The Spoils of a "Scorched-Earth Defense" - Merck CEO Got $13.3 Million in 2011

Last week, Bloomberg reminded us of the legal baggage that pharmaceutical giant Merck is carrying. The company had announced yet another settlement of legal actions pertaining to its ill-starred but very profitable sales of now withdrawn Vioxx (rofecoxib) in 2011 (see post here). Now the settlement, including a guilty plea was accepted by a judge.

A unit of Merck & Co. (MRK), the second- largest U.S. drugmaker, pleaded guilty to a criminal misdemeanor charge as part of a $950 million settlement of a U.S. government probe of its illegal marketing of the painkiller Vioxx.

An official of Merck Sharp & Dohme said today that the company agreed to plead guilty to one count of misbranding Vioxx. U.S. District Judge Patti Saris in Boston accepted the plea as part of the drugmaker’s agreement to pay a $321.6 million criminal fine and $628.3 million to resolve civil claims that it sold Vioxx for unapproved uses and improperly touted its safety.

'I’m certainly going to accept this agreement because I think it’s in the public interest,' Saris said from the bench. 'I hope the size of this settlement and the fact that all these cases are being pressed by the federal and state governments -- the 44 states’ attorneys general -- will be a signal that this isn’t acceptable conduct.'

But unacceptable conduct can lead to a great deal of revenue. As Bloomberg noted,

Approved by the Food and Drug Administration in 1999, Vioxx became Merck’s third-largest-selling drug by 2003, generating $2.5 billion in annual sales. The company pulled Vioxx off the market in 2004 after a study found it posed an increased risk of heart attacks and strokes.

It can also lead to a great deal of personal profit for those at the company tasked with defending such "unacceptable conduct," and what has now been found to be criminal behavior. Writing in Slate, Snigdha Prakash, who wrote All the Justice Money Can Buy about the legal aftermath of Vioxx, identified the current Merck CEO and board chairman as the architect of the defense of Vioxx, as

best known for his phenomenal success in defending a sordid chapter in Merck’s recent past—its years-long silence about the safety problems of the popular painkiller Vioxx.

Furthermore, she wrote,

As he showed with the Vioxx litigation, Frazier is adept at mounting a scorched-earth defense that minimizes payouts to potential plaintiffs.

Tens of thousands of former Vioxx users sued Merck after it withdrew the drug, alleging Vioxx had caused them to suffer heart attacks and strokes. Frazier, then the company’s general counsel, declared Merck had done nothing wrong and refused to settle. 'We’ll fight every case,' he declared, and hired top-flight law firms in several East Coast cities, in the South, in Chicago, and Los Angeles, as well as a prominent New York firm to coordinate the overall strategy. It took three years and $2 billion in legal expenses for Frazier’s hard-nosed tactics to pay off. Merck settled in late 2007 for a relative pittance, resolving some 50,000 Vioxx cases for just under $5 billion. It was a far cry from the $25 billion to $50 billion in liability that analysts had predicted when Merck withdrew the drug.

So it appears that Mr Frazier is now reaping his rewards. The Dow Jones News Service reported earlier in April,

Merck & Co.'s (MRK) leader received compensation valued at $13.3 million for 2011, up 41% from the year before, reflecting his ascension to the drug maker's top post and Merck's ability to exceed certain internal performance targets.

Kenneth Frazier, 57, became Merck's chief executive at the beginning of 2011 and chairman of the board in December. He was previously head of Merck's human health business.

In a proxy statement filed Thursday with the U.S. Securities and Exchange Commission, Merck said certain elements of Frazier's compensation reflected growth in Merck's sales and adjusted earnings for 2011.

In addition, Merck's board considered 'his performance, leadership, planning and oversight during a time of continued economic, regulatory and political challenges for the healthcare industry.'

Earlier this year, Frazier acknowledged that Merck had a tough 2011. The company endured setbacks including negative clinical data for a once-promising heart drug, vorapaxar. Merck's full-year stock price performance lagged behind most of its large-pharmaceutical peers.

But Merck of Whitehouse Station, N.J., continued to cut costs and was able to raise its dividend for the first time in seven years in 2011. Frazier said in January he was optimistic about 2012.

Frazier's total compensation included: $1.5 million in salary, $3.1 million in stock awards, $3 million in option awards, $3.1 million in non-equity incentive plan compensation, and $2.6 million change in pension value and non-qualified deferred compensation earnings.

