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.

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Legal Settlements Have Become So Common that They are Barely News

Legal settlements by big health care organizations have become so common that those of less than blockbuster size barely seem to qualify as news.  They have become "dog bites man" stories.  For example, the following stories barely got noticed in the media (presented chronologically).

Novartis Settles Price Misrepresentation Suit for $150 Million

This story was mentioned as an aside in a a news story covering a settlement by Watson Pharmaceuticals in September.  In slightly more detail, it has only appeared in PharmaLot in November.  In a very small nutshell,

the Sandoz unit of Novartis earlier this week agreed to pay $150 million to settle lawsuits filed by the states of Florida and California, as well as a whistleblower, to settle charges that it deliberately misreported pricing information in order to hike reimbursements from Medicaid.

By the way, per the settlement document, the allegations were that Novartis' subsidiary knowingly maintained, set or reported "false, fraudulent, and/or inflated Reported Prices," yet, as is typical of nearly all settlements, the settlement "shall not constitute or be construed as an admission of fault, liability, or unlawful conduct."

Roche Settles Off-Label Promotion, Physician Kickback Suit for $20 Million

This story was reported briefly in some blogs, including again PharmaLot, and in the most detail in the San Francisco Business Times. The basics of it were:

Genentech Inc. will pay $20 million to settle a whistleblower lawsuit around off-label marketing of the cancer-fighting drug Rituxan.

It only took eight years since a whistle-blower raised the issue:

John Underwood, ... was a senior manager of sales development from the start of Genentech’s oncology franchise in 1997.

When Underwood filed the suit in July 2003 in U.S. District Court for the Eastern District of Pennsylvania, he was a senior hospital systems specialist for Genentech.

This suit is actually of particular interest because it was not just about off-label promotion,

Genentech, the suit claimed, retained doctors to act as independent speakers on behalf of Rituxan and its off-label uses, paid kickbacks to doctors that were disguised as consulting payments, 'exerted significant pressure' on sales reps to increase off-label uses of Rituxan, and devised and conducted 'selling skills workshops' for sales reps devoted to non-label uses,

What’s more, the suit claimed, Genentech invited doctors to attend “medical education seminars” at 'luxurious locations' and gave financial incentives to sales reps to get doctors who sold the most Rituxan to attend the events.

These were serious allegations, involving allegedly direct efforts by the company to subvert physicians' ethics by tying their decisions for individual patients to payments for prescribing specific products whatever the benefits and risks of those products for those patients.  The allegations suggested that "consulting payments" to physicians may be nothing more than disguised bribes, and that the companies making these payments may be quite conscious of this. 

Nonetheless, as usual,

Genentech, the South San Francisco-based U.S. subsidiary of Swiss drug giant Roche, did not admit wrongdoing....

So, as in the famous recent Citigroup case (see this post), the settlement obfuscates the crucial question, did the corporation involved commit illegal acts? It seems likely that what they did was in some sense unethical, since they were willing to pay millions not make the matter go away.

By the way, one member of the Executive Committee of Genentech at the time these events were allegedly occurring is now the Chancellor of the University of California - San Francisco (See our post here). Maybe concerned students or faculty might ask her what really went on.

CVS Caremark Settles Fraud Suit for about $20 Million

As reported briefly in the Los Angeles Times,

Pharmacy and prescription drug management company CVS Caremark Corp. has agreed to pay nearly $20 million to settle three lawsuits involving allegations that the company defrauded pension systems in three states, including California’s giant pension fund, attorneys said.

The whistleblower lawsuits, filed by two former CVS Caremark pharmacists, accused the company of reselling returned drugs, changing prescription orders to make them more expensive and submitting false reports about how long it took to fill prescriptions.

Not the least bit surprisingly, the company did not admit liability in the settlement, and had no comment for the Times. Ho, hum, another big company paying millions to make allegations of fraud go away... nothing to see here, so we will just move on.

