Saturday, July 12, 2008

A Bad Week in Court for US Health Care Organizations

It was a busy week in court for some US health care organizations.

Just before the US Independence Day holiday, news reports indicated that a jury in Alabama found that two large pharmaceutical firms, GlaxoSmithKline and Novartis, had defrauded the state. For example, per the Associated Press,

A state court jury on Tuesday found two major pharmaceutical companies defrauded Alabama in a long-running Medicaid drug pricing scheme and ordered the firms to pay more than $114 million in damages.

The jury found that GlaxoSmithKline should pay the state $80.8 million in compensatory damages and that Novartis should pay about $33.7 million in similar damages.

The state claimed the two companies charged the Medicaid program one price for drugs while offering discounts and special prices to other companies.

The companies had denied any fraud, contending they followed proper procedures in setting drug prices.

This week, St Louis University settled a law-suit by a whistle-blower who charged the university had defrauded the federal government by overcharging for public health research grants. Per the Associated Press, via the Kansas City Star,

St. Louis University has agreed to pay $1 million to resolve a whistleblower lawsuit claiming its School of Public Health tried to defraud the government, officials said Tuesday.

The lawsuit claimed the school overstated faculty time spent on projects involving federal grants.

The government will dismiss the lawsuit and the university will be subject to increased scrutiny in annual audits of federally funded research, U.S. Attorney David Nahmias said.

Nahmias said Andrew Balas, former dean of the School of Public Health, will receive $190,000 of the settlement for his role.

Balas alleged in the initial lawsuit in May 2005 that supplemental income of certain faculty members was inflated by claims of time they spent on grants received from the U.S. Centers for Disease Control and Prevention in Atlanta.

An investigation revealed that grants from the National Institutes of Health and the Department of Housing and Urban Development also were involved, with similar inflation of hours worked, Nahmias said.

University spokesman Clayton Berry issued a news release denying that the school schemed to defraud the government but said it agreed to settle to avoid legal costs.

Balas first tried to stop the improper billings within the university but was forced to resign for refusing to go along with them, said his attorney, Michael Sullivan.

Sullivan said the university’s evaluation of Balas’ performance as dean was '100 percent positive' in 2003, one year after he was lured from another school.

'Only weeks later, after protests from university employees who were profiting from the unlawful payments and wanted more, the university made sure Dean Balas knew that he was no longer welcome,' Sullivan said.

Finally, the former CEO of Transkaryotic Therapies, a biotechnology company, settled a lawsuit by the US Securities and Exchange Commission (SEC) that claimed he misled investors. Per the Boston Globe,

A former Transkaryotic Therapies Inc. executive agreed to pay more than $1.1 million to settle claims that he misled investors about problems facing the Cambridge biotech company's flagship drug, the government said yesterday.

The Securities and Exchange Commission accused former Transkaryotic chief executive Richard F. Selden, 49, of inflating the company's stock by making optimistic statements about the drug Replagal, which was intended to treat a rare disorder called Fabry's disease, while hiding the fact it failed a key clinical trial and that he knew federal regulators were likely to reject the company's application to market the drug. The SEC said the Food and Drug Administration told the company on several occasions that it needed further trials to win approval, something the company didn't tell investors before Selden sold 90,000 shares of company stock.

Ultimately, Transkaryotic's drug stumbled in the United States, and Selden was fired in February of 2003. British drug maker Shire PLC bought the company, known as TKT, for $1.6 billion in 2005....

The SEC sued Selden three years ago, accusing him of pocketing $1.6 million in illicit profits from selling the stock before telling investors the company's experimental drug was in trouble.

To settle the suit, Selden agreed to pay a penalty of $125,000 and give up $714,800 in profits from selling 90,000 shares of stock, plus $326,617 in interest.

Even I am sometimes amazed at the frequency of legal judgments and settlements involving accusations of fraud, or other dishonest or deceptive behavior by the leadership of health care organizations. Here were three, involving two pharmaceutical companies, a major university and school of public health, and a biotechnology company announced in the last 9 days. This indicates the pervasiveness of sleazy behavior amongst the leadership of all kinds of health care organizations.

It appears to me that there are more such judgments and settlements occurring that involve health care organization than involve other kinds of organizations and companies, although I have never seen any systematic data about this. This is particularly disturbing since one would expect that health care leadership ought to be held to a higher standard, than say the leaders of trash-hauling firms and used car dealerships.

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