Cross chairman.</blockquote> </blockquote>Dr. Poses then went on to point out the lack of these executives' appropriate credentials to be making such statements. In a Dec. 2009 post I'd addressed related issues: <blockquote> <a href="http://hcrenewal.blogspot.com/2009/12/why-we-have-federal-antidiscrimiation.html" style="font-weight: bold;">Diversity Nightmare And Federal Antidiscrimination Laws: Cleveland Clinic CEO Delos M. Cosgrove Would Proudly Discriminate Against Fat People</a> <div class="post-header"> </div> The following stunning quote appeared in the Nov. 27, 2009 Newsweek article "<a href="http://www.newsweek.com/id/224585">The Hospital That Could Cure Health Care</a>" about the Cleveland Clinic: <blockquote>[Cleveland Clinic president and CEO Dr. Delos M. Cosgrove, a former cardiac surgeon] has even taken on the most intractable driver of American health-care costs: Americans. Having already banned the hiring of smokers (a dictate enforced by urine tests for nicotine), Cosgrove declared this year that if it weren't illegal under federal law, he would refuse to hire fat people as well. The resulting outcry led him to apologize for "hurtful" comments. But he has not backed down from his belief that obesity is a failure of willpower, which can be attacked by the same weapons used to combat smoking: public education, economic incentives, and sheer exhortation.</blockquote> My thoughts come from the perspective of a former fitness-for-duty evaluator and drug testing officer (Medical Review Officer) for the regional transit authority in a very large city, and a hiring manager in the hospital and pharmaceutical sectors. I find a profoundly discriminatory statement that a hospital CEO would "refuse to hire fat people" if he could get away with it, and that he refuses to hire smokers and forces people (presumably candidates) to take a urine nicotine test, totalitarian and highly abhorrent. </blockquote> The attitudes of these executives show a near-complete ignorance of this disease and its causes and treatment. The attitudes also seem to show simple bigotry. In Connors' case, his statements also show ignorance of his own hospital, Mass General. From the website of the <a href="http://www.weightcenter.org/">MGH Weight Center</a>, realistic and compassionate attitudes about obesity: <blockquote>Obesity, or excess body fat, is a serious medical problem now affecting one-third of all American adults and 20% of American children and adolescents. Even mild obesity increases a person's risk of having diabetes, heart disease, respiratory disorders, liver disease, arthritis, certain cancers, and other medical conditions. Overweight people have tried hundreds of ways to lose weight, from expensive commercial programs and risky drugs to unusual diets and exercise regimens. <blockquote>"Recent discoveries about the genetic and physiological causes of obesity, along with the rapid development of pharmacological opportunities, have generated hope and excitement among patients and their families, their physicians and the scientific community. Massachusetts General Hospital has assembled the resources and outstanding professionals so that we can provide state-of-the-art treatment and work to find a cure for this challenging medical problem." <div align="center"> Lee M. Kaplan, MD, PhD Director</div> </blockquote> Overweight and obesity, like many other chronic medical problems, require specialized treatment. We believe that weight disorders must be treated by compassionate and knowledgeable professionals who take advantage of the latest scientific developments and tailor treatment to each patient's individual needs.