Putting a New Schein to the FDA?

When the national discussion seems preoccupied with the bonuses at AIG, the nomination of a new leader of the US Food and Drug Administration did not seem to get the attention it may have deserved. Last week, the president nominated Dr Margaret Hamburg to this position. As reported by the Los Angeles Times,

President Obama has decided to nominate former New York City Health Commissioner Margaret Hamburg to head the Food and Drug Administration, turning to a onetime Clinton administration official to help right the beleaguered regulatory agency, a source briefed on the choice said Wednesday.

Hamburg, 53, a physician who has worked extensively on bioterrorism issues, is a senior scientist at the Nuclear Threat Initiative, a Washington-based foundation focused on threats from nuclear, biological and chemical weapons.

Though less experienced as a regulator, Hamburg has extensive government experience. She served as health commissioner in New York for six years in the 1990s before becoming assistant secretary for planning and evaluation at the Department of Health and Human Services in 1997.

Tucked away at the end of the LA Times story, and not emphasized in other news articles, was a salient fact:

She sits on the board of medical supply distributor Henry Schein Inc., but would have to surrender the position if confirmed by the Senate.

Many now believe the FDA is in crisis, having failed to protect the people from unduly hazardous drugs and devices, and becoming too cozy with drug and device companies, which it may not regard, instead of the population as a whole, as the agencie's clients. Would Dr Hamburg's current position with Henry Schein Inc, however, jeopardize her ability to restore peoples' trust that the agency will put their interests, rather than those of health care corporations first?

Henry Schein Inc is a large distributor of health care supplies, including drugs and devices. For an example of its very extensive catalog, look here. Henry Schein makes its profits by selling the products that the FDA regulates, particularly drugs and devices. In her role as director of Henry Schein, Dr Hamburg had a legal responsibility to enhance the finances and profits of the company and its stockholders. As we have discussed many times previously, a corporate director has a legal obligation to advance the profits and financial fortunes of the corporation he or she serves. As Robert AG Monks put it, corporate directors are supposed to "demonstrate unyielding loyalty to the company's shareholders" [Per Monks RAG, Minow N. Corporate Governance, 3rd edition. Malden, MA: Blackwell Publishing, 2004. P.200.]

As compensation for that loyalty, corporate directors are usually exceedingly well-paid for the nominal hours they spend in their meetings.So, according to the company's 2008 proxy statement, Dr Hamburg owned the equivalent of 63,472 shares of stock (current value, at the price of $37.32, via Google Finance, $ 2,368,775.04). Her total compensation in 2007 for her position as director was $249,151.)

Given that Dr Hamburg has spent over five years living with the obligation for unyielding loyalty to the interests of Henry Schein, and has become what many people would consider rich in the process, how easy will it be for her to turn to becoming a strict regulator of the products her former company used to sell? Time will tell. But this is the second nomination to a major health care post charged with improving the health of all citizens that has gone to someone currently obligated to protect the interests of corporations that now profiting from today's health care milieu. Let us see if this will lead to the change we need in health care.

Post Title → Putting a New Schein to the FDA?

The Phall of Pharmed

The Miami Herald documented the rise and fall of a prominent medical supply company.

Before its spectacular collapse, Pharmed Group was one of the great South Florida success stories, a medical supply company created by two brothers who started with nothing and built the eighth-largest Hispanic-owned business in America. In 2003, their profit was $48 million.

What happened to this once fabulous company, where brothers Carlos and Jorge de Céspedes often showed up for work in a Ferrari, Bentley or Porsche? How could it have crumbled so quickly?

Court documents show that in its last two years, Pharmed lost a huge amount of business after a major supplier and a major customer accused the company or its executives of shady business practices in civil lawsuits.

The Herald article chronicled a striking list of allegedly "shady business practices."

Operating without a license:

In 1980, sensing an untapped market for selling medical supplies to Latin America, they started Pharmed by installing an answering machine in a small storage room in Carlos' home.

'In six months, we had sold $700,000,' Carlos told The Herald. 'We had no occupational license, nothing. I went to my accountant, and he said, `You're going to jail.' I said, 'No, that's why I came to you.'

The investigation of Bravo Export Management:

In January 1987, the feds charged Bravo with illegally selling drugs bought at a hospital discount to a California wholesaler. Bravo ordered the drugs in the names of two other Miami companies, Belo Medical Center and South Florida Health Alliance, 'an alleged hospital purchasing group,' according to the criminal indictment.

