Unequal Justice Under Law - Comparing Cases of Alleged Misbehavior by Large Health Care Organizations and Individuals

How the wealthy and powerful have become able to play by a different set of rules than those affecting ordinary people may be the defining issue of our time.  Yesterday, President Obama's State of the Union message asked for an economy in which "everyone plays by the same set of rule."  We posted about how this issue, which got national attention due to the Occupy movement, affects health care here.

We have previously posted again and again about how the penalties for misbehavior by large US health care organizations seem to be so minimal as to be incapable of deterring future bad behavior (e.g., see posts about legal settlements).  At most, corporations often pay fines that are no more than a cost of doing business.  They rarely have to admit guilt, and when they do, it is usually to a relatively trivial charge.  The people who authorized, directed, or implemented the bad behavior almost never suffer any negative consequences.  Thus, the leaders of large US health care organizations seem to have impunity.

Similar complaints have been made about the lack of accountability of the leaders of the finance firms that lead us into the global financial crisis, or great recession. 

However, while I have reviewed now hundreds of stories about such minimal organizational punishments, I have also seen hundreds of stories discovered by my automatic news searches of much more severe penalties paid by individuals who have been accused of similar misbehavior.  I have never previously made an explicit comparison of how health care corporate and individual misbehavior are handled.

A recent set of examples of organizational misbehavior invites such a comparison.  Here they are, in chronological order.

KV Pharmaceutical

On December 6, 2011, the St Louis Post Dispatch reported:

KV Pharmaceutical Co. has agreed to pay $17 million to federal and state authorities to settle Justice Department allegations that it defrauded federal health care programs.

The settlement resolves allegations that KV, as the Bridgeton-based parent company of now-defunct Ethex Corp., misrepresented the regulatory status of two of its drugs that did not qualify for coverage under federal health care programs, the Justice Department said today.

The Justice Department alleges that Ethex submitted false quarterly reports to the federal Centers for Medicare and Medicaid Services related to the two drugs: nitroglycerin extended release capsules and hyoscyamine sulfate extended release capsules.

Company leadership made the usual sort of comment. CEO Greg Divis said:

The closure of this matter is another step forward as KV moves ahead as a women's healthcare focused branded specialty pharmaceutical company.

Corporate leaders seem to love putting such unpleasantness in the past and moving on, especially when they personally are not held accountable for the previous misbehvior.

Note that this is just the latest settlement for KV Pharmaceutical:

KV shut down Ethex after the subsidiary pleaded guilty in March 2010 to two felony counts of criminal fraud for failing to report to the Food and Drug Administration that it was making oversize drugs - and drew $27.6 million in fines and restitution.

Catholic Healthcare West, Sutter Health

On December 8, the Sacramento Bee reported:

Two of Sacramento's biggest health care players paid a combined $2.3 million to the federal government to settle allegations that 61 of their hospitals double-billed Medicare for therapies and services, U.S. Department of Justice officials announced Wednesday.

Catholic Healthcare West paid more than $875,000 and Sutter Health nearly twice that – more than $1.43 million – for alleged duplicate charges for infusion therapies and treatments to break up kidney and bladder stones, in what Lauren Horwood, a spokeswoman in the Sacramento U.S. attorney's office, called 'a significant settlement.'

As usual,

Officials at the two health networks admitted no wrongdoing in agreeing to the settlement, Horwood said. No charges will be filed.

Again, however, this was not the first such issue to affect these large non-profit organizations:

In 2006, Sutter Health agreed to grant discounts and refunds to uninsured patients the network was accused of overcharging, stemming from a 2004 class-action lawsuit.

Blue Shield (California)

On December 29, 2011, the Los Angeles Times reported:

More than a year after the healthcare reform law sought to prevent sick patients from losing medical coverage, insurers are still paying for their alleged abuses.

Blue Shield has agreed to pay $2 million to resolve accusations that the company improperly dropped policyholders after they got sick and needed expensive treatment.

The settlement, announced Wednesday by Los Angeles City Atty. Carmen Trutanich, ends an investigation into more than 1,000 so-called rescissions by Blue Shield, a San Francisco-based not-for-profit company.

As usual, there was no admission of guilt, and a company spokesperson claimed that while the company decided to pay out the money in response to the allegations, it, of course, was blameless:

Blue Shield spokesman Steve Shivinsky said the firm settled to avoid litigation.

'Our process meets or exceeds all legal and regulatory requirements,' Shivinsky said in a statement. 'In every instance, we provide immediate notice, ensure multiple layers of review, involve a medical director in the decision, give members an opportunity to provide additional information before we take any action, and follow the guidance of an independent third party review.'

Note that rescission is now against US federal law:

President Obama made rescission a central theme in his push for a healthcare overhaul. In September 2010, a ban on rescissions for unintentional application errors became one of the first pieces of the healthcare law to take effect.

GE Healthcare

On December 29, 2011, the Detroit Free Press reported (via USA Today):

Pharmaceutical giant GE Healthcare will pay $30 million to the U.S. Department of Justice to settle claims in a case filed by a Michigan salesman, alleging one of its companies marketed a diagnostic drug used in cardiology tests as one that could be diluted and stretched to more patients than intended.

Not surprisingly,

GE admitted no wrongdoing in the settlement.

This was despite the fact that the actions alleged may have harmed patients as well as defrauding the government:

For patients, the diluted product resulted in more false positives during cardiology tests and exposed them to additional and unnecessary testing....

We have posted previously about some previous questionable behavior by GE in the health care sphere.
Actavis

On January 3, 2012, Bloomberg reported:

Two units of Actavis Group Hf will pay $84 million to settle a lawsuit over drug pricing, Texas officials said, less than half the amount an Austin jury said the company should pay.

The state accused Actavis Mid-Atlantic LLC and Actavis Elizabeth LLC, subsidiaries of the Iceland-based company’s U.S. division, of inflating billings to the Texas Medicaid program by falsely reporting drug prices. The state court jury in February ordered the units to pay the state $170 million.

The settlement resolves that litigation, Texas Attorney General Greg Abbott said today in a statement.

Note that Medicaid is a joint federal-state insurance program for the poor.

The company's statement had a familiar ring to it:

'Actavis denies any and all wrongdoing, and denies that it has any liability relating to the Texas judgment,' the company and the state said in the settlement agreement. The parties reached a settlement 'to avoid the delay, uncertainty, inconvenience and expense of continuing the litigation.'

Nothing to see here, just move along.

Denver Health Medical Center

On January 5, 2012, the Denver Post reported:

Denver Health Medical Center will pay $6.3 million to federal and state officials for overbilling Medicare and Medicaid, state and U.S. attorneys said.

After investigating a whistleblower's lawsuit, government officials said Denver Health was classifying patients with an "inpatient" status when it should have been listing them as 'outpatient' or under 'observation' status, which paid less under government rules.

Oops, missing from this story was the pro forma denial of blame, wrongdoing, misconduct by organizational leadership. However, the Denver Business Journal was able to add that:

Denver Health, in a statement, said it and the government agreed to the settlement to avoid 'protracted litigation' over the allegations. It did not admit guilt in agreeing to the settlement.

Of course, again despite having to pay millions, the organization asserted that it is fine and upstanding:

'Denver Health has, and will continue to, strive to ensure that its billing systems are accurate,' the hospital said in a statement, adding that the hospital has implemented a system to correct and improve billing accuracy.