</blockquote> In that regard, I wrote Dr. Kaplan an email: <blockquote style="font-family:arial;">Sent: Wednesday, May 12, 2010 7:52 AM To: kaplan@helix.mgh.harvard.edu Cc: Miriam@cswd.org; Lynn@cswd.org; billfabrey@amplestuff.com <style title="owaParaStyle">P { MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px } BODY { SCROLLBAR-HIGHLIGHT-COLOR: #cecfce; SCROLLBAR-ARROW-COLOR: #3f52b8; SCROLLBAR-TRACK-COLOR: #fffbff; SCROLLBAR-DARKSHADOW-COLOR: #fafafa; SCROLLBAR-BASE-COLOR: #f7f7f7 } </style><div dir="ltr"><div id="divSubj" onfocus="onClkSubj()" tabindex="0"><pre>Re: Bay State hospital and insurance heavies blames fat-slob consumers for heath problems </pre></div></div> <div dir="ltr"> </div> <div dir="ltr">Dear Dr. Kaplan, I am a physician and advocate for the best healthcare, in my case through excellence in health IT. However, I am also an advocate for another cause - antidiscrimination against the obese. </div> <div dir="ltr"> </div> <div dir="ltr">As my colleague Roy Poses of Brown wrote at the blog of the Foundation for Integrity and Responsibility in Medicine, Heathcare Renewal: </div> <div dir="ltr"><a href="http://www.blogger.com/redir.aspx?C=662852f86e3b407cbb5ec8434288ecf2&URL=http%3a%2f%2fhcrenewal.blogspot.com%2f2010%2f05%2fwhy-pretend-advertising-executive-and.html" target="_blank"></a> </div> <blockquote dir="ltr" style="margin-right: 0px;"> <div dir="ltr"><a href="http://www.blogger.com/redir.aspx?C=662852f86e3b407cbb5ec8434288ecf2&URL=http%3a%2f%2fhcrenewal.blogspot.com%2f2010%2f05%2fwhy-pretend-advertising-executive-and.html" target="_blank">Why Pretend An Advertising Executive and Chamber of Commerce Leader Are Public Health Experts?</a> </div> <div dir="ltr"> </div> <div dir="ltr">Obesity as a public health problem has been the subject of considerable discussion. So that luminaries from the prestigious Partners Healthcare system and Massachusetts Blue Cross Blue Shield would weigh in on the issue at a public meeting should surprise no one. But see this <a href="http://www.blogger.com/redir.aspx?C=662852f86e3b407cbb5ec8434288ecf2&URL=http%3a%2f%2fwww.bostonherald.com%2fbusiness%2fhealthcare%2fview.bg%3farticleid%3d1247334%26srvc%3drss" target="_blank">report</a> by the Boston Herald: </div> <blockquote dir="ltr">When asked about rising health-care costs, Jack Connors - chairman of the Partners chain, which includes Mass. General and Brigham and Women’s hospitals - said yesterday, 'Taking care of yourself starts at home.' 'What happened to individual responsibility?' Connors said at a Greater Boston Chamber of Commerce breakfast at the Westin Boston Waterfront. 'Why is obesity such an epidemic (when) we all know that a big part of being healthy is exercising and eating the right food?' Blue Cross Blue Shield Chairman Paul Guzzi echoed Connors’ attitude yesterday. 'What is the responsibility of the individual?' said Guzzi, who as the chamber’s chief executive hosted Senate President Therese Murray’s speech on health care yesterday, despite his dual role as Blue Cross chairman.</blockquote></blockquote> <div dir="ltr"> </div> <div dir="ltr"> It seems Connors and Guzzi are calling obese people irresponsible, in effect, lazy slobs. Roy also noted that both your Chairman Connors and Guzzi lack healthcare credentials and therefore any understanding of the causes and challenges of treating obesity. </div> <div dir="ltr"> </div> <div dir="ltr">I had addressed this issue in a Healthcare Renewal post of my own, in my Dec. 2009 post "<a href="http://www.blogger.com/redir.aspx?C=662852f86e3b407cbb5ec8434288ecf2&URL=http%3a%2f%2fhcrenewal.blogspot.com%2f2009%2f12%2fwhy-we-have-federal-antidiscrimiation.html" target="_blank">Diversity Nightmare And Federal Antidiscrimination Laws: Cleveland Clinic CEO Delos M. Cosgrove Would Proudly Discriminate Against Fat People</a>" </div> <div dir="ltr"> </div> <div dir="ltr">As a physician who has been up and down the scale myself, and discriminated against when on the heavy side, I am quite tired of such attitudes. </div> <div dir="ltr"> </div> <div dir="ltr">I note more realistic attitudes at <a href="http://www.blogger.com/redir.aspx?C=662852f86e3b407cbb5ec8434288ecf2&URL=http%3a%2f%2fwww.weightcenter.org%2f" target="_blank">http://www.weightcenter.org/</a> . </div> <div dir="ltr"> </div> <div dir="ltr">I believe a statement from you on this matter would be appropriate. </div> <div dir="ltr"> </div> <div dir="ltr">I am CC'ing this message to cswd.org and amplestuff.com, two groups with whom I communicated in the past.</div></blockquote> It is a sad day indeed when the Chairman of one of the finest hospitals in the world, Massachusetts General, talks stupidly and discriminatorily out of the distal gastrointestinal orifice about how much people put in the proximal end of their GI tracts. -- SS

