Oh, the Prices we Pay ... for Questionable Drug Marketing to Enrich Corporate Insiders - the Case of Questcor's H P Acthar Revisited

In 2007, we first discussed the case of the amazing pricing of H P Acthar, a very old drug of questionable usefulness, as an example of the irrationality of health care prices in the US, and of the failure of the organizations that ought to resist outrageous pricing in our mixed, pseudo-market based health care system to do so.  A recent New York Times article has updated this case.

Background

As we wrote in 2007, ACTH (adrenocorticotrophic hormone) is a naturally occurring hormone that stimulates the activity of the adrenal gland, which produces cortisol and other glucocorticoid and mineralocorticoid hormones.   ACTH produced from pigs' adrenals was first marketed as a biologic agent in the 1940s.  It was used for some conditions that appear to benefit from the effects of increasing cortisol production induced by ACTH.

It has been traditionally used to treat infantile spasms, a rare but distressing condition, and exacerbations of multiple sclerosis (MS).  However, since the drug was introduced so long ago, it was never subject to rigorous controlled trials to assess its efficacy and adverse effects for these indications.  Furthermore, since the 1940s, synthetic glucocorticoid hormones have become widely available as generic drugs.  Yet these slightly newer drugs have never been rigorously compared to ACTH for infantile spasms or MS.  The most recent review (edited in 2009) by the Cochrane Collaboration found that steroids and ACTH have some evidence in their favor for the treatment of acute MS, but found no evidence showing that ACTH was superior.  [Filippini G, Brusaferri F, Sibley WA, Citterio A, Ciucci G, Midgard R, Candelise L. Corticosteroids or ACTH for acute exacerbations in multiple sclerosis. Cochrane Database of Systematic Reviews 2000, Issue 4. Art. No.: CD001331. DOI: 10.1002/14651858.CD001331].  Also, the most recent review (edited in 2009) of treatment of infantile spasms concluded, "it is not clear which treatment [including ACTH] is optimal." [Hancock ED, Osborne JP, Edwards SW. Treatment of infantile spasms.  Cochrane Database of Systematic Reviews 2008, Issue 4. Art. No. : CD001770. DOI: 10.1002/14541858.CD001700.pub2.]

The Pricing of H P Acthar

Possibly because some physicians thought ACTH might be useful for some patients with two conditions, infantile spasms and acute exacerbations of MS, ACTH has remained on the market.  It was manufactured by a single company, Aventis, (now part of Sanofi-Aventis), the successor to Rhone-Poulenc-Rorer.  In 2001, Aventis sold the rights to manufacture ACTH, with the trade name H P Acthar, to a new, small biotechnology company, Questcor.  In 2007, Questcor raised the price of ACTH from $1650 per vial to more $23,000 per vial.  That got the attention of the Philadelphia Inquirer, on whose article we based our commentary. We used the price increase as an example of how pricing in health care has become untethered from any sort of clinical reality, and wondered why insurance companies and the US government seemed willing to pay this outrageous price for an old drug with little evidence from clinical research to support its use.  But the issue then seemed, like many others we have discussed , to become anechoic, until the very end of 2012.


Now the  New York Times story has provided an example of how health care corporations can do very well without doing anyone, except corporate insiders, much good.  It included instances of many of the kinds of ethically questionable practices we have discussed over the years on Health Care Renewal.

Deceptive Marketing

Per the NY Times,

Questcor did almost no research or development to bring Acthar to market, merely buying the rights to the drug from its previous owner for $100,000 in 2001. And while the manufacturing of Acthar is complex, it accounts for only about 1 cent of every dollar that Questcor charges for the drug.

Moreover, the tiny 'orphan' market soon became much bigger. Before long, Questcor began marketing the drug fo multiple sclerosis, nephrotic syndrome and rheumatologic conditions, even though there is little evidence that Acthar is more effective for those other conditions than alternatives that are far cheaper. And the company did so without being required to prove that the drug actually works. That is because Acthar was approved for use in 1952, before the Food and Drug Administration required clinical trials to show a drug is effective for a particular disease. Acthar is essentially grandfathered in. 

Today, only about 10 percent of the drug’s sales are for infantile spasms. The new uses, Mr. Bailey has told analysts, represent multibillion-dollar opportunities for Acthar and Questcor, its sole maker. 

The results have been beyond even the company’s wildest dreams. Sales of Acthar, which accounts for essentially all of Questcor’s sales, totaled nearly $350 million in the first nine months this year, up 145 percent from the period a year earlier. In the same period, Questcor’s earnings per share nearly tripled, to $2.12. In the five years after the big Acthar price increase in August 2007, Questcor shares rose from around 60 cents to about $50, in one of the best performances of any stock in any industry. 

So Questcor leadership was clever enough to use loopholes in the law to promote ACTH for particular kinds of patients without any good evidence that it did those patients any good.  Furthermore, Questcor used several questionable tactics 

in this promotion.

Manipulated Research

Apparently Questcor leaders decided they needed some sort of minimal research results to promote their products, so as the Times reported,

Because Acthar was approved for these conditions decades ago, Questcor has not had to do large clinical trials to show that the drug works. It has paid for some small studies, mainly by individual doctors, who then publish a paper that the sales force can present to doctors. 

The study that justified calling on rheumatologists involved five patients with rare conditions, all of them treated by a single doctor. All the patients had much improvement on Acthar after failing to benefit from more standard therapies, the doctor, Todd Levine, said in a Questcor conference call.

Too call the research Questcor sponsored minimalist would be too polite.  A case series of five patients, lacking any control group proves almost nothing.  It proves less when the research is done in an unblinded  fashion by a single doctor who presumably was invested in the outcome being favorable for his sponsor's product.  (I suppose some might quibble with calling this research manipulated, but I contend but doing such crude research when it would be possible to do something much more credible amounts to manipulation.)

Suppression of Research

Moreover, it seems that even such rudimentary studies sometimes failed to produce the wanted results.  In these cases, the Times reported that Questcor simply suppressed them.

Still, it appears that at least a couple of small studies that may have raised questions about the drug have been suspended. 

'From my standpoint it just didn’t work,' said Dr. Sungchun Lee, a Phoenix nephrologist who stopped a small study testing Acthar as a treatment for nephrotic syndrome. 'I think they were O.K. with me stopping because we weren’t getting the results,' he said. 

Another study that was terminated sought to determine whether multiple sclerosis patients who did not have a good response to steroids should be treated with either another round of steroids or with Acthar. The study was halted midway through 'to analyze data,' according to the summary of the trial on the federal clinical trial database. 

Use of Paid Key Opinion Leaders

Despite the lack of good clinical evidence in support ACTH, there are some physicians who defend its use.  One example in the Times article was a physician who is paid by Questcor

But some doctors say Acthar can be effective in cases that are not well treated by steroids. They say that there is emerging evidence that Acthar does more than just stimulate the body to produce its own steroids. 

'It really looks like the ACTH does bring something different to the table that standard steroids don’t,' said Dr Ben W Thrower, director of the multiple sclerosis institute at the Shepherd Center, a hospital in Atlanta. Dr. Thrower, who is a paid speaker for Questcor, said his institute had tried Acthar for about 60 of its 3,000 patients, ones who did not respond to steroid treatment. Acthar made the symptoms subside in about half of them.

Where to begin?  Just because ACTH is different does not mean it is better.  Since MS is a disease whose symptoms wax and wane, patients who fail standard treatment may get better on their own, and without a control group, it is impossible to say whether the ACTH given to such patients was the reason they got better. 

Creation of Institutional Conflicts of Interest for Disease Specific Foundations

Questcor's ACTH also has support from a disease specific foundation, but one that Questcor has also supported financially.

Dr Lawrence Brown, a neurologist at the Children's Hospital of Philadelphia, and the president of the Child Neurology Foundation, says of Questcor: 'They have gone out of their way to help every kid who needs the medicine to get it quickly and efficiently.'

This year, the foundation awarded its first corporate citizenship award to Questcor. Dr. Brown says Questcor’s donations — the amount has not been disclosed — to the foundation didn’t influence the award.

Who could be so naive to think that giving an organization funding might influence its actions?  After all, human response to financial incentives is the basis for most current economic thinking.

