The Corporate Psychopaths Theory of Health Care Dysfunction

A new article in the Journal of Business Ethics suggested that the global financial crisis, or great recession, was primarily due to a fundamental flaw in the leadership of financial organizations, one that has important implications for health care organizations. 

The article, Boddy CR. The corporate psychopaths theory of the global financial crisis.  J Bus Ethics 2011; 102: 255-259 is here.  Its premise was:

The Corporate Psychopaths Theory of the Global Financial Crisis is that Corporate Psychopaths, rising to key senior positions within modern financial corporations, where they are able to influence the moral climate of the whole organisation and yield considerable power, have largely caused the crisis.

Note that in 2004 we first posted about the possibility that a proportion of corporate managers, including those in health care, could be psychopaths, raised then by two experts on psychopathy, Paul Babiak and Robert Hare. In 2006, they published Snakes in Suits, about the dangers of psychopaths as executives and managers (see post here). However, the issue got scant attention in those days of letting the good times roll.

Defining Corporate Psychopaths

Boddy described psychopaths as:

the 1% of people who have no conscience or empathy and who do not care for anyone other than themselves. Some psychopaths are violent and end up in jail, others forge careers in corporations. The latter group who forge successful corporate careers is called Corporate Psychopaths.

Corporate Psychopaths as Leaders

Such people do not make good leaders:

Although they may look smooth, charming, sophisticated, and successful, Corporate Psychopaths should theoretically be almost wholly destructive to the organizations that they work for. The probable mal-effects of the presence of psychopaths in the workplace have been hypothesized about in recent times by a number of leading experts and commentators on psychopathy.

Researchers report that such malevolent leaders are callously disregarding of the needs and wishes of others, prepared to lie, bully and cheat and to disregard or cause harm to the welfare of others. Corporate Psychopaths are also poorly organized managers who adversely affect productivity and have a negative impact on many different areas of organizational effectiveness.

How Corporate Psychopaths Could Have Become Prevalent
Despite the dangers posed by such leadership, corporate psychopaths may rise quickly in management:

Psychologists have argued that Corporate Psychopaths within organizations may be singled out for rapid promotion because of their polish, charm, and cool decisiveness. Expert  ccommentators on the rise of Corporate Psychopaths within modern corporations have also hypothesized that they are more likely to be found at the top of current organisations than at the bottom.

The nature of current corporate culture may facilitate the rise of corporate psychopaths:

These Corporate Psychopaths are charming individuals who have been able to enter modern corporations and other organisations and rise quickly and relatively unnoticed within them because of the relatively chaotic nature of the modern corporation. This corporate nature is characterized by rapid change, constant renewal and quite a rapid turnover of key personnel. These changing conditions make Corporate Psychopaths hard to spot because constant movement makes their behaviour invisible and combined with their extroverted personal charisma and charm, this makes them appear normal and even to be ideal leaders.

The destabilization of modern corporations likely lead to the ascendancy of the corporate psychopath:

However, once corporate takeovers and mergers started to become commonplace and the resultant corporate changes started to accelerate, exacerbated by both globalisation and a rapidly changing technological environment, then corporate stability began to disintegrate. Jobs for life disappeared and not surprisingly employees’ commitment to their employers also lessened accordingly. Job switching first became acceptable and then even became common and employees increasingly found themselves working for unfamiliar organisations and with other people that they did not really know very well.

Rapid movements in key personnel between corporations compared to the relatively slower movements in organisational productivity and success made it increasingly difficult to identify corporate success with any particular manager. Failures were not noticed until too late and the offending managers had already moved on to better positions elsewhere. Successes could equally be claimed by those who had nothing to do with them. Success could thus be claimed by those with the loudest voice, the most influence and the best political skills. Corporate Psychopaths have these skills in abundance and use them with ruthless and calculated efficiency. In this way, the whole corporate and employment environment changed from one that would hold the Corporate Psychopath in check to one where they could flourish and advance relatively unopposed.

The Harms Caused by Corporate Psychopaths as Executives

Thus, Boddy hypothesized the rise of management by corporate psychopaths lead directly to the global financial crisis or great recession:

As evidence of this, senior level remuneration and reward started to increase more and more rapidly and beyond all proportion to shop floor incomes and a culture of greed unfettered by conscience developed. 

Corporate Psychopaths are ideally situated to prey on such an environment and corporate fraud, financial misrepresentation, greed and misbehaviour went through the roof, bringing down huge companies and culminating in the Global Financial Crisis that we are now in.

Writing in 2005, this author commentating on Corporate Psychopaths predicted that the rise of Corporate Psychopaths was a recipe for corporate and societal disaster. This disaster has now happened and is still happening.

What Could be Next

Worse, if this hypothesis is true, as long as it is not addressed, things will get worse:

The very same Corporate Psychopaths, who probably caused the crisis by their self-seeking greed and avarice, are now advising governments on how to get out of the crisis. That this involves paying themselves vast bonuses in the midst of financial hardship for many millions of others, is symptomatic of the problem. Further, if the Corporate Psychopaths Theory of the Global Financial Crisis is correct then we are now far from the end of the crisis. Indeed, it is only the end of the beginning.

Some Agreement

The plausible theory that corporate psychopaths ascending to top management positions in finance caused the global financial crisis has been noticed by a few prominent financial pundits. Writing in Bloomberg, William D Cohan agreed with Boddy's suggestion that "anyone who makes decisions that affect significant numbers of other people, concerning issues of corporate social responsibility or toxic waste, for example, or concerning mass financial markets or mass employment, should be screened to make sure that they are, at the very least, not psychopaths and at most are actually people who care about others."

Brian Besham, writing in the Independent, suggested that Richard Fuld, former CEO of Lehman Brothers, whose bankruptcy kicked off public awareness of the global financial collapse, saying he wanted to eat the hearts of those selling his company's stock short (see this post), was a "terrifying" example of corporate executive psychopathy. Worse, Besham noted that he had discovered an case of an investment bank which "psychometric testing to recruit social psychopaths because their characteristics exactly suited them to senior corporate finance roles."  It may be that corporate psychopaths are actively recruiting their fellows.

Implications for Health Care

This is chilling. It also unfortunately is highly relevant to health care. As we noted, most recently here, leaders of big finance firms, including those whose failures were most spectacular, now often sit on boards of trustees of hospitals, academic medical centers, medical schools, and their parent universities. Thus, the likelihood that a good proportion of the stewardship of our most prominent not-for-profit health care organizations may be in the hands of psychopaths is not negligible.

Furthermore, health care organizations have become as unstable and chaotic, in the way these terms were used by Boddy, as finance firms. This would suggest that their current nature would make it as easy for psychopaths to rise to positions of power in them as they may have in financial firms. In health care we certainly have seen the consequences he suggested were due to psychopathic managers, including

- intimidation (per Boddy, corporate psychopaths are "prepared to lie, bully and cheat and to disregard or cause harm to the welfare of others");
- self-interest ("pursuit of self-enrichment and self-aggrandizement") leading to outrageous executive compensation ("senior level remuneration and reward started to increase more and more rapidly and beyond all proportion to shop floor incomes")
- fraud and other crime ("corporate fraud, financial misrepresentation, greed and misbehaviour went through the roof,... ")

So as we noted in 2006, "a high prevalence of psychopathic managers could explain the prevalence of mismanagement, conflicts of interest, and corruption in the leadership of health care organizations that we have often discussed on Health Care Renewal."

Boddy's first suggestion to deal with the problem in finance was:

Measures exist to identify Corporate Psychopaths. Perhaps it is time to use them.

However, it is as hard to imagine top health care leaders willingly and honestly submitting to the use of instruments designed to identify psychopaths as it is to imagine finance leaders doing so. Furthermore, it is easy to imagine how corporate psychopaths in positions of leadership would ruthlessly deploy their legions of public relations personnel and lawyers to quash any challenge should the notion that they are so dominant gain any credibility.

However, if there is any significant prevalence of corporate psychopaths among the leaders of health care, woe will be unto us until we identify and remove them.

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New York - Presbyterian Hospital Trustee Advocated Novel Cardiac Procedure - "Reach In, Rip Out Their Heart, and Eat It Before They Die"

The dominant theme of Health Care Renewal has been how problems with the leadership of health care organizations have lead to our current state of health care dysfunction.  We have discussed examples of ill-informed, mission-hostile leadership rewarded with excess compensation, exhibiting impunity in the face of alleged misbehavior, and at times descending into corruption.  The cause of these problems is doubtless multi factorial.  However, one possible cause is that rather than exercise stewardship and hold leadership accountable, those in charge of governance of health care organizations, that is, boards of directors or trustees, have instead infected the organizations with the amoral culture now dominant in much of the business world, especially finance.  We have discussed, most recently here and here, how the boards of health care corporations often include heavy representation of leaders of finance, including many of those who seemed responsible for the global financial collapse, great recession, or whatever we will end up calling it. 

