Wellcare Settles Again, but Wait, There is More...

We posted several times, most recently in 2009 (here and here), about misbehavior by the health insurance company/ managed care organization Wellcare.  That year, the company settled criminal charges that it defrauded the Florida state Medicaid program by paying a fine and accepting a deferred prosecution agreement.  Previously, the state of Connecticut had canceled its arrangement with Wellcare to run a Medicaid program in that state after the company refused to provide the state with requested data.  Then the company signed a consent order with the Florida Elections Commission in which it admitted making "questionable" political contributions.

Then this year, it was announced that the company would settle additional civil charges, as per the St. Petersburg (FL) Times,

Tampa-based WellCare Health Plans Inc. has agreed to pay $137.5 million to the U.S. Department of Justice and other federal agencies to settle civil lawsuits accusing the company of overcharging for its Medicaid and Medicare programs.

Also,

Under the tentative deal, which must be approved in court, WellCare would have three years to make payments to the Justice Department's civil division, the U.S. Attorney's Office for the Middle District of Florida and the U.S. Attorney's Office for Connecticut.

WellCare said the payments will include the approximately $23 million owed to the Florida Agency for Health Care Administration for overpayments received by the company in 2005.

The civil settlement is separate from a deal struck last year on the criminal front. In that case, WellCare agreed to pay $80 million to settle a charge of conspiracy to defraud the Florida Medicaid program and the Florida Healthy Kids Corp.

It also previously agreed to a $10 million civil penalty settling an informal inquiry by the Securities and Exchange Commission that regulatory filings reflected more than $40 million in profits that WellCare failed to return to the Florida agencies from 2003 to 2007.

WellCare, which is Florida's largest Medicaid plan operator, has acknowledged that it overcharged Florida and Illinois health programs by about $46.5 million.

But wait, there is more. No sooner than this settlement been announced than it was challenged. While considering the settlement, the judge involved unsealed a set of complaints by whistle-blowers about Wellcare. First, as reported by the Miami Herald,

The complaint, filed by former WellCare financial analyst Sean J. Hellein, portrays a company so ethically challenged that it rewarded employees who dumped hundreds of sick newborns and terminally ill patients from the membership rolls, thereby pumping up profits by millions of dollars.

It describes a company that embraced fraudulent accounting as a business model, eventually stealing between $400 million and $600 million from Medicare and Medicaid programs in several states, perhaps most of it from Florida.

See these specifics:

Hellein, who wore a wire for more than a year to gather evidence for federal agents, says in the complaint that:

- WellCare moved money between accounts to make it appear that patients' treatment cost much more than it actually did. In some cases, the company made payments years in advance to jack up the apparent cost of care to fool states into increasing Medicaid premiums. It worked, he said.

- When states made overpayment errors, WellCare didn't pay the money back, as its contract requires. Florida Medicaid made a series of overpayment blunders that fattened WellCare's bottom line by many millions; those who made the errors included both state officials and contractors.

- Sometimes hospitals and physician groups helped WellCare hide its true spending from Medicaid programs by accepting payments through one account for expenses incurred by another. Sometimes they allowed WellCare to pay for future years' expenses to make it appear spending for the current year was higher than it actually was.

Hellein named two hospital systems - one in Illinois and one in Florida - that he said participated in the sham arrangement, but he said it was common.

WellCare pushed expenses into certain programs - behavioral health programs in Florida and Illinois and the Healthy Kids program in Florida, a program for uninsured children of families with modest incomes - because they required repayment if the cost of treatment fell below a certain threshold.

Florida public officials were repeatedly duped by WellCare. The director of the Florida Medicaid program from 2004 to 2007, while much of the alleged fraud was going on, was Tom Arnold. He currently is Secretary of the Agency for Health Care Administration.

Another agency that fell for WellCare's line was the Office of Insurance Regulation, where an actuary found nothing wrong with a WellCare subsidiary in the Cayman Islands acting as the company's reinsurer.

The reinsurance arrangement enabled WellCare to bank $5 for each insured while making it appear that the cost was just 11 cents, the complaint says.

After Wall Street analysts raised questions about the legality of the reinsurance arrangement in 2007, some thought it might be reviewed by Chief Financial Officer Alex Sink. But nothing ever came of it.

WellCare conducted a study to figure out which Medicaid recipients were profitable and which were not so that it could engage in "cherry-picking," a term for enrolling only the profitable members. The study found that disenrolling a baby born with health problems saved the company an average of $20,000; each terminally ill patient saved $11,500.

Those who were persuaded to resign from WellCare went into the general Medicaid or Medicare fee-for-service programs.

WellCare also restructured its benefit package to discourage the least-profitable Medicaid recipients from enrolling and encouraging those who were more profitable to sign up.

Low-income mothers and children yielded a net of only about 10 percent, while the physically and mentally disabled paid for by Medicare yielded a net of 30 percent, the complaint says.

The complaint names about 20 employees of WellCare who knew about the fraudulent activities. Only one, Gregory West, has been charged. He pleaded guilty in December 2007 but sentencing has been postponed several times.

No charges have been brought against three former executives of the company named in the complaint as orchestrating the fraud: President, CEO and Chairman Todd Farha, CFO Paul Behrens and General Counsel Thaddeus Bereday.

They all resigned in January of 2008, three months after the FBI and other law-enforcement agents raided the Tampa campus of WellCare and carted off computers and files.

The the St. Petersburg Times reported about two more complaints that were unsealed:

Clark J. Bolton, a former supervisor of special investigations at WellCare, said the insurer encouraged overbilling and refused to audit claims for fraud in order to curry favor with doctors and hospitals and build market share. The result was millions in excessive and illegal expenses passed through to federal Medicare and state Medicaid programs, Bolton said.

Eugene Gonzalez, a referral coordinator for seven years, claimed WellCare met government customer service standards only because it had employees create backdated documents and make bogus calls to the company's phone lines. Failure to meet these standards would have resulted in the loss of billions of dollars worth of Medicare and Medicaid contracts.