Whoever wrote the statement seemed to overlook the implication that flowed from the need to "correct" the system.

CVS Caremark

On January 12, 2012, the Baltimore Sun reported:

The Federal Trade Commission announced that CVS Caremark Corp. agreed to pay $5 million to settle a complaint that it misinformed seniors about the price of certain Medicare Part D prescription drugs sold through CVS and Walgreens pharmacies.

The action by the company, according to the FTC, caused seniors and consumers with disabilities to pay significantly more for drugs. It also pushed them more quickly into the so-called 'doughnut hole,' in which drug costs aren’t covered by the federal program.

Despite its multimillion dollar payment, the company admitted no guilt, of course, and asserted its exemplary corporate citizenship:

CVS Caremark released a statement:

'During the course of this two year investigation, our company cooperated fully with the FTC and provided to the government millions of documents as well as access to numerous members of our management team who participated in voluntary interviews and depositions,' said Douglas A. Sgarro, Executive Vice President and Chief Legal Officer of CVS Caremark.

He also took comfort from the fact that there were not even more charges:

It is important to note that, at the conclusion of this comprehensive investigation, the FTC made no allegations of antitrust law violations or anti-competitive behavior associated with any of our business practices, products or service offerings.

Stryker Corp

On January 18, 2012, Bloomberg reported:

A Stryker Corp. (SYK) unit agreed to plead guilty and pay a $15 million fine while the medical-device maker was on trial on charges it marketed an unapproved mixture of products for strengthening human bone growth.

The unit, Stryker Biotech, and three Stryker sales representatives were on trial in federal court in Boston on a 13-count criminal indictment claiming conspiracy and wire fraud. The trial began Jan. 9 with jury selection.

Stryker Biotech agreed to plead to one misdemeanor count of misbranding a medical device, according to a letter dated yesterday from the U.S. Attorney’s Office in Boston and filed with the federal court.

This did involve an admission of guilt, but to what amounts to a financial violation when there were allegations that patients may have been harmed:

The U.S. had charged Stryker Biotech with misbranding and its sales force with conspiring to defraud surgeons into combining the company’s OP-1 and OP-1 Putty with the bone filler Calstrux. Some patients suffered adverse side effects and required more surgery, the U.S. said.

'That mixture was never studied clinically,' Assistant U.S. Attorney Susan Winkler told the jury in her opening statement on Jan. 12. 'They did not know if it worked. They did not know if it was safe, and they marketed it to doctors anyway.'

Interval Summary

We have presented eight cases in which  major US health care organizations settled cases involving allegations of financial gain under false pretenses. Nearly all involved US federal charges, and the others included alleged misbehavior that affected a federal program or that now would be illegal under federal law. All the cases were resolved with fines over $1 million. However, while these fines may seem big to most people, they were trivial compared to the revenues of the organizations. None of the settlements involved any penalties to actual people who authorized, directed, or implemented the misbehavior. No individuals at any of the involved organizations admitted any mistakes, much less wrong doing.

While the volume of such settlements indicates the prevalence of misbehavior by large health care organizations, it is not clear that their results, which amount to slaps on corporate wrists, have any deterrent effect.

In comparison, see what happens when little people obtain money from the government under false pretenses. I found a convenience sample of such cases reported in the last month through a Google search.

Vasquez

On January 9, the San Francisco Chronicle reported:

A Los Angeles woman who pleaded guilty to committing $6.2 million in Medicare fraud has been sentenced to 5 years in prison.

Federal Health and Human Services officials say 47-year-old Carolyn Ann Vasquez has also been ordered to pay $6.2 million in restitution.

Vasquez admitted to conspiring with others to use a series of fraudulent Los Angeles-area medical clinics to defraud the federal health care insurance program for people over age 65 and the disabled.

Between 2007 and 2008, Vasquez obtained a physician's personal information and Medicare provider number and used it to print prescription pads.

She then had a physician's assistant, David Garrison, write fraudulent prescriptions for pricey medical equipment.

Curtis

On January 7, 2012, the [Jacksonville] Florida Times-Union reported:

A federal judge sentenced the would-be owner of a Brunswick prosthetic business to three years and six months in prison for his organization and leadership of a scheme that defrauded Medicare of more than $250,000.

Also,

In addition to prison, Wood sentenced Curtis to repay $254,750.94 to Health and Human Services and serve three years’ probation. She dismissed eight other counts as part of his plea agreement.

In stark contrast to the stories above about cases of fraud involving large health care organizations:

Samuel Curtis III, who had submitted false claims from Preferred Prosthetics and Orthotics in Brunswick and Team Orthotics and Prosthetics of Houston, had pleaded guilty in July to conspiring to commit health care fraud.

Curtis, 38, apologized and asked U.S. District Judge Lisa Godbey Wood for leniency during his sentencing hearing Friday.

Popov

On January 12, 2012, the Sacramento Bee reported:

A Los Angeles physician who assumed the role as co-owner of a Sacramento medical clinic has been sentenced to federal prison for his participation in a Medicare fraud scam.

Alexander Popov, 47, was sentenced today by U.S. District Judge Morrison C.England Jr. to eight years and one month in prison for committing health care fraud and conspiring to commit health care fraud, according to a federal Department of Justice news release. He was found guilty by a jury in July.

In sentencing, Judge England found that Popov was responsible for more than a million dollars in fraudulent billings submitted to Medicare and more than $600,000 in payments made on false claims.

Evidence at trial showed that Popov gave false testimony and manufactured evidence at trial, amounting to an obstruction of justice, officials said.

Also,

Vardges Egiazarian previously pleaded guilty in the case and is serving 78 months in prison.

Applebaum

On January 20, 2012, Medscape reported:

A former Idaho psychiatrist was ordered to pay nearly $95,000 in a legal judgment this week, adding to a prison sentence of up to 5 years, which he received in November for obstruction and falsifying records relating to Medicaid fraud.

The judgment, obtained by the US Attorney's Office against Michael Applebaum, MD, of Nampa, Idaho, involved a civil lawsuit in which he was accused of submitting false Medicare and Medicaid claims for undocumented and ineligible services from 2004 through 2009.

Prosecutors claimed Dr. Applebaum failed to properly document services for approximately 502 claims, including falsifying service dates on 49 claims to make them appear eligible for reimbursement under Medicaid's rule of submitting claims within 12 months of the date of service.

Summary

As we noted above, if a large organization, such as a hospital system, pharmaceutical company, or health insurance company is accused of fraud against the government, the outcome is likely to be a large fine that is nonetheless small compared with the organization's revenue, no admission of guilt or responsibility, and no penalties for any individuals who authorized, directed or implemented the misbehavior. However, if an individual or small business is accused of such fraud, the results are likely to include fines sufficient to bankrupt either, admissions of guilt, and years of jail time.

Yet such actions by large organizations are likely to be more harmful to individuals and society than those of individuals or small businesses.

This seems like a glaring, stark example of unequal justice in health care. If an individual does something bad in a health care context, the punishment is likely to be severe and life altering. If an individual who is a leader of a large health care organization does something equally bad, he or she is likely to receive no punishment at all.

