Wednesday, April 13, 2011

Johnson and Johnson Runs Afoul of Foreign Corrupt Practices Act

Johnson and Johnson, the once highly reputed international pharmaceutical and device company, cannot catch a break. 

International Bribery Charges

As reported by Bloomberg, the latest story is about bribery claims across multiple countries and two continents:
Johnson & Johnson (JNJ), the world’s second-biggest seller of medical products, will pay $70 million after admitting that the company bribed doctors in Europe and paid kickbacks in Iraq to win contracts and sell drugs and artificial joints.

Subsidiaries of J&J paid bribes to doctors and hospital administrators in Greece, Poland and Romania, the Securities and Exchange Commission and Department of Justice said today in filings at U.S. District Court in Washington. The company also made illegal payments to Iraqi officials to win contracts under the U.N. oil-for-food program, the filings said.

J&J, based in New Brunswick, New Jersey, used slush funds, sham contracts and off-shore companies in the Isle of Man to carry out the bribery, the SEC said. Public health system doctors and administrators who ordered J&J products such as surgical implants or prescribed the company’s drugs were rewarded in a variety of ways, including with cash and travel.
Simultaneously, in the UK,
J&J’s DePuy International Ltd. subsidiary was ordered to pay 4.8 million pounds ($7.9 million) to resolve U.K. claims related to the bribery in Greece, the Serious Fraud Office said in a statement today.

Per the Wall Street Journal, the company also entered into a deferred prosecution agreement.

Admissions of Guilt

The company could not deny wrong-doing, as reported by the Wall Street Journal:
As part of the settlement, J&J acknowledged responsibility for the actions of its units, employees and agents who made 'various improper payments to publicly employed health-care providers in Greece, Poland and Romania in order to induce the purchase of medical devices and pharmaceuticals manufactured by J&J subsidiaries,' according to the Justice Department.

J&J also acknowledged that kickbacks were paid on behalf of J&J units to the former government of Iraq under the United Nations Oil-for-Food program in order to secure contracts to provide humanitarian supplies.
But No Apology, Nor Acknowledgement of Responsibility
The Johnson and Johnson CEO issued the de rigeur non-apology apology:
'More than four years ago, we went to the government to report improper payments and have taken full responsibility for these actions,' J&J Chief Executive William C. Weldon said in a press release. 'We are deeply disappointed by the unacceptable conduct that led to these violations.'

Notice the clever phrasing that seems to deny that Weldon had any responsibility for these actions, which occurred in the remote past and which were addressed as soon as top management were made aware of them.

Management was Aware

In fact, however, as discussed by Jim Edwards on his BNEt blog, it appears that management had been well aware of the bad behavior for a long time:
But J&J’s internal emails, plus the U.K. Serious Fraud Office’s records, indicate that J&J management knew as early as 1999 that it was making improper payments to Greek sales agents, and that money was disappearing into what it called a 'black hole' in Europe.

Yet J&J later acquired the company that operated that 'black hole' in order to maintain its illegal sales relationships in Greece, according to the SEC’s complaint. And although the SEC praised J&J’s cooperation in its probe, J&J took eight years to initially inform the SEC of its problems.

For the gory details, see his blog post.

Only the Latest Troubles

This latest ethical black eye comes after numerous other troubles for the giant company. As Bloomberg put it:
The settlement comes less than a month after J&J’s McNeil Consumer Healthcare unit signed a consent decree giving the Food and Drug Administration more oversight at three plants making children’s Tylenol, Motrin and other over-the-counter drugs recalled in the past year because of faulty ingredients or foul odors caused by chemical contamination of storage pallets.

The March 10 agreement left the plants under enhanced scrutiny for five years, and J&J faces fines of as much as $10 million a year if the FDA doesn’t approve of changes at the facilities, the company said in a statement last month.

J&J has recalled more than 50 products since the start of 2010, from the consumer medications to failing artificial hips, improperly rinsed contact lenses, insulin cartridges that may leak and cracked syringes loaded with prescription drugs. The company installed a new corporate quality-control director and announced companywide compliance standards in August.

In February, J&J reorganized its consumer division and announced the head of its DePuy Orthopaedics unit had resigned.

There is actually more. We noted last month that Johnson and Johnson's Janssen's subsidiary's Risperdal marketing was found deceptive by a South Carolina jury. In addition,  In 2010, another jury found that the company had committed marketing fraud in its promotion of Risperdal (see post here), and its Ortho-McNeil-Janssen subsidiary also made a guilty plea to a misdemeanor for and civil settlement of charges of "misbranding" Topamax (see post here).

No Penalties for Individuals

As in many such cases we have discussed before, despite the seriousness of the charges and the corporate, although not individual admissions of responsibility, no individual in the US apparently will suffer any negative consequences for the misbehavior.  (Per the WSJ, one UK executive went to prison for bribery by DePuy in Greece.) 

Moreover, rather than suffering, the US company leadership has personally profited.  As we have mentioned more than once, most recently here, the increasing numbers of legal and regulatory sanctions and the increasing numbers of product recalls stand in stark contrast to the plutocratic remuneration given to top Johnson and Johnson executives.  CEO Weldon received about $29 million in 2010, while his top five lieutenants each got from over $5 million to just under $9 million.  The company board asserted that Weldon "met expectations," and exerted "strong leadership."  At best, it appears that the clubby and out-of touch governance of health care organizations, generally by fellow members of the CEO's guild, leavened with a few conflicted academic health care leaders, rewards insiders despite, or even because of  failed leadership.  

So once more with feeling, ... health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research.  On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.

If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.

Meanwhile, I can only ask Johnson and Johnson executives and board members, have you no shame?

ADDENDUM (13 April, 2011) - See also posts by Merrill Goozner on the GoozNews blog, and by Maggie Mahar on the HealthBeat blog.

No comments: