More Hospitals Settle, But Not for Much

In late February, there have been several notable legal settlements made by more or less prominent hospitals, discussed in rough order of size.

United Regional Health Care System

Per the Cypress Times,

The Department of Justice announced today that it has reached a settlement with United Regional Health Care System of Wichita Falls, Texas, that prohibits it from entering into contracts that improperly inhibit commercial health insurers from contracting with United Regional’s competitors. The department said that United Regional unlawfully used these contracts to maintain its monopoly for hospital services in violation of Section 2 of the Sherman Act, causing consumers to pay higher prices for health care services.

Note that this appears to be the first settlement involving the Sherman Anti-Trust Act that included a hospital system, or any health care organization which we have discussed. As the Times article mentioned,

This is the first case brought by the department since 1999 that challenges a monopolist with engaging in traditional anticompetitive unilateral conduct.

Here is more detail about the alleged offenses:

According to the complaint, United Regional is by far the largest hospital in Wichita Falls. Its share of general acute-care inpatient hospital services is approximately 90 percent, and its share of outpatient surgical services is more than 65 percent. It is the region’s only provider of certain essential services such as cardiac surgery, obstetrics and high-level trauma care. In Wichita Falls, United Regional’s average per-day rate for inpatient hospital services sold to commercial health insurers is about 70 percent higher than its closest competitor for the services that are offered by both hospitals.

The department said that in order to maintain its monopoly in the provision of inpatient hospital and outpatient surgical services, United Regional systematically required most commercial health insurers to enter into contracts that effectively prohibited them from contracting with United Regional’s competitors. United Regional’s contracts required these insurers to pay significantly higher prices if they contracted with a nearby competing facility. Since United Regional is a must-have hospital for any insurer that wants to sell health insurance in the Wichita Falls area, and because the penalty for contracting with United Regional’s rivals was so significant, almost all insurers offering health insurance in Wichita Falls entered into exclusionary contracts with United Regional. As a result, competing hospitals and facilities could not obtain contracts with most insurers and were less able to compete, helping United Regional maintain its monopoly in the relevant markets and raising health-care costs to the detriment of consumers.

As far as I could tell, however, for this apparently severe offense there will be no actual penalty. The settlement only appears to provide for a promised change in future behavior by the hospital:

The proposed settlement, which if accepted by the court would be in effect for seven years, restores lost competition by prohibiting United Regional from using agreements with commercial health insurers that improperly inhibit insurers from contracting with United Regional’s competitors. In particular, United Regional is prohibited from conditioning the prices or discounts that it offers to commercial health insurers based on whether those insurers contract with other health-care providers and from inhibiting insurers from entering into agreements with United Regional’s rivals. United Regional is also prohibited from taking any retaliatory actions against an insurer that enters into an agreement with a rival provider.

So if a hospital engages in actions that restrain competition and results in a de facto monopoly, all the hospital leaders must fear is that at some point it may have to change its monopolistic behavior, according to this settlement.

Catholic Healthcare West

Per the San Jose Business Journal,

Catholic Healthcare West, parent company to local Mercy hospitals, has agreed to pay $9.1 million to settle allegations that seven of its hospitals submitted false Medicare claims, U.S. Attorney Benjamin Wagner announced late Friday.

Here is more detail about the alleged offenses:

The hospitals include Community Hospital of San Bernardino, St. Bernadine Medical Center in San Bernardino and St. Elizabeth Community Hospital in Red Bluff.

The settlement also included allegations that O’Conner Hospital in San Jose, Seton Medical Center in Daly City and St. Joseph’s Hospital and Medical Center in Phoenix submitted inflated costs for their home health agencies and were overpaid. The agreement also resolves allegations that St. Joseph’s overstated how much was owed in disproportionate share funding for indigent patients.

CHW no longer owns O’Conner Hospital or Seton Medical Center.

