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More Contaminated Heparin, But Who Leads the Company Who Supplied It?

We have posted multiple times over the last two years about the deadly contaminated heparin from China. (See the case summary and link at the end of this post.) One of the key players in this case was a company called Scientific Protein Laboratories (SPL). The company that sold the heparin in the US under its logo, Baxter International, had outsourced production of the active ingredient to a long, and ultimately mysterious supply chain. Baxter got the active ingredient from Scientific Protein Laboratories, which in turn obtained it from a factory in China operated by Changzhou SPL, which in turn was owned by Scientific Protein Laboratories and by Changzhou Techpool Pharmaceutical Co. Changzhou SPL, in turn, got it from several consolidators or wholesalers, who in turn got it from numerous small, unidentified "workshops," which seemed to produce the product in often primitive and unsanitary conditions. None of the stops in the Chinese supply chain had apparently been inspected by the US Food and Drug Administration nor its Chinese counterpart. Even More Contaminated Heparin? Now it looks like SPL may have sold contaminated heparin elsewhere, after the above story of the contaminated heparin sold by Baxter became public, as <a href="http://online.wsj.com/article/SB10001424052748704763904575550490003088252.html">reported</a> by Alicia Mundy in the Wall Street Journal: <blockquote>A major U.S. heparin wholesaler received a complaint from a corporate customer about a contaminated batch of blood thinner in October 2008, but didn't investigate for almost a year, according to a recent Food and Drug Administration notice to the company. Scientific Protein Laboratories LLC got the customer complaint months after the FDA announced nationwide recalls of many heparin products.</blockquote> In more detail, <blockquote>In a report last month, reviewed by The Wall Street Journal, the FDA told SPL that it 'did not adequately investigate a complaint that affected product quality.' The report said SPL didn't begin a probe of the contamination complaint until September 2009, and failed to investigate 'other lots of heparin that may have been associated with the complaint.' The FDA said Wednesday it cited SPL for 'violations of current good manufacturing practice' and is still investigating. 'FDA believes the issue does not present a significant public-health risk,' it said. An FDA spokeswoman said the batch in question never reached patients. After SPL looked into the October 2008 complaint, it found that the contaminated raw material was used in two processed batches of heparin , the FDA report said. SPL ended its review of one batch in June 2010. It didn't investigate the second, the FDA said.</blockquote> It looked like this instance of contaminated heparin did not pose a public health hazard because the company to whom it was shipped, possibly alerted by the case above, tested and rejected the SPL heparin <blockquote>SPL said Wednesday the heparin lots in question 'passed all the then-required, state-of-the-art testing' to detect contamination, however trace amounts of contaminant, oversulfated chrondroitin sulfate, were found by a customer using their own specialized testing. The company also said no adverse events were reported involving the batch in question. [Ed - apparently because the buyer realized the problem and never used the batch in its products that were provided to the public.]</blockquote> So even after the whole problem of oversulfated chrondroitin sulfate contaminated heparin had become a public scandal, the company that passed along the heparin that became subject of that scandal had "state-of-the-art testing" that could not adequately detect that specific contaminant, although the company to whom it sold the heparin apparently was able to test for it. Providing pure, unadulterated products is the most elementary responsibility of drug companies. The US Food and Drug Administration was set up mainly to ensure the purity of drugs (and only later, to ensure their effectiveness and then safety). Yet some US companies have proven unable to assure the purity of their products. (For another prominent case, go <a href="http://hcrenewal.blogspot.com/2010/09/should-president-of-university-of.html">here</a>.)  Now we have an instance in which a company still seemed unable to check their products for impurities even after they knew dangerous impurities could be present and had been present in other batches of the products they sold, and even after other companies had figured out how to perform such checks. As we have said before, seemingly infinitum, if we want a health care system that provides good quality, affordable, accessible care, we need health care leaders who put the wellbeing of patients ahead of their own pocketbooks, and to hold them accountable for doing so. Holding Leaders Accountable, If Only One Could Find Them By the way, this case further illustrates how far from that ideal we are, because it is not even obvious who the leaders of SPL who ought to be held so accountable actually are.  The <a href="http://www.spl-pharma.com/index.htm">SPL web-site</a> says nothing about corporate governance or leadership.  After some Google searching, it turns out that the reason for this is that SPL was<a href="http://ir.americancapital.com/phoenix.zhtml?c=109982&p=irol-newsArticle&ID=1320964&highlight="> bought out</a> by private equity firm American Capital Strategies Ltd in 2006, two years before the contaminated heparin scandal became manifest.  Although American Capital Strategies Ltd is publicly traded, its <a href="http://services.corporate-ir.net/SEC/Document.Service?id=P3VybD1odHRwOi8vaXIuaW50Lndlc3RsYXdidXNpbmVzcy5jb20vZG9jdW1lbnQvdjEvMDAwMTE5MzEyNS0xMC0xODEwMjMvZG9jL0FtZXJpY2FuQ2FwaXRhbExURF9ERUYxNEFfMjAxMDA4MDYucGRmJnR5cGU9MiZmbj1BbWVyaWNhbkNhcGl0YWxMVERfREVGMTRBXzIwMTAwODA2LnBkZg==">2010 proxy statement</a> and most recent publicly available <a href="http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzQ2ODEwfENoaWxkSUQ9MzM0ODYzfFR5cGU9MQ==&t=1">annual report</a> (of 2008) say almost nothing about SPL.  Private equity firms are known for acquiring troubled companies and trying to turn quick profits from them, often from stringent cost-cutting and selling off assets.  They are not particularly known for their devotion to better patient care.  None of the top executives and directors of American Capital Strategies Ltd seem to have health care backgrounds or experience or any other reason to sympathize with the core values of health care professionals. Further Google searching did suggest that the CEO of SPL is one <a href="http://www.linkedin.com/pub/david-strunce/12/366/707">David G Strunce</a>, but revealed little biographical information about him.  How he and other executives of that company might better be held accountable is not obvious. So what will it take to get the leaders of pharmaceutical companies to take their responsibility to provide pure, unadulterated drugs more seriously? How will society be able to better hold those leaders accountable?  How can we get leaders of health care to put the health of the people ahead of their own financial returns?  The case of the adulterated heparin suggests these questions will not be easily answered. Case Summary In summary, Baxter International imported the "active pharmaceutical ingredient" (API) of heparin, that is, in plainer language, the drug itself, from China. That API was then sold, with some minor processing, as a Baxter International product with a Baxter International label. The drug came from a sketchy supply chain that Baxter did not directly supervise, apparently originating in small "workshops" operating under primitive and unsanitary conditions without any meaningful inspection or supervision by the company, the Chinese government, or the FDA. The heparin proved to have been adulterated with over-sulfated chondroitin sulfate (OSCS), and many patients who received got seriously ill or died. While there have been investigations of how the adulteration adversely affected patients, to date, there have been no publicly reported investigations of how the OSCS got into the heparin, and who should have been responsible for overseeing the purity and safety of the product. Despite the facts that clearly patients died from receiving this adulterated drug, no individual has yet suffered any negative consequence for what amounted to poisoning of patients with a brand-name but adulterated pharmaceutical product. (For a more detailed summary of the case, look <a href="http://hcrenewal.blogspot.com/2010/05/more-questions-no-answers-about-case-of.html">here</a>.)

