The New York Times Reports A University President's Conflict of Interest

Three months ago, we discussed the controversy at the University of Michigan about  the university president's position on the board of directors of the big pharmaceutical, medical device and medical supply company Johnson and Johnson as a potential conflict of interest that could have influenced her decision to make the campus smoke-free.  (Johnson and Johnson makes drugs to aid in smoking cessation.)  I argued that by the Institute of Medicine definition, President Coleman did have a conflict of interest, and while it was not possible to tell whether it influenced the smoke-free decision, the issue with conflicts is that they constantly raise the possibility of undue influence on decisions.

Now this issue has made it to the big time.  New York Times reporter Duff Wilson, wrote in the Times' Prescriptions Blog

The University of Michigan medical school became the first in the nation last month to say it would refuse any funding from drug companies for its continuing medical education classes. The decision could cost it as much as $1 million a year, but it was worth it, the medical school dean said, for education to be free from potential bias.

At the same time, Mary Sue Coleman, president of the entire University of Michigan, sits on the board of directors for the pharmaceutical giant Johnson & Johnson. Last year, the company paid her $229,978 — roughly half in stock and half in cash — for attending a limited number of meetings, corporate filings show.

Conflict of interest? Conflict of policies? If the med school and mere professors could be tainted by drug money, what about the university president?

She says no. Responding to questions on Ms. Coleman’s behalf Monday, Kelly E. Cunningham, a spokeswoman for the university, said the president satisfied the policy by disclosing her outside work. Ms. Coleman has never had to recuse herself from any discussion or action at the university because medical purchasing and investment decisions are so remote from her, Ms. Cunningham said.

'The same is true at J&J,' she added. 'There has never been a discussion or decision at the board level that involved something related to the UM. But, of course, if there were, she would recuse herself.'

The story was picked up by the Detroit Free Press, which reiterated the official line that President Coleman's role on the Johnson and Johnson board did not pose a conflict:

A student group at the University of Michigan is calling on President Mary Sue Coleman to resign from her seat on the Johnson & Johnson board of directors, saying it's a conflict of interest.

But Coleman has no plans to resign, and university officials say her role on the board is not in conflict with university operations. Last year, she earned nearly $230,000 for her board duties. Coleman's U-M salary is about $550,000.

'It's essential that U-M have a voice and interact with the business world,' said Rick Fitzgerald, a U-M spokesman. 'She thinks it's her duty to understand what the commercial world is doing.'

So, as I did last time, let us turn to the Institute of Medicine's definition of conflict of interest (in a health care context) found in its report, Conflict of Interest in Medical Research, Education, and Practice.

Conflicts of interest are defined as circumstances that create a risk that professional judgments or actions regarding a primary interest will be unduly influenced by a secondary interest. Primary interests include promoting and protecting the integrity of research, the quality of medical education, and the welfare of patients. Secondary interests include not only financial interests....

I asserted then that President Coleman has a conflict of interest. Her primary interests as President of a university are to uphold the university's academic mission, and as President of a university that includes a medical school, a school of public health, and an academic medical center, also to uphold the integrity of patient care and public health practice. Her secondary interest as a member of the board of directors of a public, for-profit corporation is her fiduciary duty to that corporation and its stockholders, which means she must "demonstrate unyielding loyalty to the company's shareholders" [Per Monks RAG, Minow N. Corporate Governance, 3rd edition. Malden, MA: Blackwell Publishing, 2004. P.200.] Such unyielding loyalty to the shareholders of a pharmaceutical and medical device company clearly creates a risk of influencing judgments or actions that could affect the corporations' sales or operations, economic or health policy, or the general environment in which it operates. Many of the judgments of or actions performed by the leader of a medical school, public health school, and academic medical center could so so, and are thus at risk of being so unduly influenced.

As the IOM report said, though,

a judgment that someone has a conflict of interest does not imply that the person is unethical. Such judgments assume only that some situations are generally recognized to pose an unacceptable risk that decisions may be unduly influenced by considerations that should be irrelevant.

However, note that the sorts of decisions that may be influenced by a conflict of interest go beyond just those that involve the specific secondary interest causing the conflict. So the University spokesperson's statement that the president would recuse herself from any decision at the university that directly involved Johnson and Johnson, but that no such decision has ever been necessary, missed the point.

Meanwhile, the university's insistence that the president's part-time position at Johnson and Johnson is justified by the need to "have a voice and interact with the business world" rings hollow. There are many ways a president could do that which do not involve getting corporate pay (and for "unyielding loyalty"). It rings especially hollow at a university that has identified corporate funding for continuing medical education as an unacceptably bad conflict of interest.

But then again, conflicts of interest are known to create confused thinking, and such confused thinking is likely to be prevalent at an institution that has one set of rules for the little people, and another for the top leaders.

Maybe this story in the New York Times will lead to some discussion about whether it is good for academic medical institutions to tolerate this previously "new species of conflict of interest" (as we termed it in 2006).

"Smoke Detector" - Medical Center Leader (and Former Biotech CEO) Outed as Tobacco Investor

Last year we posted about the seemingly incongruous choice of a wealthy biotechnology executive with little academic or practice experience to run the prestigious University of California - San Francisco, a health oriented university housing a respected medical school.  We wondered whether her corporate background would make it difficult to uphold the university's academic and patient care missions.

In line with our concerns, Duff Wilson, writing in the New York Times, reported:

When Dr. Susan Desmond-Hellmann was named chancellor of the University of California, San Francisco, last summer, she took over a medical institution focused on world health generally and tobacco control in particular.

But she forgot one thing in adjusting to her new role: personal stock holdings listed last year in the range of $100,000 to $1 million in Altria, owner of Philip Morris USA, the maker of Marlboro cigarettes. Altria has been blamed for thousands of deaths and repeatedly criticized by the Center for Tobacco Control Research and Education at the university.

Last week, a day after The New York Times inquired about the Altria stock, Dr. Desmond-Hellmann and her husband, also a doctor, ordered it to be immediately sold and imposed 'values screening' on their personal investments.

Experts on tobacco control were aghast:

Dr. Stanton A. Glantz, director of the university’s tobacco control center, said he was unaware of Dr. Desmond-Hellmann’s Altria stock, which was contained in a university filing but not made public until now, after a public records request by a former student who passed it on to The Times.

“I do find that kind of shocking, but at least she got rid of it,” Dr. Glantz said on Monday, adding that Dr. Desmond-Hellmann had been very supportive of the center.

Dr. Kenneth E. Warner, dean of the school of public health at the University of Michigan and a national antitobacco leader, said, “I find it frankly a bit appalling that the chancellor of a major medical center would have held such stock. It strikes me as unthinking, frankly.”

We should give Dr Desmond-Hellmann credit for selling her Altria stock as soon as its connotations were made plain to her. (And at least she was not on the board of a tobacco company, to our knowledge, as was one former president of a university and large health sciences center.)

However, this little incident underlines the clash between the culture that dominates large health care corporations and the mission of medical schools and academic medical centers. In the last 30 years, academic medicine has rushed to embrace the reigning corporate culture, not to mention corporate money. I submit that this embrace has been at the peril of the fundamental academic and patient care missions.

Academic medical leaders need to promote better patient care, and honest, responsible teaching and research. To do so, they may have to give up some of the glitz, glamor, and cash proffered by industry. If they do not make this sacrifice, they risk losing the trust of an increasingly skeptical, if not cynical public.

Insel Admits His Statements "May be Viewed as Misleading"

Dr Bernard Carroll has posted several times, most recently here, about shenanigans by "key opinion leaders" in psychiatry whose apparently academic writing and speeches have conveyed messages in line with the marketing agendas of drug and device companies, while they downplayed or concealed their financial ties to these companies.  Lately, Dr Carroll noted how the current director of the US National Institute for Mental Health (NIMH), Dr Thomas Insel, has defended Dr Charles Nemeroff, whose recent move to the University of Miami let him shed sanctions imposed by Emory University for his failure to disclose conflicts of interest while he was there. Dr Carroll wrote, "For the past three months, Insel has been trying to put some distance between himself and Nemeroff, but the public isn’t buying it. I have called his statements disingenuous...."

Dr Carroll is on vacation, so in his absence, I note the following from a brief article in the Chronicle of Higher Education:

The director of the National Institute of Mental Health, Thomas R. Insel, has softened his denial of a mutually helpful relationship with Charles B. Nemeroff, a university researcher found to have repeatedly collected undisclosed corporate payments. In an update to his official blog posting, Dr. Insel said his initial denial of job assistance from Dr. Nemeroff 'may be viewed as misleading,' and acknowledged that Dr. Nemeroff served in key positions related to Dr. Insel's hiring by Emory University.

