Gentiva's Odyssey Healthcare Settles Again, Signs Yet Another Corporate Integrity Agreement

The Milwaukee Journal-Sentinel reported a legal settlement worth noting.  Here are the basics:

One of the nation's largest providers of hospice care has agreed to pay $25 million to settle a Medicare fraud case initiated after a former company nurse in Milwaukee filed a whistle-blower suit.

It was the second such settlement in six years for Odyssey Healthcare Inc., which paid the federal government $12.5 million in 2006 after another Wisconsin-based employee sued.

Also,

Medicare provides a benefit meant to cover hospice care for the terminally ill. It covers 24-hour in-home nursing service only during limited crisis periods. But from 2006 to 2009, Odyssey practiced a pattern of enrolling and recertifying non-terminal patients, and billing for continuous care that wasn't necessary or reasonable, according to the False Claims Act suit filed in 2008 but just unsealed Thursday.

As is usual in such cases, Odyssey's parent company denied that it did anything wrong:

Odyssey, which operates in 26 states, is now part of Atlanta-based Gentiva Health Services, which runs hospice offices in West Allis and Burlington. Gentiva officials declined to comment, but referred to an announcement it posted on its investor relations website last month.

'Gentiva cooperated fully with this investigation, which covered a period prior to our acquisition of Odyssey, and the settlement is consistent with our efforts to instill Gentiva's culture of compliance throughout the company,' said John Camperlengo, general counsel and chief compliance officer.

The statement said the firm is proud of the care its thousands of hospice clinicians provide, and of Gentiva's efforts to ensure strict compliance with all regulatory requirements.

The Implications of the Need for a New Corporate Integrity Agreement

However, there are some disturbing aspects of this case that require a bit more explanation. First, as noted by the Associated Press (in a story available here from the Dubuque [Iowa] Telegraph-Herald),

Besides agreeing to pay the $25 million settlement, Odyssey entered a five-year corporate integrity agreement with the federal government.

Now corporate integrity agreements are not known for their effectiveness. In fact, as we noted in this blog post, according to Gentiva's 2010 annual report, its Odyssey subsidiary had been subject to a corporate integrity agreement arising from its 2006 settlement, one which was apparently not effective in preventing its misbehavior from 2006 to 2009.

However, corporate integrity agreements do serve as markers for the need to improve the integrity of the corporations who need to make them. In this case, why would Gentiva be asked to sign such an agreement if its integrity were already beyond reproach? So Gentiva's current "culture of compliance" is open to question.

The Implications of "Enrolling and Recertifying Non-Terminal Patients"

A quick read of the Journal-Sentinel and Associate Press stories above might give the impression that what Odyssey did wrong involved a billing technicality, admittedly, one that allowed it to collect more money that that to which it would otherwise be entitled.

This story actually goes beyond the issue of fraud, and raises important concerns about patient care.

The enrollment  by a hospice of patients who are actually not terminally ill could have serious adverse effects on such patients. As we noted in this post, hospices are meant for patients with very limited life expectancies. The goal of hospice is to provide comfort and palliation, not active treatment of illnesses. So if patients who actually do not have such severely limited life expectancies are admitted to a hospice, they might be denied therapy that could actually make them feel better, or even cure acute illnesses or prolong their lives. For example, a hospice patient who developed an open wound might not get maximal wound therapy, as in an example (allegedly involving a different commercial hospice provider) in the post above.

So it is possible that Odyssey's enrolling and re-certifying of non-terminally ill patients could have lead to failure to provide some of these patients with the care they should have had. Whether this did or did not occur in individual cases, and what adverse effects may have been produced is not clear from the coverage of this case.  

Summary

As I wrote in 2011, .... There has been a lot of blather from politicians in the US about "death panels" in debates about health care reform. Many such politicians seem worried that the US government has or will have death panels under the new health care reform legislation. We have criticized that legislation for not addressing many important health care problems. No one, however, has convincingly demonstrated how its provisions would convene "death panels."


Wendell Potter argued in his book, Deadly Spin, (see this post) that for-profit insurance companies had their own "death panels." The Bloomberg article strongly suggests that for-profit hospices may also act like death panels. In search of more revenue, for-profit hospices may enroll patients who are not at the end of life, but then provide them only "comfort care," so that if they develop new conditions that are treatable, they are likely to die in the absence of treatment.

I am waiting for the politicians who so enthusiastically condemned the supposed "death panels" to be found in health care reform legislation to condemn for-profit hospices for behaving like death panels.

