Price Fixing, Regulatory Capture, Crony Capitalism - Will the New Public Citizen Report Succeed in Outing the RUC?

Just last month the RUC made it back into the headlines.  Then we posted  Politico made another attempt to shed some light on this obscure committee and its outsize effect on health care. Now the watchdog organization Public Citizen has stepped into the breach, publishing a report on the RUC (Research Based Relative Value Scale Update Committee), with an accompanying press release and op-ed. 

Introduction - Why the RUC is Important

To explain why this issue is important, I can simply repeat what I wrote before. 

In 2007, readers of the Annals of Internal Medicine could read part of the solution to a great medical mystery.(1)  For years, health care costs in the US had been levitating faster than inflation, without producing any noticeable positive effect on patients.  Many possible reasons were proposed, but as the problem continued to worsen, none were proven.

The article in the Annals, however, proposed one conceptually simple answer.  The prices of most physicians' services, at least most of those that involved procedures or operations for Medicare patients, were high because the US government set them that way. Although the notion that prices were high because they were fixed to be so high was simple, how the fixing was done, and how the fixing affected the rest of the health system was complex, mind numbingly complex.

Perhaps because of the complexity of its implementation, the simplicity of the concept has not seemingly reached the consciousness of most American health care professionals or policy makers, despite the publication of several scholarly articles on the subject, efforts by humble bloggers such as yours truly, a major journalistic expose in the Wall Street Journal in 2010,  another major expose in Washington Monthly in 2013, congressional hearings in 2013, and yet another major expose in Politico in 2014.  The lack of much public discussion of this issue despite its importance and the above attempts to start discussion seemed to be a prime example of what we have called the anechoic effect, that important causes of health care dysfunction whose discussion would discomfit those who are currently personally profiting from the current system rarely produce many public echoes.  (For a review of what is known to date about how the offputtingly named Resource Based Relative Value Scale Update Committee (RUC) works, and previous attempts to makes it central role in fixing what US physicians are paid public, see the Appendix.)

Once Again...  the Public Citizen Report

The latest report draws on the earlier exposes and journal articles, and repeats again all but one of the major points in the Washington Monthly 2013 article.  Here are the points with quotes from the new report.

The RUC is Well Hidden

After describing the RUC as "secretive" in its introduction, the report reviewed the specifics:

most of its proceedings occur behind closed doors and without public scrutiny. Minutes from each of the RUC’s three annual meetings are not made publicly available. Additionally, when the RUC votes each spring to assign work RVU values to CPT codes, the voting results are not released to the public.

Also,

One critical piece of information that is not disclosed to anybody (including RUC members) is any indication of how each member of the RUC voted.

The RUC Fixes Prices

The RUC has enormous power in setting health care prices,...

The Government Enables the RUC to Fix Prices

The key data point in the formula that is used to set Medicare payment rates is largely determined by a secretive committee that is managed and funded by the American Medical Association....

Also,

CMS is not required to accept the RUC’s recommendations. In fact, the RUC is insistent that its role in the process is only to exercise its right to petition the government. However, studies have demonstrated that CMS accepts RUC recommendations at overwhelmingly high rates.

The Government Fixed Prices are Endorsed by the Private Sector

The RUC’s influence over physician payments extends well beyond Medicare payments because private insurers also use the Medicare payment framework as a baseline for determining their payments. Private insurance companies often set their payments based on the underlying Medicare fee schedule.

The Price Fixing Drives Up Costs and the Use of Services

The RUC has been accused of overstating many of the factors used to determine a physician payment.

Also,

When the RUC has recommended adjusting the values that determine physician payments, it has been more than five times as likely to increase pay for a procedure as decrease it.

These Incentives Cripple Primary Care

To the extent that the RUC’s members are biased towards their own specialties, this results in the overvaluing of specialty procedures at the expense of primary care. Because there are significantly more specialty procedures than primary care procedures, the overvaluation of specialty and procedural services has caused U.S. specialists’ pay to rise much more rapidly than primary care physicians since the formation of the RUC.

Higher pay to specialists creates greater incentives for medical students to practice specialty or procedural medicine, resulting in a shortage of primary care physicians.

These Incentives Benefit Big Corporations, not just Medical Specialists

This was the only issue not directly addressed in the 2014 Politico article or in the new Public Citizen report.  (But see our 2013 post.)

Anechoic So Far

So in some sense the Public Citizen report on the RUC sang the same old song.  However, as the report itself noted, previous attempts to inspire action about the RUC have generated no echoes.  Thus, maybe it should be no surprise that so far there has been no press coverage of the Public Citizen report (at least as far as I could tell by using my usual search techniques as of this morning). 

Of course, as we have discussed ad infinitum, that which discomfits those who are making so much money from our current health care system often manages to create few echoes, that is, what we have dubbed the anechoic effect.

This is all the more interesting because there are aspects of the RUC that could outrage both left- and right-wingers.  First of all, the RUC is a major component in a system of government price fixing.  Enabled by the RUC, CMS fixes the prices of medical care.  Many on the right, but particularly those of the more libertarian or free market fundamentalist persuasion say they hate government price fixing.

Second of all, the RUC exemplifies regulatory capture.  The report quoted

 Thomas Scully, an administrator of the Centers for Medicare and Medicaid Services under President George W. Bush, also has been highly critical of the RUC, and particularly the power the AMA has over the process. 'The idea that $100 billion in federal spending is based on fixed prices that go through an industry trade association in a process that is not open to the public is pretty wild,' Scully said in 2013.

Again, many on the right, and also, probably many on the left worry about regulatory capture.

Third, the RUC represents a particular species of regulatory capture, crony capitalism.  This was not emphasized in the report, but we have written before about how many RUC members have personal financial ties to health care corporations, and how these constitute conflicts of interest (look here).  The Washington Monthly noted that RUC members are sponsored by medical societies that in turn have institutional conflicts of interest involving big health care corporations, and that the way the RUC sets prices could benefit such health care corporations (look here.)  Both left- and right-wingers say they loathe crony capitalism, although the left emphasizes the undue influence of big business, and the right emphasizes the bad actions of government resulting from it.

Yet very few on the right or left seem to have noticed, much less have become outraged by the RUC

The new Public Citizen report suggested

The most important policy change is for CMS to stop relying on the AMA to maintain the existing system for determining the value of Medicare payments to physicians.

Maybe this time someone will listen.  As I have written too often, I hope the latest attempt by Public Citizen to make the RUC less anechoic will succeed in increasing awareness of the RUC and its essential role in making the US health care system increasingly unworkable.  Of course, such awareness may disturb the many people who are making so much money within the current system.  But if we do nothing about the RUC, and about the ever expanding bubble of health care costs, that bubble will surely burst, and the results for patients' and the public's health will be devastating.



APPENDIX - Background on the RUC

 We have frequently posted, first here in 2007, and more recently here,  here, 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 were opaque for a long time, and the proceedings of the group are secret.  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."
 
In fact, 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.
 
In 2011, after the "Replace the RUC" movement generated some more interest about this secretive group, and its complicated but obscure role in the health care system, the current RUC membership was finally revealed.  It was relatively easy for me to determine that many of the members had conflicts of interest (beyond their specialty or sub-specialty identity and their role in medical societies that might have institutional conflicts of interest, and leaders with conflicts of interest).  
 
Then that year a lawsuit was filed by a number of primary care physicians that contended that the RUC was functioning illegally as a de facto US government advisory panel.  It appeared that things might change.  However, it was not to be.  A judge dismissed the lawsuit in 2012, based on his contention that the law that set up the RBRVS system prevented any challenges through the legal system to the mechanism used to set payment rates.  The ruling did not address the legality of the relationship between the RUC and the federal government.  The eery quiet then resumed, only punctuated briefly in early 2013, when a Senate committee held hearings with no obvious effect.      

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.)

Merging Finance and Health Care Leadership - Robert Rubin Proteges Running DHHS, Spouse of Hedge Fund Magnate Running the FDA

Hidden between the lines of some not very prominent news stories were reminders of how close health care and financial leadership have become in these times of continuing economic unrest after the global financial collapse/ great recession.

After the events of 2008, it became more apparent that the dysfunction in academics and health care  paralleled that seen in finance.  One reason may have been the overlapping leadership of finance and health care.  For example, in 2008 we first posted about how Robert Rubin, who was then a Fellow of the Harvard Corporation, the top group responsible for the governance of that great academic and medical institution, bore responsibility for the global financial collapse/ great recession.  Mr Rubin as Treasury Secretary was a proponent of financial deregulation in the Clinton administration.  Later, he became a top leader of Citigroup, whose near collapse helped usher in the crisis of 2008 (look at our 2008 post here and our 2010 post here.  Rubin just stepped down from his Harvard position this year,)  Since 2008 we found many other links among the leadership of Wall Street and of academic medicine and of big health care corporations.  These links, if anything, seem to be getting stronger. 