As we have before, we see a striking contrast between the scope of the allegations and the response by the government agencies that are supposed to regulate insurers, insure that public money is spent wisely, and investigate and seek punishment for illegal activities. As the latter St. Petersburg Times article noted,

U.S. Rep. Kathy Castor criticized the proposed settlement as wholly inadequate in a letter this week to Attorney General Eric Holder. 'Where is the penalty and punishment for such egregious actions?' she wrote. 'It appears that companies such as these simply build such payments into the 'cost of doing business.' We cannot allow this to continue.'

This notion should be familiar to readers of Health Care Renewal. The Wellcare case fits right into the parade of legal settlements we have discussed. As we have said again and again, the usual sorts of legal settlements we have described do not seem to be an effective way to deter future unethical behavior by health care organizations. Even large fines can be regarded just as a cost of doing business. Furthermore, the fine's impact may be diffused over the whole company, and ultimately comes out of the pockets of stockholders, employees, and customers alike. It provides no negative incentives for those who authorized, directed, or implemented the behavior in question. My refrain has been: we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

Also note that the case of Wellcare remains relatively anechoic. Despite the severity of allegations, and the national scope of the company, the case has only been mentioned in news stories, mainly in Florida where the company has its headquarters, and in a few health care trade publications. It, like many of the cases we discuss on Health Care Renewal, has not been mentioned in the medical/ health care research/ health care policy literature.

If we cannot even speak about the sort of very bad management that afflicted Wellcare as a cause of many of the ills of our health care system, how do we really expect to constructively reform that system?

An Attempt to Hold Health Care Leaders Accountable for Their Organizations' Bad Behavior?

We have frequently noted how health care organizations accused of kickbacks, fraud, and other unethical and sometimes illegal behavior involving how they produce or market health care products or services often are allowed to settle the charges only with a fines to the companies, and sometimes with corporate integrity agreements.  Almost never are the people who authorized, directed, or implemented the unethical behavior required to pay any sort of penalty.  We recently commented on a case in which an executive of a medical device company accused of exaggerating the performance of a diagnostic test in development was charged, not with misleading doctors or patients by the US Food and Drug Administration (FDA), but with misleading investors by the US Securities and Exchange Commission (SEC).  That executive lost her job, and will be barred from leading any public company.

So up to now, a corporate executive responsible for misleading doctors or patients about issues that could affect clinical decisions or outcomes likely would never pay a penalty, but one responsible for misleading  investors about similar issues could lose his or her job and livelihood.

Now, per an article in Fortune, it appear the situation may be changing,

The federal government is fed up with the amount of fraud, especially recurring fraud from the same companies, happening in the pharmaceutical industry. So regulators have decided that when it comes to punishments, it's time to get personal.

From now on, individual executives risk being ejected from their jobs -- and perhaps even barred from the industry -- for fraud their companies commit, even if they did not participate or even know about the crimes.

Furthermore,

The new approach, emerging from the unusually powerful Inspector General's office in the Department of Health and Human Services, reflects frustration with corporate recidivism even in the face of ramped-up fines, penalties and disgorgements.

'We are going to start to use that authority in the appropriate circumstances to get high level executives out of companies, so that the company has a better shot at changing its behavior, so that it does not become a recidivist,' explains Lewis Morris, chief counsel to the Inspector General.

The article noted some cases in which even large fines and corporate integrity agreements seemingly failed to deter future bad behavior by the companies which paid these penalties. For example,

In the government's most recent major settlement -- in which AstraZeneca agreed to pay $520 million -- the fine represented 16.5% of the $8.6 billion income (between 2001-2006) from U.S. sales of Seroquel, a powerful anti-psychotic. AstraZeneca (AZN) turned this narrowly approved drug into a cash cow by marketing it for much wider use, including by the elderly and children, even though they are particularly vulnerable to 'serious and debilitating side effects.'

All the while, AstraZeneca was operating under a corporate integrity agreement (CIA) with the Inspector General, imposed after a 2003 off-label marketing case.

We discussed the AZ settlement here in October, 2009. We asked then, "Does anyone really still believe that integrity agreements, and settlements assessed against huge corporations deter such profitable bad behavior?"

Another example:

Drug company Pfizer (PFE, Fortune 500), which was fined $2.3 billion just last September, is now on its third CIA. Steeper fines and harsh individual penalties should help put more teeth into these agreements and keep companies from flouting them.

We discussed the repeated lack of effect of settlements by Pfizer here in September, 2009. We concluded, "So will even a $2,300,000,000 settlement and yet another corporate integrity agreement make Pfizer or any other health care corporation act more ethically? I doubt it."

The Fortune article quoted Peter Rost, former Pfizer executive turned whistle-blower and ethics advocate (and to whose blog I offer a hat tip for first mentioning the Fortune article), on aspects of corporate culture and corporate incentives that foster repeated unethical behavior by management,

'Usually by the time someone becomes a senior executive they are very aware of the pitfalls in the organization, and they have become masters at not doing something wrong or not getting caught doing something wrong,' explains Peter Rost, a former senior Pfizer executive turned industry gadfly.

Incentive-based compensation systems -- typically 40% to 50% of salespeople's income comes from hitting their numbers -- are one weak point. 'They are going to work real hard to increase those numbers and do whatever it takes, and if they think somebody gave them a wink about doing this or that, they are going to run with it.' says Rost.

Booting senior executives out for any fraud under their watch might end the wink-and-nod system, giving hope to critics.

In my humble opinion, the government's new approach looks like real progress. Giving corporate executives personal impunity was a recipe for increasing unethical, and sometimes criminal behavior. The sorts of marketing fraud they authorized or directed certainly lead to increasing costs, and overuse of unnecessary and sometimes harmful tests and treatments. While there have years of complaints about health care's increasing costs and decreasing quality in health policy circles, it is just amazing that until now, there has been so little action against the bad behavior that was undoubtedly responsible for much of these problems.