In my humble opinion, the case discussed above are the strongest argument yet that we need to reconsider our headlong rush to turn health care, particularly the direct care of patients, over to relatively unregulated, for-profit corporations. The cases above suggest that the pursuit of revenue ahead of patients' welfare by such organizations may lead to sick and dead patients.

I cannot see how for-profit direct patient care can be made safe for patients without intense government regulation. If any of those vocal advocates of "free market" health care (in the absence of any good explanation of how health care can ever be an ideal free market, see this post) can explain to me how for-profit hospices can be made safe for patients without such regulation, I would welcome their attempts.

Meanwhile, this just calls out for legislative and legal investigation, and urgent policy changes.
 
By the way, the case above also shows how the current approach used by the government to address misbehavior in health care does not work.  We have noted previously how these legal settlements often only lead to financial penalties imposed on companies, not individuals, which diffuses their impact, and provides no disincentives to future bad behavior by individuals.  Sometimes corporate integrity agreements are added, but as in the current case, they also seem not to deter future bad behavior.   So, I further conclude, de rigueur, to really deter bad behavior, those who authorized, directed or implemented bad behavior must be held accountable. As long as they are not, expect the bad behavior to continue. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

Will the Citigroup Ruling Challenge Health Care Leaders' Impunity?

A federal judge's refusal to approve yet another cozy settlement that was supposed to resolve allegations of wrong-doing by a giant corporation has left the financial world atwitter.  It may be that this ruling will also affect the coziness between giant health care corporations and government regulators. 

Summary of the Citigroup Case

We first discussed this case twp weeks ago here.  Here is a summary of the government's (in this case, the Securities and Exchange Commision's) original allegations from the New York Times.

According to the Securities and Exchange Commission, Citigroup stuffed a $1 billion mortgage fund that it sold to investors in 2007 with securities that it believed would fail so that it could bet against its customers and profit when values declined. The fraud, the agency said, was in Citigroup’s falsely telling investors that an independent party was choosing the portfolio’s investments. Citigroup made $160 million from the deal and investors lost $700 million.

The Problems with the Proposed Settlement
Judge Jed Rakoff refused to approve the settlement because of a series of problems, listed below as summarized by the Schumpeter columnist in the Economist.

Mr Rakoff faulted the SEC for prosecuting Citigroup for negligence when a fraud prosecution was warranted; for failing to provide the court with 'any proven or admitted facts upon which to exercise even a modest degree of independent judgment'; for erroneously contending that 'public interest…is not part of [the] applicable standard of judicial review'; and for wrongly arguing that 'if the public interest must be taken into account, the SEC is the sole determiner'.

Furthermore,

Mr Rakoff also attacked a second condition of the settlement. Citigroup had agreed to operate under a court injunction if it ever violated the deal, which could lead to contempt charges. Whatever threat this carried, Mr Rackoff wrote, it was mitigated because Citigroup, as other financial firms, had been cited similarly over the past decade—and never faced any consequences.

The Parallels with Legal Settlements Made by Health Care Organizations

Several of the features of the settlement that the Judge found so objectionable are commonly also features of the settlements we have seen involving health care organizations. Government regulators often seem to make much milder charges that were warranted by the apparent facts. They make the organizations party to corporate integrity or deferred prosecution agreements, even though sometimes the same corporations were already subject to such agreements when they appeared to misbehave again. The agreements often allow the organizations to neither admit to or deny any charges, leaving the facts of the case forever in doubt.

Matt Taibi in the Rolling Stone provided some pithy comments on these commonly seen features of legal settlements.

By accepting hundred-million-dollar fines without a full public venting of the facts, the SEC is leveling seemingly significant punishments without telling the public what the defendant is being punished for. This has essentially created a parallel or secret criminal justice system, in which both crime and punishment are adjudicated behind closed doors.

This system allows for ugly consequences in both directions. Imagine if normal criminal defendants were treated this way. Say a prosecutor and street criminal come into a judge’s chamber and explain they’ve cooked up a deal, that the criminal doesn’t have to admit to anything or plead to any crime, but has to spend 18 months in house arrest nonetheless.

What sane judge would sign off on a deal like that without knowing exactly what the facts are? Did the criminal shoot up a nightclub and paralyze someone, or did he just sell a dimebag on the street? Is 18 months a tough sentence or a slap on the wrist? And how is it legally possible for someone to deserve an 18-month sentence without being guilty of anything?

Such deals are logical and legal absurdities, but judges have been signing off on settlements like this with Wall Street defendants for years.

