Monday, September 06, 2010

At the End of Summer, Everybody, Well, Nearly Everybody (Allergan, CVS Caremark, Stryker, WellStar) Settles

Many US health care organizations announced legal settlements as the dog days of summer drew to a close.  The hit parade included, in order of dollar amount:

Stryker Corp

As reported by Bloomberg News:

Sryker Corp., a maker of artificial hips and knees, will pay $1.35 million to settle claims it marketed items without regulatory approval and misled health care providers about the use of its products, the Massachusetts attorney general said.

Stryker’s biotech unit engaged in unfair and deceptive trade practices that boosted sales of products used to strengthen and promote growth of bones, Massachusetts said in a filing in state court in Boston.

'Stryker Biotech subverted review procedures designed to safeguard patients and promoted uses of its products that were not shown to be safe or effective,' Martha Coakley, the attorney general, said today in a statement.

Note that this appeared to be one of those rare cases in which allegations were made against individuals, as well as the company as a whole:
In October 2009, the biotech unit and former president Mark Philip were indicted by a federal grand jury for misleading the U.S. Food and Drug Administration about the use of the products. Philip, who was president from 2004 to 2008, was accused along with three sales managers of promoting therapeutics in a manner contrary to their FDA-approved use. They pleaded not guilty, according to the case docket.
However, the case has not yet gone to trial.

As usual, the company denied anybody did anything wrong:
As part of the Massachusetts settlement, Kalamazoo, Michigan-based Stryker didn’t admit any liability, the company said in an e-mailed statement.

As usual, the penalties were trivial compared to the company's revenues:
Under the agreement, Stryker will pay $325,000 in civil penalties, $875,000 to fund efforts to combat unlawful marketing and other programs to benefit health-care consumers, and $150,000 to cover attorney fees and investigative costs. The company reported 2009 revenue of $6.72 billion.

CVS Caremark

As reported very briefly by the Associated Press via the Boston Globe,
CVS Caremark Corp. has agreed to pay $2.65 million under a settlement with the Massachusetts attorney general’s office, which accused the pharmacy chain of overcharging public entities for prescription drugs.

CVS will pay Massachusetts and about 200 cities and towns in the state that were allegedly overcharged under the workers compensation insurance system, Attorney General Martha Coakley said yesterday in a prepared statement.


This story was published in the Atlanta Journal-Constitution:
WellStar Health System has agreed to pay $2.7 million to settle allegations that it improperly billed the state Medicaid system, Attorney General Thurbert Baker announced Monday.

The agreement came after a six-month state investigation which found that WellStar mishandled claims involving patients covered by both Medicare and Medicaid. WellStar filed claims that did not properly reflect payments it received from Medicare, allowing it to receive excessive payments from Medicaid.

As expected, the hospital system denied it was anything more than a soft-ware glitch:
The allegations related to patients served at WellStar’s five hospitals: Cobb, Douglas, Kennestone, Windy Hill and Paulding.

'Upon learning from the state of this potential billing issue, WellStar immediately conducted an internal investigation and fully cooperated with the state,' WellStar said in a statement.

The hospital system said a flaw in claims processing software caused the problem. 'The State specifically found no intent to defraud,' WellStar said.

WellStar admitted no wrongdoing as part of the settlement , according to the attorney general’s office.
It is not entirely clear whether any individuals suffered any negative consequences because of this soft-ware "flaw" which went undiscovered until the state investigated. In another AJC story, which did not directly refer to the one above, published four days later:
WellStar Health System’s president and CEO Gregory Simone was fired by the system’s board on Thursday.

Board chairman and Marietta attorney Randall Bentley said the decision was a personnel matter and provided no information on the reason for Simone’s termination, which is effective immediately.

Earlier this week Bonnie Wilson, WellStar’s executive vice president and general counsel, received notice that her contract would not be renewed.

Bentley did not say if the terminations were related.

Then, in a third story, the hospital denied any relationship among the firings and the legal settlement:
WellStar Health System's board this week fired the Gregory Simone, president and chief executive of the non-profit operator of five north metro hospitals and dozens of other facilities.

Board chairman Randall Bentley, a Marietta attorney, gave no explanation other than to say Simone's termination was a personnel matter. It was announced Thursday and was effective immediately.

His firing follows the Aug. 31 departure of Bonnie Wilson, WellStar’s executive vice president and general counsel. She was told her contract would not be renewed, according to WellStar.

Bentley did not say if the Simone's firing and Wilson's departure were related.

WellStar and Bentley said Simone's firing was not related to a six-month Medicare and Medicaid investigation. In August, the hospital system agreed to pay $2.7 million to settle allegations that it improperly billed the state Medicaid system, resulting in excessive payments from Medicaid.

