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More Than $1 Million to Run a Public Health Agency

After a well-publicized story that managers of small town in California were paid in the high six-figures, reporters in California have gotten interested in the pay of public officials. Thus the San Diego Union-Tribune <a href="http://www.signonsandiego.com/news/2010/sep/18/public-health-exec-pay-tops-1-million/">reported</a> on the compensation received by CEOs of local public health agencies, called public health care districts, two of which run hospitals. One in particular received generous compensation: <blockquote>The top official at Palomar Pomerado Health, a public agency serving health-care needs in Poway and Escondido, receives in excess of $1 million in compensation per year. Michael Covert, who has run the North County hospital district since 2003, receives a base salary of $736,000 a year. Retirement, bonuses and other benefits push Covert’s total pay past $1.1 million.</blockquote> One other public health CEO, also responsible for a hospital, made somewhat less: <blockquote>Tri-City chief executive Larry Anderson collects a base salary of $480,000 and benefits that drive his total compensation past $625,000 a year. He also received a $50,000 relocation benefit when he arrived last year.</blockquote> Two CEOs of health districts that did not run hospitals, having leased them out, made less still: <blockquote>Grossmont chief executive Barry Jantz makes about $183,000 a year in base pay and benefits that increase his total compensation to just under $250,000 a year. Fallbrook administrator Vi Dupre, ... is paid a base salary of $61,000 a year and benefits that raise her compensation to just over $69,000,....</blockquote> Why is Mr Covert paid so much? <blockquote>Bruce Krider, the health-care district chairman, said Covert does an excellent job managing a complex enterprise that includes two major hospitals. Covert juggles the interests of staff, physicians, patients, volunteers, board members and other stakeholders, he said. 'A million dollars sounds pretty good to anybody, but my view is, pay a lot and expect a lot,' said Krider, a management consultant who also is a former hospital executive. 'You can’t have some mediocre public servant. You need somebody that has got vision, that can see the issues that are most important and put it all together.'</blockquote> So now even the managers of public health agencies have become million dollar babies. And of course, according to the boards of trustees who are supposed to supervise them, they all do excellent work and therefore are underpaid even then. As we have noted before, it seems that every board supervising every health care executive thinks their executives are above average, if not stellar. Note, though, that the chair of the board overseeing Mr Covert is himself a retired hospital administrator. So, as we have noted before, it seems that the boards of such organizations often have a preponderance of members who are not inclined to be critical of their hired executives, much less limit their pay. So the rules for top leaders of health care organizations seem to be different from those for you and me.  All these managers seem to be entitled to be above average.  (The only ones who are eventually deemed below average seem to be those up to no good in ways that do not financially benefit their organizations, e.g., see <a href="http://hcrenewal.blogspot.com/2010/07/where-no-hospital-ceos-are-below.html">this</a>.) In my humble opinion, it is unseemly for the leader of a government run public health organization to make so much.  True health care reform would decrease perverse incentives throughout the systems, spread the power in organizations more broadly, and make leaders accountable.

More Than $1 Million to Run a Public Health Agency

After a well-publicized story that managers of small town in California were paid in the high six-figures, reporters in California have gott...

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Health IT: On Anecdotalism and Totalitarianism

<div dir="ltr" style="font-family:arial;">At the article Blumenthal on EMRs: Debate "raging" over competition vs. standards (<a href="http://www.massdevice.com/news/blumenthal-emrs-debate-raging-over-competition-vs-standards" target="_blank">http://www.massdevice.com/news/blumenthal-emrs-debate-raging-over-competition-vs-standards</a>), ONC czar David Blumenthal is cited as saying several interesting things: </div> <div dir="ltr" style="font-family:arial;"> </div> <blockquote dir="ltr" style="margin-right: 0px;font-family:arial;"> <div dir="ltr">... EMRs make him a better physician, he said, recounting personal anecdotes of discovering patients' allergies through automated EMR alerts and using stored image date to more quickly get a diagnosis for a patient without subjecting them to more radiation and toxic radiation agents ... </div></blockquote> <div dir="ltr" style="font-family:arial;"> </div> <div dir="ltr" style="font-family:arial;"> It's the EMR "anecdotalists" (as opposed to the "<a href="http://en.wikipedia.org/wiki/Harry_Markopolos" target="_blank">Markopolists</a>") who say that "anecdotes" of HIT-related injury are meaningless. They deem reports of safety issues and HIT-related misadventures and risk as simply "anecdotal", and that "anecdotes don't make evidence" (or "anecdotes don't make data"). </div> <div dir="ltr" style="font-family:arial;"> </div> <div dir="ltr" style="font-family:arial;"> Yet anecdotal reports of EMR "saves" are used by a czar to justify tens of billions of dollars of expenditures?</div> <div dir="ltr" style="font-family:arial;"> </div> <div dir="ltr" face="arial"> To the anecdotalists, I say: you can't have it both ways. </div> <div dir="ltr" face="arial"> </div> <div dir="ltr" style="font-family: arial;">That same article concludes with this concerning statement: </div> <div dir="ltr" style="font-family: arial;"> </div> <blockquote dir="ltr" style="margin-right: 0px;font-family:arial;"> <div dir="ltr">... Blumenthal, adamantly pro-EMR, said there is a move afoot to add technical fluency into certification for healthcare providers. "Boards of certification, all the primary care boards of medicine have adopted principles that will lead them to create requirements for the use of electronic health systems as a research requirement, and even the medical licensing boards are beginning to think about whether the maintenance of licensure should be dependent, to some degree, on using electronic health systems," he said. "Information is the lifeblood of medicine, and unless physicians and other healthcare professionals are capable of using the most modern technology available for managing information, I think they will have trouble claiming, in the 21st century, the unique competence that entitles them to being licensed and board certified. I think they'll have trouble holding up their heads as professionals and claiming that they are at the top of their game and capable of providing the best care that technology allows."</div></blockquote> <div style="font-family: arial;" dir="ltr"> It appears that my observation ten years ago of a cross-occupational invasion on Medicine by the IT domain (and its purveyors) was prescient. They've continued the march, and now they're now literally at the castle gates. I commented on this issue in more detail a few weeks ago at my post "<a href="http://hcrenewal.blogspot.com/2010/09/american-board-of-medical-specialties.html">American Board of Medical Specialties to "incorporate tools to promote meaningful use of health IT into its maintenance-of-certification program"</a>. I have two questions: </div> <div style="font-family: arial;" dir="ltr"> </div> <div style="font-family: arial;" dir="ltr">1) Was it the intention of the Medical Informatics pioneers to prohibit physicians from being licensed and/or board certified on the basis of using health IT? If such a seemingly totalitarian intention existed, that's fine, I just want to hear it debated. </div> <div style="font-family: arial;" dir="ltr"> </div> <div dir="ltr">2) Is the mere consideration (let alone enactment) of such a restriction, for all specialties, truly evidence based? (Note some merely skimming-the-surface "evidence" at my post "<a href="http://hcrenewal.blogspot.com/2010/07/new-england-journal-on-meaningful-use.html">Science or Politics? The New England Journal and "The 'Meaningful Use' Regulation for Electronic Health Records"</a>.) -- SS </div>