The settlement resolves allegations that St. John’s Regional Medical Center in Oxnard was overpaid for treating a high percentage of patients with end-stage kidney disease for several years, including two when it was not eligible.

Note that while the amount of the payment assessed appears substantial, it will be made a very long time after the alleged bad behavior occurred:

All of the problems occurred in the 1990s. Federal investigators began looking into the matter in 2001, but it took years to compile evidence and reach a settlement. All of the hospitals had set aside money in a reserve account should they have to pay funds back to the government.

So if a hospital submits false claims to the US government, hospital leaders need not fear paying anything back for more than 10 years, according to this settlement.

By the way, this was not the first such settlement that Catholic Healthcare West has had to make:

In 1998, a whistleblower at Woodland Healthcare disclosed instances of alleged fraud by two medical groups affiliated with local Mercy hospitals, Woodland Clinic Medical Group and Medical Clinic of Sacramento.

Following an extensive investigation, former U.S. Attorney John Vincent announced a $10.25 million settlement in May 2001. The allegations included false claims to inflate reimbursement from Medicare, Medi-Cal and military health insurance programs.

Massachusetts General Hospital (Partners Healthcare)

Per the Boston Globe,

Massachusetts General Hospital has agreed to pay the federal government $1 million to settle potential violations of patient privacy laws, which occurred when an employee commuting to work lost patient records on the T’s Red Line two years ago.

Here is more detail about the alleged offenses:

Health information for 192 patients in Mass General’s Infectious Disease Associates outpatient practice was lost in the incident, including that of patients with HIV/AIDS. The documents included a patient schedule containing names and patient medical record numbers, as well as billing forms containing the name, birth date, medical record number, health insurer and policy number, diagnosis, and name of providers for 66 of those patients.

Note that Massachusetts General Hospital is not independent, but part of Partners Healthcare, which reported net patient service revenue of $1.5 billion in the most recent quarter, again per the Boston Globe. So this settlement amounted to about 0.00167% of the system's patient revenue.

So if a hospital engages in actions that violate the trust patients have that their information will be kept confidential, all hospital leaders have to fear is that their institution will eventually have to pay something much less than round-up error of their revenue, according to this settlement.

Summary

Again, the volume of participants in the ongoing march of legal settlements is a reminder of how pervasive bad behavior is in the US health care system. Remember that these settlements are in some sense the tip of the iceberg. They only indicate behavior that inspired legal action which was in turn was publicized. It is likely that for each behavior that eventually leads to a settlement, there are many behaviors that go unreported, or that cause no reaction.

It is interesting that sorts of bad behavior that formerly caused no official reaction are now leading to settlements. As noted above, there had been no recent legal actions against concentration of power in health care up to the United Regional Health Care System settlement.

However, like many of the settlements we have previously noted, the latest crop seem to have little deterrent power. The United Regional Health Care System settlement seemingly involved no monetary penalties whatsoever, only a promise of not to do it again. The Catholic Healthcare West settlement's monetary penalties were so delayed, occurring over 10 years after the actions in question, their deterrent power is highly questionable. The Massachusetts General Hospital (really the Partners Healthcare) monetary penalty was infinitesimal compared to the size of the institution's budget.

Furthermore, as in nearly every other case we have reported, no person who authorized, directed or implemented the actions in question had to pay any penalty, or suffer any negative consequence, or was even identified.

So while there seems to be some increased interest in addressing some kinds of bad behavior, like monopolistic practices, that heretofore generated no official reactions, regulatory authorities still seem loathe to even slap the wrists of the people whose aggregated actions are making our health care so expensive, so inaccessible, and probably of such mediocre quality.

Thus, in recent years, health care leaders, like leaders of financial service companies, seem to have impunity,  Up to now, they have been able to preside over all sorts of bad behaviors that help support their exorbitant remuneration without fearing any personal penalties.  As Charles Ferguson, the director of Inside Job, said when accepting his Academy Award last night, per MarketWatch,

Forgive me, I must start by pointing out that three years after a horrific financial crisis caused by fraud, not a single financial executive has gone to jail — and that’s wrong

After a slow-motion health care train wreck over the last 30 years, hardly any health care executives have even had to pay a fine, much less go to jail.

