Pfizer's Latest International Pfiascos - Charges of Anti-Competitive Practices, Inflated Prices, Deception and Secrecy

Many big health care organizations seem to just be unable to keep out of trouble, and the bigger they are, the more kinds of trouble.  Pfizer Inc, considered to be one of the world's largest pharmaceutical companies, has supplied us with plenty of stories.  Enough new stories about Pfizer have accumulated since last year to do a roundup.   

Presented in chronological order....

Italy Demands Damages from Pfizer for Anti-Trust Violations

This story came out in May, 2014, via Reuters,

Italy said on Wednesday it was seeking more than a billion euros in damages from multinational drug companies following a ruling by the country's antitrust authority that their policies had been detrimental to Italy's national health service.

The health ministry said in a statement it was requesting a total 1.2 billion euros ($1.6 billion) from Novartis and Roche for the damages incurred in 2012-2014, and was requesting 14 million euros from Pfizer.

It cited several recent antitrust rulings that the companies' repeated anti-competitive actions had caused the national health service 'considerable damage'.

The specific charges against Pfizer were:

Italy's state council, the highest administrative court, in February ruled that Pfizer had abused its dominant position relating to the glaucoma drug Xalatan 'with a clear and persistent intention to suppress competition'.

At least in English language news sources, I have not seen how this turned out, but note that this was apparently an administrative court finding, not just a prosecutor's allegation.

Pfizer Accused of Overcharging for Pediatric Vaccines

This appeared in January, 2015, here via Ed Silverman's PharmaLot blog (when it was affiliated with the Wall Street Journal),

In a bid to widen access to vaccines, Doctors Without Borders is calling on Pfizer and GlaxoSmithKline to lower the prices for their pneumococcal vaccines to $5 per child in developing countries. The non-profit claims the drug makers are 'overcharging' donors and developing countries for vaccines that 'already earn them billions of dollars in wealthy countries.'

The non-profit, which regularly advocates for lower prices for medicines, maintains that, in general, the price to vaccinate a child against several diseases is now a 'colossal' 68 times more expensive than in 2001. In a new report, Doctors Without Borders attributes 45% of that increased cost to the price tags for pneumococcal vaccines sold by the drug makers. Pneumococcal disease, by the way, kills about 1 million children per year, mostly in poor and developing nations.

Think about the children.

The non-profit maintains that the current price tag makes it difficult to supply the vaccine to large numbers of children, and the drug makers have already received $1 billion in incentives to manufacturer the vaccine for developing countries. 'We think it’s time for Glaxo and Pfizer to do their part to make vaccines more affordable for countries in the long term, because the discounts the companies are offering today are just not good enough,' says Malpani in a statement.

Moreover, Doctors Without Borders warns that pricing may eventually make it harder for a growing number of middle-income countries to afford vaccines. Over time, some of these countries will eventually ‘graduate’ from the subsidized vaccine pricing established by Gavi and, when that happens, Doctors Without Borders estimates costs may rise up to six times what is the countries pay today.

The post included a statement from Pfizer about how hard it is to manufacture the vaccine, and an update to the post included a statement from Pfizer that it was already selling its pneumococcal vaccine, Prevenar 13, below cost to GAVI, which buys up vaccines and provides them to poor countries. A week later, again via (the old version of) PharmaLot, Pfizer announced an additional 6% price cut. Furthermore, Bill Gates, whose foundation supports GAVI, insisted that cutting vaccine prices would discourage pharmaceutical companies from investing in vaccine research and supplying products to poor countries, according to the Guardian.

However, neither Pfizer nor Mr Gates acknowledged how much money Pfizer already is making from Prevenar in developed countries, amounts which likely do far more than offset any losses in poorer countries. Specifically, in July, 2015 FierceVaccines reported that

The world's biggest vaccine by sales--Prevnar 13--just keeps getting bigger. And in doing so, the shot helped Pfizer notch 44% vaccines growth for the second quarter as the unit saw sales grow from $1.09 billion in last year's Q2 to $1.58 billion during the period this year.

For the quarter, the superstar pneumococcal disease-blocker notched a U.S. sales increase of 87% versus the same period last year, a jump Pfizer CEO Ian Read attributed to 'continued strong uptake' in U.S. adults.

Also,

Prevnar 13, which reeled in $4.29 billion in sales last year, is expected to grow to $5.83 billion in 2020 and remain atop the vaccines sales charts.

And,

The company is also working 'country by country' to broaden the vaccine's reach in G7 countries....

