Who Benefits? - Rising Generic Drug Prices and the Case of Mylan's Conflicted Property Purchases

Rising Generic Drug Prices

Health care costs in the US continue their seemingly inexorable rise.  Even the parts of health care that used to seem reasonably priced now are affected.  As Ed Silverman discussed on PharmaLot

prices for many generic drugs have been climbing, prompting concerns that a low-cost staple of the U.S. health care system might soon strain budgets.

Generic drugs, like practically every other part of US health care, have become big business.  As a Forbes article pointed out, the industry is becoming more consolidated, and more likely to suffer from manufacturing and regulatory issues.  However, there may be other reasons for increasing generic drug costs.

Case: Mylan Purchased Properties Developed by its Own Board Vice Chair

A recent Wall Street Journal scoop on the big generic pharmaceutical company Mylan suggested that maybe such companies are now suffering from the same leadership and governance ills we have been finding throughout US - and indeed global - health care.  Furthermore, to understand the impacts of such health care dysfunction, one must consider the incentives that underlie them, that is, who benefits?

The story concentrated on some dodgy deals involving the company and firms linked to the Vice Chairman of its board of directors.  The first part of the story was:

Generic-drug maker Mylan NV moved into new headquarters in December 2013 after buying vacant land in an office park near Pittsburgh and erecting a five-story building for about 700 employees.

The company hasn’t publicly disclosed that the office park’s main developer is Rodney Piatt, Mylan’s vice chairman, lead independent director and compensation-committee chief. The new headquarters was a big boost for the mixed-use real-estate development, called Southpointe II, where all the land has been sold and some of the last buildings are now rising.

Securities regulators require public companies to tell shareholders about any significant transactions with directors, executives or other 'related persons.' Members of boardroom compensation committees have special duties under securities and tax laws to avoid dealings that compromise their independence.

Mylan, now fighting a three-way takeover battle in the pharmaceutical industry, says there was no need to disclose Mr. Piatt’s connection to the $60 million real-estate project because he and the company avoided any direct dealings with each other.

The day before Mylan announced plans to build the new headquarters, a company managed and partly owned by Mr. Piatt sold a 7-acre site for $1 to an entity owned by a business partner in Southpointe II, according to property records reviewed by The Wall Street Journal. The partner’s firm sold the same land to Mylan for $2.9 million later the same day.

Also,

Real-estate records show a similar transaction in May. Mylan paid $9.2 million to buy an adjacent 11 acres from Mr. Miller, whose firm previously bought the land for $10 from a company partly owned by Mr. Piatt.

'Mr. Piatt was not a party to either transaction' involving Mylan and 'had no direct or indirect material interest in the transactions,' says a Mylan spokeswoman.

She adds that Mr. Piatt didn’t make a profit on either sale to Mylan because Mr. Miller separately arranged to buy out Mr. Piatt at cost and then sold the land directly to Mylan. Mr. Piatt didn’t return calls seeking comment.

Note however that

Securities rules require disclosure of any transaction of more than $120,000 where a related person will have a direct or indirect material interest, regardless of whether the person makes a profit.

In the case of compensation-committee members, related-party transactions can jeopardize the independence required of them under tax and securities rules. That can threaten the tax-favored status of some executive-pay programs and require executives to disgorge some of their gains on stock sales.

Some securities-law and corporate-governance experts say Mylan should have been more transparent about the real-estate transactions or handled them differently.

'The optics are terrible,' says Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware and a director at HealthSouth Corp. and Bob Evans Farms Inc. 'Pittsburgh is a big town with no shortage of real estate. Either they could have gone somewhere else, or [Mr. Piatt] could have relinquished the directorship and eliminated the conflict.'

Just to emphasize the questions about Mr Piatt's independence,

The new headquarters is named the Robert J. Coury Global Center, after Mylan’s executive chairman. Mr. Coury, 54, was chief executive from 2002 to 2012.

A few months after the project’s approval by local officials, Mr. Piatt signed a pension amendment that increased the value of Mr. Coury’s promised benefits by 40%. His overall pension of $48.8 million is 11th-largest among executives at U.S. publicly traded companies, according to Standard & Poor’s ExecuComp.

Further muddying the waters,

During construction, Mylan hired project-management firm RIZ Consulting & Management Inc. to oversee the general contractor and architect. RIZ has the same business address and phone number as Mr. Piatt’s real-estate company, and he is listed as the contact person for RIZ in the local chamber of commerce’s membership directory.

RIZ’s president also is a top executive at Mr. Piatt’s company, and some employees of Mr. Piatt’s company worked for RIZ on the project, according to state records, construction documents and the minutes of permit meetings. RIZ’s president didn’t return calls seeking comment.

