Aug 3, 2016 12:00:00 PM
Over the last 30 days, third-party imaging equipment and service providers around the world have received copies of a letter from GE Healthcare notifying them of an unprecedented move to restrict sellers from including “non-base” software options with the sale of a previously-owned GE imaging system.
What the Letter Says
The core premise of this move is summed up in the letter as follows:
“Please be aware, unless otherwise explicitly stated by GE Healthcare in writing, software that is not part of the equipment’s base system standard operating software is non-transferable and only the original equipment purchaser has a non-exclusive, limited license to use such software.”
Who It Affects
At first glance, this move seems to be aimed at restricting competition within the refurbished equipment space- certainly an understandable goal as GE looks to grow equipment and service market share.
Far beyond independent refurbishment providers and their ability to provide useful software options in an economically feasible manner, however, there are several other parties who will be deeply impacted by this seismic shift:
- Everyone who owns a GE system: Whether a hospital, imaging center, or ISO, the inability to sell (or trade-in) equipment with “non-base” software options decreases equipment resale values significantly and immediately.
- Finance institutions: For banks holding the paper on a capital or operating lease, the residual value of those agreements just dropped in noteworthy fashion.
- GE customers: The equipment being purchased today will include software that is non-salable or transferable.
- Patients: If a facility has purchased a system with ASIR, GE’s radition dose reduction technology, from a refurbished service provider and was unable to afford the $100,000+ option, the option would need to be deleted from the system and patients would begin receiving significantly higher radiation doses on a system that was once fully equipped to reduce dosage.
While it’s evident there are some less-than-desirable outcomes for quite a few stakeholders within the GE imaging space, it’s important to ask, “Who wins?”
- GE: For customers who only buy GE equipment, the opportunity is certainly present to capitalize on the sale of new equipment. There is a strong chance as well that GE will see a big short-term gain for sale of software to customers that need to replace options that have been removed. The GE Goldseal Refurbisment program will also be able to buy back equipment at greatly-reduced values.
- Siemens, Philips, and Toshiba: One has to imagine that carrying such a letter into a competitive sales situation demonstrating the reduced resale value of a GE system would provide a pretty meaningful benefit.
There’s no question that software has proprietary elements and that the investment and creativity involved with imaging applications are to be applauded and compensated. That being said, in this time and marketplace, this move is certainly a head turner, especially given the significant price already paid for the intellectual property by the initial purchaser.
Block Imaging looks forward to attending the IAMERS European meeting to hear more from GE on the intent and immediate implications of this action. Furthermore, we look forward to hearing and providing additional information to bring more clarity on this matter to the imaging industry and customers around the world.
Written by Josh Block
Josh Block is the President of Block Imaging. He is also a husband, father of two, triathlete and self-proclaimed waffle chef. Josh strives to live out his passion for people by investing in and aligning the Block Imaging team to deliver a noteworthy customer experience and impact lives around the world through providing outstanding refurbished equipment, service, and parts.
In retrospect – always in retrospect – it should have been obvious that, when it came to Dr. Charles Denham, something was not quite right.
In a remarkable number of cases of medical errors, it’s clear – again, in retrospect – that there were signs that something was amiss, but they were ignored. The reasons are manifold: I was just too busy, things are always glitchy around here, I didn’t want to be branded a troublemaker by speaking up…. Part of the work of patient safety has been to alert us to this risk, to get us to trust our internal “spidey-sense.” When something seems wrong, we tell front-line clinicians, speak up!
It’s fitting, then, that the first major scandal in the world of patient safety has a similar subtext. The scandal, which broke two weeks ago, involves a $40 million fine levied by the Department of Justice against a company called CareFusion. The company allegedly paid Denham more than $11 million in an effort to influence the deliberations of a “safe practices” committee of the National Quality Forum co-chaired by Denham. While I was shocked to hear this news, in retrospect there were so many unusual things about the career of Chuck Denham that alarm bells could have, okay, should have, gone off – for many people who knew him, including me. But they didn’t.
Let me say at the outset that while some people feel strongly that leaders in safety and quality should have absolutely no ties with industry, I am not one of them. I serve on a corporate board (of IPC, the largest hospitalist staffing company in the US) and advise several companies working on various safety fixes, mostly technologies. I find this work interesting, enlightening, and fulfilling, and I am compensated for my time and expertise. I report all of these activities to my University and other organizations, and recuse myself from any decision that might possibly relate to one of these companies or their products, or potentially be perceived that way (a fuller description and a list of the companies is here).
