Productive Employment

With desultory interest, I picked up a 1993 novel at the library, The Surgical Arena, by Peter Grant, M.D., “a former navy pilot who became a surgeon.” The following snippet, on page 18, says a lot in a nutshell:

“We’ve got one shot at getting into medical school and that means getting our grades into the top twenty.”

“Why don’t we all just quit and take some gut courses that will prepare us to be brokers,” said Beckwith, one of the veterans. “We can sit on our asses and make a lot of dough.”

“You have to be a crook to be successful in that field,” said Norman. “Besides, you’ll never get any satisfaction out of life unless you put something worthwhile back into it.  I didn’t fight in the infantry to come back and become a broker.”

1993 was the same year that a short-sighted Congress cancelled the Texas supercollider project.  It’s been correctly noted that had that not happened, the recent Higgs-Boson particle observation might have occurred here rather than in Switzerland.  A number of the now-unemployed physicists involved were hired by Wall Street firms.

Although basic banking DOES perform a socially useful function -- firms and individuals DO need capital -- it is very questionable what if anything “banking innovations” (CDOs, derivatives, very rapid short-term computerized trading, etc.) that have proliferated since 1993 have contributed to society.   As Roger Bootle wrote:

For m]uch of what goes on in financial markets . . . [t]he gains to one party reflect the losses to another, and the vast fees and charges racked up in the process end up being paid by Joe Public, since even if he is not directly involved in the deals, he is indirectly through the costs and charges that he pays for goods and services.

In 1995, the assets of the six largest bank holding companies was no more than 17% of GDP, but at the end of 2010, the assets of the six largest bank holding companies were valued at  just over 63 percent of GDP. This financialization of the economy has been at the expense of the rest of us. And finance is now the top area where graduates of Ivy League universities find jobs.

As Dale Carnegie points out, all people – even gangsters like Al Capone – think of themselves as “good guys”.  Lloyd Blankfein, Goldman Sachs’ CEO, is probably sincere when he says he is “doing God’s work”.  But many of us do not agree. Things work as well as they do only because many people are actually still working hard at useful jobs that do contribute to society.  My thanks go to those – and not to the so-called “wealth creators.”

Quantitating the Corruption of Finance Leadership (Who May Overlap with Health Care Leadership)

The bad leadership in health care that we frequently discuss now appears to exist in a context of an increasingly corrupt society.  In particular, we have discussed how the leadership of major health care organizations, such as teaching hospitals, and the universities within which medical schools operate, now frequently interlocks with the leadership of finance.  The ongoing global financial problems have been blamed on bad leadership in finance.

A Survey of Finance Leaders

Now, a survey by a law firm that supports corporate whistleblowers offers some quantitation of the corruption within finance.  The press release for the survey is here, and a summary of results is here.  The survey respondents were 250 US based, and 250 UK based "senior individuals within the financial services industry."

Key results were:

- 24% of those surveyed believed that the rules may have to be broken in order to be successful.

- 25% of UK respondents believed financial services professionals may need to engage in unethical or illegal activity to get ahead; US respondents were only slightly less inclined to engage in wrongdoing at 22%.

- 12% of total respondents believed that it was likely that staff in their company have engaged in unethical or illegal activity in order to be successful.

Perhaps exhibiting ego bias, the senior professionals thought that there competitors were even worse:

39% of total respondents believed it was likely that their competitors have engaged in illegal or unethical activity in order to be successful.

A substantial number of respondents admitted that they would be willing to engage in illegal activity were the circumstances favorable:

16% of total respondents were at least fairly likely to engage in insider trading if they could get away with it. Perhaps more troubling, only 55% of all respondents could say definitively that they would not engage in insider trading if they could make $10 million with no risk of getting arrested.

An important fraction thought that the worked within organizations that encouraged unethical and illegal behavior:

- 30% of all financial services professionals reported feeling pressure to compromise ethical standards or violate the law as a result of their compensation or bonus plan.

- In assessing other pressures that may lead to unethical or illegal conduct, 23% of all respondents also reported feeling other pressures to compromise ethical standards or violate the law.

Note that due to social desirability bias, the survey likely understates these problems.

Comment

Also note that at least so far, this survey is not much less anechoic than much of the evidence of corruption in health care that we have discussed. Although it has been briefly noted in the financial blogs and press, like Reuters, BusinessWeek, and also in the New York Daily News and Los Angeles Times, no other main-stream media has commented yet.

One post on a Forbes blog by Peter Cohan made the weary observation:

Business corruption follows a well-worn path. The boss tells you to bend the rules, and knowing that ignoring that request will cost you your job, you do what you’re told. At the end of the year you get a big bonus and promotion.

Then a disgruntled customer or employee leaks the shady activity to the press or a regulator and your company pays a fine and gets a few weeks of bad headlines. Time passes and the cycle restarts.

He concluded in part:

The conditions that make business corruption pay off have not changed despite numerous scandals — recent ones include Enron, WorldCom, Madoff, and Lehman Brothers – all of which reflect the same conditions that prompted me to write Value Leadership a decade ago: Let executives write their own report cards, base bonuses on those numbers and you will get corruption every time.

The solution is as clear to me as it is impossible to implement. First, all corporate financial reporting must be conducted by highly paid government auditors –rather than by auditing firms that are paid by the companies they audit. Second, performance-linked bonuses must be set aside in escrow accounts for a decade until it’s clear whether the true benefits of business strategies exceed their costs.

As long as there is no limit to how much money companies can put into politicians’ pockets, this fix will never be implemented. That’s because money puts big business in control of politicians who — if they were responding to the interests of the majority of Americans — would eliminate the conditions that make the benefits of business corruption exceed its costs.

But business corruption pays for those who finance Washington campaigns so the soil in which it flourishes remains fertile.

The same is likely to be true of unethical practices by and corruption of health care leadership. After all, health care leaders now mainly come from business management backgrounds, and so have been trained in the same way as financial professionals, and exposed to the same culture that they have experienced. As we have noted, the leadership of health care and finance often overlap. For example, see ours posts on the finance influence on the board of Dartmouth College; the role of the former CEO of bankrupt Lehman Brothers on the board of New York-Presbyterian hospital; the role of finance leaders who derided the Occupy Wall Street as "imbeciles," among other things on the boards of miscellaneous health care organizations; the role of finance leaders on the board of Pfizer, etc, etc, etc.

True health care reform may require larger reform in the greater society.  In any case, we need to reform the culture of health care organizations so that leaders put patients' and the public's health first, and self-interest last.  Furthermore, health care organizations should not provide positive incentives merely for exceeding financial or volume benchmarks, and should provide strong negative incentives for unethical behavior.

Giant GSK Settlement Provides Reminder of the Pervasiveness of Stealth Marketing

The latest  and biggest legal settlement involving health care to hit the news, that of GlaxoSmithKline (GSK) and the US government, has many familiar elements. As summarized by the New York Times,

In the largest settlement involving a pharmaceutical company, the British drugmaker GlaxoSmithKline agreed to plead guilty to criminal charges and pay $3 billion in fines for promoting its best-selling antidepressants for unapproved uses and failing to report safety data about a top diabetes drug, federal prosecutors announced Monday. The agreement also includes civil penalties for improper marketing of a half-dozen other drugs.

As was the case for nearly every other legal settlement we have discussed,

No individuals have been charged in any of these cases.

Thus, how well even such a large settlement will deter future wrong-doing is not clear.

Nonetheless, the documents released with it provide good documentation about how pervasive systematic, deceptive stealth marketing campaigns have become in health care. 

In particular, the official "complaint" filed by the US Department of Justice emphasized all these elements in the stealth marketing of paroxetine (Paxil, Seroxat in the UK) to adolescents.

Manipulation of Clinical Research

We have frequently discussed how health care corporations, particularly pharmaceutical, biotechnology and device companies, now sponsor  the majority of clinical research.  Their control of the design, implementation, analysis and dissemination of clinical research allows manipulation that increases the likelihood that the results will be favorable to their vested interests, usually the products and services they sell. 

We have previously discussed the manipulation of Study 329 to promote the marketing of Paxil (look here and here).  However, the US DOJ document makes these concerns more official.  It included:

Manipulation of Study Endpoints

Study 329 was a randomized controlled trial of Paxil vs imipramine vs placebo for depression in adolescents. The two primary endpoints pre-specified to the US Food and Drug Administration were "the degree to which a patient's Hamilton Rating Scale for Depression ('HAM-D') total score changed from baseline"; and "the patient's 'response' to medication, as defined as (a) a 50% or greater reduction in the patient's HAMD-D score, or (b) a HAM-D score of less than or equal to 8." However, initial analysis by GSK failed to show that Paxil improved either of these two end-points. The company concluded "it would be commercially unacceptable to include a statement that efficacy had not been demonstrated, as this would undermine the profile of [Paxil]."

