Cleveland Clinic Dispute Intensifies
Fired Doctor Sues,
Claiming Conflicts
Pervasive at Hospital
By DAVID ARMSTRONG
December 7, 2007; Page B6

A former department head at the Cleveland Clinic sued the hospital
over alleged defamation and discrimination, saying that the
institution is plagued by financial conflicts of interest similar to
the kind that were cited as grounds for his dismissal.

Jay Yadav, who headed the clinic's vascular intervention unit until he
was fired last year, said a number of the hospital's top doctors
promote devices and treatments that they have a financial interest in,
sometimes without informing patients.

The suit highlights the dangers facing big hospitals and academic
medical centers as they respond to pressure over conflicts of
interest. Dr. Yadav was dismissed for allegedly not complying with the
clinic's conflict of interest policies. His lawsuit, filed yesterday
in Ohio state court, says he was being scapegoated.

The clinic, in a statement, denied the allegations in the lawsuit and
said it planned to file a response as well as a "counter claim for
substantial expenses incurred to review his research."

Getting rid of doctors over issues related to conflicts of interest is
rare. Dr. Yadav says others at the clinic weren't sanctioned -- and
his legal action could become an embarrassing public battle for the
clinic.

The clinic instituted tougher conflict policies in early 2006 after
The Wall Street Journal detailed the undisclosed investments of the
clinic and certain of its doctors in unproven products used there on
patients. Dr. Yadav had financial stakes in two companies whose
experimental products were tested on clinic patients. He says the
clinic was well aware of his conflicts and that he properly reported
them -- but that he was fired so that the clinic could look tough
ahead of a Cleveland Plain Dealer article about his outside
activities.

His suit alleges the clinic has been "indifferent" to financial
conflicts of interest and that such situations are "widespread and
pervasive." Those conflicts start at the top with clinic chief
executive Delos "Toby" Cosgrove, according to the complaint.

The lawsuit says the clinic heavily promotes and uses an invention of
Dr. Cosgrove's in patients undergoing heart-valve surgery. Dr.
Cosgrove and the clinic both receive royalties from sales of the
product, known as the Cosgrove-Edwards ring and marketed by Edwards
Lifesciences Corp. The lawsuit says patients aren't given the choice
of using competing rings or told that the hospital and its chief
executive profit from sales of the Cosgrove-Edwards ring.

The clinic confirmed Dr. Cosgrove and the hospital share royalties,
but declined to answer questions about what patients are told and how
much the institution and Dr. Cosgrove earn from sales of the ring. The
clinic said the royalty payments were proper.

In another case, the lawsuit says orthopedic surgeon Isador Lieberman,
a member of the hospital's conflict-of-interest committee, failed to
disclose his significant financial interests in Kyphon Inc. That
company manufactures equipment for an orthopedic procedure that Dr.
Lieberman advocated and tested at the clinic. The clinic said Dr.
Lieberman fully cooperated with a review of his conflict disclosures
and that "all appropriate actions were taken."

In all of the cases cited in the lawsuit, Dr. Yadav alleges there was
no disciplinary action taken against those doctors. The lawsuit
alleges that Dr. Yadav, who was born in India, was a victim of
discrimination. The clinic, however, said it "consistently and fairly
applied its policies to all of its physicians."

Dr. Yadav says his reputation has been tarnished by the clinic. He
says his state medical license notes that he lost his privileges at
the clinic, and he hasn't found a new job practicing medicine. He has
been serving as chief executive of Cardiomems Inc., an Atlanta company
he helped create while still at the clinic.

Dr. Yadav says the clinic accused him of not properly disclosing
royalty payments for a device he invented to prevent blockages in
patients who receive a neck stent. While he doesn't receive royalty
payments, Dr. Yadav says he was compensated with shares by the company
that acquired his technology. That company, called Angioguard Inc.,
was bought by a unit of Johnson & Johnson in 1999.

A copy of that purchase agreement indicates that all shareholders of
Angioguard were entitled to deferred payments if certain milestones
were met, such as sales targets. Among the other shareholders entitled
to the same deferred payments were top officials at the clinic, such
as surgeon Kenneth Ouriel, according to the lawsuit.