Insiders Get Rich

Admittedly, these questionable tactics did lead to an increase in "shareholder value,"  As the company's proxy statement boasted in 2011,

While we generated strong financial returns in 2011, we are most proud of our patient focus and investments in Questcor which we believe will generate sustainable value to our shareholders, employees, patients and all of the communities that we serve. We believe that our patient focus and commitment to generating sustainable value to all of our constituencies results in strong value creation for our shareholders.

However, as of today, Qustcor's share price has dropped to $26.74 from a peak of 53.42 in June, 2012, with most of the drop in December, 2012, around the time the Times article came out, according to Google Finance.  So whether share holder value will turn out to have increased in the long run is not clear. 

Meanwhile, some Questcor employees did very well.  The largess started with some drug representatives,

Questcor sales representatives who are lucky enough or skillful enough to have a big prescriber in their territory can reap bonuses of $50,000 a quarter, according to former employees of the company.

More highly placed corporate insiders did even better.

Executives are paid well, too. In 2009, Mr. Bailey, [the CEO]  hired his daughter Kirsten Fereday as director of business analytics and evaluation, a job that paid $275,000 in cash and stock last year. 

 Left out of the Times article, somewhat surprisingly, was what the top executives make.  Information from up to 2011 is publicly available, however, in proxy fillings.

In the company's 2012 proxy statement, we find the following figures for total compensation:
Don M Bailey, President and CEO - $4,546,230, up 192% of his compensation in $1,554,503 in 2009
Michael H Mulroy, Senior Vice President, Chief Financial Officer and General Counsel -  $1,749,891 (his first year)
Stephen L Cartt, Chief Operating Officer -  $2,298,308, up 168% from $855,460 in 2009
David J Medeiros, Executive Vice President and Chief Technical Officer - $1,232,556, up 78% from $692,188 in 2009
David Young Pharm D, Chief Scientific Officer - $1,948,804 up 182% from $1,066,159 in 2009

In addition, by 2011, Mr Bailey, the CEO, had acquired 1.92% of the company's total stock, 3,834,910 shares, today worth $102,545,490.

Finally, per the Times,

one group of shareholders has done pretty well for itself. Over the last two years, as the company’s share price mainly soared, Questcor insiders have sold more than $100 million of stock. 

Summary

 So, in summary, a small biotechnology company drastically increased the price of its only product, a drug which has never been subject to modern clinical trials, and whose efficacy has never been proven.  Its marketing tactics have included manipulation and suppression of research, and payments to physicians and non-profit organizations.  Although its most breathtaking price increases were made in 2007, they attracted little public attention until five years later.   Meanwhile, corporate insiders, from drug representatives to top executives and their relatives, have done very well for themselves.

In the US, there a lot of people who advocate free market based health care for its efficiency and innovation.  For example, see "Yes, Mr President, a Free Market Can Fix Health Care," published by the Cato Institute, in which its Director of Health Policy Studies proclaimed, "The great advantage of a free market is that innovation and more prudent decisionmaking means that fewer patients will fall through the cracks," and then "a free market can and would control costs, expand choice, improve health care quality, and make health coverage more secure." [italics added for emphasis]

Unfortunately, the case of Questcor's ACTH makes it seem that in the current US system, which is supposedly more market based than systems in many other countries, the efficiency and innovation is characteristic of the marketing of corporate health care, not of the health care itself.  Here is a stellar example of how clever, and not always very scrupulous marketing can be used to sell a very old drug with little demonstrated clinical value for a stratospheric price, enriching corporate insiders, perhaps enriching stockholders (although, not so much lately, and we will see how they do in 2013), at the expense of the public who pays taxes and insurance premium.  This case suggests a need for more attention to market failures and less insistence on market fundamentalism.  Of course, it also suggests the continuing need for health care professionals, policy makers, patients and the public to be extremely skeptical about heavily promoted commercial health products.

More Tales of the Hospital CEO Compensation Bubble

The hospital CEO compensation bubble continues to grow. As the year draws to a close, I have found another set of stories about outsized payments to health care executives.  While their repetitive features suggest the magnitude of the issue, they featured some twists on the usual justifications given for large compensation packages. Presented in order of the size of the compensation package.....

Maxis Health System, Pennsylvania

The Scanton Times-Tribune reported:

Mary Theresa Vautrinot, president and CEO of parent company Maxis Health System, earned a little more than $464,000 in salary and other compensation, according to 2010 tax forms filed by the hospital.

These days, compensation under a half a million dollars may not seem like all that much, but it should be viewed in context. Maxis Health Systems actually actually owns only one hospital, Marian Community Hospital. In 2010, that hospital, already small, shrunk further,

In January 2010, the 70-bed hospital scaled back operations to just 35 beds. For the past six months, Marian Community Hospital has had about 20 inpatients each day.

Now it will close:

Last Monday, parent company Maxis Health System announced the Carbondale hospital's impending closure, citing ongoing financial pressures and a dwindling patient population

$464,000 seems like a lot of money to run a tiny hospital under "ongoing financial pressure" into bankruptcy. This seems like another example of pay for poor performance.

Summa Health System, Akron Children's Hospital, Akron General Health System, Ohio

In a survey of local hospital CEO compensation, the Akron Beacon-Journal noted,

Children’s President and Chief Executive William Considine received compensation and other benefits totaling $1,560,659 in 2010.

Thomas J. Strauss, president and chief executive of Summa Health System, received a total compensation and bonus package worth $1,408,062 last year.

For Akron General, 2010 was a year of leadership transition, with a former, interim and current leader all receiving executive pay.

Alan J. Bleyer, who retired as the hospital’s leader in 2009, received $677,267 in compensation. Michael Rindler, a national health-care consultant who was interim chief executive and continued in a consulting role through the year, made $983,744.


Vincent J. McCorkle, who took over as president and chief executive on July 1, 2010, received $568,605 in total compensation last year.

Lest anyone think that these hospitals were paying their CEOs a lot of money,

Nonprofit hospital executives could make substantially more if they worked in for-profit industries, [Ohio Hospitals Association spokesperson Mary] Yost said.

'A million dollars certainly is a decent package, but it’s not the highest thing that these people could command,' she said. 'We’re blessed that there are people who want to work for a nonprofit that has the mission of serving its community and they’re not just in it for the money.'

Only within the protected world of top executives would $1 million a year seem only a "decent package."  The stock defense of lavish executive pay is an appeal to common practice, i.e., the pay is justified because so many organizations pay their executives similar amounts.  This version of the defense lacked even the common accompanying assertions that the particular executives are so brilliant and hard-working that they would be assured of a high market price.

Furthermore, let us consider another comparison.  Consider the following data,

Summa’s revenue exceeded expenses by $31.7 million, for an operating margin of about 3 percent.

Akron General Medical Center’s revenue exceeded expenses by about $8 million, resulting in an operating margin of 1.7 percent.

Parent company Akron General Health System posted a loss of about $1 million on revenue of $854,207, according to IRS filings. The health system's filings reflect investment income and the costs of providing health screenings to the public, not hospital operations, Akron General spokesman Jim Gosky said.

Revenue at Children’s exceeded expenses by about $35.3 million for a 7.4 percent operating margin.

These data implied that the CEOs of Summa and Childrens' each received compensation equal to about 5% of their organization's total operating margins. The two people who acted as CEO at Akron General received together an amount that was larger than their system's operating loss, so had they been paid $1 million less, their system would have broken even. In this case, the newspaper found no one to quote who would assert that the former CEOs' performance was so good as to command that much of the hospital's excees, or the latter CEO's performance was so good as to be worth putting the hospital system into a deficit.  

Mercy Health Systems, Wisconsin

The Janesville, Wisconsin Gazette published a story about one CEOs response to previous reporting of his compensation,

Javon Bea saw the August article in a Madison newspaper that questioned the salaries of area health care leaders.

Bea, the president and chief executive officer of Janesville-based Mercy Health System, was singled out for receiving considerably more than hospital executives in Madison.

The article was based on 2009 tax filings, which show that Mercy paid Bea $3.6 million in total compensation. That included compensation of nearly $2 million and deferred pension payments of just more than $1.6 million.