So the analysis emphasized secondary outcomes, the "Study 329 investigators later added several additional efficacy measures not specified in the protocol. Paxil separate statistically from placebo on certain of these measures." Adding numerous post-hoc measures increased the likelihood of finding a difference on at least one due to chance alone.

Manipulation of Data

Initial analysis of the data suggested that patients given Paxil experienced 11 serious adverse events, including five that appeared related to suicidal ideation or action. When the FDA later reexamined the data, "upon closer examination the number of possible suicide-related events among the Study 329 Paxil patients increased beyond the five patients GSK described in the JACAAP article as having 'emotional lability.' While collecting saftey information for the FDA, GSK admitted that there were four more possible suicide-related events among Paxil patients in Study 329. In addition the FDA later identified yet another possible suicide-related event in the Study 329 Paxil patients, which was also not among the 11 serious advents listed in the JAACAP article. Thus, altogether, 10 of the 93 Paxil patients in Study 329 experienced a possible suicidal event, compared to one in 87 patients on placebo. This is a fundamentally different picture of Paxil's pediatric safety profile than the one painted by the JAACAP article...." 

Manipulation of Dissemination

The report describing the results of Study 329 (Keller MB, Ryan ND, Strober M et al.  Efficacy of paroxetine in the treatment of adolescent major depression: a randomized controlled trial.  J Am Acad Child Adolescent Psychiatry 2001; 40: 762-772.  Link here. ) was written under the control of GSK. "In April 1998, GSK hired Scientific Therapeutics Information, Inc (STI) to prepare a journal article about Study 329. GSK worked closely with STI on the article by providing a draft clinical report to 'serve as a template for the proposed publication.'"

The published report of Study 329 "mischaracterized the results." "Although the ... article identified the study's two primary endpoints in the abstract, the article did not explicitly state that Paxil failed to show superiority to placebo on either of the primary efficacy measures." Also, "the article did not explicitly identify the two protocol-specified primary outcome measures - or that Paxil failed to show superiority to placebo on these two measures. Instead the article claimed that there were eight efficacy measures and that Paxil was statistically superior to placebo on four of them." In addition, "while the article listed the five protocol-defined secondary endpoints, the text of the article omitted any discussion regarding three of the secondary measures on which Paxil failed to statistically demonstrate its superiority to placebo and instead focused on the five secondary measures that GSK added belatedly and never incorporated into the Study 329 protocol. The article claimed that these finve secondary measures had been identified 'a priori,' therefore incorrectly suggesting that all secondary endpoints had been part of the original study protocol." In other words, the final published articles contained multiple outright falsehoods about the drug's efficacy that exaggerated that efficacy.

Furthermore, initial analysis showed that patients given Paxil had more serious adverse events than others. An initial draft of the study article stated, "serious adverse events occurred in 11 patients in the paroxetine group, 5 in the imipramine group, and 2 in the placebo group." These included "headache during down-titration(1 patient), and various psychiatric events (10 patients): worsening depression (2); emotional lability (e.g., suicidal ideation/ gestures, overdoses), (5); conduct problems or hostility (e.g., aggressiveness, behavioral disturbance in school) (2); and mania (1)." As noted above, the number of suicide related events was actually double that noted in this draft as "emotional lability."  However, the published version of the report "falsely state[d] that only one of the 11 serious adverse events in Paxil patients was considered related to treatment...."  Nor did it mention the true number of events related to suicidal ideation or action.

The article only "listed at most five possibly suicidal events among Paxil patients, brushed those off as unrelated to Paxil, and conclude that treating children with Paxil was safe."

Later, GSK marketing materials described the results of the study thus,

This 'cutting-edge,' landmark study is the first to compare efficacy of an SSRI and a TCA with placebo in the treatment of major depression in adolescents. Paxil demonstrates REMARKABLE Efficacy and Safety in the treatment of adolescent depression."

Thus the conrol exerted by GSK over the published article, despite its apparent academic authorship, enabled it to promote a drug that was not efficacious and had major adverse events as remarkably safe and effective, a totally deceptive result that would mislead any health care professional who used the article to guide clinical practice. 

Suppression of Clinical Research

GSK sponsored two other studies of Paxil in pediatric populations, Studies 377 and 701. As stated in the Department of Justice's Criminal Complaint against GSK,

GSK Did Not Publicize the Results of Studies 377 and 701
43. GSK learned the results of Study 377 in 1998 and the results of Study 701 in 2001. Paxil failed to demonstrate efficacy on any of the endpoints of either study.
44. GSK did not hire a contractor to help write medical articles about the results of Studies 377 and 701, as it had with Study 329.
45. GSK did not inform its sales representatives about the results of Studies 377 and 701.

Thus, GSK managed to conceal the fact that the majority of the studies it sponsored about Paxil used for adolescent patients showed no evidence that the drug worked, again seriously distorting the evidence-base on which clinicians made decisions, and doubtless leading to the use of a dangerous, ineffective drug by numerous vulnerable patients.

Bribing Physicians to Prescribe

GSK's sales representative reflected in their call notes their use of money, gifts, entertainment and other kickbacks to induct doctors to prescribe GSK drugs....

One really creative way to pay physicians to be exposed to marketing:

For example, in or about 2000 or 2001, GSK used 'Reprint Mastery Training Programs' or 'RMTS' to further promote drugs by purporting to pay physicians to train sales representative to review reprints of studies. Although the training was purportedly for the representatives, in fact, the sales force was already familiar with the materials. GSK typically paid physicians $250 to $500 to review the reprints.

Thus GSK simply paid physicians to use its drug, a practice characterized as kickbacks in the official complaint.  An article in the Guardian noted that the US Attorney involved in the case put it even more bluntly,

The sales force bribed physicians to prescribe GSK products using every imaginable form of high-priced entertainment, from Hawaiian vacations [and] paying doctors millions of dollars to go on speaking tours, to tickets to Madonna concerts.

Use of Key Opinion Leaders as Disguised Marketers

GSK also created a group of national 'key opinion leaders' ('KOLs') who were paid generous consulting fees. GSK selected many of these physicians based on their prescribing habits and influence within the community and used the speaker fees paid to these physicians to induce and reward prescribing of GSK's products. GSK used these individual to communicate marketing messages focused on the drug's marketing campaigns at the time, including off-label uses. Some physicians on GSK's speaker's board have been paid more than a million dollars for speaking on behalf of the company and recommending its drugs.

Thus key opinion leaders were paid specifically to market drugs, and as a reward, a bribe for prescribing drugs.

Consulting Fees as Kickbacks

In general,

In order to induce physicians to prescribe and recommend its drugs, GSK paid kickbacks to health professionals in various forms, including speaking or consulting fees, travel, entertainment, gifts, grants, and sham advisory boards, training,....

In particular,

During 2000 and 2001 at least, GSK also utilized events termed 'advisory boards' or consultant meetings and forums to disseminate its promotional message. Although these boards were purportedly composed of 'thought leaders' for the purpose of obtaining advice from the physicians, in fact, the 'advisory boards' were little more than promotional events coupled with financial inducement to prescribing and influential physicians.

Also,

GSK typically paid the physician between $250 and $750 to attend each local 'advisory' meeting. The payments did not reflect the value of services. The physician was not required to do anything but show up. GSK had no legitimate business reason to hire thousands of 'advisors' to 'consult' with the company about a single drug.

Manipulation of Continuing Medical Education

GSK also used so-called CME and CME Express programs and other sham training for marketing purposes, and to promote off-labe uses for the GSK prescription drugs.

Furthermore,

These CME programs purported to be independent eduaction free of company influence, but in fact functioned as GSK promotional programs disguised as medical education. GSK maintained control and influence over the purportedly independent CME programs through speaker selection, and influence over content and audience, among other things. Although third party vendors were usually also involved, they served only as artificial 'firewalls' that did not insulate the program from GSK's influence.

Summary

The legal documentation of the GSK settlement demonstrated how one drug company used an integrated, systematic campaign incorporating deception and bribery to sell drugs. Its elements included manipulation and suppression of the clinical research it sponsored, paying key opinion leaders to be disguised drug marketers, outright payments to physicians to prescribe drugs, and manipulation, again using payments to physicians, of supposedly independent continuing medical education. 

Note that while I summarized the elements of the stealth marketing campaign to sell Paxil, particularly for use in pediatric patients, the US government complaint also documents similar activities used to sell other drugs.  Furthermore, other stealth marketing campaigns have come to light through legal action, and many other instances of manipulation and suppression of clinical research, use of KOLs as disguised marketers, kickbacks and bribes, and manipulation of CME have been documented.

This means that any claims that:
- commercially sponsored clinical research provides clear, unbiased data that should drive clinical decisions
- health care professionals and academics paid as consultants by commercial health care firms are not influenced by these payments, and can provide clear, unbiased opinions
- commercially sponsored medical education provides clear, unbiased teaching
unfortunately must be viewed with extreme skepticism. This is particularly unfortunate given that most clinical research is now supported by commercial sponsors, and the majority of influential academics in medicine get some form of payments from the health care industry (look here).