From the Department of Health and Human Services to Citigroup and then back to the Department of HHS

A tiny, four sentence Reuters story noted an apparently routine appointment to upper management at the US Department of Health and Human Services.  The first three sentences were:

U.S. Health Secretary Sylvia Burwell named Citigroup Inc executive Kevin Thurm as senior counselor of the U.S. Department of Health and Human Services (HHS), which is implementing the controversial U.S. Affordable Care Act.

Thurm has served in a number of roles at Citi since joining the bank in 2001, including senior adviser for compliance and regulatory affairs and deputy general counsel.

Before joining Citi, Thurm, a former Rhodes scholar, was the deputy secretary of the U.S. Department of Health and Human Services.

Why is that significant?  First, the near bankruptcy of the huge, badly led Citigroup was widely acknowledged to be a cause of the global financial collapse.  A 2011 New Yorker article on the role of the revolving door between Washington and Wall Street ("Revolver," by Gabriel Sherman) summarized the plight of Citigroup and the role of Robert Rubin in it,

Citigroup was the most high-profile of Wall Street’s basket cases, the definitionally too-big-to-fail institution. With massive exposure to the housing crash and abysmal risk management, the firm cratered, surviving as a virtual ward of the state after the government injected billions and took a 36 percent ownership position. Along with AIG and Fannie and Freddie, Citi came to be seen as a pariah institution, felled by management dysfunction and heedless greed in pursuit of profits. Complicating matters for Citi, the wounded bank found itself tangled in the populist vortex that swirled in the crash’s wake. On the left, there were calls that Citi should be outright nationalized, stripped down, and sold off for parts. Pandit was called before irate congressional-committee members to answer for Citi’s sins, an ignominious inquisition captured on live television. In January 2009, under pressure, Citi canceled an order for a new $50 million corporate jet.

There was plenty of blame to go around at Citi. Chuck Prince, a lawyer by training who succeeded Citi’s outsize former CEO Sandy Weill, had little grasp of the complex mortgage securities Citi’s traders were gambling on. As late as the summer of 2007, when the housing market was in free fall, Prince infamously told the Financial Times that 'as long as the music is playing, you’ve got to get up and dance.'

Bob Rubin himself pushed the bank to take on more risk in order to increase its profitability, a move that Citi’s dismal risk management was ill-equipped to handle. Pandit, whom Rubin had helped to recruit in 2007 just as the economy began to unravel, was tasked with cleaning up the mess when he became CEO in December of that year, and his early tenure had a deer-in-headlights character. Eventually, he realized that the asset class Citi lacked most was human capital, of the blue-chip variety.  

The article also summarized Rubin's role in the fervor of deregulation in service of market triumphalism that lead to the financial collapse,

In tapping Rubin to run Treasury, Clinton was sanctioning a revolution in the Democratic Party, one that fundamentally redefined the party’s relationship with Wall Street. Rubin, along with Alan Greenspan and Larry Summers, believed in an enlightened capitalism, which would spread prosperity widely. This enchantment with the beneficence of markets became the dominant view in Democratic Washington, hard to argue with when the economy was booming, as it was in the second half of the nineties. Rubin recognized that derivatives posed a risk but effectively blocked efforts to regulate them and pushed for the repeal of the Glass-Steagall Act, the Depression-era legislation that prevented commercial banks from merging with investment and insurance firms (the new law essentially legalized the $70 billion merger in 1998 of Citicorp and Travelers Group that created Citigroup).

Circling back to recent events, Once he got to Citigroup, Rubin assembled a team, partially from his old associates in the Clinton administration,

He also recruited several former Clinton aides to Citi, including former Health and Human Services deputy secretary Kevin Thurm....

So Kevin Thurm became something of a Robert Rubin protege at Citigroup. In fact, he rose to an important leadership position at the same time Citigroup was getting ready to become a "basket case," in part apparently because of the advice of Robert Rubin.  According to a 2013 version of Mr Thurm's official Citigroup bio,

Kevin L. Thurm is Senior Advisor for Compliance and Regulatory Affairs at Citigroup.

Previously, Thurm served as the Chief Compliance Officer of Citi. In that role, Thurm led Global Compliance which protects Citi by helping the Firm comply with applicable laws, regulations, and other standards of conduct, and is responsible for identifying, evaluating, mitigating and reporting on compliance and reputational risks and driving a strong culture of compliance and control. Since joining Citi in 2001, Thurm has also served as Deputy General Counsel of Citi, where he led the Corporate Legal group, overseeing a number of Company-wide Legal functions and providing support on day to day matters, including issues involving the Board, senior executives, and regulators; Chief  Administrative Officer of Consumer Banking North America, where he helped lead the business group and was responsible for a variety of functions including Community Relations, Compliance, Legal and Public Affairs; Director for Administration in the Corporate Center; Chief of Staff to the President and Chief Operating Officer of Citigroup; and as the Director of Consumer Planning in the Global  Consumer Group.

To recap, Mr Kevin Thurm was a top compliance executive of Citigroup while the company was imploding, and being a protege of Robert Rubin, an architect of the financial deregulation that led to the global financial collapse, and a leader of Citigroup responsible for the risky behavior of that company that led to its near collapse, which was another precipitant of the global financial collapse or great recession.  It is not obvious that these are great qualifications to be Senior Counselor at DHHS.

Moreover, Mr Thurm's responsibilities at DHHS would not be limited to compliance or financial leadership.  According to the official DHHS press release announcing his appointment,

As a Senior Counselor, Thurm will work closely with the Department’s senior staff on a wide range of cross-cutting strategic initiatives, key policy challenges, and engagement with external partners.

Yet, there is nothing in Mr Thurm's public record to indicate that he has any actual experience in health care, medicine, public health, or biologic science.  So it is not obvious why he should be entrusted with leading "cross-cutting strategic initiatives, [and] key policy challenges."

On the other hand, Mr Thurm might be simpatico with the new Secretary of DHHS, Ms Sylvia Burwell.  According to a Washington Post article at the time of the hearings about her nomination,

despite her Washington experience, ... is not well known in health-policy circles, and, during her confirmation hearings, she gave little concrete sense of the direction in which she will take the complex department she will inherit.

This seems to be a polite way to see she also has no actual experience in health care, medicine, public health, or biologic science.   Her official biography lists no such experience.  However, she was also a Robert Rubin associate, and perhaps protege, during the Clinton administration,

During the Clinton administration, Burwell held several economic roles — as staff director of the White House National Economic Council, as chief of staff under then-Treasury Secretary Robert Rubin,...

To summarize so far, the new Secretary of the Department of Health and Human Services, and now her new Senior Counselor, were both closely associated with Robert Rubin, who seems to bear major responsibility for the global financial collapse, and the new Senior Counselor worked with Rubin at Citigroup, whose near bankruptcy helped accelerate that collapse.  On the other hand, neither of these leaders has any experience in health care, public health, medicine, or biological science. 

Hedge Funds, Tax Avoidance, and the US Food and Drug Administration

This story is even less obvious.  A July, 2014, report in Bloomberg recounted plans for a Senate hearing on tax avoidance by huge, lucrative hedge funds.  The basics were,

A Renaissance Technologies LLC hedge fund’s investors probably avoided more than $6 billion in U.S. income taxes over 14 years through transactions with Barclays Plc and Deutsche Bank AG, a Senate committee said.

The hedge fund used contracts with the banks to establish the 'fiction' that it wasn’t the owner of thousands of stocks traded each day, said Senator Carl Levin, a Michigan Democrat and chairman of the Permanent Subcommittee on Investigations. The maneuver sought to transform profits from rapid trading into long-term capital gains taxed at a lower rate, he said.

An accompanying Bloomberg/ Businessweek story described testimony at a Senate hearing by the Renaissance co-Chief Executive Officer Peter F Brown,

Renaissance was founded by the mathematician James H. Simons, whose fortune is now estimated by Bloomberg Billionaires Index at about $15.5 billion.

Brown became co-CEO with Robert L. Mercer in 2010 after Simons retired and became non-executive chairman. Before joining the firm in 1993, he was a language-recognition specialist at International Business Machines Corp.