The newspaper reported that the national average was $630,000 and included base salaries, bonuses, pensions and other benefits.

Many stories of executive pay have shown leaders who make many times other employees' compensation.  In this case, however, a CEO tried to assert that he did many times other employees' work.  Bea defended his salary by arguing he did the work of at least three, perhaps six people:

Bea said the Madison newspaper story compared executives at individual operations to him, an executive of a system that has three hospitals and 61 other facilities in 24 communities in southern Wisconsin and northern Illinois.

'To equal the job description of the CEO of Mercy Health System, you'd have to (add together) the salary of the CEO of DeanCare insurance, the salary of the CEO of Dean Clinic and the salary of the CEO of St. Mary's Hospital,' Bea said. 'And then you'd better throw in the chief operating officers at all three.'


Bea said Mercy doesn't have COOs and that he does that work.

Mr Bea did not explain how he found enough time in a 24 hour day to do the work of three to six people.  This seems to be a particularly hyperbolic version of argument that the executive is so brilliant and hard-working as to command such a high market price. Perhaps Mercy does not have CEOs or COOs of individual hospitals, but its 2010 Form 990 (from Guidestar here) documents that it has ten vice-presidents who each make approximately $200,000 to over $375,000 a year. Why Mr Bea would need to do the work of three or six people when he has so many other well-executives around to help was not clear.

Furthermore, Mr Bea came up with an apparently unique justification for his high pay, that its source was some sort of magic money that did not add to health care costs,

Bea said his salary has no effect on health care costs or the premiums MercyCare subscribers pay each year. He likened his salary to capital costs, which he also said don't affect what patients are charged.

John Cook, Mercy's chief financial officer, said Medicare, Medicaid and private insurance companies don't pay providers based on the costs of capital improvements or salaries, which in Bea's case is determined by a board of directors that works with national consultants and attorneys.

'My salary isn't going to affect your health care cost,' Bea said.

Maybe Mr Bea needs a second opinion from another CFO. His compensation appears to come from the hospital system's budget, per its 990 form, so it affects hospital costs as much as any other expense of the same amount. Furthermore, it is well known that hospital systems negotiate payment rates with private insurers, and that larger systems with more market power may negotiate higher rates.  Finally, it is also well known that different hospitals collect different amounts from government insurance programs for patients with apparently similar problems.  Thus, the notion that executive pay has no effect on health care costs, and the implication that it somehow comes from a magical place outside of the budget, seems to be an entirely new rationale for huge executive compensation.  From a psychological standpoint, it appears to be based on wishful or magical thinking.  Another way to look at it is as a logical fallacy, a special pleading, an assertion without a clear basis that the usual rules or principles do not apply.

Montefiore Medical Center, New York-Presbyterian Medical Center, and Others, New York, New York

A brief article in the New York Post focused on the bonuses given to some local CEOs,

Dr. Kenneth Davis, the head of Mount Sinai hospital and medical school, raked in a $1.2 million bonus in 2010, and Michael Dowling, the CEO of the North Shore-LIJ Health System, got $1 million. Louis Shapiro, president of the Hospital for Special Surgery, got a $1.5 million bonus and $992,215 salary.

Some CEOs also got a housing allowance, car and driver, and first- or business-class air travel.

Montefiore Medical Center in The Bronx paid CEO Steven Safyer $1.4 million plus a $359,845 bonus. The hospital also put $2.2 million into Safyer’s retirement fund, which he can take only when he leaves.

In addition,

The highest total compensation — $4.3 million — went to Dr. Herbert Pardes, the retiring head of New York-Presbyterian Hospital, who got $1.7 million in salary, a $1.9 million bonus and $648,686 as “other” compensation.

The Post found someone to provide the usual rationale,

Brian Conway, a spokesman for the Greater New York Hospital Association, defended the packages.

'Hospital CEO compensation reflects their myriad responsibilities, the complexity of running a medical center, and the national market for their talents,' he said.

That was a quick one-sentence summation of the "market" and "brilliant, hard-working" arguments.  Note that, as usual, no justification of why the particular people involved should be considered particularly brilliant or hard-working, and no comparison of their dedication or brilliance to that of lesser paid hospital employees was supplied.  Note also that CEO compensation is usually determined not by the market, but by a biased benchmarking process, see post here. Note further that this process almost never includes comparisons with employees who are not CEOs, nor includes explicit comparison of particular CEOs dedication, brilliance, etc with either that of other CEOs or other employees.



Premier Health Partners, and Others, Cincinnati, Ohio

The Middletown (Ohio) Journal reported,

Jim Pancoast, president and CEO of Premier Health Partners, the parent organization of Atrium Medical Center in Middletown, had the highest pay in 2010 of information available to date from that year. Pancoast collected about $4.6 million in 2010, most of which is a lump sum paid out through a supplemental executive retirement program.

The year before saw someone get even richer compensation,

Kettering Health Network’s former Chief Executive Officer Frank Perez and UC Health’s former CEO Kenneth Hanover topped the list in 2009, with each receiving more than $2.6 million.

Frank Perez’ total reportable pay in 2009 of more than $5.5 million included a more than $4.5 million lump-sum, taxable retirement payment.

Ron Seifert, executive compensation practice leader for the health care practice at Hay Group, supplied the usual rationale,

'No one, including the boards of these organizations, denies this is a lot of money. But what they’ll tell you is this takes a special leader,' he said. 'They come with a price tag.'

As is also usual, why the particular leader should be considered so special, particularly in comparison to other lesser paid hospital employees,  was not specified..

Northwestern Memorial Healthcare System, Chicago, Illinois

Last but not least, we address the compensation given Dean M Harrison, the CEO of Northwestern Memorial Healthcare System, as discussed in an editorial in FierceHealthFinance, entitled, "The problem of 8-figure hospital paychecks and near-poor patients." In summary,

Harrison was paid an astonishing $10.2 million in 2010, the result of a $7.5 supplemental retirement fund payout.

The ire this generated, so unlike the tone in the typical news article about executive compensation,  is worth quoting:

There are hundreds of nonprofit hospital CEOs like Harrison, compensated with millions of dollars while their institutions throw a few bread crumbs to the poor living in their service areas. Many these institutions spend more on CEO pay than charity care.

Alan Sager, a professor of health policy and management at Boston University, recently told Crain's Chicago Business what a lot of healthcare pay and governance experts dare not say: 'There's an enormous sense of self-entitlement among CEOs. It started in the for-profit corporate sector, but it has sloshed over into the non-profit hospital world.'

I worked up some talking points for Northwestern Chief Financial Officer Peter J. McCanna that he can bring to the next board meeting, although I'm guessing he won't do so. For those CFOs actually willing to rock the boat, these bullet points work for practically any large urban hospital in the country:

• Dean Harrison's 2010 compensation was approximately 170 times that of a charge nurse on their feet 12 hours a day. Does Dean Harrison work 170 times harder?

• Dean Harrison's compensation was approximately 20 times that of a cardiac surgeon performing 300 to 400 high-revenue procedures a year. Does Dean Harrison provide 20 times the benefit?

• Dean Harrison's compensation could be used to cover the first 10,000 uninsured patients who come through the emergency room each year. Which would provide a greater benefit to the hospital and community?

• The purpose of a supplemental retirement plan is to ensure its recipient maintains a reasonable standard of living past their working years. Given the tens of millions of dollars Dean Harrison has already received during his career and the six-figure pension and high five-figure Social Security income he is guaranteed upon retirement, will the $7.5 million payout actually accomplish its goal? Or will it merely be gravy for his heirs?

He concluded,

Meanwhile, if your hospital has a single patient who works hard, will be bankrupted by the bill they receive, and no one on your staff has walked them through every step of a charity care claim, that is where some imagination and original thought is sorely needed.

Too much money in some places, and not enough in others. Someone needs to announce that the buck stops here. And start moving around all the other bucks.