Of course, there are some physicians who consult for commercial firms who actually provide clinical or scientific advice or assistance, and some commercially sponsored activities are honest. But we must wonder what garden path all those advocates for increasing industry "collaboration" to promote "innovation," and who regard conflicts of interest as "inevitable" and "manageable" are taking us down (e.g., look here and here).

Although the current settlement will require a huge payment, as I have said many times before (as early as 2008, here), do not expect such settlements to deter future bad behavior like that listed above.  The cost of the settlement will actually be spread among all company shareholders, all company employees, and likely patients and taxpayers.  However, the settlement will entail no specific negative consequences to the people who authorized, directed, or implemented the bad behavior.  In particular, executives whose remuneration was swollen by proceeds from the sales of affected drugs, and the health care professionals who willingly accepted what the US Attorney called bribes will not pay any sort of penalty.  The bad behavior listed above was doubtless personally very profitable for some people.  Unless people who indulge in such behavior face the possibility of penalties worse than their expected gains, expect such bad behavior to continue.

In fact, as the New York Times reported,

critics argue that even large fines are not enough to deter drug companies from unlawful behavior. Only when prosecutors single out individual executives for punishment, they say, will practices begin to change.

'What we’re learning is that money doesn’t deter corporate malfeasance,' said Eliot Spitzer, who, as New York’s attorney general, sued GlaxoSmithKline in 2004 over similar accusations involving Paxil. 'The only thing that will work in my view is C.E.O.’s and officials being forced to resign and individual culpability being enforced.'

True health care reform would strive to eliminate important conflicts of interest affecting clinical research and medical education.  Specifically, it would prevent corporations that sell health care products or services from controlling clinical research meant to evaluate these products or services.  It would seek to eliminate serious conflicts of interest affecting health care professionals.  Finally, it would prevent vested interests from controlling medical education.  Not that I expect any such reform in the near future, it would be too threatening to those who have personally benefited from the current system.

Hat tip to Dr Howard Brody whose Hooked: Ethics, Medicine and Pharma blog scooped me on the details of the settlement relevant to study 329.

ADDENDUM (11 July, 2012) - see also this post on the 1BoringOldMan blog.

Abbott Pleads Guilty, Settles for $1.6 Billion, but No Individuals Suffer Negative Consequences

Once again, another big US health care organization is set to make a (monetarily) huge legal settlement.  As reported by Bloomberg, Abbott Laboratories will settle allegations about its marketing of Depakote (valproic acid), nominally an anti-seizure medication:

Abbott Laboratories (ABT) (ABT) said it will pay $1.6 billion to settle federal and state claims resulting from an investigation into its epilepsy medication Depakote, the second-largest drug-marketing settlement in U.S. history.

The company will pay $800 million to resolve civil allegations split among federal and state governments, $700 million for a criminal penalty, the Justice Department said in a statement. Abbott marketed the drug, approved for epilepsy, bipolar mania and migraine prevention, for unapproved uses including dementia, the U.S. said.

Note that we discussed preliminary reports of this settlement here.

Huge, but not Compared to Sales

The story included all the obligatory pieces. The settlement is huge, the second largest such financial settlement made by a drug company. However, compared to the money made by the product in question, it was not so large, as noted by the Wall Street Journal,

Depakote was once one of Abbott's best-selling drugs, racking up $1.6 billion in sales for 2007, before patent expirations cleared the way for cheaper generic copies.

A Guilty Plea, of Sorts

The settlement did require the company to

plead guilty to a criminal misdemeanor violation of a federal drug law

per the WSJ, but not to a felony. Nor did it appear that any individual would be charged with anything in connection with this settlement.

Admitting to Deception, Covering Kickbacks

This was so even though the allegations involved more than "misbranding." In fact, the Bloomberg story stated that the company admitted to active deception of physicians and health professionals,

'Abbott admits that from 1998 through 2006, the company maintained a specialized sales force trained to market Depakote in nursing homes for the control of agitation and aggression in elderly dementia patients, despite the absence of credible scientific evidence that Depakote was safe and effective for that use,' the Justice Department said in its statement today.

Abbott also marketed the drug to be used with certain antipsychotic drugs to treat schizophrenia, 'even after its clinical trials failed to demonstrate that adding Depakote was any more effective than an atypical antipsychotic alone for that use,' the Justice Department said.

In addition, the settlement also "covers" allegations of what amounts to bribery.

The settlement also covers allegations that Abbott paid kickbacks to health-care professionals and long-term care pharmacy providers to induce them to promote or prescribe Depakote, the Justice Department said in its statement today.

We Promise Not to Do Such Bad Things for Five Years

Yet despite these implications of massive deception and bribery of health care professionals, the only other punishment is a sort of probationary period during which the company promises not to do such things, per the WSJ.

Under the settlement, Abbott agreed to a five-year probationary period. During this term, Abbott will report any probable violations of the Food, Drug and Cosmetic Act to the probation office, according to the Justice Department.

Also, its chief executive will certify compliance with this reporting requirement, and its board will report annually on the effectiveness of the company's compliance program.

In addition, Abbott agreed not to compensate sales reps for off-label sales and take other steps during the probationary period.

A Bland Admission of Nothing

As is customary, an Abbott spokesperson provided a bland, positive statement that admitted no wrong-doing, per the WSJ,

'We are pleased to resolve this matter and are confident we have the programs in place to satisfy the requirements of this settlement,' Abbott General Counsel Laura Schumacher said in a news release. 'The company takes its responsibility to patients and health care providers seriously and has established robust compliance programs to ensure its marketing programs meet the needs of health care providers and legal requirements.'

Previous Misbehavior

Apparently not taken account into stories about or the crafting of the current settlement was Abbott's previous record of legal misadventures:

Obstructing Justice - In 2003, an Abbott subsidiary settled civil allegations and pleaded guilty to obstructing a federal criminal investigation of its marketing practices, resulting in fines of $614 million (mentioned in this post, and see the Los Angeles Times.)
Suppressing Reports of Drug Contamination - In 2009, the FDA charged that an Abbott subsidiary failed to report bacterial contamination of an optic product (see post here).
Blocking Generic Competition - In 2010, Abbott settled with the New York state Attorney General allegations that the company conspired to block generic competition for its lipid lowering drug TriCor (see Reuters and our post here).
Inflating Charges - In 2010, Abbott also settled with the US Justice Department for $421 million charges that it defrauded Medicare and Medicaid (see post here).
Paying Kickbacks to Doctors - In 2010, an Abbott subsidiary also settled with the US government charges it paid kickbacks to physicians to prescribe other cholesterol lowering drugs (see post here).
Anti-Competitive Pricing Practices - In 2011, Abbott settled lawsuits alleging that its anti-competitive practices inflated prices of anti-viral drugs (see post here).

More Richs for the CEO

Despite this now long record of ethical missteps, the Abbott CEO gets richer every year. In 2009, his total compensation was over $26 million (see this post). According to the company's 2012 proxy statement, his pay has gone down ever so slightly, from $25,564,283 in 2010 to $24,010,902 in 2011, but still approximately 480 times the median earning of a US family.

Summary

The march of legal settlements progresses. Despite its showy finery of legal language, it fails to include meaningful negative consequences for any individuals, and particularly for those who authorized, directed or implemented unethical actions. It provides the illusion of financial punishment of the organizations involved. However, the amounts paid, albeit large, never approach how much money was brought in by the bad behavior. Furthermore, the costs are diffused among many employees, and for publicly held for-profit corporations, among the nominal owners, the stock-holders. Yet the top executives who personally gained the most almost never have had to answer for the misbehavior, and despite of, or perhaps because of the misbehavior continue to collect voluminous compensation.

Despite promises of tougher action, nothing seems to be changing in this parade. However, without real penalties for individuals involved in bad behavior, expect to deterrent of future bad behavior.

So once more,.... if we really want to reform health care, we must make the leaders of health care organizations accountable for their organizations' effects on patients' and the public's health, and make sure they get reasonable, not royal compensation reasonably related to their organizations' performance, including ethical performance.

The Spoils of a "Scorched-Earth Defense" - Merck CEO Got $13.3 Million in 2011

Last week, Bloomberg reminded us of the legal baggage that pharmaceutical giant Merck is carrying. The company had announced yet another settlement of legal actions pertaining to its ill-starred but very profitable sales of now withdrawn Vioxx (rofecoxib) in 2011 (see post here). Now the settlement, including a guilty plea was accepted by a judge.

A unit of Merck & Co. (MRK), the second- largest U.S. drugmaker, pleaded guilty to a criminal misdemeanor charge as part of a $950 million settlement of a U.S. government probe of its illegal marketing of the painkiller Vioxx.

An official of Merck Sharp & Dohme said today that the company agreed to plead guilty to one count of misbranding Vioxx. U.S. District Judge Patti Saris in Boston accepted the plea as part of the drugmaker’s agreement to pay a $321.6 million criminal fine and $628.3 million to resolve civil claims that it sold Vioxx for unapproved uses and improperly touted its safety.

