INSEL and NEMEROFF - WHAT SANCTIONS?

INSEL and NEMEROFF – WHAT SANCTIONS?

Thomas Insel, Director of NIMH, has another posting in his own defense on his official blog today. He has been widely criticized lately for the appearance of cronyism in his relationship with Charles Nemeroff. 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 here and here. Dr. Insel’s statements today are equally disingenuous. Negative reactions are already appearing from those familiar with Nemeroff’s history.

There is no argument that Nemeroff was instrumental in Insel’s move to Emory in 1994, that Nemeroff was Insel’s department chairman at Emory, that Nemeroff helped Insel again when Insel’s initial term as director of the Yerkes laboratory at Emory was not renewed in 1999, or that Nemeroff lobbied for Insel’s appointment as NIMH Director in 2002. There is no argument that Insel and Nemeroff have given glowing public recommendations of each other, or that they have a record of cozy personal communications. There is no doubt that Pascal Goldschmidt at Miami sought and received a recommendation from Insel before hiring Nemeroff last year or that Insel went out of his way to put a personal gloss on the official NIH position regarding Nemeroff’s eligibility for grant funding if he left Emory. These are matters about which Dr. Insel prevaricates today in his blog.

Continuing his prevarication, Dr. Insel today also avoids confronting the issue of Nemeroff’s continuing service on NIMH review committees under Insel’s watch during the period that he was under sanction by Emory University, and banned from participating in NIH grants – before he relocated to Miami. Nemeroff’s curriculum vitae on the U Miami website states that he is a member of the NIMH Review Group, Interventions Committee for Adult Mood and Anxiety Disorders (ITAV), 7/1/2006 - 6/30/2010. This means Insel allowed Nemeroff to continue in that peer review role even though he was banned by Emory from association with NIH grants. The question is why? And what does that tell us about Insel's judgement?

It gets worse. During the period that Nemeroff was at Emory and under sanction vis à vis NIH grants, he continued to function as operational director of a NIMH-funded program administered by the American Psychiatric Association (APA). It is inconceivable that Insel was not aware of this arrangement. The APA program is known as Research Colloquium for Junior Investigators, and it is funded through NIMH project # 5R13MH064074-10. For the past few years Nemeroff, as Chair of the APA Committee on Research Training, has directed this program. The nominal Principal Investigator is Darrel Regier, who is the Executive Director of the American Psychiatric Institute for Research and Education (APIRE). At the session in New Orleans during the annual APA meeting last month, one of the featured speakers was Bruce Cuthbert, PhD, one of Insel’s principal lieutenants. In God’s name, why is the APA fronting the compromised Nemeroff as a role model to junior investigators, and why does NIMH/Insel allow this unsavory arrangement to continue? Could it be that Nemeroff’s crony Alan Schatzberg, the outgoing president of the APA, ran interference for his friend? And what will the new APA president Carol A. Bernstein do about it?

And then there is the issue of Nemeroff’s appointment to two new NIMH review committees just recently. Dr. Insel prevaricates again about his awareness or approval of those actions. As reported by Paul Basken in the Chronicle of Higher Education, “An NIH spokesman, John T. Burklow, answering written questions about the matter, confirmed Dr. Nemeroff's full eligibility for agency activities and said he will begin serving this coming week on two scientific panels that review NIH grant applications.” Here again, Dr. Insel seems to be trying to help his crony Nemeroff to get back into circulation after his fall from grace at Emory.

Emory University went through the wringer to discipline Nemeroff, at long last, in 2008. The actions of Insel in running interference for Nemeroff’s rehabilitation must leave Emory perplexed. Are Dr. Insel’s statements today disingenuous? You bet. Isn’t it time for the adults at NIH to step in and end this farce?

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....

Finding Out About Health Care Bureaucracy the Hard Way

A persistent theme for Health Care Renewal has been how concentration and abuse of power in health care trap patients and heath care professionals in a maze of bureaucracy, perverse incentives, deception, and conflicts of interest.  To anyone who has to make the transition from person to patient, some of these problems become immediately obvious.  Consider, for example, this account of "going into a hospital for a minor procedure":

The very idea of being a patient is anathema. To people of my generation -- the 'me' generation -- who like to be in control, the experience begins with loss of control. First the paperwork -- three or four times paperwork has to filled out and given to a succession of strangers. Then they take all of your belongings, they tell you to take your clothes off, and make you put on a gown that leaves you nearly naked, put in you in very small room, bring you inedible food according to a schedule they determine.