Health IT: On Anecdotalism and Totalitarianism

At the article Blumenthal on EMRs: Debate "raging" over competition vs. standards ( http://www.massdevice.com/news/blumenthal-emr...

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Should the President of the University of Michigan be Held Accountable for Johnson and Johnson's Adulterated Drugs and Defective Devices?

We first started to discuss the intense conflicts of interest generated when leaders of academic medicine are also members of boards of directors of for-profit health care corporations <a href="http://hcrenewal.blogspot.com/2006/03/new-species-of-conflict-of-interest-in.html">in 2006</a>. The issue really made the big time in 2010 when the New York Times published a front page <a href="http://www.nytimes.com/2010/08/01/business/01prez.html">article</a> in its Sunday Business section about whether university presidents who also were corporate directors were part of an "academic-industrial complex." University of Michigan President Mary Sue Coleman as a Director of Johnson and Johnson One such director we<a href="http://hcrenewal.blogspot.com/2010/04/smoke-screen-how-conflict-of-interest.html"> discussed</a> this year is Mary Sue Coleman, President of the University of Michigan, and hence leader of a prestigious medical school and academic medical center, who is also Director of the large health care conglomerate, Johnson and Johnson. This relationship became locally controversial when President Coleman supported a smoking ban on campus, and critics pointed out that Johnson and Johnson is a prominent maker of smoking cessation products. Now President Coleman's role on the Johnson and Johnson board made it into the national media, as the topic of <a href="http://www.detnews.com/article/20100914/OPINION01/9140316/1008/opinion01/Ethics-problems-in-higher-ed">an editorial</a> in the Detroit News: <blockquote>Should public officials moonlight as corporate operatives? This is a question being raised at the University of Michigan in the wake of the administration's decision to ban smoking on campus. While some students have criticized the ban, many take issue with the priorities of the administrators who backed it: Specifically, U-M President Mary Sue Coleman, whose decision-making may have been influenced by her membership on the board of Johnson & Johnson, a private company. The right thing for Coleman to do would be to resign from her corporate position, or, at the very least, refuse to accept payment.</blockquote>(Not to toot my own horn, but I thank the editorial writer for quoting me as a "high-profile" ethicist.) The issue in this editorial, and in the earlier discussion of President Coleman's responsibilities for Johnson and Johnson, was whether the latter could influence specific decisions made in the former role. However, events since our original posts on this case should create a new set of concerns. Johnson and Johnson's Recall of Over-the-Counter Childrens' Medications Johnson and Johnson has been dealing with a series of crises generated by revelations of problems in how it manufactures many of its marquee drugs and devices. We posted <a href="http://hcrenewal.blogspot.com/2010/05/19-million-means-never-having-to-say.html">here</a> about problems in the manufacture of well known over-the-counter childrens' medications, such as childrens' Tylenol (acetaminophen) and Motrin (ibuprofen), by Johnson and Johnson's McNeil Consumer Healthcare subsidiary. Medications were found to be contaminated, and the plant making them was shut down. Stringent Cost Cutting, Merger Mania, and Executives Who Don't Understand their Company's Business Since then, investigative <a href="http://money.cnn.com/2010/08/18/news/companies/jnj_drug_recalls.fortune/index.htm">reporting</a> by Fortune suggested that quality control problems were the result of that tactic popular among corporate executives to boost profits and hence their own over-stuffed pay checks, stringent cost cutting: <blockquote>McNeil's quality-control department thrived for a few years. Then, not long after Larsen retired in 2002, it began to slowly weaken. The culprit was a familiar one -- cost cutting -- but in a subtler form. There were no wholesale layoffs in quality control. Instead experienced staffers were repeatedly laid off and replaced with newbies who mostly lacked technical pharmaceutical experience. By 2008 the analytical laboratory, formerly staffed almost entirely by full-time scientists, was half-full of contract workers, according to a former manager there. Once stricter than a schoolmarm, the department grew lax. The team that tested the production lines was dubbed the 'EZ Pass system,' according to a former quality-control employee.</blockquote> Quality problems also appeared to be products of another familiar tactic that "brilliant" CEOs use to quickly boost the bottom line, mergers and acquisitions: <blockquote>At the end of 2006, J&J, on the hunt for growth amid slowing sales and profits, completed the $16.6 billion acquisition of Pfizer's (PFE, Fortune 500) consumer health care division.... The merger dramatically altered McNeil's position. It had previously been part of the pharma unit, but after the deal it was folded, along with the Pfizer group, into J&J's consumer sector, headed by Colleen Goggins. According to former executives, the difference between divisions was both cultural and financial. 'The people who ran pharma understood the requirements associated with [regulatory] compliance and the investments required to keep that up,' says a former executive. Consumer relied more on marketing, or 'smoke and mirrors,' as an ex-McNeil director scoffs. Perhaps the most striking difference was in profit margins. Companies in the consumer group typically had margins around 10%; McNeil generated more than twice that.</blockquote> So, <blockquote>Their new consumer bosses were now in charge of reducing McNeil's spending so that the company could meet the merger targets. Goggins looked to squeeze every cost, former employees say, and her team leaned heavily on McNeil, with its juicy margins, to absorb the cutbacks. 'I was given savings goals that were mind-boggling, unheard-of,' says one former executive.</blockquote> And the merger brought out another common feature of contemporary management, executives with plenty of power, but almost no knowledge about or experience in the sort of work done by their subordinates: <blockquote>Because the consumer executives lacked pharmaceutical experience, former McNeil employees say, they demanded ill-advised operational reductions. One VP remembers arguing with one of Goggins's</blockquote> A Growing List of Recalls and Mistakes While we learned about how Johnson and Johnson executives pursued all the currently fashionable management techniques to make more money, but likely to the detriment of the quality and safety of their products, we also learned that the problems at the company were not limited to a single factory, the specific products listed above, or a single unit of the company. The company also recalled some contact lenses made by Johnson and Johnson Vision Care, as <a href="http://www.google.com/hostednews/ap/article/ALeqM5gKNufIGxLdxRyZ8TPAzFIe83oA1gD9HPEJA01">reported by the Associated Press</a>, <blockquote>Health giant Johnson & Johnson has issued its ninth recall of a consumer health product in a year, this time covering millions of 1 Day Acuvue contact lenses sold in Japan and two dozen other countries in Asia and Europe. The affected contact lenses were mostly sold in Japan and none were sold in the U.S. or Canada, the company said. Johnson & Johnson said Monday it had received a limited number of complaints from customers in Japan that they experienced an unusual stinging or pain when inserting the Acuvue TruEye Brand contact lenses.