So there seems to be some evidence in support of the Doctors Without Borders claim that Pfizer could easily afford some small losses selling vaccines for use by poor children in less developed countries while it makes billions of dollars from vaccine sales in developed countries.  


Pfizer Settles Shareholder Suit for $400M

This settlement was just the latest that has resulted from allegations of illegal drug marketing by Pfizer.  As reported again by the redoubtable Ed Silverman in the old version of PharmaLot,

Pfizer has reached an agreement in principle to pay $400 million to settle a class-action securities lawsuit that alleged the drug maker illegally marketed several medicines and, subsequently, caused investors to lose money, according to a filing with the U.S. Securities and Exchange Commission.

The lawsuit alleged that, between January 2006 and January 2009, Pfizer marketed several drugs on an off-label basis. The medicines included the Bextra painkiller that was withdrawn from the market in 2005; the Geodon antipsychotic; the Zyvox antibiotic and the Lyrica epilepsy treatment.

The lawsuit, which was filed in federal court in 2010, alleged that the sales boost the drug maker received from the marketing prompted Pfizer executives to make 'false and misleading statements about Pfizer’s financial performance and sales practices [that] caused Pfizer stock to trade at artificially inflated prices.'

This settlement followed an even larger one back in 2009 when,

the drug maker revealed plans to pay $2.3 billion to resolve criminal and civil allegations that these drugs were marketed illegally.

We discussed that settlement in 2009 here, here, and here.  Note that the 2009 settlement included a guilty plea to a criminal charge (albeit to a misdemeanor), and was of allegations including paying kickbacks to doctors for use of Pfizer drugs.  So this additional settlement of deceiving investors just ices that cake. 

UK Competition and Markets Authority Stated Pfizer Abused Market Dominance

This story appeared in August, 2015, via the Telegraph,

The Competition and Markets Authority (CMA) has issued a statement of objections alleging the companies breached UK and EU law by raising the prices they charged for phenytoin sodium sold to the NHS.

In particular,

The CMA says that for years industry giant Pfizer, which is listed in the US, and Flynn, a Stevenage-based company, between them sold the drug at a price up to 27 times higher than it had been previously priced.

Before September 2012, Pfizer manufactured and sold phenytoin sodium capsules to UK wholesalers and pharmacies under the brand name Epanutin.

Pfizer then sold the UK distribution rights for Epanutin to Flynn, which 'de-branded' the drug and started selling its version in September 2012. Pfizer continued to manufacture the drug, which it sold to Flynn at prices the CMA says were 'significantly higher' than those at which it had previously sold Epanutin.

The CMA claims Pfizer sold the drug at between 8 and 17 times its historic prices to Flynn, which then sold on phenytoin sodium at between 25 to 27 times more than the prices previously charged by Pfizer.

Before Flynn bought the rights for Epanutin, the NHS spent about £2.3m on phenytoin sodium capsules a year, according to the CMA. After the deal this spend rose to just over £50m in 2013 and more than £40m in 2014.

While the CMA findings were apparently "provisional," but the agency has the power to find that the law has been breached and "has the power to fine then up to 10pc of their global annual turnover - last year Pfizer had revenue of almost $50bn."  So this is the second government finding of anti-competitive behavior by Pfizer in a little over one year.

Pfizer Resists AllTrials Calls for Transparency

Late in August, 2014, per the Guardian,

Pfizer, one of the world’s largest pharmaceutical groups, has said it will resist demands from investors and transparency campaigners that it disclose results from all historical drug trials.

We have been discussing how pharmaceutical, biotechnology, and device companies have manipulated the clinical trials they sponsor to increase the likelihood that the results make their products look good, and may suppress trials whose results cannot be made to look good enough. This clinical research suppression and manipulation can lead to poor clinical decisions, may harm patients, and abuses the trust of patients who volunteer to participate in clinical research. This situation has led to the AllTrials campaign to make clinical research transparent (look here). However,

Pfizer said it had a 'longstanding commitment to clinical trial transparency' and it already published data for trials from 2007. Requests for earlier data are considered on an individual basis. But it added: 'We don’t believe that further investment beyond this would offer value to patients, health services or to our shareholders.'

This despite arguments above about the harms of research suppression.  Given how much money Pfizer has spent on lawsuits, including one above about allegations of its management's deception of shareholders, one might think it would be worth it for management to make a little investment in transparency.

