Thursday, August 18, 2016

The Haunting of CVS - by the Ghosts of Its, Caremark's, MedPartners' and HealthSouth's Past

In our brave new neoliberal world of commercialized health care, many US health care organizations are products of numerous mergers, acquisitions, and other excercises in financial engineering. This makes it easier to obscure these organizations' history, especially their past sins.  Yet these past sins may continue to haunt them.

The MedPartners Settlement

For example, a recent story only recounted in detail in one Alabama newspaper, the Birmingham News, focused on the settlement of a lawsuit originally filed against a company called MedPartners.

A Jefferson County judge on Monday gave final approval to a $310 million settlement of a lawsuit that claims MedPartners, a health care company once led by former HealthSouth CEO Richard Scrushy, lied to more than 20,000 stockholders about how much the company could pay them under the settlement of a 1990s lawsuit.

The new settlement is one of the largest fraud recoveries in Alabama legal history, according to a statement from Hare, Wynn, Newell & Newton, LLP, one of the law firms that represented investors.

The opening of the story harkened back to one of the more notorious cases of health care corruption, that of HealthSouth and Richard Scrushy:

The original fraud allegations from the 1990s stemmed from a proposed deal by former MedPartners CEO Larry House for competitor PhyCor Inc. to pay $7 billion to buyout MedPartners. The deal, billed at the time as the biggest deal in Alabama history, fell through after PhyCor found questions about MedPartner's practices and bookkeeping.

House had been chief operating officer of HealthSouth at one point before taking over as CEO of MedPartners.

Scrushy, who had also been involved in MedPartner's founding while leading HealthSouth, for a time served on the MedPartner's board and later as its interim CEO.

HealthSouth is a chain of rehabilitation hospitals.  Its former CEO, Mr Scrushy, was acquited of federal fraud charges, but was eventually convicted in a state court of bribery, conspiracy, and mail fraud in 2006 (look here).   HealthSouth settled allegations of fraud and violating securities laws in 2006, and is still in operation, claiming to be the largest chain of US rehabilitation hospitals (look here).

Yet while HealthSouth has been haunted by its prior settlement and Mr Scrushy's conviction, this new story should primarily haunt another huge health care corporation, CVS Caremark.

MedPartners Became Caremark, Merged Into CVS Caremark

Back to the Birmingham News 2016 article,

The lawsuit against CVS Caremark Corp., the company that ended up owning the former MedPartners, is a class-action litigation in which investors claim they lost $3.2 billion in a 1990s securities fraud.

Twenty one lawsuits were filed by investors in 1998 against MedPartners. Those lawsuits claimed MedPartners made false and misleading statements to the public about its financial condition and prospects at the time.

The lawsuits were combined and settled for $56 million after MedPartners claimed it was teetering on the edge of bankruptcy and that $50 million was all its insurance would cover.

However, five years later investor John Lauriello, one of the original plaintiffs, filed a new lawsuit claiming MedPartners lied about having limited insurance coverage during the settlement negotiations. The lawsuit claims that in October 1998, prior to the original settlement being finalized, MedPartners paid for unlimited insurance coverage.

If the unlimited insurance coverage had been known at the time, Lauriello's suit claims, investors could have negotiated a higher settlement amount. Sam Johnson and the City of Birmingham Retirement and Relief System later became the named plaintiffs.

MedPartners changed its name in 2000 to Caremark and in 2007 merged with CVS.

CVS will be on the hook for good part of the current settlement's financial liability.

Under the terms of the settlement insurance company AIG will pay $230 million and CVS will pay $80 million.

CVS Health Denies the Meaning of its History

As is typical of most legal actions against big health care organizations, no individual who presided over, authorized, directed or implemented the bad behavior will apparently suffer any negative consequences.  And current CVS management said in effect, "it's not me."

In the settlement CVS denies it has any liability for the claims asserted against them and believes it has good defenses to those claims. But the company agreed to enter into the agreement 'to eliminate the burdens, distractions, expense, and uncertainty of further litigation and thereby to put this controversy to rest fully and finally by obtaining complete dismissal with prejudice of the Class Action,' according to the settlement.

In particular,

CVS issued a statement when the preliminary settlement was approved by Ballard.

'This relates to a 1999 settlement of a securities class action by MedPartners, the former parent company of Caremark and is not related in any way to the business practices of CVS Health, which was formed from the merger between CVS and Caremark in 2007,' according to the statement from Mike DeAngelis , Senior Director, Corporate Communications CVS Health.

'The company denies that its predecessor entity engaged in any wrongdoing and denies any liability in the action,' DeAngelis wrote. 'A settlement was reached in order to eliminate the burdens, expenses and uncertainty of continued litigation. We are pleased that the settlement agreement has been preliminarily approved by the court and we look forward to putting this matter behind us.' 

Let us briefly regard the logic, or lack thereof, in this public relations pronouncement.

In fact, in 1996, MedPartners, which was a small for-profit corporation that owned physician practices, and was hence on the cutting edge of the movement to bring the corporate physicians to main street, bought Caremark (per the Wall Street Journal).  In 1999, after divesting itself of the physician practices, MedPartners changed its name to CareMark Rx (see this news release.)  The merger of CVS and Caremark was announced in 2006 (per the NY Times).

Yet Mr DeAngelis asserted first that MedPartners was merely "the former parent company of Caremark" [italics added].  The use of the word "former" in that sentence seems to be pure obfuscation.  MedPartners became Caremark.  Then, Caremark and CVS merged to become CVS Caremark.