This seems to corroborate Dr Carroll's skepticism. I wonder what other statements by Dr Insel, or Dr Nemeroff for that matter, ought to be "viewed as misleading?"

We have said repeatedly that commercially sponsored "key opinion leaders" are really part-time drug marketers disguising themselves as academics or distinguished practitioners. The deceptions inherent in these roles seem to lead to a certain habitually elastic approach to the truth.

Medical academics and practitioners will need a renewed commitment to honesty and transparency if they want to regain the respect of an increasingly skeptical, if not cynical public.

Deferred Prosecution Agreements End, So Let the Payments Grow

Starting in 2007, we posted (here, here, here, here and here) about the payments, often huge, that five manufacturers of prosthetic joints (Biomet, DePuy Orthopaedics (a unit of Johnson & Johnson), Stryker Orthopedics,a unit of Stryker Inc, Zimmer Holdings, and Smith & Nephew) revealed they made to orthopedic surgeons and various academic and other organizations. These revelations were the results of deferred prosecution agreements made in 2007 between four of the companies and the US Department of Justice after the latter charged Biomet, DePuy, Zimmer, and Smith and Nephew with giving surgeons kickbacks, disguised as consulting fees, to promote their products.  Stryker entered into a voluntary compliance agreement (see post here). 

We also noted that some of the leadership of the major orthopedic societies have received substantial amounts from these companies, as have the societies themselves. A 2008 post on this subject noted the minimal disclosure some of the surgeons receiving these huge payments made when writing scholarly articles on related topics.

Now in 2010, Bloomberg News reported on the results, such as they were, of these ballyhooed agreements:

The government declared last year that it had overhauled the financial relationships between surgeons and the biggest makers of knees and hips, saying the threat of criminal prosecution for 'kickbacks' had forced them to slash payments to physicians. Results of the crackdown were 'truly extraordinary,' said Christopher Christie, a former U.S. attorney for New Jersey who is now governor, in testimony to Congress in June 2009.

It was too good to be true. Compensation ended up being higher after the September 2007 deferred prosecution agreement because payments were postponed, according to data compiled by Bloomberg and interviews with seven surgeons.

'It’s back to business as usual' says Charles D. Rosen, president of the Association for Medical Ethics, who is a spine surgeon in Irvine, California. 'Nothing will change until someone goes to jail. It’s a big game.'

Apparently, while during the course of the agreements the companies decreased payments to surgeons, they made up for it later:

Prosecutors in the New Jersey U.S. Attorney’s Office, which headed the case, reported a 'satisfactory completion' in March 2009 of the probe of Biomet Corp., Johnson & Johnson’s DePuy unit, Smith & Nephew PLC, Zimmer Holdings Inc. and Stryker Corp. Payments in 2008 fell to $105 million from $272 million the year before, the Justice Department lawyers said.

The companies increased doctor compensation for 2008 to about $300 million, according to the data compiled by Bloomberg from reports posted on the device makers’ websites. Fees for 2008 were delivered in 2009, the surgeons say.

Payment delays were 'a common happenstance,' says Teresa Ford, a Seattle attorney who represents 150 doctors who have consulting or royalty agreements with orthopedic device makers. “None of them had significant changes in their relationships.”

Also,

A month after the government closed its case, Zimmer CEO David Dvorak told analysts on a conference call that the action didn’t result in a 'material change' to what it pays surgeons.

Attempts by Bloomberg reporters to find out more did not reveal much:

Since the agreement, payments to surgeons have been appropriate and for legitimate purposes, according to spokespeople for the five companies. Wright says on its website that it adheres to industry ethical standards in its dealings with consultants.

As for 2008 fees that weren’t delivered until 2009, three of the companies say they froze payments while monitors were reviewing contracts with surgeons to ensure they were proper. Spokesmen for Stryker and Smith & Nephew declined to comment. Three of the court-appointed monitors say they’re barred from talking about the details of their work. The two others, including former U.S. Attorney General John Ashcroft, didn’t return telephone calls. The department declined to release reports the monitors filed.

We have repeated often (e.g., here) the argument that limiting punishments of health care organizations for wrong-doing to corporate fines and deferred prosecution agreements has not deterred further wrong-doing.  Most of the cases which we have discussed involved pharmaceutical and biotechnology companies, and sometimes health insurers.  It seems that the argument also applies to device manufacturers. 

To underline the lack of a deterrence effect, others payments by other device companies to other surgeons have also recently come to light. In 2008, we discussed payments made by Medtronic revealed in various court filings. Medtronic just started voluntarily revealing more information. For example, as reported by the St. Louis Business Journal, Dr Larry Lenke helped Medtronic develop a spinal surgery system, so

In the first three months of 2010, Lenke earned $832,000 in royalties from Medtronic, putting him on track to top $3 million in royalties this year.

Lenke received between .5 percent and 1 percent of sales of the system in royalties.

'The royalties are very small, but the sales are large,' he said. Lenke is cho-chief of adult and pediatric spinal, scoliosis and reconstructive surgery and the Jerome J. Gliden professor of orthopedic surgery at the Washington University School of Medicine, the director of spinal surgery at Shriners Hospital for Children, and a spine consultant to the St. Louis Rams and Blues.

Like the surgeons we discussed in 2008, neither Dr Lenke nor Washington University seemed to make an effort to reveal his multi-million dollar relationship with Medtronic.

Dr Lenke's official web-page at Washington University does not reveal financial ties to, much less multi-million dollar royalties from Medtronic. A quick review of a few of Dr Lenke's published articles reveal such vague disclosures as:

One or more of the author(s) has/have received or will receive benefits for personal or professional use from a commercial party related directly or indirectly to the subject of this manuscript: e.g., honoraria, gifts, consultancies, royalties, stocks, stock options, decision making position.

[Bridwell KH, Glassman S, Horton W, Shaffrey C, Schwab F, Zebala LP, Lenke LG, et al. Does treatment (nonoperative and operative) improve the two-year quality of life in patients with adult symptomatic lubmar scoliosis: a prospective multicenter evidence-based study. Spine 2009; 34: 2171-78.]

The most specific disclosure I could find was:

Dr Lenke was a consultant for Medtronic until January, 2009, and is a patent holder with Medtronic.

[Silva FE, Lenke LG. Adult degenerative scoliosis: evaluation and management. Neurosurg Focus 2010; 28: 1-10.]

So the more things change, the more they stay the same. Device companies are still paying royalties, sometimes enormous sums, to the surgeons who helped them develop lucrative devices. Many of these surgeons are in practice, and some are prominent academics. The surgeons, and their academic institutions when applicable, do not seem to be going out of their way to reveal these sometimes massive financial relationships to patients, many of whom end up implanted with the very devices that generate these enormous payments. While some of the surgeons and influential academicians and prolific authors, they do not seem to go out of their way to reveal these sometimes massive financial relationships to their audiences and readers, even while touting aggressive, procedure-oriented, device-centric approaches to manage orthopedic problems.

So although the "Sunshine Act" was made part of the US health reform legislation, there is not yet much sunshine out there.  In my humble opinion, at a minimum, physicians should reveal, in detail, all financial relationships that might appear to have a probability of influencing their clinical decision making to the patients for whom such decisions are made.  Physicians should also reveal, in detail, all financial relationships that might appear to have a probability of influencing any related teaching or research. 

Furthermore, as an Institute of Medicine's report on conflicts of interest, which as received strikingly little attention, recommended:

researchers should not conduct research involving human participants if they have a financial interest in the outcome of the research, for example, if they hold a patent on an intervention being tested in a clinical trial.

Also, the report said we need

to develop a new system for funding high-quality accredited continuing medical education that is free of industry influence.

These idealistic recommendations seem a long way from the reality of our currently money-focused system of medical education and research.

More Hospitals Hiring CEOs' Children, Doing Business with Board Members' Firms

As we predicted (here), the new reporting requirements imposed on US not-for-profit organizations are beginning to yield interesting results about the coziness of the leadership of some health care organizations. 

Western Pennsylvania

For example, we start with an article in the Pittsburgh Tribune-Review about hospitals in western Pennsylvania.

Board members at Western Pennsylvania hospitals have provided legal, real estate, insurance and advertising services to their organizations, according to IRS reports examined by the Tribune-Review.

The reports, which cover the fiscal year ending June 30, 2009, are the first under new reporting requirements imposed on nonprofit hospitals by the IRS. Still more requirements will kick in next year.

Details of the filings by the two largest area health care firms, UPMC and West Penn Allegheny, were made public last month. UPMC reported $10 million and West Penn reported $5 million in dealings with board members or top executives.

