Former KV Pharmaceutical CEO and Chairman Banned from Government Business

Early this year we noted that a subsidiary of KV Pharmaceutical, Ethex, pleaded guilty to two felony counts, and paid a fine in response to charges "stemming from its failure to make and submit to the U.S. Food and Drug Administration a report on its discovery of undistributed pills that 'failed to meet product specifications,' ...."   At the time, we noted that this was yet another marcher in the parade of legal settlements affecting health care organizations.  In this case, as in many others, despite the acknowledgement that unethical actions, worse, crimes were committed, no person appeared to suffer any penalty or negative incentive.  As usual, we argued that settlements like this would be perceived by unscrupulous leaders as mere costs of doing business, and would not deter future bad behavior.

That was then, and this is now.  Bloomberg just reported:

KV Pharmaceutical Co. said Marc Hermelin resigned as a director and will sell his controlling interest after being banned from doing business with the U.S. government for two decades. KV rose in New York trading.

Hermelin left the board on Nov. 10 and will sell his shares, said Catherine Biffignani, vice president of investor relations, in a telephone interview today. Hermelin, 68, had been fired as chairman and chief executive officer of Bridgeton, Missouri-based KV in December 2008. He held about a 52 percent voting stake, either in his own name or through trusts, according to a company filing on May 7. KV didn�t specify the timing of the stock sales.

The ban takes effect tomorrow.

This was really news. As the article noted:

Hermelin will become the first drug-company owner or executive barred from doing business with the government in an antifraud push involving Medicare, the insurance program for seniors and the disabled, and Medicaid, the health program for the poor, according to the Health and Human Services Office of Inspector General�s website.

We just discussed an indictment of a former GlaxoSmithKline executive. Now we have a KV Pharmaceutical executive banned from doing business with the government. So all of a sudden, it looks like the US government has realized that when health care organizations violate the law, their executives do not have complete impunity.

Of course, things immediately became more complicated. The St Louis Post-Dispatch just reported:

In yet another major shakeup, KV Pharmaceutical's board chairman, a member of its audit committee and its chief financial officer quit this week.

The chairman and audit committee member charged that KV's newly elected board can't provide the independent oversight the company needs. The new board had been elected last Thursday.

The CFO, John Stamp, quit on Monday and has not been replaced, the company said in a regulatory filing released Wednesday afternoon.

KV also revealed that the new board had terminated interim CEO David A. Van Vliet. The company last week announced that Van Vliet had been replaced but gave no details.

What seems to be going on here is resistance to the continued control of the company by the family of the now banned former CEO:

In their resignation letters, board chairman Terry Hatfield and audit committee member John Sampson said they had 'serious concerns regarding the ability of the newly constituted board and senior management to provide the required independent oversight of KVs business during this critical time in the company's history.'

They noted that only three of the board's seven nominees for board seats were elected at KV's annual meeting last Thursday. The remaining elected members were candidates proposed by shareholders.

The family of the firm's founder, Victor Hermelin, retains 52 percent of the Class B shares, which have super voting rights, according to the company proxy issued in May.

Among those re-elected to the board was Marc Hermelin, son of the founder, who was ousted as CEO in 2008. Also re-elected was David Hermelin, the son of Marc Hermelin and a former director of corporate strategy who retained his seat on the board.

David Hermelin was among the board's nominees. Marc Hermelin was not.

As soon as the government appears to get somewhat serious about imposing negative consequences for bad behavior in health care, one can expect that the leaders of organizations who have personally profited from bad behavior in the past will try to come up with work-arounds.

Nonetheless, it may be that if health care leaders realize they do not have complete impunity, and they may be held responsible for the bad behavior of the organizations they lead, they may behave better. One can hope.

One can also hope that increasing evidence about the bad behavior of leaders of health care organizations will lead to increased unwillingness by health care professionals to go along with, or at least ignore such bad behavior that compromises their own professional values.

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"This is Really Going to Set People's Hair on Fire" - the Justice Department Indicts a Pharmaceutical Company Vice President and Associate General Counsel

We have been posting nearly every week about the parade of legal settlements, sometimes including guilty pleas to criminal charges, made by health care organizations.  The settlements have involved charges of kickbacks, fraud, conspiracy, and other colorful offenses. Most of these settlements entailed fines or other payments by the organizations that may seem huge, but were fractions of the amounts made by the practices that lead to the charges that were settled.  Almost never have the cases involved penalties for any individuals who authorized, directed, or implemented the misbehavior.  We have also been saying (seemingly endlessly, but most recently here) that such settlements may be viewed by organizations as merely the costs of doing business, and so until the actual people who were involved in the bad behavior suffer some negative incentive or penalty, expect the behavior to continue. 

Maybe things are changing.  In the New York Times, Duff Wilson wrote:

In a rare move, the Justice Department on Tuesday announced that it had charged a former vice president and top lawyer for the British drug giant GlaxoSmithKline with making false statements and obstructing a federal investigation into illegal marketing of the antidepressant Wellbutrin for weight loss.

Specifically,

The indictment accuses the Glaxo official, Lauren C. Stevens of Durham, N.C., of lying to the Food and Drug Administration in 2003, by writing letters, as associate general counsel, denying that doctors speaking at company events had promoted Wellbutrin for uses not approved by the agency. Ms. Stevens 'made false statements and withheld documents she recognized as incriminating,' including slides the F.D.A. had sought during its investigation, the indictment stated.

An Associated Press story provided more detail about the allegedly false statements:

The Department of Justice alleges that in 2002, Lauren Stevens of Durham, N.C., signed several letters to the Food and Drug Administration denying that her company had promoted an antidepressant drug for unapproved uses. But Stevens knew that the company had paid numerous physicians to give talks touting unapproved uses of the drug, including weight loss,....