So I repeat, and repeat, and repeat: we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

Why Pretend An Advertising Executive and Chamber of Commerce Leader Are Public Health Experts?

Obesity as a public health problem has been the subject of considerable discussion.  So that luminaries from the prestigious Partners Healthcare system and Massachusetts Blue Cross Blue Shield would weigh in on the issue at a public meeting should surprise no one.  But see this report by the Boston Herald:

When asked about rising health-care costs, Jack Connors - chairman of the Partners chain, which includes Mass. General and Brigham and Women’s hospitals - said yesterday, 'Taking care of yourself starts at home.'

'What happened to individual responsibility?' Connors said at a Greater Boston Chamber of Commerce breakfast at the Westin Boston Waterfront. 'Why is obesity such an epidemic (when) we all know that a big part of being healthy is exercising and eating the right food?'

Blue Cross Blue Shield Chairman Paul Guzzi echoed Connors’ attitude yesterday.

'What is the responsibility of the individual?' said Guzzi, who as the chamber’s chief executive hosted Senate President Therese Murray’s speech on health care yesterday, despite his dual role as Blue Cross chairman.

Jack Connors is currently chair of the board of Partners Healthcare.  A quick biography is here:

John M. Connors, Jr., 67, Chairman Emeritus of Hill Holliday (formerly Hill, Holliday, Connors, Cosmopulos, Inc). (full service marketing and communications company) since 2006. Chairman of Hill, Holliday, Connors, Cosmopulos, Inc. from 1995 until 2006, during which time Mr. Connors also served as President and Chief Executive Officer until 2003. Mr. Connors was a founding partner of Hill, Holliday, Connors, Cosmopulos. Director of Covidien Ltd. Mr. Connors’ 40 years of business experience includes cofounding and developing one of the top advertising and marketing communications firms in the United States, advising many of the top branded companies in the world, and serving on the boards of dozens of entities, including public companies, private companies, hospitals and colleges. (Biographical Information as of 4/16/10)

Although Mr Connors did once run a medical education and communications company (see this post), he has no obvious direct experience or training in biology, epidemiology, public health, or medicine.

Similarly, here is biography of Paul Guzzi:

Paul Guzzi is president and chief executive officer of the Greater Boston Chamber of Commerce, one of the region’s leading business associations.

Mr. Guzzi brings extensive experience in both business and government to his work at the Chamber. A former Massachusetts secretary of state and chief secretary to the Governor, as well as a member of the management teams of two Fortune 500 companies; he is a leading advocate for economic development and job creation.

Prior to leading the Chamber, Mr. Guzzi was vice president of state and community affairs for Boston College. Previously, he was a consultant for Heidrick & Struggles, an international recruitment and consulting firm. Mr. Guzzi also served as a vice president at Data General Corporation and as a senior vice president at Wang Laboratories. During his tenure at Wang, he worked closely with Dr. An Wang to oversee the restoration and transformation of what is now the Wang Theatre.

Mr. Guzzi began his public service career as a state representative from Newton in 1970. He was elected Massachusetts secretary of state in 1974. Mr. Guzzi served as a chief of staff for Governor Edward King and chief administrator of the Board of Regents of Public Higher Education.

A graduate of Harvard University, Mr. Guzzi holds a Bachelor of Arts degree in government. He completed the Harvard Business School Management Development Program. He was also an officer in the U.S. Marine Corps Reserve.

Again, Mr Guzzi has no obvious training or experience in biology, epidemiology, public health, or medicine.

So maybe it should be no surprise that the Boston Herald article chronicled some skepticism about these worthies' public health pronouncements.