Summary

In a health care system with ever rising costs, declining access, and stagnant quality, we no longer can tolerate the perverse incentives generated by unaccoutanably high compensation to top executives. As long as top executives continue their sense of "self-entitlement," and can continue their current management practices reinforced by ever rising pay checks, expect poor leadership to undermine any attempts to improve health care.  Tired repititions of the usual rationales, that the CEOs are brilliant and hard-working, and that their compensation is mandated by the market do not make these rationales true.
We need health care leadership that has compassion for the increasing hardships that their patients have to endure, and that puts doing the right thing for patients' and the public's health ahead of self-interest.

Health Care Policy of the Insiders, by the Insiders, for the Insiders - the Newt Gingrich Case Files

Newt Gingrich's rise to the top of the pack of Republican contenders for the US presidency has earned him increased scrutiny.  The resulting investigative reporting has provided a revealing set of case studies showing how insiders have come to dominate US health care policy.

Below I have reorganized the information presented in a series of news articles from mid-November to mid-December, 2011.

Mr Gingrich's Consulting Empire

A general description of Mr Gingrich's health care "think tank" appeared in the Washington Post.(1)

A think tank founded by GOP presidential candidate Newt Gingrich collected at least $37 million over the past eight years from major health-care companies and industry groups, offering special access to the former House speaker and other perks, according to records and interviews.

The Center for Health Transformation, which opened in 2003, brought in dues of as much as $200,000 per year from insurers and other health-care firms, offering some of them 'access to Newt Gingrich' and 'direct Newt interaction,' according to promotional materials.

Despite its name, the CHT was for-profit. Much of its actual workings are confidential, per the Post,(1)

Susan Meyers, a center spokeswoman, declined to comment on the think tank’s income or staffing levels because it is a private-sector organization.

Despite its pretentious name, the CHT was apparently a vehicle for its wealthy corporate clients to influence health policy to favor their business interests.  A NY Times article(2) reported that:

His consultancy practice was centered around his ability to help big corporate interests speak the language of Republicans and navigate the corridors of Capitol Hill on issues vital to their businesses.

According to a Bloomberg article(3), the work was quite lucrative:

Two companies founded by Newt Gingrich announced yesterday that they had grossed $55 million between 2001 and 2010, part of an effort to quiet questions about how the former U.S. House speaker earned millions since he resigned from Congress in 1999.

That revenue supports the Center for Health Transformation and The Gingrich Group LLC, which have a staff of as many as 30 people, stage health-care policy events, and provide advice to clients, Nancy Desmond, the chairman and chief executive officer of the firms, said in a written statement.

The CHT was linked to a small corporate empire, as described by the Washington Post,(4)

Former House speaker Newt Gingrich transfigured himself from a political flameout into a thriving business conglomerate. The power of the Gingrich brand fueled a for-profit collection of enterprises that generated close to $100 million in revenue over the past decade, said his longtime attorney Randy Evans.

Among Gingrich’s moneymaking ventures: a health-care think tank financed by six-figure dues from corporations; a consulting business; a communications firm that handled his speeches of up to $60,000 a pop, media appearances and books; a historical documentary production company; a separate operation to administer the royalties for the historical fiction that Gingrich writes with two co-authors; even an in-house literary agency that has counted among its clients a presidential campaign rival, former senator Rick Santorum (R-Pa.).

Separate from all of that was his nonprofit political operation, American Solutions for Winning the Future.

Relationships with Big Health Care Corporations

The Center for Health Transformation was largely funded by big health care corporations. The Post first noted,(1)

The biggest funders, ... [included] firms such as AstraZeneca, Blue Cross Blue Shield and Novo Nordisk,...

Also,(1)

The center has listed scores of firms and industry groups as members over the years, amounting to a Who’s Who of the medical field, from GE Healthcare to the American Hospital Association to Wellpoint, the nation’s largest health insurer.

Other clients were listed in a Bloomberg article,(5)

Among the member companies were drugmaker Johnson & Johnson (JNJ) and health insurer Blue Cross and Blue Shield Association....

Also,(5)

Pfizer Inc. (PFE), the world’s largest drugmaker, had consulting contracts with Gingrich, according to two people familiar with the arrangements. Pfizer spokesman Ray Kerins didn’t respond to requests for comment.

The Pharmaceutical Research and Manufacturers of America, the industry’s trade group, was also a client. His firm 'was retained by the PhRMA general counsel’s office at one time to provide advice on a positioning project,' the group said.

In addition, as noted below, clients included important firms in the health care information technology (IT) sector, including GE, IBM, Microsoft, Allscripts, and Siemens.

Below, we present several cases in which Mr Gingrich apparently intervened on behalf of his clients to promote their business interests in the guise of promoting his views on health policy solutions.  In some cases, the views he promoted did not fit with what is generally regarded as his political philosophy, suggesting that the interests of his paying clients overrode his political views.

Case: End of Life Care

The New York Times reported,(2)

Writing on the Web site of the Washington Post, Mr Gingrich praised Gundersen Lutheran Health System of LaCrosse, Wis., for its successful efforts to persuade most patients to have 'advance directives,' saying if Medicare had followed Gundersen's lead on end-of-life care and other practices, it would 'save more than $33 billion a year.'

Note that

Gundersen was one of the paying clients of Mr. Gingrich's Center for Health Transformation....

However,

within weeks, Mr. Gingrich would find himself on the wrong end of what some Republicans labeled the 'death panel' issue.

At that point, Mr Gingrich abruptly changed his tune,

As it happens, shortly after Mr. Gingrich wrote his article praising Gundersen, he joined the conservative critics of the provision. 'You are asking us to trust turning power over to the government,' Mr Gingrich told George Stephanopoulos of ABC News that August 'when there are clearly people in America who believe in establishing euthanasia, including selective standards.'

This suggested that Mr Gingrich took up the cause of end-of-life decision making not be cause he deeply believed in it, but because it was expeditious given the wishes of his clients, despite the assertion made by his spokesperson,(2)

Mr. Hammond said that Mr. Gingrich did not take policy positions for pay; rather, he said, clients sought him out because of the views he already held and his expertise in communicating ideas.

Case: Medicare Prescription Coverage Sans Negotiations about Drug Prices

As reported by Bloomberg,(5)

When U.S. House Republican leaders in 2003 were short of votes to pass a $395 billion Medicare prescription drug benefit, they recruited former House Speaker Newt Gingrich for help.

In a hushed room on Capitol Hill, Gingrich told his former Republican colleagues that if he could endorse the measure, they should be comfortable with it, too, said two former senior House aides who attended the closed-door session.

Two days later, after a vote was held open for three hours as leaders corralled the final ayes, the measure passed and was eventually signed into law by President George W. Bush.

What Gingrich didn’t mention during the Republican caucus meeting was that he was also building a for-profit, health-care research company and seeking financing from drugmakers, which were investing $128.6 million in lobbying for passage of the new benefit for seniors.

Note that the legislation that provided Medicare drug coverage forbade the government from negotiating prices with drugmakers.  This was unprecedented, because drug coverage from the US Veterans Administration and Medicaid did not come with the obligation to pay whatever the drug-makers charged.  The inability of Medicare to negotiate the prices it paid for drugs certainly helped the companies' revenues while driving up the costs of Medicare, the federal deficit and the costs of health care in general.

Case: Promoting Expensive Diabetes Care

The Washington Post reported,(4)

Novo Nordisk, a Denmark-based drug firm that specializes in diabetes treatments.... paid a total of $1.2 million to Gingrich’s foundation over six years as a 'founding charter member.'

'It was strictly a business, nonpolitical relationship,' Novo Nordisk spokesman Ken Inchausti said. 'We admired his leadership on issues related to health-care delivery systems. We thought the CHT brought something to the table to us in terms of finding ways to help people prevent diabetes.'

Gingrich loaned his celebrity to causes that, whatever their other merits, could also be good for Novo Nordisk’s bottom line. For instance, he was the keynote speaker at Novo Nordisk’s 'diabetes summit' in 2005 and joined the company in issuing a 'call to action' to fight diabetes in Texas and Georgia.

One wonders how many of the widely promoted "summits" and other star-studded conferences on health care featuring corporate  and political leaders as speakers are just stealth health policy advocacy or stealth marketing.

Case: Irrational Exuberance for Electronic Health Records

My fellow Health Care Renewal blogger has often discussed the "irrational exuberance" for electronic health records (EHRs) despite scant information about their benefits, and increasing data suggesting their harms.  It now appears that Mr Gingrich, sponsored by copious funds from the health care IT sector, has been a major source of such exuberance. 