As we have said numerous times before, (starting here in 2008) the current manner of regulation, in which organizations pay fines (and sometimes submit to corporate integrity or deferred prosecution agreements), rarely admit any guilt, but in which individuals who directed, authorized or implemented the alleged misbehavior almost never suffer any negative consequences, fails to deter future bad behavior. We have noted that the costs of the settlements are paid by the organization as a whole, and thus simply regarded as costs of doing business by executives. The leaders' impunity will allow the bad behavior to be repeated again and again.

Here is how Taibbi and Rakoff put it:

these crappy settlements have evolved into a kind of cheap payoff system, in which crimes may be committed over and over again, and the SEC’s only role is to take a bribe each time the offenders slip up and get caught.

If you never have to worry about serious punishments, or court findings of criminal guilt (which would leave you exposed to crippling lawsuits), then there’s simply no incentive to stop committing fraud. These SEC settlements simply become part of the cost of doing business, as Rakoff notes:

As for common experience, a consent judgment that does not involve any admissions and that results in only very modest penalties is just as frequently viewed, particularly in the business community, as a cost of doing business imposed by having to maintain a working relationship with a regulatory agency, rather than as any indication of where the real truth lies. This, indeed, is Citigroup's position in this very case.

That line, 'a cost of doing business imposed by having to maintain a working relationship with a regulatory agency,' is one of the more brutally damning things you’ll ever see a judge write. Rakoff is essentially saying that these fines are payoffs to keep the SEC off the banks’ backs. They’re like the pad that numbers-runners or drug dealers pay to urban precinct-houses every month to keep cops from making real arrests. That's what he means when he refers to 'maintaning a working relationship.' It's heavy stuff.

What the Judge appears to be saying is that the whole system stinks of regulatory capture, and that the settlements paid by the organizations are the moral equivalent of bribes paid to government officials. That is indeed "heavy stuff."

Now that Occupy Wall Street has made it socially acceptable to discuss the economic dysfunction that lead to the great recession or global financial collapse, I can only hope that this discussion will lead to a parallel discussion about health care dysfunction. It certainly seems that the regulatory capture that seems to be part of the dismantling of regulation of finance is similar to regulatory capture affecting health care. But I await someone beyond us few lonely bloggers to take up this topic.

I might as well end with this sentiment from 2009 regarding another case over which Judge Rakoff presided:
Again, in my humble opinion, until the people responsible for the bad behavior experience negative consequences from that behavior, they will continue to perform, direct, and condone bad behavior. We will not achieve real health care reform in the US until we effectively deter unethical, self-serving behavior by leaders of health care organizations.

Another Month, Another Set of Legal Settlements, Deferred Prosecution Agreements, and Jury Findings Adverse to Large Health Care Corporations

Another month, another series of adverse legal rulings suggesting misbehavior by large health care organizations.  In alphabetical order,...

Baxter, McKesson, Teva Pay Punitive Damages

As reported by Bloomberg,

A jury said Teva Pharmaceutical Industries Ltd. unit and two other drugmakers must pay $162.5 million in punitive damages for selling the anesthetic Propofol in a way that led three colonoscopy patients to develop Hepatitis C.

Jurors in state court Las Vegas ordered Teva Parenteral Medicines Inc., Baxter Healthcare Corp. and McKesson Corp. to pay so-called punishment damages over sales of the anesthetic in vials large enough to be reused by doctors. Anne Arnold, Richard Sacks and Anthony Devito contend they contracted Hepatitis C from reused vials during colonoscopy procedures. They had sought more than $700 million in damages.

It’s the second punitive award against Baxter and the unit of Petach Tikva, Israel-based Teva over a 2008 hepatitis outbreak in Nevada tied to Propofol. The first case resulted in a punitive verdict of more than $500 million against the drugmakers. Teva has agreed to cover all damage awards arising from the Nevada cases on behalf of Baxter and McKesson.

In particular,

The patients’ lawyers allege Teva intentionally sold Propofol in jumbo-sized vials to encourage doctors to reuse them, even with the risk of spreading blood-borne diseases such as hepatitis, an incurable liver disease.

So the allegations are that the company intentionally put financial gain ahead of the safety of patients.

Boston Scientific Settles Over-Billing Allegations

Again per Bloomberg:

Boston Scientific Corp.’s Guidant LLC unit will pay $9.25 million to settle a whistleblower’s claim that the company over-billed the U.S. and private hospitals for heart pacemakers and defibrillators.

The details:

Guidant allegedly reneged on credits owed to the U.S. Department of Veterans Affairs for replacement of units still under warranty and is accused of over-charging hospitals for the devices, causing them to over-bill Medicare, according to an e-mailed statement from the Justice Department.

Note that we have quite a extensive files on Boston Scientific, and on Guidant, now its subsidiary.

