Cleveland Clinic, Chris Coburn’s big payoff (and challenge): $840,000

Chris Coburn

The success of Cleveland Clinic Innovations has triggered a puzzling dilemma for the world-renowned health system: how to manage the windfall of its leader.

Innovations’ Executive Director Chris Coburn gets 3 percent from the sale of spinoff companies, according to several sources familiar with Coburn’s contract – including one who has personally reviewed Coburn’s deal. The implication of that number became clear after Boston Scientific bought Cleveland Clinic spinoff Intelect Medical for $78 million.

The Clinic received $28 million from the sale.

Coburn’s take, based on the 3 percent figure, was about $840,000.

The sheer size of Coburn’s haul presents a conundrum for the Clinic – and it’s likely a teachable moment for the health systems nationwide that badly want Innovations’ ability to commercialize and pull in serious cash from hospital research.

Obviously the Clinic wants to reward star performers like Coburn for the financial gain they’ve helped bring to the health system. But it’s not a stretch to think that it could easily cause tension within such a physician-centric organization: a non-physician is suddenly out-earning all but the Clinic’s brightest of rockstar doctors.

CEO Dr. Toby Cosgrove made $2.1 million in 2009, the last year for which figures are available, and 10 other employees that year made more than $1 million. Only one of them, former Chief Operating Officer David Strand, was not a physician.

Coburn wasn’t included in the Clinic’s most recent tax filing that listed its highest-paid employees, so his compensation is unclear. The mean salary last year for directors of privately-held tech transfer operations was $173,400, according to a survey by the Association of University Technology Managers. So if Coburn’s salary is in line with the average, the Cleveland Clinic Millionaire’s Club has a new member – assuming the Clinic doesn’t split Coburn’s Intelect payout into multiple years.

Most tech transfer offices keep their employee-compensation plans private. So it’s unclear how many arrangements there are like Coburn’s. But Robin Rasor, director of licensing for the University of Michigan’s tech transfer office, said a compensation package like Coburn’s would be rare in the tech transfer industry, based on her experience.

If tech transfer offices offer incentive payments, the money typically comes out of one large bonus pool for multiple employees, she said. Razor said a compensation package such as the one afforded Coburn “would be interesting for the rest of the people in the office, I suppose.”

The Clinic declined to make Coburn available for an interview or make any comment on Coburn’s compensation or related topics. The $840,000 figure is calculated from the $28 million top-line figure. According to the Clinic’s policies, 40 percent of net commercialization revenues go to the inventors, with the remainder going to the Clinic’s research endowment (40 percent) and commercialization fund (20 percent).

Using the $28 million figure, Intelect’s inventors would split $11.2 million between themselves.

“Cleveland Clinic employee compensation is market-competitive and not shared publicly,” Cleveland Clinic spokeswoman Eileen Sheil said. “We’re very proud of the work that comes from our Innovations team.”

But no matter what that final bonus number, there are other issues. State dollars fuel many of Innovations’ startup companies and Coburn has a role advising a key state grant-making program.

The Clinic obtained the money to launch Intelect through a $7.6 million state-funded Third Frontier grant for brain neuromodulation research. The Clinic has been awarded $129 million from the Third Frontier since the technology support program launched in 2003.

Coburn has been a member of the 16-member Third Frontier advisory board since 2007 — after the grant that led to Intelect’s creation, according to the Ohio Department of Development (ODOD), which administers the program.

But does Coburn’s position with the state, which brings with it the possibility to influence funding in the Clinic’s direction, represent the potential for a conflict of interest — given the likelihood of future exits by a number of promising Clinic spinoff companies? Norm Chagnon, interim director of ODOD’s technology and innovation division, stressed that Coburn’s presence on the advisory board doesn’t represent a conflict of interest because the advisors don’t have a direct say in the allocation of taxpayer dollars. Rather, that responsibility falls to the nine-member Third Frontier commission, which votes on which proposals to fund.

The main role of the advisory board is to come up with a strategic plan that identifies the type of investments the Third Frontier program should be making, Chagnon said. For example, a few years ago the board suggested that the state should do more to get investment capital in the hands of early-stage companies. That led to increased state investment in venture development groups like JumpStart, which provides investment and business support services to young, promising companies.

The advisory group meets three or four times a year, and members of the Third Frontier commission are always present at those meetings, Chagnon said.

“If there’s an appearance of bias that comes from the recommendations from the advisory board, the commission has the authority to make adjustments,” he said. “They are only recommendations, and the commission can accept or reject them.”

Sheil, the Clinic spokeswoman, essentially echoed Chagnon’s statements. “Members of the Third Frontier Advisory Board provide advice on the business environment and developing technologies and are meant to be representative of the organizations that participate in the program,” she stated. “Members are not compensated for their participation. All decisions for funding levels, program design, and award selection are made by the Third Frontier Commission as established by state law. Funds are provided directly to institutions.”