Calling the pair’s comments 'pure smoke blowing,' Boston University public health professor Alan Sager said, 'Sure individual responsibility matters, but the responsibility for efficient, affordable, high-quality health care for all Americans falls on everybody who works in health care.'

By the way,

Connors said a major reason for rising health-care costs is that a high percentage of people who leave the hospital are later readmitted, because they don’t follow their doctors’ directions. He owns a company, Dovetail Health, that makes money by helping elderly patients readjust to life after hospitalization, including staying on their medications.

Every week I get piles of notices of "healthcare" conferences at which most of the speakers are health care organizational executives with no obvious expertise or experience in actual health care, or in biology, epidemiology, public health or medicine. I think I dimly remember a time when most people who gave public remarks on health care actually knew something about health care, not just about making money (often personally in large amounts) from the health care "industry."

Note that while the Herald was able to find people who were skeptical about these health care leaders' remarks, there was no report that their audience (presumably made up mainly of business people) roared with laughter at their efforts to talk about controversial topics which they did not seem to really understand.

We need to ask why we have become so deferential to leaders of large (and and least heretofore prestigious) health care organizations that we treat them like true experts on biology, epidemiology, public health or medicine when they have no obvious expertise, or even knowledge in these areas?

Thanks to one of our anonymous scouts for a tip on this item.

Investigations, Indictments and Guilty Pleas at Famous US Teaching Hospitals

Some of the US most prestigious academic medical centers have been receiving unusual scrutiny lately.

Mount Sinai Medical Center and New York - Presbyterian Hospital.

As reported first by the Wall Street Journal,

Federal prosecutors are investigating allegations that bid rigging and fraud at Mount Sinai Medical Center and New York-Presbyterian Hospital resulted in the hospitals awarding contracts worth tens of millions of dollars to outside contractors.

Purchasing officials at the hospitals, two of the city's largest and most prestigious, are alleged to have gotten more than a million dollars in payments from companies that were then given lucrative contracts to perform work such as re-insulating pipes and removing asbestos, according to documents filed in the Southern District of New York.

Nine contractors are involved in the case. So far, eight people and three companies supplying the hospitals have pleaded guilty to charges including bid-rigging, mail fraud and tax fraud. Three more people have been indicted on similar charges.

The Federal Bureau of Investigation and Internal Revenue Service have been investigating and the Justice Department's Antitrust Division is prosecuting the allegations in the case.

Some relevant specifics:

The most recent indictment, handed up by a federal grand jury April 6, involved the alleged awarding of more than $195,000 in maintenance and insulation contracts. Mario Perciavalle, associate director of plant services at Mount Sinai, is accused of taking at least $20,500 in cash from a Long Island City company in 2004 and 2005 in exchange for the company, unnamed in documents, winning the deals.

Prosecutors also are pursuing a case involving a former official at New York-Presbyterian, Salvatore Scotto-DiVetta, a supervisor at the hospital's Facilities Operations department. He pleaded guilty in March to rigging bids for re-insulation contracts, the Department of Justice said.

The next day, the Journal reported:

Two New York-Presbyterian Hospital officials and two contractors who did business with the prestigious hospital were indicted on fraud charges Tuesday in the latest cases stemming from a federal investigation into bid-rigging and fraud.

The indictment alleges that the hospital officials—Santo Saglimbeni of Armonk, N.Y., and Emilio Figueroa, whose hometown wasn't given—received payments and gifts in exchange for awarding contracts to certain companies.

And already the box score for this investigation increased:

As a result of the investigation, a total of five hospital employees, 10 people outside the hospitals and six companies have either pleaded guilty or face charges.

The comments by hospital officials had a familiar ring to anyone who has been following the hearings in Washington on the global financial collapse. From the first article:

A Mount Sinai spokesman said the hospital notified the Justice Department 'about the possibility of impropriety immediately after it was identified in an internal audit' and is cooperating with the investigation. The spokesman said the hospital dismissed the employee under investigation and instituted tougher contracting systems.