Hil-Rom Settles Fraud Allegations

Reported by the Knoxville News-Sentinel:

Federal prosecutors announced Tuesday a $41.8 million civil fraud settlement in a 'whistle-blower' lawsuit against international medical equipment supply company, Hill-Rom Company Inc.

The results also were that

As part of the settlement, Hill-Rom has entered into a five-year 'corporate integrity agreement,' in which the firm will face close scrutiny by federal officials, Killian said.

The allegations were:

'Hill-Rom submitted false claims for medical equipment for patients who did not qualify for the equipment, including patients who had died, were no longer using the equipment or had been moved to nursing homes,' [US Attorney Bill] Killian said.

In particular,

The lawsuit alleged the firm was ripping off Medicare with its faulty billing practices. According to the lawsuit, unsealed Tuesday, Hill-Rom offered its sales representatives $200 gift certificates and 42-inch televisions as reward for boosting billings and, in 2001, laid off the lion's share of staff dedicated to ensuring compliance with Medicare rules.

Note that this suggests a pattern of providing incentives to employees who "make their numbers," no matter how they do so. We have seen how making the financial numbers seems to take precedence over all else, including patients' well-being, in many contemporary health care organizations.

Maxim Healthcare Settles Fraud Allegations

In a story in the Baltimore Sun,

A Columbia-based health care firm has agreed to a $150 million settlement with the federal government and 43 states to resolve criminal and civil charges that it submitted claims for millions of dollars of work that it did not perform and operated offices that were not properly licensed, officials said Monday.

A five-year federal investigation found that Maxim Healthcare Services Inc., one of the country's largest providers of home healthcare services, submitted $61 million in false claims for services to the federal government's Medicaid and Veterans Affairs health programs over an 11-year period from 1998 to 2009.

Investigators said managers and workers at Maxim repeatedly modified time sheets and documents to cover up the fraud, creating a culture in which submitting false claims became 'common practice.'

The settlement was of criminal as well as civil charges:

The settlement includes a $20 million criminal fine and $130 million in civil settlements.

It will also involve a deferred prosecution or corporate integrity agreement:

In addition to the fines, Maxim also has been charged criminally with conspiracy to commit health care fraud. But the company could avoid conviction if it meets requirements outlined in the settlement.

Unlike many such cases, this one involved criminal charges for and guilty pleas by some people involved in the wrong-doing, in this case, middle managers:

Several regional account managers, a home health aid and a clinical services director also pleaded guilty to criminal charges, government officials said. They could face as much as $250,000 in fines and jail time for their roles in the fraud.

Another atypical result was that the CEO who presided over the misbehavior actually suffered some consequences, although he did not have to pay fines for face criminal charges,

Maxim officials said they take full responsibility for the violations. The company said it hired a new CEO in 2009 and changed its business practices to protect against a repeat.

ProPublica published an article at the same time which noted that Maxim's practices had come into question before,

A different set of problems involving Maxim came up during a ProPublica investigation into the oversight of registered nurses in 2009. We identified several nurses who were hired by the Maryland-based company despite having a record of problems.

Although that previous article did not mention the company's name:

The articles focused on how regulators across the country did little to scrutinize troubled nurses who crossed state lines to continue working. Our earlier stories did not identify Maxim by name.

We have noted that organizations which misbehave once are likely to misbehave again. This may stem from an organizational culture that puts revenue ahead of ethics and patients' and the public's health, and the lack of negative consequences that people who respond to the resulting positive financial incentives are likely to suffer.

Medicis Settles Shareholder Class-Action Lawsuit

Noted by the Arizona Republic,

Medicis Pharmaceutical Corp. and its auditing firm, Ernst & Young, have agreed to pay $18 million to settle a shareholder class-action lawsuit stemming from the pharmaceutical company's financial statements.

The shareholders alleged that Medicis was not honest about its financial affairs:

The shareholders' lawsuit stems from Medicis' announcement in September 2008 that it would restate earnings from 2003 through the first half of 2008.

Shareholders alleged that Medicis offered its wholesale customers generous return policies for prescription drugs as part of an effort to inflate the company's revenue. Medicis would accept returned products that were expired or about to expire at either no cost or substantial discounts to the wholesale customers, according to the lawsuit.

Summary

The constant march of legal settlements by, jury verdicts against, and in some cases criminal convictions of or guilty pleas by large health care corporations indicate how common misbehavior by such organizations has become. Since it is likely that much misbehavior does not lead to publicly announced legal actions, what is published can only provide a floor for an estimate of how common it is. The march, which we have been documenting since starting Health Care Renewal, shows how sleazy and often corrupt health care has become, and how that sleaziness and corruption is prevalent not just among small players, but among the biggest and richest health care organizations, and their top leaders.