I recently stumbled upon a particularly graphic example of the sort of predatory culture that now exists on the boards of health care organizations.  (More on how I did so later.)  Below is an embedded YouTube video of a speech made by a current Trustee of New York - Presbyterian Hospital (who has been on the board since 2007).  He is Richard Fuld, the former CEO of Lehman Brothers, whose continuing role on the hospital board, despite his failed leadership of one of the financial firms whose bankruptcy ushered in the global financial collapse, we discussed first here.



Just to underline it once more, Mr Fuld, referring to short sellers of his company's stock, said he "what I really want to do is I want to reach in, rip out their heart, and eat it before they die." 

Can there be a more stark reminder of what has gone wrong with the governance of health care?  Can anyone watch this video and argue that Mr Fuld ought to be on the board of a hospital system?  Why is he still on the board in January, 2012, when this video was released in October, 2011?

While I suspect not many other hospital system board members have been videographed displaying equally brutal sentiments, there are likely others with similarly barbaric tendencies.

So, on a more positive note.... The boards of hospitals, hospital systems, medical schools, and their parent universities ought to be populated with people who take their stewardship roles seriously.  They ought to be people who understand, agree with, and support the organizations' mission, and their dedication to patient care and teaching.  They ought to understand what good leadership of health care organizations entail.  Needless to say, they ought to be of good character and above any ethical reproach.  In short, they ought to be the opposite of the sort of person displayed in the video above.

It should now be obvious that grievous problems with the leadership and governance of health care organizations are principle causes of the dysfunction in our health care system.  True health care reform will require wholesale changes in health care leadership and governance.

PS - In case the video above seems too short on context, see the one below:

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They Think We are "Imbeciles," and They Run Health Care Organizations

Arrogance seems to fuel many of the problems with health care leadership that we discuss, particularly hostility to the mission, often driven by self-interest; a sense of entitlement to lavish compensation out of proportion to any measure of performance; and a lack of accountability shading into impunity.  Some recent stories hint at some of the origins of such arrogance. 

The Occupy Wall Street movement drew attention to the plight of the poor and middle class, who had lost income, retirement benefits, jobs, houses, and access to health care while the richest, especially corporate executives, got richer.  The less fortunate's anger was not directed indiscriminately at the successful or the rich, but those who got wealthy by gaming the system, or flaunting the rules that lesser mortals had to obey.  Perhaps not surprisingly, some of those most vulnerable to such criticism have responded with contempt. 

Anonymous or Indirect Defenses of the One Percent

The initial defense of the plutocrats came from some of their political supporters, who denounced their "demonization" (see this opinion piece by Barbara Ehrenreich in September, 2011) or decried the rise of "mob rule" (see this by Paul Krugman in October).  Then several articles documented the anonymous complaints of finance insiders about:

a bunch of whiny people who are lazy and incompetent and have nothing to do with their time

from a Reuters article in October.

a ragtag group looking for sex, drugs and rock 'n' roll

from a NY Times article in October.

The Plutocrats Strike Back

However, increasingly those in the one percent are willing to be open. In late December a Bloomberg article documented the sentiments of a number of finance and other corporate leaders.

- Jamie Dimon, CEO of JP Morgan Chase, complained:

Acting like everyone who's been successful is bad and because you're rich you're bad, I don't understand it.

- Bernard Marcus, founder of Home Depot:

Who gives a crap about some imbecile? Are you kidding me?

- John A Allison IV, Chairman of BB&T:

'Instead of an attack on the 1 percent, let’s call it an attack on the very productive,' Allison said. 'This attack is destructive.'

- Stephen Schwarzman, CEO of the Blackstone Group:

'You have to have skin in the game,' said Schwarzman, 64. 'I’m not saying how much people should do. But we should all be part of the system.'

- John Paulson, President of hedge fund Paulson & Co:

has also said the rich benefit society.

'The top 1 percent of New Yorkers pay over 40 percent of all income taxes,...'

- Tom Galisano, founder of Paychex Inc:

If I hear a politician use the term ‘paying your fair share’ one more time, I’m going to vomit

- Ken Langone, founder of Home Depot:

I am a fat cat, I’m not ashamed

Considering how Paul Krugman explained the generation of the global financial collapse by

people who got rich by peddling complex financial schemes that, far from delivering clear benefits to the American people, helped push us into a crisis whose aftereffects continue to blight the lives of tens of millions of their fellow citizens.

Yet they have paid no price. Their institutions were bailed out by taxpayers, with few strings attached. They continue to benefit from explicit and implicit federal guarantees — basically, they’re still in a game of heads they win, tails taxpayers lose. And they benefit from tax loopholes that in many cases have people with multimillion-dollar incomes paying lower rates than middle-class families.

Thus the responses by the very rich above only represent some or more arrogance.

The Plutocrats as Health Care Leaders

One wonders how much this arrogance carried over into health care. We have noted previously how the leadership of finance has increasingly overlapped the leadership of health care, and how top executives increasingly seem to identify more with each other than with their employees, customers, or other stakeholders. Therefore, it should be no surprise that all but one of the group above also had or have leadership roles in health care organizations.

- Jamie Dimon is on the board of trustees of the New York University Langone Medical Center. 

- Bernard Marcus formerly served as the chair of the board of the CDC Foundation.

- John A Allison IV is a member of the board of visitors of Wake Forest University Baptist Medical Center, per his BB&T Corp official biography.

- Stephen Schwarzman's Blackstone Group includes the Blackstone Healthcare Group, which invests in various health care corporations (as of 2010, Nycomed, Gerresheimer, Stiefel Laboratories, and Catalant per this press release), and all of whose members serve on one or more boards of directors of health care corporations (per the press  release, Arthur Higgins serves on the boards of Zimmer, Eco Labs, and Resverlogix Corp; Lodewijk J R de Vink serves on the board of Roche; Doug Rogers serves on the boards of Codevax, Charles River Laboratories, and Computerized Medical Systems.)

- John Paulson is on the board of trustees of New York University,

- Kenneth G Langone, is vice chair again of the board of trustees of New York University, and chair of the board of trustees of the NYU Langone Medical Center.

I submit that linking their sentiments above to their leadership roles in health care should be highly disconcerting.  Do we want people running medical centers who are proud to be "fat cats?"  Do we want people running medical centers who do not understand why people who have lost income, retirement funds, jobs or their homes might be upset?  Do we want people running health care corporations who do not think the poor and middle-class have any skin in the economic game?   Do we want people running health care foundations who think that those who complain about the current economic situation are "imbeciles?"

Summary

The problems of health care increasingly seem to be a part of the larger problems with the global political economy.  The problems we have been discussing that affect health care leadership seem to have come out of the culture of what now many are calling the larger plutocracy. 

So it now seems that true health care reform will require a larger reform of the political economy.  However, we still need leaders who understand the health care context, uphold health care professionals' values, and put patients first.  We do not need leaders who are ill-informed, incompetent, self-interested, conflicted, or corrupt.  We need governance that is accountable, honest, transparent, ethical, and again puts patients first. 

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The Parallels Between Health Care and Financial Dysfunction: Leadership's Impunity as Demonstrated by the Citigroup Case

For years, we have noted the parade of legal settlements made by large health care organizations.  The parade is notable on one hand because it illustrates how often some of our best known health care corporations and institutions behave badly. 

Impunity for Health Care Leaders

It is notable on the other hand because it illustrates how the leaders of these organizations have virtual impunity.  In very few cases has any person who authorized, directed, or implemented bad behavior faced any negative consequences.  The executives of these organizations often have gotten to continue making millions of dollars while the financial costs of settlements are borne by the company as a whole, and hence by all the employees, no matter how poorly paid or uninvolved, and all stockholders, no matter how powerless they were to prevent the bad behavior.

The legal settlements that now seem to be the only effort made by the government to ensure fairness, honesty, and a level playing field in the health care "industry" seem to have no deterrent effect.  Some of the most famous health care companies have been subject to successive settlements, each of which failed to deter the next bout of bad behavior.  For example, we just posted about NINE separate settlements made by global pharmaceutical giant Pfizer Inc from 2002 to 2011, the largest for $2.3 billion.  Yet a succession of Pfizer CEOs made tens of millions a year, and left with golden parachutes (see post here).  Johnson and Johnson subsidiaries have settled with corporate guilty pleas to several misdemeanors, while the company CEO made tens of millions a year and served as an adviser to the President.  (See summary of offenses here, CEO's compensation here, and his White House role here.) 

