Ghosts in the Criminal Machine - How a Drug Company Can Plead Guilty to Federal Fraud, Yet No One is Held Responsible

We have often discussed how leaders of health care organizations have become increasingly unaccountable for their actions.  A recent, slightly obscure story shows how a corporate admission of guilt to a felony can be used to prevent anyone, including anyone in corporate management, from being held responsible for that fraud.

Basics of the Settlement

The case was that of ISTA Pharmaceuticals.  The basics appeared in brief wire service articles, like this one from Rueters (via Fox News):

Ista Pharmaceuticals pleaded guilty on Friday to charges it used kickbacks and improper marketing to boost sales of a drug meant to treat eye pain and agreed to pay $33.5 million to settle criminal and civil liability, the U.S. Department of Justice said.

The unit of eye care company Bausch & Lomb pleaded guilty to conspiracy to offer kickbacks to induce physicians to prescribe Xibrom, a drug meant to treat pain after cataract surgery, and conspiracy to promote that drug for unapproved uses, including after Lasik and glaucoma surgeries.

Ista agreed as part of a criminal settlement to a $16.63 million fine and an $1.85 million asset forfeiture. It also agreed to a $15 million civil settlement to resolve allegations that its marketing of Xibrom caused false claims to be submitted to government health care programs.

Kickbacks Disguised as Honoraria and Consulting Fees

Note that unlike many such legal settlements involving large health care organizations, this one involved admissions of guilt to felonious criminal offenses.  The severity of the charges apparently arose out of the egregious conduct of company executives.  Colorful details were supplied by the Buffalo (NY) News:

ISTA, which is based in California, admitted using kickbacks to doctors and an illegal marketing campaign as part of an elaborate scheme to increase its sales of Xibrom.

The scheme, outlined in detail in newly released court papers, ranged from company-provided instruction sheets for doctors to continuing medical education programs to promote the drug.

In many cases, ISTA employees were told not to leave printed materials behind in doctors’ offices or to keep records of their meetings with doctors in order to avoid detection by others.

The company went so far as to offer speaking engagements and consulting appearances to doctors in hopes that they might use Xibrom for non-authorized treatments.

Doctors can legally prescribe drugs for non-FDA approved treatments, but drugmakers are prohibited from promoting their products for those uses.

'Essentially they entered into consulting arrangements to induce physicians to prescribe their drug,' said Jeffrey I. Steger, a lawyer in the Consumer Protection Branch of the U.S. Department of Justice.

When [US District Judge Richard J] Arcara asked if money was the doctors’ motivation, Steger said yes.

'Thousands of dollars,' he told the judge.

So here we have a company admitting that it bribed doctors to prescribe its drug, and its techniques of administering bribes included paying the doctors honoraria to give talks, and paying the doctors as consultants.  As an aside, note that many defenders of "collaboration" among doctors and industry sign the praises of doctors "consulting" for industry, and often see nothing wrong with industry paying doctors for "educational" speeches.  Yet here is more evidence that such paid talks and consulting assignments may be nothing more than marketing, and at times are merely disguised bribery.

An Apparently Tough Penalty

An unusual feature of this settlement was that (per Reuters):

As part of the settlement, Ista will be barred from participating in Medicare and Medicaid,...

That would appear to be the death knell for the company, as reported by Reuters,

Bausch & Lomb, which is based in Rochester, New York, said it was pleased to settle the matter, which involved conduct between January 2006 and March 2011, and that it knew of the government probe well before it purchased Ista.

That purchase closed in June 2012 and Bausch and Lomb plans to wind down the Ista corporate entity by year end.

So Bausch and Lomb bought a company that turned out to be valueless?  But wait,...  there's a trick. 

As detailed in FiercePharma,

 ISTA will be barred from doing business with Medicare, Medicaid, et al, for 15 years. Luckily for Bausch + Lomb, however, it bought ISTA in June 2012,  late enough in the game to actually escape the ramifications of exclusion. The exclusion won't begin until 6 months after the settlement date, giving Bausch + Lomb time to transfer ISTA's products out of that subsidiary and shift the drugs over to the Bausch + Lomb label.

A Crime Committed by... No One?

So Bausch and Lomb gets ISTA's drugs, and essentially can resolve the company's felony convictions by relatively small fines, and through management sleight of hand, can finesse ISTA's disbarment from federal programs..  This will occur despite admissions that someone within ISTA, presumably within ISTA management, perhaps high up in ISTA management, per FiercePharma,

instructed reps to avoid leaving a paper trail of their off-label discussions with doctors. Prosecutors had enough evidence of this to persuade ISTA to plead guilty to a felony fraud charge. 'These instructions were given in order to avoid having their conduct relating to unapproved new uses being detected by others, the Justice Department said. 'ISTA agreed that this conduct represented an intent to defraud under the law.'

