One Barely Noticed Settlement by Pfizer Suggests the Futility of Polite Protests about Health Policy

A few days ago we noticed just one more marcher in the parade of legal settlements.  But it was once again a huge health care corporation, and it had aspects that demanded attention.

Pfizer Makes $94 Million Settlement of Allegations of Fraud to Delay Generic Competition


A tiny item in Becker's Hospital News on November 28, 2017, stated:

Pfizer will pay $94 million to resolve allegations that it used fraudulent patents to delay generic competition for its anti-inflammatory drug Celebrex.

The lawsuit, brought by 32 direct purchasers of Celebrex in April and certified a class action lawsuit in August, claimed Pfizer attempted to revive its invalidated patent by making material misrepresentations to the U.S. Patent and Trademark Office. As a result, the U.S. PTO granted Pfizer a new patent based on this reportedly inaccurate information.

Further, the plaintiffs — including American Sales Co., Rochester Drug Co-Operative, Cesar Castillo and more — allege Pfizer filed a lawsuit against five generic manufacturers for infringing upon the fraudulently obtained patent to maintain monopoly over the drug.

That was about it.  I could find no more extensive coverage of this settlement in any source publicly available without a subscription.  So this settlement, like many previous ones which suggested less than perfection on the part of the leadership of our dysfunctional health care system, was anechoic.

Also, as is typical of settlements made by big health care corporations of unethical behavior, this settlement appeared small compared to the magnitude of the revenues likely generated by alleged bad behavior; and this settlement did not impose any negative consequences on any individual who might have authorized, enabled, directed, or implemented the bad behavior, and may have benefited from that behavior (for example, by getting a bigger bonus because of the revenue brought it).  Thus, it fit right in with the march of legal settlements that we have been documenting for years.  It was a slap on the corporate wrists that was unlikely to deter future bad behavior, and amounted to a grant of impunity to the corporate managers who were involved in and personally profited from the bad behavior.

Furthermore, the settlement seemingly was not informed by previous bad behavior by the corporation or its managers.  Pfizer, in fact, has a long and very sorry record of such behavior as documented by legal settlements, convictions and guilty pleas, and other governmental actions.  In the last few years we have noted....

Pfizer Fined $106M in UK for Using Monopoly on Production of Generic Phenytoin to Overcharge National Health Service

As reported by the Wall Street Journal on December 7, 2016,

The U.K.’s top antitrust regulator slapped Pfizer Inc. PFE 0.25% with a record $107 million fine, alleging it overcharged the national health-care system for an epilepsy treatment.

The Competition and Markets Authority said Pfizer and drug-distribution company Flynn Pharma Ltd. broke competition law by charging unfair prices in the U.K. for the drug, phenytoin sodium, used by about 48,000 patients in the country.

The CMA said the £84.2 million Pfizer fine was the highest it had ever imposed....

The article suggested that Pfizer took advantage of a loophole in UK law.  Drug companies must negotiate prices of branded drugs with the British NHS, but

Unbranded, or generic, drugs may be freely priced, but competition between suppliers typically drives the cost down.

The regulator said Pfizer and Flynn Pharma “deliberately debranded” the drug in 2012 to raise the price and were able to do so because there were no competing suppliers.

The CMA said the price of a 100-milligram pack of phenytoin sodium shot up—to £67.50 from £2.83—after Pfizer sold the rights to sell the drug to Flynn Pharma in September 2012. It said the price decreased to £54 in May 2014.

Before the agreement, Pfizer had sold phenytoin sodium capsules directly to U.K. wholesalers and pharmacies under the brand name Epanutin.

The price increase was partly because Pfizer, which continued to manufacture phenytoin sodium, sold the drug to Flynn Pharma at up to 17 times the price than it charged wholesalers and pharmacies previously, the regulator said. Flynn Pharma raised the price further still.

So this was the resolution of yet more anti-competitive behavior by Pfizer which allowed it to overcharge  taxpayers.  Like the settlement above, it allowed the Pfizer management involved impunity.

Pfizer Made $486 Million Settlement of  Allegations It Bilked Shareholders by Concealing Research Showing the Harms of Celebrex

As reported by Reuters in August, 2016,

Pfizer Inc (PFE.N) on Tuesday said it has reached a $486 million settlement of litigation accusing it of causing big losses for shareholders by concealing safety risks associated with its Celebrex and Bextra pain-relieving drugs.

As usual, there were no penalties for any individuals who may have been involved with the bilking.

Note that while this particular lawsuit was about financial losses to shareholders, concealing the harms of this drug obviously had the potential of allowing harms to patients.  Of course, this was just the most the second most recent settlement involving Celebrex.

Pfizer's Track Record Prior to mid-2016

Our over 100 posts on Pfizer can be found here.  Since 2000, Pfizer's troubles started, according to the Philadelphia Inquirer, with the following...

- 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,
- In 2009, Pfizer paid a $2.3 billion settlement 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).  In that year the company was listed as one of the pharmaceutical "big four" companies in terms of defrauding the government (see post here).
- In early 2011, Pfizer's Pharmacia subsidiary settled allegations that it inflated drugs costs paid by New York (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).
- In October, 2015, a  UK judge found that the company had threatened health care professionals for using a generic competitor (see this post).
- In February, 2016, Pfizer settled a lawsuit for $785 million for overcharging the US government for Protonix (look here).

That is a stupifyingly bad ethical record stretching over about 17 years.  Yet each new settlement seems to disregard all the others before.  And since 2000, no top Pfizer executive has ever suffered any negative consequences for any of this  behavior.  All CEOs who have retired did so as rich men.


Summary

Pfizer provides an amazing example of a huge health care corporation that just marches along, settling or otherwise resolving case after case of over-charging, anti-competitive behavior, deception, sometimes fraud, bribery, and various other unethical and potentially illegal behaviors, without ever too greatly inconveniencing the managers and top executives who have been profiting from this behavior.   We have again and again railed against how the US government (and actually governments of other developed countries) have use light-touch regulation on big health care corporations that allows impunity for their top leaders.  For example, we wrote in 2015,

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?

But it gets worse.  Note that two of the recent Pfizer settlements were of private litigation in which the US government was not involved.  One was of alleged anti-competitive behavior, and the other of alleged deceptions that could have resulted in patient harm.  Both of these could have been causes of government action, but were not.  So it appears that the US government is getting less inclined to do anything to challenge the impunity of top corporate leaders.

Instead, the current Trump regime and its allies in Congress seem hell-bent on further rewarding top corporate leaders.  For example, while the supposed tax reform legislation that just passed Congress was pushed by Trump as a way to improve the economy, it looks like it will most benefit corporate leaders.  A story in Bloomberg on November 29, 2017, stated,

Major companies including Cisco Systems Inc., Pfizer Inc. and Coca-Cola Co. say they’ll turn over most gains from proposed corporate tax cuts to their shareholders, undercutting President Donald Trump’s promise that his plan will create jobs and boost wages for the middle class.

The president has held fast to his pledge even as top executives’ comments have run counter to it for months. Instead of hiring more workers or raising their pay, many companies say they’ll first increase dividends or buy back their own shares.

In particular,

Robert Bradway, chief executive of Amgen Inc., said in an Oct. 25 earnings call that the company has been “actively returning capital in the form of growing dividend and buyback and I’d expect us to continue that.” Executives including Coca-Cola CEO James Quincey, Pfizer Chief Financial Officer Frank D’Amelio and Cisco CFO Kelly Kramer have recently made similar statements.

Share buybacks, like dividend increases, tend to benefit stockholders, but not workers (much less customers, or in Pfizer's case, patients), 

in testimony before the bicameral Joint Economic Committee on Wednesday, Federal Reserve Chair Janet Yellen said that the plans outlined by corporate executives to reward investors were unlikely to raise wages for workers.

'I don’t think share buybacks would increase wages,' Yellen said when asked by Michigan Democratic Senator Gary Peters about the impact of CEOs’ plans. Investment in capital and equipment, not buybacks, would raise productivity and pay, she said.

Left unstated is that top corporate executives are now paid mainly in stock shares and stock options.  So they would be major beneficiaries of increased dividends and increased stock prices.