</blockquote> Then it recalled prosthetic hips made by its DePuy orthopedic unit, as <a href="http://www.medscape.com/viewarticle/727699">reported by Medscape</a>, <blockquote>An orthopaedic unit of Johnson & Johnson (J&J) is voluntarily withdrawing 2 implant systems for hip replacement after learning that roughly 1 of 8 patients in England and Wales who received the implants needed a second hip replacement operation. The 2 devices under recall are the ASR XL Acetabular System, a metal cup fitted into the pelvis and the corresponding metal ball that replaces the femoral head, and the ASR Hip Resurfacing System, which is similar except that a metal cap is fastened to the femoral head. Both devices are manufactured by DePuy Orthopaedics of J&J. </blockquote> Then the US Food and Drug Administration (FDA) warned Johson and Johnson's DePuy unit about its marketing of some different joint replacement products, as <a href="http://online.wsj.com/article/BT-CO-20100824-710295.html">reported by the Wall Street Journal</a>, <blockquote>A Johnson & Johnson (JNJ) unit is marketing joint-replacement products without the required approval from federal regulators, the U.S. Food and Drug Administration said in a warning letter recently made public. In the letter, the FDA said J&J unit DePuy Orthopaedics Inc. is illegally marketing its TruMatch Personalized Solutions system because it hasn't received appropriate clearance to sell the product. Additionally, the FDA found that DePuy is promoting another system--its Corail Hip System--for uses that haven't yet been approved. 'A review of our records reveals that you have not obtained marketing approval or clearance before you began offering the TruMatch Personalized Solutions System for sale, which is a violation of the law,' the FDA said in the letter. The FDA added that the Corail Hip System has been misbranded and asked DePuy to immediately stop marketing the Corail system for unapproved uses. </blockquote> And a few days ago, the now embattled head of the Johnson and Johnson consumer products unit, which was central to some of the earlier recalls, but not to some of the later problems, announced her resignation, as <a href="http://www.nytimes.com/2010/09/17/business/17tylenol.html">reported by Natasha Singer and Reed Abelson writing for the New York Times</a>, <blockquote>A longtime senior executive at Johnson & Johnson in charge of the consumer products division is leaving the company early next year, signaling a shake-up after a troubling series of recalls, including of children’s Tylenol, tarnished the company’s reputation in the last year. The company said Thursday that the executive, Colleen A. Goggins, who testified this spring before a Congressional committee investigating the recalls, would retire in March. Ms. Goggins, 56, has worked at Johnson & Johnson since 1981 and was a member of the company’s senior leadership. </blockquote> Who Will Be Accountable for a Company in Disarray? Johnson and Johnson was one of the most trusted names in health care for a long time, perhaps partially because of its forthright response to the apparently external contamination of its Tylenol products in the 1980s. Now it appears to be a company in disarray, battered by numerous recalls of apparently contaminated, adulterated, or defective products, both drugs and devices, allegations that its conventional management wisdom lead to these quality and safety problems, and now with at least one key senior manager leaving. All that went wrong is not exactly clear yet. Clearly, however, top managers, and the board of directors to whom they report ought to be accountable. Here is where we return to the case of University of Michigan President Mary Sue Coleman. She is, after all, well-paid to be a director of Johnson and Johnson. Therefore, she ought to be accountable for the type of people hired as top managers, and the general direction of their management. She ought to be accountable for letting Johnson and Johnson CEO William Weldon and consumer products head Colleen Goggins continue in office, and receive outsized compensation, ($19,847,026 and $5,345,737  total compensation respectively last year, see <a href="http://hcrenewal.blogspot.com/2010/05/19-million-means-never-having-to-say.html">here</a>). She also ought to be accountable for the general thrust of their management, including excess cost-cutting, seeking mergers without clear plans for assimilating them, and putting people who did not understand pharmaceuticals in charge of pharmaceutical production. The original controversy about President Coleman's role on the Johnson and Johnson board focused on whether her decision to promote a smoke free campus resulted from her conflict of interest.  Then, one defense mounted by President Coleman's spokesperson was: <blockquote>'It's essential that U-M have a voice and interact with the business world,' said Rick Fitzgerald, a U-M spokesman. 'She thinks it's her duty to understand what the commercial world is doing.'</blockquote> Now President Coleman has had a chance to have a voice and interact with Johnson and Johnson, and understand what it is doing by assuming a position that gives her ultimate responsibility for the company's top leadership and the direction they took. Now it appears the leadership may have been faulty, and their direction ill-advised. Will President Coleman take responsibility for that? Maybe some enterprising student journalists at the university should ask her. Meanwhile, this case now illustrates another important facet of the problems created when leaders of academic medicine serve on boards of directors of health care corporations. The mission of the University of Michigan's medical school and academic medical center includes taking the best possible care of individual patients. Taking the best possible care of individual patients cannot be done when the drugs physicians recommend or prescribe in good faith turn out to be adulterated, or when the devices they employ in good faith turn out to be faulty. President Coleman's primary interests and entrusted responsibilities include upholding the best possible care for individual patients. Presiding over a company whose sloppy and ill-informed leadership, and misplaced priorities lead to the production of adulterated medicines and defective devices seems to conflict with this primary interest and entrusted responsibility. Maybe all those academic leaders who accepted apparently cushy jobs on corporate boards will reconsider their decisions when they start being held responsible for their companies' poor leadership and poor decisions leading to poor health care outcomes of the use of their companies' products. They may really start to reconsider when journalists learn that academic leaders are more accessible than the current and ex-CEOs who also populate corporate boards. Meanwhile, academic medicine ought to really rethink whether continuing to defend the "new species of conflicts of interest" will soon become counter-productive.