With the rise of the "Occupy Wall Street" movement and its spin-offs, and the resurgence of the global financial crisis now threatening the Euro-zone in particular, the discussion of how the world's finance system has become fiercely dysfunctional that should have occurred after the crisis began in 2008 is now starting.  That discussion has now focused on the relative impunity of the leadership of finance firms, a striking parallel to what has gone on in health care.

The Citigroup Settlement

The case that has created headlines is that of Citigroup, and a new settlement of allegations brought against it by the US Securities and Exchange Commission (SEC).  A commentary by Jonathan Weil in Bloomberg explained it thus:

Five times since 2003 the Securities and Exchange Commission has accused Citigroup Inc’s main broker-dealer subsidiary of securities fraud. On each occasion the company’s SEC settlements have followed a familiar pattern.

Citigroup neither admitted nor denied the SEC’s claims. And the company consented to the entry of either a court injunction or an SEC order barring it from committing the same types of violations again. Those 'obey-the-law' directives haven’t meant much. The SEC keeps accusing Citigroup of breaking the same laws over and over, without ever attempting to enforce the prior orders. The SEC’s most recent complaint against Citigroup, filed last month, is no different.

As in most of the health care cases, Citigroup has been subject to multiple legal settlements, each of which apparently failed to deter the next bit of bad behavior. Also, while the SEC made the company promise in particular settlements not to misbehave again, the SEC never held the company accountable for these promises.

Other features of the Citigroup settlement paralleled many of those in health care. The company was never made to admit bad behavior. No top executive ever paid any penalty.

However,unlike many health care cases, the Citigroup case produced an uproar, partially because the presiding judge refused to accept the settlement without questions.

A Judge Questions the Settlement

Instead, the judge had caustic questions for both the SEC and Citigroup. For example, as reported by the Washington Post,

A federal judge Wednesday challenged the SEC’s plan to settle a fraud case against Citigroup for $285 million, saying that the deal would recoup only a fraction of investors’ losses and would leave the firm free to proclaim its innocence in private lawsuits over the remaining damages.

The judge used the Citigroup case to mock the SEC’s traditional way of doing business — allowing defendants to settle without admitting or denying wrongdoing.

The unproven allegations, U.S. District Court Judge Jed S. Rakoff said, 'are no better than rumor or gossip.'


'Does not the SEC of all agencies have an interest in establishing what the truth is?' Rakoff asked.

Also, he mocked the SEC practice of requiring promises of good behavior, that go unenforced,

SEC settlements routinely include court orders prohibiting defendants from committing similar violations in the future and exposing them to potentially severe consequences if they do. However, the agency has refrained from enforcing those injunctions against repeat offenders.

Citigroup was subject to two injunctions that predated the current case, SEC chief litigation counsel Matthew T. Martens said.

Rakoff suggested that the injunctions are 'just for show.'

The SEC lawyer said the agency takes past offenses into account when determining an appropriate penalty. Other SEC officials said after the hearing that past injunctions can be enforced only when the SEC catches a defendant in an ongoing violation.

The proposed settlement also calls for Citigroup to take remedial steps to reduce the risk of future violations; Rakoff asked if those were merely 'window dressing.'

This unusual hearing was covered by the Wall Street Journal, the New York Times, Bloomberg, and other major media outlets.

Finance's Own Parade of Settlements

Meanwhile, the NY Times did some in-depth reporting to show that the Citigroup case was hardly a fluke. There has been a parade of legal settlements of bad behavior by finance firms paralleling the parade we have discussed by health care organizations, although the former occurred without there being a "Finance Renewal" blog to comment on them. As written by Edward Wyatt,

Citigroup is far from the only such repeat offender — in the eyes of the S.E.C. — on Wall Street. Nearly all of the biggest financial companies, Goldman Sachs, Morgan Stanley, JPMorgan Chase and Bank of America among them, have settled fraud cases by promising the S.E.C. that they would never again violate an antifraud law, only to do it again in another case a few years later.

A New York Times analysis of enforcement actions during the last 15 years found at least 51 cases in which 19 Wall Street firms had broken antifraud laws they had agreed never to breach.

In particular,

Of the 19 companies that the Times found to be repeat offenders over the last 15 years, 16 declined to comment. They read like a Wall Street who’s who: American International Group, Ameriprise, Bank of America, Bear Stearns, Columbia Management, Deutsche Asset Management, Credit Suisse, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley, Putnam Investments, Raymond James, RBC Dain Rauscher, UBS and Wells Fargo/Wachovia.

The NY Times article also found some experts willing to criticize the current effeteness of government regulation and law enforcement:

Senator Carl Levin, a Michigan Democrat who is chairman of the Senate permanent subcommittee on investigations and has led several inquiries into Wall Street, said the S.E.C.’s method of settling fraud cases, is 'a symbol of weak enforcement. It doesn’t do much in the way of deterrence, and it doesn’t do much in the way of punishment, I don’t think.'

Barbara Roper, director of investor protection for the Consumer Federation of America, said, 'You can look at the record and see that it clearly suggests this is not deterring repeat offenses. You have to at least raise the question if other alternatives might be more effective.'

Also,

some experts view many settlements as essentially meaningless, particularly since they usually do not require a company to admit to the accusations leveled by the S.E.C. Nearly every settlement allows a company to 'neither admit nor deny' the accusations — even when the company has admitted to the same charges in a related case brought by the Justice Department....

Summary

As we learn more about what has gone wrong with our political economy, the parallels with what has gone wrong with health care become more obvious. Of course, health care must operate within a larger environment, and there has been increasing overlap between the leadership of finance and of health care.

As the economy continues to sag, with rising unemployment and under-employment, increasing foreclosure, homelessness and poverty, and the decreasing likelihood of an even minimally comfortable retirement for many, it appears peoples' minds are increasingly focused on what has gone wrong, and particularly how ill-informed, incompetent, self-interested, conflicted and corrupt leadership of financial firms has lead to this severe economic dysfunction.

I also hope that as the health care crisis continues to worsen, with rising costs, decreasing access, and degrading quality, peoples' minds will also increasingly focused on what has gone wrong, and particularly, as we have been saying for nearly seven years, how ill-informed, incompetent, self-interested, conflicted and even corrupt leadership of health care organizations has lead to this severe health care dysfunction.

Maybe someone will now take seriously our calls for... true health care reform that requires competent, ethical leadership that upholds health care's core values within a governance structure of accountability, integrity, transparency, and honesty. Tackling the deep problems in health care will require tackling the deeper problems in the global political economy which helped to generate them.

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Health Care's "99 Percenters"

As Occupy Wall Street has gone from an obscure protest covered only on blogs and social media to a national phenomenon, the apparent parallels between the issues it is raising and the issues we have been raising in health care grows.

99 Percenters

A growing number of protesters are calling themselves the "99 Percenters," (Alter, Jonathan.  Why Occupy Wall Street Should Scare Republicans.  Bloomberg, October 6, 2011.  Link here) referring to those who are not in the top 1% of earners.  (The top 1% of income is clearly greater than $250,000/ year [see 2009 census data on US household income here], and likely around $380,000 a year [based on the distribution of income reported on tax returns here.]) 

In health care, nearly all who are paid more than $380K/ year are either proceduralists (some medical sub-specialist physicians, and some surgeons, again mainly sub-specialist), or managers and executives of health care organizations.

Health Care's 1% 

We have been discussing since 2007 how the inequality among physicians' incomes favoring those who do procedures over primary care and other "cognitive" physicians has been driven not by the market, but by regulatory capture.  The fees paid for all physicians services by Medicare, a fee schedule adopted without question or major changes by nearly all insurers, are set through the Resource Based Relative Value System (RBRVS) by the US Center for Medicare and Medicaid Services (CMS).  CMS, in turn, gets virtually all its input on these fees from the RBRVS Update Committee (RUC), a private committee of the American Medical Association (AMA), made up largely of proceduralists, whose deliberations are secret, and whose membership has been secret until recently.  See here for most recent posts.  Note that the CMS' peculiar relationship with the RUC is now subject of a lawsuit that accuses this relationship of violating the Federal Advisory Committee Act (Klepper B, Kibbe D. A legal challenge to CMS' reliance on the RUC.  Health Affairs Blog, August 9, 2011.  Link here) 

The real top earners in health care, however, are not physicians, but executives of big corporations, non-profit and especially for profit.  We have discussed endlessly how huge their compensation may be, and how it seems unrelated to any aspect of their own or their organizations' performance, especially not to how much they benefit patients' or the public's health.  Furthermore, we have noted how executives have prospered even when their management seems overtly hostile to the health care mission, when it leads to ethical missteps requiring legal settlements, or even guilty pleas or verdicts to criminal charges. 

So health care's "99 percenters" ought to be angry at the top 1%.