For example, the Pfizer 2017 proxy statement lists the following share holdings of its top-paid executives:

                                      common stock shares     stock units

Group President, Pfizer Innovation Health
Albert Bourla DVM, PhD         112,489                           30,653

Executive Vice President, Business Operations
and CFO
Frank A D'Amelio                     342,176                             76,009

President, Worldwide Research and Development
Mikael Dolsten MD, PhD           50,820                            191,189

Former Group President,
Global Innovative Pharma Business
Geno J Germano                        115,712                           35,546

Chairman of the Board, CEO
Ian C Read                                645,370                       317,117

Group President, Pfizer Essential Health
John D Young                            92,434                            78,559

Note that Mr D'Amelio was quoted in the article above.  As an owner of more than 400,000 Pfizer shares or share equivalents, he would be expected to substantially personally profit from increases in dividends and stock buybacks.

And how likely is it that the Trump regime will respond to any entreaties about tougher law enforcement and more rigorous regulation of pharmaceutical and other large health care corporations?  After all, huge numbers of executive branch appointments to positions that deal with health care have been coming through the revolving door from health care corporations and  their lobbying firms, etc.  At the time of his appointment, the current head of the US Food and Drug Administration had huge conflicts of interest generated by his former positions in and allied with the pharmaceutical industry (look here and here).  The gentleman currently nominated to be Secretary of the Department of Health and Human Services was a former top executive at pharmaceutical giant Eli Lilly (look here).

And do we really expect rigorous law enforcement from a regime whose former national security adviser just pleaded guilty to lying to the Federal Bureau of Investigation (look here);  and whose former national security adviser and current nominee to be Ambassador to Singapore K T McFarland was just shown to have admitted that Russia had "thrown" the election to Mr Trump, but seemed to think that Mr Trump should then reward Russia by reducing sanctions imposed by the Obama administration (look here)?

The Sunlight Foundation has found that President Trump has over 600 conflicts of interest, and that his family has over 1100 (look here).  Do we really expect his regime to improve the integrity of  health care leadership? 

It is now past time to expect that our polite protests about health policy and measured calls for true health care reform will have any impact on health policy, as long as the inmates are in control of the asylum.  We need wholesale changes in  top health care leadership in government, and wholesale changes in the top leadership of the government, if we want anything even slightly resembling true health care reform. Achieving true health care reform will require much more than polite protests.

Who Benefits from our Current Health Care Dysfunction? - Mallinckrodt's Leadership Maintains Impunity After Well Publicized Opioid Settlement

The Latest Mallinckrodt Settlement

Jeff Sessions, the current US Attorney General, is ginning up a lot of press coverage of his recent crackdown on makers of narcotics.  For example, per the Washington Post on July 11, 2017...

The Justice Department and Mallinckrodt Pharmaceuticals reached a $35 million settlement Tuesday to resolve allegations that the company failed to report signs that large quantities of its highly addictive oxycodone pills were diverted to the black market in Florida, where they helped stoke the opioid epidemic.

The agreement is the first with a major manufacturer of the opioids that have sparked a crisis of overdoses and addictions across the country. The Justice Department said the deal establishes 'groundbreaking' new standards that require the company to track its drugs as they flow through the supply chain to consumers in an effort to control the epidemic.

The company had argued that once it passed the drugs to wholesale distributors, it was not responsible for illegal diversion of the painkillers as they were sent to retailers and then pain patients.

'The Department of Justice has the responsibility to ensure that our drug laws are being enforced and to protect the American people,' Attorney General Jeff Sessions said in a statement. 'Part of that mission is holding drug manufacturers accountable for their actions. Mallinckrodt’s actions and omissions formed a link in the chain of supply that resulted in millions of oxycodone pills being sold on the street.'

A Slap on the Wrist with a Wet Noodle

Hold them accountable? With a $35 million dollar settlement? That should really strike fear into the hearts of evil-doers.  After all, this settlement is tiny compared to the magnitude of the behavior.

At one point, the government calculated that it could have assessed the company $2.3 billion in fines for nearly 44,000 violations of the federal Controlled Substances Act, according to confidential government documents obtained by The Post.

And,

Between 2008 and 2012, about 500 million of Mallinckrodt’s pills ended up in Florida, 66 percent of all oxycodone sold in the state, The Post reported.

Nearly 180,000 people died of overdoses of prescription painkillers between 2000 and 2015, and the abuse of pharmaceutical opioids is widely blamed for a crisis that now involves many thousands of overdoses on heroin and fentanyl.

Then, the settlement is tiny compared with the company's revenues.  For example, according to a recent company press release, Mallinckrodt had

Fiscal 2016 net sales of $3.381 billion, up 15.7%, principally driven by volume in Specialty Brands;...

Furthermore, the settlement let the company deny wrongdoing, stating

'While Mallinckrodt disagreed with the U.S. government’s allegations, we chose to resolve the legacy matter in order to eliminate the uncertainty, distraction and expense of litigation and to allow the company to focus on meeting the important needs of its patients and customers,' Michael-Bryant Hicks, the company’s general counsel, said in the release.

In addition, as we have seen in many other legal settlements arranged by US authorities, no individual at the company who oversaw, authorized, directed, or implemented the questionable actions paid any penalty. In fact, top executives at Mallinckrodt continue to make out like proverbial bandits.  Earlier this year the St Louis Post-Dispatch reported:

Mallinckrodt Chief Executive Mark Trudeau's pay jumped 29 percent to $12.6 million as the company rewarded him for a year when profits more than doubled.

Mallinckrodt, a drug company that is legally Irish but has its headquarters in Hazelwood, disclosed details of its executive pay in a proxy statement last week.

Trudeau's pay included a salary of $1.04 million and a bonus of $1.6 million, which was 127 percent of the target amount. He also received $5.9 million in stock and $3.9 million in options, with some of the stock depending on Mallinckrodt's revenue growth and total shareholder return between 2016 and 2018.

An earlier stock award, from 2014, paid out at 200 percent of its targeted amount. That brought Trudeau shares worth $2.5 million at current prices.

Trudeau also received $101,003 in contributions to a supplemental savings plan and $16,535 in tax reimbursement. The tax reimbursement was for executives whose spouses or partners attended a national sales conference.

So Mr Sessions  thought he was holding them accountable?

At least the Washington Post coverage added some dissent,

Joseph T. Rannazzisi, who supervised DEA efforts to control diversion of opioids for a decade before he retired in 2015, said Tuesday that multimillion-dollar fines have not deterred large pharmaceutical corporations accused of failing to report suspicious orders of pain pills to the DEA.

'These fines mean nothing to Fortune 500 companies,' he said. 'Large corporations see these fines as the cost of doing business. Unless there are meaningful sanctions brought against these companies, they will continue to violate the law.'

So the extremetly lenient treatment of Mallinckrodt and its top executives in this case will likely not deter health care corporate leaders from pursuing future bad behavior that is in the their self-interest.  Plus this case provides another example of the impunity of big health care organizations and their top executives. 

Just the Latest Mallinckrodt Settlement

And wait, there is more.  The latest settlement did not seem to be informed by any knowledge of the company's previous transgressions.  Like many other big health care organizations, Mallinckrodt and its predecessors have a long history of bad behavior which at worst has resulted in previous lenient settlements, wrist slaps, and executive impunity.  Consider some examples from this decade alone. 

The 2013 Settlement of Kickbacks to Doctors

As we noted in this post, for a few million dollars, Mallinckrodt settled allegations that it gave kickbacks to physicians to prescribe its antidepressants and sleeping tablets.

The 2015 Questcor Shareholder Suit Alleging Deception

As reported by the St Louis Business Journal,

Mallinckrodt PLC (NYSE:MKN) has announced a preliminary $38 million settlement in a shareholder lawsuit related to Questcor Pharmaceuticals Inc.

The settlement is pending approval by the U.S. District Court for the Central District of California. Mallinckrodt, a Dublin, Ireland, company with its U.S. headquarters in St. Louis, acquired Questcor in 2014 for $5.6 billion.