Pfizer Found to Have Withheld Reports of Adverse Drug Events in Japan

Finally, reported in September, 2015 by in-PharmaTechnologist.com,

Pfizer failed to report hundreds of serious adverse drug reactions (ADRs) in the required timeframes according to Japan’s Ministry of Health, Labor and Welfare (MHLW) which has issued the US firm with a business improvement order. 

That website has copy protection so I cannot quote further, but the order involved 11 drugs, including Enbrel and Lyrica.  So here is yet another example of a government agency finding that Pfizer was less than transparent, if not overtly deceptive.

Summary

So in a little more than a year, Pfizer has been accused of anti-competitive practices raising drug costs in Italy, excess pricing of vaccines for use by poor children in undeveloped countries, deceiving its own investors about illegal marketing activities in the US, abuse of market dominance leading to excessive drug costs in the UK, stonewalling clinical trial transparency measures globally, and failing to disclose adverse drug effects in a timely manner in Japan.  This is on top of an already impressive record of misbehavior (See our summary of Pfizer mischief at the end of the post.)

However, as seems usual these days, no one at Pfizer who might have authorized, directed or implemented any of this bad behavior has ever seemingly paid any sort of penalty for it.  Instead, while this was going on, the top leadership of Pfizer just gets richer faster and faster.  In fact, in March, 2015, the Wall Street Journal reported the current Pfizer CEO's total compensation in 2014,

Pfizer Inc. said Thursday that Chief Executive Ian Read’s total compensation rose 23% last year, lifted by an increase in pension value that offset a reduced annual bonus and equity award.

Furthermore,

Mr. Read’s 2014 pay package totaled $23.3 million. The board raised the CEO’s salary to $1.83 million from $1.79 million but decreased his annual bonus by $400,000 and his equity award by nearly $1 million despite concluding that Mr. Read’s leadership during the year was 'outstanding.'

[Even though] Over the course of 2014, shares in the New York-based pharmaceutical company gained about 2% amid a 4% decrease in revenue.

It is not obvious that the rise in CEO pay is even remotely correlated to any rise in share-holder value.  Moreover, there seems to be a total disconnect between the rewards given the CEO and the ethical record of the company he leads, especially since Pfizer, which calls itself "one of the world's premier pharmaceutical" corporations, announces its aspirations thus,

we at Pfizer are committed to applying science and our global resources to improve health and well-being at every stage of life. We strive to provide access to safe, effective and affordable medicines and related health care services to the people who need them.

Never mind all those pesky allegations of overpricing, anti-competitive practices, deception and opaqueness, and never mind that current executives are becoming exceedingly risk in part from the continuation of such practices.  So it seems the board of Pfizer will just continue handing its executives piles of money, despite, or for all I know, because of the company's continuing bad behavior.  Given these incentives, is it any wonder that the bad behavior continues?  Pfizer seems to be just another example - albeit a big one - of how health care is dominated by an oligarchy of unaccountable leaders who continue to demonstrate their impunity hidden by aspirational but hollow public relations and marketing.

Of course, it is doubtful such bad behavior would continue if there risks of external penalties, e.g., from law enforcement.  But there never seem to be any.

In the past, US law enforcement authorities have announced they would use the responsible corporate officer doctrine, a legally tested rationale for prosecuting corporate managers for bad behavior by those who report to them (e.g., in 2010, look here),  But it seems they have never done so, at least in cases involving large health care organizations.  Last week, the US Department of Justice announced it would start going after executives of companies that misbehave, and would press the companies to give up the name of responsible executives in exchange for more lenient treatment of the companies themselves (e.g., see this report in the NY Times).  Meanwhile, however, the march of legal settlements for bad behavior in health care continues, absent any penalties for organizational leaders who might have authorized or directed it, much less for those who simply put incentives in place to foster bad behavior while looking away from what those incentives inspired.    

I hope these current promises by law enforcement officials are not as hollow as earlier ones, because continuing our society's continuing failure to rein in corrupt business practices via law enforcement and regulation may lead a desperate populace to more radical approaches. The UK Labor Party just elected a Marxist leader (see this Reuters report.)  One wonders how long it will be before anger at the larger oligarchy, of which health care leadership is merely a part, boils over in other countries, and in more radical ways.

Instead, we continue to advocate for true health care reform with the immediate priority of changing how health care organizations are led, and ensuring leadership that upholds health care values, is willing to be accountable, and is open, honest, transparent and ethical.  We still may have time to reform.  But the reform will have to be big and true.  If not, moderate voices may be drowned out, and the results may be worse than anyone could imagine.

