Vendormate OpEd Article
Healthcare Compliance Association
Compliance Today Magazine
Conflicts of Interest Takes Center Stage
A Systematic Approach to Conflicts of Interest Compliance Management
Chairman, President and Chief Executive Officer
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 long-overdue new standards of ethical performance.
The healthcare industry has been thrown right into the center of this storm. According to Malcom K.
Sparrow, a leading professor of corporate governance at Harvard’s John F. Kennedy School 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 mismanagement 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 scrutiny is focusing attention on a wide variety of conflict of interest issues that exist in the
healthcare industry, and it is becoming clear that the scope of these conflict of interest concerns
extends well beyond board-level relationships to include senior, mid-level and front-line
management personnel at virtually every level of medical care-giving organizations. This abuse
points to a host of underlying financial liabilities and inefficiencies that have a crippling impact on
the cost and quality of healthcare.
This article explores the growing need for transparency and stepped-up compliance management
regarding conflicts of interest. It calls upon healthcare providers, regulatory bodies and the vendor
community itself to recognize and address the extent to which these challenges affect the cost and
quality of healthcare today.
The Problem in a Nutshell
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.
Where We Stand
A number of considerations emerge as key factors in meeting the tremendous challenges presented
by rampant conflicts of interest in the healthcare industry and the inadequacies of today’s policies,
procedures and business models in addressing them:
• 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 face a plethora
of conflict of interest liabilities and cost-inefficiencies – both recognized and hidden -- the
extent of which are only now being realized, and these challenges are growing on a daily basis.
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.
• Existing top-down policies and procedures fail to provide a viable, verifiable solution for
hospitals and other care-giver institutions, and offer little assurance to medical products
suppliers, services providers and other vendors in the healthcare industry that their own
relationships and business practices are in compliance with emerging new conflict of
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. In addition, the demands of managing an
efficient, effective program far exceed the capabilities of internally generated solutions.
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.
• This high-level problem requires a comprehensive, system-wide solution -- an all-
encompassing, bulletproof 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.
• Trust in internally-generated policies and self-governance efforts is rapidly eroding, and
regulators, stakeholders and the public itself are beginning to call for third-party review,
monitoring and verification of conflict of interest compliance.
In addition to existing regulations such as HIPAA and Stark, oversight from such authorities as
the Office of the Inspector General of Health and Human Services bring the very real
possibility of legal action, fines, sanctions and liability damages awards that threaten the
reputation and financial stability of hospitals and vendors alike. With the cost of operating and
defending outdated policies and antiquated systems rising at a steep rate, and the reliability and
effectiveness of homegrown solutions falling just as precipitously, the need is growing for an
independent, third-party provider model for conflict of interest compliance.
• 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
Best Practices for Conflict of Interest Management
The challenges these factors present require that those of us charged with finding solutions to the
rampant conflict of interest crisis consider the wisdom found in a few “best practices” guidelines:
1. 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 the implementing such a program will very likely impact existing vendor
relationships. In addition to the extensive financial impacts to the organization through
reduced costs, 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.
2. 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.
3. 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.
4. Systematic Approach:
Continuing education programs and providing employees and third parties with the ability to
extend the conflict of interest program throughout the entire organization and its vendor
network are keys to the ongoing 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.
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 to the program 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.
A Natural Progression
In order to address the growing need to contain the explosive cost of healthcare while
building much-needed confidence and trust in the healthcare provider marketplace, 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. Third party vendor management solutions such as
Vendormate VISION offer a natural progression for expanding these capabilities into conflicts
of interest compliance.
Vendormate VISION is an automated, online registration, credentialing and monitoring
solution that allows healthcare providers manage the composition and risk of their supplier base in
a comprehensive, cost-effective manner. The company’s integrated system of vendor registration,
screening, rating and cataloging is designed to satisfy internal vendor qualification needs as well
as evolving governmental regulations, while at the same time offering qualified vendors the ability
to demonstrate third-party verification of their own compliance with these same requirements.
Solutions such as Vendormate’s can serve as a solid foundation for building conflict of
interest compliance into an integrated system-wide solution. Much of the information collection
and data tracking systems necessary for audit-proof compliance with an expanding list of internal
policies and external regulations are already in place – what remains to be determined and
implemented is exactly how this information can best be used to ensure that the unique challenges
of conflict of interest compliance are met.
A Call to Action
Industry leaders from the healthcare provider industry, medical products and services
marketplace and vendor relationship management software and services sector must dedicate the
time and energy necessary to expand and refine these exciting and powerful solutions. The results
of this industry-wide collaboration will be well worth the effort.