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resources: white papers
Conflicts of Interest Takes Center Stage
A Systematic Approach to Conflicts of Interest Compliance Management
Conflict of interest is a red-hot topic these days. Everywhere you turn, the media is filled with report after report of mismanagement, neglect and less-than-arms-length political and financial dealings. From new ethics legislation such as the State of Illinois’ Gift Ban Act, to the widespread backdating of stock option grants and questionable CEO compensation packages approved by insider-laden boards of directors, conflict of interest issues that once were buried beneath reams of paperwork are coming to the forefront.
Look no further than the Oil for Food procurement debacle, the Enron disaster, the Hurricane Katrina boondoggle, or the lucrative contracts handed out for the rebuilding of Iraq to find that the illumination of corporate nepotism and political favoritism have caused public outcry for reform and greater transparency. Virtually every governmental organization, public entity and private business enterprise is facing a new level of accountability in ensuring and demonstrating transparent, audit-proof compliance with new standards of ethical performance.
As with all industries, healthcare is being evaluated. According to Malcom K. Sparrow, a Professor and Faculty Chair at Harvard’s Kennedy School of Government and author of License to Steal: How Fraud Bleeds America’s Health Care System, fraud accounts for hundreds of billions of dollars in losses for the U.S. health care system. As this has become more apparent, senior healthcare executives, corporate directors and physicians themselves have come under increased scrutiny regarding their dealings with pharmaceutical manufactures, medical device companies, academic research organizations and support services suppliers.
This article explores the growing need for transparency and stepped-up compliance management regarding conflicts of interest.
The severity of this conflict of interest crisis is, perhaps, most starkly evident in the recent January 24, 2007 settlement agreement between the State of Connecticut and a group of influential hospital executives, which in the words of attorney general Richard Blumenthal had undermined competition among hospital suppliers through “undue and improper influence.” According to Blumenthal, the settlement agreement “shatters an anticompetitive, secret society, an elite and exclusive club of premier hospital executives and select hospital supply businesses that restrained competition to the detriment of patients and providers.” And if the attorney general’s description of this agreement wasn’t a harsh enough condemnation, Blumenthal vowed that his investigation of the vendors involved would continue.
A number of considerations emerge as key factors in meeting the challenges to uncover possible conflicts of interest in the healthcare industry:
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Conflict of interest compliance is a top-line, mission-critical challenge that requires the attention and commitment of senior-level executives and administrators as well as the dedicated allocation of carefully targeted resources.
Hospital boards of directors, senior management and healthcare administrators may face conflict of interest liabilities and cost-inefficiencies – both recognized and hidden. New regulations and internal conflict of interest policies are being developed, and implementation of these new requirements are being rolled out to an increasingly broad-ranging set of managers, caregivers and other employees as well as contractors and independent providers of products and services. |
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Existing top-down policies and procedures fail to provide a viable, verifiable solution for hospitals and other care-giver institutions.
As the need for conflict of interest transparency intensifies, hospital management and suppliers face unprecedented demands on their ability to identify, monitor and document these potentially high-risk relationships. Existing policies and procedures for board and administrator level compliance are insufficient. Disparate, incompatible stand-alone systems– where they exist -- have proven difficult to implement and costly to integrate, offering little assurance of reliable compliance and no guarantee of the level playing field these requirements seek to establish. |
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This challenge requires a comprehensive, system-wide solution -- an all-encompassing, auditable approach that monitors and verifies internal policies, personnel and suppliers for conflict of interest compliance from the ground up.
The two-pronged nature of the problem – the need for hospitals and other caregiver organizations to provide greater transparency into their business relationships on the one hand, and the vested interest of outside vendors and services providers to comply with these transparency requirements in order to do business with these major customers on the other – demands an integrated, system-level approach. Comprehensive compliance with emerging conflict of interest regulations will require both sides of the customer/supplier equation to work together in assuring across-the-board integration of constantly changing data and rapidly evolving systems upgrades. |
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A robust new approach and mutually beneficial business model is emerging in the independent vendor management segment of the healthcare software services marketplace, and this systematic solution holds tremendous promise for application to the growing demands for conflict of interest compliance.
While no system-wide solution capable of managing the expanding and evolving challenges of the conflict of interest compliance problem currently exists, a unique business model is proving itself to be a viable foundation for the development of such a solution. Integrated vendor relationship management software and services targeting both healthcare providers and their suppliers offer the automated, in-depth qualification, monitoring and documentation capabilities necessary to also ensure compliance with increasingly stringent conflict of interest requirements. |
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Executive Level Commitment:
The first step to implementing an effective conflict of interest management program requires a commitment from the board of directors and the executive management team. Because the most sensitive and highest risk conflicts often reside at the highest levels of the organization, a commitment to implementing such a program will very likely impact existing vendor relationships. The implications of new conflict of interest programs often reach into other areas such as human resources, public relations, patient satisfaction, risk management and quality control. Despite the burden placed on an organization in implementing these guidelines, the consequences for non-compliance are far more serious than not addressing the issues head on. |
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Expand the Rollout:
Once management has committed to the concept of implementing an across-the-board conflict of interest management program, the ultimate success of the implementation and ongoing support of the program falls into the hands of the front-line, ground level employees responsible for vendor relationship management. |
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Circle the Wagons:
Vendors, contractors, suppliers, joint ventures, partners – virtually all aspects of the organization -- must cooperate in this initiative, and much like herding cats, these groups are often difficult to corral. Incorporating this program into the standard Vendor Guidelines Policy is one way to establish credibility and provide a central location for all involved to load and update the potential conflicts of interest into a central repository, and this common location and centralized process is critical to the success of the program. |
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Systematic Approach:
Providing all participating parties with an accessible, easy to use central repository for loading and updating the potential conflicts of interest is critical to the success of the program. As these efforts become entrenched in the very operation of the organization’s business practices, only then will the full benefits and assurances delivered by a systematic approach to conflict of interest be realized. |
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Enforcement:
Because the stakes are so high in the area of compliance, “a zero tolerance” approach to participation in this program must be employed. Vendors and suppliers who are reluctant to participate or become neglectful in their vigilance in terms of making claims or updating conflicts should be dealt with in a consistent and firm manner. Ultimately, these measures may include banishment from doing business with the organization unless and until proper compliance can be achieved, documented and maintained. |
To address the growing complexity of vendor management and the need to capture, evaluate and monitor conflict of interest disclosures, the healthcare delivery and medical products and services industries need to work together to build upon the capabilities of vendor relationship management systems to create an all-encompassing solution that ensures conflict of interest compliance.
Andy Monin
Chairman,
President and Chief Executive Officer
Vendormate, Inc.
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Identifying and managing risk at all levels of operation, including
supplier relations, governance practices and accounting integrity, are essential functions in today's environment. These are not just standard business practices, but essential tools for liability management and enhancement of long-term reputation value." |
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Mark Oline, Managing Director of Corporate Finance Americas
Fitch Ratings
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