More Contaminated Heparin, But Who Leads the Company Who Supplied It?

We have posted multiple times over the last two years about the deadly contaminated heparin from China. (See the case summary and link at th...

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Dr Coca-Cola, Meet Dr Butterfinger

First, it was the American Academy of Family Practice accepting money from Coca-Cola to support educational programs to foster a "healthy lifestyle," (see our post <a href="http://hcrenewal.blogspot.com/2009/11/paging-and-paying-dr-coca-cola.html">here</a>, and the <a href="http://brodyhooked.blogspot.com/2010/07/more-on-aafp-coca-cola-controversy.html">post</a> by Dr Howard Brody here that also linked to his article in Annals of Family Medicine.) Now, it is the American Academy of Pediatrics accepting money from Nestle, specifically, the NestleNutrition Institute, to support "obesity prevention and care."  The AAP news release (<a href="http://www.aap.org/obesity/HALF.html">here</a>) said:  <blockquote>HEALTHY ACTIVE LIVING FOR FAMILIES (HALF): RIGHT FROM THE START is a program of the American Academy of Pediatrics (AAP). It is sponsored through the generous support of the Nestlé Nutrition Institute (NNI). The goal of the HALF project is to develop and test a series of positive, family-focused messages specific to obesity prevention and care for the following developmental stages: infancy, toddlerhood, and early childhood/preschoolers, which can be used at pediatric well-child visits. These messages and materials will be unique from those already in existence because they will be crafted using the medical home framework, a developmental approach to children’s care, and parent-tested. </blockquote> Nestle, of course, is the manufacturer of all sorts of delicious, gooey chocolate candies.  (Full disclosure: I have been known to eat Nestle chocolate products.) So far, this notable collaboration has drawn some criticism in the blogsphere, e.g., <a href="http://bfmed.wordpress.com/2010/10/07/nestle-aap-partnership-half-baked">in the Breastfeeding Medicine blog</a>, by DrAlison Stuebe: <blockquote>The AAP should not be taking money for an anti-obesity project from an institute whose parent company sells candy and ice cream — and hawks flawed advice designed to undermine breastfeeding mothers. If the AAP is really 'dedicated to the health of all children,' they should send that check back to Nestle and start over. American families deserve nothing less.</blockquote> Also, consumer advocates have come out against this dubious alliance, as mentioned <a href="http://www.walletpop.com/blog/2010/10/12/critics-nestle-american-academy-of-pediatrics-alliance-a-confl">in the WalletPop blog</a>. So far, I have seen nothing in the main-stream media about this.  Clearly, this raises the same sorts of issues that the alliance between the AAFP and Coca-Cola raised.  In summary, pediatricians are trusted by parents to give advice not just about drugs, vaccines, and surgery, but about diet, exercise, life-style, etc.  Having the most respected pediatric professional society hawking a diet and life-style program paid for by a chocolate manufacturer risks biasing the advice that its members give, and threatening the trust parents and children have in their pediatricians.  The AAP has been previously criticized for providing guidelines advocating extremely aggressive drug treatment for childhood hyperlipidemia amid questions about whether support from the pharmaceutical industry, including "$433,000 from Merck, $835,250 from Abbott Laboratories’ Ross Product Division and $216,000 from the Bristol-Myers Squibb company Mead Johnson Nutritionals," biased these guidelines. (Amounts were from 2007, <a href="http://www.nytimes.com/2008/07/13/weekinreview/13parker.html">per the New York Times</a>)  Once a medical society becomes accustomed to living off corporate largess, it may not be a big leap to add funding from Nestle to that from drug companies.  I respectfully submit that professional organizations which wish to be seen as upholding physicians' professionalism should not be taking money from corporations that may see physicians' advice and prescriptions as means to market their products.  Professional organizations that do take such money risk being viewed more as arms of corporate marketing than as upholders of physicians' ideals.  (And the medical home they advocate may be seen as a <a href="http://www.nestle.com/MediaCenter/MediaLibrary/VideoResources/Detail.htm?Ctx=Vcd3kcka%2BO0UuPEAROaFwPRyBhnLIshn7iP75hLIpod7KH0jUY0%2FVc%2BcZvrM36JZN6CDTQldJe7UeVXnVzJWSg%3D%3D&Itm=B4304A8C-9D05-450C-A3C8-DF29C88011B3">house made of chocolate</a>.)

