Planned Obsolescence Disguised as Innovation, Oligopoly Disguised as a Free Market, and the Enrichment of Oligarchs

The New York Times published another article in its series on the high cost of US health care.  This one, focused on the care of type 1 diabetes mellitus and other chronic diseases, shines some light on the business management practices that now determine how our health care system functions, or not, and implies who benefits the most from them.

Planned Obsolescence Disguised as Innovation

The article first discussed the brave new world of type 1 diabetes treatment.  The introductory theme was:

Today, the routine care costs of many chronic illnesses eclipse that of acute care because new treatments that keep patients well have become a multibillion-dollar business opportunity for device and drug makers and medical providers.

Much of modern diabetes treatment seems to depend on medical devices and disposable medical supplies:

That captive audience of Type 1 diabetics has spawned lines of high-priced gadgets and disposable accouterments, borrowing business models from technology companies like Apple: Each pump and monitor requires the separate purchase of an array of items that are often brand and model specific.

A steady stream of new models and updates often offer dubious improvement: colored pumps; talking, bilingual meters; sensors reporting minute-by-minute sugar readouts. [Diabetes patient] Ms. Hayley’s new pump will cost $7,350 (she will pay $2,500 under the terms of her insurance). But she will also need to pay her part for supplies, including $100 monitor probes that must be replaced every week, disposable tubing that she must change every three days and 10 or so test strips every day.

Of course, the device and supply manufacturers claim that the high prices reflect the value of the wondrous new innovations:

Companies that produce the treatments say the higher costs reflect medical advances and the need to recoup money spent on research.

Yet now the Times reporter was able to find physicians who claim the "innovations" are really just the latest version of planned obsolescence:

Diabetes experts say a good part of what companies label as innovation amounts to planned obsolescence. Just as Apple customers can no longer buy an iPhone 3 even if they were content with it, diabetics are nudged to keep up with the latest model.

For example,

Those companies spend millions of dollars recruiting patients at health fairs, through physicians’ offices and with aggressive advertising — often urging them to get devices and treatments that are not necessary, doctors say. 'They may be better in some abstract sense, but the clinical relevance is minor,' said Dr. Joel Zonszein, director of the Clinical Diabetes Center at Montefiore Medical Center.

'People don’t need a meter that talks to them,' he added. 'There’s an incredible waste of money.'

Pharmaceutical companies have also discovered this model.

insulin ... has been produced with genetic engineering and protected by patents, so that a medicine that cost a few dollars when Ms. Hayley was a child now often sells for more than $200 a vial, meaning some patients must pay more than $4,000 a year.

In particular,

Synthetic human insulin is safer for patients, who sometimes developed reactions to animal insulin. But it is made by only three companies: Eli Lilly, Sanofi and Novo Nordisk. Manufactured in microbes, each one’s product has minor dissimilarities that reflect the type of cell in which it was made. Since the companies owned the cell lines, it is nearly impossible for other companies to make exact copies or even similar versions that would be cheaper, even once the patents expire. And the pharmaceutical companies defend the patents ferociously.

What’s more, the three companies continued to refine their product, adding chemical groups that made the insulin absorb somewhat more quickly or evenly, for example. They are called insulin analogues, and their benefits are promoted tirelessly to doctors and patients.

Of course, the pharmaceutical companies also claim that it's all about innnovation,

Dr. Todd Hobbs, chief medical officer of Novo Nordisk, defended the rising prices of insulin, linking them to medical benefits. 'The cost to develop these new insulin products has been enormous, and the cost of the insulin to the consumer in developed countries has risen to enable these and future advancements to occur,' he wrote in an email.

 Not everyone is convinced,

'The insulins are tweaked for minor benefits that may help a small number of patients with difficult-to-control diabetes, and result in major price increases for all,' [Kings College, London, UK Professor] Dr. Pickup said. Because of analogues, he added, Britain’s National Health Service has had to spend 130 percent more on insulin in the past five years.

In the United States, said Dr. Zonszein at Montefiore, the price of Humalog, Lilly’s analogue insulin, was typically two to four times that of its older human insulin line, called Humulin. 'There is not a lot of difference between Humulin and analogues,' he said, but he noted that Humulin was getting 'hard to find.' Sanofi Aventis has stopped selling its older product in the United States, and Mr. Kliff, the financial analyst, said other companies were likely to follow suit, effectively forcing patients to use the costlier versions.

