55 of Medtronic's Best Hospital Friends, Including HCA, Settle for $34 Million

The case of the over-marketing of Kyphon's kyphoplasty device (look here) just got more complicated, and now appears to have involved an amazing number of players.

The State of Play

 As reported by the AP (via the Washington Post),

 Fifty-five hospitals in 21 states have agreed to pay $34 million to the U.S. government to settle allegations that they used more expensive inpatient procedures rather than outpatient spinal surgeries to get bigger payments from Medicare, the U.S. Justice Department said Tuesday.

The settlement involves kyphoplasty procedures used to treat spinal fractures usually caused by osteoporosis. It can be done as an outpatient procedure, but he Justice Department said the hospitals performed the surgeries as inpatient procedures to increase Medicare billings.

The current media reports provided little detail about the allegations, but did note that this case has been litigated for a while,

 A similar settlement was reached last year, when 14 hospitals agreed to pay a settlement of more than $12 million. And in 2008, the Justice Department agreed to a $75 million settlement with Medtronic Inc.’s spine business. The government was investigating allegations that Kyphon, a company that had been acquired by Medtronic Spine in 2007, advised hospitals to do inpatient kyphoplasties to bulk up their Medicare payments.

The Players

Per the AP, there were quite a few

In the latest settlement, the largest payments are being made by Atrium Medical Center of Middletown, Ohio, which will pay $4.2 million; Mount Sinai Medical Center in Miami, $1.8 million; Altru Health System of Grand Forks, N.D., $1.5 million; Cedars Sinai Medical Center in Los Angeles, $1.5 million; Wayne Memorial Hospital in Goldsboro, N.C., $1.3 million; Trover Health System of Madisonville, Ky., $1.2 million; The Queen’s Medical Center in Honolulu, $1.1 million; and Des Peres Hospital in suburban St. Louis, $900,000.

Several multi-hospital organizations agreed to settlements, including:
—Twenty-three hospitals with HCA Inc. of Nashville, Tenn., paying a total of $7.1 million.
—Six hospitals with Lifepoint Hospitals Inc. of Brentwood, Tenn., $2.5 million.
—Five hospitals with Trinity Health of Livonia, Mich., $3.9 million.
—Four hospitals with Morton Plant Mease BayCare Health System of Clearwater, Fla., $2.4 million.
—Three hospitals with Baptist Memorial Hospital-Golden Triangle of North Columbus, Miss., $1.8 million.
—Two hospitals with Bayhealth Medical Center of Newark, Del., $1.1 million.

A Modern Healthcare report noted that the leadership of HCA, the hospital system with the largest liability, made it out to all be a misunderstanding,

Hospital executives say the allegations are prompted by  unclear Medicare rules on when spinal-surgery patients should be held overnight. And they note that even though the whistle-blowers and the government are targeting hospitals, the decision to admit patients is usually dictated by the treating physician.

'We are pleased to see new clarification of industry care standards, which help physicians make decisions regarding kyphoplasty patients,' HCA spokesman Ed Fishbough said in an e-mailed statement Tuesday. 'We are confident as a result that this issue has been resolved.'

However, the case appears to be more complicated than that.

What Really Happened, and Who Benefited?

In fact, we discussed the Medtronic settlement in 2008.  At that time, a New York Times article described the government's allegations about what went on this way,

A unit of Medtronic defrauded Medicare of hundreds of millions of dollars, according to a civil lawsuit that was unsealed Thursday and simultaneously settled with the Justice Department.

Two insiders had said Kyphon, which Medtronic acquired in 2007, improperly persuaded hospitals to keep people overnight for a simple outpatient procedure to repair small fissures of the spine. Medicare then reimbursed the hospitals much more generously than it otherwise would have for the procedure, which was developed as a noninvasive approach that could usually be done in about an hour.

By marketing its products this way, Kyphon was able to artificially drive up demand among hospitals, bolstering its revenue and driving up its stock price. Medtronic subsequently bought the company, its competitor, for $3.9 billion, greatly enriching Kyphon’s senior executives.