Mr Brown testified that the company was not so much trying to avoid taxes by the complex strategy but simply to make even more money.    But, per the New York Times, Senator Levin

focused on the lucrative nature of the transactions, most of which took place using Renaissance employees’ money. Between 1999 and 2010, the fund used basket options to produce profits of more than $30 billion, Mr. Levin said. Barclays and Deutsche Bank together made more than $1 billion in revenue.

Mr Brown's firm seems, unlike Citigroup, to have a record of financial success, and no one is accusing Mr Brown or his firm of being responsible for the global financial collapse.  However, Mr Brown is certainly a very rich Wall Street insider.  Also, as we noted in 2009, his firm clearly has had major involvement in health care investments.   And the current hearings emphasize concerns that his firm has been executing questionable tax avoidance strategies.

Mr Brown has one other very major tie to health care.  As  noted in 2009 on Health Care Renewal, but apparently only parenthetically by one recent news article, (again from Bloomberg, written before the Senate hearing),

Brown lives in Washington with his wife, Margaret Hamburg, the commissioner of the U.S. Food and Drug Administration. She was appointed by President Barack Obama in 2009.

In 2009, we noted that as a condition of Dr Hamburg's leadership of the US FDA, her husband, Mr Brown, would have to divest his shares of four Renaissance funds.  However, it is obvious that he remained at and became the co-CEO of Renaissance since. 

While the current leader of the FDA clearly has medical and health care experience, she is also steeped in the culture of finance and Wall Street.

Summary

Thus we have two recent stories of how top health care leadership positions in the US government are held by people with strong ties to the world of finance, but not always with any direct health care or public health experience.  Why was the wife of a hedge fund magnate the best person to run the FDA?  Why was a person not known in "health policy [or health care] circles" the best person to run the Department of Health and Human Services?  Why was a Robert Rubin protege from Citigroup the best person to be a Senior Counselor at DHHS?  Presumably there were many plausible candidates for these government positions.  Why was it not possible to find people to fill them who were not tied to Wall Street?  Why was it not possible to find people with profound understanding of and sympathy for the values of health care and public health to fill all of them?   

The leadership of health care and finance continue to merge.  This seems to be one broad explanation for why both fields continue to be notably dysfunctional.  While Wall Street has spread around plenty of money to influence public opinion and political leaders, many still remember how its foolish and greedy leadership nearly caused another great depression.  It is likely that the influence of Wall Street culture on the leadership of health care organizations, be they governmental, academic, other non-profit, or commercial, has fostered the continuing financialization of health care, with its focus on "shareholder value," that is, putting short-term revenue ahead of patients' and the public's health.

I strongly believe health care would be better served by leadership that puts patients' and the public's health first.  Occasionally people with such values may come from a finance or economics background.  However, in an era where many people continue to believe "greed is good," we at least ought to confirm that health care leaders really are about health care first, and money a distant second.

ADDENDUM (20 August, 2014) - This was re-posted on the Naked Capitalism blog.

Desperate, Vulnerable Research Subjects, Cost-Cutting Contract Research Organizations and Threats to the Integrity of Clinical Research

Introduction - Clinical Research Done by Contract Research Organizations

Dr Carl Elliott seems to be one of the few people willing to investigate how modern medical research may threaten vulnerable research subjects.  His book, White Coat, Black Hat, opened with a chapter on vulnerable "guinea pigs," people willing to be clinical research subjects for money.  Such people may be desperate for money, and further may be homeless, and have psychiatric problems, including psychosis or drug or alcohol problems.  Dr Elliott just wrote another important article on the plight of vulnerable research subjects. As Dr Elliott wrote,

Most people think of pharmaceutical research as a highly technical activity that takes place in world-class medical centers. The reality is somewhat different.

This is apparent in a grainy video that I watched a few years ago. It had apparently been recorded on a cell phone, and the camerawork started off wobbly. A tanned man wearing sunglasses and a necklace appeared and was introduced as Dr. Johnny Edrozo, a psychiatric researcher. His shirt was unbuttoned partway down his chest. 'The latest stimulant coming out of the market is Vyvanse, which is a Dexedrine preparation,' Edrozo told the interviewer, pausing occasionally to chew gum. For reasons that were not explained, the interview took place in a parked car.

This was my introduction to South Coast Clinical Trials, a chain of private research sites in Southern California that specializes in testing psychiatric drugs. Pharmaceutical companies now typically outsource clinical studies to contract research organizations like South Coast, which run trials faster and at lower cost than universities do. Their job is simply to follow the instructions of their sponsors.

This formula is working: The contract research industry has grown steadily since the early 1990s and may now generate over $100 billion in annual income, according to the Tufts Center for the Study of Drug Development. At the top of the heap are corporations like Quintiles, which has 28,000 employees and operates in about 100 countries. At the other end are private physicians and small companies like South Coast, which are often based in strip malls or suburban office parks.

We first wrote about contract research organizations in 2005 based on a Bloomberg report that noted research conducted in a crumbling physical plant, on poor, often drug-addicted patients who "barely read" informed consent documents, bad record keeping, supervision by poorly trained or unlicensed clinicians.  It appears the problems have only gotten worse.

Vulnerable, Desperate Research Subjects


Dr Elliott made it clear that many of the research subjects enrolled by companies like South Coast are vulnerable. He noted that the companies purposefully recruit subjects from rooming houses and homeless shelters. Here is a description of the sorts of pitches they use.

'I was tired, I was hungry, and half an hour earlier the police had treated us like crap,' Burns said. 'And this woman is saying, ‘Imagine, in 40 days you’ll have $4,000!’ The recruiter made testing drugs sound like a vacation in a five-star hotel, Burns said. 'It’s like a resort selling time shares. They talk about all the benefits first, and it sounds great, but then you start to ask: What do I have to do?' 

Dr Elliott emphasized that such research studies can endanger subjects, but that poor, homeless, drug or alcohol addicted, or psychotic people offered thousands of dollars for participation are not likely to worry about the danger. He also suggested that monitoring and protection of such subjects may not be the most intense.

Obviously, this may be very bad for such research subjects. This is why it has long been considered unethical to recruit such vulnerable subjects in such dubious circumstances. But in this day and age of "greed is good," it may be all to easy to dismiss the risks as contingent on life styles that were already full of "bad choices."

Threats to the Validity of Clinical Research

Recruiting vulnerable patients, especially the poor, homeless, drug or alcohol addicted, or psychotic, into clinical research has dangers for patients not in those trials, and for health care professionals.

Remember that the principles of evidence-based medicine suggest that health care professionals should base decisions for patients on the best clinical research evidence. The quality of these decisions determine the quality of patient care and strongly affect patient outcomes. .

Yet if an increasing proportion of clinical research is being done on vulnerable, that is poor, homeless, drug or alcohol addicted or psychotic people, the validity of that research may be badly compromised.

Consider this narrative from Dr Elliott's article,

I walked round the corner to a shelter, where I talked to an elderly white man. 'I’d say the majority of guys here take advantage of that,' he told me, 'because they get a lot of money and they’re broke as hell.'

So, for example, to qualify for a study of drug addiction treatment,

I mentioned a recruitment flyer I’d seen outside the shelter asking for subjects with 'cocaine dependency.' George nodded. He told me that a lot of people start taking drugs just so they can qualify for those studies.

'You take that s*** two days before to get it into your blood.' He mentioned that he had recently screened for a trial at a research site running addiction studies. 'There were people in the waiting room high as a kite,' he said. 'They were incoherent.'

Also,

The main ethical issues here, of course, are the competence and judgment of the prospective subjects. 'When you say ‘money,’ everything else goes out the window,' said Hanif Jackson, a former program supervisor at the Ridge Avenue shelter in Philadelphia, which recently closed down. I heard the same thing from Harvey Bass, a chaplain who has worked at the Sunday Breakfast Rescue Mission shelter for 15 years. He said drug study recruiters often park outside the shelter and approach residents on the sidewalk. Although Bass didn’t think it was his place to warn residents away from the studies, it was clear that he was not exactly a fan. 'These guys have no job, no home, and a habit, he said. 'You have people at their lowest state, and they’ll say yes to anything.' 

As someone who has reviewed innumerable reports of clinical trials and other clinical research studies for journal clubs, journals, and grant review committees, I know that on paper clinical research studies have elaborate and specific criteria to include and exclude patients, and require patients to undergo detailed study protocols. However, can one really expect patients who are so desperate for money that "they'll say yes to anything" to admit to conditions which would exclude them from a trial? Can one really expect that they will faithfully adhere to research protocols that might require, for example, complete abstinence from alcohol? Can one really expect accurate answers on surveys meant to define their clinical outcomes?  There are numerous threats to the validity of trails conducted on poor, vulnerable, often psychotic or drug or alcohol addicted patients.