Dr Coca-Cola, Meet Dr Butterfinger

First, it was the American Academy of Family Practice accepting money from Coca-Cola to support educational programs to foster a "healt...

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Synthes and its Subsidiary Plead Guilty, Boss Remains Billionaire.

In December, 2009, we <a href="http://hcrenewal.blogspot.com/2009/12/person-no-7-also-known-as-83rd-richest.html">updated</a> the story of Swiss-based medical device company Synthes and the marketing by its Norian division of a bone cement.  At that time, US authorities charged the company with use of an unapproved product in about 200 patients, three of whom suffered untimely deaths.  At that point, four US based Synthes executives had pleaded guilty to charges related to this affair.  Last week, another shoe dropped.  As <a href="http://www.google.com/hostednews/ap/article/ALeqM5gIXyxNWxFR-4GgLo4_YeIXy2A0ngD9IL4UN02?docId=D9IL4UN02">reported</a> by the Associated Press, <blockquote>A medical devices company will admit criminality and pay the maximum $23 million fine for illegally testing bone cement on about 200 spinal patients, three of whom died in surgery, U.S. prosecutors said Monday. Norian Corp. trained surgeons to conduct unapproved clinical tests of its bone cement from 2002 to 2004, subverting U.S. Food and Drug Administration safeguards, prosecutors said. The trials were stopped after the third patient death, they said. The cement, which is used to fill in bone defects, is approved for use in the arm but not the load-bearing spine, authorities said. The surgeries often involved older patients with compression fractures, they said.</blockquote> The results are: <blockquote>Norian will plead guilty to conspiracy to impede FDA functions, a felony, and 110 misdemeanor counts of interstate shipping of misbranded Norian XR. Synthes will plead guilty to the same misdemeanor shipping count. As part of the agreement, Norian will be sold to an outside buyer, the parent company said.</blockquote> Imposing divestiture of the offending subsidiary was unusual, <a href="http://www.philly.com/inquirer/business/20101005_Manufacturer_pleads_guilty_to_improper_use_of_bone_cement.html">according to the Philadelphia Inquirer</a>: <blockquote>Forcing a divestiture of a business unit in a plea agreement was precedent-setting for the U.S. Attorney General's Office in the Philadelphia area, spokeswoman Patricia Hartman said Monday. Officials with the Office of the Inspector General in DHHS said the divestiture should send a message to other health-care companies that Synthes' behavior had grave consequences. 'Criminal conduct can result in a company getting rid of part of their business,' Greg Demske, a top official with the Inspector General, said Monday. 'This is an egregious case, and it made us firm in our belief that we should draw a line here,' he said. If it remained a subsidiary of Synthes, Norian would be excluded from participating in Medicare and other government-funded health care programs, which would be potentially devastating to its business. According to a divestiture agreement released Monday by the U.S. Attorney in Philadelphia, Synthes has to sell Norian by May 24. The assets of Norian would not be allowed to be transferred to another part of the Synthes 'corporate family' as part of the divestiture, Demske said. Synthes will update the government monthly on its plans to divest Norian, and if it fails to sell the company by the May deadline, it can be fined $10,000 a day.</blockquote> So does this case signal a new toughness by US authorities in cases of bad behavior by health care corporations? <a href="http://online.wsj.com/article/SB10001424052748704631504575532400696935326.html">According to the Wall Street Journal</a>, Synthes officials were not exactly quaking in their boots because of these penalties, as their spokesperson said Synthes "does not expect this settlement to have any significant financial impact." Synthes would only be liable for fines of "about $24.3 million in total." That pales in comparison to the "company['s] posted total sales of $3.4 billion last year." As for the divestiture of Norian, the WSJ reported, "a spokesman said Monday that the Norian unit is mostly active in product development and isn't actively selling products. That business has fewer than 100 employees,...." In fact, company leadership did not seem to realize that they did anything wrong, despite the company and four executives pleading guilty to crimes, actions involving the death of three patients, <blockquote>'Synthes remains committed to operating in accordance with the highest legal and ethical standards, and bringing closure to this matter will permit the company to focus on its mission to improve patient care,' the company said. </blockquote>Furthermore, while this is one of the few cases in which some company executives actually may have to pay penalties (after pleading guilty to at least misdemeanors), the big fish appeared to get away. As we discussed last year, an unindicted "person no. 7" was alleged to have set up the scheme to "test" the bone cement in a clinical series. Person No. 7 was at that time identified as the company CEO. That CEO, according to the Philadelphia Inquirer last year, was one Mr Hansjorg Wyss, noted to have a fortune estimated at $5.7 billion, making him the richest man in Philadelphia, and the 83rd richest man in the world, according to Forbes magazine.  (See <a href="http://hcrenewal.blogspot.com/2009/12/person-no-7-also-known-as-83rd-richest.html">this post</a>.)   The settlement of this case would apparently have no impact on his immense wealth. So although this case has some unusual wrinkles, and may yet yield some negative consequences for some of the people involved in the direction and implementation of the wrong-doing, it would appear to leave unscathed the person who has personally profited the most from the company, and its actions, including its less savory actions.  There is progress here, but only a little. Once again, it appears that in the eyes of the law, top corporate leaders are different from you and me.  They appear immune from the penalties that lesser individuals may suffer.  They have impunity to continue to amass wealth even wealth that results from actions that were deemed illegal.   Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

Synthes and its Subsidiary Plead Guilty, Boss Remains Billionaire.