Also,

In one instance, prosecutors say Stevens withheld slides used by physicians promoting the company's drug, even though the FDA had asked specifically for the materials. Stevens claimed that the company's response to the FDA was 'final' and 'complete,' according to the indictment.

Stevens also falsely denied that Glaxo had paid doctors to attend special sessions where medical experts discussed unapproved uses of Wellbutrin, according to the Department of Justice.

'Attendees were not paid, reimbursed or otherwise compensated to attend these events,' Stevens wrote in a 2003 letter to the FDA. But prosecutors say attendees received gifts, entertainment and other compensation in return for attending the events.

During 2001 and 2002, Glaxo paid two expert physicians to speak about 500 times each about Wellbutrin, including how to use the drug to treat obesity.

In addition, a CBS News story suggested that Ms Stevens was made aware of the nature of the information withheld:

In March of 2003, the indictment alleges, Stevens received a memo from other lawyers at GlaxoSmithKline analyzing the pros and cons of turning over the slides to the FDA. One of the cons listed in that memo was that turning over the slides would provide 'incriminating evidence about potential off-label promotion of [the drug] that may be used against [the corporation] in this or in a future investigation.'

An indictment of an individual, particularly a high-ranking corporate executive, seems to have gotten people's attention, e.g., as Duff Wilson wrote in the Times:

The indictment grabbed the attention of pharmaceutical executives who have been bracing for a long-promised government crackdown on company officials � rather than the corporations themselves � in drug-fraud cases that have resulted in billions of dollars in fines and payments.

'This is absolutely precedent-setting � this is really going to set people�s hair on fire,' said Douglas B. Farquhar, a Washington lawyer who recently presided at a panel on law enforcement during a drug industry conference where federal officials warned they were focusing on individuals. 'This is indicative of the F.D.A. and Justice strategy to go after the very top-ranking managing officials at regulated companies.'

My response is, of course, that the threat of this sort of action is absolutely what is needed to deter future bad behavior by health care organizations. As long as health care leaders could act with impunity, the fraud, kickbacks, conspiracy etc were continuing. Worse, given their impunity, why would anyone but an idealistic fool attempt to swim against the tide of rising sleaze in health care?  How could skeptics and critics of the status quo in health care gain any traction?

Now maybe this sort of action may finally lead self-satisfied, unreflective health care executives to think about what they are doing and its ethical and moral aspects. The NY Times article included this statement in defense of Ms Stevens:

Brien T. O�Connor, a lawyer with Ropes & Gray, said in a statement, 'Lauren Stevens is an utterly decent and honorable woman. She is not guilty of obstruction or of making false statements. Everything she did in this case was consistent with ethical lawyering and the advice provided her by a nationally prominent law firm retained by her employer specifically because of its experience in working with F.D.A.'

I actually would guess that Ms Stevens believes she did nothing wrong. I would guess that most of the numerous health care leaders who have been caught up in bad behavior also thought they did nothing wrong. After all, they were all very well paid, lived in nice houses in nice neighborhoods, drove fancy cars (when they did not have a paid car and driver), were respected in their communities, did charitable works, etc. How can fine people who look so respectable do anything wrong? But, of course, the veneer of respectability does not prevent unethical or immoral behavior. Making one's numbers, getting one's bonuses, all from doing the big boss' wishes do not certify one's actions as ethical or moral. Perhaps making corporate health care leaders actually accountable for their actions will lead them to think about whether their actions are really as upstanding as their accoutrements of social status make them feel.

My final comment is that it may be significant that this case involved a lawyer. On one hand, attorneys have been at the forefront of what little movement there is to improve the accountability, integrity, and transparency of health care organizations. On the other hand, the leadership of many health care organizations have lawyered up to defend their actions. Organizational lawyers have been known to sweet-talk, obfuscate or intimidate those who dare to criticize the organizational leaders' actions. Anyone who is a vocal skeptic of the powers that be in health care must know there is a constant risk of some corporate counsel or hired firm threatening a libel, slander, or tortious interference action. Any individual who dares to be skeptical must be worried that the leaders of large health care organizations can use a lot of other peoples' money to pay for lawyers to push such actions, while individual skeptics facing threats of suits for huge amounts of damages are not likely to have enough money of their own to keep fighting. So I hope that the current case will also push attorneys who make a lot of money protecting the status quo in health care to reflect on the ethics and morality of what they are doing.

ADDENDUM (10 November) - Also see comments by Prof Margaret Soltan on the University Diaries blog.

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BLOGSCAN: Florida Doctors Endorse Ex- Columbia/ HCA CEO for Governor

Rick Scott was the CEO of for-profit hospital chain Columbia/ HCA.  The company ended up settling civil and criminal charges for $1.7 billion.  Like many other examples in the march of legal settlements about which we have often posted, no individual who authorized, directed, or implemented the relevant bad behavior suffered any sort of negative consequence or paid any penalty.  Rick Scott left the company, but with a golden parachute.  Now he his running for Governor of Florida, using a substantial amount of his own money (but money that probably mostly came from Columbia / HCA). (See post here.)  He may be in the lead.  And the Florida Medical Association has just endorsed him.  In the Health Beat blog, Maggie Mahar is all over this story.  Read it and weep.  Remember another good reason for the people who lead health care organizations to be truly accountable for their actions.

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Synthes and its Subsidiary Plead Guilty, Boss Remains Billionaire.

In December, 2009, we updated the story of Swiss-based medical device company Synthes and the marketing by its Norian division of a bone cement.  At that time, US authorities charged the company with use of an unapproved product in about 200 patients, three of whom suffered untimely deaths.  At that point, four US based Synthes executives had pleaded guilty to charges related to this affair. 

Last week, another shoe dropped.  As reported by the Associated Press,

A medical devices company will admit criminality and pay the maximum $23 million fine for illegally testing bone cement on about 200 spinal patients, three of whom died in surgery, U.S. prosecutors said Monday.