So three cheers for making health care organizations' leaders accountable for the bad behavior of their organizations.

After cheering, however, there ought to be some serious inquiry about why they were not held accountable much sooner.  It turns out that there has been legal justification for holding leaders so accountable available for a long time:

All that's required for the government to flex this remarkably broad authority -- embedded in the Responsible Corporate Officers Doctrine -- is that the executives were in a position to have stopped the fraud that resulted in a criminal conviction or plea.

Note that the Responsible Corporate Officers Doctrine apparently derives from a US Supreme Court case about the selling of misbranded or adulterated drugs into interstate commerce under the US Food and Drug Act, decided in 1943.

However, it looks like in the hyper laissez faire climate of the last 20 or more years, no one wanted to bother to invoke it. After all, the formerly highly regarded leader of the US Federal Reserve believed there was no need for regulators to punish fraud, because the magic of the market would take care of it. US health care has paid a heavy price for such breathtaking naivete (see the PBS Frontline show, "The Warning." )

Sequenom Executive Pleads Guilty, Banned from Leading Any Public Company (for Misleading Investors About the Performance of a Diagnostic Test?)

We have frequently noted how health care organizations accused of kickbacks, fraud, and other unethical and sometimes potentially illegal behavior involving how they produce or market health care products or services often are allowed to settle the charges only with a fines to the companies, and sometimes with corporate integrity agreements.   

This report from Bloomberg describes a case in which a health care corporation was accused of lying to investors about the performance of a product which it hoped to market. The product was a diagnostic test, and so exaggerating its performance could have affected medical decisions, and hence patients' outcomes, as well as affecting investors' finances. Note how this case was handled.

Elizabeth A. Dragon, former senior vice president of research and development at Sequenom Inc., pleaded guilty today in federal court to conspiracy to commit securities fraud for lying to investors about the company’s prenatal test for Down syndrome, U.S. officials said.

Dragon admitted to making false claims to investors and analysts about the effectiveness of the San Diego-based company’s test as well as attempting to 'inflate and sustain' the price of Sequenom’s shares, said Laura E. Duffy, the U.S. Attorney for the Southern District of California in San Diego, in a statement. Dragon said in a court appearance before U.S. Magistrate Judge Barbara Major that she and others manipulated data to make the Down syndrome test appear more accurate than it was, Duffy said.

Dragon also was accused of lying to investors in a civil complaint filed today in San Diego by the U.S. Securities and Exchange Commission. Dragon settled the claims without admitting or denying wrongdoing and agreed to be barred from serving as an officer or director of a public company, according to the agency’s statement.

Here was how the SEC summed it up:

'Elizabeth Dragon knew the truth about Sequenom’s Down syndrome test, yet she told the public it was a near-perfect success,' Rosalind Tyson, director of the SEC’s Los Angeles office, said in a statement. 'Her actions misled investors with exaggerated information about a significant new product that never materialized.'

What had the company done about this in the past?

In June 2009, the company announced an SEC investigation, and, in September, Sequenom said it dismissed Dragon and Chief Executive Officer Harry Stylli and couldn’t rely on the earlier test results.

And how did it respond to the latest news?

'At this time the company has no comment to make other than we continue to cooperate fully with the government agencies and their investigations,' said Ian Clements, Sequenom’s senior director of corporate communications, in an e-mail.

We have discussed multiple new entrants to the parade of legal settlements by health care organizations. We posted about the most recent entrant here.

It is instructive to compare what happened to the company and personnel involved in that settlement (which happened to be St. Jude Medical) to the events of the current case. As we noted above, when accusations are made about how a company produced or marketed health care products or services, the worst result for the company is usually a fine, rarely amounting to more than a small fraction of the sales of the product or service in question, and sometimes a corporate integrity agreement. Often meanwhile the company may make a statement that it did nothing wrong, and merely settled the case to get on with things.

In the Sequenom case, however, the accusation was of misleading investors (by statements that perhaps just coincidentally could have also misled doctors and patients were the product to have been marketed). The results, however, were that the executives who seemed to be responsible were fired as soon as the government investigation was made known, and a later guilty plea by the executive who seemed most immediately responsible, accompanied by her banning from future service as an "officer or director of a[ny] public company."

It is striking that misleading investors, and thereby potentially endangering their financial health, may result in severe penalties to the individuals involved. However, up to now, misleading doctors or patients, and thereby potentially endangering the former's reputations, and more importantly, the latter's health and even survival, rarely has resulted in any penalties to the individuals involved.

What is wrong with this picture?

If executives who endanger investors' finances can lose their jobs, and be barred from leadership positions in any public company, why can't executives who endanger patients also lose their jobs, and be barred from leadership positions in health care? Inquiring minds would really like to know.

As we have repeated endlessly, the usual sorts of legal settlements we have described do not seem to be an effective way to deter future unethical behavior by health care organizations. Even large fines can be regarded just as a cost of doing business. Furthermore, the fine's impact may be diffused over the whole company, and ultimately comes out of the pockets of stockholders, employees, and customers alike. It provides no negative incentives for those who authorized, directed, or implemented the behavior in question. My refrain has been: we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

How Did the CEO Who Presided Over the Company that Paid a $1.7 Billion Fraud Settlement Become a Credible Candidate for a State Governorship?

This one fits in the "you just can't make this stuff up" category.  Let me provide a summary from the Fort Lauderdale, Florida Sun-Sentinel,

It was and still is the biggest Medicare fraud case in U.S. history and ended with the hospital giant Columbia/HCA paying a record $1.7 billion in fines, penalties and damages.

Now the man who ran the company at the time wants to be Florida's governor.


Rick Scott was co-founder and CEO of Columbia/HCA in the 1990s, when the FBI launched a massive, multi-state investigation that led to the company pleading guilty to criminal charges of overbilling the government.

Today, Scott is a Republican candidate for governor, running his campaign from an office in downtown Fort Lauderdale.