One reason the situation continues to be so bad is that while the unethical behavior does sometimes result in pontificating by the civil authorities, and fines that may only be costs of doing business, it rarely leads to meaningful negative consequences for those who authorized, directed or implemented it. This was noted in the reporting of the Maxim Healthcare case above. For example, in the Baltimore Sun article we found,

One watchdog group called the penalty a drop in the bucket for a company that had $2 billion in reimbursements from 2003 to 2009.

'That is hardly crippling,' said Joe Newman, a spokesman for the Project on Government Oversight, which tracks government contractors. 'It is certainly something that stings Maxim's pocketbook, but they will be fine after that.'

'They won't be barred from the Medicaid program. That would hurt them.'

Also, Sun columnist Jay Hancock wrote:

Corporations are happy to be treated as people under the law, as we know from recent court decisions. They can own property. They can seek redress in Congress and the courts. They can make huge political contributions.

But when it comes to being penalized for cheating the government, corporations quickly abandon their personhood and go back to being abstract blobs.

'I don't know about you, but if I hired a contractor to work on my house and he charged me a ton of extra money for work he didn't do, I wouldn't use that contractor again,' Minnesota Sen. Al Franken said in Congress a few months ago. 'And I would make sure my friends knew not to use them either. It seems like the same should be true of government contractors.'

But that is often not the case. For years, government agencies have not vigorously enforced the law when doing so might inconvenience big corporations and their well-paid executives. Maybe this lenience stems from the loony philosophy of former Chairman of the Federal Reserve Alan Greenspan, who was once regarded as some sort of economic genius, who seemed to think that fraud cannot occur in his idealized idea of a free market, because somehow all bad actors would become widely known and therefore all counter-parties would avoid them. In an article in Stanford Magazine,

The influential Greenspan was an ardent proponent of unfettered markets. Born was a powerful Washington lawyer with a track record for activist causes. Over lunch, in his private dining room at the stately headquarters of the Fed in Washington, Greenspan probed their differences.

'Well, Brooksley, I guess you and I will never agree about fraud,' Born, in a recent interview, remembers Greenspan saying.

'What is there not to agree on?' Born says she replied.

'Well, you probably will always believe there should be laws against fraud, and I don’t think there is any need for a law against fraud,' she recalls. Greenspan, Born says, believed the market would take care of itself.

For the incoming regulator, the meeting was a wake-up call. 'That underscored to me how absolutist Alan was in his opposition to any regulation,' she said in the interview.

It is a measure of the insanity of recent years that one of the chief leaders of government economic policy did not believe there was any need for laws against fraud.

It appears that this daft idea has carried over to and still influences how many in government and out deal with health care. However, as we have ddiscussed, health care is not and probably cannot ever be an ideal free market. Also, in health care, most of the bad actions remain anechoic, and in many cases it may be hard for counter-parties to avoid bad actors because they may dominate the market. Also, it may be those that make decisions about whether to deal with particular organizations may be executives, and sometimes health care professionals who have become indifferent to the ethical issues.

As I have said again and again, pervasive bad behavior by large health care organizations has got to be a major cause of our ongoing health care dysfunction.

So, to really deter bad behavior, those who authorized, directed or implemented bad behavior must be held accountable. As long as they are not, expect the bad behavior to continue.

Two More Settlements, One More Corporate Integrity Agreement for Novo Nordisk

And the legal settlements for health care organizations keep right on marching along.  Here are the basics, per the Wall Street Journal, starting with the outline of the first settlement for Novo Nordisk:

Drug maker Novo Nordisk A/S's U.S. affiliate has agreed to pay more than $25 million to end investigations by U.S. authorities related to the marketing of NovoSeven and several diabetes drugs.

In one settlement, Novo Nordisk Inc., the U.S. affiliate, agreed to pay $25 million to end a probe and settle a civil lawsuit related to alleged improper marketing practices regarding Novo Seven, which is used to treat patients suffering from rare bleeding disorders. The complaint had alleged that Novo Nordisk promoted NovoSeven for unapproved uses.

Here is the outline of the second settlement:

Separately, the U.S. affiliate also agreed to pay $1.73 million in a settlement with the U.S. government to resolve allegations that its sales representatives accessed confidential patient information and submitted false Medicaid claims related to the marketing of diabetes drugs, including Novolin and Novolog.

Federal prosecutors in Brooklyn, N.Y., had alleged Novo Nordisk representatives made payments to pharmacists in exchange for recommendations for Novolin and Novolog products. As part of their activities, the pharmacists, or Novo Nordisk sales representatives, accessed confidential patient information, according to the settlement agreement.