Norian Corp. trained surgeons to conduct unapproved clinical tests of its bone cement from 2002 to 2004, subverting U.S. Food and Drug Administration safeguards, prosecutors said. The trials were stopped after the third patient death, they said.

The cement, which is used to fill in bone defects, is approved for use in the arm but not the load-bearing spine, authorities said. The surgeries often involved older patients with compression fractures, they said.

The results are:

Norian will plead guilty to conspiracy to impede FDA functions, a felony, and 110 misdemeanor counts of interstate shipping of misbranded Norian XR. Synthes will plead guilty to the same misdemeanor shipping count.

As part of the agreement, Norian will be sold to an outside buyer, the parent company said.

Imposing divestiture of the offending subsidiary was unusual, according to the Philadelphia Inquirer:

Forcing a divestiture of a business unit in a plea agreement was precedent-setting for the U.S. Attorney General's Office in the Philadelphia area, spokeswoman Patricia Hartman said Monday.

Officials with the Office of the Inspector General in DHHS said the divestiture should send a message to other health-care companies that Synthes' behavior had grave consequences.

'Criminal conduct can result in a company getting rid of part of their business,' Greg Demske, a top official with the Inspector General, said Monday. 'This is an egregious case, and it made us firm in our belief that we should draw a line here,' he said.

If it remained a subsidiary of Synthes, Norian would be excluded from participating in Medicare and other government-funded health care programs, which would be potentially devastating to its business. According to a divestiture agreement released Monday by the U.S. Attorney in Philadelphia, Synthes has to sell Norian by May 24.

The assets of Norian would not be allowed to be transferred to another part of the Synthes 'corporate family' as part of the divestiture, Demske said.

Synthes will update the government monthly on its plans to divest Norian, and if it fails to sell the company by the May deadline, it can be fined $10,000 a day.

So does this case signal a new toughness by US authorities in cases of bad behavior by health care corporations?

According to the Wall Street Journal, Synthes officials were not exactly quaking in their boots because of these penalties, as their spokesperson said Synthes "does not expect this settlement to have any significant financial impact." Synthes would only be liable for fines of "about $24.3 million in total." That pales in comparison to the "company['s] posted total sales of $3.4 billion last year." As for the divestiture of Norian, the WSJ reported, "a spokesman said Monday that the Norian unit is mostly active in product development and isn't actively selling products. That business has fewer than 100 employees,...."

In fact, company leadership did not seem to realize that they did anything wrong, despite the company and four executives pleading guilty to crimes, actions involving the death of three patients,

'Synthes remains committed to operating in accordance with the highest legal and ethical standards, and bringing closure to this matter will permit the company to focus on its mission to improve patient care,' the company said.

Furthermore, while this is one of the few cases in which some company executives actually may have to pay penalties (after pleading guilty to at least misdemeanors), the big fish appeared to get away. As we discussed last year, an unindicted "person no. 7" was alleged to have set up the scheme to "test" the bone cement in a clinical series. Person No. 7 was at that time identified as the company CEO. That CEO, according to the Philadelphia Inquirer last year, was one Mr Hansjorg Wyss, noted to have a fortune estimated at $5.7 billion, making him the richest man in Philadelphia, and the 83rd richest man in the world, according to Forbes magazine.  (See this post.)   The settlement of this case would apparently have no impact on his immense wealth.

So although this case has some unusual wrinkles, and may yet yield some negative consequences for some of the people involved in the direction and implementation of the wrong-doing, it would appear to leave unscathed the person who has personally profited the most from the company, and its actions, including its less savory actions.  There is progress here, but only a little.

Once again, it appears that in the eyes of the law, top corporate leaders are different from you and me.  They appear immune from the penalties that lesser individuals may suffer.  They have impunity to continue to amass wealth even wealth that results from actions that were deemed illegal.   Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

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At the End of Summer, Everybody, Well, Nearly Everybody (Allergan, CVS Caremark, Stryker, WellStar) Settles

Many US health care organizations announced legal settlements as the dog days of summer drew to a close.  The hit parade included, in order of dollar amount:

Stryker Corp

As reported by Bloomberg News:

Sryker Corp., a maker of artificial hips and knees, will pay $1.35 million to settle claims it marketed items without regulatory approval and misled health care providers about the use of its products, the Massachusetts attorney general said.

Stryker�s biotech unit engaged in unfair and deceptive trade practices that boosted sales of products used to strengthen and promote growth of bones, Massachusetts said in a filing in state court in Boston.

'Stryker Biotech subverted review procedures designed to safeguard patients and promoted uses of its products that were not shown to be safe or effective,' Martha Coakley, the attorney general, said today in a statement.

Note that this appeared to be one of those rare cases in which allegations were made against individuals, as well as the company as a whole:

In October 2009, the biotech unit and former president Mark Philip were indicted by a federal grand jury for misleading the U.S. Food and Drug Administration about the use of the products. Philip, who was president from 2004 to 2008, was accused along with three sales managers of promoting therapeutics in a manner contrary to their FDA-approved use. They pleaded not guilty, according to the case docket.

However, the case has not yet gone to trial.

As usual, the company denied anybody did anything wrong:

As part of the Massachusetts settlement, Kalamazoo, Michigan-based Stryker didn�t admit any liability, the company said in an e-mailed statement.

As usual, the penalties were trivial compared to the company's revenues:

Under the agreement, Stryker will pay $325,000 in civil penalties, $875,000 to fund efforts to combat unlawful marketing and other programs to benefit health-care consumers, and $150,000 to cover attorney fees and investigative costs. The company reported 2009 revenue of $6.72 billion.

