Phooled Again - More Settlements Suggesting Bad Behavior by Big Pharma/ Biotech

Once again, here is a roundup of cases showing big multi-national pharmaceutical and biotechnology companies are up to their usual tricks.

Presented in alphabetical order...

Bristol-Myers Squibb Settles Charges of Bribery of Chinese Hospitals.

The best version of this I could find was in USA Today, in early October, 2015,

Pharmaceutical manufacturer Bristol-Myers Squibb has agreed to pay more than $14 million in fines to settle charges that its joint venture in China paid cash and other benefits to state-owned hospitals in exchange for prescription sales, the Securities and Exchange Commission announced Monday.

After its investigation, the SEC found that the New York-based company violated the Foreign Corrupt Practices Act in its dealings with Chinese hospitals and doctors and 'reaped more than $11 million in profits from its misconduct.'

Bristol-Myers Squibb neither admitted nor denied the findings, the SEC said.

The details, such as they were:

Chinese sales representatives at BMS China, the Chinese joint venture that is majority-owned by Bristol-Myers, paid bribes — including cash, jewelry, meals, travel, entertainment, sponsorships and other gifts — to health care providers between 2009 and 2014 to generate more sales. And Bristol-Myers Squibb 'failed to respond effectively to red flags' indicating such practices, the SEC said.

Apparently, some lower level Chinese employees were fired, although it is not clear whether they were involved in bribery, or in whistle-blowing about it, but top company management did not look too hard to see who might have authorized or directed the bad behavior,

Several BMS China employees who were fired by the company made claims that faked invoices, receipts and purchase orders were widely used to bribe health care providers. But Bristol-Myers Squibb did not investigate their claims, the SEC said.

Bristol-Myers Squibb was aware of improper payments as early as 2009, when an internal audit highlighted the problem. But the company was 'slow to remediate gaps in internal controls' over dealing with Chinese health care providers and monitor payments to them, the SEC said.

Needless to say, no one who might have authorized or directed the bad behavior, and who conceivably might have personally gotten bigger bonuses based on the revenue it brought it, suffered any negative consequences. Despite the settlement, of charges of bribery, no less, company public relations produced the usual,

We have resolved this matter with the United States Securities and Exchange Commission, and are committed to the highest standards of business integrity, vigilance and ethics across our organization.

Well then, that clears it up.

I cannot find any information about what BMS allegedly bribed the hospitals to do, and hence can draw no conclusions whether patients may have been harmed by receiving inappropriate medications.

UK Judge Found Pfizer Threatened Health Professionals

The most thorough coverage of this was, amazingly, in a medical journal, namely the British Medical Journal (Kmietowicz A. Pfizer loses UK patent for blockbuster pain drug after threats to doctors.  Brit Med J 2015; 351: h4918.  Link here.)  The background was,

The patent for the use of Lyrica for epilepsy and generalised anxiety disorder expired in July 2014, and manufacturers of generic versions already have licences for these two indications. But the manufacturer, Warner-Lambert (a subsidiary of Pfizer), holds a 'second medical use' patent for the use of pregabalin to treat peripheral and central neuropathic pain, which expires in July 2017. A second medical use patent is one that relates to a new medical use for a known compound.

Lyrica is one of Pfizer’s most successful products, with global sales in 2013 of some $4.6bn (£3bn; €4.1bn).

So apparently Pfizer set out to scare physicians away from prescribing generic pregabalin [generic Lyrica].

In his 174 page ruling Mr Justice Arnold said, 'Since late September 2014, Pfizer has taken extensive steps to try to ensure that generic pregabalin is neither prescribed nor dispensed for the treatment of pain.' This included sending a letter to the BMA and pharmacists stating that doctors and pharmacists risked infringing the patent if they supplied generic pregabalin for the pain indication and that this would be an unlawful act.

A letter sent to clinical commissioning groups in December 2014 was described by Arnold as 'calculated to have a chilling effect on the sales of Lecaent [the version of pregabalin made by Actavis].'

These letters would be seen by the recipients as a threat, said Mr Justice Arnold.

The Justice ultimately "overturned Pfizer's UK patent for pregabalin for pain control," in part because the "company made 'groundless claims' that its patent for Lyrica would be infringed if doctors did not specify Lyrica as opposed to a generic alternative when prescribing...."

This case was apparently only about the patent (and is subject to appeal), so it appears no one who apparently tried to authorize, direct or implement apparent intimidation of health care professionals with "groundless threats" will suffer any negative consequences.

This case does not seem to involve any obvious harms to patients.  However, "groundless threats" to health care professionals could have obviously demoralized them and clearly challenged their autonomy and professional values.

Sanofi Again Settles Charges of Misbranding Seprafilm

We discussed the first civil settlement the company made of this case in 2014 here.  A relatively clear summary of the new settlement was given by Reuters in September, 2015.

Genzyme Corp agreed to pay $32.59 million, admit wrongdoing and enter a deferred prosecution agreement to resolve U.S. criminal charges over its marketing of the surgical implant Seprafilm, the Department of Justice said on Thursday.

The biotechnology unit of French drug company Sanofi SA (SASY.PA) was accused of two misdemeanor counts of violating the federal Food, Drug and Cosmetic Act from 2005 to 2010 by allowing Seprafilm to be adulterated and misbranded while being sold. Sanofi bought Genzyme in 2011.

Seprafilm is a clear film used to reduce abnormal internal scarring that can cause organs and tissues to stick together following pelvic and abdominal surgeries known as laparotomies.

But the Justice Department said some sales representatives taught surgeons how to turn Seprafilm into a 'slurry' for use in increasingly popular laparoscopic surgery, even though U.S. regulators had never approved the film for that use.

According to papers filed with the federal court in Tampa, Florida, Genzyme admitted and accepted responsibility for the facts underlying the two criminal counts.

The two-year deferred prosecution agreement calls for improved oversight, and steps to halt Seprafilm sales for off-label uses. If Genzyme complies, the government will dismiss the charges.

Note that at least in this case, there was some admission by the company of the truth of the facts charged, and no protestation that "we adhere to the highest standards of integrity," or some such.

It seems possible that the use of the Seprafilm slurry in patients without clear evidence of its safety or effectiveness may have lead to patient harms, but I cannot find clear discussion of this.

Summary

So while big health care corporations, especially large drug and biotechnology companies, are always protesting how their main goal is to benefit patients, and how they support health care professionals, here are more cases in which it appears they at best set out to manipulate patients and health care professionals to maximize revenue.

Note that this is hardly the first time any of these companies have apparently misbehaved.  See our previous posts on BMS, on Genzyme (now a Sanofi subsidiary), and on Pfizer.  Note that our last discussion of the ever troubled Pfizer was only one month ago.

We have discussed endlessly how the march of legal settlements and other legal rulings affecting big health care corporations has raised questions about whether they are in it for patients and health care professionals, or just for the money.  That almost none of these legal actions has resulted in any real consequences for the individuals within the corporations who profited most from the misbehavior has allowed health care corporate managers' continued impunity, and has suggested how cozy health care corporate managers and goverment regulators and law enforcement officials have become, partially through the mechanism of the revolving door.

