Their Cheating Hearts - Latest Allergan Settlement Is a Reminder of Merger Participants' Sketchy Pasts

A Huge, but Sketchy Merger

The announced merger and "tax inversion" of Pfizer and Allergan would be one of the largest corporate marriages in US history.  It has drawn more than its share of criticism.  For example, per the Los Angeles Times, former US Senator and Secretary of State, and current presidential candidate Hilary Clinton said "this proposed merger, and so-called inversions by other companies, will leave U.S. taxpayers holding the bag."

By creating the world's largest drug company, it could certainly further consolidate the US and global pharmaceutical market and raise already high drug prices.  While Pfizer in particular has benefited from US funding of biomedical research, including training of researchers and development of research infrastructure, (see this New Yorker article by John Cassidy) making the company pseudo-Irish may be "unpatriotic," as President Obama said with regard to tax inversions in general (per the Washington Post).

The nature of the merger, creating a company that would be Irish for tax purposes, but effectively run out of the US seems at least intellectually dishonest.  (Note that the CEO of its supposedly Irish component, Allergan, works out of Parsippany, NJ (per Bloomberg, here.)

The main beneficiaries of the merger appear not to be patients, or health care providers, or US taxpayers, but top company executives.  As John Cassidy wrote,

It's hard to avoid seeing the merger as a cynical move designed to boost Pfizer's stock price and generate a windfall for the company's senior managers....

But the latest settlement by Allergan, which I was just about to write about before the merger was officially announced, is a reminder that the companies are a good fit in one sense.  Both have long histories of shady behavior as marked by many legal settlements, and in some cases corporate guilty pleas and convictions.

The Latest Allergan Settlement

The beginnings of the latest Allergan settlement were noted back in July, 2015, but first not even connected to Allergan.  According to the US Federal Bureau of Investigation (FBI),

A former district manager of Warner Chilcott Sales U.S., LLC (Warner Chilcott), a pharmaceutical company based in Rockaway, N.J., pleaded guilty today in U.S. District Court in Boston in connection with a scheme to deceive insurance companies and Medicare so that they would cover the costs of Warner Chilcott’s osteoporosis medications, Actonel and Atelvia.

The idea was to promote two of Warner-Chilcott's products, osteoporosis medicines Actonel and Atelvia, by evading insurance company requirements for physicians to justify their use, given questions about their benefits versus harms, and availability of generic treatments for osteoporosis.

Beginning in 2010 and throughout 2011, Podolsky directed the sales representatives in his district to fill out prior authorizations for physicians who prescribed Actonel and Atelvia using false clinical justifications as to why the patient needed Warner Chilcott drugs and submit them to health insurance companies. In some instances, Podolsky’s sales representatives reviewed patients’ medical charts to get the information necessary to fill out the prior authorizations, in violation of the Health Insurance Portability and Accountability Act (HIPAA). Podolsky also directed sales representatives to utilize a website to submit prior authorizations to insurance companies to disguise their identity as pharmaceutical sales representatives. Podolsky and the sales representatives that he supervised knew that they should not be involved in the preparation or submission of prior authorizations.

But Podolsky was not a lone wolf. At the end of October, 2015, the Boston Globe reported more fully on the scheme, and the large settlement made by Allergan, of which Warner-Chilcott was merely a subsidiary. US Department of Justice allegations involved top leaders of Allergan.

The drug reps bought the doctors lunches, dinners, drinks. They paid for speeches the doctors never made. And in exchange, the doctors prescribed drugs that boosted their sales.

Warner Chilcott, a unit of pharmaceutical giant Allergan PLC, will pay $125 million to settle these and other charges in an agreement announced Thursday by US Attorney Carmen M. Ortiz in Boston.

Ortiz said the company ran an elaborate scheme to prod doctors — including in Massachusetts — to prescribe its drugs in exchange for kickbacks.

Warner Chilcott’s former president, W. Carl Reichel, was charged in federal court for allegedly conspiring to pay kickbacks to physicians, and a Massachusetts physician, Dr. Rita Luthra of Longmeadow, was indicted for allegedly accepting payments.

Warner Chilcott illegally promoted at least seven drugs, including the osteoporosis treatments Actonel and Atelvia.

Court documents show that Warner Chilcott representatives promoted their drugs by wining and dining physicians and giving them money and gifts for participating in medical education events. These events often were held at 'upscale restaurants' and contained 'minimal or no educational component.'

The company made fraudulent requests to the federal government and to insurance companies to boost sales of their drugs, the US attorney’s office said, and employees also made unsubstantiated claims about the drugs’ benefits.

Note that the charges were of actions that went well beyond financial fraud. They included dishonest marketing and kickbacks to physicians. The alleged actions could have harmed patients, by inducing physicians to prescribe unneeded drugs with known adverse effects.