Bigotry Against the Obese by Leaders of Massachusetts General Hospital and Blue Cross and Blue Shield of Massachusetts?

I am amplifying a post by Roy Poses entitled " Why Pretend An Advertising Executive and Chamber of Commerce Leader Are Public Health ...

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Leaders of Discredited Financial Rating Agencies as Leaders of Health Care

This is the latest in our informal series on the cross-linkages between the thinking and leadership that lead to the global financial collapse/ great recession and that current in health care.  Last month, a US Senate sub-committee held hearings on the role of the rating agencies, actually for-profit corporations that evaluated securities, including derivatives, in the collapse.  The Fundamentally Conflicted Rating Agencies To briefly provide some background, these agencies were hired by the firms that created these securities to evaluate them.  Because the securities were complex, they were hard for investors to evaluate.  Investors had become used to using the rating agencies' evaluations as benchmarks for the quality and riskiness of complex securities.  Many did not seem to realize that the agencies themselves were for-profit corporations, or subsidiaries thereof, which made more money the more securities they rated.  The rating agencies gave many of their highest ratings (AAA) to securities that later failed.  (See an informal video discussion by corporate governance expert Robert A G Monks <a href="http://ragmonks.blogspot.com/2010/04/bob-monks-discusses-ratings-agencies.html">here</a>.) Some key quotes from the news coverage follow. <blockquote>Former credit rating agency officials said on Friday that the quest for market share fueled a drive for short-term profits, sacrificing credit quality in the process. Eric Kolchinsky, who was in charge of the Moody's (MCO.N) unit that rated subprime CDOs, or collateralized debt obligations, said that people 'across the financial food chain, from the mortgage broker to the CDO banker, were compensated based on quantity rather than quality,' according to testimony prepared for a Senate panel. 'The situation was no different at the rating agencies.'</blockquote><a href="http://www.reuters.com/article/idUSN2315396020100423?type=marketsNews">from Reuters</a> <blockquote>Former Moody’s Investors Service and Standard & Poor’s employees said they were excluded from assessing mortgage bonds if they questioned Wall Street’s conclusions and that credit-rating companies focused on protecting business at the expense of accurate grading. Richard Michalek, a former managing director in Moody’s structured products derivatives group, told the Senate Permanent Subcommittee on Investigations at a hearing today that managers said he was 'not welcome on deals' involving certain banks. Eric Kolchinsky, who led the Moody’s group that rated collateralized debt obligations made up of mortgage bonds, said he was berated by his boss when the company lost business after implementing more conservative ratings. S&P wrongly concluded that its increasing profits amid an inflated U.S. housing market was based on 'superior management skill and insight,' said Frank Raiter, a former managing director at the company. In reality, regulators had made the firm part of 'an oligopoly' by requiring investors to hold assets it rated, Raiter said.</blockquote><a href="http://www.businessweek.com/news/2010-04-23/moody-s-s-p-influenced-by-wall-street-senate-finds-update1-.html">per Bloomberg</a> <blockquote>The documents show, sometimes in excruciating detail, the conflicts of interest that many claim lie at the heart of the ratings business model and the concerns of employees about what was happening inside the companies well before the crisis broke. One employee at Standard & Poor's, the world's largest rating agency, said its handling of awkward questions in the summer of 2007 made it 'sound like the Nixon White House'.