While these latest three cases have appeared, the mainstream media have begun to feature more discussion about how widespread managerial and corporate misbehavior is fueling the decline of the global economy, and perhaps of global society.  For example, as discussed in srticles in The Guardian, and more recently in the New York Times, Nobel Prize winners Robert Shiller and George Akerlof's new book, Phishing for Pfools: The Economics of Manipulation and Deception, suggests that widespread bad behavior in supposedly "free," and mainly unregulated markets can cause all sorts of evil.  In the Guardian, Shiller used the examples of how

 Most of us have suffered 'phishing': unwanted emails and phone calls designed to defraud us.  A 'phool' is anyone who does not fully comprehend the ubiquity of fishing.  A phool sees isolated examples of phishing, but does not appreciate the extent of professionalism devoted to it, nor how deeply this professionalism affects lives.  Sadly, a lot of us have been phools - including Akerlof and me, which is why we wrote this book

As Shiller wrote in the NYT, while he is a "free market advocate,"

we both believe that standard economic theory is typically overenthusiastic about unregulated free markets. It usually ignores the fact that, given normal human weaknesses, an unregulated competitive economy will inevitably spawn an immense amount of manipulation and deception.

Shiller and Akerlof believe that various kinds of manipulation and deception are enabled by technological advances, and that they are contagious,

When you realize that your competitor has used sophisticated and effective marketing tricks, then you will fall behind if you don’t follow suit.

This is really not a new idea,

In 1918, Irving Fisher, the Yale economist, argued that what people maximize in their actions is something that could better be described as 'wantability' rather than utility, for they are subject to temptation and mistakes in the vast array of purchases they make, leading profit-maximizing marketers to take advantage of them on a systematic basis.

In the first half of the 20th century, such critiques were of general interest. But they are little discussed today.

In the Guardian, Shiller warned that failure to address this problem in the financial sector could lead to "a new Dark Age." I fear that we are already close to a dark age for health care.

Similarly, in the Wall Street Journal, of all places, Charles Moore, the authorized biographer of Margaret Thatcher, and former editor of the conservative UK Daily Telegraph, wrote:

The relationship between money and morality, on which the middle-class order depends, has been seriously compromised over the past decade.  Which means that the mass bourgeoisie (a phrase that Marx and Engles would have thought a contradiction in terms) start to feel like the new proletariat.

Furthermore,

To the extent that people cheat in markets, they are not real markets, any more than antifreeze labeled 'wine' is real wine.  Too many advocates of markets have allowed themselves to be suborned into becoming apologists for business.  And too many businesses now operate as if their responsibilities are only to themselves and not to consumers.

See the above examples, and all we have written about bribery, kick-backs, fraud, other crime, and corruption to show how prevalent cheating is in health care.

Shiller concluded,

Marx did have an insight about the disproportionate power of the ownership of capital. The owner of capital decides where money goes, whereas the people who sell only their labor lack that power. This makes it hard for society to be shaped in their interests. In recent years, that disproportion has reached destructive levels, so if we don’t want to be a Marxist society, we need to put it right.

I would add that if we do not put these things right in health care, ending up with a Marxist system will be the least of our worries.

So as a start, to quote Shiller, we need more

heroic effortsw of campaigners for better values, both among private organizations and advocates of government regulation

Who will step up?

Our musical diversion, "Won't Get Fooled Again," the Who, 1978 live version:

11:09 AM

Once More with Feeling - Amgen Again Settles Allegations of Misbranding, But Why Bother?

The Latest Settlement

Biotechnology giant Amgen has just reached another settlement of allegations that it unfairly, deceptively or misleadingly marketed its drug. Per the Los Angeles Times,

Amgen Inc. has agreed to pay $71 million to settle allegations by 48 state attorneys general that it improperly marketed two of its blockbuster drugs.

That is,

The states, including California, alleged that Amgen violated consumer protection laws by promoting the use of its anemia drug Aranesp for longer periods than the Food and Drug Administration had approved and by encouraging its use to treat anemia caused by cancer without FDA approval.

In addition, Amgen was accused of promoting its drug Enbrel as a treatment for mild plaque psoriasis even though it was approved only for severe plaque psoriasis, and for overstating the length of time that Enbrel effectively treats the disease.

This is the second settlement Amgen has made for improper marketing of Aranesp.

Three years ago, Amgen pleaded guilty to a single misdemeanor in federal court in New York for improperly marketing Aranesp. The drugmaker agreed to pay $150 million in criminal penalties and $612 million to resolve broader civil lawsuits, including allegations that Medicare, Medicaid and other government insurance programs were improperly billed.

At the time, federal prosecutors called the settlement 'the single largest criminal and civil False Claims Act settlement involving a biotechnology company in U.S. history.'

Although doctors can prescribe medications for off-label uses, drug companies are banned from promoting uses that aren't approved by the FDA, which has been at odds with some drugmakers over the issue.

This settlement seems to be just the latest in a very long procession of legal settlements  of allegations of apparent misbehavior by large health care organizations.  We have previously discussed many such settlements, how they serve as markers of ethical lapses by leaders of large organizations, and also how the failure of most of these settlements to provide meaningful penalties to those who presided over, directed, or implemented the bad behavior allows continuing impunity and fails to deter future bad behavior.  Many large organizations have made multiple such settlements in recent years, but have these settlements seem to have not promoted honest, transparent, accountable health care.   

Yet continuing government efforts to provide even these weak challenges to continuing bad behavior now appear under threat.

Is Misbranding a Crime?

The fundamental allegations in the original large Aranesp settlement were of misbranding (although the settlements with state government just announced were of violations of state laws prohibiting, as in the case of Connecticut, "unfair, deceptive or misleading" marketing practices.)  Marketing a drug or device for uses other than those approved by the US Food and Drug Administration (FDA) may be called "misbranding."

Whether misbranding should be considered a crime has lately become controversial.   Recently, an appeals court agreed with the notion that such marketing is constitutionally protected speech, as long as it is "truthful." (See discussion by Shannon Brownlee on the Lown Institute blog, and the NY Times news article.)  I am not a lawyer, so I will try not to deal with this constitutional argument at this time.  But most of the public discussion has focused on the narrow issue of whether misbranding is in fact protected free speech.

However, the case of the 'misbranding allegations agains Amgen suggest other issues worthy of consideration.

Promoting a Not Merely Ineffective, but Dangerous Drug

As we discussed here in 2012, Amgen pleaded guilty to one count of illegally marketing Aranesp, and agreed to pay a penalty of $762 million.  As we noted, the misbranding in this case was promotion of Aranesp for patients with cancer who were not receiving chemotherapy.  However, a growing collection of evidence suggested that epoetin drugs, a class in which Aranesp resides, increase the death rate in patients with various kinds of cancer.  On the other hand, Aranesp was never meant as a possible cure for cancer.  At best, its benefit is improvement of anemia, which might, just might improve how some patients feel in the short-term.  So it appears Amgen was promoting a dangerous drug without any evidence that the drug provided benefits that balanced the danger.  This appears very bad for patients.  The misbranding here was not some technical violation, but likely a deceptive effort that could have hurt patients, while profiting Amgen and its top executives.  The ethics here look much worse than the single guilty plea suggested.

Misbranding just refers to promoting a drug or device for uses that the FDA did not approve.  Some cases of misbranding could cause little more than inconvenience and added expense, but others could result in serious harm to patients.  Treating them all as misbranding removes important distinctions.

Allegations of Kickbacks

Furthermore, as discussed here in 2013, the 2012 settlement was not just about misbranding.  It was about kickbacks, that is bribes given to doctors by Amgen to induce them to prescribe a dangerous medication.  The settlement was arranged that Amgen did not admit to the alleged kicbkbacks.  But neither did it deny them, and the company apparently thought it was worth $762 million to avoid further dealing with these accusations, which nonetheless hang in the air.  So the ethics here now look even worse, invovling promoting a dangerous drug allegedly with bribery.