From the second:

New York-Presbyterian was an 'unknowing victim of these alleged crimes,' a hospital spokeswoman said. She also said that the staffers named in the indictment no longer work at the hospital, and it is cooperating with the investigation.

Partners Healthcare System

Just out today in the Boston Globe:

The US Department of Justice has opened a civil investigation into possible anticompetitive behavior by Partners HealthCare System Inc., the region’s most powerful hospital and physician network.

In a letter sent to Partners and the state’s three largest health insurers on April 19, investigators from the Justice Department’s antitrust division demanded documents relating to Partners’ 'contracting and other practices in health care markets in Eastern Massachusetts.'

The letter, obtained by the Globe, said the probe sought to determine whether the practices violated the Sherman Antitrust Act, which bars companies from using their market power to limit trade or artificially raise prices.

The background is:

Boston-based Partners has been under growing scrutiny because of its market power and ability to draw high prices from insurers. The company employs about 5,500 physicians and operates a half dozen smaller hospitals, in addition to their prestigious Harvard-affiliated Boston teaching hospitals, Mass. General and the Brigham.

Earlier this year, Attorney General Martha Coakley issued a report documenting that Massachusetts insurance companies pay some hospitals and doctors, including those in the Partners network, twice as much money as others for essentially the same patient care. The report pointed to the market clout of the best-paid providers as a main driver of the state’s spiraling health care costs.

A 2008 Globe Spotlight Team series focused on the Boston market found that hospitals such as Mass. General and the Brigham typically are paid 15 to 60 percent more for essentially the same work as other hospitals.

Soon after that series, Coakley launched her investigation into whether Partners and Blue Cross-Blue Shield, the state’s largest health insurer, may have illegally colluded to increase the price of health insurance statewide over the last decade, according to several legal and government sources.

And again, the official response had a familiarly evasive ring:

Partners spokesman Rich Copp yesterday noted that the hospital network already has supplied similar information to investigators from the state attorney general’s office, which launched its own review of Partners’ contracting practices last year. He noted in Partners’ defense that it vies with other providers in the area’s 'highly competitive' health care market.

'The Department of Justice has requested the same information that we have provided to the attorney general’s office,' said Copp. 'We will continue to cooperate with both government agencies during this ongoing analysis of health care in Massachusetts.'

Summary

So there it is.  Multiple indictments for and guilty pleas to charges of bid-rigging and fraud at two New York academic medical centers, and state collusion and federal anti-trust investigations of a Massachusetts hospital system.  The issues involve four of the most prestigious teaching hospitals in the US.

Of course, not all the indictments may result in convictions, and the investigations may not result in charges.  But this involves some institutions that at one time would have appeared beyond reproach.  The lack of clear denials from the inevitable official spokespeople, and attempts to deny responsibility for the actions of employees elsewhere identified as "officials" do not provide much reassurance.

Of course, readers of Health Care Renewal would have known that questions could be raised about leadership and governance of these once-revered institutions.  Questions could be raised about the incentives implied by the huge compensation given to the top hired executives at New York - Presbyterian, awarded by a board of trustees that includes some of the leaders of the more prominent failed finance corporations involved in the global financial collapse.  Questions could be raised about the dominant presence of finance leaders and possibly conflicted individuals on the Partners board, and apparent interlocks among Partners leadership and the leadership of the largest health insurer in Massachusetts, which was willing to pay that system so much.

Maybe, instead of lecturing the more lowly among us about our responsibilities to improve health care, the leaders of our previously most august health care institutions need to introspect more about their own responsibility to address the metastasis of "greed and incompetence" in health care from the financial sector.

A "Very Well Paid Boob" on the Harvard Corporation?