CVS Caremark

As reported very briefly by the Associated Press via the Boston Globe,

CVS Caremark Corp. has agreed to pay $2.65 million under a settlement with the Massachusetts attorney general�s office, which accused the pharmacy chain of overcharging public entities for prescription drugs.

CVS will pay Massachusetts and about 200 cities and towns in the state that were allegedly overcharged under the workers compensation insurance system, Attorney General Martha Coakley said yesterday in a prepared statement.

WellStar

This story was published in the Atlanta Journal-Constitution:

WellStar Health System has agreed to pay $2.7 million to settle allegations that it improperly billed the state Medicaid system, Attorney General Thurbert Baker announced Monday.

The agreement came after a six-month state investigation which found that WellStar mishandled claims involving patients covered by both Medicare and Medicaid. WellStar filed claims that did not properly reflect payments it received from Medicare, allowing it to receive excessive payments from Medicaid.

As expected, the hospital system denied it was anything more than a soft-ware glitch:

The allegations related to patients served at WellStar�s five hospitals: Cobb, Douglas, Kennestone, Windy Hill and Paulding.

'Upon learning from the state of this potential billing issue, WellStar immediately conducted an internal investigation and fully cooperated with the state,' WellStar said in a statement.

The hospital system said a flaw in claims processing software caused the problem. 'The State specifically found no intent to defraud,' WellStar said.

WellStar admitted no wrongdoing as part of the settlement , according to the attorney general�s office.

It is not entirely clear whether any individuals suffered any negative consequences because of this soft-ware "flaw" which went undiscovered until the state investigated. In another AJC story, which did not directly refer to the one above, published four days later:

WellStar Health System�s president and CEO Gregory Simone was fired by the system�s board on Thursday.

Board chairman and Marietta attorney Randall Bentley said the decision was a personnel matter and provided no information on the reason for Simone�s termination, which is effective immediately.

Earlier this week Bonnie Wilson, WellStar�s executive vice president and general counsel, received notice that her contract would not be renewed.

Bentley did not say if the terminations were related.

Then, in a third story, the hospital denied any relationship among the firings and the legal settlement:

WellStar Health System's board this week fired the Gregory Simone, president and chief executive of the non-profit operator of five north metro hospitals and dozens of other facilities.

Board chairman Randall Bentley, a Marietta attorney, gave no explanation other than to say Simone's termination was a personnel matter. It was announced Thursday and was effective immediately.

His firing follows the Aug. 31 departure of Bonnie Wilson, WellStar�s executive vice president and general counsel. She was told her contract would not be renewed, according to WellStar.

Bentley did not say if the Simone's firing and Wilson's departure were related.

WellStar and Bentley said Simone's firing was not related to a six-month Medicare and Medicaid investigation. In August, the hospital system agreed to pay $2.7 million to settle allegations that it improperly billed the state Medicaid system, resulting in excessive payments from Medicaid.

[sarcasm on] Of course, it was just a soft-ware "flaw," so no one was responsible, just the soft-ware. [sarcasm off]

Allergan

As reported again by Bloomberg:

Allergan Inc., maker of the wrinkle smoother Botox, agreed to pay $600 million and plead guilty to a misdemeanor in settling a U.S. investigation of its marketing practices.

Allergan will pay $375 million to the government as part of a 'misbranding' charge that the marketing of Botox from 2000 to 2005 led to use in treating headache, pain, muscle stiffness and juvenile cerebral palsy, purposes for which the Food and Drug Administration during that time hadn�t approved marketing. Allergan will also pay $225 million to resolve civil claims from the Justice Department, the company said today in a statement.

Once again, although the amount this time appears large, it is small compared to the revenues produced by the product in question. The total fines amount to about $100 million per year of sales, but:

Botox, [is] Allergan�s top product with $1.3 billion in annual sales,....

Once again, the company denied it did anything all that bad, (even though it did plead guilty to a crime), reported by the Wall Street Journal,

The company, meanwhile, said the settlement resolves the investigation while avoiding substantial litigation costs and other risks associated with a government enforcement action.

Allergan said its plea to the single misdemeanor 'misbranding' charge didn't involve 'false or deceptive conduct.' Specifically, the Botox marketing from 2000 to 2005 resulted in intended Botox use for four unapproved conditions, Allergan said. The drug didn't have directions for these uses, which means it was misbranded, the company said.

Got that? On the other hand,

Prosecutors alleged Allergan engaged in tactics to promote the drug for unapproved uses, including paying kickbacks to doctors. For example, the government charged that in 2005, Allergan hosted about 100 doctors at an invitation-only program at its corporate headquarters and a Newport Beach, Calif., resort while paying them $1,500 'to listen to off-label marketing presentations.'

I did not see anything in any news article that suggested any individual at Allergan would suffer any negative consequences as part of this settlement.

Summary

So, the parade of legal settlements marches on.  We have now documented a very large number of heretofore respectable health care organizations who have made legal settlements of all sorts of charges of wrong-doing.  As we have repeatedly noted, these settlements have certain characteristics.  The amount of money involved, although it may seem big to those paid less than CEOs, is usually much smaller than the amount of money that could be made by the bad behavior.  The settlement is usually paid by the organization as a whole, and so its effect may be diffused among the employees, the patients or clients, and the stock-holders, if any.  The settlement rarely involves any negative consequences for those who might have authorized, directed, or implemented the bad behavior.  Rarely is the settlement widely reported, and rarely does the organization involved seem to suffer any stain on its reputation.

So is it any wonder that the bad behavior that leads to such settlements continues?  Is it any wonder that health care organizational leaders now just seem to think of such settlements as a (relatively negligible) cost of doing business?

Inquiring minds may want to know how this state of affairs came to be.  Why are leaders of health care organizations (and other large organizations) able to behave with such relative impunity?  The answer may have to wait for more historical inquiry (although I recently saw what might be a clue, so stay tuned.) 