The settlement would resolve a class action lawsuit brought against Questcor alleging misstatements from former company officers and directors related to H.P Acthar Gel. Acthar, a drug used to treat autoimmune and inflammatory conditions, generated net sales for Questcor of $761.3 million in 2013.

Again, no individual who presided over, authorized, directed or implemented the misstatements suffered any negative consequences.

Note that H. P. Acthar gel, when marketed by Questcor, was one of the earliest examples of a company gaming the system to increase the prices of an old drug to outrageous levels (see our posts here).

The Questcor Anti-Competitive Practices Settlement

Then in early 2017 Mallinckrodt settled a case involving unfair competition, as reported by Reuters,

Mallinckrodt Plc (MNK.N) has agreed to pay $100 million to settle allegations that a subsidiary broke U.S. antitrust law by sharply increasing the price of a multiple sclerosis drug while ensuring that no rival medicine appeared on the market, the Federal Trade Commission said on Wednesday.

Mallinckrodt's share price dropped sharply to just under $43 from above $49 on a report Wednesday, which proved incorrect, that the FTC would sue Mallinckrodt. It spiked above $50 after news of a settlement and closed at $46.53, down 5.8 percent.

In 2001, Questcor bought the rights to Acthar, a type of hormone-based drug used to treat infantile spasms as well as multiple sclerosis. Over time, the company raised the price from $40 per vial to more than $34,000, the FTC said. Questcor was acquired by Mallinckrodt in 2014.

Acthar, which is off patent, represented 34 percent of Mallinckrodt's $3.4 billion in net sales for fiscal 2016, the company said in a government filing.

Per patient, Medicare spent more on Acthar than for any other drug in 2015, putting out $504 million for just 3,104 patients, according to the Medicare Drug Spending Dashboard.

Several U.S. drug makers have been criticized for sharp increases in drugs, notably Turing Pharmaceuticals' Daraprim and Mylan's (MYL.O) EpiPen. The U.S. Centers for Medicare and Medicaid Services reported 11 drugs saw price increases of more than 100 percent in 2015.

'This is an egregious case of a monopolist doing a deal to eliminate potential competition and keep its power over pricing. It is abhorrent that lifesaving drugs cost New Yorkers tens of thousands of dollars,' said Attorney General Eric Schneiderman in a statement.

Again, Mallinckrodt denied all wrongdoing,

'We continue to strongly disagree with allegations outlined in the FTC's complaint, believing that key claims are unsupported and even contradicted by scientific data and market facts,' a company representative said in a statement.

And of course, to repeat, no one at the company who presided over, authorized, directed or implemented the anti-competitive practices suffered any negative consequences.

After that settlement, Sy Mukherjee wrote in Fortune that the

$100 million fine [was] for purposefully maintaining a monopoly on a drug that brought in one third of Mallinckrodt's $3.4 billion net 2016 sales. Although Mallinckrodt will have to sell off its U.S. license for the competing Novartis therapy, it has no obligation to lower Acthar's list price or hit pause on the price hikes since drug makers have carte blanche over their pricing in the U.S.

This highlights a critical moral hazard in the biopharma industry and the system of using fines to punish bad actors. Back when I was the editor of the trade publication BioPharma Dive, I had a fascinating conversation with Patrick Burns, Acting Executive Director and President of Taxpayers Against Fraud, a group that brings forward whistleblower cases under the anti-fraud False Claims Act. Burns argued that fines are ultimately ineffective because in the U.S., we 'privatize the profits and we communitize or communize, if you will, the costs.'

What Burns means is that, ultimately, news of a big fine can cause a short-term (and relatively insignificant) dent in a company's revenue stream and some PR backlash that can drive its stock price down (Mallinckrodt's shed about 7% of its market cap since the settlement). But ultimately, most of the people who suffer from that stock dip are the public and investors, not the executives who chose to engage in the bad behavior in the first place. That helps explain why some drug companies have been repeat offenders on practices like bribery and kickbacks.

Burns presented a much more provocative alternative to the fines system: ban the executives responsible for the fraud or other bad behavior from working in the industry for a number of years, or actually send them to jail.

Of course, that would be hard to do as long as our top political leaders are the best buddies of the multi-millionaires and billionaires who run the big pharmaceutical companies and other huge health care organizations that generate our health care dysfunction.


Summary and Discussion

Mallinkcrodt made settlements of four legal cases since 2010, involving kickbacks to physicians, various deceptions, and anti-competitive behavior.  The settlements never involved severe enough penalties to the company to really affect its bottom line, never required admission of responsibility, or any accountability by top executives whose huge remuneration were doubtlessly based on the revenues brought in by bad behavior.  Yet US Attorney General continued the Kabuki performance by proclaiming he would "hold them accountable."  Sessions just slapped the company on the wrist again, with a wet noodle.

That will show them.

This shows that despite all the hoopla lately about health care reform, our political debate completely misses most of the causes of our health care dysfunction.


There is suddenly a brief lull in the ongoing battle about whether to "repeal and replace Obamacare."  This was cast as a health care reform debate, but really at best "Obamacare" (the Affordable Care Act, or ACA) was a somewhat jury-rigged attempt to increase health insurance coverage without any substantial decrease in the US dependence on large often locally dominant for-profit insurance companies to provide health care insurance.  There was no serious discussion of alternatives, including "single-payer" government health insurance, much less a return to smaller non-profit insurance which might have some local accountability (see this post about Wendell Potter's Deadly Spin for an account of how non-profit insurance executives sold their organizations out to for-profits, greatly personally profiting from the process).

Even more to the point, there was no serious discussion of why US health care is the most expensive in the world, yet provides thoroughly mediocre service and outcomes, and still leaves many patients uninsured (see this LA Times article summarizing the latest Commonwealth Fund  report).

But while so many people are making fortunes from the current system, and are able to use their money to influence the ongoing debate, do not expect much change.  The case above is just one example showing how executives of big health care corporations can make millions while avoiding accountability for their actions.


As I have said until blue in the face,...

We will not make any progress reducing current health care dysfunction if we cannot have an honest conversation about what causes it and who profits from it.  True health care reform requires ending the anechoic effect, exposing the web of conflicts of interest that entangle health care, publicizing who benefits most from the current dysfunction, and how and why.  But it is painfully obvious that the people who have gotten so rich from the current status quo will use every tool at their disposal, paying for them with the money they have extracted from patients and taxpayers, to defend their position.  It will take grit, persistence, and courage to persevere in the cause of better health for patients and the public. 

A "Bag of Money," but Executive Says Don't "Give Me Any of that Ethics Cr*p" - DaVita's Latest Settlement for $400 Million

A striking story of a large recent legal settlement, with reminders of previous related settlements, quietly slipped out in the midst of the ruckus about the Ebola virus.

A $400 Million Settlement

The basics were in a news release by the US Department of Justice.

DaVita Healthcare Partners, Inc., one of the leading providers of dialysis services in the United States, has agreed to pay $350 million to resolve claims that it violated the False Claims Act by paying kickbacks to induce the referral of patients to its dialysis clinics,...

This amount was augmented by 

a Civil Forfeiture in the amount of $39 million based upon conduct related to two specific joint venture transactions entered into in Denver, Colorado.

Also, according to Ed Silverman writing on PharmaLot, it was further augmented thus

DaVita, by the way, has agreed in principle to pay another $11 million to several states that filed false claims charges, according to a document that DaVita filed with the U.S. Securities and Exchange Commission. The DaVita spokesman says the deal involves five states.

So the total cost to the company seems to be about $400 million.   The settlement also  included a corporate integrity agreement,

  DaVita has entered into a Corporate Integrity Agreement with the Office of Counsel to the Inspector General of the Department of Health and Human Services which requires it to unwind some of its business arrangements and restructure others, and includes the appointment of an Independent Monitor to prospectively review DaVita’s arrangements with nephrologists and other health care providers for compliance with the Anti-Kickback Statute.

Kickbacks to Doctors who Refer Dialysis Patients


Here is how the kickbacks worked.

