A "Bag of Money," but Executive Says Don't "Give Me Any of that Ethics Cr*p" - DaVita's Latest Settlement for $400 Million

A striking story of a large recent legal settlement, with reminders of previous related settlements, quietly slipped out in the midst of the ruckus about the Ebola virus.

A $400 Million Settlement

The basics were in a news release by the US Department of Justice.

DaVita Healthcare Partners, Inc., one of the leading providers of dialysis services in the United States, has agreed to pay $350 million to resolve claims that it violated the False Claims Act by paying kickbacks to induce the referral of patients to its dialysis clinics,...

This amount was augmented by 

a Civil Forfeiture in the amount of $39 million based upon conduct related to two specific joint venture transactions entered into in Denver, Colorado.

Also, according to Ed Silverman writing on PharmaLot, it was further augmented thus

DaVita, by the way, has agreed in principle to pay another $11 million to several states that filed false claims charges, according to a document that DaVita filed with the U.S. Securities and Exchange Commission. The DaVita spokesman says the deal involves five states.

So the total cost to the company seems to be about $400 million.   The settlement also  included a corporate integrity agreement,

  DaVita has entered into a Corporate Integrity Agreement with the Office of Counsel to the Inspector General of the Department of Health and Human Services which requires it to unwind some of its business arrangements and restructure others, and includes the appointment of an Independent Monitor to prospectively review DaVita’s arrangements with nephrologists and other health care providers for compliance with the Anti-Kickback Statute.

Kickbacks to Doctors who Refer Dialysis Patients


Here is how the kickbacks worked.

First, using information gathered from numerous sources, DaVita identified physicians or physician groups that had significant patient populations suffering renal disease within a specific geographic area. DaVita would then gather specific information about the physicians or physician group to determine if they would be a 'winning practice.' In one transaction, a physician’s group was considered a “winning practice” because the physicians were 'young and in debt.'  Based on this careful vetting process, DaVita knew and expected that many, if not most, of the physicians’ patients would be referred to the joint venture dialysis clinics.

Next, DaVita would offer the targeted physician or physician group a lucrative opportunity to enter into a joint venture involving DaVita’s acquisition of an interest in dialysis clinics owned by the physicians, and/or DaVita’s sale of an interest in its dialysis clinics to the physicians. To make the transaction financially attractive to potential physician partners, DaVita would manipulate the financial models used to value the transaction.

 So these alleged kickbacks were not envelopes full of unmarked bills, but sophisticated, complex transactions that would be hard for outsiders to understand.

To ensure that those bought stayed bought,

Last, DaVita ensured future patient referrals through a series of secondary agreements with their physician partners. These included paying the physicians to serve as medical directors of the joint venture clinics, and entering into agreements in which the physicians agreed not to compete with the clinic. The non-compete agreements were structured so that they bound all physicians in a practice group, even if some of the physicians were not part of the joint venture arrangements. These agreements also included provisions prohibiting the physician partners from inducing or advising a patient to seek treatment at a competing dialysis clinic. These agreements were of such importance to DaVita that it would not conclude a joint venture transaction without them.

Note that these alleged arrangements ensured the private gains of the physicians involved, and presumably by increasing referrals, ensured the private gains of DaVita, and likely specific managers whose remuneration depended on the fees produced by referrals.  However, the arrangements steered patients to dialysis services not based on what would be best for patients but what would be best for those involved in the arrangements.  Thus these arrangements appeared to fit the Transparency International definition of corruption: "abuse of entrusted power for private gain."  The physicians were entrusted to provide the best possible care of individual patients, yet they put their and the company (and likely the company's managers) financial gain ahead of the patients' care.

No One Admitted Anything or Suffered Any Negative Consequences



Although the company paid a fine and entered into the corporate integrity agreement, apparently no individuals, be they physicians or company managers, paid any sort of penalty.


Like many other settlements we discussed, the company paid out a lot of money but denied it did so because it did anything wrong. Ed Silverman wrote on the PharmaLot blog

In a statement, DaVita says it is 'pleased to announce a civil resolution' and that 'patient care was never an issue, nor were billing or payment practices… We are proud of our commitment to compliance over our 15-year history.'

'We have worked incredibly hard to get things right and it is our belief there was no intentional wrongdoing. We believe this settlement is the right thing to do for our teammates, partners and shareholders. It allows us to move forward with heightened clarity and transparency, both with regulators and our physician partners.'

Why it was good for shareholders and "teammates and partners," presumably meaning employees to pay so much money in the absence of "intentional wrongdoing," when the money would likely come out of stock value and employees' salaries,  was not explained.  Why patient care was "not an issue" when the allegations were that patients were steered to dialysis providers because of financial inducements given to doctors, not due to any consideration of patients' needs and welfare also was not explained.

Furthermore, the whistleblower who triggered the lawsuit suggested there was wrongdoing.  Again, per Ed SIlverman on PharmaLot,

In a July 2009 e-mail cited in the whistleblower lawsuit, which was also filed in federal court in Colorado, one DaVita executive asks for suggestions on how to ensure the financial models used to value transactions pass internal standards. Another executive replies 'You mean gaming the model, right?' To which the first exec writes, 'I do.'

'I think there was a pretty wide understanding that what was going on was questionable at best,' David Barbetta, the former DaVita senior financial analyst, tells us. He says he worked at DaVita from March 2007 until August 2009, when he resigned after being disturbed by several joint venture transactions.

Barbetta, who is now an independent technology consultant, says he mentioned concerns to DaVita managers, but was ignored. 'I did raise this with someone who was a vice president, but he just said not give him any of that ethics nonsense,' he tells us. 'He was a vp and I was an analyst, so I pretty much looked at him and didn’t really push the issue any further.'

Another Denver Post article put it even more vividly,

 One vice president warned Barbetta not to 'give me any of that ethics crap,' court documents state.

And, in internal company e-mails Barbetta provided to the government, top DaVita officials boasted of 'gaming' valuation models. Barbetta also told prosecutors that another DaVita manager once explained to him the deals were used to funnel 'a bag of money' to physicians. Those doctors, in exchange, steered dialysis patients to DaVita.

Why there was no further investigation of these executives, and those to whom they reported, was also not explained.  

Just the Latest Settlement

The few media reports of this settlement suggested that this was not DaVita's first settlement.

The 2000 and 2004 Gambro Inc Settlements

The current DOJ release noted that DaVita

had previously been in a joint venture arrangement involving dialysis clinics with Gambro, Inc., a dialysis company acquired by DaVita in 2005. Prior to the acquisition, Gambro had entered into a settlement with the United States to resolve alleged kickback allegations that, among other things, required Gambro to unwind its joint venture agreements.

Actually, Gambro Inc, which became part of DaVita in 2005, had made two similar settlements.  According to a 2004 Department of Justice news release,

In 2000, Gambro Healthcare and its subsidiary, Gambro Healthcare Laboratory Services, agreed to pay $40 million to settle allegations of healthcare fraud. Gambro and another subsidiary, Dialysis Holdings Laboratory Services, Inc. (DHLSI), have agreed to pay more than $13.1 million to settle similar allegations. 

However, in 2004, a much bigger Gambro settlement was announced,

Gambro Healthcare will pay more than $350 million in criminal fines and civil penalties to settle allegations of healthcare fraud in the Medicare, Medicaid and TRICARE programs,...

Aspects of this settlement were eerily similar to those of the latest DaVita settlement,

As part of this comprehensive global resolution, Gambro Supply Corporation, a sham durable medical equipment company and a wholly owned subsidiary of Gambro Healthcare, admitted to the execution of a healthcare fraud scheme and agreed to plead guilty to criminal felony charges, pay a $25 million fine and be permanently excluded from the Medicare program.