Cost-Cutting CROs and Shoddy Research

However, it is unlikely that contract research organizations who recruit such patients and run such studies are really up to implementing these complex, detailed, exacting protocols. Consider this narrative by Dr Elliott,

I visited a research unit at Lourdes Medical Center of Burlington County in Willingboro, New Jersey. The unit was operated by CRI Worldwide, the same company that Burns told me he had spoken with. (The company is now known as CRI Lifetree.) Its focus was on inpatient Phase I trials, which often involve gradually increasing the dose of a drug until subjects begin to feel toxic side effects. Some Phase I studies also require painful or unpleasant invasive procedures. For these reasons, the payment to subjects in Phase I trials is usually much higher than it would be for an outpatient study.

My first thought about the CRI unit: Its appearance did not exactly suggest clinical excellence. Most of the furniture looked as if it had been rescued from a Salvation Army store. Homemade notices with titles such as 'Smoke breaks' and 'Money requests' hung on the walls. No studies seemed to be going on, but a few people were wandering around or watching television, presumably waiting to be screened or assessed.. 

It was in this unit that a patient named Walter Jorden died. Dr Elliott narrated the events that took place before his death. Note that,

according to Jeffrey Fierstein, a cardiologist retained as an expert witness by Jorden’s family, the physicians involved deviated from expected standards of care by not more seriously considering the possibility that Jorden was having a heart attack. In Fierstein’s opinion, they not only ignored classic signs of a heart attack, but also neglected to perform an EKG and missed the opportunity to give Jorden the clot-busting drugs that might have saved his life. As Fierstein points out, 'My understanding is that it [the emergency department] was around the corner; it was right there.'

In addition, a companion article by Peter Aldhous  suggested that CROs and the drug, device and biotechnology companies that employ them are willing to allow physicians with questionable backgrounds to run clinical research. He found that a not insignificant minority of physicians listed as in charge of trials in a US Food and Drug Administration (FDA) database had records of dubious conduct, including various sanctions by state medical boards. He focused on one physician who had run trials since the 1980s, starting with Lovelace Scientific Resources. His record included one-year probation for drug issues, a diagnostic omission described by the medical board as "grossly negligent," then a three-year probation for that and other clinical care problems, then a license suspension, then finally license cancellation. Throughout all the years involved he continued to run clinical trials. In general, Mr Aldhous wrote,

My trawl netted dozens of doctors selected to work on clinical trials over the past five years who had previously been censured by state medical boards. Thousands of doctors are hired each year to test experimental drugs, making this a small minority. But most doctors have clean records, so companies should have few problems finding recruits without red flags against their name. 

His conclusion was,

After spending months in the world of clinical trials, I’m left with an impression of a system that has evolved beyond the FDA’s ability to manage it. I’ve also been struck by the profound disconnect between the disciplinary system that governs everyday medicine, and the separate regulations meant to protect clinical trial volunteers.

Speed and efficiency seem to be what matters to industry, and at times these factors appear to trump concerns about the doctors who run trials. 'The whole thing is profit driven,' says Michael Carome at Public Citizen, a consumer advocacy organization in Washington, D.C. 'You can see where corners might be cut, looking the other way when there might be concerns about an investigator.'

Some experts argue that the FDA’s entire rulebook for clinical trials, with its talk of things like 'institutional' review boards, reflects the academic past of clinical research—not today’s industrial juggernaut of for-profit clinical trials firms and for-hire review boards, which oversee a workforce of doctors drawn from regular medical practice. 'They are regulations for a world that doesn’t exist anymore,' says Elizabeth Woeckner, president of Citizens for Responsible Care and Research, which campaigns for the safety of medical research volunteers.

Again, this is similar to results of previous journalistic investigations of contract research organizations (some examples are here), going back to the Bloomberg article we discussed in 2005, and what Dr Elliott wrote in White Coat, Black Hat.  Thus we need to be extremely skeptical of the validity of clinical research implemented by contract research organizations, especially when the research subjects are vulnerable. 

Summary - Another Set of Threats to the Integrity of the Clinical Research Base

So given the push to do research rapidly at the lowest cost, the lack of supervision and regulation by the FDA, the hiring of physicians with problematic backgrounds, the willingness to take vulnerable patients desperately motivated by money, can we trust that the nice, clean, detailed descriptions of clinical trials implemented by contract research organizations presented in research articles and trial registries have anything to do with the reality of what went on? If not, what then should we make of the validity of the results of such trials?

This is compounded by our inability to tell who actually implemented any given trial.  While articles in most major clinical journals will list what companies sponsored trials, and whether the official paper authors had financial relationships with these companies, the articles do not describe who actually implemented the trials, or disclose whether contract research organizations were involved.

So the first obvious reform would be to require trial reports to disclose involvement of contract research organizations, and perhaps to list the personnel who actually were most responsible for implementing studies in addition to listed authors.

We already have discussed repeatedly how clinical research sponsored by organizations with interests in the outcomes favoring their products and service may be manipulated, and may be suppressed if even such manipulation fails to produce desired results.  We usually have assumed, however, that the published trial reports are generally accurate in their descriptions of trial implementation.  If they are not accurate, particularly because vulnerable subjects may say or do anything to stay in trials that pay them, and sometimes because of poorly qualified or impaired physicians running trials, this adds another layer of questions about the validity of commercially sponsored research.  This is yet another reason to ask whether we need to take research on human subjects meant to evaluate commercial products or services out of the hands of the companies that make those products and provide those services. 

Medicare Pays $220 Million a Year for Acthar Without Any Controlled Trials that Prove it Works - While We Have No Money to Develop Ebola Vaccines or Treatment?

Introduction - No Money for Ebola Vaccine Development

While a new Ebola epidemic continues in Africa, people in developed countries are getting worried. Even the 0.1%, who may have rarely worried about our dysfunctional health care system before, are getting nervous. For example, this week, the Donald seemed panic stricken that Ebola infected American health workers might be allowed to return to the US, no matter what the precautions.  As reported by Politico,

Donald Trump has a message for the Ebola patient coming to the United States for treatment: Stay out.

'Ebola patient will be brought to the U.S. in a few days — now I know for sure that our leaders are incompetent,' Trump tweeted Thursday night. “KEEP THEM OUT OF HERE!”

Yet, as we posted here, money was the major barrier to developing treatments of vaccines that could have helped contain the epidemic in Africa, but whose availability in the US could also have reassured the Donald.  Dr John Ashton, a top public health physician in the UK, wrote in the Independent,

 

We must also tackle the scandal of the unwillingness of the pharmaceutical industry to invest in research to produce treatments and vaccines, something they refuse to do because the numbers involved are, in their terms, so small and don't justify the investment. This is the moral bankruptcy of capitalism acting in the absence of an ethical and social framework.

 

It seems that in the US and UK, our market based health care system can only cannot develop treatments for dangerous diseases when the treatments will produce huge returns on investment.   The irony is that even people (like Mr Trump) who preached market triumphalism and limiting government, presumably from doing things like developing drugs, may now fear diseases for which the market alone provides no remedy.  

 

Meanwhile, while there was no money to develop vaccines and drugs for Ebola, a story about how much money we are spending on questionable remedies has reappeared.  

 

But a Huge Increase in Money for Acthar

This week, writing in ProPublica and the New York Times, Charles Ornstein noted the huge amounts being paid by the US government for a previously obscure drug,

An obscure injectable medication made from pigs' pituitary glands has surged up the list of drugs that cost Medicare the most money, taking a growing bite out of the program's resources.

Medicare's tab for the medication, H.P. Acthar Gel, jumped twentyfold from 2008 to 2012, reaching $141.5 million, according to Medicare prescribing data requested by ProPublica. The bill for 2013 is likely to be even higher, exceeding $220 million.

Over approximately the same time course, commercial US health care insurers and the Tricare program for military dependents noted a surge in the amounts they were paying for this drug too,

 At a recent conference hosted by Sanford C. Bernstein, Dr. Ed Pazella, Aetna's national medical director for pharmacy policy and strategy, explained the shift on Acthar.

Questcor's 'combination of aggressive marketing and aggressive price increases finally caused it to become a line item that a finance guy looked at and said: 'What the hell are we paying for this? Why? What is it?' And that's when we started looking at what's our policy around this stuff,' Pazella said.

