Health Care Dysfunction Explained by the Fallacy of "Maximizing Shareholder Value"

Over the last two weeks, the Naked Capitalism blog ran a multi-part series (1-4) on what has gone wrong with US public for-profit corporations.  Although not targeted specifically on health care, the series included several themes we have discussed on Health Care Renewal, and suggested some important new ones.  So let us review the most relevant topics.

"Financialization," and the Exclusive Ostensible Focus on Shareholder Value

In the first post,(1) William Lazonick explained how corporations gave up their devotion to societal values to ostensibly focus only on the interests of shareholders: 

What went wrong? A fundamental transformation in the investment strategies of major U.S. corporations is a big part of the story.

A generation or two ago, corporate leaders considered the interests of their companies to be aligned with those of the broader society. In 1953, at his congressional confirmation hearing to be Secretary of Defense, General Motors CEO Charles E. Wilson was asked whether he would be able to make a decision that conflicted with the interests of his company. His famous reply: 'For years I thought what was good for the country was good for General Motors and vice versa.'

However, then(1)

the U.S. business corporation has become in a (rather ugly) word 'financialized.' It means that executives began to base all their decisions on increasing corporate earnings for the sake of jacking up corporate stock prices. Other concerns — economic, social and political — took a backseat. From the 1980s, the talk in boardrooms and business schools changed. Instead of running corporations to create wealth for all, leaders should think only of 'maximizing shareholder value.'

This was formalized in the the scholarly management literature,(1)

But in 1983, two financial economists, Eugene Fama of the University of Chicago and Michael Jensen of the University of Rochester, co-authored two articles in the Journal of Law and Economics which extolled corporate honchos who focused on 'maximizing shareholder value' — by which they meant using corporate resources to boost stock prices, however short the time-frame. In 1985 Jensen landed a higher profile pulpit at Harvard Business School. Soon, shareholder-value ideology became the mantra of thousands of MBA students who were unleashed in the corporate world.

Ignoring the Interests of Employees: Cost Cutting, Layoffs, Off-Shoring

Maximizing shareholder value only really seems to mean maximizing shareholder value in the short run, often by short-term cost-cutting that will reduce the ability to improve existing or develop new products and services. Hence, now(1)

When the shareholder-value mantra becomes the main focus, executives concentrate on avoiding taxes for the sake of higher profits, and they don’t think twice about permanently axing workers. They increase distributions of corporate cash to shareholders in the forms of dividends and, even more prominently, stock buybacks. When a corporation becomes financialized, the top executives no longer concern themselves with investing in the productive capabilities of employees, the foundation for rising living standards for all. They become focused instead on generating financial profits that can justify higher stock prices....

Furthermore,(1)

n the name of shareholder value, by the 1990s U.S. corporations seized on these changes in competition and technology to put an end to the norm of a career with one company, ridding themselves of more expensive older employees in the process. In the 2000s, American corporations found that low-wage nations like China and India possessed millions of qualified college graduates who were able and willing to do high-end work in place of U.S. workers. Offshoring put the nail in the coffin of employment security in corporate America.

Thus, "maximizing shareholder value" was the rationale for a variety of short-term cost-cutting approaches that turned employees (excepting, of course, the hired executives and their favorites) not merely into the makers of widgets, but into widgets themselves. By extension, this attitude that all employees (again, with the exception of top management and their cronies) are interchangeable applied even to highly skilled professional, technical and scientific employees, e.g., research scientists in a pharmaceutical company.

By further extension, as we have noted, health care organizations, including non-profit institutions like hospitals, insurance companies, and academic medical institutions, have been taken over by hired managers who are decreasingly health care professionals. Such hired generic managers have carried the latest fashionable management ideas into health care with them. Thus, in my experience, even experienced academic physicians began hearing that they had no individual value, were interchangeable and could easily be replaced starting in the 1990s.

For organizations that depend on highly trained, dedicated technical, scientific, and/or professional workers, devaluing and demoralizing such employees wold appear to be the height of foolishness.

As Lazonick pointed out in a later post(3), treating workers as interchangeable can be the death knell for innovation:

As is generally recognized by employers who declare that 'our most important assets are our human assets', the key to successful innovation is the extra time and effort, above and beyond the strict requirements of the job, that employees expend interacting with others to confront and solve problems in transforming technologies and accessing markets. Anyone who has spent time in a workplace knows the difference between workers who just punch the clock to collect their pay from day to day and workers who use their paid employment as a platform for the expenditure of creative and collective effort as part of a process of building their careers.

As members of the firm, these forward-looking workers bear the risk that their extra expenditures of time and effort will not yield the gains to innovative enterprise from which they can be rewarded. If, however, the innovation process does generate profits, workers, as risk-bearers, have a claim to a share in the forms of promotions, higher earnings and benefits. Instead, shareholder-value ideology is often used as a rationale for laying off workers whose hard and creative work has contributed to the company’s success. That’s grossly unfair.

A Fallacious Rationale: Only Stockholders at Risk

However, the reasoning, such as it was, behind the "maximizing shareholder value" mantra contained a rationale for so devaluing and demoralizing even the most dedicated and well-trained employees. As Prof Lazonick explained,(1)

Proponents of the Fama/Jenson view argue that for superior economic performance, corporate resources should be allocated to maximize returns to shareholders because they are the only economic actors who make investments without a guaranteed return. They say that shareholders are the only ones who bear risk in the corporate economy, and so they should also get the rewards.