So somehow a "tough 2011" for Merck's stockholders (Merck's stock price rose a mere 3.9%, from 36.29 to 37.70 through 2011) resulted in a cornucopia of riches for Mr Frazier. So rather than being rewarded for "maximizing shareholder value," (see post here) maybe Mr Frazier was rewarded for, as Ms Prakash put it, "burying monumental corporate failures at Merck."

Here is the latest version of how top health care organizational insiders manage to make even more money no matter what, in this case, no matter what happens to the fortunes of the nominal owners of the company, no matter what happens to the company's once proud reputation, and particularly no matter what happened to the patients unfortunate enough to suffer adverse effects from its drug.

We will not be able to truly reform health care, to really improve outcomes, improve access, and control costs, until we hold the leaders of health care organizations accountable.

As U.S. Presidential Campaign Ramps Up, Newt Gingrich Plays Down Support for Health IT

Presidential candidate Newt Gingrich, who I recall hearing in person as an an invited speaker at a health IT meeting some years ago (AMIA, I believe), has been pushing health IT rather uncritically in recent years.

However, he seems to have backed off that position at the election cycle heats up:

As Campaign Ramps Up, Gingrich Plays Down Support for Health IT

iHealthbeat.org

Friday, December 16, 2011

Now that he is a frontrunner in the race for the Republican presidential nomination, former House Speaker Newt Gingrich (R-Ga.) is downplaying his previous support for health IT adoption, The Hill's "Healthwatch" reports (Pecquet, "Healthwatch," The Hill, 12/15).

History of Supporting Health IT

During the George W. Bush administration, Gingrich worked with former CMS administrator Mark McClellan and former National Coordinator for Health IT David Brailer on federal efforts to promote health IT, according to the New York Times (Rutenberg/McIntire, New York Times, 12/16).

Gingrich also worked with former Senate Majority Leader Tom Daschle (D-S.D.) to co-author the forward of a book titled, "Paper Kills 2.0," which gives examples of how federal funds for health IT could be used in pilot projects to improve health care (Rowland, Boston Globe, 12/16).

Shortly before the passage of the 2009 federal economic stimulus package, Gingrich criticized the legislation as a "big politician, big bureaucracy, pork-laden bill." However, at the same time, Gingrich praised a provision of the stimulus package that allocated $19 billion to promote the use of health IT. He said, "I am delighted that President Obama has picked this as a key part of the stimulus package."

His views have apparently changed somewhat:

... Campaign Plays Down Health IT Support

On Wednesday, Gingrich unveiled a new brain science initiative that does not include any mention of EHRs, even though the technology was a major component of the brain science proposals he discussed over the summer.

Politics aside (it is probably not too far from the truth to say that all politicians hold out their fingers to see what direction the wind is blowing, although Mr. Gingrich is probably becoming more aware of HIT downsides thanks to lobbying of both sides of the aisle by people such as myself and like-minded experts [1]), I cannot disagree with this:

In August, Gingrich said he aimed to bolster brain science research in part by modernizing FDA through the use of EHRs. Gingrich said EHRs would allow for "much faster [FDA] approval times because you can monitor in real time everyone who uses the drug. And if you start getting inappropriate responses, you can change within weeks" ("Healthwatch," The Hill, 12/15).

In fact, I was championing exactly this idea ca. 2001 when I was employed at Merck Research Labs in the Research Information Systems division. Unfortunately, the answer from more senior personnel was that doing so would be "impossible" due to inability to blind, to control the data quality, etc., responses I considered unreasonable at the time but did not argue with to avoid getting on the Short List early in my employment there.

I also tried to present the idea to Merck as a former employee in Nov. 2006, at an invited presentation to the Clinical Risk Management & Safety Surveillance department of MRL entitled “Medical Informatics Perspectives on Leveraging the EMR in Pharma" (PPT). Also see my 2007 paper "A Medical Informatics Grand Challenge: the EMR and Post-Marketing Drug Surveillance" where I address a number of issues related to using EHR's in this fashion (PDF).

Using EHR's (e.g., with special screens and training) for well-defined Phase IV post-marketing surveillance studies would be one of the best uses for the technology [2].

Finally, I note that we need post-marketing surveillance of EHR's, CPOE's and other clinical IT systems themselves, not just drugs. Information technology cannot improve healthcare until it itself is improved significantly regarding its current deficiencies (see "reading list" here for illustrations).

-- SS

Notes:

[1] Health IT risks are a non-partisan issue.

