Today’s New York Times has a piece looking into a June Journal of the American Medical Association article about doctors who serve as paid consultants to investment companies. These companies are looking for an investing edge in medical fields, such as biotech and drug development, and since doctors are ultimately the ones who implement or prescribe many treatments, their judgments are valuable. Providing that sort of information isn’t illegal, barring investment conflict-of-interests. But doctors are occasionally privy to results and information about clinical trials or feasibility studies before regulators or the general public. Today’s Times article comes on the heels of a Seattle Times investigation that found at least 26 cases of doctors leaking confidential information in paid conversations. In some cases, this had clearly observable effects on stock prices as investors reacted. Overall, the flavor of the New York Times article is that doctors should avoid these relationships, which for the most part don’t result in illegal information sharing, to avoid the appearance of impropriety. In the few cases where information is leaked, most seem willing to assume that the doctors are just making small, unintended disclosure mistakes.
But the trading firms certainly know better than to use what they are told. The paper trail seems clear: The Seattle Times was able to obtain investment research reports showing that the financial companies were making recommendations to their clients on inside information obtained from the doctors. The SEC has started investigating, but convictions might be hard to come by, as prosecutors will have to prove that doctors gave specifically prohibited kinds of information, and that those pieces of information formed the conclusions that were passed on to investors, rather than the legal general impressions that may have also been collected. In any case the new light on the problem, and now federal involvement, ought to put some cold water on the future of similar payment schemes.