Gambro Healthcare will also pay in excess of $310 million to resolve civil liabilities stemming from alleged kickbacks paid to physicians, false statements made to procure payment for unnecessary tests and services, and payments made to Gambro Supply. The settlement also requires Gambro to allocate an additional $15 million to resolve potential liability for the conduct resolved under the federal agreement pursuant to a preliminary understanding reached with representatives of various state Medicaid programs. Gambro Healthcare has also entered into a comprehensive Corporate Integrity Agreement.

Note that this older settlement actually involved admissions of wrongdoing, fraud, and a guilty plea by a subsidiary to federal felonies.  . 

The 2005 Settlement of Allegations of Illegal Anti Competitive Aspects of DaVita's Gambro Acquisition

DaVita's proposed acquisition of the criminal Gambro also provoked allegations by the US Federal Trade Commission of illegal anti competitive activities. In a 2005 FTC news release,

According to the Commission’s complaint, DaVita’s proposed acquisition of Gambro would be anticompetitive and in violation of Section 5 of the FTC Act and Section 7 of the Clayton Act, as amended. DaVita and Gambro account for a significant proportion of the dialysis clinics and treatment stations in many local areas in the United States, and the acquisition, if consummated, would lessen competition for outpatient dialysis services in 35 markets nationwide.

The 2012 DaVita Epogen Settlement

The 2014 Denver Post article included this offhand reference,

The company settled another whistle-blower lawsuit in 2012 and agreed to pay $55 million for other fraud claims. In that case, a former employee of Epogen-maker Amgen alleged the company overused the anemia drug.

The 2012 Denver Post article to which it referred stated,

Kidney dialysis giant DaVita Inc. has settled a whistleblower lawsuit for the first time, agreeing to pay $55 million over allegations of drug overuse while denying any wrongdoing.

Denver-based DaVita settled fraud claims in a Texas lawsuit challenging the dialysis chain's past use of Epogen, an anemia drug whose high cost and dangers helped change how the government pays for kidney care.

Note that this case suggested actions that could have hurt patients,

 The Texas whistleblower lawsuit accused DaVita of using more Epogen than was medically necessary,...

Epogen is not without serious adverse effects, as noted above, and overdosing multiple patients with it made it likely that some were harmed.

Further, while

DaVita said it was the first time it was settling a claim over federal anti-fraud laws, but noted the government had declined to join the whistleblower' s lawsuit.

Only two years later DaVita had to settle more federal claims, this time due to a suit that the federal government had certainly joined.  And as noted above, a company which DaVita was about to acquire as a subsidiary had admitted to fraud and pleaded guilty to federal charges apparently involving fraud just before the acquisition. 

Finally, just as in 2014, in 2012 DaVita denied responsibility,

'DaVita and its affiliated physicians did nothing wrong and stand by their anemia management practices, which were always consistent with their mission of providing the best possible care for each patient,' a company statement said.

Summary

The latest settlement by DaVita was of allegations that the company gave kickbacks to physicians to get them to refer patients to DaVita facilities, regardless of the patients' best interests.  The company paid about $400 million and signed a corporate integrity agreement, but no individual who authorized, directed, or implemented the provision of kickbacks was identified, or paid any penalties.  This settlement turns out to have been only the latest settlement by DaVita or companies it acquired.  Previous settlements involved penalties of $53 million, $350 million, and $55 million (totaling more than three-quarters of a billion dollars from 2004 to 2014.  Previous settlements were for kickbacks and fraud.  One included a guilty plea to a felony.  Previous settlements involved alleged and sometimes admitted behavior that likely put patients at risk.   One earlier settlement also included a corporate integrity agreement.  However, no settlement imposed any negative consequences on any individual who authorized, directed, or implemented the bad, and sometimes criminal behavior.

The DaVita Statement of Mission and Core Values includes

Integrity
We say what we believe, and we do what we say. We are trusted because we are trustworthy. In our personal, team, and organizational values, we strive for alignment in what we say and do.

and

Accountability
We don’t say, 'It’s not my fault,' or 'It’s not my job.' We take responsibility for meeting our commitments — our personal ones as well as those of the entire organization. We take ownership of the results.

Despite the fact that the above settlements made a mockery of these lofty values, the company managers who presided over the behavior that lead to them prospered mightily during this time period.  The company' 2014 proxy statement showed the current CEO and board chairman Kent J Thiry received $17,099,257 in total compensation in 2013.  The five next best paid executives received collectively about $22 million.  Note that Mr Thiry as been CEO since 1999, and thus all the above settlements and most of the behavior that led to them occurred on his watch.

So the march of legal settlements continues in step with the same old song.  Big health care organizations preach their lofty missions and values, pay their top managers millions, and in some cases turn them into billionaires, while the organizations are accruing amazing records of bad and sometimes criminal corporate behavior.  The legal settlements only provide hints as to this behavior, but nearly every time, the management need not admit nor deny wrongdoing while merrily going on to collect their next huge paycheck which was justified by the corporate financial performance in part generated by the bad behavior.

Leadership that cares not for honesty, transparency, or accountability, and that puts short term revenue, and usually personal enrichment ahead of patients' and the public's health may be the single most important reason that US health care is so dysfunctional.  Yet hardly anyone even dares discuss the damning facts about health care leadership, much less propose solutions.  If we do not reform our health care leadership so that it is transparent, honest, accountable, unconflicted, and it puts patients' and the public's health over personal enrichment, our health care system will continue to founder.  

Being a Health Care CEO Means Never Having to Say You Are Sorry - (Michael) Covert Edition

Physicians and other health care professionals are increasingly subject to various measures of their quality, productivity, and "value," and beholden to administrators, managers and bureaucrats.  The notion of health professionals being primarily accountable to patients and to professional standards has become old school.  Instead, the business school dogma of  "pay for performance" reigns. There is little evidence that putting health care under the control of administrators, managers and bureaucrats has been good for anyone but administrators, managers, and bureaucrats, but the burdens they have imposed seem to be a major reasons for increasing professional burn-out.

While health care professionals are thus subject to increasingly burdensome oversight by managers and administrators, it is not clear that those managers and administrators are taking their own medicine.  At best, they seem only accountable to each other.  And thus, their pay and power seem disconnected from any rational notion of their performance.

I recently stumbled upon a story illustrating how top health care managers can repeatedly get hired again and again despite major questions about previous performance.

A New CEO Position for Michael Covert

In June, 2014, the Houston Chronicle announced Mr Michael Covert as the new CEO of the Catholic Health Initiatives (CHI) St Luke's Hospital System,  and a new Senior Vice President of CHI.  It included the typical praise from top CHI leaders and stewards.

'Michael has the qualities, skill and professional background to help lead CHI through the many dramatic changes occurring today in health care,' Michael Rowan, Catholic Health Initiatives' president of health systems delivery and CEO, said in a written statement.

Leonard Tallerine, [apparently the former CEO of GoldKing Energy, which is currently in bankruptcy] chairman of the CHI St. Luke's Health board of directors, agreed.

'Michael's depth of experience has honed two key skills: communication and collaboration,' Tallerine said in a written statement.

I confess I missed that article, but I did see an article from mid-September, 2014, in the Chronicle documenting a rather uncritical interview with Mr Covert.  He did manage to boast of his previous success:

Q. What makes you the right guy ...?

A. It's because of my past experience. I've worked in an academic setting. I've worked in a Catholic hospital setting. I have run systems. I've worked for physicians. I've been doing it for a while. And I've had the fortune of some good success.

He also decried excess regulation in California ("we were so regulated");  promised to "develop relationships with our physicians that are strong"; promised "It's not going to be all about buildings"; boasted about "teams I've created"; and proclaimed "it's important for us to be strong on our quality, our finance, our patient engagement, our employee engagement."