And if you try to sleep, they leave lights on, and do everything they can to make sure you can't. At the end, if you are lucky, they deign to discharge you. Those of us who are boomers, entering a period where we will be drawing the biggest healthcare expenditure, will not put up with this.

This description of health care in the real world may not seem surprising to readers of Health Care Renewal. When health care is run by business people with no experience or training in actual patient care, and controlled by a proliferation of managers and bureaucrats (whose numbers increased by a factor of 8.26x from 1983 to 200), usually with similar business backgrounds, all motivated by short-term financial incentives to "make the numbers" at all costs, what other result would one expect?

Of course, many people outside of health care may not appreciate these problems until they become patients themselves. The person who wrote the description above apparently had avoided in-patient hospital care until the events he described, so on that basis his surprise can be excused.  On the other hand, his outrage was understandable.

But wait - the above is actually a quote by a speech to the Innovation Forum by no other than Jeffrey Kindler, Esq, the current CEO of Pfizer, the world's largest pharmaceutical company.

So his apparent surprise at what he found when he became a patient is ample evidence how unfamiliar he had been with real health care on the ground until this experience.  In fact, that the CEO of the world's largest drug company was so unfamiliar with the real world of health care until he had to become a patient ought to prompt some outrage too. 

I am not recommending that all executives of health care organizations undergo procedures. However, making sure that no one gets to a top leadership position in a health care organization without some real world health care experience might lead to some salutary changes in how health care is run.

Also, we noted here that Mr Kindler had been rewarded last year by his board of directors for his "constructive participation in the US legislative process to advance Pfizer's goals of achieving a more rational operating environment...." Maybe had he had his minor procedure earlier, he might have also wanted to advance the goal of making health care less bureaucratic and more focused on the patients.

Hat tip to Jim Edwards' blog on BNet.

Guest Post: A Hospital Passing "That Low Cost Onto the Community" - By Secret Payments to Insurance Brokers to Sign Up Policy Holders?

Health Care Renewal presents a guest blog by Steve Lucas, a retired businessman who formerly worked in real estate and construction who has a long standing interest in business ethics, and has long observed the health care scene.

We have a verdict in the largest legal suit, $110M, ever brought before the court in Stark County, Ohio. The issue at hand has been the payment of fees by a nonprofit hospital (Aultman) through its for-profit insurance subsidiary (AultCare) to switch clients to this hospital's insurance plan. Aultman is the only in program hospital in our area.

Confidentiality agreements have kept this practice in place for a total of 12 years, with knowledge of the arrangement only recently becoming public.

First the back story: What is today Mercy Medical Center is owned by The Sisters of Charity. This hospital had popular community and business support. Wishing to get away from the business of running a hospital and focus on philanthropy, half of the hospital was sold to Columbia Health in 1996.

Columbia traded on the name and community support and followed a common course of action of reducing staff and maintenance in an effort to maximize profit. Realizing their mistake, the Sisters entered into another partnership with a nonprofit in 1999 and have recently been able to regain total control of the facility.

During this time Aultman Hospital, owned by The Aultman Health Foundation, was able to leverage this discontent into a massive expansion of both its physical plant and position in the community.

Unknown to the community at large this growth was being driven by questionable business practices:

The case revolves around allegations by Mercy that Aultman 'bribed' brokers with extra payments – in some cases, as large as $1 million – to persuade employer groups to switch to Aultman’s insurance plans, AultCare and McKinley Life Insurance.

These payments weren’t disclosed to the brokers’ clients or on federal tax forms that non-profits must fill out to maintain their tax-exempt status, lawyers told jurors in court.(1)

The point of contention was the payment of to a select group of brokers of what amounted to a kick-back, without notifying their customers of the additional payments.

We then find:

The leader of Aultman Health Foundation on Tuesday defended the nonprofit’s practice of using tax-exempt money to fund confidential payments to select insurance brokers. (2)

I guess it is ok as long as nobody knows, and the 65,000 people covered under this scheme should be happy.