[2] I should note that while I believe EHR's could facilitate postmarketing surveillance of drugs and devices, I take a dim view of more grandiose proposed uses of EMR's such as for comparative effectiveness research (CER). See my essay in the Journal of the American Association of Physicians and Surgeons (AAPS) entitled "The Syndrome of Inappropriate Overconfidence in Computing: An Invasion of Medicine by the Information Technology Industry?" here (PDF).

Merck Admits Little While Settling the Vioxx Case

A week ago, another legal settlement with some noteworthy aspects came marching along.  As reported by the Wall Street Journal, here are the details.

A Guilty Plea to "Misbranding"

First, there was a guilty plea (to a misdemeanor):

Merck & Co. agreed to pay $950 million and plead guilty to a criminal misdemeanor charge to resolve government allegations that the company illegally promoted its former painkiller Vioxx and deceived the government about the drug's safety.

In particular,

The Justice Department said Merck illegally promoted Vioxx for rheumatoid arthritis before that use was approved by the Food and Drug Administration in 2002. The drug was initially approved in 1999 to treat certain types of pain. Drug companies are barred from promoting drugs for unauthorized, or 'off label,' uses, though doctors may prescribe off-label uses.

Merck agreed to plead guilty to introducing a 'misbranded' Vioxx into interstate commerce, which is a misdemeanor violation of the Food, Drug and Cosmetic Act, and to pay a $321.6 million criminal fine.

So the company actually admitted to violating the law in the form of a misdemeanor, selling a drug for unapproved uses. The importance of this sort of activity has been frequently challenged, especially by those who claim that corporations have free speech rights that allow them to promote practically anything they want.

However, this was not the only issue apparently resolved.

A Civil Settlement

The company agreed to pay $628.4 million to settle civil allegations.

What were these allegations?

The government also made allegations against Merck in parallel civil litigation related to Vioxx in addition to the criminal charges.

According to the government, Merck representatives made inaccurate, unsupported or misleading statements about Vioxx's cardiovascular safety, in order to increase sales of the drug. The government also said Merck made false statements to state Medicaid agencies about the drug's safety.

However,

Merck isn't admitting liability or wrongdoing in the civil aspect of the settlement. Mr. Rogers said Merck expressly denies the civil allegations.

'We believe that Merck acted responsibly and in good faith in connection with the conduct at issue in these civil settlement agreements, including activities concerning the safety profile of Vioxx,' said Merck General Counsel Bruce Kuhlik in a statement.

So this is yet another example of a legal settlement made by a health care organization involving that organization paying a fine, but not admitting it did anything wrong.

The Parallel with the Citigroup Settlement

Last week, we wrote about how one US federal judge refused to accept a settlement (in a case of alleged financial misbehavior involving Citigroup) which did not require the company to admit wrongdoing. The judge noted that this presented the logically incomprehensible situation of a company apparently being punished for a reason that is unknown. At that point, one (admittedly outspoken) critic wrote, "This has essentially created a parallel or secret criminal justice system, in which both crime and punishment are adjudicated behind closed doors." Furthermore, these

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

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

What No One Had to Admit
In the case of the current Merck settlement, we do know something about the activities that lead to the settlement.  The settlement arose out of what was called the "Vioxx scandal." In summary, Vioxx (rofecoxib, Merck) a Cox-2 inhibitor non-steroidal anti-inflammatory drug used for pain, and touted for its ostensibly low risk of gastrointestinal side-effects, was withdrawn from the market in 2004 because of its cardiac risks.  The Vioxx case is flush with examples of how the company used deception to market a very profitable drug without regard to its risks to patients. 

There is evidence is that the company knew about these effects since 2000, but suppressed the clinical research evidence until 2003.(1)  In particular, in 2005, the editors of the New England Journal of Medicine raised concerns that an article published in that journal in 2000 about the results of the VIGOR study of rofecoxib sponsored by Merck failed to report data that would have suggested that the drug caused excess cardiovascular risks.(2) In 2007, the company paid more than $4.9 billion to settle patient lawsuits alleging harm due to Vioxx.(3)  Also in 2008, the company made a $58 million settlement of claims its advertising of Vioxx deceptively minimized its risks.(4) In 2008, it became clear that at least one apparently clinical trial of Vioxx, the ADVANTAGE trial, was merely a "seeding trial,' that is, a marketing exercise.(5)

On Health Care Renewal, we starting writing about Vioxx in 2005, including,
- here about ghost-writing of a Vioxx research publication;
- here, and here about allegations that Merck executives tried to intimidate Vioxx critics;
- here about how advocates of an extreme laissez faire approach to regulation of health care corporations used illogical arguments about the Vioxx case;
- here about the ADVANTAGE "seeding trial," that is, a study really meant to recruit supposed physician-researchers as prescribers; and
- here about how one once prominent Vioxx researcher pleaded guilty to fraud in connection with his research on other drugs.
-  here about how in settling a shareholder lawsuit Merck vowed to improve its scientific and academic integrity, and refrain from manipulating and suppressing clinical research.