Furthermore,

 The scheme at Kyphon was based on Medicare’s practice of reimbursing hospitals more for complex inpatient back surgery than for outpatient care. The two whistle-blowers, Charles M. Bates and Craig Patrick, said Kyphon had deliberately urged doctors to admit patients overnight, knowing the admissions were unnecessary.

Hospitals saw the overnight admissions as a way to raise revenue, the two said, and bought Kyphon’s products, even though they were expensive, starting at $3,500 to repair one spinal fissure. The hospitals could recover the cost through the improper reimbursements for overnight stays.

Kyphon sold so much equipment this way that at one point it enjoyed a 90 percent profit margin, according to the two insiders, both of whom worked in sales positions.

The former employees said the scheme began in 1999, when Kyphon’s products first came to the market. Kyphon’s rapid sales growth and profitability eventually gave rise to a patent dispute with Medtronic, which was dropped when Medtronic acquired it. The acquisition richly rewarded Kyphon’s shareholders, particularly its top executives. The company said its top 15 executives stood to receive about $145 million by cashing in their options and restricted stock.

Note that at that time, Medtronic leadership, whose decision to purchase of Kyphon would end up so enriching Kyphon executives, seemingly had no worries,

A  spokeswoman for Medtronic, Marybeth Thorsgaard, said the company had known Kyphon was under investigation when it made the acquisition. She said it knew that Kyphon’s marketing strategy was being challenged, and took the risk of litigation into account. 'There were no surprises,' she said.

I can find no public record that any individual who authorized, directed, or implemented the arrangements above that lead to huge overcharges to Medicare, and huge revenues to Kyphon and the hospitals was subject to any negative consequences.  As noted above, it appears that the executives who lead Kyphon at the time it was acquired by Medtronic made substantial amounts of money apparently attributable to this scheme to allegedly "defraud Medicare of hundreds of millions of dollars" (as it was described above in the New York Times). 

Using the public record available on the internet, I tried to see how the top three Kyphon executives are doing now.  It appears they are not doing badly, and remain influential in health care.  According to its 2007 proxy statement, just before Kyphon was bought out, its CEO was Richard W Mott.  As best as I can tell, per Equilar, he currently runs a consulting firm (Walkabout Consulting LLC), and was previously chairman of PhotoThera, which just went out of business.  Kyphon's chief science officer was  Karen D Talmadge, PhD, who is now on the board of directors of the American Diabetes Association, and is also "Chair of the Board of Directors of Gynesonics, and serves on the Boards of Directors of Amplyx Pharmaceuticals, Velocity Pharmaceutical Development and Venous Health Systems."  Kyphon's chief operating officer was Arthur T Taylor, who is now on the board of directors of Providence Medical Technology.

The CEO of Medtronic at the time it bought out Kyphon, and the CEO of HCA at the time the arrangements began appear not to be doing badly either.  The CEO of Medtronic at the time it acquired Kyphon was Arthur D Collins Jr, who is now on the boards of directors of Boeing, Alcoa, and US Bancorp, also, according to his Boeing biography, he is a senior adviser to Oak Hill Capital Partners, and is on the Board of Overseers of the Wharton School.  The CEO of HCA at the time of its arrangement with Kyphon began was Dr Thomas Frist Jr, who is currently on the Forbes list of billionaires at number 262 in the world, with a total worth estimated at $4.3 billion.

Summary

In retrospect, this case allegedly involved arrangements between Kyphon, a device company, and multiple hospitals to increase the revenue of all parties by billing the US government for unnecessary hospitalizations occurring after the use of a device made by Kyphon.  The arrangements appeared to have been particularly lucrative for Kyphon's executives after a larger device company, Medtronic, chose to buy Kyphon. Medtronic ultimately paid a large fine and entered into a corporate integrity agreement nine years after the arrangements began.  Now fourteen years after the arrangements began, at least some of the hospitals involved have also paid fines.  The former Kyphon executives who benefited the most seemingly paid no penalties, nor seemingly did any managers of Medtronic or the hospitals who might have gotten larger compensation because of all the revenue that these arrangements generated.    