Here is the Sun-Sentinel's review of the Columbia/ HCA case from the end of the 20th century:

A Dallas lawyer whose clients included health care companies, Scott came from humble Midwestern roots — his father was a truck driver and his mother a JC Penney sales clerk. In 1987, at the age of 34, he started Columbia, investing $125,000 to buy two hospitals in El Paso, Texas.

Within a decade, he was running the largest health care company in the country with more than 340 hospitals and $20 billion in annual revenue. Columbia aggressively bought other health care companies, including the Hospital Corporation of America, and became Columbia/HCA.

The federal government began investigating in the mid 1990s with the help of whistleblowers including [Jim] Alderson and John Schilling, a Medicare reimbursement supervisor in Fort Myers.

Among the fraudulent practices uncovered: billing Medicare and Medicaid for unnecessary lab tests, creating false diagnoses to claim a higher reimbursement and charging for marketing and advertising costs that were disguised as community education. The company even billed the government for tickets to the Kentucky Derby and country club dues, according to news accounts.

The government's investigation became public in 1997 and that July, the FBI raided Columbia/HCA offices in seven states, including Florida. Days later, the board of directors announced Scott was out.

The St Petersburg Times/ Miami Herald Politifacts Florida web-site included more details about the nature of the offenses alleged:

* Columbia billed Medicare, Medicaid, the Defense Department's TRICARE health care program, and the Federal Employees' Health Benefits Program for lab tests that were not medically necessary or not ordered by physicians;
* The company attached false diagnosis codes to patient records in order to increase reimbursement to the hospitals;
* The company illegally claimed non-reimbursable marketing and advertising costs as community education;
* Columbia billed the government for home health care visits for patients who did not qualify to receive them.

It also documented the guilty pleas resulting from the charges:

Southern District of Florida (Miami) -- Columbia Homecare Group Inc., a subsidiary of Columbia, will plead guilty to one count of conspiracy to defraud the U.S. and to violate the Medicare Anti-kickback Statute involving its fraudulent business in the purchase and operation of home health agencies and fraudulent billing of Medicare for management and personnel costs. The criminal fine is $3.36 million;

Northern District of Georgia (Atlanta) -- Columbia Homecare Inc. will plead guilty to one count of violating the Medicare Anti-kickback Statute related to purchase of home health agencies. The criminal fine is $3.36 million;

Department of Justice Criminal Fraud Section -- Another subsidiary, Columbia Management Companies Inc., will plead guilty to one count of conspiracy to defraud the U.S. and to make and use false writings and documents in connection with its fraudulent 'upcoding' of bills to Medicare for patients diagnosed with certain types of pneumonia. The criminal fine is $27.5 million. This investigation was based in Nashville, Tennessee;

Middle District of Florida (Tampa) -- Columbia Homecare Group will plead guilty to one count of conspiring to defraud the U.S. and one count of conspiracy to violate the Medicare Anti-kickback Statute in connection with the purchase and operation of home health agencies. The criminal fine is $8.4 million. Also, Columbia Management Companies will plead guilty to eight counts of making false statements to the U.S. in connection with the submission of false cost reports to Medicare. The fine amount is $22.6 million; and,

Western District of Texas (El Paso) -- Columbia Homecare Group will plead to a conspiracy to pay kickbacks and other monetary benefits to doctors in violation of the Medicare Anti-kickback Statute. The criminal fine is $30.1 million.

The case was extensively dicussed in Money-Driven Medicine by Maggie Mahar, who suggested that the business culture that Scott created lead to these crimes:

Scott was obsessed not just with winning, but with money

He bullied his subordinates. 'My father owned and operated a millinery factory in the garment district and [even in that tough garmento environment] I never witnessed such an extent of demeaning, debasing, and devaluing behavior as I personally experienced at Columbia,' Mark E. Singer, administrative director for medicine at Michael Reese Hospital in Chicago told The New York Times.

Internal records showed that at Columbia/ HCA, just as at many other for-profits, executive salaries hinged not on such criteria as reducing infections or lowering death rates, but on meeting financial targets like 'growth in admissions and surgery cases.'

Scott's detractors claimed that his cost cutting threatened patient care and safety: 'Gloves come in only one size and rip easily,' complained hospital workers in Florida. In California, nurses protested 'filty conditions,' and being 'stretched to the limit'....

The Sun-Sentinel article included allegations that Scott actually knew about the crimes to which Columbia/ HCA subsidiaries pleaded guilty:

Alderson thinks Scott had to know.

The hospitals kept two sets of books: One showed the reimbursements actually submitted to Medicare and the other, marked confidential, detailed those charges that would likely be rejected if caught by federal auditors.

The company kept funds in reserve to repay the government for those claims and once the timeframe for an audit had passed, the reserves would be reclassified as revenue, Alderson said.

'They had $1 billion in play in these reserves,' said Alderson, who now lives in La Quinta, Calif., and speaks to college students and Rotary clubs about business ethics. 'Anywhere from 25 to 33 percent of their bottom line was these reserves, so you bet he knew about it.''

Scott was never charged with a crime. Instead, he "left Columbia/HCA with $10 million in severance and stock valued at $300 million." Now, he "lives in Naples in a $9 million house on the Gulf of Mexico."

But,

Joe Ford, the FBI agent who led the Columbia/HCA investigation and then took on corporate fraud at Enron, retired from the bureau and lives near San Francisco. He declined to comment for this story article but was quoted in a 2008 book by Schilling as saying that his biggest regret in the Columbia/HCA case was not charging corporate executives.

'After Columbia/HCA, I realized people, individual corporate officers, had to be held ccountable for the actions of their companies,' Ford said in Schilling's book, 'Undercover: How I Went from Company Man to FBI Spy – and Exposed the Worst Healthcare Fraud in U.S. History.'

'Instead of just giving us [the government] money, people need to go to jail,' Ford said in the book. 'I learn from my mistakes, and this was my first big one.'