Here is the usual pro forma denial by a company spokesperson that the company had done anything wrong:

'We are committed to running our business according to high legal and ethical standards and have been cooperating with the government since the investigation began,' said Jim Shehan, corporate vice president and U.S. general counsel for Novo Nordisk Inc. 'With this settlement, we avoid the distraction and costs of a lengthy legal battle, which would not have been in the best interest of the company or its stakeholders.'

Novo Nordisk denies any wrongdoing related to NovoSeven marketing....

Also,

Novo Nordisk didn't admit wrongdoing in the Novolin pact.

By the way, here is the brief mention of the corporate integrity agreement:

[Novo Nordisk] agreed to enter a five-year corporate integrity agreement with the U.S. Department of Health and Human Services in which it will add additional reporting and other procedures to its compliance program.

Why would a company that professes "high ethical and legal standards" not contest allegations that it engaged in improper marketing, paid health care professionals to recommend its products, and instigated breaches of patient confidentiality? 

Setting that aside, however, the coverage of this story in the Baltimore Sun  raises further questions.

First, how Novo Nordisk allegedly promoted Novo Seven, and the uses for which it was promoted are disturbing:

the government [did not] back down from its charge that the company engaged in unlawful marketing that helped persuade the Army to treat combat casualties with a largely experimental drug that was not approved for such use by the Food and Drug Administration.

Beginning in 2000, according to the government's claims, Novo Nordisk promoted the drug, also known as NovoSeven, to military doctors and entered into research agreements with Army hospitals. It provided funding for trials in which military officers participated, and gave 'donations and other gifts' to nonprofit foundations on behalf of military physicians. Those practices 'caused the military to use NovoSeven in its trauma patients,' the agreement states.

There was no evidence that Novo Seven decreased the morbidity and mortality of battlefield trauma, but there were reasons to believe the drug increased thrombosis risk:

Numerous clinical studies have since shown, however, that Factor VII is ineffective at controlling traumatic bleeding and can potentially cause blood clots that lead to heart attacks and strokes.

This was not just paying physicians and institutions to market an expensive, but innocuous drug.  It was paying US military physicians and institutions to market a drug that put injured soldiers at risk, but gave them no benefit.  Given the degree of deference public officials give to the brave soldiers that serve the country on the battlefield, one would think that putting them at risk, and putting the honor of their officers and military institutions at risk ought to be a big deal, maybe a big deal requiring more than even a $25 million fine.
On the other hand, although $25 million seems like a lot of money, it pales beside the amounts Novo Nordisk were making from Novo Seven:

Last year Novo Nordisk reported annual sales of NovoSeven of almost $1.6 billion — mainly for treatment of hemophilia. Company officials say roughly 15 percent of its sales are for unapproved uses, or as much as $250 million last year.

So while the settlement seems expensive compared to the cost of defending the suit in court, and it trades the distraction of a corporate integrity agreement for avoiding the "distraction" of further legal action, maybe a settlement equal to only one-tenth of the yearly sales of the relevant drug seemed a good deal for the company.

Since the company was already laboring under a deferred prosecution agreement in the US related to charges of illegal foreign kickbacks (see this post), maybe adding a corporate integrity agreement did not seem like all that much distraction.

On the other hand, the big question is: why was this deal a good one for the US government, or the people which it is supposed to protect? The amount involved only seems like a cost of doing business, and seems disproportionately small given that the allegations involved unlawful marketing that apparently threatened to corrupt US military doctors and hospitals, and were made against a company already under a deferred prosecution agreement for illegal kickbacks. Finally, since the impact of even the relatively small financial payment could be spread among all corporate employees and stockholders, and the deal involved no negative consequences for any individual who authorized, directed or implemented the bad behavior, why would it defer corporate insiders from authorizing or directing future bad behavior?  .

We have heard a series of threats from US government officials that they are about to crack down on big health care companies that misbehave, and, in particular, actually try to impose some negative consequences on the people in those companies that authorized, directed, or implemented bad behavior (see this post). However, we continue to see settlements like this, involving relatively small financial penalties imposed on rather large corporations, and corporate integrity agreements and/or deferred prosecution agreements that do not obviously seem to change how the companies operate.

Although a year ago we discussed threats by the US government to hold health care leaders accountable using the "Responsible Corporate Officer Doctrine," which has been available since 1943, so far there is no evidence that this concept has been made operational.