So far, here we have yet another new top hospital system manager who seems to be a fount of excellence, at least according to those to whom he is supposed to be accountable.

However, the name Michael Covert rang a bell, and quick search of Health Care Renewal, plus Google revealed that his record is not quite as pristine as portrayed above. 


The Covert Record

Million Dollar Plus Compensation  Questionable Celebrity Endorsements, Quality Problems

Mr Covert first lit up the Health Care Renewal radar screen in 2010 because of his relatively large compensation, greater than $1 million per year, for the CEO of a not very large, nominally public hospital system, Palomar Pomerado.  At the time, the usual explanations were provided by the hospital district chairman, who happened to be a former hospital executive.  It later turned out that Mr Covert was the second most highly paid public official in the state of California.


As Mr Covert's pay became the subject of wider discussion, the hospital nurses' union weighed in with charges that Mr Covert had irresponsibly spent money on celebrity endorsements, particularly from a well known athlete who soon left California for New York. (Look here.)


Also, in 2011 the San Diego Union-Tribune reported that the two hospitals Mr Covert lead had been fined for significant errors/ quality problems in 2010, and had been fined before for such problems.

These facts did not seem aligned with the claims by the district hospital board that Mr Covert was a "phenomenal," "excellent" or "top" leader.  They also seemed to belie Mr Covert's recent discussion of being responsible about finance, employee engagement, or quality.  On the other hand, one can see why he dislikes regulation.

Alleged Obstructed Investigation of Murderous Fake Doctor in the 1980s

Later in 2011, a little big of digging on the internet suggested that Mr Covert had a long history of issues.  In 2008, the local Community Paper did an extensive investigation into his past.  We summarized it here.  First, the article charged that in the 1980s, as a top manager at the Ohio State University Hospital System, Mr Covert impeded the investigation into Michael Swango, a fake doctor working at that institution, who was ultimately convicted of murdering three patients.

At that time, Mr Covert seemed not so interest not merely in regulation, but in the laws of the land.

Illegally Revoked a Physician's Hospital Privileges in the 1990s

The Community Paper also found that the Sarasota Memorial Hospital illegally revoked a physician's privileges.  At the time, Mr Covert was CEO of that hospital.  The Community Hospital also alleged that Mr Covert's testimony at that trial was "thoroughly impeached."

What was that about strong relationships with physicians?  

Alleged Misrepresentation of Facts About Hospital Bond Issue

The Community Paper reported in 2007 that Mr Covert misrepresented facts in his advocacy for a large bond issue to support building a new hospital for the Palomar Pomerado Health District.

Responsible about finance? 

Dictatorial Management Style

The Community Paper interviewed multiple health professionals at Palomar Pomerado uncovering multiple charges that Mr Covert was a manipulative, egotistical and dictatorial leader.

Was this a way to develop wonderful teams? 

Another Lawsuit Claiming Improper Termination of a Physician's Privileges

Later in 2008, the Community Paper noted a lawsuit filed against Palomar Pomerado by a staff physician who also alleged that the hospital had improperly terminated his privileges.  I cannot find any record of how this was resolved.

Again, what was that about relationships with physicians? 

Palomar Pomerado Left in Debt

Mr Covert resigned from Palomar Pomerado in mid-2014 to head to his new position as CEO of Catholic Health Initiatives St Luke's Health System in Houston.  At that time, the San Diego Union-Tribune reported that after building an expensive new facility, Mr Covert would be leaving a hospital system deep in debt and with substantially worsening financial results.

Moody’s Investors Service, the bond rating agency that warned twice in two years of Palomar’s declining financial health, most recently in March. 'PH’s debt measures are among the weakest in Moody’s portfolio of rated public and not-for-profit health care organizations (debt measures exclude GO debt),' the agency said.

Palomar Health’s hospitals and clinics run at a loss; operating margin was negative 4.2 percent in the first half of fiscal year 2014, an improvement from minus 12.2 percent in the same period in 2013.

Worse, the district has cash problems. While improving, it’s still violating a bond covenant to keep enough cash for 80 days.

Didn't Mr Covert say something like it's not about the buildings?  Again, what happened to that emphasis on strong finance? 

And in general, looking at the whole section above, what did Mr Covert think was his "good success?"

Summary

The bureaucrats and managers to whom Mr Covert reported as CEO of Palomar Pomderado, and those to whom he will report as CEO of CHI St. Luke's thought he was brilliant.  Mr Covert proclaimed that he would engage employees, collaborate with physicians, and focus on quality and responsible finance, among other issues.  Yet Mr Covert seemed to leave in his wake as former leader of multiple hospital systems allegations of dictatorial leadership, irresponsible management of finances, deceptions, and opacity (even in the face of investigations of criminal behavior).  Mr Covert's previous hospitals paid fines for quality violations, went into severe debt, terminated physicians' privileges once allegedly improperly, and once illegally as found by a jury, and in one early case harbored a homicidal fake doctor.

Were the people who recruited and vetted Mr Covert bamboozled by his charm, to the point that they did not even bother to check the public record of his past performance?  Or were they, as managers and administrators, not apt to question a fellow member of their guild?

By the way, why did no one in the Houston media think to actually ask some hard questions about the latest star on the local health care management scene?

So why should we as health care professionals, or members of the public ever believe the managers and administrators who have taken over health care? Especially when they promise to improve quality and control costs by making everyone else responsible to them?

True health care reform would make health care leaders accountable for putting patients' and the public's health ahead of personal gain.  Generic managers following business dogma may not be the people to do this. 

ADDENDUM (29 September, 2014) - Thanks to the comment by Dr Howard Brody below, I corrected the statements about that Michael Swango was a fake doctor.  He did in fact have a real MD degree. 

New Allegations About Universal Health Services Inc - Why We Should Not be Surprised

Current Allegations of Poor Treatment and Threats to a Whistle Blower

This month, a Boston Globe article reported trouble at a local hospital,

Arbour HRI, a Brookline psychiatric hospital in recent trouble with regulators, disciplined a mental health worker for talking to the Boston Globe about problems there — an action the employees’ union is fighting.

The hospital also required all staff to sign a policy forbidding them from speaking with the media about Arbour — or risk losing their jobs, according to the union.

An article that appeared in the Globe on May 30 described findings of federal investigators that the hospital failed to provide treatment for at least four patients during a February inspection. Instead of attending group therapy, the patients, whose diagnoses included bipolar disorder and paranoid schizophrenia, spent many hours sleeping or wandering the hallways.

One Tuesday afternoon, three patients on a unit for those diagnosed with both mental illness and a substance abuse disorder were in therapy. Inspectors found eight patients in bed.

Frank Barnes, a longtime mental health worker and a union representative for 1199SEIU, was quoted in the story saying that problems at Arbour HRI reflected the culture of an administration more focused on revenue than quality of care.

But then,

 Nine days later, according to documents the SEIU provided to the Globe, a nurse executive verbally warned Barnes. A 'counseling/corrective action form' stated that the consequences for failing to follow the media policy could include termination.

The policy warns employees they 'are not to speak to any member from the media on behalf of the facility or company,' and that they must immediately refer press inquiries to the chief executive.

Arbour spokeswoman Judith Merel said that the policy is intended to protect the privacy of patients and staff. 'These processes are put in place to ensure that the hospital complies with all patient confidentiality and privacy laws as well as to safeguard the trust placed in us by our patients, employees and staff,' she said in a written statement.

But the SEIU, in a complaint against the hospital filed with the National Labor Relations Board, charged unfair retaliation against Barnes and said the 'overly-broad' media policy violates employees’ rights.

'If Universal Health Services is treating the patients under its care with dignity and respect, then why would it prevent caregivers from talking to the media?' union executive vice president Veronica Turner said in a written statement. 'It raises serious questions about what the company is trying to hide.'

