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.

St. Jude Medical Settles

We could not let more than a week go by without discussing another legal settlement by a major health care organization.  From the Pioneer Press,

Little Canada-based St. Jude Medical will pay $3.7 million to resolve allegations the medical device company provided kickbacks to hospitals in Kentucky and Ohio to secure sales of heart devices, the U.S. Department of Justice announced Friday.

The government alleged that St. Jude Medical provided rebates that were retroactive and paid based on a hospital's previous purchases of heart device equipment from the company. Prosecutors also charged that St. Jude Medical paid rebates for purchases of heart-device equipment sold by its competitors to induce purchases of similar equipment from St. Jude Medical in the future.

As I understand it, the issue was that the rebates did not amount to a simple volume discount, but were given only if the hospital allowed St. Jude to become its dominant supplier of certain devices, for example,

One such rebate was offered to Parma Community General Hospital in Parma, Ohio, a suburb of Cleveland, according to settlement papers made available by the government on Friday. The medical center could earn discounts on products if it gave St. Jude Medical 90 percent of its annual usage of mechanical heart valves, 80 percent of its annual usage of conventional pacemakers and 50 percent of its annual usage of conventional implantable defibrillators, according to the settlement agreement.

The two-year contract began in April 2003 and St. Jude Medical at the time did not have government approval to sell newer 'biventricular' pacemakers and ICDs. A rival company, however, did have approval for such products, and the settlement agreement asserts that St. Jude agreed to give the Ohio hospital a rebate for each biventricular pacemaker and ICD purchased from the competitor so long as Parma hospital maintained market share targets on St. Jude Medical products.

'The contract also mandated that once (St. Jude Medical) gained Food and Drug Administration approval for its own biventricular devices, the rebates would end, and (Parma) could earn discounts by giving (St. Jude Medical) 80 percent of its annual usage of biventricular pacemakers, and 50 percent of its annual usage of biventricular ICDs,' the settlement agreement states.

What was the problem with this?

'Hospitals should base their purchasing decisions on what is in the best interests of their patients,' Tony West, assistant attorney general for the Justice Department's civil division, said in a statement.

St. Jude's response was that it was all so trivial and so long ago,

In a statement issued Friday, St. Jude Medical said: 'The allegations centered on small, isolated product rebates that the company paid more than five years ago. The company entered into a settlement agreement in order to avoid the potential costs and risks associated with litigation.'

So add another marcher in the parade of legal settlements. While most of the marchers in this parade seem to be pharmaceutical companies, it appears that device manufacturers are trying to catch up.

We have been noting new entrants to this parade for a while mainly as a way to document how often health care organizations, including some of the largest and seemingly most respectable organizations, have been accused of unethical conduct.  Often this conduct seems likely to increase health care costs, by driving up the prices of goods or services, or by encouraging the use of expensive tests or treatments when perhaps something simpler and cheaper would be just as good for the patient.  Sometimes, this conduct seems likely to decrease health care quality, and worsen patient outcomes because the tests or treatments being pushed by the unethical behavior may be less effective, and/or more likely to cause harm than other credible alternatives.

We also have repeatedly said that the usual sorts of legal settlements we have described do not seem to be an effective way to deter future unethical behavior.  Even large fines (and the one described above would be peanuts to a large health care corporation) 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.

Genzyme Settles

In late 2009, we posted about problems at a Genzyme plant that manufactured some fabulously expensive drugs, e.g. Cerezyme whose cost to patients approximated $160,000 a year.  We thought then that for a drug costing that much, the company ought to have figured out a conservative process to provide pure and unadulterated product.  In a later post we also why a company that could afford to make its CEO very rich could not afford to adequately maintain its manufacturing facilities.

Now Genzyme has reached a settlement with the US Food and Drug Administration (FDA) on the matter.  As reported by the Boston Globe,

Genzyme Corp will remain under federal oversight for the next seven to eight years as it works to fix quality-control problems that have bedeviled its Allston Landing plant for 15 months.

The timetable was spelled out in a consent decree struck between Genzyme and the Food and Drug Administration.

Under its terms, Genzyme will pay a previously disclosed $175 million federal fine, the first in its 29-year history. The agreement, filed with the US District Court in Boston yesterday, is subject to court approval.

Although the company said last month that it expected to pay the $175 million fine, other terms of the consent decree were not known until yesterday. Among them, Genzyme agreed to move fill-finishing work for its domestic drug shipments out of the Allston site by November. The transfer of fill-finishing for overseas shipments will take place by Aug. 31, 2011.

Fill finishing is the process of pouring drugs into vials for shipments to hospitals and clinics, where they are administered to patients.

Late last year, inspectors found bits of steel, rubber, and fiber in some drugs during the fill-finishing process in Allston. The work will be moved to a Genzyme operation in Waterford, Ireland, and to subcontractors such as Hospira Inc., subject to approval by federal regulators.

The firm faces additional fines if it fails to meet FDA deadlines

In all, the Cambridge biotechnology giant will spend two to three years in remediation under the consent decree, and another five years under oversight by a third-party contractor, the Quantic Group, a Livingston, N.J., consulting firm focused on boosting manufacturing quality and safety.

Quantic will craft a remediation plan with Genzyme, and the company could be fined $15,000 a day for missing milestones.

So now Genzyme is marching in our parade of settlements.  While this settlement is of charges related to very fundamental violations, failure to manufacture pure and unadulterated drugs, in one important way its provisions seem similar to many other such settlements we have now seen.  The settlement fines the company as a whole, but results in no penalties for any individuals. 