</blockquote> And, <blockquote>As one Moody's managing director wrote to his superiors in 2007, the company's errors, made it look 'either incompetent at credit analysis, or like we sold our soul to the devil for revenue, or a little bit of both'.</blockquote><a href="http://www.ft.com/cms/s/0/a3a9900e-4f39-11df-b8f4-00144feab49a.html">per the Financial Times</a> The two companies targeted by these hearings were Moodys, and Standard & Poors (a subsidiary of McGraw-Hill Inc). Overlaps with Health Care Leadership: Moody's Corporation Perusal of the roster of the Moody's board of directors in 2008, per that year's <a href="http://ir.moodys.com/secfiling.cfm?filingID=950123-07-4224">proxy statement</a>, reveals the following overlaps with health care leadership, of its 8 directors. Connie Mack - is also on the boards of EXACT Sciences Corporation (a biotechnology company), and <a href="http://hcrenewal.blogspot.com/search/label/Genzyme">Genzyme</a>.  He is the chair of the <a href="http://hcrenewal.blogspot.com/2010/02/hospital-executive-pay-in-land-where.html">H. Lee Moffitt Cancer Center</a>. Henry A McKinnell Jr - was chairman of the board and CEO from 2001-06 of <a href="http://hcrenewal.blogspot.com/search/label/Pfizer">Pfizer Inc</a>. Basil L Anderson - is a member of the board of directors of <a href="http://hcrenewal.blogspot.com/search/label/Becton%20Dickinson">Becton Dickinson</a>. Overlaps with Health Care Leadership: McGraw-Hill Inc Via the company's 2008<a href="http://www.mcgraw-hill.com/2008mhpproxy/statement.pdf"> proxy statement</a>, of 12 directors: Sir Winfried Bischoff - is a director of <a href="http://hcrenewal.blogspot.com/search/label/Eli%20Lilly">Eli Lilly and Company</a>. Linda Koch Lorimer - is Vice President and Secretary of <a href="http://hcrenewal.blogspot.com/search/label/Yale">Yale University</a>, and a Director of Yale-New Haven Hospital. Kurt L Schmoke - is a Trustee of the Howard Hughes Medical Institute Sidney Taurel - was chairman and CEO of <a href="http://hcrenewal.blogspot.com/search/label/Eli%20Lilly">Eli Lilly and Company</a>. Summary So, in summary, the 20 board members of one for-profit "ratings agency," and of the corporation of which the other major "ratings agency" was a subsidiary, served on the boards of 2 biotechnology corporations (EXACT Sciences Corporation and Genzyme), one medical device company (Becton-Dickinson), one pharmaceutical company (Eli Lilly) , 2 major academic medical centers (Moffitt Cancer Center and Yale-New Haven), and one medical research institution (Howard Hughes).  Two were recent former CEOs and chairmen of the boards of 2 of the world's largest pharmaceutical companies (Pfizer and Eli Lilly).  Most of these health care organizations have been involved with cases we have discussed on Health Care Renewal (see links above). Given the serious concerns about the conflicts of interest that became the core of these corporations' business models, and their central role in the global financial collapse, one has to wonder why so many of the directors who presided over them still have such influential positions in health care organizations? As we have <a href="http://hcrenewal.blogspot.com/2010/02/university-president-but-no-longer.html">pointed out</a>, as the world economy was driven to near ruin by "masters of the universe," some of the same also became leaders of academia and academic medicine in their spare time. Maybe this made sense 10 or 20 years ago, but why does it still make sense? On the other hand, now that we understand how bad the leadership of finance really was, it is a little easier to understand why the leadership of health care has become so bad. It seems reasonable to hypothesize that some of the problems of academia, and particularly the problems of medical academia, may have been at least enabled by leadership more used to working in an increasingly amoral marketplace than to upholding the academic mission. The failures of the leadership and governance of finance thus suggest we need to re-examine the leadership of health care.