So initially, the big losers from this complex dance were the US government, and ultimately US tax payers.  Some patients may have also paid out of pocket for unnecessary services and thus lost money too.  Whether some patients suffered due to adverse effects of unneeded procedures was not clear.  Much later, Medtronic and some of the hospitals involved did pay big fines and thus lost some money.  However, it does not appear that they paid anything like what they made from the original scheme, and their payments were delayed for years.  However, the insiders who personally made a lot of money never apparently paid anything later.  So, this case appears to be a vivid example of how such insiders can walk away with piles of money from the misbehavior of their own corporations, while others pay the price.


Many of those of us of a certain age were brought up on myths that ultimately the good guys win and the bad guys lose.  We would all like to believe that the "arc of the moral universe ... bends toward justice."  History and this recent example suggest that it may not do so without our active intervention. 

In health care, as we have said many times (look here for examples), when bad behavior occurs within a large health care organization, rarely are the insiders who authorized or directed it, and who had the most to gain from the behavior ever made to suffer any negative consequences.  As long as health care leaders have such impunity, expect them to continue to personally profit from unethical behavior.  As a result, expect health care costs to continue to rise as quality and access get worse and worse.

True health care reform.needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

Another Tale of Conflicts of Interest: Kyphon, Kyphoplasty, and the Surgeon with Stock Options

Here we go again. The Cleveland Plain Dealer published an investigative report about financial entanglements between an orthopedic surgeon who advocated for a particular procedure, kyphoplasty, for treating spinal fractures due to osteoporosis, and the company, Kyphon Inc, that made the equipment used in the procedure. To summarize, using quotes from the Plain Dealer:

Back braces, bed rest and medications had been the mainstays for treating the estimated 700,000 spinal fractures a year in this country alone caused by osteoporosis and other conditions. Then, in the mid-1980s, doctors in France began experimenting with the concept of vertebroplasty.

The first vertebroplasty in the United States was performed in 1993. An orthopedic surgeon, Dr. Mark Reiley, soon developed the idea of using a balloon to improve results, and he co-founded Kyphon. The company's focus the first few years was to raise money and develop the instruments used in kyphoplasty.

Next, Kyphon needed studies with influential practitioners and institutions to demonstrate that the treatment worked.

[Dr Isadore] Lieberman began offering advice to Kyphon in 1997, the [Cleveland] Clinic said, shortly after he came to Cleveland. In 1999, Kyphon provided equipment to a handful of major medical centers, including the Clinic. Lieberman, a specialist in the surgical treatment of spinal disorders, oversaw the hospital's inaugural kyphoplasty work. The findings of the Lieberman-led 30-patient trial were the first kyphoplasty results by a hospital detailed in a medical journal.

Well before the publication of that study in July 2001, Lieberman's work helped Kyphon generate buzz about its new technology.

On the SpineUniverse Web site, Lieberman, Kyphon co-founder Reiley and three other doctors published a four-paragraph synopsis of their initial experiences with kyphoplasty involving 26 patients. 'These results support further use of kyphoplasty,' the March 2000 summary concluded.

Also in 2000, Kyphon posted data from Lieberman's Clinic procedures in bar-graph form on its Web site to show kyphoplasty's favorable results.

Kyphon's use of Lieberman's data and other information without FDA permission prompted the agency in October 2000 to issue a warning letter to Kyphon.
Kyphon gave Lieberman a seat on its scientific and clinical advisory board. And during the period he was conducting his first kyphoplasty trial at the Clinic, he had an offer of stock options from the company.

When Kyphon officials took their company public in May 2002, they disclosed in a filing with the Securities and Exchange Commission that they had offered stock options to the eight members of their advisory board. All took them except Dr. Joseph Lane, a New York orthopedic surgeon who teaches at the medical school affiliated with Cornell University.

As of December 2001, the company had reserved 948,000 options for consultants and other non-employees at a cost of $1 or less - some as low as 3.5 cents, records show. The company is not required to divulge how many were held for individual members of the advisory board.

Medical journals show that Lieberman and most of the other consultants conducted kyphoplasty research around the time they were offered stock options. Their research was frequently cited by Kyphon in promotional material aimed at other doctors and medical insurance providers. Lieberman and other consultants also lobbied for insurance coverage of kyphoplasty treatments.
Kyphon was straightforward in describing its motivation for offering stock to consultants, saying it provided 'additional incentive' and was designed to 'promote the success of the company's business,' SEC records show.