Five other major nonprofit health care providers reported business dealings with board members and, like UPMC and West Allegheny, cited in-place reporting and monitoring systems to avert or minimize any conflict of interest.

The specifics include this about Ohio Valley General Hospital:

At Ohio Valley General Hospital, the tax return shows two relatives of the chief executive officer are on the payroll.


Dr. David Provenzano, son of CEO William F. Provenzano, was paid $613,781 in salary and benefits. The CEO's daughter-in-law, Dr. Dana Dellapiazzo, was paid $130,525.


David Provenzano is the medical director of the hospital's pain center. Dellapiazzo is an anesthesiologist.

About Excela Health:

At Excela Health, which operates the Westmoreland Regional Hospital and two other hospitals, a company part owned by CEO David Gallatin was paid $253,835 for direct mail services.

Excela spokeswoman Robin Jennings said Mailing Specialists 'processes our mail in preparation for sending to the post office with appropriate bar coding.'

Excela reported payments of $683,250 to Westmoreland Emergency Medicine, which employs board member Dr. Robert Whipkey.

About Washington Hospital:

At Washington Hospital, board member Thomas Northrop's Observer-Reporter newspaper was paid $212,071 for advertising services. The hospital paid $308,185 in premiums to the Campbell Insurance Agency, where board member John Campbell is an owner.

About Jefferson Regional Medical Center:

Jefferson Regional Medical Center in Jefferson Hills, according to its report, paid $151,940 in legal fees to the law firm of board member Gregory Harbaugh. It paid $331,280 in real estate commissions to the firm run by board member Kevin Langholz.
The hospital paid $75,035 to the Thorpe Reed law firm where board member Anne Mulaney works.

About St. Clair Hospital:

At St. Clair Hospital in Mt Lebanon, a radiology firm that employs Dr. Donald Orr, who is a board member, was paid $1.95 million for providing medical services, according to the hospital's filing.

The hospital paid $80,000 for insurance related services to the HGH Group headed by hospital board member Bryan Hondru.

New Hampshire

The New Hampshire Union-Leader reported on Catholic Medical Center:

The head of Catholic Medical Center, whose salary is being questioned by the Attorney General's Office, has two offspring and two step-children employed or in one case recently employed there, the hospital acknowledged.

A hospital official defended its hiring practices, saying no favoritism is shown and that of the 11 members of senior CMC management, seven have relatives who either work or have worked at the hospital, some on a per-diem basis.

Executive Vice President Ray Bonito said his own son held a per-diem job during college. Offspring of trustees can also work at the hospital, he said.

Alyson Pitman Giles has been CMC president and chief executive officer since 1999. Her bid to intertwine CMC with Dartmouth-Hitchcock Health has been stalled by the New Hampshire attorney general, who deemed it an acquisition of CMC and said it violates state law and would need court approval.

CMC provided the following information on Giles' four relatives.

-- Son Seth Pitman has worked per-diem over the past several years. Late last month, the hospital said he was working as a project writer in the marketing office. But last week, the hospital said he is not actively employed there.

-- Daughter Sarah Pitman manages a primary-care physician practice. The hospital has not said when she started at that job. She was a hospital volunteer from June 1999 to January 2001, when she started working per-diem.

Two Giles stepchildren are also employed at the West Side hospital.

-- Stepdaughter Megan DeSantis is a physician assistant at Surgical Care Group, where she was hired six years ago. CMC acquired the group in May 2009.

-- Stepson William Giles is a physician recruiter. He started as a program analyst with the IT department in June 2000 and received several promotions over the last 10 years, CMC said.

Summary

The defenses for hiring top leaders' relatives, and doing business with top leaders' firms were similar in both locations. For example, in western Pennsylvania,

All reported that any dealings with connected firms individuals were 'at arm's length' with prices set at 'fair market value.'

In New Hampshire,

'It's not just a question for hospitals,' Bonito said of hiring relatives. 'It's a question for all companies.'

What's important, he said, is that a strict process be followed.

'Everyone goes through the same process. I don't care whose kids they are,' said Bonito. 'Everyone gets treated the same. We hire the most qualified candidate.'

It all smacks of an excess of coziness.  One wonders if there was any effort made to find other candidates when the CEO's family members showed up, or to find any other vendors when the board members' firms were available. Maybe they could have found writers, physician recruiters, and even physicians other than the immediate family members of the hospital CEO. Maybe they could have found direct mail companies, advertising agencies, and law firms available where no relatives of the CEO work, and which were not run by hospital trustees.  However, rejecting a CEO's child, or a board member's firm may require an independence of spirit rarely found in today's bureaucratic health care environment.  Instead, it may be easier to "go along to get along."

Once hired, furthermore, even when there are "processes and procedures" in place, it may become all to easy to treat the CEO's relatives differently than run of the mill employees, and to treat the trustees' firms differently than the usual vendors.  That is where the real conflicts of interest set in.  The sort of coziness that allows hiring leaders' relatives and doing business with leaders' firms could soon lead to confusion between leaders' interests and the institutions' mission.  However, leaders of hospitals and other not-for-profit health care organizations have a duty to put the mission of the organization ahead of their personal interests. 

In my humble opinion, this sort of coziness, this sort of fuzziness at the boundaries of institutional duties and personal interests, may be a fundamental reason that our current health care system has become so solicitous of the interests and prerogatives of its leaders, and so cold to the needs of patients and the values of professionals. 
The need for more transparent, accountable leadership of health care who explicitly are subject to clear ethical rules was never more apparent. 

Stay tuned as more and more cases like this appear....

The Stewards of an Elite University, or a "Politburo" of "Shadow Bankers?"

We have postulated that one of the key reasons US health care has become so dysfunctional is that the leaders of some of the most august health care institutions have strayed from, if not totally abandoned their organizations' fundamental missions.  There are many possible reasons for this phenomenon, but one is that the ultimate stewards of not-for-profit health care organizations, their boards of directors or trustees, have become uninterested in the mission, or impotent to uphold it.  So, we have tried to figure out what has happened to these boards that has lead to this sorry state.

Dartmouth College: the Packing of the Board of Trustees

One example we have come frequently discussed (beginning here) is that of Dartmouth College, despite its name, really a university, and one of the elite American universities which includes a well-regarded medical school.   For a long time, Dartmouth had one of the more accountable and representative systems of governance found in US universities.  Recently, however, this accountability and transparency was challenged by some of the College's own leaders. 

Most boards of trustees are self-elected.  When an old member leaves, the new members elect his or her successor.  Dartmouth alumni, however can elect eight members of the board of trustees. Until recently, eight others were "charter trustees," who were individually chosen by the other charter trustees, and two were ex-officio. Although the College's Association of Alumni traditionally nominated alumni to run for trustee positions, candidates could be nominated by petition, and starting in 2004, four such petition candidates were elected.

As described by FIRE, the Foundation for Integrity and Responsibility in Medicine, this more open process fostered change in how the university was lead, and seemed to foster renewed attention to the institution's mission:

These trustees spoke out when they perceived their alma mater as not living up to its mission, and Dartmouth students benefited. In May 2005, the college repealed its speech code, and it immediately moved from FIRE's 'red-light' rating and became a 'green-light' institution.

As might be expected, the reigning leadership was not pleased.

Some campus officials viewed the propensity of petition candidates to voice their opinions on illiberal policies as detrimental to the school's image. The Wall Street Journal profiled T.J. Rodgers, a petition-nominated trustee, who explained the criticisms leveled at the 'divisive dissidents.'

'If 'divisive' means there are issues and we debate the issues and move forward according to a consensus, then divisive equals democracy, and democracy is good. The alternative, which I fear is what the administration and [Board of Trustees Chairman] Ed Haldeman are after right now, is a politburo-one-party rule.'

In 2007, in apparent response to the "divisiveness" of the petition trustees, the Charter Trustees proposed increasing their own numbers. Chairman Ed Haldeman's rationale for this, as we discussed here, was to ensure that the board "has the broad range of backgrounds, skills, expertise, and fundraising capabilities needed," and that the board members would possess "even more diverse backgrounds."

Charter Trustees or "Shadow Bankers"?

Yet when we examined the backgrounds of the current charter trustees, we found that they exhibited little diversity. Remarkably, three-quarters (6/8) were in leaders of the finance sector. The board chairman, Ed Haldeman, was then the leader of Putnam Funds.  Now, he is the CEO of "Freddie Mac."  In 2007, the significance of this kind of lack of diversity were not clear.  However, it did seem strange that those accused of seeking to form a "politburo" came from the Wall Street, the street that the left once loved to hate.