So far we have allegations that insufficient or poor care was provided, and that a hospital employee who discussed the allegations with the press was threatened, apparently based on a media policy that was more like a code of silence.

It turns out these are not the first problems reflecting badly on the management of the hospital.

Arbour HRI has a recent history of problems. Massachusetts regulators prohibited the hospital from accepting any patients in November, citing unsafe conditions. They allowed admissions to gradually resume two weeks later, in early December. But then in February, inspectors for the federal Centers for Medicare & Medicaid Services found serious shortcomings in the quality of treatment at the 66-bed hospital in Brookline.

The problems at Arbour HRI should not come, however, as a big surprise.  Arbour HRI is part of

Arbour Health System [which] operates five psychiatric hospitals and 12 mental health clinics in Massachusetts. Its for-profit parent, Universal Health Services [Inc], is a publicly traded company that earned more than $500 million last year....

Although not mentioned in the current Boston Globe report, Universal Health Services Inc seems to have a sorry record.

In 2012, Settlement of Allegations of Substandard Treatment, Falsified Records

About two years ago, Universal Health Services settled somewhat similar allegations about another of its hospitals.  As announced by the Department of Justice,

Universal Health Services Inc. (UHS) and two subsidiaries have reached a settlement in a False Claims Act lawsuit with the United States and the Commonwealth of Virginia, the Justice Department announced today.   Under the settlement, UHS and its subsidiaries, Keystone Education and Youth Services LLC and Keystone Marion LLC, which did business as the Keystone Marion Youth Center, a residential facility in Marion, Va., agreed to pay $6.85 million to the United States and the commonwealth to settle allegations that they provided substandard psychiatric counseling and treatment to adolescents in violation of Medicaid requirements, falsified records and submitted false claims to the Medicaid program.  UHS closed the Marion facility earlier this year.  

The allegations, made by multiple people, were actually quite lurid.  As reported by the Huffington Post, the lawsuit involved assertions that psychological therapy was provided in hallways;  the facility lacked a required education program and clinical direct; inmates were nearly unclothed; responses to resident complaints were sometimes met with "brutal force;" the staff performed an "exorcism" on an autistic boy; and staff sexually abused residents.


Previous Allegations of Neglect, Suicide Attempts, Rape and Murder

Note furthermore that according to the Huffington Post, 

Universal Health Services Inc., a large hospital chain which racked up dozens of allegations of abuse during that time -- including everything from rape to suicide attempts allowed by neglect to murder. Over the years, states have barred children from attending UHS facilities over safety concerns and the feds have put UHS on their radar. Department of Justice lawyers have filed two lawsuits accusing the chain of fraudulent activities. 

By the way, the reason the Huffington Post gave this case extensive coverage, however, was not apparently the grievous nature of the allegations.  It was that on Universal Health Services board sat a politician who was at the time of the report a credible candidate for the Republican nomination to be President of the US.

Former Sen. Rick Santorum (R-Pa.) has become a top-tier candidate for the Republican presidential nomination in recent weeks by appealing to evangelical voters as a man steeped in family values and his Christian faith. From 2007 to 2011, however, Santorum served on the board of directors of Universal Health Services Inc.,...

In 2009, Settlement of Allegations of Kickbacks to Physicians

Finally, also mentioned in the Huffington Post, was another settlement by Universal Health Care.  As reported in Modern Healthcare,

Universal Health Services agreed to pay the federal government $27.5 million to resolve allegations that its three hospitals doing business as South Texas Health System paid kickbacks to physicians in the form of sham medical directorships and leases, the U.S. Justice Department announced.  

Note further that this settlement

also requires South Texas Health System to enter a five-year corporate integrity agreement with HHS' inspector general's office. 

Summary

So given the record public since at least2009, should it be a big surprise that Universal Health Services is again facing allegations of poor and unethical treatment of patients and employees?

This is a familiar pattern.  Now that we have been following organizational misbehavior in health care for some years, we see that organizations that get into trouble once are very likely to get into trouble again.

This may be enabled by how government regulators and law enforcement give large health care organizations such  gentle treatment.  We have talked about the march of legal settlements by such organizations before.  Allegations are usually resolved with legal settlements that involve no admissions of guilt, small monetary penalties (compared with these organizations' total revenues), and sometimes apparently toothless corporate integrity agreements.  Settlements get desultory public notice, rarely informed by previous settlements or other evidence of previous misbehavior.  No individual who may have authorized, encouraged, directed, or implemented the bad behavior is likely to suffer any negative consequences.   It does not help that while nominally public, these settlements get little press, and what coverage there is usually fails to put the whole pattern together.

So we would urge the reporters who cover the next settlements by big health care organizations at least look to see if the organizations had been involved in similar settlements in the past.

Furthermore, as we have said all to often,...   The failure of the current limp legal efforts against such corruption is evident by how many corporations have become ethical repeat offenders.  Pervasive bad behavior by large health care organizations has got to be a major cause of our ongoing health care dysfunction.  So, to really deter bad behavior, those who authorized, directed or implemented bad behavior must be held accountable. As long as they are not, expect the bad behavior to continue.

The Continuing Mystery of the Fugitive Founder and Missing Money - What it Says About the Opacity of Offshore Medical Schools

The next chapter in the bizarre tale of the fugitive founder of an off-shore (from the US and Canada) Caribbean medical school, and his now convicted spouse, do not solve any mysteries, but raise larger concerns about the accountability, or lack thereof, of leaders of important health care organizations.

Introduction: the Fugitive Founder and Convicted Spouse

As we posted in October, 2013, drawing an amazing for us number of comments, the couple who founded two Caribbean medical schools which catered almost entirely to US and Canadian students ran into significant legal trouble.  Founder David Leon Fredrick and his wife, Dr Patricia Lynn Hough were indicted for tax evasion for failing to report income from the two medical schools they allegedly owned, and later sold.

The schools were Saba University School of Medicine, on Saba, and the Medical University of the Americas, on Nevis.  The initial legal proceedings revealed that while Saba University School of Medicine was apparently first set up by a non-profit foundation (or NGO) run by the couple, somehow it became for-profit owned by Mr Fredrick and Dr Hough, and Saba and the Medical University of the Americas were subsequently sold to a private equity group, Equinox Capital.

Before jury selection started, Mr Fredrick disappeared.  Dr Hough was eventually convicted of defrauding the US Internal Revenue Service, and income tax evasion, after trial testimony to the effect that the couple concealed money in a Swiss bank, got $36 million from the sale of the schools, and bought an airplane, two houses, and a condominium.

Left mysterious at that time were Mr Fredrick's whereabouts, where the money that the couple derived from the sale of the medical schools went, and how a school that began as a non-profit organization became a for-profit corporation owned by the couple.  The case should have lead to some concerns about the leadership and governance of the off-shore medical schools that now train increasing numbers of would be US and Canadian physicians.

However, after Dr Hough was convicted, there was little public discussion of these issues, at least until Dr Hough's recent sentencing.  (There were some interesting comments made on our blog post, many from anonymous erswhile defenders of Saba University and/or Mr Fredrick and Dr Hough.  While they expressed some interesting opinions, in my humble opinion they did not add any substantive facts to the discussion.)

Latest Developments in the Case

In the past few weeks the case got a little more public notice in terms of reporting of the legal proceedings leading to the sentencing of Dr Hough   They brought to light some additional contentions by the prosecution, which deserve some attention because after all, they won their case.

The Amount of Money the Couple Made


As reported by the Sarasota (FL) Herald-Tribune,  Dr Hough was sentenced to two years in federal prison, three years of supervised release, and to repay $15 million to the IRS.  In addition,

 Prosecutors say Hough and Fredrick sold the schools and associated real estate in April 2007 for more than $35 million. An IRS agent testified last Thursday that Hough also made more than $12 million in income from the two schools from 2003 until 2007.