As we have noted before, fines, even fines larger than this one, can be regarded just as a cost of doing business (especially when the business is very lucrative.  The company's 2010 proxy statement noted that even in 2009, when production was affected by the plant closure, "sales of Cerezyme were $793 million, compared with $1.2 billion in 2008. Sales of Fabrazyme were $431 million compared with $494 million in the previous year. So the company was fined $175 million for production problems with two drugs that brought in over $1.2 billion in revenue in 2009.) 

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.  So it is not clear that settlements like this deter future wrong-doing.

Additionally, as we noted in the earlier post, the current CEO of Genzyme has gotten quite rich by virtue of his position.  While the 2010 Genzyme proxy statement indicates his compensation was affected by the financial impact of the production slowdown, even so he continued to get richer, albeit at a slightly slower pace than he did before.  That statement indicates that in 2009, CEO Henri Termeer's total compensation was a mere $9,507,403, down from $12,699,301 the previous year.  The main difference was that his non-equity incentive plan compensation dropped from $1,962,725 to 0.  While a $3 million plus salary decrement seems sizable, it is hard to conceive of an executive who makes nearly $10 million a year as suffering major financial consequences from the current debacle. 

As I have said before, endlessly, 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.

Novartis Settles, Again

We certainly could not go another week without discussing another settlement of charges of unethical behavior by a major health care organization.  This time, as reported by the Wall Street Journal, it was Swiss pharmaceutical company Novartis:

Novartis AG will pay $72.5 million to settle U.S. Justice Department allegations it submitted false claims for off-label uses of a cystic-fibrosis drug.

The drug, tobramycin or TOBI, joined the Novartis portfolio as part of its 2005 takeover of biotechnology firm Chiron Corp.

In a release Tuesday, the Justice Department said that, between 2001 and 2006, Chiron, and then Novartis, marketed unapproved uses for TOBI, which the Food and Drug Administration approved as an inhaled antibiotic for treating certain cystic-fibrosis patients.

This is not even the first US legal settlement this year for Novartis:

Earlier this year, Novartis said its U.S. subsidiary struck an agreement with the U.S. Attorney's Office in Pennsylvania to settle a criminal investigation of the company's marketing of the epilepsy drug Trileptal. Novartis agreed to plead guilty to violating the U.S. Food, Drug and Cosmetic Act, and to pay a $185 million fine.

We had posted on that previous settlement here.

So the march of legal settlements continues.  It seems that practically every major pharmaceutical corporation has participated in multiple settlements since we started Health Care Renewal.  Yet the process does not seem to deter continuing bad behavior. 

In the current case, like nearly all the others, the corporation will pay what seems to be a huge fine. However, the amount is a pittance compared to the corporation's revenue, and is likely to be viewed as only a small cost of doing a very lucrative business by corporate executives. In very few cases does any individual suffer any negative consequence for approving, ordering or implementing the unethical behavior.  A large fine's impact can be spread among share-holders, employees, and clients/ customers/ patients, and hence poses no threat to executives planning the next bit of unethical behavior.
As I have said before, endlessly, 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.

Sunday Settlement and Guilty Plea Roundup

Here we go again. 

AstraZeneca / Seroquel

We have posted frequently about allegations of devious marketing techniques used by AstraZeneca to promote its blockbuster atypical anti-psychotic drug Seroquel (quetiapine.)  See our posts here, here, here, here, and here.  Now, as reported by the New York Times, it is time for AZ to settle with the US government.

AstraZeneca has completed a deal to pay $520 million to settle federal investigations into marketing practices for its blockbuster schizophrenia drug, Seroquel, the Attorney General, Eric Holder, said at a news conference Tuesday afternoon.

'AstraZeneca paid kickbacks to doctors as part of an illegal scheme to market drugs for unapproved uses,' Kathleen Sebelius, secretary of health and human services, said at the event in Washington. She said the company promoted drugs for unapproved uses by children, the elderly, veterans and prisoners.

AstraZeneca agreed to sign a corporate integrity agreement with the federal government over its marketing of Seroquel for unapproved uses, but will not face criminal charges, company and federal officials said.

The company, based in London, has been accused of misleading doctors and patients by playing up favorable research and not adequately disclosing studies that show Seroquel increases the risk of diabetes.

Of course, an AZ spokesperson had a different take on it.

Glenn Engelmann, AstraZeneca’s U.S. general counsel, released a statement saying the company denies the allegations but settled the investigation with the payment.

'It is in the best interest of AstraZeneca to resolve these matters and to move forward with our business of discovering and developing important, life-changing medicines — while avoiding the delay, uncertainty, and expense of protracted litigation,' Mr. Engelmann said.

Johnson and Johnson / Topamax

On the other hand, the issue of how Johnson and Johnson marketed Topamax (topiramate), a drug approved for treating seizures, is a new one for Health Care Renewal.  Here is the story, via Bloomberg.

Two units of Johnson & Johnson will pay more than $81 million to resolve criminal and civil claims over illegal promotion of the epilepsy drug Topamax, the U.S. Justice Department said.

Ortho-McNeil Pharmaceutical LLC agreed to plead guilty to a misdemeanor and pay a $6.14 million criminal fine for misbranding the drug, the government said. Ortho-McNeil-Janssen Pharmaceuticals also will pay $75.37 million to resolve civil allegations that it illegally marketed Topamax and caused false claims to be submitted to government health programs.

While the Food and Drug Administration approved Topamax for the treatment of partial onset seizures, Ortho-McNeil Pharmaceutical promoted the drug for unapproved psychiatric uses, the government said. The company hired physicians through its 'Doctor-for-a-Day' program to join sales representatives in visiting doctors and to speak to colleagues about unapproved uses and doses, according to the government.