The Power of Finance

Furthermore, the Occupy Wall Street protesters are not merely upset with the upper 1%, but particularly outraged by those in the financial sector, which "with regulators and elected officials in collusion, inflated and profited from a credit bubble that burst, costing millions of Americans their jobs, incomes, savings and home equity."  Then, "the initial outrage has been compounded by elected officials' hunger for campaign cash from Wall Street, a toxic combination that reaffirmed the economic and political power of banks and bankers, while ordinary Americans suffer.  Extreme income inequality is the hallmark of a dysfunctional economy, dominated by a financial sector that is driven as much by speculation, gouging and government backing as by productive investment." (Anonymous. Protesters against Wall Street.  NY Times, October 8, 2011. Link here)

In another report, the protesters "unite around a common theme: bankers are ripping off America.  Two secondary themes also emerge....  One is that the super rich own the politicians.  The other is that the news media, almost across the board, view events through the eyes of the super rich." (Johnston DC. Occupy Wall Street.  Reuters Blogs, October 7, 2011.  Link here.)

Finance's Links to Health Care

We have noted parallels between the effects of Wall Street and health care on the economy.  Furthermore, we have noted active ties among Wall Street and health care organizations. (Look here for examples.)  Top executives and board members of some of the financial firms most obviously responsible for the global economic collapse/ great recession have served on boards of trustees of top medical schools and academic medical centers, and their parent universities.  The top leaders of medical schools, academic medical centers, and their parent universities have served on the boards of such financial firms.  There are also board interlocks among Wall Street firms and all sorts of health care corporations.  The corporate culture of Wall Street and health care have long overlapped. 

We have further noted how the leadership of big health care organizations has deceptively influenced policy, particularly through stealth health policy advocacy.  Meanwhile, until the last few years, much of health care dysfunction has been anechoic.  Now the media is beginning to report some of the abuses.  Little about them appears, however, in the medical and health care literature that health care professionals are likely to trust more than news media. 

Summary

We have frequently suggested that true health care reform requires reform of health care leadership and governance.  We need leaders who understand the health care context, uphold health care professionals' values, and put patients first.  We do not need leaders who are ill-informed, incompetent, self-interested, conflicted, or corrupt.  We need governance that is accountable, honest, transparent, ethical, and again puts patients first.  Maybe to do that we will have to "occupy health care."

In any case, it is time for health care's "99 percenters" to stand up for their patients and the integrity of their values. 

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What the Pfizer (IV)? - One Board to Rule Them All

The recent in-depth investigation by Fortune reporters of 10 years of dysfunctional leadership at Pfizer, the "world's largest research-based pharmaceutical company," raises many issues about leadership and governance in health care (see our post here).  We then discussed lack of transparency in Pfizer's communication about management performance here, and how bad management was rewarded with outsize compensation here.  To continue what has become a lengthy series, let us now discuss the board of directors who were responsible for "stewardship" or governance of what turned out to be a very troubled company.

Let us focus on the membership of the boards that appointed the two CEOs Fortune described as failed.

Henry A "Hank" McKinnell - 2001

In 2001, the board appointed Henry A "Hank" McKinnell CEO.    Mr McKinell was forced to retire in 2006. The Fortune article described Mr McKinnell as a "desperate CEO" by 2002 because he could find no way to replenish the company's fading drug pipeline; who then became an absent CEO who "left a power vacuum" and then triggered internal political warfare by setting up a "bitter contest" over succession planning.

In 2001, the board is as listed below.  (I include their current positions, any former positions as chairman, CEO, president or the equivalence, and current leadership positions in health care or finance.)  -

- Michael S Brown -

Distinguished Chair in Biomedical Sciences, Texas Southwestern Medical Center...  Director of Regeneron Pharmaceuticals

- M Anthony Burns -

Chair of the Board, former CEO of Ryder System Inc ...  Director of JP Morgan Chase and Co...  Trustee of the University of Miami

- Robert N Burt -

Chairman of the Board and CEO of FMC Corporation...  Director of the Rehabilitation Institute of Chicago and Evanston Hospital Corp

- W Don Cornwell -

Chairman of the Board and CEO of Granite Broadcasting Corporation...  Director of CVS Corporation

- William H Gray III -

President and CEO of the College Fund/UNCF...   Director of JP Morgan and Co...  Trustee of the University of Miami

- Constance J Horner -

Guest Scholar at the Brooking Institution...  Director of the Prudential Insurance Company of America

- William R Howell -

Chairman Emeritus and former CEO of JC Penney Company Inc... 

- Stanley O Ikenberry -

President of the American Council on Education...  Former President of the University of Illinois...  President of the Board of Overseers of Teachers' Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF)

- Harry P Kamen -

Former Chairman of the Board and CEO of Metropolitan Life Insurance Company...  Director of Banco Santander Central Hispano SA, BDirect Capital ...  Metropolitan Life Insurance Company

- George A Lorch -

Chairman Emeritus and Former CEO of Armstrong Holdings Inc...

- Alex J Mandl - 

Chairman of the Board and CEO of Teligent

- Henry A McKinnell -

CEO of Pfizer...  Director of Moody's Corporation

- Dana G Mead -

Retired Chairman and CEO of Tenneco Inc...  Director of Zurich Financial Services

- John F Niblack -

President of Pfizer Global Research and Development

- Franklin D Raines -

Chairman and CEO of Fannie Mae... 

- Ruth Simmons -

President of Brown University... Director of Goldman Sachs Group Inc, Metropolitan Life Insurance

- Michael I Sovern -

Chairman of the Board of Sotheby's Holdings Inc...  President Emeritus of Columbia University 

- Jean-Paul Valles -

Chairman and Former CEO of Minerals Technology Inc

- William C Steer Jr -

Former CEO of Pfizer...  Director of Metropolitan Life Insurance Company...  Director of New York University Medical Center....  Member of the Board of Overseers of Sloan-Kettering Cancer Center

The box score is...  Of 19 directors, 17 were current or former chairpeople or CEO/ Presidents of large organizations. 

Eight  had leadership positions at teaching hospitals, academic medical centers, medical schools or their parent universities, or other influential non-profit health care organizations.  1 had a leadership position at a potentially competing pharmaceutical company.  1 had a leadership position at a pharmacy corporation.

Furthermore, 10 had leadership positions in financial services corporations, including some that were implicated in the global financial collapse, and/or required massive federal bail-outs to avoid collapse.

Jeffrey Kindler 2006


In 2006, the board appointed Jeffrey Kindler CEO.  Mr Kindler was forced to resign in 2010. The Fortune article also described Mr Kindler as "suddenly desperate" after two failures of drugs in development; someone who "just couldn't make up his mind," about acquisitions and spin-offs; "anguished" about research, leading to a "messy" overhaul; and putting "destructive" trust in a subordinate with previously described problems with "character, integrity and divisiveness" leading to loss of the loyalty of the executive team.

The board in 2006 appears below, with information formatted as above.  Note that all were members in 2001, although some members from 2001 were no longer there. 

- Michael S Brown -

Distinguished Chair in Biomedical Sciences at University of Texas Southwestern Medical Center at Dallas...  Director of Regeneron Pharmaceuticals.

- M Anthony Burns -

Chairman and CEO Emeritus of Ryder System Inc....  Life trustee of the University of Miami

- Robert N Burt -

Retired Chairman and CEO of FMC Corporation...

- W Don Cornwell -

Chairman of the Board and CEO of Granite Broadcasting Corporation....  Director of CVS Corporation.

- William H Gray III -

Chairman of the Amani Group...  Director of JP Morgan Chase and Co, Prudential Financial Inc

- Constance J Horner -

Former Guest Scholar at the Brookings Institute...  Director of Prudential Financial Inc

- William R Howell -

Chairman and CEO Emeritus of JC Penney Company Inc...  Director of Deutsche Bank Trust Corporation and Deutsch Bank Trust Company Americas.

- Stanley O Ikenberry -

President Emeritus University of Illinois...  President, Board of Overseers TIAA-CREF

- George A Lorch -

Chairman and CEO Emeritus of Armstrong Holdings Inc....  Director of HSBC Finance Co and HSBC North America Holding Company.

- Henry A McKinnell -

CEO of Pfizer...   Director of Moody's Corporation.

- Dana G Mead -

Chairman of Massachusetts Institute of Technology Corporation.  Former Chairman and CEO of Tenneco Inc...  Director of Zurich Financial Services.

- Ruth J Simmons -

President of Brown University...  Director of Goldman Sachs Group Inc.

- William C Steere Jr -

Chairman and CEO Emeritus of Pfizer...  Director of Metlife Inc and Health Management Associates...  Director of New York University Medical Center...  Member of the Board of Overseers of Memorial Sloan-Kettering Cancer Center.

The new box score is similar to the old one, as expected, since none of the directors in 2006 was new since 2001.  Of 13 directors, 11 were current or former chairpeople or CEO/ Presidents of large organizations.