Returning to the CareFusion/Denham affair, I first met Chuck Denham about 10 years ago, when he asked me to participate in a session that he was organizing for the National Patient Safety Foundation’s annual conference. The NPSF runs on a shoestring, yet I recall this session as being lavishly staged, our speeches accompanied by a video with Hollywood-like “production values.” I remember asking myself: Where did this person come from? And, more pointedly, where did his resources come from? I looked him up and learned that he ran an organization, called theTexas Medical Institute of Technology. I found precious little information about the Austin-based institute’s structure, staff, or history on the web, and Denham himself was based in Southern California. It all seemed a bit unusual, but not enough so to set off any alarms.
Over the next several years, I ran into Chuck at half a dozen safety meetings. I always found him enthusiastic, cordial, and highly (perhaps too highly?) complimentary of my work. He asked me to do a few things, including speaking in a couple of webinars staged by TMIT. These were quality events, well produced, and they gave me no reason to question his effectiveness or his motives.
Yet over the years, I found myself scratching my head about him on several occasions. A colleague visited him at his home in Laguna Niguel, an affluent beachfront LA suburb, and reported that it was palatial – not something commonly acquired on the salary of a former radiation oncologist. About five years ago, trying not to be too obvious, I asked Chuck where his money came from. He mentioned something about his wife’s family, and that he had decided to leave clinical practice to commit his life to patient safety. On several occasions, he talked about his “research test bed,” saying, “We’re in more than half the hospitals in America.” It wasn’t entirely clear what this meant; having visited many hospitals over the years, I never heard of one that was using the services of TMIT, the way you hear about hospitals that work with Premier or the Advisory Board or the Governance Institute. Very little of this added up, yet still there was no smoking gun.
Over the past few years, I received at least five different calls from colleagues who had been approached by Chuck to work on one project or another – a video to improve radiology safety, an effort to reduce central line infections, and several others I can’t recall. In each case, the question posed by my colleagues was a version of, “Is this guy for real?” In each case I said the same thing: Yes, both he and the situation seem odd, and no, I don’t know where he gets his money. Yet he appeared to be a nice guy, good to his word, and he produced results. I told them that – despite my head scratching – I couldn’t think of a sound reason not to work with him. When I mentioned this yesterday to Peter Pronovost, the Johns Hopkins intensivist who is the world’s leading safety researcher, he told me, “It’s not that five people didn’t understand Chuck… I don’t know anyone whodid understand.”
Things got odder still. Zelig-like, Chuck kept popping up in extraordinary places. After Dennis Quaid’s twin newborns nearly died of a heparin overdose at Cedars-Sinai Medical Center, I wondered whether Quaid would become a spokesperson for patient safety. The next thing I know, Quaid is holding a news conference, and standing beside him is Chuck Denham. And soon, a very slick video, Chasing Zero, was released and distributed gratis to hospitals everywhere. The producer: Chuck Denham.
And there’s more. The Journal of Patient Safety launched early in the safety field, co-sponsored by the National Patient Safety Foundation. To me, JPS has never been very good or particularly influential, and by all accounts it struggled to make ends meet. Then in 2011, I learned that it hadnamed a new editor. You guessed it: Denham. The change had been made so precipitously that the NPSF, a founding sponsor, claimed it had been blindsided and removed its sponsorship in protest. I looked back to see whether Denham’s pedigree could justify his being named the editor of an academic journal. A PubMed search revealed that, before 2009, he had not had a single first-author publication in a 20-year career. Since then he has had 12, 11 of them in JPS.
Which brings us to the National Quality Forum. The NQF was founded in 1999 to vet and endorse quality measures. After the safety field launched, NQF added several safety-related products, most famously an NQF-endorsed list of “safe practices” and another of “serious reportable events,” the latter more commonly known as the “never events” list. Two individuals shared the job of chairing the NQF Safe Practices committee. One, Gregg Meyer, is a respected academician and safety leader, whose career has included stints at AHRQ, Mass General, and now Dartmouth. The other: Chuck Denham.
All of this is preamble to the announcement earlier this month that the U.S. Department of Justice had fined CareFusion, a manufacturer of safety-related products (market cap: $8.5 billion), $40 million for having given Chuck Denham’s company $11.6 million to try to influence the NQF’s endorsement of safety practices. It should be noted that, although Denham is specifically named in the Justice Department documents, no formal charges have been filed against him and both he and his attorney have denied that the payments were kickbacks designed to manipulate the NQF process. Denham’s statement, in which he calls the allegations “blatantly false,” is here.