Dr. Ouriel didn't disclose these payments, according to the lawsuit.
The clinic yesterday said: "Dr. Ouriel received a few hundreds of
dollars versus tens of thousands of dollars that Dr. Yadav received.
Dr. Ouriel's situation was thoroughly reviewed and he fully cooperated
by taking appropriate actions to rectify the situation immediately.
After the review, the Clinic officials determined that Dr. Ouriel had
not knowingly violated Cleveland Clinic policies."

Dr. Yadav says he properly disclosed the deferred payments as early as
2002 in a document filed with a clinic review board. The document,
which was reviewed by the Journal., states Dr. Yadav was entitled to
deferred payments tied to sales. In 2003, he made a similar disclosure
to the Food and Drug Administration, according to a copy of that
filing.

Write to David Armstrong at david.armstrong@wsj.com

*  *  *
How a Famed Hospital Invests
In Device It Uses and Promotes

Cleveland Clinic Set Up Fund
That Has Stock in Maker
Of Heart-Surgery System

Dr. Cosgrove's Multiple Roles
By DAVID ARMSTRONG
Staff Reporter of THE WALL STREET JOURNAL
December 12, 2005

CLEVELAND -- Since 2001, more than 1,200 patients at the prestigious
Cleveland Clinic have had an operation aimed at correcting atrial
fibrillation, a form of heart fluttering.

Doctors commonly call it the "AtriCure procedure," after the maker of
the equipment used in the surgery, a company called AtriCure Inc. In
medical journals and at conferences, the Cleveland Clinic and its
doctors have been leading advocates of the AtriCure procedure.

The Clinic's relationship with AtriCure, however, goes deeper. A
venture-capital partnership that the Clinic helped found and invested
in owns about 4.1% of AtriCure's stock, valued at about $7 million.
The Clinic's chief executive, heart surgeon Delos "Toby" Cosgrove, sat
on AtriCure's board of directors until March. He also invested
personally in the fund and was one of the general partners managing it
until, according to a Clinic spokeswoman, he cut his ties to the fund
at the end of October.

In addition, Dr. Cosgrove will be entitled to royalties for a medical
device he developed that AtriCure plans to begin selling next year.
Marc Gillinov, another Clinic surgeon who performs the AtriCure
procedure, is a paid consultant to the company, as is another doctor
who recently left the Clinic.

The Clinic didn't disclose these ties to AtriCure to the patients on
whom it performed the AtriCure procedure. The venture fund the Clinic
helped found has also invested in two other medical companies
conducting clinical trials at the Clinic.

All this last spring came to the attention of the hospital's conflict-
of-interests committee, where famed cardiologist Eric Topol and blood
specialist Alan Lichtin were among those who questioned the ties to
AtriCure, according to people familiar with the situation. Dr.
Cosgrove last week told Dr. Topol he was losing his top post at the
Clinic's medical school, a change that will take Dr. Topol off the
conflict-of-interests committee and the Clinic board of governors. Dr.
Topol also is an outspoken critic of Vioxx, the withdrawn Merck & Co.
drug, and testified at a trial against Merck.

The Clinic ascribed Dr. Topol's loss of his medical-school position --
as provost and chief academic officer -- to an administrative
reorganization. Asked whether it was related to his criticism of Vioxx
or of the Clinic's ties to AtriCure, the Clinic spokeswoman said no.
Dr. Topol had a conflicts issue of his own last year when an
investment fund to which he was a paid adviser bet against Merck's
stock. He resigned that post.

The Cleveland Clinic's board of trustees, meeting Monday, is expected
to discuss the change in Dr. Topol's status, which needs its approval.
Meanwhile, at the behest of the conflicts committee, the Clinic this
spring redid a consent form for atrial-fibrillation patients taking
part in clinical trials, and it imposed a limit on the consulting fees
doctors could earn.