In this case, the company admitted wrong-doing as part of the specific plea agreement.

Under the plea agreement, Ortho-McNeil Pharmaceutical will admit that from 2001 to 2003 it promoted Topamax 'for certain uses not approved' by the FDA, according to a statement by Ortho-McNeil-Janssen.

The company 'voluntarily discontinued the program at issue before receiving the government’s first subpoena in the investigation,' according to the statement.

Ortho-McNeil-Janssen also will sign a five-year corporate integrity agreement with the U.S. Health and Human Services Department.

Summary

Once more, with feeling ....  We have discussed a series of legal settlements and criminal convictions and guilty pleas resolving cases of alleged wrong-doing by health care organizations. Almost none included any penalties for people who authorized, directed or implemented the bad behavior. None of the financial penalties were so big as to be more than another cost of doing business for the organizations involved. Corporate entities, but very rarely people have pleaded guilty or been convicted (almost always of misdemeanors), Some of the cases included gimmicks, like a subsidiary constructed only to plead guilty, that otherwise seemed to lessen accountability.

If we truly want health care that is accessible, of high quality, at a fair price, and more importantly, if we want health care that is honest and focused on patients, we need to provide health care leaders with clear, rational incentives in these directions, and make them fully accountable for their actions, and the courses of their organizations under their leadership.

ADDENDUM (2 May,2010) - See also comments on the Hooked: Ethics, Medicine, and Pharma blog by Dr Howard Brody on the AZ settlement.

Judge Rejects Prosecutors' Lenient Settlement of the Case of the Hidden Defibrillator Defects

We just discussed the proposed settlement of a case in which the Guidant subsidiary of Boston Scientific was alleged to have withheld information about defects in its implantable cardiac defibrillators that were associated with six patient deaths (see next most recent post here with more complete summary).  The devices were manufactured in 2000-02, and the issue first became public in 2005.  The proposed settlement included a seemingly large fine for the company. 

Now the New York Times has reported that the presiding judge has rejected the settlement as too lenient.

A federal judge in Minnesota on Tuesday rejected a plea agreement between the federal government and the Guidant Corporation, saying that the deal did not hold the company sufficiently accountable for an episode in which it sold potentially flawed heart defibrillators.

The ruling was a setback for the Justice Department, which had characterized the agreement as a demonstration of its get-tough approach to corporate crime. The deal called on Guidant to plead guilty to two misdemeanors and pay a $296 million fine, described as the largest by a medical device company.

But in his opinion, the judge, Donovan W. Frank of United States District Court said the provisions of the agreement were 'not in the best interest of justice and do not serve the public’s interest because they do not adequately address Guidant’s history and the criminal conduct at issue.'

The story brought several peculiar aspects of the settlement to light.

- The settlement seemed to ignore the most egregious misconduct alleged:

Recently, prosecutors charged in court papers that Guidant had knowingly sold potentially flawed defibrillators. But that issue was not addressed in the plea agreement. Instead, the company agreed to plead guilty to two misdemeanor charges that related to the completeness and accuracy of its filings with the Food and Drug Administration.

- It was not really the Guidant subsidiary that was going to plead guilty, but a new entity apparently constructed solely to "take the rap."

The company created to enter Guidant’s plea, Guidant LLC, existed only on paper.

In his ruling, Judge Frank took direct aim at that argument, suggesting it contradicted the Justice Department’s own public statements about the case. He noted that a department news release said Guidant’s plea deal was 'about accountability.'

Judge Frank wrote, 'The interests of justice are not served by allowing a company to avoid probation simply by changing their corporate form.'

So, the judge demanded that at least the company be put on probation, and possibly be required to do some good works:

Judge Frank said that prosecutors should have sought probation for Guidant and its parent, Boston Scientific. Probation would have required the companies to take certain steps, like helping to rebuild public confidence in the safety of heart devices, in addition to paying a fine.

The judge also outlined other provisions that might be suitable in a new plea deal, including charitable activities by Guidant to improve heart device safety and improve medical care among minority patients.

Daniel R. Margolis, a lawyer in New York who works on medical product cases, said that probation is effectively a way for a court to maintain some control over a company’s activities after it pays a financial penalty.

However, the judge felt he could not require prosecution of the actual people who authorized, directed, or implemented the misbehavior at issue.

After a hearing this month, several doctors and patients wrote to Judge Frank urging him to reject the deal and arguing that former Guidant executives should be criminally charged in the case. But Judge Frank noted in his ruling that it was up to prosecutors, not a court, to decide who should be prosecuted.

We have discussed a series of settlements and convictions resolving cases of alleged wrong-doing by health care organizations.  Almost none included any penalties for people who authorized, directed or implemented the bad behavior.  None of the financial penalties were so big as to be more than another cost of doing business for the organizations involved.  Some of the cases included gimmicks, like a subsidiary constructed only to plead guilty, that otherwise seemed to lessen accountability. 

Despite the US Justice Department's assertion of a new "get-tough" approach, this new settlement did not seem like any more of a deterrent to bad behavior than the parade of settlements that cam before, that is, until Judge Frank acted. 

We applaud the judge for trying to hold at least one large health care organization accountable for its misdeeds.  However, I again suggest that to truly reform health care, we need rigorous regulation of health care organizations that has the power to deter unethical behavior that may risk patients' health.

Explaining Health Care Executives' Impunity - the (Unexplained) Leniency of Prosecutors

On Health Care Renewal, we noted many legal settlements and criminal convictions in cases alleging unethical behavior by health care organizations.  Some organizations have settled, and/or pleaded guilty, and/or been convicted numerous times.  And we have said repeatedly, (e.g., here) such legal actions will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Relatively small fines imposed on large corporations pain workers on the line and stockholders while sparing the richly paid top hired management and the boards that will not reign them in.