'I’m certainly going to accept this agreement because I think it’s in the public interest,' Saris said from the bench. 'I hope the size of this settlement and the fact that all these cases are being pressed by the federal and state governments -- the 44 states’ attorneys general -- will be a signal that this isn’t acceptable conduct.'

But unacceptable conduct can lead to a great deal of revenue. As Bloomberg noted,

Approved by the Food and Drug Administration in 1999, Vioxx became Merck’s third-largest-selling drug by 2003, generating $2.5 billion in annual sales. The company pulled Vioxx off the market in 2004 after a study found it posed an increased risk of heart attacks and strokes.

It can also lead to a great deal of personal profit for those at the company tasked with defending such "unacceptable conduct," and what has now been found to be criminal behavior. Writing in Slate, Snigdha Prakash, who wrote All the Justice Money Can Buy about the legal aftermath of Vioxx, identified the current Merck CEO and board chairman as the architect of the defense of Vioxx, as

best known for his phenomenal success in defending a sordid chapter in Merck’s recent past—its years-long silence about the safety problems of the popular painkiller Vioxx.

Furthermore, she wrote,

As he showed with the Vioxx litigation, Frazier is adept at mounting a scorched-earth defense that minimizes payouts to potential plaintiffs.

Tens of thousands of former Vioxx users sued Merck after it withdrew the drug, alleging Vioxx had caused them to suffer heart attacks and strokes. Frazier, then the company’s general counsel, declared Merck had done nothing wrong and refused to settle. 'We’ll fight every case,' he declared, and hired top-flight law firms in several East Coast cities, in the South, in Chicago, and Los Angeles, as well as a prominent New York firm to coordinate the overall strategy. It took three years and $2 billion in legal expenses for Frazier’s hard-nosed tactics to pay off. Merck settled in late 2007 for a relative pittance, resolving some 50,000 Vioxx cases for just under $5 billion. It was a far cry from the $25 billion to $50 billion in liability that analysts had predicted when Merck withdrew the drug.

So it appears that Mr Frazier is now reaping his rewards. The Dow Jones News Service reported earlier in April,

Merck & Co.'s (MRK) leader received compensation valued at $13.3 million for 2011, up 41% from the year before, reflecting his ascension to the drug maker's top post and Merck's ability to exceed certain internal performance targets.

Kenneth Frazier, 57, became Merck's chief executive at the beginning of 2011 and chairman of the board in December. He was previously head of Merck's human health business.

In a proxy statement filed Thursday with the U.S. Securities and Exchange Commission, Merck said certain elements of Frazier's compensation reflected growth in Merck's sales and adjusted earnings for 2011.

In addition, Merck's board considered 'his performance, leadership, planning and oversight during a time of continued economic, regulatory and political challenges for the healthcare industry.'

Earlier this year, Frazier acknowledged that Merck had a tough 2011. The company endured setbacks including negative clinical data for a once-promising heart drug, vorapaxar. Merck's full-year stock price performance lagged behind most of its large-pharmaceutical peers.

But Merck of Whitehouse Station, N.J., continued to cut costs and was able to raise its dividend for the first time in seven years in 2011. Frazier said in January he was optimistic about 2012.

Frazier's total compensation included: $1.5 million in salary, $3.1 million in stock awards, $3 million in option awards, $3.1 million in non-equity incentive plan compensation, and $2.6 million change in pension value and non-qualified deferred compensation earnings.

So somehow a "tough 2011" for Merck's stockholders (Merck's stock price rose a mere 3.9%, from 36.29 to 37.70 through 2011) resulted in a cornucopia of riches for Mr Frazier. So rather than being rewarded for "maximizing shareholder value," (see post here) maybe Mr Frazier was rewarded for, as Ms Prakash put it, "burying monumental corporate failures at Merck."

Here is the latest version of how top health care organizational insiders manage to make even more money no matter what, in this case, no matter what happens to the fortunes of the nominal owners of the company, no matter what happens to the company's once proud reputation, and particularly no matter what happened to the patients unfortunate enough to suffer adverse effects from its drug.

We will not be able to truly reform health care, to really improve outcomes, improve access, and control costs, until we hold the leaders of health care organizations accountable.

Once More with Feeling - Johnson and Johnson Found Guilty, Fined $1.1 Billion

The latest legal black eye for giant pharmaceutical and device company Johnson and Johnson appeared in an Arkansas court room.  As documented by Bloomberg, via NJ.com,

Johnson & Johnson was ordered to pay $1.1 billion by a state judge after an Arkansas jury found the company’s officials misled doctors and patients about the risks of the antipsychotic drug Risperdal.

Jurors in Little Rock yesterday said the company’s marketing campaign also violated consumer-protection laws. The panel deliberated about three hours before finding J&J and its Janssen unit engaged in 'false or deceptive acts' by sending a 2003 letter touting Risperdal as safer than competing drugs to more than 6,000 doctors across the state.

The prosecutors had alleged a variety of kinds of deceptions about Risperdal,

Along with contending that J&J and Janssen defrauded the Medicaid program by failing to properly outline the antipsychotic medicine’s risks, Arkansas officials alleged J&J officials deceptively marketed the drug as safer and better than competing medicines.

The state also argued the companies marketed the drug for 'unapproved uses, including various symptoms in children and the elderly' after being warned by federal authorities to halt such sales.

In summary,

Arkansas Attorney General Dustin McDaniel said in an e- mailed statement that he sued because residents in the state deserved to be protected from 'fraud and deceptive practices.'

He said that jurors found 'Johnson & Johnson and Janssen Pharmaceuticals lied to patients and doctors because they cared more about profits than people.'

Bloomberg noted that

It’s the third jury verdict against J&J, the second-biggest maker of health products, in cases where states alleged it hid Risperdal’s risks and tricked Medicaid regulators into paying more than they should have for the medicine. Louisiana and South Carolina juries also found the company’s Risperdal marketing violated consumer-protection laws.

In fact, this is just the latest in a remarkable string of legal cases suggesting an ongoing pattern of unethical and illegal behavior by this very large health care corporation. As we wrote recently, this included
- Convictions in two different states in 2010 for misleading marketing of Risperdal, as noted above
- A guilty plea for misbranding Topamax in 2010
- Guilty pleas to bribery in Europe in 2011 by J+J's DePuy subsidiary
- A guilty plea for marketing Risperdal for unapproved uses in 2011 (see this link for all of the above)
- Accusations that the company, which makes smoking cessation products, participated along with tobacco companies in efforts to lobby state legislators (see post here)
- A guilty plea to misbranding Natrecor by J+J subsidiary Scios (see post here)
- More recently, in 2012, testimony in a trial of allegations of unethical marketing of the drug Risperdal (risperidone) by the Janssen subsidiary revealed a systemic, deceptive stealth marketing campaign that fostered suppression of research whose results were unfavorable to the company, ghostwriting, the use of key opinion leaders as marketers in the guise of academics and professionals, and intimidation of whistleblowers. After these revelations, the company abruptly settled the case (see post here).
- Most recently, there are reports that the company is in negotiation with the US Department of Justice to settle other lawsuits about the marketing of Risperdal, perhaps for as much as $1.8 billion (see this BusinessWeek story.)

Meanwhile, as we also discussed recently, Johnson and Johnson seems to have lost the ability to manufacture high quality products. It has had to make 30 separate product recalls since 2009. The latest was Liquid Infant Tylenol. (The current WSJ Health Blog list of recalls can be found here.)

So the real question here is how many instances of manufacturing of defective, mislabeled, contaminated, or harmful products, and how many court cases showing unethical or illegal behavior will it take until the leadership and governance of this company improves (and by extension, the leadership and governance of other large health care corporations with similar bad records improves).

As we posted not long ago, the CEO who presided over most of these messes will be allowed to retire with a huge golden parachute.  His devotion to "making the numbers," that is, hitting short-term revenue targets ahead of all other goals, probably had something to do with a company once thought of as a paragon of corporate behavior turning so bad.  Yet he became extremely rich doing this, and neither his riches nor his legal status have ever been challenged.  His successor apparently will be another former sales representative who may be just as devoted to "making the numbers,."  Thus has the business school dogma that short-term financial results, prettied up as "shareholder value," is the only thing that should matter to corporate leadership (look here) poisoned health care.

How many more doctors and patients have to be deceived, how many products have to be contaminated or defectively made before we demand better leadership of health care organizations?  

Three Facets of One Hospital: Coddling the Rich, Hounding the Poor, and Crooked Executives

Juxtaposing three news stories from the past few months raises disturbing questions about the priorities of the leaders of one of the US' more prestigious hospitals.