In December, 2009, we updated the story of Swiss-based medical device company Synthes and the marketing by its Norian division of a bone ce...

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Another Wheel Already Invented (in 1988) - the WHO Ethical Criteria for Medicinal Drug Promotion

At the 2010 Gezonde Scepsis (Healthy Skepticism) "Selling Sickness" conference, I was made aware of another wheel invented a long time ago, the <a href="http://apps.who.int/medicinedocs/en/d/Jwhozip08e/">1988 WHO Ethical Criteria for Medicinal Drug Promotion</a>, a document about which few now seem to be aware.  Were this code to have been widely followed, it might have prevented some of the problems afflicting the pharmaceutical industry today. Some relevant quotes follow: Drug Promotion <blockquote>6. In this context, 'promotion' refers to all informational and persuasive activities by manufacturers and distributors, the effect of which is to induce the prescription, supply, purchase and/or use of medicinal drugs. 7. Active promotion within a country should take place only with respect to drugs legally available in the country. Promotion should be in keeping with national health policies and in compliance with national regulations, as well as with voluntary standards where they exist. All promotion-making claims concerning medicinal drugs should be reliable, accurate, truthful, informative, balanced, up-to-date, capable of substantiation and in good taste. They should not contain misleading or unverifiable statements or omissions likely to induce medically unjustifiable drug use or to give rise to undue risks. The word 'safe' should only be used if properly qualified. Comparison of products should be factual, fair and capable of substantiation. Promotional material should not be designed so as to disguise its real nature. 8. Scientific data in the public domain should be made available to prescribers and any other person entitled to receive it, on request, as appropriate to their requirements. Promotion in the form of financial or material benefits should not be offered to or sought by health care practitioners to influence them in the prescription of drugs. 9. Scientific and educational activities should not be deliberately used for promotional purposes.</blockquote> Note that these provisions would seem to prohibit promotional efforts begun before a drug is legally approved (e.g., <a href="http://hcrenewal.blogspot.com/search/label/ghost%20writing">ghost-writing</a> as in <a href="http://hcrenewal.blogspot.com/2005/04/ghosts-busted.html">this case</a>), the use of <a href="http://hcrenewal.blogspot.com/search/label/key%20opinion%20leaders">"key opinion leaders"</a> without full disclosure of their role as marketers of drugs, <a href="http://hcrenewal.blogspot.com/search/label/suppression%20of%20medical%20research">suppression of clinical research</a> sponsored by pharmaceutical companies whose results did not support these companies' marketing interests, e.g. studies which failed to show efficacy of their products, nearly all kinds of payments to physicians, and nearly all pharmaceutical sponsored <a href="http://hcrenewal.blogspot.com/search/label/continuing%20medical%20education">continuing medical education</a>. Medical Representatives <blockquote>17. Medical representatives should have an appropriate educational background. They should be adequately trained. They should possess sufficient medical and technical knowledge and integrity to present information on products and carry out other promotional activities in an accurate and responsible manner. Employers are responsible for the basic and continuing training of their representatives. Such training should include instruction regarding appropriate ethical conduct taking into consideration the WHO criteria. In this context, exposure of medical representatives and trainees to feed-back from the medical and allied professions and from independent members of the public, particularly regarding risks, can be salutary. 18. Medical representatives should make available to prescribers and dispensers complete and unbiased information for each product discussed, such as an approved scientific data sheet or other source of information with similar content. 19. Employers should be responsible for the statements and activities of their medical representatives. Medical representatives should not offer inducements to prescribers and dispensers. Prescribers and dispensers should not solicit such inducements. In order to avoid over-promotion, the main part of the remuneration of medical representatives should not be directly related to the volume of sales they generate.</blockquote> Note that these provisions appear to prohibit the current cheer leader/ ex-athlete model of the drug representative, and to prohibit many of the current activities of such representative, including providing gifts, meals, travel to meetings, honoraria, etc  (e.g., see posts <a href="http://hcrenewal.blogspot.com/2008/03/what-drug-reps-really-care-about.html">here</a> and <a href="http://hcrenewal.blogspot.com/2007/05/fool-me-once-shame-on-you-fool-me-twice.html">here</a>). If only these standards had gotten some traction, think of the trouble that could have been averted.  On the other hand, it is obvious that such traction would have threatened some peoples' lucrative incomes and power, who may have worked hard to make sure it did not happen.

Another Wheel Already Invented (in 1988) - the WHO Ethical Criteria for Medicinal Drug Promotion

At the 2010 Gezonde Scepsis (Healthy Skepticism) "Selling Sickness" conference, I was made aware of another wheel invented a long ...