Note further that unlike many other legal settlements about which we have written in the past, this one did not allow the company to escape by just paying some money and then claim that it did not confirm or deny the charges.  In this case, the company pleaded guilty.

Warner Chilcott has agreed to plead guilty to health care fraud. It will pay a $23 million criminal fine and $102 million to resolve false claims with state and federal governments. The case was brought by two whistle-blowers.

And as noted above, unlike many other legal settlements which did not entail any negative consequences for those who authorized, directed, or implemented the bad behavior, in this case a top executive (although not the highest executive in the overall corporate structure, and not a current executve) was charged with a crime and apparently actually physically arrested (although he has not been convicted of it, yet.)

Meanwhile, Reichel, the former Warner Chilcott president, was arrested in Boston on Thursday.

Prosecutors say in their indictment that Reichel designed a sales and marketing strategy to entice doctors to prescribe his company’s drugs with free dinners and bogus speaking fees. The physicians paid to give speeches often did not speak at all, and instead enjoyed expensive dinners with sales representatives, the indictment says.

Reichel left Warner Chilcott in 2011, according to a news release.

Furthermore, per a Forbes column, Mr Reichel was allegedly involved up to his proverbial eyeballs.

The Reichel indictment says that, while president of Warner Chilcott’s pharmaceuticals divisions from 2009 to 2011, he directed company sales staff to push physicians’ to prescribe its drugs by throwing money at doctors’ in various ways, such as expensive dinners for doctors and their spouses and 'speaker' fees to attend informal dinners without educational content.

Reichel also allegedly provided sales reps with a separate expense account to buy food and drinks for employees of physicians who prepared prior authorization forms certain insurers required to pay for patients’ drugs.

Reichel hired 'Type A crazy' sales representatives, as he called them, who were provided with 'limited training concerning compliance with health care laws and otherwise de-emphasized the importance of compliance to the sales force,' the indictment says.

Of course, the top executive in the overall corporate structure said the usual, as likely written by his public relations spin doctors,

Brent Saunders, the chief executive of Dublin-based Allergan, said in a statement: 'We take seriously our responsibility and commitment to abide by all US and international laws that govern the sales, marketing, education, and promotion of our products, and recognize the tremendous impact that this responsibility has on the customers and patients we serve.'

Finally, two other middle managers involved in the case entered guilty pleas, according to the Department of Justice.

Thus this settlement may be regarded as much tougher than many previous legal settlements involving big health care organizations.

However, its bearing on the huge Prizer-Allergan merger has apparently not so far been publicly discussed.

Allergan's Previous Track Record

It is not that the new Allergan settlement is a one-off.   It needs to be viewed in the context of Allergan's previous history of misbehavior.

That history may be a bit obscure, especially because of Allergan's complex corporate structure.  However, a Wall Street Journal article on the merger provided a bit of Allergan's corporate back story,

Allergan itself is the result of a number of mergers in quick succession. It started off as a generic-drug company called Watson Pharmaceuticals Inc. In 2012, Watson acquired Swiss rival Actavis Group and adopted that name. It also absorbed Warner Chilcott PLC and Forest Laboratories Inc. in multibillion-dollar deals.

Mr. Saunders was CEO of Forest Labs, and became CEO of Actavis after that deal. Shortly after, Allergan’s predecessor was put into play when Valeant Pharmaceuticals International Inc. made an unsolicited offer to buy the California company.

Actavis then stepped in as a white knight and bought Allergan, taking the company’s name.

Allergan and its predecessor companies have an interesting record of misbehavior.  Just perusing Health Care Renewal one can find:

-  Actavis was convicted and fined more than $170 million in 2011 by a Texas jury of misrepresenting prices to the state's Medicaid program (see this post.)

-  In 2010, in case which included allegations that it paid kickbacks to physicians to promote its product, Allergan pleaded guilty to to federal charges of misbranding of Botox and agreed to penalties of about $600 million (see this post).

-  In 2010, Forest Laboratories settled allegations that it deceptively promoted drugs, particularly that it promoted anti-depressant Celexa for children by partially by covering up negative trial results about it.  This likely hurt patients, since anti-depressants like Celexa have been shown to have severe adverse effects, including suicidal ideation, for children.  The company also was charged with giving kickbacks to physicians to promote drugs.  The company pleaded guilty to a felony charge of obstructing justice, and two misdemeanors, including misbranding Celexa and illegal distribution of Synthroid.  The company paid over $300 million in penalties and submitted to a corporate integrity agreement.  (See this post)  The Department of Justice threatened to disbar the CEO of Forest Laboratories, but then inexplicably backed off (see this post). 