Should the President of the University of Michigan be Held Accountable for Johnson and Johnson's Adulterated Drugs and Defective Devices?

We first started to discuss the intense conflicts of interest generated when leaders of academic medicine are also members of boards of dire...

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Forest Pharmaceuticals Pleads Guilty to Obstruction of Justice, No Individual Pays Any Penalty

The parade of legal settlements marches on.  The latest story is about Forest Laboratories and its marketing of Celexa (citalopram ) and Levothyroid (l-thyroxin).  Here is the most <a href="http://www.nytimes.com/2010/09/16/health/16drug.html">complete version</a>, courtesy of Natasha Singer reporting for the New York Times. First, the lead sentence: <blockquote>A unit of Forest Laboratories, the maker of the antidepressant Celexa, agreed on Wednesday to pay more than $313 million to settle criminal and civil complaints, including a claim that it had illegally promoted the drug for use in children. </blockquote> Here are the charges: <blockquote>Among the criminal charges was one that the subsidiary, Forest Pharmaceuticals, marketed Celexa, which was approved only for adult depression, to treat children and adolescents. The government also claimed that, in conjunction with the company’s off-label promotion, Forest publicized the positive results of a study on Celexa in adolescents while failing to tell doctors about a similar study that had negative results. 'Forest Pharmaceuticals deliberately chose to pursue corporate profits over its obligations to the F.D.A. and the American public,' Carmen Ortiz, the United States attorney for the District of Massachusetts, said in a statement Wednesday. In addition, federal prosecutors accused Forest of paying doctors to induce them to prescribe Celexa and another antidepressant, Lexapro. The remuneration included 'cash payments disguised as grants or consulting fees, expensive meals and lavish entertainment, and other valuable goods and services,' the government said in its civil complaint. Among the items that Forest sales representatives gave to doctors from 1998 to 2005, the complaint said, were tickets to St. Louis Cardinal games, which were to be 'leveraged and sold as a reward for prescriptions'; a $1,000 gift certificate to Alain Ducasse, a gourmet French restaurant, for a high-prescribing child psychiatrist; a deep-sea fishing trip off Cape Cod for a doctor and his three sons; $400 in Broadway theater tickets for a doctor and his wife; and Red Sox tickets worth $2,276 to be used for doctors in the Boston area. </blockquote> So we not just off-label marketing, but suppression of clinical research (of course, a study whose results were not favorable to the product being marketed), and payments to doctors as an "inducement to prescribe." But wait, there is more: <blockquote>As part of the criminal settlement, Forest Pharmaceuticals, which is based in St. Louis, agreed to plead guilty to one felony count of obstructing justice, acknowledging that employees had lied to F.D.A. officials during a plant inspection in 2003. The company also agreed to plead guilty to two misdemeanors, one of which covers the company’s misbranding of Celexa by marketing the antidepressant for use in children from 1998 to 2002. The other misdemeanor covers the illegal distribution from 2001 to 2003 of an unapproved drug, Levothroid, to treat a thyroid hormone deficiency. Such thyroid pills, made by various drug makers, had been sold in the United States since the 1950s without F.D.A. approval. But in 2001, the agency told drug makers that they needed to reduce their distribution of such medications until the companies obtained agency approval to market the pills. The criminal charges accused Forest of making a deliberate decision to continue distributing the drug in quantities exceeding the F.D.A.’s directive. After the agency sent a warning letter to Forest, the company directed employees to work until 1 a.m. to continue shipping as much Levothroid as possible, according to the criminal complaint. </blockquote> So there was also obstruction of justice in the form of lying to the FDA, and selling drugs that the FDA had ordered not to be sold. So what are the penalties? <blockquote>The criminal settlement calls for the company to pay a $150 million fine and to forfeit an additional $14 million in assets. Forest will also pay more than $88 million to the federal government and more than $60 million to the states to resolve a civil complaint that its actions caused false claims to be submitted to federal health care programs. In addition, two whistle-blowers will split $14 million from the federal share of the settlement. Forest has also entered into a five-year corporate integrity agreement, requiring an independent expert to review the company’s compliance with drug marketing regulations.