He then went on to easily explain why this was complete rubbish(1):

But this argument could not be more false. In fact, lots of people bear risks of investing in the corporation without knowing if they will pay off for them. Governments in the U.S., funded by the body of taxpayers, are constantly making investments in physical infrastructures and human capabilities that provide benefits to businesses, but without a guaranteed return to taxpayers. An employer expects workers to give time and effort beyond that required by their current pay to make a better product and boost profits for the company in the future. Where’s the worker’s guaranteed return? In contrast, most public shareholders simply buy and sell shares of a corporation on the stock market, making no contribution whatsoever to investment in the company’s productive capabilities.

By Extension, In Health Care, Ignoring the Interests of Patients and the Values of Health Care Professionals

If one believes only stockholders are at risk and hence only stockholders deserve benefit from corporate activities, by extension this eliminates the interests of patients and the values of health care professionals from consideration by the leadership of health care corporations.

Of course, in health care, the patients may be the ones most at risk from corporate activities. For example, think of a patient who pays a large amount out of pocket for a drug that fails to benefit him or her. Worse, patients are not only at financial risk, but are at physical risk. For example, think of a patient who suffers an unusual, but severe adverse reaction to a drug.

In addition, in health care, health care professionals who do not work for a particular health care corporation may be at risk from its activities. For example, think of a physician who is fooled by a pharmaceutical company's manipulation of clinical research into believing a drug is effective and safe when it is actually useless and harmful. We have documented numerous instances of suppression of clinical research, manipulation of clinical research, ghost writing, deceptive stealth marketing, and other tactics used by pharmaceutical, biotechnology and device companies to deceive physicians about the effectiveness and safety of drugs and devices. Physicians who have been thus deceived are at risk of violating their fundamental responsibility to put individual patients' interests first.

Subverting the Mission of Non-Profit Health Care Organizations

As we mentioned earlier, there is ample evidence that non-profit organizations are now most often lead by hired managers who have brought the latest management with them, rather than health care professionals. It is therefore likely that the dominant notion of "maximizing shareholder value" has been operationalized even in non-profit organizations that do not have shareholders.

Most likely it has been transformed into simply maximizing short-term revenue. We have certainly seen many instances of leaders of such health care organizations who seem mainly preoccupied with short-term financial goals. Bad as this is for a public for-profit corporation, it is potentially disastrous for a non-profit organization which is supposed to put upholding its mission ahead of financial concerns (see examples of such mission-hostile management here).

Interests of Shareholders or Interests of Executives?

It is terribly ironic that in practice "maximizing shareholder value" turns out to mean maximizing executive compensation. In retrospect, this mantra looks entirely self-serving.  As Prof Lazonick noted in a second post, executive compensation has soared in recent years(2)

When all the data from corporate proxy statements are in within the next month or so, they will show that 2011 was another banner year for top executive pay. Over the previous three years the average annual compensation of the top 500 executives named on corporate proxy statements was 'only' $17.8 million, compared with an annual average of $27.3 million for 2005 through 2007. Yet even in these recent 'down' years, the compensation of these named top executives was more than double in real terms their counterparts’ pay in the years 1992 through 1994.

It might surprise you to learn that in the early 1990s, executive pay was already widely viewed as out of line with what average workers got paid. In 1991 Graef Crystal, a prominent executive pay consultant, published a best-selling book, In Search of Excess: The Overcompensation of American Executives, in which he calculated that over the course of the 1970s and ’80s, the real after-tax earnings of the average manufacturing worker had declined by about 13 percent. During the same period, that of the average CEO of a major US corporation had quadrupled!

We have documented seemingly endless examples of bloated executive compensation in health care.

In fact, as Prof Lazonick noted in his first post(1), by increasing stock prices short-term, executives of for-profit corporations can markedly boost their own compensation,

When a corporation becomes financialized, the top executives no longer concern themselves with investing in the productive capabilities of employees, the foundation for rising living standards for all. They become focused instead on generating financial profits that can justify higher stock prices – in large part because, through their stock-based compensation, high stock prices translate into megabucks for these corporate executives themselves.

The Conspiracy to Increase CEO Compensation

As CEO compensation climbed, they and their supporters have invoked a market-based rationale, as Prof Lazonick described in his third post,(3):

You often hear that stratospheric executive pay is the result of some inexorable law of supply and demand. If we don’t give top executives their multimillion dollar compensation, they won’t be willing to come to work and do their jobs. They are supposedly the bearers of 'scarce talent' that demands a high price in the market place. Even Robert Reich, Secretary of Labor in the Clinton administration and a critic of U.S. income inequality, has justified the explosion in executive pay, arguing that intense competition makes it much more difficult than it used to be to find the talent who can manage a large corporation (Supercapitalism, 2008, pp 105-114).