So the latest settlement by Allergan subsidiary Warner Chilcott is the fourth major settlement since 2010.  The company and its predecessors have pleaded guilty to crimes, at least once to a felony, and settled cases involving allegations of kickbacks and deceptive marketing practices. 

Pfizer's Previous Track Record

And things really get interesting when one considers Pfizer's track record, which seems much sorrier than Allergan's.  Our latest post, about Pfizer misbehavior was only one month ago (October, 2015).  A  UK judge found that the company threatened health care professionals for using a generic competitor.

Many posts on Pfizer can be found here.   The latest update of Pfizer's troubles since 2000 follows.

In the beginning of the 21st century, according to the Philadelphia Inquirer, Pfizer made three major settlements,
- In 2002, Pfizer and subsidiaries Warner-Lambert and Parke-Davis agreed to pay $49 million to settle allegations that the company fraudulently avoided paying fully rebates owed to the state and federal governments under the national Medicaid Rebate program for the cholesterol-lowering drug Lipitor.
- In 2004, Pfizer agreed to pay $430 million to settle DOJ claims involving the off-label promotion of the epilepsy drug Neurontin by subsidiary Warner-Lambert. The promotions included flying doctors to lavish resorts and paying them hefty speakers' fees to tout the drug. The company said the activity took place years before it bought Warner-Lambert in 2000.
- In 2007, Pfizer agreed to pay $34.7 million in fines to settle Department of Justice allegations that it improperly promoted the human growth hormone product Genotropin. The drugmaker's Pharmacia & Upjohn Co. subsidiary pleaded guilty to offering a kickback to a pharmacy-benefits manager to sell more of the drug.

Thereafter,
- Pfizer paid a $2.3 billion settlement in 2009 of civil and criminal allegations and a Pfizer subsidiary entered a guilty plea to charges it violated federal law regarding its marketing of Bextra (see post here).
- Pfizer was involved in two other major cases from then to early 2010, including one in which a jury found the company guilty of violating the RICO (racketeer-influenced corrupt organization) statute (see post here).
- The company was listed as one of the pharmaceutical "big four" companies in terms of defrauding the government (see post here).
- Pfizer's Pharmacia subsidiary settled allegations that it inflated drugs costs paid by New York in early 2011 (see post here).
- In March, 2011, a settlement was announced in a long-running class action case which involved allegations that another Pfizer subsidiary had exposed many people to asbestos (see this story in Bloomberg).
- In October, 2011, Pfizer settled allegations that it illegally marketed bladder control drug Detrol (see this post).
- In August, 2012, Pfizer settled allegations that its subsidiaries bribed foreign (that is, with respect to the US) government officials, including government-employed doctors (see this post).
- In December, 2012, Pfizer settled federal charges that its Wyeth subsidiary deceptively marketed the proton pump inhibitor drug Protonix, using systematic efforts to deceive approved by top management, and settled charges by multiple states' Attorneys' General that it deceptively marketed Zyvox and Lyrica (see this post).
- In January, 2013, Pfizer settled Texas charges that it had misreported information to and over-billed Medicaid (see this post).
- In July, 2013, Pfizer settled charges of illegal marketing of Rapamune (see this post.)
- In April, 2014, Pfizer settled allegations of anti-trust law violations for delaying generic versions of Neurontin( see this post).
- In June, 2014, Pfizer settled another lawsuit alleging illegal marketing of Neurontin (see this post).
- In 2015, a settlement by Pfizer of a shareholders' lawsuit stemming from charges of illegal marketing was announced (see this post).

Summary

So the proposed merger of Pfizer and Allergan would truly create a behemouth of bad behavior.  The combined company would have a staggering record of legal settlements, guilty pleas and convictions involving deceptive marketing, fraud, kickbacks, bribes and anti-trust violations, and even an obstruction of justice plea and a RICO conviction.  Yet the managers in charge of the two companies when the bad behavior occurred never had to suffer any negative consequences (although in one current case there is the possibility one executive might be convicted).  Many of these managers have become amazingly rich during the course of their leadership.  Is there any reason to think, absent any unexpected increase in the courage and resolve of government law enforcement, or any unexpected public protest, that the new company will not continue to misbehave as long as its executives are making money from the process?

The Pfizer Allergan merger is the true poster child for the amorality, and consequent dysfunction and decline of modern US and now global health care. As long as top managers of big health care organizations can act with impunity, can avoid all responsibility for their organizations' bad behaviors, and can personally profit wildly from their companies actions, the health care death spiral will continue.  Will we continue to cry out in the wilderness, or will anyone else see the writing on the wall?

A musical moment to partially alleviate the gloom. "Your Cheatin Heart" sung by Hank Williams Jr.