"Chefs, Butlers, Marble Baths: Hospitals Vie for the Affluent"

 This 21 January, 2012 article from the New York Times focused on the ritzy comforts now provided for wealthy (but perhaps not very sick) patients at the renowned New York Presbyterian/ Weill Cornell Hospital.  It opened,

The feverish patient had spent hours in a crowded emergency room. When she opened her eyes in her Manhattan hospital room last winter, she recalled later, she wondered if she could be hallucinating: 'This is like the Four Seasons — where am I?'

The bed linens were by Frette, Italian purveyors of high-thread-count sheets to popes and princes. The bathroom gleamed with polished marble. Huge windows displayed panoramic East River views. And in the hush of her $2,400 suite, a man in a black vest and tie proffered an elaborate menu and told her, 'I’ll be your butler.'

It was Greenberg 14 South, the elite wing on the new penthouse floor of NewYork-Presbyterian/Weill Cornell hospital. Pampering and décor to rival a grand hotel, if not a Downton Abbey, have long been the hallmark of such 'amenities units,' often hidden behind closed doors at New York’s premier hospitals. But the phenomenon is escalating here and around the country, health care design specialists say, part of an international competition for wealthy patients willing to pay extra, even as the federal government cuts back hospital reimbursement in pursuit of a more universal and affordable American medical system.

Additional amenities include:

A waterfall, a grand piano and the image of a giant orchid grace the soaring ninth floor atrium....

Also,

the visitors’ lounge seems to hang over the East River in a glass prow and Ciao Bella gelato is available on demand....

An architect who specializes in designing such luxury facilities for hospitals noted:

'These kinds of patients, they’re paying cash — they’re the best kind of patient to have,' she added. 'Theoretically, it trickles down.'

Note that the article also mentioned other hospitals which offered similar luxuries, including Johns Hopkins Hospital in Baltimore, Cedars-Sinai Medical Center in Los Angeles, and Mount Sinai Medical Center in New York.

On the other hand,....

Hounding the Poor for Payment While Getting Government Money for Indigent Care

On 12 February, the New York Times published an article about how New York Presbyterian/ Weill Cornell deals with patients with fewer resources than those discussed above:

For most of her life, Hope Rubel was a healthy woman with good medical insurance, an unblemished credit history and a solid career in graphic design. But on the day an ambulance rushed her to a Manhattan hospital emergency room shortly after her 48th birthday, she was jobless, uninsured and having a stroke.

Ms. Rubel’s medical problem was rare, a result of a benign tumor on her adrenal gland, but the financial consequences were not unusual. She depleted her savings to pay $17,000 for surgery to remove the tumor, and then watched, 'emotionally paralyzed,' she said, as $88,000 in additional hospital bills poured in. Eventually the hospital sued her for the money.

Yet that year the hospital, NewYork-Presbyterian/Weill Cornell, had already collected $50.2 million from the state’s so-called Indigent Care Pool to help care for people like Ms. Rubel who have no insurance and cannot pay their bills.

Note that the article also included other New York hospitals that allegedly used aggressive collection tactics on poor patients even though they too collected government money for indigent care. These included NYU Langone Medical Center and State University of New York Downstate Medical Center.

And one more...

Kickbacks for Hospital Executives

For some reason, the only media coverage of this story was not in New York, but by the Philadelphia Inquirer on 13 February, 2012.

The FBI said that ... [Michael Yaron] he received asbestos-removal and construction contracts at New York Presbyterian Hospital for two of his companies, Cambridge Environmental & Construction Corp. and Oxford Construction & Development Corp., because he paid about $2.3 million in kickbacks starting in 2000.

Neither Yaron, a resident of Meadowbrook, Montgomery County, nor his attorneys could be reached for comment yesterday. No one answered at Yaron Properties, his offices on Arch Street in Old City.

Bucks County native Moshe Buchnik, a president of two asbestos-abatement companies, was also convicted after the four-week trial. Santo Saglimbeni, a former vice president of facilities operations at the hospital, and Emilio 'Tony' Figueroa, a former director of facilities operations at the hospital, were also convicted. The FBI said the two former hospital employees steered contracts to Yaron and Buchnik in exchange for the kickbacks.

The Inquirer apparently covered the story because Yaron lives in Philadelphia. Thus it treated the convictions of a former vice president and former director of facilities operations at New York Presbyterian/ Weill Cornell Hospital as afterthoughts.

Summary

Thus, in the last six weeks, we have been treated to stories that showed how New York Presbyterian/ Weill Cornell Hospital has devoted substantial resources to create luxury suites for rich patients, presumably because they may pay cash; while simultaneously hounding poor patients who could not pay their large medical bills, even though the hospital was receiving government funds for indigent care; and until recently was employing some executives now shown to have abused their authority.

The themes of the three individual stories should be familiar.

The first story was a reminder that the very rich are different from you and me in how they interact with the health care system. In many ways, the rich and powerful - some might call them the one percent - are personally protected from various aspects of health care dysfunction. For example, here we have discussed how wealthy executives seem to be able to obtain health insurance with benefits unheard of by the more common folk, and here we discussed how the wealthy and influential may get preferential hospital treatment. Thus, even one percenters who are not otherwise involved in health care may not be inclined to lend their support to any efforts to really reform the system.

Aggressive bill collection practices by hospitals which are supposed to serve the poor are also old news. We first discussed such practices occurring in New York City in 2004 - yes, this blog is that old. We also discussed such practices in Baltimore in 2008. Such practices are an example of mission-hostile management.

Finally, we have commented many times about misbehavior by health care executives, and discussed examples of fraud, kickbacks, and health care corruption. It has been unusual, however, for individual executives to actually suffer negative consequences when they induce systemic misbehavior in their organizations. Instead, the results are often legal settlements that only lead to financial penalties on the organizations that are no more than costs of doing business.

However, the juxtaposition of stories that a hospital has been coddling the rich, and simultaneously hounding the poor while it was lead by at least a few criminal executives is unusual. One would think that they should lead to an in-depth look at the leadership and governance of the institution in question, perhaps even to some reform of same. (By the way, one area of interest to such an investigation should be the presence of several former and current leaders of some of the failed financial firms that lead us into the global financial crisis or great recession on the board of that hospital, as we discussed here and here.)

However, so far I seem to be only one to note the inter-relationships of these stories, and their implications, while obvious, therefore remain anechoic.

So I get to repeat.... Health care organizations need leadership that understands, and knowledgeably upholds the organizations' missions and patients and the public's health. The leaders should be subject to incentives that align with these responsibilities, and should not be given opportunities to personally profit from activities hostile to the mission.

Unequal Justice Under Law - Comparing Cases of Alleged Misbehavior by Large Health Care Organizations and Individuals

How the wealthy and powerful have become able to play by a different set of rules than those affecting ordinary people may be the defining issue of our time.  Yesterday, President Obama's State of the Union message asked for an economy in which "everyone plays by the same set of rule."  We posted about how this issue, which got national attention due to the Occupy movement, affects health care here.

We have previously posted again and again about how the penalties for misbehavior by large US health care organizations seem to be so minimal as to be incapable of deterring future bad behavior (e.g., see posts about legal settlements).  At most, corporations often pay fines that are no more than a cost of doing business.  They rarely have to admit guilt, and when they do, it is usually to a relatively trivial charge.  The people who authorized, directed, or implemented the bad behavior almost never suffer any negative consequences.  Thus, the leaders of large US health care organizations seem to have impunity.

Similar complaints have been made about the lack of accountability of the leaders of the finance firms that lead us into the global financial crisis, or great recession. 

However, while I have reviewed now hundreds of stories about such minimal organizational punishments, I have also seen hundreds of stories discovered by my automatic news searches of much more severe penalties paid by individuals who have been accused of similar misbehavior.  I have never previously made an explicit comparison of how health care corporate and individual misbehavior are handled.

A recent set of examples of organizational misbehavior invites such a comparison.  Here they are, in chronological order.

KV Pharmaceutical

On December 6, 2011, the St Louis Post Dispatch reported:

KV Pharmaceutical Co. has agreed to pay $17 million to federal and state authorities to settle Justice Department allegations that it defrauded federal health care programs.

The settlement resolves allegations that KV, as the Bridgeton-based parent company of now-defunct Ethex Corp., misrepresented the regulatory status of two of its drugs that did not qualify for coverage under federal health care programs, the Justice Department said today.

The Justice Department alleges that Ethex submitted false quarterly reports to the federal Centers for Medicare and Medicaid Services related to the two drugs: nitroglycerin extended release capsules and hyoscyamine sulfate extended release capsules.

Company leadership made the usual sort of comment. CEO Greg Divis said:

The closure of this matter is another step forward as KV moves ahead as a women's healthcare focused branded specialty pharmaceutical company.

Corporate leaders seem to love putting such unpleasantness in the past and moving on, especially when they personally are not held accountable for the previous misbehvior.

Note that this is just the latest settlement for KV Pharmaceutical:

KV shut down Ethex after the subsidiary pleaded guilty in March 2010 to two felony counts of criminal fraud for failing to report to the Food and Drug Administration that it was making oversize drugs - and drew $27.6 million in fines and restitution.