Five had leadership positions at teaching hospitals, academic medical centers, medical schools or their parent universities, or other influential non-profit health care organizations. 1 had a leadership position at a potentially competing pharmaceutical company. 1 had a leadership position at a pharmacy corporation. 1 had a leadership position at a for-profit hospital operating company.


Furthermore,  9 had leadership positions in financial services corporations, including some that were implicated in the global financial collapse, and/or required massive federal bail-outs to avoid collapse.

Summary

The board that acquiesced to huge compensation for very dysfunctional leadership arguably provided dubious "stewardship" of the company and the interests of its stockholders.  The composition of the board suggests some reason for this.  The board itself was mainly composed of current and former CEOs, and hence may have felt more in common with the executives whom it was supposed to supervise than the stockholders.  Many board members had conflicts of interests, also leading organizations that were supposed to be dealing at least at arms length with Pfizer.  Many of the board members were likely influenced by the corporate culture of the financial services industry, since they were in leadership roles there as well.  That culture, which let unaccountable, hugely remunerated executives gamble with other peoples' money, personally benefit when the gambles went well, and unload their losses on others, including tax-payers when their gambles failed, seems to have infected health care.

We have often discussed how conflicted, overpaid, and/or unaccountable leadership can damage non-profit health care organizations, like hospitals and academic medical institutions.  I would suggest it can also damage for-profit health care corporations, sapping their ability to create new and useful products, and undercutting shareholders.

I submit that all health care organizations would benefit from leadership and stewardship that cares more about patients' and the public's health, and the values of health care professionals than it does about the welfare of CEOs; that is accountable for and receives incentives proportionate to its effect on health and health care; and that is free from conflicts of interest and corruption.  True health care reform would reform health care leadership and governance. 

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Director of Bristol-Myers-Squibb to Run Weill Cornell Medical School

How the New York Times reported on a change in leadership at one New York medical school has made one issue of interest to Health Care Renewal a bit less anechoic. Here is the beginning of the story:

A Harvard University researcher and professor with strong ties to the pharmaceutical industry has been selected as the new dean of Weill Cornell Medical College in Manhattan, as Cornell University seeks to greatly expand its research programs and obtain more federal and private financing, college officials said Wednesday.

The new dean, Dr. Laurie H. Glimcher, 60, who has ties to the pharmaceutical giants Merck and Bristol-Myers Squibb as well as to scientific and biotechnology companies, said she wanted to use her experience to forge partnerships with both the public and private sectors.

Dr Glimcher's "ties" to Bristol-Myers-Squibb are particularly striking:

Bristol-Myers Squibb, where she has been on the board since 1997, paid her $244,500 in compensation in 2010, including fees and stock awards, according to its 2011 proxy statement. She received $1.4 million in deferred share units, by far the most of any director.

A "New Species" of Conflicts of Interest

A long time ago, in 2006, we first blogged about a "new species of conflict of interest" which we thought
might prove to be even more important than other conflicts of interest afflicting health care that were then starting to be discussed.  This new species  involved health care organizational leaders who were simultaneously members of the boards of directors of for-profit health care corporations.  We posited these conflicts would be particularly important because being on the board of directors entails not just a financial incentive.  It ostensibly requires board members to "demonstrate unyielding loyalty to the company's shareholders" [Per Monks RAG, Minow N. Corporate Governance, 3rd edition. Malden, MA: Blackwell Publishing, 2004. P.200.]   Thus, for example, the conflict posed by the president of a university, to whom a medical school and academic medical center report, who also is the director of a pharmaceutical company, would be extreme.

In 2006, these apparently major conflicts of interest were highly anechoic, and generally otherwise not considered to be newsworthy or fit for discussion in the medical and health care literature.  This, however, is starting to change.  By 2010, the New York Times published a report, albeit in one of their blogs, on a controversy at the Unviersity of Michigan about whether its president's position on the Johnson and Johnson board had influenced her backing of anti-smoking measures, given that Johnson and Johnson makes smoking cessation products (see post here).

Now, mention of this sort of particularly intense conflict of interest went into the lead paragraph of a story in one of the world's most respected newspapers.

A Conflict Cutting Both Ways: The Bristol-Myers-Squibb Settlement

In addition, the Times story connected another dot:

While she has been on the board, the company has paid hundreds of millions of dollars to settle federal and shareholder complaints that it had inflated sales figures, although Dr. Glimcher herself was not found liable.

That underlines the point that people who simultaneously are leaders of both non-profit health care institutions (like medical schools and hospitals) and for-profit health care corporations ought to simultaneously be held accountable for the actions of both, which may put them in uncomfortable positions.

Actually, the Times article seemed to soft-pedal what the 2007 Bristol-Myers-Squibb settlement was actually about. As we discussed in this post, the settlement was actually in the amount of $515 million, and the government allegations that lead to the settlement were actually about more than inflated sales figures. From the 2007 Department of Justice news release:

First, the Government alleged that, from approximately 2000 through mid-2003, BMS knowingly and willfully paid illegal remuneration to physicians and other health care providers to induce them to purchase BMS drugs.

Second, the Government alleged that, from 2002 through the end of 2005, BMS knowingly promoted the sale and use of Abilify, an atypical antipsychotic drug, for pediatric use and to treat dementia-related psychosis, both 'off-label' uses. The Food and Drug Administration has approved Abilify to treat adult schizophrenia and bi-polar disorder, but has not approved the use of Abilify for children and adolescents or for geriatric patients suffering from dementia-related psychosis. Indeed, the FDA has mandated that the package for Abilify carry a 'black box' warning concerning its use in the treatment of dementia-related psychosis.

Third, the Government alleged that both BMS and Apothecon set and maintained fraudulent and inflated prices for a wide assortment of oncology and generic drug products with the knowledge that federal health care programs established reimbursement rates based on those prices. By reporting false and fraudulent prices that were substantially higher than commonly and widely available prices in the marketplace, BMS and Apothecon created a 'spread' between the reimbursement rates for federal health care providers and the actual prices for the drugs charged to its customers. The larger the spread on a drug, the larger the profit or return on investment for the provider. Because reimbursement from federal programs was based on the fraudulent, inflated prices, the United States alleged that BMS and Apothecon caused false and fraudulent claims to be submitted to federal health care programs.

Finally, the Government alleged that BMS knowingly misreported its best price for the anti-depression drug, Serzone. 

Dr Glimcher has been on the BMS board since 1997, so the actions that lead to these allegations and then the settlement clearly occurred on her watch. Nonetheless, the Times noted:

Dr. Glimcher, an immunologist with a strong interest in osteoporosis, defended her outside interests, saying they presented no conflict as long as they were transparent. She said she wanted to 'leverage the strengths of everyone,' whether scientists, pharmaceutical companies or biotechnology companies. 'There should be no silos between all of these different strengths,' she said.

How simple transparency would remove a conflict created by a fiduciary duty to the Bristol-Myers-Squibb stockholders, and reinforced by a yearly pay-check of $244,500, she did not say.  Neither did she say how transparency about her service on the board would eliminate her responsibility for actions taken by the BMS management that occurred on her watch.

Dubious Enthusiasm from the Former Chairman of Bailed-Out Citigroup

The conflict did not seemingly dim the enthusiasm of the Weill Cornell board for her candidacy. As the Times reported:

Sanford I. Weill, the former chairman of Citigroup who with his wife was the benefactor for whom the college was named in 1998, said Wednesday that Dr. Glimcher had come to his attention through a good friend, Jim Robinson, a co-founder of the technology venture-capital firm RRE Ventures and a former chairman of Bristol-Myers Squibb and chairman and chief executive of American Express.

'He recommended that I meet Laurie Glimcher when he heard we were going to look for a new dean,' Mr. Weill said.

That would be the Sanford Weill who built up Citigroup into a bank that was too large to fail, and which was prevented from failing by a huge government bailout (see this post). In his epic, The Sellout, about the global financial collapse, this is how Charles Gasparino described Weill (p. 144):

But in reality, Will never really ran anything. He was a visionary, to be sure, but one whose vision was so myopically focused on building the empire had lusted for for so long and on its share price that he ignored just about everything else.

Weill's record would suggest that his judgment about Dr Glimcher may be open to question.

Even More Conflicts of Interest

To add a bit more icing to the conflict of interest cake, Dr Glimcher has other financial relationships to which the Times vaguely alluded. The latest (2011) Bristol-Myers-Squibb proxy statement listed the following:
- scientific advisory board memberships: Health Care Ventures, Inc, (which invests in new pharmaceutical and biotechnology companies) Nodality Inc, (which develops diagnostics and pharmaceuticals), Abpro Inc (which makes antibodies and proteins), and Theraclone Sciences Inc, (which also is developing antibodies for therapeutic purposes)
- board of directors membership: Waters Corporation (maker of laboratory equipment used in life sciences and pharmaceutical discovery, research and development, and commercialization.)