We have provided many examples of similar talking points used to support fat compensation for health care leaders (e.g., here. here, and here).
However, as we described here, the mechanism that executives have developed to set their own pay in line with the supposed market does nothing like that,(3)

That is not what determines executive pay. Here is how it works: Top executives select other top executives to sit on “their” boards of directors. These directors hire compensation consultants to recommend an executive pay package, which consists of salary, bonus, incentive pay, retirement benefits, and all manner of other perks. The consultants look at what top executives at other major corporations are getting, and say that, well, this executive should get more or less the same. Since the directors are mostly these very same “other executives”, they have no interest in objecting – and if any of them were to do so, they would find that they are no longer being invited to sit on corporate boards.

Meanwhile, given the preponderance of stock-based compensation (especially stock options) in executive pay, whenever there is speculative boom in the stock market, top executives of the companies with most rapidly rising stock prices make out like bandits. The higher compensation levels then create a 'new normal' for executive pay that, via the compensation consultants and compliant directors, ratchets up the pay of all the top dogs. And, when the stock market is less speculative, these corporate executives do massive stock buybacks to push stock prices up.

What we have here is not 'market forces' at work but an exclusive club that promotes the interests of the 0.1%. All too often executives allocate corporate resources to benefit themselves rather than to invest in innovation and job creation.

We have discussed similar mechanisms at work in health care, for example, here.

In other words,

almost unanimously, corporate executives proclaim that they run their companies for the sake of shareholders. In fact, their personal coffers pumped up with stock-based compensation, our business 'leaders' have increasingly run the corporations for themselves.

Were contemporary management of health care be only based on maximizing shareholder value or short-term revenue, that would be bad enough. However, it appears that it is really based simply on maximizing executive compensation. Health care, and our society as a whole has been turned into something like a feudal state, in which hired managers have become the new aristocracy.

The Rise of the Generic Manager

The likelihood that "maximizing [supposed] shareholder value" would lead to bad ends is increased by the decreasing likelihood that the managers who set out in this direction would know anything about the specific context in which they were working or other goals they ought to attempt. As Prof Lazonick pointed out, even before the rise of the "maximizing shareholder value" mantra,(1)

The beginnings of financialization date back to the 1960s when conglomerate titans built empires by gobbling up scores and even hundreds of companies. Business schools justified this concentration of corporate power by teaching that a good manager could manage any type of business — the bigger the better.

This was the notion of the generic manager. In health care, generic managers who have little specific health care knowledge or experience, and little understanding of or sympathy for the values of health care professionals might be particularly ruthless about putting short-term financial goals ahead of everything else.

Summary

On Health Care Renewal, we have focused on problems with health care leadership and governance. We have discussed the rise of generic managers, a focus on short-term revenue sometimes leading to mission-hostile management, the perverse incentives generated by executive compensation that is unrelated to achievement of the health care mission's goals, lack of executive accountability, and sometimes executives' complete impunity. It now appears that health care's leadership and governance problems simply reflect larger problems in the society as a whole.

Maybe it should be a relief that we in health care are not uniquely cursed. However, the immensity of the problems faced by our society as a whole will not make it easier to solve the problem of health care dysfunction.

I do feel better that our focus has been correct. Furthermore, I feel more confident asserting once again that true health care reform would put in place leadership that understands the health care context, upholds health care professionals' values, and puts patients' and the public's health ahead of extraneous, particularly short-term financial concerns. We need health care governance that holds health care leaders accountable, and ensures their transparency, integrity and honesty.

Maybe realizing that health care's problems are a part of society's problems will lead to more support for their solutions.

References
1.  Lazonick W. How American corporations transformed from producers to predators.  Naked Capitalism, April 2, 2012.  Link here.
2. Lazonick W. How high CEO pay hurts the 99 percent. Naked Capitalism, April 3, 2012. Link here.
3. Lazonick W. Three corporate myths that threaten the wealth of the nation. Naked Capitalism, April 6, 2012. Link here.
4. Parramore L. Capitalism's dirty secret: corporations don't create jobs, they destroy them.  Naked Capitalism, April 5, 2012.  Link here.

Using a "Professionalism" Initiative as a Speech Code to Punish Students' Criticisms of Administrative Authority?

The original impetus to set up Health Care Renewal was increasing evidence of external threats to physicians' professional values.  So it seemed to me that renewed interest in addressing professionalism in academic medicine might lead to more attention to these threats, and perhaps even real challenges to them. 

Instead, most academic professionalism initiatives seem to have steered away from this contentious area.  Worse, at times the academic medical concept of professionalism has been turned on its head. 

A Dispute Among Students at University of California - Davis

A recent post in the Torch blog from our friends at FIRE (the Foundation for Individual Rights in Education) provided a graphic example.  The case involved an apparently trivial dispute among two medical students:

[University of California - Davis medical student Curtis] Allumbaugh's ordeal began after he emailed the 'med2014' mailing list (or 'listserv') on July 19, 2010, regarding a party he was organizing. The listserv was widely used for a variety of non-academic purposes. Allumbaugh's email provided the address of the party, detailed the available space, and listed the variety of alcohol that would be available at the party. The email noted that others had signed up to bring snacks and mentioned that some things were still lacking for the party, such as music, fruit juice, and beer. Prior to Allumbaugh's message, others had sent similar emails using the same listserv about their own parties, such as a 'kegger' one student called 'CAMP MED.'