A recent article in the New York Times about a plea agreement in a case in which the Guidant subsidiary of Boston Scientific was alleged to have withheld information about defects in its implantable cardiac defibrillators that were associated with six patient deaths (see most recent post here) throws some light onto the apparent impunity of top health care leaders.  The article reiterated:

In recent years, the Justice Department has won hundreds of millions of dollars in fines from drug and device makers, including a string of cases in which the companies have pleaded guilty to violating federal laws.

But corporate executives rarely face criminal charges in such actions....

The article noted:

“Prosecutors want the money,” said Mr. Fleder, of Hyman, Phelps & McNamara. “And at least in the big money settlements they have had in pharma cases, it appears that prosecutors are willing to settle even if it means forgoing prosecutions against individuals.”

Yet, as we have said,

Short of executives facing prosecution, companies see the hefty financial settlements demanded by the Justice Department as another price of doing business, industry critics say.

There does not seem to be a legal barrier to holding these executives accountable:

... they can be held liable under federal law for regulatory violations that occur on their watch — whether or not prosecutors can prove the executives participated in the wrongdoing or even knew about it.

But if this is so, why have corporate leaders not faced such penalties before? An experienced prosecutor explained it at one level:

A former prosecutor in many drug and medical device-related cases, Michael K. Loucks, said he never charged corporate executives with misdemeanors — which apply in cases when the violations are deemed unintentional — because he believed that being barred from the industry was too harsh a consequence.


“I think that if you are going to take actions that take away someone’s liberty or livelihood, you should have to prove felony conduct,” said Mr. Loucks, who spent over 20 years as an assistant United States attorney in Boston.

This ends up as a very disturbing response. Professionals who hold positions of trust in society, most particularly health care professionals, can lose their livelihood for unprofessional conduct or unethical actions that are not felonies, or even criminal. In health care (and in some other fields, like law), professionals are held to a higher standard that merely avoiding conviction for felonies. (For examples, peruse the lists of doctors and other health care professionals whose licenses were suspended or revoked by state medical boards.)

In our current world of commercialized health care, leaders of large health care organizations can take actions that have as important consequences for peoples' health and safety as the individual actions of doctors and nurses. Why should they not be at risk of the loss of their current livelihood for actions that risk peoples' health and safety?

I do not know why an experienced prosecutor felt that health care executives deserved so much more leniency than health care professionals may receive from medical boards. Maybe in the future we will begin to hold those who authorized or directed unethical actions that risk health and safety accountable.

What Me Worry, Redux - Another Leader Prospers Despite Questions about His Organization's Ethics and Performance

We have posted lately (here and here) about how leaders of health care organizations seem to be getting even richer despite questions about their organizations' ethics or performance.  Here we go again. 

The news about UnitedHealth over the years has provided plenty of examples of organizational behavior that did not fit the company's stated lofty goals, per its "Social Responsibility" page:

UnitedHealth Group's mission is to help people live healthier lives.

Social responsibility begins with us–and how we do business. Every day, our 75,000 employees strive to find smart ways to promote healthier lives in our communities.

On its "Mission and Values" page:

Our mission is to help people live healthier lives.

* We seek to enhance the performance of the health system and improve the overall health and well-being of the people we serve and their communities.
* We work with health care professionals and other key partners to expand access to quality health care so people get the care they need at an affordable price.
* We support the physician/patient relationship and empower people with the information, guidance and tools they need to make personal health choices and decisions.

However, a few years ago, we posted repeatedly about a block-buster scandal that lead to the ouster of the UnitedHealth CEO, Dr William McGuire. As we discussed, (here, here, and here from 2006 with links backward) Dr McGuire received outrageously lavish remuneration, which stood in stark contrast to the previous UHG mission's pledge to "make health care more affordable."  Controversy has swirled over the timing of huge stock option grants given to Dr McGuire (see post here), leading to his resignation in October, 2006 (see post here). Later, McGuire agreed to pay back some of those options, although that reportedly still left him with more than $800 million worth of options (see post here).  Iin 2009, we posted about the final settlement of the back-dating scandal, which cost UnitedHealth $895 million, and Dr McGuire $30 million and the cancellation of 3.6 million stock options. 

Also,

• as reported by the Hartford Courant, "UnitedHealth Group Inc., the largest U.S. health insurer, will refund $50 million to small businesses that New York state officials said were overcharged in 2006."
• UnitedHalth promised its investors it would continue to raise premiums, even if that priced increasing numbers of people out of its policies (see post here);
• UnitedHealth's acquisition of Pacificare in California allegedly lead to a "meltdown" of its claims paying mechanisms (see post here);
• UnitedHealth's acquisition of Sierra Health Services allegedly gave it a monopoly in Utah, while the company allegedly was transferring much of its revenue out of the state of Rhode Island, rather than using it to pay claims (see post here)
• UnitedHealth frequently violated Nebraska insurance laws (see post here);
• UnitedHealth settled charges that its Ingenix subsidiaries manipulation of data lead to underpaying patients who received out-of-network care (see post here).

However, it being proxy season, the Washington Post just reported current UnitedHealth CEO Stephen J Helmsley's compensation,

$8.9 million, up from $3.2 million in 2008. The 2009 total included a salary of $1.3 million, which was unchanged from the previous year, and a cash bonus of $2 million, up from $1.8 million the year before. It also included $5.6 million attributed to stock-related awards.