Furthermore, after news of the original Aranesp settlement came out, other stories of other settlements by Amgen appeared.  As we noted here,  in 2013, Amgen settled allegations that it also paid kickbacks to Omnicare and PharMerica to promote Amgen use in nursing homes and hospital.  It also settled charges that it inflated pricing data to obtain larger payments from Medicaid in multiple states for a variety of its drugs, including Aranesp.   Later in 2013, as we noted here, Amgen settled yet more charges that it gave kickbacks to doctors to promote one of its products, this time anti-cancer drug Xgeva.

Organizations accused of misbranding often are also accused of much worse conduct, yet very often, their cases are settled with the emphasis on the misbranding, leaving more serious allegations neither proven nor denied.  Focusing on misbranding may distract from more serious ethical, moral and legal violations.


Discussion

In the case of Amgen, the large 2012 settlement for misbranding resulted in the only guilty plea made and the largest fine paid by the company.  From my informal perusal of legal settlements made by drug, biotechnology and device companies, misbranding seems to be one of the more frequent allegations, and often the only one resulting in admissions of guilt.  It may be that it is easier to prove misbranding than other charges, and companies may admit to misbranding in settlements because the charge is not well understood by the general public and hence may carry less of a stigma than other charges, for example, kickbacks or fraud.

Yet as noted above, while misbranding seems to connote a mere technical violation, in health care misbranding can mean patients hurt by dangerous treatments that did them little if any good.  Furthermore, companies that settle allegations of or even admit to misbranding often have been charged with lots of other bad behavior, but settlements are often set up so none of these other allegations is ever confirmed or refuted.  So settlements that focus on misbranding again may nullify questions about worse ethical problems.

Now whether misbranding is itself really a transgression seems to a legal question.  But perhaps the legal challenges to misbranding as a crime ought to evoke more than just a narrow defense of the legal concept.  Of course, declaring misbranding unconstitutional could result in even weaker enforcement actions against large and powerful health care corporations,  However, maybe the inherent weakness of misbranding charges ought to inspire some rethinking of what bad behavior in health care really deserves attention.

Should not aggressive marketing of a drug as tremendously effective and safe in situations in which the drug is either minimally or not at all effective (especially in terms of improving patient-centered outcomes) or not very safe be considered possible fraud, and prosecuted as such?  Should not alleged kickbacks and bribes given to health professionals and care giving organizations be prosecuted, rather than treated as civil disputes and settled?  Should not the people who actually appeared to have committed fraud, or given bribes be prosecuted, rather than just letting their employers escape with civil monetary penalties?  Should not the leaders of big organizations on whose watches fraud and bribery allegedly occurred be charged as responsible corporate officers (look here )?

If civil authorities were willing to stop regarding big health care organizations and their leaders as "too big to jail,"  maybe less mischief would be going on in health care.  And maybe that would lead to better care for patients and better health for the public. 

ADDENDUM (21 August, 2015) - This post was republished on the Naked Capitalism blog.

12:21 PM

None Dare Call It Health Care Corruption

... even when allegedly a prominent academic physician's traded referrals of cancer patients to a law firm, resulting in referral fees to a prominent politician who worked for the firm, for government research grants to the physician's foundation and another foundation on whose board he sat, and a job for his son at yet another non-profit organization.
***

Health care corruption, remains a largely taboo topic, especially when it occurs in developed countries like the US.  Searching PubMed or major medical and health care journals at best will reveal a few articles on health care corruption, nearly all about corruption in less developed countries far away from where the authors live.  When the media may publish stories about issues related to health care corruption, they are almost never labelled as such.

For example, last year we discussed two widely reported cases of alleged political corruption.  One included allegations that a company producing a supposedly anti-inflammatory dietary supplement bribed Robert McDonnell, the former Governor of Virginia.  Mr McDonnell was later convicted and sentenced to two years in jail for public corruption (look here).  Another included allegations that Rick Perry, the former Governor of Texas abused his power by cutting funding of the state anti-corruption unit, which was investigating whether the Texas Cancer Research and Prevention Institute was awarding grants based on political influence rather than clinical and methodological merit. The reporting of both cases underplayed the health care aspects, and never mentioned health care corruption, or words to that effect.


Yet Transparency International's report on global health care corruption suggested health care corruption occurs in all countries.  A recent TI survey showed that 43% of US citizens believe the country has a health care corruption problem (look here).  Perhaps some US citizens have been reading between the lines, or have personal experiences with health care corruption. However, as long as we cannot talk about this problem openly, there is no chance it will be solved.

In January, 2015, a case of apparent political corruption made headlines.  It turns out to also be a case of apparent health care corruption.  

New York Assembly Speaker Sheldon Silver Charged with Fraud, Extortion, and Receiving Bribes


In late January, 2015, from early reporting  by the Capital New York,

The federal corruption case against Assembly Speaker Sheldon Silver rests in part on his alleged scheme with a doctor who referred asbestos cases to the Weitz & Luxenberg law firm where Silver is of counsel.

A criminal complaint from U.S. Attorney Preet Bharara alleges that Silver obtained referrals of asbestos
cases from a doctor affiliated with a university in Manhattan, referred to as 'Doctor-1,' by using his position as speaker to quietly direct $500,000 in state funds to the doctor's research and give 'additional benefits' to the doctor and the doctor's family.

The Doctor-1 described in the criminal complaint appears to be Dr. Robert Taub of Columbia University, based on details outlined in the criminal complaint, and confirmed by a secretary at his office and separately by a knowledgeable source. Taub specializes in mesothelioma research, for which it is hard to find research funding.

Regarding the advantages gained by Mr Silver,

Silver allegedly received millions of dollars in referral fees from Weitz & Luxenberg, and was credited with referring more than 100 clients, many of whom were referred for asbestos cases, according to the complaint.

The firm paid Silver $3.2 million for referrals related to asbestos cases between 2003 and 2014, according to the complaint. Prosecutors claim that several of those asbestos clients said they had been referred to Doctor-1 for treatment, and said the doctor had also recommended they retain Weitz & Luxenberg as their counsel.

Regarding the benefits to Dr Taub,

The complaints say the scheme began when the doctor allegedly asked Silver if his firm would help fund mesothelioma research and Silver declined. But prosecutors claim the doctor became aware that Silver wanted him to refer asbestos patients to Silver and the law firm for counsel, in exchange for funding for his medical research.

Doctor-1 started referring patients to Silver, and Silver began directing state funding to the doctor's research, the complaint alleges.

In December 2003, Doctor-1 requested a $250,000 grant from Silver to establish a Mesothelioma center at a university, according to the complaint. The complaint also says that the request was granted, and Silver approved payment from a pool of discretionary funds paid for by health care-related assessments that was under Silver's sole control until the year 2007.

Silver later directed another grant from the same pool of funds, also worth $250,000, to the Mesothelioma Center.

In 2008, the speaker directed a further $25,000 discretionary member item grant to a not-for-profit where the doctor was a board member, according to the complaint.

In 2012, the complaint alleges that Doctor-1 asked Silver for help in finding a family member a job with a nonprofit organization that 'received millions of dollars in member items and capital funding from Silver.'

A New York Times article verified that "Doctor-1" was Dr Robert N Taub, a previously highly reputed academic.  

In the criminal complaint against Sheldon Silver, he is identified simply as “Doctor-1.”

But Dr. Robert N. Taub, who headed a Columbia University center dedicated to curing a rare form of cancer caused by asbestos, is no ordinary doctor.

Also,

In 2002, Dr. Taub created one of the nation’s few mesothelioma research hubs, the Columbia University Mesothelioma Center. He was also active in an organization that raised money for research, sitting on the scientific advisory board of one of the few nonprofits created to help victims, the Mesothelioma Applied Research Foundation. The foundation, which awards research grants, relies heavily on gifts from law firms.