Appendix - Pfizer's Previous Settlements


For all our posts on Pfizer, look here.

In the beginning of the 21st century, according to the Philadelphia Inquirer, Pfizer made three major settlements,
- In 2002, Pfizer and subsidiaries Warner-Lambert and Parke-Davis agreed to pay $49 million to settle allegations that the company fraudulently avoided paying fully rebates owed to the state and federal governments under the national Medicaid Rebate program for the cholesterol-lowering drug Lipitor.
- In 2004, Pfizer agreed to pay $430 million to settle DOJ claims involving the off-label promotion of the epilepsy drug Neurontin by subsidiary Warner-Lambert. The promotions included flying doctors to lavish resorts and paying them hefty speakers' fees to tout the drug. The company said the activity took place years before it bought Warner-Lambert in 2000.
- In 2007, Pfizer agreed to pay $34.7 million in fines to settle Department of Justice allegations that it improperly promoted the human growth hormone product Genotropin. The drugmaker's Pharmacia & Upjohn Co. subsidiary pleaded guilty to offering a kickback to a pharmacy-benefits manager to sell more of the drug.

Thereafter,
- Pfizer paid a $2.3 billion settlement in 2009 of civil and criminal allegations and a Pfizer subsidiary entered a guilty plea to charges it violated federal law regarding its marketing of Bextra (see post here).
- Pfizer was involved in two other major cases from then to early 2010, including one in which a jury found the company guilty of violating the RICO (racketeer-influenced corrupt organization) statute (see post here).
- The company was listed as one of the pharmaceutical "big four" companies in terms of defrauding the government (see post here).
- Pfizer's Pharmacia subsidiary settled allegations that it inflated drugs costs paid by New York in early 2011 (see post here). 
- In March, 2011, a settlement was announced in a long-running class action case which involved allegations that another Pfizer subsidiary had exposed many people to asbestos (see this story in Bloomberg).
- In October, 2011, Pfizer settled allegations that it illegally marketed bladder control drug Detrol (see this post).
- In August, 2012, Pfizer settled allegations that its subsidiaries bribed foreign (that is, with respect to the US) government officials, including government-employed doctors (see this post).
- In December, 2012, Pfizer settled federal charges that its Wyeth subsidiary deceptively marketed the proton pump inhibitor drug Protonix, using systematic efforts to deceive approved by top management, and settled charges by multiple states' Attorneys' General that it deceptively marketed Zyvox and Lyrica (see this post).
- In January, 2013, Pfizer settled Texas charges that it had misreported information to and over-billed Medicaid (see this post).
- In July, 2013, Pfizer settled charges of illegal marketing of Rapamune (see this post.)
- In April, 2014, Pfizer settled allegations of anti-trust law violations for delaying generic versions of Neurontin( see this post).
- In June, 2014, Pfizer settled another lawsuit alleging illegal marketing of Neurontin (see this post).

1:43 PM

You Can Check Out Any Time You Like, But You Can Never Leave - Duke and UNC Allegedly Agreed Not to Hire Each Other's Faculty

We have intermittently discussed the worsening plight of physicians trying to provide clinical care as employees of large organizations.  Such corporate physicians are likely to be squeezed between professional values that put the patient first, and management that puts revenue first.   Physicians employed by large corporations may find their values increasingly at risk as these organizations adapt the tactics of the robber barons.

Now it appears that even ostensibly genteel academic medical institutions may be adapting these tactics.

Allegations of Anti-Competitive Faculty Employment Practices at Duke and University of North Carolina Medical Schools


The story first appeared with little fanfare in the (Duke) Chronicle in June.  An assistant professor at the UNC School of Medicine was interested in a position, also at the assistant professor level, at nearby Duke.

[Dr Danielle] Seaman had been in email communication with UNC’s Chief of Cardiothoracic Imaging beginning in 2011, when she expressed interest in a radiology position at the UNC School of Medicine, and the chief of the division encouraged her to apply, the case file describes. In 2012, Seaman was invited to visit the campus and toured the radiology department at UNC.

However,

When Seaman expressed interest in the assistant professor position again in early 2015, however, the chief responded in an email by saying he had just received confirmation that 'lateral moves of faculty between Duke and UNC are not permitted' as per a 'guideline' set by the schools’ deans.

In a later email, the chief also described to Seaman the reason the agreement was created—Duke had tried several years ago to recruit the entire bone marrow transplant team from UNC, and UNC was forced to pay them a large retention package to keep them.