The picture has become clearer with reports from several NQF insiders that Denham lobbied the Safe Practices committee to insert a new recommendation to “use chlorhexidine gluconate 2% and isopropyl alcohol solution as skin antiseptic preparation…” (Safe Practice 22). Though committee members did not realize it at the time, such specificity would have been a home run for CareFusion, since its product ChloraPrep was the only one on the market containing that formulation. In addition, Denham changed a previous general recommendation to use chlorhexidine to prevent central line-associated blood stream infections (CLABSI, Safe Practice 21) into one that specified the ChloraPrep formulation. Several committee members, including Pronovost and Patrick Romano of UC Davis, have described being completely unaware of Denham’s CareFusion relationship. In the case of Safe Practice 22, the NQF meeting transcript, posted by ProPublica, shows Denham twice referencing a still-unpublished New England Journal of Medicine article that touted the effectiveness of the 2% formulation.
This is troubling on several levels. First, questions have been raised about potential conflicts in theNEJM article, since all of the study’s investigators received funding from Cardinal Health, CareFusion’s parent company. Second, there was no evidence, then and now, that the 2% formulation works any better than other chlorhexidine formulations. Finally, how did Denham, who was not an author, gain access to the NEJM findings prior to the paper’s publication?
Equally concerning, the NQF has also acknowledged that much of the staff work for the Safe Practices committee was supplied, gratis, by Denham’s company, Health Care Concepts. Denham was removed from his NQF position after concerns were raised by both staff and committee members, and a competitor, 3M Health Care, objected to the specific recommendation of the CareFusion product in the draft of Safe Practice 22. An ad hoc committee quickly convened by NQF reviewed the 2% recommendation and voted to replace it with a more generic one, which is what appeared in the final report. On the other hand, according to Romano, the 2% recommendation for CLABSI was not discussed in committee meetings, yet it did appear in the final report for Safe Practice 21. Moreover, Denham hosted webinars, under the NQF banner, that cited the CareFusion product as the one endorsed by NQF.
Several recent articles (in Modern Healthcare, WBUR’s CommonHealth blog, and ProPublica) have described the relationships between Denham’s companies and NQF in more detail; the chronology is well summarized by Roy Poses on his Health Care Renewal blog. Despite Denham’s protestation, I can’t come up with any other interpretation than that he was being paid by at least one company (CareFusion) to infiltrate at least one (NQF) and potentially other patient safety organizations (he also chaired an influential committee of the Leapfrog Group – he resigned from it earlier today – and has collaborated with the World Health Organization) and influence their work on behalf of corporate sponsors, while withholding information about these corporate links.
And CareFusion was far from TMIT’s only corporate partner. Here’s another, from TMIT’s website: “The documentary Surfing the Healthcare Tsunami: Bring Your Best Board was partially funded by General Electric Corporation and the Denham Family Fund with some in-kind support by HCC Corporation, an affiliate of TMIT that is a contractor to General Electric.” Interesting.
The NQF, whose CEO is now Dr. Chris Cassel, who was CEO at ABIM when I was board chair last year, has approached this scandal as a mortal threat, which of course it is. Cassel is relatively new to the NQF (Denham was long gone by the time she assumed her role) and she and her senior staff are in crisis mode, pledging to review all of the Safe Practices and to markedly strengthen their conflict-of-interest policies. Cassel is not mincing words when she describes Denham: “He clearly lied,” she told Marshall Allen of ProPublica. “He just didn’t say anything about any of his business relationships.” According to the NQF, Denham was asked on several occasions about potential conflicts and never mentioned the multi-million dollar CareFusion contract.
It’s hard to protect our institutions completely against a lie. But in retrospect, all sorts of alarm bells should have gone off when it came to Chuck Denham. Who was this person, who seemingly came out of nowhere to a position atop the patient safety universe? Where did his resources come from? Why was he lobbying NQF for a particular product? Why was his company willing to donate what must have been hundreds of thousands of dollars of in-kind services to NQF? (According to ProPublica and confirmed by NQF, TMIT staffers conducted NQF evidence reviews and produced multimedia presentations on the Safe Practices.) “It was all a bit of a mystery to us that Chuck Denham was so generous with his time and his staff time to support this process,” Patrick Romano told ProPublica.