This is an example that ought to unite the left and the right, liberals and libertarians in outrage. Liberals are supposed to believe in the rights of the individual and economic justice. Libertarians are supposed to believe in economic freedom and the economic rights of the individual. In this example, the government and large corporations seem to have gotten together to let corporate leaders play by different rules than individuals. Corporate leaders seem to be above the law, the same law that can ruin individuals who violate it.

If we really want to reform health care, we need to make sure that its rules apply equally to all individuals, whether humble or rich, whether they are individual professionals of corporate CEOs. As long as the rich and powerful can play by different rules, we only fuel cynicism and anger. Down that road lies disaster.

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The Center for Medicare and Medicaid Services' Quiet Coziness with Wall Street

An article from the Project on Government Oversight (POGO) reveals a new aspect of the growing coziness between the US government and big corporations with obvious relevance to health care.

CMS' Coziness with Leaders of the "Capital Markets"

Here is the introduction and the example most relevant to health care:

Nearly a dozen senior staff at the Centers for Medicare and Medicaid Services (CMS), the giant agency that administers hundreds of billions in federal health care dollars, had been called to a meeting. After a discussion with five Wall Street professionals that lasted nearly two hours, one senior CMS analyst filed an ethics complaint that later went to the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS).

His beef: that a handful of deep-pocketed investors had won a private hearing to probe whether the agency would allow Medicare reimbursement for specific medical devices manufactured by companies in which they already held a stake or might put new money. The market for one device, already approved for Medicare, was rapidly heading toward $1 billion annually; the agency’s impending decision to reimburse competing devices could have major market impact, a shift potentially worth hundreds of millions of dollars.

'This meeting forced agency staff to redirect their attention toward a select group from Wall Street, when neither competing investors nor patient-oriented stakeholders were present,' the whistleblower told the Project On Government Oversight (POGO). 'They got to probe us for hours in private about what we planned to do and how we approached procedures for reimbursing medical devices, the mechanics and psychology of CMS decision-making, in general and with respect to these specific devices.'

The meeting was set up by a former CMS employee working for the Marwood Group, an asset manager that counsels big health-care industry investors, the whistleblower says. The firm’s president is Edward 'Ted' Kennedy Jr., son of the late Massachusetts senator and a major supporter of President Obama’s health care reforms, and includes Kennedy cousins Robert F. Kennedy, Jr. and Stephen E. Smith, Jr., as senior advisors. The firm’s website highlights its staff recruitment among Congressional aides, the Executive Office of the President and CMS. One CMS veteran who joined Marwood after the 2009 meeting with Wall Streeters is Barry Straub, the agency's former Chief Medical Officer, who is also an expert on Medicare reimbursement, the website says. A company spokesman had no comment.

A supervisor at CMS’s Coverage Advisory Group, which decides which services the agency will pay for, also helped organize the session with investors. The whistleblower says he was told by a supervisor that such get-togethers are 'a routine practice at CMS.' At the time, in 2009, CMS’s top administrator had an aide with the title, 'capital markets advisor,' tasked with tracking investment community activity in Washington and elsewhere.

At the investor meeting, Wall Streeters asked a range of questions 'about confidential CMS information.' The whistle blower says he does not believe they received illegal disclosures, though they peppered CMS analysts with queries about the agency’s decision-making process and other sensitive matters which, if answered, could have violated the law or related regulations that bar the sharing of internal deliberations and decisions.

The whistleblower first filed his complaint in April 2009. He was terminated in 2011 for being disloyal to the agency mission after he made a series of internal protests, including the objection to what he calls a pattern and practice of unfettered access to CMS staff by Wall Street investors. He says he is currently fighting his dismissal through all available legal and administrative channels.

Implications and Summary

As the POGO article put it,

CMS does have a set of 'Open Door' policies and affords a variety of avenues for public access. The disclosure of payments to physicians and teaching hospitals by pharmaceutical companies and other interests are required under President Obama’s health reform. In practice, however, the public, not to mention competing investors and stakeholders, rarely get the kind of information and insight available in meetings like the whistleblower described.

In general,

A balance is necessary between the danger of too much insider access, and imposing excessive limitations. Indeed, the biggest problem with special access for Wall Street insiders is not just that they seem to get meetings and acquire information that may be privileged and non-public, but that others, including other investors, do not get a crack at the same material.

The activities above have all the usual elements of excess corporate - government coziness.  These include enhanced access for corporate leaders beyond what any ordinary members of the public might achieve; the revolving door between government service and corporate leadership; the participation of well-connected inside the beltway types, etc, etc. 

It also includes the apparent formalization of representation of corporate interests, e.g., the "Capital Markets Advisor," with no parallel formalization of the public's or patients' interests.  Even more worrisome is that an effort to make this all less anechoic resulted in alleged intimidation of a whistle-blower.

So, let's see, CMS, the Center for Medicare and Medicaid Services, the US Department of Health and Human Services (DHHS) branch which controls the Medicare and Medicaid programs, the government run single-payer programs for the elderly, the disabled, and the poor, does not seem to be able to afford to figure out in-house how to pay physicians for specific services.  Instead, it has effectively farmed out this task to a private committee, the American Medical Association's RBRVS Update Committee (RUC).  As we have discussed many times, this obscure and secretive committee likely had a major role in structuring the financial incentives that favor procedures and disfavor primary care. leading to excess costs, declining access, and degrading quality.  However, CMS can afford to have a "Capital Markets Adviser" and to use up staff time briefing wealthy investors and hedge fund types.  What is wrong with this picture?

In my humble opinion, government health care agencies ought to put the public's and patient's health first. They should not give special consideration to the rich, the powerful, the well-connected, whom some now call the one percent. Yet in the US we seem to have an increasingly corporatist state in which government and the plutocrats work together for their mutual interests, regulatory capture writ large.

We need to restore government, and our health care agencies to being of the people, by the people, and for the people.  Obviously, true health care reform would start with the government and its officials putting patients' and the public's health first, way ahead of the financial comfort of corporate leaders.

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Will the Citigroup Ruling Challenge Health Care Leaders' Impunity?

A federal judge's refusal to approve yet another cozy settlement that was supposed to resolve allegations of wrong-doing by a giant corporation has left the financial world atwitter.  It may be that this ruling will also affect the coziness between giant health care corporations and government regulators. 

Summary of the Citigroup Case

We first discussed this case twp weeks ago here.  Here is a summary of the government's (in this case, the Securities and Exchange Commision's) original allegations from the New York Times.

According to the Securities and Exchange Commission, Citigroup stuffed a $1 billion mortgage fund that it sold to investors in 2007 with securities that it believed would fail so that it could bet against its customers and profit when values declined. The fraud, the agency said, was in Citigroup’s falsely telling investors that an independent party was choosing the portfolio’s investments. Citigroup made $160 million from the deal and investors lost $700 million.

The Problems with the Proposed Settlement
Judge Jed Rakoff refused to approve the settlement because of a series of problems, listed below as summarized by the Schumpeter columnist in the Economist.

Mr Rakoff faulted the SEC for prosecuting Citigroup for negligence when a fraud prosecution was warranted; for failing to provide the court with 'any proven or admitted facts upon which to exercise even a modest degree of independent judgment'; for erroneously contending that 'public interest…is not part of [the] applicable standard of judicial review'; and for wrongly arguing that 'if the public interest must be taken into account, the SEC is the sole determiner'.