First, using information gathered from numerous sources, DaVita identified physicians or physician groups that had significant patient populations suffering renal disease within a specific geographic area. DaVita would then gather specific information about the physicians or physician group to determine if they would be a 'winning practice.' In one transaction, a physician’s group was considered a “winning practice” because the physicians were 'young and in debt.'  Based on this careful vetting process, DaVita knew and expected that many, if not most, of the physicians’ patients would be referred to the joint venture dialysis clinics.

Next, DaVita would offer the targeted physician or physician group a lucrative opportunity to enter into a joint venture involving DaVita’s acquisition of an interest in dialysis clinics owned by the physicians, and/or DaVita’s sale of an interest in its dialysis clinics to the physicians. To make the transaction financially attractive to potential physician partners, DaVita would manipulate the financial models used to value the transaction.

 So these alleged kickbacks were not envelopes full of unmarked bills, but sophisticated, complex transactions that would be hard for outsiders to understand.

To ensure that those bought stayed bought,

Last, DaVita ensured future patient referrals through a series of secondary agreements with their physician partners. These included paying the physicians to serve as medical directors of the joint venture clinics, and entering into agreements in which the physicians agreed not to compete with the clinic. The non-compete agreements were structured so that they bound all physicians in a practice group, even if some of the physicians were not part of the joint venture arrangements. These agreements also included provisions prohibiting the physician partners from inducing or advising a patient to seek treatment at a competing dialysis clinic. These agreements were of such importance to DaVita that it would not conclude a joint venture transaction without them.

Note that these alleged arrangements ensured the private gains of the physicians involved, and presumably by increasing referrals, ensured the private gains of DaVita, and likely specific managers whose remuneration depended on the fees produced by referrals.  However, the arrangements steered patients to dialysis services not based on what would be best for patients but what would be best for those involved in the arrangements.  Thus these arrangements appeared to fit the Transparency International definition of corruption: "abuse of entrusted power for private gain."  The physicians were entrusted to provide the best possible care of individual patients, yet they put their and the company (and likely the company's managers) financial gain ahead of the patients' care.

No One Admitted Anything or Suffered Any Negative Consequences



Although the company paid a fine and entered into the corporate integrity agreement, apparently no individuals, be they physicians or company managers, paid any sort of penalty.


Like many other settlements we discussed, the company paid out a lot of money but denied it did so because it did anything wrong. Ed Silverman wrote on the PharmaLot blog

In a statement, DaVita says it is 'pleased to announce a civil resolution' and that 'patient care was never an issue, nor were billing or payment practices… We are proud of our commitment to compliance over our 15-year history.'

'We have worked incredibly hard to get things right and it is our belief there was no intentional wrongdoing. We believe this settlement is the right thing to do for our teammates, partners and shareholders. It allows us to move forward with heightened clarity and transparency, both with regulators and our physician partners.'

Why it was good for shareholders and "teammates and partners," presumably meaning employees to pay so much money in the absence of "intentional wrongdoing," when the money would likely come out of stock value and employees' salaries,  was not explained.  Why patient care was "not an issue" when the allegations were that patients were steered to dialysis providers because of financial inducements given to doctors, not due to any consideration of patients' needs and welfare also was not explained.

Furthermore, the whistleblower who triggered the lawsuit suggested there was wrongdoing.  Again, per Ed SIlverman on PharmaLot,

In a July 2009 e-mail cited in the whistleblower lawsuit, which was also filed in federal court in Colorado, one DaVita executive asks for suggestions on how to ensure the financial models used to value transactions pass internal standards. Another executive replies 'You mean gaming the model, right?' To which the first exec writes, 'I do.'

'I think there was a pretty wide understanding that what was going on was questionable at best,' David Barbetta, the former DaVita senior financial analyst, tells us. He says he worked at DaVita from March 2007 until August 2009, when he resigned after being disturbed by several joint venture transactions.

Barbetta, who is now an independent technology consultant, says he mentioned concerns to DaVita managers, but was ignored. 'I did raise this with someone who was a vice president, but he just said not give him any of that ethics nonsense,' he tells us. 'He was a vp and I was an analyst, so I pretty much looked at him and didn’t really push the issue any further.'

Another Denver Post article put it even more vividly,

 One vice president warned Barbetta not to 'give me any of that ethics crap,' court documents state.

And, in internal company e-mails Barbetta provided to the government, top DaVita officials boasted of 'gaming' valuation models. Barbetta also told prosecutors that another DaVita manager once explained to him the deals were used to funnel 'a bag of money' to physicians. Those doctors, in exchange, steered dialysis patients to DaVita.

Why there was no further investigation of these executives, and those to whom they reported, was also not explained.  

Just the Latest Settlement

The few media reports of this settlement suggested that this was not DaVita's first settlement.

The 2000 and 2004 Gambro Inc Settlements

The current DOJ release noted that DaVita

had previously been in a joint venture arrangement involving dialysis clinics with Gambro, Inc., a dialysis company acquired by DaVita in 2005. Prior to the acquisition, Gambro had entered into a settlement with the United States to resolve alleged kickback allegations that, among other things, required Gambro to unwind its joint venture agreements.

Actually, Gambro Inc, which became part of DaVita in 2005, had made two similar settlements.  According to a 2004 Department of Justice news release,

In 2000, Gambro Healthcare and its subsidiary, Gambro Healthcare Laboratory Services, agreed to pay $40 million to settle allegations of healthcare fraud. Gambro and another subsidiary, Dialysis Holdings Laboratory Services, Inc. (DHLSI), have agreed to pay more than $13.1 million to settle similar allegations. 

However, in 2004, a much bigger Gambro settlement was announced,

Gambro Healthcare will pay more than $350 million in criminal fines and civil penalties to settle allegations of healthcare fraud in the Medicare, Medicaid and TRICARE programs,...

Aspects of this settlement were eerily similar to those of the latest DaVita settlement,

As part of this comprehensive global resolution, Gambro Supply Corporation, a sham durable medical equipment company and a wholly owned subsidiary of Gambro Healthcare, admitted to the execution of a healthcare fraud scheme and agreed to plead guilty to criminal felony charges, pay a $25 million fine and be permanently excluded from the Medicare program.

Gambro Healthcare will also pay in excess of $310 million to resolve civil liabilities stemming from alleged kickbacks paid to physicians, false statements made to procure payment for unnecessary tests and services, and payments made to Gambro Supply. The settlement also requires Gambro to allocate an additional $15 million to resolve potential liability for the conduct resolved under the federal agreement pursuant to a preliminary understanding reached with representatives of various state Medicaid programs. Gambro Healthcare has also entered into a comprehensive Corporate Integrity Agreement.

Note that this older settlement actually involved admissions of wrongdoing, fraud, and a guilty plea by a subsidiary to federal felonies.  . 

The 2005 Settlement of Allegations of Illegal Anti Competitive Aspects of DaVita's Gambro Acquisition

DaVita's proposed acquisition of the criminal Gambro also provoked allegations by the US Federal Trade Commission of illegal anti competitive activities. In a 2005 FTC news release,

According to the Commission’s complaint, DaVita’s proposed acquisition of Gambro would be anticompetitive and in violation of Section 5 of the FTC Act and Section 7 of the Clayton Act, as amended. DaVita and Gambro account for a significant proportion of the dialysis clinics and treatment stations in many local areas in the United States, and the acquisition, if consummated, would lessen competition for outpatient dialysis services in 35 markets nationwide.

The 2012 DaVita Epogen Settlement

The 2014 Denver Post article included this offhand reference,

The company settled another whistle-blower lawsuit in 2012 and agreed to pay $55 million for other fraud claims. In that case, a former employee of Epogen-maker Amgen alleged the company overused the anemia drug.

The 2012 Denver Post article to which it referred stated,

Kidney dialysis giant DaVita Inc. has settled a whistleblower lawsuit for the first time, agreeing to pay $55 million over allegations of drug overuse while denying any wrongdoing.

Denver-based DaVita settled fraud claims in a Texas lawsuit challenging the dialysis chain's past use of Epogen, an anemia drug whose high cost and dangers helped change how the government pays for kidney care.

Note that this case suggested actions that could have hurt patients,

 The Texas whistleblower lawsuit accused DaVita of using more Epogen than was medically necessary,...