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What a Conflicted Web We Weave: Academic Economists, Finance, the Global Economic Meltdown, and the Impending Health Care Collapse

We have been writing about <a href="http://hcrenewal.blogspot.com/search/label/conflicts%20of%20interest">conflicts of interest</a> in health care now for a long time.  We started with a focus on academic physicians'  and leaders' financial ties to pharmaceutical/ biotechnology/ device companies, then went on to the intense conflicts generated by academic medical and other health care non-profit leader who also <a href="http://hcrenewal.blogspot.com/2006/03/new-species-of-conflict-of-interest-in.html">sit on boards of directors</a> of for profit health care corporations, and to conflicts affecting various kinds of respected not-for-profit health care organizations, like medical societies and patient advocacy groups. Meanwhile, we uncovered the curious dominance of the boards of some health care organizations by leaders in the<a href="http://hcrenewal.blogspot.com/search/label/finance"> finance</a> world, including some of the leaders of the failed companies that brought us the "great recession."  This did seem like a leadership problem for health care, in terms of the dominance of health care leadership by the elite of another industry that did not exactly seem to share the values we physicians swear to uphold.  However, it did not seem to be a conflict of interest problem, until now. The Chronicle of Higher Education just published <a href="http://chronicle.com/article/Larry-Summersthe/124790/">an article</a> by the director of a soon to be released documentary on conflicts of interest and academics, but this time academic economics. Charles Ferguson, the author, used as an example the Larry Summers, the former President of Harvard University (and hence leader of the Harvard Medical School, School of Public Health, and Harvard's teaching hospitals).  We had commented <a href="http://hcrenewal.blogspot.com/2009/04/hedge-fund-u-version-2.html">here</a> about Summers' poor fit for the role of an academic medical leader, and <a href="http://hcrenewal.blogspot.com/2010/04/very-well-paid-boob-on-harvard.html">here </a>and <a href="http://hcrenewal.blogspot.com/2008/12/what-linked-parallel-declines-of.html">here</a> about the dominance of Harvard leadership by leaders of (sometimes failed) financial institutions.  Ferguson summarized (bad pun, sorry) the problem thus: <blockquote>Summers is unquestionably brilliant, as all who have dealt with him, including myself, quickly realize. And yet rarely has one individual embodied so much of what is wrong with economics, with academe, and indeed with the American economy.</blockquote> The problem is essentially one of huge conflicts of interest: <blockquote>the revolving door is now a three-way intersection. Summers's career is the result of an extraordinary and underappreciated scandal in American society: the convergence of academic economics, Wall Street, and political power.</blockquote> Summers bear huge responsibility for the current economic mess: <blockquote>Consider: As a rising economist at Harvard and at the World Bank, Summers argued for privatization and deregulation in many domains, including finance. Later, as deputy secretary of the treasury and then treasury secretary in the Clinton administration, he implemented those policies. Summers oversaw passage of the Gramm-Leach-Bliley Act, which repealed Glass-Steagall, permitted the previously illegal merger that created Citigroup, and allowed further consolidation in the financial sector. He also successfully fought attempts by Brooksley Born, chair of the Commodity Futures Trading Commission in the Clinton administration, to regulate the financial derivatives that would cause so much damage in the housing bubble and the 2008 economic crisis. He then oversaw passage of the Commodity Futures Modernization Act, which banned all regulation of derivatives, including exempting them from state antigambling laws.</blockquote> Also, <blockquote>Over the past decade, Summers continued to advocate financial deregulation, both as president of Harvard and as a University Professor after being forced out of the presidency.</blockquote> Not only did Summers set up the structure that allowed reckless bets with other people' money on opaque financial derivatives by finance leaders who stood to make huge gains if they won their bets, but could foist all losses on others, but he actively attempted those who tried to warn us all of the impending economic collapse. <blockquote>Summers remained close to Rubin and to Alan Greenspan, a former chairman of the Federal Reserve. When other economists began warning of abuses and systemic risk in the financial system deriving from the environment that Summers, Greenspan, and Rubin had created, Summers mocked and dismissed those warnings. In 2005, at the annual Jackson Hole, Wyo., conference of the world's leading central bankers, the chief economist of the International Monetary Fund, Raghuram Rajan, presented a brilliant paper that constituted the first prominent warning of the coming crisis. Rajan pointed out that the structure of financial-sector compensation, in combination with complex financial products, gave bankers huge cash incentives to take risks with other people's money, while imposing no penalties for any subsequent losses. Rajan warned that this bonus culture rewarded bankers for actions that could destroy their own institutions, or even the entire system, and that this could generate a 'full-blown financial crisis' and a 'catastrophic meltdown.' When Rajan finished speaking, Summers rose up from the audience and attacked him, calling him a 'Luddite,' dismissing his concerns, and warning that increased regulation would reduce the productivity of the financial sector. (Ben Bernanke, Tim Geithner, and Alan Greenspan were also in the audience.) </blockquote> Amazingly, rather than ending up an economic pariah after that, Summers regained power over the economy in the last few years. <blockquote>Then, after the 2008 financial crisis and its consequent recession, Summers was placed in charge of coordinating U.S. economic policy, deftly marginalizing others who challenged him. Under the stewardship of Summers, Geithner, and Bernanke, the Obama administration adopted policies as favorable toward the financial sector as those of the Clinton and Bush administrations—quite a feat. Never once has Summers publicly apologized or admitted any responsibility for causing the crisis. And now Harvard is welcoming him back.