Memorial Sloan Kettering scandal raises questions for pharma's biggest corporate boards
The resignation of Memorial Sloan-Kettering's CEO from the corporate board of Merck & Co. last month has drawn new attention to the opaque web of connections between pharmaceutical companies and nonprofit health systems at the highest levels of power.
A BioPharma Dive review found about two-thirds of the pharma industry's largest companies had at least one board member compensated by both the nonprofit they lead as well as the drugmaker, setting up a potential financial conflict of interest.
Each role entails a distinct mission. On one hand, these individuals guide a nonprofit institution, ostensibly operating with a public or community interest in mind. By contrast, a director on a for-profit corporate board carries a fiduciary responsibility to pursue shareholders' interests and, in effect, help the company grow and succeed.
While the directorships are disclosed in proxy statements of the public companies, most nonprofit health system websites failed to disclose the directorship on the main biographical page of that leader. Generally, these relationships have not been subject to the same scrutiny from the public and academia as others in the healthcare industry, such as ties between drugmakers and physicians.
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The health systems — including well-known names like the Mayo Clinic, the Dana-Farber Cancer Institute and Massachusetts General Hospital — defend these arrangements. Many point to conflict-of-interest policies that aim to prevent misconduct. But critics say the dual positions can be inappropriate, with some calling for closer examination in light of recent questions on corporate ethics at Sloan Kettering.
"It does seem like buying influence and it's hard to imagine what else it would be," Carl Elliott, a professor for the Center for Bioethics at the University of Minnesota said in an interview with BioPharma Dive. "If you're actually trying to buy scientific knowledge, then you wouldn't really be going after CEOs. What they have is power."
That criticism is off target, said those that defend the relationships. Board service can provide valuable insights and experience useful to companies on both sides of the relationship.
Eric Orts, a legal studies and business ethics professor at the Wharton School of the University of Pennsylvania said in an interview with BioPharma Dive that these dual positions can bring valuable efficiency gains when people do the right thing.
"I wouldn't want to throw everybody under the bus just because you have some cases where people behave unethically or egregiously," Orts said.
In Sloan Kettering's case, the nonprofit's chairman struck a questioning tone on the suitability for CEO Craig Thompson to be on Merck's board when Thompson announced his resignation on Oct. 2.
"We need to step back from that now and ask ourselves whether that continues to be appropriate, whether it's appropriate in the future," Douglas Warner, the cancer center's board chairman then told The New York Times.
While the controversy has spurred a re-think at Sloan Kettering, it hasn't led to a broader re-evaluation of board service among other nonprofit healthcare companies.
BY THE NUMBERS
Conflict of interest concerns are well documented in other corners of the industry. The effect of financial relationships between drugmakers and doctors has been widely studied, for example. But research on board ties between healthcare sectors is limited.
According to BioPharma Dive's review, 12 of the 19 largest pharmas and biotechs had one or more directors also serving in leadership roles at nonprofits in the healthcare industry. In total, these dozen companies had 22 board members in such a situation.
These 22 people guide some of the most prestigious organizations in the healthcare world, holding titles such as CEO, dean or ophthalmologist-in-chief.
BioPharma Dive's review was limited in scope, considering pharmaceutical companies trading on U.S. markets with a current market value of at least $35 billion as of Nov. 27. Additionally, the analysis focused only on directors with simultaneous leadership roles at prominent nonprofits in the healthcare system, including hospitals and university-affiliated research centers.
These criteria excluded other roles, such as university president or heads of laboratories. Stanford's president Marc Tessier-Lavigne, for example, serves on Regeneron's board, while CRISPR pioneer Jennifer Doudna simultaneously runs a lab at the University of California, Berkeley and serves on Johnson & Johnson's board.
The analysis did not consider publicly traded corporations in other health sectors like insurance, medical device makers or pharmaceutical benefit managers. Experts said those industries have similar trends in their board compositions.
In 2017, the 18 directors who served on their pharma's board for the entire year received an average compensation package of more than $475,000, an analysis of company proxy statements found. Those 18 owned stock in the drugmaker they directed, with average holdings of $1.7 million each using Nov. 27 market values. Four of the 22 directors joined midway through 2017 or in 2018.
As equity payments vary across companies, this figure includes restricted stock units, which typically vest after a set number of years of service or if certain performance metrics are hit, and excludes all stock options as well as shares directors disclaimed beneficial ownership of in Securities and Exchange Commission filings.
BioPharma Dive sent questions and interview requests to each nonprofit health system on how they handle these roles. While none made an executive available for an interview, most replied with links to their policies, which focused on internal disclosure and recusal.
None of the nonprofits said they restricted compensation levels from these outside roles beyond fair market value. Partners HealthCare, which oversees Massachusetts General Hospital and Brigham and Women's Hospital, received front-page coverage from The New York Times in 2010 when the nonprofit announced it would cap outside directorship payments to $5,000 per day. In 2013, its board of directors quietly voted to scrap the limit.
"After several years of working with this cap, an approach that to our knowledge no other academic institution adopted, it was felt that such a rigid and restrictive approach was counterproductive," Chris Clark, senior counsel for Partners, wrote in a statement to BioPharma Dive, "and that individual situations should be addressed on a case-by-case basis, with the guiding principle that compensation should not exceed fair market value."
While most organizations responded, some declined to comment, including Memorial Sloan Kettering.
SCRUTINIZING THE LEADERS OF MEDICINE
There have been just a handful of academic studies on these board relationships. The lack of attention, experts say, stems in part from the risk of criticizing or questioning people in these positions.