But that was not the only money Mr Helmsley reaped from his job at UnitedHealth:

The chief executive of UnitedHealth Group, one of the nation's largest health insurers, reaped almost $100 million from exercising stock options last year, the company reported Thursday.

Stephen J. Hemsley exercised 4.9 million options in February 2009 at a gain of $98.6 million, the company said in a regulatory filing. The options were awarded almost a decade earlier.

$98.6 million here, $98.6 million there, and soon you have some real money. How did the UnitedHealth board rationalize making Mr Helmsely such a wealthy man?

The compensation committee of UnitedHealth's board believed that Hemsley's 2009 compensation package 'was appropriate to recognize Mr. Hemsley's overall leadership in positioning the Company for long-term success in a very difficult overall economic environment,' UnitedHealth said in the report filed with the SEC Thursday.

The committee credited Hemsley with 'enhancing the Company's reputation, ethical culture and tone at the top.'

'Although Mr. Hemsley's total compensation is below the median as compared to other CEOs in the Company's peer groups, the Compensation Committee and Mr. Hemsley agree that it is sufficient to motivate and retain him,' the company reported.

Note first that some of the issues listed above (after the back-dated options scandal) accruef on Mr Helmsley's watch as CEO, which began in 2006.   They did not enhance the company's reputation, or seem to be evidence of an enhanced "ethical culture and tone." 

The rationale to have given Mr Helmsley so many stock options in 1999 as to give him a nearly $100 million dollar profit in 2009 was not stated.

Moreover, as noted in the 2010 proxy statement,

Mr Helmsley is President and Chief Executive Officer of UnitedHealth Group and has served in that capacity since November 2006. he has been a member of the Board of Directors since February 2000. Mr Helmsley joined the Company in 1997 as Senior Executive Vice President. He became Chief Operating Officer in 1998, was named President in 1999, and served as President and Chief Operating Officer from 1999 to November 2006.

So it was on Mr Helmsley's watch as Chief Operating Officer that all of the events and issues listed above occurred. Tell me again about that "enhanced ethical culture?"

So I say it again. Clearly we see examples of both profoundly perverse incentives and a complete lack of accountability and responsibility affecting the leadership of major health care organizations. Is it any wonder that these organizations continue to act unethically, and that the costs of the goods and services they provide rise continuously?

If we truly want health care that is accessible, of high quality, at a fair price, and more importantly, if we want health care that is honest and focused on patients, we need to provide health care leaders with clear, rational incentives in these directions, and make them fully accountable for their actions, and the courses of their organizations under their leadership.

Pfizer Settles One Lawsuit, Loses Another, Pays its CEO $13.7 Million

It's deja vu all over again for Pfizer Inc, the world's largest pharmaceutical company.

Settlement of Suit Alleging Neurontin Risks Concealed

Pfizer has kept busy in court defending against charges that a company it acquired promoted Neurontin (gabapentin) for uses not approved by the US Food and Drug Administration (FDA), and not well supported by the evidence.  Most recently, it was convicted by a jury in California of being a racketeering influenced and corrupt organization (RICO) because of a long-term "racketeering conspiracy" involving Neurontin marketing (see post here). Now additionally, according to the Wall Street Journal,

Pfizer Inc. said it reached a settlement agreement in a wrongful-death lawsuit brought by a woman who claimed her husband's use of the antiseizure drug Neurontin caused him to commit suicide in 2002.

The suit was brought by Linda Shearer of Berkshire County, Mass., whose husband, Hartley Shearer, was prescribed Neurontin to control the effects of his paralysis. The suit alleged Pfizer promoted this use of the drug even though it wasn't approved by U.S. regulators. The suit alleged Pfizer knew the drug was associated with a risk of suicide, but failed to properly warn of the risk.

The new wrinkle here is that Pfizer did not defend a suit that alleged the company knew of a potentially fatal side-effect of the drug, but failed to disclose that risk.

Jury Awarded Damages for Treatment of Whistle-Blower

Meanwhile, the Hartford Courant reported:

A former Pfizer scientist who claims she has been paralyzed by a virus designed at the pharmaceutical company's laboratory in Groton was awarded $1.3 million by a federal jury in Hartford Thursday following a trial that raised questions about safety practices in the dynamic field of genetic engineering.

The amount of the settlement awarded to molecular biologist Becky McClain of Deep River will likely increase in coming days. After about day of deliberation, the jury also awarded McClain punitive damages, to be determined by U.S. District Judge Vanessa L. Bryant, and awarded fees to McClain's two Connecticut lawyers, Bruce E. Newman and Stephen J. Fitzgerald.

McClain claimed in her suit that she was inadvertently exposed through work by a former Pfizer colleague in 2002 or 2003, to an engineered form of the lentivirus, a virus similar to the one that can lead to acquired immune deficiency syndrome, or AIDS.


She further claimed that Pfizer wrongly fired her in 2005 for complaining about laboratory safety to the U.S. Occupational Safety and Health administration and to co-workers.

Ultimately, the jury was not permitted during the 12-day trial to hear argument supporting McClain's claim of a causal link between her disability and virus research done at her laboratory in Groton.

The jury based its verdict on evidence concerning McClain's two remaining claims: that her dismissal violated Connecticut's whistle blower law and McClain's free speech right. Her lawyers contended her complaint to federal safety regulators amounted to a whistle blower complaint and that her discussion of safety issues with fellow workers was free speech.

So, after being convicted by a jury of being a "racketeering influenced and corrupt organization," (RICO), and settling civil and criminal fraud charges for an unprecedented $2.3 billion (see post here), and after many other allegations, settlements, and convictions (look here),  Pfizer failed to defend one action, and lost another that argued Pfizer tried to hide information which put the company and/or its products in an unfavorable light.