In 2010, we summarized the Vioxx case thus, " the Vioxx case provides a good lesson about some of the tactics used to deceptively and unethically promote health care products (pharmaceuticals in this case)." 

In case there are any doubts about the harms patients suffered as a result of using Vioxx as a pain reliever, in 2004, a cumulative meta-analysis of published trials of Vioxx known by then estimated the risk of myocardial infarction (heart attack) due to Vioxx compared with placebo or other non-steroidal anti-inflammatory drugs was 2.3 times the baseline rate.(6)  That analysis suggested that there was data by 2000 that Vioxx increased the risk of bad cardiovascular events.  A cumulative meta-analysis from 2009 suggested that the risk of death due to Vioxx was 1.7 times the baseline rate.(7)   That analysis suggested there was data by 2001 that Vioxx increased the risk of bad cardiovascular events.  Graham and colleagues' nested case-control study of Vioxx use in a large managed care organization lead them to estimate that "88 000 - 140 000 excess cases of serious coronary heart disease probably occurred in the USA over the market-life of rofecoxib."(8)

Yet despite all the evidence of deceptive practices used to market Vioxx as a first-line pain reliever, and all the evidence that Vioxx may have lead to a large number of myocardial infarctions and premature deaths, the US government's settlement with the maker of Vioxx allowed it to deny that its marketers concealed the dangers of the drug.  This shows that the US regulation of health care organizations has been reduced to Kabuki theatre, detached from reality, and in this case, from what appears to be very clear clinical epidemiological evidence. 

As noted above, and by us frequently in the past, as long as the only punishments for bad behavior are fines (paid by the entire organization, not those who authorized, directed or implemented the bad behavior), such "punishments" only modestly add to the cost of doing business, and do not deter future bad behavior.  The continuing bad behavior, indicated in part in the parade of legal settlements we have documented, doubtless leads to much of our health care problems, particularly high costs, poor access, poor quality, and demoralized health care professionals.

Like a broken record (for anyone who remembers what that means), I repeat...   to really deter bad behavior, those who authorized, directed or implemented bad behavior must be held accountable. As long as they are not, expect the bad behavior to continue. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.


References


1. Topol EJ. Failing the public health - rofecoxib, Merck and the FDA. N Engl J Med 2004; 351: 1707-1709.  Link here.
2. Curfman GD, Morrisey S, Drazen JM et al.  Expression of concern reaffirmed. N Engl J Med 2006; 354:1193. Link here.
3. Charatan F. Merck to pay $5bn in rofecoxib claims. Brit Med J 2007; 335: 1011. Link here.
4. Charatan F. Merck to pay $58m in settlements over rofecoxib advertising. Brit Med J 2008; 336: 1208-1209. Link here.
5. Hill KP, Ross JS, Egilman DS, Krumholz HM. The ADVANTAGE seeding trial: a review of internal documents. Ann Int Med 2008; 149: 251-258. Link here.
6.  Juni P, Nartey L, Reichenbach S et al. Risk of cardiovascular events and rofecoxib: cumulative meta-analysis.  Lancet 2004; 364: 2021-2029.  Link here.
7.  Ross JS, Madigan D, Hill KP et al.  Pooled analysis of rofecoxib placebo-controlled clinical trial data: lessons for postmarket pharmaceutical safety surveillance.  Arch Intern Med 2009; 169: 1976-1984.  Link here.
8.  Graham DM, Campen D, Hui R et al.  Risk of acute myocardial infarction and sudden cardiac death in patients treated with cyclo-oxygenase 2 selective and non-selective non-steroidal anti-inflammatory drugs: nested case-control study.  Lancet 2005; 365: 475-481.  Link here.

Enabled by the Revolving Door, Corporatistic US Trade Policy Seems to Put US Drug Companies Ahead of Global Public Health

We just discussed how leaders of big health care corporations with histories of ethical and legal missteps want to export our supposedly "wonderful technology, wonderful approaches" to the rest of the world.  A story on the Huffington Post showed how big health care corporations, partnering with the US government, have already been doing that with not very pretty results.  The article discussed two cases, connected by a single person who transited the revolving door from government to the pharmaceutical industry and then back to government.