On July 20, 2010, a second-year student emailed Allumbaugh, notifying him that she had 'been placed on the class of 2014's listserve' and had monitored the class email. She criticized Allumbaugh's email for placing 'a heavy emphasis on alcohol.' In response, Allumbaugh emailed her directly on July 21, calling her a 'busy body' and telling her, 'You should really just mind your own business and let our class be.'

Note that the second-year student's email (available here) carried a suggestion that she had some sort of authority to monitor the extra-curricular actions of first year students as manifested on the list server, and perhaps even punish them for perceived misconduct:

I can tell you that as MS2s, we work and play hard, but we do it responsibly and always in the forefront of our minds we remember what image we are portraying in public and through the messages we send. I'd hate to see any one of you 2014ers get into any trouble right before you start an amazing period of your life.

Note that the exchange between the two students did not occur in an academic or clinical setting, and it was never clear why the second year student was "placed on" the list server, or why she should have any authority over the Allumbaugh. .

The School Administration Invokes "Professionalism"

The medical school saw fit to cast Allumbaugh's actions as violations of the school's standards of professionalism:

As a result of this email exchange, Associate Dean of Student Affairs and Graduate Medical Education James Nuovo sent Allumbaugh a letter on September 14, 2010, citing him for 'failing to demonstrate the highest standards of civility and decency to all' and 'failing to demonstrate courtesy, sensitivity and respect.' On November 3, 2010, Allumbaugh received a letter from the SOM Committee on Student Progress, punishing him with academic probation for the rest of his time in medical school and requiring him to undergo a psychological assessment to determine whether he was 'fit' to continue in medical school.

Finally, on November 19, 2010, SOM changed its rules to force all medical students to abide by the Principles of Community or else face academic probation.

The result was a series of interventions by FIRE:

In response, FIRE wrote UC Davis Chancellor Linda P.B. Katehi on August 3, 2011, noting that enforcing professional standards in truly professional settings differs greatly from enforcing workplace standards in other settings such as private conversations. FIRE also noted that it is blatantly unconstitutional to police student speech under the UC Davis Principles of Community because such a 'civility' policy violates the First Amendment right to freedom of speech when it is given disciplinary force.

When that letter had no effect, it took threats of litigation for the medical school to suspend Allumbaugh's punishment more than one year after it began:

SOM Associate Dean of Curriculum and Competency Development Mark Servis replied to FIRE on August 10, 2011, defending the policy. FIRE responded on November 23, 2011, reminding Katehi that 'violating well-established law regarding the First Amendment rights of students at public universities leaves you at risk of losing qualified immunity, thereby opening you and other administrators to personal liability' for the deprivation of students' First Amendment rights. Servis again defended the policy in a reply on December 5, 2011.

Finally, on February 16, 2012, the Committee on Student Progress notified Allumbaugh that his probation had been dropped, but persisted in requiring him to adhere to the Principles of Community.

Note that Associate Dean Servis' letter stated that the email sent to Allumbaugh by the second year student was "a genuine suggestion of concern and an offer of albeit unsolicited friendly advice."  Thus, Servis seemed unaware that it could have been interpreted as an assertion of authority and a threat of punishment ("I'd hate to see any one of you 2014ers get into any trouble.")

Dean Servis also defended the use of probation to punish a student for failing to "work effectively with classmates." Yet the dispute that had nothing to do with (academic or clinical) work, and only involved a single student from another class.  Why that student was not equally to blame was not clear, unless it was because she had been granted special authority by the administration to monitor the actions of less senior students.  The implication appears to be that the punishment was in defense of a student who had been granted special authority by the administration, and hence was ultimately in defense of the administration's power. 

Summary

In this case, the medical school's professionalism policy seemed to be used by the administration primarily to control students' speech outside of the academic and clinical setting. Furthermore, the student's main offense seemed to be failure to kowtow sufficiently to another student who by implication had been given some sort of authority by the administration.  What the two students' dispute had to with professionalism is not  apparent.

On one hand, this seems like a case in which a speech code was mainly used to defend administrators from criticism and challenge.

On the other hand, this speech code was cloaked in the mantle of professionalism.  So this case seems to be an example of a professionalism initiative used as an excuse for the leadership to maintain its power.

It is beyond ironic that while this was going on, the University of California - Davis, and its Chancellor Linda Katehi were becoming briefly infamous for another effort, a more violent one, by the administration to prevent criticism and challenge. Chancellor Katehi had authorized university police to "clear" student demonstrators from an "occupation" of the campus which was protesting, among other things, rising tuition and economic inequality, and in doing so, the police used pepper spray on unarmed students (see this post.)

There are a lot bigger threats to physicians' and other health care professionals' professionalism than medical students' sarcasm or even rudeness in disputes about alcohol served at off-hours parties. Since many of these threats also generate personal benefits to academic leadership, it may not be much of a surprise that they have received little attention.  (See the list of threats appended below.  Note that we have discussed two of these threats in the specific context of the University of California - Davis.  Here we noted that Chancellor Katehi seemed to be re-imagining her medical school as a biotechnology company.  Here we noted that Chancellor Katehi was also on the board of a company with a medical education and communication company subsidiary.)

However, while they remain unaddressed, I submit that using "professionalism" to cloak increased social control of students to prevent them from looking too closely at what academic administrators are doing will eventually backfire. 