How much Mr Fredrick made was not discussed since it was not relevant to Dr Hough's sentencing. 

The Effort that Went into the Plot

According to Bloomberg,

'Hough’s crimes were neither impulsive nor isolated but required sophisticated transactions, coordination with foreign bankers, annual lies to the federal government, and by her own admissions, trips to Switzerland,' prosecutors wrote in a sentencing memo on April 14. 'Hough made calculated decisions to cheat, over and over again.'

Also,

Prosecutors accused the couple of crafting their scheme with UBS AG (UBSN) banker Dieter Luetolf and Swiss financial adviser Beda Singenberger, both unindicted co-conspirators.

Singenberger, who was separately charged with helping 60 U.S. clients hide $184 million in offshore accounts, hasn’t responded in federal court in New York.

In more detail,

Prosecutors said the couple used an array of accounts in the names of businesses to hide their money and employed 'e-mails, telephone calls and in-person meetings to instruct Swiss bankers and asset managers to make investments and transfer funds from their undeclared accounts at UBS.'

The Mysteries Remain



Where Did the Money Go?

As noted above, the sale of the two medical schools netted Mr Fredrick and Dr Hough about $35 million.  Where that went is still unclear.

How Did Mr Fredrick and Dr Hough Become Owners of a Previously Non-Profit Medical School?

As noted above and in our previous post, Saba University School of Medicine began as a non-profit managed by Mr Fredrick and Dr Hough.  Somewhere along the way, the couple assumed ownership of the school.  There seems to be no record and no discussion of how this happened.  In the US, a conversion of a substantial non-profit, like a medical school, to a for-profit, ordinarily would require some regulatory approval and public discussion.  Furthermore, in most cases, non-profit conversions to for-profit would require some sort of protection of the assets of the former non-profit, often leading to a spin-off of a new non-profit foundation.   None of this apparently happened in this case (which admittedly did not occur in the US.)  How did Mr Fredrick and Dr Hough just take over a non-profit, sell it, and keep all the money involved?

Where is Mr Fredrick and Why did He Flee?

We need Sherlock Holmes for this. 


What Does This Case Say About the Leadership and Governance of Offshore Medical Schools?

So the latest details revealed suggest a fairly intricate plot by the American couple who founded two Caribbean medical schools.  The plot allegedly netted them millions, and now resulted in one of the couple remaining a fugitive, and the other convicted of federal crimes.

The biggest issue raised by this case, in my humble opinion, is not about financial crimes, tax-evasion, or the hiding of assets in Swiss banks.  It is about the leadership and governance of offshore Caribbean medical schools, and by extension, of academic medicine and health care.  In 2010, Eckhert documented that the number of offshore medical schools, "for-profit institutions whose purpose is to train U.S. and Canadian students who intend to return home to practice," but not to train physicians to practice in the countries in which these schools are located, was rapidly growing.(1)  By 2010, there were 33 such schools, 20 of which were new since 2000.

These offshore medical schools are not accredited in the US or Canada, and such accreditation is currently not required for individual graduates of such schools to be admitted to US house-staff programs or for US licensure.  So perhaps it is not surprising that little is known about these schools.

How they choose students, the qualifications, or even names of their faculty, their curriculum, how they supervise clinical training (which is mostly done by affiliated North American hospitals), and what happens to their graduates are boscure.  Eckhert attempted to describe what is known, but noted "variability exists in the availability of information on faculty; where data exists, it is noted that most of the permanent on-site basic science faculty are internationally trained, many have no documented medical education experience in the United States, and it is not uncommon for them to be OMS [offshore medical school] alumni."

Even less is known about who leads these schools, who if anyone is responsible for their stewardship, and even who owns them.  The current case suggests that Saba University School of Medicine was run by couple who mysteriously assumed ownership of the school after leading it as a non-profit organization, then sold it to private equity for millions in a transaction that eventually left one a convicted criminal and the other a fugitive.  Yet none of this came to light until the federal government launched an investigation not of offshore medical schools, but of offshore money laundering and happened to catch the couple in the investigational web. No regulatory process, no watchdog organization in the US or Canada, or on Saba apparently found this out until it was revealed in an investigation by the US federal government that had nothing specifically to do with health care or offshore medical schools.  This suggests that offshore medical schools now can be lead and run by anyone, qualified or not, honest or criminal, without any oversight or accountability.  

For example, even today little is known about the leadership of Saba University School of Medicine.  The school currently provides only minimal biographical information on its administration.  Its President is listed as Joseph Chu MD MPH, who appears to have the same educational credentials (MD from Georgetown, MPH from University as Washington) as one Joseph Chu who is apparently a Clinical Associate Professor of Epidemiology at the University of Washington.   Dr Chu's specialty and previous experience are not apparent.  Whether the Dr Chu at University of Washington is the same as the President of Saba is unclear.  If they are the same, how Dr Chu holds down these two jobs is not clear.

For comparison, most US schools provide extensive information about their leadership.  Just as an example, see the introductory page on the Dean of the University Washington medical school.

Even less is known about the stewardship or governance of Saba University School of Medicine.  Many US medical schools have their own boards of trustees who are supposed to provide stewardship. For example, the UW board is here.  Their membership is generally known.  Furthermore, most US medical schools report to university leadership, again whose identity is known, and are subject to governance by a university board of trustees.  We have certainly criticized the leadership and governance of US academic medicine.  At least, however, it is possible to find out the names of the people responsible. 

However, while Saba University School of Medicine is still apparently owned by Equinox Capital according to the latter's website, to whom Dr Chu reports at Equinox Capital is unclear.  Whether Saba has a board of trustees, or any such similar stewardship mechanism, is unclear.  So who is ultimately accountable for Saba is unclear.  Probably just as unclear is who leads, who stewards, and who is accountable for the leadership of most other offshore medical schools.

While Eckhert wrote in 2010 that the increasing presence of offshore medical graduates in the US "obligates U.S. medicine to take a closer look at these educational programs," no such scrutiny has occurred since then.  While offshore medical schools account for the training of an increasing proportion of US (and presumably Canadian) physicians, we know next to nothing about their leadership and governance.  This seems to be just another part of the decreasing accountability of the leadership of US health care, and the increasing opacity of the governance and stewardship of US health care organizations.  True US health care reform would make leadership transparent and accountable.         

Reference
 1.  Eckhert NL.  Private schools of the Caribbean: outsourcing medical education.  Acad Med 1010; 85: 622-630.  Link here. 

BLOGSCAN - US Supreme Court Turns Down Pfizer Appeal of RICO Conviction

Pfizer Inc, which boasts of being the world's largest research based pharmaceutical company, also seems to be one of the world's largest examples of health care corporations that have withstood an amazing number of settlements, fines, and at times convictions for misbehavior without major apologies, significant changes in leadership or corporate culture, or bankruptcy.  (Look here for a list of the cases, and here for all we have written about Pfizer).  

Pfizer, amazingly, has the malodorous distinction of having been convicted by a US jury as a RICO - a racketeering influenced corrupt organization in 2010 (look here).  Pfizer executives, of course, kept their office of counsel busy by appealing the conviction, all the way up to the US Supreme Court.

As discussed on the 1BoringOldMan blog, the court has now turned down the appeal and let the conviction, which had been affirmed by lower federal court, stand.   So Pfizer is now officially a racketeering influenced corrupt organization.  