One hardly knows how she would find the time to do anything besides fulfill these responsibilities. No wonder that the Times article said:

Cornell University’s president, Dr. David J. Skorton, said he believed Dr. Glimcher had the skills to carry out the medical school’s plan to double its research capacity and to help the university compete to develop a new high-tech campus proposed by the Bloomberg administration.

Dr Glimcher certainly seems as tied into the world of commercial pharmaceuticals and biotechnology as much as any ostensible academic might be. Indeed, as posted here, Dr Glimcher was quoted in a defense of the then current policy and conflicts of interest at Harvard:

Dr. Glimcher says industry money is not only appropriate but necessary. 'Without the support of the private sector, we would not have been able to develop what I call our ‘bone team’ in our lab,' she said at a recent student and faculty forum to discuss industry relationships. Merck is counting on her team to help come up with a successor to Fosamax, the formerly $3 billion-a-year bone drug that went generic last year.

So at that time Dr Glimcher thought it was perfectly proper and appropriate for her to be paid by Merck to develop new drugs for that company while she was ostensibly a full-time faculty member at the Harvard Medical School (not to mention a full-time board member of one of Merck's competitors.)

Summary and Some Questions

So to summarize, Cornell Weill Medical School just named a new dean who has been a leader (as member of the board of directors) of Bristol-Myers-Squib for 14 years, on whose watch there the company paid a huge settlement and entered a corporate integrity agreement for allegations of kickbacks and fraud, and who has also been a leader of a biotechnology company, and advisor to a biotechnology and pharmaceutical venture capital fund and to three other biotechnology companies.  She declared she has no conflicts because she has revealed these relationships, and seemingly has been hired mainly to raise money from the pharmaceutical and biotechnology industry.

So maybe some intrepid journalist and/or student will ask her:
- Given that they now will be reporting to a member of the board of Bristol-Myers-Squibb, should Cornell students and faculty favor its products or policies that it supports?  Should they worry if they do not?  Should they worry about saying or writing anything that might not be seen as supportive of it?  Should they consider themselves to be now in the Bristol-Myers-Squibb medical school?
On the other hand,
- Does Dr Glimcher feel responsible for the actions of BMS management that lead to its settlement and corporate integrity agreement?  If not, how can she have a fiduciary responsibility to its stockholders?

But I will not hold my breath waiting for answers.

At least one hopes that putting these issues in the New York Times will provoke some discussion about whether academic institutions should knowingly seek leaders who must serve so many masters.  Maybe they would do better if they sought leaders who would be notable for their whole-hearted devotion to patient's interests and to the integrity of teaching and research rather than for their cozy ties to other top health care leaders.

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Now a Mainstream Notion: "Profit-seeking Players in Finance and Health Care Have Captured Congress"

We have been writing - some might say wailing Cassandra-like - about health care dysfunction since I published about it in the European Journal of Internal Medicine in 2003.(1) However, while our dismal warnings were inspired by fears of  health care professionals who saw bad things happening in their local health care environments, the notion that things were really bad in health care really did not get a lot of traction. After all, we were in the second decade of a prolonged economic "great moderation," the good times were rolling, so who was really worried by a few whiners and complainers in health care?

However, after the fall of Lehman Brothers ushered in the global financial collapse, or great recession, this complacency was disturbed, and it began to appear that our problems in health care were not unique, but were linked to much bigger problems in the general political economy. However, the stock market rebounded, the bankers went back to making money, and economists declared the great recession over, reassuring those on the right, although the middle class continued to whine and complain about unemployment, stagnant wages, and mortgage foreclosures. Furthermore, a Democratic administration legislated both financial and health care reform, reassuring those on the left.

We on Health Care Renewal went on and on that things were not better, and health care reform no more than barely scratched the surface.

Now with stock markets falling around the world, it appears that the great recession/ global financial collapse may not really be over.  In this increasingly dismal era, the notion that health care dysfunction has not really improved, and may in fact be an important component of the larger political economic problems may be getting more mainstream.

To wit, last week, David Wessel wrote in the Wall Street Journal:

Two big sectors of the U.S. economy have been on steroids: finance and health care. If anything is crowding out more productive activities, it's them, as ... [New York University economist Paul] Romer argued in a recent National Academy of Sciences lecture.

The bloated financial sector—all those brains lured by big bucks who might otherwise have been employed in science, software, engineering or other fields—has harmed the U.S. economy more than any of our post-World War II communist adversaries did.

The American health system costs more per person than any other, but isn't delivering the world's healthiest people. The U.S. isn't getting its money's worth from either sector.

Furthermore, his diagnosis of the problem sounds like something we might have written on Health Care Renewal, if we wrote as well as he does:

Profit-seeking players in finance and health care have captured Congress, resisted regulation that would curb their excesses and exploited antiquated rules and policy for private gain.

[Paul Romer said,] 'The legislative process may just be too vulnerable to manipulation by very well-financed entities with an enormous amount of wealth and income at stake,' he said. 'Congress is for sale at bargain-basement prices.'

My only quibble is that while those who have personally profited from health care and finance have exploited antiquated rules, they also cannily managed to dispose of many time-proven rules that stood in their way.

In any case, we have written repeatedly about the linkages between finance and health care,(2) and how the current corrupt culture of finance has affected health care; that true health care reform will be very difficult because it will be resisted by those who have been made wealthy by the current system;(3) that they were made wealthy by the increasing commercialization of health care accompanied by the abandonment of previous regulations and safeguards;(4) and about their use of regulatory capture and embedded networks of influence(5) to further their aims.

You heard it here first.

Wessel's solution is:

Congress should tie its own hands more often, retaining power to investigate and vote proposals up or down but avoiding the detailed crafting of legislative provisions that influence the flow of money.

In other words, he wants more bodies such as the Base Closure and Realignment Commission (to decide which military bases to close), the Independent Payment Advisory Board (to identify ways Medicare can save money) and, perhaps, the new Joint Select Committee on Deficit Reduction (to find $1.5 trillion in deficit-reduction cuts).
Maybe that's an answer. But it's clear that future prosperity depends on the U.S.—its government, business, people and universities—coalescing behind a strategy for growth and creating incentives so talent and capital flow to promising sectors where the U.S. still has an edge in an increasingly competitive global economy.

My general suggestions maybe are complementary.

True health care reform would help physicians and other health care professionals uphold their traditional values, including, as the AMA once stated, "the practice of medicine should not be commercialized, nor treated as a commodity in trade." True health care reform would put health care "delivery" back in the hands of mission-focused, not-for-profit organizations, which put patients' health, safety and welfare first.

Health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research.

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

Notes:

1. Poses RM. A cautionary tale: the dysfunction of American health care.  Eur J Int Med 2003; 14: 123-130.  Link here.

2.  Medical school leaders become stewards (as members of boards of directors) of for-profit health care corporations - An example is here, and a summary of how we discovered this phenomenon in 2006 is here. The conflict of interest is severe because directors of for-profit corporations are supposed to have unyielding loyalty to the interests of the corporation and its stockholders, although they are frequently accused of acting mainly as cronies of the top hired executives (see here and here).

Leaders of failed finance firms become stewards of academic medicine - We have found numerous examples, e.g., here, here, and here, of top executives and/or board members of the finance firms who helped bring on the global financial collapse also being trustees of medical schools, academic medical centers, or their parent universities. Such "stewards" may bring to the academic environment the "greed is good" culture now pervasive in finance.

3.  For example, see this post and its links
 
4. In the US, a Supreme Court decision was interpreted to mean that medical societies could no longer regulate the ethics of their members.  Until 1980, the US American Medical Association had  ruled that the practice of medicine should not be "commercialized, nor treated as a commodity in trade."  After then, it ceased trying to maintain this prohibition.  The result was increasing, now rampant commercialization.  See posts here and here.   Furthermore, the notion that information asymmetry, uncertainty and ambiguity, and inability of patients to make coldly rational decisions about disease and its management made it impossible for health care to be an ideal free market, necessitating mechanisms to compensate for market failure became passe.  Such mechanisms were then abandoned, with disastrous results.  For further discussion, see this post
 
5.  For example, see this post

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Despite Poor Financial Results, Diminishing Pipeline, Multiple Settlements of Legal Cases, Outgoing Pfizer CEO Got Over $24 Million

It is the season for share-holders' meetings of big US publicly held corporations, and as the proxy statements prepared for these meetings, prepare for more eye-popping, jaw-dropping examples of executive compensation. 