The ongoing investigation of the global financial collapse may also shed some indirect light on what has gone wrong with health care.  Consider the recent testimony by two leaders of the nearly failed, then bailed out global financial giant Citigroup, as reported by the New York Times. One of the leaders was Robert Rubin,

Robert E. Rubin, the former Treasury secretary, faced withering questions from the panel, the Financial Crisis Inquiry Commission, for his spare expressions of remorse. Repeatedly playing down his role as chairman of the executive committee of Citigroup’s board, he was met with anger and disbelief.

'You were either pulling the levers or asleep at the switch,' Philip N. Angelides, the committee’s chairman, told him.

Mr. Rubin stopped short of accepting personal responsibility. He grudgingly conceded that a few savvy investors saw the crisis coming, asserting that nearly everyone in the financial services industry had failed to see a dozen powerful forces — from excessive debt levels to trade imbalance — come together in a perfect storm.

'We all bear responsibility for not recognizing this, and I deeply regret that,' Mr. Rubin said.

Mr. Rubin’s stance left several members of the panel angry. Mr. Rubin earned more than $100 million during a decade at Citigroup.

Mr. Angelides, a former California state treasurer and a fellow Democrat, did not buy it. 'You were not a garden-variety board member,' he said. 'I think to most people chairman of the executive committee of the board of directors implies leadership. Certainly $15 million a year guaranteed implies leadership and responsibility.'

Attempts by Mr Rubin (and to some extent, former Citigroup CEO Charles O Prince III) to disavow responsibility met with more derision. For example, yesterday, see a New York Times editorial:

The latest public hearings of the Financial Crisis Inquiry Commission, held last week, made headlines for eliciting more apologies from financiers who presided over the market collapse.

You may recall a similar flurry last year, when Lloyd Blankfein, the chairman and chief executive of Goldman Sachs, was widely credited for having apologized for his firm’s role in the financial crisis.

We did not buy it then; Mr. Blankfein never said what he was sorry for or to whom he was apologizing. And we are not buying it now.

Mr. Prince says he 'could not' foresee the impending collapse, when he could have and should have seen it coming. Certainly, others did. Mr. Rubin has said that under his employment agreement, he was not responsible for the bank’s operations. But he was a towering figure at Citi, a source of its credibility and prestige. That implies responsibility, no matter what his contract said. Add all that to the 'I wasn’t the only one' context of both men’s comments, and their regret translates as, 'We feel bad about an accident we were powerless to prevent.'

Except that the financial crisis was not an accident and they were not powerless. The crisis was the result of irresponsibility and misjudgments by many people, including Mr. Prince and Mr. Rubin. Citi, under their leadership, epitomized the financial recklessness that ruined the economy.

A Seattle Times columnist was even more harsh, calling Rubin a "very well paid boob," and:

Rubin was barely contrite and went back to his meme of 'who knew?,' adding the unintended comedic line about how leaders shouldn't be responsibility for the 'granularity' of little things -- such as $40 billion in essentially fraudulent collateralized debt obligations. Rubin was being paid more than $100 million as a senior adviser to Citi while it headed toward collapse and a $45 billion taxpayer rescue. So 'granularity' is in the eye of the beholder.

Commission vice chairman Bill Thomas said, 'Apparently you get to the top without having had to experience anything the people underneath you do. You don't have a comprehension. You're not informed, but you get to make all this money on the upside, but there's no downside.'

Indeed. Rubin and Citigroup epitomize the public policies and the corporate practices that brought the economy to the brink of a new depression.

As Bill Clinton's Treasury Secretary, Rubin championed financial deregulation and the financialization of the economy as manufacturing was hollowed out. Among other things he helped keep derivatives from being regulated and encouraged the creation of 'too big to fail' institutions such as Citi. Rubin led the battle to dismantle Glass-Steagall, so Citi and its giant siblings could gamble in investment banking, while also doing commercial banking and insurance. An alum of Goldman Sachs, Rubin was fine with big compensation for executives, even if their leadership wrecked the bank (Prince walked away with $120 million). Funny how Rubin was offered the lucrative Citi position after he left such 'government service.'

