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.

ADVERTISEMENT

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.

'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.

"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. 

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. 

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.