Of course, we have noted a parade of legal settlements involving and guilty pleas and criminal convictions by  health care organizations, (or often just subsidiaries conveniently available to take the rap).  As we have noted, resulting fines may be just be treated as costs of doing business by health care leaders.  Almost never have the people who authorized, directed, or implemented wrong-doing almost never suffer negative consequences.

Instead, they may just continue to haunt health care and society at large.

Mr Scott's campaign web-site noted "mistakes were certainly made at Columbia/ HCA. As CEO I accept responsibility for what happened on my watch."

If only....

To conclude, as I have repeated seemingly infinitum, we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

ADDENDUM (27 May, 2010) - see comments by Maggie Mahar on the Health Beat Blog.

Investigations, Indictments and Guilty Pleas at Famous US Teaching Hospitals

Some of the US most prestigious academic medical centers have been receiving unusual scrutiny lately.

Mount Sinai Medical Center and New York - Presbyterian Hospital.

As reported first by the Wall Street Journal,

Federal prosecutors are investigating allegations that bid rigging and fraud at Mount Sinai Medical Center and New York-Presbyterian Hospital resulted in the hospitals awarding contracts worth tens of millions of dollars to outside contractors.

Purchasing officials at the hospitals, two of the city's largest and most prestigious, are alleged to have gotten more than a million dollars in payments from companies that were then given lucrative contracts to perform work such as re-insulating pipes and removing asbestos, according to documents filed in the Southern District of New York.

Nine contractors are involved in the case. So far, eight people and three companies supplying the hospitals have pleaded guilty to charges including bid-rigging, mail fraud and tax fraud. Three more people have been indicted on similar charges.

The Federal Bureau of Investigation and Internal Revenue Service have been investigating and the Justice Department's Antitrust Division is prosecuting the allegations in the case.

Some relevant specifics:

The most recent indictment, handed up by a federal grand jury April 6, involved the alleged awarding of more than $195,000 in maintenance and insulation contracts. Mario Perciavalle, associate director of plant services at Mount Sinai, is accused of taking at least $20,500 in cash from a Long Island City company in 2004 and 2005 in exchange for the company, unnamed in documents, winning the deals.

Prosecutors also are pursuing a case involving a former official at New York-Presbyterian, Salvatore Scotto-DiVetta, a supervisor at the hospital's Facilities Operations department. He pleaded guilty in March to rigging bids for re-insulation contracts, the Department of Justice said.

The next day, the Journal reported:

Two New York-Presbyterian Hospital officials and two contractors who did business with the prestigious hospital were indicted on fraud charges Tuesday in the latest cases stemming from a federal investigation into bid-rigging and fraud.

The indictment alleges that the hospital officials—Santo Saglimbeni of Armonk, N.Y., and Emilio Figueroa, whose hometown wasn't given—received payments and gifts in exchange for awarding contracts to certain companies.

And already the box score for this investigation increased:

As a result of the investigation, a total of five hospital employees, 10 people outside the hospitals and six companies have either pleaded guilty or face charges.

The comments by hospital officials had a familiar ring to anyone who has been following the hearings in Washington on the global financial collapse. From the first article:

A Mount Sinai spokesman said the hospital notified the Justice Department 'about the possibility of impropriety immediately after it was identified in an internal audit' and is cooperating with the investigation. The spokesman said the hospital dismissed the employee under investigation and instituted tougher contracting systems.

From the second:

New York-Presbyterian was an 'unknowing victim of these alleged crimes,' a hospital spokeswoman said. She also said that the staffers named in the indictment no longer work at the hospital, and it is cooperating with the investigation.

Partners Healthcare System

Just out today in the Boston Globe:

The US Department of Justice has opened a civil investigation into possible anticompetitive behavior by Partners HealthCare System Inc., the region’s most powerful hospital and physician network.

In a letter sent to Partners and the state’s three largest health insurers on April 19, investigators from the Justice Department’s antitrust division demanded documents relating to Partners’ 'contracting and other practices in health care markets in Eastern Massachusetts.'

The letter, obtained by the Globe, said the probe sought to determine whether the practices violated the Sherman Antitrust Act, which bars companies from using their market power to limit trade or artificially raise prices.

The background is:

Boston-based Partners has been under growing scrutiny because of its market power and ability to draw high prices from insurers. The company employs about 5,500 physicians and operates a half dozen smaller hospitals, in addition to their prestigious Harvard-affiliated Boston teaching hospitals, Mass. General and the Brigham.

Earlier this year, Attorney General Martha Coakley issued a report documenting that Massachusetts insurance companies pay some hospitals and doctors, including those in the Partners network, twice as much money as others for essentially the same patient care. The report pointed to the market clout of the best-paid providers as a main driver of the state’s spiraling health care costs.

A 2008 Globe Spotlight Team series focused on the Boston market found that hospitals such as Mass. General and the Brigham typically are paid 15 to 60 percent more for essentially the same work as other hospitals.

Soon after that series, Coakley launched her investigation into whether Partners and Blue Cross-Blue Shield, the state’s largest health insurer, may have illegally colluded to increase the price of health insurance statewide over the last decade, according to several legal and government sources.

And again, the official response had a familiarly evasive ring:

Partners spokesman Rich Copp yesterday noted that the hospital network already has supplied similar information to investigators from the state attorney general’s office, which launched its own review of Partners’ contracting practices last year. He noted in Partners’ defense that it vies with other providers in the area’s 'highly competitive' health care market.

'The Department of Justice has requested the same information that we have provided to the attorney general’s office,' said Copp. 'We will continue to cooperate with both government agencies during this ongoing analysis of health care in Massachusetts.'

Summary

So there it is.  Multiple indictments for and guilty pleas to charges of bid-rigging and fraud at two New York academic medical centers, and state collusion and federal anti-trust investigations of a Massachusetts hospital system.  The issues involve four of the most prestigious teaching hospitals in the US.

Of course, not all the indictments may result in convictions, and the investigations may not result in charges.  But this involves some institutions that at one time would have appeared beyond reproach.  The lack of clear denials from the inevitable official spokespeople, and attempts to deny responsibility for the actions of employees elsewhere identified as "officials" do not provide much reassurance.