While Chagnon and Sheil’s points are certainly credible, there’s no denying the ability of advisory board members to influence the allocation of taxpayer dollars; after all, that’s what the advisory board is there to do. A better retort from ODOD would’ve been simply: “If we don’t get people with specific industry expertise like Coburn to serve on this thing, then who can we get who’ll actually have any clue about where the industry is going?” Similarly, ODOD could credibly make the case that setting more stringent restrictions on advisory group membership – such as those that would required Coburn to recuse himself from talks on investment areas that could lead to his own wealth – would render membership so undesirable to executives and investors as to deprive the state of their expertise.

In the end, I must begrudgingly admit that I lean toward the state’s side on this one. It seems that part of supporting Third Frontier means accepting that it’ll enable a group of insiders to engorge themselves at the public trough, and sometimes in a way that may be self-serving. (That’s why they’re called “insiders.”) And if that’s the price of creating 55,000 jobs — if those direct and indirect jobs numbers from the state are to be believed — then Mr. and Mrs. Ohio Taxpayer will just have to live with it.

Also — because Cleveland Clinic Innovations is such a success and will no doubt have more successful exits in the future– this won’t be the last windfall for its leader.

Brandon Glenn MedCity News

Brandon Glenn is the Ohio bureau chief for MedCity News.

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Tags: Chris Coburn, Cleveland Clinic, hospitals, Intelect Medical, Northeast Ohio, Ohio

Comments Post a comment

My understanding is that there are currently no Intelect jobs in Ohio and the CEO lived in Boston. For that, Ohio Tax-Payers provided $7 million in funding so that six-figure physicians and executives could receive more than $12 million in bonuses and a non-taxpaying entity could pocket the balance? It is naive to think that Coburn didn’t have influence over the Third Frontier – its well know that he regularly held fundraisers at his house for its largest proponent, ex-Gov. Strickland and that he shaped the vision for the mega-wright centers which put $60 million into the Cleveland Clinic’s Global Cardiovascular Innovation Center. For Coburn’s position, there is nothing “market” nor deserved about a $1 million salary. The Clinic and State owes the general public a bit more transparency to their process and results if they expect to manage $129 million of our money. Unfortunately, that is unlikely and as you say “Mr. and Mrs. Ohio Taxpayer will just have to live with it”.

Comment by anonymous — July 15, 2011 @ 11:56 am

Is it deserved? Ask the Intelect team. They … wouldn’t let him attend board meetings even as an observer, much less as a board member.

Comment by anon — July 15, 2011 @ 3:50 pm

Patients First?? That’s the slogan – but this shows a Hell NO! It’s not about the hardworking medical and research staff who are tirelessly working to serve patients. It’s not about the state of the city and the State, which is in serious doldrums. It’s certainly not about a non-profit institution! Whoever let him get 3% should get fired! What is actually scary is the absence of transparency – all this time, he might have been publicly espousing investments to line his pockets. Let’s close down hospitals! Let’s fire support staff! BUT, let’s reward those that take public dollars at the expense of others, help move jobs to another state, and chase away innovators. Shame, Shame!!.

Comment by anonymous — July 16, 2011 @ 2:09 am

Wow are you anonymous emailers courageous and not encumbered by facts. You make it sound like C Coburn can wave a magic wand and people in Columbus throw money at the Clinic. If you look at the Third Frontier Website you can see the kind of review projects receive by the State. That process includes technical experts, commercialization experts, and individuals with clinical experience and business backgrounds. Mr Coburn’s advantages maybe that he and his organization can write compelling grant applications and that the people and technology surrounding those applications have true clinical and commercial potential. If you are interested you can visit the Third Frontier website and read the reviews from the various Wright Centers. The process is very transparent and rigorous and hopefully will lead more high technology jobs in Ohio.
Finally regards Brendon’s comments on the appropriateness of Mr Coburn’s payout I would suggest that the Cleveland Clinic Innovations department is a hybrid model not strictly comparable to a University Tech Transfer Department. The Innovations Department includes the tech transfer function but there are other aspects which make it more like a seed venture capital organization. These functions might include company formation, providing seed capital, creating business plans, attracting board members and a host of other business incubation functions beyond the tech transfer function. You could talk to universities like Stanford or MIT that have these functions and associated reward systems. Maybe the new VP Commercialization role at Ohio State is a comparable position. In a hybrid model that has some reward features like a seed venture capitalist you would very appropriately have a a sharing of the value created as Mr Coburn has.

Comment by Peter Kleinhenz, Managing Director CID Capital, Inc. — July 16, 2011 @ 10:14 am

Please get real people. Innovations under Coburn has launched more than 30 companies in north east Ohio. All of these are bringing high paying jobs and skilled workers to the region. And it is not like he is getting a ‘windfall’ – Intellect has taken years of work to get off the ground, and if any others launch it will be after a lot of hard work. Coburn is essentially working on commission, putting in years of highly skilled effort and betting maybe 1:10 of these companies will make it. Keeping someone like him here working ‘on commission’ and then complaining when he closes the deal is hardly fair.