Furthermore,

Mr Rakoff also attacked a second condition of the settlement. Citigroup had agreed to operate under a court injunction if it ever violated the deal, which could lead to contempt charges. Whatever threat this carried, Mr Rackoff wrote, it was mitigated because Citigroup, as other financial firms, had been cited similarly over the past decade—and never faced any consequences.

The Parallels with Legal Settlements Made by Health Care Organizations

Several of the features of the settlement that the Judge found so objectionable are commonly also features of the settlements we have seen involving health care organizations. Government regulators often seem to make much milder charges that were warranted by the apparent facts. They make the organizations party to corporate integrity or deferred prosecution agreements, even though sometimes the same corporations were already subject to such agreements when they appeared to misbehave again. The agreements often allow the organizations to neither admit to or deny any charges, leaving the facts of the case forever in doubt.

Matt Taibi in the Rolling Stone provided some pithy comments on these commonly seen features of legal settlements.

By accepting hundred-million-dollar fines without a full public venting of the facts, the SEC is leveling seemingly significant punishments without telling the public what the defendant is being punished for. This has essentially created a parallel or secret criminal justice system, in which both crime and punishment are adjudicated behind closed doors.

This system allows for ugly consequences in both directions. Imagine if normal criminal defendants were treated this way. Say a prosecutor and street criminal come into a judge’s chamber and explain they’ve cooked up a deal, that the criminal doesn’t have to admit to anything or plead to any crime, but has to spend 18 months in house arrest nonetheless.

What sane judge would sign off on a deal like that without knowing exactly what the facts are? Did the criminal shoot up a nightclub and paralyze someone, or did he just sell a dimebag on the street? Is 18 months a tough sentence or a slap on the wrist? And how is it legally possible for someone to deserve an 18-month sentence without being guilty of anything?

Such deals are logical and legal absurdities, but judges have been signing off on settlements like this with Wall Street defendants for years.

As we have said numerous times before, (starting here in 2008) the current manner of regulation, in which organizations pay fines (and sometimes submit to corporate integrity or deferred prosecution agreements), rarely admit any guilt, but in which individuals who directed, authorized or implemented the alleged misbehavior almost never suffer any negative consequences, fails to deter future bad behavior. We have noted that the costs of the settlements are paid by the organization as a whole, and thus simply regarded as costs of doing business by executives. The leaders' impunity will allow the bad behavior to be repeated again and again.

Here is how Taibbi and Rakoff put it:

these crappy settlements have evolved into a kind of cheap payoff system, in which crimes may be committed over and over again, and the SEC’s only role is to take a bribe each time the offenders slip up and get caught.

If you never have to worry about serious punishments, or court findings of criminal guilt (which would leave you exposed to crippling lawsuits), then there’s simply no incentive to stop committing fraud. These SEC settlements simply become part of the cost of doing business, as Rakoff notes:

As for common experience, a consent judgment that does not involve any admissions and that results in only very modest penalties is just as frequently viewed, particularly in the business community, as a cost of doing business imposed by having to maintain a working relationship with a regulatory agency, rather than as any indication of where the real truth lies. This, indeed, is Citigroup's position in this very case.

That line, 'a cost of doing business imposed by having to maintain a working relationship with a regulatory agency,' is one of the more brutally damning things you’ll ever see a judge write. Rakoff is essentially saying that these fines are payoffs to keep the SEC off the banks’ backs. They’re like the pad that numbers-runners or drug dealers pay to urban precinct-houses every month to keep cops from making real arrests. That's what he means when he refers to 'maintaning a working relationship.' It's heavy stuff.

What the Judge appears to be saying is that the whole system stinks of regulatory capture, and that the settlements paid by the organizations are the moral equivalent of bribes paid to government officials. That is indeed "heavy stuff."

Now that Occupy Wall Street has made it socially acceptable to discuss the economic dysfunction that lead to the great recession or global financial collapse, I can only hope that this discussion will lead to a parallel discussion about health care dysfunction. It certainly seems that the regulatory capture that seems to be part of the dismantling of regulation of finance is similar to regulatory capture affecting health care. But I await someone beyond us few lonely bloggers to take up this topic.

I might as well end with this sentiment from 2009 regarding another case over which Judge Rakoff presided:
Again, in my humble opinion, until the people responsible for the bad behavior experience negative consequences from that behavior, they will continue to perform, direct, and condone bad behavior. We will not achieve real health care reform in the US until we effectively deter unethical, self-serving behavior by leaders of health care organizations.

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Health Care Also Needs to Challenge "Crony Capitalism," the "New Gilded Age, and "the Idolatry of the Market"

The increasing size and scope of the "Occupy Wall Street" movement, and continuing instability in the finance system, most recently due to the threatened default of Greece, and resulting problems with the Euro, and now the bankruptcy of yet another prominent financial firm, MF Global, has lead to renewed discussion of what has gone wrong with the greater political economy.

As I have perused some of it, I noted distinct parallels with the some of the discussion we have had about what has gone wrong with health care.  In fact, at the root of health care dysfunction appear to be the dysfunction of the greater political economy.

Few in the One Percent Deserved the Money

A dominant slogan of the "Occupy" movement is "we are the 99 percent," that is

'We are the 99 percent,' is the continuing chant of the protesters, who are now in their seventh week of marching through the streets of Manhattan. And, surprisingly, they have hit upon the crux of America's problems with precisely this sentence. Indeed, they have given shape to a development in the country that has been growing more acute for decades, one that numerous academics and experts have tried to analyze elsewhere in lengthy books and essays. It's a development so profound and revolutionary that it has shaken the world's most powerful nation to its core.


Inequality in America is greater than it has been in almost a century. Those fortunate enough to belong to the 1 percent, made up of the super-rich, stand on one side of the divide; the remaining 99 percent on the other. Even for a country that has always accepted opposite extremes as part of its identity, the chasm has simply grown too vast.

[Schulz T]

The One Percent are Mostly Salaried Corporate Executives

Contrary to some propaganda, many in the one percent are not entrepreneurs, but corporate employees, albeit special ones.

Also cited as factors contributing to the rapid growth of income at the top were the structure of executive compensation....

[Pear R]

In Health Care -
We have frequently discussed the outsized compensation given to a few top executives. CEOs of for-profit health care corporations may make tens of millions of dollars a year (here is a recent example, and many similar stories can be found here.) Even CEOs of non-profit hospital systems can make millions of dollars a year. (See this recent example, then go here for more.) Thus, a fair number of the one percent are likely to be from health care, and most of those at the top are likely to be current or former top hired executives.

The One Percent's Wealth May be More Due to Luck than Skill, Intelligence, or Creativity

According to a recent simulation study,

by the 'inexorable effect of chance,' and chance alone, 'a small proportion of entrepreneurs come to possess essentially all of the wealth. ... The concentration of wealth occurs merely because some individuals are lucky by randomly receiving a series of high growth rates, and once they are ahead with exponentially growing capital, they tend to stay ahead.'

According to Fargione, greater variation in rates of return hastened the concentration of wealth. Inequality grows with time. Wealth concentration continues despite periods of recession and depression.

[Breining G]

In Health Care-No similar study has been done in health care. However, we have documented many cases in which top health care executives' compensation seemed to have nothing to do with their skill, originality, or ability to uphold the health care mission. How "peer benchmarking," and the "Lake Woebegone Effect" account for immense compensation despite bad results was discussed here. A recent series of cases (with links to others) of hospital CEOs who prospered while their institutions' finances decayed was here.