 

'Tis the Season for Legal Settlements: GlaxoSmithKline, Eli Lilly, Orthofix, Sanofi all Settle

Reports of legal settlements by big health care organizations tend to dribble out towards the end of the year, maybe in a rush to finalize the year's accounting, maybe because the news will not register as well at times when people are distracted by holidays.  Here is a round-up in alphabetical order of some recent settlements of interest made by drug and device companies.

GlaxoSmithKline

Earlier this year GSK made the largest settlement, in monetary terms, ever by a pharmaceutical company (see this post).  At the end of the year it made two more.  Neither got much media attention.  The first was related to the earlier $3 billion settlement.  As reported by the [Great] Lebanon [Oregon] Express:

Oregon Attorney General Ellen Rosenblum announced in a press release that pharmaceutical giant GlaxoSmithKline has agreed to pay $90 million to Oregon and 37 other states to settle claims that it unlawfully promoted its diabetes drug, Avandia.

As the co-leader of the lawsuit, Oregon will receive $3.9 million of the settlement, according to the release.

The 38 attorneys general claimed in lawsuits filed Nov. 15 that GlaxoSmithKline misrepresented the cardiovascular risks posed by Avandia. A negotiated consent judgment was filed shortly thereafter.

 Avandia was a blockbuster drug for GlaxoSmithKline. First approved by the Food and Drug Administration in 1999, annual sales peaked at more than $2.5 billion in 2006.

Furthermore,

 Oregon and the 37 other states claim GlaxoSmithKline made safety claims about Avandia not supported by the scientific evidence.

The states allege the company failed to disclose negative information about Avendia’s cardiovascular health effects.

In addition to the monetary settlement, the agreement included all sorts of pledges by GSK:

As part of the consent judgment between the parties, GlaxoSmithKline agreed to reform how it markets and promotes diabetes drugs. It agreed to several conditions:
 • To refrain from making false, misleading, or deceptive claims about any diabetes drug;
• To refrain from making comparative safety claims not supported by substantial evidence or substantial clinical experience;
• To refrain from presenting favorable information previously thought of as valid but rendered invalid by contrary and more credible recent information;
•   To refrain from misusing statistics or otherwise misrepresenting the nature, applicability, or significance of clinical trials.

The Consent Judgment also has the following terms that are effective for at least eight years:
• GlaxoSmithKline must post summaries of all company sponsored observational studies or meta-analyses conducted by the company that are designed to inform the effective, safe, and/or appropriate use of its diabetes drugs;
• The company post summaries of company-sponsored clinical trials of diabetes products within eight months of the primary completion date;
• GlaxoSmithKline must register and post all company-sponsored clinical trials as required by federal law.

Even more under the radar was a second, unrelated settlement, only briefly chronicled by Reuters (here via the Chicago Tribune):

 British drugmaker GlaxoSmithKline Plc has reached a $150 million preliminary settlement with U.S. drug wholesalers who claimed the company improperly delayed entry to the market of generic alternatives to its nasal spray Flonase, according to court documents.

The settlement was reached with, among others, AmerisourceBergen Corp, Cardinal Health Inc, and McKesson Corp, who maintained that Glaxo had abused the citizen's petition process to maintain a market monopoly and overcharge for the spray by restricting access to less expensive generic versions.

Note that while the first settlement was clearly about misleading, deceptive marketing of a relatively dangerous drug as safe, a practice that likely lead to suffering and death of some patients, the second settlement which involved an unfair business practice that likely increased the cost of care to some patients, and decreased the profits of some competitors, lead to a monetarily larger settlement.

Again, these latter two settlements seem to just ice the cake of the $3 billion settlement earlier this year.

 Eli Lilly

Eli Lilly pleaded guilty to a misdemeanor charges and settled allegations about questionable marketing practices for its anti-psychotic drug Zyprexa for over $1 billion in 2009 (see post here).  The settlement provided some instructive information about how big pharmaceutical companies employ ghost writing to sell product (see this post).  Now at the end of 2012, Eli Lilly has settled charges that it bribed government officials in countries outside of the US.  The most colorful version of this story appeared in the Wall Street Journal.  In summary,

 Eli Lilly & Co. agreed to pay $29.4 million in a settlement of U.S. government allegations that the drug maker's units made improper payments to foreign government officials to win business.

Indianapolis-based Lilly didn't admit or deny the allegations, but agreed to have an outside consultant review the company's internal controls and its measures to comply with the U.S. Foreign Corrupt Practices Act, or FCPA. 

The colorful details were:

The SEC said in a civil complaint filed in U.S. District Court for the District of Columbia that employees of Lilly's China unit falsified expense reports to provide spa treatments, jewelry and other gifts and cash payments to government-employed doctors between 2006 and 2009.