===
ADDENDUM: List of Threats to Professionalism


Instead, to really uphold professionalism, we need to defend it from its real threats, as listed in my 2010 post:

• Abandonment of traditional prohibitions of the commercial practice of medicine - In the US, a Supreme Court decision was interpreted to mean that medical societies could no longer regulate the ethics of their members.  Until 1980, the US American Medical Association had  ruled that the practice of medicine should not be "commercialized, nor treated as a commodity in trade."  After then, it ceased trying to maintain this prohibition.  The result was increasing, now rampant commercialization.  See posts  here and here.
• Making money takes precedence over education -  A recent survey showing that more than half the faculty at multiple US medical schools felt they were valued more for how much money they brought in than their teaching or patient care abilities (here), confirming previous anecdotal reports (see here). 
• The medical school re-imagined as a biotechnology company -  In 2000, a Vice President of the American Association of Medical Colleges(1) wrote that research universities must respond to "societal demands that they become engines of economic development…."  Many universities now defend lax conflict of interest policies with similar arguments.  For more details, go here.
• Faculty become employees of industry - For numerous examples of this and other kinds of conflicts of interest, go here.  A survey by Campbell et al suggested that approximately two-thirds of medical academics get significant payments from industry.(2)
• Academics become "key opinion leaders" paid to market drugs and devices - Marketers regard "key opinion leaders" as salespeople who appear more credible because of their professional guise.  See anecdotal evidence here.  
• Control of clinical research given to commercial sponsors - A study by Mello et al showed how universities' grant administrators are willing to sign contracts giving commercial sponsors control over key aspects of human research studies.(3)  See post here. 
• Conflicts of interest allow manipulation and suppression of clinical research - Commercially sponsored research design, implementation, and dissemination are often manipulated to favor the sponsor's interests.  When such manipulation fails to produce favorable results, the results may simply be suppressed.
• Academics take credit for articles written by commercially paid ghost-writers - Such ghost-writing is often part of organized stealth marketing campaigns. 
• Whistle blowers are discouraged, or worse, and academic freedom is damaged.  Discussion of some examples of what may happen to whistle blowers is here.  The survey mentioned earlier (here) showed that about one-third of faculty fear they may be punished for speaking  out. 
• Leadership of academic medical centers by businesspeople - Ill-informed management may result from leaders who have no background or training in actual health care. 
• Leaders of teaching hospitals and universities become millionaires -  A recent example is here, and more may be found here.  Leaders of academic medical centers and the parent universities of medical schools often make more than $1 million a year in the US.  When such amounts are in play, executives may focus more on short-term measures that lead to even more pay than on upholding the mission. 
• Medical school leaders become stewards (as members of boards of directors) of for-profit health care corporations - A recent example is here, and a summary of how we discovered this phenomenon in 2006 is here.   The conflict of interest is severe because directors of for-profit corporations are supposed to have unyielding loyalty to the interests of the corporation and its stockholders, although they are frequently accused of acting mainly as cronies of the top hired executives (see here and here).
• Leaders of failed finance firms become stewards of academic medicine - We have found numerous examples, recently here, here, and here, of top executives and/or board members of the finance firms who helped bring on the global financial collapse also being trustees of medical schools, academic medical centers, or their parent universities.  Such "stewards" may bring to the academic environment the "greed is good" culture now pervasive in finance. 

References


1. Korn D. Conflicts of interest in biomedical research. JAMA 2000; 284: 2234-2237. Link here.
2. Campbell EG, Gruen RL, Mountford J et al. A national survey of physician–industry relationships. N Engl J Med 2007; 356:1742-1750. Llink here.
3. Mello MM, Clarridge BR, Studdert DM. Academic medical centers' standards for clinical-trial agreements with industry. N Engl J Med 2005; 352: 21.  Link here.

Dr. Silverstein and Dr. Poses in WSJ: "The Literature Is Hardly Pristine"

I have considered Dr. Roy Poses' Dec. 14, 2010 post "The Lancet Emphasizes the Threats to the Academic Medical Mission" (with its hyperlinks to source posts and articles) an excellent summary of many of the pathologies we address at Healthcare Renewal, especially with regard to the academic mission and the disruption of the integrity of the medical literature by commercial interests. His post is consistent with what might be considered our mission statement:

Addressing threats to health care's core values, especially those stemming from concentration and abuse of power. Advocating for accountability, integrity, transparency, honesty and ethics in leadership and governance of health care.

The Wall Street Journal published the following letter to the editor authored by me today in which I cited and summarized Dr. Poses' accounting of the medical literature's ills.

Unfortunately, the print version cannot contain the hyperlinks as in the aforementioned source post, but I have included them in the reproduced letter below in [brackets]. They are worth reviewing, along with additional links at the aforementioned source post "The Lancet Emphasizes the Threats to the Academic Medical Mission":

April 8, 2011
Wall Street Journal
Letters to the Editor

The Literature Is Hardly Pristine

I find it unfortunate having to inform reader James Reichmann, (Letters, April 1) who prefers his physician to recommend only treatments proven in the "synthesized medical literature," that the very literature on which he wishes his life to depend may be tainted.