</blockquote> So here we go again. A large drug company was up to no good, suppressing research, paying doctors for their prescriptions, lying to the FDA, and disobeying its orders. The penalty seemed large, over $300 million. However, Celexa was a big revenue generator at the time the events above occurred, topping $1 billion in revenue first in 2002 (per Forbes <a href="http://www.forbes.com/2002/08/15/0815frx.html">here</a>). Furthermore, as <a href="http://www.pharmalot.com/2010/09/forest-labs-pays-313m-for-illegal-marketing">noted by Ed Silverman on Pharmalot</a>, it seems no individual will suffer any negative consequences for authorizing, directing, or implementing the conduct described above. Finally, as best I can tell, despite the fact that a Forest subsidiary will plead guilty to a felony, the company is not going to be barred from doing business with the government.  So, despite pleading guilty to a felony and three misdemeanors, neither Forest as a company nor any individual working for the company will really suffer very much.  On the other hand, the leaders of Forest have been doing very well.  The company's CEO, Howard Solomon, was number 18 on <a href="http://online.wsj.com/public/resources/documents/st_execpay1007_20100725.html">Wall Street Journal list</a> of the 25 highest paid CEOs over the last decade.  His total realized compensation was over $385 million over the last 10 years.  According to<a href="http://services.corporate-ir.net/SEC/Document.Service?id=P3VybD1odHRwOi8vaXIuaW50Lndlc3RsYXdidXNpbmVzcy5jb20vZG9jdW1lbnQvdjEvMDAwMDAzODA3NC0xMC0wMDAwMTYvZG9jL0ZvcmVzdExhYm9yYXRvcmllc0luYy5wZGYmdHlwZT0yJmZuPUZvcmVzdExhYm9yYXRvcmllc0luYy5wZGY="> the company's 2010 proxy statement</a>, his total compensation in 2009 was $8,267,236.  The four other highest paid executives made from just over $2.5 million to $5.3 million. So here we go again.  Another large health care organization has been found to have done wrong, but the only penalty is a fine that whose impact will be diffused across the whole company, and ultimately be paid by its employees, its customers, including patients, and its stockholders.  Meanwhile, the people who authorized, directed, or implemented the wrong doing apparently will pay nothing and receive no negative incentives.  Furthermore, the top leaders of the company, whose huge compensation in the past was increased by the results of the wrong doing, will continue to prosper. As we have said again and again,  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. By the way, the current case offers an avenue for those who do not like what Forest did to ask those who are supposed to be ultimately responsible for its behavior how this was allowed to happen.  The board of directors of the company is supposed to be ultimately accountable for the company's actions.  As we have noted before, these directors are supposed to "demonstrate unyielding loyalty to the company's shareholders." [Per Monks RAG, Minow N. <a href="http://www.amazon.com/Corporate-Governance-Robert-G-Monks/dp/1405116986">Corporate Governance</a>, 3rd edition. Malden, MA: Blackwell Publishing, 2004. P.200.] The current directors of Forest Laboratories, according to <a href="http://services.corporate-ir.net/SEC/Document.Service?id=P3VybD1odHRwOi8vaXIuaW50Lndlc3RsYXdidXNpbmVzcy5jb20vZG9jdW1lbnQvdjEvMDAwMDAzODA3NC0xMC0wMDAwMTYvZG9jL0ZvcmVzdExhYm9yYXRvcmllc0luYy5wZGYmdHlwZT0yJmZuPUZvcmVzdExhYm9yYXRvcmllc0luYy5wZGY=">the company's 2010 proxy statement</a>, include <a href="http://connects.catalyst.harvard.edu/profiles/profile/person/24377">Dr Nesli Basgoz</a>, "Associate Chief for Clinical Affairs, Division of Infectious Diseases, Massachusetts General Hospital (MGH)," and "Associate Professor of Medicine at Harvard Medical School."  Also, it includes<a href="http://www.mountsinai.org/profiles/lester-b-salans?id=0000072500001497265082"> Dr Lester B Salans</a>, "Clinical Professor" at Mount Sinai Medical School, not to mention <a href="http://connects.catalyst.harvard.edu/profiles/profile/person/48486">Dr Peter J Zimetbaum</a>, "Director of Clinical Cardiology" at Beth Israel Deaconess Medical Center in Boston (BIDMC), and "Associate Professor of Medicine at Harvard Medical School."   Maybe some enterprising student journalist will get to ask the good doctors how they let things at Forest get so ethically out of hand.

Forest Pharmaceuticals Pleads Guilty to Obstruction of Justice, No Individual Pays Any Penalty

The parade of legal settlements marches on. The latest story is about Forest Laboratories and its marketing of Celexa (citalopram ) and Lev...

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Health Care Leaders: the Best and the Brightest?