We then find that Mercy’s CEO:

... said he first learned of Aultman’s program that gave extra payments to select brokers who switched clients from other insurance companies in a 2004 Akron Beacon Journal article. (3)

The Aultman CEO responded:

Roth said those payments were part of a business strategy to save area businesses money by sharing the results of Aultman Hospital’s cost cutting measures since the 1980’s.

'We want to pass to pass that low cost onto the community,' Roth said. (4)

It is interesting to note that Aultman changed the structure of its agreements with doctors to allow for them, the doctors, to receive co-pays directly. It was also revealed Aultman was paying at least one large medical group direct payments for exclusive referrals.

So now we come to the jury’s decision: $6.1M for Mercy, both sides claim victory. Mercy feels it will change the way Aultman does business.

Aultman plans to continue business as usual and won’t make any changes as a result of the verdict, President and Chief Executive Edward Roth said. (5)

In our small market, the dollars are so large in health care that a multi-million dollar settlement will not change behavior. The use of tax-exempt funds to pay kickbacks and bribes is ignored and there is no public out cry, only Aultman filing another suit to have the verdict set aside.

Altman claimed it needed the payments to be competitive with Columbia. This, win at any cost business attitude, has taken over great parts of medicine reducing what was once a proud profession into a simple process of number crunching.

Aultman focused time and time again during the trial on its size, the largest employer in Stark County, and its position in the community. This is no excuse for corrupt behavior.

Has health care become so corrupt, the dollars so large, that a little corruption is ok, as long as it does not hurt the bottom line?

Follow on radio reports made it very clear Aultman would suffer no financial hardship due to the verdict and there would be no change in services. Business would continue as usual.

References


(All from The Akron Beacon Journal)
1. April 3, 2010. Canton hospital exchange charges in court.
2. April 14, 2010. Aultman executive defends payments.
3. April 23, 2010. Mercy CEO testifies in court.
4. May 5, 2010/ Aultman defends “unique” incentives.
5. June 9, 2010. Jury awards Mercy $6.1 million.

Public Trust at NIMH?

Public Trust at NIMH?

The NIMH Director, Thomas Insel, MD, is under siege for his problematic relationship with Charles Nemeroff. In his own defense, Insel placed a remarkable new post today on his official blog. It signals that Insel and NIMH just don’t understand the current controversy. Since the story appeared in The Chronicle of Higher Education 2 days ago, it has reverberated on Health Care Renewal, on Pharmalot, on University Diaries, on the Nature blog, on the Science blog, and on Drug Monkey, to name just a few. The authors on these sites have been uniformly critical of Insel and of NIMH, as have almost all the comments.

What does Dr. Insel say in his defense today? Mainly, he demonstrates that he doesn’t get it. The very way in which he frames the issue tells us that. First he says it is about financial conflicts of interest. It isn’t. It is about the corruption of academic psychiatry. Financial conflicts of interest are just a part of that problem. Second, he says it is about whether the bad boys and girls in psychiatry were badder than those in other medical specialties. It isn’t. It never was. Third, he says he is surprised by criticism that he and NIMH have not taken firm action against the bad boys and girls, then he spends the rest of his column evading that issue. This degree of sophisticated indirection is achieved only in the highest echelons of bureaucracies.

Instead of a frank discussion of the real issues, we get a self serving description of the ways in which NIMH has taken steps to preserve the integrity of the research that it funds (starting after the scandal about the bad boys and girls broke within the Senate Finance Committee in 2008 – a detail not included by Dr. Insel. Where were they before?). By the time one makes it through this glossed-up history and the new promissory notes, it is easy to lose sight of what provoked the controversy this week.

It’s about the appearance of hypocrisy, with Insel assisting the compromised Nemeroff to land a new job at Miami while he is co-chairing a NIH effort to revise ethics guidelines.

It’s about consistency of discipline. After Emory University went through the wringer to discipline Nemeroff, at long last, and to ban him from involvement with NIH grants for 2 years, doesn’t NIH have a responsibility to make the discipline stick? After all, NIH deferred to Emory in the investigation of Nemeroff to begin with. What message does it send for Insel, a well known crony of Nemeroff, to blithely assure Pascal Goldschmidt at Miami that Nemeroff is “absolutely in fine standing” with NIH and that he “not only could begin applying for NIH grants as soon as he arrived in Coral Gables, but that he could also continue to serve on the NIH's expert panels that help decide on which grant applications win federal financing?” As Drug Monkey said, “It’s about optics, NIH. This doesn’t look good.” It looks instead like cronies exploiting the gaps and inconsistencies in administrative oversight between academic centers and NIH.