As Dr. Roy Poses points out on the Healthcare Renewal Blog, numerous factors common in today's culture can and do corrupt the literature.

The factors include but are not limited to: rampant commercialization of medicine [here, here, here and here], research universities with lax conflict of interest policies [here], faculty as de facto employees of industry through grants [here], academics paid to be "key opinion leaders" to stealth-market drugs and devices [here], control of clinical research given to commercial sponsors [here], conflicts of interest allowing manipulation and suppression of clinical research [here and here], academics taking credit for articles written by commercially paid industry "ghost writers," [here and here], whistleblowing discouraged [here and here], leadership of academic medical centers by business people [here] and medical school leaders becoming stewards (as members of boards of directors) of for-profit health-care corporations [here, here, here and here].

As for me, until the medical literature can be freed of these contaminants, I'd rather trust a well-trained personal physician's good judgment in my own medical care.

Scot Silverstein, M.D.

Drexel University

Philadelphia

I believe it's also worth reviewing my own views on the subject, that the degree of contamination of medical literature is unknown and may be unrecoverable, due to spread of the contaminant vectors to the "experts" who then propagate the disease.

See my Aug. 2009 post "Has Ghostwriting Infected The Experts With Tainted Knowledge, Creating Vectors for Further Spread and Mutation of the Scientific Knowledge Base?" where I raise these questions.

At that post I suggest that while the damage might not be easily recoverable, the practices that lead to contaminated literature must be stopped going forward if true evidence-based medicine is ever to be a reality.

-- SS

4/12/2011 addendum:

Almost predictably, some anonymous person, this time over at the Respectful Insolence blog in commenting on a post there that attacks "naturopathic" medicine, proffered strawman arguments about my piece above in comment #26.

... So Dr. Silverstein thinks that the defects he cites (many of which have been revealed by and hotly debated within the scientific community) are ample justification for tossing out the entirety of research in favor of the sort of "clinical intuition" that's repeatedly been found false over the years

This binary, two-dimensional thinking is quite sad to read, if real. I'll be charitable in saying that the comment does have the "feel" of something contrived, such as received before from corporate sockpuppets.

-- SS

4/13 addendum:

The proprietor of Respectful Insolence assures me that "anonymous" quoted above is not a sockpuppet. My response was basically that before attacking non-anonymous authors by name on the web who in fact (as is clear from my writing here) share similar views on medical quackery, one should contact them first to ensure you truly understand their views.

(In my case, my view is that the "well-trained physicians" of good judgment I wrote of consider the literature critically but are not bound to it, in consideration of the unknown level of its commercialization-based contamination and the variability of individual patient situations. They treat the patient, not the guideline.)

-- SS

Logical Fallacies in Support of Payments for Board Members of Non-Profit Health Insurers

The kerfuffle over the huge golden parachute given the departing CEO of an ostensibly non-profit Massachusetts health insurer/ managed care organization continues to evolve (see posts here and here), providing some new insight into governance problems afflicting health care organizations. 

One of the issues that aroused initially aroused concern was that Massachusetts Blue Cross Blue Shield paid the members of its board of trustees substantial amount, an unusual practice for a non-profit organization.  Board members who feel they owe their pay to the CEO they are supposed to be overseeing might be particularly inclined to over pay that same CEO.

Nonetheless, the Boston Globe just reported that other non-profit Massachusetts health insurers were defending their payments to board members:

The state’s second- and third-largest health insurers said yesterday their board members have decided to keep paying themselves five-figure annual fees despite objections from the state attorney general and an inquiry into directors’ compensation at nonprofit health plans.

The rationales for these decisions were fascinating, amounting to four variations of special pleading, plus an appeal to tradition.

Special pleading: Our board members are experienced and independent

'Good governance is advanced by the recruitment and retention of experienced, independent, reasonably compensated directors,' Harvard Pilgrim said in its statement. 'In 2010, our board worked more than 2,000 hours.'

I doubt any non-profit organization would admit to not wanting experienced, independent board members,  but very few other non-profits pay their board members. Asserting that board members of the Massachusetts insurance companies especially deserve pay because of characteristics they share with other members of other boards who are not paid amounts to a special pleading.

The second statement seems just to be a simple exaggeration, since 2000 hours a year implies that the board members work there full-time (40 hours/week * 50 weeks = 2000 hours).  

Special Pleading: Our board members are skilled and experienced

Wellesley-based Harvard Pilgrim, however, said in its statement that board members 'apply their specialized experience and skills in the areas of medicine, accounting, finance and law, to support our company and its mission. Our board serves as responsible, independent fiscal stewards for our members’ premium dollars.'

Again, board members of all sorts of non-profit organizations could be described in similar terms. So using this as an argument for paying board members when members with the same attributes of other boards are not paid is another special pleading.

Special Pleading: Our boards have great responsibility

Tufts, based in Watertown, said its board believes there is 'an additional overlay of responsibility' for directors of a health insurance company.

'Unlike the directors of other nonprofits, they are subject to distinct regulatory considerations,' the Tufts statement said. 'Therefore, compensation for time, commitment and skill of top talent is a responsible approach for the oversight of an organization that provides health care coverage to hundreds of thousands' of members.