However, by late 2008, the world economy descended into an unprecedented financial collapse. Many concluded that the global economic collapse was caused by arrogance, greed, and corruption within the financial sector. This suggested that leadership of academia, and academic medicine in particular, by leaders of the finance sector might not, in retrospect, have been a such a good idea. When we reexamined the composition of the now enlarged cohort of Charter Trustees, however, we found nine of 13 "charter" trustees were leaders in finance, now including three in asset management, two in private equity, one in the field formerly known as investment banking, one in venture capital, one in mutual funds, and one in strategic consulting and investment. Of the remaining four, one was the CEO of a large diversified corporation that has a major finance subsidiary. The remaining three were two physicians and a pharmaceutical corporate CEO.

Given the ongoing financial chaos at the time, we again suggested that a board dominated by business leaders in the finance sector might not be a good idea. Last week, a report came out suggesting why we were right.

Charter Trustees as Dartmouth's Own "Shadow Bankers"

"Educational Endowments and the Financial Crisis: Social Costs and Systemic Risks in the Shadow Banking System," published by the Center for Social Philanthropy, Tellus Institute, focused on how prominent educational institutions, including Dartmouth College, came to invest much of their endowments in risky, illiquid "alternative" investments, the sort provided by the "shadow banking system." The report noted that this change lead to greater financial risks, leading to recent losses and consequent sharp cutbacks in spending, programs, and employment at the affected institutions. In particular, however, it focused on leadership and governance problems at the institutions that lead to this state of affairs.

Although the emergence of the high-risk Endowment Model of Investing has taken place against the backdrop of powerful forces of financial globalization and the influence of Modern Portfolio Theory, its consolidation and influence today at colleges and universities depend vitally on college leaders: senior administrators, trustees, and investment managers, especially the increasingly prominent role of chief investment officer, or CIO. The financial crisis has in many ways been a crisis of leadership. The precipitous declines endowments have suffered during the credit crisis need to be understood as the logical outcome of the Endowment Model’s high risk strategies, but behind the model stand those who are ultimately responsible for its execution: whether as professional money managers, investment officers, affiliated investment management companies, outside managers, or investment consultants, or as the fiduciaries sitting on governing boards and investment committees.

At Dartmouth, in particular, the report focused on conflicts of interest among the board of trustees:

When it comes to weakened endowment oversight, the most glaring problem arises from trustees from the finance industry whose firms provide investment management services. One of the most disconcerting cases in this respect is that of Dartmouth College, where the sudden departure of CIO David Russ in 2009 created a leadership vacuum over endowment management. The college’s investment committee chair and trustee Stephen Mandel has played the CIO role on a voluntary, part-time basis since last summer and will continue to do so until he becomes chair of the board of trustees later this year. At the same time, Mandel’s firm, Lone Pine Capital LLC, a well known hedge-fund complex he founded in 1997, has also managed an investment mandate from the college’s endowment valued originally at $10 million. Although the college has a conflict-of interest policy and is required to disclose such 'pecuniary benefit transactions' with the state of New Hampshire, it would seem difficult for fellow trustees to provide proper oversight of investments managed by a fellow trustee serving as the de-facto CIO. Additionally, if Mandel recuses himself from committee or board deliberations related to his firm, then the investment committee must function without its chair.

However, the problem is magnified because Mandel is only one of more than half a dozen Dartmouth trustees whose firms manage multimillion-dollar investments for the endowment, according to the college’s filings with Charitable Trusts Unit of the New Hampshire Department of Justice. Leon Black’s firm Apollo Management has reportedly managed at least $40 million in Dartmouth investments. Russell Carson’s private equity firm[Welsh, Carson, Anderson and Stowe] has reportedly received at least $45 million in commitments of capital from Dartmouth. William Helman, IV’s venture capital firm Greylock Partners, has reportedly received $10 million investment mandates from the college, while R. Bradford Evans’ firm Morgan Stanley has done multiple transactions
with the college, varying from investments in international real estate and hedge funds to bond issuances, all at undisclosed levels. P. Andrew McLane [T A Associates] and Jonathan Newcomb [Leeds Weld and Co] have also had reported interests in college investments at undisclosed levels. For an endowment of its size— Dartmouth’s endowment fell to less than $3 billion in fiscal year 2009—the deep dependence on trustees’ own businesses for endowment management seems disproportionate.

Thus, one half of the membership of Dartmouth's Charter Trustees were also being paid by Dartmouth to manage its endowment investments.  However, as the Tellus Institute report noted,

Leading experts on nonprofit board governance, such as Richard Chait at Harvard University, stress that colleges should simply not do business with the companies of their board members, in order to avoid inevitable distractions and the sense of divided loyalties that arise, to say nothing of appearances of self-dealing and personal enrichment

Another "Missing Link": Board Members Doing Business with the Organizations They are Supposed to Steward

We have frequently discussed the web of conflicts of interest that now permeates health care.  Most of the conflicts we have discussed up to now involve physicians or academicians who have financial ties to pharmaceutical, biotechnology, and device companies.  Health care organizational leaders also do business  with the organizations they lead have not until recently been a topic of discussion, mainly because such conflicts of interest have rarely been disclosed.

It looks like this is going to change.  The US Internal Revenue Service sought disclosure of such conflicts of interest affecting hired executives and boards of trustees of not-for-profit organizations beginning in 2009.  These disclosures, reported on IRS form 990, are just beginning to be made public.  We just posted about members of the board of directors of a large academic health care system who also lead or owned companies that did substantial business with the system.  Now we see that a substantial portion of the board of trustees of Dartmouth lead financial firms that managed a major portion of the College's endowment, perhaps to the overall detriment of the endowment's performance.  No wonder the Charter Trustees got nervous about petition trustees poking about their business.

 As summarized by BoardSource, there are three traditional duties of members of boards of trustees of not-for-profit organizations:

Duty of Care

The duty of care describes the level of competence that is expected of a board member, and is commonly expressed as the duty of "care that an ordinarily prudent person would exercise in a like position and under similar circumstances." This means that a board member owes the duty to exercise reasonable care when he or she makes a decision as a steward of the organization.

Duty of Loyalty

The duty of loyalty is a standard of faithfulness; a board member must give undivided allegiance when making decisions affecting the organization. This means that a board member can never use information obtained as a member for personal gain, but must act in the best interests of the organization.

Duty of Obedience

The duty of obedience requires board members to be faithful to the organization's mission. They are not permitted to act in a way that is inconsistent with the central goals of the organization. A basis for this rule lies in the public's trust that the organization will manage donated funds to fulfill the organization's mission.

Letting a board member's firm manage millions of dollars worth of the institution's endowment portfolio seems an obvious violation of the duty of loyalty. (Letting a board member's legal firm handle the institution's legal issues, or having a board member's advertising firm do its marketing, as described in our earlier post, also seem to be obvious violations of this duty.) A board member who sees nothing wrong with doing business with the organization he or she is supposed to steward would likely see nothing wrong in allowing the organization's mission to become a casualty of the means used to protect that business relationship.

I suspect we are soon to see many more examples of hired executives and board members of revered not-for-profit organizations who have been doing business on the side with the organizations of which they are supposed to be leaders or stewards.  These sorts of conflicts of interest may be another "missing link" explaining why the leadership and governance of health care organizations has gone so far astray. 

As disclosure continues, maybe enough outrage will ensue so that improved leadership and governance will become possible. 

At UPMC: Dealings with Board Members' Firms and Executives' Relatives, a $5 Million Plus CEO, and 8 $1 Million Plus Executives

Last year we noted that the US Internal Revenue Service (IRS) required more detailed reporting starting in 2009 by US not-for-profit organizations.  Many US health insurance companies/ managed care organizations, most hospitals, nearly all medical associations, nearly all disease advocacy organizations, all health care charities, and nearly all medical schools are not-for-profit organizations.  We suggested then that this reporting might lead to more transparency about the leadership and governance of these organizations.  Some of these new 990 forms are now being publicly disclosed, with some interesting findings. 

The Pittsburgh Tribune-Review just reported some interesting findings about financial ties between the University of Pittsburgh Medical Center (UPMC) and its board members and hired executives.

Health giant UPMC paid more than $10 million last year to companies and individuals with ties to its directors and high-ranking executives, newly released tax records show.

The payments include more than $3 million in salaries and contracts to relatives of UPMC CEO Jeffrey Romoff, who earned $5.16 million in fiscal 2009.

It was no surprise that a UPMC spokesman pooh-poohed the significance of these relationships.