Finally, the NY Times story identified Dr Taub's family member who got a job through Mr Silver's intervention,

 According to the complaint and people briefed on the investigation, Dr. Taub also asked Mr. Silver in 2012 to help his son, Jonathan, find a job. The speaker arranged for an interview at OHEL Children’s Home and Family Services, a social services organization based in Brooklyn that had received millions of dollars in state funds from Mr. Silver.

After the allegations were made public, the NY Times also reported that Dr Taub "is leaving his position as head of a Columbia University cancer center, and the center is being disbanded," and the New York Post reported that Mr Silver is stepping down from his position as Speaker of the NY Assembly.

Political Corruption Highlighted, Health Care Corruption Ignored 


Corruption as defined by Transparency International is abuse of entrusted power for private gain.  Thus TI does not limit the term to cases involving politicians or government. Clearly, the allegations above were for corruption in this sense, and that corruption involved health care.

Furthermore, the alleged facts in the case implied,
-  Dr Taub abused his patients' trust in him by directing them to Mr Silver's firm, whether or not that was the best choice for these patients
-  Dr Taub abused the trust he inspired as a medical researcher by trading referral of his patients for government research grants
-  Dr Taub personally profited from these arrangements by obtaining a job for his family member, and a grant for another (non medical research) foundation on whose board he sat.
-  By directing grants to Dr Taub's research foundation, and the foundation on whose board Dr Taub sat, Mr Silver allocated scarce research funding for private gain, rather than for clinical, public health, or scientific reasons.


However, the coverage of the charges against Mr Silver, and particularly those relating to Dr Taub, was solely in terms of political corruption.  While the media reported the facts related to health care, there was no mention of health care corruption.

Even the pithy op-ed on the case by Prof Zephyr Teachout, now widely known for her expertise in corruption, and for increasing awareness of the importance of corruption in modern US society, did not mention health care corruption.  Her op-ed did note the earlier case of former Virginia Governor McDonnell,

As with the recent conviction of the former Virginia governor Bob McDonnell for receiving improper gifts and loans, a fixation on plain graft misses the more pernicious poison that has entered our system.

However, Professor Teachout did not note that these gifts and loans resulted from Governor McDonnell using his influence to market a supposed anti-inflammatory nutritional supplement.

Summary

Professor Teachout has decried how the definition of corruption has narrowed.

A fixation on plain graft misses the more pernicious poison that has entered our system.

However, our system is poisoned not only by political, but by health care corruption.  

However, when health care corruption is clearly the issue, the news media will not use that term.  Only when the corruption is occurring far away, usually in a supposedly benighted less developed country, will the news media or the scholarly medical, health care, and health policy literature discuss it as such.  So the anechoic nature of health care corruption has not changed since my post of August, 2014.

If we are not willing to even talk about health care corruption, how will we ever challenge it? 

So to repeat an ending to one of my previous posts on health care corruption....  if we really want to reform health care, in the little time we may have before our health care bubble bursts, we will need to take strong action against health care corruption.  Such action will really disturb the insiders within large health care organizations who have gotten rich from their organizations' misbehavior, and thus taking such action will require some courage.  Yet such action cannot begin until we acknowledge and freely discuss the problem.  The first step against health care corruption is to be able to say or write the words, health care corruption.

ADDENDUM (29 January, 2015) - This post was reposted on Naked Capitalism.  

9:15 AM

Department of Justice Throws (at Least a Small Paperback) Book at Bio-Rad Laboratories - $55 Million Settlement, Admission of Wrongdoing, Employees Fired

Hard on the heels of our recent roundup of legal cases involving medical device companies comes a notable settlement by Bio-Rad Laboratories Inc, a company that makes equipment and supplies for clinical diagnostic testing. 

The Basics

As reported by Reuters,

Bio-Rad Laboratories Inc will pay $55 million to end U.S. investigations into whether it failed to prevent bribery of government officials in Russia and other countries, and falsified records to conceal payments, U.S. authorities said on Monday.


The company, which makes medical diagnostics products, entered a non-prosecution agreement with the U.S. Justice Department to resolve charges that it violated the Foreign Corrupt Practices Act by recording fake payments in connection with sales in Russia.

It also entered a civil settlement with the U.S. Securities and Exchange Commission, which said units of the Hercules, California-based company made $7.5 million in improper payments to officials in Russia, Vietnam and Thailand to win business.

Some Sordid Details
 
Some details of the unseemly conduct were reported by the San Jose, California, Mercury News,

The Department of Justice and the SEC said Bio-Rad subsidiaries in Europe and Asia bribed government officials from 2005-10 with payments to phony middleman companies. Bio-Rad executives ignored the payments, which were so obvious that they should have spotted them, the federal investigators said. One Russian middleman company even used a phony address that was actually the address of a Russian government building, according to the SEC.

Large commissions to companies that didn't have the resources to perform any of the contracted services should have raised an alarm, the complaints said. Also, the payments were made through banks in Latvia and Lithuania, another alleged red flag. Yet several 'high level' Bio-Rad managers approved the payments, the Justice Department said.


In Vietnam, a sales representative of Bio-Rad authorized payment of bribes to government officials, including the hiring of a middleman to pay the bribes, according to the SEC. Bio-Rad's sales manager agreed to the practice fearing that the company would lose 80 percent of its sales if it stopped paying bribes, the SEC's complaint said.

In Thailand, Bio-Rad invested in a local company in 2007 that had an ongoing bribery scheme. An agent of the company received inflated commissions which were split with Thai government officials, the complaint said.  

 Admissions of Wrongdoing, Firing of Employees

Note that the $55 million was not just a civil fine, according to Reuters,

 

Bio-Rad's payout includes a $14.35 million criminal fine to the Justice Department, and $40.7 million representing illegal profit and interest to the SEC....

Moreover, the penalties could have been worse,

The Justice Department said the criminal sanctions were not more severe because Bio-Rad disclosed the misconduct and fully cooperated in its probe, including by making employees available for interviews and producing documents from overseas.

Bio-Rad also bolstered its internal compliance processes, and said it fired employees responsible for the misconduct.

If the company disclosed the misconduct, that meant they acknowledged there was misconduct.  Furthermore, in this case, the company at least indirectly admitted the wrongdoing,

'The actions that we discovered were completely contrary to Bio-Rad's culture and values and ethical standards for conducting business,' Bio-Rad Chief Executive Norman Schwartz said in a statement.

Summary

In summary, employees of Bio-Rad Laboratories bribed officials in various countries to induce more sales.  Upper level managers seemed to disregard fairly obvious signs that this was happening, but eventually someone in upper level management discovered what was going on and reported it to authorities.  The activities were unethical, but the crimes were financial and did not appear to directly risk patients.  The company paid a moderate sized fine, but part of the fine was criminal.  Top management acknowledged wrongdoing, and apparently some employees involved suffered negative consequences: they were fired.

So this case appears a bit different from the majority of the settlements we have discussed.  Bad behavior was acknowledged by managers, and some individuals involved in the bad behavior suffered modest negative consequences.  However, after reviewing the last set of cases we discussed, it does confirm the pattern.  The bigger the company, the proportionately SMALLER the penalties to the company, and the LOWER the likelihood and severity of any negative consequences to an individual.  (This was a moderate sized company, so the penalties were moderate.)  Also, financial misadventures lead to harsher penalties than actions that primarily harm patients.

At least this case shows that the US Department of Justice is capable of making a settlement of a case involving unethical behavior by a health care organization that does not allow the organization to deny misbehavior, and leads to at least some negative consequences for individuals who authorized, directed or implemented the bad behavior.

The question remains, though: why are cases involving really big organizations, and hence often lots of money, and/or cases that involve clinical rather than financial risks treated so leniently?  