My refrain has been: 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.

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The Hospital CEO as Debt Collector

Last year we noted that the US Internal Revenue Service (IRS) required more detailed reporting starting in 2009 by US not-for-profit organizations. Many US health insurance companies/ managed care organizations, most hospitals, nearly all medical associations, nearly all disease advocacy organizations, all health care charities, and nearly all medical schools are not-for-profit organizations. We suggested then that this reporting might lead to more transparency about the leadership and governance of these organizations.  The 2009 990 forms seem to be trickling into public view, sometimes leading to some striking disclosures about how US not-for-profit health care organizations are lead.

The California Watch blog just reported about the interesting part-time job of a hospital CEO:

The former president of a Laguna Beach hospital has been operating a debt-collection company that recovered medical payments from his own facility, raising conflict-of-interest questions as the CEO moves to a new hospital in Riverside County.

Bruce Christian ran South Coast Medical Center from 2005 until it was sold in 2009. At the same time, Christian was owner of Metro Republic Commercial Services, a consulting and medical debt-collection firm that provided at least $110,000 in services to South Coast while Christian was a top manager, records show.

South Coast Medical Center disclosed the arrangement as 'self-dealing' in federal tax filings. State law allows self-dealing by board members of nonprofits, typically as long as the body explores other options and determines they are not unduly enriching one of their own.

Of course, I also get to write, but wait, there is more:

Christian was also at the helm of the hospital in 2006 when Adventist hired one of his Metro Republic consultants as interim chief financial officer, tax records show.

Adventist said it appointed the interim CFO when it believed the hospital would be sold quickly.

Additionally, a version of the Metro Republic website in 2006 said the firm supplied South Coast Medical Center with health care financial consulting, managed care-revenue recovery and accounts-receivable services.

The website, which appears to have been offline since 2006, describes Christian as a health industry leader for 30 years who built the Corona-based Metro Republic from a three-person office to one with 150 employees.

Predictably, the response from the hospital and its parent health system was that it was all no big deal.

Adventist Health West, the Roseville-based company that owned South Coast, acknowledged that the arrangement was 'unusual' and 'not the norm' for the firm.

In a statement, Adventist said Christian's firm collected hospital debts for years before Adventist bought the hospital and prior to Christian�s tenure as president and CEO.

Board members were aware of the arrangement. It remained in place while the chain sought to sell the medical facility throughout Christian�s tenure, the statement said.

'Unfortunately, it took much longer than originally envisioned to sell the hospital,' Adventist Health said in a statement. 'Adventist Health continues its deep commitment to providing mission-driven, quality health care to the communities we serve.'

Some thought otherwise:

But allowing a hospital administrator � who can have considerable power over setting prices on medical procedures � to operate as the hospital�s own bill collector presents a thorny conflict of interest, said Ken Berger, executive director of Charity Navigator, a New Jersey-based charity evaluation group.

'Just because the (hospital) board may sanction it doesn�t make it right, appropriate or ethical,' he said. 'The mission of hospitals and the mission to squeeze money out of those that are slow to pay can be quite contradictory. It�s just wrong.'

Another expert thought something ought to be done:

Kathryn Peisert, managing editor for publications at the San Diego-based Governance Institute, said a hospital CEO�s duty is to further the interests of the hospital. As such, she said, Christian should have eliminated all appearances of impropriety and cut ties between the medical center and his consulting firm.

'That�s really a big no-no,' said Peisert, whose organization advises hospital boards. 'I�m surprised some regulatory agencies haven�t been after this.'

We will see if anything will be done, but this conflict of interest seems not to have gotten in the way of Mr Christian's career advancement.

Christian is now chief executive of a Loma Linda University Medical Center campus expected to open in 2011 in Riverside County. A Loma Linda University Medical Center spokesman said the Murrieta campus will not contract with Metro Republic.

As I have said before, I expect that as more 990s dribble out, seemingly as slowly as many organizations can manage, we will see many more examples of these sorts of conflicts of interest, in which top organizational leaders also turn out to be vendors, consultants, etc.

In theory, and perhaps in a golden era in the past, leaders of not-for-profit health care organizations were supposed to regard their work as a calling, and to be primarily concerned with upholding the mission of the organization. Instead, we now see more leaders who seem to regard their organizations as their own personal sand boxes, providing opportunities for play, and sometimes personal enrichment. (Note that Mr Christian's total compensation from the hospital was "$360,000 and $400,000 in salary, benefits and deferred compensation in 2006 and 2007 at South Coast Medical Center.")

Unfortunately, Mr Christian's case demonstrates that leaders who get used to their organizations as personal sand boxes, rather than face punishment,  may be given the opportunity to play in larger venues. One wonders how much he will make at the helm of a new academic medical center, what other side deals he will manage, and how much he will be concerned with the academic and clinical missions.

Once again, I say that true health care reform will only be achieved when health care organizations are lead by people who put the mission ahead of their personal enrichment, and are held accountable for their ability to do so.

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Prosecuting Doctors for Importing IUDs from Canada, but Still No Penalties for Selling Adulterated Heparin from China

Here in Rhode Island, the big health care story recently was the use of unapproved intra-uterine devices (IUDs) by some local obstetrician-gynecologists (OB-GYNs).  The first nuanced summary of the story which just appeared in the Providence Journal, written by Felice Freyer, suggested how the consequences of possible misconduct in health care depend on the clout of those involved.

The Unapproved IUDs

Here are the main points. The issue that caused so much local controversy was the use of unapproved IUDs:

Ten Rhode Island medical groups with 28 doctors told the Health Department that they bought IUDs, a form of birth control, from a foreign source, at prices about half what they had to pay for IUDs approved for use in the United States. Many had stopped using the unapproved devices long before the Health Department began its investigation in June.