It’s also about common sense and administrative propriety. Let us perhaps grant that Insel could not prevent or discriminate against Nemeroff in applying for new NIMH funding. There is weasel wording to cover Insel if he chose to take such a position. But does that mean Insel has no discretion over whether Nemeroff is invited onto two new NIMH review panels? Nemeroff has no entitlement to claim a place on these peer review panels. Whatever possessed Insel to extend this privilege to a compromised individual like Nemeroff? The answer plainly is that Insel doesn’t recognize the compromise and corruption of his crony Nemeroff. The appearance is that Insel is setting out to help Nemeroff get back into circulation after his fall from grace at Emory.

By his own blog posting today Insel tells us that he lacks the grasp of nuanced issues that his position requires. He doesn’t get the big picture in this controversy or, if he does, he wants to evade it. Either way, NIMH deserves better.

Bernard Carroll.

"A Kind of Blackmail": A Not-for-Profit Health Insurance Company CEO's Salary So Large It "Had Broken the Law"

Here is another case in the annals of over-paid executives of not-for-profit health care organizations, this time from the Burlington (VT) Free-Press,

Blue Cross and Blue Shield of Vermont overpaid its former chief executive officer by $3 million over an eight-year period and has been ordered to pay the money back to its subscribers by 2012 in the form of reduced premiums, a top state regulator said Wednesday.

The action by the state Banking, Insurance, Securities and Health Care Administration Department follows last year’s disclosure that William Milnes, the nonprofit firm’s former CEO, received a $7.2 million payout when he stepped down in 2008.

Furthermore, note that

[Commissioner of the Banking, Insurance, Securities and Health Care Administration Department Paulette] Thabault said her department had concluded Blue Cross had broken the law by paying Milnes more money than necessary to perform his functions as head of the nonprofit health-benefits provider.

The Department's review found obvious flaws in how Blue Cross Blue Shield set its former CEO's pay:

The department’s review found that Milnes’ salary package while at Blue Cross was excessive, and in some years, he was paid more in bonuses than he received in base pay. In 2005, for example, Milnes was paid $425,000 in salary and $489,800 in bonuses.

'Other health insurance or managed care organizations of a similar size to the Vermont company compensate their chief executive officers at a level of about 45 percent to 50 percent less than the compensation levels set by the company for Mr. Milnes,' the department order said in part.

The department said Blue Cross used a 'peer group' study to justify the pay it gave Milnes, but regulators concluded the study was flawed because it put Milnes’ position on the same level of chief executive officers of much larger Blue Cross sister companies.

'The peer group ... used in 2007 included 14 companies, all but one of which were substantially larger in terms of annual gross premiums,' the department’s order said. 'Nine of the 14 companies had gross premiums in excess of $1 billion.' Blue Cross gross premiums for 2007 were $590 million.

This story is striking because it seems that the overpayment of a not-for-profit health care organization's executive this time seemed to rise to the level of crime. However, current Blue Cross leaders seemed unconcerned.

'The company accepts the findings of the department, and it just wants to move on at this point,' [Blue Cross and Blue Shield spokesman Kevin] Goddard said.

Somehow, whenever a health care organization's conduct is publicly revealed to be shameful, the response is not sorrow or apology, but let's just "move on." Moving on, of course, minimizes the accountability of those initially responsible for the bad behavior.

Furthermore, do not expect corporate leadership to acknowledge anything wrong with how the pay for the top hired corporate executive was determined.

Goddard said the company thought the peer group numbers it was using were sound.

'Our board used a comprehensive analysis to come up with a compensation package for Bill,' he said. 'We relied on what we thought was professional information.'

One begins to feel a little sorry for the poor spokesman who is obligated to mouth these sorts of sentiments. Whether the analysis was rational, or the "professional information" was relevant or correct seems not to have bee anyone's concern.