The usual pattern, at least for large companies, is: settlements that involve fines that appear large, but are not proportionate to the size and revenue of the company; fines that are imposed on the company as a whole, but no penalties for the people who authorized, directed, or implemented the bad behavior, and likely personally profited from it; and no findings of guilt or acknowledgement of wrong doing.  This lenient approach allows large health care organizations to treat such settlements as costs of doing business.  Hence, it is unlikely to deter future bad behavior, especially given that the people most likely to make the most money from it can expect impunity.  

Note that the pattern of law enforcement and regulation for health care in the US is similar to the pattern of law enforcement and regulation of the finance sector.  And that helped bring us the global financial collapse.  Meanwhile, our health care system has become the most expensive, but clearly not the best in the world.

To repeat, the Kabuki play that is regulation of and law enforcement for large health care organizations goes on.  As our society is being increasingly divided into a huge majority in increasingly difficult economic circumstances and a small and  increasingly rich minority, it also seems to be increasingly divided into little people who may be ruined by lawsuits, and imprisoned for even minor infractions, and big people who have impunity. 

True health care reform would hold leaders of health care organizations accountable for their organizations' behavior, and its effects on patients and health care professionals. 

8:53 AM

Move Along, No Health Care Corruption to See Here

Health care corruption, remains a largely taboo topic, especially when it occurs in developed countries like the US.  Searching PubMed or major medical and health care journals at best will reveal a few articles on health care corruption, nearly all about corruption somewhere else than the authors' countries, usually in someplace much poorer.  While the media may publish stories about issues related to health care corruption, they are almost never so labelled.

Yet Transparency International's report on global health care corruption suggested it occurs in all countries.  A recent TI survey showed that 43% of US citizens believe the country has a health care corruption problem (look here).  

In the last few weeks, there have been two major US news stories that seem to clearly involve  allegations of health care corruption, but not in so many words.   Both were big because the indicted were sitting governors of big US states.

Governor Rick Perry (Republican - Texas) Indicted for Abuse of Power

The biggest story seems to be the indictment of Rick Perry, the Republican Governor of Texas.   Here is a summary from the Washington Post,

A grand jury indicted Texas Gov. Rick Perry (R) on two felony counts  Friday, alleging that he abused his office and used a veto threat to coerce an elected district attorney to resign.

The grand jury began considering charges against Perry earlier this year following an ethics complaint alleging that he abused his veto power when he cut funding for the state’s anti-corruption unit, which is part of the Travis County district attorney’s office.

He had called on Rosemary Lehmberg (D), the district attorney for Travis County, which includes Austin, the state capital, to step down after she was arrested in April 2013 for drunken driving. Lehmberg pleaded guilty to driving while intoxicated — an open bottle of vodka was found in her car — and was sentenced to 45 days in jail.

Perry threatened to veto $7.5 million in state funding for her office unless Lehmberg resigned. She refused, and Perry followed through on his veto threat, saying that he could not provide the money 'when the person charged with ultimate responsibility of that unit has lost the public’s confidence.'

There has been a big kerfuffle over this indictment, with the majority seeming to think it is some sort of political stunt that will have little effect on Mr Perry.  For example, the Washington Post later ran an editorial calling the indictment "wrong-headed." 

However, articles in some less prominent outlets suggested that the indictment actually raised questions about possible corruption, actually health care corruption.  For example, James Moore writing in the Huffington Post,

 Some of the media appear to have adopted the Perry narrative that he wanted to get rid of an irresponsible Travis County District Attorney Rosemary Lehmberg because she had been arrested for driving under the influence of alcohol.

However,

The PIU had been investigating the Cancer Research and Prevention Institute (CPRIT), a $3 billion dollar taxpayer funded project that awarded research and investment grants to startups targeting cancer cures. The entire scientific review team, including Nobel Laureate scientists, resigned because they said millions were handed out through political favoritism. Investigations by Texas newspapers indicated much of the money was ending up in projects proposed by campaign donors and supporters of Governor Perry. In fact, one of the executives of CPRIT was indicted in the PIU investigation for awarding an $11 million dollar grant to a company without the proposal undergoing any type of review. 

As documented by the Cancer Letter, the scientific reviewers at CRPIT quit because of perceptions that the scientific review process was being manipulated, possibly for private gain,

The scientists submitted blistering letters explaining their decisions to leave.

'This past spring, the peer review system of CPRIT was dishonored by actions of CPRIT’s  administration when a set of grants were delayed in funding because of suspicion of favoritism,' writes Phillip Sharp, chair of the council. 'Further, a proposal based on science similar to that previously reviewed by the CPRIT council was selected for funding using other criteria. These events ultimately led to the resignation of Dr. Gilman. The same events motivate my decision to resign now.'

Both Gilman and Sharp are Nobel laureates.

The walkout—and, perhaps more so, the letters—send a powerful signal that CPRIT is now outside mainstream cancer science. The controversy—and the instance of 'favoritism' alleged by Sharp—began when the state agency funded an $18 million project spearheaded by Lynda Chin, an MD Anderson scientist and the wife of that institution’s president.

Also see stories in the Nature news blog, and in the Science news blog.  Similar connections to the Public Integrity Unit's response to the CRPIT scandal and its indictment of a CPRIT official appeared in the Texas Observer.

In addition, the New Republic published an article suggesting the involvement of Mr Perry and his administration in other cases of alleged health care corruption.  These included trying to use state government to mandate a vaccine made by a company for who his former chief of staff was a lobbyist,

His attempt to mandate that Texas girls receive a vaccine for HPV, seemingly at odds with Perry’s social conservatism, looked more explicable when one considered that his former chief of staff was lobbying for Merck, the vaccine’s manufacturer. And yes, Merck contributed $30,000 to Perry over his first decade as governor.  

Also, he put appointed to the state board of health top employees of a medical supply company owned by a big campaign contributor, and in which Mr Perry himself also invested, 

Perry expressed his gratitude to James Leininger, a staunch conservative whose last-minute loan to Perry helped him narrowly win his 1998 race for lieutenant governor and who gave him $239,000 more over the next decade, by appointing former top employees of Leininger’s hospital-bed company—in which Perry’s personal investment during the ’90s resulted in a $38,000 gain—to the Texas Board of Health,...

Finally, the state Emerging Technology Fund gave considerable money to another friend  of and big campaign donor to Mr Perry,

A year earlier, the A&M system had entered into an agreement to develop vaccines with a therapeutics manufacturing firm called Introgen; this put the firm in a position to benefit from the new center. Introgen’s founder, David Nance, is a close friend of Perry’s. He contributed $100,000 to Perry over the decade, he had previously served on the advisory committee of the tech fund awarding the $50 million, and Perry’s son, Griffin, owned Introgen stock between 2001 and 2004.

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Introgen had its main drug rejected by the FDA and declared bankruptcy shortly before the $50 million award, but Nance continued to do well by the state. In 2010, the tech fund awarded $4.5 million to his next venture, Convergen, even after a review panel rejected the application. The fund paid Nance’s daughter $70,000 for promotional work, and several fund employees went to work with Nance. Perry also provided $1.9 million in federal funds to a separate Nance venture, Innovate Texas, founded in 2008 as a sort of clearinghouse for Texas tech firms. The outfit paid Nance a six-figure salary. It is now defunct.

Corruption as defined by Transparency International is abuse of entrusted power for private gain.  Thus TI does not limit the term to cases involving politicians or government.  But surely the indictment of Governor Perry raises multiple questions about political and government corruption by this definition, and this corruption involving health care. The definition used by TI is ethical, not legal, and it is impossible to predict whether Governor Perry will be convicted.