</blockquote> Summers was tightly aligned with the finance world, and benefited from the dominance of financial leaders on Harvard's board (see post here): <blockquote>After Summers left the Clinton administration, his candidacy for president of Harvard was championed by his mentor Robert Rubin, a former CEO of Goldman Sachs, who was his boss and predecessor as treasury secretary. Rubin, after leaving the Treasury Department—where he championed the law that made Citigroup's creation legal—became both vice chairman of Citigroup and a powerful member of Harvard's governing board.</blockquote> Yet in between his government and academic leadership roles, Summers got rich from finance firms' money. <blockquote>Summers became wealthy through consulting and speaking engagements with financial firms. Between 2001 and his entry into the Obama administration, he made more than $20-million from the financial-services industry. (His 2009 federal financial-disclosure form listed his net worth as $17-million to $39-million.)</blockquote> Ferguson went on to list several other conflicted academic economists: <blockquote>The route to the 2008 financial crisis, and the economic problems that still plague us, runs straight through the economics discipline. And it's due not just to ideology; it's also about straightforward, old-fashioned money. Prominent academic economists (and sometimes also professors of law and public policy) are paid by companies and interest groups to testify before Congress, to write papers, to give speeches, to participate in conferences, to serve on boards of directors, to write briefs in regulatory proceedings, to defend companies in antitrust cases, and, of course, to lobby. [Ed: they are thus the "key opinion leaders" of economics and economic policy.]  This is now, literally, a billion-dollar industry. The Law and Economics Consulting Group, started 22 years ago by professors at the University of California at Berkeley (David Teece in the business school, Thomas Jorde in the law school, and the economists Richard Gilbert and Gordon Rausser), is now a $300-million publicly held company. Others specializing in the sale (or rental) of academic expertise include Competition Policy (now Compass Lexecon), started by Richard Gilbert and Daniel Rubinfeld, both of whom served as chief economist of the Justice Department's Antitrust Division in the Clinton administration; the Analysis Group; and Charles River Associates. In my film you will see many famous economists looking very uncomfortable when confronted with their financial-sector activities; others appear only on archival video, because they declined to be interviewed. You'll hear from: Martin Feldstein, a Harvard professor, a major architect of deregulation in the Reagan administration, president for 30 years of the National Bureau of Economic Research, and for 20 years on the boards of directors of both AIG, which paid him more than $6-million, and AIG Financial Products, whose derivatives deals destroyed the company. Feldstein has written several hundred papers, on many subjects; none of them address the dangers of unregulated financial derivatives or financial-industry compensation. Glenn Hubbard, chairman of the Council of Economic Advisers in the first George W. Bush administration, dean of Columbia Business School, adviser to many financial firms, on the board of Metropolitan Life ($250,000 per year), and formerly on the board of Capmark, a major commercial mortgage lender, from which he resigned shortly before its bankruptcy, in 2009. In 2004, Hubbard wrote a paper with William C. Dudley, then chief economist of Goldman Sachs, praising securitization and derivatives as improving the stability of both financial markets and the wider economy. Frederic Mishkin, a professor at the Columbia Business School, and a member of the Federal Reserve Board from 2006 to 2008. He was paid $124,000 by the Icelandic Chamber of Commerce to write a paper praising its regulatory and banking systems, two years before the Icelandic banks' Ponzi scheme collapsed, causing $100-billion in losses. His 2006 federal financial-disclosure form listed his net worth as $6-million to $17-million. Laura Tyson, a professor at Berkeley, director of the National Economic Council in the Clinton administration, and also on the Board of Directors of Morgan Stanley, which pays her $350,000 per year. Richard Portes, a professor at London Business School and founding director of the British Centre for Economic Policy Research, paid by the Icelandic Chamber of Commerce to write a report praising Iceland's financial system in 2007, only one year before it collapsed. And John Campbell, chairman of Harvard's economics department, who finds it very difficult to explain why conflicts of interest in economics should not concern us.</blockquote> I once naively thought that the primary conflict of interest problems affecting academia involved health care, the dependence of medical schools and academic medical centers on commercial research funding, the emphasis these schools placed on faculty ties to commercial firms, leading to faculty "key opinion leaders" functioning as marketers of drugs and devices operating under the cloak of academia, and the major conflicts of academic leaders who also sit on health care corporate boards. Now I wonder if all this came to pass because academic leaders already were comfortable with conflicts of interest after having profited from conflicts generated by relationships with the finance industry. This now suggests that the dominance of university boards of trustees by finance leaders is a conflict of interest issue, too. It also suggests that we in medicine should be paying more attention to how conflicts of interest shape not only the marketing of drugs and devices, but the health care policy that has lead to our currently dysfunctional system. If economists paid by finance companies could have been a major cause of the global financial meltdown, could health care policy experts paid by health care corporations be a major cause of our collapsing health care system? Hat tip to the <a href="http://www.nakedcapitalism.com/2010/10/links-10510.html">Naked Capitalism blog</a>. See additional comments on the <a href="http://www.margaretsoltan.com/?p=26680">University Diaries blog</a> and on <a href="http://blogs.reuters.com/felix-salmon/2010/10/05/inside-job/">Felix Salmon's blog</a>.