Of course, readers of Health Care Renewal would have known that questions could be raised about leadership and governance of these once-revered institutions.  Questions could be raised about the incentives implied by the huge compensation given to the top hired executives at New York - Presbyterian, awarded by a board of trustees that includes some of the leaders of the more prominent failed finance corporations involved in the global financial collapse.  Questions could be raised about the dominant presence of finance leaders and possibly conflicted individuals on the Partners board, and apparent interlocks among Partners leadership and the leadership of the largest health insurer in Massachusetts, which was willing to pay that system so much.

Maybe, instead of lecturing the more lowly among us about our responsibilities to improve health care, the leaders of our previously most august health care institutions need to introspect more about their own responsibility to address the metastasis of "greed and incompetence" in health care from the financial sector.

The Settlement and Conviction Round-Up: Friday Frequent Flier Edition

It's time for one of our periodic round-ups of legal settlements and convictions of health care organizations.  This time, we report on three frequent fliers, in chronologic order of the appearance of the relevant news stories.

Robert Wood Johnson University Hospital Hamilton (UMDNJ)

We have written multiple times about the woes of the University of Medicine and Dentistry of New Jersey, which lead to a deferred prosecution agreement and operation under the watchful eye of a federal monitor for several years, and resulted in criminal convictions of a former Dean and the state legislative leader he hired.  Scroll through this for far too many details. 

Now, the redoubtable Newark Star-Ledger reports:

Robert Wood Johnson University Hospital in Hamilton has agreed to pay $6.35 million to settle allegations that the facility defrauded Medicare, Justice Department officials said today.

The Mercer County hospital was accused of inflating charges to Medicare patients to obtain bigger reimbursements from the federal government.

'Taxpayer dollars should go towards quality health care, not wasted on fraud and abuse,' said Tony West, Assistant Attorney General for the Civil Division of the Department of Justice.

The hospital denied wrongdoing in the settlement, said Skip Cimino, the facility's president and CEO. 'Robert Wood Johnson University Hospital Hamilton has resolved the outstanding Medicare Reimbursement issue with the government and looks forward to continuing its service to the community,' he said.

Note that Robert Wood Johnson Medical School is one of the two medical schools contained within UMDNJ.

Fresenius

I admit that we last discussed Fresenius Medical Care Holdings Inc, a for-profit provider of kidney dialysis services, a while ago, back in 2007. At that time, the company settled charges made by the US Federal Trade Commission that it had tried to restrain competition. Last week, the Tennessean reported:

A long-running whistleblower complaint against the once-Nashville based Renal Care Group has led to a $19.3 million federal court judgment against the acquired dialysis supplier and the German company that bought it four years ago.

The lawsuit, which focused on improper claims submitted to Medicare for home dialysis supplies, named Renal Care Group Supply Co. and Fresenius Medical Care Holdings Inc., as co-defendants. The federal government joined the whistleblower complaint more than two years ago.

Renal Care operated a shell billing company solely to submit claims on behalf of itself in violation of federal law that requires suppliers to be independent of the dialysis facilities where patients are treated, the government said. Even after employees raised concerns, Renal Care continued to operate the billing company because of the 'illicit revenues it created,' the suit said.

One employee wrote: 'I do not wish to go to jail' and felt the company's plan 'was not in the best interests of patients,' said federal Judge William J. Haynes Jr. of Nashville in his ruling.

The billings reportedly occurred over a six-year period beginning in 1999. The Fresenius-Renal Care acquisition closed in 2006 at a sales price of $3.5 billion.

Pfizer

Pfizer Inc, which proclaims itself to be the world's largest pharmaceutical company, has provided an amazing amount of material for Health Care Renewal. In September, 2009, we discussed the huge, that is, $2.3 billion dollar settlement Pfizer made of criminal and civil fraud charges. At that time, this was the fourth settlement of charges of unethical marketing made by Pfizer since 2002.

Since then, we have discussed another fraud settlement in October, 2009, and yet another in January, 2010.

Today, Bloomberg reported:

Pfizer Inc. violated U.S. racketeering law in the marketing of its epilepsy drug Neurontin and should pay $142.1 million in damages, a jury decided.

Kaiser Foundation Health Plan Inc. and Kaiser Foundation Hospitals claimed in a monthlong trial in federal court in Boston that Pfizer illegally promoted Neurontin for unapproved uses. The insurer said it was misled into believing migraines and bipolar disorder were among the conditions that could be treated effectively with Neurontin, approved in 1993 by the U.S. Food and Drug Administration for epilepsy.

'The jury found Pfizer engaged in a racketeering conspiracy over a 10-year period,' Tom Sobol, a lawyer for Kaiser, said after yesterday’s verdict. 'That bodes well for future cases.'

Furthermore, this was a very special kind of verdict:

The jury, which deliberated for two days, found that New York-based Pfizer violated the federal Racketeer Influenced and Corrupt Organizations Act, or RICO, and California’s Unfair Competition Law. Under RICO, the amount of actual damages found by the jury, $47.36 million, will be tripled.

The RICO statute was meant to be used against organized crime.  A jury seems to have found that Pfizer is a "Racketeer Influenced and Corrupt Organization," that is, the moral equivalent of a crime syndicate. 

Summary

So this week's settlement and conviction round-up shows the impunity that many health care organizations have exhibited thus far.  Some organizations have been charged again and again with unethical behavior.  Now one of the most frequent of the fliers has been convicted under the RICO law, certainly a new low. 

Yet none of the affected organizations in this post, and precious few we have discussed at other times, seem to have suffered any major consequences.  All have paid fines, some which seemed large at the time, but which have never been large enough to seriously threaten the organizations' financial well being.  None of the organizations seems to have lost business, or even much reputation.  Very few of the people within the organizations who approved, lead or implemented unethical behaviors have suffered any sort of negative consequences.