So Mr DeAngelis' assertion that the modern CVS Health business practices are "not related in any way" to MedPartners cannot even can be dignified as a logical fallacy.  It seems just flat out untrue, somewhat ironic given that the original charges against MedPartners, now a renamed piece of CVS Health, is that it "lied" about its insurance coverage.

Furthermore, I see no suggestion that the current CVS Caremark has specifically changed so as to provide assurance that the events that led to the current settlement could not occur again.  No manager at MedPartners (became Caremark, merged into CVS Caremark) who enabled, authorized, or directed the alleged deception of the shareholders was identified, or suffered any negative consequences.  There has been no obvious change in management processes that would prevent something similar from happening again.  So how did the company put "this matter behind" it?

Despite current management's attempts to deny that the settlement they just made has anything to do with their current company, I suspect the case may continue to haunt them, just like many other cases are haunting them. 

The Haunting of CVS Caremark

Just this week, according to the Charleston (WV) Gazette-Mail, CVS Caremark was one of three companies that settled allegations by the state that it shortchanged the state's Medicaid program.

And Caremark, CVS Caremark, and CVS Health have had a truly extensive record of other settlements since 2005.  Those that we have discussed on this blog, or that were in my files, are below.


- Caremark settled allegations that its AdvancePCS subsidiary took kickbacks from drug companies to give the companies favorable treatment in federal employee health programs (per the Philadelphia Inquirer, here.)  

CVS, CVS Caremark, CVS Health

- Rhode Island state legislator John A Celona pleaded guilty of fraud and sale of his honest services for taking money from CVS to advocate for legislation on the company's behalf (see post here).  (Note that two CVS executives were indicted for the bribery of Celona, but acquited by a jury, per USAToday.) 

- Rhode Island state legislator and former House Majority leader Gerard M Martineau pleaded guilty of sale of his honest services for taking money from CVS again to advocate for legislation on the company's behalf (see post here).  

- CVS Caremark settled charged by the state of Illinois of deceptive business practices (per the Chicago Tribune, here.)

- CVS Caremark settled charges by the US Federal Trade Commission (FTC) for false advertising (per the FTC, here.)  

-  CVS settled allegations made by the state of Massachusetts that it overcharged public entitites for drugs (see post here).
-  CVS settles allegations for violating the US Controlled Substances Acts in its stores in California, and Nevada (see post here).

- CVS Caremark settled allegations made in three whistleblower lawsuits that it defrauded three state pension plans, including that of California (see post here).

- CVS Caremark settled allegations made by the US Federal Trade Comission (FTC) that it deceived elderly patients about drug prices (see post here).

- CVS Caremark settled allegations made by the US Department of Justice that it violated the US Controlled Substances Act in Oklahoma (per the Wall Street Journal, here).
- CVS Caremark division settled allegations in multiple states that it failed to properly reimburse Medicaid programs (per the WSJ, here.)

-  CVS Health settled charged by Massachusetts public pension funds that it concealed its revenue loss (per Reuters, here.)


So CVS Health is another example of a huge modern health care company, formed out of mergers, acquisitions, and other examples of financial engineering, that should truly be regarded as haunted by the ghosts of its past sins.  Yet this history remains ghostly, and its clammy touch on present events is barely perceived.  None of the earlier settlements seemed to influence how the later settlements were made.  No judge refused a given settlement because of the company's history of past alleged misbehavior.  No company manager ever suffered any negative consequences of these settlements.  Thus they enjoyed impunity.

Hardly anyone remembers that what was once called MedPartners is now an integral part of CVS Caremark, much less that MedPartners was once a partial creature of HealthSouth and Richard Scrushy. 

So once more, with feeling....

Nearly every big US health care corporation now seems to now have a long history of bad behavior, sometimes criminal behavior, that has not stopped the revenues from flowing, and the top managers from becoming millionaires, or billionaires.  Is it any wonder that a few years ago, nearly a majority of US respondents to a Transparency International poll declared our health care system to tbe corrupt (look here)?

Their dark musings may be partially due to their awareness that health care corruption is a taboo topic.  As we wrote about it in 2016 (look here)...

 Essentially, there is so much money to be made through pharmaceutical (and by implication, other health care corruption) that the corrupt have the money, power, and resources to protect their wealth accumulation by keeping it obscure.  In the Transparency International 2016 Report on health care corruption in the pharmaceutical industry,
However, strong control over key processes combined with huge resources and big profits to be made make the pharmaceutical industry particularly vulnerable to corruption. Pharmaceutical companies have the opportunity to use their influence and resources to exploit weak governance structures and divert policy and institutions away from public health objectives and towards their own profit maximising interests.

Keep in mind that the money made from corruption does not just go to innocent peoples' retirement funds that are invested in pharmaceutical stocks.  It predominantly goes to top corporate executives and managers, and their cronies who preside over the corrupt practices.

I might as well repeat myself once again.  As I wrote in 2015,

If we are not willing to even talk about health care corruption, how will we ever challenge it? 

So to repeat an ending to one of my previous posts on health care corruption....  if we really want to reform health care, in the little time we may have before our health care bubble bursts, we will need to take strong action against health care corruption.  Such action will really disturb the insiders within large health care organizations who have gotten rich from their organizations' misbehavior, and thus taking such action will require some courage.  Yet such action cannot begin until we acknowledge and freely discuss the problem.  The first step against health care corruption is to be able to say or write the words, health care corruption.

If only we knew who you gonna call...

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