Of course, boards of hospitals have their own "distinct regulatory considerations," as do boards of academic institutions  Boards of hospitals are also responsible for the health of their patients and boards of academic institutions are responsible for the education of their students. So this is a third example of a special pleading.

Special Pleading: Our responsibility, our time, our effort
Appeal to Tradition: Our tradition is to pay directors

The history and tradition of nonprofit health plans is to pay [directors] in this state. These are people from various walks of life who bring a skill set. These are not political hacks. . . . It’s because of the responsibility, the time, the effort, and the work you have to put into it. It’s a lot of homework.

It is true that the four non-profit Massachusetts health insurers all apparently did pay their board members, although in many other states, members of the boards of non-profit health insurers were not paid. But in the absence of any further argument that Massachusetts organizations were right when the others were wrong, this amounts to an appeal to tradition.   The rest of this personal statement was again a special pleading. 

Summary

Board members of non-profit organizations generally are said to have three duties, as per BoardSource:
- The Duty of Care: "a board member owes the duty to exercise reasonable care when he or she makes a decision as a steward of the organization."
- The Duty of Loyalty: "a board member must give undivided allegiance when making decisions affecting the organization. This means that a board member can never use information obtained as a member for personal gain, but must act in the best interests of the organization."
- The Duty of Obedience: "The duty of obedience requires board members to be faithful to the organization's mission. They are not permitted to act in a way that is inconsistent with the central goals of the organization."

The notion that boards stewarding non-profit organizations, including health care organizations, have these core responsibilities seems to have become increasingly ignored and forgotten in an increasingly commercialized health care environment.  Simply fulfilling these duties should not be regarded as exceptional board service, and certainly not so exceptional as to require pay.  The fallacious arguments made on behalf of lucrative payments given to members of the boards of two of the more highly regarded non-profit health insurance corporations in the country indicate how low governance and stewardship of health care organizations has sunk.

Again, we need governance of health care organization by people who understand their fundamental duties, who are willing to be accountable, and who put their organizations' mission ahead of personal gain. 

Those who profess concern about the stewardship of health care need not go far to find examples of fundamental misconceptions about what such stewardship involves.  We need to restore core values of governance to our health care organizations. 

BLOGSCAN: The Place Where the Compass Spins

The 1 Boring Old Man blog is on a roll.  Read this summary post, see its amazing introduction below, then peruse the main page and the archives:

At the North Pole, the magnetic compass apparently spins at random, not knowing where to point. Is it because there’s no North? or is North everywhere? That’s the way I feel about this Atypical Antipsychotic story I’ve been preoccupied with for a couple of months. It’s like everyone’s walking around with a compass that doesn’t work any more. The Pharmaceutical Companies involved have forgotten what their products are used for. Many doctors seem to have forgotten why they became doctors. Whole industries have sprung up [Clinical Research Organizations, Clinical Research Centers, Medical Writing companies, etc] without being clear about what they’re even involved in. One has to move away from it all to avoid getting caught up in the confusion and becoming as blind as the other players. Once you get far enough away, it’s tempting to forget that it’s even there, that place where the compasses don’t work anymore.

The Lancet Emphasizes the Threats to the Academic Medical Mission

We just discussed an important article in the Lancet calling for major global reforms of health care education.(1)  An accompanying editorial(2) argued for the critical importance of upholding the mission of higher education, because that mission is critical to human civilization:

Louis Menand has investigated the current role of the modern university in his startlingly powerful book, The Marketplace of Ideas. Menand argues that: 'The pursuit, production, dissemination, application, and preservation of knowledge are the central activities of a civilisation.' More importantly still, 'the ability to create knowledge and put it to use is the adaptive characteristic of humans'. The goal of the university is 'to make more enlightened contributions to the common good'.

The editorial argued strongly for the revitalization of the university's mission:

'It is the academic's job in a free society to serve the public culture by asking questions the public doesn't want to ask, investigating subjects it cannot or will not investigate, and accommodating voices it fails or refuses to accommodate.'

The education of doctors, nurses, and public health workers must seek to: strengthen the overall intellectual culture of a society; define principles for public aspiration; give life to and enlarge the best and most proven ideas of the age; refine the grounds for the private exchanges that take place in our lives; facilitate the exercise of political power; and enable professionals to detect what is important and discard what is irrelevant, accommodate oneself with others, have common ground between colleagues across societies, ask good questions and find the means to answer them, and have the resources to adapt to national and global circumstances. Some readers might recognise that these words are adapted from John Henry Newman's On the Scope and Nature of University Education.

In England, Newman argued for the university as a centre of intellectual liberty, a vital force for progress in society. Menand writes about the university as a 'zone of autonomy'. The importance of tertiary education as a means to advance health, reason, democracy, and justice needs to be rediscovered.

But arguing so forcefully for upholding the academic mission makes sense only if that mission is under threat. The Lancet editorial only briefly alluded to why this might be:

What this Commission argues for is nothing less than a remoralisation of health professionals' education. For decades, health professionals have colluded with centres of power (governmental, commercial, institutional, even professional) to preserve their influence. The result? A contraction of ambition and a failure of moral leadership.

While the original article by Frenk et al suggested that health professionals' education has shortcomings, it did not argue that the academic mission is threatened.  Although the message of the accompanying editorial is that the mission needs a strong defense, it did not clearly explain the extent of the threat to it. 