The SEC also alleged: Lilly hired a drug distributor in 2007 that paid bribes to health officials in a Brazilian state to facilitate about $1.2 million in sales of a Lilly drug to the state; Lilly's Polish unit paid $39,000 between 2000 and 2003 to a charitable foundation run by the head of a regional government health authority and dedicated to restoring a castle in Chudow, Poland; and that its Russian unit paid millions of dollars between 1994 and 2005 to offshore entities that the SEC said 'appear to have been used to funnel money to government officials' to obtain business for the Lilly unit.

The SEC said Lilly didn't curtail the activities of its Russian unit for several years, even after an internal Lilly review raised questions about its use of these offshore arrangements.

As in the previous set of settlements, no individual was charged or had to pay any penalty for authorizing, directing, or implementing any unethical actions.  Note that the alleged bribery went on in multiple different countries, suggesting a systemic problem with the operations of the company.  Note also that the allegations involved bribing doctors as well as bureaucrats.

Orthofix

We discussed three settlements made by medical device company Orthofix only a month ago.  These involved various vivid details including bribes to physicians disguised as consulting and royalty agreements, bribes of foreign government officials disguised as chocolate, and a device sales representative turned stripper.  As best as I can tell, Orthofix just made yet another settlement, maybe not quite so picaresque.  As per Bloomberg,

Orthofix International NV won court approval of a settlement of federal regulators’ claims that the maker of bone-repair products defrauded Medicare through a kickback scheme involving doctors, prosecutors said.

U.S. District Judge William G. Young in Boston yesterday accepted an Orthofix unit’s offer to plead guilty to a felony count of obstructing an audit and pay a $7.6 million criminal fine....

This settlement like some of the previous ones involved allegations of payments to doctors to induce them to use Orthofix devices.

As part of the agreement, Orthofix also will pay $32.3 million plus interest to resolve civil claims first raised in a whistle-blower’s lawsuit that the company defrauded the federal Medicare program through payments to doctors who used its bone-growth stimulators....

This series of cases is unusual because they resulted in a guilty plea to a felony (but by a subsidiary of the company, not the company itself), and in guilty pleas by some company employees (but not apparently any penalties to top management).

Five Orthofix employees have pleaded guilty in connection with the probe, the U.S. Justice Department said. Thomas Guerrieri, a company vice president, pleaded guilty to violating the federal anti-kickback statute by setting up fake consulting agreements for doctors who used the company’s products. 

Sanofi

French multinational pharmaceutical corporation Sanofi-Aventis settled charges of overcharging the US Medicaid system in 2009 for over $90 million  (see post here),  and of overcharging the US Medicare system in 2007 for over $190 million (see post here).  Now it just settled charges that it gave kickbacks to doctors to induce them to prescribe its product.  Per Bloomberg,

 Sanofi,  France’s biggest drugmaker, reached a settlement to pay $109 million over allegations that its U.S. units gave doctors free doses of a medicine to win their business and subvert Medicare’s drug reimbursement system.

Sanofi sales representatives entered into 'illegal sampling arrangements' with physicians, giving them the arthritis drug Hyalgan as kickbacks and 'promising to provide negotiated' amounts of the medication to lower its effective price in violation of the False Claims Act, the U.S. Justice Department said yesterday in a statement.

'Kickback schemes subvert the health-care marketplace and undermine the integrity of public health-care programs,” Stuart Delery,  who heads the department’s civil division, said in the statement. 'We will continue to hold accountable those who we allege are providing illegal incentives to influence the decision-making of health-care providers in federal health-care programs.'

Again, no individual suffered any negative consequences for authorizing, directing or implementing the bad behavior in this case.

Summary

So here we go again, four more settlements by large, rich, well known pharmaceutical and device companies.  Most of the companies involved now have a history of recent settlements for a variety of ethical misadventures.  Most of the new settlements involved allegations of deceiving and bribing physicians.

As we have noted endlessly before, legal settlements like this are useful to provide documentation of how unethical the practices, particularly marketing practices of large health care organizations have become.  However, the increasing number of repeat settlers suggest that the settlements are not deterring bad behavior.  Since the fines involved are usually small compared to the revenues that can be generated by deceptive and unethical marketing of expensive drugs, and the fines are paid out of company coffers, and are thus spread out in their impact over employees and stockholders alike, they usually have no more impact than a lash with a wet noodle, maybe at best a slap on the wrist.  Since the people involved in authorizing, directing and implementing the bad behavior can likely greatly improve their "numbers" and hence generate big salaries and bonuses, but face a minimal risk of any individual negative consequences, they are likely to continue unethical practices.

Given that so many of these cases involve deception and/or bribery of health care professionals, I still hope that some will get upset at the effect on their professional values to take action.

Meanwhile, I repeat until blue in the face....   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.