In fact, Even Pfizer CEO Jeffrey Kindler could not put much of a spin on the company's recent record. As reported by Duff Wilson in the New York Times,

The world’s largest drug company, Pfizer, has handled mergers badly, invented too few drugs and left its reputation in disrepair after two criminal cases.

And that is the assessment of its own chief executive.

CEO's Multi-Million Dollar Compensation
But while all this was going on, the company did disclose (as mandated by the US Securities and Exchange Commission [SEC]) that CEO Kindler is continuing his acquisition of riches.  As reported by the AP (via USAToday).

The chief executive of drug giant Pfizer Inc., Jeffrey Kindler, received a 2009 compensation package valued by The Associated Press at $13.7 million, down 7.6% from 2008, as the board reduced the stock awards he received, citing economic pressures.

The world's biggest drugmaker paid Kindler, 54, a salary of $1.6 million, up just $25,000 from the year before. But his performance bonus was bumped up to $3.5 million from $3 million in 2008, according to a filing this week with the Securities and Exchange Commission.

Most of Kindler's compensation comes from long-term awards of stock options and restricted shares. The total fell 17% to $8.1 million in 2009, from $9.8 million, even though they were granted in late February, a month after Kindler announced plans to buy Wyeth for $68 billion, a sound strategy to counter Pfizer's looming revenue plunge.

Kindler's other compensation — a variety of perks — totaled $449,731. That included $190,725 for Kindler's use of corporate aircraft as required by Pfizer's board, $43,099 for use of a car, $7,690 for financial counseling and $1,217 for home security.

Even admitting that Kindler's compensation last year was slightly decreased from last year's not so small fortune, there still seems to be a huge disconnect between the company's ethical woes, legal settlements, and guilty pleas and its CEO's rewards. Once again, it seems that leaders of large health care organizations never face real accountability for their company's bad behavior. It almost goes without saying that in the two cases summarized above, no one who authorized, directed, or implemented the actions leading to the settlements or damages seems to have had any negative consequences.

So once more with feeling.... 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.

Postscript - Pay for Health Care Reform Lobbying?

By the way, a commentary in The [New London, CT] Day suggested an explanation for why Kindler was so richly paid last year:

It takes pages and pages of a company securities filing to explain and justify all the bells and whistles of Kindler's 'annual incentive award,' a complicated stew of stock options and deferred payments and plain old salary.

From all of this, Timothy P. Carney of the Washington Examiner found one juicy tidbit, which especially titillated industry bloggers.

It turns out Kindler's salary increase, from $1.57 million to $1.6 million, was based in part, the compensation committee suggested, on his success in making a deal with President Obama that protected the drug industry from some of the more onerous proposals of health care reform.

Praising Kindler as an effective lobbyist in, among other things, heading off legislation that would allow the importing of cheaper prescription drugs, the committee said: 'These efforts included constructive participation in the U.S. legislative process to advance Pfizer's goals of achieving a more rational operating environment.'

Or, he kept a finger in the dike against health care reform.

Indeed, a recent report by the Sunlight Foundation, a private nonprofit dedicated to more transparency in government, indicates Kindler's extensive role in negotiating a deal for the drug companies with the Obama administration and Senate Finance Committee Chairman Max Baucus.

It turns out Kindler's name turns up four times on last year's White House visitor logs.

The final deal Kindler helped craft promised $80 billion in cost cutting by the drug companies but blocked much more onerous reform measures for the industry, like lowering prescription drug prices through Medicare negotiations, re-importation of drugs from other countries with lower prices and quicker release of generics onto the market.

The cost-saving of such measures, if allowed to occur, could have been in the hundreds of billions of dollars, according to government analysis.

Kindler, as the pay committee says, did good.

Several of our fellow bloggers have suggested that an installment of the Public Broadcasting Service (PBS) program "Frontline" will show just how much of the recent US health care reform effort was the product of health care corporate CEOs (e.g., see this post on GoozNews, and this post on Managed Care Matters). We shall see once the program airs, but maybe Mr Kindler's salary was a good value for Pfizer, but a very bad one for the rest of the country.

Who Guards the Guardians? - the Case of Boston Scientific

The fallout from the case of the faulty implantable cardiac defibrillators continues.  To summarize the story thus far,

We started posting about Boston Scientific's travails in 2005, starting with allegations that Guidant, which is now a Boston Scientific subsidiary, hid information about defects in the implantable cardiac defibrillators (ICDs) the company manufactured. As we noted in early 2005 here, Guidant executives allegedly knew that ICDs made from 2000-2002 were at risk for short-circuiting and failing, thus making them unable to deliver potentially life saving electrical shocks meant to prevent cardiac arrests, but the company only revealed the problem in 2005. By failing to notify physicians and the public, Guidant executives let expensive and profitable, but potentially useless devices to continue to be implanted, potentially increasing the risk of sudden death for the patients who received them. Then here we noted reports that Guidant continued to ship failure-prone devices even after it had designed and started to manufacture new ICDs that were supposed to be less likely to fail. By June, 2005 we posted that Guidant had recalled thousands of ICDs, including models that were previously not identified as likely to fail. Later that year, the case rated an article by Robert Steinbrook in the New England Journal of Medicine. Towards the end of 2005, we noted that Eliot Spitzer had sued Guidant for fraud.  At the end of the year, more information appeared, suggesting that Guidant knew the ICDs were flawed, but continued to sell them. Still more appeared early in 2006. Then the business media became interested in the bidding war between Johnson and Johnson and Boston Scientific for Guidant, provoking a bit more interest in the tale of the suppression of data about the flawed ICDs.