Catholic Healthcare West, Sutter Health

On December 8, the Sacramento Bee reported:

Two of Sacramento's biggest health care players paid a combined $2.3 million to the federal government to settle allegations that 61 of their hospitals double-billed Medicare for therapies and services, U.S. Department of Justice officials announced Wednesday.

Catholic Healthcare West paid more than $875,000 and Sutter Health nearly twice that – more than $1.43 million – for alleged duplicate charges for infusion therapies and treatments to break up kidney and bladder stones, in what Lauren Horwood, a spokeswoman in the Sacramento U.S. attorney's office, called 'a significant settlement.'

As usual,

Officials at the two health networks admitted no wrongdoing in agreeing to the settlement, Horwood said. No charges will be filed.

Again, however, this was not the first such issue to affect these large non-profit organizations:

In 2006, Sutter Health agreed to grant discounts and refunds to uninsured patients the network was accused of overcharging, stemming from a 2004 class-action lawsuit.

Blue Shield (California)

On December 29, 2011, the Los Angeles Times reported:

More than a year after the healthcare reform law sought to prevent sick patients from losing medical coverage, insurers are still paying for their alleged abuses.

Blue Shield has agreed to pay $2 million to resolve accusations that the company improperly dropped policyholders after they got sick and needed expensive treatment.

The settlement, announced Wednesday by Los Angeles City Atty. Carmen Trutanich, ends an investigation into more than 1,000 so-called rescissions by Blue Shield, a San Francisco-based not-for-profit company.

As usual, there was no admission of guilt, and a company spokesperson claimed that while the company decided to pay out the money in response to the allegations, it, of course, was blameless:

Blue Shield spokesman Steve Shivinsky said the firm settled to avoid litigation.

'Our process meets or exceeds all legal and regulatory requirements,' Shivinsky said in a statement. 'In every instance, we provide immediate notice, ensure multiple layers of review, involve a medical director in the decision, give members an opportunity to provide additional information before we take any action, and follow the guidance of an independent third party review.'

Note that rescission is now against US federal law:

President Obama made rescission a central theme in his push for a healthcare overhaul. In September 2010, a ban on rescissions for unintentional application errors became one of the first pieces of the healthcare law to take effect.

GE Healthcare

On December 29, 2011, the Detroit Free Press reported (via USA Today):

Pharmaceutical giant GE Healthcare will pay $30 million to the U.S. Department of Justice to settle claims in a case filed by a Michigan salesman, alleging one of its companies marketed a diagnostic drug used in cardiology tests as one that could be diluted and stretched to more patients than intended.

Not surprisingly,

GE admitted no wrongdoing in the settlement.

This was despite the fact that the actions alleged may have harmed patients as well as defrauding the government:

For patients, the diluted product resulted in more false positives during cardiology tests and exposed them to additional and unnecessary testing....

We have posted previously about some previous questionable behavior by GE in the health care sphere.
Actavis

On January 3, 2012, Bloomberg reported:

Two units of Actavis Group Hf will pay $84 million to settle a lawsuit over drug pricing, Texas officials said, less than half the amount an Austin jury said the company should pay.

The state accused Actavis Mid-Atlantic LLC and Actavis Elizabeth LLC, subsidiaries of the Iceland-based company’s U.S. division, of inflating billings to the Texas Medicaid program by falsely reporting drug prices. The state court jury in February ordered the units to pay the state $170 million.

The settlement resolves that litigation, Texas Attorney General Greg Abbott said today in a statement.

Note that Medicaid is a joint federal-state insurance program for the poor.

The company's statement had a familiar ring to it:

'Actavis denies any and all wrongdoing, and denies that it has any liability relating to the Texas judgment,' the company and the state said in the settlement agreement. The parties reached a settlement 'to avoid the delay, uncertainty, inconvenience and expense of continuing the litigation.'

Nothing to see here, just move along.

Denver Health Medical Center

On January 5, 2012, the Denver Post reported:

Denver Health Medical Center will pay $6.3 million to federal and state officials for overbilling Medicare and Medicaid, state and U.S. attorneys said.

After investigating a whistleblower's lawsuit, government officials said Denver Health was classifying patients with an "inpatient" status when it should have been listing them as 'outpatient' or under 'observation' status, which paid less under government rules.

Oops, missing from this story was the pro forma denial of blame, wrongdoing, misconduct by organizational leadership. However, the Denver Business Journal was able to add that:

Denver Health, in a statement, said it and the government agreed to the settlement to avoid 'protracted litigation' over the allegations. It did not admit guilt in agreeing to the settlement.

Of course, again despite having to pay millions, the organization asserted that it is fine and upstanding:

'Denver Health has, and will continue to, strive to ensure that its billing systems are accurate,' the hospital said in a statement, adding that the hospital has implemented a system to correct and improve billing accuracy.

Whoever wrote the statement seemed to overlook the implication that flowed from the need to "correct" the system.

CVS Caremark

On January 12, 2012, the Baltimore Sun reported:

The Federal Trade Commission announced that CVS Caremark Corp. agreed to pay $5 million to settle a complaint that it misinformed seniors about the price of certain Medicare Part D prescription drugs sold through CVS and Walgreens pharmacies.

The action by the company, according to the FTC, caused seniors and consumers with disabilities to pay significantly more for drugs. It also pushed them more quickly into the so-called 'doughnut hole,' in which drug costs aren’t covered by the federal program.

Despite its multimillion dollar payment, the company admitted no guilt, of course, and asserted its exemplary corporate citizenship:

CVS Caremark released a statement:

'During the course of this two year investigation, our company cooperated fully with the FTC and provided to the government millions of documents as well as access to numerous members of our management team who participated in voluntary interviews and depositions,' said Douglas A. Sgarro, Executive Vice President and Chief Legal Officer of CVS Caremark.

He also took comfort from the fact that there were not even more charges:

It is important to note that, at the conclusion of this comprehensive investigation, the FTC made no allegations of antitrust law violations or anti-competitive behavior associated with any of our business practices, products or service offerings.

Stryker Corp

On January 18, 2012, Bloomberg reported:

A Stryker Corp. (SYK) unit agreed to plead guilty and pay a $15 million fine while the medical-device maker was on trial on charges it marketed an unapproved mixture of products for strengthening human bone growth.

The unit, Stryker Biotech, and three Stryker sales representatives were on trial in federal court in Boston on a 13-count criminal indictment claiming conspiracy and wire fraud. The trial began Jan. 9 with jury selection.

Stryker Biotech agreed to plead to one misdemeanor count of misbranding a medical device, according to a letter dated yesterday from the U.S. Attorney’s Office in Boston and filed with the federal court.

This did involve an admission of guilt, but to what amounts to a financial violation when there were allegations that patients may have been harmed:

The U.S. had charged Stryker Biotech with misbranding and its sales force with conspiring to defraud surgeons into combining the company’s OP-1 and OP-1 Putty with the bone filler Calstrux. Some patients suffered adverse side effects and required more surgery, the U.S. said.

'That mixture was never studied clinically,' Assistant U.S. Attorney Susan Winkler told the jury in her opening statement on Jan. 12. 'They did not know if it worked. They did not know if it was safe, and they marketed it to doctors anyway.'

Interval Summary

We have presented eight cases in which  major US health care organizations settled cases involving allegations of financial gain under false pretenses. Nearly all involved US federal charges, and the others included alleged misbehavior that affected a federal program or that now would be illegal under federal law. All the cases were resolved with fines over $1 million. However, while these fines may seem big to most people, they were trivial compared to the revenues of the organizations. None of the settlements involved any penalties to actual people who authorized, directed, or implemented the misbehavior. No individuals at any of the involved organizations admitted any mistakes, much less wrong doing.

While the volume of such settlements indicates the prevalence of misbehavior by large health care organizations, it is not clear that their results, which amount to slaps on corporate wrists, have any deterrent effect.

In comparison, see what happens when little people obtain money from the government under false pretenses. I found a convenience sample of such cases reported in the last month through a Google search.

Vasquez

On January 9, the San Francisco Chronicle reported:

A Los Angeles woman who pleaded guilty to committing $6.2 million in Medicare fraud has been sentenced to 5 years in prison.

Federal Health and Human Services officials say 47-year-old Carolyn Ann Vasquez has also been ordered to pay $6.2 million in restitution.

Vasquez admitted to conspiring with others to use a series of fraudulent Los Angeles-area medical clinics to defraud the federal health care insurance program for people over age 65 and the disabled.

Between 2007 and 2008, Vasquez obtained a physician's personal information and Medicare provider number and used it to print prescription pads.

She then had a physician's assistant, David Garrison, write fraudulent prescriptions for pricey medical equipment.

Curtis

On January 7, 2012, the [Jacksonville] Florida Times-Union reported:

A federal judge sentenced the would-be owner of a Brunswick prosthetic business to three years and six months in prison for his organization and leadership of a scheme that defrauded Medicare of more than $250,000.

