Monday, June 07, 2010

An Attempt to Hold Health Care Leaders Accountable for Their Organizations' Bad Behavior?

We have frequently noted how health care organizations accused of kickbacks, fraud, and other unethical and sometimes illegal behavior involving how they produce or market health care products or services often are allowed to settle the charges only with a fines to the companies, and sometimes with corporate integrity agreements.  Almost never are the people who authorized, directed, or implemented the unethical behavior required to pay any sort of penalty.  We recently commented on a case in which an executive of a medical device company accused of exaggerating the performance of a diagnostic test in development was charged, not with misleading doctors or patients by the US Food and Drug Administration (FDA), but with misleading investors by the US Securities and Exchange Commission (SEC).  That executive lost her job, and will be barred from leading any public company.

So up to now, a corporate executive responsible for misleading doctors or patients about issues that could affect clinical decisions or outcomes likely would never pay a penalty, but one responsible for misleading  investors about similar issues could lose his or her job and livelihood.

Now, per an article in Fortune, it appear the situation may be changing,
The federal government is fed up with the amount of fraud, especially recurring fraud from the same companies, happening in the pharmaceutical industry. So regulators have decided that when it comes to punishments, it's time to get personal.

From now on, individual executives risk being ejected from their jobs -- and perhaps even barred from the industry -- for fraud their companies commit, even if they did not participate or even know about the crimes.

The new approach, emerging from the unusually powerful Inspector General's office in the Department of Health and Human Services, reflects frustration with corporate recidivism even in the face of ramped-up fines, penalties and disgorgements.

'We are going to start to use that authority in the appropriate circumstances to get high level executives out of companies, so that the company has a better shot at changing its behavior, so that it does not become a recidivist,' explains Lewis Morris, chief counsel to the Inspector General.

The article noted some cases in which even large fines and corporate integrity agreements seemingly failed to deter future bad behavior by the companies which paid these penalties. For example,
In the government's most recent major settlement -- in which AstraZeneca agreed to pay $520 million -- the fine represented 16.5% of the $8.6 billion income (between 2001-2006) from U.S. sales of Seroquel, a powerful anti-psychotic. AstraZeneca (AZN) turned this narrowly approved drug into a cash cow by marketing it for much wider use, including by the elderly and children, even though they are particularly vulnerable to 'serious and debilitating side effects.'

All the while, AstraZeneca was operating under a corporate integrity agreement (CIA) with the Inspector General, imposed after a 2003 off-label marketing case.

We discussed the AZ settlement here in October, 2009. We asked then, "Does anyone really still believe that integrity agreements, and settlements assessed against huge corporations deter such profitable bad behavior?"

Another example:
Drug company Pfizer (PFE, Fortune 500), which was fined $2.3 billion just last September, is now on its third CIA. Steeper fines and harsh individual penalties should help put more teeth into these agreements and keep companies from flouting them.

We discussed the repeated lack of effect of settlements by Pfizer here in September, 2009. We concluded, "So will even a $2,300,000,000 settlement and yet another corporate integrity agreement make Pfizer or any other health care corporation act more ethically? I doubt it."

The Fortune article quoted Peter Rost, former Pfizer executive turned whistle-blower and ethics advocate (and to whose blog I offer a hat tip for first mentioning the Fortune article), on aspects of corporate culture and corporate incentives that foster repeated unethical behavior by management,
'Usually by the time someone becomes a senior executive they are very aware of the pitfalls in the organization, and they have become masters at not doing something wrong or not getting caught doing something wrong,' explains Peter Rost, a former senior Pfizer executive turned industry gadfly.

Incentive-based compensation systems -- typically 40% to 50% of salespeople's income comes from hitting their numbers -- are one weak point. 'They are going to work real hard to increase those numbers and do whatever it takes, and if they think somebody gave them a wink about doing this or that, they are going to run with it.' says Rost.

Booting senior executives out for any fraud under their watch might end the wink-and-nod system, giving hope to critics.

In my humble opinion, the government's new approach looks like real progress. Giving corporate executives personal impunity was a recipe for increasing unethical, and sometimes criminal behavior. The sorts of marketing fraud they authorized or directed certainly lead to increasing costs, and overuse of unnecessary and sometimes harmful tests and treatments. While there have years of complaints about health care's increasing costs and decreasing quality in health policy circles, it is just amazing that until now, there has been so little action against the bad behavior that was undoubtedly responsible for much of these problems.