The continuing march of legal settlements now seems to have included most of the previously well reputed commercial health care firms in the US. The length of this march is an indication of how pervasive is bad behavior by such health care organizations, especially when the marchers were accused of behavior that appeared clinically, not just financially unethical.

I assert again that pervasive bad behavior by large health care organizations has got to be a major cause of our ongoing health care dysfunction.

So, to really deter bad behavior, those who authorized, directed or implemented bad behavior must be held accountable.    As long as they are not, expect the bad behavior to continue.

Was the Wright Medical CEO Really "Pleased" to "Continue Our Commitment to the Highest Standards of Legal and Ethical Conduct?"

This story fits into the "if you believed that one, I have a bridge to sell you" category. 

Let's go back seven months to 2010, when we discussed the legal settlement, which included submission to deferred prosecution and corporate integrity agreements by Wright Medical, a device manufacturer.  We noted that the company CEO, one Gary D Henley, said he was "pleased to announce these agreements and look[ing] forward to working with the independent monitor as we continue our commitment to the highest standards of ethical and legal conduct."  At the time, we wondered whether the only real reason he was pleased was that he got to keep his job (with total compensation of greater than $2 million a year) and hang onto his stock options (then consisting of 436,601 shares).

Now it is 2011, and the Memphis Daily News reported that last month, Mr Henley was out of a job:

It was just last month that [Chairman David] Stevens was appointed interim president and CEO after Gary D. Henley resigned from the position, which he had held since 2006.

Stevens at that time asked not to be considered for the permanent position.

Henley tendered his resignation prior to a board of directors meeting called to discuss management’s oversight of the company’s ongoing compliance program.

The board accepted Henley’s resignation, but deemed it to be without 'good reason' under the terms of his employment agreement, making him ineligible for severance.

He was accompanied out the door by

Frank S. Bono, the company’s senior vice president and chief technology officer, for failing to exhibit appropriate regard for Wright’s ongoing compliance program.

It appeared that the previous company leadership may not have been all that "pleased" to work with external monitors to "continue our commitment to the highest standards of ethical and legal conduct." The Daily News also reported:

Wright Medical Group Inc. on Thursday announced that it received a letter from the United States Attorney’s Office for the District of New Jersey pursuant to Paragraph 50 of the Deferred Prosecution Agreement stating that the USAO believes Wright Medical Group knowingly and willfully breached material provisions of the DPA.

Also, Corporate Counsel reported:

Two days after its general counsel departed abruptly, the Wright Medical Group, Inc., said Thursday that the U.S. attorney’s office believes the company 'has knowingly and willfully' breached its deferred prosecution agreement.

As a result, the company said it could face 'significant liability' including potential criminal and civil litigation. It also faces possible exclusion from federal health care programs such as Medicare, 'which would have a material adverse effect on our financial condition.'

The Tennessee-based company revealed the legal problems in 8-K filings on Wednesday and Thursday with the Securities and Exchange Commission. Wright has declined further comment.

One explanation for the company's pessimism:

The board recently received a tip about non-compliance and hired unnamed outside counsel to conduct an internal investigation. The probe found 'credible evidence of serious wrongdoing,' which the board communicated to the U.S. attorney’s office on Wednesday.

The Memphis Daily News noted that another slew of managers just went out the door:

Raymond Kolls, senior vice president, general counsel and secretary, Alicia Napoli, vice president of Clinical and Regulatory Affairs, and Cary Hagan, senior vice president of EMEA Commercial Operations, have all stepped down from their positions.

So should we believe Wright Medical Chairman and now interim CEO Stevens when he said:

The board is committed to maintaining the highest standards of ethical conduct and we remain diligent in ensuring that Wright Medical complies with all applicable laws and regulations...

?

Are you looking to buy a bridge? I know a nice one in Brooklyn.

More seriously, day in and day out we hear righteous, if not pompous pronouncements from health care organizational leaders about their organizations' integrity, brilliant performance, quality of care, devotion to patients, etc, etc, etc. Meanwhile, we have seen an astonishing parade of legal settlements, sometimes including guilty pleas to bribery, fraud, kickbacks, and other crimes by top health care organizations.  This parade raises serious questions about the performance and integrity of some of our biggest and best known health care organizations.

In nearly all cases, these settlements did not include specific negative consequences for those who authorized, directed or implemented the bad behavior that caused the need for the settlements. In nearly every case, the top leaders of the organizations continued to get generous compensation, often more generous than Mr Henley's $2 million plus a year.

Yet rarely does the media, much less health care scholarship check back later to see if the righteous pronouncements turned out to be true. Rarely do they check back to see if the settlements lead to better behavior.