Also,

In addition to prison, Wood sentenced Curtis to repay $254,750.94 to Health and Human Services and serve three years’ probation. She dismissed eight other counts as part of his plea agreement.

In stark contrast to the stories above about cases of fraud involving large health care organizations:

Samuel Curtis III, who had submitted false claims from Preferred Prosthetics and Orthotics in Brunswick and Team Orthotics and Prosthetics of Houston, had pleaded guilty in July to conspiring to commit health care fraud.

Curtis, 38, apologized and asked U.S. District Judge Lisa Godbey Wood for leniency during his sentencing hearing Friday.

Popov

On January 12, 2012, the Sacramento Bee reported:

A Los Angeles physician who assumed the role as co-owner of a Sacramento medical clinic has been sentenced to federal prison for his participation in a Medicare fraud scam.

Alexander Popov, 47, was sentenced today by U.S. District Judge Morrison C.England Jr. to eight years and one month in prison for committing health care fraud and conspiring to commit health care fraud, according to a federal Department of Justice news release. He was found guilty by a jury in July.

In sentencing, Judge England found that Popov was responsible for more than a million dollars in fraudulent billings submitted to Medicare and more than $600,000 in payments made on false claims.

Evidence at trial showed that Popov gave false testimony and manufactured evidence at trial, amounting to an obstruction of justice, officials said.

Also,

Vardges Egiazarian previously pleaded guilty in the case and is serving 78 months in prison.

Applebaum

On January 20, 2012, Medscape reported:

A former Idaho psychiatrist was ordered to pay nearly $95,000 in a legal judgment this week, adding to a prison sentence of up to 5 years, which he received in November for obstruction and falsifying records relating to Medicaid fraud.

The judgment, obtained by the US Attorney's Office against Michael Applebaum, MD, of Nampa, Idaho, involved a civil lawsuit in which he was accused of submitting false Medicare and Medicaid claims for undocumented and ineligible services from 2004 through 2009.

Prosecutors claimed Dr. Applebaum failed to properly document services for approximately 502 claims, including falsifying service dates on 49 claims to make them appear eligible for reimbursement under Medicaid's rule of submitting claims within 12 months of the date of service.

Summary

As we noted above, if a large organization, such as a hospital system, pharmaceutical company, or health insurance company is accused of fraud against the government, the outcome is likely to be a large fine that is nonetheless small compared with the organization's revenue, no admission of guilt or responsibility, and no penalties for any individuals who authorized, directed or implemented the misbehavior. However, if an individual or small business is accused of such fraud, the results are likely to include fines sufficient to bankrupt either, admissions of guilt, and years of jail time.

Yet such actions by large organizations are likely to be more harmful to individuals and society than those of individuals or small businesses.

This seems like a glaring, stark example of unequal justice in health care. If an individual does something bad in a health care context, the punishment is likely to be severe and life altering. If an individual who is a leader of a large health care organization does something equally bad, he or she is likely to receive no punishment at all.

This is an example that ought to unite the left and the right, liberals and libertarians in outrage. Liberals are supposed to believe in the rights of the individual and economic justice. Libertarians are supposed to believe in economic freedom and the economic rights of the individual. In this example, the government and large corporations seem to have gotten together to let corporate leaders play by different rules than individuals. Corporate leaders seem to be above the law, the same law that can ruin individuals who violate it.

If we really want to reform health care, we need to make sure that its rules apply equally to all individuals, whether humble or rich, whether they are individual professionals of corporate CEOs. As long as the rich and powerful can play by different rules, we only fuel cynicism and anger. Down that road lies disaster.

It Was the Best of Times, It Was the Worst of Times ... for Synthes Executives

The latest news about the Synthes Norian XL bone cement case shows just how bizarre incentives for health care leaders can be. 

The Synthes Case

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

Executives Sentenced

In late November, three of the executives were sentenced, as per the Philadelphia Inquirer:

Three former executives of medical-device manufacturer Synthes Inc. were sentenced to prison Monday. A fourth might have been if his attorney hadn't collapsed while standing at a lectern moments after saying that Synthes' unindicted board chairman was the ultimate authority and responsible for the illegal, sometimes fatal, bone-cement trial at the center of the proceedings.

Michael Huggins, 54, of West Chester, the former president of Synthes USA, was sentenced to nine months in prison and taken into custody immediately. Thomas Higgins, 55, of Berwyn, former leader of Synthes' spine division, got the same sentence. John Walsh, 48, of Coatesville, who was in charge of regulatory affairs, got five months.

U.S. District Judge Legrome D. Davis gave Higgins two weeks to report to prison so he could arrange for extra medical care for his wife. Davis gave Walsh until next Monday to report because Tuesday is his young daughter's birthday.

The three will pay $100,000 each in fines and be on supervised release after prison. All pleaded guilty to a single misdemeanor count under the responsible-corporate-officer doctrine.


Richard Bohner, 56, of Malvern, former vice president for operations, was the third of four defendants on Davis' docket Monday and might have gotten a sentence similar to those received by Huggins and Higgins.

No Penalty for the Former CEO

However, there were no penalties for the company CEO who was allegedly "person no. 7":

Hansjorg Wyss, the Synthes board chairman, who also was chief executive officer when the illegal bone-cement trial occurred, was not in the courtroom but still was part of Monday's events.

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

Wyss could not be reached for comment.

Meanwhile, Mr Wyss continues to grow richer. Forbes currently lists him as number 164 on its list of the world's wealthiest people, estimating his assets at $6.4 billion.

A Golden Parachute for the Current CEO

Mr Wyss may be made even more wealthy because US health care corporate giant Johnson and Johnson has agreed to buy Synthes. Furthermore, as also reported by the Philadelphia Inquirer, the current Synthes CEO is in line to also greatly benefit from that deal:

Orsinger is getting $51.9 million for leaving the old company and a multimillion-dollar pay package from the new company. His new base salary of $700,000 will be a cut in pay from his old firm, but he will have some lucrative bonus opportunities. If he can make do clipping coupons for three years, he will get a stock package worth $17.2 million.

Orsinger is the chief executive officer of Synthes Inc., the medical-device manufacturer based in Switzerland but with U.S. headquarters and facilities in West Chester.

Implications

On one hand, up to now, it has been very rare for any top executives of health care corporations to suffer any negative consequences due to ethical missteps by their companies, much less to go to jail. The current case may be the first real example of government prosecutors using the responsible corporate officer doctrine in such a setting. We first discussed this concept here in 2010. As noted in Reuters about the Synthes case,

After decades in relative obscurity, a U.S. legal doctrine that holds corporate officers liable for company wrongdoing is finding its way back into some high-profile healthcare prosecutions.

The 'responsible corporate officer' doctrine allows for prison terms of up to one year for misdemeanor violations of the Federal Food, Drug and Cosmetic Act, but typically defendants have received only probation.

Recently, however, the government has sought to reinvigorate the doctrine, and some executives are facing stiffer penalties than they had ever imagined.

Why only now has this doctrine been dusted off, when it has been around for over 70 years, and validated by the Supreme Court over 35 years ago, remains unclear.
Does its use now signal the end of health care leaders' impunity? We have noted that despite all sorts of misbehavior leading to a march of legal settlements, almost no one who authorized, directed or implemented the bad behavior within a large health care corporation has ever paid any penalty for it. The penalties for the four Synthes executives are certainly a break in the pattern.

Moreover, while in the Synthes case the executives who pleaded guilty were aware of what was going on, the doctrine allows prosecution of responsible corporate officers who were not so aware. As in the Reuters article,

The principle behind the doctrine was validated by the Supreme Court in 1975, when it affirmed the conviction of John Park, the chief executive of a national food chain who had been charged with allowing warehoused food to be exposed to rodent contamination. The court held that, to convict Park, the jury did not have to find that he was aware of the unsanitary conditions, only that he was in a position of authority to prevent them.

However, in the Synthes case, there was no attempt made to prosecute even more highly placed "responsible corporate officers." As noted above, the past and current CEO were not charged, and meanwhile have engineered a merger that may make them even more wealthy (ironically, with a company, Johnson and Johnson, that has also had a troubled recent record).

Furthermore, as per Reuters, prosecutors are not exactly gung ho about using the responsible corporate doctrine:

Over the next few decades, prosecutors used the doctrine sparingly, concerned that overuse would bring unwanted judicial scrutiny, said Paul Hyman, formerly of the U.S. Food and Drug Administration's Chief Counsel's Office and now a director at the law firm of Hyman, Phelps & McNamara.

Also,

The future of the responsible corporate officer doctrine could depend on whether executives who plead guilty under the doctrine are able to find other employment.

Cory Andrews, a lawyer with the Washington Legal Foundation, which filed a friend-of-the-court brief on behalf of the Purdue defendants, said that as the severity of penalties increase for misdemeanors, so do the odds of a constitutional challenge.

'Arguably, where the deprivation is very small, the due process violations are not as significant,' Andrews said. 'But where the deprivation goes to someone's ability to earn a living -- I think that raises the constitutional temperature.'