Epogen is not without serious adverse effects, as noted above, and overdosing multiple patients with it made it likely that some were harmed.

Further, while

DaVita said it was the first time it was settling a claim over federal anti-fraud laws, but noted the government had declined to join the whistleblower' s lawsuit.

Only two years later DaVita had to settle more federal claims, this time due to a suit that the federal government had certainly joined.  And as noted above, a company which DaVita was about to acquire as a subsidiary had admitted to fraud and pleaded guilty to federal charges apparently involving fraud just before the acquisition. 

Finally, just as in 2014, in 2012 DaVita denied responsibility,

'DaVita and its affiliated physicians did nothing wrong and stand by their anemia management practices, which were always consistent with their mission of providing the best possible care for each patient,' a company statement said.

Summary

The latest settlement by DaVita was of allegations that the company gave kickbacks to physicians to get them to refer patients to DaVita facilities, regardless of the patients' best interests.  The company paid about $400 million and signed a corporate integrity agreement, but no individual who authorized, directed, or implemented the provision of kickbacks was identified, or paid any penalties.  This settlement turns out to have been only the latest settlement by DaVita or companies it acquired.  Previous settlements involved penalties of $53 million, $350 million, and $55 million (totaling more than three-quarters of a billion dollars from 2004 to 2014.  Previous settlements were for kickbacks and fraud.  One included a guilty plea to a felony.  Previous settlements involved alleged and sometimes admitted behavior that likely put patients at risk.   One earlier settlement also included a corporate integrity agreement.  However, no settlement imposed any negative consequences on any individual who authorized, directed, or implemented the bad, and sometimes criminal behavior.

The DaVita Statement of Mission and Core Values includes

Integrity
We say what we believe, and we do what we say. We are trusted because we are trustworthy. In our personal, team, and organizational values, we strive for alignment in what we say and do.

and

Accountability
We don’t say, 'It’s not my fault,' or 'It’s not my job.' We take responsibility for meeting our commitments — our personal ones as well as those of the entire organization. We take ownership of the results.

Despite the fact that the above settlements made a mockery of these lofty values, the company managers who presided over the behavior that lead to them prospered mightily during this time period.  The company' 2014 proxy statement showed the current CEO and board chairman Kent J Thiry received $17,099,257 in total compensation in 2013.  The five next best paid executives received collectively about $22 million.  Note that Mr Thiry as been CEO since 1999, and thus all the above settlements and most of the behavior that led to them occurred on his watch.

So the march of legal settlements continues in step with the same old song.  Big health care organizations preach their lofty missions and values, pay their top managers millions, and in some cases turn them into billionaires, while the organizations are accruing amazing records of bad and sometimes criminal corporate behavior.  The legal settlements only provide hints as to this behavior, but nearly every time, the management need not admit nor deny wrongdoing while merrily going on to collect their next huge paycheck which was justified by the corporate financial performance in part generated by the bad behavior.

Leadership that cares not for honesty, transparency, or accountability, and that puts short term revenue, and usually personal enrichment ahead of patients' and the public's health may be the single most important reason that US health care is so dysfunctional.  Yet hardly anyone even dares discuss the damning facts about health care leadership, much less propose solutions.  If we do not reform our health care leadership so that it is transparent, honest, accountable, unconflicted, and it puts patients' and the public's health over personal enrichment, our health care system will continue to founder.  

The Pervasiveness of Health Care Corruption as Shown by Another Roundup of Legal Settlements

Legal settlements are one way to document unethical and even corrupt behavior by large health care organizations, even if they may not deter bad behavior in the future.  It is time for another roundup of settlements by large pharmaceutical and device companies, presented in alphabetical order

Abbott Laboratories

This one goes back to late December, 2013.  As described in the Chattanoogan (from Tennessee):

Abbott Laboratories, a global healthcare company, has agreed to pay $5.475 million to settle alleged violations of the False Claims Act, and other federal laws and regulations in connection with the operation of its medical device business which manufactures, markets and supplies carotid, biliary, and peripheral vascular products.

The US Justice Department accused Abbott of kickbacks to physicians,

 As alleged in the settlement agreement, between 2005 and 2010, through its employees and a third party continuing medical education providers, Abbott offered physicians paid teaching and training assignments, consulting arrangements, speaking engagements, and/or sponsorship grants for physician conferences, for the purpose of inducing physicians to arrange for or recommend that the hospitals with which they were affiliated purchase or order Abbott’s carotid, biliary and peripheral vascular products.

Note in particular that the kickbacks were disguised as payments for consulting or speaking. 

As is usual in such cases, no individual seems to have paid any penalty or been subject to any punishment.  Because this was a legal settlement, the company did not admit wrongdoing.

Abbott's previous issues are discussed here, including a $1.6 billion settlement in 2012. 

Baxter International

This was reported in April, 2014 by Modern Healthcare,

 Baxter International agreed to pay $64 million to settle a class-action lawsuit that alleged the Deerfield, Ill.-based company and some of its competitors colluded to raise prices of plasma-based therapies.

Unlike the other cases above and below, this seemed to be a purely financial misadventure, although one that clearly increased health care costs,

Hospitals and drug distributors, saying they bought the plasma products at inflated prices, sued in 2009 Baxter; Victoria, Australia-based CSL; and the Plasma Protein Therapeutics Association, an Annapolis, Md.-based trade group.

Once more, the company admitted no wrongdoing, and no individuals seemed to be subject to any negative consequences.  

Baxter International's previous misadventures are here, including the striking case of its marketing of contaminated and sometimes deadly heparin made from Chinese pigs. 

Endo Health Solutions

This one is from February, 2014, as reported by Bloomberg

Endo Health Solutions entered a deferred-prosecution agreement and will pay $193 million to settle whistle-blower claims that it marketed the shingles drug Lidoderm for unapproved purposes, the U.S. said.
Endo will pay $20.8 million in forfeitures and $171.9 million in civil false claims settlements with the states and the U.S. government, the Justice Department said today in a statement. 

This one was all about marketing for uses not approved by the US Food an Drug Administration,

Between 2002 and 2006, Endo sales managers instructed some representatives on how to expand 'sales conversations' with doctors beyond the treatment of shingles-related pain, the U.S. said. Under the deferred-prosecution agreement, Endo admitted that it intended Lidoderm to be used for uses not approved by the U.S. Food and Drug Administration, the Justice Department said. 

Note that this case involves false claims, that is, fraud, because it is illegal to bill government programs for unapproved uses.

Again, no individual suffered any consequences, and the company offered the usual kind of statement that admitted neither responsibility nor guilt,

'We are pleased to resolve this matter and are confident that we have robust programs in place to assist us in satisfying our legal and regulatory agreements,' Endo Chief Executive Officer Rajiv De Silva said in a statement.  

One wonders, as usual, why a company would pay so much merely to avoid the legal expenses of a trial, unless of course the lawyers suspected the trail would not go well?

Hospira

This one was about hiding quality problems due to cost-cutting from investors, as reported by Reuters in March, 2014.  

Hospira Inc has agreed to pay $60 million to resolve a class action lawsuit accusing the drug maker of misleading investors about quality control problems that undermined an initiative to improve the company's margins and operations.

The details included,

As Hospira was promising to address issues raised by the U.S. Food and Drug Administration following inspections, the plaintiffs said the company was 'making the problems worse by gutting quality control efforts through cost cutting aimed at boosting short-term profitability.'

The lawsuit said those cost-cutting moves stemmed from a March 2009 initiative called 'Project Fuel' intended to increase shareholder value by eliminating underperforming and duplicative units and reducing its global workforce.

Plaintiffs contended the cuts in the budget and workforce hurt Hospira's quality control efforts, particularly at Rocky Mount, the company's largest facility.

An FDA inspection in January 2010 of the Rocky Mount facility found a number of problems with the company's quality control and drug validation processes, the lawsuit said, and the agency issued a warning letter that April.

Note that this involved quality control problems presumably in drug or device production, possibly leading to safety risks for patients.  Yet it was investors who brought the lawsuit.