Pfizer's 2010 CEO Compensation
The AP (via the Wall Street Journal) just noted the compensation given to Jeffrey Kindler, the outgoing (in 2010) CEO of Pfizer, Inc, the world's largest pharmaceutical company:

Former Pfizer Inc. Chairman and CEO Jeffrey B. Kindler may have left the world's largest drugmaker abruptly last December, but he didn't leave empty-handed thanks to a compensation package valued almost $22 million.

Kindler received a 60 percent increase last year over his 2009 compensation, according to an Associated Press analysis of a Pfizer regulatory filing Tuesday.

The New York-based drugmaker gave Kindler a salary and performance-related bonus totaling $4.9 million, a $4.5 million severance payment and more than $12 million in stock and option awards. The company also will continue his health coverage for 12 months 'at active employee rates,' the filing said.

In fact, perusal of the new 2011 Pfizer proxy statement shows that Kindler, who stepped down on 5 December, 2010, made even more based on Pfizer's own calculations, $24,688, 849. Curiously, Ian Read, the CEO after 5 December, and previously Group President, Worldwide Pharmaceutical Business, received $17,396,112, despite only being CEO for 26 days.

Pay for What Kind of Performance?

These opulent pay packages stand in contrast to Pfizer's performance under Kindler and its financial results in 2010:

Kindler was ousted by Pfizer's board unexpectedly Dec. 6 after four years of languishing share prices and several failures of promising drugs in late testing, including a successor to cholesterol fighter Lipitor, the world's top-selling drug. Pfizer will lose U.S. patent protection in November for Lipitor.

Also,

Pfizer's 2010 net income fell 4 percent to $8.26 billion, or $1.02 per share. Revenue totaled $67.81 billion, up 36 percent, thanks to $18.1 billion from sales of Wyeth products.

Its stock price slipped 4 percent to close 2010 at $17.31, while the Standard & Poor's 500 index climbed 12.8 percent.

Furthermore, the compensation given the former and current CEO also stood in sharp contrast to Pfizer's amazing track record of recent unethical behavior.   Pfizer paid a $2.3 billion settlement in 2009 of civil and criminal allegations and a Pfizer subsidiary entered a guilty plea to charges it violated federal law regarding its marketing of Bextra (see post here).  Pfizer was involved in three other major cases from then to early 2010, including two involving settlements of fraud charges, and one in which a jury found the company guilty of violating the RICO (racketeer-influenced corrupt organization) statute (see post here).  The company was listed as one of the pharmaceutical "big four" companies in terms of defrauding the government (see post here).  Pfizer's Pharmacia subsidiary settled allegations that it inflated drugs costs paid by New York in early 2011 (see post here).   Just yesterday a settlement was announced in a long-running class action case which involved allegations that another Pfizer subsidiary had exposed many people to asbestos (see this story in Bloomberg).

Despite Pfizer's recent dismal financial performance, clotted drug pipeline, and unfortunate ethical/ legal track record, the company's board compensation committee reported thus:

The Committee believes that Pfizer’s executive compensation program implements and achieves the goals of our executive compensation philosophy. Pfizer’s executive compensation philosophy, which is set by the Committee, is to align each executive’s compensation with Pfizer’s short-term and long-term performance and to provide the compensation and incentives needed to attract, motivate and retain key executives who are crucial to Pfizer’s long-term success.

Who Provided "Stewardship" of Pfizer?
So I had to ask: who were these people who thought that compensation of over $24 million was somehow "aligned" with declining profits, declining revenues, little output of new drugs, and multiple legal settlements of charges like fraud and violating the RICO act?

Here is a list of Pfizer's board of directors in 2010, and some relevant affiliations, taken from Pfizer's web-site, and where indicated, elsewhere (color coding to be explained below)

- Dennis A. Ausiello, M.D. -
Jackson Professor of Clinical Medicine at Harvard Medical School and Chief of Medicine at Massachusetts General Hospital since 1996.
Member of the Institute of Medicine....
Director of TARIS BioMedical, Inc.
(per Research!America bio) advisor to drug delivery and biosensing start-up companies Entra, BIND Biosciences, and Seventh Sense Biosystems, Inc., to drug-discovery startup companies Promedior and Pulmatrix, to Proventys, an evidence-based medicine delivery system, and to Ore Pharmaceuticals and Polaris, investment and venture capital companies working in the biotech and device area.

- Michael S. Brown, M.D. -
Distinguished Chair in Biomedical Sciences since 1989 and Regental Professor since 1985 at the University of Texas Southwestern Medical Center at Dallas.
Member of ... the Institute of Medicine,....
Director of Regeneron Pharmaceuticals, Inc.

- M. Anthony Burns -
Chairman Emeritus since 2002, Chairman of the Board from 1985 to 2002, Chief Executive Officer from 1983 to 2000, and President from 1979 to 1999 of Ryder System, Inc., a provider of transportation and logistics services.
Life Trustee of the University of Miami.

- Robert N. Burt -
Retired Chairman and Chief Executive Officer of FMC Corporation, a chemicals manufacturer, and FMC Technologies Inc., a machinery manufacturer....
Life Trustee of the Rehabilitation Institute of Chicago

- W. Don Cornwell -
Chairman of the Board and Chief Executive Officer of Granite Broadcasting Corporation from 1988 until his retirement in August 2009 and Vice Chairman until December 2009.
(per Wallace Foundation web-site) He previously served as vice president, investment banking division, of Goldman Sachs.

- Frances D. Fergusson, Ph.D. -
President Emeritus of Vassar College since 2006 and President from 1986 to 2006. Served on the Mayo Clinic Board for 14 years, the last four years as its Chairman, and as President of the Board of Overseers of Harvard University from 2007 through 2008.

- William H. Gray III -
Co-Chairman of GrayLoeffler, LLC (formerly the Amani Group), a business advisory and consulting firm. Chairman of the Amani Group from 2004 through September 2009.
Currently Director of ... J. P. Morgan Chase & Co.

- Constance J. Horner -
Guest Scholar from 1993 until 2005 at The Brookings Institution....

- James M. Kilts -
Founding Partner, Centerview Partners Management, LLC, a private equity firm, since 2006.
(Per Centerview Partners web-site) Centerview Partners' investment banking advisory business serves some of the largest companies globally in a broad range of industries, with particular expertise in Food & Consumer Products, Financial Institutions, General Industrials, Healthcare, Media & Entertainment ....
The firm has executed many significant transactions in recent years, including:
Altria's $113 billion spin-off of Philip Morris International, its $62 billion spin-off of Kraft and its $11.7 billion acquisition of UST...
Facet Biotech's $722 million sale to Abbott Labs;
OSI Pharmaceuticals' $4.0 billion sale to Astellas Pharma;

- George A. Lorch -
Chairman Emeritus of Armstrong Holdings, Inc., a global manufacturer of flooring and ceiling materials,....

- John P. Mascotte -
Retired President and Chief Executive Officer of Blue Cross and Blue Shield of Kansas City, Inc.,...

- Suzanne Nora Johnson -
Retired Vice Chairman, Goldman Sachs Group, Inc.,...
Director of American International Group, Inc., .... Board member of the American Red Cross, The Brookings Institution, ... and the University of Southern California.
(per Milken Institute web-site) on the board of numerous not-for-profit organizations, including ... RAND Health ....
She is on the Advisory Board of Councilors of Harvard Medical School

- Ian C. Read -
President and Chief Executive Officer since December 2010.

- Stephen W. Sanger -
Chairman of General Mills, Inc.
Currently Director of ... Wells Fargo & Company.

- William C. Steere, Jr. -
Chairman Emeritus of Pfizer Inc. since 2001.
Currently Director of Health Management Associates, Inc.
Director of the New York University Medical Center ...; and Member of the Board of Overseers of Memorial Sloan-Kettering Cancer Center.

Of Pfizer's 14 directors (excluding its CEO), seven have or had leadership positions at teaching hospitals, academic medical centers, medical schools or their parent universities. Three have or had leadership positions at other influential non-profit health care organizations. 


Two had leadership positions at potentially competing pharmaceutical or biotechnology companies.

Two had leadership positions at companies that finance pharmaceutical, biotechnology and other health related companies.

One had a leadership position at a health insurance company.

One had a leadership position at a for-profit hospital operating company.

Four had leadership positions in financial services corporations, including some that were implicated in the global financial collapse, and/or required massive federal bail-outs to avoid collapse.

It seems that every time we look at the boards of directors or trustees who are supposed to provide stewardship to a troubled health care organization, we see a similar pattern.  Just as we recently said about the Johnson and Johnson board, ....
 