Many of the legal settlements we have discussed involved activities that threatened the safety, health or even lives of patients. But if a corporate executive might not be able to get further lucrative employment as such after participating in such misbehavior, quelle horreur!

Let us hope that government officials, who have been so solicitous in the past about the financial well-being of the health care corporations they are supposed to oversee, will start thinking about the consequences of these corporations' misbehavior for the public to whom those officials are supposed to answer.

I conclude, de rigueur, 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. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

Merck Admits Little While Settling the Vioxx Case

A week ago, another legal settlement with some noteworthy aspects came marching along.  As reported by the Wall Street Journal, here are the details.

A Guilty Plea to "Misbranding"

First, there was a guilty plea (to a misdemeanor):

Merck & Co. agreed to pay $950 million and plead guilty to a criminal misdemeanor charge to resolve government allegations that the company illegally promoted its former painkiller Vioxx and deceived the government about the drug's safety.

In particular,

The Justice Department said Merck illegally promoted Vioxx for rheumatoid arthritis before that use was approved by the Food and Drug Administration in 2002. The drug was initially approved in 1999 to treat certain types of pain. Drug companies are barred from promoting drugs for unauthorized, or 'off label,' uses, though doctors may prescribe off-label uses.

Merck agreed to plead guilty to introducing a 'misbranded' Vioxx into interstate commerce, which is a misdemeanor violation of the Food, Drug and Cosmetic Act, and to pay a $321.6 million criminal fine.

So the company actually admitted to violating the law in the form of a misdemeanor, selling a drug for unapproved uses. The importance of this sort of activity has been frequently challenged, especially by those who claim that corporations have free speech rights that allow them to promote practically anything they want.

However, this was not the only issue apparently resolved.

A Civil Settlement

The company agreed to pay $628.4 million to settle civil allegations.

What were these allegations?

The government also made allegations against Merck in parallel civil litigation related to Vioxx in addition to the criminal charges.

According to the government, Merck representatives made inaccurate, unsupported or misleading statements about Vioxx's cardiovascular safety, in order to increase sales of the drug. The government also said Merck made false statements to state Medicaid agencies about the drug's safety.

However,

Merck isn't admitting liability or wrongdoing in the civil aspect of the settlement. Mr. Rogers said Merck expressly denies the civil allegations.

'We believe that Merck acted responsibly and in good faith in connection with the conduct at issue in these civil settlement agreements, including activities concerning the safety profile of Vioxx,' said Merck General Counsel Bruce Kuhlik in a statement.

So this is yet another example of a legal settlement made by a health care organization involving that organization paying a fine, but not admitting it did anything wrong.

The Parallel with the Citigroup Settlement

Last week, we wrote about how one US federal judge refused to accept a settlement (in a case of alleged financial misbehavior involving Citigroup) which did not require the company to admit wrongdoing. The judge noted that this presented the logically incomprehensible situation of a company apparently being punished for a reason that is unknown. At that point, one (admittedly outspoken) critic wrote, "This has essentially created a parallel or secret criminal justice system, in which both crime and punishment are adjudicated behind closed doors." Furthermore, these

settlements have evolved into a kind of cheap payoff system, in which crimes may be committed over and over again, and the ... [government's] only role is to take a bribe each time the offenders slip up and get caught.

If you never have to worry about serious punishments, or court findings of criminal guilt (which would leave you exposed to crippling lawsuits), then there’s simply no incentive to stop committing fraud. These SEC settlements simply become part of the cost of doing business....

What No One Had to Admit
In the case of the current Merck settlement, we do know something about the activities that lead to the settlement.  The settlement arose out of what was called the "Vioxx scandal." In summary, Vioxx (rofecoxib, Merck) a Cox-2 inhibitor non-steroidal anti-inflammatory drug used for pain, and touted for its ostensibly low risk of gastrointestinal side-effects, was withdrawn from the market in 2004 because of its cardiac risks.  The Vioxx case is flush with examples of how the company used deception to market a very profitable drug without regard to its risks to patients. 

There is evidence is that the company knew about these effects since 2000, but suppressed the clinical research evidence until 2003.(1)  In particular, in 2005, the editors of the New England Journal of Medicine raised concerns that an article published in that journal in 2000 about the results of the VIGOR study of rofecoxib sponsored by Merck failed to report data that would have suggested that the drug caused excess cardiovascular risks.(2) In 2007, the company paid more than $4.9 billion to settle patient lawsuits alleging harm due to Vioxx.(3)  Also in 2008, the company made a $58 million settlement of claims its advertising of Vioxx deceptively minimized its risks.(4) In 2008, it became clear that at least one apparently clinical trial of Vioxx, the ADVANTAGE trial, was merely a "seeding trial,' that is, a marketing exercise.(5)

On Health Care Renewal, we starting writing about Vioxx in 2005, including,
- here about ghost-writing of a Vioxx research publication;
- here, and here about allegations that Merck executives tried to intimidate Vioxx critics;
- here about how advocates of an extreme laissez faire approach to regulation of health care corporations used illogical arguments about the Vioxx case;
- here about the ADVANTAGE "seeding trial," that is, a study really meant to recruit supposed physician-researchers as prescribers; and
- here about how one once prominent Vioxx researcher pleaded guilty to fraud in connection with his research on other drugs.
-  here about how in settling a shareholder lawsuit Merck vowed to improve its scientific and academic integrity, and refrain from manipulating and suppressing clinical research.

In 2010, we summarized the Vioxx case thus, " the Vioxx case provides a good lesson about some of the tactics used to deceptively and unethically promote health care products (pharmaceuticals in this case)." 

In case there are any doubts about the harms patients suffered as a result of using Vioxx as a pain reliever, in 2004, a cumulative meta-analysis of published trials of Vioxx known by then estimated the risk of myocardial infarction (heart attack) due to Vioxx compared with placebo or other non-steroidal anti-inflammatory drugs was 2.3 times the baseline rate.(6)  That analysis suggested that there was data by 2000 that Vioxx increased the risk of bad cardiovascular events.  A cumulative meta-analysis from 2009 suggested that the risk of death due to Vioxx was 1.7 times the baseline rate.(7)   That analysis suggested there was data by 2001 that Vioxx increased the risk of bad cardiovascular events.  Graham and colleagues' nested case-control study of Vioxx use in a large managed care organization lead them to estimate that "88 000 - 140 000 excess cases of serious coronary heart disease probably occurred in the USA over the market-life of rofecoxib."(8)

Yet despite all the evidence of deceptive practices used to market Vioxx as a first-line pain reliever, and all the evidence that Vioxx may have lead to a large number of myocardial infarctions and premature deaths, the US government's settlement with the maker of Vioxx allowed it to deny that its marketers concealed the dangers of the drug.  This shows that the US regulation of health care organizations has been reduced to Kabuki theatre, detached from reality, and in this case, from what appears to be very clear clinical epidemiological evidence. 

As noted above, and by us frequently in the past, as long as the only punishments for bad behavior are fines (paid by the entire organization, not those who authorized, directed or implemented the bad behavior), such "punishments" only modestly add to the cost of doing business, and do not deter future bad behavior.  The continuing bad behavior, indicated in part in the parade of legal settlements we have documented, doubtless leads to much of our health care problems, particularly high costs, poor access, poor quality, and demoralized health care professionals.

Like a broken record (for anyone who remembers what that means), I repeat...   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. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.


References


1. Topol EJ. Failing the public health - rofecoxib, Merck and the FDA. N Engl J Med 2004; 351: 1707-1709.  Link here.
2. Curfman GD, Morrisey S, Drazen JM et al.  Expression of concern reaffirmed. N Engl J Med 2006; 354:1193. Link here.
3. Charatan F. Merck to pay $5bn in rofecoxib claims. Brit Med J 2007; 335: 1011. Link here.
4. Charatan F. Merck to pay $58m in settlements over rofecoxib advertising. Brit Med J 2008; 336: 1208-1209. Link here.
5. Hill KP, Ross JS, Egilman DS, Krumholz HM. The ADVANTAGE seeding trial: a review of internal documents. Ann Int Med 2008; 149: 251-258. Link here.
6.  Juni P, Nartey L, Reichenbach S et al. Risk of cardiovascular events and rofecoxib: cumulative meta-analysis.  Lancet 2004; 364: 2021-2029.  Link here.
7.  Ross JS, Madigan D, Hill KP et al.  Pooled analysis of rofecoxib placebo-controlled clinical trial data: lessons for postmarket pharmaceutical safety surveillance.  Arch Intern Med 2009; 169: 1976-1984.  Link here.
8.  Graham DM, Campen D, Hui R et al.  Risk of acute myocardial infarction and sudden cardiac death in patients treated with cyclo-oxygenase 2 selective and non-selective non-steroidal anti-inflammatory drugs: nested case-control study.  Lancet 2005; 365: 475-481.  Link here.