The arguments about valuable innovation also do not explain why the prognosis of diabetes in the US does not seem to reflect all the money we spend on the disease,

Complication rates from diabetes in the United States are generally higher than in other developed countries. That is true even though the United States spends more per patient and per capita treating diabetes than elsewhere, said Ping Zhang, an economist at the Centers for Disease Control and Prevention.

The high costs are taking their toll on public coffers, since 62 percent of that treatment money comes from government insurers. The cumulative outlays for treating Type 1 and Type 2 diabetes reached nearly $200 billion in 2012, or about 7 percent of America’s health care bill.

So to summarize, there is considerable evidence that companies that make drugs and devices to manage type 1 diabetes constantly provide "innovations," yet most are minor changes that encourage obsolescence of previous products, but do not provide important increases in benefits or reductions in harm for patients. 


Oligopoly Disguised as a Free Market

Many in the US sing the praises of our supposed free-market health care system.  As noted above however, the insulin market is an oligopoly, dominated by three companies.  The diabetes device market is also dominated by a few companies, and in particular, the insulin pump market is dominated by a single company,

Medtronic is the dominant insulin pump manufacturer, serving 65 percent of American patients and the majority of those worldwide. Though smaller companies sell cheaper pumps, it is hard to make inroads: Once familiar with the Medtronic system and its extensive support network for troubleshooting problems, patients are reluctant to switch. Doctors are leery of prescribing equipment from a new company that may be out of business in a year; their office computer may not sync with the new software anyway.

Of course, Medtronic public relations will justify it all again based on innovation,

Medtronic declined to talk about specific prices, but said a core tenet was to make only 'a fair profit.' Amanda Sheldon, a spokeswoman, added: 'We are committed to reinvesting in research and development of new technologies to improve the lives of people with diabetes, and our current pricing structure ensures that we can bring new products to market.'

The article also discussed the prices of treating chronic diseases other than diabetes.  For example, see how a nominally non-profit hospital priced treatments for chronic diseases,

Dr. Kivi was on high doses of steroids for debilitating joint pain that left him unable to walk at times.

But when his last three-hour infusion at NYU Langone Medical Center’s outpatient clinic generated a bill of $133,000 — and his insurer paid $99,593 — Dr. Kivi was so outraged that he decided to risk switching to another drug that he could inject by himself at home. 

However,  this pricing appears to have been facilitated by the hospital's increasing market domination generated by its purchase of physician practices,

He had moved his care to NYU Langone to follow his longtime doctor, who had moved her practice from a nearby hospital where the same infusion had been billed at $19,000. The average price that hospitals paid for Dr. Kivi’s dose of Remicade late last year was about $1,200, according to Medicare data.

So in summary, a few companies now dominate the production of drugs and devices for the management of diabetes, and a few large hospitals may increasingly dominate the treatment of particular chronic diseases.  Such oligopolists are able to increase prices without improving treatment to or outcomes of patients.

Enrichment of the Oligarchs

This example shows how the current US health care system is dominated by huge organizations, mostly for-profit corporations but including some nominally non-profit corporations that act similarly.  They loudly proclaim innovation, but much of that innovation seems to provide few benefits to patients, and actually appears to be planned obsolescence.  The result is high and ever-rising prices. So if patients do not benefit from this, who does?

It does not appear to be the health care professionals,

Meanwhile, as the price of supplies rises, endocrinologists remain among the lowest-paid specialists in American medicine, meaning severe physician shortages in many areas and long waits to see a doctor.

We  have seen other examples of how leaders of the big health care organizations have become as rich as royalty.  Therefore, let us consider the pay of the leaders of the organizations mentioned above.  I will focus on the two US based corporations, Eli Lilly and Medtronic, and the New York hospital, NYU Langone Medical Center.

Eli Lilly

According to the company's 2014 proxy statement, the 2013 total compensation of its five highest paid hired executives was

- John C Lechleiter PhD, CEO                                      $11,217,000

- Derica W Rice, CFO                                                   $5,176,822

- Jan M Lundberg, PhD, EVP, Science and Technology   $4,774,535

- Michael J Harrington, General Counsel                          $3,174,222

- Erico A Conterno, President Lilly Diabetes                    $3,009,041

Note that all of these executives save Mr Harrington have also amassed more than 100,000 shares of company stock, and Dr Lechleiter has amassed more than 1,000,000.