You Heard it Here First - a Huge Price Increase for an Old Unproven Drug

This problem's development took quite some time.  As we first discussed in 2007, some clever  maneuvering by corporate executives around loopholes in government rules benefited the executives, but maybe no one else.

The clinical background is that Acthar is a form of a hormone (ACTH) that stimulates the adrenal gland to produce more cortisol and other related hormones.  The formulation is made from pig pituitaries, and was developed in the 1940s.  It was approved by the US Food and Drug Administration at a time when this action did nor require proof of efficacy, that is, proof that the drug worked.  For years, the drug was only used for a rare form of infantile seizures, and occasionally for symptoms of multiple sclerosis in adults.  As noted in several reviews by the Cochrane Collaboration, there is little good evidence that the drug works for either condition, and no evidence that it is better than simpler, cheaper alternatives, like synthetic alternatives to cortisol, for the latter. (See this blog post).

The drug languished for years, but Questcor purchased the rights to it in 2001, apparently for a mere $100,000 (look here).  In 2007, the company jacked its price up in 2007 from $1650 a vial to $23,000 a vial.

A Further Price Increase, and a Big Marketing Push


As Mr Ornstein noted, its price is now $32,000 a vial.  One might expect that this huge price would quickly generate competition from generic drug manufacturers,  but, per Mr Ornstein,

Although it long ago lost patent protection, the drug is a complex biologic agent, and the manufacturing process is a trade secret. 

Furthermore, infantile spasms may be rare, but, 

Since Acthar came on the market in 1952, the rules about F.D.A. approval have changed. At the time, drug companies simply had to demonstrate that a drug was safe, rather than that it was effective. Acthar was initially authorized as a treatment for more than 50 diseases and conditions. (The list has since been cut to 19.)

Drug companies are barred by federal rules from marketing drugs for "off-label" indications, however, given the above, it was not obviously illegal when Questcor

 began marketing it for a broad menu of uses.

In addition, Medicare could not easily challenge the huge price Questcor was charging for this unproven remedy given to adults

Medicare cannot bar access to medications like Acthar, even in the face of rising expense and questions about efficacy, Aaron Albright, a spokesman for the Centers for Medicare and Medicaid Services, said in a written statement. The law mandates that Medicare's drug program, known as Part D, cover drugs for the uses authorized by the Food and Drug Administration, he said.

Questions about Questcor's Marketing

In fact, while it appears legal to promote Acthar for uses for which it has no proven efficacy, there are some questions about Questcor's marketing practices,

The company has disclosed in filings with the Securities and Exchange Commission that two United States attorney's offices and the S.E.C. are investigating its promotional practices.

A possible reason why was supplied by a companion ProPublica article, also by Charles Ornstein,

 Many of Medicare's top prescribers of the expensive specialty drug H.P. Acthar Gel have financial ties to the drug's maker.

Only 18 practitioners wrote 15 or more prescriptions for the drug in 2012. At least nine — and all of the top four — were promotional speakers, researchers or consultants for Questcor Pharmaceuticals, a ProPublica analysis shows.

Also, there are questions about whether Questcor has been concealing adverse events related to the increasing use of Acthar.  Until recently, as noted by Gretchen Morgenson in the NY Times in July, 2014,

For years, Questcor Pharmaceuticals has highlighted the potential benefits of Acthar, its immune-system drug, while saying little about its ill effects.

But as had been noted also by Gretchen Morgenson in the NY Times in June, 2014, more information about adverse events began coming out, not mainly for the benefit of patients, but apparently due to questions by investors about a pending takeover of Questcor by Mallinckrodt,

Since 2012, the events, as reported to the Food and Drug Administration’s Adverse Event Reporting System, or Faers (pronounced 'fares'), have included 20 deaths and six disabilities among patients reported to have been using Acthar and in which Acthar was recorded as 'suspect,' or the drug most likely to have been associated with the event. From January 2000 through 2011, by contrast, 13 deaths involving Acthar were reported to the F.D.A.’s system.

Although Questcor has reported some of these events to the F.D.A., as required, the company has not discussed the adverse outcomes in its financial filings. A Supreme Court ruling in 2011 concluded that reports of adverse events among patients using a drug, even if few in number, are of interest to investors weighing whether to buy or sell shares in the manufacturer.

The July, 2014 article by Gretchen Morgenson in the NY Times noted further,

according to a regulatory filing made by Questcor early Thursday, the number of patients reporting a so-called adverse event while using the drug last year represented almost 5 percent of prescriptions dispensed. The total number of events in 2013 reported by patients, who can experience multiple ill effects, was almost 14 percent of prescriptions, up from 9.1 percent in 2011.

 It was the first time Questcor, which has received a $5.6 billion takeover bid from Mallinckrodt Pharmaceuticals, had disclosed any problems experienced by Acthar patients, even though such information is of keen interest to investors.

That information might also be of interest to patients and doctors. 

Questions about Questcor's Executive Compensation

While Questcor brought in huge amounts of money from an old unproven drug using aggressive marketing that did not dwell on the drug's adverse effects, its executives have been making lots of money, sometimes in questionable ways.  For example, in February, 2014, Jesse Eisinger also reported for ProPublica that the timing of Questcor CEO Don M Bailey's stock sales has seemed unusually fortuitous,

Questcor Pharmaceuticals is a biotechnology company with a $4 billion market capitalization. Good things keep happening to Questcor in the middle of the month. Here’s what’s notable: The middle of the month just happens to be the time that the company’s chief executive, Don M. Bailey, sells stock through his regular selling plan.

The question is whether the company timed its favorable press releases to coincide with the times its CEO was known to be selling his shares?

Also, in May, a blog on The Street noted that the CEO's daughter also appears to have been quite fortunate, for no obvious reason,

As reported this morning by my colleague Herb Greenberg in his "Reality Check" newsletter (subscription required), Kirsten Fereday, a Questcor employee who also happens to be Bailey's daughter, received a huge salary bump in  in 2013, according to the compensation portion of its yet-to-be-filed proxy two days ago in an amended 10-K.

According to the filing:

Kirsten Fereday, the daughter of Don M. Bailey, our Chief Executive Officer, was employed by us during 2013 as our Senior Director, Business Analytics and Evaluation, and received total cash and equity compensation for the year ended December 31, 2013 equal to approximately $1,035,246 in cash compensation and $200,000 in restricted stock grants (value based on intrinsic value method). Ms. Fereday's employment was approved in accordance with the Related Party Transaction Policy and our Chief Executive Officer is not involved in the determination of Ms. Fereday's compensation. [Emphasis added.]

Why did her pay go up so much compared to that received in the previous year?

Furthermore, while Questcor derives a tremendous amount of revenue from the US government, a deal is in the works for it to be acquired by Mallinckrodt, now based in Ireland, which, if successful, will make top Questcor executives even richer, as Gretchen Morgenson wrote in the NY Times in June, 2014,

If the acquisition by Mallinckrodt goes through, Questcor’s top six executives could receive severance packages totaling $63.5 million under the terms of their contracts, the merger proxy shows.

Also,

During the time that adverse events involving Acthar have risen, Questcor’s top executives have been actively selling shares. So far this year, securities filings show, sales by the top five executives at the company, four of them under prearranged selling plans set up last year, have generated gains of $39 million.

Summary

As Andrew Pollack wrote in the first NY Times coverage of how Questcor used an old unproven drug to generate huge returns,

How the price of this drug rose so far, so fast is a story for these troubled times in American health care — a tale of aggressive marketing, questionable medicine and, not least, out-of-control costs.

 The sorry case of Questcor and Acthar reveal how crazy the costs of health care in the US have become, driven now by a system that itself now seems crazy.  Through clever use of regulatory loopholes, the company acquired rights to an old drug whose efficacy was unproven, hugely increased its price, began aggressive marketing even though the drug's efficacy was completely unproven, while remaining largely silent about the drug's substantial risks.  Fueled by hundreds of millions of dollars in revenue thus generated, mainly from the US government, the company richly rewarded its top hired executives, who then have decided to sell it to a company outside of the US in a deal that will make these executives millions more.  So patients received a drug whose benefits are unknown, and whose risks may be much higher than they were told, at a cost of hundreds of millions of dollars, much of it borne by US taxpayers, while company executives got rich.


Just coupling for now the story of how we spent hundreds of millions on Acthar to enrich company executives with the story that we have no money to develop vaccines or treatments for Ebola virus (look here) demonstrates the massive failure of our experiment to turn our health care system over to market triumphalists and laissez faire mercantilists.  As long as we let the health care system be run by people who put their own enrichment ahead of patients' and the public's health, things will only get crazier.  And even the rich may not be immune from the results of that craziness

So to repeat, true health care reform would put in place leadership that understands the health care context, upholds health care professionals' values, and puts patients' and the public's health ahead of extraneous, particularly short-term financial concerns. We need health care governance that holds health care leaders accountable, and ensures their transparency, integrity and honesty.