Mr Gingrich had a complex relationship with the health care information technology (IT) industry. It began to come out first in a NY Times story,(6)

When the center [for Health Transformation] sponsored a 'health transformation summit' at the Florida State Capitol in March 2006, lawmakers who attended Mr. Gingrich's keynote speech inside the House chamber received a booklet promoting not just ideas but also the specific services of two dozen of his clients. Executives from some of those companies sat on panels for discussions that lawmakers were encouraged to attend after Mr. Gingrich's address.

Gerard White, president of Clearwave, which paid about $50,000 to become a center member, used the occasion to pitch his company's system for managing patient data.

This had all began earlier,

Two years before the Florida 'summit,' Mr. Gingrich made a presentation to Republican lawmakers in Georgia, promoting the work of his member companies by citing specific benefits if they were hired. For example, 'VitalSpring could save the State Employee Program over $20 million a year.'

Minutes of the members-only conference call from March 2004 said the center had 'arranged joint meetings' for members to present their work on electronic health records to top federal officials, noting that Mr. Gingrich 'reported very positive feedback overall from these meetings.'

He also pressed for passage of a federal bill to increase the use of electronic health records, collaborating with one of its co-sponsors, Representative Patrick J. Kennedy of Rhode Island, and Senator Hillary Rodham Clinton of New York, both Democrats.

Furthermore,

Many of the ideas he has pushed involve the increased use of information technology, and companies specializing in that are well represented in the center's roster. They also figured prominently in an early center initiative, teaming up in 2003 with the conservative Georgia Public Policy Foundation to promote changes in health care in Mr. Gingrich's home state.

At his discussion with Georgia House Republicans in 2004, Mr. Gingrich gave examples of companies whose services could 'both improve health and start saving money,' according to the center's summary of his presentation.

And there is more,

In Washington, Mr. Gingrich's push for electronic health records illustrated how his own policy advocacy and ties to former Congressional colleagues made him a sought-out consultant for companies like Astra Zeneca and Siemens. Mr. Gingrich hailed HealthTrio, one of the center's 'founding charter members,' during a hearing held in 2003 by Senator Larry Craig, Republican of Ohio. Telling the senator that HealthTrio's chief executive had helped design the electronic records program in the United Kingdon, Mr. Gingrich said the company 'estimates we could have an electronic health record for American for about 10 cents per month, per person.'

The center later arranged for HealthTrio and I.B.M to meet with senior federal health officials and congressional leaders 'to review the U.K. approach and how it might be applied in the U.S.,' according to center records.

Some of the ideas promoted by the center found their way into the electronic health records legislation proposed by Mr. Kennedy, which was prepared with input from Mr. Gingrich.

This is especially ironic, given that the UK NHS electronic health record initiative has become a crashing failure (for example, see this post).

Even more involvement with the push for electronic health records (EHRs) appeared in a Boston Globe article,(7)

Newt Gingrich seized the TV airwaves in 2009 to bash President Obama’s stimulus package, calling it 'entirely a pork-barrel bill' that would do little to solve the recession.

Later, in a separate web video, the former House speaker stepped back from his blanket criticism. He explained that he strongly supported spending $27 billion of stimulus funds to encourage doctors and hospitals to create electronic medical records for their patients. Left unsaid was that the Gingrich Group, his consulting business in Washington, received large payments from medical technology companies that stand to profit from the federal money.

In particular,

The stimulus infusion Gingrich supported is expected to benefit health care technology companies, including those who have been clients such as GE Healthcare and Allscripts.

GE Healthcare said it pays Gingrich’s center to act as a 'collaborator and facilitator' among a diverse group of health care interests.

'We work with the Center for Health Transformation in an effort to improve the effectiveness of the health system through the use of information technology,' said GE Healthcare spokesman Corey Miller.

Allscripts spokeswoman Ariana Nikitas said the company ended its relationship with Gingrich’s center two years ago but considered the venture 'a think-tank to advance health care efforts.'

It does not stop there. Per the NY Times,(8)

Mr. Gingrich was cheering a $19 billion part of the [Obama stimulus] package that promoted the use of electronic health records, something that benefited clients of his consulting business. 'I am delighted that President Obama has picked this as a key part of the stimulus package,' he told health care executives in a January 2009 conference call.

After the bill was passed a month later, Mr. Gingrich's consultancy, the Center for Health Transformation, joined two of his clients, Allscripts and Microsoft, in an 'Electronic Health Records Stimulus Tour' that traveled the country, encouraging doctors and hospitals to buy their products with billions in federal subsidies.

We, particularly InformaticsMD, have frequently commented on how health care information technology has been promoted not just by enthusiasts in the field, and by companies that manufacture such devices, but by the government.  The bandwagon has gone down the road despite little clinical evidence that such technology is beneficial, and increasing evidence of its harms.  Now it appears that an important reason for this ruch to promote expensive, but unproven devices comes from the sort of stealth health care policy advocacy on behalf of corporate vested interests described above.
Summary

So Newt Gingrich parlayed his political track record into a lucrative "consultancy" which enthusiastically promoted the health policy objectives of its clients, who included some of the biggest US health care corporations.  Some of the policy positions the consultancy promoted seemed to run counter to Mr Gingrich's political record.  Worse, some of the initiative he successfully promoted seem to have contributed to US health care dysfunction.

These stories, some of which are many years old, only came out after Mr Gingrich became the front runner for the Republican nomination for US President.  Had he not chosen to re-enter politics, it is not clear when reporters would have had time to due the required investigations.  One wonders how many similar stories have not been made public because they do not involve prominent presidential candidates.

The bottom line seems to be that there are myriad ways corporate and political insiders push health policy agendas because of self-interest, regardless of their effects on patients' and the public's health.  Health policy in the US has become an insiders' game.  Unless it is redirected to reflect patients' and the public's health, facilitated by the knowledge of unbiased clinical and policy experts rather than corporate public relations, expect our efforts at health care reform to just increase health care dysfunction. 

Physicians, public health advocates, whatever unbiased health policy experts remain must educate the public about how health policy has been turned into a corporate sandbox.  We must try to somehow activate the public to call for health care policy of the people, by the people, and for the people.

References


1.  Eggen D. Gingrich think tank collected millions from health-care industry.  Washington Post.  November 17, 2011.  Link here.
2. Rutenberg J. Gingrich faces more scrutiny over corporate clients. NY Times, November, 17, 2011. Link here.
3. Benson C, Lerer L. Gingrich health center and group paid $55M. Bloomberg, November 22, 2011. Link here.
4. Tumulty K, Eggen D. Newt Gingrich Inc.: how the GOP hopeful went from political flameout to fortune. Washington Post, November 26, 2011. Link here.
5. Davis JH, Jensen K. Gingrich campaigning as change agent profited as an insider. Bloomberg, November 18, 2011. Link here.
6. McIntire M, Rutenberg J. Gingrich gave push to clients, not just ideas. NY Times, November 29, 2011. Link here.
7. Rowland C. Newt Gingrich supported $27 billion of President Obama's stimulus for electronic medical records, helping his consulting clients. Boston Globe, December 16, 2011. Link here.
8. Rutenberg J, McIntire M. Gingrich push on health care appears at odds with G.O.P. NY Times, December 16, 2011. Link here.

Hospital Executives - What Will They Think of Next?

Health care organizations are now most often run by people with management, not clinical backgrounds.  It seems like business schools have taught managers to sign on to whatever the latest management fashions are.  So what are the latest fashions in hospital management?  Here are a few hot items.

Retreading Pharmaceutical Representatives

My jaundiced reading of the business news suggests that most executives think that marketing is the most important part of their organizations, and that clever marketing can sell any product or service. For example, the pharmaceutical industry spends about twice as much on marketing as it does on research and development (despite pharma executives' protestations that they run research driven businesses) (see this post). So it should be no surprise that now hospitals are using "hospital representatives" to market referrals to their institutions to doctors.

From last week's USA Today:

n northwest Indiana, Carrie Sota visits five or six doctors' offices every workday as part of her new sales job.