The US Dispute with Brazil, on Behalf of Merck and Pfizer, About HIV Drugs

When [William] Daley was commerce secretary in the later years of the Clinton administration, Brazil rankled U.S. drug companies by opting to provide its citizens with a generic version of another HIV drug. Like Thailand, Brazil declared a public health emergency in an effort to lower the cost of treating roughly a half-million HIV infections. The U.S. government responded by sending Daley to Brazil with executives from U.S. pharmaceutical giants Merck & Co. and Pfizer to try to pressure the Brazilian government into reversing its decision.

Thus the US government appeared to be putting the revenues of US corporations ahead of the public health, at least in Brazil.
Daley soon made the transition to the private sector:

In a speech at Johns Hopkins University before leaving for Brazil, Daley encouraged students to enter the revolving door between big business and public policy-making. 'Let me say this: As one of the only members of the president's Cabinet to come from business, it's good when you mix both government and business in your careers,' he said. 'It makes better public servants, and it makes better businesspeople.'

It has certainly been good for Daley's career. His effort to twist arms in Brazil failed, but drug companies apparently took note. It was after leaving the Clinton administration that Daley was hired by Abbott, where he raked in more than $1.3 million as a board member from 2004 to 2010, according to Securities and Exchange Commission filings. Over the same period, he served on Boeing's board and was a top lobbyist for JPMorgan Chase.

Abbot's Dispute, Supported by the US Government, with Thailand About Kaletra

Soon Abbot was involved in a similar dispute.

The background is:

[HIV drug] Kaletra costs more than $10,000 a year for a patient living in the United States, a price that is reflective of the highly protective American patent system. The U.S. is the only country that grants long-term monopolies on life-saving medicine without regulating the price of monopolized drugs.

In addition

In countries that negotiate with companies on drug prices, the cost of medicine is often far lower. But though American pharmaceutical companies do supply drugs to developing nations at rates below those charged in the U.S., those discounted prices are still too high for many poor or hard-hit nations to afford.

'In many developing countries, it's a death sentence,'said Nobel Prize-winning economist Joseph Stiglitz, referring to high drug prices.

The core of the dispute:

In 2007 negotiations with the Thai government, Abbott Labs wouldn't budge below a price of $2,200 per person, per year for Kaletra. At the time, Thailand was classified as a 'lower-middle income' country by the World Bank -- the second lowest of four categories. With more than a half-million citizens living with HIV, Thailand considered that price beyond its budgetary capacity. So it declared a public health emergency and began importing a vastly cheaper generic version of Kaletra from India.

And then, by international trade standards, all hell broke loose.

'When countries declare the health emergency, they face a huge backlash, particularly from the USTR [US Trade Representative] and the drug companies,'said Tim Boyd, policy research coordinator with the AIDS Healthcare Foundation, a U.S. nonprofit dedicated to eradicating HIV.

Abbott responded by withdrawing pending applications to register drugs in Thailand, cutting its citizens off from other medications. The move was unprecedented: Never before had an American drug company attempted to punish a country during drug price negotiations by cutting off the supply of other medicines.

At the time, Brook Baker, a law professor at Northeastern University and a member of the board at the Health Global Access Project, called the move a 'ruly appalling example of corporate hubris'that 'irectly violates any conceivable norm of corporate responsibility.'

At that time, the US government went along with Abbott:

As for the USTR, it seemed to support the company, placing Thailand on its 'Priority Watch List 'of nations that do not respect U.S. intellectual property rights. 'In late 2006 and early 2007, there were further indications of a weakening of respect for patents, as the Thai Government announced decisions to issue compulsory licenses for several patented pharmaceutical products,' wrote the agency in its report announcing that Thailand had been added to the priority list.

Although the USTR blacklist is little known domestically, it is a major economic indicator abroad and can affect a country's ability to import everything from software to DVDs to automobiles. Thailand's new status as an international rogue sparked concern among the country's economic policy officials and corporate leaders. And 35 members of Congress wrote to the USTR to protest Thailand's blacklisting, noting, 'The move is being interpreted in the public health community as a warning and a threat to other countries.'

Note that:

Abbott Labs declined to detail Daley's involvement in the Thailand episode, but as a member of the board, he should have been well informed about the strategy.