So what does this tell us about health care? As we noted before, while Robert Rubin is no longer on the board of Citigroup, he has been a member of the Harvard Corporation since 2001. The Corporation is ultimately responsible for the US' oldest and most prestigious university, its equally prestigious medical school and teaching hospitals. Yet under Rubin's stewardship, Harvard's endowment has fallen a prodigious amount, and Harvard and its Partners Healthcare hospital system have faced charges of conflicts of interest and various sweetheart deals. Perhaps this is to be expected when the ultimate steward may be a "very well paid boob."

While Rubin's impressive resume and wealth in 2001 may have provided a rationale for his appointment to the Corporation, what would be the rationale for his continuing service?

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.

One Small Step Towards Reducing Conflicts of Interest Affecting Academic Medical Leaders

Two articles, one in the New York Times by Duff Wilson, the other in the Boston Globe by Liz Kowalczyk, brought the issue of the conflicts of interest generated by leaders in academic medicine sitting on the boards of health care corporations to wide attention.  The news was that Partners Healthcare, the large hospital network that includes two of Harvard University's main teaching hospitals, for the first time is limiting the role its leaders can take on such boards of directors.  As written by Duff Wilson,

The owner of two research hospitals affiliated with the Harvard Medical School has imposed restrictions on outside pay for two dozen senior officials who also sit on the boards of pharmaceutical or biotechnology companies. The limits come in the wake of growing criticism of the ties between industry and academia.

Medical experts say they believe the conflict-of-interest rules at the institution, Partners HealthCare, go further than those of any other academic medical center in restricting outside pay from drug companies. The rules, which became effective on Friday, impose limits specifically on outside directors who guide some of the nation’s biggest companies.

Senior officials at the two hospitals, Massachusetts General and Brigham and Women’s Hospitals in Boston, must limit their pay for serving as outside directors to what the policy calls 'a level befitting an academic role' — no more than $5,000 a day for actual work for the board. Some had been receiving more than $200,000 a year. Also, they may no longer accept stock.

The proper pay for time spent on board meetings under the new policy was calculated at $500 an hour for a 10-hour day, said Christopher Clark, a senior lawyer at Partners and director of a new office for interactions with industry. Stock and options were banned because they tie the director’s fortunes to company profits.

As far as I know, this policy is the first instance of a US not-for-profit academic medical institution limiting the role its leaders and/or faculty may take as directors of for-profit health care corporations. So it is an important step. Furthermore, also as far as I know, the coverage this news item received on Sunday is the first time this issue has been discussed openly in the mainstream media.

A New Species of Conflicts of Interest

On the other hand, we first discussed the conflicts posed by leaders of academic medicine sitting on the boards of for-profit health care corporations in 2006 on Health Care Renewal, calling it a "new species of conflict of interest" at that time.  Since then, we have found many other examples of such conflicts.  We noted that sitting on a corporate board is a particular problem for an academic medical leader because a corporate director has a legal obligation to advance the profits and financial fortunes of the corporation he or she serves. As Robert AG Monks put it, corporate directors are supposed to "demonstrate unyielding loyalty to the company's shareholders" [Per Monks RAG, Minow N. Corporate Governance, 3rd edition. Malden, MA: Blackwell Publishing, 2004. P.200.]  This legal requirement ties a corporate board member far more tightly to the interests of the corporation than do the obligations of, for example, a consultant to the corporation. 

Moreover, some have charged that many for-profit corporate board members are just cronies of the top corporate leaders.For example,

Tthe cronyism of major corporate boards, especially those in the finance area, has become legendary. Rubber-stamp directors who rarely buck the chairman or challenge the CEO are unfortunately all too common. These boards did not serve either their companies or shareholders well.

[per Ritholtz B. Bailout Nation.  Hoboken, NJ: John Wiley & Sons, 2009. pp. 198-199.]

In that case, this would only makes things worse, tying board members to the personal interests of top managers of health care corporations, rather than to the interests of the entire stockholder population.