And I can’t help but wonder: What was the process by which the Journal of Patient Safety became yet another Denham franchise. To its credit, the journal has reportedly released Denham and installed the highly respected David Bates of Harvard as interim editor (he was associate editor). But the journal needs to go further, describing any financial relationship that might have existed between it and Denham or his companies.
What are the lessons from this sorry affair? For me, a personal one is to trust my spidey-sense: when something seems odd, nearly inexplicable, perhaps things really are not right. In Denham’s case, there’s a related lesson, reminiscent of a saying one frequently hears in Silicon Valley: if a product is being given to you for free, then there’s a good chance that you are the product.
Organizations like the NQF must have potent conflict-of-interest policies and enforce them strenuously. Though others may disagree, I don’t believe that individuals participating in such organizations need have absolutely no corporate ties – we’ll lose too many good people, and academic-industry partnerships can be good for patient safety. But these relationships have to be transparent and well structured. This means that the disclosure process must be rigorous and strictly enforced. Conflicts should be presented at the start of every committee meeting, and the culture has to be one in which individuals with even close call relationships err on the side of recusal, and colleagues feel comfortable “speaking up” when they’re concerned about potential conflicts. Would this have caught the Denham issue earlier? I’m not sure. But we must try.
As care standards increasingly drive payment and public reporting policies, and as electronic health records allow us to “hard wire” certain practice standards and monitor them in real time, the stakes will grow ever larger. Brian Johnson, publisher of Massdevice.com, told WBUR’s CommonHealth blog, “Large legal settlements involving kickback payments to doctors happen quite frequently. The Justice Department is very aggressive in prosecuting companies for kickbacks, off-label promotions, these types of alleged wrongdoings. This case is unique because in essence, it appears to be an attempt to influence an entire health care system by paying a key member of a very influential patient safety organization.” Such influence was never possible before. It is now.
This means that the fields of patient safety and quality are no longer sleepy mom-and-pop affairs fueled by the passion of a handful of true believers. There is now big money involved. “It’s an enormous business,” Pronovost told ProPublica’s Allen. “Hundreds of millions or billions of dollars are at stake, but our transparency procedures haven’t matured.” It is up to the field’s leaders to ensure that decisions are based on evidence, that our processes and structures are fair and transparent, and that individuals and organizations that violate the trust of our patients and clinicians are dealt with swiftly and sternly.
CLICK HERE to read the original story and the 88 comments about it
Endoscopes distributor Olympus Corp of the Americas has agreed to pay a $623.2 million fine to settle criminal charges and civil claims related to the company’s illegal payment of kickbacks to doctors and hospitals. The settlement is the largest amount in United States history involving violations of the Anti-Kickback Statute by a medical device company. The company’s Latin American division will also pay $22.8 million to resolve criminal charges in Latin America.
Read more >>
On November 2 and 3, a group of 30 industry leaders got together in Arlington, Virginia. AAMI hosts (and footed a large part of the bill for) this meeting to bring manufacturers, HTM, ISOs, GPOs, regulators, and educators together to address the issues surrounding the practices of making medical equipment difficult (or expensive) to maintain for the owner of the equipment. This is the first face-to-face meeting since the task force started at AAMI 2012 in Charlotte, NC.
More details will be forthcoming from AAMI, but in this blog, I want to recognize the outstanding manufacturers who are obviously enlightened and chose to be a part of this groundbreaking initiative. The medical equipment manufacturers represented are:
I really want to hand it to these companies who are taking an active interest in making the active effort to evolve and do the right thing for healthcare by exploring more openness and transparency in their medical equipment life cycle service plans.
Biomeds Without Borders
Public interest in ballooning CEO pay spiked recently, after the billionaire Republican presidential candidate Donald Trump called it “disgraceful” and “a total and complete joke.” Speaking to his populist base, he stressed the need for reinvigorating U.S. manufacturing but essentially argued that CEOs are already overpaid: “I know companies very well and the CEO puts in all his friends…and they get whatever they want you know because their friends love sitting on the board.”
Here at Qmed, we delved into corporate SEC filings to figure out which CEOs arguably get paid more than they should, comparing their pay to their company’s financial performance.
We ranked overall compensation for CEOs at 18 of the largest medical device companies publicly traded in the U.S. We then compared the compensation rank with a company performance ranking based on four factors: revenue growth, five-year stock performance compared to the S&P 500, earnings growth, and total revenue (as a control for size).
Here are the five CEOs whose compensation ranking was much larger than the company performance ranking .