State corporation records show the South Florida Health Alliance was incorporated by the de Céspedes brothers. The indictment charges that a fraudulent invoice used in the scheme was sent to Jose M. Valdivia at Belo Medical Center. Valdivia was then Carlos' father-in-law. The address of Belo Medical Center was also the address of Pharmed Sales International at the time.

Bravo Export pleaded guilty and paid a $75,000 fine. Then the investigation stopped. In testimony before a House subcommittee in Washington in 1990, [Deputy Director of the Georgia Drugs and Narcotics Agency C. Richard 'Rick'] Allen said: 'There were close to 100 guilty pleas. But there were also 40 to 50 other cases which were pending. In many of which the subjects had expressed a willingness, or at least an interest in entering a guilty plea.'

One of the pending cases was Pharmed....

The suit by Wyeth:

In 1987, Wyeth Pharmaceuticals sued Belo Medical Center, South Florida Health Alliance and the de Céspedes brothers over allegations of improperly obtaining drug discounts. After nine years, the case was settled out of court in a confidential agreement.

The suit by Amerisource Bergen:

AmerisourceBergen, a large medical supply wholesaler, sued Pharmed. The allegation involved setting up a corporation to get price breaks. According to court records, Pharmed Vice President Rene Portela and Pharmed contract consultant Charles J. Sanchez incorporated Quality One Medical Group, which then signed papers promising its goods would go only to hospitals. Quality One set up a warehouse a couple of miles from Pharmed's Doral center.

In a deposition, Portela said Carlos de Céspedes asked them to create the corporation, which placed orders with AmerisourceBergen. When the goods were delivered to the Quality One warehouse, a Pharmed truck came 'immediately' to take them to the Pharmed warehouse, Portela stated.

AmerisourceBergen claimed it shipped goods worth $1.2 million to Quality One and didn't get paid. The company called Portela and demanded payment. 'That's when I really got scared,' Portela said. 'And then I asked them [Pharmed] what was going on.'

Court documents show Pharmed eventually paid $735,091 -- the cost of the goods if they would have gone to a hospital. Amerisource sued for the difference -- $443,624.

Pharmed's defense in court documents: Amerisource knew or should have known that Quality One planned to resell the items to Pharmed. In 2002, the case was settled out of court on undisclosed terms.

The accusations by Johnson & Johnson:

The next big blow came in January 2005, when Johnson & Johnson ended its 25-year relationship. J&J filed a demand for arbitration, accusing Pharmed of fraud and the brothers of 'unjust enrichment' in collecting $22 million in rebates to which they were not entitled.

Pharmed sued J&J for 'reprehensible, intentional, malicious' defamation. A judge sent the case to arbitration. J&J won't comment.

The investigation of Commissioner Diaz:

As Pharmed struggled, [Miami-Dade] Commissioner [Jose 'Pepe'] Diaz co-sponsored in 2006 an ordinance requiring Jackson Memorial Hospital to give preference to local suppliers. For the four previous years, he received at least $475,000 in salaries, loans and bonuses from companies controlled by the brothers.

Diaz has been under investigation by federal authorities looking into possible 'honest services fraud' in his role as a public servant because Diaz took a fishing trip to Cancun with Carlos de Céspedes and Miami developer Sergio Pino. Diaz later voted for a major Pino development plan.

Federal investigators would not comment on the status of the investigation.

The suit by HCA:

In June, HCA sued seven people, including a Pharmed assistant vice president, Erika Urquiza, 36, but not Pharmed itself or the brothers. The lawsuit alleges that Urquiza paid kickbacks to two employees of HCA's Kendall Regional Medical Center, who then ordered supplies from Pharmed that never were delivered. HCA paid Pharmed $3.5 million for the supplies, the lawsuit states.

The de Cespedes brothers commented on their roles in all this litigation thus:

We are a litigious society, but in our 27 years of operation prior to the bankruptcy, in our dealings with well over 1,000 vendors, we have been party to just a handful of civil suits, where were settled to our satisfaction.

As to the various old legal and employee disputes about which you have inquired, we would say simply that every business has its share of disputes and complications. Some of the matters you asked about had nothing to do with us or Pharmed.

We have successfully resolved matters involving us and are disappointed The Herald would dredge them up simply to portray us in an unflattering light. You do not have sufficient information to understand most of these matters, and we are not going to comment on them in deference to the others involved.

Pharmed is now bankrupt, although its name lives on. "The basketball arena at Florida International University is named for Pharmed." "The brothers promised to donate $1 million to Florida International University," however, "FIU officials say that so far, Pharmed has contributed a third of the promised amount."