It should be no surprise, given our recent discussion (e.g., here) of the currently symbiotic relationship among top health care corporations and academic medicine, that several of the members of the Lilly board of directors that has exercised stewardship over the company, and is thus responsible for these gargantuan compensation packages and the business practices discussed above are top academic leaders.  These include,

- Alfred G Gilman, MD, PhD, Regental Professor Emeritus, recent (until 2009) executive vice presdient, provost, and dean of medicine, University of Texas Southwestern 

- William G Kaelin Jr, MD, Professor of Medicine, Associate Director of Basic Science, Dana-Farber Cancer Center, Harvard University

- Marschall S Runge MD, Executive Dean and Chair of the Department of Medicine, University of North Carolina Medical School

- Katherine Baicker PhD, Professor of Health Economics, Harvard University School of Public Health  (I must note that Prof Baicker is also - amazingly - on the Medicare Payment Advisory Committee, MEDPAC).

- Ellen R Marram, Trustee, New York-Presbyterian Hospital

- Ralph Alvarez, President's Council, University of Miami

- R David Hooper, Trustee, Children's Hospital of Colorado

- Franklyn G Pendergast MD PhD, Professor, Mayo Medical School

All but the newest directors were paid at least $250,000 a year by the company (and thus by the executives the directors are supposed to supervise), and all but the newest directors had accumulated tens of thousands of shares of stock or the equivalent as pay for their services.


Medtronic

Similarly, according to the company's 2013 proxy (the latest now available), CEO Omar Ishrak made $8,975,866 in 2013, and the next four highest paid executives all made over $2,500,000 each.   Mr Ishrak owned or could acquire the equivalent of more than 500,000 shares of stock, and the other top paid executives owned of could acquire from over 100,000 to over 1,000,000 shares of stock.

Again, the executives were nominally supervised by a board of directors that included an academic and non-profit leader, Dr Victor J Dzau, MD former chancellor for health affairs at Duke University, and president-elect of the Institute of Medicine (note that we discussed Dr Dzau's conflicts of interest most recently here).  It also included a former government leader, Michael O Leavitt, former US Secretary of Health and Human Services; and a hospital leader, Preetha Reddy, Managing Director of Apollo Hospitals Enterprise Limited (India). 

NYU Langone Medical Center

The Medical Center's 2011 US form 990 is old, but the latest available, and is remarkably obscure, omitting, for example, mentioning the titles of any of the people listed as highest paid officers and employees.  The current CEO, was listed as receiving total compensation of just over $2.000,000.  Four individuals then received over $1,000,000.  The 990 form also mentioned that the Medical Center provided some individuals with first class travel, tax gross-up payments, housing allowances, and reimbursement for personal services.  Neither the 990, nor the center's web-site makes all the possible conflicts of interest of its trustees obvious.   

So in summary, the large organizations, for-profit and non-profit, that are able to greatly increase their prices through planned obsolescence disguised as innovation, and oligopoly disguised as free markets, are able to make their top executives very rich, and also enrich those who are supposed to exercise stewardship over them. 


Summary

An extensive journalistic investigation revealed how certain aspects of chronic care in the US health care system are dominated by a few large organizations.  These organizations are able to charge very high prices, mainly through market domination, and with the aid of marketing and public relations that tout planned obsolescence as valuable innovation.  The leaders of these organizations have become wealthy, often fabulously so.  This state of affairs has not been challenged by those who are supposed to provide stewardship, including many prominent academics.

The US health care system is the most expensive, on a per capita basis, in the world, and far more expensive than that in any other developed country.  Yet there is no evidence that its results are superior to those of other countries.  What evidence there is suggests in fact that our results are mediocre at best.

The current example suggests how the US system differs from those of other countries.  It has an ostensible free market focus.  Yet the system appears more to be an oligopoly, with most of its market components dominated by a few large organizations, run as an oligarchy, by a small, overlapping in-group of managers, executives and their cronies, with elements of corporatism, that is with the cooperation of, rather than regulation by government entities and leaders

A real free market health care system would include a level playing field.  This could only be achieved by the government acting as a fair umpire, not a crony.  Anti-competitive practices would have to end.  Oligopolies would have to be broken.  Deceptive marketing and public relations would have to be exposed.  Leaders would have to be made accountable, especially for putting patients' and the public's health ahead of their own enrichment.  All this would be horribly difficult, as the oligarchs have amassed much money and control, and would oppose, possibly violently, any effort to challenge them.  If we do not challenge them in the US, however, not only will our health care continue to become ever more expensive, less accessible, and less beneficial to patients, but we will all cease to be citizens of one of the first real democracies, and end up serfs instead. 