We have recently discussed how even executives of relatively small, not-for-profit health care organizations are <a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation">paid enough</a> to make them rich.  The compensation and privileges given to leaders of health care organizations are often justified by the notion that they are the "best and brightest," such arguments sometimes accompanied by a few choice logical fallacies (e.g., <a href="http://hcrenewal.blogspot.com/2010/09/logical-fallacies-in-defense-of-million.html">here</a>).  So here are a few news stories about the activities of some choice health care executives. Canopy Financial This company provided financing for health care services.  As<a href="http://www.google.com/hostednews/ap/article/ALeqM5gVyFvPO6tDLsg228D_xK6c123SvAD9I3U2881"> reported</a> by the Associated Press, <blockquote>A former executive of the bankrupt health care company Canopy Financial Inc. has agreed to plead guilty in an alleged multimillion-dollar fraud. Court documents released Wednesday say former chief technology officer Anthony Banas will plead guilty to wire fraud. Chicago-based Canopy was known as one of the nation's fastest growing businesses before its 2009 bankruptcy. Many clients relied on it to pay medical bills.</blockquote> Danbury Hospital This is a community hospital in Connecticut. As <a href="http://www.newstimes.com/news/article/Former-Danbury-Hospital-CFO-pleads-not-guilty-in-651364.php">reported</a> by the Danbury News Times, <blockquote>Danbury Hospital's former Chief Financial Officer William Roe pleaded not guilty Thursday morning to defrauding the hospital and a previous employer out of nearly $200,000. Roe was freed on bond after he agreed to a stringent set of conditions imposed by a federal judge.</blockquote> Here are more details of the charges: <blockquote>The 54-year-old Roe is accused of wire fraud and two counts of interstate transportation of stolen money, stemming from fraudulent invoices he allegedly submitted to Danbury Hospital and his previous employer, St. Rita's Medical Center of Lima, Ohio, a member of Catholic Healthcare Partners. The invoices were from a software company Roe set up in Pennsylvania in 2008, and, according to investigators, no services were ever provided to either institution. The wire fraud charge carries a maximum penalty of up to 20 years in prison, and the other two charges carry potential maximum penalties of up to 10 years each behind bars, Assistant U.S. Attorney Rahul Kale said. Kale initially expressed reservations about releasing Roe on bond because the court determined that hours after his arrest by FBI agents on Aug. 17, Roe violated a previous no-contact order by barraging Danbury Hospital president Dr. John Murphy with e-mails and cell phone calls and begging him to make the charges 'go away.' A day later, on Aug. 18, Roe also sent an e-mail to the hospital's vice president for human resources, asking her to arrange a meeting with Murphy, Kale said. Those actions resulted in the judge revoking the $100,000 bond Roe had posted and filing additional charges against him, including witness tampering and harassment. In the Aug. 18 e-mail, Roe acknowledged that he wasn't supposed to contact any hospital officials, but sought a 'brief conversation' with Murphy 'before any court proceedings begin,' Kale said. The prosecutor said the order had been entered because 'Danbury Hospital had expressed a concern about the employee's return' and referenced a shooting at the hospital earlier this year and another incident of workplace violence in Manchester. Not only did Roe violate the no-contact rule, but he also traveled to Pennsylvania on Aug. 18 without notifying court officials, Kale said, even though he was supposed to seek permission before leaving the state.</blockquote> H. C. Healthcare This company operated a community hospital in Florida. As <a href="http://www.gainesville.com/article/20100910/ARTICLES/9101003/1002">reported</a> by the Gainesville (Florida) Sun: <blockquote>The former chief financial officer of a Gainesville company that ran medical facilities in several small North Florida counties has been arrested in Illinois on racketeering charges for allegedly misusing grant money, reported the Florida Department of Law Enforcement. Arrested was Natalie Ann Krasnow, 35, of Huntley, Ill., on various felony charges including racketeering, aggravated white-collar crime and operating a scheme to defraud. Krasnow is now being held on a $250,000 bond pending an initial appearance before a judge in McHenry County, Ill. Krasnow was the former CFO of H.C. Healthcare Inc. of Gainesville. It operated and owned Trinity Community Hospital in Jasper. Krasnow's arrest is a continuation of the joint investigation by the Attorney General's Medicaid Fraud Control Unit, FDLE and the State Attorney's Office for the 3rd Judicial Circuit into activities at the now closed Trinity Community Hospital and its affiliated clinics in Hamilton, Suwannee and Columbia counties. Krasnow is the eighth person employed by or associated with H.C. Healthcare who has been arrested during the investigation. In July, investigators with the Attorney General's Medicaid Fraud Control Unit, FDLE and the McHenry County Sheriff's Office arrested owner Robert A. Krasnow, 36, of Gainesville; Dr. Yong Am Park, 66, of Lake City; Robert T. Krasnow, 58, of Gainesville, the father of Robert A. Krasnow; hospital administrator Christina L. Ortega, 42, of Lake City; and licensed practical nurse Ashley Lane Butler, 37, of Live Oak. The former medical director at Trinity Hospital, Dr. Wayne A. Rahming, and former Trinity staff physician, Jorge Prieto, were arrested by Medicaid fraud investigators in a separate scheme involving the unlicensed practice of medicine at a clinic in High Springs. Additional arrests may follow. The investigation of Trinity Community Hospital established that more than $660,000 in state grant funds dedicated to hospital improvements were received by the corporation, but little if any of the money was used to make such improvements, FDLE reported. Natalie A. Krasnow was the corporation's grants liaison officer with the Florida Department of Health and was instrumental in applying for and accounting for the proper disposition of these funds. Most of the money was used either to support the activities of the criminal enterprise or diverted to the personal use of Krasnow or her brother, hospital owner Robert A. Krasnow, FDLE said.</blockquote> North Memorial Health Care This is a health care system in Minnesota. <a href="http://www.startribune.com/lifestyle/health/102111219.html?">Per</a> the Minneaopolis - St Paul Star Tribune: <blockquote>David Cress, the hospital executive arrested and charged with engaging in prostitution this week, has been suspended indefinitely without pay as president and chief executive of North Memorial Health Care, officials said late Thursday. Cress, 60, was one of about a dozen men arrested at a Richfield hotel during a daylong vice operation. He was released from jail Wednesday and is scheduled to appear in court Sept. 15 on a misdemeanor charge. He has been at North Memorial since 1982, and took over as the top executive in 2005.</blockquote> Summary So the box score is one guilty plea to fraud charges, arrests for wire fraud. interstate transport of stolen money, witness tampering and harassment; for racketeering, white collar crime, and operating a scheme to defraud; and for engaging in prostitution; and violation of a no-contact order.  The people involved were all "C-level" executives, including a CTO, two CFOs, and a CEO. Of course, all people who are arrested are not guilty.  There are only four organizations, all relatively small, involved in this series of cases. Again, however, should not the standard of conduct for health care leaders be somewhat higher than that of, for example, garbage haulers?  (I am sorry if that appears to insult garbage haulers.  Such was not my intention.)  For people generally paid so well because they were thought to be the best and the brightest, should not our expectations be higher.