Here is what we know about the actual devices they implanted:

An IUD is a T-shaped device that can fit in the palm of a woman�s hand. To prevent pregnancy, doctors insert it into the uterus, where it can stay for years. There are two types available in the United States: the ParaGard copper IUD and the Mirena hormonal IUD. Mirena, the more costly and more popular brand, has a coating of a progesterone-like drug that reduces heavy menstrual bleeding.

Unapproved IUDs Made by an American Company in Finland and Sold in Canada

Most of the "unapproved devices" the doctors were using were apparently made in Finland by an American company.

In most cases, the doctors were using Mirena, which is made at a factory in Finland by an American company, Bayer Healthcare Pharmaceuticals. Only when it comes through approved channels can doctors and patients be assured that a product meets FDA standards. But it is unclear whether Bayer �� or anyone �� makes a version of Mirena that does not meet those standards.

The doctors imported the devices from far-away, exotic Canada.

Most of the devices apparently came from Canada, where the government negotiates with drug and device makers to keep prices low.

There is no reason to suspect the devices were counterfeit, or defective.

'If they�re really from Canada and from a reputable pharmacy, it should be exactly the same thing [as the FDA-approved version],' said Sheryl Ruzek, a retired public health professor at Temple University and vice chair of the board of the ECRI Institute, a nonprofit organization that evaluates medical procedures and products. 'My hunch is the patients were not harmed,' she said.

Potential Negative Consequences for the Physicians

However, the RI physicians are in big trouble for importing them:

In Rhode Island, the state boards that regulate physicians, nurses and nurse-midwives are investigating all those involved. If any are found guilty of unprofessional conduct, they could face disciplinary action such as a reprimand or license suspension. The state attorney general�s office has a Medicaid fraud unit, but declined to comment. The U.S. Attorney also had no comment.

US doctors in other states have also been importing IUDs, and also are in big trouble:

So many doctors were importing IUDs or considering doing so that the American College of Obstetricians and Gynecologists recently took an official stand, issuing an advisory opposing the use of imported devices.

In 2006, the California Department of Health found that eight doctors had used imported IUDs in some 850 women.

In October 2009, an Arkansas doctor was indicted by a federal grand jury for using non-FDA-approved versions of Mirena. He was charged with violation of the Food, Drug & Cosmetic Act, health-care fraud (for allegedly billing Medicaid for the unapproved devices) and money-laundering (for the way he allegedly handled Medicaid reimbursements). The doctor, Kelly Dean Shrum, has not yet come to trial, but potential penalties include fines and imprisonment.

Summary, and the Contrast with the Case of the Adulterated, Fatal Heparin
So to summarize, doctors who imported IUDs from Canada that appeared to be identical to those sold with FDA approval in the US, and were made in Finland by an American company at the same factory in which the US approved IUDs were made have gotten into major trouble with state and federal authorities. There is no clear evidence that the IUDs caused any harm to patients.

I am not defending the doctors' actions. However, contrast the treatment they are likely to receive with another case we have frequently discussed.

We last blogged about the case of Baxter International's adulterated heparin here.  In summary, Baxter International imported the "active pharmaceutical ingredient" (API) of heparin, that is, in plainer language, the drug itself, from China.  That API was then sold, with some minor processing, as a Baxter International product with a Baxter International label.  The drug came from a sketchy supply chain that Baxter did not directly supervise, apparently originating in small "workshops" operating under primitive and unsanitary conditions without any meaningful inspection or supervision by the company, the Chinese government, or the FDA.  The heparin proved to have been adulterated with over-sulfated chondroitin sulfate (OSCS), and many patients who received got seriously ill or died.  While there have been investigations of how the adulteration adversely affected patients, to date, there have been no publicly reported investigations of how the OSCS got into the heparin, and who should have been responsible for overseeing the purity and safety of the product.  Despite the facts that clearly patients died from receiving this adulterated drug, no individual has yet suffered any negative consequence for what amounted to poisoning of patients with a brand-name but adulterated pharmaceutical product.

Yet everyone from state health departments to the federal authorities have jumped into the case of the unapproved IUDs imported, but from Canada, and apparently identical to the IUDs sold in the US.  There is, at least so far, no evidence that the IUDs were defective or dangerous, and no evidence they have harmed patients.  One doctor has been prosecuted for violating the Food, Drug and Cosmetic Act, and for health care fraud and money-laundering.  No one working for Baxter International (or for the identified organizations within its supply chain) has been prosecuted for anything.

What the...?   I do not object to discipline and prosecution of individual doctors who appear to have broken the law.  But why are we so vigorously pursuing individual doctors for an apparently technical violation of laws that did patients no apparent harm, when we are not pursuing health care corporate executives for selling adulterated drugs that likely killed patients? 

F Scott Fitzergald wrote that the "very rich are different from you and me," and it appears that very rich health care leaders have impunity when it comes to conduct that let patients be harmed and die. 

Real health care reform would make top health care leaders as accountable as we now make individual doctors.

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Judge Rejects Prosecutors' Lenient Settlement of the Case of the Hidden Defibrillator Defects

We just discussed the proposed settlement of a case in which the Guidant subsidiary of Boston Scientific was alleged to have withheld information about defects in its implantable cardiac defibrillators that were associated with six patient deaths (see next most recent post here with more complete summary).  The devices were manufactured in 2000-02, and the issue first became public in 2005.  The proposed settlement included a seemingly large fine for the company. 

Now the New York Times has reported that the presiding judge has rejected the settlement as too lenient.

A federal judge in Minnesota on Tuesday rejected a plea agreement between the federal government and the Guidant Corporation, saying that the deal did not hold the company sufficiently accountable for an episode in which it sold potentially flawed heart defibrillators.