Merck Settles Fraud Suit for $24 Million

This story was picked up by AP, so a very brief version of it did appear in a variety of locations. A longer version was published by the Boston Globe,

At this point, it should be no surprise that it took a long time to get to this settlement, eight years in fact, just as in the case above,

Merck & Co. has agreed to pay $24 million to the state Medicaid program to settle long-running civil charges that it charged too much for some drugs, in the largest single-case Medicaid fraud settlement in Massachusetts history.

The agreement, unveiled yesterday by Attorney General Martha Coakley’s office, closes out a 2003 lawsuit....

Again, the allegations were of fraud,

Coakley said her office’s Medicaid fraud division wanted to hold accountable drug companies that defraud taxpayers.

Again, "hold accountable" did not translate into establish the allegations as true,

Ron Rogers, a spokesman at Merck corporate headquarters, said the drug company did not admit liability or wrongdoing in the settlement. He said Merck agreed to resolve the claims to put the matter behind it.

Nothing more to see here, so we will move on again.
Summary

Every month, it seems that more settlements are announced of cases alleging all sorts of wrongdoing by major health care organizations. Very often, the allegations are of wrongdoing that appears serious to the uninitiated. For example, most of the above cases involved allegations of fraud, and one involved allegations of kickbacks, that is, bribes to doctors.

Yet, in every one of these cases -
- The monetary penalties were barely more than pocket change for the corporations involved.
- The payments were made by the organization as a whole, and hence would disadvantage many people who were not involved in and did not benefit from the specific actions alleged. Such de facto victims of the settlement included company shareholders, employees, and probably patients (who may have paid prices raised to pay for settlements), and the public (who may have indirectly paid these higher prices through insurance premiums or taxes.)
- The organization did not have to admit any facts, leaving the record foggy, and clouding the chances for any people who might have been hurt by the actions to take legal action.
- No people who actually authorized, directed, or implemented the apparent bad behavior suffered any negative consequences.

Thus, these settlements, like many others we have discussed, did not appear to be any major deterrent of future bad behavior.

These settlements do provide a public, if largely ignored, record that suggests how a miasma of sleazy behavior, if not outright corruption has settled over health care. These settlements do provide the context for many pithy questions that could be asked of health care organizational leaders, if anyone dared to do so. The settlements do suggest a need for wholesale, real health care reform that would make health care leaders accountable for what their organizations do, particularly when these organizations misbehave.

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Last Week's Scandals

The march of settlements and other unfavorable legal results for health care organizations continued last week, in alphabetical order

CVS Settles for $77.6 Million for Violating the Controlled Substances Act

As reported by Bloomberg,

CVS Caremark Corp. agreed to pay $77.6 million to settle claims that some of its stores in California and Nevada allowed criminals to buy cold medications that were used to make methamphetamine.

The pharmacy chain will pay a $75 million fine, the largest civil penalty ever paid under the Controlled Substances Act, and forfeit $2.6 million in profits from the illegal sales, the U.S. Attorney’s Office in Los Angeles said today in a statement.

Between September 2007 and November 2008, CVS failed to ensure that stores in Southern California complied with laws limiting sales of over-the-counter drugs made with pseudoephedrine, which allowed methamphetamine traffickers to buy large amounts of the drugs, according to the statement. CVS changed its sales practices only after it became aware of the investigation, prosecutors said.

What was unusual about this case is that the company's CEO actually seemed to acknowledge that it did something wrong, and vowed change:

'While this lapse occurred in 2007 and 2008 and has been addressed, it was an unacceptable breach of the company’s policies and was totally inconsistent with our values,' CVS Chief Executive Officer Thomas Ryan said in a statement. 'We have strengthened our internal controls and compliance measures and made substantial investments to improve our handling and monitoring of PSE.'

Amazing, a CEO acknowledging that his corporation's values include complying with the law... [sarcasm off]
Note that we most recently posted about a settlement by CVS, one by CVS Caremark for improperly charging a public entity, in September, 2010, here.

Johnson & Johnson Found Liable for $257.7 Million for Fraud

As reported by Bloomberg,

Johnson & Johnson lost a $257.7 million jury verdict in Louisiana for making misleading claims about the safety of the company’s Risperdal antipsychotic drug.