'They set it up that way because [Mr. Piatt] sits on the board of Mylan,' says Jeff Yates, a project manager with PJ Dick Inc., the general contractor for the Mylan headquarters project. 'It was kind of a conflict of interest, [so] RIZ was a separate company set up to be the owner’s rep.'

We often discuss how health care is tangled in a vast web of conflicts of interest.  The kinds of apparent conflicts of interest in play in this case are somewhat different from those we frequently discuss, but still seem part of this web.

In the last few days, other Pittsburgh newspapers have jumped into the fray, and found their own experts to question these deals.  Per the Post-Gazette,

'It doesn’t pass the smell test'” said Mel Fugate, a management professor at Southern Methodist University.  Mr. Fugate said that while the SEC places legal requirements on which transactions must be disclosed, the legal obligations are 'the lowest hurdle of them all.'

'This smells bad … even if they can prove legally there are no conflicts' he said.

Again, as noted above the law in certain instances may define conflicts of interest more narrowly than ethical definitions.  For example, the Institute of Medicine defined conflicts of interest in medicine: occurring "when an individual or institution has a secondary interest that creates a risk of undue influence on decisions or actions affecting a primary interest."

The Tribune weighed in,

'The whole thing stinks,' said Douglas Branson, a University of Pittsburgh law professor and an expert in corporate governance. 

Board members'have to serve the best interest of the corporation,' he said. 'You can't be both a seller and buyer — that's the classic definition of conflict of interest.

So here we see serious allegations of conflicts of interest affecting the Vice Chair of the Mylan board, and perhaps affecting another board member and former CEO.  These conflicts suggest that company operations could have been manipulated for these individuals' benefits.

Other Questions about Mylan's Leadership and Governance

Yet these are not the only examples of questions about Mylans' leadership and governance, questions which suggest that managers and board members may have been putting personal gain ahead of the larger interests of the corporation, its shareholders, and the patients who take its drugs


A Pittsburgh Business Journal article noted the "allegations of impropriety" raised by the current case, but also hinted at larger problems with the leadership and governance of Mylan.


Current CEO's Invalid MBA

Per the Pittsburgh Business Journal

Mylan (Nasdaq: MYL) has had ethics questions in the past. An MBA awarded to CEO Heather Bresch was withdrawn in 2008 following an investigation that found she didn’t complete the necessary course credits.

However, that finding did not apparently affect her ongoing career trajectory at Mylan

Former CEO's Use of Company Jet to Help Son's Rock Music Career

The Pittsburgh Business Journal also stated,

And in 2012, the Wall Street Journal found that [former CEO] Coury transported his son to rock concerts on the corporate jet, which was allowed as part of his employee benefits package.

That WSJ article emphasized,

 Nina Devlin, a spokeswoman for Pittsburgh-based Mylan, said Mr. Coury's employment contracts have allowed outside personal activities, 'including those related to his son Tino's career.' She said Mr. Coury isn't required to use the corporate jets but his employment contracts for the past decade have allowed personal use by him and his family.

Thus these contracts apparently allowed valuable Mylan resources to be expended in support of the former CEO's son's career, even though Tino did not apparently have any direct role in the company. Note that these revelations also apparently did not affect Mr Coury's career trajectory with the company, nor did those below.

Transactions Between Former CEO's Brothers and Mylan

That same WSJ article also found,

 This wasn't the only business relationship between the elder Mr. Coury and his brothers. Coury Investment Advisors, a company in which two of his brothers, Gregg and Paul, are principals, has served as a broker for Mylan's employee-benefit plans. Various insurers paid them $597,000 in the past three years for Mylan-related business, according to U.S. Labor Department filings.

That appeared to be another conflict of interest, benefiting different members of the former CEO's family.

However, that is still not the whole story.  A quick look through our magic files, and Google, revealed some other pieces.

Mylan Settled Allegations of Inflated Pricing

In 2010, we briefly posted about a settlement by Mylan of charges it falsely inflated prices for several drugs.
As is usual in such settlements, none of the people who authorized, directed or implemented the actions leading to this settlement apparently suffered any negative consequences, including the top managers on whose watch they occurred. 

Mylan Fired Executive Allegedly for Filing Whistleblower Lawsuit Against Another Company

In June, 2014, the Pittsburgh Tribune reported,

 When Mylan Inc. learned that its vice president of marketing had filed a whistleblower lawsuit against his previous employer, it fired him, the man alleged in a federal lawsuit filed Tuesday.

Note that the lawsuit was against Cephalon, not Mylan.  Rocking the boat, or blowing the whistle apparently are not rewarded at Mylan.