Both emails are included in the filing by Dr Seaman's lawyers.


Imagine the nerve of medical faculty thinking they should be paid more by the current employer because another institution was willling to recruit them and pay them that much.
 
An Agreement Comfortable for the Deans, but Disadvantageous for Their Faculty

An August article in the Chronicle suggested that the top leaders of the two medical schools felt that the "no-poaching" agreement was mutually beneficial. 

According to the case file, Seaman became aware of the policy earlier this year, but the UNC chief of cardiothoracic imaging—who is unnamed in the file—believed the policy had been in place for several years after Duke had previously tried to recruit the entire bone marrow transplant team from UNC.

'The general rule was that we didn’t recruit there and they didn’t recruit at Duke—it certainly was in the years I was in the administration,' said John Burness, former senior vice president for public affairs and government relations from 1991 to 2008. 'I don’t know if it’s ever been a formal agreement, but it’s certainly been a practice over a long period of time.'

Burness—now a visiting professor of the practice in the Sanford School of Public Policy—noted that he could not recall an instance in which a faculty member from UNC was recruited to Duke during Nannerl Keohane’s tenure as president of the University from 1993 to 2004. Keohane also confirmed that during her time as president the University avoided poaching of UNC faculty.

Also,

'The question of whether Duke and UNC [or N.C. State] should attempt to recruit faculty from the other campus was always somewhat delicate,' Keohane, now Laurance S. Rockefeller distinguished visiting professor of public affairs at Princeton University, wrote in an email.

The Chronicle found a Duke Law professor who provided a comfortable rationale for the agreement between the two schools,

Despite the case file’s claims that such a policy is detrimental to faculty from both schools, Clark Havighurst—a former professor in the Duke University School of Law who taught healthcare policy and antitrust law for more than 40 years—also believes that this agreement would be beneficial to both institutions in the long run.

'You’d probably find relatively few instances where Duke and Carolina have poached each other’s faculty,' Havighurst wrote in an email. 'This is probably a matter of mutual restraint as much as explicit agreement, however, as each school or department would hesitate to irritate the faculty at the neighboring institution, thus undermining collegial and personal relations that are undoubtedly beneficial to each.'


What the soothing words about mutual benefit and collegiality leave out is that while the school administrations benefit from less disruption, they also likely benefited by being able to pay their faculty, especially junior faculty less. As Dr Seaman argued in her filing, as per the June Chronicle article,

The suit—filed June 9 in the United States District Court for the Middle District of North Carolina—contends that the no-hire agreement had the “intended and actual effect” of suppressing competition and employee wages, therefore violating federal and state anti-trust laws.

An Aside, the Non-Poaching Agreement Defended by One of the Key Advocates for Market Fundamentalism in Medicine

As an aside, Professor Havinghurst turns out to be one of key architects of the transformation of the US health care from a regulated system emphasizing health care provided by individual professionals and small non-profit institutions to our current laissez faire commercialized system.  It is more than ironic that while Prof Havinghurst now scoffs at applying anti-trust law to alleged collusion by big employers, per M Gregg Bloche in the Stanford Law Review(1),

Since the mid- 1970s, market-oriented scholars have challenged a broad range of legal principles previously assumed to sustain the trustworthiness of physicians and health systems. Doctrines shielding physicians from antitrust law, insulating them from insurers' and hospitals' influence over clinical practice, and reinforcing the precept of undivided clinical loyalty to patients came under attack as protection for the medical profession at consumers' expense. These scholars, including Clark Havighurst, Richard Epstein, and Mark Hall, urge contractual ordering of clinical standards of care; relationships among physicians, hospitals, and health care payers; and physicians' conflicting obligations to patients, payers, and other third parties.

Again, Havinghurst appears to have been one of the principal, if not the principal advocate to use anti-trust law against small groups of physicians, and against the notion that physicians can promulgate their own codes of ethical conduct.  In an introduction to an article by Havinghurst in Health Affairs in 1983.(2)

For a decade or more, Clark Havighurst has been a philosophical thorn in the side of organized medicine, preaching a view of the health sphere that rejects decision making by professional self-regulation in favor of a system based on marketplace principles.

Note that in retrospect, this article seemed to stake out Health Affair's position as an important organ to promote market fundamentalism in health care. 

How convenient that Prof Havinghurst is still affiliated with Duke and in a position to defend his university's treatment of other faculty.