But Sota isn't selling the physicians on a prescription drug or a medical device. She's promoting her hospital — the University of Chicago Medical Center.

Sota, 30, is one of four employees the academic medical center has hired in recent months to make 'sales calls' on physicians in the hope that they will send more patients to the hospital. 'We are trying to build meaningful relationships,' said Sota, who was previously a saleswoman for a small medical device company.

The University of Chicago Medical Center is one of a growing number of hospitals nationwide hiring former drug and device sales reps to visit doctors' offices to persuade them to use their services over competing facilities.

Rather than handing out samples of prescription drugs, the sales reps call on doctors armed with the latest information on how their facility is reducing hospital-acquired infections and improving patient-satisfaction scores.

In visits that can last five to 20 minutes, reps try to win doctors' loyalty by helping them get better times on operating room schedules or easier patient referrals to hospital-based specialists. The sales reps can also carry messages back to the hospital, such as a doctor's request for a new medical device to be available in surgery.

The article suggested a few problems with this approach. First, the point of the marketing is not to improve the match between patients' needs and the services the hospital provides. Rather, it is to generate referrals that have the potential to provide the maximum revenue:

While hospitals have always tried to woo doctors to refer patients to them, the institutions are growing more direct in their efforts. The hospitals mine data to see which doctors have the most profitable, well-insured patients, and then they assign those doctors to a sales rep.

So in particular,

Many of the physician liaisons focus on specialists, who bring in patients for services with the highest profit margins, including orthopedics, cardiac care and cancer care, [Duke University Health System physician liaison manager Christine] Perry said.

Second, the hospital reps have incentives based on revenue, not on value to the patient:

About two-thirds of Tenet's liaisons are former drug and device sales reps, and they can make tens of thousands of dollars in bonuses if doctors increase their referrals to the hospitals.

Third, across the system, the revenues generated may be much less than the costs incurred, since most of the marketing will only succeed in moving patients from one hospital to another:

Paul Ginsburg, president of the non-partisan Center for Studying Health System Change, said, 'When you look at the health system, this is a waste of resources. It's a zero-sum game.'

He added: 'The net results of changing physician-referral patterns is that one hospital gains at a cost of others, and all the hospitals burn resources to pay (sales)people who take up the doctor's time.'

Of course, the reps could succeed in persuading doctors to refer patients to specific hospitals for services the doctors originally did not think the patients needed. That would be good were the patients to need those services, but bad if they were not.
Fourth, we have discussed (for example, here and here) how pharmaceutical representatives use sophisticated psychological and emotional manipulation, despite claims that all they do is provide unbiased information and educational, to influence physicians to prescribe drugs. Again, this may result in patients getting drugs whose benefits do not outweigh their harms. It is possible that hospital representatives will do something similar:

'These people are really good and really assertive and very sophisticated,' said Stephen Newman, Tenet's chief operating officer.

Unbundling Payments

The airlines decided a while ago that they could make more money by charging passengers for each checked bag, and even for those little meals on plastic trays. It looks like hospital executives have discovered a new way to unbundle.

As reported last month by the St Louis Post-Dispatch, hospitals have begun charging often hefty "facility fees" for patients seen as outpatients in hospital clinics or hospital owned practices, even for very minor procedures or just office visits, and even for Medicare patients. (Private physicians who see patients in their own offices cannot charge such fees to Medicare patients, and most private insurance companies will not cover such fees.):

A few weeks after Allison Zaromb took her 4-year-old son Meir to see a dermatologist in an outpatient office at the SSM Cardinal Glennon Children's Medical Center campus, she received separate bills from the doctor and the hospital.

The cost for a 3-minute procedure to treat Meir's warts totaled $538, which included a $220 bill for physician services - and a separate bill for a $318 hospital 'facility fee.'

Zaromb, a periodontist who lives in University City, is now suing SSM Health Care Corp. and Cardinal Glennon Children's Medical Center in a proposed class action lawsuit on behalf of other patients

More generally,

With the proliferation of hospital-owned outpatient centers and hospital-owned physician practices, hospital 'facility fees' have become increasingly common. Such hospital facility fees often involve greater dollar amounts than the fees charged by physicians.

Technically, it all appears to be legal:

Under federal regulations, health systems are permitted to charge a hospital facility fee for an outpatient service if it's done in a clinic that is 'hospital-based' - meaning that the clinic is owned and operated as part of a hospital or health system, regardless of whether the clinic is physically located on the hospital grounds.

This technique does seem to be a way to increase revenue. But one person's revenue is another person's cost, so it also seems to be a great way to further increase the already high cost of US health care. It is not obvious, however, that these increased costs will lead to increased quality of care or value for the patient:

'From a consumer's perspective, when you go see your doctor, you go see your doctor - whether it's in an office inside a larger hospital complex or right across the street,' [Zaromb's lawyer John] Phillips said. 'The doctor's practice remains the same. ... They're making the doctor's office a ‘hospital-based' clinic for one reason: to make money by charging a facility fee, not to improve consumer service.'

Negotiating the Costs of Medical Devices

One of the favorite topics on Health Care Renewal, at least before we found even more outrageous subjects, was the stratospheric cost of medical devices. For example, look at posts from 2005 here, here, here, and here. So last month we found out that hospital executives have come up with a revolutionary idea to combat the high cost of devices. They will actually try to see what prices the device companies charge other hospitals, and then negotiate the prices down, as Reuters reported as big news in late November:

Implantable devices make up a sizable chunk of typical hospital budgets, and administrators are devising new ways to limit that cost as they brace for cuts to government reimbursement and treat more patients who can't pay for care.

That means methodically working through each category of device, from heart valve replacements and stents to spinal products, to see where they can negotiate lower prices. It also means creating databases of shared information on pricing between hospitals.

Imagine that! Of course, the notion that buyers ought to bargain with sellers to get the best price goes back a few years. However, only in 2011 did it apparently occur to hospital executives that they ought to negotiate the prices of one their most expensive purchases. This suggests that there has been something profoundly wrong with the basic assumptions underlying the commonly accepted wisdom that making the health care system more of a market will lead to more financially efficient care. 

Summary

In 1988, Alain Enthoven advocated in Theory and Practice of Managed Competition in Health Care Finance, a book published in the Netherlands, that to decrease health care costs it would be necessary to break up the "physicians' guild" and replace leadership by clinicians with leadership by managers (see 2006 post here). Thus from 1983 to 2000, the number of managers working in the US health care system grew 726%, while the number of physicians grew 39%, so the manager/physician ratio went from roughly one to six to one to one (see 2005 post here). Health care went from being controlled by clinicians to controlled by a growing volume of managers.  Most of these managers were generic, in that they had little if any knowledge of, experience in, or sympathy to the values of health care. These generic managers have used the same techniques advocated for the management of supermarkets or automobile manufacturers to manage health care organizations, despite all the obvious differences in context, goals, values, and people involved.

So these generic managers have brought us such "innovations" as the "hospital (marketing) representative," and the "facility fee" for outpatient visits, but only thought to negotiate device prices in 2011. But that is why we pay them the big bucks.

How many more arguments do we need that health care organizations ought to be lead by people who understand the health care context, share its core values, and are accountable for how these organizations affect patients' and the public's health?

RUCing About - Conflicts of Interest Affecting the Members of the RBRVS Update Committee

Since 2007, we have been writing about the secretive RUC (RBRVS Update Committee), the private AMA committee that somehow has managed to get effective control over how Medicare pays physicians. The RUC has been accused of setting up incentives that strongly favor invasive, high technology procedures while disfavoring primary care and other "cognitive medicine." Despite the central role of (perverse) incentives in raising health care costs while limiting access and degrading quality, there was surprisingly little discussion about the pivotal role played by the RUC until the formation of the "Replace the RUC" movement (see post here). 

Recently, the leaders of Replace the RUC scored a journalistic coup by putting the current list of RUC members publicly on-line.  As we have discussed, previously the membership of this committee was kept very obscure, although the committee argued it was not exactly secret. 

Some Google searching suggests one possible reason that the RUC was in no hurry to disclose its own membership.  It appears that many of the RUC members have significant conflicts of interest with respect to their roles as de facto setters of the rates at which physicians are paid by the government.