Summary
 
So here we have the latest striking case that indicates the confluence of forces that can lead to health care dysfunction. Not only has the compensation given to health care leaders got so large that it is per se a cause of increased health spending, but also, and more importantly, such compensation often provides perverse incentives that perpetuate mismanagement, raising costs and lowering quality. This situation appears to be enabled by governance (or "stewardship") by individuals who are often fellow members of the CEOs' club, and hence who may feel more sympathy with the executives they are supposed to supervise than the stockholders whose financial interests they are supposed to protect, or the public whom the companies' products and services are supposed to benefit. Moreover, these individuals often have conflicts of interest which may mitigate against objective scrutiny of the executives they are supposed to oversee. Finally, these individuals often may come from corporate cultures which do not espouse the values that we in health care are supposed to uphold. (See this post and its links for other examples of the sorts of people who are supposed to provide stewardship to health care organizations.)


So to repeat once more-

I strongly believe that there needs to be much more investigation, academic, journalistic, and perhaps legal, of the identity, nature, and culture of the leaders of health care, and their relationships. A few bloggers cannot do it all. Obviously, the anechoic effect mitigates against medical and health care academics looking into their own leaders. However, failing to understand who is leading our march to the brink of health care failure ought not to be something such academics would want on their conscience.

Finally, and obviously, health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research.

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

ADDENDUM (23 March, 2011) - See also comments by Merrill Goozner on the GoozNews blog.

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Despite Recalls, Legal Settlements, Guilty Plea, Johonson & Johnson Board Paid CEO $29 Million, Says He "Met Expectations"

For our latest story about the tremendous disconnect between the pay and performance of leaders of health care organizations, we turn to Reuters. 

Astronomical Pay

Despite having a very bad 2010, Johnson and Johnson continued to reward its CEO royally:

After a year in which Johnson & Johnson's product quality control was deemed such a shambles that the U.S. government will oversee some plants, the board had praise for Chief Executive William Weldon and awarded him almost $29 million in overall compensation.

The once golden reputation of the diversified healthcare giant was severely tarnished by seemingly endless recalls of widely used consumer products as well as recalls of medical devices and products from other units in 2010.

U.S. consumer product sales fell by more than 19 percent in 2010 and the company's 2011 forecast for earnings growth of only 1 percent to 3 percent fell shy of Wall Street projections.

Weldon's compensation was trimmed 7 percent, but in what appears to be a disconnect with the reality of its situation, J&J's (JNJ.N) board, in a year-end regulatory filing, said his performance 'generally met expectations' despite a year in which 'operational sales declined and fell below the goals for the year.'

'The board believes that Mr Weldon provided strong leadership during a very demanding year and has worked to resolve multiple challenging issues and position the company for future growth,' it said in the filing.

The rash of consumer medicine recalls in 2009 and 2010 were largely responsible for the first back-to-back years of company sales declines since World War Two.

Last week, U.S. health regulators filed a consent decree against J&J's McNeil consumer unit that will put some of its manufacturing plants under government supervision for at least five years.
The McNeil unit has recalled more than 300 million bottles and packages of Tylenol, Motrin, Rolaids, Benadryl and other products in the past year over faulty manufacturing and quality control problems.
The recalls cost the company $900 million in sales last year and hurt earnings, and Weldon was called to testify before Congress about problems that left pharmacy and supermarket shelves without Children's Tylenol.

But Weldon's 2010 compensation fell just 7 percent to $28.7 million from the $30.8 million he received in 2009. His performance bonus for 2010 was down 45 percent to $1.98 million.

The Wall Street Journal article on Weldon's pay also mentioned that Weldon also received " perquisites and other benefits in 2010 [which] included personal use of company aircraft, valued at $89,796; a car and driver for commuting and other personal transportation valued at $29,635; and a nominal amount of home security system monitoring fees."

The 2011 Johnson and Johnson proxy statement also noted that the other four of the five most highly paid Johnson and Johnson executives received compensation valued from $5,632,285 to $8,851,965 in 2010. In particular, Ms Colleen A Goggins, who retired under fire as head of the embattled Johnson and Johnson consumer group, walked away with $7,738,614 in 2010.

Other Aspects of Bad Company Performance

The WSJ Health Blog has been keeping an eye on the running total of Johnson and Johnson recalls. On 9 March, 2011, the list included 18 separate recalls of various different drugs and devices since July, 2009, from over-the-counter cold medications to sutures and hip replacements.

While suffering such a massive breakdown of the ability to perform the company's most basic function, to supply pure, unadulterated medicines and well-made devices, the company has also suffered from ethical lapses which were not listed in the Reuters article. In 2010, these included a jury verdict that the company had committed marketing fraud in its promotion of the atypical anti-psychotic drug Respirdal (see post here), and a guilty plea to a misdemeanor for and civil settlement of charges of "misbranding" Topamax by Johnson and Johnson subsidiary Ortho-McNeil-Janssen Pharmaceuticals (see post here).

Of course, we once speculated that the Johnson and Johnson CEO commanded such astronomical pay in part based on his ability to influence US government health policy in favor of his and his company's interests (see this post).

Who Made Up the Board Who Was Responsible?

Responsible for the astronomical amounts paid to Mr Weldon despite his company's ongoing inability to make pure, unadulterated medicines, and to other executives who presided over the company's recalls, guilty plea, and legal settlements was the company's board of directors.  Its members are listed below.  For explanation of the color coding, see the explanation below:

• Mary Sue Coleman - President, University of Michigan.
• James G Cullen - Retired Chairman and CEO, Bell Atlantic Corp
• Ian E L Davis - Senior Advisor, Apax Partners; Former Chairman and Worldwide Managing Director, McKinsey & Company, non-executive director, BP plc
• Michael M E Johns - Chancellor, Emory University, Past Chair of the Council of Teaching Hospitals, member of the editorial board, JAMA, chair of the publication committee, Academic Medicine
• Susan L Lindquist - Member and Former Director, Whitehead Institute for Biomedical Research, Co-Founder of FoldRx Pharmaceuticals, Inc, a subsidiary of Pfizer Inc.
• Anne M Mulcahy - Former Chairman and CEO, Xerox Corp, director of the Washington Post Company, previously director of Citigroup Inc, and Federal National Association (Fannie Mae)
• Leo F Mullin - Retired Chairman and CEO, Delta Airlines, director of Education Management Corporation
• William D Perez -Senior Advisor, Geenhill & Co, Inc, Trustee of Cornell University and Northwestern Hospital
• Charles Prince - Senior Counselor, Albright Capital Management LLC, Retired Chairman and CEO, Citigroup
• David Satcher - Director, Center of Excellent on Health Disparities, Director, Satcher Health Leadership Institute and Poussaint-Satcher-Crosby Chair in Mental Health, Morehouse School of Medicine, and trustee of the Kaiser Family Foundation

Of Johnson and Johnson's 10 directors (excluding its CEO), four have leadership positions at teaching hospitals, academic medical centers, medical schools or their parent universities.  Of these, two also had leadership positions at other influential non-profit health care organizations, including medical journals, a teaching hospital association, and a charitable foundation.

One had a management position at a competing pharmaceutical company.

Four had leadership positions in  financial services corporations, including some that were implicated in the global financial collapse, and/or required massive federal bail-outs to avoid collapse.

Three had had leadership positions in other organizations now under fire , that is, McKinsey, for the role of one of its former executives in an alleged insider trading scandal (e.g., latest coverage in the NY Times); several for-profit higher education companies caught up in allegations of luring students destined to fail in order to collect tuition funded by government loans;  and BP, under investigation for its role in a massive oil spill.

Summary

So here we have the latest striking case that indicates the confluence of forces that can lead to health care dysfunction.  Not only has the compensation given to health care leaders got so large that it is per se a cause of increased health spending, but also, and more importantly, such compensation often provides perverse incentives that perpetuate mismanagement, raising costs and lowering quality.  This situation appears to be enabled by governance by individuals who are often fellow members of the CEOs' club, and hence who may feel more sympathy with the executives they are supposed to supervise than the stockholders whose financial interests they are supposed to protect, or the public whom the companies' products and services are supposed to benefit.  Moreover, these individuals often have conflicts of interest which may mitigate against objective scrutiny of the executives they are supposed to oversee.  Finally, these individuals often may come from corporate cultures which do not espouse the values that we in health care are supposed to uphold.  (See this post and its links for other examples of the sorts of people who are supposed to provide stewardship to health care organizations.)

So to repeat once more-

I strongly believe that there needs to be much more investigation, academic, journalistic, and perhaps legal, of the identity, nature, and culture of the leaders of health care, and their relationships. A few bloggers cannot do it all. Obviously, the anechoic effect mitigates against medical and health care academics looking into their own leaders. However, failing to understand who is leading our march to the brink of health care failure ought not to be something such academics would want on their conscience.

Finally, and obviously, health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research.

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

ADDENDUM (17 March, 2011) - Also see comments on by Jim Edwards on the Placebo Effect blog: "heads he wins, tails shareholders lose," as do patients and doctors. 

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