The Cleveland Clinic is a huge and prominent establishment with 30,000
employees and $3.8 billion in revenue last year. Besides its main 155-
acre complex, it owns eight other hospitals in the area, two more in
Florida and three hotels. Its cardiac center, routinely ranked No. 1
by U.S. News and World Report magazine, is building a new $400 million
complex in the city.

In an interview, Dr. Cosgrove said the Clinic favors the AtriCure
procedure because it works and is safe, not because of any financial
considerations. Clinic doctors and others have reported that nearly
90% of patients have normal heart rhythms six months after the
procedure. Long-term data are sketchy.

The Food and Drug Administration has three times rejected AtriCure's
application to have its system approved for cardiac use, most recently
earlier this year. Doctors may legally do the procedure anyway because
the equipment is approved for "soft tissue" surgery. Though that
category doesn't include the heart, they may use it on the heart in
what's known as "off-label" usage. AtriCure says that all current use
of its equipment is off-label.

Four patients are known to have died shortly after having the AtriCure
procedure, at hospitals other than Cleveland Clinic. AtriCure didn't
notify the FDA -- which requires companies to tell it of any "adverse
consequences" related to their products -- because it says it didn't
believe its equipment was to blame. Dr. Cosgrove said he wasn't aware
of the patient deaths.

As for the three FDA rejections of AtriCure applications for heart
use, Dr. Cosgrove said much of the medicine practiced in the U.S. is
off-label. "It's the nature of what we do and how we learn," he said.
"The important thing is the candor by which you discuss results and
failures."

A research ethicist, Adil Shamoo of the University of Maryland, says
the Clinic shouldn't perform any research related to companies in
which it invests. "The whole process of institutions having large-
scale holdings in equities is corrupting the process," said Dr.
Shamoo, a biochemist who edits a journal called Accountability in
Research. "It sends the wrong message and could lead to serious harm
to human subjects because it clouds your judgment." The U.S. Health
and Human Services Department requires hospitals to consider the
impact of financial ties on human research work and develop plans to
manage, reduce or eliminate the conflicts. How they do so is left
largely to them.

The Cleveland Clinic began looking for new ways to make money several
years ago amid financial stress caused by managed-care programs, by
cuts in Medicare reimbursements and later by stock-market losses in
its endowment. Around the country, many doctors have reacted to
pressures such as these by looking for business opportunities. Some
have started specialty hospitals that target profitable patients.
Others get extra compensation from labs and scanning centers for
sending them patients, despite laws against fees for referral. It is
so common for leading doctors to be compensated by industry that
medical-journal editors say it can be hard to find disinterested
parties to do peer reviews.

The Clinic first explored the idea of a venture-capital fund in 1998,
"seeking to leverage its intellectual capital to generate returns for
the institution," according to a recent memorandum seeking investors
for a second venture fund. Dr. Cosgrove, then chairman of thoracic and
cardiovascular surgery, was tapped to lead the effort.

He turned to Harry Rein, a friend who managed Canaan Partners, a
Connecticut venture-capital fund in which Dr. Cosgrove was, and
remains, an investor. The Clinic's full name is the Cleveland Clinic
Foundation, and the fund took a name based on that: Foundation Medical
Partners, or FMP. Dr. Cosgrove said in an interview that trustees
approved his role at FMP, which is confirmed by the board chairman,
Malachi Mixon. Dr. Cosgrove didn't become the Cleveland Clinic's CEO
until last year.

At the fund's launch in 2001, the Clinic was its largest investor,
supplying $25 million of the $61 million raised from investors, known
as limited partners. The Clinic is entitled to 38% of its profits. Dr.
Cosgrove also invested in the fund personally. He became one of a
handful of general partners managing the fund.

FMP uses its clinic tie to suggest to prospective investors that it
has an edge in spotting promising young companies. A document for a
second FMP fund now being organized notes that the Clinic's
"prominence, prestige, and sheer scale...prompt" many health-care
entrepreneurs to seek to develop a relationship with the institution.

In 2002, FMP invested $3 million in AtriCure, then a private
Cincinnati start-up that was one of several companies, including
Guidant Corp. and Medtronic Inc., making surgical devices to treat
atrial fibrillation.