The One Percent Gamed the System, and Personally Profited from Perverse Incentives

Most fundamentally, what protest groups on the left and the right share with less activist middle-class Americans -- the apolitical voters who often decide elections -- is an abiding sense that the bond between work and reward has been broken. Huge financial rewards are given to executives who fail miserably and get fired. Debt relief programs help not only those who have fallen behind through no fault of their own, but also the profligate who lived beyond their means.

The list goes on: What’s inflaming voters isn’t so much inequality per se, though that’s certainly a symptom of the problem. It’s the fact that the rewards in our economic system seem increasingly divorced from American values of hard work, risk taking and innovation. Instead, these benefits are more and more likely to be awarded on the basis of connections and political power.

[Klain R]

In Health Care-We have seen not merely cases of top health care leaders paid a lot of money for mediocre financial results. We have seen cases in which leaders got outsize pay despite evidence of organizational misconduct, or even crime. For example, see posts here, here and here that contrast one company's multiple legal settlements and guilty pleas and its CEO's eight-figure compensation.

The One Percent Deny Accountablity While Blaming Others for the Problems They Produce

Based on a as yet unpublished survey of top finance leaders in London, its leader, Rev Andrew Studdert-Kennedy,

said he had been 'astonished' by the attitudes of some City workers displayed towards the financial crisis. He said, 'I did speak to many people about morality. I was amazed by how many banking crises there had been and how sanguine people were about them. A number of people said 'this is just what happens - it's the nature of banking, it's the nature of capitalism.'

'It's one thing having historical perspective, but I was astonished that people didn't try to learn a bit more. There is a recognition that there is something wrong, but a reluctance to admit they are part of the problem.'

[Brady et al]

In addition,

Talk to most bank executives and they’ll still place the blame for the 2008 financial crisis on 'irresponsible consumers' who took out mortgages they couldn’t afford; dishonest mortgage brokers; and—at the top of the list—the government, which used Fannie Mae and Freddie Mac to finance mortgage lending to 'people who shouldn’t own homes,' as one senior New York bank executive put it to me recently. All of which is partly true but omits the enthusiasm with which Wall Street feasted on that market, and the fact, as Warren puts it, 'that Wall Street made tens of billions of dollars' from it. In short, there is no remorse, let alone a sense of obligation, because bank executives generally do not believe they were the cause of the financial collapse. As Neil Barofsky, Treasury’s former inspector general charged with oversight of TARP, the $700 billion government bailout of the banks, recalls from his interviews with bankers, the attitude instead was that 'shit happens.' The state of denial has been massive. On Wall Street today, says the vice-chairman of a private-equity firm, 'there is this enormous persecution complex in the banking industry about Dodd-Frank, that everyone is going after the banks.'

[Andrews S]

In Health Care-Health care leaders and their apologists sometimes cite their awesome responsibility as a rationale for their outrageous compensation. Yet while health care leaders often decry the state of the health care system, I have yet to hear one take any responsibility for what has gone wrong.

Meanwhile, Wendell Potter has described how the leaders of one part of health care, health insurance and managed care, set up elaborate but stealthy public relations campaigns to blame the problems of health care mainly on patients and doctors, but certainly not the health insurance or managed care (see post here). This echoes how top finance leaders blame their industry's problems on feckless consumers.

The One Percent are Not Held Accountable, and Have De Facto Impunity

So, yes, we face a threat to our capitalist system. But it’s not coming from half-naked anarchists manning the barricades at Occupy Wall Street protests. Rather, it comes from pinstriped apologists for a financial system that glides along without enough of the discipline of failure and that produces soaring inequality, socialist bank bailouts and unaccountable executives.

[Kristof ND]

In our article in the last issue,1 we showed that, contrary to the claims of some analysts, the federally regulated mortgage agencies, Fannie Mae and Freddie Mac, were not central causes of the crisis. Rather, private financial firms on Wall Street and around the country unambiguously and overwhelmingly created the conditions that led to catastrophe. The risk of losses from the loans and mortgages these firms routinely bought and sold, particularly the subprime mortgages sold to low-income borrowers with poor credit, was significantly greater than regulators realized and was often hidden from investors. Wall Street bankers made personal fortunes all the while, in substantial part based on profits from selling the same subprime mortgages in repackaged securities to investors throughout the world.

Yet thus far, federal agencies have launched few serious lawsuits against the major financial firms that participated in the collapse, and not a single criminal charge has been filed against anyone at a major bank. The federal government has been far more active in rescuing bankers than prosecuting them.

[Madrick J et al]

In Health Care-We have gone on endlessly how despite numerous examples of unethical or even criminal behavior by health care organizations, almost never has any individual who authorized, directed or implemented the bad behavior suffered any negative consequences. (Look here and here.)

The One Percent Have Captured Government

The most important reason for the unaccountability of the one percent is regulatory capture, leading to corporatism:

much as the economic giants of the Gilded Age developed such enormous influence that they could dictate basic political conditions, today's Wall Street bosses and CEOs have successfully arranged extensive deregulation for their industries. Indeed, he argues that this is the only thing that can explain how hedge fund managers suddenly started making billions of dollars a year. Former Citigroup CEO Sanford Weill, for example, kept a framed pen in his office as a symbol of his influence. It was the pen President Bill Clinton -- at Weill's instigation -- used in 1999 to sign into law legislation repealing the provisions in the Glass-Steagall Act of 1933 that separated the transactions of investment and commercial banks.

At the same time, Bartels writes, the wealthy receive enormous tax breaks worth hundreds of billions of dollars.

[Schulz T]

In Health Care-
We have discussed regulatory capture, embedded networks of influence, and corporatism in health care.

Summary

The articles I summarized above called for the need to "save capitalism from crony capitalists," [Kristof ND], and to seize "the high political ground" by "reform that lessens the influence of money in politics and government," and to strengthen "the bonds between work and reward," [Klain], and to end the impunity of the wealthy [Madrick et al].

A Vatican Council has called for the end of the "idolatry of the market," the "ethic of solidarity," and the "primacy of the spiritual and the ethical," and of "politics - which is responsible for the common good - over the economy and finance." This has also been supported by the Archbishop Of Canterbury.

In parallel, as we have said again and again, true health care reform 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.

References


Andrews S. The woman who knew too much. Vanity Fair, November, 2011. Link here.
Brady B, Merrick J. Exclusive: cover-up at St Paul's. The Independent, Oct 30, 2011. Link here.
Breining G. The 1 percent: how lucy they are. Minneapolis Star-Tribune, Oct 29, 2011. Link here.
Klain R. Americans want a government that ties rewards to work. Bloomberg, Oct 31, 2011. Link here.
Kristof ND. Crony capitalism comes home. NY Times, Oct 28, 2011. Link here.
Madrick J, Portnoy F. Should some bankers be prosecuted? NY Review of Books, November 10, 2011. Link here.
Pear R. Top earners doubled share of nation's income, study finds. NY Times, Oct 25, 2011. Link here.
Schulz T. The second gilded age: has America become an oligarchy? Spiegel Online, Oct 28, 2011. Link here.