But this sort of reform would challenge the interests of managers who are getting very rich off the current system.  So I am afraid the US may end up going far down this final common pathway before enough people manifest enough strength to make real changes.

A Real Example of Public Relations Talking Points to Justify Outsize Executive Compensation - and Why We Should No Longer be Fooled

We frequently discuss outsize executive compensation in health care organizations as both a symptom and a cause of these organizations' poor leadership and governance, and hence of widespread health care dysfunction.

The Latest Stories of Huge CEO Pay

Stories of gargantuan compensation appear almost daily.  For example, some headlines about pay at hospitals and hospital systems in the last few months included,

Millionaire health care?
With high costs and insurance premiums in Garfield County, focus falls on pay of a hospital’s chief executive
Audit faults UMass Medical School for improper documentation of $2 million in bonus compensation
St Thomas CEO's salary, benefits soar
MaineHealth defends top executives' pay despite major cuts

Then there were stories about the amazing pay given to CEOs of top for-profit health insurance companies, e.g., via IFAwebnews,

According to research published by a single-payer advocacy group, average compensation for nine CEOs at large health insurance companies rose by more than 19% in 2013, with some chief executives seeing steep increases in pay, while others received less remuneration.

Healthcare-NOW!, a non-profit that says its goal of single-payer health coverage is also known as 'improved Medicare for all,' analyzed recent financial reports of the Fortune 500 health insurance carriers.

According to Healthcare-NOW!, the highest compensation increase went to Aetna CEO Mark Bertolini, who received a $30.7 million compensation package in 2013. The Bertolini pay package, which included a large “special one-time performance-based retention award,” represented a 131% increase over his $13.3 million compensation in 2012.

Molina Healthcare and Centene, insurers that specialize in privately managed Medicaid plans, roughly doubled CEO compensation in 2013. J. Mario Molina received $11.9 million, up from $5 million in 2012, while Centene’s CEO Michael Neidorff made $14.5 million, up from $8.5 million.

Overall, average CEO pay across Fortune 500 health insurers rose from $11.6 million in 2012 to $13.9 million in 2013.

Here we go again.  In May, 2014, I summarized how discussion of executive compensation, particularly in non-profit hospitals and hospital systems, seemed to follow a clear pattern.

The Pattern

Nearly all non-profit hospitals must release minimal data on the total compensation of a few of the highest paid executives.  When these reports come out, sometimes the local media take a look, either at an individual hospital or hospital system, or at a number of local hospitals.  They almost inevitably find that some, usually most executives make what appears to be lots of money.  This could be hundreds of thousands of dollars at small community hospitals, or millions of dollars at larger hospitals and hospital systems.  Sometimes the reports end there.  Sometimes the reporters ask hospital representatives or local experts to explain the apparently exalted compensation figures. 

The Talking Points

 The explanations are usually very similar, and so we have called this part of The Pattern The Talking Points.

It seems nearly every attempt made to defend the outsize compensation given hospital and health system executives involves the same arguments, thus suggesting they are talking points, possibly crafted as a public relations ploy.   We first listed the talking points here, and then provided additional examples of their use here, here here, here, here, and here, and here. 

They are:
- We have to pay competitive rates
- We have to pay enough to retain at least competent executives, given how hard it is to be an executive
- Our executives are not merely competitive, but brilliant (and have to be to do such a difficult job).

The talking points are usually supplied by hospital public relations personnel, sometimes by hospital trustees or executives, sometime by various health care consultants.  The talking points are rarely questioned.

There Really Were Talking Points, at Least at Cigna


I hypothesized that perhaps public relations managers at various hospitals might actually have organized these talking points, since so many news stories of executive compensation in health care seemed to faithfully follow the pattern.  That was, however, speculation.  However, now there is anecdotal evidence that public relations executives really did use these talking points to defend their bosses' compensation.


Wendell Potter is the former head of public relations for for-profit health insurance company Cigna who defected, and now advocates for honest, fair health care.  On June 9, 2014, he wrote in his blog about the latest revelations about outrageous executive compensation given to health insurance CEOs (as summarized above). 

When I handled financial communications for Cigna, the day I dreaded most every year was the day we filed the company’s proxy. That’s because I knew I would get calls from reporters wanting to know how we could justify paying the CEO so much when most other employees were lucky to get 3 percent raises.

I always had talking points drafted with plenty of help from the company’s lawyers and HR executives. They didn’t vary much from year to year. Basically, all I said was, hey, this is a very big company, the CEO has a very big job and his pay is in line with what other firms of similar size pay their top guys.

So there you are.  First, at least at this company, it appears that an important responsibility of the company public relations department was to defend the CEOs pay.  In my humble opinion, this confirms my suspicion that corporate public relations and marketing often put the personal interests of the top company executives ahead of everything else, including the interests of shareholders of for-profit companies in fair executive compensation, and the interests of patients in reasonable health care costs.

Second, there really were talking points used at least in this company's public relations that were pretty similar to those I hypothesized:

 - We have to pay competitive rates = "his pay is in line with what other firms of similar size pay their top guys."

- We have to pay enough to retain at least competent executives, given how hard it is to be an executive = " this is a very big company, the CEO has a very big job"

- Our executives are not merely competitive, but brilliant (and have to be to do such a difficult job) = by implication.

You heard it here first.


So maybe we should all be a lot more skeptical about executive compensation.  Unfortunately, Mr Potter suggests we may be getting less so.

I made frequent use of those talking points the first couple years. But toward the end of my 15 years at the company, I would rarely get more than one or two calls. By 2008, the year I left, the phone didn’t ring at all, at least not from the media. Fewer and fewer reporters even bothered to look at the proxy statements.

Of course, that may have something to do with the general decline of journalism, perhaps partially due to the transformation of journalism into a pursuit of a few big corporations, lead by overly compensated executives.

Furthermore, instead of the talking points, consider some recent ideas about causes and effects of excess executive compensation.  We have discussed some of these frequently, but here are some recent versions.

Causes of Excess Executive Compensation

Cronies on the Board

- from an Associated Press story via US News and World Report,

Some board members defer to a CEO's judgment on what his or her own compensation should be. There's a good reason: Many boards are composed of current and former CEOs at other companies. And in some cases, board members are essentially hand-picked or at least vetted by the CEO. Not surprisingly, the boards' compensation committees offer generous bonuses.

In more detail, from an op-ed in the Minneapolis-St Paul Star Tribune,

 Under current practice, a nominating committee made up of current board members selects nominees to be presented to the shareholders for approval. Since there are rarely any more nominees than open positions, being nominated virtually assures election. These elections are the same as what you would expect in a communist country where voters vote yes or no on a single candidate. 

The nominating committee is usually selected by the board chairman and the CEO (in too many cases, the same person). The CEO and the chairman are almost always on the nominating committee. It is in the CEO’s interest to select board members whose loyalty can be trusted. In many cases, a nominee’s primary qualification is loyalty to the CEO and the board chairman, with little knowledge of or experience in the business. Often there is a prior business or personal relationship to the nominee and very often the CEO and/or the chairman serves on the board of a nominee, a cozy mutual back-scratching arrangement.

Serving on the board is prestigious and lucrative and abounds in perks. Besides cash and/or stock options or grants, perks such as company-paid travel to foreign trade shows, board meetings in posh resorts (with spouses, of course) and other company benefits make continuing on the board the first priority of most board members, with shareholder interests a distant second priority. This is akin to a politician whose first priority is to get re-elected and whose constituents’ interests come next.  To maintain continuation of this bonanza of benefits, the board member must be assured of being renominated by the nominating committee. Since the CEO and the chairman are on the nominating committee, which they selected, they have great influence over the ultimate choices for nominees. Now, if you are a board member and want to be assured of being renominated, it pays (literally) to be looked upon favorably by the CEO and the chairman.

Note that both of these accounts referred to for-profit corporations, but could easily apply to boards of non-profit organizations as well.   Note further that crony boards violate the expectations of their charges, which are to defend the organizations' mission and the interests of all their stakeholders, not just a few top executive cronies.

The Ratchet, or "Lake Wobegon" Effect

-  from an Associated Press story via US News and World Report,

Robert Solow, a Nobel Prize-winning economist, recently observed that CEOs live in 'Lake Wobegon,' that fabled town created by radio show host Garrison Keillor where, it is said, 'all the children are above average.' Solow didn't mean it as a compliment.