A (Baby) Step in the Right Direction

Given the potential severity of board of directors level conflicts of interest for academic medical leaders, any step that reduces them deserves applause.  That being said, Partners Healthcare's restrictions on these conflicts are at best baby steps in the right direction.

Note that the new policy only affects a small number of people.  Liz Kowalczyk wrote, "the policy affects roughly 25 vice presidents, clinical department heads, and other top executives...."  So it neither affects lower ranking clinical leaders, or Partners' own board.

The policy's limit on directors' compensation ($500/ hour, or $5000/ day, assuming a 10-hour day, which would annualize to $1,040,000 per year assuming an 8-hour day, and $1,300,000 assuming a 10-hour day), might be comparable to the current exaggerated earnings of top Partners' executives, but substantially exceeds the compensation of most practicing physicians or medical academics, and hence does not seem to be a very significant limitation.  Requiring payments be made in cash rather than stock options might be regarded as an improvement rather than a restriction. 

The policy does not restrict the number of boards a Partners leader may sit on.

Finally, the policy does not do anything substantial to manage to conflicts generated by board members' legal obligations to their companies and stockholders, nor their tendency to become cronies of top corporate management. 

Are Conflicts of Interest Even a Problem?

While acknowledging the new, slightly restrictive policy, top Partners leaders did not seem to want to acknowledge that there is any downside to academic medical leaders sitting on health care corporations' boards.  For example,

'We thought it was a very good idea to have institutional officials serve on boards, but we did not want to have personal enrichment,' [former Partners Chief Academic Officer and current Professor] Dr. [Eugene] Braunwald said.
[NY Times]

Note that for most people, $500/hour appear to be personally enriching.  

Also,

'These relationships also have significant benefits,' ... [Christopher Clark, director of Partners Office for Interactions with Industry] said. 'They give us some insight into how the companies work and how they are doing, and making sure the companies are aware of the academic perspective.'
[Boston Globe]

Mr Clark did not note the many other ways to see how companies work and to communicate the academic perspective to them which do not involve academic leaders being paid by these companies.

Dr Dennis Ausiello, chief of medicine at Massachusetts General Hospital, said

Pfizer and other companies were crucial to translate academic research into drugs that benefit patients. At Partners, he has oversight of a research, ventures and licensing office that seeks to commercialize the hospitals’ intellectual property.

'I’m very proud of my board work,' he said. 'I’m not there to make money. I certainly think I should be compensated fairly and symmetrically with my fellow board members, but if my institutions rule otherwise, as they have, I will continue to serve on the board.'

While drug companies do make products that are good for society, could they not continue to do so without academic leaders on their boards? If Dr Ausiello did not care about his compensation, why did he continue to accept it?

So it is hardly clear that Partners Healthcare's leadership even now would credit Harvard Professor Emeritus and Editor Emeritus of the New England Journal of Medicine Dr Arnold Relman's point of view,

I think that’s a gross conflict for an official of an academic medical center to be on the board of a pharmaceutical company.

It’s happening more and more around the country. If it isn’t stopped, I think the academic institutions are going to lose the confidence of the country and the government and they will no longer deserve the tax exemption or anything else. They will be part of industry itself.

Indeed. But at least now, the issue may be apparent to more people than just the dedicated readers of Health Care Renewal.  The more it is discussed, the more academic medical leaders may realize how much credibility they would gain if they were seen as impartial experts and dedicated physicians, rather than the protectors of corporate stockholders, or worse, the cronies of corporate bosses.

ADDENDUM (4 January, 2010) - see also comments by Professor Margaret Soltan on University Diaries, Merrill Goozner on the GoozNews blog, and Dr Howard Brody on the Hooked: Ethics, Medicine and Pharma blog.

ADDENDUM (6 January, 2010) - see also comments by Dr Daniel Carlat on the Carlat Psychiatry Blog.