Then all was quiet until 2009, when Guidant, now a Boston Scientific subsidiary, pleaded guilty to two criminal misdemeanor charges that it failed to properly notify the FDA about problems with its ICDs (see post here). Later, the Guidant subsidiary of Boston Scientific settled charges that it gave doctors kickbacks as part of a "seeding study" to use its devices. At that time, it came to light that Boston Scientific had made another settlement, in 2007, of civil lawsuits alleging that the company hid problems with its products (see post here).

More details about this guilty plea have just been reported.  As noted by the Minneapolis Star-Tribune,

A federal judge on Monday delayed a decision on whether to accept a $296 million plea agreement between the U.S. Justice Department and Boston Scientific Corp.'s Guidant subsidiary, which was charged with concealing critical safety information involving some of its top-selling heart devices.

If approved, the criminal penalty would rank as the largest ever in medical technology for a company that violated the federal Food, Drug and Cosmetic Act. But lawyers representing victims implanted with the potentially faulty devices threw a wrench into what was expected to be a routine hearing by demanding a piece of the settlement.

It appears that this settlement would not do any specific good for patients who claim to have been harmed by being implanted with a device that the manufacturer knew at the time to be faulty.

Also, the Star-Tribune noted:

Boston Scientific bought Guidant Corp., whose cardiac rhythm division is based in Arden Hills, for $27 billion in 2006. Though troubled, the division that makes pacemakers and defibrillators reported $2.6 billion in sales last year and still employs 2,000 people locally.

Thus, the financial penalty to be paid by Boston Scientific only would amount to little over ten percent of the yearly sales generated by the division which failed to disclose the faulty devices.

Adding to the sense that Boston Scientific and its leadership will feel little pain from the "largest criminal penalty ever assessed against a medical device company" (see this AP report) was this op-ed in the Boston Globe. It summarized just how richly the former CEO of Boston Scientific, Jim Tobin, who presided over the acquisition of Guidant and thus became responsible for its ethical lapses, and the current CEO, Ray Elliott have been compensated, in contrast to this supposedly large penalty. Re Tobin:

Tobin came to Boston Scientific in 1999 with similar instructions to clean up somebody else’s mess. He had to close facilities, ward off competitors, and, yes, settle patent lawsuits even back then. His carrot: A million stock options, a big deal in those days.

Tobin did fix some problems, and he brought the company’s new drug-eluting stent to market. Boston Scientific shares climbed, and he made about $39 million on options over the years. But Tobin also collected problems, the ones now in Elliott’s lap, and Boston Scientific shares fell again.

So here’s what the board did in February last year: It awarded Tobin 2 million more stock options, just a few months before announcing his retirement.

Adjusting for a stock split, the second option grant is the same size as what he got upon arrival.

And re Elliott:

Elliott, the man named as CEO of Boston Scientific Corp. last summer, became one of the best-paid chief executives in America in 2009. Separate national surveys published in the past week by The Wall Street Journal and The New York Times, although incomplete, come up with just one or two large-company CEOs with compensation packages that could outdo Elliott’s $33.5 million payday.

And see also this Health Care Renewal post. 

TheBoston Globe editorialist asked "so what exactly was the point of the second award [to Tobin]?"  Perhaps this question should be directed to the Boston Scientific board who approved it, and also approved Elliott's outsize pay package. 

The current board includes two co-founders of the company and the current CEO, two retired politicians, a few others with whom I am not familiar, but also two academics who may be quite familiar to Health Care Renewal readers. 

Recalling that Boston Scientific tried to plead guilty to charges of "making false statements ... to the FDA," and "failing to promptly notify regulators," it is striking that both these academics have had issues with transparency and free speech.  We just posted about the repeated failure of Prof Uwe Reinhardt to acknowledge the conflict of interests generated by his numerous memberships in the boards of health care companies, including Boston Scientific, when writing about health policy issues.  We have previously posted about the the conflicts of Marye Anne Fox, the Chancellor of the University of California - San Diego and hence leader of its medical school and academic medical center.  Chancellor Fox has just been criticized by FIRE (the Foundation for Individual Rights in Education) for allowing the silencing of a student publication and television station which had published or broadcast opinions that apparently offended university leaders.

So who in this sorry tale will stand up for quality care of patients?  The US Department of Justice is to be commended for pursuing deception by a large medical device company, but apparently could not bring itself to request a punishment for unethical practices likely to even inconvenience those responsible for the bad behavior.  The previous and current company CEOs have become quite rich without having to stand up for honesty, or patient safety.  The board of directors who are supposed to take responsibility for the overall direction of the company seem to have been happy just to go along.

As I have said before, endlessly, 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.  Relatively small fines imposed on large corporations pain workers on the line and stockholders while sparing the richly paid top hired management and the boards that will not reign them in. 

Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich. 

