Friday, May 13, 2011

Was the Wright Medical CEO Really "Pleased" to "Continue Our Commitment to the Highest Standards of Legal and Ethical Conduct?"

This story fits into the "if you believed that one, I have a bridge to sell you" category. 

Let's go back seven months to 2010, when we discussed the legal settlement, which included submission to deferred prosecution and corporate integrity agreements by Wright Medical, a device manufacturer.  We noted that the company CEO, one Gary D Henley, said he was "pleased to announce these agreements and look[ing] forward to working with the independent monitor as we continue our commitment to the highest standards of ethical and legal conduct."  At the time, we wondered whether the only real reason he was pleased was that he got to keep his job (with total compensation of greater than $2 million a year) and hang onto his stock options (then consisting of 436,601 shares).

Now it is 2011, and the Memphis Daily News reported that last month, Mr Henley was out of a job:
It was just last month that [Chairman David] Stevens was appointed interim president and CEO after Gary D. Henley resigned from the position, which he had held since 2006.

Stevens at that time asked not to be considered for the permanent position.

Henley tendered his resignation prior to a board of directors meeting called to discuss management’s oversight of the company’s ongoing compliance program.

The board accepted Henley’s resignation, but deemed it to be without 'good reason' under the terms of his employment agreement, making him ineligible for severance.

He was accompanied out the door by
Frank S. Bono, the company’s senior vice president and chief technology officer, for failing to exhibit appropriate regard for Wright’s ongoing compliance program.

It appeared that the previous company leadership may not have been all that "pleased" to work with external monitors to "continue our commitment to the highest standards of ethical and legal conduct." The Daily News also reported:
Wright Medical Group Inc. on Thursday announced that it received a letter from the United States Attorney’s Office for the District of New Jersey pursuant to Paragraph 50 of the Deferred Prosecution Agreement stating that the USAO believes Wright Medical Group knowingly and willfully breached material provisions of the DPA.

Also, Corporate Counsel reported:
Two days after its general counsel departed abruptly, the Wright Medical Group, Inc., said Thursday that the U.S. attorney’s office believes the company 'has knowingly and willfully' breached its deferred prosecution agreement.

As a result, the company said it could face 'significant liability' including potential criminal and civil litigation. It also faces possible exclusion from federal health care programs such as Medicare, 'which would have a material adverse effect on our financial condition.'

The Tennessee-based company revealed the legal problems in 8-K filings on Wednesday and Thursday with the Securities and Exchange Commission. Wright has declined further comment.

One explanation for the company's pessimism:
The board recently received a tip about non-compliance and hired unnamed outside counsel to conduct an internal investigation. The probe found 'credible evidence of serious wrongdoing,' which the board communicated to the U.S. attorney’s office on Wednesday.

The Memphis Daily News noted that another slew of managers just went out the door:
Raymond Kolls, senior vice president, general counsel and secretary, Alicia Napoli, vice president of Clinical and Regulatory Affairs, and Cary Hagan, senior vice president of EMEA Commercial Operations, have all stepped down from their positions.

So should we believe Wright Medical Chairman and now interim CEO Stevens when he said:
The board is committed to maintaining the highest standards of ethical conduct and we remain diligent in ensuring that Wright Medical complies with all applicable laws and regulations...

Are you looking to buy a bridge? I know a nice one in Brooklyn.

More seriously, day in and day out we hear righteous, if not pompous pronouncements from health care organizational leaders about their organizations' integrity, brilliant performance, quality of care, devotion to patients, etc, etc, etc. Meanwhile, we have seen an astonishing parade of legal settlements, sometimes including guilty pleas to bribery, fraud, kickbacks, and other crimes by top health care organizations.  This parade raises serious questions about the performance and integrity of some of our biggest and best known health care organizations.

In nearly all cases, these settlements did not include specific negative consequences for those who authorized, directed or implemented the bad behavior that caused the need for the settlements. In nearly every case, the top leaders of the organizations continued to get generous compensation, often more generous than Mr Henley's $2 million plus a year.

Yet rarely does the media, much less health care scholarship check back later to see if the righteous pronouncements turned out to be true. Rarely do they check back to see if the settlements lead to better behavior.

Here is one vivid anecdote that suggests that the pronouncements may be nothing more than vapid PR, and the settlements lead to no change in behavior as long as the people who were in charge when the bad behavior occurred remain in charge, and richly remunerated.

So the next time you see a corporate health care CEO's boasts, think about that bridge in Brooklyn

To reprise: 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.

[Originally posted on Health Care Renewal by Roy Poses]


Anonymous said...

"Pompous" is not the best term.

"Hooligan" might be more accurate.

Judy B said...


Anonymous said...

You wrote yesterday about a pharmacy that is stealing your work. The blog entry has disappeared because of the system-wide Blogger snafu, and I don't know if it's coming back. That's why I'm responding to it in the wrong place.

I just wanted to let you know that if you google "whois", go to that website and enter the name of the pharmacy you'll get names, tel. numbers, addresses, of the owners. The bad news is that they're in Ukraine. Hope this helps you file a complaint against them.

Afraid said...

Thank you for the analysis Roy. I find it unconscionable that the CEO will receive severence. Will the rest also receive severence?

Roy M. Poses MD said...

Actually it appears he did not get severance, which makes this case a little atypical.

Afraid said...

Thank you for correcting me. I had misread the post that clearly stated he was ineligable. I agree that this is different from many cases.

I wonder since they are a smaller company if some board members have an investment position. If a VC sits on your board and owns some of your company, you can bet he still serves his VC fund investors first. Otherwise the VC manager will lose his VC status.

Anonymous said...

They may have resigned without severance, but the stock options they accumulated while under employment whilst these transgressions were being performed, remained in their possession. If they were to be held legally responsible, and the shares were removed, it would hit them where the responsibility hurts!