Leaders of Discredited Financial Rating Agencies as Leaders of Health Care

This is the latest in our informal series on the cross-linkages between the thinking and leadership that lead to the global financial collap...

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Why Pretend An Advertising Executive and Chamber of Commerce Leader Are Public Health Experts?

Obesity as a public health problem has been the subject of considerable discussion.  So that luminaries from the prestigious Partners Healthcare system and Massachusetts Blue Cross Blue Shield would weigh in on the issue at a public meeting should surprise no one.  But see this <a href="http://www.bostonherald.com/business/healthcare/view.bg?articleid=1247334&srvc=rss">report</a> by the Boston Herald: <blockquote>When asked about rising health-care costs, Jack Connors - chairman of the Partners chain, which includes Mass. General and Brigham and Women’s hospitals - said yesterday, 'Taking care of yourself starts at home.' 'What happened to individual responsibility?' Connors said at a Greater Boston Chamber of Commerce breakfast at the Westin Boston Waterfront. 'Why is obesity such an epidemic (when) we all know that a big part of being healthy is exercising and eating the right food?' Blue Cross Blue Shield Chairman Paul Guzzi echoed Connors’ attitude yesterday. 'What is the responsibility of the individual?' said Guzzi, who as the chamber’s chief executive hosted Senate President Therese Murray’s speech on health care yesterday, despite his dual role as Blue Cross chairman.</blockquote> Jack Connors is currently chair of the board of Partners Healthcare.  A quick biography is <a href="http://phx.corporate-ir.net/phoenix.zhtml?c=68329&p=irol-govBio&ID=110624">here</a>: <blockquote>John M. Connors, Jr., 67, Chairman Emeritus of Hill Holliday (formerly Hill, Holliday, Connors, Cosmopulos, Inc). (full service marketing and communications company) since 2006. Chairman of Hill, Holliday, Connors, Cosmopulos, Inc. from 1995 until 2006, during which time Mr. Connors also served as President and Chief Executive Officer until 2003. Mr. Connors was a founding partner of Hill, Holliday, Connors, Cosmopulos. Director of Covidien Ltd. Mr. Connors’ 40 years of business experience includes cofounding and developing one of the top advertising and marketing communications firms in the United States, advising many of the top branded companies in the world, and serving on the boards of dozens of entities, including public companies, private companies, hospitals and colleges. (Biographical Information as of 4/16/10)</blockquote> Although Mr Connors did once run a medical education and communications company (see <a href="http://hcrenewal.blogspot.com/2009/06/mans-best-hospital-run-by-boss-of-mecc.html">this post</a>), he has no obvious direct experience or training in biology, epidemiology, public health, or medicine. Similarly, <a href="http://www.bostonchamber.com/about/about_the_ceo.aspx">here</a> is biography of Paul Guzzi: <blockquote>Paul Guzzi is president and chief executive officer of the Greater Boston Chamber of Commerce, one of the region’s leading business associations. Mr. Guzzi brings extensive experience in both business and government to his work at the Chamber. A former Massachusetts secretary of state and chief secretary to the Governor, as well as a member of the management teams of two Fortune 500 companies; he is a leading advocate for economic development and job creation. Prior to leading the Chamber, Mr. Guzzi was vice president of state and community affairs for Boston College. Previously, he was a consultant for Heidrick & Struggles, an international recruitment and consulting firm. Mr. Guzzi also served as a vice president at Data General Corporation and as a senior vice president at Wang Laboratories. During his tenure at Wang, he worked closely with Dr. An Wang to oversee the restoration and transformation of what is now the Wang Theatre. Mr. Guzzi began his public service career as a state representative from Newton in 1970. He was elected Massachusetts secretary of state in 1974. Mr. Guzzi served as a chief of staff for Governor Edward King and chief administrator of the Board of Regents of Public Higher Education. A graduate of Harvard University, Mr. Guzzi holds a Bachelor of Arts degree in government. He completed the Harvard Business School Management Development Program. He was also an officer in the U.S. Marine Corps Reserve. </blockquote> Again, Mr Guzzi has no obvious training or experience in biology, epidemiology, public health, or medicine. So maybe it should be no surprise that the Boston Herald article chronicled some skepticism about these worthies' public health pronouncements. <blockquote>Calling the pair’s comments 'pure smoke blowing,' Boston University public health professor Alan Sager said, 'Sure individual responsibility matters, but the responsibility for efficient, affordable, high-quality health care for all Americans falls on everybody who works in health care.'</blockquote> By the way, <blockquote>Connors said a major reason for rising health-care costs is that a high percentage of people who leave the hospital are later readmitted, because they don’t follow their doctors’ directions. He owns a company, Dovetail Health, that makes money by helping elderly patients readjust to life after hospitalization, including staying on their medications.</blockquote> Every week I get piles of notices of "healthcare" conferences at which most of the speakers are health care organizational executives with no obvious expertise or experience in actual health care, or in biology, epidemiology, public health or medicine. I think I dimly remember a time when most people who gave public remarks on health care actually knew something about health care, not just about making money (often personally in large amounts) from the health care "industry." Note that while the Herald was able to find people who were skeptical about these health care leaders' remarks, there was no report that their audience (presumably made up mainly of business people) roared with laughter at their efforts to talk about controversial topics which they did not seem to really understand. We need to ask why we have become so deferential to leaders of large (and and least heretofore prestigious) health care organizations that we treat them like true experts on biology, epidemiology, public health or medicine when they have no obvious expertise, or even knowledge in these areas? Thanks to one of our anonymous scouts for a tip on this item.