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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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Retreat Back to Regulatory Capture: US FDA, NIH, Department of Health and Human Services All Back Off

After some brave words about transparency, integrity and all that, US government officials seem to be running back to the arms of the health care corporate CEOs.

Weakening FDA Conflict of Interest Rules

As reported by Reuters,

U.S. lawmakers likely will change the criteria for advisers reviewing new medicines next year because of complaints that the rules meant to prevent conflicts of interest make it harder to find real experts.

Congressional lawmakers may require the Food and Drug Administration to relax the rules that bar advisers from reviewing a drug if they have even indirect financial ties to related manufacturers, as part of an FDA funding bill.

This was not purely an initiative of legislators, but was egged on by a top FDA administrator

The agency often must delay panel meetings while it searches for experts without conflicts, lawmakers and FDA officials say. Top doctors are usually the ones drugmakers hire as speakers or consultants.

'We have had difficulty in recruiting highly qualified people. And we've had delays in having panels because of this,' Dr. Janet Woodcock, head of the FDA's drugs center, told a House of Representatives hearing earlier this month.

The result is that 23 percent of FDA advisory panels have vacancies, more than double the agency's stated goal, according to the FDA's quarterly report at the end of May.

The rationale was that those paid by drug and device companies are the most expert:

The FDA tightened guidelines in 2007 to minimize industry ties that could sway a panelist's view, partly inspired by the scandal with Merck's pain reliever Vioxx.

Ten of the 32 panelists advising the FDA on the drug consulted for drugmakers. Nine of the 10 recommended putting the drug back on the market after it was pulled in 2004 over concerns about heart risk.

The restrictions go too far, say lawmakers who want the FDA to approve more new medicines, in part because they promote American jobs.

'No longer can we deny experts simply because they have ties to industry,' said Georgia Representative Phil Gingrey during a House of Representative hearing on FDA funding last month. The committee's chairman, Fred Upton from Michigan, called the conflict of interest rules 'rigid and unrealistic.'

Industry executives, who want the FDA to speed drug approvals, also support relaxing the rules. Biogen Idec CEO George Scangos said the guidelines 'exclude a lot of people who would be the best qualified.'

Of course, the drug and device companies have been touting their paid "key opinion leaders" as the best and the brightest for a long time. There is plenty of evidence, however, that they are mainly those whom those companies find the most compliant, and in many cases, those who are willing to be stealth marketers on those companies' payrolls. (See this post about those who recruit KOLs regarding them as salesmen, and more here.)  "Key opinion leaders" supported by commercial grant funding may seem like experts to academic medical institutions' leadership who now value outside funding more than teaching and research excellence (see this post).

Furthermore, as reported by Politco, the Project on Government Oversight, a watchdog group, chastised FDA leadership for exaggerating the difficulty of finding unconflicted experts, concluding in their letter to the FDA Commissioner, "to gain the public trust, we must ensure that the FDA relies on the best available information for its policies, rather than personal opinions and biases."

So far, government officials seem to be more worried about the opinions of corporate leaders than the public trust.

Weakening NIH Conflict of Interest

As discussed in Nature,

Francis Collins hailed it as a 'new era of clarity and transparency in the management of financial conflicts of interest' (S. J. Rockey and F. S. Collins J. Am. Med. Assoc. 303, 2400–2402; 2010). But the director of the US National Institutes of Health (NIH) may have spoken too soon when he described a new rule, proposed last year, that would require universities and medical schools to publicly disclose online any financial arrangements that they believe could unduly influence the work of their NIH-funded researchers.

Nature has learned that a cornerstone of that transparency drive — a series of publicly accessible websites detailing such financial conflicts — has now been dropped.

In more detail,

The NIH's parent agency, the Department of Health and Human Services (DHHS), proposed the new rule in May 2010, after congressional and media investigations revealed that prominent NIH grant recipients had failed to tell their universities or medical schools about lucrative payments from companies that may have influenced their government-funded research. The DHHS called the proposed websites 'an important and significant new requirement to … underscore our commitment to fostering transparency, accountability, and public trust'. Under the proposal, institutions with NIH-funded researchers would determine, grant by grant, if any financial conflicts existed for senior scientists on the grant. For example, these would include receiving consultancy fees, or holding shares in a company, 'that could directly and significantly affect the design, conduct, or reporting' of the research. The institutions would post the details online, where they would stay for at least five years.

But of course the medical schools decided that it would just be too much trouble to do all this:

'The websites don't appear out of nowhere,' says Heather Pierce, senior director of science policy at the Association of American Medical Colleges (AAMC) in Washington DC. They would 'require employees to not only create the website but to pull the information, review it, and make sure it is up to date and accurate'.

That is not the only objection from the powerful academic lobbies. During the public comment period last summer, the Association of American Universities and the AAMC submitted a joint statement saying: 'There are serious and reasonable concerns among our members that the Web posting will be of little practical value to the public and, without context for the information, could lead to confusion rather than clarity regarding financial conflicts of interest and how they are managed.'

Given how academic medical institutions have expanded their administrations and bureaucracy, the enormous amounts they spend on management, and the huge compensation they give their executives, and further given how much of their revenues come from government sources (Medicare, Medicaid money for patient care, Veterans Administration money supporting many faculty members, Medicare money funding graduate medical education, and NIH and other government research grants), the notion that getting a few staffers to process disclosures would be administratively or financially burdensome is just laughable.

At least Iowa's Republican Senator Charles Grassley, seemingly one of the last politicians in Washington who cares about the integrity of government programs and spending, is upset. As reported again by Nature,

The US Senate's leading advocate for government transparency wrote today to the White House's budget office, demanding that it protect a proposed rule that would obligate universities to post their publicly-funded biomedical researchers' financial conflicts on a publicly accessible website.

'The public's business should be public... I urge OMB to follow through and approve a rule that includes a publicly available website,' Senator Charles Grassley, Republican of Iowa ..., wrote in in this letter to Jacob Lew, the director of the White House's Office of Management and Budget (OMB).

Furthermore, he wrote:

I am troubled that taxpayers cannot learn about the outside income of the researchers whom the taxpayers are funding, and this flies in the face of President Obama's call for more transparency in the government.

We will see if his protest does any good, but again it appears that government officials are more worried about the revenues of big health care organizations than the needs of the public.

Retreating from Threats to Disbar Forest Laboratories CEO

We previously posted about how the US Department of Health and Human Services threatened to disbar the CEO of Forrest Laboratories from dealings with the government after his company pleaded guilty to obstruction of justice and misbranding, and paid a $313 million fine.

Now, per Alicia Mundy writing for the Wall Street Journal, things have changed:

The U.S. government dropped efforts to force the resignation of a prominent pharmaceutical-company chief executive, reversing course after protests from the company and major business groups.

The about-face on Forest Laboratories's longtime leader, Howard Solomon, represents a significant retreat by the Department of Health and Human Services, which has said it wants to step up punishments against drug-company executives when wrongdoing happens on their watch.

Forest agreed last year to plead guilty to misdemeanors involving marketing of its drugs including the antidepressant Celexa, and it paid $313 million to resolve the matter.

Mr. Solomon wasn't personally accused of any wrongdoing. Nonetheless, the government notified him in April that it was considering excluding him from jobs at health-care companies that sell to the U.S. government. It invoked a little-used clause in the Social Security Act that allows such an action against corporate leaders of companies found guilty of criminal misconduct, even if the leaders had no knowledge of the misconduct.