Comment by Anon — July 16, 2011 @ 2:11 pm

The number of companies created by Innovations and value to Ohio is greatly exaggerated. If you take a look at their website, more than half of these companies are not in Ohio or do not have active operations. Its also interesting to note that none of their exited companies appear to have any presence in Ohio.

Several investors and entrepreneurs will tell you that Innovations and specifically Coburn’s involvement is useless and often detrimental. Unfortunately, the office’s involvement is a necessary evil if you want to commercialize anything at the Cleveland Clinic.

I’m confident that Coburn is not working on commission and that he has a healthy base salary. All companies take a lot of effort and years to get off the ground but Anon is misguided if he thinks that this work is being put in by Coburn and his team. They also involve a lot of risk, which is a reason that successful entrepreneurs and investors get paid. No one within Innovations is taking a risk that justifies these kind of salaries.

Comment by anonymous — July 16, 2011 @ 4:39 pm

As one of the spin out companies working with Chris and his team we received no grants from the 3rd Frontier fund and their team has helped us create 39 jobs and acquire numerous business relationships in a matter of 20 months. I have no knowledge of Chris’ compensation plan but would share from an impact perspective, if it is as described; it’s worth it on job creation alone. On a side note, 90% of our outside capital (of which Chris helped us attract) came from outside of Ohio (TX and CT) and every single job we created is in Ohio.

Comment by Stephen McHale, CEO Explorys — July 18, 2011 @ 9:04 am

That’s not true in all cases Steve. DO the research… anon is right. The jobs calculated statement is much like I and a number of other entrepreneurs exposed last spring relative to what JumpStart claims. They are and probably never will be audited by an independent, third party in an arm’s length transaction. It is a learned pattern from a number of other non-profits in our community. When one looks under the hood, you quickly realize the seriousness of the forgery of jobs calculations.

I have no disagreement with Chris’ compensation levels if they are creating value. The question is, from the $28m in proceeds, did the states’ $7.8m investment get paid back? The Third frontier funding is not currently set up as an evergreen fund. What that means is; that only state income tax generated by jobs IN THIS STATE will ever pay back the taxpayer’s investment, proceeds from exits don’t. Since the acquiring company is out of state, and the jobs will eventually leave, unlikely the taxpayers of Ohio will ever recoup their investment.

This is the flip side of free money to “connected” organizations and having no accurate accountability for what it the intended outcomes are for the taxpayer’s investment. There should be only 2 possible outcomes for taxpayer funding of new startups: 1.) how it manages to be evergreen (so that it can continue to invest); and 2.) How many jobs does it create in Ohio and how much in payroll tax dollars are returned from those jobs!

Any other metrics or outcomes will only inure to the benefit of people like Coburn or the other investors that greatly reduce traditional investment risks by using this strategy that saddles along with free Ohio taxpayers investment.

As well, to not recognize the conflict-of-interest that exists by having recipients involved in decisions is akin to sticking your head in the sand… this is a good old boys group, I know, I’ve had firsthand experience. It’s just human nature to take care of those that someday/somehow can take care of you. Thinking otherwise is just foolhardy!

Via the Third Frontier, the taxpayers of the State of Ohio are being systematically ripped off… all in the hopes that someday the next “Google”, “Medtronic” or “Pfizer” might be created. All I can suggest is, don’t hold your breath! It’s a shame that our leaders in Columbus cannot see this basic argument.

I’m happy that things are good for you and your new enterprsie Steve, it IS one of the success stories and I congratulate you for your hard work and passion. Unfortunately, it’s also one of the rarer success stories relative to returning taxpayer investment in our state. I do hope we see more!

Comment by Ron Copfer — July 21, 2011 @ 11:14 am

I’m a Cleveland Clinic employee and inventor and have read the article and comments with great interest. I have never interacted directly with Chris, in large part because it is very difficult to get an audience with him. He has a large staff and most issues get pushed downhill. I know several of the scientists involved in Intelect and the general sense is that he did not play a large part if their success and that he often worked against the interests of the inventors, and based on this article, potentially in his own interest. My experience with his office has been disappointing and many Clinic staff are frustrated with their incompetence. Frankly, I’m shocked that he is paid so much considering their reputation amongst staff and the cutback that have been taking place at CCF during the last couple of years.

Within CCF, Chris appears to be very political in his dealings. I am sure that this has helped him at the Clinic and the State. I commend you on uncovering what appears to be a problem in how the State funds are being managed.

Comment by JBC — July 24, 2011 @ 10:26 pm

As one of the original founders of CC Innovations put it to me bluntly, C Coburn and CCI are “a failure” and “not coming close to accomplishing what it was originally supposed to do”. This is pure and simple conflict of interest. Absolutely and thoroughly.

Comment by anon — July 28, 2011 @ 6:05 pm

Wow, Brandon, this is a hell of an eye-opening story. So glad to see this enterprise reporting, given how precious little there is on the Clinic in the PD and Crain’s. This piece asks some important questions. I’ll be interested to see what the ripple effects are here.

Comment by John Ettorre — November 19, 2011 @ 7:37 pm