Note also that this seemed to be a clear case in which cost-cutting measures meant to improve short-term corporate revenue lead to problems that could have caused such risks.  

One interesting feature of this case was that company executives were named as defendant (presumably again because it was investors, not patients or law-enforcement officials who initiated the suit.)

The lawsuit ... also named executives including Chief Executive Officer Michael Ball as defendants,...

I cannot find any information about whether these executives were personally liable for any payments, however.   

Pfizer

This is yet another settlement involving the marketing of Neurontin, as reported by Bloomberg in April, 2014,

Pfizer Inc the world’s biggest drugmaker, agreed to pay $190 million to end a lawsuit claiming it violated federal antitrust laws by delaying generic versions of its Neurontin epilepsy drug. 

Pfizer agreed to settle the class-action litigation pending in federal court in Newark, New Jersey, according to a filing today. U.S. District Judge Faith Hochberg must approve the accord, which would cover purchasers of Neurontin from December 2002 to August 2008. 

Note that this settlement, like many others, is of matter from a long time ago.  When it comes to bad behavior by big health care corporations, any form of justice is not swift.

Note also that this is only the latest chapter in the long saga of Neurontin, for whose mis-marketing Pfizer has already shelled out a lot of money (see this post to start, and here for the collection).  Pfizer has an amazing record of bad behavior on view here.  In fact, it has had a conviction as a Racketeering Influenced Corrupt Organization (RICO) on the basis of its previous marketing of Neurontin (look here).

This particular bad behavior involved included,

 improperly listing certain patents with the U.S. Food and Drug Administration, engaging in illegal promotion and sales of Neurontin for unapproved uses, filing and maintaining sham litigations with respect to certain patents, and making misrepresentations to the patent courts,

Note that while much of this was legalistic, illegal marketing was in there too.

Once more, I found nothing about any negative consequences for individuals who authorized, directed, or implemented questionable actions.

Summary

So it is all drearily familiar.  Big health care organizations seem to repeatedly engage in deceptive marketing, providing kickbacks to health professionals, fraudulent billing, anti-competitive practices, etc, etc.  These practices increase health care costs, and may risk patients' health and safety.  Many of these practices are corrupt, at least according to the Transparency International definition of corruption, "abuse of entrusted power for private gain."  Drug and device companies, for example, are entrusted to provide safe and effective products.  Deceptive marketing, kickbacks to health professionals to encourage overuse, and cutting quality control to cut costs all seem to be examples of abuse of this entrusted power.  The private gain obviously goes to any managers and executives who score bigger bonuses due to the increases in revenue that result. 

Yet there are very few examples of any individuals who gained ever being subject to any negative consequences.  Given that lack, and the lack of any requirement for corporate leaders to admit responsibility, much less guilt, is it any surprise that these practices go on and on.  The failure of current limp legal efforts against such corruption is evident by how many corporations have become ethical repeat offenders.   (Note that in fact, as noted above, one of the pharmaceutical companies above actually was convicted of being a RICO, racketeering influenced corrupt organization, yet that conviction seemed to have no real negative consequences for the organization or any of the people involved.)

As I have said again and again, pervasive bad behavior by large health care organizations has got to be a major cause of our ongoing health care dysfunction.

So, to really deter bad behavior, those who authorized, directed or implemented bad behavior must be held accountable. As long as they are not, expect the bad behavior to continue.

Turnabout is Fair Play - Why University of Illinois Students, Faculty and Alumni Should Question the Dean of Medicine about Novartis' Ethical Misadventures

Since 2006, we have posted repeatedly about  what was then a new species of severe conflicts of interest.  This occurred when leaders of academic medical institutions or other health care non-profit organizations or non-governmental organizations (NGOs) also serve as members of boards of directors of for-profit corporations  whose products and actions have major effects on health care.

Most recently, we discussed the cases of the current CEO of the National Quality Forum and past CEO of the American Board of Internal Medicine who was found to be on the board of for-profit hospital group purchasing organization Premier Inc, and had been on the board of its privately held but for-profit predecessors.  We also discussed the case of the incoming president of the US Institute of Medicine and former Chancellor of Health Affairs at Duke University who was on the boards of Alnylam Pharmaceuticals, Medtronic and Pepsico.

We also recently posted about the first time these sorts of severe conflicts of interest issue have been addressed in a large circulation medical journal.  A commentary in JAMA called for many such conflicts to be banned.

The JAMA article, and much of the discussion surrounding the NQF and IOM cases focused on how loyalties to outside for-profit corporations could affect leaders of academic and other non-profit organizations.  However, we also noted (e.g., here and here) how company directors should be accountable for the actions of their companies, even if they also happen to also be academic or non-profit leaders. 

Thus, academic and non-profit leaders may find themselves in the awkward position of being held accountable for unethical or even illegal actions of the companies on whose boards they sit.  Such corporate actions may contradict the mission of the institutions whose leadership is their primary job, and whose mission they are supposed to uphold. 

While we were writing about these somewhat convoluted, but very important issues, a fellow blogger discovered yet another academic leader serving on the board of a health care corporation, while simultaneously the media reported multiple examples of that corporation's ethical misadventures on his watch.  Those who care about that academic institution ought to question whether a leader accountable for such misadventures is fit to continue to lead.  Yet so far, no one has publicly juxtaposed this leaders' responsibilities to his institution's mission and how the corporation over which he is supposed to exercise stewardship has been taking actions that contradict that mission

The Dean of the College of Medicine at the University of Illinois Is a Director of Novartis

Paul Levy, blogging on Not Running a Hospital, noted a print advertisement for the Intuitive Surgical daVinci robot.  The advertisement implied endorsements by academic surgeons at the University of Illinois.  Levy suggested that surgical faculty acting as salespeople for a device company appeared to violate the university code of conduct.  This concern was heightened by the status of several of the surgeons in the advertisement as clinical and academic leaders.    

Mr Levy then discovered that the Dr Dimitri Azar, Dean of the University of Illinois College of Medicine, to whom these surgeon report, was on the board of Novartis, the multinational pharmaceutical and device company.  Dr Azar's position is easily verified by consulting the Novartis web-site.  Mr Levy further discussed the case here and here.  Then he  reviewed  the extensive dealings between the University of Illinois and Novartis and its subsidiaries, raising suspicion that the Dean's known involvement with the company may have lead to its favorable treatment by the university.

But wait, there is another major dimension to this problem. 

Novartis' Recent Ethical Misadventures

Novartis, over which Dr Azar is supposed to be exerting stewardship, has made a series of ethical missteps according to recent media reports.  I will summarize them in chronological order according to the date of media publication.

Novartis, Roche Fined for Anti-Competitive and Deceptive Practices in Italy to Encourage Sales of Lucentis

According to a March 5, 2014 article in the New York Times, Novartis was fined for anti-competitive and deceptive practices, 

Italian antitrust authorities said on Wednesday that they had fined two Swiss pharmaceutical companies, Novartis and Roche Holdings, a total of $250 million for colluding to keep doctors from prescribing a relatively inexpensive eye treatment in favor of a more expensive drug.

The authorities said the two companies had sought to steer doctors away from Avastin, an anticancer drug developed by Genentech that has been used for years as an off-label treatment for common eye problems. Instead, they said, the companies had tried to 'channel demand toward the much more expensive drug Lucentis, through an artificial distinction between the two products,' essentially by overstating the dangers of Avastin use.

It is not the first time such substitution efforts have brought an unwanted spotlight: Genentech got into trouble in the United States in 2010, when it was found to be offering doctors secret rebates to prescribe Lucentis over Avastin.

Novartis, which holds the rights to market the two drugs outside the United States, has been fined 92 million euros by the Italian regulators. And Roche, which acquired Genentech in 2009, was fined 90.5 million euros, for a total of about $250 million in the Italian case. 

Given that many drug companies have been cited for marketing their products for unapproved, or off-label uses, it is ironic that in this case, Novartis managers said they were shocked, shocked by the ruling because it could encourage off-label use:

 Novartis said in a statement that the Italian decision 'openly encourages and promotes the widespread unlicensed intravitreal use of Avastin contrary to the requirements of European and Italian regulatory law,' and 'undermines the European regulatory framework designed to protect patient safety.'

