Leaders of Discredited Financial Rating Agencies as Leaders of Health Care

This is the latest in our informal series on the cross-linkages between the thinking and leadership that lead to the global financial collapse/ great recession and that current in health care.  Last month, a US Senate sub-committee held hearings on the role of the rating agencies, actually for-profit corporations that evaluated securities, including derivatives, in the collapse. 

The Fundamentally Conflicted Rating Agencies

To briefly provide some background, these agencies were hired by the firms that created these securities to evaluate them.  Because the securities were complex, they were hard for investors to evaluate.  Investors had become used to using the rating agencies' evaluations as benchmarks for the quality and riskiness of complex securities.  Many did not seem to realize that the agencies themselves were for-profit corporations, or subsidiaries thereof, which made more money the more securities they rated.  The rating agencies gave many of their highest ratings (AAA) to securities that later failed.  (See an informal video discussion by corporate governance expert Robert A G Monks here.)

Some key quotes from the news coverage follow.

Former credit rating agency officials said on Friday that the quest for market share fueled a drive for short-term profits, sacrificing credit quality in the process.

Eric Kolchinsky, who was in charge of the Moody's (MCO.N) unit that rated subprime CDOs, or collateralized debt obligations, said that people 'across the financial food chain, from the mortgage broker to the CDO banker, were compensated based on quantity rather than quality,' according to testimony prepared for a Senate panel.

'The situation was no different at the rating agencies.'

from Reuters

Former Moody’s Investors Service and Standard & Poor’s employees said they were excluded from assessing mortgage bonds if they questioned Wall Street’s conclusions and that credit-rating companies focused on protecting business at the expense of accurate grading.

Richard Michalek, a former managing director in Moody’s structured products derivatives group, told the Senate Permanent Subcommittee on Investigations at a hearing today that managers said he was 'not welcome on deals' involving certain banks.

Eric Kolchinsky, who led the Moody’s group that rated collateralized debt obligations made up of mortgage bonds, said he was berated by his boss when the company lost business after implementing more conservative ratings.

S&P wrongly concluded that its increasing profits amid an inflated U.S. housing market was based on 'superior management skill and insight,' said Frank Raiter, a former managing director at the company. In reality, regulators had made the firm part of 'an oligopoly' by requiring investors to hold assets it rated, Raiter said.

per Bloomberg

The documents show, sometimes in excruciating detail, the conflicts of interest that many claim lie at the heart of the ratings business model and the concerns of employees about what was happening inside the companies well before the crisis broke.

One employee at Standard & Poor's, the world's largest rating agency, said its handling of awkward questions in the summer of 2007 made it 'sound like the Nixon White House'.

And,

As one Moody's managing director wrote to his superiors in 2007, the company's errors, made it look 'either incompetent at credit analysis, or like we sold our soul to the devil for revenue, or a little bit of both'.

per the Financial Times

The two companies targeted by these hearings were Moodys, and Standard & Poors (a subsidiary of McGraw-Hill Inc).

Overlaps with Health Care Leadership: Moody's Corporation

Perusal of the roster of the Moody's board of directors in 2008, per that year's proxy statement, reveals the following overlaps with health care leadership, of its 8 directors.

Connie Mack - is also on the boards of EXACT Sciences Corporation (a biotechnology company), and Genzyme.  He is the chair of the H. Lee Moffitt Cancer Center.

Henry A McKinnell Jr - was chairman of the board and CEO from 2001-06 of Pfizer Inc.

Basil L Anderson - is a member of the board of directors of Becton Dickinson.

Overlaps with Health Care Leadership: McGraw-Hill Inc

Via the company's 2008 proxy statement, of 12 directors:

Sir Winfried Bischoff - is a director of Eli Lilly and Company.

Linda Koch Lorimer - is Vice President and Secretary of Yale University, and a Director of Yale-New Haven Hospital.

Kurt L Schmoke - is a Trustee of the Howard Hughes Medical Institute

Sidney Taurel - was chairman and CEO of Eli Lilly and Company.

Summary

So, in summary, the 20 board members of one for-profit "ratings agency," and of the corporation of which the other major "ratings agency" was a subsidiary, served on the boards of 2 biotechnology corporations (EXACT Sciences Corporation and Genzyme), one medical device company (Becton-Dickinson), one pharmaceutical company (Eli Lilly) , 2 major academic medical centers (Moffitt Cancer Center and Yale-New Haven), and one medical research institution (Howard Hughes).  Two were recent former CEOs and chairmen of the boards of 2 of the world's largest pharmaceutical companies (Pfizer and Eli Lilly). 

Most of these health care organizations have been involved with cases we have discussed on Health Care Renewal (see links above).

Given the serious concerns about the conflicts of interest that became the core of these corporations' business models, and their central role in the global financial collapse, one has to wonder why so many of the directors who presided over them still have such influential positions in health care organizations?