In addition, although Blue Cross and Blue Shield is now obligated to reimburse its policy-holders for former CEO Milnes' excessive pay, do not expect the money to come out of his pocket:

None of the $3 million the company has to pay back will come from Milnes. Blue Cross asked Milnes, through his attorney, if he would give back some of the money but was rejected, according to documents in the case made public Wednesday.

'He has made it quite clear that Mr. Milnes is not willing to make a voluntary repayment of any portion of the Supplemental Executive Retirement Program distribution,' Christopher Gannon, a Blue Cross vice president, wrote in a letter to Thabault’s department Jan. 21.

One would think that the current company management would be so upset about its new $3 million obligation, that it would aggressively try to recover the money from the person who benefited from it. However, it seems that all the current Blue Cross and Blue Shield management was willing to do was politely requesting that Mr Milnes return it. Suing a former CEO, of course, is just something that is not done. Perhaps it would be too disturbing to  the cozy atmosphere now prevailing among top executives and the boards of trustees who are supposed to be supervising them. This seems to make clear that no one at Blue Cross and Blue Shield ever really was responsible for what Mr Milnes was paid.

As an editorial in the Rutland Herald put it:

On its face, it was an outrage. Blue Cross is a nonprofit corporation that insures about 150,000 Vermonters. That a nonprofit with a mission of providing health care coverage should be a source of extravagant personal profit was an affront to all Vermonters, including those struggling to pay escalating premiums, those struggling to find adequate care, or those with no coverage at all.

The usual excuse from companies is that big money is necessary to attract big talent. It's a marketplace. But this excuse is really a kind of blackmail that allows corporate executives to collude in the inflation of their own worth.

So the notion of the "imperial CEO" who can virtually set his or her own pay, unencumbered by any real accountability to a board of trustees who would dare not ruffle the imperial feathers has now been imported even into relatively small health care organizations in New England states once famed for their common-sense and frugality.

So here we go again.... We have discussed numerous examples of compensation of health care organizations' leadership that seems orders of magnitude above that which would be rationally justified. These latest examples of the wealth being accumulated by leaders of supposedly mission-centered not-for-profit organizations are a product of the current management culture that has been infused into nearly every health care organization in the US. That culture holds that managers are different from you and me. They are entitled to a special share of other people's money. Because of their innate and self-evident brilliance, they are entitled to become rich. This entitlement exists even when the economy, or the financial performance of the specific organization prevents other people from making any economic progress. This entitlement exists even if those other people actually do the work, and ultimately provide the money that sustains the organization.

Although the executives of not-for-profit health care organizations generally make far less than executives of for-profit health care corporations, collectively, hired managers of even not-for-profit health care organizations have become richer and richer at a time when most Americans, including many health professionals, and most primary care physicians, have seen their incomes stagnate or fall. They are less and less restrained by passive, if not crony boards, and more and more unaccountable. In a kind of multi-centric coup d'etat of the hired managers, they have become our new de facto aristocracy.

Or as we wrote in our previous post, executive compensation in health care seems best described as Prof Mintzberg described compensation for finance CEOs, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit." As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences. Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations. It is time to reverse the coup d'etat of the hired managers.

An Attempt to Hold Health Care Leaders Accountable for Their Organizations' Bad Behavior?

We have frequently noted how health care organizations accused of kickbacks, fraud, and other unethical and sometimes illegal behavior involving how they produce or market health care products or services often are allowed to settle the charges only with a fines to the companies, and sometimes with corporate integrity agreements.  Almost never are the people who authorized, directed, or implemented the unethical behavior required to pay any sort of penalty.  We recently commented on a case in which an executive of a medical device company accused of exaggerating the performance of a diagnostic test in development was charged, not with misleading doctors or patients by the US Food and Drug Administration (FDA), but with misleading investors by the US Securities and Exchange Commission (SEC).  That executive lost her job, and will be barred from leading any public company.

So up to now, a corporate executive responsible for misleading doctors or patients about issues that could affect clinical decisions or outcomes likely would never pay a penalty, but one responsible for misleading  investors about similar issues could lose his or her job and livelihood.

Now, per an article in Fortune, it appear the situation may be changing,

The federal government is fed up with the amount of fraud, especially recurring fraud from the same companies, happening in the pharmaceutical industry. So regulators have decided that when it comes to punishments, it's time to get personal.