[sarcasm on] Of course, it was just a soft-ware "flaw," so no one was responsible, just the soft-ware. [sarcasm off]


As reported again by Bloomberg:

Allergan Inc., maker of the wrinkle smoother Botox, agreed to pay $600 million and plead guilty to a misdemeanor in settling a U.S. investigation of its marketing practices.

Allergan will pay $375 million to the government as part of a 'misbranding' charge that the marketing of Botox from 2000 to 2005 led to use in treating headache, pain, muscle stiffness and juvenile cerebral palsy, purposes for which the Food and Drug Administration during that time hadn’t approved marketing. Allergan will also pay $225 million to resolve civil claims from the Justice Department, the company said today in a statement.

Once again, although the amount this time appears large, it is small compared to the revenues produced by the product in question. The total fines amount to about $100 million per year of sales, but:
Botox, [is] Allergan’s top product with $1.3 billion in annual sales,....

Once again, the company denied it did anything all that bad, (even though it did plead guilty to a crime), reported by the Wall Street Journal,
The company, meanwhile, said the settlement resolves the investigation while avoiding substantial litigation costs and other risks associated with a government enforcement action.

Allergan said its plea to the single misdemeanor 'misbranding' charge didn't involve 'false or deceptive conduct.' Specifically, the Botox marketing from 2000 to 2005 resulted in intended Botox use for four unapproved conditions, Allergan said. The drug didn't have directions for these uses, which means it was misbranded, the company said.

Got that? On the other hand,
Prosecutors alleged Allergan engaged in tactics to promote the drug for unapproved uses, including paying kickbacks to doctors. For example, the government charged that in 2005, Allergan hosted about 100 doctors at an invitation-only program at its corporate headquarters and a Newport Beach, Calif., resort while paying them $1,500 'to listen to off-label marketing presentations.'

I did not see anything in any news article that suggested any individual at Allergan would suffer any negative consequences as part of this settlement.


So, the parade of legal settlements marches on.  We have now documented a very large number of heretofore respectable health care organizations who have made legal settlements of all sorts of charges of wrong-doing.  As we have repeatedly noted, these settlements have certain characteristics.  The amount of money involved, although it may seem big to those paid less than CEOs, is usually much smaller than the amount of money that could be made by the bad behavior.  The settlement is usually paid by the organization as a whole, and so its effect may be diffused among the employees, the patients or clients, and the stock-holders, if any.  The settlement rarely involves any negative consequences for those who might have authorized, directed, or implemented the bad behavior.  Rarely is the settlement widely reported, and rarely does the organization involved seem to suffer any stain on its reputation.

So is it any wonder that the bad behavior that leads to such settlements continues?  Is it any wonder that health care organizational leaders now just seem to think of such settlements as a (relatively negligible) cost of doing business?

Inquiring minds may want to know how this state of affairs came to be.  Why are leaders of health care organizations (and other large organizations) able to behave with such relative impunity?  The answer may have to wait for more historical inquiry (although I recently saw what might be a clue, so stay tuned.) 

My refrain has been: we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.


Anonymous said...

There are many dirty hands in these companies, not just those in the executive suite.

However, the culture that fosters this comes from the top and only the top can stop it.

Anonymous said...

Along with this list we need to add this story from Daily Finance:

FDA Sends Johnson & Johnson Warning Letter on Two Products

Melly Alazraki
Aug 24, 2010 at 06:30PM

In a letter to J&J’s DePuy Orthopaedics, the FDA says it has learned that the company is marketing the TruMatch without the required marketing clearance or approval and in violation of the Federal Food, Drug, and Cosmetic Act. TruMatch Personalized Solutions System is a high-tech CT scanner that can create detailed 3-D views of a patient’s knee for implant surgery.”

The other issue revolved around the use of a hip replacement product that was approved for cementless use that was now being marketed as a cemented product.

So Allergan pays a $600,000,000.00 parking ticket and the other companies pay what in the drug business are small amounts to make problems go away.

The question I have to ask is: Does someone at the various drug/device companies do a calculation regarding fines and penalties, and then a decision is made on that calculation as to weather or not to seek FDA approval, or skirt the approval for greater gains by marketing the product off label.

If we think that those working for these companies would never engage in any deliberate act to further their financial situation we need look no farther than the Sept. 2, 2010 WSJ article SEC Case Charges Wharton Buddies. Here we learn of a Merck financial analysis colluding with an old school chum, hedge fund manager, to benefit from Merck’s involvement with the $15B MedImmune/AstraZeneca merger.

Fines and penalties are nothing more than the cost of doing business if someone is not held personally responsible.

Steve Lucas