Current CEO Named US Patriot of the Year, then Moved Mylan to Netherlands

In 2014, some wondered how Heather Bresch, still the Mylan CEO, could have claimed to be ultra-patriotic while she was planning to move her company out of the US.  In 2011, Esquire listed Ms Bresch in an article on "Americans of the Year: Patriots." They were apparently particularly impressed that she had called for more inspections on foreign drug companies whose products are imported into the US. However, in 2014, per Ron Fournier in the National Journal.

This story is about a gilded class of people and corporations enriched by the new American economy while the rest of its citizens pay the tab. The protagonists could be any number of institutional elites, but this column happens to be about a Democratic senator from West Virginia, Joe Manchin, and his daughter, Heather Bresch, the chief executive of Mylan, a giant maker of generic drugs based outside Pittsburgh.

Her company's profits come largely from Medicaid and Medicare, which means her nest is feathered by U.S. taxpayers. On Monday, Bresch announced that Mylan will renounce its United States citizenship and instead become incorporated in the Netherlands – leaving this country, in part, to pay less in taxes.

This is the sort of story that makes blood boil in populists – voters from the Elizabeth Warren wing of the Democratic Party to libertarians who follow Rand Paul and including tea party conservatives. These disillusioned souls, growing in numbers, hate hypocrites who condemn the U.S. political system while gaming it.

Later, Ms Bresch's father, Senator Manchin, said what his daughter did should be illegal, again per another Ron Fournier article in the National Journal, whose title says it all:

Senator Manchin: What My Daugher Did Should be Illegal

Nonetheless, late in 2014, Bloomberg reported that not only would Mylan go ahead with the inversion, but it would pay the excess taxes personally incurred by its own executives due the transaction.  Such taxes were meant as a negative incentive to discourage such maneuvers.  Even so, top managers seemed to be able to pay themselves to avoid the effect of these incentives, and of course any resulting personal financial losses.


Summary

 The latest story about Mylan seemed to show a leading board member financially benefiting from transactions between the company over which he was supposed to exercise stewardship and his own company.  Other stories showed Mylan executives seeming to gain outsized benefits for themselves or their family members from Mylan beyond conventional salaries and corporate benefits packages. Of course, since Mylan is not just any company, but a very large generic drug company, putting top hired managers and boards of directors first may mean putting patients second.  The cost of these managers' and boards' interests may be at the expense of patients, and the public at large.

Thus perverse incentives enable mission-hostile management and ultimately health care dysfunction.

So once again, when considering how US, and global health care has become so dysfunctional, it makes sense to think about who is benefiting from the current dysfunction.  It very often is organizational insiders, particularly top hired managers, and sometimes those who are supposed to keep an eye on them. 

 Thus, like hired managers in the larger economy, health care managers have become "value extractors."  The opportunity to extract value has become a major driver of managerial decision making.  And this decision making is probably the major reason our health care system is so expensive and inaccessible, and why it provides such mediocre care for so much money. 

One wonders how long the people who actually do the work in health care will suffer the value extraction to continue?
As we have said far too many times - without much impact so far, unfortunately - 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.

As Robert Monks said in a 2014 interview,

People with power are very reluctant to give it up. While all of us recognize the problem, those with the power to change it like things the way they are.

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.

Who Benefits? - Despite Data Breaches, Staff Cuts, Vulnerable Patients' Coverage Cuts, Transplant Program Probation, Multi-Million Dollar Executive Compensation Persists at UPMC

There are so many things wrong with US and global health care that it is easy to get lost in the details, and despair of finding solutions.  Keep in mind, however, that the intractability of many of the problems may be quite man made.  Many problems may persist because the status quo is so beneficial to some people.

The Current Troubles at UPMC

Consider, for example, the troubles that have recently plagued UPMC, the giant health care system in western Pennsylvania.  In the last month, the following reports have appeared.

Electronic Data Breach Affected 2200 Patients

On May 15, the Pittsburgh Tribune-Review reported,

Personal data may have been stolen from more than 2,000 UPMC patients by an employee of an outside company the hospital giant used to handle emergency room billing, the latest in a string of data thefts to hit Pittsburgh health companies.

Note that this was only the most recent data breach at UPMC,

 UPMC was the victim of a data breach last year in which Social Security numbers and other sensitive data from all 62,000 UPMC employees were stolen when thieves hacked into an employee database at the health system.

The confidentiality of patient records is a  major responsibility of health care professionals and hospitals.  Yet UPMC does not seem to be doing a good job in protecting such confidentiality.

UPMC Move to Cut 182,000 "Vulnerable" Elderly Patients from it Medicare Advantage Plan Challenged in Court

The Pittsburgh Business Times reported on May 21,

Health system UPMC will defend its decision to cut 182,000 seniors from its provider network at a Commonwealth Court hearing May 27 in Harrisburg.