Who Guards the Guardians? - the Case of Boston Scientific

The fallout from the case of the faulty implantable cardiac defibrillators continues.  To summarize the story thus far,

We started posting about Boston Scientific's travails in 2005, starting with allegations that Guidant, which is now a Boston Scientific subsidiary, hid information about defects in the implantable cardiac defibrillators (ICDs) the company manufactured. As we noted in early 2005 here, Guidant executives allegedly knew that ICDs made from 2000-2002 were at risk for short-circuiting and failing, thus making them unable to deliver potentially life saving electrical shocks meant to prevent cardiac arrests, but the company only revealed the problem in 2005. By failing to notify physicians and the public, Guidant executives let expensive and profitable, but potentially useless devices to continue to be implanted, potentially increasing the risk of sudden death for the patients who received them. Then here we noted reports that Guidant continued to ship failure-prone devices even after it had designed and started to manufacture new ICDs that were supposed to be less likely to fail. By June, 2005 we posted that Guidant had recalled thousands of ICDs, including models that were previously not identified as likely to fail. Later that year, the case rated an article by Robert Steinbrook in the New England Journal of Medicine. Towards the end of 2005, we noted that Eliot Spitzer had sued Guidant for fraud.  At the end of the year, more information appeared, suggesting that Guidant knew the ICDs were flawed, but continued to sell them. Still more appeared early in 2006. Then the business media became interested in the bidding war between Johnson and Johnson and Boston Scientific for Guidant, provoking a bit more interest in the tale of the suppression of data about the flawed ICDs.

Then all was quiet until 2009, when Guidant, now a Boston Scientific subsidiary, pleaded guilty to two criminal misdemeanor charges that it failed to properly notify the FDA about problems with its ICDs (see post here). Later, the Guidant subsidiary of Boston Scientific settled charges that it gave doctors kickbacks as part of a "seeding study" to use its devices. At that time, it came to light that Boston Scientific had made another settlement, in 2007, of civil lawsuits alleging that the company hid problems with its products (see post here).

More details about this guilty plea have just been reported.  As noted by the Minneapolis Star-Tribune,

A federal judge on Monday delayed a decision on whether to accept a $296 million plea agreement between the U.S. Justice Department and Boston Scientific Corp.'s Guidant subsidiary, which was charged with concealing critical safety information involving some of its top-selling heart devices.

If approved, the criminal penalty would rank as the largest ever in medical technology for a company that violated the federal Food, Drug and Cosmetic Act. But lawyers representing victims implanted with the potentially faulty devices threw a wrench into what was expected to be a routine hearing by demanding a piece of the settlement.

It appears that this settlement would not do any specific good for patients who claim to have been harmed by being implanted with a device that the manufacturer knew at the time to be faulty.

Also, the Star-Tribune noted:

Boston Scientific bought Guidant Corp., whose cardiac rhythm division is based in Arden Hills, for $27 billion in 2006. Though troubled, the division that makes pacemakers and defibrillators reported $2.6 billion in sales last year and still employs 2,000 people locally.

Thus, the financial penalty to be paid by Boston Scientific only would amount to little over ten percent of the yearly sales generated by the division which failed to disclose the faulty devices.

Adding to the sense that Boston Scientific and its leadership will feel little pain from the "largest criminal penalty ever assessed against a medical device company" (see this AP report) was this op-ed in the Boston Globe. It summarized just how richly the former CEO of Boston Scientific, Jim Tobin, who presided over the acquisition of Guidant and thus became responsible for its ethical lapses, and the current CEO, Ray Elliott have been compensated, in contrast to this supposedly large penalty. Re Tobin:

Tobin came to Boston Scientific in 1999 with similar instructions to clean up somebody else’s mess. He had to close facilities, ward off competitors, and, yes, settle patent lawsuits even back then. His carrot: A million stock options, a big deal in those days.

Tobin did fix some problems, and he brought the company’s new drug-eluting stent to market. Boston Scientific shares climbed, and he made about $39 million on options over the years. But Tobin also collected problems, the ones now in Elliott’s lap, and Boston Scientific shares fell again.

So here’s what the board did in February last year: It awarded Tobin 2 million more stock options, just a few months before announcing his retirement.

Adjusting for a stock split, the second option grant is the same size as what he got upon arrival.

And re Elliott:

Elliott, the man named as CEO of Boston Scientific Corp. last summer, became one of the best-paid chief executives in America in 2009. Separate national surveys published in the past week by The Wall Street Journal and The New York Times, although incomplete, come up with just one or two large-company CEOs with compensation packages that could outdo Elliott’s $33.5 million payday.

And see also this Health Care Renewal post. 

TheBoston Globe editorialist asked "so what exactly was the point of the second award [to Tobin]?"  Perhaps this question should be directed to the Boston Scientific board who approved it, and also approved Elliott's outsize pay package. 

The current board includes two co-founders of the company and the current CEO, two retired politicians, a few others with whom I am not familiar, but also two academics who may be quite familiar to Health Care Renewal readers. 

Recalling that Boston Scientific tried to plead guilty to charges of "making false statements ... to the FDA," and "failing to promptly notify regulators," it is striking that both these academics have had issues with transparency and free speech.  We just posted about the repeated failure of Prof Uwe Reinhardt to acknowledge the conflict of interests generated by his numerous memberships in the boards of health care companies, including Boston Scientific, when writing about health policy issues.  We have previously posted about the the conflicts of Marye Anne Fox, the Chancellor of the University of California - San Diego and hence leader of its medical school and academic medical center.  Chancellor Fox has just been criticized by FIRE (the Foundation for Individual Rights in Education) for allowing the silencing of a student publication and television station which had published or broadcast opinions that apparently offended university leaders.

So who in this sorry tale will stand up for quality care of patients?  The US Department of Justice is to be commended for pursuing deception by a large medical device company, but apparently could not bring itself to request a punishment for unethical practices likely to even inconvenience those responsible for the bad behavior.  The previous and current company CEOs have become quite rich without having to stand up for honesty, or patient safety.  The board of directors who are supposed to take responsibility for the overall direction of the company seem to have been happy just to go along.

As I have said before, endlessly, 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.  Relatively small fines imposed on large corporations pain workers on the line and stockholders while sparing the richly paid top hired management and the boards that will not reign them in. 

Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.