US Government Pressure to Protect Drug Companies' Patents

William Daley has transitioned the revolving door again in the other direction:

As commerce secretary under Bill Clinton, William Daley worked with U.S. pharmaceutical giants to curb the use of cheaper generic drugs abroad. As a board member for Abbott Laboratories, he had a front-row seat on a brutal clash between a major drug company and a developing nation over access to life-saving medication. And as White House chief of staff today, Daley has President Barack Obama’s ear.

In his new government job,

Add up Daley’s power and experience, and experts who follow public health policy suspect his influence in the U.S. stance in negotiations over a major international trade deal -- a stance with hugely profitable implications for giant American drugmakers.

The United States is in talks with eight other Pacific nations to establish the Trans-Pacific Partnership, which the administration hopes will serve as a template for other trade pacts. According to leaked documents from the negotiations, the Obama administration is using the deal to push hard-line intellectual property standards that could drive up medicine prices overseas, boosting the bottom line for U.S. drugmakers like Abbott Labs at the expense of public health.

Public health advocates are worried. 'If the point of the trade policy is not just to protect the interests of our companies, but the public health benefit and burden of research, then [the United States] is doing this all wrong,' said James Love, director of Knowledge Ecology International, a nonprofit that focuses on how patent laws affect the poor.

A White House spokesman said only that the negotiations -- which are being conducted behind closed doors with input from corporate lobbyists -- are being 'ably led' by the United States Trade Representative (USTR) and that Daley is 'not directing or participating in those negotiations.'

Note that the USTR leadership includes other travelers through the revolving door:

Daley's personal history with drug access is not unique among top-tier government officials with trade responsibilities. McCoy lobbied on intellectual property issues at the influential D.C. law firm Covington & Burling before moving to the USTR in 2006. His top deputy, Kira Alvarez, was a lobbyist for drugmaker Eli Lilly before joining the agency.

Summary

Per Zach Carter, the author of the Huffington Post article:

Daley, who previously lobbied for JPMorgan Chase, is a prominent examplar of a bipartisan phenomenon in American government in which corporate insiders, and the profit-driven perspective of the boardroom, have come to dominate formal and informal debate over public policy.

Another way to describe this is corporatism. The corporatism in this case is partly enabled by the continuation of the revolving door, the free transit of individuals from leadership positions in top corporations and in government. The government and big corporations have teamed up to produce solutions that may seem beneficial to the people making the decisions, and may benefit their long term career strategies, but may not be good for the US public, for patients' and the public's health in this case, and for the ability of the country to conduct foreign policy based on some ethical and moral principles.

By the way, note that combined with other cases we have discussed, this shows that the revolving door pheonomenon, and other aspects corporatism affecting health care are not linked with any one political party.

So,

There is no evidence that any of these players, including Daley, have done anything illegal or explicitly corrupt during the Trans-Pacific trade negotiations. But public health doesn’t seem to be their first priority.

'The real concern is that the U.S. is using its international power and prestige to force poor countries to enforce our intellectual property standards, and the result of that is that access to medicine is denied and people are dying,' said Joseph Stiglitz.

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

Do Health Care Leaders Realize They Do Not Practice What They Preach?

When we began Health Care Renewal in late 2004, we focused on "concentration and abuse of power" as a driver of dysfunction in the health system.  We have frequently discussed how problems with the leaders of health care organizations, who may be uninformed, incompetent, self-interested, conflicted, or even corrupt, may be a major cause of rising costs, declining access, and poor quality.  This week, the news reminded us how unsustainable US health care costs have become.  The average cost of health care insurance for those fortunate enough to have it provided by employers exceeded $15,000 last year (look here), a year in which median house-hold income fell under $50,000 (look here).  Yet there is no evidence that the country with the world's most expensive health care has anything approaching the world's best health care. 

From the Harvard Business School, a Call to Rethink Management's Conventional Wisdom

So it was with some hope that I read about a call to change the fundamental beliefs of corporate leaders, particularly corporate health care leaders.  An adjunct faculty member at the august Harvard Business School, Raymond V Gilmartin, posting on the school's blog first summarized the conventional wisdom of corporate leaders:

Most CEOs and corporate board members would agree that the theories and beliefs listed below drive their decision-making on how best to meet the challenges they face:

- The focus of the CEO and the board should be on maximizing shareholder value.
- The stock market is short-term-oriented.
- Stock-based incentive compensation aligns the self-interest of management with shareholders, and a performance-based pay system increases employee motivation.
- Societal concerns should be addressed through corporate social responsibility programs.
- The 'best athlete' from inside or outside the company should be chosen as the successor to the CEO.