The article went on to document how Lieberman had failed to disclose his financial relationships with Kyphon when speaking in favor of kyphoplasty and Kyphon's products:

In the spring of 2005, Lieberman testified to the benefits of kyphoplasty at a Centers for Medicare and Medicaid Services committee hearing. He and all other participants were asked to disclose all past and present financial involvement — including stock and stock options — with device makers.

But Lieberman did not reveal his past stock holdings, limiting his disclosure to working as a consultant for Kyphon and receiving grant and research support from the company.

Later in the hearing, the committee vice chairwoman reminded participants to disclose all holdings and specifically asked Lieberman and other doctors if they wanted to note anything else. Lieberman said nothing about his past holdings.

The Clinic said Lieberman had sold all of his Kyphon stock by that time and that he was not asked to go into detail about his financial interests. Yet minutes from the hearing show that he was asked to disclose past and current stock holdings, and there is no record he made such a disclosure.

Physicians are expected to disclose to medical journals financial relationships with companies that are the subjects of their research. That standard has been in place about six years, according to medical ethicists, following a well-publicized patient death in a University of Pennsylvania clinical trial.

But Lieberman did not divulge any relationship with Kyphon when results of his first two kyphoplasty studies were published in 2001 and 2002. In a 2003 article detailing other research, Lieberman noted only that he was a consultant to Kyphon, which is how he has usually described the relationship in articles about kyphoplasty or in presentations at conferences. The Clinic last week acknowledged that Lieberman held stock in 2003.

He failed to identify his stock interests in Kyphon for specialized medical and general audiences, according to a Plain Dealer review of medical journals, other publications and publicly available conference programs.

Also,

Lieberman's actions are noteworthy for another reason: He is a member of the Clinic's conflict-of-interest committee, charged with overseeing the relationships the hospital's physician-researchers have with private industry.

The Plain Dealer reporter asked for a response from Lieberman. In a written statement, he said, "I strive to be transparent in my disclosures and believe that I have disclosed my interests within the guidelines and policies of the Cleveland Clinic," but would not be interviewed.

The article included some opinions about Lieberman's conflicts of interests:

Medical-ethics experts say Lieberman's relationship with Kyphon Inc., the Sunnyvale, Calif., kyphoplasty equipment company, is troublesome because the more favorable Lieberman's research and the more exposure given to kyphoplasty, the more valuable his Kyphon stock would have become.

'This is a classic tale of why you wind up with a lot of technologies that are marginally better or turn out not to be better at all than what you already had - because you rely on reports from innovators who have economic dogs in the fight,' said Dr. Arthur Caplan, chairman of the department of medical ethics at the University of Pennsylvania.

Also,

Lieberman 'is out there pushing the procedure at the same time that he had an equity interest in the company that stands to gain from his pushing the procedure, said Dr. Jerome P. Kassirer, a former editor of the New England Journal of Medicine who has written extensively on the influence of business on medicine. 'He shouldn't be doing that.'

Indeed, not.

So here we go again, with another illustration of the pervasiveness of the web of conflicts of interest that now binds together commercial health care coroporations, academic medicine, hospitals, physicians, government agencies, not-for-profit organizations, etc., etc., etc. Furthermore, this case illustrates how people with considerable financial interests in particular companies and products may write and speak favorably about the companies and products as if they were only expressing their academic and/or professional opinions.

The frequent failure of physicians and scientists in government agencies, academic medicine, and other not-for-profit health care organizations to even minimally disclose their financial interests in companies that provide health care products or services ought to breed increasing skepticism about the sorts of biases that may afflict current health care discourse. Unfortunately, it may start to provoke outright cynicism.

WHAT CAN BE DONE?

At a minimum, we need clear policies requiring detailed public disclosure of conflicts of interest afffecting all health care professionals and decision makers, with strong negative incentives to those who fail to disclose.

I would go further and say we need to ban at least the most egregious conflicts.

Without such policies, it is becoming impossible to tell the difference between scholarly discussion, and professional opinion on one hand, and commercial marketing on the other.