As the Door Turns - The Ongoing Interchange of Leaders Among Large Health Care Corporations, Those who Represent Them, and Government

The revolving door is the two-way conduit between leadership positions in government and industry that helps to enable health care, and maybe all of society, to be run by a group of insiders who can move easily between large or influential health care organizations and the government bodies that are supposed to regulate, oversee, and enforce laws relevant to them.

It has been three months since our last update on the revolving door as it applies to health care, so here is our latest effort, according to the chronological order of the initial media coverage. 

Foundation Leader with Ties to Eli Lilly and to Former Synthes CEO to the White House

As reported by the New York Times in December, 2013, new White House senior adviser John D Podesta, who founded and ran the nominally non-profit organization Center for American Progress, had multiple ties to health care corporations and their leaders, e.g., to pharmaceutical maker Eli Lilly,

The pharmaceutical giant Eli Lilly was also a donor because of what it said was the Center for American Progress’s advocacy for patients’ rights — and just as the debate heated up in Washington over potential cuts to the Medicare program that covers Lilly’s most profitable drugs.

Although, for the record,

Neera Tanden, the president of the Center for American Progress, said in an interview that the group frequently takes positions that conflict with the corporate agendas of its donors, including companies like Eli Lilly. 

Also an important but somewhat less obvious linkage was described thus by the Times, 

 In addition, he earned $90,000 as a consultant to the HJW Foundation of West Chester, Pa, according to an aide working with him on the disclosure report he is preparing. HJW is a nonprofit group run by Hansjörg Wyss, a billionaire businessman and major contributor to the Center for American Progress.

What the Times did not say about Mr Wyss was that he is the former CEO of Synthes, a Swiss based medical device company, since merged into Johnson and Johnson   As we wrote in 2011,

 Synthes USA, the American branch of a Swiss based device company, first settled charges that it had been paying surgeons with company stock to use its products in its clinical trials in 2009 (see this post).  Then prosecutors alleged that these were not really rigorous trials. Instead, for marketing purposes, executives of Synthes subsidiary Norian persuaded surgeons to use its Norian XR product in a case series of spine surgery patients and then publish the results.  Three patients who received the product for this 'off-label' use died.  This scheme was alleged to have been directed by "person no. 7," whom journalists identified as the company CEO, Hansjorg Wyss (see post here.)   In an unusual move, the prosecutors indicted four company executives, who then pleaded guilty.  They did not take any further action against Wyss, who turns out to be one of the world's richest men (see post here).

However, at the time the former executives were sentenced, one of the executive's attorney's claimed,

Wyss was the undisputed leader of the company. 'He made some of the very critical decisions that put the trials on the ultimate pathway,' Gurney said. 'The culture of an organization is set at the top.'

Former Deputy White House Press Secretary to Global Strategy Group, Whose Clients Include Pfizer, Purdue Pharma, and WellPoint

As reported by the National Journal in December, 2013,

Bill Burton
Old gig: Deputy White House press secretary
New gig: Formed and ran Priorities USA Action, a super PAC that raked in more than $75 million during the 2012 campaign; recently joined the public affairs firm Global Strategy Group as a managing director. Clients include GE, Cisco, American Express, Comcast, and Pfizer.

Other health care clients include health insurance company Empire BCBS, pharmaceutical company Purdue Pharma, and for-profit health insurance company WellPoint

Former National Health Information Technology Coordinator to Get Real Health

As reported by Government HealthIT in February, 2014,

Three months after leaving the federal government, [former National Coordinator for Health Information Technology] Farzad Mostashari, MD, is joining the board of directors at the patient engagement company Get Real Health.

The big-thinking, bow-tied public health veteran is currently studying accountable care policies full-time at the Brookings Institution, and said he’s joining the Get Real Health board to help it '‘stay’ real as it innovates and serves patients and providers.'

The Rockville, Maryland-based company was founded in 2000, starting out as a connected health consulting outfit and then, after working with Microsoft’s HealthVault in 2007, launching its own health technology in 2012, the InstantPHR patient engagement platform.

From CareScience Inc to National Coordinator for Health Information Technology to Health Evolution Partners

The article about Dr Mostashari also mentioned in passing a more complicated set of transitions involving an earlier national coordinator for health care information technology.   