'Given that UPMC is the largest employer in Pittsburgh and attracts talent from across the world, it's easy to understand why there are hundreds of employees with family members who also work at UPMC,' said spokesman Paul Wood.

'We seek to hire the best and brightest in every position, regardless of family relationships, and take appropriate steps to manage any conflicts that those relationships might entail.'

The specifics about payments to the relatives of top hired executives were:

Tax records show UPMC paid $264,274 to Rebecca Kaul, the CEO's daughter. Wood said UPMC then billed a contractor for her services. Kaul now works for UPMC as executive director of the Technology Development Center, Wood said.

UPMC paid $259,488 to Scott Gilstrap, who joined the health care giant before marrying Romoff's daughter. Gilstrap, now divorced, no longer works for UPMC, Wood said.

Wood said UPMC's contract for $2.48 million with Paradise Group, an advertising firm owned by the CEO's brother, Douglas Romoff, was not renewed after its March 2009 expiration.

'Jeffrey Romoff was not involved in any of the decisions pertaining to this contract,' Wood said.

In addition to Romoff's family connections, the tax records show UPMC paid Scott Cindrich, son of its chief counsel Robert J. Cindrich, $141,599.

Wood said the younger Cindrich joined UPMC before his father left a federal judgeship in 2004 to become UPMC's top lawyer. Robert Cindrich was paid $1.86 million.

Cindrich did not return telephone calls seeking comment.

The specifics about dealings between UPMC and its board members were:

Tax records show companies affiliated with board member Anne V. Lewis do the most business with UPMC. Oxford Development Company, where Lewis is board chair, received $4.84 million from UPMC.

Lewis is affiliated with Central Securities Services, which received $201,198 from UPMC, and Central Property Services, which received $457,051. Lewis did not return repeated telephone calls from the Tribune-Review.

According to the returns, the Downtown law firm of Pietragallo Gordon Alfano Bosick and Raspanti earned $348,616 in legal fees. William Pietragallo is a UPMC board member. The law firm paid $792,215 to UPMC for heath insurance.

Pietragallo said he filled out a conflict-of-interest form, as he has in past years.

'It reminds me of how much I pay for health insurance,' he said.

IGate Mastech, the tech company founded by UPMC board member Sunil Wadhwani, received $204,215 for computer services. JJ Gumberg and Co., affiliated with board member Ira Gumberg, was paid $103,521, tax records show. Neither Wadhwani nor Gumberg returned telephone calls.

Board member John R. McGinley Jr.'s law firm, Eckert Seamans Cherin and Mellott, was paid $804,414 for legal services, according to the returns. McGinley and board member Robert A. Paul and members of their families are affiliated with Pittsburgh Steelers Premium Tickets LP, which was paid $129,425, tax returns show.

McGinley said he believed the figures UMPC reported are correct. Paul did not return telephone calls.

Also, in a separate article, the Tribune-Review noted transactions between UPMC's insurance subsidiary and its board members' firms

Recent federal tax filings show companies associated with some UPMC board members also buy their employee health insurance through the health care giant's insurance arm.

The tax returns show that health insurance premiums paid by the companies affiliated with board members totaled about $8 million in the fiscal year ending June 30, 2009. Nine firms affiliated with board members purchased UPMC health insurance.

That figure includes nearly $1.8 million by Bank of New York Mellon. UPMC board member Stephen Elliott is affiliated with the bank.

Oxford Development paid $2.1 million in premiums. The development firm's chairman is Anne Lewis, a UPMC board member.

The law firm headed by UPMC board member William Pietragallo paid $792,215 in premiums, according to the returns. AMPCO-Pittsburgh, which is affiliated with UPMC board member Robert A. Paul, paid a little more than $1 million in premiums.

Of course, Mr Wood pooh-poohed that too:

UPMC spokesman Paul Wood said the premiums paid by the companies were at "market rates."

He also apparently stated that the hospital system follows "strict conflict-of-interest rules. Board members are barred from voting or acting on matters relating to their business interests...." 

The standard approach of most not-for-profit organizations to conflicts of interests involving their board members or executives is to have these people recuse themselves from votes or actions that directly affect their own or their families' business interests.  I submit that whether this prevents the conflict of interest from influencing decision making by the organizations is questionable.  I doubt that the board members are unaware of their fellow members' and executives' direct or familial business interests.  The fact that certain individuals need to step out of meetings when votes come up on particular contracts would be a good reminder that they or their relatives have business interests at issue at these times.  Board members tend to keep their seats for a long time, and tend to get to know their fellow members pretty well.  Even if an individual member cannot vote on a contract or action relating to his or her business interests, would it be any surprise that his or her buddies on the board might look favorably on such a contract?

Furthermore, would it really be that hard to find development companies, property management firms, advertising agencies, law firms, or information technology companies in a large metropolitan area that are not affiliated with board members or top executives and their families?  Instead, UPMC seems to have found quite a few vendors affiliated with board members which do not seem particularly specialized in their organizational attributes.  Can we be sure that they are run by the best and the brightest?

Maybe board members who are too cozy with each other, and too cozy with the hired executives they are supposed to supervise, would be distracted from the attentiveness required to their organization's mission by their buddies' businesses? 

Perhaps coziness among board members and hired executives might have something to do with the munificent compensation given to numerous hired leaders of UPMC.  A separate article in the Pittsburgh Post-Gazette stated:

Jeffrey Romoff, president and CEO of the University of Pittsburgh Medical Center, received $3.563 million in salary in 2009, a 24.4 percent decrease from his 2008 salary of $4.711 million.

However,

In addition to Mr. Romoff's $4.711 million in cash compensation in 2008, he received $428,214 in deferred compensation and $21,671 in nontaxable benefits, for a total package valued at $5.161 million.

In addition,

Other top UPMC earners include Elizabeth Concordia, executive vice president and president of the Hospital and Community Services Division, $2.139 million; Amin Kassam, the department of neurological surgery chair who resigned in July, $2.083 million; Robert Cindrich, senior vice president and chief legal officer, $1.869 million; neurosurgeon Ghassan Beijani, $1.798 million; neurosurgeon Adnan Abla, $1.620 million.

Also, Marshall Webster, executive vice president and chief medical officer, $1.514 million; Diane Holder, president and CEO of UPMC Health Plan, $1.485 million; James Luketich, co-director of surgical affairs at the University of Pittsburgh Cancer Institute, $1.442 million; Daniel Drawbaugh, senior vice president and chief information officer, $1.335 million; and David Farner, senior vice president and chief of staff in the office of the president, $1.253 million.

By my count, that was eight executives with yearly total compensation greater than $1 million (in addition to two very well paid neurosurgeons.)  These payments, which most people would say are sufficient to make their recipients rich, were handed out by a not-for-profit organization whose mission statement includes being "committed to providing premier health care services to our region and contributing to this community" at the end of a bog of business-speak.  I suspect most people would think "contributing to this community" means something in addition to contributing to the wealth of a few top executives, and contributing to the business income of board members and executives' relatives.  Again, are board members who have become cozy with each other and the executives they are supposed to supervise more likely to be distracted from their fiduciary duty to the not-for-profit organization by their buddies' friendships?

We often discuss conflicts of interest on this blog.  Many of these involve financial relationships among health care professionals and academics on one hand, and pharmaceutical, biotechnology, device and other health care corporations on the other.  However, I suspect that conflicts involving leadership of hospitals and local businesses and vendors may be more common.  The latter may not always have as much influence on the quality of care, teaching and research as former group of conflicts.  However, they may have more effects on the total costs of health care, and may contribute more to the coziness, sense of entitlement, and inattention to the mission that seem to characterize much of health care leadership.  They may contribute to the perception that health care, like finance, may now be about , as Prof Mintzberg said, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit."

The new version of the IRS forms are just beginning to become public, so we expect to see many more juicy stories about the financial and family ties of leaders of health care not-for-profit organizations.  Watch your local newspapers for details about conflicts of interest at your local health care not-for-profit organizations.

Maybe as more is revealed, the need for more transparent, accountable, and ethical governance of health care organizations will become apparent.

Leaders of Discredited Financial Rating Agencies as Leaders of Health Care

This is the latest in our informal series on the cross-linkages between the thinking and leadership that lead to the global financial collapse/ great recession and that current in health care.  Last month, a US Senate sub-committee held hearings on the role of the rating agencies, actually for-profit corporations that evaluated securities, including derivatives, in the collapse. 