From now on, individual executives risk being ejected from their jobs -- and perhaps even barred from the industry -- for fraud their companies commit, even if they did not participate or even know about the crimes.

Furthermore,

The new approach, emerging from the unusually powerful Inspector General's office in the Department of Health and Human Services, reflects frustration with corporate recidivism even in the face of ramped-up fines, penalties and disgorgements.

'We are going to start to use that authority in the appropriate circumstances to get high level executives out of companies, so that the company has a better shot at changing its behavior, so that it does not become a recidivist,' explains Lewis Morris, chief counsel to the Inspector General.

The article noted some cases in which even large fines and corporate integrity agreements seemingly failed to deter future bad behavior by the companies which paid these penalties. For example,

In the government's most recent major settlement -- in which AstraZeneca agreed to pay $520 million -- the fine represented 16.5% of the $8.6 billion income (between 2001-2006) from U.S. sales of Seroquel, a powerful anti-psychotic. AstraZeneca (AZN) turned this narrowly approved drug into a cash cow by marketing it for much wider use, including by the elderly and children, even though they are particularly vulnerable to 'serious and debilitating side effects.'

All the while, AstraZeneca was operating under a corporate integrity agreement (CIA) with the Inspector General, imposed after a 2003 off-label marketing case.

We discussed the AZ settlement here in October, 2009. We asked then, "Does anyone really still believe that integrity agreements, and settlements assessed against huge corporations deter such profitable bad behavior?"

Another example:

Drug company Pfizer (PFE, Fortune 500), which was fined $2.3 billion just last September, is now on its third CIA. Steeper fines and harsh individual penalties should help put more teeth into these agreements and keep companies from flouting them.

We discussed the repeated lack of effect of settlements by Pfizer here in September, 2009. We concluded, "So will even a $2,300,000,000 settlement and yet another corporate integrity agreement make Pfizer or any other health care corporation act more ethically? I doubt it."

The Fortune article quoted Peter Rost, former Pfizer executive turned whistle-blower and ethics advocate (and to whose blog I offer a hat tip for first mentioning the Fortune article), on aspects of corporate culture and corporate incentives that foster repeated unethical behavior by management,

'Usually by the time someone becomes a senior executive they are very aware of the pitfalls in the organization, and they have become masters at not doing something wrong or not getting caught doing something wrong,' explains Peter Rost, a former senior Pfizer executive turned industry gadfly.

Incentive-based compensation systems -- typically 40% to 50% of salespeople's income comes from hitting their numbers -- are one weak point. 'They are going to work real hard to increase those numbers and do whatever it takes, and if they think somebody gave them a wink about doing this or that, they are going to run with it.' says Rost.

Booting senior executives out for any fraud under their watch might end the wink-and-nod system, giving hope to critics.

In my humble opinion, the government's new approach looks like real progress. Giving corporate executives personal impunity was a recipe for increasing unethical, and sometimes criminal behavior. The sorts of marketing fraud they authorized or directed certainly lead to increasing costs, and overuse of unnecessary and sometimes harmful tests and treatments. While there have years of complaints about health care's increasing costs and decreasing quality in health policy circles, it is just amazing that until now, there has been so little action against the bad behavior that was undoubtedly responsible for much of these problems.

So three cheers for making health care organizations' leaders accountable for the bad behavior of their organizations.

After cheering, however, there ought to be some serious inquiry about why they were not held accountable much sooner.  It turns out that there has been legal justification for holding leaders so accountable available for a long time:

All that's required for the government to flex this remarkably broad authority -- embedded in the Responsible Corporate Officers Doctrine -- is that the executives were in a position to have stopped the fraud that resulted in a criminal conviction or plea.

Note that the Responsible Corporate Officers Doctrine apparently derives from a US Supreme Court case about the selling of misbranded or adulterated drugs into interstate commerce under the US Food and Drug Act, decided in 1943.

However, it looks like in the hyper laissez faire climate of the last 20 or more years, no one wanted to bother to invoke it. After all, the formerly highly regarded leader of the US Federal Reserve believed there was no need for regulators to punish fraud, because the magic of the market would take care of it. US health care has paid a heavy price for such breathtaking naivete (see the PBS Frontline show, "The Warning." )