So felony fraud was committed, but no person apparently committed it.  It was as if a ghost committed the crime.

 

Not only was a crime committed, but apparently by nobody, the corporation within which the crime was committed also becomes obscure.  ISTA became responsible, but by being bought out by Bausch and Lomb, the more severe penalty directed against ISTA will be meaningless.  

 

Should Bausch and Lomb be responsible?  Of course, they claim they should not.  As reported by Bloomberg, 

 

 Rochester, New York-based Bausch & Lomb said the actions occurred 'well before' it acquired Ista in 2012. 

'Bausch & Lomb is committed to earning trust in everything that we do and is pleased to have resolved this pre-acquisition issue,' Bob Bailey, a Bausch & Lomb spokesman, said in a statement. 

In fact, The Hill reported that the bad behavior took place from 2005 to 2010: 

But consider that while ISTA recently became part of Bausch and Lomb, since 2007, Bausch and Lomb has been wholly owned by private equity firm Warburg Pincus.  In fact, as we discussed in in 2009, some people suspected that this maneuver would have allowed Baush and Lomb to settle multiple suits alleging that its products were faulty and dangerous out of the public eye.  So while ISTA is now really Bausch and Lomb is now really Warburg Pincus, no one in the management of ISTA, Bausch and Lomb, or Warburg Pincus apparently will be held responsible for criminal fraud and kickbacks to doctors, even though guilty pleas for these felonies have been made.  So somehow we have admissions that crimes were committed, crimes that compromised the integrity of doctors, and exposed patients to needless side effects, yet these crimes were apparently committed by ... nobody, by a ghost, and even the machine that ghost was in - was it ISTA, Bausch and Lomb, or Warburg Pincus? - becomes a mystery.  Where is Sherlock Holmes when we need him most?.

Summary

This case thus becomes a really striking example of the impunity of health care corporate managers.  They can commit crimes, even felonies, yet the company, but no human beings, is held responsible.  But the company being a company, it cannot go to jail.  And through the magic of obfuscatory corporate take-overs, which company is guilty is not even apparent. 

As we have said ad infinitum,

 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.

Schering-Plough Settles, Again, Again

'Tis the season to settle, so it seems...

Multiple media sources just reported that Schering-Plough has settled civil and criminal charges. Representative coverage is by the Boston Globe, and AP via the Houton Chronicle. The essence, quoted from the AP, follows:

Schering-Plough Corp. on Tuesday agreed to pay $435 million and plead guilty to conspiracy to settle a federal investigation into marketing of its drugs for unapproved uses and overcharging Medicaid for certain drugs.

Kenilworth, N.J.-based Schering-Plough said it will pay $255 million to resolve civil aspects of the previously disclosed investigation. A subsidiary, Schering Sales Corp., will pay a criminal fine of $180 million and plead guilty to one count of conspiracy to make false statements to the government. The agreement is subject to court approval.

Schering-Plough said the settlement resolves an investigation by the U.S. Department of Justice and the U.S. Attorney's Office in Boston that began before a new management team took over at the company in April 2003.

'With this agreement, we are putting issues from the past behind us,' said Brent Saunders, senior vice president for compliance and business practices.

The agreement comes two years after Schering-Plough agreed to pay $346 million to settle charges that it paid a kickback to a big health insurer to protect the market for its allergy drug, Claritin.

U.S. Attorney Michael Sullivan, who announced Tuesday's settlement in a news conference in Boston, said health care corruption 'erodes public confidence, compromises the patient/physician relationship and adds costs to important government programs.'

Investigators found evidence that Schering-Plough marketed drugs for so-called 'off-label' uses.... One such drug was Temodar, which the Food & Drug Administration in 1999 approved to treat anaplastic astrocytoma, a type of brain tumor, in patients who hadn't responded to other drug regimens. Sullivan said Schering promoted the drug to treat several other types of brain cancers and cancer that spread to the brain from elsewhere, which the FDA had not approved.

Saunders said the company has agreed to plead guilty to making false statements in marketing Temodar, related to its sales people promoting the drug to doctors for uses other than the approved one.

Investigators said they also found evidence of unapproved promotion of Intron A for the treatment of cancer on the surface of the bladder.