What a Conflicted Web We Weave: Academic Economists, Finance, the Global Economic Meltdown, and the Impending Health Care Collapse

We have been writing about conflicts of interest in health care now for a long time. We started with a focus on academic physicians' ...

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Pay for What? - Redux: Surrealistic Pay for Health Care Corporate CEOs

Pay-for-performance has been a persistently fashionable mantra for health care business leaders and policy advocates, particularly as applied to physicians to control costs and perhaps even improve quality.  We have been highly critical of current methods proposed to measure performance and tie pay to it (e.g., <a href="http://hcrenewal.blogspot.com/2006/09/p4p-band-wagon-rolls-but-in-whose.html">here</a>), and other bloggers, notably Dr Robert Centor at DB's Medical Rants, have vigorously pursued this issue (e.g., <a href="http://www.medrants.com/archives/5837">here</a>). It is beyond ironic that meanwhile, the pay of health care organizations' leaders seems less and less related to their performance.  For example, in a recent series on local executive pay in the Boston Globe <a href="http://www.boston.com/business/articles/2010/10/03/executive_share/">there were</a> these examples: Hologic <blockquote>Hologic Inc. gave its chief executive, John W. Cumming, a $1.5 million “retention payment’’ as part of his $10.5 million pay package last year. He was promised the payment in mid-2006 if he remained with the company through the end of 2008. At the same time, the Bedford women’s health care products company posted a $2.2 billion loss, largely resulting from a big write-down related to the 2007 purchase of Cytic Corp. Cumming has since stepped down as chief executive, but remains chairman. Hologic declined to comment.</blockquote> Charles River Laboratories <blockquote>Charles River Laboratories International Inc. chief executive James C. Foster received $1.3 million in deferred compensation in a year when the company disclosed plans to cut 300 workers, or 3 percent of its workforce. Charles River declined to comment.</blockquote> Note that a Charles River board member was one of the authors of an Institute of Medicine report advocating P4P for physicians, as we posted <a href="http://hcrenewal.blogspot.com/2006/09/p4p-band-wagon-rolls-but-in-whose.html">here</a>. Ah, the irony. Boston Scientific <blockquote>New Boston Scientific Corp. CEO J. Raymond Elliott started midyear and received a $1.5 million bonus. Boston Scientific posted a $1 billion loss last year. </blockquote>Elliott got a lot more than that, as reported in a <a href="http://www.boston.com/business/articles/2010/10/03/like_sports_stars_top_business_players_command_big_bucks/">companion Boston Globe article</a>: <blockquote>Elliott, whose experience includes running another medical device company, Zimmer Holdings Inc., was paid a performance bonus of nearly $608,000 last year, in addition to a $1.5 million signing bonus and $29.4 million in stock awards and options.</blockquote> Meanwhile, the company's losses continue to mount: <blockquote>And in February, Boston Scientific agreed to pay $1.7 billion to settle patent infringement charges from rival Johnson & Johnson, making it likely the company will post another loss this year.</blockquote>Note that Boston Scientific has had its ethical as well as financial failings, especially involving the case of the faulty implantable cardiac defibrillators, which resulted in settlements of civil lawsuits alleging that it hid data about the defects, and two guilty pleas by a company subsidiary to charges that it did not notify the FDA about these problems (see post <a href="http://hcrenewal.blogspot.com/2010/04/who-guards-guardians-case-of-boston.html">here</a>). Vertex Pharmaceuticals Inc <blockquote>At Vertex Pharmaceuticals Inc., chief Matthew W. Emmens, who took over five months into the year, received $2.8 million performance award last year, a year in which the company lost $642 million.</blockquote> He actually got a lot more than that, too, as per the second Globe article: <blockquote>His pay package included more than $15 million in restricted stock and options. </blockquote> Cephalon At the same time, an <a href="http://articles.latimes.com/2010/oct/03/business/la-fi-hiltzik-20101003">op-ed </a>by Michael Hiltzik in the Los Angeles Times noted that a health care company had the most unfairly paid CEO, according to "veteran compensation consultant Fraef Crystal," <blockquote>Cephalon Inc., ... CEO, Frank Baldino, Crystal identifies as the most overpaid chief executive in his database. (Baldino's $11.1 million pay last year is 832% of what would be fair, Crystal calculated.)</blockquote> Note that Cephalon settled charges of off-label promotion of narcotics for over $400 million in 2008 (see post <a href="http://hcrenewal.blogspot.com/2008/09/whats-drug-addicts-life-worth-to.html">here</a>). Summary So the general rule seem to be that top executives of health care organizations make large, sometimes enormous amounts of money, and that occurs regardless of company or personal performance. The riches keep flowing even if the company loses millions or billions, or lays off significant chunks of its workforce. Hiltzik identified corporate executive pay as: <blockquote>the No. 1 scandal of American business — executive pay that bears scant relationship to what these people are worth. The CEO pay curve has been galloping out of control for so long that it has achieved the status of a cliche. In 1965 the average U.S. CEO earned 24 times the pay of the average worker. Four decades later the ratio was 411 to 1..</blockquote> Furthermore, <blockquote>The dismal reality of CEO pay is that it comprises two problems, not one. Top executive pay generally is too lavish in the U.S. no matter what performance standard you apply. Good performance or bad, the pay disparity between the CEO and the rank and file is larger than in any other country, contributing to rising income inequality and to its consequent social pathologies. It's also based on several flawed assumptions, argue Jay Lorsch and Rakesh Khurana of Harvard Business School in a recent article for Harvard Magazine. One is that money is the only motivating factor behind executive performance. Another is that shareholders are the only stakeholders in corporate performance whose interests matter. This is a relatively recent paradigm, they observe; as late as 1990 business groups recognized the importance of a corporation's responsibility to stakeholders such as employees, customers, suppliers and the community. The flaw in the latter assumption is that it ties CEO pay to stock prices, which they can't influence on their own. But the picture of the CEO as virtually the sole auteur of a corporation's fate permeates American society. Listen to a Meg Whitman campaign ad talking about 'the EBay Meg created.' If you pay attention you may catch a reference to the 15,000 employees who were there when she left, at least a few of whom must have had something to do with the company's success.</blockquote> A further problem is that the pay of top corporate leaders is generally set not by the share-holders, that is, the owners of the company, but by boards of their cronies, many of whom are also members of the CEO club.  As Hiltzik noted, <blockquote>although most corporate boards make a show of placing pay decisions in the hands of a committee of 'independent' directors, the members are almost always current or former top executives themselves, members of a tight club.</blockquote> By the way, as we posted <a href="http://hcrenewal.blogspot.com/2009/09/safety-net-medical-center-ceo-gets.html">here</a>, a member of both the Hologic and Vertex boards was a former hospital CEO who got a generous retirement package despite its financial straits. So while their policy flacks continue to push pay-for-performance for physicians, maybe health care corporate leaders should set an example by embracing real pay for performance themselves. To repeat, again, again, again,.... Until they do, top executives remain really different from you and me.  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?