In my experience, these beliefs have led managers and boards to take actions that have had unintended, destructive consequences.

Some of these issues seemed to overlap those we have discussed. We have written about the harmful effects of some of these aspects of the conventional wisdom of health care leaders, particularly the perverse incentives supplied by excess executive compensation that seems unrelated to how his or her or the organization's performance affects patients' and the public's health, that health care leaders seem to care little about the organization's health care mission, if they are not actively hostile to it, and that leaders often seem to be chosen because of their perceived ability as generic managers, not their knowledge of health care or their understanding of its values. 

Furthermore, Mr Gilmartin advocated for a new set of guiding beliefs that also were at least somewhat resonant:

Shareholders benefit most when CEOs and boards maximize value for society and act as agents of society rather than shareholders.

Actions to address societal issues should be an integral part of strategy, and operations and should not be isolated as a separate activity under the heading of corporate social responsibility.

Thus Mr Gilmartin seemed to be supporting the notion that health care corporations should focus on providing products and services that actually improve health care, and should operate in ways that support health care's core values.

Also,

Purpose, meaning, and recognition are more powerful motivators than economic self-interest, and large external rewards can reduce intrinsic motivation.

Here Mr Gilmartin seemed to be calling for less extravagant monetary rewards within health care corporations, and perhaps implying that awards should be aligned with health care outcomes and values rather than financial goals.

Did He Practice What He Preached?

Long-time readers of Health Care Renewal know that we often base our arguments about how health care should be renewed on demonstrations of the internal contradictions within the current dysfunctional system. So for those of you wondering if this is one of our rare upbeat posts about the message getting out, it is time to demonstrate the paradoxical aspects of Mr Gilmartin's apparently reformist views.

If you did not recognize his name right away, Mr Gilmartin, besides being a current adjunct faculty member at Harvard, was the CEO and Chairman of Merck from 1994 to 2005 (see here). When he proclaimed his beliefs above, he did not assert they were new revelations, but rather his guiding beliefs since before he became the leader of Merck:

Listed below are an alternative set of beliefs that guided me when I was the CEO of Merck and Becton Dickinson. I strongly feel that they have greater validity, are more effective in meeting today's management challenges, will lead to superior outcomes, and will help restore public faith in business and its leaders.

However, his record as leader of Merck, a record that supplied considerable grist to the Health Care Renewal mill since 2005, stands in stark contrast to these stated beliefs.

CEOs should "maximize value for society and act as agents of society"

Mr Gilmartin presided over what became known as the Vioxx scandal, one so big that it was actually eventually well-documented in medical journals, thus escaping the anechoic effect.

In summary, Vioxx (rofecoxib, Merck) a Cox-2 inhibitor non-steroidal anti-inflammatory drug used for pain, and touted for its ostensibly low risk of gastrointestinal side-effects, was withdrawn from the market in 2004 because of its cardiac risks.  The Vioxx case is flush with examples of how the company used deception to market a very profitable drug without regard to its risks to patients. 

There is evidence is that the company knew about these effects since 2000, but suppressed the clinical research evidence until 2003.(1)  In particular, in 2005, the editors of the New England Journal of Medicine raised concerns that an article published in that journal in 2000 about the results of the VIGOR study of rofecoxib sponsored by Merck failed to report data that would have suggested that the drug caused excess cardiovascular risks.(2) In 2007, the company paid more than $4.9 billion to settle patient lawsuits alleging harm due to Vioxx.(3)  Also in 2008, the company made a $58 million settlement of claims its advertising of Vioxx deceptively minimized its risks.(4) In 2008, it became clear that at least one apparently clinical trial of Vioxx, the ADVANTAGE trial, was merely a "seeding trial,' that is, a marketing exercise.(5)

On Health Care Renewal, we starting writing about Vioxx in 2005, including,
- here about ghost-writing of a Vioxx research publication;
- here, and here about allegations that Merck executives tried to intimidate Vioxx critics;
- here about how advocates of an extreme laissez faire approach to regulation of health care corporations used illogical arguments about the Vioxx case;
- here about the ADVANTAGE "seeding trial," that is, a study really meant to recruit supposed physician-researchers as prescribers; and
- here about how one once prominent Vioxx researcher pleaded guilty to fraud in connection with his research on other drugs.
-  here about how in settling a shareholder lawsuit Merck vowed to improve its scientific and academic integrity, and refrain from manipulating and suppressing clinical research.