The hearing will determine whether UPMC complied with a consent decree that was reached last year and intended to protect 'vulnerable' populations from fallout of the messy Highmark-UPMC divorce. The seniors have Medicare Advantage coverage through UPMC rival Highmark Inc., and most commercial contract relations between the two health care titans ended Dec. 31.

This doesn't sound like the "patient-centered" care UPMC boasts about on its website.

UPMC to Cut 3,500 Staff Via Buyouts

Modern Healthcare reported on May 26,

In Pittsburgh's fiercely competitive healthcare market, UPMC announced voluntary buyouts to reduce its labor costs.

The system—which has also cut its hospital capacity in recent months—offered 3,500 workers voluntary buyouts to 'achieve cost-savings for UPMC by adjusting our workforce to meet the demands of the healthcare marketplace,' said spokeswoman Gloria Kreps.

Not mentioned by UPMC spokespeople were the possible effects on patient care of cutting about 5% of the most experienced members of the UPMC workforce.

UPMC Attorneys Disqualified from Defense of Wrongful Death Case

The Pittsburgh Post-Gazette reported on May 30,

The law firm that represents UPMC in many civil matter was disqualified from a medical malpractice cast this week after a judge found that an attorney from Dickie, McCarney & Chilcote improperly spoke with and advised a witness.

This does not say a lot for how UPMC managers pick legal counsel and manage their seemingly many legal defenses.

UPMC Lung Transplant Program on Probation, Again

On June 2, the Tribune-Review reported,

A national organ-sharing group has put UPMC's lung transplant program on probation for a year, listing concerns about how the program handled donated organs. 

The United Network for Organ Sharing cited 14 cases in 2013 and 2014 when the hospital system accepted lungs that UPMC doctors later found could not be transplanted in intended recipients, said Dr. Jonathan D'Cunha, UPMC's lung transplantation surgical director.

UPMC kept the organs for other patients in UPMC Presbyterian in Oakland, an approach approved by regional organ procurement groups that supplied the lungs, D'Cunha said. But UNOS, a nonprofit that manages the American organ transplant system, objected to what it called 'an unusually high number of instances' of the practice.

Probation ordered by the board of UNOS and the Organ Procurement and Transplantation Network took effect Monday, according to UNOS.

D'Cunha said the transplant program remains fully operational but will be operating under a corrective-action plan.

This was not the first trouble that a UPMC transplant program has encountered.  As the Pittsburgh Post-Gazette reported,

This is  the second time UPMC has been placed on probation for a transplant problem.

In 2011, it was placed on probation ... after disease was transferred from a living kidney donor to a recipient.

Note that while the first instance of probation seemed to suggest competency issues, the latest one seems to be about ethical issues.  By transplanting kidneys into immediately available UPMC patients who may have lower priorities than other patients on the list, UPMC may be disfavoring patients from "outside," whose transplants, incidentally, would not generate much revenue for UPMC.

An editorial in the Post-Gazette suggested while UPMC "pleads ignorance" about these rules, "Western Pennsylvania's largest hospital network should have known better."

Just Another Bad Month?

Thus it was just another bad month at the office for UPMC management.  But UPMC management has had lots of bad months.  For example, since 2011, we have previously discussed
-  Fantastical musing by the UPMC CEO about health care run by computers, not doctors (look here)
-  Fantastical claims by UPMC in response to a lawsuit that is has no employees (look here)
-  Numerous malpractice cases filed against UPMC related to problems with its electronic medical records (look here, here, here, here)
-  Layoffs at UPMC due to problems with its electronic medical records (look here)
-  A lawsuit by the Mayor of Pittsburgh claiming UPMC should be stripped of its non-profit status (look here).  

The $6.4 Million CEO, and the Other Million Dollar Managers

One would think that these series of events, all in a short time, coupled with all these previous stories, might raise questions about who is running the institution, and what they are being paid.


Instead, however, the Pittsburgh Tribune-Review published a story on May 15, 2015, about just how well paid top UPMC managers continue to be.

UPMC's Jeffrey Romoff banked total compensation of $6.4 million two years ago, ranking the chief executive's pay among the nation's highest for nonprofit health leaders.

The 69-year-old Romoff was one of 31 employees of Western Pennsylvania's largest integrated health system to be paid more than $1 million in 2013,...

Romoff's 2013 pay, which included a base salary of nearly $1 million plus $5 million in incentives and deferred income, was down 3 percent from the previous year but well above the median compensation for a nonprofit hospital CEO.

The defense of Mr Romoff's compensation followed the same pattern we have discussed repeatedly. Justifications for exceedingly generous compensation for health care managers, particularly of non-profit hospital, often are superficial, limited to talking points we have repeatedly discussed, (first  here, with additional examples of their use here, here here, here, here, here, here, and here.)  These 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).