An estimated 2.2 million Americans have this condition, which was once
thought relatively benign but which the American Heart Association now
blames for about 15% of strokes. Atrial fibrillation causes no
symptoms in many people, but others get dizzy spells, nausea, chest
pains and shortness of breath. Doctors usually start patients on drugs
to control heart rhythm and on blood thinners to reduce the risk of
stroke, though these drugs don't work for many patients.

AtriCure's system uses radiofrequency energy to destroy heart tissue
near pulmonary veins that are believed to carry electrical impulses
causing the irregular heart beat. The aim is to create scar tissue at
the site that will block the impulses.

AtriCure makes a special clamp that doctors apply to heart tissue in
the operation. It is wired to an AtriCure generator, which delivers
the radio energy to create scar tissue. Then the clamp is removed.
AtriCure says it has some 50% of the market for surgery to treat
atrial fibrillation.

AtriCure has won frequent endorsements from the Cleveland Clinic and
its surgeons. For instance, at an American Association for Thoracic
Surgery meeting last year, Dr. Cosgrove took the pro side in a debate
about whether atrial-fibrillation surgery should be done on patients
having a heart-valve replacement. He mentioned only one company by
name, AtriCure.

Not mentioned during the debate or in the disclosure section of the
program guide was his seat on AtriCure's board or his investment ties
to the company. A Clinic spokeswoman said his secretary mistakenly
checked a box on a disclosure form indicating he had no conflict.

The Clinic's Drs. Cosgrove and Gillinov were among authors of a study
published in the Journal of Thoracic and Cardiovascular Surgery of 513
AtriCure surgery patients at the Clinic in June. It found that 87%
were free of atrial fibrillation after six months, declining to 72%
after one year. The journal disclosed Dr. Gillinov's tie to AtriCure
-- he's a paid consultant to it -- but not Dr. Cosgrove's. Dr.
Cosgrove said it was "an oversight on my part."

Dr. Gillinov and another surgeon then at the clinic, Patrick McCarthy,
co-wrote a favorable review of AtriCure's technology in the Annals of
Thoracic Surgery in 2002. The journal mentioned they'd been asked to
become AtriCure consultants, which they later did. AtriCure granted
each doctor options to buy 25,000 shares of its stock, it said in a
June filing with the Securities and Exchange Commission.

Dr. Gillinov, through a clinic spokeswoman, said he declined the
options offer. An attorney for AtriCure said Dr. Gillinov doesn't own
AtriCure options now, but "if it was in the prospectus, it was true
then." Dr. Gillinov is paid $10,000 a year as an AtriCure consultant,
said Eileen Sheil, the spokeswoman for the Clinic. She said he had
been paid more, but the Clinic forced him this spring to reduce it to
conform to its guidelines.

Dr. McCarthy, who confirmed his options grant, said he was a paid
AtriCure consultant while at the Clinic and currently gets $2,000 a
month from the company. He said he continues to perform the atrial-
fibrillation surgery with the AtriCure procedure, as well as with
other companies' systems, in his current position as chief of
cardiothoracic surgery at Northwestern Memorial Hospital in Chicago.
He said he didn't need any convincing because he believes in the
procedure.

Conflicts Committee

Last winter the Cleveland Clinic's conflict-of-interest committee
learned that the FMP venture fund was an investor in companies doing
research at the Clinic, said committee chairman Guy Chisholm. He said
the committee was informed by the hospital's Institutional Review
Board, headed by Dr. Lichtin. It had been told of the investment by a
doctor who ran across the ties to AtriCure while researching the
AtriCure procedure.

The conflicts committee and review board also learned that the FMP
fund had invested in two other companies conducting trials at the
Clinic: Immunicon Corp. and CardioMems Inc. FMP has invested $5
million in Immunicon, a Pennsylvania developer of cancer-screening
products, and $3 million in CardioMems, an Atlanta maker of heart
devices. The Clinic also has a direct investment of $2.75 million in
Immunicon.

