Monday, April 25, 2011

Will a Pharmaceutical CEO Finally Be Held Accountable for Misbehavior on His Watch?

It appears there may be a move afoot to have the leader of a large health organization suffer some negative consequences for the misbehavior of his organization.  As reported by the St Louis Post-Dispatch,
For the past 34 years, Howard Solomon has presided over Forest Laboratories Inc., a midsize pharmaceutical company that runs its national sales operations from Earth City.

Solomon, 83, took home $8.3 million last year as the company's chairman, president and chief executive officer. But his company's marketing arm also fell into trouble, pleading guilty to federal charges that its sales force illegally marketed the antidepressants Celexa and Lexapro to children and adolescents, even though these drugs had not been approved for minors.

Now, the federal Department of Health and Human Services is attempting to oust Solomon from his job. According to the company, the agency's Office of Inspector General advised Solomon, a Yale Law School alum, last week that it planned to exclude him from doing any business with federal Medicare and Medicaid programs.

The move — similar to the government's exclusion of KV Pharmaceutical's former chairman, Marc Hermelin — is part of a new effort by regulators to use this enforcement tactic to root out 'untrustworthy individuals' who knew or should have known that health care fraud was being committed on their watch.

This appears to be big news. As we have discussed ad infinitum, there has been a parade of legal settlements by large health care organizations of charges of various kinds of wrong-doing. Some of these settlements have involved apparently large monetary penalties. However, the settlements have almost never been accompanied by any negative consequences for the people who authorized, directed or implemented the bad behavior.

The concern all along has been that monetary settlements may just be regarded as a cost of doing business, and as long as misbehavior is lucrative, such settlements have no deterrent effect. In fact, the current practice seemed to grant impunity to corporate leaders. Actually barring a corporate executive from Medicare, which could result in the collapse of his company were he or she not to resign, would be a significant step towards accountability.

Note that the St Louis Post-Dispatch article documented the rarity of imposing any negative consequences on corporate health care executives:
Prosecutors have long been criticized for seldom filing charges against individuals associated with drug companies that are convicted of criminal conduct. Huge fines in recent years against Pfizer Inc. and Eli Lilly & Co., for example, did not stop their chief executives from continuing in their jobs.

Solomon, who joined the company in 1977, would become the second drug company executive barred from doing business with federal health care programs under a specific provision of the law that authorizes the exclusion of individuals who have not been convicted of a crime.

In October, the agency's Office of Inspector General posted 'guidance' saying that, when there is evidence that an owner/operator or company officer "knew or should have known" of his organization's criminal conduct, the agency 'will operate with a presumption in favor of exclusion.'

Hermelin, an owner/operator of KV Pharmaceutical, was excluded in November from federal health care programs for 20 years — and stepped down from the company's board of directors. He pleaded guilty last month to two criminal misdemeanors connected with his firm's shipment of oversized morphine tablets, and was sentenced to 30 days in the County Jail.

In addition, three executives of the Connecticut-based pharmaceutical company Pardue Frederick were excluded for 15 years from federal health programs under a different provision of the law, after their guilty pleas in 2007 in connection with the misbranding of the painkiller OxyContin.
Meanwhile, it seems that health care corporate CEOs can find academics who will defend their actions no matter what.  It was instructive to see one such defense of Solomon described in the Post-Dispatch article:
Jackson Nickerson, a professor of organization and strategy at Washington University's Olin Business School, said the agency's 'underlying model' for exclusion appeared to be an example of over-regulation.

'It's predicated on the assumption that if a company has done something wrong, it must mean the senior executives have done something wrong,' he said. 'You are branded as being unethical if a subordinate makes a decision that turns out to be a bad one.'

Nickerson said that to encourage innovation, company executives needed to delegate certain responsibilities to employees lower down in the organization. 'The dilemma is, how do you engage in global competition and decentralize, while at the same time be held accountable as an individual leader?'

It does seem that it would be hard for top corporate executives to keep their eyes on the actions of all subordinates. On the other hand, it also seems that top corporate executives have justified their out-sized compensation by taking personal credit for everything good that happens to their organizations. If they want such credit, why should they escape responsibility when some actions go wrong?

Note that Prof Nickerson played the "innovation" card. A common justification for many corporate health care practices is that they enable innovation. This argument is thrown around so often I begin to suspect it comes from corporate public relations' talking points. (See this post about the development of such talking points.) Of course, the more a corporation is truly decentralized to support innovation, the less it can argue that the top executives deserve huge salaries because of their close involvement in everything that goes on at that corporation.

Furthermore, while Forest Laboratories' previous marketing practices might have been innovative, that did not make them ethical. As we noted in an earlier post, the company was accused of marketing anti-depressants to children when they had only previously been approved for adults. Their marketing tactics allegedly included suppressing negative studies, and paying physicians to prescribe the drugs. The company pleaded guilty to obstruction of justice for lying to the FDA during a plant inspection, and to misdemeanor charges of misbranding and distributing an unapproved drug contrary to an FDA directive.

In addition, an earlier post summarized memos made public by a congressional investigation about Forest Laboratories' marketing of Lexapro. These included coopting medical education, "key opinion leaders," and medical associations for marketing purposes:
- The marketing plan from the marketing department paid for medical education as a "promotional objective," that is, to market, not to educate.
- Thought leaders and consultants were again paid by marketing to market, and sometimes to provide opinions about "promotional strategies" and "commercial development."
- Medical associations are funded by marketing "for commercial and policy activities."

So the facts in the Forest Laboratories case make protests that holding corporate leaders accountable for misbehavior on their watches will stifle innovation seem disingenuous. Furthermore, it makes no sense to pay top corporate leaders outrageous amounts for everything good that happens on their watch without similarly holding them accountable for everything bad that happens then.

If the US government is really going to hold one corporate leader responsible for misbehavior by his subordinates on his watch, that would be a step forward.  As we have said again and again, 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.


Afraid said...

So what is the lawyer's defense? Selective treatment I bet, "You can't treat my CEO that way if you don't treat all CEOs that way."

You know what I say "Well we'd best treat 'em all to the door."

Do you think a stock holder's lawyer will sue for mismanagement?

Anonymous said...


Thanks for the post. While I agree that it is a step in the right direction--a very, very small step--will it really alter behavior? To bar an 83-year-old from participation--without giving his company a taste of the same 'death penalty'--looks like a whitewash. Mr. Solomon will take his millions and toddle off to enjoy his geriatric retirement, and another wannabe will step forward, with Mr. Solomon's roadmap grasped tightly in his hand to continue the same ol', same ol'.


Anonymous said...

lol @ an 83 year old convict - it actually gains the industry sympathy.

These are smart-like-a-fox folks.