Mostashari is not the only former national coordinators to step into the health IT private sector after federal service. David Brailer, MD, the first appointee to the role of the national coordinator for health IT, is now running the San Francisco private equity firm Health Evolution Partners.

But in fact, according to his rather glowing Wikipedia entry, Dr Brailer also came from the commercial health care IT industry,

 In 1992, Brailer left academia and founded a company spun out of his Ph.D. thesis, inventing ways to measure health-care quality. This became CareScience Inc., a Philadelphia software firm that helped hospitals improve efficiency and prevent errors. Under Brailer, CareScience established the nation's first health care Application Service Provider (ASP). Brailer led the company through several financings, strategic partnerships, an initial public offering in 2000, and sale to global software firm Quovadx in 2003.

Then, in 2004,

Brailer was appointed as the first National Health Information Technology Coordinator, pursuant to an executive order by President George W. Bush on April 27, 2004, which called for widespread deployment of health information technology within 10 years.

According to his Health Evolution Partners biography, Dr Brailer is also now a member of the boards of directors of American Optical Services, CenseoHealth, Optimal Radiology, and Walgreen Co.

From Aide to Congressman Young to a Lobbying Firm with Health Care Clients Then to Congress

According to the Tampa Bay Times, yesterday Republican David Jolly won a special election to a congressional seat for Florida.  The article noted that Mr Jolly was "once an obscure aide to the late Republican U.S. Rep. C.W. Bill Young and then a Washington lobbyist,..."

His past work was described in more detail in a post on the Republic Report blog,

David Jolly, the Republican congressional candidate vying for the special election in Florida next week, has not only made a career out of lobbying. Records reviewed by Republic Report show that Jolly’s clients won millions of dollars in taxpayer earmarks from his old boss, the late Rep. C.W. 'Bill' Young (R-FL), an appropriator known for his lavish use of the earmarking process. 

Futhermore,

Two of the firms that hired Jolly as a lobbyist - BayCare Health Systems and Alakai Defense Systmes - won lucrative earmarks from Young while paying Jolly to influence the committee where Young was a senior member.

In 2009, BayCare Health Sytems retained Jolly and another former Young staffer named Douglas Gregory.  Later that year, Young secured a $1 million earmark for BayCare Health Systems for 'facilities and improvements.'

Summary

Note that the revolving door does not seem to discriminate according to political party or ideology.  The cases above involved both Republicans and Democrats. But the revolving door does discriminate against the not well connected, because it seems to provided preferred posts in the upper echelons of government for industry insiders, and preferred posts in the upper echelons of industry for government insiders. 

As we have said many times before, the constant interchange of health care insiders among government, large health care corporations, and the lobbying and legal firms which represent them certainly suggests that health care, like many other sectors, seems to be run by an amorphous group of insiders who owe allegiance neither to government nor industry.

However, those who work in government are supposed to be working for the people, and those who work on health care within government are supposed to be working for patients' and the public health.  If they are constantly looking over their shoulders at potential private employers who might offer big checks, who indeed are they working for?

Attempts to turn government toward private gain and away from being of the people, by the people, and for the people have no doubt been going on since the beginning of government (and since the Constitution was signed, in the case of the US).  However, true health care reform  would require curtailing the severe sorts of conflicts of interest created by the revolving door.

Real heath care reform would require  multiyear cooling off periods before someone who worked in the commercial world can get a job in a government whose work has direct effect on his or her previous employer or industry sector, and before someone who worked in government whose work had direct effect on a particular economic sector can accept a job for a company in that sector.   

'Tis the Season for Legal Settlements: GlaxoSmithKline, Eli Lilly, Orthofix, Sanofi all Settle

Reports of legal settlements by big health care organizations tend to dribble out towards the end of the year, maybe in a rush to finalize the year's accounting, maybe because the news will not register as well at times when people are distracted by holidays.  Here is a round-up in alphabetical order of some recent settlements of interest made by drug and device companies.

GlaxoSmithKline

Earlier this year GSK made the largest settlement, in monetary terms, ever by a pharmaceutical company (see this post).  At the end of the year it made two more.  Neither got much media attention.  The first was related to the earlier $3 billion settlement.  As reported by the [Great] Lebanon [Oregon] Express:

Oregon Attorney General Ellen Rosenblum announced in a press release that pharmaceutical giant GlaxoSmithKline has agreed to pay $90 million to Oregon and 37 other states to settle claims that it unlawfully promoted its diabetes drug, Avandia.