Still, while Texas Governor Rick Perry's indictment was big news, and fodder for a lot of discussion about politicization of the criminal justice system, the multiple issues the case raises about possible health care corruption have been ignored by most major news outlets, and no one so far has labeled the case as having anything to do with "health care corruption," or words to that effect.

Former Governor Robert F McDonnell (Republican - Virginia) on Trial for Bribery and Corruption

Meanwhile, the press has been fascinated with testimony in the bribery and corruption trial of former Virginia Governor Robert McDonnell.  In 2013, the Washington Post published a long investigative report about how the Governor and his wife seemed to be promoting a dietary supplement called Anatabloc as an anti-inflammatory agent while accepting various favors from the CEO of the company that made it.  The background on the company is

[Johnnie R] Williams’s company, Star Scientific, was introducing a dietary supplement called Anatabloc, whose key ingredient is found in tobacco and other plants.

Anatabloc was crucial to the future of the company, which has been losing money for years. But the science behind the product — an anti-inflammatory the company hopes might be helpful to people with such ailments as Alzheimer’s and multiple sclerosis — was unproven.

The article described how Mr Williams paid $15,000 for the food at the Governor's daughter's wedding, and provided "rides on Williams' corporate jet, personal gifts for the first family...."   In fact,

 Over eight months during the 2009 gubernatorial election, Star Scientific donated more than $28,500 worth of air travel to McDonnell’s campaign. That commitment increased after McDonnell took office; Star reported donating nearly $80,000 in flights to Opportunity Virginia, the governor’s PAC.

Apparently in return,

Three days before her daughter’s June wedding, Maureen McDonnell flew to Florida, where she spoke at a seminar for scientists and investors interested in anatabine, the key chemical in Anatabloc, according to people who attended the conference.

The governor’s wife told the group that she supported the product and touted the pill, which is not regulated by the Food and Drug Administration, as a way to lower health-care costs in Virginia, the attendees said.

About three months after the wedding, the McDonnells and Star Scientific were together again, this time at the governor’s mansion for the official launch party for Anatabloc.

Although much of the interaction appeared to be between CEO Williams and Mr McDonnell's wife, the Post reported later in 2013,

A prominent political donor purchased a Rolex watch for Virginia Gov. Robert F. McDonnell, according to two people with knowledge of the gift, and the governor did not disclose it in his annual financial filings.

The $6,500 luxury watch was provided by wealthy businessman Jonnie R. Williams Sr., the people said. He is the chief executive of dietary supplement manufacturer Star Scientific

 Also, now that the trial is ongoing, there was sworn testimony that Governor McDonnell seemed to be helping to market Anatabloc, as per Reuters,

Virginia Governor Robert McDonnell gave a personal pitch to a state healthcare official for the dietary supplement at the heart of the former governor’s trial on corruption and bribery charges, the official testified on Monday.

Sara Wilson, director of the Virginia Department of Human Resource Management, said McDonnell pulled out a bottle of the product, Anatabloc, at a meeting she and her boss had with him in March 2012 to discuss healthcare.

McDonnell, a Republican, 'said how much it had helped him and his wife,' Wilson said under prosecution questioning on the 11th day of the federal trial.

There was also testimony that Mrs McDonnell tried to market the supplement to 2012 Republican presidential candidate Mitt Romney, as stated in a Washington Post article,

 After Virginia Gov. Robert F. McDonnell (R) endorsed Mitt Romney for president in 2012, McDonnell’s wife sought out the candidate to promote the dietary supplement now at the heart of the former first couple’s corruption trial, a onetime aide testified Monday.

Maureen McDonnell and then-Star Scientific chief executive Jonnie R. Williams Sr. showed up together at a news media session in South Carolina hoping to pitch Anatabloc to the prominent Republican, said Phil Cox, Robert McDonnell’s chief political adviser at the time.



Cox, also executive director of the Republican Governors Association, said that he put a stop to that plan but that Maureen McDonnell went on to talk up the supplement to Romney’s wife on a campaign bus. He said she told Ann Romney that the anti-­inflammatory supplement, Anatabloc, could 'potentially cure MS.'

Now this case is clearly all about allegations of health care corruption.  The allegations are that the CEO of a health supplement company provided extensive favors to a politician and his wife, who then made several attempts to market one of his products as treating and possibly curing disease.  Yet while these allegations are pretty clear, no one so far has called this a case of possible health care corruption.

By the way, in the last few weeks I also found relatively obscure mentions of two other cases involving allegations of health care corruption.  One was a case in which an Ohio Indiana state representative took actions on behalf of a health care real estate investment trust that he, his family members own in part, and whose board includes one major political donor (see the AP story via the Providence Journal).  The other was a case in which the West Virginia Attorney General had inherited a case from the former office holder involving a drug and medical supply company for which his wife is a lobbyist (see the Charleston Gazette story). 

Summary 

As we have said before, when health care corruption is actually discussed in polite circles, including the scholarly literature about medicine and health care, the discussion usually refers to corruption elsewhere.  In particular, in developed countries, discussion of health care corruption usually focuses on less developed countries. 

Now we see that when the issue clearly is the possibility of health care corruption, even the news media will avoid using such a term.  Articles may describe what amount to health care corruption.  They may refer to it as corruption.  But they will not pair that term with health care (or medicine, or anything similar).  The subject of health care corruption remains taboo.  As long as we do not discuss it, some can preserve the illusion that it does not exist.  Thus the anechoic effect continues.

So to repeat an ending to one of my previous posts on health care corruption....  if we really want to reform health care, in the little time we may have before our health care bubble bursts, we will need to take strong action against health care corruption.  Such action will really disturb the insiders within large health care organizations who have gotten rich from their organizations' misbehavior, and thus taking such action will require some courage.

ADDENDUM (24 August, 2014) - the state legislator referred to above in the story about the health care REIT was actually from Indiana, not Ohio.  This was corrected above. 

ADDENDUM (24 August, 2014) - this post was re-posted on the Naked Capitalism blog.  Thanks to a comment on that to alert me to the error noted above.

12:17 PM

"Phony Consulting and Royalty Agreements," "Chocolate" Bribes, a Sales Representative Doubling as a Stripper, Oh My - Three Settlements for Othrofix

On this US election day, we seem to be in a mini-squall of cases involving unethical, deceptive, and now very colorful marketing practices used to push drugs and devices. 

We recently discussed a settlement of allegations of deceptive marketing practices and kickbacks by pharmaceutical company Boehringer-Ingelheim (here), a US congressional report alleging deceptive influence by Medtronic marketers over ostensibly scholarly publications (here), a study of documents released after litigation that appear to show how Pfizer had a systemic marketing campaign that used controlled trials as deceptive marketing vehicles (here),

Now three separate settlements by device/ biotechnology company Orthofix have come to light.

Settlement 1 - "Phony Consulting and Royalty Agreements," and Prostitution as Kickbacks, and a Sales Representative as Stripper

A Bloomberg article outlined Orthofix's two latest settlements.  The newest seems the most audacious, or bodacious,

Orthofix International NV, (OFIX) a maker of spinal implants, agreed to pay the U.S. $30 million to settle claims that a subsidiary paid illegal kickbacks and provided prostitutes to doctors in return for orders.

The subsidiary, Blackstone Medical Inc., paid kickbacks to spinal surgeons in the form of phony consulting and royalty agreements, and travel and entertainment to entice them to use its products, the U.S. Justice Department said in a statement today.

This case adds to the mounting pile of evidence that many of the financial relationships among physicians and health care academics and drug, device, biotechnology and other health care corporations are not merely conflicts of interest incidental to innovation.  In particular, Bloomberg reported,

[Whistle blower Susan] Hutcheson alleged that officials of Blackstone, purchased by Orthofix in 2006, violated kickback and false-claim laws by setting up a system to compensate doctors under sham consulting agreements and phony research grants, according to court filings. The sales executive said the company also offered lavish travel opportunities to doctors who implanted its products, the filing said.