In 2010, we summarized the Vioxx case thus, " the Vioxx case provides a good lesson about some of the tactics used to deceptively and unethically promote health care products (pharmaceuticals in this case)."

The widespread deceptions of the Vioxx case, which likely fooled many patients into taking and physicians into prescribing a drug whose harms greatly outweighed its benefits, seem to be the antithesis of "maximizing value for society."

"Purpose, meaning, and recognition are more powerful motivators than economic self-interest"

Yet Mr Gilmartin embraced compensation that greatly boosted his economic self-interest even as the scope of the Vioxx case became well-known.

In 2005, we noted that Merck CEO and Chairman Raymond V Gilmartin got a 2004 salary of US $1.6 million, plus a $1.4 million bonus, and stock options worth $19.2 million. Also, he exercised other stock options that year, gaining a further $34.8 million.  All this he received soon after the withdrawal of Vioxx, and  despite Merck's stock 30% drop after this withdrawal.

Lack of Insight

We have occasionally discussed evidence that a significant proportion of organizational leaders, including health care leaders, are "snakes in suits," that is, sociopaths who only care about their own self-interest. However, it is likely that the majority of leaders are certainly not sociopathic.

Why, then, do so many health care leaders preside over, if not directly authorize, direct or implement actions they ought to have known were wrong?  The stark contrast between Mr Gilmartin's stated beliefs and the history of Vioxx case which occurred on his watch suggest a failure of insight about his own actions.  He did not seem to realize that what he practiced appeared at odds with the beliefs he now says he espouses.

We constantly hear that our health care organizational leaders, particularly the CEOs of large health care organizations, are the "best and the brightest," especially when their enormous compensation needs justification (for example, look here for a recent example, and here for more.)  A reasonable assumption would be that the "best and the brightest" have some insight into their own actions, and the extent their actions live up to their principles and beliefs.

This new extension of the Vioxx case suggests that an important reason that health care leaders continue to appear ill-informed, incompetent, self-interested, conflicted, or even corrupt is that they lack insight into how their actions might make them seem such. If their mental model of their own actions tells them they well-informed, competent, devoted to the mission of their organization, and honest, regardless of any evidence to the contrary, this faulty insight will allow them to continue actions that make them appear otherwise.

The challenge then is to somehow provide real feedback to health care leaders when their actions appear ill-informed, incompetent, self-interested, conflicted or corrupt. Some reasonable hypotheses would be:
- CEOs and other top leaders must be removed from their bubbles, must relinquish their "imperial" status. They must not be too sheltered from the vicissitudes of daily life, or shielded from criticism or disagreement.
- We must end the perverse incentives that reward CEOs for doing wrong, particularly for making short-term revenue, or even the illusion thereof, their primary benchmark.
In other words, as we have said before, health care leaders must become accountable for what they do, particularly for the effects of what they do on patient's and the public's health.

Maybe if health care leaders can begin to see themselves as others see them, they will start to act to benefit patient's and the public's health, and we might see some improvement in our drastically expensive, inaccessible, and poor quality health care system.

Hat tip to Ed Silverman on the PharmaLot blog.

References


1. Topol EJ. Failing the public health - rofecoxib, Merck and the FDA. N Engl J Med 2004; 351: 1707-1709.  Link here.
2. Curfman GD, Morrisey S, Drazen JM et al.  Expression of concern reaffirmed. N Engl J Med 2006; 354:1193. Link here.
3. Charatan F. Merck to pay $5bn in rofecoxib claims. Brit Med J 2007; 335: 1011. Link here.
4. Charatan F. Merck to pay $58m in settlements over rofecoxib advertising. Brit Med J 2008; 336: 1208-1209. Link here.
5. Hill KP, Ross JS, Egilman DS, Krumholz HM. The ADVANTAGE seeding trial: a review of internal documents. Ann Int Med 2008; 149: 251-258. Link here.

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

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

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

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

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

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

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

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

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

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

In addition, the Times story connected another dot:

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

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

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

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

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

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

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

Dr Glimcher has been on the BMS board since 2007, so the actions that lead to these allegations and then the settlement clearly occurred on her watch. Nonetheless, the Times noted:

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

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

Dubious Enthusiasm from the Former Chairman of Bailed-Out Citigroup

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

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

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

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

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

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

Even More Conflicts of Interest

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

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

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

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

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

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

Summary and Some Questions

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

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

But I will not hold my breath waiting for answers.

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