There seems to be something very wrong here.  In the US, we have put much of our health care system in the hands of very large organizations, for-profit and not-for-profit, without holding these organizations and their leaders accountable for their actions.  The results have been increasingly rich leaders who often behave like a new aristocracy, and repeated bad behavior by the organizations they lead. 

Our latest effort at health care "reform" has continued to rely on large private organizations, while so far not adding to their or their leaders' accountability.  In my humble opinion, if we really want to reform health care so as to improve quality, increase access, control costs, and support professionalism, we will have to make our new health care oligarchs accountable. 

The Settlement and Conviction Round-Up: Friday Frequent Flier Edition

It's time for one of our periodic round-ups of legal settlements and convictions of health care organizations.  This time, we report on three frequent fliers, in chronologic order of the appearance of the relevant news stories.

Robert Wood Johnson University Hospital Hamilton (UMDNJ)

We have written multiple times about the woes of the University of Medicine and Dentistry of New Jersey, which lead to a deferred prosecution agreement and operation under the watchful eye of a federal monitor for several years, and resulted in criminal convictions of a former Dean and the state legislative leader he hired.  Scroll through this for far too many details. 

Now, the redoubtable Newark Star-Ledger reports:

Robert Wood Johnson University Hospital in Hamilton has agreed to pay $6.35 million to settle allegations that the facility defrauded Medicare, Justice Department officials said today.

The Mercer County hospital was accused of inflating charges to Medicare patients to obtain bigger reimbursements from the federal government.

'Taxpayer dollars should go towards quality health care, not wasted on fraud and abuse,' said Tony West, Assistant Attorney General for the Civil Division of the Department of Justice.

The hospital denied wrongdoing in the settlement, said Skip Cimino, the facility's president and CEO. 'Robert Wood Johnson University Hospital Hamilton has resolved the outstanding Medicare Reimbursement issue with the government and looks forward to continuing its service to the community,' he said.

Note that Robert Wood Johnson Medical School is one of the two medical schools contained within UMDNJ.

Fresenius

I admit that we last discussed Fresenius Medical Care Holdings Inc, a for-profit provider of kidney dialysis services, a while ago, back in 2007. At that time, the company settled charges made by the US Federal Trade Commission that it had tried to restrain competition. Last week, the Tennessean reported:

A long-running whistleblower complaint against the once-Nashville based Renal Care Group has led to a $19.3 million federal court judgment against the acquired dialysis supplier and the German company that bought it four years ago.

The lawsuit, which focused on improper claims submitted to Medicare for home dialysis supplies, named Renal Care Group Supply Co. and Fresenius Medical Care Holdings Inc., as co-defendants. The federal government joined the whistleblower complaint more than two years ago.

Renal Care operated a shell billing company solely to submit claims on behalf of itself in violation of federal law that requires suppliers to be independent of the dialysis facilities where patients are treated, the government said. Even after employees raised concerns, Renal Care continued to operate the billing company because of the 'illicit revenues it created,' the suit said.

One employee wrote: 'I do not wish to go to jail' and felt the company's plan 'was not in the best interests of patients,' said federal Judge William J. Haynes Jr. of Nashville in his ruling.

The billings reportedly occurred over a six-year period beginning in 1999. The Fresenius-Renal Care acquisition closed in 2006 at a sales price of $3.5 billion.

Pfizer

Pfizer Inc, which proclaims itself to be the world's largest pharmaceutical company, has provided an amazing amount of material for Health Care Renewal. In September, 2009, we discussed the huge, that is, $2.3 billion dollar settlement Pfizer made of criminal and civil fraud charges. At that time, this was the fourth settlement of charges of unethical marketing made by Pfizer since 2002.

Since then, we have discussed another fraud settlement in October, 2009, and yet another in January, 2010.

Today, Bloomberg reported:

Pfizer Inc. violated U.S. racketeering law in the marketing of its epilepsy drug Neurontin and should pay $142.1 million in damages, a jury decided.

Kaiser Foundation Health Plan Inc. and Kaiser Foundation Hospitals claimed in a monthlong trial in federal court in Boston that Pfizer illegally promoted Neurontin for unapproved uses. The insurer said it was misled into believing migraines and bipolar disorder were among the conditions that could be treated effectively with Neurontin, approved in 1993 by the U.S. Food and Drug Administration for epilepsy.

'The jury found Pfizer engaged in a racketeering conspiracy over a 10-year period,' Tom Sobol, a lawyer for Kaiser, said after yesterday’s verdict. 'That bodes well for future cases.'

Furthermore, this was a very special kind of verdict:

The jury, which deliberated for two days, found that New York-based Pfizer violated the federal Racketeer Influenced and Corrupt Organizations Act, or RICO, and California’s Unfair Competition Law. Under RICO, the amount of actual damages found by the jury, $47.36 million, will be tripled.

The RICO statute was meant to be used against organized crime.  A jury seems to have found that Pfizer is a "Racketeer Influenced and Corrupt Organization," that is, the moral equivalent of a crime syndicate. 

Summary

So this week's settlement and conviction round-up shows the impunity that many health care organizations have exhibited thus far.  Some organizations have been charged again and again with unethical behavior.  Now one of the most frequent of the fliers has been convicted under the RICO law, certainly a new low. 

Yet none of the affected organizations in this post, and precious few we have discussed at other times, seem to have suffered any major consequences.  All have paid fines, some which seemed large at the time, but which have never been large enough to seriously threaten the organizations' financial well being.  None of the organizations seems to have lost business, or even much reputation.  Very few of the people within the organizations who approved, lead or implemented unethical behaviors have suffered any sort of negative consequences.

There seems to be something very wrong here.  In the US, we have put much of our health care system in the hands of very large organizations, for-profit and not-for-profit, without holding these organizations and their leaders accountable for their actions.  The results have been increasingly rich leaders who often behave like a new aristocracy, and repeated bad behavior by the organizations they lead. 