Yet although the description of the RICO statute that 1BoringOldMan quoted notes the law can be used to go after the leaders of organized crime, no individual at Pfizer who authorized, directed, or implemented the relevant misbehavior, which was in this case the promotion of Neurontin for off-label uses, for which its benefits were at best unproven, at worse nonexistent, even if its harms are well-documented.  Thus even this RICO conviction has not affected the impunity of top health care corporate leaders. 

As we have said endlessly, true health care reform will not occur until the leaders of large health care organizations are made accountable for their actions, and are prevented from becoming amazingly rich while their organizations repeatedly commit unethical or illegal acts that harm patients' and the public's health.   

ADDENDUM (14 December,2013) - The followup post at 1BoringOldMan on this topic includes some optimism that now that the validity of the RICO concept applied to a large health care corporation has been affirmed, more stringent law enforcement may follow.  

Roy M. Poses MD for Health Care Renewal

A New, and Huge ($2.2 Billion) Settlement for Johnson and Johnson, but "No Individuals were Charged with Wrongdoing"

The march of legal settlements made by big health care organizations has resumed with a bang.  As reported in most major media outlets, giant drug/ device/ biotechnology company Johnson and Johnson has made a big settlement with the US Department of Justice.

The Basics of the Settlement

As reported by Bloomberg / Businessweek,

Johnson & Johnson agreed to resolve criminal and civil probes into the marketing of Risperdal, an antipsychotic drug, and other medicines by paying more than $2.2 billion, one of the largest U.S. health-fraud penalties. 

J&J’s Janssen unit will plead guilty to a misdemeanor criminal charge over misbranding Risperdal for uses not approved by the Food and Drug Administration, including treating elderly patients with dementia. Under a plea agreement announced today, Janssen will pay a $334 million fine and forfeit $66 million.

Janssen also settled civil claims that it marketed Risperdal without approval for the elderly, children and the mentally disabled, and that it paid kickbacks to physicians and to Omnicare Inc., the largest pharmacy for nursing homes. The civil accord covered off-label marketing of Risperdal; Invega, another antipsychotic; and Natrecor, a heart drug.

This settlement covered conduct that health care professionals ought to find particularly disturbing, including marketing Risperdal for elderly people with dementia without an approved indication, despite evidence that it could be particularly harmful to those patients; marketing Risperdal to adolescent boys without an indication, again despite evidence that it could be particularly harmful to those patients; and using kickbacks to market Risperdal.

Promoting Risperdal for Dementia Despite Increased Risk of Death

This issue was best summarized by the Wall Street Journal,

Prosecutors alleged that J&J's Janssen Pharmaceuticals unit promoted Risperdal to elderly patients suffering from dementia, despite no approval for that use. Prosecutors also alleged that J&J's 'ElderCare' sales force pushed Risperdal for use in these elderly patients, and sales representatives' bonus awards failed to distinguish prescriptions for schizophrenia or the unapproved dementia use.

In 2005, the FDA required the label warn that elderly patients suffering from dementia-related psychosis were at a higher risk of death.

The New York Times added,

 Johnson & Johnson officials tried to expand the market for Risperdal to older dementia patients soon after the drug was approved in 1993 to treat symptoms of psychiatric disorders, according to federal court filings. 

The drug, whose generic name is risperidone, was primarily tested in schizophrenia patients, and the Federal Drug Administration repeatedly rejected efforts by the company to expand the drug’s use to older dementia patients, according to the filings.

But Johnson & Johnson, federal officials said, actively pursued the market for geriatric patients. The company created a dedicated sales force, ElderCare, to promote the drug and others to doctors who primarily treated older patients.

The drug, the company claimed, could address symptoms that made treating these patients a challenge, especially in a nursing home setting, including agitation, confusion, hostility and impulsiveness. The company’s sales brochures highlighted these symptoms and minimized the fact that the drug was approved to treat schizophrenia, according to federal documents.

 Federal officials said the company knew that Risperdal posed serious health risks for older adults, like an increased risk of strokes, but it played them down. The drug’s label was later updated to warn against the use of the drug in older patients with dementia.

So the allegations were that the company pursued an elaborate and deceptive strategy to promote the drug for elderly dementia patients despite knowledge that the drug was particularly risky for such patients.

Promoting Risperdal for Adolescent Boys Despite Increased Risk of Gynecomastia

Again, per the WSJ,

Prosecutors also alleged that J&J promoted Risperdal for use by boys suffering from mental disabilities despite knowing that use could raise levels of a hormone stimulating breast development.

The NYT added,

Federal prosecutors also say, as part of the civil settlement, that Johnson & Johnson promoted the use of Risperdal in people with mental disabilities and children, even though the company did not receive F.D.A. approval to market to children until 2006. Janssen told its sales representatives to visit child psychologists and mental health facilities that mainly focused on children, promoting the drug as a safe treatment for disorders like attention deficit hyperactivity disorder and obsessive-compulsive disorder, the government said. 

Johnson & Johnson knew that children were susceptible to certain health risks from taking Risperdal, including the possibility that boys could develop breasts through elevated production of the hormone prolactin, federal officials said. 

Again, the allegations were that the company pursued an elaborate deceptive strategy to market the drug for children despite knowledge that the drug was particularly risky for such patients.  

No Executives were Discomfited by the Disposition of This Case

The company took pains to emphasize that the settlement only required a single guilty plea to a misdemeanor by a company subsidiary, and did not involve any other admissions of guilt, or any penalties to specific human beings.  For example, per Bloomberg/ Business Week,

'Today we reached closure on complex legal matters spanning almost a decade,' Michael Ullmann, J&J’s general counsel, said in a statement. 'This resolution allows us to move forward and continue to focus on delivering innovative solutions that improve and enhance the health and well-being of patients around the world.'

While Janssen 'accepts accountability' for the actions described in the misdemeanor plea, the civil settlement 'is not an admission of any liability or wrongdoing, and the company expressly denies the government’s civil allegations,' J&J said.

So why give up a perfectly good $2.2 billion (minus $400 million fine and forfeiture by the Janssen subsidiary for the single misdemeanor)?  Was "closure" all that valuable?

In addition, in the NY Times we found ,

Ernie Knewitz, a spokesman for Johnson & Johnson, noted that the misdemeanor charge was being entered on behalf of the company and no individuals were charged with wrongdoing. 'Mr. Gorsky [current CEO] has been an outstanding Johnson & Johnson leader for more than 20 years,' he said.

Would you expect someone who works for Mr Gorsky to say otherwise?  Yet it was on Mr Gorsky's watch that much of the alleged bad conduct actually happened. 

Alex Gorsky was promoted to chief executive officer of J&J in April 2012, in part because of his record of generating sales as leader of Janssen Pharmaceuticals.

Furthermore, the Inquirer noted that Mr Gorsky was deposed in one of the many civil lawsuits filed by patients against Johnson and Johnson.

The 60-page transcript of Gorsky's deposition in one of the Philadelphia suits was part of the publicly available court record. In the transcript, McCormick walks Gorsky through discussions from 2001 with Joseph Biederman, a Harvard medical school professor and a Massachusetts General Hospital pediatric psychiatrist who gained fame - and criticism - for advocating the use of pharmaceuticals to treat children with perceived mental illness. That was before the U.S. Food and Drug Administration approved, in still-limited ways, drugs such as Risperdal for children.

In a one-page letter dated Dec. 7, 2001, Biederman requested $500,000 to start what became the Johnson & Johnson Center for the Study of Pediatric Psychopathology. Gorsky said in the deposition that he approved that payment.

Gorsky was asked whether he had been hoping Biederman and, by extension, Massachusetts General Hospital and Harvard, would help J&J to get wider diagnosis and treatment for child and adolescent mental disorders.

'I think our goal was to, yes, have better diagnostic criteria for children who are in need of treatment and to have better therapeutic options for children who are in need of treatment,' Gorsky said.