Nearly all physicians swear oaths to put the care of their patients ahead of any personal interests, and to treat their patients ethically and honestly. Physicians who fail to conduct themselves ethically are liable to be sanctioned by state medical boards, however imperfect that process may be. In today's complex health care environment, physicians must work within a vast web of large organizations, which influence health care and physicians' practices in myriad ways. The vast amounts of money that flows through the health care system may provide plenty of incentives for shady business practices.

Yet although these health care organizations' operations affect patients' health and safety, they are not subject to any more ethical requirements than are trash hauling companies. Such organizations rarely have internal codes of conduct, and their leaders rarely face significant sanctions for unethical conduct.

Thus, is it any wonder that "shady business practices" are widespread in health care?

So shouldn't organizations whose operations affect peoples' lives and health be held to higher ethical standards than your local trash hauler? Inquiring minds want to know....

But until the leaders of health care organizations are subject to enforceable ethical standards, expect more "shady business practices," and, in turn, more costs, less access, and worse quality.

Post Title → The Phall of Pharmed

Flu Shots at Wal-Mart But Not in Physicians' Offices

The San Diego Union-Tribune reported on the troubling state of influenza vaccination this season. Physicians in California are having great difficulty getting the stocks of vaccine that they ordered. "Three in four doctors responding to a California Medical Association survey had not received their full vaccine supplies as of Nov. 3. More than half of them had not obtained any vaccine, and 70 percent had to reject high-risk patients' requests for flu shots. The article quoted the CEO of the Medical Association, Dr. Jack Lewin:

Despite being assured each year that supplies will be adequate and delivered to physicians on time, here we are again. We have high-risk, sick and elderly patients left unvaccinated. This is intolerable."

What went wrong? According to the Union-Tribune article, vaccine manufacturers preferentially shipped supplies of vaccine to high-volume customers, like big-box stores such as Costco, Wal-Mart, and Albertsons on the west coast of the US. Quoting Dr. Wayne True, a physician in La Mesa, "This year's vaccines are going to where the money is - to the 'big box' customers first." Physicians often "go through pharmaceutical distributors for their vaccine supplies, while some big retailers are able to place bulk orders directly from vaccine manufacturers."

Neither the vaccine manufacturers, distributors, nor "big-box" stores seem to want to take responsibility for this situation.

• Alison Marquiss, a spokeswoman for Chiron, one of the three remaining US vaccine suppliers, admitted that "its priority shipments were earmarked for high-volume customers, as standard practice for all manufacturers of vaccine, according to the Union-Tribune. Marquiss said, "there are different contractual terms for different orders. It would be a bit naive not to realize that."
• David Aguilar, of Physicians Sales and Service, a distributor of vaccines, accused, "Physicians are panicking." Furthermore, "there are a lot of sales reps here that don't want to deal with the flu (shots) because of what's been happening.... It's a headache for everyone."
• Michael Mastormonica, coordinator of Costco' influenza program, said it should be up to the government, and that the Center for Disease Control (CDC) should "step in and stipulate distribution, saying these providers take priority over others." But a spokesman for the CDC noted that the agency "has no regulatory authority whatsoever to mandate anything when it comes to supply and demand of influenza vaccine."

As a physician, it seems to me that the true measure of a health care system is how it takes care of the sickest and neediest patients. Here we have a system that can supply influenza vaccine to relatively healthy people who show up at big-box stores, but not to sick, high-risk patients in doctors' offices.
The system for distributing influenza vaccine has been taken over by large organizations, vaccine manufacturers, distributors, and large retailers, none of whom apparently put the needs of sick patients first, and seem very good at avoiding any responsibility for doing so. Note that the distributors' sales reps were complaining they were getting a headache from the situation, but an elderly, high-risk patient may get far more than a headache should they acquire influenza. To reiterate what Dr. Lewin said, "This is intolerable. We need a fair, equitable, and efficient delivery system."
And just to add insult to injury, some of the more credible proposals to make physicians subject to "pay-for-performance" would measure such performance by, among other criteria, the proportion of a physicians' high-risk patients who get influenza vaccine (see, for example, the recommended "starter set" of measures here.) Were California physicians to be subject to these measures this year, and perhaps some of them are, physicians whose suppliers failed to send them enough influenza vaccine would be rated as performing poorly. No wonder many of us physicians are skeptical that such measures will fail to deal with the real shortcomings of the health system's performance, and will perversely penalize some physicians who may be trying the hardest to take care of the sickest patients.

Post Title → Flu Shots at Wal-Mart But Not in Physicians' Offices