Why Pretend An Advertising Executive and Chamber of Commerce Leader Are Public Health Experts?

Obesity as a public health problem has been the subject of considerable discussion. So that luminaries from the prestigious Partners Health...

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$19 Million Means Never Having to Say You Are Sorry?

Johnson and Johnson, the giant diversified health care company, recently shut down a factory that manufactured non-prescription childrens' medication, and recalled its products.  The findings from a US Food and Drug Administration (FDA) inspection of the plant were striking.  As described <a href="http://www.reuters.com/article/idUSTRE6466YI20100508">by Reuters</a>, <blockquote>The company recalled 40 widely used children's pain and allergy medications, saying some may have a higher concentration of their active ingredients, while others may be contaminated. J&J has had four recalls in the past year of over-the-counter medicines. In an FDA report issued on Tuesday, inspectors said they found thick dust, grime and contaminated ingredients at the J&J plant that produces Children's Tylenol and dozens of other products recalled last week.</blockquote> This infuriated the member of Congress who chairs a sub-committee which oversees the FDA: <blockquote>Democratic Representative Rosa DeLauro sent a letter to the Food and Drug Administration asking questions about how the agency can respond to recalls and quality control lapses. 'I am concerned that the agency does not possess the authority to take appropriate action to address potentially criminal behavior by a corporation,' DeLauro wrote in the letter to FDA Commissioner Margaret Hamburg.</blockquote> Furthermore, <blockquote>DeLauro, in her letter, said the company's 'disregard' for manufacturing standards was 'both unnerving and unethical.' 'The corporate oversight observed at this facility appears to be symptomatic of reckless behavior that is clearly unacceptable,' she wrote.</blockquote> The Reuters report then noted: <blockquote>J&J has called the manufacturing problems unacceptable and vowed to fix them. The company has suspended production at the Pennsylvania plant where the recalled children's products are made.</blockquote> Moreover, the company CEO took to the blogsphere (<a href="http://jnjbtw.com/2010/05/to-all-who-use-our-products-from-bill-weldon/">via the company's JNJ BTW blog</a>) to give his response (below in its entirety). <blockquote>To All Who Use Our Products, We have a responsibility at Johnson & Johnson to provide you with the highest-quality products possible, and we have worked hard to fulfill that responsibility day-by-day for over a century. The recent recalls of some over-the-counter medicines from our McNeil Consumer Healthcare operating company are a matter of great concern. They are a disappointment to me, and to the employees of the Johnson & Johnson Family of Companies. You can be confident that we will make whatever changes are needed at McNeil to fully restore the quality of its manufacturing. As reported, McNeil has suspended all manufacturing operations at its facility in Fort Washington, Pa., until we can be sure that they are operating under the standards we demand of ourselves, and which our customers expect of us. McNeil has also retained independent quality experts to assist in this regard and is re-evaluating quality systems and manufacturing processes across the organization. I have been assured that the chance of a serious medical event from the recalled products is remote. Even so, this does not give us comfort; one of our companies has let you down. For now, please check your infants’ or children’s forms of TYLENOL®, MOTRIN®, ZYRTEC® or BENADRYL® and discard any medicines that are being recalled. You can check the list of recalled lots, apply for refunds, and get more information about the recall at McNeil’s dedicated website (http://mcneilproductrecall.com), or by calling 888-222-6036. We will work hard to earn back your confidence. Sincerely, Bill Weldon</blockquote> This seems like a very important case, because it involves a pharmaceutical company apparently violating its most fundamental responsibility, to provide pure, unadulterated medicine to the public.  While the current case did not apparently lead to major health consequences to patients (as did the <a href="http://hcrenewal.blogspot.com/2010/05/more-questions-no-answers-about-case-of.html">case of the contaminated heparin</a>), it still suggests very basic flaws with Johnson & Johnson's operations. Thus, what is striking about the CEO's message is its remote tone.  