Corporate boards often set CEO pay based on what the leaders of other companies make. No board wants an 'average' CEO. So boards tend to want to pay their own CEO more than rival CEOs who are chosen for benchmarking compensation packages.

This will 'naturally create an upward bias' in pay, Charles Elson and Craig Ferrere of the University of Delaware concluded in a 2012 paper. '(T)he compounded effect has been to create a significant disparity between the pay of executives and what is appropriate to the companies they run.'

Note that the Lake Wobegon effect is based on a logical fallacy.  All CEOs cannot be above average. 

CEOs as "Great Men"

- from an op-ed in the Washington Post,

It is a system that rests on the Great Man theory of history: a school of thought that attributes virtually all important developments through time to heroic individuals.

Think back to Jack Welch’s 20-year reign as chief executive of General Electric. He was lauded as a corporate leader and management guru who, seemingly single-handedly, grew the company’s revenue and market capitalization many times over. Before long, GE had become a synonym for Jack Welch (or was it the other way around?).

The theory is from the 19th century,

 As a historian trying to parse America’s enthrallment with superstars, I keep coming back to the Great Man theory of history. Popularized in the mid-19th century by the Scottish essayist Thomas Carlyle, this concept holds that history is largely attributable to the actions of great individuals, who because of their personal (and often mysterious) qualities — such as intelligence, wisdom, deftness, goodness and energy — use their agency to make a big impact. 'In all epochs of the world’s history,' Caryle wrote in his 1841 book, 'On Heroes, Hero-Worship and the Heroic in History,'' 'we shall find the Great Man to have been the indispensable saviour of his epoch.'

But it makes no real sense,

 Such lionization is misplaced. Operating a sustainable enterprise, as any executive, manager or employee knows well, is inherently a team sport. Across companies and industries, this activity depends on many people working in concert in all kinds of groups, at all levels of the organization. Such interdependence means that it is hard to precisely delineate, much less quantify, any one individual’s contribution, even that of the most senior manager, to a firm’s performance.

This is particularly true in health care, and particularly in organizations that provide direct patient care.  In my humble opinion, it is ridiculous to lionize managers when health care professionals actually take care of patients, using tests and treatments developed by other professionals and scientists. 


Effects of Excess Executive Compensation

Declining Morale of all Other Employees

-  from an Associated Press story via the UK Guardian,

 'There's this unbalanced approach, where there's all this energy put into how to reward executives, but little energy being put into ensuring the rest of the workforce is engaged, productive and paid appropriately,' says Richard Clayton, research director at Change to Win Investment Group, which works with labor union-affiliated pension funds.

The CEO Disease

- per Dan Quiggle, who invented the term, in Exchange Magazine, which leads to:

You either hear really good things from your people…or nothing at all.
You don’t trust the feedback you receive.
You take criticism too personally.
In general, your employees don’t seem engaged.
Your best employees are unhappy or leaving.
You don’t connect with people in a way that leads to loyalty.

That is, bad management, and hence...

Poor Organizational Performance

- from a Forbes column by Susan Adams,

 Across the board, the more CEOs get paid, the worse their companies do over the next three years, according to extensive new research. This is true whether they’re CEOs at the highest end of the pay spectrum or the lowest. 'The more CEOs are paid, the worse the firm does over the next three years, as far as stock performance and even accounting performance,' says one of the authors of the study, Michael Cooper of the University of Utah’s David Eccles School of Business.

Since most health care CEOs seem to know more about finance and health care, I wonder if this effect is even more pronounced on health care quality and patient outcomes?

Income Inequality and a Declining Economy

- from an editorial in FierceHealthcare,

Indeed, the continual rise of executive paychecks may contribute to inequities in the U.S. economy, according to a new Roosevelt Institute paper, 'Taking Stock: Why Executive Pay Results in an Unstable and Inequitable Economy.'

'The toxic combination of stock-based executive pay and open-market stock repurchases has contributed to not only the growing concentration of income at the top but also the failure of the U.S. economy to sustain existing middle-class jobs and create new ones,' wrote author William Lazonick, professor and director of the Lowell Center for Industrial Competitiveness at the University of Massachusetts.

Civil Unrest

- from a Washington Post op-ed by Robert J Samuelson,

Americans dislike aristocracies. Unless companies can find a more restrained pay system, they risk an anti-capitalist public backlash. This is the ultimate danger.

Summary

So far, the rise of executive compensation in health care has been inexorable.  Much of the public and many health care professionals have been lulled into complacency, or paralyzed by learned helplessness.  Yet the talking points used to justify outrageous executive pay are nonsense.  Rising compensation seems to be really due to crony capitalism, logical fallacies, and false historical analogies.  Rising pay may lead to poor management, poor organizational performance, worsening social inequality, a failing economy, and ultimately civil unrest.  Although the transition of executives into a new aristocracy is a society wide, if not a global problem, we in health care cannot be complacent that someone else will solve it.  True health care reform would enable accountable leadership that puts the health care mission and patients' and the public's health ahead of personal gain.   

Sovaldi - a "Revolution" in Clinical Care, or in Marketing and Public Relations?

The continuing public discussion of the sky high price Gilead has set for Sovaldi (sofosbuvir,) its new antiviral drug for hepatitis C, continues to avoid considering the lack of good evidence that the drug is as safe and effective as its proponents claim.

We first posted about the Sovaldi debate on March 27, 2014, and its focus on price rather than the quality of the evidence underlying loud claims about the miraculous qualities of the drug.  We suggested that there is no good evidence supporting claims that most hepatitis C patients have very bad outcomes if untreated, treatment prevents most bad outcomes, Sovaldi cures nearly all patients, and Sovaldi has very few side effects.

In a subsequent post we wrote that initially, "no one but your humble blogger seemed to be publicly skeptical about published assertions that the drug was some sort of modern miracle, and a triumph of medical science."

On May 7, we noted an assessment by the German Institute for Quality and Efficiency in Health Care (IQWiG) of information submitted by "industry" (presumably Gilead) to the German government.  This assessment found multiple problems with the evidence, including limited generalizability, problems with randomization, lack of information about important outcomes, and lack of ability to quantify benefit.   Also  the US based Institute for Clinical and Economic Review noted that there was little evidence that compared to previous treatments, Sovaldi is better, and no evidence that Sovaldi produces cures in the long term.

Nonetheless, the notions that the evidence supporting Sovaldi (and perhaps other similar drugs) is weak, and that the drugs therefore should not yet be considered miracle cures have not seemingly affected the public discussion. 

Examples of the Latest Discussion

Washington Post/ Kaiser Health News


On May 12, 2014, in an article on the dilemma the drug's US price of $1000/ pill presents to Medicare, Richard Knox wrote this about a patient with the infection:

Previous drug treatments didn't clear the virus from Bianco's system. But it's almost certain that potent new drugs for hep-C could cure him.

In other words, the article asserted that Sovaldi and similar drugs cure nearly everyone with hepatitis C, even those not cured by previous treatment.

 Reuters

On May 20, 2014, in an article about how US health insurers are balking at the price of Sovaldi, was this statement by the main trade organization for US for-profit health care insurers, America's Health Insurance Plans (AHIP),

Sovaldi has shown tremendous results, and it's the kind of medical innovation we need to sustain. 

In the article's text was the assertion,

The new drug has demonstrated an ability to cure well over 90 percent of patients in just 12 weeks or less with few side effects.

Prior to the Sovaldi approval, hepatitis C treatments took 24 or 48 weeks, cured about 75 percent of patients and involved many more pills as well as injectable interferon that causes flu-like symptoms and other side effects that led many people to avoid or discontinue treatment.

In other words, the article asserted that Sovaldi can cure over 90% of patients compared to the cure rate of 75% provided by previously available treatments, and implied Sovaldi has fewer side effects.

CNBC

On May 22, 2014, in an article on the high costs of new drugs, a quote from Dr Douglas Dieterich, "a liver disease specialist at Mount Sinai Hospital," who "has consulted for pharmaceutical companies, including Gilead," appeared,

I don’t think there’s any question that treating patients with hepatitis C will lower overall health-care costs in the coming 20 years,...

If we could get rid of the liver disease in these patients with hepatitis C, prevent them from dying of liver cancer, cirrhosis and liver failure, then there’s no question the cost will be less.

The implication was that the new drugs can get rid of the disease, that is, cure it, and in doing so prevent early mortality, cirrhosis, and liver failure.