Some committee members worried that the Clinic's ties to AtriCure
could color what patients were told when weighing treatment options.
They also worried that their CEO's roles at AtriCure and the venture
fund that invested in the company created a conflict, said someone
familiar with the panel's discussions. At a minimum, the committee
concluded, patients should be told of the Clinic's and doctors'
financial ties, according to Dr. Chisholm, a Ph.D. researcher at the
Clinic. He said many Clinic doctors and nurses conducting the research
were unaware of the links.

Mr. Rein, Dr. Cosgrove's investing partner said there is a natural
tension at the Clinic between those who believe "all of this is a
bunch of people trying to take advantage of patients" and those who
believe the entrepreneurial efforts are part of a "virtuous cycle"
where the clinic and patients both benefit from medical advances.

The Institutional Review Board in February directed Clinic researchers
conducting clinical trials of the three companies' products to put a
"voluntary" hold on their work, said Ms. Sheil, the Clinic
spokeswoman. The hold was lifted in May after the Clinic reworded
consent forms. The new forms say the Clinic and some of its doctors
have financial ties to AtriCure and the other companies and "the
Clinic would probably benefit financially if the research results are
favorable." The forms don't name the doctors or give any dollar
amounts.

None of the patients undergoing the AtriCure surgery outside of
clinical trials will see these disclosures, Ms. Sheil said. So far,
1,247 patients have had the AtriCure procedure at the Clinic,
including 16 who are enrolled in current clinical trials, and Ms.
Sheil said Clinic staff members have performed the procedure on 100
more patients in other hospitals. None of these patients saw the new
consent form with added disclosure.

Fund's Profits

The conflicts committee began to look into the role of Dr. Cosgrove at
FMP and AtriCure, and some members wrote a detailed list of questions
to submit to him, say people familiar with the matter. Not long
afterward, Dr. Cosgrove stepped down from AtriCure's board and said he
would give up his position as a general partner at FMP. Dr. Cosgrove
said he wasn't prompted to vacate the posts by conflicts-committee
pressure but by his wish to avoid the perception of a conflict. He
said he had already been thinking about the issue and what he should
do about it before the committee raised it.

Among the questions the panel posed was how much he earned as a
general partner at FMP and how much he got of fund profits. According
to internal Clinic documents, the fund's general partners were
entitled to share an annual management fee of 2.75% of the money
raised from investors, fees that total about $1.7 million a year.
There were three general partners.

The fund distributes 80% of its profits to limited partners. Of the
other 20%, a 6-percentage-point slice goes to the Clinic and a 14-
point chunk is divided among the general partners.

The fund's profits are known as "the carry." Mr. Rein said in an
interview that Dr. Cosgrove was "compensated with carry," but didn't
receive any of the management fees. Mr. Rein said the fund has made
one distribution of profits and Dr. Cosgrove would have received a
payment from that distribution. Later, however, Mr. Rein said that
general partners hadn't received any of the profits distributed by the
fund so far, that only limited partners had.

Dr. Cosgrove said he was required to invest in the fund by virtue of
his role as a general partner. Mr. Rein said the three general
partners at the time the fund was created, including Dr. Cosgrove, put
in a total of 1% of the total raised, or about $600,000. He said the
fund lent them the money to invest.

Clinic spokeswoman Ms. Sheil initially said that Dr. Cosgrove told
her, "I have not received one penny from FMP." Later, when told of Mr.
Rein's description of the distribution, she said, "He hasn't received
anything yet..., but when and if it gets to him, he will donate it to
the Clinic." Ms. Sheil said that Dr. Cosgrove ceased having any role
at FMP at the end of October.

Dr. Cosgrove said he never received any fund distributions and any
future payments "will go the Clinic." He said he has no more financial
interest in FMP -- "I gave it all up." He declined to say what had
become of the money he personally invested.

Canaan Partners

The second FMP venture fund that's now raising money says in a
"private-placement" document that "with Dr. Cosgrove's decision to
change his role" at FMP, the Clinic's chief of staff, Joseph Hahn,
"was selected to join the firm as a partner." The document says he
will spend one day a week on fund business. Mr. Rein said Dr. Hahn
said won't be paid by the fund. The Clinic has committed to put $20
million in this second fund, which is just beginning to invest.