1. Stephen MacMillan, Hologic
Compensation Rank: 4
Company Performance Rank: 18
Hologic provided MacMillan with generous awards to recruit him in December 2013, during the first quarter of Hologic’s fiscal year ended September 27, 2014. Much of the $24.5 million compensation the former Stryker CEO received came from $15.3 million in stock awards under MacMillan’s employment agreement.
It was slow going, however, under MacMillan’s initial leadership of the Bedford, MA–based diagnostic and medical imaging equipment maker. Revenue only grew 1.5% during the 2014 fiscal year, 14th among the 18 companies analyzed, and earnings of $17.3 million were less than 1% of revenue from the previous year—though it did mark a turnaround from the nearly $1.2 billion that Hologic lost during the 2013 fiscal year.
MacMillan, however, appears to be more than earning his keep this year. Hologic had the best performing stock among large medical device companies during the first nine months of 2015. Its stock value was up more than 45% during the time period. Hologic says it has been seeing accelerated adoption of its FDA-approved Genius 3D mammography systems. 3-D imaging is able to detect 41% more invasive cancers than standard 2-D imaging, according to Hologic.
2. Michael Mahoney, Boston Scientific
Compensation Rank: 11
Company Performance Rank: 16
While Michael Mahoney has helped turn around the performance of Boston Scientific, it comes as a cost. Mahoney is one of the best paid CEOs in the medical device industry. In 2014, he made $10,527,884—only slightly less than the tenth-highest paid medtech CEO Timothy Ring of C.R. Bard, who made $10,840,935.
Mahoney’s annual compensation has hovered in the $10–$12 million range since he took over the Boston Sci’s CEO post in late 2012.
In 2012, the Minneapolis/St. Paul Business Journal explained that Mahoney brought in nearly $12 million after working only 76 days after replacing retiring the then CEO Hank Kucheman. Most of the money from then until now comes from stock options.
For the company’s most recent fiscal year, he received total compensation of more than $10.5 million. Meanwhile, the company saw revenue grow 3.3% the same year, placing the company in the middle of the pack.
A person investing $100 in Boston Scientific stock at the end of 2009 would have had $147.22-worth of stock five years later—$57.92 less than if they had simply invested it in the S&P 500. It was one of the worst rankings for stock performance.
However, Boston Scientific stock has been showing improvement this year, up more than 26% in value for the first nine months of 2015. In fact, a report from Evaluate Medtech found that the company’s share price rose 34% in the first six months of the year—the biggest increase of any medtech company with $15 billion or more in revenue. Boston Scientific’s interventional cardiology business has played an important role helping to drive the company forward.
3. Miles White, Abbott Labs
Compensation Rank: 6
Company Performance Rank: 11
White’s $17.3 million in total compensation was actually down a bit during the fiscal year ended December 31, 2014; he received $20.9 million the year before. White’s option awards were valued at $4.6 million, a little more than half what he received the year before.
Company performance, however, does not seem to have kept up. Revenue was up only 3% during the year, and profits were down 11%. Abbott Labs comes in 11th for five-year stock performance compared to the S&P 500; it’s stock price was only slightly up during the first nine months of 2015.
4. Jeffrey Immelt, GE
Compensation Rank: 2
Company Performance Rank: 6
It makes sense that Immelt’s $37.3 million annual compensation would place him near the top of the list, especially since the industrial conglomerate General Electric is one of the largest companies in the world with $148.6 billion in annual revenues. Only $18.3 billion of that revenue came from GE Healthcare, but the amount still makes GE one of the largest medical device companies in the world.
Qmed controlled for revenue size in its company performance rankings, and yet GE still came in sixth. It was 13th for revenue growth and 13th for earnings growth, measured as a percentage of the previous year’s revenue.
GE Healthcare revenue in 2014 was only up 1%, to $18.3 billion, amid slow growth in developed markets outside the U.S.
5. Vincent Forlenza, BD
Compensation Rank: 9
Company Performance Rank: 12
Vincent Forlenza, CEO of BD is certainly a big name in the medical device industry and, last year, he was named chairman of AdvaMed’s board of directors. But if his company’s stock performer is treated as an indicator of his worth, he is earning slightly more than he should. Last year, he brought in $10,983,518 in total compensation. Meanwhile, the company was 15th when it came to five-year stock performance compared to the S&P 500, and its stock value was only up 1.3% during the first nine months of 2015. The company was seventh for revenue growth, but 10th for earnings growth.
CLICK HERE to see the original post at QMED.com
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