So,

UPMC spokeswoman Susan Manko wrote in an email that compensation for the company's executives is tied to performance that is based on 'clearly defined goals, including quality of care, community benefit, financial measures and other key factors.'  Pay takes into consideration what other industry executives are making, she noted.

Thus,, by inference, she implied Mr Romoff's brilliance in meeting the "clearly defined goals," and overtly stressed the competitive rates talking point.

However, the clearly defined goals including putting the transplant on probation twice, having several electronic data breaches, trying to discharge the most experienced employees, being sued for being a non-profit in name only, being subject to numerous malpractice suits, and having one law firm used to defend one of these suits disqualified,  and dumping hundreds of thousands of elderly, "vulnerable" patients?  Really?

A fair comparison was to other overpaid managers, not to the dedicated health care professionals who make the system work?  Really?

Also, as the Pittsburgh-Tribune Review reported on February, 2015, the Chairman of the Board of UPMC, Nicholas Beckwith, thinks Mr Romoff is a

brilliant leader and stood by the board's decision to pay Romoff $6.6 million a year, among the highest CEO salaries for nonprofits in the region.

Furthermore,

'When people ask me about his pay, I say, ‘What would you pay him?'' Beckwith said. 'If they're going to understand the brilliance of Jeffrey Romoff, they have to acknowledge there's no more effective leader in the nation than Jeff Romoff.'

So here was the "brilliance" talking point really writ large.  The most effective leader in the entire US?  Really?

At best, Mr Beckwith seemed to be only thinking about the financial performance of UPMC, rather than its clinical performance, its ethical performance or its effects on patients and their outcomes. But then again, Mr Beckwith might not know much about that,

Beckwith worked as a salesman for Murrysville-based Beckwith Machinery and eventually became its CEO.

But one letter to the Pittsburgh Tribune-Review did suggest

Perhaps UPMC should consider offering buyouts to that group of egotists who inhabit the upper reaches of the U.S. Steel Tower. Then they could move to the next phase of life — old and wealthy.

Summary

So we have presented the recent unpleasantness at UPMC as emblematic of some of the types of unpleasantness that afflict US (and global) health care, including threats to patients' confidentiality and access, problems with quality of health care, possible ethical misconduct, ill treatment of experienced health care staff, etc.  Yet consider that despite these multiple failings, and a history of similar failings going back years, the top hired managers of the non-profit hospital health care system are being made millionaires many times over.  They clearly are benefiting greatly from the current system, regardless of whether the system benefits others.  In fact, one begins to wonder if they are paid well despite the current problems, or because of them?

So one lesson is: every time some new version of health care dysfunction appears in public, think not only about its bad effects on patients, professional values, the public, etc.  Think about who is gaining from the current bad status quo.

 For a slightly more specific lesson....  In a 2014 interview, corporate governance experts Robert Monks and Nell Minow, Monks said,

Chief executive officers' pay is both the symptom and the disease.

Also,

CEO pay is the thermometer. If you have a situation in which, essentially, people pay themselves without reference to history or the value added or to any objective criteria, you have corroboration of... We haven't fundamentally made progress about management being accountable.

The symptom and the disease have metastasized to health care, from huge for-profit corporations now also to even small non-profit hospitals.   Thus, like hired managers in the larger economy, health care managers have become "value extractors."  The opportunity to extract value has become a major driver of managerial decision making.  And this decision making is probably the major reason our health care system is so expensive and inaccessible, and why it provides such mediocre care for so much money. 

One wonders how long the people who actually do the work in health care will suffer the value extraction to continue?
As we have said far too many times - without much impact so far, unfortunately - 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.

As Robert Monks also said in the 2014 interview,

People with power are very reluctant to give it up. While all of us recognize the problem, those with the power to change it like things the way they are.

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. 

ADDENDUM (16 June, 2015) - This post was re-posted on OpEdNews.com. 

Health Care Professional Societies Whose Leadership Betrays Their Own Members - the APA Alleged to Have Supported Torture, and Deceived its Members to Collect Money

Health care professionals usually view their professional societies as allies, supporting their values and acting in their professional and their patients' interests.  Increasingly, however, these societies appear to be run more to support the interests of their top leaders. 

Allegations that the American Psychological Association (APA) Supported Torture

The latest example is the American Psychological Association.  As noted by a Washington Post article from May, 2015, "the APA ... represents more than 122,000 doctoral-level psychologists around the world...."  Of these, about 60,000 are licensed clinical psychologists, and the remainder are mainly research psychologists.

The most serious allegations that the APA had betrayed its members values were described in a New York Times article from late April, 2015. 