The Fundamentally Conflicted Rating Agencies

To briefly provide some background, these agencies were hired by the firms that created these securities to evaluate them.  Because the securities were complex, they were hard for investors to evaluate.  Investors had become used to using the rating agencies' evaluations as benchmarks for the quality and riskiness of complex securities.  Many did not seem to realize that the agencies themselves were for-profit corporations, or subsidiaries thereof, which made more money the more securities they rated.  The rating agencies gave many of their highest ratings (AAA) to securities that later failed.  (See an informal video discussion by corporate governance expert Robert A G Monks here.)

Some key quotes from the news coverage follow.

Former credit rating agency officials said on Friday that the quest for market share fueled a drive for short-term profits, sacrificing credit quality in the process.

Eric Kolchinsky, who was in charge of the Moody's (MCO.N) unit that rated subprime CDOs, or collateralized debt obligations, said that people 'across the financial food chain, from the mortgage broker to the CDO banker, were compensated based on quantity rather than quality,' according to testimony prepared for a Senate panel.

'The situation was no different at the rating agencies.'

from Reuters

Former Moody’s Investors Service and Standard & Poor’s employees said they were excluded from assessing mortgage bonds if they questioned Wall Street’s conclusions and that credit-rating companies focused on protecting business at the expense of accurate grading.

Richard Michalek, a former managing director in Moody’s structured products derivatives group, told the Senate Permanent Subcommittee on Investigations at a hearing today that managers said he was 'not welcome on deals' involving certain banks.

Eric Kolchinsky, who led the Moody’s group that rated collateralized debt obligations made up of mortgage bonds, said he was berated by his boss when the company lost business after implementing more conservative ratings.

S&P wrongly concluded that its increasing profits amid an inflated U.S. housing market was based on 'superior management skill and insight,' said Frank Raiter, a former managing director at the company. In reality, regulators had made the firm part of 'an oligopoly' by requiring investors to hold assets it rated, Raiter said.

per Bloomberg

The documents show, sometimes in excruciating detail, the conflicts of interest that many claim lie at the heart of the ratings business model and the concerns of employees about what was happening inside the companies well before the crisis broke.

One employee at Standard & Poor's, the world's largest rating agency, said its handling of awkward questions in the summer of 2007 made it 'sound like the Nixon White House'.

And,

As one Moody's managing director wrote to his superiors in 2007, the company's errors, made it look 'either incompetent at credit analysis, or like we sold our soul to the devil for revenue, or a little bit of both'.

per the Financial Times

The two companies targeted by these hearings were Moodys, and Standard & Poors (a subsidiary of McGraw-Hill Inc).

Overlaps with Health Care Leadership: Moody's Corporation

Perusal of the roster of the Moody's board of directors in 2008, per that year's proxy statement, reveals the following overlaps with health care leadership, of its 8 directors.

Connie Mack - is also on the boards of EXACT Sciences Corporation (a biotechnology company), and Genzyme.  He is the chair of the H. Lee Moffitt Cancer Center.

Henry A McKinnell Jr - was chairman of the board and CEO from 2001-06 of Pfizer Inc.

Basil L Anderson - is a member of the board of directors of Becton Dickinson.

Overlaps with Health Care Leadership: McGraw-Hill Inc

Via the company's 2008 proxy statement, of 12 directors:

Sir Winfried Bischoff - is a director of Eli Lilly and Company.

Linda Koch Lorimer - is Vice President and Secretary of Yale University, and a Director of Yale-New Haven Hospital.

Kurt L Schmoke - is a Trustee of the Howard Hughes Medical Institute

Sidney Taurel - was chairman and CEO of Eli Lilly and Company.

Summary

So, in summary, the 20 board members of one for-profit "ratings agency," and of the corporation of which the other major "ratings agency" was a subsidiary, served on the boards of 2 biotechnology corporations (EXACT Sciences Corporation and Genzyme), one medical device company (Becton-Dickinson), one pharmaceutical company (Eli Lilly) , 2 major academic medical centers (Moffitt Cancer Center and Yale-New Haven), and one medical research institution (Howard Hughes).  Two were recent former CEOs and chairmen of the boards of 2 of the world's largest pharmaceutical companies (Pfizer and Eli Lilly). 

Most of these health care organizations have been involved with cases we have discussed on Health Care Renewal (see links above).

Given the serious concerns about the conflicts of interest that became the core of these corporations' business models, and their central role in the global financial collapse, one has to wonder why so many of the directors who presided over them still have such influential positions in health care organizations?

As we have pointed out, as the world economy was driven to near ruin by "masters of the universe," some of the same also became leaders of academia and academic medicine in their spare time. Maybe this made sense 10 or 20 years ago, but why does it still make sense? On the other hand, now that we understand how bad the leadership of finance really was, it is a little easier to understand why the leadership of health care has become so bad. It seems reasonable to hypothesize that some of the problems of academia, and particularly the problems of medical academia, may have been at least enabled by leadership more used to working in an increasingly amoral marketplace than to upholding the academic mission. The failures of the leadership and governance of finance thus suggest we need to re-examine the leadership of health care.

BLOGSCAN: CMSS New Ethics Code Analyzed

The Council of Medical Specialty Societies got some good press for its new code of ethics regarding medical associations' interaction with industry.  Two of the best skeptical bloggers about health care dissected the code, suggesting it will not be as tough as it was cracked up to be.  See these posts by Dr Daniel Carlat on the Carlat Psychiatry Blog and by Dr Howard Brody on the Hooked: Ethics, Medicine and Pharma blog.

Smoke Screen - How a Conflict of Interest Muddled the Debate on the Smoke-Free Initiative at the University of Michigan

As a physician, not being a big fan of cigarette smoking, I would have found little to criticize had anyone showed me the Smoke-Free Initiative at the University of Michigan, as promoted by the University President, Mary Sue Coleman. 

A Conflict of Interest: University President and Johnson & Johnson Board Member

It turns out, though, that this initative has provoked debate on that campus, not so much about its possible benefits and harms, but about whether the Ms Coleman's promotion of it had to do with a conflict of interest.  The debate broke out with an op-ed in the Michigan Daily:

It’s clear, then, that University President Mary Sue Coleman is the architect of the Smoke-Free Initiative, which will take effect in July of 2011. The initiative will prohibit smoking on all outdoor University property. Coleman and University administrators have been embarrassingly vague about why such a ban is necessary. Instead, they keep insisting that the smoking ban will improve public health.

Interestingly enough, the smoking ban may also improve Coleman’s salary.

That’s because Coleman isn’t just a college president. In her spare time, she moonlights as a businesswoman, sitting on the board of directors for major pharmaceutical company Johnson &  Johnson, as well as the Meredith Corporation, a magazine publisher. According to Forbes.com, her position at Johnson & Johnson netted her an income of $229,000 last year.

Among Johnson & Johnson’s many marketed brands are smoking cessation products like Nicorette and Nicoderm — products that University smokers will feel encouraged to use once smoking becomes unwelcome on campus in July 2011. Indeed, administrators have already announced that smoking cessation products may be offered at discounted prices to students who are trying to quit.

Obviously, this is a sizeable conflict of interest for Coleman. Even if her Johnson & Johnson salary didn’t actively influence her decision to ban smoking, it makes it substantially harder to take her at her word that the University needs this ban — especially when representatives of her administration can’t come up with a specific reason for it.

But Coleman’s corporate troubles run deeper than this. As the University’s College Libertarians pointed out in a press release this weekend, Johnson & Johnson has an affiliated non-profit group, the Robert Wood Johnson Foundation, which lobbies for the adoption of certain health-related policies through research and grant money. RWJF is notoriously anti-smoking, as its website explains: 'At the state and community level, we support advocacy for proven tobacco control measures, such as smoke-free air laws, funding of prevention and cessation programs and increases in tobacco taxes.'

While it’s no surprise that RWJF would fight for laws that restrict smoking and lead to increased use of Johnson & Johnson products, such an aggressive lobbying force should not hold financial sway over the president of a public university. Students, faculty and staff must be able to trust that their president is working in the best interests of the University community, not a profit-motivated corporation. Even the perception of a conflict of interest is embarrassing for this institution.

And then, in another op-ed in that paper:

Granted, some of Coleman’s reasons for the Smoke-Free Initiative are likely motivated by good intentions like lowering the University’s health care costs. But these justifications are severely compromised by her compensation from a corporation that will likely benefit from the smoking ban. Coleman sits on the board of directors for Johnson & Johnson, from which she earned nearly a quarter of a million dollars in 2009, and holds 11,159 shares of common stock, 10,777 shares of common stock equivalent units and 7,600 exercisable stock options in the company. Johnson & Johnson is the producer of a host of nicotine replacement products, including Nicoderm and Nicorette. Coleman explains, 'the University will offer free behavioral sessions and selected over-the-counter smoking cessation products to faculty and staff, along with co-pay reductions for prescription tobacco cessation medicines (and) discounts on tobacco cessation aids.'