I urge you to scan Health Care Renewal to see how the change from professional self-regulation of ethics to the free rein of the laissez faire marketplace turned out. Look here for our first reporting on the late Dr Arnold Relman's discussion of how medicine was pressured to accept commercialization, and how that acceptance has since decimated our core values.  Look here for our discussion of the fallacy of the perfect market in health care.  Look here for a rebuttal from an authority we do  not often quote of the concept of health care as a commodity versus a calling. 

Summary

Note that the outcome of the lawsuit against Duke and UNC is unknown.  The allegations it makes are not proven.  However, I chose to discuss it because the evidence, particularly the emails reproduced in the court filing, seems pretty strong that the two schools did have an actual agreement not to compete in the hiring of faculty, and the argument that his suppressed faculty wages and opportunity is prety strong and obvious.

Academic physicians, particularly at elite institutions, may feel they are in a rarefied atmosphere separate from the hurley burley or everyday health care.  They may feel they are protected from, and can even ignore the health care dysfunction we discuss on Health Care Renewal.  They certainly may not think of themselves as "wage slaves" from the era of trusts, monopolies, and robber barons.

But this case exhibits that academic medical institutions are getting closer to the ruthless world of poorly regulated, commercialized, market fundamentalist health care.  Talk about collegiality is nice, but it seems pretty clear that the "non-poaching" agreement between Duke and UNC may have reflected collegiality among top medical school leadership, but limited their faculty salaries and individual faculty members' choices and opportunities.  This seems like another example, however soft spoken and genteel, of the leaders of health care organizations putting the interests of their own ingroup ahead of the interests of the larger organizations and the mission they are supposed to serve.

It is time for even academic physicians to realize that they are not protected from the troubles of the larger world.  If they truly believe in their professional values, if they really care about patients' and the public's health, and about medical and health care science and education, they will have to start speaking up, or they will end up wage slaves of the new health care robber barons along with nearly everyone else.   

To lighten things up at the end, the Eagles doing Hotel California live in 1977 -



"We are all prisoners here, of our own device"

References
1.  Bloche MG. Trust and betrayal in the medical marketplace.  Stanford Law Review 2002; 55: 919-954.  Link here.
2.  Havinghurst C. The doctors' trust.  self-regulation and the law.  Health Affairs 1983; 2: 64-76.  Link here.

12:11 PM

Turning Patients into "Dialysis Dollars"

As we have discussed in previous posts (here and here), prior to a US Supreme Court decision in 1975, physicians (and other professionals) were left free to set up and enforce their own codes of ethics. Until about 1980, the US American Medical Association (AMA) stated,

• "in the practice of medicine a physician should limit the source of his professional income to medical services actually rendered by him, or under his supervision, to his patients"
• "the practice of medicine should not be commercialized, nor treated as a commodity in trade"

The Supreme Court decision was widely construed as meaning that any promulgation by US professional organizations of ethical regulations that constrained any economic practices of their members was a violation of anti-trust laws. Thus, in 1980, the AMA dropped their prohibitions against the commercialization of medicine, and nobody, it appeared, tried to change the anti-trust law whose provisions the court interpreted.

A vivid example of how physicians and patients may be caught in the cross-fires among health care corporations in this brave new era of commercialized health care was provided by a recent report in the Denver Post:

News that Fortune 500 company DaVita Dialysis is moving its headquarters to Denver socked its competitors like a punch in the gut.

To its rivals, the kidney-care giant is a bully armed with high-powered attorneys who use lawsuits as tools to intimidate.

DaVita executives counter that they are simply strong competitors — they act as aggressors only when doctors or nurses or other dialysis companies break promises and double-cross them.

Either way, a string of DaVita-filed lawsuits around the country — with two major battles boiling in Denver and Colorado Springs — shed light on the ruthless competition over dialysis patients in an industry that costs Medicare alone more than $8 billion per year.

For years, DaVita's competition in Colorado's two largest cities was almost nonexistent.

The mud began to fly last year when the second-largest group of Denver kidney doctors, called nephrologists, ended their exclusive affiliation with DaVita and partnered with a Massachusetts dialysis company entering the Denver market. Near the same time, the largest nephrology group in Colorado Springs dumped DaVita in favor of Liberty Dialysis, which recently opened two dialysis centers in the city.

DaVita quickly sued doctors in both cities, plus a nurse battling breast cancer who quit her job at a DaVita dialysis center and took one with Liberty.