Logical Fallacies to Defend CEOs from Responsibility for their Companies' Bad Actions

There is now quite a kerfuffle over the US Department of Health and Human Service's threat to to stop doing business with the CEO of Forest Laboratories.  As we noted here, his company pleaded guilty to obstruction of justice and misbranding, and agreed to pay a $313 million fine.  The major allegations by the government were that the company marketed antidepressants 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 kerfuffle involves a number of ostensible authorities and pundits defending the CEO, and challenging the government's attempts to hold him responsible for his company's actions.  The kerfuffle also provides some splendid examples of logical fallacies deployed in defense of the powers that be. 

Double Standards: Avoiding Blame for Failures While Taking Credit for Successes

The greatest angst seemed to be generated that Mr Solomon could be sanctioned for actions which he did not directly take. 

First, the Wall Street Journal reported that:

Forest Labs representatives said they were shocked when the intent-to-ban notice was received a few weeks later, because Mr. Solomon wasn't accused by the government of misconduct.

Forest is sticking by its chief. 'No one has ever alleged that Mr. Solomon did anything wrong, and excluding him [from the industry] is unjustified,' said general counsel Herschel Weinstein. 'It would also set an extremely troubling precedent that would create uncertainty throughout the industry and discourage regulatory settlements.'

Later in the same article, there was more dismay that Mr Solomon should suffer any negative consequences for the actions of someone else:

Lawyers not involved in the Forest case said the attempt to punish an executive who isn't accused of misconduct could tie up the industry's day-to-day work in legal knots.

'This 'gotcha' approach to enforcement runs the risk of creating a climate within organizations that is inconsistent with the spirit of innovation that is critical to the industry,' said Allen Waxman of Kaye Scholer LLP in New York, who was formerly an in-house counsel at a drug maker.

However, Mr Solomon is not a janitor.  He was the company CEO, and was paid a fortune ostensibly because he was responsible for everything going on in the company.

In fact, the most recent (2010) company proxy statement included this description of Mr Solomon:

We believe that Mr. Solomon's experience as a senior executive in our industry, his in-depth knowledge of our Company and its day-to-day operations, and his strong strategic vision for the Company qualify him to serve on the board. [italics added for emphasis]

These attributes presumably also justified his total compensation, which was $8,267,236 in 2010.

If Mr. Solomon's outsize compensation was based on his strategic vision, informed by his "in-depth knowledge of ... [the] Company and its day-to-day operations," how could his defenders claim he knew nothing and had no responsibility for its detailed and in-depth efforts to deceptively market antidepressants to children and adolescents? (See posts here and here for details of that marketing scheme as revealed in court documents.)  This appears to be a double-standard (as found in this alternative catalog of logical fallacies).

By the way, also note how Mr Waxman invoked the "innovation meme," i.e., that any regulation of the company or restrictions on its actions will prevent innovation. The same meme was invoked by a business school professor in one of the first attempts to defend this corporate executive from any attempts to hold him accountable for his company's bad behavior (see post here).  As I noted earlier, "innovation" is used so often to excuse almost any action by large health care corporations that I suspect the meme was developed by  corporate public relations.

Straw-Men and Double-Standards: Barring Mr Solomon vs "Imagined" Actions and Treatment of Foreign Leaders

Another protest was that the government's actions were disproportionate, especially how they treated other cases, as written by Robert Goldberg in the Spectator:

Now it turns out that Team O is tougher on drug company CEOs than it is on brutal dictators and a movement whose goal is wiping out Israel. The administration is applying a little used government approach to knee-capping executives it doesn't like by threatening that HHS won't allow Forest Laboratories to sell medications to Medicare, Medicaid, and other government health programs (which means every health plan under Obamacare) unless it tosses the company's CEO, Howard Solomon. According to news accounts, the action is being taken because government lawyers claim that just fining the company billions isn't stopping illegal behavior. But neither Mr. Solomon nor Forest has been found guilty of any wrongdoing.

Mr Goldberg also asserted, as in the examples above, that Mr Solomon was not personally found guilty.  This may be so, but given that his company gave him credit for all the good resulting from the company's day-to-day actions, denying his responsibility for day-to-day actions gone bad is a double standard.

Furthermore, Mr Goldberg's assertion that Forest was not found guilty is at best a quibble, and at worse, an untruth. As we noted above, the company pleaded (but was not "found) guilty to several charges, a felony and a misdemeanor.

Mr Goldberg then developed another kind of fallacy, this time by comparing the government's treatment of Mr Solomon with some hypothetical actions:

Can you imagine the administration using this tactic against health IT firms, unions, the New Black Panthers, ACORN, or investment banks? For different reasons for each, the answer is 'No.'