Some doctors were paid as much as $8,000 a month under the fictitious consulting agreements, Hutcheson said in her suit, filed in federal court in Massachusetts. Orthofix’s U.S. unit is based in Lewisville, Texas. Some also received phony research grants for as much as $18,000, the suit added.

Then there was this colorful detail,

Blackstone salespeople also were urged to take surgeons out for expensive dinners, escort them to strip clubs and pay for liaisons with prostitutes to get their business, Hutcheson said in the suit.

One female sales manager in Dallas agreed to disrobe and join strippers on stage at the request of two surgeons to whom she was pitching the company’s products, Hutcheson said in her suit. The sales manager was demoted, not fired, over the incident, Hutcheson said in the suit.

We often hear from drug, device, and biotechnology companies that their sales efforts are all about providing needed information to physicians, information they could not otherwise obtain.  In this case, the information appeared to be rather anatomical, but also rather personal.

The AP coverage of this store (here, via Businessweek) also noted that the settlement involved a corporate integrity agreement.  Neither story mentioned any admissions made by the company.  As far as I could tell, no corporate executives suffered any consequences as part of this settlement.

Settlement 2 - Fraud, Obstructing the US Government, and Less Colorful Kickbacks to Promote Bone Growth Stimulators

The article did nor provide any helpful photographs, but it did note that Orthofix recently made a second settlement.

The settlement’s approval comes after Orthofix officials agreed to pay $42 million to resolve a separate whistle-blower suit and a criminal probe of allegations it paid kickbacks to doctors who used its bone-growth stimulators.


One of its units will plead guilty in federal court in Boston federal court to a single felony count of obstructing a U.S. government audit and pay a $7.8 million fine, according to a June 7 regulatory filing. Orthofix also will pay $34.2 million to resolve whistle-blower claims that the company defrauded the federal Medicare program over bone-growth stimulators, which patients wear after surgery to speed healing.

Amazingly, unlike the first settlement, and unlike most settlements we have discussed,

Five Orthofix employees have pleaded guilty to criminal charges in connection with probes of the kickback allegations. Thomas Guerrieri, an Orthofix vice president, pleaded guilty in April to violating the federal anti-kickback statute by setting up fake consulting agreements for doctors who used the company’s products.

Note that we discussed a surgeon who pleaded guilty to accepting kickbacks from multiple device companies, including the Blackstone subsidiary of Orthofix, here in 2008.

Settlement 3 - "Chocolate" Bribes to Mexican Government Officials

Finally, the AP story noted in passing "the recent resolution of a federal Foreign Corrupt Practices action" against the company.  I could not find any news coverage of that, but in July there did appear a SEC press release.

The Securities and Exchange Commission today charged Texas-based medical device company Orthofix International N.V. with violating the Foreign Corrupt Practices Act (FCPA) when a subsidiary paid routine bribes referred to as 'chocolates' to Mexican officials in order to obtain lucrative sales contracts with government hospitals.

The SEC alleges that Orthofix’s Mexican subsidiary Promeca S.A. de C.V. bribed officials at Mexico’s government-owned health care and social services institution Instituto Mexicano del Seguro Social (IMSS). The 'chocolates' came in the form of cash, laptop computers, televisions, and appliances that were provided directly to Mexican government officials or indirectly through front companies that the officials owned. The bribery scheme lasted for several years and yielded nearly $5 million in illegal profits for the Orthofix subsidiary.


Orthofix agreed to pay $5.2 million to settle the SEC's charges.

Also,

Orthofix also disclosed today in an 8-K filing that it has reached an agreement with the U.S. Department of Justice to pay a $2.22 million penalty in a related action.

Summary  

So the box score here includes settlements of legal actions alleging bribery and kickbacks, a corporate integrity agreement, a guilty plea by a company subsidiary to obstructing the US government, and multiple guilty pleas by company executives.  The bribes and kickbacks were provided in various colorful forms.  

The variety of unethical behaviors unearthed suggests a company with a seriously deranged corporate culture.  Whether the various actions taken against it, including the very unusual punishments meted out to some of its apparently mid-level executives will change its behavior, or serve as a lesson to other companies and their leaders is not clear.  Whether they are sufficient to suggest anyone should trust this company, its leaders, or its products seems questionable.   

This story adds to our various compilations of legal settlements and tales of crime, including bribery, kickbacks and fraud involving major health care organizations which suggest serious, deep afflictions within the culture of our commercialized health care system.  Yet almost nowhere, except here on Health Care Renewal are there calls for serious reforms to restore trust in our health care organizations and their leaders.

As we have said endlessly, up to now, such legal settlements seemingly have had no effect on the bad behavior of big health care organizations, while they continually erode trust in these organizations and their leadership, and trust in physicians to put patients ahead of personal gain.

Furthermore, these cases seem to be part of a larger social problem. It seems that nowadays the leadership of large, powerful organizations feels free to promote their own interests using psychologically sophisticated but deceptive marketing and public relations strategies no matter what their effect on the public welfare.

Again as we have said all too many times before, 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.

Maybe after all the election hoopla dies down here in the US, we can finally have a serious conversation about health care reform that will make our health care system more trustworthy. 

2:28 PM

An Even Bigger Golden Parachute for Captain Outrageous

In 2009, I first posted about the amazingly colorful leadership and governance problems at a small hospital system in Massachusetts. 

Background: Northeast Health System

The story of Northeast Health System then included  leaders who solicited money from the community but concealed what they were doing from the same community, an adolescent pregnancy pact after the hospital system refused to provide confidential birth control information at the high school clinic it ran, a hospital vice-president accused of art theft, various cuts, some concealed, of medical services, accusations of conflicts of interest affecting the board of trustees, and no-confidence votes by nurses and physicians. Finally, Stephen Laverty, the CEO held responsible for much of the mess, resigned and things quieted down a bit.  However, he left a system in deficit, leading to further lay-offs, (e.g., see this story in the Boston Globe).  And the vice-president accused of art theft was also "arraigned on bribery and larceny charges" (also per the Boston Globe.)

Nonetheless, in 2010, it was revealed that Mr Laverty left with a golden parachute worth more than $1 million.  But wait, now there is more.

A Guilty Plea
In May, 2012, per the Salem News,

A former associate vice president at Beverly Hospital pleaded guilty yesterday to soliciting bribes and kickbacks from hospital contractors and stealing valuable paintings and other antiques while overseeing a $50 million renovation of the facility.

Paul Galzerano, 60, was sentenced to serve 18 months of a two-year jail term on four larceny counts and two years of probation on two counts of commercial bribery during a hearing yesterday at Salem Superior Court.

Yet More Severance Payments


But wait, there is even more. Yesterday, the Gloucester Times reported about Mr Galzerano's former boss,

Nearly four years after he resigned under fire, former Northeast Health System CEO Stephen Laverty is still collecting big paychecks from his former employer.

Laverty was paid $573,348 in severance in 2011, the second year in a row he has received buyout money from Northeast, the parent nonprofit corporation to Beverly Hospital and Gloucester’s Addison Gilbert Hospital, and a corporation that was essentially merged with Lahey Clinic to become the new Lahey Health System under an agreement that gained the necessary state approvals earlier this year.

Laverty's total severance payments have reached "more than $1.56 million over those two years." Whether the payments have ended is not clear. Attempts to discover why payments continued and became so large revealed only,

Beverly Hospital released a statement Monday saying, 'We cannot comment on Mr. Laverty or the terms of any agreements between the company and past employees.'