Dr. Cosgrove confirmed he also has a financial interest in companies
doing research at the Clinic through his personal investment in Canaan
Partners, the venture fund Mr. Rein founded and ran for many years.
Mr. Rein left Canaan in 2002 to work for FMP, later investing in it
and becoming one of its general partners. Mr. Rein is also Cleveland
Clinic trustee.

Canaan and FMP share a street address in Rowayton, Conn., and have
invested in many of the same companies. Canaan owns 9% of Immunicon,
according to that company's latest SEC filing, and also has invested
in other companies with which the Clinic has done or is doing clinical
trials. These investments aren't a concern, said Dr. Chisholm, the
conflicts-committee chairman, because Dr. Cosgrove doesn't influence
Canaan's investments.

Dr. Cosgrove also has developed a device for AtriCure, related to its
procedure, which the company says it plans to begin marketing in the
second half of next year. Dr. Cosgrove would receive royalties for
this device, known as the Cosgrove Clip. Dr. Chisholm said he'd be
surprised if the conflicts committee would want to intervene in that
matter if it was in place before Dr. Cosgrove became the Clinic's CEO.

Prominent doctors and hospitals can be helpful to start-up medical
companies in a number of ways. At AtriCure, these have included
assistance in advancing a minimally invasive version of the atrial-
fibrillation surgery, involving just two small chest incisions.

This procedure brings AtriCure more money than the more common method
of using its device, open-heart surgery. Average Medicare
reimbursement for the less-invasive procedure is around $25,700, and
AtriCure says it gets about $7,000 of that from sales of disposable
equipment. With open-heart surgery, it gets about $2,500 in sales.

At a conference at the Cleveland Clinic last year, AtriCure Chief
Executive David Drachman thanked the hospital and its doctors for
helping persuade Medicare to approve the reimbursement rate for the
minimally invasive version. In an interview later, he said the Clinic
didn't directly lobby Medicare overseers, but helped boost the
reimbursement argument by being "instrumental in advancing the whole
field of surgical atrial-fibrillation treatment." He said surgical
societies that include Clinic doctors among their leadership are
directly involved with fighting for reimbursement.

Four Deaths

In June, when AtriCure filed with the SEC to go public, its prospectus
listed among risk factors that "serious complications, including
death...have been encountered in connection" with its minimally
invasive procedure. Mr. Drachman said there have been four deaths. One
occurred at Sarasota Memorial Hospital last year and prompted a
"temporary moratorium" on the procedure that's still in place on the
procedure, said an official of the Florida hospital.

Another death was in Dallas. The doctor who did that operation was
Michael Mack. He said the patient died three days afterward when a
clot developed in his leg. Dr. Mack said the death wasn't due to any
defect in the AtriCure equipment, but "I have to say it is related to
the procedure. The point of fact is the guy had the procedure and
three days later he had a complication from it."

While the death was "very disconcerting," Dr. Mack said, he believes
the minimally invasive surgery is safe and has done it 40 times. He
said he is taking part in a AtriCure-sponsored clinical trial and has
no financial tie to the company. The Cleveland Clinic's relationship
with AtriCure, Dr. Mack said, "is a funny position for the Clinic to
be in: As much as you would like to stay unbiased or conflicted, if
you do have a financial stake, you want the procedure to do well."

AtriCure's Mr. Drachman said the company heard about Sarasota and
Dallas deaths months after they occurred, contacted the surgeons and
determined the deaths were unrelated to any problem with its
equipment. While not disclosing any deaths to the FDA, he noted that
AtriCure did disclose two to the SEC. They were cases where the
company had conversations with the surgeons "during the time the
patients were dying." AtriCure didn't tell the SEC of the Sarasota or
Dallas deaths because they were never "officially reported to the
company," he said.

Write to David Armstrong at david.armstrong@wsj.com

*  *  *

Interesting.  I would like to see the complaint.  Perhaps the WSJ will
post a link.

Marilyn