CTV

The discussion of Sovaldi in Canada seems similar. On May 25, 2014, an article on the high cost of hepatitis C drugs in Canada from CTV, "Canada's largest private broadcaster," (look here) quoted a Canadian physician,

 Dr. Curtis Cooper, director of the viral hepatitis program at the Ottawa Hospital, said the drugs Sovaldi and Galexos offer a revolution for patients with the hepatitis C virus (HCV).

'It only requires 12 weeks of treatment and (they) are producing cure rates of 90 to even 100 per cent,' he told CTV News.

And later, addressing the treatment of a particular patient,

We're talking about curative therapies, which could potentially save her from liver failure, save her from liver cancer

Again, the assertions were that the drug cures 90%, maybe 100% if patients, and that cure will prevent liver failure and cancer.

Is There Any Good Evidence?

Again, while there is much discussion, and some outrage over the $1000 per pill price of Sovaldi in the US (in Canada, a bargain at Canadian $650 per pill), all the discussion seems to assume that the pill is really a "revolution" (as per CTV), that provides

- cure rates of 90 - 100%, much better than previously available treatments

- lower adverse effect rates than than those caused by previously available treatments

-  prevention of complications of hepatitis C, including cirrhosis, liver failure, liver cancer, and early death.

I have found just one recent media article that throws a bit of evidence-based cold water on these claims, and refers to a new systematic review that should be generating a lot of interest, and provoking much more skepticism about the drug, but so far is not.

The Single Skeptical Article

On May 22, 2014, a MedPage Today article noted a new systematic review of sofosbuvir (Sovaldi) that had a very different message from the articles above.  In summary,

The evidence base for one of the star hepatitis C drugs is poor and the guidelines for its use are flawed, according to a report obtained by the National Association of Medicaid Directors.

According to the report, studies of sofosbuvir (Sovaldi) are generally of poor quality, mostly directed by the drug's maker, and don't answer key questions, including whether the drug is better and safer than the current standard of care.

The only available guidelines for its use -- guidelines created by the American Association for the Study of Liver Diseases and the Infectious Diseases Society of America -- are 'methodologically flawed,' according to the report, which was prepared by the Center for Evidence-Based Policy at Oregon Health and Science University in Portland (OHSU).

In addition, their authors and sponsors had 'multiple and significant conflicts of interest,' the report argued.

The Report from the Center for Evidence-Based Policy

The report is now public, and directly addresses all four of the major claims made about Sovaldi that we discussed in our first post n the topic.

- Most hepatitis C patients have very bad outcomes if untreated


The report cited the best data about outcome prevalence,

approximately 15% to 25% of people infected with HCV will clear the virus during the acute stage without treatment.  Seventy-five to 85% of infected individuals will develop a chronic HCV infection, and 60% to 70% of patients with chronic infection will develop chronic liver disease.  Over 20 to 30 years, 5% to 20% of infected patients will develop cirrhosis and 1% to 5% will die of cirrhosis or liver cancer.

Although a majority of chronically infected patients will develop some liver disease, only a minority will develop cirrhosis or liver cancer.

- Treatment prevents most bad outcomes


The report stated,

Because of the slow progression of the disease, clinical trials have not evaluated these patient-important conditions [cirrhosis, hepatocellular carcinoma, decompensated liver disease, liver transplant, or death] as trial outcomes.  Instead a surrogate endpoint of sustained virologic response (SVR) has been used to measure success of treatment.  The SVR is defined as undetectable HCV-ribonucleic acid (RNA) levels.  The standard measure of treatment success has been SVR at 24 weeks post treatment (SVR24).

Several long-term studies of patients with chronic HCV infection have shown an association between achieving SVR24 and patient-important clinical outcomes.

So there is no direct evidence that treatment prevents any of the bad outcomes.  There is only indirect evidence that treatment may reduce the rate of some bad outcomes.  For example,

A 2014 observational study of a VA population found that ... the 5180 (4%) of patients who were able to achieve an undetectable viral load with interferon-based treatment had a 45% reduction in the risk of death ... and 27% reduction in the composite clinical endpoint ... of newly diagnosed cirrhosis, HCC [hepatocellular carcinoma], or liver related hospitalization.

However, at best, based on an observational analysis that could have been biased, treatment only may have prevented a minority of bad outcomes.

- Sovaldi cures nearly all patients

As we noted earlier, there have been only two randomized controlled trials published that compared sofosbuvir with anything else.  One compared it to placebo, and one was the trial we discussed earlier that compared it sofosbuvir with ribavirin to pegylated interferon with ribavirin.  (Look here.)  

All other studies were designed to refine drug dose, drug combination or duration of treatment.

Also,

All studies were rated as having a high risk of bias.  No study was judged to have good applicability....  The overall summary judgement for each of the published studies yielded a rating of poor.

Furthermore, the review found even more problems with the only study that compared sofosbuvir to active treatment (peg-interferon) than we did.  In particular, that study did not compare sofosbuvir with ribavirin to the current standard regimen of PEG plus weight-based ribavirin.  Instead, it compared it to a regimen that included low dose ribavirin.  By comparing sofosbuvir plus a higher dose or ribavirin, an active drug, to a peg-interferon plus a lower dose of ribavirin, the study design seemed designed to artificially enhance the efficacy of the sofosbuvir containing regimen.   Furthermore, the study did not assess the measure of sustained viral response at 24 weeks currently accepted as the best surrogate variable.  Instead it used SVR at 12 weeks, which may be correlated with SVR24 but is often higher. Thus this choice of endpoint seemed designed to increase the apparent efficacy of the regimens it evaluated. 

So sofosbuvir has so far been compared to another active anti-viral regimen against hepatitis C in only one study.  That study was poorly designed and implemented, and its problems seemed likely to enhance the apparent efficacy of sofosbuvir.  Nonetheless, that one study did not show that sofosbuvir was more efficiacious, or safer than peg-interferon.

- Sovaldi has very few side effects.

The review had this summary,

The FDA compiled reports of adverse events from four trials....  There were no treatment-related deaths reported [note that we found there were deaths in the one trial that compared sofosbuvir to PEG, look here].

Approximately 78% of patients receiving placebo, 88% of patients on SOF + RBV treatment and 95% of patients receiving PEG + SOF +RBV reported a side effect from treatment.  The most common side effects were fatigue, anemia, nausea, rash, headache, insomnia and pain....

Thus it seems likely that Sovaldi has a lot of side effects, and whether it has fewer than standard treatment is unclear.  Furthermore,

studies on sofosbuvir were small, included populations that were healthier than the general hepatitis C population, were of short duration and had limited follow-up.  In many of the studies, the manufacturer was responsible for recording and reporting adverse events.  In general, reporting of adverse events is often incomplete and discrepancies between clinical trial reports and publications are common....  All of these factors would lead to a bias in under-reporting the true nature of adverse events.

Thus there is no good evidence that sofosbuvir has few side effects, or is dramatically safer than older treatments.

Summary

While there continues to be concern, if not outrage, that the latest treatment for hepatitis C is priced at $1000 per pill, most of those expressing concern seem to assume that the pill is a wonder drug, promising nearly everyone a cure without major side effects.  However, as we first noted in March, 2014, there is no strong evidence to that effect.  In fact, now three skeptical looks at the evidence by people with more resources and perhaps more expertise than we possess have shown similar conclusions.

It is a tribute to the power of the anechoic effect that there has been almost no recognition by physicians and other health professionals, journalists, and most amazingly, insurance companies who stand to lose billions paying for Sovaldi, that there is little good evidence that Sovaldi works, much less is superior to previous treatments.  Instead, even America's Health Insurance Plans thought the drug had "tremendous results," not very different from the assertion by the drug's manufacturer that the drug provides "a finite cure," (as reported by Reuters).  One might think that the insurance companies have enough money to invest in some real evidence-based medicine experts who could provide a skeptical assessment of the pricy new drugs and devices for which these companies may pay.  Is it that the commercial insurers are so now so dominated by generic managers who know nothing about health care, medicine, or biomedical science, much less evidence-based medicine that they are unable to resist the marketing and public relations hype?

The Sovaldi case is a signal example of how our health care system is awash in marketing hype and public relations buzz that has swamped rational skeptical thinking about logic and evidence.  That marketing and PR is ever enriching managers while it will send the rest of us, health care professionals included, to the poor house.  And all the money we spend will not buy us the promised miracles and triumphs.

As we have said until blue in the face, true health care reform would bring some skeptical thinking and regard for evidence and logic into the health policy discussion.  

ADDENDUM (25 July, 2014) - Web link added for CEBP report.