Pay for Malfeasance?

"Pay for Performance" (P4P) is the current fashion in health care management. It is claimed that P4P will improve quality and reduce costs. The burden of most P4P efforts falls squarely on physicians, especially primary care and other "cognitive" physicians, groups who are already faltering under considerable external stress. We most recently posted about P4P here, here and here.

Yet although "pay for performance" is an attractive concept, all things being equal, it hardly reflects how things work in the rest of the global >$2 trillion health care system.

Take, for example, the recent case of Schering-Plough (see our post here). The drug company just settled civil and criminal charges for about $435 million. Yesterday, the Wall Street Journal provided some additional coverage (here, but requires subscription).

According to the Journal, penalties in the recent settlement were divided. "Schering-Plough, of Kenilworth, N.J., will pay $255 million to settle related civil accusations. Its Schering Sales unit will pay a $180 million criminal fine." In addition, "Schering Sales agreed to plead guilty to one count of criminal conspiracy for making false statements regarding its price for Claritin as negotiated with a health plan and for lying to the Food and Drug Administration about its promotion of Temodar and Intron A. Except for that plea, Schering-Plough neither admitted or denied other wrongdoing alleged in the settlement." So, "'With this agreement, we are putting issues from the past behind us,' Brent Saunders, senior vice president of global compliance and business practices, said in a statement." The Journal noted, "A company's criminal conviction or guilty plea can often be fatal. But in its health-care cases, the government has repeatedly reached settlements that exact a guilty plea while avoiding the direst consequences. The guilty plea from Schering Sales means it can no longer sell drugs to the government, but its marketing functions have been taken over by other parts of the company, which are permitted to continue doing business with Medicaid and Medicare. Schering Sales 'is an entity whose sole purpose is to plead guilty in these matters,' said Mr. Saunders. 'Schering-Plough takes responsibility for the actions of the past while not putting patients in a position where they can't get important medications,' he said.

I certainly understand the public's interest in continuing the production of beneficial pharmaceuticals. But what is striking about this case is that no individual at Schering-Plough took responsibility for the company's admittedly criminal conduct.

A search revealed that the former CEO of the company, Richard Jay Kogan, did retire early in 2002 after a variety of allegations about the company's conduct surfaced. But as far as I can tell, he paid no other penalty, presumably getting to keep all his retirement benefits, stock options, etc. After Kogan left, the new CEO, Fred Hassan, made many management changes, so presumably other top managers retired early, or were even fired. However, I could find no record of anyone paying a clear penalty for the company's admitted criminal behavior, or for the losses that it incurred due to that behavior. Of course, it's possible that relevant law-suits are pending.

Some commentators have said that executive pay has gotten so ridiculous, and has so little relationship to any measure of performance, that it should be called "pay for pulse." (For example, see this commentary on the "5 lousy CEOs who got fabulous pay," including one famous pharmaceutical company CEO.)

So what would you call the failure of companies to apply negative incentives to executives who have presided over criminal behavior: "pay for perpetration?" "Pay for malfeasance?" I'll take some suggestions.

I am aghast at the hypocrisy that touts pay for performance for primary care doctors as a solution to all our problems, while silence reigns about pay for malfeasance by health care executives.

WHAT YOU CAN DO? - If you own stock in a public for-profit health care company that has recently admitted to misconduct or has had to make a huge financial settlement in response to civil litigation (see the Health Care Renewal archives for examples), demand changes in your company's governance such that negative incentives apply to the leaders responsible for these problems.

If you are a physician, demand that P4P must apply to the whole health care system if it is to apply to physicians.

And maybe everyone should write their congresspeople demanding better regulation of the leaders of health care organizations, at least sufficient to hold people responsible for their worst decisions.