Pay for What? - Redux: Surrealistic Pay for Health Care Corporate CEOs

Pay-for-performance has been a persistently fashionable mantra for health care business leaders and policy advocates, particularly as applie...

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Wright Medical Settles, ... But Wait, There is Less

Everyone loves a parade, and so the <a href="http://hcrenewal.blogspot.com/search/label/legal%20settlements">parade of legal settlements</a> by prominent health care organizations continues.  The latest to march into view is Wright Medical Group, as <a href="http://www.bloomberg.com/news/2010-09-30/wright-medical-technology-to-pay-7-9-million-end-criminal-civil-probes.html">reported</a> by Bloomberg: <blockquote>Wright Medical Technology Inc. agreed to pay $7.9 million to resolve U.S. criminal and civil investigations into whether it paid kickbacks to induce doctors to use its hip and knee devices. Prosecutors in Newark, New Jersey, today charged Wright with conspiring to violate a federal anti-kickback statue through consulting contracts with orthopedic surgeons. The U.S. agreed to drop the case in 12 months if a monitor agrees that Wright has reformed the way it hires consultants. Wright, based in Arlington, Tennessee, also agreed to a $7.9 million civil settlement with the Justice Department and inspector general of the Health and Human Services Department to resolve fraudulent-marketing claims. The company entered into a five-year corporate integrity agreement. </blockquote> Here we go again. A company is accused of giving kickbacks, aka bribes, to individual doctors, in this case orthopedic surgeons, to get them to use the company's products. Such payments clearly violate medical ethics (especially doctors' obligations to put the interests of patients ahead of their personal financial interests), leading to decision making not in the best interests of the patients. However, the penalty to the company itself is minuscule, only a fraction of the company's revenue, <a href="http://www.google.com/finance?q=NASDAQ:WMGI&fstype=ii">according to Google Finance</a>, in 2009, just under $500 million. As we have noted endlessly before, financial penalties to corporations are diffused among all shareholders and employees, and possibly customers and patients. Do we really expect that this penalty will change anything, or deter future bad behavior by this or any other company? But our government continues to treat the corporate employees who authorize, direct, or implement bad behavior like this as essentially above the law. In this case, like in many others we have discussed previously, no one who authorized, directed or implemented the bad behavior will have to pay any sort of penalty or suffer any sort of negative consequences.  Does anyone in their right mind believe that Wright Medical really is <blockquote>pleased to announce these agreements and look[ing] forward to working with the independent monitor as we continue our commitment to the highest standards of ethical and legal conduct</blockquote> That was a quote from Wright Medical CEO Gary D Henley. He may be pleased to announce the agreements, since they really amount to such a tiny pinprick of a penalty. After all, Mr Henley will be able to to continue to use Wright Medical's revenues, virtually unaffected by this penalty, to justify his compensation (per <a href="http://services.corporate-ir.net/SEC/Document.Service?id=P3VybD1odHRwOi8vaXIuaW50Lndlc3RsYXdidXNpbmVzcy5jb20vZG9jdW1lbnQvdjEvMDAwMDk1MDEyMy0xMC0wMzUxMjEvZG9jL1dyaWdodE1lZGljYWxHcm91cEluYy5wZGYmdHlwZT0yJmZuPVdyaWdodE1lZGljYWxHcm91cEluYy5wZGY=">the 2009 proxy statement</a>, $2,036,517 in 2009, and his continuing accumulation of wealth, e.g., 436,601 shares of stock, currently valued at $13.86/ share <a href="http://www.google.com/finance?q=NASDAQ%3AWMGI">according to Google Financial</a>.) I leave an assessment of what the company's previous commitment to "the highest standard of ethical and legal conduct" was to our dear readers. We will not have true health care reform until we end the unholy alliance between big government and big health care organizations, that is, <a href="http://hcrenewal.blogspot.com/2010/10/novartis-settles-but-wait-theres-more.html">health care corporatism</a>. Then, maybe, we can make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

Wright Medical Settles, ... But Wait, There is Less

Everyone loves a parade, and so the parade of legal settlements by prominent health care organizations continues. The latest to march into...

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