Walid Gellad, director of the Center for Pharmaceutical Policy and Prescribing at the University of Pittsburgh, is among the the academics who have authored papers on the topic. But even Gellad, an outspoken critic of many industry practices, said he treaded carefully in his work, choosing not to identify individuals in his papers. And he may have never decided to cover the subject if he was at a different school with a different boss.
"I would never have written this paper if my dean was on a board," Gellad said in an interview with BioPharma Dive. "Academia is very hierarchical. The people who are on the boards are making every decision about the future of people's careers."
"These are leaders in medicine. These are people who can squash your career in no time."
Director of the Center for Pharmaceutical Policy and Prescribing, University of Pittsburgh
One of Gellad's papers published in the Journal of the American Medical Association found 40% of the 50 largest pharmaceutical boards had at least one academic medical center leader as a director in 2012 with an average compensation package of more than $310,000 per year.
Outside of just the pharmaceutical industry, a 2015 article Gellad collaborated on concluded that about 8% of more than 3,400 directors of for-profit healthcare companies analyzed for the study were affiliated with major nonprofit academic institutions.
Citing the harm of potential conflicting bias in decisions such as hiring and promoting faculty or creating new clinical centers, the authors argued for review, regulations and even prohibition of these arrangements.
Roy Poses, a clinical associate professor of medicine at Brown University, has written about this topic for more than a decade and has observed a persistent lack of attention from academia and media over the years.
Even if an issue is discovered and publicized, it "doesn't have any echoes," Poses said in an interview, and higher levels of dialogue rarely materialize.
A researcher who decides to critique, draw attention to or simply analyze conflicts of interest on corporate boards risks being alienated by colleagues or potentially getting fired or sued, Poses said.
However, there has been no recent shortage of research on industry's relationship with doctors, which has been the topic of dozens, if not hundreds, of recent journal articles.
Gellad said a push to focus on physician-industry relationships has come from the leaders of nonprofit hospitals and academic medical centers — the same people who have largely avoided close scrutiny of their own dual positions on corporate boards.
"There are rules being put in place for physicians," he said, "but no one is paying attention to the folks making those rules."
A review of the biographies of each executive on their nonprofits' websites found widespread inconsistencies around public disclosure and transparency. Sixteen of the 22 people did not disclose their director position with a pharmaceutical company.
For example, Robert Alpern, the dean of Yale University's medical school, joined AbbVie's board in 2013. The dean's biography page on the school's website does not disclose his directorship at AbbVie.
In 2014, with Alpern serving in both roles, AbbVie and the Yale School of Medicine agreed to a five-year, $14.5 million research deal. A story in Medicine at Yale, a publication by the medical school's communications office, did not reference the dean's directorship with AbbVie.
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In response to questions, a Yale spokesperson said its conflict of interest policies "preserve the independence of our faculty and reduce the potential for real or perceived bias in our research activities, clinical decision-making, and educational programs."
"If ever Dean Alpern had the opportunity to be involved in a decision affecting AbbVie, he would recuse himself," the spokesperson wrote, without addressing the 2014 agreement.
In another case, Peter McDonnell does list his board position with Allergan on his Johns Hopkins University page, where he directs the Wilmer Eye Institute. But his Allergan role is not disclosed on the editorial board page or his author page for Ophthalmology Times, where he is the publication's chief medical editor. His directorship also isn't routinely disclosed anywhere in the print publication. One of Allergan's best-selling products is the chronic dry eye disease drug Restasis.
"Maybe we should put that on there," said Sheryl Stevenson, the publication's group editorial director, in an interview with BioPharma Dive.
WHEN A CONFLICT BECOMES A PROBLEM
The closed-door, confidential nature of the boardroom leaves it difficult to verify exactly how these policies play out in the real world. However, a few examples in recent years have shown how these roles can be harmful when ethics is in doubt.
The New York Times and ProPublica reported in September about three MSK executives who held equity stakes in Paige.AI, an artificial intelligence startup founded by three MSK officials. The cancer center gave the company an exclusive deal for 25 million patient tissue slides in exchange for an ownership stake in the start-up of roughly 9%.
In another instance, former FDA Commissioner Mark McClellan sits on Johnson & Johnson's board while running Duke University's health policy center. In two recent bylined Health Affairs articles published in March and November 2017, he listed only his Duke position.
Two years ago, The New York Times called out how McClellan defended high-cost hepatitis C treatments as worth the price in a presentation with slides that used the Brookings Institution's brand, where he worked at the time. The Times said there was no mention of McClellan's relationship with J&J, which sold such drugs at the time. In a statement at the time, he pointed to his track record.
In 2005, The Wall Street Journal detailed Cleveland Clinic's off-label use of a medical device for heart surgery. The FDA had previously rejected an application three times for use of the device in the cardiac setting. At that time, Cleveland Clinic CEO Toby Cosgrove was sitting on the board of the company that made that operation and was also personally invested in it.
Cleveland Clinic barred doctors and administrators from making investment decisions a few months later.
THE IMPACT OF MSK
The resignation of MSK's CEO from Merck's board likely came in no small part from the intense public and internal rank-and-file criticism he and other MSK leaders have recently encountered.
The long-term question for the industry will be if other institutions incorporate a recurring, often ignored recommendation to further manage and acknowledge these conflicts in a proactive manner.
Critics of these dual positions argue the healthcare system would be better off without them, where conflict-of-interest policies can be tested by the sheer magnitude of compensation.
The nonprofits, on the other hand, argued that this cross-pollination helps foster ideas and that proper recusal and disclosure policies can mitigate any financial conflicts of interest.
Yet, those with the power to initiate reform are also the ones that change would likely affect. In Merck's case, the final decision for Thompson to resign was made by himself and the board's chairman.
"The only ones who can change it are the ones who have these conflicts," Gellad said.