So three cheers for making health care organizations' leaders accountable for the bad behavior of their organizations.

After cheering, however, there ought to be some serious inquiry about why they were not held accountable much sooner.  It turns out that there has been legal justification for holding leaders so accountable available for a long time:
All that's required for the government to flex this remarkably broad authority -- embedded in the Responsible Corporate Officers Doctrine -- is that the executives were in a position to have stopped the fraud that resulted in a criminal conviction or plea.

Note that the Responsible Corporate Officers Doctrine apparently derives from a US Supreme Court case about the selling of misbranded or adulterated drugs into interstate commerce under the US Food and Drug Act, decided in 1943.

However, it looks like in the hyper laissez faire climate of the last 20 or more years, no one wanted to bother to invoke it. After all, the formerly highly regarded leader of the US Federal Reserve believed there was no need for regulators to punish fraud, because the magic of the market would take care of it. US health care has paid a heavy price for such breathtaking naivete (see the PBS Frontline show, "The Warning." )


Anonymous said...

Score one for us knuckle draggers.

Steve Lucas

dc.sunsets said...

Laissez faire? In an industry neck deep in gov't regulation? Where half (or more) of all billings are paid for by taxpayers somewhere? If that's the Free Market, I wonder what fascism is.

While we're at it, if corporate officers had/have impunity, what do politicians, government bureaucrats, and cops at all levels wield? When was the last time some lying political hack was actually held to account? When some cop, some prosecutor, or some regulator makes a boo-boo who pays? Hint: NOT THE CLOWN drawing a tax-paid paycheck!

The problems you see are endemic and inevitable in a centrally-planned fascistic super-state. They cannot be fixed by increasing the power of regulators over business, they can only be fixed by getting taxpayers away from BOTH.

Roy M. Poses MD said...

You might want to go through our archives.

There may be some government regulation of health care, but perusal of the last few years of this blog would reveal that there is little effective regulation and very little punishment of all sorts of bad behavior by health care leaders and their organizations.

Obviously, government paying the bills does not equal government regulation.

In health care, show me more than one example (Purdue Pharma) of corporate officers paying any real penalty for any kind of misbehavior. The politicians, government bureaucrats, and cops may be out there, but they have been doing almost nothing to police health care.

Are you seriously proposing, however, that we would be better off having no regulators, no police, no umpires, no effort to establish a level playing field?

A lot of dedicated capitalists would agree that capitalism will and has run amok if there are no policing/ umpiring functions.

The solution is not to get rid of that function. It is to make sure it is performed effectively.

dc.sunsets said...

Dr. Poses,
I disagree with your characterization of regulation as "some" and "little effective." No drug or medical device can be sold without regulatory approval, period. Imagine if I said the same thing about book publication and claimed that it amounted to "some regulation, of little effectiveness."

Your comment on capitalism reflects the widespread modern interpretation of the word, but I disagree with it entirely. Effective "policing" of capitalism (which is naught but the free market, private property order) is only possible via voluntary organizations. Who would I prefer to trust, Consumer Reports or the FTC? Today people trust departments of the state like the FTC or EPA and get crap, just like people trusting the FDIC risk huge loss in a banking cataclysm. In the absence of government intervention, private services for evaluation of safety would proliferate. People want the information and a businessman will provide it cheaper than the state, at a profit.

People today think that "government," as an institution of men, can be other than the sum of the men staffing it. Somehow people believe that humans working for the state are metaphysically different than those in the board room or back room. It is laboring under this odd belief that causes people to think that one group of men can be selfless, beneficent, and wise while the same men in a different setting will be greedy, short-sighted, and sociopathic.

As long as politicians and regulators wield the power of the gun, the jail cell, and the taser over trillions and trillions of dollars of buying and selling, expect the first thing to be bought and sold to be politicians and regulators. [I'm paraphrasing P.J. O'Rourke]

Public Choice Theory in economics shows rather persuasively that effectively performing functions is not a reasonable expectation of the (political) government.

Good luck to you, though.

Roy M. Poses MD said...


Given the difference between book publication and drug sales, not to mention the First Amendment, your first argument would seem to be a red herring.