The American Psychological Association secretly collaborated with the administration of President George W. Bush to bolster a legal and ethical justification for the torture of prisoners swept up in the post-Sept. 11 war on terror, according to a new report by a group of dissident health professionals and human rights activists.

Furthermore,

The involvement of health professionals in the Bush-era interrogation program was significant because it enabled the Justice Department to argue in secret opinions that the program was legal and did not constitute torture, since the interrogations were being monitored by health professionals to make sure they were safe.

The interrogation program has since been shut down, and last year the Senate Intelligence Committee issued a detailed report that described the program as both ineffective and abusive.

In particular,

In early June 2004, a senior official with the association, the nation’s largest professional organization for psychologists, issued an invitation to a carefully selected group of psychologists and behavioral scientists inside the government to a private meeting to discuss the crisis and the role of psychologists in the interrogation program.

Psychologists from the C.I.A. and other agencies met with association officials in July, and by the next year the association issued guidelines that reaffirmed that it was acceptable for its members to be involved in the interrogation program.

To emphasize their argument that the association grew too close to the interrogation program, the critics’ new report cites a 2003 email from a senior psychologist at the C.I.A. to a senior official at the psychological association. In the email, the C.I.A. psychologist appears to be confiding in the association official about the work of James Mitchell and Bruce Jessen, the private contractors who developed and helped run the enhanced interrogation program at the C.I.A.’s secret prisons around the world.

In the email, written years before the involvement of the two contractors in the interrogation program was made public, the C.I.A. psychologist explains to the association official that the contractors 'are doing special things to special people in special places.'

These are very serious allegations.  In a Forbes blog post, Todd Essig wrote,

Starting after 9/11, and continuing to the present day, APA leadership has made a series of bad decisions, ones with appalling and destructive consequence. Significant numbers of people have been harmed. Opportunities to apply psychological knowledge to benefit society and improve people’s lives have been lost. The public trust in the profession of psychology has been undermined. Things are so bad that the only way forward now is for the involved leadership to resign.

Essig emphasized that the actions of APA leadership appeared to directly conflict with the organization's mission,

Every day without decisive action to redress the breach of the public trust further undermines the APA’s ability to fulfill its mission to 'advance the creation, communication and application of psychological knowledge to benefit society and improve people’s lives.'

Nonetheless, the APA leadership has made no move to resign, and appear to be waiting for the supposedly independent review they have commissioned of the society's actions regarding torture.

Legal Settlement that the APA Deceived its Members to Collect More Money

While less dramatic, another story appeared last month that further suggested that the APA has seemed to have gone rogue from the interests of its members and their patients.  The Washington Post reported,

The American Psychological Association (APA) has settled a class-action lawsuit that accused the organization of deceptively requiring many of its members to pay a large annual fee to fund the group's lobbying arm. The fee was actually optional.

Under the settlement, the APA, which represents more than 122,000 doctoral-level psychologists around the world, has agreed to refund a total of $9.02 million to members who paid the fee between 2000 and early 2015. The assessment, which changed from year to year, was about $140 annually and was charged only to licensed clinicians, not research scientists and others. It generated about $6 million a year, according to the lawsuit.

Note that...

The lawsuit claimed that in a variety of ways over the years, the APA 'deceptively created the impression that the fee was actually required as part of annual APA dues.' For example, an annual dues assessment said that members who provide health-related services “must pay" the fee that supports the lobbying arm, a separate group known as the APA Practice Organization (APAPO). It was established separately because tax laws restrict nonprofits like the APA from political work and other forms of advocacy.

In 2002, the APA’s Web site stated that members 'must pay the Special Assessment,' and in 2004, the APA announced that starting in 2005 'all APA members who are licensed psychologists will be billed the assessment,' the lawsuit claimed.

This was a legal settlement, so APA leadership did not have to

concede that its communications were misleading and acknowledged no wrongdoing in the settlement. In a news release sent out in January, when the settlement was announced, the organization said that 'APA/APAPO and the plaintiffs disagreed about whether the APA dues statement could mislead practice members concerning the annual practice assessment.'

How Did a Society's Leadership Become So Disconnected from its Members and their Values?

These allegations do raise the question of how the leadership of a health care professional society could become so profoundly disconnected from its members.  I briefly would suggest the hypothesis that many health care professional societies have functionally become more like publishing houses or marketing and public relations firms. 

Consider the most recent financial statement (US IRS form 990) available from the APA (for 2013, link here).    The APA had total revenue of over $127 million.  Of that, less than 10% came from membership dues ($10,802,967) and convention and conference fees ($2,742,353).  So the major sources of revenue of this supposed membership organization were not the members, but "licensing, royalties, and rights," "journal subscriptions," "publication sales," and "other program service."  Thus, the organization's finances were more that of a publishing house/ marketing and public relations firm than that of a membership organization. Presumably, leadership may have been more concerned about continuing to generate revenue from such activities than about their membership's wishes, or interests.


