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Academic leaders corrupting themselves in the medical-industrial complex

Prevalence and compensation of academic leaders, professors, and trustees on publicly traded US healthcare company boards of directors: cross sectional study

By Timothy S Anderson, Chester B Good, Walid F Gellad

BMJ, September 29, 2015

Abstract

Objective: To identify the prevalence, characteristics, and compensation of members of the boards of directors of healthcare industry companies who hold academic appointments as leaders, professors, or trustees.

Design: Cross sectional study.

Setting: US healthcare companies publicly traded on the NASDAQ or New York Stock Exchange in 2013.

Participants: 3434 directors of pharmaceutical, biotechnology, medical equipment and supply, and healthcare provider companies.

Main outcome measures: Prevalence, annual compensation, and beneficial stock ownership of directors with affiliations as leaders, professors, or trustees of academic medical and research institutions.

Results: 446 healthcare companies met the study search criteria, of which 442 (99%) had publicly accessible disclosures on boards of directors. 180 companies (41%) had one or more academically affiliated directors. Directors were affiliated with 85 geographically diverse non-profit academic institutions, including 19 of the top 20 National Institute of Health funded medical schools and all of the 17 US News honor roll hospitals. Overall, these 279 academically affiliated directors included 73 leaders, 121 professors, and 85 trustees. Leaders included 17 chief executive officers and 11 vice presidents or executive officers of health systems and hospitals; 15 university presidents, provosts, and chancellors; and eight medical school deans or presidents. The total annual compensation to academically affiliated directors for their services to companies was $54 995 786 (£35 836 000; €49 185 900) (median individual compensation $193 000) and directors beneficially owned 59 831 477 shares of company stock (median 50 699 shares).

Conclusions:  A substantial number and diversity of academic leaders, professors, and trustees hold directorships at US healthcare companies, with compensation often approaching or surpassing common academic clinical salaries. Dual obligations to for profit company shareholders and non-profit clinical and educational institutions pose considerable personal, financial, and institutional conflicts of interest beyond that of simple consulting relationships. These conflicts have not been fully addressed by professional societies or academic institutions and deserve additional review, regulation, and, in some cases, prohibition when conflicts cannot be reconciled.

From the Introduction

As the for profit healthcare industry and academic medicine have grown closely intertwined, financial relationships between industry and academia and the risks of conflicts of interest have come under scrutiny. Physicians and the media have highlighted concerns that secondary financial interests of individuals and companies may create an undue influence on primary patient care, research, and education goals.

The attention of professional guidelines and the media has primarily focused on researchers and clinicians who receive financial payments for conducting industry research, providing consulting services, and giving promotional lectures. Less attention is paid to academic individuals who also serve on the boards of directors of for profit healthcare companies. Boards of directors are elected by shareholders annually, with responsibilities including oversight of executive officers, setting major strategic initiatives, and handling major financial decisions such as mergers. Similar to individuals engaging in consulting relationships, directors on industry boards enter a formal contract with the company and receive financial payment for services; however, they are subject to two important differences. Firstly, unlike consultants who are compensated to provide expertise on a specific issue, directors are subject to a fiduciary responsibility to company shareholders to advance the general interests of the company and increase profits. Secondly, directors are reimbursed both through larger cash fees than typical consulting contracts and through stock options, the value of which is directly tied to the financial success of the company. Serving as a director has largely been unaddressed in professional society guidelines.

Though the missions of academia and for profit companies can overlap, they may also diverge, specifically when the for profit mission of industry competes with the non-profit taxpayer funded clinical and research missions of academic medical and research institutions.

From the Discussion

Overall, 85 non-profit academic institutions, including many of the most renowned medical research and clinical centers had at least one leader, professor, or trustee who served as a director for a for profit healthcare company. The academic roles of directors ranged from clinical and research professors to trustees of academic institutions and hospitals to a large collection of senior leadership, including 17 health system chief executive officers and eight medical school deans. Directors received considerable cash compensation and owned a median of 50 000 stock shares tied to company performance. The dual obligations to industry and academia that these individuals hold create important conflicts of interest when the missions of their institutions diverge, while at the same time offering potential benefits when the missions overlap. Approaches to managing these competing interests have not been fully addressed in professional ethical guidelines.

Financial relationships between US academic leadership and the pharmaceutical industry have been well documented. A 2006 survey of department chairs found 60% of respondents had a relationship to industry, with 11% serving on a company board of directors. A 2009 study of medical school deans documented nine deans who served on company boards of directors, with a median compensation of over $200 000. We previously documented US academic leadership that held directorships at 19 of the 47 largest global pharmaceutical companies. This study extends the scope of our understanding of these dual roles in three key ways: by using company reported data to examine 99% of publicly traded US healthcare companies across all sectors, examining a wider spectrum of academically affiliated individuals beyond leaders, and providing a more detailed examination of the magnitude of financial relationships, including stock ownership.

http://www.bmj.com/content/351/bmj.h4826

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Comment:

By Don McCanne, MD

For decades, Arnold (Bud) Relman had warned us about the medical-industrial complex that displaces the noble traditions and ethics of medicine in which patient service is paramount with the business model of health care in which patients become a means to build models in which success is measured by profits and stock performance. Did we listen?

One need only look at the behavior of pharmaceutical firms, for-profit hospital chains, private investor-owned insurance companies, medical device manufacturers, and other components of our health care system to recognize that we have been moving in the wrong direction. Even the architects of the Affordable Care Act ignored Dr. Relman’s call by expanding taxpayer support of the predominantly investor-owned private insurance industry, enhancing their performance in the stock markets, by enabling pharmaceutical firms freedom to charge outrageous prices, greatly increasing their profits, by motivating hospitals to consolidate, giving them greater market leverage, and by a massive infusion of funds into Medicaid programs as control is being transferred to private, investor-owned managed care organizations.

One would hope that our academic institutions, as centers of medical education, research, and patient care would take the lead in moving away from the commercialization of health care and, instead, reinforce the traditional values of the healing arts. Is there hope in today’s message?

We learn that the leaders, professors and trustees of our academic institutions are joining the boards of directors of for-profit health care companies. To assuage any disconcerting reservations they may have over their conflicts of interest, they are being soothed with cash (median $193,000 annually) and stock (median 50,000 shares). Whoa. What does that bode for the future when our newly minted professionals are groomed in this environment?

How does this comport with Bud Relman’s letter to his physician colleagues (A Second Opinion, 2007)? “Our failing, inequitable, and unaffordable health system will be reformed because it must be; because nothing else short of a major overhaul will do the job that a majority of citizens want done. It may begin as an extension of Medicare benefits to people below sixty-five, or as a trial of a new single-payer insurance system in one or more states, or there may be enough popular support to enable passage of landmark legislation that reshapes the entire system nationwide. Much of what happens in the near term will depend on what you decide to do.”