As the co-leader of the lawsuit, Oregon will receive $3.9 million of the settlement, according to the release.

The 38 attorneys general claimed in lawsuits filed Nov. 15 that GlaxoSmithKline misrepresented the cardiovascular risks posed by Avandia. A negotiated consent judgment was filed shortly thereafter.

 Avandia was a blockbuster drug for GlaxoSmithKline. First approved by the Food and Drug Administration in 1999, annual sales peaked at more than $2.5 billion in 2006.

Furthermore,

 Oregon and the 37 other states claim GlaxoSmithKline made safety claims about Avandia not supported by the scientific evidence.

The states allege the company failed to disclose negative information about Avendia’s cardiovascular health effects.

In addition to the monetary settlement, the agreement included all sorts of pledges by GSK:

As part of the consent judgment between the parties, GlaxoSmithKline agreed to reform how it markets and promotes diabetes drugs. It agreed to several conditions:
 • To refrain from making false, misleading, or deceptive claims about any diabetes drug;
• To refrain from making comparative safety claims not supported by substantial evidence or substantial clinical experience;
• To refrain from presenting favorable information previously thought of as valid but rendered invalid by contrary and more credible recent information;
•   To refrain from misusing statistics or otherwise misrepresenting the nature, applicability, or significance of clinical trials.

The Consent Judgment also has the following terms that are effective for at least eight years:
• GlaxoSmithKline must post summaries of all company sponsored observational studies or meta-analyses conducted by the company that are designed to inform the effective, safe, and/or appropriate use of its diabetes drugs;
• The company post summaries of company-sponsored clinical trials of diabetes products within eight months of the primary completion date;
• GlaxoSmithKline must register and post all company-sponsored clinical trials as required by federal law.

Even more under the radar was a second, unrelated settlement, only briefly chronicled by Reuters (here via the Chicago Tribune):

 British drugmaker GlaxoSmithKline Plc has reached a $150 million preliminary settlement with U.S. drug wholesalers who claimed the company improperly delayed entry to the market of generic alternatives to its nasal spray Flonase, according to court documents.

The settlement was reached with, among others, AmerisourceBergen Corp, Cardinal Health Inc, and McKesson Corp, who maintained that Glaxo had abused the citizen's petition process to maintain a market monopoly and overcharge for the spray by restricting access to less expensive generic versions.

Note that while the first settlement was clearly about misleading, deceptive marketing of a relatively dangerous drug as safe, a practice that likely lead to suffering and death of some patients, the second settlement which involved an unfair business practice that likely increased the cost of care to some patients, and decreased the profits of some competitors, lead to a monetarily larger settlement.

Again, these latter two settlements seem to just ice the cake of the $3 billion settlement earlier this year.

 Eli Lilly

Eli Lilly pleaded guilty to a misdemeanor charges and settled allegations about questionable marketing practices for its anti-psychotic drug Zyprexa for over $1 billion in 2009 (see post here).  The settlement provided some instructive information about how big pharmaceutical companies employ ghost writing to sell product (see this post).  Now at the end of 2012, Eli Lilly has settled charges that it bribed government officials in countries outside of the US.  The most colorful version of this story appeared in the Wall Street Journal.  In summary,

 Eli Lilly & Co. agreed to pay $29.4 million in a settlement of U.S. government allegations that the drug maker's units made improper payments to foreign government officials to win business.

Indianapolis-based Lilly didn't admit or deny the allegations, but agreed to have an outside consultant review the company's internal controls and its measures to comply with the U.S. Foreign Corrupt Practices Act, or FCPA. 

The colorful details were:

The SEC said in a civil complaint filed in U.S. District Court for the District of Columbia that employees of Lilly's China unit falsified expense reports to provide spa treatments, jewelry and other gifts and cash payments to government-employed doctors between 2006 and 2009.

The SEC also alleged: Lilly hired a drug distributor in 2007 that paid bribes to health officials in a Brazilian state to facilitate about $1.2 million in sales of a Lilly drug to the state; Lilly's Polish unit paid $39,000 between 2000 and 2003 to a charitable foundation run by the head of a regional government health authority and dedicated to restoring a castle in Chudow, Poland; and that its Russian unit paid millions of dollars between 1994 and 2005 to offshore entities that the SEC said 'appear to have been used to funnel money to government officials' to obtain business for the Lilly unit.