Drug manufacturers are required to report their best price on drugs provided to commercial customers, including HMOs, to the Health Care Financing Administration and to pay rebates to the Medicaid program to make sure Medicaid obtains the benefit of that low price.

Prosecutors said that from April 1998 through 1999, Schering Sales reported a false best price to HCFA to avoid paying millions of dollars in additional rebates to Medicaid.

The investigation also found evidence of pricing manipulation involving K-Dur, used to treat stomach conditions.

Notet that this was the second biggest settlement by Schering-Plough in two years. According to the Globe, it was the third big settlement in five years. The total that the company will pay out from all will be "about $1.3 billion."

It all is becoming so familiar, almost wearisome, yet the questions remain. Why do the mainly monetary penalties seem mainly to come out of the hides of stock-holders and consumers, rather than the people who actually made the decisions that lead to the offenses? And after all the indictments, prosecutions, settlements, and convictions involving large health care organizations, when will academics, policy makers and politicians, much less company CEOs and other organizational leaders admit we have a systematic problem here?

Serono Pleads Guilty

From the Boston Globe, pharmaceutical manufacturer Serono SA will pay $704 million to settle civil and criminal charges. The company's Serono Labs Ltd subsidiary in Massachusetts agreed to plead guilty to conspiracy to market the drug Serostim by "supplying doctors diagnostic software that was not fully approved by the [US] Food and Drug Administration [FDA]. The software, prosecutors said, led to an increase in deman for the drug...." Serostim is an injectable version of human growth hormone approved for the wasting syndrome of AIDS. According to the Globe, "Serono violated federal laws that prohibit companies from making false claims about their products and from offering bribes to win government business such as drug sales whose costs are covered by the federal government."
Michael J. Sullivan, US attorney for Massachusetts, stated, "the pharmaceutical industry will not be allowed to benefit from the criminal misconduct such as that in which Serono engaged, putting patients' best interests second to profits."
The Serono general counsel, of course, said "we are pleased to put the matter behind us." There was nothing in the Globe story to suggest any individuals would pay any penalty for their previous actions.
Conspiracy, false claims, bribery ... just another day at the office here in the dysfunctional world of US health care.
This is now one of very many examples we have posted on Health Care Renewal, just in the last 10 months, of mismanagement and criminal misconduct by leaders of a wide variety of US health care organizations. This has to be part of the explanation of why US health care keeps costing more, becomes less accessible and fails to improve quality, while health care professionals become more demoralized. But where is the outrage?

Former Fletcher Allen Health Care CEO Sentenced for Conspiracy

As reported in the Rutland Herald and the Burlington Free Press....
William Boettcher, the former CEO of Fletcher Allen Health Care, an academic medical center affiliated with the University of Vermont, was sentenced to two years in jail for federal conspiracy. He was convicted of misleading the Vermont state legislature about the true cost of the "Renaissance Project," a massive hospital renovation project ostensibly budgeted for $173 million, but actually costing $367 million. Boettcher kept two sets of books on the project, one for the legislature's benefit, and one that reflected the true cost.
As the judge put it:

• "'You're here because you orchestrated a scheme to lie to state regulators,' Judge Sessions scolded Boettcher. 'That goes to the heart of purpose and functions of state. How would government function when it is treated so dismissively and with such deceit? 'Most of us approach our jobs with a keen sense of humility and pride," Sessions continued. "Mr. Boettcher approached his job with arrogance and deceit.'"

Furthermore,

• "In court Monday, Boettcher was hardly recognizable as the man whom prosecutors have portrayed as a boss who bullied and intimidated his managers into doing his bidding. In a nearly 50 minute statement, the former CEO wept openly, apologizing for his and his co-conspirators' lies to state regulators. "

David Demers, a former Fletcher Allen Senior Vice President, described Boettcher in this way:

• "He controlled those around him and managed those around him by fear and intimidation and I would say that as a manager he's a 'Theory X,' a management style that assumes people need to be frightened and threatened in order to perform."

Is this the sort of manager that rises to a leadership position in today's large health care organizations? Before dismissing this case as an aberration, consider a story in yesterday's New York Times about the excessive number of beds in Buffalo, NY. When asked for an explanation, William D. McGuire, CEO of Kaleida Health, commented about his peers,

• "But an awful lot of the obstacle is CEO ego. We're kingdom builders as a group: 'I've got to have more beds than you do. I've got to have more hospitals than you do. I've got to have the biggest empire."

Again, this suggests that the new corporate culture of health care often attracts as leaders the sorts of people least suited to run organizations whose goal is taking care of individual patients.