Here is one vivid anecdote that suggests that the pronouncements may be nothing more than vapid PR, and the settlements lead to no change in behavior as long as the people who were in charge when the bad behavior occurred remain in charge, and richly remunerated.

So the next time you see a corporate health care CEO's boasts, think about that bridge in Brooklyn

To reprise: 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.

[Originally posted on Health Care Renewal by Roy Poses]

Elan, Eisai Settle for Related Reasons

The parade of legal settlements of bad behavior by major health care organizations marches on. The latest to shuffle by are Elan Corp, based in Ireland, and Eisai Inc, based in Japan, for actions taken in the US.  According to Bloomberg:

Elan Corp. will pay $203 million and a U.S. unit of the Irish drugmaker will plead guilty to a misdemeanor charge to resolve an investigation of its marketing of the epilepsy medicine Zonegran.

Elan will pay $102.9 million to resolve civil claims and $100 million in criminal fines and forfeitures, according to the U.S. Justice Department. Japanese drugmaker Eisai Inc., which bought the drug from Elan in 2004 for $128.5 million, also will pay $11 million to settle civil claims.

The Elan Pharmaceuticals unit will plead guilty in federal court in Boston to a charge of misbranding Zonegran, which was approved by U.S. regulators for treatment of epileptic seizures in adults over age 16, the Justice Department said yesterday in a statement. Dublin-based Elan promoted Zonegran for uses including mood stabilization, bipolar disorder, migraine headaches, weight loss and seizures in children.

'Elan’s off-label marketing efforts targeted non-epilepsy prescribers and the company paid illegal kickbacks to physicians in an effort to persuade them to prescribe Zonegran for these off-label uses,' according to the statement.

The details were:

In 2002, EPI [Elan Pharmaceuticals Inc] 'came under significant financial pressure' because of an investigation of its financial practices by the U.S. Securities and Exchange Commission that caused shares to drop to $2 from $65 in six months, according to the criminal charge. In evaluating its options, EPI 'decided to retain Zonegran because of its large potential for growth, particularly in unapproved areas,' prosecutors said.

EPI then trained its sales staff to promote Zonegran for off-label uses, including for children, pain, psychiatric disorders, migraines and movement disorders, prosecutors said. Letters sent to pediatricians described how to administer Zonegran to a child by putting a capsule’s contents into applesauce, according to the document, which EPI will admit to in its guilty plea.

Doctors with the potential to write many prescriptions were invited on expense-paid trips to Bermuda, Key Largo, Florida, Banff in Alberta and Tucson, Arizona, to hear speeches on off- label uses, according to the charge. Sales 'increased dramatically,' rising 80 percent from August 2001 to August 2002, while 2003 revenue increased 87 percent over the previous year, prosecutors said.

So here we ago again, another week, another multi-hundred million dollar settlement. Once again, the settlement is of charges of deceptive marketing practices and kick-backs to physicians. Once again, the settlement involves criminal charges and a corporate integrity agreement, but does not involve any negative consequences for any individual who authorized, directed, or implemented the unethical practices.

We have noted recent cases, one in which a corporate executive was banned from doing business with the federal government, another in which a corporate executive was indicted, but not yet tried on criminal charges.  However, in most cases, the parade of legal settlements made by health care organizations has just marched on, sometimes including guilty pleas to criminal charges, often involving charges of kickbacks, fraud, conspiracy, and other colorful offenses. Most of these settlements entailed fines or other payments by the organizations that may seem huge, but were fractions of the amounts made by the practices that lead to the charges that were settled.  With the few exceptions above, (plus one other known exception, the disbarment from federal business of three former executives of Purdue Pharma, story here), almost never have the cases involved penalties for any individuals who authorized, directed, or implemented the misbehavior.  We have also been saying (seemingly endlessly, but most recently here) that such settlements may be viewed by organizations as merely the costs of doing business, and so until the actual people who were involved in the bad behavior suffer some negative incentive or penalty, expect the behavior to continue. 

Health care costs keep rising, access keeps declining, quality gets worse. We moan and wring our hands, but as long as we allow the rot to worsen, and the muck to grow, expect these trends to continue until the whole smelly mess collapses of its own weight (with all those rich executives escaping to their mansions.)

If we really want high quality accessible, reasonably priced health care, we need true health care reform that reduces concentration of power in large organizations, and makes health care organizations' leadership accountable, ethical, and transparent. That will not be easy.
(FULL DISCLOSURE - I own 3200 shares of Elan.  This is the only health care stock I own.  I have held it a long time, not bothering to sell since the shares have been worth little for years.  This has provided a lesson about how the share-holders of big health care corporations rarely profit from the executives' risk taking.)