The revenue from these activities allowed the organization to accrue real estate valued at over $78 million, and investments valued at over $90 million.  Also, it allowed generous payments to the members who served as officers.  Twelve members who served as officers, on the board of directors, or otherwise in leadership got more than $10,000 a year.  The president got more than $38,000.  Traditionally, officers and board members of true membership organizations are unpaid.  In addition, the APA paid its hired managers very handsomely.  Sixteen received more than $225,000.  Of those, twelve received more than $300,000.  The executive vice president/ CEO received over $750,000. 

So the transformation of the APA from a membership organization to a publishing house/ marketing and public relations firm that allegedly ended up supporting torture, and deceiving its supposed members created a very cozy and remunerative environment for its leaders and those who ostensibly exercised stewardship over them.

Again, this is particularly egregious since this was supposed to be a membership organization that would support research and education in psychology, and psychological care of patients. 

Summary

In the bigger story from last month, very serious allegations surfaced about the American Psychological Association.  These included accusations that top society leaders collaborated with torture, which would seem to be a huge contradiction of the organization's supposed mission to help patients with psychological problems.  At the same time, the organization settled a lawsuit that had alleged organizational leaders had deceived their own members in order to collect money to support their lobbying efforts. 

We have frequently discussed how leaders of large nominally non-profit health care organizations, mainly hospitals and hospital systems, often seem to put revenue, and their own financial advancement, ahead of the organizations' missions.  Sometimes, their actions have been actively mission-hostile.  The takeover of hospitals and hospital systems by people with little concern for, or even hostility to those organizations' once noble missions appears to be a singularly bad problem that may be responsible for much health care dysfunction, rising costs, declining access, and ultimately bad patient outcomes. 

Now we see another example of a large health care organization, this time a health care professional society,  whose leadership seems to have trampled their members' values, supported mistreatment of human beings, and just incidentally deceived their members' to make more money.  An important difference in this case is that the organization's leadership is nominally supposed to represent its members.  So maybe its members can rise up to ensure leadership that would actually uphold their professional values and their and most importantly their patients' interests.


Maybe the members will still rise up and force the resignations of the officers and managers who profited so much from this mess.  At least, if they were to leave the organization, it could no longer pretend to be a membership organization.

As we have said until blue in the face, true health care reform requires leadership of health care organizations that understand health care, cares about its mission, and is willing to be held accountable.  A good place to start such reform would be the organizations that are supposed to represent health care professionals. 

You Called Me "Greedy?" - $2.2 Million/Year CEO of Catholic Health Care Whose Mission is to Bring "God’s Mercy to the Poor and Under-served" Sues Union for Defamation

From the annals of cognitive dissonance....

Background

Here is the background.  Mercy Health, formerly Catholic Health Partners, claims to be the largest health system in Ohio, and one of the largest in the US (look here).  It's mission is:

to extend the healing ministry of Jesus by improving the health of our communities with emphasis on people who are poor and underserved.  In all that we do, we strive to demonstrate our core values of compassion, excellence, human dignity, justice, sacredness of life and service.

Its current CEO is Michael D Connelly, MA, JD.  In his latest CEO's message, he stated,

our commitments to the Catholic Church, its ethical and religious directives and our Mission are unwavering. Our name change reinforces our fidelity to our powerful message – of compassionate, quality healthcare – bringing God’s mercy to the poor and under-served. As Pope Francis shares 'the Lord’s most powerful message (is) mercy.' 

However, as reported in Becker's Hospital Review in 2011, Mr Connelly's total compensation in 2009 was $1,570,451.   In a December, 2012 Journal-News article, the update was

Michael Connelly, president and chief executive officer of Cincinnati-based Catholic Health Partners, received total compensation last year of $2.2 million for his position over a $3.6 billion organization with more than 32,500 employees. James May, president and chief executive of Mercy Health, a division of Catholic Health, received total compensation in 2011 of $1.2 million.

Mr Connelly Sues for Defamation

This now is relevant to a story reported briefly in Cincinnatti.com,

Michael Connelly, president and CEO of Mercy Healthy, has filed a lawsuit against Service Employees International Union No. 1199 alleging invasion of privacy and defamation.

The reason? A van displaying a large image of Connelly featuring the words 'GREED! GREED! GREED!' and his personal telephone number was circling his Hyde Park neighborhood Monday.

The billboard on wheels featured the following text: 'Mercy Health CEO Michael Connelly is getting rich off the sick, disabled and indigent!'