The SEC said Lilly didn't curtail the activities of its Russian unit for several years, even after an internal Lilly review raised questions about its use of these offshore arrangements.

As in the previous set of settlements, no individual was charged or had to pay any penalty for authorizing, directing, or implementing any unethical actions.  Note that the alleged bribery went on in multiple different countries, suggesting a systemic problem with the operations of the company.  Note also that the allegations involved bribing doctors as well as bureaucrats.

Orthofix

We discussed three settlements made by medical device company Orthofix only a month ago.  These involved various vivid details including bribes to physicians disguised as consulting and royalty agreements, bribes of foreign government officials disguised as chocolate, and a device sales representative turned stripper.  As best as I can tell, Orthofix just made yet another settlement, maybe not quite so picaresque.  As per Bloomberg,

Orthofix International NV won court approval of a settlement of federal regulators’ claims that the maker of bone-repair products defrauded Medicare through a kickback scheme involving doctors, prosecutors said.

U.S. District Judge William G. Young in Boston yesterday accepted an Orthofix unit’s offer to plead guilty to a felony count of obstructing an audit and pay a $7.6 million criminal fine....

This settlement like some of the previous ones involved allegations of payments to doctors to induce them to use Orthofix devices.

As part of the agreement, Orthofix also will pay $32.3 million plus interest to resolve civil claims first raised in a whistle-blower’s lawsuit that the company defrauded the federal Medicare program through payments to doctors who used its bone-growth stimulators....

This series of cases is unusual because they resulted in a guilty plea to a felony (but by a subsidiary of the company, not the company itself), and in guilty pleas by some company employees (but not apparently any penalties to top management).

Five Orthofix employees have pleaded guilty in connection with the probe, the U.S. Justice Department said. Thomas Guerrieri, a company vice president, pleaded guilty to violating the federal anti-kickback statute by setting up fake consulting agreements for doctors who used the company’s products. 

Sanofi

French multinational pharmaceutical corporation Sanofi-Aventis settled charges of overcharging the US Medicaid system in 2009 for over $90 million  (see post here),  and of overcharging the US Medicare system in 2007 for over $190 million (see post here).  Now it just settled charges that it gave kickbacks to doctors to induce them to prescribe its product.  Per Bloomberg,

 Sanofi,  France’s biggest drugmaker, reached a settlement to pay $109 million over allegations that its U.S. units gave doctors free doses of a medicine to win their business and subvert Medicare’s drug reimbursement system.

Sanofi sales representatives entered into 'illegal sampling arrangements' with physicians, giving them the arthritis drug Hyalgan as kickbacks and 'promising to provide negotiated' amounts of the medication to lower its effective price in violation of the False Claims Act, the U.S. Justice Department said yesterday in a statement.

'Kickback schemes subvert the health-care marketplace and undermine the integrity of public health-care programs,” Stuart Delery,  who heads the department’s civil division, said in the statement. 'We will continue to hold accountable those who we allege are providing illegal incentives to influence the decision-making of health-care providers in federal health-care programs.'

Again, no individual suffered any negative consequences for authorizing, directing or implementing the bad behavior in this case.

Summary

So here we go again, four more settlements by large, rich, well known pharmaceutical and device companies.  Most of the companies involved now have a history of recent settlements for a variety of ethical misadventures.  Most of the new settlements involved allegations of deceiving and bribing physicians.

As we have noted endlessly before, legal settlements like this are useful to provide documentation of how unethical the practices, particularly marketing practices of large health care organizations have become.  However, the increasing number of repeat settlers suggest that the settlements are not deterring bad behavior.  Since the fines involved are usually small compared to the revenues that can be generated by deceptive and unethical marketing of expensive drugs, and the fines are paid out of company coffers, and are thus spread out in their impact over employees and stockholders alike, they usually have no more impact than a lash with a wet noodle, maybe at best a slap on the wrist.  Since the people involved in authorizing, directing and implementing the bad behavior can likely greatly improve their "numbers" and hence generate big salaries and bonuses, but face a minimal risk of any individual negative consequences, they are likely to continue unethical practices.

Given that so many of these cases involve deception and/or bribery of health care professionals, I still hope that some will get upset at the effect on their professional values to take action.

Meanwhile, I repeat until blue in the face....   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.