Nonetheless, look through our archives at all the bad behavior described there: e.g., manipulation and suppression of clinical research, deceptive sales and marketing, intimidation of health professionals, sales of adulterated drugs, multitudinous conflicts of interest and various financial crimes.

For example, see:
just for starters.

And look at what we have written about the companies mentioned in the post above:

If you have some concrete proposals for how voluntary organizations could deal with these problems, please let us know.

Note that Health Care Renewal tries not be be very ideological, and our bloggers come from various parts of the political spectrum. I personally am not wedded to only government regulation as an approach to deception, intimidation and coercion, conflicts of interest and corruption in health care. But industry self-policing has not exactly been effective in the last 20 years.

I agree that it is all about people, and people working for government are not intrinsically better than people working for industry. However, in this day and age, without a counterweight from government or some other force, corporate power tends to become concentrated, and big corporations can be just as collectivist, dehumanizing, and harmful to individual rights and welfare as big government.

To repeat, we are looking to air the problems and develop solutions. If you think you have some solutions, you are welcome to discuss them.

(And if you want to do a guest blog post about this, communicate with me directly.)

Thanks for your interest.

dc.sunsets said...

Dr. Poses, thank you for your part in this dialogue. In the interest of full disclosure, I'll mention that I'm employed as a drug rep.

Before you say "ah ha," I offer that I agree wholeheartedly with your criticisms of the industry. I work for a corporation that, among other things, sells anti-psychotics and ADHD drugs, drugs I consider amoral and evil on their face. I do not and would not participate in their marketing. (Even I have standards .)

I attribute the problems you describe to an unholy alliance between the corporation and the state. After all, the former is a creation of the latter, a legal fiction generated by the political process.

As for concrete proposals, I admit I have none. I regard all such proposals as deck chair rearrangement schemes for a doomed ocean liner. To me, the very notion of such proposals is epistemologically flawed because the discovery of success only comes via survival within competition. This is the heart of why the market is the only place where truth can be revealed and progress achieved.

Trust me, if I knew "what the way to go" is, I'd be busy getting rich implementing it, not chatting on a blog. Prior to Microsoft's success, no one "knew" what the path for PC's should be. It was discovered, literally, by what succeeded.

Sadly, when it comes to medical services, we are not apt to get such an honest discovery system and will continue to wallow from one centrally-planned "fix" to another. The truth of this is revealed in the writings of Mises decades ago, wherein he showed that intervention by the state generates problems, each of which creates demand for more intervention, until no one even recognizes the system (it's so screwed up). Looks like the medical system today to me.

Best wishes,

Cure Acne said...

I do agree that it is all about people, and people working for government are not intrinsically better than people working for industry.

dc.sunsets said...

People are people in industry or government. The way to align individual self-interest with social interest is the SAME as Adam Smith described over 200 years ago.

For some reason we seem to think we can improve on the marketplace disciplined only by narrowly constructed tort and fraud law. We are blind to the fact that only via secure private property rights and vigorous competition can we continually discover the truth.

When the government funds or runs science pretty soon only politically correct "truths" can be researched. Ditto when the government says what can and can't be bought or sold.

We still suffer the Progressive Era's IDIOTIC belief in the power of Scientific Management and of Frederick Taylor's "One Best Way." Both of these things lead to stagnation and decay because they are the very *engine* of central planning.

"Health Care Reform" is a guaranteed disaster because it continues a failed paradigm of political control and the illusion of "expert management." Like "Best Practices" or "Evidence-Based Medicine" it presupposes that there's One Best Way to do things, forgetting that all past orthodoxies are yesterday's TRASH. By enshrining today's orthodoxy and dogma into unassailable and politically mandated practices we can see the future in past dictatorial catastrophes.

Roy M. Poses MD said...

I think your view of Evidence-Based Medicine is based on some popular misconceptions.

Ideally, evidence-based medicine is medicine based on biologic knowledge, on the best evidence from clinical research derived from systematic searches and critical reviews of the studies they produce, and on patients' preferences and values. It is not cook-book medicine. It is a process that provides guidance to health care decisions, but not rigid mandates.

See what we have written about the topic (but others have written better about this topic, so follow some of the links:)

I agree with you about "best practices." Notice we are hugely skeptical about current business management fashions, and about much of what passes for "health care reform."