In other words, under the proposed Smoke-Free Initiative, the University would subsidize products made by Johnson & Johnson. The University would purchase more nicotine replacement products, likely resulting in financial gains for Johnson & Johnson and, consequently, Coleman.

In reply, a letter by Dr Robert W Winfield, University of Michigan Chief Health Officer, asserted:

Some have raised concern about the appearance of a conflict of interest between President Coleman’s service on the board of directors of Johnson & Johnson, a company that produces some smoking-cessation products.

Simply put, there is no conflict. Prescription-only drugs for smoking cessation are generally considered the most effective and most widely used. Johnson & Johnson does not make any prescription-only smoking-cessation products.

A report of a meeting of the Michigan Student Association noted:

In a press release and columns in The Michigan Daily, members of the College Libertarians have identified Coleman as having an apparent conflict of interest due to her position on the board of Johnson & Johnson — a company that manufactures and markets smoking cessation products.

Kozack said if the allegations prove to be true, they could have large implications as Coleman is compensated for sitting on the company’s board.

He said the main reason for the resolution and the accusation of Coleman’s conflict of interest is that there is not enough information provided to the whole campus about the origin of the Smoke Free Initiative.

But in defense of President Coleman, the following appeared in the Michigan Capitol Confidential:

The University of Michigan's student newspaper - The Michigan Daily - wrote an opinion piece last week suggesting a conflict of interest involving University of Michigan President Mary Sue Coleman.

Coleman also earned a $230,000 salary in 2009 for sitting on the board of Johnson & Johnson. Alza Corporation, a subsidiary of Johnson & Johnson, markets Nicorette and Nicoderm, smoking cessation products.

Three ethics experts say Coleman is not in conflict.

'She is doing a public health service,' Peter Rost, a former vice president of Pfizer who has testified before Congress on the business practices of drug companies, wrote in an e-mail. 'The possible income by J& J from this campus is completely and utterly negligible and will have no impact on J&J income statement. Same thing if she opened public health clinic for depressed students and happened to sit on board of (a company) selling antidepressants. Conflict of interest should normally have some undue influence on either party. Since that is not the case I'm not troubled.'

Aine Donovan, the executive director of the Ethics Institute at Dartmouth College who teaches business ethics, said she didn't see a conflict.

'This is very reasonable,' Donovan said. 'Johnson & Johnson has a large range of products. This is a very reasonable position she is taking and it is a very laudable one.'

Timothy Keane, director of the Emerson Ethics Center in St. Louis, said it was 'a bit of a stretch' to say Coleman had a conflict of interest.

'Johnson & Johnson is not trying to set up shop and sell something to the University,' Keane said. 'They are not being a supplier to the University. It doesn't matter if you are a smoker or not, research indicates it is bad for you.'

A Hazy Debate

Smoke gets in your eyes. Maybe it should not be a surprise that once President Coleman's relationship with Johnson and Johnson was noted, opponents and proponents of the Smoke-Free Initative used arguments about that relationship to bolster their positions, rather than debating the smoking ban on its merits. The result, however, shows how conflicts of interest seem to always produce confusion, if not smoke and mirrors.

Most of the debate seemed to be about whether Ms Coleman would personally profit from the smoking ban, and if so, how much. For example, the second op-ed above argued, "the University would purchase more nicotine replacement products, likely resulting in financial gains for Johnson & Johnson, and consequently, Coleman." On the other hand, one expert quoted in the Michigan Capital Confidential argued that the income to J&J from the Michigan campus would be "utterly negligible," and another argued that "Johnson & Johnson is not trying to set up shop and sell something to the University."

On one hand, however much use of J&J nicotine replacement products there is at the University of Michigan, the amount is unlikely to change the profits of J&J, or the salaries or values of stock owned by its directors. On the other hand, J&J may not run a retail store at the University, but it is in the company's interest to sell more of all its products on university campuses, and everywhere else.

But in my humble opinion, the issue is not about the degree President Coleman's salary and assets derived from her position with Johnson and Johnson would be affected by a specific policy she may advocate. The issue is whether her judgments and decisions as President could be unduly influenced by her relationship with the company.

Definition of Conflicts of Interest


This provides a good opportunity to review a good working definition of conflict of interest as it applies to medicine, health care and health policy. Last year the Institute of Medicine published a thorough and well-balanced report, Conflict of Interest in Medical Research, Education, and Practice. It defined conflict of interest (p. 6):

Conflicts of interest are defined as circumstances that create a risk that professional judgments or actions regarding a primary interest will be unduly influenced by a secondary interest. Primary interests include promoting and protecting the integrity of research, the quality of medical education, and the welfare of patients. Secondary interests include not only financial interests....

Furthermore,

The severity of a conflict of interest depends on (1) the likelihood that professional decisions made under the relevant circumstances would be unduly influenced by a secondary interest, and (2) the seriousness of the harm or wrong that could result from such an influence.

But,

a judgment that someone has a conflict of interest does not imply that the person is unethical. Such judgments assume only that some situations are generally recognized to pose an unacceptable risk that decisions may be unduly infuenced by considerations that should be irrelevant.

Thus, a conflict of interest should be seen as a situation which increases the risk of bad judgments or decisions, but does not necessarily cause them, much less cause a particular bad judgment or decision.  (Thus, it makes no sense to try to argue, as the experts did above, that because a person made a good decision, he or she does not have a conflict of interest.)

I assert that President Coleman has a conflict of interest. Her primary interests as President of a university are to uphold the university's academic mission, and as President of a university that includes a medical school, a school of public health, and an academic medical center, also to uphold the integrity of patient care and public health practice. Her secondary interest as a member of the board of directors of a public, for-profit corporation is her fiduciary duty to that corporation and its stockholders, which means she must "demonstrate unyielding loyalty to the company's shareholders" [Per Monks RAG, Minow N. Corporate Governance, 3rd edition. Malden, MA: Blackwell Publishing, 2004. P.200.] Such unyielding loyalty to the shareholders of a pharmaceutical and medical device company clearly creates a risk of influencing judgments or actions that could affect the corporations' sales or operations, economic or health policy, or the general environment in which it operates.  Many of the judgments of or actions performed by  the leader of a medical school, public health school, and academic medical center could so so, and are thus at risk of being so unduly influenced.

However, that she has such a conflict does not prove that any particular judgments or decisions were made badly because of it. Conversely, that particular judgments or decisions were made well does not disprove the existence of the conflict. 

So I beg to differ with all the experts cited in the Michigan Capital Confidential article.  On the other hand, while the President may have a conflict of interest, it is impossible to tell how or whether this influenced her particular decision to support the Smoke-Free Initiative.  Neither does it speak to the benefits or harms of such a policy.  The main effect of the President's conflict of interest seems to have been to muddle the debate about the policy.

Conflicts of interests' general tendency to muddle and confuse provide one argument for their elimination.  Another is that they may affect judgments and actions that are not so readily debated as, and more likely to produce bad results than smoke-free initiatives.  Maybe the hazy debate about the University of Michigan Smoke-Free Initiative will lead to a clearer discussion of whether academic and academic medical leaders should also be corporate leaders.

Everybody's Doing It - Health Care Leaders Appeal to Common Practice

There were two examples in the recent news about how health care leaders employ logical fallacies to advance their positions.

Caritas Christi / Cerberus

We posted recently about the proposed takeover of the not-for-profit Caritas Christi hospital system by the Cerberus Capital Management private equity firm. We proposed skepticism about the idea. For-profit hospitals have not been shown to provide better, cheaper, or more accessible care than not-for-profit hospitals. There is reason to worry that a private-equity firm would put margin ahead of mission. The Boston Herald interviewed Dr Ralph de la Toree, the current CEO of Caritas Christi, who would continue to run the health system after the takeover. Asked about the role of Cerberus,

De la Torre dismissed concerns that Cerberus’ executives - and their investments - may not jibe with Caritas’ social justice mission.

Cerberus investor J. Ezra Merkin, for example, is facing civil fraud charges because of his ties to disgraced money manager Bernard Madoff. Besides its failed Chrysler investment, Cerberus has also invested in companies, such as gunmaker Remington Arms, that some Catholics may not support.

De la Torre admitted Cerberus has a diverse portfolio and said most boards of local nonprofits have members who have made their money through questionable means.

The last sentence is a good example of the appeal to common practice. Basically, the logical fallacy is that because many do it, doing it must be good.

Although we are often critical of the cronyism of boards of for-profit corporations and not-for profit organizations, even I would not go so far as to suggest that most boards include people who have made money unethically. Regardless of the prevalence of this pheonomenon, however, boards of health care organizations should be composed of people of integrity and honesty who support the mission of the organizations.

