"Phony Consulting and Royalty Agreements," "Chocolate" Bribes, a Sales Representative Doubling as a Stripper, Oh My - Three Settlements for Othrofix

On this US election day, we seem to be in a mini-squall of cases involving unethical, deceptive, and now very colorful marketing practices used to push drugs and devices. 

We recently discussed a settlement of allegations of deceptive marketing practices and kickbacks by pharmaceutical company Boehringer-Ingelheim (here), a US congressional report alleging deceptive influence by Medtronic marketers over ostensibly scholarly publications (here), a study of documents released after litigation that appear to show how Pfizer had a systemic marketing campaign that used controlled trials as deceptive marketing vehicles (here),

Now three separate settlements by device/ biotechnology company Orthofix have come to light.

Settlement 1 - "Phony Consulting and Royalty Agreements," and Prostitution as Kickbacks, and a Sales Representative as Stripper

A Bloomberg article outlined Orthofix's two latest settlements.  The newest seems the most audacious, or bodacious,

Orthofix International NV, (OFIX) a maker of spinal implants, agreed to pay the U.S. $30 million to settle claims that a subsidiary paid illegal kickbacks and provided prostitutes to doctors in return for orders.

The subsidiary, Blackstone Medical Inc., paid kickbacks to spinal surgeons in the form of phony consulting and royalty agreements, and travel and entertainment to entice them to use its products, the U.S. Justice Department said in a statement today.

This case adds to the mounting pile of evidence that many of the financial relationships among physicians and health care academics and drug, device, biotechnology and other health care corporations are not merely conflicts of interest incidental to innovation.  In particular, Bloomberg reported,

[Whistle blower Susan] Hutcheson alleged that officials of Blackstone, purchased by Orthofix in 2006, violated kickback and false-claim laws by setting up a system to compensate doctors under sham consulting agreements and phony research grants, according to court filings. The sales executive said the company also offered lavish travel opportunities to doctors who implanted its products, the filing said.

Some doctors were paid as much as $8,000 a month under the fictitious consulting agreements, Hutcheson said in her suit, filed in federal court in Massachusetts. Orthofix’s U.S. unit is based in Lewisville, Texas. Some also received phony research grants for as much as $18,000, the suit added.

Then there was this colorful detail,

Blackstone salespeople also were urged to take surgeons out for expensive dinners, escort them to strip clubs and pay for liaisons with prostitutes to get their business, Hutcheson said in the suit.

One female sales manager in Dallas agreed to disrobe and join strippers on stage at the request of two surgeons to whom she was pitching the company’s products, Hutcheson said in her suit. The sales manager was demoted, not fired, over the incident, Hutcheson said in the suit.

We often hear from drug, device, and biotechnology companies that their sales efforts are all about providing needed information to physicians, information they could not otherwise obtain.  In this case, the information appeared to be rather anatomical, but also rather personal.

The AP coverage of this store (here, via Businessweek) also noted that the settlement involved a corporate integrity agreement.  Neither story mentioned any admissions made by the company.  As far as I could tell, no corporate executives suffered any consequences as part of this settlement.

Settlement 2 - Fraud, Obstructing the US Government, and Less Colorful Kickbacks to Promote Bone Growth Stimulators

The article did nor provide any helpful photographs, but it did note that Orthofix recently made a second settlement.

The settlement’s approval comes after Orthofix officials agreed to pay $42 million to resolve a separate whistle-blower suit and a criminal probe of allegations it paid kickbacks to doctors who used its bone-growth stimulators.


One of its units will plead guilty in federal court in Boston federal court to a single felony count of obstructing a U.S. government audit and pay a $7.8 million fine, according to a June 7 regulatory filing. Orthofix also will pay $34.2 million to resolve whistle-blower claims that the company defrauded the federal Medicare program over bone-growth stimulators, which patients wear after surgery to speed healing.

Amazingly, unlike the first settlement, and unlike most settlements we have discussed,

Five Orthofix employees have pleaded guilty to criminal charges in connection with probes of the kickback allegations. Thomas Guerrieri, an Orthofix vice president, pleaded guilty in April to violating the federal anti-kickback statute by setting up fake consulting agreements for doctors who used the company’s products.

Note that we discussed a surgeon who pleaded guilty to accepting kickbacks from multiple device companies, including the Blackstone subsidiary of Orthofix, here in 2008.

Settlement 3 - "Chocolate" Bribes to Mexican Government Officials

Finally, the AP story noted in passing "the recent resolution of a federal Foreign Corrupt Practices action" against the company.  I could not find any news coverage of that, but in July there did appear a SEC press release.

The Securities and Exchange Commission today charged Texas-based medical device company Orthofix International N.V. with violating the Foreign Corrupt Practices Act (FCPA) when a subsidiary paid routine bribes referred to as 'chocolates' to Mexican officials in order to obtain lucrative sales contracts with government hospitals.

The SEC alleges that Orthofix’s Mexican subsidiary Promeca S.A. de C.V. bribed officials at Mexico’s government-owned health care and social services institution Instituto Mexicano del Seguro Social (IMSS). The 'chocolates' came in the form of cash, laptop computers, televisions, and appliances that were provided directly to Mexican government officials or indirectly through front companies that the officials owned. The bribery scheme lasted for several years and yielded nearly $5 million in illegal profits for the Orthofix subsidiary.


Orthofix agreed to pay $5.2 million to settle the SEC's charges.

Also,

Orthofix also disclosed today in an 8-K filing that it has reached an agreement with the U.S. Department of Justice to pay a $2.22 million penalty in a related action.

Summary  

So the box score here includes settlements of legal actions alleging bribery and kickbacks, a corporate integrity agreement, a guilty plea by a company subsidiary to obstructing the US government, and multiple guilty pleas by company executives.  The bribes and kickbacks were provided in various colorful forms.  

The variety of unethical behaviors unearthed suggests a company with a seriously deranged corporate culture.  Whether the various actions taken against it, including the very unusual punishments meted out to some of its apparently mid-level executives will change its behavior, or serve as a lesson to other companies and their leaders is not clear.  Whether they are sufficient to suggest anyone should trust this company, its leaders, or its products seems questionable.   

This story adds to our various compilations of legal settlements and tales of crime, including bribery, kickbacks and fraud involving major health care organizations which suggest serious, deep afflictions within the culture of our commercialized health care system.  Yet almost nowhere, except here on Health Care Renewal are there calls for serious reforms to restore trust in our health care organizations and their leaders.

As we have said endlessly, up to now, such legal settlements seemingly have had no effect on the bad behavior of big health care organizations, while they continually erode trust in these organizations and their leadership, and trust in physicians to put patients ahead of personal gain.

Furthermore, these cases seem to be part of a larger social problem. It seems that nowadays the leadership of large, powerful organizations feels free to promote their own interests using psychologically sophisticated but deceptive marketing and public relations strategies no matter what their effect on the public welfare.

Again as we have said all too many times before, 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.

Maybe after all the election hoopla dies down here in the US, we can finally have a serious conversation about health care reform that will make our health care system more trustworthy.