Tuesday, September 15, 2009

Biovail Settles, and a Judge Explains Why Settlements in Which Only the Organization Pays a Penalty Do Not Deter Bad Behavior

Last year, we posted about the guilty plea by the US arm of the Canadian firm Biovail to charges that it paid physicians kickbacks to prescribe a long-acting version of the drug diltiazam. This week, the plea was formalized, per Reuters,

A U.S. unit of Canadian drugmaker Biovail Corp (BVF.TO) has pleaded guilty to conspiracy and kickback charges, ending a case over its Cardizem hypertension drug, the U.S. Justice Department said on Monday.

Prosecutors said Biovail has been sentenced to pay $22.2 million in fines, formalizing an agreement reached last year. It also agreed to pay $2.4 million to settle civil claims. Both involved charges it improperly paid doctors and other prescribers up to $1,000 to recommend Cardizem.

When we originally posted about this case, we focused on the unprofessional behavior of the physicians who accepted the payments apparently in turn for prescribing. However, this is also yet another in a string of cases in which charges of unethical behavior by a large health care organization (a drug company this time) are settled by the company paying a fine, but not by any penalties accruing to any people at the company who authorized, ordered, or implemented the unethical actions. We have written about many such cases (see this).

Also this week, a US judge addressed another proposed legal settlement of an important parallel case in the world of finance, and how he ruled suggests what needs to be done to truly discourage unethical behavior by health care organizations. The background, summarized by the New York Times, is:

Giving voice to the anger and frustration of many ordinary Americans, Judge Jed S. Rakoff issued a scathing ruling on one of the watershed moments of the financial crisis: the star-crossed takeover of Merrill Lynch by the now-struggling Bank of America.

Judge Rakoff refused to approve a $33 million deal that would have settled a lawsuit filed by the Securities and Exchange Commission against the Bank of America. The lawsuit alleged that the bank failed to adequately disclose the bonuses that were paid by Merrill before the merger, which was completed in January at regulators’ behest as Merrill foundered.

Now consider some of the Judge's main points, and how they might apply to the many settlements of cases of unethical behavior of health care organizations. Per an editorial in the Wall Street Journal,

Judge Rakoff was having none of it. In a 12-page opinion, he tore into the SEC for ignoring its own guidelines and penalizing shareholders rather than the individuals who supposedly acted improperly. The settlement 'does not comport with the most elementary notions of justice and morality, in that it proposes that the shareholders who were the victims of the Bank's alleged misconduct now pay the penalty for that misconduct.'

Note that the settlement of nearly every health care case involved a payment by the organization, but none by the people who authorized, ordered, or implemented the unethical behavior in questions. In those cases involving public for-profit corporations, just like the current one, the shareholders were the ones footing the bill. In most such cases, the shareholders were also ultimately victims in that it was their money that ultimately paid for the bad behavior, just like in this case. So in those cases the shareholders, who were victims of the companies' managers' bad behavior, were penalized while the managers got off Scot free.

(In cases involving not-for-profit organizations, in parallel, one could argue that it was the organizations' line employees and other constituencies who were both the payers of the penalties and the victims of the conduct.)


As for the SEC's argument that this shareholder punishment will result in better management, the judge called it 'absurd.'

The judge also had little sympathy for the SEC's argument that it would be too difficult to pursue executives, since they had been guided by lawyers. 'If that is the case, why are the penalties not then sought from the lawyers? And why, in any event, does that justify imposing penalties on the victims of the lie, shareholders?' he asked.

In most settlements of parallel cases in health care, the relevant government agency usually suggested that the settlement will lead to better behavior by the organization. As we have noted before, the take-away lessons for managers was more likely that bad behavior will at worst lead to increased costs of doing business, but no penalties to the people involved. Such lessons would likely reinforce managers' decisions to behave unethically when doing so would benefit the managers themselves in the short run.

In parallel cases in health care, the relevant government agency has rarely explained why it did not pursue the managers who authorized or ordered the behavior, or the lawyers that advised them, for that matter. The current case suggests that there was no logical rationale for failing to hold the people responsible accountable, except...

[The judge said] broadly the deal 'suggests a rather cynical relationship between the parties: the SEC gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the Bank's management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all of this is done at the expense, not only of the shareholders, but also of the truth.'

And it is likely in health care that previous settlements arose out of such a cynical relationship. The government agency got to claim it was exposing wrongdoing. The executives of the offending organization got to claim they were coerced into an onerous settlement by overzealous regulators. The main casualty was the truth.

Again, in my humble opinion, until the people responsible for the bad behavior experience negative consequences from that behavior, they will continue to perform, direct, and condone bad behavior. We will not achieve real health care reform in the US until we effectively deter unethical, self-serving behavior by leaders of health care organizations.


Cetamua said...

Dr. Poses,
As incredible as it may seem, Judge Rakoff's decision sets a LEGAL PRECEDENT.

Imagine that: punishing the individuals directly responsible for the misdeed, even when done on behalf of the corporation.

What a novel legal theory this is. (NOT!)

Anonymous said...

Incredibly true, yet consistently ignored. It is simple animal logic that if there is no penalty, there will be no behavior modification. These corporations don't do anything, people do things.

Anonymous said...

Many of these players would be shocked at the limits placed on their careers as the result of a felony conviction. Legally, and due to corporate policy, they would find very few job opportunities.

I have to wonder how many executives would have to deal with this issue before they got the message, and cleaned up their acts?

Steve Lucas

Anonymous said...

One wonders why those that have been corrupted (doctors receiving these benefits) also do not face penalties for their behavior!

Anonymous said...

Roy, this tidbit appeared on another blogsite a few days ago. Tell me what you think; whose behavior was unethical? when does it approach 'malpractica' or criminality?

Eli Lilly & Co. paid doctors in South Carolina for participating in a speakers’ program in exchange for prescribing the antipsychotic Zyprexa, and used golf bets to get more patients on the drug, according to notes by sales representatives.

During a golf game, one doctor agreed to start new patients on Zyprexa for each time a sales representative parred, or put the ball in a hole within a predetermined number of strokes, according to the notes.

“I got four pars out of nine holes,” Lilly salesman Vince Sullivan said in a February 2002 note. “I said I wanted my four new patients.”

The notes were made public for the first time in a court hearing today in South Carolina in the state’s lawsuit against Lilly over Zyprexa marketing practices. State officials contend Indianapolis-based Lilly marketed the drug for unapproved uses.

A trial is set to begin Sept. 14.



Roy M. Poses MD said...

I have not yet a chance to review the news articles about the case you mentioned above.

The activities certainly sounded unethical. Physicians have a duty to put the interests and care of their individual patient ahead of all other concerns. Accepting money or gifts in exchange for prescribing a particular drug seems unethical, especially given that the drug may not be the best choice for particular patients. Of course, giving the physicians money or gifts, or leading a program designed to do so would also be unethical.

I certainly can't comment on whether any of the activities were illegal or amounted to malpractice.

A practice can be unethical but not illegal and malpractice is something to be decided by a trial, not me.