On the Interconnectedness of the Leadership of Health Care Organizations: the Abbott Laboratories Case

We just posted about some misbehavior by Abbott Laboratories: a physician Abbott paid as a "key opinion leader" to help market its cardiac stents was accused of inserting stents in many patients who had no need for them; Abbott settled for over $400 million a lawsuit alleging the company defrauded Medicare and Medicaid; and it settled an unrelated suit for over $40 million alleging the company paid kickbacks to physicians for prescribing its drugs.  I thus thought it would be interesting to see how well paid are the corporate leaders who presided over these activities, and who are the board members who were supposed to be providing stewardship of this company.

According to the company's 2010 proxy statement, the five highest-paid executives were:

Miles D White, Chairman of the Board and CEO - $26,213,966 total compensation
Thomans C Freyman, Executive Vice President, Finance, and CFO - $9,561,227
Olivier Bohuon, Executive Vice President, Abbott Pharmaceutica Group - $5,232,589
Laura J Schumacher, Executive Vice President, General Counsel, and Secretary - $5,724,060
James V Mazzo, Senior Vice President, Abbott Medical Optics - $10,394,085

Now, let us turn to the company's board of directors.  Note that I looked for board members who also held leadership positions in other health care organizations whose interests may not be aligned with the corporation.  I also looked for those who held leadership positions in the discredited financial services corporation who helped usher in the global financial collapse.  (I  used similar methodolgy here.)

Abbott currently has 12 board members, including

• Robert J Alpert MD - Ensign Professor of Medicine, Professor of Internal Medicine, and Dean of the Yale School of Medicine.  He also "serves as a Director on the Board of Yale-New Haven Hospital."
• Roxanne S Austin - President and Chief Executive Officer, Move Networks Inc, and President, Austin Investment Advisors
• William M Daley -"Vice Chairman and Head of the Office of Corporate Responsibility and Chairman of the Midwest, JP Morgan Chase & Co."  He is the board of directors of  "Loyola University of Chicago and Northwestern University."
• W James Farrell - Retired Chairman and Chief Executive Officer of Illinois Tool Works Inc
• H Laurence Fuller - Retired Co-Chairman of BP Amoco, former chief executive officer of Amoco
• William A Osborne - Retired Chairman and Chief Executive Officer of Northern Trust Corporation and the Northern Trust Company.  He is "Chairman of the Board of Trustees of Northwestern University."
• Rt Honorable Lord Owen - Chairman of Europe Steel Ltd
• Roy S Roberts - Managing Director, Reliant Equity Investors.
• Samuel C Scott III - Retired Chairman,  President and Chief Executive Officer of Corn Products International.  He "currently serves on the board of directors of Bank of New York Mellon Corporation."  He also is on the board of "Northwestern Healthcare."
• William D Smithburg - Retired Chairman, President and Chief Executive Officer of Quaker Oats Company.  He is on the "board of trustees of Northwestern University."
• Glenn F Tilton - Chairman, President and Chief Executive Officer of UAL Corporation and United Airlines Inc.  He is on the "board of directors of Northwestern Memorial Hospital."
• Miles D White - Chairman of the Board and Chief Executive Officer, Abbott Laboratories, "is on the board of trustees of "Northwestern University." 

Of Abbott's 12 directors, seven have leadership positions at teaching hospitals, academic medical centers, medical schools or their parent universities (Northwestern University, its medical school and teaching hospitals, in particular, are stewarded by six Abbott directors). 

Two have leadership positions in  financial services corporations that were implicated in the global financial collapse.  (Note that JP Morgan Chase staffers helped to invent some of the kinds of financial derivatives widely viewed as causative of the collapse, but the firm itself did not fail. [See Tett G. Fool's Gold.]  Through TARP, the US government took preferred equity stakes in both JP Morgan Chase and Bank of New York Mellon.  [See Ritholtz B.  Bailout Nation. p. 222]) 

Two more are leaders of financial services firms.  All but one are current or former high-level hired executives (seven are or were CEOs), or chairpersons or co-chair persons of corporations (the one exception is a dean of a medical school.) 

Note how similar our findings were here to those found after our perusal of the boards of Genzyme and Medtronic (see post here).   So we find again that executives of health care organizations who preside over various questionable activities not only rarely pay any penalty, but usually become extremely wealthy in the process.

We also find how interconnected is the leadership of health care.  The boards and leadership of drug and device companies overlap with the boards and leadership of medical schools, teaching hospitals, and their parent universities. 

Yet, as we have noted before, there are obvious conflicts.  In particular, teaching hospitals and medical schools are supposed to provide unbiased teaching, including about issues relevant to drug and device corporations, such as choice of diagnostic strategies and treatments, and relevant health policy.  They are supposed to perform unbiased research, including research that evaluates drugs and devices.  They are supposed to provide the best possible patient care at a reasonable cost, which relates to choices of and prices paid for drugs and devices. 

On the other hand, drug and device companies are supposed to put making a profit for their share-holders first.  The directors of such companies, like the directors of all for-profit corporations, are supposed to show an unyielding loyalty to their companies' financial health and profits, although contemporary corporate directors have been accused of acting more like cronies of the hired management.  (See this post.)

Also, we note that the vast majority of people chosen as stewards of a given health care organization are current or former top hired executives of other corporations.  The board members, that is, stewards of health care organizations, to whom the top hired executives reports, are usually not people with large ownership interests in the organizations (in the case of public, for-profit corporations.)  For the most part, they also do not seem to be people with clearly demonstrated devotion to the values of health care, in particular, putting the care of individual patients first, and advancing health care teaching and research.  Instead, they seem to be people with the perspective of hired executives, who may be prone to putting the interests of hired executives, rather than patients, doctors, teachers, scientists or the public at large, first.