Also in the transcript, McCormick discussed with Gorsky a document called the 'Annual Report 2002: The Johnson & Johnson Center for Pediatric Psychopathology at Massachusetts General Hospital.' Biederman was the director of the center, and one of the goals of its research, according to the report, was that 'it will move forward the commercial goals of J&J.'

Thus this testimony seems to imply that current Johnson and Johnson CEO Gorsky was involved in making large payments to an important key opinion leader (KOL) who was supposed to use his academic gravitas to "move forward the commercial goals" of Johnson and Johnson, specifically by promoting Risperdal for children.

Yet, as we discussed above, neither Mr Gorsky nor any other person at Johnson and Johnson who might have authorized, directed, or implemented the alleged conduct which was the subject of the settlement, conduct which Johnson and Johnson of course denies was misconduct, suffered any negative consequences.

Mr Gorsky's total compensation as CEO in 2012 was $10,977,109 according too the company's 2013 proxy statement. The retiring CEO, William Weldon, on whose overall watch the alleged events occurred, received $29,838,259 that year.  We last discussed their compensation and its contrast with the company's ethical track record here.

These payments also occurred despite all the other settlements Johnson and Johnson has had to make because of allegations about its marketing of Risperdal.  As described by Bloomberg/ Businessweek,

The settlement won’t resolve suits brought by attorneys general in Arkansas, Louisiana and South Carolina, where the company has appealed or has said it will appeal judgments over Risperdal sales.

Judges or juries in those states have ordered J&J to pay a total of about $1.8 billion in damages and fines over Risperdal marketing campaigns that were found to have misled doctors and patients about the drug’s health risks and effectiveness.

In 2012, a judge in Arkansas ordered the drugmaker to pay $1.2 billion in fines over Risperdal marketing. That verdict came three months after J&J decided to end a trial in Texas over the drug’s sales with a $158 million settlement. The Arkansas judge also awarded the state $180 million in attorney fees, J&J said in an August regulatory filing. The company is appealing the judgment.

In June 2011, a judge in South Carolina ordered J&J to pay $327 million in penalties for deceptively marketing the medicine. Ten months earlier, jurors in Louisiana ordered the drugmaker to pay almost $258 million to state officials over J&J’s Risperdal marketing campaign in the state. A Louisiana judge later ordered the drugmaker to pay an additional $73.3 million in attorney fees and costs.

The payments further occurred despite a previous settlement involving another drug whose marketing was at issue in the current settlement, according to Bloomberg / Businessweek,

In October 2011, J&J’s Scios unit pleaded guilty to a misdemeanor violation over Natrecor and paid an $85 million criminal fine.

Finally, the compensation was given despite other legal actions not having to do with Risperdal, Invega or Natrecor, as we most recently summarized,
- A guilty plea for misbranding Topamax in 2010 (look here)
- Guilty pleas to bribery in Europe in 2011 by J+J's DePuy subsidiary (look here)
 - Accusations that the company, which makes smoking cessation products, participated along with tobacco companies in efforts to lobby state legislators (see post here)

Summary

The latest settlement in the parade is another marker of the sort of conduct that big health care organizations have exhibited to increase revenue, and to use that revenue as a rationale for making their top insiders very rich.  The particular conduct alleged here could have put patients at risk, partly by deceiving health care professionals.  Yet in their wisdom, top US law enforcement saw fit not to try to hold any individuals accountable for this conduct, and allowed the company to deny any misconduct other than a single misdemeanor by a subsidiary.  This occurred despite the company's history of multiple legal settlements and findings of guilt in various courtrooms.

Yet none of these actions has resulted in any negative consequences for any individual within the company.  No one who authorized, directed, or implemented bad behavior will pay any penalty, even were the bad behavior to have lead to significant personal enrichment.

As we have said ad infinitum, and on the occasion of a previous Johnson and Johnson settlement, many of largest and once proud health care organizations now have recent records of repeated, egregious ethical lapses. Not only have their leaders have nearly all avoided penalties, but they have become extremely rich while their companies have so misbehaved.

These leaders seem to have become like nobility, able to extract money from lesser folk, while remaining entirely unaccountable for bad results of their reigns. We can see from this case that health care organizations' leadership's nobility overlaps with the supposed "royalty" of the leaders of big financial firms, none of whom have gone to jail after the global financial collapse, great recession, and ongoing international financial disaster (look here). The current fashion of punishing behavior within health care organization with fines and agreements to behave better in the future appears to be more law enforcement theatre than serious deterrent.  As Massachusetts Governor Deval Patrick exhorted his fellow Democrats, I exhort state, federal (and international, for that  matter) law enforcement to "grow a backbone" and go after the people who were responsible for and most profited from the ongoing ethical debacle in health care.

As we have said before, true health care reform would make leaders of health care organization accountable for their organizations' bad behavior.

Addendum - Other Comments

See also similar sentiments from 1BoringOldMan,

 J&J closes out the escrow fund set aside for this settlement. Alex Gorsky goes to his West Point Anniversaries and Boy Scout Board meetings an ongoing success story [shoveling…]. And what was this all about?

This is the way the world ends

This is the way the world ends

This is the way the world ends

Not with a bang but a whimper

and in a press release from Public Citizen,

Until more meaningful penalties and the prospect of jail time for company heads who are responsible for such activity become common, companies will continue defrauding the government and putting patients’ lives in danger.

Pfizer's Umpteenth Settlement (for $491 Million Plus a Guilty Plea), but No Person Held Responsible

The world's largest research based pharmaceutical company was in court again, as reported by the New York Times,

 The drug maker Pfizer agreed to pay $491 million to settle criminal and civil charges over the illegal marketing of the kidney-transplant drug Rapamune, the Justice Department announced on Tuesday. 

In particular,

 The recent case centers on the practices of Wyeth Pharmaceuticals, which Pfizer acquired in 2009.

Rapamune, which prevents the body’s immune system from rejecting a transplanted organ, was approved by the Food and Drug Administration in 1999 for use in patients receiving a kidney transplant. However, federal officials said Wyeth aggressively promoted the drug for use in patients receiving other organ transplants, even offering financial incentives to its sales force to do so.

Accusations of Wyeth’s practices became public in 2010 after a whistle-blower lawsuit filed by two former employees was unsealed.

After lawmakers announced a Congressional inquiry, the Justice Department opted to join the lawsuit. The settlement announced Tuesday, which also resolves a second, similar whistle-blower suit, includes a criminal fine and forfeiture of $233.5 million, and a civil settlement of $257.4 million with the federal government, all 50 states and the District of Columbia. 

The case did not get much media coverage.  So far, the only other somewhat detailed article on it was put out by Bloomberg.   In fact, the lawyer for two of the whistle-blowers who alerted federal authorities to what Wyeth was doing had to say

the spate of pharmaceutical settlements in recent years had blunted reaction to what he said were shameful practices. 'Everybody’s been asking me why this case is different than any other,' he said. 'We used to trust these companies. You can’t trust these companies anymore.'

However, we should not be too blase.  This case was not only about money.  The over-promotion of a potentially dangerous drug likely lead to patients being harmed in the absence of any benefits.  Rapamune suppresses the immune system and increases risks of serious infections and malignancy.  Specific serious adverse events have been reported when it is used in transplants of organs other than the kidney (e.g., lung and liver transplants).  (See full prescribing information here.)  Bloomberg reported that 90% of Wyeth's revenues from Rapamune came from off-label uses, suggesting that quite a few people may have been adversely affected by its excess use. 

As in most other members of the march of legal settlements by big health care organizations, this case involved no negative consequences for anybody who authorized, directed, or implemented the improper marketing practices.  While such people must have existed, they were not even named in the press coverage.  At least this settlement involved a guilty plea to a crime, albeit a misdemeanor (misbranding as reported by Bloomberg), so the company did have to admit some wrongdoing.  