The article included a picture of the van, emblazoned with a picture of Mr Connelly labeled "Mercy Health - $2,000,000 - CEO."  Further text included the assertion that "Mr Connelly is getting rich off the sick, disabled and indigent."

However,

''This is personal and not a 'labor dispute,'' stated the lawsuit filed by Connelly Wednesday in the Hamilton County Court of Common Pleas. The lawsuit has been filed against the union and its president, Becky Williams.

'Defendants acted with malice in the way they structured and published their radio ad and the mobile billboard by accusing Connelly of disregarding the medical needs of Mercy Health's most vulnerable and sympathetic patients in a way to excite and offend public sensibilities to achieve maximum destruction of Connelly's personal and professional reputation,' according to court documents.

Actually, as reported by the Cincinnati Business Courier, the van that so offended Mr Connelly "listed his work phone number," not his personal phone number  A brief look on Google revealed that it is the main number of the hospital system, not his personal line.  That article also included,

But Anthony Caldwell, spokesperson for the union, said the radio ad and billboard are actually bringing the truth to the public.

'I don't see why they see this as defamation … we are merely representing the opinion of the workers and of the union,' he said. 'The issue, I believe, is that they are not used to being held accountable by people in the community. Sometimes the truth is hard to handle.'

Comment

This little contretemps certainly was the product of a labor dispute, and I do not want to take a side in that dispute.  There are some things to be learned from the kerfuffle, however.

First, the huge disconnect between the pay now frequently given to top hired managers of non-profit hospitals and hospital systems and the stated mission and/or track records of these organizations is now less anechoic.  It is becoming a topic of public discussion, and becoming relevant to such things as labor negotiations.

The obvious non sequitur in this case is a hospital system ostensibly devoted to needs of the poor and under-served but that pays enough to make its CEO a millionaire many times over.  At best this appears unseemly, and certainly seems specifically worthy of public discussion. 

The need for such discussion appears all the more acute because of current concerns about health care costs and access, and reasonable questions about how much the public money that provides a great deal of hospital revenue (e.g., in the US through Medicare and Medicaid programs) ought to go to make top managers rich.  Trying to impede such discussion by bringing litigation against those who participate in it in some states might be regarded as a SLAPP, strategic litigation against public participation.  (Ohio, however, is not one of the states with specific laws meant to discourage SLAPPs.)      

Second, this incident demonstrates at a minimum the overdeveloped sense of entitlement of hired managers who are able to amass such fortunes.  It is understandable that Mr Connelly was annoyed by the attention his inflated pay was receiving.  However, he chose not to merely verbally express his argument with the sponsors of the "greed" van.  Instead, he chose to use his organization's resources to launch a defamation lawsuit.  In Ohio, as in many states, to defend against defamation one must simply prove the truth of the matter (look here).   The text on the van announced he was a $2,000,000 CEO."  In fact, in 2011, according to public records, his total compensation exceeded $2 million.  The text also stated he is getting rich off the sick, disabled, and indigent.  Earning more than $1 million a year seems to fit the common definition of getting rich.  By definition, the hospital's patients include the sick and disabled.  The hospital's stated mission is to serve the poor.  Whether or not by taking such a salary he demonstrated greediness is a matter of opinion, but it does not seem unreasonable to characterized someone getting over $2 million a year supposedly to serve the poor and under-served as "greedy."  There might be worse adjectives one could use to describe these circumstances.  Furthermore, how Mr Connelly's privacy was invaded by publicizing the main phone number of his organization escapes me.  Thus the claims that Mr Connelly's organization is making on his behalf seem a bit fabulous, and possibly frivolous.

Mr Connelly runs a 501(c)3 organization whose tax returns, which include his total compensation, are by law public.  If he is afraid that thus revealing his total compensation makes him subject to ridicule, maybe he should consider asking for his compensation to be reduced. 

As we have noted many times before, top leaders of big health care organizations are now often paid enough to make them instant multimillionaires.  Their supporters, often cronies, other managers of other big organizations, or their paid employees or vendors, often trumpet the same tired talking points to try to justify this pay (look here).  One frequently used talking point is that to be the CEO one must be "brilliant."  It may be that many of those leaders are starting to believe their own public relations, and really think they are so brilliant as to be worth millions of dollars, and so worthy that no plebeian ought to question them.

Are such entitled people the right people to run health care organizations, particularly those claiming to be in virtuous service to the poor and under-served? 

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. 

As Robert Monks also said in a 2014 interview,

People with power are very reluctant to give it up. While all of us recognize the problem, those with the power to change it like things the way they are.

So if challenged a little, they may sue the challengers.  If challenged a lot, who knows what might happen. 


 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.