As we have pointed out, as the world economy was driven to near ruin by "masters of the universe," some of the same also became leaders of academia and academic medicine in their spare time. Maybe this made sense 10 or 20 years ago, but why does it still make sense? On the other hand, now that we understand how bad the leadership of finance really was, it is a little easier to understand why the leadership of health care has become so bad. It seems reasonable to hypothesize that some of the problems of academia, and particularly the problems of medical academia, may have been at least enabled by leadership more used to working in an increasingly amoral marketplace than to upholding the academic mission. The failures of the leadership and governance of finance thus suggest we need to re-examine the leadership of health care.

Again, Defending Conflicts of Interest with Logical Fallacies

The latest version of the argument that we are all getting too worked up over conflicts of interest in health care has appeared, this time in a scholarly, peer-reviewed journal. (Hirsch LJ. Conflicts of interest, authorship, and disclosures in industry-related scientific publishing: the tort bar and editorial oversight in medical journals. Mayo Clinic Proc 2009; 84: 811-821. Link here.) The major point of the paper seems to be that payments to physicians, particularly academic physicians by pharmaceutical, biotechnology, and device companies are necessary for medical progress, so instead of perseverating about them, we all should pay far more attention to the evil of payments made for expert testimony by physicians who serve as expert witnesses in litigation against such companies.

In the Hooked: Ethics, Medicine and Pharma blog, Dr Howard Brody addressed this main argument, while dismissing the bulk of the article as merely "illogic and innuendo." I think that Dr Brody failed to grasp the educational opportunities that the Hirsch article presented. It offers a true cornucopia of logical fallacies, making it ideal teaching material for the sort of course in logic and evidence that should be taught in all our medical schools, but is not.

So let me use this "teachable moment" to address just some of the many logical fallacies that Dr Hirsch so enthusiastically employed, in order of their first appearance in his article.

Appeal to Ridicule

There is a politically correct herd mentality that ascribes to the concept that objectivity is forsaken by medical companies that seek profit (and by their employees) because of 'conflict of interest.'

Also,

These overt restrictions on researcher communications in today’s climate of political correctness on COI are causing more than policy debates among various stakeholders....

In both these examples, concerns about conflicts of interest are deemed mere "political correctness." Thus, this is an appeal to ridicule.

Yet today there is a McCarthyesque reaction to the term, conflict of interest, with an unstated presumption of guilt until proven innocent.

Here instead the term of ridicule is "McCarthyesque."

Straw Man Fallacy

There is a politically correct herd mentality that ascribes to the concept that objectivity is forsaken by medical companies that seek profit (and by their employees) because of 'conflict of interest.'

This single sentence employed two fallacies for the price of one. I would challenge Dr Hirsch to provide a credible example that any thoughtful figure in the conflict of interest discussion has dismissed the objectivity of all for profit health care corporations, and all of their employees. He apparently has constructed a straw man argument which he has attributed to his opponents, one that is either to strike down than their real arguments.

Appeal to Authority

Previously, the president of the Association of American Medical Colleges emphasized that the term indicates a state of affairs and not a behavior, that COIs are ubiquitous, and that despite their inaccurate portrayal by the media, COIs do not indicate the occurrence of any improper behavior, much less scientific misconduct, analogous to a state of potential energy

If he said it, was he right? Is he still right today? Obviously, because someone with a distinguished title expresses an opinion does not mean it is true. Thus, this is an appeal to authority. (Note: since the reference appended to this sentence appears to have nothing to do with the content of the sentence, it is not even clear that the authority in question made such a statement. Link here.)

Appeal to Common Practice

Publication bias (preferential publication of studies with positive outcomes vs trials with negative, neutral, or ambiguous outcomes) has been reported for more than 2 decades,....

Publication bias clearly extends to government- and nonprofit-funded research....

The thrust here was clearly that publication bias is common and has been around for a long time, so why worry? This is an appeal to common practice, which equates a statement that a pheonomenon is common with the assertion that it is reasonable, justified, ethical, optimal, etc.

Special Pleading

For the 2008 article that was critical of Merck’s authorship practices by Ross, Hill, Egilman and Krumholz, the entire disclosure statement was, 'All of the authors have been compensated for their work as consultants at the request of plaintiffs in litigation against Merck & Co, Inc, related to rofecoxib.' Only in the middle of the Comment (Discussion) portion of the article was it mentioned that the authors had served as paid expert witnesses for plaintiffs’ attorneys in rofecoxib litigation. The terse disclosure statement seems at odds with JAMA’s stated policy in its Instructions for Authors that financial COI disclosure must be complete. Regardless, the information provided hardly conveyed that, as of January 2007, Krumholz had received more than $300,000 for his consulting from plaintiffs’ attorney Mark Lanier (no relationship to Mayo Clinic Proceedings Editor-in-Chief William L. Lanier, MD), which only became public in a letter to the editor of BMJ that responded to a previous article critical of Merck by Krumholz et al.