A Pfizer manager, however, tried to disavow responsibility, as noted by Bloomberg,

'Pfizer was not a subject or target of this matter, and cooperated fully with the government from the time it learned of this investigation in October 2009,' Chris Loder, a Pfizer spokesman,...

But Pfizer had purchased Wyeth, and in doing so got not only assets and profits, but responsibility for actions.

Also, neither the settlement nor the criminal plea seemed to take into account Pfizer's amazingly sorry recent track record.  I am losing count of all of Pfizer's settlements and/or guilty plea or convictions since 2000.  (The updated list of previous legal results is in the Appendix.)  

People found guilty of small-time Medicaid or Medicare fraud often forfeit all their assets and go to jail.  Yet actions by large pharmaceutical companies that may harm patients and cost many millions of dollars almost never result in any individual facing any negative consequences, or even being named and shamed.  Meanwhile, the managers of these companies may make gargantuan amounts of money partially rationalized by the revenues produced by such recurrent misbehavior.  In 2012, according to the company's 2013 proxy filing, Pfizer CEO Ian Reed's total compensation was  $25,634,136, and the four next most highly paid executives all made more than $5,000,000. 

So 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 need to start by making leaders of big health care organizations accountable for their organizations' misbehavior. 

APPENDIX - Pfizer's Settlements

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). 

In August, 2012, Pfizer settled allegations that its subsidiaries bribed foreign (that is, with respect to the US) government officials, including government-employed doctors (see this post).

In December, 2012, Pfizer settled federal charges that its Wyeth subsidiary deceptively marketed the proton pump inhibitor drug Protonix, using systematic efforts to deceive approved by top management, and settled charges by multiple states' Attorneys' General that it deceptively marketed Zyvox and Lyrica (see this post).  

 In January, 2013, Pfizer settled Texas charges that it had misreported information to and over-billed Medicaid (see this post). 

A "Simply Outstanding," "Superb" Hospital CEO Cops a Plea to Two Felonies

In all the discussions of what is wrong with US health care, very rarely is the quality of the leadership of health care organizations questioned.  In fact, no major US health care organization seems to have leadership that is anything short of brilliant.  The amazing brilliance of these leaders serves as a rationale for the ever increasing compensation that they receive.  Yet while subordinates, friendly members of boards of trustees, and hard working public relations flacks may stress their leaders' wondrous qualities, there rarely is an opportunity to compare their proclamations with results.

A few small items in the New York media provide us one case study of how these proclamations may not square with reality.

Background

In 2005, the CEO of New York's renowned Hospital for Special Surgery announced his retirement.  In a hospital news release, we find these pronouncements about outgoing President and CEO John Reynolds,

HSS board Co-Chairman Aldo Papone said, 'John's guidance and devotion to the Hospital for Special Surgery these last two decades have been simply outstanding. Under his watch, the quality of care, fiscal health and scope of treatment for musculoskeletal disease at the hospital have reached the highest level in its history.  While we regret his decision, we can only offer a most grateful expression of thanks...'

Also, HSS board Co-Chairman Dean R. O'Hare said,

He is a superb leader and we appreciate his thoughtful approach to succession which is emblematic of his service to HSS.

I cannot find anything on the internet about Mr Reynolds' compensation prior to his retirement, but in 2006, after he took on the position of Co-CEO during the transition, a copy of the hospital's 2006 990 form filed with the US Internal Revenue service, (and still available here, note though that rather confusingly, the Hospital still files under its archaic original name, "The New York Society for the Relief of the Ruptured and Crippled,") showed that Mr Renynolds' total compensation was $1,310,603

The CEO as Crook

Nothing publicly appeared to challenge the notion that Mr Reynolds' leadership was less that "outstanding" and "superb" until a Bloomberg article in September, 2012,

.

John R. Reynolds, former chief executive officer of New York's Hospital for Special Surgery, was charged by federal prosecutors with taking $1.4 million in a decade-long illegal-kickback scheme.

Reynolds, 63, was arrested at his home in Massachusetts this morning, according to a statement from the office of U.S. Attorney Preet Bharara. An indictment unsealed today in Manhattan federal court charges Reynolds with racketeering and making false statements to the government. He faces as long as 25 years in prison if convicted.

Prosecutors claim that, from 1996 to 2007, Reynolds took money from at least two hospital vendors, a hospital employee and an unidentified health-care organization in the U.K.

Furthermore,

 The government claims Reynolds took a total of $420,000 in kickbacks from at least two hospital vendors, from 1996 to 2002, in exchange for steering hospital business to them. From 2000 to 2005, he extorted an additional $298,500 from a subordinate at the hospital after negotiating an annual bonus for the employee, according to the charges. Reynolds also received $670,000 for approving a clinical partnership between his hospital and the U.K. health-care organization, prosecutors claim.


Reynolds is also charged with lying in 2008 to an agent of the U.S. Department of Health and Human Services inspector general’s office.

'By allegedly exploiting his position at the helm of a world renowned hospital for his own personal gain, John Reynolds tarnished the hospital’s reputation and did a disservice to its employees,' Bharara said in the statement.

Not surprisingly,

 'Obviously, it was a shock to us,' said Deborah Sale, a hospital spokeswoman, referring to the charges.

Of course, in the US, people accused of crimes are assumed to be innocent until proven guilty.  So I am now writing about this case because yesterday Bloomberg published the follow up story,

The former chief executive officer of New York’s Hospital for Special Surgery, charged by federal prosecutors with taking $1.4 million in kickbacks, pleaded guilty to two felonies. 

John R. Reynolds, 64, today pleaded guilty to wire fraud and making false statements, admitting that he took payments from a hospital employee and lied to investigators about it.

He will be subject to a stiff fine, although less than what he was charged with extracting through his scheme, and may be imprisoned,

 Under a plea agreement with the government, Reynolds will forfeit $718,500. Both sides agreed that federal sentencing guidelines, which are advisory, call for him to serve 27 to 33 months in prison.

The story so far has also been covered briefly by two tabloids, the New York Post, and the Daily News.  To date, the Hospital for Special Surgery has not issued a news bulletin on this.

Summary

So yet another "outstanding," "superb" multimillion dollar CEO turned out to be something rather less, in  fact, to be a criminal.


We have frequently discussed how the leaders of large US health care organizations are often hailed as brilliant, and compensated hugely for their brilliance, but rarely publicly subject to any objective assessment of their performance.  In many cases, they seem unaccountable for leadership that may be ill-informed, hostile to the health care mission, or even criminal or corrupt.

 The good news is that this criminal was eventually caught.  The bad news is that it only happened 18 years after he began acting criminally, hardly an example of swift justice.  One wonders how many other brilliant health care leaders will years later turn out not to be so, and how many others' performance will never be publicly assessed.  

While we breathlessly await the rigorous prospective study that assesses public assessments of the leaders of large health care organizations against objective results, we are stuck with case studies as a means to do so.  This case study shows a particularly stark contrast between the public relations puffery and the sordid reality. 


Instead of "brilliant" leaders paid like royalty, we would do better with competently collegial leaders rewarded reasonably as part of a team all focused on the health care mission, which puts service to patients first.  As long as health care organizations appear to be a path to riches for their leaders, expect the people who want to lead them to be more interested in their own fortunes than patients' and the public's health.  As long as health care professionals, policy makers and the public assume that those who lead health care organizations are fully qualified, fairly paid, and always do what is right, expect the insiders to continue to run things for their own profit. 

The qualifications of those who would lead health care, how much they are paid, what they are doing and what the results of their work are ought to be publicly known and publicly discussed.  Health care professionals, policy makers, and the public should demand nothing less.  .