J&J officials defrauded the state’s Medicaid system by wrongfully touting Risperdal as superior to competing antipsychotic drugs and minimizing its links to diabetes, said jurors in state court in Opelousas, Louisiana.

Specifically,

The jury found 35,542 violations of the state’s Medical Assistance Programs Integrity Law and imposed a penalty of $7,250 for each. The total $257.7 million verdict is the fifth- largest in the U.S. so far in 2010, according to data compiled by Bloomberg.

'You can’t come into Louisiana and disseminate false and misleading information,' Patrick Morrow, who represented the state, said after the verdict in a phone interview. 'I’m sure this matter will be in the appellate courts for years to come. This is the first step.'

The state’s case centered on drug safety claims that J&J and Ortho-McNeil Janssen made in November 2003 correspondence to 700,000 doctors. In those letters, J&J touted Risperdal as safer than competing antipsychotics such as Indianapolis-based Eli Lilly & Co.’s Zyprexa and London-based AstraZeneca Plc’s Seroquel. Risperdal global sales peaked at $4.5 billion in 2007, declining after the company lost patent protection.

The U.S. Food and Drug Administration responded with a warning letter saying J&J made false and misleading claims that minimized the potentially fatal risks of diabetes and overstated the drug’s superiority to rival medicines.

Lawyers for the state asked jurors to hold J&J liable for the 7,604 letters it sent to Louisiana doctors and regulators making those claims along with more than 27,542 sales calls in the state made by the drugmaker’s representatives in 2003 and 2004.

Note that we last discussed problems at Johnson and Johnson, those being manufacturing issues leading to contaminated drugs, in September, 2010, here.

Medtronic Settles for $268 Million for Personal Injuries

As reported by the Minneapolis Star Tribune,

Medtronic Inc. has agreed to pay $268 million to settle thousands of lawsuits that patients filed after a 2007 recall of a faulty heart defibrillator wire that caused at least 13 deaths.

The settlement announced Thursday covers some 8,100 personal injury lawsuits in both federal and state courts over Medtronic's popular Sprint Fidelis lead, which was implanted in some 235,000 people when the company recalled the device after a small number fractured. The malfunction could cause the defibrillator to stop working or to inappropriately shock patients -- a frightening and uncomfortable experience, but usually not life-threatening.

The cases had been lingering in a kind of legal limbo that began with a 2008 U.S. Supreme Court decision involving another Medtronic case that prevented many patients with faulty medical devices from filing suit against the makers of those products.

Rather than wait for a definitive resolution to various legal appeals, the Fridley-based medical technology giant agreed to end the three-year legal battle with a settlement.

Note that we last discussed Medtronic's payments to physicians, in June, 2010, here.

Summary

Ho-hum, another week, another set of settlements, convictions, and/or verdicts unfavorable to large, important health care organizations. Although all the actions above would result in seemingly large payments by the companies involved, all of the payments were trivial in size compared to the companies' revenues. Note that in none of the cases above did any individual pay any penalty. In only one of the cases did a corporate leader acknowledge that bad things were done, but should be done no more.

As we have noted infinitum, penalties that only appear to be (relatively small) costs of doing business are unlikely to deter future bad behavior. Until the people who actually authorized, directed and implemented the bad behavior have to suffer some negative consequences, expect the bad behavior to continue.  Note that each of the companies discussed above have had their previous ethical lapses discussed in previous Health Care Renewal posts.

The continuing march of settlements, and sometimes criminal convictions involving major health care organizations should be regarded merely as providing a floor to estimates of the extent of bad behavior by large health care organizations. Bad behavior may not be reported, or lead to legal action, and legal action may not lead to settlements or convictions. However, it is amazing how many organizations that were once regarded as exemplary have had to settle, or plead guilty, or been convicted.

When it comes to health care's leadership, society seems to have acceded to defining deviancy down. Until we start holding health care leaders to high standards, expect their organizations not to uphold high standards.

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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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