The hostility between the companies is so intense, it's seeping down to the patients.
'With everything that is going on, you feel like you are becoming sort of a dialysis dollar,' said Julie Estes, a 53-year- old Colorado Springs woman who spends three days a week, four hours at a time, hooked to a dialysis machine in order to stay alive.

DaVita says it 'paid millions' in 1998 to the doctors of Western Nephrology in Denver to retain them as medical directors of six dialysis centers in the metro area for 10 years. The doctors signed non-compete agreements, promising not to join forces with DaVita rivals or steal any of the California-based company's nurses.

Patients are free by law to choose any dialysis center they want. But dialysis companies bank on the fact that snagging the most popular kidney doctors in town to serve as medical directors of their centers will bring in the most patients — and the most dollars.

Every dialysis center is required by federal law to have a medical director to oversee the care of patients and the water purification system used to flush toxins from the blood of people with failing kidneys.

It's a side job, separate from a nephrologist's practice, that some estimate takes only a couple of hours each week. Companies and doctors declined to say what salary comes with the job, but estimates range from $20,000 to $200,000 per year depending on the competitiveness of the market.

After 10 years with DaVita, when they believed the non-compete agreement was about to expire, Western Nephrology doctors began making plans to become medical directors of shiny-new American Renal Associates dialysis centers opening in Denver with a flat-panel TV and heated, massage chair at every dialysis station.

Four of the new centers are within 3 1/2 miles of existing Da Vita centers. The non-compete agreement that Western Nephrology doctors had signed for DaVita prohibited them from having relationships with competitors within a 35-mile radius.

DaVita contends in its lawsuit that it found out about Western Nephrology's 'secret campaign' because the dialysis company they were working with applied for Medicare billing numbers for five new centers in the Denver area.

In its counterclaim, American Renal Associates accused DaVita of violating federal antitrust law — the company had controlled at least 80 percent of the Denver market. DaVita lagged in updating its dialysis centers until competition was imminent, according to court records. And the claim accused DaVita of 'filing legal actions that are objectively baseless' merely as an 'anticompetitive weapon.'

"Ruthless competition," "lawsuits as a tool to intimidate," "double crosses," flying mud, patients who feel like "dialyis dollars," non-compete agreements, medical directors paid according to "the competitiveness of the market," "secret campaigns?" - is this any way to run a health care system?

As Dr Arnold Relman pointed out (see our previous posts linked above), through the 1960s there was some consensus that health care does not function like a pure market, partially because patients cannot function like steely-eyed consumers. They do not have enough information about the benefits, harms and costs of their possible choices. They have trouble understanding the ambiguity and uncertainty of the medical context. And most important, they may not be capable of the cold cognition the free market model requires, since they may be dealing with choices whose potential outcomes prompt extreme emotions, and in many cases, they may be too frightened, sick, or cognitively impaired to make fully rational choices. In particular, patients with end-stage kidney disease, requiring dialysis to maintain life, seem very different from some ideal, coldly cognitive consumers. So what in the world are they doing caught up in these sorts of disputes?

I submit that real health care reform ought to help physicians and other health care professionals renew their professionalism, and put the provision of health care (and health education and clinical research) back in the hands of people who view these activities as callings, not purely as ways to get rich. Meanwhile, when you are a patient, be prepared to be treated merely like a source of revenue.

PS - Please note that, as we have posted before, the new US "czar" for health care reform is a former member of the board of directors of DaVita.

8:24 AM

Why Did US Physicians Give Up Their Ability to Enforce Their Own Professional Standards?

In his recent review of Dr Ezekiel Emanuel's book, (Healthcare, Guaranteed: A Simple, Secure Solution for America,) Dr Arnold Relman, Editor-Emeritus of the New England Journal of Medicine, discussed the history of the deprofessionalization of American physicians.

The behavior of US physicians has been changed by the commercialization of medical care, and this too has increased costs. US medical practice has traditionally relied on fee-for-service, which has always given it some of the attributes and incentives of a business. However, the American Medical Association (AMA) maintained for many years that medical practice was a profession, not a business. The AMA's ethical guidelines therefore advised physicians to limit their income to reasonable earnings from the care of patients, and to refrain from advertising and from entering financial arrangements with drug and device manufacturers. Those restrictions were lifted after the US Supreme Court decided in 1975 that lawyers, and by extension members of other professions, including physicians, are engaged in interstate commerce and therefore must be subject to antitrust law (from which they had largely been exempt).(1)

This decision had an enormous effect on the medical profession, but its consequences have received relatively little public attention. Although the courts did not initiate the commercialization of medicine, they certainly accelerated it and gave it legal justification. In 1980, after medical organizations lost some costly antitrust trials, in which they were accused of such offenses as limiting doctor fees or denying staff privileges, the AMA changed its ethical guidelines, declaring medicine to be both a business and a profession. This lowered the AMA's barriers to the commercialization of medical practice, allowing physicians to participate in any legal profit-making business arrangement that did not harm patients.