The NY Times also reported that one method the two companies were alleged to use to encourage Lucentis rather than Avastin use was to launder their message through patient advocacy groups,

The Italian authorities discovered numerous messages between Roche and Novartis in which the two companies discussed what kinds of communications would be needed to induce doctors and hospitals to adopt the more expensive product.

According to one such message from early 2013, cited in documents in the case released Wednesday, growing cost pressure in Italy and France to use Avastin had 'reinforced the political dimension of the debate,' and 'further reinforcement of the Lucentis value proposition to all stakeholders is critical.'

Another message called for the companies to 'work with diabetes patient groups to increase voiced concerns about safety risks of unlicensed therapies' — a reference to Avastin — for an eye condition known as diabetic macular edema.

Novartis Paid Doctors to Act as Marketers for Starlix and Other Drug

After the New York state attorney general filed suit against Novartis, a March 15, 2014 Newsday article included interviews with physicians that suggested how the company turned them into disguised marketers:

Dr. Howard Brand says he had one goal when he gave a speech at a Miami hotel in the early 2000s -- to tout the diabetes pill Starlix for the pharmaceutical company Novartis. 

The giant Swiss drugmaker, which reported $57.9 billion in global sales in 2013, paid the Stony Brook endocrinologist $1,500 for his talk at a doctors' meeting, Brand said in an interview. Novartis also paid for Brand's airfare and his weekend hotel stay, he said.

'It was self-serving, but I also thought it was a benefit to patients,' said Brand,...

Furthermore,

 Brand, the Miami speaker, said in an interview that investigators had not approached him about the payments he accepted.

He said Novartis paid him a total of $10,000 to $12,000 for speeches, mostly at restaurant dinners it sponsored. The payments, which Brand said he received before 2010, are not reflected on the Novartis website.
'
Even [with] the notion that we were paid solicitors, I think people really paid attention,' he said. 'Of course, a lot of doctors just enjoyed going to dinner.'

Brand said he accepted more than $60,000 in speaker's fees from drugmakers, including Novartis, in one two-year period.

Another physician allowed that Novartis furnished the material for his "educational" talks,

Dr. Howard Hertz, a Babylon internist, confirmed that he had received $4,000 from Novartis in 2010 and 2011 for talking about its hypertension drugs to colleagues. Hertz said he dealt with a Novartis sales rep who brought information about the company's pills to his office. 'He would educate me about the product, give me slides to study,' he said.

Hertz said the slides were on CDs and made him an expert on Novartis drugs such as Diovan, a blood pressure pill, Lotrel and Valturna. He said he spoke mostly about Diovan and Lotrel.

'We had dinners whereby I would speak about the products and speak to the colleagues,' Hertz said. 'I became somewhat of an expert in these products.'

Note that Dr Hertz's expertise seemed to come exclusively from information provided by a company salesperson, making it obvious that he was not hired for his prior expertise as a physician.

The prosecutors allege that Novartis' payments of some $65 million amounted to illegal kickbacks.  This is only an allegation.  However, it seems obvious that Novartis paid physicians to act as salespeople.  Newsday asked bioethicist Arthur Caplan about these actions,

'To even hear about it just takes my breath away,' Caplan said. 'It sounds like egregious, inexcusable violations of agreed upon legal and ethical standards . . . with an inexcusably complicit group of physicians,' Caplan said.

Japanese Hospital Investigation Alleged Novartis Manipulated Research

A March 17, 2014 article in FiercePharma stated that Japanese investigators found that Novartis had manipulated clinical research to make its results appear more favorable to the company's products,

Novartis employees were more involved in a Japanese drug study than previously suspected, a Tokyo hospital official said. In an investigative report released last week, the University of Tokyo Hospital said doctors not only let Novartis  employees collect patient data from various trial sites but also allowed the Swiss drugmaker into its records on all 255 trial participants, Japanese media reports.

Plus, at least one Novartis employee was involved in planning the trial, designed to compare side effects of multiple leukemia treatments, the hospital found, according to Japan's Mainichi news. Those treatments included Tasigna, the company's follow-up to the hugely successful Gleevec (imatinib).

In fact, according to NHK World, hospital director Takashi Kadowaki said Friday that Novartis employees were 'virtually managing the study.' 

According to Mainichi, this sort of clinical research manipulation is taken very seriously in Japan,

 Senior Ministry of Health, Labor and Welfare officials called the case a serious situation and said the researchers involved showed a lack of ethics. They called for a detailed investigative report from the hospital and are considering punitive measures. The ministry will consider a new law to prevent corruption in clinical tests in the wake of a scandal involving the clinical trial of antihypertensive drug Valsartan.

It is obvious this story is not from the US, because the drug company has already apologized,

 A representative for Novartis Pharma's PR division said, 'We want to apologize to patients and doctors. We must refrain from comment on the investigation, which is being handled outside our company.'

Indian Regulator Cancels Import License Alleging Fraud by Novartis to Market Veterinary Drug

A March 18, 2014 article in the New Delhi Business Standard told how Indian regulators accused Novartis of fraud, opening with,

Swiss drug maker Novaris is likely to face legal action for allegedly faking documents to seek registration of its veterinary product Tiamulin Hydrogen Fumarate (80 per cent granules) in India. The drug regulator, Drugs Controller General of India (DCGI)), has already cancelled the company’s import licences as well as existing registration certificate for the product.

Summary

So in just the last few weeks, evidence appeared that Novartis engaged in collusive anti-competitive and deceptive practices marketing drugs in Italy, paid physicians to act as marketers in the US, manipulated drug studies in Japan, and lost an import license in India due to alleged fraud.  By the way, in 2013, Novartis was fined for anti-competitive practices in its marketing of Fentanyl by the European Commission (look here), and in 2011 its Sandoz subsidiary settled allegations of misreporting prices in the US for $150 million (look here)   Other Novartis misadventures from 2010 and earlier appear here.  So Novartis has quite an impressive, if not infamous record of ethical failures.

While he is Dean of medicine at the University of Illinois, Dr Dimitri Azar is also a director of Novartis, and hence has a fiduciary duty for the company's stewarship.  While questioning Dr Azar's role in the participation of his faculty in advertising for Intuitive Surgical, perhaps those who care about the reputation of the University of Illinois and its ability to fulfill its mission ought to ask how the poor ethical track record of the company Dr Azar is supposed to be overseeing reflects on his ability to defend the mission of the university and the medical school.

While parties that enable or enter into arrangements that create conflicts of interest in health care may be thinking mainly of the advantages that they may accrue, many of these arrangements create accountability and obligations, even if they are honored mainly in the breach.  If leaders of academic medicine and health care non-profit organizations insist on becoming directors, and hence stewards of for-profit health care corporations, they ought to be held accountable for the actions of these corporations, and how these actions reflect on their primary obligations to the academic and non-profit organizations they have also pledged to serve.

True health care reform would make health care leaders accountable for putting patients' and the public's health ahead of their own self-interest.

Who Knew? ... Judge Finds that Hospital Takeover of Medical Practices Raised Prices

A story that caused only a few ripples in the media in late January, 2014, corroborates concerns about the increasing concentration of power in health care, and suggests new skepticism about the continuing transition of physicians from independent professionals to corporate employees.

The Judge Quashes a Hospital System's Acquisition of Physicians' Practices

The original story was carried, albeit briefly, in some national business news sources, e.g., the Wall Street Journal and Bloomberg news.   In summary, according to the WSJ,

A federal judge ruled Friday that an Idaho hospital system must unwind its acquisition of the state's largest independent doctor group, a decision that could have significant implications as health-care providers nationwide increasingly seek to join forces.

In particular,

 At issue was St. Luke's Health System's 2012 deal for the 40-doctor Saltzer Medical Group. The FTC argued the merger would reduce competition among primary-care physicians and give St. Luke's extra muscle to extract higher payments from health plans, which, in turn, could raise insurance prices for consumers.