The exclusion move would have effectively forced Forest to remove Mr. Solomon from office, because Forest and other drug companies rely on business from U.S. government agencies such as Medicare and the Veterans Administration.

In a letter to Mr. Solomon on Friday, the office of the inspector general of the Department of Health and Human Services said, 'Based on a review of information in our file, and consideration of the information your attorneys provided to us both in writing and in an in-person meeting, we have decided to close this case.'

We have discussed - some might say endlessly - how despite numerous publicly reported cases of wrongdoing by health care organizations, hardly any individual who authorized, directed or implemented the bad behavior has ever faced any negative consequences. There have been recent fulminations by some government officials that this is going to change. The case of the Forest Laboratories CEO appeared to be an example of such change, but no more.

The Wall Street Journal went on to discuss why the government may have changed course:

The government's retreat came after a barrage of complaints from Forest and business groups including the U.S. Chamber of Commerce and the Pharmaceutical Research and Manufacturers of America, the drug industry's leading trade group.

In July, Forest spent $80,000 to hire former Louisiana Sen. John Breaux to lobby the government regarding exclusion, according to Senate records. Mr. Breaux didn't return a call requesting comment. Forest said earlier that it was just trying to make its case that this was a highly unusual action by the U.S. government.

Of course it was unusual. That is the whole problem.

In any case, it looked like the government was much more concerned about the coddling of corporate CEOs and their lobbyists' and cronies' opinions than about deterring bad behavior by large health care organizations.

Summary

After a bit of blustering by the current US administration about transparency and integrity it appears to be back to business as usual in the US capital. Over the last 20 years, government has increasingly answered to corporate CEOs instead of "we, the people." Protecting patients' and the public's health has given way to protecting the financial health of large health care organizations, and the compensation of rich CEOs. Federalism is giving way to corporatism. As long as this continues, expect our health care system to continue its slow collapse. Eventually, expect the CEOs to get in their private jets and escape while the rest of us picks up the pieces.

Until we dispel the fog of corporatism that has spread over the government that was once supposed to be of the people, by the people, and for the people, expect no real health care reform, and expect continuing rising costs, declining access, and worsening patient care. Obviously, true health care reform would start with the government and its officials putting patients' and the public's health first, way ahead of the financial comfort of corporate CEOs.

See also comments by Alison Bass.

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RUCing About - Conflicts of Interest Affecting the Members of the RBRVS Update Committee

Since 2007, we have been writing about the secretive RUC (RBRVS Update Committee), the private AMA committee that somehow has managed to get effective control over how Medicare pays physicians. The RUC has been accused of setting up incentives that strongly favor invasive, high technology procedures while disfavoring primary care and other "cognitive medicine." Despite the central role of (perverse) incentives in raising health care costs while limiting access and degrading quality, there was surprisingly little discussion about the pivotal role played by the RUC until the formation of the "Replace the RUC" movement (see post here). 

Recently, the leaders of Replace the RUC scored a journalistic coup by putting the current list of RUC members publicly on-line.  As we have discussed, previously the membership of this committee was kept very obscure, although the committee argued it was not exactly secret. 

Some Google searching suggests one possible reason that the RUC was in no hurry to disclose its own membership.  It appears that many of the RUC members have significant conflicts of interest with respect to their roles as de facto setters of the rates at which physicians are paid by the government.

The RUC Members and Their Financial Relationships

Below is the list of the current RUC membership (from this link), and relevant conflicts of interest obtained by Google searching.  Note that for each member, I first give the name, affiliation relevant to the RUC, location, and first year of membership as provided by the link above.  Then I list relevant financial relationships that appear to present conflicts of interest.

- Barbara Levy, MD

Chair, RVS Update Committee
Federal Way, WA 2000

Consultant/Advisory Boards: Conceptus; AMS; Covidien; Halt Medical; Gynesonics; Idoman Medical (hysteroscopic surgery and sterilization, endometrial ablation, electrosurgery, vaginal hysterectomy) per UptoDate

- Bibb Allen, Jr., MD
American College of Radiology (ACR)
Birmingham, AL 2006

- Michael D. Bishop, MD
American College of Emergency Physicians (ACEP)
Bloomington, IN 2003

- James Blankenship, MD
American College of Cardiology (ACC)
Danville, PA 2000

Lecture fees from Sanofi-Aventis per New England Journal of Medicine

- Robert Dale Blasier, MD
American Academy of Orthopaedic Surgeons (AAOS)
Little Rock, AK 2008

- Joel Bradley, MD
American Academy of Pediatrics (AAP)
Brentwood, TN 2008

Medical Director, Americhoice by UnitedHealthcare, per AAP conference brochure

- Ronald Burd, MD
American Psychiatric Association (APA)
Fargo, ND 2006

- William F. Gee, MD
American Urological Association (AUA)
Lexington, KY 2010

Member, Physician Advisory Board, Aetna per Aetna

- John O. Gage, MD
American College of Surgeons (ACS)
Pensacola, FL 1991

- David F. Hitzeman, DO
American Osteopathic Association (AOA)
Tulsa, OK 1996

- Peter A. Hollmann, MD
CPT Editorial Panel (AMA/CPT)
Providence, RI 2003

Medical Director, Blue Cross and Blue Shield of Rhode Island, per RI Medical Society

- Charles F. Koopmann, Jr., MD
American Academy of Otolaryngology-Head and Neck Surgery (AAO-HNS)
Ann Arbor, MI 1996

- Robert Kossmann, MD
Renal Physicians Association (RPA)
Santa Fe, NM 2009

Member of Advanced Renal Technologies Advisory Board, Network 15 Medical Advisory Board, Baxter Home Dialysis Advisory Board, Fresenius Medical Advisory Board per Renal Physicians Association

- Walter Larimore, MD
American Academy of Family Physicians (AAFP)
Colorado Springs, CO 2009

- Brenda Lewis, DO
American Society of Anesthesiologists (ASA)
Cleveland, OH 2009

- J. Leonard Lichtenfeld, MD
American College of Physicians (ACP)
Atlanta, GA 1994

Member, Physician Advisory Board, Aetna per Aetna

- Scott Manaker, MD, PhD
American College of Chest Physicians (ACCP)
Philadelphia, PA 2010

Consultant to Pfizer and Johnson and Johnson. Owns stock in Neose Technologies, Pfizer, Johnson & Johnson, and Rohm and Haas per Chest

- Bill Moran, MD
Practice Expense Review Committee
Oklahoma City, OK 2000

- Guy Orangio, MD
American Society of Colon & Rectal Surgeons (ASCRS)
Atlanta, GA 2009

- Gregory Przybylski, MD
American Association of Neurological Surgeons (AANS)
Edison, NJ 2001

Stock Ownership: United Healthcare (300 shares);  ...  Scientific Advisory Board: United Health Group (B, Spine Advisory Board) per NASS meeting

- Marc Raphaelson, MD
American Academy of Neurology (AAN)
Leesburg, VA 2009

personal compensation for activities with Jazz Pharmaceuticals and Medtronics as a speakers bureau member or consultant per AAN

- Sandra Reed, MD
American College of Obstetricians and Gynecologists (ACOG)
Thomasville, GA 2009