The ruling was a setback for the Justice Department, which had characterized the agreement as a demonstration of its get-tough approach to corporate crime. The deal called on Guidant to plead guilty to two misdemeanors and pay a $296 million fine, described as the largest by a medical device company.

But in his opinion, the judge, Donovan W. Frank of United States District Court said the provisions of the agreement were 'not in the best interest of justice and do not serve the public�s interest because they do not adequately address Guidant�s history and the criminal conduct at issue.'

The story brought several peculiar aspects of the settlement to light.

- The settlement seemed to ignore the most egregious misconduct alleged:

Recently, prosecutors charged in court papers that Guidant had knowingly sold potentially flawed defibrillators. But that issue was not addressed in the plea agreement. Instead, the company agreed to plead guilty to two misdemeanor charges that related to the completeness and accuracy of its filings with the Food and Drug Administration.

- It was not really the Guidant subsidiary that was going to plead guilty, but a new entity apparently constructed solely to "take the rap."

The company created to enter Guidant�s plea, Guidant LLC, existed only on paper.

In his ruling, Judge Frank took direct aim at that argument, suggesting it contradicted the Justice Department�s own public statements about the case. He noted that a department news release said Guidant�s plea deal was 'about accountability.'

Judge Frank wrote, 'The interests of justice are not served by allowing a company to avoid probation simply by changing their corporate form.'

So, the judge demanded that at least the company be put on probation, and possibly be required to do some good works:

Judge Frank said that prosecutors should have sought probation for Guidant and its parent, Boston Scientific. Probation would have required the companies to take certain steps, like helping to rebuild public confidence in the safety of heart devices, in addition to paying a fine.

The judge also outlined other provisions that might be suitable in a new plea deal, including charitable activities by Guidant to improve heart device safety and improve medical care among minority patients.

Daniel R. Margolis, a lawyer in New York who works on medical product cases, said that probation is effectively a way for a court to maintain some control over a company�s activities after it pays a financial penalty.

However, the judge felt he could not require prosecution of the actual people who authorized, directed, or implemented the misbehavior at issue.

After a hearing this month, several doctors and patients wrote to Judge Frank urging him to reject the deal and arguing that former Guidant executives should be criminally charged in the case. But Judge Frank noted in his ruling that it was up to prosecutors, not a court, to decide who should be prosecuted.

We have discussed a series of settlements and convictions resolving cases of alleged wrong-doing by health care organizations.  Almost none included any penalties for people who authorized, directed or implemented the bad behavior.  None of the financial penalties were so big as to be more than another cost of doing business for the organizations involved.  Some of the cases included gimmicks, like a subsidiary constructed only to plead guilty, that otherwise seemed to lessen accountability. 

Despite the US Justice Department's assertion of a new "get-tough" approach, this new settlement did not seem like any more of a deterrent to bad behavior than the parade of settlements that cam before, that is, until Judge Frank acted. 

We applaud the judge for trying to hold at least one large health care organization accountable for its misdeeds.  However, I again suggest that to truly reform health care, we need rigorous regulation of health care organizations that has the power to deter unethical behavior that may risk patients' health.

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Explaining Health Care Executives' Impunity - the (Unexplained) Leniency of Prosecutors

On Health Care Renewal, we noted many legal settlements and criminal convictions in cases alleging unethical behavior by health care organizations.  Some organizations have settled, and/or pleaded guilty, and/or been convicted numerous times.  And we have said repeatedly, (e.g., here) such legal actions will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Relatively small fines imposed on large corporations pain workers on the line and stockholders while sparing the richly paid top hired management and the boards that will not reign them in.

A recent article in the New York Times about a plea agreement in a case in which the Guidant subsidiary of Boston Scientific was alleged to have withheld information about defects in its implantable cardiac defibrillators that were associated with six patient deaths (see most recent post here) throws some light onto the apparent impunity of top health care leaders.  The article reiterated:

In recent years, the Justice Department has won hundreds of millions of dollars in fines from drug and device makers, including a string of cases in which the companies have pleaded guilty to violating federal laws.

But corporate executives rarely face criminal charges in such actions....

The article noted:

�Prosecutors want the money,� said Mr. Fleder, of Hyman, Phelps & McNamara. �And at least in the big money settlements they have had in pharma cases, it appears that prosecutors are willing to settle even if it means forgoing prosecutions against individuals.�

Yet, as we have said,

Short of executives facing prosecution, companies see the hefty financial settlements demanded by the Justice Department as another price of doing business, industry critics say.

There does not seem to be a legal barrier to holding these executives accountable:

... they can be held liable under federal law for regulatory violations that occur on their watch � whether or not prosecutors can prove the executives participated in the wrongdoing or even knew about it.

But if this is so, why have corporate leaders not faced such penalties before? An experienced prosecutor explained it at one level:

A former prosecutor in many drug and medical device-related cases, Michael K. Loucks, said he never charged corporate executives with misdemeanors � which apply in cases when the violations are deemed unintentional � because he believed that being barred from the industry was too harsh a consequence.


�I think that if you are going to take actions that take away someone�s liberty or livelihood, you should have to prove felony conduct,� said Mr. Loucks, who spent over 20 years as an assistant United States attorney in Boston.

This ends up as a very disturbing response. Professionals who hold positions of trust in society, most particularly health care professionals, can lose their livelihood for unprofessional conduct or unethical actions that are not felonies, or even criminal. In health care (and in some other fields, like law), professionals are held to a higher standard that merely avoiding conviction for felonies. (For examples, peruse the lists of doctors and other health care professionals whose licenses were suspended or revoked by state medical boards.)

In our current world of commercialized health care, leaders of large health care organizations can take actions that have as important consequences for peoples' health and safety as the individual actions of doctors and nurses. Why should they not be at risk of the loss of their current livelihood for actions that risk peoples' health and safety?