Health Care Leaders: the Best and the Brightest?

We have recently discussed how even executives of relatively small, not-for-profit health care organizations are paid enough to make them r...

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Small Hospital System Loses $61 Million Betting on Financial Derivatives, But Pays CEO Nearly a Million Dollars

As we have quoted many times, sunlight is the best disinfectant.  New US Internal Revenue Service requirements for reporting by not-for-profit organizations has resulted in more transparency about the finances of many health care organizations, and this transparency has shown that the culture of perverse incentives and management privilege has spread far and wide. How far and wide?  Consider this <a href="http://www.exploreharford.com/news/5882/ceo-makes-900000/">story</a> in the (Harford County, Maryland) Aegis: <blockquote>Harford County’s Upper Chesapeake Health lost $70 million because of bad bets in the derivatives markets two years ago, but still paid its chief executive more than $900,000 in annual salary and bonuses. According to figures from their latest tax returns and from the state agency that regulates hospital rates, Upper Chesapeake Medical Center in Bel Air and Harford Memorial Hospital in Havre de Grace, hospitals owned and operated by nonprofit Upper Chesapeake Health Inc., posted huge losses in their fiscal year ending December 2008. The losses were the result of an increase in non-operating expenses, according to the Maryland Health Services Cost Review Commission. The hospitals had combined revenue of $254 million for the year, but posted a combined net loss of $61 million. The two hospitals also paid out some of the highest salaries in Harford County, led by their CEO, Lyle Sheldon, who made more than $900,000 in 2009, a figure which was first reported by The Baltimore Sun on Aug. 29. Including Sheldon, the hospitals’ top administrators and top medical staff, who are hospital employees, received a combined $5 million in salary, bonuses and other compensation in 2009.</blockquote> So how did the hospital's management explain the huge loss? <blockquote>'That was the year the stock market fell, in fiscal year 2008,' Dean Kaster, Upper Chesapeake’s senior vice president of corporate strategy and business development, said Tuesday in explaining the 2008 loss. 'We saw a significant change in terms of how some of the instruments we used in managing our debt service were valued and during that time period what these dollar changes reflected was an accounting loss directly related to the decline in the overall market in 2008,' he said. Kaster said Upper Chesapeake, like many hospitals, has investment instruments it uses, called derivatives and hedges, to manage its long-term debt. He said the value of those instruments changed in fiscal year 2008. In simpler terms, like many corporate, institutional and individual investors, Upper Chesapeake got burned by taking risks that backfired when the economy tanked. Since those markets have come back, Kaster said, Upper Chesapeake has recovered two-thirds, or about $46.7 million, of the $70 million it lost from investments.</blockquote> Of course, 2008 was the year of the great recession/ global financial collapse, or whatever we may end up calling it, happened. The value of many investments, and many peoples' homes, imploded. The best current  explanation of the collapse had to do with the bets financial institutions made on risky derivatives which their managers often did not understand. In hindsight, these bets seem somewhere between unnecessarily risky and stupid. Many smaller businesses and organizations were fortunate to be financially conservative enough not to have bet on derivatives. But little Upper Chesapeake Health apparently bet a large chunk of its money on them, and lost badly. Although VP Kaster belabored the obvious in noting that 2008 was the year of the collapse, he did not explain what the stewards of a not-for-profit health care institution were doing when they were betting on risky derivatives. One thing they were doing was making a lot of money themselves. <blockquote>At UCH, the highest compensated employee is President and CEO Lyle Sheldon. Sheldon’s annual compensation for the hospital’s fiscal year 2009, the most recent information available, was $918,957, according to the Form 990 submitted to the IRS. Sheldon’s base salary for the year was $535,000 and his bonus and incentive compensation was $224,007. Sheldon’s compensation is nearly $500,000 more than the next highest paid employee for UCH.</blockquote> Other executives did well too: <blockquote>Second to Sheldon, the next highest paid employee in UCH’s upper management is Joseph Hoffman III, the senior vice president and CFO, who was paid $420,355 in the hospital’s fiscal year 2009. His base salary was $272,210 and his bonus and incentive compensation was $91,439. Senior Vice President and COO Kenneth Kozel was paid $352,538, according to Upper Chesapeake’s Form 990. Kozel received additional nontaxable benefits and deferred compensation on Harford Memorial’s form, bringing his total compensation to $396,039. Kaster, the senior VP for strategy and business development, was paid $281,142, according to Upper Chesapeake’s form. He also has additional nontaxable benefits and deferred compensation on Harford Memorial’s form, bringing his total to $330,598. Vice President of Human Resources Toni Shivery’s Upper Chesapeake compensation was $204,531, with an additional $33,895 from Harford Memorial, bringing the total to $238,426.</blockquote> Note that the CFO of this small hospital system, the person who ought to be most directly responsible for the decision to "invest" in derivatives, made over $420,000, and the vice president for strategy and business development, responsible for the simplistic discussion of derivatives above, made over $330,000. Providing such perverse incentives seems to contradict the hospital system's high-minded <a href="http://www.uchs.org/?section=about&page=mission">statements of values</a>, which includes: <blockquote>Responsibility: We take responsibility for our actions and hold ourselves accountable for the results and outcomes. </blockquote> A CEO who truly accepted responsibility for a $61 million loss from risky bets on opaque derivatives would not accept total compensation of over $900,000. A CFO who truly accepted responsibility for these bets would not accept over $400,000. So in summary, we see that now CEOs of even the smallest community hospital systems seem entitled to make nearly a million dollars a year. We see that even CEOs whose institutions lose millions due to risky investments still receive such compensation. We see that the executives who seem directly responsible for making such money losing investments still earn hundreds of thousands of dollars. This is an extreme illustration of how perverse incentives permeate health care, how CEOs command pay beyond the dreams of ordinary people, even when their leadership is financially calamitous, and how little health care leaders support their organizations' idealistic values. Are leaders who are not held accountable for easily measured financial performance likely to be good stewards of clinical performance, which is much harder to measure? If we do not hold health care leaders accountable, if we do not provide them with incentives that are proportional to their actual performance, why should we expect health care organizations to do any more than satisfy their leaders' self-interest? ADDENDUM - If you got to this page from a blog with "royposes" in its URL, and with "roy poses" ostensibly listed as its author - neither has anything to do with me, Roy M Poses MD.  I have no knowledge of who wrote posts on that blog, and no responsibility for them.  The only blog to which I presently regularly post is this one, Health Care Renewal.