However, this blog, Health Care Renewal, is largely concerned with threats to health care's core values, including threats to the mission of academic medicine, largely from concentration and abuse of power.  The largest set of threats come from the ascendancy of financial goals amidst the commercialization of health care (mentioned briefly both in Frenk et al and the editorial).  We have discussed the nature of the threats in detail.  For example,

• Abandonment of traditional prohibitions of the commercial practice of medicine - In the US, a Supreme Court decision was interpreted to mean that medical societies could no longer regulate the ethics of their members.  Until 1980, the US American Medical Association had  ruled that the practice of medicine should not be "commercialized, nor treated as a commodity in trade."  After then, it ceased trying to maintain this prohibition.  The result was increasing, now rampant commercialization.  See posts  here and here.
• Making money takes precedence over education -  A recent survey showing that more than half the faculty at multiple US medical schools felt they were valued more for how much money they brought in than their teaching or patient care abilities (here), confirming previous anecdotal reports (see here). 
• The medical school re-imagined as a biotechnology company -  In 2000, a Vice President of the American Association of Medical Colleges(3) wrote that research universities must respond to "societal demands that they become engines of economic development…."  Many universities now defend lax conflict of interest policies with similar arguments.  For more details, go here.
• Faculty become employees of industry - For numerous examples of this and other kinds of conflicts of interest, go here.  A survey by Campbell et al suggested that approximately two-thirds of medical academics get significant payments from industry.(4)
• Academics become "key opinion leaders" paid to market drugs and devices - Marketers regard "key opinion leaders" as salespeople who appear more credible because of their professional guise.  See anecdotal evidence here.  
• Control of clinical research given to commercial sponsors - A study by Mello et al showed how universities' grant administrators are willing to sign contracts giving commercial sponsors control over key aspects of human research studies.(5)  See post here. 
• Conflicts of interest allow manipulation and suppression of clinical research - Commercially sponsored research design, implementation, and dissemination are often manipulated to favor the sponsor's interests.  When such manipulation fails to produce favorable results, the results may simply be suppressed.
• Academics take credit for articles written by commercially paid ghost-writers - Such ghost-writing is often part of organized stealth marketing campaigns. 
• Whistle blowers are discouraged, or worse, and academic freedom is damaged.  Discussion of some examples of what may happen to whistle blowers is here.  The survey mentioned earlier (here) showed that about one-third of faculty fear they may be punished for speaking  out. 
• Leadership of academic medical centers by businesspeople - Ill-informed management may result from leaders who have no background or training in actual health care. 
• Leaders of teaching hospitals and universities become millionaires -  A recent example is here, and more may be found here.  Leaders of academic medical centers and the parent universities of medical schools often make more than $1 million a year in the US.  When such amounts are in play, executives may focus more on short-term measures that lead to even more pay than on upholding the mission. 
• Medical school leaders become stewards (as members of boards of directors) of for-profit health care corporations - A recent example is here, and a summary of how we discovered this phenomenon in 2006 is here.   The conflict of interest is severe because directors of for-profit corporations are supposed to have unyielding loyalty to the interests of the corporation and its stockholders, although they are frequently accused of acting mainly as cronies of the top hired executives (see here and here).
• Leaders of failed finance firms become stewards of academic medicine - We have found numerous examples, recently here, here, and here, of top executives and/or board members of the finance firms who helped bring on the global financial collapse also being trustees of medical schools, academic medical centers, or their parent universities.  Such "stewards" may bring to the academic environment the "greed is good" culture now pervasive in finance. 

So the threats are real and substantial.  However, their scope generally generally gets little attention.  Even when specific threats appear in the academic literature, their importance may be soft-pedaled, and their confluence with other threats ignored.  Of course, trying to discuss the full breadth and depth of these threats, as we endeavor to do on this blog, threatens in turn those who have personally profited from the current system.  Hence, we frequently cite the anechoic effect, the phenomenon that important threats to health care's core values are often just not discussed in polite company.

Therefore, we applauded the article by Frenk et al for concatenating some of the most important challenges to health care professionals' education, and we now applaud the Lancet editorial for emphasizing the threat to the academic medical mission.  We hope that these two articles, appearing in one of the most prestigious and well-read medical journals, will help to combat the anechoic effect.  Meanwhile, we will continue to blog about threats to core values in the hope that discussing them will lead to solutions.
References

1.  Frenk J, Chen L, Bhutta ZA, Cohen J, Crisp N, Evans T et al. Health professionals for a new century: transforming education to strengthen health systems in an interdependent world.  Lancet 2010; 376: 1923-1958.  Link here.
2.  Horton R. A new epoch for health professionals' education.  Lancet 2010; 376: 1875-7.  Link here.
3. Korn D. Conflicts of interest in biomedical research. JAMA 2000; 284: 2234-2237. Link here.
4. Campbell EG, Gruen RL, Mountford J et al. A national survey of physician–industry relationships. N Engl J Med 2007; 356:1742-1750. Llink here.
5. Mello MM, Clarridge BR, Studdert DM. Academic medical centers' standards for clinical-trial agreements with industry. N Engl J Med 2005; 352: 21.  Link here.