Krumholz’ remuneration seems substantial until it is compared to that of another coauthor of the JAMA authorship report,16 David Egilman. Egilman has testified for Mr Lanier and other attorneys in more than 100 tort cases (nearly always for plaintiffs) for approximately 2 decades and, by his own estimate, has earned $20 to $25 million for such testimony.

[Note: this discussion appeared in the midst of a long tirade against the editorial policies and practices of JAMA, especially in relation to controversy about the drug rofecoxib (Vioxx), the now withdrawn Merck Cox-2 inhibitor. Dr Hirsch apparently was responsible for Merck's publication policies about this drug. Further note that there are major questions about whether the figures supplied by Dr Hirsch are correct. Appended to the post in Dr Brody's blog post is a categorical denial by Dr Krumholz that he was paid, as asserted by Dr Hirsch, over $300,000, and evidence against the assertions by Dr Hirsch about Dr Egilman's pay.]

While Dr Hirsch alleged that the disclosures by the authors of this article were incomplete, he did not compare them to the disclosures made by authors of other articles in JAMA. In fact, I have never seen an article in JAMA which included disclsoure of dollar amounts, and could not find any such disclosure in spot checks of the latest issue.

On the other hand, here is the disclosure Dr Hirsch made in his own article:

Dr Hirsch was an employee at Merck & Co from 1988-2006 and managed the Medical Communications Department for clinical research publications from late 2001 to mid-2006. He currently is employed at a medical device and technology company that has no financial interest in any matters related to rofecoxib or the resulting tort litigation involving Merck & Co. Dr Hirsch owns mutual funds with stock from a variety of pharmaceutical and device companies, including Merck, and some shares of Merck and other medical product companies.

He did not disclose dollar amounts connected with any of these activities. He would not name his current employer on the grounds that it has no interest in rofecoxib and related litigation. However, his article is ostensibly about the broader issues of conflict of interest, authorship, etc which may relate to the interests of Becton Dickinson, which currently employs Dr Hirsch in the capacity of Worldwide Vice President of Medical Affairs, BD Diabetes Care. He did not name the "medical product companies" whose shares he owns.

Thus, Dr Hirsch argued that Dr Krumholz and Dr Egilman were wrong not to disclose the details of their financial arrangements with plaintiffs' attorneys (setting aside the likely inaccuracy of Dr Hirsch's contentions about the specifics of these arrangements), even though the detail they provided in their disclosures was similar to that provided by other JAMA authors, and even though Dr Hirsch did not find it necessary to himself disclose in such detail. Thus, Dr Hirsch was advocating a double standard, and in this case, his argument amounts to a special pleading, since the standard he advocated for others was not the same he felt obliged to uphold.


Appeal to Fear

[standards regarding COI] are beginning to affect the willingness of prominent researchers to interact with industry in any manner that involves even minimal compensation for their time and efforts.

Also,

There are serious negative implications for the future of medical product development if top academic researchers are shamed into ceasing any type of compensated interactions with industry.

Dr Hirsch implied that medical progress would be greatly endangered if industry no longer paid practicing physicians and full-time academics to work on the side, and that such payments would no longer be possible were COI disclosure requirements to be made more strict. Such dire warnings, without evidence to support them, amount to appeals to fear.

Summary

So Dr Hirsch has provided yet another example of an apologia for conflicted physicians and academics based on a panoply of logical fallacies. We have offered several other examples of fallacious defenses of conflicts of interest, compiled here.

It is sad to see logical fallacies so cavalierly employed. There frequent, sometimes strident use in current health policy suggest the need to better train health care professionals in logic and the use of evidence.

I am still awaiting a defense of the sorts of conflicts of interest that we frequently discuss on Health Care Renewal that is based on logic and evidence, but it may be that no one can produce such a defense.

Meanwhile, we continue to recommend that at the very least, medical academics, medical academic institutions, and other health care not-for-profits or NGOs should reveal in detail what payments they get from companies selling health care products or services, and how these payments could relate to the companies' marketing or lobbying efforts. In the US, some such disclosure would be mandated by the proposed "Sunshine" legislation now being considered by the US Congress. (By the way, note that this problem is hardly confined to the US, and needs global, not just American attention.)

However, physicians (at least physicians in full-time private practice, academic positions, and employed by mission-oriented not for profit organizations) should go further, and consider whether receiving industry money is worth the ongoing damage it does to our professionalism and our professional reputations. Medical schools, universities, health care foundations, disease advocacy groups, and other health care not-for-profits and NGOs should also go further, and consider whether receiving industry money is worth the ongoing damage it does to their missions, and their institutional reputations.