Small Hospital System Loses $61 Million Betting on Financial Derivatives, But Pays CEO Nearly a Million Dollars

As we have quoted many times, sunlight is the best disinfectant. New US Internal Revenue Service requirements for reporting by not-for-prof...

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A Golden Parachute for Captain Outrageous

A year ago, I <a href="http://hcrenewal.blogspot.com/2009/09/captains-outrageous-for-cape-annes.html">posted</a> about leadership and governance problems at Northeast Health Systems, a small hospital system located in neighboring Massachusetts.  The colorful story included leaders who solicited money from the community but concealed what they were doing from the same community, an adolescent pregnancy pact after the hospital system refused to provide confidential birth control information at the high school clinic it ran, a hospital vice-president accused of art theft, various cuts, some concealed, of medical services, accusations of conflicts of interest affecting the board of trustees, and no-confidence votes by nurses and physicians. Finally, Stephen Laverty, the CEO held responsible for much of the mess, resigned and things quieted down a bit.  However, he left a system in deficit, leading to further lay-offs, (e.g., see <a href="http://www.boston.com/yourtown/salem/articles/2010/08/18/beverly_hospital_group_to_cut_jobs/">this story</a> in the Boston Globe).  And the vice-president accused of art theft was also "arraigned on bribery and larceny charges" (also <a href="http://www.boston.com/business/healthcare/articles/2010/07/23/former_hospital_official_accused_of_kickback_scheme">per the Boston Globe</a>.) Yet, Mr Laverty collected a tidy sum just to leave, as the Salem News just <a href="http://www.salemnews.com/local/x605762202/Laverty-got-1M-after-he-resigned">reported</a>: <blockquote>Former Northeast Health System President and CEO Stephen Laverty collected more than $1 million from the nonprofit hospital chain after he resigned under fire in the fall of 2008, newly released financial records show. The earnings, $1.08 million in total, include a settlement package of more than a year's salary plus pay for the one month the controversial Laverty was at the helm of Northeast, which owns Beverly Hospital, as well as Gloucester's Addison Gilbert Hospital. The documents provide the first details of how much Northeast, now laying off workers and cutting costs, was willing to pay to part ways with its CEO who had just endured no-confidence votes from nurses and doctors, plus the arrest of one of his top managers.</blockquote> Neither the hospital system nor its former CEO was exactly forthcoming about the rationale for this payment: <blockquote>As part of Laverty's resignation, both sides agreed not to discuss the settlement or any of the details that led them to part ways. 'I have no understanding of what you are talking about,' Laverty said yesterday afternoon from his home in Concord, when asked about his settlement package. He then hung up the phone. A spokeswoman for Northeast Health System said she could not comment on Laverty or the terms of any agreements between the company and past employees.</blockquote> So even the hired manager of a small community hospital system is entitled to a million dollar plus golden parachute when resigning in disgrace. This is another great example of the current perversity of the incentives given to hired health care managers. Even small community hospitals, the backbone of real community health care throughout the country, seem to feel obligated to make millionaires out of their managers, no matter how bad their performance. As we said before, the problem is not just the money wasted paying for bad performance. These perverse incentives are likely to encourage worse performance.  They send the message to even the worst executives that they are wonderful people, they can do no wrong, and should stand for no criticism, all further diverting them from what they really are supposed to be doing: upholding the mission. As an <a href="http://www.gloucestertimes.com/opinion/x627001820/Northeast-board-bears-blame-for-shameful-1M-Laverty-buyout">editorial</a> in the Gloucester Times noted, although the nexus is perverse incentives given to paid managers, it is not only the paid managers who are to blame for this situation. <blockquote>The other party to his contract was the Northeast Board of Trustees. </blockquote>So, <blockquote>Those who want to serve as trustees of Northeast need to get the notion out of their heads that their board seats are not just resume builders — with high-profile community roles and a few corporate dinners thrown in. These are positions of community leadership and responsibility that comes with a measure of accountability. New Northeast CEO Ken Hanover has indeed seemingly ushered in a new era of relative openness in dealing with the community. But the same cannot be said for the Board of Trustees. If Laverty's shameful buyout deal and these types of contracts are examples of their 'leadership' and responsibility, each and every one of them should step down now.</blockquote> As we have said many times before, true health care reform would encourage leaders of health care who understand health care and care about its mission, rather than those who just see a quick road to riches or social respectability.

A Golden Parachute for Captain Outrageous

A year ago, I posted about leadership and governance problems at Northeast Health Systems, a small hospital system located in neighboring M...

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