This appears to be a compounded set of straw men fallacies.  No one knows whether the government would use these tactics in future hypothetical cases.  What one may imagine could occur in such hypothetical cases is not directly comparable to what has occurred in the current case.  Invoking these imagined future actions amounts to invoking straw men.   
Mr Goldberg got even more imaginative, comparing the government's actions vis a vis Mr Solomon to its actions in the foreign policy realm:

Meanwhile the threat against Forest and its CEO is more draconian than actions the Obama administration is taking against Assad. The dictator who has slaughtered his people, aided Iran, built a uranium-enrichment facility, staged the Hezbollah takeover of Lebanon, and whose country is soon to be part of the UN Human Rights Council has received a stern warning from the president but nothing more.

Of course, it is one thing for a government agency to decide not to do business with an individual within the country whose company admitted to violating the law. It is another thing for a government to attempt to take "actions" against a foreign leader over whom the government has no legal authority.  So here is another kind of double-standard (see this alternative catalog of logical fallacies.)

Straw Man: The Case of Rituxan

Meanwhile, in Forbes, Charles L Hooper and David R Henderson argued that Forest Laboratories' actions do not merit any punishment at all, not of the company nor of Mr Solomon:

But it's bad to market unapproved drugs and to promote drugs for unapproved uses, right? Not exactly.

First, Hooper and Henderson argued that Forest Laboratories' off-label marketing of l-thyroxine (a thyroid hormone) was a mere technicality. This appears to be mainly a distraction, since most of the case involved marketing antidepressants.  In any case, they then argued that:

The fact is that off-label uses of drugs have saved lives. Consider Genentech and Biogen Idec's Rituxan, which the FDA approved in 1997 for relapsed or refractory CD20-positive B-cell low-grade non-Hodgkin's lymphoma (NHL).

Of course, the Forest Laboratory case did not involve punishing physicians for off-label uses of any drug. It involved punishing Forest Laboratories and possibly its CEO for the marketing of drugs for off-label uses. The drugs involved were obviously not Rituxan. They did include Celexa, an antidepressant, which no one ever claimed is a life-saving drug (but which is a member of a class of drugs that may be ineffective and may increase the risk of suicidal ideation or even action in children and adolescents, the groups for which it was marketed off-label by Forest Laboratories).   So the attempt to invoke Rituxan, as if someone was proposing restrictions on its off-label use, was another straw man.   

Summary

So once again we see how logical fallacies are used to defend the powers that be in health care.  Once again, note that the these logically challenged defenses come from those with financial ties to the same powers that be.  (In addition to the affiliations noted above, Mr Goldberg is Vice President of the Center for Medicine in the Public Interest, which SourceWatch describes as a "pharmaceutical industry front group," while Charles L Hooper is "president of Objective Insights, a company that consults for pharmaceutical and biotech companies.")

Let us see if anyone can offer a logical argument why health care corporate CEOs should not be held responsible for their corporations' misbehavior, or if anyone without financial ties to such corporations is willing to defend such lack of responsibility. 

Meanwhile, to repeat 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.

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.

Also,

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.

Forest Pharmaceuticals Pleads Guilty to Obstruction of Justice, No Individual Pays Any Penalty

The parade of legal settlements marches on.  The latest story is about Forest Laboratories and its marketing of Celexa (citalopram ) and Levothyroid (l-thyroxin).  Here is the most complete version, courtesy of Natasha Singer reporting for the New York Times. First, the lead sentence:

A unit of Forest Laboratories, the maker of the antidepressant Celexa, agreed on Wednesday to pay more than $313 million to settle criminal and civil complaints, including a claim that it had illegally promoted the drug for use in children.

Here are the charges:

Among the criminal charges was one that the subsidiary, Forest Pharmaceuticals, marketed Celexa, which was approved only for adult depression, to treat children and adolescents. The government also claimed that, in conjunction with the company’s off-label promotion, Forest publicized the positive results of a study on Celexa in adolescents while failing to tell doctors about a similar study that had negative results.

'Forest Pharmaceuticals deliberately chose to pursue corporate profits over its obligations to the F.D.A. and the American public,' Carmen Ortiz, the United States attorney for the District of Massachusetts, said in a statement Wednesday.

In addition, federal prosecutors accused Forest of paying doctors to induce them to prescribe Celexa and another antidepressant, Lexapro. The remuneration included 'cash payments disguised as grants or consulting fees, expensive meals and lavish entertainment, and other valuable goods and services,' the government said in its civil complaint.

Among the items that Forest sales representatives gave to doctors from 1998 to 2005, the complaint said, were tickets to St. Louis Cardinal games, which were to be 'leveraged and sold as a reward for prescriptions'; a $1,000 gift certificate to Alain Ducasse, a gourmet French restaurant, for a high-prescribing child psychiatrist; a deep-sea fishing trip off Cape Cod for a doctor and his three sons; $400 in Broadway theater tickets for a doctor and his wife; and Red Sox tickets worth $2,276 to be used for doctors in the Boston area.