The RUC Members and Their Financial Relationships

Below is the list of the current RUC membership (from this link), and relevant conflicts of interest obtained by Google searching.  Note that for each member, I first give the name, affiliation relevant to the RUC, location, and first year of membership as provided by the link above.  Then I list relevant financial relationships that appear to present conflicts of interest.

- Barbara Levy, MD

Chair, RVS Update Committee
Federal Way, WA 2000

Consultant/Advisory Boards: Conceptus; AMS; Covidien; Halt Medical; Gynesonics; Idoman Medical (hysteroscopic surgery and sterilization, endometrial ablation, electrosurgery, vaginal hysterectomy) per UptoDate

- Bibb Allen, Jr., MD
American College of Radiology (ACR)
Birmingham, AL 2006

- Michael D. Bishop, MD
American College of Emergency Physicians (ACEP)
Bloomington, IN 2003

- James Blankenship, MD
American College of Cardiology (ACC)
Danville, PA 2000

Lecture fees from Sanofi-Aventis per New England Journal of Medicine

- Robert Dale Blasier, MD
American Academy of Orthopaedic Surgeons (AAOS)
Little Rock, AK 2008

- Joel Bradley, MD
American Academy of Pediatrics (AAP)
Brentwood, TN 2008

Medical Director, Americhoice by UnitedHealthcare, per AAP conference brochure

- Ronald Burd, MD
American Psychiatric Association (APA)
Fargo, ND 2006

- William F. Gee, MD
American Urological Association (AUA)
Lexington, KY 2010

Member, Physician Advisory Board, Aetna per Aetna

- John O. Gage, MD
American College of Surgeons (ACS)
Pensacola, FL 1991

- David F. Hitzeman, DO
American Osteopathic Association (AOA)
Tulsa, OK 1996

- Peter A. Hollmann, MD
CPT Editorial Panel (AMA/CPT)
Providence, RI 2003

Medical Director, Blue Cross and Blue Shield of Rhode Island, per RI Medical Society

- Charles F. Koopmann, Jr., MD
American Academy of Otolaryngology-Head and Neck Surgery (AAO-HNS)
Ann Arbor, MI 1996

- Robert Kossmann, MD
Renal Physicians Association (RPA)
Santa Fe, NM 2009

Member of Advanced Renal Technologies Advisory Board, Network 15 Medical Advisory Board, Baxter Home Dialysis Advisory Board, Fresenius Medical Advisory Board per Renal Physicians Association

- Walter Larimore, MD
American Academy of Family Physicians (AAFP)
Colorado Springs, CO 2009

- Brenda Lewis, DO
American Society of Anesthesiologists (ASA)
Cleveland, OH 2009

- J. Leonard Lichtenfeld, MD
American College of Physicians (ACP)
Atlanta, GA 1994

Member, Physician Advisory Board, Aetna per Aetna

- Scott Manaker, MD, PhD
American College of Chest Physicians (ACCP)
Philadelphia, PA 2010

Consultant to Pfizer and Johnson and Johnson. Owns stock in Neose Technologies, Pfizer, Johnson & Johnson, and Rohm and Haas per Chest

- Bill Moran, MD
Practice Expense Review Committee
Oklahoma City, OK 2000

- Guy Orangio, MD
American Society of Colon & Rectal Surgeons (ASCRS)
Atlanta, GA 2009

- Gregory Przybylski, MD
American Association of Neurological Surgeons (AANS)
Edison, NJ 2001

Stock Ownership: United Healthcare (300 shares);  ...  Scientific Advisory Board: United Health Group (B, Spine Advisory Board) per NASS meeting

- Marc Raphaelson, MD
American Academy of Neurology (AAN)
Leesburg, VA 2009

personal compensation for activities with Jazz Pharmaceuticals and Medtronics as a speakers bureau member or consultant per AAN

- Sandra Reed, MD
American College of Obstetricians and Gynecologists (ACOG)
Thomasville, GA 2009

GlaxoSmithKline Consulting, $1750 in 2009, $1500 in 2010 per ProPublica Dollars for Docs search through here

- Daniel Mark Siegel, MD
American Academy of Dermatology (AAD)
Brooklyn, NY 2003

Vivacare Dermatology Advisory Board, 2006 – present. Photomedex Scientific Advisory Board, 2006-present, Ad Hoc consultant to ClickDiagnostics, per Encite CV
DermFirst-Shareholder, Logical Image – Consultant, Vivacare - Consultant per MOHS Surgery

- Lloyd S. Smith, DPM
Health Care Professionals Advisory Committee
Bethesda, MD 2007

- Peter Smith, MD
Society of Thoracic Surgeons (STS)
Durham, NC 2006

Eli Lilly, Consulting, $1500 in 2009, $1990 in 2010 per Pro Publica Dollars for Docs search through here
Advisor or consultant to Bayer per Medscape

- Susan Spires, MD
College of American Pathologists (CAP)
Lexington, KY 2007

- Arthur Traugott, MD
American Medical Association (AMA)
Champaign, IL 2006

- James Waldorf, MD
American Society of Plastic Surgeons (ASPS)
Jacksonville, FL 2008

- George Williams, MD
American Academy of Ophthalmology (AAO)
Royal Oak, MI 2009

Advisory Team, RetroSense Therapeutics
Shareholder and consultant for ThromboGenics Ltd. and holds intellectual property on the use of plasmin per Review of Opthamology
Alcon Laboratories, consultant, lecturer; Allergan, consultant, lecturer; Macusight, consultant, equity owner; Neurotech, consultant; Nu-Vue Technologies, equity owner, patent/ royalties; OMIC- Ophthalmic Mutual Insurance Company, employee; Optimedica, consultant, equity owner; Thrombogenics, consultant, equity owner per AAO meeting
Pfizer, “Professional Advising,” $5534 in 2009 per Pro Publica Dollars for Docs search through here

Summary

There you have it.  A substantial proportion, almost half, 14 of 29 members of the RUC have financial relationships with pharmaceutical companies, biotechnology companies, device companies, companies that directly provide health care, and health care insurance companies. 

As we have noted in our previous discussions of the RUC, that committee has been accused of being the de facto controller of how the US government pays physicians.  In that role, it has been accused of favoring procedural care rather than cognitive or primary care by increasing the relative financial incentives for the former over the latter.  This may be one of the most important reasons for the expensive, high-technology, procedural-heavy style of care in the US, which has likely been a major driver for increasing costs, declining access and stagnant quality.

It seemed obvious that a committee dominated by a majority of physicians who perform procedures would tend to favor bigger financial incentives for procedures.  But now it appears the committee also includes a substantial number of people who work part-time or have ownership interests in companies that also stand to benefit from increasing use of procedures.  Procedures drive increased consumption of drugs, supplies and devices, and lead to larger revenue for hospitals and clinics.  Thus these financial relationships could reasonably be suspected of even further distorting the committee's decision-making in favor of procedures.

I was surprised how many RUC members have financial ties to health care insurance companies.  Such companies are not usually thought of as beneficiaries of high-technology, procedural care.  However, if one conceives of their revenue as a percentage of health care costs, perhaps they are.  Furthermore, one can only wonder if the links between the RUC and health care insurance companies have anything to do with how such companies have apparently unquestioningly adapted the RBRVS system controlled by the RUC?

The prevalence of conflicts of interest among RUC members highlight the need for a more accountable, transparent and honest system to manage how the government pays physicians, and a need for more transparency and accountability in the relationship among the government, health care insurance, and physicians.

 As we have previously noted,  there are still many unanswered questions about the RUC:

- How did the government come to fix the payments physicians receive? Government price-fixing has not been popular in the US, yet this has caused no outcry.
- Why is the process by which they are fixed allowed to be so opaque and unaccountable? Why are there no public hearings on the updates, and why is there no input from practicing physicians or organizations other than those related to the RUC?
- How did the RUC become de facto in charge of this process?
- Why does the AMA [keep the membership of the RUC so opaque, and] give no input into the RUC process to its general membership?
- Why is the RUC membership so dominated by procedural specialists? Why were primary care physicians, who made up at least a sizable minority of physicians when the update process was started, not represented according to their numbers?
- Why has there been so little discussion of the RUC and its responsibility for an extremely expensive health care system dominated by high-technology, expensive, risky and invasive procedures?