GlaxoSmithKline Consulting, $1750 in 2009, $1500 in 2010 per ProPublica Dollars for Docs search through here

- Daniel Mark Siegel, MD
American Academy of Dermatology (AAD)
Brooklyn, NY 2003

Vivacare Dermatology Advisory Board, 2006 – present. Photomedex Scientific Advisory Board, 2006-present, Ad Hoc consultant to ClickDiagnostics, per Encite CV
DermFirst-Shareholder, Logical Image – Consultant, Vivacare - Consultant per MOHS Surgery

- Lloyd S. Smith, DPM
Health Care Professionals Advisory Committee
Bethesda, MD 2007

- Peter Smith, MD
Society of Thoracic Surgeons (STS)
Durham, NC 2006

Eli Lilly, Consulting, $1500 in 2009, $1990 in 2010 per Pro Publica Dollars for Docs search through here
Advisor or consultant to Bayer per Medscape

- Susan Spires, MD
College of American Pathologists (CAP)
Lexington, KY 2007

- Arthur Traugott, MD
American Medical Association (AMA)
Champaign, IL 2006

- James Waldorf, MD
American Society of Plastic Surgeons (ASPS)
Jacksonville, FL 2008

- George Williams, MD
American Academy of Ophthalmology (AAO)
Royal Oak, MI 2009

Advisory Team, RetroSense Therapeutics
Shareholder and consultant for ThromboGenics Ltd. and holds intellectual property on the use of plasmin per Review of Opthamology
Alcon Laboratories, consultant, lecturer; Allergan, consultant, lecturer; Macusight, consultant, equity owner; Neurotech, consultant; Nu-Vue Technologies, equity owner, patent/ royalties; OMIC- Ophthalmic Mutual Insurance Company, employee; Optimedica, consultant, equity owner; Thrombogenics, consultant, equity owner per AAO meeting
Pfizer, “Professional Advising,” $5534 in 2009 per Pro Publica Dollars for Docs search through here

Summary

There you have it.  A substantial proportion, almost half, 14 of 29 members of the RUC have financial relationships with pharmaceutical companies, biotechnology companies, device companies, companies that directly provide health care, and health care insurance companies. 

As we have noted in our previous discussions of the RUC, that committee has been accused of being the de facto controller of how the US government pays physicians.  In that role, it has been accused of favoring procedural care rather than cognitive or primary care by increasing the relative financial incentives for the former over the latter.  This may be one of the most important reasons for the expensive, high-technology, procedural-heavy style of care in the US, which has likely been a major driver for increasing costs, declining access and stagnant quality.

It seemed obvious that a committee dominated by a majority of physicians who perform procedures would tend to favor bigger financial incentives for procedures.  But now it appears the committee also includes a substantial number of people who work part-time or have ownership interests in companies that also stand to benefit from increasing use of procedures.  Procedures drive increased consumption of drugs, supplies and devices, and lead to larger revenue for hospitals and clinics.  Thus these financial relationships could reasonably be suspected of even further distorting the committee's decision-making in favor of procedures.

I was surprised how many RUC members have financial ties to health care insurance companies.  Such companies are not usually thought of as beneficiaries of high-technology, procedural care.  However, if one conceives of their revenue as a percentage of health care costs, perhaps they are.  Furthermore, one can only wonder if the links between the RUC and health care insurance companies have anything to do with how such companies have apparently unquestioningly adapted the RBRVS system controlled by the RUC?

The prevalence of conflicts of interest among RUC members highlight the need for a more accountable, transparent and honest system to manage how the government pays physicians, and a need for more transparency and accountability in the relationship among the government, health care insurance, and physicians.

 As we have previously noted,  there are still many unanswered questions about the RUC:

- How did the government come to fix the payments physicians receive? Government price-fixing has not been popular in the US, yet this has caused no outcry.
- Why is the process by which they are fixed allowed to be so opaque and unaccountable? Why are there no public hearings on the updates, and why is there no input from practicing physicians or organizations other than those related to the RUC?
- How did the RUC become de facto in charge of this process?
- Why does the AMA [keep the membership of the RUC so opaque, and] give no input into the RUC process to its general membership?
- Why is the RUC membership so dominated by procedural specialists? Why were primary care physicians, who made up at least a sizable minority of physicians when the update process was started, not represented according to their numbers?
- Why has there been so little discussion of the RUC and its responsibility for an extremely expensive health care system dominated by high-technology, expensive, risky and invasive procedures?

Stay tuned, maybe these will be answered in our life-times....

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FDA Decides Regulating Implantable Defibrillator Medical Devices a "Political Hot Potato"; Demurs

Well, not exactly, but they have decided regulation of another medical device is a political hot potato, and demurred on enforcing regulation: 

Health IT. 

Health IT are medical devices.

FDA's Chair of the Center for Device and Radiological Health, Jeffrey Shuren, MD JD, stated this explicitly on Feb. 25, 2010 (see testimony to the HHS Health Information Technology HIT Policy Committee at this PDF) that:

... Under the Federal, Food, Drug, and Cosmetic Act, [that regulates all drug, medical devices, etc. in the United States - ed.] HIT software is a medical device. Currently, the FDA mandates that manufacturers of other types of software devices comply with the laws and regulations that apply to more traditional medical device firms. These products include devices that contain one or more software components, parts, or accessories (such as electrocardiographic (ECG) systems used to monitor patient activity), as well as devices that are composed solely of software (such as laboratory information management systems).

That leaves no doubt that these are medical devices. However, he also stated:

To date, FDA has largely refrained from enforcing our regulatory requirements with respect to HIT devices.

In other words, this medical device receives special accommodation over all others,such as heart stents, defibrillators, spine and knee implants, etc., all of which have been in the news in recent years for major defects and malfunctions, up to and including causing patient deaths. The extent would have likely been far, far worse had these gadgets been unregulated.

One should ask: why the special accommodation for health IT medical devices? What are the underlying politics, and who is behind them? Especially when FDA is aware of potential risks that may only be the "tip of the iceberg?"

The selective reluctance to enforce the FD&C Act persists to this day. See for example this link regarding his statements just a few days ago here in Philadelphia: Will FDA Regulate EHR's? :

Speaking at the first annual PharmEHR Summit in Philadelphia on April 7, Jeffrey Shuren, M.D., J.D., director of the Center for Devices and Radiological Health at the FDA, said his agency could change its traditional hands-off approach to EHRs, but he acknowledged that the potential of FDA regulation raises serious clinical issues [the only clinical issues I can think of are in holding vendors accountable for patient injury - ed.] and is a “political hot potato.” “As of right now we’re not regulating EHRs, and it may turn out that we won’t,” he said.

A "political hot potato" as the reason for an FDA hands-off policy?  Remarkable. 

Tossing away political hot potatoes and ... patients.

Likely translation: FDA regulation of health IT will never happen.

One implication is that health IT quality, safety, efficacy, privacy, security, and other issues about these systems will remain subject to HHS and industry caprice.

While we're at it, let's deregulate knee implants too...

-- SS

Addendum April 19, 2011:

Roy Poses observes that:

Here is a great example of regulatory capture. The health care IT industry has amassed such political clout that it now has impunity to regulation. Once again, combined economic and political power trumps patients' and the public's health and safety. We will not be able to really reform health care until we can provide for honest, independent health care regulation to uphold patients' and the public's health.

-- SS

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