So here is another admittedly limited case study of the board of directors, that is, the ostensible stewards of a health care corporation, selected this time because of its history of ethical missteps, which showed  - that the leadership of health care organizations is incredibly interrelated, interlocked, incestuous.  Again, it appears that top leaders of various health care organizations may be more familiar with and identify more with each other, and with other hired executives and managers, than with their organizations, their organizations' missions, and their organizations' professionals, staff, students, clients, and patients.

So to repeat-

I strongly believe that there needs to be much more investigation, academic, journalistic, and perhaps legal, of the identity, nature, and culture of the leaders of health care, and their relationships. A few bloggers cannot do it all. Obviously, the anechoic effect mitigates against medical and health care academics looking into their own leaders. However, failing to understand who is leading our march to the brink of health care failure ought not to be something such academics would want on their conscience.

Finally, and obviously, health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research.

If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.

Post Title → On the Interconnectedness of the Leadership of Health Care Organizations: the Abbott Laboratories Case

How Hospital CEOs Get Paid Tens of Thousands to Advise Hospital Suppliers

The New York Times just reported on the activities of an organization called the Healthcare Research and Development Institute (HRDI).

Despite its name, HRDI is a "for-profit company owned by about three dozen hospital executives, but underwritten by 40 or so of its handpicked corporate members, all suppliers to hospitals." These "executives benefit from payments made by companies their hospitals do business with." HRDI industry members are limited to "only two competing companies in any specific field."

The purpose of the organization is apparently to give hospital suppliers access to the CEOs of large not-for-profit hospitals. "Last May, more than 130 representatives from 40 health care companies were scheduled to attend confidential consulting sessions at the Broadmoor, a Colorado Springs hotel. When not attending the sessions, hospital chief executives and suppliers mingled at company-sponsored tennis, golf and social events. Each year, H.R.D.I. holds two gatherings like the one in Colorado, where each corporate member gets a meeting of up to three hours with five or six chief executives, according to [HRDI CEO]Mr. Mecklenburg." "'The typical organization is paying $40,000,' Mr. Mecklenberg said. 'It can be more, but that would not be typical.' Additional access to hospital executives and their institutions can cost companies $55,000 a year or even more. For example, a special two- to three-day visit to a specific hospital costs $2,000 a person, according to H.R.D.I., which says most of that money is eventually passed on to the hospital."

"It is unclear exactly how much hospital executives, who are the shareholders of the healthcare institute, earn annually for consulting at the two conferences. Asked to verify a report that some members earned as much as $50,000, Mr. Mecklenberg initially denied it. 'Our observation and recollection is $20,000 to $30,000 a year,' he said. 'It may be more than that but we don’t have data in front of us, but it’s certainly not $50,000.'

Mr Mecklenberg himself has an interesting history. He is "a former chairman of the American Hospital Association, the industry’s largest trade group." Furthermore, now he "not only runs a large nonprofit hospital, Northwestern Memorial in Chicago, but he also serves on the board of Becton, Dickinson and Company, a major supplier of medical devices to hospitals around the world, including his own. Becton, Dickinson pays the institute for marketing advice, and the institute pays Mr. Mecklenburg $50,000 a year, mostly for participating in two national conferences, according to the group."

HRDI is now under the scrutiny of Connecticut Attorney General Richard Blumenthal, who "is investigating whether the organization allows certain vendors to buy access to hospital leaders who are in a position to influence what supplies or services their institutions purchase. As a result, Mr. Blumenthal said, hospitals may not be getting the best deals, either in terms of cost or quality. 'At the very least it suggests insider dealings — an insidious, incestuous, insider system,' said Mr. Blumenthal...." He is also investigating whether the limitation on HRDI membership to only two companies from each sector violates anti-trust regulations. Mr Blumenthal recently testified that HRDI is a "secretive" network of "ethically questionable business arrangements." Note that until recently, the organization did not allow public access to its web-site, and did not list its members, although its current membership list and list of corporate sponsors are currently on the web.

The Times' investigative reporting has opened yet another window on the pervasive web of conflicts of interest that entangles health care. The report reveals problems at multiple levels:

• Hired leadership of not-for-profit hospitals seem to be personally profiting from their positions of trust
• Hospital leaders not only have cozy relationships with at least some suppliers, but are paid handsomely by these same suppliers for their supposed market advice, raising questions about how effectively their hospitals will negotiate with these suppliers
• The leader of the organization that makes these cozy relationships possible is simultaneously a not-for-profit hospital CEO and a member of the board of directors to a major hospital supplier, and hence has a fiduciary duty to that organization that seemingly clashes with his duty to his main employer

You just can't make this stuff up.
And people wonder why health care is so expensive? And think that the only solution to the rising cost of health care is to keep cutting physicians' fees for "cognitive services?" (See post here.)
Note that the well-publicized article by Brennan et al that castigated physicians for accepting so much as a coffee mug with a company logo from a drug or device company would have put academic medical center administrators in charge of enforcement of this stringent policy, the same administrators who may personally get paid tens of thousands of dollars to sit give market advice to the companies whose logos are on the coffee mugs. LOL. (See post here.)
Instead, as we have said before, there needs to be a broad, impartially enforced policy that bans major conflicts of interest affecting all decision makers in health care.
And we need some of leaders of large health care organizations, not just pharma and device companies, but also managed care organizations and insurance companies, hospitals, academic medical centers and health care systems, and medical schools and universities, to to look in the mirror to see who has been dodging responsibility for rising costs, declining access, stagnant quality, and demoralized providers.

Post Title → How Hospital CEOs Get Paid Tens of Thousands to Advise Hospital Suppliers