Stay tuned, maybe these will be answered in our life-times....

Abbott Laboratories Settles, Again

In 2007, we discussed a scheme that Abbott Laboratories seemed to be using to boost the price of Kaletra, a combination of two protease inhibitors it markets to treat HIV and AIDS. Kaletra is a combination of rinoavir (Norvir, sold by Abbott as a single drug), and leponavir. Kaletra was apparently losing sales to the combination of Norvir with Reyataz (atazanavir), made by Bristol-Myers-Squibb. So Abbott increased the price of Norvir by 400%.

As reported so far only by Bloomberg, Abbott just settled a class-action lawsuit alleging that its price hike for Norvir was anti-competitive.

Abbott Laboratories agreed to pay $52 million to resolve claims by direct drug buyers that it tried to harm competition when it quadrupled the price of its HIV medicine Norvir in 2003.

The settlement, which is subject to court approval, would resolve a class-action lawsuit filed on behalf of Abbott customers that purchased Norvir, a boosting agent for other HIV drugs, and a second medicine Kaletra, which includes Norvir, according to an April 8 filing in federal court in Oakland, California. Abbott denied wrongdoing, according to the accord.

Abbott increased the wholesale price of a Norvir capsule containing 100 milligrams to $8.57 from $1.71, the Abbott Park, Illinois-based company said in court documents. GlaxoSmithKline Plc and drug retailers and distributors sued, claiming other drugmakers that used Norvir in their medicines couldn’t compete on price with Kaletra, and the price increase penalized drug customers that wanted to buy medicines that competed with Kaletra.

Note that, as we discussed here, this is the third significant settlement by Abbott in the last six months. In December, 2010, the company settled claims that it defrauded Medicare and Medicaid for $421 million, and claims that a subsidiary paid kickbacks to doctors to sell its products for $41 million. For other discussion of Abbott's recent misbehavior, look here.

So while we were discussing other issues, the parade of legal settlements continued. It is beginning to seem like every major pharmaceutical/ device/ and biotechnology company has settled or pleaded guilty to multiple allegations of significantly bad behavior in the last few years. This suggests how bad the leadership of most of these companies has become.

Nonetheless, in the current case, like nearly all others, the penalties were paid by the companies themselves, not the people who authorized, directed or implemented the bad behavior. We and others have commented repeatedly that the resulting relative impunity of leaders of health care organizations will hardly deter future bad behavior. (Note that this impunity seems similar to that employed by leaders of finance after the global financial collapse/ Great Recession.) Not only do the leaders not pay penalties, but they continue to become hugely rich at the expense of their companies. For example, Abbott CEO Miles D White enjoyed total compensation of $25,564,283 in 2010, down only slightly from the 26,213,996 he received in 2009, according to the 2011 Abbott proxy statement (available here). Threats by government officials to start to employ the "Responsible Corporate Officer Doctrine," (available since 1943) to hold individuals accountable for health care organizations' misdeeds so far appear to be empty (see this post).

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

"Replace the RUC!"

We have frequently posted, first here in 2007, and more recently here and here, about the little-known group that controls how the US Medicare system pays physicians, the RBRVS Update Committee, or RUC.

Since 1991, Medicare has set physicians' payments using the Resource Based Relative Value System (RBRVS), ostensibly based on a rational formula to tie physicians' pay to the time and effort they expend, and the resources they consume on particular patient care activities. Although the RBRVS was meant to level the payment playing field for cognitive services, including primary care vs procedures, over time it has had the opposite effect, as explained by Bodenheimer et al in a 1997 article in the Annals of Internal Medicine.(1) A system that pays a lot for procedures, but much less for diagnosing illnesses, forecasting prognoses, deciding on treatment, and understanding patients' values and preferences when procedures and devices are not involved, is likely to be very expensive, but not necessarily very good for patients.

As we wrote before, to update the system, the Center for Medicare and Medicaid Services (CMS) relies almost exclusively on the advice of the RBRVS Update Committee. The RUC is a private committee of the AMA, touted as an "expert panel" that takes advantage of the organization's First Amendment rights to petition the government. Membership on the RUC is allotted to represent specialty societies, so that the vast majority of the members represent specialties that do procedures and focus on expensive, high-technology tests and treatments. However, the identities of RUC members are opaque, and the proceedings of the group are secret.

To expand on the penultimate point, the current page on the AMA web-site that describes the RUC only lists its members in terms of their specialties and organizational affiliation. Their names do not appear. A response to a previous post by me on the subject by the then Chair and Chair-Elect of the RUC suggested that the RUC membership is not quite secret. They stated that "a list of the individual members of the RUC is published in the AMA publication, Medicare RBRVS 2009: The Physicians Guide." This publication is available from the AMA here for a mere $71.95 (although now with the notation that the product has been "discontinued.") However, the book is not on the web, or in my local or university library, and I have no other way to easily access it. Thus, the RUC membership is at best relatively opaque.

To expand on the ultimate point, as Goodson(2) noted, RUC "meetings are closed to outside observers except by invitation of the chair." Furthermore, he stated, "proceedings are proprietary and therefore not publicly available for review."

The fog surrounding the operations of the RUC seems to have affected many who write about it. We have posted (here, here, here, and here) about how previous publications about problems with incentives provided to physicians seemed to have avoided even mentioning the RUC. Up until 2010, after the US recent attempt at health care reform, the RUC seemed to remain the great unmentionable. Even the leading US medical journal seemed reluctant to even print its name.

That changed in October, 2010.  A combined effort by the Wall Street Journal, the Center for Public Integrity, and Kaiser Health News yielded two major articles about the RUC, here in the WSJ (also with two more spin-off articles), and here from the Center for Public Integrity (also reprinted by Kaiser Health News.) The articles covered the main points about the RUC: its de facto control over how physicians are paid, its "secretive" nature (quoting the WSJ article), how it appears to favor procedures over cognitive physician services, etc.

So the RUC became less anechoic.  Now, four months later, there is more news.  A new site called "Replace the RUC!" has now appeared, with the following introduction:

This site has been developed - see here for our backgrounds - to help primary care physicians and other interested individuals obtain verifiable background from reputable sources on:

* The evolution and structure of the US' medical payment system.
* How it came to devalue primary care and favor specialty services.
* How that has translated to lower quality care at far greater expense in the US.

We believe the overwhelming majority of American primary care physicians are deeply frustrated with the differences in how primary and specialty care are valued by the current system, and the havoc that system has wrought throughout health care and the nation.

The first step to remedying this situation is for the primary care medical societies to visibly and loudly withdraw from participation in the RUC, de-legitimizing the process.

That said, this effort is most decidedly NOT primarily about getting primary care physicians more money, but bringing our health system back into homeostasis.

We have previously noted that there are many unanswered questions about the RUC:

• How did the government come to fix the payments physicians receive? Government price-fixing has not been popular in the US, yet this has caused no outcry.
• Why is the process by which they are fixed allowed to be so opaque and unaccountable? Why are there no public hearings on the updates, and why is there no input from practicing physicians or organizations other than those related to the RUC?
• How did the RUC become de facto in charge of this process?
• Why does the AMA keep the membership of the RUC so opaque, and give no input into the RUC process to its general membership?
• Why is the RUC membership so dominated by procedural specialists? Why were primary care physicians, who made up at least a sizable minority of physicians when the update process was started, not represented according to their numbers?
• Why has there been so little discussion of the RUC and its responsibility for an extremely expensive health care system dominated by high-technology, expensive, risky and invasive procedures?

We welcome this new site as a way to answer these questions, and more importantly, as a way to develop more rational incentives within the health care system.

Note that "Replace the RUC!" will be added to our link list.

References



1. Bodenheimer T, Berenson RA, Rudolf P. The primary care-specialty income gap: why it matters. Ann Intern Med 2007; 146: 301-306. (Link here.)
2. Goodson JD. Unintended consequences of Resource-Based Relative Value Scale reimbursement. JAMA 2007; 298(19):2308-2310. (Link here.)