Our latest effort at health care "reform" has continued to rely on large private organizations, while so far not adding to their or their leaders' accountability.  In my humble opinion, if we really want to reform health care so as to improve quality, increase access, control costs, and support professionalism, we will have to make our new health care oligarchs accountable. 

Former McKesson CEO and Board Chairman Convicted of Fraud

Continuing with our annals of health care crime, Bloomberg.com reported a new verdict on a very old case:

Former McKesson Corp. Chairman Charles McCall was convicted in a second trial of participating in a fraud 10 years ago that cost investors $8.6 billion, one of the largest white-collar crimes at the time.

A federal jury in San Francisco yesterday found McCall guilty of five of six counts of securities fraud and circumventing accounting rules. He was acquitted of falsifying records. Sentencing is set for March 2. Ex-McKesson General Counsel Jay Lapine was found not guilty of three charges.

McCall and Lapine were accused of hiding backdated sales contracts from auditors and other conduct that improperly inflated revenue figures at San Francisco-based McKesson, the biggest U.S. drug distributor, and HBO & Co., a software maker led by McCall that was acquired by McKesson in 1999.

The McCall verdict was a victory for prosecutors who lost a 2006 trial of the ex-chairman. Assistant U.S. Attorney David Anderson told jurors in the three-week trial that McCall learned of the practices a few months before HBO was to be acquired.

Instead of blowing the whistle, McCall covered up the fraud and was named chairman of the merged company, Anderson said.

When McKesson disclosed in April 1999 that sales had been prematurely booked, leading to a restatement, the shares lost 47 percent of their value. McCall and Lapine were fired that year.

A federal investigation followed, and five former McKesson executives pleaded guilty. McCall and Lapine were indicted in 2003. McKesson, which wasn’t named in the U.S. criminal cases, agreed to pay $960 million in 2005 to settle investor lawsuits.

On Health Care Renewal, we often seem to get caught up in the details of the moment. This case is a reminder that the problems we have been discussing have been going on for a long time, certainly long before we started to use the new-fangled medium of a blog to write about them.

The case also is a rare example of health care leaders actually suffering negative consequences for bad behavior.  We have noted many examples (see some here) in which bad behavior by health care organizations results only in a penalty for the organization as a whole, whose impact may be diffused among employees, stock-holders, and customers or clients.  Those who authorized, directed, or implemented the behavior often suffer no negative consequences.  In the current case, some of the responsible leaders have already paid a penalty, and now the most senior responsible leader also appears to be on the verge of also paying a penalty. 

On the other hand, it took 10 years from the time the bad behavior was recognized for the penalty to be decided.  Meanwhile, Mr McCall likely continued to enjoy the wealth he had amassed in his position of leadership.  The 1999 McKesson HBOC proxy statement, which included a statement that McCall was forced to resign his positions as Chairman of the Board and employee, noted that Mr McCall had already received a salary and bonus of greater than $2 million (in 1999 dollars) that year, and was the proud possessor of 2,879,677 shares of common stock, more than 1% of shares outstanding, after his resignation. 

I say again, meaningful health care reform is unlikely unless we deal with the problem of conflicted, unethical, and sometimes corrupt leadership of health care organizations.

Former McKesson CEO and Board Chairman Convicted of Fraud

Continuing with our annals of health care crime, Bloomberg.com reported a new verdict on a very old case:

Former McKesson Corp. Chairman Charles McCall was convicted in a second trial of participating in a fraud 10 years ago that cost investors $8.6 billion, one of the largest white-collar crimes at the time.

A federal jury in San Francisco yesterday found McCall guilty of five of six counts of securities fraud and circumventing accounting rules. He was acquitted of falsifying records. Sentencing is set for March 2. Ex-McKesson General Counsel Jay Lapine was found not guilty of three charges.

McCall and Lapine were accused of hiding backdated sales contracts from auditors and other conduct that improperly inflated revenue figures at San Francisco-based McKesson, the biggest U.S. drug distributor, and HBO & Co., a software maker led by McCall that was acquired by McKesson in 1999.

The McCall verdict was a victory for prosecutors who lost a 2006 trial of the ex-chairman. Assistant U.S. Attorney David Anderson told jurors in the three-week trial that McCall learned of the practices a few months before HBO was to be acquired.

Instead of blowing the whistle, McCall covered up the fraud and was named chairman of the merged company, Anderson said.

When McKesson disclosed in April 1999 that sales had been prematurely booked, leading to a restatement, the shares lost 47 percent of their value. McCall and Lapine were fired that year.

A federal investigation followed, and five former McKesson executives pleaded guilty. McCall and Lapine were indicted in 2003. McKesson, which wasn’t named in the U.S. criminal cases, agreed to pay $960 million in 2005 to settle investor lawsuits.

On Health Care Renewal, we often seem to get caught up in the details of the moment. This case is a reminder that the problems we have been discussing have been going on for a long time, certainly long before we started to use the new-fangled medium of a blog to write about them.

The case also is a rare example of health care leaders actually suffering negative consequences for bad behavior.  We have noted many examples (see some here) in which bad behavior by health care organizations results only in a penalty for the organization as a whole, whose impact may be diffused among employees, stock-holders, and customers or clients.  Those who authorized, directed, or implemented the behavior often suffer no negative consequences.  In the current case, some of the responsible leaders have already paid a penalty, and now the most senior responsible leader also appears to be on the verge of also paying a penalty. 

On the other hand, it took 10 years from the time the bad behavior was recognized for the penalty to be decided.  Meanwhile, Mr McCall likely continued to enjoy the wealth he had amassed in his position of leadership.  The 1999 McKesson HBOC proxy statement, which included a statement that McCall was forced to resign his positions as Chairman of the Board and employee, noted that Mr McCall had already received a salary and bonus of greater than $2 million (in 1999 dollars) that year, and was the proud possessor of 2,879,677 shares of common stock, more than 1% of shares outstanding, after his resignation. 

I say again, meaningful health care reform is unlikely unless we deal with the problem of conflicted, unethical, and sometimes corrupt leadership of health care organizations.