So we not just off-label marketing, but suppression of clinical research (of course, a study whose results were not favorable to the product being marketed), and payments to doctors as an "inducement to prescribe."

But wait, there is more:

As part of the criminal settlement, Forest Pharmaceuticals, which is based in St. Louis, agreed to plead guilty to one felony count of obstructing justice, acknowledging that employees had lied to F.D.A. officials during a plant inspection in 2003.

The company also agreed to plead guilty to two misdemeanors, one of which covers the company’s misbranding of Celexa by marketing the antidepressant for use in children from 1998 to 2002.

The other misdemeanor covers the illegal distribution from 2001 to 2003 of an unapproved drug, Levothroid, to treat a thyroid hormone deficiency. Such thyroid pills, made by various drug makers, had been sold in the United States since the 1950s without F.D.A. approval. But in 2001, the agency told drug makers that they needed to reduce their distribution of such medications until the companies obtained agency approval to market the pills.

The criminal charges accused Forest of making a deliberate decision to continue distributing the drug in quantities exceeding the F.D.A.’s directive. After the agency sent a warning letter to Forest, the company directed employees to work until 1 a.m. to continue shipping as much Levothroid as possible, according to the criminal complaint.

So there was also obstruction of justice in the form of lying to the FDA, and selling drugs that the FDA had ordered not to be sold.

So what are the penalties?

The criminal settlement calls for the company to pay a $150 million fine and to forfeit an additional $14 million in assets. Forest will also pay more than $88 million to the federal government and more than $60 million to the states to resolve a civil complaint that its actions caused false claims to be submitted to federal health care programs. In addition, two whistle-blowers will split $14 million from the federal share of the settlement.

Forest has also entered into a five-year corporate integrity agreement, requiring an independent expert to review the company’s compliance with drug marketing regulations.

So here we go again. A large drug company was up to no good, suppressing research, paying doctors for their prescriptions, lying to the FDA, and disobeying its orders.

The penalty seemed large, over $300 million. However, Celexa was a big revenue generator at the time the events above occurred, topping $1 billion in revenue first in 2002 (per Forbes here). Furthermore, as noted by Ed Silverman on Pharmalot, it seems no individual will suffer any negative consequences for authorizing, directing, or implementing the conduct described above. Finally, as best I can tell, despite the fact that a Forest subsidiary will plead guilty to a felony, the company is not going to be barred from doing business with the government. 

So, despite pleading guilty to a felony and three misdemeanors, neither Forest as a company nor any individual working for the company will really suffer very much.  On the other hand, the leaders of Forest have been doing very well.  The company's CEO, Howard Solomon, was number 18 on Wall Street Journal list of the 25 highest paid CEOs over the last decade.  His total realized compensation was over $385 million over the last 10 years.  According to the company's 2010 proxy statement, his total compensation in 2009 was $8,267,236.  The four other highest paid executives made from just over $2.5 million to $5.3 million.

So here we go again.  Another large health care organization has been found to have done wrong, but the only penalty is a fine that whose impact will be diffused across the whole company, and ultimately be paid by its employees, its customers, including patients, and its stockholders.  Meanwhile, the people who authorized, directed, or implemented the wrong doing apparently will pay nothing and receive no negative incentives.  Furthermore, the top leaders of the company, whose huge compensation in the past was increased by the results of the wrong doing, will continue to prosper.

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.

By the way, the current case offers an avenue for those who do not like what Forest did to ask those who are supposed to be ultimately responsible for its behavior how this was allowed to happen.  The board of directors of the company is supposed to be ultimately accountable for the company's actions.  As we have noted before, these directors are supposed to "demonstrate unyielding loyalty to the company's shareholders." [Per Monks RAG, Minow N. Corporate Governance, 3rd edition. Malden, MA: Blackwell Publishing, 2004. P.200.]

The current directors of Forest Laboratories, according to the company's 2010 proxy statement, include Dr Nesli Basgoz, "Associate Chief for Clinical Affairs, Division of Infectious Diseases, Massachusetts General Hospital (MGH)," and "Associate Professor of Medicine at Harvard Medical School."  Also, it includes Dr Lester B Salans, "Clinical Professor" at Mount Sinai Medical School, not to mention Dr Peter J Zimetbaum, "Director of Clinical Cardiology" at Beth Israel Deaconess Medical Center in Boston (BIDMC), and "Associate Professor of Medicine at Harvard Medical School."   Maybe some enterprising student journalist will get to ask the good doctors how they let things at Forest get so ethically out of hand.