I do not know why an experienced prosecutor felt that health care executives deserved so much more leniency than health care professionals may receive from medical boards. Maybe in the future we will begin to hold those who authorized or directed unethical actions that risk health and safety accountable.

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The Settlement and Conviction Round-Up: Friday Frequent Flier Edition

It's time for one of our periodic round-ups of legal settlements and convictions of health care organizations.  This time, we report on three frequent fliers, in chronologic order of the appearance of the relevant news stories.

Robert Wood Johnson University Hospital Hamilton (UMDNJ)

We have written multiple times about the woes of the University of Medicine and Dentistry of New Jersey, which lead to a deferred prosecution agreement and operation under the watchful eye of a federal monitor for several years, and resulted in criminal convictions of a former Dean and the state legislative leader he hired.  Scroll through this for far too many details. 

Now, the redoubtable Newark Star-Ledger reports:

Robert Wood Johnson University Hospital in Hamilton has agreed to pay $6.35 million to settle allegations that the facility defrauded Medicare, Justice Department officials said today.

The Mercer County hospital was accused of inflating charges to Medicare patients to obtain bigger reimbursements from the federal government.

'Taxpayer dollars should go towards quality health care, not wasted on fraud and abuse,' said Tony West, Assistant Attorney General for the Civil Division of the Department of Justice.

The hospital denied wrongdoing in the settlement, said Skip Cimino, the facility's president and CEO. 'Robert Wood Johnson University Hospital Hamilton has resolved the outstanding Medicare Reimbursement issue with the government and looks forward to continuing its service to the community,' he said.

Note that Robert Wood Johnson Medical School is one of the two medical schools contained within UMDNJ.

Fresenius

I admit that we last discussed Fresenius Medical Care Holdings Inc, a for-profit provider of kidney dialysis services, a while ago, back in 2007. At that time, the company settled charges made by the US Federal Trade Commission that it had tried to restrain competition. Last week, the Tennessean reported:

A long-running whistleblower complaint against the once-Nashville based Renal Care Group has led to a $19.3 million federal court judgment against the acquired dialysis supplier and the German company that bought it four years ago.

The lawsuit, which focused on improper claims submitted to Medicare for home dialysis supplies, named Renal Care Group Supply Co. and Fresenius Medical Care Holdings Inc., as co-defendants. The federal government joined the whistleblower complaint more than two years ago.

Renal Care operated a shell billing company solely to submit claims on behalf of itself in violation of federal law that requires suppliers to be independent of the dialysis facilities where patients are treated, the government said. Even after employees raised concerns, Renal Care continued to operate the billing company because of the 'illicit revenues it created,' the suit said.

One employee wrote: 'I do not wish to go to jail' and felt the company's plan 'was not in the best interests of patients,' said federal Judge William J. Haynes Jr. of Nashville in his ruling.

The billings reportedly occurred over a six-year period beginning in 1999. The Fresenius-Renal Care acquisition closed in 2006 at a sales price of $3.5 billion.

Pfizer

Pfizer Inc, which proclaims itself to be the world's largest pharmaceutical company, has provided an amazing amount of material for Health Care Renewal. In September, 2009, we discussed the huge, that is, $2.3 billion dollar settlement Pfizer made of criminal and civil fraud charges. At that time, this was the fourth settlement of charges of unethical marketing made by Pfizer since 2002.

Since then, we have discussed another fraud settlement in October, 2009, and yet another in January, 2010.

Today, Bloomberg reported:

Pfizer Inc. violated U.S. racketeering law in the marketing of its epilepsy drug Neurontin and should pay $142.1 million in damages, a jury decided.

Kaiser Foundation Health Plan Inc. and Kaiser Foundation Hospitals claimed in a monthlong trial in federal court in Boston that Pfizer illegally promoted Neurontin for unapproved uses. The insurer said it was misled into believing migraines and bipolar disorder were among the conditions that could be treated effectively with Neurontin, approved in 1993 by the U.S. Food and Drug Administration for epilepsy.

'The jury found Pfizer engaged in a racketeering conspiracy over a 10-year period,' Tom Sobol, a lawyer for Kaiser, said after yesterday�s verdict. 'That bodes well for future cases.'

Furthermore, this was a very special kind of verdict:

The jury, which deliberated for two days, found that New York-based Pfizer violated the federal Racketeer Influenced and Corrupt Organizations Act, or RICO, and California�s Unfair Competition Law. Under RICO, the amount of actual damages found by the jury, $47.36 million, will be tripled.

The RICO statute was meant to be used against organized crime.  A jury seems to have found that Pfizer is a "Racketeer Influenced and Corrupt Organization," that is, the moral equivalent of a crime syndicate. 

Summary

So this week's settlement and conviction round-up shows the impunity that many health care organizations have exhibited thus far.  Some organizations have been charged again and again with unethical behavior.  Now one of the most frequent of the fliers has been convicted under the RICO law, certainly a new low. 

Yet none of the affected organizations in this post, and precious few we have discussed at other times, seem to have suffered any major consequences.  All have paid fines, some which seemed large at the time, but which have never been large enough to seriously threaten the organizations' financial well being.  None of the organizations seems to have lost business, or even much reputation.  Very few of the people within the organizations who approved, lead or implemented unethical behaviors have suffered any sort of negative consequences.

There seems to be something very wrong here.  In the US, we have put much of our health care system in the hands of very large organizations, for-profit and not-for-profit, without holding these organizations and their leaders accountable for their actions.  The results have been increasingly rich leaders who often behave like a new aristocracy, and repeated bad behavior by the organizations they lead. 

Our latest effort at health care "reform" has continued to rely on large private organizations, while so far not adding to their or their leaders' accountability.  In my humble opinion, if we really want to reform health care so as to improve quality, increase access, control costs, and support professionalism, we will have to make our new health care oligarchs accountable. 

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