The Judge seemed to agree,

U.S. District Judge B. Lynn Winmill ruled the deal anticompetitive, but offered comments that reflected current tensions in the debate over industry consolidation.

Judge Winmill said he was 'convinced' the deal would have improved the delivery of health care in the region. But he ruled that 'there are other ways to achieve the same effect that do not run afoul of the antitrust laws and do not run such a risk of increased costs.'

The judge said he would order St. Luke's to fully divest Saltzer's physicians and assets. The court made only a summary of the ruling public, sealing the full decision temporarily so confidential business information can be redacted. 

Furthermore, the Bloomberg coverage raised a related issue,

David Balto, an antitrust lawyer in Washington who has represented consumer groups, said the ruling could be read as conflicting with the Obama administration’s health care overhaul, which advocates reducing fragmentation of medical care to improve quality.
'
This is going to raise really difficult questions about the kind of integration that’s envisioned by the Affordable Care Act,' he said.

Winmill didn’t specify alternate means of improving patient outcomes and released only a summary of his ruling pending redaction of proprietary information in the full opinion.

Note several aspects to this coverage.  It implied that the deal was done solely for high-minded purposes, improving "health care delivery," and in response to the need for "integration" arising from the health care reform produced by the Affordable Care Act; that health care reform might be in jeopardy from this ruling in the absence of the judge's new prescription for "improving patient outcomes"; and that details of the ruling and the justification for it were kept secret as "confidential business information." 

So this initial coverage was difficult to interpret, raising more questions than it answered.  If the practice acquisition was made with such lofty goals, why couldn't it be legally saved?  How could health care reform possibly continue without Judge Winmill saying what should be done?  That last question was sarcastic, maybe the real question is why did anyone think it was the judge's job to explain how to improve health outcomes?  Finally, why was so much of the ruling and the details underlying it kept secret.

In a few days, local journalists came up with a better idea of what was really going on.

It Was All About the Money

The same day that the Wall Street Journal and Bloomberg covered the case, the Idaho Statesman reported more details about the judge's ruling that seem to suggest different interpretations,

Winmill said in his ruling that while it may not have been the goal of the acquisition, it 'appears highly likely that health care costs will rise as the combined entity obtains a dominant market position that will enable it to (1) negotiate higher reimbursement rates from health insurance plans that will be passed on to the consumer, and (2) raise rates for ancillary services (like x-rays) to the higher hospital-billing rates.'

Then only a week later, the Statesman covered the unveiling of some previously hidden portions of the ruling, first giving the background,

As St. Luke’s Health System aggressively added hospitals and doctors over the past several years, it commanded more money from Idaho’s largest insurer, and it planned to raise prices in order to give a newly acquired group of doctors a 30 percent raise, according to newly released court documents.

Unsealed Tuesday, the documents explain why U.S. District Judge B. Lynn Winmill last week ordered St. Luke’s to nullify its year-old merger with Nampa’s Saltzer Medical Group.

Lawyers for St. Luke’s and Blue Cross of Idaho asked the judge not to reveal some facts in the documents, arguing that they contained trade secrets. But Winmill denied the requests.

'The facts and figures sought to be redacted are crucial to the court’s analysis, and their removal would render the decision indecipherable,' Winmill said.

Then it got to the nitty gritty,

 Winmill said in his decision Tuesday to make his ruling public that when the trial started, he thought there were compelling reasons to keep parts of it veiled. But as it went on, those reasons seemed less compelling, he said.

Read more here: http://www.idahostatesman.com/2014/01/29/2997245/details-unveiled-in-st-lukes-case.html#storylink=cpy

Winmill immediately opened his entire decision.
 
St. Luke’s told Winmill that he should keep statements such as the following out of his public ruling:

• 'By 2012, St. Luke’s had three of the top five highest-paid hospitals, and its top hospital was receiving reimbursements 21 percent higher than the average Idaho hospital'
• 'After the acquisition, if St. Luke’s were to bill for (routine services such as lab tests or X-rays) at the higher ‘hospital-based’ rates, (Blue Cross of Idaho) estimates that costs ... would increase by 30 to 35 percent.'
• 'St. Luke’s own analysis projected that it could gain an extra $750,000 through hospital-based billing from Saltzer from commercial payers for lab work and $900,000 extra for diagnostic imaging.'
• 'Consultant Peter LaFleur prepared an analysis at the direction of St. Luke’s showing how office/outpatient visits could be billed for higher amounts if the visit was hospital-based rather than Saltzer-based. The hospital-based billings were more than 60 percent higher.'

Read more here: http://www.idahostatesman.com/2014/01/29/2997245/details-unveiled-in-st-lukes-case.html#storylink=cpy

Read more here: http://www.idahostatesman.com/2014/01/29/2997245/details-unveiled-in-st-lukes-case.html#storylink=cpy

Read more here: http://www.idahostatesman.com/2014/01/24/2989492/federal-judge-says-st-lukes-buyout.html#storylink=cpy

 Although it certainly makes sense that the hospital system would want to know what the financial implications of buying the physicians' practices might be, the implication certainly seems to be that making a lot more money faster, in addition to any hopes for better patient outcomes, might be a goal of the merger.


Trying to Keep Facts that Might Embarrass the Leaders out of Public View

It is hard to understand why the hospital leadership was so fixated on keeping such information private if it were not to forestall any impression that this was all about the money.  As the Statesman reported,

Much of the four-week trial happened behind closed doors, and many documents were sealed or heavily redacted. Lawyers for the hospitals — and for insurance companies and local employers — marked those parts of the trial private because they said they needed to protect trade secrets.

St. Luke’s spokesman Ken Dey said some underlying data from Blue Cross of Idaho on which Winmill based his decision was sealed, and St. Luke’s lawyers could not access it. St. Luke’s is concerned that data might have led to some 'misleading conclusions,' he said.

The Statesman and several other Idaho news outlets filed a lawsuit to pry open the court proceedings, and that lawsuit is now before the U.S. Ninth Circuit Court of Appeals.

It is obviously a matter of opinion whether revealing more information might have lead to misleading, or to accurate conclusions.  Note that local journalists were driven to file their own lawsuits just to gain access to records from a trial held in a government run court, and that many of those records are still secret.  

It will be interesting to see the results of these further proceedings, but it seems much more likely that the hospital system leaders tried so hard to keep everything secret to protect their own images as only caring about "patient outcomes," not money.  If these were trade secrets, given that the hospital system seems to have become dominant in the market, from what competitors were they hiding? 

Read more here: http://www.idahostatesman.com/2014/01/29/2997245/details-unveiled-in-st-lukes-case.html#storylink=cpy

Summary - Even More Reasons to be Concerned about Corporations Hiring Physicians to Take Care of Patients

This case suggests some interesting conclusions which we hope are not misleading.

Nationally or globally important health care issues are often still not well covered by national news media, much less the medical and health care literature.  Local journalists may doe a much better job, but local journalism is increasingly threatened.

One reason important cases may be anechoic is that people involved with them fear public discussion of what may prove to be embarrassing, uncomfortable or worse to them.  When those people are rich and locally influential, the likelihood of the anechoic effect swallowing discussion increases.

More specifically, we should be extremely skeptical of attempts at health care reform that add more bureaucracy to try to counter the effects of existing bureaucracy.  The main way current health care reform legislation seemed to address  the high costs and poor quality that we on Health Care Renewal contend may be due to concentration and abuse of power in health care is to further concentrate power without providing safeguards to prevent abuse.

Finally, while this case was about whether hospitals (and other large organizations) hiring physicians to provide medical care may command higher prices, the real concern is whether physicians who now have to answer to corporate executives and organizational bureaucrats, that is who have become corporate physicians,  may have to put their organizations' and their leaders' needs and wants ahead of their patients' and the public's health.

True health care reform would be informed by the core value that physicians are supposed to endorse: the individual patient comes first.  Health care should not be mainly about increasing corporate revenues, or pleasing corporate executives or government bureaucrats.  However, big organizations and the in-group who personally profit from their operations want to keep such concerns anechoic.

Instead, we all should start by appreciating the words of Judge Winmill and the information he has provided us.

Roy M. Poses MD on Health Care Renewal