Summary

For a relatively small hospital system, Northeast Health System has produced an enormous example of the perverse incentives given to top executives of health care organizations. Mr Laverty has been made a millionaire despite what the Gloucester Times called in its news article a "tenure plagued by acrimony and controversy," and leadership previously described in a Gloucester Times editorial as "arrogant, dictatorial," and a history of what only can be described as outrageous management failures. Furthermore, the money he received came not from rich stockholders, but from a struggling community hospital system.

The ability of top executives of many, probably most health care organizations to collect bloated paychecks out of proportion to, if not despite their performance attracts the wrong people to lead these organizations, and provides incentives for even the right people to lead badly. 

Until we make health care leaders accountable, and until their incentives reflect their ability to uphold the health care mission, expect more unaccountable leadership that subverts the health care mission, and hence continually rising costs, declining access, and deteriorating quality. 

11:16 AM

Pfizer's Pforeign Pfiasco

Quelle surprise.  Giant international pharmaceutical company Pfizer managed to go for nearly 10 months without announcing a major legal settlement.  However, this month, as reported by Bloomberg, it was time for Pfizer to settle again.  The basics were:

Pfizer Inc., the world’s biggest drugmaker, agreed to pay $60.2 million to settle foreign bribery cases it brought to U.S. authorities involving alleged payments paid by employees and agents of subsidiaries.

Pfizer entered into two agreements with the Securities and Exchange Commission and the New York-based drugmaker reached a deferred prosecution accord with the Department of Justice, according to filings today in federal court in Washington.

Bribery

This case is worth perusing because of how it documents what the US government called not merely deceptive, but corrupt practices used by Pfizer to sell drugs. The practices were widespread around the world:

The settlements announced today include Pfizer operations in eight countries: Bulgaria, Croatia, Kazakhstan, Russia, Italy, China, the Czech Republic and Serbia. The Wyeth settlement, over its nutrition business, was for China, Indonesia, Saudi Arabia and Pakistan.

The practices involved, not to put too fine a point on it, bribing doctors. Furthermore, as part of the settlement Pfizer apparently admitted to some of the specific practices alleged by the government:

In Bulgaria, local representatives spent $28,000 to invite government doctors on 'incentive trips' to Greece, as a reward for the physicians who were the biggest prescribers of Pfizer’s products, Pfizer admitted according to the Justice Department filing. They also paid $17,000 to send doctors to medical conferences, again in exchange for commitments to prescribe Pfizer drugs.

In Croatia, the unit there had used a consulting agreement with a government doctor to help influence which drugs were allowed to be sold in the country, paying the physician in cash and travel expenses, Pfizer admitted.

Pfizer also admitted to what was called the 'hospital program,' in Russia, where doctors were given a 5 percent kick- back on certain drugs prescribed.

'Pfizer Russia used the Hospital Program to make cash payments to individual government healthcare professionals to corruptly reward past purchases and prescriptions of Pfizer products, and to corruptly induce future purchases and prescriptions,' the Justice Department said in the filing. Pfizer’s Russian unit also used intermediary companies to pay off doctors and government officials, the company admitted.

No Individual Penalties

Despite the shamefulness of these practices, as is now distressingly usual (look here), no individual seems to be obligated to suffer any penalty or negative consequences as a result of this settlement. While the US government alleged criminal behavior, beyond the fines imposed on the company, further prosecution will be deferred:

The Justice Department charged the Pfizer HCP Corp. unit with two criminal counts, conspiracy to violate the Foreign Corrupt Practices Act and a violation of the FCPA’s anti-bribery provisions. Prosecutors agreed to defer prosecution and drop the charges after two years if Pfizer continues to cooperate and take remedial steps.

The article contained a curious statement seemingly asserting that the payments were somehow made independent of any actions by individuals at Pfizer:

The SEC said the payoffs were made 'without the knowledge or approval of officers or employees of Pfizer, but the inaccurate books and records of Pfizer subsidiaries were consolidated in the financial reports of Pfizer.'

So were the payments made by machines acting autonomously? or by ghosts? Maybe this was just a typo. However, note that the de rigeur statement by Pfizer's internal counsel was phrased so as to imply the actions somehow occurred outside of the organization:

'The actions which led to this resolution were disappointing, but the openness and speed with which Pfizer voluntarily disclosed and addressed them reflects our true culture and the real value we place on integrity and meeting commitments,' Amy Schulman, Pfizer’s general counsel, said in an e-mailed statement.

Summary

This latest settlement reaffirms the poor ethical culture now prevalent in major health care organizations throughout the world.  It also affirms how deeply unethical the culture has become at some of our largest and most prominent and influential health care organizations.  This settlement is only the latest evidence of ethical missteps by Pfizer's leadership.

In the beginning of the 21st century, according to the Philadelphia Inquirer, Pfizer made three major settlements,

October 2002: Pfizer and subsidiaries Warner-Lambert and Parke-Davis agreed to pay $49 million to settle allegations that the company fraudulently avoided paying fully rebates owed to the state and federal governments under the national Medicaid Rebate program for the cholesterol-lowering drug Lipitor.

May 2004: Pfizer agreed to pay $430 million to settle DOJ claims involving the off-label promotion of the epilepsy drug Neurontin by subsidiary Warner-Lambert. The promotions included flying doctors to lavish resorts and paying them hefty speakers' fees to tout the drug. The company said the activity took place years before it bought Warner-Lambert in 2000.

April 2007: Pfizer agreed to pay $34.7 million in fines to settle Department of Justice allegations that it improperly promoted the human growth hormone product Genotropin. The drugmaker's Pharmacia & Upjohn Co. subsidiary pleaded guilty to offering a kickback to a pharmacy-benefits manager to sell more of the drug.

Thereafter, Pfizer paid a $2.3 billion settlement in 2009 of civil and criminal allegations and a Pfizer subsidiary entered a guilty plea to charges it violated federal law regarding its marketing of Bextra (see post here).  Pfizer was involved in two other major cases from then to early 2010, including one in which a jury found the company guilty of violating the RICO (racketeer-influenced corrupt organization) statute (see post here).  The company was listed as one of the pharmaceutical "big four" companies in terms of defrauding the government (see post here).  Pfizer's Pharmacia subsidiary settled allegations that it inflated drugs costs paid by New York in early 2011 (see post here).   In March, 2011, a settlement was announced in a long-running class action case which involved allegations that another Pfizer subsidiary had exposed many people to asbestos (see this story in Bloomberg).  In October, 2011, Pfizer settled allegations that it illegally marketed bladder control drug Detrol (see this post).

Thus, it appears on 10 separate occasions between 2002 and 2012, Pfizer settled allegations of, pleaded guilty to, or was convicted for actions that represented seriously unethical behavior.  Note that these included a conviction that found the company to be a racketeer-influenced corrupt organization.

Yet the company has not failed or been restructured, and none of its leaders has ever faced any negative consequences.  In fact, last year its CEO made over $18 million, up from over $6 million the year before (see this post).   

So obviously it is not just that one company's culture has become seriously corrupt.  We seem to live in such a corrupt nation, and maybe such a corrupt global society that such corrupt cultures thrive in our major corporations and organizations.  Despite stories like this in health care, just like in finance despite the global financial collapse, as Charles Ferguson said at the Oscar awards last year, " not a single ... executive has gone to jail, and that's wrong."




Unless we hold leaders of health care organizations accountable for bad behavior and corruption, expect bad behavior and corruption to get worse.  Until we have political leaders with the courage to stand up for honesty and the law, expect continued dishonesty and the law to continue to be trampled by the rich and powerful. 

10:32 AM