Nearly a half-century ago, Stanford economics professor Kenneth Arrow, later a Nobel laureate, convincingly argued that medical care cannot conform to market laws because patients are not ordinary consumers and doctors are not ordinary vendors. He said that sick or injured patients must rely on physicians in ways fundamentally different from the price-driven relation between buyers and sellers in an ordinary market. This argument implied that, contrary to the assumptions of antitrust law, market competition among physicians cannot be expected to lower medical prices. And since physicians influence decisions to use medical services far more than patients do, the volume and types of services provided to patients—and hence total health costs—need to be controlled by forces other than the market, such as professional standards and government regulation. But Arrow's argument was largely ignored in the rush to exploit health care for commercial purposes that ensued after the passage of Medicare and Medicaid in 1965.(2)

Writing about the decline of physicians' professionalism in 2007 [ Relman AS. Medical professionalism in a commercialized health care market. JAMA 2007; 298: 2668-2670. [link here) ], Dr Relman had briefly alluded to the effect of the 1975 Supreme Court decision, (see our post here):

The law also has played a major role in the decline of medical professionalism. The 1975 Supreme Court ruling that the professions were not protected from anti-trust law undermined the traditional restraint that medical professional societies had always placed on the commercial behavior of physicians, such as advertising and investing in the products they prescribe or facilities they recommend. Having lost some initial legal battles and fearing the financial costs of losing more, organized medicine now hesitates to require physicians to behave differently from business people. It asks only that physicians' business activities should be legal, disclosed to patients, and not inconsistent with patients' interests. Until forced by anti-trust concerns to change its ethical code in 1980, the American Medical Association had held that 'in the practice of medicine a physician should limit the source of his professional income to medical services actually rendered by him, or under his supervision, to his patients' and that 'the practice of medicine should not be commercialized, nor treated as a commodity in trade.' These sentiments reflecting the spirit of professionalism are now gone.

It seems to me that Dr Relman has elucidated one of the "missing links" that help explain the current sorry state of physicians' core values, and the broader continuing health care crisis. I am amazed that this bit of history seems to have been so thoroughly forgotten. Dr Relman did write about it before 2007, but in publications that few physicians and other health care professionals were likely to see. Other than Dr Relman, almost no one writing in the medical and health care literature seems to have interest in this issue. (It has been discussed in the Journal of Health Politics, Policy and Law, and the Stanford Law Review by M. Gregg Bloche, but these unfortunately also could have easily been missed by nearly all physicians and health care professionals.) So we have another example of the anechoic effect.

Yet in my humble opinion, every physician and health care professional ought to know that the profession once foreswore the commercialization of medical practice, but gave up on its ability to police its own conflicts of interest after the US Supreme Court decided that professionals are subject to anti-trust law.

But knowing this important bit of history raises more questions than it answers:

• The Supreme Court decision apparently involved interpretation of law, not the constitution. Therefore, why didn't organized medicine pursue a change in the law that would allow physicians to continue to enforce their traditional professional values?
• The Supreme Court decision was primarily directed at lawyers, not physicians. Since the decision, to my knowledge, the law profession has maintained strict rules about conflicts of interest. (For example, no legal CME is sponsored by corporations whose products they seek to have the attendees favor.) Why did the decision wreck physicians' but not lawyers' abilities to regulate their own conflicts of interest?
• The Supreme Court decision only affects US law. Why have physicians in other countries also abandoned their traditional values about commercial entanglements?
• Why did this application of US antitrust law have such significant effects during an era when antitrust enforcement in health care was generally declining? (Insurance companies and hospitals that dominate local markets have not feared antitrust enforcement.)
• Why did only Dr Relman and Prof Bloche seem to care about this up to now?

Inquiring minds want to know.... And answering these questions might bring us back on the path of true medical professionalism.

Hat tip to Merrill Goozner in the GoozNews blog.

References (from Relman)

1. Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975).

2. Kenneth J. Arrow, "Uncertainty and the Welfare Economics of Medical Care," The American Economic Review, Vol. 53, No. 5 (December 1963).

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