Professor Uwe Reinhardt

We recently posted about how prominent health economist and public health care intellectual Professor Uwe Reinhardt of Princeton University has failed to disclose conflicts of interest when opining about health policy. A follow-up interview of Reinhardt on SFGate.com included:

I invite you to look at the Wall Street Journal [reporters] and see their list of boards.

I have no idea whether Wall Street Journal reporters fail to disclose their memberships on boards of companies relevant to the subject of their reporting. We have frequently discussed conflicts of interest and how they can influence medical care, teaching and research, and health care research and policy. I agree that  such conflicts are frequent, and often go undisclosed. Again, however, Prof Reinhardt seemed to be using an appeal to common practice. Just because others have failed to disclose conflicts of interest does not make such failure right.

Interested readers may want to review the interviews of De La Torre and Reinhardt to see if they can find other logical fallacies.

Note that we have frequently quoted Dr Joe Collier, "people who have conflicts of interest often find giving clear advice (or opinions) particularly difficult."  [Collier J. The price of independence. Br Med J 2006; 332: 1447-9. Link here.] We have discussed examples of how conflicted people seem to easily resort to logical fallacies to defend their conflicts (e.g., see post here.)

I do not think it is too much to ask prominent health care leaders to use evidence and logic, not logical fallacies to make their arguments.

Those who do use logical fallacies are inviting even more skepticism about their arguments and the agenda behind them.

Everybody's Doing It - Health Care Leaders Appeal to Common Practice

There were two examples in the recent news about how health care leaders employ logical fallacies to advance their positions.

Caritas Christi / Cerberus

We posted recently about the proposed takeover of the not-for-profit Caritas Christi hospital system by the Cerberus Capital Management private equity firm. We proposed skepticism about the idea. For-profit hospitals have not been shown to provide better, cheaper, or more accessible care than not-for-profit hospitals. There is reason to worry that a private-equity firm would put margin ahead of mission. The Boston Herald interviewed Dr Ralph de la Toree, the current CEO of Caritas Christi, who would continue to run the health system after the takeover. Asked about the role of Cerberus,

De la Torre dismissed concerns that Cerberus’ executives - and their investments - may not jibe with Caritas’ social justice mission.

Cerberus investor J. Ezra Merkin, for example, is facing civil fraud charges because of his ties to disgraced money manager Bernard Madoff. Besides its failed Chrysler investment, Cerberus has also invested in companies, such as gunmaker Remington Arms, that some Catholics may not support.

De la Torre admitted Cerberus has a diverse portfolio and said most boards of local nonprofits have members who have made their money through questionable means.

The last sentence is a good example of the appeal to common practice. Basically, the logical fallacy is that because many do it, doing it must be good.

Although we are often critical of the cronyism of boards of for-profit corporations and not-for profit organizations, even I would not go so far as to suggest that most boards include people who have made money unethically. Regardless of the prevalence of this pheonomenon, however, boards of health care organizations should be composed of people of integrity and honesty who support the mission of the organizations.

Professor Uwe Reinhardt

We recently posted about how prominent health economist and public health care intellectual Professor Uwe Reinhardt of Princeton University has failed to disclose conflicts of interest when opining about health policy. A follow-up interview of Reinhardt on SFGate.com included:

I invite you to look at the Wall Street Journal [reporters] and see their list of boards.

I have no idea whether Wall Street Journal reporters fail to disclose their memberships on boards of companies relevant to the subject of their reporting. We have frequently discussed conflicts of interest and how they can influence medical care, teaching and research, and health care research and policy. I agree that  such conflicts are frequent, and often go undisclosed. Again, however, Prof Reinhardt seemed to be using an appeal to common practice. Just because others have failed to disclose conflicts of interest does not make such failure right.

Interested readers may want to review the interviews of De La Torre and Reinhardt to see if they can find other logical fallacies.

Note that we have frequently quoted Dr Joe Collier, "people who have conflicts of interest often find giving clear advice (or opinions) particularly difficult."  [Collier J. The price of independence. Br Med J 2006; 332: 1447-9. Link here.] We have discussed examples of how conflicted people seem to easily resort to logical fallacies to defend their conflicts (e.g., see post here.)

I do not think it is too much to ask prominent health care leaders to use evidence and logic, not logical fallacies to make their arguments.

Those who do use logical fallacies are inviting even more skepticism about their arguments and the agenda behind them.

Mainstream Media "Discovers" Conflicts of Interest of Prominent Health Policy Pundit

The main-stream media, in this case the San Francisco Chronicle, just "discovered" an important case of a conflicted health policy pundit,

Uwe Reinhardt, a Princeton economic professor who often writes about health care for the New York Times' Economix blog, earns more than $500,000 a year working for a number of health care companies. He also holds more than $5 million worth of related stock.

Reinhardt's NYT bio does not mention these financial relationships.

As the NYTPicker points out, Reinhardt's various incomes break the New York Times rules, which ban anyone who writes for the paper from having any financial interest 'in a company, enterprise or industry that figures or is likely to figure in coverage that he or she provides, edits, packages or supervises regularly.'

We asked the New York Times for comment. They sent us this email:

'Professor Reinhardt is a leading expert on the economics of health care, and has provided valuable and independent insights in his blog posts. He has mentioned his service on corporate boards in the blog, but we are reviewing how to more fully describe his activities for readers of Economix.'

We also asked Reinhardt for comment. He is working on one for us and we will post it here as soon as possible.

Here's the breakdown of what he owns, according to NYTPicker:

* Reinhardt either earns an income or stock options from the five different private health care companies for which he sits on the board of directors/serves as a trustee.
* He has sat on the board of health care company, Amerigroup, since 2003. This tenure has resulted in Reinhardt's accumulation of 144,558 shares in the company and $226,531 in cash-and-stock compensation. These shares are currently valued around $4.8 million.
* Reinhardt also holds 75,625 shares of Boston Scientific (worth more than $500,000 in value) and earned $213,132 from the company in 2009. He has sat on the board of this medical device manufacturing company since 2005.
* Reinhardt serves as a trustee for H&Q Healthcare Investors and H&Q Life Science Investors. His 2008 income from the companies included $43,000 in income and between $1 and $10,000 worth of securities.
* He also made $2.3 million from the 2007, $5.1 billion sale of Triad Hospitals to Community Health Systems.

It only took four years for this to get into the main-stream media. The reason "discovered" is in quotes is that we have been writing about Reinhardt's conflicts of interests vis a vis his prominent opinions on health policy since 2006 on Health Care Renewal.

As I wrote in a comment on the original NYTPicker post, in 2006, we first wrote about a letter to the editor of the NY Times by Reinhardt dismissing a physician op-ed writer's concerns about what has gone wrong with health care.  Reinhardt's letter failed to disclose the board memberships he held at that time. In 2009, we wrote about how Reinhardt left out some crucial facts in his discussion in the Economix blog of how physicians are paid. That year we also wrote about how Reinhardt defended Ms Karen Ignagni, CEO of America's Health Insurance Plans (AHIP) in an interview quoted in a Washington Post article.

In neither case above did Reinhardt or the newspaper reveal his conflicts.

Note that Reinhardt is not the only case of a prominent health policy expert with undisclosed conflicts of interest. See this post for some examples we had found in 2006.

In fact, in my humble opinion, the public discourse about health care policy in general, and health care reform in particular has been seriously distorted by various commentators, pundits, and experts who have major conflicts of interest, usually in the form of important financial relationships with large health care organizations.  In many cases, these conflicts are not disclosed.  A related problem is the influence of various non-profit organizations that are heavily funded by those with vested interests, usually in selling particular health care products or services.  Such funding is also rarely disclosed. 

I further submit that this distortion has overwhelmingly been in favor of various aspects of the status quo that have been so profitable for the discussants, and their commercial sponsors.  This distortion has meant that certain important problems, especially those that we discuss on Health Care Renewal, are rarely even mentioned in the mainstream media, in journals on health care and services research and health policy, and in political discussion.  Try, for example, to find any discussion of the impact of ill-informed, self-interested, conflicted or corrupt leadership of prominent health care organizations on costs, access and quality, or on patient outcomes.  It is simply not done to discuss the shortcomings of leadership, maybe because it is this leadership who subsidizes many of the pundits, commentators and experts. 

At a minimum, participants in the health policy discussion, starting with the most prominent, should fully disclose all financial relationships that could constitute conflicts of interest. 

Meanwhile, those listening to the discussion should be extremely skeptical about the opinions expressed.