He characterizes the problems at the factory as a reason for "great concern" and "a disappointment."  Such language seems designed to reduce the CEO's own connection to the problems at the factory.  This is the language one might use to describe someone else's conduct.  (For example, Politician X's vote on the bill "caused me great concern," and "was a disappointment.") On the other hand, although the CEO wrote about collective responsibility, ("we have a responsibility at Johnson and Johnson,"), he never suggested he had any responsibility or was accountable for what happened.  Of course, we have frequently seen language like this when health care organizations are accused of practices that violate their fundamental responsibilities, or could threaten health and safety.  Rather than embracing responsibility, often leaders use language that suggests a fear of admitting anything that could create legal liability. However,  supposedly the rationale for entrusting so much power, and providing so much compensation to CEOs and other top executives, including those of health care organizations, is the tremendous responsibility they undertake.  In fact, the <a href="http://files.shareholder.com/downloads/JNJ/911088465x0x359543/AA8DC9C8-C2E9-406E-9BC4-9BCBC25DF730/y81646_d-i001_a_UC.pdf">Johnson & Johnson 2010 proxy statement</a> provides this justification for the executives' stratospheric pay: <blockquote>Pay for Performance —All components of compensation should be tied to the performance of the individual executive officer and his or her specific business unit or function and/or the Company overall. • Credo Values— The manner in which financial and strategic objectives are achieved is important. While not always quantifiable, the manner in which employees achieve results should also be a key element of the individual performance review process. During the performance review process, the Company’s set of core values—trustworthiness, respect, responsibility, fairness, caring and citizenship—as set forth in Our Credo should be used to assess how objectives are achieved. • Accountability for Short- and Long-Term Performance — Annual performance bonuses and long term incentives should reward an appropriate balance of short- and long-term financial and strategic business results, with an emphasis on managing the business for the long-term.</blockquote> It then goes on the emphasize the company's Credo: <blockquote>Importance of Credo Values For more than 65 years, the Johnson & Johnson Credo has guided the actions of the Company and its executive officers in fulfilling their responsibilities to the Company’s customers, employees, community and shareholders. In assessing the executive officers’ contributions to the Company’s performance, the Committee not only looks to results-oriented measures of performance, but also considers how those results were achieved— whether the decisions and actions leading to the results were consistent with the values embodied in the Credo— and the long-term impact of an executive officer’s decisions. Credo based behavior is not something that can be precisely measured and, thus, there is no formula for how Credo-based behavior can, or will, impact an executive’s compensation. The Committee and the Chairman/CEO use their judgment and experience to evaluate whether an executive’s actions were aligned with the Company’s Credo values.</blockquote> Thus, last year Mr Weldon's total compensation was $19,847,026. Such an amount ought to pay for a vast amount of responsibility and accountability. (Also, the total compensation of Ms C A Goggins, the Worldwide Chairman of the Consumer Group, who I presume to the the executive just below the CEO who is responsible for products made by the factory which had to be closed, was $5,345,737.) So again the rules for the executives of big health care organizations seem to be heads they win, tails we lose.  They are paid enough to turn them into a new aristocracy supposedly because of the tremendous responsibility and accountability they assume.  However, when things go wrong, responsibility and accountability vanish in a haze of concern and disappointment (with other peoples' actions.) On Health Care Renewal we continue to be concerned with and disappointed about our dysfunctional health care system, and its worsening problems with costs, quality and access as long as it is lead by people who can become rich without any responsibility or accountability for their actions.  The robber barons that arose in the late 19th century lead our country and the world into the great depression.  The new health care robber barons will soon lead us into the great health care depression.

$19 Million Means Never Having to Say You Are Sorry?

Johnson and Johnson, the giant diversified health care company, recently shut down a factory that manufactured non-prescription childrens...

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Novartis Settles, Again

We certainly could not go another week without discussing another settlement of charges of unethical behavior by a major health care organization.  This time, as <a href="http://online.wsj.com/article/SB10001424052748703866704575224662623128150.html">reported</a> by the Wall Street Journal, it was Swiss pharmaceutical company Novartis: <blockquote> Novartis AG will pay $72.5 million to settle U.S. Justice Department allegations it submitted false claims for off-label uses of a cystic-fibrosis drug. The drug, tobramycin or TOBI, joined the Novartis portfolio as part of its 2005 takeover of biotechnology firm Chiron Corp. In a release Tuesday, the Justice Department said that, between 2001 and 2006, Chiron, and then Novartis, marketed unapproved uses for TOBI, which the Food and Drug Administration approved as an inhaled antibiotic for treating certain cystic-fibrosis patients. </blockquote> This is not even the first US legal settlement this year for Novartis: <blockquote>Earlier this year, Novartis said its U.S. subsidiary struck an agreement with the U.S. Attorney's Office in Pennsylvania to settle a criminal investigation of the company's marketing of the epilepsy drug Trileptal. Novartis agreed to plead guilty to violating the U.S. Food, Drug and Cosmetic Act, and to pay a $185 million fine.</blockquote> We had posted on that previous settlement <a href="http://hcrenewal.blogspot.com/2010/01/drowning-our-sorrows-in-ketchup.html">here</a>. So the march of <a href="http://hcrenewal.blogspot.com/search/label/legal%20settlements">legal settlements</a> continues.  It seems that practically every major pharmaceutical corporation has participated in multiple settlements since we started Health Care Renewal.  Yet the process does not seem to deter continuing bad behavior.  In the current case, like nearly all the others, the corporation will pay what seems to be a huge fine. However, the amount is a pittance compared to the corporation's revenue, and is likely to be viewed as only a small cost of doing a very lucrative business by corporate executives. In very few cases does any individual suffer any negative consequence for approving, ordering or implementing the unethical behavior.  A large fine's impact can be spread among share-holders, employees, and clients/ customers/ patients, and hence poses no threat to executives planning the next bit of unethical behavior. As I have said before, endlessly, we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences.  Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

Novartis Settles, Again

We certainly could not go another week without discussing another settlement of charges of unethical behavior by a major health care organiz...

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